Matthew Yglesias's Blog, page 2429

Economists and Incentives

It's fascinating to me the extent to which economists refuse to deploy the insights of economics in order to help understand the behavior of economists and economics departments. For example, Tyler Cowen says Ragu Rajan "nails it" with his explanation of why economists didn't predict the crisis:

I would argue that three factors largely explain our collective failure: specialization, the difficulty of forecasting, and the disengagement of much of the profession from the real world.

Rajan glosses a leading alternative hypothesis thusly:

Finally, an answer that is gaining ground is that the system bribed economists to stay silent.

Obviously bribe-based theories of human behavior are crude and rarely capture reality. But how about translating this into economics? How about incentives? Rajan says it's not individual corruption that led to a lack of insight, it's structure features of the way the profession is organized. That makes a lot of sense to me. But what explains that structural organization? Is it really unrelated to the financial basis of the economics profession? Or are economists supposed to be immune from the factors that influence human behavior in other instances?

If so, I'd like to meet these people! In journalism, I think most people want to do a good job and produce good articles. But people also want to get raises, get better jobs, get invited to cool events with important people, get on TV and be famous, etc. Nobody's "on the take" but the objective structure of incentives does influence what happens, especially in the aggregate. College professors are different, I guess, which must be why they're all paid on a flat salary scale and everyone donates 80-90 percent of their outside consulting income to charities.

The Trouble With Presidents

Egypt looks certain to have a change in President as a result of the current protests, which is all to the good. But if you ask me, countries in this situation should also strongly consider doing away with their dictatorship-enabling presidential systems.

The problem with a strong president, especially in a country that doesn't have a stable tradition of political parties or peaceful transfers of power, is that there can only be one. The whole country is plunged into a winner-take-all political contest. If the winner turns out to be someone with a "one man, one vote, one time" concept of democracy, then that's all she wrote. And if you suspect your opponent is someone with a "one man, one vote, one time" concept of democracy, then you'll feel it's both prudent and necessary to really push the envelop in search of your own victory. And of course if you've got that figured out then so does your opponent. It's a recipe for suspicion and abuse.

By contrast, a system oriented around a parliament elected with some form of proportional representation is going to set the stage for new round of bargaining among political elites. That doesn't guarantee a good outcome, but it does militate in that direction.

Who Gets Stiffed When The Debt Limit Isn't Raised?

Karl Smith says it's not a default when a government fails to meet contractual obligations to soldiers:

Contra to Neal Wolin, if bondholders needed sign that under no state of affairs will any credit losses on US bonds ever be allowed, then prioritizing debt payments over the men and women who have shed blood for their country would do it.

If seniors across America start having their chemo cancelled so that Arab Sheik's get their bond payments on time then US creditworthiness will go through the roof.

This seems like a bit of a metaphysical dispute, but it's a useful opportunity to shift ground to the question of what actually would happen in case of us reaching the debt ceiling.

This would amount, basically, to the federal government facing a temporary cash flow problem. Markets are willing to buy US debt at interest rates that make it perfectly possible for the Treasury to stay solvent, but congress won't let Treasury sell the debts. Under the circumstances, incoming cash is insufficient to meet all scheduled obligations. But it's not zero. And presumably Tim Geithner will keep paying creditors. Social Security has its dedicated funding stream.

How about the rest of the government? Well the real issue here, I think, is what happens if the President tells you that you can't get paid just now because congress is being difficult, but he'd like you to keep on keeping on anyway. Soldiers in the field aren't going to mutiny, the Pentagon will just keep track of what back pay they're owed and families back home will complain to their members of congress. Similarly, the firms the Pentagon contracts with will recognize that the long-term viability of their contracting business is at stake and will keep fulfilling the terms of their contracts in exchange for IOUs. So nobody's going to run out of bullets. And it seems to me that if you really wanted to, you could generally keep things more-or-less going on this basis. Instead of selling bonds to investors to get the cash needed to finance the government, you could de facto borrow money by giving IOUs to service providers. Financial institutions should be willing to buy the IOUs from their recipients, and then Wall Street will find itself lobbying congress to pay the government's debts.

