Tuesday, May 25, 2010

Unintended Consequences #5

I've followed the following story in several places, but I'm writing with the Wall Street Journal editorial "The Madness of Cotton" in front of me.

Students in both the Compassion and Sustainability classes have heard an earful from us about U.S. agricultural subsidies. They depress prices for farmers in developing countries, are transfers largely to wealthy Americans, and have a variety of unintended, bad environmental consequences from overproduction. Did you know that so much cotton has been grown in the Arizona desert that we used to say that Arizona's economy was dependent on the 5 C's: Copper, Citrus, Climate, Cattle, and ....Cotton? [WSJ figures regarding the total U.S. subsidy amount: $2.3 billion in 2009, with the top 10% receiving 70% of the benefits]. Of course, Congress repeatedly re-authorizes the program.

Recently, Brazil successfully protested to the WTO about our cotton subsidies, and the WTO found in favor of Brazil. The allowed Brazil to propose a list of retaliatory tariffs against the U.S.. According to the WSJ, the hits to American manufacturing would have included cars, medical equipment (way to go Brazil---make health care more expensive for your own people), pharmaceuticals, electronics, textiles, wheat, software, and intellectual property. It seems as thought the sensible thing to do would be for Congress to say, "That's a shame, I guess we'll just have to lower those cotton subsidies." Instead, the Obama administration has proposed that the United States government pay $147.3 million dollars to Brazilian cotton farmers in return for the Brazilians waiving their right to retaliate against American manufacturers.

$147.3 million paid by our government to Brazilian farmers to divert the damage done by our own cotton subsidies to our medical device and software industries....just another day in the life of Unitended Consequences.

Monday, May 24, 2010

Trash to Treasure

This video (don't mind the commercial in the beginning) shows a phenomenal example of the kind of innovation from Cheetahs that George Ayittey talks about. The entrepreneur takes an abundant material (plastic bags) at low cost and produces something that benefits others (fence posts and homes). When this happens wealth is created. Also, since this is an economic change that emerged from within the country (not from an aid agency) it's more likely to have some staying power. The video was found on the Social Enterprising Blog which is linked on our blog roll on the bottom right.

Like, Totally

This continues a deliberation that I posted after the APEE conference in April: how do we reconcile (if that is even the correct word) our callings as Christians and as economists? The current context for that is Doug’s “Theory of Moral Sentiments” readings group, which as he has discussed below, is working through the Paul Zak volume on “Moral Markets.” Given that the discussion at the group is specifically about morality and about markets, am I able to have constructive discussions with other economists who may or may not be Christians? My definitive answer is YES, KIND-OF, and NO.

YES: I don’t know of anyplace in the Bible in which it would be suggested that Christian researchers can not engage in the world of scholarly debate; Christian meteorologists or mathematicians or creative writers or economists all can have a professional calling that leads them to interact with Buddhists or agnostics or Druids. In fact, I believe that the alternative, floating around in a Christian bubble, is more problematic from a Biblical point of view---to me, that comes close to hiding the light of Christ under a bushel.

KIND-OF: However, on this particular topic, morality and markets, things are more complicated because my view of morality ---as opposed to my view of the optimal econometric technique to be used with censored data --- is directly informed by my religious beliefs. During most of the discussion, I can argue from a point of view that is informed by religion without making the discussion about religion. For example, I don’t believe that morality can de derived simply from logical deductive reasoning. There are many other people who come to the same conclusion but from an entirely different route.

On the other hand, there are times in these discussions that I hear some comments and think “That is just wrong” where my religious beliefs are a major reason that I have that opinion.

NO: The most important regard in which I cannot isolate my discussions about economics and morality from my personal faith is that I believe that I am human being and therefore subject to sin. This is sometimes called original sin or in the much more colorful Calvinist language the Total Depravity of Mankind (although I’m not sure Calvin ever used those words). A lot of people don’t like to use that language because it’s often misunderstood, but I think that properly understood it’s an important idea.

