So we're continuing on our death penalty theme. Don't worry, soon we'll move onto happier subjects!
Justin Wolfers posted this piece today explaining how the Supreme Court misinterpreted his research on the deterrent effect of capital punishment. In the post (which is a follow-up to an op-ed in the Washington Post), he links to some background information he put together on the empirical evidence in the debate.
The relevance of the deterrent debate is that many people have taken the position that the death penalty is only justifiable as a means of preventing murder. Thus, the question about deterrence cuts to the heart of the death penalty's reason for existence.
Wolfers critiques both Justice John Paul Stevens, writing for the dissent, and Justice Antonin Scalia, writing for the majority. Stevens wrote that, "In the absence of such evidence, deterrence cannot serve as a sufficient penological justification for this uniquely severe and irrevocable punishment". To this, Wolfers appropriately responds, "the absence of evidence should not be confused with the evidence of absence." Just because we cannot find a deterrent effect doesn't necessarily mean it doesn't exist.
The more consequential critique is of Scalia's decision, in which the Justice writes, "a significant body of recent evidence" shows "that capital punishment may well have a deterrent effect, possibly a quite powerful one." Wolfers responds that Justice Scalia may want to update his reading list to include the large body of research contradicting his claim.
Since in my last post on this topic I discussed the statistical reasons why an answer to the deterrence question remains elusive, I thought it was important to follow up with the other factor hindering the debate: ideology. Justices Stevens and Scalia differ on the issue of the death penalty, for reasons that go beyond the issue of deterrence, and these differences affect how they filter new evidence. Maybe Stevens and Scalia we legitimately swayed by virtues of different econometric techniques. But my guess is that this is the result of "confirmation bias". According to the idea of confirmation bias, people have a tendency to seek out information that supports their preexisting world view. In statistical analysis, researchers may dismiss contradictory findings on methodological grounds or only report the versions of their results that worked and not the ones that didn't.
Supreme Court judges aren't the only ones who fall pray to this bias. It is often hard to find an academic who's willing to change his/her position because of contradictory empirical evidence. In his 2006 testimony to congress, economist (and deterrence proponent) Paul Rubin states that:
“Another recent paper by Lawrence Katz, Steven D. Levitt, and Ellen Shustorovich uses state-level panel data covering the period 1950 to 1990 to measure the relationship between prison conditions, capital punishment, and crime rates….In several estimations, both the prison death rate and the execution rate are found to have significant, negative relationships with murder rates…”
However one of the paper's authors, Steven Levitt, disagrees with this assessment of his work. According to Levitt, he and his co-authors ran 20 different models (containing different mixes of variables), and found "significant, negative relationships" in only 3. Generally if the results of a statistical model are so sensitive to the model's specification, the relationship is not that strong or may not exist at all.
Unfortunately there's not much we can do about confirmation bias, except to be open about it. It takes a lot of effort to approach issues with a clear and open mind. But it's important to try; sometimes it's an issue of life and death.
Monday, June 30, 2008
Saturday, June 28, 2008
Rights to die
The Supreme Court's recent decision to not evoke the death penalty in cases of child rape raises the question of why the death penalty exists for any crime and what effect the law has on crimes it is evoked for.
There are a few traditional justifications for the death penalty in general: (1) to deter a particular crime; (2) to remove those people who can't be rehabilitated from society permanently or (3) to get "justice" or satisfy emotional needs of surviving victims. I will discuss why each does not justify the death penalty as an acceptable application to prevent child rape - or murder and other violent crimes.
Death penalty as a deterrent. This belief has been largely unsupported by empirical evidence. And it is also not the case that removing death as punishment has any effect on the number of incidents of crime. Criminals don't think they will get caught. This is part of Piaget's personal fable, a foundation of adolescent psychology, that takes place after age 12. A contemporary and anecdotal example is Dateline's To Catch a Predator. Often child molesters will cite a fear of being on the show, while being secretly taped for the show. Therefore demonstrating that the death penalty as deterrent for child rape never worked and thus children are no less safe with the decision.
Removing undesirables from society. Let's assume that child rape is an incurable mental illness. Consider that recidivism rates indicate that after five years, over 30% of rapists recommit the crime; murder recidivism rates are 35% in the US, according to the state of Washington. The difference here is minimal -- the bottom line we want people who repeatedly rape children to be removed from society. Life in prison accomplishes the same purpose. Meanwhile the economics of life in prison versus capital punishment are widely discussed and often life in prison is more economical.
Achieving justice and appeasing the surviving victim. How does our society define justice? Exodus 21:23–27 says an "eye for an eye." Webster's dictionary has two essential definitions: "adhering to the law" or "the quality of being just, impartial, or fair." Restorative justice emphasizes repairing the harm caused by criminal behavior through a cooperative processes. This tactic has been used in cases of rape, in particular acquaintance rape. The last tactic aims at what the could be argued is the most practical approach to violent crime - involving the victims and the perpetrators in reconciliation. In the case of rape, many victims are compelled to repeat the crime. Murder victims, on the other hand, are incapable of repeating the crime - relatives of friends deal with sorrow and anger but they don't often perform revenge killings. And so its arguable in cases of rape comprehensive victim support is most crucial.
There are a few traditional justifications for the death penalty in general: (1) to deter a particular crime; (2) to remove those people who can't be rehabilitated from society permanently or (3) to get "justice" or satisfy emotional needs of surviving victims. I will discuss why each does not justify the death penalty as an acceptable application to prevent child rape - or murder and other violent crimes.
Death penalty as a deterrent. This belief has been largely unsupported by empirical evidence. And it is also not the case that removing death as punishment has any effect on the number of incidents of crime. Criminals don't think they will get caught. This is part of Piaget's personal fable, a foundation of adolescent psychology, that takes place after age 12. A contemporary and anecdotal example is Dateline's To Catch a Predator. Often child molesters will cite a fear of being on the show, while being secretly taped for the show. Therefore demonstrating that the death penalty as deterrent for child rape never worked and thus children are no less safe with the decision.
Removing undesirables from society. Let's assume that child rape is an incurable mental illness. Consider that recidivism rates indicate that after five years, over 30% of rapists recommit the crime; murder recidivism rates are 35% in the US, according to the state of Washington. The difference here is minimal -- the bottom line we want people who repeatedly rape children to be removed from society. Life in prison accomplishes the same purpose. Meanwhile the economics of life in prison versus capital punishment are widely discussed and often life in prison is more economical.
