Category Archive for ‘Bad Reasoning’ at Steven Landsburg | The Big Questions: Tackling the Problems of Philosophy with Ideas from Mathematics, Economics, and Physics

Continue reading ‘Dead Man Followup’

on April 21, 2011

in Bad Reasoning

. 162 Comments

Since even Paul Krugman manages to be completely confused about this and this, allow me to summarize:

1) A tax imposes a burden.

2) If a tax has no effect on a man’s lifestyle, then it imposes no burden on him.

3) Therefore, if a tax has no effect on a man’s lifestyle, then it must impose a burden on someone else.

That is the argument that Krugman things betrays “no coherent picture of how the pieces fit together”. I would like to know more specifically whether he disagrees with 1), disagrees with 2), or disagrees with the logic that leads from 1) and 2) to 3).

In more detail:

You Can’t Tax a Dead Man

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on April 21, 2011

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. 57 Comments

On Monday, I wrote about the man who can’t be taxed. There were many comments, some confused, some insightful, and (at least) one brilliant. Let me highlight that brilliant comment, then beat the point to death a little, and then draw a large moral.

Our commenter Ken B invited us to imagine a dead man, with, say $84,000,000 in his bank account (and a will that requires this bank account to be maintained forever). And let’s suppose the government confiscates, say 82 of those 84 millions, thereby allowing it to reduce other people’s current or future taxes —making those people richer. They buy more stuff. They eat more, they burn more gas, they occupy more space. Where did that stuff come from?

(Alternatively, instead of lowering someone else’s taxes, the government takes the opportunity to spend more, in which case the government claims more stuff. We still have to ask where it comes from.)

It certainly did not come from the dead man, who was eating nothing, burning no gas, and occupying no more space than he continues to occupy. Instead, somebody else must decide to consume less.

But initially nobody wants to consume less. So people, collectively, are trying to consume more stuff than is available. This excess demand for stuff pushes up prices and/or interest rates until people are willing to cut their consumption.

There is no meaningful sense in which the dead man paid the tax. Instead, the tax burden is borne by those people who were hurt by rising prices and/or interest rates.

The Man Who Can’t Be Taxed

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on April 18, 2011

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. 111 Comments

Nothing makes my job easier than a journalist who writes about something interesting and gets it 100% wrong.

Thanks, then, to Elizabeth Lesly Stevens for her column in yesterday’s Bay Citizen. Stevens wants to tax the “idle rich”, her Exhibit A being Robert Kendrick, heir to the $84 million Schlage Lock Company fortune. According to Ms. Stevens, Mr. Kendrick appears to do pretty much nothing but park and re-park his four cars all day long. Taxing people like Mr. Kendrick, she says, has to be part of any solution to America’s fiscal crisis.

Here’s what Ms. Stevens misses: Assuming the facts are as she states them, it is quite literally impossible to raise revenue by taxing the likes of Mr. Kendrick. We could argue about whether it’s desirable, but because it’s impossible, the discussion is moot.

Subtraction Distraction

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on April 11, 2011

in Bad Reasoning, Current Events, Economics, Paul Krugman, Policy and Politics

. 24 Comments

Paul Krugman, getting less serious by the minute, on the budget deal:

It’s worth noting that this follows just a few months after another big concession, in which [Obama] gave in to Republican demands for tax cuts. The net effect of these two sets of concessions is, of course, a substantial increase in the deficit.

Well, no, actually. The net effect of these concessions is a (small but not insignificant) cut in spending coupled with a (somewhat larger) set of tax cuts.

To sum that up by saying that the “net effect” is an increase in the deficit is like saying that if a woman gives birth to twins and then murders her husband, the “net effect” is to increase the population. We’re entitled to care about more than just the bottom line.

Unhealthy Reasoning

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on April 8, 2011

in Bad Reasoning, Economics, Paul Krugman and Policy

. 42 Comments

Paul Krugman on the Ryan budget proposal:

And then there’s the much-ballyhooed proposal to abolish Medicare and replace it with vouchers that can be used to buy private health insurance….

