Saturday, May 08, 2010

Statistical competency

A friend posted this on facebook the other day, and I've been thinking: yes, lack of knowledge of even basic statistics leads people to completely moronic opinions. (See the comments on that article for an example.) On the other hand, when you have a little bit of statistical competency but not a lot, you get things like this:
For the first time in history, several countries have transferred directly, from a non-market to a liberal market economy. They stayed at the same technological level, and kept full statistical records of the effects. It is now possible, for the first time, to estimate the free-market contribution to death rates. These effects are significant, and huge numbers of people are involved. In Russia crude death rates rose from 10,7 per 1000 in 1989 to 15,8 per 1000 in 1994. Comparing Europe in 1500 with Europe in 2000 will not show the effects of the free market: society and technology were fundamentally different in 1500. But Russia in 1994 had the same technology, the same urbanisation, the same infrastructure as Russia in 1989. What changed was that a centrally-planned regime collapsed, and a liberal market system replaced it.
Yes, everything stayed the same except the regime collecting the statistics, so this is a perfectly valid inference. Read more.

Thursday, April 01, 2010

Why don't skeptics get economics?

Part 1 of a probably continuing series.

Behold, the intellectual output of skeptics on the subject of economics. This is from the Talk Origins newsgroup, a bastion of people who dedicate their time to defending the theory of evolution from spurious attacks, contributing rebuttal after rebuttal to false creationist claims, almost always accompanied by links to genuine peer-reviewed literature in journals in biology, astronomy, geology, etc. But darest one crack open a peer-reviewed journal in economics for once in their lives? Nay, unto you, I say: Nay!
The theory that the free market is a solution to all our economic woes is
based on the [false] assumption that the decisions are rationally based on
correct and full information available to all (the reason why insider
dealing is a crime).
And that's from one of the good posts!

Never mind that insider trading prohibitions actually reduce information in the market, by outlawing information-providing transactions. The theory that the free market is a solution to many (not all) of our economic woes is based on valuable evidence, recorded time and again in experiments, cross-time comparisons, and international comparisons. Despite what some Austrians may tell you, economics is not an a priori science. Assumptions are tested all the time. Where they are found wanting, economists apply that information in laboratories and in the field (PDF). Analysis of market sectors apply such tools as well.

You might expect people who spend most of their time defending the nature of empirical evidence in biology to apply at least some of that intellectual rigor to other academic pursuits. But that's a mistake.

Before I'm accused of generalizing from only one example, let me say that this is a common trend I've noticed. The rationalwiki page for economics, and almost all of its sub-pages, is dismal. The Richard Dawkins forum is even worse. I even once saw a poster there endorse Money as Debt. . . with no rebukes! The JREF forum is marginally better. Less Wrong is by a huge margin the best skeptic or rationalist website I've seen when the posters discuss economics, perhaps because it's a splinter community from the blog of an actual economist. From what I can tell, it's the exception rather than the rule.

What compels someone to actually consult a textbook when someone says something suspicious like, "The spin of the planets contradicts the conservation of angular momentum," but to be all RIGHT ON BRAH! when someone says something equally suspicious like, "The financial crisis was caused by deregulation." You'd think they would at least ask, "Hey, which deregulation, specifically?" But nope.

My guess is group signaling has a lot to do with the problem, but I'll have more thoughts later. Read more.

