Saturday, October 30, 2004

Coming to a head

Slate's Lee Smith has a good article on life post-Arafat. He reasonably notes that the lack of civic institutions means that succession will be a Palestinian civil war where each side tries to out-do the other to prove who will be most ruthless against Israel.

Secondly, the excellent Belmont Club has his thoughts on UBL's recent surrender proposal. And here I was thinking that the guy was dead. But now UBL seems to be ready to call a truce against the Great Satan, is there some other enterprising young Jihadi out there ready to take the mantel of Defender of the Faith? In the market for Jihad, the top spot now seems to in play.

Finally, this is old now, read fellow U Chicago GSB alum Jane Galt's presidential endorsement. Thoughtful, thorough, insightful.

More "we are all behaviorists now"

Current U Chicago student, and winterspeak reader JB sends in this note in response to my recent post on Eugene Fama accepting market irrationality.
I'm currently in Fama's class. Just thought you'd like to hear his reaction to the article. Other than a general "reporters will say what they want", he said the paper he presented had been posted for over a year and it was just theoretical writing. No tests at all of market efficieny. So as an empiricist, no evidence at all.
The paper can be found here:

Friday, October 29, 2004

There is no Transition Cost

This is an excellent post, again by Arnold Kling, on why there is no transition cost if social security is switched from a pay-as-you-go system to a funded system.
The transition cost is a myth. In economic terms, the transition cost is zero.

From an economic perspective, the transition exchanges an off-balance sheet obligation of the government for an equal-value on-balance sheet obligation. It makes government accounting more honest, without changing the underlying debt structure.

When your Social Security taxes are reduced by $1000, the government will reduce its obligations to pay you Social Security by an equivalent amount. That is what partial privatization means -- you have to take that $1000 and invest it yourself, because the government is reducing its future payments to you.


One way to eliminate the "transition cost" to partial privatization would be to first undertake a transition to better accounting. If the government were to put future Social Security obligations on its balance sheet as debt, then the accounting would be accurate. To borrow a locution from Warren Buffet, if promises to make Social Security payments are not a financial obligation of the government, then what are they? And if a financial obligation of the government is not debt, than what is it?

If unfunded liabilities to make future Social Security payments were counted as debt, then partial privatization would be nothing but a debt swap. The government would increase ordinary debt and reduce unfunded-liability debt by an equal amount. The transition cost would be zero.
This basic economic principal is not understood by many people, including David Warsh, writer of Economic Principals.

UpdateReader SG sends in this excellent post argueing that promises to pay social security are not a government's financial obligations because governments don't keep their promises, and in fact renege on their promises all the time. Several times on this blog I've wondered what the fiscal analog of a central bank might be, and I think that one good contender would be for government to switch from cash accounting to regular accounting. Certainly, have an enormous and public "Accounts Payable" for social security and medicare would focus the mind on these costs, and the balancing "Accounts Receivable" would focus the mind on the taxes neccessary to meet those obligations.

Sanity and Prescription Drugs

This is a remarkably good Malcolm Gladwell piece in the New Yorker about the truth behind prescription drugs. Personally, I find the current hatred towards companies that have done more to prolong and improve human life than any other indicative of how difficult it is for people to think sensibly about healthcare. I've used the Behavioral Economics example to illustrate this before, so I'll point to it again now.

The piece by Gladwell is a response to Marcia Angell, ex-editor-in-chief of The New England Journal of Medicine, who has written a recent book called "The Truth About the Drug Companies: How They Deceive Us and What to Do About It". I have not read the book but I think the title says it all--greedy drug companies waste too much money on cooking up "me-to" copy-cat drugs and advertising, instead of focusing on real research, which results in these crazy high prices we have to pay nowadays.

While haven't read Angell's book, and I don't intend to, based on my experience, being a doctor does nothing to improve one's understand of the pharmaceutical market (apologies to my wife). While I am sure that drug companies engage in all sorts of shady practices, government research efforts would be as shady but without the results, and taking money away from drug companies would only reduce the quantity and quality of new drugs. So while I am open to the drug industry needing more competition and accountability, I don't think it is bad the way Angell seems to. In fact, I think it is great.

