Elite Overproduction

Thursday, November 21st, 2013

Peter Turchin describes elite overproduction to the Bloomberg audience:

Past waves of political instability, such as the civil wars of the late Roman Republic, the French Wars of Religion and the American Civil War, had many interlinking causes and circumstances unique to their age. But a common thread in the eras we studied was elite overproduction. The other two important elements were stagnating and declining living standards of the general population and increasing indebtedness of the state.

Elite overproduction generally leads to more intra-elite competition that gradually undermines the spirit of cooperation, which is followed by ideological polarization and fragmentation of the political class. This happens because the more contenders there are, the more of them end up on the losing side. A large class of disgruntled elite-wannabes, often well-educated and highly capable, has been denied access to elite positions. Consider the Antebellum U.S.

From 1830 to 1860 the number of New Yorkers and Bostonians with fortunes of at least $100,000 (they would be multimillionaires today) increased fivefold. Many of these new rich (or their sons) had political ambitions. But the government, especially the presidency, Senate and Supreme Court, was dominated by the Southern elites. As many Northerners became frustrated and embittered, the Southerners also felt the pressure and became increasingly defensive.

Slavery had been a divisive force since the inception of the Republic. For 70 years, the elites always managed to find a compromise. During the 1850s, however, intra-elite cooperation unraveled. On several occasions Congress was on the brink of a general shootout. (As one senator noted about his “armed and dangerous” colleagues, “The only persons who do not have a revolver and a knife are those who have two revolvers.”)

Although slavery was the overriding issue dividing the elites, they also differed over tariffs and cultural attitudes toward immigration. In the decade before the Civil War these centrifugal forces tore apart the two-party system. The Democratic Party split into its Northern and Southern factions, while the Whigs simply disintegrated.

Slavery was an absolute evil and was going to be abolished, sooner or later. But its abolition didn’t need to result in hundreds of thousands of Civil War deaths. (About the same time, Russia banned serfdom without a civil war. The Russian Revolution came 50 years later — when Russia was hit by its own elite overproduction.)

This U.S. historical cycle didn’t end with the cataclysm of the Civil War. Huge fortunes were made during the Gilded Age and economic inequality reached a peak, unrivaled even today. The number of lawyers tripled from 1870 to 1910. And the U.S. saw another wave of political violence, spiking in 1919–21.

This was the worst period of political instability in U.S. history, barring the Civil War. Class warfare took the form of violent labor strikes. At one point 10,000 miners armed with rifles were battling against thousands of company troops and sheriff deputies. There was a wave of terrorism by labor radicals and anarchists. Race issues intertwined with class, leading to the Red Summer of 1919, with 26 major riots and more than 1,000 casualties. It was much, much worse than the 1960s and early 1970s, a period many of us remember well because we lived through it.

This suggests that political offices should represent a certain number of people or a certain amount of tax revenue, rather than a certain geographical region (of fixed size).

Or that political power and prestige should somehow be limited.

Posted in Economics, Policy | 2 Comments »

Inequality is here to stay

Tuesday, November 12th, 2013

There are three main reasons inequality is here to stay, Tyler Cowen argues:

The first is just measurement of worker value. We’re doing a lot to measure what workers are contributing to businesses, and, when you do that, very often you end up paying some people less and other people more.

The second is automation — especially in terms of smart software. Today’s workplaces are often more complicated than, say, a factory for General Motors was in 1962. They require higher skills. People who have those skills are very often doing extremely well, but a lot of people don’t have them, and that increases inequality.

And the third point is globalization. There’s a lot more unskilled labor in the world, and that creates downward pressure on unskilled labor in the United States. On the global level, inequality is down dramatically — we shouldn’t forget that. But within each country, or almost every country, inequality is up.

Posted in Economics | 7 Comments »

Fair Prices in Venezuela

Monday, November 11th, 2013

Thousands of Venezuelans lined up outside of Daka stores — their equivalent of Best Buy — after the socialist government forced the company to charge customers “fair” prices:

President Nicolás Maduro ordered a military “occupation” of the company’s five stores as he continues the government’s crackdown on an “economic war” it says is being waged against the country, with the help of Washington.

[...]

Maduro faces municipal elections on Dec. 8. His popularity has dropped significantly in recent months, with shortages of basic items such as chicken, milk and toilet paper as well as soaring inflation, at 54.3% over the past 12 months.

[...]

“This is for the good of the nation,” Maduro said. “Leave nothing on the shelves, nothing in the warehouses … Let nothing remain in stock!”

The president was accompanied on television by images of officials checking prices of 32-inch plasma televisions.

Daka’s store managers, according to Maduro, have been arrested and are being held by the country’s security services. Neither Daka nor the government responded to requests for comment.

Maduro has long blamed the opposition for waging an economic war on the country though critics are adamant that government price controls, enacted by Chávez a decade ago, are the real cause for the dire state of the economy.

With such a shortage of hard currency for importers and regular citizens, dollars sell on the black market for nine times their official, government-set value. Prices, at shops such as Daka, are set according to this black market, hence the government’s crackdown.

Chávez often theatrically expropriated or seized assets from more than 1,000 companies during his 14-year tenure. This, among other difficulties for foreign firms, led to a severe lack of foreign investment in the country which, according to OPEC, has the world’s largest oil reserves.

I couldn’t make that up.

Posted in Economics, Policy | 2 Comments »

The Evolution of Private Property

Monday, November 11th, 2013

Bryan Caplan deems Herb Gintis’ “The Evolution of Private Property” one of the most fascinating articles he’s read in years.

