Saturday, August 31, 2019

H.L. Mencken on Capitalism vs. Socialism

This characteristically pungent comment is  from H.L. Mencken’s 1956 collection, Minority Report: H.L. Mencken's Notebooks (Johns Hopkins University Press edition, 1997, p. 264):
The chief difference between free capitalism and State socialism seems to be this: that under the former a man pursues his own advantage openly, frankly and honestly, whereas under the latter he does so hypocritically and under false pretenses.
It can be useful to toss this distinction into discussions of socialism and capitalism. Is the argument for old-style, full-blooded state-based socialism a claim that a change in the economic and political system will lead to preferable outcomes, even though the nature of people remains essentially the same? Or is it an argument that by altering the economic and political system, human beings will also act in fundamentally different ways? Or that socialism will attract a different kind of people to leadership roles, who will on average act in different ways than democratically elected leaders?

Friday, August 30, 2019

When the Desire for Learning Hit Winston Churchill

In his 1930 memoir A Roving Commission: My Early Life, Winston Churchill offers a vivid description of how a desire for learning washed over him like a tidal wave when he was 22 years old. The passage is vivid and memorable for a number of reasons. One is that it makes someone who has spent most of his life in a higher education environment, like me, ponder what proportion of students--then or now--have a similar desire for learning.

Another is that in this chapter, following the passage quoted below, is the source of a common quotation, when Churchill writes: "It is a good thing for an uneducated man to read books of quotations."

The passage that follows is quoted from from Chapter IX: Education at Bangalore:
It was not until this winter of 1896, when I had almost completed my twenty-second year, that the desire for learning came upon me. I began to feel myself wanting in even the vaguest knowledge about many large spheres of thought. I had picked up a wide vocabulary and had a liking for words and for the feel of words fitting and falling into their places like pennies in the slot. I caught myself using a good many words the meaning of which I could not define precisely. I admired these words, but was afraid to use them for fear of being absurd. One day, before I left England, a friend of mine had said: 'Christ's gospel was the last word in Ethics.' This sounded good; but what were Ethics? They had never been mentioned to me at Harrow or Sandhurst. Judging from the context I thought they must mean 'the public school spirit,' 'playing the game,' 'esprit de corps,' 'honourable behaviour,' 'patriotism,' and the like. Then someone told me that Ethics were concerned not merely with the things you ought to do, but with why you ought to do them, and that there were whole books written on the subject. I would have paid some scholar to at least to give me a lecture of an hour or an hour and a half about Ethics. What was the scope of the subject; what were its main branches; what were the principal questions dealt with, and the chief controversies open; who were the high authorities and which were the standard books? But here in Bangalore there was no one to tell me about Ethics for love or money. Of tactics I had a grip: on politics I had a view: but a concise compendious outline of Ethics was a novelty not to be locally obtained.
This was only typical of a dozen similar mental needs that now began to press insistently upon me. I knew of course that the youths at the universities were stuffed with all this patter at nineteen and twenty, and could pose you entrapping questions or give baffling answers. We never set much store by them or their affected superiority, remembering that they were only at their books, while we were commanding men and guarding the Empire. Nevertheless I had sometimes resented the apt and copious information which some of them seemed to possess, and I now wished I could find a competent teacher whom I could listen to and cross-examine for an hour or so every day. 
Then someone had used the phrase 'the Socratic method.' What was that? It was apparently a way of giving your friend his head in an argument and progging him into a pit by cunning questions. Who was Socrates, anyhow? A very argumentative Greek who had a nagging wife and was finally compelled to commit suicide because he was a nuisance! Still, he was beyond doubt a considerable person. He counted for a lot in the minds of learned people. I wanted 'the Socrates story.' Why had his fame lasted through all the ages? What were the stresses which had led a government to put him to death merely because of the things he said? Dire stresses they must have been: the life of the Athenian Executive or the life of this talkative professor! Such antagonisms do not spring from petty issues. Evidently Socrates had called something into being long ago which was very explosive. Intellectual dynamite! A moral bomb! But there was nothing about in The Queen's Regulations. 
Then there was history. I had always liked history at school. But there we were given only the dullest, driest pemmicanised forms like The Student's Hume. Once I had a hundred pages of The Student's Hume as a holiday task. Quite unexpectedly, before I went back to school, my father set out to examine me upon it. The period was Charles I. He asked me about the Grand Remonstrance -- what did I know about that? I said that in the end the Parliament beat the King and cut his head off. This seemed to me the grandest remonstrance imaginable. It was no good. 'Here,' said my father, 'is a grave parliamentary question affecting the whole structure of our constitutional history, lying near the centre of the task you have been set, and you do not in the slightest degree appreciate the issues involved.' I was puzzled by his concern; I could not see at the time why it should matter so much. Now I wanted to know more about it. 
So I resolved to read history, philosophy, economics, and things like that; and I wrote to my mother asking for such books as I had heard of on these topics. She responded with alacrity, and every month the mail brought me a substantial package of what I thought were standard works. In history I decided to begin with Gibbon. Someone had told me that my father had read Gibbon with delight; that he knew whole pages of it by heart, and that it had greatly affected his style of speech and writing. So without more ado I set out upon the eight volumes of Dean Milman's edition of Gibbon's Decline and Fall of the Roman Empire. I was immediately dominated both by the story and the style. All through the long glistening middle hours of the Indian day, from when we quitted stables till the evening shadows proclaimed the hour of Polo, I devoured Gibbon. I rode triumphantly through it from end to end and enjoyed it all. I scribbled all my opinions on the margins of the pages, and very soon found myself a vehement partisan of the author against the disparagements of his pompous-pious editor. I was not even estranged by his naughty footnotes. On the other hand the Dean's apologies and disclaimers roused my ire. So pleased was I with The Decline and Fall that I began at once to read Gibbon's Autobiography, which luckily was bound up in the same edition. When I read his reference to his old nurse: 'If there be any, as I trust there are some, who rejoice that I live, to that dear and excellent woman their gratitude is due,' I thought of Mrs. Everest; and it shall be her epitaph. 
From Gibbon I went to Macaulay. I had learnt The Lays of Ancient Rome by heart and loved them -- and of course I knew he had written a history ; but I had never read a page of it. I now embarked on that splendid romance, and I voyaged with full sail in a strong wind. I remembered then that Mrs. Everest's brother-in-law, the old prison warden, had possessed a copy of Macaulay's History, purchased in supplements and bound together, and that he used to speak of it with reverence. I accepted all Macaulay wrote as gospel, and I was grieved to read his harsh judgments upon the Great Duke of Marlborough. There was no one at hand to tell me that this historian with his captivating style and devastating self-confidence was the prince of literary rogues, who always preferred the tale to the truth, and smirched or glorified great men and garbled documents according as they affected his drama. I cannot forgive him for imposing on my confidence and on the simple faith of my old friend the warder. Still I must admit an immense debt upon the other side. 
Not less than in his History, I revelled in his Essays: Chatham; Frederick the Great; Lord Nugent's Memorials of Hampden; Clive; Warren Hastings; Barere (the dirty dog); Southey's Colloquies on Society; and above all that masterpiece of literary ferocity, Mr. Robert Montgomery's Poems. From November to May I read for four or five hours every day history and philosophy. Plato's Republic it ap peared he was for all practical purposes the same as Soc rates; the Politics of Aristotle, edited by Dr. Welldon him self; Schopenhauer on Pessimism; Malthus on Population; Darwin's Origin of Species: all interspersed with other books of lesser standing. 
It was a curious education. First be cause I approached it with an empty, hungry mind, and with fairly strong jaws; and what I got I bit; secondly because I had no one to tell me: 'This is discredited.' 'You should read the answer to that by so and so; the two together will give you the gist of the argument.' 'There is a much better book on that subject/ and so forth. I now began for the first time to envy those young cubs at the university who had fine scholars to tell them what was what -- professors who had devoted their lives to mastering and focussing ideas in every branch of learning -- who were eager to distribute the treasures they had gathered before they were overtaken by the night. But now I pity undergraduates, when I see what frivolous lives many of them lead in the midst of precious fleeting opportunity. After all, a man's Life must be nailed to a cross either of Thought or Action. Without work there is no play. When I am in the Socratic mood and planning my Republic, I make drastic changes in the education of the sons of well-to-do citizens. When they are sixteen or seventeen they begin to learn a craft and to do healthy manual labour, with plenty of poetry, songs, dancing, drill and gymnastics in their spare time. They can thus let off their steam on some thing useful. It is only when they are really thirsty for knowledge, longing to hear about things, that I would let them go to the university. It would be a favour, a coveted privilege, only to be given to those who had either proved their worth in factory or field or whose qualities and zeal were pre-eminent. However, this would upset a lot of things -- it would cause commotion and bring me perhaps in the end a hemlock draught.

