Rory Sutherland

Sunday, July 24th, 2016

Rory Sutherland is an ad man and entertaining raconteur:

An expert on fighting poverty makes the case against a universal basic income

Wednesday, July 20th, 2016

Notice how “an expert on fighting poverty” makes the case against a universal basic income:

I began to get particularly concerned when I began to see, in recent years, the emergence of this notion of going to UBI through a left-right coalition — of which a key building block, for the right, is eliminating most or all means-tested programs. It was at that point that I got much more heavily engaged again. I found that a lot of my fellow progressives did not fully appreciate or understand that that could well move us backward on poverty and inequality, rather than forward.

[...]

Among my fears of UBI is that given US political culture, if we ever got to a form of UBI in the first place (which I think is extremely unlikely), I think the odds are high that it would exclude people who have no earnings and have no work record.

How Viennese Culture Shaped Austrian Economics

Tuesday, July 19th, 2016

Erwin Dekker explores how Viennese culture shaped Austrian economics:

What if the coffeehouse culture of the Viennese circles, the decline of the Habsburg Empire, the failure of Austrian liberalism, the rise of socialism and fascism, and the ironic distance at which the Viennese observed the world, are all essential to understanding what the school was about? It would be exciting to discover that the Vienna of Gustav Mahler, Ludwig Wittgenstein, Sigmund Freud, Gustav Klimt, and Adolf Loos, would also be the Vienna of Carl Menger, Ludwig von Mises, and Friedrich Hayek. And if that is so, how would that change how we think about this school and about the importance of cultural contexts for schools of thoughts more generally?

[...]

The hands-off attitude first practiced at the Viennese Medical School, where it was called therapeutic skepticism, spread among intellectuals. They dissected a culture which was coming to an end, without seemingly worrying too much about it. As one commentator wrote about this attitude “nowhere is found more resignation and nowhere less self-pity.”¹ One American proponent of the Viennese medical approach even called it the ‘laissez-faire’ approach to medicine.² The therapeutic skepticism, or nihilism as the critics called it, bears strong resemblance to the Austrian school’s skepticism of the economic cures propounded by the government. Some of the Austrian economists, for instance, have the same ironic distance, in which the coming of socialism is lamented, but at the same time considered inevitable. That sentiment is strongest in Joseph Schumpeter. But one can also find it in Ludwig von Mises, especially in his more pessimistic writings. In 1920, for example, he writes: “It may be that despite everything we cannot escape socialism, yet whoever considers it an evil must not wish it onward for that reason.”³

That same resignation, however, is put to the test in the 1930’s when Red Vienna, the nickname the city was given when it was governed by the Austro-Marxists, becomes Black Vienna, the nickname it was given under fascism. The rise of fascism posed an even greater threat to the values of the liberal bourgeois, and at the same time it demonstrated that socialism might not be inevitable after all. One of my book’s major themes is the transformation from the resigned, and at times fatalistic, study of the transformation of the older generation, to the more activist and combatant attitude of the younger generation. Friedrich Hayek, Karl Popper, Peter Drucker as well as important intellectual currents in Vienna start to oppose, and defend the Habsburg civilization from its enemies. That is one of the messages of Freud’s Civilization and its Discontents, of Hermann Broch’s novel The Death of Virgil, of Malinowski’s Civilization and Freedom, of Hayek’s The Road to Serfdom, Drucker’s The End of Economic Man, and of course Popper’s The Open Society and its Enemies. It is also the message of the most famous book of the period on civilization The Civilizing Process by the German sociologist Norbert Elias. These intellectuals fight the fatalism and the acceptance of decline, and instead start to act as custodians or defenders of civilization.

