Morning Slumps Turn Into Afternoon Slumps Turn Into Day Slumps Turn Into Week Slumps Turn Into Year Slumps

I had a football coach who said their were three stages of football programs. First, programs hoped to win. Second, programs wanted to win. Third, programs expected to win.

I have a colleague who talks about loneliness and how intelligence makes you lonely. She says you have to shut up and stop paying attention to the voices in your head. You have to work. You have to make yourself not lonely.

The Filipinos say you can make yourself happy. Happiness is a state of mind. If you want to be happy, just make yourself happy.

Like I said in a previous post, I focus on unimportant things. I get caught up in something and, I fall into a depression. I am unable to make myself happy. I am unable to make myself not lonely. I am unable to work. These are issues I will have to work through for the rest of my life. But the important thing is to keep expecting to win.

The biggest problem I have with my Dad is when he slips into depression, he forgets that he has been there before and gotten through it, and he will get through it again.

I will get through it. I might be crazy. I might have to admit my weaknesses. I might have to work all night, but I will get through. I expect to win.

Great Sentences I Read In The Past 24 Hours

From J.K. Galbraith's "The Proper Purpose of Economic Development" in Economics, Peace and Laughter:

"One of the generally amiable idiosyncrasies of man is his ability to expend a great deal of effort without much inquiry as to why. Most of the descriptions and pictures of the moon I have seen make it out to be a rather questionable piece of property. The absence of atmosphere would seem to be a real handicap. Likewise of water. The climate is predictable, if poor. In northern Canada and Alaska, agriculture suffers from a very short growing season. The moon presents the limiting case of none. Settlement will almost be certainly be slow. Yet these and similar shortcomings show no signs of deterring man in his enthusiasm to get there..."

Galbraith was no fool. He could write, and he understood human nature. His conclusions were wrongheaded and shortsighted, but he needs to be read.


From F.A. Hayek's The Counter-Revolution of Science:

"...But in the general atmosphere in which Quetelet's work became known the belief was bound to arise that the statistical methods, which he had so successfully applied to some problems of social life, were destined to become the the sole method of study. And Quetelet himself contributed not a little to create that belief."

Economics has been dealing with the same problems for fifty years. The question all young economists must ask, what do I have to contribute? I am not talking about meaningless papers or conference presentations. I am talking about what can we say about the big questions early economists set out to answer.

This begs the question, what are the big questions. I think "how do we enrich Africa and the world's poor?" is still relevant. I also think "how do we balance the incentives to innovate (in health care) with providing these new innovations to people (everyone) who can benefit from these innovations (the uninsured poor)?" is relevant.

What I am trying to say is that Hayek and Galbraith are still relevant. How do I remain relevant?

New Year's Resolutions

My Mom (Santa) gave me a pair of jeans for Christmas. For the first time since I was twelve, the jeans are not "loose fit" but regular fit. They are tight and my balls fill compressed, but these jeans feel the same way jeans felt when I was twelve. It makes me nostalgic. It makes me ask where my life is going. And it is almost a New Year so...

My dream is to write a book concerning my economic experiments throughout the world. Each chapter could explain something learned that had nothing to do with the experiment. The book could teach economics without boring people. My first chapter could tell the story of being hit on by both a Filipina and a Filipino during my first experiment in the Philippines. This book would require me conducting economic experiments throughout the world and learning how to write, but we have to have dreams.

I want to become more professional. This resolution requires me to care about what I am doing or quitting. It also requires not doing anything menial until 2:00PM. Take care of my the duties I am getting paid for, then worry about the little things that need attention. It also requires not overthinking things. I have to learn how to distinguish between what is important and what is not important. I have been trying to do this for two years, but it is something I cannot learn from books or other people. It is something I have to figure out for myself.

Also part of being more professional is getting in decent shape. I am fat and will soon lose my ability to beat my younger cousins in sports. Losing is unacceptable. I should try and do something physical everyday. If that means push-ups, sit-ups, walking, running, or lifting weights. I should do something physical.

I have to keep expressing my ideas in written form. This blog is part of this process. I also need to a better job of writing for my job.

I might add, adjust, or give more details before the actual New Year, but I think this post is a good start at creating a better WB.

(Yeah, I am full of shit. My sister, GGM, ML, Jeff, Sam and others remind me of this continuously. At least I know it.)

People Disappoint

Yesterday the preacher discussed how unfulfilled expectations can ruin a person's zest for life. Bono once wrote "when you want something so badly, you have already lost it." I do not know what the preacher or Bono's point was, but the old saying "when you don't expect much, you don't get disappointed" comes to mind.

People disappoint. Life disappoints. When I was a kid I wanted to be a professional ball player. Now I want to be a professor who does not have to work. I have spent half my life redefining greatness. I have spent half of my life wanting a reality that cannot exist.

There are two ways to approach this problem. I can either not expect much and be a perfect stoic. I can take what life gives. Or I can make my own reality.

Of course, making reality sounds good, but the truth is most people who make reality are crazy or spend most of their days in their own mind. Unfortunately or fortunately, we have to work with other people. We are social beings.

The trick is learning how to deal with the bullshit. People will disappoint, but you cannot pay much attention to them. Sometimes you have stick with your definition of success. Other times you have to compromise. Like most everything else it is an in-between.

Rich Rodriguez, What The Hell Are You Doing?

You are going to leave your Division I alma mater where you have a lifetime contract, not to go to the NFL, but to take over an Alabama program doomed to mediocrity where you will be fired within five years.

You are going to leave the Big East and its guaranteed 7 wins to go to the SEC and its guaranteed 4 losses. Haven't you learned anything from Frank Beamer? Get your 7 or 8 wins, get your bowls, and every four or five years finish in the top ten.

You cannot do that in the SEC, especially at Alabama. You think Pennsylvania or Ohio boys are going to come down to 'Bama. Do you think Florida boys are going to pick Alabama over any other SEC school or ACC or Big East school for that matter.

Do you think you are going to be the next Bear Bryant? Nothing short of Bear and national championships will make them 'Bama boys happy.

Quite frankly, you have never won anything at West Virginia. You flubbed the Big East and chance at the national championship this season. Last year, the best team in the ACC (not the champions but the best team), Virginia Tech, beat you in Moutaineer Stadium. I know you jumped a Georgia team in a BCS bowl, but they would have beat you seven out of ten times. Really, West Virginia has become the Notre Dame of the east, always overrated and always beatable.

Really Rich, that is the kind of coach you have become, overrated and very beatable. I just hope you do not get fired in the first year. I just hope the next coach at West Virginia will be willing to hire you as an offensive coordinator.

I Am Not Trying To Explain Behavior

I am trying to better observe it.

This is my new motto. Economics is about human action. You cannot truly observe human action ex post. We cannot make inferences from, "he told us his income is $X and he bought a TV." Much less from, "Best Buy sold a thousand TVs at $X, and the county's average income is $Y." You just ignore too much.

Rainy Days Before Thanksgiving Which Happens To Be My Sister's Birthday This Year

My first year of graduate school I separated graduate students into two classes, professionals and glorified undergraduates.

The professionals treated school like their job. They used their offices. They conversed with their colleagues. They studied hard. They put maximum effort into every assignment. Many could balance being a professional with their non-professional life. Some could not.

The glorified undergraduates acted like undergraduates. They were not professional.

But now I realized a major part of being professional is dealing with bullshit. A professional works when it is raining. A professional works no matter how stupid the assignment. A professional asks 'why' only after an assignment is finished.

I talked to this professor on the bus last night. He was getting back from San Antonio. He said it was 40 degrees warmer in San Antonio. He had his suit, his traveling bag, and his computer. His friend's flight was delayed by four hours, so he had to ride the bus.

I do not know if he thinks his life is hard. I do not know if he thinks his work is important. I do not know if he is happy. I do not know if he cares.

But I know I have to find out for myself.

Balancing

I waste a lot of time. This fact does not make me a bad person. But I just wanted it out in the open.

Life is about balancing. It is about dealing with bullshit. People who fail cannot balance. They get caught up in the bullshit. People who are successful seem to "do everything" and find ways to either ignore or get around the bullshit.

Tyler Cowen at MarginalRevolution.com seems to always be reading five or six books at a time. His ability to read so many books has driven me crazy. Where does he find the time? Is he a genius or what? Does he really read them?

I have been reading the same three books for two months.

I read Hayek's The Counter-Revolution of Science in the shitter. I really think this is an important book that delves into a critical issue most economists ignore. Are we a science? Or, are we something entirely different? Hayek recites the history of how we got to where we are now.

I read Galbraith's Economics, Peace, and Laughter on the bus. Galbraith was not a great economist, but he was a great writer. His influence is more widespread than most economists would like to admit.

I read Joyce's The Portrait of an Artist as a Young Man before I go to bed. I did not understand this book in high school. I understand it better now, but I prefer The Dubliners. Joyce captures the angst children and young adults who never exactly fit in feel.

When I really read something, it consumes me, and I finish it in a short period. I think these books are important, but I balance and decide I must come back to them in time. But will I ever get time? I guess that is another balancing question.

What Do I Want Them To Say About Me?

Milton Friedman died today. He was a great defender of freedom. A great man who stood against popular opinion for Truth. A man who would not give up on the world, even though the world repeatedly failed to meet his expectations.

I wrote "What do I want them to say about me?" in a book. Under it I had written, "Honest,". I wrote it like I had more things to write, but you know what, "honest" is enough.

