Opportunity Costs

Skiing in winter is a pleasure that has become more elitist. The downhill skiing has always been an expensive sport, but affordable school holidays gave the sport a more accessible touch. The cheaper version of long distance skiing or skating on larger trails involves much more endurance. The report of the French Cour des Comptes in 2024 questions the sense of the huge investment that is still devoted to save the pleasure of the few. Instead of investment to the benefit of the many this investment could put the money to a more sustainable, socially and ecological productive purpose. Installations could be used all year round rather than in the few weeks at best months with snow. It is remarkable that the court has highlighted this kind opportunity costs of such installations. Instead of investing in soon to be obsolete infrastructure at lower altitudes like water reservoirs and water canons, this money could already start the eventually necessary transition process. Each € spend is not only lost for the transition but might create additional environmental liabilities and damage. From economists it is to be expected that they mention competition in their arguments. Not all stations os skiing will survive. Put more dramatically, in the process of closing skiing at lower and middle level altitude, competition intensifies of who can survive. Public funds should not be misused in this endeavor. Lobbying is strong and political incumbents tend to favor the merit and legacy of digging for the white gold. Change of mind sets, investment narratives and decisions is tough. From much downhill skiing we might soon remember only the downward slope before the healthy aspects of climbing a slope takes the upper hand.

Cancer Inequality

Inequality is a hugely important topic for societies. Inequality has many different dimensions and differential longitudinal patterns. New data in this field of social research are helpful to inform on possible ways to prevent increasing inequality. At the same time, it is important to reflect on factors that may reduce inequality in and between societies. Inequality in health is both an outcome of inequality experienced during previous stages of the life course as well as a factor in causing inequality in the evolution of the life course later on. Disentangling the factors is a difficult research issue.
A first descriptive pattern across Europe allows to get a snapshot impression of the status quo as a first indication of what health inequality looks like. Cancer is a major cause of mortality across Europe and by 2045 it is estimated to be the leading cause of mortality.
Without precisely analyzing the causal factors the overview across European countries allows to give a first impression on fields that need more policy attention and more in depth studies. The European Cancer Inequalities Registry and the ECIR Data Tool is based on data from 2019  (Link). The overview matrix by employment status reveals the highest prevalence of smoking among the unemployed (followed by the employed, not shown in figure) and the frequency of alcohol consumption is highest among the employed. Low physical activity is mostly prevalent among the retired.  This has consequences for cancer and gives hints to how an intensified prevention may work.
The OECD report (Link) based on these data and additional country case studies and policy data base reiterates the known prevention recommendations: Reduce smoking, alcohol consumption, air pollution as well as more physical activity. The dimensions of inequality are gender, age, employment status and most of years spent in education. The curing of cancer also suffers from inequities as to the amount of and access to screening of cancer. Cost coverage and shortages in medical personnel add to multiple sources of inequality in treatment of cancer within countries by regions and between nation states. The Lancet Public Health editorial contributes to the spread of the awareness among scientists and the medical profession.
(Image: ECIR data tool download 2024-2-22)

Gas Reduction

Gas consumption in the EU has been reduced by about 20% since the beginning of Russia’s war on Ukraine. This is a considerable accomplishment and has been sustained for 2 years now. The major element in this has been the reduction of gas consumption in industry, but also households have successfully managed to reduce heating of rooms and water with gas.
Diversification of provision with sizable increases in the provision by the U.S.A is another element in the beginning of a trajectory of gas reduction in Europe. Germany as a major consumer of this type of energy supply is also making strides in shifting consumption. This is my short summary of the report by IEEFA.org in 2024-1. All electric devices like heat pumps could speed up the gas reduction further according to the policy recommendation by IEEFA in 2024-2 reducing costs of living and CO2 emissions further.
Data from Eurostat allow to compare monthly data across Member States. The overall trend is a market decrease with differential patterns of refilling supply capacities. Big countries in the EU made and continue to make a real difference compared to previous years (see table below). The comparison of December and January figures across years reflect the months with high sensitivity of the public for heat and cold. Further reductions of gas consumption is feasible due to the mild winter months of 23/24 which allow to reduce heating costs for many households and offices. Good news for the planet and hopefully a move in the right direction to shift away from heating with gas.

