Thursday, April 26, 2012

Quote(s) of the Day - Marxism

Just to prove my even-handedness on this issue of a priorism and empirical validation, here is the father of the falsification doctrine himself, Karl Popper, on Marxism:
[O]ne might say that Marxism was once a science, but one which was refuted by some of the facts which happened to clash with its predictions[...] 
However, Marxism is no longer a science; for it broke the methodological rule that we must accept falsification, and it immunized itself against the most blatant refutations of its predictions. Ever since then, it can be described only as nonscience—as a metaphysical dream, if you like, married to a cruel reality.
HT: Jonathan Portes

F.A. Hayek, who was greatly influenced by Popper and actually parted company from the extreme a prioristic approach of his mentor, Mises, made a very similar point here (see from 04:30):
Both the Marxists and Freudians had the dreadful habit of insisting that their theories were irrefutable; they [were] logically and absolutely cogent. And that led me to see that a theory that cannot be refuted is not scientific.
UPDATE: Jon Catalan has some thoughts here. I left a comment underneath too.

Another post on empirics (and a priorism)

I was away last week in Amsterdam taking part in The Econometric Game, a competition involving 30 universities from around the world. Despite the... hmmm... dour reputation of econometric get-togethers, this ended being a very enjoyable and social event. I can certainly recommend Amsterdam to any would-be travellers too. It's relatively small, but built around tourism and there's a great deal more to the city than stoner coffeehouses and sex shops.[*]

Unfortunately, my team didn't make the finals and I think that some inexperience caught us out here, since our university decided to send an all new side this year after reaching the finals in two of the last three events.[**] The time pressure of putting together a complete academic paper in one day -- using some technical routines that you aren't necessarily familiar with -- is something that's hard to prepare for. I do think that our analysis was pretty respectable and we certainly ticked all the boxes highlighted by the case makers after the submission. However, we probably let ourselves down by not "selling" our results well enough in the conclusion and discussion parts of the paper. Nonetheless, definitely a good experience overall and congratulations to the top three teams: 1) University of Copenhagen, 2) Aarhus University, and 3) Harvard University. Danes ruling the roost!

The case topic itself was to investigate "the effect that maternal smoking during pregnancy has on birthweight". Of course, maternal smoking is associated with a range of afflictions in addition to low birthweight and premature birth; from clefts to intrauterine hypoxia. However, the long-term economic implications of low birthweight (and, thus, the causal impact of smoking) are far more important than many people realise. All other things being equal, low birthweight babies will on average suffer higher mortality rates, be more likely to have cognition and attention problems, and be more prone to unemployment and lower wage earnings in later life. (For example, see Black, Devereux and Salvanes; 2005.) 

Some of you may remember that I have actually discussed the issue of maternal smoking on this blog before. Of course, that post had very little to do with empirics and was instead aimed at exploring the philosophical ramifications of allowing pregnant mothers to smoke. In essence, it was a thought-experiment on whether it would be morally permissible to ban mothers from smoking (if this were somehow enforceable). The ensuing comments thread became quite excitable, so take a look if you want to see some divided opinions.
[*] Mind you, these are freely on display as well. Like any good boy from Cape Town, I am strongly in favour of dope legalization. Holland's drug policy is more complex than simple soundbites, but far superior to what one finds elsewhere.
[**] The coffeeshops had nothing to with it ;)


Having returned from Amsterdam, I saw that my mate Russell had left a comment under an older post concerning the paleo diet's strong popularity within libertarian circles. As a follower of the praxeological method, Russ suggests that I am "asserting a false choice" by claiming that that there is a marked inconsistency in the way that (some) libertarians invoke the scientific method and empirical evidence in finding support for their preferred worldview. You can see my reply here, which concludes: My broader point is that the praxeological fixation among its proponents has created a hermetic seal; a complete aversion to empirical methods that far surpasses the limits of what praxeology could (conceivably) claim to hold sovereignty over.

The language is perhaps a bit dramatic, but still accurate I think. A more specific point that I wanted to make is that if you are going to claim that econometrics and other empirical methods in economics hold no validity because of reasons X, Y and Z... Then it it behoves you to be equally dismissive of their applications to medical studies of the type that Gary Taubes (go-to-guy for the paleo crowd) advocates. For these too seek to identify causal effects in a world characterised by complex interactions between people and their changing environments. 