Private property depends on the endowment effect — our tendency to value our stuff extra just because it’s ours — which is widespread in nature:

Among the many animal behaviorists who put this theory to the test, perhaps none is more elegant and unambiguous than Davies, who studied the speckled wood (Pararge aegeria), a butterfly found in the Wytham Woods, near Oxford, England. Territories for this butterfly are shafts of sunlight breaking through the tree canopy. Males occupying these spots enjoyed heightened mating success, and on average only 60% of males occupied the sunlit spots at any one time. A vacant spot was generally occupied within seconds, but an intruder on an already occupied spot was invariably driven away, even if the incumbent had occupied the spot only for a few seconds. When Davies “tricked” two butterflies into thinking each had occupied the sunny patch first, the contest between the two lasted, on average, ten times as long as the brief flurry that occurs when an incumbent chases off an intruder.

[...]

In general, the taking of an object held by another individual is a rare event in primate societies (Torii, 1974). A reasonable test of the respect for property in primates with a strong dominance hierarchy is the likelihood of a dominant individual refraining from taking an attractive object from a lower-ranking individual. In a study of hamadryas baboons (Papio hamadryas), for instance, Sigg and Falett (1985) hand a food-can to a subordinate who was allowed to manipulate and eat from it for 5 min before a dominant individual who had been watching from an adjacent cage was allowed to enter the subordinate’s cage. A “takeover” was defined as the rival taking possession of the can before 30 min had elapsed. They found that (a) males never took the food-can from other males; (b) dominant males took the can from subordinate females 2/3 of the time; (c) dominant females took the can from subordinate females 1/2 of the time. With females, closer inspection showed that when the difference in rank was one or two, females showed respect for the property of other females, but when the rank difference was three or greater, takeovers tended to occur.

[...]

Consider, for instance, the sparrows that built a nest in a vine in my garden. The location is choice, and the couple spent days preparing the structure. The nest is quite as valuable to another sparrow couple. Why does another couple not try to evict the first? If they are equally strong, and both value the territory equally, each has a 50% chance of winning the territorial battle.Why bother investing if one can simply steal (Hirshleifer, 1988)? Of course, if stealing were profitable, then there would be no nest building, and hence no sparrows, but that heightens rather than resolves the puzzle.

[...]

Long before they become acquainted with money, markets, bargaining and trade, children exhibit possessive behavior and recognize the property rights of others on the basis of incumbency. In one study (Bakeman and Brownlee, 1982), participant observers studied a group of 11 toddlers (12-24 months old) and a group of 13 preschoolers (40-48 months old) at a day care center. The observers found that each group was organized into a fairly consistent linear dominance hierarchy. They then cataloged possession episodes, defined as a situation in which a holder touched or held an object and a taker touched the object and attempted to remove it from the holder’s possession. Possession episodes averaged 11.7/h in the toddler group, and 5.4/h in the preschool group.

For each possession episode, the observers noted (a) whether the taker had been playing with the object within the previous 60 s (prior possession), (b) whether the holder resisted the take attempt (resistance), and (c) whether the take was successful (success). They found that success was strongly and about equally associated with both dominance and prior possession. They also found that resistance was associated mainly with dominance in the toddlers, and with prior possession in the preschoolers. They suggest that toddlers recognize possession as a basis for asserting control rights, but do not respect the same rights in others. The preschoolers, more than twice the age of the toddlers, use physical proximity both to justify their own claims and to respect the claims of others.

When I think of the evolution of private property, I think of David Friedman, who gave A Positive Account of Property Rights back in 1994:

We frequently observe behavior which looks like the claiming of rights and the recognition of rights in contexts where neither a moral nor a legal account seems relevant.

Consider, for example, Great Britain’s “right” to control Hong Kong, Kowloon, and the New Territories. It is difficult to explain Communist China’s willingness to respect that right on legal grounds, given that, from the Maoist standpoint, neither the government of Britain nor previous, non-communist governments with which it had signed agreements were entities entitled to any moral respect. It seems equally difficult to explain it on legal grounds, given the general weakness of international law and the fact that for part of the period in question Great Britain (as a member state of the United Nations) was at war with China. An alternative explanation — that the Chinese government believed that British occupation of Hong Kong was in its own interest — seems inconsistent with the Chinese failure to renew the lease on the New Territories, due to expire in 1997.

A second example is presented by the 1982 Falklands war. On the face of it, the clash looks like an attempted trespass repelled. Moral and legal accounts seem irrelevant, given the attitude of Argentina to the British claim. Yet the willingness of Britain to accept costs far out of proportion to the value of the prize being fought over is difficult to explain except on the theory that the British felt they were defending their property, which raises the question of what that concept means in such a context.

A further difficulty with moral accounts of rights, in particular of property rights, is the degree to which the property rights that people actually respect seem to depend on facts that are morally irrelevant. This difficulty presents itself in libertarian accounts of property as the problem of initial acquisition. It is far from clear even in principle how unowned resources such as land can become private property. Even if one accepts an account, such as that of Locke, of how initial acquisition might justly have occurred, that account provides little justification for the existing pattern of property rights, given the high probability that any piece of property has been unjustly seized at least once since it was first cleared. Yet billions of people, now and in the past, base much of their behavior on respect for property claims that seem either morally arbitrary or clearly unjust.

A further difficulty with legal accounts of rights is that they are to some degree circular. We observe that police will act in certain ways and that their action (and related actions by judges, juries, etc.) implies that certain people have certain rights. But the behavior of police is itself in part a consequence of rights — such as the right of the state to collect taxes and pay them to the police as wages and the property right that the police then have over the money they receive.

