Oh, those silly economists

Economists dig incentives. Ask one a question about behavior and the economist will first consider the incentives that are at work.

Economics is often chided for only caring about incentives. There are other motives, like obligations or ethics, that guide people’s behavior.

Example,

Tyler also thinks [moving to a free access system] would reduce the problems associated with getting good reviewers. Since there are few incentives for reviewing anyway, we could simply bypass reviewing and allow the attention market to decide which papers were worth something. Henry is skeptical that there is a reviewer problem to worry about. People don’t review papers because they have incentives, he thinks; they review because it is normatively appropriate to do so.

Now here’s where I make an ass out of myself. Isn’t an obligation or a norm just a type of incentive? Surely these things don’t come with an infinite cost if they’re not obliged. As such, the individual’s behavior can still be analyzed as-if he’s analyzing the cost and benefits of breaking the norm/obligation.

“Aha”, the social scientists\economists ((That’s the set minus operator. Ain’t I clever.)) respond, “but treating those things as just other types of incentives isn’t parsimonious! Its not realistic!” To which, I reply, “I have a nice Friedman article from the 50’s for you to read.”

Economic Geography

This is neat. Contrast the location of libraries (blue) against the location of bookstores (green).

Chicago Los Angeles

Tim Spalding, Librarything head honcho, suggests:

Bookstores cluster together in the high-traffic center; public library branches spread out into the outlying areas and are separated from each other evenly like identically-polarized magnets.

I don’t think this basic fact will come as a surprise to many, but it’s striking even so. It’s worth thinking about why these two institutions—so different but also sharing much—are positioned so differently in space.

I think the easiest explanation is the difference between economics and politics. Economics favors businesses that can create the most amount of happiness—which is to say revenue— whether or not this makes access difficult for some people. Representative politics favors solutions that give all citizens good or equal access to the resource, even if the resultant distribution is inefficient in economic terms.

I agree with his comments about the economic incentives. You can look at those maps and tell where people like to buy books by looking at the location of the green dots. Those bookstores have an incentive to be located exactly where people will buy the most books.

His comment about political incentives, I’m not so sure about. To maximize access, you’d think the libraries would be concentrated with the population. There would be more libraries were there’s more people. I suspect, by looking at various other cities, this isn’t what’s happening. Doesn’t it seem like the libraries are too uniformly spread over the geography given the population probably aren’t?

Of course, maybe I should be looking at books per person (normalized by some distance) rather than library buildings per person. It could be that it maximizes access by having buildings evenly spaced, but bigger buildings (with more books) where there’s more people.

In any case, I don’t think you can look at those maps and conclude access is being optimized.

What’s with that?

Often times I’ll be listening to a trade seminar and the presenter makes the following argument:

  1. Here’s an economy with some friction (e.g. trade restrictions)
  2. Here’s an economy without said friction, see how its best
  3. The difference between countries that are more like the first and countries more like the second can be attributed to the friction

Here’s my problem with that argument. Its silly.

Oh, you need more detail? Its silly because no country is completely without the friction and there’s no guarantee that going from lots of the friction to a little bit less will move you in the direction of the frictionless world. Maybe some other friction balances out the first friction and when you reduce the first, the second over compensates and you’re in a worse state than you began in.

Well, that was abstract. Example: let’s say I would be the most handsome man in Davis if I just took my girlfriend’s advice about how to dress myself. She has a perfect sense of style and boy would I be cool if I would dress exactly how she tells me. So, here we have two scenarios: me dressed as my usual college casual (read: boring) self or me dressed to the nines. Obviously, it would be best for me to do 100% what my girlfriend tells me.

Does it then follow that if I put the girlfriend-approved power tie over my faded tee-shirt but kept everything else in my attire the same that I’d be better dressed? No. In fact, I’m sure it would reduce my sartorial rating.

This argument doesn’t work in that context and I don’t think it works in economics, either. Why, then, do I see this argument so often? ((See chapter 8, in Prescott and Parente (pdf) for a variation on this argument))

Links

To establish my Nerd God street cred, here’s some links:

  • Atheist chat: Hitchens is on fire, Dawkins comes off assholish (surprise!) and dogmatic (ironic!), Dennett more pragmatic but a bit senile and I don’t know who the other dude is. Its worth two hours of your time.
  • ARIMA ain’t a Caribbean island: The best introduction I’ve seen to the Box-Jenkins method for fitting time-series data.
  • Social innovation: Udell, the best writer on technology in these parts, says g ain’t new inventions, its some people mastering the technologies and then teaching their learned techniques to the masses.
  • Happy Birthday Perl!

