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This is more of a place holding note-to-self but if anyone has suggestions on some writing that has already be done down this line let me know.

Can we explain the appearance of analyticity by constructing a holistic notion of synonymy?

Lets accept that the body of knowledge confronts experience as a whole.

Knowledge confronts the acceptance of statements as well. Perhaps this is reduced to the experience of “thinking that it is true that snow is white.” Perhaps on some more abstract level. Not sure it matters.

In any case two statements are synonymous if their acceptance causes identical revisions in the body of knowledge.

To accept “John is bachelor” causes identical revision as to accept “John is an unmarried man”

How can we know when revisions are identical? By the test of contradiction:

A statement S has identical revision to a statement Q iff

  1. The acceptance of S causes revision
  2. The acceptance of not-Q causes revision
  3. The atomistic acceptance of [S, not-Q] causes no revision

Example:

I accept that “John is a bachelor” and my body of knowledge adjusts to accommodate this proposition.

I accept that “John is not an unmarried man” and my body of knowledge adjusts to accommodate this proposition.

If I accept “John is a bachelor. John is not an unmarried man” no net adjustment occurs to my body knowledge.

The second acceptance has undone the first acceptance and left no change.

Thus these two statements are contradictory. If a statement is contradictory with the logical inverse of another statement then the two statements are synonymous.

Now analytic statements are simply statements which pick out synonymy.

Example:

We have just discovered that “John is a bachelor” contradicts “John is not an unmarried man”

We can conclude John is a bachelor is synonymous with “ It is not the case that John is not an unmarried man”

Pass through to “John is an unmarried man”

Now, “John is a bachelor” is synonymous with “John is an unmarried man”

Such a condition tells us that the predicates are a two-tuple under analyticity.

So we may write Analytic(“is a bachelor” , “is an unmarried man”)

This is equivalent to saying the statement “A bachelor is an unmarried man” is analytic.

 

Simple tests seem to confirm:

[S,not-S] always contradicts thus statements are synonymous with themselves.

Logically analytic statements always contradicts thus S and not(not-S) are always synonymous.

Creature with kidney, creature with a heart does not contradict under the above test.

  1. “John is a creature with a kidney” implies revision
  2. “John is not a creature with a heart” implies revision
  3. “John is a creature with a kidney. John is not a creature with a heart” implies revision.
  4. No contradiction.

 

Do we have at least the appearance of analyticity?

 

Note: there is a problem with acceptance and revision but I think this can be cleared up by requiring only one candidate statement to induce revision and then making synonymy reflexive.

Steve Randy Waldman has a characteristically excellent post where he argues that the monetary policy we observe in Japan, the Eurozone and to a lesser extent America, is simply the result of the preferences of the political influential class of savers.

I love this post for a lot of reasons but one is that it gives me a chance to say: I just don’t buy it.

Lots of time in intellectual discourse we don’t buy the arguments from others and feel compelled to give reasons. This results in a lot of – for lack of a better term – intellectual bullshit.

I don’t have a clear well defined reason for rejecting Steve’s contention. I am just not yet convinced. So rather than committing myself to a half hearted argument and muddying the conversation with junk talking points its better just to announce that I am not sold.

This has the tendency to lower my status as any good intellectual should be able to defend his position, but luckily with Steve this is not a concern.

I can feel comfortable simply saying, I like it but still no. At least not yet.

Among other things this makes it much easier to change my mind if he does convince me as my defensive arguments are likely to trick my subconscious into being more committed to the notion that he is wrong.

Will Wilkinson and Bryan Caplan have been going back and forth on the value of labels. In particular, Will is arguing that political labels are a detriment to clear thinking. Overall, I think both of them have some pretty good points. I do think Will is correct that for most people political labels make you dumber. I am frequently baffled by the sight of an otherwise intelligent person making a partisan knee-jerk defense or attack on a politician when they would obviously be taking the exact opposite position if the D were switched with R. I see this happen literally almost every single day, and it is an extremely sad sight, made all the more sad by it’s obviousness. This makes me side with Will (somewhat). Yet, as would be expected, I don’t think my own labels do this to me (much), and I do think they are useful, which makes me side with Bryan (somewhat). But there is one point I think is missing from the debate: a self-conscious lack of labels is in fact a label, and can be just as constraining of one. Let me explain.

Will writes:

Politics just is coalitional conflict. A political label puts you, like it or not, on a team in a number of disputes in which there are significant real-world stakes. People therefore tend to see their ideological affiliation as constitutive of their identity in a way their opinion about the ontology of mental illness (to use one of Bryan’s examples) isn’t…  Other people are thus likely to see our politics as central to our identity, and to see our attributed identity through the prism oftheir politics. Self-labeling gives others permission to apply to us the label we apply to ourselves, and (here is something I believe!) who we are is to a large extent a complicated product of our reactions to social expectations.

But to define oneself as, for example, “of no party or clique”, as Andrew Sullivan does, creates in others a social expectation of holding beliefs that defy parties and cliques. You may not be expected to take particular and easily predictable positions on every issue as you would if you had a politically well-defined label like, say, paleolibertarian, Christian conservative, or pro labor democrat.  But you are expected to regularly take positions that are idiosyncratic.

Take Will for example. He is one of my favorite writers and I think he has a great talent for peering deeply into an issue. But nowadays I expect Will’s self-description as stridently not-a-libertarian who still steadfastly holds some libertarian positions to mean he will be boldly rejecting libertarian positions somewhat regularly, and embracing them other times. Will’s label as a label-less individual is perhaps even more central to my expectations of him than ever, since this has become an important issue to him that he wishes to persuade us on. “Look at me”, Will seems to be shouting sometimes, “I am no longer beholden to libertarianism!”. I don’t begrudge him his new found freedom, and am glad he feels unburdened of a bias, but it is a label he is wearing brightly.

I consider myself something of an idiosyncratic neoliberal libertarian who is willing to admit a lot of uncertainty. Each of those four things creates some expectations (to the extent anyone expects anything of me), but I think they give me a fairly wide berth to accept claims across many ideological spectrums. I don’t think abandoning those labels would liberate me, because I don’t feel very constrained. I think a lot of libertarians and conservative couldn’t picture themselves agreeing that the minimum wage doesn’t lead to unemployment, and indeed at one time I also could not have done it. But I took a lesson from Robin Hanson and pictured myself walking around as someone who believed this, and adjusted my self-conception until I actually could do that. Now I sometimes earnestly consider it, rather than just reconvincing myself that my belief in the opposite is rigorous. I don’t think you have to do this with all literally absurd claims, but it should be possible for slightly plausible claims.

Perhaps Will’s rejection of a label, or I should say his embracing of the label “label-less”, is the most effective way for him to minimize his biases. For me, I think I feel the most pressure or bias from my  “idiosyncratic” label, and my “neoliberal” and “libertarian” labels help counter that by aligning social expectations of my beliefs to what I approximately consider to be the truth, and so regularly believe. But “idiosyncratic” isn’t a political ideology, it’s an adjective. And try as we might we cannot label ourselves as “adjectiveless” or be “adjectiveless” people and writers.

For some perhaps the best course of action is to abandon labels with strong expectations for those with less. For others I think the best course of action is to truly be able to imagine yourself defying social expectations your labels create, and to practice doing so by thinking a lot about the areas where you are most likely wrong. Just don’t defy social expectations of your beliefs by re-labeling yourself as someone who defies social expectations of your beliefs, or you will end up biased against holding predictable beliefs. Idiosyncrasy can be a burden like that.

That is the epistemic case against abandoning labels. Now allow me to make the Straussian case.

There is a constant branding war over ideologies, which combined with the inevitability of labels and anti-labels leads me to wish to defend the label libertarian by attaching myself to it and steadfastly insisting it is compatible with reasonableness. I know many people have exaggerated and cartoonish images of what makes a libertarian, and many cannot imagine themselves as self-identifying as libertarians. Part of this is the fault of Ron Paul and other radicals. I think convincing people that their self-conceptions as reasonable people can remain intact while they also embrace the label “somewhat libertarian” or even just “sometimes agreeing with libertarians” is valuable for the cause of promoting liberty, especially smart libertarian policies.

On the other side of the spectrum, I want to sell radical libertarians on a more reasonable brand of libertarianism. This is an easier task for someone who truly sees themselves as a libertarian. It is also, I hope, valuable for the cause of promoting liberty, especially smart libertarian policies.

Let me end by noting that I expect Will, with his insightfulness and persuasiveness, to talk me out of half of this [this is my uncertainty label operating].

image

Apple announced this morning a major dividend program that is set to transfer profits to shareholders at a significant rate. From the looks of it starting at roughly $10 Billion per year. Though that is small relative to expected Apple profits, even I would admit that this is a huge initial commitment.

Obviously, I have been accusing Apple executives of hoarding cash in an attempt to protect their own interests and the long run survivability of the company rather than maximizing the return on equity of shareholders.

To add insult to injury, share price was down in the immediate wake of the announcement, which though anticipated by a few analysts cannot be regarded as anything other than a discrete jump in market expectations.

There is just no way at this point I can see a narrative in which my story was correct and Apple and the market responds in this manner together.

I will have an update as information becomes available but right now this looks like nothing less than Epic Defeat for my thesis.

And, by idiots we mean not that people are of low intelligence necessarily but people who fail to leverage the knowledge and intelligence of others.

Via Robin Hanson

Next, we look at the final round where information about disagreement is made public and, under common knowledge of rationality, should be sufficient to eliminate disagreement. Here we find that individuals weigh their own information more than twice that of the five others in their group. When we look separately at those who err by disagreeing in round 1, we find that these people weigh their own information more than 10 times that of others, putting virtually no stock in public information. This indicates a different type of error, that is, a failure of some individuals to learn from each other.

This is potentially – maybe some people have worked this out carefully – a serious source of co-ordination problems.

Everyone knows the classic rhetorical: If all your friends jumped off the Brooklyn Bridge would you?

The problem here is that there is general agreement that the answer is no, but in a world of rational people the answer is yes. If a bunch of people show a high degree of confidence that jumping off the bridge is the right thing to do that is a sign that they know something you don’t.

So, why is the answer no?

This experiment would suggest that the probability that all your friends are idiots who have happened to stumble on a bad idea is higher than the probability that jumping off the bridge is in fact a good idea.

In an ideal world agreement wraps around the world, so that you get information from your friends who have gotten from their friends who have gotten it from their friends and so on until the entire population is connected into a giant hivemind, through which information is rapidly transmitted.

Idiots degrade the signal and mean that information does not flow very far and wide disagreements are possible, especially between people who do not share broadly similar social networks.

David Brooks says

I don’t care how many factory jobs have been lost, it still doesn’t make sense to drop out of high school. The influences that lead so many to do so are much deeper and more complicated than anything that can be grasped in an economic model or populist slogan.

I don’t pretend to include all influences, but when I was but a wee pup I tried to build a model that captured what David is talking about and show that it does make sense to drop out of high school when lots of factory jobs are lost.

The response I got was universally: cute but no cigar.

I’ll link to my old paper here.

There is a lot of throat clearing at the beginning, but if you care about Brook’s point specifically then jump to page 18.

Also, I see for the queue has to be address of what seems to a growing obsession with innovation.

On one level I actually don’t think much will come of all of this talk, but its so widespread that just in expected value terms its worth addressing.

As a short introduction, it is certainly true that innovation is why our lives are so much more pleasant that those of our ancestors. But, it is a mistake to draw a straight line from innovation to improvements in living standards.

