Wednesday, 20 September 2017

Area genetics



Here is an interesting map of the UK.



The colours relate to the genetics of people born in each county. Specifically, they show you the average Educational Attainment Polygenic Score (EA PS) of residents from within our sample. EA PS is a DNA measure that can be used to predict a person's level of education (e.g. do they leave school at 16, or get a university degree). Red is the worst, pale yellow is the best.

The black outline shows areas of former coalmining. Coal employment has been declining since the 1920s, and by the 1970s, these areas were often socially deprived.
I won't say much more for now!


Tuesday, 19 September 2017

We preregistered an experiment and lived



For my school experiment with Jinnie, we decided to pre-register our analyses. That seemed like the modern and scientifically rigorous thing to do.

There are different preregistration venues for economists. osf.io is very complete and allows you to upload many kinds of resources, then "freeze" them as a public preregistration. aspredicted.org is at the other extreme, it justs asks you 9 questions about your project. The AEA also runs a registry for randomized controlled trials at www.socialscienceregistry.org.

For this project, we decided to use osf.io. We were pretty serious. We uploaded not just a description of our plans, but exact computer code for what we wanted to do. Here's our preregisration on osf.io.

This was the first time I have preregistered a project. We ran into a few hurdles:
  • We preregistered too late, after we'd already collected data.
This was pure procrastination and lack of planning on our part. Of course it means that we could have run 100 analyses, then preregistered the analysis that worked.
  • Our  preregistered code had bugs.
This was true even though it worked on the fake data we'd used to test it. Luckily we were able to upload a corrected version, but if you've frozen the files you uploaded, this would be a problem.
  • Our analysis was not the right one.
The data looked odd and our results weren't significant! Now we faced a dilemma. The correct thing to do would be to admit defeat. You preregister, your results are insignificant... go home. However, it was also reasonably clear that we had assumed our dependent variable would look one way (a nice, normally-ish distributed variable), and in fact it looked completely different (huge spikes at certain values, some weird and very influential outliers).

We were sure that statistically, we should do a different analysis. But of course, then we were in the famous garden of forking paths. So we compromised: we changed the approach, but added an appendix with our initial analysis, and retrying it with some fairly minimal changes (e.g. removing  outliers). In fact, even just clustering our standard errors appropriately would give us a significant result, though again, that wasn't in the original plan.

Bottom line: you are an imperfect researcher. Your initial plan may just be mistaken, and as you think about your project, you may improve on it. Your code may fail. And the data may reveal that your assumptions were wrong. These can raise awkward choices. It is easy to convince yourself that your new analysis, which just happens to get that coveted significance star, is better than your original plan.

Despite these problems, I'm glad we preregistered. This did discipline our analysis. We've tried to keep a clear separation between questions in our analysis plan; and exploratory questions which we thought of later, or which seminar participants suggested to us. For example, we have a result where children are more influential on each other if they have many shared friends. Interesting, and it kind of makes sense among our adolescent subjecs, but it is exploratory. So, I'd want to see it replicated elsewhere before being fully persuaded this was a real result. By contrast, I am quite confident in our main result, which follows the spirit though not the letter of our plan.

In many cases, preregistering one's code may be over the top. It's better to state clearly and accurately the specific hypotheses you're going to test. There's no way you can be fully specific, but that's fine – the goal is to reduce your degrees of freedom by a reasonable amount. So, I would probably favour the quick aspredicted.org style, over the more complex osf.io style, unless I was running a really involved project.

I've just preregistered an observational analysis of some genetic data. It's over at aspredicted.org, number 5584. Just waiting for my authors to approve...