Processed food

We eat a lot of pre-processed food. Our busy work schedules allow us to take only short breaks for meals in order to get more work done while in office or at work in general. The intensification of work has reached the next level and we move from pre-processed food to ultra-processed foods (UPFs). In medical journals and nutrition recommendations the warnings to not eat too much ultra-processed foods are abundant. The signs of obesity in societies reach higher levels from year to year. Especially younger people seem to be at higher risks to consume a lot of ultra-processed foods. Freisling et al. highlight the “risk of multimorbidity of cancer and cardiometabolic diseases” due to UPFs. The discussion between scientists is a lot on which UPFs are most harmful (beyond animal origin or and artificially sweetened beverages) and/or whether it is the combination of UPFs that additionally increases the danger of UPFs. Preventing the “too much of each” is probably the safest recommendation. Being able to read the nutrition information on the labels is already a difficult task. Just making the information abundant and very small print discourages most efforts to compare across products. Learning about basic human needs like food has never been more difficult. Combined with “shrinkflation” we have a hard time to make informed choices of what to buy and eat. There are many hurdles to overcome for a healthy meal.

Wage indexation

Currently inflation increases rapidly in many countries. Yes, Argentine. The Euro-zone and EEA have mastered the peak of inflation due to shifting away from Russian dependency and cheap prices for energy and dealt with carry-on effects related to high energy inputs. The annual rate of inflation calculated for January 2024 has returned in the Euro-area to 2.8 % close to the European Central Bank target of 2% (compare figure below).  Inflation puts wages under pressure, because household with little savings have a very hard time to cope with sudden price increases. For society as a whole, inflation raises many questions of differential impact of inflation on different parts of society. Savings become devalued, but debt might become easier to be repaid in so-called real terms.
Wage earners suffer in terms of lower purchasing power unless in subsequent wage negotiations pay rises can be achieved. This then depends of negotiation power of groups or sectors of the economy. Trade unions have to enter into tough negotiations and conflicts to even regain the same status quo previously achieved in wage negotiations. A series of conflicts and economic readjustments by more or less powerful sectors or representation comes into play.
All this is happening in a year of a series of national and regional elections as well as the European Parliament election in June. Political turbulance and the rise of extremists might be a result of a lack of taking into account the needs of lower wage groups who are likely to feel the full blast of the high inflation previously still today. Wage indexation as in Belgium, which fixes wages to the rise in inflation previously takes out most of the explosive power of a sudden rise in inflation at the risk of an upward wage-price spiral. The recent inflation figures for Belgium, however, show that this is not the case. An overshooting has been followed by an undershooting of the Euro-zone inflation. The political disturbance and risk of redistribution to more powerful groups in society can be limited through general wage indexation or indexation of for example just minimum wages.
The Russian caused spike in inflation has been successfully mastered in the EU. The political economy of redistribution through inflation will remain an important element unless wage indexation is used in more countries to escape populists’ and extremists’ voices. (Image Eurostat data and ESTATEC app)

Spring has Sprung

In Europe it is expected that spring follows winter. The closer you move to the equator the more you find days equally long in winter and summer. In Northern Europe we have marked differences in terms of light between winter and summer. In January and February 2024 we had a very mild winter. As of 15th of February we had 15° C in Brussels and the first few blossoms showing up. Climate change is undeniable and the call for action to intervene urgently become louder and louder. Why is it so difficult to take action? Well, there are many vested interests and countries that hope to benefit from climate change. In simple economic theory this is not a problem as long as those who gain from climate change would compensate those who lose from it. However, if the total sum of losses is so much bigger than the sum a few will gain, the global balance sheet will deteriorate rapidly.
Monitoring climate change and the shifts in national and global wealth are part of the scientific endeavour. Rising inequalities on a national as well as global scale will create numerous new challenges which are difficult to forecast due to complex feedback and reinforcement loops. It would be wise to apply the precaution principle in this respect as well, but this seems to be hardly understood, let alone, to be followed.
Sometimes it needs a cold winter, unusual flooding or a bad harvest to acknowledge to value and apply the precautionary principle in the following years. Only, this time it might be fundamentally different, because climate change is irreversible for generations to come. Early blossoms in winter as precursor of spring are nice, but we have mixed feelings considering the impact on irreversible climate change. (Image Brussels 2024-2-15)

