It's Worth Checking

"By "demographic," I mean the Muslim world's high birth rate, which by mid-century will give tiny Yemen a higher population than vast empty Russia."

Mark Steyn, America Alone

I have not read Mark Steyn's new book; the quote is from a webbed excerpt. For all I know many of his claims about the implications of high birth rates in the Muslim world and low birth rates in Europe may be true. But his claim about Yemen and Russia struck me as sufficiently surprising to be worth checking.

A few minutes of googling got me to a page of summary demographic data from the U.S. Census Bureau. Their population estimate for Yemen in 2050 is 71 million, which is indeed surprisingly high. Their estimate for Russia, however, is 109 million.

Population estimates that far ahead are inherently uncertain; they depend in part on reproductive decisions by people not yet born. But insofar as there can be an authoritative source for such an estimate, the Census Bureau comes a lot closer to qualifying than Mark Steyn. Googling some more, this time on references to Steyn's book, I have not yet found anyone else who bothered to check his numbers. Reviewers and bloggers, at least the ones I found, simply took them at face value.

After all, it wouldn't have been printed if it wasn't true, would it?

Are Children Giffen Goods: An Economic Puzzle

Suppose someone invents an inexpensive and reliable way in which parents can choose the gender of their offspring. From the economic standpoint, this represents an increase in quality—you get a child of your preferred gender instead of a fifty-fifty chance—at no significant increase in cost. Increased quality at constant cost corresponds to decreased cost at constant quality; you are now getting more for your money. Lowering the cost of something increases the quantity demanded.

Do you conclude that, as a result of the new invention, the birth rate goes up? If not, why not? Are children Giffen goods?

Hint: I am fond of the sort of mathematical puzzle which consists of a proof of something obviously false, for example that two equals one; the puzzle is finding the mistake in the proof.

Should Irrational Preferences Count?

The field of behavioral economics deals with predictable patterns of behavior that appear inconsistent with rationality as economists understand it. My one contribution to the field is a chapter, "Economics and Evolutionary Psychology," in the book Evolutionary Psychology and Economic Theory; a draft is available on my web page. In it I try to show that several patterns of behavior which are puzzling in terms of the assumptions of economics make sense in terms of evolutionary psychology; they can be explained as behavior that got hardwired into us because it increased an individual's reproductive success in the hunter gatherer societies where our species spent most of its history.

Consider, as one example, the endowment effect, the observation that individuals value items that belong to them more than items that do not even if, as in the classic Cornell coffee cup experiment, who owns what is the result of random chance. I explain this as a commitment strategy designed to enforce property rights in a world without police and courts, the human elaboration of the territorial behavior observed in many animal species.

The usual rule in economics is to take values as we find them expressed in behavior. In deciding whether one situation is more or less economically efficient than another we are judging whether it does a better or worse job of giving people what they are observed to want, not going behind preferences to judge whether it does a better or worse job of giving them what they ought to want.

Suppose you accept my explanation for the endowment effect, or some similar explanation for some similar, apparently irrational, pattern of behavior—that it exists not because it serves the present interest of the individual but because it served the (reproductive) interest of other individuals long ago in a very different environment. Should you still take it as a given in evaluating economic institutions?

Before answering "obviously yes," which I am tempted to do, you might want to consider a simpler question of the same sort. You observe A add some cyanide in B's wine glass, while B is looking the other direction. You ask B if he wants to drink what is in the glass. B replies that he does. Do you conclude that his drinking it is, on the principle of revealed preference, a good thing?

Pornography and rape

One argument sometimes offered for laws against pornography, or against some kinds of pornography, is the claim that consumption of pornography leads to violence against women. A counter argument is that it has the opposite effect, that imaginary sex, including imaginary violent sex, is a substitute for the real thing.

I recently attended a talk by an academic who had found an ingenious way of using a natural experiment to find out which was true. Access to the internet makes pornography more readily available—not only cheaper and easier to find, but more private and so less likely to lead to embarassment and other negative social consequences. Internet access increased at different rates in different states. Data on rape rates by state is available. So he looked to see whether, controlling for other variables, increased access to the net correlated with an increase or decrease in rape. It correlated with a decrease—about a ten percent drop in rape for a ten percentage point increase in internet access, with the exact numbers varying according to just how he did the analysis. There was no similar relation for murder, which suggests that the result is not simply picking up the effect of some third variable that correlates with both internet access and violent crime.

