A Partisan Nonpartisan Blog: Cutting Through Confusion Since 2012
"...whosoever hath his mind fraught with many thoughts, his wits and understanding do clarify and break up, in the communicating and discoursing with another; he tosseth his thoughts more easily; he marshalleth them more orderly, he seeth how they look when they are turned into words: finally, he waxeth wiser than himself; and that more by an hour’s discourse, than by a day’s meditation."
Most of Tim Harford's post "The Problem with Facts" is quite discouraging for those of us not eager to live in a posttruth era. But there is one ray of hope: curiosity. Tim writes:
What Kahan and his colleagues found, to their surprise, was that while politically motivated reasoning trumps scientific knowledge, “politically motivated reasoning . . . appears to be negated by science curiosity”. Scientifically literate people, remember, were more likely to be polarised in their answers to politically charged scientific questions. But scientifically curious people were not. Curiosity brought people together in a way that mere facts did not. The researchers muse that curious people have an extra reason to seek out the facts: “To experience the pleasure of contemplating surprising insights into how the world works.”
Thus, those who love the truth need to figure out how to spark curiosity in as many people as possible.
I love talking to Alexander Trentin. Last week, Alexander called to talk about negative interest rates, but our conversation turned to trade, and to the need for international arrangements about government-generated international capital flows. Here is the essence of our conversation. Alexander's words are in italics or bold. Miles's words are in regular text.
The low savings rate in the US, the large trade deficit and the Trump victory are closely linked, says Miles Kimball. The economist calls for a new policy framework to keep capital flows in check.
For many the trade policy of Donald Trump seems to be a return to mercantilism. But what if it is a populist answer to the large capital inflows into the US which the current system does not keep in check? Miles Kimball, economics professor at University of Colorado Boulder, is afraid of the political fallout of unbalanced capital flows. He argues in an interview with «Finanz und Wirtschaft» for a new international framework to balance capital flows and trade balances.
Professor Kimball, what is your opinion on the trade policy of the Trump administration?
Trump’s advisor Peter Navarro thinks that trade deficits cause capital inflows, which is not the way it works.
But if a country is importing more than it exports, it is running a current account deficit.
Yes, but the causality is the other way round. The trade balance is caused by capital flows. The capital markets determine if capital is flowing into the US. The net amount of goods and services purchased by the US from foreign countries must be equal to the net inflow of capital into the US. The net capital inflows into the country cause the current account deficit and net imports.
Does that mean measures to stop imports like the proposed border adjustment tax will not work?
Some economists suspect that dollar appreciation would fully cancel out the effect of such a tax. But I don’t think that is the new equilibrium. I hate to say it, but the likely combination of «border adjustment» and dollar appreciation might still help the trade position of the US. The reason is that if the dollar appreciates, inflows of funds from the rest of the world determined in the capital market as euro, yen or renminbi flows would become smaller when translated into dollar values. The capital flows into the US would therefore shrink in size and the current account deficit would be reduced.
It is only a currency effect then?
In other words, even though capital flows are determined in the currency where they originate by capital market forces that wouldn’t be affected much by border adjustment plus dollar appreciation, when translated into dollar values, the capital inflow into the US could be reduced.
What kind of other measure would help to balance trade?
The saving rate of US private households is too low. We would have less net capital inflows and a more balanced current account, if the domestic saving rate were higher. An easy way to raise US national saving would be to require firms to automatically enroll their employees in 401(k) retirement plans. I wrote about this in my column «How Increasing Retirement Saving Could Give America More Balanced Trade.»
Should every country introduce such encouragements to achieve a higher saving rate?
Many of those who favor automatic enrollment emphasize only the benefits to the individual saver. But increasing the domestic saving rate also has macroeconomic benefits. But of course increasing the saving rate is only appropriate for some countries. While the US needs a higher saving rate, some countries already have very high saving rates.
Why is it so important to have balanced trade?
Politically, balanced trade is a very different animal from unbalanced trade. If trade had been more balanced, Americans would have been more accepting of arguments for free trade. The noticeable effect of the trade deficit was the loss of jobs in certain industries. Swing states which voted for Trump were the especially affected by such job losses. There are many other factors in Trump’s victory, but holding those other factors fixed, unbalanced trade resulting from strong capital inflows provided the margin of victory for him. If the US had no trade deficit, Donald Trump would not be President of the United States.
But not everybody loses from capital inflows, right?
Yes, there are winners and losers of unbalanced trade. Winners are the consumers who get cheaper goods. But losers are often not completely compensated for their losses. Countries are not one big happy family, but a composite of different people in different situations. In theory, trade deficits now lead to trade surpluses in the future. When the borrowing from other countries is paid back, trade-related jobs would be created in abundance. But when will this happen? The US current account deficit has persisted for many decades. Any reversal of the current account deficit seems to be way off in the future.
Are capital inflows coming into the US just looking for better investment opportunities?
