airmiles

Milton Friedman probably does deserve to have an institute named after him – he was one of the really big figures of 20th century economics, and even if he was much less of a principled libertarian thinker than his hagiographers like to pretend, it’s rather silly for the faculty of the University of Chicago to start acting like they’ve only just noticed that their university is famous for a particular school of economic thought that was founded by Milton Friedman. But I can’t help noticing that John Cochrane’s open letter[1] in response to the petition against founding a Milton Friedman Institute contains one of the canonical claims of Globollocks:
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There are all kinds of games you can play with this List of Top 100 Public Intellectuals, including Watch People’s Heads Explode! As a guest here I believe myself entitled to say, really? No Timberites? Tchah.

The stated criteria: “Candidates must be living and still active in public life. They must have shown distinction in their particular field as well as an ability to influence wider debate, often far beyond the borders of their own country.” The large number of Iraq-war supporters would seem to suggest “influence … far beyond the borders of their own country” hugely outweighs “distinction in their particular field.”

Could anything be more “Airmiles” than the suggestion that we start an essay competition to foil Bin Laden?

What I would do with the $75 million we have budgeted as rewards for bin Laden and Zarqawi is use it instead to sponsor an essay contest for high school students in Saudi Arabia, Pakistan, Syria and Egypt. The contest entry form would say the following: “In 2,000 words, write an essay on one of these two topics: 1. Why do you believe the Arab-Muslim world is fully capable of achieving democratic, representative government and how do you envisage it coming about through peaceful changes inside your country, without any American or other outside help. 2. Write an essay about the lives of any of the great medieval Arab or Muslim mathematicians, scientists or philosophers and how their innovations helped to shape our world today.”

You know what else we should ask? Turn-ons and turn-offs. Then they could be like, “I’m Miss September from Egypt. Turn-ons: democratic government, long walks on the beach; turn-offs: rude guys!”

“Mario Draghi”:http://www.ecb.europa.eu/press/key/date/2011/html/sp111118.en.html

bq. Let me use this occasion to dwell a bit further on monetary policy in the current environment. Three principles are of the essence: continuity, consistency and credibility. Continuity first and foremost refers to our primary objective of maintaining price stability over the medium term. Consistency means to act in line with our primary objective and with our strategy both in time and over time. Credibility implies that our monetary policy is successful in anchoring inflation expectations over the medium and longer term. This is the major contribution we can make in support of sustainable growth, employment creation and financial stability. And we are making this contribution in full independence. Gaining credibility is a long and laborious process. Maintaining it is a permanent challenge. But losing credibility can happen quickly – and history shows that regaining it has huge economic and social costs.

“Daniel Davies”:https://crookedtimber.org/2006/11/29/reputations-are-made-of/ (on the Iraq War, but trust me – the logic travels).

bq. At this late stage in the occupation of Iraq, many of Henry Kissinger’s old arguments about Indo-China are being dusted down. One of the hoariest and worst is that we need to “stay the course” (or some similar euphemism) in order to maintain “credibility” – to demonstrate our resolve to our enemies, who will otherwise continue to attack us. It reminds me of my one and only contribution to the corpus of game theory.

bq. The Folk Theorem in game theory states that any outcome of a repeated game can be sustained as an equilibrium if the minimax condition for both players is satisfied. In plain language, it can be summarised as stating that “if we take strategic considerations into account, there is a game-theoretic rationale for practically anything”. This formulation leads on to my contribution, the Davies-Folk Theorem, which states that “if we take strategic considerations into account,there is a game-theoretic rationale for practically fucking anything” (it’s a fairly simple corollary; proof available from author on request).

bq. The point being that since game theory in general provides the analyst with so many opportunities to twist himself repeatedly up his own arse like a berserk Klein bottle, if a given real-world course of action appears to have nothing going for it other than a game-theoretic or strategic justification, it’s almost certainly a bad idea. Thus it is with that bastard child of deterrence, “credibility”.

