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February 2012 posts

Even kids know that numbers aren't always the most important thing

Mark D. White

This morning's Baby Blues comic strip falls under the category "out of the mouths of babes":


Even litte Hammie knows that it isn't always about the numbers--sometimes it's about the principle of that matter!

This made me think of Amartya Sen's example of counterpreferential choice in which a person has to choose between a small and large apple, leaving the other one for someone else. The person wants the larger apple, but also feels the larger apple should be left for the other person out of courtesy, and may therefore choose the smaller apple. It isn't necessarily that the person "wants" to be courteous more than he or she wants the larger apple; it may be that the person's highest desire is for the larger apple, but his or her respect for social decorum overrules that preference when it comes to choosing an apple. (I make that point often in my work on Kant and choice; for instance, see my Kantian Ethics and Economics, pp. 42-46.)

Telling Lies

Jonathan B. Wight

Is it always better to tell the truth?

No. For one thing, you may not know the truth. Hence, at best, what you are doing is telling what you think is the truth.

Even if you did know for sure what the truth is, telling a lie about it can make it truthful and telling the truth about it can turn it into a lie. What do I mean?

Suppose someone heading to her prom dance asks you: "How do I look?" What's your answer? If the person is not very pretty at all (studies insist symmetry is the key), and there is nothing to be done about it this moment, lying and saying with gusto and genuine affection: "You're the most gorgeous gal in the world…" makes a cheek glow and puts a smile on her face—she becomes more attractive. Your lie leads toward the truth of your statement! The truth of her question is deeper than simply physical looks, and your lie can get at that deeper meaning.

Suppose instead the prom queen asks "How do I look?" She happens to be gorgeous and you say, "You're the most gorgeous gal in the world…" Now there is a danger she will become conceited and a snob—surface beauty with inner void! The truth becomes a lie!

So much in life is self-fulfilling—what we intrinsically believe about ourselves defines our ambitions and our achievements. Telling ourselves and others lies can change the world for the better. Baba Shiv, Ziv Carmon, and Dan Ariely did some interesting experiments in which they lied to subjects about the powers of a juice elixir to increase their mental performance in word games. Those who were lied to did almost twice as well as those told no lies.

Similarly, when social identity of caste is made explicit to students in India, performance falls in lower castes. We are bundles of belief systems that are more powerful than we can even imagine. Killing a bad ideology is worth a lie or two.

So, go ahead and tell yourself some lies! "You're great! You're handsome! You're funny!" Just be sure to remember the bigger story: others are equally great, handsome, and funny. There's still no free lunch.

Christianity, Greed, and Markets

Jonathan B. Wight

Via Mark White comes this link to a New York Times blog post by Gary Gutting, a professor of philosophy at Notre Dame. Gutting attempts to get inside the Republican candidates' debates and argues that a clearer and more careful understanding comes from seeing things from "inside" their world view. Here are some excerpts:

We could greatly improve the quality of our political debates if we simply held to the philosophers' rule of understanding and charitably formulating our opponents' views.

In particular, there is a basic tension between the two main elements of the conservative view: Christian ethical values and the free enterprise system. Christian morality is a matter of love for others and self-sacrifice on their behalf. A market economy assumes that all agents (employers, workers, buyers, sellers) act in their own selfish interests. The problem is evident in the New Testament's unease with the wealthy and sympathy for the poor; see, for example, Matthew 13: 22, Mark 10: 23-25 and James 5: 1-3.

The standard response to this sort of moral objection is that the "invisible hand" of the market produces public goods out of private selfishness. If we all act for our own selfish ends, there will be far more material goods for us to share than there would be otherwise. But this is a utilitarian argument; that is, one that judges actions as moral because they increase our material happiness. Christian morality, however, denies that moral good and evil depend on what maximizes such happiness. Christian love and self-sacrifice, in particular, are moral goods in their own right, regardless of their consequences.

Mark White rightly flags the second paragraph. First, Gutting makes the sort of mistake that Ronald Coase identified: science has no goals, only people have goals. Hence, the market economy itself makes no assumptions about agents, only people do. And it was a standard practice of economists to make such assumptions about selfish agents in the 20th century. But today such a view is largely obsolete. Anyone who has been reading Amartya Sen and Vernon Smith, or even anything written about Adam Smith, is by now aware that the old standard view is simply wrong.

