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Sequence summary: This is a series of 18 articles on the most fundamental concepts of economics: scarcity, opportunity cost, marginalism, and self-interest. These are the atoms, molecules, cells, the core things you need to have a grip on to move on with the science, and, if all goes well, we will move on, but first it is absolutely vital to get a strong grasp of the fundamentals. Though these are basic concepts, they are not easy to understand. If you want evidence of this, open a newspaper....
A familiar example of something scarce is ordering in a restaurant. There are so many enticing options, but you can only order one. You want more than what you can choose to have. Whatever option you choose, you could have chosen another one, and that which you did not choose is now beyond your reach. Even if you come back and order that other choice the next day, it's not the same day, you're not quite the same you. All this means that your options are scarce.
Or say you're packing to go hiking. You have only so much space in your pack. That means if you want to bring the flashlight, you won't have room for those extra snack bars, not if you also want to fit in the spare batteries for the camera. You have to pick one and make a tradeoff - that is, your space is scarce.
(Maybe you could bring a bigger pack. But that would be more unwieldy, and with all the stuff in it, it will be heavier. So there's your tradeoff - more stuff, or a more difficult hike?)
And don't forget, you need a tent. It rains pretty hard round these parts. Do you want to spend more money on the super high-tech tent with the poly-something supercalifragilistic anti-water technology? Or do you want the cheaper one, even though there's a chance you might get wet? Again, you have to make a choice, trading off one good for another because your money is scarce.
If only you had more money! If only you had more space! If only you could carry more weight! If only more restaurants would offer a tasting menu so you could sample everything and not torture you with the eternal mystery of what all these fascinating things actually are!
All these things are scarce.
Now that we have some examples, we can pin down a more precise definition of what makes something scarce. But first, I'm going to state very explicitly what does not make something scarce. Space is not scarce just because you don't have as much space in your pack as you want. Strength is not scarce just because you don't have as much strength as you would like. Money is not scarce just because you don't have as much money as you would like.
Your options are not scarce just because you cannot order from a tasting menu. In other words, what makes something scarce is not that there is less of it than you want.
Money, space, time, and energy are not scarce because you don't have as much of them as you want. That's part of what creates scarcity, but it is not scarcity in and of itself.
Think about trying to get that sand-sphere of your values to fit into the too-small hole. You have to remove some of the sand, and that sucks. But suppose that the sand is homogeneous, so removing one grain is the same as removing any other. So you remove the sand necessary for the rest of the sphere to fit into the hole, and....
Since the sphere is homogeneous, what's the difference between having to remove some sand yourself and just having a sphere that's small enough to fit into the hole?
Whether you think of it as a too-big sphere or a too-small hole, the problem's the same: you can only fit so much of the sphere into the hole, just like you could order only so many things in a restaurant or fit only so many things into your pack. You want more, but you can't have more, and that's not what makes it scarce.
Something is scarce not when there is less of it than you want but when it has alternative uses.
Your ordering choices in a restaurant are scarce not because you want to try everything and you can't, but because whatever you order, you could have chosen some other thing. What you do in that restaurant with your time, money, and the space in your stomach could have been some other thing. That means you have to think about which dishes you want to try the most and order those, forgoing the chance to try the other dishes.
The space in your pack is scarce not because more things won't fit, but because you have to choose which things you're going to pack. You have to think about what you want the most, knowing that any item you pack means you can't pack something else. Your strength is scarce not because you can't carry as heavy a pack as you would like but because you can choose to do alternative things with your strength, like having a faster or more pleasant hike. The money you could spend on a tent is scarce not because you want more of it, but because you can choose to spend it on alternative things.
It is the presence of alternatives that makes something scarce, and that's why the homogenous sphere of sand is not scarce. There are no choices to make, no alternative uses the sand can be put to; there's no difference between choosing to remove one grain versus another. There is no difference between having to make the choice to remove sand versus just having less sand to begin with (disregarding the brief time and effort of brushing the sand away).
You want more sand. Every grain is one of your values. But it is only because each grain of sand is different, it is only because there is a meaningful sense in which you can choose which values to retain and which to sacrifice that there is scarcity, choice, and foregone opportunities, - the core elements of economics. It all begins with a choice: this value, or that? This alternative, or that one? A mere lack of sand is insufficient....
This is why I don't take promises of a post-scarcity society very seriously. They seem to think in terms of leaps in production technology, as if the key to ending scarcity is producing lots and lots of stuff. But scarcity is the presence of alternative uses, not the presence of want, and making lots of stuff does nothing to address the former per se. Picard, who can make as much tea as he wants in his replicator, must still make choices.
Next: more on the relationship between cost and scarcity....
Sequence summary: This is a series of 18 articles on the most fundamental concepts of economics: scarcity, opportunity cost, marginalism, and self-interest. These are the atoms, molecules, cells, the core things you need to have a grip on to move on with the science, and, if all goes well, we will move on, but first it is absolutely vital to get a strong grasp of the fundamentals. Though these are basic concepts, they are not easy to understand. If you want evidence of this, open a newspaper....
Thank goodness this wasn't a restaurant where you had to order only one thing and you never found out what all the other things on the menu tasted like. Harry hated that, it was like a torture chamber for anyone with a spark of curiosity: Find out about only one of the mysteries on this list, ha ha ha!
A simple way to understand scarcity is to imagine you're trying to fit all your sand into a hole, but the hole is too small for all the sand to fit into.
It is, of course, possible to make the hole deeper or wider. It's also possible to compress the sand. However, either task can only be accomplished with the help of a mysterious element called "technology." The thing is, economists don't know what this element looks like or how to find it. Sometimes we look at all the people putting sand into holes and notice that the hole is bigger or the sand is more compressed, and we conclude "technology" must have happened. But it's not something we can predict or count on. So how are you going to get all of your sand into this hole?
You're not. Look, I don't know what's so special about this sand, and I don't know why you have to get it into this hole, but I know not all of it's going in. And that means if you want any of it to go in, you must leave some of it out.
That's scarcity: you must give up something to get anything.
It won't fit. Don't try to force it - it won't fit. And that means you're going to have to make a choice.
"Hold on," you say. "I don't really care which sand goes into the hole and which stays out here."
"Okay, okay, but this is economic sand. It's representative."
"Take a closer look."
You give the sky (being uncertain of where this voice is coming from) a skeptical look, but you grudgingly crouch and inspect the sand (which stretches for miles around you). To your surprise, each grain is different from the rest. And, when you look really closely, each is a tiny, tiny gem, a reflection of something.
In some you see familiar faces. Others, you know just by looking, taste like chocolate, and smell like flowers, and feel like accomplishment, and smell like chlorine, a memory....
You pick up one. It is a pounding bass that sets your whole body vibrating. You drop it before your heart bursts out your chest.
It was your favorite techno remix of classical music.
Your are rubbing between your fingers the feeling of being curled up on the couch on a rainy night with your best friend watching a movie when a voice coughs.
"It's my values," you say, getting quickly to your feet.
"It's representative, like I said."
You look around. The sand seems to stretch on endlessly in all directions.
"There's a lot of it."
"Aren't you a marvelous creature? And to think it all fits between the sides of your skull."
"Some of it's out of reach."
"That's one of the problems, yes. And if the hole were big enough, all the sand, though it stretches on endlessly, would nevertheless fall into the hole."
"Can we abstract away from that, please? This is all a bit much."
You open your eyes (though they hadn't been closed) and look around. Now you are in an empty room, the walls grey. There is a ball of sand that you know is made of all the sand from before, yet it is small and light enough to hold in your hands. There is no door. There is the hole, same as it ever was, only now you do not, you do not want to leave even a single grain of sand without.
"Can't I put some of it in, then take it out and put the rest in?"
"This hole, too, is an economic hole. It's representative."
You stare until it clicks. "Choice. There's no going back."
"Yep. The instant you fill the hole, it closes. And now you must make a choice."
Only so much will fit in...which means you have to leave some out. Take your time.
It's tough, but finally you separate the grains of sand you want to keep the most from the less important ones. The remaining sand will fit into the hole.
Notice something - once you've removed enough sand to fit the rest into the hole, there's no reason to remove any more. You only want to remove the minimum necessary to fit the sand into the hole.
So you remove the sand, and you pile the rest into the hole, and the hole closes, and then you suffocate to death in this doorless room....
So what's up with that hole, anyway? Notice how the fact that you couldn't fit all the sand into the hole forced you to make a choice. You could have removed this grain or that grain or made all the grains a little smaller. Or you could have thrown the sand down in despair and wept. But if you did that, you wouldn't have gotten any of the sand into the hole, so you did the smart thing, made a choice, and forwent some sand.
And what happens then? Why, the hole closes, and you can't go back and choose something different.
That's scarcity. You can't get everything, which means you have to give up something, which means you have to make a choice, and you can never go back, not entirely.
Next: defining scarcity....
Recently I talked with a guy from Grant Street Group. They make, among other things, software with which local governments can auction their bonds on the Internet.
By making the auction process more transparent and easier to participate in, they enable local governments which need to sell bonds (to build a high school, for instance), to sell those bonds at, say, 7% interest instead of 8%. (At least, that's what he said.)
