Physiological Foundations of the Investiture Controversy

Whenever I see "scientific" articles like this one (via Michael. ), which purport to document "innate" differences between conservatives and liberals (of course, usually ignoring the possibility that other political ideologies may exist) I think about how great it would be if we could gather up a bunch of psychologists and political scientists, stick'em all into a time machine and send them to... oh, I dunno, the 12th century, and let them study the people there.

Then they'd write an article with an abstract like this:

Support for Pope and Emperor Varies with Physiological Traits

Although views on the Investiture Controversy have been thought to arise largely from individuals' experiences, recent research suggests that they may have a biological basis. We present evidence that variations in support for the Pope vs. the Emperor, correlate with physiological traits. In a group of 46 adult participants with strong allegiance to either the Guelph or the Ghibelline faction, individuals with measurably lower physical sensitivities to sudden noises (like Church bells) and threatening visual images (Dragons, Saracens, washing oneself with water) were more likely to support simony, mundus, Phillip of Swabia, agricultural interests and capital punishment, whereas individuals displaying measurably higher physiological reactions to those same stimuli were more likely to favor auctoritas, ecclesia, Lombard League, Otto of Brunswick, mercantile interests and capital punishment. Thus, the degree to which individuals are physiologically responsive to threat appears to indicate the degree to which they advocate policies that protect the existing social structure from both the (external) existing social structure and (internal) existing social structure. Or at least favor Pisa over Genoa.

Of course the main benefit of this experiment, aside from the extra addition to our knowledge of social phenomenon, would be that we'd get to leave all those psychologists and political scientists in the 12th century.

UPDATE: Here's Reason's Hit and Run on the same study. Some of the comments are pretty funny.

What should the Top Unsolved Problems in Economics Be?

This one's straight up for the econ geeks and it is a bit old, in internet time, but I've been busy so I'm just getting around to commenting on it. Mike Moffat points to the Wikipedia list of "Unsolved Problems in Economics" and says that while he likes the idea he's not so sure about the choices made by the Wiki community. I hold a similar view though for different reasons. Here's the list, without the commentary (which of course will come later):

* What caused the Industrial Revolution?
* What is the proper size and scope of government?
* How can heterogeneous production goods be included in a mathematically tractable intertemporal equilibrium construction?
* What truly caused the Great Depression?
* Can we explain the Equity Premium Puzzle?
* How is it possible to provide causal explanations using the purely logical constructions of mathematical economics?
* Can we create an equivalent of Black-Scholes for futures contract pricing?
* What is the microeconomic foundation of inflation?
* Is the money supply endogenous?
* How does price formation occur? Why do some markets achieve Pareto efficiency?
* What causes the variation of income among ethnic groups?

Mike appears to object to the fact that many of these questions don't really have a single particular answer. It is doubtful if the Industrial Revolution had a single cause. Or at least I think so and so does Mike. But I don't think that's a case for rejection - interesting questions often have multiple solutions, just ask the mathematician (ok, ok, that's a bit semantic). The job of economic researchers, particularly the empirical guys (guided by the theoretical gals), is to figure out the appropriate relative weights and likelihoods of various explanations. Maybe the Great Depression was 62% due to Monetary factors, 34% due to Animal Spirits 17% due to Real Shocks, 13% due to the radio broadcast of The War of the Worlds, and the rest we can ascribe to measurement error. We need to estimate those numbers.

But here's another Top, perhaps Unsolved, question - What constitutes a Top Unsolved Question in Economics (this is as good a place as any to link to this)? What criteria should be used?

There's the, possibly apocryphal, piece of econ grad student lore which tells of how D. McCloskey used to terrorize students which were unfortunate to have him (back then) on their dissertation committee with the "So What" question. Your assumptions could be realistic, your algebra pristine and your statistical analysis robust (without any reference to statistical significance). But you had better also be able to answer the "So What?" question. Or in other words, at the end of the day, why does the subject and the question posed in the dissertation matter?

I can think of three categories/criteria that I think are relevant here, listed in the increasing order of how I think McCloskey would've accepted them (i.e. the first probably wouldn't be all that satisfactory, etc.)

1. Some problems are intrinsically interesting and they excite human curiosity.
2. Some problems tell us something about ourselves and the, uh, human condition, even when they have no obvious practical implications.
3. The consequence for policy, and essentially for human welfare.

Now, I'm actually a lot more sympathetic to (1) than a lot, most even, economists would admit. Some problems are just plain ol' interesting to work on and it's just going be human nature to work on them. Additionally, sometimes no-immediate-practical-implication solutions to esoteric problems can turn out to really matter for everyday bread and butter (or so my Topologist friends tell me. Of course, they would say that, wouldn't they?). And as a former History student I've filled my head with all kinds of facts that really, I mean, really, have no bearing whatsoever on life as she's lived these days (that thing about being doomed to repeat History if you don't know it? Not true. You gonna repeat it whether you know it or not. To the extent that history does actually repeat itself. Which it doesn't). But perhaps History teaches us something about who we are... maybe. But lots of stuff does that and if that's all there was to it folks'd be right to scoff at History. No, lots of History matters simply because it is an intrinsically interesting area of study. And if Historians can study History for its own stake, then I'm cool with Economists studying Economics for Economics' sake.

(2) is essentially the whole reason we have the field of Behavioral Economics (of course (1) could apply here as well). Behaviorals deal with, essentially, the irrational or intransitive aspects of human behavior. And since it's impossible, almost by definition, to say what it is that irrational people really want, there's no clear policy implications (even ignoring the fact that these biases apply to governments and private markets alike).

