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    The Law of Diminishing Marginal Utility

    Dan Klein has published a retraction of his earlier claim that progressives are more susceptible to economic ignorance than conservatives and libertarians. Along the way, he makes a mistake that is one of my pet peeves.

    More than 30 percent of my libertarian compatriots (and more than 40 percent of conservatives), for instance, disagreed with the statement “A dollar means more to a poor person than it does to a rich person”—c’mon, people!—versus just 4 percent among progressives.

    “A dollar means more to a poor person than it does to a rich person” is Klein’s misstatement of the law of diminishing marginal utility. A proper statement might be “a dollar would be worth more to a man if he were poor than if he were rich, other things equal.” The law of diminishing marginal utility does not give you the ability to make interpersonal comparisons of utility.

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    President Obama’s Student Loans Op-Ed

    My sister forwards me the President’s rather tepid call to action on student loans, in the Harvard Crimson. My reactions:

    One subtext seems to be that he wants to continue putting pressure on the small minority of student loans that are still made by private lenders. (“We’re also going to take steps to help you consolidate your loans so that instead of making multiple payments to multiple lenders every month, you only have to make one payment a month at a better interest rate.”) But it’s a little unclear.

    He also wants to “give about 1.6 million students the ability to cap their loan payments at 10 percent of their income starting next year.” These numbers could mean a lot of different things. Likely it works out as a subsidized loan to people with low incomes, and an implicit tax on loan repayments of people with high incomes. Or just an explicit tax, to subsidize student loans in general.

    The only other proposal I see is to give more information (“we want to start giving students a simple fact sheet called ‘Know Before You Owe’ so you can have all the information you need to make your own decision about paying for college.”). This is a pretty typical feature of garden variety progressive initiatives. If you give people more information, people will supposedly make more rational decisions.

    Of course people don’t actually act like rational economic calculators. At best, most people just imitate what other successful people around them seem to be doing. Students will stop taking out such large student loans only if they believe taking out loans tends to lead to bad consequences. To that extent, the pain of repaying student loans is not the problem – it is the solution. Taking away that pain by artificially lowering interest rates or passing the costs to taxpayers only encourages people to make the lousy educational investments that they may be making today.

    Mostly Obama just wants you to know how much he (and Michelle) cares about students. I wish he cared less. Nobody made students take out those loans.

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    Leo Katz is Guest-Blogging on Volokh

    I may want to read his book. Snip:

    But perhaps you in fact think the parliamentarian ought to feel bad about using a killer amendment? Once you think about the matter a bit more, it is hard to see that what the parliamentarian did as the least bit objectionable. To be sure, he did derail a bill that had majority support. But did the bill he derailed in fact deserve to pass? To be sure, a majority supports it as against the status quo. But there is another bill, the amended bill, that yet another majority would prefer, and then there is another majority that would prefer the status quo over that one. Given that, what makes the proposed bill anymore expressive of the legislature’s “true” wishes than these other alternatives?

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    Happiness and Genetics

    A friend forwarded an article from the Economist summarizing some evidence that happiness is genetic.

    THE idea that the human personality is a blank slate, to be written upon only by experience, prevailed for most of the second half of the 20th century. Over the past two decades, however, that notion has been undermined. Studies comparing identical with non-identical twins have helped to establish the heritability of many aspects of behaviour, and examination of DNA has uncovered some of the genes responsible. Recent work on both these fronts suggests that happiness is highly heritable.

    As any human being knows, many factors govern whether people are happy or unhappy. External circumstances are important: employed people are happier than unemployed ones and better-off people than poor ones. Age has a role, too: the young and the old are happier than the middle-aged. But personality is the single biggest determinant: extroverts are happier than introverts, and confident people happier than anxious ones.

    Surely there is a strong genetic component to happiness. However, I’m mostly interested in the environmental components of happiness.

    In my experience, people react negatively toward displays of unhappiness. This suggests that happiness signals something desirable about an individual, perhaps success or social status. If unhappy people are unsuccessful or undesirable, it’s best not to invest too heavily in them. If happiness didn’t signal, then why avoid unhappy people?