Monday, 24 July 2017

New, new working paper just out



I've also got a new working paper out with Jinnie Ooi, my brilliant research assistant and co-author. It's about how norms of fairness spread among teenagers. I'll blog in more detail later, but here is just a nice picture to give a taste of the result:


New old paper just out


A very old paper of mine and Martin Leroch's has just got published in Homo Economicus. (Ungated, older version.) The topic is reciprocity between groups. Here's a quote from the intro, I've bolded the key point:
At first sight it appears straightforward that people take revenge against entire groups, not only against direct individual perpetrators, even in routine social and economic life. For instance, consumers buy fewer products from countries which they see as politically antagonistic (Klein and Ettensoe 1999, Leong et al. 2008). Further, on days after terrorist bombings in Israel, Jewish (Arab) judges become more likely to favor Jewish (Arab) plaintiffs in their decisions, and Israeli Arabs face higher prices for used cars (Shayo and Zussman 2011; Zussman 2012). On a political level, for instance, Keynes (1922) perceived the Treaty of Paris’ devastation of the German economy as an act of revenge, and quoted Thomas Hardy’s play The Dynasts: ‘‘Nought remains/But vindictiveness here amid the strong,/And there amid the weak an impotent rage.’’ In its most extreme case, revenge against groups may trigger violent intergroup conflict. After an argument between an Indian Dalit and an upper caste farmer, upper caste villagers attacked 80 Dalit families (Hoff et al. 2011). In Atlanta, 1906, after newspaper allegations of black attacks on white women, a group of white people rioted, killing 25 black men (Bauerlein 2001). In both cases, innocent people were made to suffer for the real or supposed crimes of others. Many field studies of intergroup violence report similar tit-for-tat processes, with harm to members of one group being avenged by attacks on previously uninvolved coethnics of the original attackers (Horowitz 1985, 2001; Chagnon 1988).

We started thinking about this back in 2009, I just looked up the email:
Reciprocity towards groups; that's a pretty important idea if it holds, right? (Think about wars, racial discrimination; patriotism...) I don't know if there's anything done in the area. But perhaps it's one for another experiment.
As well as seeming important, it turned out there was basically nothing out there in economics, and only a few papers in psychology.

We ran not one but several experiments, polishing the treatment and figuring out "what works". (There's issues of multiple testing here, but I'll ignore that.)

Our final experiment had some interesting results, and we sent it off to a top journal. It was rejected. Then we sent it off to another journal and... it was rejected. And another, and another.... I was annoyed by this because I felt that this was an important topic that nobody had written about! After all, Chen and Li (2009) had got into the AER by doing a basic group identity experiment, the same thing psychologists had done for decades, and adding incentives.

Yeah, I was naive! There are lots of reasons for the paper not doing well, some good, some bad:
  • The design was complex and hard to explain. We spent ages on multiple rewrites of our design section to make it clear what we had done.
  • In addition, the design and methodology weren't perfect - we were both quite inexperienced. There are things I'd do differently. Of course, reviewers picked these up.
  • Our topic fell between stools: it was an economic experiment on a fundamentally political topic. It is a sad reality that interdisciplinary work is not easy to publish.
  • Relatedly: referees and academics are conservative. It is easier to answer a question they already consider important, than to introduce a new question and persuade them it is important. That's probably reasonable. The dominant themes of any literature are dominant for a reason.
  • Chen and Li's AER paper did what I have since learned is important - it created a building block. It deserves its placement. I still think we were out there doing something quite new, but sometimes you have to lead the academic horse to water.
Anyway, for all that, I still think that intergroup dynamics are under-researched, given that they may be involved in the devastating phenomena we touch on in our intro. So, I'm glad it's finally out!

Here's a picture of the basic result, which I'm sure has been up on this blog before. The slope of the solid line shows subjects' "upstream reciprocity" towards a fellow group member of their most recent opponent in a public goods game. The dashed line is the control, showing reciprocity towards someone in a different group.





Friday, 9 June 2017

Whistling in the dark


I remember 1992.

Everyone expected Labour to win and kick out Major. I sat and watched it with a friend from school. I was very Left wing, and in 1992 almost everyone my age (even Etonians) wanted the Tories out.

