Society

The Soul of the World: Interview with Roger Scruton

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This is part of the DR Book Collection.

Image result for the soul of the worldI’ve been a fan of British philosopher Roger Scruton ever since I stumbled on his BBC documentary Why Beauty Matters as an undergrad. I picked up his Oxford-published Beauty[ref]I believe it was republished as Beauty: A Very Short Introduction.[/ref] at the UNT library soon after. I found Scruton’s ideas to be powerful and provocative, even if the writing was at times difficult or lackluster compared to the concepts.

I felt the same way about his Princeton-published The Soul of the World. As The Wall Street Journal summarizes,

Viewed through the lens of scientific reductionism, all existence is fundamentally the bouncing around of various material particles, some arranged in the form of gene-perpetuating machines we call humans. Mr. Scruton almost agrees—we are, in fact, gene-perpetuating machines, and the finer, higher aspects of human existence emerge from, and rest upon, biological machinery. As he points out, though, it’s a long jump from this acknowledgment to the assertion that “this is all there is.” The jump, according to Mr. Scruton, lands us in “a completely different world, and one in which we humans are not truly at home.” A truly human outlook involves the intuition of intangible realities that find no place in even our most sensitive systems of biology, chemistry or physics.

For Scruton, this reductionism “overlook[s] the aspect of our mental states that is most important to us, and through which we understand and act upon each other’s motives, namely, their intentionality or “aboutness”” (pg. 4). The theism presented by Scruton is a kind of general classical theism, one that could be embraced by someone outside a specific religious tradition. His last few chapters discussing art, music, and the faces of others are especially enlightening. Just as no one would reduce the Mona Lisa to mere pixels on a canvas or the music of Bach to random sounds, to reduce humans and nature to their mechanical functions is to misunderstand reality and suppress our own daily experiences of the world. Thought-provoking stuff.

You can hear a brief snippet of an interview with Roger Scruton below.

Is Entrepreneurship Predetermined?

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How much is entrepreneurship predetermined by family background? According to a new study,

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Parent Role-Modelling

recent papers have collectively suggested that entrepreneurship might be more predetermined than previously thought – entrepreneurship education has been proven to be effective in primary school (Huber et al 2014) and, to a lesser extent, in secondary school (Elert et al 2015), but not at all when individuals are older, that is, students (Oosterbeek et al 2010) or adults (Fairlie et al 2015). Moreover, strong intergenerational associations in entrepreneurship have attracted considerable attention. While part of this relationship has been shown to be genetic (Nicolaou et al 2008), parental role-modelling appears to be the main driver of the intergenerational association in entrepreneurship (Lindquist et al. 2015). Additionally, exposure to a dense entrepreneurial environment during formative years also increases the likelihood of entry into entrepreneurship (Guiso et al. 2015).

So the policy-relevant questions arise: To what extent is entrepreneurship predetermined? Have we spent (public) funds wisely by implementing policy measures and education aimed at changing the behaviour of adult people?

In a recent paper, we assess the predetermination of entrepreneurship outcomes by calculating and analysing sibling correlations (Lindquist et al 2016). We argue that sibling correlations are more complete and precise measures of predetermination, including the importance of genes, family background, and neighbourhood effects as determinants of entrepreneurship. Sibling correlations have been used before to study outcomes other than entrepreneurship and provide much broader measures of the importance of family background and neighbourhood effects than intergenerational associations (Solon 1999). Their interpretation is also straightforward – the higher the sibling correlation, the larger the importance of family background.

Their results?:

  • 25% of the variance in individuals’ decisions to become self-employed is explained by family background and community influences;
  • For incorporation, this is close to 35%;
  • These percentages are slightly higher when we consider measures of successful entrepreneurship such as above median years of self-employment and incorporation;
  • Brother correlations are always larger than sister correlations;
  • The largest correlation is for males with above median years of incorporation, which is close to 50%;
  • Mixed sibling correlations are consistently smaller than same-sex correlations.
  • Parental entrepreneurship status is quite important;
  • Parental education and income matter much less; and,
  • Family structure and immigrant status do not matter.
  • Parental self-employment is a prime explanatory force in individual self-employment, but not incorporation; and
  • Parental incorporation explains individual incorporation best, but not self-employment.
  • Between 56–78% of the sibling correlations in self-employment; and
  • Between 38–46% of the sibling correlations in incorporation.