Thursday, August 29, 2019

"The Book of My Enemy Has Been Remaindered"

Of course, this poem by Clive James isn't about economics specifically. But in its over-the-top pettiness and ornate vindictiveness, surely it speaks to every academic who holds a grudge against those of opposing views.

“The Book of my Enemy Has Been Remaindered”

The book of my enemy has been remaindered
And I am pleased.
In vast quantities it has been remaindered
Like a van-load of counterfeit that has been seized
And sits in piles in a police warehouse,
My enemy's much-prized effort sits in piles
In the kind of bookshop where remaindering occurs.
Great, square stacks of rejected books and, between them, aisles
One passes down reflecting on life's vanities,
Pausing to remember all those thoughtful reviews
Lavished to no avail upon one's enemy's book --
For behold, here is that book
Among these ranks and banks of duds,
These ponderous and seemingly irreducible cairns
Of complete stiffs.

The book of my enemy has been remaindered
And I rejoice.
It has gone with bowed head like a defeated legion
Beneath the yoke.
What avail him now his awards and prizes,
The praise expended upon his meticulous technique,
His individual new voice?
Knocked into the middle of next week
His brainchild now consorts with the bad buys
The sinker, clinkers, dogs and dregs,
The Edsels of the world of moveable type,
The bummers that no amount of hype could shift,
The unbudgeable turkeys.

Yea, his slim volume with its understated wrapper
Bathes in the blare of the brightly jacketed Hitler's War Machine,
His unmistakably individual new voice
Shares the same scrapyard with a forlorn skyscraper
Of The Kung-Fu Cookbook,
His honesty, proclaimed by himself and believed by others,
His renowned abhorrence of all posturing and pretense,
Is there with Pertwee's Promenades and Pierrots--
One Hundred Years of Seaside Entertainment,
And (oh, this above all) his sensibility,
His sensibility and its hair-like filaments,
His delicate, quivering sensibility is now as one
With Barbara Windsor's Book of Boobs,
A volume graced by the descriptive rubric
"My boobs will give everyone hours of fun".

Soon now a book of mine could be remaindered also,
Though not to the monumental extent
In which the chastisement of remaindering has been meted out
To the book of my enemy,
Since in the case of my own book it will be due
To a miscalculated print run, a marketing error--
Nothing to do with merit.
But just supposing that such an event should hold
Some slight element of sadness, it will be offset
By the memory of this sweet moment.
Chill the champagne and polish the crystal goblets!
The book of my enemy has been remaindered
And I am glad.

Clive James
From The Book of My Enemy (2003)

Wednesday, August 28, 2019

Charles Schultze: The "Do No Direct Harm" Rule

In his 1977 book, The Public Use of Private Interest, Charles L. Schultze described how American politics is shaped by what he called the "do no direct harm" rule. If you have a tendency to spend your summertime days thinking about why government often favors a regulatory approach, rather than a price-based approach (like pollution regulations rather than pollution taxes) to achieving policy goals, it offers food for thought. 

Schultze pointed out that in our market-oriented society, we generally accept that markets will sometimes shift in ways that cause losses as well as gains. But in our political decisions, he argues, we don't want to accept that direct harms might occur. Thus, when politicians become involved in a decision they prefer to operate through regulations, with administrative procedures as a back-up. Such regulations are often justified as a matter of fairness, and making sure that variation in individual cases is taken into account. But an economy full of regulations is also one that continually empowers politicians, both to write new rules and to intervene in administrative processes. Schultze wrote:
[W]e tend to subject political decisions to the rule, "Do no direct harm." We can let harms occur as the second- and third-order consequences of political action or through sheer inaction, but we cannot be seen to cause harm to anyone as the direct consequence of collective actions. The rule is far from absolute, and exceptions abound. But it does strongly influence policy. ...
The rule of "do no direct harm" is a powerful force in shaping the nature of social intervention. We put few obstacles in the way of a market-generated shift of industry to the South or the substitution of synthetic fibers for New England woolens, events that thrust large losses on individuals, firms, and communities. But we find it extraordinarily difficult to close a military base or a post office. We have elaborate procedures for changing zoning regulations and provide case-by-case adjudication where losses in property values may occur. But movements of private industry  that destroy property values occur at will. When we intervene through regulation, we try to write the regulations and provide administrative discretion to take care of as much individual variation in circumstances as possible so as to prevent harms that can be immediately imputed to the regulation. Such regulations then grow at an exponential pace as experience in a far-flung economy steadily generates thousands of specific problems.
More important, efficient ways of achieving results are often precluded by fear of some direct losses. The impersonal and blind-to-equity operation of effluent charges or incentive-reimbursement schemes for Medicare is eschewed in favor of regulations and case-by-case adjudication. When a large loss to a specific firm or industry threatens, we ease the regulations. ...
In a similar vein, once government takes on responsibilities for providing services such as day care or skilled nursing-home care (under Medicare), an extension of the "do no direct harm" principle inevitably leads to the assumption by government of responsibility for the quality of services delivered. Increasingly detailed and ambitious standards of quality are developed that shift the policing mechanism from consumer choice to government regulations. ...
Because incentive-oriented approaches to social intervention rely on decentralized reactions to prices, they seem to deprive government of control of case-by-case results. If nothing else, this would make legislators nervous. They would have to forgo the opportunity to provide their programs with all sorts of adjudication procedures drawn up to take care of specific losses. They would also forfeit the opportunity to second-guess administrators and to provide services to constituents through intervention in administrative decisions. 
Schultze goes on to argue that the underlying issue is a lack of understanding of how price-mechanisms and markets work. In describing how politicians see the world, he writes:
Somehow the cars get into showrooms and the loaves of bread onto the grocery shelves, but the whole thing is like an oft-repeated high-wire act: we don't really understand how it's possible, but it's been done so often we are no longer surprised. ... Because the way in which markets achieve results is both indirect and seldom understood, it is not surprising that more direct techniques of social intervention are usually chosen. If we want to achieve a specific reduction in polluting wastes, what could be more natural than specifying in law the desired outcomes and requiring people to meet them? If we want producers to adopt measures that reduce industrial accidents, why not simply require that the measures be undertaken? If there is too little commuting by mass transit and too much by automobile, what could be a more appropriate remedy than providing the money to build mass-transit facilities? If we think people should have more day care or training opportunities, why shouldn't the government establish and subsidize day care and training centers? 
I find it hard to grasp the concept that electrons can best be described as a probability density function. To me, either they are there or they are not there. Luckily, I am not called upon to legislate on how to shift electrons about. In the same vein, it is devilishly hard to convince someone that an indirect, roundabout, and seemingly less certain way of accomplishing the objectives of social intervention should be preferred to a simple specification of required outcomes.  

Tuesday, August 27, 2019

Thorstein Veblen: Economics "is a `Science' of Complaisant Interpretations, Apologies, and Projected Remedies"

I always enjoy reading Thorstein Veblen, partly because his writing strays back and forth across the line between "raising questions of real interest" to "just plain old dyspeptic and cantankerous." His 1918 essay "The Higher Learning In America:A Memorandum On the Conduct of Universities By Business Men" is full of comments from both categories, often closely overlapping. 

