Web Site Revamp

It will not affect this blog, but I am trying to better organize my overall web site. One step is to try to create a biographical page. One relevant bit, from a section on the evolution of my political beliefs:

Trying to rid humanity of all traces of tribalism is as futile a hope for the libertarian as it is for the Communist. So I end up somewhere between libertarianism and conservatism. Like a conservative, I believe that existing social institutions should not be casually tossed aside. Like a libertarian, I would like to see the state be much less ambitious.

Tribalism trips up all of us. Our new President said at his inauguration, “When you open your heart to patriotism, there is no room for prejudice.” He proceeded to say “buy American, hire American,” which I think should be described as prejudice.

The tribalism of the left is equally insidious.

Taking Macroeconomics Backward Through Regression

Olivier Blanchard recently wrote that there ought to be two classes of macroeconomic models.

Theory models, aimed at clarifying theoretical issues within a general equilibrium setting. Models in this class should build on a core analytical frame and have a tight theoretical structure. They should be used to think, for example, about the effects of higher required capital ratios for banks, or the effects of public debt management, or the effects of particular forms of unconventional monetary policy. The core frame should be one that is widely accepted as a starting point and that can accommodate additional distortions. In short, it should facilitate the debate among macro theorists.

Policy models, aimed at analyzing actual macroeconomic policy issues. Models in this class should fit the main characteristics of the data, including dynamics, and allow for policy analysis and counterfactuals. They should be used to think, for example, about the quantitative effects of a slowdown in China on the United States, or the effects of a US fiscal expansion on emerging markets.

In response, Simon Wren-Lewis rejoiced,

Ever since I started blogging I have written posts … to try and convince fellow macroeconomists that Structural Econometric Models (SEMs), with their ad hoc blend of theory and data fitting, were not some old fashioned dinosaur, but a perfectly viable way to do macroeconomics and macroeconomic policy.

Pointers from Mark Thoma.

For why Blanchard and Wren-Lewis are wrong, see my essay Macroeconometrics: the Science of Hubris. If the profession follows their advice, macroeconomics will be regressing in every sense of the word.

Notes from the 2017 Edge Question

Folks were asked to name a scientific concept that deserves to be better known.

Lisa Randall nominates “effective theory.”

an effective theory tells us precisely its limitations—the conditions and values of parameters for which the theory breaks down. The laws of the effective theory succeed until we reach its limitations when these assumptions are no longer true or our measurements or requirements become increasingly precise.

Matthew D. Lieberman nominates naive realism.

If I am seeing reality for what it is and you see it differently, then one of us has a broken reality detector and I know mine isn’t broken. If you can’t see reality as it is, or worse yet, can see it but refuse to acknowledge it, then you must be crazy, stupid, biased, lazy or deceitful.

In the absence of a thorough appreciation for how our brain ensures that we will end up as naïve realists, we can’t help but see complex social events differently from one another, with each of us denigrating the other for failing to see what is so obviously true.

Matthew O. Jackson nominates homophily.

New parents learn from talking with other new parents, and help take care of each other’s children. People of the same religion share beliefs, customs, holidays, and norms of behavior. By the very nature of any workplace, you will spend most of your day interacting with people in the same profession and often in the same sub-field.

…Homophily lies at the root of many social and economic problems, and understanding it can help us better address the many issues that societies around the globe face, from inequality and immobility, to political polarization.

Dylan Evans nominates need for closure.

However great our desire for an answer may be, we must make sure that our desire for truth is even greater, with the result that we prefer to remain in a state of uncertainty rather than filling in the gaps in our knowledge with something we have made up.

Gary Klein nominates decentering.

Decentering is not about empathy—intuiting how others might be feeling. Rather, it is about intuiting what others are thinking. It is about imagining what is going through another person’s mind. It is about getting inside someone else’s head.

…Being able to take someone else’s perspective lets people disagree without escalating into conflicts.

Adam Waytz nominates the illusion of explanatory depth.

If you asked one hundred people on the street if they understand how a refrigerator works, most would respond, yes, they do. But ask them to then produce a detailed, step-by-step explanation of how exactly a refrigerator works and you would likely hear silence or stammering. This powerful but inaccurate feeling of knowing is what Leonid Rozenblit and Frank Keil in 2002 termed, the illusion of explanatory depth (IOED), stating, “Most people feel they understand the world with far greater detail, coherence, and depth than they really do.”

Cristine H. Legare nominates Cumulative Culture.

Cumulative culture requires the high fidelity transmission of two qualitatively different abilities—instrumental skills (e.g., how to keep warm during winter) and social conventions (e.g., how to perform a ceremonial dance). Children acquire these skills through high fidelity imitation and behavioral conformity. These abilities afford the rapid acquisition of behavior more complex than could ever otherwise be learned exclusively through individual discovery or trial-and-error learning.

If someone had asked me, I would have proposed something similar: cultural intelligence.

Eric R. Weinstein gives us Russell Conjugation.

the human mind is constantly looking ahead well beyond what is true or false to ask “What is the social consequence of accepting the facts as they are?” While this line of thinking is obviously self-serving, we are descended from social creatures who could not safely form opinions around pure facts so much as around how those facts are presented to us by those we ape, trust or fear. Thus, as listeners and readers our minds generally mirror the emotional state of the source, while in our roles as authoritative narrators presenting the facts, we maintain an arsenal of language to subliminally instruct our listeners and readers on how we expect them to color their perceptions.