Some interesting points from the Gladwell piece include the (obvious) point that the meme of high cost drugs only apply to new, brand name drugs still under patent, and that generic drugs (which work just fine) are cheaper in the US than anywhere else. While people may feel that people have a "right" to free medicine, it's not clear that they have a "right" to the latest and greatest drug that just came out for free.

I was also interested to learn that most of the increase in drug spending comes from higher quantities of drugs being taken, not higher prices for drugs. So, some combination of more people taking a particular drug, and individuals taking more drugs, leads to higher quantities, with prices being the same. Beating on pharmaceutical companies will do nothing to fix this "problem" because they have nothing to do with how many people take a drug or how many different drugs they take. Volume is driven by customers, not companies.

Finally, ironically, the "me-to" drugs that pharma-bashers hate so much actually drive prices *down* because they produce more substitutes, and therefore introduce competition (which lowers prices).

If the main problem is around volume, then the solution rests on giving people who make decisions around consumption (third party payers, prescribers, and patients) the right incentives.

Anyway, it's worth reading the whole thing. It's also worth reading this Arnold Kling post on the same article.

Tuesday, October 26, 2004

It's a small world after all

I spent a summer living with this man's son.

Monday, October 25, 2004

Market vs Non-Market labor

The standard model of the effect of income taxes on wages has a worker deciding how to split his time between labour and leisure. Either he goes to work to earn a wage, or he sits at home watching TV. While more money is good, sitting at home is also good.

The model has leisure acting as a normal good, which means that the more money you have, the more leisure you would like. But note that the more money you make, the more expensive that leisure becomes in opportunity cost, that is, if you make $10/hour your hour of TV "costs" $10, but if you make $100/hour each episode of Sienfeld costs, essentially a new TV. The net result is that these two forces sort of cancel out and the effect of taxes on how much people work is pretty low.

According to this interesting post by Arnold Kling, this years Nobel prize winner in Economics, Edward Prescott, argues that labor is much more sensitive to taxe rates than presumed. He splits a worker's choice between "market" activities and "non-market" activites, so either you work and earn a wage or you stay at home at do non-wage work, which could include cooking, cleaning, child rearing, gardening, home improvement, etc. This household activity is not captured in GDP numbers but it is as real work as anything done for a paycheck.

In this model, raising taxes makes paid labor much less attractive compared to (unpaid) labor at home, and so shifts economic activity from the workplace to the home. Since work at home is not taxed, it means that raising tax rates will not increase tax receipts much -- people will just shift out of the labor market.

I don't know which of these models is closer to the truth, and it seems like the sort of thing that we ought to have enough empirical data to measure by now. Certainly the example of Europe suggests that people are quite sensitive to tax rates and will leave the labor force if they go up, but there are many factors at work there and it is hard to disentangle them all.

I also don't know what combination of higher taxes and lower benefits will be put in place to deal with the boomer cash crunch, but look for young people figuring out how to transfer wealth back to them from old people. In particular, I'd look for young people beginning to live and home and rely on parents for child care.

Sunday, October 24, 2004

Agency Risk

This good article outlines how various World Bank projects get scuppered because of radical activist NGO groups. The projects then go ahead without World Bank funding and therefore no World Bank regulatory oversight.

Firstly, I think this is a nice example of agency risk -- the NGOs who claim to speak for indigenous people actually have different incentives and therefore (may) take actions that are not in the best interest of the people they "fight" for.

Secondly, I wonder why the World Bank is in the business of funding projects that can be funded with private capital. There is certainly moral hazard there, and perhaps a different sort of agency risk.

Friday, October 22, 2004

We are all behaviorists now

The WSJ had a front page article on Eugene Fama saying that markets behaved irrationally sometimes. Why did this make the front page of the Journal? Because Fama is the godfather of efficient markets.

I had the good fortune to meet Eugene when I was at the University of Chicago, and it's Fama, along with Becker, Murphy, and a tremendous host of others that makes Chicago Ground Zero for free market economics.

