Thirdly, each of these are (broadly) free market firms, who exist only because they are able to persuade people to continue using their services. Itās always possible that they are systematically mistaken, and that CEA really does understand social network advertising, management consulting, trading and banking better than these customersā¦ but I think our prior should be a little more modest than this. Usually when people want to buy something it is because they want that thing and think it will be useful for them.
I consider this to be a pretty weak argument, so it doesnāt contribute much to my priors, which although weak (and so the particulars of a company matter much more), are probably centered near neutral on net welfare effects (in the short to medium term). I think a large share of goods people buy and things they do are harmful to themselves or others before even considering the loss of income/ātime as a result, or worse for them than the things they compete with. Itās enough that I wouldnāt have a prior strongly in favour of what profitable companies are doing being good for us. Here are reasons pushing towards neutral or negative impacts:
A lot of goods are mostly for signaling, especially signaling wealth, which often has negative externalities and Iād guess little positive value for the individual. Brand name versions of things, clothing, jewelry, cars.
Many modern ways people spend their time (enabled by profitable companies) have probably made us less active, more indoor-bound, less close with others, and less pursuant of meaning and meaningful goals, which may conflict with peopleās reflective preferences, as well as generally be bad for health, mental health and other measures of wellbeing. Basically a lot of the things we do on our computers and phones.
Many things are stimulating and addictive, and companies are optimizing for want, not welfare. Want and welfare can come apart when we optimize for want. So we get cigarettes, addictive video games, junk food, algorithms optimizing for clicks when weād be better off stepping away from the internet or doing more substantial things online, and lots of salt, sugar and calories in our foods.
Media companies may optimize for revenue over accurate reporting. This includes outrage, playing to our fears, demonizing and polarization.
Some companies make us want their stuff for fear of missing out or social pressure, so it can be closer to coercion than providing a valuable opportunity.
Iād guess relatively little is spent on advertisement for things that we have good evidence for improving our welfare, because most of those things are hard to profit from: basic healthy foods, exercise (although there are certainly exercise products and programs that get advertised, but less so just gym memberships, joining sports leagues, running outside), just spending more time with your friends and family (in cheap ways, although travel and amusement parks are advertised), pursuing meaning or meaningful goals, helping others (even charity ads are relatively rare). So, advertisement seems to push us towards things that are worse for us than the alternatives weād have gone with. To capitalize on the things that do make us substantially better off, companies may sell us more expensive versions that arenāt (much) better or things to go with them that donāt substantially help.
Iād expect a lot of hedonic adaptation for many goods and services, but not mental health (almost by definition), physical pain and to a lesser extent general health and mobility, which are worsened by a lot of the things companies provide, directly or indirectly by competing with the things that are better for health.
Company valuations donāt usually substantially reflect their externalities, and shorting companies is riskier and more costly than buying and holding shares, so this biases markets towards positively valuing companies even if their overall value for the world is negative.
There are often negative externalities on nonhuman animals in particular, although the overall effects on nonhuman animals may be complicated when you also consider the effects on wild animals.
I do think itās plausible McKinsey and Goldman have done and do more good than harm for humans in the short term, based on the arguments you give, but I donāt have a strong view either way. It could depend largely on whether raising peopleās consumption levels makes them better off overall (and how much) in the places where people are most affected by these companies. Measures of well-being do seem to positively correlate with income/āwealth/āconsumption at the individual level, and Iād guess also at the aggregate level for developing countries, but Iād guess not for developed countries, or at best weakly so. There are negative externalities for increasing an individualās income on othersā life satisfaction, although itās possible a large share is due to rescaling, not actually thinking your life is worse absolutely than otherwise. See:
Based on GiveDirectly in Kenya. They had multiple measures of wellbeing, but negative effects were only observed for life satisfaction for non-recipient households of cash transfers in the same village. See Table A5.
This table from Veenhoven, R. (2019). The Origins of Happiness: The Science of Well-Being over the Life Course., reproduced in this post.
Some companies may also contribute to relative inequality or even counterfactually make the median or poor person absolutely poorer through their political activities.
The categories of things Iām optimistic about for human welfare in the short to medium term are:
Things that save us time, so we can spend more time on things that actually make us better off.
Things that improve or protect our health (including mental health).
Things that make us (feel) safer/āmore secure (physically, financially, etc.).
Things that make us more confident, but without substantially net negative externalities (negative externalities may come from positional goods, costly signaling, peer pressure).
Things that help us make better decisions, without important negative effects.
Iām neutral to optimistic about these (possibly neutral because they just replace cheaper versions of themselves that would be just as good):
In-person activities with friends/āfamily.
Things for hobbies or projects.
Restaurants.
Iām about neutral and pretty uncertain about screen-based entertainment (TV, movies, video games), and recreational substances that arenāt extremely addictive or harmful (alcohol, marijuana).
There are also a lot of externalities that act at least equally on humans, like carbon emissions, promotion of ethnic violence, or erosion of privacy. Those are all examples off the top of my head for Facebook specifically.
I upvoted Larksā comment, but like you I think this particular argument, āpeople buy from these firmsā, is weak.
