Businesspeople Deserve Every Penny: A Businessman Reacts

Yesterday self-described “mid-level manager” Ben White sent me this reaction to “Businesspeople Deserve Every Penny.”  Reprinted with his permission.


I read your post about the 12 Labors you’ve been subjected to shortly after I wrapped up a call with the VP in Supply Chain at the company where I work.  We spent most of the call basically reflecting on the idea that everything is a mess in the world right now and this mess is replicating across multiple industries at the same time and there isn’t an easy solution. Supply chains are interwoven and when problems occur they can feel linear at the time but each break in the chain creates multiple more outcomes so you have to get comfortable with small problems having exponential impacts.

As a mid-level manager I thought your below questions were funny if you were asking them of me.  However – if the “they” you’re referring to is an executive leader, I think you’re mostly headed in the right direction of understanding them.

Are they stoic?  Do they realize that hardly anyone will sympathize with their plight?  Or are they just too busy making the trains run on time to stop and reflect?  

Added a few thoughts below – mostly from my mid-level perspective – along with any insights I’ve been afforded from the bosses.

Stoics: Maybe some business people are – it depends what sort of crucible they’ve been subjected to.  In The Case Against Education you discuss how employers are looking for conformity in employees; these eventually become the mid-level managers (and some become executives).  I see the folks who’ve always taken the high status jobs (strategy/marketing) really crack when stuff hits the fan.  These are the students who seem to check every box and pursue jobs which look good on a resume.

The leaders who’ve spent more time in the unattractive roles (operations management for example) are much more comfortable with things breaking – and living with a “control what you can control” mindset.  Some of these leaders haven’t been to college.

Too busy to reflect:  I have yet to find a good leader who doesn’t advocate spending time to reflect on your actions and outcomes.  Leading people is a constant process of reflecting on your own actions to make sure you understand how to get more out of your team.  It also requires you to have your team reflect on their actions and then report back to you on how well they’re doing at executing the tasks you’ve assigned them – where they’re succeeding, where they need help, etc…It’s pretty simple “line manager” stuff – but the little stuff can be hard to do.

Sympathy: Finding someone to sympathize with likely goes against a few factors leaders face.  If you’re the CEO you don’t get to cry down and you don’t have peers – it is truly lonely at the top.  If you’re mid-level then you’re in a pretty significant political battle – at least internally.  Careering is a competitive sport – if you’re looking for sympathy it’s easy to be seen as someone who can’t hack it.  If you’re commiserating over beers with a peer you have to be careful that they don’t sabotage you later.  You can talk to friends in other companies – but do they want to listen to you whine – probably not.  So it’s easier to just move on.  I guess you could post it on LinkedIn – but not sure what a signalling theory would say about a business person going onto LinkedIn to say work is hard.  Like this doesn’t really seem like something you’d want to signal to future employers (or employees).

Anyway – great stuff – the Labors made me laugh today.  Was good to hit the pause button for a bit and step away from work-work.





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Covid Caution and Curry

On March 17, my favorite NBA player, Steph Curry shot a 3-pointer and then, as is his wont, backpedalled. The problem: he was backpedalling off the sideline instead of down the court and there was no barrier to stop him. In a normal game, there would have been some normal barrier to stop his going backward, whether the barrier be other chairs that players were sitting on or something else.

But because of Covid cautions, there are large spaces between chairs and so as Steph went backward, he didn’t stop until his tail bone came in hard contact with some metal stairs. Go to this link and page down to the 38-second video if you want to see what happened. But be prepared to watch something painful.

Why do I highlight this in an economics blog? Because it illustrates in microcosm the failure to make reasonable tradeoffs to deal with Covid-19. We know that Covid-19 is not particularly risky for young people and especially for young people without co-morbidities. NBA players are not a random sample; their physical fitness certainly puts them in the top 1 percent and maybe even in the top 0.1 percent of people their age, let alone of all ages. (And maybe in the top 0.01 percent.) The probability that Steph Curry would get badly sick from Covid, even if he didn’t get the shot, is really low. But the NBA did not make the tradeoffs the way I would have. I’m not challenging their right to do so: it’s their arena, pun not intended. I’m challenging the bad thinking behind their decision.