In the process the relationship between natural instincts, rational thought, and civilization undergoes a major transformation. Civilization? — ?our moral habits, customs, traditions, and ways of living together ?— ?is no longer believed to be a natural process or a product of our modern rational society. Rather, it is a cultural achievement in need of cultivation and at times protection. Civilization is a shared good, a commons, which can only be sustained in a liberal culture, and even there individuals will feel the ‘strain of civilization’ as Popper put it. That is the strain of being challenged, of encountering those of different cultures, and of carrying the responsibility for our own actions. Hayek adds the strain of accepting traditions and customs which we do not fully understand (including the traditions and customs of the market). Similar arguments are made by Freud and Elias.

Our Dumb World

Tuesday, July 12th, 2016

As far as average IQ scores go, Gregory Cochran notes, this is what the world looks like:

national_iq_per_country_-_estimates_by_lynn_and_vanhanen_2006

But there are two relevant tests: the Stanford-Binet, and life itself. If a country scored low on IQ but at the same time led the world in Cavorite production, or cured cancer, or built spindizzies, we would say “screw Stanford-Binet”, and we would be right to do so.

Does that happen? Are there countries with low average scores that tear up the technological track? Mostly not – generally, fairly high average IQ seems to be a prerequisite for creativity in science and mathematics. Necessary, although not sufficient: bad choices (Communism), having the world kick you in the crotch (Mongols), or toxic intellectual fads can all make smart peoples unproductive.

[...]

You could improve the situation, raise the average, by selection for IQ. But that takes a long time, and I know of no case where it was done on purpose. You could decrease inbreeding, for example by banning cousin marriage. That only takes one generation. You could make environmental improvements, iodine supplementation being the best understood. People assume that there are a lot of other important environmental variable, but I sure don’t know what they are. In practice the rank ordering of populations seem to be the same everywhere, which is not what you would expect if there were strong, malleable environmental influences.

Is it easy to notice such differences? Well, for ordinary people, it’s real easy. Herero would ask Henry why Europeans were so smart – he said he didn’t know. But with the right education, it apparently becomes impossible to see. Few anthropologists know that such differences exist and even fewer admit it. I’m sure that most have never even read any psychometrics – more importantly, they ignore their lying eyes. Economists generally reject such explanations, which is one reason that they find most of the Third World impossible to understand. I must give credit to Garret Jones, who is actually aware of this general pattern. Sure, he stepped on the dick of his own argument there at the end of his book, but he was probably lying, because he had to. Sociologists? It is to laugh.

Generally, you could say that the major job of social science is making sure that people do not know this map. Not knowing has its attractions: practically every headline is a surprise. The world must seem ever fresh and new to the dis-illuminati – something like being Henry Molaison, who had his hippocampus removed by a playful neurosurgeon and afterwards could not create new explicit memories.

So when we tried a new intervention aimed at eliminating the GAP, and it failed, Molaison was surprised, even if 47 similar programs had already failed. Neurologically, he was much like a professor of education.

Intergenerational Income Immobility

Sunday, July 10th, 2016

By tracking family names over generations, Gregory Clark revealed that social mobility rates are lower than conventionally estimated, do not vary across societies, and are resistant to social policies.

Guglielmo Barone and Sauro Mocetti found this to be true of Florence, too:

We focus on the Italian city of Florence, for which data on taxpayers in 1427 – including surnames, occupations, earnings, and wealth – have been digitalised and made available online. We matched these data with those taken from the tax records relating to the city of Florence in 2011. Family dynasties are identified by surnames. Table 1 offers a first flavour of our results.

Florence Surnames, Occupations, Earnings, and Wealth

We report for the top five and bottom five earners among current taxpayers (at the surname level) the modal value of the occupation and the percentiles in the earnings and wealth distribution in the 15th century (the surnames are replaced by capital letters for confidentiality). The top earners among the current taxpayers were already at the top of the socioeconomic ladder six centuries ago – they were lawyers or members of the wool, silk, and shoemaker guilds; their earnings and wealth were always above the median. In contrast, the poorest surnames had less prestigious occupations, and their earnings and wealth were below the median in most cases.

(Hat tip to Arnold Kling.)

