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.

Tuesday, July 28, 2009

Carnival of the Africans #9

Posted by Simon Halliday | Tuesday, July 28, 2009 | Category: , , | 1 comments

http://pencildrawings.files.wordpress.com/2008/04/pencil-drawings-of-fairies-03.jpgMike, of Ionian Enchantment, hosts the most recent Carnival of the Africans.   There are several posts worthy of your interest.  First up, Angela, the Skeptic Detective, tells us of a new twist in the vaccine-autism debate (and, yes, the people claiming that vaccines cause autism still do not have evidence to support their position). Second, Tim Beck at Reason Check has two interesting posts: Sangomas at University and Conspiracy Theorists and Creationists. Third, I thought it worthwhile to leap (or maybe just make a small jump) in defence of Koos Kombuis: George Claassen of Prometheus Unbound tells us that Kombuis believes in fairies. Maybe he does. But Kombuis also wrote The Complete Secret Diaries of God which was enormously entertaining and poked all kinds of fun at conventional religious practices. So, I forgive Koos for his dalliance with fairies. I was also fortunate enough to have three posts featured in the carnival: the use of randomized controlled trials in social science, the importance of evidence-based sex education, and how La Repubblica (an Italian newspaper) got happiness economics wrong.

Evidence-based Sex Education

Posted by Simon Halliday | | Category: | 0 comments

http://www.tac.org.za/community/files/condomCartoon.jpgThis morning, I read George Monbiot's article in The Guardian about denialogues in sex education in the US. Monbiot discusses how Obama has proposed that kids in the United States be taught sex education by teachers using 'evidence-based' programmes in contrast to the predominantly 'abstinence-promoting' programmes of the Bush Administration.  I wanted to rejoice here at the notion of evidence-based teaching. 

However, it seems that America's conservatives aren't too happy with the idea.  Monbiot comments:
"The conservatives have gone ballistic: evidence is the enemy. They still insist that American children should be deprived of sex education, lied to about contraception and maintained in a state of medieval ignorance. If their own children end up with syphilis or unwanted babies, that, it seems, is a price they will pay for preserving their beliefs."
"Well this seems rather typical," I thought to myself.  So I got to wondering whether it was accurate and I began to search for discussions of the topic.  The first posts and articles I saw dealt with the fact that Obama eliminated funding for abstinence-only education.  Ok fine. Then someone else mentioned that Obama had allocated funding for programmes that show evidence of working, for which abstinence type programs could be used, but only if there is evidence that they work.  That is a great position - even though I am not big on the ideology of abstinence only I appreciate that if it is shown to work (preferably through a randomized and controlled trial), then I would be OK supporting (or at least not object to others supporting it) it in contexts where the evidence indicates it could work, while considering costs, benefits, and evidence for other policies.   I also found this report in the WSJ useful, highlighting the different programmes and some of the history. Many of the reports that I read seem to indicate that, indeed, the conservatives aren't too happy (but the progressives are over the moon).

http://shop.neatorama.com/avactis-images/clap-l_0.jpgI also appreciated the HuffPo article which, instead of the 'Just Say No' promoted by abstinence-only programmes, instead says 'Just Say Know'.  But, the article also exemplifies how we need to take a bi-partisan stance on the issues and to let the evidence speak. The HuffPo article comments, seemingly cynically and frustratedly, that those agencies who promoted abstinence-only are being allowed to apply for new funds.  Then it goes on to say that these institutions are trying to claim that they should get half the funds of a new and enlarged pot.  Two points are worth making here for evidence-based education.  First, these institutions should be allowed to apply for funds and draw up proposals to assess the (preferably randomized and controlled) implementation of abstinence-only, or now 'abstinence-centred' education because we need the evidence on whether it works or not (hence the proposals should also include funding for independent monitoring to check evidence).  Second, it's obviously silly for these institutions to claim that they should get half of the funds - they're entitled to apply, but not entitled to half of unpromised funds on the basis of ideology.  But this highlights how it is important to be bipartisan in these debates, to allow organizations to implement policies (even if you might disagree with their ideology) to gather the evidence for the policies and to make as objective a decision as possible. 

Anyway, independent of whether you ideologically prefer or don't prefer abstinence-based education I believe that the movement towards evidence-based policy is fantastic.  Not only will it increase awareness about evidence-based methods and the statistics required to be informed, but it will require students to be taught to think critically about the statistics so that they can make an informed decision for themselves.  Moreover, because critical thinking and the related understanding applies to many arenas implementing evidence-based approaches can only serve to empower the populace to make better decisions outside of the ambit of sex.  For this reason I strongly favour the implementation of this program in the US and I hope to see similar movements towards evidence-based programmes elsewhere.

Tuesday, July 21, 2009

Books Pt. 1: Non-Fiction

Posted by Simon Halliday | Tuesday, July 21, 2009 | Category: | 2 comments

I've separated my books post this time into two posts.  The first for non-fiction and the second for fiction.  I will post the fiction one later today or tomorrow.