As further evidence, the author repeated the analysis, separating out the data according to the age of the perpetrator. His conjecture was that the men most benefitted by the availability of internet porn would be young adult men living with their parents, since they would find it difficult to consume other forms of pornography without risking discovery. The results supported the argument; the reduction in rape was concentrated in the 15-19 age group.

Readers interested in the details can follow the link at the beginning of this post and read the original paper.

The Economics of Status

They say in Harlan County
There are no neutrals there
You'll either be a union man
Or a thug for J.H. Blair

Which side are you on?
Which side are you on ...

Some people view the world, or at least major parts of it, as a zero sum game where one person gains only to the extent that another loses. Starting with this point of view, it is natural enough to see all disagreements as questions of which side you are on. Do you favor workers or employers, landlords or tenants? The alternative is to see disagreements not merely as about how to divide up the pie but about how to change its size. It becomes not only a question of us vs them but also of our arguments vs their arguments, with some hope that one set of arguments will eventually persuade almost everyone.

These different viewpoints are reflected, in political oratory and political thinking, in the difference between relative and actual measures. If we define the poor as the bottom ten percent of the income distribution we can be confident that they will always be with us. If we define the poor by the real income of the tenth percentile as of, say, 1900, then the problem of poverty has been solved—the number of people in developed countries with incomes that low is close to zero.

Economists mostly reject the zero sum point of view, since they routinely deal with issues of how to expand the size of the pie, how to increase economic efficiency (for details of just what that means, see the early chapters of several of my books). One plausible response is to observe that although economists may care only about absolute outcomes, people care also, and a lot, about relative ones. How much one employee is paid is often less important to him than how his pay compares with that of other employees. Robert Frank, an original and interesting economist, has written a whole book (Choosing the Right Pond) on the economic implications of the fact that people care about relative status.

It seems obvious that, if one's concern is status rather than real income, we are in a zero sum game. If my status increases relative to yours, yours has decreased relative to mine. So this point of view seems to support the approach to politics that sees it mainly as a question of who gets to benefit at the expense of whom, of which side who is on.

Like many things that seem obvious, this one is false. It is true that my status is relative to yours. It does not, oddly enough, follow that if my status is higher than yours, yours must be lower than mine, or that if my status increases someone else's must decrease. Status is not, in fact, a zero sum game.

This point was originally made clear to me when I was an undergraduate at Harvard and realized that Harvard had, in at least one interesting way, the perfect social system: Everyone at the top of his own ladder. The small minority of students passionately interested in drama knew perfectly well that they were the most important people at the university; everyone else was there to provide them with an audience. The small minority passionately interested in politics knew that they were the most important ones; their friends were there to be herded into meetings of the Young Republicans and Young Democrats in order to get them elected to positions in those organizations that were the stepping stones to further political success. The small minority ... .

I exaggerate, of course; no doubt there were some students who regarded themselves as at the bottom. But what was clear from that experience was that status was not a simple objective ordering on which everyone agrees. We all value status. But what matters to me is my status as I perceive it; what matters to you is your status as you perceive it. Since each of us has his own system of values, it is perfectly possible for my status as I view it to be higher than yours and yours as you view it to be higher than mine.

The point has been born home to me repeatedly since in other contexts. There are quite a lot of people in science fiction fandom, the Society for Creative Anachronism, and I am sure many other social circles, who work at a not very high status and not very highly paid job while putting their real passion and energy into their hobby. One reason to do so, although not the only reason, is that it lets them buy status. They may succeed in their hobby because they are really talented in it, they may succeed because it matters enough to them so that they are willing to put much more of themselves into the hobby than other people.

Being a male nurse is not a terribly high status job—but that may not much matter if you are also King of the Middle Kingdom. And the status you get by being king does not reduce the status of the doctors who know that they are at the top of the medical ladder and the nurses at the bottom.