AI and Behavior

We start to analyze the impact of AI on our behavior. It is an important question to be aware of not only how we interact with AI (Link), but also what effect the use of AI (disclosed or not) will have on our social behavior. Knowing that AI is used might change our willingness to cooperate or increase or decrease pro-social behavior. The use of AI in form of an algorithm to select job candidates might introduce a specific bias, but it can equally be constructed to favour certain criteria in the selection of candidates. The choice of criteria becomes more important in this process and the process of choosing those criteria.
Next comes the question whether the announcement includes as information that AI will be used in the selection process. This can be interpreted by some that a “more objective” procedure might be applied, whereas other persons interpret this signal as bad sign of an anonymous process and lack of compassion prevalent in the organization focused mostly on efficiency of procedures.  Fabian Dvorak, Regina Stumpf et al. (2024) demonstrate with experimental evidence from various forms of games (prisoner’s dilemma, binary trust game, ultimatum game) that a a whole range of outcomes is negatively affected (trust, cooperation, coordination and fairness). This has serious consequences for society. The social fabric might worsen if AI is widely applied. Even or particularly the undisclosed use of AI already shows up as a lack of trust in the majority of persons in these experiments.
In sum, we are likely to change our behavior if we suspect AI is involved the selection process or content creation. This should be a serious warning to all sorts of content producing media, science, public and private organizations. It feels a bit like with  microplastic or PFAS. At the beginning we did not take it seriously and then before long AI is likely to be everywhere without us knowing or aware of the use. (Image taken on Frankfurt book fair 2017-10!)

Publishing2024

With new channels of publishing online the publishing world continues to change. Scientific research  moves also online and the reach of audiences has become a much more important factor in evaluation of success. Elite circles of in-groups publishing and quoting each other have a harder time to survive. It is a form of democratising the world of research which is by very large amounts financed by public budgets. Public radio and television now start to feel the heat as so-called influencers, some working independently, challenge the world of traditional journalism. The good news is that there are many more people active to produce news and entertainment and the two separate worlds become more and more integrated. Young people who have left the “official” media world, engage with their own peer groups and make their voices heard and more influential.  The quality of the provision of information is, however, a matter of concern. Audiences will have to check even more carefully than before which sources can be trusted. This is not an easy task. Speed of spreading information becomes an additional factor. It has always been like that, but the rhythm of a daily or weekly newspaper was very different from the publishing and consumption of news and information today.
The second factor that has drastically changed is the influence of “external” influences and information as well as disinformation campaigns that have an impact on “internal” reporting and commenting. What used to be the world of professional journalists has become an accessible possibility for many more than journalists. Publishing has become a very different world from the printing days and yet printing remains one important channel of publishing. (Link to own edited volumes of blog post for printing here).
Previously, we prepared the manuscript in paper, nowadays this seems to move online and the edited and sometimes corrected versions will be published in print later on. The challenge to science and journalism is ticking. Not accepting that there is a serious challenge is no solution either. (Image from Exposition “Books that made Europe”, 2016)

Greedflation

The teaching of economics and socioeconomic policies has to deal with the topics around inflation and economic inequality for centuries. Greedflation has become a newly coined term for the rise of inflation due to greedy firms who use a window of opportunity to achieve extra profit margins or windfall profits. At a time of perceived price rises in many sectors, sectors that have no cost increases might still try to push prices higher simply because almost everybody else does so. Higher profits then show up in the reporting season of enterprises quoted at the stock exchange and the increase in inequality between wage earners and shareholders will rise. Greedflation is a summary term for it. The ECB European Central Bank has mentioned this and Reuters has reported on it as well end of June 2023. Since then a wait and see strategy has been adopted. Now in February 2024 we witness the wider spread of extraordinary profits of big firms not only in the fossil energy sector but also bog banks. The economies and societies suffer huge losses and a massive redistribution of capital. Subsidies introduced to lower the shock of the coronavirus crisis and the Russian aggression are unpopular to be scaled back. Employees and their trade unions have a hard time negotiating adequate wage increases whereas most companies use the momentum of seemingly general price rises to push profit margins. The translation of this mechanism to the political economy risks to jeopardize the support for capitalism and market forces in general. Another wave of increasing inequality endangers the survival of democratic societies. Countries with only a short experience of the functioning of market economies are at a particular risk. Germany’s decline into dictatorship in the 1930s after the severe economic crisis should be remembered as a major threat. Greedflation is a very serious and very real threat which we have to address with economic and social policies rather than waiting until the European elections have passed. Time to act, the thinking has been done. Evidence accumulates to make the political case.

