Book review: The Birth of Plenty : How the Prosperity of the Modern World was Created by William Bernstein.
This book contains many ideas about the causes of economic growth that are approximately right, but rarely backs them up with good arguments.
He starts by saying four institutions are needed to escape from a Malthusian trap: property rights (rule of law), reason (scientific methods), capital markets, and fast transportation/communication. But later when discussing why some countries were slow to develop, he adds ad hoc explanations (e.g. “excessive military expenditure” “reliably derails great nations”).
The biggest shortcoming of the book is that it ignores evidence that China provides a counter-example to his main claims. He doesn’t acknowledge expert claims that parts of China around 1800 had a degree of property rights and rule of law that was comparable to England at that time, nor does he discuss the recent dramatic Chinese takeoff that happened with a mediocre degree of property rights and rule of law.
He gives many hints about why those four institutions are helpful, but provides little evidence that any one is essential. About the closest he comes to providing rigorous evidence is a graph indicating how much of economic growth appears to be explained by a Rule-of-Law indicator. He follows that with a similar graph of how government spending levels explain economic growth, and claims the negative effect of government spending would be invisible without the computed trend line, but the rule-of-law trend is more impressive. I see those graphs differently. The most obvious trend is that government spending over about 15 to 18% (of GDP?) reduces growth, with no obvious pattern for lower spending levels. The most obvious trend in the rule-of-law graph is that low values on the rule-of-law indicator are associated with larger variations in economic growth, which is somewhat contrary to his claim that such values reliably prevent growth.
The section I found most valuable was the one describing reasons for thinking that 16th century Holland created the beginnings of the industrial revolution.
There are enough misleading or false statements in the book to convince me not to trust him. For example, he refers to eclipse prediction around 1700 as a spectacular change to what was previously a mystery. He appears unaware that eclipses had been predicted more than a millennium earlier.
He often digresses into anecdotes that have no apparent relevance. For example, he claims “a healthy market for government debt is, in fact, essential for funding business”. After giving two implausible theoretical reasons for that claim, he says it was “vividly demonstrated in the U.S.” in 1862, but then gives a description of how government bonds were sold, without mentioning anything about the effect on business.
His discussion of the possible trade-offs between inflation and unemployment makes a claim that increased unemployment caused more unhappiness than “an identical rise in inflation”. But inflation is measured in different units that unemployment. If we happened to measure inflation in percent per presidential election, the naive comparison would work much differently. (He is subtly misinterpreting a serious paper that is hard to fully explain to laymen).
His advice to undeveloped nations includes “before a nation builds roads … it must first train lawyers”, which makes me doubt his understanding of what causes the rule of law.
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Book review: The Age of Turbulence: Adventures in a New World by Alan Greenspan.
The first half of this book provides a decent history of the past 40 years, with a few special insights such as descriptions of how most presidents in that period worked (he’s one of the least partisan people to have worked with most of them). The second half is a discussion of economics of rather mixed quality (both in terms of wisdom and ability to put the reader to sleep).
He comes across as a rather ordinary person whose private thoughts are little more interesting that his congressional testimony.
One of the strangest sections describes the problems he worried would result from a projected paydown of all federal government debt. He does claim to have been careful not to forget the possibility those forecasts could be mistaken. But his failure to mention ways that forecasts of Social Security deficits could be way off suggests he hasn’t learned much from that mistake.
He mentions a “conundrum” of falling long-term interest rates in 2004-2005, when he had expected that rising short-term rates would push up long-term rates. I find his main explanation rather weak (it involves technology induced job insecurity leading to lower inflation expectations). But he then goes on to describe a better explanation (but is vague about whether he believes it explains the conundrum): the massive savings increase caused largely by rapid growth in China. I suspect this is a powerful enough force that Deng Xiaoping deserves more credit than Greenspan for the results that inspired the label Maestro.
The book is often more notable for what it evades than what it says. It says nothing about his inflationary policies in 2003-2004 or his favorable comments about ARMs and how they contributed to the housing bubble.
He gives a brief explanation of how Ayn Rand converted him to an Objectivist by pointing out a flaw in his existing worldview, but he is vague about his drift away from Objectivism. His description of the 1995 government “shutdown” as a crisis is fairly strong evidence of a non-Randian worldview, but mostly he tries to avoid controversies between libertarianism and the policies of politicians he likes.
He often praises markets’ abilities to signal valuable information, yet when claiming that the invasion of Iraq was “about oil”, he neglects to mention the relevant market prices. Those prices appear to discredit his position (see Leigh, Wolfers and Zitzewitz’ paper What do Financial Markets Think of War in Iraq?).
He argues against new hedge fund regulations on the grounds that hedge funds change their positions faster than regulators can react. He is right about the regulations that he imagines, but it’s unfortunate that he stops there. The biggest financial problems involve positions that can’t be liquidated in a few weeks. It seem like it ought to be possible for accounting standards to provide better ways for institutions to communicate to their investors how leveraged they are and how sensitive their equity is to changes in important economic variables.
