Tag Archives: Current Affairs

Policy Trial By Combat

It was once thought appropriate to settle legal disputes by combat – the winner of a physical fight won the case. This accomplished two key functions of a legal system: it clearly settled cases, and in a way that seemed legitimate to most observers. The fact that who won was poorly correlated with the truth of their claims mattered less.

Today we have better legal systems, but our policy debate system has a big element of trial by combat. I was reminded of this while reading The Infinite Resource by Ramez Naam, which he was nice enough to send me. Like many respected policy books, it is well written at a sentence and paragraph level, takes positions on important subjects, and is full of engaging and entertaining examples. The book makes many claims, illustrating them with simple plausible supporting arguments and detailed examples. Most of these claims are accepted by some relevant community of experts, and in fact I agree with most of them.

My problem with such books is this: little is said that is is original, and the arguments and examples given are mostly not the main reasons that relevant experts say are why they accept such claims. So experts shouldn’t change their beliefs on the basis of such a book. And if ordinary people knew this fact, they shouldn’t change their beliefs that much either, except as the prominence and acceptance of the book signals that experts agree with it.

But it is easy to see why such books are popular. Readers want to affiliate with impressive authors, and want to collect impressive sounding and unlikely-to-be-embarassingly-wrong examples and arguments with which to impress associates in conversation. So of course policy book authors compete to be eloquent and engaging while taking the sort of positions readers will find plausible and worthy of embracing. Given such a competition, the policy positions that gain the most public support are those, among the popularly plausible positions, that can attract the best writers. This is policy trial by writing combat.

Yes, if this is the game and you want your position to win, you want a good writer like Naam to write a book like his supporting your position. And yes you can infer something from the fact that such a person has been enticed to write such a book, and that the powers that be have endorsed it or at least not criticized it. But one could wish for another world where the popularity of policies was more strongly correlated with good arguments and evidence.

To illustrate my criticism, here is Naam on why the US should unilaterally tax carbon heavily:

I believe the United States should press ahead with adopting a carbon price and driving our emissions down by 80 percent by 2050, even if China and India don’t. Why? Three reasons.

First, we created this mess. Carbon dioxide lingers in the air for an average of 100 years before breaking down. …On that basis the rich countries are responsible for two-thirds of the heating of the planet that is happening today. …

Second, its in our best interests. Shifting away from oil and coal will shield us from recessions cause by global oil and coal price spikes. It’ll reduce the dollars we send to the Middle East and Russia. It’ll drive our long-term energy costs down by further fueling innovation in capturing the nearly endless supply coming from the sun. If we want energy independence, health economic growth, and long-term cheap energy, a carbon price is the way to go.

Third, the best way to get China, India, Brazil, and the rest of the developing world off of fossil fuels is to drive down the price of the alternatives. If it’s cheaper to produce electricity from solar and wind that it is from coal, if if that electricity can be supplied 24/7, then countries will switch. Make it cheaper, and they will come. And the best way to make it cheaper is to invest in R&D in those areas, and to shift business and consumer spending into them.

Here Naam takes a position that many experts have taken, and he gives plausible supporting arguments. But he doesn’t consider the contrary arguments that I find on net to undermine this position. Such policy books rarely consider contrary arguments – since such arguments usually require more sophisticated conceptual understanding to engage, most readers won’t want to hear about them unless they are especially likely to actually encounter such arguments when they pontificate on the subject.

FYI, here are the contrary arguments that persuade me. First, if rich countries should be blamed for hurting the rest of the world via past carbon emissions, they should be credited with helping much more via their past innovations. On net the world owes them, not vice versa. Second, it is bad economics to not buy the cheapest product that does what you need just because its price fluctuates. Paying steadily more for something else is a worse deal.

Third, it requires a coincidence of magnitudes for a big carbon tax and solar research subsidies to be a good selfish unilateral policy for the U.S., but not for smaller nations like China, India, and Brazil. If our best explanation for these smaller nations not unilaterally adopting big carbon taxes and subsidizing solar energy research is that they correctly expect to selfishly lose by such plans, even if the world overall gains, then we should guess the same is true of the US, which in PPP terms has only twice the GDP of China. The cutoff nation size for this being a selfishly good vs. bad policy would have to just happen to fall between the size of China and the US, and even then because we’d be near the cutoff it wouldn’t hurt us that much to pick the wrong policy. And Naam offers no arguments for why this cutoff just happens to fall in this range.