Friedman was honest.

"Hey Big Man, Let Me Hold A Dollar"*

I went to a luncheon with the President of the University. It reminded me why I dislike politics. But it reminded that powerful men got that power for some reason. They might not be the best men for the job, but they did get the job.

The luncheon was filled with undergraduates so I remember a paragraph from James Buchanan's What Should Economists Do? while he was at this university:

"...If you allow me, for a moment, to strip the academic regalia and express myself solely and exclusively as a member of the general taxpaying public, I should argue the "product" now issuing from many tax-supported liberal arts colleges and universities does not measure up to my standards of human quality improvement. Instead of turning out "better" men and women, some of these institutions seem to me to be producing at least some young men and women who are demonstrably "worse" than their counterparts who did not enjoy the benefits of my tax dollars. I have on several occasions, along with others, called some of these products the "new barbarians," a term which seems descriptive in several respects and for which I find no need to apologize."

Most kids are not bad, but I think some do not learn the discpline and proper behavior until after college.

*I think this is from the John Boy and Billy show.

Graduate School Applications To Places I Did Not Get Into

After pursuing education for the last eighteen years, I have decided that I really enjoy learning. For the last five years while I have been in college from August to May, my favorite subject has been textbook economics. Then in the summer, I would go home and work with my father. He called my summer session, “learning economics the hard (or real) way.” After my first year of graduate school, I tried to explain to him that when you add calculus to economics it becomes extremely difficult. He wisely laughed at me.

After returning for my second year of graduate school, I finally realized that my father was right. Textbook economics is wonderfully interesting, as one of my former professors said, “microeconomics is the most fun you can have with your clothes on.” It has allowed me to generate ideas that have helped my father’s businesses. It has allowed me to evaluate my surroundings and see order and disorder that the vast majority does not or refuses to see. Knowing the whys and hows behind the everyday world is an addicting drug that is hard to quit; you understand that knowing everything is impossible, but you just keep striving for more knowledge. But the fact of the matter is my father is the real economist. He is the entrepreneur. He is the innovator that tears down the current constraints of society and pushes its limits to truthfully ‘make the world a better place.’ No matter how many years that I spend in school, he will always know more real economics than me.

Towards the end of my last semester at Bridgewater College, a future medical doctor disdainfully asked me “why do you want to be an economist?” I replied, “I want to really help people.” With this attitude, I went into an agricultural and applied economics’ program. I have since found out that agricultural economics’ does help people, but I am not convinced that they help people in the right way. Their idea that the impoverished need government programs, concentrated on agriculture, and paralyzed by bureaucratic red tape does not sit well with me. Many practitioners of agricultural economics have taken a ‘Robin Hood’ approach, stealing money from the rich, developed world taxpayers, and giving to a sub-sample of the poor, developing world and domestic farmers, while taking their middle man’s cut and allowing bureaucratic inefficiency to seize its share. Again, many of these programs do help people, but faith in the market and individuals have given way to faith in the ‘good intentions’ of self-interested bureaucrats.

These three poorly linked paragraphs tell the story of where I stand today. I am still thrilled to pursue knowledge. I still believe in the study of economics and its ability to unlock innovation and increase global welfare. But I cannot continue to study mainstream economics. I cannot continue to put blinders on and accept the flawed world that surrounds me, while I sit in my office creating intellectually stimulating but useless models. I cannot allow my father to be treated with indifference while agriculturalists and other special interests receive special attention that my father is forced to financially support. I still want to be an economist, but I want to do it the right way. I want to champion the market as the ultimate problem solver, not find ways to circumscribe it. I want to teach people to truly understand the beauty within the mutual benefit of exchange, and I want to enact policies that insure free exchange.

Simply, the economics department at George Mason offers me the best opportunity to find myself and meet my goals. It offers me the chance to continue to learn while being true to my father and myself.

Things I Thought While In Church

This whole chain of thoughts was stimulated by sitting next to a newlywed couple.

1. The spread of AIDS and population increases really show that there is a lot of sex in the world. I just read about the probabilities of spreading AIDS by any single encounter. All I can say is "a lot of sex."

2. Women's hands are much smaller than men's hands. This makes me feel better for some reason.

3. I would rather be around individuals who love people than to be around someone who has been baptized and goes to church every Sunday. These two are not mutually exclusive, but loving people is much more important than baptism.

4. Being honest, especially with oneself, is also more important than baptism.

5. Most people are afraid to say they are afraid. Most people will do anything to cover their fear.

Announcement

Starting today, November 10th, 2006, the Frederic Bastiat Institute For The Consumer (FBIC)is open for business. Any donations can be mailed to me personally.

The Institute's follows Bastiat's philosophy:

"Treat all economic questions from the viewpoint of the consumer for the interests of the consumer are the interests of mankind."

Why I Do Not Belong In Coffee Shops

This friend calls me up from a coffee shop. He tells me he is thinking of killing a professor. I run right over to try and talk him into doing it.

Since I feel obligated to buy something, I buy an iced coffee. I take one sip and realize iced coffee is just black coffee with ice. I find some Sweet-N-Low. I put it in, but that is not good enough. I go looking for cream. I cannot find any. I am already as high as a kite from the black coffee.

But there is this metal pot sitting on this guy's table. I try my best not to stare at this guy. He looks like some child molester I have seen in some movie. He stares at every women and caresses his computer mouse as he stares. (I just stare. I do not have a computer mouse.) He has headphones on, so I ask him if he is done with his metal pot. He affirms but has a strange look on his face. I take the pot. I tilt the pot, but cream does not come out. It is tea, honey, an opiate, but definitely not cream.

I quickly return the pot. I drink my black coffee over ice, try not to stare at the child molester, try not to voice my bad thoughts about the waitresses, and try to do work.

The moral of the story is caffeine is not good for you.

Bono And Mary J. Blige Singing "One"

U2's One

Is it getting better
Or do you feel the same
Will it make it easier on you now
You got someone to blame
You say...

One love
One life
When it's one need
In the night
One love
We get to share it
Leaves you baby if you
Don't care for it

Did I disappoint you
Or leave a bad taste in your mouth
You act like you never had love
And you want me to go without
Well it's...

Too late
Tonight
To drag the past out into the light
We're one, but we're not the same
We get to
Carry each other
Carry each other
One...
Have you come here for forgiveness
Have you come to raise the dead
Have you come here to play Jesus
To the lepers in your head

Did I ask too much
More than a lot
You gave me nothing
Now it's all I got
We're one
But we're not the same
Well we
Hurt each other
Then we do it again
You say
Love is a temple
Love a higher law
Love is a temple
Love the higher law
You ask me to enter
But then you make me crawl
And I can't be holding on
To what you got
When all you got is hurt
One love
One blood
One life
You got to do what you should
One life
With each other
Sisters
Brothers
One life
But we're not the same
We get to
Carry each other
Carry each other

One...life

One

My Day Or "A Better Class Of Losers"

I wake up at 6:30AM this morning. It is so cold I am afraid to get out of bed. I finally get up an hour later.

ML gives me some good advice, but I do not understand it until 12 hours later.

Sam wows me with his knowledge in this group meeting. But I see our problem in a completely different way than he does. I want to force Africans to be white. Sam wants to model Africans as if they were white. Sam is right, but I want to be right.

I go to the most comical seminar I have ever went to. I was the only one who laughed.

I learn to never send an international student to do an American's job.

I go to this party at a house that is the reason I wanted to get a PhD.

During the party, I decide no matter how hard I try I cannot continue on the road I am going down now. Yeah, the house was nice. But the people in it were different than I am. They are not bad people just different.

After the party, I remember ML's advice. So I have made a decision, and after I finish something, I am going to change roads.

The Funniest Thing I Ever Did

Last year before our last exam, I wrote the following Indigo Girls lyrics on the board:

"The best thing you've ever done for me, is to help me take my life less seriously."

No one got it. No one cared. The professor came in and did not get it. Maybe I do not get it.

But tonight when I thought about it again, I laughed for five straight minutes. Knowing the professor, knowing the circumstances, knowing everything helps, but it is damn funny.

The whole event sums up life.

Thoughts Or "Well Maybe I Don't Need No Angel At All"*

1. I have not put anything into my idea folder for six months.

2. What is finer a woman's ass or well-done fireworks?

3. A woman's ass is a fine thing.

4. You cannot put anything in the idea folder if you do not have any ideas.

5. Adam Duritz must have lived a disappointing but fantastic life before he became famous.

6. Adam Duritz must be living a disappointing but fantastic live.

7. Adam Duritz probably has a large idea folder.

8. Adam Duritz has probably gone six months without having any ideas.

9. Maybe I overemphasize the disappointment. Maybe I underemphasize the fantastic. Maybe I emphasize just right. Maybe it does not matter.

10. A woman's ass is a fine thing, but fireworks are nice too.

*Counting Crows' "Miami"

To Be Continued

I told a guy I was studying economics. He asked, “what exactly is economics?” For a second I was dumbfounded. I eventually told him about my thesis research, and he gave me one of those “if it makes you happy” looks. But the question has stuck with me.

In my principles classes I realized economics just put terms to concepts I learned while working with my Dad in the grocery and video store. I was fascinated that you should sell reduced bananas for a price above the cost of packaging (all variable costs) but should not worry about how much you paid for them. I remember arguing with my father whose rule of thumb was always “something is better than nothing” about variable costs. He just wanted to get the bananas out the door. He always had a better understanding of the concept than I, but I knew the terms “sunk” and “variable.”

