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Krugman — So Right and So Wrong

Paul Krugman offers a nice thought experiment to illustrate why government debt, in and of itself, does not make the country as a whole any poorer:

Suppose that … President Santorum passes a constitutional amendment requiring that from now on, each American whose name begins with the letters A through K will receive $5,000 a year from the federal government, with the money to be raised through extra taxes. Does this make America as a whole poorer?

The obvious answer is not, at least not in any direct sense. We’re just making a transfer from one group (the L through Zs) to another; total income isn’t changed. Now, you could argue that there are indirect costs because raising taxes distorts incentives. But that’s a very different story.

OK, you can see what’s coming: a debt inherited from the past is, in effect, simply a rule requiring that one group of people — the people who didn’t inherit bonds from their parents — make a transfer to another group, the people who did. It has distributional effects, but it does not in any direct sense make the country poorer.

Two comments:

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So That’s Why It’s Called Graphic Design

A few years back, the British Office of Government Commerce wanted a new logo for etching on (among other things) mousepads and pens, and paid a graphic design firm over $20,000 to come up with this:

Apparently it never occurred to anyone that mousepads and pens are frequently turned on their sides.

Et voila:

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Henderson on Armchair

David Henderson reviews the new revised Armchair Economist.

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The Great Debate

Okay, I watched the debate —- and jotted down responses as I watched. These jottings were made in real time while trying to listen to the candidates, and are, I’m sure, in many cases, not as well thought out as they ought to be. But here they are, unedited:

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Wednesday Solution

Monday’s puzzle was open to various interpretations, but under what seems to me to be the most straightforward interpretation, if the number of runners you pass is the same as the number who pass you, you’re the mean runner, not the median.

You can find plenty of correct analysis in Monday’s comment section (see in particular Harold’s perfect comment #39), but here’s a more longwinded explanation:

First, suppose you randomly sample a large number of other runners and discover that half of them are faster than you and half are slower. Then you’re entitled to conclude that you’re the median runner (or, if we’re being careful, you’re entitled to conclude that you’re probably close to the median, since there’s always a chance your sample was unrepresentative).

Now in the problem as given it’s certainly true that half the runners you encounter are faster than you and half are slower. So you might be tempted to use the above reasoning and conclude that you’re the median runner. But that won’t work, because the runners you encounter are not a random sample.

So let’s start over. We might as well assume that you’re the center of the universe, so you’re completely motionless. Everyone who’s faster than you is running forward and everyone who’s slower than you is running backward. People “pass” you when they run past you in the forward direction, and you “pass” them when they run past you in the backward direction.

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Monday Puzzle

It’s a lovely morning, and you are jogging along the lakeshore, along with many others (all in the same direction). Albert is the median runner (that is, he runs at the median speed). Betty is the average runner (she runs at the average — i.e. the mean — speed.)

You notice that the number of runners you pass is exactly equal to the number of runners who pass you.

Can you determine whether you’re running faster or slower than Albert? What about Betty?

Edited to add: When I said you were running “along the lakeshore”, I was envisioning the shore of Lake Michigan; i.e. I meant to say that you’re running, effectively, in a straight line, not a circle. Obviously I should have made this clearer. But it’s a good puzzle either way!

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Stopped Clocks

Paul Krugman gets this one exactly right; among the 47% of Americans who pay no federal income tax in a given year, most do pay federal income tax at some point in their lives — and thus have at least some stake in the tax system.

But even putting that aside, what’s particularly distressing about Mitt Romney’s “47%” speech is the failure to recognize at least one of the following two propositions:

a) Even people who never pay federal income tax have a substantial personal stake in a healthy, thriving economy, and therefore have a stake in federal tax policy. In particular, wages are determined by productivity, and productivity depends to a substantial extent on the accumulation of capital, which can be directly influenced by tax policy.

b) It is possible for a skilled candidate to explain the above, and to sell pro-growth tax policies as pro-wage-earner tax policies.

Yes, the candidate who tries to make such a reasoned case will be the victim of a certain amount of demagoguery about “trickle-down economics”, but the candidate who allows himself to be paralyzed by such threats should not be running for president.

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WWCT? (What Would Copernicus Think?)

