Tag Archives: economics

Economics + History = … Science? A Brief Introduction to Cliometrics

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I’m not sure if it says more about my lack of education or about cliometrics’ obscurity, but I first heard about the field of cliometrics from Eifelheim — a science fiction novel set in mid-14th century Germany, and based in part upon the unexpectedly entertaining synthesis of quantum physics and quantitative economic history. Or, rather, “cliogy,” as it’s called in Eifelheim. While I was reading the book, I took cliology to be a fictional branch of academia, something more or less a present-day version of Asimov’s psychohistory. After some snooping on wiki, however, I learned that the branch of history called cliometrics really does exist.

Cliometrics is “is the application of economic theory and quantitative techniques to describe and explain historical events.” The name is derived not from some scientificky sounding Latin terminology, but rather from Clio, the Greek muse of history. As a non-historian and non-economist, probably the most fascinating parts of it for me is largely the random historical-economic factoids — such as that in 1700 in Maryland, for a female indentured servant, one lash was worth about 38 cents, or about two days of labor.

Sadly, despite having snagged a Nobel in 1993, cliometrics is something of a has-been among academic disciplines. Too many articles on cliometrics are of the “What Has Cliometrics Achieved?” and “Reflections on the Cliometric Revolution” variety — it’s never a good sign for an academic field when the meta-commentary plays more prominent role than the regular kind does. The idea of making some sort of falsifiable, scientific study of history does seem appealing, but as cliometrics’ critics are quick to point out, the whole point about it being “history” means there’s too often not a complete set of data to work from, leaving researchers no choice to theorize in the gaps. The mere presence of numbers does not actually turn subjective analysis into an objective one.

Still — how can you not love a discipline that results in articles like “The Suitability of Domesday Book for Cliometric Analysis” and “An Economic History of Bastardy”?

-Susan

Two Very Scary Excerpts on the Condition of Haiti

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On the Haitian economy:

All but one of Haiti’s textile plants – which account for 90 per cent of its exports – were in Port-au-Prince. Consequently, the earthquake has essentially knocked out the country’s entire export sector. The Port-au-Prince region also accounted for 85 per cent of government revenues.

And on Haiti’s dependence on UN food supplies:

The UN says that yesterday it managed to feed 40,000 people and that it hopes to increase that to 1 million people a day within two weeks, and 2 million in a month.

“By the end of Monday, we will have distributed more than 200,000 food rations in and around Port-au-Prince,” the UN World Food Programme announced in a statement. It said that it was establishing food kitchens to feed the hungry.

If the Food Program needs to be supplying rations to that many people a month out from the disaster, that is very foreboding news for Haiti’s long-term future. The population of the entire affected region is around 3 million — and some estimates have as many as 300,000 people there dying in the earthquake and its immediate aftermath. If so, that would mean the UN is gearing up to be responsible for the food supply of nearly three fourths of the people in the greater Port-au-Prince area. That is, to say the least, an unsustainable situation.

In a post last week, I brought up the issue of whether a state without a territory is still a state. But having a government is also one of the formal requirements of statehood, a condition which Haiti now only nominally qualifies for. I don’t think it’s too much of a stretch to say that it is only inertia and the continued communal belief that Haiti-is-a-State by the rest of the world that makes Haiti a State at all.

-Susan

The Economic Agendas of Sci-Fi and Fantasy Authors, Vol. 3: The Economic Apathy of J.R.R. Tolkien, the Anarchic Anti-Industrialist

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This is volume three of a very-infrequently-updated series. In previous posts on this blog, I discussed the more blatant economic agendas of fantasy and scifi authors Jack London and Terry Goodkind, as well as discussed the function of economics in other speculative fiction books in posts here, here, and here.

Finding evidence of economic systems in scifi and fantasy books is not hard. The use of economics in speculative fiction is not always blatant, of course, and more often than not it is used for world-building rather than to promote an author’s economic view point. But when envisioning their futuristic societies or when creating fantasy worlds, the vast majority of authors do incorporate some form of economic structure.

There is one glaring exception to this rule: J.R.R. Tolkien.

Because economic systems do not exist in Middle Earth.

Tolkien was — beyond all doubt — a god among world builders. But Middle Earth’s intricate mythology was simply that. A mythology. His world was not a functioning, messy, organic society, but a symbolic realm. In many ways, his detailed accounts of the history of Middle Earth are the equivalent of the Bible: the begatting of generations and the successions of kings are all accounted for in exquisite detail, but any accounts of the day-to-day life of Middle Earth’s inhabitants are left skeletal and superficial.

