Posts Tagged ‘economics’

July 17, 2012

Early in his academic career, [Paul] Schervish was a committed Democratic Socialist. But around 1990, he began interviewing wealthy people and decided that his Marxist instinct to criticize the rich was misguided.

“I realized good and evil are equally distributed across the economic spectrum and not particular to the wealthy or the poor,” he says. “A lot of wealth holders were very sincerely concerned about others and were doing something about it.”

Graeme Wood

In place of wooden and corrugated metal shacks with trash fires out back, there are stuccoed buildings, nicely painted houses with landscaping, and public garbage collection. Where lots of folks in countries to the north do their shopping in poorly stocked stores run out of people’s houses, Costa Rica has American style grocery stores in every town where you can buy anything your heart desires: artesanal cheese, capers, fresh meat to name a few. Instead of the rolling hills full of cows, horses, and cowboys … in Nicaragua, we rolled by enormous plantations of pineapple, sugarcane, and papaya worked by big, industrial tractors, and headed directly for export. The country smells of prosperity and piña. … From La Fortuna, we made our way through resort land and around Lake Arenal to the little town of Nuevo Arenal … where there are no bars on the windows. It’s quite a striking thing to notice. After months of seeing ironwork in front of ever pane of glass, to be looking out of the hotel through a huge clear window is an interesting luxury. … Rather than wandering unmarked trails in a National Park, you have to pay someone $10 to go look at a waterfall. … The rainy season has arrived, so we are [adjusting to] wet weather. Sometimes we stop for shelter, and sometimes we ride on through. One day, after we thought we’d waited out the rain and headed on down the road, it started pouring, and looked like it would continue all night. As there were no hotels that we could see reachable that afternoon, we asked a logging/trucking company if we could sleep in their shed. The dude started to send us on our way to an hasped he knew, but then changed his mind, realizing we were much happier stopping right then for something dry and dusty than riding some more in the pouring rain in search of a pricey hotel room. He asked us all about our trip, brought us a tarp to lay on the floor, and explained that he used to drive trucks all over the province without knowing where he’d sleep, and he’d spent many a night sleeping in corrals with the animals. 

July 16, 2012

What does it mean to be the wealthiest country in Central America?

July 12, 2012

1. Use mathematics as a shorthand language rather than as an engine of inquiry
2. Keep to them [your models/problems] till you have them done
3. Translate to english
4. Illustrate with examples important to real life
5. Burn the mathematics
6. If you can’t succeed in 4, burn 3

Alfred Marshall’s rules for using mathematics in economics.
(via fantasticphenomenal)

BBC Business Daily – interview with Arthur Laffer

July 12, 2012

In other news, Art Laffer has become a parody of himself.

  • Deliberately misrepresenting the flat tax. Making it sound like 12% is a tax cut for most Americans, when in fact the effective tax rate for everyone making under $100k is already under 12%.
    The average effective tax rate on almost all Americans is already under 12%. 
  • If what you really want to do is raise taxes on the poor and cut taxes on the rich, why don’t you just come out and say it, Art?
  • Conflating simplicity of tax returns with elimination of tax brackets.
  • Poverty is caused by high tax rates and welfare. Quick, tell Somalia!
    Somalian GDP is $600 per person. Better tell them to stop paying out so much welfare because that is what's making them the #222 richest country. 
  • Brings up sin taxes as a distraction, like a magician’s trick.
     
  • No estimates of how much income is being “accelerated” from 2013 into 2012, only statements that the number is huge.
  • Of course when the tax rates rise on the rich, they’re all going to flee the US. Because ceteris paribus it’s in their interest to do so. All other things considered, the first thing I do every morning is ask what tax rates are on various activities I could engage in and various countries I could move to.
  • The sign is negative, therefore the magnitude is large.
  • Also austerity is equivalent to growth, although later on he contradicts that and says a lot of government spending is necessary. (Wonder whether he wants to cut health benefits, elderly benefits, military protection, or government jobs?)
  •  Some government spending is wasteful (again no discussion of magnitude—.00001% or 10%?) therefore austerity.
  • Ricardian Equivalence, because I say so.
  • Twisted reasoning like “Poor people are poor because of disincentives to work, but rich people would pay all of their tax if only you didn’t ask so much of them.” However not going to prove any of that, it’s just “common sense”.
  • This passes for argument: “Come on, you know that.” (I count four.)
  • Because, incentives. Because, markets.

If you laugh and squeal while you say it, you’re right.

 

I would love to have a less cynical view of the world than that any yahoo who claims taxes can be vastly reduced on the rich with no negative consequences to anyone gets banquets in his honour, funding from “think tanks”, and handed the reins of policy. But this sh*t tests me.

Searching for something positive to say…at least he said the goal of government is to get poor people to be prosperous.

