Nobel pools

I've been accumulating Departmental guesses about this year's Econ Nobel. My guesses, registered Monday, were:

• Weitzman / Nordhaus for Environmental / carbon pricing
• Fehr / Thaler for behavioural
• Tirole for Industrial Organization.

I reckoned the Committee would pick something orthogonal to the financial crisis (IO), orthogonal but with mildly trendy connotations (environmental), or something to poke the mainstream in the eye (behavioural).

Folks in the department were invited to submit their most three most likely picks. Names revealed where permission's been granted:

• Gene Grossman (Trade);
  Weitzman/Nordhaus (Environmental) - says Andrea
• Tirole (IO);
  Nordhaus / Weitzman (Environmental);
  Kiyotaki and Moore (Macro/Finance).
• Weitzman (environmental, prices and quantities in particular);
  Deaton (panel econometrics / development);
  Would have gone Tirole but then too much overlap with Crampton, so Tullock
  [EC curses Stockholm for its neglect of Tullock, but thinks health issues will keep them from awarding it to him now].
• Thaler/Shiller (empirical behavioral finance) [EC: Can I switch to this one too? Much better fit for my guess at how Stockholm decides.];
  Posner/Tullock (rent seeking, law & economics);
  Phillies over Yankees in 6 games[???].
• Baumol;
  Shiller;
  Krueger [EC: If they give it to Krueger for rent-seeking, and Tullock's left off, Stockholm's off my Festivus card list permanently].
• Fama;
  Fama;
  Fama (with wild emphatic claims from this predictor about the consequences if Stockholm continues to neglect Fama).
• Shiller;
  Weitzman;
  Thaler.
• Weitzman/Nordhaus;
  Bhagwati;
  Easterly.
• Posner (law & econ);
  Hart/Moore (contract theory);
  "Richard Thaler behavioral claptrap" [you won't need three guesses to figure who sent this one].
• Paul Romer [EC: would be awesome];
  Avinash Dixit;
  Robert Barro.
• Thaler & Shiller;
  Fama;
  Nordhaus & Weitzman.

That's all of the nominations received as of close of business Wednesday. Lots of folks seem to have a background model that Stockholm's planning on sticking a thumb in the eye of conventional macro / efficient markets finance.

Tyler posts on who he sees as prime candidates, with lots of overlap with our Departmental pool - this year's must be particularly obvious:

1. Thaler joint with Shiller
2. Weitzman/Nordhaus
3. "Three prominent econometricians of your choice, bundled"
4. Tirole, possibly bundled with Hart

Tyler's list continues on, but he reckons the first two most likely.

A brave Stockholm would go with Fama to give it the opportunity to explain exactly what is meant by the efficient markets hypothesis: not that crashes won't happen but rather that we can't know when they will happen, or with Krueger/Tullock for rent-seeking, along with a likely Tullock address on rent seeking in stimulus packages. That's not going to happen.

Matt has opened markets on some of the most likely candidates at iPredict.

No shameful joy here, just a shame.

The IHC, who run sheltered workshops for the disabled, lobbied hard for strong workers' rights protections for the disabled. They helped to ensure that workers in those kinds of workshops received the minimum wage, unless a whole lot of paperwork were filled out. Unfortunately, the minimum wage was higher than the marginal revenue product of many mentally disabled people's work, and many employers couldn't be bothered with the paperwork, and so the intellectually disabled were pushed out of work and into community recreational programmes.

And now Radio New Zealand reports that IHC has had two subsidiaries placed under statutory management while they appeal a court ruling that would, if not overturned, increase their costs so substantially as to put them out of business. What does IHC want? To be able to avoid paying the minimum wage to folks on overnight shifts.

The argument is over what 3000 staff working for Idea Services and Timata Hou should be paid for what is known as sleep-over nights in order to look after about people with intellectual and other disabilities.
In rulings last year, the Employment Court agreed with workers that they should receive an hourly rate rather than an allowance of $34 for being on the premises between 10pm and 7am.
But IHC chief executive Ralph Jones says it cannot afford the costs resulting from the rulings, saying it would leave IHC with a liability of $176 million in back pay and $33 million each year in additional wage costs.

