Words of wisdom

Basically when you ask questions where the left-wing answer is also the one supported by economics, suddenly left-wing people have a better understanding of economics. But when you ask the other set of questions, it comes out the other way. Basically, there’s a lot of confirmation bias out there. This is why I think people who teach economics ought to think harder about their choice of examples when teaching.

That is Matt Yglesias (check out the interesting graph), referring to this paper by Daniel Klein and Zeljka Buturovic.

Comments

Sounds like someone should talk to Matt about positive versus normative economics.

Sounds like the "value free" characterization of science. I don't think it makes sense at all. Partially for the reasons I outline a few posts down, science under a class system is inherently leveraged towards the interests of preeminent investors (or owners, controllers in different systems) in the industry. We can only guess who they are, but I'll give you a hint: it's not really the lower class, and the middle class only makes up a minor part of the remaining...

It's an aspiration. You fake it 'til you make it.

If you replaced the word "left" with "right" would the same argument that Yglesias is making hold?

Yes, that's the point. The complaint raised about the original survey was that its questions had correct answers which tended to validate conservative beliefs. The authors then added new questions where the correct answers tended to validate liberal beliefs. This changed the result: conservatives no longer looked economically enlightened. It turns out (big surprise) that people's political view are, on average, completely unrelated to economic theory.

... yes? It would be the same argument that Yglesias is making, since the argument includes its converse: "it comes out the other way". If it holds in this form, it holds in the other.

i think you're both been trolled.

Sorry, not trolling. I was being dense and didn't read the post closely enough.

"If you replaced the word “left” with “right” would the same argument that Yglesias is making hold?"

Yes, absolutely. What's particularly laughable is the typical conservative's understanding of free markets.

There are distinctions between the policy elite and the man on the street. The policy elite on both sides (and in many cases that does NOT include our legislators), whatever their many and manifest flaws, generally understand economics quite well (though honesty does not always go along with understanding). The typical man on the street, not so much. Regardless of left/right political affiliation.

Libertarians probably do have on the whole a somewhat greater understanding of economics. But still with (often) many gaps and blindspots, which makes their typical "if you understood economics you would be a libertarian" attitude particularly annoying.

'Libertarians probably do have on the whole a somewhat greater understanding of economics'

Correction: they have a greater understanding of economics textbooks, and think the real world behaves that way.

Interesting. I do feel, though, that a number of the new questions were constructed in such a way to intentionally elicit incorrect responses. So, for example:

12. Drug prohibition fails to reduce people’s access to drugs.
• Unenlightened: Agree
13. Gun-control laws fail to reduce people’s access to guns.
• Unenlightened: Agree

If you worded these as "Drug prohibition is ineffective in preventing people's access to drugs", the opposite answer would have been more correct. The same goes for #13 (and you have to assume many people interpreted these questions that way).

14. By participating in the marketplace in the United States, immigrants reduce the economic well-being of American citizens.
• Unenlightened: Agree

Ambiguous. Competition from low-wage immigrants (especially undocumented immigrants) does hurt low-skilled American citizens even though the overall effect is net positive.

16. When two people complete a voluntary transaction, they both necessarily come away better off.
• Unenlightened: Agree

The 'necessarily' is a weasel word thrown in to generate incorrect responses by those who would correctly agree with that statement where 'necessarily' was replaced by 'generally'. I suspect, too, many of those getting this one right in the 'necessarily' form would have gotten it wrong in the 'generally' form (that is, they would disagree that voluntary exchanges generally make both parties better off).

There is a heck of a difference between "necessarily" doing good and "generally" doing good.

That difference frankly characterizes a lot of the gap between hard-core pro-market types and what I'd call the center-left of economics, which generally believes that markets are usually good but sometimes government needs to step in and correct.

That said, I remember doing the same kind of nitpicking on the right wing one, so I'll take my medicine on these nitpicks.

"Generally" is the wrong word too, even not in the technical sense of the term. It should probabably be "on net" or "on average." In fact, if you take the question as two people generally, on average, or on net, then the question is basically asking you if you are a liberal where every transaction is somehow biassed or corrupted or a libertarian who thinks these are exceptions to the rule. Labeling this as "enlightened" seems to me unenlightened labeling.