Monday, March 01, 2010

Let the blogging resume

Unfortunately I'm late to the game on discovering Jamie Whyte, the British philosopher. He has a deep understanding of economics and is witty to boot. Try this 2006 column:
Drug users are simply people for whom the pleasure outweighs the risk of death, illness, addiction and all the rest. In other words, they are people for whom the benefits of drug use exceed the costs. They wouldn’t be drug users otherwise. The same is not true of everyone. Some value health more and pleasure less. For them, drug taking would deliver a net loss. Fine: these people would not take drugs even if they were legal.
But addiction and asymmetric information are grounds for a powerful market failure, are they not? Yes, and Whyte handles this problem deftly:
But underestimation cuts both ways. People might fail to do something that is good for them because they underestimate the benefits. Those who have never taken Ecstasy might not know how wonderful it feels. Should it be made compulsory to eliminate this risk?
There is a simpler case against an outright ban, but it requires an economic argument Whyte doesn't have the space to make in a brief column. To minimize utility loss, the proper response to a case of asymmetric info with high costs is not to ban or regulate but simply to provide the info. Inform the citizens how dangerous and addictive drugs are and they can decide the rest. Of course, the government does spread information about the dangers of drug abuse, but, as in the case of compulsion, misinformation cuts both ways. If the government spreads lies about drugs, this will lower utility as well. Utility is only maximized if government propagates the correct information about the dangers of drugs--that is, if it actually eliminates the case of asymmetric information rather than swinging it the opposite way.

And, seeing as the government spreads lies and misinformation about the dangers of drug use*, it's fair to say that no aspect of modern drug prohibition is justified on efficiency grounds. The other grounds, as Whyte well explains, are basically rubbish.

Unfortunately, Whyte concludes with a mistake:
I suspect that something similar makes legislators systematically discount the benefits of drugs. It is not enough that people value something. To count it as a benefit, our betters in Westminster must deem it worthwhile. And, as with kinky sexual gratification, they do not consider getting high to be worthwhile.

It is not concern for our welfare that explains the illegality of drug use. It is bigotry.
On the contrary, politicians have shown time and again that they are big fans of drugs. I don't disagree that bigotry dominates drug laws, but it isn't the bigotry of elected officials. It is the bigotry of the voting public.

*Don't believe there is misinformation in anti-drug propaganda? Ask yourself how addictive you think various drugs are based on government advertisements, then check the real numbers for yourself. If you significantly overestimated, congratulations, you are imperfectly informed such that you may be missing out on some wonderful utils! Read more.

Monday, July 20, 2009

What a waste. . .

Of a good pejorative.
Fossil Fools Day is an environmental demonstration day. It occurs on April 1st. The name is a play on the term fossil fuels and April Fools' Day.
Clearly "fossil fools" should have been reserved for creationists, not polluters. Read more.

Friday, May 22, 2009

The monster at the end of this blog

The Monster at the End of This Book is now available online. I still tell people how clever this children's book is today. It's very, uh, meta. Read more.

Shorter Bill Donahue:

Molestation doesn't count unless there's penetration! All the other stuff is No Big D. Read more.

Thursday, May 21, 2009

Pop lessons in economics

The first in a hopefully multi-part series.

I can't help but analyze the media I see in terms of economics. There are a lot of good and bad lessons found in our entertainment ripe for the analyzin'. Take, for instance, 2Pac's "Brenda's Got a Baby" from the album 2Pacalypse Now. The song begins with a sort of exhortation. You may think that Brenda's problems are not your business, but 2Pac is going to explain why you should care:
I hear Brenda's got a baby
But, Brenda's barely got a brain
A damn shame
The girl can hardly spell her name
(That's not our problem, that's up to Brenda's family)
Well let me show ya how it affects the whole community
In economics, we describe spillover effects as externalities. A transaction may be mutually beneficial but socially harmful. The standard example is pollution. You want to buy heating from your home, a provider wants to sell you electricity, so you both profit. But the burning of fossil fuels creates smog, etc. that harms a third party.

Externalities can range from high-profile planetwide events (global warming) to the totally innocuous. For instance, if I buy an ugly shirt that I like a whole lot, I and the shirt vendor both benefit whereas you suffer a minor externality; that is, you see my ugly shirt and hate it. Since this is extremely common, we tolerate most externalities.

It's important to distinguish between internalized and externalized costs. Yes, making a t-shirt uses cotton, polyester, ink, machines, and so on, which all cost money. But those costs are internalized. The shirt manufacturer outbid other people who wanted to use those things, meaning they went to the person with the highest preference for them. Depriving other manufacturers of those goods is "efficient" (i.e. it satisfies willingness to pay requirements). Other manufacturers wanted to use those goods, but they didn't want them as much as the t-shirt manufacturer. There is no need to use political action to adjust these costs unless you have good reason to oppose efficiency as a rubrick.