If you doubt that, consider the following questions: Did Gondor tax its citizens, and if not, how did it get its massive armies? Were there lawyers and judges in Rohan? Who wrote the laws in Bree? Did any race or kingdom have schools or systems of higher learning? Was there a mercantile class? Were there trade guilds at all, or tariffs, or monopolies? Could Dwarves or Hobbits or Elves freely choose their careers — and if so, were there career options beyond “farmer,” “miner,” “innkeeper,” and “soldier”? What sovereign minted the coins that occasionally appear in the books? Did people earn wages or were they paid stipends by feudal lords? Why is there no evidence of trade in Middle Earth in situations where in a real world we should expect to see some? What political and economic motives could Sauron’s human allies possibly have? How were the Rangers of the North, such as Strider, funded? For that matter, how was Gandalf funded — surely he needed some sort access to resources to accomplish all his doings? And perhaps most perplexingly, why do women, of all the races, appear to be on the verge of extinction?

No answers. (Well, unless of course the answers happen to be in The Silmarillion, I certainly am not about to read that one to find out.)

That last question should be a particular tip off, though. How can you know a civilization in any level of detail when fully one half of its citizens are essentially unmentioned?

Tolkien’s apathy towards the economy and social infrastructure of Middle Earth was by no means the result of simple oversight. It was a deliberate attempt to construct a world that conformed to his views of the human condition. Tolkien did not believe that human societies required regulation in order to function — and so Middle Earth went unregulated. In referring to his own views, Tolkien stated that,

My political opinions lean more and more to Anarchy (philosophically understood, meaning abolition of control not whiskered men with bombs) – or to ‘unconstitutional’ Monarchy. I would arrest anyone who uses the word State (in any sense other than the inanimate realm of England and its inhabitants, a thing that has neither power, rights nor mind).

When creating Middle Earth, it is apparent that Tolkien had, shall we say, an eye for detail, and it would be an insult to suggest he simply forgot to factor in economics and politics. As Tolkien wrote in a letter describing the hobbits’ arrival in Bree at the Prancing Pony Inn:

The landlord does not ask Frodo to ‘register’! Why should he? There are no police and no government … If details are to be added to an already crowded picture, they should at least fit the world described. (Tolkien, letter #210).

And the world described in the Lord of the Rings is one where economics does not exist.

Continue reading →

The Tyrant Alarm Clock: The (Almost) Perfect Commitment Device

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Commitment devices are essentially a way to supplant your own faulty motivation drive with an external motivation source. Put another way, a commitment device is a way of improving your overall welfare by ex ante limiting the number of options available to you later. These kinds of self-imposed future enforcement mechanisms show up everywhere, from the national level, such as with economic policies that encourage states to live up to their foreign direct investment commitments, to the personal level, such as with weight loss strategies. (Perhaps not surprisingly, it is the commitment devices designed to encourage weight loss that are the most commonly discussed — perhaps because losing weight is the classic every day example of the tension between short term desires vs. long term desires.)

One problem with commitment devices, however, is that the most common form of them — i.e., announcing to people what your intended goal is, so you have the fear of being judged to spurn you into action — may actually be psychologically counter productive:

Tests done since 1933 show that people who talk about their intentions are less likely to make them happen.

Announcing your plans to others satisfies your self-identity just enough that you’re less motivated to do the hard work needed.

In 1933, W. Mahler found that if a person announced the solution to a problem, and was acknowledged by others, it was now in the brain as a “social reality”, even if the solution hadn’t actually been achieved.

Not to mention, telling others may not even be all that motivating when faced with making a short term choice. It is too easy to convince yourself that either your peer group won’t notice your failure to live up to your commitment, or that they will but it will not severely impact their feelings toward you.

So rather than telling others of a plan, another common form of a commitment device is to use a commitment device not based in social evaluations but in wagering a sum of money (or other desired resource) on your ability to carry through with the goal. For instance, writing a check to a political party you are not aligned with and vowing to mail it should you fail to stop smoking. A problem with these commitment devices, however, is that if you fall short of your goal, you might not carry through with inflicting the self-imposed penalty afterward either. As a way of remedying this problem, a couple of economists even started StrickK, a website that allows you to irrevocably commit to donating money to a specified charity if you fail to meet your desired goal.

