Category Archives: Miscellaneous

Skepticism’s Role in the Growth of Personal Knowledge

There are three possible general reactions to most of my posts on Economic Thought,

  1. You could be persuaded, or you could already agree with me;
  2. You could be angered;
  3. You could be neither persuaded nor angered, just made curious by an interesting problem that you can’t easily solve.

Reactions (1) and (2) are unintended on my part, and I rather you react the way described by (3). Of course, I can’t rule out that some — or all — of my posts simply aren’t insightful, aren’t interesting, or are just obviously wrong, which might justify reactions (1) — although, it would be agreement over something trivial — or (2).

My method of blogging, at least on Economic Thought, bears some relationship to my experience as a student, especially as a student of heterodox economics. This post will include some personal background to help illustrate my general line of reasoning. The topic is also related to the reason I no longer like to be considered a part of an “Austrian” denomination of economics. Some people have asked me about this personal transition, so I will also use this post as an opportunity to write a bit on that, as well.

There is one graph we should all know before I go on (source: SMBC),

knowledge and confidence (2)

I did not know much about economics until 2008, which is when I was introduced to, while I was living in Madrid. I became immediately engrossed in the subject. I reached that first peak around 2010, during which the bulk of my articles were written. During that time, my thirst for learning was strong, but it was principally motivated as a means of reinforcing my existing convictions. While I made sure to read opposing viewpoints closely, it was mostly intended to avoid criticizing straw men, rather than as a method of looking for weaknesses in my beliefs. I didn’t take my own ignorance seriously. Fortunately, my inclination towards knowing “opposing” intellectual ideas well led to better things.

Heterodox economists like to compare their beliefs to “neoclassical” beliefs. As it turns out, oftentimes it is a comparison between one’s beliefs and what one thinks “neoclassicals” believe. I do not think these comparisons are always wrong, although, even when they are right, they are not always the full story. No (or, very few) economist(s) believes (believe) that a monetary authority can “print wealth.” No economist believes governments are perfect, even when markets are imperfect. Few economists believe that, in general, income inequality caused by differences in marginal productivity is “bad.” Unfair characterization of the ideas you disagree with is not a sin only heterodox economists commit, of course. But, these were problems I was directly aware of, because the main sources I was reading were heterodox. For what it is worth, what turned me off heterodoxy, in general, was not anything Austrian, but actually Steve Keen’s Debunking EconomicsI am not sure how anyone can take that book seriously (to be fair, I was originally less critical of Keen’s work).

Reading “neoclassical” literature and, the truth is that the “neoclassical” tradition is much broader than what that moniker suggests made me realize that there is much more merit in it than many heterodox economists give it credit for. Non-heterodox economists (i.e. the majority) are not fools who are missing basic truths. Indeed, I have learned much more from non-heterodox sources than I have from Austrian or Post Keynesian literature (which does not mean that there is nothing to learn from these latter two — the opposite is closer to the truth). The most important thing I learned, in any case, is that if you think you have an easy case as to why a professional economist is wrong, you are probably making an error. A rule of thumb: given that the analytical capabilities of the average economist is high, what is mainstream (what the majority of economists accept) is a good indication of what is closer to the truth. This is not always true — sometimes good ideas are not sold well, and bad ideas are sold too well —, but it generally is.

Need specific examples of non-heterodox work of great merit? Take a look at, for instance, my summaries and suggested interpretations of some “mainstream” theories: Alchian and Demsetz on information costs, monitoring, and the firm (“Alchian’s Calculation Problem“); Akerlof on information asymmetry and markets (“How to Read ‘Market for Lemons‘”); and Krugman’s economies of scale theory of trade (“Krugman’s Alternative Theory of Trade“). It is also worth remembering that something having merit does not mean that you have to agree with it, or agree with all of it. Consider, for example, my review of Stiglitz’ The Price of Inequality. And, just because you agree with something does not mean you should not question it. Consider, for example, the challenge I pose (in my review) to one of Hutt’s conclusions drawn in The Theory of Idle Resources — specifically, I am not sure that Hutt actually addresses the “Keynesian” concern.