These are often not private capital flows. Governments are pushing up their net exports by buying foreign assets. And when governments buy foreign assets unilaterally it is currency manipulation. Up until the recent past, China was a major culprit, increasing its foreign exchange reserves until 2014. Switzerland is doing the same thing, but gets away with it because it is a small country. But in relation to its GDP, Switzerland is as bad as China was in terms of buying foreign assets. My personal views on the importance of this have shifted now that I have seen the political effects on the US of China’s currency manipulation.
The Swiss National Bank can keep the exchange rate from appreciating by buying foreign assets or lowering the interest rate. Are both measures currency manipulation?
No, reducing interest rates is not currency manipulation. Buying foreign assets is a beggar-thy-neighbor policy, while lowering rates is not. If two countries buy each other’s bonds to depreciate their exchange rates, they cancel out each other’s efforts and there is no net effect. But if all countries lower their interest rates, it is a global monetary expansion and pushes up global aggregate demand.
Should currency manipulation be forbidden?
No, but we need an international capital flow framework in which such things are negotiated. Under such a framework, governments would have to get approval to buy assets in another country. This would probably not stop commodity exporters like Saudi-Arabia from buying foreign assets. But it would bring industrial countries like Switzerland under pressure when they keep their exchange rate low by currency manipulation. Of course, the international capital flow framework should not be limited to rules about direct government purchases of foreign assets. It should involve broader negotiations about other policies to keep international capital flows more nearly in balance and therefore to keep trade surpluses and trade deficits in check.
What policies could achieve such goals?
Here I have in mind policies that affecting saving, consumption and portfolio choices, such as the automatic enrollment regulations when higher saving is called for, and the perennial calls for China to institute more of a social safety net so that Chinese households will feel it is safe to save less and consume more. Capital flows are an area where international policy coordination is much more important than central bank interest rate policy, where it is fine for each central bank to focus narrowly on what is good for its own country. It is my hope that an international capital flow framework with a combination of rules about government purchases of foreign assets and coordination on policies to raise or lower the saving rate in each country can help establish and preserve an international system based on free trade and open capital markets for everyone except governments.
In "Teleotheism and the Purpose of Life" I wrote:
Traditional Christian theology, put into a hard science fiction straightjacket, is like the idea that we are all software programs inside a superbeing’s computer. There is no way to know this is not true. If it is true, miracles would just be a special case in the programming. The normal laws of nature could be as simple and regular as they are simply because that was easier than programming more complex laws for the default case.
The link above is to an interview with Oxford philosopher Nick Bostrom, who argues we should take this possibility seriously.
"What’s disheartening, though, is that when you study ethnic groups around the world, the ones that are lagging behind are those where their leaders always tell the same story: that it’s other people holding you back, and that therefore you need to stand against those other people and resist their culture. But that culture may be the key to success. ...
Hume urged Scots to learn the English language... He didn’t do that because his job was that of an ethnic leader. He did it because he was an intellectual. ... One of the most miraculous advances of a people occurred in Scotland from the 18th century into the 19th, ... A wholly disproportionate share of the leading British thinkers was Scottish. I mean Adam Smith in economics, Hume in philosophy, Sir Walter Scott in literature, James Watt in engineering. You can run through the whole list. A people who were really far behind in one century had suddenly come out of nowhere and were on the forefront of human progress.
“[African Americans] can be [like the Scots in this way,] and for those who haven’t gotten into this corrosive new culture, they’re already doing that. But it’s going to be very hard. Both the media and academia promote the idea that people fall behind because others are holding them back.”
--Thomas Sowell
The Reserve Bank of Australia is setting up a "New Payment Platform" to make cashless payments easier. This is a good development. Thanks to my brother, Joseph Kimball for pointing me to the article at the top, as he points me to so many other useful articles.
There are two interesting things to note about this Australian initiative. First, the benefits of a possible future cashless economy for tamping down tax evasion are being emphasized in Australia. This is an emphasis right out of Ken Rogoff's book The Curse of Cash, which I wrote about here.
Second, there is too little discussion of the benefits of bringing down fees for cashless payments by if financial technology innovators are allowed to use the New Payment Platform. The top article above doesn't mention fees at all. The bottom article mentions that some retailers are leery of going more to cashless payment because they pay fees of 1.3% to 1.5%, writing as if that level of fees would continue into the future. That is not the way it should be.
The Reserve Bank of Australia should do all it can to overthrow the credit card oligopoly by making it easy for financial technology innovators to use the New Payment Platform. I suspect that a 1.3 to 1.5% decrease in the GST ("Goods and Services Tax") would be quite popular in Australia. A reduction in cashless payments fees to a nominal amount would have a similar effect on the Australian economy and Australian households—with the one difference that services provided by the government and the Australian government's credit rating can be preserved since the credit card companies take the hit rather than the government budget.
There are some fixed costs to a payment system. It is quite appropriate for the government to pay those fixed costs, then allow financial technology innovators to plug into the system at marginal cost. The lower fees, leading to greater use of cashless payments will ultimately help tax revenue more than enough to make up for paying that fixed costs and then letting competition among financial firms do the rest.