Achieving justice and appeasing the surviving victim. How does our society define justice? Exodus 21:23–27 says an "eye for an eye." Webster's dictionary has two essential definitions: "adhering to the law" or "the quality of being just, impartial, or fair." Restorative justice emphasizes repairing the harm caused by criminal behavior through a cooperative processes. This tactic has been used in cases of rape, in particular acquaintance rape. The last tactic aims at what the could be argued is the most practical approach to violent crime - involving the victims and the perpetrators in reconciliation. In the case of rape, many victims are compelled to repeat the crime. Murder victims, on the other hand, are incapable of repeating the crime - relatives of friends deal with sorrow and anger but they don't often perform revenge killings. And so its arguable in cases of rape comprehensive victim support is most crucial.
Friday, June 27, 2008
Lies, damn lies and statistics: death penalty edition
My blog partner recently posted a terrific piece on this week's Supreme Court ruling regarding the death penalty and child rape. I thought this was a good chance to talk about how difficult it can be to parse the data on such complex social issues. Warning: this gets a little technical, so please fight the urge to fall asleep.
In discussing the evidence on the deterrent effect of the death penalty on crime, she cites an Amnesty International fact sheet, which provides two graphs showing murder rates in states without the death penalty to be lower than those with the death penalty:
In discussing the evidence on the deterrent effect of the death penalty on crime, she cites an Amnesty International fact sheet, which provides two graphs showing murder rates in states without the death penalty to be lower than those with the death penalty:
So we should conclude that not only does the death penalty not have a deterrent effect, but that it actually increases murders, right? Well, not really. These graphs show a clear correlation between the death penalty and murder rates, but they provide no information about which causes which. This type of analysis suffers from problems of "endogeneity", where you have unclear or two-way causality. So while the death penalty could be causing differences in murder rates, it is also possible that causality runs the other way; that is, states with already higher murder rates felt the need to implement the death penalty in order to reduce crime. As a result, we need more sophisticated statistical techniques to determine exactly what is happening with the data.
To overcome the endogeneity problem, empirical papers have used an "instrument variables" approach. An instrument variable is an independent variable that is correlated with the independent variable of interest in the model (in this case the use of the death penalty), but is otherwise uncorrelated with the dependent variable (in this case the murder rate). This will control for the endogenous effect of independent variable. Here's a technical explanation of how this works.
Unfortunately, as Justin Wolfers and John Donohue point out, finding a good instrument variable is not so easy. For example, one well known empirical paper on this topic used "percent of Republican voters in the previous election". There's good reason to think that this would be correlated with the explanatory variable (i.e. the death penalty), but there's also good reason to think that this would be otherwise correlated with the murder rate, violating one of the rules for instrument variables. Republicans tend to take tougher stances on crime, favoring harsher sentencing laws and a stronger police presence. As a result, states with more Republican voters may have lower murder rates, but it might not have to do with their use of the death penalty.
Why does this need to be so complicated? Well the only real way to identify the effect of the death penalty is to run a controlled experiment where, for example, you randomly assigned some states to have the death penalty and some not to. That way, the only difference between the groups of states is the death penalty. Of course, we can't do this. So we have to resort to observational studies, despite their difficulty in identifying the direction of causality.
So what does the research say? The evidence is mixed. There's a very interesting discussion between Justin Wolfers, John Donohue and Paul Rubin in The Economists' Voice, an excellent collection of essays on a wide range of public policy issues. The authors debate the results of several papers on the issue of deterrence, all of which contain conflicting results. Wolfers and Donohue, looking at the longest dataset of all the papers involved, find no net lives saved per execution. While Rubin and others disagree with this finding, I think that the preponderance of evidence in this area suggests that the death penalty has no consistent or significant deterrent effect. Even Gary Becker, Nobel Laureate and proponent of the death penalty deterrent theory, notes that, "the evidence is decidedly mixed...the weight of the positive evidence should not be overstated."
When faced with morally charged issues like the death penalty, many people look to empirics to settle the debate. While I feel that that impulse is the right one, there's a danger in overstating or oversimplifying the results of empirical research in the social sciences. Social systems are enormously complex, and sifting through reams of data requires a great deal of time, patience and humility. Statistics has a lot to teach us about politically charged issues like the death penalty; we just shouldn't be in a rush to judge what it is they have to say.
To overcome the endogeneity problem, empirical papers have used an "instrument variables" approach. An instrument variable is an independent variable that is correlated with the independent variable of interest in the model (in this case the use of the death penalty), but is otherwise uncorrelated with the dependent variable (in this case the murder rate). This will control for the endogenous effect of independent variable. Here's a technical explanation of how this works.
Unfortunately, as Justin Wolfers and John Donohue point out, finding a good instrument variable is not so easy. For example, one well known empirical paper on this topic used "percent of Republican voters in the previous election". There's good reason to think that this would be correlated with the explanatory variable (i.e. the death penalty), but there's also good reason to think that this would be otherwise correlated with the murder rate, violating one of the rules for instrument variables. Republicans tend to take tougher stances on crime, favoring harsher sentencing laws and a stronger police presence. As a result, states with more Republican voters may have lower murder rates, but it might not have to do with their use of the death penalty.
Why does this need to be so complicated? Well the only real way to identify the effect of the death penalty is to run a controlled experiment where, for example, you randomly assigned some states to have the death penalty and some not to. That way, the only difference between the groups of states is the death penalty. Of course, we can't do this. So we have to resort to observational studies, despite their difficulty in identifying the direction of causality.
So what does the research say? The evidence is mixed. There's a very interesting discussion between Justin Wolfers, John Donohue and Paul Rubin in The Economists' Voice, an excellent collection of essays on a wide range of public policy issues. The authors debate the results of several papers on the issue of deterrence, all of which contain conflicting results. Wolfers and Donohue, looking at the longest dataset of all the papers involved, find no net lives saved per execution. While Rubin and others disagree with this finding, I think that the preponderance of evidence in this area suggests that the death penalty has no consistent or significant deterrent effect. Even Gary Becker, Nobel Laureate and proponent of the death penalty deterrent theory, notes that, "the evidence is decidedly mixed...the weight of the positive evidence should not be overstated."
When faced with morally charged issues like the death penalty, many people look to empirics to settle the debate. While I feel that that impulse is the right one, there's a danger in overstating or oversimplifying the results of empirical research in the social sciences. Social systems are enormously complex, and sifting through reams of data requires a great deal of time, patience and humility. Statistics has a lot to teach us about politically charged issues like the death penalty; we just shouldn't be in a rush to judge what it is they have to say.
