Tuesday, January 31, 2012

Economics in my Fiction

A correspondent points me at a blog post with the intriguing title "Sci-fi needs economists." Neither of my novels is science fiction, but both of them are speculative fiction—sf, of which sci-fi is a subset. And both of them reflect, in varying ways, the fact that they were written by an economist. It occurred to me that some readers of this blog might be interested in how.

The protagonist of Harald is a leading figure in the Vales, a semi-stateless society loosely based on saga period Iceland. The Vales are allied with the kingdom of Kaerlia, from which they were settled a few centuries back, and with a third, non-geographical polity, the Order, a female military order very loosely based on the Templars. I do not find an order of women warriors terribly plausible from a historical standpoint, but I like it as a plot device. The three are allied against the Empire, a larger, expansionist power loosely based on Roman, Byzantine, and Abbasid models.

One form in which economics appears is the central problem that Harald faces—how to raise and support an army without either taxation to hire troops or a feudal system with liegemen obliged to fight for him. Although his purpose is defensive warfare, the model I was thinking of was offensive—the Norse armies that ravaged Britain. As best I can tell they were, in large part, not national armies but entrepreneurial projects. Harald is not in a position to offer his people land, but he can offer them loot—loot captured from Imperial forces he defeats and, more important, ransom paid by the Empire to get back their captive soldiers. That, plus excitement, glory, the opportunity to train under the best general around, and a patriotic desire not to have their homeland conquered, have to suffice.

One implication is that Harald has to be very stingy with the lives of his men; if too many of them get killed or injured in this campaign, nobody may show up for the next one. Hence he specializes in what his daughter refers to as "Father's set piece battles—everything important settled five minutes before it starts." The objective, always, is to put the opposing force in a position where it will have to surrender; his favorite method is logistical, creating a situation where if the enemy do not surrender they will die of hunger or thirst.

The same issues arise on the other side, although not quite as obviously. The Emperor has legionaries who are professional soldiers paid by taxes, and auxilia, mercenary forces from inside or outside the empire to fill roles that the legionaries do not. From the standpoint of each individual commander, it is the legions, the elite heavy infantry, that really matter. While losing auxilia is a bad thing, you can always hire more; as long as the legions get safely home, the army has not been defeated.

The problem, as becomes clear in the final campaign, is that you cannot always hire more. Having gotten quite a lot of auxilia killed in earlier campaigns, the Empire finds mercenaries in short supply, not because most of them have been killed but because the ones who are alive would prefer to stay that way. The economic constraint.

My second novel, unlike the first, is an actual fantasy with magic. Its initial theme was the fantasy equivalent of the central planning fallacy. If readers are interested, let me know and I will be happy to expand on that. I am a little worried that, like many authors, I may be more interested in talking about my books than other people are in hearing about them.

Saturday, January 28, 2012

Genetic Testing and Insurance: One Datum

Reductions in the cost of genetic testing and improvements in what we know about what it tells us produce obvious benefits; if you know you are  likely to have some particular medical problem, you may be able to take precautions against it. But they also have at least one potential downside. The more is known about the chance of bad things happening to us, the less able we will be to insure against them.

A solution to this problem that is sometimes proposed is to permit individuals to have their genes tested but forbid insurance companies to require testing as a condition of insurance or to use the information it produces. The problem with that is adverse selection. If the customer knows his risk and the insurance company doesn't, high risk and low risk customers are charged the same price, making insurance a good deal for the former and a bad deal for the latter. Insurance companies, realizing that most of those who choose to buy their insurance are bad risks, will charge accordingly, driving more of the low or average risk customers out of the market. In the limiting case, insurance is bought only by high risk customers, at a high risk price. A famous description of the problem is Akerlof's article "The Market for Lemons."

If we allow both insurance companies and their customers to make use of genetic information, then both high risk and low risk customers can buy insurance, but at different prices. The risk of having genetic variants that make you more likely to suffer some expensive medical problem is uninsurable, although you can still insure against the risk that, given those genes, the problem will actually appear.