My Problem With PER

From a chat with John Hollinger:

Mike (Chicago)

I know you love PER, but it's YOUR made up stat. Why should fans trust it when clearly our eyes can tell us that D Rose is playing way better than Paul and when PER doesn't account for how a player has to play when teammates are hurt?

John Hollinger

I trust you reached this eye test after watching all the Hornets' games too?

Everybody's right here. As Hollinger says, statistical measurements are absolutely necessary. You can't watch all the games or distinguish by eye between a 91% free throw percentage and an 87% free throw percentage.

But it's also true that Hollinger's PER formula is an oddly arbitrary mix he dreamed up one day. I think you can easily see this my trying to total PER up and ask what the resulting number is supposed to be. PER, after all, is an individual stat representing a per-minute quantity. So if we take a player's PER and multiply it by his minutes played, we'll get that guy's PERMinutes. Then we can add up all of a team's PERMinutes and we get . . . what?

The idea of a system like Dave Berri's "wins produced" is that if you add up all the "wins produced" of the individual 2009-2010 Los Angeles Lakers you get a number that's approximately equal to the total wins of the Los Angeles Lakers. People can (and have, and do, and should continue to) raise questions about whether the Berri formula is accurately allocating credit for these wins to individuals, and also can (and have, and do, and should continue to) raise questions about the predictive value of these quantities. But there's no question of what's being measured. By contrast, what happens when I add up the 2009-2010 Lakers' PERMinutes:

What is this supposed to be a model of? If you calculated the total team PERMinutes for each time, would the resulting quantities have a strong correlation with team performance? If so, I'd love to see Hollinger work up the spreadsheet.

But I have my doubts. For starters, by definition the average player has a PER of 15. And if you take the Lakers' aggregate PERMinutes and then divide them by minutes to get a measure of the quality of a statistical construct "Laker," the team turns out to have a 15.73 PER—just slightly above average. But the team in question won 57 games and the NBA championship.

Efforts To Discriminate Against Muslims Dragging Others Into The Mix Accidentally

Another one to remember next time conservatives start wondering why Jews are liberal, is this story about how conservative passion for discriminating against Muslims winds up stepping on the toes of Jewish groups as well:

House Bill 45, introduced by Rep. Mike Jacobs, R-Atlanta, states "it shall be the public policy of this state to protect its citizens from the application of foreign laws when the application … will result in the violation of a right guaranteed by the Constitution of this state or of the United States." The bill also would prevent arbitrators or tribunals from enforcing a foreign law that didn't meet constitutional standards.

Jacobs, a lawyer and vice chairman of the House Judiciary Committee, told the Fulton County Daily Report the bill would "ban the use of Sharia law in state courts." He acknowledged that he was not aware of any instances in Georgia where a plaintiff or defendant asked the court to apply Sharia law but believes it has happened elsewhere.

But:

A bigger problem, [Michael Broyd, director of Emory University's law and religion program] added, is that the bill "violates the Federal Arbitration Act and becomes an unconstitutional exercise of state authority."

"Arbitration is a routine business exercise by people who are prepared to sacrifice some of their constitutional rights in return for reduced cost and expediency," said Broyde, who also is an ordained rabbi and member of the Beth Din of America — the largest Jewish law court in the country.

The punchline is that obviously the bigots in question have no particular interest in restricting Jewish practice, nor is there any real principle at work here, they're just trying to discriminate against Muslims:

Jacobs said he's hoping to resolve any perceived problems in Judiciary Committee meetings.

"I'm certainly willing to hear from practitioners who have concerns about specific applications of the bill as it is introduced."

Not super-closely related, but it seems to me that many Americans of Christian ancestry, both those who are observant and those who aren't, tend to walk around blind to the extent to which Christian religious law influences American public policy. The United States Postal Services delivers mail 6 days a week, and it's not a coincidence which day is the exception. The calendar of federal holidays celebrates four individuals, three of whom (Christopher Columbus, George Washington, and Martin Luther King) are major figures in American history and it's not a coincidence who the forth one is.

