Two big questions for economists today
blogs.law.harvard.edu
blogs.law.harvard.edu
I think this touches on the core elephant in the room with modern (especially American) economics. There is often a lot more money and career advancement to be made as an economist if you are productively wrong - making policy proscriptions that serve an agenda, than if you are right.
Of course it does none of them any good to admit that. State this aloud and expect to be ostracized at a conference like this.
It would be helpful to look at economists themselves as rational agents who produce an output (political opinions with the veneer of objectivity) and who respond to incentives.
Bearing in mind that the employment/income options for most economists are:
* Academic departments, funded via student debt.
* Think tanks - nearly all funded by large corporations and high net worth individuals.
* Finance - large banks, hedge funds, etc.
Large corporations usually have different agendas but will seek to form cohesive blocs to increase their power, often under the umbrella of a lobby group. Sometimes they will fight, though. Examples:
* Exxon cares about discrediting climate change.
* Power companies want solar panels dead yesterday.
* Comcast wants net neutrality dead.
* Google and Netflix want net neutrality alive.
* Google's founders want something done about climate change (as do many notable high net worth individuals from a non-fossil fuel background).
* Private colleges want the federal government to keep increasing loans to students.
* Corporations that employ a lot of people and are under threat from unionization would like to see workers' bargaining power curtailed (debt is good at that).
* Everybody in high finance likes debt (obviously). Especially if it is administered by them, but even if it is not, because even if it isn't, one day it could be privatized and produce profits.
I was unaware of that. I guess the last 12+ years that I've been an academic economist, I've been doing it wrong. Could you put me in touch with someone that will pay me to serve their agenda?
Incidentally, a chunk of your department's money appears to be sourced via this corporation - https://en.wikipedia.org/wiki/Cargill thanks to an apparently friendly relationship with one of their VPs. I suggest that if you approach the subject of the economics of human trafficking, you do so with care for the sake of your career.
and why is so much focus given to this one kind of bias. What about the potential for self-perpetuating bias that arises from the self-governing nature of academia? Whatever the current bias is, it gets reinforced and strengthened by academics selecting like minded people to become their peers (through tenure) publishing like minded articles in their journals, and granting funding to like minded researchers
Remind me who is the President's sociology advisor?
Oh that's right...
Powerful people care a lot more about the conclusions made by academic economists than they do about the conclusions made by other types of scientists.
It's more corrupted than other professions. E.g. climate scientists have had money thrown at them too - to do the same thing - but by and large most of them have resisted.
>and why is so much focus given to this one kind of bias.
Because money talks.
It's not even about bias. It's about recognizing incentives for what they are.
Your own criticism is unfair because you think finding any link, no matter tenuous, between a source of funding and some kind of bias, is sufficient to show Economists (but not their critics) are biased.
The most important, and worst, example is
* Academic departments, funded via student debt.
First, academic departments are not funded solely by corporate debt. Government research grants are a major source of funding. Second, it's unfair to call it "student debt" since students are getting something of value, which they happen to pay for using borrowed money. Finally, student debt is a very minor issue in the scheme of things, and would not bias economists on other issues.
Finally, how helpful is it to apply your lens of "rational incentives" to your own side of politics? Here is how I see it from my side:
There is no incentive to support mainstream economics outside of academia, because economics is subtle, gives no easy answers, and often identifies no bad guys. It gives clear policy advice in some cases (e.g. free trade follows pretty directly from economic theory) but this advice is often unpopular with special interests. So the one poster who supports economic theory will always find themselves up against more passionate and committed arguers. Economics states that in many ways the world is as good as it can be, and there is no quick fix to improve the lot of ordinary people (apart from, perhaps, more and better redistribution of wealth, but this has limits). This is bad news, hence the term "dismal science". People like quick fixes, so they believe in anyone but mainstream economists. Ever notice that economists get the blame when the economy does badly, but not the credit when it does well?
Let's just say that I wasn't at all surprised that it was that one economist in particular - Piketty - who got stuck in the small room. Economists are a cliquey bunch at the best of times and the cool kids do not like Piketty.