The theoretical analysis of the problem is straightforward; interested readers can find one version in Chapter 6 of my Law's Order. But the theory does not tell us how large the problem is. That depends on empirical facts, in particular on how much the information provided by genetic testing affects the expected cost of insuring someone.

As it happens, I recently came across a datum relevant to that question, as a result of having my own genes tested by 23andMe, a company that does mail order genetic testing. It turned out that I had a genetic variant that implied a moderately increased risk of meningioma, the second most common type of brain tumor.

The information came a little late to be useful. Last summer, while I was part of a group on World of Warfare, one of the other players noticed that I had stopped responding. He called the house. My son took the call, came into my office, and found me half conscious on the floor. The diagnosis at the local hospital was meningioma, a benign (i.e. non-cancerous) tumor inside my skull but fortunately outside my brain. It was large enough to put pressure on my brain, so required surgery. I got surgery, all went well, and I am now fully recovered, aside from a visible scar and a tendency of my scalp to itch.

According to 23andMe, 35,000 Americans a year are diagnosed with meningioma, and in most cases the tumor is small enough not to require surgery. Assume that 10,000 of those, like my case, do, making the annual probability for a random American 1/30,000. Further assume that the average cost is $100,000. That's the right order of magnitude—I saw the figures for what it cost my insurance company, but don't have them ready to hand at the moment. The average cost to the insurance company of that particular risk is then about $3.

Finally, assume that my "moderately increased risk" means twice the average risk, which seems if anything a high guess. It follows that in a world where insurance companies had and used that data, my medical insurance would cost me, or my employer, three dollars a year more than in a world where the data was not available.

There are, of course, lots of other risks that my health insurance insures against. For some my genetics are presumably favorable, for some unfavorable. It would require much more information than I have to estimate how much the cost of insurance would vary from one person to another if all of that information was available and used. But at least the single datum I happen to have suggests that the effects might be small.

Sunday, January 22, 2012

Is Newt Gingrich Living in Sin?

He is currently divorced from his second wife, who is still alive, and married to his third. He also a Catholic convert. The Catholic church, as I understand its doctrine, does not accept divorce. Unless he somehow obtained an annulment, doesn't that make his current marriage adultery?

It's one thing to have committed a sin, repented, and reformed. But it looks as though he continues to commit mortal sin on a regular basis. Am I missing something?


The answer is that he is not living in sin. A commenter points me at an Esquire story on him which mentions that he got an annulment. The story is largely based on an interview with his second wife, who sounds like an interesting lady.

Who is the Least Bad Candidate?

Last time around, when it was effectively down to three, I concluded somewhat tentatively that it was Obama. He seemed a little less bad than Hilary Clinton and had one big advantage over McCain—when Obama did bad things, we, people who supported free markets, wouldn't get blamed for them. And I thought there was at least a chance that he would do some good things.

Ex post, I was probably wrong, although it is hard to be sure; we will never know how bad the other two would have been. The one part where I was right was his advantage over McCain. If a Republican president had run an enormous deficit, insisted on his right to treat anyone he could label as a terrorist as outside the normal protections of the law, expanded the Afghan war, and ended up with the same economic results as Obama, it would have been harder to bring the Tea Party movement into existence and elect a considerable number of its candidates in the midterm elections.

We now have another presidential election coming up, and the same question. If we include Ron Paul in the candidate pool, the answer is pretty easy. While I have some reservations about his ability to function as President, given no experience as an executive, his policy positions are closer to mine than I have any reason to expect of a serious candidate. In particular, on two biggies, ending the War on Drugs and shifting to a non-interventionist foreign policy, he is on the right side. It's true that his monetary policy seems to assume that producing money will continue to be a government monopoly (those who know more about it are welcome to correct me if I am mistaken), although he wants to tweak the details a bit, so in that regard, if I correctly understand him, he shares the socialist views of the other candidates. But one can't have everything.

I suspect however that, as most commentators believe, Ron Paul has very little chance of getting nominated, let alone elected. His real function in this election is to force the Republican party—ideally both parties—to shift in a libertarian direction, by demonstrating that there are a lot of votes there, and at the same time to increase public support for policies currently supported by neither party. 

