Economics, Literature and Scepticism

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I am a PhD student in Economics. I am originally from South Africa and plan to return there after my PhD. I completed my M. Comm in Economics and my MA In Creative Writing (Poetry) at the University of Cape Town, where I worked as a lecturer before starting my PhD.

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Tuesday, September 30, 2008

Bad Reporting

Posted by Simon Halliday | Tuesday, September 30, 2008 | Category: , | 0 comments

This article-post on the Freakonomics blog was indicative of the poverty of reporting on psychological and economics findings. I found it dreadfully uninformative. How can it simply be said that 'chauvinists are more likely to earn more'? Could it not be that individuals who are successful end up as chauvinists, rather than that chauvinists end up successful? What were the other controls? What other variables did they consider? What did they rule out? Why did the article adopt causative language? In my opinion, there is probably so much going on in the formation of beliefs about 'gender' that just isolating one belief is basically arbitrary. I turned to the original article to find out more.

Barring the comment in the post on the fact that the sample was constituted of Americans, most of the subsequent phrasing makes it seem as though, in general, it 'pays' to be chauvinistic. This is not necessarily a general relationship as it is for a specific sample of US individuals. See my correlation-causation fallacy comment above.

Next point, in the paper the range of ages is 8 years (those 14-22 in 1979) because of the way the sample is constructed. Thus this is a measure of gender bias for this specific generation, but does not necessarily inform us as to the gender bias of later generations or age cohorts. Again, generalizing from this age cohort is perilous. Thus, the above shouldn't say 'Men' it should say, 'Men in the US who are currently between the ages of 43 and 51'. The Freakonomics post wasn't specific at all. The article was substantially more specific, though it too over-generalized on occasion.

Also, don't forget that the paper reports how, '[M]ore educated people and more intelligent individuals were less likely to have a traditional gender role orientation' (p.1002) and that 'individuals raised in religious households were more likely to have a traditional gender role orientation' (ibid). Which, to me, indicates that there are, quite possibly, problems of endogeneity in the model. What does this mean? Well, the consequence of this kind of thing is that the standard errors of the coefficients (the betas) are meaningless. Why? Well, if you have a variable which is meant to be measuring some effect, but there is a relationship between this variable and the error term in your regression (through bidirectional causality, simultaneity, or missing variables) then what you are actually measuring is the bias as a consequence of one of these effects. I, for one, do not believe that the index constructed in the paper actually identifies anything [see this wiki article on instrumental variables, 2SLS and identification for basic econometric protocols in this kind of situation].

Consequently, we do not know whether the coefficients are actually significant. What does this imply? For one, that the actual end result is meaningless - we don't know whether there is a positive and strong relationship involved because we could be measuring anything that is related to the index that they construct and the error term. What does this mean? Well, a host of other variables could actually be driving the higher income variable any of which could be itself correlated with chauvinism. So they are not identifying anything causative!

Now, why does this kind of reporting incense me? The main reason is that an uninformed and unskeptical chauvinist pratt could read the article and use it as justification for their own behaviour. They could internalize the idea that 'chauvinists earn more' (when we can't actually conclude anything of the sort from this research) and they walk away believing their chauvinism justified. Notwithstanding this, scientifically the article was a mess. It was unspecific, it overgeneralized and it misrepresented the outcomes from the article. It reminds me, once again, that so much education is needed for the populace at large in order to ensure that readers of such a post don't get dumbed down by it and read it at face value.

Sunday, September 28, 2008

Carnival of the Africans #2

Posted by Simon Halliday | Sunday, September 28, 2008 | Category: , , | 0 comments

Wim Louw over at the little book of capoeira is hosting the second Carnival of the Africans, to which I contributed three pieces, my piece on having a large disadvantaged (I forgot the final d in the original piece's title, silly typo!) populace but wanting to create equality, my piece on herbal remedies and my piece on Egalitarianism in young children.  

Other pieces I liked in the carnival include: 
The Skeptic Detective's discussion of why the LHC won't end the world.
Mike Meadon has two posts saying farewell (with glee) to Manto.
Sceptic SA's take on Angus Buchan et al.
Others were also cool, but I don't feel like doing any more link :-)

I am hosting the next carnival on 28 October 2008 and I will be sending out calls for submissions.  In fact be aware that I may very well send barrages of emails your way if you just happen to write on things related to Africa and to skeptical thinking.

Saturday, September 27, 2008

Stupid, stupid crack reporting

Posted by Simon Halliday | Saturday, September 27, 2008 | Category: , | 5 comments

The Mercury reports that Danie Krugel, South Africa's famed quack with his 'quantum machine' is an academic! WHAT CRAZY, CRAZY MISREPRESENTATION!!!  HT: Yet Another Sceptic's Blog

I sent them the following letter:

To Whom It May Concern,

The article mentioned above inaccurately prints that Danie Krugel is an 'academic'.  To be an academic an individual is required to be affiliated with a university or a recognised research institute.  Danie Krugel is therefore not an academic. That you have printed such information does your publication a terrible disservice.  You have perpetuated the belief in the veracity of Mr. Krugel's 'machine' and thus you perpetuate unscientific thinking and reporting based on lack of evidence.  This is horrific for a publication that is meant to report solely based on facts.  Please ensure that you correct this atrocious misrepresentation.