Then I got hung up on my social responsibility and went to graduate school “to help people.” I was subconsciously scared of “really” working. I was really scared of people like my Dad who understood the concepts better than I did.

At first I liked graduate school economics. My undergraduate calculus classes were paying off. I was matching calculus with economic concepts. But I soon missed the philosophy of economics. I got a little philosophy from reading Bastiat, Hayek, and Buchanan, and even Veblen, Galbraith, and Krugman but I was reading these books outside of class. None of my colleagues cared or had time to talk about philosophy. From my self-study of economic philosophy and a trip to the Philippines, I learned the best way to help people was to leave them alone.

But I was still scared of the “real world.” So I started the PhD program. I quickly became depressed. My whole first year I could never tell what was important. “Grades don't matter, but I am giving you weekly graded homework assignments. Neoclassical economics is worthless, but I am teaching it anyway. Publications are what matters, but you have to pass the qualifying exam.” I quickly learned graduate economics was about maximization of wealth given constraints. It was about economic tools. It was about drawing maps and measuring distances. It was not about creating wealth or breaking constraints. It was not about my Dad or stores. It was about economists. Instead of killing myself, I have decided to wait, be critical when possible, and hope things get better.

So in the past five years I went from seeing economics as this great tool to “help people” to saying economics is what economists do.

And economists bullshit.

But as Bono said “Some of this bullshit is kind of cool.”

INXS's "Hear That Sound"

So your time has come
Children watch the fools
Dont let anyone tell you
What you must do
Do you like what you see
Or does it make you cry
Use your imagination
And start a fire

Chorus
Hear that sound
Theres a voice to be found
Making changes go round
Hear that sound

And my selfish ways
Disappeared one day
With the realization
Of a new way
Images of the free
Coming into view
Our hearts full of promises
Of all we can do

Chorus

So your time has come
Children watch the fools
Dont let anyone tell you
What you must do
Do you like what you see
Or does it make you cry
Use your imagination
And start a fire

Chorus

"What Left A Mark, No Longer Stings"*

My friend (who was too smart to get a PhD in economics) would call List's “The Nature And Extent Of Discrimination In The Marketplace: Evidence From The Field” “Gonzo-economics”. I would call it “Freak” economics after Levitt and Dubner's book. Gonzo or Freak economics involves economists examining popular issues with the economic way of thinking. Many times they put themselves in the research (hence the term “Gonzo.”) Their work is also accessible to a wide audience not just economists. I do not know what Hunter S. Thompson would think, but I like it.

I can imagine List writing a book or a long magazine article about this research. I am sure he met enough interesting characters to sell copies without too much embellishment (but names changed to protect the innocent). “Fat Charlie had sold cards for thirty years. Well, twenty nine and half years, he spent six months in jail for stalking his ex-wife.” “Chris and Janet collected together. They had met at a card show three years ago. They both fought over a Sheffield rookie card. At their wedding, instead of rice, they threw worthless cards. The other collectors called it the event of the Spring.” I do not know if List would approve of these stories, but the creativity of his work is hampered by the Quarterly Journal of Economics. Freak economics tells stories about human action. And it does not apologize for these stories.

List conducts a field experiment at area card shows to test for market discrimination. Discrimination is a complicated issue that is misunderstood. Many people confuse prejudice with discrimination. My grandfather was prejudiced. With his white friends, he would degrade African-Americans. His sons excused this behavior with “he grew up in a different time,” but he was prejudiced. Even though he was prejudiced, he did not discriminate. He cared much more about money than his prejudices. He hired the best man available. Many times the best men were minorities. Prejudice consists of talk. Discrimination concerns action. I know this does not perfectly match the theoretical definitions of discrimination, but economics teaches that it is important to distinguish between talk and action.

List's experiment recognizes the complexities of discrimination. Again it is not enough to be prejudiced, a person has to do harm to another person. List does a thorough job of looking at theoretical preference-based and statistical discrimination. He not only looks at the different bid offers of dealers to different races, ages, and sexes on the same card, but he plays dictator games, looks at bargaining expertise through Chamberlain markets, and pre-show preferences for the card. He randomizes. He runs the most complicated but controlled field experiment I can imagine. He covers the bases. He does not run a single game but multiple games to better tease out how people discriminate.

List comes up with a number of results. The most important economic result is some discrimination is profit maximizing. Experienced dealers know how and who to low-ball. They look for marks. Most marks are minorities. Experienced traders know how to negotiate. Even though it might take minorities' longer, they still get the same price as majorities. Another implication from List's study is tacit knowledge comes with experience. This knowledge could never be formalized, and I doubt dealers or traders know they have this knowledge. But it exists. Experienced dealers know how to trade and maximize their surpluses. Hayek would be proud.

List's most important result is discrimination is complicated. Segregation and apartheid were clearly wrong. But different offers at a card show are pretty meaningless. (List has almost convinced me that no discrimination (by my definition) exists in the card market.) There is nothing inherently evil about unintentionally charging minorities different prices. There is nothing inherently evil in maximizing profits. It would be evil if minorities were not allowed to attend the card show. Real evil involves interfering with others' rights because they are a different color or a different religion. Racism lives, but we are talking about a complicated issue that cannot be completely explained by economics or sociology or psychology or any academic discipline.

I wish List would have explicitly concluded with these complexities and humbly “threw his hands in the air.” But pride and the profession probably will not allow it. It worries me that papers like this one will be misconstrued, and politically deft people will use it to help say something the paper never intended to say. I wish List would be happy with his story and remind people we have come a long way. I wish he would admit the best policy is to ensure freedom and let the market do the rest. But the problem with the “Freaks” is they are positivists. List does not want to “solve” the discrimination problem. He just wants to use economic tools to describe it. He leaves the important discussions to politicians. And this scares the hell out of me.

*U2's Grace

True To Myself

When I sleep,
Let me be true to my tiredness

When I work,
Let me be true to my toil

When I play,
Let me be true to the game

When I cry,
Let me be true to my tears

When I love,
Let me be true to my lover

When I worship,
Let me be true to You

Let me be true

"I Am What I Am"*

I run to catch the bus. My groin tightens up. I am sitting on the bus holding back tears. I get off early to pick up my dry cleaning. Standing could be no worse than sitting. I hobble across the street. I reaffirm dry cleaning is a rip-off. But freshly pressed and cleaned pants sure look nice. I am walking to my office. The groin pain subsides, but my back starts to stiffen. I watched The Departed last night at the worst theatre in the country. It sold out, so I had to sit in the second row and arch my back to prevent breaking my neck. At least The Departed was good. It only took me an hour to get comfortable once I got to my office. (I want to make a joke about how I rubbed my groin, but I do not know how.)

So after I got comfortable, I started to think about how stupid the majority of common economic data is. Aggregation contradicts methodological individualism. The unemployment rate says nothing. I am either employed or not employed. Aggregation loses the individual nature of the data. The same can be said about GDP. What does GDP really say? It only matters what I produce. Notice I am ignoring all of the survey problems involved in these aggregations.

These aggregates lead to the fallacy that countries compete. Krugman in Pop Internationalism debunks this fallacy, but he still uses similar numbers in his columns. He does not attack the misunderstanding of statistics.

The problem with statistics and positivism in general is we live in a normative world. Saying the unemployment rate is 4 percent is not good enough. Some politician, some media person, someone must say that number is too high or too low. But the number means nothing. It has no normative value whatsoever. Some governmental agency conducted some survey and 4 percent was the result. But since it is produced it has to mean something. Government agencies cannot exist if they only produce meaningless numbers.

Combining a number of economic statistics gives one a better picture, but the combination does not offer any suggestions. An increasing unemployment rate and decreasing GDP does not give any clues into why people are unemployed and production is down. It does not tell anyone how to produce and create jobs.

I keep saying the same thing over and over again. But economists do not get it. Economics is about creation. It is about teaching. It is not about confusing association and causation. It is not about producing meaningless numbers.

*From Fleetwood Mac's "Family Man"

From Paul Simon's "That Was Your Mother"

"A long time ago, yeah
Before you was born dude
When I was still single
And life was great...

Well, that was your mother
And that was your father
Before you was born dude
When life was great
You are the burden of my generation
I sure do you love you
But let's get that straight..."

Graceland is a great album.

Announcements

Well the beautiful co-ed got on the bus again this morning. She took the one at 8:30AM instead of 8:45AM. I am sure she is scared of fat bald men asking her about the weather.

Today she is reading something called Zero. It had "biography" in the subtitle.

I wait until we both get off the bus. I am more confident standing. I ask her, "Who is that an autobiography of?" A biography called Zero must be good.

She replies, "Well, it is really a history of the number zero." I am a dumbass.

We had a 30 second conversation. She is apparently a math major and reading the book for pleasure. I am apparently in economics and think zero is a concept that changed the world.

She is very attractive. But the reality is I am not only fat and bald but old. I cannot spend any more months of my life trying to convince myself of my own worthiness. I cannot continue to fight battles I am destined to lose.


I rented, no borrowed, Paul Simon's Graceland from the library. It is quite possibly the greatest album ever produced.


I am an official member of the Society of Real Economists (SORE). I wholeheartedly affirm that demand curves slope downward, market prices reflect the indiscriminate competition of human interests, and good intentions pave the road to hell.

This is by far my greatest achievement since I finished third in my 3rd grade spelling bee.

