Rank fetishism

Elias Khalil gave an excellent talk yesterday at ICES, providing a compelling explanation for why we continue to put up with politicians. Here's the abstract:

The dominant view of corruption is based on the principal-agent framework: corruption undermines the interest of the principal. This view cannot explain why corruption, in many cases, is accepted and even demanded by the public, the principal. This paper provides a general theory that provides an answer. It redefines corruption as privileges enjoyed by people of high rank, what is called "rank fetishism." The principal demands people in authority to indulge in privileges to enhance, via heightened neurotransmitters, their own neural capital.

Essentially, blame Smithean sympathy, the peculiar kind. Peculiar sympathy is when we imagine ourselves as others, to avoid the pain of our own frustrated ambitions. Setting up leaders thus psychologically benefits us, the followers. Likewise the designated leaders benefit in more than the obvious way, they psychologically rise to the occasion, e.g. Sarah Palin. It is therefore a kind of free lunch, up to a point. Eventually the process can get out of hand, e.g. the French revolution, or Emelda Marcos and her 3000 shoes. Let's hope it doesn't come to that.

Driving, much worse than nose-picking

From today's Post:

Motorists continue to grumble about record high gas prices, but a new study suggests there is at least one benefit: Fewer traffic fatalities.

...

Nationwide, traffic deaths last dipped below 37,000 in 1961. The number peaked in 1972, at about 55,000, and in recent years has hovered near 42,000, Sivak said.

High gas prices have changed the habits of commuters across the country. People are using public transportation, scooters and motorcycles, and working from home.

Lon Anderson, spokesman for AAA Mid-Atlantic, said he experienced the changes firsthand during a recent drive to Richmond. Traffic moved at a mere 70 mph.

"I can't remember when somewhere around 70 miles per hour was the average speed of traffic on 95," Anderson said of the interstate. "There are certainly many drivers out there who have taken some steps to reduce the amount of gas they are burning. . . . That is one of the few good sides to very high gas prices: That if people drive less, we're going to save lives."

But that's pretty important, life that is. And driving kills us in a lot of ways, from air pollution to unwalkable cities. Plus there are the other negative externalities which maybe don't kill us but detract from the quality of life, e.g. the isolating and anti-social nature of driving. I'm wondering why we have to wait for gas prices to curb this behavior. What happened to social disapprobation? Why is nose-picking in public not OK but driving is just fine, so long as you don't nose-pick while driving?

I believe it is because too many are confused about freedom, and particularly the connection between political and social freedom. We are too often willing to fight for social freedom, i.e. freedom from disapprobation, even at the expense of political freedom. Yes, this is a conservative position. It means I support Al Gore's disapprobation of driving, yet not his calls for government enforced higher gas mileage standards. Too many conservatives are not willing to make the trade off.

And too many libertarians don't even believe there is a trade off. Just more or less freedom. In fact, we can never be totally free. Instead, political and social freedom are substitutes to a large extent. This is why the socially restrictive Victorian era coincided with the greatest political freedom we've known, and the socially free 1960's coincided with the high tide of Marxism/Statism/Socialism.

But that's not to say there is no progress, or that libertarians are completely off base. Sometimes society gets more of both social and political freedom, and it is worth striving for. And I believe in constitutional guarantees of political freedom, precisely because politics is the most effective means of social progress. That is, many of our most unjust social traditions, e.g. slavery, ultimately had to be overcome in the political sphere. It took an Abe Lincoln to orchestrate emancipation. It took a Gandi to break down the unjust traditions of Hinduism. And maybe it takes an Al Gore or Obama or McCain to point out the injustice of environmental degradation. All of this entails political force, less political freedom. Without political power as the focal point, it seems social progress is terribly slow.

The bottomline is we must acknowledge the trade off, but favor political freedom over social freedom through heavy reliance on constitutional guarantees. Nose-picking is optional.

My sympathy makes me nonexpressive

Will Wilkinson summarizes The Theory of Moral Sentiments:

We are naturally sympathetic. Of course, our sympathy is rather limited and weak. But because we are sympathetic, we sympathize with the weakness of others’ sympathy. So, being sympathetic to the limits of others’ sympathy, we mute the expression of our own emotions, so that others will not be made uncomfortable or burdened by their failure to connect fully with what we really feel. And, likewise, we appreciate it when others do this for us. A sympathetic person doesn’t put other people out. Observing many instances of this pattern of praise for the sympathetic accommodation of weak sympathy (”thank you for not asking me to be that sad for you!”), we produce a general rule. And then we apply it to ourselves and come to disapprove of freely expressing unmuted emotion even when alone — even though we are actually having our emotions and not trying to sympathize with them. Our natural sympathy, wedded to the general weakness of sympathy, generates an individual conscience that demands that we be no more emotional than other people are ready to handle. Therefore, stoic self-command is awesome. “It’s OK! Just let it all out.” Nonsense! Why would you so rudely embarrass yourself with your own emotions?

