Author: Art Diamond

Thales of Miletus Lives

 

   Source of book image:  http://store.43folders.com/books-3-1400063515-The_Black_Swan_The_Impact_of_the_Highly_Improbable

 

This is part entertaining rant and part serious epistemology.  I’ve finished 9 of 19 chapters so far–almost all of my reading time spent smiling. 

Historians of Greek philosophy used to tell the story of one of the first philosophers, Thales of Miletus, that he once was watching the stars, and fell into a well.  The citizens of Miletus made fun of him being an impractical philosopher.  To prove them wrong, he used his knowledge to corner the market in something, and made a fortune. 

Not a very plausible story, but appealing to us philosophers.  (Like Thales, we like to think we could all be rich, if we didn’t have higher goals.)

Well apparently Taleb is the real Thales.  He wanted to be a philosopher, got rich on Wall Street using his epistemological insights, and is now using his wealth to finance his musings on whatever he cares to muse on.

Beautiful!

 

Here’s an amusing sentence that broadened my grin.  (It was even more amusing, and profound, in context, but I don’t have time to type in the context for you.)

(p. 87)  If you are a researcher, you will have to publish inconsequential articles in "prestigious" publications so that others say hello to you once in a while when you run into them at conferences.

 

Reference for the book:

Taleb, Nassim Nicholas. The Black Swan: The Impact of the Highly Improbable. New York: Random House, 2007.

 

Buchanan on Hayek, Rawls and Nozick

 

  Sandy Peart talking to James Buchanan.  Source of photo:  me. 

 

In an earlier blog entry, I mentioned a comment on disagreeing with journal referees, made by  James Buchanan in conversation at the closing dinner of the 2007 Summer Institute for the Preservation of the History of Economics.

Hayek also came up at the dinner with Buchanan. Buchanan mentioned that he was not as enthused about Hayek’s later work, including The Fatal Conceit, and Law, Legislation and Liberty—he thought the best might have been The Constitution of Liberty.

He mentioned that some foundation had funded a couple of conferences in Europe of top free market scholars to offer advice to Hayek.  They told Hayek that his manuscript was a mess, and that it would be an embarrassment to him to publish it. But he said he was already under contract. (I think this comment referred to The Fatal Conceit.) So someone (Bruce Bartlett?) helped Hayek clean it up.

Buchanan also spoke highly about Rawls.  I think I mentioned that Hayek had said that his approach was similar to Rawls.  I think Buchanan said he did not think that comment was surprising.

I also believe I remember Buchanan saying that he thought more highly of Rawls than of Nozick.

 

Sherwin Rosen Approves a Positive Review of Rosenberg’s Book

 

Another of Sherwin Rosen’s minor acts of methodological delinquency, this time in his role as co-editor of the Journal of Political Economy, was his asking me to review Alexander Rosenberg’s criticism of the economics profession for drifting further and further into irrelevant mathematical puzzle-solving.  My review was basically favorable to Rosenberg, and my memory is that Rosen was quite content with my review.

 

The reference to my review is:

"Review of:  Alexander Rosenberg’s Economics–Mathematical Politics or Science of Diminishing Returns?."  Journal of Political Economy 104, no. 3 (June 1996):  655-659.

 

Global Warming is No Threat to North Atlantic Current

 

   A view of part of the Greenland ice sheet.  Source of the photo:  online version of the NYT article quoted and cited below.

 

(p. D3) OSLO — Mainstream climatologists who have feared that global warming could have the paradoxical effect of cooling northwestern Europe or even plunging it into a small ice age have stopped worrying about that particular disaster, although it retains a vivid hold on the public imagination.

The idea, which held climate theorists in its icy grip for years, was that the North Atlantic Current, an extension of the Gulf Stream that cuts northeast across the Atlantic Ocean to bathe the high latitudes of Europe with warmish equatorial water, could shut down in a greenhouse world.

Without that warm-water current, Americans on the Eastern Seaboard would most likely feel a chill, but the suffering would be greater in Europe, where major cities lie far to the north. Britain, northern France, the Low Countries, Denmark and Norway could in theory take on Arctic aspects that only a Greenlander could love, even as the rest of the world sweltered.