Four Months as a Private Prison Guard

Wednesday, July 6th, 2016

Shane Bauer went undercover as a prison guard for Mother Jones, with the goal of attacking private prisons.

The system clearly has some incentive problems:

If he were sent to the hospital, CCA would be contractually obligated to pay for his stay. For a for-profit company, this presents a dilemma. Even a short hospital stay is a major expense for an inmate who brings the company about $34 per day. And that’s aside from the cost of having two guards keep watch over him. Medical care within the prison is expensive, too. CCA does not disclose its medical expenses, but in a typical prison, health care costs are the second-biggest expense after staff. On average, a Louisiana prison puts 9 percent of its budget toward health care. In some states it can be much higher; health care is 31 percent of a California prison’s budget. Nearly 40 percent of Winn inmates have a chronic disease such as diabetes, heart disease, or asthma, according to Louisiana’s budget office. About 6 percent have a communicable disease such as HIV or hepatitis C.

Even prisoners want good governance:

“CCA is not qualified to run this place,” an inmate shouts to me a day into the lockdown. “You always got to shut the place down. You can’t function. You can’t run school or nothing because you got everybody on lockdown.”

Another inmate cuts in. “Since I been here, there’s been nothing but stabbings,” he says. “It don’t happen like this at other prisons because they got power. They got control. Ain’t no control here, so it’s gonna always be something happening. You got to start from the top to the bottom, you feel me?”

It’s still shocking that they allow female prison guards in a male prison:

In interviews with staff, the DOC learned that staff members had been “bringing in mountains and mountains of mojo” — synthetic marijuana — and having sex with inmates. “One person actually said that they trusted the inmates more than they trusted me, the warden. One staff member said, ‘The inmate made me feel pretty. Why wouldn’t I love him? Why wouldn’t I bring him things he needs because you all won’t let him have it?’”

Researchers Examine Family Income And Children’s Non-Cognitive Skills

Tuesday, July 5th, 2016

Why do children of the successful do better than children of the unsuccessful?

VEDANTAM: Well, we’ve known for a very long time that family income really matters. This could be because schools in richer neighborhoods are better schools. But it could also be that rich parents are able to give their children more learning opportunities outside of school. I was speaking with the economist Barbara Wulf. She’s at the University of Wisconsin. Along with Jason Fletcher, she recently decided to explore another explanation. She asked if income disparities might also be linked to disparities in what are sometimes called non-cognitive skills. Many researchers think that it’s these skills that undergird not just academic performance in school but a host of other abilities later in life, including in the workplace. Here’s Wulf.

BARBARA WULF: When we think about who is a good employee and who’s likely to succeed in the workplace, you hear a lot of attention paid to these what I’ll call non-cognitive skills. So they pay attention, they are persistent, they are eager. So they have a set of characteristics that make them good employees.

GREENE: OK. So people who have these non-cognitive skills – better employees. But tie this to American education and sort of the income disparity.

VEDANTAM: Wulf and Fletcher analyzed data from a national survey, David, that tracked children from kindergarten through the fifth grade. The survey data allowed the researchers to track the effects of family income on what parents and teachers were reporting about these children as they went through elementary school. The researchers find there’s a very strong correlation between family income and these non-cognitive skills. In other words, when it comes to being cooperative or dealing with conflict productively, children from wealthier families on average seem to have more of these skills than children from poorer families.

GREENE: OK. So this is actually making the connection. We’ve always known that there’s this income disparity. Now we’re sort of understanding that income disparity might be because if you’re less affluent, I mean, you’re just not developing these skills you’re talking about.

“NPR searches valiantly, blindfolded,” in Charles Murray‘s words.

Unsafe Cars Can Save Lives

Sunday, June 26th, 2016

The London-based Global New Car Assessment Program tested seven cars made for the Indian market and handed five of them — the Renault Kwid, Maruti Suzuki Celerio, Maruti Suzuki Eeco, Mahindra Scorpio, and Hyundai Eon — a rating of zero stars out of five for adult safety. This leads Alex Tabarrok to remind us that unsafe cars can save lives:

These cars are very inexpensive. A Renault Kwid, for example, can be had for under $4000. In the Indian market these cars are competing against motorcycles. Only 6 percent of Indian households own a car but 47% own a motorcycle. Overall, there are more than five times as many motorcycles as cars in India.

