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What Was Gary Becker’s Biggest Mistake?
The econometrician Henri Theil once said “models are to be used but not to be believed.” I use the rational actor model for thinking about marginal changes but Gary Becker really believed the model. Once, at a dinner with Becker, I remarked that extreme punishment could lead to so much poverty and hatred that it could create blowback. Becker was having none of it. For every example that I raised of blowback, he responded with a demand for yet more punishment. We got into a heated argument. Jim Buchanan and Bryan Caplan approached from the other end of the table and joined in. 
It was a memorable evening.
Becker isn’t here to defend himself on the particulars of that evening but you can see the idea in his great paper, Crime and Punishment: An Economic Approach. In a famous section he argues that an optimal punishment system would combine a low probability of being punished with a high level of punishment if caught:
If the supply of offenses depended only on pf—offenders were risk neutral — a reduction in p “compensated” by an equal percentage increase in f would leave unchanged pf…
..an increased probability of conviction obviously absorbs public and private resources in the form of more policemen, judges, juries, and so forth. Consequently, a “compensated” reduction in this probability obviously reduces expenditures on combating crime, and, since the expected punishment is unchanged, there is no “obvious” offsetting increase in either the amount of damages or the cost of punishments. The result can easily be continuous political pressure to keep police and other expenditures relatively low and to compensate by meting out strong punishments to those convicted.
We have now tried that experiment and it didn’t work. Beginning in the 1980s we dramatically increased the punishment for crime in the United States but we did so more by increasing sentence length than by increasing the probability of being punished. In theory, this should have reduced crime, reduced the costs of crime control and led to fewer people in prison. In practice, crime rose and then fell mostly for reasons other than imprisonment. Most spectacularly, the experiment with greater punishment led to more spending on crime control and many more people in prison.
Why did the experiment fail? Longer sentences didn’t reduce crime as much as expected because criminals aren’t good at thinking about the future; criminal types have problems forecasting and they have difficulty regulating their emotions and controlling their impulses. In the heat of the moment, the threat of future punishment vanishes from the calculus of decision. Thus, rather than deterring (much) crime, longer sentences simply filled the prisons. As if that weren’t bad enough, by exposing more people to criminal peers and by making it increasingly difficult for felons to reintegrate into civil society, longer sentences increased recidivism.
Instead of thinking about criminals as rational actors, we should think about criminals as children. In this light, consider the “Becker approach” to parenting. Punishing children is costly so to reduce that cost, ignore a child’s bad behavior most of the time but when it’s most convenient give the kid a really good spanking or put them in time out for a very long time. Of course, this approach leads to disaster–indeed, it’s precisely this approach that leads to criminality in later life.
So what is the recommended parenting approach? I don’t want to get into a debate over spanking, timeouts, and reasoning but one thing all recommendations have in common is that the consequences for inappropriate behavior should be be quick, clear, and consistent. Quick responses help not just because children have “high discount rates” (better thought of as difficulty integrating their future selves into a consistent whole but “high discount rates” will do as short hand) but even more importantly because a quick response helps children to understand the relationship between behavior and consequence. Prior to Becker there was Becaaria and in Beccarian theory, people must learn to associate crime with punishment. When responses aren’t quick, children, just like scientists, have difficulty learning cause and effect. Quick is thus one way of lowering cognitive demands and making consequences clear.
Animals can learn via conditioning but people can do much better. If you punish the child who steals cookies you get less cookie stealing but what about donuts or cake? The child who understands the why of punishment can forecast consequences in novel circumstances. Thus, consequences can also be made clear with explanation and reasoning. Finally, consistent punishment, like quick punishment, improves learning and understanding by reducing cognitive load.
Quick, clear and consistent also works in controlling crime. It’s not a coincidence that the same approach works for parenting and crime control because the problems are largely the same. Moreover, in both domains quick, clear and consistent punishment need not be severe.
In the economic theory, crime is in a criminal’s interest. Both conservatives and liberals accepted this premise. Conservatives argued that we needed more punishment to raise the cost so high that crime was no longer in a criminal’s interest. Liberals argued that we needed more jobs to raise the opportunity cost so high that crime was no longer in a criminal’s interest. But is crime always done out of interest? The rational actor model fits burglary, pick-pocketing and insider trading but lots of crime–including vandalism, arson, bar fights and many assaults–aren’t motivated by economic gain and perhaps not by any rational interest.