All that has now been removed from the forecast. Not only is northern Europe warming, but every major climate model produced by scientists worldwide in recent years has also shown that the warming will almost certainly continue.

“The concern had previously been that we were close to a threshold where the Atlantic circulation system would stop,” said Susan Solomon, a senior scientist at the National Oceanic and Atmospheric Administration. “We now believe we are much farther from that threshold, thanks to improved modeling and ocean measurements. The Gulf Stream and the North Atlantic Current are more stable than previously thought.”

. . .

“The ocean circulation is a robust feature, and you really need to hit it hard to make it stop,” said Eystein Jansen, a paleoclimatologist who directs the Bjerknes Center for Climate Research, also in Bergen. “The Greenland ice sheet would not only have to melt, but to dynamically disintegrate on a huge scale across the entire sheet.”

The worst imaginable collapse would likely take centuries to play out, he said. Any disruption to the North Atlantic Current — whose volume is 30 times greater than all the rivers in the world combined — would thus occur beyond the time horizon of the United Nations climate panel.

 

For the full story, see: 

WALTER GIBBS.  "Scientists Back Off Theory of a Colder Europe in a Warming World."  The New York Times  (Tues., May 15, 2007):  D3. 

(Note:  ellipsis added.)

 

 AtlanticWarmWaterCirculationMap.jpg  Source of the map:  online version of the NYT article quoted and cited above.

 

When Sherwin Rosen Stunned the Fifth World Congress of the Econometric Society

         

I remember hearing Sherwin Rosen speak to a good-sized auditorium of technical economists at a plenary session of the Fifth World Congress of the Econometric Society in 1985.[i]  Rosen was proceeding in his typically bemused style, when he suggested to the stunned audience that they might benefit from re-reading Alfred Marshall.  I remember him saying that there are some things in Marshall that we don’t talk about any more, but that we should still talk about.  I specifically remember him mentioning that Marshall had said that the success of the institution of contract depended on the correct expectation of a certain level of ethical behavior among the participants in the economy.  I wish I could remember the specifics better, but Rosen’s auditors were visibly dismayed, and I supposed that they were thinking something like:  ‘read Marshall?, here was the sad sight of a once proud theoretician, going soft and senile.’

[i]I remember a large auditorium-like venue for the session, but could not remember any other session details, so I dug out a copy of the program for the meetings.  The only plenary session participation listed for Rosen, was his serving as a discussant for Oliver Hart and Bengt Holmstrom’s “Theory of Contracts” paper, which was delivered on August 19, 1985 (see:  “Program . . .,” 1986, p. 471).  In searching through Rosen’s publications, I cannot find any evidence that his comment was ever published.  In an email response (email dated Nov. 19, 2006) to my inquiry, Bengt Holmstrom has replied:  “I know that his comment was not published.”

"Program of the Fifth World Congress of the Econometric Society.”  Econometrica 54, no. 2 (March 1986):  459-505.

 

David Warsh on Paul Romer’s ‘Triumph of Formalism’

 

  David Warsh prepares to speak as Sandra Peart introduces him at the HES meetings at George Mason.  Source of photo:  me. 

 

David Warsh in his plenary address to the History of Economics Society on June 9, 2007, recounted a version of the account that he gives in his 2006 book Knowledge and the Wealth of Nations. (A key part of this story was also told in an article in the Sunday magazine section of The New York Times.)

Here I concentrate on the plenary lecture presentation.

Warsh said that he is the first to give Romer his due; that Romer has managed to alienate the economists both at Chicago and at MIT. (Well, maybe, but Tom Friedman sure gives Romer a lot of attention and praise in his best-selling The World is Flat.) Warsh also said that he (Warsh) has been accused of writing a hagiography of Romer.

Warsh identifies the key contribution of Romer as being that he identifies the key properties of knowledge, namely that it is nonrivalrous and nonexcludible. He claims that Romer was the first to see this, and so is responsible for beginning the crucial field of the economics of knowledge.