The researchers conclude “that parental entrepreneurship and genes are the two most important factors generating sibling similarities in entrepreneurship.” Policy wise, the authors explain that “children appear to be able to learn about entrepreneurship through their family and community environment, which implies that it may be possible to teach entrepreneurship to young people.”

Check it out.

Density and Productivity

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Image result for you are my density

A new study finds evidence that denser populations are more productive:

Is it selection, or the sorting of talents (Behrens et al. 2014) that leads only the most productive firms to locate in denser areas? Or do agglomeration economies explain why firms located in less dense environments are less productive?  Empirical evidence suggests that the main driver of differences in productivity is not selection (i.e. tougher competition inducing less productive firms to exit the market) but agglomeration economies (Combes et al. 2012). The usual suspects are the higher availability of services, better infrastructure, sharing of public goods, a denser labour market allowing for better matching, and technology spillovers (Duranton and Puga 2004). Using firm-level data for France, we confirm in a recent study that misallocation has a spatial dimension: resource allocation and the associated effect on productivity are related not only to firms’ characteristics, but also to the environment in which they operate (Fontagné and Santoni 2016). Denser commuting zones seem to offer a better match between employers and employees.

It’s a bit technical, but interesting nonetheless. Check it out.

Biased Regulators

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In their book Nudge, authors Richard Thaler and Cass Sunstein advocate what they call “libertarian paternalism”: a kind of governmental choice architecture that seeks to influence the choices choosers make. This restructuring tends to rely on small tweaks to the system, recognizing that people are often biased and irrational in their decision-making.

However, a new study shines light on an overlooked aspect of bias and policy. Economist and paper author David Hirshleifer explains,

What if the choice architects are subject to psychological bias? This could come from biases of regulators, politicians, or even economists. It can also come from the psychological biases of the voters who hire and fire political agents.

Teoh and I argue that important features of financial and accounting rules and regulation are shaped by psychological bias on the part of the architects, rather than as a useful remedy for the biases of the decision makers being acted upon.  Typically the resulting regulation is far from libertarian, as well.

We call the approach to understanding regulation as coming from smart and benevolent architects `Good Rules for Bad Users.’ (Libertarian paternalism is slightly different: `Good Suggestions for Bad Users.’) We feel the other side of the coin has been neglected, that the architects themselves may be biased, resulting simply in `Bad Rules.’ (This is not to say that all regulation is bad, but it does say that bad rules will sometimes be approved.)  We call this perspective the psychological attraction approach to financial and accounting regulation.

Specifically, we argue that some forms of regulatory ideas are good at ensnaring the attention, emotions, and cognitive biases of regulators and the public. Such regulations do not necessarily help others, on the whole, and indeed may have highly perverse effects. But people are attracted to certain rules because they are superficially appealing. This point applies even to accounting rules, which have evolved over centuries through the interactions of different users. Rules concerning what firms have to expense, what they can capitalize, whether they are required to be conservative in reporting their performance—all, we argue, have been influenced by heuristic intuitions, not just economic efficiency.

The biases of regulators have been addressed before by other researchers. It’s a glaring oversight among “nudge” advocates that needs to be continually studied.

Improving American Schools

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“The latest results [of the PISA exam],” reports The New York Times,

…reveal the United States to be treading water in the middle of the pool. In math, American teenagers performed slightly worse than they usually do on the PISA — below average for the developed world, which means they scored worse than nearly three dozen countries. They did about the same as always in science and reading, which is to say average for the developed world.

But that scoreboard is the least interesting part of the findings. More intriguing is what the PISA has revealed about which conditions seem to make smart countries smart. In that realm, the news was not all bad for American teenagers.