Total depravity does not mean that humans are incapable of acts of great kindness or love. It does not mean that every single action that we commit is sinful. Our sinfulness is “total” in that it affects all aspects of our life. Specifically, in Reformed Christianity it would be inappropriate to say “I sin as a glutton and I am covetous driver, but I never sin in my role as a father.” Total depravity means that there is no part of our life that we can wall off and say “I never sin here.” More to the point of the Moral Sentiments readings group, my reading of Calvin was that he was arguing against a contemporary notion that a human’s true self could be subdivided between the rational and the sensual, with sin residing only in the sensual self. Most specifically, this means that any human effort to develop and live a code of morality is itself corrupted by sin, even if that effort is guided purely by rational thinking. (Recall that the first rebellion in the Garden of Eden was eating the fruit of the tree of the knowledge of goodness and evil). Another wording, if you don’t like “Total Depravity,” is that we are unable to act in full conformity with God’s moral commandments our own …we require the assistance of the Holy Spirit. [If you are wondering if all Christians at all times have accepted this idea, the answer is “No.” Pelagius took the opposite view in his debates with Augustine.]

How many times have you sinned because you began with the idea “I’m going to go out and lie cheat and steal”? Sometimes people do sin when they give into to temptations that they “know” are wrong. But haven’t you also had the experience of sinning even when you sincerely argued to yourself “Logically, I’m the one in the right on this” ?

The implications of this “Inability” is that Christians must understand that not only even when we are discussing morality but especially when we are discussing morality that we are not God and therefore our opinions, statements, and discussions are susceptible to the sins of pride, jealousy, and so forth, just as anything else we do in our life, and thus ought to be a matter of prayer for guidance and wisdom.

Sunday, May 23, 2010

Assorted Links

Here are some items that may be of interest to our readers:

This is a flow chart about a subject that has received significant attention in development news. What do you do with your stuff? Here is a flow chart from Peace Dividend that provides some wisdom about the tradeoffs of sending your stuff to a developing country. Could you sell the stuff for money that could be better used in developing countries? What are the transport costs of sending your stuff to this country? Could that money be better spent?

Trawling through the Freakonomics Blog I came across this interesting guest post by David Zetland, a post-doc at Berkley writing about the subtle nuances you might not notice in a discussion about getting "clean water" to the poor. This is an interesting account of how bureaucracies want to measure the wrong thing because at least it looks like they're doing something.

Chris Blattman explains that rebels where those pastel colored croc shoes to distinguish themselves from non-rebels. How knew crocs were the preferred footwear of rebels?

Lynn Kiesling dispels a false presentation of statistics . . . not that the statistics themselves were false, rather, what they were used to imply about how poor the U.S. record of energy consumption is relative to other more "sustainable" countries like Denmark. Always be wary of statistics and how they are presented, they can hypnotize the passive mind. She also offers some thoughts on the oil spill situation and the call for regulation.

The Empire (of Economics) Strikes Back

Yesterday I probably spent too much time doing two things: 1) playing PacMan [the other 30th Anniversary] and 2) re-reading about St. Augustine's wrestling with the doctrines of free will and election. I had kind of hoped never to jump into the free will/election tar pit on the blog, but it's Pentecost... a day for boldly following the Spirit.

It is without a doubt daunting to try to follow Augustine's evolution on these topics. But, what was clear to Augustine was that if you threw either free will or election under the bus you were also denying large parts of scripture, both the Old and the New Testament. Augustine's writings started with an emphasis on free will (and trust me, this is not from scholarly original research on my part but rather is my attempt to summarize what I have read over the years) because he was reacting to a heresy and he believed it important to argue that God was not the author of Sin: Adam and Eve were the authors of the human fall. Apparently after periods of intense study of Paul and the Old Testament, he more publicly emphasized the biblical passages supporting predestination and election. And, of course, later in life, he famously opposed Pelagius' total emphasis on free will and his (Pelagius') rejection of the idea of original sin.*

Across all of the sources I've read, the resulting summary of the Augustinian position is usually stated something like the following: "Humans have free wills, but the natural consequence of original sin is that we will inevitably (but not always) choose to sin." Or, as I have seen it described elsewhere, we are free to be slaves of sin. Or, as R.C. Sproul says in Willing to Believe,
"For Augustine, the sinner is both free and in bondage at the same time, but not in the same sense. He is free to act according to his desires, but his desires are only evil....He is a slave to his own corrupted passions, a slave to his own corrupted will." Is that clear enough? Bueller? Bueller?