In The Big Questions, I argued that math is all there is: The Universe we live in is a mathematical object and is no more or less “real” than any other mathematical object. Thus, for example, the Godel universe, where time moves in circles, so that everything eventually returns to the time and place where it started, is as real as our own — though far, far, less complicated, because it contains, for example, no sentient beings). (Though on the other hand, it’s entirely plausible that there exists a Godel-like Universe that does contain sentient beings, and the existence of such a Universe can, in principle, be settled by purely mathematical inquiry.)

Obviously, I can’t prove this, but I’ve tried to explain why it strikes me as far more plausible than any of the alternatives. It all comes down to Ockham’s Razor. I know these mathematical Universes exist (pick up any issue of any theoretical physics journal and chances are you’ll find a couple described in detail), and it seems ontologically extravagant to suggest that some enjoy a different kind of existence than others. In other words, the notion of “physical reality” is exactly the sort of unnecessary baggage that Ockham’s razor wants to cut away.

People do seem to want to believe that the Universe we inhabit is somehow “special”, which is why I believe they’ve invented the unnecessary concept of “physical reality” to distinguish it from all the others. But the history of science has not been kind to viewpoints that cast human habitats as special. People used to think that the earth occupied a special place in the Universe; Copernicus (crying “Give up your Ptolemy! Rise up and follow me!”) rejected that notion in what can be seen as a slick application of Ockham’s Razor. Nowadays, people are tempted to think that the Universe we occupy has a special status in the zoo of mathematical Universes; but as good Ockhamized Copernicans, we should resist that temptation.

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The Other Dunce

I tried listening to Mitt Romney on the radio Sunday morning, but after a few minutes it just got too depressing.

Here’s what I heard in that few minutes:

1) We need to maintain defense spending because (among other reasons) it “creates jobs”. If Mitt Romney does not understand that the creation of jobs — i.e. the consumption of resources that could be valuably employed elsewhere — is the downside of defense spending, then he has no better chance of “fixing the economy” than a blue-bottomed monkey.

2) It is “immoral” for us to “pass on debt” to future generations — future generations who will almost surely be richer than we are. Note that in this context, “pass on debt” means exactly the same thing as “leave a smaller inheritance”. So Romney’s view is that there’s a moral imperative for the relatively poor — namely us — to transfer income to the relatively rich — namely our grandchildren. What’s interesting about that is that Romney is already on record in favor of a more progressive tax code, the sole purpose of which is to transfer income in the opposite direction — from the relatively rich to the relatively poor. (More precisely: Romney would tax capital income at a lower rate for the “middle class” than for the “rich”. Since there is no conceivable efficiency-based justification for such a policy, his position can only indicate a pure preference for rich-to-poor redistribution.) Either Romney has just declared himself immoral, or he’s just spouting random words. (Or, just possibly, he has a good argument for why we have a moral obligation to redistribute from the rich to the poor in some situations but not others. I would like to hear him articulate that argument.)

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Simple as ABC

The (really really) big news in the math world today is that Shin Mochizuki has (plausibly) claimed to have solved the ABC problem, which in turn suffices to settle many of the most vexing outstanding problems in arithmetic. Mochizuki’s work rests on so many radically new ideas that it will take the experts a long time to digest. I, who am not an expert, will surely die with only a vague sense of the argument. But based on my extremely limited (and possibly mistaken) understanding, it appears that Mochizuki’s breakthrough depends at least partly on his willingness to abandon the usual axioms for the foundations of mathematics and replace them with new axioms. (See, for example, the first page of these notes from one of Mochizuki’s lectures. You can find other related notes here.)

That’s interesting for a lot of reasons, but the one that’s most topical for The Big Questions is this: No mathematician would consider rejecting Mochizuki’s proof just because it relies on new axiomatic foundations. That’s because mathematicians (or at least the sort of mathematicians who study arithmetic) don’t particularly care about axioms; they care about truth.

There’s a widespread misconception that arithmetic is about “what can be derived from the axioms”, which is a lot like saying that astronomy is about “what can be discovered through telescopes”. Axiomatic systems, like telescopes, are investigative tools, which we are free to jettison when better tools come along. The blather of thoughtless imbeciles notwithstanding, what really matters is the fundamental object of study, whether it’s the system of natural numbers or the planet Jupiter.

Mathematicians care about what’s true, not about what’s provable; if a truth isn’t provable, we’re fine with changing the rules of the game to make it provable.

