A couple of post-election thoughts

  1. The left has not learned the right lesson.
  2. What the hell is up with Predictit?

Trump was the perfect Madisonian teachable moment. A horrifying figure who I wouldn’t trust to watch my drink while I got up to hang my coat. The lesson should have been clear: scale back the power in the Oval Office. But now that the pendulum has swung the other way, they “are urging him to follow President Trump’s example”. This is why we can’t have nice things.

Meanwhile, in a world where people are putting their own money on the line, people are still holding out hope that Trump will win the election he just lost. The market for predicting the winner of the presidential election has 10’s of thousands of transactions and places the probability that Trump or Biden wins at 103%. As an economist I find it disconcerting that I can still buy contracts of “Biden to win” at 88 cents. The lesson I’m taking away is that (at least when Trump is involved) there’s a wide margin of error on how accurate the prediction market estimate is.

Election Day

You’ve seen me gripe about the inadequacy of the “Throw the Bums Out Theory of Governance” before. I could make the argument again, but Carlin’s more eloquent.

For the record, I did vote, but only for the sake of domestic harmony. I’m under no illusion that this is the year they’ll finally pick my preferred (least un-preferred) candidate. And I’m still going to complain, because a) causality is more complicated than works for the premise of a joke, b) I need a hobby and complaining doesn’t require special equipment, and c) I think complaining is a more valuable and useful form of civic duty than voting.

If you’re voting today, I hope it doesn’t suck to much. If you’re not, I hope you’ll use your saved time to actually make the world a better place.

Are we over profit maximization?

Friedman: A business is obligated to maximize shareholder value, nothing more.

Everyone else: That’s crazy! Profit maximizing businesses roll over all sorts of other stakeholders and fail to live up to basic ethical standards.

This relates to a complaint I’ve made before. Markets are good at generating prices that reflect aggregate views on the relative scarcity/importance of various goods. Markets aren’t good at charity. To roll other things in there means a good old fashioned price is now a price plus an obligation to do some moral calculus in how we each interact with the complex adaptive system that is the world economy. It’s a recipe for disaster.

So what do we do? We recognize the gap between a world where Friedman’s advice is reasonable and the world we live in, then we figure out how to close that gap. That Friedman’s doesn’t match our world says more about our world than it does about Friedman’s argument.

Rather than move Friedman’s starting point by trying to juggle competing demands of various stakeholders without markets, we should think about the legal framework these stakeholders are acting in.

If we refine our understanding of who has what rights to make what decisions we’ll see that the reason profit maximizers (and vote maximizers) sometimes do bad things is because it’s the best choice available to them. The answer isn’t to say “businesses lobby business therefore they shouldn’t respond to incentives!” it’s to say “therefore we should restrict opportunities to seek rents!”

Coase wasn’t trying to tell us that spillovers don’t matter. He was trying to tell us that transaction costs do matter and whenever they’re present, we need to be careful in allocating rights that have spillover effects. By the same token, we should think of Friedman’s advice as saying “in a perfect world, corporations should maximize profits, but the world needs work.”

Pop Epistemology

I believe in gravity. I don’t believe in the flat earth conspiracy. But I haven’t done the work to verify either. Instead, I trust that some social process of “science” has done a reasonably good job of assembling and verifying the knowledge that keeps my house from collapsing or my car from exploding.

There are some areas where I’m qualified to hold an opinion. But honestly, it’s a pretty small set of things and subject to an infinity of caveats. The things I “know” are really things I believe because they were taught to me by sources I trust. It’s an imperfect system, but it works tolerably well and it frees up my time to do things like working, and having a life. I’m not going to “do my research” because that would mean not doing something with higher marginal benefit.

What Trumpians realize is that sowing distrust in sources of knowledge gives them an advantage in the marketplace of ideas. What’s worse is that they’re not wrong about the fundamental ambiguity of knowledge. I haven’t got enough time, energy, or inclination to verify that the sun will in fact rise again tomorrow. I can’t scientifically test the veracity of claims of what sorts of noodley appendages touch us all.