…The House plan assumes that we can cut health-care spending as a percentage of G.D.P. despite an aging population and rising health care costs.

The only way that can happen is if those vouchers are worth much less than the cost of health insurance.

Well, this is just plain illiterate. In fact, the only way that can happen is if the voucher system affects people’s health care choices. Which is, you know, the whole point.

Senator B.S.

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on April 4, 2011

in Bad Reasoning, Current Events, Outrage and Politics

. 31 Comments

A lot of people think of janitors as a group that’s not particularly well paid. Those people might be surprised to learn that in the last five years alone, American janitors earned over $250 billion! That’s billion! With a B!

Despite that enormous income, janitors pay no taxes whatsoever — or at least no taxes whatsoever over and above the taxes that are paid by you, me and other ordinary Americans. And shockingly, it appears that the U.S. Congress would rather cut spending than institute a new tax on janitorial income.

If the above strikes you as insane, congratulations. You are smarter than the intended audience of Senator Bernie Sanders, who observes in his new book “The Speech” that General Electric’s shareholders collectively earned a staggering $26 billion over the past five years, and paid absolutely no tax on that amount.

Of course $26 billion is only a tenth of what janitors earned over the same time period, but I guess it does look mighty big if you don’t bother dividing by the number of shareholders. Without having all the numbers in front of me, my best guess is that we’re talking maybe a few hundred bucks per shareholder, though of course (as with janitors) some earn more and others earn less.

And as for the shareholders paying absolutely no tax, perhaps they didn’t, as long as you don’t count taxes on dividends, capital gains and wages. To wit:

Justice Denied

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on March 31, 2011

in Bad Reasoning, Current Events and Law

. 34 Comments

John Thompson spent 18 years in prison, 14 of them on death row, for a crime that it seems very likely he did not commit. Prosecutors were aware that blood found at the crime scene was not Mr. Thompson’s, but they failed to turn this evidence over to the defense attorneys.

Does Mr. Thompson deserve compensation? A jury thought so, to the tune of $14 million. But five Supreme Court justices disagree, so Thompson gets nothing.

That’s because, according to the majority, it was only a single rogue prosecutor who misbehaved, so it would be wrong to punish the whole district attorney’s office. The dissenting minority argued that in fact there was a pattern of lax training in that office, so the jury award should stand.

But if an innocent man spends 18 years in prison, why should his compensation depend on the nature of the misconduct that sent him there — or even on whether there was any misconduct in the first place?

Look. We’ve pretty much all agreed that we want to have a justice system. Since all justice systems make mistakes, that means we’ve pretty much all agreed that we’re prepared to tolerate a certain number of mistakes. The question, though, is: Who should bear the costs of those mistakes? Should the costs fall entirely on an unlucky few like John Thompson who just happen to have been in the wrong place at the wrong time, or should they be spread more evenly among the populace that is perfectly happy to share in the benefits of the justice system?

Strategic Reasoning

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on March 21, 2011

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. 23 Comments

Senator Jay Rockefeller adds his voice to the chorus calling for the U.S. to deplete the strategic petroleum reserve in order to bring down oil prices.

Put aside the question of whether we should want to bring down oil prices. Put aside the question of whether this is a good use of the strategic reserve. Let’s just ask whether this idea would even work.

Simple economics certainly suggests that the answer is no. Oil, after all, is an exhaustible resource. This means that every barrel sold today is a barrel that can’t be sold tomorrow. Therefore profit-maximizing oil suppliers, of whom there are many, must constantly be asking themselves whether they’d prefer to sell another barrel now or leave it in the ground to sell later. And the key inputs to that decision are the current price and the expected future price.

If the government starts depleting the oil reserve now (with, presumably, the intent to replenish it in the future), they bid down current prices and bid up expected future prices — creating an incentive for all the other suppliers to sell less now and more in the future — pushing current prices right back up again. For a non-exhaustible resource, this would partially offset the government’s action, but for an exhaustible resource (like, for example, oil) there should be a 100% offset, at least on a naive application of Hotelling’s Rule.