July 11, 2012

@UnlearningEcon lamented the deviations-from-Pangloss framing of neoclassical economics. Normal economic theories take perfection (optimality) as a starting point and ask how real-world “market imperfections” differ from the putative abstract-free-market ideal. (That “the free market” is an abstract ideal can be verified by first going to an actual bazaar and then listening to the way pundits use the term “free market” or “private enterprise” as in versus “government”.)

If you’ve spent too much time with your head in a book rather than participating in actual commerce, it can be hard to even conceive of another frame.

 

Here’s an alternative theory, just as wrong and just as simple & parsimonious as the Panglossian-private-enterprise frame:

  • Every rich person has some business that’s making them rich.
  • No rich person will enter a contractual relationship that makes them poorer.
  • The only way for a poor person to obtain wealth is to perform a service for a rich person.
  • So the service must increase the efficiency of the rich person, add new customers, draw more sales from existing customers, or make the same work get done for lower cost.
  • Therefore, the rich always get richer. The poor may or may not get richer.

Of course, the real world deviates from this theoretical ideal in some respects.

  1. Ego projects. Sometimes a rich person wants to indulge in an ego project—like starting their own fashion label, “investing” in a “startup”, or retiring from business to write a blog or perfect the craft of 17th-century viola restoration.
  2. Bad, lying employees. Hiring managers sometimes make mistakes and hire someone who said they would make the operation more efficient, but actually costs more than they’re worth.
  3. Vacations and big houses. A few large purchases do transfer wealth from rich to poor for consumptive purposes. However, it can be shown that when a continuum of houses and vacations trade in continuous time, the real [def.] economic [def.] returns to hillbillies exchanged for house-building go to booze and marijuana with plim → 1.

July 8, 2012

Just in case you forgot that primitive living means eating live cockroaches and bony rats’ tails for extra protein.

The Adi people of Tibet/India (Aranatra Pradesh) play host to the BBC’s Bruce Parry.

Newsflash: You Should Be Happy!!!

July 8, 2012

Matt Ridley has written an entertaining book: The Rational Optimist, detailing all the ways in which life is great for rich people. (By rich people I mean the fraction of humans who make ≥5 figure salaries in $.)

For example Louis XIV had a hundred chefs make him 100 meals and throw away the 99 he didn’t want, but nowadays a New York City “peasant” has even more choice of dinner consumption, without needing to be king. (I’m not sure if this applies to the poorest person in NYC or the poor ones who can’t make it in … which is why I’m restricting the statement to ≥$10000 earners. Although maybe Mr Ridley would argue that even a subsistence farmer today has it better than Les Hommes de Cro-Magnon.)

But so, uh, why is this an interesting book? Nobody writes a book called Hey, did you know the sky is blue? Except at sunset when it’s pink or when it rains it’s grey. Isn’t that interesting?! Because everybody already knows that. The fact that Mr Ridley can sell a “provocative” book full of amazing facts and viewpoints about how prosperous we are sends a grave message the opposite way.

Why is it that we need a book from Mr Ridley to remind us how good we’ve got it?

July 7, 2012

I might be exaggerating a little if I say things like

  • We’re taught to measure our personal worth against exam scores;
  • We’re taught that there is One Competition and those who win the tournament get the goodies;
  • We’re taught that the children of Tiger Moms go to Yale and then Harvard Law and then become McKinsey consultants and then go on to head large corporations or i-banking or essentially win at life and rule the world in myriad ways;
  • We’re taught that the rest of us suck.

But I wouldn’t be completely making sh_t up. Those messages, or something like them, ∃ in the culture I come from and maybe in the culture you come from as well. Peter Thiel described a tournament to get into an Ivy League school, followed by a harder tournament to get into Stanford Law, followed by a harder tournament on Wall Street, … and left out of his story the 99.99% of us who didn’t even make it to the first tournament.

What about the supermajority? I’m pretty sure a hundred weak people can lift more weight than the strongest man on Earth. And I’m even more sure that the 50 smartest people on the planet can’t run Wall Street by themselves—let alone all the shops, shipyards, data centres, and engineering the runways of the airstrips to a millimetre of precision, that make up the economy.

 

So what about the rest of us? How much sense does it make to see the world in Thiel’s terms—the best versus the rest?

Well basic economics 101 tells us that a modern economy is made up of many specialised actors. The people who bend the tubes to make neon lights don’t know much about sewing shoes or sourcing the material for shoes, and none of those people know—or should know—how to do Ruby on Rails or Haskell.

Some people who research expertise also have developed a theory of 10,000 hours. If you practise something for 10^4 hours—so five years of work experience or ten years as a very, very consistent hobby—then you become awesome at it. A related theory is that if I have been doing something for a year or two and Peter Thiel tries to compete with me on it, I will still win regardless that he’s a chess master and a Stanford Law graduate and handsome and so on.

