Monthly Archives: February 2017

Tyler Cowen Reminds me of Charles Murray and Neal Stephenson

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I just opened my (Kindle) copy of The Complacent Class. He describes three complacent sub-groups. First is “the privileged class.”

the wealthiest and best educated 3 to 5 percent of the American population

This is Charles Murray’s Belmont (or Neal Stephenson’s Vickies). It is easy to see why they might feel complacent.

The third group is “those who get stuck.”

Their pasts, presents, and futures are pretty bad. . .A lot of these people never really had a fair chance.

This is Charles Murray’s Fishtown (or Neal Stephenson’s Thetes). I think it is a stretch to put them in the “complacent” class. Tyler himself says that “they are not happy about their situations.” They are just not capable or motivated to do what is required to change.

Anyway, I need to read more than a page or two before reviewing the book.

Paul Bloom Against Empathy

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The entire podcast with Russ Roberts is fantastic, but I especially like the last 10-12 minutes.

Bloom and Roberts are dismayed by what they see as a cultural change in which politicians focus on the individual case to tug at emotions. (Think of President Reagan starting the tradition of spotlighting someone at the State of the Union address.) It made me think of this WaPo op-ed, which offended me on several levels, and which I will discuss more later this week. Compare this culture with the way that America’s Founding Fathers were able to operate at a more abstract level.

Bloom hopes for a reversal of the cultural trend away from rational thinking about public policy. But my thought is that the battle is lost. Somewhere along the way, the most highly educated people, who you would ordinarily count on to get beyond emotion-driven policy views, have instead turned out to be very tribal and simplistic in their outlook.

Ev Psych and Motivated Reasoning

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From a piece by Elizabeth Kolbert in the New Yorker.

Living in small bands of hunter-gatherers, our ancestors were primarily concerned with their social standing, and with making sure that they weren’t the ones risking their lives on the hunt while others loafed around in the cave. There was little advantage in reasoning clearly, while much was to be gained from winning arguments.

I have a new, expanded edition of The Three Languages of Politics coming out soon, and, like the first edition, it discusses these sorts of cognitive biases in the context of political rhetoric.

Kolbert also discusses “the illusion of explanatory depth.”

“As a rule, strong feelings about issues do not emerge from deep understanding,” Sloman and Fernbach write. And here our dependence on other minds reinforces the problem. If your position on, say, the Affordable Care Act is baseless and I rely on it, then my opinion is also baseless. When I talk to Tom and he decides he agrees with me, his opinion is also baseless, but now that the three of us concur we feel that much more smug about our views. If we all now dismiss as unconvincing any information that contradicts our opinion, you get, well, the Trump Administration.

Here, Kolbert and her New Yorker readers are reassuring one another that they are right to be contemptuous of President Trump. To me, they are illustrating the sort of socially-motivated biased reasoning that her article is describing.

Suppose that I were to apply the illusion of explanatory depth to the response to the financial crisis, including the bank bailouts. The elites in this country believe that they understand the causes of this policy (too much deregulation) and the consequences of this policy (saved us from another Great Depression). They hold this baseless belief because their fellow elite-members hold this baseless belief. And one could argue that the Trump Administration is a consequence of the fact that the elite view is not convincing to the rest of the country. (Note, however, that I do not claim to understand last year’s election. I am just suggesting that elites can be just as shallow as Trump supporters. I would go further and suggest that flattering yourself because you hate Trump is itself a sign of intellectual shallowness.)

David Epstein Discovers Hansonian Medicine

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He writes,

In 2012, Brown had coauthored a paper that examined every randomized clinical trial that compared stent implantation with more conservative forms of treatment, and he found that stents for stable patients prevent zero heart attacks and extend the lives of patients a grand total of not at all. In general, Brown says, “nobody that’s not having a heart attack needs a stent.” (Brown added that stents may improve chest pain in some patients, albeit fleetingly.) Nonetheless, hundreds of thousands of stable patients receive stents annually, and one in 50 will suffer a serious complication or die as a result of the implantation procedure.

Almost twenty years ago, Robin Hanson set out to explain some puzzling facts about health care. Most notably, “users are losers” (my phrase). That is, if you take similar populations with different levels of health care spending, outcomes tend to be the same. Note that the term “similar” precludes the explanation that the people undergoing more procedures were sicker to begin with.