Don't shoot the messengers
At this point, no one should be surprised by the fact that economics isn't John McCain's strong suit. The guy even said so himself. He supported the universally panned "gas-tax holiday", and he once strangely opined that interest rates should be set at 0%. So it shouldn't be that surprising that McCain has directly called out economics as a profession.
Speaking at Federal Hall near the New York Stock Exchange, McCain said: "You know the economists? They're the same ones that didn't predict the housing crisis we're in. They're the same ones that didn't predict the dot-com meltdown. They're the same ones that didn't predict the inflation that's staring us in the face today."
McCain must find it to be quite a burden, being right all the time. However, his reductionist view of economics glosses over a large amount of diversity in the field. And, as ThinkProgress has pointed out, many economists did predict the bursting housing bubble, including Nobel Laureate Joseph Stiglitz, Paul Krugman and Dean Baker. Maybe McCain should do a better job of listening.
Unfortunately, McCain isn't the only politician hating on economists. Several weeks ago Hilary Clinton's campaign manager took aim at the profession, when essentially the entire field criticized his candidate's own gas-tax holiday plan. Asked if she could name a single economist who thought it was a good idea, Ms. Clinton herself responded, "I don't want to put my lot in with economists".
So what's going on here? Justin Wolfers posed this question two weeks ago. What's strange is that you don't see this happening with other professions. No one gets mad at doctors who say smoking can lead to lung cancer (except maybe the cigarette industry) or at engineers who say a bridge is structurally unsound. But claiming, "four out of five economists agree" doesn't have the same cache that it does with dentists.
Why treat economists differently? One answer is that economic policy is playing a much more prominent role in this campaign, so there are many more opportunities for candidates to have their policy proposals questioned. Another possibility is that many economic phenomena are counter-intuitive, particularly those related to trade, technological change and taxes. Cutting gas taxes sounds like it would lower the price of gas; the complexities of tax incidence, however, are more subtle.
Personally, I blame the tension between politics and policy. Politicians get elected by promising the public more, not less. So while policymaking involves trade-offs, politics encourages our leaders to tell us we can have out cake and eat it too. The role of economists (or really, any group of experts) is to lay out the trade-offs associated with policy proposals, so votes can make a more informed choice. When economists oppose a plan, they're not pushing any specific agenda; they're just the messengers explaining what is and isn't possible.
This was certainly the case with the gas-tax holiday, when economists from across the political spectrum lined up against a plan that had little chance of succeeding. Polling suggests that the public believed the economists over the politicians, and that Hilary Clinton may have paid some political price for her support of the plan.
So maybe it's a good thing that politicians are mad at economists. It might mean that they're helping to reign in the bad ideas, at least a little.
Speaking at Federal Hall near the New York Stock Exchange, McCain said: "You know the economists? They're the same ones that didn't predict the housing crisis we're in. They're the same ones that didn't predict the dot-com meltdown. They're the same ones that didn't predict the inflation that's staring us in the face today."
McCain must find it to be quite a burden, being right all the time. However, his reductionist view of economics glosses over a large amount of diversity in the field. And, as ThinkProgress has pointed out, many economists did predict the bursting housing bubble, including Nobel Laureate Joseph Stiglitz, Paul Krugman and Dean Baker. Maybe McCain should do a better job of listening.
Unfortunately, McCain isn't the only politician hating on economists. Several weeks ago Hilary Clinton's campaign manager took aim at the profession, when essentially the entire field criticized his candidate's own gas-tax holiday plan. Asked if she could name a single economist who thought it was a good idea, Ms. Clinton herself responded, "I don't want to put my lot in with economists".
So what's going on here? Justin Wolfers posed this question two weeks ago. What's strange is that you don't see this happening with other professions. No one gets mad at doctors who say smoking can lead to lung cancer (except maybe the cigarette industry) or at engineers who say a bridge is structurally unsound. But claiming, "four out of five economists agree" doesn't have the same cache that it does with dentists.
Why treat economists differently? One answer is that economic policy is playing a much more prominent role in this campaign, so there are many more opportunities for candidates to have their policy proposals questioned. Another possibility is that many economic phenomena are counter-intuitive, particularly those related to trade, technological change and taxes. Cutting gas taxes sounds like it would lower the price of gas; the complexities of tax incidence, however, are more subtle.
Personally, I blame the tension between politics and policy. Politicians get elected by promising the public more, not less. So while policymaking involves trade-offs, politics encourages our leaders to tell us we can have out cake and eat it too. The role of economists (or really, any group of experts) is to lay out the trade-offs associated with policy proposals, so votes can make a more informed choice. When economists oppose a plan, they're not pushing any specific agenda; they're just the messengers explaining what is and isn't possible.
This was certainly the case with the gas-tax holiday, when economists from across the political spectrum lined up against a plan that had little chance of succeeding. Polling suggests that the public believed the economists over the politicians, and that Hilary Clinton may have paid some political price for her support of the plan.
So maybe it's a good thing that politicians are mad at economists. It might mean that they're helping to reign in the bad ideas, at least a little.
Wednesday, June 25, 2008
head2head: A sweet dilemma
One of the cornerstones of a healthy life of theory is the understanding that sometimes you are only right because of the accepted framework around your argument. Here at theory2life, we'd like to rattle the walls of the cages a bit and put different theories head to head to see which is more equipped to solve a particular problem.
First topic up for debate: Should an office manager provide his or her employees with free candy?
One Hershey's kiss at a time
Don't bring your home to work
First topic up for debate: Should an office manager provide his or her employees with free candy?
One Hershey's kiss at a time
Don't bring your home to work
head2head: A sweet dilemma - One Hershey's kiss at a time.
Arguing from a socio-cognitive perspective, I'll point out why candy (or some other forms of a serotonin-raising food treat) can be vital to a happy and productive workforce. [Full disclosure: I myself am a manager and a candy dish junkie.]
The office candy dish by the boss's desk provides a way to gauge average mood of your team members, establish trust and routines at a very basic physiological level and encourage creative risk taking and improve collective problem solving on a team wide basis.
We'll start with human physiology. Most cubicle dwellers spend somewhere between 7 and a half and 9 hours at the office and during that time face emotional and physical pressures and highs and lows of energy. Candy is consumed at both extremes of this process. No one is eating candy when they are a busy and engrossed in a project or laying low and procrastinating; they either eat when they have completed a task or when they need a break from a project. As manager, seeing who comes to the bowl, when and in what mood helps you gauge their productivity and their daily working style.