A lesser know fact is that Chicago is also home to Richard Thaler, a key figure in (experimental) behavioral economics, who sadly did not win the Nobel Prize a couple of years ago when Sweden decided to nod towards the behaviorists. I had the good fortnue to take a class with Dick and several opportunities to speak with him at length.

Since the WSJ doesn't allow free linking, I'll point to this TCS post that discusses the same article. It excerpts the main paragraph:
For forty years, economist Eugene Fama argued that financial markets were highly efficient in reflecting the underlying value of stocks. His long-time intellectual nemesis, Richard Thaler, a member of the "behaviorist" school of economic thought, contended that markets can veer off course when individuals make stupid decisions.

In May, 116 eminent economists and business executives gathered at the University of Chicago Graduate School of Business for a conference in Mr. Fama's honor. There, Mr. Fama surprised some in the audience. A paper he presented, co-authored with a colleague, made the case that poorly informed investors could theoretically lead the market astray. Stock prices, the paper said, could become "somewhat irrational."

Coming from the 65-year-old Mr. Fama, the intellectual father of the theory known as the "efficient-market hypothesis," it struck some as an unexpected concession. For years, efficient market theories were dominant, but here was a suggestion that the behaviorists' ideas had become mainstream.

"I guess we're all behaviorists now," Mr. Thaler, 59, recalls saying after he heard Mr. Fama's presentation."
It is true that behaviorists' ideas have become mainstream (at least at Chicago), but this does not mean what people think it means.

Firstly, the truth is that the Chicago School of Economics was always aware of and looking for explanations for market bubbles -- an obvious (in hindsight) demonstration of market irrationality. More obscure phenomena, such as the "equity risk premium" similarly eluded free market explanations. Behavioral experiments shed light on these and so provide answers to key, outstanding economic questions.

Secondly, the truth is that the cognitive biases identified by Thaler et al do not vanish once the decision moves from the market to the committee. Left-wing folks have gravitated towards behavioral economics because they see it as a way to escape the defeatest free-market prescriptions of classical economics. Unfortunately, behavioral economics says that market participants can be irrational because they are human, which is easily extended into committee members can be irrational because they are human. Behavioral economics does not allow for the benevolent central planning that seems to attractive to many.

So what is it good for? According to Thaler and U Chicago law professor, the provocatively titled Libertarian Paternalism.

What a great title.

Libertarian paternalism takes behavioral insights -- such as default choices matter -- and marries that with the fierce individualism at the heart of libertarianism. So, you let people do what they want, but you work hard to make sure that the defaults are right. This has the benefit of making the default choice (and there must always be a default choice) considered instead of random, but you mitigate the danger of the committee getting it wrong by letting people change the choice if they want.

An example of this is Thaler's Save More Tomorrow plan.
Using principles drawn from psychology and behavioral economics, the plan gives workers the option of committing themselves now to increase their savings rate later. Once employees join, they stay in the plan until they opt out.

The SMT plan has four basic components: First, employees are approached about increasing their contribution rates approximately three months before their scheduled pay increase. Second, once they join, their contribution to the plan is increased beginning with the first paycheck after a raise. Third, their contribution rate continues to increase on each scheduled raise until the contribution rate reaches a preset maximum. Fourth, the employee can opt out of the plan at any time.

The first implementation of the SMT plan yielded dramatic results. The average saving rates for SMT plan participants more than tripled, from 3.5 percent to 11.6 percent, over the course of 28 months.
With social pension plans across the world being put under stress, any sensible approach to savings should be considered.

Thursday, October 21, 2004

Less phone, please

When I bought my last cell phone I was looking for 1) reception, 2) battery life, 3) ease-of-use, in that order. I ended up with a colour Nokia that can surf the internet, and would gladly trade it for a black and white, non internet enabled phone with as good reception if such a phone existed. But it doesn't, so I'm stuck with more phone than I really want.

It seems that I am not the only one. In Europe, where cell phone competition is much fiercer, one company seems to have made dramatic inroads by offering cheap, simple, cellular telephony. Sign me up.

Doing this required 1) competition in the handset market and 2) the ability to buy cellular service wholesale and resell it retail. I beleive that Sprint offers wireless connectivity wholesale in the US and would be interested in seeing a similar company here.