We often hear from the behavioral economists like Richard Thaler and  behavioral legal scholars like Cass Sunstein about “availability bias.” The idea is that people pay attention to what’s most prominent, not to what’s most likely. Where oh where are Thaler and Sunstein? Shouldn’t this be their moment to shine by pointing out how absurd some of these policies are?



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Moral Relativism and Moral Fanaticism

In high school, Ayn Rand convinced me that moral relativism was a grave social problem.  Not in the weak sense that, “If everyone were moral relativists, there would be bad consequences,” but in the strong sense that, “Moral relativism has terrible consequences already.”  Soon afterwards, I read Paul Johnson’s Modern Times, and he reinforced my Randian belief.  In Johnson’s words:

At the beginning of the 1920s the belief began to circulate, for the first time at a popular level, that there were no longer any absolutes: of time and space, of good and evil, of knowledge, above all of value. Mistakenly but perhaps inevitably, relativity became confused with relativism.

Johnson then proceeds to interpret the world from the 1920s to the 1980s through the lens of moral relativism.  Moral relativism leads to Marxism-Leninism, fascism, Nazism, and World War II, as well as the barbaric wars of “national liberation” and the subsequent petty tyrannies.

Over time, however, I’ve almost completely changed my mind.  While I definitely think that moral relativism is false, I no longer think that moral relativism has grave geopolitical consequences.  Instead, I say that the horrors that Johnson describes were heavily driven by what I call moral fanaticism.  And the same goes for our contemporary political landscape.  The vast majority of liberals and conservatives are much closer to moral fanaticism than moral relativism.

What exactly is moral fanaticism?  Like moral relativism, moral fanaticism is a meta-ethical theory – a theory about moral facts and moral reasoning.  Moral relativism says, roughly, that there are no moral facts, and moral “reasoning” is just thinly-veiled emoting.  Moral fanaticism, in contrast, affirms that there are moral facts, but pretends that thinly-veiled emoting is ironclad moral reasoning.  The predictable result is that moral fanatics hold bizarre moral views with immense confidence.  They’re like people who use love to solve math problems.

Consider Nazism.  Leonard Peikoff notwithstanding, moral relativism had near-zero influence on the Nazis.  The Nazis didn’t think the truth of their moral position was a matter of opinion.  They totally thought they were right.  They believed that Aryans were the master race, and that as the master race they had the right to treat lesser people as slaves or vermin.  That’s the kind of self-righteousness you need to murder millions.  What made them fanatics?  The way they reached these conclusions.  They didn’t try to stay calm.  They didn’t test their moral positions against hypotheticals.  They didn’t invite intelligent people who disagreed to check their work.  They didn’t ponder Bayes’ Rule, or study cognitive biases.  Instead, they adopted the moral positions most compatible with their own power-hunger and hate.

Basically the same goes for Johnson’s entire rogues gallery.  Marxists-Leninists also totally thought they were right – and had the kind of self-righteousness you need to murder millions.  And while their writing style was obviously very appealing to the highly-educated, their reasoning process was fanatical.  In their writings, neither Marx nor Lenin try to stay calm.  They make near-zero effort to find and respond to intelligent critics.  They virtually never wonder if they’re just plain wrong.  Instead, they preach to the choir – with a subtext of fire and blood.  The anti-colonialist movement was obvious more varied.  But almost none of the prominent proponents of “national liberation” seriously wondered if their struggle against foreign oppression would unleash homegrown tyranny.  Questions like, “War is hell, so does it really make sense turn to violence to obtain independence?” were thought crimes.  Yes, even Nelson Mandela was such a moral fanatic – even according to his falsified autobiography which lies about his long-standing membership in the South African Communist Party.

The best case for my original position is that moral relativism enables moral fanaticism.  In the words of Bertrand Russell: “The trouble with the world is that the stupid are cocksure and the intelligent full of doubt.”  If reasonable people had the courage of their convictions, they would have proudly crushed Marxism-Leninism, Nazism, and other expressions of moral fanaticism before they became severe threats.  If you search carefully, you can definitely find statements consistent with this story.  Here’s what the great historian Carlton Hayes had to say about the Soviet Union in 1924:

Nevertheless, some order was emerging from the Russian chaos.  The world had failed to overcome Bolshevist Russia, and Bolshevist Russia had failed to overcome the world.  The Russian Revolution was left to work itself out as a great political and social experiment.  Already it stood forth in history as a most significant outcome of the Great War, and it promised to command the attention and interest of the whole world for many years to come.

