Monthly Archives: October 2017

Suggestions for Facebook

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On the one hand, Ben Thompson writes,

Facebook should increase requirements for authenticity from all advertisers, at least those that spend significant amounts of money or place a large number of ads. I do believe it is important to make it easy for small companies to come online as advertisers, so perhaps documentation could be required for a $1,000+ ad buy, or a cumulative $5,0000, or after 10 ads (these are just guesses; Facebook should have a much clearer idea what levels will increase the hassle for bad actors yet make the platform accessible to small businesses). This will make it more difficult for bad actors in elections of all kinds, or those pushing scummy advertising generally.

On the other hand, John Tamny writes,

Facebook is a free service. Robinson’s decision to sign up for what is free in no way entitles her to knowledge about and control of the advertisements sold by the free service. If she feels as though “shadowy foreign interests” buying ads on the social network somehow altered her policy views, then she should quit Facebook altogether. No one charged her to set up a Facebook page, no one forced her to, so if she’s bothered by an income stream that enables the site’s free-of-charge feature, she’s obviously free to close her account.

Those who want to regulate Facebook are not afraid of how they use it themselves. They are afraid of how others use it. This is a classic case of Fear Of Other’s Liberty. FOOL is the root of nearly all regulation.

Tamny is telling FOOLs to use exit rather than voice. When you have a valuable entertainment franchise that relies on its reputation, exit can have devastating effects–just ask the NFL. If Facebook implements new policies, I hope it is because those policies help to ward off exit, and that they are not necessary to ward off regulation.

What I’m Reading

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Tim O’Reilly’s new book. He tries to grasp how technology affects the current business environment. He then proceeds to look at the overall economic and social implications. You can get some of the flavor of it by listening to his interview with Russ Roberts. And here is more O’Reilly, where he says,

Microsoft lost leadership because they had taken away the opportunities for their developer ecosystems, so those developers went over to the Internet and to Google. Now, we see this same thing playing out again.

I am not persuaded by these sentences. The Internet was quite a powerful phenomenon. I cannot envision an alternative history in which Microsoft does not lose a lot of its commanding position because of the Internet. You can make a case that Bill Gates could have positioned Microsoft better had he grasped the significance of the Internet sooner, but that would not have changed the game, only made Microsoft a more agile player. And you could argue that whatever Microsoft lost in terms of time, they made up for in terms of spending, so that they wound up doing about as well in the Internet environment as one could reasonably expect.

Overall, I disagree with O’Reilly quite a bit. Early in the book, he writes,

there are far too many companies that are simply using technology to cut costs and boost their stock price

Take this rhetoric and apply it to trade, and it could come from the lips of Donald Trump. In fact, good economists will explain that trade and technology are so intertwined as to be indistinguishable as economic phenomena. Austrian capital theory says that capital is roundabout production, i.e., roundabout trade. Suppose an economy consists of farm equipment and crops, and you want to explain its efficiency. Do you give the credit to farmers applying technology or do you give the credit to trade between the manufacturing sector and the agricultural sector? It’s the same phenomenon, just described differently.

Russ Roberts did not go after O’Reilly on the anti-corporate demagoguery. A charitable interpretation was that Russ wanted to focus on the Internet “platform model” that O’Reilly waxes eloquently about. A less charitable interpretation is that Russ switched to Tyler Cowen’s philosophy of interviewing.

Two stories about Shake Shack

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1. CNBC reports,

[Shake Shack founder Danny] Meyer has long been an employee advocate, going so far as to eliminate tipping at his full-service restaurants last year in favor of compensating staff so they don’t need to rely on tips. Meyer has said this makes the restaurant experience better for customers and staff.

2. The New York Post reports,

Robots will replace humans and cash won’t be accepted at a soon-to-open Shake Shack in the East Village, reps for the popular burger chain said Monday.

The comments about employee-friendly corporate policies write themselves.

Nobel Thoughts

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1. I think that behavioral economics is over-rated, but otherwise I don’t begrudge the award to Richard Thaler. There have been worse recipients, and there will be worse recipients in the future.

2. I think that Edward Leamer deserves an award. I would argue that he single-handedly swept away some very bad habits that had accumulated in applied econometrics.

3. William Easterly would be an interesting candidate for an award. He has been influential in sweeping away some very bad habits in thinking about development policy.

4. I would like to see an award given to an economist who has highlighted intangible sources of economic growth. Paul Romer, Deirdre McCloskey, and Joel Mokyr come to mind.

5. At some point, there has to be an award that reflects economics in light of the Internet. Hal Varian comes to mind.

6. At some point, I hope there is an award that reflects a rebellion against simple models and instead an appreciation of complexity. Hayek had this appreciation, and he was given an award, but instead the Nobel committee cited his macro theory, which was much less deserving of an award. Going forward, no particular individual comes to mind, but perhaps the Santa Fe Institute should get an award?

