Tuesday, November 25, 2008

Quotes: Economists, Violence

Random quote from The Economist, slightly paraphrased:

"Economists are at their best when they are thinking the unthinkable,
challenging conventional wisdom and doing other things that are
anything but reassuring."

And now, here's a thought of mine that is almost, but not quite,
entirely unrelated to the above:

"A society can only survive if it has a sufficiently large number of
people who are able to resist violence but who will not initiate
violence. Making people less able or willing to defend themselves is
just as bad as increasing the number of people who will start

Saturday, November 22, 2008

Local Honey

The state of South Carolina cut our budget a lot, and one of the
programs that had its budget slashed was the Student Organic Farm.
Today they had a Farm Festival to raise money.

The pricing structure was well-designed and incentive-compatible: The
event was free but parking was $5. I heartily approve of this plan as
an economist, an environmentalist, and someone who doesn't mind

I hung around a little bit, said hello to someone I knew, and bought
some honey. Organic food is usually a waste of money, but locally
produced honey is worth paying for, especially when it is the really
dark kind. Actually, It wasn't that expensive. I paid $8 for 32
ounces of the stuff.

I will keep it in my desk drawer and just eat it with a knife when I
want something sweet. In my experience, high-quality honey is wasted
when you mix it with oatmeal or cook with it. Honey is like wine: you
cook with the cheap kind and drink the good kind.

Thursday, November 20, 2008

Sweet Potatoes

The sweet potato harvest came in recently. They are a quarter a pound
at Wal-Mart, and about the same at other grocery stores. I, of
course, picked up a supply. Sweet potatoes are the perfect grad
student food. I put them in the Crock Pot when I go to school, and
eat them when I get back.

As I was getting my potatoes, an old black lady was also stocking up.
She was not bothering to use the little flimsy produce bags, but was
instead filling up grocery bags with sweet potatoes. This was a wise
move on her part; when I took my potatoes to the register the bag
broke. I estimate that she had over 50 pounds of sweet potatoes in
her grocery cart. Economic crisis or not, she and/or her family will
eat well, and cheaply, for the next few weeks.

This little incident certainly provides perspective on the current
difficulties. In any other time, an 'economic crisis' implied that
you had real difficulty purchasing enough food to keep your family
alive. No matter how bad things get, we will not be in that
situation. Even at their normal price of a dollar a pound, nobody is
too poor to buy 20 pounds of sweet potatoes a week, and that is a lot
of nutrition.

Wednesday, November 19, 2008

Future Shock 2

There is a woman walking around with an artificial organ grown from
her own stem cells:


True, it is a very simple organ, and they needed the tissues of a
donor organ to make it work, but I have no trouble believing that the
technique, once demonstrated, will be rapidly improved and expanded.
Expect more and more reports like this in the next few years.

Also, expect health care costs to continue to rise. Sooner or later
people will start to see lab-grown replacement organs, and the
associated replacement surgeries, as a 'right'. I predict that the
Baby Boom generation will go through about a dozen replacement organs
per person before they die, and taxpayers will be expected to provide

Tuesday, November 18, 2008

Ivory Tower Part 2

Earlier I complained about a macroeconomics teacher who, in the middle of interesting times, was only talking about mathematical models. In our last class, that teacher discussed current events, and did a good job of it. Of course, some of the other students complained.

This is the same teacher from the Fractional Children episode. When discussing my term paper recently, he mentioned that my low grade on that teat was 'perversity' and that he would take that into account on the final grade. So apparently he has a kind of honor that makes him count off on the test for doing it differently, but then will allow him to fudge the final grade in my favor to compensate.

You Can't Win

No matter what you try to do, they will find ways to get you...


Monday, November 17, 2008

Framing Bias: Market Movement

I just checked Google Finance and say that the markets are down about
2.5% today. My first thought was "Nothing interesting or unusual

I was about to move to something else when I realized the absurdity of
my thoughts. Any time before this summer, a 2.5% drop in markets
would have been something to think about and comment on. But now I
accepted it as being normal. This shows how easy it is to let our
thinking, and our perception of normality, be influenced by recent
history. This chronic failure in human thought is referred to as the
'framing bias.' We judge things in the context of the immediate
situation, or what came just before.

