Archive for the 'Bad Reasoning' Category

Math, the Universe, and Ethan Siegel

Ethan Siegel, writing in Forbes, concludes that No, the Universe is Not Purely Mathematical in Nature.

His argument, unless I’ve badly misunderstood him, is that many purely mathematical models of the universe have turned out to be wrong, and one needs observations to guide the building of better models.

I think he has this exactly backward.

If our Universe is uniquely woven from some special fabric, then it at least might (or might not) be possible to discern some of its properties by pure reason.

But if our Universe is a purely mathematical structure, then it is surely one of a great many purely mathematical structures (we know this, because we are familiar with a great many purely mathematical structures). This means that only observations can help us determine which of those mathematical structures we inhabit.

Siegel’s article is well written and fun to read. But I think his arguments constitute evidence for exactly the opposite of the conclusion he wants to draw.

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Mea Culpa

Economists, like everyone, should admit to their mistakes and correct them. That’s what this post is for.

The argument against taxing capital income runs like this:

1) Current and future consumption should be taxed at the same rate.

2) A tax on capital income is equivalent to a tax on current consumption coupled with a higher tax on future consumption.

Conclusion: Capital income should not be taxed.

I made this argument several years ago in a talk at the Cato Institute. I recently got a complimentary note from someone who had just watched the video of that talk, which caused me to go back and watch a few snippets to remind myself of what I’d done to earn this compliment. And I was mortified to see myself stating not point 1) above, but this far more general point:

1′) All things should be taxed at the same rate.

The status of 1′) is complicated. It is true that in an ideal world, all things including leisure would be taxed at the same rate. But in a world where you can’t tax leisure, the ideal tax system is far more complicated, with the optimal tax on each consumption good varying according to various elasticities and cross-elasticities of demand and supply. So 1′) is true in an ideal world, but surely false in our world, where leisure is very difficult to tax.

Fortunately the full generality of 1′) was not needed for my argument; all I actually used was 1). But in the video, I very clearly stated 1′) as if it were gospel, and even devoted an entire slide to it. This mistake doesn’t overturn the conclusion, but it’s still surely egregious enough that if, say, Paul Krugman had made a mistake like this, I’d have been all over him.

So: Mea culpa.

A subsidiary point: The word “should” in these statements can be interpreted in (at least) two ways — from the point of view of efficiency and from the point of view of fairness. In the few paragraphs above, and in the bulk of my Cato talk, I was using the word “should” in the first sense. But I also tried to address fairness issues in the Cato talk, and from that angle, I’m less sure that 1′) is wrong.

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A Bit of a Screed

On New Years Eve, two people were arrested for stealing soap from the Walgreens in my neighborhood. If you think that’s a pretty minor crime, consider this — one of the perpetrators was the exact same height as the Unabomber!

Now wait a minute, you might say. Height is not a measure of criminal impact. If that strikes you as obvious, you are smarter than the readership of the fellow who calls him “Digiconomist” and tweets stuff like this.


Now, if you chortled at the notion of measuring the serious of a crime in units of feet and inches, I trust you are chortling doubly at the notion of measuring economic impact in units of terawatt-hours. Bitcoin miners tend to gravitate (either physically or via the cloud) to where power is cheapest. Argentinians tend to use whatever power is available in Argentina. There’s no reason to think that the cost of a Terawatt-hour generated by a hydroelectric dam in Turkey is comparable to the cost of a Terawatt-hour generated by burning fossil fuels in Buenos Aires.

So why does Digiconomist report this kind of claptrap? Maybe he’s a smart guy who doesn’t always think before he posts. Maybe he’s an idiot. Or — and this is where I’d put my money if I had to — he figures his readers are idiots who are easily dazzled by shiny nonsense.

134 Terawatt Hours is a lot of power. But with not even a guess as to the (internal and external) costs of generating that power, we are left with absolutely no basis for even beginning to think about whether those costs are acceptable. And the comparison to Argentina, where costs are likely to be very different, does not help even a whit. Digiconomist appears to hope his readers won’t notice that.

I’m going on a bit about this because I happen to have just come from a conversation with a pack of idiots of just the sort who I’m sure the digiconomist finds useful. The tweet above happened to come across our desks; I pointed out that it was pretty stupid, and the general reaction was that this just goes to show that economists are living in some crazy fantasyland, where they deny obvious truths like “Everything anybody cares about can be measured in Terawatt Hours”.

Suddenly we were back in first grade where I was explaining that the reason we care about energy use is because it consumes resources and therefore denies us other things, like haircuts and tractors and fresh produce and clean air — and that if you want to think about whether the tradeoffs are worth it, you have to measure everything in a common unit, of which the most readily available is the dollar. That was taken as more evidence of how out of touch economists are. Nobody even suggested an alternative way to think about tradeoffs, having decided, apparently, that thought serves no purpose.

Usually I’m pretty good at ignoring this kind of stuff, but this one really pissed me off. Possibly that was because I was in kind of a bad mood to begin with. But I think it was also this: The idiots in this pack are not full-time idiots. They’re professional people who do their jobs well. I’m sure that if I had to take over any of their jobs, I’d be laughably incompetent. Surely they know how to process information. Surely they’re capable of spotting an obvious fallacy, or an attempt to pull the wool over their eyes. But given an opportunity to hoot and jeer at a simple and obvious point that they happened not to think of themselves, they shut down all of their critical thinking skills in order to grab that opportunity. That’s partly a reflection of how human beings are wired, and partly, I think, a reflection of the times we’re living in, where tribalism and mockery seem to perpetually trump reason and thought. And what it means is that in these times, even many of the best of us have chosen, at least intermittently, to join the pack of idiots. It’s pretty scary. In fact, I’d say it’s even scarier than the number of animals in the National Zoo.

