Romance Econometrics

I had a mentor at BYU, Prof. James McDonald, who tried to convince us that

  • Econometrics is Fun.
  • Econometrics is Easy.
  • Econometrics is Your Friend.

One of his classes made a bronze plaque out of it for him. He also tried to convince us that Economics is Romantic because this one guy took a girl to his class on a date and she married him anyway. Because he was one of the economists I’ve tried to model my life after, I’ve always been on the lookout for ways to convince people that econometrics is, in fact, fun, friendly, easy, and romantic.

A while back, Bill Easterly blogged about how marriage search is like development, and in the process talking about how unromantic economists can be:

I recently helped one of my single male graduate students in his search for a spouse.

First, I suggested he conduct a randomized controlled trial of potential mates to identify the one with the best benefit/cost ratio. Unfortunately, all the women randomly selected for the study refused assignment to either the treatment or control groups, using language that does not usually enter academic discourse.

With the “gold standard” methods unavailable, I next recommended an econometric regression approach. He looked for data on a large sample of married women on various inputs (intelligence, beauty, education, family background, did they take a bath every day), as well as on output: marital happiness. Then he ran an econometric regression of output on inputs. Finally, he gathered data on available single women on all the characteristics in the econometric study. He made an out-of-sample prediction of predicted marital happiness. He visited the lucky woman who had the best predicted value in the entire singles sample, explained to her how he calculated her nuptial fitness, and suggested they get married. She called the police.

He goes on from there to describe how he eventually did find a mate and makes a comparison with development and over-reliance on econometric methods. As popular as it is in Libertarian circles to bash on econometrics, I’d like to defend empirics by pointing out that his regression advice was not sound:

1 – The suitor’s regressions ignored the self-selection bias. Regressions only tell us what the ‘average’ effects are, that is the effect for the ‘average’ person. Making the average guy happy is only relevant if he is the average guy. Economists being the strange lot we are, it is likely that it takes a special kind of person to marry one of us. He ought to have found a bunch of guys very similar to himself and examine the qualities that made a difference from among (and this is key) the population of women willing to marry guys like him – the women who self-select themselves into our group. If he then approached a women who was not in that group, no wonder he was rejected! I knew I had my work cut out for me since I was in junior high: a Latter-day Saint economist-in-embryo who read Shakespeare “in the original Klingon”, and who carried a briefcase to school? Small sample sizes indeed!

2 – He ignored endogeneity. Instead of trying to convince her that research showed she would make him happy, he needed to present research that demonstrated he would make her happy, and that’s the other half of the regression: male qualities on marital happiness. No wonder she rejected him: his regressions didn’t answer her question!

Personally, I took more of a Bayesian approach. Bayesians believe that a lot of things in life (like regression coefficients) are random and over time we get better and better signals about where the truth is, but we only ever approach it by degrees. First, by trying to become a friend, I identified if a woman was in the group of people who might marry someone like me. Each interaction gave me more information about the error term and the regression coefficients about fostering a happy, loving friendship that could endure. After any failed relationship, I had a new variable or two to add to my equations and I understood the ‘relationships’ between relationship variables better. That might be about finding out different things I needed (hunh, so her political affiliation isn’t as important as I thought and her willingness to smile at me is vital) or about learning more and better policies over time that I could enact to make her happier (tips for being a better listener or learn to identify her love languages and feed them to her regularly).

One of the most important regression-related romance tips I learned was to control the variables I could control, and leave the residual in God’s hands. I recall a graduate labor economics research seminar where the presenter claimed that the marriage market always cleared. I complained that I was willing to supply a great deal more marriage than had ever been demanded at prevailing prices. I was reassured that the marriage market clears in equilibrium, and I might not have found my equilibrium yet. The presenter’s prediction was, thankfully, prescient: I found a buyer a year later, and last week we celebrated 5250 days of married bliss.

Watson my mind today: culture change

That, and spring time: that mystical time of year when a young student’s fancy turns to their neglected grades and wonders if there is anything they can do once the semester is over to raise them.

