Linkage

Interesting perspective on Mariana Mazzucato's book The Entrepreneurial State.

I called it right

Time for some credit-claiming. In 2011 I predicted that immigration would become a live issue in relation to the EU: "there will be increasing pressure to pull up the drawbridges". Yup.

In the interests of balance I should report a couple of verbal predictions that didn't go so well; earlier this year, "don't buy bitcoin until it falls to $20". At the time bitcoin was $100. Sorry, bruv. And, some time in 1996, "this internet thing isn't going to be that important".

To celebrate

To celebrate this week's important Hull news, a special repost:

Interesting ngram

Here's a rather interesting ngram.

Dear literati, please finish Middlemarch

"She was by way of being terrified of him - he was so fearfully clever, and the first night when she had sat by him, and he talked about George Eliot, she had been really frightened, for she had left the third volume of Middlemarch in the train and she never knew what happened in the end...."
-- Virginia Woolf, To The Lighthouse

"Middlemarch/Still lying triumphantly closed..."
-- Don Paterson imagines his deathbed

Linkage

Dammit.

A financier recalls his time at Lehman. Funny and scathing: '... the part of Wall Street that I worked in was simply transferring wealth from the less sophisticated investors... to the more sophisticated.... Of course, the traders had all sorts of excuses and jargon to deal with this truth. “Oh no,” they would say, “We are important providers of liquidity that create stable financial markets. We’re a crucial part of a system. And besides, if we don’t do it, someone else will.” These are the lies that people tell themselves so that they can buy larger homes.'

A common reaction by those introduced to the Public Choice perspective is: what's the point of ever giving policy advice if you assume all politicians are rogues? Acemoglu and Robinson suggest, however, that politics must be factored into policy advice.

Meritocracy, the experience. Also, postmodernism the experience, and drugs, the experience.

¡Steve Bong salutes Lady Thatcher!

Social science statistics: of muscle cars and macro-level statistics.

AMC Rebel 1970, a typical American muscle car

Trying to think through another worry about social science practice, and in particular how we do macro-level empirics - comparing countries, polities or regions. Warning: I strongly suspect that this will mostly prove that I should read more Barbara Geddes. (And who shouldn't?)

Suppose you were a Chrysler executive in 1970, and were evaluating the potential threat from Japanese cars.

Here is an approach you could take. Divide cars into American-made and Japanese-made. Examine the average performance of each. Find that American cars are superior to Japanese cars. Go to sleep contentedly. Inferior cars will never take over our market.

First generation Toyota Corolla, 1966

This approach is obviously flawed. "American cars" and "Japanese cars" are not natural kinds, like "killer whale" and "grey whale". They refer to the deliberate creations of human intelligence. The average Japanese car of the 1960s was not a useful predictor for the average Japanese car of the 1970s. The best car would probably have been a more useful predictor, because Japanese car industry executives were capable of learning.

Now consider how political scientists evaluate the relative performance of democracies and authoritarian regimes. (Or parliamentary versus presidential regimes, or whatever else.) Assume away all the problems of causal identification, unobserved heterogeneity and so on. Even beside all of this: they are basically taking the same approach as above. They look at the average performance of democracies versus dictatorships in the past. To get a big sample, they might go quite far back - to 1950, or even beyond to the 19th century.

But political regimes are also the products of human learning and intelligence. "Democracy" and "dictatorship" are not natural kinds either. They are systems put in place and altered by people. For example, British democracy of 2013 -- with its legal checks on the executive, its relationship to the EU, its devolved governments in the nations, and its quangos and bureaucrats -- is quite different from British democracy in the 1970s -- with its corporatist structure, industrial policy and so forth. Bluntly, both democratic and non-democratic regimes learn, and are constantly rebuilding themselves over time.

For this reason, average past democratic or authoritarian performance may well not be the quantity of interest. Democrats (dictators) should worry about the best, most successful authoritarian (democratic) regimes. Data from the 1950s are likely to have limited relevance.

Toyota Corolla 2011

What's the counter-Thatchual?

The world needs more Margaret Thatcher policy punditry and by God I will provide it!

My colleague Tom Scotto asked a simple question, that I think has not got enough attention in many of the very thoughtful comments from economists and others: "What's the counterfactual?"

In other words: although it is interesting to consider whether

• it was a mistake not to start a Norwegian-style sovereign wealth fund for North Sea oil,
• the monetarist policy of the early 1980s made the recession unnecessarily hard,
• supply-side changes weakened the unions and modernized our economy, or
• her European policy was foresighted, or counter-productive,

a more fundamental question is: what would have happened if Margaret Thatcher had not won power?

There are two natural ways to cut this. If Thatcher had not won power in 1979, then Callaghan would have stayed on. Or, you could look at 1983, where a random shock (named Galtieri) kept her in power. I'm too young to remember this stuff, but I'll make some guesses.

Surely the result in 1979 is easy to call. Callaghan was a failure; he would have continued to be a failure. Evidence from the 1979 Labour manifesto shows that these guys planned to continue down the failed path of the 'seventies.

Now we set ourselves the task of bringing inflation down to 5 per cent in three years. It is an ambitious target. We need the assistance of everyone. 

three-way talks between ministers, management and unions to consider the best way forward for our country's economy...

Industrial democracy - giving working men and women a voice in the decisions which affect their jobs - is an idea whose time has come...

Labour will strengthen the Price Commission, giving it greater powers to initiate investigations and reduce prices ....

