Wednesday, November 20, 2013

Is everything debatable?

Near the beginning of this semester, in my macro principles class, we were talking about all the reasons why economists might disagree. Belief in different theories or methodologies, differing interpretations of evidence, and differences in values or priorities: these pretty much capture everything, I think, although you could elaborate on each of these and delineate subcategories. During this discussion, one of my students asked, "So, in economics, is everything debatable?"

Wednesday, November 13, 2013

Quantitative and qualitative economics

A post on the Scientific American blog asks, "Is Economics More Like History Than Physics?" I do not think that this is a useful question to ask, in that it implies that we must choose one approach or the other. A much better question is how we might use each kind of approach (historical and scientific), what insights there are to be gained from each, and what pitfalls each presents. This is really a two-sided argument (or perhaps a two-front war): there is nothing inherently wrong with the use of mathematical tools to analyze economic questions, and these methods have generated many valuable insights; but non-mathematical methods may also be useful. 

Tuesday, November 5, 2013

On election day, a half-baked proposal

Election day today, albeit not one of the more exciting ones for Texans. Reminds me of an idea I had a while back for reforming the government. A party of sorts forms, with congressional candidates all across the country, on a platform consisting solely of campaign finance reform. Something really drastic, along the lines of Ayres and Ackerman or Lessig. Once these folks get into office and pass the Campaign Finance Reform Act, or whatever it comes to be known, they all resign. Then we can have a serious election. As I noted previously, taking the money out of politics wouldn't solve all of the problems with our current system, but it would sure help a lot.

I think it might actually work if voters could be convinced that a vote for one of these candidates is a vote for campaign finance reform, with no other implications. Two problems I can see: a coordination problem, in that people don't want to vote for one of these candidates if they don't feel confident that enough of them will be elected to pass the law; and there isn't any way for the candidates to commit to the deal, including the resignation part. They could be voted out of office eventually, but I imagine voters would be nervous about the prospect of people with random political stances (except on the one issue) running amok in the federal government for any length of time. Those with a vested interest in the status quo could exploit that nervousness. Thus the characterization of the proposal as "half-baked."

Sunday, October 6, 2013

Do we really need to regulate that?

Why is it illegal to smoke on domestic flights in the U.S.? Whatever benefit there is of prohibiting smoking on a flight accrues to those who are actually on the plane. If this benefit is large enough, then it is in the interest of the airline itself to prohibit smoking, because the benefit to passengers translates directly into greater willingness to pay for airfare and greater profits for the airline. Is it somehow easier to enforce a smoking ban if the force of law is behind it? Did the government pass the law to insulate airlines from the ire of those passengers who would prefer to smoke in flight? Maybe, but I would also note that some airlines had their own smoking ban before the law took effect in 1998. Is the purpose of the law to level the playing field, because there is some negative consequence of allowing airlines to compete through their policies regarding smoking? Again, maybe. I wouldn't suggest that anyone should be able to smoke on airplanes, either as an economist or as an air traveler; but it is clearly incorrect to assume that the only way to achieve this outcome is by passing a law. This seems to be a fairly common belief: that if the government doesn't make something happen, it won't happen.

Saturday, October 5, 2013

Siri, tell me what I want to hear

Web sites use increasingly sophisticated algorithms to tailor content to the individual user: Netflix and Amazon deliver personalized recommendations, news aggregators filter content, and Google search results depend not just on the search terms themselves but also on whatever personal characteristics or details of one's historical usage are available. I imagine a near future in which I'll get into my driverless car around dinner time and be driven to my favorite Mexican restaurant without even having to say anything. If the car has enough predictive ability and access to enough data, I won't have to specify that I'm in the mood for Mexican, or even that I'm hungry. The car would never be able to get it exactly right every time, but it's easy to imagine it being close enough that the user wouldn't bother quibbling about it.

So, could this possibly be a bad thing? Eli Pariser, author of The Filter Bubble (and presenter of a TED talk), thinks so. His concern is that all this personalization of content has an isolating effect. My starting point is an idealized view of filtering as a way of culling some subset of information from all of the information available. The user can sift through the information the old-fashioned way and decide what to consume--e.g., glance over the headlines and decide what articles to read--or allow the filter to do the sifting. If the filter arrives at the same subset of information that the user would have ultimately consumed anyway, then the filter is unambiguously beneficial insofar as it eliminates the cost to the user of sifting through the information.