    One problem with looking for simple genetic determinants of happiness: success and social status have genetic factors too. Twin studies won’t eliminate this complication, and I’m not sure how easy status should be to control for – status within a local social network, rather than within society, seems more likely to be important.

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    Presidential Primaries as Mate Selection

    Voters look for the same qualities in presidential candidates as they do in mates – or at least, as I imagine women look for in their ideal man.

    The ideal presidential candidate is tall, handsome, and confident. He is ambitious, and his career history is extremely impressive. He is probably rich, or if not he is at least famous. He should come from the same cultural background as you, and he should like the same things you do. He should be compassionate, eloquent, and outspoken. In debates, he should be able to embarrass his competitors without loosing his composure, and he should never appear confused, apologetic, or defensive. It’s easier to like him if he is already popular. He definitely shouldn’t have a habit of making outrageous statements in public. How would you be able to explain him to your friends and family then? Obviously, he is a man and not a woman.

    Is it a good metaphor? Or a perfect one?

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    Consequences of Political Zen

    Political Zen [earlier Upside article] is what I call acceptance of the notion that politics is beyond the control of any individual. Certain consequences may flow from accepting this notion.

    Political Zen may cause you to decide not to get involved in politics. Some people become activists because they want to “make a difference.” Thousands of journalists, activists, policy experts, and staffers spent years in Washington debating the merits of a single piece of health care legislation. Collectively, their discussion may have been very profound, but no individual can reasonably claim that he played a decisive role in the legislative process. Most political issues are like health care insurance reform: whether or not you get involved, they will be resolved in substantively the same way.

    A person who accepts his inability to “make a difference” in politics needs some other reason to stay politically involved. The most obvious reason is that, even if you cannot make a “difference,” you can still make a living in politics. Politicians, their staff, journalists, policy experts, bureaucrats, lobbyists and more at least earn a paycheck, even if none of them really achieve anything.

    Other people derive a sense of fulfillment from participating in politics. If you think participating is inherently meaningful or perhaps a sort of duty, then you may not care whether or not you have made a quantifiable contribution. Activism can be its own reward. Political involvement can also be a truth-seeking exercise. Debating politics is a way to test your own understanding, and hopefully improve it.  Or it can be a way to help improve the understanding of other people. Debate can be enjoyable for its own sake, even when if it is unproductive. You may just enjoy being right – or arguing with people who aren’t – or just arguing.

    If you do remain involved in politics, you may find the nature of your involvement changing. Although wonks prefer to discuss politics in terms of concrete, achievable policies, there is no need for any individual partisan to do so. You may find yourself becoming more Utopian, and less concerned with following the political horse race. You might stop caring about political strategy. Or you may not. Like sports, elections have their own inexplicable appeal, though not to me. Unfortunately, if you make a living in politics, you may have to at least pretend to care about “practical” politics. This is perhaps something to consider before getting involved.

    Finally, you may start to think about politics differently. You may reluctantly accept that, in politics, no one is really to blame – and conversely, that no one really deserves credit. If you don’t have any real control over policy, then your political opinions are just thoughts. Even elected politicians only have the power to legislate within the strict constraints imposed by public opinion and the decisions of their colleagues. In practice, laws don’t get passed merely because politicians choose to support them – rather, politicians only have office in the first place because they have credibly committed to satisfying the legislative demands of their constituents.

    Some people find Political Zen to be bleak or depressing, but it isn’t that way to me. Political Zen only tells us what we should know already – that the world is big and an individual is small. Along the way, it lifts the burden of responsibility from our shoulders. You cannot be to blame for what is out of your control. You don’t have to worry about the results of getting politics wrong, because the world will be no different if you do. And because you aren’t responsible, you can work toward your own goals instead of worrying about the political disposition of society at large. If you want to discover truth, share it with others, fulfill a categorical duty despite the hopelessness of achieving specific results, or if you decide to simply give up on politics, then Political Zen is no obstacle to you, just a first step.