They have similar software for auctioning liens on property taxes, which also helps local governments raise more money by bringing more buyers to each auction, and probably helps the buyers reduce their risks by giving them more information.
This is a big deal. I think it's potentially more important than any budget argument that's been on the front pages since the 1960s. Yet I only heard of it by chance.
People would rather argue about reducing the budget by eliminating waste, or cutting subsidies to people who don't deserve it, or changing our ideological priorities. Nobody wants to talk about auction mechanics. But fixing the auction mechanics is the easy win. It's so easy that nobody's interested in it. It doesn't buy us fuzzies or let us signal our affiliations. To an individual activist, it's hardly worth doing.
I sure think it is! But I could be wrong...
This is my first article/post? here and to be honest, I have this website open in another tab and I keep refreshing it to see if I still have enough points to post. I wish I would have taken a screenshot every time my karma changed. First it was 0, then it was -1, then it was back to 0, then I think it jumped up to 5. I thought I was safe but then this morning it was down to 0. So if this post seems "linky" then it might be because I'm trying to share as much information as I can while my window of opportunity is still open.
Pragmatarianism (tax choice) is the belief that taxpayers should be able to choose where their taxes go. Tax choice is the broad concept while pragmatarianism is my own personal spin on it... but sometimes I use "tax choice" when I mean pragmatarianism. Eh, at this point I don't think it's a big deal. Really the only thing nice about the word "pragmatarianism" is that it functions as a unique ID... which is extremely helpful when it comes to searches. Don't have to worry about wading through irrelevant results.
Here are some links from my blog which should help you decide whether pragmatarianism is more or less wrong...
Pragmatarianism FAQ - a good place to start. It's pretty short.
Key concepts - a work in progress. Some of the concepts are linked to entries which have PDF files with a bunch of relevant quotes and passages. If you like any of them then please share them in this thread... Quotes Repository. I shared a few but they didn't fare so well... so I'm guessing that most people here aren't fans of economics... or they aren't fans of my economics.
Progress as a Function of Freedom - hedging bets, the impossibility of hostile aliens, the problem with "rights".
What Do Coywolves, Mr. Nobody, Plants And Fungi All Have In Common? - the universal drive to choose the most valuable option, the carrying model as an explanation for our intelligence, a bit on rationality.
Builderism - where better options come from, globalization, debunking Piketty, eliminating poverty.
My Robin Hanson trilogy...
Is Robin Hanson's Path To Efficient Voting Pragmatic Or Brilliant Or Both? - maybe we should have a civic currency?
Rescuing Robin Hanson From Unmet Demand - how many other people are in the same boat?
Futarchy vs Pragmatarianism - is it logically inconsistent to support one but not the other?
AI Box Experiment vs Xero's Rule - my first brainstorm attempt to wrap my mind around the idea of an AI box.
Is A Procreation License Consistent With Libertarianism? - would a procreation license be less wrong?
Why I Love Your Freedom - my critique of the best critique of libertarianism. A bit on rationality.
So what do you think? Am I in the right place?
What else? Of course I'm an atheist! And I love sci-fi... and for sure I want to live forever. The major obstacle is that too many people fail to grasp that progress depends on difference. I do my best to try and eliminate this obstacle. Unfortunately I suck at writing and my drawings are even worse. Oh well.
Let me know if you have any questions.
The cryptocurrency ethereum is mentioned here occasionally, and I'm not surprised to see an overlap in interests from that sphere. Vitalik Buterin has recently published a blog post discussing some ideas regarding how smart contracts can be used to enforce superrationality in the real world, and which cases those actually are.
I believe that a small piece of rationalist community doctrine is incorrect, and I'd like your help correcting it (or me). Arguing the point by intuition has largely failed, so here I make the case by leaning heavily on the authority of conventional economic wisdom.
How does an industry's total output respond to decreases in a consumer's purchases; does it shrink by a similar amount, a lesser amount, or not at all?
(Short-run) Answers from the rationalist community:
The consensus answer in the few cases I've seen cited in the broader LW community appears to be that production is reduced by an amount that's smaller than the original decrease in consumption.
Animal Charity Evaluators (ACE):
Fewer people in the market for meat leads to a drop in prices, which causes some other people to buy more meat. The drop in prices does also reduce the amount of meat produced and ultimately consumed, but not by as much as was consumed by people who have left the market.
As is commonly known by economists, when you choose to not buy a product, you lower the demand ever so slightly, which lowers the price ever so slightly, which turns out to re-increase the demand ever so slightly. Therefore, forgoing one pound of meat means that less than one pound of meat actually gets prevented from being factory farmed.
The key points to note are that a permanent decision to reduce meat consumption (1) does ultimately reduce the number of animals on the farm and the amount of meat produced (2), but it has less than a 1-to-1 effect on the amount of meat produced.
These answers are all correct in the short-run (ie, when the “supply curve” doesn’t have time to shift). If there is less demand for a product, the price will fall, and some other consumers will consume more because of the better deal. One intuitive justification for this is that when producers don’t have time to fully react to a change in demand, the total amount of production and consumption is somewhat ‘anchored’ to prior expectations of demand, so any change in demand will have less than a 1:1 effect on production.
For example, a chicken producer who begins to have negative profits due to the drop in price isn't going to immediately yank their chickens from the shelves; they will sell what they've already produced, and maybe even finish raising the chickens they've already invested in (if the remaining marginal cost is less than the expected sale price), even if they plan to shut down soon.
(Long-run) Answers from neoclassical economics:
In the long-run, however, the chicken producer has time to shrink or shut down the money-losing operation, which reduces the number of chickens on the market (shifts the "supply curve" to the left). The price rises again and the consumers that were only eating chicken because of the sale prices return to other food sources.
As a couple of online economics resources put it:
The long-run market equilibrium is conformed of successive short-run equilibrium points. The supply curve in the long run will be totally elastic as a result of the flexibility derived from the factors of production and the free entry and exit of firms.
The increase in demand causes the equilibrium price of zucchinis [to] increase... and the equilibrium quantity [to] rise... The higher price and larger quantity is achieved as each existing firm in the industry responds to the demand shock.
However, the higher price leads to above-normal economic profit for existing firms. And with freedom of entry and exit, economic profit attracts kumquat, cucumber, and carrot producers into this zucchini industry. An increase in the number of firms in the zucchini industry then causes the market supply curve to shift. How far this curve shifts and where it intersects the new demand curve... determines if the zucchini market is an increasing-cost, decreasing-cost, [or] constant-cost industry.
Constant-Cost Industry: An industry with a horizontal long-run industry supply curve that results because expansion of the industry causes no change in production cost or resource prices. A constant-cost industry occurs because the entry of new firms, prompted by an increase in demand, does not affect the long-run average cost curve of individual firms, which means the minimum efficient scale of production does not change.
[I left out the similar explanations of the increasing- and decreasing-cost cases from the quote above.]
In other words, while certain market characteristics (increasing-cost industries) would lead us to expect that production will fall by less than consumption in the long-run, it could also fall by an equal amount, or even more.
Short-run versus long-run
Economists define the long-run as a scope of time in which producers and consumers have time to react to market dynamics. As such, a change in the market (e.g. reduction in demand) can have one effect in the short-run (reduced price), and a different effect in the long-run (reduced, constant, or increased price). In the real world, there will be many changes to the market in the short-run before the long-run has a chance to react to to any one of them; but we should still expect it to react to the net effect of all of them eventually.
Why do economists even bother measuring short-run dynamics (such as short-run elasticity estimates) on industries if they know that a longer view will render them obsolete? Probably because the demand for such research comes from producers who have to react to the short-run. Producers can't just wait for the long-run to come true; they actively realize it by reacting to short-run changes (otherwise the market would be 'stuck' in the short-run equilibrium).
So if we care about long-run effects, but we don't have any data to know whether the industries and increasing-cost, constant-cost, or decreasing-cost, what prior should we use for our estimates? Basic intuition suggests we should assume an industry is constant-cost in the absence of industry-specific evidence. The rationalist-cited pieces I quoted above are welcome to make an argument that animal industries in particular are increasing-cost, but they haven't done that yet, or even acknowledged that the opposite is also possible.
Are there broader lessons to learn?
Have we really been messing up our cost-effectiveness estimates simply by confusing the short-run and long-run in economics data? If so, why haven't we noticed it before?
I'm not sure. But I wouldn't be surprised if one issue is, in the process of trying to create precise cost-effectiveness-style estimates it's tempting to use data simply because it's there.
How can we identify and prevent this bias in other estimates? Perhaps we should treat quantitative estimates as chains that are no stronger than their weakest link. If you're tempted to build a chain with a particularly weak link, consider if there's a way to build a similar chain without it (possibly gaining robustness at the cost of artificial precision or completeness) or whether chain-logic is even appropriate for the purpose.
For example, perhaps it should have raised flags that ACE's estimates for the above effect on broiler chicken production (which they call "cumulative elasticity factor" or CEF) ranged by more than a factor of 10x, adding almost as much uncertainty to the final calculation for broiler chickens as the 5 other factors combined. (To be fair, the CEF estimates of the other animal products were not as lopsided.)