Externalized costs spill over onto third parties not involved in the transaction. I may value breathable air, but since I am not involved in the manufacture or purchase of your t-shirt, I don't have a say. Pollution is an externalized cost, one that we often wish to solve through political action.

So when I hear 2Pac say that Brenda's pregnancy affects the whole community, it almost certainly does--but then what doesn't affect the whole community? Few people actually oppose any sort of action just because it "affects the whole community" (though there are exceptions), so what I'm listening for is an explanation of the externalized costs involved. How does Brenda's getting pregnant invoke significant social costs on her neighborhood?

Unfortunately, 2Pac fails to provide. The rest of the song details how Brenda's sad situation affects Brenda. (You can read the lyrics here.) Brenda gets dumped, is not smart enough to know who to ask for help, has the baby, gets abandoned by her family, turns to selling drugs, finally turns to prostitution, and gets murdered.

Little of this affects the surrounding community in any significant way. Some of the community members may be offended by drug-selling or prostitution, but "offense" is not usually considered a significant externality. Again, with exceptions. In the U.S. we seem to use this criterion alone to ban prostitution, drugs, the sale of organs, and so on. But thinking in efficiency terms, political action is only economically justified if the collective amount the offended is willing to pay outweighs the collective amount the transaction parties are willing to pay. The song notes that nobody cares about Brenda, including her family, so it's safe to say that few people in her community would be willing to pay Brenda not to sell drugs or sex. Selling drugs and sex to customers is a benefit, not a cost, so we can't count that. The customers get drugs and sex, Brenda gets money, and they both profit from the transaction.

One could argue that Brenda is too young or stupid to be selling sex. She can't adequately weigh the costs and benefits of her actions, and therefore makes bad decisions. That argument is fair enough, and almost certainly true (2Pac emphasizes her young age and low IQ). But this is an argument that what Brenda perceives as a net gain is really a net loss. This affects Brenda's costs, not the whole community's. There is still not an externality--Brenda's increased costs are offset by the gains to her customers, who would not get her services if she were smarter.

This is where efficiency standards might fail. One might argue that Brenda's costs are more important than her customers' gains. Because of her special status (as an underaged, undereducated rape victim), we have to weigh her costs and benefits differently. I can buy this argument--fully support it, even! But we still haven't established any externalized costs on the community aside from ordinary ol' "I take offense at that!"

From what I can tell, there are none to be found. Brenda gets robbed as a drug dealer and murdered as a prostitute. Crime certainly has spillover effects, but these are the result of criminals' actions, not Brenda's. Drug selling is not an inherently criminal-laced activity. In the U.S. we sell drugs (alcohol) legally all the time with few more robberies than you'd expect from any retail store. So now we have an externality, but not one caused by Brenda's actions. The community is affected by robbers and murderers, not by dumb girls having children.

(There might be an argument that Brenda's child is especially likely to grow up to be a robber or murderer. This is the case made in Elvis's "In the Ghetto." But that's another story.)

The closest thing I can find to a community-wide cost is a mention of social workers. Social workers are taxpayer funded, meaning that other people in the community are subsidizing the care of Brenda's baby, which could be inefficient if they don't actually want to do so. Brenda is less likely to have a baby to begin with if she doesn't have that eased burden.

Somehow, I don't think "we need to reduce government programs to reduce moral hazard" is the theme 2Pac was going for.

Until next time, kiddos! Read more.

Wednesday, May 06, 2009

Rhythm Heaven

In case you don't feel like reading this, I've provided a TLDR version:
People who play videogames are annoying. I can make fun of them using real theories from real scientists. You should play Rhythm Heaven for the Nintendo DS.
I haven't been posting much because, hey, the end of the year in grad school is a busy time. Tonight is my first (and probably hardest) exam. Yesterday, my roommate commented, "You've been studying all day, how much more studying could you possibly have to do?" I had to control my rage.

