Tuesday, 27 May 2014

Are Germans Who Voted for the Nazis in the 1930's Morally Blameworthy? If so how much?

Is a German citizen who voted for the Nazis in the 1930's morally blameworthy? Why should he be? His vote was not pivotal in giving power to Hitler. If his vote was still a small force for evil, then abstaining for voting would also have been a force for evil, albeit a smaller one, because a vote for no-one is a vote which could have been placed on someone relatively "good" but was wasted. (All of this blog post assumes that power does not incentivize swayholders to pursue very particular actions, so that different people would actually act differently if given power.)
If voting decisions are morally important, then so are very many other decisions as well. In life one faces a vast array of ethical problems but time permits satisfactory handling of vanishingly few of them (how should I raise my kid, how well should I take care of my parents, should I tell my friend's wife if he has been unfaithful, to name just some of the bigger ones). I recently wrote about these problems on this blog. The fact that several ethical problems deserve much more of an individual's time than does voting need not lead to immoral political decision-making if all but a few voters randomize, with the remaining few voting in accordance with sound moral theory (whatever that is), for then moral soundness wins in expectation. Alas, this is a pipe dream.
The - absolutely correct - view that only individuals make decisions leads to biases in the infinitesimal moral thought devoted to political decision-making. Akin to Frédéric Bastiat's famous distinction between the seen and the unseen, the vast majority of people who - rightly - devote extremely little moral thought to political decisions are apt to think mostly about what is obvious and little about what is hidden below the surface. Thus, they swallow ethically challenged nonsense such as the proposition that it is better to pour money on war-torn countries than admit more refugees because the refugees really want to stay where they are, or bans on trade in internal organs on the basis that, were it allowed, poor people might sell them, as if being given an option one needn't use is so horrible.

Once part of a large-scale apparatus for collective decision-making, there is nothing one can do to avoid doing harm inside this apparatus, except to neglect far more important ethical problems deserving of much more attention, because for them what one does will be pivotal. Alas, what is morally blameworthy is the system itself. A market for states would erase these moral shortcomings, so that one joins a state like one joins a club, pays fees ("taxes") and enjoys the benefits and switches to another state-club if one does not like one's present one.

What moral shortcomings might such a system produce?

Saturday, 24 May 2014

Voting Schmoting

These days, citizens of EU countries have the opportunity to decide the composition of the EU Parliament for the next five years. Typically, there are hundreds of candidates to choose from. EU citizens are evidently expected to acquaint themselves with all of them, their character, their most cherished issues and whatever else is a criterion for whether a politico might have one's vote (and there is both theory and evidence to suggest that it does not matter for whom one votes anyway).

How does anyone have time for this? After jobs and hobbies, family and friends, why spend time sifting through the popinjays and the charlatans searching for someone whose views might correspond to one's own? I suspect only very few people do this, yet very many people actually do vote and look down their noses at people who abstain.

For the vast majority of good, decent folks, to vote intelligently is not to vote at all.

Thursday, 22 May 2014

What Is a Model, Anyway?

In yesterday's post, I briefly outlined the events of a small altercation involving NHS-related comments made by Professor Steve Levitt. Professor Noah Smith asked for a model, but was not happy with what Professor Levitt provided (see yesterday's post for links).

But Professor Levitt did provide a model! Granted, he starts out by discussing the policy proposal, so the small model is a bit buried in his blog post, but it is there, and it goes like this:
If it turns out that consumers are sensitive to prices (i.e. that the most basic principle of economics holds, and demand curves slope downwards), total spending on health care will decrease.
Professor Levitt goes on to highlight two important sources of the decrease in expenditure, namely that low-valued services consumed only because they come at a zero price will be cut out by consumers who have to pay a positive price for them, and that competition for consumers who are now price sensitive will lead to increased efficiency.
The model is not very fleshed out, but I am not sure it really needs to be (Professor Levitt refers to simulations of the model also, but does not go into details). The essence of many hugely successful models in economics can be described in just a few simple words and that is a most welcome thing.

There are details for which Professor Levitt's model does not account, but maybe there are not too many of them, since Professor Smith embraces the policy proposal which is based upon the model. This strengthens the case for viewing health care as a market fairly much like other markets.

What would a model of Weetabix consumption look like? Well, one should start by positing that marginal willingness to pay is decreasing and that consumption stops once marginal willingness to pay is below the price. Welfare losses can result if prices are nor permitted to equate marginal cost and marginal willingness to pay; services are consumed which cost more to produce than the value consumers place upon them. An analogous market for health care will have similarly important policy implications.

This is not too advanced and will impress few people, but the criticism which Professor Levitt's model has come across, coupled with the widely agreed-upon sense of the resultant policy proposal, is evidence, both that the simple lesson needs to be said, and that remarkably simple models can be remarkably useful.

Wednesday, 21 May 2014

How Different a Market is Health Care?