Further, Warsh claims that the economics profession only achieved this insight when Romer found a way to incorporate knowledge in his formal models.

This story, Warsh says, is a triumph of formalism; only through formalism could such an important advance have been made.

At this point in the presentation, I became rather annoyed—I had my hand up during most of the question session, but Warsh chose not to call on me.  (In fairness, I was seated on his far left, though at the front, so it is possible that he did not see me.)

What I told Warsh afterwards was that the lesson from this episode is the exact opposite of the one he claims—it is not an example of the triumph of formalism, but rather an example of the shame of formalism.

Long before Romer, others had pointed out the nonrivalry and nonexcludibility of knowledge. E.g., Arrow briefly in a famous essay (1962), and Harry Johnson at greater length in an obscure essay (1972).

The requirement that serious knowledge requires formalization before it is taken seriously, meant that economists ignored for several decades, what had been nonformally known. It is to the shame of formalism that for decades useful issues were ignored.

And even more strongly, to say that Romer is responsible for founding the economics of knowledge is to add insult to injury to the economists who had actually founded this field: economists such as Richard Nelson, Nathan Rosenberg, Zvi Griliches and Edwin Mansfield.

Not only was their work largely ignored for decades, but a leading advocate and exemplar of the formalist methodology responsible for the ignorance, is himself given credit for their achievements.

 

The reference to Warsh’s book, is:

Warsh, David. Knowledge and the Wealth of Nations: A Story of Economic Discovery. New York: W. W. Norton & Co., 2006.

 

For further information on the founders of the economics of science and technology, one could consult:

"Economics of Science." In Steven  N. Durlauf and Lawrence E. Blume, The New Palgrave Dictionary of Economics, 2nd ed., forthcoming, 2008, Basingstoke and New York:  Palgrave Macmillan, reproduced with permission of Palgrave Macmillan. This article is taken from the author’s original manuscript and has not been reviewed or edited. The definitive published version of this extract may be found in the complete New Palgrave Dictionary of Economics in print and online, forthcoming, 2008. 

"The Economics of Science."  Knowledge and Policy 9, nos. 2/3 (Summer/Fall 1996): 6-49.

"Edwin Mansfield’s Contributions to the Economics of Technology."  Research Policy  32, no. 9 (Oct. 2003):  1607-1617.

"Zvi Griliches’s Contributions to the Economics of Technology and Growth."  Economics of Innovation and New Technology 13, no. 4 (June 2004):  365-397.

 

The full reference on the Arrow article, is: 

Arrow, Kenneth J.  "Economic Welfare and the Allocation of Resources for Inventions."  In Richard R. Nelson, ed., (National Bureau of Economic Research), The Rate and Direction of Inventive Activity:  Economic and Social Factors.  Princeton:  Princeton University Press, 1962, pp. 609-625.

 

The full reference on the Harry Johnson article, is: 

Johnson, Harry G.  "Some Economic Aspects of Science."  Minerva 10, no. 1 (January 1972):  10-18.

 

Mugabe Driven by Quest for Power, More than from Paranoia, or Marxism: More on Why Africa is Poor

 

No one outside of Mr. Mugabe’s inner circle, of course, can say with certainty why he has pursued policies since 2000 that have produced economic and social bedlam. For his part, Mr. Mugabe says Zimbabwe’s chaos is the product of a Western plot to reassert colonial rule, while he is simply taking steps to fight that off.

Among many outside that circle, however, the growing conviction is that Zimbabwe’s descent is neither the result of paranoia nor the product of Mr. Mugabe’s longstanding belief in Marxist economic theory. Instead, they say, Zimbabwe is fast becoming a kleptocracy, and the government’s seemingly inexplicable policies are in fact preserving and expanding it.

. . .

Mr. Mugabe’s government declares currency trading illegal, but regularly dumps vast stacks of new bills on the black market, still wrapped in plastic, to raise foreign exchange for its own needs, business leaders and economists say.