Most markets—the ones that you and I frequent every day—do not operate in reality on the "greed is good" philosophy. To do so would be to alienate most customers. Yes, the butcher and the brewer and the baker want their lucre, but they acquire it within the context of a moral understanding—in which their self-interest is held in check by self-control and by genuine and natural feelings of benevolence and justice. Adam Smith, when writing about the invisible hand, explicitly noted that the "character" of the trader in a market was critically important to the operation of the invisible hand. For elaboration, see here.

Deirdre McCloskey has beautifully told this story in The Bourgeois Virtues: Ethics for an Age of Commerce (2006). Paul Heyne also provided a lovely short analysis in "Moral Criticisms of Markets," The Senior Economist 10(4): April 1995 (link not available). My own academic novel, Saving Adam Smith, traces Adam Smith's views on the role of virtues in the marketplace and shows its relevance for business operations, even seemingly cut-throat computer chip businesses in Silicon Valley. There's plenty to read on this subject.

The bottom line is that markets and virtuousness (in the Christian sense) are entirely compatible. The most exciting development for the 21st century is the rise of social entrepreneurs, who use the vehicle of a company and the institution of a market to lift people out of poverty and solve a myriad of problems. The motives can be many, and do not necessarily have to do with maximizing material consumption (think of all the entrepreneurs working to solve global warming or those solving local problems of survival by giving poor people access to markets). Profit is a necessary part of greasing the machine and making it sustainable over time. In a healthy competitive situation, profit is held in check.

No one would deny that the system breaks down sometimes, and there are many who use markets who are decidedly non-Christian in their pursuit of greed. But as McCloskey and Heyne make so clear, the motive of greed is operative under communism and all other systems as well—it is part of human nature. Nothing is perfect. But a competitive market is often the most transparent and easy way to deal with sociopaths like Bernie Madoff. That is not so say regulations are not needed. Even Adam Smith desired regulations in the financial sector to protect small savers.

So, while trying to get inside the world view of Republican candidates, Gutting does a service by calling attention to the need for understanding. But it is possible today to entirely rewrite his last two paragraphs using a more realistic science and philosophy of economics. I think his thesis still stands, crafted in a different way: The caricature of a market held by some Christians is that agents operate on the basis of greed and this caricature is indeed in opposition to Christian values. Much work remains to be done to overcome the ideological legacy of Scrooge and the "greed is good" image of entrepreneurs. Thanks to Gutting for bringing this to our attention.

Parents as Vigilantes... for Parenting?

Mark D. White

In his column in this morning's New York Times, Mark Bittman reiterates his call for regulation of the amount of sugar Americans consume, such as taxing sugary foods and adding them to the list of items for which food stamps cannot be used--nothing new there. (I've discussed Bittman before here.)

After presenting his case for sugar regulation, he asks,

The question “Is this necessary?” is unavoidable. But as obesity and its consequences ravage our health care system, we struggle not only with our own diets but also with preventing our children from falling into the same traps. Last year a brigade of parents stood watch outside a corner store in North Philadelphia in an attempt to prevent their kids from buying junk food.

They’ve been called foot soldiers, but you might call them vigilantes. Vigilantism occurs when people believe the government isn’t doing its job. We need the government on our side. It must acknowledge the dangers caused by the most unhealthy aspects of our diet and figure out how to help us cope with them, because this is the biggest public health challenge facing the developed world.

Vigilantes? He casts parents as vigilantes for doing their job--parenting--and blames the government for not "doing its job"--which is parenting. Vigilantes usurp legitimate roles of the state, such as criminal justice--not taking care of our kids.

For the record, I have no problem with schools limiting their own food offerings to healthy foods and eliminating junk food from school vending machines, but these parents were trying to stop their kids from eating junk outside of school--which, again, is their job, not the government's.

“All I’m asking for is a little respect”

Jonathan B. Wight

Aretha Franklin belts it out, "Just a little bit… respect… R-E-S-P-E-C-T."

Adam Smith notes that "the strongest of all our desires" is to be deserving of obtaining the "respect of our equals" (TMS VI.i.3).

