Month: June 2010

The Haitian social fabric is fraying

You may recall that the immediate aftermath of the earthquake brought relatively high levels of order and even a decline in crime.  Yet norms are evolving to meet the new and desperate environment which most Haitians face.

The Haitians are now figuring out how to rob and murder visiting Americans; the body count is suddenly at four.  The level of rape is escalating.

The Haitian Presidential election is now set for November 28, and that is likely to bring a good amount of violence.  And since so many voting records have been destroyed, it will be difficult to limit fraud, accusations of fraud, and the winner may not be seen as legitimate.

One simple hypothesis is that people behave fairly calmly, and even passively, during shocking experiences and in their immediate aftermath.  The medium-term response can be quite different.

Most people are ignoring the Haitian situation, as they have mistakenly concluded it has stabilized.  It has not.  You still have a milion and a half people, in a basically untenable situation, more or less homeless, with the heart of the country destroyed and not much ongoing reconstruction or reform.

Should we trust or distrust the dogmatic?

Paul, a loyal MR reader, writes to me and queries:

…would or should knowing that someone is deeply religious affect your assessment of the reliability of their economic judgments? I used to think not, but in the last couple of years have been gradually changing my mind. The financial crisis has brought out how many serious macro and micro misjudgments were due in part to the unwillingness of economists to re-examine cherished foundational beliefs. I now view with even greater suspicion than before any adherence to the idea that faith provides a justification for ignoring logic and evidence. But the paradox is that I have no actual evidence that religious economists were more likely than secular ones to cling to foundational economic hypotheses in the face of considerations that should have led them to change their minds. It is even imaginable that they were less likely to do so, since secular economists might have exercised similar failures of reasoning about non-theological issues. That is, antipathy to metaphysical reason might be a substitute for antipathy to economic reason, instead of being a complement as I have been presuming. Can anyone provide anecdotal or statistical evidence on this?

I don't know of any systematic evidence, but often I favor portfolio models of dogmatism (by the way, don't argue in the comments about whether religion is necessarily dogmatism; that's not the relevant point here and I'll delete discussion of that.  If you wish just treat this as a discussion of dogmatism).

That is, most people have an internal psychological need to fulfill a "quota of dogmatism."  If you're very dogmatic in one area, you may be less dogmatic in others.  I've also met people — I won't name names — who are extremely dogmatic on ethical issues but quite open-minded on empirics.  The ethical dogmatism frees them up to follow the evidence on the empirics, as they don't feel their overall beliefs are threatened by the empirical results.

Some people, if they feel they must always follow the evidence, respond by skewing their interpretation of that evidence.

There's a lesson here.  If you wish to be a more open-minded thinker, adhere to some extreme and perhaps unreasonable fandoms, the more firmly believed the better and the more obscure the area the better.  This will help fulfill your dogmatism quota, yet without much skewing your more important beliefs.

An alternative view is that people become addicted to dogmatism and the dogmatic habits spread to many more realms of their thought.  I believe this alternative model is true above some margin of dogmatism and also if the dogmatism infects the "wrong areas of thought."

I would like to know more about what the dogmatism portfolio looks like and what are the relevant coefficients of substitution and complementarity.

I believe in portfolio models of dogmatism very very strongly. 

Is it 1937 again?

There are many commentaries on David Leonhardt's article today on whether we should be raising taxes and cutting government spending, as was done in 1937.  Yet I don't see anyone — at least not today — talking about monetary policy during 1936-7.  A bit earlier, David Beckworth stepped up to the plate:

Is the Federal Reserve (Fed) making a similar mistake to the one it made in 1936-1937? If you recall, the Fed during this time doubled the required reserve ratio under the mistaken belief that it would reign in what appeared to be an inordinate buildup of excess reserves. The Fed was concerned these funds could lead to excessive credit growth in the future and decided to act preemptively. What the Fed failed to consider was that the unusually large buildup of excess reserves was the result of banks insuring themselves against a replay of the 1930-1933 banking panics. So when the Fed increased the reserve requirements, the banks responded by cutting down on loans to maintain their precautionary level of excess reserves. As a result, the money multiplier dropped and the money supply growth stalled…

The second link in this post offers the critical figure.  If monetary policy is sufficiently accommodative, I do not see that we are risking a 1937-8 repeat.  In 1936-7, monetary policy was not just insufficiently expansionary, it was absolutely draconian.  Read this paper too.  Here is Scott Sumner.

