While reading about the Marijuana debate in the last several days, I am overwhelmed by the need for a discussion about complexity in science. First this leads me to question which sciences are relatively complex and which ones are pretty straight forward. I resolve to advocate for more appreciation of the role human involvement in a field plays in introducing complexity.

We, in academia, generally think of something as complex when it is difficult to acquire the technical skill to compete at the highest level in the field. This generally explains why physics is called the queen of the sciences. To learn mathematical skills you have to have talent, hard work, and the fortune to have both good teachers and the circumstances to avail yourself of them. I would argue that the truth is the opposite of this instinct, that social science is much more complex. Social science is something that people can learn though reading, and everyone thinks they are an expert. If you don't believe me, try studying politics and then go out in public and debate people on the street -- their ignorance of the literature will likely not stop them from dismissing the nuanced model you are trying to present.

It is important to consider how error is identified. For me the natural and social sciences differ in how they deal with error. Take engineering for example, error is identified rather quickly, in what I would call a "tight" feedback loop. In the social science, by contrast, error is in a loose feedback loop (and in fact many times error can be dismissed completely as resulting from flawed measurement). Economics has taken the position as "queen of the social sciences" though its ability to mathematize its subject and apply statistical tools. The noble pursuit is to isolate single variable analysis, the practice is to isolate the subject from the social world it seeks to study.

If engineering did similarly detached itself from reality, bridges would start collapsing. During a recent visit to NYC, I am overwhelmed that buildings constructed the better part of a century ago can be so solid. How did they build the Empire State building in 16 months without a clear science of engineering? Can we really claim that we have such a social science?

The best skyscrapers of social science, by contrast, seem to only stand a few levels high. I attribute this to poor feedback loops in the disciplines, but it is also a function of the diversity of preferences that are at hand. There is no difficulty in understanding the difference between a bridge and a skyscraper. These are different arrangements of the same materials (concrete and steel). In fact, we can understand the different appearance of the old world trade center and the new quite easily -- but how do these different structures manifest? In some way it is simply fashion. In some ways it is determined by the person or group in charge at the time the plans are selected. But none of these are engineering questions - they simplify no further than a discussion of preferences. That is the realm of the social sciences.  

But, we are not content simply to reduce everything to different preferences. Policy is set in order to get coherence on particular topics. There are two articles on marijuana that have been circulating recently. The first was on treatment options that the marijuana derived CBD gives for families suffering with child seizures. Another article talked about the misinformation in the public health debate, a famous doctor changes his mind.

Rather than see these instances the exception, I see them more as the rule. Anything that involves human beings is going to have a degree of complexity, and this includes medicine. Marijuana will work for some folks. I would still defend their prerogative to try it even if the link could not be established in the medical literature. This is what it means to acknowledge complexity in social science, and there are always cases where the one-size-fits-all approach is insufficient for political economy. The history of why marijuana became illegal is interesting, but it is an example of the all-too-common phenomena of folks misunderstanding the nature of scientific discovery and too quickly trusting the scientific consensus.

The less things are like skyscrapers, the more important it is to consider complexity.

Reactions to the Reactions: Nudging

Most people blur the lines between nudging, education, and media reporting. 

Proposed clarification: I argue that nudging is specifically changing formal institutional constraints to have a measurable impact on a particular outcome.  

By far the biggest criticism of the news story on "nudges" yesterday (where I was quoted) is that media is like a nudge as well. Sunstein and Thaler do little to create a distinction in their book.

"A nudge, as we will use the term, is any aspect of the choice architecture that alters people's behavior in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates. Putting the fruit at eye level counts as a nudge. Banning junk food does not. [paragraph break] Many of the policies we recommend can and have been implemented by the private sector (with or without a nudge from the government." (P. 6)

There is a big difference between behavioral economics as descriptive science and its use as a prescriptive science. To jump too quickly between gathering information and recommending a course of action is to lose what John Neville Keynes called the "art of economics."