It takes great knowledge, skill, and discipline to escape the
short-term mindset and see things with an extended awareness. But it
is very important to do so.

Thrift and Food

I just realized that I earn more money each month in interest than I
spend on food. Granted, most of that interest is locked in an IRA
that I cannot touch for decades, but it is still an odd feeling.

On a related note, I read that stores are seeing an increased demand
for rice and beans as a result of economic conditions. This is bad
for me, because it means that my diet will get a little more

Social Conformity

This is a good summary of the psychology of evil:


Friday, November 14, 2008

Random Observations

Another Hazard of Martial Arts Training:

I was putting together a new office chair earlier. The instructions
said to make sure the screws were tight, so I twisted the hex key
until I couldn't twist it any more, like I have always done in the
past. This particular chair had no 'hand tighten only' warning, but
most sets of instructions do, and for good reason.

I generated enough torque to destroy parts of the chair. When
attaching the arms, I drove the screw head deep into the plastic,
digging a circle that was not supposed to be there. When attaching
the back, the metal socket was ripped out of the wood frame as I
tightened the screw too much.

I will have to be more careful when doing things like this in the
future, especialy if it is cheap stuff from China. I need to learn
to stop at the right amount of resistance. It seems that if your
hands count as lethal weapons, they also count as machine tools.

Now, more random thoughts and quotes that have been accumulating on my
note paper:

When it comes to living a moral life, philosophy is much less
important than impulse control. Psychopaths can easily pass written
tests on ethics or moral philosophy. Virtue is a matter of actions
and habits, and all of the thinking in the world is useless if you
cannot properly control your own behavior.

Evolution is not some mythical quest toward perfection. It is nothing
more and nothing less than a contest to see who can have the most
grandchildren. Most people over 50 instinctively know this.

The world is full of things that would be wonderful if they were true.

A cult is defined as any group that has no sense of humor. If you
have the ability to laugh at yourself, then it means that you possess
the introspection, awareness, and humility needed to prevent yourself
from being dominated by a doctrine.

There are two types of thinking you must avoid:
1) "Everything was planned."
2) "Life is random."
Conspiracy theories and fatalism are equally wrong. Everything
happens for a reason, but that reason is rarely human intention.

Teachers do not exist to give people information about a topic. When
it comes to transmitting information, a book is just as good as a
teacher. The purpose of a teacher is to point out what you do not
know. Seeing the limits of our own knowledge, and the shape of our
ignorance, is very hard to do on our own. A good teacher will reveal
these things to you so that the learning process may begin.

I have an oregano plant and a rosemary plant in my windowsill. One
time, a kid asked me why I had them. I told him that I eat them. He
seemed stunned by this. Even now, he sometimes asks me if I am still
eating the plants. The concept appears alien to him. This surely
says something about our world.

I recently bought a pair sandals for $5 at Wal-Mart. Solid footwear
shipped from the other side of the world now costs less than a few
pounds of apples. We really do live in an odd world.

Thursday, November 13, 2008

Beginner's Luck

Last night I had the chance to play real games of poker for the first
time. I have played around with friends or family a few times, and I
knew the basic rules, but I had never played with actual chips or
proper betting rules. It was a friendly game, but we followed all of
the official rules.

It was a $10 buy-in, nickel-ante, dealer's-choice game. I expected to
lose the $10, but figured the night would be worth it. There were
four of us: me, another econ grad student, the husband of an econ grad
student, and some poor sap who was clearly out of his league. He had
played poker quite a bit, and knew a lot of interesting variants, but
his mind just didn't have the ability to keep up with our ability to
calculate probabilities and strategies.