That’s a good step, but it doesn’t completely limit your future choices, as it may well be too tempting later to simply lie to StickK and claim you lost those 15 pounds when you really didn’t. Without another human to evaluate your claims of success and to enforce the penalty if you have not, you have not sufficiently limited your choices ahead of time.

So the problem, in short: If (1) informing others of your plans won’t work because their possible vague disappointment in you is not a strong enough motivator, and because the act of telling your plan makes you less likely to carry through with plans, and (2) non-peer group based commitments are far too easy to fake (at least until we develop AI!) and carry a risk that the penalty will never be imposed, how can a commitment device be designed that is both hard or impossible to fake but also carries a concrete penalty?

The solution: a commitment device that irrevocably commits you to aggravating the ever-living daylights out of your friends if you fail to carry through. Say hello to the Tyrant Alarm Clock.

The Tyrant Clock, designed by Alice Wang has to be the meanest alarm clock concept ever invented. Some alarm clocks make a terribly annoying noise or require you to complete a physical task to shut them off. There’s even some now that will shake your bed until you’re up. Not the Tyrant Clock. This clock takes waking up into pure psychological warfare territory. You’re not going to hear many alarm clocks called pure diabolical evil but there you go, you just did.

The clock syncs up with your cell phone, randomly goes through your contact list, and then calls someone different every three minutes after your intended wake up time. It displays in a large size the name of the person who’s about to get their own wake up call from you. The potential for it to call someone and in some way completely ruin your life is huge. A disaster waiting to happen, which would make it the ideal alarm clock.

Sure, you may want to put the clock across the room (preferably next to a large pot of freshly brewed coffee) to keep you from turning it off and slinking back under the covers again. But once you account for that problem, this clock is a pretty effective way of ensuring that what’s in your best interest for your long-term utility (waking up on time) is in direct alignment with your short-term utility the next morning (not having a randomly selected friend hate your guts).

-Susan

Signaling Strategies and the Quest for Employment

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For fairly obvious reasons, the issues of signaling in the employment context have been heavily on my mind lately. It has been clear for some time now that I am in dire need of a new strategy for my own signaling methods, but knowing that something needs to change is a good deal easier than knowing what to change. But as it stands, I am failing to send potential employers a clear (and hopefully accurate!) indication that I’m a worthwhile candidate.

This post on snap judgments and taking superficial first impressions seriously summarizes the basic situation nicely:

If you’re applying for a job, you want good credentials so your resume doesn’t go straight to the circular file. The key elements in this story are (a) high rewards, and (b) high search costs. Since the rewards are high, lots of people try to win; and since lots of people are trying to win, it’s too expensive to carefully study all of the candidates. The result: People try really hard to make a good impression, and anyone who fails to make a good impression pays a heavy price.

There are a lot of people “trying to win” right now, so employers are forced into ever greater reliance on arbitrary filters, in order to pick out a rough list of the candidates for whom spending more on search costs is most likely to offer a good ROI. While conducting the initial screening, employers know there’s a high rate of false negatives, but accept this as a necessary cost; even if the “best” candidate is accidentally overlooked in favor of a candidate marginally worse, the company is still better off, as it is not efficient to spend ten times more in search costs merely to find the candidate that is just a tiny bit better.

This is a problem for me, as, unfortunately, I am pretty sure I am not making it through that initial sorting. That is, right now, I am doing a poor job at signaling to employers my potential value.

I look decent on paper: decent class rank at a decent law school with the usual decent assortment of accomplishments and attributes on my resume. Not a rockstar by any means, but nothing that should flag me as a potential axe-wielding sociopath to be avoided at all costs. However, to an employer sorting through resumes and making a couple hundred snap judgments, I would imagine I also look pretty boring. Boring is not necessarily bad — if I looked like I had all the personality of a box of Shredded Wheat, that might actually count in my favor so long as I boasted an editor position with a law review and a couple summers at Skaddington McKirkland & Jaworsknight.

But I don’t. So as it stands, there is very little reason for an employer, in an initial evaluation, to tag me as a candidate worth expending additional search costs on.

To make things worse, right now I have another factor working against me: it has been more months than I care to count since graduation, and I still do not have a job. To employers, this can be taken as a strong indication that I am not likely to be a good employee, and may have some hidden flaws that my resume is not revealing. It makes sense for someone hiring to assume that, “Well, if this young lawyer has been unable to secure a job from anyone she has previously applied to, that raises an assumption she was not good enough for any of them, and therefore is likely not good enough for me either.”