Why pick on sociology?

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A reader asks,

Why do economists have such contempt for sociologists?

…I was thinking of this because of your posts on “normative sociology”

1. The term “normative sociology” comes from Robert Nozick, and he described it as the study of what the causes of problems ought to be. I use it as shorthand for ideologically biased social research, in any discipline.

2. Mainstream economists do have contempt for sociology. When Robert Solow wanted to write about the causes of sticky wages, he apologized for doing “amateur sociology.”

Mainstream economists see themselves as studying phenomena that are tangible and quantifiable. I define sociology as the study of informal authority, and informal authority is inherently intangible and less readily quantifiable. Where mainstream economists can go wrong is to dismiss phenomena that are intangible and less readily quantifiable as unimportant. I think that mainstream economists are less scornful of such phenomena now than they were when I was in graduate school, so on that score the contempt for sociologists probably has trended down.

My own concern with sociologists is with the preponderance of left-wing bias embedded in much research. But I have been predicting that economics will go down that same path.

More of my thoughts can be found at The Sociology of Sociologists and How Effective is Economic Theory?

Deirdre McCloskey on teaching economics

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She writes,

I think economics, like philosophy, cannot be taught to nineteen-year olds. . .A nineteen-year old has intimations of mortality, comes directly from a socialized economy (called a family), and has no feel on his pulse for the tragedies of adult life that economists call scarcity and choice. . .you cannot teach him a philosophical subject. For that he has to be say, twenty-five, or better, forty-five.

Read the whole thing. Pointer from Tyler Cowen. My thoughts:

1. By her definition, I was not a natural economist. (She would say that there is nothing wrong with that.)

2. My own teaching experience is consistent with her view. I do not believe that the undergraduates I taught at George Mason or the high school students for whom I taught AP economics really grasped what I wanted them to grasp.

3. I wish that McCloskey had spelled out more completely what it is that she believes is difficult to teach. I am inclined to believe that she is right, but I cannot be sure without more elaboration on her part.

4. I am inclined to believe that teaching economics in terms of the history of economic thought would be worth attempting. I had a great high school chemistry course in which the teacher started with the discover of the gas laws and then gradually added new theories and experimental findings as they took place chronologically. I wish that it were standard to teach economics that way. Of course, you might reach the end of the first semester and still not have finished Adam Smith–even if you start with him.

Health insurance vs. health care assurance

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In a comment, Tim Worstall wrote,

Assurance is a means of, possibly tax privileged, saving for high probability events. Insurance is a method of, well, not saving but providing for, low probability and expensive events. Fire insurance for a house is insurance, burial insurance, given the low probability of being lost at sea, is actually burial assurance.

Health care is both. That appalling cancer that the new drug is $475k for, the scraping up off the road and 12 months in ICU as a result are both low probability events. Insurance is the right model here – and we’ve got it, catastrophic insurance.

What ails US health care more than anything else is that things which are assurance – annual blood tests, contraception for the majority of a woman’s fertile life, shots for the kids, are dealt with through an insurance, not assurance, model.

I don’t say this is all of it, but splitting out the two would help. Catastrophic, even government run (as Brad Delong has suggested) insurance plus those medical savings accounts for the assurance. Will never happen of course but it would help.

I believe that is the Singapore model, but sadly its prospects here are quite dim.

Good sentences

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from Michael Huemer.

We talk about society because we want to align ourselves with a chosen group, to signal that alignment to others, and to tell a story about who we are. There are AIDS activists because there are people who want to express sympathy for gays, to align themselves against conservatives, and thereby to express “who they are”. There are no nephritis activists, because there’s no salient group you align yourself with (kidney disease sufferers?) by advocating for nephritis research, there’s no group you thereby align yourself *against*, and you don’t tell any story about what kind of person you are.

One of the central problems for human society is attaining cooperation at large scale. It seems that one of the tools for getting a large group to cooperate is to identify and demonize an enemy. This certainly has to be one of the most troubling characteristics of human culture.

My TLP Regrets

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I have two regrets about The Three Languages of Politics, both of which concern the cover.

1. I am really jealous of the graphic for Andrew Sullivan’s piece in New York Magazine. It depicts three separate clusters of sheep, with each cluster a different color. You get the sense that each individual sheep wants desperately to be in the middle of its cluster, so they crowd closer together. As they crowd closer together within a cluster, the more distinct the clusters become from one another.

2. I think that the subtitle we came up with, “talking across the political divides,” is misleading. It makes it sound as though I offer a pat solution for political polarization. Instead, I delve into the nature of the problem. In terms of the sheep-clustering metaphor, I talk about what makes us cluster and the importance of resisting the urge to push into the middle of your cluster.