Non-fiction
http://www.british-bookshop.de/shop/images/medium/dr_johnsons_dictionary.jpgHenry Hitchings - Dr Johnson's Dictionary: The Extraordinary Story of the Book that Defined the World 
Though interesting, I did not finish this book quickly.  Every so often I bit off parts of it, in between other books, or when I felt like a change from the book I was reading. I did not read it dedicatedly.  I have read a fair amount of popular biography and history, but I found that Hitchings did not make enough of a tale of it, did not weave a narrative of a life lived oddly, opinionatedly, and moralistically.  But, his focus was the dictionary itself and not just its author, so he's excused. 

The structure is good, the historical content excellent, and the tactic of titling the chapters with specific words in the dictionary apposite.  Hitchings provides a substantial amount of historical content without getting stuck in History's dross.  For someone interested in the evolution of the English language Dr Johnson's Dictionary provides remarkable insight into the project, contrasted well with the strange and belaboured efforts by the Italians and French, while also showing the uniquely Johnsonian flavours of this landmark vocabulary. 

The books weaknesses are dramatically fewer than its strengths, and noting this The Modern Language Association in the US gave Hitchings their prize for best work by an independent scholar in 2005 for the US version of the book.  I didn't find the book prizeworthy, but rather worth a morsel of my leisure time here and there, a morsel I could enjoy the immediate taste of, then leave and return for more a bit later. 

http://2.bp.blogspot.com/_N6APHtFPWNc/SILBg7NCs2I/AAAAAAAAAQ0/DYf2X00-Ddk/s400/richard.dawkins-ancestors.tale-audiobook-cd.jpgRichard Dawkins  - The Ancestors' Tale [Audiobook]
Abridged and Read by Richard Dawkins and Lalla Ward, the audiobook constitutes a good addition to the literature on popular biology, genetics, and 'big history' streams of anthropology and archaeology that have become prevalent. To some extent the book contains more accessible and briefer considerations of work in The Selfish Gene, The Blind Watchmaker and Climbing Mount Improbable.  The crucial point though is that the narrative form that Dawkins uses is imminently accessible and, consequently, the book should reach a broader audience than those books have reached.

Dawkins considers many problems in the book and his discussions clarified my understanding of many issues.  He grapples with the problem of classification, one of the first hints at which is the 'whale-hippo' problem, i.e. the problem that whales are the closest relatives of hippos, closer than other four-legged ruminants or ungulates.  How then does classification occur? How do we separate species? Dawkins argues that we need to consider evolutionary paths, and the distribution of animals along these paths to consider adequately what a species means.  Another compelling argument he poses in favour of 'distribution' is supported by the existence of 'ring species' like the Herring Gull and the Black-backed gull or Ensatina Salamanders in California - read the book for a wonderful discussion of this topic.  

Another problem Dawkins address is the problem of the phrase 'more evolved'.  People mistakenly say that humans are 'more evolved' than other creatures, or that some creatures are more 'primitive' than others. First, humans are not 'more' evolved, homo sapiens sapiens have evolved to suit their environment amidst competition with other humans and other animals, with internal competition amongst genes.  Primitiveness means, really, the degree of resemblance to an ancestor.  We need to ask, then, which ancestor? What do we mean by resemble? Do we mean one bone? An entire physiognomy? Dawkins deals with this incisively by meditating on the anatomy and evolution of duck-billed platypuses and echidnas.

He considers, further, the problem of 'what comes first' with behaviour and evolution, and in so doing quotes a book I thoroughly enjoyed, Matt Ridley's Nature via Nurture.  He proposes that evolution, and co-evolution, can go in either direction: a specific physical variation may occur, which facilitates a specific behaviour, or a specific behaviour may become prevalent, which then facilitates later physical evolution.  His entertaining exemplar is the tale of the brine shrimp: here he proposes that vertebrates may have evolved from worms that turned upside down; their behaviour altered, then physical characteristics of vertebracy followed. 

Dawkins dedicates the book's penultimate section to two important problems.  First, the oft-posed problem by Intelligent Designers of 'irreducible complexity', which Dawkins dismisses (as he does in The God Delusion) by using an argument explicated by Kenneth Miller in Finding Darwin's God. Miller breaks down the argument by IDers of the problem of the flaggellar motor, showing the 'gaps' by assessing TTSS and dismissing the argument of irreducible complexity. Another interesting point is that Miller is religious, and argues that a god would not be so capricious as to break its own divine laws.   The second problem is that of another, to Dawkins, ill-posed question - 'What is the origin of life?' Dawkins argues instead that we should try to understand 'What is the origin of heredity?'  I agree with this re-posing, mainly as 'life' is a difficult thing to define, whereas heredity is not. For heredity, we require a replicator, such as DNA or RNA.  Life seems less amenable to so concise a definition.