Here’s a simple test for whether crime is in a person’s rational interest. In the economic theory if you give people more time to think carefully about their actions you will on average get no change in crime (sometimes careful thinking will cause people to do less crime but sometimes it will cause them to do more). In the criminal as poorly-socialized-child theory, in contrast, crime is often not in a person’s interest but instead is a spur of the moment mistake. Thus, even a small opportunity to reflect and consider will result in less crime. As one counselor at a juvenile detention center put it:
20 percent of our residents are criminals, they just need to be locked up. But the other 80 percent, I always tell them – if I could give them back just ten minutes of their lives, most of them wouldn’t be here.
Cognitive behavioral therapy teaches people how to act in those 10 minutes–CBT is not quite as simple as teaching people to count to ten before lashing out but it’s similar in spirit, basically teaching people to think before acting and to revise some of their assumptions to be more appropriate to the situation. Randomized controlled trials and meta-studies demonstrate that CBT can dramatically reduce crime.
Cognitive behavioral therapy runs the risk of being labeled a soft, liberal approach but it can also be thought of as remedial parenting which should improve understanding and appreciation among conservatives. More generally, it’s important that crime policy not be forced into a single dimension running from liberal to conservative, soft to tough. Policing and prisons, for example, are often lumped together and placed on this single, soft to tough dimension when in fact the two policies are different. I favor more police on the street to make punishment more quick, clear, and consistent. I would be much happier with more police on the street, however, if that policy was combined with an end to the “war on drugs”, shorter sentences, and an end to brutal post-prison policies that exclude millions of citizens from voting, housing, and jobs.
Let’s give Becker and the rational choice theory its due. When Becker first wrote many criminologists were flat out denying that punishment deterred. As late as 1994, for example, the noted criminologist David Bayley could write:
The police do not prevent crime. This is one of the best kept secrets of modern life. Experts know it, the police know it, but the public does not know it. Yet the police pretend that they are society’s best defense against crime. This is a myth
Inspired by Becker, a large, credible, empirical literature–including my own work on police (and prisons)–has demonstrated that this is no myth, the police deter. Score one for rational choice theory. It’s a far cry, however, from police deter to twenty years in prison deters twice as much as ten years in prison. The rational choice theory was pushed beyond its limits and in so doing not only was punishment pushed too far we also lost sight of alternative policies that could reduce crime without the social disruption and injustice caused by mass incarceration.
Building the Voluntary City: Lessons from Gurgaon and Jamshedpur
The world’s urban population is growing very rapidly, especially in the developing world. The McKinsey Global Institute estimates that in India alone such an expansion will require the building of, in essence, a new Chicago every year for the next several decades. The problem with these numbers is not the expense. The problem is political and organizational. Many currently less-developed countries, including India, remain high in corruption and low in efficiency, especially in the administration of their towns and cities. It would be wonderful if foresighted and public-spirited government planners would provide India and other developing nations with wise urban planning but it seems unwise to rely on what has historically been rare for this massive transformation. Is there an alternative?
In Lessons from Gurgaon, India’s private city (working paper) found in a new book Cities and Private Planning Shruti Rajagopolan and I explore this question. Gurgaon, which I have written about before, shows both the successes and failures of private development. On the surface, Gurgaon is a gleaming, modern city built nearly overnight on wasteland. Gurgaon was built, however, without benefit of planning and its failures–most notably poor and inefficient provision of water, sewage, and electricity–are a warning. The failures all stem from high transaction costs, Gurgaon’s private developers have simply not managed to Coasean bargain and internalize externalities. It’s clear from Gurgaon that cities need advance planning–a reservation of rights of way for water, sewage and electricity at the very minimum–but does the planning have to be provided by government which is often incapable of such foresight?
The lessons of Jamshedpur, India, suggest another approach. Jamshedpur is a private township, planned from the beginning by visionary businessman Jamshetji Nusserwanji Tata, who, after travelling to the United States to see Pittsburgh, returned to India to found Tata Iron and Steel. Jamshedpur has been run by a single, integrated entity for over 100 years and as it is integrated it has internalized externalities. As a result, Jamshedpur, India’s other private city, has some of the best urban infrastructure in all of India.
Gurgaon shows the benefits of competition. Jamshedpur the benefits of integration. Can we get the best of both worlds?