I was a bit confused here. Why isn't the weak axiom of revealed preference the enlightened answer (and what is it)?

Imperfect information can lead to transactions that are ex post unsatisfactory. You can voluntarily trade with someone who turns out to have ripped you off. Even adding rational expectations will only get you to mutual benefit most of the time, not all of the time. Certain market structure can worsen this problem: look up "winner's curse."

Right, I was assuming ex ante

Uncertainty, presumably. I might speculate on oil expecting it to rise in price, but be made worse off when the price drops instead. As another example, I may buy a used car expecting to be made better off on average, but if the car happens to be a lemon then I will be made worse off. Thus, transacting in these markets does not necessarily make me better off.

Exactly as Andrew said. The whole point of saying that conservatives and/or libertarians have a blindspot on #16 is that some make exactly the "necessarily, instead of generally" fallacy. Generally, a voluntary transaction is better. And to go from that point of fact to advocating, in all cases, that voluntary transactions ought to ALWAYS be allowed, is a perfectly reasonable moral or prescriptive inference to make (given other core assumptions). But "generally implies necessarily" is not valid reasoning about normative facts, and conservatives and libertarians are more likely to confuse the two on that issue, just as liberals are more likely to confuse the two on the questions where their values line up with cases where "generally implies necessarily" is normatively false.

Sure, but the apparent counterexamples are examples where it's ex ante a good idea but ex post it turned out wrong. But since we make decisions ex ante, you couldn't ever use this as an argument against allowing a voluntary transaction, so as far as this goes, the reasoning is still sound. (You could use something in #17, however.)

You don't need to look too far in the literature to find things that are enaged in voluntarily ex ante by all relevant parties but are also perfectly forseeably bad ideas.

The Prisoner's Dilemma plus the Trajedy of the Commons, plus the Tulip Bubble, plus Ponzi Schemes, are, together, basically "why we have government".

What?! Unbelievable what you can see in this article and discussion...

Tragedy of the commons is a missing market, and the reason it's bad is b/c it's bad for other people (given that it's a commons, overfishing is what's best for me). Fraud is, like theft, not exactly the same as a voluntary transaction. So yes, you're right that you see these things in the lit, but no, they're not problems b/c they're examples of voluntary transactions by rational agents that are bad for the trading agents. (That's why I mentioned #17.)

Note also that there's a reason why we put game theory in general & prisoner's dilemma in particular under "non-cooperative" theory. That too is not an example of a voluntary transaction (the whole reason it's a dilemma is b/c the two prisoners can't trade)

Ryan, first I'd say that the question said nothing about markets. "When two people engage in a voluntary transaction". I'd argue that covers a broad range of things. But I'll take your point on the commons just to move things along.

Second, I don't think you get to just throw out all game theoretic findings just by labelling them "non-cooperative". It is perfectly possible to engage in voluntary transactions that include non-co-operative elements that are well-described by game theory. Like a labor negotiation. Or any negotiation. Which covers a huge proportion of real-world economic transactions, including nearly all material business-to-business transactions.

So yes, if you take "Delphi negotiating with Ford", and exclude it from your sense of "voluntary transactions", you move in the direction of all transactions being beneficial (though information asymmertries, bubbles, and a few other things will still haunt you). This is why some people have a blind spot here.

Also Ponzi schemes need not be fraudulent, they can be driven by the same psychology as bubbles.

Andrew, you don't have to say anything about markets. You just have to point out that me overfishing is not bad for me, and it's only bad b/c it's bad for other people (that's a #17 question). Yes, negotiation can still be voluntary transaction ... but those examples you give are ones where the ex ante expectation of the voluntary transaction is positive (whereas w/ Prisoner's Dilemma, it's negative but nonvoluntary). That's not a coincidence -- it's an outcome of WARP. So you need to relax ex ante, or rationality, or ex ante, or talk about effect on other people.

Oh, is that all I need to do to convince you? OK, I "relax rationality". And also posit information asymmetries. Cool, we're good.

