tag:blogger.com,1999:blog-2499715909956774229.post1443639921753452901..comments2024-03-22T22:37:02.639-07:00Comments on Stephen Williamson: New Monetarist Economics: The World According to Frank, Part IIStephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger34125tag:blogger.com,1999:blog-2499715909956774229.post-74048246057614372082011-12-27T14:34:27.377-08:002011-12-27T14:34:27.377-08:00I really wish I had more time for this.
Sometime ...I really wish I had more time for this.<br /><br />Sometime in the not too far future I'm going to put together a post, or long comment, summarizing the evidence that position, context, rank, prestige, etc. are a substantial part of the average person's utility function.<br /><br />In the meantime, I respectfully ask that you just sometimes really think about whether you would consider a product as high quality and enjoy it as much if it were in the 5th percentile of cost and exclusivity as if it were in the 95th (or if you wouldn't consider the quality a lot higher and enjoy a lot more a product that's in the 5th percentile, if it were instead in the 95th). If your home was considered ghetto, and the people in your neighborhood were in the 5th percentile of income, would you enjoy it just as much, even though it was exactly the same in absolute material terms. <br /><br />And then ask yourself about the people you've known in your life, or read about, and whether science says our DNA varies that much that they could be so different from the mean, or whether you've moved among and observed people that segmented off greatly from the mean, how greatly? how rarely? what's plausible given mild assumptions like what we see is actually there. Try to estimate these things and their strength unbiasedly, without a strong bias towards zero, as much as the constant zero estimator is so attractive to many.<br /><br />I'll leave you with two interesting papers: <br /><br />From Nobel Prize winning economist Gary Becker, "Evolutionary Efficiency and Happiness", mimeo 2004.<br /><br />From the August 2005 QJE, "Neighbors as Negatives: Relative Earnings and Well Being", by Erzo Luttmer.Richard H. Serlinhttps://www.blogger.com/profile/09824966626830758801noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-82799336664587477072011-12-16T11:38:21.606-08:002011-12-16T11:38:21.606-08:00Richard has actually been kind enough to send me a...Richard has actually been kind enough to send me a holiday gift:<br /><br />"Falling Behind," by Robert H. Frank<br /><br />Thank you Richard. I will display this book prominently on my desk in order to position myself correctly. In return, I was going to send you the two-storey inflatable reindeer (see http://newmonetarism.blogspot.com/2011/12/positional-goods-for-holidays.html), but then envy got the better of me, and I have bought that for myself.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-58772911501559827392011-12-16T06:29:45.737-08:002011-12-16T06:29:45.737-08:00"Is Richard Serlin a troll, or being trolled?..."Is Richard Serlin a troll, or being trolled?"<br /><br />Both. He entertains me, so I pester him about evidence, which he cannot provide. But he is definitely trollish, or perhaps he really is an idiot.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-85760003464655748252011-12-15T21:04:57.150-08:002011-12-15T21:04:57.150-08:00Is Richard Serlin a troll, or being trolled?Is Richard Serlin a troll, or being trolled?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-8156609026961847302011-12-14T14:29:23.822-08:002011-12-14T14:29:23.822-08:00"How can you possibly know why someone buys s..."How can you possibly know why someone buys something?"<br /><br />How can we possibly know how much utility people get from something, even in a relative way among bundles of goods? How can we possibly know that peoples' utility per dollar plunges exponentially with more and more dollars, that the utility from the millionth dollar is a tiny fraction of the utility from the ten thousandth dollar?<br /><br />Yet this is used in ALL economic models. We don't use straight line utility functions. And people who use, and qualitatively believe, utility functions with exponentially decreasing utility aren't all sociopaths (although maybe to an extreme enough libertarian they are). <br />The answer for why economists believe marginal utils per dollar plunges exponentially is that there's tons of evidence, some of it is the formal kind (regressions, social laboratory experiments, surveys) but most of it is informal. And you know what, the informal can have just as flawless logic chains anchored to even milder, or far milder, assumptions than the formal. As the great growth economist, Paul Romer of Stanford, said:<br /><br />In evaluating different models of growth, I have found Lucas's (1988) observation, that people with human capital migrate from places where it is scarce to places where it is abundant, is as powerful a piece of evidence as all the cross-country growth regressions combined. But this kind of fact, like the fact about intra-industry trade or the fact that people make discoveries, does not come with an attached t-statistic.<br /><br />– Journal of Economic Perspectives, Volume 8, Number 1, Winter 1994, Page 20.