Is minimalism immoral?

I came across a simple but important question on Quora: Is it wrong to aspire to be a minimalist? Doesn’t this negatively affect the country’s GDP?

I see two big lessons here: 1) wise use of metrics requires wisdom… i.e. appropriate interpretation and critical thinking. 2) Maximization is just one version of one part of the whole story. (There are also important questions to ask about what we can expect from others, but I’ll leave that for the comments.)

Readers of NOL should be familiar with the notion that GDP is only an imperfect proxy for well being. But not everyone is so we have to repeat ourselves. There’s what we’re after, and there’s what we can measure, and the two are not the same. GDP is a really clever way to aggregate total production in an economy, but production is only valuable to the extent we’re producing the things that actually improve people’s lives. It’s easy for busy people to confuse a proxy measure for the latent variable we actually care about, so we need someone whispering in the emperor’s ear “the metric is not the mission.

Economics is easier to describe using the simplifying assumption that people want more stuff. It’s easy to forget that people also want more leisure (and so less work). This is a subtle reappearance of the seen and unseen. We can see when someone gets a cool new car and we can’t see when someone has a fun evening with friends and family. We have to check our bias towards trying to get more stuff and remember that reducing work is another feature of human flourishing.

Fogel on economics and ideology

Many, upon reading the conclusions of economists, believe that economics has an ideological bent. I often respond that this is not the case. True, the “window” of political opinions in economics is narrower but that is largely because the adhesion of economists to methodological individualism precludes certain ideological views that rest on holistic approaches or concepts. However, when you consider more complex situations than “party affiliation”, you will find economists all over the place. They will often cross ideological lines or even have a foot in two antagonistic camps.

Recently, I was reading Robert Fogel’s lectures on the “Slavery debates” which retells the intellectual history of American slavery from U.B. Phillips to … well … Fogel himself. One must remember that Fogel was, and remained from what I can tell, a quite strongly left-leaning economist for most of his life (see here). As such, it is hard to consider Fogel as an ideologue preaching for free market economics. Yet, in the lectures, Fogel (p.19) makes a point that supports the contention that I often make regarding economists and ideology that I believe must be shared:

The ability to view Phillips (NDLR: the dominant interpretation of slavery pre-1960) in a new light was facilitated by the sudden intrusion of a large corps of economists into the slavery debates during the 1960s. This intrusion was welcomed by neither the defenders of the Phillips tradition nor the neoabolitionist school led by Stampp (NDLR: Kenneth Stampp, author of The Peculiar Institution). The cliometricians, as they were called, refused to be bound by the established rules of engagement, and they blithely crossed ideological wires in a manner that perplexed and exasperated traditional historians on both sides of the ideological divide.

Given that the source of this quotation is Fogel, I admit that I am particularly fond of this passage. Maybe the distrust towards economists is because economists can be both friend and foes to established interlocutors in a given discussion.

Economists vs. The Public

Economics is the dismal science, as Thomas Carlyle infamously said, reprising John Stuart Mill for defending the abolishment of slavery in the British Empire. But if being a “dismal science” includes respecting individual rights and standing up for early ideas of subjective, revealed, preferences – sign me up! Indeed, British economist Diane Coyle wisely pointed out that we should probably wear the charge as a badge of honor.

Non-economists, quite wrongly, attack economics for considering itself the “Queen of the Social Science”, firing up slurs, insults and contours: Economism, economic imperialism, heartless money-grabbers. Instead, I posit, one of our great contributions to mankind lies in clarity and, quoting Joseph Persky “an acute sensitivity to budget constraints and opportunity costs.”

Now, clarity requires one to be specific. To clearly define the terms of use, and refrain from the vague generality of unmeasurable and undefinable concepts so common among the subjects over whom economics is the queen. When economists do their best to be specific, they sometimes use terms that also have a colloquial meaning, seriously confusing the layman while remaining perfectly clear for those of us who “speak the language”. I realize the irony here, and therefore attempt my best to straighten out some of these things, giving the examples of 1) money and 2) investments.

An age-old way to see this mismatch is measuring the beliefs held by the vast majority of economists and the general public (Browsing the Chicago IGM surveys gives some examples of this). Bryan Caplan illustrates this very well in his 2006 book The Myth of the Rational Voter:

Noneconomists and economists appear to systematically disagree on an array of topics. The SAEE [“Survey of Americans and Economists on the Economy”] shows that they do. Economists appear to base their beliefs on logic and evidence. The SAEE rules out the competing theories that economists primarily rationalize their self-interest or political ideology. Economists appear to know more about economics than the public. (p. 83)

Harvard Professor Greg Mankiw lists some well-known positions where the beliefs of economists and laymen diverge significantly (rent control, tariffs, agricultural subsidies and minimum wages). The case I, Mankiw, Caplan and pretty much any economist would make is one of appeal to authority: if people who spent their lives studying something overwelmingly agree on the consequences of a certain position within their area of expertise (tariffs, minimum wage, subsidies etc) and in stark opposition to people who at best read a few newspapers now and again, you may wanna go with the learned folk. Just sayin’.

