Economic imperialism

In the past half century economists have invaded other social science disciplines, bringing advanced techniques and original ideas. Long-suffering academics in those fields have complained of economic imperialism. Famous examples include the family (Gary Becker), crime (Becker again), race (OK, this is really just "Becker imperialism") and politics (James Buchanan and Gordon Tullock, Mancur Olson)*.

Nineteenth-century England, by a visitor

Conversation with an Englishman .... Twenty-five years of age; sneering, decided, incisive face; he has made, for his amusement and instruction, a trip lasting twelve months, and is returning from India and from Australia....
Of all the countries this Englishman has seen, England is the most moral. Still, in his opinion, the national evil is " the absence of morality." In consequence he judges France after the English fashion. "The women are badly brought up there, do not read the Bible, are too fond of balls, occupy themselves wholly with dress. The men frequent cafes and keep mistresses, hence so many unfortunate households...."

Followup linkage

Re alternative ways to present data, see also this. Time Out has more details. Their Twitter feed is here.

Linkage

Are CEOs with military experience more honest? (via marginalrevolution)
Dan Ariely has a new book on honesty: actually, I ghost-wrote that book for him while I was on leave from the SAS.

More linkage

Here is a great, informative rant on the internet and the music industry, from a Camper Van Beethoven member who is also an economist, a geek and an entrepreneur.

Re: crowdfunding

See Spacehive.

Doh!

http://www.bbc.co.uk/news/world-europe-18162443

Next up: Russian nationalists denounce Pushkin?

My problem with average utilitarianism

Today’s most influential moral framework is average utilitarianism (AU for short): the idea that whatever increases the average person’s welfare is good. It’s the default way economists use to make welfare comparisons. It is also reflected in the use of GDP per person as a measure of a society’s well-being.

By contrast, total utilitarianism (TU) says that good is whatever increases the sum of welfare. This only makes a difference when the number of people under consideration changes. For example, 1000 people with 2 welfare units each is better than 100 people with 3 welfare units each according to TU, but worse according to AU. (Never mind how welfare units are calculated or compared across people. That’s a problem for both varieties, and for another blog post.)

A spoonful of sugar

A friend at another university tells me that the exams committee are facing pressure from the administration to give out more Firsts and 2.1s. The argument is that employers won’t hire people with 2.2s or below. So, by giving out lower grades, they are harming their students in the job market.

This is an interesting example of what Chugh, Bazerman and Banaji call Bounded Ethicality. Giving out undeservedly high grades (1) is dishonest and (2) corrupts the degree grading system, and I guess a little thought will make that clear to most people. However, the administration makes the case that not doing so will harm the university’s students. The force of this appeal is: “ignore the global harm, focus on the local benefit”.

This argument is not seriously convincing, but it appeals to people’s instinctive moral parochialism. By doing so, it provides a cover for self-interest. (So it is also an interesting example of self-serving bias.) Fighting grade inflation would take time and effort, and will make you unpopular with important people (or if you are an important person, it would make your university worse off, and you personally less successful). Nobody wants that. But a naked appeal to these motives would probably not work as well as this version which comes dressed up in moral clothes, because academics like to think of themselves as high-minded guardians of the scientific flame.

Perhaps the new Centre for the Study of Integrity could do some work on self-serving moral arguments.

Oops! Another Paolozzi

Shablamidi, shablamida

Listening to my two favourite Donna Summer tunes, I Feel Love and State of Independence. I can see why Brian Eno said what he did. I first heard it in the 90s and it sounded completely up-to-date, and fitted alongside the blissed-out house music I liked. It's all about surrender to the moment.

State of Independence has the same sound but the lyrics are really different, more like a hymn to consciousness, home, commitment and God. (Donna Summer's family values led to a well-known controversial incident.)

Hmmm.

No, the Devil has the best tunes: I Feel Love is better.

Yet another Paolozzi

Kickstarter

In March, a gaming company called Double Fine sought funding for their next project on Kickstarter.

Kickstarter is a website where you can pledge to fund creative projects. The project sets itself a money target and a deadline. If enough people pledge money to hit the goal, then their credit cards are charged. If the goal is not achieved by the deadline, nobody pays.

Double Fine aimed to raise $400,000 in a month. In fact, they raised $1 million in 24 hours. The rest is history: total donations came in at more than $3 million, and the computer gaming industry went into a Kickstarter frenzy.

Websites like Kickstarter mitigate some of the problems facing projects with big startup costs. Suppose you are creating a computer game or a film or a ballet. You could sell advance tickets, but if you don't get enough, the project will fold before completion. This makes your potential customers nervous about handing over cash. And the nervousness can be self-fulfilling; if an investor thinks other people will be cautious in handing over cash, that makes it less likely that the project will hit its minimum, so s/he gets more cautious too. Kickstarter fixes that by guaranteeing a refund.

