Pur Autre Vie

I'm not wrong, I'm just an asshole

Tuesday, August 19, 2014

Measuring Social Welfare

A few thoughts on GDP.  (As always, I make no claim to originality or accuracy.  Just a little wild surmise.)

GDP is not really a measure of well-being, or even of economic activity.  It is a measure of economic activity mediated by the formal marketplace.  (Or the not-so-formal marketplace:  Italy recently made waves when it announced that it would include black-market activity in its GDP calculations.)  In the classic example from introductory economics, if I hire a babysitter, then the monetary compensation I pay counts toward GDP.  But if I arrange for a family member to babysit my child, for no monetary compensation, then it doesn't count toward GDP.  This may be seen as a limitation of the metric, but for now let's just note that GDP is not all-inclusive.

Various efforts have been made to find a more direct measure of the thing we are actually trying to maximize, but as far as I know none of them has really taken off.  I think this is probably because there is a fair degree of squishiness and value judgment involved.  For instance, the per-capita GDP of the United States is considerably higher than that of Japan (according to the CIA, Japan is at $37,100 while the U.S. is at $52,800).  But Japan is undoubtedly better off in a lot of ways.  Its life expectancy at birth is 84.46 years, while in the U.S. it is 79.56 years.  Infant mortality is 2.13 deaths/1,000 live births in Japan, vs. 6.17 in the U.S.  Adult obesity is 5% in Japan, 33% in the U.S.  The unemployment rate was 4.1% in Japan in 2013, while it was 7.3% in the U.S. (now it is 6.2%).  (As far as I can tell, the CIA World Factbook does not report countries' incarceration rates.  A puzzling omission.  Anyway I would bet a substantial amount of money that it is lower in Japan than in the U.S.)

And you can draw similar comparisons between the U.S. and the social democracies of northern Europe, which have substantially lower GDPs than the U.S. but which enjoy better outcomes on a number of dimensions.  But you can't really say who is doing better unless you have a way of adjudicating the relative importance of those dimensions.  And it's worth noting that in a big-picture sense GDP is highly correlated with good outcomes on many of the most important dimensions (though perhaps obesity is not among them).

So just as an intuitive matter, I think the right way to think about it is to postulate some kind of hard-to-measure "gross domestic capacity," which is meant to reflect a society's ability to meet whatever goals it might embrace.  GDP would be a major component of (and therefore a rough proxy for) GDC, which would explain why higher GDP is generally correlated with good outcomes.  But it would be a mistake to take GDP too seriously as a measure of social welfare.  If researchers developed a new sex position that improves pleasure by 50%, it would have almost no direct effect on GDP, but it would mark a huge step forward in human flourishing.  [150% of zero is still zero, you fucking loser. - ed.  What the hell, man?]

I bring all of this up because to some extent a society can choose how to "spend" its GDC.  If you choose to "spend" it on market goods and services (cars, houses, restaurant meals), then it will appear in GDP numbers and your country will be demonstrably wealthy.  But you can also choose to "spend" it on non-market things like long vacations, short work hours, preparing meals for yourself, exercising, having good sex.  [Is there such a thing as bad sex? - ed.  I wouldn't have thought so, but my girlfriend takes another view of the cathedral.  Also, weren't you just mocking me for being bad at sex?  I was implying you don't have any sex, but obviously the one thing causes the other. -ed.]  This is essentially what northern Europe has done.

And I want to emphasize, this is to some degree a collective decision.  A market-oriented society will punish people who engage heavily in non-market pursuits (I will have some vituperative things to say about this in a separate post), while a society that taxes itself more heavily can provide public goods and non-market protections that enable non-market activity.  And it's not just political:  a society that venerates wealth will confer status on people who orient themselves towards wealth-acquisition, thus punishing those who don't (status being a positional good).  So there are limits on the degree to which an individual can simply "opt out" of his society's choices about how to allocate GDC.  We are engaged in both a political struggle and a culture war, and sadly I think the capitalists/libertarians are winning (though there have been some positive developments on the political front).