No, information asymmetries aren't enough. See above; I think you might be misreading the lit if you think that's what they're saying (e.g., the whole logic behind the "lemons market" problem is that the asymmetry might cause a market to unwind because one side won't agree to a trade w/o ex ante expected gain.

Sure, you can relax rationality. I'm just skeptical that that's what the authors had in mind when they called it the "enlightened" answer.

But since we make decisions ex ante, you couldn’t ever use this as an argument against allowing a voluntary transaction

Unless you had information not known to at least one party to the transaction; for example, if you are a fraud investigation unit, and you are interfering in the transaction, it is probably because you know that the fraudulent scheme is fraudulent, which pretty much by definition the mark does not know at the time he voluntarily chooses to participate in it.

Information isn't always imperfect by accident. Sometimes it's imperfect by design.

I wouldn't characterize fraud as voluntary transaction. Nor would I characterize giving people information and/or preventing theft isn't the same thing as banning voluntary transactions.

It also depends on how you define "voluntary." Most professors would probably characterize my relationship to my advisor as voluntary, while many grad students would not.

Right, but you can't really hold that obvious mistake against grad students.

There are many cases where one party can suffer from a voluntary transaction which could have been prevented by a better informed third party. This is one of the reasons for demanding clear labeling of products and banning false advertising: to prevent poorly informed or naive agents from being ripped off.

I do feel, though, that a number of the new questions were constructed in such a way to intentionally elicit incorrect responses.

I disagree: they're deliberately constructed in such a way as to catch oversimplified worldviews, which is completely legitimate. Words like "reduce" and "necessarily" have well-defined meanings and if people read the questions as saying something other than what they say, then they are reading them wrong.

And in particular, failing to account for the exceptions to voluntary transactions increasing welfare is one of the worst systematic economic blind spots of much of the right.

I do agree with your criticism of #14 though: it needs a quantifier to be well-defined. Change it to "most American citizens" and it will still get about the same number of agreeing responses (I would guess), but be unambiguously factually false.

And in particular, failing to account for the exceptions to voluntary transactions increasing welfare is one of the worst systematic economic blind spots of much of the right.

No, it's not. We are -- and must be! -- talking "ex ante". If we are mixing ex ante with ex post, then the thought fails to have any sense whatsoever.

I don't understand. Are you saying that "ex ante" voluntary transactions are without exception positive?

Only asking to elucidate.

Are you saying that “ex ante” voluntary transactions are without exception positive?
Yes. Otherwise the parties wouldn't make these transactions. That is what we call rational choice.

Ex-ante from whose perspective?
Of course from the perspective of the parties. Who are you to say that my actions made me worse off?

This is why there are age limits on buying alcohol
We are, of course, talking about consenting adults. For the kids, it is the family, not the government who acts in their best interest.

third parties sometimes know what is best for another party
How would they happen to know so? How does the third party measure the utilities?

I think most people can point to many occasions that they did something that they knew was a bad idea before and after the fact.
Since when did economics become dependent on what people say rather than on how people act? We are analyzing human action, not human bullshit talk. It's demonstrated preferences that matters.

To say that they thought they would be better off ex-ante is absurd unless we define better-off in a very odd way.
No, it's the very basic principle of economics. People act.

Ex-ante from whose perspective? It will always make both parties better off ex-ante from their own perspective. However, a third party can frequently see that the ex-ante expectation of a voluntary transaction will leave one party, or sometimes both parties, worse off. This is why there are age limits on buying alcohol and why statutory rape charges exist. The government is sometimes in a position to make better judgments about ex-ante outcomes than certain parties who may engage in transactions.

Many on the right do ignore that third parties sometimes know what is best for another party and can act to protect them: particularly when the regulation is inconvenient to the individuals talking. Of course they rarely make such arguments about teenage alcohol use or intercourse.

Another line of attack is to note that many people do not always make choices that make them better off from their own ex-ante perspective e.g. alcoholics, drug users and the obese. I think most people can point to many occasions that they did something that they knew was a bad idea before and after the fact. To say that they thought they would be better off ex-ante is absurd unless we define better-off in a very odd way.

