Mr. Glass vs. the Patent Troll

This American Life takes on Nathan Myhrvold's Intellectual Ventures. What more do you need?

A busy morning

But I'm going to try to find time soon to say something about:

This could be a mistake, argues Paul D. Spudis in “The Case for Renewed Human Exploration of the Moon.” In his study, Spudis argues that Moon exploration could reinvigorate the space program and provide a starting point for future research missions. Spudis suggests using the Moon as a testing ground for new technologies and strategies. He says the Moon’s geological make-up can teach us more about other planets and Earth’s own history. And since it has no atmosphere and a dark sky, the Moon could serve as a better home base for astronomical observation. Furthermore, Spudis specifically makes the case for human exploration, rather than just unmanned missions. As an example, he argues that trained scientists can give context to the evidence they collect, whereas robots just pick rock samples at random. He writes, “[Robots] cannot undertake scientific study, make new observations and let these observations guide subsequent work and iteratively apply the lessons learned to an evolving conceptual paradigm […] Although significant gathering of data can be done with robots, conducting science in space requires scientists.” While Spudis is realistic about the political and financial hurdles, he maintains there’s only one way to prevent NASA’s demise: “We must return people to the Moon.”

from TNR

and

There are trigger issues in which the GOP no longer reflects the thinking of mainstream Americans of either party. In Tuesday's charade as the House put the Tea Party debt legislation to a vote, what we saw was an example of the kind of coalition voting common in Europe, where separate parties arrive at an agreement to govern. There are now essentially three parties in Congress: Democrats, Republicans, and the Tea Party. Reasonable Republicans with a sense of the possible do not subscribe to the Tea Party's implacable ideology, but they feel they must deal with it to placate its zealots. They are essentially in a coalition with a third party.

from Roger Ebert

And of course, this.

Different visions of Health Care

One question that has been pretty persistently part of US public health efforts has been a fundamental disagreement about the role of government in health care. This shows up in all sorts of interesting places but has new entered the debt ceiling negotiations. From Paul Krugman:

It turns out that in the final stages of the debt negotiations, Republicans suddenly added a new demand — a trigger that would end up eliminating the individual mandate in health care reform.

This is telling, in a couple of ways.

First, the health care mandate has nothing to do with debt and deficits. So this is naked blackmail: the GOP is trying to use the threat of financial catastrophe to impose its policy vision, even in areas that have nothing to do with the issue at hand, a vision that it lacks the votes to enact through normal legislation.

Second, this is a demand Obama can’t accept, unless he plans on changing his party registration. Health reform doesn’t work without a mandate (remember the primary? Maybe better not to). And if health reform is undermined, Obama will have achieved nothing. So by adding this demand, Republicans were in effect saying no deal . . .

The alternative interpretation is that there is a large segment of the US population that would rather freedom to choose health care than efficient health care. The focus on individual decisions over public well being has implications on a whole host of medical decisions affecting issues like: disease management, fraudulent medications, antibiotic resistance and so forth.

It is hard to see a clear road forward when there is a legitimate difference in such basic questions of health care organization.

Implications of not raising the debt ceiling

Even Megan McArdle is asking hard questions about the debt ceiling and the consequences of paying just interest on the debt, medicare, social security and military salaries:

•You just cut the IRS and all the accountants at Treasury, which means that the actual revenue you have to spend is $0.
•The nation's nuclear arsenal is no longer being watched or maintained
•The doors of federal prisons have been thrown open, because none of the guards will work without being paid, and the vendors will not deliver food, medical supplies, electricity,etc.
•The border control stations are entirely unmanned, so anyone who can buy a plane ticket, or stroll across the Mexican border, is entering the country. All the illegal immigrants currently in detention are released, since we don't have the money to put them on a plane, and we cannot actually simply leave them in a cell without electricity, sanitation, or food to see what happens.
•All of our troops stationed abroad quickly run out of electricity or fuel. Many of them are sitting in a desert with billions worth of equipment, and no way to get themselves or their equipment back to the US.
•Our embassies are no longer operating, which will make things difficult for foreign travellers
•No federal emergency assistance, or help fighting things like wildfires or floods. Sorry, tornado people! Sorry, wildfire victims! Try to live in the northeast next time!
•Housing projects shut down, and Section 8 vouchers are not paid. Families hit the streets.
•The money your local school district was expecting at the October 1 commencement of the 2012 fiscal year does not materialize, making it unclear who's going to be teaching your kids without a special property tax assessment.
•The market for guaranteed student loans plunges into chaos. Hope your kid wasn't going to college this year!
•The mortgage market evaporates. Hope you didn't need to buy or sell a house!
•The FDIC and the PBGC suddenly don't have a government backstop for their funds, which has all sorts of interesting implications for your bank account.
•The TSA shuts down. Yay! But don't worry about terrorist attacks, you TSA-lovers, because air traffic control shut down too. Hope you don't have a vacation planned in August, much less any work travel.
•Unemployment money is no longer going to the states, which means that pretty soon, it won't be going to the unemployed people.