Best regards,
Simon Halliday
PhD Student, Facoltà di Economia, University of Siena, Italy

South Africa's Current Account

Posted by Simon Halliday | | Category: , | 0 comments

South Africa's current account is not as disease-ridden as some might argue, but some of the 'solutions' as proposed by individuals such as Zwelinzima Vavi to 'discipline' businesses are bound to do more damage than good.  This is the main thrust of this recent Vox EU article from Peter Draper and Andreas Freytag.  

They have a number of conclusions to do with liberalization of industry and improvements in infrastructure and manufactuing.  I agree that monopolies in electricity and telecommunications need to be broken down. I agree too that improved investment in manufacturing, and, moreover, diversifying the areas in which South Africans and foreigners invest in South Africa could improve South Africa's lot.  I noticed, however, that they steered clear of the political firebomb that is 'labour market reform'.  Very politick of them.  

Thursday, September 25, 2008

Who doesn't pay?

Posted by Simon Halliday | Thursday, September 25, 2008 | Category: | 3 comments

I have not written at all about the financial crisis that is going on, predominantly in the US, but now also in 'the world'.  My 2 cents is going to be focused on what I would call the philosophical problems of the Paulson Plan.  My reasoning for this has to do with the idea of desert and related concepts of responsibility and accountability.  The eventual outcome of my argument will be that the Paulson Plan does not hold those who were responsible for the outcomes accountable for their actions and actually penalizes those who weren't responsible.  Obviously there are political economy reasons for this, but that's not what this post is about.

So, let me take a couple of views on responsibility and accountability.

First Thomas Scanlon (1988, 176):
[W]hat is required for moral appraisal on the view I am presenting is the freedom, whatever it may be, which is required by critically reflective, rational self-governance. But this is less appropriately thought of as a kind of freedom than as a kind of intrapersonal responsiveness. What is required is that what we do  be importantly dependent on our process of critical reflection, that that process itself be sensitive to reasons, and that later stages of the process be importantly dependent on conclusions reached at earlier stages. But there is no reason, as far as I can see, to require that this process itself not be a causal product of antecedent events and conditions.
And then John Roemer
[T]o hold a person accountable for an action will mean that he should pay for it - he should, perhaps, compensate others who were harmed by the action, or be penalized by society for it. (Roemer, 1998, 17)
And Richard Arneson (2000, 12) elaborates usefully,
[O]ne is responsible for a choice (that affects only oneself) when one is allowed to absorb its costs and benefits for oneself without compensation.
Now Paulson, in his plan, says that we should not 'constrain CEO compensation' during streams of retrenchments that could feasibly occur as a consequence of the current crisis.  [Aside: Paulson is an ex-CEO of Goldman Sachs and is worth several hundred million dollars himself.]

Many of the CEOs involved in those companies which have fallen during the current crisis are directly responsible and accountable for the actions that have occurred.  They championed policies that led to the use of risky assets and the selling of mortgages to risky individuals - they are responsible.  However, Paulson is arguing that we should not hold them at all accountable (As Paul Krugman comments, "Demands for complete discretion with zero accountability").  As a consequence of their actions taxpayers in the US will have to pay at least 700bn USD (that's billion, not million as some have misreported, comment here).  Moreover, thousands will have lost jobs, money and houses as a consequence of actions and policies adopted by CEOs on Wall Street.  Consider an individual who had saved money, worked hard and was in permanent employment at the low end of one of these firms, did not take part in any of the risky business, but has lost investments (hopefully not their home), their job and now has to pay, possibly in perpetuity, through taxes to BAIL OUT those whose actions resulted in him losing his money, losing his job and having to pay more taxes.

On top of this, Paulson does not want limits on CEO pay packets, for them to be able to walk away with 'golden parachutes' to be rewarded more money by the boys club of CEOs even though they are the ones who should lose money, lose their jobs and be held accountable for their actions by the public and by government for the riskiness of their actions. He basically wants a blank cheque.  I am not even going to go into the Moral Hazard aspect of what this does for incentives.

So, what the plan does is to capitulate to the wants of those who don't want to be held responsible.  It banks on the fact that the individuals who are so greatly affected on 'main street' want something to help them and therefore allow those responsible not to be held accountable because of the depth of their own suffering.  Allez the CEO boys club! Allez!

I am with Mark Thoma when he says:
Peoples' lives are nothing to be toyed with, and if a bailout is the only way to avoid the chance of massive meltdown and widespread job loss, so be it. Protect Main Street first and foremost, but give away as little as possible to Wall Street in the process.
However, none of the above takes into consideration the extent to which individuals will pay taxes as a a consequence of these bailouts. I agree with David Colander when he says that “What matters is what price they buy the assets for and the price they sell them for. That’s where the real action is.” Why is this the real centre of the problem? Well, depending on how much the US Treasury Pays (and therefore how much taxpayers have to pay over the next while) the level of the risk borne by the US Treasury (and thus by taxpayers) increases or decreases.

