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This is how you discourage entry into a field

Niall Ferguson is an asshole. There, I said it. He’s a tenured professor at Harvard (of history, not economics, not that that prevents him from opening his stupid gawp about economics) and clearly worthy of respect, and I’m calling him an asshole.

I’m doing so because he deserves it. He’s said plenty of stupid things in the past, but his recent remarks about Keynes were not just stupid and uninformed (as he himself has pointed out), but also rather bigoted.

Speaking at the Tenth Annual Altegris Conference in Carlsbad, Calif., in front of a group of more than 500 financial advisors and investors, Ferguson responded to a question about Keynes’ famous philosophy of self-interest versus the economic philosophy of Edmund Burke, who believed there was a social contract among the living, as well as the dead. Ferguson asked the audience how many children Keynes had. He explained that Keynes had none because he was a homosexual and was married to a ballerina, with whom he likely talked of “poetry” rather than procreated. The audience went quiet at the remark. Some attendees later said they found the remarks offensive.

That’s not the part that’s upsetting to me, though, because Niall Ferguson is an asshole, and most of us already knew that. The upsetting part is how few people are even mentioning what a bigoted statement Mr. Ferguson made, and instead treating it as if it were a serious intellectual argument. People all over the world of economics, even when saying Mr. Ferguson was wrong, don’t seem to realize (or care) how incredibly offensive his remarks truly were.

I am a gay man. I am childfree. I am polyamorous. My legacy is mostly going to be my ideas, and any savings I manage to accumulate over my lifetime will not pass to the children I don’t have, but rather to various nonprofit foundations or schools or the like when I die.

Does this make me incapable of thinking about the long run? Of course not. Does this mean that I am predisposed to think only of the here and now? No. Does my relatively hedonistic lifestyle mean that I’m a carefree libertine, living only for today without a thought for tomorrow, incapable of designing policies for the long run? Not in the slightest.

And that’s because I’m a fucking economist. I’m an economist who thinks about the short run, the long run, and everything between. I’m a member of the Long Now Foundation who thinks that space exploration is a great idea for the future of mankind, despite its lack of direct benefit to humans right now. One of the fields I plan to specialize in is economic development, and you really can’t get much more long-run than that. It doesn’t matter that I’m white, overweight, gay, atheist, polyamorous, or, yes, even childfree.

So we can talk about how sodomy and usury were seen as sinful because of Aristotle, or about how Keynes’s quote was taken out of context, or about how maybe Mr. Ferguson wasn’t entirely wrong (and seriously? Fuck that guy). But the point everyone is missing here is that Mr. Ferguson has impugned the abilities of every bright, motivated gay kid who might want to go into economics. And this is not the first time someone has made this argument, and nobody seems to be stepping up and saying “that argument is bullshit - being gay doesn’t make someone a totally shortsighted hedonist, and saying so is offensive“.

That failure to call him out is going to discourage entry of gay students into the field. It’s going to keep economics a club mostly for straight white males, and as a result the field will rot and die as it loses relevance to anyone else. How’s that for considering long-run outcomes?

So allow me to say it. What Mr. Ferguson said is offensive, it is bigoted, and it needs to be seen for what it is. It is like saying that women can’t make good short-run models because all they know how to do is cook and clean and care for children, or saying that black people can’t make good financial economists because they aren’t as good at saving as white people. It is that offensive and devoid of merit. Excusing it or analyzing it or trying to extract a kernel of truth from it does nothing but minimize what truly is a bigoted statement.

Mr. Ferguson has apologized. Here’s my favorite part:

If I really were a “gay-basher”, as some headline writers so crassly suggested, why would I have asked Andrew Sullivan, of all people, to be the godfather of one of my sons, or to give one of the readings at my wedding?

Wow, Mr. Ferguson. Some of my best friends are black, too. Fuck. You.

fuckyou

Space Exploration and (Future) You!

Things have value. We can talk about this value in monetary terms, but for better or for worse, everything has a value – how much someone is willing to pay for something. In the world of economics and finance, we often extend this idea into present value (PV) – how much something is worth to us right now – and future value (FV) – how much something will be worth to us in the future. However, the concept of future value as it’s normally conceived is actually rather short-sighted in my opinion. I recently happened upon an argument that I think can serve to illustrate this quite well.

Some background

About a week ago, Daniel Kuehn made this remark almost as an aside in a post about scientific research:

I take a long-term perspective on growth too. I’m not just thinking of the next Apple… I like to think about the next planet we settle too.