The innovation has to do something that matters and matters to a lot of people.

So before going wild over innovation, we might want to ask – what would you like to do?

Now to be sure there is innovation generated preference. I.E.: “If I had asked them what they wanted, they would have said a faster horse”

However, we should think about what it would really take to draw more out of this type of evolutionary process.

My growing sense is that the core intellectual struggles surrounding the Great Recession have been practically resolved.

There were three core things that needed to be understood.

1) That the near term future of capitalism could only be secured by hurling huge sums of money at the US banking system in 2008-2009. That was done.

2) That a perhaps not cataclysmic but nonetheless horrific second global financial crisis could only be secured against by hurling huge sums of money at the European banking system in 2011. That was done.

3) That the global downturn is a phenomenon of Aggregate Demand in general and liquidity/collateral constraints in particular. As such it would be alleviated by the easing of credit and the transferring of liabilities from the liquidity constrained to the liquidity free.

Though too little was done in time, this point has more or less been ceded by a critical mass of the intelligentsia. Furthermore, in the US, per-capita depreciation is proceeding at such a rate that the liquidity free would be induced – against their individual risk tolerance and rate of time preference – to procure large quantities of capital.

The attempt to do this will transfer purchasing power to the liquidity constrained and will thus alleviate the crisis.

And, there are enough people with strong enough voices who understand and are communicating this to keep efforts at stopping at bay.

More could be done policy wise, but I do not think at this point more is likely to be forth coming simply because we talk about it. Too much is riding on the opinions of people who are not interested in the conversation.

So, as a practical intellectual matter the Great Recession is done.

It is time to move to other things.

Here are three that I think are important to get to next.

Reason and Economic Policy

I used to believe that the disagreements in the economics/policy/elite journalism world were founded on attempts to seize the zeitgeist through intellectual intimidation. That is people pretended to be arguing over policy issues but instead were try to push the political culture towards their preferred answers to meta-questions of policy.

For example, is providing lots of assistance to the poor something society should embrace. Is letting people keep what they earn something society should embrace.

Everything else, I thought, was window dressing.

Yet, watching the blogosphere I have come to doubt this. For example, there were strong pushes to adopt policies which would make almost everyone poorer and the poor relatively poorer. Who supports this outcome?

For sure, there is disagreement on values but I don’t think in translates into that much disagreement on policy. There is also bullshit, properly defined, but I think it is of a derivative order. The bullshitters are attempting to prop a policy view that has genuine support.

So, I think “being genuinely wrong” is a more important problem than I originally realized.

The thing is, everyone is looking at roughly the same evidence. So the problems here have to be problems with reason and interpretation.

Listening to people debate I think the biggest problem is reason. In some cases one could replace the words “progressivity” with “jam” or “growth” with “blueberry muffins” and the arguments would be no more or less sensible. That is to say, the disagreement is not even semantic.

This is one reason why I encourage my colleagues to be gentle rather than mean. Another – so that we my be honest – is that I am, obviously, viscerally uncomfortable with meanness.

Nonetheless, if people are making errors of reason yelling at them is not likely to help them because being yelled at makes it more difficult for people to focus. It is also not likely to put readers in a mode where they are more open to reason. Instead they are likely to view this as a sporting match and try to determine who is and is not on their team.

GDP is Dead

I wanted to make my first mention of this funnier, but its better just to get something down.

Its understandable that before the internet, fast search and laptops capable of handling huge data files folks would want the best summary statics of the economy they could get.

The concept of GDP is a good attempt at a consistent representation of the total economic output of a region.

However, in the modern era we don’t really need it for most purposes. Maybe some sort of historical and cross country record keeping where the data is incompatible.

In the US, however, we have much more direct measures of the variables of interest. Indeed, we have access to many of the addends which are used to create GDP in the first place and there is no reason I know of that we couldn’t lobby to make all of them available.

Given that, why still focus so much on GDP?

In order to make it consistent and add up correctly we have to make lots of compromises which obscure our understanding of the economy. Why not brush GDP aside and focus on the disaggregated data that we care about.

Indeed, given the way he talks about the issue I wonder if Scott Sumner might be happier with nominal compensation of employees as his stabilization target:

FRED Graph

Here is the trend by the way

FRED Graph

Notice the different dynamics of the two “bubble” recessions.

Capital

As I have been talking around for a while there is – what look to me – to be poor intuition concerning physical capital and investment. This is unfortunate because unlike a lot of concepts in economics physical capital is tangible. We can actually go visit the capital.

To make this more clear, here is the simple data

image

This is important because the blue category is the stuff of everyday life. The red are things we might not interact with everyday but deeply get on a non-macro economic level.

Our daily experience can influence how we think about the capital stock. More importantly, we can relate our daily feelings with our feelings about growth and the US.

For example, when you say this capital gains tax increase will reduce investment and hence growth what you mean is that some developer will decide to build a smaller shopping center. I don’t mean this derisively. One of my biggest complaints is that Cameron Village needs to be expanded and that there is neither a Ross nor a Marshalls Inside-the-Beltline.

Yet, these are the complaints of investment and capital accumulation and we should understand that.

You can also think about how the type of things we debate on a macro level weigh against concerns like: local zoning restrictions or enterprise-ready open source software.

P.S.

I forgot to note that I included manufacturing facilities in the “Everything Else” category even though they are buildings because most folks don’t regularly interact with a manufacturing plant.

Felix Salmon reports:

Bullard’s a career central banker who has never had a lucrative private-sector career, but he’s still doing OK for himself: his annual salary is $281,300, which should be more than enough to bring up a family of four in St Louis.

Here’s the thing, though: Bullard’s disclosure form is completely blank. Which means that, except for his house and his Federal Reserve retirement benefits, he has no investments at all worth more than $1,000 — not even a savings account. Or, to put it another way, the president of the St Louis Fed, earning well over a quarter of a million dollars a year, is living paycheck-to-paycheck. Every two weeks, he gets paid $10,819, less taxes and deductions, and yet by the end of the year he still doesn’t have even $1,000 in a checking account.

As well, he should.

Will Bullard be laid-off: Ha!

Is there a private label investment vehicle more secure than his Fed retirement benefits: Double-Ha!

The only question is whether he has disability insurance – which would be wise even in his case.

Otherwise, wherefore savings?

Savings are just a promise from one human to another. All promises can be broken. Bullard has a set of promises – explicit and implicit – from the folks who actually own the printing presses. Those are the kind of promises you want.

A few people have asked about my debate with Bryan Caplan on the issue of how deserving the poor are. I’ll try to give a sense of the case I wanted, though perhaps failed, to make.

My thesis may be best understood this way:

There is no reason to view emotional or mental deficiencies as different in kind from physical ones. To put it in the harshest of terms, if you think someone who is born blind is deserving of sympathy and support then you should think someone who is born lazy and stupid is deserving of sympathy and support.

Further once you concede that the lazy and stupid are deserving of sympathy then its difficult to construct a set of poor people who are not, since these are among the least sympathetic qualities that could cause someone to be poor.

Thus the vast majority of the poor are deserving of sympathy or support.

 

As to those attributes. To a wider audience this might be a question, but I had assumed that the audience I was going to speak to at GMU would swallow without objection the notion that IQ is more or less fixed before the age of 12. We can talk about the relative influence of genes, prenatal care, nutrition, early childhood education, lead, etc. However, I didn’t think they would dispute that your IQ is determined before what most people would think of as your moral agency. If so, can it reasonably be your fault that you are stupid?

As it happened I was also debating Bryan Caplan, who I thought and still think, would admit that one’s actual level of conscientiousness is probably genetically determined. And, further that this personality attribute underlies most of what the normal world would call “laziness.”

And so again, if one is sympathetic towards those born blind does it not follow that one should be sympathetic towards those born lazy?

 

Now, that having been said I recognize that there will be a huge visceral aversion to this line of reasoning. And, so I want to do what I can to calm that aversion.

My point was that the reason we feel so differently about disabilities like blindness as opposed to disabilities like laziness, is that its really difficult to fake being blind. Thus there is much less concern that the blind person is taking advantage of you by lying about their blindness.

Its much more difficult to confirm laziness. So much so that people are hesitant to think of it as not a innate property of the person at all. However, our psychological research strongly suggests that this is not true.

What is true is that someone could claim to be lazy when what they really are is indifferent to your suffering. They could say, “ Holding down a job is especially difficult for me” when in reality they feel “I am simply much more concerned with my own happiness than I am with yours and prefer a state of the world in which you suffer so I don’t have to”

Since from the outside we can’t tell which of those two things is true we reject all claims about laziness as unjustified.

However, we can recognize that this is a product of our limited knowledge and not the world itself. If we could tell who had genuinely low conscientiousness versus who simply claimed to have it in order to pass suffering on to others then we would want to distinguish between the two.

This means that our problem is practical and not moral.

It is not that the lazy are underserving but simply that we lack the technology to distinguish them from those faking laziness.

The irony of this, however, is that if we adopted an economic system that was extremely intolerant of laziness, then everyone who still exhibited laziness would be genuinely lazy.

The authentic thing to say to them then would be: I am very sorry that you were born this way. I wish things were different. Unfortunately we lack the technological sophistication to create a better world.

It would be inauthentic to say: You chose not to work and so you deserve what you get.

Indeed, as economists we can instantly detect the inauthenticity of the last statement by conducting the following thought experiment. Suppose that we took someone who is currently in poverty and told them that on threat of death they will obtain and hold a middle class job as well as save and invest according to middle class norms.

And, suppose the person complies. Would it then make sense to say: congratulations you deserve all the net happiness that comes from these actions? After all, our working assumption as economists is that the net happiness from these actions is negative.

That is, the cost of obeying these social norms exceeds the benefit of obeying them and that is precisely why the person didn’t do it of their own accord.

What does it mean to say that the desert of making hard choices is misery?

I think the natural response here would be to say, very well but how do you know they are miserable. Perhaps they feel the same I as I do but were even happier on the street.

Perhaps, and this goes to the deep question interpersonal comparisons of happiness and suffering. Yet, if we want to stop here and say “we can go no further” then don’t we have to give up on all of our notions of suffering and sympathy?

In the face of the seeming agony of  achild slowly dying of cancer and the parents grieving the creeping loss are we prepared to say: Well I really don’t know if the lived experience of these people is better or worse than my experience of a pin prick and so sympathy is unwarranted here.

My sense is that we do want to admit the meaningfulness of the suffering of others and that we have at least a somewhat workable mechanism at determining what that is. We should then apply this mechanism to those suffering from laziness.

My approach would go as follows. If you see someone who is a beach bum and looks to not have material care in the world you may be able to imagine saying “I wish that I could be as free of material concerns as that fellow.”

We would not deem him to be suffering and so his poverty is not something about which we would have sympathy.

On the other hand, if you observe an individual repeatedly trying to obtain and hold jobs and repeatedly being fired for not showing up on time or screwing off in minor ways, then we imagine saying “I am glad I am not this fellow. He can’t seem to get it together for the life of him.”

We would then deem him to be suffering and so his poverty is something about which we would have sympathy.

Taken all together this says: Even the least sympathetic reasons for being poor stem ultimately from inborn conditions. A person with those conditions faces a high tradeoff between material comfort and emotional distress. I can recognize what it would mean to say the nature of this tradeoff is preferable to my condition or unpreferable to my condition. If it is unpreferable then I can say, this person was born worse off than me and so is deserving of my sympathy.

And, since we find reason to be sympathetic to some of the least sympathetic reasons, for being poor, consistency should lead us to be sympathetic towards almost all reasons for being poor. And, hence we should declare that few if any persons deserve to be poor.