Effectively, I am pre-screened as a candidate who likely should not be hired by all of the many employers that have previously failed to hire me. It is simply not worth it to an employer to spend extra resources on giving me a closer look, when presumably other firms already have given me such a look and found me to be wanting.

So my problem is this: I need to find a strategy that increases the odds of an employer deciding to invest further time and money on obtaining a closer evaluation of me. Once they do that, they will, hopefully, discover that I am a capable and effective lawyer, and worth hiring. I believe this to be true; if it’s not, well, I have far bigger problems to deal than merely getting hired, and addressing the whole signaling issue would be kind of unnecessary. So for discussion purposes only, I am just going to stipulate that I am in fact the employee that any firm or agency making a hiring decision might like to find. How, then, can I quickly signal to employers that (1) I am worth taking seriously, and (2) the signal is very likely to be truthful?

I’ll be discussing this more here, both how it might particularly apply to my own situation and strategies for employee signaling in general. And who knows, with a good deal of luck, maybe in the near future I’ll even get some first hand experience on what signaling strategies work.

-Susan

The Biochemical Economics Revolution, or How A Spot On Our X Chromosomes Caused Us To Buy a Nintendo Wii on Credit.

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In addition to biophysical economics, from this paper it looks like there may also be biochemical economics: “The MAOA Gene Predicts Credit Card Debt”.

The study behind the article compared rates of credit card debt — i.e., having any credit card debt at all, not the amount of it — and found it to be associated with the presence of certain forms of MAOA. As far as the authors are aware, “this is the first article to show a specific gene variant is associated with real world economic behavior.”

MAOA is a gene that does something scientificky to brain chemistry. Variants of MAOA that are less efficient in the way they metabolize serotonin and other compounds have been associated with increased impulsiveness, aggression, and addiction. MAOA is basically one of the only genes I can actually name, because it crops up in pop science news articles every other month or so. (The only other gene I can name is sonic hedgehog, but that’s for more different reasons). Among many other attributes, MAOA’s been linked to increases in likelihood of joining a gang, or if in a gang using a weapon, rates of alcoholism, and suspecpability to sugar pills.

And now, possibly, it’s also been linked to rates of credit card debt. From the study:

Because credit card debt is a relatively expensive form of debt, our prior intuition is that, all other things being equal, it would be used more by those individuals seeking immediate gratification, displaying less consideration of future consequences, and reduced information processing. Hence, we hypothesize that people with less transcriptionally efficient alleles of the MAOA gene are more likely to accrue credit card debt.

The study concludes that “the results presented here refute the blank slate theory of economic behavior.” By ‘blank slate,’ the authors are not referring to the traditional blank slate theory, which holds that humans have more or less no natural imprinting, but rather to economic approaches that treat all humans as having the same natural imprint — the idea that we are all phenotypically Homo economicus.

While the idea sounds very tidy in theory — a gene that controls the rate of future discounting! I bet we can link this to the financial crisis somehow. Quick, someone check the DNA of Wall Street traders! — I’m not quite converted yet. It strikes me as being way too likely to result in the flourishing of the same just-so stories that evolutionary psych always falls prey too. Confirming that “impulsive people have more credit card debt” just isn’t particularly revolutionary. While linking it to a specific gene gives it an added dimension of coolness, it doesn’t actually add anything to economics on its own anymore than linking impulsive behavior to unstable childhoods does. So it’s neat, but economists don’t need to be rushing out to get their PhD’s in molecular biology any time soon.

-Susan

To borrow a phrase, “Markets in Everything”: Halo3 Coaching Edition

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You can actually pay someone for Halo 3 lessons. It’s like hiring a tennis pro to help you work on your swing, only you don’t have to go to the trouble of getting up off your couch.

The average market price seems to be around $35 hour, though if you want the best coaching, you’ll have to shell out $50 for a lesson. For the price-conscious Halo3 student, however, there are economy options. Such as hiring this enterprising 13 year old for the bargain rate of $10 an hour. (And for the status-conscious, you can even buy a year’s virtual friendship with a pro for only $35.)

While the websites are not “normal” professional-looking, they are probably well designed for the target market. They come complete with online payment, Halo Resumes, customer testimonials, and even little windows to click on to “Chat with a Customer Service Rep.”

Some of them seem to even be getting an education in supply and demand. Such as when there’s a shortage on a product, slide up the demand curve:

I’ve been doing lessons for Halo 2 and Halo 3 for nearly a year now and have nevered [sic] raised my prices before. However, I’ve gotten to the point where I have a constant backlog of lessons so I’ve decided to raise my prices.

