Sophistpundit

Private vs. Public

2009-12-19T19:09:00.000-05:00

Institutions are rarely either private or public - "the market" or "the state." Many successful [Common Property Resources] institutions are rich mixtures of "private-like" and "public-like" institutions defying classification in a sterile dichotomy. By "successful," I mean institutions that enabled individuals to achieve productive outcomes in situations where temptations to free-ride and shirk are ever present. A competitive market - the epitome of private institutions - is itself a public good. Once a competitive market is provided, individuals can enter and exit freely whether or not they contribute to the cost of providing and maintaining the market. No market can exist for long without underlying public institutions to support it. In field settings, public and private institutions frequently are intermeshed and depend on one another, rather than existing in isolated worlds.

-Elinor Ostrom, Governing the Commons

Character

2009-12-17T22:10:00.000-05:00

Actions are judged only in as much as they are seen to reflect more general characteristics. I very much believe this to be the case. In economics we talk about how people look for certain signals to overcome problems of information asymmetry. It makes sense to me, therefore, that actions would be seen only as signals, to be used to better judge the sort of person we're dealing with. This isn't limited to moral judgments, either; we rely on such signals to determine a person's competence as well. If a technician who you have known and relied on for years makes a mistake, you will probably believe it if they attribute it to missing a night of sleep. If someone else with a poorer track record makes the same mistake, however, it will be reflected very differently in your judgment of them.

The case is the same for moral actions. While believing that an act is the right or wrong thing to do, the relevant judgment is of how it reflects on the person's character. This is the relevant question because it is the one that must be answered before action is taken; if someone does the right thing but it is obviously a fluke, there is no reason to believe they will do it again. Therefore, you don't necessarily want to keep them around. On the other hand, if someone does something truly admirable, and it's clear that they're simply the sort of person who does that sort of thing, it makes more sense to want to associate with them.

-From a post on my moral philosophy

I have had more than a few conversations about morality in which I've been told my perspective on the matter is unpleasant. In particular, I have been told that I am unforgiving.

To me, forgiveness is irrelevant. It's important when it comes to who you get along and spend your time with, but has nothing to do with morality. Morality, to me, is about the kind of person that you are.

Consider the addict that has promised his love ones that he will stop indulging in his cravings. If he gives in, the relevant question isn't "do I forgive him?" It's "do I really believe he's ever going to get beyond this?"

The most terrifying thing is not asking that kind of question about the people that you love, however. It's asking it about yourself. We go through life not really sure what we're capable of until we are put in a situation that tests us. We see, and often try to overlook, more moments of weakness than anyone else can see us have.

So when we do something we're not proud of, and we're left with the question "is this just the kind of person that I am?"

Sometimes that's the hardest question to answer.

The child ignores it or goes to the other extreme and says "yes this is all that I am."

The adult faces the question with uncertainty, admitting that he is often weak but putting his energy into doing better.

We're all stuck in our own skin; we can only make the most of it and hope that it's enough.

End of Semester and Holiday Madness

2009-12-10T22:13:00.002-05:00

I tell myself that blogging means never having to say you're sorry; my deadlines are my own, I can put it to the side if time constraints require me to, etc, etc. But I can't help but feel like I'm being neglectful. Sophistpundit's been a bit neglected, and Cloud Culture more so.

My semester has just ended, a process which involved giving my life over to writing a paper I really was not interested in at all. The kind of writing I do when I blog was way too big a temptation to allow myself to indulge in when progress was slow on a paper that I was actually going to be graded on. Crossing my fingers on the outcome, but with a little luck, this will be the end of my coursework. If that's the case, I'll be able to spend next semester writing my thesis, and then be done with grad school.

Winter break is always a fun time, when I feel more free to read the books I want to read. After the Nobel prize in economics was announced this year, I ordered Elinor Ostrom's book, Governing the Commons, and it's on the top of the list of the books I want to get to this winter. Will hopefully make some good food for thought.

Thinking About Trade-Offs: Handicap Acccessible

2009-12-03T19:38:00.002-05:00

Are laws that mandate wheelchair ramps and specially designated handicap parking unconditionally good?

Well, you know what I think on the subject--nothing is unconditionally good.

This is the sort of thing that gives economists their bad reputation. How can you say that there are downsides to making life easier for people with disabilities? Aren't their lives hard enough already?

I'll start by making the obvious point that making things handicap accessible is not costless. It costs something to make the ramp, or the doors that open at the push of a button.

I'll follow up with the point that the number of people that these measures will help, in any specific instance, is fundamentally uncertain. I know that, for instance, when a friend of mine was involved in building a theater, they had to make the actors' shower usable for handicapped individuals. Even if they were to never cast a single handicapped actor in their entire existence, they still had to bear the additional cost of having the special shower. So instead of helping people with disabilities, in this instance, you would simply be hurting a small theater still trying to become a financially sustainable operation.

I don't think there is anything wrong with aiming to make the lives of people with disabilities easier. What I do think is wrong is a one-size-fits-all approach that doesn't take into account different circumstances, and how the costs will have greater impacts in particular cases and the benefits will be smaller in others.

These one-size-fits-all tactics are a symptom of a broader inability on the part of many policymakers to face the basic fact that all of life is trade-offs.

Language is a Public Good

2009-11-22T12:42:00.002-05:00

In general when economists talk about a public good what they're interested in is the free rider problem. Since no one can be excluded from the benefits of a public good, everyone has an incentive to put nothing into the maintenance of that good and free ride on the efforts of others. Economists look at this from the perspective of public finance and of group action.

I think that the concept of public goods is useful beyond the traditional bounds of economics, and into evolutionary biology. For instance, language can be thought of as a public good. It is my belief that language is taught and maintained through a system of signaling to people when they are using a word in a way that it is not commonly understood in the community.

If my hypothesis is correct, and everyone puts effort into teaching everyone else the proper use of the local language, then we would have to reconcile the free rider problem of economics with the fact that people are in fact investing in making communication within the community less difficulty. I think that isn't difficult, however; economics employs methodological individualism, that is, the individual person is the unit of interest. Modern evolutionary biology has an even small unit--it looks at the gene as the focus of evolutionary pressures. So while genes may have a "free rider problem" when it comes to developing phenotypes that benefit all of the genes involves, the free rider problem across individual organisms may sometimes be overcome when they have enough genes in common.

