Category: Books
John Stuart Mill on empirical economics and causal inference
Written by me, here is a passage from GOAT: Who is the Greatest Economist of All Time, and Why Should We Care?
A System of Logic covers many different topics, but for our purposes the most important discussion is Mill’s treatment “Of the Four Methods of Experimental Inquiry,” sometimes called “Mill’s Methods” and indeed receiving their own Wikipedia page. Mill outlines different manners in which causes and effects might be correlated, or not, and what we can infer from such patterns, and how difficult it can be to sort out actual cause and effect from the data. He refers to the “direct method of agreement,” the “method of difference,” “joint method of agreement difference,” the “method of residue,” and the “method of concomitant variations,” all as ways of trying to make correct or at least better inferences from the data.
I’ll spare you the details on the full argument, but in essence Mill was trying to figure out how to do causal inference econometrics, but with words only. That enterprise was doomed to fail, but it gives us insight into what Mill thought was by far the most important question in social science, namely causal inference when faced with complex underlying chains of cause and effect. For Mill, everything is what we would now call “an identification problem,” and this understanding is clearest in Mill’s chapters “Fallacies of Generalization” and “Fallacies of Ratiocination.” Mill also serves up a remarkably on-target discussion of how the different nature of social science problems, and their possibly greater complexity, can lead to identification problems that are not necessarily present in the natural sciences – see his chapter “Of the Chemical, or Experimental, Method in the Social Science.” That entire approach is remarkably 2020s in orientation, and you won’t find earlier history of thought books giving Mill much if any credit for this.
In a funny way, Mill was ahead of Milton Friedman in his understanding here. Friedman knew much more statistics, but in his economics he often presented causal inference as fairly straightforward. In his Monetary History of the United States, co-authored with Anna Schwartz, the reader does get the impression that the historical correlations, and ordinary least squares techniques, do in fact show that the money supply is a central driver of nominal income, given the relative stability of money demand. Later, the real business cycle theorists were to challenge that inference, and suggest that often it was income that was causing the money supply. That is a kind of complex challenge Mill seemed quite comfortable with in A System of Logic, whereas Friedman and Schwartz assigned higher power to common sense approaches to cause and effect.
Mill remains in my eyes one of the most underrated thinkers.
Top MR Posts of 2023
This was the year of AI; including the top post from Tyler, Existential risk, AI, and the inevitable turn in human history but also highly ranked were my posts AGI is Coming and AI Worship and Tyler’s GPT and my own career trajectory. Also our paper, How to Learn and Teach Economics with Large Language Models, Including GPT has now been downloaded more than ten thousand times.
2. Second most popular post was The Extreme Shortage of High IQ Workers
5. *GOAT: Who is the Greatest Economist of all Time, and Why Does it Matter?*
6. Matt Yglesias on depression and political ideology which pairs well with another highly-ranked Tyler post, So what is the right-wing pathology then? and also Classical liberals are increasingly religious.
7. Can the SVB crisis be solved in the longer run?
8. Substitutes Are Everywhere: The Great German Gas Debate in Retrospect
9. My paean to Costco.
10. Is Bach the greatest achiever of all time?
11. The Real Secret of Blue Zones
12. SpaceX Versus the Department of Justice
13. What does it mean to understand how a scientific literature is put together?
14. In Praise of the Danish Mortgage System
15. Great News for Female Academics!
Finally, don’t forget Tyler’s posts Best non-fiction books of 2023, Favorite fiction books of 2023, and Favorite non-classical music.
What were your favorite posts/articles/books/music/movies of 2023?
*The New Deal’s War on the Bill of Rights*
That is the new book by David Beito, and the subtitle is The Untold Story of FDR’s Concentration Camps, Censorship, and Mass Surveillance. Here is the closing passage:
If Roosevelt’s civil-liberties reputation meant anything to mainstream Americans at the end of the 1950s, it was not for witch hunts against gays in the navy, mass surveillance of private telegrams, crackdowns on free speech, inquisitorial investigations, sedition prosecutions, or the internment of Japanese Americans in concentration camps. Far more central in the memories of most was his authorship of the four freedoms and the Fair Employment Practices Committee and the appointment of Black and Douglas to the Supreme Court. But that was not the whole truth, or even the beginning of the whole truth.
There you go. I don’t think these facts are much contested, though the accompanying mood affiliation hasn’t changed very much.