American exceptionalism

Growing up a red-blooded American, I believed America was a special place, a proud beacon shining the light of freedom upon humanity… or something. Anyway, I listened to Rush Limbaugh.

Then I went to Berkeley and they cured me of those ideas and I started listening to Democracy Now!.

Statistically, though, the U.S. is a special place. I don’t mean special in the we’re-an-outlier-in-the-good-way sense. I mean special in the why-the-hell-do-they-compare-Sweden (pop. 9m)-to-a-country-with-300m-people sense. We’re bigger than most everyone else. This means our political system is different (making our institutions different) than most other places, too. Scale suggests our “Parliament” shouldn’t spend much time debating airport expansions and hospital locations. Transportation and health care policy are delegated to the State level.

In comparing most policy differences, then, it makes sense to compare U.S. States to other countries, a la this map:

And in some cases, its more appropriate to compare U.S. cities to countries… like Sweden vs. New York City (population 8m).

View from the other side?

I can’t tell if I’m missing the substance in this article about Milton Friedman or if there just isn’t any there. What is one to do with non-sequiturs like this one, for example:

A rigorous edifice was of course never established, because econometric modeling inevitably involves crude stylised assumptions and the use of measurable proxies for unquantifiable entities. And a definitive proof of causation (money supply drives inflation) is out of the question. So monetarist prescriptions were called into service in Australia, the USA and the UK on grounds of politics and prejudice rather than on merit.

Because the author believes economic theory is bogus, that theory could never give a proof that inflation is “always and everywhere a monetary phenomenon”. Ok, I’m with you so far. But because economic theory can’t give a proof of monetarism to author’s satisfaction, monetarist policy was put into place nefariously? ((Besides being a logical fallacy, this is just silly. Of course, *policy* was put into place because of politics… that’s what those politicians do.))

The rhetorical signal to noise ratio is really low in the article. After claiming there’s no connection between money supply and inflation, the author writes, “[monetarism] also omits the dialectical surge of both money supply and inflation attendant on interest rate hikes that accompany attempts to restrict money supply growth.” Maybe I don’t know all the nuances of the Marxist vocabulary, but wouldn’t a “dialectical surge” imply there is fact a positive relationship between those two variables?

The high heat to light ratio suggests I’m not missing much.

Yet, I’m not sure if this article represents a serious critique of mainstream economics. I keep thinking it might be serious because the author seems to have some idea of neoclassical economics (or at least its buzzwords: helicopter drops, positive economics, monetarism, etc). But then again, from the little actual criticism I can discern, it appears the author is arguing against economic theory as it was 30 or 40 years ago. The firm is a black box? Agents are price takers? “There is no social dimension, no political dimension”?

The best I can do to defend the author is to say he must be talking only about Friedman’s view of theory when he retired over 30 years ago and he’s not talking about economic theory as it is today.

I still don’t know if I should take the article seriously or not. If I do, I’m not sure if I should be happy or sad that this might represent the best the critics can come up with.

Spuriousness

YouNotSneaky! and Gabriel tag team on a cool exercise. Their point, I think, is that we shouldn’t be surprised when measures of skewness are correlated with averages.

But I’m too busy writing my dissertation on the deep structural links between income levels and income inequality to dig into the details.

Two observations about science and scientists

First observation: I often hear someone defend their field of research by saying something like “hey, its not useful today, but someday someone will figure out a use for it.” Most recently I heard a budding choice theorist use this defense (and I wasn’t even attacking his field, he was just being defensive). I generally agree with this line. Further, I think some things are just interesting in themselves and don’t have to ever be “useful” for us to want to know more about them.

This argument is made for science as a whole or for a particular field, but the opposite case is usually made against individual scientists. Scientists, its argued, should stick to their own fields; venturing out isn’t useful. I’m in a math class this quarter that doesn’t, in any way, touch on my research. Several people, including the budding choice theorist, have wondered why I’m bothering taking the class.

Second observation: science and the generation of knowledge, it is well understood, should be an objective and fact-driven process. Of course, I agree with this sentiment, but people often confuse this idea with the one that individual scientists themselves should be unemotional and unbiased.

In both cases, I think the role of individual curiosity in science is being underplayed.