Exposure to “opposing” viewpoints should lead you to become aware of at least two things,

  1. The merit in ideas you might disagree with, either in part or completely;
  2. The possibility of error in your own set of beliefs.

(1) allows you to recognize that many ideas are worth knowing, even if they make you uncomfortable. You do not have to agree with others’ interpretations, you do not need to agree with others’ conclusion, but recognizing that there is much to know packaged in literature that you might not agree with overall helps you pick out the good from the bad, allowing you to refine your set of beliefs. Again, this refinement need not be in the direction the author wants you to go in, but it is a direction that you otherwise would have taken had you not read what you are uncomfortable in.

(2) should make you more open to embracing discomfort. If you recognize that the probability of you not knowing everything, and especially not knowing enough to conclusively reach a determined belief on something, is high enough, you will be more open to reading ideas that contradict your own. This overlaps with (1). Reading ideas that make you uncomfortable, because they make you question what you know, takes you in directions that you otherwise would not have had the opportunity to follow.

That “going in a different direction” is not the same thing as “being persuaded” needs to be stressed. I am a very skeptical person, and I am rarely directly persuaded. Those of you who are charitable enough to comment on my blog, and especially to have a dialogue with me, are probably well aware of this. What I do, rather, is soak in disagreement, think it over for some (often indeterminate) amount of time, and change my views “on my own.” That is, I use my own analytical skills to pick apart the ideas I come across, and I shape my views around what I think is right, or even can be right. Being aware of my own cognitive limitations and of the merit of others’ ideas (even when they are not aligned with my own), however, makes this process much more open. I think this is a good thing. Further, I think our natural inclination to stick with ideas we know, and therefore are comfortable with, is a good weight against “openness.” Meaning, while it is true that there is such a thing as being “too open,” and there is such a thing as being “too skeptical,” the natural tendency to be much less skeptical of what you already believe in makes being “too open” or “too skeptical” practically impossible.

Nozick’s Anarchy, State, and Utopia embodies what I am trying to get at, so allow me to embark in a productive digression. Ask any person who attended last week’s seminar on Nozick’s book and they will confirm the following: I do not agree with many of Nozick’s arguments, and I especially disagree with his main assumptions and conclusions. But, I cannot deny that Anarchy, State, and Utopia is a great book of much merit. Neither can I deny that Nozick’s book will influence the direction of my beliefs.

From what I understand, most libertarians would also disagree with many of Nozick’s arguments. One could convincingly make the case that there are more influential (on fellow libertarians) libertarian political philosophers out there: Rothbard, Hayek, Gaus, et cetera. Yet, Anarchy, State, and Utopia is the source that non-libertarians go to on libertarianism. One reason for this is probably that Nozick was a Harvard professor, and what is most interesting about his book is his critique of Rawls. Another reason — in my opinion, perhaps more important — is Nozick’s exploratory approach to the subject. His intention is not necessarily to persuade you, but to cause you to question your priors (although, in my opinion, he applies this method asymmetrically; i.e. he does not question his own priors as much as he does those of others). Much of the book involves problematizing common approaches to moral intuition: utilitarianism, Rawlsian liberalism, et cetera. It makes you think; you find reason to question your beliefs, which motivates you to explore the problems he delineates. He might not be persuasive, but he will take your thinking in new directions.

In short,

One view about how to write a philosophy book holds that an author should think through all of the details of the view he presents, and its problems, polishing and refining his view to present to the world a finished, complete, and elegant whole. This is not my view. At any rate, I believe that there also is a place and a function in our ongoing intellectual life for a less complete work, containing unfinished presentations, conjectures, and open questions and problems, leads, side connections, as well as a main line of argument. There is room for words on subjects other than last words.

— Nozick (1974), p. xii.

I would take one step further and claim that finished, complete, and elegant wholes are impossible. If we think we have something of that nature, we are falling victim to an illusion.