<br /><br />The evidence for positional externalities being substantial is very similar to the evidence for exponentially decreasing marginal utility of dollars. It's mostly informal, without t-statistics, but often the "informal" depends on assumptions far milder than those depended on by t-statistics. You want to see the evidence formal and informal? You've heard some here, but it's a lot, and I can't recite Frank's books. I suggest you buy one.Richard H. Serlinhttps://www.blogger.com/profile/09824966626830758801noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-38145452117981276472011-12-14T12:35:50.363-08:002011-12-14T12:35:50.363-08:00"It's not that these products are necessa..."It's not that these products are necessarily useless, just that a high percentage of the utility they give people comes for positional reasons"<br /><br />You're just restating the same thing, without evidence, that you've stated many many many times before. You believe it to be obvious, we say it requires evidence. You want to choose for other people, we don't without some reason to think they're creating an actual externality. How can you possibly know why someone buys something? Arrogant doesn't even begin to describe you, Serlin. You border on sociopathic.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-44492328429495366642011-12-14T12:31:01.378-08:002011-12-14T12:31:01.378-08:00"Regardless of the other issues, the idea tha..."Regardless of the other issues, the idea that there's something wicked about declining to act on inadequate information needs to be buried as deep as we can possibly bury it."<br /><br />I intend to use this phrase as often as I can.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-78956720442637444302011-12-14T12:30:19.503-08:002011-12-14T12:30:19.503-08:00I apologize if I've offended you, but given th...I apologize if I've offended you, but given the resistance to seeing this, especially among your commenters, seeing something that seems very obvious to me, I have to wonder if they are really thinking about this and being honest with themselves.<br /><br />It's not that these products are necessarily useless, just that a high percentage of the utility they give people comes for positional reasons, and that's zero-sum-game utility for society as a whole, and the same positional amount can be provided anyway, by maintaining the rank, but lowering the cost of achieving that rank (i.e. with a higher tax on all wealthy people, the rank order stays the same). In other words, wealthy people would lose little utility if they went to much lower cost alternatives, but everyone else did also, so rank stayed the same.<br /><br />The same signaling can be done at a far lower societal cost. As Tom Hird said in these comments, a tax can make it so you send the same signal with half the carots – and the paper that's from was from a winner of Australia's top economics honor.Richard H. Serlinhttps://www.blogger.com/profile/09824966626830758801noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-75702030919484763242011-12-14T09:56:14.572-08:002011-12-14T09:56:14.572-08:00That idea seems ubiquitous these days.That idea seems ubiquitous these days.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-53314102612910739832011-12-14T07:55:35.743-08:002011-12-14T07:55:35.743-08:00Regardless of the other issues, the idea that ther...Regardless of the other issues, the idea that there's something wicked about declining to act on inadequate information needs to be buried as deep as we can possibly bury it.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-48425491493100898692011-12-14T06:30:25.461-08:002011-12-14T06:30:25.461-08:00"...and really just opened your eyes and thou..."...and really just opened your eyes and thought about this and were honest..."<br /><br />Richard, I resent that. Closed-minded and dishonest. Thanks very much.<br /><br />The idea here is that you see some element of human behavior - people buying what you view as useless, but visible, stuff - and jump to the conclusion that there is an externality that you want to correct, in Pigouvian fashion.<br /><br />Well, an open-minded and thoughtful social scientist sees some puzzling aspect of human behavior and starts thinking about what useful purpose that behavior could serve, before jumping to conclusions about how we should curb that behavior.<br /><br />After some thought, there are two far more plausible explanations for what you think you are seeing:<br /><br />1. You're not seeing what you think you are seeing. That is not "useless" stuff those people are buying. They actually like it, for reasons that have nothing to do with what other people think.<br /><br />2. It's signaling, as I outlined above. In that case it's not an externality, and you don't need to correct for it.<br /><br />Done.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-47066525710730511762011-12-13T22:41:17.650-08:002011-12-13T22:41:17.650-08:00If I might come at this in a different way:
It se...If I might come at this in a different way:<br /><br />It seems you don't like what you view as the lack of evidence that there are a lot of goods where a large percentage of the utility an individual gets from that good (or disutility he avoids) is rooted in the position, the context, and/or the prestige of that good.<br /><br />If such factors in the utility function of typical individuals really existed, then this would mean that highly progressive taxation (with the money raised well spent on little positional goods and investments) could greatly increase total societal utils.<br /><br />So, you (and many of your commenters) think how much pleasure someone gets from a McMansion, or mansion, would be about the same in a world where that home is in the 10th percentile of cost, as in one where it's in the 90th. And people would think of the house as just as high quality. Amazing to me you think that, but let's just move on. <br /><br />So we assume positional externalities are zero. We use the mighty constant zero estimator to estimate them.