As the stimulus is pulled away, there is a reasonable chance that the Fed will be more accommodative.  Remember, the monetary authority moves last.

I do not see why we are discussing this issue without placing monetary policy at the center of the analysis.

Jarda Borovicka writes to me

In the whole discussion about whether the U.S. should borrow more now when the interest rates are low, I miss one crucial thing – what happens when the debt comes due?

Risk-free debt is really risk-free only when the maturity also coincides with terminal repayment. But assume that the U.S. borrows an extra trillion of dollars now, due in 10 years (the average debt duration of the U.S. debt is something like 4 years?). Sure, the interest rate is low, but the borrowing is cheap only as long as we assume that during the 10 years the U.S. repays this whole extra debt, compared to what would have happened in the baseline world.

If not, the U.S. will need to refinance this debt in 10 years, and potentially at much higher interest rates. There is a potentially very large risk looming. Greece has experienced this the hard way – it collapsed not because it necessarily needed new borrowing but because it had to roll over the old borrowing at impossibly high rates.

And I have not heard the advocates of more borrowing to suggest any credible offsetting mechanism that would lead to repayment (not replacement with other borrowing) of this extra debt at or before maturity. But then the idea "let's borrow now because it's cheap" becomes seriously flawed.

I would compare those who advocate such outright borrowing without committing to credibly repay at maturity to people who fall for teaser mortgage rates and are rather negatively surprised to see the rate adjust later. It is interesting though that there seems to be a large positive correlation between people who advocate government borrowing because rates are low NOW, and those who call for protecting consumers against reckless lenders who tease them with a low temporary rate. To quote a famous Canadian singer, Isn't it ironic?

How Germans use bees

Airports in Germany have come up with an unusual approach to monitoring air quality. The Düsseldorf International Airport and seven other airports are using bees as “biodetectives,” their honey regularly tested for toxins.

…Beekeepers from the local neighborhood club keep the bees. The honey, “Düsseldorf Natural,” is bottled and given away as gifts.

The article is here and I thank David Wessel for the pointer.


In advance of July 4, Patri Friedman and co-bloggers are discussing secession (remember, we call it the American revolution they call it secession) at Let a Thousand Nations Bloom.  Here is Patri on secession as a startup

America did not merely secede and copy the governing documents or style of the United Kingdom. Rather, it innovated, creating a system based on the English Common Law, yet different, one with explicit checks and balances to restrain government, and with no place for a monarch. It was an experiment with a more radical form of democracy than existed anywhere in the 18th-century world.

And it was an incredibly successful experiment, as the combination of that innovative rule-set and the empty frontier resulted in America growing rapidly in population, wealth, and influence. During the open immigration periods of the 19th century, some years saw over a million new immigrants arrive “yearning to breathe free”. As a result, the new American state had influence far beyond its shores.

This influence occured in two major ways. First, America served as a test of the brand-new American Constitution, and the Founding Fathers’ philosophy about the role of government. By showing that it worked well in practice, political philosophers, politicians, voters, and revolutionaries around the world were (slowly) convinced that this was the best government technology to be had. Second, America dramatically outcompeted existing states, based on the simple metric of net migration. Those million+ people a year who went to America can be thought of as customers of government services voting with their feet, which means that other countries were losing market share.

You may not be used to thinking of government in this sort of economic and business framework, but it is a core part of our philosophy here at Let A Thousand Nations Bloom, and we find it provides a unique and refreshing angle on government. In this case, it shows us the invisible, long-term effects of the American Revolution.