This is the approach I take on my blog. Consider, specifically, my recent discussion of government, exchange, and libertarianism. I ask whether libertarians suffer from a fatal conceit when judging the merits to non-market institutions of governance. I wonder if large, “centralized” states make sense, even with perfectly plural political institutions. Finally, I make the strong claim that libertarians should be more cognizant of their biases. I am not trying to persuade anybody of my ideas. I am not even completely swayed. Rather, these are frictions on my own thinking, and I think they are applicable to the thinking of others’. I am problematizing beliefs that I find, or (in many case) once found, persuasive. My hope is that these issues are interesting and plausible, and that they will make you, my reader, join me on an exploratory journey.

Should you feel anger towards me, or anybody else who says or writes something that you, with your given set of priors, disagree with? What I mean by “anger” is any emotion that drives you to, for example, accuse another of being a “statist” or a “socialist.” Or, any emotion that leads you to reject without seriously considering. I can sympathize with, on some level, anger towards certain ideas. It is hard for me to take an article that links libertarianism to feudalism seriously, for instance. But, generally speaking, an emotion of anger should signal to you the need for caution. Anger is usually caused by discomfort; rejecting something out of anger means rejecting something you are uncomfortable with. That is not a healthy approach to learning. You should control the natural consequences of those emotions — close-mindedness, primarily. You should always judge an idea with some degree of neutrality, because it is from a position of neutrality that you will best be able to distinguish between good and bad ideas.

Learning is exploratory. There is a vast sea of information and knowledge, most of which we are unaware of. Learning — developing our knowledge and our beliefs — is a process that requires accepting that there is a lot we do not know, a lot we do not know that we do not know (radical ignorance, or the “unknown unknown”), and that what we think we know has some probability of being wrong. My blogging style embraces this framework. My intention is not mainly to communicate what I know, but to communicate possible problems with what I think I know and, oftentimes by extension, problems with what you think you know. I am taking you through an exploratory process that I am going, or have gone, through. I hope that this is the way you interpret what I write.

Soccer Players Don’t Fit Permanent Income Hypothesis

[Xpro] says 33 per cent of players get divorced within a year of retiring, 40 per cent are declared bankrupt within five years of playing their last game, and 80 per cent will suffer from osteoarthritis…

And Holdsworth says that an alarming number of players don’t plan for their future from what is a very short career and the first contact Xpro has from most players is a panicked phone call when their contracts are about to finish.

John Drayton.

Footballing (Soccer) Institutions

The Spanish sports newspaper Marca has an interesting blog post on the penalty kick and the evolution of football (soccer). It’s in Spanish, so my own post will mostly be a paraphrasing of it. But, it reminded me of institutions and their constraints, and how which institutions are optimal can change in accordance with changes in constraints. Written in response to the defeats of Manchester City and Arsenal, to Barcelona and Bayern Munich, respectively, Marcos López argues that the penalty kick no longer accomplishes the same task it did 20+ years ago.

Originally, football was a very defense-oriented sport. Consider, for example, catenaccio, which was a defensive tactical formation employed during the 1960s. In the 1970s, Dutch “total football” was developed to respond to these heavy defensive tactics, but evolution in the latter ultimately nullified these new attacking tactics. Besides, attacking tactics like “total football,” and “tiki-taka” today, require a considerable accumulation of attacking talent, something most teams simply can’t afford. So, most teams practiced something close to parking the bus, and then launching counter-attacks — think of Mourihno’s tactics, or Atlético de Madrid’s current tactical set up.

When two teams are playing with highly defensive tactics, launching counter-attacks against each other, the penalty kick — awarded for a bad tackle inside the box — makes a lot of sense. Defensive games are low scoring, and the penalty kick provides an opportunity for emotion. One team has a good chance to get ahead, and the now trailing squad has to open up and attack, allowing for a much more fluid and entertaining game.