If the rights to develop Gurgaon had originally been sold in very large packages, some five to seven proprietary but competitive cities could have been created in that region. Within this system the role of the state is to make it possible to auction large parcels of land. Once such parcels and associated rights to develop the land are created, private developers will provision public goods and services up to the edge of their property.
As proprietary communities, the competitive cities would have every incentive to invest in and especially to plan for appropriate infrastructure. Moreover, with five to seven communities in the same region, competitive pressures would keep rents low and at efficient levels for maximizing net benefits (Buchanan and Goetz 1972, Sonstelie and Portney 1978). Within the larger city, subdivisions on the order of neighbourhoods and business districts could be sublet and run by competitive firms with the overarching city establishing rules to internalize externalities. Competitive private governments would also generate experimentation and innovation in new rules that would then spread through intercity learning (Romer 2010).
Thus, Rajagopolan and I conclude:
In the next five decades many entirely new cities with populations in the millions will be built in places where today there is little or no population or infrastructure. Most of the urban development will occur in the developing world where government resources are stretched thin and planning is in short supply. Gurgaon illustrates the scope and the limits of private sector provisioning when the state machinery fails to provide essential public goods. The lesson of Gurgaon, Walt Disney World, and Jamshedpur is that a system of proprietary, competitive cities can combine the initiative and drive of private development with the planning and foresight characteristic of the best urban planning. A proprietary city will build infrastructure to attract residents and revenues. A handful of proprietary cities built within a single region will create a competitive system of proprietary cities that build, compete, innovate, and experiment.
Who are the Yazidis?
Their supreme being is known as Yasdan. He is considered to be on such an elevated level that he cannot be worshipped directly. He is considered a passive force, the Creator of the world, not the preserver. Seven great spirits emanate from him of which the greatest is the Peacock Angel known as Malak Taus – active executor of the divine will. The peacock in early Christianity was a symbol of immortality, because its flesh does not appear to decay. Malak Taus is considered God’s alter ego, inseparable from Him, and to that extent Yazidism is monotheistic.
There is more here, interesting throughout.
“The state of intoxication is a house with many mansions.”
So reads the preamble to the Winter 2013 issue of Lapham’s Quarterly, titled merely “Intoxication.” A tribute to tanking oneself, the anthology collects some 60 essays, poems, and stories from across the ages. As though anticipating Alex and Tyler’s trip to the Subcontinent, Lapham’s preamble traces the dignified heritage of the drink to those sacred Hindu texts (page references omitted):
Fourteen centuries before the birth of Christ, the Rigveda … finds Hindu priests chanting hymns to a “drop of soma,” the wise and wisdom-loving plant from which was drawn juices distilled in sheep’s wool that “make us see far; make us richer, better.” Philosophers in ancient Greece … rejoiced in the literal meaning of the word symposium, a “drinking together.” The Roman Stoic Seneca … recommends the judicious embrace of Bacchus as a liberation of the mind “from its slavery to cares, emancipates it, invigorates it, and emboldens it for all its undertakings.”
The litany continues through the Persians, Martin Luther, Samuel Johnson, and Baudelaire. Next to Plymouth and the American experiment.
The spirit of liberty is never far from the hope of metamorphosis or transformation, and the Americans from the beginning were drawn to the possibilities in the having of one more for the road. … The founders of the republic in Philadelphia in 1787 were in the habit of consuming prodigious quantities of liquor as an expression of their faith in their fellow men—pots of ale or cider at midday, two or more bottles of claret at dinner followed by an amiable passing around the table of the Madeira. Among the tobacco planters in Virginia, the money changers in New York, the stalwart yeomen in western Pennsylvania busy at the task of making whiskey, the maintaining of a high blood-alcohol level was the mark of civilized behavior. The lyrics of the Star-Spangled Banner were fitted to the melody of an eighteenth-century British tavern song. The excise taxes collected from the sale of liquor paid for the War of 1812, and by 1830 the tolling of the town bell (at 11 A.M., and again at 4 P.M.) announced the daily pauses for spirited refreshment.