I was fascinated by the notion, proposed by Stuart Kauffman, of re-runs of evolutionary history.  I first discovered Kauffman when reading about complexity - he cameos in both Complexity:The Emerging Science at the Edge of Order and Chaos and in The Origins of Wealth - and I found his ideas quite intriguing.  What would happen if evolution, 'happened again'? If earth began again? What would we observe?  The best we can do these days is computer simulations, and that is one area in which Kauffman is involved - the simulation of alternative patterns of evolution with genetic algorithms.  Dawkins, in the final section, complements his discussion of Kuaffman re-runs with notes about his ideas of the evolution of evolvability, bottlenecking, and the origins of sexual reproduction, all of which enchanted me, but which he has discussed in previous books. The introduction he provides in The Ancestor's Tale allows the novice to engage with it from scratch, or for the reader who has read much of Dawkins to engage anew. 

Overall, I would say that this book is one of Dawkins better book, better certainly than The God Delusion.  The book fits into a good pedagogical niche because it covers such a wide array of topics, while supplying the reader with sufficient cues for additional texts to which they can refer if they so choose.  Moreover, the narrative structure of 'tales' makes the work even more accessible and, even though it may seem odd at first to peregrinate backwards in time, the outcome is sensible and rewarding.  I felt though that I had missed something in the abridged audio book and that I should try to dedicate the time to the (next?) text edition at some point in the near future to capture fully the benefits and beauty of each tale. 

American CreationJoseph J. Ellis - American Creation: Triumphs and Tragedies at the Found of the Republic [Audiobook]
I first heard of this book on an EconTalk podcast where Russ Roberts interviewed Joseph Ellis and they discussed the premises of the book.  I would recommend listening to the podcast (it's free) before looking to purchase the book. 

Ellis's previous book - Founding Brothers: The Revolutionary Generation - accounts the origins of the revolution. I have yet to read it, but I now intend to.  American Creation, concerning the same era, focuses, however, on a different set of topics; particularly those triumphs that made the founding and the period immediately following it, a confluence of phenomenal statescraft and political ingenuity while simultaneously maintaining and reinforcing some of the most tragic errors in judgment and morality contrary to the sentiments published in the declaration of independence. 

Ellis writes and argues carefully.  He locates the decisions of Washington, Adams, Jefferson, and Madison (the starring roles) in their cultural milieu, and he recognises that judging their conduct on contemporary cultural and normative values may be problematic.  He claims, however, that certain outcomes were lamentably tragic.  Jefferson, for instance, thought that slavery was an abominable and morally objectionable practice.  But, Jefferson owned slaves and was unable to emancipate them because of his debts.  Jefferson was also evidently a racist, believing that whites were biologically superior to blacks and that when slavery ended (as it surely would) that there should be a plan for expatriation of the black slaves.  His consideration of the constitution for Louisiana following the Lousiana purchase evidences his racism further, when he changed the initial clause that 'all residents of Lousiana' would become citizens of the United States to 'all white citizens'.  Jefferson did not like the idea of creoles, blacks, and mulattos becoming members of his White, English-speaking United States.

Ellis reports on several other tragedies, the most notable of which was the failure to come to a feasible accommodation with the Native Americans, or Indians. I learned a lot here.  For example, the high chief of the Creek Indians, Alexander McGillivray, thought that the United States was destined to fail and the treating with them was ultimately pointless.  McGillivray did so purely to improve his bargaining position with the Spanish in New Orleans.  Consequently, though Washington and John Jay tried to come to an agreement that would provide a moral and respectable outcome for the Native Americans several  factors confounded their efforts. First, McGillivray did not, seemingly, intend to hold to his side of the bargain they made in New York, merely using it as a bargaining chip with the Spanish. Second, Washington and the Federal government even had they wanted to uphold their end were entirely incapable of doing so - the settlers swarming into Indian land was uncontrollable. To adequately regulate the borders would have required a standing army along the borders with commensurate manning of watch towers and border patrols.  The United States did not have the resources to man such a border permanently.  Third, public opinion was against limitations on American borders and on limiting the activities of settlers. A solution would thus have required a grass roots effort to campaign against occupying Native American land.  This reminded me of a prisoners' dilemma - a basic public goods game in which it was in all the US citizens (moral) interests to come to a solution, but in no individual's interests to do it, they should rather emigrate westwards, claim lands, and prosper regardless of the (moral) cost to future generations.

I found the broad sweeps approach of this book to be a useful supplement to the kinds of history to which one is introduced in textbooks on the subject of the American Revolution, the notion of great men 'designing' great outcomes.  Though conceding the greatness of those involved, Ellis shows situations in which the characters could not overcome the forces of institutions, of public opinion, of demography. I would have liked more specific details here and there, but then again I can turn to David McCullough for those.  American Creation is thoroughly readable and worthwhile book. 

1776David McCullough - 1776: America and Britain at War [Unabridged Audiobook]
Continuing my interest in the American Revolution, I got hold of McCullough's acclaimed book 1776. 

Starting in 1775 and ending in early 1777 McCullough narrates the journey of the Continental (and later the United States) army, the initial tragedy of Bunker Hill, the regaining of Boston after the British retreat, the loss of New York, then Fort Washington, and then Fort Lee, followed by the recapturing of Trenton and a final victory in Princeton by Washington.