Ella Fitzgerald Singing "I Forgive You Because I Can't Forget You"

This beautiful co-ed sits beside me on the bus this morning. I have to say something. It is raining, so "Did you see if it was going to rain all day?"

"I think so," she says with an in-between smile.

"I figured." I figured. I cannot escape my roots. I figured I was a dumbshit. I become dumbfounded and convince myself it is not an in-between smile anymore. My Hayek and Galbraith readings will never be able to make up for "I figured." I do not even think I told her thank you.

I am going to be an idiot my whole life.

But as I found out in a class later in the day, most people are idiots.

When a professor refuses even to attempt to answer tough but relevant questions, he should be fired. But that would mean half of the faculty would be gone at this University.

I am sure Sam will have more to say, but everyone including tenured faculty needs to look in the mirror once in a while.

Listen To This

Download this interview and listen to it. Walter Williams expresses classically liberal ideas as well as anyone I know.

My favorite line:

"Anything in economics worth knowing is simple."

Good Intentions

There are three types of people in the world. There are those who ask why, those who choose not to ask why, and those that cannot ask why.

My biggest problems have always came with those who choose not to ask why. I could never understand those people who took the rules and bullshit as given and ran with it. These would be the undergraduate students (predominantly female) who worried more about an A than learning anything or Professors and professionals who care more about who you worked for than if you had an intelligent idea in your head. Those who spent their life running away from challenging questions in order to answer the easy ones extremely well.

But I have learned unconstrained maximization problems are much harder to solve. This does not mean they are not worth solving. It just means my "question everything" philosophy has started to wear on me.

I just spent 45 minutes repairing a $5 pair of headphones. They will probably stop working tomorrow, but I feel damn good right now.

Things I Wrote In Paul Krugman's Geography And Trade

I am writing in the second person in all of these.

You cannot learn anything about economics sitting in your office.

You have to at least attempt to appreciate the numbers.

Those condescending 'thank yous' that drive you batty.

Krugman thinks he knows what is best for everyone.

This book is all ex post masturbation. But Krugman can beat off with the best of them. Never get in a game of ookie-cookie with Krugmanites. They will surely make you eat that fucker.

Seminars are really big circle jerks.

It all has to make sense.

The Minimum Wage Lesson Or GGM's "Not Worth It" Hypothesis

It pains me to say the following, but it needs to be said.

Increasing the minimum wage will have very little effect on anything. But it will make a bunch of do-gooders feel better about their "good intentions."

Privatizing education will cause a great public uproar. It would cause a whole lot of temporary pain. The medium and long run effects are uncertain. It would be a risk.

Profit and utility functions cannot be defined. Therefore economics predictive power is nil. (It did not pain me to say that at all. Any economist who wants to tell you about a better marginal decision rule is an idiot. I really wanted to say a fucking idiot but that would be inappropriate.)

But here is the thing about the first two. For a society to be free, for a society to righteous and just, a minimum wage law and public education cannot exist.

But maybe they are not worth fighting over.

External Gratification

I am 25 years old and still need someone to tell me I am special. I still need external gratification.

One colleague told me this was pure ego. Two other colleagues told me this was natural. You live your whole life for other's approval. It is not necessarily a good thing but it is real.

Everything I do is because of pride. I still think the video store and grocery store reflects on me personally, and I have not worked any significant time at either one for two years. Pride is the source of all the good things in my life. It is the reason why I am in graduate school.

But pride is also a curse. It is the source of all my disappointment. It is the reason I have trouble getting out of bed. It is the reason I struggle with myself. It causes my troubles in relationships with other people.

I believe that one day you have to become happy with yourself. The irrational desire for external gratification leaves, and you realize "I have the right to exist."

If You Win A Nobel, But No One Reads Your Work...

I just asked Joe, “Who is going to win the World Series?”

He answered, “Oakland, of course.”

I knew Oakland was his favorite team since the days of Canseco, McGwire, Stewart, and Eck, so I replied “No, who do you really think is going to win?”

Was Joe's answer biased? Or did he answer truthfully. Does it matter? Are there any true population parameters to subtract our sample parameter from? When we say something is biased, aren't we guessing about a guess? My advisor explained bias as systematic pressure in one direction. Everything had to be either biased upward or downward or towards Oakland. But like with externality theory, someone has decide that Truth exists, someone has decide on social optimality or a true population parameter. Saying something is biased upward implicitly assumes your sample results are higher than some unknown Truth. So it seems to me that bias is as an arbitrary concept that has no real objective meaning.

So Forsythe et al in “Anatomy of a Political Stock Market” explain the assimilation-contrast effect and the false-consensus effect, but I do not understand how they jump to bias. People see through rose-colored glasses and think everyone else is like themselves. Of course, but how is this bias? Don't the people think that their candidate is going to win? They might be fooling themselves, but who am I or the authors to say what people are thinking? I see bias as a slippery slope that can be used to explain every result a researcher dislikes. (Footnote 22 is an example which does not deal with bias, but I never like when researchers throw away inconvenient observations.) He voted for Joe, but he was biased and really wanted Jack. Let's make Jack Senator. He chose Oakland but he really thinks Detroit is going to win. “Really thinks” and “really wants” scares the hell out of me. I see Hitler and Stalin. I see Orwell's “stopthink.” I see my Dad telling me to eat my vegetables because “they will put hair on my chest” (like chest hair was important). I just do not get it. Maybe I am biased.

This is a good paper, but one error is so blatant, so absolutely disgusting, it cannot go without discussion. Forsythe et al. comment:
“Our findings lend support to the so-called Hayek hypothesis which asserts that markets can work correctly even if participants have very limited knowledge about their environment or about other participants. How markets can work under such circumstances was never clearly specified by Hayek, and the hypothesis is not easily tested.”
The second sentence shows the authors' complete ignorance of Hayek's work. He won a Nobel Prize, and no economist outside of George Mason or Auburn could tell anyone why. Hayek and the Austrian School's greatest contribution to economics was explaining that we can never explain how markets work (especially with calculus). But they do work, and economists should spend their time letting them work and defending them against the collective. And that is exactly what this research shows. All of the statistics, all of the money spent on polls, and all the political “science” professors on TV cannot predict as well the Iowa Presidential Market even with all of its possible judgmental bias (whatever the hell that means) and its misrepresented sample. Hayek would be proud. It is a shame the authors do not know who Hayek is. (I am biased. Hayek is one of my favorite economists and currently I am reading Hayek' s Counter Revolution of Science.)

To summarize, the authors set up an electronic betting market on the 1988 Presidential election. Since it is specifically for research purposes, it can legally compete with state-run lotteries, Wall Street, Las Vegas, and Atlantic City. Since it is electronic, all trade information can be saved and analyzed. The effects of different news events, debates, and polls could be teased out the market. It is a wonderful set-up.

The authors throughly analyze their data. I doubt if their statistics could withstand a barrage of misspecification tests. But even if the statistics do not hold up, it does not change the significance of their results. The whole thing worked. Make people put money where their mouth is, and the market will do the rest.

The authors go on to discuss that the market works because prices are determined on the margin while bias only affects averages. They separate the markets into arbitragers who look for profit and political “homers” who only buy shares in their candidate. The arbitragers set the prices while making money off the “homers.” This idea pulls their work back into economic theory and makes sense. Every grocery store manager knows that the “cherry pickers” (those customers who only by items on sale) keeps stores afloat by increasing cash flow but homers who buy everything at the store regardless of price generates profits.

But it greatly simplifies what is actually going on in the market. Hayek and the Austrians describe the market as an “information discovery process.” Prices convey information. The Iowa Presidential Market allowed individual traders (and researchers) to discover information and to use this information as they deemed fit. This discovery process led to the final market price giving a good prediction of the actual election. Is it because “markets allocate scarce resources to their highest value”? Well, that depends on how you define value. Economists have been trying to pin that definition down for 200 years. But in the end, the whole decentralized process worked. Why it worked can be partially explained by saying some traders understand calculus and throw their personal preferences out of the window, but there is a whole lot more to it than that. A whole lot more than we will never be able to explain. But markets work.

Athena

"Sleep comes like a drug"
From boredom or toil

You were standing there
An angel amongst mortals
Effort was all around
Muscles being strained
Impressions trying to be made

But you
You were above it all
For everything that was around
Did not interest you
You had much better
Ideas on your mind

Things I Could Never Explain

1. "When I look in to your eyes
I see the world cut down to size."

(I think this comes from a John Hiatt song. He sings it on the Nitty Gritty Dirt Band's Will The Circle Be Unbroken Volume 2. )

2. Everything really is going to be alright.

3. I like to argue.

4. I like to think.

5. Saying something "is" is not a reason it should exist.

"When I Go There, I Go There With You. It Is All I Can Do."*

I restarted John Kenneth Galbraith's Economics, Peace, and Laugher. There has never been a writer who makes me so angry. But I cannot put him down. Most everything he says is so wrongheaded and pompous, but I agree with his basic assertion that economists are fake. I agree that the world should be better.

Here is how I described Galbraith in The Affluent Society:

Galbraith's major flaw is the same as Leontief. He assumes ceteris paribus always holds. Nothing changes except what he wants to change. A better educated society still wants pornography, tobacco, and drugs. The masses are always the masses, no matter how much education they have. Galbraith cannot see what is not seen. He has no vision.

But Galbraith makes me think. He challenges me in different ways.