In future posts I will take this thought in two directions:  first, I will (as I mentioned) have some negative things to say about the U.S.'s brand of capitalism.  Second, though, I want to return to my earlier posts about macroeconomics and monetary policy, in examining the concept of potential output.

Sunday, August 17, 2014

Encouragingly

I continue to be greatly amused by Gladstone by Roy Jenkins.  Today's entry finds Gladstone contemplating a move to a new constituency (at the time, it was common to represent a district you did not actually live in).  At this point, Gladstone represents Oxford University, and its conservatism on many of the great issues of the day is acting as a moderating influence on his public positions.  As Jenkins puts it, "Palmerston hoped Oxford would keep him at least half muzzled."  (Gladstone is serving as Chancellor of the Exchequer in Palmerston's government.)

Anyway Gladstone decides to stick with Oxford at this point (he ultimately switches to South Lancashire in 1865, after losing his seat at Oxford).  Here's Jenkins:

"Gladstone had to settle for the small step of resigning from the Carlton Club [a heavily Conservative institution], which he did in March 1860 and which his faithful amanuensis Robert Phillimore thought a considerable mistake, particularly as Phillimore added encouragingly, 'They hate Gladstone more at Brooks's than they do at the Carlton.'"

By the way, Jenkins also notes that Gladstone went to the Carlton Club to write a few letters immediately after destroying Disraeli's budget of 1852, and with it the only Conservative government between 1846 and 1858.  (And when I say immediately, I mean immediately - Gladstone wrapped up his devastating speech at 4:00 a.m. and was sitting in the Carlton Club writing letters at 4:30.)  Recalling that the Carlton Club was highly Conservative in sentiment, it was an odd thing to do - Jenkins calls it "surprising and perhaps insensitive."  So anyway you can see why they hated Gladstone at the Carlton, though he stuck around for several years after his 4:30 a.m. visit.

Friday, August 15, 2014

Dizziness from Success

To quote from the diary of then-seventeen-year-old Lucy Lyttleton, a niece (by marriage) of William Gladstone, as quoted in Gladstone by Roy Jenkins:
Uncle William has taken office under Ld. Palmerston as Ch. of the Exchequer, thereby raising an uproar in the midst of which we are simmering, [in] view [of] his well-known antipathy to the Premier.  What seems clear is that he feels it right to swallow personal feelings for the sake of the country; besides he agrees at present with Lord P.'s foreign policy, also he joins several Peelites. . . .  There is this question, however:  why, if he can swallow Palmn. couldn't he swallow Dizzy, and in spite of him go in under Lord Derby?  I don't pretend to be able to answer this, but one can enough understand things to be much excited and interested. . . .
Now there's a lot going on in this passage, but what amuses me is the reference to "Dizzy."  Can you guess who that is?  I am going to take the unusual step of inserting a "break" so that you can guess before you click to see the answer.


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You Think Hard, You Lose Clarity

Again I'm going to write a bit about macroeconomics.  I want to focus on an area I poorly understand.  At some point I will have to read some of the literature that is out there, but I will put that day off as long as I can.

The thing I am thinking about is my earlier distinction between deferring consumption and assuming risk.  The logic is that when I buy a financial asset for $x, I am generally doing both:  I am (A) spending $x less than I otherwise could have, in the hopes that I will be able to spend more in the future, and (B) taking on the risk that the asset will decline in value.  (Let's focus on traditional securities and similar products, not, like, triple-short ETFs or whatever.)  (And as a side note, the risk-bearing concept shows up in people's description of their investment activity when they say they want "exposure" to a particular region or sector.  What they mean is that they want to bear the downside risk of losses in exchange for the upside "risk" of gains.)

Now I think these two concepts (deferring consumption and assuming risk) are fairly easy to distinguish as a conceptual matter.  Of course most financial products blend the two, though you can imagine exceptions.  (For instance, if my broker allows me 100% margin, then I can "gain exposure" to a security without foregoing any current consumption.  In the U.S., this is generally not permitted for equity securities.  Or I can sell options and use the premiums to increase my current consumption - again assuming the margin requirements are low enough that I can extract the cash.)