bq. … The idea is that the war is costing huge amounts of money and lives with no real prospect of success and a distinct danger that it is making things much worse. However, to do the logical thing would send the signal to our enemies that we will give up if fought to a pointless bloody standstill. Therefore, for strategic reasons, we must redouble our efforts, in order to send the signal to our enemies that we will fight implacably and mindlessly in any battle we happen to get into, forever, in order to dissuade them from attacking us in the first place. It’s got the kind of combination of “counter-intuitive” thinking and political convenience that always appeals to the armchair Machiavelli, as well as to the kind of person who thinks it’s witty to describe things as “Economics 101” (Airmiles has been all over this one for ages, naturally). What’s it like as a piece of game-theoretic reasoning?

bq. Lousy. It is certainly true that one of the benefits of doing something stupid is that it saves you from having to spend money on maintaining your reputation as an idiot. However, is the reputation of an idiot really worth having?

bq. It turns out that it can be proved by theorem that the answer is no. If the game of being a belligerent idiot with no sensible regard for one’s own welfare _was_ worth the candle, in the sense of conferring benefits which outweighed the cost of gaining it, then everyone would want to get that reputation, whether they were genuinely an idiot or not. But if everyone wanted that reputation, then everyone would know that simply acting like an idiot didn’t mean that you were one, in which case it would be impossible to establish a reputation as an idiot in the first place. The point here is that it’s one of the more important things in game theory that a signal has to be a _costly_ signal to be credible; like membership of the Modern Languages Association, a reputation in deterrence theory is something that is worth having, but not worth _getting._ People who use the word “signal” in this context (usually on the basis of a poorly understood or second-hand reading of Schelling) don’t always seem to realise that they are explicitly admitting that the costs of being in Iraq are greater than the benefits.

Can someone _please_ persuade Airmiles to line up with evil and bigotry? Or maybe just to support a good cause and spare us his reasons.

I’m a bit bemused by the bemusement. Brad DeLong and Paul Krugman are both running round tearing their hair out about the fact that half of the economics faculty at Chicago appear to be saying demonstrably wrong things about the Obama stimulus policy, and specifically to be reinventing mistakes that everyone thought had been put to rest in the Keynesian debates of the 1940s and 50s. What, O what, would Milton Friedman have said, if he were alive to see this travesty?

Well, call me a cynic, but I am not at all sure that BdeL and PK, two mainstream Keynesians from a different intellectual tradition entirely, can be so sure that they are right and Milton Friedman’s acolytes, former colleagues, former students, close friends and intellectual heirs are wrong about what is the way to carry on Milton Friedman’s intellectual legacy in an environment where a Democratic government is proposing an increase in the federal budget for purposes of fiscal stimulus.

Producing more or less mendacious intellectual smokescreens for policies which favour the interests of very rich men is not an incidental side effect of Chicago School libertarianism. It isn’t some sort of industrial pollution – it’s the product. If and when the Milton Friedman Institute is endowed and operating, it will be people like John Cochrane who staff it, and it will be arguments like this that, when push comes to shove, it produces. The Cossacks work for the Czar. They have always worked for the Czar.

So, should the University of Chicago economics department be razed to the ground and its foundations sowed with salt? Well, Brad at least has recommended this treatment for the Washington Post for what appear to me to be much lesser crimes, but I would be inclined to be more merciful. Taking my cue from Jehovah in the Old Testament, I would be prepared to spare the Chicago School if one innocent man could be found there. So basically, unless and until James Heckman comes out with a stinker on the stimulus package, I say let it survive.

I’m just back from a trip to the American Society for Eighteenth-Century Studies conference in Portland, Oregon. On the way my partner and I stopped off for a few days chez Maria in LA (and a very good time we had too). But all this scholarship, tourism and partying comes at a price, of course. I’ve flown a very long way indeed (and I know many of my fellow bloggers also clock up extensive miles). So what to do about all that carbon I’ve just burnt? One option would be to pay into a carbon offsetting scheme, but I’ve become convinced that many of them are either not very good, or are simply scams. There may be some good ones (commenters please …) but I’m sure I can’t tell which are worth supporting. So here’s another idea: I could just buy energy saving light bulbs and give them away to friends, students, neighbours, thereby generating sufficient carbon savings to purge my sin. But how many (at what rating) would I have to buy and give away per hundred or thousand airmiles?