I have two ideas. First I would like to raise $25,000. I would go to Africa or Southeast Asia and find the best entrepreneurs. I would make loans and contribute any expertise I have. I would promise to pay the $25,000 plus interest back in ten years.

Or I could start a school in Southwest Virginia. I would probably need $50,000 to do this, and I could not promise to pay anything back. I would have to use a church or something similar as a school. I would have to convince my sister or someone like my sister to teach. But I would be successful and prove GGM wrong.

* U2's "Where The Streets Have No Name" is a beautiful song.

Private Schools

Last night I ranted about how all education should be private. My colleague from Southwest Virginia proceeded to tell me that 60% of children at the school where her mother taught were on free lunch. She said most of the children's parents were hooked on meth, in jail, or should be in jail. She said sometimes children will miss a month of school without any explanation from their parents. She said without government forcing parents to send their children to school there would be no school for these children. GGM also assured me I was a fool.

And I still think all schools should be private. There is no doubt in my mind that churches and concerned citizens armed with their tax rebates would fill gaps the public system cannot. I imagine church vans picking up students. I imagine drivers walking into houses, waking up children, helping them dress, and making sure they got their education. I imagine ingenious teachers freed from "standards" helping children find their individual place in the world. I imagine a better world.

But what am I going to do to make it happen?

Things I Write In My Notes

People are good. People are bad. I do not know. I do not care. I do not know why I do not use don't. I know nothing.

I am not a scientist. I am an artist who sees beauty in the world. Scientists describe. I cannot describe beauty. Scientists are limited by the tractability of their questions. An artist is limited by what his eyes can perceive.

(GGM said I was becoming a bad poet. He assured me this was not a good thing.)

Before I got up this morning, I was laying in bed debating whether to get out or not. For some reason, I started to think about the marginal benefits of getting up versus the marginal costs of staying in bed. How much was twenty extra minutes of sleep going to cost me? I got up when I had to puke.

Happy Birthday Dr. Buchanan (October 3rd)

I do not understand hypotheses. I have been learning about hypotheses since the third grade scientific method unit. I did not understand them then. I do not understand them now. Therefore I do not fully understand Kachelmeier and Shehata's “Internal Auditing and Voluntary Cooperation in Firms: A Cross-Cultural Experiment.”

Hypotheses are guesses. Guesses are relevant ex ante, but ex post we do not need guesses. We have real results. So Kachelmeir and Shehata waste a number of pages describing three common sense hypotheses: 1. Asians, especially the Chinese, will cooperate more than Canadians. 2. Because natural cooperation can be expected with Asians, internal audits will be more costly to Asians than to Canadians. 3. Asians will demand fewer audits than Canadians. But all three of these effects will be muted when participants' decisions are highly anonymous.

These hypotheses are a charade. Do the authors think their audience is third graders? Are these hypotheses or stereotypes? Aren't they obvious? I know they do not matter. Because the authors do an experiment. They get real results. I do not care about guesses. Tell me what happened. As in most economic and business research, hypotheses are the common sense part of this paper.(1)

I guess hypotheses fill pages.

Hypotheses are a big joke to make economics look more like a science. (I know the authors are accountants, but academic business research is economics.) Economists study people. Economists study institutions. Most of these institutions just happen. No human plays God and consciously builds institutions. They evolve. From chaos comes order. The amazing thing about markets is they work. Nobody before Adam Smith could hypothesize that markets would work. They still cannot. That is why the market has so many critics.(2)

The authors run public goods experiment. These experiments are common place in economics. The authors' main contribution is to compare how the game was played in different countries. This is an interesting objective. Since they are accountants, they want to say the game relates to divisions of firms and companies' desire for internal audits. Each player represents a division. All players in the group represent the firm. The firm is better off if everyone contributes. The player has incentive to keep some for himself.

The authors describe a management problem. Good managers provide the correct incentives to cooperate. A company should organize itself in the way that maximizes profits. But every company is different. Some companies will use internal audits. Some companies will hire honest managers. Some companies will have leaders whose people skills ensure cooperation. Some companies solve the asymmetric information problem. These solutions might differ between countries. Those who do not fail.

Their results are in line with their hypotheses. Asians behave differently than Canadians. Anonymity matters. Their statistics are simplistic. I doubt if the authors have any idea of the probabilistic reduction approach. Honestly I doubt if they have the mental acumen or courage to fully understand the probabilistic reduction approach. I know I have neither. But I can appreciate the fact that the authors' statistical results are circumspect. I can also appreciate that people from different countries give different amounts which is the important research result.

The authors recognize their limitations. Playing contrived games does not guarantee external validity. [I think the future of experiments will get away from neutrality and become more parallel with reality. ( The authors specifically wanted to look at auditing. Build auditing into your experiment.) Really this has to do with “bias” which is another concept I do not understand, because I do not understand hypotheses.] Students do not necessarily represent a random sample of their population (especially in China). (I cannot tell if they pay students either.) They leave the reader with a politically correct message, “Thus, although cultural studies are useful for identifying general patterns of of societal values, they do not negate the importance of individual differences.” The message is very nice, but every good manager knows to judge a worker by his performance not by the color of his skin. But I doubt if good managers will or need to read this paper.

(1) The idea of maintained hypotheses is important but never highlighted in economics like testable hypotheses. But the beauty of experiments is we can throw many maintained hypotheses out the window and just observe what happened. People cooperated. People traded at a single price where marginal costs equals marginal benefits. The maintained hypotheses that cripple most economic research only come out when external validity is discussed.

(2) Since it is Jim Buchanan's birthday, I am reminded of one of his eight cryptic statements about economics: “Economics has a didactic role.” This paper is full of economic concepts. The game encompasses the economic concepts of prisoners' dilemma, public goods, and incentives. The authors recognize most of these concepts, but I do not know if they understand them. They have a “principles” understanding, but it is superficial. They have never thought about how prisoners' dilemma games depend on payoffs. What if we can change the payoffs? What if the prisoners feel guilty? What if managers change perceived payoffs? Why are there privately supplied “club goods”? How can we justify Virginia Tech's state funding when Roanoke College and Harvard University exist? This lack of understanding bothers me. Economists have to teach better.

But, Buchanan said it best in his “Retrospect and Prospect” epilogue to What Should Economists Do?:

“7. Economics has a didactic role. As a discipline or area of inquiry, economics has a social value in offering an understanding of the principle of order emergent from decentralized processes, of spontaneous coordination. (The market is a classic example.) Such an understanding is necessarily prior to an informed decision on alternative forms of social order, or even on alternative directions of marginal extension. The principle of order that economics teaches is in no way “natural” to the human mind which in innocence, is biased toward simplistic collectivism.”

The real problem is this cryptic statement is not understood by most economists. Experimental economics has taught me and can teach others that society works without central planners, without politicians telling people what they can and cannot do. But will economists let it?

A Proposal

GGM told me my last few posts have been depressing. I replied that is just me. I also told him he was the sixth person to call me depressing. The first five were women.

A colleague told me she wanted me to tell her three things that I enjoyed. I gave her some bullshit list that included Green Tea. Green Tea was just a stupid phase. If you put enough sugar (or artificial sweeteners) in anything, I will drink it.

So while I was depressing myself, I came up with this idea. It really is a social experiment that will probably depress me more, but what the hell.

I propose to watch one of the two funniest movies of all time Annie Hall or Metropolitan. I will pay for the rental of the movie, a portion of the refreshments, and provide a place if needed. (My apartment is small. My TV smaller. But I can arrange something.) My only entry requirement is you bring a single female friend who finds Woody Allen or Whit Stillman funny.

I am joking about the entry fee, but if anyone is interested, leave a comment or Email me. I will not set a date until I have deemed the social experiment a success or a failure.

If by chance you are a random reader who finds Woody Allen or Whit Stillman funny and are willing to travel to Blacksburg you can leave a comment too. Even if you find Woody Allen or Whit Stillman funny but are not willing to travel, you can still leave a comment. Shit, anyone can leave a comment if they want to. I do not care who or what you like. I appreciate the attention.

I Know How To Spend My Money

From CafeHayek.com:

"The government has the Sidam touch--it ruins everything it touches, increasing the demand for more government unless we realize the true source of the problem. Remember Milton Friedman's insight, one of his deepest:


And that is the fallacy -- this is at the bottom of it -- the fallacy that it is feasible and possible to do good with other people's money. Now, you see that fallacy -- that view -- has two flaws. If I want to do good with other people's money I'd first have to take it away from them. That means that the welfare state philosophy of doing good with other people's money, at its very bottom, is a philosophy of violence and coercion. It's against freedom, because I have to use force to get the money. In the second place, very few people spend other people's money as carefully as they spend their own. Let me take this down to the situation of New York City right now. About six or seven or eight years ago -- I've forgotten when it was -- John Kenneth Galbraith, in an article he wrote in The New York Times Magazine Section, said, there are no problems in New York City that would not be solved if the New York City budget were twice what it is now. Now, the New York City budget has since then something like tripled. And all the problems are worse. Why? Because the fact is, it's a confusion to identify the City with the people. The New York City's budget is higher, but that means that the people of New York have less to spend. It's only been transferred from people individually to the City. Now, who spends the money more carefully -- the City civil servants or people who are spending their own money? Now, of course, you may say to me, but when the City spends the money, it'll go for the good things, and so even half of it is wasted, it's better off. But that's nonsense. City civil servants and others are just like the rest of us. We're all of us interested in pursuing our own objectives. The label again on the bottle may be welfare or health or education. But you have to look at all of the places where it drops off en route to going there. There are lots of other things that can be accomplished under those titles, and the fact is that no more -- no larger a fraction of the money the City spends goes to good things. Let me illustrate in a very concrete way. A major problem in New York City is housing. Why? Because of bad governmental policy. Rent control, which was continued in New York after World War II, and the only city in the country where it was continued, everywhere else it was dropped. It has caused enormous abandonment of houses, eroding the tax base, public housing, governmental subsidy to housing, so that people who occupy it have no incentive to maintain it. If you had eliminated the government from the housing market and left that money in the hands of the people themselves, the housing situation in New York today would be far better than it is. "

The major ideological conflict that faces every generation is the collective versus the individual. Unfortunately very few intellectuals want to attack this conflict to find a resolution.