The Mind's Eye

As perhaps befits a book about visual impairment, I listened to Oliver Sachs' The Mind's Eye on MP3 rather than actually reading it. The whole audiobook experience is kind of interesting—the material just kind of flows past at a fixed speed rather than speeding up or slowing down according to what I'm paying attention to. Old fashioned reading definitely has a lot of advantages, but you can listen to MP3s while walking to work.

The book is from the medical journals of Oliver Sachs, writer/neurologist extraordinaire and all the stories are pretty gripping. It's not at all a book about public policy, but thinking about some of the patients does put certain things in a different light. One woman lost the ability to read, and then over time the optical centers of her brain are continually—and mysteriously—degenerating in a seemingly uncurable way. It seems like a terrifying, miserable experience to me. But she still had a nice middle class life and income in New York. The whole thing struck me as an excellent case study in the idea that in modern day rich countries you start to get a lot of disjoint between happiness and well-being and money and income.

Catastrophe Keeps Us Together

The euro can't work without deeper political integration. To some, that was a bug in the plan and they thought the EU shouldn't move to a single currency until the dawn of some more integrated political future. But the theory that won the day was that the best way to drive future political integration was to march ahead with the Euro, then count on integration to arrive when the system proved unworkable. It's a bit sick if you ask me, but it's working:

Initiating a bold effort to strengthen the euro, Germany and France on Friday laid down far-reaching plans to deepen integration among the 17 nations that use the currency. The move prompted immediate opposition, but could lead to embryonic economic government for Europe.

The architects of the world.

The Dread Broccoli Mandate

Opponents of the Affordable Care Act have been having a fun time trying to scare people with the idea that if the ACA is constitutional, then congress would also be within its rights to mandate that people buy broccoli.

Legal issues aside, I really think these efforts to scare people with the specter of unlimited government founder on the fact that any government empowered to levy excise taxes is conceptually pretty much unlimited. The government is allowed to tax everyone, and use the revenue to subsidize broccoli consumption. Now maybe you think that's legally distinct from the idea of fining people for failure to consume broccoli. But the practical impact is identical. Whether or not non-eaters of broccoli end up subsidizing broccoli consumption has everything to do with congressional politics and nothing to do with the Supreme Court.

In the specific case of the ACA, the stakes are in fact quite high. That's because the 111th Congress favored the ACA whereas the 112th congress doesn't. So if the Supreme Court undoes the law, the votes won't be there to re-achieve the same thing through a technically different process. But that's just the same as the case of the broccoli mandate. We don't have a broccoli mandate because there's no congressional support for a broccoli mandate. If congress decides to financially penalize people for not eating broccoli (as it currently penalizes people who don't eat corn) then it will do so and the Supreme Court has no way to stop it. What's happening now is a quirk of America's odd legislative process. The votes aren't there to repeal ACA and the votes aren't there to pass ACA, so whether or not the court strikes it down is hugely important. That's an interesting fact about American politics in 2011, but it has implications whatsoever for the conceptual boundaries of congressional power. As ever, the best guarantee that congress won't do something you don't like is to win elections.

Gender and Philosophy

Eye-popping chart from Kieran Healy:

I always got the sense that this mostly reflected a kind of pure arbitrary path dependency in a very small field. There are few women in philosophy, and the resulting boys club atmosphere leads to an unusually high quantity of sexist bullshi. Given that it's not a particularly remunerative or socially influential field, there's little specific pressure to overcome these barriers to women stay away and the cycle continues. As Ned Resnikoff notes, this seems to end up leading to a fair number of invalid philosophical arguments gaining acceptance.

Back when I was a philosophy major, I think half the professors in the department were women, and there were also (and, I think, not coincidentally) a higher-than-average number of women graduate students.

Endgame

Monkey see, monkey do:

— Presidents' droit du seigneur.

— College still not worthless.

— Publicly traded firms seem to be on the decline.

— Dating advice.

— "To form a government".

Last night I learned that the otherwise estimable David Roberts is one of those misguided souls who thinks Ten is better than Nevermind. I think this is best refuted with reference to the casual brilliance of "Stay Away", one of the superior album's lesser tracks and yet still fantastic.