Wednesday, June 10, 2015

Mostly economic history



Did people in the U.S. actually get shorter during the Industrial Revolution? Maybe not Bodenhorn, Guinnane and Mroz and  Ariell Zimran. (HT @pseudoerasmus)

Pseudoerasmus on famines.

Business History Conference program

Economic History Association program

Special issue of Journal of Financial Stability on alternatives to the Fed. Lawrence White advocates a return to a commodity standardOn the other hand, the St. Louis Fed doesn’t think a return to gold would be such a good idea. . Also, here is George Selgin on 10 things economists should know about the gold standard. Selgin argues out that most of the problems that arose under the gold standard arose less from the gold standard itself than from attempts to interfere with it. I agree with a lot of what he has to say, but I wouldn’t go so far as to say “That U.S. financial crises during the gold standard era had more to do with U.S. financial regulations than with the workings of the gold standard itself is recognized by all competent financial historians.” I do think that U.S. financial regulations were largely responsible for financial crises, but I am not prepared to call anyone who disagrees with me incompetent. Hanes and Rhode, for instance make a case for a combination of  cotton crops and the gold standard.

But I assume if we had a gold standard again governments would interfere with it just like they did back then.  

While I do not regard all advocates of the gold standard as nuts, I am skeptical that it would be a good idea. First, there seemed to be a fair amount of manipulation of gold flows. Attempts by the Bank of England to prevent the outflow of gold played a role in several U.S. Panics, e.g. 1837 and 1907, and Irwin has made a case that France’s sterilization of gold inflows played a significant role in causing the Great Depression. Second, when push comes to shove, countries abandon the gold standard. In other words, it’s not obvious why a commitment to uphold a commodity standard should be more convincing than a commitment to strictly adhere to a rule to target money supply growth, inflation, NGDP, or something else.   

 

And here is another take on the Alice Goffman controversy.

Monday, June 8, 2015

What is a rational choice?


 Many people know that economists use models of rational choice. But what does that mean?

Ruth Marcus explains to her readers that, “Economically speaking, the decision to have children is not utility-maximizing. And yet, most of us — intentionally, passionately, joyfully — make this least rational of choices. More than once.”

The economist Richard Thaler makes similar statements in the New York Times, as well as in his new book

“Economists create this problem with their insistence on studying mythical creatures often known as Homo economicus. I prefer to call them “Econs”— highly intelligent beings that are capable of making the most complex of calculations but are totally lacking in emotions. Think of Mr. Spock in “Star Trek.” In a world of Econs, many things would in fact be irrelevant.”

Thaler goes on to explain that

 “An Econ would not expect a gift on the day of the year in which she happened to get married, or be born. What difference do these arbitrary dates make? In fact, Econs would be perplexed by the idea of gifts. An Econ would know that cash is the best possible gift; it allows the recipient to buy whatever is optimal. But unless you are married to an economist, I don’t advise giving cash on your next anniversary. Come to think of it, even if your spouse is an economist, this is not a great idea.”

The problem is that all this is a bunch of nonsense. Utility simply means satisfaction. If you are doing something “intentionally, passionately, joyfully” it seems fair to assume you are getting a great deal of utility from it. How are people “totally lacking in emotions” going to get satisfaction from anything?

What do economists actually mean by rational choice? I’ll let Gary Becker explain:

“What is meant by rational behavior? Consider first what is not meant. Certainly not that people are necessarily selfish, “economic men” solely concerned with their own well being. That would rule out charity and love for children, spouses, relatives or anyone else, and a model of rational behavior could not be so grossly inconsistent with actual behavior and still be useful. A viable definition of rationality must not exclude charity and love: indeed consistent family behavior probably requires love between family members.

                Also, rationality should not imply that each household’s decisions are necessarily independent of those made by others. Different households are linked ultimately by a common cultural inheritance and background, and they may also be linked in a more proximate way. If household j increases its consumption of X, household I might be led to change its consumption of X. Such interdependencies commonly occur, and should be consistent with our model of rational behavior.

                The essence of the model of rational behavior is contained in just two assumptions: each consumer has an ordered sort of preferences, and he chooses the most preferred position available to him.” Becker Economic Theory pages 25 and 26)

Preferences can, and often are, driven by emotions. Preferences are also influenced by the culture we live in and the people we live with.

The one thing that the rational choice approach does not do is to say what people should want. This, of course, makes the traditional economic approach very different from a behavioral economic approach that seeks to “nudge” people to do what Richard Thaler thinks they should do.   

Thursday, June 4, 2015

On The Run and Social Science Research Methods


There has been a lot more about Alice Goffman’s On the Run the last few days.



Lubet’s response to the response




 

Although, much of the attention has been focused on the issue of her possible criminal conduct, it is the methodology of her project that really concerns me. I have not yet read the book. I have, however, read her paper in the American Sociological Review that was based upon the same research. She claims to have spent six years studying the residents of a neighborhood in Philadelphia. The name of the neighborhood is a pseudonym as are the names of all the individuals. Consequently, it is not possible to verify any of her claims. It is not even possible to check her account against her own field notes. She claims to have destroyed them. All of this is ostensibly to protect the people who are described in the book.

