Mark and Doug are two Christian economists seeking to combine economics and theology in a fun, thoughtful, and inviting fashion. The name of the blog is a reference to Jesus' admonition to his disciples to be "wise as serpents and innocent as doves" (Matthew 10:16) when going forth into the world. We hope you join the conversation.
Tuesday, May 25, 2010
Unintended Consequences #5
Monday, May 24, 2010
Trash to Treasure
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.]
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
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
Thursday, May 20, 2010
Consumed by Comfort?
Wednesday, May 19, 2010
Pay What You Like Pricing Scheme
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
Monday, May 17, 2010
Searching for Truth in 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
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
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
Thursday, May 6, 2010
Free Enterprise, Sympathy, and Virtue
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
Wednesday, May 5, 2010
I'm An Economist. Oh, Reilly?
Tuesday, May 4, 2010
Unintended Consequences #2
Monday, May 3, 2010
The Stories Markets Tell
- 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.
- 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.”
- 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.
Saturday, May 1, 2010
Power and Morality
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.