Caplan even humorously compared the ‘appeal to authority’ of other professions to economists:

In principle, experts could be mistaken instead of the public. But if mathematicians, logicians, or statisticians say the public is wrong, who would dream of “blaming the experts”? Economists get a lot less respect. (p. 53)

Money, Wealth, Income

The average public confusingly uses all of these terms interchangeably. A rich person has ‘money’, and being rich is either a reference to income or to wealth, or sometimes both – sometimes even in the same sentence. Economists, being specialists, should naturally have a more precise and clear meaning attached to these words. For us Income refers to a flow of purchasing power over a certain period (=wage, interest payments), whereas Wealth is a stock of assets or “fixed” purchasing power; my monthly salary is income whereas the ownership of my house is wealth (the confusion here may be attributable to the fact that prices of wealth  shares, house prices etc  can and often do change over short periods of time, and that people who specialize in trading assets can thereby create income for themselves).

‘Money’, which to the average public means either wealth or income, is to the economist simply the metric we use, the medium of exchange, the physical/digital object we pass forth and back in order to clear transactions; representing the unit of account, the thing in which we calculate money (=dollars). That little green-ish piece of paper we instantly think of as ‘money’. To illustrate the difference: As a poor student, I may currently have very little income and even negative wealth, but I still possess money with which I pay my rent and groceries. In the same way, Bill Gates with massive amounts of wealth can lack ‘money’, simply meaning that he would need to stop by the ATM.

Investment

A lot like money, the practice of calling everything an ‘investment’ is annoying to most economists: the misuse drives us nuts! We’re commonly told that some durable consumption good was an investment, simply because I use it often; I’ve had major disagreements friends over the investment or consumption status of a) cars, b) houses, c) clothes, and d) every other object under the sun. Much like ‘money’, ‘investment’ to the general public seem to mean anything that gives you some form of benefit or pleasure. Or it may more narrowly mean buying financial assets (stocks, shares, derivatives…). For economists, it means something much more specific. Investopedia brilliantly explains it: The definition has two components; first, it generates an income (or is hoped to appreciate in value); secondly, it is not consumed today but used to create wealth:

An investment is an asset or item that is purchased with the hope that it will generate income or will appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth.

This definition clearly shows why clothes, yoga mats and cars are not investments; they are clearly consumption goods that, although giving us lots of joy and benefits, generates zero income, won’t appreciate and is gradually worn out (i.e. consumed). Almost as clearly, houses (bought to live in) aren’t investments (newsflash a decade after the financial crisis); they generate no income for the occupants (but lots of costs!) and deteriorates over time as they are consumed. The only confusing element here is the appreciation in value, which is an abnormal feature of the last say four decades: the general trend in history has been that housing prices move with price inflation, i.e. don’t lose value other than through deterioration. In fact, Adam Smith said the very same thing about housing as an investment:

A dwelling-house, as such, contributed nothing to the revenue of its inhabitant; and though it is no doubt extremely useful to him, it is as his cloaths and household furniture are useful to him, which however make a part of his expence, and not his revenue. (AS, Wealth of Nations, II.1.12)

Cars are even worse, depreciating significantly the minute you leave the parking lot of the dealership. Where the Investopedia definition above comes up short is for business investments; when my local bakery purchases a new oven, it passes the first criteria (generates incomes, in terms of bread I can sell), but not the second, since it is generally consumed today. Some other tricky example are cases where political interests attempt to capture the persuasive language of economists for their own purposes: that we need to invest in our future, either meaning non-fossil fuel energy production, health care or some form of publicly-funded education. It is much less clear that these are investments, since they seldom generate an income and are more like extremely durable consumption goods (if they do classify on some kind of societal level, they seem like very bad ones).

In summary, economists think of investments as something yielding monetary returns in one way or another. Either directly like interest paid on bonds or deposits (or dividends on stocks) or like companies transforming inputs into revenue-generating output. It is, however, clear that most things the public refer to as investments (cars, clothes, houses) are very far from the economists’ understanding.

Economists and the general public often don’t see eye-to-eye. But improving the communication between the two should hopefully allow them to – indeed, the clarity with which we do so is our claim to fame in the first place.

Revised version of blog post originally published in Nov 2016 on Life of an Econ Student as a reflection on Establishment-General Public Divide.

Low-Quality Publications and Academic Competition

In the last few days, the economics blogosphere (and twitterverse) has been discussing this paper in the Journal of Economic PsychologySimply put, the article argues that economists discount “bad journals” so that a researcher with ten articles in low-ranked and mid-ranked journals will be valued less than a researcher with two or three articles in highly-ranked journals.