Do I know that Joe Biden is a better candidate than Trump? If I’m being honest, the answer is no. I’m not terribly comfortable with that, so I might decide against being honest. I know enough to verify that at least one of the candidates is a turd sandwich of a human being.

What I know for sure about this mess is that the problems are complex. Even a well funded team of experts with broad powers would have infinite problems sorting things out. And the sorts of people we try to put in power are less capable than well funded teams of experts with broad powers.

As always, I hope we learn a valuable lesson here. Complex systems are always going to confound our simple human sensibilities. Given the complexity of society, we should avoid aggregating so much power into the hands of politicians–especially when “the other guy” sometimes gets hold of that power.

I blame all of you

Here we are, 20 years into the distant future, and the newspaper of record now includes musical opinion pieces. Don’t get me wrong, I love Weird Al, but I’m sure he’d agree that a world where he’s writing songs for the Times is a world that’s broken.

It would be comforting to imagine this is the fault of the Illuminati. But the truth is our society is the collective outcome of all of our actions. There are constraints keeping us away from Utopia (limited time and resources, path dependence, etc.), but within the bounds of those constraints we get the outcome that we want. And apparently the outcome we want (i.e. want enough that we’re willing to work for it) is a dumpster fire.

Get your shit together humanity. It doesn’t have to be this bad. But it’s not going to get better if we keep rage tweeting about how awful it is how the other side keeps rage tweeting.

Interpretation is Everything

I’ve got a thing for models. And COVID has meant a lot of cool little models of disease transmission have been coming across my desk. This has been fun for me. But it’s also an intellectual minefield. Models help us tell stories and think through versions of the world that haven’t happened, but could. And they leave us feeling confident that we understand the world we’re operating in.

But it’s worth remembering a key inescapable fact: you always have to use your best judgment. There are no straightforward conclusions you can get for free without taking a risk of being wrong. A model showing that masks are worth it misses knock on effects. That doesn’t mean the model is useless, just that it only captures one part of the world.

Take the humble supply and demand model. We take a couple of lines, add in some other conditions (e.g. taxes, transaction costs, price controls, etc.), do a little algebra, and voila! You’ve got yourself a conclusion: subsidizing a good will result in people buying more (despite the private benefits of those extra units being less than the private costs). If you find some reasonable estimates of the elasticity of supply and demand for a product you can figure out how much impact a subsidy would have. Ceteris paribus.

All models rely on the ceteris paribus assumption in some form. If a model didn’t hold something constant it wouldn’t be a model anymore, it would just be a copy of reality.

In the case of supply and demand we’re rolling pretty much all the interesting things into that all-else-held-equal assumption. Language, history, legal structure, current events, politics, technology, and all the infinite possible interactions between things. Subsidizing face masks in 2019 would have seemed like a mistake, holding constant the state of affairs in 2019. Sure, we could have figured out that there was some sort of positive spill-over for masks even without a pandemic. But we could have also identified any number of other threats competing for scarce resources.

My advice to students: maintain humility. (My advice to non-students: maintain a student mindset.) Economics provides an incredibly powerful set of tools, but it doesn’t make you a god. There’s no getting around the fact that you’ve got to simplify reality to understand it and there’s no fool-proof formula for identifying things that make sense to hold constant in a constantly changing world.

The Blind Invisible Hand

Kevin recently wrote a post that really tickled my brain. It touches on the computational aspect of entrepreneurship. There are a couple points I’d like to follow up on.

First I’d argue that the uncertain entrepreneur is not the analog of the blind watchmaker. This is a minor quibble, but I think it’s good to keep our language tidy and that includes clarifying our metaphors. The Blind Watchmaker is a perfect metaphor for the emergent order in markets. But the watch is the market as a whole. Any one entrepreneur is just a tiny component of the system–potentially an ingenious component, but always dwarfed by the genius of the system as a whole. The watch maker in biology is the process of evolution. In markets, the closest idea we have is the invisible hand–also an evolutionary process.

Second and more importantly, I’d like to poke at the genetic component of the metaphor to show how much harder social evolution is than biological evolution.