Idea Services is the operational arm of IHC that helped those disabled who were able to continue working after IHC-supported changes to labour laws. And now they're in turn being knocked out by labour laws. There's no schadenfreude in this. Sad irony only.

Hobbit wars

International readers wondering just what the heck is going on with a crazy New Zealand union seeming set on running Peter Jackson's The Hobbit out of the country would do well to read the series of posts at Public Address. So too would Kiwi readers, but I trust that they already have.

See here and here.

Russell Brown notes one of the odder demands of the union rep:

On the some day Actors' Equity organiser Frances Walsh spoke to the Herald:

Many of the issues the union were seeking to negotiate related to basic conditions such as accommodation, smoking, nudity, credits and not just pay

"We can only say, hey, what we'd like on this production is a fair suck of the sav. We would like to negotiate with you fair terms and conditions for the engagement of New Zealand performers on the Hobbit."

It would have been very surprising indeed had nudity shown up in The Hobbit. They were able to avoid it entirely in the main Lord of the Rings films; the graphic love scenes between Frodo and Sam detailed in the as yet unreleased (and probably apocryphal...ok, I just made it up) unedited versions of Tolkien's story being left instead for the viewer to infer from Hayes-code era metaphors.

Brown helpfully clears things up:

It seems highly unlikely that there will be nudity in The Hobbit. In fact, there won't. What Equity is trying to do is to negotiate an industry-wide agreement via Peter Jackson. As things stand, the actor contracts being drawn up for The Hobbit will be the best New Zealand screen actors have ever received for work in New Zealand; they even include the first provision for residual payments. They blow anything a local producer could offer out of the water.

It would be unethical and crazy for Jackson to participate in talks on such a basis.

Fortunately it's now sounding like things will wind up being settled. But what an idiotic look for a country with a rather young film industry whose main advantages are decent scenery (albeit not exactly non-replicable), lowish wages, and having Peter Jackson nearby.

Mayoral politics and nondiscretionary earthquakes

At least a few folks were puzzled by iPredict's fairly quick incorporation of earthquake effects into the Christchurch mayoral race, with a massive shift from challenger Anderton to incumbent Parker. Some folks on the forums, probably trying to talk up the value of their defunct Anderton shares, and some media commentators, wondered why sentiment could possibly have shifted so quickly to Parker when nothing about the world, or at least nothing that ought to be politically relevant, seemed to have changed. Sure, there was an earthquake, and sure, Parker was getting lots of press coverage. But why would voters so radically change their assessment of the candidates' relative merits when neither of them had really changed?

One of my favourite political business cycle stories is Hess and Orphanides' 1995 AER piece "War Politics"; I use it whenever I'm teaching public choice.

Stripped down, the model works as follows. An incumbent President can demonstrate competence on two dimensions: economic performance or war leadership. Demonstrating competence in either increases chances of re-election. A first-term President (who can be re-elected) presiding over a poor economy will have stronger incentive to engage in discretionary war than either a lame duck or one who has presided over a strong economy. They test this back over a lengthy time horizon and find evidence supporting the model.

So what's happened here in Christchurch? The second dimension has opened up, albeit without it having been a choice variable for the incumbent (though some think it was a discretionary earthquake). Folks who'd previously assessed Parker as being incompetent were given evidence of his seeming competence in handling a major crisis. New information was revealed even if neither Parker nor Anderton had changed. And so voters were expected to change allegiance, and so the markets moved, and so too then did subsequent polls. The market moved well in advance of any polling and to about the right level given the subsequent poll numbers.

My only hope for my legacy Anderton shares (recall that internet was down for me for rather a while and I was locked out of my office, and that after the price change, there's little point in backing out of the position if the going price seems about right) is that Parker announces that his wife will be in charge of ensuring a unified architectural vision for the city's rebuilding. Maybe that chance is why Anderton is still around 10 cents.