We reaffirm the policy that we have pursued that wherever we give direct aid to a company out of public funds, we shall reserve the right to take a proportionate share of the ownership of the company....

1983 on the face of it seems just as easy. Labour ran under a manifesto which has been called "the longest suicide note in history", including withdrawal from the EEC, unilateral nuclear disarmament, renationalisation....

But then Labour was not the only game in town. What if the SDP/Liberal alliance had won? Might we then have had a moderate, responsible centre-Left government, making some necessary reforms but without engendering the division and bitterness that Thatcher left?

I doubt it. My feeling is that politics like those of Schroeder, Blair, even Lula were only possible after Thatcher. The centre-Left had to swallow the bitter pill of accepting (some) New Right ideas. Even the 1983 SDP counterfactual would have been something like France at the same period (or now): half-hearted acceptance that you cannot actually get more Left-wing; but no real reforms.

In any case, the main point is: Thatcherism is best evaluated against real alternatives that might have come about, rather than against the analyst's ideal policy.

Encounter with English identity

I was standing out in Camden after an evening in the World's End pub with a couple of old friends, one of whom is Anglo-Indian. A pint-sized chap started trying to interrupt us, presumably so as to give us his hard luck story. Think of Camden at 11pm on Friday night and you will get the picture. We ignored him, he kept on, we rolled our eyes and kept ignoring him.

He must have got angry. He kind of crept up behind my friend and hissed: "At least I'm English." Pause. "Are you?"

We looked at each other and tsked. I turned around and gave him a hard stare, and the little Gollum shrunk back and slunk off into the night.

On the bright side

I guess it is easy to be hysterical about the Maggie Thatcher grave-dancing. Yup, definitely is. Perhaps the numbers provide some perspective. Total sales of Ding-Dong, The Witch Is Dead, according to the official charts, are about 20,000. So, total resources dedicated must be, what, £40,000... probably about what Grantham spends every week on cappucinos. Proof that whatever your politics, nastiness and meanness remain unpopular.

I have downloaded a copy of Duke Dumont's Need U (100%), last week's Number 1. I am convinced that this splendid piece of music will give me numberless hours of unadulterated listening pleasure. I hope you will do the same. (iTunes, Amazon.)

Update: yeah, good for you Ken.

Linkage

Why not more tech startups in Europe?
Death of someone who arguably had a greater impact on human welfare than Margaret Thatcher.
Tyler Cowen offers a speculative interpretation of the European crisis: long-run structural changes are being "time-compressed" by the shock.
Paul Krugman is the blogger of the GFC, confidently slapping down critics on the right. Is Jeffrey Sachs emerging as a worthy opponent?
Thatcher and pop music. (Next: Thatcher and 8 bit computer games. There is a thesis.)
If you missed it the first time... then you won't understand any of it now.

"Speculating on bitcoin is just the latest in a string of online ventures for the Winkelvosses since their involvement with Facebook. They have become venture capitalists and poured investment into a shopping website called Hukkster and an online community for money managers, SumZero."
Hukkster, SumZero... are the Winkelvoss twins actually performance artists? 

Linkage

More about the super-rich buying in London. It may not be that easy to feel sympathy for the "British buyers" who can only afford a paltry $2.25 million for their London houses.
What should the economic objectives of immigration policy be? An interesting debate over at Jonathan Portes' blog.
What Olivier Blanchard, Chief Economist at the IMF, thinks about economics and the crisis.
An interesting firestorm about "psychic harm", started by this article. This relates to the question of how we should deal with nasty preferences (e.g. racism).
Some very funny rude reviews by Roger Ebert.

Poem

I guess it seems as a good day as any to read Tony Harrison's poem V.

A Thatcher round-up

Andrew Sullivan: Thatcher, liberator.
Joe Weisenthal: she was "freakishly" right about the Euro.
Paul Krugman: did Thatcher turn Britain around? (I think the phrase "I don't want to do a slash-and-burn here" counts as a small victory.)
Mark Harrison was a convert.
Nick Crafts crunches the data. (But it ends in 2007... as he mentions, some stuff has happened since then.)
Tim Bale on politics: "no thinking Conservative can be blind to the downsides...".
The BBC obituary does one excellent thing: it quotes the "no such thing as society" speech in full, putting the line in its proper and much-forgotten context.
... aaaand a useful pie chart about the Twitter reaction.

The media and the internet

After the phone hacking scandal and the Leveson enquiry, the mass media, like almost every other institution in Britain, are in deserved disgrace.

But after Mrs Thatcher's death, I feel a bit sorry for them: desperately building a dyke of Quotes From Important People to hold back a storm of decentralized, internet-enabled, direct democratic spite.

Good experimental designs

Habyarimana, Humphreys, Posner and Weinstein wrote a great article with the title “Why Does EthnicDiversity Undermine Public Goods Provision?” which they turned into a great book Coethnicity. The research they report was a set of experiments in a slum of Kampala in Uganda.

The standard way experimentalists investigate public goods – say, schooling or sanitation – is with, guess what, a public goods game. A public goods game goes like this: there are four of you, and you each have, say, £10. You can each put some or all of your money into a common pot. Money in the pot is multiplied by 1.5 and then shared out equally. Selfish people wouldn't put money in the pot, but if everyone does so, then you all do better. This is a bare bones representation of a public good.  Why do experimenters use this paradigm? Well, it's obvious. We're interested in public goods, and a public goods game is like a miniature public good.

