jamesz

The dangers of writing widely

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Pankaj Mishra is “…the author of “Temptations of the West: How to be Modern in India, Pakistan, Tibet and Beyond,” “The Romantics: A Novel” and “An End to Suffering: The Buddha in the World.”” He doesn’t know anything about economics or economic history and yet writes about it on Bloomberg as though he is an expert. When speaking to an expert audience that is dangerous, and perhaps a little foolish.

Rothbard memorably wrote that

…it is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.

You could easily substitute any discipline for ‘economics’ and it would be as true. Why is it that people with so little expertise are so willing to pass judgment?

For economics it may be the familiarity with the subject matter since everybody lives it every day. While an ignorance of Abelian rings is obvious to us, the gaps in our knowledge of optimal taxation are less so. The everyday language of economics and its subject matter seem familiar enough that people feel they have an intuitive understanding of the subject. While it is fantastic to have such engagement with the discipline, it often seems to lead to overconfidence in untrained commentators. For instance, Mr Mishra might have been hesitant to voice an opinion on the Bourbaki project, yet he felt no such qualms about commenting on the reasons for economic growth.

It may also be that the same lack of kjnowledge precludes people from understanding the limits of their knowledge. Bertrand Russell boldly claimed that “…those who feel certainty are stupid, and those with any imagination and understanding are filled with doubt and indecision.” However, modern research by Dunning and Kruger suggests that the effect has more to do with knowledge than intelligence. Their experiments show that those who are ignorant in a subject vastly overestimate their own skills. Yet, with only a little bit of tutoring, they gain a far better understanding of their level of understanding.

The lesson I take from all this is that poor writing about economics is a consequence of too little economic education. As economists we all have a role to play in helping people to understand the basics of our discipline. Every time we turn up our nose at a casual discussion about economics among non-experts we are promoting the spread of misinformation by our omission. Rather than just pointing and laughing at people who are plainly wrong we should be there to help.

Matt Nolan

The tyranny of New Zealand’s middle classes

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I expect a lot of abuse for this, so don’t feel that you have to hold back.  Here is my Dom post article (that was supposed to be) from the prior weekend.  It kicks off as follows:

The statement that we are worse off than we were is false, and society’s willingness to believe it is a clear example of the unwarranted victim mentality taken on by the middle classes in New Zealand. In truth, the middle class is better off than it ever has been – due to a mix of economic growth, and by extracting resources from the rich and poor of New Zealand.

Personally, I 100% agree with myself – which doesn’t often happen.

In fact, take this song by Janis Jopin:

Replace lord with government, and you have the attitude of a surprising number of people in New Zealand at present 😉

Eric Crampton explained this phenomenon well in a couple of tweets:

First cut: narratives around deserving and undeserving poor resonate strongly with our moral intuitions.

Left has mushed those two groups together. WFF is classic transfer to “deserving”, hard-left says “unfair”.

Personally I find the distinction between deserving and undeserving poor to be both a poor black and white analogy, and a morally abhorrent way of viewing things.

How can anyone judge who is worthy of a better or worse living standard?  What sort of delusion do we live in if we think we can justify poverty for some, as we demand hand-outs for others who are significantly better off.  I find the entire viewpoint distasteful.

I would also note that this point of view doesn’t imply that I don’t believe there is a case for some redistribution to the middle classes – as I mention in the article.  Instead, I point out that we have had significant redistribution, the middle classes in NZ have done pretty damned well.  Increasing effective taxes on investment to redistribute to the middle classes at this point seems excessive in its costs – and in many cases (eg in terms of transportation and housing) this may merely be leading to higher prices instead of actually improving anyone’s living standards 🙁

Furthermore, the simultaneous demands for further income boosts to the middle classes and income cuts (and harsher criterion) on the poor is a massive step too far – we are going past describing anything that resembles fairness towards inappropriate punitive punishment of solo-mums and people suffering from addictions.

jamesz

There is no such thing as an economic historian

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Economists often get criticised for trying to emulate physicists by arriving at a set of equations that describe human behaviour. There have been innumerable critiques of that approach and the predictive power of economic models is notoriously poor. This article was written in 1986 but feels as if it could have been written yesterday.