Economists are often accused as being intellectual imperialists with regards to the other social sciences. Let me continue in that tradition with the following very immodest statement: if Augustine (or, for that matter, Aquinas, Luther, Calvin, Arminius or Wesley) had been trained in economics, this might not all seem so complicated.

Economics separates the act of choosing from a) preferences, and b) the constraint set. In this light, the debate about free will is a red herring. As Augustine realized, but we find difficult to accept: the Bible emphasizes both free will and predestination because, contrary to what we so often hear, there is no conflict between free will and predestination. Of course people have free will. God made us that way, and the exercise thereof is what got Adam and Eve into so much trouble. (Cue the Wesleyan hymns.) The real story about election is not about our free will but rather about our preferences. The "election" thread of scripture is all about the fact that human preferences will naturally lead us to choose to sin, and that it is only through the calling of the Holy Spirit that our preferences are changed, not the presence or absence of our free will. (Cue the Calvinist hymns).

Two final thoughts. 1 ) I may have lost my membership in the Calvinist Economists' Society for the discussion above; and 2 ) Economists run like crazy from any questions about how our preferences are changed (in fact Becker and Stigler argue forcefully that they don't). The discussion above more or less kicks that whole can of worms (what does it mean for our preferences to change) down the road for a later post. In the meantime, read Romans 7:15-25 for the potholes that lie ahead for the economics empire.

* A great expression of the Pelagian idea of sin and redemption can be found in the book A Clockwork Orange by Anthony Burgess (provided that you read the original, full length, British edition and not the American edition---- or the Kubrick movie).

Thursday, May 20, 2010

Consumed by Comfort?

In the Economics of Compassion class, Doug has asked students to prepare a consumption bundle for a single Mom working at a minimum wage job (but taking account of all of the appropriate government transfer programs). In the Sustainability class, we ask the question "Are We Consuming Too Much" from the point of view of an academic paper by Kenneth Arrow, et al. "Lifestyle" sustainability was a popular topic with the students. And at the Southern Economic Association Meetings this Fall Doug and I will be on a panel with, among others, Prof. Craig Blomberg of Denver Seminary, who studies issues of materialism.

These questions came to mind this morning from an unexpected place: one of my routine e-mails from automobile rating agencies and services (MyRide). In today's article, the reviewer drove for a week one of the least expensive cars available in the United States: the base-level Nissan Versa. Some of the discussions I expected: the car has a small engine, no radio, a small trunk, and the reviewer, Thom Blackett, wasn't even able to get a test car without air conditioning, so he ignored it in the early Spring Maine weather. But what really caught my eye was that Mr. Blackett particularly noticed a portfolio of creature comforts that middle class American didn't take as "standard" until, in my mind, the 1980s (he suggests the 1970s, but not on the cars I was driving then). The things he noted that he really missed include: power windows, power outside mirror adjusters, the inside latch that snaps your trunk open, rear cup holders, and remote key access. Again, I think that it was well into the 1980s or maybe even the 1990s before I owned a car that had all of these features. This raises the question, does our list of necessities change across time? What can we live without? This is important not only for issues of personal Christian discipleship, but also for public policy issues like "What constitutes poverty?" I think that the Reformers in Geneva were on the right track by emphasizing the Christian virtues of modesty in consumption. I think they got really off track by trying to define it: How many sets of dishes could a family own? How much jewelry could a woman wear? One of the virtues of a tithe is that it causes each person or family to live withing inside the envelope of their budget set, with different implications for different people.

(Disclosure: the car that I currently drive exhibits this paradox fully. It has all of the bells and whistles that Mr. Blackett misses, although as a Hyundai it pretty well defines "Reliable, Middle-Class, Basic +" transportation. And, for purely self-interested reasons I deliberately didn't seek out many of the "packaged" features that I had on my previous car: dual sun roof, multiple disk-CD changers, etc.. These tend to need [expensive] repair much earlier than the drive train.)

Wednesday, May 19, 2010

Pay What You Like Pricing Scheme

The pay-what-you-like pricing scheme allows for patrons of a good/service to donate what they feel that good/service is worth. There are many examples such as Radiohead's album In Rainbows. Also, various local restaurants, soccer clubs, and rental accomodations have tried this pricing scheme with varying success. And, our readers may remember that Calvin's Coffee (which Mark and I were instrumental in opening) had to adopt this model because of expensive Tallahassee Government regulations on business. We are happy to report that Calvin's is increasingly successful. Moreover, our opening of Calvin's led us to write a theory paper about pay-what-you-like (PWYL).

