Pursuit of Truthiness

my gut tells me I know economics

Escape from Capital

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The composition of this book has been for the author a long struggle of escape, and so must the reading of it be for most readers if the authors assault upon them is to be successful,a struggle of escape from habitual modes of thought and expression. The ideas which are here expressed so laboriously are extremely simple and should be obvious. The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds. -John Maynard Keynes

The first economic model of growth came from David Ricardo. He thought that capital accumulation was they key to growth, capitalists were heroes, and landlords were villains who would eat into the profits capitalists needed to finance economic growth.

Marx made people think of capitalists as villains, but he was even more obsessed than other economists with the importance of capital for long-run economic growth; he just thought it was too important to be owned by capitalists alone. Capital was the name of his magnum opus and his constant focus.

In the 20th century, economists have discussed many other factors that determine economic growth: institutions, culture, entrepreneurship, human capital, technology. But the old obsession with physical capital has remained.

Joseph Schumpeter introduced the idea of creative destruction, the importance of innovation and entrepreneurs. But at the end of the day, he thought that communism would win out over capitalism because it would accumulate more capital and communist countries would out-grow capitalists. He loved the freedom of capitalism, but thought that communist countries forcing investment in physical capital would prosper more.

Robert Solow created a new model of economic growth, and his empirical tests of the model showed that the vast majority of differences in economic growth across countries could not be explained by differences in physical capital. Instead, we should focus on the Solow residual- the other things like technology that influence the productivity of labor. But Paul Samuelson, friend and colleague of Solow and arguably the greatest economist of the 20th century, still couldn’t shake the old focus on physical capital- his bestselling textbook kept predicting that forced capital accumulation would lead communist countries to surpass capitalist right up until the breakup of the Soviet Union.

New work continues to show the importance for growth of factors other than physical capital- Paul Romer on innovation, Acemoglu and Robinson and Douglas North on institutions, McCloskey on culture. Yet somehow, economists cannot escape from a focus on physical capital. Perhaps it is this, not modeling, that is the true Ricardian vice.

Written by James Bailey

December 9, 2014 at 1:31 pm

The Paradox of Trust

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We constantly make judgements, usually subconsciously, about how much to trust others. On average, we seem to be pretty decent at making these assessments- at first. But someone’s trustworthiness is not a fixed quantity. When someone knows that others trust them, they know that people are less likely to look for their possible misbehavior, and more likely to accept their version of events if evidence of misbehavior arises. Some people will take advantage of this trust to commit misdeeds.
The same analysis applies to professions, with the additional mechanism that people with bad intentions may seek out a place in trusted professions in order to commit their misdeeds with a reduced chance of being caught. The very fact that so many people trusted priests not to sexually assault children is what allowed it to happen so often. The very fact that most people trust police not to kill unjustifiably is what allows some to kill unjustifiably.
This seems like a bit of a paradox to me. Is it ever possible for a trusted profession to remain trustworthy for long? How? By trying as hard as possible to select for people of good character? This seems like a hard problem.
The paradox seems like a problem that others must have thought about a lot in many fields- literature, philosophy, and economics at the very least seem like they would be fruitful here. I think a game-theoretic analysis would be interesting, and may have no stable equilibrium. But nothing much comes to mind when I try to think of what others have said about this, besides “who guards the guards?”
What am I missing?

Written by James Bailey

December 5, 2014 at 12:35 am

Taxation is Death

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Disclaimer- I hope this post does not get read widely, because it is a relatively controversial take on a peripheral part of what is mainly an open-and-shut case of police abuse. People of different political persuasions seem to actually be coming together on the main issue in this case- liberals seem furious about it even beyond the race angle, major conservatives are calling it a tragedy, and when was the last time Reason magazine celebrated the US Attorney General for prosecuting someone? But many others are saying those things well, so this was what remained on my mind unsaid.

Many anarcho-capitalists want to end all taxation because “taxation is theft”. I have always had a hard time getting worked up about this- sure, taxation does seem like a type of theft, but the practical benefits of a tax system seem to outweigh this abstract flaw.

