J. Bradford DeLong's Blog, page 333

Cognitive Science, Behavioral Economics, and Finance: Some Fairly-Recent Must- and Should-Reads

I know, this is one hell of a grab-bag of categories. But I do think it is a category:

Judea Pearl provides the first good response I have ever heard to Cosma Shalizi's priceless anti-Bayesian rant: Cosma Shalizi (2016): On the Uncertainty of the Bayesian Estimator: "I hardly know where to begin. I will leave aside the color commentary. I will leave aside the internal issues with Dutch book arguments for conditionalization. I will not pursue the fascinating, even revealing idea that something which is supposedly a universal requirement of rationality needs such very historically-specific institutions and ideas as money and making book and betting odds for its expression..."

Jonathan Gottschall (2012): The Storytelling Animal: How Stories Make Us Human (New York: Houghton Mifflin Harcourt: 0547391404) https://play.google.com/?id=Bl43cU5rdVwC

Lee McIntyre: "Cognitive scientists recommend using a "truth sandwich" to report lies: : ay the truth, then show the liar telling the lie, then fact check it. Otherwise the well known 'repetition effect' allows the news media to be used to amplify lies..."

What I describe as the Rubin questions, because these are questions that I first heard when Bob Rubin would ask them when he led the NEC for Clinton in the 1990s: What might we wish two years from now we had done today? What might we wish ten years now that we had done today? Yes, that decision turned out right, but was it the best decision we could have made then given what we could have known then? Yes, that decision turned out wrong, but was there a better decision we could have made then given what we could have known then, and how could we have made it?: Cory Doctorow: Thinking in Bets: a poker-master's Jedi mind-trick for being less wrong: "Annie Duke... Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts...

Josh Bernoff: How we really should teach writing: "Here���s a radical idea.... Teach... students to write stuff that they���ll actually need to write in life or in an��office:��emails, blog posts, social media posts, marketing copy, research reports, and presentations...

History, biography, and fiction are the queens of the humanities because we think via narrative: David Robson: Culture-Our fiction addiction: Why humans need stories: "The perfect summer blockbuster. A handsome king... superhuman strength... insufferable arroganc... wreak[s] havoc...

Deep and true thinking about how to build structural models, and what they tell us about what to control for���and what not to control for���in estimation: Judea Pearl and Dana Mackenzie: The Book of Why: The New Science of Cause and Effect (New York: Basic Books: 0465097618) https://books.google.com/books?isbn=0465097618

Judea Pearl on the Meaning of the Monty Hall problem: Judea Pearl: (2018): The Book of Why: The New Science of Cause and Effect (New York: Basic Books: 046509760X): "Even today, many people seeing the puzzle for the first time find the result hard to believe. Why? What intuitive nerve is jangled?...

Seth Godin: Marketing Sauerkraut: "The story goes that James Cook brought fermented german cabbage with him on a long voyage, an innovative way to combat scurvy...

Nouriel Roubini: "So please scam me as u wish as I fork u $4bn!: 'The EOS tokens do not have any rights, uses, purpose, attributes, functionalities or features, express or implied, including, without limitation, any uses, purpose, attributes, functionalities or features on the EOS Platform'"

The usual dodge here is to make "the money" a trader deploys proportional to the gap between the current price and their estimate, and so dodge this question completely: Dan Davies: "The 'Manski Bounds'.... How surprisingly little information you can extract from prices.... All the price tells you is that half the money thinks the true value is more than that and half thinks it's less. It doesn't tell you how much more or how much less. I think this matters a lot when you're trying to analyse fast moving markets like TRY or BTPs. Most of the people selling are selling because their guess about true value has moved a long way, not because the price has moved and they switched from the bid to the offer..."

Dan Davies: "The 'Manski Bounds'.... How surprisingly little information you can extract from prices.... All the price tells you is that half the money thinks the true value is more than that and half thinks it's less. It doesn't tell you how much more or how much less. I think this matters a lot when you're trying to analyse fast moving markets like TRY or BTPs. Most of the people selling are selling because their guess about true value has moved a long way, not because the price has moved and they switched from the bid to the offer..."

Adam Smith (George Goodman) (1972): Supermoney: "Anyway, we sat at the great man���s knee, and then we went out to apply the theory...

81%? Only 81% of "Initial Coin Offerings" created by "con artists, charlatans, and swindlers"? What are the other 19%? What of their own resources are the issuers putting on the line, and what is the path to long-run value? Not 81%: 100%, Nouriel!: Nouriel Roubini: Initial Coin Scams: "Initial coin offerings have become the most common way to finance cryptocurrency ventures, of which there are now nearly 1,600 and rising...

Without short selling, the current price of a speculative asset is the expected maximum valuation that will ever be given it by the non-forward looking. When the valuations by the non-forward looking become extrapolative, Katie bar the door!: Noah Smith: Lessons on Bubbles From Bitcoin: "Until there is a way to bet against an asset, its price will be set by the most upbeat buyer...

Oscar Jorda, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, AND Alan M.Taylor����: The Rate of Return on Everything, 1870���2015: "This paper answers fundamental questions that have preoccupied modern economic thought since the 18th century...

Noah Smith: Rational Markets Theory Keeps Running Into Irrational Humans: "To many young people, the idea of efficient financial markets���the idea that...

Matt Townsend et al.: America���s ���Retail Apocalypse��� Is Really Just Beginning: "The reason isn���t as simple as Amazon.com Inc. taking market share...

Note to Self Deep and true thinking about how to build st...

