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October 2013 posts

The Nobel Quandary

Jonathan B. Wight

My co-blogger Mark White questions the need for economics to be considered a science. 

Along similar grounds I will ask whether there are enough outstanding discoveries in economics to warrant a Nobel Prize every year?

The first Nobel in economics was awarded in 1968, technically today called the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred NobelNobel

Given that only living people can win the Nobel (which seems a crying shame), the first ten or twenty years had plenty of 20th century breathing giants to celebrate—Samuelson, Friedman, Hayek, Arrow and others. 

I’m not saying we are now scraping the barrel.  Eugene Fama, Robert Shiller, and Lars Peter Hansen who won this year made great contributions.  But the contradictions between Fama and Shiller demonstrate how uncertain those contributions might be. 

John Kay notes that:

“Copernicus [Shiller] was right and Ptolemy [Fama] was wrong. There are not, and will not be, equivalent certainties in economics, and if such certainty is the hallmark of science – I do not think it is – then economics is not a science. The resulting insecurity seems to lead the Nobel committee to claim more for the subject of economics than it has achieved.”

I am waiting for the time the Nobel Committee announces that no one has won that year, out of respect for truth and humility for what we think we really know.  

Interests and nudges at the LSE British Politics and Policy blog

Mark D. White

The people at the LSE British Politics and Policy blog were kind enough to invite me to wrote on libertarian paternalism and "nudge" at their site; my contribution, "The richness of personal interests: A neglected aspect of the nudge debate," appears there today, based (of course) on my book The Manipulation of Choice: Ethics and Libertarian Paternalism. At the blog, I summarize what I see as the key problem with libertarian paternalism: the underappreciated complexity of people's true interests and the resulting imposition of policymakers' own idea of them when designing nudges, which end up steering people's choices in the direction policymakers think they should go rather than in the direction people would prefer to go themselves (as often claimed).

Thanks again to the LSE British Politics and Policy blog for having me on their wonderful site!

"Is Economics a Science?" Why I Couldn't Care Less

Mark D. White

There’s been a lot of discussion of late regarding economics’ claim to be a science; Harvard economist Raj Chetty recently answered this question in the affirmative in The New York Times in response to mutterings about Robert Schiller and Eugene Fama sharing the 2014 Nobel Prize (with Lars Peter Hansen) despite having different views on the efficiency of financial markets. Several months ago, Phil Mirowski (Notre Dame) made headlines criticizing neoclassic economics and its claims to be a science while discussing his book, Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown.

All of this makes me wonder: why is it so important to decide whether economics qualifies as a Science anyway? (The pretentious superfluous capitalization is intentional, by the way, representing the quasi-religious importance placed on this title.) Some thoughts follow below the fold…

Continue reading ""Is Economics a Science?" Why I Couldn't Care Less" »

An Answer to "Questions for Free-Market Moralists"

Mark D. White

I read with great interest Amia Srinivasan's contribution to the New York Times' philosophy column "The Stone" titled "Questions for Free-Market Moralists." After introducing the political philosophies of John Rawls and Robert Nozick, she states that "on the whole, Western societies are still more Rawlsian than Nozickian: they tend to have social welfare systems and redistribute wealth through taxation. But since the 1970s, they have become steadily more Nozickian." Then she presents four statements that she claims describe Nozick's minimal state -- and are representative of what she terms "free-market moralism" -- with which she assumes most people will not be comfortable. (Certainly not readers of The New York Times, by any rate.) But I'm not so sure, especially once we clarily what the four statements are talking about.

The four statements are:

1. Is any exchange between two people in the absence of direct physical compulsion by one party against the other (or the threat thereof) necessarily free?

2. Is any free (not physically compelled) exchange morally permissible?

3. Do people deserve all they are able, and only what they are able, to get through free exchange?

4. Are people under no obligation to do anything they don’t freely want to do or freely commit themselves to doing?

For each statement, Ms. Srinivasan provides an example of what such a world would look like: for instance, after statement #2, she suggests the following. (Note that this example also invokes statement #3 about inherited wealth.)

Suppose that I inherited from my rich parents a large plot of vacant land, and that you are my poor, landless neighbor. I offer you the following deal. You can work the land, doing all the hard labor of tilling, sowing, irrigating and harvesting. I’ll pay you $1 a day for a year. After that, I’ll sell the crop for $50,000. You decide this is your best available option, and so take the deal. Since you consent to this exchange, there’s nothing morally problematic about it.