I think that this post highlights just how desperately we need to increase tax revenues. Even if we might one day repeal them in the face of a lower burden of government spending, the most logical equilibrium seems to be to pay more now and reduce taxes once we work out what we don't want the government to do.

I also have no patience for the dynamic Laffer Curve -- as Noah Smith so nicely pointed out, that line of argument rather suggests Sub-Saharan Africa should have emerged as the great power after the horrible tax policy of the European, Asian, and American nations. Taxes can have bad effects but so can persistent unemployment!

The irrationality of engineers

Andrew Gelman has a new post pointing out a contradiction that keeps popping up in the pop econ world. You should read the whole piece (as well as Joseph's take on it) but this part in particular caught my eye:

The key, I believe, is that "rationality" is a good thing. We all like to associate with good things, right? Argument 1 has a populist feel (people are rational!) and argument 2 has an elitist feel (economists are special!). But both are ways of associating oneself with rationality. It's almost like the important thing is to be in the same room with rationality; it hardly matters whether you yourself are the exemplar of rationality, or whether you're celebrating the rationality of others.

This is an excellent point but I'd go further. The economist's 'rationality' is, as mentioned before, analogous to the statistician's 'significance.' Both are highly specific terms that are just close enough to their general usage to get people into trouble.

I previously gave some silly examples of 'irrational' decision making, here's a more practical one: you're an engineer designing a missile. You're concerned with accuracy, range, speed, payload and cost. The 'rational' approach would go something like this -- for each attribute, come up with a function that assigns its level a dollar value, then pick design x where a(x) + r(x) +s(x) + p(x) - cost(x) is optimized. I suspect that most engineers would find this 'rational' approach highly irrational and would usually choose, instead, to hold three or four of these attributes to an acceptable threshold and optimize the remaining one or two. (check out the cheap beer post for more on thresholds and irrationality.)

There's nothing wrong with having a specialized, field specific definition for rationality; there is something wrong with using confusion over different meanings of the term to make yourself look good.

Popular Micro-economics

Andrew Gelman writes:

Pop economists (or, at least, pop micro-economists) are often making one of two arguments:

1. People are rational and respond to incentives. Behavior that looks irrational is actually completely rational once you think like an economist.

2. People are irrational and they need economists, with their open minds, to show them how to be rational and efficient.

Argument 1 is associated with "why do they do that?" sorts of puzzles. Why do they charge so much for candy at the movie theater, why are airline ticket prices such a mess, why are people drug addicts, etc. The usual answer is that there's some rational reason for what seems like silly or self-destructive behavior.

Argument 2 is associated with "we can do better" claims such as why we should fire 80% of public-schools teachers or Moneyball-style stories about how some clever entrepreneur has made a zillion dollars by exploiting some inefficiency in the market.

[sorry for the general link, there seemed to be technical issue linking to the specific article]

I think that this insight is quite compelling and exposes a real issue with popular micro-economics. After all, these two positions mostly contradict each other!

I see this contraction arising for different reasons than Andrew does. I think that economists are often forced to make strong assumptions in order to deal with the sorts of complex problems that they look at. So they presume rationality on the part of all actors when trying to explain problems (i.e., descprive work). But when they want to improve matters they shift and reject this assumption (as it would suggest everything is already optimized). So they make different (strong and unverifiable) assumptions depending on whether they are trying to explain behavior or give guidence to improve outcomes.

What seems to be more alarming to me that is that this pool of economists often don't "sanity check" the effect size of their analysis. Perhaps it is my background in epidemiology, but if I see a hazard ratio of 5 then I am immediately suspicious that it is too good to be true. However, Ray Fisman can see an analysis that suggests firing 80% of teachers and not necessarily wonder if perhaps there is an overly strong assumption in his analysis (like the pool of new potential teachers not having finite limits or in the real sensitivity of the evaluation process).

Anybody's culpa?

In what might be considered a commissioned blog post, Jonathan Robinson manages to dig up some comments that Steven Levitt would probably like to rebury.



It is, of course, possible to make too much of a bad call or even a bad argument. If the penalty for being wrong is too high it inhibits the conversation, but there does have to be some kind of accountability. When you're this far off on something this big, you really ought to do something: modify your reasoning, concede that your assumptions may need some work, maybe even just acknowledge the error but dismiss it as an anomaly.