In research with Adam Hoffer and Bill Shughart, we suggest that a combination of choice and education is preferred to nudges, selective taxation, and prohibition. Some people want to call this a nudge as well, but there is a major distinction between educating the public and changing the institutional constraints that they face. Consider an example that Sunstein and Thaler make: planning the school lunch line. If you put french fries first, students fill their plate with them. If you put salad first, students fill their plate with that. A nudge policy would be to recognize this behavioral description and use it to achieve your normative aims. In this case, education is all that is needed. Telling the folks that arrange school lunches of this simple fact, ought to change the way the lunch line is laid out. We assume two things here in leaving this as a descriptive policy:

1. that the school officials care about the nutrition of their children; and 
2. that they think salad is more nutritious than are french fries. 

This is simple. A descriptive approach to the world provides insight into the way people work and allows the decision makers to act on the additional information. Having recently become a father, I can tell you that information about what to do is not a scarce good. It is sorting and using the information that is hard. We had a conversation with the director of the daycare where our daughter attends yesterday about the transition to formula. Given competing hypotheses the advice was to go with what suits you the best. There is no scientific consensus, nor can their be any on these matters. Can child care be really all that different from behavioral science in general (after all the term paternalism is derivative of this, right)?

When considering parenting or considering policy, there are benefits from each method (The costs are the foregone benefits of the alternative choice). The decision a person makes gives us insight into their preferences (who they are as a individual). This assumes quite a bit of rationality (of the Herbert Simon variety). I think that we need to take this seriously as we recover from the attack rationality has taken since the great recession. Of course, any rationality that assumes perfect information at low cost is bunk. But, that does not mean that people do not behave rational given their available information. Bryan Caplan has even started the discussion on behaving rational by failing to undermine your easily controverted beliefs. He calls this "rational irrationality."

First we must take education seriously. To understand the way that people process information, we have to understand more about education. The classic article on this is the one by Stigler and Becker, De Gustibus non et Disputandum. In the article we find that preferences are formed, so education matters.

The critique of nudging also assumed that media was nudge. This is a much more interesting argument. There is no classic paper, but I think Caplan's work is a way into this. People are drawn to groups with consensus opinions. Political decision making undermines the personal cost associated with holding irrational beliefs because your vote does not change the outcome of the election. The relevant cost of truth seeking is being socially admonished by holding an unpopular (but true) belief. The fastidiousness of genuine truth seeking is enough to make people rationally reject truth in favor of a fiction that allows for more friends. Media can help support this pathology, especially when media is politicized like it currently is in the US. With Viacom and NBC on one side and FOX on the other, the political divide creates clusters of consensus and not truth seekers. All of this is worthy of concern, but is not nudging the way I understand it.

If we are going to distinguish nudging from media and education, we need to have an operational definition. Douglass North uses Herbert Simon specifically in forming his notion of bounded rationality. Let's take this for granted and say that nudges are derivative of both of these ideas, institutions and bounded rationality. To operationalize the notion of nudging, therefore, it must have more to do with formal institutional change than informal (North's distinction). Nudging also takes for granted a type of rationality of the actor, and I see that as bounded rationality. Finally, the thing about making nudges a government policy is that it has to deliver measurable results to be warranted through utilitarian calculus (however flawed).

So, after this analysis, I end up with my definition:  Nudging is specifically changing formal institutional constraints to have a measurable impact on a particular outcome.

A Proposal for the Sciences, Rediscover Bacon's Idols of the Mind

Why is science so stubbornly politicized?  Perhaps we have just been teaching it wrong.

Francis Bacon benefited from his Queen's loyalty to the split with the Catholic church. Being entirely separate had its advantages, and Bacon's firm adherence to Aristotle while despising the state of received Aristotelian philosophy materialized in his bold new vision for the scientific approach.

I am happy to discuss in comments the details of this matter, which I am still working through, but let's make a long story short. Science before Bacon had been captured by the idea of the deductive method. This means that first principles were hypothesized which, when logically applied, would sort out almost any contradiction between competing claims. What if these didn't work because of some new discovery? Simply, revise the first principles. This process would give us insight into the true nature of the world.

