Economists Are Odd Fellows
[UPDATE: I added the Paul Romer one, and clarified Landsburg’s position.]
I hope all of you take this in the proper spirit. Especially if you follow me on Facebook, you know that every once in a while I like to step back and point out the big picture. To be clear, I fully understand what’s going on in each of the below links, and I’m not criticizing the economists in question.
Rather, I’m just pointing out how odd we are.
==> Austrians famously think that there’s too much math in economics, and that it obscures the logic of the underlying theory. But we are always lectured that to be scientific, you have to be precise, and math is the way to be sure about what we’re saying as economists–you don’t want to slip in some assumption verbally without realizing you’re doing it. So anyway, Paul Romer and Brad DeLong are now really mad at those jerks from the Chicago School who sneak in mathematical assumptions into their papers without explaining verbally how their models work. Can’t these Chicago guys realize they are undermining the scientific method when they do this?
==> A pretty serious debate among serious macroeconomists right now concerns NOT whether raising interest rates is a good or bad idea, but which direction (price) inflation would move in, if central banks suddenly raised interest rates significantly. And when the leader of the dominant view responds to the minority viewpoint, some really sharp guys try to explain to other economists exactly what the response was, but admit they’re not really sure they understand it. Again: This is an argument over whether raising interest rates will cause price inflation to go up or down; really sharp economists can’t even 100% convince themselves of why they believe in their answer to that question.
==> I am a pacifist and yet I recently wrote a column on the most efficient way to wage war.
==> Steve Landsburg spent an hour thinking about it, and still couldn’t explain why giving all the available elite public school slots to only white kids–because they are white–would be unfair.
==> Edmund Phelps proudly announced that, if given the choice to wipe out half the humans who ever lived, he would not do it. (Because of classical music, of course. Duh.)
Thanks for the observation on interest rates…I thought I’ve been missing something but with more qualified economists struggling with this, I can continue with my own studies.
On Landsburg, his expertise is in framing the question, not answering it (something I also enjoy and a skill I have often used to irritate teachers/colleagues/etc).
“This is an argument over whether raising interest rates will cause price inflation to go up or down; really sharp economists can’t even 100% convince themselves of why they believe in their answer to that question.”
-That’s because of interest on reserves, which raises the monetary base, which raises inflation, while discouraging banks to lend out money, which lowers inflation. The overall effect is unclear.
“Steve Landsburg spent an hour thinking about it, and still couldn’t explain why giving all the available elite public school slots to only white kids–because they are white–would be unfair.”
-He was comparing it with randomly assigning kids to elite schools. Also, this comment wins the thread:
“You forgot an option: send the best 500 students to the bad school, and watch it magically become the good school…”
Sending the White kids to the good school will, all else being typical, make it become the Double Plus Good school.
E Harding, I’m not saying your own view is right or wrong, but what you’re saying on the interest rate stuff has nothing whatsoever to do with the argument of the professional economists in question.
If the Fed raised rates by winding down the base to trend, that would obviously be deflationary in the short run and in the long run as well. If it raised rates by raising interest on reserves, that, as I said, would be ambiguous. It’s not only whether rates are raised, but how that matters.
Imagine Japan raises its target rate to 5% overnight and keeps it there forever. It would first immediately cause a deflationary depression. The long run would be unlikely to lead to higher inflation and would probably lead to more deflation.
Imagine the U.S. kept its target rate at zero from 1934 to today. Wouldn’t the U.S. have a (much) higher price level?
Also, look at these charts:
http://research.stlouisfed.org/fred2/graph/?g=1yo6
http://research.stlouisfed.org/fred2/graph/?g=1yo8
http://research.stlouisfed.org/fred2/graph/?g=1yoc
In the short-term, zero rates are consistent with everything from 28% NGDP growth to -6%.
Aw, come on! I’m in moderation, again?
What did I do?
Oh, right, it’s the links.
These moderation rules are set up with perverse incentives. Since you are allowed to post only one link per comment without moderation, it incentivizes you to spam links in separate comments..
😉
But honestly now, what is the trouble with multiple links anyway?
Or, alternatively, post infinity links, but remove the http:// .
Also, I still think Murphy’s 178 degrees off track on the war article.
99.999% of the population have no direct connection with Fed interest rates, because they are not allowed to get access to the 0% interest loans. Someone arguing about infinite rationality might stop for a moment to consider the situation people are really in on a day to day basis.
People do care about variable interest mortgages, and about the 30 year fixed rate mortgage, but if you compare those rates to the Fed rate, there’s significant amounts of slack between them. The relationship is very much unclear.
https://research.stlouisfed.org/fred2/graph/?g=1yjO
The overall trend is downwards, but recently it looks like it’s bottoming out and making the turn. The rates that actually matter to real people are raising regardless of Fed policy.