Strikingly different from Ellis's American Creation, 1776 offers deep insight into the actions that led to the final successes of the war.  McCullough concentrates almost entirely on the particulars of the war, with brief discussions of the politics in the colonies that led to the signing of the Declaration of Independence, and dallying briefly with the personality of King George (not yet mad, still a British patriot, dedicated, and hard-working).  McCullough differs greatly from Ellis in style and selection of content: McCullough uses the base sources far more than Ellis does, and McCullough weaves together differing sources with much less of his own arguments or opinions on the topic trying to allow the main sources speak for themselves (though the selection of which sources to use will evidently support some view, which, in 1776 seems to be a forgiving view of George Washington, while also lauding his greatness later on).  Conversely, though Ellis also uses the original sources, he makes a much greater effort to voice his own thoughts and arguments about the founding fathers. I find that their styles complement each other well, and allow me to form an opinion of my own.  I think that reading Ellis only would be insufficient, whereas reading McCullough gives you a detailed portrait of a specific time, a specific place, and the potent men who participated: George Washington, Nathaniel Greene, Israel Putnam, Charles Lee, and Henry Knox.

The more I read about the American Revolutionary War the more I believe the position was how fragile, how the outcome was so uncertain, and how lucky we all are that General Howe, Cornwallis and others did not press the attack on the United States army when they had the chance.  Also, it makes me realise, yet again, how intriguing the lives are of these 'founding fathers'. I don't intend to idolise them and I recognise that they were flawed, that they owned slaves, and that they did not do enough to champion the empowerment of women, but they were still towering intellects, they persevered through calamity after calamity, and they came to form the longest-lasting and largest republic in the world.  What marvellous history it makes.


Roemerian Policy in the UK?

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

There have been a series of articles in the British press recently discussing the report by Alan Milburn on class barriers and inequality in the UK. As a UK citizen and someone moving to the UK soon (from Italy) I think I'm 'entitled' to comment.

http://www.vannattabros.com/adospics/axe.jpgOne of the most interesting quotes for me came from an article in The Guardian, 'Student fees for those who live at home should be axed'. The article quotes Milburn as saying, "Some universities are taking the context of pupil's educational achievement into account in deciding who gets a university place … a kid in a struggling inner-city comprehensive who manages to get one A and two Bs has probably had to work harder than a kid who gets the same result in a wealthy part of town." This is pure Roemerian theory of 'equality of opportunity'. John Roemer articulated his theory in his book Equality of Opportunity. The basic idea hearkens back John Rawls and other political philosiphers when they articulated the different approaches to 'equality of opportunity'.

Equality of opportunity can be separated into two distinct ideas. First, a non-discrimination principle (i.e. your colour, creed, orientation should not affect the commutative justice that you receive when engaging in contracts with others (employment, exchange, etc). Miller (2003, 76) characterizes this well saying, "Justice is a matter of each individual person being treated equally...a central aspect of justice is that people must be treated in a non-arbitrary way: there must be consistency in how one person is treated over time and there must be consistency between people." Second, a 'leveling the playing field' principle in which the goal is to ensure that each person, as much as they can, faces the same 'playing field' that each other person faces. Roemer's theory fits into this second discussion.

http://farm1.static.flickr.com/33/52660320_5190e570e5.jpgWhen you discuss 'leveling the playing field' you need theory to deal with several different aspects of individual motivation. The two pertinent ideas here are the endowments and ambitions of the individual. Your endowments are those things you are 'given' when you arrive in this world: genetics, parents, social economic status, etc. The exact scope of endowments often differentiates the extent to which people agree or disagree on a particular policy. For example, if I have 'poor' genetics (for which I am surely not responsible) and I have something like sickle-cell anaemia as a consequence, many people would argue that there is then scope for a central body (government) to assist me in dealing with this disadvantage. But what if I live in a single parent household and my parent is alcoholic? Am I, as a child, responsible for that? To what extent should the state attempt to help me 'rectify' that endowment? It becomes hazy. What we try to establish is an area in which we have clarity about what an individual does and does not have control over.

http://www.soschildrensvillages.org.uk/imgs/content/P1010152.jpgHaving established an area of control, we can introduce the second ingredient for adequate policy on leveling the playing field: 'ambition sensitivity'. Ambition sensitivity means that our policies must be sensitive to individuals, who, in given circumstance, choose to exert effort to obtain an outcome. Take South Africa. Observe children growing up in 'black', two parent homes, where both parents have 8 years of education, and they live in a township. Let's say that all of these things are 'out of the child's control'. We then assess the levels of effort asserted by these children, say while attending school. There should be some variation over how much effort is expended. We could say that it would be just to reward those children who exert more effort, given their circumstances. The 'measured outcome' of their effort could be 'high school marks', where those who exerted the most effort get Cs on average, whereas those who exerted less effort received Ds or did not finish high school. Contrast this with children growing up in a 'white', two parent household, where both parents have university level education. Again, we say these things are out of a child's control. We observe the children's effort levels. We see some exert a lot of effort, obtaining As, others, Bs, Cs, Ds, and some do not complete high school. Should we reward those children who obtained Cs in the first circumstance in a similar manner to those who obtained As in the second circumstance? Should we reward similarly those people lower in the distributions, given their circumstances and the effort they exert?

