Wow the Ferguson/gay/long-run train wreck has history!

HT Brad DeLong:

Ferguson claims that Keynes's:

belief in "the ideas contained in The Economic Consequences of the Peace" "owed as much to his homosexuality as to his Germanophilia…" for "there is no question that the attraction Keynes felt for [Carl Melchior] strongly influenced his judgment…"

What is it with Niall Ferguson? And what's this about "Germanophilia"? Throughout the whole book his point is that even though the Allies rightly detested Germany's actions it made no sense to pursue the a Carthaginian Peace. Sure he dedicates ink to the suffering of the German people. I always thought that just meant that Keynes was a deeply empathetic individual. I never got the impression Germanophilia motivated any of it.

This is all related to the "in the long run..." point I made earlier.

Pick up the book and read it people. The argument is that the long run is a poor guide to "current affairs" - that economists set themselves to too easy and too useless a task if all they can do is say that when the storm has passed the sea is calm again.

This is not a particularly revolutionary point, although it's well written in this case. Economists are always more interested in the transitional dynamics than the long run equilibrium.

Somebody needs to mail Niall Ferguson a copy of Economic Possibilities for Our Grandchildren too.

How did this myth of not caring about the long-run ever get started in the first place. Somebody needs to do some sleuthing to determine the first person who bitched and moaned about this. I'm guessing he probably has a "von" in his name and that it first surfaced a long time ago indeed.

Mark Thoma on Keynesianism and the long run

...and other myths about Keynesian economics

If someone tells you that Keynesianism disregards the long run or that Keynesians don't care about the long run you can quite safely severely discount the value of anything else that person tells you about Keynesianism, period.

How did "the long run is not necessarily a guide to the short run" ever become "the long run doesn't matter" in the first place?

Maliciousness?
Ignorance?
Ideology?

My prior is always to first assume the second option, but others may differ.

The problem with betting on theory...

Bryan Caplan is promoting bets on Keynesian theory - encouraging Keynesians to put their money where their mouth is.

He is concerned that the only bets around are about inflation, and that you don't have to be a Keynesian to think inflation will stay low.

True enough but this kind of gets at the heart of the problem, right? If it's hard to get detailed empirical analyses to tease out a distinction between theories, how can you expect a bet on any kind of headline indicator to? There is a lot of other stuff going on out there and in particular a lot of endogeneity.

If you're someone that would bet that when government spending goes up output will go up (this is what Bryan suggests) - without cleaning up the endogeneity bias - then you really don't understand how economics works and shouldn't be betting on it in the first place.

You certainly shouldn't be representing Keynesianism with your bet.

Bets are great for getting people to be more serious about the claims they make, but I think the proponents of betting vastly overestimate how useful it is.

Terminator Baby

Does it make me a bad father that when this sonogram came up at the doctor's this morning my first thought was "Oh my God - my daughter is a Terminator!". No, I think it means that I am prepared for the robot apocalypse, which may ultimately make me a better father...

...that's what I tell myself.

It's a girl!!!

In the initial sonogram I saw an umbilical cord in between her legs. Aha! I thought. I know what that is! It's a boy!

 

No, it wasn't "that" apparently :)

 

In retrospect I should have known that would have been too impressive (even for a boy of mine!).

 

I'm very excited to meet my daughter... several more months though.

 

I feel overwhelmed by the beauty and joy of life right now. I just got back from my cousin's wedding - married to a wonderful young woman. I feel like I know my baby ten times better now with these new pictures, that I know it's a girl, and the fact that she's getting so big. Even the studying I am mired in until tomorrow night is all about what we know about how human communities flourish and progress over time. All in all I feel very uplifted right now.

 

 

Do I fundamentally misunderstand how empirical economics works?

Because some reactions to the Oregon study and the jobs report make me think I might...

Dinosaur altruism

Assault of Thoughts - 5/2/02013

"Words ought to be a little wild, for they are the assault of thoughts on the unthinking" - JMK

- Dave Churvis has great thoughts on our space exploration discussion yesterday. He distinguishes between present value, future value, and what he calls "future value to future humans" (FVFH) in discussing the issue of temporal autarky that I've previously discussed here. I like FVFH because it acknowledges the point that we are talking about something different from PV when we talk about these issues. That's a big problem if your evaluation methods are grounded in thinking about PV. But even if we get to the point of saying that we need to sometimes think about FVFH in evaluating policy there's still the problem of compensation (this is what always frustrates Bob Murphy). Even if we recognize that a far future (aka - outside the horizon of significance for any reasonable PV calculations) with 1,000 billion flourishing humans is better than a far future with 100 billion miserable humans, we can never be compensated by those future humans for investments that we make in pursuit of the former. The solution has to be fundamentally altruistic (unless someone has come up with a different understanding - that's all I can come up with). We simply have to care that the human species makes something of itself which is going to require reorienting people from their relatively provincial mindsets into something broader and more cosmopolitan.

