On paternalism

Arnold Kling imagines the following conversation between parties with opposing views on the desirability of government intervention in citizens' day-to-day decisions:

Libertarian: if a random stranger came to you and forcibly stopped you from drinking a large soda “for your own good,” would you find that acceptable? I would accept advice from a stranger. I might accept forcible restraint from a friend or someone to whom I had given permission to restrain my impulses (like Odysseus with the Sirens). However, why should I want government officials to interfere with my decisions because of my supposed incompetence?

Conly: Government officials are not random strangers. They are experts. That is why the should be allowed to interfere with your decision.

Libertarian: I listen to experts all the time. But what makes government officials so wonderfully expert that I should be forced to listen to them? When it comes to “staying out of debt” and “saving for the future,” are government officials the experts to whom you would have me defer? Seriously?

We should all be able to agree on a few things.  People do, at least on occasion, act in ways contrary to their own best interests.  Perhaps the most compelling evidence of this is ex post regret: "Gee, I guess I should have saved more for retirement."  At the same time, government intervention is imperfect and costly, even at the best of times.  I think it would be a mistake to view either the individual or the government as the ultimate authority in any comprehensive sense.  The libertarian in the above conversation seems to imply that the government should never intervene in individual decisions, and hints that government officials are thoroughly incompetent.  (Maybe I'm reading too much into Kling's post, but the second statement from the libertarian resonates with those views.)

This is one of many issues that is commonly viewed as black and white: should the government intervene in our lives, or not?  Even if we abandon these extremes, the question is often debated as if it were one-dimensional: should we have more or less government intervention?  Even that question is simplistic.  There is no spectrum of degrees of intervention from which we have to choose; rather, it is a matter of considering specific ways in which intervention may improve welfare.  In doing so, why not just think in terms of costs and benefits?  From this standpoint, it is fairly easy to argue against the ban on large soft drinks.  Costs: implementation, enforcement, outrage from affected firms and many members of the public.  Benefits: certain to be positive for some subset of consumers, but limited by consumers' ability to circumvent the law, or the spirit of the law.  This is one place where consideration of government's imperfection really matters.  Even if we agree that it is the government's role to improve public health, is this the way to do it?  Are there better alternatives?  I'm not suggesting that the answer to the first question is a resounding "no," but rather that there is substantial doubt, and that the government should only restrict individual choice if we can make a more compelling case that doing so will create net benefit (which might be the case for something like saving for retirement).

This is the same way I think about government regulation of externalities.  In theory, any time there is an externality, there is a potential welfare gain through government action.  In practice, government action will be costly in various ways and will not hit the theoretical optimum anyway.  So it is only worthwhile for the government to intervene for relatively large externalities.  Determining costs and benefits is typically complex and often controversial; but shouldn't that be the focus of debate, rather than sweeping generalizations about individual autonomy or government effectiveness?

Anarchism in the small and in the large

I like this take on anarchism, especially the following:

What Scott's book really seems to support is something different from anarchism writ large. It is anarchism writ small -- finding ways within a liberal and regulated society to expand the scope of free citizens coordinating their activities together for common purposes.

Before I had ever read anything about anarchism, I thought of anarchy in the sense the Sex Pistols used it: not just rejection of any coercive authority, but also endorsement of disorder.  It's interesting to speculate about the possibility of a well-ordered, peaceful anarchy, but I have yet to see a convincing argument that it could work on a large scale.

(Another) criticism of the current state of the economics profession

From Nobel laureate Ronald Coase:

In the 20th century, economics consolidated as a profession; economists could afford to write exclusively for one another. At the same time, the field experienced a paradigm shift, gradually identifying itself as a theoretical approach of economization and giving up the real-world economy as its subject matter. Today, production is marginalized in economics, and the paradigmatic question is a rather static one of resource allocation. The tools used by economists to analyze business firms are too abstract and speculative to offer any guidance to entrepreneurs and managers in their constant struggle to bring novel products to consumers at low cost.

I think the last sentence is a bit of an overstatement--not any guidance? really?--but you could raise a similar concern for the applicability of some economics research to public policy.

