Monthly Archives: May 2017

Reading our own minds

Posted on by

Thanks to a commenter, I found a paper by Peter Carruthers.

metacognition always results from people turning their mindreading abilities upon themselves.

By metacognition he means our description of our own mental processes. We call this introspection, although his theory makes introspection something of a misnomer.

He points out that what I call the “outside-in” view of Theory of Mind implies that autistics should have weak introspection. He argues that studies are consistent with this, or at least not terribly inconsistent with it.

I believe that there are a lot of studies showing that people will clearly make up explanations for what they do. An experimenter will do something to move subjects’ hands, and the subjects will “explain” that they were reaching for something. I think of this is evidence for the “outside-in” view.

What I’m reading

Posted on by

1. Founder of Modern Economics: Paul Samuelson. The first volume of a biography written by Roger E. Backhouse. So far not rewarding, but I feel obliged to try to stick with it.

2. The Agony and the Ecstasy, by Irving Stone. A biographical novel of Michelangelo. In 1965, it was made into a blockbuster movie, which I never saw.

Michelangelo and Samuelson are each portrayed as having a great deal of self-confidence.

Tax Luxury Homes?

Posted on by

Adam Ozimek wrote,

Taxing housing wealth is also efficient compared with taxing other kinds of wealth because it’s impossible to move and difficult to hide. If you tax financial wealth, you have to worry that wealthy households will park their money in offshore accounts, thereby creating a distortionary cost and also limiting revenues. However, with rare the exception of million-dollar houseboats, you can’t park a mansion overseas. It’s also a lot harder to hide the value of a mansion because house sales data are generally publicly available. Once you know what nearby homes are selling for, combine that with a building square footage and lot size and you can get at least a general idea of what a house is worth. Valuing a home is a much simpler and more transparent task than valuing someone’s financial wealth.

Pointer ultimately from Tyler Cowen. Ozimek suggests a 1 percent tax on houses valued over $1 million. It has a number of attractive features, not the least of which is that it hits hardest those cities with the strongest regulations against building.

The Real Estate Lobby, Acting Local

Posted on by

A commenter asks,

aren’t Real Estate lobbies most powerful with local governments?

The local and national lobbies work very differently.

Locally, the commercial real estate developers are the most active. And often it’s case by case, as opposed to policy lobbying. It’s one developer buying off local officials to get a particular project approved. It’s not like there is a powerful coalition trying to fight against building restrictions generically.

Nationally, you have a broader coalition fighting for tax and mortgage subsidies. You have the home builders as a trade group, plus real estate agents, plus mortgage bankers, plus Wall Street.

So the folks fighting to subsidize demand are powerful at the national level. At the local level, where the decisions are made to restrict supply, the activist groups that fight development are opposed only by home builders, and the home builders are usually just trying to get individual projects approved.

Infrastructure for self-driving cars

Posted on by

Marty Padgett writes,

The infrastructure needed to support completely self-driving cars won’t be ready any time soon. If and when it does happen, that infrastructure is at least decades away–and it will come with a multi-billion-dollar pricetag.

Pointer from James Pethokoukis.

I think it’s worth it. Look at all the money spent creating HOV lanes. My guess is that lanes for self-driving cars would have much more social value. If you could use your car in self-driving mode on the major commuting highways and then drive it yourself when you get off that would be a nice improvement.

It irks me to see money spent creating bike lanes when instead money could be spent on making places ready for smart cars.

The American Affairs Platform

Posted on by

The editors write,

We will continue to offer ideas on trade agreements and other specific measures. At bottom, however, rethinking trade means rethinking the theoretical foundations of economics and moving beyond the textbook abstractions that have justified decades of failed policy.

We support recent administration efforts to impose countervailing duties on various products.

I predict that departures from free trade will, in practice, continue to protect those who need and deserve protection the least.

In general, we support universal health care administered by the government. This could involve an outright “single-payer” system—which we have no ideological objection to—or something like a “Swiss system,” which continues to involve private parties but under which premiums exceeding a certain percentage of income are straightforwardly subsidized by the government. The government should also take a much clearer role in controlling costs and setting prices for procedures and prescription drugs.

Forcing down prices is not the same thing as controlling costs. That this is not understood shows a failure of basic economic education.

we oppose efforts to “reprivatize” government-sponsored enterprises (GSEs) such as Fannie Mae. The GSEs cannot serve two masters. As long as their business model depends upon a government guarantee, they should remain wholly owned by the government.

I happen to agree, although I would add that steps can and should be taken to reduce the GSE’s role in housing finance and in credit allocation in general. I disagree with everything else the editors say about financial regulation.

When American Affairs first was launched a few months ago, it struck me that as one of the few publications that leans in the direction of Donald Trump. I still hold out hope for good things from President Trump. I cannot say the same for this journal.

World Bank soap opera, not unexpected

Posted on by

Andrew Mayeda reports,

Paul Romer is relinquishing oversight of the Development Economics Group, the research hub of the Washington-based development lender, according to an internal staff announcement seen by Bloomberg. Kristalina Georgieva, the chief executive for the bank’s biggest fund, will take over management of the unit July 1.

Pointer from Tyler Cowen. When Romer was appointed, I wrote,

I am not sure that his personality and that institution are meant for one another.

And Paul himself writes,

you can’t say that I didn’t warn everyone

He remains as chief economist.