Incumbent financial firms will want the government to put obstacles in the way of new competitors. A simple rule can avoid this. If any new financial firm demonstrates that it has 100% of its assets in reserves with the Reserve Bank of Australia, it should face only regulations about dealing fairly with consumers and about reporting potentially criminal activity, and should be exempt from other banking regulations.
Aristotle famously said that human beings are political animals. Adam Smith said that human beings are trading animals. I believe both claims are right, in a quite literal sense: human being are evolved to live in groups and to trade with one another. Being able to navigate issues that arise when living in groups and being able to execute trades with others are evolutionary adaptations in same way that the even more basic instincts of interest in food and sex are evolutionary adaptations. The books above pursue these two themes of human beings as social animals and human beings as trading animals.
There are many who doubt the existence of "natural law." Natural law may be quite incomplete and fail to answer many key questions we face, but evolutionary adaptations for living in groups and for trading provide at least some limited corpus of "natural law" written on our genes. (Though when I say "written on our genes" I mean written on the genes of the majority of us who are not sociopaths.)
John Locke, in section 15 of his 2d Treatise on Government: On Civil Government, has a nice quotation from Richard Hooker on human beings as social animals:
To those that say, there were never any men in the state of nature, I will not only oppose the authority of the judicious Hooker, Eccl. Pol. lib. i. sect. 10. where he says, “The laws which have been hitherto mentioned, i. e. the laws of nature, do bind men absolutely, even as they are men, although they have never any settled fellowship, never any solemn agreement amongst themselves what to do, or not to do: but forasmuch as we are not by ourselves sufficient to furnish ourselves with competent store of things, needful for such a life as our nature doth desire, a life fit for the dignity of man; therefore to supply those defects and imperfections which are in us, as living single and solely by ourselves, we are naturally induced to seek communion and fellowship with others: this was the cause of men’s uniting themselves at first in politic societies.” But I moreover affirm, that all men are naturally in that state, and remain so, till by their own consents they make themselves members of some politic society; and I doubt not in the sequel of this discourse, to make it very clear.
One thing Hooker seems to take for granted, but is in fact quite remarkable, is the capacity of human beings to make solemn agreements and have those agreements mean something. The ability to make and keep promises—even if not 100 percent of the time—is an amazing ability that does a lot to help make us who we are. This ability to make and keep promises is crucial both for human beings as political animals and for human beings as trading animals.
Arland Thornton is a past president of the Population Association of America and former director of the Population Studies Center at the University of Michigan. He is the originator of the field of Developmental Idealism; here is a link to developmentalidealism.org
I have had a series of recents posts on economists as social scientists:
So I thought it might be a good time to demonstrate that I practice what I preach in this regard. Today let me tell of a bit of my research at the traditional border of sociology and economics.
Arland Thornton is one of my closest friends. We met in a Mormon congregation in Ann Arbor when I moved to Ann Arbor in 1987 back when I was still a Mormon. I thought it would be fun to do a research project with Arland convinced him to join me in one. We decided to look at the effect of college major on religiosity. We were fortunate enough to enlist Colter Mitchell and Linda Young Demarco in the project as well.
Much of the border between economics and sociology is called demography—the study of population and populations. I was the token economist on the team. Arland, Colter and Linda are sociologists. But put another way, we were all demographers on this project.
The idea for this project came from our observation that the dental students in our congregation had dramatically more conservative religious attitudes than the relatively liberal attitudes of the medical students and the PhD students in the Arts and Sciences. The paper that arose from this effort is at this ungated link:
(We also have a related paper "The Reciprocal Relationship between College Major and Values: Family, Careers and Society" which you can find here.) Let me give you a taste of this paper by setting out below the Abstract and the part of the Introduction before the discussion of the strategy for statistical analysis. But before you read the abstract, try to guess which college major has the most negative effect on religiosity.
Link to Colter Mitchell's webpage
Abstract: Early life experiences are likely to be important for the formation of preferences. Religiosity is a key dimension of preferences, affecting many economic outcomes. This paper examines the effect of college major on religiosity, and the converse effect of religiosity on college major, using panel data from the Monitoring the Future survey as a way of gauging the extent to which various streams of thought, as taught in college, affect religiosity. Two key questions, based on the differences in college experience across majors, are whether either (a) the Scientific worldview or (b) Postmodernism has negative effects on religiosity as these streams of thought are actually transmitted at the college level. The results show a decline in religiosity of students majoring in the social sciences and humanities, but a rise in religiosity for those in education and business. After initial choices, those respondents with high levels of religiosity are more likely to enter college. Of those who are in college, people with high levels of religiosity tend to go into the humanities and education over other majors.