Instead, we have a debate where, as Paul Krugman has repeatedly pointed out, no one ever has to admit he or she is wrong. You will occasionally see someone step up, but it's strictly done on a volunteer basis.

Maybe we need to go beyond the honor system on this one.

Subtle satire or ugly glimpse into the mind of the NYT -- you be the judge

Intentional or not, Christoph Niemann has perfectly captured New York journalists strange belief that the rest of the country is fascinated by the minutia of NYC (the relative size of Park Slope and Africa is particularly telling). As at least one commenter noted, this would seem to be a remake of the classic Saul Steinberg cartoon without the self-awareness.

California Education

Janet D. Stemwedel quotes Jerry Brown

I have reviewed the Mercer compensation study and have reflected on its market premises, which provide the justification for your proposed salary boost of more than $100,000. The assumption is that you cannot find a qualified man or woman to lead the university unless paid twice that of the Chief Justice of the United States. I reject this notion.

This is a very odd American idea: that without a huge salary, no competent person can ever be found. I am not sure that this idea passes the "laugh test" as seen by Governor Brown's comments. It also has some very pernicious effects on things like income inequality and the perception of fairness (this has not been the best time for California universities from a fiscal point of view).

I am happy to discuss these matters from first principles but the idea that qualified people cannot be found for less than absurd amounts of money is just berserk.

Grade Inflation

From the New York Times:

Another must-hear from This American Life

Another really outstanding piece of journalism from TAL, this time focusing on the extraction of natural gas from Pennsylvania's Marcellus shale. You can download it for free today and tomorrow but I'd encourage you to donate a few bucks if you can. They do good work.

Felix Salmon addresses something that's been bothering me for a long time

You should read the whole thing, but this passage in particular caught my eye:

The deeper thing going on here is what might charitably be called a momentum trade, or what might less charitably be called a sell-low strategy. First you pick your sector, then you pick funds in that sector. If the funds do well, that’s great; if they do badly, then you sell those funds and instead you buy funds which did do well over the time period in question. Then, next year, presumably, you rinse and repeat.

I realize this is not my field and there are a lot of subtle questions here about random walks and efficiency, but a great deal of the financial advice I hear reminds me of an ad from the late Nineties. In it a man is listening to the radio and hears about a stock that has just doubled in price. He rushes to his computer to buy some of this newly expensive stock only to discover that his cut-rate internet provider is down. He howls in anguish. (even at the time I remember thinking "so this is what a bubble looks like.")

I understand that there's more to investing than buy low/sell high, but many investment strategies seem to strive for the opposite. Wouldn't there have to be an unreasonably big momentum factor for this to make sense?

Wise Bloodsport

OE readers have the coolest noms de plume.

Modeling assumptions

From Matt Yglesias:

I’ll note, however, that you might be a freshwater economist if you think it makes sense to reassure us that a deflationary spiral is impossible because your model says so even though deflationary spirals do, in fact, occur in human history. To me, a model that denies the possibility of something happening that does, in fact, happen indicates that you’re working with a flawed model.

I can't comment on whether or not this is a fair assessment of the work in question. But it is always a good idea to "reality check" model outputs and ensure that the distribution of events generated by the model looks something like real data. If important events occur in real data that your model dismisses as impossible than model misspecification or missing confounding variables should be immediately suspected.


EDIT: Noah Smith also comments and it is well worth the read. He traces these conclusions to some rather strong assumptions . . .

Challenges of causal inference in complex systems

From Felix Salmon:

“Spend less money, create more jobs” is the kind of world one normally finds only in Woody Allen movies, and it’s a profoundly unserious stance for any politician to take. Spending cuts, whether they’re implemented by the public sector or the private sector, are never going to create jobs. And there’s simply no magical ju-jitsu whereby government spending cuts get reversed and amplified, becoming larger private-sector spending increases.

I think that one of the difficulties in macroeconomics is that you have complex systems that are not subject to experimentation. So you are forced to try and use observational studies and analogies with microeconomics to try and determine the causal effects of policies. Even instruments are questionable as they also rely on unverifiable, strong assumptions.

The inability to have a consensus on the counter-factual is pernicious and causes no end of trouble. Consider the tax increases passed at the beginning of the Clinton administration. Are they responsible for the late-1990's boom, unrelated to it, or did they act to slow it down (making the current economy smaller than it could have been)? How would you know this?

Cross country comparisons are possible but you have both confounding factors and effect measure modification. Changing the tax rate in Sweden might have different consequences than in the United States due to both different cultures (confounding) and to differences in current tax rates (effect modification). So, by picking different analogies and different models for the observational data, we can end up with some really strange claims being made about how economies work.

It is not an area with easy solutions. But I think to agree with Felix that the model he is critiquing is making heroic assumptions about the influence of tax levels on economic growth.