Monthly Archives: February 2012

Trade Dominance

Me two years ago:

I surveyed the last ten China new articles in the Post and NYT. … Top US newspapers are in full fledged China bashing mode. (more)

I expect similar results today. Often, hostility to foreigners appears as opposition to letting locals buy stuff from foreigners. Yet sometimes it also appears as opposition to letting locals sell stuff to foreigners:

As China moves to invest billions in businesses around the world, one major industrial nation has so far soaked up very little of the cash: the United States. … Chinese business owners who want to invest in the United States say they often have a difficult time obtaining a U.S. visa to be able to travel and see projects. …

In 2005, the Chinese oil company CNOOC dropped its $18.5 billion bid for the U.S. oil firm Unocal, after some members of Congress expressed security concerns and asked whether CNOOC had unfair access to cheap financing. In early 2011, China’s largest maker of telecommunications equipment, Huawei Technologies, withdrew its bid for the assets of the American company 3Leaf after a review by a U.S. government panel on foreign investment raised concerns about Huawei having links to China’s People’s Liberation Army, which the firm denies. “After that, Chinese investors are kind of lost and bewildered; they don’t know what they can invest and what they can’t.” (more)

Presumably this stupidity is due to some sort of psychology, but what? Why object to both buying and selling to foreigners? Can people really think both sides are hurt by a trade?

My guess: because firms are larger than customers and employees, we see the firm as dominant in both firm-customer and firm-employee relations. So buying into ownership of a firm is buying into a position of dominance. Thus people object both to locals buying stuff from foreign firms, and to foreigners buying into local firms, because they object to locals being submissive to foreigners.

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Housing Envy

Envy is real, but people claim to care more than they do about the size of their neighbor’s houses:

Unlike much of the stated preference literature, the results of this paper indicate that a increase in absolute house size is valued more than an increase in relative house size, suggesting that individuals value their absolute well-being more than their relative status if all parties are handed an equal increase. More specically, for the case of Columbus, the willingness to pay for an increase in own house size by 100 square feet from the mean is found to be $1,103 while the willingness to pay for a decrease in neighbor house size by 100 square feet from the mean is $400. (more)

Since envy looks ugly, why do people do out of their way to appear more envious than they are? Most likely because opposing wealth inequality is an ancient forager norm.

Note that this level of envy could justify taxing house size relative to some other category of consumption where envy is weaker, if such categories could be identified.

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Personality Is Overt

If the human mind is split to parts that manage overt appearances, and parts that manage covert strategies, which parts do you think more control our personalities? Yup, personalities are closer to overt appearances:

By using composite images rendered from three dimensional (3D) scans of women scoring high and low on health and personality dimensions, we aimed to examine the separate contributions of facial shape, skin texture and viewing angle to the detection of these traits, while controlling for crucial posture variables. After controlling for such cues, participants were able to identify Agreeableness, Neuroticism, and Physical Health. … Information allowing accurate personality identification is largely lateralized to the right side of the face. (more)

Chimpanzees, other primates, and humans produce asymmetrical facial expressions with greater [emotional] expression on the left side of the face (right hemisphere of the brain). (more)

In most animals, left brains tend to manage and initiate actions within the current mode, while right brains watch in the background for patterns and reasons to veto current actions and switch modes. In humans, it seems the current-action-sequencer brain half was recruited to focus more on managing overt rule-following language, decisions, and actions, ready to explain away any apparent rule-violations. The less-introspectively-accessible pattern-recognizing background-watcher brain half, in contrast, was apparently recruited to focus on harder-to-testify-on-and-so-more-easily-covert meaning, opinion, and communication, including art and music. (more)

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You & The Distant Future

I spoke again yesterday to mostly retired folks at GMU’s lifelong learning institute, on “You & the Distant Future” (audio; slides). I talked on near-far theory, long-term bequests, and cryonics.