>Your own criticism is unfair because you think finding any link, no matter tenuous, between a source of funding and some kind of bias, is sufficient to show Economists (but not their critics) are biased.
So you think economists are correct that everybody responds to incentives.... but economists don't?
>First, academic departments are not funded solely by corporate debt.
You mean student debt. No, they are not solely, but it is a huge proportion of university funding. Students take out loans. Every university has a keen interest in the terms and availability of those loans because it affects how much their primary customers can pay. This is what led to 20% year on year inflation in college prices.
> Second, it's unfair to call it "student debt" since students are getting something of value
facepalm
> Finally, student debt is a very minor issue in the scheme of things
You are really out of touch. There's over a trillion dollars of student debt outstanding in the US alone.
>Finally, how helpful is it to apply your lens of "rational incentives" to your own side of politics
I think it makes sense to look at incentives from every side.
>There is no incentive to support mainstream economics outside of academia, because economics is subtle, gives no easy answers, and often identifies no bad guys.
As mentioned above, it gives convenient policy proscriptions, therefore it is useful. The presence or lack of 'enemies' is irrelevant.
>It gives clear policy advice in some cases (e.g. free trade follows pretty directly from economic theory) but this advice is often unpopular with special interests.
Special interests such as half of the manufacturing industry in the US which was driven into bankruptcy, and the people employed by it who lost their jobs, and the cities such as Detroit that were destroyed by it?
Are the working classes a special interest now?
"Free trade uber alles" is exactly the type of thing I'm talking about. It is productively wrong - it benefits corporate profits over the citizens of the country. Among the many things it failed to predict were China's meteoric rise and the destruction of the fabric of entire cities in the US.
"Today there is hardly a government, international agency, or large commercial bank that does not have its own staff of economists. Many of the world's economists devote their time to teaching economics in colleges and universities around the world, but most work in various research or advisory capacities, either for themselves (in economics consulting firms), in industry, or in government. Still others are employed in accounting, commerce, marketing, and business administration; although they are trained as economists, their occupational expertise falls within other fields. Indeed, this can be considered "the age of economists," and the demand for their services seems insatiable. Supply responds to that demand, and in the United States alone some 400 institutions of higher learning grant about 900 new Ph.D.'s in economics each year."
-- Encyclopedia Britannica, "Economics"
It's not about employers, but about society. Colleges are supposed to be teaching things that are of value _to society_, not necessarily to employers. Employers should be trying to improve society by rewarding people who produce value to society, not to employers. That is how an employer justifies her power to a society that allows her to have a disproportionate amount of it.
It is very possible that employers' values are not an accurate representation of societal values. Maybe your currency doesn't accurately encapsulate what your society values? Maybe your businesses are not in touch with who their customers/employees are and what motivates them?
Example: I pay rent. I've never received an invoice telling me what that rent pays for or how much I'm actually paying for it. My rent payments are not approval of my landlord, they are necessary for my survival. Yet it gives my landlord economic power regardless of why I'm spending the money. Social values are not measured by economic power.
Then why are students asked to bear the $100k cost individually? Kinda hard to justify that level of self sacrifice from anyone.
The reason is that ramping up aggregate private debt has a number of advantages to the following two groups:
* Large employers would like to see the bargaining power of their employees curtailed. You'll be much more fearful of quitting your job or demanding a raise if you fear spiraling compound interest.
* High finance (investment banks, hedge funds, etc.) because they can often figure out a way of being paid to administer debts and use it as fodder for high profit gambling activities (derivatives, etc.).
An ancillary reason is that ramping up private debt is a way to give a quick economic and employment boost because it usually increases aggregate spending. The public can be boiled like a frog.
Not everyone agrees with you.
- Employers may think colleges should teach things of value to them
- Students may think colleges should teach things which will increase their lifetime earnings
- Government may think colleges should educate people to be good citizens (by whatever definition)
- College professors may think colleges are supposed to be teaching things of interest to them, regardless of the benefit to anyone else
Participation in democracy comes naturally to people. I don't think the idea that you should fight for your corner needs to be taught for anybody.