Saturday, April 7, 2012

More on Malthus

If you don't wish to take my word on Malthus, here's a snippet from Econlib's excellent encyclopedia entry that I've just stumbled upon:
Malthus is arguably the most misunderstood and misrepresented economist of all time. The adjective “Malthusian” is used today to describe a pessimistic prediction of the lock-step demise of a humanity doomed to starvation via overpopulation. When his hypothesis was first stated in his best-selling An Essay on the Principle of Population (1798), the uproar it caused among noneconomists overshadowed the instant respect it inspired among his fellow economists. So irrefutable and simple was his illustrative side-by-side comparison of an arithmetic and a geometric series — food increases more slowly than population — that it was often taken out of context and highlighted as his main observation. The observation is, indeed, so stark that it is still easy to lose sight of Malthus’s actual conclusion: that because humans have not all starved, economic choices must be at work, and it is the job of an economist to study those choices.
Need I remind you, Econlib is a libertarian initiative, so it's not like this is grandstanding from some left-leaning environmental institute.

Don't let be misunderstood: Malthus edition

Poor Thomas Malthus. Has there ever been a more maligned and misunderstood figure in the history of economics?

With depressingly few exceptions, both his critics and supporters seem equally uninterested in discussing what the man actually wrote. Hardly a day goes by without some mocking reference to the Malthusian Doom that never seems to arrive and its progenitor's endless list of imagined shortcomings. For their part, most "modern Malthusians" in the environmental movement are equally ignorant of what the good Rev'rend was trying to get at, despite their appeals to his authority.

To try and illustrate by way of an example, consider this article by Ivo Vegter in South Africa's Daily Maverick. I'm going to ignore the general thrust of the post -- parts of which I agree with -- and focus specifically on what he writes about Malthus:
Malthus’s theory was simple. In fact, “simplistic” would be a better word for it. He postulated (though did not prove) that human population increases geometrically, while resources increase arithmetically. Geometric growth (often called exponential growth) occurs by multiplying a given quantity every year. Arithmetic growth (also known as linear growth) involves merely adding a fixed quantity each year. No matter what, the former will always outpace the latter over time. 
Let Malthus illustrate it himself: “Taking the population of the world at any number, a thousand millions, for instance, the human species would increase in the ratio of 1, 2, 4, 8, 16, 32, 64, 128, 256, 512, &c, and subsistence as 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, &c. In two centuries and a quarter, the population would be to the means of subsistence as 512 to 10.” 
Even a non-economist can understand this trivial piece of arithmetic. The problem is that neither postulate – not geometric growth in population nor arithmetic growth in resources – was supported by empirical evidence or economic theory. In fact, since neither has anything to do with reality: asserting them probably qualifies for at least some definitions of the word “mad”.
Okay, there's a lot that needs correcting here... and this despite the fact that Ivo spends a third of his time directly quoting the man! The first thing to note is that “postulates” is the wrong word to describe Malthus’s characterisation of population and resources [read: food] growth rates. Rather, he deduced these growth rates from preceding postulates and observations about the real world. Indeed, Malthus is quite clear about what his actual postulates are: “I think I may fairly make two postulata. First, That food is necessary to the existence of man. Secondly, That the passion between the sexes is necessary and will remain nearly in its present state.

So, we're not off to the best of starts. Still, you could argue that mixing up assumptions and subsequent deductions is perhaps a harmless offence in this case... so long as Ivo gets his basic critique right. Let's look a bit deeper at his specific criticisms then:
The problem is that neither postulate – not geometric growth in population nor arithmetic growth in resources – was supported by empirical evidence or economic theory.
This, particularly with regards to Malthus’ “postulate” on population growth, is quite false. Among other things, Malthus supported his theoretical arguments with empirical evidence from the newly established USA, which had doubled in size every twenty-five years. (Adam Smith had made similar observations in The Wealth of Nations two decades earlier.) The richly-endowed and untapped New World was especially relevant to Malthus, because his entire theoretical argument hinged on how population levels would hypothetically evolve free of natural constraints. Far from claiming this as the expected order of things, Malthus is very clear in his thinking [emphasis added]:
I said that population, when unchecked, increased in a geometrical ratio[...].
Let us examine whether this position be just.
I think it will be allowed, that no state has hitherto existed (at least that we have any account of) where the manners were so pure and simple, and the means of subsistence so abundant, that no check whatever has existed to early marriages; among the lower classes, from a fear of not providing well for their families; or among the higher classes, from a fear of lowering their condition in life. Consequently in no state that we have yet known has the power of population been left to exert itself with perfect freedom.
As a stylized biological assumption, I really don’t see what the problem is. Ivo again misconstrues the matter when he later writes: “Therefore, assuming geometric growth in human populations is a simplistic fallacy.” No, it is a reasonable benchmark upon which we can compare observed population growth rates!