Professor Steve Levitt has come under a bit of attack lately because of some comments he made, in part to UK Prime Minister David Cameron, and in full to Cameron's team when the PM had walked out. He asked, essentially, if the PM would be happy with a system under which Britons could come to a car dealership and pick up a car, financed - just like the National Health Service - by the state. Among those upset with these comments is Professor Noah Smith, who has argued (here and here) that health care is a different kind of market than that for cars.
I think Professor Levitt is essentially right on this. Now he never actually claimed that there are no differences between health care and other markets, but it is clear from context that he considers health care and other markets to have rather a lot in common. Certainly you would expect huge quantities to be demanded in the market for health care with services available at a zero price, just like you would expect huge quantities to be demanded under similar conditions in basically any other market.
So what is different about health care? Among the contenders are adverse selection and moral hazard. Adverse selection means that insurance buyers know more about their health than do sellers, but this is true in very many other markets as well (by the way, the health insurance market is characterized by propitious, not adverse, selection, according to very many studies - just one terrific paper with data on the issue is here). Moral hazard means that insured folks have an incentive not to take care of themselves as well, but this, too, is present in many other markets. (This issue is not primarily about insurance, but it is a common way of financing health expenses and Professor Smith mentioned these specifics in one of the posts linked to above.)
A related problem of asymmetric information is that those seeking to purchase health care do not know a lot about the product. But this, again, is true for a wide variety of other markets, such as cars, computers, plumbing services and dentistry. For most food I buy I have no idea what has been added to it. Nor do I care much, because sellers compete and have reputations to maintain.

Another issue pertaining to (lack of) information is how to determine which hospital is best while in acute need of medical attention. Will stroke sufferers "shop around"? Of course they will not, but that holds under any system. Would hospitals charge "exorbitant" fees for those coming in for heart attacks? They clearly have an incentive to do so, but competing hospitals have the same incentive. Distance may give some monopoly power, but not too much because of the presence, a bit farther away, of other hospitals.

One issue on which health care really does differ is that of (partial) unpredictability tied to possibly lethal consequences. I think this may be a reason behind the widespread impression that health care should be the business of the government because it is so "important". Bread and Weetabix are also "important" but they lack the other aspects. I think this also explains the presence of the subsidy in Professor Levitt's policy proposal for the British politicos. Given these widespread beliefs, it would be very hard to argue for no subsidy at all, so Professor Levitt's proposal seems a very good one to me.

Notice, lastly, that the aforementioned difference is not really a difference in the mechanics of the market for health care. Rather, it is simply a difference in widespread perceptions of the services offered in this market. So if free markets tend to work better than regulated ones, it really should show in performance. I am in the deep end of the pool attempting to assess the evidence on this, but I believe it is noteworthy that the Singaporean model - which as far as I can gather comes close to what Professor Levitt tried to propose to Cameron - typically receives a great deal of praise.

Tuesday, 20 May 2014

"Turn off the **** Light!"

Adherents of theories of moral rights run into difficulties when they find they are compelled by their own logic to defend a variety of "outrageous" demands, such as that of an individual whose beauty sleep is ruined by photons trespassing on his property from the night light which his neighbour likes to keep. Property rights are violated by that night light, because it changes the character of adjacent land. Lights from aeroplanes and even breathing could be similar examples. This is indeed a serious problem. Consequentialists usually bring forth examples of this variety when criticizing rights-based ethics.
I submit that for consequentialists to legitimately criticize theories of moral rights on the above sort of basis, they must be able to plausibly argue that the consequences of rights-based arrangements are sufficiently horrible. So what would happen if we took the extreme view of property rights and acknowledged the right of the sleep-deprived not to have intrusive photons on his property?
Under the most extreme view of negative moral rights, disputes would have to be settled in private courts (there would be no state). Individuals pay for a collection of rules under which they want to live and which they want to see upheld in disputes with individuals living under different sets of rules. This means that if the photon-emitting individual is willing to pay more for those photons to intrude on others' property than property-owners are willing to pay in order not to be disturbed in this fashion, photons can be emitted sans fear of the law.
But this is partly evading the issue. After all, according to the theory of negative moral rights, a wrong is committed if photons invade a person's property without his consent. So whatever private courts decide, the invaded's rights have been infringed upon. Whether he is found to be entitled to compensation or not, morality says that he is. So what will the justifiably outraged individual do to protect his rights? Here enters the question of retributive justice.

Since retributive justice may differ in outcomes from what private courts decide, it will happen that individuals who are losing legal battles will be in the right when they wish to seek retribution by their own individual efforts. Most consequentialists would, I believe, argue that these individuals should just accept the verdicts. This is also roughly what would happen under a private-law regime. An individual unhappy with a verdict which goes against sound moral theory is free to challenge it. Precisely how much he may escalate the resultant conflict (inflict property damage? kill?) depends on what view of retributive justice one has in mind, but an analogy with armed robbery suffices to indicate that the vast majority of persons would accept private courts' verdicts. When confronted with a gun and the words "your money or your life!", people invariably give away their possessions. In the cases under discussion, challenging verdicts with violence probably means being punished later, the analogy with armed robbery is not a bad one. People won't challenge verdicts by private courts.

Is the theory of negative moral rights thereby immune to attacks from consequentialists? I don't think so at all, but I believe that, if what I have just written is correct, certain classes of attacks appear to be more "survivable" for rights-based ethics than one may at first think. Adherents of the theory of negative moral rights may not necessarily be happy with the outcomes, but I don't see how they could be any less unhappy without violating their own principles.

The bottom line is that consistent application of the theory of negative moral rights results in a market for legislation which may turn out to bring consequences which are not at all in line with the theory of negative moral rights prescribes. But those consequences of consistent application of negative moral rights should be rather palatable to consequentialists, so what case do the consequentialists have against it?

In writing this blog post, I am reminded by a similar argument I made a while ago here.

Sunday, 18 May 2014

Unpopular Taxation As a Master Stroke for Reduced Tax Pressures?

