“The worst possible thing is to have people with good motives, but bad understanding.”

The title is quoted from Bryan Caplan at about 8:30 of the Freakonomics podcast, We the Sheeple.

I recommend listening to the entire 24 minute podcast.

In one segment, Caplan addresses some Obama and Romney campaign planks and explains why they are terrible economics, but good vote-getters.

Regarding making it easier to go to college, Caplan points out that the benefits are not that clear from economic standpoint because:

We already have an enormously high drop-out rate, especially for marginal students. Most of the benefit from college is from actually finishing it.  Over the last decade we’ve seen a large rise in the number of people who start college, but the fraction that actually finishes is very flat. It seems quite likely that this is just going to encourage some people to waste a couple of years of their lives with very little to show for it.

But the reason politicians campaign on it:

And yet, what I just said is not anything you’d ever want to tell voters. You certainly don’t want to get in front of a national audience and say, ‘you know, I think too many go to college, a lot of people aren’t very serious. That’s just the fact. A lot of people aren’t meant for college.’ That sounds terrible.

[Host Dubner]: And, therefore, campaigning on the idea of sending more people to college is a great thing to campaign on.

[Caplan]: Sounds great. And, of course, we’re going to pay for all this stuff…sounds good… I mean who wants to pay for stuff?

That last question sums up politics. Who wants to pay for stuff? Nobody really. But we hope others will.

Shameless Society

Ours’ was once a society that expected able-bodied folks to carry their own weight and not be a burden on others. And, it didn’t take much to be considered able-bodied.

Depending on others was looked down upon, shamed. Putting up a genuine effort to take care of your responsibilities earned you respect and dignity, and those marks of character use to carry some clout.

This seems to have changed over the past few decades. The standard seems to have gone from ‘able-bodied’ to ‘no fault of your own.’ If an intellectual from an elite university, or politicians seeking re-election can make a plausible sounding argument that passes the 5 second sniff test that some poor sap wound up in a bad position ‘through no fault of their own,’ then it’s ‘our’ job to help him out.

I say 5 second sniff test, because if most of us thought about the poor sap who lost his job ‘through no fault of his own’ two years ago, hasn’t found another job and has a family to feed and a house payment to make for more than 5 seconds we might start asking questions. Has he had any job offers? How many resumes has he sent out? Did he save an emergency fund? Has he tried to take a lower paying job to make ends meet? Does he have any other skills? Did he really need to buy a house with a mortgage payment so large that he couldn’t afford to pay it if he lost his job? Did he need to take out the home equity loan to remodel the bathroom? We might start to think of this poor sap who is in a tough spot ‘through no fault of his own’ as an ‘able-bodied’ person who maybe does deserve some of the fault.

Reading this exchange between university professors Bryan Caplan and Bill Dickens (the latter was the former’s Econ 1 teacher) troubles me.

Caplan steadfastly holds that a major cause of poverty is irresponsible behavior, that correcting this behavior is a good way out of poverty and rewarding this behavior is not a good way to stop it. Rather, that’s a good way to get more of it.

That part of the exchange I had no problem with.

It’s Dickens response that troubles me. First, I find its high fallacy and emotion content unbecoming of a university professor. Second, he goes out of his way to make excuses for irresponsible behavior. One example:

I must have spoken with, in the neighborhood of, 100 welfare recipients when I was working on the reform… Overwhelmingly those on public assistance were full of regret and/or a sense of hopelessness that they are fated to their condition. They know they should have worked harder in school, they know they should be working to support their family, they know it would be better if their children’s father was there to help support their kids. There is no shortage of hectoring from society, welfare caseworkers, family members, and the media.

From Caplan’s response:

I don’t think they’re sorry for their behavior.  I think they’re sorry they’re experiencing the predictable consequences of their behavior.  I see them the same way I’d see a serial adulterer enduring a hellish divorce: “Sure you’re sorry.  Sorry you got caught!  Sow the wind, reap the whirlwind.”

I’d add that there’s also no shortage of folks like Dickens who psychologists from circa 1980 would call enablers. While Dickens sees plenty of ‘hectoring from society’, I see plenty of people telling them it’s okay. It’s not their fault. Society has just left them behind. We have a safety net to help. Please, feel no shame.

I don’t have much problem with social safety nets, with the exception that they tend to devolve into dependency reinforcement programs, rather than true anti-poverty programs.

We don’t have real safety nets. Real safety nets would look more like this. Do you want to receive unemployment benefits? Report to your local Parks & Rec guy on Monday and spend 8 hours cleaning parks. We’ll help, but we expect you to do something productive in return.