Malthus later provided further empirical justification for his theoretical arguments in his second Essay on the Principle of Population; for instance, citing evidence from his travels in Scandinavia. I mention this not only to show that Malthus didn't simply pull these figures from his nether regions... but because it is important to note that he substantially revised upon his original essay after it was first published. Each time he undertook such a revision, he would address criticism and seek to add further evidence in support his arguments. By the 6th edition of Population, he had pulled together evidence from over 20 different countries and cultures.

If Malthus provided sound reasoning and evidence for his arguments on population growth, then he was undoubtedly on shakier ground with his assertions on food production. In fact, his downfall here was to base his arguments largely on historical observations of agricultural yields... so even then I don’t see how you could argue that there was no appeal to empirical evidence.[*] That's not to say that he didn't try to provide any theoretical underpinnings to his position, as he effectively described agricultural production as being subject to -- what we would today call -- diminishing returns to scale. From his second essay [emphasis added]:
The science of agriculture has been much studied in England and Scotland; and there is still a great portion of uncultivated land in these countries. Let us consider at what rate the produce of this island might be supposed to Increase under circumstances the most favourable to improvement. 
[...]In the next twenty-five years, it is impossible to suppose that the produce could be quadrupled. It would be contrary to all our knowledge of the properties of land. The improvement of the barren parts would be a work of time and labour; and it must be evident to those who have the slightest acquaintance with agricultural subjects that, in proportion as cultivation extended, the additions that could yearly be made to the former average produce must be gradually and regularly diminishing.
Malthus failed to grasp how technological innovation would revolutionize agricultural production, it is true. One could argue that this was at least partially due to the fact that he couldn't foresee how future discoveries of fossil fuels -- oil in particular -- would completely transform the way in which people farmed... from agricultural mechanisation to petroleum-based fertilizers.[**] However, it is abundantly clear that Malthus didn't think up baseless assumptions from which he could then make wild claims about mass starvation and future misery. His much more conservative point was that population increases would be subject to natural checks on food supply.

I'm just a soul whose intentions are gooood

THOUGHT FOR THE DAY: Ivo is not alone in drawing a crude caricature of Thomas Malthus. Indeed, to repeat what I said at the beginning of this post: the man might be the most misrepresented person in the history of economic thought ... which is saying something in of itself. I’m not suggesting that Malthus was correct in his Population Essay(s), because he clearly overlooked the likelihood of tremendous advances in agricultural technology. However, it’s extremely discouraging that such a profound thinker is tied to his “worst” idea, and a cartoon version at that.
[*] A more sophisticated argument might be to criticize Malthus for relying on a form of historicism, as opposed to empirical evidence. This is certainly a better line of attack, although not incontestable given the very broad context of his writings.
[**] In this way, he partially foreshadowed William Stanley Jevons, who actually wrote about energy matters... see here.

Friday, April 6, 2012

The sardonic Adam Smith

In reality high profits tend much more to raise the price of work than high wages. [...]In raising the price of commodities the rise of wages operates in the same manner as simple interest does in the accumulation of debt. The rise of profit operates like compound interest. Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price, and thereby lessening the sale of their goods both at home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.
- Wealth of Nations, Book 1, Chapter 9

Rhino poaching... Hope on the horizon?

A few months ago, I discussed the staggering increase in rhino poaching that is plaguing Southern Africa. According to the Dept. of Environmental Affairs, a record 448 rhino were poached last year in South Africa alone. Even that record is now under threat, as 159 of the country's rhino had already suffered the same fate within the first four months of 2012.