This is a very simplistic analysis of course; the free rider problem still does exist across individual humans in many circumstances--that's why economists have any notion of it at all. But I think it's interesting to think about when evolutionary pressures may actually help overcome this at the level of the individual, and why that isn't enough in the circumstances of interest to most economists.

Reject the Universal and Embrace the Conventional

2009-11-20T19:54:00.002-05:00

I just recently found this post at This Field is Required discussing how Kant's moral philosophy is insufficient to provide guidance even on the simple matter of whether or not you should let someone cut in line. The post is a followup on an earlier one that dealt more briefly with the matter as well as two other philosophies that have trouble with the line-cutting scenario.

The followup came in response to Jacob Levy's argument that Kant's philosophy actually could rise to the challenge. PJ takes this apart pretty thoroughly, so for a very knowledgeable explanation on how Kantianism does not measure up I recommend reading the whole post for yourself.

The difficulty of generating rules of behavior for this very simple task illustrates, to me, the impotence of rationalist, universalist moral philosophy. The focus on Kant in particular is useful here because I consider Kant to be the most relentless in pursuing rational philosophy of the Platonic sort to its logical extreme. He argued that moral duty was something that could not involve personal advantage in any way, and that an action was only justified if it could be turned into a universal principle.

I think morality is completely different from the way Kant and all the less extreme rationalists envisioned it. I don't think it involves generating rules of action from well reasoned philosophical principles, and I definitely don't think it involves universal rules for almost any of it.

Morality is in the first place a feeling that we have, individually, about whether or not an action taken by someone was wrong. This feeling is then taken and shaped by local conventions, a subject that the Vulgar Moralist has written about quite recently.

Here's my half-baked theory on how this works: over thousands of years people have encountered countless specific situations that have evoked particular feelings from our moral sentiments. As a way to minimize the amount of information people need to make decisions for a lot of the situations we find ourselves in, conventions of behavior for different sets of circumstances emerge and are passed on down the generations. These conventions are not encompassing--there will always be circumstances that are so new or so rare that tradition leaves us with few tools to respond to other than personal discretion. And conventions are dynamic; changing alongside the kinds of situations that people face regularly, as well as with some unpredictable variation from generation to generation.

Let's go back to the line-cutting example. The line itself is a convention. It is a long established mechanism for rationing when more people want something than, for whatever reason, can be given it at the same time. If people were to just stand in a formless crowd, it would be much more difficult to get the same job done. So before we even ask the question of how we know it's wrong to cut in line, we should acknowledge that the question itself has been framed by things we take for granted.

What happens when someone cuts in line? It feels wrong. It feels wrong because we all know you're not supposed to do it. We know it not because we've read Kant's Fundamental Principles of the Metaphysics of Morals, or because we were taught Bentham's Introduction to the Principles of Morals and Legislation. We know it because we've learned it over the course of our life; learned it from our peers the same way we learned the language we speak.

Belief is not rational, and neither is morality. If it was, we'd be dead, because we'd never figure out what to do in time. Fortunately, we have nonrational processes to guide us and give us context. By the time we get to the point of making a decision, convention has stripped away so many erroneous choices that even our fallible reason is capable of making a choice.

Being a Scholar When You Can't be a Scientist

2009-11-16T19:50:00.005-05:00

It is my basic belief that there are only a limited number of things in this world that we can talk about with any kind of scientific rigor. The number of subjects in which our conjectures can be tested is less than the total number of subjects we can theorize about.

Still, that doesn't mean that we should have nothing to say, in those other subjects. I do not believe that just because you can't say something scientifically, you shouldn't say anything at all. After all, my main interests are history, philosophy, and economics--subjects in which almost every aspect falls well out of the realm of comfortable scientific testability.

When you cannot be a good scientist then you should work very hard to be a good scholar.

What does it mean to be a good scholar?

First, it means admitting that you aren't making testable assertions, that your claims do not have the force of science behind them. This humble honesty should be the starting point for any self-respecting scholar.

That aside, I think there are three practical aspects to good scholarly work: transparency of method, extensive sources, and clarity of presentation.

"Transparency" goes beyond simple truthfulness and into breaking down the strengths and weaknesses of your approach as far as you are aware of them. Whether it's in the body of the work, in footnotes or endnotes, this is the hardest and most important part. The hardest, because we always want to see how brilliant and effective our methods are and rarely even want to consider the fact that we necessarily had to make some trade-offs. Even when we believe in principle that any tactic we take is going to have shortcomings, it's difficult to get motivated to poke holes in your own analysis. It is important, however, as finding the downside to your approach is just as valuable a contribution as finding its strengths.

Sources are very important. You can't test your arguments scientifically so you need some other leg to stand on. It's not about having a large quantity of sources per se, but having a lot of different kinds of sources. If you can get a few people who took very different approaches but arrived at similar or the same conclusion, you're better off than if you just get a thousand people running some variation of the same regression agreeing with one another.

To get back to transparency, I also think there is great value in finding sources that express an alternative point of view that you think make a good case, which you can respond to.

Finally, write in real English, for crying out loud. History, philosophy and especially economics are plagued with jargon and opaque, bad writing. Part of transparency is making your case clearly. Part of integrity is making a genuinely strong case without hiding behind impenetrable prose with a vague air of authority.

Being a scholar means acknowledging that you're not a physicist and the subjects you're interested in will probably never reach that level of rigor. It means making the most of what you've got.

And sometimes something that is untestable today becomes testable tomorrow. Especially if you put your work in writing, in a form that can outlast you. The great scholars in history are the ones that had their work vindicated generations after it was completed. Scholarship is a worthy pursuit. It just merits a little more humility than a lot of scholars have brought to it.

Five Years

2009-11-16T07:21:00.001-05:00

Five years?! That's half a decade! What kind of obsessive compulsive nut keeps on blogging for that long?

It's been a long journey from the day the 19 year old decided to pay homage to his favorite Greek philosophers and to the blogfather without consideration for how pretentious the resulting name sounded. Embarrassingly, said 19 year old didn't even know what a "pundit" was, nor did he bother to look it up before starting his new blog.

This kid was quite interested in politics, and wrote about it a lot. He was also interested in philosophy, though frankly the stuff he wrote was quite bad. Some of the first semi-decent stuff he wrote that could be called philosophy had to do with the ethics of discussion, something which would start from modest thoughts and find its conclusion in a post he's still proud of to this day.