The simple answer to the question I posed above is that humanities have the most negative effect on religiosity. And this is despite the fact that those who are religious to begin with are often drawn to the humanities. You might have thought it was the natural sciences, but natural science professors typically don't even talk about religion in class, while literature and other works in the humanities often make it natural for humanities professors to talk about religion, which they often do so from a stance of skepticism.
The social sciences (but not business, and therefore also probably not economics within the social sciences) have a negative effect on religiosity that is not as strong as the humanities, but is still substantial. To check out some of the results efficiently, see Colter's Powerpoint file here.
In the Introduction that follows, one thing worth noticing is the sentence
Human mortality guarantees that the fate of civilizations and cultures depends on how ideas are transmitted from one generation to the next.
This sentence was the kernel of the idea for my later Quartz column "That Baby Born in Bethlehem Should Inspire Society to Keep Redeeming Itself."
Also note that the discussion of Bayesian updating in the first footnote has some early glimmerings of discussions in "The Unavoidability of Faith" and "Cognitive Economics." (However, early fragments of the paper "Cognitive Economics" may have been written before the first footnote below.)
Introduction
In economic theory, the trinity of preferences, technology and the structure of strategic interactions (including information structures) generates economic behavior, while this trinity plus chance generates economic outcomes. A deep understanding of Economics requires answer to the three origin questions: “What determines the level of technology?” “What determines the structure of strategic interactions?” and “How are preferences determined?” In this paper, we address one dimension of this third question about the determinants of preferences, focusing on those aspects of preferences associated with religion.
To the extent that preferences are determined by nature and genetics, questions about the origin of preferences border on Evolutionary Psychology. On the other hand, to the extent that preferences depend on nurture and culture, questions about the origin of preferences border on Developmental Psychology and Sociology. Sociologists often use the term “values” where economists would use the term “preferences.” (We will use the terms interchangeably.) Among the dimensions of preferences determined primarily by nurture and culture, those associated with religion bulk large in importance.[1] Emphasizing the Economics literature, and to a lesser extent the Sociology literature, religiosity and religious affiliation have been related, among other things, to education (Freeman, 1986; Claudia Goldin and Lawrence Katz, 1999; Lehrer, 2004; Kraig Beyerlein, 2004), employment and work hours (Richard Freeman, 1986) wages, income and wealth accumulation (Claudia Goldin and Lawrence Katz, 2000; Lisa Keister, 2003; Evelyn Lehrer, 2004a,b); mate choice, cohabitation, marital stability, fertility and female labor force participation (Thornton et al 2007; Lehrer, 2004a; Charles Manski and Joram Mayshar, 2002); intergenerational transfers (Scott Myers, 2004), tobacco use (Frank Chaloupka, Michael Grossman and John Tauras, 1997; Chaloupka and Grossman, 1997; Tauras and Chaloupka, 1999), alcohol use (Rosalie Pacula, 1998), substance abuse and other types of social deviance (Freeman, 1986; Pacula et al., 2000; Richard Gorsuch, 1995), suicide (Emile Durkheim, 1897), child abuse (Sara Markowitz and Grossman, 1996), physical and mental health (David Williams, et al. 1991; Valerie Dull and Laurie Skokan, 1995; W. Larry Ventis, 1995; Christopher Ellison, 1998; Jeffrey Levin and Robert Taylor, 1998), subjective well-being (David Blanchflower and Andrew Oswald, 1997; Jeffrey Levin and Robert Taylor, 1998), organ donation (Naci Mocan and Erdal Tekin, 2005), work ethic (Robert Barro and Rachel McCleary, 2006), trust, attitudes about lawbreaking and about the fairness of the market (Luigi Guiso, Paola Sapienza and Luigi Zingales, 2002, 2006), political differences (Edward L. Glaeser and Bryce Ward, 2005) and the preferences reflected in the individually assessed importance of recognition, ambition, accomplishment, being capable, comfort, pleasure, excitement, personal independence, intellectuality, being logical, freedom, peace, beauty, helpfulness, forgiveness, lovingness, honesty, salvation, obedience, and security (Shalom Shwartz and Sipke Huismans, 1995). We include in this list analyses that treated religiosity or religious affiliation as control variables, rather than as the main subject of analysis, as long as they found statistically significant effects of religiosity or religious affiliation. It should also be noted that religiosity and religious affiliation are often associated with preferences for mystical experience and notional supernatural goods (Rodney Stark and William Bainbridge, 1987).
There have been a number of serious efforts to identify the causal effects of religiosity and religious affiliation. Jonathan Gruber (2005) uses the local density of other ethnic groups that share an individual’s religion as an instrument for religiosity. He finds that the additional religiosity due to higher market density of one’s own religion leads on average to “higher levels of education and income, lower levels of welfare receipt, higher levels of marriage, and lower levels of divorce.” Robert Barro and Rachel McCleary (2002, 2003) use differences across countries in the presence of a state religion, state regulation of religion, a measure of religious pluralism and religious composition as instruments for church attendance and belief in an afterlife. They find that in the dimensions scoped out by the instruments, economic growth depends on the extent of believing in an afterlife relative to the level of religious attendance.[2]
One possible definition of religion could be that religion is the process by which human beings determine what their ultimate values are, to the extent that those ultimate values go beyond what are determined genetically. In other words, it would not be entirely unreasonable to define religion as the cultural component of the determination of preferences. However, this definition, by itself, is too broad for our purposes, since it does not explain the difference visible in observed behavior between those individuals with high levels of religiosity and those with low levels of religiosity.