Consider, for another example, teachers. Elementary school teachers have a positive public image but not much real status—outside of the classroom. But in the classroom, where they spend quite a large part of their time, they are king, queen, mother, father, alpha wolf, wise mentor, ultimate figure of authority for fifty minutes out of every hour—or at least they can be those things if they want to and are competent at the job. That may be one of the most important fringe benefits of teaching. Professors get it too—along with more status outside of the classroom. That may be part of the reason that both professors and schoolmarms have a reputation for being bossy sorts who are sure they know best; they spend a large part of their lives in an enviroment where they probably do know best, and are entitled, to a considerable degree, to boss the other people in the room around. It may also be part of the reason that people are willing to take those jobs even when they can make more money doing something else.

For a third example, consider advertising designed to confer status on products—clothes, perfumes, automobiles. People it convinces buy the products and get the status. People who do not see the ads, or see them but are unconvinced, do not associate the goods with status and so do not lose status by not buying them.

If status is not a zero sum game, then one way of evaluating a society is by its economic efficiency with regard to status, by the degree to which it expands the size of the status pie, allows practically everyone to be above average. One conclusion is that the last thing we want is a system for objectively ranking people, for defining status in a way that everyone agrees on. A second conclusion is that if we are so unfortunate as to get such a system, rational individuals in search of status will promptly subvert it, create their own subgroups with their own rankings. It is, after all, much easier to increase your status if you can find a way of dong it that does not decrease anyone else's.

Drugs for Africa: A Modest Proposal

My previous post mentioned the issue of how to make medical drugs for conditions such as AIDS available in poor countries. On the face of it, there should be an easy solution. Sellers want to make money; you cannot make money trying to sell someone something at a price he cannot afford to pay. One would expect drug companies to be happy to charge lower prices in poorer countries, as long as they get enough to more than cover the actual production cost of the drug.

The problem is resale. How can the drug company be sure that the drugs it sells at a cheap price in Zambia don't get resold in France or the U.S., reducing the quantity it can sell in those countries at a high price? One possible solution is to control distribution; once the drug is in the patient it cannot be resold. But that may be difficult to do in poor countries, lacking the infrastructure to monitor what happens to the drugs once they get there.

I have another solution. Let charitable donors in rich countries buy out the patent on the second best AIDS drug or combination of drugs and public domain it—let anyone who wants make it. Buying the second best drug should not be that expensive, since it probably is not making much money any more. And even if the same company owns the first best drug, it should not lose too many sales, since most customers who can afford the best drug will keep taking it.

This proposal has one large advantage over the usual alternative of forcing drug companies to make their drugs available at a low price in poor countries, with the threat that if they do not the countries in question will simply refuse to enforce their patents. That proposal makes the development of new drugs less profitable and so buys a short run gain in availability at the long run cost of slowing the development of new drugs. It could be a very large long run cost if the practice spreads from very poor countries up to less poor countries.

My proposal, on the other hand, makes the development of drugs more profitable. You can not only make money on your drug until a competitor brings out something better, you can even get a little more money at that point by selling it to the Gates Foundation or some similar organization.

While on the subject, I have a second suggestion, this one intended to make drugs more available for both rich people and poor people. FDA rules on testing should be designed to encourage drug companies to make not yet approved drugs available abroad in order to use the information so generated to meet the requirements for approval in the U.S. That would bring down the cost of finding out whether new drugs are safe and getting them approved. At the same time it would provide low cost—albeit somewhat risky—drugs for people in poor countries.

My previous post discussed a conflict between good economics and good rhetoric, between an argument that was right and one that was persuasive. These proposals face similar problems. Opponents will argue that it is unjust for rich people to get the best drugs and poor people the second best—even if the realistic alternative is poor people not getting any drugs at all. They will make good demagogic use of the idea that it is wicked to use human beings as guinea pigs for potentially dangerous drugs—despite the fact that using humans as guinea pigs is the only way we have of finding out whether or not drugs are safe.

Compulsory Licensing: A Confusion of Arguments

One solution sometimes proposed for the problem of making medical drugs available in poor countries is compulsory licensing—the government of the poor country sets the price at which the patent owner must license others to produce the drug. The obvious argument against is that while it might reduce the cost of present drugs it would also reduce the supply of future drugs.

I recently heard a talk by someone who tried to test that prediction by looking at U.S. drug companies that had been required to accept compulsory licensing, usually as one of the conditions of a merger. She had a total of six cases. In only one did there seem to be a visible decrease in future patent applications. She viewed that as at least weak evidence against the "conventional wisdom" that compulsory licensing would reduce innovation.