Note to Self Deep and true thinking about how to build structural models, and what they tell us about what to control for���and what not to control for���in estimation: Judea Pearl and Dana Mackenzie: The Book of Why: The New Science of Cause and Effect (New York: Basic Books: 0465097618) https://books.google.com/books?isbn=0465097618:

Belated awakenings of this sort are not uncommon in science. For example, until about four hundred years ago, people were quite happy with their natural ability to manage the uncertainties in daily life, from crossing a street to risking a fistfight. Only after gamblers invented intricate games of chance, sometimes carefully designed to trick us into making bad choices, did mathematicians like Blaise Pascal (1654), Pierre de Fermat (1654), and Christiaan Huygens (1657) find it necessary to develop what we today call probability theory. Likewise, only when insurance organizations demanded accurate estimates of life annuity did mathematicians like Edmond Halley (1693) and Abraham de Moivre (1725) begin looking at mortality tables to calculate life expectancies. Similarly, astronomers��� demands for accurate predictions of celestial motion led Jacob Bernoulli, Pierre-Simon Laplace, and Carl Friedrich Gauss to develop a theory of errors to help us extract signals from noise. These methods were all predecessors of today���s statistics...

Note: This is the answer to Cosma Shalizi���s question about why it is that the supposedly general theory of Bayesian statistics makes such reliance on the bizarre and contingent institutional facts of gambling. We express Bayesian ideas in gambling contexts because those were the first contexts complicated enough for us to need to formalize and develop what we already knew.

���Our brains are just not wired to do probability problems very well, so I���m not surprised there were mistakes,��� said Persi Diaconis, a statistician at Stanford University, in a 1991 interview with the New York Times. True, but there���s more to it. Our brains are not wired to do probability problems, but they are wired to do causal problems. And this causal wiring produces systematic probabilistic mistakes, like optical illusions.

Because there is no causal connection between My Door and Location of Car [in the Monty Hall Problem], either directly or through a common cause, we find it utterly incomprehensible that there is a probabilistic association. Our brains are not prepared to accept causeless correlations, and we need special training���through examples like the Monty Hall paradox or the ones discussed in Chapter 3���to identify situations where they can arise. Once we have ���rewired our brains��� to recognize colliders, the paradox ceases to be confusing...

This confusion between seeing and doing has resulted in a fountain of paradoxes, some of which we will entertain in this book. A world devoid of P(L | do(D)) and governed solely by P(L | D) would be a strange one indeed. For example, patients would avoid going to the doctor to reduce the probability of being seriously ill; cities would dismiss their firefighters to reduce the incidence of fires; doctors would recommend a drug to male and female patients but not to patients with undisclosed gender; and so on. It is hard to believe that less than three decades ago science did operate in such a world: the do-operator did not exist...

One of the crowning achievements of the Causal Revolution has been to explain how to predict the effects of an intervention without actually enacting it. It would never have been possible if we had not, first of all, defined the do-operator so that we can ask the right question and, second, devised a way to emulate it by noninvasive means.... If we are in possession of a causal model, we can often predict the result of an intervention from hands-off, intervention-free data....

Another advantage causal models have that data mining and deep learning lack is adaptability. Note that in Figure I.1, the estimand is computed on the basis of the causal model alone, prior to an examination of the specifics of the data. This makes the causal inference engine supremely adaptable, because the estimand computed is good for any data that are compatible with the qualitative model...

Counterfactuals are not products of whimsy but reflect the very structure of our world model. Two people who share the same causal model will also share all counterfactual judgments....

These queries take us to the top rung of the Ladder of Causation, the level of counterfactuals, because to answer them we must go back in time, change history, and ask, ���What would have happened if I had not taken the aspirin?��� No experiment in the world can deny treatment to an already treated person and compare the two outcomes, so we must import a whole new kind of knowledge...

In fact, almost all of [these "paradoxes"] represent clashes with causal intuition and therefore reveal the anatomy of that intuition. They were canaries in the coal mine that should have alerted scientists to the fact that human intuition is grounded in causal, not statistical, logic. I believe that the reader will enjoy this new twist on his or her favorite old paradoxes...

Deep learning has succeeded primarily by showing that certain questions or tasks we thought were difficult are in fact not. It has not addressed the truly difficult questions that continue to prevent us from achieving humanlike AI....

This leap forward in cognitive ability was as profound and important to our species as any of the anatomical changes that made us human. Within 10,000 years after the Lion Man���s creation, all other hominids (except for the very geographically isolated Flores hominids) had become extinct. And humans have continued to change the natural world with incredible speed, using our imagination to survive, adapt, and ultimately take over. The advantage we gained from imagining counterfactuals was the same then as it is today: flexibility, the ability to reflect and improve on past actions, and, perhaps even more significant, our willingness to take responsibility for past and current actions....

Probabilistic causality has always foundered on the rock of confounding. Every time the adherents of probabilistic causation try to patch up the ship with a new hull, the boat runs into the same rock and springs another leak. Once you misrepresent ���probability raising��� in the language of conditional probabilities, no amount of probabilistic patching will get you to the next rung of the ladder. As strange as it may sound, the notion of probability raising cannot be expressed in terms of probabilities...

Philosophers were too quick to commit to the only uncertainty-handling language they knew, the language of probability. They have for the most part gotten over this blunder in the past decade or so, but unfortunately similar ideas are being pursued in econometrics even now, under names like ���Granger causality��� and ���vector autocorrelation���...

Lesson one from this example: causal analysis allows us to quantify processes in the real world, not just patterns in the data. The pups are growing at 3.34 grams per day, not 5.66 grams per day. Lesson two, whether you followed the mathematics or not: in path analysis you draw conclusions about individual causal relationships by examining the diagram as a whole. The entire structure of the diagram may be needed to estimate each individual parameter....

In a world where science progresses logically, Wright���s response to Niles should have produced a scientific excitement followed by an enthusiastic adoption of his methods by other scientists and statisticians. But that is not what happened. ���One of the mysteries of the history of science from 1920 to 1960 is the virtual absence of any appreciable use of path analysis, except by Wright himself and by students of animal breeding,��� wrote one of Wright���s geneticist colleagues, James Crow. ���Although Wright had illustrated many diverse problems to which the method was applicable, none of these leads was followed.���....