Bacon offered an alternative. His method looked towards the inductive method. This takes a radical approach to science that we are all taught in our first laboratory class, the scientific method. Simply put, the scientific method asks us which phenomenon we are interested in and then accumulates related observations. We sort these observations by their perceived priority in association with the main phenomenon of interest.

In this approach, Bacon discovered what he called the Idols of the Mind. He gave them names:

• idola tribus: The idol of the "tribe" deals with coherence of ideas into neat packages. I take this to be related to much of the moral foundations literature Jonathan Haidt is working with. 
• idola spectus: The idol of the "cave" deals with cognitive bias. For example, our minds interpret our enemies best argument as evidence that they have bad intentions. Liberals who watch Fox News confirm their prior that conservatives are crazy. 
• idola fori: The idol of the "marketplace"  deals with language. Often language assumes a meaning quite different the way specialist use it, this helps distort careful logic when applied to the public debate.
• idola theatri: The idol of the "theatre" is the closes to sophistry. The tendency to over-sell academic expertise. 
• idola schola: The idol of the "school" is the pedantic reasoning of textbooks. It is a oversimplification useful only for the teaching of material to neophytes. 

The idols were categories of errors. Science according to Bacon was understanding error, not finding truth.  The most important lesson that Bacon teaches us is that all answers are errors and that these are more or less affected by these idols. To begin the process of cleansing the mind from these idols, there are many approaches. None are going to work. We can only progress by taking the task seriously. 

I find it discouraging sometimes that so many students think that they can posses "the answer" and have simply not been taught the idols of the mind, specifically idola schola. I can't read a periodical without thinking of the idola fori. I have so much contempt for my peers who dismiss the idola theatri and attempt to establish their reputation by sophism. 

The only hope science has is to proceed with a more ready understanding of Bacon's idols. It strikes me that much of what we see as progress in the last 300 years depends on the implicit expectation of this task. If anything explains why modern science is so politicized, it is the fact that we have lost our understanding of Bacon's method. I aim to do better.    

Is Leviticus being Revived for a new Audience?

Everyone disagrees with Leviticus. Some because its moral strictures seem absurd, <insert example here>. Others, with a more complex perspective, due to their adherence to the tradition in which Leviticus plays a notable role, at least see the material in Leviticus as horribly outdated or somehow flawed. I would argue that this confusion is endemic to the field of "priestly writing."

One of the things that I have learned from working on "sin taxes" is that the priestly culture is still alive an well with us today. I am making a synthesis between priestly culture here and work by Peart and Levy on experts. (see a policy related application here or their scholarly work here). My basic model for thinking about this is a theory of hierarchy. Sin taxes build on the idea that people do not know how to choose for themselves. Much work has been done in psychology that supports the thesis, e.g. hyperbolic discounting. When it comes to the future, people discount the future heavily.

But what this allows are the same kinds of claims made by the priestly writers of Leviticus. For them both the reconciliation of the person to God as well as the reconciliation of the people of Israel to God were important aspects of founding the religion. The purity of culture that is at the end of both approaches to perfecting society is cut from the same cloth. While I certainly think that a priestly attitude is great for some, the disadvantages should be obvious. These can be summarized in two broad categories, degradation of self and degradation of the other.

Degradation of the self comes from thinking that one's own impulses are corrupt. What we learn from the behavioral literature is that people seem indifferent to their future selves. If we accept the findings of hyperbolic discounting, then we consider most actions people take towards self-indulgence to be irrational. But this faces a problem that has plagued economics since Bentham. There is no way to count the utils stimulated through irrational behavior. In fact, Bryan Caplan has suggested that irrational behavior itself generates utility. Even from a religious perspective coming to terms with man's fallen nature is important. The lesson is to recognize the process of perfection, not the achievement of it. What comes from trying to be perfect is the necessary disappointment of limited ability to do so. Here is where the state steps in. Since you want to change your behavior but lack the will, you will be protected from yourself through prohibitions, disfavored taxes, and administrative hoops forged in the name of libertarian paternalism. These administratively delivered self-denials are certainly part of the tool kit of reform, but why the one-size-fits-all approach?