A Few Notes

Why does this matter: Well on one level I simply appeal to the aesthetic. We try to understand our world and our intuitions about it in a consistent way because doing so is beautiful.

In practice I would say it puts an increased focus on the ability of our technology to support the deserving poor without encouraging fakery.

In a very practical sense it might suggests that programs which depend on 1-1 relationships should be given high levels of moral praise as poverty elimination systems. So, that might mean local charities and organizations with the discretion to support individuals or not based on a long history of working with them should been seen as doing a special good.

Isn’t poverty much more complicated than you laid out: For sure. My point is that there are lots of gray areas regarding sympathy and poverty, but rather than getting bogged down in that lets look at the strongest reasons to be unsympathetic and see if they withstand scrutiny.

Is this just more Pity-Charity Liberalism: Yes. And, I think it’s an ethically more meaningful enterprise than getting up in arms about failures of the meritocracy. I don’t know any moral reason why the talented deserve to prosper and the untalented to fail and so the leveling-of-the-playing-field is of purely instrumental importance. It matters if it makes a more productive society or increases personal fulfillment, but it is not a moral cause unto itself.

Center-left intellectuals in America apparently have a serious problem comprehending the concept of Bullshit.

The entire econ world has borne witness to Paul Krugman tearing out his hair over Zombie Lies. Now, Mark Zandi devotes some several thousands words to overturning the nonsense notion that 70 year old US Government Sponsored Enterprises sparked a 21st century global boom in raw material and land prices during a time in which their influence on the international credit markets was approaching a multi-decade low.

He writes

Getting history right for this dark economic period is critical if we are to design a better mortgage finance system for the future. If Fannie Mae and Freddie Mac are responsible for the debacle, then perhaps government’s role in a future mortgage finance system should be minimal. But if private lenders deserve most of the blame, the case grows for giving government an important role in backstopping and overseeing the system.

Mark, Mark. Clonazepam. It’s a beautiful thing. Let go.

I am betting that maybe five people in the US actually believe Fannie and Freddie caused the housing bubble. Maybe half a dozen more are actively lying about it.

The rest are just Bullshitting. That is, they don’t really care what the truth is one way or the other. This is just a way to gesture in the general direction of the federal government and say Urrhh!!!

If you prefer call it the Chewbacca Analysis

So in theory I am working towards a larger exposition on this issue, but as I get the chance I will shoot out various notes. Barry Ritholtz gives me such a chance.

In other words, yes, we can figure out actual causation.

Where I part ways with Hume is in looking at causation analysis as merely competing stories tying two facts together. It is larger than that, there is Causation-in-Fact. At the very least, we can eliminate the narratives that are demonstrably false. But to do so, we need to avoid the over simplifications, the correlation errors, the misapplied data, and recognize the complexity of causation in the world of finance.

Suppose you had figured out actual causation. How would you know?

Accepting the absurdity of everything around us is one step, a necessary experience: it should not become a dead end. It arouses a revolt that can become fruitful.

~ Albert Camus

One of my long themes is that people have a natural – and I believe unexamined – attraction to sustaining certain activities.

The CEO wants to keep his company from going bankrupt. The doctor wants to keep his patient from dying. The statesman wants to keep his polity from collapsing.

However, all companies go bankrupt. All patients die. All polities collapse.

Seeking to sustain these things as an end unto itself is absurd.

In contrast, I argue that life and everything in it is an extraction problem:

How can we take more?

How can we get more out of life?

How can we more fully seize the day?

Those three questions have different frames. The first greedy, the third idealistic. Yet, underneath it all is the same question. Time is short. Resources are limited.

How do we use the time we have, to make the resources we have, fit our vision of the best possible world?

We get wrapped up sometimes worrying whether we are signaling that our vision for the world is noble or that our vision is base. Are we doing it for the good of humanity or only for ourselves?

However, in all cases it is our vision. And, some of the worst atrocities in history were committed by people who at the time genuinely believed that they were making the world a better place.

Part of coming to the world honestly is to know that we are extracting. We are imposing. We are here to change what is into what we wish it to be. That’s the beginning and the end.

Then we can come back and more honestly ask, how do we extract in the best possible way. How do we do the best we can with what we have.

And, how would we know if we weren’t?

Paul says

So what the story of Romney and the auto bailout actually shows is something we already knew from health care: he’s a smart guy who is also a moral coward. His original proposal for the auto industry, like his health reform, bore considerable resemblance to what Obama actually did. But when the deed took place, Romney — rather than having the courage to say that the president was actually doing something reasonable — joined the rest of his party in whining and denouncing the plan.

And now he wants to claim credit for the very policy he trashed when it hung in the balance.

He also says

Cowen apparently wants me to make the best case for the opposing side in policy debates. Since when has that been the rule? I’m trying to move policy in what I believe to be the right direction — and I will make the best honest case I can for moving in that direction.

Look, economic policy matters. It matters for real people who suffer real consequences when we get it wrong. If I believe that the doctrine of expansionary austerity is all wrong, or that the Ryan plan for Medicare would have disastrous effects, or whatever, then my duty, as I see it, is to make my case as best I honestly can — not put on a decorous show of civilized discussion that pretends that there aren’t hired guns posing as analysts, and spares the feelings of people who are not in danger of losing their jobs or their health care.

This is not a game.

But, if this is not a game, and if consequences really matter, then why is it wrong or even cowardice for Mitt Romney to Say Anything to be elected.

Lets take this by its smoothest handle for those with Paul’s perspective on things. The conventional wisdom coming into the 2012 was that the economy was going to be in horrible shape and that it was highly likely that President Obama would lose based on “A Time for A Change” thinking.

That is, swing voters would conclude that the Obama administration has failed and vote for the alternative.

Mitt Romney says to himself, well look either I am the alternative or someone else is. I look around me and all of these other guys are freaking nuts. Much better if I am President than if they are. Unfortunately, to get there I have to do some unsavory things.

However, which is more important to me: avoiding sullying my hands with unsavoriness or preventing the country from being run by nuts.

Would it not be selfish to choose the former? Doesn’t Mitt Romney have a moral responsibility to Say Anything to become the Republican Nominee? If congeniality is not a shield against the moral responsibility of allowing millions of people to suffer then why is honesty?

Will Wilkinson writes on one of my favorite topics

Some say our sense that life means something is an illusion, or that it would be an illusion if there were no god. Some say free-will is an illusion. These claims confuse me.

The water I seem to see on the hot horizon is an illusion. The bend in the stick in the water in the pond is an illusion. These claims have sense because I know what it is to see water, am acquainted with the sight of a straight stick. But how does free-will really feel? What is it like for life really to mean something? These questions smack of nonsense. What is the genuine article against which to compare the alleged counterfeit?

"That four-sided triangle you saw was an illusion." Does that make sense? No. A four-sided triangle is impossible. There is nothing it is like to see one. There is nothing it is like to seem to see one. The can be no counterfeit of an impossible original. (But what is this an illusion of? Is there really an illusion?)

"That free will you thought you felt, that was an illusion." What? How would you know? Maybe you have a theory that says every event is necessitated by the laws of nature and the prior history of the universe. In such a world, can there be something it is like to experience the absence of necessitation?

There are at least two issues here. One, under what conditions could we meaningfully call something an illusion. Second, does free will fit those conditions.

Will suggests that we would need the familiarity with the genuine experience to meaningful suggest that something seemed to be it, but was in fact an illusion. However, I don’t think that’s quite right.

Suppose that Will came to me announced that last night he had seen the Ghost of Christmas Past. First, it would make sense for someone to argue that this must have been an illusion since ghosts do not exist.

Moreover, if I then showed him a system of mirrors that I had used to create an image of a translucent person, Will could sensibly say, “Oh now I see it was only an illusion.”

This is because despite never have seen a ghost and it arguably being impossible to see a ghost we nonetheless have a consistent notion of what it would mean to see a ghost. If we have an experience that we believe to be consistent with that notion but then is latter shown to be inconsistent with that notion then we can say the previous experience was illusory.

Now, in the case of free will I think we do have a consistent conception of what this means and moreover we can show that there are experiences which are inconsistent with the notion.

There are a number of these but the most convincing to me go as follows.

First, we set up a video camera. Then we open Will’s skull. Then we sever the corpus callosum. We then place a divider between Will’s right and left eyes. We then post a message seen only by the left eye that says “Touch Your Nose”

Will will likely touch his nose.

Then we ask Will. Why did you touch your nose. He might say something like – I just wanted to make sure you hadn’t paralyzed me yet.

We say thank you very much. We sew Will back up and then we play the recoding for him.

Will then sees that while he believed the touching of his nose to be contingent on a process he was consciously aware of, this was not the case. Specifically, it seemed as if the act of touching his nose was contingent upon his wondering whether we had paralyzed him. Indeed, the act of touching his nose was not contingent on that act of wonder.

Because of this we can meaningfully say that Will experienced the illusion of free will.

I never asserted so absurd a proposition as that something could arise without a cause.

~David Hume

I on the other hand will assert something so absurd.

This is motivated by a number of posts I have seen on the methods, limitations and philosophy of science. However, before responding to those individually I think its worth getting out my general view.

My sense is that reality is like a giant block. This block extends in a number of dimensions but four are most relevant for our purposes. The three easily observable spatial dimensions and the time dimension.

At different points within the block some properties of the block vary. These are the fundamental fields. They give the block a composition.

Now, so it happens the composition of the block is patterned. So, that a given value for properties at one point in the block mean that a range of values at nearby points is more likely than other values.

In our everyday experience this allows us to perceive objects. So if I look out and say “I have an arm” I am talking about a pattern in the block.

For example, I mean that if I can only perceive a portion of the block composing the “arm” that I none the less have some pretty strong guesses about what the nearby portion of the block islike. If I then perceive the nearby portions and they do not match my guess then this is surprising. Its surprising because of the patterns.

We can call a specific pattern a shape, so that I can say my arm has a shape. Alright.

That’s all very natural in the spatial dimensions but the same thing happens in the time dimension. Objects have a shape in time.

The difference is that I perceive space and time in different ways. This possibly extends from the fact that time has a useful meta-pattern but that fully clear.

In any case reality is completely described by the shape of all objects in space-time. This is because the shape of objects in space-time indicates the patterns in the block properties and the block and its properties are the whole of reality.

What I think of as science, though I have no interest in claiming the word science, so we can call it sclience if people object is building a map of space-time for the purpose of being able to look up the shape of various objects.

Now for relatively large nearby objects within a particular slice through time this is trivially easy. I open my eyes and boom! I perceive a map of objects. All sorts of fancy stuff goes on in my brain to make this happen but from my point of view its really, really easy.

Unfortunately, this doesn’t work for small objects, far away objects or objects at another slice in time. Which is of course a pain.

So I go about using whatever techniques at my disposal for expanding the map.

The attempt to do this in the time dimension has led people to posit the notion of causality: that if this thing happens then something else will happen. Really though this is just a discussion of the shape of things through time.

Its no different than saying, if I have a forearm then I have a wrist. Its not as if there is some meta-physical relationship between forearms and wrists. And, it wouldn’t really make sense to say having a forearm causes me to have a wrist. Its just that the shape of arms is such that forearms are usually in direct proximity to wrists.

This is the same with the shape of things through time. In time things usually have a certain shape. However, trying to apply some sort of meta-physical specialness to this doesn’t really add anything.