A new paper by LSE economists estimates levels of tax fraud in the UK before and after the late Margaret Thatcher's hugely unpopular poll tax, which was levied in large part independently of payer's income and lasted from 1990 to 1992. The picture that is worth  a thousand words (click to enlarge):
Tax evasion here means the share of tax liabilities not paid, calculated on the basis of independently-assessed property valuations. The figure shows averages from British councils. Before and after the poll tax, rates were levied based upon valuations of payers' accommodation. I know too little about the differences between these systems to be able to tell, but I suppose there might be some subtle difference in the systems which could be behind some of the discovered change (I have not read the paper very carefully).

But the figure is very interesting. The trend went towards lower levels of tax evasion before and after the poll tax years. This trend was resumed after its abolition, but from a higher level. The authors argue that this is due to a norm establishing itself to the effect that "one ought to pay one's taxes". This norm suddenly became expensive to a significant fraction of citizens, and their evasion had ring-effects which further eroded the norm.

Norms and habits are often analysed as separate phenomena, but this illustrates a link between them. Person A pays most of his taxes in part because others do. In the aggregate, this looks like habit persistence. But a small but sufficient increase in the "price" of the "habit" can result in great decreases in tax compliance. This does not in any way show that norms and habits are inextricably linked, only that it may not always be that easy to tell which factor is the operative one.

This, however, is very much an aside. If unpopular taxation can lead to more tax evasion, it is an interesting potential trick for those wishing to ease the tax burden without sounding too radical. Simply think of some horrendously insane tax and introduce it. The effects of this may be good or bad, but it is an interesting strategy. However, the unpopularity that comes with a tax like this makes it a sure-fire election loser for anyone who tries this strategy. Just like what happened to the Iron Lady.

The results remind me of what Milton Friedman used to argue was a drawback of heavy-handed government: That resultant crazy legislation erodes respect even for sane legislation. I have always been a keen admirer of Milton Friedman's, but I have never put too much stock into this argument, simply because I don't think anyone is likely to think murder is less wrong because, say, avoiding compulsory military service is also punishable. But maybe some version of Friedman's argument has more merit than what first meets the eye (or met my eye, anyway).

Saturday, 17 May 2014

Committing Suicide with a Bit of Class (No, Not My Note)

Jerry Seinfeld once remarked that if one's going to kill oneself, the least one could do is to leave a note (this happened in the second-season episode 'The Phone Message'). I tend to agree with this. The note should not point fingers ("it was my wife's fault!"), but simply outline what was troubling the deceased and his reasons for doing the deed, along with some final wishes not expressed elsewhere. There is an even better way of doing it, which I will come to below.

I have little doubt in the rationality of many suicides. Certain variants have near-universal approval, in particular decisions by terminally ill individuals not to medicate or to be euthanized. Maybe some "diseases" affect the mind and are just as terminal as the diseases leaving physiological traces? If so, one cannot claim that suicides by seeminly healthy individuals are in error while simultaneously thinking the cases by the terminally ill are right. Once the decision to off onself is arrived at rationally - there is nothing anyone can say to change the situation for the better. No advice works.

This is not to suggest that one should not urge suicidal persons not to do it, because how can outsiders be certain that the decision was arrived at rationally? And maybe some sort of side-payment could be arranged in order to keep the suicidal person in this life. Even rational suicides are extremely tragic. The people left behind will very frequently and understandably feel in the abyss and so are apt to do all they can to prevent a loved one from committing suicide. I know I would.

Which leads to the following conclusion: If one's going to kill oneself, then yes, the least one should do is to follow the Seinfeldian wisdom and leave a note. Doing so and doing it well avoids very many painful and unanswered questions for those left wondering. But one could, if one is really intent on killing oneself, do one better by killing oneself, in a manner of speaking, by proxy - let circumstances do the work, but look up some of the socially most acceptable circumstances and get immersed in them.

By this, I mean that one should engage in some incredibly risky activity which has some nobility attached to it. Rock climbing, for instance, or volunteer work in risky areas. Call it a major life change. Those happen. The more daring the activity the better, for two reasons: (1) it increases the social benefits in case of survival, and (2) it increases the likelihood of death, which by definition is good for the individual who has rationally reached the conclusion that he should kill himself. Military activity can be socially acceptable, but society is wrong here - perhaps predictably so.

One might ask why not more suicides occur this way. Perhaps those suicides are committed by selfish people, or perhaps they are committed in fits of depression, possibly for irrational reasons. It is conceivable that many deaths from dangerous activities are actually suicides. Maybe the aforementioned military activity is one such venue, though I wish they would find something better in that case. The people close to those who pass away in this fashion may suspect that suicidal factors were part of the diseased individual's choice of activity. But at least in these cases there will remain the added sense of respect for the service the perished person rendered.

