Civil Society and the Iceberg Economy
I enjoyed this piece by Rebecca Solnit on what she calls the iceberg economy and the power of voluntarism:
Who wouldn’t agree that our society is capitalistic, based on competition and selfishness? As it happens, however, huge areas of our lives are also based on gift economies, barter, mutual aid, and giving without hope of return (principles that have little or nothing to do with competition, selfishness, or scarcity economics). Think of the relations between friends, between family members, the activities of volunteers or those who have chosen their vocation on principle rather than for profit.
…The shadow system provides soup kitchens, food pantries, and giveaways, takes in the unemployed, evicted, and foreclosed upon, defends the indigent, tutors the poorly schooled, comforts the neglected, provides loans, gifts, donations, and a thousand other forms of practical solidarity, as well as emotional support.
With much of this I wholeheartedly agree. But Solnit's piece is marred by an analytical framework that places cooperative charitable activities poles apart and in opposition to unprincipled, selfish capitalism. Charity and trade, however, are both species of voluntarism more closely aligned with one another than with the coercive apparatus of the state. Indeed, it is through markets that human beings achieve the most extensive cooperation. True, capitalist cooperation is not as deep as that of say the family but precisely because it is not as deep it is far wider in scope, encompassing the world. To propose the deep ties of the family as an alternative to capitalist cooperation is to understand neither and when implemented to be inimical to both.
In the introduction to The Voluntary City (note the title) Peter Gordon, David Beito and myself argued for a more inclusive framework.
The authors of this volume manifestly include non-profits in the market sector. The inclusion is important because by focusing on for-profit firms proponents of markets may have overstated the case for markets narrowly conceived. Yet by ignoring the role of non-profits, opponents of markets may have understated the case for markets broadly conceived. Alternatively put, what conventional economics refers to as market failure may actually be a limited set of problems associated with for-profit firms and markets. If the term "market" is broadened to include non-profit firms and other voluntary but not for-profit organizations, the scope of such failure may be diminished. Thus, rather than saying that the authors of this volume argue for a larger role for markets, it is more revealing to say that they argue for a larger role for civil society.
One virtue of the term civil society is that it is not wrapped up in the same baggage as the term markets; in particular, to favor civil society is not necessarily to regard self-interest as the sole or even most important motivator of human action. Unfortunately, the market/government debate has often proceeded as if it were a debate between self-interest and other-regardingness. Yet there is growing support for the view that our ancestors learned to forge connections and developed a social nature for the practical reason that such connections enhanced survival, just as did their capacity for self-interest (Ridley 1996; Wright 2000). Humans are neither purely self-interested nor purely other-regarding; humans are individuals who join groups and they possess all the skills appropriate to such a classification. It should come as no surprise then that other-regardingness is not absent from markets and self-interest is not absent from government.
Hat tip to my friends at The Browser.
Addendum: Andrew Gelman comments.
Mandatory Minimums and Drug Quality
A per unit tax tends to increase product quality as consumers and manufacturers substitute away from the taxed margin (quantity) towards the untaxed margin (quality) (see here for evidence on cigarettes, beer, and grapes and lobsters). The principle is quite general. Teenagers, for example, drink less often than adults but when they do drink they tend more often to get drunk. Similarly, Ronald Davies finds that mandatory minimums increased drug purity.
As of 1987, the US’s Anti-Drug Abuse Act (ADAA) has imposed mandatory minimum sentences for drug traffickers based on the quantity of the drug involved irrespective of purity. Using the STRIDE dataset and a differences-in-differences approach, I find that this led to increases in cocaine and heroin purity of 52 per cent and 27 per cent respectively.
Lesson two of economics is think on the margin. Lesson nineteen, which we don't always get to in Econ 101, is to remember that there are many margins.
Hat tip to Geary Behavioural Economics Blog.
Why wages are sticky
Bloomberg: Greek unions grounded flights, kept ferries docked at ports and shut down public services today to protest wage cuts as the government sticks to conditions of an international bailout. Protesters clashed with police in Athens.
Air-traffic controllers walked off the job, canceling all flights to and from Athens International Airport. Public transport workers, whose salaries were cut 10 percent under a bill approved early today in parliament, worked on and off between 9 a.m. and 5 p.m. to carry protesters to rallies.
…Other groups taking part in today’s strike include bank employees, doctors, teachers and employees from state-controlled Public Power Corp., which supplies electricity in the country of 11 million people. Taxi drivers turned off their engines from 10 a.m. to 2 p.m.