BUT, a bigger fish just entered the pond: Panera. Here is an article from USA Today on Panera's decision to adopt this new pricing scheme. One question I have is that they have located the business in Clayton, Missouri. The original Panera was also in the St. Louis area so the company has ties. A very interesting economic/psychology argument can be made about why they choose Clayton: homogenous population. Clayton is 85% white with a median family income of $107,000. This homogeneity could help the stability of the norm to contribute. If I am right about homogeneity being such a big issue then Panera has given themselves the best opportunity to succeed. Only time will tell.

Tuesday, May 18, 2010

Unintended Consequences #4

In a previous post, I wrote about the tradeoffs facing the efforts of the Gates Foundation to eliminate polio. One of the surprising conjectures was that poor water quality might actually promote community resistance to polio.

That same "unexpected consequence" on a broader scale has been addressed today in the Wall Street Journal in an article entitled "Can a Dirt Do a Little Good?" . It points out that a child growing up in a health-conscious American city like San Francisco has a much better life expectancy than one growing up in a developing country such as Namibia or Mongolia, but that San Francisco child has a higher expectancy of diseases such as asthma, Type I diabetes, MS and other auto-immune diseases. The article profiles the possibility that our cleanliness may be a contributing factor to these diseases. The combined effect is reflected in overall survival rates: sanitation produces better childhood survival, but, as the article says, there's nothing inherently wrong with having your kids play in the dirt once in a while....it may actually be good for them.

Monday, May 17, 2010

Searching for Truth in Economics

Do you ever sense God has a giant foam arrow pointing you in a direction of discovery? My paths on blogs and in my personal endeavors have led me to ask some tough questions to my beloved field of economics.

1. When economists say they "know" something, what do they mean?

2. How do we know it's true?

These are two questions that I've been exploring more deeply by looking into the Philosophy of Science. People in this camp ask really interesting questions about what qualifies as "good science".  My opinion since thumbing through these thoughts? In order for good science to happen you need to have a testable claim (a theory AND you might even have multiple theories). Then, you carefully manipulate variables relevant to the testable to claims to see if they are influencing the outcome you try to test. When I tell my students that economists know "stuff" through experimental tests and econometric analysis I feel quite justified in saying, "Economists know X or Y" and I feel very scientific because I feel like we take seriously this kind of scientific method. But, I've noticed something for sometime . . . . and a confluence of events as caused me to confront this head on: econometric analysis can be misleading.

By the way, for those not familiar with econometrics . . . The central idea of econometrics is to hold some variables constant while seeing what the impact is of another variable. For example, we know there is a wage differential between women and men. But, what we really want to know is whether holding all the other relevant variables (such as experience, educational certification, marital status, race, etc.) constant whether being a man or woman has a significant impact on wage. In general this seems like a great way to analyze data, but, there are problems. Here is where my confessions of confusion and skepticism need to be brought to the light so you can respond.  

Last night on the Greyhound Bus I listened to Russ Roberts talk with Robin Hanson about Truth in Economics where the really interesting question was asked,

"When is the last time an empirical study ever changed your mind about a topic?" 

Can you think of a study you read and then said, "Wow! This just blows my initial thoughts on Policy X out of the water!" There are competing empirical studies for just about everything in economics and while consensus is large on quite a few issues it is quite slim on a number of other issues. This is captured by varied opinions on the impacts/magnitudes of impacts that minimum wage, universal health care, immigration, foreign aid, etc. have on the goals of employment, quality of care, low skilled labor market, and growth respectively. For more information about how economists have different views check out Dan Klein's work at Econ Journal Watch.

What are the basis for these different outcomes in the studies? Different data? Different econometric techniques? Biased political and academic processes that gives incentives to find "the right answer"? (For example, if you stake out a desirable position about a major policy question you can open up future possibilities for funding and careers in policy think tanks) I hope the latter is not true but suspect that it might be. Economists follow incentives like everyone else and if these incentives are driving the statistical outcomes is the integrity of the profession is seriously in question? Others have noticed this problem as well, wondering why pundits of these various policies overlook facts in favor of entertaining lies.

