When you start a sentence with "one good indicator of a person who’s not so smart," you should be extra careful about what you say next

Andrew Gelman spends some time on this latest quote from Steven Levitt on the rationality of voting:

DUBNER: So Levitt, how can you in your life, when you wander around, tell the difference between a smart person and a not-so-smart person?

LEVITT: Well, one good indicator of a person who’s not so smart is if they vote in a presidential election because they think their vote might actually decide which candidate wins. . . . there has never been and there never will be a vote cast in a presidential election that could possibly be decisive.

Gelman has been riding this beat for a long time, repeatedly pointing out the flaws in this strangely persistent argument. He makes a good case (part of which I basically paraphrase in point one), but there are other problems with Levitt's claims.

Here's a brief and certainly incomplete list of objections.

1. Every vote affects the probability distribution of a race, and since the difference in outcomes is so large, even a tiny change in probabilities can conceivably create a detectable change in expected value

2. Every vote in every race. Except for undervoting, we're talking about the combined impact for the entire ballot.

3. This isn't binary. The margin of a win can affect:

Perceived mandate and political capital;

Officials' decisions (particularly in non-term-limited positions). Congressmen who win by large margins are less likely to feel constrained about unpopular votes;

Funding. A lopsided defeat can make it harder for a candidate or a state party to raise money;

Party strategy. How much effort do you expend finding a challenger against an official who beat you by more than ten points last time?;

Media narrative.It's possible to come back after press corp has labeled you a loser, but it isn't easy.

and finally

4. The system works better with higher response rates. It's more stable and harder to game. Perhaps even more important, it does a better job representing the will of the governed.

That's the top of my head list. Undoubted, I missed some.

Gelman goes on:

I would not conclude from the above discussion that Levitt is not so smart. Of course he’s very smart, he just happens to be misinformed on this issue. I applaud Levitt’s willingness to go out on a limb and say controversial things in a podcast, to get people thinking. I just wish he’d be a bit less sure of himself and not go around saying that he thinks that Aaron, Noah, Nate and I are not so smart.

He's being overly diplomatic. Levitt isn't just misinformed; he's willfully misinformed. In issue after issue (drunk driving, car seats, solar energy) he has used sloppy reasoning to reach a controversial position, then has done his best to turn a deaf ear to those who pointed out his errors. We did get a partial retraction of his claims on driving*, but on others he has doubled down and occasionally resorted to cheap shots at those who disagreed with him.

Levitt is very smart. That's what makes this sort off thing so difficult to overlook.




* Though still leaving potential errors unacknowledged, such as the likely possibility that drivers in accidents are more likely to be checked for intoxication than pedestrians, that a stricter standard might be used, that many of the most intoxicated are prevented from driving and that intoxication is more likely to be noted in official records for drivers

Today's must read

A stirring defense of the welfare state.

In particular, notice the questions about libertarian consistency that are asked.

Empiricism

Felix Salmon is strident:

But when they try to get to the specifics of tax reform, they start falling into blather, asking that it be “pro-growth” (an utterly meaningless phrase), and asking too that it include lower rates and higher revenues.

Maybe they should have just asked for a pony for everybody instead: that would be easier. You can’t have lower rates and higher revenues — not without eviscerating pretty much all of the tax deductions which much of the middle class has learned to rely upon. Mortgage-interest tax relief, the charitable deduction, even the deduction for state and local taxes: pretty much all of them would have to go. That wouldn’t just get blocked by Democrats: it would get blocked by Republicans, too. And because most of these tax expenditures go to the middle class, broadly defined, the one group which would see most of the benefits while bearing very little of the costs would be the top 1%: the very CEOs who signed this letter.

In other words, the letter basically just says “please cut our taxes, raise taxes on everybody else, and cut the benefits they get from Medicare, Medicaid, and Social Security, which are programs we individually don’t rely upon”. It’s gross self-interest masquerading as public statesmanship.
 

Okay, I think that here is a place where some degree of common sense really needs to return to the debate.  The idea that cutting tax rates improves growth has very little empircal evidence.  The strongest countries around are not necessarily ones with the lowest effective tax rates.  It is true that (in extreme circumstances) these rates can cause troubles, but very little evidence that the United States (or any other first world country) is near this threshold. 

But the idea that I find the most difficult is the idea that lower tax rates could lead to more revenue.  Seriously.  Outside of extreme cases, why would governments ever have taxes if this were true?  People dislike paying taxes.  Governments like to have money.  If not collecting taxes led everyone to have more money at the same time then it is hard to imagine nobody would have hit on this magic formula.  Surely there has to be at least one autocrat who was pro-growth in the past 5,000 years or so? 