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Vertical: Math ranking; Horizontal: Spending, ages 6-15

The good news is that–although “the United States had not raised its average scores”–its

measures of equity…had improved. One in every three disadvantaged American teenagers beat the odds in science, achieving results in the top quarter of students from similar backgrounds worldwide.

This is a major accomplishment, despite America’s lackluster performance over all. In 2006, socioeconomic status had explained 17 percent of the variance in Americans’ science scores; in 2015, it explained only 11 percent, which is slightly better than average for the developed world. No other country showed as much progress on this metric. (By contrast, socioeconomic background explained 20 percent of score differences in France — and only 8 percent in Estonia.)

But what countries had the best outcomes overall?

Generally speaking, the smartest countries tend to be those that have acted to make teaching more prestigious and selective; directed more resources to their neediest children; enrolled most children in high-quality preschools; helped schools establish cultures of constant improvement; and applied rigorous, consistent standards across all classrooms.[ref]For example, see the Smithsonian on Finland’s school system.[/ref]

Of all those lessons learned, the United States has employed only one at scale: A majority of states recently adopted more consistent and challenging learning goals, known as the Common Core State Standards, for reading and math. These standards were in place for only a year in many states, so Mr. Schleicher did not expect them to boost America’s PISA scores just yet. (In addition, America’s PISA sample included students living in states that have declined to adopt the new standards altogether.)…Standards like the Common Core exist in almost every high-performing education nation, from Poland to South Korea.

Check it out.

Politics and Emotion

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Emma Green at the Atlantic posted a conversation with Michael Wear, a conservative evangelical Christian who worked on Obama’s staff as a faith-outreach director.  In it, Wear describes the current problems with political tribalism on hot-button issues, with focus on (non-)religiously based views.  You can read the whole thing here: Democrats Have a Religion Problem, and I’ve pulled out some gems below.

On religious illiteracy:

[Wear] once drafted a faith-outreach fact sheet describing Obama’s views on poverty, titling it “Economic Fairness and the Least of These,” a reference to a famous teaching from Jesus in the Bible. Another staffer repeatedly deleted “the least of these,” commenting, “Is this a typo? It doesn’t make any sense to me. Who/what are ‘these’?” (Green)

On divisiveness:

No matter Clinton’s slogan of “Stronger Together,” we have a politics right now that is based on making enemies, and making people afraid… It’s much easier to make people scared of evangelicals, and to make evangelicals the enemy, than trying to make an appeal to them. (Wear)

On emotion:

I’ve been speaking across the country for the year leading up to the election, and I would be doing these events, and without fail, the last questioner or second-to-last questioner would cry. I’ve been doing political events for a long time, and I’ve never seen that kind of raw emotion. And out of that, I came to the conclusion that politics was causing a deep spiritual harm in our country. We’ve allowed politics to take up emotional space in our lives that it’s not meant to take up. (Wear, emphasis added.)

Perhaps politics is taking up a space that religion used to take up.  This seems to be true on both sides of the political aisle.

GMU Interview with Joe Henrich

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Joseph Henrich (left), Tyler Cowen (right)

Anthropologist and cultural psychologist Joseph Henrich is an academic whose work I’ve been following over the last couple years. His work has been highlighted multiple times here at Difficult Run. He is a co-author of some of my favorite studies in the last decade or so. And his latest book–The Secret of Our Success: How Culture Is Driving Human Evolution, Domesticating Our Species, and Making Us Smarter–looks absolutely amazing (it’s waiting patiently for me on my Kindle).

He recently sat down with economist Tyler Cowen for a segment of Conversations with Tyler at GMU’s Mercatus Center. The interview is fascinating as they discuss Henrich’s work on cultural evolution and its implications for both today and the future. What perhaps excited me the most was Henrich’s discussion of his work-in-progress on marriage norms and the development of Western individualism:

In my latest project I’m really looking at the kind of spread of the Western church into Europe and how it transformed the social structure in ways that I think led to individualism, it led to a different kind of cultural psychology that would eventually pave the way for secular institutions and economic growth. The church is the first mover in that account…When the church first began to spread its marriage-and-family program where it would dissolve all these complex kinship groups, it altered marriage. So it ended polygyny, it ended cousin marriage, which…forced people to marry further away, which would build contacts between larger groups. That actually starts in 600 in Kent, Anglo-Saxon Kent. Missionaries then spread out into Holland and northern France and places like that. At least in terms of timing, the marriage-and-family program gets its start in southern England.