Besides, including him makes the choice of least bad candidate an uninteresting one.

I am inclined to eliminate Santorum as well, since he also seems at this point very unlikely to get the nomination. That leaves us, yet again, with a pool of three, this time consisting of Gingrich, Romney, and Obama. Which is least bad?

It is a hard question. If we consider politics purely as a source of entertainment, Gingrich is an easy winner—he would be more fun to argue with than either of the others, and is likely to put on a better show. But the same things that make him interesting also make him frightening. I don't think a candidate who believes that the President and Congress ought to have the power to overrule the Supreme Court, as he apparently does, is exactly what the country needs. And I could imagine him coming up with a lot of other original—and dangerous—ideas. He is obviously smart and articulate, and it is possible that, once in power, his bite would be better than his bark, but I am not sure I want to risk it.

Romney is easier to evaluate. Pretty clearly, he is a liberal Republican currently pretending, for political reasons, to be a conservative Republican. In terms of the policies he would prefer, given the choice, I doubt he would be very different from the current incumbent—perhaps a little worse on military matters. Think of him as Obama light. Which leaves me wondering if perhaps I should again choose Obama as the least bad, at least if the Republicans succeed, as they well may, in taking both houses of Congress. 

On the historical evidence, practically the only time the federal government runs a surplus is when one party holds Congress and the other the White House. While it is probably true that Obama is, as one commenter put it, not a Kenyan but a Swede, that his ideal is to make the U.S. into something more like a European welfare state, he is also a Chicago politician, unlikely to let his principles get in the way of his politics. Faced with a congress controlled by the other party, a substantial minority of it in favor of a sharp reduction in government expenditure and regulation, he might well decide that his best strategy is to outflank the Republicans on the right. He has already made a few gestures in that direction, in rhetoric if not yet in substance.

That could, of course, mean being even more willing than they are to reduce liberty in the name of fighting terrorism. But it could also mean trying to reduce government expenditure and regulation wherever doing so is not too politically expensive—most obviously the military, which Romney is quite unlikely to cut, but perhaps in other areas as well. And it is at least possible, although not likely, that if the Republicans do not learn from the lesson Ron Paul is teaching, Obama will, that he will conclude that a shift in a libertarian direction somewhere, perhaps drugs or foreign policy, is a sensible tactic to create a Democratic majority.

Gingrich: Open Marriage or Menage a Trois?

Various news stories have reported that Newt Gingrich asked his second wife for an open marriage. So far as I can tell, it isn't quite true:
Marianne Gingrich, in her first television interview since the couple's 1999 divorce, told ABC News that when Gingrich admitted to a six-year affair with a congressional aide, he asked her if she would share him with the other woman, Callista, who is now married to Gingrich.
"And I just stared at him and he said, 'Callista doesn't care what I do,'" Marianne Gingrich told ABC News. "He was asking to have an open marriage and I refused...that is not a marriage."
Marianne Gingrich, in a separate interview with The Washington Post, said Newt Gingrich initially asked for a divorce.
(Fox News Story)

His original proposal was a divorce—the conventional resolution to such a situation. When his wife turned that  down, he offered an alternative. 

But that alternative does not seem to have been an open marriage—it is clear from other accounts that that was her term, not his. An open marriage would have meant not only that he was free to sleep with other people but that she was as well; so far as I can tell from the news stories, that was not what he proposed, although it is possible he would have been willing to. What he asked for was a different traditional solution, although the tradition is perhaps more French than American.

Friday, January 20, 2012

Kahneman and Caloric Leakage

In a recent post, I discussed Daniel Kahneman's Thinking Fast and Slow, a very interesting book. Part of its point is that much, arguably most, of our thinking is done by a part of our mind that functions, invisibly and automatically, in the background, the part that recognizes faces and facial expressions, voices, and much else, a part that is very fast but not very smart. Many of the errors we make are due to the limitations of that part of our mind, limitations that are an almost inevitable accompaniment to its speed. 