By 2am, it was clear that Labour was not winning. I took out a tiny, tiny speck of dope that I had left over and ate it in a feeble attempt to get high. Then we went to bed.

Anyway. I need to find some positives in this situation:
  • We will get rid of May, who has shown zero talent and zero charisma. 
  • Corbyn probably will not form a government.
  • If he does, it will be a weak one, and as he has shown zero talent for organization and management – as opposed to his huge talent for campaigning and speechmaking, for which, full respect – it will probably lead to swift disillusionment for the kids who are now out celebrating.
  • The Lib Dems might be able to demand a referendum on PR, and the mood of the country is such that it might vote yes this time.
  • A lot of young people have been enthused by politics. I'm not sure this is a particularly good thing, but at least they will be enjoying themselves.
  • Ruth Davidson has done really well in Scotland. (I've often thought that it would be quite funny, and really wind up the Left, if the Conservative party could have the first Jewish, the first female, the first gay and the first black Prime Ministers.)
  • The SNP are one step further from breaking up my country.
I will try to think about the negatives in the morning. At the moment it is just too grim. Oh, one more:
  • There were some excellent dogs at the polling station where I was a teller.

Why did Corbyn do so well? A little bit of political economy


Let's assume the exit poll is about true, and that Jeremy Corbyn has done even better than the polls thought – and he was already pulling far ahead of what people, including me, expected.

There are lots of things to say about this: failures in polling (again); Theresa May's incompetent campaign and feeble personality; Jeremy Corbyn's quality as a campaigner; the role of the internet.

I think one dog that very importantly did not bark is the Labour manifesto. Remember, Jeremy Corbyn is a passionately ideological Leftwinger. But the manifesto was in many ways rather moderate. It did not, for example, aim to spend much more than the Conservatives. It did not set out to reverse many Conservative welfare cuts.

A classic model in political science explains why parties move to the centre. Suppose the two parties are concerned only to win the elections. They will each promise a platform right in the middle of the electorate, at the famous "median voter" - the person in the middle, who has half the electorate to the left of her and half the electorate to the right. Why? Because if one candidate moves to the left of this person, then (at least!) everyone on the right votes for the other candidate, who wins a 50% majority. And if one candidate moves to the right, then everyone on the left votes for the other candidate who again wins.

Here's an ASCII art picture. It shows a line representing political preferences from Left to Right. The voters are at x. The median voter is marked with a *, with two voters on her left and two on her right. Voters vote for the party that is closest to them. Both parties will propose a platform at *. Any party that moved left or right would get three voters preferring the other candidate.

____________x_______x_______*___x_________________x_________

A natural response to this is "oh, but politicians are idealists! Or at least, Jeremy is. Jeremy cares about policy, not just getting elected." Well, stop swooning over Jeremy for a second, and suppose that is true. Suppose you are Jeremy Corbyn and deeply want policy to be as left wing as possible. You will still move to the centre. For, if you do not, and lose, then you will get the policies implemented by your right wing opponent.

This seems to be what has happened. Corbyn moderated his manifesto. That made Labour palatable to voters who would never have tolerated Corbyn's own ideal policies.

In a sense, you could say that despite appearances, the ghost of Blair still haunts the Labour party. Even with Corbyn as leader, they are forced to go along with a lot of the consensus of the past forty years.

(Thank God! ... But this is a post about the "horse race", not the outcome.)

References
The original model of the median voter is the "Downsian" model, made famous by Anthony Downs' An Economic Theory of Democracy (1957); but actually first suggested by Hotelling (1929) "Stability in competition". The point about "idealistic" politicians was first made, I think, by Donald Wittman (1929) "Candidates with policy preferences: A dynamic model" – sorry no ungated version.