One of the surprising things about HHPW's design is this. They get their subjects to play dictator games (where one person chooses how much to give to another), games where they have to find another person in the slum, and experiments where they must work with other subjects to solve a puzzle. But they never actually implement a public goods game. Instead, they use a set of simple experiments, not in the context of public goods, to investigate specific psychological and social mechanisms that might lead to underprovision of public goods. For example, are people more altruistic to their coethnics? The Dictator Game will tell us. Or, do people find it easier to communicate with coethnics? Try the puzzle-solving activity.

I think this makes HHPW an example of good experimental research design. They have thought hard about the link between experiment and explanandum. Not that public goods games cannot be useful, but we should not just reach in our designs for things that “look like” or “represent” what we are investigating. Instead, the link must always be based in theory.

Very simple thoughts about the politics of crisis

I am not nearly good enough at macroeconomics (and probably not clever enough) to understand the economic crisis itself. Here is how I think about the politics of it.

The world contains a huge variety of human interactions. One simple way to classify them is: some are games of decreasing returns and some are games of increasing returns. Suppose many people can do more or less of something -- say, withdraw more or less money from a bank, or spend more or less time looking for work. In a game of decreasing returns, when other people do more of it, you will gain by doing less. In a game of increasing returns, when others do more, you will gain by doing more too.

Most ordinary economic activities are of decreasing returns. If many other people go into cheesemaking, the price of cheese will go down and you might wish to choose a different career. If Turkey is this year's cool holiday destination, then it's going to be expensive -- why not try Greece? Decreasing returns are self-equilibriating, like one of those toy men you can't push over. There is only one equilibrium, and this makes life cognitively easy. For example, prices will naturally guide you to optimal decisions, and prices will change only a little bit when underlying conditions change.

But there are some activities which are naturally of increasing returns. Starting a revolution, or fighting in a battle, is easier if everyone else is trying to do it simultaneously. If others take their money out of the bank, then you should beat them to it before the bank goes bust. Life in increasing returns land is hard, because there are multiple equilibria. If everyone else is doing it (whatever "it" is), so should you; if not, not. Getting it right takes not just individual effort, but also the ability to coordinate and communicate with your fellow players. That is especially important when one of the equilibria, such as a bank run, is definitely bad.

My explanation of increasing and decreasing returns. Equilibria are yellow blobs. Art is not my strong point.

It is, and should be, a great goal of economic policy to keep us in decreasing returns world as much as possible. But sometimes -- especially given modern banking, but also because intergroup conflict is a perennial possibility -- we will find ourselves in the other, scarier world. Being in that world, as I said, puts a premium on the ability to coordinate -- that is, to work together: to trust our leaders, and to find our fellow players predictable.

In decreasing returns world, nationality and culture don't matter; simpler mechanisms substitute for them. In increasing returns world, nations matter, because they are the central ways humans have of organizing themselves to act collectively. Culture matters because it is the medium by which we can share and harmonize our expectations with others. When we move into this world, suddenly it matters whether we are Germans, Greeks... or Europeans. That is why the dream of a borderless market, without a society behind it, is a utopia.

Linkage

How life sentences work in the UK.
Researchers can now read minds.
A shout out for my colleague Dan Berger's new AER publication. CIA interventions to install friendly dictators were followed by large increases in American exports to that country. (Older ungated version.)
Bedtime stories for macroeconomists. Here is one reason why social science might be hard: people  have Strong Opinions about economics and politics, in a way they do not about, for instance, Higgs bosons or rabbit reproduction.

Linkage

The Thomas Friedman op-ed generator. 
Mr Friedman is much mocked by the internet people, perhaps unfairly. I read his book on the Middle East, from way back, when he was a reporter there, and it was very well-informed and interesting.

Linkage

An interesting discussion among some libertarians.
"... and will pardon Paul Claudel / Pardon him for writing well."
The Economist on climate change.

Cyprus

If I were in Cyprus, why would I put my money in the bank? I can't take it out again (except at 300 EUR/day), I can't send it abroad, and they might decide to nick some of it. So, I think there will be a bank run, slowed only by the limits on withdrawal.

Linkage

An excellent review of 3 books on happiness.

Linkage

An outsider talks about academia.
Tyler Cowen defends economists' cosmopolitanism. 

Knot bothered about causality

The report Knot Yet, on the increasing age of marriage in America, has gathered plenty of media attention.
It's a really important topic, but I can't help be worried that in 2013, we still accept social science that makes no attempt to distinguish causality from correlation. The report rightly contains comments like: "... we cannot rule out the possibility that some of these associations are simply due to the type of young adults who marry in their twenties." Indeed they cannot. But media reports don't bother to mention this, instead throwing around headlines like "Late Marriage and its Consequences", or phoney statements like "Upper-class women reap a large wage premium from delaying marriage", where all we can say is "Upper-class women who delay marriage have higher wages" - or, exactly equivalently, "Upper-class women who have higher wages delay marriage".
Is proper social science really so hard to do on this topic?

Disability benefits in the US.

The rise of disability benefits in the US. Includes a cool graphic.
It seems that just as in the UK, disability has become hidden unemployment. And just as here there are incentives for governments to push this: states pay for unemployment but the federal government pays for disability. In the US there's another group - lawyers:

Live coverage from a genocide trial

https://twitter.com/xeni/guate-genocide-trial

Juan: In the rain there was no way to protect ourselves. If we could we covered ourselves with leaves.

MP: Did you see people die? Juan: Some people who were not able to hide from the bombs died.