As David Leonhart of the NYT argues:
It clearly shouldn’t pay 75 cents on the dollar, or anything close to it. That would mean the Treasury Department — which, in the end, is really you and me — was assuming nearly all the risk. But it probably can’t pay 25 cents. That might fail to fix the credit markets, because
it would do relatively little to improve financial firms’ balance sheets. Firms might then remain unwilling to lend money to businesses and households, which is the whole problem the bailout is meant to solve.
And finally, from the open letter by economists on the plan that was just sent to congress:
Its fairness. The plan is a subsidy to investors at taxpayers’ expense.
Investors who took risks to earn profits must also bear the losses. Not
every business failure carries “systemic risk.” The government can
ensure a well-functioning financial industry, able to make new loans to
creditworthy borrowers, without bailing out particular investors and
institutions whose choices proved unwise.
And as Hillary Rodham Clinton comments:
[T]axpayers are being asked to bear an unparalleled degree of
financial risk. We cannot allow taxpayers to take on this burden so
that Wall Street and the Bush administration can hit the "reset
button." This historic intervention demands a historic shift in
priorities: an end to the broken culture on Wall Street, and the broken
economic policies in Washington.
So there are two crucial things for me:
  1. CEO payouts should be limited
  2. The US Treasury and tax payers should not be bearing all the risk the CEOs and those who took the risks unnecessarily should take it, should lose their jobs and should not get additional benefits.
Hopefully that is clear enough.

Four 3 Minute Videos

Posted by Simon Halliday | | Category: | 0 comments

From Al Jazeera English and Lucia Newman on racism-related topics in Latin America.

A good quote from a prosecutor, Almeno Soares, in Brazil: "We confuse racial coexistence with racial equality."

I also liked the idea of linguistic equality in the 4th video, but in a country like South Africa with 11 national languages should what constitutes 'linguistic equality'?

HT: Neuroanthropology.

Wednesday, September 24, 2008

A Blog You Can't Leave Behind

Posted by Simon Halliday | Wednesday, September 24, 2008 | Category: | 4 comments

A new development blog, hosted at the Financial Times discusses issues in development.  And who are the blog's illustrious authors? None other than Bono of U2 and his compatriot Jeffrey Sachs.  Have a look at their Development Diary...

Next Carnival of the Africans

Posted by Simon Halliday | | Category: | 0 comments

On the 28th of September, Wim of the little book of capoeira will host the 2nd edition of the Carnival of the Africans, the monthly science and skepticism blog carnival by Africans or on African topics. He has put out a call for submissions. Please look at the guidelines before submitting.  If you choose to submit, then email Wim at {wim}{dot}[louw}{at}{gmail}{dot}{com} with up to 4 of your best posts from the last month.

I am going to submit a couple of pieces and will let you know, when I have read the others, what I think and which ones I enjoyed.

Tuesday, September 23, 2008

Who You Marry and Persistent Inequality

Posted by Simon Halliday | Tuesday, September 23, 2008 | Category: , | 2 comments

Lane Kenworthy, a professor at the University of Arizona, Tucson, spoke at the CRISS workshop which I attended this last weekend in Rome. I will comment briefly on one of the concepts, marital homogamy, that he introduces in the first chapter of his book Jobs With Equality which is available online. I know that this concept is not new, I know that my discussion of it is not revelatory, I just wonder what people think about the problems that such a phenomenon creates.

Marital Homogamy, which I think is becoming more and more important Worldwide, and will probably become an increasing problem in South Africa. So what is marital homogamy? It is the tendency for individuals of similar levels of eduction to pair up as life-partners, i.e. that those with high education tend to marry or cohabit, and those with low education tend to marry or cohabit. This has persistent and damaging effects to equality. Now let us consider too that there are peer, neighborhood and heritability effects going on (through genetics, or upbringing, what you will). Thus, it is quite feasible that there will be even stronger persistence of inequality over time.

Why is this? If there is a high level of inequality, combined with a high level of marital homogamy with high levels of high heritability and peer/neighborhood effects, then parents with high education will have children who have high levels of education and consequently, higher levels of income. Call marital homogamy the degree of correlation of individuals. Hence, a high level of marital homogamy will result in a higher degree of income inequality persistence, lower correlation will be correlated with lower inequality persistence. Inequality will persist as long as there is a high level of positive correlation of individuals through education.