The question is then in what way or to what extent the actual scenario diverges from this ideal. I can think of three possibilities:

Thursday, September 19, 2013

Something I don't understand

This is a tangent to what has been happening in Syria. That situation raises in my mind the question of why some actions (such as the use of certain kinds of weapons) may be deemed unacceptable, even in times of war, and others are not. We have international agreements that, as far as I can tell, essentially say that it's ok to fight and kill each other, but it's not ok to fight dirty. But if we've gotten to the point where we're killing each other, isn't any kind of civility pretty much out the window? And if we are setting rules about how we may behave during times of conflict, why not go a step further and say that killing is not allowed at all? Whatever it is we're fighting over, why not settle the question with a paintball match? Or even chess? Or if we think that the resolution should depend on which side is stronger or more capable in some sense, why not have third-party auditors make a determination on this, without actual bloodshed?

We could view this question from the perspective of one side that considers itself to be in the right: we are only fighting because someone is fighting against us (or doing something else terrible), and we will take what we think are reasonable measures to defend ourselves (or a third party), but we won't fight dirty because we're the good guys. It's possible for both sides to think that they are in the right, but if one side is not trying to maintain that pretense, why would that side agree to any kind of rules? Sometimes they don't, and when they do abide by the rules, perhaps they do so to avoid reprisal once the armed conflict is over. The bad guys might be perfectly willing to commit atrocities in order to win but want to avoid being convicted of war crimes in the event of a loss.

Which raises the question of whether it is easier, or possible, to get away with war crimes for the side that wins the war. In any case, if we have any ability to punish war crimes, couldn't we do the same for any kind of killing? That is, reckon that killing for reasons other than self-defense, or defense of another, is a crime?

In short, what does it even mean to draw a line between war crimes and non-criminal acts of war? I feel I must be missing something.

Saturday, July 20, 2013

The liquidity's all right... isn't it?

In discussions of high-frequency trading (HFT), like this paper, liquidity always comes up as one of the benefits of HFT and thus a cost of restricting it. As far as I can tell, the benefit of additional liquidity is generally taken to be self-evident, and I don't understand why that is so. In this paper, I note the value of lots of liquidity in a financial market, but question the additional value of more liquidity:
The stock market is enormously beneficial insofar as it allows firms to raise capital easily; but the vast majority of stock trades involve previously existing shares and thus do not have a direct effect on the firm whose shares are being traded. There is of course some correspondence between a firm’s real economic activity and the trading of its shares; for example, the share price affects whether a management buyout or hostile takeover is attractive. However, this correspondence is not affected to any significant degree by HFT: HFT activity just changes the prices slightly more quickly.
Any statement about improvement in liquidity resulting from HFT typically is based on some measurement of liquidity in terms of assets or volume of trading, without any assessment of its actual benefit.

This new paper by Budish, Cramton, and Shim, which sparked this discussion at Marginal Revolution, proposes frequent batch auctions, i.e. trading intervals on the order of one second. One parameter in the paper is the cost of short delays in trading imposed by restricting HFT. The authors do not attempt to measure the actual cost, but they suggest that it is small. I don't see how this kind of cost is of any significance when the delay is on the order of a second. Does it capture the trader's impatience at having to wait to execute a trade? Lost interest while assets sit in limbo? Fear of missing some deadline? Even if the delay is minutes rather than seconds, what exactly is the problem? There could certainly be some problems if you have to wait a month, but once the market is thick enough that you can pretty much trade any time you want, what is the benefit of being able to trade at 12:00 instead of 12:01?

Budish et al point to the high costs of HFT infrastructure as well as greater stability in trading markets to justify the imposition of frequent batch auctions. I'm not convinced that there are any social benefits of HFT at all, especially in comparison to other forms of algorithmic trading (one of the points I made in my paper referenced above). If there are benefits, they are very small in comparison to the costs. I am no kind of finance guy, but am I missing something?

Friday, July 19, 2013

What's wrong with public debate, part 3

A follow-up to part one and part two. I see three layers in debates over political or social issues: the bottom layer is some fundamental issue that could be classified as one of Haidt's moral foundations, or one of Kling's three axes; the middle is the rhetoric used to defend the bottom layer; and the top layer is the conclusion about a specific situation.

Tuesday, July 16, 2013

Just the facts, ma'am

An addendum to this post about the problems when uncertainty is disregarded. In addition to, or instead of, expressing uncertainty about something, one can simply focus on the part that is certain. E.g. if someone asks who George Zimmerman is, instead of describing him as "that guy who murdered Trayvon Martin," one could describe him as "that guy accused/acquitted of murdering Trayvon Martin." Factual and indisputable. It works for less concrete statements too, like "Volvos have a reputation for safety," instead of "Volvos are really safe." Can't hurt to state only the parts we can all agree on as facts, and to debate the parts that are debatable.

Tuesday, June 25, 2013

Sunday, June 23, 2013

Economists vs. everybody else: jobs and trade

What can and should be done to create and protect jobs? This is one of many questions for which economists and the general public do not see eye-to-eye. The public is often misinformed, but economists can be cavalier in their dismissal of the public's concerns and priorities.