Indifference, Transaction Costs, Women, And Bus Drivers (Things That Matter But Cannot Be Modeled)

I am sitting in my office. I hit another bottom. I wasted a day debating whether it was worse to be indifferent to the world or the world being indifferent to you. They are both pretty damn bad.

Note to self: This up and down shit has to stop.

I am walking to the bus. Two average looking women pass by me. They look like they are going somewhere. I want to ask them "why not?" I am not a bad guy. I can make conversation. Why not?

But I am scared shitless. As usual I try to explain fear away by rationalizing. I am scared shitless.

I am sitting on the bus. Two average looking women get on. I am still scared shitless. I think they were lesbians. But I was still scared shitless.

The bus stops. I tell the driver if he leaves on time it will be shorter for me to continue riding than walking. I tell him it is close. He says "While you wait to make a decision, the decision is being made for you."

Afternoon Pep Talk To Myself

And I decide this lifestyle is not what I want. A beautiful girl is sitting in front of us talking to some bald dude. At first I would have killed to be that bald dude. But the whole scene is fake. No that is not true. The whole scene does not fit me. I am an angry guy who likes to think. No I am not an intellectual, never will (or can) be. But "I ain't no glamour boy; I am fierce."

It is okay to bitch and complain. It is okay to be me. I have been on this kick where I think I am too American-centric. I think I am too serious. But damn it, that is me. Why am I apologizing? Why am I so worried about changing myself? I care. I cannot change that. Don't even want to.

People I respect keep telling me to find something I care about and pursue it. They keep telling me economics needs people like me. Economics needs guys who won't keep their doors open just to get tenure. The profession needs people who care about honesty, not making themselves a buck or intellectual pride. They are right.

Yeah, I am lonely. Yeah, I am depressed. But so what? I am not going to feel better compromising. I am not going to feel better trying to be someone I am not.

I have made some mistakes. All I can do is live and work through those mistakes. I am not going to change the past. And I am not going to change anything worrying about the future.

Boudreaux Does It Again

Poverty was the natural state of man for thousands of years. Now it is something that requires study?

At dinner last night, two college educated guys talked about how they wanted to rough it for a period of time. Admittedly, they wanted to make money while doing it, but it always worries me when smart people think poverty is a learning experience.

I do not know much. But I know I do not want to be poor.

Things I Learned Today

It takes courage to get up in front of a crowd.

No matter how much alcohol I have consumed, some bands are not going to sound good.

It can rain anytime.

Vegetarian pizza tastes like shit unless you are with a woman who wanted it.

Everything tastes better when a woman wanted it.

While eating pizza, men should talk about sports and sex.

Past relationships need to stay in the past.

Long legs that go all the way up... are a beautiful thing.

If a man stares at a woman's ass long enough, he will find something he likes.

Vanity Is Not Necessarily A Bad Thing

Sam told me everything I say is a non sequitur. At first all I could think about was that great cartoon called "Non Sequitur." But then I got mad. What was Sam trying to pull?

My first realization was I had no idea what non sequitur really meant. So I looked it up:

non sequitur (from dictionary.com)

n 1: a reply that has no relevance to what preceded it 2: (logic) a conclusion that does not follow from the premises

Sam might have a point.

But most of my arguments reconsider initial premises. Should government be involved? Is this the correct way to approach the problem? Is there a problem?

So maybe I am a non sequitur, but my arguments are relevant.

I am reminded of a quote from Metropolitan:

Jane Clark: Why should we believe you over Rick? We know you're a hypocrite. We know your "Polly Perkins" story was a fabrication...

Nick Smith: A composite.

Jane Clark: Whatever. And, that you're completely impossible and out of control, with some sort of drug problem and a fixation on what you consider Rick Von Sloneker's wickedness. You're a snob, a sexist, totally obnoxious, and tiresome. And lately, you've gotten just weird. Why should we believe anything you say?

Nick Smith: I'm not tiresome.

In Response To Helibroner's Introduction To The Worldly Philosophers

This is what floats my boat. All the math, the bullshit, discourages me. It is just a means to an end. I love making money and knowing making money is good for the world.

It is all normative. Well, anything worth a damn is normative. It isn't good enough to say "it is" and that is it. A model is only as good as what it predicts. An idea is only as good as what it can change. One must say that artificial product differentiation is perverse before he can decide its effects, before he can be man enough to admit he is wrong.

My finance professor (and the professor I am most indebted to) told us "the greatest financial market is a grocery store." He was right.

No matter how much I delude myself, I cannot escape the grocery store. I love two things in the world: women and economics. I am getting neither right now.

Hemmingway's Story

Just sitting here
Waiting for the Blues to go away

Mom, I don't want to be like you
I don't care if I am one of your chosen few

Just sitting here
Waiting for the Blues to go away

I have seen and thought things that force me to be alone
The best years, the best times of my life are blown

Just sitting here
Waiting for the Blues to go away

I was a young man
Dapper, Dapper
I could dance and sing and...
All night long
Now I am an old beyond years
My life has been shit down the crapper
Can't you see my fountain of tears?

I used to love women in the month of May
I used to love women everyday
Now they bore me
All I desire is to flee

Just sitting here
Waiting for the Blues to go away

Dad can give me the car
But I won't get very far

Just sitting here
Waiting for the blues to go away

Boudreaux, Bastiat, Krugman, Competition, And Freedom

Here is a link.

Bastiat captures the importance of "I have the right to exist." You cannot expect a man to produce if you take away what he produces. You cannot expect a man to think if you punish his thoughts. You cannot expect a man to live if you emphasize death.

"There can be no contradiction."

"When You Were Out Of Luck, Luck Was Doing Alright"*

I am riding the bus. A girl gets on with a muffin. She cups her hand under her mouth to prevent making a mess. She finishes the muffin. She rides five miles with a handful of crumbs. She does not throw them on the bus floor. She waits until her stop. She empties the crumbs in the grass for birds, squirrels, and decomposition.

She acted beautifully. And I could not find the courage to tell her.

ML told me love was a choice. You decide to love someone. You decide to ignore or forgive their faults. You decide to compromise.

I never believed her. I thought love was magic. Something happened and you woke up next to a wonderful woman for the rest of your life.

I am an idiot. ML is right. The things I want are not magic. They are not unattainable. I want to be challenged. I want to be called an idiot. I want a pat on the back. I want to watch good movies and talk about them afterwards. I want to listen and discuss jazz. I want to be happy.

Colleagues have been telling me I have to make a decision. "Fat, drunk, and stupid is no way to go through life." I have to start wanting to get out of bed. I have to decide how I want to live.

Unfortunately I am having a difficult time making that decision. But I have to make it. I cannot continue to let beautiful acts go unnoticed.

*John Hiatt's "Paper Thin"

Find Carmen McRae's "The Ballad of Thelonious Monk." Listen to it.

"Kind Of Blue"

Parking lot is empty;
It always is
You are alone
By yourself
Is that such a bad thing?
So what?

Had a girl
Not really
She was never mine
Is that such a bad thing?
So what?

Knew a man
Said he had a good plan
I am not gay
But he was a handsome Dan
Is that such a bad thing?
So what?

Who do you want to be today?
Who would you like to be today?
What do you want to see?
I don't know
Is that such a bad thing?
So what?

I make up wonderful stories
They say things that need to be said
Fantasies so real
I should have a book deal
Actually they are bed time stories
To get me thorough the night
Is that so bad?
So what?

Funniest Thing I Have Heard

Another employee to my Dad: "You are three Doritos away from maternity leave."

"Whose Constitution Should Be Spread Where?"

A colleague asked me this question earlier this week. She challenged me to reconsider my views on constitutional government. She challenged me to stop being so American-centric. Classic liberalism must have limitations. And, classical liberalism never supported violently pushing constitutions down people's throat. And, how can one allow starvation and war in the name of an ideology? She said I wanted to spread my constitution everywhere.

My first reply was to rehash the difficulty of the initial endowment question. If I screw up, it is my fault. I had a good home and have been given every opportunity in the world. But with that kid in Africa or that poor inner-city kid, how can I talk about individual choice? Can we really punish children for their parent's mistakes? Can I really watch children starve in the name of libertarianism? Without taxes, I could give more to charity. Would I? I do not have an answer to these questions, but aren't the answers essential to my position?

For a little while, I was in a quandary, but then Sam sent me this Email:

I read this article and thought you would be able to appreciate it. What does this say about local knowledge? I am sure there are smart business people in the developing world but what to you do about the equally stupid and unruly populists? It seems wrong to let them starve, but what else is there for them to do if they forsake property rights and the rule of law?