Roemer (1998, 6) argues as follows, "equalizing opportunity for educational achievement requires redistributing educational resources in such a way that the diff erential abilities of children to turn resource into education achievements are compensated for, where those abilities are determined by circumstance beyond the control of the individual." So he would say, reward the Cs as the As and equivalently down the distribution. Now, the problem becomes an empirical one, how do you divide people into types? How do you measure effort? How is effort distributed in groups? All of these are important, but the intuition of rewarding those who expend effort given a certain level of endowments seems to be at the core of this policy proposal and why I thought a brief discussion of it worthwhile.
http://press.princeton.edu/images/k6818.gif
For those interested, similar work can be found in Meritocracy and Economic Inequality (Arrow, Bowles & Durlauf) and Unequal Chances (Bowles, Gintis & Osborne-Groves). There are tons of books on the subject, but those consider some of the relevant empirics and theory.

Friday, July 17, 2009

Randomized Controlled Trials in the Social Sciences

Posted by Simon Halliday | Friday, July 17, 2009 | Category: , , | 0 comments

There's a debate going on about Randomized Control Trials (RCTs) in Economics.  Kicked off by Bill Easterly (in response to recent 'academic' debates in journals about the same topic between Angus Deaton and others).  Take a look at Bill Easterly's blog post, and his (requested) comments by Chris Blattman. 

Three points are relevant in my view:
1) RCTs need to be replicated, and such replications must be published.  This requires that economists and social scientists generally address the institutional inertia about publishing replications.  Top level journals need to start publishing 'replication' issues, or have a 'replications' section devoted entirely to verification of previous empirical results. This might be a pipe dream, but I think it is necessary for us to maintain the 'science' in social science. Esther Duflo (pictured above) favours something like this. 
2) RCTs are not widely generalizable.  They are often local, they are tailored to specific conditions, and the results that economists obtain might be culturally contingent.  Hence, an RCT in one area might work because it does not contravene a group's or culture's moral sentiments, whereas in another area a group might have different values and respond differently to the same incentives.  Obviously the Haifa Daycare centre is the most famous example of this, but there are many others
3) People who talk about the 'ethics' of allocating an RCT seem to miss the boat.  I am with Blattman entirely on this one: if people can see that allocation of a 'treatment' is transparent and uncorruptible then they will believe that it is ethical.  Drawing numbers/names out of hats, or some equivalent public and transparent randomizing mechanism covers this.  But the ethics of dealing within RCTs is crucial, i.e., understanding that they are subjects of a social science experiment, but that does not mean you can treat them as chess pieces, they are people and we require their informed consent (John List has controversial views on this topic).  Hopefully, sensitive social scientists who engage in such work will adhere to such a dictum.

Hopefully my two cents can help to propagate an informed view of RCTs to those who read this blog.

Saturday, July 11, 2009

Ha-Joon Chang - Bad Samaritans

Posted by Simon Halliday | Saturday, July 11, 2009 | Category: , | 2 comments

http://www.uskoreainstitute.org/bin/p/k/bad%20samaritan%20cover.jpgHa-Joon Chang - Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism [Unabridge Audiobook]
Customarily I write short reviews.  I felt, however, that given the extent of my simultaneous agreement and disagreement with the content in Chang's book, it would be worthwhile to write a lengthier piece discussing these competing sentiments.  http://blog.syracuse.com/family/2007/11/infant.jpg

First, I appreciate the history that Chang discusses when he assesses the paths that the UK and the US took toward their economic success. Contrary to popular belief, the UK and the US taxed imports widely (tariffs), subsidised specific industries, and undertook various policies of 'infant industry' style protection. The tale goes back in the UK to debates between Ricardo and Malthus on whether one should protect one's industry to promote its future capabilities, or whether one should expose it to free trade to ensure that it becomes efficient (Malthus argued in favour of tariffs because he felt that the poor would be adversely affected by complete liberalization, particularly that revoking the corn laws would hurt the British poor). So yes, good history. However, when discussing state-led interventions, he fails to recognise one of the great problems of such intervention - how does the state access information about which industries will succeed and which will fail? In a capitalist economy, individuals and firms fail at what they do all the time, when the state is heavily involved in several industries and a sufficient number of them don't 'hit the spot' the state fails. South Korea was remarkably lucky because the areas in which it invested are the areas in which world demand grew. It was also 'lucky' enough to have such autocratic control so as to force people not to consume imports, to work 54 hours a week, and more.