For all of these reasons, I believe it is worth attempting a positive account of rights — an account which is both amoral and alegal. In part I of this essay I present such an account — one in which rights, in particular property rights, are a consequence of strategic behavior and may exist with no moral or legal support. The account is presented both as an explanation of how rights could arise in a Hobbesian anarchy and as an explanation of the nature of rights as we observe them around us. In Part II I suggest ways in which something like the present structure of rights might have developed.

One puzzling feature of rights as we observe them is the degree to which the same conclusions seem to follow from very different assumptions. Thus roughly similar structures of rights can be and are deduced by libertarian philosophers trying to show what set of natural rights is just and by economists trying to show what set of legal rules would be efficient. And the structures of rights that they deduce seem similar to those observed in human behavior and embodied in the common law. In Part III of this essay I will try to suggest at least partial explanations for this triple coincidence — the apparent similarity between what is, what is just, and what is efficient.

Definitely read the whole thing.

Posted in Economics, Policy | 2 Comments »

Anglo-Peruvian

Friday, November 8th, 2013

Daniel Hannan grew up in a large Anglo-Peruvian community — which has since disappeared:

When I was four years old, a mob attacked our family farm. There was a back entrance, a footpath into the hills, and my mother led me there by the hand. “We’re going to play a game,” she told me. “If we have to come this way again, we must do it without making a sound.”

My father was having none of it. He had a duty to the farm workers, he said, and wasn’t going to be driven off his own land by hooligans bussed in from the city.

He was suffering, I remember, from one of those diseases that periodically afflict white men in the tropics, and he sat in his dressing-gown, loading his revolver with paper-thin hands.

This was the Peru of General Velasco, whose putsch in 1968 had thrown the country into a state of squalor from which it has only recently recovered. Having nationalized the main industries, Velasco decreed a program of land reform under which farms were broken up and given to his military cronies.

As invariably happens when governments plunder their citizens, groups of agitators decided to take the law into their own hands. It was the same story as in the Spanish Second Republic, or Allende’s Chile: The police, seeing which way the wind was blowing, were reluctant to protect property.

Knowing that no help would come from the authorities, my father and two security guards dispersed the gang with shots as they attempted to burn down the front gates. The danger passed.

Not everyone was so lucky. There were land-invasions and confiscations all over the country. The mines and fishing fleets were seized. Foreign investment fled and companies repatriated their employees. The large Anglo-Peruvian community into which I had been born all but disappeared.

Posted in Economics, Policy | No Comments »

Past the Computer Age

Wednesday, November 6th, 2013

We’re past the computer age, William Gibson suggests:

You can be living in a third-world village with no sewage, but if you’ve got the right apps then you can actually have some kind of participation in a world that otherwise looks like a distant Star Trek future where people have plenty of everything. And from the point of view of the guy in the village, information is getting beamed in from a world where people don’t have to earn a living. They certainly don’t have to do the stuff he has to do everyday to make sure he’s got enough food to be alive in three days.

On that side of things, Americans might be forgiven for thinking the pace of change has slowed, in part because the United States government hasn’t been able to do heroic nonmilitary infrastructure for quite a while. Before and after World War II there was a huge amount of infrastructure building in the United States that gave us the spiritual shape of the American century. Rural electrification, the highway system, the freeways of Los Angeles—those were some of the biggest things anybody had ever built in the world at the time, but the United States really has fallen far behind with that.

Posted in Economics, Media, Policy, Technology | 1 Comment »

Hungrier?

Tuesday, November 5th, 2013

Lebron James was born to a poor, 16-year-old, single mother — but that’s not typical of NBA players, Seth Stephens-Davidowitz found:

I recently calculated the probability of reaching the N.B.A., by race, in every county in the United States. I got data on births from the Centers for Disease Control and Prevention; data on basketball players from basketball-reference.com; and per capita income from the census. The results? Growing up in a wealthier neighborhood is a major, positive predictor of reaching the N.B.A. for both black and white men.

[...]

In the 1980s, when the majority of current N.B.A. players were born, about 25 percent of African-Americans were born to mothers under age 20; 60 percent were born to unwed mothers. I did an exhaustive search for information on the parents of the 100 top-scoring black players born in the 1980s, relying on news stories, social networks and public records. Putting all the information together, my best guess is that black N.B.A. players are about 30 percent less likely than the average black male to be born to an unmarried mother and a teenage mother.

[...]

Black kids born to lower-income parents are given unique names more often. Based on searches on ancestry.com, I counted black N.B.A. players born in California in the 1970s and 1980s who had unique first names. There were a few, like Torraye Braggs and Etdrick Bohannon. But black N.B.A. players were about half as likely to have a unique name as the average black male.

From 1960 to 1990, nearly half of blacks were born to unmarried parents. I would estimate that during this period roughly twice as many black N.B.A. players were born to married parents as unmarried parents. In other words, for every LeBron James, there was a Michael Jordan, born to a middle-class, two-parent family in Brooklyn, and a Chris Paul, the second son of middle-class parents in Lewisville, N.C., who joined Mr. Paul on an episode of “Family Feud” in 2011.

The notion that blacks are better at basketball than whites because they are hungrier, Steve Sailer says, is a flimsy rationalizations to avoid admitting that biological differences really matter:

Surely, if being poor mattered, there would be more Mexican NBA stars.

