Wednesday, February 3, 2016

The Irrational Regret of Automatic Withholding

Ladies and Gentlemen, I present you the following:
Today, I found out that my tax filing status was never changed after my divorce. This means I haven't been paying enough and now the government wants its money. FML

 A proletarian gripe, yes. But it's a sentiment pretty widely shared. If you have ever taught a principles course, ask yourself how often you've had to explain the permanent income hypothesis to students. Consider how much effort you've expended trying to shoo away the notion that IRS withholding is pretty close to the worst sort of savings scheme outside of payday lending. Now consider how many students out there never bothered to show up to your classroom in the first place.

Now take a moment to think just how easy it might be to hoodwink a democracy.

I am curious how stubborn a tick this automatic withholding it. Some programs cannot easily be dislodged once in place, thanks to popular support. IRS policy seems at first blush to lack popular support, yet I think it enjoys just enough indifference among the people that multipartisan support by elites is sufficient to ensure its longevity.

Friday, January 29, 2016

Dank Federalism

With the winter chill pestering my Old Virginia home, family swimming excursions are enjoyed at the local rec center. Obliged by my aversion for idle conversation with strangers, I look to heavy tomes to deter the other parents (if not as a signal, then as a melee weapon as a matter of final resort). One of the more imposing volumes in my library is a hardcover translation of Tocqueville, so I've been revisiting Democracy in America while my 4 year old practices the ancient art of annoying other adults.

Something struck me in DiA's dissection of American culture. Federalism, separated hierarchical government, seemed to him to be more than a mere political choice, selected from a suite of otherwise-mostly-equal options. In a rather Humean fashion, he claimed that the town-state-nation organization of politics arose from the very sentiments of the typical Yankee ploughman. Think of it as Tiebout-plus. Rather than residents moving to new towns that better suit their peccadilloes, American residents use American little-d democracy to move town policies to suit them. He didn't say so, but there's pretty good English countryside precedent for this predilection. Peasants settled their own disputes in common law courts rather than petitioning the crown or some local lord. The American colonialists were basically just peasants with a little more self-determination.

The point is, the heuristics of the people determined the form of the organizational structures that were later codified in the national, state, and local constitutions, laws, and codes. Sentiments preceded rules. If this is true, I must wonder what sentiments preceded the slow abolition of local self-determination. What moral intuition explains the gradual loss of town and state sovereignty?

I'm in the habit of thinking of politics as being simply another form of exchange (albeit with a bit more coercion). If I am to cling to this habit, perhaps I should consider taking more seriously the sources of political tastes and how malleable they might be. Sometimes, the bargaining set is null, no matter how well you haggle. What happens when a nation develops irreconcilable differences?

Monday, January 18, 2016

Despotism in America

Count Alexis de Tocqueville on the (17th c.) Connecticut code of laws (Democracy in America vol. 1 ch. 2) [translation errors mostly mine]:
Among these memorials, we will particularly single out, as particularly characteristic, the code of laws given the little State of Connecticut in 1650.
The legislators of Connecticut begin with penal laws, and, for their composition, they conceive of the strange idea to borrow provisions from sacred texts:
“Whosoever shall worship any other God than the Lord,” says the preamble, “shall surely be put to death.”
This is followed by ten or twelve enactments of the same kind, copied verbatim from Deuteronomy, Exodus, and Leviticus.
Blasphemy, sorcery, adultery, and rape were punished with death; an outrage offered by a son to his parents was to be punished similarly. The legislation of a rude and half-civilized people was thus transferred to an enlightened and morally mild community; the consequence was that the punishment of death was never more frequently prescribed by the statute, and never more rarely applied to the guilty.
Side note: I'm aware of the physical condition of many of the original pages, but Tocqueville is an eminently clear, vigorous writer. It is indeed a shame that so many English translations of DiA are prone to burdening his prose with extra baggage. If the original author writes clearly, a good translation should reflect that propensity, n'est ce pas?

Tocqueville was contrasting the character of the sons of the Puritans in New England with the more commercially-minded settlers in Virginia. His claim was that the character of the nation was as the character of a man: one might observe the traits of the adult in the behavior of the child. A nation forged by commerce is one likely to retain commercial virtues; a nation of browbeating harridans is likely to cling to petty despotism. The wonder of America, claims ol' Lexy, is that she is a land of both.