Saturday, June 22, 2013

Circumspection and other virtues

In a previous post, I lamented the problems arising from the "well-intentioned propagation of misinformation." We would all be better off if everyone could just be less confident.

Tuesday, June 18, 2013

Libertarianism and transformation

I'm not a libertarian, but I think there is a lot to be said for libertarianism, mainly from the standpoint that there are lots of activities that the government just shouldn't be involved in. (Also, as political ideologies go, it's one of the more straightforward and consistent ones.) For any kind of market-based activity, I think that it is reasonable to view non-intervention as the default, and only to intervene if there is a compelling reason to do so. I find that some libertarians are dogmatic (although I couldn't claim there is a greater propensity to dogmatism than that of conservatives or liberals), with a stubborn adherence to the idea of personal liberty and insufficient regard for the practical consequences. Robert Frank describes a "rational libertarian" as someone who places a very high priority on personal liberty, and wants to be as well off as possible given that preference.  I.e. for these folks it is more a practical than a philosophical issue. There was a long exchange on the Cato Institute's blog about libertarianism, and I didn't find the focus on fine philosophical distinctions very useful or interesting.

Thursday, June 13, 2013

Campaign finance reform and its implications

This is an issue that I was interested in, then excited about, and then less so. My preoccupation with it peaked when I read Larry Lessig's book Republic, Lost. In it, Lessig details the extent to which money influences policy and presents an alternative system of campaign financing. I highly recommend the book, although if you would prefer to watch a video, this YouTube clip (48 minutes) covers much of what is in the book. Lessig more recently published an e-book, Lesterland, which presents the same basic point more briefly, and he gave a TED talk on it in a few months ago.

Lessig seems to be focused on spreading information and generating enthusiasm for changing the system. I'm still totally on board with the kinds of reforms he is suggesting. I have to wonder, though, how much of an improvement it would really be. Even if we create a system that forces politicians to cater to large numbers of voters, we can't expect that all the best policy decisions will be made. Voters don't generally have incentive to become informed, and they tend not to very good at processing what information they do receive. To take just one example, consider how difficult it is to convince the general public of the dangers of global warming. Uncertainties and biases can be exploited, especially by those with abundant resources at their disposal. It may not be as easy to influence voters through informational campaigns as it is to influence politicians through campaign donations; but surely it would happen to some extent. Even if no one actively tries to manipulate voters, how will they arrive at their voting decisions? I would feel fairly confident that our system of governance would improve if we dramatically reformed campaign financing, but I would still be looking out for some nutty policies to emerge.

Friday, June 7, 2013

Oh, fudge

I was recently vacationing with my family on Mackinac Island. It is a 3.8-square-mile island in Lake Huron, depicted in this map. Its attractions include the Grand Hotel, where much of the 1980 film Somewhere in Time was filmed; Fort Mackinac, which my son (below) particularly enjoyed; and an abundance of fudge. The map inset depicts a stretch of Main Street that is less than 1500 feet long and includes 10 fudge shops. There are 6 firms that own all of the shops on the island, and 3 of them had at least two outlets on Main Street. I did not sample extensively, but I had the impression that all the shops had similar selections of fudge, salt water taffy, and peanut brittle, as well as similar prices. There is a classic economic explanation for this kind of phenomenon: that, in some contexts, firms compete most effectively with each other by minimally differentiating themselves from other firms. Firms might differentiate by locating at a distance from other firms or by varying their products in any number of ways. This page illustrates the pressure for firms to locate close to their competitors, and this same reasoning applies metaphorically to product characteristics.  (There are lots of complications to this model, some of which result in greater degrees of differentiation.)

I think that one reason this effect is so strong in this case is that the market is relatively uninformed: most of the market is tourists, and most of them don't have good information about what they can buy on Main Street. Tourists do know that they will be able to buy fudge at lots of different locations; but this raises the question of how this came to be. Did all of these fudge sellers enter the market because of the enormous demand for fudge on Mackinac Island? Or perhaps it is a supply issue: a local abundance of materials or expertise necessary for fudge production. That fudge shops are common in many highly touristed areas favors the demand-side explanation. Maybe people associate fudge consumption with vacation, and maybe this is one means of restricting one's indulgence in certain items. I wonder how sensitive this situation is to its initial conditions, whatever they were: is the prevalence of fudge, peanut brittle, and salt water taffy in American resort towns a historical accident, or is there something about these products that inevitably leads to their provision in these markets? In either case, we live in an era in which consumers can expect a certain array of amenities at many vacation spots, and firms cater to these expectations. (I find it amusing that salt water taffy is popular at freshwater locales like Mackinac Island, although its production doesn't involve salt water per se.)

This minimal differentiation story applies in lots of other tourist-dominated markets. In Venice, for example, you can hardly walk a hundred feet without running into a gift shop selling cheap blown glass figurines and Mardi Gras masks.