This brings me to a final point. The new Journal of Economic Perspectives has a symposium in their new issue to discuss some of these points but is more cheerful in tone heralding the the brand new "credibility revolution in econometrics". Perhaps this should make me feel at ease about the current status of econometrics, BUT,  while minor improvements can be made to the econometric techniques around the edges how much of econometric technique has the flavor of being a fad? At the heart of the debate is an oldie but a goodie, "Taking the Con out of Econometrics" by Ed Leamer. My guess is that this symposium will cause loads chatter throughout the economics profession about what is true, but I could be overly optimistic. The folks at Permutations blog write provide some nice links to some good summaries here and Russ Roberts interviewed Leamer on EconTalk here to talk about the state of econometrics.

All is not lost in my couch confession! Healthy doses of skepticism are probably a good thing. Admittedly I am a novice at these kinds of advanced econometric techniques and look forward to getting up close and personal in the future so I have a better idea about the validity of different tests. But, here are some items in the midst of this crisis toned post that I feel I can say with some confidence:

1. People operate with limited resources (scarcity) and they make tradeoffs with those limited resources.

2. Human beings make tradeoffs many times based on a cost-benefit calculation (however quick it might be)

3. The costs and benefits of an action are often determined by incentives via social and legal rules

4. Humans have limited knowledge and cannot know everything which is why there are so often unintended consequences to policies

Wednesday, May 12, 2010

Moral Emotions

Forging ahead through Moral Markets I finished the third chapter titled Moral Emotions by economist Robert Frank who is well known for incorporating behavioral realities such as our desire for status into standard economic utility functions. In this article that builds on his famous book "Passion within Reason"  (cited 2,620 times! Not shabby) he discusses the difference between consequentialist and deontological philosophies, talks about why views of morality matter, and details why studying these ideas are important.

First, Frank establishes the difference between consequentialist and deontological philosophies. Consequentialists hold that the morality of any decision must be measured by its outcomes alone. On the other hand, Deontologists believe that a moral choice emerges from underlying moral principles.  The standard example of the differences is the trolley car problem where the trolley car will kill 5 people by default but you have the power to flip the switch. If you flip the switch and the car changes track you will kill 1 person. What do you do? Consequentialists flip the switch without hesitation ( 5 > 1). But, Deontologists do not agree that this is a moral decision. There are several variations on this problem.The tension between these two forms one of the important points in Frank's discourse, namely, that there may be some situations in which our moral intuitions about what is right and wrong should be re-evaluated if a compelling case is made. However, since our moral intuitions guide us to the appropriate moral decisions most of the time we should not discard them. Besides, Frank retorts at the end, we can't provide an account of why every moral intution is misleading.

Probably the most interesting part of this article is Frank's discussion about why accounting for morals is important. A friend of mine asked me when inquiring about becoming an economics major whether it would darken his perspective on the world. I didn't think that it would but acknowledged that it could. Frank captures what I was thinking really well here when talking about how the expectations economists hold for other people (he offers the example from his own research on the prisoner's dilemma) can change immensely with increased economics education, "Even more troubling, the narrow self-interest model, which encourages us to expect the worst in others, may bring out the worst in us as well."

Finally, Frank illuminates the importance of moral sentiments in business transactions by talking about a standard principal-agent problem.

A) My restaurant is successful
B) I would like to open up a new restaurant across the state
C) Since I (the principal) can't be at two places simultaneously I need to hire someone (the agent)
D) Since I cannot monitor this person how can I be sure this person will not cheat on the agreement?

If the agent is honest we both benefit. But, if the agent feels no remorse and is perfectly rational they will cheat on the agreement and pocket more money than they should leaving me with less money (which would make opening the new restaurant not worth the investment). Therefore, I want someone that will not cheat. How do I know they will not cheat?

The question Frank raises which is quite interesting is this. Since people do not have "C" inscribed on their forehead so that we know who all the cooperators or honest candidates are in the world how do we tell except through this costly information gathering? How can we identify these kinds of dispositions in others? 
I may hire someone with whom I have greater familiarity. Frank points out that each one of us has someone that is not blood related that we could trust in important situations. How did we get to that point with the person? Through repeated interactions and the creation of sympathetic bonds.  We hire people we know because we believe they are trustworthy.