In the end, however, these relativistic sentiments are throw-away comments.  A few casual words in a career.  When push comes to shove, almost everyone treats their political views as undeniable.  Take a look, for instance, at Hayes’ A Brief History of the Great War.  This book-length expression of absolute moral certitude in Wilson’s crusade to make the world safe from democracy starts with the dedication:

To those students of his who loyally left their books and proudly paid the supreme sacrifice in the cause of human solidarity against international anarchy the author inscribes this book.

A true believer mentality infuses the entire book.  None of the sordid history of the origins or aftermath of World War I even faze Hayes.  (Though to his credit, Hayes later wrote a book-length critique of moral fanaticism called Nationalism: A Religion).  And while he’s obviously just one man, he’s an archetype.

If moral fanaticism rules the world, though, why aren’t violent conflicts much more common?  Not because of moral relativism, but because of political pragmatism.  Even most moral fanatics realize that trying to impose their dogmas on the entire world would end in disaster.  For their own power-hungry selves.  They combine absurd confidence in their own moral rectitude with reasonable doubts about their ability to bring a world of enemies to their knees.  So life goes on.


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SDB and Me: An Autobiographical Exploration

Now here’s the story of how Social Desirability Bias has haunted my life.

The two earliest centers of Social Desirability Bias in my life were Beckford Elementary and Our Lady of Lourdes Catholic church.  In school, they told us an endless stream of absurdities – things like, “We’re all going to be great at X!,” “We all take great pride in our school!,” “No one works harder than our teachers,” and so on.  I don’t think it bothered me at first.  But even in kindergarten, I couldn’t help but notice that not everyone was great at everything.  By the time I was in third grade, I knew there were plenty of students who didn’t take pride in the school, and knew of several notoriously lazy teachers.

In catechism, similarly, our Catholic instructors talked a lot about how “We all love each other” even though standard cruel childhood behavior was much in evidence.  I noticed the disconnect almost immediately.  Once I had my first communion in third grade, I attended weekly Sunday mass, and heard the priests talk at length about “Devoting our lives wholly to God,” “Loving everyone,” “Turning the other cheek,” and “Taking everything you own and giving it to the poor.”  Normally, of course, the priests were exhorting us to repent and heed this advice, but they never pointed out that zero parishioners – themselves included – literally complied with any of these exhortations.

As I grew older, I became ever more cynical about school and church.  Nobel Junior High School was full of apathetic students, with a noticeable presence of stoners (or at least stoner-wannabees).  But the teachers and administrators talked as if we were all eagerly learning together.  The P.E. teachers were a notable exception; they openly sneered at the trouble-makers who refused to dress for gym, and freely berated poor athletes like myself – not just for lack of effort, but lack of talent as well.  Church, similarly, was agonizingly boring; even now, Morrissey’s “Everyday is Like Sunday” resonates with me.  And I obviously wasn’t alone; sitting in the pews, I saw bored children and adults in all directions.  But everyone from the priest to my mom spoke as if we were all sharing spiritual ecstasy.  And no one acknowledged the cavernous gap between the Sermon on the Mount and the behavior of every person we knew.

By high school, I was loudly and aggressively pointing out the sugar-coated lies of educational and religious authorities.  If the principal droned, “I am sure that all Highlanders will try their very best on this week’s standardized exams” over the P.A., I couldn’t wait to sneer, “And I’m sure that the vast majority of Highlanders will barely try at all!”  If the priest sanctimoniously announced, “In this coming week we will devote our thoughts entirely to Christ,” I couldn’t wait to scoff to my mom, “More like devote our thoughts entirely to watching t.v.”  My friends tended to find my remarks amusing but repetitive.  My mom didn’t like them one bit, but she didn’t punish me as long as I sullenly accompanied her to church.  By now, I called myself a “cynic.”

At the time, I was an aspiring English professor, or possibly novelist.  While fantasy was my go-to genre, I also loved literature that candidly described the world as it really was, instead of sugarcoating.  Works like Huckleberry Finn and Shakespeare’s Julius Caesar come to mind.  It was only in 11th-grade, however, that I heard of authors who were… gasp… atheists.  And the name I kept hearing whispered was… Friedrich Nietzsche.  At the library, I discovered a dog-eared yet strangely beautiful edition of Thus Spake Zarathustra; this very translation, if I’m not mistaken.

