The Dangers of Thinking Like an Economist
unlearningeconomics.wordpress.com
unlearningeconomics.wordpress.com
This is extraordinarily dangerous thinking. The "One Percent Doctrine" [1] is and was a huge driver behind the rationale for all the national security and counter-terrorism efforts in the post September 11th era - former Vice President Cheney is recounted as saying "If there's a 1% chance that Pakistani scientists are helping al-Qaeda build or develop a nuclear weapon, we have to treat it as a certainty in terms of our response." That very same logic was likely extended to Iraq - if there is a 1% chance Saddam is building WMDs, we must invade (it helps that the Bush Administration believed the chance was far greater than 1%).
Another problem with this 1% kind of thinking is that it's not even clear if many of the kinds of events that are purported to end the world would actually end the world - global warming won't cause human extinction; it will just cause hundreds of millions, if not a billion, deaths (through disease, flooding, displacement); the same applies for nuclear holocast.
[1] http://en.wikipedia.org/wiki/The_One_Percent_Doctrine
EDIT: I realized the irony is that you could call this the "Dangers of Thinking Like a Politician."
If you have a 1% chance of destroying the world, you're pretty much going to want to avoid taking that chance in almost every case according to a cost/benefit analysis, since 1% times the trillion trillion dollars that the world is worth to us will end up being more valuable than any alternative. The exception is when the next best alternative is even worse, i.e. a much higher probability of something only slightly less catastrophic.
On the other hand, suppose the calculated probability is not 1%. Suppose the alleged world-ending calamity is that the Flying Spaghetti Monster is going to be displeased and set fire to all of reality if you don't pay me a billion dollars. The probability of that actually happening is not 1%. It isn't 1% of 1%. It's close to, but not exactly, 0%. Is the argument that you should still pay me a billion dollars? After all, the risk if you don't is that the world will end. I accept payment as cashier's checks or wire transfer.
No, you aren't. If that 1% chance is balanced by a 99% chance to increase the world's wealth by 2%, the expected gain is .98%, so anyone using pure expected cost/expected benefit analysis would give the go ahead if the cost of this were, say 0.5%.
The problem, I think, is that those statistical calculations do not handle the case where there are outcomes that imply that one cannot repeat the game often enough to filter out statistical variations. In that sense, it is related to http://en.wikipedia.org/wiki/Martingale_(betting_system): Yes, you can beat roulette, if (and that is a big IF) you don't go broke in the process.
If you could actually improve the world by 2% in doing that, maybe you should -- but don't discount what that would mean. You're not talking about a 2% increase in GDP. GDP measures commerce per year, we're talking about everything, forever. You have to account not only for the loss of the economy, but the loss of human life, family, humanity itself and all future endeavors of any nature by anyone. And if the alternative is a gain rather than a competing loss, you have to put a value on our desire to avoid losses as being greater than our desire to make gains. If you still think you can create a gain that would balance that loss, let's hear it.
And the fact is that we do as a factual matter make decisions like that. We built nuclear weapons because the risk of blowing up the world was calculated as being a better choice than the risk of fascism taking over. We grow genetically modified food because the ability to feed the population is deemed more important than the risks it entails. You can dispute decisions like these, but then you're just disputing the value we've placed on each alternative, not the process of comparing relative values in order to make the choice.
The idea that some risks are insufferable doesn't break economics, it just changes valuations. You have to consider both the consequence and the probability. Otherwise the world should pay me the billion dollars, because there is some risk that the alternative will be world-ending.
People object to putting a number on things like life and love, but there is no avoiding it. At the end of the day you have to make decisions. You have to weigh love against safety against money and make a choice.
Sad that Cheney was the most famous and morbid believes in the 1-percent fallacy.
At his most extreme, Caplan proposed a weighted voting system, where higher education led to more votes. That's a far cry from "dictating public policy," and even further from the Chilean system, where some Chicago-school economists had moderate influence on a dictator's economic policies and essentially zero influence on other aspects of governance (i.e., whether people should be disappeared).
http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&#...