However, I have had a little bit of time for videogames. So let me tell you about Rhythm Heaven.

Or, actually, first let's read the stupidest thing ever written. The author of VG Cats, see, thinks that the world owes him something because he used to be a social outcast for his love of videogames. Actually, for the younger generation videogames have always been mainstream--do you know anyone in their 20s who hasn't played Super Mario Bros. 3? But the really funny thing, besides the comic not containing any actual jokes, is that, yes, I have played a great game recently. A great, wonderful, spectacular game; a game that, only 3 years ago, would never have been localized for the United States, and only those emulator-happy nerds would ever have known how awesome it was.

I say "only 3 years ago" because I'm talking about Rhythm Heaven, the DS sequel to Rhythm Tengoku, a GBA game that was great, wonderful, and spectacular, that never got released in the United States, and that only emulator-happy nerds ever played.

And to top it off? It's a casual game if there ever was one.

In fact, it's nothing but a collection of musical minigames. Each game asks you to do some simple task--tap the stylus to the beat, flick the stylus at the top of a musical scale, repeat some musical phrase by a combination of tapping and flicking. And that's it. The rest is all charm. In a game of ~50 different minigames (some of them repeats, yes), there was only one that I didn't completely love--the only one in which the accompanying visuals made finding the rhythm more difficult rather than less.

I can hardly describe what's so great about it. When you see videos of it, you're more likely to think, "What's so great about that?" And, well, what's so great about it is that 1) There's a whole lot of variety and cuteness, the songs are short, and the game even lets you skip the stages you can't beat, so it's pretty much impossible to get bored of it until you're finally done with the whole thing or you just kinda hate rhythm games, and 2) Oh man the remixes. After you complete four stages, the game gives you a remix stage to play, which cobbles all four previous stages together into one omnisong. The first part of this video is my favorite remix thus far. Maybe that will give you an idea of the diversity and charm on display here.

So anyway, back to that awful comic. Thanks to studying economics and cognitive bias, I actually have a s-c-i-e-n-t-i-f-i-c! explanation for how self-described "gamers" manage to get both the "modern games suck" and "casual games suck" points so awfully wrong all the time. First, rosy retrospection and the availability heuristic. People seem to have a tendency to rate past events higher in the future then they did when the events first happened. They also seem to remember more surprising, shocking, etc. events better than others. This causes them to overestimate probabilities by focusing on what's in their memory and ignoring base rates. If you were to ask a "gamer" the percentage of NES games that were TOTALLY AWESOME OMG out of the total, they'd remember the great games they played, remember some of the especially sucky ones, forget about some of the more mediocre ones, and completely ignore the fact that there are about 800 of the freakin' things, and the case gets only worse as videogames became more popular. (Wait, is the PS1 too late in the game for "gamers" to revere it as still being "hardcore"? I don't think it is, but maybe I'm missing some secret gamer's code or something.)

Furthermore, signaling theory explains the exclusion of even totally great "casual games." Gamers, diminished to a low status by society--and no, my little webcomic author, you did not reject society and become a social outcast for the sake of videogames; you couldn't talk about anything else, and it annoyed people, so they stopped talking to you--sought hierarchies among themselves. Status hierarchies are an extremely important factor in human psychology. We can't get away from it, even when we try. So, trashing casual games may seem stupid to you and me, but to people whose focused status-seeking behavior lies in how they play videogames, it's imminently important to make yourself look more important, smarter, or otherwise better than the unwashed masses who play casual games. The cost of missing out on Rhythm Heaven is lower than the cost of being a plebe. Remember, mockery from the likes of me isn't gonna hurt any feelings; I'm on the "outside" anyway. But a loyal following of webcomic readers who all agree with you puts you higher up on a hierarchy.