Source: Business Day

My preferred, economic solution would involve overturning the CITES ban on rhino trade, which has not only failed to stop poaching, but has rather encouraged the reverse. The ban has simply succeeded in limiting the supply of rhino horn, thereby driving up the price and making them more valuable to would-be poachers. I'd like to see this perverse set of incentives replaced with something more reasonable. As I wrote wrote back in 2011: "[T]he ability to legally farm and 'harvest' these animals generally would bring the same positive effects that hunting does for wildlife conservation. That is, it establishes a profit motive that incentivises the preservation of valuable animal species."

Ethical considerations notwithstanding, I did have some lingering concerns over the practicals implications of farming these animals, and whether doing so would actually lead to a collapse in poaching. Breeding rhino remains a very expensive business and poachers would still be able to capture substantial "resource rents" as long as they don't bear the burden of the investment costs. In the same way that cattle theft hasn't stopped despite our massive consumption of beef and dairy products. Of course, the potential gains -- i.e. the rents -- are also far higher when it comes to rhino. That being said, it seems unquestionable to me that the economic incentives for sustainable populations are much better aligned under a system of legal trade.

Thus far, the SA government is pretty tight lipped on the legalization of farmed horn. They are, however, considering the sale of horn stockpiles, which have been accumulated from thwarted poaching operations over many years. I maintain that the farming option is necessary to ensure ultimate sustainability. Nevertheless, we could think of the stockpile sale as akin to the auction markets for organ donors and other "ethical repugnant" goods. The pioneer in this area is the economist, Alvin Roth, whom I briefly discuss here.
Anyway, I've been thinking about how I might turn this rhino question into a legitimate research topic and, possibly, one of my dissertation essays. Trouble is, the basic concept is so simple that any of the standard bioeconomic models would suffice i.t.o. providing a theoretical framework. In other words, you probably wouldn't be making enough of a theoretical contribution for it to be considered worthy of publishable (i.e. doctoral) research.

To be considered of suitably high standard then, you'd need to supplement standard theory with empirical evidence. And here we run into another problem. What data could one use, beyond basic descriptive statistics? Moreover, how would you control for all the problems that typically come with empirical research -- identification, causation vs correlation, establishing a counterfactual, etc? In short, turning this into an original and insightful research project probably requires the use of some kind of natural experiment. Perhaps a policy change that affects some countries in the region, but not others. Hmmm...
Zimbabwe, Botswana, Zambia, Namibia and Angola are heading for a collision with rhino conservationists after it emerged that their governments had agreed to the sale of rhino horn powder in clinics and pharmacies. 
The governments of the five states that form the Kavango-Zambezi Transfrontier Conservation Area (Kaza) met in Namibia last week and resolved to sell rhino horn powder in their fight for the survival of the species which is fast heading for extinction.
Okay, it's probably not quite what you're looking for. Most obviously, legalizing the sale of powdered rhino horn in these five African states would have a negligible impact on satiating overall demand. The situation will probably only improve once the reform reaches the major Asian markets, such as Vietnam. Still, I'm very tentatively going to call this a step in the right direction.

For more on this whole rhino debate, here is a recent article worth reading.

Tuesday, April 3, 2012

Earth Hour: Sending the right message?

In the build up to this year's Earth Hour, humourless critics were once again up in arms about the fact that turning off the lights for one hour would have a negligible effect on energy consumption.

Yes, because symbolic acts should be seen as outright solutions, rather than symbolizing representing solidarity with some wider issue. You know, like Tommie Smith and John Carlos thought that the solution to racial discrimination would be for everyone to walk around with an upraised fist.

Sounds to me like a lot of people could use a course in symbology.

That said, there are reasons to be critical of Earth Hour and, indeed, question the symbolic message that it does send. In that light, one of the better "contrarian" takes that I've read lately comes from Robin Mills, who argues that good intentions are undermined by a misguided signals:
Of course, improved energy efficiency is vital. The confusion is between conservation -- doing less -- and efficiency -- doing more with less. 
Environmentalism should not be about less -- it is about more: energy that is more abundant, cleaner, cheaper, more secure; economies that grow faster with new technologies; more people escaping poverty. 
Darkness spreading across the planet should not be the aim of environmental campaigns -- it should be a symbol of what happens when energy and environmental policy fails.
Environmental organisations like the WWF (or any advocacy group for that matter) need to think hard about the broader associations that come with their campaign messages. Concern about the planet's well-being is clearly laudable, but they will lose this fight if their cause becomes associated with privation.