The burning of the Korans in Afghanistan that led to days of rioting and dreadful deaths is not about the destruction, per se, of the Islamic sacred text. As NPR and others have noted, it is permissible to burn damaged copies of the Koran—as long as it is done with reverence. The apparent mistake of U.S. troops was to burn the Koran mixed in with the trash.

On one level our "modern" viewpoint is deaf to such complaints: it's just a book, after all…. just paper and ink. It's not as if we physically assaulted anyone. But woe to those who fail to experience the moral sentiments of those with whom you wish to partner. In the United States flag burning by protestors is considered a desecration that leads to mob outrage. Why would we be surprised if the Koran is similarly revered?

In the last decade the U.S. Army has done a mammoth job training soldiers about cultural differences and to be respectful. This case is a tragic exception, unfortunately coming on a week of other bad news about the alleged harassment of Asian-American soldiers that led to the death of Danny Chen.

Writing in 44 B.C., shortly before his murder, Cicero reflected on respect and its denial to those who appeared different, especially foreigners:

There are others again who say that account [e.g., respect] should be taken of other citizen, but deny it in the case of foreigners; such men tear apart the common fellowship of the human race….for the fellowship among mankind that they overturn was established by the gods…." (Cicero, "On Duties", para. 28).

Indeed…. the "common fellowship of the human race" deserves our respect, as Kant would also argue. Easy to say, but hard to always put into practice, particularly as our tribal roots have such strong emotional and instinctual claims.

Rent-Seeking in the Animal Kingdom

Jonathan B. Wight

From Wallace Adams-Riley comes a reference to frigatebirds, who are known also as Man-o'-War or Pirate-of-the-Sea birds, in reference to their "kleptoparasitic" tendencies.

How would you like to be labelled a kleptoparasite? Really rolls off the tongue….

Frigatebirds get most of their food by snatching turtles and other small animals from the surface of the sea. But they also expend energy harassing other birds to the point that their victims regurgitate their food—so it can be stolen by the frigatebird!

In economics we call this rent-seeking: the act not of creating or producing anything, but simply appropriating what others have already created or produced. We can think of pimps and mobsters and petty-bureaucrat-politicians who operate in a similar manner, shaking-down their prey. It's time to call them by their real names--kleptoparasites.

Are Corporations Accountable?

Jonathan B. Wight

Are corporations people? The Supreme Court seems to think so in Citizen's United. But if they are "people" should they be held accountable like other people? More specifically, can they be sued for wrongdoing?

An upcoming case will attempt to answer that question with huge repercussions, especially for people in developing countries:

A decision affirming that Shell should go unpunished in the Niger Delta case would leave us with a Supreme Court that seems of two minds: in the words of Justice John Paul Stevens's dissent from Citizens United, it threatens "to undermine the integrity of elected institutions across the nation" by treating corporations as people to let them make unlimited political contributions, even as it treats corporations as if they are not people to immunize them from prosecution for the most grievous human rights violations. http://www.nytimes.com/2012/02/25/opinion/should-corporations-have-more-leeway-to-kill-than-people-do.html?hp

It boggles my mind to think of giving corporations the rights to citizenship. But now that the 5-4 split decision was rendered in Citizen's United, will the Supremes carry this to its logical conclusion?

Some people make the claim that corporate profits should be eliminated, because profit is also taxed when distributed to shareholders. This is an argument I could agree with. Hence, the corporation is a useful fiction to organize production, and shareholders are the real "persons" who should bear any tax on profits. But it also seems completely counter to the view that corporations are separate "persons" with "rights." Arrrggghhh!

Call for abstracts: Edited volume on law and social economics

Mark D. White

Call for abstracts for edited volume

Law and Social Economics

To be edited by Mark D. White, College of Staten Island/CUNY

Planned for inclusion in the “Perspectives from Social Economics” series from Palgrave Macmillan

By its very nature, law is a social enterprise concerned with values such as justice, dignity, equality, and efficiency, but the economic approach to law (or law and economics) focuses on the last goal to the exclusion of the rest. Social economics emphasizes the importance of ethical values to economic theory, practice, and policy, but it has engaged very little with legal studies (or law and economics).