Zarathustra was a revelation.  On so many topics, Nietzsche poetically scoffed at crowd-pleasing nonsense.  I loved it – and antagonized friends and family by incessantly quoting it.  A century earlier, Nietzsche had declared war on SDB, without knowing the name.  When he said, “I love the great despisers, because they are the great adorers, and arrows of longing for the other shore,” I gushed, “He’s talking about me!”

Nietzsche on religion:

“On mine honour, my friend,” answered Zarathustra, “there is nothing of all that whereof thou speakest: there is no devil and no hell. Thy soul will be dead even sooner than thy body: fear, therefore, nothing any more!”

Nietzsche on democracy:

A state? What is that? Well! open now your ears unto me, for now will I say unto you my word concerning the death of peoples.

A state, is called the coldest of all cold monsters. Coldly lieth it also; and this lie creepeth from its mouth: “I, the state, am the people.”

Nietzsche on government generally:

But the state lieth in all languages of good and evil; and whatever it saith it lieth; and whatever it hath it hath stolen.

Nietzsche on his own followers:

Ye venerate me; but what if your veneration should some day collapse? Take heed lest a statue crush you!

Ye say, ye believe in Zarathustra? But of what account is Zarathustra! Ye are my believers: but of what account are all believers!

Ye had not yet sought yourselves: then did ye find me. So do all believers; therefore all belief is of so little account.

In hindsight, I freely admit, Nietzsche was also playing fast and loose with the truth.  To call him a “philosopher” is a misnomer; he barely offered arguments and made minimal effort to anticipate or respond to thoughtful criticism.  Nietzsche was a great poet, but a poet nonetheless.  Still, his odes against SDB spoke to me; a brilliant, famous man saw the same disconnect between popular platitudes and harsh reality that I did.

Later that year, I was excited to hear about another atheist author who had only died a few years earlier.  Her name was Ayn Rand, and the first piece of hers I ever read was Francisco d’Anconia’s speech on money.  It started off with a critique of Christian ethics:

“So you think that money is the root of all evil?” said Francisco d’Anconia. “Have you ever asked what is the root of money? Money is a tool of exchange, which can’t exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value. Money is not the tool of the moochers, who claim your product by tears, or of the looters, who take it from you by force. Money is made possible only by the men who produce. Is this what you consider evil?


“Or did you say it’s the love of money that’s the root of all evil? To love a thing is to know and love its nature. To love money is to know and love the fact that money is the creation of the best power within you, and your passkey to trade your effort for the effort of the best among men. It’s the person who would sell his soul for a nickel, who is loudest in proclaiming his hatred of money–and he has good reason to hate it. The lovers of money are willing to work for it. They know they are able to deserve it.”

At root, though, d’Anconia’s speech is a flamboyant attack on Social Desirability Bias itself.  The self-appointed champions of the down-trodden are power-hungry would-be tyrants.

“Run for your life from any man who tells you that money is evil. That sentence is the leper’s bell of an approaching looter. So long as men live together on earth and need means to deal with one another–their only substitute, if they abandon money, is the muzzle of a gun.”

My teachers’ heroes were left-wing politicians like FDR.  My priests’ heroes were Christian zealots like St. Paul.  Rand rolled her eye at both – and said that her heroes were businesspeople.

“To the glory of mankind, there was, for the first and only time in history, a country of money — and I have no higher, more reverent tribute to pay to America, for this means: a country of reason, justice, freedom, production, achievement. For the first time, man’s
mind and money were set free, and there were no fortunes-by-conquest, but only fortunes-by-work, and instead of swordsmen and slaves, there appeared the real maker of wealth, the greatest worker, the highest type of human being — the self-made man–the American industrialist.

Within a year, I read almost every word she wrote.  Nietzsche was long-forgotten.  Rand defied SDB on virtually every issue – and I loved her for it.  My lingering worry was that she was economically confused.  Could laissez-faire capitalism actually work in practice?

To resolve these doubts, I started study economics.  I began with the Rand-approved Austrians, then moved on to mainstream neoclassical economics and behavioral economics.  And within each of these intellectual traditions, I discovered novel defiance of Social Desirability Bias.