Adolf von Menzel, The Petition, Alte Nationalgalerie Berlin

Forced Labor 2024

Thanks to the ILO we have recent data on forced labor across the globe. At the time when the EU struggles to tighten the rules on decent supply chains, it is important to draw attention to the already reversed trend that worldwide forced labor is on the rise again. According to latest report by the ILO 27.6 million women, men and children were in forced labor at any day of the year 2021. This is even about 10% more than 5 years before in 2016. The fact sheet from ILO highlights the region that are practicing it the most but mentions at the same time that no region in the world has completely wiped out this criminal activity. Despite the SDGs containing a goal to eradicate forced labor by 2025 for children there is little hope that this will be reached. Controlling supply chains of the rich countries could be an important factor in identifying the states or companies which built their production model on forced labor. The fight against this practice is an enduring challenge. We cannot allow to shun away from the thorny issue. The price for labor is only one argument in the reasons for the persistence of forced labor, migration is also a force at work. This asks for specific solutions to country-specific or sector-specific problems. It is a global responsibility but needs partnerships across continents to reach better outcomes in the interests of humanity. Some countries like Germany have a historical debt to invest more than others.

ILO recommendations 2024-1

Skill loss

There is a sense of skill loss in watching the trends to increase comfort. We all use washing machines and maybe dishwashers. Households can save a lot of time by using those machines. Some porcelain and clothes should not be left to the machines. The need to organize traditional washing routines is almost forgotten after 1-2 generations. The same holds for many technical skills. Bicycle and car repairs or small repairs of electrical appliances are delegated to specialized repair shops. Not using or having learned these skills puts you in a form of dependency and at the risk to pay a price for specializing on other skills. Find out and focus on what you are best at. This has been the mantra of economic theory since Adam Smith. The potential value of satisfaction with an own production rather than a bought product is frequently acknowledged for baking cakes yourself rather than simply buying one in a shop. The same rationale holds for many other skills. Autonomy of own production with possibility to improve or repair are forgotten values. The have become a luxury item or a necessity for persons lacking financial spending power to buy products from others. Many skills will be lost rapidly because products have become so cheap to replace or order for home delivery. Industrial production is desperately searching for skilled persons but losing skills is pervasive at the same time. Public schools and academic curricula will not be able to stand the tide of pervasive skill loss.

Postmodernism

The grand narratives of the modern world, like modernism itself, are under serious criticism. Deconstruction of the modern way of thinking has become philosophical mainstream. Economics as a science is in the middle of the behavioural shift and changing or at least complementing its narratives. Sociology has embraced postmodern thinking in theoretical as well as empirical forms (Mirchandani, 2005). The empirical measurement focuses a lot on the groups and people who hold postmodern beliefs and values. The discussion in the social and literary sciences continue. In the arts reading on modernism and postmodernism is a must in order to understand much of contemporary art or art from the 19th and 20th century.
Bookstores in art galleries that cover long spells of history can make surprising links between historical periods of art. Books of postmodernism appear next to books on romanticism. A lot of the ideation of postmodernism rejoins romantic depiction about nature, re-naturalizing or the emotional connotations of wildlife, isolated places and stillness.
On the other hand, we are confronted with the brutal world of war, drugs and crime. Classical warfare and strategies are back in Europe with tanks and rockets killing like in previous wars. The Russian empire of a specific version of modernism strikes back as if it were to stop the postmodern turn of the 21st century. Neo-fascism tries to build on the losers of the transitions to the socio-ecological economy and society. There are manifold backlashes of modernism, but the postmodern world is under continuous construction, most of in our mindsets.