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Playing the Dunce

This morning I heard President Obama call for universities to lower their tuition rates so that “everybody in America can go to college”.

I am virtually certain that the President is not stupid enough to think that if tuition rates fell to zero, there would magically be enough room in the colleges for everybody in America. So I’ve got to believe that he’s purposely saying stupid things in order to appeal to stupid voters — the sort of voters, in other words, who probably don’t belong in college.

To believe what the President wants you to believe, you’d have to be not just stupid but badly misinformed. At the University where I teach, we do not lack for applicants. The reason we don’t have more students is not that they can’t afford us; it’s that we don’t have room for them.

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The Final Night

— Thank God for the hurricane; I don’t think I could have taken four nights of this.

— Off to a weak start tonight with Connie Mack mouthing platitudes and the Gingriches not adding much.

— Jeb Bush should have been the nominee. In fact, he should have been the nominee back in 2000. He was great tonight.

— It is heartening to see Bush, Condi Rice and others pushing education to the forefront. Rice called it the civil rights issue of our time. Me, I’d rank it second after immigration.

— Too damned many musical interludes.

— I feel like it’s my job to be cynical about the tearjerker stories, but I have to admit they were very effective.

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I Brag and Chant (and Complain a Bit) of Ryan, Ryan, Ryan, Ryan

Notes from the second night of the convention:

— What follows will be in more or less chronological order, except that I want to say upfront that Condi Rice gave one of the greatest political speeches in American history, and if you didn’t see it, you should scroll most of the way down this post and watch the video right now. (And no, that does not mean I agree with everything she said.)

— It took Cathy McMorris Rodgers less than 30 seconds to segue from “We will send every American to college” to “We will shrink the role of government”. This is the kind of thing that makes people hold Republicans in well-deserved contempt.

— Rand Paul lived up to my almost impossibly high expectations. He was superb:

— Rob Portman was good, on both substance and presentation. He did commit the sin of defending free trade as a boon to producers, as if consumers were nothing more than potted plants, but that’s only a sin of omission, and I don’t think it’s fair to expect too much depth in a ten minute convention speech. What he did say was spot on:

— There were far far too many musical interludes.

— Did I mention far too many musical interludes?

— Unlike Paul and Portman, Tim Pawlenty relies almost entirely on substance-free one-liners. He leaves me feeling dirty.

— Mike Huckabee, like Pawlenty, starts off largely substance-free and often negative, but pulls it off better because he’s more likable. Then he moves on to big themes, hits them well, and comes off lofty. He’s one of the best orators in American politics:

— I keep hearing, from speaker after speaker, that if you’ve been successful through study, hard work and risk-taking, then “you built it”, and therefore deserve your success. Okay. But it’s also true that if you’ve been successful through study, hard work and risk-taking, you probably had the good fortune of being born into a family that encouraged study, hard work and risk-taking. Not everyone has that good fortune, and it would be nice to hear that acknowledged.

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Report Card

Here, for what it’s worth (and I’m sure it’s not worth much) are the grades I assigned to last night’s speakers. These are primarily for presentation, not content. They’re mostly quite high, which is unsurprising because of course these people were chosen largely for their skill as presenters. I’m sure that some of them would have gotten different grades if they’d spoken a half hour earlier or later, when I was worse or better fed. I am not prepared to defend these grades terribly vigorously, but maybe they’ll provoke some interesting discussion:

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You Pays Your Money…..

A few months ago, I sat in a Dutailier glider and discovered that I had lived half a century with no concept of how comfortable a chair can be. My wife had exactly the same reaction. So we’d like to buy a couple of those chairs.

Unfortunately, Dutailier no longer makes the model we sat in. Fortunately, they make similar models. Unfortunately, they make one hundred and thirty nine models, of which at least fifty-nine appear to be serious contenders for “model most similar to the one we sat in”.

Those customers who somehow manage to choose among these models are then offered a choice of 113 different upholstery fabrics, 22 different wood finishes, and 10 “model options” (including “glide only”, “glide plus multiposition lock”, “glide plus autolock” and “glide plus multiposition lock plus autolock”) for a staggering 3,455,540 possible chairs. (That’s an approximation, because some models come with more or fewer options.) Color me paralyzed.