Bus, train and subway workers plan a 24-hour strike tomorrow, the third in a week since plans to decrease their wages were approved by the cabinet…
The story also illustrates how aggregate demand shocks can generate aggregate supply shocks.
The Ethics of Random Clinical Trials
In New York City a random clinical trial over a housing program has many people upset (as Tyler noted earlier):
…some public officials and legal aid groups have denounced the study as unethical and cruel, and have called on the city to stop the study and to grant help to all the test subjects who had been denied assistance.
“They should immediately stop this experiment,” said the Manhattan borough president, Scott M. Stringer. “The city shouldn’t be making guinea pigs out of its most vulnerable.”
The controversy brought to my mind this story from Dr. E. E. Peacock:
One day when I was a junior medical student, a very important Boston surgeon visited the school and delivered a great treatise on a large number of patients who had undergone successful operations for vascular reconstruction.
At the end of the lecture, a young student at the back of the room timidly asked, “Do you have any controls?” Well, the great surgeon drew himself up to his full height, hit the desk, and said, “Do you mean did I not operate on half the patients?” The hall grew very quiet then. The voice at the back of the room very hesitantly replied, “Yes, that’s what I had in mind.” Then the visitor’s fist really came down as he thundered, “Of course not. That would have doomed half of them to their death.”
God, it was quiet then, and one could scarcely hear the small voice ask, “Which half?”
Dr. E. E. Peacock, Jr., quoted in Medical World News (September 1, 1972), p. 45, as quoted in Tufte's 1974 book Data Analysis for Politics and Policy.
Hat tip for the quote source to Raw Meat.
Think about the children
In today's world of now, now, now and me, me, me! It's nice to know that one company wants you to think about the next generation.
Hat tip: Daniel Lippman.
Device Lag at the FDA
A new survey of the FDAs impact on medical technology innovation reports that the FDA is slow, inefficient and costly. The survey is from the Medical Device Manufacturers Association so take it with a grain of salt (but see below). What is most telling, however, is how manufacturers rate the FDA compared to its European counterpart(s).
Overall Experience: 75 percent of respondents rated their regulatory experience in the EU excellent or very good. Only 16 percent gave the same ratings to the FDA…
Respondents also cite specific concerns with the FDA process (not just a general complaint of slowness which could be efficient) such as:
…44 percent of participants indicated that part-way through the regulatory process they experienced untimely changes in key personnel, including the lead reviewer and/or branch chief responsible for the product’s evaluation.
As a result:
On average, the products represented in the survey were available to patients in the U.S. a full two years after they were available to patients in Europe (range = 3 to 70 months later).
In some cases, respondents said they initiated their regulatory processes within and outside the U.S. at the same time, but received clearance/approval in the U.S. much later. In anticipation of long, expensive FDA reviews, others said they decided to seek or obtain European approval first in an effort to generate sales overseas that could help fund their U.S. regulatory efforts.
The survey has a good discussion of potential biases. To those not familiar with the industry it might seem obvious that the MDMA would want to bash the FDA but my experience is that companies in the business don't like to complain. Indeed, the survey notes:
A number of companies indicated that they would not respond due to fear of retribution from the FDA (despite assurances we would maintain their confidentiality).
See FDAReview for more on the FDA. Hat tip: Mike Mandel.
Addendum: Loyal reader Josh Turnage has produced a video plea to the FDA on behalf of his mother to leave Avastin approved for breast cancer.
Markets in Everything: World Babies
…Prospective parents put off by the rigor of traditional adoptions are bypassing that system by producing babies of their own–often using an egg donor from one country, a sperm donor from another, and a surrogate who will deliver in a third country to make what some industry participants call "a world baby."
They turn to PlanetHospital and a handful of other companies. "We take care of all aspects of the process, like a concierge service," says Mr. Rupak, a 41-year-old Canadian.
…During one client meeting over tea in Chicago, Mr. Rupak first answers a question about the possibility of breast-feeding if you're not the birth mother. Then, as the conversation wraps up, he says: "I have some good news for you. We'll be offering you and your husband complimentary teeth-cleaning while you're in Hyderabad."
From the WSJ, interesting throughout.
How An Economist Explains Hanukkah
From Seth Gitter at the Blog of Diminishing Returns.