On Phelps: Wouldn’t “halving population size each year from the beginning of time ” actually very likely wipe out more than “half the humans who ever lived” ?
Maybe Transformer. I originally took him to mean that right now, he goes back and randomly eliminates half the people who are alive at any given time.
But on second thought, maybe he meant what you seem to be suggesting, that each year the population shrinks in half.
Of course, that really doesn’t seem possible as to what he meant, since then the population would approach zero pretty quickly.
Phelp’s thought experiment if meant in the way you originally read it (and I think I thought he must have meant that too) is logically incoherent. It’s like he’s saying, if he could remake the world so that every year in human history, the world population was half of what it was in reality. In an prior period, the randomly selected half of the population will be ancestors of some portion of the next period. The act of eliminating half of them in period A, prevents you from going to later period B and finding the original population intact, for you to then cut in half again. Eliminating half of the human population in any period prior to the birth of Mozart, carries with it a non zero probability of erasing Mozart from existence. The period containing Mozart isn’t even necessarily the point in which this probability is highest!
Phelp’s thought experiment would have made more sense if he said something to the effect “if I could reduce the rate of human population growth from some point in human history by some amount permanently” and then presumably he still wouldn’t, cause again, Mozart (not literally, though, cause he’d be safe to do so in all periods after Mozart’s birth).
That is what is so scary about Piketty…”lets just chop off a few percentages here and there ad infinitum until we all have less than 500k to retire on.”
if you kill mostly woman yes if mostly men then the answer is no.
On Romer and DeLong
I’m glad Romer is bringing up questions about math in economics, but of course he isn’t digging deep enough. I’ll have to get the title of the paper tomorrow, but I recently read an article from the 1950s critiquing one of Hotellings mathematical papers. The bottom line: even “good” math econ papers fail to get the economics right. The mathematics in the papers don’t actually represent the economic concepts the authors say they do. I can’t recall the name of the journal, but it wasn’t obscure; maybe AER?
And as a reminder, here are some other fantastic blog posts on the subject:
http://organizationsandmarkets.com/2006/12/05/is-mathematical-expression-more-precise/
http://econlog.econlib.org/archives/2013/08/economath_fails.html
http://econlog.econlib.org/archives/2013/08/the_people_of_e.html
Bob,
I agree with you. That Landsburg post is quite odd.
Bob, I feel like you kinda missed Landsburg’s point, even though he kept saying it over and over. He states that no matter how random you try to make the allocation process appear, you will not succeed in making it any more random than it already is, with 500 students getting a lousy deal because there is no market-driven allocation process.
Obviously making things appear very random will succeed in “settling all disputes,” as you say. All disputes except the one that half the students have ended up in a lousy school without having any say in the matter, which is hardly a “fair” outcome. True fairness would be to either give all students an equal education or to provide some means of studentts on the margin to change their fate.
RPLong if that *is* Landsburg’s point, then it relies on pretending we don’t know what random means in everyday language, as well as in probability theory. A coin flip isn’t actually random; it doesn’t rely on collapsing wave functions.
So if Landsburg’s point actually is, “A coin flip is no more random than whether Landsburg or Mike Tyson is black” then I think it’s a pretty silly point. I think he’s saying something different, more like, “Why should we care that coin flipping is random and skin color is not? They both allocate 500 spots to students, which is efficient.”
I can’t claim to know for certain which is correct, but the passage the leads me to disagree with your interpretation, Bob, is this one (emphases added):
“So the orthodox view, as I understand it, is that Methods A, B and C are appropriately fair and Method D is not. But here’s why that bothers me: No matter what method we use, exactly 500 kids are going to end up in lousy schools. Under Method A, we say “Sorry kid, you got unlucky on the coin flip”. Under Method D, we say “Sorry kid, you got unlucky on your skin color”. Either way, you’ve got 500 kids who are stuck in bad schools through no fault of their own. How can one of these outcomes be in any sense fairer than the other?“
OK RPLong, but look at it carefully. I don’t see Steve saying, “A coin flip that we do tomorrow will have a random outcome, in just the same way that Mike Tyson’s skin color is random.”
Or, try a good one from either Walter Williams or Thomas Sowell (can’t remember which). One of them wrote in an op ed once, something like, “People often say of me ‘who happens to be black.’ No, I don’t happen to be black. Given my ancestors, of *course* I’m black.”
Isn’t that, in effect, what he’s saying when he writes,
“Method F is to Method B as Method E is to Method A: The only difference is that the coin is flipped when you’re age minus-two instead of when you’re age four. Once again, then, it seems bonkers to prefer one to the other.”
OK maybe, RPLong. But then, yes, if the whole thing ultimately boils down to, “What’s the big difference if we determine today’s decision by flipping a coin right now versus using the results of yesterday’s coin flip?” then I think it’s rather easily answered.
