Jun
04

The Data Detective

Harford has written a pile of books on economics and ran a show decoding the world of statistics. I picked up The Data Detective: Ten Easy Rules to Make Sense of Statistics (2021) to see if it might be useful for undergraduates in the social sciences. Harford is a good storyteller, hence the pile of books, but the ten commandments and the golden role (be curious) are quite vague (essentially: avoid bias, use different data types, put data in context, know the source, question big data and algorithms, be open to change your mind). Useful, but not specific. At times the author speaks to fellow data nerds, however the majority of the content is introductory (too generic for university students). Well suited for a mass market book.

The book is in response to the "statistics lie" narrative, but a cautionary tale of how to engage them carefully and cautiously. The pitch: "I want to convince you that statistics can be used to illuminate reality with clarity and honesty. To do that, I need to show you that you can use statistical reasoning for yourself, sizing up the claims that surround you in the media, on social media, and in everyday conversation. I want to help you evaluate statistics from scratch, and just as important, to figure out where to find help that you can trust." (p. 9)

A few notes:

"The counterintuitive result is that presenting people with a detailed and balanced account of both sides of the argument may actually push people away from the center rather than pull them in. If we already have strong opinions, then we'll seize upon welcome evidence, but we'll find opposing data or arguments irritating. This biased assimilation of new evidence means that the more we know, the more partisan we're able to be on a fraught issue." (p. 36)

"A randomized controlled trial (RCT) is often described as the gold standard for medical evidence. In an RCT, some people receive the treatment being tested while others, chosen at random, are given either a placebo or the best known treatment. An RCT is indeed the fairest one-shot test of a new medical treatment, but if RCTs are subject to publication bias, we won't see the full picture of all the tests that have been done, and our conclusions are likely to be badly skewed." (p. 125-6)

"Modern data analytics can produce some miraculous results, but big data is often less trustworthy than small data. Small data can typically be scrutinized; big data tends to be locked away in the vaults of Silicon Valley. The simple statistical tools used to analyze small datasets are usually easy to check; pattern-recognizing algorithms can all too easily by mysterious and commercially sensitive black boxes." (p. 183).

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Sep
20

People, Power, and Profits: Progressive Capitalism for an Age of Discontent

In 2019, Joseph Stiglitz published "People, Power, and Profits: Progressive Capitalism for an Age of Discontent." The book covers a wide range of topics, largely on contemporary American policy while also highlighting their histories - and is overtly political (Trump comes up frequently, throughout). The author provides an analysis of the challenges as well as potential pathways for the future. Some of the policies that are recommended include new regulations, such as regulating corporate business and money in politics. Other recommendations include introducing new services in the areas of social protection and safety nets as well as ensuring full employment, equality of opportunity and greater investment in education and research. Many of the recommendations will be common to readers familiar with economic arguments on the left-of-centre political spectrum. Very few, with the exception potentially of a universal basic income scheme, are radical or new. Nonetheless, this is worth a read, or at least the scan, to understand the economic arguments behind these recommendations. 

Some context on why regulations are called for and the barriers to change:

"Adam Smith's invisible hand (the notion that the pursuit of self-interest leads as if by an invisible hand to the well-being of society) is perhaps the single most important idea in modern economics, and yet even Smith recognized be limited power of markets and the need for government action. Modern economic research - both theory and experience -has enhanced our understanding of government's fundamental role in a market economy. It is needed both to do what markets won't and can't do as well as make sure that markets act as they are supposed to." (p. 24)

"The truly greedy and short-sighted in the 1 percent have come to understand that globalization, financialization, and other elements of the current economic rulebook are not supported by the vast majority of Americans, and understandably so. For these, this has one deeply disturbing implication: if we let democracy run its course, and if we believe in a modicum of rationality on the part of voters, they will choose an alternative course. In their pursuit of their naked self-interest, these super-rich have thus formulated a three-part strategy: deception, disenfranchisement, and disempowerment. Deception: they tell others that policies like the 2017 tax bill to further and enrich the rich will actually help ordinary Americans, or that a trade war with China will somehow reverse deindustrialization. Disenfranchisement: they work hard to make sure that those who might vote for more progressive policies can't or don't, either by making it hard for them to register, or by making it difficult for them to vote. And finally, disempowerment: they put sufficient constraints on government so that, if all else fails and a more progressive government were elected, it couldn't do what is needed to reform our politics and economy. One example: the constraints imposed by an increasingly stacked and ideological Supreme Court." (p. 27)

"A particularly invidious example of market power is the oligopoly in academic publishing. Chapter 1 highlighted the central role of knowledge in increases in our well-being. Advances in knowledge, in turn, require the dissemination of ideas. But in our market-based economy, this has been entrusted largely to the market, and the form that has taken is a highly concentrated and highly profitable oligopoly, with some five publishers accounting for more than half of all papers published, and for 70 percent of those in the social sciences. The irony is that the publishers get the articles for free (in some cases, they even get paid to publish them), the research reported is typically funded by the government, the publishers get academics to do most of the editorial work (the review of the articles) for free, and educational institutions and libraries (largely government-funded) then pay the publishers. Their high prices and excess profits, of course, mean that there is less money to fund research." (p. 76)

"Right now, on balance, our economy needs more regulations, at least in certain key arenas. Our economy has been changing fast, and our regulations need to keep pace. Twenty years ago, for instance, we didn't realize the dangers posed by carbon emissions; we now do, and we need regulations to reflect that. Twenty years ago, obesity was not the problem it is today. Now, we need to protect our children from the sweet and salty foods, designed to be addictive, that are contributing to this epidemic. Twenty years ago we didn't have the opioid crisis that has in part been manufactured by the pharmaceutical industry. Twenty years ago we didn't have a rash of for-profit educational institutions exploiting their students and the government loans for which they qualify. The conflict over net neutrality provides a vivid example of the need for regulation and the ways in which corporate interest manipulate the system for their own advantage." (p. 146)