Similarly. its not clear what one really adds with the phrase “everything must have a cause.” There is some shape of things through time, sure. However, are you saying that there must be some identifiable pattern to that shape? I don’t see why that has to be true and its not even clear that it is in fact true.

There could be regions of space-time where all four dimensions are completely mixed-up with no pattern at all.

So, it seems to me that there is no point in getting all emotionally caught up in this notion of causes. We map space-time as best we can and that is that.

At least three controversies have caught me by surprise while blogging: stimulus, climate change adaptation and dividend policy.

In each case I felt like I offered a pretty straightforward quasi-obvious take on an issue that was brushed aside in favor of a food fight.

Stimulus

I was obviously a non-player in the larger stimulus debate but the fact that no one echoed my sentiment seemed strange to me as it looked like the basic starting point for a conversation.

In late 2008, early 2009 the economy was crashing and lots of families, businesses and institutions were reporting serious cash flow concerns. Either they were running short or were afraid they would run short. Relatedly credit was rapidly drying up as collateral values were falling and unsecured credit was becoming very difficult to obtain.

So, here is an idea. Lets give people a bunch of cash. They say they’re afraid they won’t have enough cash. We have a cash making machine. Lets use our cash making machine to make cash and then give it to people.

If you care about the weeds of these type of things then I would have suggested that we suspend the payroll tax yet have the US Treasury issue IOUs to the Trust funds of roughly $1 Trillion to cover the approximate value of lost revenue. Everyone still gets their credits.

If you want to be horribly weeds-y then you can say we will have the Treasury deliver $1 Trillion in 13-week notes to the Federal Reserve. The Federal Reserve will then enter $1 Trillion into the Treasury’s account, which will then be used to clear transactions from the Treasury’s account to the account of banks processing payments from Treasury to vendors, employees, retirees, etc.

Yet, the core idea is pretty basic. We use our cash machine to print cash and then we give it to people.

I would expect someone to say: I hear where you are coming from Karl but . . . . and that would be worse than where we are now.

The closest someone came was when I brought it up to Peter Schiff on his radio show and he said “well if that’s such a great idea why not give people $1 million”

To which I replied, “ultimately that would create a lot of inflation”

To which he said, “well then won’t this plan?”

To which I said, “Yes, but 300 times less”

To which he said, “Oh so you think a little inflation is good. I happen to think no inflation is good”

And, that I think, was a conversation with a meaningful endpoint. Peter essentially argued that any inflation was worse than what we have now. I argued that some inflation would actually be better than what we have now.

Yet, most of the argument went like this: Saltwater! Freshwater! Multipliers! Keynesians! Liquidationists! Big Government! Dark Ages of Macro! Pretense of Knowledge! Trains, Yeah! Trains, Booh! Aggregate Demand! Regime Uncertainty! You’re an Idiot! You’re an Ass!

But, the core strategy of looking at a problem, taking the most obvious solution and then at a minimum trying to explain exactly why it won’t work was largely bypassed.

Even if you know the simple answer is a bad answer I think its worth going through this process just so everyone can be on the same page and be sure that they are in agreement as to why the simple answer won’t work.

People will say that this was an ideological problem, but I am skeptical as I’ll explain below.

Climate Change

One of the core ideas behind climate change is that if humans continue to burn fossil fuels then the earth will become warmer.

As it stands there are some places on earth that are so hot that no one wants to live there. There are also some places that are so cold that no one wants to live.

A baseline guesstimate might be that if the earth got warmer then the number of places that were too hot would expand and the number of places that were too cold would contract.

A possible strategy then would be for humans to move from the places that are newly too hot to the places that were formerly too cold.

Now this may very well be a horrible idea. In which case I would expect someone to say: I hear were you are coming from Karl but . . . . and that’s why that plan won’t work.

I’ve received a lot of email and tweets on this issue. I have tried to go through them all. So far I haven’t seen one that comes at it like that. Lots of folks mocked me. Some were kind enough to send along information on exactly how hot the too hot places might get and what the consequences of excess heat might be.

Yet, so far, nothing addressing why moving to cooler places won’t work.

Again, even if we are certain this won’t work its probably worth stepping through exactly why it won’t work. At least so everyone can be on the same page.

Dividend Policy

I’ve made what I assumed to be the banal observation that a key part of how firms compensate their owners is by transferring command of goods and services to those owners. In practice, that is to say, giving the owners cash.

At the same time Apple has sent repeated signals that it does not intend to transfer command of goods and services to its owners.

Now to the extent these signals are accurate I think they would cast some doubt on the potential for Apple’s owners to be compensated by Apple.

Now again you might say: I see where you are coming from Karl but . . . . and that’s how Apple’s owners will be compensated by Apple.

I even have some ideas on how this could happen.

Yet, and its still early, I believe not a single response has addressed this issue. Most have centered around estimates of my IQ. Some have addressed how Apple’s current owners could be compensated by future owners and a few have suggested that Apple is a great company because it does not intend to compensate its owners.

Again though, we haven’t stepped through exactly how the Apple compensation process might work. And, I think its worth doing so that at least everyone can be on the same page.

 

Now my take on this is that it extends from over-chunking. People try to take on ideas to aggressively rather than cutting them up into tiny pieces. I watch folks around me do this all the time. I even watch them get into bitter disputes over the answer. However, the larger the dispute gets the bigger chunks people try to take. They say, well you just don’t get XYZ where XYZ is some vastly complex set of ideas.

Rather, I would suggest we say ok, lets start with something everyone agree on. Then slowly, bit-by-bit, lets make our way to the point of disagreement. Once there we will often find that the nub of contention is quite small and that the answer is trivially obvious.

Indeed, this is so often the case, that my primary concern is making sure that once we get to the nub the obviousness of the answer does not serve as a source of pain and embarrassment for the person arguing the opposite.

There are a lot of ways to avoid this but one helpful technique is once you get close to the nub act as if the answer is going to be what the other person believes. Then act surprised to find that it’s the opposite and importantly don’t mention that this now proves your point. Simply continue on constructing the argument until the other person says, “You know actually I think you may have been right.” At which point you’ll want to change the subject as soon as convenient, so the other person will not have to ruminate on their wrongness.

There is always plenty of time later for pointing out how awesome and brilliant you are, but if you do it in the middle of a serous discussion it will only serve to hurt the other person’s feelings.

Dear Shareholder:

We at Apple would like to thank you for standing by us all through the years. To our original investors we owe particular gratitude. If it were not for you, we of course, would not be here today.

I am writing to you because some have expressed concern that despite having $70 Billion in cash on hand Apple has declined to pay a dividend. Allow us to explain our position on this matter.

Paying a dividend would conflict with our core mission here at Apple. That mission is hanging out in Northern California and being AWESOME. We design the most sought after products in the world. We are building the most advanced headquarters in the world. If we meet a man or woman at a bar in Sunnyvale and they ask “So you work for Apple, huh” we can be confident that the evening is going to go our way. This is a dream come true.

Paying a dividend and burning down our war chest would jeopardize all of that.

You see, one day a competitor will come along and cut our core product line out from underneath us. We will need all the cash we can muster to fend them off. When that cash is done, we will mortgage the company. The first several times we may be successful. However, as is always the case, eventually time will get the best of us and we will be unable to meet our creditors demands.

We will go bankrupt. Our creditors will seize the equity and the shareholders will be left with nothing and having made zero return on their investment.

To our original investors, who are truly dear to us, we can only hope that you have long since sold out to some greater fool. If not, please do so at your earliest convenience.

To our newer owners: We hope you have a wonderful day and a pleasant tomorrow.

Always Yours,

The Management and Staff at Apple, Inc

As I mentioned before, I am tickled at the people have taken to calling me an optimist.

I can assure you that I am always up for a conversation on how this will all turn out very, very badly in the end; how your life has no fundamental purpose or meaning; and how creating new life is an act of selfish violence for which the perpetrator is forever indebted to the person on whom life was inflicted.

And, yes I have been party to creating new life. Yes, it was selfish. Yes, I owe a debt to that person. No, I do not in anyway pretend that I have done him a “favor.” To pretend such is deeply, deeply vile.

At the same time, the data is the data. Sometimes it suggests that the near future will be contain events we think of as favorable. Sometimes, it suggests the near future will contain events that we think of as unfavorable. This has nothing to do with my or anyone else philosophical disposition because it is a product of the unfolding of impersonal forces.

Event chains will go one way or they will go the another. Nothing more. Nothing less.

People do have a tendency to project their own feelings about the world generally on to their forecast of how events will unfold. This is obviously bias and its not clear to me why its so widely accepted as normal.

Now, I do think there is some genuine misunderstanding here, but I see for example that people who think that Presidential election will not go their way or that middle class America will face relative impoverishment tend to have negative forecasts about the economy.

Some of that may be a general tendency to just attribute to much influence to Presidential elections and middle class wellbeing. However, I do think some of it is a tendency to think that in a world where things are not going your way, things will tend not to go your way.

However, “going your way” is something that exists inside of your mind only. The world has no idea whether or not it is going your way. It is simply doing what it does. So the fact that lots of other bad things are happening is in-and-of-itself not predictive that more bad things will happen. This is because bad doesn’t really carry any metaphysical power. It would need to happen to be the case that your sense of badness was aligned with the mechanics of the world.

As a last note I wrote on the back of my business card some months ago: Obama 49, Romney 48. I handed the card to columnist from the Daily Beast who speaking at the same event I was. I don’t remember his name.

I think that was a bias free guess based on my interpretation of economic fundamentals. We’ll see how well I do.

In a previous post I quoted a financial advisor who called Ron Paul’s portfolio “a half-step away from a cellar-full of canned goods and nine-millimeter rounds”, and I argued this reflected his crazy beliefs about the probability of economic collapse. It might be worth noting then, as commenter Ragout points out, that two of the other GOP candidates probably literally have a cellar-full of canned goods in preparation for a disaster scenario:

So Ron Paul, by investing in gold stocks, is preparing for a hyperinflation apocalypse where the stock market still functions. Note that the Mormon church calls upon its members to store 2 years of dried food, if they can afford it. So it’s likely that Mitt Romney is preparing for a real apocalypse, where there isn’t enough food to feed America.

Of course Jon Huntsman is the other Mormon in the race, which makes two candidates that are potentially literally preppers. This is from the official website of the LDS church:

“Our Heavenly Father created this beautiful earth, with all its abundance, for our benefit and use. His purpose is to provide for our needs as we walk in faith and obedience. He has lovingly commanded us to ‘prepare every needful thing’ (see D&C 109:8) so that, should adversity come, we may care for ourselves and our neighbors and support bishops as they care for others.

“We encourage members worldwide to prepare for adversity in life by having a basic supply of food and water and some money in savings.

“We ask that you be wise as you store food and water and build your savings. Do not go to extremes; it is not prudent, for example, to go into debt to establish your food storage all at once. With careful planning, you can, over time, establish a home storage supply and a financial reserve.”

They advise the creation of a 3 month supply of food, but also suggest if possible storing for longer-term:

For longer-term needs, and where permitted, gradually build a supply of food that will last a long time and that you can use to stay alive, such as wheat, white rice, and beans.

If Romney and Huntsman are actually prepping, what does it tell them about them? Should this be considered a “crazy belief” of theirs as Paul’s prepping is for him? I don’t think so. Their preparations don’t tell us much about how probable they actually think a disaster is, but rather reflect them adhering to a tradition.