In the 1960s, things began to change. A group of social scientists, including Otis Duncan, Hubert Blalock, and the economist Arthur Goldberger (mentioned earlier), rediscovered path analysis as a method of predicting the effect of social and educational policies. In yet another irony of history, Wright had actually been asked to speak to an influential group of econometricians called the Cowles Commission in 1947, but he utterly failed to communicate to them what path diagrams were about. Only when economists arrived at similar ideas themselves was a short-lived connection forged...

As we saw, Bayes���s rule is formally an elementary consequence of his definition of conditional probability. But epistemologically, it is far from elementary. It acts, in fact, as a normative rule for updating beliefs in response to evidence. In other words, we should view Bayes���s rule not just as a convenient definition of the new concept of ���conditional probability��� but as an empirical claim to faithfully represent the English expression ���given that I know.��� It asserts, among other things, that the belief a person attributes to S after discovering T is never lower than the degree of belief that person attributes to S AND T before discovering T. Also, it implies that the more surprising the evidence T���that is, the smaller P(T) is���the more convinced one should become of its cause S.

No wonder Bayes and his friend Price, as Episcopal ministers, saw this as an effective rejoinder to Hume. If T is a miracle (���Christ rose from the dead���), and S is a closely related hypothesis (���Christ is the son of God���), our degree of belief in S is very dramatically increased if we know for a fact that T is true. The more miraculous the miracle, the more credible the hypothesis that explains its occurrence. This explains why the writers of the New Testament were so impressed by their eyewitness evidence. Now let me discuss the practical objection to Bayes���s rule���which may be even more consequential when we exit the realm of theology and enter the realm of science. If we try to apply the rule to the billiard-ball puzzle, in order to find P(L | x) we need a quantity that is not available to us from the physics of billiard balls: we need the prior probability of the length L, which is every bit as tough to estimate as our desired P(L | x). Moreover, this probability will vary significantly from person to person, depending on a given individual���s previous experience with tables of different lengths. A person who has never in his life seen a snooker table would be very doubtful that L could be longer than ten feet. A person who has only seen snooker tables and never seen a billiard table would, on the other hand, give a very low prior probability to L being less than ten feet. This variability, also known as ���subjectivity,��� is sometimes seen as a deficiency...

Causal diagrams make possible a shift of emphasis from confounders to deconfounders. The former cause the problem; the latter cure it. The two sets may overlap, but they don���t have to. If we have data on a sufficient set of deconfounders, it does not matter if we ignore...

Mistaking a mediator for a confounder is one of the deadliest sins in causal inference and may lead to the most outrageous errors. The latter invites adjustment; the former forbids it...

In fact, Cornfield���s method planted the seeds of a very powerful technique called ���sensitivity analysis,��� which today supplements the conclusions drawn from the inference engine described in the Introduction. Instead of drawing inferences by assuming the absence of certain causal relationships in the model, the analyst challenges such assumptions and evaluates how strong alternative relationships must be in order to explain the observed data. The quantitative result is then submitted to a judgment of plausibility, not unlike the crude judgments invoked in positing the absence of those causal relationships. Needless to say, if we want to extend Cornfield���s approach to a model with more than three or four variables, we need algorithms and estimation techniques that are unthinkable without the advent of graphical tools...

Glynn and Kashin���s results show why the front-door adjustment is such a powerful tool: it allows us to control for confounders that we cannot observe (like Motivation), including those that we can���t even name. RCTs are considered the ���gold standard��� of causal effect estimation for exactly the same reason. Because front-door estimates do the same thing, with the additional virtue of observing people���s behavior in their own natural habitat instead of a laboratory, I would not be surprised if this method eventually becomes a serious competitor to randomized controlled trials...

A climate scientist can say, ���There is a 90 percent probability that man-made climate change was a necessary cause of this heat wave,��� or ���There is an 80 percent probability that climate change will be sufficient to produce a heat wave this strong at least once every 50 years.��� The first sentence has to do with attribution: Who was responsible for the unusual heat? The second has to do with policy. It says that we had better prepare for such heat waves because they are likely to occur sooner or later. Either of these statements is more informative than shrugging our shoulders and saying nothing about the causes of individual weather events...

Aristotle set up a whole taxonomy of causation, including ���material causes,��� ���formal causes,��� ���efficient causes,��� and ���final causes.��� For example, the material cause of the shape of a statue is the bronze from which it is cast and its properties; we could not make the same statue out of Silly Putty. However, Aristotle nowhere makes a statement about causation as a counterfactual, so his ingenious classification lacks the simple clarity of Thucydides���s account of the cause of the tsunami...

Even today, many people seeing the [Monty Hall] puzzle for the first time find the result hard to believe. Why? What intuitive nerve is jangled? There are probably 10,000 different reasons, one for each reader, but I think the most compelling argument is this: vos Savant���s solution seems to force us to believe in mental telepathy. If I should switch no matter what door I originally chose, then it means that the producers somehow read my mind. How else could they position the car so that it is more likely to be behind the door I did not choose?....

When we condition on a collider, we create a spurious dependence between its parents. The dependence is borne out in the probabilities: if you chose Door 1, the car location is twice as likely to be behind Door 2 as Door 1; if you chose Door 2, the car location is twice as likely to be behind Door 1. It is a bizarre dependence for sure, one of a type that most of us are unaccustomed to. It is a dependence that has no cause. It does not involve physical communication between the producers and us. It does not involve mental telepathy. It is purely an artifact of Bayesian conditioning: a magical transfer of information without causality.

Our minds rebel at this possibility because from earliest infancy, we have learned to associate correlation with causation. If a car behind us takes all the same turns that we do, we first think it is following us (causation!). We next think that we are going to the same place (i.e., there is a common cause behind each of our turns). But causeless correlation violates our common sense. Thus, the Monty Hall paradox is just like an optical illusion or a magic trick: it uses our own cognitive machinery to deceive us....

