Wednesday, January 31, 2007

Outmatched in the blogosphere

I'm joining the chorus and voting for Overcoming Bias as the best new blog. It's even better than this blog. Part of their advantage is there's like 20 of them and only one of me. And it's unfair because I have to go to class. And they have Robin Hanson, who is just operating at a higher level than the rest of us. I'm not just saying that because he teaches my health econ class. Or maybe I am. But others have said the same.

Here he is on excessive signaling in education:

This example illustrates the concept of inefficient signaling: the effort to make yourself look better than others comes in part at the expense of those others, which means that all else equal we do too much signaling.

Signaling is an important concept. Nearly everything we do can be reduced to signaling. I'm getting a PhD to signal my intelligence. I'm posting about jazz to signal I'm not a complete loser/nebbish. But Robin is arguing that this can go too far. Here are my comments:

Robin, I know this is just an example, but I still think you're not covering all the bases appropriately.

Your example is privately inefficient but not necessarily socially inefficient, since you have ignored the benefit to employers of sorting the good employees from the bad. I'm sure you know that it is socially efficient if the marginal benefit is greater than the marginal cost, which here equals either 12 or 6. Looking at real world numbers, let's assume all of the costs of attending grad school are opportunity costs. So it's one year's salary, say $50,000. I think it's plausible that employers would value this employee quality information at more than $50,000, since the employee's career is likely 20+ years. Further, it's plausible that the costs of education would be shared between employees and employers.

The only clear reason I see for inefficient signaling in this real world example is that grad school is subsidized by the government. Mere social approbation and disapprobation I do not see as necessarily producing socially inefficient levels of signaling. Please explain how that might be.

My fear is that Robin's analysis is just the sort of thing that leads to government intervention. Somebody says that women spend too much money on boob jobs, and so the government must ban them. I say move away from California if you don't like boob jobs. In essence, I am very skeptical of any argument that presumes to understand the social process. As Adam Smith recommended, when in doubt, go with individual liberty.

Addendum: To clarify, I think what Robin does is illuminating and of great value to society, but I hope public policy types completely ignore him. Perhaps society would be better off if economists could agree to only publish their work post-humously, kind of the way presidents do. Maybe I should start by blogging less.

OK, enough of that. But I think it goes to an important question, which Dan Klein has thought about considerably: Should economists turn inward and remain academic, or should they address the Everyman? See his answers here and here.


aes said...

This has very little to do with the above post, but I thought it might be an interesting topic for you.

The author is a regular here at the coffee shop.

Will McBride said...

I know Julian Sanchez, through libertarian circles. This is a good article, perhaps too verbose for my tastes, but good.

Robin Hanson said...

It is an intellectual mistake to refuse to admit that we can see market failures, for fear this will embolden others to regulate.

Will McBride said...

I know, I was being a bit facetious here. I'm not really that Austrian. But I still think it's worth considering our own biases, as you do on your blog, and self-correcting for them. I believe we economists have huge incentives to find market failure. Almost all the money is there. They figured that out 100 years ago. My understanding is that in the 1880s there were only 7 practicing economists. It was also of course our most prosperous period.

This comes down to a value judgement: Is material progress more important than intellectual progress? I think the answer is contextual. In the 1880s, material progress was perhaps more valuable. Now that we're so much richer, perhaps intellectual progress is more important. This appears to be where you come down. I am still ambivalent. The history of the 20th century reveals the horrible consequences of too much faith in intellectual ideas, ideology, and our own rational constructivism, as Hayek called it.

But no, I'm not giving up on intellectual progress. I just want to be wary. In the end, I'm sure it's the way to go, even if the short term is a bit rocky.