Add in all other intoxicants, and we have some dark comparisons within a realm of human experience that’s about worth Spain’s economy:
If what was at issue was a concern for people trapped in the jail cells of addiction, the keepers of the nation’s conscience would be better advised to address the conditions—poverty, lack of opportunity and education, racial discrimination—from which drugs provide an illusory means of escape. That they are not so advised stands as proven by their fond endorsement of the more expensive ventures into the realms of virtual reality. Our pharmaceutical industries produce a cornucopia of prescription drugs—eye opening, stupefying, mood swinging, game changing, anxiety alleviating, performance enhancing—currently at a global market-value of more than $300 billion. Add the time-honored demand for alcohol, the modernist taste for cocaine, and the uses, as both stimulant and narcotic, of tobacco, coffee, sugar, and pornography, and the annual mustering of consummations devoutly to be wished comes to the cost of more than $1.5 trillion. The taking arms against a sea of troubles is an expenditure that dwarfs the appropriation for the military defense budget.
Words to ponder this holiday season, when more bottoms are up than usual, and as the complex world of 2013 awaits. Cheers, Sarah Skwire, for the pointer.
I basically agree with Ross Douthat here
The retreat from child rearing is, at some level, a symptom of late-modern exhaustion — a decadence that first arose in the West but now haunts rich societies around the globe. It’s a spirit that privileges the present over the future, chooses stagnation over innovation, prefers what already exists over what might be. It embraces the comforts and pleasures of modernity, while shrugging off the basic sacrifices that built our civilization in the first place.
His link is here, and I willingly admit that I am in some ways part of the problem.
Multiple equilibria?
That’s what I think of when I see that picture.
Trust was broken, most of all in the financial system, but like a wet spill this has soaked into many parts of the economy and polity.
Labor hiring is an investment, and we must move to higher levels of investment for the labor market to recover. For the most part, that is no longer a problem of nominal stickiness, as the quality of jobs has been varying for years, along with some wage adjustments. The nominal wage stickiness fairy was dominant in 2009 but is today just another spirit.
Employers are reluctant to hire stale labor, at any real wage, because they fear the associated morale problems. (Or at the requisite real wage, disability pay or idleness is a more attractive option for the worker.) This is partly fear, partly rational statistical discrimination. Employers will hire stale labor only when an extreme boom requires them to. Such an extreme boom must be seen as grounded in perceived increases in real wealth and justified increases in trust. That probably won’t come anytime soon, but we are inching our way back to it and someday it will come again. Solving the stale labor problem requires a very different path of recovery than solving the nominal wage stickiness problem.
In one very real sense, the economy is well below potential output (though less than many people think, due to the great stagnation). In another very real sense, that gap cannot be exploited in the short run by reflationary policy. Once again, it requires a reestablishment of trust. Trust is more easily broken than repaired.
In one very real sense, there is a significant demand shortfall. Yet repairing that demand shortfall requires many building blocks. Nominal reflation (which I favor) is only one of those building blocks. The others are rooted in trust and perceived real wealth, which are both slower to repair and require different policy instruments, plus the mere passage of time.
Under the multiple equilibria view, it is possible for employment and the real wage to recover together, albeit slowly. Under the nominal stickiness view, median real wages still need to take yet a further whack; oddly it is the Keynesians who are committed to the most extreme form of a TGS thesis.
It is time to integrate macroeconomics with institutional economics.
Toward a 21st-Century FDA?
In a WSJ op-ed, Andrew von Eschenbach, FDA commissioner from 2005 to 2009, is surprisingly candid about how the FDA is killing people.
When I was commissioner of the Food and Drug Administration (FDA) from 2005 to 2009, I saw firsthand how regenerative medicine offered a cure for kidney and heart failure and other chronic conditions like diabetes. Researchers used stem cells to grow cells and tissues to replace failing organs, eliminating the need for expensive supportive treatments like dialysis and organ transplants.
But the beneficiaries were laboratory animals. Breakthroughs for humans were and still are a long way off. They have been stalled by regulatory uncertainty, because the FDA doesn’t have the scientific tools and resources to review complex innovations more expeditiously and pioneer regulatory pathways for state-of-the-art therapies that defy current agency conventions.
Ultimately, however, von Eschenbach blames not the FDA but Congress:
Congress has starved the agency of critical funding, limiting its scientists’ ability to keep up with peers in private industry and academia. The result is an agency in which science-based regulation often lags far behind scientific discovery.
Should we not, however, read the following ala Strauss?
