Philosophy

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Singapore as an independent nation will be fifty years old this August 9.  In the comments, a number of you have asked me why I find Singapore so special.

I would cite three features of the country above all else:

1. It is a place where large numbers of people are obsessed with both food and economics.

2. The citizens and leadership of Singapore have an unparalleled knowledge and understanding of economics, engineering, and public policy.  In this regard the polity is distinguished in world-historic terms, and anyone who visits is enjoying a remarkable privilege to see this in action.  In my admittedly idiosyncratic view, this is one of the best and most important sights of the contemporary world, more interesting than most natural wonders.

3. Singapore has created what is possibly the highest quality bureaucracy the world has seen, ever.  Imagine a country where you can have a serious debate as to whether there is a brain drain into the government rather than out of it!

Singapore of course, like all places, has various problems and imperfections, but I believe its significance does not receive enough recognition from outside commentators.

Here is a good article about how Singapore is seeking to export its own expertise.

Imagine if I wrote a post that just served up a list like this:

The people who deserve to be raised in status:

Norman Borlaug, Jon Huntsman, female Catholics from Croatia, Scottie Pippen, Yoko Ono, Gordon Tullock, Uber drivers, and Arnold Schoenberg,

And

The people who deserve to be lowered in status:

Donald Trump, Harper Lee, inhabitants of the province Presidente Hayes, in Paraguay, doctors, Jacques Derrida, Indira Gandhi, and Art Garfunkel

You might get a kick out of it the first time, but quickly you would grow tired of the lack of substance and indeed the sheer prejudice of the exercise.

Yet, ultimately, the topic so appeals to you all.  So much of debate, including political and economic debate, is about which groups and individuals deserve higher or lower status.  It’s pretty easy — too easy in fact — to dissect most Paul Krugman blog posts along these lines.  It’s also why a lot of blog posts about foreign countries don’t generate visceral reactions, unless of course it is the Greeks and the Germans, or some other set of stand-ins for disputes closer to home (or maybe that is your home).  Chinese goings on are especially tough to parse into comparable American disputes over the status of one group vs. another.

I hypothesize that an MR blog post attracts more comments when it a) has implications for who should be raised and lowered in status, and b) has some framework in place which allows you to make analytical points, but points which ultimately translate into a conclusion about a).

Posts about immigration, the minimum wage, Greece and Germany, the worthiness of entrepreneurs vs. workers, and the rankings of different schools of thought or economists all seem to fit this bill.

Sometimes I am tempted to simply serve up the list and skip the analytics.

Addendum: Arnold Kling comments.

Prior to 1800 or so there were no large differences in per-capita GDP between nations, differences were perhaps on the order of 2-3 at most. As modern economic growth took hold in some nations and not in others, between-country inequality increased dramatically with differences in per-capita GDP between nations of up to a factor of 100. As more and more nations enter a modern economic growth phase–which now includes a very rapid catch-up phase–between-country inequality has started to decline. In the future we may return to much smaller differences in per-capita GDP between countries.

As MacAskill points out in Doing Good Better (review here see also here) this means that we live today in an unusual time when charity is very cheap. Today, for example, it’s possible to save a life for as little as $4000. As other nations become rich that will no longer be true. More generally, the average person in a developed country can do a lot of good today by giving up relatively little. As MacAskill writes:

Imagine a happy hour where you could either buy yourself a beer for five dollars or buy someone else a beer for five cents. If that were the case, we’d probably be pretty generous–next round’s on me! But that’s effectively the situation we’re in all the time. It’s like a 99-percent-off sale, or getting 10,000 percent extra free. It might be the most amazing deal you’ll see in you life.

The subtitle is Essential Writings by Our Greatest Thinkers, and the editor is Elizabeth D. Samet.  Here’s the shocking truth: these really are writings by our greatest thinkers!  Usually I am allergic to the topic of leadership and all the more allergic to edited volumes.  But this book has well chosen excerpts from Thucydides, Cervantes, Borges, Marcus Aurelius, Tolstoy, Milton, Plutarch, and Shakespeare, among many others, and a variety of moderns, including Mandela, Gandhi, Frederick Douglass, and Osip Mandelstam’s poem on Stalin.

This is actually a remarkable book.