His final statement:

No one asks us to tell our story. This is everything I suffered, in the flesh. No one can obligate me to come to tell the story, no one else knows what I lived. Sorry, I didn't finish explaining something. After the massacres, my father died May 25, 1983, they bombed the place and he died.

What they wanted to do was to disappear us but thanks to God the mountains protected us, mother nature saved us. My father died and stayed in the mountains. As indigenous people we have rituals  days to celebrate our dead, but on that day I can’t go to my father because he is in the mountains. I’m not at peace like before, my father does not appear. They were killed and I can’t see them any more. This pain, this sadness, I never forget it. I felt it in the flesh. There is no peace. We lost everything, our land, our animals, our clothes, but no one has replaced it. The government did it, the government is here but don’t do anything. On the contrary, they look down on us. Excuse my expression. The pain will only end when I die.

[He breaks down and Edgar Perez pauses to give him a moment.]

I hate it when that happens

"Oi bruv I've just got claret all over me 'and as well. Cos I dunno... I just got claret all over it."

-- Heard on the Colchester-London train

Linkage

A sidelight on the democratic peace thesis: Richard Nixon sabotaged peace talks with Vietnam; LBJ considered it treasonable.
I study group behaviour by looking at how individuals see groups. This Wired story talks about a different level of analysis: emergent behaviour from simple rules.
A long list of cliches that I hadn't realised were cliches, but now know I must avoid.
(Both the last via BoingBoing.)
The USA's oubliette. "In 2009, President Obama ordered that the prison be closed by the end of his first year in office. But the effort to wind it down collapsed as Congress, concerned about their own reelection possibilities some former detainees who were linked to terrorist activities, has imposed an increasingly steep set of obstacles to any additional transfers." This is why we don't let politicians decide who stays in prison.
PLOSOne about us. Political scientists, read and consider. And more about how it works.
Lastly: the meaning of Wivenhoe.

And now for something completely different

If you have kids, my friend has an app for you!

Download the new Bubele mobile app to discover what's near you for your kids and babies: Places for you and them to eat, shop, play, have fun, and spend time.

 

If you have an iPhone or iPad search “Bubele” in the UK app store or follow the link below:

https://itunes.apple.com/gb/app/bubele/id605048686?mt=8

 

If you don't have kids, have some kids! Then download Bubele.

Linkage

Of course, the right kind of immigrants are utterly welcome. This line made me laugh: "In flaming torches behind the happy couple, will you marry me was written, without the usual question mark."

Linkage

How bank execs trouser QE cash, explained by Alphaville.
Yannis Varoufakis sounds a bit like UKIP, but then qualifies it a bit.
And YV on what's actually happening in Greece. Gosh, why can't those whinging Southerners just learn to pay their debts?
Another little immigration story.
Anglo-EU translation guide.
A cute information argument about why your friends never call you.

A negative view of the political economy of the internet

So the story about the knowledge economy is that more and more capital is human capital, which is stored in workers' heads. This has benign political effects: human capital, unlike fixed capital or land, is quite mobile, and intrinsically difficult to expropriate. Therefore, greedy rulers (including tyrannous majorities) cannot tax it to extinction. Rulers then focus on more useful activities, like providing public goods to grow the economy. And perhaps democratization becomes easier because the threat of expropriation by the poor is less.

This logic only seems stronger in the internet era of tiny firms of self-motivated geniuses. And as the internet enables not just hierarchy-free production, but also lightspeed self-organization to produce public goods or influence politics, a utopian future seems to beckon.

Well, maybe.

Here's an alternative thought. What is Google, conceptually? Of course it's very innovative and has lots of smart people. But how does Google make its money, really?

i) a huuuge server farm;
ii) some fairly well-understood algorithms to serve search results and ads, which run on the huuuge server farm;
and
iii) a guy to answer the phones at the huuuge server farm.

Everything else in Google is basically taking money out of that one big money spout. No doubt some of what they do may change the world and keep Google innovating, but the money comes from the spout. Now, to me that sounds completely expropriable. Essentially there is just a big source of rents from network externalities, et cetera, and it is waiting to be fought over. And, guess what, an increasing number of governments have started to levy big "fines" on Google for its "violations" of various vitally important rules.

More generally:

• A lot of the human capital in the internet is embodied in code. 
• There is no reason to think that innovation in code goes on forever. There may just be one best way to do a bubble sort or build a search engine.
• Embodied code is as expropriable as land or machinery.
• The globalized internet economy generates many winner-take-all markets.

These points suggest that in the end, the new economy may look more like North-east Brazil than Northern California.

Immigration policy - how it actually works.

Here's an email from a collaborator and very smart guy. The sort of person we should be encouraging to come to Britain, if we would like to have world class universities. His experience was not exactly encouraging.

Particularly egregious bits are highlighted.

The thing is, I am not pro immigration. I think Britain should have lower immigration (not zero). I'm basically quite communitarian. But what inevitably happens, in the political system we have, is gesture politics where you make some headline number commitment. Then you have to fulfil the commitment. Doing it right would be hard. So instead you do what is easy: you target the most law-abiding, highly visible people because they are the easiest to bully. And then... well, now read on.