It's also the source of one of the liveliest insults to the field of economics, that economics is "a `science' of complaisant interpretations, apologies, and projected remedies." Veblen also argues that this isn't because economists and other academics have been paid off, but only because they have been selected and trained for their narrow intellectual horizons. Here's Veblen (the direct critique of economics starts in the third paragraph):
Critics of the latterday university policies have from time to time called attention to an apparent reluctance on the part of these academic scientists to encounter present-day facts hand-to-hand, or to trace out the causes to which current conditions are due. Distempered critics have even alleged that the academic leaders in the social sciences are held under some constraint, as being, in some sort, in the pay of the well-to-do conservative element; that they are thereby incapacitated from following up any inquiry to its logical conclusion, in case the conclusion might appear to traverse the interest or the opinions of those on whom these leaders are in this way pecuniarily dependent.
Now, it may be conceded without violence to notorious facts, that these official leaders of science do commonly reach conclusions innocuous to the existing law and order, particularly with respect to religion, ownership, and the distribution of wealth. But this need imply no constraint, nor even any peculiar degree of tact, much less a moral obliquity. It may confidently be asserted, without fear of contradiction from their side, that the official leaders in this province of academic research and indoctrination are, commonly, in no way hindered from pushing their researches with full freedom and to the limit of their capacity; and that they are likewise free to give the fullest expression to any conclusions or convictions to which their inquiries may carry them. That they are able to do so is a fortunate circumstance, due to the fact that their intellectual horizon is bounded by the same limits of commonplace insight and preconceptions as are the prevailing opinions of the conservative middle class. That is to say, a large and aggressive mediocrity is the prime qualification for a leader of science in these lines, if his leadership is to gain academic authentication. ...
A single illustrative instance of the prevalence of this animus in the academic social sciences may be in place. It is usual among economists, e.g., to make much of the proposition that economics is an "art" -- the art of expedient management of the material means of life; and further that the justification of economic theory lies in its serviceability in this respect. Such a quasi-science necessarily takes the current situation for granted as a permanent state of things; to be corrected and brought back into its normal routine in case of aberration, and to be safeguarded with apologetic defence at points where it is not working to the satisfaction of all parties. It is a "science" of complaisant interpretations, apologies, and projected remedies.
The academic leaders in such a quasi-science should be gifted with the aspirations and limitations that so show up in its pursuit. Their fitness in respect of this conformity to the known middle-class animus and apprehension of truth may, as it expediently should, be considered when their selection for academic office and rank is under advisement; but, provided the choice be a wise one, there need be no shadow of constraint during their incumbency. The incumbent should be endowed with a large capacity for work, particularly for "administrative" work, with a lively and enduring interest in the "practical" questions that fall within his academic jurisdiction, and with a shrewd sense of the fundamental rightness of the existing order of things, social, economic, political, and religious. So, by and large, it will be found that these accredited leaders of scientific inquiry are fortunate enough not narrowly to scrutinize, or to seek particular explanation of, those institutional facts which the conservative common sense of the elderly businessman accepts as good and final; and since their field of inquiry is precisely this range of institutional facts, the consequence is that their leadership in the science conduces more to the stability of opinions than to the advancement of knowledge.
The result is by no means that nothing is accomplished in this field of science under this leadership of forceful mediocrity, but only that, in so far as this leadership decides, the work done lies on this level of mediocrity. Indeed, the volume of work done is large and of substantial value, but it runs chiefly on compilation of details and on the scrutiny and interpretation of these details with a view to their conformity with the approved generalizations of the day before yesterday, -- generalizations that had time to grow into aphoristic commonplaces at a date before the passing generation of businessmen attained their majority.

Monday, August 26, 2019

Robert Nozick: Utility Monsters and Experience Machines

One of the classic problems of economics involves how to make comparisons between the welfare of different people. As a common example, imagine taxing a high-income person and redistributing the money to a low-income person. In the utilitarian framework beloved of economists, a high-income person would receive less "utility" or happiness from that additional income than a low-income person would gain from receiving a transfer. Thus, it is argued, redistribution from high-income to low-income will increase the overall happiness or utility of society.

At this point, economists often plunge into questions of incentives, and how taxes on the rich or transfers to the poor might potentially affect incentives to work, acquire skills, innovate, and so on. But some philosophers take a different track, focusing instead on the assumption that utility can be so quickly linked to income, or even that utility itself is the appropriate goal for human well-being. Economists mostly don't root around in these questions very deeply. However, the philosopher Robert Nozick was not a utilitarian. Here's are some thoughts from his 1974 classic in philosophy, Anarchy, State, and Utopia that runs through some of these issues. I'll intersperse some thoughts of my own.

What if people vary substantially in how much happiness they get from income, or from consumption? Maybe some people are "utility monsters," meaning that they get so much happiness from consumption that we should all be transferring our income to them, because the sum-total of utilitarian social happiness rises when they consume more. Nozick writes:
Utilitarian theory is embarrassed by the possibility of utility monsters who get enormously greater gains in utility from any sacrifice of others than these others lose. For, unacceptably, the theory seems to require that we all be sacrificed in the monster’s maw, in order to increase total utility. ...
If utilitarianism is based on subjective feelings, then perhaps the best possible social investment would be in some brain implants or drugs to give people an extremely high degree of perceived subjective happiness. Nozick questions the idea of whether subjective happiness is all that matters by asking whether people should thus be encouraged to hook up to an "experience machine" that would let them experience whatever they wanted.  Nozick writes: 
Suppose there were an experience machine that would give you any experience you desired. Superduper neuropsychologists could stimulate your brain so that you would think and feel you were writing a great novel, or making a friend, or reading an interesting book. All the time you would be floating in a tank, with electrodes attached to your brain. Should you plug into this machine for life, preprogramming your life’s experiences? If you are worried about missing out on desirable experiences, we can suppose that business enterprises have researched thoroughly the lives of many others. You can pick and choose from their large library or smorgasbord of such experiences, selecting your life’s experiences for, say, the next two years. After two years have passed, you will have ten minutes or ten hours out of the tank, to select the experiences of your next two years. Of course, while in the tank you won’t know that you’re there; you’ll think it’s all actually happening. Others can also plug in to have the experiences they want, so there’s no need to stay unplugged to serve them. (Ignore problems such as who will service the machines if everyone plugs in.) Would you plug in? What else can matter to us, other than how our lives feel from the inside? Nor should you refrain because of the few moments of distress between the moment you’ve decided and the moment you’re plugged. What’s a few moments of distress compared to a lifetime of bliss (if that’s what you choose), and why feel any distress at all if your decision is the best one?
What does matter to us in addition to our experiences? First, we want to do certain things, and not just have the experience of doing them. In the case of certain experiences, it is only because first we want to do the actions that we want the experiences of doing them or thinking we’ve done them. (But why do we want to do the activities rather than merely to experience them?)
A second reason for not plugging in is that we want to be a certain way, to be a certain sort of person. Someone floating in a tank is an indeterminate blob. There is no answer to the question of what a person is like who has long been in the tank. Is he courageous, kind, intelligent, witty, loving? It’s not merely that it’s difficult to tell; there’s no way he is. Plugging into the machine is a kind of suicide. It will seem to some, trapped by a picture, that nothing about what we are like can matter except as it gets reflected in our experiences. But should it be surprising that what we are is important to us? Why should we be concerned only with how our time is filled, but not with what we are?
 Thirdly, plugging into an experience machine limits us to a man-made reality, to a world no deeper or more important than that which people can construct. There is no actual contact with any deeper reality, though the experience of it can be simulated. Many persons desire to leave themselves open to such contact and to a plumbing of deeper significance. This clarifies the intensity of the conflict over psychoactive drugs, which some view as mere local experience machines, and others view as avenues to a deeper reality; what some view as equivalent to surrender to the experience machine, others view as following one of the reasons not to surrender!
We learn that something matters to us in addition to experience by imagining an experience machine and then realizing that we would not use it.
I am not as confident as Nozick seems to be that people would avoid the "experience machine." He goes on to consider other machines, like a  "a transformation machine which transforms us into whatever sort of person we’d like to be (compatible with our staying us)" or a  a "result machine. which produces in the world any result you would produce and injects your vector input into any joint activity ..." Nozick writes: 
We shall not pursue here the fascinating details of these or other machines. What is most disturbing about them is their living of our lives for us. Is it misguided to search for particular additional  functions beyond the competence of machines to do for us? Perhaps what we desire is to live (an active verb) ourselves, in contact with reality. (And this, machines cannot do for us.) Without elaborating on the implications of this, which I believe connect surprisingly with issues about free will and causal accounts of knowledge, we need merely note the intricacy of the question of what matters for people other then their experiences.
Yet another challenge to utilitarianism is that if the goal of society is to have the greatest sum of happiness of the members of that society, how does that society address issues related to the total number of people in the society? For example, is a society with a much larger number of people who are an average level of happy a "better" society than one with a smaller number of people who are extremely happy? Can one place a social value on policies that result in a smaller population, based on the loss of utility from those who are not actually ever born? Worse still, what about someone who gets extreme happiness from killing someone who is unhappy, and in this way increases the sum-total of social happiness. Nozick writes: 
Utilitarianism is notoriously inept with decisions where the number of persons is at issue. (In this area, it must be conceded, eptness is hard to come by.) Maximizing the total happiness requires continuing to add persons so long as their net utility is positive and is sufficient to counterbalance the loss in utility their presence in the world causes others. Maximizing the average utility allows a person to kill everyone else if that would make him ecstatic, and so happier than average. (Don’t say he shouldn’t because after his death the average would drop lower than if he didn’t kill all the others.) Is it all right to kill someone provided you immediately substitute another (by having a child or, in science-fiction fashion, by creating a full-grown person) who will be as happy as the rest of the life of the person you killed? After all, there would be no net diminution in total utility, or even any change in its profile of distribution. Do we forbid murder only to prevent feelings of worry on the part of potential victims? (And how does a utilitarian explain what it is they’re worried about, and would he really base a policy on what he must hold to be an irrational fear?) Clearly, a utilitarian needs to supplement his view to handle such issues; perhaps he will find that the supplementary theory becomes the main one ... 
Nozick died back in 2002. I met him once, briefly, two decades before that, when I was teaching a summer course in political philosophy to high school students at the Phillips Andover summer session.  My memory of the encounter is that  I stuttered through an attempt to tell him how much I enjoyed Anarchy, State and Utopia, and he was very kind.