For our purposes, the view of religion given by Durkheim (1915) provides a helpful perspective. Durkheim argues that religions are functional organizations that use striking ideas to foster collective action and the interests of the religious community as a community, including influence over both daily interactions among members and relationships with those outside. This view has been taken up more recently by the evolutionary theorist David Sloan Wilson (2002).
Concepts from biological evolutionary theory can be helpful even in studying Cultural Evolution. For example, even preferences determined primarily by nurture and culture are subject to demographic selection pressure as potential parents with certain characteristics have more children than those with other characteristics, and raise them to have somewhat similar characteristics. In the case of religious preferences, based on the positive relationship between religiosity and fertility, it is clear that for at least the last century, demographic selection pressure toward the preferences of especially prolific parents would operate in the direction of greater religiosity. Indeed, this is one of the key forces helping to maintain a high level of religiosity in the United States.
Nevertheless, there have been periods of pronounced secularization in Europe and a relative steadiness in the United States of the overall level of religiosity even in the face of demographic pressure toward greater religiosity that suggests the existence of other important influences on religious preferences beyond parental influences. In this paper, we focus our empirical sights on one prime suspect: the influence of the college experience--which is often the first time people are separated from their parents for an extended period of time. Among nonparental influences on preferences, the college experience is one for which there is real hope of getting some statistical power from micro-data, as opposed to trying to look at unrepeatable macro shocks.
Human mortality guarantees that the fate of civilizations and cultures depends on how ideas are transmitted from one generation to the next. In the last few centuries, formal education has played an increasingly important role in this intergenerational transmission of ideas. One of the key aspects of higher education is that it comes at an age when students are able to compare and contrast a variety of streams of thought and to begin to forge their own individual worldviews out of these various streams of thought. How an idea fares at this nexus can have an important bearing on the degree of influence an idea will have in the culture. Indeed, in countries like the United States, the large fraction of the total population that attends college makes it possible to talk about mass intellectual culture---intellectual culture that is not the property of a few elites, but affects a large swath of society.
A great deal of research has found that college majors exhibit important correlations with values.[3] One possible explanation is that students in different majors are exposed to strikingly different sets of ideas (not only from formal instruction but also from the extra time they spend with peers in the same major.) Another possible explanation is that students with different values sort differentially into different majors. We are interested in studying how the specific contents of the curriculum a student is exposed to (along with classmates) affect students’ values during these formative years, carefully distinguishing these effects from patterns of selection into majors. To give a focus to these questions, we consider the effects of different college experiences on religiosity an appropriate place to start.
Bruce Sacerdote and Edward Glaeser (2001) document some of the effects of education on religiosity overall. They find that the effects are very different in different countries, which they conjecture is due to the different content of education in different countries. They use the following example: “Socialist countries appear to use the power of the state over education to quash religious beliefs. We interpret this as suggesting that the education-religion connection is not intrinsic but rather a function of curriculum design and the objectives of those who control education.” We argue that even within a single university, the curriculum and the objectives of those controlling it can be very different in different departments.
We hypothesize that students in college are confronted to varying degrees with at least three powerful streams of thought that bear on attitudes toward religion: Science, Developmentalism and Postmodernism. Science--or Scientism, to emphasize the worldview aspect--consists primarily of a commitment to truth, the scientific method and to an open-ended responsiveness to evidence. The pursuit of the scientific method has led to a particular picture of the universe that has important implications for religion. Developmentalism consists primarily of a commitment to freedom and to progress. Although these ideas are widely shared by Americans, many do not know the intellectual arguments that have historically undergirded the conviction of the importance of freedom and progress. Postmodernism consists primarily of a commitment to relativism and to the idea that truth and morality are not absolute but are determined by those who are powerful.
Each of these three streams of thought could interact in important ways with religious attitudes and values. For example, it seems reasonable to suppose that Science insists that religious beliefs be amenable to evidence. Developmentalism influences people toward optimistic rather than pessimistic religious attitudes and causes a focus on the practical benefits of religion as opposed to its other-worldly benefits alone. As for Postmodernism, a typical undergraduate might experience Postmodernism’s commitment to relativism as hostile to religious claims to truth. (Postmodernism’s commitment to relativism is also sometimes antagonistic to scientific claims to truth.) We return to a discussion of these tensions with religion in the following section.