Posted in Economics | No Comments »

Benefits from Trade Day

Friday, November 1st, 2013

November 1, the day after Halloween, should be known as Benefits from Trade Day:

Friday, American children will be making piles out of their loot: stuff they want to keep, and stuff they want to swap for treats they actually like. They will then commence creating and participating in a market, trading things they don’t want for things they want, negotiating exchange rates between various bite-size currencies, and sometimes trading things they do want for things they want more, or for more of something else they want.

They do this entirely out of self-interest: because it will increase their happiness. No adult needs to coerce them into trading, or even suggest or facilitate it.

There is no better day to teach kids about the benefits of trade (and about subjective value), so I propose we promote November 1 as Benefits from Trade Day.

Tags:
Posted in Economics | 1 Comment »

Slave Owners and Modern Management

Thursday, October 17th, 2013

HBS researcher Caitlin Rosenthal discovered that many of the techniques pioneered by slave owners in the 1800s are widely used in business management today:

Rosenthal, a Harvard-Newcomen Fellow in business history at Harvard Business School, found that southern plantation owners kept complex and meticulous records, measuring the productivity of their slaves and carefully monitoring their profits — often using even more sophisticated methods than manufacturers in the North. Several of the slave owners’ practices, such as incentivizing workers (in this case, to get them to pick more cotton) and depreciating their worth through the years, are widely used in business management today.

Naturally that doesn’t mean that slave owners ever did anything good or productive:

She didn’t want to be perceived as saying something positive about slavery. On the contrary, she sees her research as a critique of capitalism — one that could broaden the understanding of today’s business practices.

Moral quandary solved!

The history:

According to Rosenthal, the history of detailed record-keeping on plantations goes back to at least the 1750s in Jamaica and Barbados. When wealthy slave owners in the West Indies started leaving others in charge of their plantations, she found, they asked for regular reports about how their businesses were faring. Some historians see this rise in absentee ownership as a sign of decline, but it is also among the first instances of the separation of ownership and management, Rosenthal says — a landmark in the history of capitalism.

Slave owners were able to collect data on their workforce in ways that other business owners couldn’t because they had complete control over their workers. They didn’t have to worry about turnover or recruiting new workers, and they could experiment with different tactics — moving workers around and demanding higher levels of output, even monitoring what they ate and how long new mothers breastfed their babies. And the slaves had no recourse.

“If you tried to do this with a northern laborer,” Rosenthal says, “they’d just quit.”

The widespread adoption of these accounting techniques is partly due to a Mississippi planter and accountant named Thomas Affleck, who developed account books for plantation owners that allowed them to make sophisticated calculations and measure productivity in a standardized way.

Tracking this information allowed planters to determine how far they could push their workers to get the most profit. Using the account books, slave owners could see how many pounds of cotton each slave picked and compare it to their output from previous years — and then create minimum picking requirements based on these calculations.

This led owners to experiment with ways of increasing the pace of labor, Rosenthal explains, such as holding contests with small cash prizes for those who picked the most cotton, and then requiring the winners to pick that much cotton from there on out. Slave narratives describe how others used the data to calculate punishment, meting out whippings according to how many pounds each picker fell short.

Similar incentive plans reappeared in early twentieth-century factories, with managers dangling the promise of cash rewards if their workers reached certain production levels.

Planters also used group incentives to encourage honesty, doling out a barrel of corn to each hand with the caveat that if anything was stolen from the farm and no one turned in the thief, double the value of that corn would be deducted from each of their Christmas awards. Collective penalties would later be adopted by salesmen and companies like Singer Sewing Company to encourage workers to police one another.

Rosenthal says the rise of the railroad is often credited with creating new units of production, including the cost per ton mile, but slavery’s comparable “bales per prime hand” unit was developed earlier in the nineteenth century. Comparing the number of cotton bales that different types of workers produced to similar workers on other farms, planters calculated the worth of each slave. A healthy 30-year-old male, for instance, would be considered one worker, known as a hand, whereas a child may be recorded as half a hand, and an older slave might be three-quarters of a hand. Figuring out the total number of “hands” on a farm allowed owners and overseers to compare their results.

The concept of depreciation is also credited to the railroad era, when railroad owners allocated the cost of their trains over time, but Rosenthal notes that slave owners were doing this before then. Starting in the late 1840s, Thomas Affleck’s account books instructed planters to record depreciation or appreciation of slaves on their annual balance sheet. In 1861, for example, another Mississippi planter priced his 48-year-old foreman, Hercules, at $500; recorded the worth of Middleton, a 26-year-old top-producing field hand, at $1,500; and gave 9-month-old George Washington a value of $150. At the end of the year, he repeated this process, adjusting for changes in health and market prices, and the difference in price was recorded on the final balance sheet.

These account books played a role in reducing slaves to “human capital,” Rosenthal says, allowing owners who were removed from day-to-day operations to see their slaves as assets, as interchangeable units of production in a ledger, instead of as people.

Posted in Business, Economics, Policy | No Comments »

Social Mobility

Wednesday, October 16th, 2013

Handle looks at social mobility:

You could assume, for example, that God loves all his children and creates them, if not ‘equally’, then with an eye to group-statistical equal impact (quite the strange Divine Entity, that one; a very Progressive one) and that therefore the potential for high productivity in marketable traits is not heritable but instead randomly distributed to children in each quintile. We start with an ordered deck of cards in terms of the parents’ household income, but in ideal social conditions, the kids’ deck would be perfectly shuffled, with 20% of the kids from each parent’s quintile going to each kids’ quintile. You could interpret any deviation from this as social injustice per se, and warranting compensatory government intervention and economic redistribution.