Second, the flaw of ignoring investment specificity links to the flaw of selection, and Chang seems to have ignored research on problems of investment specificity. The argument progresses as follows. If I do not know which of several potential investments will work (and I cannot monitor workers properly), there is a disincentive for me to invest in certain specific projects, or specific kinds of capital. My 'general' capital may allow me to spread risk, but have lower profit, whereas specific capital will be more risky, but might reap higher profits.  The problem is again one of information, one which the capitalist system (approximately) solves by allowing people to invest and succeed, or to invest and fail. Now, it is feasible for government to do this as long as it is willing to fail in at least as many circumstance, if not more, as it wants to succeed. But, once you have invested (in a State-Owned Enterprise) and people are employed, allowing a project to fail is a very difficult political beast to overcome, one that often requires autocratic power. 

http://www.unwiredview.com/wp-content/uploads/2007/08/nokia-5310-xpressmusic-official.jpgBut this problem of 'failing' doesn't allow for the systems that would have failed had you, as government, not bailed them out.  Toyota was bailed out a few times by the Japanese government. Samsung was assisted by the Korean government. Nokia was protected by the Swedish government. They would have failed had they been exposed to market forces, but now they are amongst the leading companies of the world. How do you differentiate between those that will eventually succeed, but require assistance now, and those that will fail regardless. We have more data on those that have been successful than on those that have failed - a problem of sample selection bias in the final data with which we are dealing.  What about the failures? Where's this data?

Third, Chang makes a further error. He repeatedly discusses contemporaneous or sequential events and speaks of them as if one caused the other, when, instead, we probably have evidence of high correlation. Though evidence of some event causing another event - adherence to neoliberalism causing problems in the developing world - we cannot also dismiss the possibility of some underlying cause resulting in both of these outcomes. He does, however, admit this problem, but asserts that the burden of proof falls on free trade economists to prove their case when most of the developed world got to where it is now, with historically hefty tariffs and non-tariff barriers. To Chang, the analogy is as follows, 'If developed countries did not get to where they are with free trade, why should the developing world'. Crucially, I believe, advocates of neoliberal policies make exactly the same fallacious correlation-causation claims, so they're often no better than Chang. They also often fail to admit the history (which I have seen both Becker and Friedman do in discussions, they ignore the evidence and go on to comment about the contemporaneous small size of government in areas other than tariffs). Advocates of the free market laud Chile as their golden boy, advocates of statism and intervention exalt South Korea as theirs (though free market also try to claim SK every so often, I'm not sure how). But doing this misses the array of failures in between these extreme successes, the failures that get blamed on 'the other side' (whoever they might turn out to be).

Chang also displays a strange interpretation of Adam Smith's Wealth of Nations. First, he argues that Smith was a free market ideologue. This is false. Adam Smith argued in favour of market operations supported by government. The notion of laissez-faire was manufactured by the physiocrats, French 'economists' in contemporary parlance, but more than that they were thinkers on moral philosophy and political economy. Second, Chang argues that Smith promoted English interests against those of other countries when he favoured markets, an oddly mercantilist urge. But then Chang goes on to argue that England only reached its zenith in manufacturing industries during the 19th century some time after the Wealth of Nations was published, and after which the government followed some of Smith's advice many years after Smith's death. Notwithstanding whether Smith was being patriotic or not, these facts don't reconcile well.

http://3.bp.blogspot.com/_1HM_-KHZ5K4/R038uHpn90I/AAAAAAAABd4/-kZYwkxA1Ak/s400/thomas-jefferson-picture.jpgFurther, I did not understand Chang's occasional ad hominem attacks. Most decent readers of history know that Thomas Jefferson did not free his slaves. But they know, further, that he could not free them. Why? He was deeply, horribly, horrifically in debt. Slaves were capital, they had monetary value. He could not freely dispose of them because of his indebtedness. Jefferson could live and campaign for their emancipation. It does not serve a book on economics to attack Jefferson for owning slaves, when you are trying to engage his thoughts on America as a market economy, or his position on free trade. Though we may recognise that Jefferson was a racist who wanted Africans extradited from the Americas, Jefferson's position is irrelevant to a book on modern trade practices and the world economy.

Chang does, however, offer a high quality critique of the Hecksher-Ohlin(-Samuelson) model. One of the major problems with this theory of trade is that they assume 'perfect mobility of factors of production'. Factors of produdtion are labour and capital, the 'inputs' of the production process. However, they are often not approximately mobile, let alone perfectly mobile. Historically, many believed that labour was mobile, but capital was not. With theory from sociology and anthropology, however, we have seen that labour too, is not as mobile as people thought it was. Moreover, governments intervene to ensure that people cannot move between countries, which also precludes labour mobility. One of the great ironies of the United States free market ideology is that its ideologues amongst US Conservatives promote the free movement of capital, but heaven forbid the movement of Mexicans or other foreigners (as labour) into their market.

http://www.sfu.ca/cstudies/mpprog/images/IntellectualMonopolyBook.jpgChang argues lucidly on the topics of both intellectual property rights and 'corruption'. Intellectual property rights have received a lot of attention lately, a recent book by Boldrin and Levine tables the evidence Against Intellectual Monopoly. Chang promotes a similar cause, saying that historically most of the Bad Samaritans did not themselves apply others intellectual property rights and that they developed well as a consequence. He draws on Newton's 'Should of Giants' metaphor, and insists that patent and copyright law, as they stand, are barriers to innovation, to technology diffusion, and thus to development.