Arthur C. Brooks, The Conservative Heart: How to Build a Fairer, Happier, and More Prosperous America.

Greg Mankiw has reviewed the book.

A very good sentence

by on July 29, 2015 at 1:01 pm in Current Affairs, Law, Philosophy | Permalink

We care about African animals and British people, but ignore African people and British animals.

That is from Andrew Pearson, via Ben Southwood.  And here is an interesting WaPo Lindsey Bever article about the economics of hunting big game.

When I was last living in Chicago, in the spring 2014, a regular visitor to the department of the University of Chicago and the editor of the Journal of Economic Literature, Steven Durlauf, asked me if I would be interested in writing something for the journal. For many years I had promised Gary Becker that I would write something to help clarify the meaning and role of price theory to my generation of economists, especially those with limited exposure to the Chicago environment, which did so much to shape my approach to economics. With Gary’s passing later that spring, I decided to use this opportunity to follow through on that promise. More than a year later I have posted on SSRN the result.

I have an unusual relationship to “price theory”. As far as I know I am the only economist under 40, with the possible exception of my students, who openly identifies myself as focusing my research on price theory. As a result I am constantly asked what the phrase means. Usually colleagues will follow up with their own proposed definitions. My wife even remembers finding me at our wedding reception in a heated debate not about the meaning of marriage, but of price theory.

The most common definition, which emphasizes the connection to Chicago and to models of price-taking in partial equilibrium, doesn’t describe the work of the many prominent economists today who are closely identified with price theory but who are not at Chicago and study a range of different models. It also falls short of describing work by those like Paul Samuelson who were thought of as working on price theory in their time even by rivals like Milton Friedman. Worst of all it consigns price theory to a particular historical period in economic thought and place, making it less relevant to the future of economics.

I therefore have spent many years searching for a definition that I believe works and in the process have drawn on many sources, especially many conversations with Gary Becker and Kevin Murphy on the topic as well as the philosophy of physics and the methodological ideas of Raj Chetty, Peter Diamond and Jim Heckman among others. This process eventually brought me to my own definition of price theory as analysis that reduces rich (e.g. high-dimensional heterogeneity, many individuals) and often incompletely specified models into ‘prices’ sufficient to characterize approximate solutions to simple (e.g. one-dimensional policy) allocative problems. This approach contrasts both with work that tries to completely solve simple models (e.g. game theory) and empirical work that takes measurement of facts as prior to theory. Unlike other definitions, I argue that mine does a good job connecting the use of price theory across a range of fields of microeconomics from international trade to market design, being consistent across history and suggesting productive directions for future research on the topic.

To illustrate my definition I highlight four distinctive characteristics of price theory that follow from this basic philosophy. First, diagrams in price theory are usually used to illustrate simple solutions to rich models, such as the supply and demand diagram, rather than primitives such as indifference curves or statistical relationships. Second, problem sets in price theory tend to ask students to address some allocative or policy question in a loosely-defined model (does the minimum wage always raise employment under monopsony?), rather than solving out completely a simple model or investigating data. Third, measurement in price theory focuses on simple statistics sufficient to answer allocative questions of interest rather than estimating a complete structural model or building inductively from data. Raj Chetty has described these metrics, often prices or elasticities of some sort, as “sufficient statistics”. Finally, price theory tends to have close connections to thermodynamics and sociology, fields that seek simple summaries of complex systems, rather than more deductive (mathematics), individual-focused (psychology) or inductive (clinical epidemiology and history) fields.

I trace the history of price theory from the early nineteenth to the late twentieth when price theory became segregated at Chicago and against the dominant currents in the rest of the profession. For a quarter century following 1980, most of the profession either focused on more complete and fully-solved models (game theory, general equilibrium theory, mechanism design, etc.) or on causal identification. Price theory therefore survived almost exclusively at Chicago, which prided itself on its distinctive approach, even as the rest of the profession migrated away from it.

This situation could not last, however, because price theory is powerfully complementary with the other traditions. One example is work on optimal redistributive taxation. During the 1980’s and 1990’s large empirical literatures developed on the efficiency losses created by income taxation (the elasticity of labor supply) and on wage inequality. At the same time a rich theory literature developed on very simple models of optimal redistributive income taxation. Yet these two literatures were largely disconnected until the work of Emmanuel Saez and other price theorists showed how measurements by empiricists were closely related to the sufficient statistics that characterize some basic properties of optimal income taxation, such as the best linear income tax or the optimal tax rate on top earners.

