I Don’t Even Know Where to Start with this One

Not required, but strongly encouraged.

Edge.org asked one of the really big public intellectuals, Stephen Pinker, to suggest one question, and then ran it by 150 other public intellectuals. Here’s the question:

WHAT SCIENTIFIC CONCEPT WOULD IMPROVE EVERYBODY'S COGNITIVE TOOLKIT?

That’s a pretty good topic to expose college students to (in any class). So here goes.

What struck me is how many of the ideas are from economics, or applicable to economics, even though they didn’t actually survey many economists. Here’s what caught my eye (these are in order going through the pages of the site, but I didn’t link to them — you should go browse).

Haecceity: “All objects may be categorized into groups on the basis of some shared property but an object within a category is unique by virtual of its haecceity. It is haecceity that makes your wedding ring authentic and your spouse irreplaceable, even though such things could be copied exactly in a futuristic science fiction world where matter duplication had been solved.” We talked a bit about this in class with regard to economic growth. What is going to happen to growth as humans introduce increasingly non-haecceitic versions of parts of themselves?

TANSTAAFL: “There Ain’t No Such Thing As a Free Lunch”. Heinlein coined this one. Do you thing members of Congress (and some voters) could get a clue about this?

PERMA: “Is global well being possible?”. See week 1 of our class.

Positive Sum Games: exchanges which are voluntary because they make both parties better off. This is the foundation of economics.

Comparative Advantage (suggested by a psychologist!)

Structured Serendipity: see the blog I write and the blog you write for this class.

Gedankenexperiment: German for “thought experiment”. This is what economics has to be all about, because we can’t do controlled experiments like in the hard sciences.

Jensen’s Inequality: useful for any time we need to think about expectations, and decisions based on them.

Externalities: (suggested by another psychologist)

Self-Serving Bias: we all think we’re above average. Obama is certain of this.

Constraint Satisfaction: see ECON 2500.

Pareto Principle: one of Dave Berri’s favorites. The distribution of skill isn’t a bell curve — it’s more like an exponential. The people who are really good at something are a lot better than you think.

Recursive Structure: that’s what’s going on in your Solow model spreadsheets when one row depends on the previous one.

Risk Literacy: Understanding the scale of risks, and acting appropriately about them. I’m not happy about the nuclear crisis in Japan, but I’m way more ticked off at the people who have trouble conceiving that it is a small problem compared to the disaster as a whole. Wayne Roberts loves the guy who suggested this – Gerd Gigerenzer.

Absence and Evidence: “absence of evidence is not evidence of absence” is a basic thought process in economics.

Path Dependence: Why is Word the dominant word processor?

Duality: the post is all about physics, but Samuelson introduced this into economics about 65 years ago, and it comes up all over constrained optimization (like in ECON 2500 or ECON 3010).

Homo Dilatus: humans are the “procrastinating ape”. Option theory in finance suggests that this creates value.

Kakonomics: the preference for low quality payoffs. We really don’t understand why some people accept crap.

Correlation Is Not a Cause: see just about all public policy.

The Mediocrity Principle: you are not special. A very useful realization for understanding public policy.

Superveneince: This is what macroeconomics is.

Confabulation: This helps explain union protesters in Wisconsin last month, and Tea Partiers dissatisfied with budget cuts this month.

Apophenia: perceiving patterns where they don’t exist. This is why everyone except macroeconomists knows what caused the last recession.

Of course, there are many more. The site says there were 146 contributors of 115,000 words. That’s about 3 book pages each.

Political Science Meets the Solow Model

At first glance, the Solow model’s dependence on the depreciation rate seems fine, but when we recognize that depreciation is lowest in temperate regions, and highest in tropical and arctic ones, it starts to get you thinking about whether geography is destiny.

In political science, this is a new idea, Written up in the April 9-10 issue of The Wall Street Journal in a weekly column called “Week In Ideas” was this:

… There were just two democracies, Cyprus and Israel, and 14 "persistent" autocracies among countries with an average annual rainfall of less than 21½ inches. Between 21½ inches and 51 inches, there were 18 stable democracies (out of a total of 26 in the data set) and seven persistent autocracies. Above 51 inches, the balance tipped back to closed societies. That relationship persisted even when colonial history, the presence of oil and ethnic division were controlled for.

We assume that depreciation is a negative cause of growth. That doesn’t imply that this correlation between rainfall and autocracy is causal, but it is suggestive.

Health Spending Trivia

We bemoan the amount that we spend the most on private healthcare in this country. Some people think the solution to that is a greater portion of public spending.

But, as this chart shows, our public spending on healthcare is the second largest.

This points to a common explanation for both high public and private spending, rather than a problem with one or the other.

This was in a weekly piece called “Number of the Week” that appeared in the  April 9-10 issue of The Wall Street Journal.