Evolution is a process that acts on the substrate of “replicators”. DNA replicates (in genes) and so do ideas/jokes/norms/etc. (in memes). I guess we could just say “a business model is a type of meme!” and be done with it. But even thinking about what Internet jokes spread means stepping away from the abstract genetic alphabet of strings of A’s, T’s, C’s, and G’s.

The replicators of entrepreneurial evolution occur at more than one level (as I understand it, the idea of multi-level selection is controversial in biology, but inevitable here): little patterns of behavior make up larger patterns. A burger restaurant is sort of like a buffalo. And the business model (e.g. McDonald’s franchise) is sort of like the species as a whole or perhaps something even broader. All the various ways to market burgers compete across a range of niches, but we don’t have a literal genetic code to analyze. We might, hypothetically, be able to isolate the appropriate atomic unit of economic life, but I’m skeptical it would be terribly useful (at least for human understanding).

Still, what entrepreneurial and biological evolution have in common is that they are, fundamentally, complex sets of computations (in out-of-equilbrium systems) on a non-silicon medium. Entrepreneurs indeed face a different situation than genes, but that’s only because they’re dealing with multiple (tangled) layers of evolution spanning large scale things like:

  • human culture,
  • legal systems,
  • economic patterns and business models,

through medium-scale things like the particular landscape of a particular market at a given time and place, down to micro things like the particular ISO specifications of some particular size of bolt.

It’s true that “unlike evolution, you…are trying to achieve something beyond replication…” as an entrepreneur. But at the end of the day a) your apparently high minded goals are really just their own evolving and replicating memes, and b) your apparently high minded goals are really just setting the stage for the atomic unit of evolution that really matters: the proper size and shape of a paperclip. It’s like Dawkins wrote in The Selfish Gene: It’s not really the organism (entrepreneur) that matters, it’s the gene (atomic unit of whatever sort of evolution).

The Non-Partisan Movement We Need: Anti-Authoritarianism

Political/ideological debates have a lot of moving parts, and there are a lot of timely issues to address. Given the marginal impact of anything we do in this sphere (e.g. voting, sharing a blog post on Twitter, or being a solitary voter in a vast sea of the entire 6200 people in this country), it’s only natural that we have to economize on information and argument and that results. We can’t help but deplete the intellectual commons.

What are some low cost ways to improve the quality?

  1. Value Intellectual humility.
  2. Devalue the sort of behavior that makes things worse.

It bears repeating: value intellectual humility. It’s not easy. I’m as drawn the confident claims as you are. I’ve got a lot of smart people in my bubble and when they boldly declare something, I tend to believe them. But the “I honestly don’t know” posts deserve more attention and are less likely to get it. Let’s adjust in that direction. I’ll try to write more about things I don’t know about in the future (although I don’t know what that’s going to look like).

It’s a statistical impossibility that, of all of the people burned at the stake for heresy or witchcraft or whatever, nobody deserved some punishment received in an unfair process. Don’t get me wrong, witch hunts are a bad thing in general, but we can’t discount them as entirely (maybe just 99.9%) unjustified. But cancel culture is, like good old fashioned witch hunts is doing a lot of harm to the intellectual commons. I’m they catch more bad guys than 17th century Puritans, but lets not leave cancellations up to Twitter mobs. Particularly when it comes to cancelling ideas.

Bad ideas don’t need to be cancelled. They need to be crushed under good ideas.

Far be it from me to peddle unreplicated psychological research (confirmation bias alert!), but I tend to believe that there’s something to the claim that the extreme poles of the ideological landscape exhibit some unsettling traits: narrow-mindedness, authoritarianism, and apparently Machiavellianism, narcissism, and psychopathy.

“Narcissistic psychopath” is not a label I’d like to see bandied about because it’s just too close to ad hominum. But “authoritarian” is a term I’d like to see more widely used as a pejorative, regardless of the position taken by would be authoritarians.

Let’s quit with the shouting, cancelling, flag waving, and blindly taking reactionary positions. Invite debate, and invite holding people accountable. But letting Twitter be the last word is as absurd as letting Helen Lovejoy-esque moral scolding decide how things should be.

But then again, maybe I’m wrong.