But while I think the concepts are reasonably distinct, I wonder if we can really separate them in practice.  Here's what I mean.  Imagine that I can buy either of two Treasury securities.  One of them is a 6-month bill, and the other is a 5-year note.  (For our purposes, the only difference between a bill and a note is time to maturity.  In real life I think bills are sold on a discount basis while notes bear a coupon.  Ignore this complication.)  Imagine that these are TIPS (Treasury inflation-protected securities), meaning that the payment on the security is adjusted to reflect inflation.  Assume for simplicity that the securities bear zero credit risk and that they reflect a completely accurate measure of inflation (so that there is truly no inflation risk with these securities).  And finally, assume that the securities can't be sold or pledged.  Once I've bought them, I'm stuck with them until maturity, no matter what.

Now, there are still risks with these securities.  Most notably, there is interest rate risk - if interest rates go up after I buy the securities, then I will incur an opportunity cost - if I had held my money in a checking account, I could invest in the same securities at a higher interest rate.  And maybe I will be compensated for that risk (more so with the 5-year note than with the 6-month bill, because the risk is greater the longer I have to wait to get my money back).  But it seems as though these securities are as close to pure consumption-deferral as you can get (you are trading away $x in 2014 dollars in exchange for $y in 2014 dollars in the future), and again the compensation should be higher for deferring my consumption for 5 years than for 6 months.  (Strictly speaking, the point here is that I could either defer consumption for 5 years, or defer it for 6 months with an option to extend for another 6 months and so forth.  Since the rolling 6-month option gives me more opportunities to consume in the relatively near future, it should bear lower compensation, that is, a lower yield.)  So in ordinary conditions we would expect the interest rate to be higher on the 5-year note than on the 6-month bill.  (In rare situations the "yield curve" may be "inverted" - this just means that long-term securities actually bear a lower interest rate than short-term securities.  This might happen if short-term interest rates are currently high but are predicted to drop in the future.)

Okay, very well.  But now imagine the same securities, except they can be sold or pledged as collateral.  And imagine there is a reasonably liquid market for the securities, meaning that in practice I can sell them quickly for a reasonable price.  Now it's easy to see that I'm still bearing interest rate risk (in a sense, it's easier to see because if interest rates go up I might actually sell the securities for a loss, whereas in the previous example I was compelled to hold them to maturity).

But the crucial insight (I think!) is that I'm no longer deferring my consumption differently with the two securities.  I can sell either one of them on short notice.  I'm still taking on more risk with the longer-dated security, but I'm no longer really committing to wait 5 years before I can spend the money I'm investing.  I could sell the 5-year note next week and buy some kidney beans or whatever.  So my consumption-deferral is now roughly equal as between the two securities (although, to repeat, I am exposed to more risk, both upside and downside, on the longer-dated security).

The point here is that consumption-deferral seems to be fungible with risk-taking as an economic matter.  (Extending the amount of time I am willing to defer my consumption is fungible with bearing additional interest-rate risk.)  So distinguishing between the two might not be so easy to do in the real world.  I ought to be able to enter into some kind of derivative contract with no money down (if my counterparty is willing to take my credit risk) that exposes me to roughly the same risk as holding these securities, but doesn't require me to defer consumption at all.

Now I'm not sure what the implications of this are.  Maybe nothing?  But it seems odd that consumption-deferring and risk-bearing might be fungible in terms of how they contribute to the economy and how they are compensated.  (Again, I acknowledge that most securities involve both activities, so I wouldn't be surprised if it were difficult to sort them out if we tried to measure them.  But I am surprised that they may turn out to be truly interchangeable as an economic matter.)