Culture is an emergent order. It cannot be owned, so you can’t have a “right” to a culture. It can’t be controlled, and while it can be influenced, it’s a complex system so beware lest your efforts backfire.

— Change doesn’t come, until it comes quickly. This serves as another reminder of the importance of keeping true ideals alive even when they are unpopular and they seem doomed to obscurity.

— It is also a warning about other changes, such as the growing anti-natalism of the left, brought in through environmentalism.

Caplan’s review of Moller’s Governing Least. “Instead of focusing on the rights of the victims of coercion, Moller emphasizes the effrontery of the advocates of coercion.” Even if “exceptions abound” to the “common-sense morality … that rights to person and property are not absolute … Moller sternly emphasizes … that these exceptions come with supplemental moral burdens attached.” Highly recommended.

— Responding to Ambassador Araud’s claim that the culture of neoliberalism and free trade are dead, Sumner says “Intellectuals focus too much on interesting rhetoric and too little on mundane reality.”

— On the importance of a culture that allows people to repent and change, that allows someone to apologize, make amends, and receive public forgiveness.

Watson my mind today: labor markets

And how ‘bout them Dodgers, hunh? Actually, how about each division’s top team? That’s a lot of winning!

— A partial response to Marx’ claim that managers are expropriating the value produced by the workers while providing nothing themselves: “The study showed that managers didn’t just influence the results their teams achieved, they explained a full 70% of the variance. In other words, if it’s a superior team you’re after, hiring the right manager is nearly three-fourths of the battle.”

— Boudreaux wonders what supposedly-enormous transaction cost prevents firms from offering workers a choice of pay packages – buying more parental time for a lower wage, for instance. One commenter notes their firm does just that, letting workers buy back vacation time. This is also, of course, standard practice in much of academia, where faculty are allowed to reduce their teaching load in exchange for a salary cut – usually funded by a research grant.

— Sumner on how labor market reforms (including cutting unemployment benefits) helped Germany and Israel to lower average unemployment rates and increase economic growth.

— But there appears to be a great deal that only deregulation will not be able to change. A new paper by Berger and Engzell finds correlation between the European-country-of-origin of people in modern US and the level of inequality and intergenerational mobility. Institutions persist for a very, very long time … again. (Homework: How does this apply to the reparations debate?)

— Another new paper by Fone, Sabia, and Cesur finds that higher minimum wages increase property crime arrests – contra expectations – so that “a $15 Federal minimum wage could generate criminal externality costs of nearly $2.4 billion.”

— A history of civil asset forfeiture tells how the British Crown’s attempt to encourage the Royal Navy to enforce trade restrictions and tariffs became so widely used in modern America.

— Summers and Sarin show that wealth taxes will take in much less than their proponents hope.

Watson my mind today

Apart from grading, reviewing, and my soon-to-be 5-yr-old’s birthday, that is…

–  A good question from Don Boudreaux. “Assuming (contrary to fact) that American trade deficits do necessarily cause Americans’ indebtedness to foreigners to rise, why do you bemoan these deficits? Why not instead cheer them? … Being indebted to foreigners means that we Americans must repay these debts, which in turn means that we Americans must in the future work to produce more goods and services for export. Isn’t this situation precisely what you and other protectionists want? Isn’t a rise in the demand for American exports – especially a rise not derived from, or offset by, a simultaneous rise in American imports – your very ideal?”

–  Speaking of protectionism, Tyler Cowen on Elizabeth Warren’s agriculture proposal: “a disappointment on two fronts: too wonky to be considered a purely political document, but not nearly wonky enough to be defensible in terms of substance.” It fails to understand inflation and food price data, calls for more protectionism, and doesn’t remove subsidies. He says he might be persuadable on a “right to repair” law, but worries about copyright infringement.

