Author Archives: Arnold Kling

Road to sociology watch

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Dani Rodrik writes,

The new face of the discipline was on display when the AEA convened for its annual meetings in San Diego in early January. There were plenty of panels of the usual type on topics such as monetary policy, regulation, and economic growth. But there was an unmistakably different flavor to the proceedings this year. The sessions that put their mark on the proceedings and attracted the greatest attention were those that pushed the profession in new directions. There were more than a dozen sessions focusing on gender and diversity, including the headline Richard T. Ely lecture delivered by the University of Chicago’s Marianne Bertrand.

Woody Allen once worried about what you would get if you combine the head of a crab with the body of a social worker. I worry about what you get if you combine the scientific hubris of an economist with the ideology of a sociologist. Maybe this:

The AEA meetings took place against the backdrop of the publication of Anne Case and Angus Deaton’s remarkable and poignant book Deaths of Despair, which was presented during a special panel. Case and Deaton’s research shows how a particular set of economic ideas privileging the “free market,” along with an obsession with material indicators such as aggregate productivity and GDP, have fueled an epidemic of suicide, drug overdose, and alcoholism among America’s working class. Capitalism is no longer delivering, and economics is, at the very least, complicit.

Actually, the book has a publication date of March 17, but I guess it is now fair game to discuss the review copy I received. I think that their analysis is flawed in important respects. I’ll link to my review when it appears.

Scott Alexander on human decision-making

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He writes,

the brain compares the strength of various preferences and executes the strongest. Anything that strengthens your urges at the expense of your goals makes you more likely to do things you don’t endorse, and makes you worse off.

Suppose that when you wake up with a hangover, your goal is to never get drunk again. But later on you find yourself in a social situation that encourages drinking, and your preference for taking another drink becomes stronger than the preference to satisfy your goal of never getting drunk again.

So, should you seek treatment to try to get rid of the preference for taking another drink? Should someone else nudge you to get treatment? Should someone else do more than just nudge?

I don’t see a simple answer.

Accordingly, I don’t see a simple answer to the question of how to think about mental illness.

Tyler Cowen interviewed

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I think that the interview at The American Interest is the best interview of Tyler that I can recall. I don’t really want to pick out any one excerpt, but semi-randomly–

Ambition is distributed in a funny way and not everyone is going to have it. And the people who don’t have it. . . . There’s not some future where they’re paid like $300,000 a year, but even so, they’ll do fine.

Concerning alcohol, he says,

I don’t think it’s feasible to ban it, but the evidence that it destroys lives is phenomenal, and I think we should shun it socially to an extreme. And it’s one of our great crimes as a society that we don’t do that.

Classical liberalism vs. libertarianism

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John O. McGinnis writes,

Tocqueville recognized that civic mediating institutions and the habits they inculcated were essential to a free society. Victorian liberals supported aid to the poor but, as the late great historian Gertrude Himmelfarb has described, sharply distinguished between the deserving and the not-so-deserving poor. That distinction not only has good incentives for the poor but helps express the larger social values of honesty, thrift, and self-control needed for a liberal society.

Thus, classical liberalism offers a relevant critique of the modern libertarian movement, its wilder and younger brother. Libertarianism need not be so indifferent to the habits and morals of citizens, even as it ought to be less grudging in taking care of those who cannot care for themselves. Libertarianism cannot succeed as a governing philosophy if it is only a creed of low taxes and personal freedoms, important as these are to good society. It must, for instance, protect the associational rights that help sustain traditional virtues.

Trust problems

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In a conversation with Tyler, Reid Hoffman said,

I almost never meet with an entrepreneur that doesn’t come from an introduction from someone I trust. . .

the way that I do investing is entirely through my network

He also says,

most jobs are described as “must have a BA or a BS,” a bachelor’s degree, whereas a lot of jobs don’t actually need that. But it’s like, “Okay, what’s the simplest credential that everyone’s aware of that I could throw on the table that says you have some capability of learning, and you’ve been trained in some learning institution?”

And one of the things that I actually wrote is an essay that’s, I think, on both LinkedIn and reidhoffman.org, is thinking about creating a diploma that’s not this old sheepskin, but actually is a modern set of attributes and set of characteristics. And we could start looking at these certificates as something that has a much richer language that can apply to different things.

Can entrepreneurs, especially using artificial intelligence, create a more efficient solution to trust problems than Reid Hoffman’s reliance on his personal network, or hiring organizations’ reliance on college diplomas? There is a lot of money to be made if you can solve trust problems more efficiently. That is the way that financial technology firms make their money.

Or how about the trust problems involved in evaluating contentious books? Consider Nancy MacLean’s attack on James Buchanan, or Diana West’s books on Communist influence in the U.S. government.* Could an AI program walk through the webs of sources of such books and give a measure of the reliability of the narrative, which presumably would be less costly than having humans try to settle the issue?