Hi David,
Thanks for the support!  Yes, I was detained for a pretty long time, and sent back to [first world country Z], but it was largely due to my own stupidity. Although people still seem a bit horrified when I tell the story, so I must inadvertently tell it in a way that understates my stupidity, so keep that potential bias in mind. Here's the full(ish) story. It's pretty long, sorry.
My initial plan was to go to [country X in Africa] for research, and come back about a week before my visa expired and apply for an extension when I got home (which is what you're supposed to do). As is typical, there were some small issues in hiring a staff in X, which caused delays and so I ended up staying longer than I had initially anticipated. In the end I tried coming back into the country 4 days after my visa expired. I was in X, and didn't have time to really research the visa situation, and thought it's not a big deal, I have a Zian passport, I'm allowed to enter for 6 months with a Zian passport without a visa. I really didn't think much of it, I've entered the country without a visa many, many times before I moved over. So, that was very naive of me.
When I got to immigration I was pretty up front and honest about the situation; I didn't think it was going to be a problem. I told the immigration officer that I was gone on research for a month, I lived in the UK, I was putting finishing touches on my dissertation, and would be visiting for 2 months (I have a conference in Z in May). She asked questions about how much cash I had on me, why my visa was expired, and said I couldn't enter to do school work without a student visa. So, alright, I said, I didn't actually have school work left to do, my dissertation is all but complete, I'm really just visiting for a few months while I tie up some loose ends. She thought that it shouldn't take 2 months to do this, and didn't believe that my dissertation was complete since I was gone on research. I tried to explain that the work I was doing was not for my dissertation. She said oh, so you have a job? I said, no, but I expect to get one, and the work I'm doing now will help my career when I get a job. She did not understand my motivation for doing work that I was getting neither course credit nor money for, and basically called me a liar (said it was "highly implausible") and so they sent me to this room/cell thing in the bowels of Heathrow.

I waited there for a few hours, a new immigration officer came and interviewed me, wrote everything down, I told her the same story, I was here for a few months to tie up loose ends with my living situation, and submit my dissertation, and I was leaving the country in May at the latest. She told me there was no way I was going to enter the country, I was clearly doing school work without a student visa (which is kind of true) and they were going to send me to Nairobi because that was where I came from.
I started making calls using my credit card to let people know what was going on: my girlfriend, parents, etc. I had made several purchases on my way back, in Kigali, Bujumbura, Nairobi, and now London. So of course, while trying to make calls, my card got security blocked. My other card had already been blocked for a few days, I hadn't worried about it because the backup worked, but now the backup was down. So this was pretty bad because now I was being sent to Nairobi which isn't the safest place in the world, and I had absolutely no access to cash, not even enough to get a cab to the Zian embassy when I got to Nairobi. This next bit is the worst part I think: I desperately explained the situation to the immigration officer, literally telling her that people regularly die wandering the streets of Nairobi at night, and she said "not my problem, is it?". That was cold. My stomach sank with the lack of empathy. I was basically begging to go back to Z instead of Nairobi. I was pretty scared to go to Nairobi without any money or access to any money.
There was this guy in the cell with me (there were 7 of us) who clearly sensed my fear/desperation. He was a Libyan guy who seemed to know the immigration laws very well. He was there declaring amnesty, and had been detained for almost 48hrs. He overheard the conversation, and mentioned that his understanding was that the law said that I could go to my home country if there was a flight before the next flight back to my destination port, and I paid my way myself. ... So, I called my parents, and got my dads credit card info, bought the last ticket of the day into Z, all on the secretary's cell, and so they let me come to Z....
 
So, anyway, that's it. I ended up being detained just under 12 hours. I think the worst thing from their end is that they didn't actually ever tell me what my options were under the law. I apparently had the legal right to go back to Z, and despite my desperation and begging to not go to Nairobi, it took some random stranger to tell me that I had the legal right to be sent to my home country. I think it was pretty unreasonable of the officer to just assume that I wouldn't be able to figure out a way to get a flight home. I don't think that was particularly fair treatment.
All in all, not a great travel experience. 2/10 (max) - would not recommend and would not do again.

Linkage

Fight! Fight! Jonathan Portes describes Krugman versus the European Commission.
Dani Rodrik, always worth reading, attacks political economy. I am pretty sympathetic, but will register a quibble. The -- commonly made -- argument that "endogenizing politicians' behaviour leaves analysts with no policy recommendations to make" has some force, but can be overplayed. The material and electoral interests that politicians face are real, and even quite idealistic politicians will be helped by being made aware of them.

An urgent appeal

We interrupt our normal programming to bring you this vital message.

https://www.change.org/en-GB/petitions/skype-bring-back-the-original-skype-bear-emoticon

Please, for all our sakes, sign up now.

Leominster 1872

http://www.visionofbritain.org.uk/descriptions/entry_page.jsp?text_id=740110

LEOMINSTER popularly LEMSTER, a town, a parish, a sub-district, and a district in Herefordshire. The town stands in a fertile valley, on the river Lug, at the influx of two of its tributaries, and at the commencement of the Leominster canal, adjacent to the Shrewsbury and Hereford railway, at the junction of the Leominster and Kington railway, 13 miles N of Hereford. ...
The monastery was afterwards rebuilt as a college or priory; became a cell to Shaston and Reading abbeys; was notable for the preaching of the crusade in it, in 1187, by Baldwin and Giraldus;....

The town hall was built in 1856, at a cost of £3,000; is in the Italian style, 156 feet long and 48 feet wide; has, over the centre, a lofty cupola and clock-turret; and contains a council-chamber, 45 feet long and 30 feet wide.... The butter-cross stood on the site of the new market-house; was built in 1633, by John Abel, "the king's carpenter;" was a curious and beautiful example of Tudor timber-work, with 12 carved oak pillars, arches, shields, and varions carved devices; was taken down in 1855, to give effect to the town hall, and to afford space for the new market-house; and has been re-erected on a large open space, called the Grange.