How to Make Friends Without Influencing People
Bryan Caplan had a great post last week combining statistics, biology, and parenting to lead to the conclusion that weird people should have more kids. First, the statistics. If there is a zero correlation between parental and child traits then your child is as likely to be as similar to you as is a stranger. If the correlation between parent and child traits is greater than zero then you are more likely to be like your child than a stranger but only if you yourself are not normal. Here is Bryan:
Take a look:
Parent-Child Correlation
r= 0
r=.5
You
Stranger
Child
Stranger
Child
Percentile/
Expected
Percentile
50th
50th
50th
50th
50th
95th
50th
50th
50th
80th
99.99th
50th
50th
50th
95th
Notice that regardless of the value of r, normal people can expect to be like their kids. But that's not saying much, because normal people can expect to be like any random person they meet! The story's very different for weirdos. By definition, weirdos never have much in common with random strangers. With a zero parent-child correlation, weirdos will feel equally alienated from their children. As the parent-child correlation rises, however, weirdos' incompatibility with strangers stays the same, but their expected compatibility with their children gets stronger and stronger.
Now let's look at these facts like a mad economist. There are two ways to surround yourself with people like you. One is to meet them; the other is to make them. If you're average, meeting people like yourself is easy; people like you are everywhere. If you're weird, though, meeting people like yourself is hard; people like you are few and far between. But fortunately, as the parent-child correlation rises, weirdos' odds of making people like themselves get better and better.
…The lesson: As your weirdness increases, so does your incentive to have kids. If you like football and American Idol, you're never really alone. You don't need to build a Xanadu for yourself. But if you're a lonely misfit, oddball, freak, or weirdo, then find a like-minded spouse and make new life together. Let the normals laugh at you. You'll have each other.
Markets in Everything: Name a Theorem
You can name your very own mathematical theorem, newly generated by one of the world's most advanced computerised theorem provers (a kind of robot mathematician), and you can immortalise your loved ones, teachers, friends and even yourself and your favourite pets.
I would be afraid that I would not understand my own theorem (see here for an example).
I will stick with Tabarrok's Wager (original paper here).
Hat tip: Boing Boing.
How the Public Views the Inflation-Unemployment Tradeoff
The public really hates inflation, probably due to money illusion, which is one of the reasons we are in the current situation. Circa 1996 Robert Shiller asked a group of 113 randomly chosen responders the following questions:
Imagine that you faced a choice for the United States between the following two extreme possibilities, which would you choose?
1) The US would have in the next 10 years an inflation rate of only 2% a year, but an unemployment rate of 9%, thus about 12 million unemployed.
2) The US would have in the next ten years an inflation rate of 10% a month, but an unemployment rate of only 3%, thus about 4 million unemployed.
The results: 75% chose option 1, the low inflation, high unemployment option.
Similar results were found in Germany.
Addendum: The Brazilians, who have the most experience with high inflation, were the most likely to choose 2 (46%).
Close the Washington Monument
The National Park Service wants to add airport-level security to the Washington Monument. Bruce Schneier says we should close it:
…Let it stand, empty and inaccessible, as a monument to our fears.
An empty Washington Monument would serve as a constant reminder to those on Capitol Hill that they are afraid of the terrorists and what they could do. They're afraid that by speaking honestly about the impossibility of attaining absolute security or the inevitability of terrorism — or that some American ideals are worth maintaining even in the face of adversity — they will be branded as "soft on terror." And they're afraid that Americans would vote them out of office if another attack occurred. Perhaps they're right, but what has happened to leaders who aren't afraid? What has happened to "the only thing we have to fear is fear itself"?
An empty Washington Monument would symbolize our lawmakers' inability to take that kind of stand — and their inability to truly lead.
…The empty monument would symbolize our war on the unexpected, — our overreaction to anything different or unusual — our harassment of photographers, and our probing of airline passengers. It would symbolize our "show me your papers" society, rife with ID checks and security cameras. As long as we're willing to sacrifice essential liberties for a little temporary safety, we should keep the Washington Monument empty.
Terrorism isn't a crime against people or property. It's a crime against our minds, using the death of innocents and destruction of property to make us fearful. Terrorists use the media to magnify their actions and further spread fear. And when we react out of fear, when we change our policy to make our country less open, the terrorists succeed — even if their attacks fail. But when we refuse to be terrorized, when we're indomitable in the face of terror, the terrorists fail — even if their attacks succeed.
…We can reopen the Washington Monument when we've defeated our fears, when we've come to accept that placing safety above all other virtues cedes too much power to government and that liberty is worth the risks, and that the price of freedom is accepting the possibility of crime.