This example points out my problem with Ms. Srinivasan's argument: she conflates political philosophy with moral philosophy. It is perfectly consistent to maintain, as in statement #2, that free exchanges are morally permissible while also believing that that is something morally problematic with the situation described above -- as long as you don't subscribe to a perfectionist system of morality that fails to distinguish between forbidden and merely "problematic" actions.

But there's more. Statement #2 really isn't speaking to morality -- instead, it's talking about legality that's simply based on a certain morality. How statement #2 should be read (based on my understanding of Nozick, at any rate) is as saying that the state has no moral basis to question free exchanges. Of course, the situation above is distasteful to most, but does this mean should it be forbidden by law? This is a different issue than the one Ms. Srinivasan addresses in her example -- and I suspect many would answer "no, it shouldn't be illegal" even if they regard the landowner's behavior as despicable. This doesn't imply a moral free-for-all, but simply a state that stops short of legislating all moral (or immoral) behavior.

Consider also Ms. Srinivasan's example for statement #4 regarding forced obligation:

Suppose I’m walking to the library and see a man drowning in the river. I decide that the pleasure I would get from saving his life wouldn’t exceed the cost of getting wet and the delay. So I walk on by. Since I made no contract with the man, I am under no obligation to save him.

The problem of duties of beneficence is an old and well-worn one in moral philosophy: while most would say we do have a general obligation to help those in need when it would come at little cost to ourselves, not as many would be willing to make that a strict requirement, much less a legal one (though some jurisdictions have). Ms. Srinivasan seems to draw a extreme and false dichotomy between coerced beneficence and rapacious self-interest -- I would like to think that no matter what kind of state we live in, people would still extend a hand to those in need when they can. (Furthermore, I see no reason to believe this would be any more likely to occur in a Rawlsian system where the state, not the individual, is the party understood to do most of the helping.)

As I understand him, Nozick was describing a state that enables people to make choices when they don't wrongfully harm others, and the market was but one framework in which they could do that. (For that reason, I disagree with the term "free-market moralist," but that's of little concern.) He did not, as Ms. Srinivasan writes, maintain that "the market can take care of morality for us," nor did Rawls hold that morality was the sole responsibility of the state. Fundamentally, Rawls and Nozick differed on the degree to which the state should exercise individuals' collective responsibility to each other on their behalf. Neither Rawls nor Nozick denies a role for private morality outside of the state. But Nozick and the "free-market moralists" believe that individuals, as parts of families and communities, bear the bulk of the responsibility to take care of one another, a responsibility borne voluntarily and, yes, imperfectly (unlike how perfectly the state conducts it, of course).

Ms. Srinivasan also holds Nozick's system to an incredibly high standard, arguing that to concede any weakness in any of the four statements "is to concede that the entire Nozickian edifice is structurally unsound. The proponent of free market morality has lost his foundations." But she neglects to mention the problems with Rawls' system, especially the very particular psychological assumptions that ground the "results" of the veil-of-ignorance exercise -- a brilliant metaphor also found in the work of other philosophers and with various predictions regarding the terms of the social contract.

Ms. Srinivasan states clearly that she believes that Western societies should be tilting back towards Rawls (I would say "further" rather than "back," but that's a difference of interpretation) and away from Nozick. Fair enough -- we disagree on that. But she makes Nozick's system an all-or-nothing proposition while ignoring problems with Rawls, and further misinterprets Nozick's work as describing the whole of morality rather than the operation of the state alone. In the end, her article shows a troubling lack of faith in people to care for each other outside the confines of the state -- and an overly optimistic belief in the power of the state to do the same.

Symposium on exploitation in Politics, Philosophy and Economics

PpeMark D. White

The latest issue of Politics, Philosophy and Economics (12/4, November 2013) features a symposium on exploitation. In his introduction, editor Thomas Christiano explains that the recent focus on market liberalism and voluntary exchange has reduced the attention given to issues of exploitation, but

[t]here are, however, signs of renewed theoretical interest in exploitation and unfairness in exchange, and hopefully the papers in this symposium will become part of a resurgence of interest in these important issues. The items by Hillel Steiner, Jeremy Snyder, and A. J. Julius attempt to show how mutually advantageous and voluntary transactions can nevertheless be exploitative and for that reason morally problematic. They do this without the aid of a conception of equal exchange or a basic theory of value in exchange.