This project is in its early stages (according to the email Henrich sent me), but it’s something I’m greatly anticipating. The entire interview is worth watching/listening to. Cowen provides both insightful feedback and even pushback, making the discussion a productive one. Check it out.

Unintended Consequences: Redistribution and the World’s Poor

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Last summer, two consultants at the Minneapolis Fed published a paper entitled “On the Ethics of Redistribution.” They begin by framing the discussion with a global perspective:

A typical American in the lowest 5 percent of income (for America) has a higher income than 95 percent of Indians, 80 percent of Chinese and 50 percent of Brazilians. In the United States, 99 percent of households have indoor plumbing (a toilet with a sewer connection). In India, it’s 12 percent. For Americans below the poverty line, nearly three-quarters have a car (and 31 percent have two or more) and 97 percent have air conditioning. In India, only 5 percent of all households have cars and 2 percent of all households have air conditioning.

This then begs the following question: Are policies that purport to help the comparatively well-off (those at, say, the poverty line in developed countries) at the expense of the superlatively well-off (the rich in developed countries) desirable from the behind-the-veil perspective assuming that that perspective is global?

Increasing world trade is an example of the tension between policies that help those in developing countries versus those that help those lower in the income distribution in developed countries. According to a World Bank Study, in the three decades between 1981 and 2010, the rate of extreme poverty in the developing world (subsisting on less than $1.25 per day) has gone down from more than one out of every two citizens to roughly one out of every five, all while the population of the developing world increased by 59 percent. This reduction in extreme poverty represents the single greatest decrease in material human deprivation in history.

But this decrease in extreme poverty in the developing world has coincided with a marked increase in income inequality in the developed world, and the latter has received much more attention, at least from policy analysts in these richer nations.

The authors then move to the subject of skilled/unskilled labor and the effects of redistribution:

Image result for redistributionIn a world with just two countries, one developed and the other poor, output is produced in each by a combination of skilled workers and unskilled workers. When they’re young, unskilled workers have the opportunity to become skilled by working with older, skilled workers.

…A rich-country policy to tax high incomes will redistribute income (within that country) from those with high innate abilities (and, by assumption, with the ability to become highly skilled) to those with lower innate abilities. In so doing, that policy will reduce inequality within the rich country, but it will also create disincentives there to becoming highly skilled and thereby reduce the global supply of skilled workers. This reduced supply of skilled workers from the developed country then reduces opportunities for young workers in the poor country to become skilled.

Applying the Harsanyi-Rawls behind-the-veil-of-ignorance criterion but considering only people in the developed country would appear to make this a beneficial policy because it helps the poor of that rich country. But, in our example, it hurts the poorest of the poor in the world, those in the developing nation. A proper application of the behind-the-veil-of-ignorance criterion—one that takes all people in all countries into consideration—can thus lead to the implication that such a policy is extremely undesirable. At the very least, a proper application of the criterion says that redistribution within rich countries imposes costs on people in other countries which need to be taken into account.

They conclude, “A giant literature in public finance justifies such social welfare functions by appealing to the veil-of-ignorance. Our point simply is that those who use this criterion should weight the welfare of poor people in Chad, the world’s poorest nation, very heavily. To our knowledge, very little if any of the relevant research does so.”

The Benefits of Globalization: Trade & Migration

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We sharply disagree with this dismal view of globalisation.

Image result for free tradeSo write three scholars drawing on their latest research on globalization. “Our recent research,” they continue,

indicates that the gains from trade and migration are tremendous and that the world stands to benefit greatly from their further liberalisation (Desmet et al. 2016). The problem with virtually all quantitative and empirical evaluations of trade and migration is their static nature. They completely ignore the dynamic gains from globalisation. As we will later discuss, these dynamic gains quantitatively dwarf any short-run costs. 