Thus, for example, the fast mind, faced with a problem it does not know how to solve, substitutes a similar problem that it does know how to solve and offers the solution to the second question in place of a solution to the first—without mentioning to the slow mind, the part that is responsible for rational thought, that it has made the substitution. Another limitation of the fast mind is that it is very bad at fine distinctions; thus, for example, it tends to deal with probabilities by classifying them into one of three categories—impossible, possible, certain. Attention, processing by the slow mind, is a scarce resource, so most of the time the slow mind simply accepts the information fed to it by the fast.

It occurs to me that the malfunctions of the fast mind may help explain why it is so hard to lose weight. Consider the well known principle of caloric leakage, the principle that holds that although a cookie has lots of calories, a piece of a broken cookie does not, the calories having leaked out—so you might as well eat it. Or consider my well established weakness for marginal cost zero food—another serving at an all-you-can-eat buffet.

The explanation for caloric leakage is the inability of my fast mind to deal with fine distinctions—a piece of a cookie is entirely different from a cookie, cannot be viewed as half a cookie, and so my knowledge that it has half the calories of the cookie never gets triggered. The explanation for the second problem is that, faced with zero marginal cost food, I have no need to pass the decision of whether to eat it on to my slow mind to decide whether it is worth the cost in money—and my fast mind doesn't worry about the cost in calories. 

Also, as best I can tell, my fast mind has what an economist would describe as a high discount rate, and so is unwilling to give up benefits now for larger benefits in the future. And I like cookies.

The Courtesy of Princes

Some years back, I came across the phrase "Punctuality is the courtesy of princes." I do not know where it originated—perhaps some reader can tell me—but it struck me as embodying an important truth.

Suppose you are the big cheese—king, CEO, guest of honor. If someone else comes late to dinner, his dinner is cold. But the dinner can't start without you, so if you come late to dinner, everyone else's dinner is cold too.

It struck me in part in the context of the SCA, a historical recreation group of which I am a long time member; it actually has kings and princes and feasts, and if the King is half an hour late to the feast everyone else is likely to get food that has been cooling for half an hour.

Part of the justification for the phrase is the observation that lack of punctuality by the prince imposes a cost on everyone else. The other part is the observation that doing things for people only really counts if it costs you something. If the King knights someone, that's great for the recipient, but it does not actually cost the King anything. But being careful always to show up on time when your presence is necessary for other people does cost something, since quite often you have other things you would like to be doing, so it is a way of showing that the welfare of other people, in particular the people you are in some sense in authority over, matters to you.

The point is not limited to feudal societies or historical recreation. In the real world, I make my living as a professor. If one of my students is five minutes late, he misses five minutes of the class. If I am five minutes late, everyone misses five minutes of the class. If one of my students persuades me to revise his grade upwards or exempt him from some requirement of the class that he finds particularly difficult, that's great for him but  doesn't really cost me anything, so is weak evidence that I actually care about his welfare. Taking the trouble to never come late to class, on the other hand, does cost me something.

Punctuality is the courtesy of princes. And professors.

Monday, January 16, 2012

What if Arab Spring is followed by Arab Winter?

The Arab Spring has gotten a generally favorable press in western countries—not surprising, since the governments attacked were undemocratic and, to varying degrees, oppressive, and democracy is very nearly the civic religion of modern developed states.

Like other religions, it relies as much on faith as on reason. African decolonization, carried out on a democratic model, repeatedly took the form of one man, one vote, once. Its results included some of the bloodiest conflicts of the postwar world.  In several different countries, casualties were in at least the hundreds of thousands—worse, I think, than anything in colonial Africa since Leopold's Congo atrocities. That history should remind the supporters of democracy that it is a means, not an end, hence not always and everywhere an unambiguously good thing.

The recent success of Islamist parties, especially in Egypt, raises similar concerns. The final results might be governments worse than the ones that were overthrown—either democratic governments responding to majority opinion inconsistent with liberal values or a new and even worse generation of dictatorial rulers.

If that happens, it will be interesting to see the response in the U.S. and elsewhere.