Friday, 16 May 2014

Obama's Queer Praise for Peace Officers

In his 9th May proclamation praising American peace officers, POTUS described their work thusly:
As we mourn the fallen, let us also remember how they lived. With unflinching commitment, they defended our schools and businesses. They guarded prisons; patrolled borders; and kept us safe at home, on the road, and as we went about our lives. To their families, we owe an unpayable debt. And to the men and women who carry their mission forward, we owe our unyielding support.
The thing is that some of these things are actually quite bad and reflection upon just a couple of easy cases should lead most folks to strongly doubt whether they really do owe the families of perished peace officers an "unpayable debt".
For instance, border patrols keeps productive individuals out who would by most estimates vastly constribute to American productivity. Perhaps the peace officers' commitment to this particular cause should flinch. The gains are, of course, greater still if one takes a global perspective (see Michael Clemens' Journal of Economic Perspectives article about it here for some truly vast estimated benefits).
Keeping the population safe is surely an overstatement. The peaceful folks who choose to take up drugs or swap labour for dollars at less than the legally stipulated minimum wages are not kept safe by those who unflinchingly enforce legislation. They certainly owe neither gratitude nor support to the law enforcers. Should they be thrown in prison for their peaceful activities, they may feel justifiably upset that those guarding them do not relent in "carrying their mission forward".
While reasonable people might hesitate to agree that they owe an unpayable debt to perished peace officers and their families, one should also remember that peace officers are, on the other hand, in no way worthy of scorn either. Milton Friedman spelt out the case that bad legislation should be enforced with particular fervour, so that the sufferers would speak up and thereby teach others the terrible consequences of bad legislation. More generally, it would be most uncivil to condemn a group of professionals who do indeed carry out much valued work, too. Disagreement with Obama's praise should only be partial. Where his praise does not apply, it is simply a natural consequence of the dilution of moral thought that comes with collective management.

Much of what peace officers do is indeed praiseworthy. The same, however, may be said for the actions of dust men and hair dressers. Why not? Respectively, they keep our streets sanitary by removing disgusting filth out of our sight and they help make us presentable so that we may go to work without feeling shame. One might add that in the process of doing these heroic deeds there are no causalties of failed ethics (at least no intended casualties) such as perished illegal immigrants or imprisoned drug users.

I have mentioned just dust men and hair dressers, but there are many, many other people worthy of similar praise. The calendar is not long enough to properly celebrate all their services, so it is a good thing that there are markets to reward them.

Hat tip for the proclamation to EconLog's David Henderson

Wednesday, 14 May 2014

Some Economics of Moral Thought

"Legislation deals with numbers and with whole classes of men; morality deals with individuals." - A. V. Dicey, Lectures on the Relation between Law & Public Opinion in England during the Nineteenth Century
There are many problems one faces in life and one must decide how much of one's scarce time to allocate to each of them. Economics teaches that 'common pool' problems usually receive very few resources, including time, from any given individual, because careful thought, or restraint of rapacity, with regard to the management of said common pool is unfathomably unlikely to matter when there are many individuals. Thus, it easily happens that we get too much pollution and overfishing of seas.
Some of the problems which many of us face are ethical. There are probably too many of them for anyone to be really confident in his response to any given individual problem. In a world of common property, such as legislation, many problems are taken out of the individual's moral horizon. This is very much akin to the economic problem of common pool management. To the individual for whom time is scarce, a moral problem is more important the greater is his voice in proportion to those of others on the issue, and the individual has virtually no voice in collective decision-making. I believe most of the potential lessons which follow from this reasoning are in a classical liberal vein.
Here are some examples: In civil society, few people take others' property. Indeed, doing so is considered theft. But in the political realm, in which the voice of the individual is infinitesimal, taxation is mostly considered OK. If a person screams obscenities about others and shouts about how he will slaughter them, his behaviour is considered to be on the brink of murderous in civil society, but in politics it can be justified if a war is being fought. If somebody decides to take up drugs, the reactions he faces in civil society may be admonitory or opprobrious, but the reactions from the political realm are quite often to imprison him.
Some of the time, the views prevalent in the political realm are sound and perhaps more so than the views in (parts of) civil society. For instance, being of a frowned-upon race will rarely (though not, of course, never) lead to a death sentence from the state, whereas he will be killed, without a sentence, in certain circles. However, while sometimes the state will defend sound moral judgement, it seems quite obvious from history that its usual move is to imperil it.

For instance, the Jim Crow legislation would never have been mimicked by civil society norms, nor would, of course, the Holocaust. Immigration restrictions condemn billions of people to inescapable poverty when the civil society response is for individuals to go wherever someone is willing to offer them gainful employment and accommodation. I submit that what is behind these differences in standards is individuals' rational decisions to economize on moral thought.

It is worrying that the same principles which cause overfishing and excessive pollution are applicable to moral thought, but I can't see any way around it. The sum up this post with another quote, the old one by Benjamin Franklin comes to mind: "No man's life, liberty or fortune is safe while our legislature is in session".

Monday, 12 May 2014

The Economics of John Steinbeck's 'The Grapes of Wrath'