He argues against using econometric models to set Fed policy, citing real problems with measuring things like NAIRU and GDP, but if he was really interested in scientifically optimizing Fed policy, why didn’t he try to create models based on more relevant and timelier data (such as from the ISM?) the way he did when he had a job that depended on providing business with useful measures? Maybe he couldn’t have become Fed chairman if he had that kind of desire.
I listened to the cd version of this book because I got it as a present and listening to it while driving had essentially no cost. I wouldn’t have bought it or read the dead tree version.
Steve Omohundro has recently written a paper and given a talk (a video should become available soon) on AI ethics with arguments whose most important concerns resemble Eliezer Yudkowsky’s. I find Steve’s style more organized and more likely to convince mainstream researchers than Eliezer’s best attempt so far.
Steve avoids Eliezer’s suspicious claims about how fast AI will take off, and phrases his arguments in ways that are largely independent of the takeoff speed. But a sentence or two in the conclusion of his paper suggests that he is leaning toward solutions which assume multiple AIs will be able to safeguard against a single AI imposing its goals on the world. He doesn’t appear to have a good reason to consider this assumption reliable, but at least he doesn’t show the kind of disturbing certainty that Eliezer has about the first self-improving AI becoming powerful enough to take over the world.
Possibly the most important news in Steve’s talk was his statement that he had largely stopped working to create intelligent software due to his concerns about safely specifying goals for an AI. He indicated that one important insight that contributed to this change of mind came when Carl Shulman pointed out a flaw in Steve’s proposal for a utility function which included a goal of the AI shutting itself off after a specified time (the flaw involves a small chance of physics being different from apparent physics and how the AI will evaluate expected utilities resulting from that improbable physics).
I just got around to checking out a mailing list devoted to Futarchy. It looks interesting enough that I expect to post a number of messages to it over the next few weeks. But I have some concerns that is focused too much on problems associated with the final stages on the path to a pure Futarchy rather than on what I see as the more valuable goal of implementing an impure system that involves voters relying heavily on market predictions (which I see as a necessary step to take before people will seriously consider pure Futarchy).
I’m in the process of writing comments on the book Predictocracy, probably too many for one post, and I expect I’ll post some of them only on the futarchy_discuss list.
Book review: Seeing Red: A Study in Consciousness (Mind/Brain/Behavior Initiative) by Nicholas Humphrey,
This book provides a clear and simple description of phenomena that are often described as qualia, and a good guess about how and why they might have evolved as convenient ways for one part of a brain to get useful information from other parts. It uses examples of blindsight to clarify the difference between using sensory input and being aware of that input.
I liked the description of consciousness as being “temporally thick” rather than being about an instantaneous “now”, suggesting that it includes pieces of short-term memory and possibly predictions about the next few seconds.
The book won’t stop people from claiming that there’s still something mysterious about qualia, but it will make it hard for them to claim that they have a well-posed question that hasn’t been answered. It avoids most debates over meanings of words by usually sticking to simpler and less controversial words than qualia, and only using the word consciousness in ways that are relatively uncontroversial.
The book is short and readable, yet the important parts of it are concise enough that it could be adequately expressed in a shorter essay.
Since mideast military policy appears to be one of the most important issues in this presidential campaign, I’m mentioning the best criticisms I’ve seen of the leading candidates’ plans:
Obama Imitates Olmert points out the problems with expecting air power to help the U.S. retain some control over Iraq (i.e. if Obama will withdraw troops from Iraq, he ought to give up hope of influencing whatever violence is left behind).
The amount of money that the U.S. has apparently needed to pay the enemy to stop fighting raises serious doubts about McCain’s hope that Iraq is being stabilized in any sustainable way (HT David Brin).
Sen. John Barrasso (R-WY) has introduced a bill to create prizes for carbon sequestration:
This is how it would work. There would be four different levels of prizes. The first level award would go to the public or private entity that could first demonstrate a design for a successful technology that could remove and permanently sequester greenhouse gases. Second, there would be a prize for a lab scale demonstration project of the technology that accomplishes the same thing. Third, there would be an award for demonstrating the technology to remove and permanently sequester greenhouse gases that is operational at a larger, working model scale. Finally, there would be an award for whoever could demonstrate the technology to remove and permanently sequester greenhouse gases on a commercially viable scale.
It sounds like many important details would be decided by a federal commission. The prizes could have many of the promises and drawbacks of Virgin Earth Challenge.
The first three levels of the prizes appear to create incentives to create designs with little regard for commercial feasibility. If those prizes are large, they might end up rewarding technologies that are too expensive to be worth using. Small prizes might have little trouble with this due to inventors not wanting to spend much money to win the prizes, but I’d still have concerns about inventors paying little attention to reliability and maintenance costs. The fourth level appears more promising.
Bureaucrats are likely to put more effort into clarifying prize rules that the Virgin Earth group did. But it’s unclear whether any approaches that a government agency is likely to recommend will do a decent job of translating the “commercially viable” goal into a clear enough set of rules that inventors will be able to predict how the prizes will be awarded.