It’s a fair point – essentially, Daniel’s saying that he’s not just looking at specific technological innovations that will help people right now – he’s also looking down the road at a more amorphous set of potential innovations that will help people in the future.

Ryan Murphy replied with a rather in-depth response to Daniel’s statement by pointing out that the perceived benefits of space exploration far outstrip their actual usefulness:

Ultimately, I believe that space exploration is just the most preeminent example of a white elephant in developed countries. It is a project chosen because it is big and flashy, not because it will pass a cost-benefit test under a reasonable parameterization.

I would highly encourage anyone who reads this to read Ryan Murphy’s entire response. He goes into a lot of depth, and his argument is well put together, although I think he’s ultimately wrong.

Daniel replied to Ryan’s response by mostly agreeing with him (as do I) but then pointing out the major fallacy in Ryan’s logic:

The point is that in one hundred years humans are living on Mars and the moon and we are thinking about how to get to the stars. As an added bonus, the human species is more robust to catastrophes on Earth. It will be an inflection point in the history of the human species that will be remembered for millennia. The industrial revolution will be considered a minor antecedent to the point when we “slipped the surly bonds of Earth”. When I think of what science can do, more gadgets that we enjoy today are always nice, but I think of the millennia of humans to come and how they will live as well. Think of what a big difference it makes that you’re alive in 2013 rather than 1913 or (God forbid) 1813. The idea of living in 1013 is unthinkable. The point isn’t an Apple product, although that’s obviously great (I’m told – I have no Apple products – my wife has one). The point is a new level of human existence and mastery of its surroundings. This, of course, is not necessarily going to motivate a welfare maximizing individual on Earth today, even with relatively low discount rates. That, of course, is part of the problem. Human flourishing is both a product of optimizing behavior and a hostage to optimizing behavior.

The long now

Daniel’s absolutely right here. He’s talked in the past about a concept called “temporal autarky“, and I think his analysis is spot on. (And really, I could not love that term any more if I tried. I will be using it to talk about this concept from now on.) We can’t interact with people from the future, so we’re certainly not going to be concerned with trading with them or improving their welfare. For all intents and purposes, we as primarily selfish economic agents are concerned only with things that will affect us within our lifetimes. We spend money now to purchase things for ourselves now. We invest money now so we’ll have more money in the future. Occasionally we invest in education or other things that don’t directly give us benefit, but we’re still concerned with our legacies and how it will affect us and others’ memories of us. We are optimizing our behavior for us and possibly for our direct descendants.

I am a member of an organization called the Long Now Foundation. I mention this only to explain a little bit of my perspective here. The Long Now Foundation is based around the idea that our human perspective is quite limited, and that we should be at least partially focused on the far-off future, not just what we normally think of as the future. As an example, one of our quirks is that we number years beginning with 0 (so for example, we are currently in the year 02013, not 2013) – we do this so that we get in the habit of thinking of the implications of the Year 10,000 switchover.

Yes, I know it’s silly. But I have a point here. It’s actually tied up with the name of my blog: Extraordinary Insignificance. I am one of the more than 7 billion humans on earth. I am one of the more than 100 billion humans who have ever lived. I am one of the unfathomably large number of humans who ever will live. Essentially, I am utterly insignificant in the grand scheme of the universe.

Except that I’m not insignificant. I have significance to my loved ones. I have significance to my employers. I will have significance one day to the people I hope to one day teach. I will have significance to the academic community… and so will my ideas. In fact, my ideas, if they are of any value, will hopefully have significance long after I’m dead to people who are not yet born. Let’s expand it further into the realm of the improbable and say that my ideas touch off some new area of research of which I can’t even conceive right now.

Clearly, the value of my ideas to me would be less than the value of my ideas to people in the future. But take a look again at the normal language of present value and future value. The entire framework that we use for investing and depreciation works only over the lives of those making the assessment. In this situation, the PV of my ideas and FV of my ideas are absolutely dwarfed by future value to future humans (FVFH) of my ideas.

The FVFH of space exploration

The PV of space exploration is rather low. We got some cool stuff out of the Space Race, and ongoing research is giving us a steady trickle of things that make our lives better. I agree with Daniel and Ryan that this trickle is not worth its cost. The FV of space exploration is also rather low. We might be able to get some better satellite orientations and find out how we can more effectively live and work in zero-G situations within our lifetimes. Daniel and Ryan both talk about the psychic benefits of space exploration: Daniel is somewhat positive toward them, Ryan is downright dismissive of them. I probably side with Ryan more on this – the psychic benefit of space exploration was probably a lot higher during the 80′s when most people still cared about this stuff. These days, probably not so much.