Saturday, May 25, 2013

Academics can be trolls too

Referring to the pic above and its accompanying post, Munger at Kids Prefer Cheese says, "Only libertarians recognize that these really ARE essentially the same issue." My criticism is of the word recognize and its implication that anyone who disagrees is simply wrong. A more accurate characterization would be that dogmatic libertarians view these as the same because they are focused on personal liberty to the exclusion of all other considerations. The poster masks one issue behind another in a manner common in today's political pseudo-discourse. The issue placed at the forefront is stated in the second sentence, "We should not base our laws on personal dislikes." I wholeheartedly agree with this one, and I would argue that it is key in a number of contexts. However, this is not the issue (or at least not the primary one) for proponents of gun control. Rather, it is public safety.

Friday, May 17, 2013

Online education, pro and con (but mostly pro)

A recent New York Times article describes a conflict over online courses that has erupted at San Jose State University. Members of the philosophy department there wrote an open letter to Harvard professor Michael Sandel objecting to using materials from his online social justice course in their own curriculum. Speaking as someone totally devoted to quality undergraduate education, I have several criticisms of the SJSU letter.

Wednesday, May 1, 2013

Where'd that paper go?

Over a year ago, I wrote a paper called "Curbing the Dangers of High-Frequency Trading" and submitted it to the Economists' Voice.  The final acceptance came through in March of 2012.  The official link is here, and an ungated copy is here.  Here is the problem: I didn't know where to find the published version, or even  that it had been published, until this week.

Friday, April 26, 2013

What's wrong with public debate, part 2

previous post sparked another frustrating Facebook debate. Remarkably, the most active participant (other than me) continued to do many of the things that I had criticized in the post, even though these very criticisms initiated the debate, and even though I repeatedly pointed out that he was doing this. He never took issue with the items in the post itself; he just continued to provide examples of unreasonable, non-constructive debating tactics (inadvertently, I presume).

Regarding gun control specifically, these tactics do nothing to foster understanding between opponents, not to mention consensus of any kind. Still, to me, the more interesting and important issue is the nature of the debate itself. It may be understandable that people argue in nonsensical, counter-productive ways without realizing it, but it’s harder to understand, and to defend, when these things are at the forefront of the conversation. Limitations on cognitive ability or effort may provide part of the explanation, but not all of it. It is becoming increasingly clear that there is something other than pure reasoning going on: see, for example, Haidt's elephant and rider analogy, Kahneman's system 1 vs. system 2 thinkingLakoff's metaphors and frameworks, or Kling's three axes model. I am nonetheless surprised to see the aggressive opposition to reason that I have encountered recently, and I wonder how typical it is.

Clearly we don't understand these psychological issues entirely, and if everyone could be aware of the things we do understand, we wouldn't have agreement on every issue that is currently contentious; but it would be clear where the disagreements really lie, and surely some areas of disagreement would be eliminated, if we were all on the same page about how the reasoning is actually happening. So should we strive toward greater enlightenment as a means of resolving (or reducing) conflict over public policy? I'm inclined to think that this is unrealistic. More likely we as a society will have to take these weirdnesses in mental processing as given and do the best we can in the face of them. For example, rules of evidence can be viewed as a means of managing jurors' potential irrationality, rather than trying to break through it (or pretend it isn't there). I have new respect for this approach. What to do in broader contexts, I have no idea. Yet.

Sunday, April 21, 2013

Too much and not enough

I've been thinking about informational issues for several years. Part of the motivation for this arose during the vaccination scare, which was at a fever pitch around the time my son was born.

Friday, April 19, 2013

Luck and taxes

Consider what makes a movie a blockbuster. Many factors contribute to a film's success: quality of the writing, acting, directing, marketing, etc., as well as the public's response to these inputs. Not all of these are within the control of any one person, including the film's producer. If a film is unusually successful, chances are that it is due to a combination of factors, including some that are not predictable or controllable. One way to see this is to note that sequels to very successful films are, on average, more successful than typical films but less successful than their predecessors, because it is generally impossible to replicate everything that made the original film successful. (It's also possible that a sequel is produced just to milk the success of the original, without any intent of comparable quality, or that a sequel happens to be better than the original; thus the qualification of "on average" above.) This is a well-known statistical phenomenon: regression to the mean. Observations at the extreme of a distribution tend to get there for lots of reasons, including some randomness. Successive observations tend to be closer to the mean of the distribution. For another example, the sons of extremely tall fathers tend to be taller than average but shorter than their fathers, whereas the sons of very short fathers tend to be shorter than average but taller than their fathers.