I recently wrote a review of the lovely book Nightfall, and thought I might blog about John Steinbeck's The Grapes of Wrath, too. It is a classic and a true example of the Great American Novel, so my praise for its terrific readability, wonderfully captured personalities (including accents) and chillingly evocative illustrations of despair would in all likelihood be a reprise of what other critics have said before. Instead, I will focus on how some of its truly amazing writing was sadly wasted on bad economics and misinformed history.
The economics is really terrible, even Luddite. Remarkable statement? Not at all! In the fifth chapter, Steinbeck discusses the mechanization of farming. A farmer using machines can work greater areas, so other tenant farmers are let go. These farmers tell the tractored one that he makes his three dollars a day at the expense of the redundant farmers' ability to feed their families, and then talk in a threatening fashion about performing many violent acts in response to their sorry situation.
     The problem here is that there is no fixed number of jobs. Anyone who reads The Grapes of Wrath will be unable not to feel sympathy for the Joads and down-and-out families and individuals like them. Nevertheless, one should not let such sad facts permit poor economics. The illogic expressed in the idea that mechanized farming costs jobs deserves a sound thrashing. About two hundred years ago, nineteen out of twenty individuals were farmers while today it is well below one in twenty. What has happened is in great part that farming has become more productive due to advances like the Green Revolution and mechanization, so by Steinbeck's logic something like eighteen out of twenty people should be unemployed today, or wages would have been competed down to peanuts.
     This is palpably false, and the reason it is false is that there are attractive alternatives for farm labour, employed or unemployed but probably the alternatives are more visible in the latter case. A common finding is that a person's reservation wage goes down the longer he stays unemployed, which sounds fairly reasonable. Suppose a piece of legislation prevents mechanization from destroying jobs which pay a dollar a day, and that an entrepreneur could offer work at 85 cent a day. Unmechanized farming will shed workers much more slowly than will mechanized farming, causing prospective industry to struggle when it could flourish. When, ineluctably, workers are eventually laid off the idea may be gone.
     Unemployed workers possess skills, a willingness to apply themselves and other qualities which are praised by the prospective employer. Something else did come along for those eighteen out of twenty former farmers, and something else will come along whenever willing workers can offer something to a willing employer, be it work at a very low wage if nothing else.
     Now this is a point which is surprisingly hard to argue, even though it must be true. The retort is obvious: "If jobs are to disappear, at least tell us what will come instead". The truth is that no-one really knows what progress will bring. But two things are beyond dispute: (1) workers kept in obsolete unproductive jobs wastes resources, and (2) technological progress has a truly amazing record, but it can be delayed severely with the adoption of sufficiently wrong-headed policy.

Where Steinbeck gets his economics right, it conveniently happens to support the points he is trying to make. Steinbeck has some grasp of game theory; for instance, as he shows when he deals with strike-breakers' continued failure to bargain for a higher wage due to the fact that it is individually rational to accept the lower wage. However, it is a shame that Steinbeck gives no hearing to the argument that the higher wage sought by the strikers would bring unemployment to some who could support themselves (just barely) on the lower wage.
     The poor economics is particularly pernicious because it is mixed with instances of better and clearer understanding. Part of the above is one such instance; another is the good grasp of social interactions expressed on page 36 (of the Mendarm 1990 edition) illustrating the deep squalor of the Okies: "We got no clothes, torn and ragged. If all the neighbours weren't the same, we'd be ashamed to go to meeting". This does not really require great perception, but it is accurate. Misery loves company. An unkempt appearance is less of a bad thing if everyone else is the same.

So much for the appalling economics. The Grapes of Wrath is not even as good an historical statement as is often believed. In the 25th chapter, Steinbeck blames the profit motive for the deliberate destruction of farm produce without noting that this was profitable only because the federal government were paying for non-production. I would be ill at ease arguing that the free market always produces stable economic conditions, but it is more than a stretch to blame the free market for the shocking non-production.
     In 1942, there was actually a decision taken by the Supreme Court, Wickard v. Filburn, according to which farmers were legally prevented from producing even for on-farm consumption if this production exceeded the limits imposed during the Depression. So the profit motive restricted supply only through ill-conceived interference.

But Steinbeck's is a society of conflict and whoever owns or attempts to make a profit must be pitted against those who do not own (as much) and do not (in an obvious way) try to make a profit. This leads to the above kind of nonsense. A natural question which is conspicuously absent from Steinbeck's (otherwise truly) Great American Novel is who is currently giving the workers a better way of supporting themselves. Can the greatest scourge of the hard-up workers really be their employers? Those who might do more is everyone who is currently not engaged in any productive activity, not those who are.
     In conclusion, The economics of The Grapes of Wrath is shocking in two senses: The first is its poverty. The second is the way in which the story of extreme destitution plays on emotion and thus loads the dice against careful analysis. To wit, the tragic story may shock the reader into accepting poor economics. But the laws of economics do not stop working because circumstances are bad. Thinking that they do adds upon the tragedy.

Thursday, 8 May 2014

Some Beckerisms

I find my thoughts go to the late Professor Gary Becker with unusually great frequency these days. I thought I would post some funny things he said while I was lucky enough to be in his presence, in case they amuse others like they amused me.
In the spring quarter of 2013, Professor Becker started - together with Professors James Heckman and Aleesandra Voena - a Family Economics workshop (which I have mentioned before on this blog), someone, I forget whom, commented to Professor Becker on his running a new workshop (or maybe this person was just asking why Professor Becker had decided to run a new workshop, I am not sure). Professor Becker's response: "I decided I had too much free time". Consider this in the context of what I call his constant pursuit of new insights in social science in my blog post of appreciation.
I have always been such a keen admirer of Professor Becker's that it almost quite literally took my breath away when he entered the lecture theatre for what would be my first class in Price Theory (I was new to Chicago and more than a bit anxious about my first encounter, albeit only as part of a big class, with my great hero). The class, like all of his classes, had a reputation for being one in which it is extremely difficult to do well, but the lecture theatre was still packed over capacity. Professor Becker's first words as he looked up at us, having installed himself in the front: "The class will get smaller".
He had a way of relating the topics of the day to the History of Economic Thought. When discussing natural resources, for instance, he told us students about William Stanley Jevons' prediction about Britain's running out of increasingly dear coal and becoming a second-rate industrial power - an event which Jevons, writing in the 1860's, timed to about 1890. Professor Becker would later explain the Hotelling model of natural resources and various interesting variations on it, but his initial remark caused us students to erupt in laughter: "Now Jevons' prediction turned out to be erroneous", said Professor Becker, "it took Britain about fifty more years to become a second-rate industrial power".
These are just some instances of many. Professor Becker was an intellectual giant but really unassuming and humble in every way, so I believe most "Beckerisms" would be of a character similar to these.