But the FVFH of space exploration… I don’t want to gush, but just think about it for a second! If there were a colony on Mars, and we had found some way to terraform it and set up a stable, liberal government free from all of earth’s baggage? Come on. The FVFH of that scenario is astronomical (pun intended). Daniel brings up the point that humanity is better protected from disasters in that scenario. All that’s going through my mind is the trade and innovation that would spur. And think about it – if there’s a mechanism to have a permanent colony on another planet, what’s to stop future humans from building a colony ship and going even further out? Again, the trade and innovation possibilities alone are astounding in this situation.

The problem, of course, is that none of that future value accumulates to any of the people making investment decisions now. And just like in so many other problems with disconnected incentives, there is a conflict between the people making a decision and some of the people that decision affects. And in this case, the people who are adversely affected by the decision can’t even give their input or register their discontent, since most of them won’t be born for a very long time.

A few initial thoughts on “Starve The Children”

Educational disparities are among the most insidious problems we face as a society. Children of wealthy parents get a better educational experience than children of less wealthy parents, which helps to perpetuate class disparities over time. Anything that makes life harder for a poor child is something that is really upsetting to me on a very emotional level.

So along comes this guy…

The bill is sponsored by Sen. Stacey Campfield, R-Knoxville, and Rep. Vance Dennis, R-Savannah. It calls for a 30 percent reduction in Temporary Assistance for Needy Families benefits to parents whose children are not making satisfactory progress in school.

I can’t even begin to describe how misguided this is. Aside from the typical issues wherein a relatively privileged person in power is making life difficult for people whose lives he has no concept of, this idea would drive a wedge between children and their parents, as demonstrated by another state senator during the debate that ultimately tabled the bill:

Senator Todd Gardenhire (R-Chattanooga) concurred, somewhat earthily. “I agree with Senator Finney . You can’t legislate parent responsibility. I don’t care what you do.” He foresaw “unintended consequences” for the student. “The parent will beat the dog doo out of him for taking that $20 away from them, that’s what’s going to happen.”

He’s absolutely correct. But then I started thinking… there has to be a way to model this. I’ll do a narrative description of a model in this post. In my next post (coming eventually) I’ll do a formal model with charts and equations and everything. But for now, here’s what I’m thinking.

Let’s say there’s a family. This family receives a certain benefit B. This family receives no additional income. If their child underperforms in school, the benefit will be cut by 10%. The reduced benefit is .9B, which we will call RB.

Let’s assume that their child is currently underperforming, and that they are at risk of a reduced benefit. There is way that the family could make a lifestyle change to improve their child’s progress, but this requires expending a certain amount of work W. Their current benefit gives them utility U(B) and their reduced benefit gives them utility U(RB). However, performing the work to change their lifestyle around will cost them W units of utility. This would imply that the only time that it is worth the family’s effort to make a change is when W is less than U(B)-U(RB). Essentially, for this policy to work, they would have to lose more in terms of their comfort from the benefit cuts than they would from doing the work to change.

This implies that the only time a policy like this could have any hope of working is when the benefit cut is so large that it justifies the work needed to make the change. However, one of the aspects of this particular story is that TANF benefits in Tennessee are already extremely small, and the benefit cut would in most cases apparently be somewhere around $20 a month. That kind of a cut would not really induce most parents to upend the way they’ve been doing things. Even cutting the entire benefit in this case would probably not make that much of a difference given how small the benefit is.

Then there are also the “unintended consequences” Mr. Gardenhire alluded to. It is very hard to make real change to a lifestyle that is not conducive to learning. It is not very hard to lash out violently at a child.

I think this would make an interesting model to develop further.

OMG I solved gun control!

Man, I had this idea when I started this blog that I’d be updating all the time and writing about interesting stuff… but life gets in the way a lot. I promise I have ideas! I just also have ADD, and a full-time job, and lots of school, and, and, and…

Anyway, the topic of this post. I had an idea for a research project that I am not able to complete right now. (I know this because I tried describing it to my undergrad research advisor and she basically said it was impossible.) I’ll probably try to implement some version of it in grad school, but I figured I’d go ahead and get it out there.

There is a well-known correlation between the strength of gun control laws in a given area, gun deaths, and crime rates. Specifically, better gun control is correlated with lower levels of gun deaths and higher crime rates. A recent study actually went as far as to calculate a numerical scale for the strengths of gun control laws in certain areas.