Yet this was not the end of the story; these price theoretic stimulated empiricists to measure quantities (such as top income inequality and the elasticity of taxable income) more closely connected to the theory and theorists to propose new mechanisms through which taxes impact efficiency which are not summarized correctly by these formulas. This has created a rich and highly productive dialog between price theoretic summaries, empirical measurement of these summaries and more simplistic models that suggest new mechanisms left out of these summaries.

A similar process has occurred in many other fields of microeconomics in the last decade, through the work of, among others, five of the last seven winners of the John Bates Clark medal. Liran Einav and Amy Finkelstein have led this process for the economics of asymmetric information and insurance markets; Raj Chetty for behavioral economics and optimal social insurance; Matt Gentzkow for strategic communication; Costas Arkolakis, Arnaud Costinot and Andrés Rodriguez-Clare in international trade; and Jeremy Bulow and Jon Levin for auction and market design. This important work has shown what a central and complementary tool price theory is in tying together work throughout microeconomics.

Yet the formal tools underlying these price theoretic approximations and summaries have been much less fully developed than have been analytic tools in other areas of economics. When does adding up “consumer surplus” across individuals lead to accurate measurements of social welfare? How much error is created by assumptions of price-taking in the new contexts, like college admissions or voting, to which they are being applied? I highlight some exciting areas for further development of such approximation tools complementary to the burgeoning price theory literature.

Given the broad sweep of this piece, it will likely touch on the interests of many readers of this blog, especially those with a Chicago connection. Your comments are therefore very welcome. If you have any, please email me at glenweyl@microsoft.com.

Doing Good Better

by on July 27, 2015 at 7:25 am in Economics, Philosophy | Permalink

William MacAskill is that rare beast, a hard-headed, soft-hearted proponent of saving the world. His excellent new book, Doing Good Better, is a primer on the effective altruism movement.

Doing Good Better opens, just as you would expect, with an uplifting story of a wonderful person with a brilliant idea to save the world. The PlayPump uses a merry-go-round to pump water. Fun transformed into labor and life saving clean water! The energetic driver of the idea quits his job and invests his life in the project. Africa! Children on merry-go-rounds! Innovation! What could be better? It’s the perfect charitable meme and the idea attracts millions of dollars of funding from celebrities like Steve Case, Jay-Z, Laura Bush and Bill Clinton.

Then MacAskill subverts the narrative and drops the bomb:

…despite the hype and the awards and the millions of dollars spent, no one had really considered the practicalities of the PlayPump. Most playground merry-go-rounds spin freely once they’ve gained sufficient momentum–that’s what makes them fun. But in order to pump water, PlayPumps need constant force, and children playing on them would quickly get exhausted.

The women whose labor was supposed to be saved end up pushing the merry-go-round themselves, which they find demeaning and more exhausting than using a hand-pump. Moreover, the device is complicated and requires extensive maintenance that cannot be done in the village. The PlayPump is a disaster.

MacAskill, however, isn’t interested in castigating donors for their first-world hubris. MacAskill, a frugal Scottish philosopher, doesn’t like waste. Money, time and genuine goodwill are wasted in poorly-conceived charitable efforts and when lives are at stake that kind of waste is offensive. MacAskill, however, is convinced that a hard-headed approach–randomized trials, open-data, careful investigation of effectiveness–can do better. As MacAskill puts it:

When it comes to helping others, being unreflective often means being ineffective.

Of course, there are systematic problems with charitable giving. Most importantly, the feedback mechanism is never going to work as well when people are buying something to be consumed by others (as Milton Friedman explains). That problem, however, doesn’t explain why people do invest large amounts of money and their own time on wasteful projects. A large part of the problem is cultural. MacAskill asks us to consider the following thought experiment:

Imagine, for example, that you’re walking down a commercial street in your hometown. An attractive and frightening enthusiastic young woman nearly assaults you in order to get you stop and speak with her. She clasps a tablet and wears a T-shirt displaying the words, Dazzling Cosmetics…she explains that she’s representing a beauty products company that is looking for investment. She tells you about how big the market for beauty products is, and how great the products they sell are, and how because the company spends more than 90 percent of its money on making the products and less than 10 percent on staff, distribution, and marketing, the company is extremely efficient and therefore able to generate an impressive return on investment. Would you invest?