This criteria/reason, in my opinion, is a worthy endeavor as well. In some fundamental sense it's what got those pre historic humans on the Savannah 100,000 years ago thinking about stuff - stuff as in more than survival - and what of course has culminated in this post right here. Or maybe that's actually do to some genetic mismutation (or "malmutation" if you're an Austrian).

But you know what I mean; the wondering about who we are and how we are has had many culminations and one of those has been the very existence of Social Science itself. That and the existence of "America's Next Top Model" (can't bring myself to put in a link for that one).

Of course (3) is the obvious one so let's be brief. But it is actually surprising how often we forget about it. And - here's where I move to the actual discussion of items on that list - one thing you'll notice about the Wikipedia numbers is the almost complete absence of Growth and Development topics. I mean, the reasons for the Industrial Revolution and the variation of income among ethnic groups (why the hell is that word "ethnic" in there? Why not "national"? Or just "groups"? Or better yet, why not just "individuals"? I actually suspect some subtle (racist) POV pushing here) are somewhat tangentially related. And "proper scope for government" might have big implications for human welfare but in this particular case Mike's right in that the answer is 92% subjective, 13% objective, with the rest being the sum of our ignorance.

There's actually a fairly widespread bias in Macro in studying stuff that doesn't matter that much for human welfare, in relative terms - economic fluctuations (yes, even in these dark times) - though some (via Gabriel) have pointed this out. And this list's along the same lines.

Take the "Can we create an equivalent of Black-Scholes for futures contract pricing?" problem. I'm sure it satisfies (1), if that's where your kinky inclinations lead you. If you really push it you could argue that it would tell us a bit more about how this one sub market (futures) of a sub market (derivatives) of a sub market (financial assets) in a sub market (developed countries) works and that bit of knowledge teaches us a bit of about ourselves and fits in with (2). Just maybe you can generalize it to some other facet of observed phenomenon. And then you can pat yourself on your head.

The "Equity Premium Puzzle" does fit in with (1) (if you ever start thinking about it it'll get in your head for awhile) and (2) (since it has to do with risk aversion and related phenomenon) and it maybe, in its general implications, rather than the narrow focus on the US (or developed country) stock market have some modest implications for welfare. But... personally I think the Equity Premium Puzzle has already been solved (in fact I think Reitz had it back in '88. This may be one of those instances where the crietria (1) is so strong that folks are loath to give up on such a fun, productive and paper-generating research topic, despite the fact that there may be not much left there.

So, in my book, the list fails, not because the possibility of multiple answers to complicated problems, but quite simply because most of the items on the list don't really answer McCloskey's "So What" question satisfactorily. Most of them probably satisfy (1), a fewer number (2) and only two or three (IR, GD) have serious implications for human welfare.

In interest of being constructive and not just critical I'm gonna throw up my own (actually it's also Robert Lucas') "Top Unsolved Question": why are poor countries poor and what can we do about it? I think that one satisfies (1), (2) and (3).

Europe travels - monetary economics

I've spent the last month traveling across Europe. That, and some other stuff has kept this blog fairly quite. Anyway. Here's some observations on how this Money thing works over there.

1. Optimum coin to note ratio.
We started off in Britain. The thing about British money is that there's a lotta coins. In fact, all small and medium sized purchases involve change and change means coins. So you wind up with a buttload of coins in your pocket which, after awhile becomes sort of unnerving. They jingle more than you'd like. They're heavy. They tend to fall out of your pockets when you pull something else out, like a lighter.
So of course you try to get rid of them, paying in multiple coins when you could pay with a 5 pound note or something. But this does not work. Because the prices tend to be quirky as well (something along the lines of the super annoying x.99 cents pricing in US). All that does for you is get you smaller denomination coins - five and two pences - which you receive as change, instead of getting rid of the annoying little discs all together. Soon enough you wind up with a pocketful of jingly small denomination coins that neither you, nor the merchant you're transacting with wants. Your only option is to annoy the merchant by purchasing a few-pound priced good with 2 and 5 pence coins. Understandably quite a few of them refuse.

Then we went to Poland and the Czech R. There local currency still triumphs. But there is a particular social norm left over from the bad old days - everyone insists on exact change. It used to be worse, I remember going back in 96, purchasing stuff worth something like 17.85, handing over a 20 zloty note and being told "This ain't America brother, exact change please!". Now most places just ask you for it but enough of them will reluctantly make change if it is not too bothersome. This whole insistance on exact change however has the perverse general equilibrium effect that hardly anyone ever has exact change. You end up carrying very few coins and small denominations (since you've used it up satisfying the exact change requirement) and all kinds of large bills. Everybody hordes the little denomination coins - in the complete opposite of UK - and those go out of circulation. So it's not uncommon for merchants to tell you "I can't make change for that, go find somewhere else and break down your money". And this isn't some kind of one off transaction we're talking about but just your regular grocery, newspaper, beer buying. And there's obvious transaction costs to that, the very ones that the institution of money is meant to alleviate.

The Euro seems to have achieve that nice middle ground between excessive coins and lack of them. There's still some inefficiencies related to weird pricing but like in US, most of these could be eliminated simply by phasing the very small coin denominations out of circulation.

Yes, get rid of the US penny PLEASE and get rid of the analogous denominations for the Euro.As for UK and Poland, well, it's gonna take some time.
Persistence and all that.