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Conventional Wisdom

I became a lifelong political convention junkie in 1972, the year that George McGovern secured the nomination with a brilliantly executed ploy that nobody saw coming until it was over, and that even the sainted Walter Cronkite mistakenly reported as a disaster.

I was 18 years old. Most of the Democratic convention was held in the wee hours of the morning, and I went sleepless following the battle on black and white TV, jumping up every few minutes to twirl the dial to another network. All realtime analysis came from the anchormen, and at the crucial moment, the anchormen had no idea what was happening.

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The Visionary

I mentioned earlier this week that I’d been crafting a long post on the fabric of the Universe when I was sidetracked by relatively mundane political events. Now I’ve been sidetracked again by the entirely unexpected (to me) news of the death from melanoma, at age 65, of the Fields Medalist Bill Thurston, who devoted his life to understanding the shape of space.

One-dimensional topology is the study of curves and two-dimensional topology is the study of surfaces. Both subjects are quite well understood. Thurston was the king of three-dimensional topology, which gains additional interest from the fact that we perceive ourselves as living in a three-dimensional Universe. Three-dimensional topology attempts to classify all the possible shapes for that Universe.

One of course is also interested in four, five, six and many-dimensional topology, four dimensions being of particular interest because they can be used to model space together with time. But although three dimensions are more complicated than two and two are more complicated than one, it turns out that when you go much higher, a lot of things get simpler. Consider knots, for example. There are no knots inside a one or two dimensional space; a knot needs three dimensions in which to pass over and under itself. But in more than three dimensions, you can untie any knot just by pulling on its ends — roughly because the additional dimensions give it so much space in which to untangle itself. For those and related reasons, topology is often hardest in three and four dimensions — coincidentally (or maybe not) the very dimensions most relevant to the way we experience the world.

Thurston revolutionized three-dimensional topology in the 1980s with his geometrization conjecture, which says that any three-manifold (the three-dimensional analogue of a smooth curve or surface) can be cut up into pieces, each of which exhibits one of eight permissible geometries. The simplest of those geometries is the flat three-dimensional space you think you see around you, where you can draw three straight lines in mutually perpendicular directions and extend them forever. Another is the geometry of the three-dimensional sphere, which is an analogue of the two-dimensional surface of the earth, where any “straight” line eventually circles back to meet itself.

The geometrization conjecture was important, but what really mattered was the vast array of new techniques Thurston introduced for visualizing and understanding the structure of three-manifolds. When those techniques came on line in the early 1980s, he was widely acclaimed as the mathematician of the decade.

One thing that set Thurston apart was his insistence that mathematics is a human study, and that it’s the mathematician’s job to communicate not just theorems and proofs, but a unique way of thinking. Stories are often told of mid-twentieth century mathematicians (usually French) who, when asked a question about their work, would scribble a picture on the blackboard, deliberately stand in front of that picture to shield it from everyone else’s view, and then, having studied it a few minutes, erased the picture, turned around, and gave a purely formal explanation designed to obscure all of the motivation and insight. Nobody ever told a story like that about Bill Thurston. Here he is, talking about the mystery of three-manifolds; dip in at a random moment and chances are excellent you’ll hear him talking not about how he proved a theorem but about how he sees the world:

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In the Matter of Todd Akin

So there I was, putting together a long post on the fabric of the Universe, when Todd Akin came along and seemed to demand at least some brief commentary. A few remarks on that, and I’ll get back to the rest of the Universe in a day or two:

1) The exact quote, in response to a question about pregnancies resulting from rape, is: ““It seems to me, from what I understand from doctors, that’s really rare. If it’s a legitimate rape, the female body has ways to try to shut that whole thing down. But let’s assume that maybe that didn’t work or something: I think there should be some punishment, but the punishment ought to be of the rapist, and not attacking the child.”

2) It seems to me, from what I understand from news sources, that the female body does not in fact have ways of recognizing rape and preventing conception. I have absolutely no expertise in this matter; therefore my understanding might be wrong. Nevertheless, I’m happy to pass that understanding along.

3) It also seems to me that the phrase “from what I understand from doctors” says, in effect, “I am not an expert, so this might be wrong, but here’s what I’ve heard”. It is not unreasonable for people to make statements like this. In fact, I did it myself, just one paragraph back.

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Aaagh!