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Tax Policy

I thought the whole rationale for taxing capital gains in the first place was that we want to discourage inefficiently frequent trading.

If you buy that rationale, then the last thing you want to do is tax unrealized gains. If you don’t buy that rationale, then why tax any gains?

Unless, of course, you’re more into thuggery than rationales….

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The Continuing Tragedy

The great tragedy of the Trump administration has been that the President’s obvious mental incapacity has tended to discredit, in the minds of the public, even the good policies that he (apparently randomly) chooses to endorse. As a result, many good policies will never get the consideration they’re due.

For example: Trump happens to be right that we can design a system a whole lot better than Obamacare. But he’s never explained why, and he’s never even attempted to sketch out what such a system might look like. This (appropriately, and probably accurately) makes him appear to be an idiot, and therefore (inappropriately) leads the public to dismiss meaningful health care reform as an idiotic policy.

Likewise: Trump happens to be right that lockdowns and other mandates have enormous costs, which need to be weighed against the benefits of fighting a pandemic. But instead of focusing on that important point, he’s garbled it all up with the ridiculous notion that you’d have to be dumb to wear a mask (and no, his occasional weasel words on this subject do not erase his primary message). This (appropriately, and probably accurately) makes him appear to be an idiot, and therefore (inappropriately) leads the public to dismiss meaningful cost-benefit analysis as an idiotic exercise.

There are a thousand more examples; feel free to share your favorites in comments.

Click here to comment or read others’ comments.

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A Tale of Two Universes

A short time ago, in a Universe remarkably similar to our own, a team of researchers investigated racial differences in cognitive skills and concluded, with high degrees of certainty and precision, that the correlation between race and intelligence is zero. They submitted their results to a journal called Science, which is remarkably similar to the journal called Science in our own Universe. The paper was accepted for publication, but the editors saw fit to issue this public statement:

We were concerned that the forces that want to downplay the differences between the races as well as the need for racial segregation would seize on these results to advance their agenda. We decided that the benefit of providing the results to the scientific community was worthwhile.

Which of the following best captures the way you feel about that statement?

A. Bravo to the editors for advancing the cause of truth, even if it might be misused.

B. Boo to the editors for even thinking about suppressing the truth, even if the truth might be misused.

C. WHAT?!?!? Since when is a failure to share the editors’ political priorities a “misuse” in the first place?

D. Both B and C.

E. Other (please elaborate).

My vote is for D. It is outrageously wrong for the editors to even consider using the resources of their journal to promote their private political agenda. It is doubly wrong for them to even consider doing so by suppressing a paper they would otherwise accept. And it is triply wrong for them to even consider imposing on the owners and readers of the journal to support a political agenda that some of those owners and readers will no doubt find deplorable.

I happen to be one of those who deplore the expressed agenda, but that has nothing to do with my point here. The outrage would be exactly as great if the editors were focused on protecting capitalism instead of segregation.

Now let’s come back to our own Universe, where the editors of Science (the real Science) accepted a paper suggesting that a large fraction of the population might already have a sort of pre-immunity to Covid 19, and somehow saw fit to issue the following statement:

We were concerned that forces that want to downplay the severity of the pandemic as well as the need for social distancing woud seize on the results to suggest that the situation was less urgent. We decided that the benefit of providing the model to the scientific community was worthwhile.

As I said, the two Universes are eerily similar. The statements made by the editorial boards in both Universes seem about equally outrageous to me.

The real-world editors, if they cared what I thought, might want to respond that my analogy fails because “the need for racial segregation” is a political stance, whereas “the need for social distancing” is a scientific one. If so, they’d simply be wrong. Biologists have no particular insight into whether people would be happier in a world with both a little more Covid and a few more hugs. If any group is uniquely qualified to estimate the terms of that tradeoff, it’s the economists — but I wouldn’t want the editors of an economics journal making this kind of call either.

I’m glad that the editors did the right thing. I’m appalled they even considered doing the wrong thing, and concerned that this means they might do the wrong thing in the future, and might have done so in the past. It is not okay to suppress truth in the furtherance of a political agenda. It is not okay to presume that all good people share in your agenda, or to co-opt other people’s resources in order to advance it.

(Hat tip to David Friedman, whose blog made me aware of this.)

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Block Heads, Redux

Walter Block is under fire from a bunch of very silly people, for reasons that he recounts in this week’s Wall Street Journal.

Unfortunately, if you’re not a Journal subscriber that link probably won’t work for you. Fortunately, it doesn’t matter, because these people are as unoriginal as they are silly, and the issues are pretty much the same as they were when a bunch of equally silly people ganged up on Walter six years ago. So you’ll be pretty much caught up if you just re-read the accounts from back then.

You could, for example, re-read my 2014 blog posts titled Block Heads and Chips Off the Block. I’ll even make this easier for you by reposting the first one right here:

Block Heads

February 13, 2014

walterblockThe righteously irrepressible Walter Block has made it his mission to defend the undefendable, but there are limits. Chattel slavery, for example, will get no defense from Walter, and he recently explained why: The central problem with slavery is that you can’t walk away from it. If it were voluntary, it wouldn’t be so bad. In Walter’s words:

The slaves could not quit. They were forced to ‘associate’ with their masters when they would have vastly preferred not to do so. Otherwise, slavery wasn’t so bad. You could pick cotton, sing songs, be fed nice gruel, etc. The only real problem was that this relationship was compulsory.