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Zitzewitz The Wise

Eric Zitzewitz on why the CFTC cracked down on Intrade:

Why prohibit something so harmless? After all, U.S. policy already allows many forms of gambling that have significant social costs and produce no useful information. The real reason may be found in debate surrounding another recent setback for prediction markets, Congress’ last-minute modification of the Dodd-Frank financial reform bill in 2010 to prohibit markets on box-office receipts planned by the Hollywood Stock Exchange (HSX).

The plug was pulled after lobbying by the Motion Picture Association of America, which argued that a prediction market forecasting a poor movie box office could lend an “aura of financial authenticity to gossip.” Translation: Even big-budget failures often have one big weekend before word of mouth kicks in, and information aggregated by prediction markets may deprive them of that.

The bigger threat is to the executives who green-light the flops in the first place. The track record of even the play-money version of HSX is quite good ‑ a real money version would presumably be better. If a prediction market can forecast a poor box office well in advance of production, it raises questions about why an executive cannot. A consultant told me about a software company that ended an internal prediction market that forecast the success of the company’s products. The problem was not that it failed to work ‑ it worked all too well, and that raised awkward questions for the egos involved. (more)

Yes this is a big reason why most firms don’t want prediction markets on internal issues, and why the film industry lobbied to prevent film futures. But I find it harder to see as a big reason the CFTC prevents Intrade, and earlier Nadex, from betting on elections. That seems more simply explained by a general public aversion to what it sees as “gambling.”

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The Tree of Life is Far

Experiencing awe may have all sorts of tonic effects, including a better sense of perspective on time and priorities, more patience and charity toward others, and generally more satisfaction with life. … Those who were primed to feel awe—those volunteers also saw time as much more expansive, less constricted. They felt free of time’s pressure. … Those who felt they had more available time were less impatient; they were more willing to volunteer their time to help others; and they were less materialistic. (more)

The Tree of Life is up for Best Picture and Best Director Oscars tonight. Though it has only 0.6%, 1.3% chances of winning, it is a great illustration of the ties between far mode, awe, and spirituality. I’ll need spoilers to explain – you are warned. Continue reading "The Tree of Life is Far" »

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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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Offended By Bets

U.S. presidential candidate Mitt Romney recently offered a $10,000 bet to competing candidate Rick Perry, regarding what Romney said in his book. Pundits say this hurt Romney’s image:

The $10,000 bet … reinforces a narrative already swirling in the political world: that his wealth makes him out of touch with the economic concerns of average folks. …

No matter what the Romney people say, offering a $10,000 bet is, at best, somewhat odd. (You generally either bet someone $1 or $1 million dollars; anywhere in between seems weird and raises eyebrows.) …

“It seems pretty outrageous and out of touch. People around here don’t have that kind of money.” … Critics attacked Romney — a multimillionaire venture capitalist — for tossing out the $10,000 figure like Monopoly money. … “When I talk to my neighbor and want to make a bet, it’s 10 bucks.” (more; HT Maxim Lott)

The idea that a presidential candidate couldn’t afford a $10,000 bet is crazy, as is the idea that ordinary folks don’t know this fact. Candidates pay for TV commercials, which cost lots more than $10,000, and they fly all around the nation in planes, which gets expensive.

So clearly we have moved high up into belief meta-levels here. “Yes, most people know Romney can afford $10,000, but some aren’t sure that most others know this, and so this shows that Romney doesn’t know about such folks.” Or “It is rude to point out that you are rich, even when everyone knows you are rich. Yes wearing nice suits shows he’s rich, but not wearing suits is socially unacceptable. Offering smaller bets is acceptable, however, so offering a big bet could be interpreted as bragging about wealth. Not that I’d interpret it that way, but someone might, and this shows Romney doesn’t realize that.”

Geez it must be a pain to be a presidential candidate. This all shows how much we care about social savvy and signaling in such folks. We don’t much care if they understand supply and demand, but they damn well better know who might try hard to be offended by what.

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Bad Sound, Bad Sign

“Please hold on, please set luggage cart brake to on.”

That sound irritates me every minute or so when I ride the SFO airport tram. George Will feels similarly:

You step onto an airport’s moving walkway …. soon a recorded voice says: “The moving sidewalk is coming to an end. Please look down.” … Is that announcement about it ending really necessary? … Passing through a U.S. airport is an immersion in a merciless river of words … clearly they flow from … the assumption is that we are all infants or imbeciles in need of constant, kindly supervision and nudging … all this noise is symptomatic of … an entitlement mentality that … If something bad … happens to us, even if it results from our foolishness … we are entitled to sue someone for restitution. … Almost none of this noise is necessary for people mature enough to be allowed to walk around the block, let alone fly around the country. (more)

Yes this shows an entitlement mentality, but I see worse: common knowledge that we are well aware of problems we don’t intend to fix. We all know these warnings are excessive, bothersome, and counterproductive. But we also know that they are a reaction to lawsuits where jurors give big awards to show their concern and loyalty for accident victims, and hostility and defiance toward big organizations. When we repeatedly see thousands of others notice and ignore this problem, we learn that we have decided to let that symbolic support continue, accepting the useless-bothersome-warnings costs it imposes.