Sunday, August 25, 2019

Dorothy Sayers: On Susceptibility to Propaganda and Advertisement

Dorothy Sayers (1893-1957) is probably best-remembered as the author of the (fabulously good) Lord Peter Wimsey detective novels and stories. But she also received first-class honors modern languages and medieval literature from Oxford in 1915, before women were officially awarded degrees, and later in life also published books of poetry, theology, and a well-regarded translation of Dante's Divine Comedy. In 1948, she wrote an essay titled "The Lost Tools of Learning" (available various places on the web). A quick taste:
"Has it ever struck you as odd, or unfortunate, that today, when the proportion of literacy throughout Western Europe is higher than it has ever been, people should have become susceptible to the influence of advertisement and mass propaganda to an extent hitherto unheard of and unimagined? Do you put this down to the mere mechanical fact that the press and the radio and so on have made propaganda much easier to distribute over a wide area? Or do you sometimes have an uneasy suspicion that the product of modern educational methods is less good than he or she might be at disentangling fact from opinion and the proven from the plausible?
Have you ever, in listening to a debate among adult and presumably responsible people, been fretted by the extraordinary inability of the average debater to speak to the question, or to meet and refute the arguments of speakers on the other side? Or have you ever pondered upon the extremely high incidence of irrelevant matter which crops up at committee meetings, and upon the very great rarity of persons capable of acting as chairmen of committees? And when you think of this, and think that most of our public affairs are settled by debates and committees, have you ever felt a certain sinking of the heart? ...
For we let our young men and women go out unarmed, in a day when armor was never so necessary. By teaching them all to read, we have left them at the mercy of the printed word. By the invention of the film and the radio, we have made certain that no aversion to reading shall secure them from the incessant battery of words, words, words. They do not know what the words mean; they do not know how to ward them off or blunt their edge or fling them back; they are a prey to words in their emotions instead of being the masters of them in their intellects. We who were scandalized in 1940 when men were sent to fight armored tanks with rifles, are not scandalized when young men and women are sent into the world to fight massed propaganda with a smattering of `subjects'; and when whole classes and whole nations become hypnotized by the arts of the spell binder, we have the impudence to be astonished.
This complaint from Sayers strikes me as having an uncomfortable amount of truth. Yes, it may underestimate the extent to which people have always been susceptible to a propaganda rooted in emotion-laden words. But it seems to me as if the targeting and sophistication of propaganda is increasing. Conversely, it is not clear to me that people have over time become correspondingly better at dealing with these issues, and it is not clear to me that those who have higher levels of formal education are better at dealing with them, either.

The solution offered by Sayers in her essay is magnificently irrelevant: as student of medieval literature, she recommends a return to the principles of the Trivium and the Quadrivium in classical education. I suspect Sayers of recommending for others what would have worked well for her--but she was quite far from being a typical student or person.

Saturday, August 24, 2019

George Stigler: Market Failure Much Smaller than Political Failure

George Stigler once made the case for a market-based economy (in an entry about "Monopoly" in the Concise Encylopedia of Economics) just by arguing that it beats the alternatives. 
A famous theorem in economics states that a competitive enterprise economy will produce the largest possible income from a given stock of resources. No real economy meets the exact conditions of the theorem, and all real economies will fall short of the ideal economy—a difference called "market failure." In my view, however, the degree of "market failure" for the American economy is much smaller than the "political failure" arising from the imperfections of economic policies found in real political systems. The merits of laissez-faire rest less upon its famous theoretical foundations than upon its advantages over the actual performance of rival forms of economic organization.
Of course, this view is reminiscent of the famous comment by Winston Churchill (in a speech before the House of Commons on November 11, 1947) defending democracy on the grounds that it at least beats the alternatives. Churchill said:
Many forms of Government have been tried, and will be tried in this world of sin and woe. No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of Government except all those other forms that have been tried from time to time.
Such broad characterizations always deserve some pushback. For example, "democracy" in the real world typically comes with many safeguards against direct rule by immediate decisions of the population: the rules for how political representatives are elected, dividing power among branches of government, constitutions that set certain limits on what democratically-elected representatives can decide, and so on. These rules vary in substantial ways across nations that would be fairly classified as "democracies." Similarly, countries that would be fairly classified as market economies have many safeguards against the unfettered domination by market forces, and such rules vary considerably across countries.

But pushback to the pushback is fair game, as well. Looking around the world, we don't have any examples of countries with successful model of state-run economic organization that have consistently over the long-term provided a higher level of standard of living or faster growth than the many countries with  market-based systems--that is, not just a different set of constraints and rules to a fundamentally market-oriented economy, but a genuinely different model where the economy is run primarily through the political system. That fact tends to confirm Stigler's suggestion that real-world political failures in economic management can be severe.

Friday, August 23, 2019

How Adam Smith's Idea of the Division of Labor Led to the Digital Computer

Herbert Simon and Allen Newell tell the story of how Adam Smith's ideas directly led to the development of the digital computer in an address delivered to the  Twelfth National Meeting of the Operations Research Society of America, Pittsburgh, Pennsylvania, November 14, 1957. The lecture was published in Operations Research, January-February 1958, under the title "Heuristic Problem Solving: The Next Advance Operations Research" (pp. 1-10).   For those who like their stories with some credentials attached, Simon and Newell shared the Turing prize, sometimes referred to as the "Nobel prize in computing" in 1975, and Simon won the Nobel prize in economics in 1978.

Simon delivered the lecture, and said:
I should like to tell you a true story, culled from [Charles] Babbage's writings, about the history of the computer. I like this story because it illustrates not only my earlier point about the many mutual relations of the professions in our field, but also because it gives the underdogs like myself-trained in 'soft' fields like economics and political science something we can point to when the superior accomplishments of the natural sciences become too embarrassing for us. As you will see, this story shows that physicists and electrical engineers had little to do with the invention of the digital computer--that the real inventor was the economist Adam Smith, whose idea was translated into hardware through successive stages of development by two mathematicians, Prony and Babbage. (I should perhaps mention that the developers owed a debt also to the French weavers and mechanics responsible for the Jacquard loom, and eonsequently for the punched card.)
The story comes from a French document, which Babbage reproduces in the original language. I give it here in translation:
"Here is the anecdote: M. de Prony was employed by a government committee to construct, for the decimal graduation of the circle, logarithmic and trigonometric tables which would not only leave nothing to be desired from the standpoint of accuracy, but which would constitute the most vast and imposing monuinent of calculation that had ever been executed or even conceived. The logarithms from 1 to 200,000 are a necessary and essential supplement to this work, It was easy for M. Prony to convince himself that even if he associated with himself three or four experienced collaborators the longest reasonable expectation of the duration of his life would not suffice to complete the undertaking. He was preoccupieed with this unhappy thought when, finding himself before a bookstore, he saw the beautiful edition of Adam Smith published in London in 1776. He opened the book at random and chanced upon the first chapter, which treats of the division of labor and where the manufacture of pins is cited as example.
Hardly had he perused the first pages when, by a stroke of inspiration he conceived the expedient of putting his logarithms into production like pins. He was giving, at this time, at the Ecole Polytechniques, some lectures on a topic in analysis related to this kind of work--the method of differences and its applications to interpolation. He went to spend some time in the country and returned to Paris with the plan of manufacture that has been followed in the execution. He organized two workshops which performed the same calculations separately, and served as reciprocal checks."
The anecdote is footnoted to Charles Babbage's 1832 book, On the Economy of Machinery and Manufacturers, on p. 45. It is quoted by Babbage from an 1820 work  Note sur la publication, propose par le gouvernement Anglais des grands tables logarithmiques et trigonometriques de
M. de Prony
. Simon and Newell then resume in their own voice:
It was Prony's mass production of the mathematical tables, in turn, that suggested to Babbage that machinery could replace human labor in the clerical phases of the task, and that started him on the undertaking of designing and constructing an automatic calculating engine. Although the complete absence of electrical and electronic components, and his consequent dependence on mechanical devices, robbed him of full success in the undertaking, there is no doubt that he understood and invented the digital computer--including the critically important idea of a conditional transfer operation. It would be hard to imagine a more appropriate illustration of the unexpected ways in which human knowledge develops ... 

