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July 2014 posts

James Garfield, Modern Medicine, and Economics

By Jonathan B. Wight

James Garfield has never resonated with me before now. He was President only 120 days (less than three months) before an assassin’s bullet incapacitated him. He died two months later. He was thus always a footnote in my history books. Garfield

But learning about his life and death has been eye-opening.

Candice Millard’s book, Destiny of the Republic: A Tale of Madness, Medicine and the Murder of a President (2012) raises two key points: The first is that Garfield was truly an exceptional individual, a virtuous and learned man we might all want to see in charge.

He never wanted to be president, but took it on with honesty and the drive to clean up the scourge of a corrupt political machine. One wonders what might have happened had he served two terms.

Second, and most importantly, Garfield did not have to die. His death was clearly the result of medical malpractice. 

Five years before the attack on Garfield, doctors in the U.S. had learned from European colleagues about the dangers of bacteria and the use of antiseptics to prevent the spread of infection. But Garfield’s doctor distrusted modern theories of invisible germs, preferring instead to repeatedly probe the bullet wound with his bare, unwashed fingers. Garfield died of massive infection. The doctor clung to his reputation and refused to listen to facts.

The parallel with economics is open to interpretation. What viewpoints do economists hold today that are unsupported by the evidence of facts and history?  Are we limited by our outdated ideologies?

One questionable doctrine is that of austerity in the face of economic depression—which seems as close to blood-letting as we can get today.  Another is the doctrine that the market will automatically provide its own safeguards and self-correct. That is assuredly true in the long run, but not in a relevant time horizon.

One of the alleged silver linings of Garfield’s death is that doctors, reviewing his autopsy, became convinced that medical malpractice had been the cause of death. This led to a rapid change in medical practice.

Will we also see a similar conviction emerge after the results of the Great Depression of 2008?

[Image: http://www.heritage-history.com/?c=read&author=morris&book=presidents&story=garfield]

Reconciliation and the Death Penalty

By Jonathan B. Wight

I could be for the death penalty, if it could be shown to deter other violent crimes. It cannot.

I could be for the death penalty, if it could be shown that the people put to death are 99.9% sure to be the guilty party.  It cannot.

I could be for the death penalty, if it could be carried out in a way that preserves dignity for the state as the monopolist of legal violence.  It cannot.

*     *     *

The recent botched executions around the country could be solved by a firing squad, hanging, and so on. GallowsThe public could be brought in to watch—or pay for the privilege of hacking someone to death with an axe.  We could turn it into a reality TV show and reduce the budget deficit!

People recoil from this not only from squeamishness, I think, but from common sense. We are all too aware of what happens when mob or vigilante violence is incited, as indeed a venomous state killing would do. While Americans don’t learn much about history and the atrocities of the French Revolution, they may remember something about the 1968 riots across America. They can read about the wanton violence in today Syria, Iraq, and elsewhere.

Do we really want to rouse up the vilest of emotions, believing that these emotions can then be put back into a neat apothecary bottle? 

The reason we require a dignified death without pain for the vilest of murderers is because...

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West with the Night

By Jonathan B. Wight

Let me admit, up front, that I am three decades behind the times. Better late than never, I guess.

In 1983 Beryl Markham’s memoir, West with the Night was re-released, some 40 years after its first issue and meteoric fame in 1942. I don’t remember who recommended this to me recently—but thank you!  Thank you!

After its first release the book was soon forgotten in the tragedy of war, and only by fortuitous happenstance was it revived, after someone picked up this quote in one of Ernest Hemingway’s letters:

“[Markham] has written so well, and marvellously well, that I was completely ashamed of myself as a writer. I felt that I was simply a carpenter with words, picking up whatever was furnished on the job and nailing them together and sometimes making an okay pig pen.

"But this girl, who is to my knowledge very unpleasant and we might even say a high-grade bitch, can write rings around all of us who consider ourselves as writers ... it really is a bloody wonderful book."

Beryl-markhamForget the part about being unpleasant or a b---; they form no part of the work. Anyone who risks her life again and again to airlift supplies to others in remote and dangerous parts of Africa deserves a bit of a break.

The book is a soaring account of a young girl coming of age in East Africa, defying stereotypes to become a professional horse trainer, and after that, an accomplished bush pilot.

She topped that by being the first woman to fly ...

Continue reading "West with the Night" »

Is Your Government Lying to You about Inflation?

By Jonathan B. Wight

There seems to be widespread paranoia among some bloggers and commentators that government bureaucrats are lying about the true inflation rate (see here and here).

I love to read conspiracy books about evil colluders in public as well as private life. After all, what is The Wealth of Nations but a persistent diatribe against such machinations?

I also have a particularly strong reason for believing that governments lie to their citizens. After all, I came of age in Brazil, living there from 1964–69 and again in 1980–81.  Brazil experienced hyper hyper-inflation, and the government regularly tried to cover it up in rather inept ways.