In my earlier post I wrote that in our current economic climate, risk-bearing should still be rewarded but consumption-deferral should not.  (This is because we currently have a shortage of consumption, so deferring it does the economy more harm than good.)  But if I'm right now, then I was wrong then.  A more accurate way to put it is that certain kinds of risk-bearing should be rewarded and certain other kinds (the ones that replicate the economic features of consumption-deferral) should not.  Maybe this is just another way of saying that the yield curve should be flat.  Which is another way of saying  that short-term interest rates should be low for a long time.  Which makes sense.  But it lacks the clarity of my earlier framework.

Thursday, August 14, 2014

And If You Don't Love Me Now

[deleting post, going to have to try again when my thoughts are clearer]

Nihilists Aren't Believers in a River in Egypt

I don't have the time [or the capacity - ed.] for a fully thought-out post, but I want to put in a place-holder to be elaborated on in the future.  (And as always I should disclaim any originality - I am quite sure in this case that I am far from any point that can be considered novel.)  Here's the basic idea.  You can think of knowledge as justified true belief (though of course you don't have to).  So when nihilists say that you can't know anything, they could be attacking a number of different aspects of knowledge.

But focus on the "justified" part.  I've written before about the difficulty of deciding what the threshold is for belief.  I will probably have to drill down a little on that concept to make all of this work.  But for now, recall that part of the problem is that people have limited mental resources and can't run all of the optimization calculations that one might theoretically want.  So for instance, if I have 10 minutes to solve a problem, I want to use that time optimally.  But solving that optimization problem is not costless:  perhaps I have to spend 2 minutes figuring out how to optimize my time, and then I can spend 8 minutes using the time optimally.  Well, fine, but how do I know whether I'm better off using a sub-optimal calculation method for 10 minutes rather than an optimal one for 8?  (And how do I know that I will have 8 minutes left once I've run the optimization calculation?)  To answer that question, maybe I need to spend a few minutes thinking about it.  But wait!  How do I know how much time to think about it?  And so on.

This is exhausting.  And at some point, on some level of analysis, it involves a brute force "retreat to intuition" (I am using "brute force" in its non-technical sense, basically meaning arational.)  And that "retreat to intuition," that abandonment of rationality, is often (always?) outcome-determinative, as a lawyer might say.  In other words, the decision to cut off the analysis and accept a belief can never, itself, be rational.  (And neither can the decision not to cut off the analysis.)

And so once we've recognized that the rationality involved in justifying a belief is sharply limited, maybe we come to feel that beliefs simply can't be justified by humans.  It depends on what kind of standards we want to maintain in the "justification" department.

And so now we have maybe a way of understanding nihilism as a somewhat attractive view of the world.  A nihilist is just someone who maintains high standards for justification, even in the face of our inability to meet those standards.  A pragmatist is someone who relaxes the standards in light of our limited capacities.  It's not so clear to me that the nihilist's approach is clearly inferior.  We don't relax the definition of "immortal" in such as way that long-lived humans can meet it.  Why should we lower our standards for justification simply so that we can call something "justified"?

And it strikes me that a nihilist need not live his life according to formal principles of justification.  A nihilist could consider it highly advisable to get out of the way of a moving car, though he does not accept that this action is based on beliefs that are formally justified or justifiable (by anyone subject to bounded rationality).  In other words, a nihilist might take a sort of Humean approach to life, distinguishing between formal justification and practical reasons for action/belief.

I emphasize that I have not fully thought this through.  Just a placeholder.  Thoughts welcome.  (The most obvious objection, I think, is that if the nihilist embraces some lower standard that renders a belief usable, but refuses call it "justification," then he is merely playing word games.  Haven't fully considered how telling this objection is.  I am okay with nihilism being a much more subtle and technical rejection of the possibility of knowledge than is traditionally assumed.)

[UPDATE:  I'm actually having pretty serious doubts about whether this way of thinking about it makes sense.  In particular, the connection between rationality and justification is one that I think bears more thought than I've given it.   I'm actually probably going to write on another topic before I return to this one, hopefully with a more worked-out theory.]