I hope my girlfriend is reading this.

The superstition economy, or how self-deception makes the world go 'round

That might just be the title of my dissertation. Tyler brings up self-deception, just as I'm working out my paper on the role of belief, often delusional belief, in securing trust. Here's the abstract:

Belief constitutes hope, and hope is essential to all entrepreneurial activity, as it enables trust. The critical belief is belief in selflessness, within yourself and others, which is self-deceptive in as much as we are naturally selfish. So it is costly to produce, maintain, and signal a credible commitment to this belief, which religion provides via sacrifice and stigma. Numerous secular institutions compete along the same dimension, and are characterized by belief, sacrifice, and stigma. Namely, government, health care, education, romantic love, and others have to some degree become substitutes for religion. However, they require more sacrifice than religion, due to the problem of monitoring, and in particular, more costly self-deception. Better information improves monitoring, and reduces self-deception. In a world of improving information, this may explain the rise of secularism. However, so long as information is less than perfect, religion will remain, as the existence of God cannot be disproved.

Remember folks, I'm trying to maintain methodological atheism here.

Stillness

So, this is the longest I've gone without posting. I sort of gave it up for Lent, or at least the obsessive-compulsive urge to post everyday. Now you'll just get extremely lengthy posts whenever I feel like it. At least during Lent. The change of format is the result of a rather exceptional experience I had this past weekend at All Saint's Sisters of the Poor, an Anglican convent in Catonsville, Maryland. For those who don't know me well, this is not my typical weekend activity. But Sammy recommended it to a group of us at church, and I'm very glad he did. I'll try to relate it to you, just the interesting parts, hopefully.

Sister Catherine Grace told us to focus on stillness, which I suppose is to be expected at a convent. She recommended we wander around the property and observe nature. Something about the place was so serene and absolutely quiet (the picture doesn't convey it). She told us how she gave up all her possessions and joined the convent 45 years ago. She talked about the different kinds of people who have come through. It was a home for disabled children, and a hospice center, and now a retreat. She talked about the three strangers who came to die there, each prejudiced against the other, and how they became inseparable friends, and died within 4 hours of each other.

The guest house was full of interesting literature. I read some of the newsletters, tucked away in a bin labeled "Christian vices." These jumped out at me:
1) curiosity
2) self-expectation
3) pride
To the extent curiosity is self-serving, it is a sin. If it interferes with one's relationship with God, it is a sin. The same goes for self-expectation and pride. Clearly, these are virtues to most people, especially academics. So are the sisters just a bunch of fringe nuts? No, I think they are living consistently with an essential element of Christianity, which is the death of self. The ultimate story of selflessness is, of course, the life of Jesus.

I'm a believer, so this has meaning for me. It effects my incentives. And I'm pretty sure I'm not the only one. This is why I think economists should pay attention to religion. That's what I've been doing this week, while trying to keep the curiosity, self-expectation, and pride from consuming me. Are you sensing the cognitive dissonance? Larry Iannaccone says the scientific study of religion demands methodological atheism. F. Scott Fitzgerald said the mark of genius is the ability to hold simultaneously two conflicting ideas. Maybe that's why so many geniuses kill themselves. They run into their other persona and it scares the shit out of them. I don't think very many of us are geniuses, certainly not me, and I think even geniuses can't fully separate their sensibilities from their rational thoughts. Economists pretend to be objective, probably largely to signal intelligence, but it generally just results in deception and bias (see Dan Klein for more on this). However, I think figuring out the degree and the context in which people can become objective is important for economists, as that is the domain in which our models work best, and beyond which, we need to augment the theory.

Addendum: Here's what G. K. Chesterton said about it:

The ordinary man has always been sane because the ordinary man has always been a mystic. He has permitted the twilight. He has always had one foot in earth and other in fairyland. He has always left himself free to doubt his gods; but (unlike the agnostic of to-day) free also to believe in them. He has always cared more for truth than for consistency. If he saw two truths that seemed to contradict each other, he would take the two truths and the contradiction along with them. His spiritual sight is stereoscopic, like his physical sight: he sees two different pictures at once and yet sees all the better for that.