One way was to impose price controls on black beans, a major staple of the Brazilian diet; this prevented the price of beans from going up on the CPI.  Brilliant! Of course, this didn't fool anybody.

Another ludicrous policy was ...

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Dreaming Big

By Jonathan B. Wight

I’ve been thinking some more about Keo Cavalcanti’s memoir on immigration, Almost Home (see here).

Economists, we know, model choice as an optimization model in which rational actors seek to maximize preference satisfactions within given constraints. That’s all very good, in many cases.

But in some important parts of life, the model falls apart. The model cannot account for our dreams, our deepest intuitive tugs that call us to do crazy things against all odds.

Anyone who undertakes something truly big—like having a child, starting a business, or immigrating to another country—takes a huge leap beyond any possible capacity to predict the multiple, complex outcomes, or even place probabilities on them.   Balloon

This is the difference between the analysis of risk, about which we can make rational predictions, and true uncertainty, about which we cannot.

Instead of clearly understood preferences, we have dreams; instead of probabilities, we have faith. 

Most entrepreneurs are driven by an internal tug that leads them to strive on despite the high probability that they will fail. An entrepreneur who proceeds, even when the numbers don’t jibe, is on a journey of discovery.

Living out our dreams is that process of discovery. What lies over the horizon is unknowable, but we slog on either enjoying the process itself, or bearing the pains of that process with heroic stoicism.

Kenneth Boulding, in his Presidential address to the American Economic Association in 1968, made a spirited defense of economics as a moral science. The “heroic” person who defies all the odds is central to the working of many institutions:

"No one in his senses would want his daughter to marry an economic man, one who counted every cost and asked for every reward, was never afflicted with mad generosity or uncalculating love, and who never acted out of a sense of inner identity and indeed had no inner identity even if he was occasionally affected by carefully calculated considerations of benevolence or malevolence.

"The attack on economics is an attack on calculatedness and the very fact that we think of the calculating as cold suggests how exposed economists are to romantic and heroic criticism.

"My personal view is that, especially at his present stage or development, man requires both heroic and economic elements in his institutions, in his learning processes and in his decision-making and the problem of maintaining them in proper balance and tension is one of the major problems of maturation, both of the individual person and of societies."

Keo Cavalcanti’s wonderful book is a paean to that heroic quest for dreaming big and discovering meaning in life.

Vertical and Horizontal Pluralism

By Jonathan B. Wight

The last few years I’ve been joining my voice to those who argue that the world is complex and multiple ethical systems are operative at the same time. A Review of Social Economy article (expected December 2014) and a forthcoming book (March 2015, with Stanford University Press) develop the arguments for ethical pluralism.

Pluralism is the recognition that multiple values and multiple principles can be valid, and these cannot be reduced to a super value or super principle.

Pictures are often a useful way to present information. Vertical pluralism is displayed in the first figure.  While neoclassical economists evaluate by focusing on outcomes, Kantian duty economists focus on the morality of the action itself, and virtue ethicists focus on the character and motives of the person involved.  Good virtue (like honesty) gives rise to someone with the self control to do the right act for the right reason, and produces good outcomes (say, by reducing transactions costs and thereby stimulating more opportunities for trade).  Screenshot 2014-07-15 10.14.55

Greater wealth outcomes subsequently provide a positive feedback loop to create more virtuous citizens, because of enhanced moral imagination (as discussed in Adam Smith, John Stuart Mill, Deirdre McCloskey, Benjamin Friedman, and others).

Horizontal pluralism deals with the notion that there are multiple ways of getting to virtue, or understanding duty, or analyzing outcomes.  Screenshot 2014-07-15 10.17.07

The bottom line is that when economists carry out traditional welfare economics by analyzing efficiency through preference satisfaction, they are doing a form of ethics, and that form of ethics is narrow and incomplete as a way of either understanding behavior or proscribing public policies.

My own view is that welfare economics is a wonderful tool, not to be thrown out!  I remember to this day the thrill I experienced when first learned about the economic surplus. Ingenious! But that giddy excitement needs to be tempered by humility and openness to recognize that model’s limitations and its reliance on other ethical frameworks, especially non-consequentialist ones.

 © Jonathan B. Wight

“Almost Home”: An Immigrants Memoir

By Jonathan B. Wight

H.B. “Keo” Cavalcanti is a renaissance guy—with degrees in theology, law, and sociology. His writing is Keo_cavalcanti
clear and at times deeply moving. His most recent book, mentioned briefly here, is called Almost Home: A Brazilian American's Reflections on Faith, Culture, and Immigration (2012).

My fellow economists sometimes disparage sociology. “It’s not science” they argue, because it is often lacking theoretical and empirical rigor.

True, true, yet the search for “truth” often requires a rigorous analysis of a different sort—exploratory, cross-disciplinary, and deeply personal. That is the magnificent book that Cavalcanti has produced. 

