Monthly Archives: February 2018

Shorter Jerry Muller

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In a Q&A, he writes,

My critique is of what I call “metric fixation.” The key components of metric fixation are the belief that it is possible and desirable to replace judgment, acquired by personal experience and talent, with numerical indicators of comparative performance based upon standardized data (metrics); that the best way to motivate people within organizations is by attaching rewards and penalties to their measured performance, rewards that are either monetary or reputational (college rankings, etc.); and that making the metrics public makes for greater professional “accountability” — as if only that which can be counted in some standardized way makes for professional probity. My book is about why this so often fails to have the desired effects and leads to unintended negative outcomes, which, after decades of experience, ought to be anticipated.

Read the whole thing. His book is The Tyranny of Metrics.

Sounding rather opposed is Bryan Caplan, who writes,

If you’re teaching something existing tests can’t detect, write a better test! But if you’re teaching something no conceivable test can detect, you probably aren’t teaching anything at all.

Bryan seems to be saying that everything one can learn is measurable in some way. Can you test for curiosity? For intellectual humility? For willingness to question one’s own beliefs?

Algorithms vs. judgment

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Jason Collins discusses the issue.

the reluctance to have our decisions and actions replaced by automated systems extends through a range of human activity and decision-making. It took nearly 50 years for people to accept automated lifts. Today, over three quarters of Americans are afraid to ride in a self-driving vehicle.

Automated systems tend to increase efficiency but at a cost of fragility. When algorithms are first introduced to a domain, humans are better at spotting circumstances that were unanticipated by the algorithm.

Amar Bhide, in A Call for Judgment, argues that the financial crisis in part reflects the fragility of a regulatory system (including internal regulations at financial institutions) that relied too much on formulas and too little on judgment.

But Collins points out that there are many situations in which humans over-ride algorithms in a harmful way. The challenge is to enable humans to distinguish situations in which the algorithm is making better calculations from situations in which the algorithm is missing something that the human sees.

Russ Roberts’ Twelve Rules for Life

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I think that they are really good. Here is one example:

Give up a lot to be at a funeral

You can always find an excuse for not going. It’s in the middle of the day, you have a lot to do, the person is already gone, the family of the one who’s gone will understand, and most of all, how important is it really? Try to go anyway. Attending any funeral is a reminder of what’s important in life. Attending a funeral of someone who touched your life builds gratitude and is a kindness to those left behind.

My wife taught me this one. If a relative of one of our friends dies, we try to attend the funeral even if we did not know that relative very well.

Funeral services are deeply life-affirming. Eulogies provide a valuable perspective on life. They remind you of what is important. They remind you of what is best in people. And they tell stories of the variety of human experience.

Russ Roberts and Bryan Caplan

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One of my favorite podcast episodes, because Russ pushes back so hard and of course Bryan debates effectively. For example, Bryan says,

I would say if there is no designable test that can show that people learn something, then they haven’t learned it. You might say the test is bad, in which case I would say, ‘Fine. Design a better test, and then show it to me.’ But, if you want to say that people have been transformed but it’s a way that no one can actually show, no matter how hard they try, then I’m going to say, ‘No. That just sounds like wishful thinking.’

Later, Bryan says:

I’m weird in this way, in that when I read something that seems true to me, like I just feel this incredible, this weight on the world: ‘I must repent. I can’t keep living the way I used to live any more. I’ve got to go and incorporate this knowledge into my decisions, day after day. And, I’m a sinner if I don’t.’ But even that is such a weird response to a book. Most people read Tetlock’s Superforecasting and say, ‘Oh, yeah. So interesting. Some people are really great at this stuff. Yeah. Right.’ And then they go back and live their normal lives.

This is interesting. Maybe there is an “ability to learn” that reflects hyper-sensitivity to new information. And can formal education affect the degree of sensitivity to new information?

I heart John Van Reenen

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That’s going too far, but, hey, it is Valentine’s day. And I appreciate what he has to say.

The large, persistent gaps in basic managerial practices that we document are associated with large, persistent differences in firm performance. Better-managed firms are more productive, grow at a faster pace, and are less likely to die.

. . .many firms in developing countries may not even realise how weak their management practices are. Or, even when they do they realise this, they may not know how to improve things.

Pointer from Tyler Cowen.

One of my tropes these days is that neoclassical economists treat business strategy as nothing more than deciding the level of output and the capital/labor ratio. In fact, the economy is sufficiently complex that management skills and business strategy are really significant.