Notice that I have really given two explanations of the Monty Hall paradox. The first one uses causal reasoning to explain why we observe a spurious dependence between Your Door and Location of Car; the second uses Bayesian reasoning to explain why the probability of Door 2 goes up in Let���s Make a Deal.

Both explanations are valuable.

The Bayesian one accounts for the phenomenon but does not really explain why we perceive it as so paradoxical. In my opinion, a true resolution of a paradox should explain why we see it as a paradox in the first place. Why did the people who read her column believe so strongly that vos Savant was wrong? It wasn���t just the know-it-alls. Paul Erdos, one of the most brilliant mathematicians of modern times, likewise could not believe the solution until a computer simulation showed him that switching is advantageous. What deep flaw in our intuitive view of the world does this reveal?

���Our brains are just not wired to do probability problems very well, so I���m not surprised there were mistakes,��� said Persi Diaconis, a statistician at Stanford University, in a 1991 interview with the New York Times. True, but there���s more to it. Our brains are not wired to do probability problems, but they are wired to do causal problems. And this causal wiring produces systematic probabilistic mistakes, like optical illusions.

Because there is no causal connection between My Door and Location of Car, either directly or through a common cause, we find it utterly incomprehensible that there is a probabilistic association. Our brains are not prepared to accept causeless correlations, and we need special training���through examples like the Monty Hall paradox or the ones discussed in Chapter 3���to identify situations where they can arise. Once we have ���rewired our brains��� to recognize colliders, the paradox ceases to be confusing...

Teddy Roosevelt: "We Have Traveled Far...": How to Look on Our Predecessors with Charity and Justice

���We have traveled far...��� said Teddy Roosevelt, looking back at the Puritans.

And we today, looking back at Teddy Roosevelt, have reason to say the same thing.

We can hope that, were Teddy with us today and were he given an opportunity for sober reflection and consideration, he would agree.

We can hope that he would agree that many of his attitudes towards women come out of an ideological and cultural superstructure, erected largely for the benefit of men, built on top of a near-Malthusian biological regime in which the typical woman spent 20 years of her life eating for two.

We can hope that he would agree that all of his fears about ���race��� and its impact on America in his day have been falsified by the history of America since his.

And we can hope that, as far as ���improving the breed��� is concerned, Roosevelt today would understand that, even on the narrowest perspective of what maximizes the survival probability of the human species as a breeding population, our genetic diversity is already so low that we cannot afford to further reduce it along almost any dimension���that "eugenics" as he understood it is a big no-no.

And we can welcome the valuable things that Teddy Roosevelt tried to carry forward from his time into ours...

Teddy Roosevelt:

There is nothing easier than to belittle the great men of the past by dwelling only on the points where they come short of the universally recognized standards of the present. .Men must be judged with reference to the age in which they dwell, and the work they have to do.... We have traveled far since [the Puritan's] day. That liberty of conscience which he demanded for himself, we now realize must be as freely accorded to others as it is resolutely insisted upon for ourselves.

The splendid qualities which he left to his children, we other Americans who are not of Puritan blood also claim as our heritage. You, sons of the Puritans; and we, who are descended from races whom the Puritans would have deemed alien���we are all Americans together. We all feel the same pride in the genesis, in the history, of our people; and therefore this shrine of Puritanism is one at which we all gather to pay homage, no matter from what country our ancestors sprang.

We have gained some things that the Puritan had not���we of this generation, we of the twentieth century, here in this great Republic; but we are also in danger of losing certain things which the Puritan had and which we can by no manner of means afford to lose.

#hoistedfromthearchives
#moralresponsibility
#history

Note to Self: References Relevant to the Kaiping Mines St...

Note to Self: References Relevant to the Kaiping Mines Story...

Herbert Hoover in China: A Story I Had Never Heard Before
Herbert Hoover's Story on the Kaiping Mines : From Walter Liggett (1932), The Rise of Herbert Hoover (New York: H.K. Fly), p. 111 ff....
1901: Kaiping Mines: Memorandum of Agreement Between Chang Yen-Mao and Herbert Hoover
1903: The Pall Mall Gazette on the Kaiping Mines in 1903
1905: A Historical Document: The Kaiping Mines: The Times of London, March 2, 1905, p. 9
Rose Wilder Lane (1920): The Making of Herbert Hoover (New York: Century) https://books.google.com/books?id=j5QEAAAAYAAJ

William Holtz (1993): (Columbia, MO: University of Missouri Press: 0826210155) http://books.google.com/isbn=0826210155

Ellsworth Carlson (1971): The Kaiping mines, 1877-1912 (Cambridge: Harvard East Asian Research Center) https://books.google.com/books?id=CYbtAAAAMAAJ




Peter Lee: Herbert Hoover: Made in China
Peter Lee: China Matters: Last of the Muckrakers: An Appreciation of Walter Liggett

Walter Liggett (1932): The Rise of Herbert Hoover https://books.google.com/books?id=xGcZjgEACAAJ

Peter Lee: The Coolie Quagmire: Flogging, Sodomy, and Imperial Overreach on the Rand

**John Hamill (1931): The Strange Career of Mr. Hoover Under Two Flags https://books.google.com/books?id=YlK...






The Herbert Hoover Presidential Library and Museum: Rose Wilder Lane and Laura Ingalls Wilder : "Lane was commissioned to write The Making of Herbert Hoover��by Charles K. Field, editor of Sunset (a West Coast literary magazine) and a personal friend of Herbert Hoover.�� At the time, Hoover was contemplating a run for President in 1920, and Field wanted to help.... Lane and Hoover continued for many years to correspond about topics of shared interest..."




#shouldread

George Washington's Conviction That Thomas Jefferson Was a French Puppet...

Note to Self: I have been looking for this for a while: Washington's judgment that Jefferson was, at best, not an American patriot but rather an agent of influence for the corrupt French Republic.