College majors differ in important ways in the extent to which each major incorporates each stream of thought. The Humanities and some of the Social Sciences typically have a strong Postmodernist content. The Natural Sciences have a strong Scientist content. Economics and Business typically have a strong Developmentalist content. The different ideational content of different majors makes it possible to test at a practical level the three hypotheses that Postmodernism, Science and Developmentalism have a negative effect on religiosity by relating college major to religious attitudes, as well as attitudes toward science and relativism, one can see if the effects of these three streams of thought are as we hypothesize. Of course, while studying the effects of these three streams of thought motivates our analysis, studying the effects of different college majors on religiosity should be of interest even for those who have a different assessment of the ideational content of various college majors.
[1] Given the limitations of our data, we will not be able to separate differences in religious preferences from differences in religious beliefs, so we will not emphasize this distinction and treat religious differences as a matter of preferences. In terms of effects on choices, there is a high degree of substitutability between differences in religious beliefs and differences in religious preferences. It is likely, though, that the cognitive or belief element of religious differences is particularly susceptible to being affected by education. Thus, a deep microtheoretical explanation of how the mechanisms we identify in this paper operate would require one to deal more fully with the beliefs/preferences distinction in a religious context. Such a micro-theoretical explanation of how people’s religious beliefs and preferences are altered is beyond the scope of this paper; the job we have taken on is attempting to identify some of the effects that would need to be explained by such a theory.
James Montgomery (1996) discusses the issue of whether religious differences are matters of belief or matters of preferences. He argues that, to the extent religious beliefs are not governed by common knowledge and Bayesian updating, that the distinction is not as central a theoretical distinction as it is in areas where beliefs are governed by common knowledge (at some point), plus Bayesian updating (perhaps with private information). Although a Bayesian approach can be quite useful in judging religious beliefs within a culture that admits only a few different possible religious beliefs, in general it faces the difficulty that it would be almost impossible to specify a reasonable prior probability distribution over all possible structures of ultimate reality. Even in scientific contexts, the difficult of specifying an adequate prior probability distribution over all possible structures of ultimate reality is an important argument for Frequentists in their ongoing argument with strict Bayesians.
Pascal’s Wager (see the Stanford Encyclopedia of Philosophy) is a good illustration of how easily preferences and probability can get mixed up in a religious context. Pascal’s Wager is the (still often influential) argument that one should believe in God because the cost of believing in God if in fact there is no God is small, while the cost of not believing in God if in fact there isa God is large. Note how this argument assumes one can and should choose optimal beliefs rather than using Bayesian updating and in its simplest statement assumes a prior with only two major possibilities for the structure of ultimate reality.
[2] They argue as follows: “These results accord with a perspective in which religious beliefs influence individual traits that enhance economic performance. The beliefs are, in turn, the principal output of the religion sector, and church attendance measures the inputs to this sector. Hence, for given beliefs, more church attendance signifies more resources used up by the religion sector.
[3] See for example Newcomb (1943), Newcomb et al. (1967), Thistlethwaite (1973), Duff and Cotgrove (1982), Biddle et al. (1990), Alwin et al. (1991), Easterlin and Crimmins (1991), Jennings (1993), Easterlin (1995), Hogner (1996), Kolenko et al. (1996), Zlotkowski (1996), Ethington and Wolfle (1988) Guimond (1999), Ridener (1999), Shiarella and McCarthy (2000), Leppel et al. (2001), Hodgkinson and Innes (2001), Sidanius et al. (2003), and Bécares and Turner (2004), Kimball, Mitchell, Thornton and Young De-Marco (2005).
I am delighted that in her post "How much do current debates owe to conflicting definitions of economics?" Beatrice Cherrier engaged the argument I made in "Economics Needs to Tackle All of the Big Questions in the Social Sciences." I recommend Beatrice's post in its entirety, but in this post I'll just react to her quotations from me.
Modeling and Quantifying
Beatrice writes:
...another shift has arguably been taking place in the last decades: the replacement of a subject-based definition with a tool-based one. The hallmark of the economist’s approach would not be its subject-matter –any human phenomenon is eligible-, but its use of a set of tools designed to confront theories with quantitative data through models. See for instance this recent post by Miles Kimball: “economics needs to tackle all the big questions in the social sciences,” he titles, adding that “what is needed [for economists to influence policy] is a full-fledged research program that does the hard work of modeling and quantifying.”
I wanted to clarify what I meant. First, although this definition is a tool-based definition, I don't view the set of tools defining economics as fixed. Rather, the set of tools defining economics is whatever set of tools are taught in the curricula of economics PhD programs as those curricula evolve over time.
Thus, I am characterizing economists in terms of the human capital they have, and saying that economists ought to tackle the full range of problems that human capital gives them a comparative advantage at tackling. In my view, that includes a large share of all the big questions in the social sciences, and may include big questions in other areas (say, non-experimental studies of the effects of nutrition) that call for a level of statistical sophistication in dealing with messy situations that is not easy to obtain outside of economics PhD programs.