Now you can argue that taxes may decrease the overall rate of economic growth.  I am skeptical about this claim, but it is at least not utterly absurd.  But to reduce taxes to increase growth presumes that either growth will be so rapid that these losses will be more than made up for in increased revenue (seems hard to credit as we'd notice gigantic effects like this) or that taxes will later be raised to make up the difference. 

I really wish more readers were as critical of these ideas as Felix is. 

Journalistic Norms and the lack thereof

That's not really true. Every group has norms. Some just aren't as pretty as others.

Case in point, Jon Stewart recounts the furor that started when Stewart suggested that the handling of the embassy attack was not "optimal" to which Obama replied that a situation that led to the deaths of four Americans was never optimal.

The whole thing is worth watching but the most important part comes at the end of the second half when Stewart shows how respectable journalists use Fox News as an excuse to cover flashy stories of no merit.

The Daily Show with Jon Stewart
Get More: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

The Daily Show with Jon Stewart
Get More: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

Market Failures

It is very difficult to figure out the proper fundementals when decisions are mixed with real outcomes for the individuals involved.  A case in point is the argument about whether the current trend for government bonds to yield "zero" is a problem.  On the face of it, this should encourage governments to borrow.  Instead we see a lot of arguments for austerity because, sooner or later, these yeilds have to go up.  But, as has been pointed out, these are extremely liquid and efficient markets.  So it is hard to completely avoid this type of cyncism: 

This is, I think, coherent. But there is, nevertheless, an inconsistency here. Mr Halligan wants the government to do something about the (possible) failure in bond markets - cut spending. But he - and more significantly those who think like him - seem relaxed about the failures in goods and labour markets that cause at least 2.5 million people to be out of work.

It's strange how some market failures demand action and some don't, isn't it? If I didn't know better I'd suspect the right of merely pursuing class interest without regard to intellectual consistency.
 

 This sort of intellectual consistency is something that seems to be sadly absent in a lot of the current thinking about financial issues.  Being out of work is a serious harm to the people involved, even mroe so in the United States (where even more of one's benefits are linked to employment), but I am sure it is no picnic in the United Kingdom, either.


Now, I dislike the Ad Hominen argument because it could be made about any argument, no matter how valid it was should it happen to have the potential to benefit the speaker.  But I do think that we need to have a much cleaner conversation on what we think markets are able to do.  If we think "bubbles" and "irrational exuberance" can occur in financial markets then we really don't believe in the strong form of efficient market theory. 

Now when you project this to areas with information asymmetry (think health care, where prices are opaque, or casualty insurance, where you have to trust the insurer to pay if the adverse event occurs) then it becomes even more silly.  This problem is even more severe once you realize that trust is occasionally broken.  I am sad Karl Smith doesn't really blog any more because he cut to the heart of the matter with this post. 

The assumptions required for markets to simply manage themselves are pretty extreme.  Why does Ragnar Danneskjöld become a pirate on the high seas instead of looting the (much closer) wealth of John Galt?  Does he give the money back if he discovers his victim happened to be a "maker"?  And how would he know? 

So it is worth keeping in mind that this stuff is a) very hard and b) nobody seems to really hold the extreme versions of these views. 

Norms

Worth remembering:

Norms matter. People work for money. But people also work for status, and people work because they take pride in a job well done. Ideas about what kinds of financial success merit high status and what kinds of jobs constitute a job well done are important. A doctor who bragged to you at a party about scoring a great deal on season tickets is doing something very different from a doctor who brags to you at a party about scoring season tickets after swindling a woman out of a bunch of money for unnecessary medical treatments. A doctor isn't supposed to be hustling patients. Everybody knows that.
 

I think that this tendency to neglect the focus on norms has been the major cost of having a very legalistic culture.  I remember this point being brought up in terms of the ability to "discover money" by acquiring a firm and then abandoning all of the previous cultural norms.  If it isn't written down then it doesn't count.  You might have joined ABC chemicals because they had a culture of being understanding when your children were sick.  But the new owners don't care that you took a lower salary because of this -- they ask if you have anything in writing. 

So we now need everything in writing.  But how do you run a culture with such low levels of trust? 

At a higher level, this is also a problem with the Randianism that has infiltrated our culture.  If you use money as a marker of worth, the doctor who swindled a patient (in the exmaple above) is actually morally superior . . . so long as they can't be sued.  How can this be a good way to govern interpersonal interactions? 

But one of the editors always came a different conclusion than the rest

From Mippyville:

Editorial advisory boards were an early attempt to stave off the disreputable reputation off comics. The best known of these was Fawcett's which included Admiral Byrd and Elanor B. Roosevelt (the daughter-in-law of Teddy, not the wife of Franklin), but True Comics also managed some notable names including George Gallup.

