How To Grow a City in Honduras

Friday, August 29th, 2014

Reason looks at how to grow a city in Honduras:

From Rags to Riches to Rags

Saturday, August 23rd, 2014

It is clear that the image of a static 1 and 99 percent is largely incorrect, Mark S. Rank and Thomas A. Hirschl have found:

It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution.

Yet while many Americans will experience some level of affluence during their lives, a much smaller percentage of them will do so for an extended period of time. Although 12 percent of the population will experience a year in which they find themselves in the top 1 percent of the income distribution, a mere 0.6 percent will do so in 10 consecutive years.

How much does poverty drive crime?

Friday, August 22nd, 2014

How much does poverty drive crime? Not so much. Actually, not at all:

In Sweden the age of criminal responsibility is 15, so Mr Sariaslan tracked his subjects from the dates of their 15th birthdays onwards, for an average of three-and-a-half years. He found, to no one’s surprise, that teenagers who had grown up in families whose earnings were among the bottom fifth were seven times more likely to be convicted of violent crimes, and twice as likely to be convicted of drug offences, as those whose family incomes were in the top fifth.

What did surprise him was that when he looked at families which had started poor and got richer, the younger children — those born into relative affluence — were just as likely to misbehave when they were teenagers as their elder siblings had been. Family income was not, per se, the determining factor.

That suggests two, not mutually exclusive, possibilities. One is that a family’s culture, once established, is “sticky”—that you can, to put it crudely, take the kid out of the neighbourhood, but not the neighbourhood out of the kid. Given, for example, children’s propensity to emulate elder siblings whom they admire, that sounds perfectly plausible. The other possibility is that genes which predispose to criminal behaviour (several studies suggest such genes exist) are more common at the bottom of society than at the top, perhaps because the lack of impulse-control they engender also tends to reduce someone’s earning capacity.

Practical Guidance for Prudent Students

Thursday, August 21st, 2014

Bryan Caplan offers practical guidance for prudent students deciding how much schooling to pursue:

  • Go to high school unless you’re a terrible student.
  • Go to college only if you’re a strong student or special case.
  • Don’t get a master degree unless the stars align.

Ayn Rand in the Happy Lab

Thursday, August 14th, 2014

Sonya Lyubomirsky ran an experiment where participants were given a task and then received a performance rating — and were told another participant’s performance rating, too. But — suprise! — the performance ratings weren’t related to their actual performance.

Their reaction depended on how happy they already were, before the experiment:

To analyze the data, I divided my participants into those who, before performing, reported being very happy and those who reported being relatively unhappy. When I examined the “before” and “after” data of my very happy participants, I found that those who learned that they had performed very poorly reported feeling less positive, less confident, and more sad after the study was over. Their reaction to ostensible failure was perfectly natural and not at all surprising. By contrast, the very happy participants who learned that they had performed extremely well (a 6 out of 7) subsequently felt better on all dimensions, and, notably, learning that someone did even better did not dilute the pleasure of their ostensible success.

Things turn Randian, Bryan Caplan says, when they looked at the unhappy participants, who resembled Randian villains:

The results for my unhappiest participants, however, were dramatic. Their reactions, it appears, were governed more by the reviews they had given their peers than by their own feedback. Indeed, the study paints a stark and quite unpleasant portrait of an unhappy person. My unhappiest volunteers reported feeling happier and more secure when they received a poor evaluation (but heard that their peer did even worse) than when they had received an excellent evaluation (but heard that their peer did even better). It appears that unhappy individuals have bought into the sardonic maxim attributed to Gore Vidal: “For true happiness, it is not enough to be successful oneself… One’s friends must fail.”

The remarkable persistence of power and privilege

Monday, August 11th, 2014

Andrew Leigh discusses the remarkable persistence of power and privilege:

In the case of earnings, economists’ best estimate of intergenerational elasticity went from 0.2 when they used a single year of earnings (as did the studies Gary Becker was relying on) to 0.4 when they used a few years of earnings (Gary Solon’s approach). Over the next decade, US researchers threw better and better data at the problem, and each time they found less and less mobility. Using more than a decade of earnings data, Bhashkar Mazumder estimated in 2005 that the intergenerational earnings elasticity for the United States was 0.6. That would put it higher than the father–son height elasticity. Among American sons, fathers had a larger impact on their earnings than on their stature.