Update My old buddy Stumbling Tongue let's me know that the UK may start enjoying less phone soon.

Tuesday, October 19, 2004

Spoilers make things better

There are a bunch of prediction markets where you can put some money where your mouth is and make your call on (among other things) who will win the election. If you guess right, you make money. If you guess wrong, you lose money.

More importantly, it makes you think in terms of probabilities, not certainties. For example, a contract on Kerry winning may be worth buying at 55%, but be worth selling at 95%. It's likely he will win, but not certain. This sort of enforced, detached rationality is far removed from our natural instincts and so best treated as the type of abstract game that makes markets so hated and so effective.

Some people think the markets are being manipulated by folks coming in and placing big bets in the direction (I guess) that they are rooting for. In most other systems, such gaming would ruin the way it was meant to work and cause the system to break down. In markets, however, such manipulation actually *improves* the environment for serious traders because manipulations means profit opportunity and the more profit opportunity there is, the more desireable serious trading begins. Marginal Revolution has the scoop.

Why no vaccines?

According to Marginal Revolution, liability risk, government monopsony power forcing down low prices, and public abhorence to actually paying (directly) for health care has driven firms to exit the market, or the decrease production of vaccines leading to shortages in case anything bad happens.

Government price controls on healthcare do not reduce healthcare costs, they merely shift costs from being explicit and borne by today's consumers of drugs that already exist today, to being implicit and borne by tomorrow's consumers of drugs that will (now) never be invented. Why does no one ever think about the children?

No Draft

The draft is not a complicated issue, although I have yet to hear a politician talk about it in a non-stupid way.

If a military finds that it does not have enough volunteers, it should raise the pay that it offers. Military pay should come out of general tax revenue.

Democratic Congressman Chuck Rangel claiming there needs to be "more equitable representation of people making sacrifices [joining the military]" through a draft is precisely wrong. The most just way of raising an army is through recruiting a volunteer force at competitive wages paid for my general taxes. General taxes ensures that everyone contributes appropriately, and volunteerism ensures that the people who sign up are those whom benefit most from it personally.

If an individual is drafted into an amry against his will, then that person is bearing an extremely large portion of the burden by foregoing the life and salary that he clearly preferred. People ineligible for the draft, by contrast, would bear very little of the burden.

Note that I have not even touched upon the fact that volunteer armies fight well and conscript armies fight terribly. The recent discussion on the draft is a pathetic attempt to scare people.

Monday, October 18, 2004

Someone else's fault

It seems that a great and underreported feature of democracies is that they create a scapegoat for local ills and offer the means to then throw that problem maker out. Note that this may or may not solve the problem at hand, the key point is that someone was made to take the fall, and then pushed.

Certainly the near miraculous powers attributed to presidents on economic matters is far in excess of what any leader can actually do to help people get jobs and earn higher wages, but this does not prevent the challenger from ascribing current ills to the incumbent. Unfair, but imagine the alternative.

I read this dispiriting but illuminating post on the sorry state of scape goating in the Ummah (larger muslim world). Like all places inhabited by humans, people living in muslim arab countries have problems that they want to blame on someone. Since these contries are also totalitarian dictatorships, the incumbent government cannot be blamed, never mind changed. So the accusations turn instead of wild conspiracy theories pointing to the US and/or Jews.

Some people are nervous about holding elections in muslim countries because they fear that the tyrannical and worldly incumbents might be replaced by tyrannical and relgious zealots, a result, if you will, of competition to see who can blame America/Jews most vigourously. However, this would be counterbalanced by an institutional someone pinning blame on the incumbent (even if the complaint is that they lack sufficient religous zeal), along with a mechanism for changing that incumbent, a splendid shift of focus IMHO from the far enemy to the near enemy. People are less ideological about tacking close-to-home problems where beleifs tie to actions+consequences.

Friday, October 15, 2004

Nonprofits vs. Jihadis

In this excellent Slate article, Lee Smith points out two important facts about jihadi Islam.