Then they note that if you try to resist the theft by not paying, you could get thrown in prison, an even more serious violation of your rights. But in practice this happens so rarely; almost everyone just pays up, and never really even thinks about taxes as coercive measures backed by physical force. It seems like the tax system more or less works, and funds the government’s worthwhile endeavors. Sure, it has flaws, but consequentialists and economists like myself usually focus on flaws like how most taxes distort the incentives to save and invest- flaws that can be fixed without scrapping the idea of taxation.

But sometimes, events make the nature of the system hard to ignore. Government taxes and regulations really are backed by force- and sometimes, given a government staffed by imperfect humans, something as well-intentioned a tax on cigarettes can lead not only to people in jail, but to someone being killed.

The idea that taxation is theft, backed by force doesn’t mean we should eliminate all taxes. But it is one of many things worth keeping in mind when you propose a tax. It is something I should have been thinking of when I last taught microeconomics and enumerated to the class the benefits of Pigouvian taxes- I even used the example of a cigarette tax.

Written by James Bailey

December 4, 2014 at 7:26 pm

Dialogue on Randomization

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Roger Bacon- Consider the diverse benefits of randomization. Piercing through the vagaries of chance and deception, it allows us to discern truly the causes and consequences of action.

 
Trollius Maximus- Yet, there are costs to randomization. A trial requires an exceeding amount of time and treasure, while other methods can be done in short time by a single natural philosopher of modest means. Even if trials were as easy to conduct, they are harder to generalize to far-away lands and eras. To say nothing of the ethics of rewarding one man while spurning another, all according to the flip of a coin.

Bacon: I do not say that randomized studies are the only way. Where traditional methods fail, or when the question is of true import, we will find the costs of randomization to be of little matter.

Trollius: Even the ethical costs? Will you so lightly toss aside the question of the good?

 
Bacon: What could be the flaw of helping one while passing another by, so long as I do no harm to the other? Does not every good deed only help one or a few, while the multitudes remain ignorant of the deed?

 
Trollius: Have you indeed done no harm to those passed over in your trial, or those who bear witness to your study? Have you not convinced them that the world was a more random place than they had thought, that their own actions matter little compared to the all-powerful, uncaring hand of chance?

Bacon: Perhaps I have. Indeed, I stand convinced. I shall demonstrate in a paper using a randomized trial that exposure to randomization undermines people’s conviction that they are the master of their fate, the locus of their control, and I shall show that this new belief causes them great harm.

Trollius: Your paper would roil the world of randomistas.

 
Bacon: Yet I worry that natural philosophers will still turn too readily to randomization, since they gain most of the benefits from doing such studies, while experiencing only a fraction of these costs. Witness how psychologists continue to use deception, while economists and others spam the world with audit studies.

Trollius: Ah, but your work would be so convincing, your brilliance could shatter the randomista movement with a single blow. They would return to running cross-country regressions, and Sophists will carry the day once more.

Bacon: I see. Your trolling has convinced me to stay silent, for the good of the world I must maintain the Noble Lie that randomization is the ideal and the future of natural philosophy.

Trollius: By silence, you mean not writing a paper. Certainly a blog post could do no harm; people would find it funny, rather than a failed attempt at cleverness and a lame imitation of Brad DeLong (who you shouldn’t be trying to imitate anyway).

Bacon: Indeed. To the blogosphere!

Written by James Bailey

November 11, 2014 at 11:15 pm

Things I Don’t Understand About Speed

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1. Why is it that all the Olympian sprinters are jacked, while it seems that the fastest people at frisbee are skinny?

2. I recently read The Sports Gene. A great book that explores which parts of sports success come from genes and innate ability, which from training, and which from odd interactions of the two like genes which make training more effective. For sprint speed, the book generally comes down on the side of genes- success is about the amount of fast-twitch muscle fibers you are born with, backing up the old saying that “you can’t teach speed.” But while the book gave many answers, it left me with more questions. After all, it can’t literally be true that there is zero benefit to sprint training- or else why does anyone do it? I still have no idea how much speed a sprint training program would add. Would it cut 1 100th of a second of a 100-meter dash? One tenth? One full second? How different would the results be for someone who spent a year being moderately active, vs one who spent a year sitting on a couch? How different would the results be for people with different levels of “innate” ability, for instance different proportions of fast-twitch muscle fiber?