Using similar techniques, researchers began estimating father–son earnings elasticities for other countries. As one survey showed, Scandinavian nations tended to be extremely mobile, with elasticities below 0.2. In Latin America, there was much less class-jumping, with elasticities over 0.5. Compared with other nations, the United States is extremely immobile, a fact that Barack Obama has thankfully switched from denying (“In no other country on earth is my story even possible”) to decrying (“It is harder today for a child born here in America to improve her station in life than it is for children in most of our wealthy allies”).

In 2006, while I was working as an economist at the Australian National University, I produced the first (and so far, only) estimates of the father–son earnings elasticity in Australia, putting the intergenerational elasticity at around 0.25. This means that a 10 per cent increase in a father’s earnings translates to a 2.5 per cent increase in his son’s earnings. My estimate implied that we are more socially mobile than the United States but not as mobile as Scandinavia. Looking back through the twentieth century, I found no evidence that we had become markedly more or less mobile.

So what does the surname approach add to our understanding of mobility? Simply put, there are two reasons for using surnames. The first is that we only have good data on earnings (from surveys or administrative records) for the relatively recent past. If we want to understand mobility in centuries gone by, surnames may be the best torch for seeing into an otherwise dark statistical corner.

The second, and more important, reason for using surnames is that they may help to take out some of the transitory fluctuations. Recall how we got more precise estimates of the intergenerational earnings elasticity when we used data that smoothed out the fluctuations in an individual’s earnings over a career? Call it the “odd year” problem. Now let’s think about a different problem: a family where the social status dips down for one generation, before reverting to the long-run average. You might call this the “black sheep” problem. By looking at surnames, we are able to look not just at single father–son pairs, but also at patterns for entire lineages.

So once we take out the odd years and black sheep, how easy is it to jump between classes? Several assumptions need to be made in order to estimate an intergenerational elasticity from surnames. But if we accept Gregory Clark’s methodology, his results imply a very static society. For Britain, the United States, India, Japan, Korea, China, Taiwan, Chile and even Sweden, he concludes that the intergenerational elasticity is between 0.7 and 0.9. This would mean that social status is at least as hereditable as height. It suggests that while the ruling class and the underclass are not permanent, they are extremely long-lasting. Erasing privilege takes not two or three generations, but ten to fifteen generations. If you cherish the notion of a society where anyone can make it, these results are disturbing.

(Hat tip to Alex Tabarrok.)

Emile Durkheim

Sunday, August 10th, 2014

Emile Durkheim was a master diagnostician of our modern ills:

Durkheim lived through the immense, rapid transformation of France from a largely traditional agricultural society to an urban, industrial economy. He could see that his country was getting richer, that Capitalism was extraordinarily productive and, in certain ways, liberating. But what particularly struck him, and became the focus of his entire career, were the psychological costs of Capitalism. The economic system might have created an entire new middle class, but it was doing something very peculiar to people’s minds. It was — quite literally — driving them to suicide in ever increasing numbers.

He isolated five crucial factors:

1. Individualism

In traditional societies, people’s identities are closely tied to belonging to a clan or a class. Their beliefs and attitudes, their work and status follow automatically from the facts of their birth. Few choices are involved: a person might be a baker, a Lutheran, and married to their second cousin — without ever having made any self-conscious decisions for themselves. They could just step into the place created for them by their family and the existing fabric of society.

But under Capitalism, it is the individual (rather than the clan, or ‘society’ or the nation) that now chooses everything: what job to take, what religion to follow, who to marry… This ‘individualism’ forces us to be the authors of our own destinies. How our lives pan out becomes a reflection of our unique merits, skills and persistence.

If things go well, we can take all the credit. But if things go badly, it is crueller than ever before, for it means there is no one else to blame. We have to shoulder the full responsibility. We aren’t just unlucky any more, we have chosen and have messed up. Individualism ushers in a disinclination to admit to any sort of role for luck or chance in life. Failure becomes a terrible judgement upon oneself. This is the particular burden of life in modern Capitalism.

2. Excessive hope

Capitalism raises our hopes. Everyone — with enough effort — can become the boss. Everyone should think big. You are not trapped by the past — Capitalism says — you are free to remake your life. Advertising stokes ambition by showing us limitless luxury that we could (if we play our cards right) secure very soon. The opportunities grow enormous…as do the possibilities for disappointment.

[...]