Defici(en)t Thinking

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on March 10, 2011

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. 39 Comments

Gerald Seib, in the Wall Street Journal, reports that “There is a cancer eating away at the budget from within, one that steadily drains American wealth, sends much of it overseas and only gets worse over time.”

This is economic illiteracy in spades. The fact is that every single dollar of interest we pay on the national debt comes right back to the pockets of American taxpayers. If you don’t understand that, then you’re not thinking clearly about the national debt.

Suppose the government owes $100 and pays $3 a year in interest. The alternative to paying that interest is to raise current taxes by $100 and pay down the debt. If you do that, taxpayers are going to have $100 less in assets, and will therefore earn less interest on their savings. That costs them (roughly) the same $3 a year.

In other words, the damage was done back when the government spent that $100 in the first place. (Of course, if the $100 was spent wisely, the damage might have been worth doing. Or not.) Once that $100 has been spent, the taxpayers are out $3 a year forever regardless of whether the debt is ever paid off.

How’s That Again?

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on March 8, 2011

in Bad Reasoning, Economics and Paul Krugman

. 44 Comments

Paul Krugman’s latest gets my vote for his most incoherent column ever. As I understand his argument, it goes like this:

Computers are good at routine tasks.
Therefore the rewards to performing routine tasks are falling. This is true at all skill levels.
Therefore education does not always make people more productive. It makes people more productive only when it trains them to do tasks that are not better done by computers.
Therefore we need stronger labor unions and universal health care.

Say what?. The basic thesis — that there’s no point in learning to do something difficult if a computer can do it better, and that this is significantly affecting the returns to certain kinds of education — is an interesting one. The moral, of course, is that you can’t imitate your way to prosperity. If we want to be rich, we have to innovate.

So to encourage innovation, you want to strengthen the unions? To encourage innovation, you want to reduce the relative reward to innovation, by insuring that everyone gets the same health care regardless of their social contributions?

Now, you might suppose that Krugman was thinking something along the following lines: Large swaths of American workers are being rendered unproductive by computers. Somehow or another, we have to support those people even though they’re not producing much. Unions and universal health care will keep them afloat.

But that can’t be what Krugman was thinking. I’m sure of this, because I happen to know that Krugman has a Ph.D. in economics. Therefore he must surely be aware that you can’t divorce incomes from productivity. Sure, you can redistribute, but you can’t redistribute more than what gets produced. If the problem is that our old skills are no longer productive, then our incomes must fall unless and until we acquire different — and less computer-replaceable — skills.

Dow 36,000 12,000

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on February 28, 2011

in Bad Reasoning, Books, Economics, Finance and Paul Krugman

. 15 Comments

In 1999, the journalist James K. Glassman co-authored a book called Dow 36,000. The eponymous prediction did not pan out. A couple of days ago, Glassman popped up in the Wall Street Journal, trying to explain where he went wrong. “The world changed”, explains Glassman. The relative economic standing of the U.S. is declining. Plus terrorists and economic instability made the world a riskier place.

But there’s a better explanation. Glassman’s story never made sense in the first place, for reasons Paul Krugman explained when the book first came out.

Glassman has a substantial history of confusion about how financial markets work. Ten years before he wrote Dow 36,000, he was explaining in The New Republic that stocks are better investments than real estate:

Hypocrisy Lessons

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on February 14, 2011

in Bad Reasoning, Current Events, Policy and Politics

. 9 Comments

I swear to God I am not making this up. The New York Times ran an editorial yesterday arguing that the EPA’s proposals to regulate carbon dioxide emissions cannot reasonably be characterized as the borderline-illegal efforts of a rogue agency, because those proposals originated during the Bush administration.