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This Is the Plane Era

Once upon a time planes were only a minor part of world transportation. No longer:

A large and growing share of international trade is carried on airplanes. Air cargo is many times more expensive than maritime transport but arrives in destination markets much faster. … We estimate that each day in transit is equivalent to [a tax] of 0.6 to 2.3 percent and that the most time-sensitive trade flows are those involving parts and components trade. …

Ocean-borne cargo leaving European ports takes an average of 20 days to reach US ports and 30 days to reach Japan. Air borne cargo requires only a day or less to most destinations. … In 2005, goods imported into the US faced per kilogram charges for air freight that were, on average, 6.5 times higher than ocean freight charges. … Excluding Canada and Mexico, 36 percent of US imports by value and 58 percent of US exports by value were airborne in 2000. … In 2004, air cargo as a share of export value was 29 percent for the UK, 42 percent for Ireland, and 51 percent for Singapore; 22 percent of Argentine and 32 percent of Brazilian imports were airborne. … From 1965-2004, worldwide use of air cargo grew 2.6 times faster than use of ocean cargo. (more)

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Missing Work Stories

In my culture, most stories are not about work life, and the few stories that are focus on a narrow set of unusual jobs like soldier, detective, politician, artist, doctor, lawyer, or teacher. Why?

One explanation is that work is usually boring. But this seem weak to me. I’m often fascinated to read business-book stories about work teams and firms competing (I’m enjoying The Innovator’s Solution) and Horatio Alger type stories were once more popular in my culture. Furthermore, a recent New Yorker article (quotes below) says similar stories are now very popular in China.

The author of that article seemed displeased by this trend, and what it says about Chinese culture. She talks of “get-rich” “Darwinian” “combat”, “manipulation and deceit”, and a loss of “morals”. And this seems to me a clue about why we don’t tell such stories – they push realism on topics where we’d rather stay idealistic.

Consider that we avoid telling young kids stories about corrupt police and teachers taking advantage of their power, since we are trying to get kids to respect and trust such authorities. Similarly, we avoid telling kids stories about selfishness and betrayal in romantic and sexual relations, as we push idealized accounts of marriage, love, etc. Similarly, we may as adults avoid stories that threaten other ideals.

Stories need conflict. For stories about soldiers, detectives, politicians, artists, doctors, lawyers, and teachers, we know of socially acceptable types of conflict, which do not challenge key ideals. But stories about conflicts in ordinary jobs more easily violate key ideals, and trigger moral outrage.

We don’t mind stories about independent professionals competing to please costumers. But the foragers inside us hates hearing about team members who don’t work entirely for the good of the team, and especially about bosses insisting that things be done their way. Foragers are ok with being “lead” covertly, by someone who has gained their respect and agreement. But taking orders just to get material goods, that seems immoral. The moral priority of war, or of medicine, may make it ok to take orders there. But otherwise, no!

We sometimes have stories about heroic employees resisting an evil boss. But overt moralizing gets boring fast, especially when we realize these employees could just quit their jobs. Worse, we know that most of us don’t resist bosses – we obey them, mainly because we like getting paid. We don’t like admitting that that while we are returning to forager ways in our leisure time, we have become hyper-farmers in our work life. And so in our story worlds, we mostly try to pretend that work doesn’t exist. Props to the Chinese, for facing reality more.

Those promised quotes from that New Yorker article: Continue reading "Missing Work Stories" »

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What is Finding Welfare?

My last post suggested that we survey economists to choose between three descriptions of what they are doing when they make policy recommendations:

  1. Morals – Entering into larger conversations on what actions are right and moral.
  2. Deals – Helping groups find mutually-beneficial deals, by suggesting deal parts.
  3. Showing Off – Doing hard things like analysis, so we can be credentialed as impressive.

Bryan agrees that #2 would be more popular, but suggests adding two more options (slightly reworded by me):

  1. Social Welfare – Identifying policies that are best for society as a whole.
  2. Partisanship – Identifying ways to advance political goals we identify with.

I agree with Bryan that #4 would now be more popular, but are these new options different concepts, or phrases popular in part because of their vagueness? The three options I presented seem more clearly conceptually distinct. Do economists seek “best” policies to help people argue about which actions are moral, to help encourage political and other group deals that include these better policies, or to show off their abilities to do clever analysis? My proposed three part question seems to me better suited for digging to this deeper level.

