Wednesday, September 22, 2010

Economics and Moral Sentiments Group Yesterday

We read and discussed the two papers about culture by sociologists Richard Peterson and nobody came at me with a pitchfork . . . yesterday was a victory! I thought other people would be troubled by my reading selections. Much of what Peterson writes about is information important to sociologists but not as relevant to the economic conversation. For example, is writing about the evolution of country music radio really that important for growth and economic development? No. But, what emerged from our conversation that could prove helpful?

There are values in a culture that are conducive to economic growth: integrity, thrift, and trust. Trust and integrity are important aspects of trade. When making trades it is possible that one person is put in a vulnerable position, especially in the absence of a solid legal system. Therefore, people lacking trust in others may never seek to make certain trades which results in unrealized gains from exchange.

Thrift is important because savings is the real engine of growth. Savings provides capital for entrepreneurs and other large important purchases that spur innovation, improve efficiency and jolt other sectors in the economy. We know that savings does happen even in less developed countries where people live on $1 or $2 a day; but, there isn't much room for disposable income.

Now, how do we cultivate (ie produce) such values that we think are important? How could people come to have greater integrity and trust? Where will they learn the merits of thrift? We've entered the realm of belief systems. Why do people choose certain beliefs? How are those beliefs acted out in difficult circumstances?

The article about how culture is produced had some very interesting thoughts about what helps to spread culture: television can help spread culture (recent economic studies have linked soap operas to decreased fertility in Brazil and television shows in India have been linked to attitudinal changes toward women). I'm still thinking about how the other ideas that Peterson discusses might help propagate values and produce culture. More on this later.

Tuesday, September 21, 2010

The Consumption of Culture

Economists say things like, "There's no accounting for taste". Indeed, Nobel Laureate Gary Becker once wrote an article dubbed, "De Gustibus Non Est Disputandum". On the other hand, Richard Peterson writes towards the end of his article "The Patterns of Cultural Choice", "Much exciting work remains to be done in accounting for the patterns of taste that have been identified." This desire to answer questions many of our brightest economists dismiss leads me to read these kinds of sociology papers, even when they are quite difficult to understand.

This paper seems to be a discussion about how sociologists might begin to understand the patterns of cultural choice. Peterson wants to use the words "patterns" and "choice" to explicitly state that there can be multiple paths to how culture comes into existence and that ultimately there is an "open voluntaristic element to patterns of cultural choice."

How can we begin to understand cultural choice? We must understand how people spend their time and money. Also, we can ask them subjective questions about their values. These research methods amount to surveys and diaries in an effort to obtain a glimpse into the details of other people's lives.

Ultimately Peterson states that we want to know four things from these surveys:

1. Specifics - Peterson critiques past surveys and diaries that may not have asked for specifics. For example, rather than asking people to write down whether they watched television, we might also want to know what they watched. Also, there may be differences in values, consumption, or time allocation between people who are deep sea fishermen versus bass fishermen. The details matter!

2. Significance - Which of the specifics of people's choices seem to be highly predictive of their other choices? That is, what are the leading indicators for other choices made in their life?

3. Distribution - What is the distribution of people into certain cultures? Say that there were five possible cultural choices and people were evenly distributed. That would say that people are selecting into different cultures. But, if people grouped with greater frequency in one or two of the cultures then determining cultural choice is quite difficult.

4. Type -We need to know the characteristics of the people selecting into the culture to see if there are significant traits beyond consumption choice and time allocation that determine which culture a person selects into.

The use of diaries and other methods seems to be a neat and interesting way to go about understanding the decisions people make. I've been reading an interesting book called "Portfolios of the Poor" which utilizes a diary method for household expenditures amongst the poor in Bangladesh, India, and South Africa. They then constructed income and consumption flow charts for the people and were able to gain a thick description of financial instruments used and major life events through explanation in the diaries. Through seeing how people spend their money they discovered numerous items of cultural interest. For example, it is not uncommon for a poor household in India to spend more than 50% of their meager total annual income on a wedding to help improve their status in the community. Also, people in South Africa spend enormous amounts of money on funerals. These can be very important things to know if we're trying to build financial instruments to help people financially who live on $2 a day.

But, my final question is the following: Are these sociologists doing marketing, or, are marketing people doing sociology?