It started lower and below average, it's now at the #1 spot. [because it is well know Argentina is lying on its number since ~2008]
On other development rankings, Chile also is in the top scores - like fighting against corruption.
Maybe, just maybe, some good things were done, or it wouldn't work as well. Just saying that as someone who seriously consider Chile (along with India).
Generally speaking Caplan's book[1] actually ended up increasing my faith in democracy, despite reminding me of some of it's significant limitations.
[1]http://en.wikipedia.org/wiki/The_Myth_of_the_Rational_Voter
> Is there some level of carbon tax at which we would forego every lake on earth rather than apply it?
Of course. If the neo-nazi party had an infallible way to preserve all lakes on Earth for a mere 99% of our income, I think we'll all pass up the opportunity. (Don't tell me it's not a carbon tax. You do breathe out CO₂.)
>If there is a 1% chance the world will end unless we do x, we shouldn’t do a cost-benefit analysis. Instead, assuming x is feasible, we should simply do it.
Unless paying x leaves us unable to deal with a 2% threat. Really, by this logic we should just follow the fantasies of whoever comes up with the most catastrophic scenario - no matter the likelihood. Cthulhu rising from the deep, anyone?
This is called "Pascal's Mugging." http://lesswrong.com/lw/kd/pascals_mugging_tiny_probabilitie...
Positive Economics: "What is"
Normative Economics: "What ought to be"
The majority of focus stays inside of positive economics because the "What is" analysis leads to a much higher amount objective results. It keeps the fucking "opinion" out of it (or at least attempts to at a much greater degree).
Case and points:
1. All economists are aware of going down the dead-dry rational rabbit hole; In fact, he points this out in the last paragraph by quoting one of the greatest ones.
2. Most fields lack the level of objectivity and mathematical proofing that economics contains; Bringing that power over to other fields is beneficial.
3. Making a blanket statement that all economists approach things in a blanket statement manner, in and of itself makes this article ridiculous.
Someone start a blog called "Learning Economics." The only people who oppose it so heavily are often the ones who don't understand it enough.
What is the chance the world will end even if we do x? What does feasible mean? Is killing 10% of the population feasible? Is this potential end of the world happening in a year, or in a thousand years?
I'd go on, but this is starting to look a bit like a cost-benefit analysis.
"Is there some level of carbon tax at which we would forego every lake on earth rather than apply it?"
Obviously, there isn't (+infinity), because of diminishing marginal returns. Everything is a tradeoff.
That's basic economic theory, so yes it applies to the environment. And if you want to figure out how much people care about lakes and nature, you can use existing data about cities adding or removing parks - you'll see people like nature, but not so much as to pay +infinity tax.
Because, you know, diminishing marginal returns - again.
For a positive example, look at small claims court in the U.S. A case decided in a few minutes might result in more errors, but an efficient court system, even if somewhat less accurate, could result in better outcomes on average.
[1] http://en.wikipedia.org/wiki/Judiciary_of_India#Judicial_bac...
And yet somehow the author's brain does make these decisions, mostly subconsciously.
It seems like a big part of the author's criticism of "economic thinking" is that it oversimplifies reality. The conscious human brain simply does not have the capacity to consider all of the possible inputs and outcomes of problems in a system as complex as the world economy.
Human consciousness seems to be a very low-bandwidth single-threaded process while the amount of information processing occurring in the brain which we are not consciously aware of is immense. This may explain why when it comes to complex systems naive common sense often seems to work better than the careful analytic thinking that has been so successful in simpler fields such as physics and engineering.
Allende was overthrown for his abuses of power after calls from the parliament and the supreme court. Economic policy was a complete afterthought.
> Chicago School economists managed to persuade first legal theorists, and then those involved in the legal system itself, of the efficacy of their way of thinking, eventually forming the ‘law and economics’ ... Nor should it surprise you that the movement had a large degree of – ahem – ‘support’ from various moneyed interests.