Motorcycles are also much more dangerous than cars.

The [U.S] federal government estimates that per mile traveled in 2013, the number of deaths on motorcycles was over 26 times the number in cars.

Similar ratios are found in the UK and Australia. I can think of several reasons why the ratio might be lower in India–lower speeds, for example, but also several reasons why the ratio might be higher (see picture).

Indian Family on Motorcycle

The GNCAP worries that some Indian cars don’t have airbags but forgets that no Indian motorcycles have airbags. Even a zero-star car is much safer than a motorcycle. Air bags cost about $200-$400 (somewhat older estimates here a, b, c) and are not terribly effective. (Levitt and Porter, for example, calculated that air bags saved 550 lives in 1997 compared to 15,000 lives saved by seatbelts.) At $250, airbags would increase the cost of a $5,000 car by 5%. A higher price for automobiles would reduce the number of relatively safe automobiles and increase the number of relatively dangerous motorcycles and thus an air bag requirement could result in more traffic fatalities.

Low-Road Narrative

Monday, June 20th, 2016

Los Angeles failed to keep up with its neighbor to the north:

Unlike the Bay Area, which pursued a “high wage specialization strategy,” Los Angeles, in the interest of social justice, deliberately focused on lower- and middle-tier economic sectors. “Los Angeles’s leaders generated a low-road narrative for themselves, while Bay Area leadership coalesced around a high-road vision for their region,” they write. Such decisions have consequences, many of which are demographic. Had Los Angeles followed the same path as San Francisco, Southern California would have attracted far fewer working-class Latinos. The authors don’t directly state this, but it’s a clear implication of their findings. It’s logical to conclude that any region looking to replicate San Francisco’s success should take an exclusively high-end focus — social justice be damned.

(Hat tip to Battery Horse.)

Keeping out swarms of poor immigrants

Sunday, June 19th, 2016

The socially acceptable way to keep out swarms of poor immigrants is the Northern Californian liberal way, Steve Sailer explains: “environmentalism, unionism, historical preservationism, NIMBYism — indeed, the whole panoply of Democratic Party policies at the state and local level.”

The Greatest Archimedian Lever

Friday, June 17th, 2016

Bryan Caplan explores the value of history — to his sons:

Today my homeschooled sons are taking the Advanced Placement United States History Exam.  I took the exam when I was 17.  They are 13.  Given how often I deride the practical value of history in The Case Against Education, you could fairly ask, “What’s the point?”  Signaling is the easy answer.  Anyone can be homeschooled, but only a select minority can ace an A.P. test.  Strong A.P. scores are especially impressive if you’re years younger than your competitors.

But that’s hardly the whole story.  After all, we could have done other A.P.s instead.  So why history?  To be blunt: While I think history is a waste of time for 99% of people, I think my sons are in the other 1%.  They aren’t just highly intelligent; they’re good students.  More specifically:

1. Unlike almost everyone, my sons are interested in being social scientists.  And while the historically ignorant certainly can succeed in social science, you can’t be a good social scientist without broad, deep historical knowledge.  Can’t!

2. As you age, you lose your ability to master and retain large bodies of facts.  The best way to durably learn history – like foreign language – is to learn it young.  I acquired 90% of my historical knowledge between the ages of 10 and 20.  So age 13 seems like an ideal time for this task.

3. Unlike almost everyone, my sons genuinely enjoy learning about history.  (I was the same way).  As I’ve argued elsewhere, this is the crucial ingredient that transforms otherwise useless learning into a merit good.

4. The APUSH is a fantastic exam.  If a test can teach a person “how to think,” the APUSH is such a test.  If you’ve got 195 minutes to spare, take it.