3. We have too much freedom

One of the complaints against traditional societies — strongly voiced in Romantic literature — was that people needed more ‘freedom’. Rebellious types complained there were far too many social norms: telling you what to wear, what you were supposed to do on Sunday afternoons, what parts of an arm it was respectable for a woman to reveal…

Capitalism — following the earlier efforts of Romantic rebels — relentlessly undermined social norms.

[...]

4. Atheism

Durkheim was himself an atheist, but he worried that religion had become implausible just as its communal side would have been most necessary to repair the fraying social fabric. Despite its factual errors, Durkheim appreciated the sense of community that religion offered: “Religion gave men a perception of a world beyond this earth where everything would be rectified; this prospect made inequalities less noticeable, it stopped men from feeling aggrieved.”

Marx had disliked religion because he thought it made people too ready to accept inequality. It was an ‘opiate’ that dulled the pain and sapped the will. But this criticism was founded on a conviction that it would not actually be too difficult to make an equal world and therefore that the opiate could be lifted without trouble.

Durkheim took the darker view that inequality would be very hard to eradicate (perhaps impossible), so we would have to learn, somehow, to live with it.

[...]

5. Weakening of the nation and of the family

In the 19th century, it had looked, at certain moments, as if the idea of the nation might grow so powerful and intense that it could take up the sense of belonging and shared devotion that once had been supplied by religion. Admittedly there were some heroic moments. In the war against Napoleon, for instance, the Prussians had developed a dramatic all-encompassing cult of the Fatherland. But the excitement of a nation at war had, Durkheim saw, failed to translate into anything very impressive in peacetime.

Cybersecurity as Realpolitik

Thursday, August 7th, 2014

Dan Geer, chief information security officer at the CIA’s venture capital arm In-Q-Tel, argues that the US government should buy all security exploits, then disclose them:

Zero-day vulnerabilities are security holes in software that are yet unknown to software makers or to antivirus firms. They’re unpatched and unprotected, leaving them open to exploit by spy agencies, criminal hackers, and others. Once the government purchases zero-days, he said, it should burn them by disclosing them. Showing all of these zero-days to the software makers so that they can be fixed would produce a dual benefit: Not only would it improve security, but it would burn our enemies’ stockpiles of exploits and vulnerabilities, making the U.S. far less susceptible to cyberattacks.

He said that paying big for zero days would improve security because it would allow hunting for vulnerabilities to be profitable without being destructive. “Once vulnerability finding became a job and not a hobby, those finding vulnerabilities stopped sharing,” he said. “When bug hunters find bugs just for fun and fame, they share the information immediately because they don’t want someone else to find it and take credit for it.” But those doing it for profit don’t share and don’t care. He proposes that the U.S. government openly corner the world market on vulnerabilities. Under such a program, the government would say, “show us a competing bid, and we’ll give you 10 times.”

(Hat tip to T. Greer.)

Social Technology

Tuesday, August 5th, 2014

The biggest paradox of today’s world is that we have rapid, constant progress in physical technologies like phones and computers, but billions of people have no access at all to good law and governance, or what you might call social technologies:

I met one trashpicker named Miriam who made her livelihood with her teenage daughter by selling plastic scraps for a dollar or two a day. She was telling me her story: the grinding poverty, the constant threat of extortion and murder by organized crime, the shooting of her husband, the sexual assaults on her daughter. In the middle of this heartbreaking story, her phone rings and she pulls out a nice smart phone, texts someone, and turns back to me like nothing happened. Miriam faces these ancient human problems of violence and poverty, yet she owns a futuristic technology like a smartphone. This haunted me for months.

Political reform is risky:

Typically, we only think that a reform has ‘failed’ when a new law or program doesn’t pass Congress. But reform, just like entrepreneurship, is full of failure. Sometimes a reform is captured by special interests and becomes like Frankenstein – some horrible creation that its inventors never wanted. Or a committee somewhere along the way destroys it. Worst of all, sometimes reformers are just mistaken and they end up ‘doing bad while trying to do good’. Political systems are complex, so it’s easy to misdiagnose a problem – just like it’s easy to design a fancy new product that no one wants to buy.

You make all these risks worse if you try to reform on the national level. Think about it: you have millions, maybe even hundreds of millions of people in this incredibly complicated social system called an economy. You hire the smartest people you can and put them in an office away from the customer: your citizens.