Lying liars

Robin lists 10 ways to detect lies. I think he knows this is a lie, that it is of no use. Those who read the list, already know it. Those who skip it are not interested in finding the truth anyway. I think all of us live on lies to some extent, and some more than others. I fancy myself as a truth seeker, and I think Robin does too (just look at the names of our blogs, for God's sake). Libertarians generally see themselves as crusaders. And it turns a lot of people off. My mother says I sound like Jesus, and she doesn't mean that as a complement.

But I know I couldn't live without lies. For instance, when I was taking economics at Lund in Sweden, they treated me like royalty, I suppose just because I'm American. One young Swede once blurted out in class, "But you're brilliant!", referring to me. I didn't take him too seriously, since he barely knew me, but it's something I'll not soon forget either. It feeds the ego, even if it is a lie.

Last night a friend told me some horrible stories about her on-again, off-again relationship with a pathological liar. She seemed to truly wonder how she could swallow so many lies. I suspect they served a purpose. He's a salesman who knows what the customer wants. Or, alternatively, we can blame him, via a kind of Say's Law of lies, ie the supply creates the demand. Regardless, it is clear that both sides gained something. At least in the short term, the lies expanded the opportunity set.

The same kind of self-deception is behind many of our most cherished institutions. You atheists will immediately think of religion. Indeed, Larry Iannaccone has used this same language, claiming that religion exists in large part because it expands the opportunity set, from the mundane to the transcendent. He does not, however, call it self-deception, since we simply have no evidence one way or the other as to the existence of God.

Another example is democracy and the whole notion of the State. We all know the politicians are lying to us, and yet many of us continue to vote for them. It is a kind of religion for the voter, since he is basically ignorant of the evidence on government effectiveness. For libertarians, of course, this whole arrangement is appalling, because we've seen the evidence and it doesn't look good.

The same applies to health care. The best evidence indicates that, on average, doctors really don't help much at all. Yet, we treat them as experts, and insist on policies which subsidize health care and health insurance.

As Robin pointed out in class this week, this is essentially no different than our faith in financial "experts." We gladly fork over millions of dollars in fees to pay for actively managed mutual funds, when, on average, they do worse than index funds.

The list goes on and on, from academia to the main stream media.

So why do we believe experts, even when the preponderance of evidence contradicts them? Why do we believe lies? And why do lying institutions prosper in prosperous economies? Do lies somehow make the world go round? Or are they just the baggage of civilization, an unfortunate and unavoidable human condition? Perhaps, just as Fischer Black's noise traders provide liquidity in financial markets, lies and those who trade in them provide a kind of liquidity in the extended order.

Addendum: Women, you're in trouble. Apparently, only criminals are good at detecting lies.

Civilization and socialism

What I was trying to get at in the last post is a very simple point: cities are a civilizing force. Cities and civilization are intimately linked, and, indeed, the two words share the same root. Jane Jacobs' observation of this fact in Death and Life is only notable because she wrote it in 1961, when all of the received wisdom pointed the other way. From Lewis Mumford to Le Corbusier to Frank Lloyd Wright, the consensus was that cities are problematic, breed social ills, etc.

But Jane Jacobs was only reviving an old idea. Adam Smith in his Lectures on Jurisprudence identified the underlying mechanism that makes cities civilized. It is commerce. I quote at length:

Whenever commerce is introduced into any country, probity and punctuality always accompany it. These virtues in a rude and barbarous country are almost unknown. Of all the nations in Europe, the Dutch, the most commercial, are the most faithful to their word. The English are more so than the Scotch, but much inferior to the Dutch, and in the remote parts of this country they far less so than in the commercial parts of it. There is no natural reason why an Englishman or a Scotchman should not be as punctual in performing agreements as a Dutchman. It is far more reduceable to self interest, that general principle which regulates the actions of every man, and which leads men to act in a certain manner from views of advantage, and is as deeply implanted in an Englishman as a Dutchman. A dealer is afraid of losing his character, and is scrupulous in observing every engagement. When a person makes perhaps 20 contracts in a day, he cannot gain so much by endeavoring to impose on his neighbors, as the very appearance of a cheat would make him lose. Where people seldom deal with one another, we find that they are somewhat disposed to cheat, because they can gain more by a smart trick than they can lose by the injury which it does their character. They whom we call politicians are not the most remarkable men in the world for probity and punctuality. Ambassadors from different nations are still less so: they are praised for any little advantage they can take, and pique themselves a good deal on this degree of refinement. The reason of this is that nations treat with one another not above twice or thrice in a century, and they may gain more by one piece of fraud than by having a bad character. France has had this character with us ever since the reign of Lewis XIVth, yet it has never in the least hurt either its interest or splendour.
But if states were obliged to treat once or twice a day, as merchants do, it would be necessary to be more precise in order to preserve their character. Wherever dealings are frequent, a man does not expect to gain so much by any one contract as by probity and punctuality in the whole, and a prudent dealer, who is sensible of his real interest, would rather chuse to lose what he has a right to than give any ground for suspicion. Every thing of this kind is odious as it is rare. When the greater part of people are merchants they always bring probity and punctuality into fashion, and these therefore are the principle virtues of a commercial nation.