Not That McCoy, The Other One

What is it about literary feuds that fascinates us so much?  Is there something about the high/low dynamic that thrills us, that gives us a frisson of shock in an otherwise staid corner of the world?  Or is it just a chance to see our intellectual heroes from a new and not-necessarily-flattering angle?

Whatever the reason, the explosion of the long-simmering Dave/Sarang feud into public view has captivated the press, with the New York Review of Books calling it "the summer blockbuster for people who don't like summer blockbusters" and the New York Post blaring:  "LIT SNIT PITS WIT AGAINST WIT; CRITS HAVE FITS."  (This is not the duo's first encounter with the tabloid:  after the Post published pictures of Sarang holding court at his new clothing-optional nightclub, Dave suggested the headline "BRAINLESS MAN IN TOPLESS BAR.")

In truth, though, the brawls have been more salacious than edifying.  The latest flare-up started when Sarang ordered a "Dave's literary career" at the Algonquin.  When the bartender admitted he didn't know the recipe, Sarang responded that he didn't either, but he knew it was on the rocks.  Unfortunately, the famous "battle of wits" that resulted was a bit too literal for most people's taste:  Dave threw a wit beer in Sarang's face, and Sarang responded in kind.

It seems to be one of those cases in which the viciousness of the fight is exacerbated by the closeness of the combatants' views.  In fact, if anything Dave and Sarang have been allies in most of the big literary and political debates of the last two decades.  They both defended Ian McEwan against Alice Munro; they were both outraged when the Jet Propulsion Laboratory's algorithmic novel This Sun of York was blackballed by the Pulitzer committee; they both wrote novels illustrating the folly of placing the school lunch program within the Department of Agriculture.  Both men signed the St. Louis Manifesto.

Perhaps a rapprochement is on the horizon.  However grudgingly, Dave has admitted that Sarang's latest effort, Actually, Paris Is Significantly Farther North Than Montreal, breaks new ground in experimental "obnoxious fiction."  And when he was recently asked to name the 21st century's "biggest intellectual culprits," Sarang declined to name Dave, instead focusing heavily on the Polish literary establishment.  But the big test will come when this year's Booker shortlist is announced:  both men are eligible under the new, relaxed requirements.  If only one of them is chosen, expect the fireworks to light up again.

Wednesday, August 13, 2014

Are Numbers Real

Judd Apatow writes on my Chipotle bag:  "When I was in high school there were 500 people in my graduating class.  Out of those 500 people I had two best friends and five other real friends.  So I had a true connection with seven people and did not have a true connection with 493 people."

What is strongly implied by this - if not logically entailed - is that Apatow did not have a true connection with himself.  Or he did not graduate.  Or he is not a person.  The mind fairly boggles.

Thursday, August 07, 2014

Sarang's Tomorrow Darling

Sarang's latest effort, Tomorrow Darling, has been called "a penetrating examination of the human spirit in the form of an astonishingly good mystery story" (J.M. Coetzee), "at once a love letter to the mystery genre and its high-water-mark" (Michael Ondaatje), and "the book I wish I'd written" (Dan Brown).  It has also been called "warmed-over tripe" (Michiko Kakutani) and "an unappetizing pastiche of Poe, Christie, and Conan Doyle" (Kirkus Reviews).  So it is fair to say that the book is polarizing.  But most would acknowledge that it is a welcome departure from Sarang's previous forays into the mystery genre, in which the culprits turned out to be, respectively, the subprime mortgage market; capitalism, and in particular its emphasis on exchange value instead of use value; and "man's inhumanity to man."  Darling, at least, has a flesh-and-blood murderer (or murderers).