My advice for the commission, should it be created, is that it tie the prizes to actual amounts of carbon removed from the atmosphere over some pre-specified period, or to estimates of those amounts derived from a prediction market.
(HT Jim Manzi).
The Politimetrics provides implied probabilities of Clinton or Obama winning in November if they get the nomination, derived from Intrade prices. I’m surprised that it’s been showing recently that the difference in their electabilities has been mostly zero, with occasional indications that Clinton is slightly more electable. Most other sources of information appear to suggest that Obama has more support than Clinton among independents and Republicans.
I just did a little trading to help move the market toward showing Obama as more electable by replacing my small bet against Clinton being nominated with a bet against her becoming president, but the amount I’m willing to trade was small enough that the markets moved in the opposite direction (i.e. showed increased Clinton electability).
What could cause the markets to indicate knowledge that conflicts with what I expect?
It could be that several limitations of Intrade impair market efficiency, such as not making it easy to see what those of us who have noticed the Politimetrics site see, or having margin requirements that are not conducive to exploiting inefficiencies of this nature (even if I were more confident that the market is wrong, the expected return on investment isn’t enough to persuade me to make large trades).
It could be that Obama is sufficiently unusual that there’s more uncertainty in how he will do, so that while the most likely result is that he’d get more votes than Clinton would, there’s a greater chance of a negative surprise with him.
It could be that Clinton is expected to be sufficiently vicious if she’s losing that she would hurt Obama before giving up.
But the history shown on the Politimetrics site has swings that seem unexplained by these guesses.
Book review: Poverty and Discrimination by Kevin Lang.
This book is designed to make you feel less sure of your knowledge, and it succeeds in that goal. That’s a worthy accomplishment, although it provides much less satisfaction than a book that provides a grand vision for solving problems would. At some abstract intellectual level I liked the book, but my gut feelings often told me that reading the book was unrewarding work that I shouldn’t do unless it was assigned reading for a course I needed.
The book will dissatisfy anyone who wants to view politics as a fight between good and evil. For many issues such as the minimum wage, he provides strong arguments that the effects are small enough that we should doubt whether the issue is worth fighting about.
He gives good explanations of why it’s hard to even have clear concepts of poverty and discrimination by providing examples of how seemingly trivial or unobservable differences can create results that our intuitions say are important to our moral rules.
He provides clear evidence that some discrimination still exists, and then thoroughly explains why there’s large uncertainty about how harmful it is. He presents one moderately unrealistic model in which discrimination is common but doesn’t affect wages. Then he presents a somewhat more realistic model in which a tiny bit of discrimination produces large wage differences. But those wage differences may overstate the harm done, because they’re partly due to minorities spending less on education and to women pursuing careers in lower risk occupations or careers which allow more flexibility to take time off.
There are only a handful of places where I doubted his objectivity.
He reports one study showing evidence of racial discrimination in home loans, but fails to mention any of the contrary evidence such as the Anderson and Vanderhoff paper showing higher marginal default rates for blacks.
The final few pages on policy implications seem poorly thought out compared to the rest of the book (he says that’s the least important chapter of the book). He claims that income taxes on the bottom quintile can be reduced to zero by a 10% increase on the top quintile, but that claim depends on assumptions about how reported income changes in response to tax increases. He doesn’t indicate what assumptions his claim depends on.
He claims “The high rate of incarceration in the United States and the high level of inequality are related.” He gives a plausible theory about why inequality causes the wealthy in some countries to spend a lot protecting their wealth from the poor, but provides no evidence connecting that theory to U.S. incarceration rates.
Early this week, the Federal Reserve Board lowered interest rates at an unexpected time by a surprisingly large amount.
I see three possible explanations, which I think are about equally likely.
- The Fed has evidence that the economy is slowing more than markets have realized.
- The Fed has evidence that some big financial institutions have troubles that are endangering the careers of some influential people, and is bailing out those institutions in hopes that those people will use their influence to enhance the job security of the people in charge of the Fed.
- Bernanke isn’t interested in the kind of publicity he can get by maximizing the total number of rate cuts. He realizes that a steady, predictable series of small rate cuts doesn’t stimulate the economy as well as cutting rates far enough that it isn’t easy to predict that more rate cuts will be needed (for one thing, making further rate cuts predictable creates incentives to postpone borrowing to when rates are lower). If that’s what’s happening, it’s not going to work as well as he would like this time, because the markets think the Fed is following the predictable rate cut strategy that gives them publicity for doing something at the time that the average person is most concerned about recession.
In related news, Singapore has a system which is designed to stabilize the economy rather than to provide politicians with opportunities to claim credit for doing something about the economy.
China is imposing widespread price controls and suffering power shortages which hinder production. If China were like the U.S., I’d say it’s trying to recreate the experience the U.S. had in the early 1970s. But the way Chinese politics work, the central government probably will allow local authorities to use a lot of discretion in enforcing the price controls, so the price controls will probably only produce shortages in a few industries that are dominated by large state-owned firms.