Tuesday, 6 May 2014


It is with very great sadness that I write that the greatest teacher I have ever had by far, Professor Gary Becker, passed away on 3rd May. He would have turned 84 in December. One common reaction when hearing of the death of an octogenarian is to suggest that the person in question was rather old and that he or she had lived a full life, but if every day of a long life was truly filled to the brim with valuable content, my reaction is to deplore such departures with no reduction in intensity, for an even longer life would likely have added still more blessings for those around the deceased person.
Gary Stanley Becker was precisely the kind of person who lived each day till it was full and contributed to economic science in proportion thereto. I was fortunate to interact with him on a few occasions at Chicago. Many people will truthfully mention the fear he instilled in the students of whom he was about to ask a question (he would call on people in class), but no-one should take this to mean he was anything less than a thoroughly warm and gentle person. Indeed, his focus when interacting with other economists, students or faculty members, on the question and on making sure its answer is grasped is really a declaration of love for the other fellow, because this approach takes care to find and expose errors and to correct them. No seeker of truth should expect greater favours.

Professor Becker remained active until the end. So very active that it is hard for me to fathom that he is gone. Last year at Chicago, when I was still there, Professor Becker looked very good. Although he may have been walking rather slowly and the text would appear with a bit of a slant when he wrote on the blackboard, everyone was still in awe of his intellect and in very few words he could poke irreparable holes in models he encountered in the many workshops in which he was an active participant. I hasten to add that when he liked something he certainly would not refrain from saying it. Such is the nature of the constructive criticism which he was always certain to offer. He understood that the truth is more valuable than anything else and should be told irrespective of whether it helps or shatters a model.

I say that he lived each day till it was full and I truly believe that; his quest for new insights and understanding in social science was pursued with incredible vigour. The clearest evidence is that he kept as great a teaching load as most of his junior colleagues until the end. In addition, there are many stories of his diligently going to his office during weekends. For instance, one weekend in November of 2006, shortly after his friend and teacher Milton Friedman had passed away, a panel discussion was held at the University of Chicago and Professor Becker, sure enough, was easy to find in his office. It was to be expected that this sort of person would be professionally active until his passing, the tragic thing is that he could not have had a few million more years.
The brilliance of this scholar has to my knowledge never been overstated. I am not sure it can be. To take economics as the natural starting point for essentially any problem in social science must have been well beyond the unexpected when he wrote his doctoral dissertation, The Economics of Discrimination, almost sixty years ago. He repeated the feat countless times, seeing market situations and purposeful individuals where others saw intractable ethical quandaries (the economics of crime), irrational behaviour (addiction) or such numinous matters as love and lust (the economics of the family). He used economics to illuminate really important big-picture features of society in a way which the rest of us may well fail to equal forever; even though there is no shortage of good and interesting topics, really good ideas are scarce - but not nearly as scarce as they would have been without Professor Becker.
There will be a lot of praise for this towering scholar in the coming days. Of the ones I have seen so far, I have particularly enjoyed the ones by Professors Justin Wolfers and Steve Levitt. Professor James Heckman, true to his wont, has a very long piece, although it was written in 2011 for a conference in Professor Becker's honour. It is also very nice and mixes terrific insight with interesting titbits, humour and pictures.

The world can become a lot poorer in just the short time it takes for the right person to pass away. The fields in which such people make their marks, having prospered immensely during their lifetimes, may take a lot of time to recover the same greatness after these people have gone. Gary Becker was one of the right persons. Almost anyone else would require hundreds of years to accomplish half of what he did, yet he had much too little time.

Sunday, 4 May 2014

Rawls and Evolution

If having moral value means having a vote (or "say") behind the Rawlsian veil of ignorance, and whether an individual in this position is given a vote is decided (at least partly) on his being an eventual human being, how does the "ideal society", envisioned behind the veil, change with evolution, as species separate from one another? Following Richard Dawkins' chapter on punctuationism in his book The Blind Watchmaker, suppose certain mice somehow cross a mountain range. The mountains then separate them from the rest of their population, causing them, eventually, to evolve into different species.
Perhaps one species will evolve superior intellects, language, the ability to use tools and machinery, and even develop science (they could also lose abilities, of course). At some point, they will be unable to mix their genetic material with the mice on the other side of the mountain range. What does the Rawlsian analysis suggest be done in this situation? Should the superior mice get more votes per individual, because they are (presumably) the better interpreters of sound moral thinking? How would the mice vote (or otherwise decide) in the last generation before separation, not knowing on which side of the mountains they would be born? Should they have ordered certain marriages to occur (commanding one group of mice to cross the mountain range to enable them) so that the species remains intact? Or should they have voted for free marriages on the proviso that the inferior species be treated well by the superior one?
In thinking along this line, it seems as though one is compelled to go back to the Ur-ancestor. Nobody knows how atoms got together to form life, but they must have done so (divine intervention is the only other explanation I can think of for the first appearance of life, but it is not a more satisfying explanation because many questions remain about the nature of God and it won't change the flavour of this blog post). For just one such life form, the problem of voting does not arise, but for the first two life forms it does.
What comes out of this reasoning, in which the Rawlsian veil of ignorance and evolutionary theory are both treated with the seriousness they deserve (which is a great deal of seriousness; I might have some problems with Rawlsian thought, but his idea is one of beauty and is extremely hard to dismiss), is that either we owe a great deal to (all) other life forms in terms of how we assign moral value, or we should mix our genetic material in ways such that the number of species on Earth and the differences between them be minimized - or that the well-being of the least well-endowed species be maximized. I would be hard-pressed to muster plausible arguments for either view. Are there any third views which are more easily defended?
Rawls has been criticized for his geographic limit on the moral population. Those within a nation get to vote on how society is to work within that nation's borders. No-one else. This is a completely arbitrary restriction (and quite reprehensible in my view; if one is to agree with very many strangers on something, why exclude some based on where they will be born?), but if one accepts it, maybe it could make his moral theory and evolution go better together?
If the only rationale for the generation of new species is geographic separation, the possibility that some members of society move away and evolve is still something that could be taken into account in the decision of which rules society should have, but given how slowly evolution moves (except in the completely discredited saltationist kind), perhaps one should not expect this concern to be significant. I am no expert on evolutionary biology, but I believe the jury is still out on whether geographic separation is the only factor which could generate new species. There could conceivably also be taste-based factors which trigger the formation of new species, but I don't know how well this view is received among biologists.