A group of Walter’s colleagues at Loyola university (who, for brevity, I will henceforth refer to as “the gang of angry yahoos”) appears to concur:

Traders in human flesh kidnapped men, women and children from the interior of the African continent and marched them in stocks to the coast. Snatched from their families, these individuals awaited an unknown but decidedly terrible future. Often for as long as three months enslaved people sailed west, shackled and mired in the feces, urine, blood and vomit of the other wretched souls on the boat….The violation of human dignity, the radical exploitation of people’s labor, the brutal violence that slaveholders utilized to maintain power, the disenfranchisement of American citizens, the destruction of familial bonds, the pervasive sexual assault and the systematic attempts to dehumanize an entire race all mark slavery as an intellectually, economically, politically and socially condemnable institution no matter how, where, or when it is practiced.

So everybody’s on the same side, here, right? Surely nobody believes the slaves were voluntarily snatched from their families, shackled and mired in waste, sexually assaulted and all the rest. All the bad stuff was involuntary and — this being the whole point — was possible only because it was involuntary. That’s a concept with broad applicability. One could, for example, say the same about Auschwitz. Nobody would have much minded the torture and the gas chambers if there had been an opt-out provision. And this is a useful observation, if one is attempting to argue that involuntary associations are the root of much evil.

Continue reading ‘Block Heads, Redux’

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The Rules of Excommunication

If Bernie Sanders wants to say that Fidel Castro occasionally did something good, while acknowledging that he often did things that were very bad, I think that’s a reasonable position. (It might also be reasonable to say that Adolf Hitler occasionally did something good, though offhand I can’t think of a good example.)

But surely — surely — if it’s reasonable to say this about Castro, then it’s enormously more reasonable to say that there were good people among the protestors in Charlottesville, Virginia, while acknowledging that there were also some very bad people. Because I have not the slightest shred of a doubt that the fraction of people on either side of that Charlottesville protest who were basically good is enormously greater than the fraction of Castro’s policies that were basically good.

You might want to argue that it’s not okay to acknowledge any goodness at all in a Hitler or a Castro or a large crowd of people that includes some number of violent neo-Nazis. I wouldn’t agree with you, because I think it’s always okay to acknowledge anything that happens to be true. But if that’s your position, you have to decide where to draw the line, and if you draw the line in a way that puts Trump beyond the pale, then Sanders is way beyond the pale.

In other words, I see how you can excommunicate both of them, I see how you can excommunicate just Sanders, and I see how you can excommunicate neither. My preference is neither. If your preference is otherwise, we can cheerfully disagree. But if you want to excommunicate just Trump, I’m very skeptical that you’re applying anything like a consistent standard. Feel free to prove me wrong in comments.

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Stop-And-Think

I hold these truths to be self-evident:

  1. Any law whatsoever, no matter how desirable on balance, will impose some costs on someone somewhere.
  2. In any society with more than about 12 people, it is virtually certain that those costs will be borne unequally.
  3. If the costs are borne unequally, then the costs borne by various individuals are virtually certain to be non-trivially correlated with at least one observable characteristic.

For example: A law that says you have to pick up after your dog will be costlier for dog owners than for non-dog-owners. Dog owners, depending on the community, will be either disproportionately old or disproportionately young or disproportionately rich or disproportionately poor or disproportionately ill or disproportionately healthy.

Therefore, unless you are willing to conclude that all laws are bad essentially without exception, you cannot argue that a law is bad just because it imposes individual costs in a way that is correlated with observable characteristics.

Therefore when Michael Bloomberg is criticized for supporting a stop-and-frisk policy because it caused disproportionate pain to young people with dark skin, his critics are being either disingenuous or unthoughtful.

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Life Lessons

The Washington Post and others of that ilk have been sounding the alarm about declining life expectancy in the U.S., driven mostly by rising death rates due to opioid use and obesity among the young and middle-aged.

There’s something terribly wrong says the Post headline. Maybe. But the content of the article suggests that a better headline might have been There’s something to celebrate. Certainly the article offers no argument or evidence for the former interpretation.

There is something to celebrate if rising death rates result from voluntary, informed choices. The thing to celebrate, of course, is not the deaths themselves, but the fact that people have found something worth dying for — just as, when you buy a house, I’ll congratulate not for the expense, but for finding something that made the expense worthwhile.

You’d think (or at least I‘d think) this was entirely obvious, but apparently it’s not obvious to everyone, so maybe it’s worth offering an extreme example. Suppose we’re all tied to beds in hospital rooms, with doctors monitoring every blip in our health and attending to it immediately. As a result, we mostly live long and miserable lives. Now one day, we engineer a mass escape. Life expectancy goes down for reasons that call for a celebration.

Opioids offer escape from miserable lives. They also offer enhancement of non-miserable lives. The decision to be obese comes with a great many perks — you can spend a lot more time eating M&M’s and a lot less on the treadmill. (I myself spend much of my treadmill time wondering whether I’ve made the wrong choice.) Like all good things, these come with costs. In this case, the cost is in the form of increased mortality. Apparently, people think that’s a cost worth paying. We should be glad for them.

Now you can certainly tell a story in which mortality due to opioid use is up because the world has gotten so much worse that there’s more demand for escape. That would be a bad trend (though even then, we’d want to celebrate the ability of opioids to mitigate some of that misery). Or you can tell a story in which mortality due to opioid use is up because people have gotten so much richer they can afford to be opioid addicts, or because opioids have gotten better, or because they’ve become more readily available. That would be a good trend. The Washington Post article alludes to the former possibility, without a shred of a good reason to think it’s the right story, as opposed to one of many possible stories.

You know what else is way up over the past couple of decades? Expenditures on smartphones. That sounds really really bad if you choose to ignore the fact that the people who are spending all that money get to have smarthpones. Likewise, an upward trend in mortality from M&M consumption sounds really really bad if you choose to ignore the fact that the people who are shortening their life expectancies also get to eat a lot of M&Ms. There is more to life than life expectancy.