And that would be a completely absurd theory.

Ok, maybe you don’t expect such perfect deck-shuffling. Maybe there are aspects of biological reality that constrain ‘perfect’ social mobility to some lesser amount of churn.

Still, if we assume the people are more or less the same in every country and in any generation, then we can compare the churning across nations and through time to give us some idea of this ‘cap’ on social mobility, and also to tell us whether we are ‘better’ or ‘worse’ than some other country, or ‘better’ or ‘worse’ than we used to be.

But those assumptions are also absurd. In fact, the only people I know who believe them are the kind of people who have spent most of their life surrounded by other very intelligent people. When you want to deny the unique circumstances of your social group you have to twist elaborate knots like Michael Chabon attempts here. ‘Trained’ my ass.

It’s not exactly a ‘sheltered’ existence, but certainly segregated from sharing the experience of the bulk of humanity. The self-created niche-bubble machine of the blogosphere just amplifies this intellectual isolation. Every iPad an ivory tower. That helps to enable a feeling of plausibility to otherwise faulty assumptions. A kind of reality apartheid. It’s only in that kind of rarefied social environment that extraordinary and false claims would seem ordinary and obvious.

But let’s talk about some societal changes that might make comparisons along a time series illegitimate. For one thing, starting about half a century ago, baby boom women in the West starting going to college and entering the work force in large numbers. They delayed childbirth, and tended to meet their mates at school. It’s called assortative mating, and one sees it everyday. For another, as I mentioned earlier, the economic returns to intelligence have exploded. And finally, intelligence is strongly heritable genetically and varies amongst ethnic groups – expression of belief in which is a strong social taboo which will get you fired. Note the pseudonymity of the still-employed.

Once upon a time, and before it really broke out in terms of marketability, intelligence really was more randomly distributed across wealth and income classes. Plenty of those peasants and hicks down on the farm had plenty on the ball. There were also plenty of ‘mixed-marriages’ with regards to cognitive-ability, which kept the churn and ‘regression to the mean’ phenomena going. Gradually, that changed.

The educational system (in combination with the white collar labor market) is particularly sensitive and adept at finding individuals of talent and creaming them from their localities to our cognitive concentrator cities in a kind of intra-national brain-drain to complement the international one. The selection, sorting, and mate-pairing mechanisms of higher education have been working on the American society for generations now, and we are witnessing the effects as we slowly but surely solidify into something like rigid castes.

And the US immigration system has its own effects, which themselves have changed over time. In the past, the US accepted a lot of immigrants from European societies at a similar, pre-sorted-by-intelligence stage of development and which a similar intelligence mean and distribution. And these immigrants were generally very poor. This meant that, after a generation, the children of these immigrants, despite all originating in the bottom quintile, tended to have a cognitive potential distribution similar to the overall host society, and there was a lot of social mobility and integration. On the other hand, this never happened for the involuntary immigrant blacks or for their descendants.

Nowadays things are quite different and there are two main immigrant streams. The first stream is of millions of low-skill workers mainly from Mexico and Latin America that tend to have less cognitive potential than the American mean, on average. The children of these individuals are, as you would expect, not catching up even after multiple generation in the country. The second stream are of truly elite intellectuals from all around the world, but principally from Asia. They are, on average, well above the American mean, and their kids are not regressing to that mean either. Most of them are quite elite, if not prodigies like Ashok Rao.

The sponsorship system plays a role, where, for example, Brahmins, already disproportionately represented amongst the existing US South Asian population may prefer to bring over others of their group instead of random Indians. And Visas for education and work (for certain companies with pull) tend to prefer the most competitive, brainiest types from East and South Asia, and it even helps if both spouses in a marriage have PhD’s which may be a top percent of the top percent kind of intellectual power-couple in the countries of their origin.

This is good for the US (mostly), good for the power couple, and probably a mixed bag for the country of origin. But it also means the elite couples have elite kids who are not at all representative of the populations of those countries, tending to be at least two or three standard deviations above the mean. That kind of brain power sure helps a lot with social mobility. I’m betting Ashok Rao knows a thing or two about all this. If he doesn’t he should walk around the quad a little. Also take a stroll a little Northwest of 42nd street after dark, but be sure to check the local crime stats first.

There was once this guy called Charles Murray who wrote two unmentionable books on the subject chronicling the History of what happened, but who cares what that guy has to say, wasn’t he excommunicated or something?

Posted in Economics, Education, Policy | No Comments »

Conservation is Hard

Friday, October 11th, 2013

Conservation is hard, Greg Cochran notes — but so is driving a prey animal to extinction:

Even if the population as a whole would be better off if a given prey species persisted in fair numbers, any single individual would benefit from cheating — even from eating the very last mammoth.

More complicated societies, with private property and draconian laws against poaching, do better, but even they don’t show much success in preserving a tasty prey species over the long haul. Considers the aurochs, the wild ancestor of the cow. The Indian version seems to have been wiped out 4–5,000 years ago. The Eurasian version was still common in Roman times, but was rare by the 13th century, surviving only in Poland. Theoretically, only members of the Piast dynasty could hunt aurochsen — but they still went extinct in 1627.

How then did edible species survive in pre-state societies? I can think of several ways in which some species managed to survive voracious humans, but none of them involve green intent.

First you have to realize that driving a prey species to extinction is unusual: it doesn’t happen often with normal predators. Specialized predators obviously can’t do it — when their prey gets scarce, so do they. On the other hand, unspecialized predators generally won’t be as efficient. On the gripping hand, at any given moment, a predator and its prey have been co-evolving (and co-existing) for millions of years. Both are highly optimized — which means that further improvements would be difficult — and it shouldn’t easy for the predator to suddenly develop a crushing superiority. This argument doesn’t apply to newly introduced predators, of course.

