Monthly Archives: July 2015

Social Institutions and Software

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A commenter pointed me to an article by Joel Spolsky from 15 years ago.

The idea that new code is better than old is patently absurd. Old code has been used. It has been tested. Lots of bugs have been found, and they’ve been fixed. There’s nothing wrong with it. It doesn’t acquire bugs just by sitting around on your hard drive.

This might be thought of as a Hayekian view of software. Accept what has evolved, even if you do not understand it. In contrast, I think that if you are maintaining software, and there are parts of it that you do not understand, you are in trouble.

Perhaps I am wrong, and Hayek/Spolsky are right. You should not try to rewrite software that works.

However, I think that it might be possible to distinguish software modules that perform generic functions in a reliable way (do not re-invent these) from application-specific software that lives in a world of changing business rules. My hypothesis is that in the latter case, frequent rewrites are more cost-effective than a process of continual patching.

The Future of Democracy, Freedom, and Prosperity

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A simple topic for four of us to spend an hour discussing. The conclusion of my opening remarks:

one sort of maybe fictional type scenario would be that you would get a sudden sovereign debt crisis in the United States that would take place in an environment where the political feelings are frayed–there’s a lot of controversy; people no longer see the legislators and the executive as having legitimacy for solving their problems. They take to the streets. There’s fighting; there’s violence. And at that point the people are ready to turn to some kind of dictator to resolve the violence. So that’s kind of a fictional scenario. There’s certainly you can see either economic or political ways to avoid it. But that would be sort of my one pessimistic scenario relative to maintaining our open access order. Which, if we do maintain our open access order, I think eventually we do recover prosperity and we sort of maintain freedom.

John Cochrane worries about

the vast attempt of our government to control economics from the big Dodd-Frank and Obamacare down to the small regulations against Uber and occupational licensing for hairdressers, and so forth. This enterprise has vast power. It’s increasingly politicized. And right now it’s used already to silence opposition to the regulatory fiefdoms. What bank dares to speak out against the Dodd-Frank Act? What health insurer dares to speak out against Obamacare?

It seems to me that strong regulation often has the support, or at least the acquiescence, of incumbent business interests. The question is whether potential new competition is thwarted. Lee Ohanian, another speaker in this session, is pessimistic on that score.

Another recent study found that the decline in community banking accelerated considerably in the last few years, reflecting economies of scale in managing new regulation associated with Dodd-Frank. Small Business Administration says that lending to small businesses has declined by about 20% since 2008, which was of course the year of the Great Recession. And in 2013 only 1 new bank entered the banking industry. So you look at the outcome of Dodd-Frank–declining competition, fewer banks, lack of entry, higher costs, regulators with broad mandates who make vague and far-reaching rules–this represents a sharp departure from the clear and specific limits on government.

Kirzner vs. Samuelson

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David Glasner writes,

In Kirzner’s view, the divergence between Mises and Hayek on the one hand and the neoclassical mainstream on the other was that Mises and Hayek went further in developing the subjectivist paradigm underlying the marginal-utility theory of value introduced by Jevons, Menger, and Walras in opposition to the physicalist, real-cost, theory of value inherited from Smith, Ricardo, Mill, and other economists of the classical school.

…as the neoclassical research program evolved, the subjective character of the underlying theory was increasingly de-emphasized, a de-emphasis that was probably driven by two factors: 1) the profoundly paradoxical nature of the idea that value determines cost, not the reverse, and b) the mathematicization of economics …The false impression was created that economics was an objective science like physics, and that economics should aim to create objective and deterministic scientific representations (models) of complex economic systems that could then yield quantitatively precise predictions, in the same way that physics produced models of planetary motion yielding quantitatively precise predictions.

neoclassical economists who developed this deterministic version of economic theory, a version wonderfully expounded in Samuelson Foundations of Economic Analysis…

Pointer from Mark Thoma (!).Read the whole post, which refers to this lecture by Israel Kirzner. (Kirzner starts about 17 minutes in)

The Samuelson tradition keeps wanting to treat production technology as known and costs as objective. It is long on math and short on philosophy. For an exploration of subjective cost, see James Buchanan’s Cost and Choice. For an analysis of the ideological implications of subjective cost, see my essay.

Software Conversions are Hell

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From a Washington Post article on the software glitch that briefly grounded United Airlines:

“When the two airlines decided to merge, they had a choice to make: Would they take the Continental system, or would they take the United system?” Seaney said. “They decided to go with the Continental system and basically dumped Travelport.”

Flipping one reservation system into a notably different system is complicated and problematic, and it has led to headaches for United.

“There wasn’t a lot of commonality, and there were a lot of glitches along the way,” Seaney said. “They had issues with reservations, with elite status, all their awards programs had issues.”