You might argue that preparing for disaster because you believe God wants you to is in fact a crazy belief. But religious belief comes bundled with group membership, and many acts are just adherence to tradition, not wanting to rock the boat, or signaling required to maintain group membership rather than true expressions of literal belief. And at the very least religious beliefs are so widespread that I don’t think they all have the same correlation with other crazy beliefs as, say, believing an society destroying economic collapse is coming soon.  I think some religious groups and people manage to hold what I’ll politely call highly unlikely beliefs in one part of their brains, and a pretty non-crazy overall set beliefs in the other part.

In any case, I do find it amusing that there are a grand total of three candidates who are preparing in some form for an extreme disaster.

If by chance you don’t frequent the geekier side of the twitterverse you might have missed the outpouring of wit-in-140 that followed this post by Gene Marks

If I was a poor black kid I would first and most importantly work to make sure I got the best grades possible. I would make it my #1 priority to be able to read sufficiently.   I wouldn’t care if I was a student at the worst public middle school in the worst inner city.  Even the worst have their best.  And the very best students, even at the worst schools, have more opportunities.  Getting good grades is the key to having more options.  With good grades you can choose different, better paths.  If you do poorly in school, particularly in a lousy school, you’re severely limiting the limited opportunities you have.

As it so happens I was a poor black and I built a rational expectations model of the very phenomenon Marks describes.

I look back on it and I see how it was the origin of the Smithian worldview I push today.

The problem is this: You want to build a model of the choices facing a poor black kid in a bad environment. You need to sketch out a decision tree and then turn that into a choice function and then – in my case – simulate the interaction between neighborhoods and student choice on a computer.

Significant insight can be gleaned from the closed form solutions but to really watch the magic you need numerical estimation.

In building this model one thing became glaring clear. The life choice that Mark’s outlines and that is advocated as prudent and reasonable by society is in fact incredibly risky.

I probably can’t convey the view-quakiness of this revelation because its now so entwined with the way I see the world. However, imagine the choice of a poor teenage girl deciding whether or not to have unprotected sex and possibly become pregnant, or to study hard, make good grades and stay in school.

Forget the unprotected sex itself, which we almost all find enticing.

The key is the pregnancy. For a 16 year-old girl regular unprotected sex will result in a full term pregnancy in the modern world with roughly probability one. There is little chance she will die in child birth. Late term miscarriages at her age are rare.

Now, just like any other parent the birth of that child will be the most important event in her life. And, the love of that child will be the most valuable thing she experiences. Some people say that looking back their career was more important than their children, but those people are few and far between.

So, if the girl has unprotected sex she gets right here, right now, the most important and valuable thing in life will happen immediately with PROBABILTY ONE.

Its difficult to get better than that. Waiting at all creates a risk that something will happen to prevent this. Even, if you can be sure it won’t – and many couples find out unfortunately that you can’t be so sure – you still have to discount the time. You have wait for the most valuable thing in your life.

Mark’s would have her set all that aside. Put away time that she will never get back – you must remember that no matter what you will never get these days back – for the chance that supposedly she will go on to college and get some job and meet some guy and then later have a different child under what might be better circumstances.

This is a risk. Taking Marks advice means that you lose a sure shot at the greatest thing in life. It means that you potentially waste time and time is the currency of life. He wants to convince you that the gamble might pay off.

Yet, how is a Bayesian supposed to tackle this problem?

I look around in my neighborhood and by definition none of the folks here have done what Marks suggests. These people are like me. I have no reason to believe that I am different.

What kind of sense would it make for me to take this gamble when no else does? No, it makes more sense to play it safe and take the sure thing.

Now, of course teachers, parents and helpful people like Marks will tell me to do otherwise. Should I believe them?

Not on your life.

By their own admission they want to see me “succeed.” That is, they benefit from my gamble. Yet, they incur none of the risks. They don’t lose time with their child. They don’t risk their fertility. They don’t experience the disutility of social climbing.

Heads they win. Tails I lose.

Listening to them would be nothing short of foolish.

And, so of course the teenage girl does not listen. Not because she is irrational, but because she is rational.

Indeed, strategies to get her to change her mind hinge on coercion or leveraging irrationality. Parents may threaten as poor parents do not have the resources to bribe.

Some teachers will try to convince students that they can do anything if they try. Clearly they can not. Others will significantly downplay the disutility of social climbing. They will cast crossing into the cultural unknown as uplifting, not depressing and possibly deeply lonely. These kind of stories border on outright deception.

Everyone will try to get her to “believe in herself.” This is an attempt to induce Caplan-esque rational irrationality. That is, to attach an emotional preference to a belief about the natural world. This is epistemologically equivalent to the nationalistic fervor that accompanies “America First.”

And, if that doesn’t work some teachers will resort to honest guilt: “We took a chance on you, now you take a chance on yourself.”

However, all of these strategies come down not to encouraging prudence and rationality, because the prudent and rational thing to do is to get pregnant. They instead hinge on emotional appeals to irrationality, noble lies and social, and sometimes physical coercion.

If you were a poor black kid, that’s what you would face.

Greg posted this question

The answer seemed obvious to me but I may be missing some deeper point. My answer  under the fold.

Read the rest of this entry »

A recent back and forth between Paul Krugman and Russ Roberts on Keynesian economics reminded me of something I discussed briefly on twitter some time ago and wanted elevate it blog post level. Here’s what Russ said:

Krugman is a Keynesian because he wants bigger government. I’m an anti-Keynesian because I want smaller government. Both of us can find evidence for our worldviews.

Now there are many places where I think “better government” is more important than less government, and sometimes better even means more, but I’m broadly supportive of the notion that government should be smaller. And yet I find myself in much more agreement with Keynesian economists than those like Russ Roberts about what we should do about the recession.

But I think Russ’ point tends to be very true, and is exemplified by what, I think, Ezra Klein called “Now-More-Than-Everism”. This is when someone argues that the solution for any given problem is simply that their favored policies are needed Now More Than Ever. We find ourselves in an extended recession-like economy, obviously Now More Than Ever we need to gut the EPA, or Now More Than Ever we need green energy subsidies.

In the anti-spirit of this mindset I want to focus on Now-Less-Than-Everism. I’ll let Krugman go first:

“Here’s an example: is economic inequality the source of our macroeconomic malaise? Many people think so — and I’ve written a lot about the evils of soaring inequality. But I have not gone that route. I’m not ruling out a connection between inequality and the mess we’re in, but for now I don’t see a clear mechanism, and I often annoy liberal audiences by saying that it’s probably possible to have a full-employment economy largely producing luxury goods for the richest 1 percent. More equality would be good, but not, as far as I can tell, because it would restore full employment.”

Now my turn. I think education reform is a really important issue, and I think charter schools and some parts of the reform movement are extremely important. But we’re not going to get to full employment through education reform. And what we really don’t need right now is mass layoffs of teachers. Or postal workers. Structural adjustments are easier to make when we are at full employment, if these things need to come the future is better than now.

The home mortgage interest deduction is a terrible policy. And I don’t see any good reason why Fannie or Freddie should exist. But we need to get out of these bad policies now less than ever. The housing market continues to be a drag on the economy, and it’s worth putting off reforms until a time when so many homeowners aren’t underwater and are in a better position to absorb negative equity shocks. This isn’t to say we couldn’t begin instituting a long phase out to the deduction, but long term, smart, cautious reforms are needed here, not pulling the rug out. In full employment I’d support pulling the rug out.

Deregulation is important, and necessary, and too much regulation is a problem. But it’s not the problem the economy is facing right now. Attempts to focus on regulation are a distraction, and we’re not going to deregulate our way to full employment. We need to focus on deregulation now less than ever.

I am a creative destruction proponent and regulatory burden is a big long-term concern of mine. I wish that was what was causing our current malaise, I really do. Everyone likes to have their beliefs confirmed, and Now More Than Everism feels good. But it isn’t the problem.

So now it’s your turn. Help prove Russ Roberts’ cynicism wrong, and tell us what favorite policies of yours we need Now Less Than Ever. These can be things that either would be downright harmful now, or that we simply shouldn’t be focusing on and aren’t as important as actual recession cures.

Erica Grieder points me to this post on stats use in Psychology. Key point

When you drop the chemical on the mutant mice nerve cells, their firing rate drops, by 30%, say. With the number of mice you have this difference is statistically significant, and so unlikely to be due to chance. That’s a useful finding, which you can maybe publish. When you drop the chemical on the normal mice nerve cells, there is a bit of a drop, but not as much – let’s say 15%, which doesn’t reach statistical significance.

But here’s the catch. You can say there is a statistically significant effect for your chemical reducing the firing rate in the mutant cells. And you can say there is no such statistically significant effect in the normal cells. But you can’t say mutant and normal cells respond to the chemical differently: to say that, you would have to do a third statistical test, specifically comparing the "difference in differences", the difference between the chemical-induced change in firing rate for the normal cells against the chemical-induced change in the mutant cells.

Again this is one of those things that difficult to frame because I want to respond “Yes, but more importantly no and if you really think about ‘eh’”

Strictly speaking the author is right. You cannot say there is a statically significant difference in the response rates between mutant mice and normal mice.

However, what you can say is that the response rates of mutant mice differs significantly from zero while the response rates of non-mutant mice do not.

That clears up everything, right?

The ultimate problem – I think – is getting too much of a bug up one’s bum about the threshold of statistical significance. You did an experiment you got some evidence. That evidence alters the way you think. Its not like whoa, I discovered the next big thing if I get something with a 5% significance level but I just have a pile of poop if I get something with a 6% significance level.

However, because we concentrate on significance levels we say that the normal mice “didn’t respond”, while the mutant mice “did respond.”  That sounds like you are talking about a fundamental difference in the mice. And, since you are talking about a fundamental difference in the mice you ought to be able to say the mice are fundamentally different, right?

Well, no because its an artifact of our significance cut off. That we use this cut off is a problem.

However, doing the “difference-in-differences” stat doesn’t really help over come that because you have just applied the same falsely rigid standard to another measurement.

Indeed, one can imagine the following scenario. There are three types of mice: Normal, Mutant and All Fucked Up (AFU).  The AFU mice are some ugly creatures and you really don’t want to get them mad. But, we’ll analyze their data anyway.

So using the numbers from the post: The normal mice see their firing rates drop by 15%. The mutant mice see their firing rates drop by 30%. And the AFU mice see their firing rates drop by 45%. Plus they turn green and eat the lab assistants! What kids won’t do for an RAship these days?

Now, lets do difference-in-difference between normal and mutant. It fails, so we can’t say they are different.

Now, lets do difference-in-difference between mutant and AFU. It fails so we can’t say they are different.

Now, lets do difference-in-difference between normal and AFU. It passes. Woo-hoo we get our paper published. Too bad Sanjay got eaten before he got his first co-authorship. C’est la vie.

However, look at what we are saying. We can’t say that normals respond at all to the chemical. We can’t say that normals and mutants respond differently to the chemical. And, we can’t say that mutants and AFUs respond differently.

So are mutants more like normals or AFUs? We can’t say because they are not significantly different from either. However, normals and AFUs are significantly different from each other. And, mutants and AFUs share something in common, they both respond significantly to the chemical. Whereas, normals do not.

Its like the stats are telling you nothing and everything all at the same time. That’s because they have arbitrary cut-off points in them. If you get wrapped up in the cut-off points you will be chasing your tail. If you accept that the cutoff points are arbitrary then you can make sense of the world.

You can look at the data on normal mice. You can look at the data on mutant mice. Then you might say well, that normal mice data really looks like chance. And, that mutant data really looks like there is something going on here. So I am going to tentatively say that mutants are different than normals in their response to  the chemical.