After providing the theory of growth behind trade and migration, the researchers present their jaw-dropping conclusions:

Completely lifting all migration restrictions would increase real world output by 126% in present discounted value terms. Since such a policy may be unrealistic, consider instead a reform that liberalises migration so that 10% of the world population moves at impact. This would yield a present discounted value increase in real world output of 14%. Such a reform would cause some extra congestion in Europe and the US, implying that average welfare would increase by 9%, a smaller but still impressive figure. It is hard to think about any other policy that could readily be applied at the world level for which estimated benefits are as large. Migration is uniquely powerful in generating positive effects. In economic terms, having an open-door policy is a no brainer, not because of some abstract theoretical arguments, but because the measurement of the relevant forces tells us so.

Turning back the clock on trade would have equally dire consequences. Increasing trade costs by 40% would lower real world output by 30% in present discounted value terms. Although globalisation might create losers in the short run, allowing the free flow of goods and people across regions and countries is still one of the best ways we know to ensure our long-run wealth and well-being.

These numbers are astronomical. The potential good that can come from liberalized trade and migration makes the rising nationalism all the more disheartening.

Minimum Wage Abroad

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Over at the World Bank’s Development Impact blog, doctoral candidate Andrés Ham looks at the effects of minimum wage hikes in developing countries. “Minimum wages in developing countries tend to be set higher, are less likely to be rigorously enforced, and labor markets are often segmented into formal and informal sectors with minimum wage policy only covering formal workers,” he writes.

Given these differences and that most developing countries implement minimum wage policies, understanding their consequences on labor markets is critical for economic growth, developing effective labor policy, and poverty alleviation.
 
My job market paper studies the impact of minimum wage policy on labor market outcomes and poverty in Honduras from 2005-2012 using repeated cross-sections of household survey data. The attributes of Honduran minimum wage policy and its labor market are similar to many developing countries, so the resulting conclusions from this case study may extend beyond its borders.

His results?

I find that a 10 percent increase in minimum wages reduces employment rates by about 1 percent. Because this result lumps formal and informal sectors together, it disguises the real effect: a significant change in labor force composition. The same minimum wage hike lowers the likelihood of employment in the formal sector by about 8 percent and increases the probability of employment in the informal sector just over 5 percent. The data indicate that individuals substitute wage earning jobs for self-employment as a direct consequence of minimum wage hikes. Wages in the formal sector increase but the observed influx of workers towards the informal sector leads to a negative net effect on informal sector wages.

Since informal sector jobs tend to be lower-paid part-time positions, average earnings in this sector often lie below formal sector incomes. Hence, there may be an adverse effect on individual well-being from these observed changes in labor force composition. To approximate the welfare effect of minimum wages, I estimate whether minimum wage increases help workers escape from extreme poverty. I find that a 10 percent increase in minimum wages has a negative but statistically insignificant effect on the risk of extreme poverty for the formal labor force. The same minimum wage hike significantly raises the risk of extreme poverty for the informal workforce by around 4 percent. This result indicates that on balance, higher minimum wages increase poverty.

I also find evidence that more formal workers are being paid less than the minimum wage. This occurs despite formal employers’ legal obligation to comply with minimum wages. Some non-compliance has always been observed in developing countries, mostly in response to imperfect enforcement from regulators (Rani et al. 2013). In Honduras, about one in three formal workers earns sub-minimum wages. As minimum wages increase, so does the level of non-compliance. I estimate that about 36 percent more formal sector workers, who should be receiving minimum wages, are underpaid by their employers.[ref]As Nathaniel pointed out to me, this indicates that Ham’s findings underestimate the negative impact of the minimum wage. If minimum wage laws were strictly complied with, the negative effects would be even greater.[/ref]

Ham concludes, “My findings imply that the costs of minimum wage increases outweigh their benefits in developing countries. The policy implication is that setting high minimum wages has detrimental effects on labor markets, well-being, and compliance.”