…economics, in view of what it is rather than what it claims to be, is a proper subset of history. …[Economists] are trying to do the same thing as historians, namely, to tell plausible stories about the past. …When done well it has the air of good history written by someone who has taken Differential Equations 152.

Which isn’t to say that we can’t learn from the past. In fact, when you read Matt’s posts about the role of economic forecasters he characterises them as story-tellers rather than oracles. The numbers are inevitably wrong but that is not the economist’s forte and shouldn’t be seen as the useful output of the profession. It is to the detriment of all economists that some members of the profession promulgate the view that we are fortune tellers. As McCloskey says, “if economists go on indulging the misapprehensions of their customers, issuing predictions about next month’s exchange rate of next spring’s interest rate, the loss of reputation when the customers catch on will be large, and richly deserved.”

jamesz

Best article on the Treasury website?

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Fortuitously stumbled across this while looking for something else. Arthur Grimes investigates the Arbee:

In his “Life Among the Econ” Axel Leijonhufvud took an ethnographic approach to describing the Econ tribe and, especially, two of its components: the Macro and the Micro. My purpose is to delve further into the life of the Macro, specifically examining the Arbee sub-tribe. The task of our research is to examine the nature of the Arbee reaction to claims by other tribes and sub-tribes that the Arbee rituals have caused The Imbalance in The Economy. Specifically, their highly formalised OC Ritual (OCR) has been blamed for creating The Imbalance … It is the rituals of the Arbee that many claim to be the cause of The Imbalance in The Economy. If only the Arbee were to conduct their ritual in a different manner, the prices, expenditure and living standards would all right themselves.
…
The OC Ritual is a highly stylised dance. The first move involves no actions by the priests, just observation of other dancers. The priests observe the effect on all prices that result from the bigfella man’s resource directives. The high priest has a contract with the bigfella man that price rises must be kept to within a certain sacred range.

Hilarious, yet serious, it’s worthwhile reading the whole thing. See Leijonhufvud for the background.

Matt Nolan

Careful with regulation

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Here is an article I wrote for the fine people over at Idealog on regulation.  The primer is:

Tobacco prices must be higher, alcohol availability is going to be limited, and even Coca-Cola has come in for a lashing for being an addictive substance. But this obsession comes with a cost that policymakers need to face before they impart harm on innocent Kiwis.

Feel free to go over to the site to see what I said and comment 😉

jamesz

Why do Nigerian scammers admit they are from Nigeria?

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Abstract:

False positives cause many promising detection technologies to be unworkable in practice. Attackers, we show, face this problem too. In deciding who to attack true positives are targets successfully attacked, while false positives are those that are attacked but yield nothing. This allows us to view the attacker’s problem as a binary classification. The most profitable strategy requires accurately distinguishing viable from non-viable users, and balancing the relative costs of true and false positives. We show that as victim density decreases the fraction of viable users than can be profitably attacked drops dramatically. For example, a 10x reduction in density can produce a 1000 reduction in the number of victims found. At very low victim densities the at- tacker faces a seemingly intractable Catch-22: unless he can distinguish viable from non-viable users with great accuracy the attacker cannot find enough victims to be profitable. However, only by finding large numbers of victims can he learn how to accurately distinguish the two. Finally, this approach suggests an answer to the ques- tion in the title. Far-fetched tales of West African riches strike most as comical. Our analysis suggests that is an advantage to the attacker, not a disadvantage. Since his attack has a low density of victims the Nigerian scammer has an over-riding need to reduce false positives. By sending an email that repels all but the most gullible the scammer gets the most promising marks to self-select, and tilts the true to false positive ratio in his favor.