The FDA isn’t obstructing progress because its employees are mean-spirited or foolish.
…For example, in August 2010, the FDA filed suit against a company called Regenerative Sciences. Three years earlier, the company had begun marketing a process it called Regenexx to repair damaged joints by injecting them with a patient’s own stem cells. The FDA alleged that the cells the firm used had been manipulated to the point that they should be regulated as drugs. A resulting court injunction halting use of the technique has cast a pall over the future of regenerative medicine.
A peculiar example of a patient-spirited and wise decision, no? And what are we to make of this?
FDA scientists I have encountered do care deeply about patients and want to say “yes” to safe and effective new therapies. Regulatory approval is the only bridge between miracles in the laboratory and lifesaving treatments. Yet until FDA reviewers can be scientifically confident of the benefits and risks of a new technology, their duty is to stop it—and stop it they will. (emphasis added).
von Eschenbach ends with what sounds like a threat or perhaps, as they say, it is a promise. Unless Congress funds the FDA at higher levels and lets it regulate itself:
…we had better get used to the agency saying no by calling “time out” or, worse, “game over” for American companies developing new, vital technologies like regenerative medicine.
Frankly, I do not want to “get used” to the FDA saying game over for American companies but nor do I trust Congress to solve this problem. Thus, von Eschenbach convinces me that if we do want new, vital technologies like regenerative medicine we need more fundamental reform.
Turning the dialogue from wealth to values
My latest column is about the top one percent, and OWS, here are some paragraphs, including the last three:
The United States has always had a culture with a high regard for those able to rise from poverty to riches. It has had a strong work ethic and entrepreneurial spirit and has attracted ambitious immigrants, many of whom were drawn here by the possibility of acquiring wealth. Furthermore, the best approach for fighting poverty is often precisely not to make fighting poverty the highest priority. Instead, it’s better to stress achievement and the pursuit of excellence, like a hero from an Ayn Rand novel…
But how is that playing out in practice?
For one thing, today’s elites are so wedded to permissive values — in part for their own pleasure and convenience — that a new conservative cultural revolution may have little chance of succeeding. Lax child-rearing and relatively easy divorce may be preferred by some high earners, but would conservatives wish them on society at large, including the poor and new immigrants? Probably not, but that’s often what we are getting.
In the future, complaints about income inequality are likely to grow and conservatives and libertarians won’t have all the answers. Nonetheless, higher income inequality will increase the appeal of traditional mores — of discipline and hard work — because they bolster one’s chances of advancing economically. That means more people and especially more parents will yearn for a tough, pro-discipline and pro-wealth cultural revolution. And so they should.
It remains to be seen how many of us are up to its demands.
It will be very interesting to see, if labor market polarization continues, what kind of disciplinary alternatives will be offered. How about a boot camp, or a neo-Victorian boarding school, to turn your kid into a successful engineer? My admittedly counterintuitive view is that growing income inequality will provide a big boost to cultural conservatism, and perhaps political conservatism too, albeit at levels which are often rhetorical rather than real.
There is much more in the column itself, including a discussion of what Stiglitz, Sachs, Ayn Rand and modern American conservatives get right and wrong. I’m a big fan of the pro-wealth, pro-discipline ethic, although I don’t think that current intellectual discourse is serving up an especially palatable version of it.
I should add that for this column I am grateful for a conversation with John Nye.
Addendum: Mark Thoma comments, as do his commenters, always worth reading.
More on High Frequency Trading and Liquidity
Tyler is more optimistic about financial innovation than I am. Strange, but true. I recommend Andrew Haldane’s speech, The Race to Zero, on high frequency trading (HFT). Haldane is Executive Director for Financial Stability at the Bank of England and his speech is eminently quotable. First, some background from Haldane:
- As recently as 2005, HFT accounted for less than a fifth of US equity market turnover by volume. Today, it accounts for between two-thirds and three-quarters.
- HFT algorithms have to be highly adaptive, not least to keep pace with the evolution of new algorithms. The half-life of an HFT algorithm can often be measured in weeks.
- As recently as a few years ago, trade execution times reached “blink speed” – as fast as the blink of an eye….As of today, the lower limit for trade execution appears to be around 10 micro-seconds. This means it would in principle be possible to execute around 40,000 back-to-back trades in the blink of an eye. If supermarkets ran HFT programmes, the average household could complete its shopping for a lifetime in under a second.
