Not Exactly Rising to the Challenge III

I don't know if I've ever posted anything on New Year's Eve Day before, but there is a first time for everything. I hope God blesses you in the New Year. Psalm 103 is a great place to start remembering again about God's blessings.

Three Lessons for All Christians: Everyone Needs to Be A Careful Consumer of Statistical Arguments

1 ) Show me the original data. When I write blogs for “Wise As Serpents” I try to verify the context and original source of quotes, and also to be informed about original sources of data. There is wisdom in the old saw that there are “lies, damn lies, and statistics.” It’s sad to say but some people cherry pick data, selectively report results, or, unfortunately, just don’t understand what statistical data and tests actually mean.

2 ) Correlation is not causation. Wet streets don’t cause rain. My brain waves don’t actually turn out street lights as I walk my dog at night. And, it may be true that most serial killers have milk in their refrigerator, but outlawing milk probably isn’t going to end a crime wave.

3 ) Selection-bias is one of the most powerful forces for misunderstanding data known to mankind. Suppose we find that students who attend charter schools do better in math than students who attend the local public schools. This doesn’t necessarily mean that charter schools are better at education; it’s possible that students who attend charter schools are in charter schools precisely because they have parents who care more about creating an environment that is favorable to their children getting a good education.

Corollary: Economics is not art appreciation; everybody may be entitled to their own opinions, but they are not entitled to misrepresent the facts (not only even if, but especially if, they are Christians attempting to make a witness to the world).

Letter to Marco Rubio (altered for my other representatives)

Thank you for your candor during the election process. My hope, along with many others, is that you take this opportunity to lead. Like you have said, "This is a second chance." Great things cannot be accomplished unless others understand this same urgency. There are three reforms I would like to submit to you that are simple but very important:

1. No Last Minute Amendments - Last minute amendments frequently slide favors into legislation, or, distort bills before they're voted upon. Remember, the devil is always in the details and small changes matter big time.

2. Transparency with Data - There is a growing movement worldwide (and by Rep. Jeff Flake with an Investigation Subcomittee): Outcomes should be at least as considered as intentions. In order to obtain insight about outcomes we need data. Transparency allows for independent investigation with this data.

3. Filibuster Reforms (rules changes generally) - Dem. Jeff Merkeley is spearheading filibuster reform. Even though this is a blatant attempt to reduce the power of a now more balanced Republican presence I do not disagree with the need for reform. Filibusters drown out debate.

Better rules for political discourse and accountability could be a major platform for Republicans in the future. We need better rules for better governance.

What I wanted to include but didn't (the letter was getting long)
Also, this is no small task, but, repealing the massive farm subsidies which form the largest corporate welfare program in America. Economists who don't agree on everything, overwhelmingly agree that these are a drag on the economy. Moreover, every president since at least Reagan has attempted to reduce farm subsidies and been unsuccessful.


Especially with the first three reforms these are rules that would encourage debate, honesty, and responsibility. Please consider this voters suggestions for what I'm sure will be an excellent senatorial career.

Sincerely,
Doug Norton

Not Exactly Rising to the Challenge II

Three Lessons for Liberal Christians:

1 ) The economic world is not a zero sum game. People in, for example, Haiti or Zimbabweare not poor because your neighbor bought a giant HD TV. They are poor because they have corrupt, gangster governments that have kept their countries from participating in the human institutions that are known to improve standards of living and bring societies out of poverty. This is just as true and terrible as if those same governments outlawed antibiotics or modern sanitation.

2 ) It is true that markets do not operate perfectly in all situations. Noxious externalities (pollution) are an example. However, the opposite of a flawed market is not some perfectly functioning, ivory-tower model of a perfect government. Government is a human institution and it falls within the bounds of “the total depravity of mankind” --- which doesn’t mean that everything we do is sinful, but rather that there is nothing that we can do without God that isn’t, in some way, infected by sin. There is no such thing as a government of angels, and nobody --- not a reformer, not a do-gooder, not a liberal, not a conservative, not an idealist --- sheds his sinful nature at the door of City Hall. This means that we can’t compare the flawed market with a perfect government. Furthermore, at its basis government action (unless everything proceeds only with unanimous consent) requires giving some people coercive power over other people. If this doesn’t make Christians nervous, it should.