Monday, 5 June 2017

How I will vote


I will not be voting for Labour this Thursday. Here is why:
  • The Labour manifesto promises to nationalize the railways. Our rail service in the UK is far from perfect, but for me at least, it provides a reasonable way to get around. I remember the days of British Rail, with no affection whatsoever. There were fewer trains than now. Connections were slower. Trains were dirty, and so were stations. You could not hear station announcements. Staff were unhelpful. Railway and train food was a byword for badness. Not surprisingly, passenger numbers on UK railways steadily declined. After privatization, they immediately started to increase again. Those who do not remember the past are condemned to repeat it. Please, let’s not. 

Rail passenger numbers under nationalization and privatization. Can you spot the difference? Graph by Absolutelypuremilk and Tompw, via Wikimedia. Data from ATOC.

  • Labour also wants to abolish university tuition fees. The tertiary education sector is one of the UK’s success stories. It attracts students from all over the world, whose fees help to subsidize our own. Continental systems, which are mostly fee-free, do not. There is a generous system of student loans available, so students from poor families, who feel that they will benefit from a university education, need not be afraid that they cannot afford it. Indeed, the introduction of higher fees in 2010 did not reduce rates of participation, which are extremely high, and also has not affected participation by poorer students, which went up by 42% between 2005-2014. Higher fees have made students demanding, and have encouraged universities to provide courses that they want. There are bad aspects to this, but overall I think it is a good thing. In terms of self-interest, higher fees help to pay my salary. Lastly, students end up wealthier than non-students, so abolishing fees means either reducing funding for education, or shifting the cost from richer to poorer people. Abolishing tuition fees is a bad idea.
  • Immigration to the UK is historically at high levels. I think it should be less, for reasons I won’t detail here, but which, for the avoidance of doubt, do not include being a hate-filled racist. Neither party has a clear plan for making immigration less, but at least the Conservatives have a clear goal of doing so. They are the less bad alternative.
  • Let’s not fanny about: Jeremy Corbyn has a clear history of sympathizing with terrorists. He had contacts with the IRA. He shared a platform with people wanted for murder. He attended a wreath-laying ceremony at the Paris grave of a Palestinian terrorist involved in the Munich hostage-taking and murder of 11 Jews. His claims to have been doing this for peace are disingenuous: Jeremy Corbyn, the backbench Labour MP, could have no influence on bringing peace to the Middle East, and not much on Ireland. It is much more likely that he saw these groups, who espoused hard Left ideologies, as political allies. This, on its own, is an excellent reason for him never to be Prime Minister.
So, I am going to vote Conservative on Thursday, not with vast enthusiasm, but because the alternative is worse. If you agree with me, thank you for reading this message; if you disagree, thank you still more. And whichever way you are going to vote, do vote!

Monday, 22 May 2017

Libertarianism in 2017


A friend who is involved in politics wrote to ask me if I was still a libertarian. This deserves a longer answer.

Background

In any given dimension, history looks like this:



Things fluctuate, getting better or worse at different times. Humans being what they are, people who think that they are on a downward slope see history like this:



They project current trends backward to a golden age that never was, and forward to a horrid but unlikely dystopia. Those who believe things are improving see this –



 – denigrating the past too much, and assuming that the future will be glorious so long as we keep doing whatever we are doing.

So, the socialists of the nineteenth century saw the injustices and crimes of capitalism, the growth of municipal provision in the burgeoning cities, and the self-organization of the workers; and by extrapolation, they imagined that in future everything could be provided by the state, and run by the proletariat.

Libertarianism emerged in the 1970s. Western societies seemed on a downward slope. The state was growing but bureaucracy was inefficient. The economy was overtaxed and sluggish. Politicians seemed powerless in the face of industrial unrest. So, the libertarians projected a dystopia. The tax rate, wrote one Public Choice economist, was “tending towards unity” (i.e. 100%). And they dreamt of a utopia in which almost nothing would be provided by the Leviathan state, and there would be “markets in everything”.