In other words, ∃ an equally or more compelling narrative than the A Player narrative: about everybody being different and that being okay and in fact more efficient.

Viewing education as a signalling mechanism to rank a one-dimensional hierarchy of best to worst people is one possibility—and one that BCG possibly uses to its advantage in applying profitable friction to the large companies who for some reason decide that some A+++ 24-year-olds know how to run their business better than they do. (Ooh, I really wanted to work in ‘fiction’ and ‘friction’ somehow. Too bad I was never a good enough student or I could have worked it.) But the dominant messages I hear from people who went into highly-paid frictional professions—accounting, law, consulting, finance—are that they want their kids to “find their own path”—i.e., do something with a tangible contribution to the society. Not necessarily fundraising for Laotian villagers, but something profitable that measurably increases the wealth of their community.

So the “everyone is a special individual” message doesn’t just come from warmhearted Kindergarten teachers wearing seashell necklaces. If specialisation, difference, and diversity are more important than uniformly learning

  • the same parts of history,
  • the same mathematics,
  • and being compared to each other on a fabricated 7-dimensional scale (grades)
  • to see if we can get to be included in the golden inner circle of whatever mysterious ritual the white-shoe white-collar firms perform to add an order of magnitude more value to their customers per employee,

— then the hard-nosed economists are also telling us the same message. Maybe it is not about me being better than you and worse than Peter Thiel, but rather a high-dimensional poset network of symplectic skills and attributes, mostly not substitutable by smart people over dumb people and yet all worth pursuing as they complementarily add size to the world GDP.

July 4, 2012

The seeds of my dissent from economic orthodoxy were pretty much sown for me by my 1st professor on the 1st day of my 1st economics class.

This prof had gone to a great personal trouble to begin our exposure to the dismal science with a very down-to-earth and super-important lesson. She went so far as to spend her own cash on some things from the store, of varying cost, and gave us all at the beginning of the class random items. Some people got candy, some got socks, one or two got things of greater value.

This was a masterful teaching stroke, by someone who cared deeply about her subject and teaching it to newbies: she would have us all participate in voluntary trade within the classroom and end up than we started. Gains from trade—the fundamental point about economics—are really “the only thing we know about welfare”. Sure, some people start off with more—more wealth, more smarts, better looks, genes that will make them grow taller so they can reach the mayonnaise jars from the back—but hey, at least we can make all of them better off and not hurt anyone by allowing them to trade freely.

Right?

We each reported, on a scale of 1 to 10, how satisfied we were with the Stuff we had been randomly given at the beginning of the class, and the prof wrote these scores down on the board. Then we were asked to stand up, walk about the room, and see if anyone would voluntarily exchange Stuff with us. Multiple transactions were allowed, even encouraged—and after a few minutes of cluelessly blitzing with each other, the trading day was closed and we resumed our seats.

The prof asked our scores again, fully expecting that ∀i in the class, utility before utility after.

But one girl reported a lower score.

Instead of taking this as evidence against her belief that transactions are always mutually beneficial—a cornerstone of normative economic theory—the prof instead scolded the girl. “Well, what’d ya do that for?!”

By the way, this was not a prof who prepended test questions with the phrase “According to the theory we learned in class,” which means I still dispute that I got that one about the lobstermongers right! (Since it asked about “What would happen” not “what the theory says would happen”.)

At the time I thought the outburst a bit rude and over the years to come I remembered the episode. (well, obviously) I still think of it as a microcosm of certain intellectual misdeeds by economists. The framework is too important to hold onto; if anyone undermines then you get angry and yell at them! It’s a plausibility war, after all.

Not too far off from real comments by economists: But if you took away the mutually-beneficial assumption, then you’d have no theory at all! (Regardless of whether nullset is the only true theory we have.)

The assumptions about what goes on in transactions are so appealing that even when you see them violated in front of your eyes, they’re still so implausible and—hey—what about all this stuff I learned about indifference curves? If I saw so many graphs with them not overlapping or going backwards, then that has to be the truth, because maths!

Nevermind that people don’t always know what they want, or maybe it’s contradictory or impossible, and even in well-defined classroom experiments they may just, um, do it wrong.

Happy Independence Day. Here’s to hoping you don’t use the independence to shoot yourself in the foot.

Free Money

July 2, 2012

@isomorphisms: Higgs Boson Particle to be observed on/before 31 Dec 2012 = 68.0% @Intrade bit.ly/MP3Eo0

@isomorphisms: Higgs 2013 = 80%, Higgs 2014 = 85%, Higgs 2015 = 80.1%. Oops #EMH #arb

There’s $2 three years from now sitting on the table for whoever wants to pick it up.