Author Archives: Arnold Kling

A better form of unemployment insurance?

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Veronique de Rugy writes,

Personal Unemployment Insurance Accounts (PISAs) were pioneered by Chile in 2002. The accounts are financed through a payroll‐​tax contribution from both the employer and employee and are individually owned by workers. During spells of unemployment, idled workers can make withdrawals to compensate for the loss to their incomes, but when employed they continue to build their balances. At retirement, workers can use the balances in these accounts to bolster their retirement income or transfer the funds to their heirs. The program includes a solidarity fund — a public safety net — financed by employers and the government. Unemployed workers can receive payment from the solidarity fund when their own savings are insufficient to cover their period of employment.

The theoretical advantage of this is that because you as a worker own your insurance account, you retain an incentive to find work as soon as you can.

I can always self-insure against a spell of unemployment. It’s called saving. Relative to that, a PISA does two things. First, it forces me to save for this purpose. Second, when my savings run out, the general fund kicks in. So I have something like catastrophic unemployment insurance.

NOP’s model of mental processes

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Scott Alexander (pick number 4, but still my number one pick) writes,

My model has several different competing mental processes trying to determine your actions. One is a prior on motionlessness; if you have no reason at all to do anything, stay where you are. A second is a pure reinforcement learner – “do whatever has brought you the most reward in the past”. And the third is your high-level conscious calculations about what the right thing to do is.

These all submit “evidence” to your basal ganglia, the brain structure that chooses actions. Using the same evidence-processing structures that you would use to resolve ambiguous sense-data into a perception, or resolve conflicting evidence into a belief, it resolves its conflicting evidence about the highest-value thing to do, comes up with some hypothesized highest-value next task, and does it.

It’s part of an overall framework that he calls Bayesian, in which different neurological systems feed information to a central decision-making system, with the weights on the different inputs determining the decision.

An arbitrage opportunity?

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John Cochrane writes,

A perpetual inflation worrier, I habitually confront the fact that bond prices don’t signal inflation. I am forced to point out that they never do — interest rates did not forecast the inflations of the 1970s, nor the disinflation of the 1980s. And I say inflation is unforecastable, a risk like a California Earthquake.

But for once there does seem some inflation risk in asset prices.

These are option prices. The main forecast remains subdued inflation. But these option prices are pointing to a larger chance that inflation does break out.

1. I assume that what the option market is screaming about inflation is “I don’t know!” Some folks think that inflation will be close to zero, and some think it will be above 3 percent.

2. But if there are more worries about inflation priced into the options market than into the bond market, this might suggest an arbitrage opportunity: be a seller of options, where inflation risk is priced high, and be a buyer of inflation-indexed bonds, where inflation risk is not priced as high. Adjust your hedge dynamically as needed.

Fantasy Intellectual Teams: version 2.0

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The goal of the Fantasy Intellectual Teams project is to improve public discourse by highlighting writers and podcasters who model high-quality discourse. Version 1.0 has been in progress since April 1. I am excited by the way that the initial buzz has shown that it is a viable method for working toward that lofty goal. We have also learned enough to be able to plan a much-improved version 2.0 for May 1.

The initial set of scoring categories, while a good start, will be improved. Because these categories are so important to achieving the goals of this project, we will develop new versions until we are satisfied. In that sense, the project is in Beta.

For those of you who are interested in the project–and I hope that many of you are–I plan to roll out version 2.0 in about a week, with a new draft around May 1. I encourage you to participate as a team owner by picking a team in the next draft. Leave a message in the comments if you are willing to play.

We will be having each owner pick a team of 7 intellectuals to follow. This is down from 15 in version 1.0, which was too much of a burden on owners. Also, as long as the project is in Beta, seasons will last just one month each. Longer seasons will be desirable once the scoring categories have stabilized.

As an owner, you have two responsibilities. One is to follow the team that you draft and submit claims when intellectuals on your team score points. Another is to provide feedback on improving the way that the project works, especially in defining the scoring categories. The experience of scoring your own team is a valuable basis for feedback.

Below are some initial ideas for scoring rules for version 2.0.
Continue reading →

What is fragile?

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Scott Alexander writes,

in an area with frequent catastrophes, where the catastrophes have externalities on people who didn’t choose them, you want to lower variance, so that nothing ever gets bad enough to produce the catastrophe.

In an area where people can choose whatever they want, and are smart enough to choose good things rather than bad ones, you want to raise variance, so that the best thing will be very good indeed, and then everybody can choose that and bask in its goodness.

Scott’s essays on “anti-fragile” point to a need to define fragility in a way other than “I’ll know it when Nassim Taleb sees it.” Are we talking about a person, a choice, a process, a system. . .?

It could be that the admonition “Be anti-fragile!” has no practical implications. That is because most disagreements can be framed as disagreements about what are the important sources of fragility.

Conservatives see individual human beings as fragile, but they see the accumulated habits of civilization as anti-fragile. But a progressive could argue that the accumulated habits of civilization make a society fragile. As the environment changes, people need to change in response.