He really grew interested in blogs because of the Dan Rather memo scandal, and so became very involved in debates about mainstream news outlets vs. blogs. An increasing number of posts were dedicated to journalism, its problems, why it isn't particularly special and why bloggers in net could do more than any news outlet ever could.

Let's fast forward a little here. I'd like to think I've come a long way since being that 19 year old. The interest in blogs grew into an interest in new media generally, which ultimately lead me to start an entirely new blog to focus on internet-related topics. Meanwhile, an increasing interest in economics led me to the economics MA program at GMU. Sophistpundit has always been about whatever happened to be on my mind, so it's probably not too surprising that I've written a lot of posts on economics over the last year and a half. Some of these are already drawing a surprising amount of search traffic.

Of course with both blogs, and all the other social media I'm on, the best part is all the people I connect with. People like Stephen, Missy, and Charles, and more who I would never have known about if not for the internet.

The mortality rate for blogs in a year, much less five, is pretty high. This has been so fulfilling for me, however, that I don't see myself going anywhere. In fact, I'm looking forward to another 20 years of blogging, at least.

Manski Bounds

2009-11-15T11:32:00.004-05:00

The technique that Charles Manski has pioneered in a number of journal articles and explained in at least two books is usually explained in the language of set theory. Here I'm going to try my best to do it justice in just plain old English.

I've explained the nature of identification problems. I find it intuitively easiest to explain in terms of the survey who has nonresponders that introduce nonrandomness into the data. Manski's insight is that this does not make the data totally worthless; we can actually get some information from it that is scientifically rigorous, it just might not be as much information as we'd like.

Let's consider the case of a binary survey, where people are simply asked to say whether they are voting for candidate A or B. In order to preserve randomness., we would need to know:

(The percentage of responders that said they would vote for A) multiplied by (the proportion of those called who responded) plus (the percentage of nonresponders who would have said they would vote for A, had they responded) multiplied by (the proportion of those called who were nonresponders).

Let's call the categories in parenthesis 1, 2, 3, and 4, respectively. A real world survey will tell us 1, 2, and 4--that is, the answers given by responders, the proportion that responded, and the proportion that did not respond. It does not tell us 3.

But we still know some things even without knowing 3. Manski's approach is to provide bounds, or to show the range of what the survey outcome could possibly be for all possible values of 3.

So one bound would be the case where all nonresponders would have said they were going to vote for A, and the other bound would be the case where none of the nonresponders said they would vote for A, but instead would vote for B.

The width of these bounds--that is, the difference between the two extreme possible survey outcomes--is determined by 4, the proportion of those called who were nonresponders.

So if only 1% of the people called are nonresponders, then the difference between what the survey results would look like if they had all said they'd vote for A vs if they'd said they would all vote for B is quite small.

Unfortunately, nonresponse rates are rarely that insignificant. I haven't corroborated this, so I don't know if it's an exaggeration or not, but according to Doug Rivers, at their best nonresponse rates were around 30%, and that was decades ago. Obviously the results of a survey would look quite different if 30% of the people they call all go to A or all go to B. So here's a case where nonresponse is a real serious issue.

What's more shocking is that Rivers says that 30% is extremely low compared to nonresponse rates faced by pollsters today. Over time, telephone surveys have been crammed in with massive amounts of telemarketing and other such calls, making it so that people are less and less willing to give their time to people calling to get something from them. There are other factors as well, but the bottom line is Rivers' claim that the typical survey today has a nonresponse rate of 80-85%!

If true, that makes survey data utterly worthless even from Manski's perspective. If 3, the one category that you don't have any information about, is three or four times as bit as 1, how can you possibly think that you'll be able to extract some meaningful information from 1 alone? The width of the bounds is so big as to swallow all of the actual known data!

There is much more to Manski bounds than I have gone into here; he is, for instance, interested in seeing what happens when you start imposing assumptions on 3 to try and narrow the bounds. I'm less interested in that, however. So I hope I've done a decent job of explaining the basic information Manski says you can get from data before you decide you want to try and conjure up some assumptions. I think it's a great insight--just because data is imperfect doesn't mean that it's completely uninformative. If the width of the bounds is reasonable enough, the data might be good to know.

Of course, when survey data is reported in public media outlets, they never include their nonresponse rate to my knowledge. I think one minimal improvement that could be made in the way we do these things would be to create an expectation that people be more open with that kind of information.

UPDATE: In the comments, Jeff has a lot more details on Manski's approach.

Scientific Rigor

2009-11-14T15:41:00.004-05:00

My last post dealt with identification problems, such as nonresponders in a survey, and how a lot of the tricks used to solve them fall short. I'd like now to consider the question of whether identification problems can ever be solved.

My short answer is yes, but that the possibility of a solution has more to do with the subject matter than with brilliant on anyone's part.

Let's take a look at the nonresponder problem. This plagues every type of survey, including the political polls that get a lot of attention during election season. So are those polls worthless?

Absolutely not. Political polls, especially the ones reported the closest to the time of voting, have a very powerful feedback mechanism: once the vote is counted up, we can very easily evaluate the accuracy of each poll as a predictor of the outcome. If, at the time of the vote, Gallup is showing candidate A with 60% and candidate B with 40%, and B wins in a landslide, that makes Gallup look pretty inept.

The existence of this hard and fast evaluation criteria has worked wonders on political polling--for the most part, the polls are pretty good. It's understood that there's a margin of error, but for the simple purposes of figuring out who is more likely to win, your basic political polls aren't bad.

The existence of this constraint doesn't just make it possible for pollsters to determine if there's something wrong with the assumptions they're imposing on the data. It makes innovation possible. For a great example of this, see Doug Rivers explaining the interesting work being done by the people at YouGov.com.

Rivers and his colleagues have two parts to their methodology: first, they use some of the enormous databases of consumer information that exist out there. Second, they have millions of people who have opted in to take their surveys (I believe in exchange for payment). Obviously there is a selection issue with just surveying the people in this group. So what they do is they randomly select individual profiles in the consumer database, and then find individuals who have opted in that share the same characteristics as those profiles in a number of specified dimensions. This way they introduce the element of randomness in their selection, while removing the nonresponse.

If the characteristics that they use as criteria are not important, however, the whole exercise could be futile. Fortunately, they can test the effectiveness of their methodology and compare its results to normal polls during election season.