The nation’s extraordinary hyperinflation, last pegged by analysts at 10,000 percent a year, is an economic disaster that, by all accounts, the government needs to address. Yet after it ordered merchants in July to slash their prices, cadres of policemen and soldiers moved into shops to enforce the new controls, scoop up bargains and give friends and political heavyweights preferential access to cheap goods.

. . .

Mr. Mugabe’s 25-bedroom mansion in Borrowdale, the gated high-end suburb of Harare, the capital, is the locus of a boomlet that has spawned luxury homes for government and party officials. (Mr. Mugabe said his mansion was built with goods and labor donated by foreign governments.)

Mr. Mugabe arrived to open Zimbabwe’s Parliament this month in a Rolls-Royce. Equally telling, the legislature’s parking lot was crammed with luxury cars.

Such riches have been accompanied by a steep decline in living standards for just about everyone else. The death rate for Zimbabweans under the age of 5 grew by 65 percent from 1990 to 2005, even as the rate for the world’s poorest nations dropped. Average life expectancy here is among the world’s lowest, according to the United Nations.

 

For the full commentary, see: 

MICHAEL WINES.  "News Analysis; Zimbabwe’s Chaos: The Powerful Thrive."  The New York Times (Fri., August 3, 2007):  A8. 

(Note:  ellipses added.)

 

“A Payment System that Rewards Everybody for Staying Busy”

 

  Source of map:  online version of the NYT article cited below. 

 

(p. H6) WHY does health care for the average Medicare patient cost nearly twice as much a year in New Jersey, at $8,076, as it does in Hawaii, at $4,529?

The differences are one example of perplexing geographic variations in medical expenses and quality. And in a study that has important implications for the nation’s $2 trillion health care tab, researchers have found that more intensive and expensive care does not necessarily mean better outcomes. In fact, the opposite may be true.

The Dartmouth Atlas of Health Care, a research group that studies variations and costs in medical care, sums it up like this: Geography is destiny. It means that your chances of undergoing certain surgical procedures, visiting the doctor often or even dying in a hospital or at home are related to where you live.

For example, Medicare patients living in Rhode Island undergo knee replacements at a rate of 5 in 1,000 people. In Nebraska, the number rises to 10 in 1,000. Female Medicare enrollees who receive a diagnosis of breast cancer have nearly seven times the chance of having a mastectomy in South Dakota, where the rate is 2 in 1,000, as they do in Vermont, where the rate is .3 in 1,000.

. . .

In communities with surplus hospital beds, research shows, patients do not necessarily get more elective surgery, but they have more hospital stays, more frequent doctor’s visits and are more likely to be referred to specialists.

Dr. Elliott S. Fisher, who studies health care economics and is a member of the Dartmouth research group, said that part of the problem was the way doctors and hospitals were paid.

“In a payment system that rewards everybody for staying busy, every bit of capacity you have, whether it’s the number of specialists or the number of intensive care beds or the M.R.I. scanner, has to stay fully occupied because they bought them already and they have to keep paying for them,” Dr. Fisher said in a telephone interview.

. . .

Paradoxically, the Dartmouth research, which confirms some similar studies, shows that patients in high-cost areas are not necessarily getting better care. Dr. Fisher said that he and his colleagues found higher mortality rates in higher-spending regions.

. . .

Extra care without better outcomes translates into waste in the health care system. Some experts say that waste accounts for as much as if not more than 30 percent of the national spending on health care. Such spending now totals 16 percent of the gross domestic product.  

 

For full story, see: 

STEPHANIE SAUL.  "TREATMENTS; Need a Knee Replaced? Check Your ZIP Code."  The New York Times  (Mon., June 11, 2007):  H6.

(Note:  ellipses added.)

 

     Source of map:  online version of the NYT article cited above.

 

An Innovative Way to Reduce Global Warming, If We Need One

 

(p. B1) What if we wait too long to act on global warming? What if nothing we do is enough? Already, scientists are working up plans of last resort: stratospheric sprays of sulfur, trillions of orbiting mirrors and thousands of huge off-shore saltwater fountains.

Each is designed to counteract global warming by deliberately deflecting sunlight, rather than by retooling the world’s economy to eliminate carbon-rich oil, coal and natural gas.