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Walls Versus Walls

The President of the United States tweets that his proposed border wall is essentially “the same thing” as a wall built around the Obamas’ house (or presumably anyone else’s house) to keep away intruders.

No, you idiot. There is absolutely no relevant similarity between a wall somebody builds around his own house and a wall that you build between other people’s houses. The effect of a wall around my house, if I had one (and if I controlled the gates), would be to increase my control over who enters my living room. The effect of a border wall would be to decrease my control over who enters my living room.

That doesn’t prove that the border wall is a bad idea. But if the President believes there are good arguments for his pet project, why does he resort to ridiculous analogies that have absolutely zero chance of being taken seriously by anybody on either side of the issue? I’m pretty sure Rex Tillerson had this right.

Click here to comment or read others’ comments.

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Escalators (The Geeky Version)

I hadn’t expected this escalator business (and see also here) to go on so long, but there have been a lot of smart comments, and a lot of smart disagreements, and a lot of smart changing and re-changing of minds, some of it the unavoidable consequence of the fact that we might all be using language a little differently.

So here is the geeky (i.e. precise!) version of what I want to say.

I. Your journey consists of some time on the stairs and some time on the escalator. You rest for a total of one minute, which you can take on the stairs or on the escalator (or split it if you like).

II. Define some constants:

W = your walking speed

V = the escalator speed

L = the distance from your starting point to your destination

Continue reading ‘Escalators (The Geeky Version)’

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Escalating Matters

There were a lot of great comments on my recent post about escalators, but none better than Bennett Haselton’s, which is so good I want to highlight here in a separate post.

I’m going to strip his argument down to make it even simpler, but this is all Bennett’s idea:

A New Puzzle: You’re boarding an escalator precisely at noon. You know that on a normal day, if you walk the entire way, the ride takes exactly ten minutes. But you also know that this is not a normal day, because the escalator is scheduled to be stopped for maintenance beginning at 12:05, and will at that point turn into the equivalent of a stairway. You’re planning to take a one-minute rest from walking at some point along your journey. Should you rest before 12:05, when the escalator is moving, or after 12:05, when the escalator is stopped?

Answer One:Of course you should rest while the escalator is moving, because that way, at least you make some progress while you rest.

Answer One, Reworded: Of course you shouldn’t rest while the escalator is stopped, because then you’ll spend an entire minute not getting anywhere.

Here’s the thing about Answer One: It’s completely wrong. It doesn’t make a bit of difference whether you rest from 12:00 to 12:01 or from 12:05 to 12:06 or for any other minute in between. If you don’t believe me, try an example: Suppose the escalator travels, oh, say, 20 yards per minute and your walking speed is 10 yards per minute. Then if you rest from 12:00 to 12:01, with the elevator moving, you’ll have traveled 160 yards by 12:07, and will continue to gain ten yards per minute after that. If instead you rest from 12:05 to 12:06 with the escalator stopped, you’ll have traveled exactly the same 160 yards by 12:07, and will continue to gain exactly the same ten yards per minute after that.

The Old Puzzle: You’re going to travel on a 100 yard staircase followed by a 100 yard escalator. You’re planning to take a one minute rest somewhere along the way. Should you take it on the stairs or on the escalator?

Answer One: You should rest on the escalator, because at least that way you make some progress while you rest. Or to put this another way, you shouldn’t rest on the stairs because then you’ll spend an entire minute not getting anywhere.

This time Answer One gives the right conclusion. But the reasoning can’t be right, because it’s the exact same reasoning that we applied to the New Puzzle, whereupon that reasoning led us totally astray.

Bennett’s lovely example illustrates as starkly as possible why we must reject Answer One even though it sometimes yields the right conclusion. The reason is that it also sometimes leads to the wrong conclusion. I’ve been trying to argue in the abstract that the logic of Answer One makes no sense; Bennett has done us the awesome service of pointing to a concrete example where that logic leads you inarguably astray.

It also illustrates my other main point: The real reason to rest on the escalator in the Old Puzzle is that resting on the escalator buys you more time on the escalator. Bennett has removed that advantage by giving you exactly five minutes on the escalator regardless of where you rest. In other words, when you cook up an example (like Bennett’s) in which resting on the escalator doesn’t buy you more time on the escalator, the argument for resting on the escalator vanishes in a puff of smoke.

This, incidentally, is related to a cryptic comment of my own on that earlier post, where I replied to an inquiry from Bob Murphy about my observation in an old Slate column that the fundamental confusion arises from measuring benefits in distance instead of time. (I claim that this is, in a sense that might not be entirely obvious, an equivalent description of the problem with Answer One.) In the Old Puzzle, you’re on the escalator for a fixed distance; in Bennett’s New Puzzle, you’re on the escalator for a fixed time. That illustrates exactly the distinction I had in mind, and if I find the time, I’ll write out the details sometime soon.

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Ups and Downs

escalator_photo_2

There are two kinds of people in this world: The first kind wonders why people stand still on escalators but not on stairs. The second kind wonders what’s wrong with the first kind. After all, if you stand still on the stairs you never get anywhere.

But people of the first kind are not usually dumb. I could give you a long list of top-rate economists and mathematicians who have been stumped by this puzzle. But I could also give you a long list of equally smart people who have been stumped by why anybody thinks it’s a puzzle in the first place. It’s come up again several times recently, because I included it in Can You Outsmart an Economist? and because I talked about it on my podcast with Bob Murphy, which generated a small flurry of email from listeners. So let me try once again to explain what’s going on here.

Let’s divide this into two parts: First, what’s the right way to think about this problem? Second, why is it a problem in the first place?

Continue reading ‘Ups and Downs’

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In the Matter of Sarah Jeong

Two decades after hiring Paul Krugman, the New York Times has doubled down by hiring the venomous Sarah Jeong, whose old tweets include the following rhetorical question:

Are white people genetically disposed to burn faster in the sun, thus logically being only fit to live underground like groveling goblins?