I played fairly well, despite occasionally forgetting things. I found
that I could be completely rational about the game; I don't remember
ever getting emotional in any way. Nobody seemed to be able to read
me or figure out what I was thinking. My strategy was one of ruthless
mathematical calculation: trust the odds, calculate expected values,
and act accordingly, mostly ignoring the signals generated by other
players. It seemed to work.

The format of the night was extremely good for my kind of thinking.
Every round, we would change the type of game being played, so all of
the strategies and odds would change. This favored rapid calculation
rather than experience or study. If we had been playing one of the
more common variants all night, I would probably have been at a severe
disadvantage; these players probably knew all of the ideal strategies.
I seem to remember that when we played common games like Texas
Hold-em, I didn't do as well. And when I called five-card draw, I did
pretty well, because I have the most experience in that format.

Here is an example of how I approached the game. After some time, my
$10 stake had slowly grown to about $18. We were playing a version of
Texas Hold-em where the appearance of any face card causes the entire
hand to be removed from play and re-dealt, but with the pot intact.
The pot was about $4, two players had folded, and the remaining one
went all-in for $12. I had nothing good in my hand, but I thought for
a bit. I figured that he was probably bluffing, and even if he wasn't
there was a good chance for a face card to show up and randomize
everything. Given that the winner would be random, I was facing a 50%
chance of losing $12 and a 50% chance of winning $16. Those seemed
like good odds, so I called. Also, I didn't want to set a precedent
of allowing him to claim pots like that. It turned out that he was
bluffing, and that a face card did show up to force a re-deal. I
ended up winning the $28 pot with a pair of twos.

If he had waited until the last card had been flipped, I might have
folded, because the potential randomness would have been reduced a
lot. But he was not adjusting his bluffing strategy to the change in
the game rules.

After that, I cashed in, putting $20 in my wallet and leaving about
$14 in chips. This amount didn't change for a while, and then I lost
it calling another all-in. I had a full house, but it wasn't enough.
I bought another $10 of chips, leaving my wallet with the money I had
come in with. My pile of chips started to grow steadily again. I had
a run of good luck, and my slow and precise incremental betting
strategy never scared people into folding until it was too late. I
hardly ever won through other people folding; it usually turned into a
showdown and I usually won. I ended the night by using a hand of four
jacks to clean out the table. I am now $36 richer.

I know that I had a run of ridiculous luck. I don't expect that to
ever happen again. But it is nice to know that I can play the game
fairly well.

Wednesday, November 12, 2008

My Vocabulary

I am trying to keep this blog accessible. I don't want to use any
academic jargon. I know that I should keep the vocabulary and
sentence structure as simple as possible in order to communicate well.

But when your idea of fun is getting into an argument with a
philosopher, you tend to have a warped view of communication. On that
note, here is a copy of an email I sent to a philosophy professor.

Background: I am constantly working to convince the philosophy people
that it is a good idea to use the framework of economic thought to
make judgments about the world.

Subject: Cost-Benefit And Moral Duty

I understand what you were saying last night about the use of
cost-benefit analysis. It does seem that using a cost-benefit
framework to guide our actions is different than using a framework of
moral duty to guide our actions. I agree that moral duty comes first,
and a system that can only justify itself using its own tools is
flawed. But the cost-benefit analysis is not a source of moral value;
it is a tool to enable you to implement your existing moral duties.
Using these analytical tools does not imply taking a utilitarian
calculus as a source of value.

I agree that we have a moral duty to preserve the health of the
planet. But we also have a moral duty to help human beings live
fulfilling lives. At some point, these moral duties conflict with
each other. Resources are scarce, and we have to choose which moral
duty to advance with them. The cost-benefit analysis allows you to
implement your moral duty to save the planet while causing the least
collateral damage to the moral duty of advancing the human quality of

Monday, November 10, 2008


This is amazing. The Internet is still a wild place:

"By hijacking a working spam network, US researchers have uncovered
some of the economics of being a junk mailer. "

"The team ... took over a chunk of the Storm network to make it easier
to run their study."


That is the most impressive, audacious, outrageous, and awesome thing
that has been done in the name of science in a long time. Only
computer scientists would be so bold. They will probably win the Ig
Nobel* for this.