Higher education on the side

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James Hankins writes,

The unmet demand for a traditional humanities education in elite universities is increasingly being supplied by offshore institutions that set up shop near universities but are not officially part of them. Indeed, the last decade has seen an extraordinary blossoming of private humanities institutes that offer what progressive academe no longer offers: a space to escape the suffocating taboos of contemporary university life, a place to explore the deep questions of human existence and form friendships in the pursuit of meaningful lives and (dare one say it) truth.

I have spoken at a lunch at the Elm Institute, one of the places mentioned in the article.

Hankins advocates expanding these “offshore institutions” to assist graduate students. He worries that otherwise traditional knowledge and methods will be lost, as the older generation of scholars dies off and is replaced by ideologically-trained younger cohorts.

I am pessimistic that any solution can be found. I still think that economics is on what I call the Road to Sociology, in which race, gender, and inequality become the dominant issues, and they are approached from a left-wing perspective.

Epistemology as a social process

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I am in the middle of reading Michael Huemer’s Knowledge, Reality, and Value, which he bills as a textbook. I see it as a vehicle for Huemer to give his views on some major philosophical topics. Although I do not have a Ph.D in philosophy, I consider myself able to play in that league. I may be missing some jargon, but otherwise I think I can go toe to toe with any of them.

Why study philosophy? My answer is to keep your mind from being rotted by reading Twitter. That raises the question (and does not beg the question):

Why not simply avoid reading Twitter in order to keep your mind from rotting?

The answer is that although it helps to not read Twitter, unfortunately other people read Twitter, their minds are rotting, and they will rot your mind unless you study philosophy.

For me, the most fundamental epistemological truth is this:

Other people exist, and one has to reconcile one’s beliefs to theirs.

Reconciling my beliefs to yours does not mean that I always agree with you. Consider the Asch conformity experiment. In a psychology experiment, you are brought into a room with three other people, who you are led to believe are also subjects, but who in fact are confederates of the experimenter. On a screen at the end of the room, a projector shows two lines, A and B. Line A is longer than line B, but when you are asked to say which line is longer, the other three “subjects” all say that line B is longer. What do you say?

When the experiment is done with many subjects, a sizable proportion of them choose to agree that line B is longer. This is known as “Asch conformity.”

Most of the time, you and I agree. I see an octopus, and you see an octopus, and reconciling my beliefs with yours is easy. When we disagree, as in the Asch conformity experiment, I have to decide whether it is your view of the screen or mine that is correct. If I think that your view is incorrect, I may infer other that you are looking from a different angle or that you have been instructed to lie.

If we take it as given that other people exist and that we have to reconcile our views to theirs, then this reinforces the case for what Huemer calls “direct realism,” while not sliding into “naive realism,” a term that I learned from Jeffrey Friedman. Direct realism says that in order for you to see an octopus, an octopus must really exist. Naive realism says that everything you believe to be true is true.

My epistemological view is that when I see an octopus there really is an octopus unless other people persuade me that there is no octopus. Usually, when I see an octopus, other people see the octopus. But if other people say there is no octopus, then I become like the subject in an Asch conformity experiment. I have to wonder whether they are lying, whether their perception is messed up, or whether it is my perception that is messed up.

A lot of epistemology uses your own mind as a starting point. Think of Descartes’ “I think, therefore I am.” My preferred epistemology uses other minds as a starting point. I put Descartes into reverse. “There are people in the world, and I am similar to them. They think, therefore I think.”

A skeptic could ask, “How do you know that there are other people in the world?” or “How do you know what other people are thinking?” My reply is that I am darned sure there are other people in the world, and I have pretty accurate perceptions of a lot of their thoughts.* To be skeptical about that is at best ridiculous and at worst impossible.

*As thoughts get more complex, misunderstandings can and do arise.

Education and cultural dynamics

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John Alcorn pointed out to me that I have two beliefs that appear to be inconsistent.

1. The Null Hypothesis, which is that educational interventions have no durable effect on average outcomes.

2. K-12 educators and college professors and administrators have adverse cultural effects.

It may be tough to reconcile these, but let me try.

Humans have a lot of cultural knowledge to acquire, and we do it by copying others. The Null Hypothesis is true because we do not have interventions that reliably improve one’s copying process. If Jill is better at learning than Jack, we do not have techniques that will produce equal outcomes between Jack and Jill.

But the content of what Jack and Jill learn is affected by educational institutions. If we teach them a heroic narrative of the United States, then they are likely to absorb that narrative. If we teach them a dark narrative of the United States, then they are likely to absorb that narrative. Not everyone who goes through the educational system will support its dominant narrative to the same degree, but the dominant narrative will tend to be absorbed.

I would not say that educators are totally free to impose cultural beliefs on their students. Educators need some support from other influential adults and from students’ peers. Education takes place within a culture, and it has to resonate with that culture to a fair degree. But I think that this leaves room for me to justifiably complain about the cultural influence of K-12 and higher education in the United States these days.