According to Jeong’s supporters, the tweet needs to be read in context — it was, you see, intended as a parody of Andrew Sullivan’s audacious piece in New York magazine, advocating research — or at least opposing the suppression of research — into racial differences in IQ.

I’m all for parody. I’m all for taking other people’s logic (and my own!), pushing it to its limits, seeing where it leads, and thereby calling attention to its weaknesses. And I am outraged when authors engaged in this enterprise are taken out of context. If I say “X”, and if “Y” is both analogous to X and clearly outrageous, then Sarah Jeong or anyone else ought to be able to tweet “Y” by way of making fun of me, without having to face down a gang of yahoos accusing her of believing “Y”.

But that’s not what this is about. Because — and here is the crux of the matter — the analogue to

Are some races genetically disposed to be less intelligent than others?

is

Are white people genetically disposed to burn faster in the sun?

which is not at all the same thing as

Are white people genetically disposed to burn faster in the sun, thus logically being only fit to live underground like groveling goblins?

The problem here is not that Sarah Jeong believes white people are fit only to live underground like groveling goblins. (I feel pretty confident, in fact, that she believes no such thing.) The problem here is that she is attempting to refute Andrew Sullivan’s logic by writing down an analogy (so far so good) and then, having done so, tacking on the phrase “being only fit to live underground like groveling goblins”, which in no way reflects anything Andrew Sullivan said, and which Sarah Jeong pulled out of her ass.

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Information, Please

Why do we need a national health policy, any more than we need a national grocery policy or a national automobile policy or a national matchmaking policy?

Over on another recent thread, one of our commenters keeps pointing to allegedly unique “information issues” in the market for health care. So let’s see how unique those issues really are.

First, there are issues like adverse selection. The very fact that you’re buying insurance makes sellers suspect you’re sick, and they charge accordingly. Therefore if you’re not sick you overpay, and because you overpay you’re likely to underinsure.

That issue is not unique to health insurance. It also plagues the markets for car insurance and homeowner’s insurance, along with plenty of other markets. The very fact that you’re selling a used air conditioner makes buyers suspect there’s something wrong with it, and they lowball their offers accordingly. Therefore, you can’t get a good price even for a perfectly good air conditioner, and because you can’t get a good price you’re less likely to list it for sale in the first place. That’s exactly the same adverse selection problem (with buyers and sellers reversed), but there’s no general clamor for a national used-air-conditioner policy.

That’s not to say that adverse selection is unimportant, or that we shouldn’t try to address it, and it’s not deny that it might loom larger in some markets than others. But it’s far from unique to the market for health insurance.

Another information issue — one being flogged endlessly by a persistent commenter in that other thread — is that providers generally know a lot more than their customers do about the merits of various medical procedures. This is presented as if it were a reason for providers (e.g. doctors, insurance companies, or federal program administrators) to make key decisions, as opposed to presenting the customer with a price list from which to choose — the same method that seems to work perfectly well in restaurants, auto repair shops and lawyers’ offices.

But all of this overlooks the biggest information issue of all which is this: Only the customer knows whether he’d prefer, say, three weeks of pain relief to, say, a new car stereo, or whether he’d prefer, say, a slight lifelong reduction in heart attack risk to, say, an extra five restaurant meals every year.

Continue reading ‘Information, Please’

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The Long and Short Of It

The indispensable Don Boudreaux riffs on a comment here at The Big Questions to observe that one cannot consistently argue that both a) Citizen’s United gives outsized political power to corporations and b) corporations need to be nudged out of their excessive focus on quarterly statements. Political contributions, after all, do not ordinarily pay off within one or two quarters.

One can, I think, maneuver around Don’s point by maintaining that corporations focus on both the short and long runs, putting too much emphasis on the short run, but still putting enough emphasis on the long run to make it worth manipulating the political system. But that’s a tricky maneuver, and kudos to Don for pointing out that there’s at least some serious tension here.

Continue reading ‘The Long and Short Of It’

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The Dilbert View

scottadamsThroughout this election season, Scott Adams (the Dilbert guy) has been right when I (and a whole lot of others) have been wrong. On his blog, Adams kept patiently explaining why Donald Trump would be a strong contender, while I and a great many others believed (or maybe just hoped and therefore believed we believed?) that Trump was a flash in the pan. Each of the many times that Trump seemed to take himself out of contention, Adams predicted he’d survive and even thrive — and each time, Adams was right.

Now, however, Adams has turned his attention from Trump’s merits as a candidate (where Adams seems to have had a great deal of insight) to Trump’s merits as a potential president. And here, despite all his past successes, I am quite sure that Adams has outrun his expertise. Policy analysis and political analysis are, after all, two very different things.

From Adams’s most recent blog post:

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Homer Nods

mankiwBetween his blog, his New York Times columns and his textbooks, Greg Mankiw has probably contributed more than anyone else alive to the cause of economic literacy. But his most recent column is, I think, a rare miss.

The thrust of the column is that the estate tax is a bad idea because it violates the principle of horizontal equity by imposing substantially different tax burdens on substantially similar people:

Consider the story of two couples. Both start family businesses when they are young. They work hard, and their businesses prosper beyond anything they expected. When they reach retirement age, both couples sell their businesses. After paying taxes on the sale, they are each left with a sizable nest egg of, say, $20 million, which they plan to enjoy during their golden years.

Then the stories diverge. One couple, whom I’ll call the Frugals, live modestly. Mr. and Mrs. Frugal don’t scrimp, but they watch their spending. They recognize how lucky they have been, and they want to share their success with their children, grandchildren, nephews and nieces.