Cage Match: Caldwell versus Farrant [updated]

Update: text below updated in a couple of spots for accuracy and clarity.

Bruce Caldwell replies to Farrant and McPhail on Hayek's Road to Serfdom; I'm told the reply is coming out in a later issue of Challenge.

For Farrant and McPhail, the resurgent popularity of RTS hinged on a reading of Hayek that, while unpopular among RTS fans, was in fact the right reading of Hayek: any moves towards socialism would lead to serfdom. Consequently, Glenn Beck's using of Road to Serfdom as a rallying call against Obama's policies does no disservice to Hayek. Hayek, however, does disservice to those British socialists who rated liberalism above totalitarianism and who would have stepped back from planning rather than allow the rule of the demagogue.

Caldwell argues that Farrant and McPhail miss essential context. The argument in RTS was addressed only to "hot" socialism: full nationalisation of industries and central command planning. When restricted to that set, Hayek was right: full planning cannot be undertaken without totalitarianism. Caldwell notes that no socialist state achieved totalitarianism through Hayek's mechanism: democratic election leading to failings of planning leading to the rise of the demagogue; he argues that consequently no test of Hayek's mechanism has been undertaken. While the argument in RTS was restricted to "hot socialism", Hayek's later writings provided other warnings of the dangers of the welfare state. The mechanisms and arguments in those later writings were different and oughtn't be conflated with the dangers noted in RTS.

Farrant and McPhail respond to Caldwell [Note: they're there responding to earlier Caldwell arguments, not this particular piece], and others, in the latest issue of Challenge, unfortunately gated. I'll leave to one side F&M's noting that the current talking heads promoting Hayek's argument on Beck's show happily identify Obama's policies as the starting point on the road to serfdom; the more interesting question is whether Hayek meant the argument there to apply.

Intriguingly, Bruce Caldwell — commenting on the Beck-inspired surge in Hayek’s sales—notes that Hayek wrote his “full-fledged attack on socialism and totalitarianism” largely in “response to the British Labour Party platform of the time” (Caldwell, as quoted in Zaitchik 2010, 3). Caldwell’s reference to the policy program of the British Labour Party is particularly noteworthy. Hayek often invoked postwar British experience to illustrate the supposed veracity of The Road to Serfdom. As Hayek explained in 1948, British experience supposedly clearly demonstrates that “the unforeseen but inevitable consequences of socialist planning create a state of affairs in which sooner or later totalitarian forces get the upper hand” (Hayek 1948, as quoted in Farrant and McPhail 2010b). Unsurprisingly, the tenor of Hayek’s remarks is markedly congruent with the logic he laid out in chapter 5 of The Road to Serfdom: Planning and intervention (it is highly revealing that Hayek invokes the interventionist and welfare state policies adopted by Labour as full-blown “socialist planning”) generate pervasive economic inefficiencies and dislocations.8 This pervasive inefficiency supposedly leads to the wholesale replacement of democracy.

They then cite the foreword to the 1976 edition of RTS:

In the preface, Hayek notes that if any reader asked whether he would still “defend all the main conclusions of ... [the] book ... the answer ... is on the whole affirmative” (xxiii). Importantly, Hayek notes that “terminology has changed” between 1944 and 1976, and

for this reason what I say in the book may be misunderstood.... At the time I wrote, socialism meant ... nationalization ... [and] central economic planning.... [Hence] Sweden ... is today very much less socialistically organized than ... Britain or Austria, though Sweden is commonly regarded as much more socialistic. This is due to the fact that socialism has come to mean chiefly the extensive redistribution of incomes through taxation and the institutions of the welfare state. In [this] ... latter kind of socialism the [totalitarian] effects I discuss in this book [Road to Serfdom] are brought about more slowly, indirectly, and imperfectly ... the ultimate outcome tends to be very much the same, although the process by which it is brought about is not quite the same as that described in this book. (Hayek 1976/1994, xxiii–xxiv, emphasis added)