Degradation of the other stems from this same process but calls on many more animal instincts. The tribal pull to want to extend our preferences to others helps to explain how our diets, our smoking choices, our retirement choices, and our sexual mores all become part of the public debate. What was good for us in reaching our own goals must be good for others, right? The problem is that with so many competing priorities for improvement, how do we narrow it down to a few categories? The economist wants to know how the marginal dollar is spent on improving behavior. Where should the emphasis be placed?

Inevitably the emphasis gets placed by those with the most voice. In a society where the priests have the most voice, the outcome looks like Leviticus.  In a society of politicians, how different is it? Our desire to think of our government as the rational embodiment of perfection is not all that different than the writers of Leviticus.  The groups may change over time, but I feel certain that in 3000 years our desire to perfect this society according to the moral dictates of the current group will be seen with equal reproach and disgust as their analogues in ancient history.  

Cosmo-Parochialism

I hate when people say they like to travel, for most people mean that they like consuming museums after taking a long plane flight.

As a professor, I have been to my share of museums during my opportunities to travel. I recall taking a group of students to Manchu Picchu. They couldn't really care less. Sure, there is a part of them which will look back on the group pictures that we made, or remember what it was like to stare down from the sides of the mountain to the river vanishing in the valley below, but really what they wanted were the props for visiting. The gift shop at Manchu Picchu gives a stamp for your passport, which is symbolic. It is just another item on the list.

Real travelling requires learning a language and staying in the homes of the people who are native to the country. Far fewer people do this. I wouldn't even know about this if I didn't do a study abroad where I lived in someone's house or if my wife's family were not so generous as to put us up when we visit Germany. I can't help but fret when I think of  too many of today's students that can't tell the difference between 1) wandering the streets of a foreign city and 2) actually becoming acquainted with a foreign culture. 

I find this to also be the case among so many people's political preferences as well. The cosmo-parochialists have a list of things that they have to have to consider themselves cosmopolitan. This list includes having a gay friend, traveling abroad, volunteering for a political campaign, and various other things. We all know the list of things we are "supposed to" do before we get old and set in our ways. But none of this is real because it lacks a fundamental element of reciprocity. This reciprocity requires submitting one's self to challenges to one's beliefs. 

The cosmo-parohialist consumes culture, s/he does not experience it. Living life with a check list of politically correct experiences does not get you down and dirty in another culture. It doesn't let you experience things that repulse you about other cultures that you learn to appreciate when you see it with a new set of eyes. One can have these experiences without leaving home. All that is needed is someone who is unrepentantly different than you. This comes from an openness of mind that demands engagement with others. Few have this trait, rather they quickly converge on the "right" answer. True cosmopolitans, rather, are stuck not knowing which hand to hold a fork or whether to use chop-sticks because they love both traditions so much it is hard to chose one. 

A cosmopolitan wants everyone else to remain different so that they can benefit from different customs and traditions, so that they can experience cultural exchange and learn new things. A cosmopolitan fears the convergence of cultures brought about by globalization because they will lose the very thing that defines them as cosmopolitans, a challenge to their own sacred beliefs. 

A cosmo-parochialist cannot get this while listening to an English language translation of a museum tour.  

Deficits, Cognitive Bias, and Thinking Critically about Thinking

In a great book, Democracy in Deficit: The Fiscal Legacy of Lord Keynes, James Buchanan (1986 Nobel prize winner) and his student Richard Wagner (one of my professors) argued that spending is very closely related to reelection and that taxing works against reelection. The argument that we could spend when we were in bad economic times and save when we returned to prosperity (Keynes's countercyclical argument) gave rise to one of the enduring problems with the modern state -- fiscal opportunism. They called the balanced budget idea of government, "that old-time fiscal religion," and argued that only a balanced budget amendment could help save congress from the incentive to shy away from taxes and always increase spending.