Segueing from intellectual property to corruption, he asserts that corrupt governments are not the boogeyman, but rather that certain kinds of corruption are bad, and that certain kinds of corruption can facilitate development (as they did in the cases of the US, the UK, many Europeoan countries, and even Indonesia). He argues further that the resources that developing countries are forced to dedicate to the eradication of corruption and graft would be better suited being invested, and, eventually, once the country becomes better off corruption will probably tend to ebb. Recent work on this (Dutt and Traca, 2009 also see Bardhan, 2006), suggests that, in corrupt countries (and especially in corrupt developing countries with high tariffs), corruption may lubricate the system and allow trade to occur more readily. 

Chang also emphasises strange trends in Power, Politics and Economics. We may believe in the moral value of democracy, but this does not imply that democracy is the best thing for growth. The evidence does not suggest that democracy favours growth more than autocracy does. We should therefore understand that we see democracy as morally superior, but we cannot argue that it is superior because it promotes growth. When looking at the rhetoric of democracy we need to understand this. If evidence was found that democracy was not as good for growth as autocracy, what kind of costs are we willing to bear to ensure a country is democratic but does not grow as well as an autocracy? One thing in the democrat's favour is that countries that develop tend to become more democratic once they reach a specific stage of development, but often that stage is historically contingent and country-specific. 

http://www.bible-history.com/archaeology/rome/julius-caesar-general-dictator-bust.jpgChang concludes the book with a discussion of recent trends in economics to discuss culture as a correlate of economic development and inequality, providing entertaining descriptions of the British by the Romans during the Roman Empire, and also offering descriptions by Westerners of the Japanese, Koreans, and other Asians.  I understand his quibbles with using culture as a fixed, exogenous characteristic of an economy, but we should understand in economics that culture, in its various and dynamic realisations, greatly affects how economies respond to stimuli, how each person in a society feels about a policy, how they react, how they engage with it - much of which can be culturally contingent.  I repeat, this is not to say that culture is inanimate, frozen, or unchanging, but that it invigorates their moral sentiments, that it affects how people respond to incentives, to constraints, and thus to policy.  I believe that Chang needed to give such nuanced analysis more credence.

The book stimulated me to think about Chang's arguments and to take steps to understand why I agree with his position on certain aspects of policy, disagree with others, and remain uncertain about the remainder.  Chang writes polemically, he is evidently committed to a certain position in Economics and his predictions ring true in the current crisis, particularly his insight that the developed world prescribes neoliberal policy to the developing world during its crises, but promotes Keynesian policies for itself during its crises.  Nothing could be more accurate about the current economic crisis.  We must recognise, though, that there has been a sea change in US politics and economics, and we will continue to feel these changes reverberate around and through us for some time.  I would recommend reading the book both because of its flaws, which help the reader to clarify thoughts on related issues, and because of its strengths which allow us to understand better contemporary economic policy and its surrounding debates. 


La Repubblica gets happiness economics wrong

Posted by Simon Halliday | | Category: , , | 3 comments

http://quakeragitator.files.wordpress.com/2008/11/happiness_by_wint3r88.jpgIn a recent (Italian) article, 'I nuovi paradisi non conoscono il Pil' (The new paradises don't know GDP), the reporter for La Repubblica is evidently confused about the evidence from happiness economics, or the economics of subjective well-being (SWB).  She writes, "La ricchezza non può comprare la felicità," which translates as "Wealth cannot buy happiness." This is patently false.  All the evidence coming from representative data (that I know of) indicates that there is a strong positive correlation between higher levels of income and levels of subjective well-being.  Hence, wealth can buy happiness.  Moreover, this is supported in the Happy Planet Index report, "Life satisfaction [...] correlates with the size and strength of [...] income and employment." (HPI, 2009, 11)

For certain countries, however, there seem to be factors that correlate with higher levels of income and which also correlate (independently of income) with decreases in subjective well-being.  Hence, money buys happiness, but other things make you unhappy, so unhappy that they overcome the benefits of more money.  What are these things? Decreased trust levels, increased crime levels, decreased social participation, aspirations and adaptation, and many more.
http://www.freeclipartnow.com/d/8538-2/happy-planet.jpg
The 'Happy Planet Index' ranks countries by their level of reported happiness.  What does such a ranking mean? Nothing. We do not know what cultural factors play into reporting specific levels of subjective well-being. What if Brits think it's impolite to talk about 'happiness' or 'satisfaction'? What if Germans feel that they cannot legitimately call themselves 'more satisfied than average'? What if [insert potential cultural confound here]?

What we can talk about though are trends in specific countries over time, and then compare these trends across countries.  The author of the article does both of these, she talks about how happiness was higher in the US, India and China 20 years ago, but then she goes on to discuss the rankings of particular countries and how the Latin American countries in particular rank highly.  Cultural differences? Don't mention those, they might damage the conclusion that 'development makes you unhappy'.

Some caveats: the construction of the index results from life expectancy, ecological footprint (required hectares per person), and subjective well-being.  The problem, however, is that SWB cannot and should not be included in such an index because you cannot do legitimate inter-country comparisons with SWB levels, but only changes over time. I cannot reiterate this enough and I see this error perpetrated regularly. You  cannot do inter-country comparisons of happiness levels!  Also, the flaws in the article represent flaws in the Happy Planet Index and its report. The irony is that I favour new indexes to offer as alternatives to GDP, but these indexes cannot include happiness levels for inter-country comparisons because doing so excludes too many potentially confounding factors.  Should we include, and try to explain, trends in happiness or SWB? Certainly. But it doesn't help to do so in ways that abdicate our responsibility to adequately  understand the problems of such studies.