These projects are like what economists call club goods. The marginal cost of producing the second copy of a computer game is (much!) lower than the marginal cost of the first copy: software is partly non-rivalrous. Kickstarter and other crowdfunding websites make it easier to produce club goods. A first cousin of the club good is the public good, which is non-rivalrous and also non-excludable. I.e., whereas you can stop non-payers attending an artistic performance or downloading a computer game (well, maybe...), you cannot stop non-payers enjoying a public good. Those are the goods traditionally produced by governments: clean air, national defence and so forth.

Could crowdfunding transform the public sector?

Suppose you want the local park to be tidied up and get some new flower beds. You could pay for someone to do the work. But the benefit you personally get will be much less than the cost, even though the benefit to everyone might greatly exceed the cost. Your other alternative is to lobby the town council, perhaps joining with others, to provide this public good. With enough persistence you might get your way. Of course, governments are overburdened with demands, often inefficient, and perennially underfunded, so you may not have much luck. Well, those are your choices... until now.

Now, you can set up a Kickstarter project and a Facebook group to fix the park. Like-minded citizens can contribute some minimum donation. They know that if the project doesn't hit its goal, their money will be refunded. The biggest donors get their name on a park bench, just as big donors to video games get a personalized character in the game.

Crowdfunding solves some, not all, of the problems of providing public goods. It makes people more sure that their money won't be wasted; and it could provide a credible signal of unmet demand to government. (So in year 2 of your project, the council might realize the park is a big issue for voters and agree to fund further improvements.)

It doesn't solve the problem of non-excludability. Kickstarter can offer game copies only to contributors. You cannot ban non-contributors from the park.* So there will still be a temptation to free-ride on others.

One tweak would be to change the conditions. So, your pledge will be redeemed only if the project meets its goal funding and if everyone in the park's surrounding area pledges some minimum. Now, for those in the area, not contributing will result in the park not being improved. This condition makes every contributor pivotal, and that weakens the temptation to free-ride.

I don't know how much unmet demand for public goods is hidden out there, but I suspect there is a lot. By tapping it, crowdfunding could cause a governance revolution, making the public sector much more open, flexible and decentralized.

* Actually, you could do that. Kew Gardens charges £15 for entry. My inner economist approves, but my inner citizen feels that parks should be public.

Linkage

Can video games be intelligent? (via RockPaperShotgun).
Photojournalism: young women in Chechenya.
Journal citation cartels in academia.

Strand Magazine data presentations from 1906

The size of the people in each picture is proportional to some relevant statistic, usually their number in the population. Someone needs to create the R package for this.

Sports

Most popular authors in Britain, based on library borrowings.

From left to right: Thomas Hardy, Miss Braddon, Marie Corelli, Hall Caine, Rudyard Kipling, Mrs Humphry Ward, J. M. Barrie, Sir Arthur Conan Doyle, Stanley Weyman, R. L. Stevenson, W. M. Thackeray, Scott, Dickens, Henry James, Charotte Bronte, George Meredith, Trollope, Charles Kingsley, Bulwer Lyttton, I. Zangwill, Charles Reade and E. F. Benson.

World religions by number of adherents: Brahminism (=Hinduism) 223m, Protestantism 210m, Ancestor worship 283m, Buddhism 107m, Catholicism 353m, Taoism 40m, Islam 222m, Judaism 9m, Parseeism 150,000, Shintoism 18m, Polytheism 130m

Female occupations in the United Kingdom: 

Dressmakers 903,646; Mill-hands 867,259; Shop-girls 325,000; Domestic Servants 1,641,154. In the foreground are laundresses, charwomen, teachers, sick nurses, shopkeepers and landladies. On the table: actresses, musicians and authors (1,327).

A bit more on democracy

The last decade has seen three serious blows to democracy’s credibility.

The first is the accumulation of public and private debt beyond what is prudent. (I include private debt because people or banks may avoid their debts by transferring them to the state, demanding their cancellation by political means, or by voting for parties that inflate the debt away.) This accumulation of debt made it much harder for European nations to respond to the financial crisis by Keynesian spending. You are supposed to save in the good times so that you can spend in the bad times. We spent all the time and when we really needed to spend, we stretched our credit with the markets. Now most European democracies have to perform a very unpleasant balancing act.

The second and much more serious is the violation of human rights by the Western democracies. We were not supposed to torture people, abduct people to be tortured by others, or imprison (“detain”) people for 3 months without trial. George W. Bush authorized torture and was reelected. Since then, nobody has been prosecuted for the torture that took place. The word for this in third-world dictatorships is "impunity". It is hard not to suspect that these events happened because very many Americans do not mind, or actively support, torturing America’s enemies. (Similar things have happened in Britain.) So, the democratic process failed to protect unpopular minorities. This is tyranny of the majority. When democracy eats away at liberalism, it is destroying its own moral basis.

Last, and potentially the most serious, there is the failure to deal with global warming. This issue dwarfs all others in its possible consequences. Again, one factor behind the world’s inability to come up with a solution is surely that in many democratic countries, large parts of the public do not understand the science of climate change, or are actively deluded climate deniers. It is as if human survival depended on the theory of evolution, in a world of creationists.