How much research?

This story touches on an issue that has been in the back of my mind for a while: how much of a university's resources, including faculty time, should be dedicated to research rather than teaching.  The value of having faculty engaged in research is often not obvious to students, and even some faculty would prefer to have their evaluation and rewards based solely on teaching.  As I see it, there are two purposes of academic research.  One is that good teaching depends on good thinking, and so teachers need to spend a lot of time and energy thinking about their field.  Research is the most active kind of engagement.  From an extensive study of university professors, Ken Bain finds that the best teachers are all active in their fields in some way.  This is probably obvious to any teacher/researcher.  The point of higher education is not to learn things from people who learned those things from other people for the purpose of teaching them.  The other benefit is that research is a kind of public good, with potentially widespread effects.  Every idea in every undergraduate textbook was once a piece of research that was known to and understood by very few, and these ideas have benefits far beyond the universities themselves.

I believe in the value of research in both senses, and I think that some colleges and universities do not support research enough; but I also suspect that research-oriented universities are too focused on research.  Although it would be extraordinarily difficult to measure, I would guess that the marginal benefit of research is fairly sharply declining, in both senses.  For the teaching part, doing lots of research rather than some research just isn't that beneficial.  (Frances Woolley says that research is a signal: i.e. that professors do research to demonstrate their intellectual quality.  I think this explanation is a little thin.  If you simply want to use research as this kind of measure, you don’t have to do lots and lots of it.  Quantity of output would be one dimension of the quality of a researcher, but it wouldn't be hard to focus on other measures that would minimize costs.)  It is more difficult to evaluate the question of what resources to devote to research for the sake of public knowledge.  The benefits of research are stochastic and may not become apparent until well after a project is completed.  Again, however, there has to be a declining marginal benefit: researchers will focus on their most promising projects first, and the projects that seem most promising ex ante will, on average, be the most fruitful ex post.  (There is also the question of whether tomorrow's knowledge is coming at a cost to today's students, and the more fundamental question of to what extent public universities are even intended to serve students' interests.)

Given the difficulty in assessing the benefits of research in any precise way, here is another way to consider the question.  Academic researchers (and administrators, most of whom are formerly active researchers) are influential in deciding how university resources are allocated.  Academics like doing research, and many of them only tolerate teaching as a necessary burden that comes with the research job.  Even those who don't actively dislike teaching would like to minimize their teaching loads.  If these same people have enough influence, there is no reason to think that resources are being allocated in a way that balances all the costs and benefits.  Personally, I think that a 2-2 course load is about right for an active researcher.  I think it would also be reasonable for universities to take a broad view of what kinds of intellectual activities are valuable for faculty members to engage in (like blogging!), although issues arise in evaluating anything other than traditional research.

What bothered me about the article was that some of the people quoted in it talk about university research as if it is a yes or no proposition--not acknowledging the difference between turning the University of Texas into a "downmarket trade school" and simply placing less emphasis on research--or talk about its benefits without consideration of the costs.

Data data data

David Brooks comments:

If you asked me to describe the rising philosophy of the day, I’d say it is data-ism. We now have the ability to gather huge amounts of data. This ability seems to carry with it certain cultural assumptions — that everything that can be measured should be measured; that data is a transparent and reliable lens that allows us to filter out emotionalism and ideology; that data will help us do remarkable things — like foretell the future.

Brooks goes on to give examples of the valuable insights that data analysis can give us.  The means we have of gathering and analyzing data are indeed very impressive.  I think there is a potential problem, which one might call "data worship," a more extreme version of Brooks's "data-ism": quantifiable data is often seen as the only valid way of answering any question, and I sometimes think that natural or social scientists view questions that are not amenable to quantitative analysis as not worth asking.  Just an impression--I've never heard that expressed explicitly.

What is the deal with “heterodox” economics?