Besides, you can always just go back and play Rhythm Heaven on emulator when everyone's forgotten about it. Or, better yet, go back and say that you liked Rhythm Tengoku way before Rhythm Heaven ever came out, and Rhythm Heaven is totally just a watered down version (or whatever) and it's so not as cool. You might be able to get away with this; after all, casual games are totally ok as long as they're Japanese. Read more.

Monday, May 04, 2009

Austrian Economics Jokes

Tyler Cowen requests jokes about Austrian economics. Some of the submissions in the comments are pretty good! Read more.

Monday, April 20, 2009

Aptly put

Greg Mankiw puts things in perspective:
The Washington Post reports:
President Obama plans to convene his Cabinet for the first time today, and he will order its members to identify a combined $100 million in budget cuts over the next 90 days, according to a senior administration official....Earlier this month, both chambers of Congress passed Obama's $3.5 trillion budget outline for 2010, which includes unprecedented new investments in health care, education and energy. But the huge budget, which contemplates a $1.2 trillion deficit, has drawn the ire of small-government conservatives, who say that such high deficits jeopardize the nation's economic future.
Just to be clear: $100 million represents .003 percent of $3.5 trillion.

To put those numbers in perspective, imagine that the head of a household with annual spending of $100,000 called everyone in the family together to deal with a $34,000 budget shortfall. How much would he or she announce that spending had be cut? By $3 over the course of the year--approximately the cost of one latte at Starbucks. The other $33,997? We can put that on the family credit card and worry about it next year.


Edit: More from Megan McArdle. Read more.

Thursday, April 16, 2009

Soc2Econ

Why do I always miss the best April Fool's jokes when they first hit? Read more.

Sunday, April 12, 2009

Space Phallus is finally here!

Indescribably awesome and probably NSFW. Now this is a real game. Read more.

Friday, April 10, 2009

Garage Day

Something about nice weather always puts me in the mood for garage punk.

In light of my inability to find a version of "Teenage Hate" on youtube, have some Coachwhips instead:


Gotta love those homemade music videos kids make specifically for youtube. Read more.

Sunday, April 05, 2009

The Secret Sins of Economics

I immediately need to read more Deirdre McCloskey. Her rhetoric is better than your rhetoric. Read more.

Friday, April 03, 2009

Drugs and the Economy

IOZ asks us not to make drug legalization, which is about liberty, into a macroeconomic issue. He's right but he's wrong. As far as macroeconomics goes, the benefit is not that marijuana could be taxed, and I fully agree that there's no reason to go that route. But legalized pot would 1) Create jobs for entrepreneurial marijuana growers and 2) increase the working population because fewer people are being arrested. Think of it as equivalent to increased immigration--yes some populists would argue against it (perhaps not in this case since these pot users are American), but an increased labor supply increases demand as well as supply. Furthermore there would be fewer taxpayer dollars spent on the counterproductive drug war. Even if pot were not taxed at all it would be a free lunch in terms of GDP. Not an enormous jump for macroeconomic growth, but a positive nonetheless.

I still recommend remembering that the right to ingest into your own body what you choose is principally an issue about liberty and privacy, not economics. Will Wilkinson says it as powerfully as possible. Read more.

Thursday, April 02, 2009

Evolution, Holmes, Lochner

I'm reading Evolution: The Remarkable History of a Scientific Theory by Edward Larson. It's a history of the progress of evolutionary theory, topic-by-topic rather than chronological. I think it's pretty good, but that may just be my ignorance of history. I caught a major mistake on something I actually do know something about, so maybe the rest is full of simplifications or mistakes too. (Does anyone reading know?)

In Chapter 8, the section on the eugenics movement, Larson writes,
Opponents of public-health and welfare programs drew on Social Darwinist thinking to claim that personal freedom demanded nothing less than an end to social legislation--leading Supreme Court Justice Oliver Wendell Holmes to complain bitterly, "The Fourteenth Amendment does not enact Mr. Herbert Spencer's Social Statics." Holmes wrote these words in a dissenting opinion, however. The court's majority in that landmark case, Lockner v. New York (sic), applied Social Darwinian reasoning to strike down a state worker-protection statute.
It's not exactly a fair characterization. Holmes' quip was intended to ridicule the majority opinion's arguments about individual contract rights as deriving from a popular libertarian/eugenics text. (Apparently it worked.) The rest of his opinion is not about eugenics, but about the economic theory of the majority decision, which he claimed was unpopular and not protected by the Constitution.