It also places you at the forefront of two very critical processes that go on in your employee's work day: At the Success Update: "I've finished Step 3 and I'm ready to move to step 4" or at the Sticking Point: "I am trying to come up with a solution," "I just got a nasty stressful e-mail," or "I'm having trouble getting started on this piece of an assignment." In either case you'll want to intervene either with kudos and next-step instructions for a Success Point or resources or motivation for a Sticking Point.
In many cases your employees will become used to coming to your desk to reward themselves with candy to report on progress or to console themselves with candy to seek your advice. In the latter situation will not become a whine session due to the heroic candy dish – it is socially unacceptable for one person to take more than two pieces of candy in one trip. Thus they have to go away for a period of time and return with something new to report in order to receive more candy.
This routine establishes a trust model between individuals. Coleman defines trust as an action that involves a voluntary transfer of resources from the truster to the trustee with no real commitment from the trustee. In other words establishing trust is a great way to get your employees to do work on your behalf without expecting immediate financial compensation. It's important to note that trusting another party when one is compelled to is essentially reliance, lacking a belief in benevolence and competence. However I would argue that by providing a regular supply of candy a manager can display consistency and benevolence, thus deepening the trust beyond standard a traditional trust schemas based solely on power.
Deeper trust communities encourage the individuals within them to take greater risks. Risk taking employees innovate more often, which can lead to better results for the projects they undertake. The candy dish is just one tool in an overall approach to supportive, trust-building management however it is a simple and effective one that should not be taken lightly.
Read Optimistic Skeptic's take.
The office candy dish by the boss's desk provides a way to gauge average mood of your team members, establish trust and routines at a very basic physiological level and encourage creative risk taking and improve collective problem solving on a team wide basis.
We'll start with human physiology. Most cubicle dwellers spend somewhere between 7 and a half and 9 hours at the office and during that time face emotional and physical pressures and highs and lows of energy. Candy is consumed at both extremes of this process. No one is eating candy when they are a busy and engrossed in a project or laying low and procrastinating; they either eat when they have completed a task or when they need a break from a project. As manager, seeing who comes to the bowl, when and in what mood helps you gauge their productivity and their daily working style.
It also places you at the forefront of two very critical processes that go on in your employee's work day: At the Success Update: "I've finished Step 3 and I'm ready to move to step 4" or at the Sticking Point: "I am trying to come up with a solution," "I just got a nasty stressful e-mail," or "I'm having trouble getting started on this piece of an assignment." In either case you'll want to intervene either with kudos and next-step instructions for a Success Point or resources or motivation for a Sticking Point.
In many cases your employees will become used to coming to your desk to reward themselves with candy to report on progress or to console themselves with candy to seek your advice. In the latter situation will not become a whine session due to the heroic candy dish – it is socially unacceptable for one person to take more than two pieces of candy in one trip. Thus they have to go away for a period of time and return with something new to report in order to receive more candy.
This routine establishes a trust model between individuals. Coleman defines trust as an action that involves a voluntary transfer of resources from the truster to the trustee with no real commitment from the trustee. In other words establishing trust is a great way to get your employees to do work on your behalf without expecting immediate financial compensation. It's important to note that trusting another party when one is compelled to is essentially reliance, lacking a belief in benevolence and competence. However I would argue that by providing a regular supply of candy a manager can display consistency and benevolence, thus deepening the trust beyond standard a traditional trust schemas based solely on power.
Deeper trust communities encourage the individuals within them to take greater risks. Risk taking employees innovate more often, which can lead to better results for the projects they undertake. The candy dish is just one tool in an overall approach to supportive, trust-building management however it is a simple and effective one that should not be taken lightly.
Read Optimistic Skeptic's take.
head2head: A sweet dilemma - Don't bring your home to work
Friedrick von Hayek pointed out the difficulty people have living in two worlds. On the one hand, we have our home life, which is governed by love and respect; on the other are our market interactions, which are governed by incentives and efficiency. No one advocates bringing market rules home with them. Tyler Cowen elaborates on this point in his recent book, Discover Your Inner Economist. He says that a parent would be mistaken to use monetary incentives to get their kids to behave or do chores around the house. Doing so would make one's child view their family responsibilities as a market relationship. As such, they would feel less responsibility to work beyond the marginal utility of their compensation. Further, when the child becomes old enough to work outside of the home, the wages the parent pays for chores and respect must compete with what the kid can get working at Starbucks.
Similarly, you can't bring family rules to work with you. The employee/employer relationship is firmly grounded in the world of market incentives. If you want an employee to stay late or be more productive, you have to offer a bonus or at least offer comp-time. Bosses, unlike family members, can't get away with saying, "this would really mean a lot to me."
This is why the free candy plan misses out on basic incentives. Free candy is a concession from the employer that requires no added effort from employees. It's like you're bargaining with someone and you offer $5 for nothing in return. After the initial positive feelings, the candy will simply become an expected part of the compensation package. At this point, the employer will have to maintain the level of candy in order to get the same productivity out of their workers. On the other hand, any stop in the flow of candy will be viewed as a decrease in compensation, creating an incentive for workers to work less.
There is also a human physiology aspect at work here. Candy provides a short-lived sugar rush, followed by a crash. If workers are eating the candy throughout the day, there will be peaks and crashes throughout the office, potentially wreaking havoc on productivity.
A better plan would be to use the candy as a reward. Bring out the bowl after the team completes a big project or after meeting another long-term goal. That way the candy will be viewed as an incentive to work hard, rather than a simple entitlement.
Read thinkin' chick's take.
Similarly, you can't bring family rules to work with you. The employee/employer relationship is firmly grounded in the world of market incentives. If you want an employee to stay late or be more productive, you have to offer a bonus or at least offer comp-time. Bosses, unlike family members, can't get away with saying, "this would really mean a lot to me."
This is why the free candy plan misses out on basic incentives. Free candy is a concession from the employer that requires no added effort from employees. It's like you're bargaining with someone and you offer $5 for nothing in return. After the initial positive feelings, the candy will simply become an expected part of the compensation package. At this point, the employer will have to maintain the level of candy in order to get the same productivity out of their workers. On the other hand, any stop in the flow of candy will be viewed as a decrease in compensation, creating an incentive for workers to work less.
There is also a human physiology aspect at work here. Candy provides a short-lived sugar rush, followed by a crash. If workers are eating the candy throughout the day, there will be peaks and crashes throughout the office, potentially wreaking havoc on productivity.
A better plan would be to use the candy as a reward. Bring out the bowl after the team completes a big project or after meeting another long-term goal. That way the candy will be viewed as an incentive to work hard, rather than a simple entitlement.