Hayek intended the argument to apply to the British Labour Party. British socialists would then had to have preferred totalitarianism to liberalism for the RTS mechanism to run its course; otherwise, they'd have retreated from planning before going too far down that path. It's of course possible that their retreat came only because Hayek showed them the inevitable outcome of pushing through with planning. But that we can't point to an example of a democratic country turning totalitarian using the RTS mechanism suggests that the RTS mechanism isn't a particularly important one in explaining any real world totalitarianism; totalitarianism tends to come in with planning rather than as later consequence of it.

So, I'll disagree with Caldwell that Hayek's mechanism hasn't been tested. Caldwell writes:

Next, there are no examples of democratically elected governments that tried to put such a system into place.10 So we cannot directly test to see if he was right or wrong. We do, however, have examples of such systems that were not democratically elected. And Hayek’s description of life under such regimes is spot on.

Planning cannot be done without totalitarianism. But the RTS argument isn't just that; it's that steps toward planning push us to totalitarianism. And that many western European democracies turned back from planning rather than continuing on the road to serfdom suggests Hayek's mechanism was wrong, even if he was right that planning cannot be done without totalitarianism.

But I will have to re-read Constitution of Liberty and Law, Legislation and Liberty to contrast the mechanisms there with those in Road to Serfdom.

Note also that John Quiggin reviews Farrant and McPhail's argument at Crooked Timber:

Until the right went completely crazy, the most common claim in support of Hayek was that his predictions had somehow been vindicated by Thatcher’s reaction against the welfare state. Leaving aside the fact that Thatcher’s remodelling of the British economy in the image of the City of London looks a lot less appealing today than it did only a few years ago, this totally misses the point of Hayek’s book. If he had wanted to argue that social democratic policies would reduce the rate of economic growth, and to throw in a bit of hyperbole, he could have called it “The Road to Destitution” or something similar. Hayek wanted to make the much stronger claim that the attempt to implement Labor’s policies would necessarily lead to a loss of personal and political freedom.

STV isn't subject to manipulation? Ahem.

Kiwiblog points to Graeme Edgeler, below, and advises sincere voting in the STV local body elections.

(Edgeler)
But is it a good idea to rank everyone?

Yes.

But if I give someone I don't like a rank, couldn't this hurt the chances of candidates I like more?

No.

Your lower preferences cannot ever harm the election prospects of anyone you rank higher than them.

But some of my vote could still go to someone I'm not a fan of?

Yes. But only if all the people you ranked higher than them have already been elected, or cannot possibly win.

By ranking a candidate lowly, you're not helping them beat people you like more than them, you're only helping them against people you hate more.

In the 2002 French Presidential election, there was a vote-off between the top two candidates, the right wing incumbent Jacques Chirac, and far right National Front leader Jean-Marie Le Pen. Many left-wing voters did something they never thought they would do, and voted for Chirac. They weren't using STV, but the principle is identical. In Australian Senate Elections, and some state elections – which do use STV – the Labor Party has advised its supporters to rank the right-wing Liberal Party above Pauline Hanson's One Nation Party. Voting this way doesn't hurt the Labor Party, but it makes it as unlikely as possible that One Nation gets anyone in.

Like the French voters who "voted for the crook, not the fascist", ranking all the candidates helps ensure that what you might consider "the greater of two evils" won't be elected.

Let's consider a contest for a single member district: one candidate will be elected.

There are five types of voters.

Group 1, 10 people, prefer candidate A over C over B over D: A>C>B>D
Group 2, 7 voters, prefer: B>C>A>D
Group 3, 5 voters, prefer: D>C>B>A
Group 4, 3 voters, prefer: C>B>D>A
Group 5, 4 voters, prefer: D>C>A>B

Everyone votes sincerely. In the first round, nobody meets the quota of 15 first choices. So the candidate who is the least preferred is dropped. Candidate C is the first choice of only 3 voters and so is dropped. Again, nobody meets the quota of 15 first choices: B and A now tie at 10 first choices, D has 9 and is dropped. In the third round, B reaches the quota of 15 first choices and is elected.