Real Decision Rights Theory and Political Coalitions

Libertarians understand these two big ideas:

  1. A system of individual rights can allow widespread cooperation and human flourishing.
  2. The world is full of emergent orders, like markets, with aggregate outcomes that are more than the sum of their parts.

But commitment to the first idea often blinds us to the full implications of the second.

Complex adaptive systems involve an infinity of illegible signals involving cooperation and competition in networks so complex that it would be impossible to replicate their success in any conceivable top-down system. The market is a discovery procedure. But the “it” that is the market is a collective thing. It’s a jointly produced phenomenon and it’s impossible to split it up without fundamentally changing it.

Likewise, a system of rights (including the rights underlying a functioning market) is a jointly produced common good.

Why does it mean anything to say that I own my laptop? Because when push comes to shove (if I’m willing to shove hard enough), other members of my community are willing to act in ways (formal and informal) that enforce my property right. (Interesting aside: If I reported my laptop stolen to the local police, they wouldn’t do anything about it. Perhaps this reflects the median voter’s level of regard for other people’s property rights…)

Ownership is not as simple as “I own this piece of property, period.” Instead, to own something is to have some bundle of rights to make particular decisions. I can decide what to plant in my garden, but I can’t decide to build a nuclear reactor in my front yard. I don’t need to go through some elaborate chain of natural rights reasoning to argue that your negative right to avoid externalities supersedes my positive right to do a thing. Doing so might be a useful exercise to see how (in)consistent our ruleset is. But the real system is much simpler (and much more ad hoc). Rights are as rights are enforced.

What am I driving at here? First, that we should be dealing with property decision rights as they are more than we deal with them as they ought to be. Second, individual rights require collective support. This puts constraints on how we move towards our Utopias.

Debating/convincing our intellectual opponents is necessary, but it’s really just a negotiation tactic. Discounting idiotic opponents is reasonable in the intellectual sphere, but we can’t just overlook the fact that those opponents are part of the environment we’re trying to shape. We don’t necessarily have to throw them a bone, but when we don’t make some group part of our coalition, we have to expect someone else will.

Our normative theories will convince us that group A can’t make group B’s lives worse for the sake of A’s ego. But if A perceives the subjective value of that ego boost to be high enough, and if A has the relevant rights, then B had better look out.

Improving the world isn’t simply a matter of making the right arguments well. We have to be entrepreneurial, and keep an eye out for how others might do the same. Political entrepreneurship means looking for the under-priced voters which is exactly what Trump did in 2016. He found a group A full of low-status voters who had been discounted by the political establishment. And because their rights to shape the collective outcome went unexercised so long, it was that much more disruptive when they were finally brought to the table. Likewise, BLM protests reveal that there is a group B that is ready to throw their weight around.

That leaves a big pile of questions. What is the cost of pride? How can we ensure people have enough dignity that they won’t want to destroy what a functioning (if imperfect) society? How do we account for potential political energy (particularly when we remember that voting is only a tiny part of political participation)?

I don’t know the answers, but I know this: we can’t escape getting our hands dirty and engaging in some political exchange. I don’t like it, but I’m not the only one deciding.

Throwing the Bums out is Insufficient

It’s election season (those quite weeks between October and November three years later) which means a resurgence in political economy superstitions! A particular tempting one is the Throw the Bums Out Theory of Governance.

The theory goes like this: things are awful, awful people are in positions of power, therefore we need to get rid of those awful people.

As instincts go, it’s not the worst. But it’s Twitter level thinking. Yeah, it’s worth celebrating the regression to the mean that will be the end of Trump’s presidency. I’m looking forward to the “regular” amounts of corruption and embarrassment. But those “regular” amounts are still problematic. The lesser of two evils still sucks. The mean we’re regressing to is the real problem.

In other words: the political outcomes we get reflect the underlying political reality (give or take). As Mencken said: we get what we want good and hard. Political outcomes involve (mostly bad) luck, but Trump wasn’t some utterly random accident. He happened because enough American voters wanted that (more than the next best alternative, anyways).

Throwing the bums out is cathartic, but there’s no shortage of bums to replace them.