Mass extinction is even less likely, because even an unspecialized predator should become rare when the total amount of prey (all relevant species) goes way down.. Unless this potent predator is really an omnivore — but that means even less specialization in predation. Omnivores (bears, for example) usually aren’t that effective.

If we go back far enough, protohumans simply weren’t very good hunters, because they weren’t smart. Lions manage to be pretty good predators without being particularly smart, but humans, who don’t have impressive natural armament, have to succeed in hunting through tools and social cooperation. They were probably death on turtles early on, but in general early humans advanced slowly, giving prey species lots of time to adapt — African and Eurasian species, that is.

The pace of innovation gradually increased, and I can think of some species in Africa and Eurasia that were probably ganked by humans a long time ago — but it wasn’t dramatic. Progress in hunting, new tactics and weapons, was still slow enough to allow adaptive response in prey species. Consider the Neanderthals: I can’t think of a single species they wiped out. Wimps.

By the Upper Paleolithic, modern humans were innovating much more rapidly, and human-driven extinction starts to become really important. It wasn’t just better hunting that mattered. Better food preparation — getting more out of each carcass — increased human density, and thus hunting intensity. You might think that greater efficiency would mean that we didn’t need to bring down as many beasts — not so, in a Malthusian world.

Developing new ways of gathering food other than hunting, such as fishing and better preparation of plant foods, meant that human density could stay high even as mammal biomass crashed. Innovations in clothing and housing let people colonize the high Arctic, and eventually the Americas. Invention of boats and rafts led to the colonization of Australia and numerous islands.

We were omnivores and generalists: population collapse of prey species couldn’t stop us. We could kill anything — but the biggest threat of extinction was to large animals, which were worth a lot (mucho calories for the tribe) and bred slowly. Worst off were those animals that had never had a chance to adapt to humans.

There were some modifying factors. It probably wasn’t just adaptation to humans that saved much of the African megafauna: African pathogens may have played a role too, keeping human numbers down and possibly even creating natural game preserves (I’m thinking of sleeping sickness). Contrariwise, Australia and the Americas were almost disease-free, as far as humans were concerned.

War is bad for us, good for our prey. The no-man’s land between hostile tribes is oddly full of game, since people are afraid to go there. In much the same way, rabbits flourished next to the Berlin Wall, while Asiatic black bears and musk deer inhabit the Korean DMZ.

Posted in Animals, Economics, Science | 1 Comment »

Simulating Social Evolution

Thursday, September 26th, 2013

Intensive agriculture is necessary for a complex society — which relies on costly bureaucracies, organized religion, and constraints on the ruling elites to promote the common good — but not sufficient. Complex societies only evolve when they compete against each other, and the losers disappear.

This is the thesis of Peter Turchin’s recent PNAS paper, which Catherine Crawley explains:

Simulated within a realistic landscape of the Afro-Eurasian landmass during 1,500 BC to 1,500 AD, the mathematical model was tested against the historical record. During the time period, horse-related military innovations, such as chariots and cavalry, dominated warfare within Afro-Eurasia. Geography also mattered, as nomads living in the Eurasian Steppe influenced nearby agrarian societies, thereby spreading intense forms of offensive warfare out from the steppe belt. On the other hand, rugged terrain inhibited offensive warfare.

The study focuses on the interaction of ecology and geography as well as the spread of military innovations and predicts that selection for ultra-social institutions that allow for cooperation in huge groups of genetically unrelated individuals and prevent large-scale complex states from splitting apart, is greater where warfare is more intense.

While existing theories on why there is so much variation in the ability of different human populations to construct viable states are usually formulated verbally, by contrast, the authors’ work leads to sharply defined quantitative predictions, which can be tested empirically.

The model-predicted spread of large-scale societies was very similar to the observed one; the model was able to explain two-thirds of the variation in determining the rise of large-scale societies.

Complex Society Evolution Simulation

There were several recurrent questions that came up in conversations with reporters:

Why does a question such as this need a computer model to answer?

Although our theory is relatively simple, it’s too complex to reason through using verbal arguments. There are important nonlinear feedback loops that can be captured only mathematically. Furthermore, the heart of our approach is getting detailed, quantitative predictions that can be compared to a large dataset on historical evolution of states in Afroeurasia. This can be done only with a quantitative, dynamical model.

Does this model tell us anything new, or is it a way to confirm what we already know?

The model results in new knowledge. Before we went through this exercise we did not know whether competition between societies, taking the form of warfare, was really an important driver in the evolution of large complex societies. Now we know that it is the main factor, with the presence of agriculture as a necessary condition, and various environmental effects (e.g., rugged terrain) also playing a role. Undoubtedly, cultural peculiarities are also important, although they were not included in the model. But since the model predicts 65 percent of variance in the data, such other factors must be of lesser importance than those included. At best, they provide the remaining 35 percent of the explanation. Our main result, that patterns of warfare are the most important factor explaining the rise and spread of large states is quite novel, and it will not be immediately accepted by most anthropologists and historians (although I expect that political scientists will be more sympathetic). Our results are likely to generate much controversy, which is why we plan to continue with this research program to address various criticisms that people will be bringing forth.

What are “large complex societies”?