Thursday, August 22, 2019

W.H. Auden: "Thou shalt not sit/ With statisticians nor commit/ A social science"

W.H. Auden wrote a poem delivered to Phi Beta Kappa graduates at Harvard University in 1946 called "Under Which Lyre." It contains a line often clipped and quoted, without context: "Thou shalt not sit/ With statisticians nor commit / A social science." The full poem is at the link, but here are the stanzas surrounding the line about committing a social science, which also speak to rebellious academics:
Thou shalt not do as the dean pleases,
Thou shalt not write thy doctor’s thesis
On education,
Thou shalt not worship projects nor
Shalt thou or thine bow down before
Thou shalt not answer questionnaires
Or quizzes upon World-Affairs,
Nor with compliance
Take any test. Thou shalt not sit
With statisticians nor commit
A social science.

Thou shalt not be on friendly terms
With guys in advertising firms,
Nor speak with such
As read the Bible for its prose,
Nor, above all, make love to those
Who wash too much.

Thou shalt not live within thy means
Nor on plain water and raw greens.
If thou must choose
Between the chances, choose the odd;
Read The New Yorker, trust in God;
And take short views.
What is Auden up to here? Adam Kirsch offered a short and readable exegesis of the context in "
"A Poet's Warning: In a witty 1946 poem, W.H. Auden contrasted the way of "experts" with the Hermetic path of the trickster," published in Harvard magazine on the 50th anniversary of the poem in November/December 2007.

The poem is being delivered at the "Victory Commencement," the first graduation ceremony in Harvard Yard after the end of World War II. To give a sense of the occasion, honorary degrees were awarded to the chiefs of the U.S. Army, Navy, Marines, and Air Force. Kirsch writes: "The University itself had been integrated into the war effort at the highest level: President James Bryant Conant had been one of those consulted when President Truman decided to drop the atomic bomb on Japan. William Langer, a professor of history, had recruited many faculty members into the newly formed Office of Strategic Services, the precursor to the CIA."

The "lyres" in the title of the poem refer to a choice between two ways of looking at the world. As Kirsch writes:
This is the war between the two sensibilities, the two social and spiritual visions, that Auden names Apollo and Hermes. Apollo, the Greek god of light and music, becomes for Auden “pompous Apollo,” the patron saint of “official art.” Against him, Auden sets Hermes, the trickster god, protector of thieves and liars, who is “precocious” and undisciplined. Both of these gods can make a kind of music, but Auden asks the reader to decide “under which lyre” he will take his stand. The comedy of the poem, and its prescience, lies in Auden’s description of Apollo, the presiding spirit of what he calls “the fattening forties.” The danger to postwar America, the poet suggests, lies in the soft tyranny of institutions, authorities, and experts—of people who know what’s best for you and don’t hesitate to make sure you know it, too.
Auden was far too thoughtful a social commentator to go all-in for advocacy of Hermes, the trickster. But the poem offers a series of elegant jibes and gentle mockery of the pompous academic (and political) officialdom of the time.

Afterword: The tradition of a Phi Beta Kappa poem has continued at Harvard. Dan Chiasson wrote the 2019 poem, "The Math Campers," about students at a summer math camp to devise an equation so that the summer will never end.

Wednesday, August 21, 2019

Stephen King: ""The Editor is Always Right ... To Edit is Divine"

Those of us who edit for a living, and especially those of us whose working-place value-added comes about by subtracting from the length of early drafts, will appreciate the comments of best-selling writer Stephen King in his On Writing: A Memoir of the Craft (quoting here from the third edition in 2000).

On the value of having a good editor (p. 13):
One rule of the road not directly stated elsewhere in this book: `The editor is always right.’ The corollary is that no writer will take all of his or her editor’s advice; for all have sinned and fallen short of editorial perfection. Put another way, to write is human, to edit is divine.
On the value of making an effort to hold down the length of your work (pp. 222-223):
In the spring of my senior year at Lisbon High—1966, this would’ve been—I got a scribbled comment that changed the way I rewrote my fiction once and forever. Jotted below the machine-generated signature of the editor was this mot: “Not bad, but PUFFY. You need to revise for length. Formula: 2nd Draft = 1st Draft – 10%. Good luck.” I wish I could remember who wrote that note … . Whoever it was did me a hell of a favor. I copied the formula out on a piece of shirt-cardboard and taped it to the wall beside my typewriter. Good things started to happen for me shortly after. There was no sudden golden flood of magazine sales, but the number of personal notes on the rejection slips went up fast … [E]very story and novel is collapsible to some degree. If you can’t get out ten per cent of it while retaining the basic story and flavor, you’re not trying very hard. The effect of judicious cutting is immediate and often amazing—literary Viagra. 
Of course, these themes don't just apply to writing fiction. Back in 2001, Hal Varian wrote an essay on "What I’ve Learned about Writing Economics” in the Journal of Economic Methodology (8:1, 131-134). Varian wrote: 
It is critical to have a sounding board. The blues singer Taj Mahal says, ``if you cain't get a wife, get a band.'' My advice for authors is: ``if you can't get a co-author, get an editor.'' You need to have someone with good taste who can read your writing and tell you want works and what doesn't.

Tightening prose requires effort, but on average, it as King writes, "the effect of judicious cutting is immediate and often amazing." My sense is that for many academic journals, the dialog between authors and editors that determines whether a paper will be published often does not take readers much into account. 

Tuesday, August 20, 2019

The Iron Law of Megaprojects vs. the Hiding Hand Principle

The next time you read about a "bridge to nowhere" or a giant infrastructure project that started and then stalled, you may wish to mutter to yourself  teh "Iron Law of Megaprojects: Over budget, over time, over and over again." It's a coinage of Bent Flyvbjerg. For an overview of his arguments, you can check this Cato Policy Report (January 2017), which in turn is based on this article from the Project Management Journal (April/May 2014). In the Cato report, Flyvbjerg writes:
Megaprojects are large-scale, complex ventures that typically cost a billion dollars or more, take many years to develop and build, involve multiple public and private stakeholders, are transformational, and impact millions of people. Examples of megaprojects are high-speed rail lines, airports, seaports, motorways, hospitals, national health or pension information and communications technology (ICT) systems, national broadband, the Olympics, largescale signature architecture, dams, wind farms, offshore oil and gas extraction, aluminum smelters, the development of new aircrafts, the largest container and cruise ships, high-energy particle accelerators, and the logistics systems used to run large supply-chain-based companies like Amazon and Maersk.
For the largest of this type of project, costs of $50-100 billion are now common, as for the California and UK high-speed rail projects, and costs above $100 billion are not uncommon, as for the International Space Station and the Joint Strike Fighter. If they were nations, projects of this size would rank among the world’s top 100 countries measured by gross domestic product. When projects of this size go wrong, whole companies and national economies suffer. ...

If, as the evidence indicates, approximately one out of ten megaprojects is on budget, one out of ten is on schedule, and one out of ten delivers the promised benefits, then approximately one in a thousand projects is a success, defined as on target for all three. Even if the numbers were wrong by a factor of two, the success rate would still be dismal.
A common comeback to the Iron Law of Megaprojects is that if we pay attention to it, we will be so dissuaded by costs and risks of megaprojects that nothing will ever get done. Alfred O. Hirschman offered a sophisticated expression of this concern in his 1967 essay, "The Hiding Hand."  Hirschman argued there there is rough balance in megaprojects: we tend underestimate the costs and problems of megaprojects, but we also tend to underestimate the creative with which people address the costs and and problems that arise. (This is of course similar to the classic argument that without a dose of irrational "animal spirits," leading entrepreneurs to ignore risks and difficulties of starting a business, there there would be too little entrepreneurship provided.) Hirschman wrote:

We may be dealing here with a general principle of action. Creativity always comes as a surprise to us; therefore we can never count on it and we dare not believe in it until it has happened. In other words, we would not consciously engage upon tasks whose success clearly requires that creativity be forthcoming. Hence, the only way in which we can bring our creative resources fully into play is by misjudging the nature o[ the task, by presenting it to ourselves as more routine, simple, undemanding of genuine creativity than it will turn out to be. 
Or, put differently: since we necessarily underestimate our creativity it is desirable that we underestimate to a roughly similar extent the difficulties of the tasks we face, so as to be tricked by these two offsetting underestimates into undertaking tasks which we can, but otherwise would not dare, tackle. The principle is important enough to deserve a name: since we are apparently on the trail here of some sort of Invisible or Hidden Hand that beneficially hides difficulties from us, I propose "The Hiding Hand." 
What this principle suggests is that, far from seeking out and taking up challenges, people are apt to take on and plunge into new tasks because of the erroneously presumed absence of a challenge--because the task looks easier and more manageable that it will turn out to be. As a result, the Hiding Hand can help accelerate the rate at which men engage successfully in problem-solving: they take up problems they think they can solve, find them more difficult than expected, but then, being stuck with them, attack willy-nilly the unsuspected difficulties--and sometimes even succeed. 
As Hirschman acknowledges, this Hiding Hand Principle has its limits. It suggests that aspirational challenges of megaprojects need to be chosen carefully, so that they are realistic enough to be addressed with a dose of creative problem-solving, rather than ending up just as money-losing disasters.  