<br /><br />Now, the utility functions used in economics for centuries assume that the utility a typical individual gets from a dollar decreases as he gets more dollars, and not just a little, exponentially. The amount of utility from the millionth dollar is typically assumed to be a tiny fraction of the first. This also implies that highly progressive taxation can greatly increase total societal utils, and yet I don't hear you and your commenters saying, how do you know decreasing marginal utility of dollars (dramatically decreasing) exists? Why are you foisting your preferences on others? Why don't we just use the mighty constant zero estimator for change in marginal utility, and have all utility functions be straight lines – it's simpler too! (actually, I think a lot of your commenters would love this) <br /><br />And if you read Frank's books (and really just opened your eyes and thought about this and were honest), you'd see there's a lot of evidence.Richard H. Serlinhttps://www.blogger.com/profile/09824966626830758801noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-50531476448975983082011-12-13T19:53:12.567-08:002011-12-13T19:53:12.567-08:00Some questions for the critics of Robert Frank who...Some questions for the critics of Robert Frank who are willing to set aside policy issues for a moment: <br /><br />1) Are there some goods that, by their very nature, can't be made available to everyone, e.g., having one's children attend a better-than-average school? <br /><br />2) Does access to these goods oftentimes depend on one's income relative to others, e.g., owning a home in a better-than-average school district?<br /><br />3) If all households increase their expenditure in hopes of acquiring positional goods, and all households remain in the same position relative to others, are these expenditures wasteful? <br /><br />4) Do concerns about social status (relative position) influence decisions regarding occupational choice, work effort, saving, expenditure, and investment?<br /><br />If you answer "yes" to these questions, then, leaving policy questions aside, I suspect that standard optimization models (if I may be permitted to generalize) are missing something of considerable importance.Greg Hillhttps://www.blogger.com/profile/09422264577421199573noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-84380882971096247382011-12-13T17:13:26.816-08:002011-12-13T17:13:26.816-08:00All the qualifiers in the world won't change t...All the qualifiers in the world won't change the fact that Serlin, and Frank, really are using "whatever rich people spend their money on" as an operational definition. I'd think that even people who share their premises might be taken aback by the contrast between the extensive and detailed knowledge of positional externalities they claim in the course of selling their idea, and the rough justice they're willing to settle for when it comes time to prescribe policy. If it's so bleedin' obvious that granite countertops are a wasteful status symbol, why "throw... all of the information away that we do have", and resort to added income taxation on people who wouldn't have any idea what their countertops are made of unless they took it into their heads to ask the help?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-10763708993667287412011-12-13T13:55:59.670-08:002011-12-13T13:55:59.670-08:00"Note the words, "in general", as i..."Note the words, "in general", as in, they tend to be."<br /><br />"Note the words, "are much more", which are different than, are 100%."<br /><br />Neither of these statements come with any evidence -- how exactly do you "know" these things exist? Serlin is the economic equivalent of Michelle Bachmann -- ill-informed and believes in fairy tales.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-42831205098013169442011-12-13T13:06:56.274-08:002011-12-13T13:06:56.274-08:00"He instead advocates just a highly progressi..."He instead advocates just a highly progressive tax, as, in general, the very high marginal cost goods are much more positional as a percentage of their utility."<br /><br />Note the words, "in general", as in, they tend to be. <br /><br />Note the words, "are much more", which are different than, are 100%.Richard H. Serlinhttps://www.blogger.com/profile/09824966626830758801noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-68027882502763072482011-12-13T10:05:35.494-08:002011-12-13T10:05:35.494-08:00I think someone who believes "whatever rich p...I think someone who believes "whatever rich people spend their money on" is a usable definition of positional goods probably shouldn't be too scornful of people who believe that zero is a usable estimate of positional externalities.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-59915286948297773102011-12-12T20:23:24.170-08:002011-12-12T20:23:24.170-08:00Eric Falkenstein has an interesting article on env...Eric Falkenstein has an interesting article on envy and its role in econ & finance.<br />http://falkenblog.blogspot.com/2010/03/why-envy-dominates-greed.htmlAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-15235013470281104922011-12-12T08:45:16.157-08:002011-12-12T08:45:16.157-08:00I like how Richard Serlin tries to make himself eq...I like how Richard Serlin tries to make himself equivalent to Robert Frank. Not in the same ballpark, Dicky Boy, even if you're both batshit crazy. Just because you believe something exists doesn't make it so.