Read thinkin' chick's take.
Sunday, June 22, 2008
Gas prices and global warming: what to tax?
Recently, Congress voted down a bill that would impose a Windfall Profits Tax (WPT) on the oil industry. Big Oil, awash in cash as the price of crude oil continues to rise, has seen its profits skyrocket. To put this into context, consider the following piece of trivia: if Exxon Mobil were its own country, its 2007 profit would exceed the gross domestic product of nearly two thirds of the 183 nations in the World Bank's economic rankings. Take that Swaziland!!
Of course, Big Oil's windfall earnings come at a time when the economy is slowing and many Americans, particularly in rural areas, are struggling with the price of gas. Senate Majority Leader Harry Reid recently summed up the dichotomy:
"Today, Republicans will have a simple choice: Will they continue to stand with [President] Bush, [Vice President] Cheney, and the modern-day oil barons? Or will they join us on the side of struggling American families who deserve better?"
So would a WPT work? It depends on your goals, but probably no. For people concerned about the price of gas, this is clearly a bad idea. The reasoning is similar to that used during the "gas-tax holiday" saga a few weeks ago. Paul Krugman explains it best:
"It’s Econ 101 tax incidence theory: if the supply of a good is more or less unresponsive to the price, the price to consumers will always rise until the quantity demanded falls to match the quantity supplied. Cut taxes, and all that happens is that the pretax price rises by the same amount. The McCain gas tax plan is a giveaway to oil companies, disguised as a gift to consumers."
With regard to the WPT, we can use this argument in reverse. Any tax on the oil companies will (at least in part) be passed onto consumers. The problem goes further, though. High prices and profits create an incentive to increase supply. As the price of oil increased between 2003 and 2006, oil companies increased their spending on improving existing oil fields and new field discovery by 43% and 67%, respectively. By taxing oil company profits, you dampen the incentive to invest in future production, thus decreasing future supply.
But what if, like many of us, your real concern is decreasing gasoline usage as part of a larger anti-global warming strategy? Isn't the WPT a Pigouvian tax? Well, sort of. Certainly the oil industry produces a great deal of carbon emissions. Thus taxing them may reduce their production (though it probably won't, for the reason mentioned above), which would reduce carbon emissions.
My real concern with the WPT, however, is that it sends the wrong message to the public. The public maintains many erroneous beliefs about economic policy, and opinions on gas prices are no different. According to a recent Gallup Poll, the American public cites "price gouging" as the biggest reason why the price of gasoline has increased in the past few years. While "supply and demand" did place second, other important factors like "the increased price of crude oil" (which would seem obvious) and "the decline in the value of the dollar" come in close to last. The price gouging explanation has emotional appeal, but doesn't make much sense empirically. If price gouging were a factor, why would the price of gas go up and down? And why would the worldwide price of gas go up, rather than simply the price of gas in the US?
Passing a WPT would send a dangerous political message to Americans, reinforcing their beliefs about the price of oil. But it would also be unfair to solely blame oil suppliers for the problem of pollution. People don't use oil because the oil companies exist; oil companies exist because people demand oil. As a result, taxing oil companies, rather than everyone (individuals and businesses) that uses oil (and thus directly producing carbon emissions) would be an ineffective measure for curtailing global warming. Alternatively, a carbon tax, which would tax the emission of CO2, rather than the production and sale of oil, would be a much more effective Pigouvian tax that would actually change people's behavior and would actually help the environment. Additionally, a carbon-tax does not have to be regressive. Rather, as Jason Furman notes, the carbon tax could be paired with reductions in other taxes, such as the payroll tax, so that low and middle-income taxpayers do not see their tax bills increase. That way we tax polluting behavior and not income.
The WPT is, at best, an ineffective half-measure and is, at worst, cynical political scapegoating. If we want to take global warming seriously, we need to tax polluting behavior; you do not need to have any sympathy for the oil companies to see that. And, yes, tax breaks and other incentives for oil companies are nothing more than "Conservative Nanny State" policies, which have to stop. But don't shed any tears for the WPT. As a measure for solving climate change, it won't work; as a means of scoring political points, it probably will.
Of course, Big Oil's windfall earnings come at a time when the economy is slowing and many Americans, particularly in rural areas, are struggling with the price of gas. Senate Majority Leader Harry Reid recently summed up the dichotomy:
"Today, Republicans will have a simple choice: Will they continue to stand with [President] Bush, [Vice President] Cheney, and the modern-day oil barons? Or will they join us on the side of struggling American families who deserve better?"
So would a WPT work? It depends on your goals, but probably no. For people concerned about the price of gas, this is clearly a bad idea. The reasoning is similar to that used during the "gas-tax holiday" saga a few weeks ago. Paul Krugman explains it best:
"It’s Econ 101 tax incidence theory: if the supply of a good is more or less unresponsive to the price, the price to consumers will always rise until the quantity demanded falls to match the quantity supplied. Cut taxes, and all that happens is that the pretax price rises by the same amount. The McCain gas tax plan is a giveaway to oil companies, disguised as a gift to consumers."
With regard to the WPT, we can use this argument in reverse. Any tax on the oil companies will (at least in part) be passed onto consumers. The problem goes further, though. High prices and profits create an incentive to increase supply. As the price of oil increased between 2003 and 2006, oil companies increased their spending on improving existing oil fields and new field discovery by 43% and 67%, respectively. By taxing oil company profits, you dampen the incentive to invest in future production, thus decreasing future supply.
But what if, like many of us, your real concern is decreasing gasoline usage as part of a larger anti-global warming strategy? Isn't the WPT a Pigouvian tax? Well, sort of. Certainly the oil industry produces a great deal of carbon emissions. Thus taxing them may reduce their production (though it probably won't, for the reason mentioned above), which would reduce carbon emissions.
My real concern with the WPT, however, is that it sends the wrong message to the public. The public maintains many erroneous beliefs about economic policy, and opinions on gas prices are no different. According to a recent Gallup Poll, the American public cites "price gouging" as the biggest reason why the price of gasoline has increased in the past few years. While "supply and demand" did place second, other important factors like "the increased price of crude oil" (which would seem obvious) and "the decline in the value of the dollar" come in close to last. The price gouging explanation has emotional appeal, but doesn't make much sense empirically. If price gouging were a factor, why would the price of gas go up and down? And why would the worldwide price of gas go up, rather than simply the price of gas in the US?
