Author Archives: Arnold Kling

Evolutionary roots of cooperation

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A commenter points to John Tooby, Leda Cosmides, and Michael E. Price (2006)

We think that human evolutionary history has equipped the human mind with specialized psychological adaptations designed to realize gains in trade that occur both in 2-party exchanges and in n-party exchanges, including collective actions. We believe that the specific characteristics of these mechanisms (e.g. cheater detection circuits) reflect the ancestrally recurrent structure of these adaptive problems (the existence of payoffs to cheating). . .we
think that many of the ‘irrational’ behavioral expressions of these mechanisms (such as voting behavior or donating blood) will come to be recognized as engineering byproducts of these functional designs when they are activated outside of the ancestral envelope of conditions for which they were designed.

Later:

the greater the number of participants is, the greater the comparative advantage of conservatively perpetuating pre-existing arrangements will be, however beneficial or flawed those pre-existing arrangements were.

Because it is difficult to foster cooperation among large numbers of people, we rightly seek to preserve systems that work.

We feel pleasure upon becoming a valued member of a group, satisfaction in its creation and successes, and sadness at its dissipation.

Think of finding a job or losing a job.

Still later:

we think that the human mind contains an evolved, functionally specialized motivational mechanism that, when exposed to a situation of personal exploitation, generates a punitive sentiment toward the agent that is deriving an unfair advantage in an exchange

Hence the furor over “price gouging.”

Punitive strategists switch on the productive possibilities of the groups they are in, unleashing collective efforts that would otherwise be inhibited by the presence of free riders. This happens because the presence of punitive strategists in potential exchange interactions repels free riders, causing them either to avoid such interactions or to become (facultatively, in the presence of punitive strategists) behavioral cooperators. Because free riders avoid punitive strategists, punitive strategists will far more often find themselves in groups without free riders

Many people feel sentiments according to the following social exchange logic: I will give up the benefits of violating this moral rule if others in my social world do. If I followed the rule, and you did not, I have been cheated by you. The more others cheat on a rule I follow, the more exploited I feel, and the more tempted I am to discontinue following the rule when it is costly to do so

Human learning

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I might read How We Learn by Stanislas Dehaene. Some notes from the sample:

Four essential mechanisms, or “pillars,” massively modulate our ability to learn. The first is attention: a set of neural circuits that select, amplify, and propagate the signals we view as relevant–multiplying their impact a hundred fold. My second pillar is active engagement. . .learning requires active generation of hypotheses, with motivation and curiosity. The third pillar, the flip side to active engagement, is error feedback. . . eliminate inappropriate hypotheses, and stabilize the most accurate ones. Finally, the fourth pillar is consolidation: over time, our brain compiles what it has acquired and transfers it into long-term memory. . .Repetition plays an essential role in this consolidation process.

Think about how I learn a new dance. I have to pay attention to the teacher. I am either consciously or unconsciously forming hypotheses about what the next steps will be. When I find myself on the wrong foot, I have to go back and figure out what I got wrong. Finally, the more I do the dance the less my conscious brain has to work to do it.

“adversarial learning,” consists of training tow opponent systems. . .The first system gets a bonus whenever it successfully identifies a genuine Van Gogh painting, while the second is rewarded whenever it manages to fool the other’s expert eye. . .

. . . Some of the areas in our brain learn to simulate what others are doing; they allow us to foresee and imagine the results of our actions. . . Some areas learn to criticize others: they constantly assess our abilities and predict the rewards or punishments we might get. . .We will also see that metacognition–the ability to know oneself, to self-evaluate, to mentally simulate what would happen if we acted this way or that way–plays a fundamental role in human learning. The opinions we form of ourselves help us progress or, in some cases, lock us into a vicious circle of failure. Thus it is not inappropriate to think of the brain as a collection of experts that collaborate and compete.

What do you work with?

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Do you work with symbols, things, or people? The answer determines how you were affected by the virus crisis.

If your value comes from working with symbols (words, computer code), then you are more likely now to work from home. Otherwise, your work was not heavily disrupted.