5. To be honest, I’m not convinced any test actually can teach anyone how to think.  That’s why #4 says If.  Nevertheless, I am convinced that people who will ultimately learn how to think can learn how to think sooner.  How?  By practicing intellectually demanding tasks.  Since my sons are in the select category of people who will ultimately learn how to think, I have sped them toward their potential.

I was a bit surprised by his second and fourth points. I’ve certainly learned far more history on my own, as an adult, than I ever learned in school. And I didn’t realize the AP US History exam was especially good.

Michael Strong doesn’t think so highly of it:

Most AP US History preparatory materials, and often sample exams, propound a straightforward progressive narrative of American history: The robber barons, promoting an evil laissez-faire system, were happily overcome by the muckrakers and Teddy Roosevelt. The rise of progressive legislation saved Americans from suffering and misery. The Great Depression was caused, in part, by inequality. FDR’s activist government saved the US after Hoover’s attachment to laissez-faire almost destroyed us. Etc.

I see the AP US History program as the single greatest obstacle to economic literacy in the US. Many (most?) of our elite students take it in preparation for college admissions. It provides a powerful morality tale that is sanctioned as absolute truth by the College Board.

Later courses in economics, either at university or in summer programs such as those by IHS and FEE, may counteract some of the damage done. But I suspect more students take the US AP exam than take economics courses. Moreover, most economics courses come across as dry problem-solving rather than an inspiring moral narrative. Moreover, they rarely address economic history at all. The number of students who actually take a course in U.S. economic history, to address the many economic fallacies in the progressive narrative, is vanishingly small.

Add to this university history departments that mostly emphasize and elaborate on the progressive morality tale in US history. The result is that most college graduates continue to believe that laissez-faire was harmful to the working class, that heroic reformers improved conditions through legislation, the Great Depression was caused by inequality, etc.

Reform of the AP US History program, if it were possible, might arguably be the greatest Archimedian lever available to libertarians. Imagine a world in which instead of social signaling among intellectuals consisted not of “I’m more progressive than thou,” but rather “I don’t make idiotic mistakes regarding economic history or economics.”

Foragers and Farmers

Wednesday, June 15th, 2016

Spandrell shares an interesting tweet by a Japanese academic about foragers and farmers:

History shows that when humans moved from foraging into farming, this allowed for people who did not need to engage in hunting (bureaucrats, scholars, warriors, etc.), which vastly expanded the range of human activity.

Nowadays we force professionals to do sales, to participate in long meetings, to type their own reports and other paperwork, which is the same as forcing everybody to engage in hunting. We are going backwards.

Owned Markets

Tuesday, June 14th, 2016

The modern market is not made for the average man, Free Northerner argues, but is instead made for the soulless, high-IQ, homo economicus. So, what do we replace it with?

We can not replace it with socialism, communism, or the like, for those systems lead to misery. Distributism looks nice, but is light on details and is unlikely to scale to large urban populations. It is undisputable that free markets are the most effective and efficient means of producing goods and services, but modern free markets are based on the abominations of usury and inflation, and destroys traditional communities and leave those humans not suited for inhuman money-grubbing frozen out.

So, where can we get a system that is a combination of efficient, just (in the proper sense, not in the evil ‘social justice’ sense), and human?

[...]

The problem with free markets though, is that they are free. Libertarians and conservatives do not take their thoughts as fully forward as they should. We can privatize all the goods and services on the market, but that leaves one question, what of the market itself?

The lib/cons wish to privatize everything but the market itself, leaving the market as its own commons. They than argue the socialist argument that the market, and the contracts that it consists of, should be enforced and controlled by the public through the complex social scheme called the government. Of course, the government tends to snowball out of control, and the lib/cons are suprised when a formerly free market country becomes a socialist state.

The solution then, is to privatize markets themselves. We need not free markets, which are subject to the plundering all commons are subject to, but owned markets, markets which are privately owned and controlled for the profit of the owner.

