Saturday, March 03, 2012

Welcome to the woodshed

They do the work, so I don't have to!

 Let's start off this new KPC feature with a double-header.

 First, Clive Crook takes Jon Chait to the woodshed.

Then, in the mother of all beatdowns, Bob Kuttner takes Tim Geithner to the woodshed and just wails away on him.

Friday, March 02, 2012

People Aren't Smart Enough for Democracy

It is interesting that progressives think citizens are much too stupid to make their own choices in the grocery store.  But somehow, people get a lot smarter when they enter the voting booth., they don't, actually. 
The problem, as I argued in a recent paper about "self interest," is that people have pretty good incentives to learn about which apples taste good. But Santorum vs Perry? Ooooh, I like his tie. Here is an excerpt from my paper:

There are three parts to the Public Choice Theory “citizen as private actor” story. First, the citizen is motivated to seek his own self-interest. Second, the citizen has limited information. Third, political elites know this, and use advertising and simple slogans to attract votes.

The evidence that Lewin (1991) offers bears only on the first step. But if we change the motivational assumption to its most extreme form, “Citizens only want to act in the public interest,” the cost of information and the value of simple political messages as persuasion are unchanged. From Marx to Downs to Buchanan and Tullock, the costliness of information and of collective action has been a constant theme. Motivational assumptions are nearly inconsequential for the PCTist. What matters is the aggregate consequences of individual action.

Do voters have the information they need to make accurate decisions? The very literature to which Lewin refers provides a resounding “no” answer. Very few citizens are aware of even the most basic political facts, and they have only cursory knowledge of how government works (Page and Shapiro 1992, Table 1.2; Somin 1998). Less than half can name their congressional representative, much less identify her voting record or issue positions. Even fewer can give a coherent attribution of their own political ideology in terms of its specific policy implications (Converse 1964; Feldman and Conover 1986, 1984, 1982, and 1982). The rationally ignorant public-interest voter is essentially indistinguishable from the rationally ignorant self-interest voter. Rationality need not imply self-interest, but it clearly does, as an empirical matter, imply that voters have very little idea of how policy works and what candidates will do once they are in office.

For reasons I cannot understand, Lewin (1991, 107) denies this in terms that can only be called naïve:

While proponents of the self-interest hypothesis centre their hopes on setting satisfactory prices through market mechanisms, the representatives of the public-interest hypothesis believe in cooperation as a method to escape the “prisoner’s dilemma.” Both camps maintain that their particular world—the market and politics, respectively—is the more transparent, i.e. the one characterized by a minimum of unintended consequences. Although this may be true of the way the market functions ideally as a model, however, faulty information, limits on competition, and other imperfections are quite evident in real-life economies. Politics, by contrast, because of its combination of collective organizations and public debate, is probably easier to predict even in reality.
Yet Public Choice scholars have never claimed that politics is unpredictable. In fact, it is all too predictable, precisely because people can be counted upon to act in their self-interest. A legislative séance of the sort Prof. Lewin envisions for the public sector, groping toward some seraphic group wisdom, would indeed be unpredictable, and (by his lights) not transparent. But the Public Choice argument is that one can project the decisions of a group with high precision if one knows the goals of each individual and the decision rule that will be used by the group.

Lewin argues for the superior competitiveness and informational abundance of the public sector. The information problem I have already discussed: buying a car is a private good, and I have solid reasons to learn about cars. Voting for a candidate is a public good, and information about it will be underprovided by private action. The fact that voters have public-interest intentions at the first stage, the motivation stage, is essentially irrelevant, since they have private interest reasons to free ride and can thus be influenced by operatives whom Downs called “persuaders,” who have their own reasons to distort information. 

As always, happy to send a PDF if you are interested. Just contact me at munger at duke dot edu

Can you smell what the Angus is cookin'?

Over at MR, LeBron asks for your most surprising prediction.