Why I see academic economics moving left

Posted on by

Don Boudreaux wonders why I make that prediction, and he offers one possible explanation.

economists’ increasing embrace of empiricism that isn’t solidly rooted in basic microeconomic theory of the sort that can be, and should be, taught to undergraduates. That which can be measured and quantified is that which can be seen. Indeed, to quantify something is, in a real sense, to see something – or at least to see some of that something’s physical manifestations. And yet a chief lesson taught by a sound course in basic economics is that many social phenomena are unseen.

What I need is an explanation for what I see as the current and future drift of economics. The difference between the seen and the unseen has been discussed since Bastiat. It could be true that the greater availability of data and the greater emphasis on empirical work creates a bias toward seeing the benefits of intervention and understating the costs. But that is not one of the explanations I had in mind.

I am thinking primarily in terms of the culture of the academy. Disciplines can easily become dominated by narrow ways of thinking. As of the late 1970s, when I was in graduate school, mathematical optimization and multiple regression crowded out everything else. Soon, rational expectations theory and dynamic stochastic optimization had crowded out any sensible thinking about macroeconomics. As those of you who have read my macro memoir can perhaps appreciate, my experience leads me to believe that incredibly dumb ideas can become dominant in an environment in which a handful of professors effectively control the academic job market in a field.

I actually think that in terms of methods, academic economics is getting more broad-minded and less stupid. The generation that believed that progress comes from solving more difficult math problems and using fancier econometrics is finally giving way to younger economists with less rigid methodological doctrines. But young economists are less interested in the fundamental issues of social organization. They prefer looking at narrower, technical questions. They are happy to write papers that suggest potential policy improvements, without worrying about how the political process conducts itself in practice.

If contemporary America is embroiled in a war between the Concrete class that works with stuff and the Abstract class that works with words, numbers, and computer programs, then economists, like other Academics, will side with the Abstract class. The Abstract class believes that in the natural order of things it ought to be managing and governing. I suspect that young economists today are not going to want to criticize this natural order of things, for fear of being shunned as class traitors.

The Theory of Mind

Posted on by

I just finished reading The Enigma of Reason by Dan Sperber and Hugo Mercier. They look at the process by which we arrive at reasons for actions. The following thought occurs to me:

You probably assume that understanding your own mind is prior to having a “theory of mind” about other humans. However, it could be the other way around.

Sperber and Mercier do not make this sort of claim. However, I do not think that it is terribly inconsistent with their views.

A theory of mind seeks to explain why agent X performs action A. What I am suggesting is that we arrive at this theory not through introspection but instead by observing action A followed by consequence B repeatedly. After we have seen this happen enough, we develop the insight that perhaps agent X is performing action A in order to achieve consequence B. Call this the basic theory of mind, or at least a theory of what motivates others. Note that we might hold such a basic theory of mind or motivation about animals or even about an inanimate object.

Given that we have a basic theory of mind and that we assume that others have similar basic theory of mind, we can engage in a new form of teaching. If I tell you that I am performing action A in order to achieve consequence B, then you can get the point of performing action A without my having to repeat action A many times.

This explanatory form of teaching is very efficient. With cultural communication so important in humans, we have become very good at explaining to others why we do things. Moreover, explanation and justification are similar functions. We develop the ability to justify to others why we do things.

We are concerned with what others think of what we say and do. As I read Sperber and Mercier, they argue that the natural function of reason is to try to gain respect and approval of others for our actions. I think that Sperber and Mercier do not give enough credit to the role of reasons in making teaching more effective. Imagine telling a child to look both ways before crossing a street without telling the child why they should do so. The child could perform the ritual exactly as directed and then walk right in front of moving car.

But the role of reasons in teaching does not address the enigma to which Sperber and Mercier refer. The enigma is that our reasoning process evolved to be biased rather than optimized to arrive at truth. Their explanation is that our reasoning process evolved as a mechanism to explain and justify our actions to others. The goal of reasoning is not to seek Truth but to defend our status. Biased reasoning is helpful for defending status. Bias is less helpful when we are trying to make decisions, but when we make decisions we are simply adapting our reasoning tool to a less natural context.

Sperber and Mercier make another claim, which is that when we argue with one another, we arrive at more reasonable conclusions than when we reason on our own. They say that this is because when we evaluate our own reasons we lack objectivity. They think we are more objective when we evaluate others’ reasons, so that our evaluations are more reliable. I do not find that persuasive. I think that part of defending our own reasons is attacking our opponents’ reasons, and I believe that we tend to be uncharitable to those who disagree with us. I am more inclined to ascribe the benefit of arguing to exposure to reasoning that we have not considered, rather than to a greater objectivity in hearing others’ points of view than in evaluating one’s own.

If reasoning evolved to justify our actions, then how do we get to a point where we use reasoning to make decisions? I think that the most consistent application of their idea would be to say that when we make decisions we anticipate having to defend our actions. As we go through this mental process, we may decide that some actions are unwise. Anticipating my wife’s reaction should I come home drunk, I stop drinking.

It could be that people with poor self-control have difficulty engaging in this exercise. That is, they either lack the ability to anticipate the reactions of others or they are less sensitive to such anticipated reactions.

It is interesting to note that I have often advised people in the throes of making a decision to imagine explaining that decision to a variety of other people. If you are thinking of quitting your job, imagine explaining that to your family, to close friends, to co-workers, and so on. I have suggested that such an exercise can help to clarify your thoughts.

Anyway, what occurs to me is that we obtain our theory of mind “outside-in” rather than “inside-out.” That is, by observing other people and listening to their reasons, we develop a theory of how our own minds ought to work.