Then those people try to design some solution. You don’t ‘test’ anything. You don’t ‘validate’ your ideas. In the words of start-up guru Steve Blank, you never “get out of the building”. You just put some huge plan together and then impose it on millions of people.

Startup Cities reverse this logic.

Capital isn’t a thing

Sunday, August 3rd, 2014

Capital isn’t a thing, Eric Falkenstein says — it’s a ledger, a way of determining who gets the make decisions about various things, and who gets the fruits of those things:

The fact that a minority has most of the power to decide and access the fruits is a consequence of a past where individuals anticipated a future where such a ledger would continue to be valid. It’s always been popular to think, maybe we should have a jubilee, get rid of those ledgers and start again as equals! Given the power law distribution of wealth at all times such a proposal is perennially popular to those ignorant of history. Yet, if you do this every period, capital isn’t owned by any individual, and so would be completely mismanaged as happens in societies without stable property rights. If you do this at all you can expect an immediately higher default premium which would make an economy undercapitalized. Luckily, our Founding Fathers specifically anticipated these problems and so emphasized the republican nature of our government, not making everything a democratic process.

All Men Seek to Rule

Saturday, August 2nd, 2014

Status-seeking is a human universal, Eric Falkenstein reminds us:

The anthropologist Harold Schneider studied hunter gatherers and noted they had an almost absence of hierarchy, which he saw as the resulting from the maxim that ‘all men seek to rule, but if they cannot, they seek to be equal.’ It’s a reasonable solution for a society without division of labor.  Unfortunately many progressives see the world the same way, and thus like the Rawlsian solution that everyone has the same outcome regardless of one’s talents or wealth. Now, that’s fine for a camping trip, but in modern society unnecessarily.

Reality shows like Top Chef, Project Ink, Project Runway, or Deadliest Catch show people passionate about activities I do not care about in the least, all private sector jobs. With thousands of different remunerative specialties that complement each other, this allows us to focus and then trade with others to get the benefits of other’s specialization focus. In modernity status isn’t limited to one dimension, and so you can be an important part of something bigger than yourself without joining a religion: you are part of a complex network of specialists in a market economy of individuals maximizing their status in their own individual way.

Everyone wants to live on in the future in some way, as part of heaven or something worldly that needed or at least appreciated you. If you obey the laws and social norms, including The Golden Rule, and generate more revenue than you cost, you are making your tribe better off. The egalitarian solution where we have a single-payer state for everything has no risk, but like Hegel’s farmer, promises little potential for self-actualization or what the Greeks called arête (‘excellence’), which in the modern world is consistent with specialization, trade, and productivity growth (arête incents one to do things better than before).  We shouldn’t base our norms on hunter gatherers, which is why most people don’t.

Not More, Better

Friday, August 1st, 2014

The government spends about 35% of GDP in the US today, Eric Falkenstein notes, and heavily regulates the rest:

It would be far better if, instead of thinking about new tricky ways to squeeze the rich, we instead set government spending to some fraction (say 35%) of the past 5 years of GDP and no more. The endless arguments about the level would stop, and it’s interesting to note that over the past 30 years in the US federal revenues as a percent of GDP has been remarkably consistent across various administrations. By using a moving average of historical GDP this would make spending countercyclical, most importantly instead of politicians being elected for their ability to promise ‘more’ they would instead focus on ‘better.’ That is, it would be nice if the politicians argued about better ways to allocate spending rather than about more or less in aggregate; the net result of the ‘more’ approach has been those who are good at articulating why we need more find they have no idea how to spend it, as when the government had $800B to spend in stimulus, most of it simply went to shoring up state budgets, meaning, state pension deficits, which is just an income transfer to state employees from future taxpayers.

Meditations On Moloch

Thursday, July 31st, 2014

Scott Alexander presents his meditations on Moloch, referring to Allen Ginsberg’s Howl:

What has always impressed me about this poem is its conception of civilization as an individual entity. You can almost see him, with his fingers of armies and his skyscraper-window eyes…

A lot of the commentators say Moloch represents capitalism. This is definitely a piece of it, definitely even a big piece. But it doesn’t exactly fit. Capitalism, whose fate is a cloud of sexless hydrogen? Capitalism in whom I am a consciousness without a body? Capitalism, therefore granite cocks?