Monday, September 20, 2010

The Production of Culture

Since we are interested in the idea of how culture shapes economic outcomes it seemed natural to ask the questions, "How is culture produced?" and "Why is some culture consumed, while other culture is not?" Because I lead the Economics and Moral Sentiments group I felt tasked to dig up two papers that might help answer these questions and found two articles by the late Richard Peterson who was a prominent sociologist at Vanderbilt. On Tuesday our group will discuss

"Revitalizing the Culture Concept" (1979) and "Patterns of Cultural Choice" (1983).The former is the focus of this blog post: How is culture produced? (I will compose a post on the latter before the group on Tuesday) Peterson suggests that his approach to answering this question will be somewhat different. He writes,

"Many social scientists have insisted that the elements of culture fit together in patterns, so that a certain set of norms are compatible with a given set of values, beliefs, and expressive symbols. The exception and variation to this rule have been so numerous, however, that . . . the four perspectives reviewed here take a different tack by not starting with norms or values but with expressive symbols."

Peterson views that expressive symbols hold more promise in explaining the production of culture because they serve as visible focal points for the various elements of culture: values, beliefs, and customs. This has an interesting connection with economics because economists desire to understand individual preferences but can only do so by observing choice. Thus, the material like visible action attempts to reveal something we can’t see. The four major perspectives Peterson reviews follow (with brief description and examples):

CULTURE MIRRORS SOCIAL STRUCTURE - Sociologists holding this view utilize expressive symbols as gateways to deeper and less visible aspects of culture. For example, a person studying how culture mirrors society would ask questions about how the special powers of comic book characters have might reflect what our society values. Another example given in the text is how different musical styles in a culture reflect other traits about the society.

HOMO PICTOR - Sociologists holding this view maintain that a key feature of our humanity is our ability to create symbols. These symbols represent greater ideas and have some hidden code that creates and could re-create society from generation to generation. Something like the crucifix does indeed transmit all kinds of information about a story, my own nature, and my aspirations. And, we know that the symbol for the early church for the resurrection was the empty tomb. If the symbol had been the empty tomb rather than the cross, would our faith be different? Perhaps, our focus would be different. But, honestly, this notion of master hidden symbols sounds somewhat odd to me.

MANIPULATED CODE - This idea follows from HOMO PICTOR in the sense that expressive symbols represent ideas and hidden code. However, this view focuses more upon how those expressive symbols are used to perpetuate the place of the dominant culture over other cultures. This makes more intuitive sense that if a symbol is meaningful to people and represents an ideal, then it can be used to persuade people towards certain action. In the paper Peterson cites a situation in which RCA was facing investigation for monopolistic practices in the Justice Department and RCA started holding a special orchestral program directed by Toscanini. Apparently this increased the overall prestige and status of RCA and people viewed them as providing a cultural public good rather than as a greedy monopolist.

CULTURE PRODUCED – Peterson seems to be the foremost champion of this view. He does not view symbols as spontaneous processes, but, rather they are produced by someone with intent. Which culture is produced is based on certain contingencies he outlines. For example, he discusses how competition influences musical culture. He notes, “In periods of intense competition musical styles are diverse, while in periods of oligopoly the music is much more nearly homogenous. What is more, they show that changes in market structure precede changes in musical style.”

Reading this paper was extremely difficult. I felt stuck in a whirlwind of jargon and a frail understanding of how sociologists rigorously acquire knowledge and subject that knowledge to the scientific process. However, the importance of trying to understand how culture is produced is clear when we consider the quality of life in developing countries. The World Bank has spent multi-millions in various economic strategies; however, if culture is not amenable, various "good" economic reforms may not stick. Is there a way that culture might become more receptive to different economic reforms that would likely prove helpful?

There are a couple questions I have in reading this paper:

1.) Peterson and other sociologists often discuss this idea of someone "setting the norms" or manipulating the codes of a culture through expressive symbols. But, isn't this somewhat neglectful of the demand-side? Really what these symbol entrepreneurs are doing is "attempting to set the norms". Peterson does outline "contingencies" which seem to hint at the demand-side of culture. He suggests factors such as reward, evaluation, organizational dynamics, market structure, and technology shape the likelihood that any cultural product will hit the mark.