Her sample size was tiny and the data very noisy, making a conclusion in either direction difficult. But that wasn't the interesting problem with the project.

In four of her six cases, the requirement was for compulsory licensing of a patent that already existed. When I pointed out that there was no reason to expect that to have any effect on future research by that particular drug company, she replied that that wasn't what the drug companies, arguing against compulsory licensing, claimed.

Thinking about it, I believe I know what was going on. There are two entirely different arguments for the same conclusion which look similar enough to be confused. One is the argument that I, or any economist, would make. The other is the argument she was rebutting.

Her argument takes the form "If the drug companies don't have enough money from their past research, they can't afford to finance future research to produce new drugs." That sounds plausible, but it's wrong. If future research looks to be profitable, drug companies don't need to finance it from past profits—that's what capital markets are for. If future research looks unprofitable then, however much money drug companies have from past research, they can find somewhere else to put it. That too is what capital markets are for.

The argument that makes sense to an economist is about incentives, not resources. Anything that makes future research less profitable, such as a policy of compulsory licensing expected to apply to future drugs, means that some projects go from just worth doing to not quite worth doing, reducing the amount of future research. In terms of that argument, four of her six cases are irrelevant, since they involved compulsory licensing of patents that already existed. In only two cases did the requirement apply to future patents. So her sample size was not six but two, and one of the two was the one case where she concluded that the result of the requirement was to eliminate research in the area it covered. Insofar as any conclusion could be drawn from her results, it was the opposite of the conclusion she drew.

The argument she was answering was the wrong one from the standpoint of an economist. But I can easily enough believe that it was the argument, or at least an argument, that the drug companies were making—because while it is economically wrong, it is rhetorically right.

With her argument, the drug companies are claiming that they would like to develop new drugs to save lives, but they just can't do it if compulsory licensing deprives them of the needed resources. That sounds a lot more attractive than saying that, while they could develop new drugs to save lives, they won't unless it is profitable.

Mind Drugs

For some years, I have had a book manuscript dealing with the consequences of possible technological changes over the next few decades up on the web collecting comments. I now have a publisher for it and am working on a revision for publication.

Most of the book is written, but there is still one missing chapter–on mind drugs. I expect it to divide into three categories:

1. Recreational drugs. These have a long history; the issues they raise are not new. Presumably progress in the relevant technologies, including understanding of how the mind works, will produce improved versions, drugs that give more pleasure with fewer risks.

2. Enhancement drugs. A few of these have existed in the past, with coffee and Coca leaves obvious examples. Currently some drugs, including Ritalin, are used by students taking exams to temporarily enhance their performance. I gather that modafinil drastically reduces the need for sleep and is said to be used by the military for that purpose. Physical enhancement drugs–steroids–have gotten quite a lot of negative attention, although I have not seen any thoughtful discussions of what, if anything, is wrong with using them.

It seems likely that over the next decade or two better such drugs will become available, for temporary and (perhaps) permanent improvement of mental performance. What interesting consequences are likely to result?

3. Control drugs. This is the interesting and scary category, so far mostly limited to fiction. What happens if there is a drug you can feed someone, perhaps without his knowledge, that will make him temporarily credulous, willing to believe what you tell him? A drug that will make him obedient? A drug that will make her fall in love with you or him feel loyal to you? All of these are real behavior patterns, presumably connected in part to brain chemistry–and we are becoming better chemists.

There are a few hints of such things already. Ecstasy is said to make users temporarily empathetic; empathy might make you more willing to believe someone's story of why he needs help, and provide it. Oxytocin seems to have some effects on trust, sexual bonding, maternal behavior; perhaps an engineered drug could provide similar results of a stronger and more controllable sort. Insects respond sexually to pheromones and there is now a little evidence of similar effects in humans; what perfume manufacturers have long claimed might turn out to be true. And of course knockout drugs from chloral hydrate to rohypnol–a very crude sort of behavior control—have a long and dishonorable history in fiction and fact.