But, attacking tactics have developed quite a bit since “total football.” We now have teams like Barcelona (which is an extreme case), Manchester City, Bayern Munich, et. al., who are very good at maintaining possession and launching attacks. When they get ahead, their ability to maintain possession also minimizes the opportunities the opposing team has to launch attacks, which essentially means that the spectator is left to see one team passing the ball between each other, waiting to see how much time is left on the clock. This is even more true if a penalty leads to an expulsion of one of the rival’s players, since then the one team who can maintain possession can play a passing game between 11 players (including the goalie), against their nine outfield opponents. The penalty simply leads to an unfair advantage, and it kills the game.

López proposes doing away with the consequent game of suspension, and suggests limiting the penalty to either an expulsion or a penalty kick. I wonder why football doesn’t adopt a time with possession rule, allowing one team a certain number of minutes during each possession spell. One could say that maybe other teams should simply innovate, but huge differences in budgets makes this very difficult. Besides, football is an industry that ultimately serves the consumer, and the consumer wants entertainment. The sport needs new institutions — rules of the game — that constrain teams’ actions, to the benefit of the consumer.

Invoking Kahneman: Collaborative Research in Economics

Paul Krugman, Matt Yglesias, and probably others, want you to believe that minimum wage research is unquestionably on their side. Others argue that ideologies are so dominating, that the evidence is, in a sense, superfluous, because nobody will be swayed by it anyways. The first claim, based on my own reading of the evidence, is simply not true. There is still a lot of disagreement in the academic literature, not just over the results, but also over the techniques used in the research. The second claim is probably more true than the first, but it shouldn’t be used as an excuse to ignore the empirical evidence. What both arguments show, though, is that economists are susceptible to confirmation bias, and that a debate organized between sides is going to remain long, arduous, and probably inconclusive. My question: why don’t researchers take some advice from Daniel Kahneman?

From Thinking, Fast and Slow,

Professional controversies bring out the worst in academics. Scientific journals occasionally publish exchanges, often beginning with someone’s critique of another’s research, followed by a reply and a rejoinder. I have always thought that these exchanges are a waste of time… In search of another way to deal with disagreements, I have engaged in a few “adversarial collaborations,” in which scholars who disagree on the science agree to write a jointly authored paper on their differences, and sometimes conduct research together. In especially tense situations, the research is moderated by an arbiter.

— p. 234.

Has this been done in the context of the minimum wage? Since I often don’t know the authors very well, I don’t know their ideology, so I really don’t know. But, a quick Google search turns up nothing. If it has been done, my guess is that adversarial collaboration in this field is a very rare exception. So, why isn’t it done more often?

There are significant gains from collaboration. First, the design of testable models goes through a period of scrutiny that research otherwise might not benefit from. All economists tend to be careful when setting up models, deciding on their specifications, and thinking about the right data to use. But, authors who agree with each other are likely to be less self-critical than authors who disagree with each other. Second, once the paper is published, — unless the authors end up agreeing with each other — there is an inherit dialogue in the research, and the reader is more likely to get two sides of interpretation, rather than one. Third, it forces researchers to move beyond criticizing each other, to using that criticism to help build a better alternative. More generally, instead of promoting only disagreement, adversarial collaboration forces diverging co-authors to force themselves towards a “consensus,” if you will.

Even if Kahneman’s applied advice is unlikely to sway researchers, why don’t bloggers follow it? (They can, for example, do collaborate reviews of the literature.) Bloggers are a principal intermediary between academic researchers and the public. They should be interested in providing the public the best quality information. And, bloggers, like academics, should ultimately be interested in knowing that the ideas they are advocating are actually right — the type of confirmation bias displayed by bloggers such as Krugman and Yglesias (and, most likely, others, including bloggers on the right) is not conducive towards this end, and can be very misleading. If bloggers want to claim an important role in the marketplace for ideas, including a role in helping evaluate new ideas, then they should lead the way in introducing adversarial collaboration to the study of highly controversial economic problems.

Conspiracy Theories are Socialist, Man!