2.) Peterson writes, "That process of symbol-generation and change in each of the areas can be described using the same model, whose parameters may vary from situation to situation." How would we even begin the parameterization of such models? Would we start with trying to model the contingencies?

Opportunity Costs, Boyo, Are the Key to All Economic Decisions

This article is one of the best, most balanced, and most economically insightful articles I've read regarding the status of wind power. My only disagreement is on the "beautiful." I think the pictures of the windmills on the grainfields are indeed beautiful. I still think that the windfarms destroyed the gorgeous San Giorgonia vista (below) in California.

Thursday, September 16, 2010

Does Culture Affect Economic Outcomes?

At our last Economics and Moral Sentiments Group we engaged a 2006 article in the Journal of Economic Perspectives titled, “Does Culture Affect Economic Outcomes?” The article represents a summary of a recent swell in research conducted about how culture influences the economy. First, the authors begin with their definition of culture:

“Those customary beliefs and values that ethnic, religious, and social groups transmit fairly unchanged from generation to generation.”

Compare that definition with other common definitions of culture in sociology. In 1871 Edward B. Tylor described culture as, “That complex whole which includes knowledge, beliefs, art, morals, law, customs and other capabilities and habits acquired by man as a member of society.” Moreover, Richard A. Peterson describes the views of his contemporaries when he writes, “Culture consists of four sorts of elements: norms, values, beliefs, and expressive symbols.”

This latter view is consistent with major sociological textbooks such as the “Essentials of Sociology” by Brinkerhoff et al which sets on my bookshelf. The important distinction between the economists’ definition and the sociologists is the part about “unchanged from generation to generation.” The economic researchers believe that since this part of culture is unchanged the economic structure is not influencing those elements of life. Therefore, if they attempt to explain economic outcomes by culture they can be sure that is the appropriate causal direction.

There are two other strategies that the authors summarize that have been employed by economic scholars: natural experiments and experimental economics. The natural experiments can best be summarized as some outside shock to culture. The authors discuss the 2nd Vatican Council as an example that drastically changed many elements of culture in the Catholic Church. Presumably, this shock would allow a researcher to exploit any variation in economic activity as emerging from these new cultural patterns. On the other hand, experiments can be conducted in different people groups to detect cultural differences. These detect cultural difference because the underlying strategy (derived from math) of the games do not change; but, perceptions about the games do change.

The problems with these last two approaches is in assuming that the outside shock really represented an outside shock and not just a representation of what was already happening in the Catholic Culture. Also, with experiments the variation in playing the game acts as a signpost to a possible set of reasons that different people groups play the game differently. It does not tell us exactly why.

Nevertheless, the paper was a neat paper to read and discuss in our readings group. If you believed everything the authors wrote about strategy for testing cultural impacts on economics and you liked their use of the World Values Survey Data then you would come to the following conclusions:

1. Culture Influences Saving Rates via Religious Teaching
2. Culture Influences Levels of Trust which in turn increase trade and entrepreneurship
3. Judeo-Christian Religions are opposed to re-distribution relative to non-religious/atheists

What does this add up to? Religious people are more likely to save. Trustworthy and trusting people are more likely to engage in entrepreneurship and trade with each other. Sounds a lot like these regressions are pointing to Max Weber.

Tuesday, September 14, 2010

The Significance of Rules

Two years ago when teaching the Economics of Compassion class (for the first time)  I delivered my lecture on the Ten Principles of Economics. When Principle #8 in Common Sense Economics popped up about institutions and technology leading to economic progress my explanation was glossy. Obviously technology would increase the economic possibilities: computer, cell phones, transportation and shipping advances all work to make business easier to conduct. When business is easy to conduct we can trade more (which is good since trade creates value . . . a positive sum game). Lately my thoughts have been focused on technology's less tangible brethren: rules.

Rules, you ask? Rules are the constraints on human interaction and they can either be legal or social. The significance of rules can be seen with the failure and success of micro-loans. When Muhammed Yunus believed that the poor in Indonesia were not bad credit risks and simply needed access to money to improve their irrigation systems he determined to offer them loans. The people defaulted on the loans. Then, he decided to change the rules. First, small groups were formed. Second, loans were given to each person in the small group. Future loans to any individual in the small group were contingent on everyone in the small group paying back their loan. The social pressure generated a strong incentive for each person to responsibly payback their debt. That change in the rule meant a lot to the overall success of Yunus' vision.