Libertarianism was a relatively harmless utopia, compared to the blood-drenched history of socialism. Really Existing Libertarianism, called by its enemies neoliberalism, sometimes damaged people’s lives; but its greatest achievement, the economic transformation of China, led hundreds of millions out of poverty. (Yes, neoliberalism does deserve credit for this. Certainly Chinese policy never got close to what Milton Friedman or Friedrich Hayek would have wanted, but nor did policy anywhere else on earth. The transformation of China was part of the overall movement towards markets in the late twentieth century, and neoliberal ideas played a part.)

Commonplaces

Still, libertarianism was a utopia, and it shared the silliness and unrealism of all utopias. Any economist can list the ways in which “markets in everything” will fail:
•    Public goods, like defence and a clean environment, will be underprovided by the market. State coercion, forcing us to purchase these goods via taxation, can benefit anyone who values them; as Rousseau might put it, he is thereby forced to be free, or at least, forced to be a lot better off.
•    The same goes for other market failures, like health and social insurance (moral hazard, adverse selection).
•    Nowadays we can add “behavioural” failures like addiction, economic short-sightedness and susceptibility to framing. Plus, with nudges, we may be able to solve these without infringing people’s liberty.
•    All of these goods could be provided by other forms than the democratic state. But the democratic state is “what’s there” and a reasonable format for providing them, so good conservatives should start with it.

On the other hand, just as socialists’ critiques of capitalism were not invalidated by the failures of socialism, so libertarians’ negative points still have plenty of force:

•    Monopoly is inefficient. State monopoly, with a soft budget constraint, is especially so.
•    Bureaucracy is often intrusive, ineffective, or both at once.
•    There are good reasons to expect the state to be too large, and to have inbuilt tendencies to keep growing.
•    The democratic electoral process discourages long-term thinking, and there is little evidence that it can keep government indebtedness in check.

This much, I think, is commonplace. Overall, then, extreme libertarians – like Peter Thiel, the tech boffin who thinks we should float around the Pacific in reconfigurable pirate yachts – are bonkers; but practical libertarianism is a sensible orientation. France and Southern Europe, for instance, still really need more of it.

Markets and cultures

But all of this is just hedge-trimming on each side of yesterday’s big ideas. The social and political upheavals we are living through need new ideas, not just at policy level but at a deeper level that informs policy. So I will try to write some down – eight, to be exact – and  see where libertarianism fits in.

Charles Murray, a social conservative, and Robert Putnam, an impeccable left-liberal, recently published two books saying basically the same thing. Both point to increasing inequality in America; both link it back, not to economics, but to patterns of family and community breakdown. For journalism on the same topic, read Dreamland by Sam Quinones on the heroin and opioid epidemic. (2015 saw more US deaths from drug overdoses than from car accidents.) Or read Case and Deaton, two economists, on ‘deaths of despair’. As the New York Times recently suggested, America doesn’t need economists;  it needs sociologists.

This is about more than subject matter. The difference between sociology and economics is that while economic man calculates the optimal means to pursue his goals, sociological man is influenced by what other people say and do: he follows “norms”, or “scripts”, or picks from “repertoires” of action.

Libertarianism started from economic man. Its point was always that people (bureaucrats, politicians, welfare claimants) were responding to incentives. The observation was correct, but the theory was wrong.

What leads people to respond to incentives? Why does my local curry house sell me a balti for £8 (so I buy it) and not £80 (when I wouldn’t)? Profit maximization seems like a good explanation. But look more closely and this idea falls apart. For example, the really good curry house in Stoke Newington sells me delicious new dishes from the Indian South. The owner has achieved fame and fortune and has opened several new branches. My local could do the same… but it is still peddling the same old same old. Everywhere you look, instead of hunting for opportunities like sharks, people settle into well-worn routines. The sociologists are right:

1.    Humans are creatures of habit.

In fact, the economic theory of man was always held as an “as-if” explanation: smart economists always treated rationality as a useful simplification, not the true theory. Also, as it happens, the theory was not self-consistent. For, suppose that everyone around you were always questing for the optimal thing to do; should you do the same? No. You can just act like sociological man, copy whatever your friends come up with, and save yourself the effort. (This idea has long been formalized in the theory of finance, where it shows that stock markets will not in general be efficient, since people will free-ride on others’ knowledge: momentum trading is a real-world example.)