California passed measures that has made it in effect a public referendum on every tax cut and every spending increase. This has led to California becoming completely bankrupt with no good way to get out of the fiscal mess. Voters easily vote for more programs and for tax cuts in the same ballot. In fact, people are watching California from China and arguing that democratic reforms could destroy the economy. There is a new assumption is that economic growth and democracy might work against one another.

The very essence of the argument of the republican idea of government was that representatives would have to be held to account for their stewardship of the resources that they are entrusted. I think one way to solve this issue of mis-allocation of resources is to trust them with fewer resources. I have little faith in the idea that we just need to elect better stewards.

Think about this example: In a business, no one cares how many times you failed before you succeeded. In politics, no one admits fault or past mistakes for fear that it will be used against them. This incentive means that dishonesty creeps into the system, little learning takes place and information is sharply limited. The only profit and loss signal is reelection (which is infrequent and clumsy, because it is not broken down to specific issues). Politicians go on TV regularly and refuse to comment on the substance of the issues for fear it will affect their ability to negotiate and vote trade later. It says something about our public discourse in this country that John Kerry's worst mistake was to change his mind in light of new evidence. George Bush's major selling point was that he was above changing his mind. This virtue would ensure a businessman failure, but a politician ought to have this to succeed.

On the other side of the debate are people who want the government to have more power. Obama goes to sleep every night thinking that no one could do a more honest and better job than he is doing. Strictly speaking, he might be right - given that anyone is making decisions for the 300 million people in this country. What these people seem to want is for politicians to make decisions for them. These individuals prefer the myth that there are guards on a wall ensuring that we won't have to tackle the difficult issues. After-all, they are elected to decided for us. This view assumes that only Obama has access to the information about the banks, about the war, about the economy. More trust is needed in his secret files that make it clear which decisions to make. People who have run a business of any size understand the importance of managers seeming to have a clear plan. However, asserting confidence doesn't save the manager when errors are discovered. The plan has to adapt. I am not sure that politics contains the necessary incentives for this to occur no matter who is wearing the hat.

At the end of the day, I have become convinced with the evidence arguing that the majority of how we view the world politically is derived neurologically (Jon Haidt, U Virginia). We can do brain scans and determine the more active centers of people's brains. To break it down to the most important dichotomy, we can look at the left-right political space in this country. Those with a greater portion of activity in the higher-order cognitive thinking areas tend to believe that we can reason our way out of every problem. They don't see natural connections between family members or small group affiliations, they see larger pictures, ethnic groups, political groups, and nations. They then "know" in some sense that greater data collection and more central control will help eliminate "errors" that others are making. Those that have less of this frontal lobe bias, when shown a picture made of dots, see the individual dots and have to have the picture pointed out to them to see it. They are more likely to be religious or traditional in other ways. They see the world made up of very strong social ties. These individuals are the ones that donate to charity, preferring help to come from knows how the one receiving the aid will use it to make themselves better off. Groups are smaller in this perspective and individuals are very meaningful pieces of the whole. These brain types fear outsiders and tend to see reasoning about issues as propaganda meant to ensure compliance rather than agreement.

Of course the frontal lobe types dismiss the others as less evolved. Actually, more research is being done to see if frontal lobe injury makes one more conservative. The implication here is that those that are conservative are brain damaged in some way. Actually, I don't know that this implication holds logically. Any good economist knows that there is a division of labor. The frontal lobe functions are necessary to making well-rounded decisions, but not enough to guarantee that well-rounded decisions are made. Too much focus on high-cognitive reasoning is like Spock from Star Trek. I think that there are good reasons that local knowledge and knowledge of meaningful social connections are important. What we tend to think, at least in academia, is that frontal-lobe activity takes the place of all of the other things that are important to being a well-rounded individual. We have spent so much time defending our nerdy habits that we don't realize the limitations of being nerdy. No one that I know of is doing good research on the impacts of this hypothesis on the political economy. I think it shows that the founders of this nation knew something about people when they wrote the constitution that we have forgotten over time. The reason we need competition between the federal and state levels is to help us balance between high-ideals and the way those ideals come into practice. I just hope that we can account for the goodwill of both sides amid a very frustrating political conversation and economic environment.