There are many other examples of how rules are really important to improved economic activity. Here are a list of rules that could potentially improve economic activity:

1. Is productivity increased when employees are paid in a piece-rate or relative pay scheme?
2. What kinds of covenants will help us avoid the Tragedy of the Commons problem?
3. Do patents stifle innovation since permission must be granted on so many patents for each new invention?
4. What kinds of rules on eBay protect people from retaliation for rating another user in a negative way?
5. What kinds of auditing rules are more likely to deter cheating?
6. Similar question, what kinds of rules about punishment deters criminal behavior? What rules help reform?
7. What kinds of monitoring is needed to ensure welfare recipients are in fact needy?
8. What kinds of monitoring is needed to ensure welfare recipients spend money on the right things? (Food Stamps in Florida now uses plastic cards with picture id that have money placed on them, so that people can't simply trade food stamp dollars)
9. Assembly lines

There are many more examples of the kinds of rules that people develop to help improve economic activity. If you have any other ideas post them up!  

Monday, September 13, 2010

Holding Out for NIMBY?

By chance this article from the New York Times showcases, in the context of the development of wind power in Texas, two issues that Doug, Svetlana Pevnitskaya (also at FSU), Sean Collins (now at Fordham University) and I have been studying: the Not In My Back Yard (NIMBY) problem and the problems arising from assembling large numbers of different parcels of land for industrial development (the "hold out" problem). Wind power is particularly vulnerable to both of these. First, despite the numerous TV commercials showing pretty little girls bouncing through green fields with birds, butterflies, and windmills, industrial windmills are ugly, noisy, irritating to live around (light and shadow flicker), and potentially dangerous to wildlife (although this problem is being mitigated). And, as wind often blows the strongest far from where people live, there are concurrent requirements for long distance transmission lines, which are ugly, scary to some people (although that is apparently overblown) and require a bundle of property rights with no gaps: a situation ripe for hold-out issues.

Texas has become a leader in this area, for a number of logical reasons. There are wide open, relatively empty spaces where you don't have to look at a windmill if you don't want to. And, as the article reminds us, Texans traditionally have been accustomed to accepting the public face of productive activity: pumpjacks, refineries, etc.. But now, the transmission lines raise new problems. It's an interesting case study. As a colleague of ours from the FSU School of Law said last year, "green" industrial facilities are nevertheless industrial facilities. And, as I read someplace on the web, it raises the question as to whether wind and solar energy are really "renewable" energy, because you can't "renew" the land occupied or the vista destoyed. There's no such thing as a free lunch, nor free electricity to make your lunch, either.

Thursday, September 9, 2010

Love is Positive Sum: I

Marvin Olasky wrote a short piece in World magazine that I almost glossed over because the content was so predictable. He briefly reviewed two books on development and poverty. One by economists Arnold Kling and Nick Schulz is called From Poverty to Prosperity. Olasky notes that this book extensively expounds on economists’ recent interest in the influence of social institutions on wealth and poverty and yet (quite predictably among economists) more or less ignores the role of human sin. The second book was Power and Poverty by Dewi Hughes, which painfully seems like yet another “trendy evangelical” (apologies to Os Guinness) book which discusses economics without any idea of what are the root causes of wealth and poverty. The quote from Hughes’ book is “Poverty is fundamentally a matter of distribution of the adequate provision that has always been there.” I don’t have a copy of his book, but I have read one interview with and two other profiles of Hughes online to confirm that this appears to be an accurate representation of Hughes’ argument.

Sigh. Here we are again. The same “ships crossing in the night” dialogue between a ) economists who believe either that culture and values are largely irrelevant, or, if they do believe that culture and values matter, seem to want to talk about anything other than human sinfulness, a concept which is at the core of two of the major religions of mankind, and b ) theologians with apparently impeccable theological and compassionate credentials (Hughes works with a Christian aid organization and his book is published by IVP) whose knowledge of economics would get them failed out of most of the economics classes I know about. It reminds me of Paul Collier’s passionate narrative in the Bottom Billion of his trying to find out why a major Christian aid group in Britain was promoting what was economic misinformation on international trade.