Do you want welfare? How about a drug test? Did you get a free visit to the emergency room? There’s plenty of work to be done at the hospital. Maybe you can scrub a floor. Want a student loan? Sign up for a degree program that leads to a paying job. But how will we know if it will or not? By looking at whether past students who took loans out for the same program paid their loans back.

In the old days, if you were down on your luck and needed a free meal, you at least offered to wash dishes. Now, it’s okay to get a free meal and simply ask for more.

One of the most destructive things that has happened in our society has been removing shame, which has devalued dignity. Why work to earn respect when you can get by without it? Sure, there are some parts of society where the shame and dignity feedbacks are still vibrant, but they’re dead or dying in many parts controlled by government, which is around 40% of the economy.

Later in Dickens response, he suggests that Caplan spend time with some poor people. I’d recommend the same thing for Dickens. Except, this time, don’t do it while working on the President’s welfare reform task force. Interact with them on a regular, day-to-day basis. Go to the billing departments of hospitals. Become a checkout clerk at a grocery store. See what is bought by folks with government assistance. Go visit some folks receiving Social Security disability. Or, when they are getting a payday or title loan. The stories I hear from folks in these areas would have been considered shameful by most not long ago.

I hate to throw the baby out with the bath water. There are people who still value dignity who are helped by these programs and eventually work to become self-sufficient. It’s much more palatable to me to at least attempt to direct and limit these programs for such folks. That should be what it’s about, right?

That was the whole idea of the ‘able-bodied’ standard. Get off the dole if you can so we have enough to help the ones who really need it.

Daniel Hannan addressed this in his book, The New Road to Serfdom, as well. I wrote about here. I quote myself and Hannan from that post (his is the double indent):

Then Hannan goes on to analyze why the 1996 welfare reform in the U.S. was successful.  He gives several reasons, but one of the most important was localism in the administration of welfare.  Ultimately, the reform pushed welfare administration from a centralized federal level, to a local, in some cases, sub-state level, which has many benefits.  This is probably one of the best:

…localism under-girds the notion of responsibility: our responsibility to support ourselves if we can, and our responsibility to those around us–not an abstract category of the “the underprivileged,” but the visible neighbors–who, for whatever reason, cannot support themselves.  No longer is this obligation discharged when we have paid our taxes.  Localism, in short, makes us better citizens.

“Yes, but…”

Bryan Caplan wrote that in his first 17 years of life, he never encountered an opponent to policies like the minimum wage, FDA and social security. And he grew up in “bland Northridge, California”, not some “leftist enclave.”

He has me beat by 5 years. I, too, did not grow up in a leftist enclave. Just a “bland” midwestern town where the populist defenses for these policies that Bryan wrote more about in his post were taken as gospel.

Caplan’s post is worth reading. In it, he criticizes intellectuals who “yes, but…” the writings of French Economist Frederic Bastiat’s, who dismantles these populist defenses.

Caplan asserts that said intellectuals don’t display higher regard for Bastiat’s work for fear of damaging the political base they need to sport their solutions on the rest of us.

What I learned in business school

Bryan Caplan asks a great question, What Did You Learn in Business School? He goes on his post to clarify that he’s looking for things that you learned that you actually use in your career. I believe he is doing research for a book. I can’t wait to read it.

We live with the mostly unchallenged general belief that all school is good and the more school the better. I think that belief is something that more of us should challenge.

To answer Bryan’s question about what I learned that I use in my career, very little. Much of what I do I learned on-the-job or by researching topics on my initiative.

I’ve been thinking about this question myself a lot lately. I’ve been working on a blog post with the same theme.

One of the first things I credited b-school with was teaching me how to read financial statements. But, then I remember that I took an accounting class one summer while I was attending engineering school. I was interested in finance and thought that would be a good way to dip my toe into it.

I took a community education course, taught by the finance manager of an auto dealership. It cost $40. We met twice a week in the classroom of a junior high school. I remember one classmate of mine was a floral designer at grocery store who was considering a career change.

Later, when I took the accounting course offered in my university MBA program, which was taught by a PhD who advised state treasurers, I remember being underwhelmed with how remarkably similar it was the $40 community education course that I took.

Next, I thought that maybe b-school taught me how to value business and business cases, something I do a fair amount of now. I think it laid some groundwork, but after b-school I read Robert Hagstrom’s book on Warren Buffett’s investment decisions, The Buffet Way, and was impressed with the simplicity and elegance of the valuation approach Hagstrom described. I thought it was better than what I learned in b-school, so I adopted it and have done better in that regard than many of my b-school peers who have not read the book and struggle to even express in words what exactly a stock price is.