The other couple, whom I’ll call the Profligates, have a different view of their wealth. They earned it, and they want to enjoy every penny of it themselves. Mr. and Mrs. Profligate eat at top restaurants, drink rare wines, drive flashy cars and maintain several homes. They spend their time sailing the Caribbean in their opulent yacht and flying their private jet from one luxury resort to the next.

So here’s the question: How should the tax burdens of the two couples compare? Under an income tax, the couples would pay the same, because they earned the same income. Under a consumption tax, Mr. and Mrs. Profligate would pay more because of their lavish living (though the Frugals’ descendants would also pay when they spend their inheritance). But under our current system, which combines an income tax and an estate tax, the Frugal family has the higher tax burden. To me, this does not seem right.

The problem with this argument is that it’s not an argument against the estate tax. It’s an argument against any tax (other than a pure $X-per-person-per-year head tax). Try it:

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Trading in Fallacies

Under quite general conditions, free trade pacts lead to higher average real incomes in every participating country. The argument for this proposition is simple, incontrovertible, and entirely non-controversial among those who have taken a few minutes to understand it. This stands in contrast to the arguments for, say, Darwinian evolution or anthropogenic climate change, which rely on vast bodies of evidence that most of us will never digest. Your opinions on evolution and climate change almost surely rely at least in part on the testimony of experts. Free trade is different. It doesn’t matter what the experts say, because you can check each step in the argument for yourself.

Educated people know this. So when they want to throw up roadblocks in the way of free trade, they don’t say silly and obviously false things like “free trade will make us poorer”. Instead, they say silly things like “Sure, free trade will make us better off on average. But there are still both losers and winners!” From this, they want us to conclude either that free trade is not a good thing, or that at the very least, the winners should compensate the losers.

This strikes me as an extraordinarily dishonest way of arguing, because pretty much nobody ever argues this way about anything else, even though every policy change in history has created both winners and losers. In fact, every human action has both winners and losers. When Archie takes Betty instead of Veronica to the ice cream shoppe instead of the movies, both Veronica and the theater owner lose out. It does not follow that all human actions are wrong, or immoral, or should be discouraged by law, and it does not follow that all human actions should be followed by compensation to the losers. What, then, is so special about free trade?

The problem is confounded by the fact that with free trade, unlike many other policies, the winners are often poorer than the losers. When Americans lose their $30 an hour jobs making air conditioners so that they can be made by $20-an-hour foreigners, the big losers are Americans whose wages fall from $30 to $20. The big winners are Americans who can now for the first time afford air conditioning. Most of those people are probably making less than $20 an hour. (On this point, see also here.)

For those who insist on repeating the old “What about the losers?” refrain, I’ve prepeared a little quiz to test your moral consistency:

  1. In 1998, a new grocery store opened in my neighborhood, offering better food at lower prices than the old grocery store. This is generally perceived to have been a good thing overall, but at same time it was bad for the owners of the existing grocery store.
    1. Does this mean that the new grocery store should have been prohibited from opening?
    2. Does this mean that the winners — i.e. my neighbors and I — should have compensated the losers — i.e. the proprietors of the old grocery store — for their losses?
  2. In 2005, I stopped going to the barber and started cutting my own hair. My friends think my hair looks better now, and there’s a general perception that the change has been a good thing overall.
    1. Does this mean that I should be required to return to my barber?
    2. Does this mean that the winners — i.e. my friends and I — should have compensated the loser — i.e. my ex-barber — for her losses?
  3. In 2008, Google introduced the Android operating system to compete with Apple’s iPhone monopoly. This is generally perceived to have been a good thing overall, but at the same time it was bad for Apple’s shareholders.
    1. Does this mean that Google should have been prohibited from developing the Android system?
    2. Does this mean that the winners — i.e. everyone who purchased an Android, and everyone who got his iPhone a little cheaper thanks to the competition — should have compensated Apple’s shareholders for their losses?
  4. In 1863, Abraham Lincoln signed the Emancipation Proclamation, ending slavery in the United States of America. This is generally perceived to have been a good thing overall, but at the same time it was bad for slaveholders.
    1. Does this mean that Lincoln should not have freed the slaves?
    2. Does this mean that the winners — i.e. the freed slaves — should have compensated the losers — i.e. the slaveholders — for their losses?
  5. In 2008, Bernard Madoff was arrested and his ongoing Ponzi scheme was cut short. This is generally perceived to have been a good thing overall, but at the same time it was bad for Bernie Madoff.
    1. Does this mean that Madoff should not have been arrested?
    2. Does this mean that the winners — i.e. the Madoff victims — should have compensated the losers — i.e. Madoff and his co-conspirators — for their losses?

Scoring: If your answers were mostly “no”, and if you are nevertheless skeptical of free trade pacts, you’ve got some explaining to do.

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And the Winner Is….

Several commenters on yesterday’s post have asserted (in every case without evidence or argument) that the benefits of free trade — that is, lower prices for consumption goods — tend to accrue disproportionately to the wealthy.

Okay, the people I see shopping at Wal-Mart don’t strike me as particularly wealthy, but maybe I’m mistaken. Maybe the commenters are right and it’s the rich, not the poor, who care the most about affordable goods. Maybe Bill Gates would be devastated if he had to pay 50% more for a washing machine, but Joe Sixpack would just kind of shrug it off. I guess that makes sense if Bill spends his million dollars a month as fast as it comes in, while Joe always seems to have half of his thousand-dollar monthly paycheck left over.

Could be. But I hope the people who say they believe this will have the decency never to tell me that we can stimulate the economy by transferring income from the rich to the poor, because the poor are more likely to spend it.

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Clintonomics

Hillary Clinton Campigns In Iowa, Meeting With Small Business OwnersAre you a corporate employee who wishes that your income were tied more closely to your employer’s profits?