If your value comes from working with things, then if those things were “essential” you kept working. In fact, work to deliver things actually increased. If you made things that were not so essential, you may have experienced a short-term layoff.

If your value comes from working with people, then you have had to shut down or operate in a greatly altered environment. Think of a restaurant server, a hair stylist, a teacher, or the proprietor of a small shop.

The virus crisis is going to exacerbate some of the class differences that Joel Kotkin talks about. The class least adversely affected includes those who were already separating themselves as an upper crust. The class most adversely affected includes those who already were suffering declines in status and relative economic strength.

The case for PSST

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If you listen to Raj Chetty at Princeton, one implication is that the economy is not well described as a GDP factory. Most of the talk is about heterogeneities in the economy. Affluent consumers behave differently from low-income consumers. Small service businesses were impacted differently from other firms. And above all, the patterns of specialization and trade that were broken are not likely to come back quickly.

As a result, the “stimulus” largely missed its target. In order to be able to see this, Chetty and his collaborators are using new data sources, rather than the standard government statistics that were designed for the Keynesian paradigm.

But to make the most sense of what he finds, it helps to read Economics after the Virus, my latest essay. I had already anticipated most of Chetty’s empirical results when I wrote,

In a typical recession, households reduce spending involuntarily, since they have lost income. In this case, household members have deliberately chosen not to shop or travel or seek entertainment outside their homes, even if they can afford to do so. . .In a typical recession, construction and durable-goods manufacturing experience the sharpest declines, while service industries stay relatively stable. In this case, in-person services have been among the hardest hit sectors of the economy. In a typical recession, nearly every industry can look past the immediate troubles and foresee something close to a return to normal. In this case, retail stores, restaurants, entertainment venues, institutions of higher education, hotels, and the like foresee drastic changes even if the economy were to revive rapidly.

It is one of my most important essays. Academic economists, including Chetty, should be reading it in something like the American Economic Review, in order to have perspective on Chetty’s findings. But the PSST story is too “soft” to sell to an academic journal. George Akerlof explains the methodological bias.

it has become all-but-uncontestable that new theories need to generate testable predictions. This belief may seem innocuous; but, in point of fact, it involves rejecting softer tests of theories, such as those that evaluate models based upon the quality of their assumptions as well as the quality of their conclusions. It especially entails exclusion of evidence from case studies, whose detailed evidence can be highly informative regarding context and motivation. While harder tests with statistical data may be a gold standard, restricting the set of permissible tests reduces—perhaps greatly—the ability to test theories. Hence, bias toward the hard makes us too accepting of existing theory and insufficiently willing to be self-critical as a profession.

Pointer from Tyler Cowen.

What I’m reading

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Joel Kotkin, The Coming of Neo-Feudalism. On p. 8, he writes,

The modern clerisy often claim science as the basis of their doctrines and tout academic credentials as the key to status and authority. They seek to replace the bourgeois values of self-determination, family, community, and nation with “progressive” ideas about globalism, environmental sustainability, redefined gender roles, and the authority of experts. These values are inculcated through the clerisy’s dominance over the institutions of higher learning and media, aided by the oligarchy’s control of information technology and the channels of culture.

Scientists against science

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Ten days ago, the head of the American Association for the Advancement of Science issued this:

AAAS acknowledges and supports #ShutDownSTEM, a grassroots movement that aims to “transition to a lifelong commitment of actions to eradicate anti-Black racism in academia and STEM.” We are committed to education, action, and healing at AAAS, and we hope to encourage other institutions and individuals to get involved. This is not a moment that our community can let pass. It is time to stop what we’re doing, take time to listen to our friends and colleagues, and commit ourselves to taking the actions needed to bring about real and lasting change.

I have been re-reading The Secret of Our Success, by Joseph Henrich. Here is one passage:

Sometime in the 1820s an epidemic hit this population of hunters and selectively killed off many of its oldest and most knowledgeable members. With the sudden disappearance of the know-how carried by these individuals, the group collectively lost its ability to make some its most crucial and complex tools. . .these technological losses had a dramatic impact, leaving the group unable to hunt caribou (no bows) or harvest the plentiful Arctic char from local streams (no leisters).

