Month: April 2013
Does anyone give money to charity efficiently?
Scott Alexander meets up with Robin Hanson and reports from the front:
Then Robin Hanson of Overcoming Bias got up and just started Robin Hansonning at everybody.
…One of his claims that generated the most controversy was that instead of donating money to charity, you should invest the money at compound interest, then donate it to charity later after your investment has paid off – preferably just before you die, since donating money after death is legally complicated. His argument, nice and simple, was that the real rate of return on investment has been higher than the growth rate for 3000 years and this pattern shows no signs of changing. If you donate the money today, your donation grows with the growth rate, but if you invest it, it grows with the interest rate. He gave his classic example of Benjamin Franklin, who put his relatively meager earnings into a trust fund to be paid out two hundred years later; when they did, the money had grown to $7 million. He said that the reason people didn’t do this was that they wanted the social benefits of having given money away, which are unavailable if you wait until just before you die to do so.
…Then he started talking about how you should only ever donate to one charity – the most effective. I’d heard this one before and even written essays speaking in favor of it, but it’s always been very hard for me and I’ve always chickened out. What Robin added was, once again, a psychological argument – that the reason this is so hard is that if charity is showing that you care, you want to show that you care about a lot of different things. Only donating to one charity robs you of opportunities to feel good when the many targets of your largesse come up and burdens you with scope insensitivity (my guess is that most people would feel more positive affect about someone who saved a thousand dogs and one cat than someone who saved two thousand dogs. The first person saved two things, the second person only saved one.) In retrospect this is absolutely true and my gibbering recoil at this problem isn’t just Yet Another Cognitive Bias but just good old self-interest.
The post is interesting throughout, and the hat tip goes to Geoffrey Miller, @MatingMind.
Good sentences about China
China at some points has had investment rates of in excess of 40% of GDP. For super-geeks this exceeds the Ramsey Rule at a zero discount rate. For non-geeks it means that there is no investment strategy under which this is the profitable thing to do.
Its always hard to tell but on balance I think the Chinese government is aware of this, yet is willing to lose money on its capital investments in order to provide jobs for people moving to the city. This is a smart move if you think cities produce agglomeration effects.
With apologies to the less wonkish, China is using physical capital as a loss leader in order to grow cities that will produce network effects will in turn foster the human capital that really makes a country rich.
In this way China has become like Amazon’s Jeff Bezos, a Destroyer-of-Worlds.1 You can’t win a physical capital accumulation battle against someone whose plan is to overinvest and lose money on the physical capital.
That is speculative of course but nonetheless worth a ponder
Assorted links
Buried treasure in clickthrough agreements
Do you know anyone who stops to read “click-through” agreements on websites in the middle of performing a task? One company, PC Pitstop, deliberately buried a clause in its end-user license agreement in 2004, offering $1,000 to the first person who emailed the company at a certain address. It took five months and 3,000 sales until someone claimed the money. The situation hadn’t improved by 2010 when Gamestation played an April Fools’ Day joke by embedding a clause in their agreement saying that users were selling them their souls.
Here is another good bit:
Ponder the fact that a dermatologist must sign his name to forms almost 30,000 times a year, according to a 2008 article in the Southern Medical Journal.
The article is here and for the pointer I thank Olaf.
Quality institutions and growth are not so well-connected
Here is a passage from a new paper from Lant Pritchett and Eric Werker:
One of the puzzles to be reconciled is that although “institutions” are associated with long run growth rates, their predictive power for short-to medium-run (5 to 10 years) growth, or for growth accelerations is very weak. (Khan, 2007) makes the distinction between “market supporting governance” versus “growth promoting governance.” He points out that, while “governance” measures are correlated with levels of GDP per capita, there is little or no predictive power of the current level of institutions for future growth rates.We illustrate this by comparing the level of income and a measure of “governance” versus the growth rate and that same measure of governance and the growth rate and the change in the measure of governance. Whereas the first is strong the second is quite weak and the third near zero.…Essentially all rich countries have reasonably high “quality of government” and all countries with high “quality of government” are rich.…But among countries with the same governance there are massive differences in growth (e.g. China versus Cote d’Ivoire) and countries with rapid growth (above .6) the ‘quality of government’ ranking ranges from .15 (Indonesia) to .9 (Singapore).
…Figure 7c shows there is no link at all between the improvement in ‘quality of government’ and economic growth 1984 to 2004. A country like Uganda has massive improvement but exactly average growth, China has massive growth and no improvement at all, Malaysia saw QOG worsen but growth well above average, etc.
The relevant figures start at around p.30. Was it Jeff Sachs who put it this way?: Go back to 1960 and try to measure the quality of institutions any way you wish, knowing of course in advance which countries end up doing well. Can you find any measure at all which predicts subsequent growth? This is a tough problem for we economists.
There is another sense in which institutions have to be the causal factor, in which case we are very far from having a sense of how to measure good institutions.