Saturday, January 14, 2012

Mormon Candidates, Gay Marriage, and Polygamy

One argument frequently offered by opponents of gay marriage is that the  logic that leads to the legalization of same-sex marriage also implies that polygamy should be legal. Supporters of same-sex marriage seem, in my experience, reluctant to make the obvious response—so what? Why shouldn't a man be permitted two wives or a woman two husbands, provided that all three parties are willing? Most seem to concede, at least by implication, that if same-sex marriage does lead to legalized polygamy, that is an argument against it.

It occurs to me that this raises a potential problem for two of the current crop of Republican candidates. Neither Huntsman nor Romney supports same-sex marriage. Both are Mormons. Surely at some point some curious voter will ask one or the other for his view of polygamy. Given that they are trying to get votes from people who regard polygamy as so obviously wicked that the mere possibility of legalizing it is a convincing argument against legalizing same-sex marriage, what are they to say?

It is true that the Church of Latter-Day Saints abandoned polygamy a century or so back. But it is also true that it was founded by polygamists, throughout its early history regarded polygamy as an important part of its religion, and abandoned it only under severe outside pressure, including military occupation by the U.S. army. Can a believing Mormon really hold that polygamy is not merely a bad idea at the moment but inherently evil? Can someone unwilling to say he believes that polygamy is evil win the Republican nomination?

Has the question come up yet? If so, how did the candidate evade it?

Tuesday, January 10, 2012

Politicians and Historical Ignorance

Rick Santorum, in an interview some years back:

"Every society in the history of man has upheld the institution of marriage as a bond between a man and a woman. Why? Because society is based on one thing: that society is based on the future of the society. And that's what? Children. Monogamous relationships."

The comment has mostly been criticized in the context of the dispute over same-sex marriage. What struck me was the profound historical ignorance it implied, assuming Santorum actually believed what he said. 

One can argue about whether or not any historical society had something equivalent to same-sex marriage—but Santorum included in his description of what every society was based on "monogamous relationships." Monogamy is, historically speaking, more common than polygamy, but polygamy was an accepted form of marriage not only in the Islamic world (where it still is) and in China through most of its history—two of the world's great civilizations. It was also an accepted practice in Old Testament judaism, the society on which all three of the major monotheist religions are based.

Santorum does not, however, have any monopoly on historical nonsense. 

Gingrich: "I think Jefferson or George Washington would have strongly discouraged you from growing marijuana, and their techniques for dealing with it would have been rather more violent than the current government."

Most of the current crop of candidates could be excused for that one, but Gingrich, before he got into politics, was a professional historian and has  written alternate history novels set in 19th century America. Yet he apparently does not realize that marijuana only became illegal in the U.S. in the 20th century. Or that, in the 18th century, hemp was an important commercial crop—and both Washington and Jefferson grew it.

Alternatively, and perhaps more plausibly, he doesn't actually connect what he says with what he knows.

To be fair, it is not only Republican candidates who appear to be strikingly ignorant of historical facts. It was, after all, our current Vice-President who, in a televised interview, claimed that:

“When the stock market crashed, Franklin D. Roosevelt got on the television and didn’t just talk about the, you know, the princes of greed.”

Thus demonstrating that:
1. He didn't know who was president in 1929.

2. He thought television was widely available in 1929—ten years before the first presidential speech to be given on television.

Readers are invited to provide additional examples.

Friday, January 06, 2012

Dear Apple—Getting the Interface Wrong

I wish to find and open a file—say Switch, a useful program for doing things with sound files. My application folder contains about a hundred and fifty applications and folders, arranged in alphabetical order. To simplify the search for the one I want, I start by pressing S on my keyboard.

The window now shows, as its bottommost file, Safari, the first application that starts with S. Since the file listed at the bottom of the window is the first one starting with S, every other application whose name begins with that letter is now off screen. To get to the file I want, I will have to scroll further down.

Apple is famous for the elegance of its user interface, but in this case it got it wrong. Pressing S ought to either put Safari at the top of the window or System Preferences, the last S file, at the bottom. Either of those would put Switch where I want it—visible.

Until Apple makes that simple fix, I will simply have to remember, when I want to find Switch, to press T.