I feel United’s pain. About 17 years ago, my homefair.com web site (which I now have had nothing to do with for 15 years) bought a related web site. We had very similar business models, so our software did similar tasks, but theirs was written in Perl and ours was written in Java. Rewriting their software to work with ours cost more than building both of our individual systems. Still, I think it was worth it.

I am a huge believer in rewriting software. In particular:

–As soon as you finish the first working version of an application, you should rewrite it from scratch. The rewrite will go quickly and will involve a much better design.

–Letting any software application go more than two years without a total rewrite will create maintenance headaches. You will have accumulated patches that turn the code into a mess. Your developers will not remember enough to be able to discern what sorts of changes could blow up the system.

The Perl code that we inherited was not only hard to follow (all Perl code is hard to follow–that’s why I hate it) but had undergone continual patching without rewrites. Most corporate software evolves that way, and sooner or later that ends up costing a lot.

Related: Zeynep Tufekci writes,

In the nineties, I paid for parts of my college education by making such old software work on newer machines. Sometimes, I was handed a database, and some executable (compiled) code that nobody had the source code for. The mystery code did some things to the database. Now more things needed to be done. The sane solution would have been to port the whole system to newer machines, fully, with new source code. But the company neither had the money nor the time to fix it like that, once and for all. So I wrote more code that intervened between the old programs and the old database, and added some options that the management wanted. It was a lousy fix. It wouldn’t work for the next thing that needed to be done, either, but they would probably hire one more person to write another layer of connecting code. But it was cheap (for them). And it worked (for the moment).

Scott Sumner on Greece

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He writes,

To summarize, given that Greece has chosen to use a non-market economic model, its done amazingly well. It’s done something no other sizable non-market economy has done–achieved developed country status without vast oil wealth. This may partly reflect its long-time inclusion in the EU, partly the fact that it is both small in population and has highly desirable tourist attractions, and partly the entrepreneurial skill of its citizens. But for whatever reason it is vastly outperforming expectations. Greece is doing shockingly well, given its economic model.

Read the entire post, which is interesting. However, my guess is that the Heritage economic freedom index makes Greece seem worse than it really is. However, the Fraser economic freedom index also makes Greece look bad.

But I am going to guess that it is much easier for an international company to do business in Greece than in other countries with low indices of economic freedom. And if that is true, there is probably more competitive life in the Greek economy than there is in those other countries.

Provocative Sentences

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From Steven Kates.

You could tell the true economists from the ones who knew little of value about how an economy worked by whether they understood and accepted that demand for commodities is not demand for labor. In classical times, just about every macroeconomist today would have been described as a fraud.

He quotes John Stuart Mill’s fourth principle of capital:

What supports and employs productive labour, is the capital expended in setting it to work, and not the demand of purchasers for the produce of the labour when completed. Demand for commodities is not demand for labour.

Here, you can find more discussion by Kates.

Kids Today

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Two recent rants. Megan McArdle writes,

Hovering robs kids of resilience and what psychologists call “self-efficacy”: the sense that they themselves are capable of producing the outcomes they want. They’re used to functioning as closely supervised extensions of their parents, not autonomous adults.

For me, the telling symptom is the number of young people who do not attempt to get a driver’s license as soon as they are eligible. My generation prized the independence that came from having a driver’s license.

David Gelernter says,

My students today are much less obnoxious. Much more likable than I and my friends used to be, but they are so ignorant that it’s hard to accept how ignorant they are. You tell yourself stories; it’s very hard to grasp that the person you’re talking to, who is bright, articulate, advisable, interested, and doesn’t know who Beethoven is. Had no view looking back at the history of the 20th century – just sees a fog. A blank. Has the vaguest idea of who Winston Churchill was or why he mattered. And maybe has no image of Teddy Roosevelt, let’s say, at all. I mean, these are people who – We have failed.

…universities were being taken over by intellectuals and moving hard to the Left. Intellectuals have also been Leftist, have always been hard to the Left. So the dramatic steer to the Left coincides with a huge jump in the influence of American universities. We have a cultural revolution. And the cultural revolution is that we no longer love this country. We no longer have a high regard for this country or for the culture that produced it. We no longer have any particular feelings for Western Civilization.

So we have second-generation ignorance is much more potent than first-generation ignorance. It’s not just a matter of one generation, of incremental change. It’s more like multiplicative change. A curve going up very fast. And swamping us. Taking us by surprise.

It is hard to summarize his thoughts out of context.

This weekend, I was with an old friend who I used to think was on the left, and who I still think votes Democratic. But he complained about the mindless leftism on college campuses.

So, where are we? Some possibilities:

1. What I see as bugs (risk aversion, left-wing political beliefs) are really features. I am just on the wrong side of things.

2. What I see as bugs are bugs, but kids today have so many talents and skills that those bugs do not matter.

3. We are going to hell in a handbasket unless something changes.

As Gelernter admits, (3) has been the conservative viewpoint for many generations, and so far it has not proven correct.