Here's mine:

Within the next 10 years we will (at least de facto if not de jure) have very close to open borders in the USA.

Restated in English: within the next 10 years immigration into the USA will rise dramatically.

Thursday, March 01, 2012

The WMOE, On CVs and Job Interviews

The Dub-MOE, for all you grad students out there.

What Should You Include On Your CV? from Kosmos on Vimeo.

It would have been better if they could have taken the bucket off from atop the microphone. But good advice.


Wow, these two dogs turn on their buddy right away. Who did this?


Sentences are for sissies

As part of his plan to conquer the universe, LeBron has been writing a "very short reviews" sidebar for the NY Times Sunday magazine, where he reviews a book in one sentence.

But a sentence is just so prolix!

I propose reviewing a book with a song title!

Some examples:

The Glass Castle: Ain't that America, 

Coming Apart: The Bi*ch is Back, 

Poor Economics: Love the One You're With

The Steve Jobs Bio: Yonder Stands the Sinner

The Great Stagnation: Eve of Destruction

White Man's Burden: Whippin' Post

The Rent is too Damn High: Wishing Well

Biggest Environmental Heretic Gets Pounds!

From KPC friend Matt Ridley.

Read all about it.

Thanks to Tommy the Tenured Brit

Wednesday, February 29, 2012

Con-man commandments

1. Be a patient listener (it is this, not fast talking, that gets a con-man his coups).

 2. Never look bored.

3. Wait for the other person to reveal any political opinions, then agree with them.

 4. Let the other person reveal religious views, then have the same ones.

5. Hint at sex talk, but don’t follow it up unless the other fellow shows a strong interest.

6. Never discuss illness, unless some special concern is shown.

 7. Never pry into a person’s personal circumstances (they’ll tell you all eventually).

 8. Never boast. Just let your importance be quietly obvious.

 9. Never be untidy.

10. Never get drunk.

 Source is here.

twisted sister

People, I don't believe that we receive the privilege of being Americans from our government. I believe that government officials receive the privilege of their jobs from us Americans. Nor am I a big fan of Tim Geithner and his curious inability to practice what he preaches.

However, Lawrence Lindsey really pulled a fast one on Geithner in the WSJ editorial page today.

Here's Lindsey's version of what Geithner said:

Last week Treasury Secretary Tim Geithner said that the "most fortunate Americans" should pay more in taxes for the "privilege of being an American."

Here's what Geithner actually said:

"That’s the kind of balance you need," said Geithner. "Why is that the case? Because if you don't try to generate more revenues through tax reform, if you don't ask, you know, the most fortunate Americans to bear a slightly larger burden of the privilege of being an American, then you have to -- the only way to achieve fiscal sustainability is through unacceptably deep cuts in benefits for middle class seniors, or unacceptably deep cuts in national security."

Umm, that's not all that close.

"Slightly larger burden of the privilege OF being an American" does NOT equate to Lindsay's paraphrase of "should pay more in taxes FOR the privilege of being an American.

I disagree with Geithner. But Lindsey's column is a hatchet job.

I actually like how Tim apparently inadvertently lays out a preferable alternative. Why are "middle class seniors" a protected benefit class? Why is the military a protected benefit class?

If we can attain fiscal sustainability by deep cuts to middle class seniors' benefits and the military, then let's do it!

Here's the video:

This post was updated to correct a spelling error.

edging upward

The BEA announced an upward revision of real GDP growth in the fourth quarter of 2011 from 2.8% to 3.0%.

Monday, February 27, 2012

Institutions Similar Because Brains Similar?