*West argues, for example, that Lend-Lease was passed under Soviet influence. Even though she knows that it was passed in March of 1941, before Hitler surprised Stalin by invading Russia. In March, the Soviets were adhering to the Non-Aggression pact with Germany, and only Great Britain was eligible for Lend-Lease.

What is the Fed doing?

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Timothy Taylor writes,

Now, the primary tool for conducting monetary policy is the interest rate that the Federal Reserve pays for excess reserves. That interest rate will shape the desire of Federal Home Loan Banks to lend funds and the desire of foreign banking organizations to borrow them–and thus affect the federal funds interest rate.

This description should help to clarify why the federal funds interest rate will never exceed the interest rate on excess reserves paid by the Fed: The foreign banking organizations that are now the main borrowers in the federal funds market are receiving that interest rate on excess reserves, and they will only be willing to borrow at slightly lower interest rate.

So commercial banks don’t even factor in to the Fed Funds market any more. George Selgin has more discussion.

I would suggest not thinking of the Fed as a monetary authority. Instead, think of it as a large bank used by the government to allocate credit, especially to itself. I think that explains the opacity of Fed operating procedures.

What is the true margin of error?

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Alex Tabarrok writes,

The logic of random sampling implies that you only need a small sample to learn a lot about a big population and if the population is much bigger you only need a slightly larger sample. For example, you only need a slightly larger random sample to learn about the Chinese population than about the US population. When the sample is biased, however, then not only do you need a much larger sample you need it to large relative to the total population.

I am curious what Tabarrok means in the first sentence by “need a slightly larger sample.” I thought that with random sampling, the margin of error for a sample of 1,000 is the same whether you are sampling from a population of 10 million or 50 million.

But the issue at hand is how a small bias in a sample can affect the margin of error. We frequently see election results that are outside the stated margin of error of exit polls. As I recall, in 2004 conspiracy theorists who believed the polls claimed that there was cheating in the counting of actual votes. But what is more likely is that polling fails to obtain a true random sample. This greatly magnifies the margin of error.

In real-world statistical work, obtaining unbiased samples is very difficult. That means that the true margin of error is often much higher than what gets reported.

Books I’ve looked at recently

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1. How the Old World Ended, by Jonathan Scott. Just read a sample, and I may not have reached the meat of the book, which I believe is focused on political and cultural change. Looks like another try at what Charles Kindleberger used to call the “well-squeezed orange” of the history of the Industrial Revolution. Scott’s version prioritizes water transport as a stimulus to trade and political freedom as a stimulus to innovation. These elements first affect the Netherlands. Then they move to England, where they are amplified by natural resources (coal) and vast population expansion, including large settler populations in America.

2. The Power of Bad, by John Tierney and Roy F. Baumeister. Their main point is to advise us to lean against our tendency to focus on the negative. My favorite passage:

The modern world will always be in crisis because its wealth and freedom have created a crisis industry. In the agricultural era, society could afford to support just a few intellectuals, usually beholden to royal patrons who didn’t welcome criticism of their policies. . .But after the Industrial Revolution. . .a new class of secular doomsayers emerged armed with charts, theories, and printing presses.

Some other excerpts:

The precise term for the adults scaring these children is availability entrepreneurs. They’re the journalists, activists, academics, trial lawyers, and politicians who capitalize on the human tendency to gauge a danger according to how many examples are readily available in our minds.

The one bit of good news on September 11 was that this new terrorist threat to aviation was already obsolete [because pilots would not longer passively hand over control of a plane].

But the horror of the bad news overwhelmed everyone’s judgment. . .In its rush to protect travelers, Congress created a bloated bureaucracy to screen passengers, the Transportation Security Administration. . .squandered more than $50 billion over the next decade

In the experiment, people who saw the negative version of the review rated the critic as significantly more intelligent than did the people who read the positive version.

Blackmailers shake down hotel managers and restaurateurs by posting a bad review on TripAdvisor, Yelp, Google, or Facebook

Class war theory

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Michael Lind writes,

In the interest of inter-class peace and creedal coexistence, both labor markets and cultural institutions require a degree of regulation. Collective bargaining to set basic wages and workplace rights can take forms other than the failed American system of enterprise bargaining. There could be, for example, bargaining among representatives of all firms and employees in particular industries, occupation-specific wage boards or labor representation on corporate boards. As for the media and education, institutionalized consultation with religious institutions and other organizations represented on government oversight commissions could be part of a new Fairness Doctrine like the one that governed TV and radio in the 20th-century U.S.

It seemed to me that the essay could have been shorter, but it is an excerpt from a book. Hard to imagine.

I think that a more plausible path for social equilibrium is for the status of college education to fall sharply. We would be better off with a new set of prestige hierarchies.