How do you intervene in such a situation? What do we do to combat the problem of positive sexual selection by certain characteristics such as level of education? Well, in my mind we cannot legitimately intervene by `preventing' the marriage of individuals who have similar levels of education. This would also create odd incentives, for example they could choose to cohabit and not marry if 'marriage' was the point of intervention. Notwithstanding this funny incentive structure for not marrying, the infringement on individual freedoms would be, for me, problematic. Where else can we attack the problem? Well, how about taking a look at the extent to which characteristics are 'inherited', or affected by peer and neighborhood effects. Let's go along with the literature and say that these effects are strong and positive. Should we disallow school selection by parents and randomly allocate students to schools? Probably not. In all likelihood you would have out-migration of parents with high education who have the most to `lose' in this situation. The reason I say this is that it is unlikely that any policy we enact would allow simple `upgrading' of uneducated individuals to `educated' status, rather you would probably have some kind of reversion to a mean, which might be dispreferred by `educated' individuals.
For us, in South Africa, one of the additional problems is to consider whether there are correlations between race and level of education. There have been such correlations historically, which have also led to persistence in inequality of outcomes. However, let us assume that we can overcome the differences by race and have fairly similar distributions across groups. What then? Do we think that diverging, or even persistently separate levels of education is an adequate outcome? If we don't think it legitimate, as I generally don't, What can we do? Where is it legitimate for us to intervene? Is a society in which there is near zero elasticity of parental education to children's education the optimal society?

I am married. I am pursuing my PhD, my wife is currently completing an MA and plans to do a PhD. We fit the 'maritally homogamous' norm. When we have children, I would like to think that they will choose to obtain higher education. This means that my personal incentive is to ensure that there is a non-zero elasticity for my own children. Is it not true to think that educated parents might believe such a thing on aggregate and perpetuate inequality?

Monday, September 22, 2008

Herbal Mixtures and Traditional Healers

Posted by Simon Halliday | Monday, September 22, 2008 | Category: | 4 comments

I know that this blog traditionally deals with economics, but I felt I needed to comment on this subject. In the South African news today there are reports of a herbal medicine mixed by a trainee traditional healer resulting in the deaths of the trainee healer's entire family. My condolences go out to the family and friends of those who have passed away.

However, this opens up one of the many areas in which progress needs to occur in South Africa. I understand and respect the fact that there are cultural differences between groups and individuals. I acknowledge too that there should be autonomous choices made when individuals engage in cultural practices. However, taking 'herbal mixtures' that could result in the deaths of the individuals involved does no seem, to me, to be a 'good' outcome of such cultural practices.

The skeptic in me rears its head and says, "What would happen if these people did not believe that these herbal mixtures were necessary as part of some religious ritual?" Well, my pat answer is that they wouldn't be dead. They could also be ostracised from their communities, thought of as wrongheaded or counter-cultural on account of having chosen to reject their religion, or their 'cultural practice' (what you will), they could be spending their time doing something else. They could, too, have chosen to join some other religious group and have other, hopefully less lethal, religious or cultural practices.

Ultimately, what it comes down to for me is the fact that, once more, lack of belief in science, belief in witchcraft, or the supernatural, or something entirely not based in science which should have been based on science (being a medicinal herbal mixture, i.e. with visible outcomes). Instead they were based on 'cultural' practices that are, by their nature, not allowed to be touched by scientific practices because of the fact that they are meant to be thought of as 'autonomous', that the 'paternalism' of science will 'damage' the experience of practices that allow scientific intervention or verification of outcomes. This is downright silly. But such silliness seems endemic to supernatural belief, especially supernatural beliefs that claim authority that is independent of scientific verification. As such, people will end up dead. It is a great pity. My condolences go out to the families once more. I am sad that their relatives have passed away, sadder still that it was as a consequence of herbalism

Saturday, September 20, 2008

CRISS Workshop

Posted by Simon Halliday | Saturday, September 20, 2008 | Category: | 0 comments

For the past couple of days I was attending a workshop at the University of Rome, `La Sapienza', hosted by CRISS, a cross-university research group investigating dynamics of inequality, poverty and welfare.

My notes from some of the sessions are available online:

In general, I enjoyed the sessions, especially those attempting to address persistence of inequality and the dynamics that lead to such persistence. I will comment more comprehensively on this topic later with reference to some of the papers presented.

Prof Kanbur's keynote speech was especially interesting as he has done a fair amount of work on South Africa (he is, in fact, off to a conference in SA soon organised by one of his co-authors, and UCT Prof, Haroon Bhorat).

Wednesday, September 17, 2008


Posted by Simon Halliday | Wednesday, September 17, 2008 | Category: | 3 comments

Sarah Palin - potential vice president of the US - and her church. 

Sarah Palin's Churches and The Third Wave from Bruce Wilson on Vimeo.

Monday, September 15, 2008

Whites, Blacks and Altruism in UCT Students

Posted by Simon Halliday | Monday, September 15, 2008 | Category: , , | 5 comments

An Economics Research Southern Africa (ERSA) working paper by Wilhelm Gerhard van der Merwe and Justine Burns uses the dictator game to test altruistic motives in the students. As I have already sent the authors an email with some of my concerns, I am not worried at all about discussing some points about the paper, in fact I hope that more discussion about the paper will improve it prior to its (hopeful) publication. In the spirit of full disclosure: Justine Burns was my 'supervisor' for my MComm in Economics, her husband Malcolm Keswell was my 'boss' when I worked for SALDRU; they are now my 'friends'.

Anyway, back to altruism in UCT students. The authors are very careful in annunciating that the sample that they study should not be seen as generalizable. This is meritorious indeed as far too many people don't make this kind of point sufficiently strongly in their research (including Ernst Fehr on whose recent work I commented a couple of days ago).

