Externalities: A bridge too far

CPW sent me a link to the following blog post on Econlog. In the post Bryan Caplan mentions an economist from Princeton (Roland Benabou), who argues that externalities provide a bridge between an economists conception of the world, and non-economists concepts. Although this may be a tad over the top (as non-economists place more value in normative statements than economists would ideally), I believe this is an important point insofar as it allows us to generalise our models, to take into account more possible states of the world.

Bryan Caplan puts forward four points of difference that he believes will still exist between economists and non-economists, however I think they were a touch over-cooked, here’s why:
Read more

Ignoring costs and misrepresentation – People’s attitude to economists

One thing that gets to me is the fact that people from both sides of the political spectrum love to avoid costs. As economists pride themselves in discussing the opportunity cost associated with any given policy or action, we end up being attacked by both sides (Update:  Including psychologists it seems.  Dang I thought they were the one social science that understood us 🙁 )

However, the way both sides attack economists is different, equally irritating but different.

Read more

The moral high ground

Economists are often seen as cold and calculating by the public. I have personally been referred to as a ‘deranged sociopath’ for a post I made on this blog. Today’s post by Eliezer at Overcoming Bias (yeah, it’s my blog of the moment) reassures me that we economists really do have the moral high ground 😉

“What!” you cry, incensed. “How can you gamble with human lives? How can you think about numbers when so much is at stake? So much for your damned logic! You’re following your rationality off a cliff!”

You know what? This isn’t about your feelings. A human life, with all its joys and all its pains, adding up over the course of decades, is worth far more than your brain’s feelings of comfort or discomfort with a plan. Does computing the expected utility feel too cold-blooded for your taste? Well, that feeling isn’t even a feather in the scales, when a life is at stake.

Altruism isn’t the warm fuzzy feeling you get from being altruistic. If you’re doing it for the spiritual benefit, that is nothing but selfishness. The primary thing is to help others, whatever the means. So shut up and multiply!

Intervening against a strawman

Sometimes, when you read a whole lot of polemic, you end up thinking in black and white terms. It’s nice sometimes to be reminded that ideological conflicts are not as black and white as many combatants would like to paint them. Here on this blog we like to talk about government intervention in markets. Arnold Kling reminds us that not everyone who opposes intervention is a blinkered idealist who thinks that markets are perfect:

There is an old joke about two men who discuss what they would do if they were to encounter a bear in the woods. One of the men says that he would run. The other one says, “You know, you can’t outrun a bear.”

The first man replies, “No, but I can outrun you.”

Similarly when someone says to me that “markets fail,” I say… that government intervention will tend to make matters worse.

If you want to advocate intervention in a market it is not enough to simply point out that there are market failures: you have to show that your intervention will actually improve things. Often, one market failure will create another market to solve the problem. Intervention can only be judged ‘good’ if it is somehow better than the market alternative. Too often you hear people point to the imperfections in one market and use that as a rationale for government involvement. We must strive to be better than that and avoid arguing against strawmen of our own construction.

The morality of discounting

There’s a showdown at Overcoming Bias between Eliezer and Robin over discount rates. Eliezer says,

I’ve never been a fan of the notion that we should (normatively) have a discount rate in our pure preferences – as opposed to a pseudo-discount rate arising from monetary inflation, or from opportunity costs of other investments… If you wouldn’t burn alive 1,226,786,652 people today to save Giordano Bruno from the stake in 1600, then clearly, you do not have a 5%-per-year temporal discount rate in your pure preferences.

While this is music to the ears of environmentalists everywhere, Robin replies,

Very distant future times are ridiculously easy to help via investment. A 2% annual return adds up to a googol (10^100) return over 12,000 years, even if there is only a 1/1000 chance they will exist or receive it.

So if you are not incredibly eager to invest this way to help them, how can you claim to care the tiniest bit about them? How can you think anyone on Earth so cares? And if no one cares the tiniest bit, how can you say it is “moral” to care about them[?]

Read more

In the long-run is happiness constant?

I was just reading the dirty old (note dirty old is a complement from me) Dilbert blog, when I happened upon a post he called Happiness smoothing. Now in this blog post he discusses how individuals choose to interact with people in a way that is inversely related to the persons current success. So if you see a successful person you rip them down, if you see a downtrodden person you help them out (all other things equal). This is similar to tall poppy syndrome and empathy all rolled into one.

Read more