Asimov Press
Asimov Press, a new publishing venture that will produce books + magazines about progress in biotechnology, launched today. We’ll publish new articles regularly and hope you’ll follow! Modelled on Stripe Press, and we’re advised by a Works in Progress co-founder.
What I’ve been reading
Rob Henderson, Troubled: A Memoir of Foster Care, Family, and Social Class. Yes, that is the Rob Henderson of Twitter and Substack. He was raised by foster parents and joined the Air Force at the age of seventeen. He ended up with a Ph.D. from Cambridge. This is his story, it covers class in America, and it is a paean to family stability.
There Were Giants in the Land: Episodes in the Life of W. Cleon Skousen. Compiled and edited by Jo Ann and Mark Skousen. If you are interested in LDS, one approach is to read The Book of Mormon. Another option is to read a book like this one. It is also, coming from a very different direction, a paean to family stability.
Thomas Bell, Kathmandu. There should be more books about individual cities, and this is one of them, one of the best in fact. Excerpt: “At its most local levels, of the neighbourhood, or the individual house, Kathmandu is ordered by religious concepts, either around holy stones, or divinely sanctioned carpentry and bricklaying techniques. The same is true of the city as a whole.” And how do they still have so many Maoists?
Out of Sri Lanka: Tamil, Sinhala & English Poetry from Sri Lanka and its Diasporas, edited by Vidyan Ravinthiran, Seni Seneviratne, and Shash Trevett. A truly excellent collection, worthy of making the best non-fiction of 2023 list. Or does this count as fiction? It’s mostly about things that happened.
Eric H. Cline, After 1177 B.C.: The Survival of Civilizations. A good sequel to the very good 1177 B.C.
Allison Pugh, The Last Human Job: The Work of Connecting in a Disconnected World accurately diagnosing networking as a skill that will rise significantly in value in a tech-laden world.
Dorian Bandy, Mozart The Performer: Variations on the Showman’s Art shows how Mozart, first and foremost, was a showman and that background shaped his subsequent output and career.
My Conversation with Fuchsia Dunlop
Here is the audio, video, and transcript, conducted over a long meal at Mama Chang restaurant in Fairfax. Here is the episode summary:
As they dined, the group discussed why the diversity in Chinese cuisine is still only just being appreciated in the West, how far back our understanding of it goes, how it’s represented in the Caribbean and Ireland, whether technique trumps quality of ingredients, why certain cuisines can spread internationally with higher fidelity, what we can learn from the different styles in Indian and Chinese cooking, why several dishes on the table featured Amish ingredients, the most likely mistake people will make when making a stir fry, what Lydia has learned managing an empire of Chinese restaurants, Fuchsia’s trick for getting unstuck while writing, and more.
Joining Tyler, Fuchsia, and Lydia around the table were Dan Wang, Rasheed Griffith, Fergus McCullough, and Sam Enright.
Here is one excerpt:
WANG: Yes, that’s right. If I can ask a follow-up question on this comparison between India and China. Maybe this is half a question also for Tyler. Why do we associate Indian cuisine so much more with long simmers, whereas Chinese cuisine — of course, it is a little bit of everything, as Fuchsia knows so well, but it is often a little bit more associated with quick fries. What is the factor endowment here of these two very big countries, very big civilizations having somewhat divergent paths, as we imagine, with culinary traditions?
DUNLOP: That’s a really interesting question. It’s hard to answer because I don’t really know anything about Indian food. I did have a really interesting conversation with an Indian who came on my tour to Yunnan earlier this year because I was speculating that one of the reasons that Chinese food is so diverse is that the Chinese are really open-minded, with very few taboos. Apart from Muslims eating halal food and some Buddhists not eating meat, there’s a great adventurous open-mindedness to eating.
Whereas in India, you have lots of taboos and religious and ritual restrictions. That’s one reason that you would think it would be a constraint on the creativity of Indian food. But this Indian I was talking to, who’s a food specialist — he reckoned that the restrictions actually forced people to be more creative. He was arguing that Indian food had all the conditions for diversity that Chinese does.
In terms of cooking methods, it’s hard to say. Again, I don’t know about Indian food, but the thing about China is that there’s been this intense thoughtfulness about food, really, for a very long time. You see it in descriptions of food from 2,000 years ago and more.
In the Song Dynasty, this incredible restaurant industry in places like Hangzhou, and innovation and creativity. I suppose that when you are thoroughly interested in food like the Chinese and thinking about it creatively all the time, you end up having a whole plethora of different cooking methods. That’s one of the striking things about Chinese cuisine, that you have slow-cooked stews and simmered things and steamed things and also stir-frying. That might explain why several different methods have achieved prominence.