Or something like that. At least they’re saying that House Republicans cannot without hypocrisy so criticize the EPA, presumably because all Republicans are required by the Times hypocrisy police to endorse all policies of all past Republican administrations. I wonder if the Times plans to level the same charges against the 26 House Republicans who voted last week against the extension of the Patriot Act.

Oh. Guess not.

Click here to comment or read others’ comments.

Hawkeye Talk

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on February 4, 2011

in Bad Reasoning and Rants

. 69 Comments

Some people claim (perhaps rightly, perhaps wrongly, perhaps absurdly — I lean toward the latter) that gay people, on average, are less successful as parents. In a video that’s begun to go viral, University of Iowa engineering student Zach Wahls attempts to refute this notion without offering a shred of evidence beyond a single cherry-picked case (his own) to prove that children of gay parents sometimes turn out just fine (except, perhaps, for their ability to reason):

The other side might just as well (i.e. just as pointlessly) argue that Mr. Wahls’s penchant for irrelevance proves the inefficacy of gay parenting.

What’s particularly disturbing to me is all the chatter about how eloquent this kid is, as if eloquence in the service of intellectual misdirection were somehow something to be admired. Odds are, this pernicious message was reinforced by the college writing courses that I complained about in Chapter 23 of The Big Questions.

A Whole New Brain Teaser

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on January 10, 2011

in Bad Reasoning and Puzzles

. 51 Comments

Today I have a new brain teaser for you. It’s similar in flavor to last week’s brain teaser, but it’s genuinely different, and it’s different in an instructive way. And it stands on its own; you don’t need to have followed last week’s discussion to tackle this.

Here goes: There’s a certain country where everybody wants to have a son. Therefore each couple keeps having children until they have a boy; then they stop. In expectation, what is the ratio of boys to girls?

For those who were here last week, notice that this problem is genuinely different. Last week I asked about the fraction of the population that is female. If we exclude the parents, that’s the ratio G/G+B. Today’s problem asks about the ratio B/G.

Stop here if you don’t want spoilers.

Slippery Lube

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on December 30, 2010

in Bad Reasoning, Math, Puzzles and Rants

. 170 Comments

It has been said of Lubos Motl that he’s hard to ignore, but it’s always worth the effort. I will, soon enough, take this advice to heart. But not quite yet. Lubos’s penchant for twisting other people’s words, just so he can have something to argue about, is well known and widely remarked. As his most recent victim (though “victim” is of course too strong a word, no actual harm having been done), I thought it would be both fun and instructive to challenge him to a bet. True to form, he continued to bluster but of course refused to back up his misrepresentations with actual cash.

Now of course Lubos will say that it is I who am twisting words, and in particular that I either “changed the question” or “changed the answer” (or both) between the original post and the offer to bet. That, however, won’t wash, since I’ve agreed, as part of the terms of the bet, to let an impartial panel of statistics professors determine the answer to the question as it was originally posed. So even if I had changed the question (which I haven’t), this would prevent me from getting away with it. (And no, I haven’t changed the answer either. If Lubos claims I have, we can put that to the stats profs also.)

I’m feeling annoyed enough to say a little more along these lines, but first I’d like to make it crystal clear that my annoyance does not extend to readers who are still puzzling this out. The problem with Lubos isn’t that he’s got it wrong; it’s that he’s not the least bit interested in getting it right. A few particulars:

Win Landsburg’s Money!!!

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on December 27, 2010

in Bad Reasoning, Puzzles and Statistics

. 278 Comments

Last week I posted a little brain teaser that shows up frequently in recreational puzzle books — and reportedly in Google job interviews. The interesting thing about that puzzle is that the “official” answer is wrong. Not only that, but it’s wrong for an interesting reason.

I explained the official answer, I explained exactly where it goes wrong, and I explained how to get the right answer, citing Douglas Zare’s post here as inspiration.