The problem is that this correlation is very well known, but interpreting its results depends on the priorities of the person judging the study. But what if we could find an answer in terms of total social welfare of the results of changing gun control laws?

Part 1: The Base Regression

This part is by far the easiest part of the study. We regress the numerical gun control strength variable (hereafter referred to as gcs) against the following:

  • gun deaths per year (gdy)
  • violent crimes per year (vcy)
  • property crimes per year (pcy)

Note that a crime will either be classified as violent or property – if it is both, for example an armed robbery, it is violent, not property. The reason for this should become clear later.

By running this regression, we can see numerically how modifying gcs will affect gdy, vcy, and pcy. We will assume a causal relationship for this particular study for sake of simplicity.

Part 2: Utility analysis

We now shift gears completely to some utility and preference analysis. This is the part of the study I have the least idea how to design, but essentially I want to examine the utility people get from four “goods”:

  • Personal safety (good: pers, utility: u_pers)
  • Freedom from violence (good: fv, utility: u_fv)
  • Safety of one’s property (good: prps, utility: u_prps)
  • Access to guns (good: ga, utility: u_ga)

We would analyze these utility values independently of one another as well as in relation to one another; basically, by the time Part 2 is complete, we should be able to optimize the values of u_pers, u_fv, u_prps, and u_ga given a limited amount of utility and link those back to relative amounts of the good variables.

Part 3: Connecting the dots

We now need to find a model that links the situational variables (gcs, gdy, vcy, and pcy) to the levels of the “goods” analyzed in Part 2. Essentially what we do is for each variable, we subtract the statistic from the maximum possible value for the statistic, then divide by the population size to give us the amount of good “per person”. Example:

(pop - vcy)/pop = fv

Or something along those lines. We might consider using z-scores rather than a simple percentage affected calculation like this, but the point is that there is some way to link the statistics to the virtual “good” variables.

Part 4: Linking cause and effect

We are now able to set up a model linking all of the variables we have established. gcs is the main exogenous variable; we can modify this single variable and it will give us new values for every other variable in the model, with our main target being the various utility variables. We can now optimize for the value of gcs that gives us the highest total value of all of the utility values.

Conclusion

This would be a rather massive undertaking, but I think it can be done. I really think I’m going to revisit this idea in grad school. The major reason for doing this is that we are now not looking at the debate just in terms of the effect of gun control on crime. Instead, we’re looking at gun control in terms of its effect on welfare. If people place a much higher value on personal safety than on freedom from violence, for example, that could really be a major breakthrough in the dialogue.

Why I’m angry tonight

So in my senior-level (that’s *senior*-level) Economic Development class, we are discussing the Solow model of development. I missed the last class due to illness, but did my reading. This class began with an approximately 30-minute recap of the previous 2-hour class’s information, which I suppose is pretty useful. I certainly enjoyed having it explained, but it shouldn’t have been necessary. Of course, none of the rest of the class was forthcoming with answers to his prompts, so maybe it was necessary.

The next hour of the 2-hour class was a discussion of some effects of the Solow model, specifically how to find what’s called the Golden Rule Steady-State level of output and savings rate. Now, it’s a little bit complicated, but it is basically a three-step problem where you take the derivative of one curve and find the point where it’s equal to the slope of a particular line.

Well, it’s three steps when you understand how to take a derivative. However, when you *don’t* understand derivatives, the teacher must fall back on simpler techniques involving brute-force calculations that do more to confuse than educate. After spending 20 minutes describing this process, I asked if it was possible to just take the derivative. The professor asked the class “how many of you have taken calculus?” Three hands went up. THREE.

He then spent half an hour trying to figure out why one of his spreadsheets wasn’t working, even though he was actually just looking at the wrong thing. I’ll chalk it up to him being tired, not addle-brained, because I’m nice.

Here’s the thing. This is a senior-level class. Calculus is not a prerequisite for the class, but to graduate with any economics degree in my school, you have to at least have taken a survey of calculus course. And why isn’t calculus a prerequisite? Probably because calculus is *hard*, and if calculus is *hard* that means fewer people will take classes that require it as a prerequisite, because those classes are *hard*.

I doubt anyone fails this class, and I bet most people get at least a B. Our educational system is failing all of us. Students should not be taking classes for degree credit when they don’t understand the underpinnings. This is as true of courses in Bavarian poetry crafting as it is of courses in economics.