COWEN: Before I comment on that, Lydia, on the new dish, please tell us.
The dishes are explained as they were consumed, the meal was excellent, of course the company too. A very good episode, highly rated for all lovers of Chinese food. And here is Fuchsia’s new book, Invitation to a Banquet: The Story of Chinese Food, self-recommending. And here are previous MR mentions of Fuchsia, including links to my two earlier CWTs with her.
*Who Makes the NBA?*
That is the new book by Seth Stephens-Davidowitz, with the subtitle Data-Driven Answers to Basketball’s Biggest Questions. Most notably, it was written in thirty days with the help of GPT-4.
It’s quite good! Excerpt:
A statistically significant percentage of sons of NBA players shoot free throws at a higher clip than their fathers.
Jokic, by the way, started off playing water polo, and that is partly why he passes as he does and has such good court vision. And this:
And the average NBA player shoots free throws 1.5 percentage points lower in clutch moments in playoff games.
Is some of that due to being more tired rather than choking? On average taller players choke more on free throws, which is perhaps consistent with this hypothesis? Being very tall, they are less likely to be athletic and well-conditioned, in equilibrium that is?
I really liked this book, kudos to the author(s)!
Number Go Up
Number Go Up, Zeke Faux’s account of the wildest excesses of the crypto boom (2020-2022), is highly entertaining from page one:
“I am not going to lie,” Sam Bankman-Fried told me.
This was a lie.
Faux describes the scene on a yacht off the Bahamas owned or rented by Brock Pierce, the child actor who starred in the Mighty Ducks and who co-founded Tether, a stablecoin that Faux is on the hunt to uncover its origins and backing:
A crypto venture capital fund manager–wearing a mock souvenir T-shirt from convicted pedophile Jeffrey Epstein’s private island–joked about a scam that another yacht guest was running. A crypto public relations man offered what he called “Colombian marching powder” to a young woman. A small group of people dancing told me that they were philosophy students who’d come to the Bahamas to intern for FTX’s Bankman-Fried.
On Razzlekhan, the rapper, entrepreneur, and former World Bank economist-intern, who with her husband managed to pull off the largest heist in world history, some US $4.5 billion! (well, technically they stole ~$69 million worth of bitcoin in 2016 but they couldn’t sell it very easily and by the time they were caught in 2022 it was worth $4.5 billion):
As a performer, Razzlekhan was both hypersexual and aggressively unappealing. She alternated jokes about diarrhea and sex with boasts about her edgy business practices. Her signature move, if you can call it that, was to throw up her hand with her fingers split into a “V” stick out her tongue, and say “Razzle Dazzle!” Then she would make a loud phlegmy cough.
Ironically, the US government now holds the recovered coin, making it one of the largest holders of bitcoin in the world.
On the collapse of Three Arrows
Court documents showed that the fund’s holdings included a portfolio of NFTs. Among them were a Bored Ape with a vaguely racist “sushi chef headband” and a pixelated image of a cartoon penis, called a CryptoDickButt, which, incredibly, was worth about $1,000 at the time.
It’s not all fun and games. Faux also travels to the Philippines to witness the bust of Axie Infinity game miners and to Cambodia to investigate what amounts to slave labor camps run by Chinese gangsters.
One doesn’t get a favorable impression of crypto from Number Go Up but in fact one doesn’t learn much about crypto at all. Indeed, Faux’s book isn’t really about crypto it’s about the rise and collapse of a bubble and the consequent madness of crowds. It’s an old and familiar story. Not that different from the tulip mania (see the picture below), the dot-com boom, or the house flippers and mortgage boom of 2006-2008 (see the Big Short for similar stories of excess). The madness of crowds is fascinating, fun, and good for a morality tale but it doesn’t really tell us much about the underling asset. Tulips never amounted to much, the internet did great, house prices are back up. Crypto? Jury is still out. Thus, I was entertained by Number Go Up, but didn’t learn much.
Still, I agree with Faux on this, don’t put your money in Tether.
Wikipedia: Allegory of the Tulip Mania. The goddess of flowers is riding along with three drinking and money weighing men and two women on a car. Weavers from Haarlem have thrown away their equipment and are following the car. The destiny of the car is shown in the background: it will disappear in the sea.
