Monthly Archives: November 2013

How much would you demand to be paid if I took out your appendix without anesthetizing you?

Discussing economists’ reliance on measures of growth and GDP, Joel Mokyr asks:

So you go to somebody who is about to have surgery and you ask him, How much would you demand to be paid if I took out your appendix without anesthetizing you, without putting you to sleep? Nobody would agree. The sum would be infinite. What can anesthesia contribute to GDP when it was introduced in the 1850s and 1860s? Russ:Could not be very much. Guest: Nothing. It’s very small. But that is exactly the kind of thing we fail to account for in our calculations. So that’s why I gave that whole list of things; and we could make this list infinitely large. It is the small things that actually don’t amount to an awful large part of our income and product that actually have improved life a great deal and that we really wouldn’t want to do without any more.

From Russ Roberts’ interview with Mokyr at Econtalk. The quote was first brought to my attention by Arnold Kling.

Scott misses the point of Diamond’s The World Until Yesterday

Does James Scott have something personal against Jared Diamond? That is unfortunately the question one is left with after reading Scott’s review of Diamond’s The World Until Yesterday. Scott acknowledges that the question of whether there is something to be learnt from traditional societies is reasonable, however he resents Diamond’s answers.

First, he thinks the lessons to be learnt are unexciting:

But what a disappointment it is, after nearly five hundred pages of anecdotes, assertions, snippets of scientific studies, observations, detours into the evolution of religion, reports of near-death experiences – Diamond can be a gripping storyteller – to hear the lessons he has distilled for us. We should learn more languages; we should practise more intimate and permissive child-rearing; we should spend more time socialising and talking face to face; we should utilise the wisdom and knowledge of our elders; we should learn to assess the dangers in our environment more realistically.

But what what kind of magic bullets was Scott expecting?

Second, he mischaracterizes Diamond as maintaining

the indefensible premise that contemporary hunter-gatherer societies are survivals, museum exhibits of the way life was lived for the entirety of human history ‘until yesterday’ – preserved in amber for our examination.

Of course Diamond believes no such thing, but in the absence of much hard evidence, contemporary traditional societies is what we have. Maybe Diamond exaggerates what can be learnt, but Scott does not make this nuanced criticism. And even if he had, that would partly have been missing Diamond’s purpose, which specifically is to see the world of traditional peoples as being full of small experiments that we might learn from, not to show exactly how people lived hundreds or thousands of years ago.

Scott tops it by ending the review with asking Diamond to “shut up”. All this is unfortunate, since what is valuable in his review disappears. I too thinks it strange that Diamond does not discuss large-scale wars or other dangers of modern states. There are problematic aspects of the development of states. Scott claims that slave-holding was also an essential part of early states.

To conclude, Diamond’s point, which Scott apparently does not see, is to see what we can learn from traditional societies. His sample size is limited, but he does a great job with what he has.

Breakfast with Bill Gates

Do not be late. Bill Gates to the right.

Do not be late. Bill Gates to the right.

Breakfast meeting on Commercial Investments as a tool for Development,” organized by the think-tank Civita. 

Bill Gates, in Norway to try to secure continued funding for his foundation’s aid programs, started out by giving kudos to Norway’s wealth management strategy and aid generosity. He argued that it would be feasible for Norway to invest a small part of the oil money with a “dual goal” objective – investing in countries that are short on capital, and where the investments could both provide a financial return and help financing needed basic infrastructure (electricity, roads, agriculture). He ducked a couple of hard issues. On a question from Paul-Christian Rieber on how to deal with oppressive regimes, he said that it was up to the national governments themselves to set their own rules and that he believed in engaging with most countries. I wished he had been more specific about how to engage. On a question from journalist Maria Berg Reinertsen on challenges related to taxation, Gates only said that planning was fair. A more helpful response was given by State Secretary Jon Gunnar Pedersen, who pointed out that tax issues had to be dealt with at an international government level. Pedersen cut a good figure, and also noted that the pension fund already do have investments in the areas that Gates were talking about, such as Sub-Saharan Africa, and that we have Norfund, a government fund whose aim is specifically to invest for development.

While this meeting was about investments, Gates’ next meeting of the day was with the new Prime Minister. Probably hoping that her people would note, he was crystal clear that aid was much more important. 

Economics fantasy league

The RePEc Fantasy League is probably the nerdiest thing I have ever seen. Can it affect the incentives of the (real) economists involved by contributing to an even more explicit focus on rankings? It seems inside knowledge of what is in store for the next monthly update(s) would be important. Who would want themselves on their team? 

H/t to Andreas Tryphonides. 

Monthly book roundup – October

Books finished in October:
(Warning: reviews are unpolished and quickly written.)

David and Goliath: Underdogs, Misfits, and the Art of Battling GiantsReviewed before.

The Darwin Economy: Liberty, Competition, and the Common Good by Robert H. Frank. Recommended.