I have good news for you: There’s an easy way to make that happen. Take 10% (or 5% or 20%) of your wages, and use them to buy corporate stock.

Are you a corporate employee who *doesn’t* wish that your income were tied more closely to your employer’s profits?

I have good news for you, too. You don’t have to buy additional stock if you don’t want to.

Hilary Clinton, however, wants to change all that. She wants to force you into a profit sharing arrangement that is, for all practical purposes, equivalent to forcibly converting part of your salary into corporate stock. If you were planning to do that anyway, this will make no difference to you. If you weren’t planning to do it anyway — if, for example, you preferred to diversify your risks by investing your wages in some other industry — then, of course, this will make you worse off.

(I trust that none of my regular readers is silly enough to respond that Clinton’s plan is much better than buying stock, because you get the profit-sharing in addition to your existing salary. But for the benefit of the occasional drive-by reader, this is not possible. Market pressures insure that your total compensation is equal to the value of what you produce for the company, and if one facet of that compensation goes up, then another must go down.)

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Consistency Check

Donald Trump, objecting to the President’s post-Orlando call for stricter gun control, says that the president has “no clue”. Why? Because “The shooter was licensed…So he would have passed the test that the president would have thrown up there”.

Instead, Mr. Trump tells us that the lesson of Orlando is “We can’t let people in”. Of course, the Orlando murderer was a natural-born U.S. citizen, so he would have passed the test that Mr. Trump would have thrown up there.

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A Voter’s Guide to Thinking

Scott Adams (the Dilbert guy) offers a Voter’s Guide to Thinking that is so good I am going to reproduce it in its entirety:

  1. If you are comparing Plan A to Plan B, you might be doing a good job of thinking. But if you are comparing Plan A to an imaginary situation in which there are no tradeoffs in life, you are not thinking.
  2. If you see quotes taken out of context, and you form an opinion anyway, that’s probably not thinking. If you believe you need no further context because there is only one imaginable explanation for the meaning of the quotes, you might have a poor imagination. Sometimes a poor imagination feels a lot like knowledge, but it’s closer to the opposite.
  3. If a debate lends itself to estimates of cost (in money or human suffering) and you aren’t willing to offer an estimate in support of your opinion, you don’t yet have an opinion.
  4. If you are sure you know how a leader performed during his or her tenure, and you don’t know how someone else would have performed in the same situation, you don’t actually know anything. It just feels like you do.

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Boys, Girls and Hot Hands

This is a post about hot hands in basketball. But first, some relevant history:

The single most controversial topic ever broached here on The Big Questions was not Obamacare, or tax policy, or the advantages of genocide, or the policy treatment of psychic harms. It was this:

The answer, of course, is that you can’t know for sure, because (for example) by some extraordinary coincidence, the last 100,000 families in a row might have gotten boys on the first try. But in expectation, what fraction of the population is female? In other words, if there were many such countries, what fraction would you expect to observe on average?

The “official” answer — the answer, for example, that Google was apparently looking for when they posed this as an interview question — is that no stopping rule can change the fact that each birth has a 50% chance of being either male or female. Therefore the expected fraction of girls in the population is 50%.

That turns out to be wrong. It’s true that no stopping rule can change the fact that each birth has a 50% chance of being either male or female. From this it does follow that the expected number of girls is equal to the expected number of boys. But it does not follow that the expected fraction of girls in the population is 50%. Instead, that expected fraction depends on the country size, but is always less than 50%.

If you don’t see why, I encourage you to browse the archive of relevant blog posts. If you still don’t get it, I encourage you to keep browsing. Whatever your objections might be, you’ll find them addressed somewhere in the archive. I’m not interested in relitigating this. I will, however, happily renew my offer to take $5000 bets on the matter, on the terms described here. Last time around, all takers changed their minds before putting any money on the table.

Now let’s get to the hot hands.

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Minimum Logic, Part 2

Yesterday’s post touched on several related points, and I’m afraid the most important one got buried near the end, so I want to repeat it:

1) In the presence of an effective minimum wage, all benefits of the earned income tax credit are transferred to employers. This is, as they say, a matter of Economics 101. (Edited to add: As Bennett Haselton points out in comments, I should have said “dissipated”, not “transferred to employers”. The point remains that the benefits don’t go to the workers, which, for this discussion, is what matters.)

2) Paul Krugman argues that we should have an effective minimum wage in order to prevent some of the benefits of the earned income tax credit from being transferred to employers.

In this context, it should be remembered that Krugman ordinarily reserves his deepest scorn for those who, according to Krugman, willfully ignore the lessons of Economics 101.

Let’s review the argument for 1), with reference to the graph below. In the presence of, say, a $5-an-hour minimum wage, employers will hire 1000 workers. Because more than 1000 people want to work, employers can extract extra concessions in the form of reduced on-the-job-training, shorter breaks, and harsher working conditions. They can get away with exactly $1-an-hour’s worth of this, because even at an effective wage of $4, there are still 1000 people willing to work.

Edited to add: I am assuming that these concessions are of relatively little value to employers (otherwise they wouldn’t have waited for the EITC to demand them!), so that the quantity of labor demanded does not change.

Now let’s add a $3-an-hour earned income tax credit, which shifts the labor supply curve to the dashed position. Ordinarily, this would lead to a lower equilibrium wage, transferring some of the benefits of the EITC to employers. But in the presence of the $5 minimum, wages can’t drop, and employment remains fixed at 1000, though now even more people want to work, allowing employers to impose even harsher conditions until the effective wage drops to $1 an hour (the wage at which there are still 1000 people willing to work). This process transfers all the benefits of the EITC away from the workers.