But, its all shades of gray that push our beliefs in one direction or another. There is no meaningful definitive cut off that says yes there is an effect or no there is not.

As is often the case this deserves a better treatment than I am about to give it. Still, with several folks bringing up Ron Paul’s odd paleolibertarian positions I thought a few notes on this might be useful

1) As far as I can tell no one but the religious right gives this issue the significance that it deserves. It is a big deal any way we slice it. The ability to create new human beings/ new persons is the most powerful that we have. How we use it is of vital moral and practical importance.

2) The distinction between a human and a person is perhaps the most important question of the coming century. While today one could reasonably argue that almost all persons on earth are biological humans, such a suggestion will soon be ridiculous. How we treat persons vs. how we treat humans will matter a lot for how society is structured.

3) The only place in the current world where we get to really think this through in a practical way is with the process of human development. Most people readily concede that human haploids – sperm and eggs – are not persons (though I think it is silly to deny that they are humans). Most people readily concede that the overwhelming majority of adult diploid human beings are persons.

Somewhere along the line then personification must take place. How that happens is crucial to our understanding what we mean by person.

4) Do we really think that there are human rights? Rights that extend to all humans regardless of personhood and no non-human persons. How can this be anything but species prejudice?

5) Don’t all of our Kantian moral judgments depend on personhood, not humanness.

6) Is there any reason at all why utilitarian moral judgments should be confined to humans. Here its not even clear if personhood is the right characteristic or if it is merely the ability to experience suffering or joy.

7) We don’t actually behave as if babies have any rights at all. Perhaps, the right to life but even that is questionable. A list of baby’s rights that are violated without a second thought:

a) Liberty

b) Contract

c) Property

d) Freedom of Expression

e) Pursuit of Happiness / Self-determination

f) Blood and body

g) To be governed by mutual consent

And, given that babies are not allowed to refuse medical treatment its hard to say under what reasoning they are granted a right to life? A duty to life is imposed upon them, but even if the baby expressed a desire to allow natural processes to precipitate his or her death, that desire would be refused without a second thought.

If a baby can’t even allow nature to takes course on the baby’s own terms then in what sense does the baby have a “right.” None of its preferences or beliefs have to be respected by law.

It can be force fed. It can be forced medicine. It can have its blood taken against its will. It can be forcibly examined, prodded and even have instruments inserted into it. Its body can be cut open and operated on if the parents or state deem it in the baby’s best interest.

This individual has nothing that could be called a civil right in our society.

Paul Krugman highlights one of his old Slate pieces taking on Supply-Side economics. Its interesting overall, but there is a particular point I want to pick up on. Krugman says

Biologist Richard Dawkins has argued famously that ideas spread from mind to mind much as viruses spread from host to host. It’s an exhilaratingly cynical view, because it suggests that to succeed, an idea need not be true or even useful, as long as it has what it takes to propagate itself. (A religious faith that disposes its believers to become martyrs may be quite false, and lethal to its adherents, yet persist if each martyr inspires others.)

Ironically perhaps, I read this and said out loud: wait, what’s the other view? So deeply infected am I with the notion that evolution drives everything in the living world that it seems hard to frame the world as anything else. Of course, those things most adapted to persist, persist. There is no other criterion on which persistence could be based.

Given that after this long, the world is made up only of persistent things we should expect this to underlie our entire reality.

Again, ironically though, this should make us – or at least me – pause and ponder whether evolutionary explanations really are true or just highly infectious.

I was roundly defeated by Bob Murphy in our (initial?) debate. At the opening I had five supporters to Bob’s 130+. By the end, only one was still willing to stand with me.

To make matters worse I’ve been told he was a Hipster Austrian, and only supporting me ironically.

This marks three out of three online debates/bloggingheads in which the other side has declared victory. So, by now I am developing an expertise at losing.

Nonetheless, I see myself as having succeeded in advancing human understanding.

(I’ll let Liz Lemon take care of the eye roll on this one,
so my wife doesn’t have to)

 

In any case here is my short course on how to lose a debate

  1. Concede as much ground up front as possible. You don’t want your opponent wasting valuable time explaining why weak points in your argument are weak. If you know they are weak simply concede them and give your opponent ample opportunity to knock down your strong points as well.
  2. Speak your opponent’s language. There is a lot of confusion that is generated from simple misunderstanding of nomenclature or framing. Adopt your opponent’s frame. Not only will this dispense with lots of rhetoric you could otherwise hide behind but it will give him credit for any consensus you reach.
  3. If your opponent finds a good line of attack, seize upon it and expand it. A good line of attack often focuses attention on the key differences between you and your opponent. If your opponent does this first, don’t waste time finding your own line of attack. Instead simply accept his articulation of the differences and then elucidate how that line of inquiry gets at the them.
  4. Admit that you may have to think more on a given point. If your opponent says something that makes sense but still doesn’t seem quite right to you, avoid looking for chinks in his argument. Instead, say that he raises a good point and you will have to think more on it.
  5. Change your mind in the middle of an argument. If your opponent makes a particularly good point and is genuinely compelling, simply change your mind and adopt his point of view. This is good for an instant defeat.

If you follow these steps diligently and work hard at you can develop the kind of losing streak only a mom would be proud of. If you’re good enough even your mom will vote for the other guy.

Unfortunately you’ll be saddled with a deeper appreciation of your opponent’s point-of-view and  if you are truly unlucky better insight into reality. If this keeps happening you’ll find it more and more difficult to lose, but don’t despair. It can be done!

Here is a data point you may want to keep in the back of your mind when discussing financial literacy:

In a recent consumer study, 21 percent of individuals surveyed – including 38 percent of those with income below $25,000 – reported that winning the lottery was “the most practical strategy for accumulating several hundred thousand dollars” of wealth for their own retirement. In addition, 16 percent thought that winning the lottery was the best retirement strategy for all Americans, not just themselves (Consumer Federation of America and The Financial Planning Association, 2006).

Some may be tempted to interpret this as the Death of the American Dream, and evidence that people are hopeless about their economic futures. But winning the lottery as the best retirement strategy for all Americans? I chalk this up to the phenomenon that no matter how stupid a belief is, if you know one person that ascribes to it then a survey will show that 1/4 to 1/3 of the population probably does as well. This includes the existence of witches and werewolves, and the fact that Saddam Hussein planned 9/11. That, and I blame the fact that people don’t understand the concept of a fair bet and thus, of course, an unfair bet. Talking about insurance with the average person can be shocking and illustrative. This is why auto insurance companies run commercials promising to be forgiving of accidents and generous with benefits and this is somehow persuasive to customers. “Where does that money come from?” I want to ask them…. “where does that money come from?”.

John Goodman has a nice post on political disagreement. The key line for certain intellectuals is this:

For example, a conservative’s support for pro-growth tax cuts becomes “tax cuts for the rich” to a liberal opponent. A liberal’s case for investing in people becomes “wasteful, big-government spending” to a conservative.

I once viewed these word twists as a mere debater’s ploy. But then I came to realize much more is involved. There are quite a few liberals who actually believe their opponents want nothing more than to cut taxes for the rich. There are more than a few conservatives who really believe that liberals favor wasteful government spending as such.

Just as partisans can get trapped into seeing the world only through there eyes, many intellectuals can fall into the trap of not realizing the extent of partisanship. Surely – you say – people don’t actually believe what they are saying. Surely this is all propaganda.

But, it is not. People genuinely believe what they are saying. They do suspect that the other side grows horns at night only to have them fall off in the morning.

The fact that we have descended into identifying US  political factions by color only makes the comparison with earlier bought of tribal obsession more stark. From Wikipedia on Byzantine Chariot Clubs

Chariot racing in the Byzantine Empire also included the Roman racing clubs, which continued to play a prominent role in these public exhibitions. By this time, the Blues (Vénetoi) and the Greens (Prásinoi) had come to overshadow the other two factions of the Whites (Leukoí) and Reds (Roúsioi), while still maintaining the paired alliances, although these were now fixed as Blue and White vs. Green and Red.[59] The Emperor himself belonged to one of the four factions, and supported the interests of either the Blues or the Greens.[60]

The Blues and the Greens were now more than simply sports teams. They gained influence in military, political,[61] and theological matters, although the hypothesis that the Greens tended towards Monophysitism and the Blues represented Orthodoxy is disputed. It is now widely believed that neither of the factions had any consistent religious bias or allegiance, in spite of the fact that they operated in an environment fraught with religious controversy.[62] According to some scholars, the Blue-Green rivalry contributed to the conditions that underlay the rise of Islam, while factional enmities were exploited by the Sassanid Empire in its conflicts with the Byzantines during the century preceding Islam’s advent.[63]

The Blue-Green rivalry often erupted into gang warfare, and street violence had been on the rise in the reign of Justin I, who took measures to restore order, when the gangs murdered a citizen in the Hagia Sophia.[64] Riots culminated in the Nika riots of 532 AD during the reign of Justinian, which began when the two main factions united and attempted unsuccessfully to overthrow the emperor

Kevin Drum doesn’t like my take on the minimum wage

This kind of stuff bothers me on a bunch of different levels. Let’s count the ways:

  • You either believe empirical studies or you don’t. If you have reason not to believe them, then let’s hear it.
  • Intuition about supply and demand just flatly won’t work in this case. We’re talking about a market with (probably) low elasticities and a huge number of confounding factors that could push it in multiple directions. It’s easy to see that a small increase in the minimum wage could be overwhelmed by other factors and lead to either a very small or zero impact on employment levels.
  • Are there jobs where it’s profitable to hire at $4.75 but not at $7.25? Well, there must be some, but we’re talking about such low skill levels here that there very well might not be many. That’s why empirical studies are so important. The effects are just too small to intuit.
  • Is this really what we’ve come to? That we should provide a (probably very small) boost to the job market by allowing businesses to hire people for $9,500 per year instead of $14,500? Seriously? I mean, this is the ultimate safety net program, aimed squarely at working people at the very bottom of the income ladder. If we’re willing to throw them under the bus, who aren’t we willing to throw under the bus?

 

This is how I think the honest intellectual response goes: Basic economic reasoning tells me that the minimum wage cuts employment and that the more effective the minimum wage is in raising wages above market rates the more pronounced the effect will be. For years empirical studies seem to support this though I do not have deep knowledge of them.

Then David Card and Alan Krueger come out with a study showing the opposite. This had an impact on me primarily because the names Card and Krueger were attached to the study. They are smart, thorough guys and quite frankly that matters. Yet, I haven’t delved seriously into the empirical issues surrounding it.

I am aware of some of the common faults that people point out from the Card and Krueger work, but I haven’t really evaluated them carefully either. I could latch on to some of those criticisms as my “reasoning.” But, honestly they are not my reasoning.

My reasoning is that I had strong priors one way. I saw conflicting evidence that made me question those priors but that evidence wasn’t strong enough to completely persuade me.

Its also true that while my skepticism is a data point, people should keep in mind that it doesn’t carry a huge amount of weight because I don’t have a huge amount of evidence behind it.

There has also been some follow-up work that has confirmed Card and Krueger. My understanding is there has also been work to refute it. I read a well put together paper not long ago using border-states that seemed to show small effects but my impression at the time was that the variables of true interest were going in the expected direction, less than expected employment growth.

I stir all of that together with my causal empiricism about how businesses work and I come to the conclusion that “my best guess is that the minimum wage decreases employment opportunity for low skilled workers.”