Suppose, though, that Group 5 votes strategically. B is that group's last choice and was the outcome of the STV election. If they had instead reported their preference ordering as having been C>D>A>B, the selection would have run as follows: D would have been dropped in the first round as the first choice of only 5 voters. In the second round, C would be the first choice of 12, A of 10 and B of 7 so B would have been dropped. In the third round, C makes quota with 19 votes; C is the winner.

So can your placing a candidate lower down the ordering ever hurt the chances of someone you've ranked higher? That's been proven above. Now, it may be very very difficult in the real world because nobody has access to the kind of information we've used in this example. But in a single-candidate district, a non-crazy rule of thumb might be that if your first choice is a candidate who is hated by lots of other folks (like D, above, who was the first choice of 9 but the last choice of 17), you may do better by listing as your first choice somebody a bit further down your preference ordering who's more likely to win (like C, above, who was the second choice of lots of folks) if your last choice otherwise has reasonable support.

I don't think that kind of a rule is computationally hard.

Let's look now to Graeme's precise scenario: he argues you can never hurt the chances of someone higher up by ranking lower order candidates rather than leaving them blank. I think he's right about that: your lower preferences are never checked unless your higher preferences have been eliminated. But you can sometimes do better by lying about your preference ordering than by reporting things sincerely. So Farrar's line at Kiwiblog is, I think, incorrect:

Don’t try and be strategic and working out who is most popular and hence I will rank them lower as they don’t need my vote etc. Just rank candidates in order of your true actual preference.

Farrar is right that you won't waste your vote in a multimember election by keeping a popular guy as your first choice if he is your first choice; any votes in excess of quota are allocated to your lower order preferences. But that doesn't mean you can't do better by being strategic if your first choice is a bit of an odd one.

Measures guaranteed to reduce supply

“If you don’t want to be identified, don’t be a donor,” Ms. Pratten said. “It’s that simple.”

So says the Canadian woman suing the Ontario government and College of Physicians and Surgeons to get the identity of her biological father.

A ruling in favour of Ms. Pratten would bring B.C. in line with other jurisdictions, such as Britain, Sweden and Australia where anonymous donation is banned and registries have been created.

Canada’s own Assisted Human Reproductive Act of 2004 already makes it illegal to pay for gamete donors, a measure that some contend has resulted in a dearth of sperm and egg donations across the country. Others worry that removing a donor’s anonymity will translate into a further lack of donors.

“In Canada, we don’t yet have clear legislation that sets out what a donor’s rights and responsibilities might be,” said Kelly Jordan, a Toronto-based lawyer who specializes in family law and assisted reproductive technologies. “These donors might have potential obligations should they be identified.”

Margaret Somerville, director of the McGill Centre for Medicine, Ethics and Law, says the gamete donor system as it exists now deprives donor offspring of their human rights.

“The problem is, donors don’t have rights,” she said. “You don’t have a right to donate your sperm. You can’t go around saying someone else has a duty to receive it. What we’ve done is given priority to adults’ wishes, coverted those wishes into rights, and completely ignored the impact on the children.”

What about the wishes of children who will fail to come into existence because of Somerville's lobbying and Pratten's litigation? Don't they count too?

And, further, it's hard to imagine any potential people who, ex ante, wouldn't be willing to make the deal "higher probability of existing plus no chance of knowing who the donor was" over "much lower probability of existing plus high chance of knowing who the donor was". Behind the veil, it's hard not to imagine really high majority consent. This kind of ex post chiseling by the potential people who became people, at the expense of those who have yet to become people, ought not be condoned.

Or can Stephen Colbert single-handedly solve the world's shortage?

More seriously, we'd expect a shift in supply towards men who don't expect claims to be able to be enforced against them. That probably isn't a good thing.