MacAskill says “Of course, you wouldn’t…you would consult experts…which is why the imaginary situation, I described here never occurs” Actually it’s even worse than that because what he describes does occur. It’s what the boiler rooms do to sell stocks (ala the Wolf of Wall Street). Thus, charities raise money using precisely the techniques that in other contexts are widely regarded as deceitful, disreputable and preying on the weak. Once you have seen how peculiar our charitable institutions are, it’s difficult to unsee.

Fortunately, effective altruism doesn’t require Mother Theresa-like levels of altruism or Spock-like level of hard-headedness. What is needed is a cultural change so that people become proud of how they give and not just how much they give. Imagine, for example, that it becomes routine to ask “How does Givewell rate your charity?” Or, “GiveDirectly gives poor people cash–can you demonstrate that your charity is more effective than cash?” The goal is not the questioning. The goal is to give people the warm glow when they can answer.

An excellent collection, edited by Jonathan Anomaly, Geoffrey Brennan, Michael C. Munger, and Geoffrey Sayre-McCord, self-recommending.  If I wanted a one-stop collection on PPE for teaching purposes, this exactly what I would use.

The authors are Nobel Laureates George A. Akerlof and Robert J. Shiller and the subtitle is The Economics of Manipulation and Deception.  It’s a popular take on how markets trap you and your preferences in places you don’t want to be.  Self-recommending of course.

There are chapters on advertising, tobacco, alcohol, junk bonds, credit cards, pharmaceuticals (some), and yes government.  My main complaint about the book is that its chooses easy targets and doesn’t puncture enough sacred cows.  For instance the chapter on government criticizes spending money on lobbying, whereas I would have preferred an attempt to show that an apparently beneficial and popular institution is in fact bad and appealing to the weaker elements in our preferences.  I wonder to what extent what the authors call “The Resistance and its Heroes” is in fact another example of…phishing for phools.  In other words, I wish this book were more Hansonian.

By the way, I have never eaten too much ice cream.

It is common for left-wing progressives to complain that conservatives serve up unflattering accounts of the unemployed and poor, such as by calling them “moochers” and the like.

But many versions of the standard Keynesian account, once we deconstruct them a bit, don’t paint such a flattering picture of the unemployed either.  In one Keynesian scenario, many of the unemployed have lacked jobs for years because they have sticky nominal wage demands.  Under one scenario, they could find jobs for $x an hour but won’t take the work.  If government policy could reflate the economy enough, those jobs in nominal terms would offer more and the unemployed would be in essence fooled into taking the offer.  The job would be paying the same in real terms, so the ex ante stubbornness is a big mistake, at least under this account of the matter.

Such a mistake is made throughout years of material suffering and psychological deprivation, including serious problems for one’s children.  Yet a mere nominal trick, by boosting pride just a bit, will move them back into a job.

It is of course a well-known stylized fact that, at least in America, unemployment rates for the poor and undereducated are much higher than for wealthier or better educated people.  So a general citation of “money illusion” won’t rescue the victims from the rather unflattering Keynesian portrait painted here.

Alternatively, the relevant mechanism may operate through the demand for labor, rather than the supply.  Perhaps low-skilled workers cannot be employed at lower wages because their resentment at the low wage would be so high that they would impose unacceptable morale costs on the organizations employing them.  In other words, insult them with a sub-par wage offer and they turn destructive toward the entire organization.  Companies of course prefer to keep these workers at arms’ length under this hypothesis.

If Charles Murray had come up with that hypothesis, he would have been savagely attacked for it.  Yet there is growing evidence, for instance from the work of Alan Blinder, that it is a major cause of wage stickiness.

Left-wing Keynesians are reluctant to acknowledge their own implicit unflattering treatment of the poor, which I should add came (in part) from snobby and elite British economists, including Keynes.  Often microfoundations are considered an embarrassing topic, and the emphasis is on “well, we know that wages are sticky,” with a desire not to look too closely under the hood, or to consider how those stories jive with other deeply held views, many of which try to raise the relative status of the poor and unemployed.