So there is, should you believe de Tocqueville, a curious bundle of predispositions in the United States. On the one hand, there is a deep and abiding appreciation for hard work, honesty, integrity, trust, professionalism, honor, and prudence. On the other hand, there is a deep skepticism about profligacy, ostentation, inequality, and aristocracy. We Americans appreciate the life of an honest yeoman, and revile the pomp of inherited privilege. Or so goes the predisposition anyway. The American mythology seems mostly consistent with that story, even if the actual experience says otherwise.

What, I wonder, might this tell us about the odd moral intuitions about commerce in America? The Connecticut anti-fops described above would doubtless appreciate Elizabethan sumptuary laws, and might find kinship with the petit paternalism flogged in the academy and on the campaign trail. The tight-buckled Capotain-doffing burgher might even see in this round's crop of insufferable presidential candidates something to love: here an authoritarian who promises to scour the land of undesirables, there another authoritarian who promises to purge ostentatious displays of illicit wealth.

I do wonder though. I wonder to what extent these national predispositions color our individual moral intuitions about the nature and extent of the market. Euvoluntary exchange is great, at least until it enriches someone enough that they start behaving boorishly? Exchange can't be euvoluntary if it violates the ancient legislation of a rude and half-civilized people? This presents a curious puzzle for those few of us not instinctively bound by the mores of either the Plymouth rockers or the Richmond rollers. How can you possibly argue convincingly against the crushing weight of four hundred years of national opinion? Reason is slave to the passions, nowhere so much as in the unexamined tabernacle of the poll.

Also, I had totally forgotten that de Tocqueville was nobility. I wonder why we don't include that little tidbit more often in class.

Tuesday, January 5, 2016

Discover Your Macadamia Nut

Writing at the Foundation for Economics Education, Duke University Professor of Political Science Michael C. Munger excoriates Ricardo. Comparative advantage, he argues, is a dead letter in an age of highly mobile capital, fewer obstructions in labor markets, and an astonishing acceleration in the market discovery process.


Analysts seeking to understand idiosyncratic patterns of production and exchange need look no further than the two fundamental questions of economics:

1) Opportunity cost: what is the value to all salient parties of alternative uses of the resources in question?

2) Division of labor: to what extent does the structure of the market permit buyers and sellers to strike a mutually beneficial (dare I say euvoluntary?) exchange?

Answer these two questions, my friends, and you can explain why it was that New England was home to most American manufacturing in the 19th century (lower opportunity cost for building multi-story mills plus Western European immigration) as well as the advent of the sharing economy (insanely cheap communication allows for otherwise idle resources to be employed rapidly). The "comparative advantage" of dumpy Connecticut mill towns was an illusion, little more than the vagaries of historical accident and geographical fancy. Imagine an alternate history where Jamestown had been a few miles north, out of the swamp and the disease. Semi-skilled laborers might have landed in Roanoke rather than Boston and the American industrial revolution might have taken place on the Potomac. And don't tell me for an instant that you think there's something innately advantageous about an ambitious family renting out a spare bedroom with Airbnb.

So is there any role left for comparative advantage? Shall we toss Ricardo's poor bones onto the pyre and be done with him? I'm not entirely sure.
Admittedly, it was a significant intellectual achievement to show that the weaker trading partner benefits from trade, even if the stronger partner is better at everything. But those fixed differences have largely disappeared in many markets. The question of what should be produced, and where, is now answered by dynamic processes of market signals and price movements, driven by human ingenuity and creativity. The cost savings resulting from successfully dividing labor and automating production processes dwarf the considerations that made comparative advantage a useful concept in economics.
Emphasis added.

Judged against the immense volume of commerce on this little blue-green planet of ours, the macadamia nut is pretty humble. Yet this sensitive little guy is picky about climate. Perhaps not as sensitive as the vanilla orchid, but you're not likely to find a macadamia farm in Wisconsin. Dairy farmers give up too much milk production to justify a futile attempt at hothouse macadamia trees, at least at typical market prices. Australia is better suited to the task (70% of world macadamia nut production is Australian). You might say that fixed geographical differences persist in some agricultural markets. Nuts. Spices. Wine. Wild-yeast beer.