3 ) Human beings are not switches in a microprocessor or valves in a machine. People change their behavior according to the incentives they face. And, centrally planned government programs are full of changes in incentives that can and do produce “unexpected” outcomes. Tax collections often fall short of expectations when tax rates are raised, because people can change their economic decisions to account for the taxes. When ethanol is subsidized in the name of “the environment,” people will start wastefully growing corn where there is no other good reason for them to do so, with the result that the environment is actually harmed.

Corollary: Christianity is not Socialism, and Karl Marx is not a prophet of the Church.

Not Exactly Rising to the Challenge

Joel Belz of World Magazine issued an interesting challenge. Readers should create a list of key statements about economics that young Christians need to know. He's gone to compile a "top ten list" for the magazine.

I was really interested in this idea, but I'm just not very competent at two requirements for the challenge: each item has to be 30 words or less and in concepts understandable to a 4th grader. Nevertheless, I thought I would send him a list of nine key points aimed at high school or college students that are derived from a lot of the lessons that Doug and I have worked through for the courses on Compassion and Sustainability as well as for our book-length project. I divided them into three parts: Three Lessons for Conservative (or Libertarian) Christians, Three Lessons for Liberal (or Progressive) Christians, and Three Lessons for All Christians. Here is the first installment. I'll post the others over the next few days. In the meantime, I hope everyone is having a wonderful Christmas Eve. And, if you are one of those people that works to keep our hospitals, police forces, fire departments, or national defense in place so the rest of us are able to attend Christmas Eve services, thank you and God Bless You.

Three Lessons for Young Conservative (or Libertarian) Christians:

1 ) Yes, voluntary exchange makes people better off. Organized voluntary exchange (the market) together with a respect for property rights and institutions that promote long term contracting are incredibly successful innovations that promote an improved standard of living and an escape from poverty. Both Bill Gates and Mother Theresa, in their own way, help mankind. But, the market remains a human institution, and it falls within the bounds of “the total depravity of mankind” --- which doesn’t mean that everything we do is sinful, but rather that there is nothing that we can do without God that isn’t, in some way, infected by sin. Each of us exhibits some kind of sinful behavior by the decisions we make in the context of a free market.

2 ) The opposite of “government action” is not “the market,” it is “voluntary, decentralized action.” The market is one of, but not the only, non-government form of economic organization. Christians, is particular, have a long history of private, collective, voluntary action to try to bring the Kingdom “on Earth as it is in Heaven.” In fact, how can we read the Bible and not be called to this type of service?

3 ) Nothing about the free market would cease to function if Christians decided to change their preferences over consumption. The world is full of people who are hurting, many because of things they have done, a whole lot because of what other people have done to them. If all Christians decided to buy less for ourselves and spend the extra on someone else, the sun would still rise tomorrow on capitalism and the free market.

Corollary: Christianity is not Objectivism, and Ayn Rand is not a prophet of the Church

More Thoughts about Pay-What-You-Want

Our paper on Pay-What-You-Like (Pay-What-You-Want is becoming the popular term now) has been reviewed and rejected by two journals. Each time it received one excited review, one critical review, and one editor that didn't want to take the chance. The critical reviews anchored on the notion that PWYW was infeasible because it is donations-based. Their reasoning is straightforward: people would free-ride to the point that businesses would not be able to cover costs. Indeed, that has happened in the past with other PWYW businesses. However, success has also happened.