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-44450554820796318262011-12-11T18:04:03.675-08:002011-12-11T18:04:03.675-08:00"If my girlfriend has taught me anything, don..."If my girlfriend has taught me anything, don't tell a woman she looks 'fine'."<br /><br />No, it's OK. It has taken a while, but my wife now understands me, more or less.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-8405706588578832922011-12-11T17:42:46.723-08:002011-12-11T17:42:46.723-08:00"The key idea here is that you see someone co..."The key idea here is that you see someone consuming something that you view as socially wasteful. But who is to say when the thing I have bought is really doing me no good, and society should take it away? How does Robert Frank know that the dollar he takes away from the rich person and gives to the poor person is going to be spent on something that Robert Frank deems socially useful?"<br /><br />Stephen, so you're saying that something that's hard to estimate precisely, like positional externalities, should be assumed to be zero. It's hard to estimate precisely, so we won't estimate it; we'll assume it away. We'll call it zero.<br /><br />Well, I have news for you, zero's an estimate. And if you look at the qualities we typically want in our estimators; statistical consistency, efficiency, unbiasedness, arbitrarily choosing the constant zero stinks. We can often do far better in estimating than throwing all of the information away that we do have, as imperfect and fuzzy as it may be, and saying we'll just choose the constant zero as our estimate.<br /><br />Hey, pollution is hard to estimate precisely, so let's assume it's zero. That way no people like Robert Frank can take away our polluting products and shift production to things they deem less socially harmful. That will be a lot more likely to maximize total social utils than intelligently trying to estimate what the harmful externalities of pollution are and taxing them. All hail the constant zero estimator! KISS!<br /><br />And let me add this, I feel little envy (in fact, we're fortunate to actually be pretty high up in income and wealth). It's a non-motivation for me (there are lots of things I admire, and would like more of; I wish I could dunk a basketball, but I don't feel anything negative for people who have more of them). I just want to use tax policy in response to positional externalities because it would create massively more utils for society, especially over the long run, if the money raised were invested well. From what I've read of Frank, he just wants to do good for society; that's his motivation, not to get back at rich people he envies.<br /><br />Also, he's not choosing specific goods to tax. He writes about the problems of this. He gives the example of historic regulations on jewelry. In response, rich people started making their buttons out of gold, and adding ever more buttons to their coats, which is why today we still have a number of buttons on the sleeves of our suit jackets. He instead advocates just a highly progressive tax, as, in general, the very high marginal cost goods are much more positional as a percentage of their utility.Richard H. Serlinhttps://www.blogger.com/profile/09824966626830758801noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-13315959190024353722011-12-11T12:17:08.168-08:002011-12-11T12:17:08.168-08:00Stephen,
If my girlfriend has taught me anything,...Stephen,<br /><br />If my girlfriend has taught me anything, don't tell a woman she looks 'fine'.Josh wnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-19008172864359156982011-12-11T12:06:37.797-08:002011-12-11T12:06:37.797-08:00Stephen: "Another thought: This is the down ...Stephen: "Another thought: This is the down side of envy. Robert Frank is so green with envy that he's willing to spend an enormous quantity of time (a social waste, in my view) concocting a contorted theory, and marketing that theory, in order to convince people to use the power of the state to whack rich people." <br /><br />Are you kidding, Steve? The issue of how hard to whack the rich might be the most common subject in Western politics.<br /><br />Let's ask a politically connected, retired academic for his views on the subject... <br /><br />"Kill all the rich people. Break up their cars and apartments. Bring the revolution home, kill your parents, that's where it's really at." -- Bill AyersChris the regression runnerhttp://attheyachtclub.comnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-37015104306664037382011-12-11T08:01:54.773-08:002011-12-11T08:01:54.773-08:00Another thought: This is the down side of envy. Ro...Another thought: This is the down side of envy. Robert Frank is so green with envy that he's willing to spend an enormous quantity of time (a social waste, in my view) concocting a contorted theory, and marketing that theory, in order to convince people to use the power of the state to whack rich people.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-5738883573568894692011-12-11T07:56:01.865-08:002011-12-11T07:56:01.865-08:00The key idea here is that you see someone consumin...The key idea here is that you see someone consuming something that you view as socially wasteful. But who is to say when the thing I have bought is really doing me no good, and society should take it away? How does Robert Frank know that the dollar he takes away from the rich person and gives to the poor person is going to be spent on something that Robert Frank deems socially useful? The more I think about this, the less I want Robert Frank determining what I should and should not have.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.com