Hillel Steiner attempts to develop a general account of exploitation that can be fit into the classical liberal tradition which takes seriously the right of each person to enter into voluntary exchange with others. Jeremy Snyder develops a more complex conception of exploitation that employs the notion that exploitation is demeaning to the exploited persons, who themselves have reasons to resist it, and A. J. Julius attempts to develop a conception of exploitation by appealing to the claim that in morally unproblematic exchange, the participants must have prior reasons to promote each other’s concerns that an exchange enables them to satisfy. Each of these views is distinct and will provide the materials for distinct lines of inquiry into exploitation. Mathias Doepke attempts to develop a conception of the exploitation of child labor with the tools of modern economics. Richard Arneson’s more skeptical view is that while there are clear wrongs involved in much of what is called exploitation, the notion of exploitation itself does not capture anything morally fundamental. He challenges a number of recent accounts of the wrongs of exploitation.

The papers in this symposium issue are:

Liberalism, neutrality and exploitation, Hillel Steiner

Exploitation and demeaning choices, Jeremy Snyder

The possibility of exchange, AJ Julius

Exploitation, altruism, and social welfare: An economic exploration, Matthias Doepke

Exploitation and outcome, Richard Arneson

Freedom and oppression, Claire Grant

Lead and Lessons in Paternalism

Jonathan B. Wight

Nicholas Kristof writes today about the fight to reduce lead exposure in children, which eventually led (sorry the pun) to the elimination of lead from paint and gasoline.  This undoubtedly caused immense dislocation and costs for both producers and consumers. 

Was it worth it? Kristof discusses “Sam,” a young boy in Milwaukee, who showed normal development until exposed to lead in paint:

“Sam’s family moved homes, but it was no use. At age 3, he was hospitalized for five days because of lead poisoning, and in kindergarten his teachers noticed that he had speech problems. He struggled through school, and doctors concluded that he had “permanent and irreversible” deficiencies in brain function.

“Sam’s story appears in “Lead Wars,” a book by Gerald Markowitz and David Rosner published this year that chronicles the monstrous irresponsibility of companies in the lead industry over the course of the 20th century. Eventually, over industry protests, came regulation andthe removal of lead from gasoline. As a result, lead levels of American children have declined 90 percent in the last few decades, and scholars have estimated that, as a result, children’s I.Q.’s on average have risen at least two points and perhaps more than four.”

Are there other lead-like issues out there?  Looming over America’s future, according to Kristof, are a host of newly-invented chemicals that disrupt the endocrine system:

“The World Health Organization and United Nations this year concluded: ‘Exposure to E.D.C.’s during fetal development and puberty plays a role in the increased incidences of reproductive diseases, endocrine-related cancers, behavioral and learning problems, including A.D.H.D., infections, asthma, and perhaps obesity and diabetes in humans.’”

Banning or regulating these substances would be … paternalism.  One can argue that consumers can educate themselves and make smart decisions to avoid the plastics and other items containing the new toxins.  The market will then self-correct to produce safer products….

But that is a long process, and involves many court fights and lawsuits.  The transactions costs for consumers to educate themselves are high—especially because the industry hires scientists to muddy the waters with bogus studies (just as happened with cigarettes and lead).  Preferences are not exogenous to the system. 

Consumers are not scientists, and should not be expected to be able to read and analyze scientific reports in order to keep their families safe.  There are huge economies of scale and scope to having a centralized group collect and analyze data, and regulate safety levels in products.  If this can be done by impartial third parties in the private sector that would be great. But the externality effects make this less likely to be successful.  

The "Yellen" Effect

Jonathan B. Wight

Janet Yellen is hardly a shoo-in for the Fed chairmanship, despite the fact that she’s the most qualified candidate and has widespread support.  Given that rationality in Congress has been trumped by ideology, it wouldn’t surprise me if Rand Paul and others attacked her in their quest to destroy the Fed and return us to private money backed by gold.

Hoping for the best, however, we may soon have the first woman Fed chair.  Claudia Goldin addresses what this might mean for women economic majors.  Her article asks: Yellen

“The nomination of Janet Yellen to head the Federal Reserve is an important milestone. But will her appointment as the central bank’s first female chief draw more undergraduate women to the field of economics?”