Why the U.S. helps defend South Korea and what can go wrong
It is not because we need to subsidize their defense per se, to cite one argument which some non-interventionist critics have attacked. It is so, when North Korea behaves in a ridiculous manner, the South can respond (not respond) with great restraint. What we are subsidizing is a) a feeling of security, and b) not building nuclear weapons in response. We do something broadly similar for Japan.
The potential problem is when the same U.S. acts which produce a feeling of security in South Koreans produce a feeling of insecurity in North Korean leaders. And the broader game we are playing, with numerous allies, means we might end up pushing some individual confrontations beyond an optimal point (e.g., how would Israel respond with Iran if we wavered on South Korea?) Might we have to overinvest in the South Korean feeling of security — from a strictly Korean peninsula point of view — to keep Japan, Israel, Taiwan, the Saudis, and others “in line”?
It would be good if the North Korean leadership would read this blog post, as they would then realize that what to their eyes appears to be American “overstepping” is done for the sake of other audiences. It is problematic for the American government to itself communicate this point. Imagine announcing “we don’t stand by South Korea as much as it appears, we are just doing this because Israel faces a signal extraction problem and we can somewhat sway their inference toward relaxing about their own security situation.”
It would be bad if the Saudi leadership would read this blog post (or understand this to begin with). The American government would then have to produce a feeling of security for South Korea all the more.
The ACA’s four cliffs
…(1) the 50th employee (firms with 49 employees that don’t offer medical insurance will be hit with a $40,000 penalty if they hire just one more worker); (2) the 200 percent threshold (one households cross 200 percent of the poverty line, deductibles might sharply increase); (3) the 400 percent threshold (the dropoff is even bigger once households cross 400 percent of the poverty line); and (4) the early retirement incentive (ACA creates an incentive for many older workers below age 65 to exit the workforce) — reshapes the American labor market, the dominant narrative will be that the $85 billion in sequestration cuts are responsible for sluggish growth.
That is from Reihan, most of the post is on sequestration.
Assorted links
1. The motivations of citizen scientists (the main result is not itself huge news, but the undertaking and its scope is impressive).
2. “Health, government, and Irving Fisher.”
3. What makes for a utilitarian?
4. The Chinese petition stopper.
5. David Brooks on on-line education and more here on Minerva.
Irving Fisher on Prohibition
Here is one typical passage:
We see from the papers that Prohibition in Norway was given up. Do you know what Prohibition was in Norway? It allowed drinks containing 21 per cent alcohol! The people were so disgusted with the results that they overthrew this “Prohibition.” The heavy drinkers wanted their “personal liberty”; they did not want to stop at 21 per cent. It is easier to stop at one-half of one per cent than at 21. This is the lesson of experience. The only thing to do is what they did in Kansas – to tighten it up whenever there is an attack on Prohibition. The whole strength of the opposition consists in saying, “It can’t be done; it doesn’t work”; it is not that the object is a bad thing, but that it does not work. Now the more you tighten it the better it will work, and the more you loosen it up the worse it will work; and therefore the more you will have the very conditions that led to the overthrow of such Prohibition as they had in Norway and Ontario. In Ontario they originally allowed 2.2 per cent beer, then they “loosed up” and allowed 4.4 per cent and now they have loosened up still further. Experience shows that there is never a stable equilibrium at midway points and never any permanent solution of the liquor problem in a wide-open policy. The only stable equilibrium and permanent solution lies in the utter extermination of the liquor traffic.
Bryan Caplan blegs for a bleg
A series of queries that’s stumping most of my favorite IQ researchers:
Are there any countries where IQ testing for hiring purposes is totally legal? Largely legal? Do we have any idea if the education premium rose less in those countries than in countries that discourage or forbid IQ testing for hiring purposes?Context.
Come on people, stand up for Cowen’s Second Law (“there is a literature on everything”)!
“What’s the question about your field that you dread being asked?”
That is the new Edge symposium, with many excellent luminaries, including Jens Ludwig, Richard Thaler, and Raj Chetty from economics, with Sendhil Mullainathan playing host and interlocutor. Chetty serves up these answers:
Here are three questions that come to mind that I dread answering as an economist working on policy issues:
1. If you were in charge, what policies would you enact today to raise growth rates and incomes for the average family in America?
2. Why do American students perform poorly relative to students in other countries and how can we fix education in the U.S.?
3. When are house prices going to recover to pre-recession levels?
Are there “food deserts” as a dietary problem?
Via Jacob A. Geller, the evidence is now in and it seems to suggest no, food deserts are not a real problem:
Here is more, and here is the study itself. If you look at the statistical tables, they’re pretty striking. Even where there is statistical significance — which is the exception to the rule — the size of the effect is so tiny, it’s like practically nothing. For example, on the margin, adding one full-service supermarket within a one-mile radius of your house is associated with an average BMI decrease in your neighborhood of .115. That is a difference of just one pound. (see back-of-the-envelope calculations here)
So there is really no relationship, according to this one recent study of nearly 100,000 Californians, between the distance between your body and a full-service supermarket (or any other kind of food store), and whether or not you are obese. Distance, which is a proxy for access (the idea of a food desert is that the nearest supermarket, which has fresh produce, is distant), is for all practical purposes a non-factor.
