Month: February 2013

Assorted links

1. Scott Sumner speaks up for China, and Scott on movies.

2. On Finnish “preschool by any other name,” my previous post was wrong on this topic.

3. Paul Romer is on Twitter; so far he seems to be taking it seriously.

4. FDI performance for France, better than you might think but can it last?

5. How easily can the Fed back out of its portfolio?  Sober Look and Arnold Kling.

6. Jobs where the gender wage gap is largest and smallest.  And do the costs of minimum wage hikes fall mainly on outsiders?

7. How the Italian Senate works (doesn’t work), further explanation here, and why there was no real alternative to Monti’s Italian austerity.

Cognitive Democracy: Condorcet with Competence

We usually think of democracy as a way of aggregating diverse preferences but we can also imagine that we share similar preferences and that what we disagree about is the best way to achieve those preferences. From this perspective, democracy can be thought of as a tool for information aggregation. Using simple probability theory, Condorcet showed in 1785 that even when each individual voter has only a slightly better than chance probability of choosing the bettier of two options the probability that majority rule chooses the better outcome quickly goes to 1 as the number of voters increases (the wisdom of the crowds).

A number of writers at Crooked Timber have been discussing Knight and Johnson’s The Priority of Democracy, one strand of which involves such an cognitive defense of democracy. Cosma Shalizi, for example, writes:

Democratic debate is a tool for cognition, for harnessing the dispersed knowledge of the citizens and their diversity of perspectives and insights.

But does an cognitive defense of democracy lead to universal suffrage? Or does it suggest what Melissa Schwartzberg calls “epistocracy”, rule by the educated? (See also Henry Farrell’s comments). The wisdom of the crowds breaks down when the crowd’s errors are systematically biased rather than random. As Peter Boettke notes, Bryan Caplan makes a strong case in The Myth of the Rational Voter that better educated voters are less systematically biased than the average voter and more likely to agree with experts on questions of fact.

When voters are not equally competent some remarkable mathematical results show that the best cognitive democracy is not universal suffrage and one-person, one-vote but a specific form of weighted voting.

Begin with a simple example. Suppose there is one correct decision and there are three voters each trying to reach the correct decision with competence levels of {.55, .55, .55}, where the competence levels are just the probabilities that each voter chooses the correct decision. The best a dictator could do in choosing the correct decision is .55 but if use majority rule the probability of reaching the correct decision is 0.57475, higher than that of any individual voter. (We reach the correct decision if all three voters reach the correct decision which has prob .55^3 or if two voters reach the correct decision and one does not, as this can happen in three ways the probability of the latter is 3*.55*.55*(1-.55) for a grand total of .57475.) Moreover, if we were to increase the number of voters to 100, the probability of majority rule reaching the correct decision goes to 84%–far above that of any dictator, this is the essence of Condorcet’s theorem.

Now let’s assume that the voters have competences of {.55,.60,.70}. Majority rule, using the same reasoning as before, gets us a democratic competence level of .673, not bad but notice that this is less than the competence level of the highest competence individual. The ideal voting system in this case would weight voter three enough so that she determines the outcome, thus giving democracy a competence level of .7.

More generally, if the voter competences levels are {p1,p2,p3} then the cognitively most efficient voting scheme gives each voter a weight of Log[pi/(1-pi)]–the result is remarkable for a being such a simple formula of the voter’s own competence level (note that the individual’s weighting is not a function of the competency levels of the other voters.) The result was shown first in this context by Nitzan and Paroush, Nobel-prize winner Lloyd Shapely and Bernard Grofman also made important contributions and see Grofman, Owen, Feld for some related results.)

Democracies make many decisions which are information based (Does Iraq have weapons of mass destruction? Will an invasion make the US safer? Do phthalates cause significant health risks?). Note also that we might also use this method for many committee decisions. Which scientific approach is deserving of greater funding? Which marketing plan should we adopt? Is surgery the best option? and in these decisions weighting votes by a measure of competence, which can be estimated from past decisions, may lead to significant improvements in outcomes.

Voters have diverse preferences not just competences but we could combine cognitive and preference aggregation theories of democracy by using high competence voters from different demographics categories to estimate what people would think about issues if only they were better informed. In this way we can distinguish differences due to knowledge from those due to preferences and we could upweight the competent while maintaining demographic balance thus creating a cognitive democracy based on enlightened preferences.

Arrived in my pile

Peter Blair Henry, Turnaround: Third World Lessons for First World Growth.

Here is a good interview with Peter Henry, who is also Dean of NYU Business School.

Then, upon my return from the Oklahoma trip, I saw Robert M. Edsel’s Saving Italy, and was surprised when the subtitle read The Race to Rescue a Nation’s Treasures from the Nazis.  (Perhaps Berlusconi would nonetheless give his autobiography that title.)  So far all I can learn about saving the current Italy is that electoral turnout seems to have been quite low, which lowers the reliability of previous estimates I suspect.  Does anyone out there know more?

My two-volume Liberty Fund edition of John Stuart Mill’s Principles of Political Economy arrived, and I will be rereading those for a future MRU course.

Very good sentences about Bulgaria, the EU, and the DDR

 For years people complained about the absence of labour mobility in the EU. Now we have it, the flaw in the institutional infrastructure is obvious.

Young people are moving from the weak economies on the periphery to the comparatively stronger ones in the core, or out of an ever older EU altogether. This has the simple consequence that the deficit issues in the core are reduced, while those on the periphery only get worse as health and pension systems become ever less affordable.