They are covering a lot of other related material such as the optimal size and number of nations this week as well.  Here is a guide.  On a related point, I argued earlier for The Great State of Northern Virginia.

Finally, don’t forget: If at first you don’t secede, try, try again.

What is vacation good for?

Drake Bennett writes:

They found that in all three cases, the respondents were least happy about the vacation while they were taking it. Beforehand, they looked forward to it with eager anticipation, and within a few days of returning, they remembered it fondly. But while on it, they found themselves bogged down by the disappointments and logistical headaches of actually going somewhere and doing something, and the pressure they felt to be enjoying themselves.

A recent Dutch study had a more striking finding. Looking not at vacation memories, but measuring general happiness level through a simple three-question questionnaire, the researchers found that going on vacation gave a notable boost to pre-vacation mood but had hardly any effect on post-vacation feelings. Anticipation, it seems, can be a more powerful force than memory.

Here is much more.  I liked this sentence:

The most effective way to inoculate a vacationer against the deadening power of adaptation, however, may be the most counterintuitive – to break it up, to interrupt it with real life.

In other words, bring work.  I call it "taking a work vacation."

For the pointer I thank David Archer.

Barbados vs. Grenada, the demand for own-goals, 1994

There was an unusual match between Barbados and Grenada.

Grenada went into the match with a superior goal difference, meaning that Barbados needed to win by two goals to progress to the finals. The trouble was caused by two things. First, unlike most group stages in football competitions, the organizers had deemed that all games must have a winner. All games drawn over 90 minutes would go to sudden death extra time. Secondly and most importantly, there was an unusual rule which stated that in the event of a game going to sudden death extra time the goal would count double, meaning that the winner would be awarded a two goal victory.

Barbados was leading 2-0 until the 83rd minute, when Grenada scored, making it 2-1. Approaching the dying moments, the Barbadians realized they had no chance of scoring past Grenada's mass defense, so they deliberately scored an own goal to tie the game at 2-2. This would send the game into extra time and give them another half hour to break down the defense. The Grenadians realized what was happening and attempted to score an own goal as well, which would put Barbados back in front by one goal and would eliminate Barbados from the competition.

However, the Barbados players started defending their opposition's goal to prevent them from doing this, and during the game's last five minutes, the fans were treated to the incredible sight of Grenada trying to score in either goal. Barbados also defended both ends of the pitch, and held off Grenada for the final five minutes, sending the game into extra time. In extra time, Barbados notched the game-winner, and, according to the rules, was awarded a 4-2 victory, which put them through to the next round.

The full story is here and I thank Solomon Gold for the pointer.  Angus also blogged this story, with video evidence as well.

How hard is economics?

Brad DeLong discusses a recent short essay by Kartik Athreya; Matt Yglesias chips in, as does Scott Sumner.

My view is a little different than Brad's.  I would say that economics is really, really, really, really, really, really, really hard.  And that's leaving out a few of the "reallys."

It's so hard that experts don't always do it well.  The experts are constantly prone to correction by non-experts, by practitioners, by people who are self-educated economic experts but not professional economists, and by people who know some economics and a lot about some other field(s).  It is very often that we — at least some of us – are wrong and at least some of those other people are right.  Furthermore those other people are often more meta-rational than a lot of professional economists.

Even very simple problems can be quite hard, such as why nominal wages are sometimes sticky or why particular markets don't always clear, in the absence of legal impediment.  Why doesn't the restaurant charge more on a Saturday night?  You can imagine how hard the hard problems are, such as what level of public expenditure is consistent with an ongoing and workable democratic equilibrium.

Putting aside agreement and ideology, and just focusing on how one understands an issue, I'll take my favorite non-Ph.d. bloggers over most professional economists, six out of seven days a week.  Not to estimate a coefficient, but to judge public policy, thereby integrating and evaluating broad bodies of knowledge?  It's not even close.