AI or I

Generative AI receives a lot of attention. One of the main issues is, to study how AI interacts with humans. The hiring decision by managers or an AI algorithm is an interesting application. According to Marie-Pierre Dargnies et al. (2022) the preference for human decisions remains strong despite reasonably unbiased performance of an algorithm. The main issue is with the transparency of the algorithmic decision-making. As a worker or as a hiring manager the preferences continue to sit with the person rather than the AI. It is a worrying outcome, however, that if the rule of gender equality is removed from the algorithm both workers and managers tend to prefer the algorithmic outcome. I interpret this as a latent preference of study participants for gender bias, which could lead them to expect a more favoured outcome in case the AI makes the decision. Knowing what decision-making rules have gone into the hiring algorithm has an impact on all persons involved.
A new managerial competence is to be able to assess tasks carefully, whether you should perform the task yourself or delegate to AI. In this sense the old question: to do the task yourself or to delegate has simply been enlarged by an additional delegation option. The decision-tree goes from (1) To delegate or not to delegate, and (2) if I want/need to delegate, should I delegate to AI or somebody in person (not allowed to use AI).
I opted to use AI for image creation rather than to take a photo myself or by one from a professional photographer. (Image creation: NEUROFLASH AI – Image-Flash 2024-1-26)

AI and We

Research is beginning to provide empirical evidence and experimental modelling results on the widespread use of generative AI. First results by Doshi and Hauser point at the individual benefits of using artificial intelligence but the widespread use of it is likely to narrow the scope of novel content. This research is particularly interesting because it deals with the micro level to macro level aggregation effects. It is fine for me to use AI. If it becomes a mass phenomenon, we expect in sum a negative outcome for society as a whole.
The example at hand deals with the capability to innovate or to come up with novel content. As more and more texts or newspapers are published with extensive use of genAI, the real element of creation will remain the domain of humans for quite some time.
In my opinion this is due to the difficulties for algorithms to differentiate between the positive and too risky negative aspects of innovative solutions. A query for AI might ask to come up with an innovative solution for auto-mobility of short distances. A human being might propose walking due to the additional health effects the AI might propose helicopter lifts. The not so stupid machine would need a lot of additional information about circumstances to generate useful solutions. Therefore it is not surprising that sometimes public transport apps propose to walk short distances rather than waiting for “delayed or unreliable services“ they provide themselves. Personal circumstances like mobility with children, other dependents or luggage are usually beyond the scope of the information base of the algorithms.
On the other hand, if the AI knows that 50.000 persons after an event want to take public transport at the same time the indication to walk or wait solves an aggregation problem of individual preferences to adapt to available capacities. Lots of issues to solve for AI and us or better yet, us and AI.
(Image creation: AI using Microsoft Dall-E Image creator: Prompt: a person with notebook in profile and in front of 5 other persons in Office with windows 26.1.2024, 8:24 PM)

Shrinkflation

Shrinkflation is a hybrid term that combines “to shrink” with “inflation”. The trick is to keep prices at the same level for a product, but to reduce the weight or amount sold at a constant price. The intention of producers is to indirectly increase prices without touching at price tickets on products. As consumer you are likely to remember the price tag of a product, but much less the unit costs. However, the unit price is the basis for fair comparisons. In supermarkets there is an obligation to print also unit prices (€/kg or €/L) next to price labels. Comparisons allow information irrespective of package size. In shrinkflation the higher unit costs of a product will drive the official measure of inflation (Destatis, 2024). In Germany inflation for food had the top inflation rate in 2023, surpassing even price rises for energy.
On the one hand, shrinkflation is cheating on consumers to sell them less for the same price. On the other hand, oversized products that solicit higher consumption are part of the health and environmental problems we face. The obesity pandemic is part of the XXL consumption hype the food industry and supermarkets have created. In this respect, more expensive food (Eurostat info) potentially may trigger the rethinking of consumption and nutrition. “Eating better instead of less” has always been more expensive.
Besides the profit-maximising logic of shrinkflation, there is at least a small hope that behavioural changes might be triggered to consume less, to use less detergent in washing, less sugar drinks, smaller size pizza and so on. Shrinking our food intake is part of the solution for many problems. In the end cutting out most convenience food will save you a lot of money. As a side effect of such behavioural changes, eventually prices are likely to come down some time later again.