1) He points out that jihadi Islam is primarily about local politics. In reference to the recent terrorist attach on the holiday resort of Taba in Egypt:
After all, [Egypt's] most famous episode of Islamist violence, the assassination of President Anwar Sadat, was carried out by rogue elements of the military who killed the "apostate" Muslim leader for making peace with the hated Jewish state.
It's easy to be parochial in one's interpretation of events, and Americans who fixate on America's instigation of jihadi violence ignore the fact that jihadi violence has been going on for quite a while and, in some ways, is best viewed as a civil war within the Islamic world that the US was dragged into on 9/11.

This civil war pits jihadis against dictators. For a long while, America's policies in the Middle East have backed the dictators. Those wishing to bring stability back to the region are arguing that the US should start backing dictators again. Bush has cut this unpleasant Gordian knot by supporting a third faction that has been largely sidelined in the jihadi war to date: regular muslims. To date, the results in Afghanistan have been amazingly successful, while the jury remains out in Iraq (elections there, I beleive, are scheduled for early next year).

2) Lee also points out that
Militant groups have to continue operations or risk losing prestige and funding. Since Israel's security barrier and the targeted assassinations of Islamist leaders have made it very difficult to strike inside Israel, the groups may have no choice but to go outside if they wish to continue their war. (Emphasis mine)

Slate's own Rob walker cataloged the "trend in using business-world metaphors to describe the operations of Osama Bin Laden and his al-Qaida terrorist network" before discarding it as being unhelpful, but as Lee suggests, there is an organizational operating model al-Qaida and other jihadi organizations follow: nonprofits and NGOs.

Nonprofits and NGOs are on the side of good, and jihadis are on the side of bad, so by pointing out their financial similarities I in no way intend to imply that they are morally similar. I am merely pointing out parallels in their funding structures and cash flow models, and since it's easier to examine nonprofits, doing so could give us operational insights into jihadi networks.

Here are some observations from my time working in the nonprofit field:

1) Nonprofits compete for funding on the basis of visible, observable outputs and activities, ideally with some appropriately photogenic glamour to them. Causes with emotional appeal, either through shock value or prettyness, beat quiet, material improvements.

2) Funders tend to be faddish, always interested in moving to the new cause-du-jour.

3) When funders give money, they give it for some particular program or measurable output. It is very difficult for nonprofits to attract funds for operations--the day to day capacity building that generate organizational depth and resilience.

4) Nonprofits often rely on charismatic leaders.

5) Attractive causes "pull" charismatic leaders out of other fields and into the nonprofit field. These leaders often do not fit well into the non-nonprofit world.

6) It is very difficult for nonprofits to scale, primarily because a successful program is deemed to be less needy than a less successful program, and so finds it harder to get cash.

With the exception of 6, it's clear how a jihadi network is more like a nonprofit than a corporation. Corporations are focused on maximizing profit, a goal which requires serving customers, employees, and shareholders. Nonprofits are focused on fulfilling their mission and raising cash.

Tracking how well a nonprofit is fulfilling its mission is actually very difficult since they have no profit signal that lets them know whether they are helping their constituency or not. Instead, they rely on activity measures which track outputs, not outcomes.

The mission is also the animating feature that attracts employees and makes up for meagre pay. Galvanizing the troops is the only way to make people stay because the cash just isn't there.

Donors want to give cash to things that directly generate outputs, not to activities that build infrastructure, like HR or accounting. In addition, donors are more loyal to the mission in general than any one incarnation of it, and are looking for the group that fulfils their emotional need best. This means that donors are always open to new, more needy causes, and nonprofits compete in generating obvious displays of mission-fulfillment to win those competitions.

One consequence of the above is that nonprofits have tremendous moral hazard. A donor wants to give to the organization that promises most spectacular upside because they are insulated from downside risk. If a nonprofit spends all its money on some activities that do not actually help their mission at all it does not matter to the donor, indeed, the donor probably doesn't know and neither does the nonprofit.

Even nonprofits that are savvy about organizational capacity and the difference between outputs and outcomes still publish the % of donations they consumre in their operations vs the % they give to the needy. The smaller this percentage is (the leaner they are) the better, even though this ignores the fact that nonprofits can add value to their activities instead of just passing money through.