Once again NPR leaves me pleasantly surprised

When I heard the intro to this story I was expecting the standard wisdom-of-crowds rehash. Instead I got a new take on political prediction markets:

Koleman Strumpf, an economics professor at the University of Kansas, says these markets have been around since the beginning of our democracy and were especially popular in the late 19th and early 20th centuries.
"There was a period in the early part of the 20th century when this market literally existed right outside Wall Street," Strumpf says. It was outdoors, right on the curb, so it became known as the "curb market." "People would actively bet on all sorts of elections," he says. "And for sure, in the period right about now in October, there [were] huge amounts of betting activity."

Political betting was also an important tool for newspapers before the era of public opinion polling. Outlets would report on the action to get a sense of which candidate was winning.

A journalist reporting on the market "would list not only what the prices were, to give you an idea who was leading," Strumpf says, but "would also list who was making these investments or bets."

That meant that readers would know if the bets were being placed by specific traders — or by politicos from the New York Democratic political machine Tammany Hall, Strumpf says.

I wonder if this was an international phenomena.

Always click the XKCD link

I just posted this cartoon then immediately removed it. The viewing options for the image on blogger were completely unacceptable. Really annoying. If you click on the picture before I pulled it down, I apologize, but make sure to check out the original. If you have any interest in politics and statistics, it's well worth your time.

What is the correct reference group?

Canada is still a really suboptimal comparison to the United States in terms of how one might improve health care cost-effectiveness.  Consider:

As I have outlined over my last two OECD health data spending posts, Canada is one of the world’s biggest per capita spenders when it comes to total health spending – the sum of both public and private. Indeed, both public and private health spending have grown in tandem over the last few decades. In US PPP$ in 2010 for the 34 OECD countries, Canada ranks seventh in terms of total health spending per person. Yet, it comes to physicians per capita, it ranks 26^th. We rank 25^th in the number of total hospital beds per capita, 25^th in the number of nurses per capita, 21^st for CT scanners and 20^th for MRI units. While we are in the top ten per capita spenders, we are never in the top ten for any of these five health care resource indicators.
 

While I am not sure I completely accept the idea of Iceland as a great comparator, either, it is pretty clear that the Canadian approach is still pretty expensive relative to the other first world countries. 

What Canada is, instead, is an existence proof for the possibility of a universal care system in a highly diverse population that costs less.  But why don't we consider a country like France as a health care model.  Or, for that matter, at least look at what is working so well in reducing costs in Iceland. 

Back to education for a moment

This comment from Dana Goldstein is directly on point:

I'm often asked what one education reform I think would make the biggest impact on American students' achievement. I don't like this question. The real answer--vastly decrease poverty--isn't going to happen anytime soon
 

 It may not be in the cards, but poverty and the knock-on effects of poverty are hard to ignore in the context of United States education policy.  It simply connects to too many different pieces.  Neighborhood funding models for schools mean poor neighborhoods end up with under-resourced schools.  High rates of incarceration increase issues like single parent families and foster care families.  Lack of trust in social institutions makes short term planning much more rational. 

All of these things end up impacting the overall quality of education.  Any inefficiencies due to a teacher's union preventing teacher recruitment are likely to be a rounding error compared to the main effects that we are estimating here. After all, when there are enough problems with home life (stress, food insufficency, lack of child care, etc . . .) there is only so much that a teacher can do for the 30 students in his/her class. 

She left out the part about encouraging you to get your family to risk their finances by co-signing your loans

But other than that, Helaine Olen pretty much nails it.

Robert Kiyosaki, author of the bestselling Rich, Dad, Poor Dad series of financial advice books, is offering his fans yet another lesson in how the rich are different than you and me: they file for bankruptcy not because of ill health or unemployment related issues, but instead as a strategic business move.

Rich Global LLC, one of the corporate arms Kiyosaki has done business under, filed for bankruptcy protection in August, after it was ordered to pay just under $24 million to the Learning Annex and its chairman Bill Zanker.

Kiyosaki was one of the small-time wealth guru mountebanks who made it to the big-time in the aughts by telling his forever falling behind audience that they could get ahead, they just had not learned how. The shtick behind the Rich Dad books was that Kiyosaki was sharing secret money-making strategies of the wealthy with his wage slave readers. The tips ran the gamut from ridiculous to illegal and downright hurtful and included advocating for insider trading, arguing for the purchase of multiple real estate properties with little or no money down and telling followers they could purchase stocks on margin via unfunded brokerage accounts.

Kiyosaki is among the worst but he's not all that unrepresentative. If you feel up to it, the next time you're in a big bookstore take some time to browse the business section. Here and there, you'll find something interesting and intelligent or at least, helpful, but for the most part you'll encounter three profoundly embarrassing genres:

 1. The you-too-can-be-rich books like Rich Dad, which tend to target the financially vulnerable and deliver, more often than not, ruinous advice;

2. The guru books. These are predominantly buzzword-rich seminar fodder in the Tom Peters mode with the occasional pseudo-profound business fable thrown in (and no, I didn't make up the term 'business fable'). These are less sleazy than the first category (they primarily target people who are already in business rather than the desperate and dunemployed), but the advice is not that much better and their cost to society may be greater. Directly and indirectly, American business wastes a tremendous amount of money and what might otherwise be productive man-hours on these bozos.