Austrians broadly shared Rand’s commitment to laissez-faire capitalism.  Mainstream economics, in contrast, helped me see many of Rand’s inadequacies and errors.  But carefully interpreted, even left-wing interpretations of mainstream economic theory damn the status quo as a parade of counter-productive and grossly suboptimal policies.  Neoclassical economics’ slogan that “Actions speak louder than words” is an intellectual vaccine against SDB.  And while social scientists often use behavioral economics to intellectually retrofit standard SDB rationales for government intervention, you can easily use the same framework to criticize government intervention itself.  And of course public choice theory, which imputes properly cynical motivations to politicians, is another sharp stake in the heart of SDB.  That’s right, you can’t trust politicians to use power for the good of society; instead, you can count on politicians to use power to get more power.

What public choice failed to say loudly and clearly is that voters’ SDB is the key ingredient that makes democracy so inefficient.  SDB drives a wedge between public policy and ugly truths about trade-offs and incentives.  SDB is what makes people prefer evil controlling politicians to pragmatic live-and-let-live businesspeople.  This is basically what I said in my first book, The Myth of the Rational Voter: Why Democracies Choose Bad Policies, though I was still unfamiliar with the psych research and terminology of SDB.  With 20/20 hindsight, however, I can say that all of my books revolve around the rejecting of specific expressions of SDB – as well as the whole underlying mentality.

Take my second book, Selfish Reasons to Have More Kids.  While twin and adoption research affirms the power heredity over upbringing, that doesn’t sound good.  Neither does economic reasoning about the relationship between parental effort and optimal family size.  SDB says nonsense like, “Kids can do anything they set their minds to!” and “Just follow your heart.”

The Case Against Education, published in 2018, was my first book to explicitly use SDB to explain the global dominance of education subsidies and the intellectual dominance of the human capital model.  Writing it brought me back to elementary school, when I first noticed the chasm between official school rhetoric and actual school experience.  Teachers, parents, and politicians all speak as if kids are learning useful skills from dawn to dusk.  The actual evidence, in contrast, confirms that education is mostly signaling.  As I often say, education is not so much job training as a passport to the real job training, which happens on the job.

My last book, Open Borders, challenges SDB more directly.  Most pro-immigration “arguments” focus on emotionally-charged vignettes about particular immigrants.  Instead of actually responding to criticism about the broader social effects of immigration, they offer bittersweet biographies of immigrants.  I have nothing against such biographies, but what do they really show about optimal immigration policy?  Next to nothing.  Open Borders, in contrast, focuses almost entirely on arguments.

While writing these books, I’ve also been raising four kids.  And I’m proud to say that I’ve successfully raised them without SDB.  When my kids ask me questions, however uncomfortable, I either tell them the unvarnished truth or shrug, “I’ll tell you when you’re older.”  I love without lies, and as a result my kids trust me and distrust society.  As well they should.


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Write Your SDB Autobiography

The most neglected psychological phenomenon in the world has a name, and that name is Social Desirability Bias.  Long story short: When the truth is ugly, people lie – and get angry at those who refuse to play along.  When the dosage gets high enough, lies and anger morph into self-righteous absurdity.  SDB illuminates a wide range of issues: diction, demagoguery, public goods theory, intelligence research, the rhetoric of freedom, abortion, vegetarianism, self-help, and much more.

A while back, I wrote my social class autobiography – and persuaded a bunch of fellow bloggers to do the same.  The underlying idea:

Each of us comes to the table with a different experience with social class. Think deeply about your own story with social class… By taking time to analyze your own story, you may find a level of understanding and acceptance that you had not previously recognized. Moreover, by sharing our personal stories, we refuse to share in the “code of silence” around social class. In your own social class autobiography, making sure to link your experiences to class privilege or deprivation (or both), as well as to connect it explicitly to some of the ideas we have discussed in class like poverty, wealth, education, mental illness, violence, prison, and the American Dream. Finally, reflect on what you have learned from the experience of examining your personal “Social Class Autobiography.”

Although I discovered academic research on Social Desirability Bias less than a decade ago, I now see that it’s been a constant companion throughout my life.  In an effort to understand its power more deeply, I’m going to write a short SDB autobiography.  Proceeding chronologically, I’ll discuss the forms of SDB I experienced, how I reacted, and how the people around me reacted to my reaction.  I’ll ponder the extent to which I submitted to, challenged, and enforced SDB.