I’m not so certain that it is. Certainly “giving the coin another toss” is less fair for the kids who got a favorable toss the first time and an unfavorable one the second time. Flipping the coin again and again until a certain outcome is achieved uncovers a new way to dispute the process.
And I think we’ve seen that over the years with all the blow-back against affirmative action and similar policies.
So, I’m very sympathetic to Landsburg’s point that things will always be unfair, but they’ll be a little more fair if we use markets to allocate resources, rather than central plans… which of course is not something you’d dispute.
RPLong wrote:
So, I’m very sympathetic to Landsburg’s point that things will always be unfair, but they’ll be a little more fair if we use markets to allocate resources, rather than central plans… which of course is not something you’d dispute.
I don’t think that was really his point, though he believes it.
And anyway, if the way he is landing on markets is to say, “If you think about it, flipping a coin is really just as fair as giving it to the white guy because he’s white,” then I would say no, that post did not contribute to my appreciation of markets.
“And anyway, if the way he is landing on markets is to say, “If you think about it, flipping a coin is really just as fair as giving it to the white guy because he’s white,” then I would say no, that post did not contribute to my appreciation of markets.”
Hahaha come on Bob! 🙂
That’s not it. I think what he’s saying is that losing a coin toss is no less fair than losing “the lottery of birth,” but that markets can help make things more fair without making anyone worse off.
No matter what method we use, exactly 500 kids are going to end up in lousy schools.
Which is precisely why fairness has to be about something else.
RPLong:
“True fairness would be to either give all students an equal education or to provide some means of studentts on the margin to change their fate.”
No, that label of “true” is derived from a belief you have about fairness requiring equality of wealth.
It isn’t fair for anyone to be subjected to aggression by others.
Fairness requires equal rules, not equal outcomes. Outcomes are specific to the individual. Equal rules can be specific to everyone.
But you, Landsburg, Bob, and I all agree on that, MF. So my definition of “true fairness” is derived from the belief that people are given either (a) an equal portion of whatever it is, or (b) the freedom to make the best go of life subject to their constraints.
In fact, I’d argue that Landsburg implicitly rejects (a) by pointing out that schools are inherently unequal, and really he’s just arguing for (b), which is presumably what you and I and Bob all likely prefer: markets.
Sure, except a and b are not mutually exclusive.
Equality under the law, which each of us “gives” to everyone else by respect for property, and the freedom to make the best go of life subject to that equality under the law and subject to our own unique constraints, drives, talents, and productivity.
I don’t disagree with anything you’ve said there.
Method I:
Both of the schools, Good and Bad, are for blind kids, and everyone there is blind. All the kids flip a coin (with braille on it) to determine which school they get into. Then a seeing person comes along and informs them that all the kids in the Good school are black.
Discuss.
If given the choice, I wouldn’t wipe out half of those kids because then we might not get the next Ray Charles or Stevie Wonder.
Regarding Landsburg:
I think technically he is right but factors that make it more “unfair” to allocate on the luck factor race than a coin toss are:
– Psychologically to know already from the point of your birth that you lost the coin toss is hugely depressing (at least for most people, only few have the ‘now more than ever mentality’ to make up bad luck with double efforts). So there actually is a difference if the coin toss happens just before school begins or already when you are born. Envy grows with time.
– If there happen to be things that have to be allocated through some factor of luck, you at least want to have for each case a new coin toss. Allocating based on skin colour means you either lose always or win always, again losing always raises the envy factor hugely again.
So it should be clear that knowing all your life that you will lose always is clearly not envy-free.
So with technically Landsburg is right I mean if it would be only about one case in which luck is needed and if it was about Sheldon Cooper who is immune to psychological biases.
After (only) reading Bob’s comments on Landsburgs blog now (which I should have done before):
Bob is right of course, the main issue is that basing the method on skin colour or something similar would be done AFTER the ‘coin toss’, which means favouritism cannot be ruled out and hence it would always look fishy.
Bob,
I didn’t know, before I read this, that you are a pacifist. I have recently come to lean in that direction, but I still have questions. For example one point non-pacifist Christians often raise is that, when soldiers asked John the Baptizer what they should do to prepare for the kingdom, he didn’t tell them to get out of the war machine, rather he said “Don’t extort money and don’t accuse people falsely—be content with your pay.” Many people I have talked to gleefully proclaim on the basis of that verse (Lk 3:14) that it is morally acceptable to be involved in war. I don’t agree, but I have to admit that I don’t have a great answer. Would you mind sharing your thoughts?
Kevin, here’s Part III of a series; you should be able to get I and II from it. And then “Was Jesus a Pacifist?”
Thanks, I’ll check it out.