The churchyard contains some interesting ancient monuments, and one to Mrs. Siddons and Mr. Kemble. ...

There are chapels for Baptists, Quakers, Moravians, Wesleyans, Primitive Methodists, Plymouth Brethren, and Unitarians. ...

Marriages in 1863, 90; births, 442, of which 37 were illegitimate; deaths, 309, of which 89 were at ages under 5 years, ....

The schools were 18 public day schools, with 1,171 scholars; 20 private day schools, with 384 s.; and 18 Sunday schools, with 1,043 s.

Linkage

I made an analogy between online education and film. Alex Tabarrok uses the analogy with recorded music. Andrew Gelman and Bryan Caplan jump in.
Pictures of Syria, before and after. "[T]he greatest that in any form of government can possibly happen to the people in general is scarce sensible, in respect of the miseries and horrible calamities that accompany a civil war..."

Meanwhile, in China:

And as she sees me turn around, she forces me into a conversation about her relationship to my great-aunt. Do you know? Your great-aunt was my class-mate, we got along greatly. When you two were class-mates, I wasn’t even born! That’s what I think, but on the surface, I can only bite the bullet, and at the risk of my ears breeding a silkworm, I have to let her finish....

Leigh Caldwell

Leigh Caldwell is coming by next Friday to look at the lab and say hi. He is a pricing adviser with an interest in behavioral economics and a blog here.

Is the search for exogeneity pointless in complex systems?

This idea came up in a response to a reviewer.

One of my hypotheses is that a psychological trait, honesty, may affect certain social or economic outcomes. The reviewer raised the legitimate point that other unobserved personality traits, correlated with honesty, could be the real causal factor. This is undeniable. We don’t know enough about human personality to control for everything that can affect a person’s social relationships.

The normal economist’s response would be to seek a source of random variation that affected honesty but nothing else: for example, an exogenous instrumental variable; or a natural experiment; or a real experiment. For example, if you want to see if economic growth makes war less likely in poor countries, but you are worried about reverse causality or unobserved confounds, then you may argue that weather is random, affectseconomic growth and does not affect war except via economic growth.

For psychological variables, though, this just seems impossible. Even if you could run an experimental treatment to change someone’s level of honesty (maybe an extra hour of Sunday school?), how could you guarantee that this would not change other aspects of their personality too? In fact, that would be extremely unlikely. A person’s character is a complex and interconnected whole. There seems no way to rule out unobserved heterogeneity – short of major neurosurgery, perhaps.

So it seems that if we want to investigate human psychology, we are stuck with finding the major dimensions of personality variation (such as the “Big Five”) via various forms of dimensionality reduction, and then controlling for them.

It seems as if this argument should also apply to other areas of science which study complex systems not subject to precise manipulation – say, ecology or climate science. What can we do about that?

Linkage

Orgtheory.net on combinatoric social science.
Health care price gouging in America (via interfluidity.com).
Andrew Gelman on academic versus political talk.
All published estimates are biased upwards.

Thomas Mann also knew about Jena's weather

... und schlechtes Wetter war über Jena, seit Wochen, seit Wochen, das war richtig, ein miserables und hassenswertes Wetter, das man in allen Nerven spürte, wüst, finster und kalt...
-- Schwere Stunde

Guaranteed entertainment

New paper from Christian Grose, Neil Malhotra and Robert van Houweling:

"It employed a within-subjects design in which the subjects of the experiment, U.S. senators, received one letter from a constituent taking a position in favor of immigration reform; and a second letter from a different constituent opposing immigration reform. By comparing how senators responded to these two letters we can identify the frequency with which they tailor their messages to constituents with differing views on this issue, as well as the form their targeted explanations take...."

How fast do institutional changes take effect?

Today I saw a presentation of a field experiment evaluating different ways to deliver aid. One was the standard method which had been used until that point. The other two “treatments” were new. The evaluation was over the course of a year. (There were lots of pictures of smiling villagers... lab guys don't have those.)

How long do we have to wait before new institutions settle down and we can evaluate them “in equilibrium” – meaning, not any rigorous game-theoretic concept, but just that people have somehow got used to them, and that all the changes have worked through the system? In this case I felt that a year was too little. Aid recipients are unlikely to be naïve about the fact that new institutions are being tried and evaluated, and they may therefore behave in a special way in the first season of a change.

I worry in general that social scientific evaluation is too short-termist, and that the tools of statistical analysis can encourage this. For major institutional changes, there is a good case that the smallest possible “independent” unit of observation is a generation. Until people have grown up under a new system, we are not sure that its full effects have been worked out.

In this context, advanced statistical analysis can actually be a step backward. For example, consider this paper which estimates the effect of democracy on GDP – a traditional hobby for political scientists. Now as everyone in the field knows, just looking at democracies versus dictatorships and comparing averages will not be informative, because these countries differ in many many other ways. So instead the paper looks at the few years before and after a change from dictatorship to democracy, and estimates the switchover effect from that. But this is crazy, because such massive changes to social institutions are not remotely likely to have all their effects within a few years. After all, many political decisions have ramifications that span decades – think of the choice to create the NHS, or Lloyd George's introduction of old age pensions, or Nixon's visit to China. Evaluating political institutions after seven years is like evaluating a new fitness regime after a week.