* http://en.wikipedia.org/wiki/Ig_nobel

Sunday, November 9, 2008

Sociology and Economics

I went to a Sociology talk last week; a professor was presenting a
paper on work-life balance. It started off fairly well; he had a
decent data set and a passable model. But then it fell apart. He
didn't really know how to work with the numbers, and his logic started
to get muddled, so he didn't get any useful results. But the real
howler was something he wrote on the last slide:

"We need theories to explain how people make trade-offs when they
cannot get exactly what they prefer."

The entire field of Economics is devoted to how people make decisions
in the face of scarcity. Anyone who sat through an introductory Econ
class could give you several useful theories to explain how people
make trade-offs when they cannot get exactly what they prefer.

The entire premise of that question reflects a mind-boggling
misunderstanding of reality. Do sociologists really believe that the
normal state of affairs is for everyone to get exactly what they want?
Do they believe that every social fact they observe in reality is
there because someone wanted it to be there?

But, in defense of Sociologists, I have seen equally bone-headed
statements in Economics papers. In fact, we often make the very same
mistake. There are some people who take the Efficient Markets
Hypothesis and rationality assumptions way too far, and assume that
any economic behavior we observe is a 'revealed preference' and
corresponds exactly to what people chose to do to maximize utility.

This is why you need to study outside your field. Economists can
explain how people make reasonable choices and what happens as a
result. Sociologists can explain why people are often constrained by
social forces so that they are unable to think rationally, and what
happens as a result.

Friday, November 7, 2008

Subcontracting the Dirty Work

One of the slow-moving and barely-noticed trends in recent years is
growing Chinese involvement in the Third World. Rather than buying
raw materials from American and European companies, the Chinese are
getting them directly at the source. They make deals with governments
and send people in to build mines and wells.

The few people who notice this trend and comment on it typically see
it as a threat. They see it as representing a decrease in the power
and influence of America, and an increase in the power and wealth of
China. They suggest that this new Chinese activity is to be worried
about, and possibly opposed.

I argue that this is not the case. The Chinese, for various reasons,
will have a comparative advantage in resource extraction. Their
future dominance of the industry is practically inevitable. We should
think about dealing with the consequences, and not preventing it.

Western firms are increasingly being constrained by government
regulations and activist pressures. They have to follow a strict set
of rules regarding things like bribes. The firms are constantly being
questioned about things like human rights and environmental policy.
In some cases, they are even facing lawsuits in American courts
regarding things that government soldiers did on their property.

Chinese firms have no such constraints or problems. Their people and
government want the companies to go out and bring wealth to China in
the most effective way possible. The Chinese are too busy trying to
improve conditions at their home businesses to care about the things
that the companies to to foreigners.

Ironically, the Third World governments often prefer China's method.
Americans and Europeans insist on all kinds of complicated paperwork
and conditions, while the Chinese mainly talk about business and
money. As a result, the Chinese are easier to deal with. They bring
wealth and development without so much bureaucracy.

However, the Chinese are learning that things are not always so easy.
Recently, some Chinese were killed by militants in Sudan. This is
only the latest in a string of attacks on Chinese workers in nasty
parts of the world. I suspect that the Chinese will not tolerate this
for long. The people of China are very nationalistic and assertive,
and still very sensitive to attacks on their people or power.

The Chinese had been making the naive assumption that they would not
be attacked because they are not Western. They apparently believed
that we were hated because of the history of imperialism, and deserved
to be attacked for that reason. They are encountering a simple truth
of the world: people get attacked because they are targets. If you
are working in a lawless place and have something to steal, you will
get targeted.

I expect that, in the near future, the Chinese will begin to move
aggressively to protect their people and investments. I also expect
that these difficulties will not deter the Chinese from investing more
in raw materials production. I predict that, as the Chinese will use
an increasing amount of military and diplomatic resources to project
their power, their companies will eventually become more effective at
dealing with these difficulties and extracting the resources.