Do Categories help Analysis or Hinder?

One of my pet peeves is the use of categorical thinking.

I might need to explain this a bit before opining. The basic case for categories is politics. The right/left dichotomy. Here I know something is correct because it has to be correct to justify my political party's take. This can be no more than identifying "good" and "evil." These distinctions in politics avoid loaded terms and say, right and wrong -- US and THEM.

My dissertation reader, David Levy, has a great paper which I am always promoting called, The Technological Obsolescence of Scientific Fraud. I am loosely translating the argument here: Someone imports a particular desired outcome into their formation of hypothesis even if the explicit question might be scientific, for example: What are the effects of the minimum wage?

That hypothesis can be tested with a widely diversified set of analytical tools. We, as researchers, choose the tool which is able to test the hypothesis. Because there are no rules for which tools apply to certain questions, we might implicitly choose the tool that comports with the expected outcome. Hence, the array of options created by science has allowed a back door into justifying our expected outcome that is built into the standard means of analysis. We opportunistically choose data sets and, as the paper emphasizes, pick the estimators from computer-based statistical programs, that appear to give the most plausible results. It should be no surprise that by the end of our research we get the significant variables expected. Since this is not what the English language dictionaries refer to as "fraud," but has the same result, the paper suggests that fraud should have been tautologically eliminated through the advance of technology.

Now, I use this example as part of categorical thinking, because it seems hard to imagine that in a world where social issues are tested by thousands of people using different estimators which do not result in confusion among the consumers of the resulting information. The discourse becomes a shouting match which further reinforces the categories.

I have recently come to lampoon this tendency in social science as equivalent to going to a meteorology conference and attending a panel on why only one thing that matters: low pressure, because this is where precipitation occurs. This panel is further devoted to why we should not confuse people with talk about high pressure. In this fantasy world there would be a separate panel, scheduled at the same time, arguing the exact opposite: High pressure (after-all low pressure is the absence of high pressure). My conclusion is supposed to be implied, but what I mean to say is that both High and Low pressure are important distinctions and work together in concert. Why would anyone isolate one as the primary cause?

Categories were meant to help simplify analysis. For instance, when I teach balance of payments, I talk about how Dollars flow to China for goods and then flow back to the states in some form (capital or goods and services). The other side of this transaction is the Yuan, but to stop at each point of the process and invert the analysis could be confusing. I simplify the logic in order to build the initial round of intuition and then add to this later. Similarly, when describing High and Low pressure, it would make sense to step back from the apparent cycle and describe where the term High pressure comes from. It would be nice to motivate the discussion with a particular point-of-view. However, the categories were never meant to be taken as a serious dichotomy, anyone that has looked at the range of pressures on a meteorological map knows that there is a continuum with a center that is conveniently labeled. The High pressure center over Seattle could be lower than the High pressure center over Milwaukee.

Similarly in social science, categories do not actually exist in the world. The categories are created to make sense of the world. The categories, just like statistical estimators, exist only as tools. To have fetishes for certain tools over others means that you are becoming ideological or narrow in your analysis. I certainly appreciate the division of labor in science, but what I fear comes with these silos of technical tools is the "Gnosticism" of hierarchical thinking. Each school of thought believes they have priority vis-a-vis the other. We run dangerously close to assuming that Low pressure just doesn't exist when we spend too much time emphasizing the categories. We miss the forest for the tree we are facing two inches from our eyes.

What role do academics have in stepping back and talking about the forest? I can only assume this is dictated by the market for our opinions. Relative to supply the demand for opinions is very low. I think there is a reason for this. There might be something about intuition that tells people in general that academics do poorly in giving a complete picture of any event. One thing that I think is crucial in the next generation is to develop a science of interdisciplinary studies. The PPE project that Peter Boettke runs and the book series that he edits is a good start. What about uniting behind this banner and helping our consumers to sort out producers of useful information? We have a market test to pass and we must provide a differentiated product.