Some Things Learned Before 40

Excerpts from Bryan Caplan’s post at EconLog about 40 things he learned by the time he turned 40. These excerpts are required in the very broadest sense:

Economics
1. Supply-and-demand solves countless mysteries of the world - everything from rent control to road congestion.
2. Almost anyone can understand supply-and-demand if they calmly listen.  Unfortunately, the inverse is also true.
3. Poverty is terrible, and economic growth, not redistribution, is the cure.
4. The proximate causes of unemployment are labor market regulation and workers' misguided beliefs about fairness.  But the fundamental cause of unemployment is excessive wages. 
6. Governments with fiat money have near-absolute power over nominal GDP, but much less over real GDP or employment.
8. Immigration restrictions are a fruitless crime - and do more harm than all other government regulations combined.
9. Communism was a disaster because of bad incentives, not lack of incentives.
10. The last two centuries of rising population and prosperity should fill us with awe - and the best is yet to come.
Philosophy
3. If you can't explain your position clearly in simple language, you probably don't understand it yourself.
9. Violence and theft are presumptively wrong, and calling yourself "the government" does nothing to rebut these presumptions.
Politics
1. Voters are irrational.  So is believing otherwise.
2. Government isn't a solution to externalities problems; it's the best example of the problem.
3. The main output of government isn't "public goods," but private goods that people pretend to want much more than they really do.  See Social Security and Medicare.
4. People rarely make the the most internally consistent argument for government action: paternalism.
7. Before you study public opinion, you wonder why policy isn't far better.  After you study public opinion, you wonder why policy isn't far worse.
10. Despite everything, life in First World democracies is amazingly good by world and historic standards and will keep getting better.  So cheer up.

Life

6. People vary more widely than you think.  Tell yourself it's nobody's fault.
10.  Evolutionary psychology is by far the best universal theory of human motivation.  Ignore it at your own peril.

Government Suppression of Accurate Measurement

The source article is tongue-in-cheek, so this is not required.

But, it touches on something that really frosts me, and is broadly related to one of the items on my list of things that make macroeconomics hard: government isn’t very good at measuring data it doesn’t like.

From Long and Short Capital via Newmark’s Door:

… People are debating whether housing plays too big a role in the CPI; specifically, the “problem” is that the housing portion of the CPI is exerting upward pressure on the overall number.

…

So what should we do?

“Some suggest alternative inflation measures.”

Oh ok. Well, what are “some” proposing?

“A ‘supercore’ alternative excludes not just food and energy but shelter, too, to gauge underlying trends.

There is great opportunity for the Govt to reduce CPI by excluding more items. In fact, this looks eerily reminiscent of another highly successful endeavor in metrics improvement: LoS’s change from GAAP to SAAP (Seldom Accepted Accounting Principles). By changing our standard, we could change our metrics, and by changing our metrics from EBITDA to EBE (Earnings before Everything aka “supercore earnings”), we greatly improved our profitability.

… The evolved goal of the CPI is to show a slight and consistent level of inflation, we propose that the CPI no longer include any components that are increasing in price …

This new CPI, CPI-F (flat), will provide data on all changes in the prices paid by urban consumers for a representative basket of goods and services whose prices did not vary that month. We expect it to have the most consistent and consistently low inflation readings …

What Obama Thinks

A complete repost from Kids Prefer Cheese:

From KPC uber-friend Pelsmin:

In Obama's statements about the dangers of a shutdown, he ranted about how the economy would be crushed if the Federal Government stopped its work. He then gave a list:
- People couldn't sell their homes to other people.
- Small businesses couldn't secure loans to expand
- Companies couldn't proceed with new plants or expansion plans.

He is basically arguing that individuals can't engage in private transactions with each other unless the Federal Government is there to let it happen.
The scary thing is, he may be right.
- FHA handles 40% of all home purchase mortgages
- SBA and other programs make up a large proportion of small business loans
- EPA has a choke hold on any plant expansion and "environmental impact" hurdle that must be cleared before a factory can be built.

I guess the scary thing isn't that he believes this to be the case, but that he's comfortable with the fact that it IS the case.

It is interesting: for our President, the government actually IS the economy.

If this is true, the man is profoundly ignorant.

Technorati Tags: obama,government,shutdown

Ryan and Medicare

Representative Paul Ryan, the Republican’s lead man on the budget, released the Republican plan the other day.

David Leonhardt’s April 6 column calls it:

The Republican budget released on Tuesday is a daring one in many ways. Above all, it would replace the current Medicare …

Yet there is at least one big way in which the plan isn’t daring at all.

He then goes on to trumpet the fact that create such problems for policy in D.C.: people think Medicare is an entitlement (that they’ve paid for) rather than a welfare program (that they haven’t).

I can make this personal. That last row is not far off the position of my wife and I: a professor earning an upper middle class income on his own, married to a lecturer providing a second income that by itself is not far off the median for a household in the U.S. We would probably be regarded as “rich” by most people in Cedar City. And yet that last row indicates that even for us, its unlikely that we pay in more than we’ll take out, making it welfare for us too.