Passing a WPT would send a dangerous political message to Americans, reinforcing their beliefs about the price of oil. But it would also be unfair to solely blame oil suppliers for the problem of pollution. People don't use oil because the oil companies exist; oil companies exist because people demand oil. As a result, taxing oil companies, rather than everyone (individuals and businesses) that uses oil (and thus directly producing carbon emissions) would be an ineffective measure for curtailing global warming. Alternatively, a carbon tax, which would tax the emission of CO2, rather than the production and sale of oil, would be a much more effective Pigouvian tax that would actually change people's behavior and would actually help the environment. Additionally, a carbon-tax does not have to be regressive. Rather, as Jason Furman notes, the carbon tax could be paired with reductions in other taxes, such as the payroll tax, so that low and middle-income taxpayers do not see their tax bills increase. That way we tax polluting behavior and not income.
The WPT is, at best, an ineffective half-measure and is, at worst, cynical political scapegoating. If we want to take global warming seriously, we need to tax polluting behavior; you do not need to have any sympathy for the oil companies to see that. And, yes, tax breaks and other incentives for oil companies are nothing more than "Conservative Nanny State" policies, which have to stop. But don't shed any tears for the WPT. As a measure for solving climate change, it won't work; as a means of scoring political points, it probably will.
Tuesday, June 17, 2008
Dance, Dance, Evolution
For those of you who have read my previous postings, you've probably gathered that I'm not very cool. It's okay, really, I've come to accept it. No where is this point clearer to me than at clubs. Dance music induces a powerful, deer-in-headlights reaction and I spend most of the night close to the bar, moving just enough so that people watching closely think I'm dancing. So, perched in my hiding spot in the land of the nerds, I made a casual observation: clubs tend to be populated by aggressive guys. And, contrary to what women say they want, these guys tend to go home with someone on their arm.
The club/bar scene is a strange place. For one thing, it's one of the only places in public life that has an enforced gender ratio. A few years ago my girlfriend and I attended a birthday party at a New York club (I won't say the which, but it was named after a common non-sexual bedroom object). We arrived on time (not cool, I know) and got right in. But the male guests (who were on an invited list) who arrived after 11pm were not so lucky. By that time, too many males had entered the club--leading to the dreaded "sausage fest"--and the bouncers weren't letting any additional males unless they came in with at least one female. It's hard to fault bar owners from a business perspective. Men are more likely to buy women drinks than the other way around, so having more women than men makes sense for a profit-maximizing bar owner.
So what is it about bars and clubs that lend themselves to aggressive guys? Part of the answer is simple self-selection. Shy guys are more likely to eschew the club scene, while their aggressive counterparts grind with strangers. But another important factor has to do with the club environment itself and its affect on signaling behavior. In economics, signaling is a means of overcoming the problem of "asymmetric information," where one party knows more about their end of the transaction than the other. Dating is fraught with asymmetric information: you do not know whether the person chatting you up is interested in the long-term or simply a one-night stand, whether they're crazy and will end up stalking you when the relationship ends, or whether the decision to sleep with them will necessitate a course of penicillin. People overcome this problem through signaling. Men signal wealth by paying for women's drinks, women signal sexual availability by showing cleavage, and everyone tries to signal interest through humor. You're much more likely to laugh at attractive people's jokes.
However, many avenues for signaling are cut off in the club scene. Clubs and bars tend to be dark, loud, and crowded. As a result, it's harder to signal intelligence, humor or sensitivity, since these are all signaled through conversation. It's easier to signal wealth (through clothes and buying drinks), or to signal interest through aggressiveness. So in addition to self-selection, the existence of aggressive guys at clubs is a function of natural selection: the only guys that can signal affectively in clubs are the ones who are aggressive. This creates an incentive for men to be aggressive. The club environment, in essence, leads to the extinction of the shy male.
What's interesting is that the enforced gender ratio may mitigate this, somewhat. By restricting the supply of males, the club reduces the degree of competition by the lucky men who gained entry. In practice, however, this effect seems to be overwhelmed by self-selection and the environmental incentives.
What does this mean for women in clubs? In a sense, you get what you pay for. Women who go to clubs to dance with their friends will have to suffer through cheesy come-ons, relying on the strategy of safety in numbers. For women looking to meet guys, well, buyer beware!
Beyond signaling, though, there's another strategy that can be successfully employed in clubs. Both men and women can exploit the human bias known in Behavioral Economics as "anchoring". Anchoring refers to the tendency of relying on a specific (and sometimes arbitrary) value and making comparisons based on that. MIT Professor and noted Behavioral Economist Dan Ariely provides the following example:
"An audience is first asked to write the last 2 digits of their social security number, and, second, to submit mock bids on items such as wine and chocolate. The half of the audience with higher two-digit numbers would submit bids that were between 60 percent and 120 percent more, far higher than a chance outcome; the simple act of thinking of the first number strongly influences the second, even though there is no logical connection between them."
So what can you do in a club? Make sure you show up with a friend of the same sex that's not as good looking as you. When approaching members of the opposite sex, make sure this friend is by your side; it would probably be better if the friend started the conversation. This will set an anchor, making you seem more attractive by comparison. Unfortunately this will only work if your friend doesn't know the plan. Once he discovers your real reason for hanging out with him, he'll probably be offended, and then (if he's smart) find another friend less attractive than him.
For more information about Behavioral Economics and the strange biases that people have, check out Predictably Irrational by Dan Ariely.
The club/bar scene is a strange place. For one thing, it's one of the only places in public life that has an enforced gender ratio. A few years ago my girlfriend and I attended a birthday party at a New York club (I won't say the which, but it was named after a common non-sexual bedroom object). We arrived on time (not cool, I know) and got right in. But the male guests (who were on an invited list) who arrived after 11pm were not so lucky. By that time, too many males had entered the club--leading to the dreaded "sausage fest"--and the bouncers weren't letting any additional males unless they came in with at least one female. It's hard to fault bar owners from a business perspective. Men are more likely to buy women drinks than the other way around, so having more women than men makes sense for a profit-maximizing bar owner.
So what is it about bars and clubs that lend themselves to aggressive guys? Part of the answer is simple self-selection. Shy guys are more likely to eschew the club scene, while their aggressive counterparts grind with strangers. But another important factor has to do with the club environment itself and its affect on signaling behavior. In economics, signaling is a means of overcoming the problem of "asymmetric information," where one party knows more about their end of the transaction than the other. Dating is fraught with asymmetric information: you do not know whether the person chatting you up is interested in the long-term or simply a one-night stand, whether they're crazy and will end up stalking you when the relationship ends, or whether the decision to sleep with them will necessitate a course of penicillin. People overcome this problem through signaling. Men signal wealth by paying for women's drinks, women signal sexual availability by showing cleavage, and everyone tries to signal interest through humor. You're much more likely to laugh at attractive people's jokes.