What about economics? I think a broad base in the economic way of thinking is a good tool to have a business analyst or manager. I loved micro and came as close as I could to not passing macro in my MBA program. But, neither did much for me. By the way, that was the second time I had taken both. The first time was as an undergrad. Economics was an area of emphasis (whatever that means) I remember being impressed with the “multiplier” in macro as an undergrad and I scored better there.

But none of the economics courses did much for me. It wasn’t until I read Thomas Sowell’s book, Basic Economics, later that I gained a better understanding of the economic way of thinking. Since then I’ve become quite the pop economist, thanks to reading many more pop econ books, a few heavier econ books and years and years of economics blogs, along with learning exchanges in the comments sections of those blogs (sounds a lot like an online course).

As I posted here, I think it would be good if b-school were to transition into more of an applied experience. Go do something. Start a business. Do a project for a business. Buy a business, try to grow it and sell it. You’ll learn a lot more valuable stuff and you will probably end up adding more value to the economy than hanging the standard sheepskin on your wall.

A Keeper on Education from Bryan Caplan

Here’s why Bryan Caplan loves education, but doesn’t necessarily want to force it on everyone.

It’s for the same reasons Coca-Cola sells beverages other than Coke (not everybody likes to drink only Coke) and Starbucks closed a bunch of stores a few years ago after going through their Starbucks everywhere phase (quality suffers when you over supply the market).

Brooks: Redistribution v Free Markets

From Arthur Brooks’ The Road to Freedom, via Bryan Caplan at EconLog, regarding the debate between government redistribution and free markets:

Average Americans are thus left with two lousy choices in the current policy debates: the moral left versus the materialistic right.  The public hears a heartfelt redistributionist argument from the left that leads to the type of failed public policies all around us today.  But sometimes it feels as if the alternative comes from morally bereft conservatives who were raised by wolves and don’t understand basic moral principles.

While it is earned success that really matters, people are nevertheless wired to “keep score.”…

Just for fun, find a Marxist college professor – who scoffs at the idea that people work less if they lose the incentive of money – how he would feel if his name were not put on any of the academic articles he published.  Instead, the articles would be published under the name of another academic who needed the recognition more than he did.  After all, he would still have the satisfaction of having written the articles.  Why shouldn’t that be enough?  His completely reasonable response would be that he earned the right to have his name on those articles, and denying him that measure of earned success is viciously unfair.  Exactly.

Fix This Problem, Not That One

I recommend Bryan Caplan’s EconLog post, Arbitrary Intervention. Here’s a snippet:

Imagine writing a list of everything wrong with the world.  There’s hunger.  Broken hearts.  Unemployment.  Screaming at your kids after a bad day at work.  Cheating on your girlfriend.  Pollution.  Heretics.  Burning of heretics.  Promiscuity on TV.

He went on naming quite a few more problems.  Then:

Now ask yourself, “How many of these problems does government even claim to try to alleviate?”  No matter how statist your society is, there are probably ten problems the government ignores for every problem it tries to address.

And he concludes:

Why then do people support the interventions they do, while apathetically ignoring countless other forms of human suffering and degradation?  For the most part, people support the interventions they have because they have them.  It’s not about the severity or treatability of the problems.  It’s about conforming to our secular religion.  Our society says that poverty among American seniors would be a terrible problem.  So we have massive social programs to prevent it.  How do we know this “disaster” is especially pressing in a world so full of suffering?  We don’t.  We don’t even try to do a fair accounting.  Instead, we make stuff up, and shame anyone who subsequently furrows his brow.  Simple as that.

Putting my money where my mouth is

Inspired by Bryan Caplan’s Bettor’s Oath, I offered to put my money where my mouth is in the comments of this Marginal Revolution post.

A group calling itself the Intelligence Advanced Research Projects Agency (IARPA) conducted a test project last year of inviting folks to make forecasts on major trends around the world. Their forecasts beat the forecast of a control group by 60%.

Now, they are skimming the best forecasters from the project to see if they can get better.

I doubt they can and said I would put money on it. Another commenter, “DK”, has taken me up on my offer. We have traded emails and established this bet:

I bet $20 that using the same weighting algorithm that the super-forecasters do not outperform the control group by 60% or more. If they outperform by less than 60% or do not outperform, I win. If they outperform by 60% or more, DK wins. If we find out the algorithm changed, either of us can use that to call off the bet.

DK offered $200 originally. I turned it down for these reasons:

I do realize that a) I could be wrong, b) the super forecasters could get lucky, c) Tetlock could change the weighting-algorithm without telling us to rig his results and/or d) the control group contains some crazy guesses (and may even be selected, unknowingly, to contain crazy guesses).