So checking the post today I found a letter addressed to my son, inviting him to apply for a Citibank Platinum Select Mastercard. Up to 40,000 American Airlines airmiles included! I’ve had a chat with the little guy about it (I still call him the little guy — corny, I know, but other Dads will understand), and he won’t be signing up, partly because it’s a bad deal (18.24 percent variable rate, annual fee after the first year), but mostly because he is six and a half weeks old.

“Matt Yglesias”:http://matthewyglesias.theatlantic.com/archives/2007/05/visas_for_grads.php agrees for once with Airmiles Friedman.

It’s really baffling that we would give someone a visa to pursue high-level education in the United States and then do anything other than automatically give them a visa to work here. If we’re going to be stingy with anything, it should be with spots at our universities (in practice, there tend not to be Americans clamoring to get graduate schooled in technical disciplines), not spots in our labor force. Unlike the immigration of unskilled workers, immigration of highly skilled people is a totally uncomplicated balance of considerations. It’s good for the immigrant, it boosts the American economy as a whole, and instead of putting mild downward pressure on the wages of the least-fortunate native born people, the costs are borne by better-off Americans. It’s a total no-brainer.

Not so. It may be a total no-brainer for US economic wellbeing. It isn’t a no-brainer for the home country of the workers in question. Cue Dani Rodrik, who thinks that a “guest worker”:http://rodrik.typepad.com/dani_rodriks_weblog/2007/05/the_new_york_ti.html program would be ‘terrific,’ a point that he has developed at greater length in an earlier paper (PDF).

To ensure that labor mobility produces benefits for developing nations it is imperative that the regime be designed in a way that generates incentives for return to home countries.
While remittances can be an important source of income support for poor families, they are generally unable to spark and sustain long-term economic development. Designing contract labor schemes that are truly temporary is tricky, but it can be done.

This is the reason why, for example, people who come to the US to do advanced degrees with support from Fulbright scholarships (such as meself once upon a time) are obliged to return to their home countries (or, in the case of EU citizens, the EU) for a period of two years before they can apply for a proper work visa or permanent residency. Speaking from my personal experience, this can be a considerable pain in the ass, but it has an undeniable logic. The home country in question isn’t going to benefit very much from its most economically productive citizens (which category doesn’t include me; I was always likely to be a net drain on the Irish economy) going to the US to study, if they don’t ever come home. This point applies with _especial_ force to people coming over to study for advanced degrees in technical subjects. I think it’s possible to construct a slightly convoluted cosmopolitanish case against temporary worker programs (this would have to do with labour standards and the need for strong unions in the US to mitigate the global deregulatory impact of US preferences on the world economic regime; I may lay this out in a later post). But I don’t think it’s possible to construct one against the kinds of programs that Matt favors here. So if you are solely concerned with the economic benefit of the US, it’s indeed a no-brainer. If you’re worried about the rest of the world too (or instead), it’s anything but.

At this late stage in the occupation of Iraq, many of Henry Kissinger’s old arguments about Indo-China are being dusted down. One of the hoariest and worst is that we need to “stay the course” (or some similar euphemism) in order to maintain “credibility” – to demonstrate our resolve to our enemies, who will otherwise continue to attack us. It reminds me of my one and only contribution to the corpus of game theory.
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Hey up everyone, it’s the Prospect Magazine Intellectual of the Year contest!! I’m afraid that everyone at CT forgot to put our forms in (again!) although I see that bloody Yusuf al-Qaradawi did (and Airmiles too). This is a real shame, since I recently became The Most Important Thinker In The World. As Tyler Cowen pointed out in a post on Ray Kurzweil, the previous holder of that title, the secret to being the Most Important Thinker In The World is a mastery of the expected utility rule.