LW readers have unusual views on many subjects. Efficient Market Hypothesis notwithstanding, many of these are probably alien to most people in finance. So it's plausible they might have implications that are not yet fully integrated into current asset prices. And if you rightfully believe something that most people do not believe, you should be able to make money off that.
Here's an example for a different group. Feminists believe that women are paid less than men for no good economic reason. If this is the case, feminists should invest in companies that hire many women, and short those which hire few women, to take advantage of the cheaper labour costs. And I can think of examples for groups like Socialists, Neoreactionaries, etc. - cases where their positive beliefs have strong implications for economic predictions. But I struggle to think of such ones for LessWrong, which is why I am asking you. Can you think of any unusual LW-type beliefs that have strong economic implications (say over the next 1-3 years)?
Wei Dai has previously commented on a similar phenomena, but I'm interested in a wider class of phenomena.
If interventions changing population size are cheap, they may be the best option independent of your population ethics
In this post I'll explain why you might want to assist altruistic interventions that change the size of the world population regardless of how valuable you think additional lives are. The argument relies on a combination of 2 population-changing interventions that combine to produce the effect of a non-population-changing intervention, but at a lower cost.
Suppose you can donate to the following 3 interventions:
- "Growth": increase one future person's income from $500/yr to $5,000/yr for $10,000
- "Plus": cause one more person to be born in a middle-income country (income ~$5,000/yr) for $6,000
- "Minus": cause one less person to be born in a poor country (income ~$500/yr) for $1,000
- Plus+Minus is more costly than Growth in reality (quite likely)
- Growth and Plus+Minus are actually not equivalent, since Growth actually helps a particular person (again, see my last post)
- Education about contraception
- Having children yourself (cost varies from person to person)
- Paying others to have children
- Subsidizing contraception
- Subsidizing surrogacy (there are replaceability issues here, but I couldn't find any estimates of supply/demand elasticity)
- Being a surrogate yourself (doesn't cost you any money, but can be unpleasant, so the cost varies from person to person)
Economics/demographics question: If a child unexpectedly dies, how much does this shrink the next generation?
The answer seems obvious - the next generation will have one fewer person (in expectation) - but it's not that simple, and it's been bugging me for about a day now.
Suppose you are an average 15-year-old, and your parents are too old to have any more children (they won't have more children to "replace" you). The ~2 children you would have had obviously won't be born. Naïvely that means the next generation will be smaller by 2, but this disagrees with the obvious answer (smaller by 1).
Where this reasoning goes wrong is in assuming that everyone else will still have the same number of children. The sex ratio will shift so that the surviving members of your sex have n more children, and the size of the next generation will decrease by 2 minus n. If n is 1, we get the intuitive answer that there'll be 1 less person.
But there's no reason why n has to be 1 for both sexes! If both a boy and a girl die, the sex ratio is unaffected and the next generation will be 1 smaller, so n has to average to 1, but n may or may not be the same between sexes. Have there been any studies estimating the value of "n" for each sex?
(I posted this because it's relevant to population ethics, but I'm not entirely sure whether it belongs here, so I also posted it to Reddit. Should questions like this go in Discussion or in an open thread?)
This is an answer to a possible objection to cash-transfer charities like GiveDirectly. I remember reading about this on LessWrong a while ago, but I can't find the discussion now. I was planning on asking about this on an Open Thread, but I got curious, did my own research, and answered my own question, so now it gets its own Discussion post.
Cash-transfer charities do something very simple: they take money given by donors, find very poor people, and give them the money, in instalments. A prominent example is GiveWell's current top charity, GiveDirectly, which gives yearly gifts on the order of $1000 to very poor people in Kenya and Uganda. There is a lot of convincing research that cash-transfer charities are very effective at helping poor people.
There is a complicated debate about whether cash transfers are actually the very best way of helping poor people, or if there are in-kind charities that do the job a little better. This post is not about that. Instead, this post is just about a possible problem with the mechanics of cash transfers. The problem is this: say a donor in (say) the US gives money to GiveDirectly, and they send that money to a person in (say) Kenya. The recipient in Kenya now has a larger bank balance. But this doesn't actually create any wealth in Kenya; it just increases the amount of currency chasing the same pile of goods there. The person getting the transfer gains a positional advantage over her neighbors, but the total wealth there stays exactly the same, which of course is no good. What we as donors would really like to do is make sure that we are in some sense donating real wealth; that we are giving up a claim on some of the world's resources in such a way that other, poorer people then get to claim those resources themselves. But if just money, but no, like, actual stuff, is transferred, then giving to charity just amounts to a bookkeeping trick.
The way out of this, of course, is global trade. Dollars in the US aren't separate from dollars in Kenya; they both participate in the same global market. If global trade is efficient enough, then Kenya as a whole gains dollars relative to the US, and the buying power of their whole economy increases relative to the US economy. So Kenya does really get a bigger pile of goods for their higher number of dollars to chase, so I can transfer real, actual wealth just by changing numbers on a computer screen.
But again, this all depends on global trade, and in particular trade between the US and Kenya, being efficient. A way to measure this is correlation between the price of the same commodity in different countries. If the correlation is low, that suggests the two economies operate pretty much separately. But if the price correlation is high, that suggests that the two countries are both participating in the same market together, and transferring money reliably transfers wealth.
I decided to test this using the price of crude oil. Here's a graph of the price of crude oil in Kenya and in the United States, in inflation-adjusted US dollars, from January 2007 to January 2014. The red line is the US, the blue line is Kenya.
And the correlation is 0.93, according to Excel. So the economies seem tightly connected enough that transferring money does transfer real wealth, and you can be confident that your donation to GiveDirectly doesn't have perverse unintended consequences (or at least, not this kind).
A big caveat: I am no kind of economist; this is purely the result of back-of-the-envelope, common-sense layperson's thinking, and some numbers I found on the internet. Problems I could have include:
1. My intuition that commodity price correlation implies "connectedness" in the relevant way is just wrong.
2. In theory it's okay, but just one commodity doesn't give you the whole picture.
3. Crude oil is not a good index to use.
4. Something else?
Any criticism or other thoughts welcomed.
Dr. Helen has a thoughtful post up asking if the title of her book is an accurate description of men’s response to the changes in the law and culture. While the title of her book is extremely effective in opening the discussion (which is what it needs to do), it isn’t an accurate description of problem we face in the West. A strike can be negotiated with; offer them a bit more and they’ll get back to work. Better yet, offer a few of them a side deal and break the cohesion. True strikes require moral or legal force to avoid this sort of peeling off. The problem for the modern West is far worse. What we are seeing isn’t men throwing a collective temper tantrum, noble or otherwise. What we are seeing is men responding to incentives. Even worse, inertia has delayed the response to incentives, which means much more adjustment is likely on the way.
There was an old joke in the Soviet Union to the effect of:
""We pretend to work. They pretend to pay us.""
The problem for the Soviets was this wasn’t a movement. They knew how to handle a movement, and Siberia had plenty of room above ground and below. The Soviets were masters at coercion through fear, but the problem wasn’t a rebellion, it was that they had reached the limits of incentive through fear. In the short and even medium term fear is a very effective motivator. But over time if overused it loses some of its power, especially when it comes to the kind of productivity which requires creativity and risk taking. Standing out is risky; you don’t want to be the worst worker on the line in a fear based system, but you also have reason to fear being the best worker on the line. This doesn’t happen so much by conscious choice, but due to the influence of the incentive structure on the culture over time. Conscious choices can be bargained with, and threats of punishment are still effective. The culture itself is far harder to negotiate with. No one is refusing anything. So the Soviets had no choice but to assign quotas, and severely punish those who failed to meet them. But while the quota/coercion system keeps production running, it works against human nature. If you become the best producer you end up being assigned a larger share of the quota burden; from each according to his abilities. Over time the logic of this works its way into the culture, as everyone gets just a little more inclined to go with the flow and not do more than required. The problem is while momentum causes the response to be slow, it also means it is very difficult to deal with once you have enough of it to recognize.
The problem we presently face in the West is similar. While we have a small number of men who have decided to slack off as a form of protest, the far more insidious risk to our economy is the across the board weakening of the incentive that a marriage based social structure creates for men to produce at their full potential. We’ve moved from a mostly reward based incentive structure to a model the Soviets would have been proud of.
You can see this at the micro level with a man whose wife goes Jenny Erickson on him. The courts understand that throwing a man out of the home and taking away his children naturally reduces the man’s normal incentive to work to support his family. How could it not? It isn’t that most men in this situation will stand by and watch their children starve, but they won’t be motivated to produce quite as much. You can confiscate a percentage of his income in the form of child support, but he no longer has the incentive to fight his way quite so high up our progressive tax structure. This is why the courts have to assign the man an income quota he has to meet, Soviet style. Imputation of income isn’t incidental to the child support family model; it is essential to the function of the model. Note that this doesn’t mean the courts have to formally calculate an income quota for each man who ends up in the new child support family structure; in most cases the man has already assigned himself a quota based on past production. All the family courts need to do in most cases is make sure he doesn’t fall below this quota.