Weird anecdotes about philosophers connected to Oxford
Here is one:
McTaggart wore his eccentricities with pride. He rode a tricycle. He walked “with a curious shuffle, back to the wall, as if expecting a sudden kick from behind,” a fact that may or may not be explained by his having been bullied at boarding school. He saluted every cat he met. His dissertation for a fellowship at Trinity, later published as Studies in the Hegelian Dialectic; had elicited from that older Apostle, Henry Sidgwick, the remark; “I can see that this is nonsense, but what I want to know is whether it is the right kind of nonsense.” Apparently, it was.
That is from Nikhil Krishnan, A Terribly Serious Adventure: Philosophy and War at Oxford 1900-1960. Another recent book dealing with both philosophy and war at Oxford is M.W. Rowe’s very thorough J.L. Austin: Philosopher & D-Day Intelligence Officer. Here is that book’s best weird philosopher anecdote:
Robert Paul Wolff noted Quine’s frequent lack of small talk, and his tactics for brushing off unwanted questioners, but his deeper doubts were crystallized by an incident some years later:
“Quine obviously had a sensual side to his nature to complement his intellect, as his attractive second wife and his love of food and jazz attested. But I always thought there was some element of humanity missing from his makeup that gave him a rather cold aura. Quine had just returned from a trip to Germany — this was not fifteen years after the war remember — and he was describing a tour he had taken of SS torture chambers. He exhibited an eerie fascination with the technical efficiency of the facility that struck me as devoid of any real human appreciation of its demonic purpose.”
But at Oxford, Quine was perfectly charming, and his erudition and accomplishments — besides logic and jazz, he was an expert on maps, widely travelled, and said to speak eight languages — ensured considerable social success…
As for the broader book, I had not known the extent to which Austin was a significant and highly successful intelligence officer. It is a very good book if you are interested in hundreds of pages on this topic.
My excellent Conversation with John Gray
I had been wanting to do this one for a while, and now it exists. Here is the audio and transcript, here is the episode summary:
Tyler and John sat down to discuss his latest book, including who he thinks will carry on his work, what young people should learn if liberalism is dead, whether modern physics allows for true atheism, what in Eastern Orthodoxy attracts him, the benefits of pessimism, what philanthropic cause he’d invest a billion dollars in, under what circumstances he’d sacrifice his life, what he makes of UFOs, the current renaissance in film and books, whether Monty Python is still funny, how Herman Melville influenced him, who first spotted his talent, his most unusual work habit, what he’ll do next, and more.
Excerpt:
COWEN: Do you think that being pessimistic gives you pleasure? Or what’s the return in it from a purely pragmatic point of view?
GRAY: You are well prepared for events. You don’t expect —
COWEN: It’s a preemption, right? You become addicted to preempting bad news with pessimism.
GRAY: No, no. When something comes along which contradicts my expectations, I’m pleasantly surprised. I get pleasant surprises. Whereas, if you are an adamant optimist, you must be in torment every time you turn the news on because the same old follies, the same old crimes, the same old atrocities, the same old hatreds just repeat themselves over and over again. I’m not surprised by that at all. That’s like the weather. It’s like living in a science fiction environment in which it rains nearly all of the time, but from time to time it stops and there’s beautiful sunlight.
If you think that basically there is beautiful sunlight all the time, but you’re just living in a small patch of it, most of your life will be spent in frustration. If you think the other way around, as I do, your life will be peppered, speckled with moments in which what you expect doesn’t happen, but something better happens.
COWEN: Why can’t one just build things and be resiliently optimistic in a pragmatic, cautionary sense, and take comfort in the fact that you would rather have the problems of the world today than, say, the problems of the world in the year 1000? It’s not absolute optimism where you attach to the mood qua mood, but you simply want to do things and draw a positive energy from that, and it’s self-reinforcing. Why isn’t that a better view than what you’re calling pessimism?
And:
COWEN: Under what circumstances would you be willing to sacrifice your life? Or for what?
GRAY: Not for humanity, that’s for sure.
Recommended, interesting throughout. John is one of the smartest and best read thinkers and writers. He even has an answer ready for why he isn’t short the market. And don’t forget John’s new book — I read all of them — New Leviathans: Thoughts After Liberalism.
