One of the things I write a lot about is just how bad economic theory can be at understanding how people behave. I think soon I’m gonna have to just sit down and write out an explanation of rationality and what it means for how economists tend to think about people. But for now, I want to write about Twitter one (hopefully) last time, because the decay and desolation of Twitter highlights some really important economic concepts.
To anyone who has met people, Elon Musk’s idea of charging $20 $8 per month for a bluecheck verification on Twitter worked out…exactly as you would have expected. Random nobodies gladly paid the fee so they could be a Verified Troll or so they could impersonate and embarrass people, up to and including the Free Speech Deity himself.
But this isn’t necessarily how economists expected things to happen. Economists view people as rational, and whether because of irrationality or because people’s individual situations lead to them making rational calculations different than economists make them, this bluecheck system did not produce the “rational” results.
To economists, people behave in ways that maximize their well being. Because of this, people would only use Twitter if it were increasing their own well being. An awful lot of folks, myself included, love Twitter for this exact reason. I can easily get breaking news and updates from people all over the world and all over the political and income spectrums. Yes, #TwitterIsNotRealLife. I know that already. But, by being careful about who I follow and keeping in mind the Twitter hive limitations, getting pretty good information pretty quickly is possible on Twitter. I’ve even had a few really good, lengthy discussions with some really intelligent folks through Twitter.
I’m pointing this out only so you understand there is a world out there were someone’s well being can increase from use of Twitter, even if only a small increase. For economic theory purists, this is the only reason people would use Twitter. If this were true, then Elon’s bluecheck idea would have been a great one.
The thinking goes something like this:
Currently, the bluecheck is a type of nobility status for verified users on Twitter.
Requiring people to pay for a bluecheck takes it from a nobility status to an necessary status.
Anyone who doesn’t pay won’t be taken seriously, or assumed to be a bot.
People who don’t get some sort of well being increase from being on Twitter won’t pay, because why would anyone pay for something that doesn’t increase well being?
This turns Twitter into a true town square concept, where the bluecheck nobility aren’t separate, but have to compete with their ideas on par with regular folks who are now invested in the platform.
Bots won’t get bluechecks because Elon said he’s gonna verify people applying for bluechecks are actual humans.
Really, what you are getting for $8 is a reputation on Twitter that says you are serious. Other people who are also serious will engage more with each other.
Twitter becomes less toxic, and no longer relies on toxicity for revenue.
Don’t laugh. I know.
But there were real and very accomplished economists who made this argument. I completely understand why someone might make this argument. If it were true that people only use Twitter because it increases their well being this argument would make sense.
But this argument ignores some basic human psychology—something the field of economics has been guilty of for a long time. If everyone can pay for a reputation, then nobody really has a reputation. Someone who joined Twitter yesterday can have the same status indicator as someone who has spent years cultivating a following of curious, nuance seeking twits. But, most importantly, this argument ignores the sad reality that some people feel like their well being is increased if they can watch the whole world burn to the ground. Some people like the flames, and $8 a month is a pretty small cover charge.
Psychology tells us that, perhaps even more than a person’s actual well being, a person cares about their relative well being. Being on a dung heap isn’t so bad as long as you are higher up the dung heap than other people. Humans evaluate their well being in terms of the well being of others around them. I’m gonna be really nerdy and put a number value on well being for a minute, because numbers are more clear to me than concepts, so perhaps that is the case for some of you as well.
Suppose in Neighborhood A the average well being is 200, and in Neighborhood B the average well being is 100. A person in Neighborhood A with a well being of 100 would feel equally as disadvantaged as a person in Neighborhood B with a well being of 50. This is because both people see themselves as only half as well off as their peers, even though one is twice as well off as another.1
If the person in Neighborhood A drives a BMW and the person in Neighborhood B drives an old hoopty, an economist (and probably most people) would say the BMW driver is clearly better off. But, if everyone else in Neighborhood A drives a Porsche, and everyone else in Neighborhood B drives a decent Ford or Honda, then both of these people will feel equally as disadvantaged because they are measuring their well being relative to the well being of others.