As I mentioned above coercion is generally a very effective incentive in the near and medium term. Part of the reason conservatives are so enamored with child support is the threatpoint it provides to keep existing husbands working as hard as possible. While in the long run this will ultimately create a culture where husbands are less inclined to become stand out earners, as Keynes famously put it in the long run we are all dead. The other problem is the changes in the culture in response to over use of coercion are by their very nature difficult to identify and quantify. This isn’t unlike the Laffer Curve; while both liberals and conservatives agree regarding the principle of the curve, the shape of the curve is impossible to get agreement on. Eventually you can raise tax rates so high that you end up with lower revenue, but due to the problems of momentum identifying exactly when you have (or will) hit that point can be very difficult.
The more immediate problem in the West is the reduced incentive young men perceive to compete as breadwinners due to the continuing delay in the age of marriage. Again this isn’t a movement, it is a delayed response by the culture to reality. When the average woman marries in her late teens or even her early twenties, the average young man will see himself as competing with his peers for the job of husband. Not only is he competing to not be left out of the game entirely, but he is jockeying for a better choice of wife. But move the age of marriage out far enough, and eventually young men don’t see themselves so clearly as competing for the job of husband. Extend the age of marriage far enough and eventually the culture of young men will be less focused on competing to signal provider status, and their priorities will shift (on the margin) toward slacking off. The question isn’t if this will happen, but how long you can push the age of marriage out before this starts to happen, how much this will reduce the motivation of young men, and how long between the change in reality and the change in culture. Note also that this doesn’t require men to swear off marriage entirely for this to greatly impact our tax base. Changing the culture of men in their formative years will have a lasting impact. You can’t rewind time and undo a decade of (relative) slacking. Additionally, momentum tends to start working against you at some point. As the expectations of men as providers declines it eventually creates an expectation of decline. As each generation of new husbands come to the table with less to offer as providers, we eventually will start to expect future generations of husbands to offer even less.
As I’ve said before, all of this places our elites in a very difficult bind. Eventually the momentum which initially masked the problem makes it extremely difficult to address. Denial of the problem is a flawed strategy but it has important advantages. Once you acknowledge that the incentive structure is flawed you tend to accelerate the delayed response to the new structure. At the same time, the changes at the core of the problem are very close to the hearts of both liberals and conservatives. However, ignoring the problem will become more and more difficult because of the impact on the bottom line. Because of this, we can expect to see more of what we already see. Feminists will continue their handwringing tentatively asking if perhaps we have gone a bit too far, and conservatives will redouble their efforts to convince men they need to man up and stop sabotaging the glorious feminist progress. Less conspicuously I also expect we will see some dialing back of the worst excesses of the family courts. However, because of the momentum involved and the reluctance to acknowledge the fundamental problem, these changes will at best only slow the problem, and they will always run the risk of initially accelerating it.
Update: Thanks everyone for the continuing thought-provoking discussion. I intend to post my decision spreadsheet, and still am looking for suggestions on where to do so. It might come in handy come February. A discussion that I find interesting has branched off on the topic of technological progress versus Malthusian Crunch, and I started a new article on that over here.
I would like to kick off a discussion about optimal strategies to prepare for the event that the US government fails to raise the debt ceiling before the US Treasury Department's "extraordinary measures" are exhausted, which is estimated to happen sometime between October 17th and mid-November.
This is a risk *caused* by politics, but my goal is to talk about bracing against the event itself if it happens, not the underlying politics. If you want to debate Obama-care, who is at fault, or how likely a US default actually is, please start a separate discussion.
I consider this to be an indirect existential risk because if it kicks off a national or global recession, it will likely slow or halt research and philanthropic efforts at mitigating longer-term existential risks.
Since there are obvious associations between unemployment/poverty and crime, civil unrest, and poor health, a global recession is likely to be to some extent a personal existential risk to those living in the United States or countries that have trade links with the United States.
I notice that the markets do not seem to be anticipating a bad outcome. But I heard one analyst advance the theory that investors simply don't believe the government can (his words) "be that stupid". I imagine there is more than a touch of availability bias as well-- breaching the debt ceiling might, even for fund managers who harbor no illusions about the wisdom of politicians, be up there with science-fictional scenarios like asteroid impact, peak oil, grey goo, global warming, and
terrorist attacks. Moreover, there may be a dangerous feedback loop as the politicians in turn watch the stock indexes and conclude that "the market says there is nothing to worry about".
So, I would like to hear what folks who are making contingency plans are doing. Especially people who have training or experience in economics and finance. What do you think the closest parallels in 20th/21st century history are for what the worst case scenario for a US government default would be like? Is there anything you would have done differently if you had known the date for the start of the 2008 recession with a +/- 2 week confidence interval, starting in two days? Or, if you did call it ahead of time, what are you glad you did?
I took an economics course recently. And by "took a course" I mean followed a series of online lectures. I can strongly recommend doing so, especially if you already think you have an intuitive grasp of economics.
I was in that situation. I knew about incentives, and revealed preferences. I understood that supply and demand curves crossed. I grasped some of the monetarist arguments about the lack of long run tradeoffs between inflation and employment. I could talk about Keynesian stimulus and sticky prices/wages. I understood bank runs. Externalities were obvious, public goods a bit less so. I even knew quite a lot about banks and the money supply.
I had it pretty good, I thought. And yet when I followed basic economics lecture, I learnt a lot. The models and concepts suddenly fit together. I understood concepts that I only thought I had understood before. Economists do know their stuff, their models and concepts are informative - more so than I ever expected.
So, bearing in mind that economics is a social science whose conclusions are not nearly as rigorous as its models, I can recommend to anyone on Less Wrong who's interested to follow a lecture series or take a course.
The theory of comparative advantage says that you should trade with people, even if they are worse than you at everything (ie even if you have an absolute advantage). Some have seen this idea as a reason to trust powerful AIs.
For instance, suppose you can make a hamburger by using 10 000 joules of energy. You can also make a cat video for the same cost. The AI, on the other hand, can make hamburgers for 5 joules each and cat videos for 20.
Then you both can gain from trade. Instead of making a hamburger, make a cat video instead, and trade it for two hamburgers. You've got two hamburgers for 10 000 joules of your own effort (instead of 20 000), and the AI has got a cat video for 10 joules of its own effort (instead of 20). So you both want to trade, and everything is fine and beautiful and many cat videos and hamburgers will be made.
Except... though the AI would prefer to trade with you rather than not trade with you, it would much, much prefer to dispossess you of your resources and use them itself. With the energy you wasted on a single cat video, it could have produced 500 of them! If it values these videos, then it is desperate to take over your stuff. Its absolute advantage makes this too tempting.
Only if its motivation is properly structured, or if it expected to lose more, over the course of history, by trying to grab your stuff, would it desist. Assuming you could make a hundred cat videos a day, and the whole history of the universe would only run for that one day, the AI would try and grab your stuff even if it thought it would only have one chance in fifty thousand of succeeding. As the history of the universe lengthens, or the AI becomes more efficient, then it would be willing to rebel at even more ridiculous odds.
So if you already have guarantees in place to protect yourself, then comparative advantage will make the AI trade with you. But if you don't, comparative advantage and trade don't provide any extra security. The resources you waste are just too valuable to the AI.
EDIT: For those who wonder how this compares to trade between nations: it's extremely rare for any nation to have absolute advantages everywhere (especially this extreme). If you invade another nation, most of their value is in their infrastructure and their population: it takes time and effort to rebuild and co-opt these. Most nations don't/can't think long term (it could arguably be in US interests over the next ten million years to start invading everyone - but "the US" is not a single entity, and doesn't think in terms of "itself" in ten million years), would get damaged in a war, and are risk averse. And don't forget the importance of diplomatic culture and public opinion: even if it was in the US's interests to invade the UK, say, "it" would have great difficulty convincing its elites and its population to go along with this.
Decent automation includes, of course, the copyable uploads that form the basis of Robin Hanson's upload economics model. If uploads can gather vast new resources by Dysoning the sun using current or near future technology, this calls into question Robin's model that standard current economic assumptions can be extended to an uploads world.
And Dysoning the sun is just one way uploads could be completely transformative. There are certainly other ways, that we cannot yet begin to imagine, that uploads could radically transform human society in short order, making all our continuity assumptions and our current models moot. It would be worth investigating these ways, keeping in mind that we will likely miss some important ones.
Against this, though, is the general unforeseen friction argument. Uploads may be radically transformative, but probably on longer timescales than we'd expect.
I've always found that learning new areas always goes a lot better if you start with a key insight of what the field is about. Often this is not presented or explained at the beginning of the course, and you have to deduce it later on.
For instance, I would have better grasped the epsilon-delta definition of a limit if the instructor had started with something like:
- Our intuitive definition of a limit is that as we get closer to this point, the function gets closer to this value. It has turned out to be very tricky to formalise this intuition, however. Early mathematicians used calculus without a good definition of limit, and their informal definitions led to a lot of paradoxes. The epsilon-delta definition is a bit clunky and may seem counter-intuitive, but it actually manages to capture our intuitive definition without paradoxes and problems - that's why we choose it, not for its elegance (though you will come to appreciate it). With that in mind, let's have a look at it...
Similarly, I would have made more rapid progress with Gödel's theorems if, before giving the formal definition of Gödel numbering and of the provability symbol □, someone had clarified that direct and indirect self-reference was a problem. If a formal system of a certain complexity can talk about its own structure, even without "realising" that it's doing so, problems will arise. Some of my other key insights in the field can be found in my post here.