The problem is not the bums, it’s the system as a whole. Trump was able to screw things up so badly because we’ve set up ground rules that a) gave him the ability, and b) required more competence than he was ready or able to apply. But elections don’t choose the qualified candidates, they choose the popular candidates. And if one thing is obvious in 2020, it’s that we can’t count on magically educating our political opponents into having the enlightened views necessary for us to make sure the best candidates are always the most popular.

In the long-run, the task is to make incompetent morons less important–something I hope everyone can agree is a worthwhile goal (#neverHillary, #neverTrump). The current system means ideological tribes have to be constantly warring with each other to make sure presidential power doesn’t get into the wrong hands. Can we please agree that this is a terrible system?

We can lower the stakes. We can push power back to the state and local level (and give people an incentive to actually pay attention to local issues!). Let’s take a break from partisan entertainment–as fun as Project Lincoln is, let’s face it, they’re not convincing anyone–and get to the hard task of being a self-governing society. Let’s ask how we could set things up so we don’t have to worry about the next Clinton or Trump.

Until we change the system, we’re going to keep seeing more of the same. Let’s shift the conversation away from “that candidate’s terrible, how can we defeat them?” and towards “this setup attracts terrible candidates, how can we fix that?”!

A paradox

You know those little floaters on the surface of your eyes? They drift into view, catch your attention, then when you try to focus directly on one it disappears from view. They’re only really there if you don’t look straight at them.

Goodhart’s Law tells us that “When a measure becomes a target, it ceases to be a good measure.” The same basic logic applies to two of my favorite things: the Internet and college.

The Internet is still a magical thing, but we’ve killed some of the magic by trying to take the Internet seriously. The Internet ceases to provide output worth taking seriously when people actually take the Internet seriously. When you only keep it in your periphery, it’s actually worth taking seriously

Ditto for college. The basic problem with the current system is that we’re all taking it too seriously. That leads to all sorts of specific bad behavior. But it all comes from this root problem. College is only worth taking seriously if we don’t. When college is back in the ivory tower, separated from the “real” world, it’s a place where people can be creative and make non-obvious connections. But once we recognize “hey, that’s a pretty neat thing, let’s make it a one-size-fits-all solution to all of our problems” we kill the goose that lays the golden eggs.

My advice for getting the most out of the Internet: don’t take it too seriously. It was only ever meant to be a place for weirdos to do weird stuff.

My advice for getting the most out of college: don’t take it too seriously. It was only ever meant to be a place for weirdos to do the sort of stuff that the rest of the world doesn’t have time for.


Slate Star Codex has been deleted.

Obviously the inarguably best post was this. Of course I don’t mean that literally; my favorite post was his review of Seeing Like a State.

Fortunately, the posts archived in the Wayback machine behave nicely with Pocket. I’m going to go save a few to read later.

Worth a read: Reality has a surprising amount of detail

Reality has a surprising amount of detail

Here’s the tl;dr:

At a high level, most things are fairly simple. But understanding the high level (e.g. of carpentry, programming, economics, gardening etc.) only gets you so far. This relates to something I’ve been gradually realizing about wood working: it’s straightforward, but it’s not easy.

Details matter. So what? Those details affect our ability to get things done–from mundane straightforward things like installing a flight of stairs, to fuzzier things like connecting with each other. More importantly, figuring out those details is not automatic, the details I perceive are not the same as those you do, and once I figure out some set of details, they fade into the background…

This means it’s really easy to get stuck. Stuck in your current way of seeing and thinking about things. Frames are made out of the details that seem important to you. The important details you haven’t noticed are invisible to you, and the details you have noticed seem completely obvious and you see right through them. This all makes makes it difficult to imagine how you could be missing something important.

As big a fan as I am of the big picture, we can’t get away from the fact that it’s made out of many smaller pictures. Figuring out the world, and figuring out how to be excellent to each other are straightforward, but they aren’t easy.

From the comments: follow on effects of liability rules?

Far be it from me to to tell anyone how to think, or what a word belonging to everyone really means. But I’m going to quickly indulge in a No True Scotsman-ism. Libertarianism means being skeptical of power. (I recently saw a great line on libertarians that needs sharing: “…every libertarian agrees on two things: that there’s only one libertarian and it’s them.”)