Sorry, I thought we reached the limit of the subthreads. :) You have the answer above.

The idea that outcomes may differ from people's expectations "fails to have any sense whatsoever"? It's the whole point of the question! People think they're going to be better off, that's why they enter into the transaction voluntarily, but sometimes they are not, in fact, better off, even by their own standards. Because they made a mistake, or took a risk, or were lied to. "Necessarily" is a powerful word.

Who measures it? And how?

The 'necessarily' is one of the logical supports of libertarian philosophy, without it much of the logical seeming conclusions no longer support the most basic state in its pure form let alone anarcho-capitalism. See John Rawl's papers that respond to Nozick's "Anarchy, State, and Utopia" an argument for Minarchism.

Question for Libertarians:

If
When two people complete a voluntary transaction, they both necessarily come away better off.
Then
When two people fail to complete a voluntary transaction, they both necessarily come away worse off (against opportunity cost).
?
(substitute generally for necessarily as... necessary.)
It's the same logical principle, right? If so, can't we justify involvement of the government in any capacity that increases the chance of voluntary transactions taking place? To me that would mean decreasing transaction costs, increasing transparency, reducing operational risk, etc.

By which I mean, libertarians and liberals should be able to get along fine. Libertarians just need to realize that less govt is not necessarily better govt. Generally, maybe.

I'm a libertarian and I don't think people are necessarily way better off when they complete a voluntary transaction. Anyway...

If you have the kind of libertarian who really likes to focus on voluntary/involuntary interactions and accepts your premise, they're definitely not going to go for involuntarily-funded measures that hope to improve voluntary transactions. I'm not one of those kinds of libertarians, but I don't think voluntary-transaction-facilitating is necessarily a job for the government in all circumstances. It depends on the nature of the facilitation, since lots of things fall under that umbrella, from enforcing property rights to assimilating all humans into a hivemind (imagine how easy it'd be to get a good price on a used car!).

How exactly would the goverment do that? And why would the government do it better than a profit-maximizing firm?

Also, if I'm answering the question based on someone asking me an economics question, I'm going to make a lot of economic assumptions (If they aren't better off, they either aren't going to make the transaction, or it isn't voluntary, or they've been defrauded which makes the transaction different than what one party thought the transaction was). Someone else can make other assumptions and call mine "unenlightened" but there is a lot of semantic wiggle room in these questions.

This is why I have so much trouble with committee meetings where they want their preferred yes/no answer to complicated questions.

16. When two people complete a voluntary transaction, they both necessarily come away better off.
• Unenlightened: Agree

Right, it seems to me as if it's basically asking if you believe in EMH. They need to do better.

Doesn't answering 14 "correctly" require you answer 16 incorrectly?

Surely all immigrants and non-immigrants are not individually better off with every "immigration transaction."

We have faith that on net immigration is net-positive, but what are they calling "enlightened" here? Theory, empirics, or ideology?

Surely all immigrants and non-immigrants are not individually better off with every “immigration transaction.”

I'm not sure it makes a lot of sense to characterize immigration as a transaction, but even if it does... voluntariness of a transaction only requires asking the parties, not the nonparties. (This is why, for example, antitrust enforcement is characterized as an intrusion on the market: it gives a veto to someone other than the parties.) Nonimmigrants aren't required to consent to any particular person's immigration (whether or not they should try to block it by means of government coercion is, of course, a hotly contested political question). Therefore, even under crazy-strong EMH, they wouldn't necessarily be expected to be made better off by it.

The fact that most of them are, in fact, made better off by the immigration they oppose may say something about the limits of human rationality, but since they're strangers to the immigration "transaction", says nothing about its voluntariness.

In fact, the whole profession has a tendency toward the right-wing:
http://econjwatch.org/articles/economics-professors-favorite-economic-thinkers-journals-and-blogs-along-with-party-and-policy-views

Why is nobody considering the point the right-wing economics is probably more closely represented (and therefore substantiated) in the studies and theories of economic courses? The reason for this is simple: right-wing economics are far more likely to promote graft by preeminent firms than are leftist economics (i.e., how many firms are arguing for redistribution of assets to their workers? how many are asking for handouts from public coffers?).