However, many avenues for signaling are cut off in the club scene. Clubs and bars tend to be dark, loud, and crowded. As a result, it's harder to signal intelligence, humor or sensitivity, since these are all signaled through conversation. It's easier to signal wealth (through clothes and buying drinks), or to signal interest through aggressiveness. So in addition to self-selection, the existence of aggressive guys at clubs is a function of natural selection: the only guys that can signal affectively in clubs are the ones who are aggressive. This creates an incentive for men to be aggressive. The club environment, in essence, leads to the extinction of the shy male.
What's interesting is that the enforced gender ratio may mitigate this, somewhat. By restricting the supply of males, the club reduces the degree of competition by the lucky men who gained entry. In practice, however, this effect seems to be overwhelmed by self-selection and the environmental incentives.
What does this mean for women in clubs? In a sense, you get what you pay for. Women who go to clubs to dance with their friends will have to suffer through cheesy come-ons, relying on the strategy of safety in numbers. For women looking to meet guys, well, buyer beware!
Beyond signaling, though, there's another strategy that can be successfully employed in clubs. Both men and women can exploit the human bias known in Behavioral Economics as "anchoring". Anchoring refers to the tendency of relying on a specific (and sometimes arbitrary) value and making comparisons based on that. MIT Professor and noted Behavioral Economist Dan Ariely provides the following example:
"An audience is first asked to write the last 2 digits of their social security number, and, second, to submit mock bids on items such as wine and chocolate. The half of the audience with higher two-digit numbers would submit bids that were between 60 percent and 120 percent more, far higher than a chance outcome; the simple act of thinking of the first number strongly influences the second, even though there is no logical connection between them."
So what can you do in a club? Make sure you show up with a friend of the same sex that's not as good looking as you. When approaching members of the opposite sex, make sure this friend is by your side; it would probably be better if the friend started the conversation. This will set an anchor, making you seem more attractive by comparison. Unfortunately this will only work if your friend doesn't know the plan. Once he discovers your real reason for hanging out with him, he'll probably be offended, and then (if he's smart) find another friend less attractive than him.
For more information about Behavioral Economics and the strange biases that people have, check out Predictably Irrational by Dan Ariely.
Monday, June 16, 2008
With Friends Like These...
People have called Barack Obama a lot of strange things in the last six months: closet Muslim, not-so closet racist, "terrorist fist-bumper". But now Naomi Klein is calling him a market fundamentalist. Klein, the award-winning journalist and author most recently of The Shock Doctrine, has the strong aversion to the term "markets" common on the far left. So when Barack Obama declared last week on CNBC, "Look. I am a pro-growth, free-market guy. I love the market..." it was bound to ruffle some anti-capitalist feathers.
So how free market is Obama? Klein notes that his new head of economic policy, Jason Furman, has said positive things about Walmart, and that his chief advisor, Austan Goolsbee, teaches at the University of Chicago, the high temple of free-market economics. However she conveniently glosses over the important additions of left-leaning economists Jared Berstein and James Galbraith to the Obama team. And she completely fails to mention Obama's voting record on economic issues, most notably that Obama: voted against the Central American Free Trade Agreement; advocated raising the minimum wage; attacked Hillary Clinton for supporting NAFTA; voted for, and attacked Bush and McCain for opposing, the recent farm bill, which would increase subsidies by $20bn, make the government buy sugar at twice the world price, and give subsidies to farmers with incomes of up to $1.5 million per year; proposed raising the capital gains tax; advocates fair, not free trade with developing nations (information from www.adamsmith.org).
As far as policy goes, Obama is not exactly right-wing. But he isn't a socialist either, and he is not going to usher in a progressive revolution. What Obama is dealing with here is similar to John McCain's problem with the far right, (most notably Rush Limbaugh) who views his support for tax cuts as soft and feel betrayed by his occasional forays into bi-partisanship.
Is there a logic to eating one's own? A cynic might accuse Klein and Limbaugh of riling up their fan-base in order to sell more books and generate more listenership. But there may be something more strategic going on here. People on the far ends of the political spectrum tend to see change only in terms of revolution, not evolution. As a result, compromise is not a realistic option. A center-left Obama administration may push through some progressive goals, but would be inclined to compromise in order to get there. Thus some change will happen, but it will likely end there. Rather, real zealots will wait till the public is really clamoring for change so that a fringe candidate can sweep their agenda through.
Will it work? Probably not. Obama is likely to be the most progressive candidate we'll see for a while. Cutting into his support among progressives will only lead to real "free market" policies.
So how free market is Obama? Klein notes that his new head of economic policy, Jason Furman, has said positive things about Walmart, and that his chief advisor, Austan Goolsbee, teaches at the University of Chicago, the high temple of free-market economics. However she conveniently glosses over the important additions of left-leaning economists Jared Berstein and James Galbraith to the Obama team. And she completely fails to mention Obama's voting record on economic issues, most notably that Obama: voted against the Central American Free Trade Agreement; advocated raising the minimum wage; attacked Hillary Clinton for supporting NAFTA; voted for, and attacked Bush and McCain for opposing, the recent farm bill, which would increase subsidies by $20bn, make the government buy sugar at twice the world price, and give subsidies to farmers with incomes of up to $1.5 million per year; proposed raising the capital gains tax; advocates fair, not free trade with developing nations (information from www.adamsmith.org).
As far as policy goes, Obama is not exactly right-wing. But he isn't a socialist either, and he is not going to usher in a progressive revolution. What Obama is dealing with here is similar to John McCain's problem with the far right, (most notably Rush Limbaugh) who views his support for tax cuts as soft and feel betrayed by his occasional forays into bi-partisanship.
Is there a logic to eating one's own? A cynic might accuse Klein and Limbaugh of riling up their fan-base in order to sell more books and generate more listenership. But there may be something more strategic going on here. People on the far ends of the political spectrum tend to see change only in terms of revolution, not evolution. As a result, compromise is not a realistic option. A center-left Obama administration may push through some progressive goals, but would be inclined to compromise in order to get there. Thus some change will happen, but it will likely end there. Rather, real zealots will wait till the public is really clamoring for change so that a fringe candidate can sweep their agenda through.
Will it work? Probably not. Obama is likely to be the most progressive candidate we'll see for a while. Cutting into his support among progressives will only lead to real "free market" policies.