If I’m lucky, this exercise will inspire others to write their own SDB autobigraphies.  I will gladly link to anyone who does!




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Wiblin, Probability, and Nuclear War

Here’s a guest post from the noble Rob Wiblin of 80,000 Hours.  Posted with Rob’s permission.

I’ve periodically read commenters online say that with random unprecedented events (e.g. a total nuclear war) one can’t give meaningful Bayesian probabilities and therefore the probability of e.g. a nuclear war over the next 100 years is 50/50.

Tabarrok got this from many people in response to his series of blog posts on the likelihood of nuclear war. It’s hard to believe these people are serious, but they are and insist on it even when pressed.

I don’t know what university course melted their brain, but evidently one of them did!

The fastest way to show this is wrong is to ask them three probability questions simultaneously:

1. What is the probability of a single total nuclear war over the next 100 years?
2. What is the probability of a single total nuclear war between between 2121 and 2221?
3. What is the probability of one or more total nuclear wars occurring over the next 200 years?

Someone with this philosophy must respond 50/50 to all of them which leads to an internal contradiction.


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The Self-Interest Voter Hypothesis, or SIVH, claims that individuals’ political views are closely based on their objective self-interest.  Despite its popularity, the evidence is strongly against it.  If the SIVH were true, for example, income would be an excellent predictor of party identification.  In reality, the correlation between the two is near-zero.  People don’t vote for the party that gives them a better balance sheet; they vote for the party that speaks to their ideals.

Still, you may ask, what happens if the stakes are life and death?  The whole COVID debacle provides an elegant illustration.  If people’s views on COVID were largely based on objective self-interest, we would see the following patterns.

1. Support for strict COVID policies would be near-zero for the young, then rise very rapidly with age, because the risk of death roughly triples as your age rises by a decade.  The inconvenience of policy, in contrast, varies little by age.

2. People with underlying conditions would be vastly more supportive of strict policies, because risk is again sharply higher for such people.  Indeed, support by people with no such conditions would be very low, because such people make up less than 10% of the victims even though they are a majority of the population.

3. Males, blacks, and Hispanics would be modestly more supportive of strict COVID policies, because their risks are slightly higher.

4. Yes, you can tweak the SIVH so people care about the well-being of their families.  But again, this implies that people who happen to have many high-risk family members would be much more supportive of strict measures than loners.

5. Support Human Challenge Trials would be virtually unanimous.  Why?  Because human experimentation would dramatically improve the quality of prevention policy and speed the arrival of safe, effective vaccines.  No one would worry about the risk to the participants, except the participants themselves: “If you’re worried, don’t volunteer.  End of story.”


On reflection, support for these SIVH predictions is weak at best.  While demographic breakdowns of public opinion on COVID policy are strangely scarce, Democrats clearly favor stricter policies than Republicans.  But it is Republicans who receive markedly more support from the elderly.*  Since COVID risk increases very rapidly with age, this is a shocking result.  Other demographic patterns are mixed: Males, blacks and Hispanics are all higher-risk, but males are more Republican while blacks and Hispanics are more Democratic.  It’s hard to tell if risk to relatives has any effect on desired COVID policies, but remember: If the (tweaked) SIVH were right, this effect would be too big to miss.

Most strikingly, other than a few Effective Altruists, economists, statisticians, and other exemplars of numeracy, virtually no one supports Human Challenge Trials!  Why not?  Because almost everyone is morally horrified by the very idea.  Rationally speaking, the underlying moral principle is hard to fathom: Why shouldn’t you let a thousand heroes voluntarily take a minor risk to their own lives to save the lives of hundreds of thousands of strangers?  Is low-risk heroism immoral?  But that’s small comfort to the politician who goes against the public’s atavism.

I’ve said it before and I’ll say it again: I would much rather live in a world of rational, selfish voters.  Yes, such people can be callous.  They would be deaf to the grand arguments of The Problem of Political Authority.  Yet they would favor much better policies than the irrational, unselfish voters whose dominate actual polities.  Unselfishness may lead you to “Do your part.”  What good is “doing your part,” though, if you refuse to think straight about what to do?


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Can economists be trusted?