The construction of their experiment is as follows. It uses a classic dictator game with samples of students who are randomly paired. They run a control dictator game and then introduce a treatment that reveals the surname of their opponent in order to convey their racial/ethnic group. Their results indicate that the introduction of this information, in general, increases, i.e. simply knowing something about the partner increases the payoffs in general. White proposers make significantly higher offers than Black proposers. White proposers also seem to favour insiders with the median offer in a white-white pairing being double the offer in a white-black pairing. There does not seem to be insider bias for black individuals.

I have one or two concerns, which, as I said, I mentioned to the authors. The main one is about the inclusion of 'altruism' in their title and in the text. I don't believe that the patterns that are observed should be discussed as necessarily altruistic, but could, instead, be indicative of a host of differing theories see Bardsley, 2008; List, 2007 and Levitt and List, 2007 on this. The authors don't place too great a weight on the term altruism, so I don't think that it will be a problem for them to negotiate this problem.

Otherwise, I don't have any major methodological issues with the study and I believe that it is informative and should be replicated, eventually with a more representative sample of the population (this is something I'm particularly interested in seeing, or even doing at a later date). There are one or two issues in how things are presented, but they will be ironed out as the paper goes through iterations of review I am sure.

Please read the paper it is quite short and I think that Justine and Wilhelm would appreciate any feedback I could give them from anyone who reads this blog. It is available free of charge from the link in the first line of the post.

Bye Bye Lehman

Posted by Simon Halliday | | Category: | 0 comments

So another bank, Lehman Brothers, is going down. Sigh. Anyway, amidst all this I read a fantastic line delivered by John Jansen from across the curve.
We were engaged in an orgy of imprudent risk taking for nearly a decade and now a heavy price will be paid for the violation of so many simple and common sense precepts of trading.

I truly fear for our economy and our system the next several days.
'Orgy of imprudence' is such a fantastic phrase. I'd love to use that in a lecture. But I (like Mark Thoma) worry about that last line. 

So Bearn Stearns, Merrill Lynch and Lehman Brothers: 0, Credit Crisis 3 (I'm giving FNMA and Freddie Mac the benefit of the doubt here, even though they also 'died'). Bets on the downfall of Goldman Sachs and Morgan Stanley are open.  Oh yes, something's wrong with AIG too.

Sunday, September 14, 2008

Egalitarianism in Young Children

Posted by Simon Halliday | Sunday, September 14, 2008 | Category: | 5 comments

ResearchBlogging.orgChildren develop into (parochial) egalitarians, at least according to a recent study by Ernst Fehr, Helen Bernhard and Bettina Rockenbach. Children start out as selfish homo economicus style agents and turn into inequality averse parochialists. But the problem is that these aren't just any children, they are Swiss children and the cultural relevance of being Swiss has been seen in Ernst Fehr's own labs...

The experiments on which the paper was based were run with children ranging from 3 to 8 years of age where children would choose allocations of jellytots, smarties or fizzers for themselves and a partner. There partner could be from their kindergarten or playschool (in-group), or from another (out-group). There were three treatments in the experiments.

  1. 'Prosocial Treatment' choosing between a (1,1) and a (1,0) allocation.
  2. 'Envy Treatment' choosing between a (1, 1) and a (1,2) allocation.
  3. 'Sharing Treatment' choosing between a (1,1) and a (2,0) allocation.
Children aged 3-4 are indifferentiable from homo economicus, even so much so that the (1,1) allocation does not occur significantly more than 50% thus not differentiating it from the (1,0) allocation. Prosocial behaviour increases with age, as can be seen in the graph adjacent, with the 'most' prosocial behaviour occurring in the 7-8 year old cohort.

In terms of parochialism (or in-group vs, out-group motives) there was significant evidence to indicate that the children favoured in-group members, as the authors comment: "The egalitarian choice is 15-20% more likely in the prosocial game if the partner is an in-group member" (1081). Moreover, parochialism seems to develop concurrent with egalitarian motives, as the favouring of in-group members was much greater amongst the 7-8 year olds than for the younger participants.

The authors also note an interesting gender disparity with boys seeming to be more parochially inclined than girls were, quoting again, "boys seem to be much less averse against disadvantageous inequality if the partner is an ingroup member [...] In contrast, girls do not differentiate in their choices between ingroup and outgroup partners" (1081). This seems to be in line with modeling that considers the coevolution of altruism and parochialism, with men going to war against the outgroup and possible selection for in-group favouring males being active.

The authors also make some attempts at interpreting 'birth order' and 'only child' effects. The evidence indicating that only children are more likely to share than others and that youngest children in sets of siblings are less likely to share than others. They also make some comparisons of the evidence they have with evidence from chimps and marmosets, the implications of which I am not going to consider here.