I believe that, in a few decades, there will be very few American or
European companies doing dirty work in dangerous places. They will
sell their overseas operations to Chinese companies. The lack of
legal problems, regulatory constraints, or activist pressure, combined
with the explicit support of an aggressive government, will make the
operations much more efficient and profitable.

Really, this will be a win-win situation for both America and China.
We will get all the resources we were getting before, we will get them
more cheaply, and we will have the emotional comfort of knowing that
our countrymen are not forced to risk their lives or get their hands
dirty. The Chinese will expand their economy and get richer.

The losers, of course, will be the inhabitants of the poor countries
of the world. They may think that the USA is a militaristic imperial
power, but they haven't seen anything yet.

However, if I were to be really cynical, I might say that Chinese
imperialism will be a good thing for them as well. Fascism is usually
better than anarchy. I would rather live in Tibet than Congo. If the
Chinese manage to install puppet governments that maintain law and
order, the people could be better off.

Thursday, November 6, 2008

Life Is Not Fair

I just found out that I got the highest grade in the class in our
Econometrics midterm.

This is my weakest subject. I don't really understand the material
that well. I didn't study nearly as much as my classmates. It makes
no sense for me to be the top of the class. I had been expecting to
get a low B on the test.

"I returned, and saw under the sun, that the race is not to the swift,
nor the battle to the strong, neither yet bread to the wise, nor yet
riches to men of understanding, nor yet favour to men of skill; but
time and chance happeneth to them all."

A similar thing happened on the Macroeconomics midterm last week. I
got the highest grade, despite being less proficient at the math and
spending less time working. But that one can be explained by my
decision to use an unconventional approach to the problem solving, a
decision that gave me a bad grade on the first Macro midterm.

The only way to make these events appear fair would be to assume that
all of my philosophical musings, meditation, introspection, and
psychological investigation are somehow improving the way that my mind
functions. I may spend less time studying economics, but I spend a
lot of time studying cognitive processes. But that stuff doesn't
really count as hard work; I do it because it is fun and interesting.

Monday, November 3, 2008

Opposing Ideologies

I finished Jasper Fforde's third book yesterday. It is better than
the first two, and does not require that you read the other two first.
It has more of a Lewis Carrol feel than the other two, and is
generally more coherent.

There is a scene in the book where somebody creates a large explosion
by tying a copy of 'Das Kapital' to a copy of 'Mein Kampf'. This is
quite clever, but it bothered me for two reasons:

1) Several months ago, I had the idea of generating explosions in a
magical land by tying opposing books to each other. Now, if I use
this in a story, it will look like I copied it.

2) Communism and Fascism are not opposites. They are almost
identical. The historical struggle between the two types of nations
was simply a contest between two gangs of power-mad dictators.

Both systems rely on the suppression of individual will and individual
liberty. Both of them are centered around the worship of the state,
the collective and the 'greater good'. Both of them are totalitarian;
all economic, social, and political decisions are made by a small
group of people in the government. Both of them lead inevitably to
secret police, detention camps, and zero respect for life, liberty,
individual dignity, and freedom of thought. Both of them create wars
and death on a massive scale.

If you really wanted to see an explosion, you would tie a copy of
'Atlas Shrugged' to a copy of The Koran.

Sunday, November 2, 2008

Book Recommendation: Jasper Fforde

On the advice of a friend, I have read the first two novels by Jasper
Fforde: 'The Eyre Affair' and 'Lost in a Good Book.' I highly
recommend them...to a certain kind of reader.

If you are the kind of person who knows a lot about classic
literature, and has a love of the unexpected and absurd, then these
books are definitely for you. If you don't have a lot of literary
knowledge, but like the works of Douglas Adams and Terry Pratchett,
then you will also enjoy the books. They are funny,
thought-provoking, and an overall good read.

From what I have seen, you need to start at the beginning. There are
a lot of details about the world and incidents from the plot that will
make no sense unless you have read the books in order, and have a
fairly good memory.