Here was an update 8 weeks after the original Panera Cares location was opened (http://blogs.reuters.com/shop-talk/2010/07/28/paneras-pick-what-you-pay-cafe-holds-its-own/). It's success has opened the door for more locations. In addition to their location in Clayton, MO Panera Cares has recently opened another location in Dearborn, MI (http://www.freep.com/article/20101123/BUSINESS06/11230328/Panera-Cares-Cafe-in-Dearborn-aims-to-help-everyone-afford-a-meal-or-a-treat ) and will be opening a location in Portland, OR (http://www.panerabread.com/pdf/pr-20101122.pdf).

Interestingly, each of the these locations have a lower median income than Clayton and they are more heterogeneous along other dimensions.For example, Dearborn is the capital of the Islamic Center for America and has a large Arabic population. Portland, Oregon is not racially diverse however they are more secular than Clayton or Dearborn. The notion of heterogeneity and secular matter because they have shown to correspond to less trusting or charitable behavior. The lower income levels of these cities also make them a very interesting experiment compared to Clayton, MO (they are homogenous and wealthy as written in an earlier post).

In our model we rely heavily on a notion called "warm glow". That is, people receive some positive utility in addition to the actual consumption of the good. We state there are three channels by which this warm glow may be activated. These arguments were not given creedence by some of our reviewers, but, each of them is intuitive and I think is receiving more support as new ideas and a renaissance of old ideas are being forged in economics.

1. Existence Support - Armen Alchian talks about how firms are not necessarily profit maximizing but motivated by a survivorship principle. If customers also realize that firms must at least be able to proceed to the next period in order to continue production is it too much of a leap to say that patrons also could operate on survivorship principles? Do you ever find yourself saying, "We should really go to that restaurant. Their food is good and I don't want them to go out of business."?

2. Charity - The evidence that PWYW is improved by charity is found in a Gneezy et al field experiment that shows revenues as Disney Land were improved by the announcement that 50% of proceeds went to charity. Additionally, Panera cares may be successful because people view part of their mission as charitable (http://yourlife.usatoday.com/mind-soul/doing-good/kindness/post/2010/11/panera-opens-doors-to-their-second-cares-cafe-charity-store/132353/1).

3. Identity - Akerlof and Kranton's book Identity Economics is making the rounds big time. Their article which the book is partially based on has already been cited 1,400+ times. Basically what they're saying is that people make decisions out of who they perceive themselves to be. Considerations of identity would yield dramatically different predictions than typical economic models.

It's good to see that the PWYW model is working for Panera as it has worked for many other stores. Recently we had a guest speaker, Paul Zak, at FSU who works in a new area called Neuroeconomics. From his research he finds that when we place trust in another person the recipient of our trust also receives a spike in Oxytocin. This Oxytocin chemical tends to improve reciprocity and other-regarding behavior. It is neat that there is a biological foundation to this notion. 

I guess the question still remains. Giving to charity seems easy, but, difficult when your stream of revenue from donations is uncertain. If warm glow can work through identity or existence value how do you generate that in your customer base?

Mark Twain and Lionel Twain: Shall the Twain Ever Meet?

Last month at the Southern Economic Association Annual Meetings, Doug and I organized a panel discussion on Christianity and Individual and Collective Action. We had some great panelists: two economists (Doug and Dan Hungerman of Notre Dame) and two "theological" representatives (Craig Blomberg of Denver Seminary and Charles McDaniel of Baylor University). Doug is going to be writing-up a summary of some of his thoughts, which we can report later. My hope is that we can report similar reactions from the other panel members. We had some great discussions about things such as American culture and religious activity and the role of wealth and material possessions for the modern Christian.

But what I wanted to talk about here is the audience. We had, by my count, about 35 people who were not panel members. If you've ever been to a convention like the SEA, with numerous parallel sessions, we couldn't help but being pleased, especially as this was not a typical topic for an economics convention. I know we had some people who just saw the title and came in. Several people from the audience brought up great questions. I've had much good feedback from people over the idea of this session attempting to bring together religious and economic thinking. I'm glad that Doug is going to circulate his thoughts from the session, I think it's a useful next step to keep the discussion going.