The purpose of this post is to ask for help with my unwritten chapter. What facts don't I know that I should that are relevant to the development of mind drugs over the next few decades? What non-obvious consequences are worth thinking about and how might they be dealt with? Will we, for instance, expand the "absence of duress" requirement in contracts to make a contract unenforceable unless both parties submitted to suitable blood tests immediately before signing, to make sure that neither was acting under undue chemical influence?

Gift Economy x 2

No man is so wealthy that he objects to receiving
A gift in exchange for his gift

(Havamal)

I was thinking recently about the idea of a gift economy, an idea that sometimes shows up in discussions of open source software, and it occurred to me that there are really two quite different things covered by the term, both familiar to most of us in our ordinary life.

You invite a friend and his wife over for dinner, enjoy their company, invite them again. Pretty soon they will feel an obligation to reciprocate, to invite you over for dinner or, if that isn't convenient, invite you to a restaurant and insist on paying the bill. It will never occur to them that they might balance the account by offering you twenty dollars instead, and you would be shocked and, probably, offended if they did.

That is a gift economy of just the sort described in the bit of Havamal quoted above, composed somewhat over a thousand years ago. The transactions are exchanges, value for value, but they take the form of nominally voluntary gifts rather than the bargained exchanges of ordinary trade. As an economist I do not have a satisfactory theory of why we do things that way—and would like to—but as a participant in such an economy I at least know how it feels from the inside.

The second kind of gift economy occurred to me in a discussion with a friend whose interests include the history of fencing and 19th century dancing. He routinely spends a week each year teaching the latter at Newport and has just been making arrangements to make his very extensive collection of source material on the former, distributed in past decades as photocopies, available on the web.

He does not expect to get any gifts directly in exchange. What he does get, in addition to his own enjoyment and the feeling of a useful job done, is status. People sharing his interest recognize his name, treat him as an important person. That too is a gift economy, but of a rather different sort—probably closer to the gift economy of open source software. You pour your gifts out to the world and the world, if you are lucky, repays you in a variety of indirect ways.

That second kind of gift economy is more relevant than the first to one of the interesting issues of the next few decades: How to get intellectual property produced if copyright law becomes, for technological reasons, unenforceable. If I can not prevent you from copying my book, I not only can not charge you for it, I also can not make my giving it to you implicitly conditional on your giving a voluntary gift to me. But I can still get credit for writing it and may be able to find ways of turning the resulting status into other things of value to me.

Some Folk Are Never Satisfied

Back when I was a college student, one of the world's great problems was third world poverty. According to the conventional wisdom, countries such as India could never develop by their own efforts within a market system, as the currently developed countries had done. The only alternatives were central planning plus massive foreign aid—the recommended course for India—or still more central planning ferociously enforced, the course that was supposedly turning the Soviet Union, and would turn China, into modern economies.

Time passed, a handful of small poor countries in Asia became not-poor countries through market processes—further from laissez-faire than I would have recommended, but further still from the prescriptions of the conventional wisdom—and it was noticed that the Soviet Union, despite all its forced sacrifices, was still, for most of its population, a third world country. India and China got the message, shifted away from centralized planning in the direction of markets, and began to get less poor.

Problem solved? Not exactly.

As poor and hungry people get less poor, they get less hungry. With enough food to survive no longer a problem, some of them get fat. Voila—the growth of global obesity. It was brought to my attention by a radio interview with an expert who attributed the problem to increased consumption of vegetable oils and sugars. For some reason he didn't mention the obvious relation between increasing real income and increasing consumption, or that some of the increased calories whose consumption he deplored were being consumed by people who needed them.

Nor is that the only problem. As the Chinese get richer they, naturally enough, want more stuff—consume more raw materials, oil, power. Voila—new worries for those who are afraid we are about to run out of everything, either just before or just after we roast or drown. I have not yet heard any of them wishing aloud that the Chinese and Indians would go back to poverty and starvation, but that seems at least a muted subtext to the complaints.

Some of the concern may be legitimate, although it requires a serious effort to see the problems of too much food as comparable to those of too little. More can be attributed to ideological hostility to capitalism—people unwilling to recognize its striking success in dealing with old problems and so eager to focus on new problems created by that success.

And some is just the human taste for gloom.

Commitment Strategies vs Highjacking

I've just been doing a good deal of travel by air—one reason I haven't posted recently—and so have been thinking a bit about security issues.