In summary, there are three major thoughts here: moral emotions can allow for economic activity to improve, moral theories can shape how we expect others to behave, and moral inuitions more often lead us to correct than incorrect more decisions, but we should be willing to entertain a compelling case for why those intutions are incorrect.

Tuesday, May 11, 2010

Smackdown: Homo Sociologicus v. Homo Economicus

There is an old saying from Ralph Waldo Emerson's diary while he was at Harvard: "Rattle forth the battle of your thoughts . . . " There is a battlefield for the truest portrayal of a great society, one that combines brotherhood, equality, and liberty and how such a society ought to be achieved. My interests have led me to read more psychology and sociology. In particular, the sociologists seem to think quite differently than economists. As I learn more I will come to the larger questions of how groups should make collective decisions. For now, let's look at the individuals as viewed by each of the disciplines. There is an excellent article recently written by Fehr and Gintis that lucidly illustrates the distinction between the fictional homo-economicus and homo-sociologicus:

Decades ago, sociologists criticized the “oversocialized conception of man” (Wrong 1961) that played a prominent role in the work of Durkheim (1938) and Parsons (1937). They rightly questioned Homo Sociologicus, a creature who follows prevailing social norms without regard to self-interest. But they did not develop an alternative, empirically grounded, and widely accepted conception of the basic motivational driving forces of humans. This contrasts sharply with the approach taken by mainstream economics that rests on the notion of Homo Economicus, a creature who is rational and purely self regarding. However, the Homo Economicus approach is also erroneous, as the assumption that humans are exclusively self-regarding has been decisively rejected by the evidence (Camerer 2003, Fehr & Fischbacher 2003, Gintis et al. 2003). Thus, although the lack of a model of human social behavior leaves sociology without an anchor, mainstream economics is hitched to the wrong anchor, i.e., adheres to a biased view of human nature.

This version of humanity from two different social sciences, like Fehr and Gintis say, are a caricature. Humans seek acceptance into groups but they also seek self interest. The reality of how humans behave is somewhere between these two important views of man. This is a very interesting appetizer to the big entree of how society should be structured.

By the way, in my sociology reading I also came across this article from sociology blog orgtheory on Toqueville and how he viewed democracy and (how it needed) religion.

Unintended Consequences #3

I can't keep track of what parts of the Wall Street Journal are behind subscription firewalls, so I'll just directly reference a fascinating front-page article from Friday, April 23, 2010: "Gates Rethinks His War on Polio" by Robert A. Guth.

Mr. Guth traveled extensively with Bill Gates in preparing the article, including many stops in Africa, where the Gates Foundation is one of the major players attempting to eradicate polio.

The article highlights two sources of unintended consequences in compassion policies: a) the behavior and choices or individuals, and b) complicated medical, engineering, or environmental relationships. We've blogged extensively about the first category. The second category addresses questions such as if you see two cars parked next to each other, how do you know which one has a lower "carbon footprint," much less which one would be create fewer overall environmental externalities. The term "dust to dust" analysis has come to be associated with attempts to answer the second question, because it's not just the driving of the car that matters, it's also the production and disposal.

The article in the Journal shows Mr. Gates confronting both of these sources of unintended consequences. For example, one argument being debated is whether money should be diverted from polio vaccination narrowly defined to a broader effort to make people healthier and thus better able to resist infections. But, there's also the possibility that cleaning up the water supply can paradoxically cut down on processes of passive or community immunization from the mild childhood "stomach flu" manifestations of the virus. This potential unintended consequence is discussed in greater detail in the Wikipedia article on polio.

Likewise, Mr. Gates confronts behavioral issues, such as unfounded rumors of personal costs of immunization (rumors of sterilization of children who received the vaccine). So, Gates schedules a visit with the religious leader of Muslims in Nigeria for help in setting the record straight.

The closing words of the article are the following:

"As polio shows, technology can be hampered by political, religious and societal obstacles in countries where he's spending his money.
"In Nigeria last year, Mr. Gates sat on the lawn behind his hotel reflecting on that. Science can simplify the job, he said, but 'the human piece is the ultimate test'."