I am buying a house, and am therefore faced with the choice between a 15 year mortgage at 2.875% and a 30 year mortgage at 3.49% (as of a couple of days ago; those rates have probably changed a little by now).

The main advantage of the 15 year mortgage is that it comes with a lower interest rate and, because I’m making larger monthly payments, it keeps my money out of the stock market, which is good if the market tanks. The main advantage of the 30 year mortgage is that it allows me to keep more money in the stock market for a much longer time, which is good if the market does well.

How should I weigh those factors? Economics tells me that I will solve this problem by forecasting the return on equities over each of the next 30 years, and computing, on the basis of my forecast, which mortgage will leave me richer in the long run. No, that’s not quite right. Actually, economics tells me that I’ll make many forecasts, assign each one a probability, and thereby compute two probability distributions for my future net worth and then choose the distribution I prefer.

Now let’s get serious.

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Enough Already!

Today’s email brings a gripe from Mark Skousen, the irrepressible impresario behind FreedomFest, who could have avoided this problem by being born in the old Soviet Union:

I was in the large Stop & Shop grocery store here in New York to buy some items, including a new tube of toothpaste. I like Colgate, but I can never seem to get the same toothpaste product.

Now I know why. Guess how many different types and sizes of toothpaste Colgate sells?

Ready?

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World’s Best Dad

Proof positive that I am not the world’s best dad:

Just to be clear, that is not me in the video; it is somebody who is clearly a much better father than I ever was! Original YouTube version is here.

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The Greatest Story Ever Told

I gave a series of four talks last week at Cato University; only the first of them was broadcast by C-SPAN, and you can watch it here. (The title was “The Greatest Story Ever Told”, meaning the story of economic growth.)

Much of this material will look familiar to those who have watched other videos recently posted in this space, but I think it comes together a little better in this one. The remaining lectures contained more in the way of new material, and I’m hoping to be able to post at least some video excerpts in the near future.

There were a lot of fabulous talks at this event by such luminaries as Tom Palmer (here and here) and the extraordinary Robert McDonald, who held the audience in thrall with his gripping three-part series on the history of the American revolution (not, unfortunately, online, even in part).

If you missed it, there’s always next year!

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Paging Diogenes

Chapter 8 of The Big Questions is called “Diogenes’s Nightmare” and argues that: 1) In a world of honest truthseekers, there would be no disagreements about matters of fact; 2) In the world we inhabit, disagreements about matters of fact are ubiquitious; therefore 3) in the world we inhabit, there must be precious few honest truthseekers.

If you’re looking to ferret out one of those rare creatures, your best candidate might be a man who argues with eloquence and passion against subsidies for the industry where he makes his living. Meet David Bergeron.

David is the founder and president of Sundanzer, which supplies solar powered refrigerators worldwide, based on technology developed by David under contract to NASA. He also really really really understands why subsidizing solar technology is a terrible idea. And when I met him last week, he impressed me so much that I invited him to make a rare guest post here at The Big Questions. So without further ado:

Solar Subsidies: Misdirecting Industry and Consumers

A Guest Post

by

David Bergeron


In a recent Economist on-line debate, the affirmative motion “This house believes that subsidizing renewable energy is a good way to wean the world off fossil fuels” was surprisingly defeated.

In his closing remarks, the moderator softened his strident opposition to the negative case, even admitting that “subsidizing renewable energy, is wasteful and perhaps inadequate to address climate-change concerns.”

Beyond the Climate Debate

The debate, indeed, reopened the question whether anthropogenic greenhouse-gas forcing was a serious planetary environmental concern. But such focus short-changed what I think is the more important question for the Economist. Not only are the renewable-energy subsidies (such as for solar) wasteful and potentially insufficient, they are outright diabolical if indeed there is a looming environmental crisis.

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The Numbers Racket

If you’re the sort of person who reads economics blogs, you’ve probably heard that the median US worker has enjoyed hardly any income gain over the past few decades. Here are the numbers behind the noise (all corrected for inflation):

A mere 3% increase over 25 years does indeed look pretty grim. And note that the year 2005 is pre-crash, so what we’re seeing is not an artifact of the recession.

Now let’s look a little deeper and ask which demographic groups account for all this stagnation. White men? Nope, their median income is up 15%. Nonwhite men? Up 16%. White women? Up 75%. Non-white women? Up 62%. That’s everybody:

What gives? How can the median income shoot up in every demographic sector while the overall median remains nearly unchanged?