3. Have you ever run a timed 40-yd dash? Have you ever looked at NFL combine results? When I did, they blew my mind. I never thought I could keep up with NFL running backs or wide receivers, but I did think I could outrun a 330-pound offensive lineman. Not so, apparently- almost all of them can run a 40-yd dash in under 5.5 seconds.

Written by James Bailey

October 26, 2014 at 1:40 pm

Why is Academic Writing so Bad?

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In his recent article “Why Academic Writing Stinks”, Steven Pinker highlights many examples of bad academic writing. He argues that academic writing is mostly bad because writing well is hard, writing well about academic subjects especially so.
Pinker mostly discounts the idea that bad writing is a deliberate choice by individual writers made in order to “dress up the trivial and obvious with the trappings of scientific sophistication, hoping to bamboozle their audiences with highfalutin gobbledygook.” Pinker admits that this happens occasionally, and is ironically especially common among professors of English.

While I think most of Pinker’s article is great, I want to push back against his complete dismissal of the idea that “that academics have no choice but to write badly because the gatekeepers of journals and university presses insist on ponderous language as proof of one’s seriousness”. Pinker calls this a “myth”, but I have first-hand experience that it happens.

I have repeatedly been told by referees that my writing style is “too casual”. It’s not totally clear what they mean, but I (perhaps self-servingly) take them to be complaining about the very things that Pinker, and other well-regarded academic writers like Dierdre McCloskey, insist are part of good style: not using big words when small ones will do, avoiding jargon when possible, using the first person and active voice- “We run a fixed-effects regression”- instead of the third person and passive voice- “the approach of this paper is to run a regression, utilizing fixed effects.”

I try to explain my work in a way that will be relatively accessible to non-specialists; at the very least I would like economists outside of my field to be able to understand my papers. But referees often ask for such explanations to be cut. Contra Pinker, I think this is exactly meant to “prove my seriousness”- including too many explanations for people who aren’t in my sub-sub-field leads to referees saying that a paper “reads like a grad-student paper”.

Once a referee asked me to cut a paragraph explaining why I used a certain technique because “everyone knows about that”. Clearly not everyone does- at best every applied microeconomist does, though even this was doubtful since the first paper on it had been published only 8 years earlier. I think what they meant was that that anyone who would read this paper should already know about it. But that sounds like a self-fulfilling prophecy- if you make your papers unreadable to 99.99% of the world, not many people will read them.

So while I somewhat disagree with Pinker, I hope every academic will read his article. I don’t think this will help much. I agree with Pinker that academic writing in general is likely to stay bad- the cost of writing well is putting in hard work to do so, and the benefits to most academics of improving their writing is low. But if more people understood how bad standard academic writing is, they could at least refrain from spending time and effort pushing others to conform to academic writing norms.

PS- Did you know that Dierdre McCloskey’s Economical Writing is available online for free? Highly recommended to anyone who writes in a technical field, or anyone who could believe that a book with the title Economical Writing is actually pretty hilarious.

Written by James Bailey

September 28, 2014 at 4:04 pm

Who Pays the High Health Costs of Older Workers? Evidence From Prostate Cancer Screening Mandates

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After a 2-year journey through the journal system, chapter 2 of my dissertation is now published in Applied Economics. The paper focuses on one specific mandate that mostly benefits men over 50. I find that the cost of this mandate is passed on to men over 50 in the form of lower wages. Some men also lose access to employer insurance altogether.

Some of the general lessons from my work so far:

1) There are no free lunches: getting higher benefits means incurring higher costs

2) Laws passed with good intentions can backfire, hurting the very people they are intended to help

3) Employer-based health insurance messes up labor markets

Written by James Bailey

August 21, 2014 at 4:14 pm

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