My mind could clearly be changed on this but that’s where I am right now. Not to turn this into to much of a philosophy of science post, but I think there is too much hanging of hats on specific arguments, weaknesses in position, or points about analysis.

That’s not how we reason and that’s not how a good Bayesian should reason. All evidence “counts” just to varying degrees and priors matter. We shouldn’t pretend that unless we can find specific reasons to tear apart a study we have to accept it. Doing that just motivates us to be artificially critical.

We accumulate evidence over time and hopefully get closer and closer to the truth.

Arnold Kling David Henderson revisits his claim that Social Security and Medicare are Ponzi schemes based on a comment by John Seater. John’s point was that Ponzi schemes are necessarily insolvent while Social Security would be solvent if the population was growing fast enough.

Arnold David replies:

It’s not necessarily the case that Ponzi schemes must circle around to the original people who invested in them. If the scheme offered modest enough returns and spread slowly, it could last forever in a country with a growing population. Therefore, Ponzi schemes, contra Seater, could remain solvent.

This actually brings to mind a point much deeper than the Social Security debate; a point that may be fundamental to intellectual disagreement in policy circles.

Arnold is using the term Ponzi scheme and I am certain that he feels its appropriate and meaningful. Yet, as best as I can tell he is stripping of its primary connotation: necessary insolvency and bankruptcy for the participants.

It is tempting at this point to say that Arnold is being “dishonest” about Ponzi schemes and Social Security. This is where lots of intellectual discussion go off the rails/

However, I don’t think “dishonesty” is accurate in the traditional sense. I think Arnold means what he says and is communicating in good faith. Leverage the negative affect of the term Ponzi scheme seems appropriate to him because Social Security and Medicare likewise leave him with negative affect. I am assuming because no investment is induced by the system even though its made to look like a savings system.

Yet the term Ponzi scheme leaves most people with negative affect for entirely different reasons. For most people, the negativity comes from the fact that you cannot win and sooner or later the entire thing must come crashing down.

My points in all of this are several

  1. This type of cross-talk happens all of the time in intellectual disputes and is responsible for a good portion of the disagreement that we think we are having.
  2. Though it can easily escalate to attacks on intellectual honesty there is no bad faith on anyone’s part
  3. It can be cut through with careful and calm reasoning. This is hard to achieve but we should strive for it.

Two comments on this, starting backwards. David Henderson building off of Ron Paul’s – admittedly mixed up – answer on manufacturing jobs.

The other candidates did a poor job too. All of them seemed to see the lack of manufacturing jobs as a problem per se.

As is my wont, allow me to get a little meta here. Suppose that the topic had not been manufacturing jobs but infanticide. If the candidates had taken it for granted that infanticide was a bad thing per se, would we have let them off the hook?

At the end of the day, infanticide happens and the more infants there are, all else being equal, the more will be murdered. The history of society is one of more babies being born and consequently more of them being murdered.

I have the strong urge to go deeper and suggest that the configuration of subatomic particles we call a dead baby is not in its essence more or less outrageous than the configuration of subatomic particles we call an unemployed manufacturing worker.

These configurations matter because they matter to someone. People are obviously very concerned about unemployed manufacturing workers and thus they matter, per se.

On a more concrete level we can see this by imagining that all of the former manufacturing workers had owned stock in their companies. The companies then discovered some way radically increase productivity, lower costs and send profits through the roof. All of the former workers lost their jobs but became millionaires. Would there be a lot of handwringing over this – I am guessing not.

Which is to say that people complain about things because they are painful, we should take their pain seriously and speak about what can be done to alleviate it.

If the answer, is: it is not worth it for me to alleviate your pain because any feasible method would be too costly to the whole economy, then we have to recognize that that is in fact our answer and does in fact suck for the person hearing it.

Now, on to Ron Paul, he said many things but key among them was

But as long as we run a program of deliberately weakening our currency, our jobs will go overseas, and that is what’s happened for a good many years, especially in the last decade.

This is, of course, exactly backwards. Weakening our currency will bring jobs to America. This is why exporting countries have a deliberate and successful policy of weakening their currency.

However, my point is not to hit Ron Paul over the head with this. I am sure he has sort of put this together in his head. Its to point out how ubiquitous the trap of imagining that good things lead to other good things can be.

Ron Paul believes for many reasons that a strong currency is good. He also believes that seeing all of these job losses is bad. My strong suspicion is that it is difficult for him to reconcile the idea that a good idea could have such a bad outcome.

However, of course this happens all the time, because happiness and prosperity are not rewards for doing the right thing. They are simply one of many possible states of the world that result from the unique interaction of the events which preceded it.

Very few choices are clean in the sense that they will make everything better and nothing worse and none are clean with probability one.

 

So lets step back from all of this and looking at the policy dimension of the jobs question. My narrative is that the United States has somewhat passively allowed itself to get into a position of being consumer of last resort.

Other nations, most recently China, have run deliberate policies to suppress household consumption. The result was a rapid increase in both investment and net exports. This has the inverse effect of increasing US consumption and decreasing US net exports.

The costs and benefits of this policy accrue unevenly to Americans. Most Americans benefit slightly in the form of cheaper consumption goods. A few Americans benefit immensely by working in the financial sector of a country experiencing huge capital inflows and cheap financing. Another subset of Americans suffers miserably from losing employment and seeing the agglomeration effects that built their entire communities unravel.

The true policy question is: are we indifferent to this? I don’t think a simple appeal to Laissez-Faire is enough, if for no other reason than because this is not a Laissez-Faire outcome. It is the result of the deliberate policy of another government. Should that matter? I am not sure.

At a minimum, however, I think as intellectuals we should recognize the suffering of people affected by this and address it directly. Even if what we have to say is: I’m sorry but there is just nothing I think we should do to help you.

Here are some related and powerful insights from Robin Hanson over the past few years where he identifies a bias that motivates much more of our thinking that we’d care to admit. The general theme is that our we are biased in our beliefs because they are more than just beliefs to us:

Don’t Believe

In my experience “I believe X” suggests that the speaker has chosen to affiliate with X, feeling loyal to it and making it part of his or her identity. The speaker is unlikely to offer much evidence for X, or to respond to criticism of X, and such criticism will likely be seen as a personal attack.

Feel the warm comfort inside you when you say “I believe” – recognize it and be ready to identify it in the future, even without those woods. And then – flag that feeling as a dangerous bias. The “I believe” state of mind is quite far from being neutrally ready to adjust its opinions in the light of further evidence. Far better to instead say “I feel,” which directly warns listeners of the speaker’s attachment to an opinion.

Bias: The Evil Pleasure: 

We feel a deep pleasure from realizing that we believe something in common with our friends, and different from most people.  We feel an even deeper pleasure letting everyone know of this fact.  This feeling is EVIL.  Learn to see it in yourself, and then learn to be horrified by how thoroughly it can poison your mind.  Yes evidence may at times force you to disagree with a majority, and your friends may have correlated exposure to that evidence, but take no pleasure when you and your associates disagree with others; that is the road to rationality ruin.

There is another old post of Robin’s I think about often but cannot seem to find that offers a way to check yourself against biases like these. Since I can’t find it, I’ll try to summarize it.

Think about beliefs that you hold and imagine yourself changing your mind. Literally imagine waking up tomorrow with a changed mind and imagine how you would or wouldn’t discuss changing your mind with people you know. Feelings will be strong for beliefs that are important to our identities or that we value for some signaling purpose, like signaling affiliation with some group. Can you actually imagine yourself with these changed beliefs, or is it unthinkable?

In his post Robin argued that people often convince themselves that they truly reconsider their strongly held beliefs, but what they do is false reconsideration with the real purpose of reassuring themselves and strengthening the belief. Before it was just a strong belief, but after false reconsideration it’s a strong belief that they’ve really, definitely, seriously reconsidered. But if you can’t  imagine yourself going through the day holding another set of competing beliefs than you never actually reconsidered it.

To provide a concrete example, I think many religious people tell themselves that they truly reconsider some of their deeply held religious beliefs. But can they imagine waking up tomorrow a non-believer and telling their significant others, parents, friends, children, and people in their church that they are now non-believers? If not, can you at the very least picture lying to these people about your beliefs for the rest of your life? If you can’t seriously tell yourself you could do one of these, you should be skeptical that you’ve ever really reconsidered your beliefs.

Conservatives, could you imagine becoming someone believes that higher taxes and unemployment insurance don’t hurt economic growth or employment? Liberals can you imagine becoming someone who believes that that minimum wages decrease employment and fiscal stimulus doesn’t work? If the answer is no, you should think about whether it’s because holding such a belief would conflict with your identity or affiliations.

Via Jamelle Bouie, via Paul Krugman I see that Glenn Kressler doesn’t like this quote by Kathleen Sebelius

“I think there’s no question if you take a snapshot, people will run out of money, very quickly [under the GOP Medicare plan if you have cancer]. And if you run out of the government voucher and then you run out of your own money, you’re really left to scrape together charity care, go without care, die sooner. There aren’t really a lot of options.”

Kressler says

Her answer was strong stuff, suggesting that the GOP plan could cause people to “die sooner” if they had cancer and ran out of money. We have been critical of some of the ways Republicans have described the plan, but is this even remotely possible?

I didn’t read it that way. I thought she was saying that dying sooner was the alternative to either getting charity or going without care. This is an essentially correct riposte to an argument I have been making.

 

For a while, the prevention people tried to make the case that taking action to detect and treat disease early would bring down costs. I, among others, argued this was nonsense. The real way to bring down health costs is to eschew prevention and let disease progress to the point where death comes quickly and without warning.

The earlier you catch a disease the more likely you are to spend a bunch of money treating it. This is only made worse in the rare case that the treatment is successful. At that point you have already dumped a bunch of money into someone who is likely going to come back with another disease later.

In response, folks began arguing that people like me thought the best way to save money is to have people die quickly. And, in my case that is utterly true. I do believe that. Though my point really centered around early detection.

I hoped that this realization would help people get at the problem of affect.  Saving money sounds like a good thing. Early detection sounds like a good thing. Its natural to think that they go together. However, they are actually opposites.

This happens all the time. People think that bad things beget other bad things and that good things beget other good things. But, good and bad are properties assigned in the mind. Cause and effect extend from the relationship between real things in space-time.

The two don’t necessarily overlap. We make major reasoning mistakes when we assume that doing good things will have good consequences. Consequences have nothing to do with good or bad. They simply are.

In an earlier post Arnold Kling says

Ordinarily, my philosophy is "catch them doing something right." If you try to correct people when they do something wrong, they just take offense, and you accomplish nothing

Which explains why Arnold references me so infrequently. Smile

But more seriously if you think I am wrong don’t hesitate to say so. I picked up from another post of Arnold’s that he disagreed with my take on Mike Mandel. Mandel himself wrote a response and I agreed with one his main critiques of my critique.

I think Mandel and I ended up agreeing that the key question is whether or not an improvement in the terms of trade is equivalent to a productivity increase and Mandel noted he has a paper coming out soon detailing why he thinks they are not. This is the blogosphere at its best.

Our ultimate hope is not have been right but to be right. This can only happen when (1) risk saying things that are wrong (2) get called out on it and correct ourselves.

Also, I don’t always read all the comments so if there is something you really want to call my attention to email me.

Lastly, I meant to post on this but I don’t think I did. Arnold’s talk at Kauffman gave me still better insight into where he is coming from and the folk dancing and doves bit actually helped. I am serious about that.