Whatever Happened to the Work Ethic?

Sunday, June 5th, 2016

Our national discussion about how to fix capitalism seems limited to those who believe that more government will fix the problem and those who think that free markets will fix themselves, Steve Malanga laments:

The genius of America in the early nineteenth century, Tocqueville thought, was that it pursued “productive industry” without a descent into lethal materialism. Behind America’s balancing act, the pioneering French social thinker noted, lay a common set of civic virtues that celebrated not merely hard work but also thrift, integrity, self-reliance, and modesty — virtues that grew out of the pervasiveness of religion, which Tocqueville called “the first of [America’s] political institutions,… imparting morality” to American democracy and free markets. Some 75 years later, sociologist Max Weber dubbed the qualities that Tocqueville observed the “Protestant ethic” and considered them the cornerstone of successful capitalism. Like Tocqueville, Weber saw that ethic most fully realized in America, where it pervaded the society. Preached by luminaries like Benjamin Franklin, taught in public schools, embodied in popular novels, repeated in self-improvement books, and transmitted to immigrants, that ethic undergirded and promoted America’s economic success.

What would Tocqueville or Weber think of America today? In place of thrift, they would find a nation of debtors, staggering beneath loans obtained under false pretenses. In place of a steady, patient accumulation of wealth, they would find bankers and financiers with such a short-term perspective that they never pause to consider the consequences or risks of selling securities they don’t understand. In place of a country where all a man asks of government is “not to be disturbed in his toil,” as Tocqueville put it, they would find a nation of rent-seekers demanding government subsidies to purchase homes, start new ventures, or bail out old ones. They would find what Tocqueville described as the “fatal circle” of materialism — the cycle of acquisition and gratification that drives people back to ever more frenetic acquisition and that ultimately undermines prosperous democracies.

And they would understand why. After flourishing for three centuries in America, the Protestant ethic began to disintegrate, with key elements slowly disappearing from modern American society, vanishing from schools, from business, from popular culture, and leaving us with an economic system unmoored from the restraints of civic virtue. Not even Adam Smith — who was a moral philosopher, after all — imagined capitalism operating in such an ethical vacuum. Bailout plans, new regulatory schemes, and monetary policy moves won’t be enough to spur a robust, long-term revival of American economic opportunity without some renewal of what was once understood as the work ethic — not just hard work but also a set of accompanying virtues, whose crucial role in the development and sustaining of free markets too few now recall.

How to Build an Economic Model in Your Spare Time

Sunday, May 22nd, 2016

Hal Varian explains how to build an economic model in your spare time:

In reality the process is much more haphazard than my description would suggest — the model of research that I describe is an idealization of reality, much like the economic models that I create. But there is probably enough connection with reality to make the description useful — which I hope is also true for my economic models.

The first step is to get an idea. This is not all that hard to do. The tricky part is to get a good idea. The way you do this is to come up with lots and lots of ideas and throw out all the ones that aren’t good.

[...]

The first test is to try to phrase your idea in a way that a non-economist can understand. If you can’t do this it’s probably not a very good idea. If you can phrase it in a way that a noneconomist can understand, it still may be a lousy idea, but at least there’s hope.

Before you start trying to decide whether your idea is correct, you should stop to ask whether it is interesting. If it isn’t interesting, no one will care whether it is correct or not.

[...]

One of the primary purposes of economic theory is to generate insight. The greatest compliment is “Ah! So that explains it!” That’s what you should be looking for — forget about the “nice solid work” and try to become a Wizard of Ahs.

[...]

Write down the simplest possible model you can think of, and see if it still exhibits some interesting behavior. If it does, then make it even simpler.

Several years ago I gave a seminar about some of my research. I started out with a very simple example. One of the faculty in the audience interrupted me to say that he had worked on something like this several years ago, but his model was “much more complex”.

I replied “My model was complex when I started, too, but I just kept working on it till it got simple!”