Goldin seeks to cast out red herrings, such as the old theory that women do not do economics because they are not as good at math as men.  It turns out they are better, although they may not know they are better. 

My own feeling is that more women would be drawn into economics if the discipline relaxed its over-dependence on rational calculation of maximum self-interest, and became more open to exploring the concepts of duties, rules, and virtues providing norms of caring in some economic settings.  

Pay the Bills

Jonathan B. Wight

The New York Times reports that the Senate is close to a budget and debt deal (the House is another story).  Why do we continue to shoot ourselves in the economic foot because of political inanities? 

The U.S. Constitution states: Capitol

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.
Amendment XIV, Section 4.

For backstory behind the amendment, and why it was used to prevent future Congresses from trying to get out of paying its bills, see this account in the New Yorker by Hendrick Hertzberg. 

The Cost of Market Transition in Vietnam

Jonathan B. Wight

Paul Heyne’s wonderful essay, “Moral Criticisms of Markets,” makes excellent reading for undergraduates.  One of his insights is that competitive behavior does not disappear just because a market is forbidden under communism:  competition simply takes a different and often more insidious form. 

A price ceiling on bread, for example, means that people now compete to get to the market first, or compete to receive a larger ration book, or compete to bribe the government official in charge of allocation.  But there are social compensations for the bread line, as I learned recently.

Son Tung Nguyen, a student of mine from Vietnam, recently wrote about the transition in that country from communist to a social market system.  He notes that people are treating each other differently, and interestingly how the waiting line from price ceilings created a unifying spirit of “we are in this together.”

Vietnam_floating market on the MekongThat feeling has been erased by the rise of the market:

“The transition of Vietnam from a highly-centralized planned economy to a socialist-oriented market economy has brought rapid economic development to the country. However, along with the improvement in living standards, there has been a significant change in society in the way people treat each other.

“In the first few years after the war, most people started at approximately the same level. Everyone received a certain portion of goods, whose size depended mostly on the availability of the goods and the aim to provide enough goods for all. I often hear stories about how people from all walks of life would form a long queue in front of the local grocery store, and while waiting hours for the distribution of their food, they stroke up conversations: college professors with peasants, government officials with workers...

“As the country moved toward a market-based economy, essential goods are no longer available to all. People worked harder not only to support their family but also to get access to the new luxuries, and to get ahead of others. Thus, in the past two decades, the market has become extremely competitive. The comforts and luxuries that money can offer motivate people to do everything to get on top, thus promoting corruption. And most importantly, the richest people, also often the people with power, care less about the common goods, as there seems to be less and less overlapping between the two worlds.”

Thanks, Son Tung, for this interesting point.  For those of us who support markets we humbly need to acknowledge that markets do not make everything better.  I am reminded by this telling quote from Alfred North Whitehead:

“[T]he major advances in civilization are processes which all but wreck the societies in which they occur.”  (Symbolism: Its Meaning and Effect, Macmillan 1927, p. 88)

[Image: Floating marketing on the Mekong River from http://globaled.gmu.edu/images/Vietnam_floating%20market%20on%20the%20Mekong.jpg]

Ethics in Research

Jonathan B. Wight

The first line of defense against unscrupulous researchers is the journal editor who initially reviews the manuscript and finds two or three competent reviewers in the sub-field to examine the manuscript before publication.  

In theory, the outside review is anonymous and unbiased. In some cases, reviewers know who wrote the paper and might have self-interested motives to defend their own competing research.  The reviewer must thus practice the virtues of competence, self-control, and honesty in evaluating evidence for competing theories.  

Reviewers, however, are unpaid and the quality of work varies widely. Top journals are usually associated with a non-profit association or university and can attract high-quality reviewers; at the other extreme, for-profit journals are proliferating and some reviews are perfunctory at best.

See, for example, the spoof created when a Science reporter send an obviously fake research paper on a cancer “wonder drug” to 304 journals.  Despite obvious flaws in methodology and interpretation, more than half the journals agreed to publish it, often for a hefty fee. 

This is hilariously funny, if I weren't crying….

We celebrate globalization and the digital age, yet it appears many of the transgressors are blatantly operating out of India and China. 

Source: John Bohannon, “Who's Afraid of Peer Review?” Science 4 October 2013: Vol. 342 no. 6154 pp. 60-65.