Her entire methodology is so alien to my view of research in the social sciences I find it hard to comprehend. It is not her immersion in the culture of the people she was studying that concerns me. It seems like a legitimate method of qualitiative research. Whether you use qualitative or quantitative methods should be determined by the question you are trying to answer. What puzzles me is the complete lack of accountability. One of the essential elements of good historical research is to be clear about the relationship between your conclusions and the sources that you use. Anyone should be able to follow your trail of sources to see if it leads to your conclusions. Is anyone going to believe you if you say that you use evidence from a secret notebook at an undisclosed archive? Could you write a history dissertation at Princeton based upon a secret diary that you say you destroyed to protect the author’s privacy?  In economics you are generally expected to be ready to present you data to other researchers or have a very good reason why you cannot. The American Economic Review, for instance, expects authors to make their data available. Reinhart and Rogoff got in trouble a while back for a spreadsheet error, but we should not forget that when a graduate student asked for the data they gave it to him. Goffman’s entire body of research appears to depend on “Just trust me.”

I am not saying that she lied. There are troubling inconsistencies within her accounts and between her accounts and other evidence. And her response to Lubet’s suggestion that she had committed a crime only adds another inconsistency. Her account in the book is completely different than the account in her response. Even if there were not inconsistencies, I would be concerned about a methodology that places so much weight trusting the author. The rewards in the social sciences for coming up with results that are deemed interesting and important are considerable. Goffman got a Ph. D. from Princeton, a best dissertation award, a book contract, a publication in the American Sociological Review, a TED talk, and a job at the University of Wisconsin. The temptations to give people what they want are too great to rely upon a methodology that provides no means for subsequent researchers to evaluate the evidence.

 

Note about the anonymous critique: Some might wonder why I am willing to link to an anonymous critique when I have such a problem with the anonymity in Goffman’s work. I have seen discussion on the web suggesting that because this critique is anonymous it should be completely disregarded. I don’t know why the author prefers to remain anonymous. As long as their argument is not based upon their authority I do not really care. The Federalist papers were published under a pseudonym. Gosset’s work on the t distribution was published under a pseudonym. I do not regard anonymity itself as a problem. The anonymous author of the critique does not at any point ask me to just trust them. There is nothing in their argument that hinges on their identity rather than the evidence.

   

Saturday, May 30, 2015

Hobbes and GameTheory


In Hobbled by Hobbes Christopher Ryan argues that the anthropological and archeological evidence is inconsistent with Steven Pinker’s interpretation of long term trends in violence. I don’t yet have a firm opinion about that issue, but Ryan also refers to Pinker and others as neo-Hobbesian. He explains that

For reasons having nothing to do with scientific accuracy, Hobbes’ dire sloganeering about the misery of pre-civilized human life echoes down the centuries. Who among us, three and a half centuries later, has not heard that our ancestors’ lives were “solitary, poor, nasty, brutish and short”? This demonization of human existence in pre-state societies is essential to preserving the legitimacy of God and country—both of which run a protection racket promising to guard us against our own demonic inner nature. Hobbes’ infectious meme is certainly among the most famous phrases ever penned in the English language, and it shows no sign of fading. Indeed, his dismal view of human nature is still being enthusiastically spread by neo-Hobbesian presidents, pundits and professors.

I have thought for some time that Hobbes view of human nature has been somewhat misinterpreted. In Chapter 11 of Leviathan he describes his view of human nature:

So that in the first place, I put for a general inclination of all mankind, a perpetual and restless desire of power after power that ceaseth only in death.”

 That does sound like a pretty dismal view of human nature, but then he explains:

“And the cause of this is, is not always that a man hopes for a more intensive delight than he has already attained to; or that he cannot be content with a moderate amount of power; but because he cannot assure the power and means to live well, which he hath at present without the acquisition of more.”

In Hobbes view the problem was less our demonic human nature than that people are essentially a prisoners’ dilemma type game, a multi-person arms race.

Tuesday, May 26, 2015

Just make it up


I have written several times about how Edward Baptist just makes up numbers for his estimate of the importance of slavery to American economic development. It turns out that he is on to something. Just making things up seems to be very popular in the social sciences now. Here is some recent just making things up in sociology, and here is some recent just making things up in political science. All of these examples share three things in common:

1.       They just made stuff up.

2.       It wasn’t that hard to see that they just made things up.

3.       The all got glowing reviews or awards because their conclusions confirmed the beliefs of the reviewers.

Of course, this isn’t really new



Tuesday, May 19, 2015

Sort of related to economic history


We just spent the weekend driving from Fredericksburg to St. Louis and back (for Mary's parents 60th anniversary). We stayed a night in Louisville because we wanted to eat at 610 Magnolia. The meal was very good, but we wished that there had been more Smoke and Pickles. We stayed a few blocks away from the restaurant at the Culbertson Mansion on 3rd Street, one of the many amazing homes built along that street in the 1880s and 1890s. Our brief stay made me curious about the economic history of Louisville, particularly the Southern Exposition.

In St. Louis, we discovered the Urban Chestnut Brewing Company. While living in München  in the summer of 1997 I discovered that I had a taste for weissbier, and Urban Chestnut makes a very good one, though Schneider Weisse is still my favorite. If you are in St. Louis, the food at their Bierhall is also quite good.

Tuesday, May 12, 2015

Some big picture economic history


Robin Grier talks with Marshall Poe about The Long Process of Development: Building Markets and States in Pre Industrial England, Spain and the Colonies her new book with Jerry Hough at the New Books Network. She argues that state capability is an essential (though hard to develop) ingredient for economic growth.

Jeremy Adelman considers “What Caused Capitalism?” as he reviews some recent books.