- HFT has had three key effects on markets. First, it has meant ever-larger volumes of trading have been compressed into ever-smaller chunks of time. Second, it has meant strategic behaviour among traders is occurring at ever-higher frequencies. Third, it is not just that the speed of strategic interaction has changed but also its nature. Yesterday, interaction was human-to-human. Today, it is machine-to-machine, algorithm-to-algorithm. For algorithms with the lifespan of a ladybird, this makes for rapid evolutionary adaptation.
Consistent with the research cited by Tyler, Haldane notes that bid-ask spreads have fallen dramatically.
Bid-ask spreads have fallen by an order of magnitude since 2004, from around 0.023 to 0.002 percentage points. On this metric, market liquidity and efficiency appear to have improved. HFT has greased the wheels of modern finance.
But at the same time that bid-ask spread have decreased on average, volatility has sharply increased, as illustrated most clearly with the flash crash
Taken together, this evidence suggests something important. Far from solving the liquidity problem in situations of stress, HFT firms appear to have added to it. And far from mitigating market stress, HFT appears to have amplified it. HFT liquidity, evident in sharply lower peacetime bid-ask spreads, may be illusory. In wartime, it disappears.
In particular, what has happened is that stock prices have become less normal (Gaussian), more fat-tailed, over shorter periods of time.
Cramming ever-larger volumes of strategic, adaptive trading into ever-smaller time intervals would, following Mandelbrot, tend to increase abnormalities in prices when measured in clock time. It will make for fatter, more persistent tails at ever-higher frequencies. That is what we appear, increasingly, to find in financial market prices in practice, whether in volatility and correlation or in fat tails and persistence.
HFT strategies work across markets (e.g. derivatives), exchanges, and stocks and can have negative externality effects on low frequency traders. As a result, micro fat-tails can become macro fat-tails.
Taken together, these contagion channels suggest that fat-tailed persistence in individual stocks could quickly be magnified to wider classes of asset, exchange and market. The micro would transmute to the macro. This is very much in the spirit of Mandelbrot’s fractal story. Structures exhibiting self-similarity magnify micro behaviour to the macro level. Micro-level abnormalities manifest as system-wide instabilities.
For these reasons I am not enthusiastic about innovations in HFT. Earlier I compared high-tech swimming suits and high-frequency trading:
High-tech swimming suits and trading systems are primarily about distribution not efficiency. A small increase in speed over one’s rivals has a large effect on who wins the race but no effect on whether the race is won and only a small effect on how quickly the race is won. We get too much investment in innovations with big influences on distribution and small, or even negative, improvements in efficiency and not enough investment in innovations that improve efficiency without much influencing distribution, i.e. innovations in goods with big positive externalities.
*Why Marx was Right*
That’s the new Terry Eagleton book, which apparently needs no subtitle. Most of the claims in the book are correct, and they debunk superficial or incorrect readings of Marx. In that regard it is useful and it is also clearly written. Still, I have to judge it as a bad book, for instance:
But the so-called socialist system had its achievements, too. China and the Soviet Union dragged their citizens out of economic backwardness into the modern industrial world, at however horrific a human cost; and the cost was so steep partly because of the hostility of the capitalist West.
Or:
Building up an economy from very low levels is a backbreaking, dispiriting task. It is unlikely that men and women will freely submit to the hardships it involves.
Or:
…there is a paradoxical sense in which Stalinism, rather than discrediting Marx’s work, bears witness to its validity.
Try this one:
Revolution is generally thought to be the opposite of democracy, as the work of sinister underground minorities out to subvert the will of the majority. In fact, as a process by which men and women assume power over their own existence through popular councils and assemblies, it is a great deal more democratic than anything on offer at the moment. The Bolsheviks had an impressive record of open controversy within their ranks, and the idea that they should rule the country as the only political party was no part of their original programme.
Ahem. Terry Eagleton…telephone!
The historical roots of yoga
The reality is that postural yoga, as we know it in the 21st century, is neither eternal nor synonymous with the Vedas or Yoga Sutras. On the contrary, modern yoga was born in the late 19th/early 20th centuries. It is a child of the Hindu Renaissance and Indian nationalism, in which Western ideas about science, evolution, eugenics, health and physical fitness played as crucial a role as the ‘mother tradition’. In the massive, multi-level hybridisation that took place during this period, the spiritual aspects of yoga and tantra were rationalised, largely along the theosophical ideas of ‘spiritual science,’ introduced to India by the US-origin, India-based Theosophical Society, and internalised by Swami Vivekananda, who led the yoga renaissance.