I can think of several cases where my previous beliefs were probably based on too short a run of evidence. For example, I assumed that privatization of e.g. water utilities was a good thing, because the privatized utilities performed better than public counterparts elsewhere. But a lot is going to depend on the first generation of entrepreneurs who take over, and these may not be the same as the second or third generation of entrepreneurs who inherit the system. In the 1950s, nationalization must have seemed as obvious as privatization did in the 1990s. I am not saying that privatization was a mistake – I still support it – but I am less confident of the evidence base.

My colleagues seem to be making a similar mistake about the effect of the Research Assessment Exercise (now the Research Excellence Framework) for UK academia. Everyone I know who was around in the 80s, when this came in, says that it swiftly forced a lot of unproductive, “dead wood” academics to either shape up or leave the system. So they are basically positive about it. (Well, Essex political scientists would be, wouldn't they?)

The question is whether it is still having the same effect now. When a new institution is imposed, there are two kinds of adjustment: people adjust to the institution; and the institution is adjusted to the people. After all, nobody wants to live under permanent revolution, so initially harsh conditions are gradually softened, informal routines grow up that may subvert the official rules, et cetera.

In this context it is pretty alarming to consider the Conservatives' and then New Labour's regime of targets for the NHS (known by some as “targets and terror”). Again, I have heard people in the industry talk about the salutary initial effects of having managers asking “why isn't this bed being used”? But now look where targets and terror have got us.

If this argument is right, we will often be unable to evaluate institutional changes rigorously until long after the fact – even if we are doing randomized controlled trials, which is often impossible. So, how can we decide what changes to make in the here and now? Two things might help.

First, a historical perspective won't tell us what will happen, but will at least give us a sense of what can happen. Without history we are doomed to parochialism. As Churchill said, "Study history, study history. In history lies all the secrets of statecraft."

Second, a sense of principle might often be a good guide. Actually, another Churchill quote is relevant: "In life the only wise course is to follow the course of duty and not of interest. Every man knows what his duty is. But it is not given to many to know their true interest." To apply this to academia: we may not know, now or ever, the true efficiency effects of such-and-such a government evaluation framework, or of the practice in an increasing number of European universities of – no joke – paying bonuses for top journal publications. But every researcher should feel that the search for truth is sacred, that it requires rigorous and demanding standards of honesty in the muddy waters of empirical analysis, and, therefore, that attempts to import monetary incentives, or impose pressure to publish, should be met with great suspicion.

A couple from bookslut:
A bit of an awkward read, this, about the Potato Famine. Not our finest hour.
"... and will pardon Paul Claudel / Pardon him for writing well."

Linkage

"... and will pardon Paul Claudel / Pardon him for writing well."

Linkage

"... and will pardon Paul Claudel / Pardon him for writing well."

Linkage

The seventies, when men drew elves. '"Perhaps a male character does not want to be a warrior; he wants to be more of a nurturing type."'

Thought for the day

to hell with anything unrefined
has always been my motto

-- from archy & mehitabel

Just a bit more Addison

This is so true:

There is scarce a thinking Man in the World, who is involved in the Business of it, but lives under a secret Impatience of the Hurry and Fatigue he suffers, and has formed a Resolution to fix himself, one time or other, in such a State as is suitable to the End of his Being. You hear Men every Day in Conversation profess, that all the Honour, Power, and Riches which they propose to themselves, cannot give Satisfaction enough to reward them for half the Anxiety they undergo in the Pursuit, or Possession of them. While Men are in this Temper (which happens very frequently) how inconsistent are they with themselves? They are wearied with the Toil they bear, but cannot find in their Hearts to relinquish it; Retirement is what they want, but they cannot betake themselves to it; While they pant after Shade and Covert, they still affect to appear in the most glittering Scenes of Life: But sure this is but just as reasonable as if a Man should call for more Lights, when he has a mind to go to Sleep.

Since then it is certain that our own Hearts deceive us in the Love of the World, and that we cannot command our selves enough to resign it, tho' we every Day wish our selves disengaged from its Allurements; let us not stand upon a Formal taking of Leave, but wean our selves from them, while we are in the midst of them.
...

The Man of Business has ever some one Point to carry, and then he tells himself he'll bid adieu to all the Vanity of Ambition: The Man of Pleasure resolves to take his leave at least, and part civilly with his Mistress: But the Ambitious Man is entangled every Moment in a fresh Pursuit, and the Lover sees new Charms in the Object he fancy'd he could abandon. It is, therefore, a fantastical way of thinking, when we promise our selves an Alteration in our Conduct from change of Place, and difference of Circumstances; the same Passions will attend us where-ever we are, till they are Conquered, and we can never live to our Satisfaction in the deepest Retirement, unless we are capable of living so in some measure amidst the Noise and Business of the World.

Manners

Manners ancient: Addison in The Spectator, 1711.