–  One of the issues Ludwig von Mises himself, I am told, never fully settled in his mind was over patents and copyright. It seems a necessary evil to encourage innovation, but granting someone a government-sanctioned monopoly just grates the wrong way. Now we’ve got “patent trolls” to add to the mix, who do not innovate themselves but buy up patents to collect licenses and sue or threaten to sue others. A paper finds that patent trolls encourage more upstream innovation while discouraging downstream innovation.

–  Why does Scott Sumner simultaneously support the Federal Reserve’s interest rate hike last year and expect a cut this year? As a market monetarist, he would like the market to dictate Fed policy and “the fed funds futures market forecasts a rate cut. … Because markets continue to forecast slightly below 2% inflation, even as the economy slows, the market forecast of an interest rate cut should be taken as evidence that a rate cut is probably needed at some point this year.” I also enjoyed the picture that goes with the article – he is an owl, neither a hawk nor a dove.

–  There’s a dictionary, detailing how Africans speak about politics, including some fascinating idioms. “Three-piece suit voting” refers to supporting the same party for all elected positions. On the contrary, “skirt-and-blouse voting” means to vote for different parties for presidential and legislative elections.” Other enjoyable examples at the link.

–  538 has an interesting piece on the perceived fairness of kidney donation systems, and the real struggle that still exists trying to get people to accept slightly less-regulated systems (let alone actually compensating donors’ families).

–  David Henderson: Occupational Licensing is a Bad Idea. Still. Really.

A humorous aside, out of context

<Scene: A wood-paneled study where a smartly-dressed person sits reading aloud from an oversized King James Bible.>
“Isaiah 9:7 – Of the increase of government … there shall be no end… .”

<Our hero pauses, turns to the camera and deadpans.>
“You got that right, brother!”

<Exeunt>

Freedom of Religion Secures Other Rights As Well

Ethan’s post on “The Why of Religious Freedom” inspired me to add one more to his list of reasons why freedom of religion deserves special treatment and protection. The freedom of religion preserves other freedoms we hold dear. Even those who do not wish to belong to an organized religion or to hold strong religious opinions have their freedoms secured because of the protection granted to religious freedom.

Freedom of religion, the first freedom protected by the US Constitution’s First Amendment, is part of having freedom of speech. Imagine a country where you could say anything you wanted, except those ideas and principles you hold most dear to your heart. How free would you feel your speech actually is? If you have freedom of the press and can print any opinion or argument you care to, unless it is about your conscience, how free is your press? To say that you may express your political opinion and vote unless you have religious reasons for that opinion similarly denies the equal protection clause of the 14th amendment.

Freedom of religion is also a guarantor of freedom of assembly. This last weekend while in Atlanta for the Teaching Professor Conference in Atlanta, my colleagues and I toured Rev. Dr. Martin Luther King Jr.’s church and neighborhood. The civil rights movement for many years worked through the churches because it was the only place African Americans were freely allowed to assemble together in many areas. As they assembled, they had the freedom to speak out against the injustices and oppressions they faced and work together to overcome them.​

As Rev. King put it, “Freedom is like life. It cannot be had in installments. Freedom is indivisible – we have it all, or we are not free” (The Case Against “Tokenism”). To extend that argument, when we say ‘freedom of religion’ it is the people who are free, free to believe how they will, to speak and gather and act according to their beliefs freely. In “The Ethical Demands For Integration,” Rev. King argued:

“A denial of freedom to an individual is a denial of life itself. The very character of the life of man demands freedom. In speaking of freedom … I am not talking of the freedom of a thing called the will [or in our case, religion]. The very phrase, freedom of the will [religion], abstracts freedom from the person to make it an object; and an object almost by definition is not free. But freedom cannot thus be abstracted from the person … . So I am speaking of the freedom of man, the whole man.”

If we cannot be free in our religious thoughts and exercise – whether connected with an organized religion or not – we cannot be a free people.

