Causal Density is a Bear

The Economist reports,

The mismatch between rising greenhouse-gas emissions and not-rising temperatures is among the biggest puzzles in climate science just now. It does not mean global warming is a delusion. Flat though they are, temperatures in the first decade of the 21st century remain almost 1°C above their level in the first decade of the 20th. But the puzzle does need explaining.

On a separate but related topic, Noah Smith writes,

DSGE models are highly sensitive to their assumptions. Look at the difference in the results between the Braun et al. paper and the Fernandez-Villaverde et al. paper. Those are pretty similar models! And yet the small differences generate vastly different conclusions about the usefulness of fiscal policy. Now realize that every year, macroeconomists produce a vast number of different DSGE models. Which of this vast array are we to use? How are we to choose from the near-infinite menu of very similar models, when small changes in the (obviously unrealistic) assumptions of the models will probably lead to vastly different conclusions? Not to mention the fact that an honest use of the full nonlinear versions of these models (which seems only appropriate in a major economic upheaval) wouldn’t even give you definite conclusions, but instead would present you with a menu of multiple possible equilibria?

James Manzi’s Uncontrolled pinpoints the problem, in what he calls causal density. When there are many factors that have an impact on a system, statistical analysis yields unreliable results. Computer simulations give you exquisitely precise unreliable results. Those who run such simulations and call what they do “science” are deceiving themselves.

Two Long-term Trends in Education

1. More administrators.

Administrative positions at K-12 schools increased by 700 percent since 1950 — seven times faster than the growth of student enrollment.

2. Fewer school districts.

We’ve gone from 127,000 school districts in 1932 to fewer than 15,000 today

In theory, the consolidation of school districts should reduce, rather than increase, the administrative burden.

If you multiply a 7-fold increase in administrators by an 8-fold decrease in school districts, we have seen a 56-fold increase in administrators per school district over the last several decades. That is, for every 10 administrators in a typical school district in 1950, there are over 500 administrators today.

What I’m Reading

Building Home, a biography of savings and loan mogul H.F. Ahmanson, who flourished from the 1930s until his death in 1968. I had low expectations for this book, but I’m actually getting much more out of it than I did the widely-praised Hirschman bio, even though the latter is the product of prodigious skill and effort. Eric John Abrahamson, the author of Building Home, does a really good job of capturing the post-WWII political economy zeitgeist. On p. 115,

Thus the relationship that developed between regulator and regulated by the early 1950s was often collaborative and mutually supportive. Regulators believed that a major part of their job was to protect the health of the industry as well as the consumer or depositor. When changes needed to be made to the law, industry officials often drafted the new legislation, and legislators in Sacramento and Washington often accepted their recommendations with little other public input. When influential regulators retired, they often became owners, managers, or consultants to savings and loans. Meanwhile, many legislators owned shares or served on the boards of local savings and loans.

The conventional wisdom after World War II was that industry and government had collaborated to win the war, and that similar partnerships could address social needs, such as housing. Public trust in government and industry was high. Supposedly, we now live in an era in which there is much more polarization concerning the free market vs. regulation, and there is much less public trust in government and in corporate behavior. But re-reading the excerpted paragraph, how much has really changed in the last 50 years about the way financial regulation operates?

The business-regulatory collaboration extended to mortgage redlining. On p. 107,

In the 1930s, the Home Owners Loan Corporation (HOLC) had institutionalized the practice of racial and economic segregation in housing development and residential lending…Social segregation continued to permeate public policy during and after the war, and the FHA explicitly perpetuated racial discrimination in mortgage lending. When the Community Homes cooperative in Reseda sought FHA approval to finance 280 single-family homes in 1947, for example, it was turned down by the government because the cooperative refused to adopt racial restrictions.

The Soda Ban as Culture War

Aaron Ross Powell writes,

if you drink 32 ounces of Coca-Cola, you’ll rack up 388 calories. A 20 ounce Iced White Chocolate Mocha from Starbucks has 500. Both aren’t good for you, but the Mocha’s worse. The difference is that the kinds of people who want to use government to save ignorant Americans from the harms of soft drinks are the kinds of people prefer an Iced White Chocolate Mocha to a Coca-Cola.

As Jonah Goldberg says, when it comes to culture wars, the left is the aggressor.

Are Libertarians Natural Allies of Conservatives?

A reader writes,

The appeal of the civilization-barbarism axis to people seeing the world through a freedom-slavery axis is obvious. The use of force by the gang holding state power is a return to barbarism.

One way to think of this is that a conservative supports the use of state power only in defense of civilization and only under the constraints of rules and norms. The progressive supports the use of state power whenever it can promote what the progressive sees as good. For a libertarian, the conservative only appears to go off track by over-stating the threats to civilization posed by foreigners or by licentious behavior. However, the progressive appears to be off track in a more fundamental sense.

Another way to think of this is to ask when a libertarian might say, “I can go along with you philosophically, but empirically I disagree.” To a conservative, you can say that you agree that government should be on the side of civilization, but you disagree that civilization is threatened by gay marriage or open borders. That would not be insincere, although the strength of the disagreement might be high.

To a progressive, libertarians might say that they agree that government should help oppressed workers, but they do not think that the minimum wage achieves that goal. However, that would be a tactical statement, lacking in sincerity. The libertarian is not really prepared to say that if the minimum wage or other policies can be shown to help oppressed workers then such policies are legitimate.

Secretary Sebelius: Insurance != Insurance (paging Ezra Klein)

She is quoted saying,

At a White House briefing Tuesday, Health and Human Services Secretary Kathleen Sebelius said some of what passes for health insurance today is so skimpy it can’t be compared to the comprehensive coverage available under the law. “Some of these folks have very high catastrophic plans that don’t pay for anything unless you get hit by a bus,” she said. “They’re really mortgage protection, not health insurance.”