Now consider income distribution. Someone with a very high income probably got there for a number of reasons, not all of which were under the individual's control: i.e., such a person probably worked hard, made good choices, etc., but also got lucky in some respects. Similarly, someone in the very low end of the income distribution probably got there partly as a result of individual action (or inaction) but partly as a result of happenstance. It's also possible that one man becomes rich even though external factors are against him, and another man becomes poor despite having every advantage in life; but on average, those in the extremes of the income distribution are there because of a variety of factors pointing in the same direction. This to me is the most compelling justification for progressive income taxes. Life is not fair, and the tax system (as well as some of the ways in which the revenue is spent) mitigates the inequities. The justification is even stronger when we consider that some advantages or disadvantages are systematic but still outside an individual's control. Note also that the tax system is not coming anywhere close to equalizing incomes, because there are still plenty of factors contributing to income that would generally be regarded as fair and should not be discouraged.

Of course there are other rationales, including the idea that those who earn higher incomes are benefiting more from our whole economic infrastructure, and therefore should contribute more toward its maintenance; and this one from Mark Thoma.

Thursday, April 18, 2013

What's wrong with the gun-control debate (and public debate in general)

The debate over gun control frustrates me immensely, and this has nothing to do with whether or not anyone supports any specific law that I may or may not support.  It's all about how people defend their own opinion and criticize others' opinions.  This debate is a good illustration of problems that appear in public debate over lots of issues.  After the jump is a (probably non-exhaustive) list of tactics that aren't helping any.

Wednesday, March 6, 2013

The government is a camel

Over dinner with friends last week, I remarked that our government is a camel.  This was a reference to an old aphorism, "A camel is a horse designed by committee," nicely illustrated in this episode of Parks and Recreation:

The idea is that a compromise among many different opinions results in something that doesn't come anywhere near accomplishing the original goal.  I have often thought that the U.S. government would be immensely improved if it really embraced a single ideology, whether that ideology is liberal, conservative, libertarian, or whatever.  Even though I disagree with some libertarian (or liberal, or conservative) policies, I think that we would be much better off if we let the libertarians (or liberals, or conservatives) have their way across the board, rather than these groups working at cross-purposes most of the time.

I am also gaining more of an appreciation for how deep political differences really are.  It is much more than differences in values or priorities.  In The Political Mind, cognitive scientist George Lakoff describes the metaphors and narratives within which people frame political issues, and how these framing differences inhibit fruitful discussion, not to mention any kind of agreement.  I'm still reading the book, but it seems that Lakoff's aim is to improve the political process by creating greater awareness of our mental processes.  I'm not so sure that that's a realistic goal for the majority of the population (and I'm working on my own grand theory of how to achieve public consensus, but whether I'll get anywhere with that remains to be seen).

A more pointed objection I have to Lakoff is his insistence on the moral mission of government.  He says that health care, for example, is a moral necessity and as such should not be provided by for-profit entities.  Again, haven't finished the book yet, but I'm not sure how he is drawing the line between moral and non-moral issues, and more importantly, I don't know why he assumes that the government is a moral entity.  I'm always in favor of keeping morals out of the discussion as much as possible, especially when it's straightforward to consider welfare in a non-emotional, non-judgmental way.  Certainly the government can, at least some of the time, accomplish things that accord with at least some people's morals, but the real difference between government and firms is that the government is a mechanism for collective action.  Anarchists notwithstanding, we agree to give the government certain power over the citizenry, and if we're more or less in agreement about the aims to which that power should be put, the presence of the government makes everyone better off.  In any given situation, either government action or private action may be preferable because of the different incentives that exist in different kinds of organizations; but starting from the presumption that the government does what is moral is at best unnecessary and at worst very misleading.  The interesting thing here is that Lakoff seems to be subscribing to a narrative of government without being aware of it.  There's irony for you.

Lakoff's discussion of narratives and metaphors is largely consistent with Arnold Kling's three-axes model:
My hypothesis is that progressives, conservatives, and libertarians view politics along three different axes. For progressives, the main axis has oppressors at one end and the oppressed at the other. For conservatives, the main axis has civilization at one end and barbarism at the other. For libertarians, the main axis has coercion at one end and free choice at the other. So here is what I recommend doing when arguing with each:
When arguing with a progressive, start by saying, “It is sometimes appropriate to view particular classes of people as oppressors and other classes as oppressed.” Slavery is an example. Proceed then to suggest that, on the other hand, there are instances in which this way of looking at things is not so compelling. For example, if you think about it, borrowers who obtained homes with no money down are not necessarily oppressed, and the banks that lent them the money are not necessarily oppressors.
When arguing with a conservative, start by saying, “It is sometimes appropriate to view particular practices as barbaric and to view tradition and authority as protecting civilization.” There are, for example, criminals who commit assault and murder without remorse. Proceed then to suggest that, on the other hand, there are instances in which this way of looking at things is not so compelling. For example, if you think about it, Latin Americans who sneak across the border in order to work in this country are probably more civilized than barbaric.
When arguing with a libertarian, start by saying, “It is sometimes appropriate to view particular policies as coercion.” For example, taking tax revenue to hand out political favors. Proceed then to suggest, that, on the other hand, there are instances in which this way of looking at things is not so compelling. For example, if you think about it, it is plausible that some activities function better as monopolies: water and sewer service; courts; road systems. If competition is unworkable, then provision via elected government should not be considered coercive.
I think that this is a very useful model.  Recognizing the presence of all three axes doesn't necessarily lead to agreement, but it helps to put public debate on a reasonable footing.