2.    A few people innovate, most people copy.

Let’s apply this to two classic arguments. The first is about welfare. The economic critique of welfare benefits was “people respond to incentives”. If you pay them only when they are unemployed, then you disincentivize work. In the 70s and 80s, when unemployment took off to new highs, this argument really started to bite. And papers from then indeed show that if you reduced the length of time people claimed benefits, they found work faster. Put more crudely, unemployment benefits made people lazy.

But it seems as if this was not such a problem in the 50s and 60s when the welfare state was being built. Perhaps politicians were blind to the issue then? Maybe, but it also seems not to be such a problem in the latest recession.

Why might people’s behaviour differ between these periods? Here is a story: in the 1950s, if you lost your job, you got on your bike and you looked for work. (For non-UK readers, this phrase is from the blessed Norman Tebbit.) That was a sensible thing to do. The coming of the welfare state changed incentives, and people responded – but not immediately. It took a generation for the culture to change and for it to become acceptable in some areas to be on the dole long term. Then, after the welfare reforms of the 80s, it took another generation for the culture to shift back.

Another example is inflation. The standard story used to be that the Keynesians assumed inflation could always be a surprise; the monetarists understood that people would eventually get used to it. Well, it turns out that Keynesianism still has a lot of empirics going for it: the inflation-unemployment tradeoff seems really to exist, for instance. Yet, the failures of 1970s Keynesianism seem real too. Again, this makes sense if people are not ultra-rational but adjust their views more slowly. Perhaps most people just accept the conventional wisdom of the day about inflation, without thinking about it too deeply; only a few do their own research, and may be faster to spot a change in “regime”. A few innovate, most copy.

What difference does this view make? Well, when choosing institutions and policies, we should expect that people’s behaviour will change to fit them only slowly. In particular, this means being skeptical about "evidence based policy" which tends to look at only the first few years of any change. (Statisticians like to look at the exact point a policy changed, so as to get “clean estimates” without all that awkward history getting in the way.) Everything we do should ex ante preserve incentives for good behaviour, because by the time we have destroyed them, it will take a long, long time to get back. Lessons here for those concerned with the welfare state, or equally with regulation of financial markets.

But let’s go deeper.

People are creatures of habit; and they copy others more than they innovate. Listen, copy, repeat. Obviously, most of the listening and copying happens when people are young. Evolution has made children quicker learners than the old, because children have their whole lives ahead to benefit from the learning.

A second point. I have talked so far as if people had goals, and learned how to achieve them. But the unlearned organism, the baby at the breast, has no goals, only needs. In fact, as well as means to ends, we learn ends themselves, or in economists’ terms, preferences. The capacity to plan itself is acquired by learning. Putting these points together:

3.    Children learn their preferences.

It is great that the human neonate brain is so flexible, but it brings some problems. The market can efficiently satisfy our preferences, whatever they are. Unfortunately, that includes the preferences that have left 25% of us obese; desires for addictive goods like tobacco, alcohol and illegal drugs; or other things that we want but do not actually make us happier or better off. I hope it is not too controversial to suggest that in modern markets, goods like this are legion.



So, market efficiency is not the same as social welfare.

4.    It matters what preferences we have, as well as whether they are satisfied.

The insights of the neoclassical welfare theorems about market efficiency are important. But they are not a complete social theory, and would not be even if there were no public goods or market failures. Markets are preference-delivery systems. Cultures are preference-creation systems.