However, the effectiveness of this method in election polling doesn't serve as a scientific basis for assuming its effectiveness in other areas. It could be that the characteristics that they match are important for determining who people will vote for but not how they feel about tariffs or the Iraq War. Since there is no hard and fast evaluation criteria in the latter areas, any innovation isn't much better than artistic expression. The existence of such a criteria is what makes it possible for innovation to be scientific and rigorous.

This is what forms the divide between the social sciences and the physical sciences. It's not as though all physicists are inherently more intelligent than all economists. There are just a lot more hard evaluation criteria in physics than there are in economics. Whether or not a projectile lands anywhere close to where you thought it was is something pretty easy to measure. Whether or not the theories that went into building the atom bomb were valid and precise is pretty clear at this point.

There are a lot of smart economists. When it comes to complex mathematics and sophisticated statistical techniques, I would say the vast majority of economists are in another universe of intelligence from where I could ever hope to be. But there is almost never any scientific criteria for evaluating the kind of hard-hitting analysis that goes on in academic journals. That is the reason that I believe that most of the work being done by economists today is unscientific garbage.

Economists shouldn't feel too bad, though--I think that most studies in the social sciences in general fall into this category.

I do think it is possible to be a good scholar even when it may not be possible to achieve any sort of scientific rigor. I'll leave exploring that distinction for another time. For now, I'll just say that when the best evaluation criteria you have are fuzzy at best, everyone would be better off if you were honest about it.

Pinker on Gladwell

2009-11-13T16:48:00.002-05:00

Ouch.

Gladwell is a writer of many gifts. His nose for the untold back story will have readers repeatedly muttering, “Gee, that’s interesting!” He avoids shopworn topics, easy moralization and conventional wisdom, encouraging his readers to think again and think different. His prose is transparent, with lucid explanations and a sense that we are chatting with the experts ourselves. Some chapters are masterpieces in the art of the essay. I particularly liked “Something Borrowed,” a moving examination of the elusive line between artistic influence and plagiarism, and “Dangerous Minds,” a suspenseful tale of criminal profiling that shows how self-anointed experts can delude their clients and themselves with elastic predictions.

An eclectic essayist is necessarily a dilettante, which is not in itself a bad thing. But Gladwell frequently holds forth about statistics and psychology, and his lack of technical grounding in these subjects can be jarring. He provides misleading definitions of “homology,” “saggital plane” and “power law” and quotes an expert speaking about an “igon value” (that’s eigenvalue, a basic concept in linear algebra). In the spirit of Gladwell, who likes to give portentous names to his aperçus, I will call this the Igon Value Problem: when a writer’s education on a topic consists in interviewing an expert, he is apt to offer generalizations that are banal, obtuse or flat wrong.

Bold added by me.

Identification

2009-11-13T15:17:00.003-05:00

Let's say you're interested in knowing the typical adult American's opinion on health care or some other hotbutton issue of the moment. So you put together a survey. You want to be all scientific about it, right?

Well, the good news is that statistics tells us that you can get a picture of the population at large that you can be reasonably confident in from a pretty small sample--1,000 will do. If--and this is crucial--the sample is randomly selected.

So you get a machine that dials phone numbers at random, so that there is no selection bias baked into your survey from the get go. You call a thousand random people, ask them some questions, record their answers, and you're done. Easy, right?

In reality you always face a problem: some of the people that you call choose not to participate in the survey. In fact, quite a large proportion of the people you call do not participate. This introduces nonrandomness into your survey--any systematic difference between the kind of person who does respond and the kind of person who does not will bias your results.

That sample of 1,000 people can tell you a lot about the kind of people who respond to surveys. If you want to be even more confident in your results as they pertain to the kind of people that respond to surveys, you can increase your sample size.

However, no matter how much you increase your sample size, you won't be able to learn anything meaningful about the people who do not respond to surveys, and without knowing that, you won't be able to generalize the results of your survey to the entire population.

Inferences where the confidence in your results can be increased by increasing the sample size are known as statistical problems, while those for which no sample size will provide any information are known as identification problems.

I learned of the distinction from Charles Manski's book, Identification Problems in the Social Sciences. I highly recommend it for anyone who wants to think seriously about what can and cannot be learned from a given set of data.

The nonresponders in a survey is a classic identification problem. Are the nonresponders different from the responders in a way that is going to systematically bias the results? This is not a question that can be answered scientifically, and I think a lot of the techniques that are used to compensate for the nonrandomness that nonresponders introduce into the survey are pretty shoddy.

My understanding is that survey companies will try to weight the people who do respond to attempt to better represent the proportion of the population that their demographic makes up. If the proportion of hispanics who respond to a survey is one-fifth of their percentage of the overall population, they might weight their responses so that each hispanic response is actually counted as five responses, for example.

I think this is absurd. The randomness standard is rigorous; if the ideal was possible to attain, you could be confident in your results. When nonrandomness intrudes upon your results, however, it is unscientific to simply make some haphazard assumptions about getting proportional representation in ethnicity or gender. It is an arbitrary judgment call.

There are a couple of ways to solve identification problems. Manski talks about the case where you observe a person and their image in a mirror moving simultaneously. Which way does causation flow? Simply gathering data about how often the movement of the mirror image is correlated with the movement of the person in front of it does not tell you anything about causation. In this case, prior information about optics solves the identification problem. Optics is a pretty hard science, so the information we get from there can be considered reliable.

On the other hand, in surveys and in social science generally, the response to identification problems is far less credible. All of the models that statisticians and econometricians develop to compensate for nonrandomness amount to is imposing assumptions on their data. These assumptions cannot be justified in any rigorous manner. They are defended on intuitive, logical grounds that are untestable. In short, it comes down to persuasion.

For the really important statistics, it often doesn't even involve that. When it comes to something like the unemployment rate, a government agency simply provides an official estimate and most people take it as a given.

So when and to what extent can you trust the data that is reported? I've got some thoughts on that, but I'll leave them for another time. For now, I'll just say that it's never a good idea to accept the statistics you hear reported at face value. There is a lot of discretion and judgment calls that go into turning the data that they actually have into the numbers that get reported.

What Goes into the Unemployment Rate?

2009-11-09T19:56:00.004-05:00

Stephen brought this gold nugget to my attention, and now you have to pay for it with a methodology diatribe.