As one might expect, Flyvbjerg takes a different approach. He argues that a number of prominent megaprojects have been completed on time and on budget. When choosing which megaprojects to pursue, it is useful to avoid underestimating costs and overestimating benefits. He writes:
[M]any projects exist with sufficiently high benefits and low enough costs to justify building them. Even in the field of innovative and complex architecture, which is often singled out as particularly difficult, there is the Basque Abandoibarra urban regeneration project, including the Guggenheim Museum Bilbao, which is as complex, innovative, and iconic as any signature architecture, and was built on time and budget. Complex rail projects, too, like the Paris-Lyon high-speed rail line and the London Docklands light railway extension have been built to budget. The problem is not that projects worth undertaking do not exist or cannot be built on time and budget. The problem is that the dubious and widespread practices of underestimating costs and overestimating benefits used by many megaproject promoters, planners, and managers to promote their pet project create a distorted hall-of-mirrors in which it is extremely difficult to decide which projects deserve undertaking and which not.
Further, Flyvbjerg offers a reminder that even when a megaproject is eventually completed, and seems to be working well, project may still have been uneconomic--and society may have been better off without it. He offers the Chunnel as an example:
As a case in point, consider the Channel Tunnel in more detail. This project was originally promoted as highly beneficial both economically and financially. In fact, costs went 80 percent over budget for construction, as mentioned above, and 140 percent for financing. Revenues have been half of those forecasted. The internal rate of return on the investment is negative, with a total loss to the British economy of $17.8 billion. Thus the Channel Tunnel detracts from the economy instead of adding to it. This is difficult to believe when you use the service, which is fast, convenient, and competitive with alternative modes of travel. But in fact each passenger is heavily subsidized. Not by the taxpayer this time, but by the many private investors who lost their money when Eurotunnel, the company that built and opened the channel, went insolvent and was financially restructured. This drives home an important point: A megaproject may well be a technological success but a financial failure, and many are. An economic and financial ex post evaluation of the Channel Tunnel, which systematically compared actual with forecasted costs and benefits, concluded that “the British economy would have been better off had the tunnel never been constructed.”
I once ran across a maxim about megaprojects which held that the original investors always lost money, and often the second wave of investors lost money, too. But once the physical project was completed and had emerged from multiple bankruptcies, it might then earn money for the most recent wave of owners and be broadly viewed as a "success."

Monday, August 19, 2019

Alfred Marshall in 1885: "The Present Position of Economics"

In the last few years, I have evolved a habit for that time in August when I head off for  vacation and other end-of-summer plans. I leave behind a series of scheduled daily posts about topics in economics, academia, and writing or editing that are usually based on historical essays and writings which caught my eye at some point. This year, I'll start with some thoughts about the 1885 address given by Alfred Marshall, " The present position of economics.  An inaugural lecture given in the Senate House at Cambridge, 24 February, 1885."

The occasion for the lecture was that Henry Fawcett, the previous Professor of Political Economy at Cambridge University, had died, and Marshall was his successor in the position. The lecture is notable for many lovely turns of phase. As one example, it's the source of the comment that "the most reckless and treacherous of all theorists is he who professes to let facts and figures speak for themselves, who keeps in the back-ground the part he has played, perhaps unconsciously, in selecting and grouping them."

But Marshall's lecture also has an oddly contemporary feel. In 1885, socialism was on the rise in England, and economics was often criticized for assuming too much rationality and being unwilling and unable to addressing real social problems. Thus, Marshall's lecture has several underlying currents. He wants to acknowledge that the socialists of his day are pointing to real problems, while arguing that their answers are not likely to be useful in addressing those problems. He wants to define what is at the core of the subject of economics. He wants to explain that economics is a useful mechanism for looking at social policies, but also that economics is limited in the answers it can give. He suggests that economics should be helpful where it can, and then should shut up.

Here's Marshall on the socialists of his time:
The perfectibility of man had indeed been asserted by Owen and other socialists. But their views were based on little historic and scientific study; and were expressed with an extravagance that moved the contempt of the business-like economists of the age. The socialists did not attempt to understand the doctrines which they attacked; and there was no difficulty in showing that they had not rightly apprehended the nature and efficiency of the existing economic organization of society. It is therefore not a matter for wonder that the economists, flushed with their victories over a set of much more solid thinkers, did not trouble themselves to examine any of the doctrines of the socialists, and least of all their speculations as to human nature.
But the socialists were men who had felt intensely, and who knew something about the hidden  springs of human action of which the economists took no account. Buried among their wild rhapsodies there were shrewd observations and pregnant suggestions from which philosophers and economists had much to learn. ... Among the bad results of the narrowness of the work of English economists early in the century perhaps the most unfortunate was the opportunity which it gave to socialists to quote and misapply economic dogmas. ...
Why should it be left for impetuous socialists and ignorant orators to cry aloud that none ought to be shut out by the want of material means from the opportunity of leading a life that is worthy of man? Of those who throw their whole souls into the discussion of this problem, the greater part put forth hastily conceived plans which would often increase the evils that they desire to remedy: because they have not had a training in thinking out hard and intricate problems, a training which is most rare in the world ...
What is the core of economics that can offer some assistance in thinking through these hard and intricate problems? Marshall notes that when people think about the main intellectual contribution of Adam Smith, they often point to what we now refer to as the "invisible hand" idea--that when people act in their own self-interest--though hard work, innovation, shopping for desired goods and services--they will often benefit the social welfare. However, Marshall argues that in fact, Smith's key insight was something quite different: "His work was to indicate the manner in which value measures human motive." In other words, Smith started the process of drawing linkages between the ways that people act and the monetary incentives they face in terms of prices and wages--which is what makes human motives into something measurable. Marshall thought this idea was the true core of economic thinking:
But it is becoming clear that the true philosophic raison d’ệtre of the [economic] theory is that it supplies a  machinery to aid us in reasoning about those motives of human action which are measurable. In the world in which we live, money as representing general purchasing power, is so much the best measure of motives that no other can compete with it. ... 
When in this world we want to induce a man to do anything for us, we generally offer him money. It is true that we might appeal to his generosity or Nature in the indicative mood and her ethical laws in the imperative sense of duty; but this would be calling into action latent motives that are already in existence, rather than supplying new motives. If we have to supply a new motive we generally consider how much money will just make it worth his while to do it. Sometimes indeed the gratitude, or esteem, or honour which is held out as an inducement to the actions may appear as a new motive : particularly if it can be crystallised in some definite outward manifestation; as for instance in the right to make use of the letters C.B., or to wear a star or a garter. In this world such distinctions are comparatively rare and connected with but few transactions; and they would not serve as a measure of the ordinary motives that govern men in the acts of every day life.
Marshall emphasizes that just because economics is often focused on selfish and self-regarding behavior, in the sense of how behavior responds to monetary incentives, this is not a claim that selfish behavior is good or worthwhile. Instead, economics is a mechanism for thinking through the how these monetary incentives will affect behavior. Marshall uses the term "organon," which has fallen out of use, but is defined as "a means of reasoning or a system of logic.
But though in wording our economic organon this idea of measurability should be always present, it should not, I think, be prominent. For practical purposes, and in order to keep the better our touch of real life, it will be best to go on treating it as chiefly concerned with those motives to which a money price can be directly or indirectly assigned. But motives that are selfish or self-regarding have no claim to more consideration than others except in so far as they may be more easily measurable and may more easily have a money-price assigned to them. The organon then must have reference to an analysis of the positive motives of desire for different goods, and of the negative motives of unwillingness to undergo the fatigues and sacrifices involved in producing them.
Marshall makes the subtle but ever-useful point that when it comes to social problems and public public policy, economics has an important role to play in figuring out the direction and size of likely outcomes, and perhaps especially in pointing out that certain proposals are unlikely to have the effects that are promised. But he also emphasizes that economics doesn't provide answers. Instead, he argues that economics should help where it can, and then economics should shut up. In particular, economics in Marshall's view should not get in the way of or push out any other kinds of knowledge or common sense, and when economists given an overall opinion, they should always be clear to separate the actual economics from their own personal judgments.
In nearly every important social problem, one of these component parts has to do with those actions and sacrifices which commonly have a money price. This set of considerations is almost always one of the hardest, one of those in which untutored common sense is most likely to go wrong. But it is fortunately one of those which offer the firmest foot-hold to scientific treatment. The economic organon brings to bear the accumulated strength of much of the best genius of many generations of men. It shows how to analyse the motives at work, how to group best genius of many generations of men. them, how to trace their mutual relations. And thus by introducing systematic and organized methods of reasoning, it enables us to deal with this one side of the problem with greater force and certainty than almost any other side; although it would have probably been the most unmanageable side of all without such aid. Having done its work it retires and leaves to common sense the responsibility of the ultimate decision; not standing in the way of, or pushing out any other kind of knowledge, not hampering common sense in the use to which it is able to put any other available knowledge, nor in any way hindering; helping where it could help, and for the rest keeping silence.
Sometimes indeed the economist may give a practical decision as it were with the authority of his science, but such a decision is almost always merely negative or critical. It is to the effect that a proposed plan will not produce its desired result; just as an engineer might say with authority that a certain kind of canal lock is unsuitable for its purpose. But an economist as such cannot say which is the best course to pursue, any more than an engineer as such can decide which is the best route for the Panama canal. 
It is true that an economist, like any other citizen, may give his own judgment as to the best solution of various practical problems; just as an engineer may give his opinion as to the right method of financing the Panama canal. But in such cases the counsel bears only the authority of the individual who gives it: he does not speak with the voice of his science. And the economist has to be specially careful to make this clear; because there is much misunderstanding as to the scope of his science; and undue claims to authority on practical matters have often been put forward on its behalf.
Marshall also makes the point that when it comes to issues of social policy, what we think of as "customs" can often be altered over time by economic incentives.
To say that any arrangement is due to custom, is really little more than to say that we do not know its cause. I believe that very many economic customs could be traced, if we only had knowledge enough, to the slow equilibration of measurable motives: that even in such a country as India no custom retains its hold long after the relative positions of the motives of demand and supply have so changed, that the values, which would bring them into stable equilibrium, are far removed from those which the custom sanctions.
Where economic conditions change but little in one generation, the relative values of different things may keep very near what modern economists would call their normal position, and yet appear scarcely to move at all: just as, if one looks only for a. short time at the hour hand of a watch, it seems not to move. But if the preponderance of economic motive is strong in one direction, the custom, even while retaining its form, will change its substance, and really give way.
Ultimately, Marshall is insisting that pointing to facts is never enough. Instead, one needs to go through the economic analysis of looking at the interrelationship of motives and the measurable values of prices and wages, along with the interactions that happen throughout an economy. This is the only way to coming to a correct interpretation of the causes and effect that underlie the facts, and it's what economics is all about.
Experience in controversies such as these brings out the impossibility of learning anything from facts till they are examined and interpreted by reason; and teaches that the most reckless and treacherous of all theorists is he who professes to let facts and figures speak for themselves, who keeps in the back-ground the part he has played, perhaps unconsciously, in selecting and grouping them, and in suggesting the argument post hoc ergo propter hoc. In order to be able with any safety to interpret economic facts whether of the past or present time, we must know what kind of effects to expect from each cause and how these effects are likely to combine with one another. This is the knowledge which is got by the study of economic science.