This sets a bad precedent regarding our many other social problems. The better informed among us might hope that the public doesn’t quite understand many of our problems, and that we’ll fix our problems when the public better understands them. For example, when the public better sees the ineffectiveness of our war on terror, the harm to kids when teacher unions block school reform, or the waste from excess professional licensing. But such informed folks also know that such harmful policies arise naturally as symbolism, to show respect for terrorism victims, teachers, professionals, etc.

So the more that informed folks see cases like excess airport warnings, where everyone seems pretty clearly aware that we’d rather accept high costs and bother to let symbolic signals continue, the more they should reasonably conclude that this holds for our other big problems as well. Why try to work to end a wasteful war on terror, for example, if most everyone seems ok with wasting vast sums to continue to signal our support for terror victims?

The US is rich, but we spend an increasing fraction of our economy on wasteful symbolic signals regarding law, war, medicine, school, the elderly, etc. Yes, this trend cannot continue forever, but it can continue for a few decades more. And our unwillingness to limit the waste in cases where it is the clearest that we all see and understand the waste is a bad sign about our willingness to cut back anytime soon on these other wasteful signals.

One reason to come down hard on visible petty crime like vandalism is that people may interpret getting away with petty crime as a signal that they can probably get away with bigger crimes as well. Similarly, by actually fixing these very visible wastes, we might raise hopes that we’ll also fix not quite so visible problems. For now, alas, I’m not holding my breath.

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‘Never Settle’ Is A Brag

From a famous Steve Jobs Stanford graduation address:

Sometimes life hits you in the head with a brick. Don’t lose faith. I’m convinced that the only thing that kept me going was that I loved what I did. You’ve got to find what you love. And that is as true for your work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it. And, like any great relationship, it just gets better and better as the years roll on. So keep looking until you find it. Don’t settle. (more; HT Alex)

Now try to imagine a world where everyone actually tried to follow this advice. And notice that we have an awful lot of things that need doing that are unlikely to be anyone’s dream job. So a few folks would be really happy, but most everyone else wouldn’t stay long on any job, and most stuff would get done pretty badly. Not a pretty scenario.

OK, now imagine that only graduates from colleges like Stanford or better followed this advice. Since such folks have more fulfilling job options, a larger fraction of them would end up really happy. But we’d still have too much job turnover among our elites, with too much stuff done badly.

Now notice: doing what you love, and never settling until you find it, is a costly signal of your career prospects. Since following this advice tends to go better for really capable people, they pay a smaller price for following it. So endorsing this strategy in a way that makes you more likely to follow it is a way to signal your status.

It sure feels good to tell people that you think it is important to “do what you love”; and doing so signals your status. You are in effect bragging. Don’t you think there might be some relation between these two facts?

Added: Will WilkinsonArnold Kling and Megan McArdle weigh in.

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Irrelevant Relevance

The September Atlantic has an “economics” article, by Don Peck, Can the Middle Class Be Saved? As economics, it is a “scam” I see often, but want to complain about yet again. These articles combine two key features. First, they gain “relevance” via detailed discussions of problematic current trends. Such as:

The most important economic trend in the United States over the past couple of generations has been the ever more distinct sorting of Americans into winners and losers, and the slow hollowing-out of the middle class. … Wide-ranging social consequences of male economic problems [include:] … Women tend not to marry (or stay married to) jobless or economically insecure men—though they do have children with them. And those children usually struggle when, as typically happens, their parents separate and their lives are unsettled. … These sorts of social problems … have been seeping into the nonprofessional middle class.

Second, these articles offer “relevant” policy solutions to such problems:

We can adapt, but we have to start now. … [by] … Bigger tax breaks for private R&D spending, and a much lower corporate tax rate (and a simpler corporate tax code) overall. … A National Innovation Bank that would invest in, or lend to, innovative start-ups. … [For] new and emerging industries … our bias should be toward light regulation. … Redoubling our commitment to improving U.S. schools, to letting in a much larger number of creative, highly skilled immigrants each year. … We must press China on currency realignment, putting sanctions on the table if necessary. … Development of “career academies”—schools of 100 to 150 students, within larger high schools, offering a curriculum that mixes academic coursework with hands-on technical courses. … It is hard to imagine an adequate answer to the problems we face that doesn’t involve greater redistribution of wealth.