The economic reactions over the weekend to Friday’s employment report all started from the assumption that things grew much worse in October. The unemployment rate leaped to 10.2 percent from 9.8 percent. Another 190,000 jobs vanished.

Actually, none of that happened.

In reality, the government report says unemployment rates remained steady at 9.5 percent. And the number of jobs actually rose, by 80,000. And the number of jobs for college-educated Americans rose more than in any month in the last six years.

What! That is crazy! What could this New York Times writer be on about? Don't worry, he lets us in on the Big Secret:

So why is this the first time you’ve seen those better-looking numbers? It is because the government adjusted them before they were released.

The adjustments are for seasonality. For some reason, October is the month with the largest seasonal adjustment down in jobs. So the increase in the unemployment rate does not reflect people actually losing jobs. It reflects the belief that seasonal factors should have added more jobs than they did.

Those tricky Feds, adjusting reality to their abstract models!

All this may be very reasonable, and there is no way I can think of to test whether the seasonal adjustments are reliable. But I suspect seasonal factors are less important this year, when the economy may be changing directions, than they normally are.

OK, serious time: Norris is being extremely misleading in all of this.

His story is: we have the data, but they're fitting these assumptions into it that are untestable. And even if they're true most of the time, Norris suspects that it's less important at this particular time.

Here's the reality: we don't have the data.

Unemployment rates get reported all the time as if they were a given. What they really are is the result of household surveys conducted by the Bureau of Labor Statistics. Wait, wait, surveys you say? I thought we just sat around and counted how many jobs there were, compared it to how many we had last month, and counted how many people are trying to get jobs but can't. Surveys, those are the things they do around election times to help figure out which candidate is going to win and by how much. Those aren't reliable; they're off by a few percentage points all the time!

For those of you not already in the know, I'm sorry to inform you that unemployment data is collected pretty much like political poll data.

Now, surveys have one inherent flaw in them. Statistically speaking, if you want to generalize information taken from a small sample onto the larger population, you need the objects in the sample to be chosen at random. But the fact that not all of the people who are selected to take the survey choose to participate biases the sample. It means that the people who do take the survey are not random, because they possess some characteristic that differentiates them from the ones that don't (sort of by definition). The question is how significant that difference is.

It's not a question that can be answered scientifically. Anyway, long story short, statisticians take the data they are able to collect and attempt to weight certain individuals more than others in order to compensate for this bias. Say you get twelve black nonresponders and only one black responder; in theory you might weight the answer of the one black responder as though it represented twelve responses. That's not the approach that a serious statistician would take in practice, but it should give you a more specific idea of what I mean when I say that they weight the data.

It means that they take the data they have and adjust it to try and compensate for its nonrandomness. Models about what should be happening with a given season are only one of the tools employed to adjust the actual data collected by the BLS.

So you see where I have to think that Norris is either ignorant or dishonest. Choosing to throw away the seasonal adjustment is just as arbitrary a choice as including it. But including the seasonal adjustment has this to recommend it: we include these assumptions, however flawed, year after year, and it creates a certain comparability across time.

So frankly, if you're going to make an argument to exclude the adjustment, the burden is on you. Having suspicions that it is less important because the economy may be "changing directions" is hardly a rigorous reason to treat October of 2009 as more special than October of 2008, methodologically. You can make the "special case" every month--hell, you could make it every day or every hour.

What you should never do is throw out the adjustment because when you see the difference it makes in the projection it better conforms to your pre-existing beliefs about what is going on.

What you also should not do is pretend that the data without the seasonal adjustment is just the bare facts. It is not the bare facts. It is a bunch of highly weighted, tampered with survey responses that were tampered with for a very good statistical reason.

By the way, election poll data, while imperfect, has the wonderful constraint of the actual election demonstrating who was wrong and by how much. So there's a real feedback there, encouraging competing survey companies to improve. Unemployment data by its nature will never have a hard and fast point of reference to serve as that sort of feedback. It's not like after every month God comes out and says "Nice try, but the actual unemployment rate was..."

Just thought I'd put that out there. It's never very pleasant to learn what goes into the sausages you eat, is it? You should hear Robert Higgs talk about GDP data.

Another Brick in the Wall

2009-11-08T20:50:00.002-05:00

As a tribute to the 20th anniversary of the fall of the Berlin Wall, the Vulgar Moralist has translated this post by a Cuban blogger. The Cuban blogger, Yoani Sanchez, has apparently made quite a name for herself getting out information about the terrible conditions of her country. I will reproduce the Vulgar Moralist's translation here. The section in italics is the part from Yoani's blog.

The post is titled “Mafia-style kidnapping”; the scene is a gathering of dissidents and bloggers in downtown Havana – marching, as it happened, against violence. Teo is Yoani’s son.

Near 23^rd St. and in the Avenida de los Presidentes traffic circle we saw arrive, in a black, Chinese-made car, three burly strangers. “Yoani, get in the car,” one of them told me while grabbing me powerfully by the wrist. The other two moved behind Claudia Cadelo, Orlando Luis Pardo Lazo, and a friend who accompanied us to a march against violence. It’s one of life’s ironies that it was to be an afternoon filled by blows, screams, and dirty words, what should have been a day of peace and concord. The same “attackers” called in a patrol car that took away my two companions, while Orlando and I were condemned to the car with yellow license plates, to the terrifying landscape of illegality and impunity of Armageddon.

I refused to climb into the shining Geely, and we demanded that we be shown ID or a warrant to take us away. Of course they didn’t show us any paper proving the legitimacy of our arrest. Curious bystanders crowded behind, and I was shouting, “Help, these men are trying to kidnap us.” But they stopped those who tried to interfere with a shout that revealed the ideological context of the operation: “Don’t get involved, they are counterrevolutionaries.” Faced with our resistance, they got on the phone and called someone who must have been their boss. “What do we do? They don’t want to get in the car.” I imagine the response from the other side must have been sharp, because immediately after came a frenzy of punches, shovings, they picked me up with my head facing down and tried to shove me into the car. I grabbed the door . . . they hit my knuckles . . . I managed to snatch a paper from one of them and stuffed it inside my mouth. Another frenzy of punches to make us return the document.