Update: A few more thoughts on Lakoff, since I was still in the midst of reading when I wrote the post. He presents a very interesting and useful framework for thinking about political opinions and conflict, but there are some problems with his exposition (and possibly with his theory itself) that would make it easy for a reader not to take it seriously:

1. He talks about other models of human behavior and interaction as models, with the necessary disconnect from reality that that implies. He presents an alternative model--that people think within frameworks determined by narratives and metaphors--as if it is not a model, but a literal description of behavior. He spends a considerable amount of time discussing the dangers of taking any one model too seriously, not seeming to realize the potential problems of assuming his model is the right one, period.

2. He steps beyond the bounds of his own expertise. As an economist, I noticed this when he occasionally discussed an economic idea in an uninformed and unsophisticated manner. For example, he claims that insurance is fundamentally "anti-market," in a way that reminded me of what a fairly good undergraduate student might say in class without thinking something through. It's very straightforward to demolish the claim. This made me wonder whether he might be mangling ideas from other fields in ways not noticeable to me.

3. He presents his theory alongside advocacy for progressivism. Not that I would criticize progressivism or advocacy in general; nor would I deny that, in a sense, all research is advocacy research (that's a whole can of worms in itself); but Lakoff takes it to an extreme. He is basically saying that conservatives are doing all these things that are patently bad but are able to do them because they successfully manipulate the elements of his model, and that progressives must understand his theory in order to fight back. This can only limit the appeal of the theory.

Monday, February 18, 2013

On paternalism

Arnold Kling imagines the following conversation between parties with opposing views on the desirability of government intervention in citizens' day-to-day decisions:
Libertarian: if a random stranger came to you and forcibly stopped you from drinking a large soda “for your own good,” would you find that acceptable? I would accept advice from a stranger. I might accept forcible restraint from a friend or someone to whom I had given permission to restrain my impulses (like Odysseus with the Sirens). However, why should I want government officials to interfere with my decisions because of my supposed incompetence?
Conly: Government officials are not random strangers. They are experts. That is why the should be allowed to interfere with your decision.
Libertarian: I listen to experts all the time. But what makes government officials so wonderfully expert that I should be forced to listen to them? When it comes to “staying out of debt” and “saving for the future,” are government officials the experts to whom you would have me defer? Seriously?
We should all be able to agree on a few things.  People do, at least on occasion, act in ways contrary to their own best interests.  Perhaps the most compelling evidence of this is ex post regret: "Gee, I guess I should have saved more for retirement."  At the same time, government intervention is imperfect and costly, even at the best of times.  I think it would be a mistake to view either the individual or the government as the ultimate authority in any comprehensive sense.  The libertarian in the above conversation seems to imply that the government should never intervene in individual decisions, and hints that government officials are thoroughly incompetent.  (Maybe I'm reading too much into Kling's post, but the second statement from the libertarian resonates with those views.)

This is one of many issues that is commonly viewed as black and white: should the government intervene in our lives, or not?  Even if we abandon these extremes, the question is often debated as if it were one-dimensional: should we have more or less government intervention?  Even that question is simplistic.  There is no spectrum of degrees of intervention from which we have to choose; rather, it is a matter of considering specific ways in which intervention may improve welfare.  In doing so, why not just think in terms of costs and benefits?  From this standpoint, it is fairly easy to argue against the ban on large soft drinks.  Costs: implementation, enforcement, outrage from affected firms and many members of the public.  Benefits: certain to be positive for some subset of consumers, but limited by consumers' ability to circumvent the law, or the spirit of the law.  This is one place where consideration of government's imperfection really matters.  Even if we agree that it is the government's role to improve public health, is this the way to do it?  Are there better alternatives?  I'm not suggesting that the answer to the first question is a resounding "no," but rather that there is substantial doubt, and that the government should only restrict individual choice if we can make a more compelling case that doing so will create net benefit (which might be the case for something like saving for retirement).

This is the same way I think about government regulation of externalities.  In theory, any time there is an externality, there is a potential welfare gain through government action.  In practice, government action will be costly in various ways and will not hit the theoretical optimum anyway.  So it is only worthwhile for the government to intervene for relatively large externalities.  Determining costs and benefits is typically complex and often controversial; but shouldn't that be the focus of debate, rather than sweeping generalizations about individual autonomy or government effectiveness?