And, perhaps also in natural talents. "Ringo isn't even the best drummer in The Beatles" may be a false Lennon quote, but it captures the spirit of immutable differences in endowments. Try as I might, I'll never have the lungs and paddle-like extremities of Phelps, nor will I be able to dunk from the free-throw line (indeed, I'll never be able to dunk at all, except on my daughter's toy hoop). I will never write anything as good as either Charge of the Light Brigade or Ozymandias. I can't sing. But where Munger's point shines, it is here. Ability is one part natural talent and 99 parts practice. I had no particular affinity, no natural talent for operating a nuclear reactor, nor for churning out button blanks. Yet I performed these tasks admirably enough with sufficient practice. Opportunity cost and the division of labor determine the extent to which I am able to discover and hone what talents nature has bestowed. Comparative advantage is a starting point, a suggestion. At the extremes, in winner-take-all tournament competition, it might still matter, but for most of us, we pick something that suits our tastes and then practice until we get good at it.

And then we have to start all over again when the market conditions change. Life, friends, ain't easy in the hive.

Too Weak?

There is a problem with human workers.  Here it is:

Does this mean that ALL exchange is not euvoluntary?  Is it true that we "must" perform services in exchange for currency? I have heard people argue just this point.  Since we need food, all payment for labor is exploitative.  Of course, usually there are many different ways for me to earn money.  But suppose there is only one?  The "company town" thing.

Here is the entire SMBC comic, which is wonderful...  Perhaps the problem is honesty?

Saturday, January 2, 2016

Can You CHOOSE Free Will?

The freedom to excel: Belief in free will predicts better academic performance 

Gilad Feldman, Subramanya Prasad Chandrashekar & Kin Fai Ellick Wong
Personality and Individual Differences
February 2016, Pages 377–383

Abstract: Increasing evidence supports the importance of beliefs in predicting positive outcomes in life. We examined the performance implications of the belief in free will as an abstract, philosophical belief that views the self as free from internal and external constraints and capable of choosing and directing one's own path. In Study 1 (N = 116, undergraduates), belief in free will was associated with higher performance on an academic proofreading task. In Study 2 (N = 614, undergraduates), we examined performance in real academic settings, and the belief in free will measured at the beginning of the semester predicted better course and semester grades at the end of the semester. Importantly, we found support for the distinctive contribution of the belief in free will in comparison to well-established predictors of academic performance — trait self-control and implicit theories. We conclude that individual differences in the endorsement of the belief in free will are a significant and unique predictor of academic achievement.

Saturday, December 26, 2015

Corporate Activism: Freedom of Association?

An interesting dilemma.  On the one hand, there is the famous Friedman thesis, that corporations need not, and perhaps should not, engage in "civic duty" actions.

If you think that's wrong, then you in effect enable corporations to act on their own social agendas.  Which gives you the Koch Foundation.  I happen to admire the Koch Foundation, but many of my colleagues BOTH say Friedman is wrong and yet CGKF should be prevented from having any say in social activity.  You gots to PICK, folks.  Those are the choices.

Radical Repertoires: The Incidence and Impact of Corporate-Sponsored Social Activism

Mary-Hunter McDonnell
Organization Science, forthcoming

Abstract: This article explores when and why firms participate in overt corporate-sponsored social activism. To shed light on this question, I empirically explore the emergence and implications of a new strategic phenomenon in nonmarket strategy - the corporate-sponsored boycott - in which firms voluntarily cooperate with contentious social movement organizations to sponsor boycotts that protest the contested social practices of other companies or entities at higher orders of market organization, such as industries, transnational regulators, or states. Using a longitudinal database that tracks the social movement challenges faced by 300 large companies between 1993 and 2007, I provide evidence that overt corporate-sponsored activism is used by companies that are chronically targeted and losing ground to activists, especially when those companies are facing a reputational deficit. Furthermore, I find that participation in overt corporate-sponsored activism is associated with significant decreases in the number of activist challenges targeting a firm in the future, suggesting that the tactic may effectively defend a firm from contentious threat by allowing firms to co-opt allies within the activist population. I discuss implications of these findings for social movement research, nonmarket strategy, and the study of corporate social responsibility.