Orlando was already inside, immobilized by a karate hold which kept him with his face flattened against the floorboard. One of the men put his knee against my breast and the other man, from the front seat, was hitting me in the kidneys and punching my head to make me open my mouth and release the paper. In that moment, I felt I would never leave that car. “This is as far as you go, Yoani,” “This is the end of your clowning around,” said the man sitting next to the driver, who was pulling on my hair. In the back seat, a rare spectacle took place: my legs were up, my face reddened by the pressure, and my body hurting, while on the other side Orlando stunned by a man whose profession was to deliver beatings. All I could do was to grab, through his pants, that one’s testicles, in an act of desperation. I sunk in my fingernails, supposing he was going to keep crushing my breast until my last gasp. “Kill me already,” I shouted with the last breath I had, and the man from the front seat told the younger one, “Let her breathe.”

I could hear Orlando panting while the punches kept raining down on us, I thought to open the car door and leap out but there was no handle to open it from inside. We were at their mercy, and hearing Orlando’s voice encouraged me. Later he told me that he felt the same when he heard my attempts to speak . . . it said “Yoani is still alive.” They threw us out in a street of the Timba area, and a woman came near: “What’s happened to you?” . . . “A kidnapping,” I managed to say. We wept, hugging, in the middle of the sidewalk, I was thinking of Teo, God, how can I explain to him all these bruises. How can I say to him that he lives in a country where this happens, how can I look at him and tell him that his mother, for writing a blog and putting her opinions in kylobytes, has been attacked in the open street. How can I describe to him the despotic faces of those men who used violence to throw us into that car, the pleasure they took in beating us, in lifting up my skirt and dragging me half naked to the car.

I managed to see, however, a degree of fright among our attackers, the fear of the new, of what they can’t destroy because they do not understand, the terror of the bully who knows his days are numbered.

Public Goods and Collective Action

2009-11-07T09:52:00.005-05:00

I recently explained the traditional theory of public goods as market failure, and provided a critical review. I've actually been thinking a lot about public goods lately.

Quick recap: a public good is something that is non-rivalrous, meaning that you can consume it without reducing the ability of someone else to consume it, and non-excludable, meaning you can't stop other people from enjoying the benefits even if they don't incur any of the costs.

In my opinion, the guy who really got what public good were all about was not Paul Samuelson, the man who coined the term. Samuelson only thinks about public goods in market failure terms. Public good = suboptimal market provision, therefore add the tax system to extract the funds necessary to provide the optimal amount, which will be provisioned through government. It's all about public finance; the field Samuelson pioneered. The original paper in which he introduced the term was The Pure Theory of Public Expenditure. In short, Samuelson really only is interested in government spending and demonstrating that it is appropriate in this particular circumstance.

I think that perspective is rather limited, and misses a lot of opportunities to understand how the world really works (rather than just creating opportunities for economists to pretend to be experts on how much government should spend).

The man who really got it was Mancur Olson. In The Logic of Collective Action, he got to the heart of what public goods are all about. It isn't about market failure or government spending, it's about the difficulty that groups--especially very large ones--have with getting organized to complete some goal that every member would benefit from.

Imagine the group project in school. If an A+ caliber project is produced, every member of the group benefits equally. So every member of the group has an incentive to let the other group members do all the work. But if all of them free ride, then if any project is produced at all it will be far more mediocre than the sum of the members is capable of.

The school project is a good example because it shows how Samuelson really misses the ball. The benefits of the completed project are non-rivalrous and non-excludable to the members of the group; does that mean that the government should just tax the members and provide a group project for them? That is incoherent.

Olson argues that small groups are much more effective at overcoming this problem. So the smaller the group that benefits from these public goods, the more likely that they will be provisioned.

Lately I feel like I've started seeing this logic just about everywhere. A professor recently argued that the reason you don't see more cases of majorities rebelling against minorities in history is precisely because of the collective action problem. Instead, you see the chief opposition to ruling minorities being other minorities, who no doubt will then be able to provide substantial benefits to their members should they manage a successful coup.

Why didn't the slaves in the American south get together and overthrow their masters? Each of them would have benefitted from such a successful overthrow, so none of them were willing to take on the costs (including risks) associated with the attempt. Why aren't politicians thrown out for catering to special interests over the interests of the general voting population? And so forth.

More interesting of course are the ways that groups manage to overcome this challenge. I mentoned the example of the lighthouse, where a public good was tied to an excludable, rivalrous good (the dock) to make it profitable to provision privately. Olson discusses how organizations will provide special incentives in order to get people to opt in. The AARP, for instance, is one of the biggest and most successful lobby groups around. It manages to fund its activities by providing members with special benefits--insurance, coupons, etc--in exchange for membership dues.

Olson did briefly mention those cases where the costs are so low that whether or not the public good is provisioned is, as he put it, "indeterminate". He was probably right to not consider the case so important back when he wrote the Logic, but it is of immense importance today. Understanding what happens when the costs of providing a public good are small and falling is important if you want to explain how Wikipedia's success is possible, for example.

So I've got collective action on the brain at the moment. After the semester is over, I'm going to read recent Nobel Laureate Elinor Ostrom's book Governing the Commons, and then maybe reread Olson's Logic. Both deal with the many emergent mechanisms for dealing with the collective action problems, albeit with different focuses.

What Economists do right, What Economists do wrong

2009-11-01T20:38:00.002-05:00

So I tend to be pretty hard on the direction the economics profession has gone in, but obviously I do think there's a lot they do right (I am getting my MA in it, hopefully I think I'm learning something of value, right?)

I talked about how all of life is trade-offs. Economists are infamous for hammering this point. I think it was Larry Summers who said that the number of people who die in plane crashes every years should be more than zero. What he meant was not that he believed plane crashes were a good thing, but that basically the only way to get to zero would be to suspend all plane flights entirely, the cost to society of which would be far greater. He was saying that you can't abolish plane crashes entirely without paying some other cost. There is a trade-off.

More recently, Mike Munger has made the more wonderfully evil remark that an economist is a person who believes, as a matter of moral rightness, that the infant mortality rate ought to be more than zero. Again, his point is not that we like dead babies--but that the cost to society of driving the infant mortality rate to zero might include, say, increasing the mortality of people who are five or six, or something else. There is a trade-off there.

Where I break with mainstream economics is in the belief that there is one specific trade-off in every situation that is the correct one. Or, more technically, the "Pareto optimal" one.