I have no problem with someone who believes in something. A man who looks you in the eye and says "I am right, and here is why" can do great things.

So my constitution consists of one mandate stolen from Ayn Rand, "I have the right to exist." This means I have a right to the fruits of my labor and acumen. I have the right to property I earn. I have the right to choose. I have the right to my sphere. Of course this is vague, but it is true. It requires people to be honest with themselves. It puts responsibility on the individual instead of blaming non-existent entities.

It does not mean that the people of Baghdad have to accept American ways, but they as individuals have to decide. Neither majority rule nor dictators can decide for them. Each person has to look inside himself and decide what he or she wants.

And this constitution should be spread everywhere.

Bastiat's Rules For Football Fans

1. Respect the game. You can drink. But if you are stupid, stay at home.

2. Know the difference between punt block formations and punt return formations. Frank Beamer (or any special teams coordinator) has studied film all week. He knows when to go after one and when to set a wall.

3. Respect the fact that the players and coaches have spent all week preparing.

4. If you do not know anything about football, shut up. If you knowledge is limited to College Gameday, do not speak unless spoken to.

5. Be honest. If your team sucks, admit it. If your quarterback underthrows all deep balls and is visibly indecisive, then consider the back-up. It is no sin to say something bad about your team. For example, the Redskins suck. Their quarterback has no arm and no legs. He might win games, but he will not win a Super Bowl. The days of the one-dimensional quarterback are gone. I do not know if the back-ups are any better, but I am willing to consider them.

This was inspired by this post which I found from this site.

"Baby, I Could Walk You All The Way Home"*

Before I review Engelmann and Strobel's “Inequality Aversion, Efficiency, and Maximin Preferences in Simple Distribution Experiment,” I think Bolton and Ockenfels bring up the essential question, “...what it is that experimental economics can hope to accomplish.(?)”

Bolton and Ockenfels like most economists consider themselves scientists. Experiments must be explained. Researchers must find causations. Economists must write theories. They want to “present a broader, more valuable map of economic behavior.”

What for? Why? Do economists really think they can predict behavior? Do they secretly hope that with these new theories they will be able to usher in a new wave of social planning with themselves doing the planning? What exactly is “economic behavior?” Until we attempt to answer these questions, economists cannot progress. I am not saying Bolton and Ockenfels are wrong. But they do not try and make their case. They do not tell the reader what a “broader, more valuable map of economic behavior” should be or what it will do. We are ignoring the fundamental philosophical question that forms any discipline. What is an economist's purpose?

I cannot answer this question, but I do know economic experiments yield individual decision information from a controlled setting that suggest how people will make other decisions. The ultimatum, bargaining, and distribution games are not parallel with real life. Subjects will never be told to split $10 in their life like they are told in the experiment. They will make similar decisions with their spouses, friends, and children but never will it be as blatant as in the experiment.

But just because we cannot ex ante predict behavior does not mean the
experiment has no value. That logic is a stupid way to examine the problem. The experimenter created this experimental institution, and certain results occurred. If we changed the experimental institution, the results would change. The main lesson from experimental economics is institutions matter. You cannot separate the decision from its context.

Experimental economics and economics will not progress until researchers decide what economic theory should do. Classical theorists ignore reality, but their theories still hold didactic and normative value. Nash equilibrium makes a young student look at a problem in a different way. As Engelmann and Strobel suggest new theories based on experimental results do not predict any better than older theories. But the new theories and the experiments that birthed them challenge students to think.

Economics has to decide what it wants to do. This competition between different economists pursuing different objectives can lead to progress. But researchers trying to match experiments and theories will impede economics. Experimentalists need to design new games and institutions that allow new behavioral hypotheses to be tested. Conducting the same simple experiments in an attempt to test new theory is a lazy exercise that will not push the boundaries of economics but instead stifle thought. We need new experiments and different contexts to see how people make decisions given different institutions. We need our experiments to be more parallel.

Economics must recognize its normative basis. Positive economists cannot refute this normative basis. No matter how many free riding experiments one does, Milton Friedman (or myself) cannot be convinced that taxes are a good thing. Economics is not mature enough for experiments to prove the validity or invalidity of economic theory, because our theory is still normative. We do not know enough about the brain, genetics, and environmental effects to “make a map of economic behavior.”

And it is foolish to pretend that economists can or should do this. Since Adam Smith the best economists have mixed philosophy, a loose interpretation of the scientific method, and a general desire to question their surroundings to create important works. Modern economics has forgotten philosophy, and it rarely questions reality but emphasizes what other economists have done. Equity, efficiency, and selfishness are normative issues that require debate in a philosophical forum. Economists cannot continue to argue over these issues in a positive forum without stagnating the profession.

Engelmann and Strobel's “Inequality Aversion, and Maxmin Preferences in Simple Distribution Experiments” has many interesting results. Their main conclusion is people's decisions cannot be predicted by a number of new and old theories. The game matters.

Distribution games entail an individual deciding how income is distributed amongst two other players. The decision maker's payoff stays the same in all three scenarios, but his fellow players' values change. The decision maker basically decides how equal all three players' payoffs are. He is implicitly trading off between equality and aggregate wealth for all three players.

Engelmann and Strobel vary the values to form the taxation, envy, and rich and poor games. Their results are mixed. The classic economic arguments of efficency, maxmin, and selfishness, probably does the best job of predicting decisions. People want to get as much money out of the researcher as possible, but it clearly does not explain all of the decisions. Other theories do better in certain games, but there are no clear predictors even for these simple games.

And their conclusions are what experimental economics can hope to accomplish. People differ. People care about different things. People are absolutely crazy. For some reason and because of market experiments, I find comfort in their craziness.

*The Boss

My Playlist

I put the MP3 player on random, and I got a hell of a playlist. I do not know how to copy and paste it. But I assure you it was great. It started with Bruce Springsteen's "Cover Me" and ended with Ella Fitzgerald's "I Won't Dance." It had some Janis Joplin and John Coltrane in the middle.

Jeff sent me this link yesterday. It is one of those things that makes you examine what exactly you are doing with life. And more importantly, what you should be doing with your life.

"Great Things Come From Angst"*

Matthew Rabin (1993) sets out to “Incorporate(ing) Fairness Into Game Theory and Economics.” He, other economists, psychologists and most adults have observed that individuals do not behave like “economic man.” People care about equity. People punish selfishness at the expense of their own welfare. Economic theory does not consider fairness, and Rabin works to rectify this obvious shortcoming.

This paper strikes me personally. Game theory was the first economic subject I studied outside of the classroom. A professor briefly introduced the subject. I bought Morton Davis's Game Theory and Fudenberg and Tirole's upper level textbook. I bought John Nash's biography with the original “Nash equilbrium” paper. I thought game theory described life. If we could define all strategies, payoffs, and rules, we could describe the world. Every decision could be broken down into payoff matrices. The subject infatuated me.

But then I was working at the grocery store and a woman bought a liter of Canada Dry Ginger Ale for $1.39. She could have bought two liters for $1.29. I explained to her that she could throw the extra liter away and still be better off, but she did not care. She bought the one liter bottle. I was perplexed. I told my Dad. He replied: “Son, you have to let people do what they want, and you can't spend your life thinking other people are stupid. She knew what was best for her.”

My Dad was right. Game theory might be predictive if we could decipher utility functions and determine payoff matrices, but we cannot. And if we could, they would be instantaneous and have no practical value. So if Rabin really wants to describe and predict behavior, I assure him that he will fail.

But if Rabin wants to change the way people look at problems, he succeeds. The idea of expectations, fairness equilibriums, and mutual-maxes and mutual-mins is an interesting way to examine problems. His stylized facts and new concepts challenges the logic of Nash equilibrium. Rabin makes economists think.

His examples are also interesting. Especially the idea that one person chickening out is not an equilibrium with his criteria. (Mutual destruction does occur.) His suggestion that monopolies cannot set a profit maximizing price is also interesting. (If Wal-Mart has such market power, why aren't their prices higher?) His labor market suggestion is also a more complete formalization of the employer-employee relationship. (My Dad, Granddad, and uncle are/were entrepreneurs. My Dad and Granddad treat workers kindly and get good effort. My uncle treated people unkindly and got little effort.) Again Rabin challenges conventional game theory, and at the least, he makes readers think.

His assertion that “As the material payoffs involved become arbitrarily small, equilibrium utility levels do not necessarily become arbitrarily small” makes wonderful sense. As anyone who has been in a relationship can attest, the small immaterial things can mean a lot. Rabin's Proposition 6 depresses me. I want to say his wrong, but I cannot. There always seems to be a lose-lose outcome that can occur in every situation.

Rabin's new theory satisfies economist's criteria. It uses equations, calculus, and even has proofs in the appendix. It also attempts to incorporate reality. Anyone who has been in a relationship knows considering others feelings can be rewarding.

But feelings cannot be represented by equations and variables. Feelings change. Feelings grow. Feelings wane. Feelings are completely subjective.

Given this, I do not understand Rabin's conclusions. If he recommends future researchers follow his lead and challenge conventional game theory, I commend him. If he is challenging economists to consider psychology, sociology, marketing, religion, and other things that affect decisions, I commend him. But if he is trying to predict human action, then I suggest he spend some time at a grocery store. The fact is people do crazy things that only make sense to them. Game theory helps us think about these crazy things, but it cannot tell us when or why they occur.

*S.A.