My suggestion is to abandon categories as a crutch. Make clear which window into the debate we are looking through at any moment in time, but don't pretend it is the only one. Let our consumers know that the extra strain of the ambiguity in our answers is worth it in the end and remind them of this often. I don't think anyone can win the category battle. It seems to take us away from the issue motivating the research rather than toward understanding the issue.

Chomskyesque

I have a love/hate relationship with Noam Chomsky.

On the one hand he is a public intellectual and promotes the erudition that made me love academics. I loved listening to his lectures and these were a primary target of my searches as an undergraduate student on what seems a very primitive internet back in the 1990s.

On the other hand his logic always made me feel sick, just like eating too much pizza with extra pizza sauce. I would choke on some of the claims and verbally exclaim, "come on!," when he was opportunistic with facts or skipped over several steps in logic.

Still, I maintained a fascination with Chomsky. He was what I imagined a good representative of the left's sympathies would be. He also had better logic than that on cable news. For a young student, this was enough.

Recently, Diana has been frustrated at Brad DeLong's status as a public intellectual. We listened to an op-ed read by voice software over dinner the other night (note that link is to a Soros funded media aggregator). His claims seemed to be incomplete. He filled in the gaps with narrative meant to embellish and compel listeners to a certain interpretation. When I say that he is opportunistic with the facts, I point specifically to his description of Greece and his volte face in his commentary on England. See for yourself. I am happy to discuss this in the comments.

What strikes me as unusual is that he lampoons the new Prime Minister's position on expectations. Given the changing position on sovereign debt in the world, it seems like DeLong's claim: low interest rates are a signal to borrow as much as you can temporarily cheap money; is misleading. Presumably, and admittedly I am reading this into his column, DeLong wants to grow the scope of government with the use of bonds rather than taxes in the current period. But we know that as debt grows the interest rate will rise (simple a priori economics, supply and demand). In the future, taxes will have to rise if rolling the debt over into new forms is not a possibility because of higher interest rates. What DeLong omits is that this would be contractionary at some point in the future. With Keynes firmly in his corner, he seems to think that we will be richer in the long-run and therefore can afford contraction in the future.

To counter DeLong's claims of the banality of the bond-spending policy please see "Democracy in Deficit" which explains why our democratic system will expand the budget to the limit systematically.

But you really don't have to think that hard to dispense with the bond-spending policy. All you really need is the identity: "g > r" (thank you T. Cowen). That is, that if growth is greater than the interest rate, everything is fine. As long as continued government spending increases growth in the economy, then you are OK. So let us examine what this means in more detail.

I teach my students that the first thing that the government does has the highest rate of return. The folks at the government are here to help, at least given their stated intentions. Rule of law, (e.g. providing a legal system, contract enforcement, and transparency) is a really high rate of return items. It is tricky to implement, and we can go a great deal of political philosophy on the specifics, but the return is there and high.

Studies also show that rate of return on things like infrastructure are quite high. We can debate the knowledge problem and talk about private provision, but we don't dispute the rate of return -- if government does it, it will produce economic growth. As we move down the line the rate of return argument starts to fall away as the government controls resources and actually destroys more information through the implementation of plans than is justified by the free-rider problem of "market failure." At some point the rate of return measured in growth is lower than the interest rate because of the distortions of centralized decision making. We can debate where this is, but I just assert it as a theoretical approach.

Now DeLong seems to argue that government growth is consistent with rates of return that are always in excess of the interest rate -- so he doesn't worry about this problem. But, picture a world where interest rates double or triple, as they would with an increased risk of a sovereign debt crisis. Once interest rates start their upward journey they are likely to rise quickly as the unraveling begins. The debt service portion of the budget would rise if the country tried to roll the debt over into new bonds which are priced higher (from the G, perspective).

So issuing bonds would be less attractive. Taxes would have to rise to service the debt that is coming due because we would not want to issue as much new debt. Spending would start to be cut for the same reasons, we have been financing spending through bonds for a very long time. As we cut programs, and we assume that we cut the lowest rate of return programs first (a bad assumption if we want to preserve social programs which don't necessarily show up in rate of return arguments) then we unravel. The growth continues to fall, the interest rate continues to rise and the situation has become critical. All remaining productive capacity in the economy goes to servicing debt.