Economists are right to harp on the existence of trade-offs where people find them unpleasant or don't consider them. They are wrong to treat the balancing of trade-offs as if it is something that can be accomplished by some objective--worse yet, mathematical--criteria.

Trade-offs exist. The particular trade-offs we make is to begin with a matter of luck, and secondly a matter of value judgments. Luck, because the decisions we can make in life are always constrained by the hand that we are dealt. Value judgments, because what we consider a cost and what we consider a benefit is itself inherently defined by personal values.

The idea that you could pretend that costs and benefits are uniform across individuals, and fit some mathematical formula on top of that assumption, is simply absurd. Sadly, that is basically what the majority of the work being done in economics today consists of. And that is why I am getting my MA, rather than pursuing a PhD and going into the world of academic economics.

All of Life is Trade-Offs

2009-10-29T19:09:00.003-04:00

Every decision made is any number of alternative decisions sacrificed. Every benefit is enjoyed at the expense of some other benefit that might have been attained.

Put simply, you can't get something for nothing.

We face trade-offs all the time, on a hundred thousand different fronts. There's choosing which book you're going to read, but then there's choosing whether or not to read right now at all, rather than going out with friends or watching TV. There's which class' homework to start on and then there's whether or not to spend time doing homework at all at this moment.

These are the trade-offs of the here and now, but the most important trade-offs in our lives are often over time. Using heroin may be extremely enjoyable right now, but it comes with a heavy cost tomorrow, a cost that rises each time. The recovering alcoholic can choose to indulge today, but if they slip and end up having more than "just one drink", they risk undoing all of the progress up until that point.

This doesn't mean that giving up something now for something later is always the right choice. I'm not really interesting in talking about what the right thing is at the moment; my interest is in trade-offs.

For instance; it may be that my scholarly ambitions will profit far more from sitting down to read The Wealth of Nations right now than from watching NCIS. But I don't need to spend every waking moment investing in my future. If you give up too much to that end, you will end up with nothing to enjoy in the present.

The nature of a trade-off is not just giving up something to get something you might prefer, but to emphasize that you do give something up. Investing in the future is a good idea in concept, but Carpe diem is also a good idea--in concept. Everything involving enjoying something at any point in time sounds great. But I don't think it's a very good idea to talk about living in the moment or building a better tomorrow without keeping in mind that you will have to give up something either way, and at every point along the spectrum.

All of life is trade-offs, and I think understanding that fact is an important part of leading a meaningful life.

Meaningful

2009-10-28T21:21:00.002-04:00

Stephen has a very thoughtful post up about the things that give us satisfaction, as opposed to the things that are just stimulating.

I made a list of the things that satisfied me. Reading a book. Cooking a meal. Time with my wife. Playing with my daughter. Writing more than 140 characters. All things that can’t be rushed, and things that make me feel calm.

Today I took the day off from work. There were a couple of reasons; there was a crash-course on the process for submitting my thesis once it's completed, and the company I work for doesn't want everyone using up all their PTO in December. In any case, I found myself in the Fairfax campus for most of the day.

Three different people asked me what I wanted to do once I got my Master's. I don't really have a clear-cut answer other than some vague aspirations and dreams.

I want to live a meaningful life, to do things that bring me the kind of satisfaction that Stephen wrote about. I want to write, research, start a family. Some people in this world are lucky enough to make a living doing something that they find meaningful. I can hope to one day be one of those people, and do my best to seize any opportunities that present themselves. But I have low expectations here--I don't feel entitled to be so lucky, and am satisfied to find meaning in the life I lead outside of whatever my job is.

In this regard I am really inspired by my father, who has pursued a couple of really big research projects in his spare time. I know that no matter what I do to make money, I can do research and write.

But the most important part of a meaningful life is the people in it.

In that regard I couldn't be more fortunate.

Vulgar Morality has moved

2009-10-26T20:16:00.001-04:00

So update your bookmarks--it is now vulgarmorality.wordpress.com. Radio Userland is going the way of the dodo, putting the Vulgar Moralist into this state of exile.

Making Claims About the World

2009-10-25T20:07:00.002-04:00

Really enamored with one Charles Manski at the moment. His book reads like the practitioners' version of How to Lie with Statistics. He emphasizes the importance of thinking hard, and being earnest, about what we cannot say we know with any certainty, in order to gain a better understanding of what we can say. It's not an easy read, though for people with a more grounded in statistics and mathematics than I am will probably find it an easy read--though fruitful.

Reading Manski has me thinking about a seeming contradiction in my beliefs and my actions. I believe, like Manski does, that people are too quick to sacrifice scientific integrity in order to be able to draw strong conclusions. I very much believe in conceding how little it is possible to know. If you can't draw any firm conclusion from something, then I think the right thing to do is to simply say so.

On the other hand, I love theory. And theory involves pontificating about general rules that explain some part of the natural world. Yet I believe, along with Hume, that pinning theory to reality is problematic if not at times outright impossible.

What I'm saying is that I feel like in many ways I have both a skepticism of and an affinity for bold claims about the world.

But in reality there is no conflict. What I'm really skeptical of is claims of authority. I believe, with Sir Karl Popper, that "there are all kinds of sources of our knowledge, but none has authority." When I go off into theory land, I try to avoid claiming some special status that allows me to distinguish which theories have authority and which don't. As a fairly arrogant fellow, I often fall short of this standard but it is the ethical standard that I believe in.

Intellectual life would not be very interesting without theory, but from a methodological standpoint the golden rule should always be humility.

Methodology Quote of the Day

2009-10-24T15:34:00.002-04:00

A contributing problem is the frequent failure of social scientists to face up to the difficulty of their enterprise. Researchers sometimes do not recognize that the interpretation of data requires assumptions. Researchers sometimes understand the logic of scientific inference but ignore it when reporting their own work. The scientific community rewards those who produce strong novel findings. The public, impatient for solutions to its pressing concerns, rewards those who offer simple analyses leading to unequivocal policy recommendations. These incentives make it tempting for researchers to maintain assumptions far stronger than they can persuasively defend, in order to draw strong conclusions.

-Charles Manski, Identification Problems in the Social Sciences

The Writer's Itch

2009-10-17T14:26:00.002-04:00

I love to write. There is no other craft, hobby, or pastime that gives me more satisfaction.