The physicist Lubos Motl, however, still defends the official “50%” answer on his own blog. I am therefore offering to bet him $15,000 that I’m right (with detailed terms described below). If you agree with Lubos, this is your chance to get in on the action. I will take additional bets up to $5000 per person from all comers until such time as I decide to cut this off. You can place your bet by commenting on this post with the amount you’d care to stake. Be sure to include your email address (which does not show up in the post) so I can email you and verify that you’re for real.

Why Yes. The Law Is An Ass.

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on December 15, 2010

in Bad Reasoning, Law, Policy and Rants

. 72 Comments

According to U.S. District Judge Henry E. Hudson, the same government that requires you to buy retirement insurance (via Social Security) is constitutionally barred from requiring you to buy health insurance.

Apparently some idiot lawyers have gotten it into their heads that the Social Security mandate is okay because it’s called a “tax”, whereas the Obamacare mandate is not okay because it’s enforced by what’s called a system of “fines”. From which I infer that if the government taxes you $1000 and uses it to buy you some health insurance, that’s constitutional. Or, if the government gives you a tax credit for buying insurance (after raising taxes to cover the cost of everyone’s credits, of course), then that’s constitutional — just as tax credits for home insulation are constitutional. Whereas if they just require you to buy $1000 worth of health insurance directly, that’s not constitutional even though it has exactly the same consequences as other policies that are constitutional. From which I infer that the law is an ass.

The Return of Depression Economics

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on December 7, 2010

in Bad Reasoning, Economics, Paul Krugman and Policy

. 23 Comments

Paul Krugman writes that trade does not equal jobs and concludes that trade restrictions cannot even in principle trigger a depression. After all, restricting trade means restricting exports (less jobs!) but it also means restricting imports (more jobs!) so everything washes out.

Well, let’s try an extreme example. Suppose I prevent everyone in America from trading with anyone outside their own households. We’d eat only what we could raise in our own gardens, burn only the fuel we could gather from our own backyards, and wear only the clothes we could make for ourselves. In other words, we’d all be living pretty much at the subsistence level. Would you be willing to call that a Depression? I would. Krugman, apparently, would not.

Thaler on the Estate Tax

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on November 8, 2010

in Bad Reasoning, Economics and Policy

. 50 Comments

Dick Thaler, writing in the New York Times, says so many wrong things about the estate tax that I don’t know where to begin. But let’s begin here:

First, it is incorrect to say the estate tax amounts to double taxation. The wealth in many large estates has never been taxed because it is largely in the form of unrealized — therefore untaxed — capital gains.

This is just not true. Virtually all of the wealth in every large estate has already been taxed at least once. Namely, it was taxed when it was earned. You do not understand this issue unless you understand the following simple example: Scrooge McDuck earns a dollar, makes some fortunate investments, and leaves a hundred million dollars in unrealized capital gains to his ne’er-do-well nephews. If Scrooge has to pay 50 cents income tax on that dollar, then he invests half as much, earns half as much, and leaves his nephews half as much. Scrooge’s fifty cent tax bill has already cost his nephews fifty million dollars.

Women’s Wages and the Back of My Envelope

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on October 6, 2010

in Back of the Envelope, Bad Reasoning and Economics

. 25 Comments

Yesterday’s breathtakingly dishonest graph from the AFL-CIO touched off some discussion in comments about whether the male/female wage differential could plausibly be driven by employer discrimination.

The usual argument to the contrary runs like this: If the differential is driven by employer discrimination (as opposed to, say, the abilities and/or preferences of the workers), then non-discriminating employers (i.e. those who care only about making a buck, regardless of who they have to hire to do it) would draw only from the relatively cheap female labor pool. It wouldn’t take many of these non-discriminating employers to drive women’s wages up to the same level as men’s. We don’t see that happening, ergo the hypothesis of employer discrimination is refuted.

The problem with that argument is that it assumes employers won’t ignore a profit opportunity, whereas in fact employers ignore profit opportunities all the time — by keeping on their incompetent nephews, taking Wednesday afternoons off to play golf, or, yes, hiring people they like having around instead of people who could do a better job.