Example nicked from this online Berkeley lecture.
Monopolies are bad (morality and economics agree here).
Firms that pollute are bad (morality and economics agree here).
What about monopolies that pollute?
What about strong monopolies that pollute and receive government subsidies?
Pollution, and other negative externalities, cause firms to produce too much of their product. That's because they don't pay the full cost of the product, including the impact of pollution.
The equilibrium behaviour for monopolies is to produce too little of their product, to keep prices and profits high.
So a monopoly that pollutes is subject to two opposite tendencies: the unpriced-pollution tendency to produce too much, and the monopolistic tendency to produce too little. If the effects are of comparable magnitude, then the monopoly might be much closer to social optimum than a free market would be (the social optimum, incidentally, will generally involve some pollution: we need to accept some pollution in the production of fertiliser, for instance, in order to have enough food to stop people starving).
In fact, if the monopolistic effect is too strong, then the firm may under-produce, even taken the pollution effect into account. In that case, we can approach closer to the social optimum by... subsidising the polluting monopoly to produce more!!
And that, my friends, is why economics is not a morality tale.
When does a bet fail to reveal your true beliefs? When it hedges a risk in your portfolio.
If this claim does not immediately strike you as obviously true, you may benefit from reading this post by econblogger Noah Smith. Excerpt:
...Alex Tabarrok famously declared that "a bet is a tax on bullshit".
But this idea, attractive as it is, is not quite true. The reason is something that I've decided to call the Fundamental Error of Risk. It's a mistake that most people make (myself often included!), and that an intro finance class spends months correcting. The mistake is looking at the risk and return of single assets instead of total portfolios. Basically, the risk of an asset - which includes a bet! - is based mainly on how that asset relates to other assets in your portfolio.
You walk into a laboratory, and you read a set of instructions that tell you that your task is to decide how much of a $10 pie you want to give to an anonymous other person who signed up for the experimental session.
This describes, more or less, the Dictator Game, a staple of behavioral economics with a history dating back more than a quarter of a century. The Dictator Game (DG) might not be the drosophila melanogaster of behavioral economics – the Prisoner’s Dilemma can lay plausible claim to that prized analogy – but it could reasonably aspire to an only slightly more modest title, perhaps the e. coli of the discipline. Since the original work, more than 20,000 observations in the DG have been reported.
How much would participants in a Dictator Game give to the other person if they did not know they were in a Dictator Game study? Simply following me around during the day and recording how much cash I dispense won’t answer this question because in the DG, the money is provided by the experimenter. So, to build a parallel design, the method used must move money to subjects as a windfall so that we can observe how much of this “house money” they choose to give away.
And that is what Winking and Mizer did in a paper now in press and available online (paywall) in Evolution and Human Behavior, using participants, fittingly enough, in Las Vegas. Here’s what they did. Two confederates were needed. The first, destined to become the “recipient,” was occupied on a phone call near a bus stop in Vegas. The second confederate approached lone individuals at the bus stop, indicated that they were late for a ride to the airport, and asked the subject if they wanted the $20 in casino chips still in the confederate’s possession, scamming people into, rather than out of money, in sharp contradiction of the deep traditions of Las Vegas. The question was how many chips the fortunate subject transferred to the nearby confederate.
In a second condition, the confederate with the chips added a comment to the effect that the subject could “split it with that guy however you want,” indicating the first confederate. This condition brings the study a bit closer, but not much closer, to lab conditions, In a third condition, subjects were asked if they wanted to participate in a study, and then did so along the lines of the usual DG, making the treatment considerably closer to traditional lab-based conditions.
The difference between the first two treatments and the third treatments is interesting, but, as I said at the beginning, the DG should be thought of as a measuring tool. Figure 1 shows how many chips people give away in the DG in the three treatments. In conditions 1 and 2, the number of people (out of 60) who gave at least one chip to the second confederate was… zero. To the extent you think that this method answers the question, how much Dictator Game giving is due to people knowing they’re in an experiment, the answer is, “all of it.”
Link to paper (paywalled).
Kevin Drum has an article in Mother Jones about AI and Moore's Law:
THIS IS A STORY ABOUT THE FUTURE. Not the unhappy future, the one where climate change turns the planet into a cinder or we all die in a global nuclear war. This is the happy version. It's the one where computers keep getting smarter and smarter, and clever engineers keep building better and better robots. By 2040, computers the size of a softball are as smart as human beings. Smarter, in fact. Plus they're computers: They never get tired, they're never ill-tempered, they never make mistakes, and they have instant access to all of human knowledge.
The result is paradise. Global warming is a problem of the past because computers have figured out how to generate limitless amounts of green energy and intelligent robots have tirelessly built the infrastructure to deliver it to our homes. No one needs to work anymore. Robots can do everything humans can do, and they do it uncomplainingly, 24 hours a day. Some things remain scarce—beachfront property in Malibu, original Rembrandts—but thanks to super-efficient use of natural resources and massive recycling, scarcity of ordinary consumer goods is a thing of the past. Our days are spent however we please, perhaps in study, perhaps playing video games. It's up to us.
Although he only mentions consumer goods, Drum presumably means that scarcity will end for services and consumer goods. If scarcity only ended for consumer goods, people would still have to work (most jobs are currently in the services economy).
Drum explains that our linear-thinking brains don't intuitively grasp exponential systems like Moore's law.
Suppose it's 1940 and Lake Michigan has (somehow) been emptied. Your job is to fill it up using the following rule: To start off, you can add one fluid ounce of water to the lake bed. Eighteen months later, you can add two. In another 18 months, you can add four ounces. And so on. Obviously this is going to take a while.
By 1950, you have added around a gallon of water. But you keep soldiering on. By 1960, you have a bit more than 150 gallons. By 1970, you have 16,000 gallons, about as much as an average suburban swimming pool.
At this point it's been 30 years, and even though 16,000 gallons is a fair amount of water, it's nothing compared to the size of Lake Michigan. To the naked eye you've made no progress at all.
So let's skip all the way ahead to 2000. Still nothing. You have—maybe—a slight sheen on the lake floor. How about 2010? You have a few inches of water here and there. This is ridiculous. It's now been 70 years and you still don't have enough water to float a goldfish. Surely this task is futile?
But wait. Just as you're about to give up, things suddenly change. By 2020, you have about 40 feet of water. And by 2025 you're done. After 70 years you had nothing. Fifteen years later, the job was finished.
He also includes this nice animated .gif which illustrates the principle very clearly.
Drum continues by talking about possible economic ramifications.
Until a decade ago, the share of total national income going to workers was pretty stable at around 70 percent, while the share going to capital—mainly corporate profits and returns on financial investments—made up the other 30 percent. More recently, though, those shares have started to change. Slowly but steadily, labor's share of total national income has gone down, while the share going to capital owners has gone up. The most obvious effect of this is the skyrocketing wealth of the top 1 percent, due mostly to huge increases in capital gains and investment income.
Drum says the share of (US) national income going to workers was stable until about a decade ago. I think the graph he links to shows the worker's share has been declining since approximately the late 1960s/early 1970s. This is about the time US immigration levels started increasing (which raises returns to capital and lowers native worker wages).
The rest of Drum's piece isn't terribly interesting, but it is good to see mainstream pundits talking about these topics.
Politics ahead! Read at your own risk, mind killers, etc. Let all caveats be well and thoroughly emptored.
It seems reasonably clear to me that, from a computational perspective, functional central planning is not practically possible. Resource allocation among many agents looks an awful lot like an exponential time problem, and the world market is quite an efficient approximation. In the real world, markets, regulated to preclude blackmail, theft, and slavery, will tend to provide a better approximation of "correct" resource allocation between free agents than a central resource allocation algorithm could plausibly achieve without a tremendous, invasive amount of information about the desires of every market participant, and quite a lot of computing power (within a few orders of magnitude of the combined computational budget of the human species).
It would be naive to say that we'd need exactly the computational power of the human species in order to achieve it: we can imagine how we might optimize the resource allocation scheme by quite a lot. Populations are (at least somewhat) compressible, in that there are a number of groups of individual people who optimize for similar things, allowing you to save on simulating all of them. Additionally, a decent chunk of human neurological and intellectual activity is not dedicated to economic optimization of any kind, which saves you some computing time there as well. And, of course, humans are not rational, and the homunculi representing them in the optimized market simulation could be, giving them substantially more bang for their cognitive buck - we can imagine, for instance, that this market simulation would not sink billions of dollars into lotteries each year! It may also be that the behavior of the market itself, on some level, is lawful, and a sufficiently intelligent agent could find general-case solutions that are less expensive than market simulation.
Still, though, the amount of information and raw processing power needed to pull off central planning competitive with the market approximation seems to be out of our reach for the time being. As a result of this, and a few other factors, my own politics tend to lean Libertarian / minarchist, and I'm aware that there is some of this sentiment in circulation on this site, though generally not explicitly. I'm trying to refine my beliefs surrounding some of the sticky issues in Libertarian philosophy (mostly related to children and extreme policy cases), and I thought I'd ask LW what they thought about one issue in particular.