Moloch is introduced as the answer to a question — C. S. Lewis’ question in Hierarchy Of Philosophers — what does it? Earth could be fair, and all men glad and wise. Instead we have prisons, smokestacks, asylums. What sphinx of cement and aluminum breaks open their skulls and eats up their imagination?

And Ginsberg answers: Moloch does it.

There’s a passage in the Principia Discordia where Malaclypse complains to the Goddess about the evils of human society. “Everyone is hurting each other, the planet is rampant with injustices, whole societies plunder groups of their own people, mothers imprison sons, children perish while brothers war.”

The Goddess answers: “What is the matter with that, if it’s what you want to do?”

Malaclypse: “But nobody wants it! Everybody hates it!”

Goddess: “Oh. Well, then stop.”

The implicit question is — if everyone hates the current system, who perpetuates it? And Ginsberg answers: “Moloch”. It’s powerful not because it’s correct — nobody literally thinks an ancient Carthaginian demon causes everything — but because thinking of the system as an agent throws into relief the degree to which the system isn’t an agent.

Bostrom makes an offhanded reference of the possibility of a dictatorless dystopia, one that every single citizen including the leadership hates but which nevertheless endures unconquered. It’s easy enough to imagine such a state.

Democracy in Moderation

Wednesday, July 30th, 2014

Democracy, like all things, is good only in moderation, Eric Falkenstein says — it is a means and not an end:

Taken to an extreme it is highly dysfunctional, as decisions are not helped by making them mass plebiscites or town hall meetings.  Go to a school board meeting and watch how quickly thoughtful discussions get sidetracked. Philip Howard’s Rule of Nobody outlines an interesting consequence to increasing public participation in big decisions. As the number of stakeholders grows each interest group seeks its own group’s ends without moderation, they are single-issue advocates nobly advancing their righteous cause (e.g., Native Americans, aquifers, unions), and so veto action unless they are basically paid-off. The result is that usually nothing happens, and so the days when we could build the interstate highway system, the Hoover Dam, or the Empire State Building in only a year, are over.  Small ‘d’ democratic control of property leads to stasis, why government spending today is mainly on transfer payments and studies, not roads and bridges.

Intellectuals should run everything as the vanguard of the people

Tuesday, July 29th, 2014

Liberals consider Piketty’s book a must-read, but only, Eric Falkenstein says, because, like Marx’s Capital, it’s a great safety blanket for Liberal prejudices:

The end-game is exactly what progressive conventional wisdom (e.g., the common New York Times or Harvard professor view) has been preaching for over 50 years: enlarge the state. The key point is a highly credentialed academic wrote a long book proving that some abstruse mathematical inequality (r>g) implies we need to raise taxes on the rich and regulate wealth more democratically. It’s really the debating tactic called ‘spreading’, which is top put forth so many arguments, none sufficient or necessary, that you can always claim victory. For example I could question his many empirical assertions, such as how could German inflation have averaged only 14% from 1913-1950 (p. 545) given inflation was 10^10 in 1923, or how depreciation affects his r/g=C/I steady state equilibrium, but that would leave another 20 assertions unstained, and so those who want to euthanize renteirs can retain faith in their big picture.

Piketty is a modern progressive, best defined as someone who thinks intellectuals should run everything as the vanguard of the people, which is why academics, journalists, and writers are predominantly progressive. Hayek noted that scribes have always been egalitarian, probably always lamenting the fact that the idiots in power don’t write nearly as well as them, and thus, are objectively less qualified but via some tragic flaw in the universe, end up in power. It forms the common reverse dominance hierarchy so common today, where obsequious, hypocritical yet articulate and confident leaders pander to the masses and rule via democracy, focusing their envious eyes on those who aren’t interested in that game, such as those concerned with business, religion, or their own family. As Piketty notes, “if we are to regain control of capitalism we must bet everything on democracy” (p. 573), he says from his inegalitarian and very undemocratic position at the Paris School of Economics.

It never occurs to them that the main problem with subjecting markets to democratic control is that those who end up wielding power will be incompetent or tyrannical, and that ‘the people’ have never ruled directly, only their various proxies. Every totalitarian government of the 20th century has rested on at least the perception of massive popular support, which is why they have all ruled in the name of The People. An unchecked democracy becomes mob rule, which becomes tyrannical and highly illiberal, why the Founding Fathers, so familiar with Greek history, were careful to put checks and balances in the US constitution and emphasize the republican nature of government.