For the most part, economists don’t give people advice on how to run their lives. Rather we tend to focus on explaining the behavior of consumers and businesses, usually assuming they are at least somewhat rational. One exception is when there is a “principal-agent problem”, the case where the people you hire (the agents) have interests that differ from you own interest.

Thus economists might advise someone to be a bit skeptical if one’s dentist recommends that you get a new crown. Is it actually needed, or is the dentist merely trying to pad his income?

There is one area where economists are especially likely to give advice–personal investments. The Efficient Market Hypothesis (EMH) suggests that it’s extremely hard for financial advisors to consistently beat the market. Because these professionals must be paid for their services, managed mutual funds tend to do worse, on average, than index funds. Thus almost all economists that I know recommend that average people invest in index funds.

Because of the EMH, the field of economics has its own distinct epistemology. We believe in the wisdom of markets. We believe that the optimal forecast of many economic variables is embedded in the consensus market forecast. AFAIK, other sciences don’t use this approach to ascertain what is true. Thus meteorologists don’t typically assume that a prediction market forecast of global temperatures in the year 2050 represents the optimal forecast, even were such a market to exist.

On the other hand, I do wonder if economists are being consistent in the way they apply concepts such as the principal-agent problem and the EMH. Doesn’t our criticism of managed mutual funds apply equally well to our own profession? Consider the following two approaches to policy:

1. Most economists seem to believe that it makes sense for our profession to do a lot of research on the macroeconomy, and then base our monetary policy on forecasts derived from computer models of the economy.

2. I believe that much of this research is wasteful, and that monetary policy should be guided by market forecasts of the relevant economic variables.

In order to see who’s right, let’s take the same analytical framework that makes economists so critical of the managed mutual fund industry and direct it toward our own field. We immediately see two problems. Just as with the financial industry, it is in the best interest of economists if society spends a lot of money financing research on predicting future macroeconomic outcomes. These are good jobs!

Second, the EMH suggests that the output of these investigations will be inferior to the consensus market forecast, and yet we usually argue that policymakers should rely on our computer models, not the consensus market forecast. Thus we seem to be dismissing the value of the EMH when it comes to our own profession, after using the EMH as a bludgeon to bash the financial services industry.

Of course one could argue that research by individual economists is a valuable input into the market forecast of inflation and GDP, but one could equally well argue that research by individual financial experts is a valuable input into the market pricing of assets.

And even if economic research should be subsidized because information has external benefits, that does not justify using a particular Fed model to set policy, rather than the market forecast.

Economists are also “agents”, and our self-interest is not the same as society’s self-interest. On the other hand, I’m also an economist, so why should you believe me? My self-interest might be to carve out a career as a contrarian.

I would respond as follows. I’m not trying to brainwash you; I’m merely pointing to some implications of ideas that many of you already know, especially those with some background in economics.  Back in 1996 (when he was defending free trade), Paul Krugman gave four suggestions to people trying to become public intellectuals.  This one struck home:

Adopt the stance of rebel: There is nothing that plays worse in our culture than seeming to be the stodgy defender of old ideas, no matter how true those ideas may be. Luckily, at this point the orthodoxy of the academic economists is very much a minority position among intellectuals in general; one can seem to be a courageous maverick, boldly challenging the powers that be, by reciting the contents of a standard textbook. It has worked for me!

That’s what I did in my new book, which comes out this summer.  And that’s what I’m doing here.  The principal-agent problem and the EMH are well-established ideas.  And it is well known that economists are highly skeptical of managed mutual funds, and often recommend indexed funds.  In this post, I’m merely pointing to the implication of applying this sort of analysis to my own profession.  Don’t automatically believe what I say—think about whether it makes sense.

After all, my best interest doesn’t coincide with your best interest.

PS.  You might argue that asset markets don’t exist for some key macro variables.  But that’s no excuse; the Fed can create them.

PPS.  Part 2 of my MMT critique is now out.  Now there’s a theory that categorically rejects the EMH!!


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My Social Media Experiment: A Self-Assessment

Early last year, I foresaw the epistemic horrors of the impending 2020 election, so I made this pledge.

Near the end, I asked Jonathan Haidt a question on twitter, and I impulsively responded to his answer.  I’d call that a clear violation of my pledge, but to the best of my knowledge, it was the only such violation.

So what did I learn as a result of this self-experiment?