My differing views are here:

The health coverage most Americans have is what I call “insulation,” not insurance. Rather than insuring them against risk, most families’ health plans insulate them from paying for most health care bills, large and small.

I would like to know Ezra Klein’s take on this. Some possibilities:

1. He is alarmed that such an important person and the aides who prepared her talking points are clueless, and he will write a column along those lines.

2. He recognizes that she is clueless, but he thinks it is not an important story. If so, perhaps he will leave a comment here explaining why.

3. He recognizes that she is clueless and that this is an important story, but this is not the sort of thing he wants to call to the attention of Washington Post readers. (This is the least charitable possibility, so it does not really belong on this blog.)

4. He has received a background briefing that “clarifies” her remarks, and he will write a column along those lines.

5. He himself believes that catastrophic health insurance should not qualify as health insurance, and he will write a column along those lines.

The Albert Hirschman Bio

It is The Worldly Philosopher, by Jeremy Adelman. Tyler Cowen offers praise although he is only partly into it. I finished it, which is something I am guessing few others will do, although I imagine a lot of people will make some sort of attempt. My reactions:

1. Reading about Hirschman reminded me of my father. 1920’s Berlin and 1920’s St. Louis were both cities where assimilated German Jews tried to distance themselves from the more backward/traditional Russian Jews, and neither my father nor Hirschman identified with traditional Judaism. Hirschman grew up in an assimilated family (although the family covered up his father’s Ostjuden background), whereas my father’s parents were blatantly Polish-Russian and therefore embarrassing to him. Both Hirschman and my father had sisters who were staunch Communists, and both had their career opportunities limited in the McCarthy era. Both Hirschman and my father specialized in Latin America. Both lacked mathematical tools and instead relied on a broad-based humanistic approach, including psychology and literature. My guess is that their paths would have crossed had my father not deserted research for administration just as Hirschman’s career took off. Both were skeptical of universal laws in social science. One of my father’s favorite sayings was what he called the First Iron Law of Social Science: sometimes it’s this way, and sometimes it’s that way.

2. Success is contingent. It is easy to imagine Hirschman with a Nobel Prize. It is also easy to imagine him never emerging from obscurity. On p. 447, Adelman quotes Gordon Tullock’s scathing (we would now say snarky) review of Exit, Voice, and Loyalty.

clearly there is room in the literature for a 155-page book on the responses of customers to declining efficiency on the part of their suppliers, and on the differences between changes in quality and changes in price. Unfortunately, this is not the book.

As Adelman points out, Hirschman (unlike Tullock, I might add) left behind few disciples, much less a complete “school.”

3. Adelman develops the theme that much of Hirschman’s appeal was literary. Like a highbrow novelist, he gave the reader a sense of pride in being able to appreciate his word plays and allusions.

4. Perhaps Hirschman’s most admirable achievement was the one he liked least to discuss: his involvement in the black market in Marseilles in 1940 to extricate prominent Jews from Hitler’s Europe.

Bryan Caplan on the Marriage Premium

He writes,

It’s easy to see the appeal of the selection story: Married people have many traits in common: willingness to commit, to defer gratification, to conform to social norms. Why then, though, do married men earn a large premium, while married women earn a modest penalty? Shouldn’t favorable selection enhance women’s earnings, too?

Read the whole thing. If beliefs were intellectual, rather than tribal, you would think that the same people who think that people would be more likely to either attribute causality to both the marriage premium and the college premium or to neither. The fact that so many people readily treat the college premium as causal and the marriage premium as coincidental (or vice-versa) is evidence for tribalism, in my view. In particular, treating the marriage premium as causal tends to align with civilization vs. barbarism, so that it appeals much more to conservatives than to progressives.

Knowledge vs. Incentives

Ing-Haw Cheng, Sahil Raina, and Wei Xiong write,

Our analysis shows little evidence of securitization agents’ awareness of a housing bubble and impending crash in their own home transactions. Securitization agents neither managed to time the market nor exhibited cautiousness in their home transactions. They increased, rather than decreased, their housing exposure during the boom period through second home purchases and swaps into more expensive homes. This difference is not explained by differences in financing terms such as interest rates, or refinancing activity, and is more pronounced in the relatively bubblier Southern California region compared to the New York metro region. Our securitization agents’ overall home portfolio performance was significantly worse than that of control groups. Agents working on the sell-side and for firms which had poor stock price performance through the crisis did particularly poorly themselves.

Of course, the bad incentives in the securitization market could have selected for people who believed in the housing bubble. Still, I believe that the authors have dispelled a notion that the “insiders” knew more than the “outsiders” about the housing bubble.

UPDATE: James Hamilton comments

Suppose we gave an individual securitization agent perfect foresight of what was to come, that is, exact knowledge of the current and future path of their personal bonuses, stock options, and career path. If they had this information, would they have made the same decisions as they actually made in 2005-2006? If so, that would be confirmation that the basic problem was one of misaligned incentives.

Lifted from the Comments on the Three-Axis Model

On this post.

Watching some Kenneth Branagh documentary about Goebbels I was surprised how central oppressor-oppressed narrative was in Hitler’s speeches. Oppressor-oppressed narrative is crucial to forming in-group identities, and in-group identity is a useful and powerful tool.

Oppressor-oppressed narrative is used to form co-operation to take over existing structures. Civilization/barbarism narrative is used to preserve status quo. Freedom/coercion narrative is for individualists. Individualism is for the wealthy and secure.

Worth pondering. However, I think that most progressives really want to preserve the status quo. They do not try to argue that they are the oppressed class. Rather, they argue that they represent the oppressed class. More important, progressives characterize their opponents as the apologists for oppression.