Set in the Cotswolds in the twilight years of the Victorian era, the novel follows amateur detective Cecil Overby-Smythe on a visit to the country estate of the Barrington family.  The patriarch, William, is in poor health, aggravated in recent weeks by news of potentially disastrous financial setbacks in his large industrial concerns in North America.  And his family seems to be disintegrating.  His somewhat erratic daughter Delia has become increasingly radical and politically active (particularly on the question of Home Rule).  His older son Reginald has accepted a quasi-permanent post in India.  His younger son David has married a Methodist.  William has summoned the whole family to the manor for some unspecified purpose, and Overby-Smythe has joined the fractious gathering in the company of his longtime friend, George MacBride, the family solicitor.  (The witty if occasionally bitchy repartee between Overby-Smythe and MacBride is one of the chief pleasures of the book.)

On the morning after he arrives, Overby-Smythe goes for a stroll, braving the sullen rain, in search of mud to eat (he suffers from what today would be diagnosed as pica).  From behind a coppice of willows, Overby-Smythe witnesses a mustachioed man in a brown suit and bowler hat somberly handing a sheaf of papers to a woman in a green dress, whose features Overby-Smythe cannot quite make out.  When a woman's body is found later that day, apparently poisoned, Overby-Smythe feels bound to get to the bottom of the case.  (I won't reveal who the victim is, or whether she is the same woman Overby-Smythe witnessed on his walk, since for a time the reader is kept in the dark on this latter point.  Suffice it to say that a careful reader can piece quite a bit together from the seemingly innocuous details that Sarang weaves into his rich description of the English countryside.)

Darling is refreshingly traditional.  It bears far more resemblance to The Woman in White than it does to Banville's Quirke books (which are published under the pseudonym Benjamin Black and which have recently been turned into a television series starring Gabriel Byrne).  In short, if a literary writer like Sarang or Banville is going to spend time "slumming" in genre fiction, it is an exercise in self-indulgence unless he is willing to commit.  Banville's books barely qualify as mysteries, whereas Darling is delightfully true to the genre, from the opening scene right down through the climax, in which Overby-Smythe, munching on splinters of wood, reveals the identity of the guilty party (or parties) to the rapt audience.

So while the book definitely doesn't transcend the genre, or even much modify its time-honored formulas, it is gratifyingly rich in all of the things that make the genre so irresistible in the first place, and if you can put the book down during its last 50 pages, then you're a better man than I.

Monday, August 04, 2014

All Right Let's Do This

I went to the library, looking for a biography of Parnell, but there wasn't one, so I checked out a biography of Gladstone instead.  (A fitting metaphor for Irish/British history, I feel.)  (It is at this point that I would like to point out that Parnell was only half Irish, the other half being American.  You can say roughly the same of de Valera.)  (And I never pass up an opportunity to mention Gladstone's great Home Rule speech to Parliament, containing this memorable line:  "I must further say that we have proposed this measure because Ireland wants to make her own laws.  It is not enough to say that you are prepared to make good laws.  You were prepared to make good laws for the Colonies.  You did make good laws for the Colonies according to the best of your light.  The Colonists were totally dissatisfied with them.  You accepted their claim to make their own laws.  Ireland, in our opinion, has a claim not less urgent."  Are the "Colonies" what is now the U.S.?  If so, I wouldn't say that Parliament gracefully accepted "their claim to make their own laws."  And also, were there any great British speeches that weren't obsessed with the United States?  Recall this from Churchill's "finest hour" speech:  "But if we fail, then the whole world, including the United States, including all that we have known and cared for, will sink into the abyss of a new dark age made more sinister, and perhaps more protracted, by the lights of perverted science."  I appreciate the name-check, but note how he is careful to distinguish between the United States and "all that we have known and cared for."  In reality I think he mentioned the U.S. with an eye toward encouraging us to enter the war, which we weren't to do for another year and a half.  That's still better than de Valera's Ireland, which entered the war never.)

Anyway I didn't realize it at the time, but the author of the Gladstone biography, Roy Jenkins, was himself a Labour MP and indeed served as Home Secretary and (later) as Chancellor of the Exchequer.  (He even did a stint as a Social Democrat MP up in Scotland.)  So it is a book written by a prominent British politician about a prominent British politician.  I will not reveal which publishing house published the book in the United Kingdom, leaving that as an exercise for the reader.