The point of this passage is that it is possible for a culture to lose valuable knowledge and revert to a more primitive state. It strikes me that our academic leaders are attempting to do exactly that.

A Peter Principle for government

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The Peter Principle is that in an organization someone will be promoted to a level where they are incompetent. The intuition is that if you prove successful in a job, you will get promoted. You only stop getting promoted when you end up in a job that is beyond your capability.

Now apply that same intuition to a successful government agency. If it does its job well, it will be given additional responsibilities, until it reaches the point where it does nothing well.

The CDC has taken on a very broad mission, and it has bungled its narrow mission. It seems to me that political leaders keep broadening the missions of the military and the Fed, and this probably will not turn out well.

But what made me think of this is the issue of police reform. My first thought was to whittle down the mission of the police and train them more rigorously. But then I thought that if we did that and it worked, the result would be that they would get a good reputation. And then we would give them a broader and broader mission, until. . .

The paradox of accountability

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Accountability means having our ideas and actions evaluated by others, with those evaluations having consequences. The paradox of accountability is that everybody needs it but nobody wants it.

Everybody needs accountability in order to stay on track. Without effective accountability, individuals and organizations become weak and corrupt.

Nobody wants accountability, because it limits our autonomy. Whether our intentions are good or not, our autonomy is constrained by those who hold us accountable.

Because nobody wants accountability, we try to counteract mechanisms that are designed to create accountability. A CEO is supposed to be accountable to shareholders via the board, but the CEO tries to get around this by “stacking the board.”

Some remarks:

1. With any organization, you can study its accountability mechanisms. Who set them up? What concerns were they trying to address? How well do the mechanisms work? What are their weaknesses?

2. One can interpret institutional history as an evolutionary struggle to establish and evade accountability mechanisms. Organizations respond to corruption by trying to adopt more robust accountability mechanisms. Individuals try to increase their autonomy by finding ways around those mechanisms.

3. The 2008 financial crisis exposed a weak link in the accountability system in an unexpected place: the credit reporting organizations, like Moody’s and Standard and Poor’s. The buyers of mortgage securities were looking for AAA ratings for regulatory purpose only, not because they truly wanted to be certain that the securities were highest quality. The regulators treated the AAA-rated securities very leniently in terms of bank capital requirements, thinking that the credit reporting organizations were more accountable than was actually the case.

4. It seems to me that our society is collapsing because accountability mechanisms are falling apart.

Professors don’t give students bad grades, and students wish to abolish grading entirely. When they graduate, they long to work in the non-profit sector, where for the most part you are accountable for intentions and not results.

The professors themselves are not accountable for doing rigorous work. They just have to worship the diversity religion.

We are losing the small-business sector, which is most accountable to customers. We are replacing it with large corporations that are accountable to government for bailouts and to the social justice mob for approval.

Inflation risk

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Alberto Cavallo writes,

By April 2020, the annual inflation rate of the US Covid index was 1.06%, compared to only 0.35% of the equivalent CPI (all-items, US city average, not seasonally adjusted). The difference is significant and growing over time, as new social-distancing rules and preferences prevent consumer spending in categories that are experiencing deflation, such as transportation, and induce more expenditure in food and other groceries, where prices are increasing over time.

This is one reason that TIPS or other inflation-indexed bonds may not hedge well against inflation. Official measures may not pick up the rise in the cost of living.

The Harald Uhlig matter

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John Cochrane writes eloquently.

neither Krugman, nor most of the twitter mob, nor the AEA have the beginning of a leg to stand on for a charge that Harald’s tone is way out of line. Yet Harald’s are the first tweets to receive public reprimand from the sitting president of the American Economic Association.

The whole post is a must-read, in my opinion. Cochrane goes on to cite an AEA code of conduct, which reads in part

Economists have a professional obligation to conduct civil and respectful discourse in all forums.

As Cochrane points out, Paul Krugman is a persistent violator of this. I would add that Joseph Stiglitz is, also.

These are bad times in the intellectual world. In the near term, I see nothing that will stop things from getting worse.