I offered $20 because I have a corollary to Caplan’s oath: Never bet more than you are willing to lose.

I’m not sure if my ‘weighting algorithm’ condition means anything or matters.

My memory is bad, so I’m counting on DK to update me when the second year of results are released. And, I’m rather confident that he or she will. I’d be willing to bet on that.

Great ground rules for dinner table discussions

From Bertrand Russell (via Alex Tabarrok of Marginal Revolution via Brainpickings)

  1. Do not feel absolutely certain of anything.
  2. Do not think it worth while to proceed by concealing evidence, for the evidence is sure to come to light.
  3. Never try to discourage thinking for you are sure to succeed.
  4. When you meet with opposition, even if it should be from your husband or your children, endeavour to overcome it by argument and not by authority, for a victory dependent upon authority is unreal and illusory.
  5. Have no respect for the authority of others, for there are always contrary authorities to be found.
  6. Do not use power to suppress opinions you think pernicious, for if you do the opinions will suppress you.
  7. Do not fear to be eccentric in opinion, for every opinion now accepted was once eccentric.
  8. Find more pleasure in intelligent dissent that in passive agreement, for, if you value intelligence as you should, the former implies a deeper agreement than the latter.
  9. Be scrupulously truthful, even if the truth is inconvenient, for it is more inconvenient when you try to conceal it.
  10. Do not feel envious of the happiness of those who live in a fool’s paradise, for only a fool will think that it is happiness.

If we had a course or two in critical thinking and discussion in the junior high or high school curriculum designed to teach mastery of these ten ground rules plus some common fallacies, politically we’d be in better shape.

Similarly, an oath from Bryan Caplan of EconLog:

Blathering talk surrounds us, but I will take no part in it.  My word is my bet; I will always put my money where my mouth is.  When challenged, I will bet on my words, refine them, or recant.  When no one is present to challenge me, I will weigh my words and thoughts as if my fellow oath-takers were listening.

Similarly, several years ago a friend told me of a rule his workplace had implemented. It went like this:

If you are to point out a problem, you must follow it with, “…and this means we should do…” to show that not only have you discovered a problem, but you thought of a solution and you are willing to publicly advocate that solution.

At first blush, it may not be apparent how this last one is similar to the first two.

But, I’ve worked in companies that rewarded problem detection rather than problem solving. That led to a lot of, to use Caplan’s words, blathering talk as many people floated trial balloons of  problem detection in order to be rewarded for finding a problem. And, of course, they were not punished if it turned out that the problems they found were not problems at all. They were given credit for “at least, trying.”

My friend’s company had a similar problem. The leaders recognized it and put the new rule in place. It significantly cut the blathering talk. They correctly reasoned that if people were to have to present solutions along with their problems, that would be like asking people to put their money where their mouth was.

Why? Because it’s easy to see whether a solution solves a problem or not.

In other words, it’s easy to be a critic when you have nothing on the line.

One more story…I coach my kid’s soccer team. After a loss where our team looked scared of the ball, one grandparent told me after the game “You need to get them more aggressive, Coach.” I said, “I’d love to. Do you have any suggestions on how to do that? If so, I’m all ears.” He laughed and said “Nah” and I believe he realized that talk is cheap and it’s easy to criticize with nothing at stake.

How much of what you advocate, especially strongly advocate, would you bet on? Our opinions are typically much more refined in topics where we pay the direct costs of being wrong.

Through trial and error, I learned that paying a plumber to do what they know best is well worth the cost. It saves time, headaches and future catastrophes.

But, I can go on a whole lifetime holding damaging political beliefs, mainly because I never directly pay for the damage it causes. I can claim good intentions, without ever knowing whether those intentions actually ever helped.

Personal Preference Bias in the Bubble

In a recent blog post on EconLog, economist Bryan Caplan articulates an excellent example of the personal preference bias that keeps many people from accepting that government redistribution and welfare programs can have negative outcomes (and outcomes exactly opposite of what is intended).

In the blog post, he ties together the three books Charles Murray has written on poverty, Losing Ground, The Bell Curve and Coming Apart.

Murray doesn’t just explain poverty; he explains elites’ failure to understand poverty.  Elites live in a high-IQ, low-impulsiveness Bubble.  When they introspect, they correctly conclude that the welfare state has little effect on theirbehavior.  They then incorrectly infer that the welfare state has little effect on anyone‘s behavior.  If elites understood the world outside their Bubble a little better, they would have foreseen – and largely avoided – the welfare state’s negative effects on work and family.