The key scam is: standard economic theory, the main authority implicitly invoked by such “economics” articles, offers little reason to think these trends of concern have much relevance to these policy proposals. Whether such proposals are good or bad ideas can depend on many relevant factors, but the exact values of these trends are not among those factors! If R&D tax credits are a good idea (economically), they are a good idea regardless of trends in median wages or divorce rates. If raising taxes on the rich is a good idea because, hey, we gotta tax someone, that is a good idea regardless of how well or poorly the rich have been doing lately. As I said before:

Which institutions will most increase economic welfare rarely depends much on the exact values of the sorts of parameters social scientists and the media track with such enthusiasm and concern. (more)

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Moneyball Slavery

Moneyball is a good movie – it is fun to see an underdog economist start a revolution somewhere. (Though I’d be more inspired if I could see more clearly how the world is better because of this revolution. Are fans happier now? Players? Who?)

Along the way, the movie vividly depicts profit-driven buying and selling of people, over which the people involved have little say. If traded, players must immediately move across the country, with little compensation. On the screen, it sure looks a lot like slavery. But I can’t find a single mention of slavery in any of the Moneyball commentary. It seems viewers don’t even notice the issue — even viewers who don’t know or care much for baseball, and doubt baseball makes the world a better place.

This supports the theory that we see “slavery” as low status by definition – so by definition anyone high status can’t be a slave. You may recall that in May I wrote:

Bryan is probably right – we don’t call conscripts slaves, but do call comfort women slaves, because the first is high status and the second low. … On reflection, the main effect here is probably that many people take “slavery is bad” to be part of the definition of slavery. So therefore by definition anything good cannot be slavery. (more)

Here is some detail on trading of baseball players:

Players eligible for neither free agency nor salary arbitration are very seldom offered contracts for much more than the league minimum salary, as the player has no recourse to try to obtain a better salary elsewhere. For this reason, in the first three major league years of their careers (except for the “Super Two” exception above), it is standard practice for players to accept comparatively low salaries even when their performance is stellar. (more)

Added 10a: It is possible to be sold into slavery, or to sell oneself into slavery, so up front compensation is consistent with slavery. The key is that while you are a slave you have little control over what you do. The “degree” of slavery is set by the size of the penalty if you don’t follow orders. A death penalty makes for a strong slave, while merely being fired from your current job with many similar jobs available makes for a rather weak “slave.” In baseball, the penalty is pretty big — never again working in your chosen profession and life-calling, and having almost no prospect for anything remotely as fun or profitable. For an analogy, imagine that if you don’t do what your boss says, you must to move permanently to a poor country where you don’t know anyone and have no unusually valuable skills.  That is a strong enough commitment that I’d be tempted to call it “slavery.” Even though you still have a choice.

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On Clark And Caplan

Greg Clark:

[Bryan] Caplan [says] … children impose not costs, but benefits, on the rest of society. …. I think Caplan’s … proposition will soon prove to have applied only in a limited historical window. Future population increases will likely exert substantial downward pressure on the growth of living standards. … There is thus a race between resource costs and scale economies as population grows. … For 99.9% of human history, up till 1800, the winner in that competition was resource scarcity. …

The downward march of food and energy prices since 1800 may well end soon. Current high prices may presage a food scarce-energy scarce future. … Population will again be an important determinant of income. This implies a negative externality associated with fertility, with all the unpleasant implications this holds for those of libertarian persuasion.

Caplan responds:

Clark is right to name economies of scale as one social benefit of population. But he neglects the far more important effect on innovation. … As long as parents are financially responsible for their children, any negative effect of population on living standards is internal to the family. … If parents didn’t care about their already existing children … there might still be a problem. But parents do care about their already existing children. … So it’s unclear whether a problem even exists. … Are you actually willing to bet that global real per-capita GDP will be lower in 2020 than it is today? How about 2030? 2050?

Clark is right that in the long run resource scarcity dominates living standards – that applied for most of human history, and will apply to most of our descendants. Our special dreamtime era of rapid growth and rising living standards can’t last long – probably within a few centuries (and certainly within ten millenia), average consumption will be way down from today.

But Caplan is right that fertility has a net positive externality. Yes property rights are not perfect, so people can hurt each other. But people help each other far more via innovation and scale economies. Yes those will dwindle in the long run, but so will property rights violations.

Of course if you are willing to look only at tiny elites, you can find high average consumption in both the distant past and future. The tiny fraction of future humans who are not robots might well manage to keep a high living average living standard. But most creatures recognizably decended from us will have near subsistence consumption. And that, I think, will mostly be a good thing.

Added 8a: Bryan responds; Tyler comments.

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