- Great thoughts on interpreting statistical evidence. I think the robustness point is especially important - and one that has been emphasized more in grad school for me than in undergrad (perhaps understandably).

- Changes in routine occupations in the recession - from the Urban Institute.

- Dorion Sagan advocates a democratic science and an approachable philosophy. I agree. The problem, of course, is the benefits of the division of labor. I don't think Sagan would disagree that there are benefits to the division of labor - this is just an account of the attendant costs.

- xkcd reminds us that the labor market and social lives of scientists are important.

- The Washington Post is collecting furlough experience stories. Think of submitting something if you're going through this right now. The DOD has been pretty good at maneuvering through this, minimizing the furlough, and putting it off as long as possible (thanks in part to provisions in the continuing resolution). Ideally Kate's furlough could even coincide with when she'd be taking off time for the baby anyway, but we'll see.

Ever hear someone pontificate that the fact that a private citizen found Tsarnaev in a boat after the lockdown was lifted demonstrates how pointless the lockdown was?

Ya, it's a dumb argument. I'm not sure I made this point at the time because the whole end of semester paper frenzy was underway but I was recently reminded of it.

First, let me note what I've said before that locking down the whole city was overkill and pretty stupid IMO, so lets stick to Watertown and the environs.

First and foremost, for the more strenuous argument that I saw in some places that this showed how worthless government was, I'll just point out that the owner of the house didn't exactly seem interested in going in the boat without knowing what Tsarnaev had in there and grabbing him. The police did that.

But the less strenuous point that the lockdown was the problem seems absurd too. If there was no lockdown of Watertown do you think Tsarnaev would have run to a local boat and just hid there? Of course not. He might have been heading on to NYC (or for that matter Boston) by the evening. He might have just gotten away, but he also could have set off more explosives. There seems to be general agreement except for among the usual suspects that there was nothing unconstitutional about the lockdown (even if its breadth was ill-advised). They're wrong when they say it was ineffective too.

Counterfactuals, people.

You should always be thinking in terms of counterfactuals. And if you don't like my counterfactual, fine - that's something worthy of argument. But don't point to an observation and think you've performed an impact analysis.

Ryan Murphy on Space Exploration

Ryan Murphy takes issue with my point the other day that when I think of the value of science and technological progress I am thinking of human communities on Mars a couple hundred years from now as much as I am thinking about the next Apple product. He says that space exploration is probably a white elephant.

Spinoffs

A lot of his post is taken up with discussing inadvertent tech contributions by government. NASA likes to call these "spin-offs" and makes a big deal of them. I tend to agree with Ryan that NASA spin-offs aren't a huge contribution to human welfare, if for no other reason than that they're made for environments completely different from this planet. That's why we have such great military spin-offs - because the military is operating here on Earth and has a fairly strong interest in developing technology to keep Americans alive and comfortable here on Earth! A lot of NASA's efforts have been focused on keeping Americans alive in a vacuum or keeping them from burning up in the atmosphere. Most of us don't spend much time in vacuums or blasting through the Earth's atmosphere so while there are some interesting NASA spin-offs, none have really revolutionized our lives in the same way that some other government agencies have.

This is not a new perspective for me. I've complained about how NASA's PR people put way too much emphasis on the spin-offs before (here and here and probably elsewhere too). From an economist's perspective it completely misses the point (you have to keep reading a little longer to get to "the point" - I'm going to address a few more thoughts from Ryan first).

Opportunity cost

I'll agree with Ryan and maintain that we all understand and can skip over opportunity cost. Nobody thinks we should shutter the courts or take bread from the poor to go to Mars.

Diminishing marginal returns

He mentions diminishing marginal returns in an odd way, I think. Ryan writes:

"Then there is also the issue of diminishing marginal returns, which is just another way of saying that, unless space exploration is “weird” and we need to dump a TON of money into it (in absolute terms, not as a percentage of the economy), we will get fewer returns for the consumer per dollar spent the more we spend on it."