What kind of learners are children, or indeed people in general? Would it surprise you if I said “undiscriminating”? The point of copy-and-repeat is to save the effort of thinking, so it would not be surprising if the copying process itself was pretty thoughtless. That turns out to be true. Even adults basically believe what they are told, in most circumstances. Children still more so. This means that

5.    The human brain is hackable.

In the societies almost everyone lived in until the last century, there was not much potential for hacking. You learnt what you needed from those around you – other people in the band, tribe or village. But that is no longer true today. People have many more ways to learn than they ever did, they live in more complex societies, and there is a lot of profit in the business of persuasion. This means there are many more people we can learn from, and who have an interest in teaching us, than there are people who will have our interests at heart as teachers. In fact, usually, just two people will be in the latter group with reasonable certainty:

6.    Parents are white hat hackers.

What distinguished Western societies from the rest of the world over the past centuries? Feng Guifen, the 19th-century Chinese scholar-bureaucrat, considered this as he watched the British achieve dominance in his country. He came up with four answers: better use of labour power, superior agriculture, control over their rulers, and “the necessary accord of word with deed”. The first two are economics, the third politics. The fourth is a difference in culture. This difference did not come about by chance; it was the product of an intensive process of cultivation.


Ever since the printing press, Westerners have been cultivating their children’s preferences in a way that nowhere without print could match, in the cultural equivalent of a hothouse. It started off in circumstances that are closer to a contemporary religious cult than to today’s mainstream churches. Later on, it cooled down a bit, but the effort of the bourgeoisie to educate its children – and its crusade to remake society in its own image – remained very intense. It encompassed both families and schools, which focused on character before even the most basic technical achievements.

Over the past fifty years, we’ve scrapped all that. We put our kids in front of the television; our schools focused on technical achievements; and without meaning to, we messed our family structure up spectacularly. What happened next? I think Charles Murray, Robert Putnam and Dreamland are telling us the answer.

7.    Culture abhors a vacuum.

If society does not take care of the job of preference formation, it is not that the next generation ends up unsocialized. That would be unnatural. Instead, they socialize themselves: they copy the successful. That’s fine, so long as they don’t learn to succeed at the expense of society. Unfortunately, no society and no institutions can prevent this possibility. People, from the local drug dealer to Philip Green, will find socially harmful ways of getting rich or famous.

Complaints about culture are perennial, and did I mention about looking back to golden ages? However, the evidence that culture matters, and that our societies have problems in that regard, I think is quite strong. Complaining about consumerism used to be done by Marxist theorists. Now we have the Nobel prize winner  George Akerlof and Robert Shiller making the same point in Phishing for Phools.

By now, we are far from libertarianism. Where might libertarian ideas might fit in to this world view? Consider that many modern calls for regulation come from “behavioural” failures like obesity or failure to save for retirement. These have been psychologized as universal tendencies, but I don’t think we know that. They may be failures of culture. Let’s put it like this:

8.    A free economy is the outcome of a free society.

In other words, if we get the preferences right, then we can often trust the free market to deliver. If we don’t, then we can’t, and we will face calls for governmental regulation, and in fact a whole new, behaviourally-based regulatory agenda.

Now the government does have a role to play. But I do not think it should be a leading role. Instead, I’d go back to Thatcher and say “there is no such thing as society; there are only individuals and their families”. Culture, of the kind we need to focus on, starts with families and grows out from there.

In this respect I think it is worrying that Britain, unlike the US, has a strong Conservative party but no conservative movement. A lot of what we need to do now is not fundamentally about changing policies or institutions; instead, it is about changing ourselves: people, families, groups, communities. The Americans have a large, diverse movement – with its share of charlatans and nutters, I admit – who get that. We don’t.

Political afterthought

These are the ideas that I think should inform the political agenda of today. You may disagree. It is still not hard to make a case that all that matters is “peace, easy taxes and a tolerable administration of justice”, as Adam Smith said.

But certain realities will inform the political agenda. The anger of poor people in rich countries is likely to be long-lasting; they face genuine economic threats from trade and migration; redistribution and protectionism will grow their appeal in coming years. Since redistribution and protectionism harm the economy, we face a nasty choice: countries which continue to “come apart” into comfortable rich and angry poor; or populism and economic stagnation. A standard response – the Blairite response, for example – is to call for investment in education, so as to create skilled workers “able to compete”. I agree, but the question is, what education and what skills are needed?