Terror networks can only grow to a certain maximum size before the chance of infiltration (and disruption) grow too high. In addition, the competition for ideological purity suggests that they are likely to fracture as they get larger as factions peel off to pursue their more authentic version of the truth.

In addition, terror networks also must display activity continually in order to attract donors. The more dramatic the display, the more likely they are to get money. Note that it does not matter if the display actually helps or hurts the terror network in the long run, they need to get the money now. The fact that Al Qaida has been unable to strike the US since 9/11 reduces their street cred in sympathetic circles, and therefore their ability to raise cash and attract volunteers. In addition, it also means that other groups can (and probably are) competing for that crown by executing their own, even more dramatic, attacks.

Terror networks will also be low on infrastructure, making it impossible for them to make significant capital investments in materiel unless they have a state sponser. The state sponser can either provide a safe harbour for them to build economies of scale and benefit from specialization and division of labor (ie Afghanistan) or the sponsor can simply give them materiel as a way to strike a common foes and maintain plausible deniability. When an anonymous nuke goes off in Times Square, who will the US bomb?

Wednesday, October 13, 2004

Media consolidation's evil revealed?

Some people claim that Sinclair Broadcasting's decision to play a documentary, Stolen Honor on its stations, reveals the evils of media consolidation. After all, here we have a powerful media player deciding to broadcast propaganda to influence a presidential election for its own ends. The DNC is trying to shut down the broadcast.

I'm sorry but I must have confused this election with some other election. In this other election, I seem to recall a bunch of Vietnam Veterans who did not think Kerry would make a good president playing some ads to that effect, being ignored by broadcast stations, being blogged about to some great degree, being examined by broadcast stations, being rebutted by Kerry officially.

I also seem to recall some guy being taken in by fake memos regarding Bush's service in the National Guard, and some guys online who knew about typography examining the memos and declaring them fake, and this being ignored for a while, but then they wrote about it some more, and then everyone agreed that they were fake after all.

In *that* election there was no shortage of competing media sources, and therefore no shortage of informed eyeballs scouring material for inaccuracy and screaming bloody murder when they found it. In such an environment, Sinclair Broadcasting (I've never heard of them either) can play whatever propaganda they like because the media environment is competitive and diverse, with lots of fact checking and alternatives. Unfortunately, Sinclair does not exist in the world of Swift Boat Vets or Rathergate, it seems to exist in this world of dangerously consolidated media where there are no competing views and their "documentary" will be able to slip through materially uncontested.

Tuesday, October 12, 2004

Fever Swamps

I made the mistake of going to the once excellent Brad DeLong site to learn more about this year's Nobel Prize in Economics (I don't know much about real business cycles). What a fever swamp it has become.

But there was this good post on economists ranking Bush v Kerry on the economic policy front. The Economist ran a poll, and Kerry did better than Bush (although Brad and I prob differ on the reasons why).

Despite their diverse assessments of today's economy, the professors are overwhelmingly critical of the central plank of Mr Bush's economic policy—tax cuts. More than seven out of ten respondents say the Bush administration's tax cuts were either a bad or a very bad idea, and a similar proportion disapproves of Mr Bush's plans to make his tax cuts permanent. By contrast, Mr Kerry's plan to roll back the tax cuts for people with incomes over $200,000 wins the support of seven in ten of them. (This poll was taken before October 4th, when Mr Bush signed into law his fourth tax cut, which extended several popular components of earlier tax cuts that were due to expire at the end of this year, including the child tax credit.)

The broad condemnation of tax cuts seems to be linked to the professors' worries about America's fiscal health and the looming retirement of the baby-boom generation. Although Americans overall seem relatively unconcerned about the budget deficit, a large majority of the economists rate it as a serious problem for the economy, with almost one in five describing it as a crisis. And they back Mr Kerry by a large margin (79% to 18%) to do more to promote fiscal discipline than Mr Bush.

Health care also seems to be an issue that pushed our economists towards Mr Kerry. More than 70% of the academics reckoned health-care costs were a serious problem for the economy—and they preferred Mr Kerry's plans to control those costs by a margin of 59% to 25% (with the rest ducking the question).