Joseph Stiglitz Tells a PSST Story

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He wrote,

For the past several years, Bruce Greenwald and I have been engaged in research on an alternative theory of the Depression—and an alternative analysis of what is ailing the economy today. This explanation sees the financial crisis of the 1930s as a consequence not so much of a financial implosion but of the economy’s underlying weakness. The breakdown of the banking system didn’t culminate until 1933, long after the Depression began and long after unemployment had started to soar. By 1931 unemployment was already around 16 percent, and it reached 23 percent in 1932. Shantytown “Hoovervilles” were springing up everywhere. The underlying cause was a structural change in the real economy: the widespread decline in agricultural prices and incomes, caused by what is ordinarily a “good thing”—greater productivity.

At the beginning of the Depression, more than a fifth of all Americans worked on farms. Between 1929 and 1932, these people saw their incomes cut by somewhere between one-third and two-thirds, compounding problems that farmers had faced for years. Agriculture had been a victim of its own success. In 1900, it took a large portion of the U.S. population to produce enough food for the country as a whole. Then came a revolution in agriculture that would gain pace throughout the century—better seeds, better fertilizer, better farming practices, along with widespread mechanization. Today, 2 percent of Americans produce more food than we can consume.

I did not notice this article when it first came out. Instead, I was motivated to look for it when I saw that Stiglitz’s new book is a collection of reprinted articles. I looked for this article because of what I found in David Rotman’s article in Technology Review,

In his new book, The Great Divide, the Columbia University economist Joseph Stiglitz suggests that the Great Depression, too, can be traced to technological change: he says its underlying cause was not, as is typically argued, disastrous government financial policies and a broken banking system but the shift from an agricultural economy to a manufacturing one. Stiglitz describes how the advent of mechanization and improved farming practices quickly transformed the United States from a country that needed many farmers to one that needed relatively few. It took the manufacturing boom fueled by World War II to finally help workers through the transition. Today, writes Stiglitz, we’re caught in another painful transition, from a manufacturing economy to a service-based one.

This is a PSST story. However, unlike me, Stiglitz thinks that more government spending is a solution for unemployment caused by structural change. Put people to work producing useless munitions, and next thing you know the structural problem is solved. Instead, my view is that between 1929 and 1946 a whole lot of workers with obsolete skills (not just in farming–some types of manufacturing were disappearing, also) aged out of the labor force. The workers that entered the labor force were better educated, and they ended up working the expanding white-collar sector.

I think that the main contribution of World War II was to put people in motion. Soldiers who had gone overseas did not go back to places where there were no jobs. Instead, they went to where there was opportunity. Women and African-Americans were more mobile during the war than they had been previously.

I Would Not Publish This Paper

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by Sharon Mukand and Dani Rodrik. From the abstract:

We distinguish between three sets of rights – property rights, political rights, and civil rights – and provide a taxonomy of political regimes. The distinctive nature of liberal democracy is that it protects civil rights (equality before the law for minorities) in addition to the other two. Democratic transitions are typically the product of a settlement between the elite (who care mostly about property rights) and the majority (who care mostly about political rights). Such settlements rarely produce liberal democracy, as the minority has neither the resources nor the numbers to make a contribution at the bargaining table.

Pointer from Tyler Cowen.

My problem is that the paper does not discuss North, Wallis, and Weingast, the subject of my recent review. NWW would say that a non-liberal democracy is just another form of a limited-access order. NWW have a much richer discussion of the elements needed for a transition from a limited-access order to an open-access order.

The Subsidizer’s Calculation Problem

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The NBER Digest summarizes a paper by Stephen Holland and others.

Using data from the U.S. Environmental Protection Agency, the Energy Information Administration, the Federal Energy Regulatory Commission, and other sources, the authors analyze energy use and emissions over a three-year period, from 2007 through 2009. They track energy production and consumption by the hour of the day within different regions. They conclude that on net, in the western United States and in Texas, driving PEVs would result in lower carbon-dioxide emissions than driving fuel-efficient hybrid cars. But in other regions, such as the upper Midwest, where the fuel mix for electricity generation is more heavily tilted toward coal, the charging of PEV batteries during the recommended hours of midnight to 4 AM could result in more emissions than those associated with the average car now on the road. “Underlying this result is a fundamental tension between load management of electricity and achieving environmental goals,” the authors conclude. “The hours when electricity is the least expensive to produce tend to be the hours with the greatest emissions.”

In addition, the fact that electric cars are subsidized suggests to me that their production uses more resources than that of ordinary cars. That probably includes more energy.

Do markets price cars efficiently, given that emissions are an externality? Of course not. But that does not mean the regulators and subsidizers know enough to make matters better.