    This piece was originally written for Stephen Dewey’s UpsidePolitics.com

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    Political Zen

    For me, political zen begins with the realization that I have no influence over the broader political forces at large in this country, or the world. Most people who care about politics want to change society, reverse injustice, or alter the vision of morality held in the minds of their countrymen. None of these things are achievable.

    Take voting. More than 300 million people live in the United States. More than 131 million people voted in the last presidential election. No individual voter could have hoped to change the result of an election by voting. If a person were a tie-breaker, it would probably not matter who they had voted for. Whichever politician won would preside over a strongly divided electorate. He would not be likely to have the political support to pass drastically different legislation. And in two, four, or six years, there would be another election, and whatever votes passed or failed on thin margins could be reversed.

    Many people who understand the futility of voting hope to change politics by entering it. There may be 300 million voters, but there are only one hundred senators, fifty governors, and one president.

    But it is just as hard to make a difference by running for office as by voting. There are 300 million people in America, and each has only a small chance of becoming president. On a more fundamental level, politicians can only win elections if many people will vote for them.  To win votes, a politician must promise to do what people want him to. A politician can lie about his beliefs, or he can believe the things that people already want, but over the long run he cannot resist the political regression to the voters’ mean.

    Many people stake their hopes not on voting or political office, but on ideas. Politicians and activists alike both suppose that if they study ideas carefully, learn which ideas are true, and argue for those ideas forcefully, they can convince voters to want different things. This strategy suffers from the same basic problem as the others. In a nation of 300 million people, why imagine that you will be the one whose ideas spread to others? Why think that you will be the one who argues more forcefully than anyone else? Why imagine that you will learn truer ideas than all others? Moreover, the truth of an idea is a part of external reality. No personal efforts will change an idea’s “truthiness.” If an idea is true, and if truth recommends itself (but who knows if it does?), then the truth does not need any individual advocate’s support.

    Ideas have their power external to their believers. The welfare state did not occur because Otto von Bismark imagined it; Martin Luther King could not have prevented the Civil Rights movement if he had tried. Idealists who want to make a difference often hope that they will be able to spread their ideas to others. But an activist’s ideas are not attractive because he believes them, he believes them because they are attractive. We can participate in change, but we cannot change it.

    People can make a difference. They can make a difference in their own lives, in the lives of their friends and family; they can make a difference to their coworkers and the people they interact with from day to day. In a sense, whether you are rude or generous or cruel to others is “political.” And this difference may be vastly important to these other people. But this is not politics as generally conceived, or as people usually seek to practice it.

    This piece was originally written for Stephen Dewey’s UpsidePolitics.com.

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    Nazi Hypotheticals

    Godwin’s Law states that as an online debate grows, the odds of one of the participants making a Nazi reference approaches 100%. Many people believe that the person who makes the Nazi analogy loses the argument by default (he has “violated” Godwin’s Law), but I don’t think that is right. Nazi hypotheticals can be used to iron out bad logical premises in an argument, if they are used correctly.

    However, it is important to note the distinction between different kind of Nazi comparisons.

    1. Sometimes people make completely opaque and unexplained Nazi references. For Example:

    Person 1: I think I’ll vote for Rick Perry in the Republican Primary.

    Person 2: He’s just like Hitler. What are you, a Nazi?

    Here it is almost impossible to understand, without some context, what similarity exists between Rick Perry and Hitler, or between Person 1 and the Nazis. Often, when this kind of unexplained comparison is made, there is no real equivalence, and the comparison is just an unhelpful epithet.

    2. Sometimes, people make completely irrelevant comparisons to the Nazis. For example:

    Person 1: I think we should build more highway, because they are great.

    Person 2: Hitler loved highways. We shouldn’t build Nazi roads here.

    Here the comparison to the Nazis is clear, but irrelevant. The fact that Nazis loved the autobahn doesn’t make highways bad. Hitler probably loved pizza and filet mignon too, but that doesn’t make them any less delicious. Nazi references need to be more than valid comparisons, they need to have some substance relevant to a larger discussion.