The usual reaction to this state of affairs is that if there is a dialogue between economists and theologians on issues of wealth and poverty it probably means that we need either to a ) open the moral sensitivities of the economist who works in a bubble of moral neutrality, or b ) help the theologian from making the worst of economics errors while maintaining his appropriately Christian moral arguments. However, with great presumption I would like to take a different tack here. This post is the first of three that will argue the following: 1 ) The “zero-sum” economic worldview of many Christians (of a variety of political persuasions) is not merely economically deficient, it is at odds with the moral view of both the Old and the New Testament. That is, I am challenging their position on both Christian and economic grounds. 2 ) The “zero-sum” worldview leads to political outcomes that perpetuate rather than cure poverty. Finally, 3 ) What we need from theologians is not just a high-school AP knowledge of economics, but rather a concerted effort to create a Christian theology on poverty in a positive-sum world. I’ll begin today with the first proposition.

What is forbidden points towards what is perfected. Suppose that a theologian argued that all manifestations of sex were sinful. That makes no sense, because why then would there be a Biblical distinction between a picture of love, fidelity, and marriage on the one hand and sexual immorality on the other? Why would we have a commandment against adultery? Why would Jesus honor marriage with the miracle at Cana? Why would he preach on the completion of the commands against adultery through his calls to love and purity of heart? Why would the early church confront its culture with models of chaste love? Obviously, this is because the initial assertion (“all manifestations of sex are sinful”) is incorrect, and Jews and Christians, the Old and the New Testament, provide a picture of human relationships that are whole and within God’s plan. The same point can be said about the creation of wealth. If any attempt by an individual to better his lot or that of his family occurs in the context of a zero-sum world, then all such activity is theft. But if all economic activity is theft, then why do we have two commandments which serve, just as in sexual relationships, to point to the distinctions between sinful abuse and conformance to God’s will? If any economic activity is theft and covetousness, then the human economic condition is not just depraved but depraved without any hope from God and there would be no point for God to say “Thou shalt not steal.” The prohibition against stealing implies that there is a better way to improve one’s lot in life, one that is not stealing. Theologians who insist that there is a fixed pool of wealth and that all that matters is the division of the spoils are not only ignorant of basic economics but they also fail in their duty as theologians to help Christians define modes of economic love in the midst of positive sum economic possibilities. I realize that these are strong words as I type them, but I believe that in whatever small way I am able I need to move this discussion off of the same old parameters.

The Bible is full of good sermon material on wealth creation and just distribution. There’s no indication that the Mosaic law saw all property or economic activity as redistribution or theft. There are actually some quite interesting economic discussions that fit into what I am talking about: the requirements for leaving part of a field un-harvested, the prohibitions against dishonest weights, scales, and boundary markers; the bankruptcy provisions. In the New Testament, Jesus actively shows us some specific examples of the completion of the Law through love: healing on the Sabbath and the restatement of the divorce and adultery codes. How can we transfer these models that Jesus has given us to an economically-relevant context of gains from trade, technological innovation, consumer preferences, and so forth? Finally many of the figures of the early church were involved in trade and/or commerce (e.g. tent-making; trade in purple cloth). How did they model their economic life?

A further problem for theology of economics when growth is possible: the world has fundamentally changed. Theologians may not realize what an astonishing event in human history is the discovery of how to create economic growth. It is an essential parallel to the astonishing rise of the medieval cathedrals over lands that, for hundreds of years, had produced mostly huts and fortifications. Jesus discussed the ordinary aspects of life in his teachings, and they clearly included buying and selling, planting and harvesting, and even some kind of simple investing. Even at this basic level, a Christian theology of a positive sum world is not one that eliminates discussions of justice, but acknowledges exchange and choice. But, no Christian theologian that I know of would talk about healing and ignore the fact that our stock of knowledge about medicine and health is radically different than in Biblical times. A theology of healing needs to incorporate both what Jesus was saying in his healing messages and what know now about medicine. There should be an exact parallel with how we weave Jesus’ message and what we know now, but didn’t know in 30 A.D., about economic betterment. No Christian theologian that I know of would develop a theology of healing that ignored our new knowledge people could be sick for reasons other than the indwelling of demons. I fear that if we cannot have a dialogue about poverty in which it is acknowledged that Paul may be poor for reasons other than that Peter is wealthy, then we may be at an intellectual dead end.