If it were taught in school, though, you can bet that how to participate effectively (organization, PR, core political principles) is not what would be taught. What would be taught would be "how to correctly fill in the form to register to vote for one of two equally reprehensible characters".
>I think there's a social value to having an "intellectual class" (for lack of a better term) created by college education
Well, we already have this. This can be counter productive if (a la 1984), they are the most highly indoctrinated segment of society.
Arrows Impossibility Theorem generally says that value to a group is meaningless - individuals have preferences, but there is no consistent way to aggregate them into a group preference. You can get around this with things like cardinal preferences (essentially money and prices), but then the value of knowledge _to society_ is by definition what a person would pay for it.
So what do you mean when you say "what your society values"? Is it just a code word for "whatever my team can sneak through the political system" or is there something intrinsic there?
Nothing useful is ever true by definition. Society has values because social contexts promote preferred actions. You start thinking about this by trying to define morality in useful manner:
A morality is an algorithm that models counterfactuals and assigns values to them.
Thus group morality is an aggregate of individual moralities, though it isn't necessarily a linear aggregate, nor is it necessarily known or (even knowable) by any individual. Either way, all you need is a hypothetical, because any reliable _reasoning_ you do about group morality is going to try to optimize in terms of flexibility: if there is an ideal outcome for a group, then every action should be taken to ensure such an outcome is not eliminated from potential futures.
This implies a lot about group morality. It means information processing is valuable. (And hence, some vague notion of intelligence or creativity is valuable.) Generally speaking, a group is a decision-making entity, and it must value its own ability to make decisions and moral evaluations as a consequence.
What is valuable to a society is not some specific state, but the ability to rapidly converge to better states as more information is obtained. Social stability, situational responsiveness, rapid dissemination of facts, efficiency, correctness, etc.. Every society values these things, even if they cannot be used to determine specific behavior for individuals. Arrows theorem says that there is no way for a preferred state to be knowable to an individual.
It helps to think of a group as a network of brains in the same way that a brain is a network of neurons. It's a different kind of brain, but it still does all the brain stuff as a simple consequence of the fact that it is a strict superset of brains. Naturally, one brain cannot contain the information of 10,000 brains. (Thus, Arrow's Impossibility Theorem.) But one group can. We cannot know it, but we can presume such a state exists and optimize on flexibility, not state.
Arrows theorem says that there is no way for a preferred state to be knowable to an individual...Naturally, one brain cannot contain the information of 10,000 brains. (Thus, Arrow's Impossibility Theorem.)
You've got Arrow completely wrong. Arrow doesn't assert that a function isn't computable, it asserts that it doesn't exist.
https://en.wikipedia.org/wiki/Arrow%27s_impossibility_theore...
You can't define societal value in terms of pure state preferences. You _can_ define it in terms of general constraints on optimizations.
(Also you clearly don't understand Arrow's theorem at all.)
(Also, even if it were relevant in any sense to talk about ranked preferences, they could still be consistently aggregable into a group preference -- Arrow's Impossibility Theorem merely says they might not be. It depends on what people's rankings are. Also, even if you replace the continuous set of options on how to provide value to society with a finite, discrete set of options, and then if you talk about a marginal penny of spending instead of spending at large, so that you can finally get people talking about a set of ranked preferences, you'll find that as you iterate elections of how to spend the marginal penny on a penny by penny basis, people's preferences change from election to election as laws of diminishing returns set in. For example, if you had five discrete option on how to spend money and assuming any reasonable degree of smoothness, such a series of elections would result in a spending distribution such that no simple majority thinks that the next marginal penny should be spent on a given option. )
I really can't understand how you could possibly bring up Arrow's impossibility theorem unless you're just trying to "win" an argument by bringing up some obscure mathematical reference that nobody wants to bother understanding so that they can respond to you. Because bring Arrow's theorem into a question like this is just flagrantly pure unadulterated bullshit.