1. Overall, I was glad that I made this pledge.  Not only did I avoid arguing about the election on social media.  As a free bonus, I also avoided arguing with anyone about COVID on social media.  Two exercises in futility averted.

2. As a result of the pledge, I ran many more Twitter polls.  Devising good questions felt more constructive, and I definitely learned more about other people’s views than I ever would have learned from arguing with them.  A nice illustration of my rule that asking questions is underrated.

3. What did I do with all the time I saved?  Honestly, I probably spent most of the savings homeschooling my younger kids, who joined my homeschool back in March.  But I also pursued a bunch of new side projects; most notably, my Amore Infernale is now being illustrated.

4. Did I miss arguing on social media?  Nope.  While free-wheeling exploration of ideas is my life, only a small share of my pre-pledge engagements qualified.  And searching for the pearls was an ordeal in itself.

5. During my experiment, I kept reading other people’s arguments on social media.  My modal reaction was, “Even now, this person has yet to find wisdom.”

6. The “wisdom” I had in mind was mostly the Epicurean realization that you have to set your expectations for human behavior down to rock bottom to avoid daily disappointment.  I never felt angry about the absurd vaccine delays because I expected all this and worse.  I never felt angry about the election because I expect every presidential election to be a disgrace.  The incidents that outrage almost everyone else are just a rounding error to me.

7. Other than Nazis and Communists, I used to respond to virtually everyone on social media.  My new plan is to only engage with people with exemplary manners.  Perhaps I’ll lower that high bar for a while when my next book comes out.  We’ll see.

8. Many people describe social media as an “addiction.”  I never would have so self-described, but outsiders might have called me an “addict” based on my pre-pledge behavior.  But at least for me, stopping required only mild concentration at first, then became second nature.

9. If stopping was so easy, why go “cold turkey” as I did?  Because the bandwidth gains are non-linear.  If I spend an hour a day arguing on social media, I’ll probably spend another hour thinking about the disputes.  But if I cut down to to 5 daily minutes of argument, I’d still probably spend at least 50 minutes rehashing everything in my mind.

10. Doesn’t argumentation hone my thinking?  If so, doesn’t non-argumentation atrophy my thinking?  You, dear readers, are in a better position to judge this than me.  Please share in the comments.


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The Theory and Practice of Oligarchical Collectivism Book Club: Final Thoughts

In “Why I Write,” Orwell declares “Every line of serious work that I have written since 1936 has been written, directly or indirectly, against totalitarianism and for democratic socialism, as I understand it.”  A curious claim.  I’ve read 1984 at least ten times and Animal Farm at least five times, plus much of his other work.   Orwell’s attack on totalitarianism is blatant, trenchant, and thorough.  His defense of democratic socialism, in contrast, is practically invisible.  So despite his self-image, Orwell ends up being history’s greatest critic of totalitarianism – and not much else.

And he was the best at what he did.  Orwell didn’t merely expose totalitarianism as a system based on brutality, lies, and dehumanization.  He dug deep, and exposed its root: irrationality.  1984 is a grand illustration of Voltaire’s aphorism that “Those who can make you believe absurdities, can make you commit atrocities.”  Yes, totalitarians often claim the mantle of “reason” – and their traditionalist and religious critics are happy it hand to to them.   But the heart of totalitarianism is fanatical belief in a mountain of absurdities.  Their distinctive empirical claims are plainly false, and their distinctive arguments are either riddled with errors or so meaningless they’re “not even false.”  And the low quality of totalitarian thought is hardly surprising, because they use terror to silence their critics instead of patiently hearing them out.

Though Orwell is the greatest critic of totalitarianism, he made a few major mistakes.  First and foremost, he casually accepted the socialist critique of capitalism.  If he looked at the world, he would have noticed that the world’s most capitalist countries were near the pinnacle of human civilization.  Instead, he placed his faith in empty socialist promises of a brighter future.  Orwell also casually accepted the Leninist theory of imperialism: The idea that countries fight over colonies because they desperately need to off-load the fruits of domestic “overproduction.”  Yet due to the gravity model, the European powers’ best customers were always other European countries.  That’s why they were able to hastily release their colonies after World War II.  Given his keen insight into political psychology, Orwell should have defaulted to the simple story that war is the triumph of nationalistic emotion over capitalist calculation.  A great missed opportunity!

[few more comments on book club]


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