For instance, suppose half of all females have tastes such that a man with a four-inch nose is their ideal partner; the other half like a half-inch nose. Any living male with a nose of length less than two inches and a quarter will be favoured by the latter half of females. Remaining men will be favoured by the former kind (I assume here that women choose their partner, men basically just say yes). If length of nose and taste for it are both dominant genes, the resultant offspring will choose among their group of similarly-nosed individuals, and have offspring reinforcing polarizing attributes. This view of evolution is problematic. Even if intermingling of genes does not occur, the resultant two species will compete for (many of) the same resources and most biologists believe that one species will then die out (but they could of course decide to share resources behind the veil of ignorance!). However, this view is, I think, theoretically possible - and geography plays no part in it.

I don't know how evolution may progress near the point at which life first occurred, but if species separate more quickly at this time, that is an additional reason for geography to become less relevant a restriction.

The foregoing three paragraphs are mostly just unnecessary digressions. For a moral theory to claim validity (a supremely difficult thing to do), its principles must be applicable everywhere without absurdities. Getting rid of the geographic restriction seems to me to break the levee for such absurdities to come flowing in. Deciding what kind of society to live in must be affected by uncertainty about whether one is born into the donkey or the horse beeline. Compensation in the form of special rights to inferior species, or rules regarding whom one may marry, seem the natural consequences. Now I wonder the following: What reason is there to think that the Rawlsian veil of ignorance should be immune to these problems posed by evolution?

Saturday, 3 May 2014

Building Façades, Externalities, and Alternative Means of Exchange

Here's a thought: Living in a beautiful building, such as Frank Lloyd-Wright's Robie House, one cannot view the façade of one's house when one is in it (outside the beautiful stained-glass windows of Robie House is the Chicago Booth School of Business - not too bad, I suppose). From indoors, one can only look at neighbouring houses, as was observed once by a friend of my Uncle's. Therefore, your neighbours have a stronger incentive to make your house look nice than do you (maybe your incentive is not weak, but the neighbour's incentive should still be stronger). This is less true for very outgoing types, but even they probably look out the window more often than they look at their own house.

To internalize these externalities as much as possible, one might expect the neighbours with the clearest view to own your façade, as in Harold Demsetz's nice 1967 article on property rights, but then there would also be privacy concerns associated with their constant access to part of where you live, which would only increase the negative externalities involved (noise close to home, etc.). But Demsetz's analysis only says that the arrangement will prevail which best conserves on transaction costs and external effects.

So which arrangement is more successful at conserving transaction costs? The Coasean solution has it that, if neighbours own the façade of your dwelling, you would have to compensate them not to disturb you. If you own your dwelling's façade, your neighbours would compensate you to give it a nice appearance. Both arrangements could be associated with high transaction costs, but the risks of breaching private spheres are surely greater when neighbours come very near where you live. So transaction costs should be lower when the owner of the façade and the owner of the building are the same person.

How low are these transaction costs, though? What does it take for people to be willing to treat personal choice regarding building appearance as a tradeable good? Another way of asking this  is what the transaction costs are for using money in this market. After all, when building appearance and money are used in transactions, the latter might be what is behind the transaction costs. So the currency in this market could be overall treatment by neighbours; smiles and chit-chat, willingness to do favours, etc., rather than money (I have talked about such markets before). So an unkempt house is OK if its occupier is extra nice and expects less from his neighbours; a nice-looking home increases favours received. The means of exchange chosen in a transaction is the one that best conserves upon transaction costs.

This means that transaction costs are sometimes very high indeed if money must be used in the trade, but they are greatly reduced if another means of exchange be used instead. A lot of social situations are more easily manoeuvrable once this insight has been grasped. Maybe something else is the cause of nice-looking building exteriors, but externalities fit this case. In addition, my experience is that buildings have a lot more potential to be unkempt and ugly than they have to be prettier. I frequently find that the few changes I would make if I had ownership of others' façades are mostly down to personal and idiosyncratic preferences. Maybe chit-chat and neighbourliness suffice in this market?

The standard treatment may recommend a commission to impose building codes, or maybe even the introduction of an "ugly" tax. Some communities are planned in very great detail, of course (a memorable episode of the X Files is set in one such community), but normally a building's exterior is chosen by its owner. So the possibility of using means of exchange other than the one approved by the government confounds the standard proposals. If this works, where else might it apply?

Friday, 2 May 2014

Can the Simpsons Really Teach Economics?