I would proudly climb to the top of a monument to those ideals.
I agree.
Don’t Play Games with Your Kids
Seeing that my 9-year old was reading The Mysterious Benedict Society and the Prisoner's Dilemma I thought this was an excellent opportunity to teach my kids some game theory. Thus, I explained the prisoner's dilemma and offered the 9 and 12 year old the opportunity to cheat or cooperate with substantial cash payoffs.
My kids are competitive so I didn't foresee any problems. Yet the kids kept cooperating. Did they not understand the game? Alas, it soon became clear that they understood all too well. Silly me. I had neglected to take into account that the opportunity to take money from Daddy greatly raised the payoff to (cooperate, cooperate). (As an aside this did increase somewhat my belief in Steve Landsburg's unusual interpretation of some experimental games).
Ok, I was losing money but no problem, I resolved to change the game on the fly greatly increasing the payoff to cheat. Only I miscalculated. In my eagerness to drive the kids to the (cheat, cheat) equilibrium I raised the payoff to cheat so high that they did best by (cheat, cooperate) followed by a side-payment to split the spoils. Of course the kids saw that right away. Daddy loses again.
Having satisfied myself that the kids understood strategic thinking, unfortunately even better than me, I ended the game. But now I was a substantial sum of money in the hole. What to do? I resolved to auction off some money with an all-pay auction. Success! As usual, I managed to sell a dollar for well over a dollar. Even the kids didn't see their way past that one.
Having regained some dignity I sent the kids to bed. Still the kids were up on net. What could I do? Finally, after some thought I figured out how I could rebalance our portfolios and at the same time teach the kids all about Ricardian Equivalence and (appropriately) the Rotten Kid Theorem. All I had to do was give them less for Christmas. Daddy wins!
(Well, at least until I explained my clever idea to my wife. Nuff said.)
Ideas Behind Their Time
We are all familiar with ideas said to be ahead of their time, Babbage’s analytical engine and da Vinci’s helicopter are classic examples. We are also familiar with ideas “of their time,” ideas that were “in the air” and thus were often simultaneously discovered such as the telephone, calculus, evolution, and color photography. What is less commented on is the third possibility, ideas that could have been discovered much earlier but which were not, ideas behind their time.
Experimental economics was an idea behind its time. Experimental economics could have been invented by Adam Smith, it could have been invented by Ricardo or Marshall or Samuelson but it wasn’t. Experimental economics didn’t takeoff until the 1960s when Vernon Smith picked it up and ran with it (Vernon was not the first experimental economist but he was early).
(Economics, and perhaps social science in general, seems behind its time compared say with political science.)
A lot of the papers in say experimental social psychology published today could have been written a thousand years ago so psychology is behind its time. More generally, random clinical trials are way behind their time. An alternative history in which Aristotle or one of his students extolled the virtue of randomization and testing does not seem impossible and yet it would have changed the world.
Technology can also be behind its time. View morphing (“bullet time”) could have been used much more frequently well before The Matrix in 1999 (you simply need multiple cameras from different angles triggered at the same time and then inserted into a film) but despite some historical precedents the innovation didn’t happen.
Ideas behind their time may be harder to discover than other ideas–“if this is so great why hasn’t it been done before”? is an attack on ideas behind their time that other innovations do not have to meet. Is this why social innovations are often behind their time?
What other ideas were behind their time? Are some types of ideas more likely to be behind their time than others? Why?
Addendum: See Jason Crawford on Why did it take so long to invent X?
Incentives gone bad
NYTimes: Today, when reading the dozens of comments about Deco#MyEyes, it is hard to decide which one conveys the most outrage. It is easy, though, to choose the most outrageous. It was written by Mr. Russo/Bolds/Borker himself.
“Hello, My name is Stanley with Deco#MyEyes.com,” the post began. “I just wanted to let you guys know that the more replies you people post, the more business and the more hits and sales I get. My goal is NEGATIVE advertisement.”
It’s all part of a sales strategy, he said. Online chatter about Deco#MyEyes, even furious online chatter, pushed the site higher in Google search results, which led to greater sales. He closed with a sardonic expression of gratitude: “I never had the amount of traffic I have now since my 1st complaint. I am in heaven.”
Would it surprise you that the owner once worked at Lehman Brothers? Much more of interest at the link.
Note that I added the # to block the name, the NYTimes did not.