That theory may share some roots with Social Darwinism, but it is not correct to conflate the two. Social Darwinism argues that the "best" survive in social competition, and by this society is made "better" just as a species is made more fit for survival. Economic liberalism argues that deregulation leads to efficient outcomes, maximizing consumer and producer surplus. That is, society (including the poor) benefits from highly competitive markets. It is not an argument about survival of the fittest; it's about maximization of welfare. Consumer surplus is maximized for the unfit as well. (To illustrate one major mistake of Social Darwinist forays into economics, see here.)

Lochner v. New York was specifically about a law restricting the number of hours a baker could work per week in New York. One could argue that the decision that the state may not be allowed to take an interest in the health of bakers was a Social Darwinist argument, but the court addressed and dismissed this idea. They write, "It is impossible for us to shut our eyes to the fact that many of the laws of this character, while passed under what is claimed to be the police power for the purpose of protecting the public health or welfare, are, in reality, passed from other motives." In other words, the majority opinion was that the law was not really about the health of bakers, but a bootleggers and baptists story. They furthermore argue that this specific law was not about health:
It is manifest to us that the limitation of the hours of labor as provided for in this section of the statute under which the indictment was found, and the plaintiff in error convicted, has no such direct relation to, and no such substantial effect upon, the health of the employee, as to justify us in regarding the section as really a health law. It seems to us that the real object and purpose were simply to regulate the hours of labor between the master and his employees (all being men, Sui juris), in a private business, not dangerous in any degree to morals, or in any real and substantial degree to the health of the employees.
If you want to read Lochner v. New York, with majority and dissenting opinions, it is available here.

And just to stress the point that Holmes' dissent was about economics and not eugenics, it's worth noting that Holmes was indisputably a Social Darwinist. In the majority opinion of Buck v. Bell, a case concerning whether the state had the power to sterilize Carrie Buck, a young mental illness patient, Holmes wrote,
The principle that sustains compulsory vaccination is broad enough to cover cutting the Fallopian tubes. . . Three generations of imbeciles are enough.
The final paragraph of his decision demarcates (poorly, in my opinion) the limitations of constitutionally-enforced sterilization. But there it is: Oliver Wendell Holmes believed the state had a public health responsibility to keep stupid people from breeding. Indeed a very short section from Larson's otherwise good book, but almost every detail was wrong.

Edit: The Carrie Buck case is mentioned later in the book. I am still not a fan of the structure. Read more.

Sunday, March 22, 2009

Scott Sumner on the efficient markets hypothesis

He doesn't find much use in discarding it.

It's along the same lines as Will Wilkinson's objections to "inefficient market" models of regulation: they don't include irrationality in the regulators. In fact they tend not to model the regulators at all. This is standard in economics; show a socially inefficient outcome according to the theory and suggest a regulation to fix it. Public Choice is the school that attempts to model government agents as well, but its conclusions are not as popular or oft-used as traditional models of markets. Sumner's entry has a small taste. Read more.

Thursday, March 19, 2009

David Bowie and Klaus Nomi on SNL

Singing "The Man Who Sold the World":


Read more.

Monday, March 16, 2009

Stewart v. Cramer

I enjoyed the interview on The Daily Show, if only for the "gotcha" moments using old Cramer footage, but I told my friends that Stewart readily confused normal activity on the stock market with stupid and unethical activity from banks. He does not have a good grasp on this stuff and his brand of comedic journalism is best used to illuminate hypocrisy.

Megan McArdle explains it better. Read more.

Tuesday, March 03, 2009

Taking Economics


Read more.