I just don't get it.

Firstly, Bush's tax cuts have primarily focused on reducing taxation on capital. Taxing capital is extremely inefficient and costly, and will get more inefficient and costly as capital markets become larger and more flexible. If you don't beleive me, ask the tax loving, business hating Europeans. Europe in general has much higher consumption taxes than the US because their higher government spending requires more efficient taxation to support it. The only reason the US can have the inefficient tax policy it has is because it doesn't tax that much. As entitlement spending grows (which it will, dramatically), taxes will have to go up, and efficiency will start to matter. So, why not start taxing consumption now. (Yes, I know consumption taxes are regressive. I also support means tested transfers to counter that effect).

Secondly, while the economists are right to point to boomer driven entitlement spending becoming a huge problem, I'm not sure why they see Kerry as being better than Bush about it. As far as I know, his main criticism of Bush's (large) Medicare bill was that it was too small, even though Medicare will far outstrip Social Security in cost. Perhaps they (rightly) beleive that a split Executive and House will be unable to pass bills and so can do less damage. I agree with that argument, but that's not Kerry Policy Good position, that's a Split House Does Less Bad position.

Thirdly, the only thing I've seen people propose to control health-care costs is to reduce new drugs coming onto the market by taking profit out of coming up with new drugs. I understand how this sounds like a good idea to old people, but it sucks for young people who can no longer expect the improvement in healthcare that people born in, say, the 40s enjoy. Yet another transfer from young to old may be politically popular but has no clear merit (to me) beyond that.

On a related but tangential point, today's corporate tax-cut bill is exactly the pork-fest one expects out of such people even outside of an election year. But hey, I don't think corporations should pay taxes at all (think about it--corporate taxes are paid for by capital via shareholders, labor via employees, and consumers via higher retail prices. Capital is an inefficient source of taxes, income tax reduces the incentive to work, and consumption taxes are the most efficient of the bunch. Yes, I know consumption taxes are regressive, but let's help folks in need through transfers, not tax loopholes).

Sunday, October 03, 2004

New great site

When I worked at Creative Good, we had this fantastic system developed by Mark Hurst called the "Good Easy" that made computers much easier to use, and more powerful. I've written about it a bunch of times.

That mentality has finally made it to a blog: 43Folders, and Mark's already written an article for it. Well worth bookmarking and visiting repeatedly.

Verification bias

My old buddy, Stumbling Tongue, sent me this good link on verification bias (I know, I know, Rathergate is an old issue). It seems that folks have been trying to decipher this thing called the Voynich manuscript for 400 years, but then this guy came up and proved it was a hoax--there was nothing to decipher. The reason this new guy was successful was because he actually considered the hoax possibility and investigated it.

The article talks in terms of an "expertise gap"--where the expertise needed to solve a problem actually exists *between* well developed expertises--and outlines an approach that systematically works to bridge this gap and produce a solution. And while I agree that this is very real and there is much value in solving that problem, the only verification bias I could find was at the beginning, ie. "hey, maybe this thing is a hoax, let's investigate that instead."

Deliberate contrariness is very valuable, very simple, and remarkably difficult to do in practice. The next time you feel convinced about something, try to come up with four or five reasons why that position is wrong. Feel your brain pretzeling, but once you are done you will have a more, dare I say it, nuanced understanding of the situation. And when I say "reasons", I mean really good, well thought out reasons, not stupid, lazy, or generic reasons. When I ask people now to critique work I've done, I ask them for a list of five reasons why my argument is wrong. I really ought to be doing this myself, but there you go.

I had dinner with some friends last night. These folks are good people, smart people, close buddies, and they invited me to a presidential debate party they are having whenever the next debate is on. Ye Gads. I had not read this bleat at the time, but the images flashing through my mind were frighteningly similar. Here's quote:
I could talk about the blogger party tonight where the luminaries of the Northern Alliance gathered to watch the debate, and peck out snark and insight.... I hate the debates. I have a vision of 65 million undecided Americans tuning in and making a snap judgment for all the wrong reasons. Wow, he pounded the podium to emphasize each word - but the other guy pounded each syllable. What’s this about sealing Fallujer? Is it leaking? Did they have a flood?