Sasha Volokh: Is Law and Economics a Right-Wing Plot? http://www.ustream.tv/recorded/28943137 (the audio gets better)
He came into office in '70, and the coup was in '73. From the very link you posted: "29th President of Chile In office 4 November 1970 – 11 September 1973." What CIA planned doesn't take precedence over what actually happened.
On May 26, 1973, the Supreme Court of Chile unanimously denounced the Allende government's disruption of the legality of the nation in its failure to uphold judicial decisions, because of its continual refusal to permit police execution of judicial decisions contrary to the government's own measures.
Could it be possible that the CIA wanted to remove him as soon as he got elected AND that also and independently he abused power so much as to lead to this declaration by the supreme court?
I tend to respect each country legislative body - especially at the higher level. More recently, even Zimbabwe supremes denounced the abuse until they resigned - see http://news.bbc.co.uk/2/hi/africa/1850771.stm
But if he were really being removed merely because of those actions and not because of policy, it's certainly fairly odd that they immediately rounded up thousands of unionists, leftists, and other political undesirables and started putting bullets through the back of their skulls.
Which you might also call abusing power.
It is an epistemologic absurdity, since, if we simply "know" anything, we have to question provenance of that knowledge. Our unscientific random biases and assumptions may be as likely to be right as they are wrong, but analytical thinking improves upon them, especially at the multiple perspectives and scales for appreciating outcomes as allowed by economic analysis. Critical thinking does require more effort than going with your gut, but that extra effort is justified when the improvements are great.
Anyway, the post kind of disproves its own point, since the straw men it uses are low-effort applications of heuristics rather than economic analysis. The author seems to believe that economics is a discipline defining a specific set of aphorisms that can be universally applied to any situation.
Perhaps there's a joke in there somewhere about learning a more rigorous version of economics before you can "unlearn" it or even advocate the virtues of "unlearning" it. Presently, it resembles the work of people who claim that science can't explain how bees fly or other similar nonsense as justification for reveling in ignorance.
Incidentally, though it isn't really central to the subject of the article, the quote about sociology is out of date, since modern sociology involves a fair deal of modelling and mathematics.
These are examples of very local politicians, except maybe the last one. Interesting.
To me it's pretty simple this has a value and if doing the alternative is valued worse then no you don't do it.
Everything has a value - smog, a lost lake, all lakes lost, death, extinction of animals, happiness. They can be hard to find but we can make approximations around probability curves.
The real issue is when you start valuing things like the environment and life people turn off because they can't handle the fact a Starbucks coffee has a higher value than millions of the worlds humans. And while they blank this stuff out it makes change hard.
He does make some good points re: environmental laws. We overestimate how well we understand probabilities, and worse, humans generally tend to diminish the weight of uncertain benefits in the face of certain costs, by a factor greater than what the underlying probabilities warrant. Global warming is a perfect example. Even if you believe that there is not consensus on whether there is anthropogenic global warming, does that mean the rational thing to do is spend $0 combatting the possibility? Of course not, not unless you think the probability is 0%.
On the other hand, putting environmental law on a firm economic basis has also been a boon. Speaking in terms of negative externalities and cost shifting instead of "hippie treehugger values" has salvaged the movement even during a time of a hard political shift to the right in the U.S.
This really does nothing to talk about Economists, as [brianchu] points out, it should be more along the lines of "Dangers of Thinking Like a Politician."
Thinking like an economist, helps people to make better decisions - in a lot of cases.
I don't always 100% agree with it, but I do find almost every post _interesting_, either something that's relevant to my own thoughts, something that makes me think a different way, or whatever.
This post is one of the ones I wish I had read a few years ago. I basically now distrust any opinion that makes a claim to 'economics' without at least mentioning what particular brand of economic religion they adhere to. (I, of course, have my own as well...)