Robert Frank contends that in a hundred years from now, economists will have recognized Charles Darwin as the most important economic thinker. Darwin was influenced by Adam Smith, but had a wider conception of competition. A key distinction is between traits that are beneficial for an individual and the species, and traits that are beneficial for an individual but not the species. An example of the latter is the horns of the bull elk, featured on the cover. The horns are an asset when fighting for females, but not when trying to escape predators. Frank believes that had the elks had the opportunity to vote to downsize all the horns, they would have done so unanimously, like hockey players when considering the mandatory use of helmets.

Frank believes such head to head competition is important for humans as well, as much of what we care about is “graded on the curve”. He starts with the example of competing to have the best/most expensive suit. This may seem trivial, but he follows up with more important cases, most importantly of how people overinvest in houses, both because of trying to keep abreast of one’s neighbors and because school quality is related to certain areas. Cars and parties are other goods that make people try to outcompete each other, to the detriment of the common good. As people compare themselves with those slightly higher on the curve, “expenditure cascades” result.

Since we have these strong positional concerns, one’s consumption imposes a negative externality on others, and should be taxed like other externalities. The way to do this is by way of a progressive consumption tax – take income minus savings, and tax that at a progressive rate. This avoids the negative effects of income and payroll taxes (on saving and job creation). And in the long run, everyone will be richer as a result of the increases investments. This seems like a good idea regardless of what one believes about expediture cascades.

I find Frank’s thoughts very appealing. One difficulty is that many types of expenditure can be seen as investments. If I pay for education rather than saving, should that be treated as consumption? I am not sure how one would deal with that and other similar issues. But the book is definitely recommended.

Hits to both the left (tax rather than regulate; there is no conspiracy among capitalists) and right (public spending is too low, we should increase it by taxing harmful activities).

The Invisible Gorilla: How Our Intuitions Deceive Us by Christopher Chabris and Daniel Simons. Recommended.

Popular, yet rigorous, science. The care the authors take not to overstate their claims or their generality stands out in this book by experimental psychologists Christopher Chabris and Daniel Simons. The book is organized around six common cognitive illusions: 1) Attention (just because we are paying attention does not mean we notice everything); 2) Memory (memories are fragile, impacted by beliefs, perception and other things, and may be misleading); 3) Confidence (confidence is not necessarily related to skill, feedback is essential for improvement); 4) Knowledge (we believe we know more than we do, e.g. do not really know how things, machines, markets, etc work); 5) Cause (correlation is not, we see patterns and make predictions); 6) Potential (not everything have a quick and easy fix).

A very good book, though times it goes through things in too much detail, and the authors sometimes assume too little sophistication about how “we” interpret things, at least when writing about how we infer causal relationships. They also say that we have no way to know about cause-effect in the absence of an experiment, however there are other ways of identifying causal effects.

The purported cognitive benefits of su-doku, crossword puzzles etc, classical music have not shown up in rigorous studies. Research on the benefits of more advanced games have so far produced ambiguous results.

Fluency can be misleading. The book ends with a plea for thinking things through and being way about intuitions. But do look for the gorilla, it may be that we do not see one because of the illusions.

The Honor Code: How Moral Revolutions Happen by Kwawe Anthony Appiah. Appiah tells the stories of three once-pervasive but now abandoned customs – the duel in aristocratic England, foot-binding in China, and slavery – and one that is still alive – honor killings of women in Pakistan. He notes that the abandonment of these practices did not result from moral arguments alone, as they were always put forward long before. At the same time, it is not simply legislation that caused the revolutions. Collective action among families apparently was important in ending foot binding. The account the working class supporting the abolition of slavery because it degraded manual labor is very nice, but I wonder what historians think. At the end of the book I am not too much wiser on how they do happen, as the stories are quite different for the different cases, although it has to do with shifting codes of honor. I reviewed a couple of Appiahs book last month, I liked those better.

Scarcity: Why Having Too Little Means So Much by Sendhil Mullaainathan and Eldar Shafir. In contrast to other popular science books, here for once is one that acknowledges that there are trade-offs in the world-more of everything is not necessarily better. Much is quite standard for an economist used to thinking about scarce resources, here attention. The novel point is that scarcity itself is costly. Scarcity reduces “bandwith”, like a computer overloaded with running programs. An experiment with random assignment of rich and poor show how scarcity itself can be stressful and thus important beyond having fewer resources. Planning ahead is important for success-is there a difference between long-term thinkers and others? Maybe not, since find many who do not think ahead among students at good universities and other resourceful people. But there really are differences among, I would object, the question is what trait or combination of traits is more fundamental. Everyone tunnels, but it is a good idea to structure incentives well inside the tunnel. The authors recognize that we need to prioritize what to incentivize the poor to do, since every activity taxes bandwith. Effects on bandwith are important to consider and also to see as an outcome. E.g. helping a poor mother with full-day child care so she does not have to juggle so many arrangements. Allocated bandwith more important than number of hours, ref Ford and efficiency wages.

Mathletics: A Scientist Explains 100 Amazing Things About the World of Sports by John Barrow. Ok. In most cases too many simplifications or not too illumating.

Ratings and additional books are in the library.