On the face of it, almost all of the precautions to keep passsengers from highjacking an airplane are unnecessary—all it takes is a reasonably sturdy locked door between pilots and passengers. One possible response is that highjackers might persuade pilots to open such a door by threatening to kill off crew and passengers one by one until they do. In the post 9/11 world I'm not sure that would work—but suppose it would.

There is a simple solution: Provide the pilots with a second lock that can only be unlocked by someone on the ground. At the first sign of a highjacking they lock it and are now immune to threats. It would be prudent to make sure that potential highjackers know about the second lock, and perhaps to have a lighted sign or prerecorded announcement to signal that it has been activated.

Visual Processing and the Immortality of the Soul

Life after death is a very implausible idea, yet many people, in many different cultures, believe in it. For those of us who do not share that belief and are puzzled by all the reasonable and intelligent people who do, the obvious explanation is wishful thinking. But many of the same people also believe in some version of Hell—and, however useful that may be for threatening misbehaving children, it is not what wishful thinking would suggest as a possible future fate for oneself. I have an entirely different explanation to offer. I propose that the belief in the immortality of the soul is a consequence of the way in which our visual system processes information.

Looking around me, what I see is a collection of recognizable objects—a computer screen, a plastic cup half full of diet coke, a telephone and, in my very messy office, a lot of other things. But none of that is in the information feeding from my retinas to my optic nerves. That information consists of a visual field--a flat plane of various colored regions (actually two, one for each eye). Somehow the software in my brain is converting that very uninformative body of data into a reasonably accurate model of the bit of the world I am looking at.

As with many other things the brain does, it only became clear how hard it was when people started trying to write software to duplicate it and discovered that they couldn't—the information coming in was not adequate to generate the information going out. The explanation they came up with was that the brain cheats. In addition to using the information coming in through the retina, it also uses a body of information, generated by some combination of evolution and experience, about what the world is like, information that lets it discard most of the possible explanations of what it gets from the retina in favor of a small number of likely ones.

One such piece of information is persistance of objects. Having recognized the oddly shaped green region to the right of my visual field as the top half of a plastic cup (the bottom half is dark because of the diet coke showing through), my software does not have to redo the analysis three seconds later—even though the region is no longer in the same part of the visual field, my head having turned a little in the meanwhile. Part of the hardwired information is that if the cup was there recently, it is probably still there, or close. Being a rigid object, it is probably still about the same shape, even if a change in the angle at which I am observing it makes it look different.

Some things violate the rules—soap bubbles, for example. That is one of the reasons why soap bubbles seem like odd, almost magical, objects. And there are optical illusions that take advantage of the rules to trick us into seeing what isn't there. But, on the whole, our image processing rules and the software containing them work very well, much better than any software we can ourselves write.

Things persist. People are things, but things of a special sort; when you talk with a friend over the phone it is not his body you are aware of but the person inside. When he dies the body is still there but the person is not—which is intuitively impossible, since the knowledge of the persistence of things is hardwired into your brain.

Which might explain why so many people believe in life after death.

The Origin of a Novel

I published my first novel—Harald, from Baen Books—a few months ago. It occurred to me that some of you might be interested in how it came to be written.

It started, oddly enough, as an insomnia cure. I found that when I had trouble falling asleep, daydreaming didn't work—because I am the hero of my own daydreams, and so too closely involved with them. It occurred to me that if instead I plotted out a novel, I would have sufficient distance from my characters to be able to drift off.

It worked. Over a period of many months I plotted out parts of several novels and, eventually, all of one. House rules at the time required me, when putting one of our children to bed, to make up and tell three stories. I mentioned to my daughter that I had written a novel in my head and she suggested I tell her that instead.

The problem with telling my daughter stories is that she remembers them better than I do. The result in the past, when I was doing a long series of linked fantasy stories, was that just when I thought I had the characters in an almost impossible situation she would point out that the magic item they obtained three months earlier was precisely the thing to get them out of it. So this time, every evening after putting her to bed, I wrote an outline of what I had told her. As I got near the end I started thinking seriously of turning it into a novel. I wrote the final scene, liked it, and went back and wrote the whole first draft in a month or two. It was so much fun that, during that time, I played almost no computer games.