So - to put it simply - no. There's no particular reason to think that even standard, ho-hum production functions are globally concave. In fact there are quite good reasons to think that at certain points they aren't concave. But even more importantly, we invoke diminishing returns as economists because we're normally thinking of profit maximizing producers. If a profit maximizing producer hits an increasing returns point of the production function she's going to keep producing until it's not increasing returns anymore. So unless you're interested in optimal firm size and monopolies, you're going to be talking about diminishing returns because that's the relevant zone of the production function if we're dealing with profit maximizers.

Does anyone think NASA or Congress are profit maximizers?

Anyone?

There are two other issues around diminishing returns that I'd raise before moving on. First, we have to think about what production function NASA is currently operating on (I refuse to say "optimizing"). One of the big frustrations with NASA is that it isn't even trying to explore and settle space. So doubling NASA's budget when it's doing what it's currently doing may not double our space exploration because that's not even what NASA is producing right now. It's what it could produce, of course. We need to keep that in mind when we try to think through the state of marginal returns facing NASA. Another way to think about this is to consider what we'd expect if SpaceX had a budget maybe 1.5 times NASA's. Does anyone doubt that we would have human beings walking on the moon, Mars, and an asteroid in a decade or so? NASA looks like it has diminishing marginal returns to human exploration because NASA isn't doing much in the way of human exploration (it's doing a lot of great stuff with robots - there missions are consistently exceeding expectations). The final point I'd make on diminishing marginal returns is just that it's an odd thing to invoke when we're talking about technological development. Spillovers and the nature of information as an economic good usually lead us to think that there may be increasing returns in these types of endeavors. These sorts of models apply to not-particularly-high-tech production too, but it's especially true of the research sector (see: Paul Romer).

Psychic benefits

Here again I may agree with Ryan, but maybe not. It kind of depends on what we're talking about. If we're talking about planting a flag I tend to agree with him. But if we're talking about making humans an interplanetary species and actively working to make them an interstellar species I think it could genuinely revolutionize the way the human race sees itself. I'm not sure current surveyed psychic benefits are the best way to measure this. How many people dismissed the next information-age product as it was coming out that are now considered essential to our lives? I remember my dad used to trivialize cell phones when they first came out. They were superfluous! People wouldn't pay attention to each other anymore! They were unnecessary - we've already got a land line! I don't want people to bother me twenty four hours a day! Needless to say, he underestimated the value of the technology. I'm not convinced that people who have never experienced a new experience are the best at evaluating the psychic benefit of that experience.

What is the psychic benefit of the European exploration and settlement of North America? What is the psychic benefit of living in America today with institutions that forward-looking liberals set up? Even given all the illiberalism and tragedy that came with the settlement of North America - and those were substantial - we seem to get a lot of psychic benefit from it, and indeed the rest of the world seems to like the fact that the United States and other liberal democracies like Canada and Australia ended up getting founded. Now imagine a bunch of liberals who have moved past slavery and genocide settling a whole planet where there are no natives to abuse in the first place. Isn't it reasonable to assume that the psychic benefits would far exceed those of the exploration and settlement of North America.

I find Ryan's statement that the psychic benefits accrue to the well educated strange and unconvincing. Why am I seeing so much of this lately? It's like "that only helps the rich and educated" is tacked on to every single policy idea libertarians don't like lately, whether it makes a lick of sense or not.

"The Point"

OK, I've kind of alluded to the point along the way, plus I don't think it was particularly unclear in my original post. 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.

Demand for science

The end of Ryan's post is weird too. He writes:

"Reallocating a ton of money into prizes, even though that would ruffle the feathers of entrenched interests, rather than “increasing demand” for science, would make sense first."

Maybe I'm missing something, but isn't offering prizes to produce science the same thing as increasing the demand for science? Of course prizes are an important, proven vehicle for generating science. That hardly invalidates my point - in fact it supports my point! There are two points I'd make on prizes. First, they're best for generating activity on something we don't know how to do well. In that sense they're great for space exploration, but they're not necessarily the best for all scientific work. Still, it's an important strategy. If you're curious about why economists like prizes see Wright (1983) and Nalebuff and Stiglitz (1983). The second point I'd make is that the culture of science itself is kind of like a big prize fund. This point has been made before by Richard Freeman and Paula Stephan (can't put my finger on the link right now). When you do science you produce a lot of output for low returns and recognition in hopes of one day being perceived as someone who revolutionized the field. You're not producing widgets where you know what kind of output trajectory to expect. You're exploring the world around you in the hope of discovering something big. Everything that contributes to the narrow availability of recognition contributes to this behavior. The result is that a lot of research gets produced in pursuit of a relatively small prize down the line. This is just to say that I agree with Ryan that prize dynamics are a very important way in which we increase demand for science and they could be more fruitfully applied to space exploration than they currently are.