What, for me, is a crucial flaw in the 'child egalitarianism' that they propose is that it is probably in no way as universal as they make it sound to be. This is a nuanced point. They don't state outright that their theory universalizes to most of humanity, but it seems to be tacit in their phrasing. Why is this a problem for me? Well, the sample is entirely made up of Swiss children. According to studies by a co-author of Fehr's, Simon Gaechter (along with Benedikt Herrmann and Christian Thoni), altruistic punishment is culturally conditioned and anti-social punishment seems to be a prevalent worldwide adult phenomenon (I blogged on the impacts of the Herrmann, Thoni & Gaechter paper here and here). In fact, in the Herrmann, Thoni and Gaechter paper the Swiss sample of individuals were among the most likely to act prosocially in the worldwide sample (actually and anecdotally, one of the reasons for the research in the first place was that the Swiss seemed abnormally cooperative to the authors relative to others). This is bound to affect the ways in which children in Swiss society are socialised.

The only deference Fehr et al. are willing to give this concept is captured in the single sentence: "The children probably acquire some of the normative rules of the society which surrounds them during the age period on which we focused" (1082). So they admit that children can be socialised, and that theirs might be, but they don't discuss the ways in which this could jeopardize the generalisation of their theory. Obviously, the problem is that we cannot know whether the tendencies towards inequality aversion and parochialism that they discuss are universal and genetically driven unless studies are undertaken that use cross-country and cross-cultural comparisons with children so that we can capture cultural differences versus inherent dispositions.

Notwithstanding this criticism, I believe strongly that this paper takes a step in the right direction. As much as the Herrmann, Thoni and Gaechter work originated in the labs in Switzerland and from their went on to test prosociality worldwide, this work could also go in that direction to test the origins of prosociality (antisociality) and parochialism.

Ernst Fehr, Helen Bernhard, Bettina Rockenbach (2008). Egalitarianism in young children Nature, 454 (7208), 1079-1083 DOI: 10.1038/nature07155

B. Herrmann, C. Thoni, S. Gachter (2008). Antisocial Punishment Across Societies Science, 319 (5868), 1362-1367 DOI: 10.1126/science.1153808

Saturday, September 13, 2008

Please be Wrong

Posted by Simon Halliday | Saturday, September 13, 2008 | Category: | 3 comments

I am seriously hoping that InTrade is wrong. More than 50% chance that McCain will be president of the US? Please, please no. 

HT: Mankiw and BDL.

Friday, September 12, 2008

The Problem of Having A Large Disadvantage Populace

Posted by Simon Halliday | Friday, September 12, 2008 | Category: | 1 comments

The South African implementation of affirmative action policies is unique in that it characterises a situation in which the historically disadvantaged constitute a majority of the population.  In applications of Affirmative Action in the US, for example, the point has always been to get minorities into positions in which they can hopefully have positive spillovers for their communities, act as role models, and improve the well-being not only of themselves and their own families, but also of those around them. 

One of the ultimate questions to do with race in society, and specifically in the workplace, is whether affirmative action policies will do anything to alter the landscape of society itself, i.e. whether it will assist us in ending persistent inequalities and getting rid of segregation in our society.  A forthcoming paper from Sam Bowles, Glenn Loury and Rajiv Sethi examines  the "conditions under which inequality across social groups can emerge and persist across generations despite equality of economic opportunity" (1).  This is particularly pertinent for South Africa.  What else does the paper set out to do? It argues that these persistences can arise from the extent of segregation in social networks, the strength of interpersonal spillovers in human capital accumulation and the level of complementarity between high and low skill labour in production.

To foreshadow, their crucial result is that if the size of the disadvantaged group is relatively small then integration can occur with increasing levels of human capital for both advantaged and disadvantaged groups.  However, if the disadvantaged group is large then segregation worsens and incentives to invest in human capital diminish.  I'm hoping that their model is wrong, as much as I think it is rigorously constructed and elegantly derived.

As Bowles et al. comment, "In South Africa under Apartheid group membership based on a system of racial classification was a critical determinant of economic opportunity" (2).  The authors differentiate persistence of inequality (consistent lack of convergence of incomes) from its emergence (the factors that lead inequailty to arise from an initial elagitarian distribution of wealth).  What then is the problem? To quote again, "A liberal judicial system cannot prohibit an individual's choice of a date, a spouse, an adopted child, a role model, a friend, membership in a voluntary association or residence in a neighbourhood."(1-2) So the issue is that even in a world in which individuals face no statutory discrimination, and even have access to equality in all other realms, social networks - the connections that individuals have with one another - may be segregated.  As the authors explain, "Voluntary discrimination in contact can give rise to persistent group inequality even in the absence of discrimination in contract." (2, original italics)

So how does discrimination in social networks result in persistent group inequality?  The short answer is, "Through the human capital mechanism." What I mean here is that even if individuals have the same innate ability because they are surrounded by individuals with different levels of human capital (for historic or other reasons) this disparity may give rise to persistence of group inequality over time.  The model proposed by Bowles, Loury and Sethi provides a rigorous mathematical exemplification of this.  They model an overlapping generations model with a competitive, non-discriminating (i.t.o. 'group') labour market.  They separate workers into two arbitrary groups, both of which have the same underlying distribution of 'ability'.  Employment depends entirely on one's investment in human capital, which they take as a decision by one's 'parents' (in the model).  There are 'spillovers' of one's own investment in human capital to those in one's group. 