In the nature of comparative advantage, the fact that such tools are especially valuable for traditional economics topics may, by raising opportunity cost, appropriately reduce the allure of some topics traditionally handled by other social sciences (or other sciences), but I argue that many social science questions outside of the traditional purview of economics are so important and have such a high scientific marginal product for the application of skills taught in economics PhD programs that economists should go after them. The purpose of my post "Economics Needs to Tackle All of the Big Questions in the Social Sciences" is to try to improve the chances that academic rewards for economists working on such questions are aligned with what I see as the high scientific and high social marginal product of addressing those questions. I would be honored if people working on important questions outside the traditional purview of economics showed "Economics Needs to Tackle All of the Big Questions in the Social Sciences" to their colleagues to help persuade those colleagues of the appropriateness of such research by economists.
Second, out of context, the phrase "the hard work of modeling and quantifying" sounded much more narrow and tradition-bound than I meant. What I meant was simply persistently asking "Why?" and "How Much?" In my view, good answers to the questions "Why?" and "How Much?" both within the traditional purview of economics and outside it requires a expansive range of models.
A. Cognitive Economics. Let me give a few examples of what I mean by an expansive range of models. in my paper "Cognitive Economics" I argue for the importance (and discuss the technical difficulties) of models that avoid assuming that all the key actors are either infinitely intelligent or so smart that all the decisions they need to make are easy for them. To some, this permission and encouragement in the appropriate cases to do models in which agents are not all infinitely intelligent might be seen as a betrayal of the spirit of economics.
B. Psychological Production Functions. In my post "John Stuart Mill on Being Offended at Other People's Opinions or Private Conduct" I express my admiration for what some economists might think was an impermissibly ad-hoc psychological production function—a nice example of an approach that can do a lot to extend the effective range of economic modeling. Let me quote at some length from "John Stuart Mill on Being Offended at Other People's Opinions or Private Conduct":
Here I have in mind Ed Glaeser’s “The Political Economy of Hatred.” I liked the working paper version of this paper because of its model of a psychological production function for hatred in the working paper version of this paper. In the published version, that was replaced by a more rational model of hatred induction. The shift can be seen in the difference between the abstract of the working paper and the abstract of the published version. Here is the abstract of the working paper:
What determines the intensity and objects of hatred? Hatred forms when people believe that out-groups are responsible for past and future crimes, but the reality of past crimes has little to do with the level of hatred. Instead, hatred is the result of an equilibrium where politicians supply stories of past atrocities in order to discredit the opposition and consumers listen to them. The supply of hatred is a function of the degree to which minorities gain or lose from particular party platforms, and as such, groups that are particularly poor or rich are likely to be hated. Strong constitutions that limit the policy space and ban specific anti-minority policies will limit hate. The demand for hatred falls if consumers interact regularly with the hated group, unless their interactions are primarily abusive. The power of hatred is so strong that opponents of hatred motivate their supporters by hating the haters.
By contrast, here is the abstract of the published version:
This paper develops a model of the interaction between the supply of hate-creating stories from politicians and the willingness of voters to listen to hatred. Hatred is fostered with stories of an out-group’s crimes, but the impact of these stories comes from repetition not truth. Hate-creating stories are supplied by politicians when such actions help to discredit opponents whose policies benefit an out-group. Egalitarians foment hatred against rich minorities; opponents of re-distribution build hatred against poor minorities. Hatred relies on people accepting, rather than investigating, hate-creating stories. Hatred declines when there is private incentive to learn the truth. Increased economic interactions with a minority group may provide that incentive. This framework is used to illuminate the evolution of anti-Black hatred in the United States South, episodes of anti-Semitism in Europe, and the recent surge of anti-Americanism in the Arab world.
C. Cultural Evolution Tools and Markov Transition Matrices to Study Memetics. In the 1990's I became very interested in evolutionary theory. In the University of Michigan's 2-month May-June semester in 1997 and 1998, I taught a course called "Economics, Life and Philosophy," that focused on evolutionary theory. (Here is a link to my syllabus for that class.) By 1999, I had connected up with folks involved in the University of Michigan's Evolution and Human Adaptation program, including Randolph Nesse and Joseph Henrich among many others. I was struck by how close the thinking of those into evolutionary theory is to economists. But unlike finance and many other branches of business that essentially are economics, evolutionary theory has a distinct set of tools. Many economists have borrowed from the tools of evolutionary theorists, but many other economists are missing out by not knowing about the tools of evolutionary theory.
One fact worth knowing is that among working anthropologists and evolutionary theorists, memetics usually goes by the name "cultural evolution." Robert Boyd and Peter Richerson did a lot of work on formal models of cultural evolution that are collected in their book The Origin and Evolution of Cultures. But that is only the tip of the iceberg. Googling or typing into the Amazon searchbox "cultural evolution" reveals a wealth of resources. Searching for "meme," "memes," or "memetics," will lead to more low quality hits, but will also lead to some very interesting things. There is a lot of great inspiration for economists here. (One reaction I have to some of these models is that for certain topics, a simpler approach of using continuous-time Markov transition matrices or simply systems of differential equations might often work.)