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What Is Econ Advice?

Saturday I said:

I see two rather different ways to think about what economists do when we recommend policies:

  1. Morals – We enter into a larger conversation about what actions are right. … While for our ancestors such discussion was often a prelude to concrete group action, today we more often argue about morals without such ways to coordinate in mind. …
  2. Deals – … Conflicts … can be resolved at least in part via deals, both implicit and explicit. Finding and making such deals can be aided by neutral outside advisors, … Economists have a reputation for developing analytical tools useful for making suggestions about parts of deals. …

Academics who lean toward a sci/tech style tend to favor a deals view, while those who lean toward a humanities style tend to favor a morals view.

Bryan Caplan responded:

Fact #1: Robin has spent decades proposing unconventional policy deals. His track record is an abysmal failure. … Zero Hansonian deals have been embraced by any normal person. His proposals appeal almost exclusively to fans of economics, libertarianism, futurism, and science fiction. … Most human beings are far too conventional and stubborn to even consider Robin’s suggestions. And instead of trying to overcome this hurdle, Robin habitually raises the hurdle by criticizing conventional attitudes. …

Fact #2: People often have a very good reason to ignore deals: They have better ways to get what they want. Such as: persuasion, moralizing, trickery, and bullying.
Fact #3: The effectiveness of deal-making varies widely by person. …
Fact #4: The effectiveness of deal-making varies widely by situation.

I’m happy to admit that deal-making isn’t the only way we get what we want, and that its effectiveness varies by person and situation. Though I do think we make a lot of implicit deals. For example, asking “I’m in a hurry; would you mind if I cut in line” is offering supplication, and an owing of return favors, in trade for a favor.

I’m also happy to admit that much of what I do intellectually isn’t very directly targeted at promoting specific deals. Though neither is it very directly targeted at labeling specific acts as moral or immoral. To the extend that I do either of these things, I do them indirectly, which makes my acts harder to categorize. My work in prediction markets, however, has led to some voluntary mutually-beneficial changes in corporate practices, and I hope for lots more.

Imagine that economists were surveyed and had to choose how they’d best like to describe economic policy recommendations, as:

  1. Morals – Arguing for the morality of actions,
  2. Deals – Helping groups find and make deals, or
  3. Showing Off – Academics do hard things in order to be certified by other academics as impressive, so that students, patrons, and readers can gain status by affiliating with them. Economic policy analysis is such a hard thing.

I’d bet that at least 25% would choose option #2, and even more among those whose style leans sci/tech. And #2 seems to me a better public face for economists to present to the world – economists will prosper more overall if they say this is what they are doing.

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Inequality Market Failure?

In ordinary talk, you often hear arguments like:

  • There aren’t enough Jazz stations – government should subsidize them.
  • Too many kids today let their pants hanging low – that should be illegal.
  • Not enough kids want to be scientists – schools should push that earlier.

But to an economist, it is not enough to note that you do or don’t like something, to justify a policy to encourage or discourage it. We instead hold ourselves to a higher analysis standard – is there a net market failure sufficient to justify an intervention?

Except, alas, on (national at-a-time between-family) income and wealth inequality. There, most economists think it sufficient to just note that a policy influences inequality – they rarely feel a need to identity an associated market failure. For example, Christina Romer:

A successful argument for a government manufacturing policy has to go beyond the feeling that it’s better to produce “real things” than services. … The economic rationales for a policy aimed specifically at shoring up manufacturing largely fall into three categories. None are completely convincing:

MARKET FAILURES Government intervention can be justified on efficiency grounds if the free market won’t work well. … The market can malfunction if there are positive externalities across companies. … But large clustering effects have been hard to find. … A study of the semiconductor industry found that although learning by doing was substantial, most of the rewards went to companies doing the early investing. … We need a strong manufacturing base in case of war. … But it still doesn’t follow that all manufacturing deserves special treatment. …

JOBS A key argument for encouraging manufacturing is to create jobs and reduce unemployment. Unfortunately, those effects are probably small. … Today, we face a profound shortfall of demand. That truly is a terrible market failure, and it warrants government intervention. …