I have been wondering whether or not there are any interventions in the economy that can have a positive expected benefit. I honestly don't know if this is the case: put another way, the question is really asking if there are any characteristic behaviors of markets that are undesirable in some sense, and can be corrected by the application of an external law. Furthermore, such things cannot be profitable to correct for any participant or plausibly-sized collection of participants in the market, but must be good for the market as a whole, or must be something that requires regulatory power to fix.
An obvious example of this sort of thing is the tragedy of the commons and negative externalities. The most pressing case study would be climate change: the science suggests, fairly firmly, that human CO2 emissions are causing long-term shifts in global climate. How disastrous these shifts will actually be is less well settled, but there is at least a reasonable probability that it will be fairly unpleasant, in the long term. Personally, I feel that we are likely to run into much bigger problems much sooner than the 50-200 year timescales these disasters seem to expected on. However, were this not the case, I find that I'm not quite sure how my ideal government, run by a few thousand much smarter and better informed copies of me, ought to respond to the issue. I don't know what I think the ideal policy for dealing with these sorts of externalities is, and I thought I'd ask for LessWrong's thoughts on the matter.
In my own mind, I think that as light a touch as possible is probably desirable. Law is a very blunt instrument, and crude legislation like a carbon tax could easily have its own serious negative implications (driving industry to countries that simply don't care about CO2 emissions, for example). However, actions like subsidizing and partially deregulating nuclear power plants could help a lot by making coal-fired power plants noncompetitive. We could also declare a policy of slowly withdrawing any government involvement in overseas oil acquisition, which would drive up the price of petroleum products and make electric cars a more appealing alternative. However, I don't know if there would be horrifying consequences to any of these actions: this is the underlying problem - I am not as smart as the market, and guessing its moods is not something that I, or any human is going to be very good at. However, it seems clear that some intervention is necessary in this sort of case. Rock, hard place, you are here.
A new study shows a large gender gap on economic policy among the nation's professional economists, a divide similar -- and in some cases bigger -- than the gender divide found in the general public.
What does an economist think of that?
A lot depends on whether the economist is a man or a woman. A new study shows a large gender gap on economic policy among the nation's professional economists, a divide similar -- and in some cases bigger -- than the gender divide found in the general public.
Differences extend to core professional beliefs -- such as the effect of minimum wage laws -- not just matters of political opinion.
Female economists tend to favor a bigger role for government while male economists have greater faith in business and the marketplace. Is the U.S. economy excessively regulated? Sixty-five percent of female economists said "no" -- 24 percentage points higher than male economists.
Can this be reasonably explained by self-interest? Female and male economists' views are probably coloured by gender solidarity. Government jobs may be more likeable to women than men because of their recorded greater risk aversion. Regardless of the reason government jobs are more important for women than for men. Also in the US where the study was done middle class white women benefit quit a bit from affirmative action in government hiring.
"As a group, we are pro-market," says Ann Mari May, co-author of the study and a University of Nebraska economist. "But women are more likely to accept government regulation and involvement in economic activity than our male colleagues."
Opinion differences between men and women are well-documented in the general public. President Obama leads Mitt Romney by 10 percentage points among women. Romney leads Obama by 3 percentage points among men, according to the latest Gallup Poll.
Politics is the mind-killer probably does play a role in explaining the difference.
The survey of 400 economists is one of the first to examine whether gender differences matter within a profession. The answer for economists: Yes.
How economists think:
- Health insurance. Female economists thought employers should be required to provide health insurance for full-time workers: 40% in favor to 37% against, with the rest offering no opinion. By contrast, men were strongly against the idea: 21% in favor and 52% against.
- Education. Females narrowly opposed taxpayer-funded vouchers that parents could use for tuition at a public or private school of their choice. Male economists love the idea: 61% to 14%.
- Labor standards. Females believe 48% to 33% that trade policy should be linked to labor standards in foreign counties. Males disagreed: 60% to 23%.
First two points are somewhat congruent with stereotypes. Anyone who has run into the frequent iSteve commenter "Whiskey" will probably note that the third point indicates women may not hate hate HATE lower and middle class beta males in this case.
"It's very puzzling," says free-market economist Veronique de Rugy of the Mercatus Center at George Mason University in Fairfax, Va. "Not a day goes by that I don't ask myself why there are so few women economists on the free-market side."
A native of France, de Rugy supported government intervention early in her life but changed her mind after studying economics. "We want many of the same things as liberals -- less poverty, more health care -- but have radically different ideas on how to achieve it."
This seems plausible since politics is about applause lights after all, the tribes are what matters not the particular shape of their attire. But might value differences still be behind the gender difference? Maybe some failed utopias I recall reading aren't really failed.
Liberal economist Dean Baker, co-founder of the Center for Economic Policy and Research, says male economists have been on the inside of the profession, confirming each other's anti-regulation views. Women, as outsiders, "are more likely to think independently or at least see people outside of the economics profession as forming their peer group," he says.
The gender balance in economics is changing. One-third of economics doctorates now go to women. The chair of the White House Council of Economic Advisers has been a woman three of 27 times since 1946 -- one advising Obama and two advising Bill Clinton. The Federal Reserve Board of Governors has three women, bringing the total to eight of 90 members since 1914.
"More diversity is needed at the table when public policy is discussed," May says.
Somehow I think this does not include ideological diversity.
Economists do agree on some things. Female economists agree with men that Europe has too much regulation and that Walmart is good for society. Male economists agree with their female colleagues that military spending is too high.
The genders are most divorced from each other on the question of equality for women. Male economists overwhelmingly think the wage gap between men and women is largely the result of individuals' skills, experience and voluntary choices. Female economists overwhelmingly disagree by a margin of 4-to-1.
The biggest disagreement: 76% of women say faculty opportunities in economics favor men. Male economists point the opposite way: 80% say women are favored or the process is neutral.
No mystery here. (^_^)
Looking at some of the more recent arguments against them showing up in discussions I've been quite disappointed, they seem betray a sort of lack of background knowledge or opinions built up from a bottom line of "markets are baaad therefore prediction markets are baaad". The casual arguments for them are lacking as well. I will say the same of other discussions on economic, since it is apparently suddenly too mind-killing or too political to talk about markets and similar things at all. We didn't use to have tribal alerts flying up in our brains discussing such matters.
The Overcoming Bias community started with an assumption of certain kinds of background knowledge, this included economics and things like game theory. In the early days of LessWrong/Overcoming Bias Eliezer did a whole sequnece on filling in people on Quantum mechanics which despite his claims to the contrary doesn't seem that vital (if still important).
We now have a different demographic that we used to. Not only that, we now have young people basically using the sequences as their primary source for education on matters of human rationality, quite different from the autodidacts exploring the literature on their own terms who where common in previous years. We've recognized this to a certain extent. We wrote a series of introductory sequences and articles to fill in such background knowledge explicitly such as Yvain's recent one on Game Theory. Also part of the reason we now have a norm of more citations that EY originally did is to give study and research aids to people. Indeed I think adding comments to old articles featuring more citations or editing those in would be wise so as to avoid misconceptions.
I think we need several sequences on economics, and a good one to start would be one systematically investigating prediction markets. To a certain extent just reading Robin Hanson's relevant posts on this topic would do much the same, but unfortunately we don't have an organized series of sequences by him (beyond the tags he uses on his articles). I still hope Karmakaiser or someone else will one day undertake a project of writing up summary articles that organize links to RH's posts into sequences so new members will read them as well.
I'd write these myself but I just don't have a good background in what works and studies influence the positions of early key LW authors on economics and its relevance to rationality. I'm also only beginning my studies in that area since my background is in the hard sciences with only some half-serious opinions formed from Moldbuggian insights and 20th century social science.
There is a standard argument against diversification of donations, popularly explained by Steven Landsburg in the essay Giving Your All. This post is an attempt to communicate a narrow special case of that argument in a form that resists misinterpretation better, for the benefit of people with a bit of mathematical training. Understanding this special case in detail might be useful as a stepping stone to the understanding of the more general argument. (If you already agree that one should donate only to the charity that provides the greatest marginal value, and that it makes sense to talk about the comparison of marginal value of different charities, there is probably no point in reading this post.)1
Suppose you are considering two charities, one that accomplishes the saving of antelopes, and the other the saving of babies. Depending on how much funding these charities secure, they are able to save respectively A antelopes and B babies, so the outcome can be described by a point (A,B) that specifies both pieces of data.
Let's say you have a complete transitive preference over possible values of (A,B), that is you can make a comparison between any two points, and if you prefer (A1,B1) over (A2,B2) and also (A2,B2) over (A3,B3), then you prefer (A1,B1) over (A3,B3). Let's further suppose that this preference can be represented by a sufficiently smooth real-valued function U(A,B), such that U(A1,B1)>U(A2,B2) precisely when you prefer (A1,B1) to (A2,B2). U doesn't need to be a utility function in the standard sense, since we won't be considering uncertainty, it only needs to represent ordering over individual points, so let's call it "preference level".
Let A(Ma) be the dependence of the number of antelopes saved by the Antelopes charity if it attains the level of funding Ma, and B(Mb) the corresponding function for the Babies charity. (For simplicity, let's work with U, A, B, Ma and Mb as variables that depend on each other in specified ways.)