In the simplest terms, societies counting a million of individuals or more. Such societies are invariably organized as states, have many complex institutions that are designed to prevent them from breaking up, extensive division of labor, complex internal organization, and so on. So they are ‘complex’ in many different ways

Why do you call these societies “anonymous”?

For most of our evolutionary history humans lived in small-scale societies — numbering just hundreds of people. These human groups were integrated by face-to-face interactions. In other words, everybody knew everybody else. Then there was a transition to large-scale societies, starting 10,000 years ago. In large societies of today each of us knows only a tiny proportion of people — the huge majority is strangers. In this sense our societies are anonymous. We interact all the time with people who are not personally known to us (think of taking a subway in New York City, or shopping in a supermarket).

How did you go about developing this model? How did you decide which data inputs to include?

Our model was guided by a general theoretical framework — cultural multilevel selection (CMLS). This theory predicts that competition between societies is the main driver of evolution of complex societies. Thus, emphasis on warfare. But then we needed to ‘operationalize’ such quantities as ‘warfare intensity’. What does it mean? It turned out that for the period of history we focused on, 1500 BC–1500 AD, we could capitalize on the spread of warhorse-related technologies as a proxy for intense warfare. The importance of rugged terrain was also suggested by the CMLS theory. It is easier to defend mountainous areas.

And it is clear that agriculture is a necessary condition for the rise of complex societies. That was already well known. However, our model shows that just the spread of agriculture does a not-so-great job explaining where and when large-scale societies arise. It’s a necessary, but far from sufficient condition. Warfare patterns do the bulk of explanation — that’s what allowed such a remarkably good match between model results and data.

Why do you think intense warfare and the spread of war technology turned out to be so important in deciding which large states would form?

That comes out from the CMLS theory, as I explained earlier. To evolve to a large size, societies need special institutions that are needed for holding them together; preventing them for splitting along the seams. But such institutions have large internal costs and, without constant competition from other societies, they collapse. Only constant competition between societies ensures that ultrasocial norms and institutions will persist and spread. So it really was war that made the state.

Were you at all surprised by these results?

I was certainly surprised by how well the model predicted the data. Even with first-guess parameters, the ones I tried during the early phase of the work, the model output looked very much like data. Quantitatively the model explained >50% of variance. Moderate adjustments of just 4 parameters increased prediction to 65%. This is much better than anyone, including myself, had thought can be done with historical data. Even though history is very complex, it turns out that simple models can capture very well many of its patterns.

What are the limitations of this sort of approach? Are there any nuances or particular cultures’ idiosyncrasies that affect their expansion and can’t be incorporated into mathematical models?

Of course, differences in culture, environmental factors, and thousands of other variables not included in the model all have effect. If you look carefully at Figure 1, you will see that there are lots of differences in detail between data and the model. That’s as it should be. A simple general model should not be able to capture actual history in all its glorious complexity. Both general processes and cultural idiosyncrasies play a role. But most historians and the lay public don’t realize that general processes can be very powerful in shaping history. Our model proves that they are wrong.

Posted in Economics, Policy, War | No Comments »

Jeremy Grantham on Commodity Prices

Wednesday, September 25th, 2013

The Wall Street Journal chats with Jeremy Grantham about commodity prices:

Q: You’ve been ringing alarm bells about commodity prices. Why all the worry?

A: They came down for a hundred years by an average of 70 percent, and then starting around 2002, they shot up and basically everything tripled — and I mean, everything. I think tobacco was the only one that went down. They’ve given back a hundred years of price decline and they gave it back between ’02 and ’08, in six years. The game has changed. I suspect the game changed because of the ridiculous growth rates in China — such a large country, with 1.3 billion people using 45 percent of the coal used in the world, 50 percent of all the cement and 40 percent of all the copper. I mean these are numbers that you can’t keep on rolling along without expecting something to go tilt.

Q: This led to some surprising conclusions, like your concerns about natural resources most of us have barely heard of.

A: We went through one by one, and we decided the most important, the most valuable and the most critical was phosphate or phosphorous. Phosphorous cannot be made, only placed. It is necessary for all living things. And we are mining it, and it’s depleting. And I like to say, if that doesn’t give you goosebumps, then you’re tougher than me. That is a terrible equation. So I went to the professors, and I said, what’s going to happen, and they said, ‘Oh, there’s plenty of phosphorous.’ But what’s going to happen when it runs out? ‘Oh, there is plenty.’ It’s a really weak argument. We do have a lot, but 85 percent of the low-cost, high-quality phosphorous is in Morocco…and belongs to the King of Morocco. I mean, this is an odd situation. Much, much more constrained than oil in the Middle East ever was — and much more important in the end. And the rest of the world has maybe 50 years of reserve if we don’t grow too fast.

Q: What are investors supposed to do?

A: The investment implications are, of course, own stock in the ground, own great resources, reserves of phosphorous, potash, oil, copper, tin, zinc — you name it. I’d be less enthusiastic about aluminum and iron ore just because there is so much. And I wouldn’t own coal, and I wouldn’t own tar sands. It’s hugely expensive to build coal utilities, and the plants they have to build for tar sands are massive, and before they get their money back I suspect that the price of solar and wind will have come down so much.

So I wouldn’t use that, but I think oil, the metals and particularly the fertilizers, I would own — and the most important of all is food. The pressures on food are worse than anything else, and therefore, what is the solution? Very good farming, which can be done. The emphasis from an investor’s point of view is on very good farmland. It’s had a big run. You can never afford to ignore price and value, but from time to time you can get good investments in farmland, and if you’re prepared to go abroad, you can do it today. I wouldn’t be too risky. I would stay with distinctly stable countries — Australia, New Zealand, Uruguay, Brazil, Canada, of course, and the U.S. But I would look around, in what I call the nooks and crannies. And forestry is the same. Forestry is not a bad bargain, a little overpriced maybe, but it’s in a world where everything is overpriced today, once again, courtesy of incredibly low interest rates that push people into investing. A wicked plot of the Federal Reserve.