Robin reasoned as follows:

1. We know that some medical procedures are effective and improve outcomes.

2. However, on average, similar populations that undergo more procedures do not have better outcomes.

3. Therefore, there must be some fairly common medical procedures that worsen outcomes (at least on average), and these tend to balance out the helpful procedures.

For many years, I have been referring to these procedures with adverse outcomes on average as Hansonian Medicine. My own book on health care policy took this issue quite seriously. I preferred to talk about procedures with high costs and low benefits, and Hansonian Medicine as strictly defined means procedures with negative benefits.

Why do we have Hansonian medicine? Epstein cites doctors who are not as well informed as they should be, the threat of lawsuits, and the opportunity to make money doing procedures.

Hanson himself had an intriguing theory, which is that you undergo unnecessary procedures because your friends and family want you to “do something” when you are not well. They show that they care by encouraging you to visit a doctor and to undergo procedures. I think that this is right, particularly in end-stage procedures, where it is often the relatives rather than the patient who demand futile care.

All this raises the question of what to do about procedures with high costs and low (or negative) benefits. The centralized solution is to come up with a way to tell doctors not to undertake these procedures. One challenge with that is there may be specific instances where a doctor knows that a procedure will work, even though in many other cases it does not. Another challenge is that friends and family were not be persuaded by a centralized agency (aka “death panel”).

The approach that I advocated was to reduce third-party payments and let the patients sort things out for themselves as best they can.

Republican-free Zones

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Christopher Caldwell writes,

Washington, D.C., with its 93-to-4 partisan breakdown, is not that unusual. Hillary Clinton won Cambridge, Massachusetts, by 89 to 6 and San Francisco by 86 to 9. Here, where the future of the country is mapped out, the “rest” of the country has become invisible, indecipherable, foreign.

Pointer from Tyler Cowen.

These statistics, while not surprising, are staggering. Some thoughts:

1. It is easy to understand why the Washington Post is the way it is. It has to satisfy its market.

2. 60 percent is a landslide. 85 percent is a bubble.

3. In the past, the heavy DC vote for the Democrat would have been written off as a reflection of what was twenty years ago a heavily black population. That “excuse” no longer holds.

4. Perhaps much of the “resistance” to the Trump Presidency was inevitable, and it would have erupted with any Republican winner. If you and all of your friends are Democrats, it is hard to credit a Republican with legitimacy. And in the age of social media, it is easy to mobilize demonstrations.

Four Forces Watch

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Laurie DeRose and W. Bradford Wilcox write,

By showing that cohabiting families are more unstable, even among the highly educated in Europe and the United States, our research suggests family instability is not only about socioeconomic forces. As Pascal-Emmanuel Gobry observed in response to our findings on cohabitation, education, and family instability, “The point about educational status, in particular, is important: The vaguely pseudo-Marxist idea that our family and life outcomes are entirely driven by economics is not credible; values, norms, and institutions also matter.” And, at least today, the values and norms associated with the institution of marriage remain clearly and powerfully tied to family stability. That’s why, as marriage becomes less likely to anchor the adult life course across the globe, growing numbers of children may be thrown into increasingly turbulent family waters.

As the authors point out, one cannot necessarily interpret their findings as a simple causal model running from choice of cohabitation to instability. I would add that, at least in the U.S., the rate of marriage is much higher among the affluent.

Arthur Brooks on the Dignity Deficit

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He writes,

even though poverty has become less materially miserable, it is no less common. In Martin County, just 27 percent of adults are in the labor force. Welfare is more common than work. Caloric deficits have been replaced by rampant obesity. Meanwhile, things aren’t much better on the national level. In 1966, when the War on Poverty programs were finally up and running, the national poverty rate stood at 14.7 percent. By 2014, it stood at 14.8 percent. In other words, the United States had spent trillions of dollars but seen no reduction in the poverty rate.

Of course, the poverty rate doesn’t take into account rising consumption standards or a variety of government transfers, from food stamps to public housing to cash assistance. But the calculations that determine it do include most of the income that Americans earn for themselves. So although the rate is a poor tool for gauging material conditions, it does capture trends in Americans’ ability to earn success. And what it shows is that progress on that front has been scant.

Read the whole essay, because it was hard to find a summary excerpt. He argues that the policy focus should be less on providing handouts and more on providing the dignity of employment.