Part of the difficulty of growing up has been accepting that I don't have nearly as much time to blog as I did in undergrad. I have work during the day, and while I'm in grad school the free time I do have is precious and the last thing I want is to go for weeks without seeing friends or family. So especially at this point in my life, the window for writing each weeks is getting narrower and narrower.

So it might seem a bit odd that I decided to start a second blog not even a year ago. Never the less, I think it's actually helped me. Cloud Culture is much more focused in its subject matter. Ironically, Sophistpundit has ended up being a lot more focused this year as well, with economics currently dominating my posting over here. With all the time I've put into the econ program at GMU for the last couple of years, I suppose it isn't surprising that it crowd out a lot of other thoughts in my head.

What I really regret is how little time I've dedicated to writing fiction over the last few years. Most of the serious writing I've done has been nonfiction but ever since I was a little kid I've wanted to tell stories. An important part of my vision for Cloud Culture was to explore the art that was being put up in numerous corners of the web, freely available to anyone able to find it. I've more recently started taking this goal seriously.

There is a lot of artistic expression going on in drawing, painting, video, and music right now, but as I said my passion has always been writing. So, with the idea of writing occasional reviews on Cloud Culture, I've started getting into a lot more fiction that can be found online.

One piece of advise that I have heard from many different writers both personally and in memoirs is that in order to write, you need to read a lot. Part of the reason I think I've written so much nonfiction over the last few years is that I have read a gigantic amount of nonfiction relative to the amount of fiction I've read. The only exception has been stories in the form of shows, like Firefly, or movies--especially old classics like Rear Window or Double Indemnity. Even there, I really don't watch very much TV or many movies.

Well I've probably read more fiction in the last few months than I had in the whole year before that. Some of this has been finding stories online and reading them. A lot of it has been finding podcast novels and listening to them during my commute.

It has me really itching to sit down and write some stories. There are a few I have rough versions of already that just require revision and, in some cases, finishing. I need to get into the habit of writing stories, even if only very small ones, as regularly as I write posts over here and at Cloud Culture.

We'll see. If all goes according to plan, this will be my last semester of coursework. Next semester will be spent working on my thesis, which will in itself be quite time consuming. But I feel like there's always downtime here and there where I could put down a paragraph or two.

I should stop thinking about it and just get to it.

The News Was Never About Getting Information

2009-10-12T21:13:00.003-04:00

If the television newscasts were watched or newspapers were read solely to obtain the most important information about public affairs, aberrant events of little public importance would be ignored and typical patterns of quantitative significance would be emphasized; when the news is, by contrast, for most people largely an alternative to other forms of diversion or entertainment, intriguing oddities and human-interest items are in demand.

-Mancur Olson, The Rise and Decline of Nations

And the Nobel Prize in Economics goes to: Elinor Ostrom and Oliver Williamson

2009-10-12T19:54:00.002-04:00

Here's the official announcement. Ostrom gets it "for her analysis of economic governance, especially the commons" and Williamson "for his analysis of economic governance, especially the boundaries of the firm."

I am really lucky to be taking an institutional economics class this semester, because that's what this nobel prize is all about. Both Ostrom and Williamson are more than deserving of this recognition.

The professor of my class, John Nye, has a great piece detailing the background of this prize. I liked Tyler Cowen's take as well:

It's a nod in the direction of social science, rather than economics per se. It's another homage to the New Institutional Economics and also to Law and Economics. It's rewarding larger rather than smaller ideas, practical economics rather than abstract theory. It's a prize somewhat outside of the mainstream. As you probably know by now, Ostrom is a political scientist and she has spent much of her career at Indiana University.

I was delighted to hear of Ostrom winning (which I had not expected) but frankly it makes the omission of Gordon Tullock all the more glaring.

Cowen has another post on Williamson and asset price specificity. Peter Boettke has a post providing some insight on Ostrom.

Alex Tabarrok came out early with a great post about Ostrom.

her work has explored how between the atomized individual and the heavy-hand of government there is a range of voluntary, collective associations that over time can evolve efficient and equitable rules for the use of common resources.

Makes me really want to read her book.

Tabarrok has an equally compelling post on Williamson.

In Adam Smith there is the pin factory and the market and from that beginning we trace the long literature in economics focused on the twin questions, What price to set? How much to produce? Following Coase, Williamson asks different questions, Why a pin factory? Why are the 18 steps to make a pin performed by a single firm rather than two or more? Why are there many firms instead of one large firm? Why does the pin factory not vertically integrate upwards to buy the steel factory and downwards to buy the retail hardware shop?

I like institutional economists like these two. The ask these kinds of questions--questions about practical arrangements in the real world. To them theory is judged by its ability to explain what can be seen in front of their faces, rather than by its elegance or mathematical convenience. And that's how it should be.

I was surprised and pleased with the decision this year. As Cowen said, it was about rewarding big ideas rather than small ones, and that is always a good thing.

Causation, Ex Ante vs Ex Post

2009-10-11T14:35:00.002-04:00

The seriousness of the shortcomings of ad hoc explanations is aptly illustrated by a set of photographs in a magazine I read as a child. The magazine article pointed out that some of those portrayed were convicted criminals and others were highly respected citizens, and the reader was invited to judge which was which before turning to the page with the answers. Neither my friends nor I did well in picking out the criminals--the most villainous-looking of the lot, I seem to remember, turned out to be a distinguished author. Yet it was remarkable how often, after looking up the answers, we would "discover" the sneaky eyes or suspicious chin that was, or should have been, a dead giveaway.

Now suppose that, after looking up the answers, we also received descriptions of the childhood and ancestry of each of the individuals. Would it not then also have seemed easy to explain why the criminals had turned to crime? This one fell on evil ways as a reaction against his severe and distant father, that one because he had no father, the next because he had too much of mother; yes, the successful businessman also had a severe and distant father, but he did not repress his hatred. Admittedly, the successful artist had no father and a doting mother, but this was the catalyst for his creativity. Whenever there is some astonishing behavior, be it a crime or a great achievement or whatever, there is someone ready to offer a confident psychological explanation based on one or the other of the special features of the astonishing person's history. Sometimes there are several different explanations by different experts. But few, if any, select those who will be so aberrant beforehand. One should be as suspicious of some of the historical and psychological explanations we hear as of the discovery of evil features in the faces of men who have already been identified as criminals.

-Mancur Olson, The Rise and Decline of Nations