Their first insight from the model is that there is a threshold level of segregation above which there will be persistent group inequality, below which group inequalities will tend to converge - i.e. equality will emerge between groups.  What this means though is that if your 'economy' has a level of segregation that is close to this threshold then little interventions will surely assist in overcoming the persistent group inequality and equality will emerge over time.  If you are particularly distant from the threshold level, then even large attempts to eradicate segregation may not bring you closer to greater equality unless they are large enough to take you under the threshold.  What does this mean for South Africa? Are the attempts by government and civil society sufficiently large to take us towards the threshold? I don't know.  I'd suspect not.

They then take a look at a situation in which, instead of there being only two 'equilibria' (i.e. states to which society tends) as in the above, there are multiple potential equilibria.  Here the insight becomes that the size of the historically 'disadvantaged' (in terms of human capital in its social networks) group becomes a critical determinant of the persistence of group inequality over time.  Quoting extensively from the text,
Here we find that the population share of the initially disadvantaged group plays a critical role. If this share is sufficiently small, integration can result not only in the equalization of income distributions across groups, but also in an increase in the levels of human capital in both groups. Under these conditions integration might be expected to have widespread popular support. On the other hand, if the population share of the initially disadvantaged group is sufficiently large, integration can give rise to a decline in human capital in both groups and, if this result is anticipated, may face widespread popular resistance. (4)
Reading this paper gave me one of those "I really hope this is wrong" moments that I occasionally get when reading academic work.  I don't want to go into any great detail on the rest of the material from the paper, the paper is mainly mathematical modelling.  A final conclusion worth noting is their comment that, "equal opportunity alone cannot ensure the convergence of group outcomes even in the long run." (20) Additionally, one of the issues with human capital accumulation is that they are often strongly determined by parents, siblings and other kin.  These connections are often highly segregated (inter-racial marriage is not particularly prevalent in SA or the US). 

But let's leave on a positive note.  They argue that we can still do something:
Finally, as we observed above, contrary to the assumptions we have made here, the degree of segregation may be affected by group differences in human capital attainments. For this reason, temporary policies to reduce these differences, such as lowering the cost to members of the disadvantaged group of attaining human capital, could reduce segregation of social networks which in turn would further reduce or eliminate group differences in levels of human capital. (21) 
So, as long as we get rid of those pesky human capital accumulation costs in the short run, we might still be able to get rid of group inequality and eradicate segregation!  Speculate freely on what this means for policy.  Vouchers? Subsidization of education? Cash grants?

Thursday, September 11, 2008

Modern-Era Gender Gap

Posted by Simon Halliday | Thursday, September 11, 2008 | Category: , | 0 comments

The Iyigun Blog has a fascinating piece on the Modern-Era Gender Gap. The problem with economic interpretations of recent trends in education isn't that women have managed to obtain similar levels of education as men have, but rather that they have overtaken men. 

The point that the blog post makes (based on a paper which the blogger co-authored) is as follows:
In a world in which education garners returns both in the labor and marriage markets, women  may overtake men in schooling despite their lower market wage rate and higher amount of housework compared with men. The essence of the argument is that education can serve as a means to escape discrimination for women. In the past, when the labor market return for women was relatively lower, this higher market return was washed out by the lower returns from schooling that women received within marriage. Today, however, women participate more in the labor market and work less at home, as a result of which their returns to schooling within marriage is drastically modified. The reason is that, if women become more educated than men, some of them have to marry down to match with uneducated men. Due to spousal competition in the marriage markets, this raises the 'value' of uneducated men in all marriages. Consequently, men’s returns from schooling within marriage decline (or do not rise much) while women’s returns rise beyond the market return. With the return to education for men falling
in the marriage markets, their incentives to get educated do not rise as much as women.

Really interesting insights.  The idea that discrimination can result in 'over-education' of a group is interesting. I plan to read the paper and will report back when I do.

Wednesday, September 10, 2008

Inequality Workshop

Posted by Simon Halliday | Wednesday, September 10, 2008 | Category: | 0 comments

Next week I am off to Rome to attend a workshop on Inequality, hosted by CRISS (Centro di Ricerca Inter-Universitario sullo Stato Sociale).  Highlights for me include a keynote speech by Ravi Kanbur, an acclaimed researcher who has done large amounts of work internationally on Inequality as well as specific work on South Africa.  Then too there is Lane Kenworthy, the worthy academic blogger at Consider The EvidenceJeff Madrick, of the Cooper Union and Schwartz Center for Economic Research is presenting on 'American Myths'.  Francesco Farina, Uni Siena, is presenting on decomposition of inequality in the EU.  Numerous other presentations look interesting and I will report on them after the fact. 

So what I wanted to put out there: if you had a question to ask somone of Kanbur's calibre on South African inequality, what would you ask them? I'm thinking of putting myself out there and asking hopefully interesting questions.

Tuesday, September 09, 2008

Agent Based Modeling

Posted by Simon Halliday | Tuesday, September 09, 2008 | Category: , , | 0 comments

"Agent-based modeling offers a viable alternative to calculus-based representative agent models in economics", is something I have said to people in the past. In response, I often get blank stares, cries of indignation or just plain 'WTF?'. So what's the deal?