But mostly I hate the debates because I simply cannot abide hearing certain statements I’ve been hearing over, and over, and over again. I can’t take any more talk about bringing allies to the table. Which ones? Brazil? Mynmar? Microfrickin’nesia? Are there some incredibly important and powerful nations out there whose existence has hitherto escaped me? Fermany? Gerance? The Galactic Order of the Belgian Dominion? Did we piss off the Vulcans? Who? If we mean “France and Germany,” then please explain to me why the reluctant participation of these two countries somehow bestows the magic kiss of legitimacy.
Now I understand the value of people getting together and confirming their bias and prejudice. If shared bias and prejudicial isn't the basis of friendship and loyalty, I don't know what is. And if I create an image of chimps picking ticks out of each others' hides in a big monkey-tick-eating session, it's not because I look down on such events (which I don't) but because I acknowledge their tremendous social value and contribution to group cohesion and feel no need to give them airs beyond that. But other things generate that kind of group warm fuzzies too (autumn bbqs, shared drinks, hell, even apple picking expeditions) without being, you know, annoying to others. Whatever.

Go read this Slate article on why it's rational not to vote. Then read this Times piece on why you should vote anyway. (Here are the reasons: 1) your vote will not make the difference, even in close races, and 2) vote out of Duty, especially if you vote for the Superior candidate. Look, I know 2 is lame, but what do you expect out of the Times?)

On the futility of debating at all, read this excellent Stumbling Tongue article on what works, what doesn't, and what does "work" really mean anyway? An excerpt:
It seems obvious that “debate-style” ways of arguing only antagonize the majority of people, who are offended by all direct contradiction. And when someone is antagonized, they are not receptive to anything new. So, except in very rare cases, debates shut down communication. Witness the blogosphere: except for such paragons as Eddie Thomas, it’s just a mass of people shouting past each other. (The sad thing is, people logon to find like-minded people to shout with, not even oppositely-minded people to shout at — never mind anything as radical as civilized disagreement.)

But what is the alternative to “debate-style” arguments? There is simply something dishonest about spending your energy trying to seduce someone into agreeing with you. For one thing, you are usually hiding the fact that you’re not explaining yourself directly. Seduction isn’t communicating an idea with a person; it’s trying to insert an idea into a foreign mind. Seduction targets the man, not the idea, and so to that degree it is sneaky and manipulative.
Well said.

The closest I got to honesty around debates was in the historic Owl Bar in Baltimore, where a friend agreed that her "not-Bush" vote was based on the belief that there was a way of solving terrorism that did not involve turning the Middle East to glass or replacing totalitarian despotisms with more open, tolerant societies. She did not know what that was, she did not think Kerry knew what that was (or that he was even thinking about the problem) but she felt that circumstances would push him towards that anyway. Personally, I am OK with blind faith being a reasonable motivation, just don't confuse it with anything else.

While we are on the subject (a little tangentially) of cognitive function and dysfunction, I don't think this philosophic take on cognitive fallacy is useful, although I think the fallacies themselves are right on (via AL Daily. Yes it is true that people confuse authority with knowledge/expertise, care too much about motivation rather than argument, etc. etc. I don't want a laundry list, I want a systematic model that probably has its roots in anatomy, is filled with behavioral evolution, and has equations cooked up by economists. I honestly don't think it's complex, I just think that we are too close to the subject to be able to figure it out well.

One last thing. A friend of mine who has been reading political blogs and seeing them become increasingly polarized cites this as the value of traditional "mainstream media": "Yes, they are often wrong, and generally biased, but they don't get so hysterical that they become unreadable by half the country, and having a centralized source of fairly good information is valuable." I acknowledge that the centralization instinct is a natural one in humans, but I also beleive that the chaos produced by shouting (not this informed debate carnard) does more to attentuate bad decisions than anything else.

Am Back

Just returned from vacation. Went up and down the west coast, sailed in Annapolis, and managed to squeeze in a trip to Varekai. If any of you haven't been to the Crique du Soleil, I recommend it highly.