3. The be-like-me books, where someone with a completely inapplicable success story tries to convince you that you can somehow get similar results by following his or her lead. These are probably the least harmful of the bunch. They can also provide some of the most amusing examples.

If the word 'slumberland' means anything to you...

Check out the Google home page today (October 15th)

S'more thoughts on the marshmallow game

Continuing the thread of Joseph's recent post on the Marshmallow game...

Everybody reading this has probably run across the persistent (and well-subsidized) narrative that goes something like this: virtually all of the variability we see in wealth can be explained by intelligence, talent and character with luck and inequality of opportunity playing little role in a person's success. In this narrative the labor market is now strongly efficient and the decrease in social mobility is simply the consequence of that current level of efficiency and a very large genetic component associated with those traits needed for success.

There are entirely reasonable parts to this narrative (I don't know of anyone arguing that being smart and hard-working won't won't help you get ahead), but if you try to take that case to the extreme and argue that money, social position and connections don't factor in, you have to start explaining away a large number of counterexamples and potential problems with the narrative.

The new findings in the marshmallow game are one example, showing that deprivation can cause people to be less likely to delay gratification rather than the causality necessarily running the other way.

"Being able to delay gratification—in this case to wait 15 difficult minutes to earn a second marshmallow—not only reflects a child's capacity for self-control, it also reflects their belief about the practicality of waiting," says [researcher Celeste] Kidd. "Delaying gratification is only the rational choice if the child believes a second marshmallow is likely to be delivered after a reasonably short delay."

How about the poor irresponsible spenders who are hopelessly bad with money? According to Sendhil Mullainathan of Harvard that's not the case.

Mullainathan claims that although planning is a central part of poverty, poor people are better at making financial decisions than the rich and middle class. 

“If you go and stop people at a supermarket and ask them for their receipt and say, ‘Hey how much did you just spend,' middle class shoppers have no idea. The poor know what they just spent," he said.

What about on the other side? Are the well off and educated consistently better with their finances? Perhaps not: (via Thoma)

But college-educated people were more likely than those with high school or less education to be above this 40 percent threshold - considered to be a risky amount of debt for most households.

Another, more amusing example, comes from some of the same think tanks and pundits who promote the inequality-reflects-ability narrative. It's the idea that a small increase in the top marginal rate would create a large hardship on those close to the cutoff.

As discussed before, if the cutoff is 250K of taxable income, a family would have to be making in the neighborhood of 300K gross to pay any of the higher tax. To see an increase of three or four thousand in its tax bill, the family would have to be bringing in something like 350K. If someone, even with a family, is making more than a third of a million a year and is so financially shaky that additional expenses of four thousand will cause financial hardship, that person has to be at least one of the following to an extreme degree:

1. Unlucky

2. Undisciplined with limited capacity for delayed gratification

3. Bad with money

So one of the main conservative attacks on increasing the tax rate presupposes that either luck plays a large role in economic outcomes or a significant number of the well-to-do lack the very traits that Charles Murray and company use to explain the success of the upper classes.

As mentioned at the beginning, conservative think tanks and pundits have expended a great deal of money, time and energy promoting the idea that wealth and poverty simply reflect relative contributions to society, that the rich deserve to be rich and the poor deserve to be poor. Perhaps those proponents are right, but you have to wonder what would happen if they trusted the marketplace of ideas enough to let this idea stand or fall on its own merits.

The Marshmallow Game

Even have one of those paradigm changing moments?  When things that you beleived are completely altered by new evidence.  Mark Thoma links to a new version of the Marshmallow game. Consider, especially, this piece:

But as she observed the children week after week, she began to question the task as a marker of innate ability alone. "If you are used to getting things taken away from you, not waiting is the rational choice. Then it occurred to me that the marshmallow task might be correlated with something else that the child already knows—like having a stable environment."
 

This is a massive finding for two reasons.  One, it gets at the issue of trust and how important it is t be able to trust your fellows in order for society to function.  In a low trust environment, there is a serious risk of perverse incentives (and it is easy to forget this).  This may be especially true of issues like employment contracts -- if you can't trust employers to keep their part of the implicit social contract then it is hard to defer gratification. 

Two, all of this talk of impulse control leading to poverty is deeply misguided.  Framing it as impulse control makes it seem like a feature of the person and not the environment.  But it appears that it is also deeply related to how much you trust the systems in place.  So perhaps the issue is growing up in unstable environments or in how much we can depend on people to be reliable. 

That makes the whole issue seem both a lot clearer and a lot more complex.