Dictatorship hardly has a better record in any of these cases. The Chinese also share the blame for Kyoto's failure, plenty of dictators have piled up debt and run down the country, and as for human rights, enough said. But if the failures above become more and more apparent, nobody will be calling for a home-grown Idi Amin. Instead more and more power will be handed over to unelected bureaucrats, with academics and others thinking up specious reasons why this is “really compatible with the principles of democracy” – just not with actual voting, you understand.

For these reasons, despite the inspiring example of the Arab spring, I am not sanguine about democracy's future in its heartlands.

HAHAHAHAHAHAHA

http://www.flickr.com/photos/25976845@N06/7000509380/

Chen Guangcheng

Chinese media react to the Chen Guangcheng case (1, 2)... and Chinese netizens react to them.

Invertebrates and discount rates

Grandpa, when you were young, did you see the Houses of Parliament?

Of course. I walked past them all the time.

There’s a school trip there next week. We’re going to sail the boat over the top of Big Ben. That was where all the decisions were made before the Emergency Committee ran things, wasn’t it?

That’s right.

Grandpa... why didn’t people then do anything about global warming? Didn’t they realise what was going to happen? Did they get the science all wrong?

No, lots of people realised and we had a pretty good idea about the science. We knew just what we were doing. In fact, we worked it all out using advanced economics. We calculated exactly how much effort we should make to move to a low-carbon economy.

So why did London get submerged, and we have to build dykes in play hour? You must have made some big mistakes in your sums!

No, we got our sums right. You see, we used a formula where your happiness now was as valuable as half of our happiness back then. So, for example, one person getting Ebolaic Footrot then was as bad as two people getting Footrot now.*

You counted us as half as valuable as you?

That’s right. Don’t upset the worm bucket or we won’t have any dinner. It’s perfectly simple. We used a time discount rate of 1.5 per cent per year. So over 50 years, a unit of your future welfare worked out to about 0.985 to the power of 50 = about 0.46. A 50% discount.

But why shouldn’t I count just the same as you?

Well some people suggested that we use a 0% discount so that the future would count just as much as the past. But other people said* that because people didn’t care much about the future, it would be wrong for politicians to care about the future either. 

So how did you come up with a 1.5% discount rate?

We worked that out from the capital market.

The capital market?????!!!!!

Yes. To calculate the discount rate people used, we looked at capital market returns, because that’s where people’s rational behaviour reveals their true long-term preferences.

Wow. And when did you work all this out?

About at the time of the Great Financial Crisis.

(Pause.)

Well, let’s get back to Mother for dinner.

Grandpa, one day can we use the worms to catch fish?

Nonsense! Worm soup is good for you.**

* Ungated version here.

Why Nations Fail thoughts, part 5

A&R argue that economic growth under extractive institutions is unlikely to be permanent. This is also what North, Wallis and Weingast think, and it leads all these authors to be skeptical of China’s present growth spurt. A&R use the analogy of the Soviet Union, which also grew fast up until the 1970s before crashing. There may well be a slowdown, or even a political crisis, in China, but I don’t believe in the USSR analogy, for the following not-very-scientific reason. Visitors to Soviet bloc countries in the 1960s found them drab and depressing places: think shortages, rationing and queues, bad service, no consumer choice, crappy cars, unhelpful and corrupt officials.... Visitors to China in 2011 come back with very different impressions – not uniformly positive, but far from stagnation – fast trains, massive growth, a booming middle class. Even the problems, like the arrogance of the newly wealthy, arise from rapid change. 

My instincts are that the statistics are not the whole story; and that if politics fights economics in China, economics will win and the new bourgeoisie will replace the Communists with a more pliant executive committee, or even perhaps a system of teams which compete for office. In short, economic growth can throw up new assertive classes and generate its own political pressure. 

There are certainly places which do fit the idea of unsustainable growth (Pakistan, Venezuela) and here growth tends to be based on commodity prices or foreign aid rather than innovation. (By the way, innovation does not have to mean “being the next Apple”. There is also what Dani Rodrik calls “within-the-frontier innovation”, ie within the technological frontier, ie being the first firm in your province to sell bottled lemonade or littlepackets of shampoo.) China just looks different to these cases.

[That's enough of my incoherent thoughts on this very interesting book. Go and read it!]

Depressing graph of the day

Patent applications of UK residents, 2002-2011:

Patent applications, residents

Data from World Bank

(Of course there are alternative interpretations. Maybe UK firms are patenting in the US more. Or maybe the UK was just very active around the dot-com period.)

Why Nations Fail thoughts, part 4

[Don't worry, this series ends soon!]

What creates good political institutions? A&R answer: “critical junctures” in which “small differences become important”. Game theorists would call this transitions between different equilibria. In a sense this is not a very useful answer, because “small differences” is likely to mean “differences too small to detect a priori”. But it might be a true answer.

However there are some unconsidered candidates. For example, Gibbon thought that the Roman empire’s break-up was important because it created a set of competing states in Europe. In turn, competition between states limited their ability to extract rents and gave them incentives to innovate. (Historically, a lot of innovation has been driven by war.) This argument suggests a corrective to A&R’s praise of centralization as a necessary condition for the development of inclusive institutions.