The naturalness of (many) social institutions: Evolved cognition as their foundation

Pascal Boyer & Michael Bang Petersen
Journal of Institutional Economics, March 2012, Pages 1-25

Abstract: Most standard social science accounts only offer limited explanations of institutional design, i.e. why institutions have common features observed in many different human groups. Here we suggest that these features are best explained as the outcome of evolved human cognition, in such domains as mating, moral judgment and social exchange. As empirical illustrations, we show how this evolved psychology makes marriage systems, legal norms and commons management systems intuitively obvious and compelling, thereby ensuring their occurrence and cultural stability. We extend this to propose under what conditions institutions can become ‘natural’, compelling and legitimate, and outline probable paths for institutional change given human cognitive dispositions. Explaining institutions in terms of these exogenous factors also suggests that a general theory of institutions as such is neither necessary nor in fact possible. What are required are domain-specific accounts of institutional design in different domains of evolved cognition.

Hmmm. That's not my first, or second, intuition. Why do steam engines all look the same? Because form follows function, and the rules of physics are universal, at least in the domain where steam engines are possible and useful. That's a kind of determinism, but it is an optimized determinism: the best form for a steam engine doesn't depend on who is designing it.

The thesis in this paper is that limits on human cognition shape institutions. No reason to expect ANY institutions, anywhere, to be optimal. No optimality in common law, no evolutionary process toward efficiency. Because our brains all have the same limits, and we all come up with the same screwed up institutions. In linear programming terms, the binding constraint is not functionality, but cognition. Hmmm....

Nod to Kevin Lewis

Sunday, February 26, 2012

One step closer to sending in the gunboats

Germany is sending over 150 volunteer tax collection experts to Greece to "help" them clamp down on tax evasion.


Story is here.

What could possibly go wrong?

The participation puzzle is worse that I thought!

In an interesting paper recently published in the Journal of Finance (and discussed by Bob Shiller in today's NYT), GRINBLATT, KELOHARJU, and LINNAINMAA investigate the effects of IQ on stock market participation in Finland (ungated version of the paper is here).

 As they point out, "Only about 50% of U.S. households invest in stocks, either directly or indirectly (via mutual funds in retirement and nonretirement accounts), and participation in Europe is even lower. Traditional models in financial economics, which prescribe universal participation, cannot easily explain these stylized facts, viewing them as a “participation puzzle.”"

 But IQ is not solving this puzzle at all (at least in Finland)!

 The two highest stanines of IQ in their sample have stock market participation rates of around 42% and 46% respectively. Sure, that is significantly higher than the lower IQ groups, but their research shows that, even among the most sophisticated citizens, stock market participation is very low.

 The paper is very well done and highly recommended, but I was amazed that participation among even the elites was so low.

Food Aid Causes Civil War

Aiding Conflict: The Impact of U.S. Food Aid on Civil War

Nathan Nunn & Nancy Qian, NBER Working Paper, January 2012

Abstract: This paper examines the effect of U.S. food aid on conflict in recipient countries. To establish a causal relationship, we exploit time variation in food aid caused by fluctuations in U.S. wheat production together with cross-sectional variation in a country's tendency to receive any food aid from the United States. Our estimates show that an increase in U.S. food aid
increases the incidence, onset and duration of civil conflicts in recipient countries. Our results suggest that the effects are larger for smaller scale civil conflicts. No effect is found on interstate warfare.

I've had so many conversations with sensitive people where their entire argument is, "People are hurting. We should DO something.!"

The fact is that most things we can "do" make things worse. But that's okay. Because all that matters is that American leftists get to feel good about themselves, because they DID something.

Once you understand this, it makes a lot of other opinions of leftists easier to understand. For example, why not have market systems in developing countries, since those would actually have good consequences?

Because the left doesn't care at all about good consequences. "Open up markets" (including in the US, which would really help developing nations, like if we opened the US market to Caribbean sugar growers)? No, that's not a feel good, good intentions policy. All it would do is have really good consequences. And how does that help Albie Volvo, with his Chardonnay and NPR tote, feel better about himself? Better to change out some more light bulbs for CFs, and give food aid to the needy. Sure, it will start civil wars, but why would Albie Volvo care? There's no war in his neighborhood.

(Nod to Kevin Lewis, for the article, certainly not the interpretation)