Saturday, February 16, 2013

Anarchism in the small and in the large

I like this take on anarchism, especially the following:
What Scott's book really seems to support is something different from anarchism writ large. It is anarchism writ small -- finding ways within a liberal and regulated society to expand the scope of free citizens coordinating their activities together for common purposes.
Before I had ever read anything about anarchism, I thought of anarchy in the sense the Sex Pistols used it: not just rejection of any coercive authority, but also endorsement of disorder.  It's interesting to speculate about the possibility of a well-ordered, peaceful anarchy, but I have yet to see a convincing argument that it could work on a large scale.

Wednesday, February 13, 2013

(Another) criticism of the current state of the economics profession

From Nobel laureate Ronald Coase:
In the 20th century, economics consolidated as a profession; economists could afford to write exclusively for one another. At the same time, the field experienced a paradigm shift, gradually identifying itself as a theoretical approach of economization and giving up the real-world economy as its subject matter. Today, production is marginalized in economics, and the paradigmatic question is a rather static one of resource allocation. The tools used by economists to analyze business firms are too abstract and speculative to offer any guidance to entrepreneurs and managers in their constant struggle to bring novel products to consumers at low cost.
I think the last sentence is a bit of an overstatement--not any guidance? really?--but you could raise a similar concern for the applicability of some economics research to public policy.

Monday, February 11, 2013

How much research?

This story touches on an issue that has been in the back of my mind for a while: how much of a university's resources, including faculty time, should be dedicated to research rather than teaching.  The value of having faculty engaged in research is often not obvious to students, and even some faculty would prefer to have their evaluation and rewards based solely on teaching.  As I see it, there are two purposes of academic research.  One is that good teaching depends on good thinking, and so teachers need to spend a lot of time and energy thinking about their field.  Research is the most active kind of engagement.  From an extensive study of university professors, Ken Bain finds that the best teachers are all active in their fields in some way.  This is probably obvious to any teacher/researcher.  The point of higher education is not to learn things from people who learned those things from other people for the purpose of teaching them.  The other benefit is that research is a kind of public good, with potentially widespread effects.  Every idea in every undergraduate textbook was once a piece of research that was known to and understood by very few, and these ideas have benefits far beyond the universities themselves.

I believe in the value of research in both senses, and I think that some colleges and universities do not support research enough; but I also suspect that research-oriented universities are too focused on research.  Although it would be extraordinarily difficult to measure, I would guess that the marginal benefit of research is fairly sharply declining, in both senses.  For the teaching part, doing lots of research rather than some research just isn't that beneficial.  (Frances Woolley says that research is a signal: i.e. that professors do research to demonstrate their intellectual quality.  I think this explanation is a little thin.  If you simply want to use research as this kind of measure, you don’t have to do lots and lots of it.  Quantity of output would be one dimension of the quality of a researcher, but it wouldn't be hard to focus on other measures that would minimize costs.)  It is more difficult to evaluate the question of what resources to devote to research for the sake of public knowledge.  The benefits of research are stochastic and may not become apparent until well after a project is completed.  Again, however, there has to be a declining marginal benefit: researchers will focus on their most promising projects first, and the projects that seem most promising ex ante will, on average, be the most fruitful ex post.  (There is also the question of whether tomorrow's knowledge is coming at a cost to today's students, and the more fundamental question of to what extent public universities are even intended to serve students' interests.)

Given the difficulty in assessing the benefits of research in any precise way, here is another way to consider the question.  Academic researchers (and administrators, most of whom are formerly active researchers) are influential in deciding how university resources are allocated.  Academics like doing research, and many of them only tolerate teaching as a necessary burden that comes with the research job.  Even those who don't actively dislike teaching would like to minimize their teaching loads.  If these same people have enough influence, there is no reason to think that resources are being allocated in a way that balances all the costs and benefits.  Personally, I think that a 2-2 course load is about right for an active researcher.  I think it would also be reasonable for universities to take a broad view of what kinds of intellectual activities are valuable for faculty members to engage in (like blogging!), although issues arise in evaluating anything other than traditional research.

What bothered me about the article was that some of the people quoted in it talk about university research as if it is a yes or no proposition--not acknowledging the difference between turning the University of Texas into a "downmarket trade school" and simply placing less emphasis on research--or talk about its benefits without consideration of the costs.