This story can lead to a miserable period of low growth or to the collapse of the government as a result of fiscal crisis. Encouraging this outcome by becoming a cheerleader of borrowing to spend is strange, even from a politically committed economist. It is even stranger when we consider some very interesting global dynamics.

The BRIC countries are growing. I love this increase in happiness BTW, but this means that Brazil, Russia, India, and China all are slowly becoming self-sufficient. As people there get rich, they will start to consume their own products. Rather than throwing American Dollars back into the treasury securities as China has been doing for decades, they can start selling products domestically and to each other eroding the need for their high rates of saving and the vehicle of aggregate saving they have been using, the US treasury. This also implies that interest rates will rise.

The long-term picture seems to suggest that bonds will be less useful in policy outside of the short-term (I am biting convergence theory heavily here). While DeLong is technically right, we CAN borrow. The implicit argument that we SHOULD borrow is not a positive argument. He is politicking and not producing economic analysis.

The reason I relate this to Chomsky is that, it is strangely fascinating to peak underneath this argument and view it as the state-of-the-art for a public intellectual. This term, public intellectual, therefore becomes pejorative. While it is important in guiding the debate, I think it is rightly viewed by the academy as contemptuous. I propose we label this Chomskyesque, to reward the rhetorician and path-breaker who paved the way.

Aside: Please view this post on Chomsky from DeLong which is particularly ironic

The Daily Show Advocates for a Draft

In what I can only understand as a continued frustration with the wars Bush started and Obama failed to end, the argument was made by Allison Stanger, prof. at Middlebury College in VT, that the existence of contractor based armies allowed wars to be perpetrated without the public outcry which a war fought with a draft would be accompanied.

Follow this link to the Stanger interview:

[At 2:10 on the transcript]:

JS: "Is the dirty secret of this is that it is being done this way now, you mentioned Vietnam, because we don't have a draft. If we had a draft these jobs wouldn't be necessary to contract out..."

AS: "Well, That is a great point, and that is precisely why I think we need to have a public discussion about this transformation in the way we fight wars, because without contractors we would have to have a draft to fight those two wars and with the draft we would obviously have a very different political situation on our hands..."

JS: "It almost like an interesting 'Catch-22' ... If we uh... uh... we are fighting these wars with contractors ... If we had a draft we wouldn't need the contractors... My guess is that if we had a draft we wouldn't have the wars... My guess is Iraq would have been a much more... I mean

[Spirited Applause from the Audience]

JS: "Afghanistan perhaps... But, Iraq... If there were a draft people would have been less inclined to go [garbled]"

AS: "You are right, you have absolutely nailed it, you are absolutely right..."

[End Transcript at 3:07]

I consider one of the great triumphs of American history the overcoming of the draft. I have never been more convinced that I have less in common with the John Stewart crowd than I was last night. This interview, Mr. Stewart's seeming unwillingness to see the evil of the draft for his desire to focus on the evil of the Bush wars, and the crowd's reaction have alienated me from this particular interview.

I cannot treat advocacy for a draft, the ability for a government to force its citizens to war, as a misunderstanding. Something else is more important than liberty to Mr. Stewart and Ms. Stanger. I don't want to speculate, but this interview strikes me as dark.

I believe in a market, even for war, in fact -- especially for war. The idea that we should use a draft because we can't constrain our government from starting unjust wars (regardless of the merits of this particular example) is incredible. Just because this is possible when they have access contractors, does not mean that it is less possible when they can conscript. Conscription has been the tool of tyrants fighting unjust wars since the dawn of monarchy. We should, rather, place limits on the size of government and the budget for the military industrial complex. It seems both John and Allison would rather have a large state that can tell you to grab a gun and stand in front of our "enemies" for whatever happens to be the politically correct person to shoot at on that day.

I find this to be a very gross failure of political thinking on Mr. Stewart's part. I am ashamed to have chosen his show last night as my form of entertainment.