I consider this to be a pretty weak argument, so it doesnāt contribute much to my priors, which although weak (and so the particulars of a company matter much more), are probably centered near neutral on net welfare effects (in the short to medium term). I think a large share of goods people buy and things they do are harmful to themselves or others before even considering the loss of income/ātime as a result, or worse for them than the things they compete with. Itās enough that I wouldnāt have a prior strongly in favour of what profitable companies are doing being good for us. Here are reasons pushing towards neutral or negative impacts:
A lot of goods are mostly for signaling, especially signaling wealth, which often has negative externalities and Iād guess little positive value for the individual. Brand name versions of things, clothing, jewelry, cars.
Many modern ways people spend their time (enabled by profitable companies) have probably made us less active, more indoor-bound, less close with others, and less pursuant of meaning and meaningful goals, which may conflict with peopleās reflective preferences, as well as generally be bad for health, mental health and other measures of wellbeing. Basically a lot of the things we do on our computers and phones.
Many things are stimulating and addictive, and companies are optimizing for want, not welfare. Want and welfare can come apart when we optimize for want. So we get cigarettes, addictive video games, junk food, algorithms optimizing for clicks when weād be better off stepping away from the internet or doing more substantial things online, and lots of salt, sugar and calories in our foods.
Media companies may optimize for revenue over accurate reporting. This includes outrage, playing to our fears, demonizing and polarization.
Some companies make us want their stuff for fear of missing out or social pressure, so it can be closer to coercion than providing a valuable opportunity.
Iād guess relatively little is spent on advertisement for things that we have good evidence for improving our welfare, because most of those things are hard to profit from: basic healthy foods, exercise (although there are certainly exercise products and programs that get advertised, but less so just gym memberships, joining sports leagues, running outside), just spending more time with your friends and family (in cheap ways, although travel and amusement parks are advertised), pursuing meaning or meaningful goals, helping others (even charity ads are relatively rare). So, advertisement seems to push us towards things that are worse for us than the alternatives weād have gone with. To capitalize on the things that do make us substantially better off, companies may sell us more expensive versions that arenāt (much) better or things to go with them that donāt substantially help.
Iād expect a lot of hedonic adaptation for many goods and services, but not mental health (almost by definition), physical pain and to a lesser extent general health and mobility, which are worsened by a lot of the things companies provide, directly or indirectly by competing with the things that are better for health.
Company valuations donāt usually substantially reflect their externalities, and shorting companies is riskier and more costly than buying and holding shares, so this biases markets towards positively valuing companies even if their overall value for the world is negative.
There are often negative externalities on nonhuman animals in particular, although the overall effects on nonhuman animals may be complicated when you also consider the effects on wild animals.
I do think itās plausible McKinsey and Goldman have done and do more good than harm for humans in the short term, based on the arguments you give, but I donāt have a strong view either way. It could depend largely on whether raising peopleās consumption levels makes them better off overall (and how much) in the places where people are most affected by these companies. Measures of well-being do seem to positively correlate with income/āwealth/āconsumption at the individual level, and Iād guess also at the aggregate level for developing countries, but Iād guess not for developed countries, or at best weakly so. There are negative externalities for increasing an individualās income on othersā life satisfaction, although itās possible a large share is due to rescaling, not actually thinking your life is worse absolutely than otherwise. See:
Haushofer, J., Reisinger, J., & Shapiro, J. (2019). Is your gain my pain? Effects of relative income and inequality on psychological well-being.
Based on GiveDirectly in Kenya. They had multiple measures of wellbeing, but negative effects were only observed for life satisfaction for non-recipient households of cash transfers in the same village. See Table A5.
This table from Veenhoven, R. (2019). The Origins of Happiness: The Science of Well-Being over the Life Course., reproduced in this post.
This graph, reproduced in this post.
Other writing on the Easterlin Paradox.
Some companies may also contribute to relative inequality or even counterfactually make the median or poor person absolutely poorer through their political activities.
The categories of things Iām optimistic about for human welfare in the short to medium term are:
Things that save us time, so we can spend more time on things that actually make us better off.
Things that improve or protect our health (including mental health).
Things that make us (feel) safer/āmore secure (physically, financially, etc.).
Things that make us more confident, but without substantially net negative externalities (negative externalities may come from positional goods, costly signaling, peer pressure).
Things that help us make better decisions, without important negative effects.
Iām neutral to optimistic about these (possibly neutral because they just replace cheaper versions of themselves that would be just as good):
In-person activities with friends/āfamily.
Things for hobbies or projects.
Restaurants.
Iām about neutral and pretty uncertain about screen-based entertainment (TV, movies, video games), and recreational substances that arenāt extremely addictive or harmful (alcohol, marijuana).
Iām pessimistic about:
Social media.
Status-signaling goods/āpositional goods/āluxuries.
Processed foods.
Cigarettes.
There are also a lot of externalities that act at least equally on humans, like carbon emissions, promotion of ethnic violence, or erosion of privacy. Those are all examples off the top of my head for Facebook specifically.
I upvoted Larksā comment, but like you I think this particular argument, āpeople buy from these firmsā, is weak.