In turn, the physical aspects of yoga were hybridised with drills, gymnastics and body-building techniques borrowed from Sweden, Denmark, England, the United States and other Western countries. These innovations were creatively grafted on the Yoga Sutras–which has been correctly described by Agehananda Bharati, the Austria-born Hindu monk-mystic, as ‘the yoga canon for people who have accepted Brahmin theology’–to create an impression of 5,000 years worth of continuity where none really exists. The HAF’s current insistence is thus part of a false advertising campaign about yoga’s ancient Brahminical lineage.
The full story is here, and hat tip goes to The Browser.
Peter Leeson’s new gypsies paper
The link is here, here is the abstract:
Gypsies believe the lower half of the human body is invisibly polluted, that supernatural defilement is physically contagious, and that non-Gypsies are spiritually toxic. I argue that Gypsies use these beliefs, which on the surface regulate their invisible world, to regulate their visible one. They use superstition to create and enforce law and order. Gypsies do this in three ways. First, they make worldly crimes supernatural ones, leveraging fear of the latter to prevent the former. Second, they marshal the belief that spiritual pollution is contagious to incentivize collective punishment of antisocial behavior. Third, they recruit the belief that non-Gypsies are supernatural cesspools to augment such punishment. Gypsies use superstition to substitute for traditional institutions of law and order. Their bizarre belief system is an efficient institutional response to the constraints they face on their choice of mechanisms of social control.
Steve Levitt blogged the paper here. Relative to Peter, I am much more likely to find social institutions inefficient. I think individual decisions are often inefficient for behavioral reasons and furthermore individual norms often produce bad or dysfunctional outcomes when multiplied at the social level. Historically, most of human history has been lived under conditions of extreme poverty and misery, a warning sign of potential inefficiency.
I don't have any personal opinion about gypsies (about whom I know little), but just from reading Peter's paper (or abstract) I thought he should have called it "Why gypsies are inefficient." I received the impression that a more efficient set of gypsy norms would do more to encourage integration and education, especially when gypsies live in wealthier, freer countries. I don't doubt that some of the norms are partially functional, relative to the poverty, but some of the norms also seem to support the poverty.
I was unable to find data on gypsy per capita income or rates of assimilation, but I was searching only in English. Do any of you know?
What Germany knows about debt
Here is my latest NYT column, excerpt:
Far from embracing this social democratic model, American Keynesians have criticized it for relying too heavily on exports and not enough on spending and debt. Yet it is not just the decline in the euro‘s value that supports the German resurgence.
Most of the other euro-zone economies are not having comparable success because they did not make the appropriate investments and reforms. Moreover, the euro is still stronger than its average value since 2001, which suggests that the recent German success is not attributable only to a falling currency.
In any case, the Germans are exporting much quality machinery and engineering (not just glitzy autos), which can help other nations recover. It is an odd state of affairs when the relatively productive nations are asked to change successful policies because of an economic downturn.
I would add a few points:
1. I am not sure why the American left so near-unanimously lines up behind Keynesian recommendations these days. (Jeff Sachs is an exception in this regard.) There are other social democratic models for running a government, including that of Germany, and yet a kind of American "can do" spirit pervades our approach to fiscal policy, for better or worse. Commentators make various criticisms of Paul Krugman, but putting the normative aside I find it striking what an American thinker he is, including in his book The Conscience of a Liberal. Someone should write a nice (and non-normative) essay on this point, putting Krugman in proper historical context.
2. You sometimes hear it said: "Not every nation can run a surplus," or "Can every nation export its way to recovery?" Reword the latter question as "Can every indiviidual trade his way to a higher level of income?" and try answering it again. Productivity-driven exporting really does matter, whether for the individual or the nation. It stabilizes the entire global economy,
3. There really is a supply-side multipler, and a sustainble one at that.
4. The phrase "fiscal austerity" can be misleading. Contrary to the second paragraph here, even most of the "austerity advocates" think that the major economies should be running massive fiscal deficits at this point. (And Germany had a short experiment with a more aggressive stimulus during the immediate aftermath of the crisis.) They just don't think it works for those deficits to run even higher.