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Uncle Ezra’s Crazy Housing Plan

Ezra Klein at the Washington Post offers a way out of the current mess:

Tomorrow morning, Bernanke could walk in front of a camera and announce that the Federal Reserve intends to begin buying huge numbers of mortgage-backed securities with the simple intention of bringing the interest rate on a 30-year mortgage down to about 2.5 percent and holding it there for one year, and one year only.

The message would be clear: If you have any intention of ever buying a house, the next 12 months is the time to do it. This is Uncle Ben’s Crazy Housing Sale, and you’d be crazy to miss it.

Now, financial markets are not my specialty, and maybe Klein has thought about this more deeply than I have, but there seems to be a little flaw in this plan.

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Faces of Evil

On the left, James Holmes, who shot over 70 people and killed at least 12 in an Aurora, Colorado movie theater.

On the right, Torrence Brown, who was present in the theater (though not injured) and is reportedly preparing lawsuits against:

  • The theater
  • Holmes’s doctors (for “prescribing medication”)
  • Warner Brothers (because the movie that Torrence Brown elected to watch, and that James Holmes had never seen, was “too violent”)

Of course the scale of evil tips sharply to the left. But there’s plenty of evil to go around.

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Mitt Romney vs. Joe Paterno

What do Mitt Romney and Joe Paterno have in common? They both devoted substantial fractions of their careers to promoting wasteful competition — Romney at the Olympics, and Paterno at the Penn State football program. How do Mitt Romney and Joe Paterno differ? Romney, unlike Paterno, devote a substantial fraction of his career to promoting healthy competition at Bain Capital.

To understand what’s wasteful about Penn State football, think about what life will be like now that the program’s been eviscerated. The overall quality of college football will decrease — but not by much. Any titles Penn State might have won, someone else will win instead, and the games leading up to those titles will be almost as fun to watch. But Penn State has reaped enormous rewards over the decades in exchange for its relatively small contribution to the quality of college football — and has plowed a substantial fraction of those rewards back into the program in order to maintain the flow of revenue. In short, Penn State football has sucked up a lot of resources while providing relatively little in return.

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Late Night Thoughts on Determinism

Last week, we had some discussion of free will, which prompted some comments about determinism. I’m not convinced that determinism has all that much to do with free will one way or the other, but since the topic’s been raised, here are a few bullet points, jotted down late at night, which I hope will still make sense in the morning.

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The Wrong Tool for the Job

Paul Krugman, defending the IS-LM (a/k/a “old Keynesian”) model of the macroeconomy as a non-rigorous but useful “scratchpad”, misses the point by a mile:

It’s a simplified model that more or less gets at what you think are the essentials of an issue, and is easy to work with, so you can use it to reach quick first-pass judgments about policy or whatever.

………

But IS-LM isn’t the prime example of a scratchpad. What is?

The answer is, supply and demand.

It is not easy to derive supply and demand curves for an individual good from general equilibrium with rational consumers blah blah. And it’s definitely not easy to justify consumer and producer surplus as measures of welfare. And there have always been some purists who condemn any use of the S and D curves we all grew up with, the use of triangles to measure welfare loss, and all that.

But for the most part nobody pays attention. The supply-and-demand framework is so convenient, while pretty much getting at what you want to get at, that it’s what almost everyone uses to get a first-pass analysis of economic issues.

Okay, look. Supply and demand (and, especially, triangles of welfare loss, etc) are not entirely rigorous, but they’re good useful simplifications that actually give useful (though approximate) answers to important policy questions. Sort of like Ohm’s Law for electrical circuits.

But IS-LM is not like that at all, because IS-LM does not even address the key policy questions in macroecomics. IS-LM can tell you, perhaps, how to fight a recession, but it can’t tell you whether the recession is worth fighting — not even loosely, because the model contains no individual utility functions and no social welfare function. It therefore does not allow you even to formulate the question of whether a given policy is worth its costs, because it provides no framework for weighing costs against benefits.

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Free to Choose

The subject of free will came up earlier this week, and I notice that Sam Harris has a new book on the subject, which I have not yet read. Some of you have asked for me to elaborate on my remarks on this subject in The Big Questions. Here are a few bullet points:

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