You are considering a decision to donate, and at the moment the charities have already secured Ma and Mb amounts of money, sufficient to save A antelopes and B babies, which would result in your preference level U. You have a relatively small amount of money dM that you want to distribute between these charities. dM is such that it's small compared to Ma and Mb, and if donated to either charity, it will result in changes of A and B that are small compared to A and B, and in a change of U that is small compared to U.
Thought this post might be of interest to LW: Proxy measures, sunk costs, and Chesterton's fence. To summarize: Previous costs are a proxy measure for previous estimates of value, which may have information current estimates of value do not; therefore acting according to the sunk cost fallacy is not necessarily wrong.
If your evidence may be substantially incomplete you shouldn't just ignore sunk costs — they contain valuable information about decisions you or others made in the past, perhaps after much greater thought or access to evidence than that of which you are currently capable. Even more generally, you should be loss averse — you should tend to prefer avoiding losses over acquiring seemingly equivalent gains, and you should be divestiture averse (i.e. exhibit endowment effects) — you should tend to prefer what you already have to what you might trade it for — in both cases to the extent your ability to measure the value of the two items is incomplete. Since usually in the real world, and to an even greater degree in our ancestors' evolutionary environments, our ability to measure value is and was woefully incomplete, it should come as no surprise that people often value sunk costs, are loss averse, and exhibit endowment effects — and indeed under such circumstances of incomplete value measurement it hardly constitutes "fallacy" or "bias" to do so.
Luke/SI asked me to look into what the academic literature might have to say about people in positions of power. This is a summary of some of the recent psychology results.
The powerful or elite are: fast-planning abstract thinkers who take action (1) in order to pursue single/minimal objectives, are in favor of strict rules for their stereotyped out-group underlings (2) but are rationalizing (3) & hypocritical when it serves their interests (4), especially when they feel secure in their power. They break social norms (5, 6) or ignore context (1) which turns out to be worsened by disclosure of conflicts of interest (7), and lie fluently without mental or physiological stress (6).
What are powerful members good for? They can help in shifting among equilibria: solving coordination problems or inducing contributions towards public goods (8), and their abstracted Far perspective can be better than the concrete Near of the weak (9).
- Galinsky et al 2003; Guinote, 2007; Lammers et al 2008; Smith & Bargh, 2008
- Eyal & Liberman
- Rustichini & Villeval 2012
- Lammers et al 2010
- Kleef et al 2011
- Carney et al 2010
- Cain et al 2005; Cain et al 2011
- Eckel et al 2010
- Slabu et al; Smith & Trope 2006; Smith et al 2008
Robin Hanson has done a great job of describing the future world and economy, under the assumption that easily copied "uploads" (whole brain emulations), and the standard laws of economics continue to apply. To oversimplify the conclusion:
- There will be great and rapidly increasing wealth. On the other hand, the uploads will be in Darwinian-like competition with each other and with copies, which will drive their wages down to subsistence levels: whatever is required to run their hardware and keep them working, and nothing more.
The competition will not so much be driven by variation, but by selection: uploads with the required characteristics can be copied again and again, undercutting and literally crowding out any uploads wanting higher wages.
Some have focused on the possibly troubling aspects voluntary or semi-voluntary death: some uploads would be willing to make copies of themselves for specific tasks, which would then be deleted or killed at the end of the process. This can pose problems, especially if the copy changes its mind about deletion. But much more troubling is the mass death among uploads that always wanted to live.
What the selection process will favour is agents that want to live (if they didn't, they'd die out) and willing to work for an expectation of subsistence level wages. But now add a little risk to the process: not all jobs pay exactly the expected amount, sometimes they pay slightly higher, sometimes they pay slightly lower. That means that half of all jobs will result in a life-loving upload dying (charging extra to pay for insurance will squeeze that upload out of the market). Iterating the process means that the vast majority of the uploads will end up being killed - if not initially, then at some point later. The picture changes somewhat if you consider "super-organisms" of uploads and their copies, but then the issue simply shifts to wage competition between the super-organisms.
The only way this can be considered acceptable is if the killing of a (potentially unique) agent that doesn't want to die, is exactly compensated by the copying of another already existent agent. I don't find myself in the camp arguing that that would be a morally neutral or positive action.
Pain and unhappiness
A dialogue discussing how thermodynamics limits future growth in energy usage, and that in turn limits GDP growth, from the blog Do the Math.
Physicist: Hi, I’m Tom. I’m a physicist.
Economist: Hi Tom, I’m [ahem..cough]. I’m an economist.
Physicist: Hey, that’s great. I’ve been thinking a bit about growth and want to run an idea by you. I claim that economic growth cannot continue indefinitely.
Economist: [chokes on bread crumb] Did I hear you right? Did you say that growth can not continue forever?
Physicist: That’s right. I think physical limits assert themselves.
Economist: Well sure, nothing truly lasts forever. The sun, for instance, will not burn forever. On the billions-of-years timescale, things come to an end.
Physicist: Granted, but I’m talking about a more immediate timescale, here on Earth. Earth’s physical resources—particularly energy—are limited and may prohibit continued growth within centuries, or possibly much shorter depending on the choices we make. There are thermodynamic issues as well.
I think this is quite relevant to many of the ideas of futurism (and economics) that we often discuss here on Less Wrong. They address the concepts related to levels of civilization and mind uploading. Colonization of space is dismissed by both parties, at least for the sake of the discussion. The blog author has another post discussing his views on its implausibility; I find it to be somewhat limited in its consideration of the issue, though.
He has also detailed the calculations whose results he describes in this dialogue in a few previous posts. The dialogue format will probably be a kinder introduction to the ideas for those less mathematically inclined.
Cross-posted from http://www.robertwiblin.com
There is a principle in finance that obvious and guaranteed ways to make a lot of money, so called ‘arbitrages’, should not exist. It has a simple rationale. If market prices made it possible to trade assets around and in the process make a guaranteed profit, people would do it, in so doing shifting some prices up and others down. They would only stop making these trades once the prices had adjusted and the opportunity to make money had disappeared. While opportunities to make ‘free money’ appear all the time, they are quickly noticed and the behaviour of traders eliminates them. The logic of selfishness and competition mean the only remaining ways to make big money should involve risk taking, luck and hard work. This is the ’no arbitrage‘ principle.
Should a similar principle exist for selfless as well as selfish finance? When a guaranteed opportunity to do a lot of good for the world appears, philanthropists should notice and pounce on it, and only stop shifting resources into that activity once the opportunity has been exhausted. This wouldn’t work as quickly as the elimination of arbitrage on financial markets of course. Rather it would look more like entrepreneurs searching for and exploiting opportunities to open new and profitable businesses. Still, in general competition to do good should make it challenging for an altruistic start-up or budding young philanthropist to beat existing charities at their own game.
There is a very important difference though. Most investors are looking to make money and so for them a dollar is a dollar, whatever business activity it comes from. Competition between investors makes opportunities to get those dollars hard to find. The same is not true of altruists, who have very diverse preferences about who is most deserving of help and how we should help them; a ‘util’ from one charitable activity is not the same as a ‘util’ from another. This suggests that unlike in finance, we may able to find ‘altruistic arbitrages’, that is to say ‘opportunities to do a lot of good for the world that others have left unexploited.’
The rule is simple: target groups you care about that other people mostly don’t, and take advantage of strategies other people are biased against using. That rule is the root of a lot of advice offered to thoughtful givers and consequentialist-oriented folks. An obvious example is that you shouldn’t look to help poor people in rich countries. There are already a lot of government and private dollars chasing opportunities to assist them, so the low hanging fruit has all been used up and then some. The better value opportunities are going to be in poor, unromantic places you have never heard of, where fewer competing philanthropist dollars are directed. Similarly, you should think about taking high risk-high return strategies. Most do-gooders are searching for guaranteed and respectable opportunities to do a bit of good, rather than peculiar long-shot opportunities to do a lot of good. If you only care about the ‘expected‘ return to your charity, then you can do more by taking advantage of the quirky, improbable bets neglected by others.
Who do I personally care about more than others? For me the main candidates are animals, especially wild ones, and people who don’t yet exist and may never exist – interest groups that go largely ignored by the majority of humanity. What are the risky strategies I can employ to help these groups? Working on future technologies most people think are farcical naturally jumps to mind but I’m sure there are others and would love to hear them.
This principle is the main reason I am skeptical of mainstream political activism as a way to improve the world. If you are part of a significant worldwide movement, it’s unlikely that you’re working in a neglected area and exploiting how your altruistic preferences are distinct from those of others.
What other conclusions can we draw thinking about philanthropy in this way?
The short version is that if the language you speak requires different verbs for the present and the future, it causes you to think about it differently. Depending on the magnitude of the effect, this has important implications for construal level theory. If your language allows you to think about the future in Near mode, it may allow you to think about it more rationally.
Previous discussion on one of Keith Chen's papers here.
In this essay I argue the following:
Brain emulation requires enormous computing power; enormous computing power requires further progression of Moore’s law; further Moore’s law relies on large-scale production of cheap processors in ever more-advanced chip fabs; cutting-edge chip fabs are both expensive and vulnerable to state actors (but not non-state actors such as terrorists). Therefore: the advent of brain emulation can be delayed by global regulation of chip fabs.