Russ Roberts, Helen Pluckrose, and James Lindsay

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In last week’s podcast, she says,

what tends to happen is that, like, moderate Right-wingers will see the extremes of the Left and become convinced that this represents the Left. And that the whole of the Left has to be opposed drastically. This is an existential threat. And the moderate Left will do the same to the Right; and they will see the alt-Right [alternative Right] or the far Right as defining the Right. And so, when they are talking on social media, or when we’re reading analyses of politics, then we will hear, ‘The Left does this,’ and ‘The Right does that.’ As you saw, we had a little graphic in our essay, which just sort of demonstrates it, that these are the fringes. And most of the people in the middle in this graphic are saying ‘Shut up. Shut up. Shut up.’ Except that because of the existential–the perception of this existential threat right now, people are internalizing. They work the most faulty narratives of their own side in order to defend against what they see as the existentially dangerous threats on the other side.

Later, Lindsay puts it,

it became very fashionable to find the most extreme lunatic on the other side from your own, and then present them as if they are typical, in order to fear monger, or to whip up a base, or to radicalize. And this works. This has been–you know, I know that for instance Fox News got accused of it several years ago, of looking for the most lunatic liberal they could find, or to put a guy up there in the most–you know, bizarre, stereotypically, maybe almost hippie outfit there, or something–to say something crazy and then be like, ‘Well, there you go, Audience. This is what the Liberals look like and think.’ And this was, this is a form of not exactly journalism that I think has driven a lot of polarization.

This sounds a bit like Yuval Levin. That is, we have gravitated toward exaggerating the evils of the other side. This makes for apocalyptic thinking. This aggravates authoritarian tendencies on all sides.

I think that there are a lot of people out there who are not totally committed to one tribe or the other. The challenge in the United States today is that neither party wants to cater to that moderate majority. The intolerant wings of each party are ascendant, at least during primary season.

Which concepts work in economics?

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On Quora, I was asked where economics works. I changed the question to “which concepts work?” My answer was

The laws of supply and demand work. The principle of substitution works (we do not run out of resources—we substitute away from resources as they become scarce). The idea that economic growth involves creative destruction works. The idea that specialization and trade are fundamental elements of economic behavior works.

Concepts that do not work, in my opinion: aggregate demand and aggregate supply; neoclassical model of income distribution; theory of public goods–it is clearly wrong as a positive theory of how government behaves, and because it is wrong as a positive theory its normative value is also quite dubious.

I would be curious about how other economics bloggers might answer this question.

What do economists know? Tyler Cowen’s Essay Exam

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Tyler Cowen came up with this idea at lunch (I was not there) a few days ago and shared it with me by email.

Imagine giving all professional economists (and other academics) an essay test. Determine their area of expertise, and then ask them to write a twenty-page essay on one of the most basic questions in that field. So it might be “Why did China do so well?” Or “what are the determinants of economic growth?” Or “What causes business cycles?”

In the email, he added

Then we really would see who understands anything at all.

I really, really wish this sort of exercise were carried out. My thoughts:

1. If I were to do this, the topic would be “Why is health care policy a challenge in the United States?” In fact, I plan on doing the exercise. I can take key points from my book (Crisis of Abundance) and add some refinements that have occurred to me in the dozen years since it was published. For another topic on which I feel knowledgeable, the causal mechanisms of the financial crisis, I think that my views are correct with p = .4. Better than just about anyone else, but I think that my analysis of health care is more reliable, closer to p = .8 of being right.

2. To me, the most interesting thing about such essays would be to examine how an economist justifies his or her claim to knowledge. My guess is that you would not see instances in which an economist relies on a particular theoretical model or empirical study. Instead, a variety of observations and basic theoretical insights will be combined to form the economist’s view of the topic. Something like the Hill Criteria, as opposed to this One Chart, or that Clever Model.

3. There are some topics which, no matter how much you know, you cannot pin down with confidence. What caused the Industrial Revolution to take place in England when it did? What caused the Great Depression to take the course that it did? What caused the sharp drop in employment that coincided with or followed the Financial Crisis to take the course that it did? Anyone who in their 20-page essay claims to know the answer to one of these questions with p > .3 is not to be trusted.

4. I am curious about how these essays would differ by age cohort. My guess is that a lot of economists under 40 would write essays on very narrow topics. My guess is that a lot of economists over 60 would write essays that I think are baloney sandwich, particularly if they concern macroeconomics.

John Perry Barlow has died

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Here is a brief obituary. Among other things, in 1994 he wrote The Economy of Ideas, an essay admired by, among others, Hal Varian. It begins,

I refer to the problem of digitized property. The enigma is this: If our property can be infinitely reproduced and instantaneously distributed all over the planet without cost, without our knowledge, without its even leaving our possession, how can we protect it? How are we going to get paid for the work we do with our minds? And, if we can’t get paid, what will assure the continued creation and distribution of such work?

I boiled this down to: information wants to be free, but people need to get paid.