This is easier said than done, of course. Most of Brooks’ suggestions strike me as reasonable, but I am skeptical that they would prove effective. And note that one approach, more vocational education, has a not-surprising down side, which is that today’s vocation can become obsolete tomorrow. Tyler Cowen points to an article by Hanushek and others.

with technological change, gains in youth employment may be offset by less adaptability and diminished employment later in life. To test for this tradeoff, we employ a difference-in-differences approach that compares employment rates across different ages for people with general and vocational education. Using microdata for 11 countries from IALS, we find strong and robust support for such a tradeoff, especially in countries emphasizing apprenticeship programs.

In The Diamond Age, the Thetes do not have much dignity.

Charles Taylor on Social Science

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From Philosophy and Social Science, chapter one, page 56.

Human science is largely ex post understanding. Or often one has the sense of impending change, of some big reorganization, but is powerless to make clear what it will consist in: one lacks the vocabulary. But there is a clear asymmetry here, which there is not (or not supposed to be) in natural science, where events are said to be predicted from the theory with exactly the same ease with which one explains past events and by exactly the same process. In human science this will never be the case.

The chapter was sent to me by a reader. Taylor makes much use of the term “interpretation,” as do I. I insist that economics consists of many frameworks of interpretation and few testable hypotheses, whereas in natural science it is the other way around.

An example that I give in my book is determinants of relative wages (between, say, men and women). One framework of interpretation is that of human capital. Another framework is power and privilege. There are many observations that fit both frameworks. There are some observations that better fit the human capital frameork, and there are some observations that better fit the power and privilege framework.

As an example of Taylor’s point, consider the financial crisis of 2008. It was predicted by no economic model. Yes, some economists had a model of the housing market that said “this is a bubble,” but none of them saw how the collapse of the bubble would tear through the financial system (as we know from the Big Short, a few oddball hedge fund guys did). And yet, all sorts of economists insist that they can interpret the financial crisis. As John Cochrane once said to me, many economists have the audacity to interpret the financial crisis as proving that they were right all along!

Educational Signaling and Aggregate Productivity

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One of Tyler Cowen’s readers writes,

Traditional productivity forecast research tends to assume the wage premium is entirely human capital.
[but] If sheepskin effects are purely relative status effects, then the impact on total output and income should be zero, right?

In a cross section, workers with more years of schooling will have higher wages. If you take this as an indicator of productivity differences, then in a time series in which years of schooling increase, you will predict higher productivity as these more-schooled workers enter the labor force. However, if education is only a signal of productivity and not a causal factor in productivity, then what?

Suppose that education produces zero useful work skills, and all useful skills are learned on the job. However, the workers with the best ability to learn on the job also are good at completing school. What does it mean when over time the number of workers with more education goes up? If it means that the pool of workers is getting better in terms of ability to learn on the job, then productivity should go up. If it means that more low-ability workers are somehow completing more years of schooling, then productivity should not go up at all.

Continuing with this scenario, my intuition is that the salary premium for highly-educated workers should fall, other things equal. However, in a time series, other things are not equal. For example, the technology may be changing so as to increase the value of high-ability workers. In that case, the wage premium for the high-ability educated workers could rise while that of the low-ability educated workers could fall.

Even though this scenario is extreme (education produces useful work skills in some cases), I think it may be approximately correct. In that case, the average wage premium for highly-educated workers overstates the marginal productivity premium of additional highly-educated workers over time.

In a Caplanian world, workers who do not complete a lot of schooling send an adverse signal. However, completing a lot of schooling is only a necessary condition for convincing employers that you are trainable. It is not sufficient, and firms use additional screening devices to distinguish among workers with equal numbers of years of schooling. The econometrician does not use those screening devices, and the econometrician ends up lumping together workers with different levels of ability in a way that firms do not. The firm, unlike the econometrician, sees through the worthless college degree in ____ studies. The econometrician is fooled into thinking that putting more kids through college will raise average productivity. The firm knows otherwise.

An Economy is not a Business

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Don Boudreaux writes,

Samuelson here, like many noneconomists, fell victim to the fallacy of composition. Wars that make certain farmers and industrialists (and their workers and suppliers) more prosperous do not thereby make society more prosperous. What is true for some in this case is emphatically not true for the group.

I have pointed out that the intuitive appeal of Keynesian economics rests on the idea that the economy is a business. If a business had more demand, it probably would hire more workers. So you might think that if an economy has unemployment, it must need more demand. In fact, the point of PSST is that unemployment is a problem of not knowing which patterns of specialization and trade are sustainable. It is an entrepreneurial discovery problem, not a demand problem.