Economic models and other kinds of models

From The Economist:

“THE forecaster is like an entrepreneur,” says Roman Frydman. “He uses quantitative methods, but he also studies history, and relies on intuition and judgment. He is not a scientist.” According to the New York University economist, this fact has been lost on contemporary economists, who continue to pursue the perfect economic forecast despite abundant evidence that it does not, and cannot, exist. They dismiss their repeated failures in much the same way that self-styled reformers in Mr Frydman’s native Poland once insisted that socialism was great, but just needed to be carried out better.

In the economics profession the leading inheritors of this communistic mindset, says Mr Frydman, are the proponents of rational-expectations theory, which assumes that the economy and the individuals within it act with perfect foresight. Yet he is equally critical of the more fashionable school of behavioural economics, or at least those of its practitioners who claim that although people are irrational, their irrationality can be modelled so precisely that the future can be forecast with great precision.

First, I strongly agree that we place too much emphasis on forecasts and models, which we all know aren’t right. It always seems odd to me that economists who explained eloquently why socialism could not work because of informational problems also believe that economies can be accurately forecast. If we have enough information to make accurate forecasts, wouldn’t we have information to make communism work?

Second, I wonder if informational inadequacies are the result of trying to model human behavior, or if they are the result of trying to model such complex phenomenon. If the latter is the cause of the failures, then doubt should also be cast on climate models. If the former is the cause and if climate is highly influenced by human behavior, then climate models again should be highly discounted. Why doesn’t anyone discuss the possible overlapping problems of economic and climate models?

Family and upward mobility

Some interesting (and sad) statistics, along with Mr. Douthat’s take, on black families and downward social mobility.

Selling votes

This is an interesting discussion on whether people should be allowed to sell votes. Professor Cowen compares political votes to shareholder votes. He says:

Now let’s go back to the corporate case. When it comes to policy,
shareholders might not agree on means but everyone favors the same end of profit
maximization. A winning coalition of shareholders can’t do much to extract
rents from other shareholders, unless of course they are exploiting those other
shareholders in their other roles as consumers or input suppliers.

My first choice would be to live in a political system in which a winning political coalition couldn’t extract rents from other voters – in that case, it wouldn’t really matter if votes were sold.

Libertarians and war

This is a great question. Here are Professor Caplan’s possible answers:

1. Libertarian commitment to non-interventionism was always much weaker
than it appeared. Rothbardians (and ex-Rothbardians who didn’t want to seem like
sell-outs) had key positions in the Libertarian Party, think tanks, etc., and
falsely claimed to speak for all libertarians. In fact, many libertarians held
the diametrically opposed Rand/Goldwater view that the U.S. should take off the
kid gloves and start “really” fighting the Soviets.

2. The movement away from natural rights and toward consequentialism
made libertarians more open to using government for good causes. Indeed, the
very fact that Islamic fundamentalism is a lot weaker than the USSR makes it a
more attractive target.

3. The movement away from philosophy and toward economics made
libertarians vulnerable to the simple-minded view that “getting tough” is a free lunch.

4. The rise of the “Establishment libertarian” led to moderation. In
the 70′s and 80′s, libertarianism was an alienated outsider movement. Over time,
however, many libertarian thinkers have been accepted into polite intellectual
society. The cost is that they had to distance themselves from “impolite”
positions.

5. The end of the Cold War revived the libertarian/conservative
alliance, making libertarians more receptive to conservative positions on
everything from foreign policy to immigration.

I think 3) is a bit of cheap shot, coming from a Libertarian who opposed the war – and one who loves to explain everything through biases. Historically, its reasonably easy to suggest that the true foreign policy bias (among English speaing peoples) is to ignore threats until they are extremely threatening. The book that I linked to mentions Prussian militarism, Nazism and Communism in addition to Islamic extremism. One could also add French Exapansionism under Louis XIV and French Nationalism during their Revolution to the list. Perhaps if we had “gotten tough” sooner we wouldn’t have been attacked, and hostilities never would have gotten as far along as they have (I haven’t heard anyone suggest that anything is free about acting in this manner). Nobody knows though – and that’s my main point.

I think 1) is the most plausible answer. I hope 2) is wrong (but I fear it is probably partly correct). I think 4) is a great point and operates on many levels. I wish Cato had stayed on the west coast. Everytime I see the weekly commentaries on the presidential elections on their blog, I cringe.

I wish 5) were correct but I think the opposite is true. I think one could ask not just about Libertarians, but also about Conseratives supporting the war. They went from believing nation building was bad and opposing Clinton’s tendency to intervene everywhere (all be it half-assedly) to supporting massive intervention and not just nation-building but complete state reconstruction. Similarly, Liberals went from believing that America should be helping people internationally and stopping genocide to promoting aggressive isolationism and arguing for maintaining the rule of a genocidal dictator. It seems like everyone’s foreign policy has gone 180 degrees in the last 7 years.

Review of "Dissolution"

This book is the first of a series by C. J. Sansom about a hunchbacked investigator who operates during the time of Henry VIII. I have a big, soft spot for historical fiction and for mysteries, so I really enjoyed this book. Caleb Carr will always be my gold standard in this subject, and this wasn’t that good, but I was great vacation reading (I was in Seattle over Thanksgiving).

The title of the book refers to the dissolution of the monasteries by Henry VIII and his agent Thomas Cromwell. A murder takes place at a monastery that is being dissolved. The plot twists and turns aslo take the reader through the beheading of Anne Boleyn. The author also suggests that Anne was falsely accused of adultery by Thomas Cromwell so that Cromwell could maintain power (Anne favored Cromwell and he did not want to go down with her as Henry tired of her).

It surprises me that more fiction is not set in this time period. A country essentailly had a new religion forced on it – and the process worked! What could be better for a fiction writer?

Review of "A Confederacy of Dunces"

It seems like all the critics loved this book. I thought it was funny, really funny, but then got a little painful by the end. Maybe that was a sign of how well the characters were developed though. I also think that this book would have been amazing, if I hadn’t already had my fill of this type of comedy.

A history of non-fiat (mostly gold) money

here

Is this a new form of evolution?

I’m all for survival of the fittest – can this be nominated for a Darwin Award?

I’d prefer "aristocracy"

to “secular priests” – and of course we should give credit to Tocqueville for predicting it so long ago.

IQ inherited-ness

Duh:

Twins with even a slight genetic IQ advantage are more likely to be drawn toward
learning, perform better during their primary and secondary education, and
thereby gain acceptance into top-tier universities. In the process, their IQ
levels are likely to increase even further.

Despite Dr. Flynn’s claim that this phenomenon means that environment is more important than genetics when it comes to IQ, I don’t see this as any different than an entirely genetic explanation. Your genes predisosing you to a different environment, is a genetic, not environmental, explanation.