INCOME DISTRIBUTION A final argument for supporting manufacturing is distributional. Manufacturing jobs are seen as one of the few sources of well-paying jobs for less-educated workers. … But that is much less true today. … If increasing income equality is the goal, it might be wiser to put money into infrastructure than to subsidize manufacturing. …

Public policy needs to go beyond sentiment and history. It should be based on hard evidence of market failures, and reliable data on the proposals’ impact on jobs and income inequality. (more; HT Tyler)

Note that she even uses market failure to justify pushing jobs. But not for income equality – that is just obviously bad. I see the same thing over and over – only economists wary of equality-promoting policies talk market failures, and then they mainly ask what they are. For example Charles Lane:

Americans may never agree on an optimal distribution of income, either morally or practically. But they probably could agree that, to the extent possible, government should limit its interventions to bona fide cases of market failure. (more)

Well, no, Americans probably don’t agree on that. But you might hope economists would. Tyler Cowen has an article where he says there are market failures in the finance sector that increase inequality, and recommends fixing them. Which of course makes sense, but we’d want to fix those problems even if they reduced inequality.

The closest I could find to a market failure argument for reducing inequality was Ian Ayres and Aaron Edlin:

The progressive reformer and eminent jurist Louis D. Brandeis once said, “We may have democracy, or we may have wealth concentrated in the hands of a few, but we cannot have both.” (more)

But that is quite a stretch – there is no evidence that wealth concentration is threatening to stop our nation from being a democracy. And it is far from obvious that not being a democracy is a market failure.

As Obama has decided to make reducing inequality a central issue in his reelection campaign, we are going to hear a lot about it between now and November, including from economists. Could economists who support policies to reduce inequality please identify their market failure arguments?!  Why lower our usual standards for this topic?

(I argued here that a poverty insurance market failure seems implausible.)

Added 2p: In case it is not clear, this post is directed to economists, in their role as economists. I’m not saying market failure is the only consideration anyone uses to decide policy, but I am suggesting that it is the main consideration that economists use in their role as holders of economic expertise. Economists don’t have much expert to say about whether we have too much or too little inequality, outside of their expert ability to discern and fix market failures.

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Deals Near, Morals Far?

Unlike most social scientists, economists publish papers whose main conclusions are normative, not just positive. That is, we explicitly recommend policies, rather than just predict the consequences that follow from choices. Moral philosophers are the main other academics who explicitly focus on making recommendations. Compared to philosophers, economists are more standardized and structured, allowing more specific recommendations.

I see two rather different ways to think about what economists do when we recommend policies:

  1. Morals – We enter into a larger conversation about what actions are right. As language let humans enforce social norms, we evolved strong moral feelings and a rich practice of arguing about forbidden and required actions. While for our ancestors such discussion was often a prelude to concrete group action, today we more often argue about morals without such ways to coordinate in mind. Economists mainly join this larger argument about what actions are right, and only incidentally induce specific people to take specific actions.
  2. Deals – Groups of all sizes, from families to planets have conflicts that can be resolved at least in part via deals, both implicit and explicit. Finding and making such deals can be aided by neutral outside advisors, especially advisors who can suggest changes that might benefit all conflicting parties. Economists have a reputation for developing analytical tools useful for making suggestions about parts of deals. Economists mainly develop such suggestions for deal components, and only incidentally join larger conversations about morality.

My closest colleagues seem to mostly take a morals view, but many of my students like a deals view. I think I see a correlation whereby academics who lean toward a sci/tech style tend to favor a deals view, while those who lean toward a humanities style tend to favor a morals view. Sci/tech styles tend more toward math, precision, and local incremental contributions toward specific things and plans, while humanities styles tend more toward bigger pictures, wider-ranging applications, broader interpretations, and joining larger conversations.

In sum, how you think about economic recommendations may depend on whether your thinking leans near or far. It seems deals are near, while morals are far, and sci/tech folks lean near, while humanities folks lean far. Precise formal analysis is more near, while flexible more-metaphorical discussion is more far. Particular suggestions for particular conflicts of particular groups is more near, while general more accessible discussion about what choices tend to be good or bad is more far.

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