An invisible-hand explanation explains what looks to be the product of someone’s intentional design, as not being brought about by anyone’s hidden intentions. We might call the opposite sort of explanation a “hidden-hand explanation.” A hidden-hand explanation explains what looks to be merely a disconnected set of facts that (certainly) is not the product of intentional design, as the product of an individual’s or group’s intentional design, as the product of an individual’s or group’s intentional design(s). Some persons also find such explanations satisfying, as is evidenced by the popularity of conspiracy theories.

— Robert Nozick, Anarchy, State, and Utopia (New York: Basic Books, 1974), p. 19.

Should Employers Stop Drug Testing?

My first article for The Daily Confidential,

When the cost of illicit drug consumption is very high, the only people who are likely to pay that price are addicts — people who are hooked, so they must consume at any price. Think of cigarettes. Why do tax increases on cigarettes have only a marginal impact on cigarette use? Because tobacco, and the other chemicals they put into that product crap, are addicting, and addicts are willing to pay higher prices. When the price falls, a broader class of people is likely to join the market. These are non-addicts who do not have an acquired impulse to consume at whatever cost, but who use recreationally. Thus, the more the cost of drug use falls, the more the average illicit consumer approaches the average person.

Don’t be a Bully

I apologize for the sparse activity. My professional life has been taking up more time than what’s typical. Hopefully, I will be able to return to my normal reading and blogging habits shortly.

I do, however, want to comment on something that builds on Daniel Kuehn’s recent sarcasm. He notes that a recent blog post on the minimum wage associates the movement to raise the minimum wage with Marxism. I think Thomas Salamanca’s piece is a little more nuanced than that, but it is true that it falls back on blaming support of the minimum wage on a misunderstanding of markets and general liberalism — the leftist kind of liberalism, that is. This is not the kind of approach I would take if I were to write a post on why the minimum wage is bad policy.

Salamanca’s article reminds me a little bit of the recent New York Times piece on Rand Paul. The authors clearly opted to attack the weakest parts of the libertarian movement (although, the content was accurate), especially the radicalism that some of its exponents radiate. They received a good deal of criticism for their writing strategy, and I think rightly so. In my comment on the piece, I considered the strategy “cowardly.”

Writers who attack the weakest version of an argument are akin to bullies. Bullies prey on the weakest, because it makes them feel powerful. The writer version of bullies are similar, because they attack the weak to make their argument as persuasive as possible. If the reader thinks that the ideas being criticized are absolutely ludicrous, then the writer bolsters his own argument by making the alternative too ridiculous to agree with. It is a disservice to the reader, and it is disingenuous on part of the author (and I apologize if I have ever done it).

Attacking the anti-market ideas associated with some of those who support the minimum wage is attacking the weakest exponents of the problem being tackled. The strongest arguments in favor of the minimum wage are the theoretical ideas that show that, if the conditions are right, a minimum wage can bring about a net welfare increase. The strongest arguments in favor of the minimum wage are those empirical studies that show, at worst, a neutral effect on employment. Salamanca offers one paragraph in reference to this literature, but quotes only from one (critical) study and dismisses the evidence by claiming that studies that do not show disemployment effects “are significantly outnumbered by studies demonstrating the opposite” — a claim I don’t think is necessarily true. And, a claim that ultimately doesn’t address what side of the literature offers the best arguments and the best evidence.

There are many learned people who support both the minimum wage and markets. They know what voluntary association and free trade have done for society. They understand that more radical departures from capitalism, such as communism, are for the worse. These are the people who drive policy, and these are the people who will not be persuaded by articles like Salamanca’s. Neither should a skeptical reader be persuaded. The skeptical reader should always want the strongest argument in favor or against a position.

I feel that I’m being too hard on Salamanca. Honestly, he’s not my target, and I don’t think his piece is necessarily bad. He’s just unfortunate that I’m using his article as my example. I’m addressing a broad audience. My point is: when you write on an issue, don’t be a bully. Seek the strongest arguments against your position and attack those. Arguments that attack weak positions are typically weak themselves, because they don’t address the stronger ideas. If you are being a bully, be aware that you are publishing a weak argument yourself.