Smith is focusing on commerce as the source of morality, but another interpretation is that it is human interaction generally that imparts morality. I like both, and don't see them as so distinct. I see commerce as simply a more exact and disciplined kind of human interaction.

It is for this reason that Europe, or any densely populated area, has numerous advantages. Europe has the additional advantage of being historically densely populated. The disadvantages are in politics, or collective action. Democracy, social democracy, and socialism are all correlated with civilization. In America, if not everywhere, cities are the bastion of left-wing politics. As far as I know, there is no such thing as a conservative city. It seems this is an inextricable condition of civilization, and one which Adam Smith did not foresee (as Dan Klein noted this week in class). Libertarianism may wax and wane, but socialism persists in one form or another. It is the baggage of civilization.

So I don't expect the libertarian dream to ever come true. Europe and America seem to be converging on a sort of mediocre social democracy. Countries like Ireland have rolled back the power of the state, while America pushes forward with ever more expensive public works, from Katrina relief to the Iraq War. But I don't see instability. Yes, the Medicare trainwreck looms large, but I expect we'll grow our way out of it, and maybe reduce benefits a bit.

In short, I think we are all locked in to a world wide growth rate of about 2% to 3%. The developing economies are growing faster, but they too will converge to this rate, as social democracy takes hold and achieves its equilibrium state.

On the minimum wage

There is no good purpose served by complicating matters. By definition, the minimum wage bans jobs below the prescribed minimum wage. So those jobs are destroyed as a first effect. More people, primarily kids, are out of work, replaced by cheaper alternatives, such as automation. Illegal and black market employment increases. Product prices go up to reflect the higher cost of inputs.

So why do some economists still support it? I figure because it makes them more powerful. Tyler discusses Dan Klein's research, which, as always, is a fascinating look inside academia. It reminds me of Joan Robinson's quote on economics:

The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.

Addendum: Tyler and Don Boudreaux skillfully discuss the heart of the issue: How concerned about inequality should we be?

Tolerance as a virtue

As Fr. Connor argued yesterday, that's the gospel according to Oprah, but it is not the Christian Gospel. Tolerance is not a Christian virtue.

Well, I checked up on this, and he's right, there is no obvious way to construe any of the seven virtues as tolerance. By the way, this sort of thing is news to me, since I was not raised Catholic, and spent most of my formal education in public schools. I have an excellent grasp of "current affairs" and "Alabama history", but no real idea what the hell moral philosophy is.

What I've learned is from economists like Deirdre McCloskey, who argues in her new book that economists have for too long focused on prudence, and ignored the other six virtues: temperance, courage, justice, love, hope, and faith. This derives from the grand daddy himself, Adam Smith, whose most influential book, "The Wealth of Nations", deals primarily with prudence. His other book, "Theory of Moral Sentiments", deals with temperance. She argues he intended to write a book about justice as well, but died before he could. P. J. O'Rourke, in his new book, argues that Adam Smith instead lost the nerve, after realizing that his policy prescriptions at the end of "The Wealth of Nations" were rediculous.

Fr. Connor further argued that our national obsession with tolerance derives from the Civil War, in which more Americans died than in all our other wars combined. I've always found political correctness objectionable, but never wondered really where it came from. My experience in Europe tells me Fr. Connor is at least right about the facts: we are different. In Europe, you can call a spade a spade. Of course, this is also means you can call an immigrant all sorts of horrible things. But I don't think European zenophobia and racism derives from this liberty. Rather it comes from homogeneity, and specifically a lack of interaction with immigrants.

The same can be seen in the American South, where very little immigration in the last 200 years has produced a relatively homogeneous culture. No doubt, the South is a richly colorful place, and quite unique and interesting when compared to, say, the Midwest. But that's living off the past. Today it is marked more by intolerance. Nothing a few million Mexicans can't fix.

Addendum: Turns out immigration is more complicated than I thought.