In 1993, Steven Medema published his article “Is There Life Beyond Efficiency? Elements of a Social Law and Economics” in the Review of Social Economy, in which he laid out various ways in which social economics could contribute to the economic analysis of law. In the twenty years since his article appeared, however, few have picked his baton, much less run with it.

This book is an attempt to rectify this situation. Proposals for chapters are welcome on any aspect of law-and-economics on which social economics can make a contribution, and are welcome from economists, legal scholars, and scholars from related disciplines.

Possible topics include:

  • Social-economic approaches to the various categories of legal studies, such as
    • Private law (tort, contract, property)
    • Criminal law
    • Procedure
    • Jurisprudence
  • Methodological critiques of mainstream economic approaches to the law, such as
    • Maximizing conception of individual choice
    • Efficiency criterion for evaluating laws and institutions
    • Application of game theory, behavioral economics, or experimental economics to legal issues
  • Examination of the history of law-and-economics scholarship
  • Suggestion of topics neglected by mainstream law-and-economics

Proposals should include name and affiliations of all authors, tentative chapter title, and abstract, and should be sent to Mark D. White at [email protected] by April 30, 2012. Tentatively, first drafts of chapters will be expected by November 30, 2012, with final drafts due by February 28, 2013.

Changing Lives through Literature

Jonathan B. Wight

If you wanted to change people's ethics, for God's sake don't put them in a classroom with a philosopher! At least, that's the advice of Adam Smith….

Instead, get students to read great literature, become immersed in characters who make mistakes and pay the penalty, personalities who invoke our hatred or our respect and admiration. The arts provide the fodder for our moral imaginations, which gain us entrance into the world of ethics. (For elaboration, see "Adam Smith's Ethics and the Noble Arts".)

These insights are making their way into … the judicial system!

Martha Nussbaum has long used Smith's insights to train judges and lawyers, and writes about it in Poetic Justice: The Literary Imagination and Public Life (1997). Now that effort is going more mainstream to challenge inmates.

"Changing Lives Through Literature" is an alternative sentencing program that started in Massachusetts in 1991 and has spread to 8 other states and the UK. The program claims a 50% reduction in recidivism compared to incarceration, and "near-end" to violent behavior. Some of these claims need to be scientifically verified, controlling for self-selection bias and other factors. If these results bear up, they support Smith's thesis that the moral imagination is one pathway to changing voluntary behaviors, and that reading great novels is an important way to fire up the moral imagination.

A closer-to-my home example of such a program was started by a Virginia Commonwealth University writing English professor, David Coogan. David went into the local jail—a fairly rough place, terribly overcrowded—and began to offer a college course in autobiographical writing. About half of the students are inmates and about half are regular undergraduates. The activity of writing forces one to become introspective, search for answers, and see alternative pathways. As Sister Wendy Beckett, the art enthusiast noted, the creation of art is an integral part of the human experience.


In the photo, Kevin Belton reads his work while Dean Turner listens during class.






David is editing and annotating a book of prisoner writings, called Strip Poker: A Writing Workshop at the City Jail. I've read the first 50 draft pages. It's fascinating and illuminating and I'll blog more about it when it comes out. Meanwhile, interested readers can sample at the link.

On Barry Schwartz's "The Danger of Too Much Efficiency" in The New York Times

Mark D. White

BarryschwartzIn the New York Times, psychologist Barry Schwartz (author of The Paradox of Choice: Why More Is Less) warns us of "The Danger of Too Much Efficiency," in which he argues that, while efficiency is generally a good thing and enables increases in standards of living, more efficiency is not necessarily better. The first half of his piece is an excellent summary of the benefits of efficiency, which he illustrates using the concept of friction:

...firms compete to become more efficient, and we as consumers, along with Bain and its like, benefit from this competition.

What stands in the way of efficiency is friction. When automobile manufacturers struggle to squeeze as many miles per gallon as possible out of their car designs, friction is the enemy. Their aim is to design a vehicle that uses every ounce of fuel to move the car forward.

And so it is in the world of finance. As the historian Niall Ferguson reminds us in his book The Ascent of Money, hard as it is to imagine, people didn’t always have money. The invention of money went a long way toward reducing the friction, the inefficiency, in financial transactions. No longer did the farmer have to bring sacks of potatoes to the marketplace to trade for eggs and milk. Money was a medium of exchange that greatly reduced what some have called the financial coefficient of drag.