Some scientists argue that such actions might be easier and relatively cheaper. Until recently though, whenever University of Maryland economist Thomas Schelling, recipient of a 2005 Nobel Prize, raised such geo-engineering ideas, "half the audience thought I was crazy and the other half thought I was dangerous," he said. As global temperatures rise and greenhouse-gas emissions accelerate, however, even wild ideas are becoming respectable.

. . .

Earlier this month, researchers at the Carnegie Institution of Washington, D.C., released the most precise computer studies yet evaluating the controversial sunshade idea. Their findings, reported in the journal Proceedings of the National Academy of Sciences, revealed that a last-ditch engineering effort to block sunlight could reverse global warming — at least temporarily. Indeed, it could lower average temperatures to levels not seen since 1900. "Every study we do seems to indicate it would work," said Carnegie climate modeler Ken Caldeira.

. . .

For Nobel laureate Schelling, the political advantages of geo-engineering outweigh its technical risks. It may be easier to launch a climate-control project than to persuade people all over the world to stop using fossil fuels. "It drastically converts the whole subject of climate change from one of regulation involving six billion people to a simple matter of a budgetary agreement about how to manage the modest cost," Prof. Schelling said. "I think geo-engineering is going to be the deus ex machina that will save the day."

 

For the full story, see: 

ROBERT LEE HOTZ.  "SCIENCE JOURNAL; In Case We Can’t Give Up the Cars — Try 16 Trillion Mirrors."  The Wall Street Journal   (Fri., June 22, 2007):  B1.

(Note:  ellipses added.)

 

“We’re Not Looking to Achieve Incremental Advances”

 

LevinsonArthurGenentechCEO.jpg   Genentech CEO Dr. Arthur D. Levinson.  Source of image:  online version of the WSJ article cited below.

 

(p. B1)  WSJ: You have multiple blockbuster biotech drugs on the market and more on the way. In such an uncertain business, how do you manage scientists to achieve that kind of success?

Dr. Levinson: We are first and foremost committed to doing great science. If a drug can’t be the first in class or the best in class, we’re just not interested. We’re not looking to achieve incremental advances or extend patents or do X, Y, Z unless it is going to really matter for patients. That allows us to bring in phenomenal scientists and encourage them to do the basic and translational research.

We decided 15 years ago that we would be committing (p. B2) to oncology, which at the time for us was new. We are now the leading producer of anticancer drugs in the United States. We took a lot of risks. In many cases, those risks paid off. We are now also in immunology. Again, the role of management here is to set the broad direction and then hire absolutely the best scientists and bring them in and say, ‘Do your stuff.’

 

For the full interview, see:

MARILYN CHASE. The Wall Street Journal "How Genentech Wins At Blockbuster Drugs CEO to Critics of Prices: ‘Give Me a Break’."   The Wall Street Journal  (Tues., June 5, 2007):  B1 & B2.

 

 GenentechStockPrices.gif   Source of graph:  online version of the WSJ article cited above.

 

A Competent, Caring, Ultimate Authority Needed for Open Source to Work: Linux and Wikipedia

 

The excerpt below is from a WSJ summary of an article from the Summer issue of the journal Strategy + Business.

 

Linux’s success isn’t as egalitarian as it seems, says Mr. Carr. In 1997, Mr. Raymond praised Linux’s founder, Linus Torvalds, for realizing that "given enough eyeballs, all [software] bugs are shallow." However, Linux has always had a central authority — originally, Mr. Torvalds himself; later, a small group of engineers — that synthesized the work of the volunteers.

Similarly, the expansiveness of Wikipedia’s entries lies in its contributors’ wide range of interests. However, the encyclopedia is slowly putting together a management team to identify and improve poorly written articles and correct imbalances like the one where the "Flintstones" entry is twice as long as the one on "Homer."

 

For the full summary, see:

"Informed Reader; TECHNOLOGY; Small Teams Advance Open-Source Effort."  The Wall Street Journal  (Weds., June 6, 2007):  B5.