Month: January 2015

My thoughts on quadratic voting and politics as education

That is the new paper by Lalley and Weyl.  Here is the abstract:

While the one-person-one-vote rule often leads to the tyranny of the majority, alternatives proposed by economists have been complex and fragile. By contrast, we argue that a simple mechanism, Quadratic Voting (QV), is robustly very efficient. Voters making a binary decision purchase votes from a clearinghouse paying the square of the number of votes purchased. If individuals take the chance of a marginal vote being pivotal as given, like a market price, QV is the unique pricing rule that is always efficient. In an independent private values environment, any type-symmetric Bayes-Nash equilibrium converges towards this efficient limiting outcome as the population grows large, with inefficiency decaying as 1/N. We use approximate calculations, which match our theorems in this case, to illustrate the robustness of QV, in contrast to existing mechanisms. We discuss applications in both (near-term) commercial and (long-term) social contexts.

Eric Posner has a good summary.  I would put it this way.  Simple vote trading won’t work, because buying a single vote is too cheap and thus a liquid buyer could accumulate too much political power.  No single vote seller internalizes the threshold effect which arises when a vote buyer approaches the purchase of an operative majority.  Paying the square of the number of votes purchased internalizes this externality by an externally imposed pricing rule, as is demonstrated by the authors.  This is a new idea, which is rare in economic theory, so it should be saluted as such, especially since it is accompanied by outstanding execution.

The authors give gay marriage as an example where a minority group with more intense preferences — to allow it — could buy up the votes to make it happen, paying quadratic prices along the way.

My reservation about this and other voting schemes (such as demand revelation mechanisms) is that our notions of formal efficiency are too narrow to make good judgments about political processes through social choice theory.  The actual goal is not to take current preferences and translate them into the the right outcomes in some Coasean or Arrovian sense.  Rather the goal is to encourage better and more reasonable preferences and also to shape a durable consensus for future belief in the polity.

(It is interesting to read the authors’ criticisms of Vickrey-Clarke-Grove mechanisms on p.30, which are real but I do not think represent the most significant problems of those mechanisms, namely that they perform poorly on generating enough social consensus for broadly democratic outcomes to proceed and to become accepted by most citizens.  One neat but also repugnant feature of democratic elections is how they can serve as forums for deciding, through the readily grasped medium of one vs. another personae, which social values will be elevated and which lowered.  “Who won?” and “why did he win?” have to be fairly simple for this to be accomplished.)

I would gladly have gay marriage legal throughout the United States.  But overall, like David Hume, I am more fearful of the intense preferences of minorities than not.  I do not wish to encourage such preferences, all things considered.  If minority groups know they have the possibility of buying up votes as a path to power, paying the quadratic price along the way, we are sending intense preference groups a message that they have a new way forward.  In the longer run I fear that will fray democracy by strengthening the hand of such groups, and boosting their recruiting and fundraising.  Was there any chance the authors would use the anti-abortion movement as their opening example?

If we look at the highly successful democracies of the Nordic countries, I see subtle social mechanisms which discourage extremism and encourage conformity.  The United States has more extremism, and more intense minority preferences, and arguably that makes us more innovative more generally and may even make us more innovative politically in a good way.  (Consider say environmentalism or the earlier and more correct versions of supply-side economics, both innovations with small starts.)  But extremism makes us more innovative in bad ways too, and I would not wish to inject more American nutty extremism into Nordic politics.  Perhaps the resulting innovativeness is worthwhile only in a small number of fairly large countries which can introduce new ideas using increasing returns to scale?

By elevating persuasion over trading in politics (at some margins, at least), we encourage centrist and majoritarian groups.  We encourage groups which think they can persuade others to accept their points of view.  This may not work well in every society but it does seem to work well in many.  It may require some sense of persuadibility, rather than all voting being based on ethnic politics, as it would have been in say a democratic Singapore in the early years of that country.

In any case the relevant question is what kinds of preference formation, and which kinds of groups, we should allow voting mechanisms to encourage.  Think of it as “politics as education.”  When it comes to that question, I don’t yet know if quadratic voting is a good idea, but I don’t see any particular reason why it should be.

Addendum: On Twitter Glenn Weyl cites this paper, with Posner, which discusses some of these issues more.

Friday assorted links

1. A debutante ball — better or worse than

2. India to check on toilet use in “real time.”

3. A robot in Japan both cooks and paints your fingernails (warning: the BBC link makes some noise).

4. Academic job openings are up in economics, sociology, and communications, but way down in religion.

5. Robots are starting to break the law and nobody knows what to do about it.

The Flat White Comes to America!

In my 2013 report on Australian policy innovations I wrote:

The world owes Sydney baristas (New Zealand also) an enormous debt for the flat white, perhaps the best form of coffee yet perfected. The flat white has made its way to London but is only now becoming available in a few high end coffee shops in New York.  I eagerly await for this trend to extend to Fairfax as I am already jonesing for another.

Eater reports that I have only a few more days to wait:

In what appears to be an effort to regain some of its coffee credibility after years of slinging sugared up lattes and Frappuccinos, Starbucks is adding a Flat White to its menu. The espresso-based drink — which was created in Australia in the 1980s — has started to gain a serious American following over the last year.

Do I expect the Starbucks version to be as good as what I had in Australia? No. But I do hope that this move will increase coffee innovation throughout the market, pulling us closer to the Australian model. The Great Stagnation ends in 2015!