    3. In some circumstances, Nazi references can be used as valid counterexamples to a disputed principle. For example :

    Person 1: Citizens should always obey the law.

    Person 2: Should German citizens have obeyed laws to turn over their Jewish neighbors to Nazi death camps?

    Nazi hypotheticals are useful because they provide a ready body of real world scenarios that most people identify as clearly evil. Almost nobody today is in favor of sending ethnic minorities to death camps or starting vicious aggressive wars for territorial gain. These scenarios can be referenced as obvious counterexamples that force somebody to qualify a logical premise (citizens should always obey the law unless the law is really bad) or discard it (citizens should not always obey the law).

    It’s important to remember that such hypotheticals may only be useful when they specifically relate  to obviously evil facets of Nazi policy. Everyone agrees that genocide and unprovoked wars of territorial aggression are bad. But comparisons between Swat team drug raids and violent SS house invasions to search for hidden Jews, for example, will still be unhelpful. Although everyone agrees that hunting for Jews is bad, not everyone believes that the tactics used to do so were inappropriate for all ends.

    So, if you are going to use a Nazi hypothetical, make sure it’s explained, make sure it’s relevant, and make sure you are referring to something the Nazis did that is clearly evil. And expect to be misunderstood anyway.

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    Distributional Effects

    Many of the moral judgments that people term “fairness” seem to implicitly concern distributional effects. Imagine two policies that both affect 10 people. Policy A will cause 9 of the people to gain $10, and 1 to lose $10. Policy A`, an alternative to Policy A, will cause all ten people to gain $5. The average return of Policy A ($8) is greater than that of Policy A` ($5). But many people will say that Policy A is unfair, because, looking at the people who are worse off in each scenario, someone is worst off under Policy A.

    This analysis represents a sort of case-by-case, post-hoc Rawlsian difference principle. The analysis is usually applied after the fact of a choice between Policy A and A`. Strangely, perhaps, many people seem not to care who made the choice between the two policies.

    For example, imagine ten couples investing their funds for retirement. They choose between one of two investment policies. Under Policy A, they will invest their funds in one of many different sets of stocks. All sets of stocks are expected, with 90% probability, to produce a $10,000 return, and with 10% probability, to produce a $10,000 loss. Alternatively, the couples can choose to invest in Policy A`, which will produce a guaranteed return of $5,000.

    Suppose all ten couples freely choose Policy A. We can expect that one of those ten couples will experience a $10,000 loss. People with libertarian sentiments, although they may empathize with that couple, will generally not object, because the couple chose the policy.

    However, my impression is that many other people object that this is simply unfair. Even where risks have been chosen voluntarily, they would prefer a more even distribution of losses. Some people will prefer that everyone take Policy A`. They may even support legislation that would force them to do so (such as Social Security).

    Whenever you hear an unelaborated claim that some policy or practice is “not fair,” I would suggest that you look for this sort of distributional effect. Does some group of people stand to lose in a big way? Will the unlucky people be worse off under Policy A than under Policy A`?

    Some examples of how this “fairness” analysis may color some political debates, high and low:

    • Social security may produce a very bad rate of return, but it would be unfair to let retirees lose their money on the stock market.
    • Health care insurance may not be worth the cost of the premiums, but it is unfair to force sick people without insurance to pay for the cost of their care.
    • Allowing underperforming businesses to fail might aid in the efficient reallocation of labor and capital, but it will be unfair to the unlucky employees of those businesses, who will have to find lower-paying jobs.
    • Low skill immigrant workers may increase the output of the economy in general, but they compete with the worst off lowest-skilled Americans and may hurt their wages.
    • High credit card fees for missed payments might lower uncertainty for credit card lenders and decrease the total cost of lending, but they will reallocate most of that cost to chronically late payers.

    This analysis – unfairness as greater harm for the unlucky or worst off – may strike some people as rather obvious; however it may not be obvious for everyone. And because, I suspect, it is such a central concept, it seems useful to have a go-to post up on my blog for reference.