*Everyday Freedom*, by Philip K. Howard
This is very much a book that needed to be written. Here is one short excerpt:
Powerlessness has become a defining feature of modern society. Americans at all levels of responsibility feel powerless to do what they think is needed. The culture wars, sociologist James Davison Hunter explains, stem from institutional impotence: A “growing majority of Americans believe that their government cannot be trusted, that its leaders . . . are incompetent and self-interested, and that as citizens, they personally have little power to influence the . . .institutions or circumstances that shape their lives.”
Feeling fragile, and buffeted by forces beyond our control, many Americans retreat to online groups defined by identity and by distrust of the other side as “a threat to [our] existence.” It’s hard to identify what’s wrong amid the clamor and conflict in modern society. But a clue can be found in remembering what makes us proud. America is where people roll up our sleeves and get it done.
The ability to do things in our own ways activates the values for which America is well-known: self-reliance, pragmatism, and loyalty to the greater good—what Alexis de Tocqueville called “self-interest, rightly understood.” For most of American history, the power and imperative to own your actions and solutions—the concept of individual responsibility—was implicit in the idea of freedom.
Americans didn’t abandon our belief in individual responsibility. It was taken away from us by post 1960s legal framework that, with the best of intentions, made people squirm through the eye of a legal needle before taking responsibility. Individual responsibility to a broader group, for example, was dislodged by a new concept of individual rights focused on what’s best for one person or constituency. The can-do culture became the can’t do culture.
At every level of responsibility, Americans have lost the authority to do what they think is sensible. The teacher in the classroom, the principal in a school, the nurse in the hospital, the official in Washington, the parent on the field trip, the head of the local charity or church . . . all have their hands tied by real or feared legal constraints.
And yes he does propose concrete solutions, most of all at the level of the law. The whole thing is only 84 pp., and this is one of the books that comes closest to diagnosing what is wrong with our country. The subtitle is Designing the Framework for a Flourishing Society.
Why Housing is Unaffordable: The Elasticity of Supply
We have a great new MRU video on housing and why it’s so expensive in many dynamic cities. The video is a good introduction to the economics and also to the politics of housing supply. A highlight is a wonderful animation illustrating how increasing demand coupled with inelastic supply leads to competitive bidding among buyers, driving up prices. Anyone teaching economics should take a look.
Of course, the video pairs perfectly with our textbook, Modern Principles. Indeed, this is the initial video in a two-part series exploring the elasticity of supply, transforming a traditionally mundane topic into a relevant and fun discussion. Check it out!
Charlie Munger, RIP
Age 99, the reissue of his Poor Charlie’s Almanack: The Essential Wit and Wisdom of Charles T. Munger is due out December 5 from Stripe Press. And my planned CWT with him will have to be rescheduled…
EconGoat for Claude 2.1
Claude 2’s large context window and easy file upload feature have made this one of the best LLMs.
As of November 21, 2023, Anthropic’s Claude 2.1 has the largest context window of any of the leading LLMs. Paid users can upload and query up to around 150,000 words of text, more than enough to fit this 95,000 word book. But even the free plan allows you to analyze about 75,000 words, which in this book equates to about six chapters.
Here are more details on how to use Claude 2.1 to interrogate GOAT: Who is the Greatest Economist of All Time, and Why Does It Matter?
*Saints, Scholars, and Schizophrenics*
The author of this excellent book is Nancy Scheper-Hughes, and the subtitle is Mental Illness in Rural Ireland. One of the most interesting themes of this book is how life in rural Ireland became so “de-eroticized,” to use her word. Here is one bit:
Marriage in rural Ireland is, I suggest, inhibited by anomie, expressed in a lack of sexual vitality; familistic loyalties that exaggerate latent brother-sister incestuous inclinations; an emotional climate fearful of intimacy and mistrustful of love; and an excessive preoccupation with sexual purity and pollution, fostered by an ascetic Catholic tradition. That these impediments to marriage and to an uninhibited expression of sexuality also contribute to the high rates of mental illness among middle-aged bachelor farmers is implicit in the following interpretations and verified in the life history materials and psychological tests of these men.
And:
In the preceding pages I have drawn a rather grim portrait of Irish country life, one that differs markedly from previous ethnographic studies. Village social life and institutions are, I contend, in a state of disintegration, and villagers are suffering from anomie, of which the most visible sign is the spiraling schizophrenia. Traditional culture has become unadaptive, and the newly emerging cultural forms as yet lack integration. The sexes are locked into isolation and mutual hostility. Deaths and emigrations surpass marriages and births.
Recommended. This seminal book, republished and revised in 2001, but originally from the 1970s, would be much harder to write and publish today.