Sunday, June 15, 2008
Update: More from the Pigou Club
Here is Charles Wheelan (The Naked Economist) writing about a carbon tax. He makes an additional point about Pigouvian taxes that I left out of my previous post. Referring to the consequences of the higher price of gas he writes:
"I will add, perhaps gratuitously, that the behavioral changes we're seeing now are exactly why we should have implemented a carbon tax (with offsetting income tax or payroll tax cuts) 10 years ago. Given that we have to raise revenue somehow, we ought to do it by taxing behaviors that we would prefer to discourage. An income tax discourages work; a carbon tax discourages pollution. Which one makes more sense to you?"
Taxes serve two important functions: they raise revenue for government and discourage whatever behavior is being taxed. In America, income and investments are taxed at a higher rate than consumption. At a time when we're all so concerned about public and private debt, maybe this is something we should rethink.
Also, check out Wheelan's terrific book, Naked Economics: Undressing the Dismal Science. It's the best introduction to economics out there, and one of the only ones that wont put you to sleep.
"I will add, perhaps gratuitously, that the behavioral changes we're seeing now are exactly why we should have implemented a carbon tax (with offsetting income tax or payroll tax cuts) 10 years ago. Given that we have to raise revenue somehow, we ought to do it by taxing behaviors that we would prefer to discourage. An income tax discourages work; a carbon tax discourages pollution. Which one makes more sense to you?"
Taxes serve two important functions: they raise revenue for government and discourage whatever behavior is being taxed. In America, income and investments are taxed at a higher rate than consumption. At a time when we're all so concerned about public and private debt, maybe this is something we should rethink.
Also, check out Wheelan's terrific book, Naked Economics: Undressing the Dismal Science. It's the best introduction to economics out there, and one of the only ones that wont put you to sleep.
Wednesday, June 11, 2008
The Joy of Tax
Nobel Laureate Milton Friedman once compared governments to a teenager with their father’s credit card. As long as there is money to be spent, they will spend it. Unfortunately, the recent economic slowdown is starting to hit states’ budgets. And since individual states, unlike the federal government, cannot simply print money to make up the difference, they have to find other sources of funds.
But what about the most practical question: will the tax work? Daniel Hamermesh doesn’t think so. This tax would affect both the demand and supply sides of the market. If the demand for adult entertainment is inelastic (as Hamermesh suggests), then the tax wont affect consumption but will generate tax revenue. The supply side, however, is a different story. Businesses tend to move to the most favorable climates, when possible. A tax on
Thursday, June 5, 2008
The Problem with Food Metaphors or Why Economists Shouldn’t Bake
Food metaphors are ubiquitous and often useful. They remind us that we can’t have our cake and eat it too and they warn us not to bite off more than we can chew. We long to make our opponents eat their words. One of the most common food metaphors is the economic pie; it is also the most sinfully delicious.
The appeal of the economic pie metaphor is obvious: the economy is a decentralized network of billions of actions and decisions, and it is one of the most abstract concepts discussed on a regular basis. What could be better than to relate this mess to something wholesome and American: the pie? Unfortunately, the economy is not a pie and thinking this way can lead us to errors in judgment.
The economic pie metaphor actually commits three fallacies. The first is the implication that there is some figure at the helm (I decided to spice things up with a sailing metaphor) cutting up the pie and doling out the pieces. There is, of course, some truth to this. The distribution of income throughout a society is affected by government policy, particularly tax policy. Paul Krugman, in his recent book Conscience of a Liberal, links growing income inequality to changes in the income tax code over the past 30 years.
This, however, is only one (arguably small) part of the story. Income distribution is highly effected by structural factors such as skill differences and premiums as well as technological change. Tyler Cowen, writing in the New York Times, states that the relative return on a college education has fluctuated over time. After declining between 1915 and 1950, it has risen more recently to its level from the turn of the 19th century. One of the most important factors has been technology. Cowen writes, “Improvements in technology have raised the gains for those with enough skills to handle complex jobs. The resulting inequalities are bid back down only as more people receive more education and move up the wage ladder.”
The extent to which some individual or group can dish out the pie is limited. Rather, income is distributed in a disperse manner, the result of millions of economic decisions and incentives, sprinkled liberally with random fluctuations and a dash of being in the right place at the right time.
The second problem with the pie metaphor is the implication that the pie is fixed no matter what the distribution. A 16 inch pizza has the same diameter no matter how many slices are cut. But economies are different. For years, economic theory and empirical evidence has pointed to a relationship between the way the pieces are cut (the income distribution) and growth (the size of the pie). The prevalent view in the 1950s and 1960s was that inequality was good for growth since the rich saved and invested more of their income, which would lead to greater productivity in the future. More recent empirical evidence suggests the opposite, that inequality actually shrinks the pie. Among other reasons, this could stem from the untapped potential of lower-income individuals who lack the means to invest in their educations or start a business. The latter theory, in part, underpins the microcredit movement. Still further study has suggested a non-linear relationship, where inequality helps growth at certain points and hurts it at others. No matter what the relationship, however, the point is that the distribution of the pie affects the size of the pie.
The third problem—which is a corollary to the previous one—is that an actual pie is zero-sum: if my piece gets cut larger, than yours must get smaller. After all, there is only so much pie to go around. This leads us to think of economic exchange as a purely competitive, non-cooperative system, in which wealth is finite.
Russ Roberts (host of the world’s best economic podcast) recently described this fallacy, pointing out that wealth is most often a reward for adding value in a unique or efficient way. Sergei Brin [one of the founders of Google], Bill Gates and LeBron James have all become very rich, but they didn’t do it by stealing. People voluntarily buy software, use Google and watch basketball. They are not forced to consume these things, but rather they derive value from them. The lives of the average American are not worse because of all the money these three have made; in fact, they’re almost certainly better.
Metaphors are useful devices for succinctly explaining complex phenomena. But we should always remember that a metaphor isn’t the real thing. The economy may be like a pie, but it isn’t actually a pie. Food metaphors are great; we just need to take them with a grain of salt.
Monday, June 2, 2008
Correction: Lovable Losers Edition
In my last post I referenced the plight of the Chicago Cubs fan to illustrate a larger difference between basing our decisions on what we want to believe versus when we have to pay the consequences of being wrong. I thought it worth mentioning that the Cubs actually look pretty good this year, owning the Major League's best record as of this writing. That still doesn't mean I'm putting money down on their chances in October, though.
Subscribe to:
Posts (Atom)
Posts