That is from the excellent Edward Hugh, here is more.  Among other points, Hugh stresses just how much the “East German answer” involved extreme levels of labor mobility.  There is also an illuminating analysis of the problems facing Bulgaria:

According to the 2011 census, Bulgaria has lost no less than 582,000 people over the last ten years. In a country of 7.3 million inhabitants this is a big deal. Further, it has lost a total of 1.5 million of its population since 1985, a record in depopulation not just for the EU, but also by global standards. The country, which had a population of almost nine million in 1985, now has almost the same number of inhabitants as in 1945 after World war II. And, of course, the decline continues.

Kimchee wars

The popularity of kimch’i in Japan greatly stimulated the South kimch’i processing industry.  Ironically, it was Japanese attempts to capitalize on manufacturing kimch’i that inflamed Korean claims to its ‘ownership’.  This dispute, commonly known as the ‘Kimch’i‘ War…began in 1996 when Japan proposed designating kimuchi (the Japanese pronunciation of kimch’i) an official Atlantic Olympic food.  By then Japanese-Korean trade relations were already under stress due to the fact that Japan had already been involved in exporting the Japanese instant version of kimch’i, which lacked the distinctive flavor from the fermentation process.  In response, South Korea filed a case with the Codex Alimentarius Commission (CAC), pat of the United Nations Food and Agriculture Organization, arguing that there was a need to establish an international kimch’i standard.

That is from Cuisine, Colonialism and Cold War: Food in Twentieth Century Korea, by Katarzyna J. Cwiertka.  This is an excellent book on Korean-Japanese relations, the early history of Korean industrialization, and the rise of industrial food, as well as the evolution of Korean food in recent times, all rolled into a scant 237 pp.  A good author can do wonders…

Questions about the minimum wage

This is by kebko, from the MR comments section:

Is there any other issue where any economists insist that price floors benefit the lowest added-value suppliers?

Not that I know of, although feel free to correct that impression in the comments of this post.  This is one reason, by the way, why I do not find the monopsony explanations of minimum wage benefits convincing.   Monopsony should not be particularly strong across labor, if anything the contrary (more employers hire labor than say aluminum).

If labor does differ from other factors of production, one feature is that labor can “decide to work harder.”  So perhaps a minimum wage pushes people into tougher jobs.  As I’ve argued in the past, this may be bad for them but good for their families.

David Henderson offers some remarks about the minimum wage and monopsony.

Why you should care about the budget deficit

…very few people in Washington actually care about the federal government’s budget deficit.

That is why you should care about the budget deficit.

The quotation by the way is from Evan Soltas, though I am not sure he endorses my conclusion.

This is not true of Evan’s piece, but often when I read someone write “no one cares about the budget deficit” I mentally sub in: “I don’t care about the budget deficit, but I don’t have a responsible argument for that view, so I will instead write that others also have very high discount rates.”

CAFE Standards are Extremely Inefficient

In Modern Principles, Tyler and I explain that a command and control regulation is a less flexible and thus more expensive way of reducing energy consumption than is a tax. How much more expensive? A recent analysis estimates that the new fuel economy standards are 6 to 14 times more expensive than an equal consumption-reducing gas tax. Valerie Karplus, one of the authors of the new analysis, writes in the NYTimes:

I and other scientists at the Massachusetts Institute of Technology estimate that the new standards will cost the economy on the whole — for the same reduction in gas use — at least six times more than a federal gas tax of roughly 45 cents per dollar of gasoline. That is because a gas tax provides immediate, direct incentives for drivers to reduce gasoline use, while the efficiency standards must squeeze the reduction out of new vehicles only. The new standards also encourage more driving, not less.

The full paper is here and a free summary is here.

Is bipolar disorder more common in highly intelligent people?

Here is a new piece by Gale CR, Batty GD, McIntosh AM, Porteous DJ, Deary IJ, and Rasmussen F.:


Anecdotal and biographical reports have long suggested that bipolar disorder is more common in people with exceptional cognitive or creative ability. Epidemiological evidence for such a link is sparse. We investigated the relationship between intelligence and subsequent risk of hospitalisation for bipolar disorder in a prospective cohort study of 1 049 607 Swedish men. Intelligence was measured on conscription for military service at a mean age of 18.3 years and data on psychiatric hospital admissions over a mean follow-up period of 22.6 years was obtained from national records. Risk of hospitalisation with any form of bipolar disorder fell in a stepwise manner as intelligence increased (P for linear trend <0.0001). However, when we restricted analyses to men with no psychiatric comorbidity, there was a ‘reversed-J’ shaped association: men with the lowest intelligence had the greatest risk of being admitted with pure bipolar disorder, but risk was also elevated among men with the highest intelligence (P for quadratic trend=0.03), primarily in those with the highest verbal (P for quadratic trend=0.009) or technical ability (P for quadratic trend <0.0001). At least in men, high intelligence may indeed be a risk factor for bipolar disorder, but only in the minority of cases who have the disorder in a pure form with no psychiatric comorbidity.

Questions that are rarely asked

From the comments, from VTProf:

Another consistency question: can you simultaneously believe that minimum wages have small disemployment effects (implying inelastic demand for labor) and that higher immigration has small negative wage effects (implying elastic demand for labor). Sign me up for relatively elastic demand for labor (in the long run) – that’s why I support immigration and am skeptical about min wage!