There is another Set of Correspondents to whom I must address my self, in the second Place; I mean such as fill their Letters with private Scandal, and black Accounts of particular Persons and Families. The world is so full of Ill-nature, that I have Lampoons sent me by People who cannot spell, and Satyrs compos'd by those who scarce know how to write. By the last Post in particular I receiv'd a Packet of Scandal that is not legible; and have a whole Bundle of Letters in Womens Hands that are full of Blots and Calumnies, insomuch that when I see the Name Cælia, Phillis, Pastora, or the like, at the Bottom of a Scrawl, I conclude on course that it brings me some Account of a fallen Virgin, a faithless Wife, or an amorous Widow. I must therefore inform these my Correspondents, that it is not my Design to be a Publisher of Intreagues and Cuckoldoms, or to bring little infamous Stories out of their present lurking Holes into broad Day light. If I attack the Vicious, I shall only set upon them in a Body: and will not be provoked by the worst Usage that I can receive from others, to make an Example of any particular Criminal. In short, I have so much of a Drawcansir in me, that I shall pass over a single Foe to charge whole Armies. It is not Lais or Silenus, but the Harlot and the Drunkard, whom I shall endeavour to expose; and shall consider the Crime as it appears in a Species, not as it is circumstanced in an Individual. I think it was Caligula who wished the whole City of Rome had but one Neck, that he might behead them at a Blow. I shall do out of Humanity what that Emperor would have done in the Cruelty of his Temper, and aim every Stroak at a collective Body of Offenders. At the same Time I am very sensible, that nothing spreads a Paper like private Calumny and Defamation; but as my Speculations are not under this Necessity, they are not exposed to this Temptation.

 Manners modern, from xkcd.

One purpose of social science: expanding the vocabulary

The Enlightenment coffee house

Social science differs from physical science for two reasons. The first one is a matter of degree. As we go up the scale of complexity in the objects we study, our laws get less exact. Physical laws are very precise. The laws of biology are less so: rabbit breeding is less predictable than the swing of a pendulum. Humans and human societies are even more complex than living bodies, so social scientific laws are even less exact.

The second is a difference of kind. It is a good thing for humans to be able to control and predict the natural world. Not that the power cannot be misused, but it is useful for us to understand animal breeding, global warming and the physics of lasers. On the other hand, it is much more ambiguous for humans to be able to control and predict other humans. To know when this is good, you have to ask with Lenin: who, whom? For instance, predicting crime could be extremely useful, but the idea has furnished material for a large number of cyberpunk dystopias.

These differences mean that in social science, universal scientific laws may be difficult to find, and sometimes not worth finding.

A law narrows down what is possible. Falling bodies on earth accelerate only at 9.81, not 9.79 or 9.93, meters per second per second.

Another goal of social science might be to find and name what Jon Elster calls mechanisms: things that can happen, though they will not necessarily. If mechanisms turn up often enough in social life, then they will enter the public mind and vocabulary. They then expand the ability of the average citizen to understand and predict his or her world. On average this is likely to be a good thing - more likely than the search for deterministic prediction of a specific social situation, like a project to predict outbreaks of conflict.

I know two waves of research which have expanded our vocabulary. The first is game theory. Any educated person knows what a Prisoner's Dilemma is, and many people can identify a Chicken Game or a Battle of the Sexes. You can even nowadays find Guardian articles which complain about the price discrimination practices of train companies. Underneath the hood is contract theory, and perhaps in future this will be a commonplace too.

The second comes from psychology, and it is happening now. Just world theory, loss aversion, and similar concepts are gathering media interest. In a few years, with luck, they will become commonplaces, widely enough known that groups of people can use them to swiftly understand what's going on in a particular situation.

Thinking about social science in this way lets me stay rigorous - a mechanism has to be well-defined and have conditions where it applies - while admitting that social life is, as Dan Kahneman might say, a low-validity environment, and that the people on the ground in a given situation may be better placed to apply the right concept than I am.

Linkage

Just world theory is a fashionable idea, and deserves to be. Here's what it looks like close up.
What journalism ought to be.

Thackeray on charitable donations and the Dictator Game

There is scarcely any man alive who does not think himself meritorious for giving his neighbour five pounds. Thriftless gives, not from a beneficent pleasure in giving, but from a lazy delight in spending. He would not deny himself one enjoyment; not his opera-stall, not his horse, not his dinner, not even the pleasure of giving Lazarus the five pounds. Thrifty, who is good, wise, just, and owes no man a penny, turns from a beggar, haggles with a hackney-coachman, or denies a poor relation, and I doubt which is the most selfish of the two. Money has only a different value in the eyes of each.

from Vanity Fair.

Macaulay on Addington

"So effectually indeed, did he retort on vice the mockery which had recently been directed against virtue, that, since his time, the open violation of decency has always been considered among us as the mark of a fool."
Macaulay has lots of interesting remarks about the changes in public morality, from the Puritans, to the license of Charles II's court, and back again. As he tells it, bad behaviour in public ends when it becomes, not shocking, but ridiculous. Which tangentially reminds me of this classic from the Onion.

Stuck in the shallows, 19th century edition

I've finally got hold of my Kindle notes, which Amazon makes it ridiculously hard to copy and paste.

"Now, on the contrary, much knowledge is traced on paper, but little is engraved in the soul. A man is certain that he can find information at a moment's notice when he wants it. He therefore suffers it to fade from his mind. Such a man cannot in strictness be said to know anything. He has the show without the reality of wisdom. These opinions Plato has put into the mouth of an ancient king of Egypt."

But Macaulay had little tolerance for them, and he would probably have just as little with the modern version.

Kahneman's sideswipes at traders and political scientists

I'm reading the Kahneman book. It is a really great piece of popular science - a deep and broad overview of the field. It has been reviewed in the JEL with the title Barbarians At The Gates (as in, psychologists at the gates of economics... a reversal of the usual position!)

Along with the psychological theory, there are some tangential insights into the financial crisis, as revealed by Kahneman and Thaler's study of a firm of stock market traders. Context: they discover that the performance of a trader's portfolio in one year is completely unrelated to performance the next year. Now read on:

...

And he seemed like such a nice man

Embarrassingly, he also has opinions about my own fine profession, referencing Philip Tetlock's famous study of, ahem, "experts":


 Oof!