Some economists, see notably Jared Rubin here, made insightful comments about this article. However, there is one comment by Trevon Logan that gives me a chance to make a point that I have been mulling over for some time. As I do not want to paraphrase Trevon, here is the part of his comment that interests me:

many of us (note: I assume he refers to economists) simply do not read and therefore outsource our scholarly opinions of others to editors and referees who are an extraordinarily homogeneous and biased bunch

There are two interrelated components to this comment. The first is that economists tend to avoid reading about minute details. The second is that economists tend to delegate this task to gatekeepers of knowledge. In this case, this would be the editors of top journals. Why do economists act as such? More precisely, what are the incentives to act as such? After, as Adam Smith once remarked, the professors at Edinburgh and Oxford were of equal skill but the former produced the best seminars in Europe because their incomes depended on registrations and tuition while the latter relied on long-established endowments. Same skills, different incentives, different outcomes.

My answer is as such: the competition that existed in the field of economics in the 1960s-1980s has disappeared.  In “those” days, the top universities such as Princeton, Harvard, MIT and Yale were a more or less homogeneous group in terms of their core economics. Lets call those the “incumbents”. They faced strong contests from the UCLA, Chicago, Virginia and Minnesota.  These challengers attacked the core principles of what was seen as the orthodoxy in antitrust (see the works of Harold Demsetz, Armen Alchian, Henry Manne), macroeconomics (Lucas Paradox, Islands model, New Classical Economics), political economy (see the works of James Buchanan, Gordon Tullock, Elinor Ostrom, Albert Breton, Charles Plott) and microeconomics (Ronald Coase). These challenges forced the discipline to incorporate many of the insights into the literature. The best example would be the New Keynesian synthesis formulated by Mankiw in response to the works of people like Ed Prescott and Robert Lucas. In those days, “top” economists had to respond to articles published in “lower-ranked” journals such as Economic Inquiry, Journal of Law and Economics and Public Choice (all of which have risen because they were bringing competition – consider that Ronald Coase published most of his great pieces in the JL&E).

In that game, economists were checking one another and imposing discipline upon each other. More importantly, to paraphrase Gordon Tullock in his Organization of Inquiry, their curiosity was subjected to social guidance generated from within the community:

He (the economist) is normally interested in the approval of his peers and and hence will usually consciously shape his research into a project which will pique other scientists’ curiosity as well as his own.

Is there such a game today? If in 1980 one could easily answer “Chicago” to the question of “which economics department challenges that Harvard in terms of research questions and answers”, things are not so clear today. As research needs to happen within a network where the marginal benefits may increase with size (up to a point), where are the competing networks in economics?

And there is my point, absent this competition (well, I should not say absent – it is more precise to speak of weaker competition) there is no incentive to read, to invest other fields for insights or to accept challenges. It is far more reasonable, in such a case, to divest oneself from the burden of academia and delegate the task to editors. This only reinforces the problem as the gatekeepers get to limit the chance of a viable network to emerge.

So, when Trevon bemoans (rightfully) the situation, I answer that maybe it is time that we consider how we are acting as such because the incentives have numbed our critical minds.

On the rift between economics and everything else

The line is often heard: economists are “scientific imperialists” (i.e. they seek to invade other fields of social science) jerks. All they try to do is “fit everything inside the model”. I have this derisive sneer at economists very often. I have also heard economists say “who cares, they’re a bunch of historians” (this is the one I hear most often given my particular field of research, but I have heard variations involving sociologists and anthropologists).

To be fair, I never noticed the size rift. For years now, I have been waltzing between economics and history (and tried my hand at journalism for some time) which meant that I was waltzing between economic theory and a lot of other fields. The department I was a part of at the London School of Economics was a rich set of quantitative and qualitative folks who mixed history of ideas, economics, economic history and social history. To top it all, I managed to find myself generally in the company of attorneys and legal scholars (don’t ask why, it still eludes me). It was hard to feel a big rift in that environment. I knew there was a rift. I just never realized how big it was until a year ago (more or less).

There is, however, something that annoys me: the contempt appears to be self-reinforcing.  Elsewhere on this blog (here and here) (and in a forthcoming book chapter in a textbook on how to do economic history), I have explained that economists have often ventured into certain topics with a lack of care for details. True, there must be some abstraction of details (not all details are useful), but there is an optimal quantity of details. And our knowledge grows, the quantity of details necessary to answering each question (because the scientific margin is increasingly specialized) should grow. And so should the number (and depth) of nuances we make to answer a question.  There is a tendency among economists to treat a question outside the usual realm of economics and ignore the existing literature (thus either rushing through an open door or stepping in a minefield without knowing it).  The universe is collapsed into the model and, even when it yields valuable insights, other (non-econs) contributors are ignored.  That’s when the non-econs counter that economists are arrogant and that they try to force everything into a mold rather than change the mold when it does not apply. However, the reply has often been to ignore the economists or criticize strawmen versions of their argument. Perceived as contemptuous, the economists feel that they can safely ignore all others.