Sunday, August 18, 2019

Tradeoffs of "Free" Higher Education: Finland, South Korea, England, United States

All goods and service have both a cost of production and a price paid by the consumer. If government wishes to do so, it can raise revenues through taxing or borrowing to pay for the cost of production for certain goods and services, and thus allow the consumer to receive the good or service for "free."  Many high-income countries around the world subsidize part or most of the cost of higher education in this way. 

A choice to make a good or service "free" to consumers has various tradeoffs. It makes the good or service easier to consume for those who could not otherwise afford it. It creates a need for higher government taxes or borrowing. Perhaps more subtle effects are that changing the nature of who pays will also tend to change the quality of the service. In the case of higher education students, if you (or your family) is paying tuition, the level of effort you give, your choice of courses, and the pressure you feel to finish a degree within a certain amount of time are all going to shift. In the case of providers of higher education, if attracting government funds is the pathway to survival, then the institutions will be inclined to follow the lead of government--rather than the desires of students--in choices about who and how many to admit, what to teach, how to staff courses, where to locate branch campuses,whether to expand into online education, what courses to offer, what counts for a passing grade and a graduation requirement, and more.

Some of these changes from switching to "free" higher education may be desirable, while others are less so. My point is that it would be blinkered to imagine that a switch to "free" higher education won't also lead to an array of other changes. In a similar spirit,  Jason D. Delisle and Preston Cooper offer a short essay on "International Higher Education Rankings: Why No Country's WHY Higher Education System Can Be the Best" (American Enterprise Institute, August 2019). As they note:
A government that pays for a greater share of each student’s college education can afford to send fewer of those students to college, resulting in lower overall degree attainment. Similarly, without the ability to raise revenue through tuition, colleges may have fewer resources to spend on each student’s education.
The theme of their exercise is to use OECD data on high-income countries to point out some tradeoffs between higher education attainment, total resources, and public subsidies. This seems to me like a useful start in thinking about the many tradeoffs that would be involved in "free" higher education.

Here's the vivid example of Finland, which leads the way in the share of higher education spending coming from private sources, but thus can only afford to have a relatively small share of students attending higher education.
For instance, Finland ranks first on the subsidies metric: 96 percent of the Finnish higher education system’s funding comes from public sources. Domestic and European Union students can attend a public or government-dependent private institution free of charge, and most students also benefit from additional grants to help cover living expenses. But Finland pays the price for those heavy subsidies in other areas: Of the 35 nations, the country ranks 11th on the resources metric and just 25th on attainment.
One reason for the low attainment rate is that Finnish universities have finite resources and considerable autonomy to set admissions standards. Largely lacking the ability to raise revenue from tuition, it makes little financial sense for institutions to admit large numbers of students, and therefore they are highly selective regarding which students they let in. In 2016, just 33 percent of Finnish applicants to first-degree tertiary education were accepted, one of the lowest admission rates in Europe. Universities rely on comprehensive entrance examinations to make admissions decisions, and low acceptance rates create backlogs of applicants who often reapply in later years.
Another example is Korea, which has high attainment and low cost for higher education, but also low government support. 
Korea is perhaps the clearest example of a nation prioritizing one of the higher education goals (attainment) over the other two. Despite its top ranking on attainment, the nation ranks near the bottom on both resources and subsidies. The Korean government pays just 36 percent of the cost of higher education, leaving students and other private entities to pick up the rest of the bill. But the amount Korean universities themselves spend to educate students is also low; they spend just 29 percent of per capita GDP per student. That Korean universities spend relatively less per student means that tuition at public universities in Korea is also relatively moderate, despite the low subsidy rate. Korean students pay less in tuition than other high-attainment countries such as Canada, Japan, and the United Kingdom.
A moderately priced higher education system that relies little on government support, combined with high-quality secondary schools that consistently produce high scorers on international standardized tests, has led the vast majority of the nation’s youth to earn college degrees. However, the relative value of these degrees is well below other OECD nations, as the supply of college graduates has outstripped the availability of college-level jobs. Relative to the rich-world average, college-educated South Koreans receive a smaller wage premium over their peers with lesser degrees. As of 2017, the unemployment rate for college graduates exceeded that of people with less education.
The United Kingdom has been in the middle of a transition from a high-subsidy model for higher education to a model of low direct-subsidies but high and income-contingent student loans (that is, the repayment schedule for the loan depends on what you earn, and if you don't earn enough to make all the payments, the loan is forgiven at some point).
In England, where the vast majority of the country’s population is concentrated, universities charge undergraduate students tuition of up to $11,856, making English universities some of the most expensive in the world. That is why the United Kingdom ranks last on subsidies in our analysis, with just 26 percent of higher education funding derived from public sources. However, Britain’s student loan program complicates this high-tuition, low-subsidy story. To enable students to afford these high fees, the government offers student loans that fully cover tuition. Ninety-five percent of eligible students borrow. Repayment is income contingent; new students pay back 9 percent of their income above a threshold for up to 30 years, after which remaining balances are forgiven. Despite the lengthy term, the program is heavily subsidized: The government estimates that just 45 percent of borrowers who take out loans after 2016 will repay them in full (a benefit not captured in the OECD data).
England’s high-resource, high-tuition model is relatively new. Until 1998, English universities were tuition-free, with the government directly appropriating the vast majority of higher education funding. According to an analysis of the system by Richard Murphy, Judith Scott-Clayton, and Gillian Wyness, rapid increases in demand for education during the late 20th century led to swelling numbers of students and therefore a precipitous decline in resources per head available to universities. In 1998, the center-left government of Tony Blair began allowing institutions to charge tuition to supplement their direct government funding. At the same time, the government expanded its student loan program and introduced income-contingent repayment. Over the next two decades, university enrollments and funding both surged, and today the United Kingdom ranks among the top nations for both resources and attainment. While the 1998 reform allowing institutions to charge tuition was a major development, England’s transition from a high-subsidy country to a low-subsidy
one happened more gradually.
For the record, the United States currently ranks 11th of the 34 countries in higher ed attainment (measured as the share of 25-34 year-olds with "tertiary" education); 3rd of the 34 countries in total amount spent per higher education student (measured as per capita spending on higher ed vs. per capita GDP for the country, so this US ranking doesn't just reflect higher US income levels); and 31st of the 34 countries in subsidies (measured as share of higher ed spending coming from public sources).