No matter how ludicrous your predictions, if they are sufficiently wildly utopian, then your thinking has a greater expected value than anyone else’s (see here for the general idea). Thus, if Kurzweil reckons that we will upload our consciousness onto software and live for ever as pure energy on the internet, then I say all that and a pony too! Not just any old pony by the way, but a super technonanopony! Which eats racism and shits pure gasoline … on the internet! Oh yeh and we will constantly be having multiple orgasms … and not just the normal kind either (more details to come). You might say that it’s pretty unlikely and I’ve failed to spell out important details, but as long as there is at least some probability that I’m right, then I am more important than Ray Kurzweil to the tune nU^(-rT), where U is the utility of a magic pony, n is the probability I’m right, r is the discount rate and T is the time it will take to sort us all out with one. Keep reading CT folks, because in expected value terms, it is only going to become more important!!
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As of this evening you can’t get access to the Op-Ed columnists of the New York Times unless you pony up for “Times Select”:http://www.nytimes.com/products/timesselect/whatis.html, a new subscription service. I have no plans to sign up. Don’t know about you. I doubt this spells the beginning of the end either for political bloggers or the relevance of the Op-Ed page to the chattering classes at large. But it does seem that this will reduce the columnists’ ability to set the agenda for online chatterers like ourselves. We won’t have David Brooks or Airmiles Friedman to kick around any more. But is that bad for us, or for them? NYT columnists are the pinatas of the _conscience collective_. If not so many people are reading them, you have to wonder whether it’s worth signing up yourself just for the content. I think we benefit at CT. The _Times_ makes you pay to read Paul Krugman, but his substitutability with our own “John Quiggin”:https://www.crookedtimber.org/author/john-quiggin/ is pretty high, and as of this evening we’re therefore e a better deal than ever.

An indubitable Airmiles “classic”:http://www.nytimes.com/2005/07/01/opinion/01friedman.html?ex=1277870400&en=342cb2bd52a44f4e&ei=5090&partner=rssuserland&emc=rss :

bq. There is a huge debate roiling in Europe today over which economic model to follow: the Franco-German shorter-workweek-six-weeks’-vacation-never-fire-anyone-but-high-unemployment social model or the less protected but more innovative, high-employment Anglo-Saxon model preferred by Britain, Ireland and Eastern Europe. It is obvious to me that the Irish-British model is the way of the future, and the only question is when Germany and France will face reality: either they become Ireland or they become museums. That is their real choice over the next few years – it’s either the leprechaun way or the Louvre.

Now those familiar with leprechauns will recall that they’re untrustworthy little bastards, inclined to evaporate along with the pot of gold when given half a chance. The same is true of dodgy generalizations constructed around trite metaphors, especially when they’re employed by someone who clearly doesn’t know what he’s talking about. We’ll leave aside the basic claim that a small post-industrial economy provides the right model for two largish economies with large industrial bases, and concentrate on the glaring material errors in Friedman’s account. Point One: Ireland is _not_ an exemplar of the “Anglo Saxon model.” For evidence, take a look at this recent “paper”:http://www.u.arizona.edu/~lkenwor/institutionalcoherence.pdf by Lane Kenworthy, which argues convincingly that Ireland doesn’t fit well into either the Anglo-Saxon ‘liberal market economy’ or Rhenish ‘coordinated model economy’ models. Point Two: Ireland is an _especially_ poor fit with the Anglo-Saxon model in the area of labour market policy, a fact which rather undercuts the argument Friedman is trying to make. Again, Dr. Kenworthy:

bq. beginning in the late 1980s and continuing throughout the 1990s, [Ireland] has had a highly coordinated system of wage setting (Baccaro and Simoni 2004). In addition, Ireland has higher levels of employment and unemployment protection than other liberal market economies and longer median job tenure (Estevez-Abe et al. 2001, pp. 165, 168, 170).

Finally, there’s a very strong argument to be made that it is _exactly_ the non-Anglo-Saxon features of the Irish economy – and in particular the “systematized concertation”:http://www.ucis.pitt.edu/cwes/papers/work_papers/ODonnell.pdf between trade unions, management, government and other social actors – that was at the heart of Ireland’s economic success in the 1990’s. This system, unbeloved of free market economists, set the broad parameters for wage and income tax policy, and provided Ireland with the necessary stability for economic growth. It’s now coming under strain thanks to growing inequality in Irish society, but that’s another story. As already noted, Ireland isn’t necessarily the best example for big industrial economies to follow; but insofar as it does set an example, it isn’t the kind of example that Friedman thinks it is.

Yup, Thomas “Airmiles” Friedman is off on one again. Globollocks back in full effect, this time reminding us of the War For Innovation going on in his head. He’s got a book of this stuff out, apparently, bless.
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