Posted in Business, Economics | 3 Comments »

Jeffrey Sachs’ Failure to Eradicate Poverty in Africa

Tuesday, September 24th, 2013

I didn’t realize what a prodigy economist Jeffrey Sachs (The End of Poverty) was:

By the age of 13, he was taking college math. Later, he got near-perfect scores on his SATs and graduated summa cum laude from Harvard, where by 28 he was a tenured professor. Two years later, he was advising the Bolivian government on how to administer economic “shock therapy,” designed to break the spell of hyperinflation. This led to an even bigger triumph: masterminding Poland’s transition to a market economy in 1989, as communism collapsed in Eastern Europe.

Prodigy or not, Sachs has — surprise! — failed to eradicate poverty in Africa:

As [Millennium Villages] money poured in, exciting things started happening in this singularly unpromising place, where all the water came from a single borehole and 80 percent of the population was illiterate. Tin roofs, a sure sign of new wealth, began to proliferate; the health clinic was staffed and equipped. Thanks to Sachs’ tireless fund-raising and salesmanship, big multinational companies were soon pitching in to establish mobile-phone service and provide chemically treated anti-mosquito nets.

But the road to success was not nearly as smooth — or knowable — as Sachs had predicted. The original plan was for the people of Dertu to preserve their nomadic lifestyle. But the abundance of donated food and services drew people from far and wide and induced them to settle. What had originally been little more than a watering hole for camels became a sprawling shantytown, its streets clogged with garbage. The new livestock market failed. The one water pump broke down. People began to fight among themselves for distributed goods. There was drought, followed by flooding. There were epidemics. There was theft, malingering, misreporting, and more.

Similar problems befell other villages. As the villagers’ disillusionment with the project grew, so did Munk’s disillusionment with Sachs. Again and again she saw him move the goalposts or seek additional funding rather than admit that he was failing — that he and the 29 other academics who wrote the Millennium Villages Handbook had been unable to anticipate all the social and environmental complexities at work in even the smallest of villages. “To a large extent,” Munk writes, “the success of the Millennium Villages Project depended on Sachs’ idea of progress.”

Confronted with the inability of his villages to sustain themselves financially, he kept changing the plan, improvising frantically: One moment the answer was to attract tourists, the next it was to transform peasants — who for generations had struggled to grow just enough food to survive — into credit-worthy entrepreneurs harvesting cash crops for export.

The economists in the Millennium Villages headquarters in New York thought Dertu was thriving long after it had begun to fail, and they kept pushing Mohamed to follow the prescribed path up the “development ladder” to prosperity. When someone finally examined the village’s books, all manner of underperformance and discrepancies came to light, and he was “red. “I am feeling betrayed,” he told Munk. “I am feeling I was abandoned.”

Posted in Economics | 3 Comments »

Jewish Literacy as the Road to Riches

Wednesday, September 18th, 2013

Maristella Botticini and Zvi Eckstein explain how Jewish literacy led to wealth:

Judaism after the year 70, required both children and adults to read and to study the Torah. That is, it was not enough to just read without understanding the text and it was not enough to just memorize the text. This means that after 70, Judaism imposed on its members not just literacy per se but also the duty of understanding what was written. Again, this skill was valuable for occupations that benefited from understanding what was written in a contract or business letter such as crafts, trade or banking.

From the way learning happens even today, we know that if someone learns one language, it is more likely that the same person can learn a second or third or a fourth language. In the period we study (70-1492), Jews read the Torah in Hebrew and learned the different local languages of the locations in which they dwelled (e.g., Aramaic, Greek, Latin, Arabic, Spanish and German).

Acquiring basic literacy was the first step in moving to higher studies and acquiring more and more education. So learning to read and studying the Torah were prerequisites for learning and studying more complex texts such as the Mishna and the Talmud. Those who studied these texts (consisting of extensive debates and discussions among rabbis and sages) acquired the ability to think in an analytical and argumentative way — skills that could become helpful in commercial, entrepreneurial and financial activities.

Literacy and education fostered mobility because literate and educated Jews could more easily migrate to new locations in search of business opportunities, learn the local languages, and stay in touch with relatives and business associates back at home by writing and reading letters. (In chapter 6, we provide a sample of these letters.) Mobility was not an asset for farmers, but it surely was for merchants and traders.

Literacy, education and mobility fostered networking abilities among Jews living in different locations: it is hard to stay connected with business associates if one cannot read and write letters and contracts. Again, networking was not especially valuable for farmers, but it was very valuable for traders and bankers, who could exploit arbitrage opportunities through networking with business associates in different locations, and exchange information and capital when needed.

Literacy and education are prerequisites for having legal codes and courts that can enforce contracts. Even today, having contract-enforcing institutions promotes commercial and trading activities. Many centuries ago, thanks to their literacy and education, the Jews had a set of contract-enforcing institutions, more precisely: a legal written code (the Talmud); the rabbinical courts that ensured that deeds and contracts among Jews could be enforced regardless of where the Jews were living; and the rabbinical written Responsa that helped solve legal controversies when unforeseen in the Talmud.

Posted in Economics, Policy | No Comments »

« Older Entries
Newer Entries »