Please excuse some of the generalizations made above about the potential proclivities of specific cultures, they were meant as illustrations and not as theories of culture. HT: My friend Marco who sent me the article from La Repubblica, I only read it occasionally otherwise.

Blogroll Update

Posted by Simon Halliday | | Category: | 0 comments

Wednesday, July 08, 2009

Casnocha on Cowen

Posted by Simon Halliday | Wednesday, July 08, 2009 | Category: | 0 comments

http://www.lfb.org/images/create.jpg I enjoyed Ben Casnocha's appraisal, titled RSSted Devlopment, of Tyler Cowen's recently released book Create Your Own Economy.  I'll read the book once it comes out in paperback and I'll certainly provide a review then (1 day to go till paperback release in the UK... hmm... ok I'll probably pick it up as London-Qatar-Cape Town reading material at the end of the month).  Until then, take a look at Casnocha's review - he ties together several strands of thinking in the blogosphere and combines them with what he read in the book to produce a compelling essay.  And, contrary to Nick Carr, I didn't find it difficult to concentrate on the essay, nor did I skip around too much (I admit to googling Carr's essay, which I read last year, and to loading up Casnocha's website while reading the piece).  Anyway, take a look, I'm looking forward to reading it, strange theories of autistic information processing. 


Friday, July 03, 2009

SA - What to do with Evolution

Posted by Simon Halliday | Friday, July 03, 2009 | Category: , | 0 comments

An article from The Guardian, 'God or Darwin? The world in evolution beliefs',   discusses the representation of and belief in evolution across 10 000 people survey in 10 countries.  I don't know about the design, but, assuming it's vaguely representative, SA performs poorly.  27% of surveyed South Africans have heard of Darwin, 8% agree that scientific evidence for evolution exists, 12% think evolution should NOT be taught, only other theories. 
http://nodebox.net/code/data/media/evolution-gcd.jpg
SA has a problem with education, so I can understand the lack of knowledge about Darwin (I still think it's crazy). Let's assume, then, that those who have an opinion on teaching evolution or believing there is scientific evidence know about Darwin.  So we're dealing with that 27% percent of the sample interviewed.  This means that 8/27 (about 30% of those who know about Darwin) believe there is a scientific basis for evolution, and, similarly, of those who know of Darwin and evolution, 12/27 (about 45% of those who know about Darwin) believe that it should not be taught in schools.  I want to know what those other 7/27 believe.  Do they think there isn't a scientific, but that it should still be taught? That would seem to be an odd opinion.  They could be indifferent. I hope they aren't.

Anyway, whoever chose the article's headline chose awfully. It's got nothing to do with God 'or' Darwin, but whether Darwin should or shouldn't be taught in school and whether those sampled believe that scientific evidence for evolution exists.   Comparing SA to countries like Russia (93% heard of Darwin) and Mexico (91% heard of Darwin) makes me sad. 

US under Sharia Law?

Posted by Simon Halliday | | Category: | 0 comments

Thomas Sowell has historically been worthy of respect for several reasons.  I have found his economic analysis trenchant, though I find I often disagree with some of his conclusions (often because I think his assumptions are just a touch too libertarian).  I think his insight into economic history is worthwhile. His recent article in National Review, 'Why Republican Infighting Matters', has some great points about the flaw in the Republican party (many Americans list themselves as Conservatives, yet the Republican party, traditionally 'Conservative' is at an all-time low in power).  But, he then goes on to make the crazy claim that a nuclear-empowered Iran implies the following about the current US government: 
Perhaps people who are busy gushing over the Obama cult today might do well to stop and think about what it would mean for their granddaughters to live under sharia law.http://stopsocialism.files.wordpress.com/2009/04/nuclear-explosion-1.jpg
Let's consider that Iran, or terrorist affiliates of Iran, get two active nuclear ICBMs, target them on NYC and Washington D.C., and pop goes the weasel.  And suddenly the US is taken over by fanatical Islamists! Of course! How could I not realise it?! The US would, of course, never launch a counter-attack, but would willingly submit to the will of the Islamic Theocracies and the superpower would CRUMBLE!

Um... No. No. No. Sloppy, sloppy logic.  Fear-mongering, Obama-slandering, slop
py 'logic'.   'With Obama as our president our grandchildren might live under Shariah law!' One could more logically say that if Shariah law ever came about in the US it is unlikely to have been the result of Obama's policy only.  I get that Sowell's an economist, I get that he wants to isolate one cause and ceteris paribus the others out of that frantic picture, but really, what about GW's policies in Iraq and Afghanistan, and his position on the Israel-Palestine situation? What about Clinton? What about George 41? Oh yes, none of them took any positions on the Middle East.  Ever. But Obama? He's to blame for your grandkids living under Shariah law.  Sigh.