Thursday, May 6, 2010

Free Enterprise, Sympathy, and Virtue

This is a continuation of posts from Paul Zak's book Moral Markets. Chapter 2 was written by Robert C. Solomon with the central question of, "What does Adam Smith mean by sympathy?" Smith's lesser known text The Theory of Moral Sentiments (TMS) was concerned with the nature of morality and right behavior. Since he erected much of his arguments upon the foundation of sympathy as a natural sentiment ("natural" meaning not constructed, but, part of our biological make up) this is an important exploration.

For more information about sympathy beyond the discussion of this post TMS is available for free on the Economic Library of Liberty. Also, Russ Roberts had a five part podcast with Dan Klein discussing TMS. Here is a link to their Part I discussion which includes Smith diving into sympathy.

Like the previous chapter in Moral Markets this chapter strikes at the caricature of Adam Smith and markets. Adam Smith never said, in any way, greed is good. Instead, Solomon argues that Smith is in the vein of Aristotelian thought which defines humanity as, "the capacity for virtue and a desire for excellence according to one's place in society." And, IF Smith is Aristotelian, he would understand that the basis of society is a sense of community because virtue must be practiced with others in order to be sharpened.

Solomon goes into length about Kant and his approach to morality that asserted that moral decisions are made rationally with calculation. This is opposed to the more sentimental approach of Smith where we have inclinations and feelings towards others. These finer feelings like sympathy are what drive our morality according to Smith. So, that begs the question posed earlier, "What is sympathy?" Here it gets very interesting. Solomon points out that Smith and his contemporaries did not currently have the word "empathy" at their disposal. So, sympathy as Smith used it had a two-fold meaning "To feel sorry for" and "sharing the feelings of others" (Solomon argues the latter is Smith's favored use of the word the word we currently think of as "empathy"). Empathy is a pre-requisite to sympthay but empathy need not require sympathy. For example, in order to "feel sorry" for someone losing their job I would need to identify first with the feeling of losing a job. But, identification itself (empathy) doesn't necessarily lead me to sympathy. Put another way, empathy is the vehicle for sympathy.

There are several layers of empathy that Solomon discusses here, but, defers to Zak's Chapter 12 article. The main takeaway from this chapter for me (my brain is incapable at present to understand the importance of the deeper philosophical issues that Solomon delves into) is that Smith believed everyone could engage in this sympathy and indeed it was a natural part of being human. Moreover, these finer sentiments are the basis for the market economy, not, self interest.  Finally, community is vital to the development of virtue, the cultivation of which there was no higher goal (according to Aristotle).

To be honest, I'm not sure about that last point that Solomon makes. I'm certain that self interest is not the only thing operating in the market economy; however, it strikes me that self interest is the central reason why people act in the market. They are not thinking of others primarily, but, what others have produced or can produce for them. Perhaps they only care about this because they have a family to support and the self interest in the marketplace really masks the reason for that self interest which is love for their family? Because I can't dialogue with Solomon it is somewhat difficult to know. Philosophy is important but makes my head hurt.   



Nashville Flooding

FSU graduate student Andrew Smyth is from Tennessee, and he had been talking about the bad flooding in the central part of the state. However, I had no idea how bad things were until I viewed this video (scroll down just a bit in the introductory story).

Wednesday, May 5, 2010

I'm An Economist. Oh, Reilly?

This post is for the economists out there. The following is a partial transcript of John Stossel's appearance last night on The O'Reilly Factor (as posted on the Fox News web site).

"STOSSEL: And that's central planning. And the important thing about that, Hayek said this, is when government....

O'REILLY: Hayek?

STOSSEL: Frederick Hayek, the economist.

O'REILLY: Hayek?

STOSSEL: Hayek."

Tuesday, May 4, 2010

Unintended Consequences #2

This is from the Wall Street Journal, March 11, 2010, page D1. There have been a lot of reports of really awful situations in which airlines, facing weather or other delays, keep flyers on the tarmac rather than returning them to the gate where they could a) eat and relax, but also b) cancel or reschedule flights, and so forth. So the U.S. Department of Transportation has issued rules than say that airlines can be fined $27,500 per passenger when such confinement lasts more than three hours. That sounds good; with my love/hate relationship with flying, I would be climbing the walls (?) if I were trapped on a runway for four hours. But, there is a cost. Airlines, following the announcement of the new penalties, have been much more aggressive in canceling flights. This was in evidence during this winter's bad weather. I think that this could actually be a good thing. I would rather know in advance that I need to delay travel than wait for hours on a runway and then have to return to the gate. But apparently many travelers have a different opinion. In any even, this is the "unintended consequence" of the week.