Bangladesh fact of the day

Among the top ten largest malls in the world are two, perhaps surprisingly, in Iran, while even Bangladesh with a GDP per capita of $1,851 boasts a new mall far bigger than Pennsylvania’s “King of Prussia” (the same figure for the US is $51,749 according to the World Bank).

There is more here, mostly about the decline of the shopping mall in the United States.  Here is Wikipedia on the Bangladesh mall.  Here are photos.

What I’ve been reading

1. Hilda Hilst, With My Dog-Eyes: A Novel.  Life as an academic, as viewed by the Brazilian avant-garde.  This underappreciated novel is available in English for the first time, recommended to those who think they might like it.

2.Bengt Jangfeldt, Mayakovsky: A Biography.  A non-fiction work translated from Swedish to English is virtually guaranteed to be good.  This book brings major advances to our understanding of Mayakovsky’s life, although it is perhaps for those who already have an interest in the topic.  That’s me.

3. Roberta A. Ness, The Creativity Crisis: Reinventing Science to Unleash Potential.  A good overview of why innovativeness has declined and what might be done to restore it.

4. Tom Paulin, Writing to the Moment, Selected Critical Essays 1980-1996.  I loved this book, which (by a very important metric) caused me to buy at least five additional books on Amazon.  One of Ireland’s greatest poets writing an appreciation of other English-language poets and writers.  A 1996 book, but one of my most exciting reads for the year.

5. E.M. Forster, A Passage to India.  A very good reread, the Straussian in me remains convinced that the final “Hindu section” of the book somehow has to make sense.

Arrived in my pile is:

6. Andrew I. Gavil and Harry First, The Microsoft Antitrust Cases, which upon a brief perusal appears to be a very thorough and useful look at what the title promises.

New Year’s day assorted links

1. Chris Blattman blog update.  Many of you get sick of us, it seems, as I once predicted.

2. One measure of the top female economists.

3. How financially literate are women?

4. Is complexity economics underrated?

5. Those interested in choice theory and social science should watch Black Mirror.  I would say much more, but for fear of spoilers I cannot.

6. How durable are New Year’s resolutions?

7. Two stories about capitalism, which explain why economists do not reach agreement, by Jonathan Haidt.  Text and videos.  And here is Haidt on capitalist liberation and ethics, again text and videos.  Very good work from Jonathan as always.

How to ensure non-negative nominal interest on your cash

John Cochrane writes:

So, quiz question for your economic classes: Suppose we have substantially negative interest rates — -5% or -10%, say, and lasting a while. But there is no currency. How else can you ensure yourself a zero riskless nominal return?

Here are the ones I can think of:

  • Prepay taxes. The IRS allows you to pay as much as you want now, against future taxes.
  • Gift cards. At a negative 10% rate, I can invest in about $10,000 of Peets’ coffee cards alone. There is now apparently a hot secondary market in gift cards, so large values and resale could take off.
  • Likewise, stored value cards, subway cards, stamps. Subway cards are anonymous so you could resell them.
  • Prepay bills. Send $10,000 to the gas company, electric company, phone company.
  • Prepay rent or mortgage payments.
  • Businesses: prepay suppliers and leases. Prepay wages, or at least pre-fund benefits that workers must stay employed to earn.

Comments section: how many more can you think of?

His conclusion:

The zero bound is not just cash.

More generally, he is discussing work by Kenneth Rogoff.

Thomas Piketty refuses France’s highest honor

France’s influential economist Thomas Piketty, author of “Capital in the 21st Century”, on Thursday refused to accept the country’s highest award, the Legion d’honneur, to criticise the Socialist government in power.

“I refuse this nomination because I do not think it is the government’s role to decide who is honourable,” Piketty told AFP.

“They would do better to concentrate on reviving (economic) growth in France and Europe,” added Piketty, who was once close to the Socialist Party but has distanced himself from the policies of President Francois Hollande.

The link is here, via many people in my Twitter feed, including Justin Wolfers and Claudia Sahm.  There is a bit more here.

Why I think Greece will leave the eurozone this year or soon thereafter

Matt Yglesias has a good argument to the contrary:

On its face, the political crisis in Greece seems relatively likely to lead to Greece exiting the Eurozone. And why not? Europe’s leading politicians pretty clearly regret having let Greece in back in 1999 (particularly in off-the-record conversations), and Greek voters are clearly fed up with being told what to do by Brussels and Frankfurt. Journalistically, a “Grexit” is certainly the most interesting outcome, so people talk a lot about it, and at this point there are a lot of plausible theories about how it could go. But I think it’s not going to happen. The forces of the status quo will rally, and another grand coalition will lead Greece through several more dreary years of austerity and slow growth.

Nonetheless I think Germany wants them out.  First, I think Germany regards Greece as a kind of cultural and economic cancer for the eurozone, and they don’t want to enshrine the principle that eighty percent default is OK.  Second, Germany sees a fair amount of eurozone stability right now (NB: I’m not saying stability is always good in every way) and has noticed that the contagion effects from the recent Greek troubles have been small.  This is not a bad time to get them out.  Third, Germany is smart and knows that the real problems are Podemos in Spain and just about everyone in Italy and maybe even a few people (or more) in France.  Now is a good time to send splinter parties a message that they had better not mess around with the Troika, and what could do that better than an economic disaster in a recalcitrant Greece?

So I think Germany will play brinksmanship with Syriza and, when the time comes, simply pull the plug and leave them high and dry.

Addendum: Here are some useful graphs.