For example, in the first book, there is an incident where the main
character asks a time traveler to go back and investigate the true
authorship of Shakespeare's plays. The time traveler later reports
that Shakespeare did not write the plays; he was just an actor. But
the time traveler also reports that none of the other suspects were
the author either. In fact, there was no evidence that anybody was
writing the plays. So the time traveler hands a copy of "The Complete
Works of William Shakespeare" to the young actor.

In the second book, the main character is again talking to the time
traveler and mentions that there are 33* Shakespeare plays. The time
traveler says, "That's odd, there were only 18 plays in the copy I
gave him." Main Character: "He must have written more. That might
explain why so many of the comedies seem to have the same plot."

That little exchange is a small aside to a conversation about a
different topic, and it shows up without any explanation. It is also
a good taste of the kind of things that happen in the books.

I do have one note of warning. Don't think about things too much.
Just go along for the ride. There are several definite plot holes and
inconsistencies. This is a fairly common symptom of an author who has
way more creativity than logic. But the faults are usually fairly
minor, and the books are definitely worth reading.

Also, you may want to have Wikipedia handy as you are reading these
books. There are a lot of things that you will want to look up.

I just checked out the third book from the library, and plan on reading it soon.

*The actual number of Shakespeare plays is 38. This was not a mistake
of the author; these books take place in an alternate reality.

Saturday, November 1, 2008

Censorship and Savagery

Some time ago, I heard an Indian professor talking with somebody, and
somehow the conversation led to him saying something like this:

"People do not respect our culture. There is a popular American movie
that shows Indians as savages eating monkey brains. This was wrong.
That did not happen. Because of this, that movie is banned in India."

He was referring to the second Indiana Jones movie. This disturbed me
at the time, but I didn't say anything. The incident stuck in my
mind, though, and began to collect thoughts the same way that a spider
web collects bugs and leaves. Here is the result. If I had a quicker
mind and a braver soul, I would have said something like this:

"I don't care if your ancestors ate monkey brains. My ancestors ate
squirrel brains and hog testicles, and I'm not afraid to admit it.

The thing I do care about is the fact that you and your culture would
support censoring this movie. Why do you feel threatened by a
depiction of an evil nobleman in the 1930's eating monkey brains? The
movie portrays the normal Indian people as good. If the depiction of
the palace food is a lie, it is a lie about a dead aristocratic
tradition. How can you interpret this as a slur on your modern

By supporting censorship of something you feel offends you, you are
showing that you do not understand or respect the value of free
expression. Freedom of thought is one of the most fundamental
principles of the ethical system of the modern world.

Savagery is not defined by what you eat or how you amuse yourself. It
is defined by how you react to thoughts and ideas that challenge your
self-image and beliefs. Civilized people react by thinking about the
truth of the matter, and then stating their own thoughts. They
understand that their thoughts might be wrong, so it would be wrong to
use force to impose them. They also trust that the best way to fight
lies is with truth, not with force. Savages, however, react to
anything they do not like by killing the messenger.

Censorship is savagery. It is the use of power to subvert the will of
other human beings, to impose your thoughts on the world by force of
arms. Like many forms of savagery, censorship is often justified in
times of war, when an enemy has initiated deadly force against you and
your survival is at stake. But it cannot be justified for a simple
insult, even if that insult is a lie.

By supporting this censorship, you have revealed yourself to be a
savage and damned your culture in my eyes."

In the process of writing this blog post, I looked up information
about censorship in India. Apparently the ban on the Indy movie was
only temporary, but the Indian government still censors things to this
day. Most of the things it censors are documentaries critical of the
government, but it has also banned things like 'The Satanic Verses'
and 'The Da Vinci Code'. I have no idea why they would ban the latter
one; it only insults Christians. And as far as I know, no Christian
nation ever tried to ban this book. (Requesting that tax dollars not
be used to purchase something is not censorship.)

As I review this blog post, I realize that reading an Ayn Rand novel
is hazardous to your writing style. Nobody talks like that in real
life. But if I wrote a book, my characters would start talking like
this if I did not watch myself.