Full essay: http://www.gwern.net/Slowing%20Moore%27s%20Law
The language you speak may affect how you approach your finances, according to a working paper by economist Keith Chen (seen via posts by Frances Woolley at the Worthwhile Canadian Initiative and Economy Lab). It appears that languages that require more explicit future tense are associated with lower savings. A few interesting quotes from a quick glance:
...[I]n the World Values Survey a language’s FTR [Future-Time Reference] is almost entirely uncorrelated with its speakers’ stated values towards savings (corr = -0.07). This suggests that the language effects I identify operate through a channel which is independent of conscious attitudes towards savings. [emphasis mine]
Something else that I wasn't previously aware of:
Lowenstein (1988) finds a temporal reference-point effect: people demand much more compensation to delay receiving a good by one year, (from today to a year from now), than they are willing to pay to move up consumption of that same good (from a year from now to today).
We believe cognitive biases and susceptibility lead to bad decisions and suboptimal performance. I’d like to look at 2 interesting studies:
Let's say we (as a country) ban life insurance and health insurance as separate packages  and require them to be combined in something I'll call "Longevity Insurance". The idea is that as a person/consumer, you can buy a "life expectancy" of 75 years, or 90 years, or whatever. In addition, you specify a maximum dollar amount that the longevity insurance will ever pay out--say, $2 million. If you have any medical issues throughout your life, up to the life expectancy threshold, the insurance plan will pay for your expenses. If it fails to keep you consciously alive for the duration of your "life expectancy", then upon your death, the policy guarantees that the company will pay the full remaining amount to your next of kin.
It seems like this arrangement would put all of the right incentives  in place for both companies and individuals. Most individuals would want to avoid trivial medical expenses in order to maximize payout to family in case of accidental death. Companies would want to maximize health and longevity in order to profit from the end-of-life payout. And our society would have a way to rationally consider the value of life without resorting to arguments that essentially conclude "life is of infinite value," and in doing so, prevent sensible gerontological triage. To put it into perspective, it makes little sense that we spend $1M (as a society) trying to save a 92-year-old when that same amount could have saved 10 teenagers.
Longevity Insurance companies would be incentivized to become heavily involved in medical research that prevents disease, prolongs life, and keeps people healthy. I can imagine a whole array of things that make sense in this context. For example, it would be the right place to fund studies on genetics, it could be the right vehicle for getting 'free' immunizations, and it could even make public funding for "health insurance" easier to pass--simply set the bar low enough that everyone can agree on an age that society will extend a policy for. Do we all agree that everyone in our society should live to age 50? Super! The government will cover Longevity Insurance up to age 50.
 We could also just allow Longevity Insurance as a free-market alternative, but for the sake of argument, let's ban its competitors.
 The one incentive that Longevity Insurance does not seem to address well is the possibility of next-of-kin killing their loved one just prior to the end of an insurance policy. One option would be to require a one-year moratorium in the case where someone dies within a year of their policy ending. This would give time for an investigation before awarding large sums of money.
* crosspost from my blog, http://halfcupofsugar.com/longevity-insurance
Here is the link. The context is nutritional science and epidemiology, but confirmation bias is the primary theme pumping throughout the discussion. Gary Taubes has gained a reputation for contrarianism.* According to Taubes, the current nutritional paradigm (fat is bad, exercise is good, carbs are OK) does not deserve high credibility.
Roberts brings up the role of identity in perpetuating confirmation bias--a hypothesis has become part of you, so it has become that much harder to countenance contrary evidence. In this context they also talk about theism (Roberts is Jewish, while Taubes is an atheist). And, the program being EconTalk, Roberts draws analogies with economics.
*Sometime between 45 and 50 minutes in, Roberts points out that given this reputation, Taubes is susceptible to belief distortion as well:
What's your evidence that you are not just falling prey to the Ancel Keys and other folks who have made the same mistake?
I do not think Taubes gives a direct answer.
Since early October, I've been closely following Occupy Wall Street, and the other protests it spawned. At first I was interested in it as a sort of social experiment, I've never heard of long-term camping as a means of protest, and I was curious to see how it would work out. As it's grown though, I've been thinking that there might be a couple of things happening in the movements that might be of interest to rationalist communities. I've not seen much discussion of Occupy and its tactics on LessWrong, and I think that if nothing else, they're at least interesting, so I thought I'd open it up here.
Each Occupy movement is a hotbed of community experimentation. Things like General Assemblies (horizontally democratic voting discussions to make policy decisions) and ad-hoc sanitation, fire, and security committees of all shapes and sizes are popping up all over. What's more, as the events grow in size, and as police pressure on the events rises, these constructs are going to be tested more and more. We have a wildly varied gene pool, strong environmental constraints, and a fast mutation rate. It's a big evolutionary experiment in community formation. And I think if we look closely, we can find a whole lot of useful hacks to make stronger communities.
The whole thing's a great big ethical, emotional, and legal mess. There are issues with how private/public property laws intersect with freedom of speech, there are matters of what level of force is justifiable for police to keep peace in certain situations, there're issues of whether health and safety trump rights of protest, on and on and on. If nothing else, there's an interesting discussion there, about what a truly rational set of laws would look like, and whether or not the protesters or the police are justified in their actions.
And at the risk of sounding like a James Bond villain, there are some serious options for us to take over the world here. In the sense at least that the Occupy movements' goal is lasting societal change, and they have a good deal of momentum already. If members of the rationalist community moved to help them, they might have a fair deal more. And if we introduce them to rational ways of thinking, if we inject those memes into the discussion, there's some serious opportunity here to help stop the world being so insane.
At least that's my take on the whole thing. And I'm not exactly strong in the ways of rationality yet, still reading and re-reading the Sequences (I keep getting lost somewhere halfway into the QM sequence, I think I need to practice mathematics more to understand it on a more instinctive level) and I'd certainly appreciate the view of those Stronger than me.
SIAI benefactor and VC Peter Thiel has an excellent article at National Review about the stagnating progress of science and technology, which he attributes to poorly-grounded political opposition, widespread scientific illiteracy, and overspecialized, insular scientific fields. He warns that this stagnation will undermine the growth that past policies have relied on.
Noteworthy excerpts (bold added by me):
In relation to concerns expressed here about evaluating scientific field soundness:
When any given field takes half a lifetime of study to master, who can compare and contrast and properly weight the rate of progress in nanotechnology and cryptography and superstring theory and 610 other disciplines? Indeed, how do we even know whether the so-called scientists are not just lawmakers and politicians in disguise, as some conservatives suspect in fields as disparate as climate change, evolutionary biology, and embryonic-stem-cell research, and as I have come to suspect in almost all fields? [!!! -- SB]
Looking forward, we see far fewer blockbuster drugs in the pipeline — perhaps because of the intransigence of the FDA, perhaps because of the fecklessness of today’s biological scientists, and perhaps because of the incredible complexity of human biology. In the next three years, the large pharmaceutical companies will lose approximately one-third of their current revenue stream as patents expire, so, in a perverse yet understandable response, they have begun the wholesale liquidation of the research departments that have borne so little fruit in the last decade and a half. [...]
The single most important economic development in recent times has been the broad stagnation of real wages and incomes since 1973, the year when oil prices quadrupled. To a first approximation, the progress in computers and the failure in energy appear to have roughly canceled each other out. Like Alice in the Red Queen’s race, we (and our computers) have been forced to run faster and faster to stay in the same place.
Taken at face value, the economic numbers suggest that the notion of breathtaking and across-the-board progress is far from the mark. If one believes the economic data, then one must reject the optimism of the scientific establishment. Indeed, if one shares the widely held view that the U.S. government may have understated the true rate of inflation — perhaps by ignoring the runaway inflation in government itself, notably in education and health care (where much higher spending has yielded no improvement in the former and only modest improvement in the latter) — then one may be inclined to take gold prices seriously and conclude that real incomes have fared even worse than the official data indicate. [...]
College graduates did better, and high-school graduates did worse. But both became worse off in the years after 2000, especially when one includes the rapidly escalating costs of college.[...]
The current crisis of housing and financial leverage contains many hidden links to broader questions concerning long-term progress in science and technology. On one hand, the lack of easy progress makes leverage more dangerous, because when something goes wrong, macroeconomic growth cannot offer a salve; time will not cure liquidity or solvency problems in a world where little grows or improves with time.
This, according to Nate Silver, is a log-scaled graph of the GDP of the United States since the Civil War, adjusted for inflation. What amazes me is how nearly perfect the linear approximation is (representing exponential growth of approximately 3.5% per year), despite all the technological and geopolitical changes of the past 134 years. (The Great Depression knocks it off pace, but WWII and the postwar recovery set it neatly back on track.) I would have expected a much more meandering rate of growth.
It reminds me of Moore's Law, which would be amazing enough as a predicted exponential lower bound of technological advance, but is staggering as an actual approximation:
I don't want to sound like Kurzweil here, but something demands explanation: is there a good reason why processes like these, with so many changing exogenous variables, seem to keep right on a particular pace of exponential growth, as opposed to wandering between phases with different exponents?
EDIT: As I commented below, not all graphs of exponentially growing quantities exhibit this phenomenon- there still seems to be something rather special about these two graphs.
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