Monday, May 3, 2010

The Stories Markets Tell

Earlier today I began reading the book Moral Markets by Paul Zak which is a collection of work by scholars from many disciplines (anthropology, biology, business, economics, law, and psychology) about how values relate to/evolve with free-exchange or markets. The book is a fantastic read thus far. Here is a summary and my thoughts on the first article called "The Stories Markets Tell" by William D. Casebeer:

Our lives are written as stories in a book therefore it should not be a surprise to us that our cognitive processes are also geared towards stories. Mark Turner writes, “Story is a basic principle of mind. Most of our experience, our knowledge, and our thinking is organized as stories.” We recall memories, become motivated to action, reason and emotionally react to and through stories. Casebeer writes about how our affinity for stories has led to a caricature of the market process where several awful/horrific anecdotes are shared, but many of the mundane successes are not spread. He establishes three archetypal narratives that say “free exchange [or a market] is bad”:

  1. It is selfish – This cartoon, Casebeer says, may be best seen in the movie “Wall Street” where Gordon Gekko proclaims that “greed is good”. This archetype emphasizes the cutthroat nature of competition and leads the listener to the conclusion that our character will be in poor shape as a result of markets.
  2. It is exploitative – This is the Marxian story of exploitation of the worker: The rich become richer based on the production of the poor and once the poor recognize that they are being exploited they will rebel is the cartoon told here. This archetype emphasizes class distinction and views “consensual exchange suspiciously as masking exploitative relationships.”
  3. It is, on balance, bad and ought to be rolled back – This story is less extreme than the first two but tends to overemphasize the uglier side of free-exchange (negative externalities) while downplaying the benefits. This worldview would have us believe that progress through technology and development are bad.

These myths capture our attention because they appeal to the ingredients of a good story: problem, complication, resolution. They seem likely, but, do not tell the whole story. Essentially, they are based on a kernel of truth that is inflated beyond a reasonable conclusion. What does he propose to redress the myths?

He begins by stating what the essential ingredients of a counter argument: ethos (credibility), pathos (emotional appeal), and logos (logical consistency). Then, he speaks to the uphill climb someone has in presenting something that appears counter-intuitive. Casbeer employs the Fundamental Attribution Error from social psychology to discuss why there is an uphill climb. FAE makes the point that people overvalue personality based explanations for observed behavior while undervaluing situation based reasons.

Then, Casebeer makes three claims that heavily cross-reference future chapters in the book Moral Markets: 1.) Free-exchange environments can evolve creatures that are at least as prone to cooperation as selfishness, 2.)Free-exchange environments afford critical opportunities to develop virtues, and 3.) Free-exchange environments afford incentives to develop and maintain moral standards.

The remainder of the book will address these questions more thoroughly. I'm really looking forward to reading it and hope you are looking forward to joining me on the journey : ) Casebeer makes a really compelling point about what people are "willing to buy". My own experience has been that students distrust the market, especially when it comes to large businesses from wealthier countries doing business with developing countries. While their stories about horrible working conditions are true it is sometimes difficult to point out the distinction between anecdotal stories and systematic evidence. For example, are there cases of forced labor in developing countries? Yes. Does that mean that globalization is bad? No. Systematically globalization has been an improvement in the lives of the poor. Although there are important points to be made about the distribution of those benefits.

Saturday, May 1, 2010

Power and Morality

After a tough day of grading (the least favorite part of the job) I decided to noodle around the blogosphere. Much to my pleasure I became reacquainted with Dan Ariely's Predictably Irrational blog and there was this little treasure about the relationship between power and morality. The upshot of the research by a pair of social psychologists was that a position of power led to a sense of entitlement. This entitlement then leads to judging others more severely than ourselves. But, when people consider that their power was illegitimate (in other words they didn't earn it) then they judged themselves more harshly than others.

I'm certain there is a message here for Christians about the source of our salvation. We should not be so proud of our salvation or righteousness because of anything that we did, our relationship with God was not something we earned rather a grace we are proud to partake of.