Arrow's Theorem says that you can't construct a set of ranked preferences from individual utility functions in a reasonable way. Throwing in extra assumptions (like cardinal preferences) allows you to do so. But if you scroll up, you'll see that Retra was arguing against a price-based (i.e. cardinal) construction.
I claim that if Retra ever actually bothers to write down his definition of value to society it will be unreasonable. But given his unwillingness so far, I think he's just using "value to society" as a meaningless feel-good phrase to justify whatever policy he likes.
The easiest way to prove me wrong would be to actually clearly state your definition of "value to society". Strangely, no one is willing to do that.
Right from my other post.
It is flexible decision-making capability. You simply get to the "top of the hill" because from there you can move most readily to any other place should you learn it is a better place to be.
>All you've told me is that it's good to be able to get there more quickly, which is almost tautological.
Because, you know, if you look at the way people use that phrase, that's what they use it to mean.
> But if you scroll up, you'll see that Retra was arguing against a price-based (i.e. cardinal) construction.
Price people are paying is not the same thing as "utility", good job misreading Retra's comment.
If Americans aren't, on average, happier than they used to be (adjusted for income), then the conclusion should be "there was no return on the investment in broadening the number of people attending college"
Yale economist Bill Nordhaus' Climate Casino is that book. And his research with integrated assessment models concluded:
> The consequences of [climate change] will be costly for human societies and grave for many unmanaged earth systems; the balance of risks indicates that immediate action should be taken to slow and eventually halt emissions of CO2 and other greenhouse gases.
And, by the way, this analysis doesn't even take into account tipping points!
What is your specific critique of the carbon tax that the book proposes?
1. Environmentalists, interfering with nuclear energy which is the only full substitute available now. (I'm optimistic about solar and wind, but there is much work to be done before they will be more than partial substitutes.)
2. Zoning laws, particularly in the US, encouraging people to drive far more than should be necessary.
3. The US government blocking (for what reason, I don't know) the introduction of a tax on aviation fuel that would cause the price of airline tickets to accurately reflect the real cost.
What are the other major ones? I'm letting the Chinese off the hook for the amount of coal they're burning because they have actually been making a lot of progress; I don't know of any gratuitous blockers there.
The reason countries resist a carbon tax is not the value of oil per se, but the total economic impact, which is primarily from the reduced consumption of fossil fuels etc. (note all existing carbon taxes are on the burning of fossil fuels, not their extraction). The economic impact comes from people being forced to pay for more expensive alternatives. High oil prices don't actually benefit a nation, unless that oil is exported, in which case a national carbon tax won't effect it.
So the real barrier to carbon taxes is international cooperation. But the book argues that the easiest way to create international cooperation is with a global carbon tax (rather than global cap and trade).
Edit: 100 trillion is so much money.. that we could literally replace every car in the entire world (1 billion cars) with a free tesla and still have money left over.
The real reason we put kids through four years of college is because nobody wants to trust 18 year olds with pretty much anything, much less a salary and responsibilities. So the choice isn't between college and starting a career, it's between college and whatever bullshit jobs they'll be able to scrape up.
If you got rid of or otherwise stopped convincing kids they should go to college, you wouldn't have a bunch of gainfully-employed teenagers. You'd be gleefully recreating the enormous social problem of lots of bored young people sitting around without a whole lot to do.
We all know where that leads. Anything's better than that, even something that doesn't really help end outcomes much.
This is a key point. People talk about increases in labour productivity (how much output per given unit of labour) but this economic definition doesn't match the day-to-day meaning of the word.
If I devise a new process/system which means that I need only 1 employee rather than 1000, for the same amount of output, that remaining employee hasn't suddenly become 1000 times more productive. (Although it would be measured as such by economists.)
Why should we assume that the capitalist (or the market) would reward workers for such technological progress?
This is where we go back to the era of Marx and why him and others were advocates of the people owning the means of production. The two eras are similar, lots of automation, lots of inequality, huge companies growing from nothing.
At least that's true for people like me who put more stock in the economic explanation for inequality (technology + globalization) than the political explanation.