Homer Economicus is the title of a new book edited by Professor Joshua Hall of West Virginia University. Its subtitle, 'The Simpsons and Economics', reveals its purpose of teaching lessons in economic science with the help of the hilarious TV family. I haven't read this one yet, but books like it are, in my experience, generally quite nice.

There are several books of its ilk in sociology (e.g. Seinfeld) and philosophy (House M.D.) and probably in other disciplines, too. Now books such as these sometimes give erroneous treatments of episodes, and are sometimes forced to stretch themes of a show to rather a tenuous point in order to be able to talk about their science. But seen as a fun way of reading about the basics of economics, sociology or philosophy, they usually work (I hasten to add that proper textbooks are fun, too!).
The Simpsons is a show profoundly deficient in economics, however. The authors of Homer Economicus surely had their work cut out for them to try to make sense of very many bits. I hope the book will not create the impression that the Simpsons is a good show for learning economics but rather that viewers, having read the book, will be more wary of the many mistakes that the show contains. A few examples of poor economics in the Simpsons:
In the third-season episode 'When Flanders Failed', the family's God-fearing neighbour decides to open a shop selling only left-handed products. Ned Flanders calls it the Leftorium and it has a hard time trying to take off. Homer thinks its failure is his fault due to some silly but very funny superstition and, in a fit of bad conscience, eventually calls everyone he knows to tell them to go to Flanders' Leftorium. So in the end, Flanders succeeds. The problem is that consumers are not so fickle (at least not in economics) that, having shunned a shop completely, they suddenly flock there when told to by a buffoon. So how is this an economics lesson? Maybe it is about the importance of informing consumers of one's existence, but that is a cheap lesson. Perhaps Flanders is too unassuming to advertise his business, but the main impression from this episode is that consumers have so little backbone that the decisiveness of even a deeply stupid man (Homer) can sway them to the extent that a business in dire straits can blossom. Funny episode, but not a good economics lesson.
Elsewhere in the third season ('Burns Verkaufen Der Kraftwerk'), Mr. Burns sells his nuclear power plant to a group of German investors for $100,000,000. It soon becomes clear that it is not worth anything near that sum. Now some might say this illustrates some lesson in information economics, but who would pay to hire the instructor of that lesson? Everyone already knows that $100,000,000 is a lot of money and that one should closely examine beforehand whatever one intends to purchase with so large a sum. The same may be said for Homer's rarely-seen half-brother Herb Powell betting his fortune on Homer's valorous but idiotic design of Powell Cars' new vehicle, in the second season's 'Oh Brother Where Art Thou?'.
What else is there? In a paper related to the book, Hall notes the appearance of Peltzman's famous 1975 article on car safety regulation in a second-season tale of how Homer and Marge first met in High School called 'The Way We Was'. Here, Homer joins the High School debating team because Marge is in it, and argues against a 55 mph speed limit on the grounds that, while it will save a few lives, "millions will be late". Peltzman's paper, of course, provides a fascinating case for why Homer's secondary effect may actually outweigh the gain from the first effect (it almost has to at some point), but this lesson is apt to be lost on the viewers, since it is given by America's foremost buffoon Homer Simpson.

Economics is in very large part about individually rational behaviour and the above instances can hardly be called rational. A show like the aforementioned Seinfeld or House M.D. would probably lend itself more naturally to economic analysis. The latter is obviously based on rationality and the former showcases some highly unusual but carefully maximized preferences (Jerry's fear of germs comes to mind). Still, I would expect the amusement I noted of this genre in general, and the talent of the authors, to make Homer Economics a very good read, indeed. I am looking forward to it.

Thursday, 1 May 2014

The International Workers' Day

Today is the first day of May, a public holiday in very many countries. Those paying attention to public discourse will hear about how workers have had to "fight" for benefits such as paid holiday leave and the eight-hour work day. Such nonsense is a good reason not to pay attention to public discourse. Workers are not competing with firms. Workers compete with other workers, or with a subset of them (sometimes, workers in different sectors may turn out to complement one another). If a new firm opens up, labour activists would hardly lament the addition of more exploiters, but rather welcome new employment opportunities (at least I think so; I do not believe I know any labour activists).
The idea that benefits are due to a workers' struggle for them completely ignores basic price theory. If my labour is worth a dollar an hour and I am presently paid only fifty cent, my employer's competitor should lure me over by offering fifty-one cent. Then someone will realize that he still gains by hiring me for fifty-two cent (the gain is then forty-eight cent), and so on, until I make about a dollar. I may be reluctant to work every week of the year, so part of my employment contract could stipulate that I get so and so many weeks of holiday leave. This would be a benefit, but so is the wage. Both are raised without worker activism. There is also no reason why worker activism is required for the shorter work day. The same argument applies here as applied to holidays.

This is not to suggest that public holidays serve no purpose. It may be that they constitute a good way of coordinating time-consuming group activities. People may wish to go hiking together, for instance, but getting off work at the same time may prove difficult. I suspect public holidays also serve some collusive purpose. The practice of "not working on the Sabbath" or other Holy Days (holidays) makes monitoring output restrictions easier. Whoever is working is in League with the Devil. I suspect the collusive motive is not a major part of modern holidays, however, partly because markets are far more connected and so cartel-like behaviour harder to sustain.

So what did the worker protests of Chicago's Haymarket and elsewhere accomplish in the end? The unpleasantness associated with the protests, some labour-market distortions, maybe some welfare-improvements in terms of coordination, and probably not much else. Maybe better think of today as Thursday.