The problem is that this is a reinforcing loop: a) the economists are arrogant; b) non-economists respond by dismissing the economists and ridiculing their assumptions; c) the economists get more arrogant. The cycle persists. I struggle to see how to break this cycle, but I see value in breaking it. Elsewhere, I have made such a case when I reviewed a book (towards which I was hostile) on Canadian economic history. Here is what I said for the sake of showcasing the value of breaking the vicious circle of ignoring both sides:

These scholars (those who have been ignored by non-economists) could have easily derived the same takeaways as Sweeny. Individuals can and do engage in rent-seeking, which economists define as the process through which unearned gains are obtained by manipulating the political and social environment. This could be observed in attempts to shape narratives in the public discourse. According primacy to the biases of sources is a recognition that there can be rent-seeking in the form of actors seeking to generate a narrative to reinforce a particular institutional arrangement and allow it to survive. This explanation is well in line with neoclassical economics.

This point is crucial. It shows a failing on both sides of the debate. Economists and historians favorable to “rational choice” have failed to engage scholars like Sweeny. Often, they have been openly contemptuous. The literature has evolved in separate circles where researchers only speak to their fellow circle members. This has resulted in an inability to identify the mutual gains of exchange. The insights and meticulous treatments of sources by scholars like Sweeny are informative for those economists who consider rational choice as if the choosers were humans, with all their flaws and limitations, rather than mechanistic utility-maximizing machines with perfect foresight (which is a strawman often employed to deride the use of economics in historical debates) . In reverse, the rich insights provided by rational choice theorists could guide historians in elucidating complex social interactions with a parsimony of assumptions. Without interaction, both groups loose and resolutions remain elusive.

See, as a guy who likes economics, I think that trade is pretty great. More importantly, I think that trade between heterogeneous groups (or different individuals) is even greater because it allows for specialization that increases the value (and quantity) of outputs.  I see the benefits of trade here, so why is this “circle of contempt” perpetuating so relentlessly?

Can’t we just all pick the 100$ bill on the sidewalk?

If causality matters, should the media talk about mass shootings?

My answer to that question is “maybe not” or at the very least “not as much”. Given the sheer amount of fear that can be generated by a shooting, it is understandable to be shocked and the need to talk about it is equally understandable. However, I think this might be an unfortunate opportunity to consider the incentives at play.

I assume that criminals, even crazy ones, are relatively rational. They weigh the pros and cons of potential targets, they assess the most efficient tool or weapon to accomplish the objectives they set etc. That entails that, in their warped view of the world, there are benefits to committing atrocities. In some instances, the benefit is pure revenge as was the case in one of the famous shooting in my hometown of Montreal (i.e. a university professor decided to avenge himself of the slights caused by other professors). In other instances, the benefit is defined in part by the attention that the violent perpetrator attracts for himself. This was the case of another infamous shooting in Montreal where the killer showed up at an engineering school to kill 14 other students and staff. He committed suicide and also left a suicide statement that read like a garbled political manifesto. In other words, killers can be trying to “maximize” media hits.

This “rational approach” to mass shootings opens the door to a question about causality: is the incidence of mass shootings determining the number of media hits or is the number of media hits determining the incidence of mass shootings. In a recent article in the Journal of Public Economicsthe possibility of the latter causal link has been explored with regards to terrorism.  Using the New York Times‘ coverage of some 60,000 terrorist attacks in 201 countries over 43 years, Michael Jetter used the exogenous shock caused by natural disasters to study they reduced the reporting of terrorist attacks and how this, in turn, reduced attention to terrorism. That way, he could arrive at some idea (by the negative) of causality. He found that one New York Times article increased attacks by 1.4 in the following three weeks. Now, this applies to terrorism, but why would it not apply to mass shooters? After all, there are very similar in their objectives and methods – at the very least with regards to the shooters who seek attention.

If the causality runs in the direction suggested by Jetter, then the full-day coverage offered by CNN or NBC or FOX is making things worse by increasing the likelihood of an additional shooting. For some years now, I have been suggesting this possibility to journalist friends of mine and arguing that maybe the best way to talk about terrorism or mass shooters is to move them from the front page of a newspaper to a one-inch box on page 20 or to move the mention from the interview to the crawler at the bottom. In each discussion, my claim about causality is brushed aside with either incredulity at the logic and its empirical support or I get something like “yes, but we can’t really not talk about it”. And so, the thinking ends there. However, I am quite willing to state that its time for media outlets to deeply reflect upon their role and how to best accomplish the role they want. And that requires thinking about causality and accepting that “splashy” stories may be better left ignored.