Wednesday, February 6, 2013

Data data data

David Brooks comments:
If you asked me to describe the rising philosophy of the day, I’d say it is data-ism. We now have the ability to gather huge amounts of data. This ability seems to carry with it certain cultural assumptions — that everything that can be measured should be measured; that data is a transparent and reliable lens that allows us to filter out emotionalism and ideology; that data will help us do remarkable things — like foretell the future.
Brooks goes on to give examples of the valuable insights that data analysis can give us.  The means we have of gathering and analyzing data are indeed very impressive.  I think there is a potential problem, which one might call "data worship," a more extreme version of Brooks's "data-ism": quantifiable data is often seen as the only valid way of answering any question, and I sometimes think that natural or social scientists view questions that are not amenable to quantitative analysis as not worth asking.  Just an impression--I've never heard that expressed explicitly.

Sunday, February 3, 2013

What is the deal with “heterodox” economics?

Heterodox economics is anything outside the mainstream (which is sometimes pejoratively referred to as "orthodox" economics). It's difficult to be precise about what qualifies as heterodox, especially since the boundaries are changing over time. The term can be applied to a school of thought, a piece of research, a researcher, or a journal. It is my impression that the distinction is sharpest for journals: there doesn't seem to be any disagreement about which journals fall into which category (a list of heterodox journals is here). I don't know whether other fields have this kind of division. I've heard of, for example, a subset of political scientists who think that the work being done by some other subset of political scientists is worthless, but not of a majority against a minority.

Although I cant come up with a non-tautological characterization of what distinguishes heterodox economics from the mainstream, it seems to be a question of what topics are of interest, what methodologies are most valid, or what political point of view is being promoted. Greater extremity in any sense tends to be less likely to be mainstream. Many of the areas of contention are macroeconomic. I'm interested in these debates, but as a microeconomist I’m only a spectator, and the finer points are often lost on me. There is also some disagreement about what defines a school of thought. For example, some Austrian economists categorically reject the use of mathematics to analyze social phenomena, and others say that this rejection is not in the true spirit of Austrian economics. There has been a lengthy debate on this question, for example here. Apart from the substantive issue—the role of mathematics in social research—I don’t find the debate over how different views should be labeled very interesting. The heterodox label itself is somewhat arbitrary and, in my opinion, not constructive. The important question to ask about any line of research is what insight it offers, and there is at best an imperfect correlation between this question and the categorization of research as either inside or outside the mainstream.

An economist might choose to pursue heterodox research for a number of reasons. There are those who seem to object to the mainstream in any sphere, or perhaps just enjoy being outsiders. Often it is simply a matter of the specific topics or methodologies of interest to the economist. Whether because of these areas of interest or for other reasons, heterodox economists commonly have not been successful in the mainstream. Here is where it gets tricky. If one lacks the ability or desire to go through the rigors of mainstream research, criticizing the mainstream becomes appealing. This fuels the mainstream's ability to dismiss heterodox research as amateurish (this post goes so far as to call the entire body of heterodox research "a joke"). At the same time, insiders always have incentive to keep outsiders out, for whatever reason, and economists understand this better than anyone. I have seen plenty of heterodox research that is of little or no value, whether because it is poorly executed, uninformed, or misguided. On the other hand, the same could be said for some mainstream research, and it does the profession no good to ignore research simply because it could be labeled as heterodox.

I don't think that mainstream economics is in danger of being overthrown, or that an overthrow is desirable; but I think that the profession would do well to be more open in terms of what questions are interesting, what methods are useful, and what we consider to be evidence. Personally, I think it's interesting to see how qualitative methods can contribute to economic understanding. At the same time, I support the mainstream view of the value of mathematical analysis (I think that quantitative and qualitative methods each have their own advantages and their own pitfalls, but that is the subject of another post). If I could do anything to change the relationship between mainstream and heterodox economics, it would be to blur the line between them. The profession does incorporate heterodox thinking over time, but I would say that this is happening too slowly. Giving some consideration to alternative points of view can never hurt, and disregarding these points of view can lead to some massive fails.

One of my students—intelligent, thoughtful, and responsible—came to my office during his final undergraduate semester, while he was taking a course in evolutionary economics. He had previously taken my classes in (mostly neoclassical) micro theory and industrial organization. He was having what I think is a common reaction from students when they are first exposed to heterodox thought: something like "Wait a minute!  Everything I've been learning is wrong!" I would never fan the flames of such a reaction—quite the opposite—but I think it is useful for undergraduate economics majors to have some acquaintance with ideas outside the mainstream. In any economics class, it is worth mentioning that controversies exist. A professor who, for example, teaches a single theory of economic fluctuations without even mentioning any alternatives is doing a disservice to students. And I would agree with others (sorry, can’t seem to find the references) who stress the importance of a course in the development of economic thought in any doctoral curriculum.

Saturday, February 2, 2013

Why blog

I'm doing this in part for my students, and may use the blog to post most of what now shows up on the St. Edward's Economics Department Facebook page.  Also have lots of things I would just like to write down, with no presumption about who (if anyone) would like to read them.  Usual disclaimers apply.