Heterodox economics is anything outside the mainstream (which is sometimes pejoratively referred to as "orthodox" economics). It's difficult to be precise about what qualifies as heterodox, especially since the boundaries are changing over time. The term can be applied to a school of thought, a piece of research, a researcher, or a journal. It is my impression that the distinction is sharpest for journals: there doesn't seem to be any disagreement about which journals fall into which category (a list of heterodox journals is here). I don't know whether other fields have this kind of division. I've heard of, for example, a subset of political scientists who think that the work being done by some other subset of political scientists is worthless, but not of a majority against a minority.

Although I can’t come up with a non-tautological characterization of what distinguishes heterodox economics from the mainstream, it seems to be a question of what topics are of interest, what methodologies are most valid, or what political point of view is being promoted. Greater extremity in any sense tends to be less likely to be mainstream. Many of the areas of contention are macroeconomic. I'm interested in these debates, but as a microeconomist I’m only a spectator, and the finer points are often lost on me. There is also some disagreement about what defines a school of thought. For example, some Austrian economists categorically reject the use of mathematics to analyze social phenomena, and others say that this rejection is not in the true spirit of Austrian economics. There has been a lengthy debate on this question, for example here. Apart from the substantive issue—the role of mathematics in social research—I don’t find the debate over how different views should be labeled very interesting. The heterodox label itself is somewhat arbitrary and, in my opinion, not constructive. The important question to ask about any line of research is what insight it offers, and there is at best an imperfect correlation between this question and the categorization of research as either inside or outside the mainstream.

An economist might choose to pursue heterodox research for a number of reasons. There are those who seem to object to the mainstream in any sphere, or perhaps just enjoy being outsiders. Often it is simply a matter of the specific topics or methodologies of interest to the economist. Whether because of these areas of interest or for other reasons, heterodox economists commonly have not been successful in the mainstream. Here is where it gets tricky. If one lacks the ability or desire to go through the rigors of mainstream research, criticizing the mainstream becomes appealing. This fuels the mainstream's ability to dismiss heterodox research as amateurish (this post goes so far as to call the entire body of heterodox research "a joke"). At the same time, insiders always have incentive to keep outsiders out, for whatever reason, and economists understand this better than anyone. I have seen plenty of heterodox research that is of little or no value, whether because it is poorly executed, uninformed, or misguided. On the other hand, the same could be said for some mainstream research, and it does the profession no good to ignore research simply because it could be labeled as heterodox.

I don't think that mainstream economics is in danger of being overthrown, or that an overthrow is desirable; but I think that the profession would do well to be more open in terms of what questions are interesting, what methods are useful, and what we consider to be evidence. Personally, I think it's interesting to see how qualitative methods can contribute to economic understanding. At the same time, I support the mainstream view of the value of mathematical analysis (I think that quantitative and qualitative methods each have their own advantages and their own pitfalls, but that is the subject of another post). If I could do anything to change the relationship between mainstream and heterodox economics, it would be to blur the line between them. The profession does incorporate heterodox thinking over time, but I would say that this is happening too slowly. Giving some consideration to alternative points of view can never hurt, and disregarding these points of view can lead to some massive fails.

One of my students—intelligent, thoughtful, and responsible—came to my office during his final undergraduate semester, while he was taking a course in evolutionary economics. He had previously taken my classes in (mostly neoclassical) micro theory and industrial organization. He was having what I think is a common reaction from students when they are first exposed to heterodox thought: something like "Wait a minute!  Everything I've been learning is wrong!" I would never fan the flames of such a reaction—quite the opposite—but I think it is useful for undergraduate economics majors to have some acquaintance with ideas outside the mainstream. In any economics class, it is worth mentioning that controversies exist. A professor who, for example, teaches a single theory of economic fluctuations without even mentioning any alternatives is doing a disservice to students. And I would agree with others (sorry, can’t seem to find the references) who stress the importance of a course in the development of economic thought in any doctoral curriculum.

Why blog

I'm doing this in part for my students, and may use the blog to post most of what now shows up on the St. Edward's Economics Department Facebook page.  Also have lots of things I would just like to write down, with no presumption about who (if anyone) would like to read them.  Usual disclaimers apply.