There are several reasons why individuals are choosing to adopt agent base modeling. Let's highlight a few of them. First, the concept of the representative agent, or applying methodological individualism always and everywhere, can be deeply problematic. Who exactly should this 'representative agent' represent? Should we not instead have a distribution of heterogeneous agents interacting in manners that replicate to a greater or lesser degree the real world, either establishing their own social networks or using geographical lattices for interacting with other agents? Should we not have something more realistic than random matching?

The next question that we should ask is, do agents optimize or do they adhere to rule-based behaviour? Or is it a mix of both contingent on knowledge or information? Leijonhufvud parodies it well in his 'Three Items on the Macroeconomic Agenda', "The economist of today expects to see a solitary representative agent, under the mathematical spotlight on a bare and denuded stage, asking agonizing questions of himself: `What does it all mean?, [...] or `I know I have optimized, but is that all there is?'" The problem of optimizing agents has been examined exhaustively over the past century, with origins in the work of Herbert Simon and others.

Another favourable aspect of ABM is that we can use it to model economies as complex adaptive systems (CAS) and to use the models to observe the patterns that emerge given different sets of parameters. This allows the researcher a greater ability to understand the emergent patters and the macro-phenomena, rather than focusing solely on the atomistic level of the individual. So what is a CAS? To quote John Holland (from the wikipedia site,
"A Complex Adaptive System (CAS) is a dynamic network of many agents which may represent cells, species, individuals, firms, nations) acting in parallel, constantly acting and reacting to what the other agents are doing. The control of a CAS tends to be highly dispersed and decentralized. If there is to be any coherent behavior in the system, it has to arise from competition and cooperation among the agents themselves. The overall behavior of the system is the result of a huge number of decisions made every moment by many individual agents."
As can be seen the ideas of cooperation and competition of agents in order to produce possibly unforeseen or unintended macro outcomes fits well into the economic paradigm. For those interested in a good conversational introduction to complexity theory, focusing on the individuals involved, I'd suggest M. Mitchell Waldrop's Complexity. Alternatively another good, and more up to date book is Scott E. Page's Complex Adaptive Systems.

What do practitioners of ABM do? Well they set up computer programs with 'agents' (little programs or automata) interacting in a 'landscape'. A recent and famous example is that of Josh Epstein and Robert Axtell's 'Sugarscape' where they replicated unequal distributions of wealth, seasonal migrations, pollution, sexual reproduction, combat, transmission of diseases and nascent forms of 'culture'. Eric Beinhocker offers a good summary of sugarscape in his book The Origin of Wealth (pp. 80-97).

Let's take a brief look at Sugarscape. We have:
  1. a notion of physical space (NSEW)
  2. a source of energy (or base resource) with heterogeneous distributions across the landscape
  3. the terrain is differentiated: hills, mountains, valleys, etc.
What do the agents do? They:
  1. look for sugar
  2. move to sugar
  3. eat sugar
Agents must move around and eat sugar, or they die. Later they were programmed to do more complex things, but just think about these for the moment. Agents also have 'metabolisms' which use up sugar at specific rates. They also have different levels of 'vison' (how far on the lattice they can see). These two variables, 'metabolism' and 'vision' constituted the characteristics that were heterogeneously distributed in the population. Having good vision (seeing further) and good metabolism ('burning' sugar slowly) would constitute evolutionary fitness in most landscapes. But what happens if you are born with great 'genes' but there are no resources around you, i.e. you just happened to be unlucky enough to end up in a resourceless area? You die. The novelty of Sugarscape was that it replicated so many real world phenomena, from 'classed' societies and unequal distributions of wealth where 'luck' really helped, to trade and markets and several other interesting phenomena. I'd highly recommend looking at the Beinhocker book (as I have before). Other practise of ABM include uses of artificial neural networks or evolutionary computation (rooted in evolutionary game theory but don't confuse the two).

As I've outline above ABM can bring together behavioural criticisms of economics and the physics-based theories of complex systems. Both of these can and do provide relevant and worthwhile avenues of research for future economic and sociological research. Some time this week I'll assess the recent BPS article on behavioural economics and give my thoughts on the discussion between Pete Lunn and Tim Harford. I thought to preempt some of this discussion with a brief review of ABM prior to discussing the relevance of behavioural economics.

Monday, September 08, 2008


Posted by Simon Halliday | Monday, September 08, 2008 | Category: | 0 comments

Sunday, September 07, 2008

I'm Back

Posted by Simon Halliday | Sunday, September 07, 2008 | Category: | 5 comments

So yes, I have returned home and will return to semi-regular blogging. Various things happen when you don't have regular internet access, you miss all kinds of things on facebook and your google reader list goes ABSOLUTELY CRAZY! So, a question, what do you do when your google reader hits over several hundred items to read? I have been somewhat merciless by clicking, but not reading, on various articles and only actually reading those that interest me. I am down to 250 blog posts and articles to read. Hmm... Thoughts?