Today’s one-dollar delay is worth $39 billion in the future, some comments on Cowen’s Stubborn Attachments

Chapter 4 of Tyler Cowen’s Stubborn Attachments has long stuck with me, but it has always left me wanting for more. The chapter is all about the moral distance of time, which is brought into sharp focus through the lens of the discount rate.

Discount rates come from finance as a means of estimating the current value of a future project, what’s known in the biz as a net present value (NPV) calculation. The logic is simple, but powerful. Given that a company can put cash into the market or their own internal projects for a return, the discount rate becomes the opportunity cost of investing in the project rather than in capital markets. Discount rates allow for values to be compared across time.  

In turn, net present values are highly sensitive to discount rates. The value that is placed on a project at some point in the future but in today’s dollars, depends on how we understand the future. A high discount rate translates into a lower present value for the sum of the future cash flows. Lower discount rates flip the logic such that projects are valued much more in the future. 

Crucially, Cowen urges us to think more expansively about the idea since, “A discount rate tells us how to compare future benefits to current benefits (or costs) when we make decisions.” 

The most dramatic application comes from considering lives, he says, “The way discounting works, if we discount the future by five percent, a person’s death today is worth about thirty-nine billion deaths five hundred years from now. Alternatively, at that same discount rate, one death two hundred years from now is equal in value to 131.5 deaths three hundred years from now.” 

The 1500s weren’t all that long ago. Extend out the time horizon long enough and one life could be equivalent to the entire subsequent survival of the human race. “Sometimes we should be less impatient and pay the future greater heed.” 

Instead of using lives, substitute out dollars. The numbers are all the same. One dollar today at a 5 percent discount rate is worth \$131.5 in a hundred years’ time and $39 billion in five hundred years into the future. 

Next let’s tweak the assumptions ever so slightly and think about not getting paid a dollar this year. Since costs are merely negative benefits, that one-dollar delay today comes to a loss of \$131.5 in a hundred years time and $39 billion in five hundred years. 

Today’s one-dollar delay is worth \$39 billion in the future.

The world is full of one-dollar delays. Life-saving drugs have to go through lengthy approval processes here in the States, even if they are allowed in the EU. Until late last year, drones couldn’t be flown past the line of sight of their operator, limiting the scope of operation. The one-dollar delay is also encapsulated in that adage, “The best time to plant a tree was 20 years ago. The second best time is now.” 

Innovation and startup culture is built on the one-dollar delay. To me, that’s what is exciting about tech and innovation, and what isn’t understood about Silicon Valley and startup cultures. In explaining “Why the Canadian Tech Scene Doesn’t Work,” Alex Danco made this exact point:

Startups are a bet that the future will be radically different from the present, and they are valuable on the way up because they are, effectively, a call option on that future coming true. Their founders set out to discover that future; their value is indefinite, not definite. One day they might become giant, cash-gushing businesses; but not anywhere near your current horizon. Your only goal right now is grow, explore, and earn the right to keep growing and exploring.

I thought Cowen was headed in this direction by being explicit that discounting connected with notions of innovation could firmly root growing Wealth Plus. (For a quick review of this concept check out this Archbridge Institute post from Gonzalo Schwarz.) The argument is implicit, to be sure, but an explicit and clear statement to this effect was lacking. To me, this was the weakest part of the book. Everyone loves a pithy statement connecting all of the dots together and I couldn’t find it.  

A small aside. The book confirmed a suspicion I have long held that real options are seriously underutilized in regulation studies. It is fairly evident that institutional and agency inaction creates costly delays, multiple millions of dollar delays in fact. Real options seem to be a powerful tool to understand the value lost due to inaction. My search for this topic only yielded Joe Vladeck’s “Valuing Regulatory Flexibility: A Real Options Approach to Cost–Benefit Analysis.” It is an area that needs more research. 

These concerns aside, the moral import of the future seems woefully underdeveloped as a concept. In the first chapter, the introduction, Cowen hits us with the nutgraf, the reason why we should care about the moral distance of time and the concept of the discount rate. 

I couldn’t help but nod my head when first reading this, convinced:

Second, I will seek to revise some of our intuitive assumptions about moral distance. Which individuals should exert more of an influence over our choices, and which should exert less? I will argue, for instance, that the individuals who will live in the future should be less distant from us, in moral terms, than many people currently believe. Their interests should hold greater sway over our calculations, and that means we should invest more in the future. Even though it is sometimes hard for us to imagine how our actions will affect future people, especially those from the more distant future, their moral import remains high. I will therefore be asking humans to have greater faith in the future. I am not asking for faith at the expense of reason, but it will nonetheless require an attitude very much akin to faith to consistently think so far ahead in our calculations.

One can clearly see the impact of Peter Singer, which is documented elsewhere. But there is also a strong Burkean element in this notion as well. 

Edmund Burke observed that, “Society is a contract between the generations: a partnership between those who are living, those who have lived before us, and those who have yet to be born.” Arguing that the future should have more moral import is an argument in support of a kind of Burkean contract with the future. It’s Burkean futurism.

In their own ways, David Brooks, Yuval Levin, Jim Pethokoukis, Ross Douthat, and others have discussed Burke’s idea of a social contract. But to my knowledge, none have made a clear line connecting Cowen’s work, discounting, and Burke, wrapped in a nice little bow. 

Only Leopold Aschenbrenner seems to have picked up on the idea in a post aptly titled, Burkean Longtermism, arguing that

We ought to have a deep concern for the distant future. But this concern is not grounded in social-justice-style appeals to ever-expanding moral circles (“we should value people equally regardless of place and time”). Rather, it is grounded in an acute sense of the long arc of time—the sense you get from hearing your great-grandmother’s stories about WWII. The concern for the future is concrete: what do we pass along to our posterity, our own children and children’s children and their children?

Since future generations cannot contract in today’s markets, the preferences of the unborn aren’t embedded in today’s decisions. Are we duty-bound to help them? I think we are, and so does Cowen: “Circa 2018, the future people of 2068 can’t express their preferences across a lot of the choices we are making today, such as how rapidly to boost future wealth or how much to mitigate the risk of serious catastrophes.”

We are the principals in a principal-agent relationship with the future. Like so many of these relationships, there aren’t strong incentives to bind present actions to the benefit of the future. Will, akrasia, is needed instead. While it might not be clear what kinds of preferences and choices that the future would want, it is safe to assume that offsetting carbon emissions will be the top concern, followed by more wealth, cheaper homes, better transportation, clean air and waterways, and more fulfilled lives. 

Taking it one step further, we should all be working on those one-dollar delays that we are uniquely qualified to shift. As Jeremy Nixon wrote explaining his concept of the counterfactual value, “Many jobs are about beating the competition and contribute nothing (think lawyers advocating for one company over another, or marketing and sales professionals pushing one product over another).” Instead, you should be thinking about the counterfactual value, the thing that only you can create. “The way this affects personal decision making is you need to think about how to build the company that wouldn’t be built if you didn’t build it, rather than just asking which company to build. You need to ask what research wouldn’t be done if you didn’t build it, or wouldn’t be popularized if you didn’t popularize it.” Economists call it a shadow price.

In other words, the question you should be asking is, which one-dollar delay are you uniquely positioned to unlock.

First published Oct 29, 2021