The Gradual, Eventual Triumph of Liberty

Today I’d like to write a few words of hope and encouragement to those who already understand liberty’s value. I read a speech from 1853 that stood out to me. It’s easy to be caught up in the daily news cycle and feel that liberty is constantly under attack and threatened at every hand, that every gain is clawed back as liberties are eroded one at a time. At times like that, it is good to step back and took a better look at the broader history of the world.

The speech I read was by a gentleman named Parley P. Pratt, an apostle of the Church of Jesus Christ of Latter-day Saints in the Utah territory. This was just a few years after the Mormons, including Pratt and his family, had been driven from their homes by mobs and by indifferent and sometimes hostile state and federal governments in the United States proper to find freedom and refuge in the Rocky Mountains. There they still held 4th of July celebrations, honoring the sacrifices for liberty their fathers had made. Pratt, by this point in his life, had traveled through England and parts of Europe, much of the US, Canada, and along the Pacific into Mexico, and met with many people from Asia as well – a remarkably well-traveled man.

Despite the very real failures of the government to protect their individual rights or redress their grievances, he spoke in praise of the Constitution. The main thrust of his address was that the cause of liberty would expand and someday fill the world:

The longer I live, and the more acquainted I am with men and things, the more I realize that … the Constitution of American Liberty was certainly dictated by the spirit of wisdom, by a spirit of unparalleled liberality, and by a spirit of political utility. And if that Constitution be carried out by a just and wise administration, it is calculated to benefit not only all the people that are born under its particular jurisdiction, but all the people of the earth … . It seems broad enough, and large enough, to receive and protect all that may be in any way deprived of the common rights of man. …. [The principles of the Constitution] embrace eternal truths, principles of eternal liberty, not the principles of one peculiar country, or the sectional interest of any particular people, but the great, fundamental, eternal principles of liberty to rational beings – liberty of conscience, liberty to do business, liberty to increase in intelligence and in improvement […]

There is a day coming when all mankind upon this earth will be free. When they will no longer be shackled, either by ignorance, by religious or political bondage, by tyranny, [or] by oppression (Journal of Discourses, Vol. 1, p. 137-143)

Pratt claimed this would not happen predominantly by revolution and violence, but by America being a beacon light to the world. He spoke of throngs of people who would sit in his day enjoying to hear of our freedoms, our institutions, and our scientific and cultural progress. He spoke of the immigrants coming to this country from all parts of the world specifically to find that freedom, and that once enlightened by being allowed to think and reason and act for themselves without the bondage of kings, state religions, or other powers they would blossom and rise up in greatness. Whether they eventually returned to their native lands or not, this would act as an “indirect influence … on those despotic nations” of Europe and Asia.

Recognizing that our liberty is remarkably multi-faceted, I will focus on the same categories Pratt mentioned. At the time he spoke, there were exactly 3 nations that were in some measure democracies, where at least some large percentage of the populace had the liberty of choosing their leaders. You can see for yourself how this has grown in the intervening 160+ years:

NOL Watson 1
source: Our World in Data

Billias’ 2009 work on how the principles of American constitutionalism were “heard round the world” shows that waves of influence gradually spread the principles of self-determination, liberty, separation of powers, and checks and balances into the freedom movements and constitutions of most of the world. Even while warning that the last ten years have seen declines in liberty overall worldwide, Heritage shows us that the last thirty years still show remarkable improvement:

NOL Watson 2

From a time when the US was one of very few countries to legally protect religious liberty, today nearly three-fourths of all the countries in the world have a constitution that specifically protects freedom of belief, and two-thirds permit some religious proselytism – which preserves freedom of expression (Pew Global Restrictions on Religion). There is still much to do to improve and preserve religious liberty around the world, both in legally acknowledged protections and in fostering an actual peaceful society where religious groups are not subject to violence and persecution.

Despite the distance left to go, the cause of liberty has clearly moved forward in great ways in the last 160 years. Much as Pratt predicted, much of this was accomplished without great revolutions and civil wars, but through the power of example as free nations and free people proved themselves a beacon to the world. There is still good cause to believe in that fundamental converting power from setting the right example and allowing free people to govern themselves.