5. The EU is an even less likely candidate for a liquidity trap than is the United States. That said, how to distribute and implement additional money supply increases would be a serious political problem for the EU. Simply buying up low-quality government bonds would work fine in economic terms, but worsen problems of moral hazard, perceived fairness, and so on. This problem should receive more attention.
Is the mandate penalty large enough?
Reihan offers some discussion. He also links to the Massachusetts page on penalties, for instance:
2009 tax penalties for adults above 300% of the federal poverty level are based on 1/2 the cost of the lowest-priced Commonwealth Choice plan. They are:
- $52 each month or $624 for an entire year for individuals aged 18-26.
- $89 each month or $1068 for the year for individuals 27 or older.
Those are higher penalties than for the Obama plan, which doesn't go up to $695 for a few years (update: Austin Frakt offers more numbers here). Still, media coverage may be a bigger issue than the size of the fee. If national media run stories about people who avoid the mandate and prosper, the practice could spread. Massachusetts media have not had the same power or influence. Keep in mind also that "right-wing media" may promote this point for political reasons.
Plenty of people cheat on their taxes. Plenty of people lied on their mortgage applications. That all said, I don't know how people will react on this one.
How about businesses? John Cassidy offers what seems to be the clincher:
Take a medium-sized firm that employs a hundred people earning $40,000 each–a private security firm based in Atlanta, say–and currently offers them health-care insurance worth $10,000 a year, of which the employees pay $2,500. This employer’s annual health-care costs are $750,000 (a hundred times $7,500). In the reformed system, the firm’s workers, if they didn’t have insurance, would be eligible for generous subsidies to buy private insurance. For example, a married forty-year-old security guard whose wife stayed home to raise two kids could enroll in a non-group plan for less than $1,400 a year, according to the Kaiser Health Reform Subsidy Calculator. (The subsidy from the government would be $8,058.)
In a situation like this, the firm has a strong financial incentive to junk its group coverage and dump its workers onto the taxpayer-subsidized plan. Under the new law, firms with more than fifty workers that don’t offer coverage would have to pay an annual fine of $2,000 for every worker they employ, excepting the first thirty. In this case, the security firm would incur a fine of $140,000 (seventy times two), but it would save $610,000 a year on health-care costs. If you owned this firm, what would you do? Unless you are unusually public spirited, you would take advantage of the free money that the government is giving out. Since your employees would see their own health-care contributions fall by more than $1,100 a year, or almost half, they would be unlikely to complain. And even if they did, you would be saving so much money you afford to buy their agreement with a pay raise of, say, $2,000 a year, and still come out well ahead.
This implies the current version of the plan won't work without stronger penalties. In principle, I understand that it can be advantageous to dump many more people onto the exchanges, but not if so many of them end up getting such large subsidies. Cassidy adds:
Even if the government tried to impose additional sanctions on such firms, I doubt it would work. The dollar sums involved are so large that firms would try to game the system, by, for example, shutting down, reincorporating under a different name, and hiring back their employees without coverage. They might not even need to go to such lengths. Firms that pay modest wages have high rates of turnover. By simply refusing to offer coverage to new employees, they could pretty quickly convert most of their employees into non-covered workers.
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Claims about China which I had not heard before
I am not vouching for this, but it is worth considering as part of the saga of Austro-Chinese business cycle theory:
…the size of the Government’s debt is vastly understated. Not included in the public debt figures are the liabilities of the local governments, which the Ministry of Finance estimated at $680bn as of the end of 2008. In addition to that, a large part of the loans extended this year (estimated at $350bn) went to finance public infrastructure projects guaranteed by local governments. Furthermore, when the Chinese government bailed out its banking system in 2003, it set up Asset Management Companies that issued bonds to the banks at par for the non-performing loans that were transferred to them. These bonds, worth about $260bn, are explicitly guaranteed by the Ministry of Finance and the Central Bank and sit on the balance sheets of the big four banks. The Chinese government also explicitly guarantees $400bn worth of debt of the three “policy banks”. In total, these off-balance sheet liabilities are equal to $1.7tn, which would bring China’s public debt to GDP ratio up to 62%, a level that is comparable to the Western European average.
Of course guaranteeing a bond is not the same as owing money yourself.