Sarah Demers nominates blind analysis.

The idea is to fully establish procedures for a measurement before we look at the data so we can’t be swayed by intermediate results. They require rigorous tests along the way to convince ourselves that the procedures we develop are robust and that we understand our equipment and techniques. We can’t “unsee” the data once we’ve taken a look.

John Tooby nominates coalitional instincts.

These programs enable us and induce us to form, maintain, join, support, recognize, defend, defect from, factionalize, exploit, resist, subordinate, distrust, dislike, oppose, and attack coalitions. Coalitions are sets of individuals interpreted by their members and/or by others as sharing a common abstract identity

…to earn membership in a group you must send signals that clearly indicate that you differentially support it compared to rival groups. Hence, optimal weighting of beliefs and communications in the individual mind will make it feel good to think and express content conforming to and flattering to one’s group’s shared beliefs, and feel good attacking and misrepresenting rival groups.

Reframing Financial Regulation

That is a new compendium from Mercatus. I wrote one of the essays, on risk-based capital.

The way I see it, the main purpose of central banking and financial regulation is to try to allocate credit to uses favored by political leaders. These leaders want credit to be cheap and available for government borrowing and for residential mortgages. So we should not be surprised that risk-based capital requirements are used to reward banks that put money into those assets.

In the essay, I explain why risk-based capital regulation has not served the intended purpose of reducing financial risk.

My Review of Mokyr

I write,

A fundamental issue in all of the disciplines that study human society, including economics, is the relative role of material conditions versus human agency as causal forces. Many writers focus on material conditions. … Those of us on the other side of that debate, including Mokyr, assign more credit to intangible factors, notably ideas and culture.

Tyler Cowen Talks with Joseph Henrich

Self-recommending. A couple of excerpts from Henrich.

Humans really don’t think as individuals. We don’t innovate as individuals. We innovate as groups. Groups that, for whatever reason, are able to create more social interconnections produce fancier tools and technology, and they’re able to maintain larger bodies of know-how.

and

Much of behavioral economics, at least at the time, was based on running experiments on undergrads. It’s actually mostly American undergrads that are studied.

The point is that these studies may not replicate, because they are limited to people who are Western, Educated, Industrialized, Rich, and Democratic–WEIRD.

Recall that I based a lot of my essay on cultural intelligence on Henrich’s book.

The interview with Cowen is lively and interesting throughout.

Principles-Based Regulation

Philip K. Howard writes,

Hundreds of federal safety specifications for factory equipment could be encompassed within one general principle: “Tools and equipment shall be reasonably suited for the use intended, in accordance with industry standards.” Is there room for disagreement? Yes, but only at the margins. Instead of wasting regulatory resources on foot faults that don’t matter, the safety agency could redeploy its resources to finding workplaces that are actually unsafe.

I think that principles-based regulation would have a few problems but many advantages. One problem is that there would be a zone of uncertainty about what constitutes compliance.

One advantage is that Congress could spell out the principles, because principles-based regulation would not require technocratic expertise. That would restore better Constitutional balance. Another advantage is that it would force whoever writes the regulations to think in broad terms about the aims of regulation. You would not be mindlessly piling on regulations with high costs and low benefits.

However, the main advantage is as Howard describes it. Most people want to do the right thing, especially if you respect their autonomy. If you spell out in broad terms what the “right thing” means, people will use their creativity to achieve that. Instead if you spell out do’s and don’ts in detail, they will use their creativity to achieve compliance with the letter but not with the spirit of the regulation.

Recall my essay on principles-based regulation.

Russ Roberts interviews Thomas Leonard

Self-recommending. I could choose almost any paragraph to excerpt. Here is one:

Darwinism, with its kind of material explanation for evolution, for human evolution, seems to imply that the idea of having inalienable natural rights invested in you by a Creator–the language that you find in the Declaration of Independence–Darwin seems to suggest that’s just kind of a nice fiction.

He is trying to explain how the progressives in general, and economists in particular, came to downplay individual rights.

I put Leonard’s book at number 2 on my books of the year for 2016. I wrote an essay about it earlier this year.

Who Needs the FCC?

The WaPo reports,

Many of the FCC’s existing functions could be farmed out, Jamison wrote in the blog post. Subsidies for phone and Internet service could be handled by state governments, while the Federal Trade Commission could handle consumer complaints and take action against abuses by companies. There are some details that were not addressed in the blog post due to time constraints, Jamison said Tuesday, such as the possible need for new state-level powers to address broadband monopolies.

The story refers to Mark Jamison, an adviser to President-elect Trump.

I think it would be a great idea to reconstitute the FCC for the 21st century. Recall my essay, Sidestep the FCC and the FDA. There, I argue for replacing the FCC’s spectrum licensing system (which Jamison would retain) with an arbitration board to deal with disputes among spectrum users.

Unlike the FCC, the arbitration board would presume that any spectrum could be used for any purpose. The board would set ground rules for users to deal with one another to resolve potential conflicts. These ground rules might specify which user has priority until an agreement can be reached. The ground rules might set expectations for how negotiations ought to be conducted and resolved. If parties are unable to resolve disputes, then the board would rule on that specific dispute.

My thinking reflects a view of spectrum that I encountered over 15 years ago, which says that there really is no such thing as “interference” if you have the right hardware, software, and protocols in place.