But Schwartz recognizes that increasing efficiency by reducing friction is not the only important concern to individuals or society. After summarizing the efficiency gains from securitizing mortgages and increased access to consumer credit, he turns to the downside:

All these examples tell us that increased efficiency is good, and that removing friction increases efficiency. But the financial crisis, along with the activities of the Occupy movement and the criticism being leveled at Mr. Romney, suggests that maybe there can be too much of a good thing. If loans weren’t securitized, bankers might have taken the time to assess the creditworthiness of each applicant. If homeowners had to apply for loans to improve their houses or buy new cars, instead of writing checks against home equity, they might have thought harder before making weighty financial commitments. If people actually had to go into a bank and stand in line to withdraw cash, they might spend a little less and save a little more. If credit card companies weren’t allowed to charge outrageous interest, perhaps not everyone with a pulse would be offered credit cards. And if people had to pay with cash, rather than plastic, they might keep their hands in their pockets just a little bit longer.

Rather than focus on his policy recommendations (with which I have much disagreement, as regular readers of this blog can easily imagine), I want to address his normative analysis of efficiency, which with I have much sympathy. I do think, however, that the particular way in which he criticies the emphasis of efficiency is strange, and obscures his greater point to some extent--a point with which, again, for the most part I agree.

Using the Aristotelian language he adopted in his more recent book (written with Kenneth Sharpe), Practical Wisdom, Schwartz recommends finding the "golden mean" of efficiency rather than simply purusing its maximum level. While I don't disagree with this in principle, I do think it is an odd way to put the problem, since it suggests that we can find the optimal level of efficiency without consideration of other values. If there is a golden mean of efficiency, the only way to find it is to determine how much efficiency is consistent with other values we want to promote (such as justice, dignity, and equality). This is really no different from the Aristotelian determination of the golden mean of characteristics like courage, in which the extremes of foolhardiness and cowardice offend other values and ends, as opposed to being internally inconsistent.

But I find the golden mean analysis to be misleading in a deeper sense when applied to efficiency. The reason we can't determine the optimal level of efficiency is because it is an empty value--it's a mean to an end, not an end in itself. And as such, it should be maximized in order to provide the means to pursue valuable ends, except insofar as it conflicts with those ends themselves. In other words, the pursuit of efficiency must be limited, but out of recognition that other values are more important, not that there is something inherently bad about a certain level of efficiency. The only "danger with too much efficiency" is that it implies that important values have been neglected in its name.

To a large extent, this all cashes out the same way; my disgreement with Schwartz on this issue is largely rhetorical rather than substantive. He emphasizes the excessive attention given to efficiency, and then recommends that it be frustrated (by increasing frictions through regulation) in order to correct the resulting problems. But as I said above, the issue is not an excessive focus on efficiency, but on neglect on other values which should temper it. It is as if we said that, if people neglect their families to spend time at the gym, then we should discourage gym use by raising membership fees or reducing hours of operation. But exercise--also a good thing in general, though it can be taken too far in many ways--is not the problem here. The neglect of family is the problem, and it is that neglect that should be addressed. In general, our focus should be placed directly on the neglected values (justice, equality, and so forth) rather indirectly on limiting the threat to them (too much efficiency).

Indeed, Schwartz does emphasize the importance of corrective norms, although he resorts to regulation to bolster them:

Perhaps we can use the criticism of Bain Capital as an opportunity to bring a little friction back into our lives. One way to do this is to use regulation to rekindle certain social norms that serve to slow us down. For example, if people thought about their homes less as investments and more as places to live, full of the friction of kids, dogs, friends, neighbors and community organizations attached, there might be less speculation with an eye toward house-flipping. And if companies thought of themselves, at least partly, as caretakers of their communities, they might look differently at streamlining their operations.

True, increased observance of these norms would increase friction and reduce efficiency, but that shouldn't be the goal--the goal should be increased observance of the norms themselves! Again, the result is the same, but I worry that focusing on efficiency as the "target variable" risks obscuring the more important issues behind it.

I think Schwartz would agree with me that, in the end, the best way to conceptualize of efficiency is as a means to an end, in which the values we hold individually and collectively are promoted by it at the same time that they temper its pursuit.