Humans clearly differ in skills. Genetics tells us that quite a lot of these differences are inborn. The optimistic story, in which everyone is capable of learning advanced skills for the modern economy, may be a fairy tale. There are some basic skills, though, that seem to make a lot of difference to employment. These are what the great Chicago economist James Heckman calls “soft skills”: being reliable, working well with others, turning up on time. There is even suggestive evidence that these skills lead to big differences in productivity of seemingly very similar industries in different countries. The word “skill” is a bit misleading, though; Heckman is really talking about character, and character is not taught in evening classes but is learnt in schools, churches and above all, families.

So, perhaps cultural change is not just a luxury, but is part of a conservative program for social justice, an alternative to populism in its Left and Right varieties. If so, it will be a way to help liberty survive.

Saturday, 8 April 2017

Things we would need to know to estimate the long-run impact of Brexit on incomes

The view that Brexit would reduce average incomes was no more of an opinion than man made climate change is an opinion. They are both almost certain facts.
Simon Wren-Lewis
This is unconvincing. To see why, here is a non-exhaustive list of things we would need to know in order to estimate the effect of Brexit upon incomes, along with the relevant knowledge, social science or otherwise, that might be relevant.
  • Is the European Union politically stable in face of the long run challenges such as rising populism, a resurgent Russia, and economic tensions engendered by the Euro? What is the chance of the EU's break-up (a) if Britain stays in (b) if Britain leaves? What would EU break up do to members' incomes? Political science. Theories of institutional change.
  • Innovation is a key driver of long run growth. How innovative will EU economies be over the long run - say, the next century - with Britain either in or out? Conversely, how innovative will Britain be outside the EU? Economics of innovation. Relationship between innovation and (a) institutional environment (b) policy (c) market size.
  • More generally, what is the current effect of EU policy on growth? Are EU policies   social democratic, or liberalizing and market-oriented? And how do such policies affect the economy? Macroeconomics, plus knowledge of EU law.
  • And given that, what will EU policy be in future? Will it stay as it is, or will drastic changes come via an altered intellectual climate, or via political change in member states? Political economy. Intellectual history. 
  • On the other hand, how will Brexit affect domestic politics? Will it lead to a disastrous, inefficient populism? Or a renewed, outward-looking, global approach? Will the UKIP die away, its mission complete, or be strengthened and even take the place of Labour? Political science: voting behaviour, party systems theory. Knowledge of the internal state of the UK parties.
  •  What attitude will EU leaders take to negotiating with Britain if we leave? Will they be principled, insisting that the EU's four freedoms go together? Vengeful and punitive? Or pragmatic, giving us a "special deal" so as to protect the interests of exporters? International relations. Bargaining theory. Knowledge of the attitudes and psychology of key players - Merkel, Hollande et al. - and the domestic pressures faced by each.
  • Conversely, will we be able to strike good trade deals with players outside the EU? Can we negotiate better or worse with India, China and the US? As above, plus knowledge of the domestic politics of each potential trading partner.

I have only a little familiarity with any of these areas, but am pretty sure that in all of them, we have nothing even approaching solid, validated causal theories from which predictions might be drawn. 

Notice that we cannot even start using the tools of economics until we answer some of these questions. Economics makes conditional predictions - how much will trade be under a given set of rules? But then we need to know what the rules will be.

By contrast, to believe that human CO2 emissions affect the climate, all you need do is accept the theory of the greenhouse effect, which is more than a century old, and is as thoroughly validated as the theory of evolution.

For what it's worth, I think that the answers to all the above questions probably favour the Remainers, and did even during the referendum campaign (when we knew less about, e.g. the EU's negotiation attitudes). But pretending to be white-coated scientists who have all the answers is silly posturing which reduces the profession's credibility. Social science is uncertain, because social life is intrinsically uncertain.