Whether you specifically agree that graft is "conservative" is hardly the point: it occurs by capitalist institutions far more than it does by working-class ones, though the latter heavily consolidate in order to defend from industries with far greater assets which they are economically in conflict with. The point is simply that institutions and studies likely to receive funding are predominantly capitalist, for whom right-wing policies appear more lucrative.

Just look at the same journal's study which polled people on their favorite economists - Marx is mildly represented, while many less significant thinkers are ahead of him. I don't think any of the later economists even list Marx as an influence on their Wikipedia entries. Austrians are somewhat highly represented on the other hand, with many neoclassical and Keynesians highly represented. The latter are all consistently opposed to democratic reform of economics, and in support of capitalist interests.

A lot of this has to do with a lack of a consistent leftist narrative on economics. Liberals (mainstream sense) have absolutely no moral impetus behind their choppy paradigm.

That same paper reports 56.4% identify as voting Democrat, which may not mean exactly 'liberal' but probably doesn't mean 'conservative' politically.

You have really never heard of this Stigler guy, have you?

Not really. But it seems like (George) Stigler goes into some of the mechanisms I'm talking about in his Economic Theory of Regulation - thanks for the suggestion.

"This is why I think people who teach economics ought to think harder about their choice of examples when teaching."

Scary version: they do!

(Academic Economists with the emphasis on academic >50% liberal)

http://www.dilbert.com/blog/entry/dilbert_survey_of_economists/

Did K&B do this as a practical joke?

A dollar means more to a poor person than it does to a rich person.

*sniff* *sniff*

Smells like an interpersonal utility comparison.

These questions read like post modernist economics where every attempt is made to strip meaning from words by using superlatives and implying a god's eye meter stick of value.

At the point after a voluntary transaction, both parties necessarily feel better off or they would not have agreed. If at some later time, one party feels cheated, that does not change the better offness that both parties felt at the time of agreement.

The question also implies that there is some absolute concept of "better off" that can be externally, objectively judged rather than subjectively judged by the traders.

People make the least bad decision all the time.

What if the least bad decision is to do nothing?

There is no disagreement that people can be worse off ex-post? In which case both people are not necessarily made better off by a voluntary transaction. There is nothing post modern about this. It does not strip meaning from the concept of being worse off. For example, I buyt a car expecting it to work. It doesn't work. I am worse off due to the voluntary transaction. I wish I hadn't made the transaction.

Also, it is obvious to everyone else that I would have been better off if I hadn't bought the car. Everyone else can do this without a "god’s eye meter stick of value" or an "absolute concept of “better off”": they just need to be able to empathize on a very basic level. Moreover, if one of them had known the car was a lemon and knew I was thinking of buying it they could have easily made me better off: because they knew ex-ante that I would be worse off.

How would they have made me better off?

By saying something along the lines of: "Hey! Don't buy that car its a piece of junk."

Now, all this doesn't necessarily mean that the government should get involved in regulating industry. But the idea that people are necessarily better off, ex-ante, from ever voluntary transaction they enter into is patently false.

But is that 'economics' or is that anecdote?

I can also concoct a story like this: You may have expected to buy a working car, but what you were actually doing is buying a lottery ticket that either gives you a working car or a non-working car. In that sense, you are better off because while your ticket didn't pay off at least you took the chance.

I'm not stretching, I'm pointing out the semantics. I'm pretty sure I did the same thing the first time the survey came out (this is the research idea that just keeps giving ain't it!)

It's like if I had a math survey that said "what is 1 + 1? 2? Ha! Wrong if one of those 1's represented a (-1)!!!" It doesn't make the answerer unenlightened, just misdirected.

These are also relatively high level discussions and 'getting' the semantic tricks of the questions requires actual economics courses, and just asking people if they majored in economics would have been a much easier survey.

there is nothing new in the post over what Stigler said in 1976.

when what an economist says is congenial to interest groups, they become leaders of opinion.

when what an economist says is not congenial to interest groups, they become writers of letters to the editor of provincial newspapers.

Did somebody mention rim-jobs?

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