Kids these days. Back in my day, there was no one you could go to for lessons on beating Bowser in Mario Bros. or shooting lessons for Duck Hunt. (Free tip: to improve your accuracy, put your gun so it actually touches the TV screen. Also, don’t shoot the dog.)

They even have helpful tactical jumping lessons. It’s like parkour for people without upper or lower body strength.

And while I recognize these 13 year olds could probably kick my butt at Halo, I do think I could be competitive with them in the Halo3 Services market. No, not as a Halo coach, no one would hire me for that. Instead, I’ll offer, for a small fee, the once in a lifetime opportunity to play Halo with a real live girl.

Judging from the Halo players I run into, the demand is certainly there. And it is most definitely an underserved market.

-Susan

p.s. Hey Michael, want to go into business with me? You can offer lessons in erudite trash talk, you’re the undisputed master of that.

A “Tired” Argument…

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Yuk yuk. Oh god, that one was really bad. Okay, I promise, there will be no more puns in the future.

But I’ve only just come across this article, “Obama can help free trade with tariffs,” and it’s managed to sufficiently irritate me enough that I can’t let it pass by without comment. We know now that Obama did, in fact, agree to the 35% increase in tariffs on Chinese tires. It was a poor decision, and I have my fingers crossed that this was an ugly unicorn of a decision that won’t be seen again.

But Prestowitz’s article is full of WTF.

The orthodox free-trade view of most pundits holds that if Mr Obama accepts the recommendation he will fail the free-trade test. In fact, the truth is just the opposite. Not to accept the tariff recommendation would be a severe blow to open trade and globalisation as well as to America’s future economic health.

The phrase “extraordinary claims call for extraordinary proof” comes to mind, but Prestowitz sure doesn’t deliver it. On why not imposing barriers to trade is not desirable, he writes:

This kind of trade is not win-win. Rather it is a classic zero-sum game. It is well-known to game theorists that in such situations a tit-for-tat response is the optimal strategy.

Horsedroppings. The ‘optimal strategy’ in any given trade situation is going to depend on what sort of strategy the other 190-odd players on the world market are going with. I seriously doubt that there’s any game theorist anywhere that has declared “in a classic zero sum game, always go with tit-for-tat.” (And for that matter, he’s not even come close to actually showing this is a “classic zero sum game” in the first place!)

But even if Prestowitz were right about the above, game theory alone is completely inadequate for making the sort of decision Obama just made. There are going to be serious political and diplomatic repercussions from the imposition of the tire tariff, and the last thing the U.S. wants to be doing right now is to be setting a precedent for the rest of the world that hard economic times justifies the enactment of short sighted and petty trade restrictions.

-Susan

Update: An economist responds to Prestowitz’s argument.

While Lolcats are the future of capitalism, check out Rolcats for proof that even Communism is not immune from the funny cat picture epidimic.

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Failblog is brought up enough in conversation with people roughly my age that I’m pretty sure it’s not too embarrassing for me to publicly admit to reading it. But this still blows my mind: failblog and the associated webpages (hi there, lolcats) are an impressively profitable economic enterprise. How profitable? This post on The Economics of LOLCats has some good detailed information and hard numbers on just how much lolcats is bringing in, but here’s the most impressive statistic:

Now, consider that iCanHasCheezBurger contributes 5% to WordPress.com Unique user traffic, slightly more of its visitor pie. WordPress raised nearly $30,000,000 in financing, so we can losely say LOLCATs are worth 5% of that, or $1,500,000.

And the best part? All of Lolcat and Failblog’s content is produced by the consumers. And they produce it for free. (Somewhere, Marx is rolling in his grave about this flagrant undervaluing of labor…) And further note that these consumers happen to be members of a highly valuable demographic group, and who will quickly snap up any lolcat-related with equal fervor.

Failblog has a clip up giving a tour of the Failblog Headquarters — a spartan wall-less warehouse populated by what looks to be refugees from a Google POW camp — which proves that this isn’t some experimental off-shoot of Time-Warner. It’s just a bunch of kids who sit around all day going, “Hey, you know what people want to see? Funny redneck engineering!” And bam. Another phenomenon is born. All content generated by the internet hivemind.

Technology is amazing. For everyone who thought that the future would bring us flying cars and a cure to cancer, sorry. We got lolcats instead.

To prove that our economy has been taken over by lolcats, note that even Paul Krugman has fallen victim to their tiny kitten chokehold.

-Susan