Via Robin Hanson is an article on the exaggerated dangers of radiation exposure:

In fact, radiation is a far less potent carcinogen than other toxic substances. Studies of more than 80,000 survivors of the Hiroshima and Nagasaki blasts have found that about 9,000 people subsequently died of some form of cancer. But only about 500 of those cases could be attributed to the radiation exposure the people experienced.

The average amount of radiation that victims in Hiroshima and Nagasaki were exposed to would increase the risk of dying from lung cancer by about 40 percent, Boice said. Smoking a pack of cigarettes a day increases the risk of dying of lung cancer by about 400 percent.

“Radiation is a universal carcinogen, but it’s a very weak carcinogen compared to other carcinogens,” Boice said. “Even when you are exposed, it’s very unlikely you will get an adverse effect. But fear of radiation is very strong.”

From Wikipedia I see that the range of estimated deaths resulting from Chernobyl is wide, but the most credible numbers appear quite low:

The Chernobyl Forum is a regular meeting of IAEA, other United Nations organizations (FAO, UN-OCHA, UNDP, UNEP, UNSCEAR, WHO, and the World Bank), and the governments of Belarus, Russia, and Ukraine that issues regular scientific assessments of the evidence for health effects of the Chernobyl accident. The Chernobyl Forum concluded that twenty-eight emergency workers died from acute radiation syndrome including beta burns and 15 patients died from thyroid cancer, and it roughly estimated that cancer deaths caused by Chernobyl may reach a total of about 4,000 among the 600,000 people having received the greatest exposures. It also concluded that a greater risk than the long-term effects of radiation exposure is the risk to mental health of exaggerated fears about the effects of radiation:

The designation of the affected population as “victims” rather than “survivors” has led them to perceive themselves as helpless, weak and lacking control over their future. This, in turn, has led either to over cautious behavior and exaggerated health concerns, or to reckless conduct, such as consumption ofmushrooms, berries and game from areas still designated as highly contaminated, overuse of alcohol and tobacco, and unprotectedpromiscuoussexual activity.

Fred Mettler commented that 20 years later:

The population remains largely unsure of what the effects of radiation actually are and retain a sense of foreboding. A number of adolescents and young adults who have been exposed to modest or small amounts of radiation feel that they are somehow fatally flawed and there is no downside to using illicit drugs or having unprotected sex. To reverse such attitudes and behaviors will likely take years although some youth groups have begun programs that have promise.
It seems as though the best response we could have to the Japan disaster then is to to not treat nearby residents as victims, and not exaggerate adverse health impacts. This is the exact opposite approach I would expect  environmentalists and the media to take.

Adam posts on epistemic humility and consistency. Jim Manzi responds

I think that Ozimek’s demand for consistency is fair, and as I said at the start of this post, important. My upcoming book is focused on (i) making the case that this kind of epistemic humility is justified on the evidence, and (ii) trying to work out some of the practical implications of this observation.

Manzi also says

At the level of semantics, I couldn’t care less what label is applied to economics. I think that the operational issue in front of us is what degree of rational deference we should give to propositions put forward by the economics profession.

I think semantics and perhaps methodologism is where Manzi and I, at least, get hung up.

My first point is that economics is and should be a science in the sense that we can and should use reason and evidence to further our understanding and predictive abilities about the economic world around us. To the extent that Manzi isn’t disputing that then the question of “is it science” is probably not meaningful.

On humility. I agree with Adam and Manzi though this extends beyond economics and climate models. There is only so much existential doubt that most people can stand but it seems highly unlikely that we are suffering from a lack of it.

“How would I know if I were wrong,” is a question we should be asking on virtually all maters from the stimulus to whether or not I am actually sitting at a computer right now.

How much time we devote to this question depends in part on how much evidence we have and in part how important the question is. Yet, social science doesn’t represent a stark departure from physical science. In all areas humility is crucial.

Which brings me to my next point, controlled random experiments are not a radically different than careful observation.

A random trial is simply a physically controlled regression analysis. There is no fundamental difference between performing a regression on data collected in the field and data generated in the lab. It is simply that in the lab you hope that you have performed all the necessary controls physically rather than statistically.

However, the physical controls can still fail. Notably, double-blind experiments are an attempt in medicine to go beyond simple randomness because simple randomness not enough. Even with double blind, however, results are often not generalizable.

On the practical implications. My impression is that Manzi fears a society in which social scientists are allowed to determine every aspect of policy, and policy is given free reign over people’s lives.

I’m not sure if I think that’s as big of a danger as Manzi does. We might agree on how bad it would be but I suspect I think its less likely. Ironically, I think its less likely in part because Hayek won this argument among economists and economists have endeavored to keep those observations alive.

More generally though, the problem of people thinking they know what’s best for other people is by no means a new one and by no means limited to social science.

To an extent social science stands as a countervailing force to this tendency because one acquires fame and influence in the social sciences by saying that what everyone else said before was wrong. This incentivizes the young to criticize the old.

In contrast, religious, military and communalist belief structures reward people for showing deference to established views.

Even still, I do recognize the reasoning behind be wary of authority generally and I hope to see Manzi as a partner in figuring out what to do about overconfidence.

File this under Economics is Not a Morality Play

I’ve reading and writing most of today, but I opened my browser a few minutes ago to see the following headline

image

Who was the first person I contacted, a friend in Japan, loved ones who might live in earthquake prone regions. Nope. My mortgage broker.

“If Japan goes nuclear” I said, “the Ten will cross well into the 2s. We need to be ready to pull the trigger.”

What does that mean?

That means that an escalating crisis in Japan will cause fear in the world to rise. Heightened fear causes people to buy US Treasury bonds. More buyers of US Treasury Bonds means lower yields on those bonds. Lower yields send full time bond investors out of Treasuries and into Agencies. Agencies are the bonds that are used to back mortgages. This in turn means that mortgage yields could drop.

However, because this is fear driven sometimes you have hours – sometimes less than that – to lock.

What you need are triggers: pre-determined agreements that if at any moment someone is offering a particular mortgage product you will buy.

I point this out not simply to encourage you to be a cold hearted profit maximizer. I do it to point out that when there is actual cash on the line people don’t think about things like about matching patterns of trade, the roundaboutness of investment or the long term fiscal irresponsibility.

P.S.

I just saw this from Tyler Cowen

Quick quiz: does this mean our federal government should:

a) spend more money, because there are even fewer bond market vigilantes than before, or

b) spend less money, because there is a general signal that everyone should pull back on excess commitments and risky projects, governments included.

Sadly, we are allowed only one guess at this problem.

The extra credit question is a) vs. b) when the lower yields are instead caused by a global financial crisis.

Tyler is a smart guy but there is just some major disconnect we are having here.

You don’t necessarily want to go into commitments and projects but you definitely want to monetize any decline in yield. From the government’s perspective, it could buy short and sell long or it could simply sell long and cut a check to the taxpayers.

In either case the government’s decision to leave money on the table simply facilitates some else’s taking it. I don’t have major leveraging opportunities, but I will take what I can get. The guys Goldman on the other hand. . .

Paul Krugman makes the case for a higher inflation target

But what really stands out, if you assume that discretionary fiscal policy won’t be there when you need it, is that this makes the case for a higher inflation target. Olivier Blanchard, at the IMF, made just that case a year ago(pdf). If we’d come into this crisis with 4 or 5 percent inflation, not 2, there would have been more scope for conventional monetary policy to act before hitting the zero lower bound.

Paul Krugman makes the case for a higher inflation target. This sounds a lot like the argument I have been making for a while, and it should. Paul and I largely agree on how the economy works.

We disagree on whether government spending can be targeted in effective fine grained ways, but that’s the point. Disagreement over the effectiveness of market versus public allocation of resources should not alter your view on the relationship between monetary policy and recessions.

One of the things I have noticed on the blogosphere, Facebook and other outlets where I have access to popular opinion is that skepticism goes out the window when it collides with cynicism.

In an only mild exaggeration, if I were to propose that the moon were made out of cheese, I would be met with a deep skepticism by almost everyone. However, if I were to propose to a unified subgroup, that their sociopolitical adversaries had conspired  to make them believe the moon was not made out of cheese the skepticism level would drop dramatically.

Still most people would combat it, but far less forcefully and more on the grounds that “every knows that the moon is not made of cheese” rather than on genuine skepticism.

However, no matter how likely you think it is that some one is tricking you into believe the moon is not made cheese, that must be less likely than moon being actually made out of cheese. For someone to hide the truth from you, it must first be the truth.

 

Let me give a more concrete but unfortunately more charged example. There is a debate over whether or not the Obama Stimulus worked. As I have said before, I favored a different type of stimulus, both at the time and now. This gives me enough cachet to enter into non-heated conversations with strong Obama detractors.

They ask me frequently whether or not I “really believe” the stimulus worked. I say, “I presume so.” Then they counter with a line of reasoning more or less like the following:

The economy was bad even with the stimulus. It was worse in fact than the Obama administration said it would be without the stimulus. The Obama administration would like us to believe that it would have been even worse without their stimulus. However, this is just a convenient ruse. One cannot prove a counter-factual. Thus we cannot know whether the economy would have been worse without the stimulus. Thus we should not believe the Obama’s administration’s claim that stimulus worked.

This is all well and good except that its an argument that the Obama administration has no credibility on stimulus. That fact alone can’t lower your estimate of stimulus’s effectiveness from what it was before the crisis.

Why?

Well presumably the Obama administration, at absolute worst, will say whatever it needs to say to put the stimulus in the best light. If the stimulus worked, they will say it worked. If it did not work then they will still say it worked.

This implies that statements from the Obama administration are orthogonal to the truth. That is, utterly uninfluenced by it.

However, if a statement is orthogonal to the truth then it cannot rationally affect your estimate of the truth. That is, it simply doesn’t matter what the Obama administration says. Your best guess at the truth is whatever you thought the truth was before. You might as well simply ignore everything the Obama administration says.

Yet, this is not what the argument above is asking. It is asking that I lower my estimate that stimulus is effective based on the Obama administration’s lack of credibility. This is only rational if I think the Obama administration is anti-truth. That is, that they seek to lie even when it is not in their best interest to do so.

Or, said another way I have to believe if the stimulus had worked the Administration would lie to me and tell me that it didn’t. I have to believe they would do this because they enjoy lying or are otherwise motivated to spread disinformation for its own sake.

Said, in additional way, I have to believe not that the Obama administration has no credibility, but that they have negative credibility. If I take what they say and simply assume the opposite, I will be right more than not.

Its an easy proof but beyond this post that negative credibility is credibility. And, that someone who always lied no matter what, is just as trustworthy as someone who always tells the truth. You simply have to logically invert the questions.

So, back to the point, this implies that, at worst, the Obama administration has zero credibility. Negative credibility would be better than zero credibility.

However, zero credibility by definition means that you should believe whatever you believed before. It also by the way, means that the fact that the economy was worse than the Obama administration predicted means nothing. After all, they have zero credibility. Under that assumption, everything they say is meaningless.

The moral of that example is that there is no consistent amount of cynicism about the Obama Administration that should lead you to downgrade your estimate that stimulus worked.

Now, if you independent of the Administration, thought that unemployment would top out at 9% in the absence of stimulus, and you independently hold to that prediction then the fact that with stimulus unemployment rose above 9% is evidence that the stimulus failed. However, it’s a rare person that I meet, who is making this claim.

The moral of the whole post is that assuming your adversaries have low fidelity to the truth is not the same as assuming that they have high fidelity to lies. Generally speaking the worst I should think of someone is that, something is no more or less likely because they told me it was so. I should not lower my skepticism of their proposition being false, simply because they told me it was true.

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