Saturday, October 28, 2006

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"

Thursday, October 26, 2006

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

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


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


"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

Monday, October 23, 2006

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

Saturday, October 21, 2006

"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"

Thursday, October 19, 2006

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.


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.

Tuesday, October 17, 2006

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.

Monday, October 16, 2006

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."

Sunday, October 15, 2006

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.

Thursday, October 12, 2006

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.

Monday, October 09, 2006


"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

Sunday, October 08, 2006

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.

Saturday, October 07, 2006

"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.

Friday, October 06, 2006

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?

Thursday, October 05, 2006

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?

Sunday, October 01, 2006

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


"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.