The Right Amount of Respect for Other Social Sciences
Beatrice's other quotation from "Economics Needs to Tackle All of the Big Questions in the Social Sciences."
To me, Miles Kimball’s post has clear Marschakian overtones: first, define what your economics identity is. Then, go and engage other social sciences on any question you wish. Writes Kimball:
That doesn’t mean the economists should ignore the work done by other social scientists, but neither should they be overly deferential to that work. Social scientists outside of economics have turned over many stones and know many things. Economists need to absorb the key bits of that knowledge. And the best scholars in any social science field are smarter than mediocre economists. But in many cases, economists who are not dogmatic can learn about social science questions outside their normal purview and see theoretical and statistical angles to studying those questions that others have not.
I totally reject any claim of turf ownership by other social scientists. It is only to the extent that the training in other disciplines in fact makes non-economists better able to address a question that economists should leave that question to non-economists. (Of course "better able" could include being able to address a question equally well but more cheaply or only a little less well and much more cheaply.)
Also, I think that for most academics, self-confidence is helpful for one's productivity—even self-confidence somewhat beyond what can be factually justified. So it should not be consider any great crime or faux pas to believe in one's heart of hearts that one is smarter than one's competition in addressing a question. Politeness requires not being too obvious in this belief, and retaining a semblance of wisdom requires not overdosing on such a belief. But believing that one is smarter than one's competition should certainly be permissible if true, and permissible even in some degree beyond what an impartial observer might judge to be true.
Moreover, I think high average levels of statistical sophistication among economists are a fact. Many, many topics in the social sciences can be better addressed with a high level of statistical sophistication than without. And while how valuable economic theory tools are outside of economics is more of an open question, the perspective of economic theory is likely to lead at least to conjectures worth testing that someone unversed in economic theory would be unlikely to come up with.
That said, it is good to avoid misplaced arrogance. An approach to a question isn't better because it is more "scientific," as that word is sometimes used polemically. An approach is better only if it is more likely to lead to the truth. The best scholars in every field tend to think deeply about their approaches and tools and what is best suited for different kinds of tasks. Moreover, the best scholars in every field make the case to other scholars for their approach from first principles. That is, the best scholars in every field make the case to other scholars in a way that befits a scientific advocate facing a scientific jury. It is lesser scholars who use methodological dicta they do not question—and therefore do not understand—as cudgels to try to subdue the competition.
In Beatrice's quotation of me above, I emphasize the respect that should be accorded scholars in other disciplines for their knowledge of relevant facts. I also want to emphasize the respect that should be given to the judgment of scholars in other disciplines for the importance of the issues they study. They may make some mistakes in judgments of the importance of different topics, but are likely to have identified many key issues.
Crossing Boundaries
In two articles, Moises Naim rightly urges that economists have overshot the optimal level of arrogance and hence undershot the optimal level of humility. In his Atlantic article, "Economists Still Think Economics Is the Best," he writes:
Ten years ago, a survey published in the Journal of Economic Perspectives found that 77 percent of the doctoral candidates in the leading American economics programs agreed or strongly agreed with the statement "economics is the most scientific of the social sciences."
In the intervening decade, a massive economic crisis rocked the global economy, and most economists never saw it coming. Nevertheless, little has changed: A new paper from the same publication reveals how economists continue to believe that their science is superior to all other social sciences, such as political science, sociology, anthropology, etc.
The subtitle of his October 20, 2009 Foreign Policy essay has the same message: "Economist Class: Practitioners of the 'dismal science' should stop sneering at their academic cousins in the social sciences -- and start learning from them." But I want to highlight another message from that article. I have argued that economists should invade the territory of other disciplines, with all due respect (but not excessive respect) for the current inhabitants. Moises Naim recommends that those who travel through such now foreign territories should be on the lookout for approaches worth importing (or worth hybridizing) into economics as well:
A science that relies on luck to explain the fate of billions of people is a dismal science indeed. True, other social sciences aren’t in much better shape, but economists would still be well advised to trade in their intellectual haughtiness for a more humble disposition. Albert O. Hirschman, a superbly original economist, borrowed freely from other disciplines and aptly titled one of his books Essays in Trespassing. We need more trespassers. Fortunately, a few of today’s economists are beginning to hurdle professional fences and mine neurology, psychology, sociology, and political science to enrich their analysis.
To be sure, most of these attempts at boundary crossing won’t yield much of value, and they render economists vulnerable to charges of consorting with the methodologically impure. But given the dismal condition of the dismal science, intellectual trespassing is a risk worth taking.
For more on boundary crossing, and more on the need for greater humility on the part of economists, see the storified tweets in "On Bringing the Questions and Concerns of Sociology into Economics." I found the complaints there from various quarters about the arrogance of economists especially revealing.
Don’t miss these other posts on posts on being human, on being a scientist and on being an economist.