The authors offer some general patterns in this data (and they are careful to warn that these are correlations, not statements about underlying causes). Across the high-income countries, a higher share of higher ed funding coming from government is correlated with a lower level of total per student spending on higher education, and also a lower level of higher ed attainment for that country. The US experience generally fits the these patterns: the US has lower subsidies for higher ed, but higher total spending and top-third in higher educational attainment.

Saturday, August 17, 2019

What the IMF Thinks about China's Exchange Rate and Trade Balance

A couple of weeks ago, US Treasury Secretary Steven Mnuchin announced his finding that China was manipulating its currency to keep it unfairly low, and further announced that he would be taking the issue up with the International Monetary Fund. I offered some of my own views on this announcement when it happened. But what's interesting here is not what I think, or even what Mnuchin thinks, but what the IMF thinks.

Fortuitously, the IMF just published its 2019 External Sector Report: The Dynamics of External Adjustment (July 2019). As the title implies, it's about trade surpluses and deficits all over the world, not just the US and China. But it has some content that gives a sense of how it is likely to respond to Mnuchin's importuning.  Here's an overall comment:
The IMF’s multilateral approach suggests that about 35–45 percent of overall current account surpluses and deficits were deemed excessive in 2018. Higher-than-warranted balances remained centered in the euro area as a whole (driven by Germany and the Netherlands) and in other advanced economies (Korea, Singapore), while lower-than-warranted balances remained concentrated in the United Kingdom, the United States, and some emerging market economies (Argentina, Indonesia). China’s external position was assessed to be in line with fundamentals and desirable policies, as its current account surplus narrowed further ... 
A couple of points are worth noting here. First, the IMF does not believe that all trade deficits and surpluses are "excessive," only that about 35-45% are "excessive." For economists, there will be sensible reasons why some countries make net investment in other countries, or receive net investments from other countries, which means that some countries will have reasonable trade surpluses or deficits.

Second, the IMF is saying that the the excessive trade surpluses are centered in teh EU and in Korea and Singapore. The excessive and trade deficits are the United States, the UK, and some emerging markets. But China's trade picture is not "excessive." Instead, it's in line with economic fundamentals.

Here's the IMF list of countries with the biggest trade deficits and surpluses in 2018, as shown the table adapted from the IMF report. The US has by far the biggest trade deficit in absolute terms, although relative to the size of the US economy it's similar or even smaller than many of the other countries with big trade deficits. Among countries with trade surpluses, China ranked 11th in absolute size in 2018, and as a share of China's giant GDP, it's trade surplus was by far the smallest of the top 15.
But what about China's exchange rate in particular? Here's a figure from the IMF showing China's exchange rate since 2007, along with China's trade surpluses over that time. China's exchange rate has appreciated 36% since 2007, and its trade surpluses have been falling. In effect, Mnuchin's complaint is about the slight upward bend at the far right-hand side of China's exchange rate line.
So what is the cause for the large US trade deficits? The IMF points to a standard economic phenomenon that back in the 1980s used to be called the "twin deficits" problem. The US is running very large budget deficits, at a time when its unemployment rate has been 4% or less for more than year. From a macroeconomic view, all that buying power has to go someplace, and with the US economy already near full employment, it ends up flowing by various indirect routes into buying more imports--and driving up the US trade deficit. As the IMF writes, "many countries with lower-than-warranted current account balances had a looser-than-desirable fiscal policy, compared to its medium-term desirable level (Argentina, South Africa, Spain, United Kingdom, United States) ..."

Why has China's current account surplus faded? One reason is related to the appreciation of China's exchange rate, already described. In addition, the IMF report suggests that China may be experiencing "export market saturation," given that Chinas' share of world exports more than tripled from 5% in 2001 to 16% by 2017. China has also had a modest decline in its still-high savings rate, which means higher consumption of all goods, including a greater willingness to import.

The US has legitimate trade issues with China. China's treatment of intellectual property has often been cavalier at best, criminal at worst. But when it comes to the overall US trade deficit problem, the it seems quite unlikely that the IMF will designate China as the culprit.

Friday, August 16, 2019

Taxing Sugar-Sweetened Beverages

Jurisdictions around the world have been implementing taxes on sugar-sweetened beverages. Here's a map

Hunt Allcott, Benjamin B. Lockwood, and Dmitry Taubinsky focus on studies of the eight US jurisdictions  that have adopted such a tax, along with the broader literature on causes and costs of obesity, in "Should We Tax Sugar-Sweetened Beverages? An Overview of Theory and Evidence" in the just-released Summer 2019  Journal of Economic Perspectives. (Full disclosure: I'm the managing editor of JEP, and thus predisposed to believe that the articles are of high quality and widespread interest.) Here's their table of the US jurisdictions that have imposed a tax on sugar-sweetened beverages. 
Making the case for (or against) a tax on sugar-sweetened beverage requires addressing a number of questions. 
  • Why focus on sugar-sweetened beverages rather than on other sources of calories, or on candy and junk food?
  • How much does consumption of sugar-sweetened beverages lead to heath or other harms like tooth decay?
  • How much does is tax on sugar-sweetened beverages passed through from retailers to consumers?
  • How much does a tax on sugar-sweetened beverages lead to people just shopping in a nearby jurisdiction where they aren't taxed?
  • How much does the share of tax on sugar-sweetened beverages that is passed through to consumers affect the health harms--in particular for those consumers most at risk (like children who consume a high volume of such drinks)--especially after tak
  • To what extent should the harms from sugar-sweetened beverages be counted as "externalities," which are costs imposed upon others, and to what extent are the "internalities," a term which refers to costs that the consumers of these products were (perhaps because of imperfect information or lack of self-control) not taking into account that they were imposing on themselves?
  • How much money might a tax on sugar-sweetened beverages collect?
  • To what extent do the costs of such a tax, and also the health benefits of such a tax, fall more heavily on those with lower income levels?
  • Putting all these factors together, does a tax on sugar-sweetened beverages seem like a wise policy?
This may seem like a lot of complications for answering a question about a small-scale policy. But for those who want a serious and actual answer , these kinds of questions can't be avoided. I won't try to summarize all the points of the paper, but the tone of answers can be inferred from the bottom line: 
[W]e estimate that the socially optimal sugar-sweetened beverage tax is between 1 and 2.1 cents per ounce. One can understand this as coming from the correction needed to offset the negative externality (about 0.8 cents per ounce) and internality (about 1 cent per ounce ... Together, these rough estimates suggest an optimal tax of about 1.5 cents per ounce. While there is considerable uncertainty in these optimal tax estimates, the optimal tax is not zero and may be higher than the levels in most US cities to date. However, for policymakers who are philosophically opposed to considering internalities in an optimal tax calculation, the optimal tax considering only externalities is around 0.4 cents per ounce. ...

[W]e estimate that the social welfare benefits from implementing the optimal tax nationwide (relative to having zero tax) are between $2.4 billion and $6.8 billion
per year. These gains would be substantially larger if the tax rate were to scale with
sugar content. Of course, such calculations require strong assumptions and depend on uncertain empirical estimates ...  Furthermore, sugar-sweetened beverage taxes are not a panacea—they will not, by themselves, solve the obesity epidemic in America or elsewhere. But sin taxes have proven to be a feasible and effective policy instrument in other domains, and the evidence suggests that the benefits of sugar-sweetened beverage taxes likely exceed the costs.