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Minimum Logic

The question is often raised: “Why would you ever want to raise the minimum wage when you could raise the earned income tax credit instead?”. In other words, if you’ve got a choice between two ways to increase the effective wage rate, why would you choose the one that reduces employment over the one that increases employment?

Paul Krugman has an answer. He’s argued on numerous occasions that the EITC and the minimum wage are complements, not substitutes — that is, each makes the other more effective. So, according to Krugman, once you’ve raised the EITC, the case for a minimum wage hike becomes stronger, not weaker.

Here’s his argument: When you raise the EITC, more people enter the labor market. The increased supply of labor tends to drive wages down, which transfers some of the benefit from the workers you intended to help to the employers and/or consumers who you presumably care about less. To prevent this perverse consequence, one needs a hike in the minimum wage.

The other day, a colleague (who I’m not naming because I’m not sure whether he’d want to be quoted) pointed out that this argument makes not a shred of sense. Here’s why: Any effective minimum wage (that is, any minimum wage set above the wage rate that would prevail in an unregulated market) suffices to do the job Krugman wants it to do. At best, then, Krugman has made an argument for having some minimum wage, not a case for raising it.

Here’s the picture:

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This Would Be a Great Illustration of Comparative Advantage if It Weren’t Such a Great Illustration of Absolute Advantage

diracPaul A.M. Dirac was a pioneer of quantum mechanics and quantum field theory. His work pervades all of modern physics. He was, by almost all accounts, one of the top 10 physicists of all time, and by many accounts one of the top 2 physicists of the 20th century. And he’s one of my personal heroes.

When Dirac was awarded the Nobel prize in 1933, he was asked to say a few words at the banquet that kicks off the multi-day Nobel celebration — and chose, against tradition, to speak about a subject other than physics. Here is Paul Dirac on the source of all our economic problems:

I should like to suggest to you that the cause of all the economic troubles is that we have an economic system which tries to maintain an equality of value between two things, which it would be better to recognise from the beginning as of unequal value. These two things are the receipt of a certain single payment (say 100 crowns) and the receipt of a regular income (say 3 crowns a year) through all eternity. The course of events is continually showing that the second of these is more highly valued than the first. The shortage of buyers, which the world is suffering from, is readily understood, not as due to people not wishing to obtain possession of goods, but as people being unwilling to part with something which might earn a regular income in exchange for those goods. May I ask you to trace out for yourselves how all the obscurities become clear, if one assumes from the beginning that a regular income is worth incomparably more, in fact infinitely more, in the mathematical sense, than any single payment? In doing so I think you would then get a better insight into the way in which a physical theory is fitted in with the facts than you could get from studying popular books on physics.

True to form, then, Dirac set an agenda that others scurried to follow — the agenda in this case being the exploitation of the Nobel prize as a license to spout economic gibberish. Almost a century later, his program continues to flourish.

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Sweet Talk

Is it only me who is driven crazy by the American Heart Association’s campaign against “added sugars”, and the attendant campaign to label foods for their added sugar content?

Look. I am no expert, so correct me if I’m wrong, but as far as I can tell from a trip around the Internet, sugar is sugar. More precisely, fructose is fructose, glucose is glucose, and so it goes. The fructose in an apple is exactly as bad for you as the fructose in a Cola drink.

Now an apple provides all sorts of good nutrients and fiber that are missing from the Cola drink. But if you want to send that message, the way to send it is to advertise that apples provide all sorts of good nutrients and fiber that are missing from Cola drinks — not to suggest (nonsensically, as far as I can tell) that the “added sugar” in the Cola drink is somehow different from the non-added sugar in an apple. If your main concern is to watch your sugar intake, the distinction doesn’t matter. If your main concern is, say, Vitamin C, then sugar counts are irrelevant anyway. If you care a little about a lot of things, then it’s good to know sugar contents, vitamin contents, and a whole lot more. But I cannot imagine any individual, in any state of the world, who is better off counting added sugar than counting total sugar.

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What Is Larry Summers Thinking?

Larry Summers, writing in the Washington Post, tells us that:

While the recent decline in energy prices is a good thing in that it has, on balance, raised the incomes of Americans, it has also exacerbated the problem of energy overuse. The benefit of imposing carbon taxes is therefore enhanced.

He might have an argument in mind, but he doesn’t seem to have presented it.

The benefit of carbon taxes, as Summers says, comes from “the recognition that those who use carbon-based fuels or products do not bear all the costs of their actions.” In other words, without a tax, people use more oil than they should. I’m with him so far. Now what Summers appears to be thinking is that when the price of oil falls, people use more oil, which increases the gap between what they do use and what they should use. What this overlooks is that when the price of oil falls, there are increases in both the amount people do use and the amount people should use — and hence no particular reason to believe that the gap has grown.

Having made such an argument, one should draw a picture to make sure it’s right. Here are the demand and supply curves for oil. Points on the demand curve show the value to consumers of individual gallons of oil; points on the supply curve show the cost to producers of supplying those individual gallons; points on the social marginal cost curve show the cost to society (including pollution costs) of supplying those individual gallons:

Ideally, oil would be supplied only up to the point where demand crosses social marginal cost and no further. Unfortunately, it’s supplied up to the point where demand crosses supply. Those excess gallons create social losses measured by the skinny rectangles in the left-hand panel (the social loss from a gallon of oil is equal to the social cost of providing that gallon, minus its value to a consumer). These add up to the area labeled X on the right. The value of an appropriate-sized carbon tax is that we’d avoid that social loss. That is, the benefit of a carbon tax is measured by area X.

Now suppose oil becomes available more cheaply. This shifts both the supply curve and the social marginal cost curve vertically downward by the same amount and shifts area X to a new location. As you can see in the picture, there’s no particular reason to think that the area’s gotten any bigger:

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