Bryan Caplan is consistent and is also happy to satisfy the publicity condition.  He believes in nominal stickiness as a driver of unemployment (under many circumstances) and he holds a relatively skeptical view of the decision-making capabilities of many (by no means all) of the poor.

The most flattering macro theories toward the poor, undereducated, and unemployed are the complementarity, increasing returns, and RBC “the poor are maximizing given some bad constraints” approaches.  Insider-Outsider models make the unemployed victims of exclusion who don’t even get a chance, rather than potential troublemakers ready to sabotage an enterprise at a moment’s notice.  The same can be said for Scott Sumner’s “musical chairs” account.  As for schools of thought, the rational expectations theorists provide the most flattering picture of the poor, yet in the context of macroeconomics they are very frequently mocked for their unrealistic assumptions.  Search theory models of unemployment, which for instance I have tried to promote, also paint a not unfavorable picture of the jobless, but they too are not very popular in the New Old Keynesian economics.  If I were to generalize, and yes there are many exceptions, but still I would say that these more flattering pictures of the unemployed are more likely to be associated with or embraced by the political Right.

Consistency is hard to come by, and probably always will be.

Here is one good bit of many:

I have a deep-rooted prejudice which is that if people can talk fluently in everyday language about their job, it strongly suggests that they have fully incorporated their work into their character. They feel it in their belly. There are people with whom you talk about technical stuff and it almost feels like they can only talk about it in a very formal way with their best work face on – as if the information they are talking about has not penetrated within. Twitter cuts through that and is a way of finding people who are insightful and passionate about what they do, like junior doctors one year out of medical school who take you aback when you realise they know more than people whose job it is to know about a particular field, such as 15 year-old Rhys Morgan. He has Crohn’s disease and went onto Crohn’s disease discussion forums and discussed evidence, whilst noting down people making false claims about evidence for proprietary treatments. He ended up giving better critical appraisal of the evidence that was presented than plenty of medical students. This was all simply because he read How to Read a Paper by Trish Greenhalgh and some of my writings, so he has learnt about how critical appraisal works and what trials look like along with the strengths and weaknesses of different kinds of evidence. Thanks to Twitter, I have been able to read about people like Rhys in action and to see ideas and principles really come alive and be discussed and for that, it is wonderful.

For the pointer I thank Michelle Dawson.

Eric Schwitzgebel and Fiery Cushman have an interesting paper (pdf, pubished Cognition version here) which raises that question rather directly:

We examined the effects of framing and order of presentation on professional philosophers’ judgments about a moral puzzle case (the “trolley problem”) and a version of the Tversky & Kahneman “Asian disease” scenario. Professional philosophers exhibited substantial framing effects and order effects, and were no less subject to such effects than was a comparison group of non-philosopher academic participants. Framing and order effects were not reduced by a forced delay during which participants were encouraged to consider “different variants of the scenario or different ways of describing the case”. Nor were framing and order effects lower among participants reporting familiarity with the trolley problem or with loss-aversion framing effects, nor among those reporting having had a stable opinion on the issues before participating the experiment, nor among those reporting expertise on the very issues in question. Thus, for these scenario types, neither framing effects nor order effects appear to be reduced even by high levels of academic expertise.

I wonder to what extent economists do better at treating sunk costs as sunk?  The pointer is from Michelle Dawson.

By the way, ethicists are not more ethical.  Just in case you were wondering.  Are economists more economical?

The Stoics aside, most of these Twitter nominations are terrible.  What comes to mind immediately for me is:

Tocqueville’s Democracy in America

Pascal’s Pensees

Hume’s Enquiry

Jonathan Swift, Gulliver’s Travels or Melville’s Moby Dick

That’s off the top of my head, I am sure I am forgetting some strong candidates.  Plato is too Straussian (not that there’s anything wrong with that…), Aristotle is too dull and it is often just lecture notes anyway, many other writers are too prolix, and contemporary books typically don’t have enough breadth, or for that matter wisdom, to top this list.

What is your pick?

That is the new book by Jason F. Brennan and Peter Jaworski.  I like my own blurb for it:

“There are many books on the morality of commerce and market commoditization, but this one is better than the others. It is better argued, penetrates into the issues more deeply, and most of all it is right.”