It is thought that "John Langhorne" was not Thomas Jefferson, but rather Jefferson's favored nephew Peter Carr. The extent to which Carr was acting on his own rather than for Jefferson is not clear to me. Carr was certainly a "Jeffersonian"���and thus distance between him and Jefferson (like distance between Freneau and Jefferson) seems to me much more like plausible deniability than true divergence: George Washington: To John Nicholas, 8 March 1798: "Nothing short of the Evidence you have adduced, corroborative of intimations which I had received long before, through another channel...

...could have shaken my belief in the sincerity of a friendship, which I had conceived was possessed for me, by the person to whom you allude. But attempts to injure those who are supposed to stand well in the estimation of the People, and are stumbling blocks in their way (by misrepresenting their political tenets) thereby to destroy all confidence in them, is one of the means by which the Government is to be assailed, and the Constitution destroyed. The conduct of this Party is systematized, and every thing that is opposed to its execution, will be sacrificed, without hesitation, or remorse; if the end can be answered by it.

If the person whom you suspect, was really the Author of the letter under the signature of John Langhorne, it is not at all surprising, to me, that the correspondence should have ended where it did; for the penetration of that man would have perceived at the first glance of the answer, that nothing was to be drawn from that mode of attack; In what form, the next insidious attempt may appear, remains to be discovered. But as the attempts to explain away the Constitution, & weaken the Government are now become so open; and the desire of placing the Affairs of this Country under the influence & controul of a foreign Nation is so apparant, & strong, it is hardly to be expected that a resort to covert means to effect these objects, will be longer regarded...

#treason
#agentofinfluence
#frenchrevolution
#thomasjefferson
#georgewashington

Jonathan Spence on the Ming-Qing Transition

Jonathan Spence (2013): The Search for Modern China https://books.google.com/books?isbn=0393934519: "The loosely woven fabric of late Ming China's state and economy began to unravel at many points...

...Falling tax revenues led to failures to pay the army promptly. Troop desertions encouraged border penetration by hostile tribes. A flow of silver from the West brought unexpected stresses in the Chinese economy. Poor state granary supervision and harsh weather conditions led to undernourishment and a susceptibility to pestilence among rural populations. Random gangs of the disaffected coalesced into armies whose only ideology was survival. By 1644 all of these elements combined in such a virulent fashion that the last Ming emperor committed suicide.

Those who brought order out of this chaos were... tribesmen from across China's northern frontiers who called themselves Manchus. Their victory was based on their success in forming a system of military and administrative units and the nucleus of a bureaucracy long before they were ready to conquer China. With these institutions in place, and with large numbers of surrendered or captured Chinese serving these tribesmen as political advisers, soldiers, craftsmen, and farmers, the Manchus were ready to seize the opportunity to invade China when it came in 1644....

The conquest of as vast a country as China could be achieved only by incorporating millions of Chinese supporters into the Manchu ranks, and by relying on Chinese administrators to rule in the Manchus' name.... Most Chinese accepted the new rulers because the Manchus promised... to uphold China's traditional beliefs and social structures. If the Manchu conquest had ever opened the possibility for social upheaval, it was soon over....

The main architect of the Qing consolidation was Emperor Kangxi, who reigned from 1661 to 1722... strengthened the institutions of rule that his Manchu forebears had tentatively designed... restoring an effective national examination system, improving the flow of state information through reliable and secret communications channels, attracting the support of potentially dissident scholars through state-sponsored projects, and easing the latent tensions between Manchus and ethnic Chinese in both government posts and society at large.... Although commerce and agriculture both flourished during his reign, they were not adequately taxed, a failure that became a permanent flaw of the dynasty....

With hindsight we can see that the Ming dynasty... was past its political peak by the early seventeenth century; yet in the years around 1600, China's cultural life was in an ebullient condition that few, if any, other countries could match.... The works of the short-story writers and the popular novelists... point to a new readership in the towns, to new levels of literacy, and to a new focus on the details of daily life... a growing audience of literate women.... _The Golden Lotus... the central character (who draws his income both from commerce and from his official connections) is analyzed through his relationships with his five consorts, each of whom speaks for a different facet of human nature.... A moral fable of... greed and selfishness... yet it also has a deeply realistic side, and illuminates the tensions and cruelties within elite Chinese family life as few other works have ever done....

For many these were indeed glorious days. As long as the country's borders remained quiet, as long as the bureaucracy worked smoothly, as long as the peasants who did the hard work in the fields and the artisans who made all the beautiful objects remained content with their lot���then perhaps the splendors of the Ming would endure....

Once the news of Emperor Chongzhen's suicide in Peking was confirmed, a group of senior Ming officials named the prince of Fu as his successor, and he was enthroned as "emperor" in the Yangzi River city of Nanjing.... Over the next few months, when the prince of Fu should have been preparing Nanjing's defenses, his court was torn by the bitter quarrels, recriminations, and inefficiencies that had so plagued Emperor Wanli, including internecine struggles for power
between pro- and anti-eunuch factions....

While the Ming generals and senior officials bickered, a Manchu army advanced south down the line of China's great man-made inland waterway, the Grand Canal, and besieged the wealthy commercial city of Yangzhou.... The Ming troops... held out there for one week. But they were finally defeated by the superior cannon power and the remarkable courage of the Manchus, and the city was sacked for ten terrible days as a warning to the rest of China. The defenders of Nanjing, by contrast, put up almost no resistance, and the city surrendered to the Manchus in early June. The prince of Fu was captured and sent to Peking, where he died the following year....

The Manchus had seized Peking in 1644 with startling ease, and by 1662 had killed the last Ming claimants, but the succession of military victories did not mean that they had solved the problem of how to rule China. Dorgon... now had to adapt these institutions to the task of controlling a continent-sized country.... In most areas of governmental and intellectual organization, the Manchus were content to follow Chinese precedents. The six ministries... were retained intact, although the leadership of each ministry was placed in the hands of two presidents, one a Manchu and one a Chinese bannerman or a civilian Chinese.