James Taylor's "Steamroller"

Steamroller

Well, I'm a steamroller, baby, I'm bound to roll all over you.
Yes, I'm a steamroller now, baby, I'm bound to roll all over you.
I'm gonna inject your soul with some sweet rock 'n roll
and shoot you full of rhythm and blues.

Well, I'm a cement mixer, a churning urn of burning funk.
Yeah, I'm a cement mixer baby, a churning urn of burning funk, god damn right.
Well, I'm a demolition derby, yes, a hefty hunk of steaming junk,
Mister McGee got the blues for you and me, way down, yeah.

Now, I'm a napalm bomb, baby, just guaranteed to blow your mind.
Yeah, I'm a napalm bomb gotta tell you one more time to sit down, stand up, go home, yeah.
No guarantee to blow your mind, momma, yeah.
And if I can't have your love for my own to take home and keep me warm,
there’s only one thing left to find, oh, bokka nine, bokka nine, bokka.
I just don’t seem to can’t lose these here low down, no way up, half flying,
freeze drying, fat frying, chicken choking, mother fucking can’t, oh, roll on over,
I got those steamroller blues.

Economics

Guth, Schmittberger, and Schwarze's “An Experimental Analysis Of Ultimatum Bargaining” challenges itself to experimentally “investigate the so-called ultimatum bargaining behavior.” The authors achieve their goal. But they fail in their presentation.

The authors run simple and complicated ultimatum games on economics graduate students (who had no training in game theory). In the simple game, the first subject is given an endowment. He takes an amount for himself. What is left goes to the second subject. The second subject either accepts the first subject's decision or cancels the trade leaving both subjects with nothing. In the complicated game the first subject is given an endowment of black and white chips. The first subject chooses a mix of white and black chips and sends it to the second subject. The second subject can either take the mix chosen by the first subject or take what the first subject has left. These black and white chips are worth different values to the first subject than the second subject.

The results of these games are interesting. Some subjects choose egalitarian splits. Some subjects choose less egalitarian splits. Some subjects choose to leave with nothing. When the endowments differ, subjects choose somewhat different splits. Subjects play the easy and complicated games differently. Experience changes decisions.

But the authors refuse to stop there. They choose to examine economic theory. This approach is common to experimental economics. Experimental economists test economic theory. That is what they do.

Refuting economic theory cannot be done with experiments. Economic theory does not concern itself with human behavior. It is normative theory. The authors even call game theory predictions normative solutions. Nash equilibriums entail what should be. Players should only care about their own payoffs. They should be economically rational. It does not say anything about “what is” or human behavior. At best economic theory provides a way of thinking. A way of approaching problems. Playing the Nash equilibrium ensures a type of outcome. At worst economic theory is “vain playing with mathematical symbols” (from Ludwig von Mises' Human Action). No sane person who has ever spent more than three minutes in a modern grocery store could defend economic theory's positive predictions.

Now this situation does not doom economic experiments or economics. The results of economic experiments are interesting without their insistence to test game theory. They suggest positive behavioral hypothesis. They suggest how complicated human beings are.

In particular this paper's easy games suggest a significant percentage of people care about equality. People do not take all of the money for themselves, and people will punish players at the expense of their own income. Players behave differently when the stakes change and when they have more experience with the game. Also players have different expectations when they are the first and second subject. Some players do not follow “the golden rule of treating people like you want to be treated.” They reject offers as the second subject that they would have offered as the first subject.

The complicated games yield somewhat different results. The game is contrived so two possible mixes make both players payoffs as high as they can be. These mixes make sense. They are envyfree, Pareto optimal, and Nash equilibriums. But players do not necessarily choose these “superior” mixes. And sometimes the secon subject will not choose the bundle that generates the most income for himself. These results might occur because subjects did not understand the game, but again, it seems some subjects prefer equality and will sacrifice their own and total income for equality.

But these results say nothing about Nash equilibriums, Pareto optimality, or any other economic theory. Economic experiments explicitly confront human behavior. Economic theory does not concern itself with reality. As Ludwig von Mises said about economic theory, “...it did not deal with real living beings, but with a phantom “economic man,” a creature essentially different from real men.” This does not mean economic theory is fruitless. It still provides a systematic way of thinking through problems, but it is foolish to confuse economic theory with reality.

My First Take On Development

I wrote the following in William Easterly's The Elusive Quest for Growth:

Can I really give a damn about the poor? Every now and then I talk a good game. But poverty is so far away and then I think about domestic poverty. It is easy to blame poverty on ignorance, almost as easy as blaming it on bad luck. A child might not have opportunity, but he or she is paying for his or her parent's mistakes. Somebody has to pay. Zero-sum is neither complicated nor new, but it is real, relevant, and true.

Three years later, with a trip to the Philippines under my belt, I feel the same way. Poverty cannot be solved in a classroom or by an American researcher. It has to be solved in the bedrooms of Africa. It has to be solved in American ghettos and trailer parks.

The problem with most poverty experts is they do not see the poor as people. They do not care about the poor's ambitions. They want to treat the poor's symptoms but refuse to understand the disease.

Obviously I have no clue about development. But unlike most development economists I am not afraid to admit it.

How Do Things Work

Sam, GGM and I have been arguing about change. I argue change can and should come rapidly. Sam and GGM argues change can only come incrementally.

We agree the world faces problems. We agree on world's imperfection. But how do we change the world?

My problem with incremental change is it denies the ideal. People get so caught up in the intermediate steps, in their own actions, they forget the big picture. WTO negotioators forget free trade's universal benevolence in favor of political bickering.

It is Hayek's "good intentions." The WTO is a small step forward. But it does not solve problems. Good intentions pave the road to hell.

Well I have lost the motivation to properly finish this post. Small steps might eventually get us there, but I doubt it. With big steps, we might overstep or blow our load too early. I do not what way is better, but I do not think the answer lies in science, NGOs, or government.

Tribute To MarginalRevolution.com

Best sentences I read today

From a Vernon Smith article, "Theory, Experiment and Economics," in the Journal of Economic Perspectives (Winter 1989):

"However, if one wants to gain a greater understanding of economic phenomena, the most productive knowledge-building attitude is to be skeptical of both the theory and the evidence."

"Simultaneously, data should be ever more demanding of the empirical relevance of theory and of the theorist's expertise in working imaginatively on problems of the world, rather than on stylized problems of the imagination. "

"Words, pictures, and formulas cannot convey a lifetime of experiences under the able tutoring of one's experimental subjects."

Random Thought On Economics

Campbell's Select Microwavable Soups provide a quality product at a low price. Tonight I had Italian Wedding soup. It was tasty. I am sure real Italian Wedding soup would taste better. It would have fresh ingredients and less salt, but will I enjoy that much more?

I ate an imported mango today. I let it ripen up for a few days. It was close to heaven. It was nowhere near a tree-ripened Filipino mango, but again, I am not in the Philippines.

What does this say about where the quality of food is going? Of course it is increasing, but will the best fresh food exist in a few years? Will I ever pay for real Italian Wedding soup or tree ripened mangoes?

Advice For Graduate Students

When a graduate student gets depressed, he should read something a fellow student has written, something from someone he considers a rival. If it is good, the depression will at least temporarily turn into anger and desire, especially if it is well done and the reader sees some of himself (but not enough) in the paper.

They Were Not Perfect, But They Believed In Something"*

*A preacher describing the founding fathers.

You have to believe in something. You have to believe in yourself.

Yesterday Sam got a Chinese fortunate that said character is built upon courage. He disagreed with the fortunate, but the Chinese are wise.

I have been lost in a dense fog for a year. I have no idea who I am, what I want, or why anything matters. I go back and forth between being moderately and mildly depressed. Everything I have done has been half-ass. From the outside, it is a sad situation. From the inside, it is frightening. It feels like I am locked in a closet. Every now and then, I see the light, but the light does not stay.

My fear, my depression comes from fear, from the lack of courage. I do not have the courage to look into the mirror. I do not have the courage to get out of bed. I do not have the courage to distinguish between right and wrong.

Very few know who they are, what they want, or why anything matters. But they find the courage to act. Action requires courage. Blind action, action for action's sake accomplishes nothing. But sometimes, you have to weigh the odds and roll the dice.

Rolling the dice takes courage.

The Crazy Way

My Dad used to say, "There are three ways: the right way, the wrong way, and the the Agnew way."

Agnew was a hard-headed store manager that treated his employees like an overseer. He could not see his employees as people. He thought everyone who worked for him was stealing money from his wallet. He was an asshole.

But the Agnew way was really a mix between the wrong way and the right way. Agnew understood discipline. He understood what it took to be successful. He understood how to work. Both my Dad and I learned a tremendous amount from him.

So I am adjusting my Dad's saying, "There are three ways: the consensus way, the dumb way, and the crazy way."

Doing things the consensus way is easy. It requires no thought, no questions. You do what everyone else is doing. There is a good chance the consensus way is the right way.

Doing things the dumb way is stupid. It requires doing something you know is wrong. Most people do not do things the dumb way. (Note: The dumb way is sometimes refereed to as the American way, the Chinese way, the Albanian way or the WannabeBastiat way.)

The crazy way is the fun way. It requires taking a chance, being a man, courage. It requires flipping the finger at consensus at the risk of doing something dumb.

Sometimes the crazy way leads to progress. Sometimes it makes you look like a fool.

Maybe it is not so bad to be absolutely fucking crazy.