The Python Misinterpreter

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on October 4, 2010

in Bad Reasoning, Economics and Sex

. 31 Comments

I once wrote a book called More Sex is Safer Sex”. If you’re wondering what that means, you can read the essence of the argument in Chapter 12 of The Big Questions and/or watch me explain it on video.

Python programmer Jack Trainor has posted a simulation that he believes is somehow relevant to this argument. (Comments on his post are here.) I’d thought this was too nonsensical to respond to, but more than one reader has asked for a response, so here goes: Except for the fact that his code runs, Trainor’s managed to get this argument wrong in every possible way. He’s misstated the assumptions, he’s misstated the logic, and he’s misstated the conclusions.

Capital Gains Followup

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on September 15, 2010

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. 35 Comments

A short followup to yesterday’s post on capital gains. This came up in the comments, and I think it’s worth highlighting:

Suppose we rewrite the tax code as follows: Every March 15, women pay 20% of their incomes and men pay nothing. Every April 15th, women pay 10% and men pay 20%.

Now someone writes a letter to the New Yorker complaining that the April tax is unfair to men, who pay twice as much as women do. I think it would be fair to dismiss this complaint as silly. Yes, it’s true that if you look at the April tax in isolation, men pay more than women. But there is no sensible reason to look at the April tax in isolation. If you look at the combined effect of the March and April taxes, women pay 30% and men pay 20%. By any sensible reckoning, women are taxed at a higher rate than men.

Getting It Right

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on September 14, 2010

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The New Yorker arrived today, leading off with this letter to the editor about income tax rates:

…The very rich pay at significantly lower rates, because most of their income consists not of compensation for services but of capital gains and dividends, which are capped at a fifteen per cent rate.

This is wrong, wrong, wrong, wrong, wrong, wrong, wrong, and you can’t begin to think clearly about tax policy if you don’t understand why. Even if capital gains taxes were capped at one percent, income subject to those taxes would be taxed at a higher rate than straight compensation. That’s because capital gains taxes (like all other taxes on capital income) are surtaxes, assessed over and above the tax on compensation.

It always pays to think through stylized examples. Alice and Bob each work a day and earn a dollar. Alice spends her dollar right away. Bob invests his dollar, waits for it to double, and then spends the resulting two dollars. Let’s see how the tax code affects them.

The Match Game

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on August 25, 2010

in Bad Reasoning and Statistics

. 22 Comments

Robin Hanson reports that success in marriage is quite uncorrelated with the match between your personality traits and your partner’s. Your traits matter (it pays to be happy, for example) and so do your partner’s, but the combination makes no difference. In other words, being a happy person (or an extrovert, or a stickler for detail) affects the quality of your marriage in exactly the same way whether you marry Ruth Bader Ginsberg or Lady Gaga. (This applies specifically to personality traits, not to religion, politics, wealth, intelligence, etc.)

Edited to add: The original version of this post misstated the result; I’ve changed a few words in the preceding paragraph so it’s accurate now.

From this, Robin concludes:

If you want a happy relationship, be a happy person and pick a happy partner; no need to worry about how well you match personality-wise.

NO!!!! That’s not the right conclusion at all, and it’s worth understanding why not. Suppose we lived in a world where personality matches had a huge effect on the success of marriages. In that world, why would two people with clashing personalities ever choose to marry? Presumably because there’s some special value in the match — like, say, an extraordinary mutual attraction — that overrides the personality clash.

So a survey of married couples — which is exactly the sort of evidence Robin is reporting on — is not at all a random sample of couples. Instead, it consists, for the most part, of couples with matched personalities on the one hand, and couples with mismatched personalities who are exceptionally well suited to each other for some other reason on the other hand. It’s not too surprising to find similar success rates in those two classes of couples. The third class — the couples with mismatched personalities and no redeeming match characteristics — never gets married and therefore never gets surveyed.

Conclusion: The results Robin quotes are perfectly consistent with a world where personality matching doesn’t matter — but also perfectly consistent with a world where it matters very much.