A similar multiethnic dyarchy of four men (two Manchus and two Chinese) held the title of vice-president in each ministry.... The senior positions known as "grand secretaries" were also perpetuated. There were seven grand secretaries serving together in the early yearsof Shunzhi's reign: two were Manchu, two were Chinese bannermen, and three were former senior Ming officials who had recently surrendered. Accomplished Chinese scholars who offered their loyalty to the Manchus were given staff positions in the various ministries and in the Grand Secretariat.... The national examinationson the classical literary tradition were reinstituted in 1646....

Manchu power was spread very thinly over China's vast territory, and though the Qing established military garrisons in most of the key provincial cities, the new dynasty survived basically by maintaining a tenuous balance of power among three components of its state. First were the Manchus themselves... who had their own language and their own aristocratic rankings.... The Manchus tried to maintain their martial superiority through such practices as hunting and mounted archery; and they emphasized their natural cultural distinctness by using the Manchu spoken and written language. Though for practical reasons they had to let Chinese officials use Chinese for administrative documents, all important documents were translated into Manchu. The Manchus also kept to their own private religious practices... to which the Chinese were denied access.

Second came the other bannermen, both Mongol and Chinese, most of whom were from families that had surrendered well before the conquest of 1644.... It was the Chinese bannermen who played the greater part in ruling China. They had their own elaborate hierarchies, based partly on noble titles granted by Nurhaci or Hong Taiji and partly by the date on which they had surrendered.... Their support was invaluable... without these bannermen, there would probably have been no conquest and certainly no consolidation.

Third came the ethnic Chinese.... Some of them, like Wu Sangui, were active collaborators... some defied the Manchus as active resisters and died... some... chose passive resistance. But most, seeing the way the wind was blowing, passively collaborated with the new order.Those from wealthy backgrounds tried to make sure that they could hold on to their ancestral lands and, if successful, proceeded to enroll their sons in the state examinations and to apply for lucrative bureaucratic office....

In the south, the Manchus initially made no attempt to establish a strong presence. Instead, once the Ming claimants were dead, they let Wu Sangui and two other Chinese generals who had long before gone over to the Manchus administer the huge territories as virtually independent fiefdoms....

There was certainly an "upper class"... and the Manchus chose to perpetuate the system that they encountered when they conquered the country. Upper-class status came from an amalgam of four factors: wealth, lineage, education, and bureaucratic position.... Agricultural land... large amounts of silver ingots... large libraries of classical works, collections of paintings, jade, porcelain, bolts of silk, large homes, holdings in urban real estate, or interests in commercial ventures ranging from pawnshops to pharmacies Lineage... bound extended families together in a network of mutual support.... Marriages between the children of powerful lineages were carefully negotiated.... The dominant role of education in Qing China was the result of the power and prestige attached to holding office in the bureaucracy, entrance into which was governed almost entirely through competitive examinations run by the state. In normal times few people rose to high office via a military career, and fewer still just because their families had money or imperial connections.

Qing rulers perpetuated the Ming curriculum... based on memorization and analysis of a group of prescribed texts attributed to the sage Confucius, or to some of his early followers, and a small number of approved commentaries.... Classical Chinese... was different grammatically and structurally from the everyday spoken language. Hence if a family had the money to send their sons to a good teacher who had himself passed the higher examinations... their children had a better chance.... Finally, even though it might be risky to hold bureaucratic office in a faction-torn court, or in a countryside threatened by bandits or civil war, it was still possible in a few years of officeholding to make enough money from salary, perquisites, special fees, and perhaps outright graft to repay all the costs one had incurred in obtaining the position, and retain a hefty surplus to invest in more land and in educating one's own children. Furthermore, the mere fact of prior membership in the bureaucracy was enough to bring a measure of protection from other local officials whom one could meet as social equals after retiring and returning home to enjoy the fruits of one's labors....

The Oboi regents might employ intimidation or force to coerce the local gentry of Jiangsu into paying their taxes on time, but the Manchus conspicuously failed in their attempt to have an efficient, up-to-date survey made of the landholdings of the wealthy Chinese, a survey that alone might have enabled the Manchus to institute an equitable land-tax system.... The failure to reform the land-tax system left those families who had been able to accumulate large landholdings during the era of turbulence in the position of acquiring yet larger holdings in the years that followed. Some modern Chinese historians have argued that there was essentially an alliance between the Manchu conquerors and the Chinese upper class that led to the perpetuation of a set of "feudal relationships" in the countryside....

In the crucial realm of taxation and rural administration, finally, Kangxi failed to make constructive changes. He seems to have accepted the position that no comprehensive new survey of landholdings was possible under existing social circumstances.... In 1712 he froze the assessments of able-bodied men registered as working a given area of agricultural land and decreed that however much the population increased in a particular area, the state would not thereby raise that area's taxes. Local officials could thus report population increases accurately, without fearing... a raised assessment.... China's land-tax system was now doubly frozen: land in the provinces remained registered according to the... survey made in 1581 during Emperor Wanli's reign, and the numbers... based on the 1712 figures. This was seriously to impede any attempt by Kangxi's successors to rationalize China's finances...

#weekendreading

Rebecca Henderson: People

I got an email from the extremely smart and insightful Rebecca Henderson. It closed with: ���hope to cross paths with you soon���; she had remarked at the conference we were at that she had not seen me in... it seemed like forever...

And I had thought: She is right. I have not seen her in... 20? years....

Yet she has been a very live intellectual presence to me���as one of my (regrettably few) go-to persons on intellectual property industrial organization and antitrust.

This is one rather peculiar thing about 21st-century academe in the age of the internet. The number and the range of people you run into and learn from in the virtual hallway outside your virtual office as you go to and fro to the virtual coffee machine is much larger than in any previous generation. Yet overwhelmingly this array of thinkers is composed���to a greater degree than ever before���of one-way information flows. There is no traceback from the recipient to the originator of the ideas. It is only if there is, eventually, a formal citation or an explicit response that influence is acknowledged.