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Nov
27

Collective Choice and Social Welfare

Amartya Sen has made significant contributions to economics, development studies and philosophy. His early work actually focused on collective choice, which was the the topic of his 1970 book "Collective Choice and Social Welfare" (re-printed with significant additions in 2017). In the 2017 Introduction, Sen outlines what social choice theory is and the broad array of questions it might be used to answer:

  • "Challenges of group choice can be extensive and exacting, particularly because of the divergent interests and concerns of its members. Social thinkers have speculated, for a very long time, on how the concerns of the members of a society can be reflected in one way or another in the decisions taken in a responsive society (even if it is not fully democratic)... Social choice theory is a very broad discipline, covering a variety of distinct questions, and it may be useful to note a few of them as illustrations of its subject matter. When would majority rule yield unambiguous and consistent decisions? How can we judge how well a society as a whole is doing in light of the disparate interests of its different members? How can we accommodate rights and liberties of persons while giving due recognition to the preferences of all? How do we measure aggregate poverty in view of the varying predicaments and miseries of the diverse people who make up the society? How do we evaluate public goods such as the natural environment, or epidemiological security?" (p. 1).

The original text and the additional chapters follow a unique style - a chapter of context (the philosophical discussion) followed by a chapter of economics (the math). As a non-economist, this made the book easier to pick up. The book cannot be neatly summarized, as each set of chapters covers different questions (there are 15 pairs of chapters, and two concluding chapters). Many economists (as scholars in other fields do as well) seek a universal theory, however, Sen acknowledges a relatively high degree of subjectivity that seems necessary for society choice theories. He writes:

  • "it is quite clear that an evaluation of the relative desirability of different systems will depend on the nature of the society. One way of interpreting the various 'impossibility' results is to say that there is no 'ideal' system of collective choice that works well in every society and for every configuration of individual preferences (as proposed by the use of the condition of 'unrestricted domain' employed in virtually all the impossibility theorems). Some choice procedures work very well for some types of choice and some sets of individuals preferences but not for others (see Chapters 5-7, 9 and 10), and naturally our evaluation of these procedures must depend on the type of society for which they may be considered. There is nothing outstandingly defeatist in this modest recognition." (p. 264)

Sen also reflects on the underlying assumptions and tools used within economics, and how these (often not reflected upon) has significant implications in influencing the field:

  • "For well over a century welfare economics has been dominated by one particular approach: utilitarianism. It was initiated, in its modern form, by Jeremy Bentham (1789), and championed by such economists as Mill (1861), Sidgwick (1874), Edgeworth (1881), Marshall (1890) and Pigou (1920). Utilitarianism has been, in many ways, the 'official' theory of traditional welfare economics, and its tends to serve as the 'default programme' in mainstream welfare economic analysis: the theory that is implicitly summoned when no others are explicitly invoked. Utilitarianism combined what we have been calling 'consequentialism', 'welfarism' and 'sum-ranking'. It is a result-oriented (and in that sense, consequentialist) theory that concentrates only on utility consequences (which is the informational base identified by welfarism), and, in particular, focuses on the sum-total of utilities (which is the demand that sum-ranking makes)." (p. 341)

One of the new chapters links social choice theory to Sen's other work, such as his expounding on functioning and capabilities:

  • "A person's achieved life can be seen as a combination of 'functionings' (i.e. doings and beings), and, taken together, can be the basis for assessing that person's quality of life. The functionings on which human flourishing depends include such elementary things as being alive, being well-nourished and in good health, moving about freely, and so on. It can also include more complex functionings, such as having self-respect and respect of others, and taking part in the life of the community... A person's 'capability' is represented by the set of combinations of functionings from which the person can choose any one combination. Thus, the 'capability set' stands for the actual freedom of choice a person has over the alternative lives that he or she can lead." (p. 357)

All page numbers from the 2017 Penguin publication.

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Aug
19

Institutions, Institutional Change and Economic Performance

Institutions have (re)emerged as a popular topic in development studies, particularly after Why Nations Fail (2012). However, the study of institutions and institutional change should trace back to key work of Douglass C. North, namely the 1990 book "Institutions, Institutional Change and Economic Performance". Given several decades have passed, parts of the book are less relevant today. It is worth reading to better understand the history and development of ideas (and at only 140 pages of text, it is not a lengthy read).

The book "provides the outline of a theory of institutions and institutional change", which at the time of writing, was a relatively novel contribution. North writes in the Preface to the book that "History matters. It matters not just because we can learn from the past, but because the present and the future are connected to the past by the continuity of a society's institutions. And the past can only be made intelligible as a story of institutional evolution" (p. vii). Again, later in the text: "Path dependence means that history matters. We cannot understand today's choices (and define them in modeling of economic performance) without tracing the incremental evolution of institutions" (p. 100).

First, North takes down a dominant mode of thinking: "If political and economic markets were efficient (i.e. there were zero transaction costs) then the choices made would always be efficient. That is the actors would always possess true models or if they initially possessed incorrect models the information feedback would correct them. But that version of the rational actor model has simply led us astray. The actors frequently must act on incomplete information and possess the information that they do receive through mental constructs that can result in persistently inefficient paths. (p. 8).

Why institutions? "Institutions provide the basic structure by which human beings throughout history have created order and attempted to reduce uncertainty in exchange. Together with the technology employed, they determine transaction and transformation costs and hence the profitability and feasibility of engaging in economic activity. They connect the past with the present and the future so that history is a largely incremental story of institutional evolution in which the historical performance of economies can only be understood as part of a sequential story." (p. 118)

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