A parallel, if you want, is with Elliot Liebow’s masterful, Tally's Corner: A Study of Negro Streetcorner Men (1967). I have no idea if that book “held up” under academic scrutiny. I just know what a profound impact it had on me when I read it. It caused me to be open to a new way of thinking on an important topic. It did not settle things so much as stir them up. A glass of water seems to be crystal clear, a stereotype firmly in place—and now the sediment and contents are stirred up.

That is the sense I get of what Cavalcanti has accomplished in this important work. He has taken the attitude and motivations of an immigrant and thrown them into question. One cherished model in economic immigration is the rational economic actor model, compelled by the push/pull of costs and benefits. Cavalcanti’s account explicitly takes aim at that model, which he argues requires too much rationality, planning, and knowledge of a young and naïve immigrant—at least in his own case. 

Cavalcanti’s background is fascinating, growing up ...

Continue reading "“Almost Home”: An Immigrants Memoir" »

America as Seen Through Immigrant Lives

By Jonathan B. Wight

I am reading Almost Home (2012), a moving biography of an immigrant’s complicated journey to these shores – how he got here and what it means. The author is H.C. “Keo” Calvalcanti, a former colleague.

I’ll have more to say about the book in a later post, but wanted to digress for a musical moment. 

Cavalcanti reflects on Antonín Dvořák’s sojourn in America in the 1890s, and the writing of the wonderful “New World” Symphony that is evocative of the promise and allure of this land.

I dug up a version on YouTube that is worth hearing, and it has an amazing set of photographs that capture the era: https://www.youtube.com/watch?v=0MLvIGHCUAg Dvorak

What does any of this have to do with ethics in economics? Our minds provide a window into the lives of other people, and shared moral sentiments are the basis for feelings about justice. Adam Smith was convinced that the arts were essential for deepening our experiences of sympathy, and hence for creating a better world.

Take a moment to listen to this great music, and study these stunning portraits, and see if your heart is not a wee bit fuller, and more open, than before.

"Trust me, I am a financial adviser"

By Jonathan B. Wight

It is good to have virtuous business people. It is also good to have rules that codify duties. One of these rules is a firewall between different financial interests.  John Kay reports this British judge admonishing a financial transgressor from a century ago:

“The prohibition of the law is absolute. It will not allow an agent to place himself in a situation which, under ordinary circumstances, would tempt a man to do what is not the best for his principal.”  Financial

We need virtue. And we need justice to punish those whose conflicts of interest stretch over the line.

The judge 100 years ago

“saw that you could be an agent or a trader; but you could not be both at the same time, and you had to make entirely clear to the customer which role you were playing. That is surely as wise today as it was a century ago.”

As John Kay noted, “‘Trust me, I am a financial adviser’ is not good enough.” 

The bizarre and erroneous idea that the invisible hand will ensure that “greed” will lead to the best possible outcomes is both outdated and wrong, as a careful reading of Adam Smith shows.

The Shareholder Value Myth

By Jonathan B. Wight

Those of you interested in the debate over corporate profits and stakeholder theory would enjoy reading Lynn Stout’s, The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public (2012).

John Kay and many others have noted that directly heading towards a goal (like profit maximization) is self-defeating. Obliquity is the preferred approach when the environment is complex and there are not-well-understood incentives and feedback loops. As noted in a previous post, shareholder value is the “dumbest idea in the world,” according to Jack Welch.

Marty Calkins and I also pointed out how even Milton Friedman, who touted the mantra of corporate profits, did so within an ethical system that put duty to others ahead of profits; this is a hole big enough to drive the semi-truck of stakeholder theory through the door and into the boardroom. Bullnbear

Lynn Stout’s contribution is to show that from a legal point of view, corporate directors are not, in fact, duty bound to maximize profits. That activity may detract from other aims of the corporation in terms of innovation, market share, or other long run goals:

"The reason can be found in an important corporate law doctrine called the ''business judgment rule." In brief, the business judgment rule holds that, so long as a board of directors is not tainted by personal conflicts of interest and makes a reasonable effort to become informed, courts will not second guess the board's decisions about what is best for the company- even when those decisions seem to harm shareholder value. In one famous case, for example, the corporation that owned the Chicago Cubs refused to hold night games at Wrigley Field. Although holding night games would likely have increased attendance and profits, the president of the corporation, chewing-gum heir Philip  K. Wrigley, believed that baseball should be a "daytime sport" and that installing 30 lights would disturb the peace of the surrounding neighborhood.

One should always be alert to Milton Friedman’s cynicism about the supposed virtues of business leaders, who may in fact simply try to run the corporation for their own personal benefit. Shareholders should have a strong voice in reigning in corporate decisions that fail to advance shareholder interests.

At the same time, company managers have a duty to other stakeholders that cannot be erased by invoking the sanctity of profits above all else.

[Thanks to Rob Phillips for this link.]