That is too bad. It would have been much better had Tim Berners Lee figured out some way to push transclusion into the basic fundamental design of the web. At some deep level, I want to live in Ted Nelson���s Xanadu. I regret profoundly that I do not...

And, BTW, here are the five things from Rebecca Henderson is that I believe have had the greatest influence on me:

Schumpeterian competition and diseconomies of scope: illustrations from the histories of Microsoft and IBM
Of life cycles real and imaginary: The unexpectedly long old age of optical lithography
Why do firms have "purpose"? The firm's role as a carrier of identity and reputation
Universities as a source of commercial technology: a detailed analysis of university patenting, 1965���1988
Architectural innovation: The reconfiguration of existing product technologies and the failure of established firms

Hoisted from the 2007 Archives: Dilemmas of Economists in Government

Max Sawicky on the Dilemmas of Economists in High Government Office http://www.bradford-delong.com/2007/07/max-sawicky-on-.html: Max Sawicky writes about the dilemmas of economists in government.

These dilemmas were very, very soft indeed in the Clinton administration. (Here's where I state that the "200,000 net jobs projected from NAFTA" number was mine: we took an estimate of overall economic efficiency gains from tariff reductions and an employment elasticity with respect to the real wage from the Labor Department, and estimated that in the long run stable-inflation employment would grow by 0.14 percent as a result of the deal. I think it was the right answer to the question being asked by the entire Washington journamalistic community in 1993; I don't think that was the right question for the public sphere to have been asking.) Indeed, the dilemmas were close to nonexistent, and limited to not getting out your megaphone and saying "that's wrong!" when one of your political masters said somthing wrong in public.

These dilemmas are much harder in Republican administrations���not just Trump administrations. For example, Dick Cheney especially let few opportunities to claim that tax cuts increase revenues pass him by.

Here is Max and company:

MaxSpeak, You Listen!: J'ACCUSE: Professor N. Gregory Mankiw takes umbrage at the implication from some "bigshot at the left-wing thinktank Economic Policy Institute" (that would be labor market genius Jared Bernstein) that he is "a hypocrite." But Jared did not use that word, and his remark was not personal...

Here's Jared Bernstein:

Predicting with a Handicap: Why are Economists��� Predictions So Often Wrong?: Economists sometimes serve vested interests, and will change their views accordingly. The best example is also one of the best economists, Greg Mankiw. This textbook-writing Harvard prof was Bush���s chief economist for awhile, and during his confirmation hearing and subsequent tenure at the White House, he constantly defended Bushonomics, including supply-side beliefs that he once argued were the musings of ���cranks and charlatans."

Now, Mankiw may well have felt he could do the nation more good if he were working from the inside, trying to nudge the administration���s economic policy in a better direction (if so, he failed)...

Let me call this one for Jared: Mankiw was indeed correct in thinking that he personally could do more good for the country and the world working inside than if he were to march up to Dick Cheney, tell him "you have to stop saying that tax cuts raise revenues," and so get fired. But the Bush administration did frequently argue that tax cuts raised revenue. And there is the much harder question: is it worth the sacrifice of the economics profession's outside credibility and the further confusion of the public that is entailed when good economists defend bad policies on the outside that they are working to change on the inside?

I don't know the answer to that.

Max Sawicky continues:

[Jared Bernstein's point] went to whether NGM altered his respectable views on supply-side economics out of political considerations when he took the helm of the President's Council of Economic Advisers. Unfortunately [Mankiw] does not make the case he wants. (Nor by the way does Jared provide conclusive evidence in the original post, which is mostly about other things.)

Jared does, however, point to Mankiw's testimony at his confirmation hearing. Mankiw's defense is that he has always taken explicit issue with the most notorious of the supply-side tenets���that across-the-board reductions in tax rates would raise revenue....

In his book, NGM is forthright that the giant revenue response from a tax cut is hokum. In his testimony, he is less emphatic, or as he puts it, "skeptical" of such claims. Moreover, he asserted that the Bush Administration did not adhere to the "extreme" view, which is flat wrong, as Senator Paul Sarbanes made explicit in the hearing....

We should not be surprised when academics in political positions use and invoke their professional expertise to defend their bosses in public. This could happen in any administration. When you take a political appointment, you can't protest when you are accused of having been political. Political service can be an honorable pastime. The bigger source of embarrassment here is the disjunct between Mankiw the academic ace and Bush the economic nitwit, between the standards of professional work in academia and the intellectual corruption of really-existing Bush economic policy...

And here's Brendan Nyhan:

Brendan Nyhan: McCain and Mankiw on supply-side economics: Harvard's Greg Mankiw, who bad-mouths McCain on his blog:

The interviewer, however, did not ask [McCain]... "If you think tax cuts increase revenue, why advocate spending restraint? Can't we pay for new spending programs with more tax cuts?" I doubt that, in fact, Senator McCain believes we are on the wrong side of the Laffer curve. But unfortunately, fealty to the most extreme supply-side views is de rigeur in some segments of the Republican party.

But what Mankiw doesn't mention is President Bush and Vice President Cheney's expressed "fealty to the most extreme supply-side views," which Mankiw conspicuously failed to change.... [D]uring his Senate confirmation hearing, Mankiw was asked about claims that tax cuts were self-financing, and he disavowed them, saying "I remain skeptical of those claims." However, he also stated that he thought the administration had not made such claims, which was���and is���false:

[T]he most extreme advocates of tax cuts, I think, sometimes paint an excessively rosy picture out of what they can get out of them. I don't think this administration has done that....

Now that he is no longer part of the administration, will he admit that Bush and Cheney have repeatedly suggested that tax cuts increase revenue? Shouldn't Mankiw have asked his question #2 to President Bush? What's good for the goose is good for the gander and all that...