LocoVore Followup: A Blast From the Past

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on August 24, 2010

. 22 Comments

By way of followup to yesterday’s post on locavores, I present this letter to the editor of Science, written in 1976 by Harvard economist Robert Dorfman. You can think of Earl Cook, to whom Dorfman is responding, as the Steven Budiansky of his time.

The article by Earl Cook, “Limits to exploitation of nonrenewable resources”, is extremely informative. In fact, I should like to assign it to my class except that it is marred by an egregious fallacy. Since this fallacy has been turning up repeatedly in writings about environmental and natural resource problems, I wish to call it to the attention of Science readers.

The mistake has to do with the nature of social cost. Cook, for example, writes “To society … the profit from mining (including oil and gas extraction) can be defined either as an energy surplus, as from the exploitation of fossil and nuclear fuel deposits, or as a work saving, as in the lessened expenditure of human energy and time when steel is used in place of wood … “. A number of other authors also equate social cost with the expenditure of energy.

Continue reading ‘LocoVore Followup: A Blast From the Past’

Loco-Vores

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on August 23, 2010

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. 52 Comments

Steven Budiansky, the self-described Liberal Curmudgeon, thinks there’s something wrong with the locavore movement, and says so in the New York Times. But he misses the point just as badly as the locavores themselves.

The locavores, in case you don’t follow this kind of thing, are an environmentalist sect who make a moral issue out of where your food is grown — preferring that which is local to that which comes from afar. For example, as Budiansky puts it, “it is sinful in New York City to buy a tomato grown in California because of the energy spent to truck it across the country”.

Ah, says Budiansky, but let’s look deeper — the alternative to that California tomato might be one grown in a lavishly heated greenhouse in the Hudson Valley, and at a higher energy cost. This leads him off on a merry chase through what he calls a series of math lessons, adding up the energy costs of growing and transporting food in different locations. The implicit recommendation seems to be that when you’re choosing a tomato, you should care about all the energy costs.

Pop Quiz

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on July 22, 2010

in Bad Reasoning, Economics and Puzzles

. 45 Comments

Commenting on this essay by former Intel chief Andy Grove, Tyler Cowen writes that “Only he who first shows he understands comparative advantage has license to partially reject it.”

Hear hear. When someone says “I understand comparative advantage, but in this case it doesn’t apply”, or “I understand comparative advantage but in this case it is overridden by other considerations”, my experience tells me that you can be nearly sure you’re talking to someone who does not in fact understand comparative advantage.

Ultimately Simple

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on July 20, 2010

. 31 Comments

Stop me if you’ve heard this one. A subject (called the proposer) is placed in an isolation booth and given ten dollars to divide between himself and the stranger in the booth next door. The stranger (called the responder) can accept or reject the division. If he accepts, they each take their shares and go home. If he rejects, they each go home with nothing.

In experimental plays of this ultimatum game, responders tend to reject splits that are substantially worse than 50-50. This is offered as some kind of reproof to the principles of economics. After all, the responder is turning down free money.

But so what? Continue reading ‘Ultimately Simple’

A Pencil in the Eye

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on July 19, 2010

in Bad Reasoning, Current Events, Economics, Paul Krugman and Policy

. 28 Comments

Okay, if Paul Krugman is going to keep on writing the same column twice a week every week forever, then I am going to keeping on objecting to it forever, though not, I promise, twice every week.

A couple of bullet points from his latest:

In response to the priorities of Senator John Kyl, Krugman writes: “So $30 billion in aid to the unemployed is unaffordable, but 20 times that much in tax cuts for the rich doesn’t count.” Oh, for goodness’s sake. $30 billion in aid to the unemployed might or might not be good policy and 20 times that much in tax cuts might or might not be good policy; that’s beside the point here. The point is that these are quite entirely separate issues and one’s position on the first need not dictate one’s position on the second. Aid to the unemployed is costly. Tax cuts are not. Didn’t I just say this?

Toy Stories

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