Here is a good example:
For example, when you last ordered food at McDonald’s, did you even notice those ten salads on the menu? Did you order them? No, and me neither. And did you ask for a cup of water, which is free, instead of a soda? No again. (That’s my experience anyway, and that of millions of other Americans)
And an excellent parallel:
And what’s interesting from a political standpoint, is that this analysis similarly applies to drugs — tackling the supply side does little for heroin addicts, for example, increases the price of heroin, which induces supply to come back into line with the addicts’ inelastic demand curve — and yet most liberals would probably agree with me that drug addiction ought to be tackled on the demand side (spending money to convince young people not to shoot up heroin for example, instead of spending money on patrolling the border), but the same liberals who agree with this analysis of the drug war will often turn around and favor unproven supply-side solutions to obesity like subsidizing supermarkets in low-income neighborhoods, despite the absence of evidence to support those ideas. Note that libertarians are more consistent on those issues — they oppose supply-side interventions in most, if not all, illicit drug markets, and also oppose supply-side interventions into food markets.
Assorted links
1. How are peak oil predictions holding up?
2. Kirznerian alertness: Met spots a David for $840.
3. Dan Ariely on his on-line teaching.
4. More on the reality of Mexican economic growth, not just for a few.
5. Are swallows evolving to better dodge traffic?
6. Overcoming bias: the real solution?, and why are action movie stars more likely to be Republican?
7. The price chart for Renewable Identification Numbers.
8. Ken Rogoff on the puzzle of persistent low interest rates.
The culture of guns, the culture of alcohol
I receive many emails asking me what is my attitude toward guns and gun control. I would say I wish it worked better than it does (a key point), I don’t think it works very well, I am happy to make those changes which seem to work somewhat, but overall I see an America with lots of guns and a falling crime and murder rate, so let’s focus on what is working, whatever that may be.
I would be happier if advocates of stronger gun control would state up front what percentage of the variation in the murder rate they thought they would be controlling. I see them as likely to make some dent in the suicide rate, most of all.
I would gladly see a cultural shift toward the view that gun ownership is dangerous and undesirable, much as the cultural attitudes toward smoking have shifted since the 1960s.
I am, however, consistent. I also think we should have a cultural shift toward the view that alcohol — and yes I mean all alcohol — is at least as dangerous and undesirable. I favor a kind of voluntary prohibition on alcohol. It is obvious to me that alcohol is one of the great social evils and when I read the writings of the prohibitionists, while I don’t agree with their legal remedies, their arguments make sense to me. It remains one of the great undervalued social movements. For mostly cultural reasons, it is now a largely forgotten remnant of progressivism and it probably will stay that way, given that “the educated left” mostly joined with America’s shift to being “a wine nation” in the 1970s.
Guns, like alcohol, have many legitimate uses, and they are enjoyed by many people in a responsible manner. In both cases, there is an elite which has absolutely no problems handling the institution in question, but still there is the question of whether the nation really can have such bifurcated social norms, namely one set of standards for the elite and another set for everybody else.
In part our guns problem is an alcohol problem. According to Mark Kleiman, half the people in prison were drinking when they did whatever they did. (Admittedly the direction of causality is murky but theory points in some rather obvious directions.) Our car crash problem – which kills many thousands of Americans each year — is also in significant part an alcohol problem. There are connections between alcohol and wife-beating and numerous other social ills, including health issues of course.
It worries me when people focus on “guns” and do not accord an equivalent or indeed greater status to “alcohol” as a social problem. Many of those people drink lots of alcohol, and would not hesitate to do so in front of their children, although they might regard owning an AK-47, or showing a pistol to the kids, as repugnant. I believe they are a mix of hypocritical and unaware, even though many of these same individuals have very high IQs and are well schooled in the social sciences. Perhaps they do not want to see the parallels.
The people who get this right — it seems to me — are the Mormons. Compassion, most of all for the poor, means that we should raise the social status of Mormons on this issue.
I don’t see that happening anytime soon.
US Energy Policy and the Pursuit of Failure
If you are interested in energy policy and political economy, Peter Grossman has written a good book, US Energy Policy and the Pursuit of Failure. I was asked to blurb the book and was happy to do so:
For four decades, politicians have promised a solution to the “energy crisis” that will bring Americans “energy independence”. Fusion, wind, solar, switch grass, or algae, the salvation technologies have changed but the promises remain the same and broken. In this important and entertaining book, Peter Grossman documents the history of energy policy failure. Most importantly, he explains why policy has failed. Crisis-mentality thinking has promoted quick fixes and single-shot ‘solutions’ that ignore market and technology realities. What we need is not a solution in the style of the Manhattan project but stable rules that support basic research while leaving plenty of scope for American entrepreneurship and innovation. Professor Grossman’s careful history and insightful analysis is the key guide to a more modest but a more successful energy policy.
Alex Tabarrok, Director, Center for Study of Public Choice, and Bartley J. Madden Chair in Economics, George Mason University