And the very sharp Andrew Samwick: Advice from Andrew Samwick for Economists Who Want to Advise http://www.bradford-delong.com/2007/07/advice-from-and.html: Andrew Samwick writes about advising politicians about budgets. Listen to him. He's smart:

Vox Baby: How To Advise on Fiscal Policy: The overriding problem in conducting fiscal policy is that politicians, in both the executive and legislative branches, face electoral pressure to please their current constituencies. It is extremely tempting for them to boost spending or lower taxes today, handing out windfalls to today's voters and leaving an unrepresented constituency���future taxpayers���to foot the bill.

It takes an enormous amount of energy to resist that temptation. That energy has to come from the politician's advisers.

In the White House, the most senior of them carry the titles Assistant to the President, in most cases preceded by the word "Deputy" or "Special" to connote their place in the hierarchy. During the year I spent at CEA, I worked with a number of them who were excellent. But if you ask them what their objectives are, or if you listen to their arguments during policy meetings, what you find is that they are working extremely hard to advance the President's policies (which they have often had a central role in shaping and hopefully improving). They may have very good intentions at heart, but in my experience they were not usually the ones looking at the larger picture who might help resist the temptation to act in a politically opportunistic manner.

There were exceptions, and I'm not looking to impugn anyone here.

There are other advisers with a central role to play in fiscal policy, however, who are Presidential nominees who undergo Senate confirmation and who can be called to testify to Congress on the President's policies. We should expect them to be the ones who look at the larger picture, who take a longer horizon into their policy discussions, and who do the heavy lifting to help the politician resist the temptation to use future generations' resources to buy votes today.

On fiscal policy, the three main advisers are the Secretary of the Treasury, the Director of the Office of Management and Budget, and the Chairman of the Council of Economic Advisers.

To address the overriding problem, these three advisers must insist on an explicit budget target. The weakest one that I would accept is that the debt-to-GDP ratio (including debt held by government trust funds) must show no upward trend. (A stronger one would be that the on-budget deficit should be in balance over a full business cycle.) Long-term entitlement programs should be in projected actuarial balance to the extent it is possible to make a projection. (You can see here what happened to one adviser who made reasonable arguments without first getting agreement on a standard.)

The standard can be that simple, and it isn't as austere as I'm trying to make it sound. It doesn't rule out cutting taxes during the weak part of a business cycle, for example, but it does rule out cutting taxes to run a deficit that the Administration has no intention of paying back during the strong part of a business cycle.

As a corollary, it does rule out passing tax cuts with explicit sunset provisions and then arguing to extend them with the budget not in balance. There can be occasional exceptions, but their presumed infrequency should immediately cause them to be fully explained. (Think of the President addressing a joint session of Congress.)

Twice a year, the Administration makes an economic forecast to underlie the budget or its mid-session review. I'd be surprised if you ever see such a forecast that predicts an upcoming recession. That means that every budget or mid-session review should be projecting on-budget surpluses or their quick resumption if we are just coming out of a recession. As I've discussed elsewhere, the "cut the deficit in half in five years" policy was at variance with this standard.

I acknowledge that my views on this don't match the usual discussions of the impact of deficits. I think too much of those discussions are about their impact on interest rates and thus the incentive for private investment. This is where economists spend a lot of their time, but that doesn't make it the most relevant question. Suppose for the sake of argument that deficits don't put much upward pressure on interest rates. Even in that case, they still have to be financed at the existing interest rate, and the burden of financing them has to be borne by someone in the future. Taxing someone in 2020 to pay for our spending binge in 2003 violates my notions of fairness, and that is a substantially more salient issue here than any additional concerns about efficiency...

Note to Self: Alexander Hamilton: America as "Grand Exper...

Note to Self: Alexander Hamilton: America as "Grand Experiment": Ari Kelman: "The description of the United States as a Grand Experiment in democracy or sometimes as a lower-case grand experiment in democracy. I always assumed that one of the founders* said that, that it was a quote in other words. But no, it seems that���s not the case. Unless I���m missing something���which is entirely possible; no, really, it���s entirely possible���the whole thing is a charade..." How about this? Will it do?: Alexander Hamilton: "The advocates of despotism have... decried all free government as inconsistent with the order of society, and have indulged themselves in malicious exultation over its friends and partisans. Happily for mankind, stupendous fabrics reared on the basis of liberty, which have flourished for ages, have, in a few glorious instances, refuted their gloomy sophisms. And, I trust, America will be the broad and solid foundation of other edifices, not less magnificent, which will be equally permanent monuments of their errors..."

#shouldread

Thomas Jefferson: To Philip Mazzei, 24 April 1796: "The a...

Thomas Jefferson: To Philip Mazzei, 24 April 1796: "The aspect of our politics has wonderfully changed since you left us...

...In place of that noble love of liberty and republican government which carried us triumphantly thro��� the war, an Anglican, monarchical and aristocratical party has sprung up, whose avowed object is to draw over us the substance as they have already done the forms of the British government. The main body of our citizens however remain true to their republican principles, the whole landed interest is with them, and so is a great mass of talents.

Against us are the Executive, the Judiciary, two out of three branches of the legislature, all of the officers of the government, all who want to be officers, all timid men who prefer the calm of despotism to the boisterous sea of liberty, British merchants and Americans trading on British capitals, speculators and holders in the banks and public funds a contrivance invented for the purposes of corruption and for assimilating us in all things, to the rotten as well as the sound parts of the British model. It would give you a fever were I to name to you the apostates who have gone over to these heresies, men who were Samsons in the field and Solomons in the council, but who have had their heads shorn by the harlot England.

In short we are likely to preserve the liberty we have obtained only by unremitting labors and perils. But we shall preserve them, and our mass of weight and wealth on the good side is so great as to leave no danger that force will ever be attempted against us. We have only to awake and snap the Lilliputian cords with which they have been entangling us during the first sleep which succeeded our labors...

#shouldread