Well, if I drive a BMW and everyone else drives a Porsche, there are two ways to fix this “problem”. First, I can find a way to get enough money to drive a Porsche, but that sounds too much like hard work. So, alternatively—and none of you should ever do this—I can slash the tires and pour sand in the gas tanks of all the Porsches. If I sabotage the Porsches I don’t actually increase my well being at all. BUT, I do increase my well being relative to others. Now, instead of having half the well being of others, I might have equal well being, even though my well being didn’t change. Making them worse makes me feel better.
This scenario isn’t really likely to happen because if I get caught I go to prison, and then I lose most of my well being. I’d have to compete for well being with other criminals, and that might not go so well—better to just keep the BMW.
What if we remove all legal consequences, and charge people only $8 a month? Will people be willing to sabotage others to make themselves feel better?
Ordinary folks already knew this because they don’t spend their work hours in an ivory tower interacting almost exclusively with other well off and highly educated people. They have seen the dung heaps in real life, not just read about them or heard about them from their students.
Missing the importance of relative measurements has made the field of economics wrong before, and in much bigger ways than thinking a bluecheck will civilize Twitter.
When communication and transportation technology first made the concept of globalization possible, the popular sentiment among free trade thinkers was that a rising tide would lift all boats. This relied on the faulty assumption that everyone was sailing in the same sea…or that everyone even had a boat to begin with.
There were two ways for the developing world to become more similar to western industrialized countries. Developing countries could develop until they were more similar to advanced countries, or advanced countries could stagnate the benefits of labor until standards of living were more similar to developing countries. Guess which way it happened?2
The graph is from Branko Milanovic, a leading economist in the study of the impacts of globalization (paper is footnote 2, if you wanna get nerdy). What it shows is that globalization had huge income increasing impacts for the poorest and the richest people in the world. But look at the 75th to 85th percentiles of income. If you look closely enough you will see that some of these folks saw income actually decreasing. It just so happens that the folks in this range are the working and middle classes in places like the US, Europe, and Canada. I’ve written plenty before about how inflation adjusted incomes for a huge chunk of Americans have actually gone down over the last 50ish years, but it wasn’t just Americans. This is why we’re staring down the barrel of the first generation of Americans to ever be worse off than their parents.
In hindsight this seems obvious. If a country can weaken unions, then send jobs overseas, they can now offer their own workers lower wages and the workers basically have to take them or their job will also get sent overseas. This doesn’t necessarily happen right away—bosses aren’t coming around asking everyone to take a pay cut (though that did happen)—but if new workers get hired at lower wages, and raises become smaller and smaller, then the end result is the graph above. The working and middle classes in developed countries get pinched now that cheaper labor overseas is an available replacement. The poorest in third world countries get much better off, but the middle class in the US gets worse off. The wealthiest seem to horde a good deal of the cost savings.
Advanced nations’ middle classes have measurable decreases in actual well being, but they also have massive decreases in relative well being. Not only are these workers no longer keeping up with less vulnerable workers in their own country, they now see people in much poorer countries living much more like them!
If you ever wonder why people were angry enough to vote for Donald Trump, read those last few paragraphs again.
Elon Musk, and much of the field of economics in general, missed this psychological concept of relative well being.
Musk thought that people used Twitter only to increase their own well being. If that were true, charging for a bluecheck might have worked. But too many folks use Twitter—and all of the internet, for that matter—to try to decrease the well being of others so they can feel better about themselves. Because of this the bluecheck wasn’t a service Twitter provided it’s highest profile users, it was the opposite. The bluecheck was a service the highest profile users provided Twitter. It was the only thing keeping those who want to fan the flames from doing so with tacit Twitter legitimacy. If the bluecheck becomes a price of admission, as Musk learned, nothing on the platform is trustworthy.
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Frank, Robert H. "Positional externalities cause large and preventable welfare losses." American economic review 95, no. 2 (2005): 137-141.
Lakner, Christoph, and Branko Milanovic. "Global income distribution: From the fall of the Berlin Wall to the Great Recession." World Bank policy research working paper 6719 (2013).