So I’m optimistic to see reductions in the amount of power government agents can exercise. I’m particularly optimistic to see changes that don’t take the form of “we’re going to manage that bit of power over there with a new bit of power over here” (i.e. regulation). A very short term version of such a change happened when Buffalo’s police union announced they wouldn’t cover the legal fees of their riot squad.

My enthusiasm was followed by the right question in the comments: “If this obtains, what is the likely effect upon the lives and property of Buffalo dwellers?”

In principle, we could dig into this question empirically, but not until we’ve got decent data with variation in the liability rules governing police behaviors. In the mean time…

Let’s break the question down: What are the average effects and how will those effects differ between different parts of Buffalo? What will be the effects on violent crime? What will be the effects on property crime? And how will those effects affect property values?

The most obvious and immediate change will be a reduction in police use of force. As we’ve seen, at least some of that force is used criminally. This change in the rules means reducing the likelihood of another Gugino incident. Which means a reduced likelihood of pulling resources away from productive uses to cover all the various costs involved in such incidents–the medical care and suffering, the resources surrounding arresting the perpetrators and keeping them safe should they end up incarcerated, the legal fees, etc. All else equal (i.e. ignoring secondary effects), this is equivalent to raising the cost of breaking windows–bad for the glazier, but more than offset to window owners.

Of course, the real question is about the impact of reducing the non-criminal use of force by police. The Buffalo experiment looks to be short-term and restricted to the riot squad, so we won’t be able to draw any conclusions from this (except, of course, that it confirms my priors and you’re looking at things the wrong way if you disagree with me. </s>)

The more interesting question is how extending this liability issue–i.e. curtailing qualified immunity–would affect the long run equilibrium? That outcome would eventually be capitalized into the prices of real estate. Safer neighborhoods will have higher property values.

Here’s my prediction: property values will increase in poor and non-white neighborhoods relative to wealthier and whiter neighborhoods.

Some caveats are in order:

  • I suspect that in most American cities poor neighborhoods are under-served by the police, so reduced legitimate police force will have minimal impact.
  • I also suspect (hopefully someone will share some helpful resources in the comments) that illegitimate police force is mostly concentrated in poor neighborhoods.
  • Wealthy neighborhoods might see some increased crime from reduced legitimate police force, but I’m doubtful. I think more likely the impact will be more like the effects of price discrimination–why pay more if the alternative isn’t terrible? To the extent poor neighborhoods get less terrible, the relative draw of rich neighborhoods will decreases.
  • There are any number of other changes coming down the pipeline that will make it difficult to disentangle the effects of qualified immunity holding all else equal.
  • To the extent we see a general improvement in the quality of policing (more ‘serve & protect’ and less cracking skulls) we should see an increase in property values across the board.
  • White flight is likely to happen which will bias results towards my conclusions. I want my hypothesis to be interpreted holding white flight constant.
  • The effects will go beyond just real estate price. I would expect something like this: for every $1 price reduction in rich neighborhoods, there will be <$1 price increase in poor neighborhoods, but the gap will be made up in other quality-of-life changes such as reduced chance of incarceration for victimless crimes, fewer hours of work missed, fewer injuries at the hands of police, etc.
  • I hope that these quality of life changes will make empirical analysis even more difficult as other follow on effects extend the time horizon of people in poor neighborhoods–e.g. if fewer people are sent to jail, that could lead to fewer young men getting involved in crime leading to entrepreneurs being more willing to invest in their communities.

My predictions are absolutely shaded by my ideological biases. And there’s no getting around how complicated these changes are (hopefully) going to be. But I feel confident predicting an implicit shift of wealth from the paranoid wealthy to the disenfranchised.

Is there anyone here who disagrees enough to help me clarify my thinking by putting money on it?

Liability Rules!

“The union representing Buffalo police officers told its rank and file
members Friday that the union would no longer pay for legal fees to
defend police officers related to the protests…”

From Buffalo News.

This could be excellent news (at least in Buffalo). The threat of lawsuits means police will either be on their best behavior or won’t show up to work.