Matt Nolan

Universal healthcare and superannuation, and the cost of thinking ahead

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If doing actions that reward a future self is perceived as costly could we justify these actions.  If thinking about our wealth, human capital, or ability to live in 10 years time is inconceivable, will me over consume now?

In essence this sort of discussion is saying that we discount our future selves TOO steeply (compared to whatever the underlying presumption of a “fair discount factor” is).  Is this a fair value judgment to make in policy?  It is not one I would make, but it appears to be the basis of some overaching policies such as universal healthcare and superannuation.

In this case, we don’t need to worry about a “moral hazard problem” even though (empirically) the actions of moral hazard will appear.  Why?  Because the actors aren’t thinking about the future selves and so these “inefficient” outcomes would have occurred in the first place!  Policy helps to correct this by transfering resources to our future selves to improve outcomes relative to the REAL counterfactual (rather than the idealized one where agents choose on the basis of our subjectively fair discount rate).

I think it is important to keep this issue in mind, because it is a closet behavioural assumption behind most policy.  If we buy this value judgment, then we will believe in a larger role for government then if we didn’t.

goonix

Quote of the day: F.A. Hayek on economists

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The economist is the last to claim that he has the knowledge which the co-ordinator would need [for planning].

F.A. Hayek in The Road to Serfdom, 1944

jamesz

Feminists’ work not yet done

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Men still have it easy the world over, enjoying more leisure time than women. So says an OECD study reported in The Economist.

The chart shows how many minutes of extra leisure time men have over women per day. It would be interesting to know how much of this extra time women resent. Do women choose to work more because their preferences systematically differ from men’s? Clearly they choose, in some sense, to work more hours than men do, but what motivates that and are women unhappy about it? If women want to work more hours then who are we to stop them?

I struggle with that question: if women prefer to work more and do household chores because of their upbringing then encouraging them to share the workload may not be welfare increasing. Yet it certainly furthers the right of women to be considered as equals in society. One might say that this trade-off depends on how much we value the right to be treated equally, but a rights-based approach seems inconsistent with a utilitarian framework. Can someone more knowledgable on moral philosophy help me out here?

jamesz

Does money buy power?

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Dani Rodrik has interesting stuff to say about the way policy is formed. He discusses whether government policy is driven more by the prevailing ideology or by the interests of powerful lobby groups. There are two key ponts he makes:

  1. There are a lot of ways to make the lobbyists happy and many of them also help others, or fit in with the government’s ideology. Therefore it’s often hard to infer the motive from the action. I would add that the inference is often made on the basis of the observer’s personal political views.
  2. So far as he can tell, ideology is usually more important than lobbyists:

    isn’t it the case that the reason trade unions, say, have lost power in recent decades is the ideology of deregulation which swept Washington, D.C.? Or that U.S. auto makers have been unable to get large-scale import protection because this was a no-no in the prevailing ideological climate?… The fact that the U.S. wants fiscal stimulus and Germany doesn’t cannot be explained by the relative power of different groups within those countries. It has much more to do with the way in which their respective governments have defined the problem and the “lessons” of history they have drawn. Similarly, France wants more global regulation in large part because, well, France believes in regulation. Sure, Britain and the U.S. prefer a lighter touch in part because their financial sectors are more powerful–which in turn is due in part to the Reagan-Thatcher ideological revolution.

If we accept Rodrik’s argument then we must ask where these ideologies come from. In a democratic system there is no avoiding the fact that the prevailing views of the government are usually the ones voted for by a plurality of the citizenry. I’d like to think that this is the case because it would disturb me to believe that money can buy power that a democratic majority cannot achieve.

Matt Nolan

Watchmen movie: Really a critique of utilitarianism?

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Yesterday I saw the Watchmen movie. I haven’t read the comics or any of that jazz, but I was told that it provided a compelling critique of utilitarianism. As an ethical theory it definitely illustrated the short-comings of utilitarianism. But in the way economists use utilitarianism – namely as a framework to hang value judgments off – the argument is far less compelling.

Note if you don’t want any spoilers don’t click the tag …
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jamesz

Wilful ignorance or intellectual vanity

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There’s been a request for a post on wilful ignorance. How much should we aim to learn about the world, and when should we stop inquiring? Should we read up about the latest violence in Gaza or should we shut it out and concentrate on what we’re doing? In particular, what trade-offs do we face between learning and doing? For every moment we spend reading about tragedies we could be doing something to mitigate or avert it.

To begin we need to ask what we really want to achieve from learning about current events. Do we want to help others in need? Do we want to impress our friends with our learned discussion? Do we simply value accrual of knowledge? All of these are no doubt a part of our decision, yet in each case we face trade-offs. If we want to help people then looking around for people to help reduces the time we can spend actually helping them. If we wish to impress then reading the news reduces the time spent on highbrow discourse. In the final case, there is a trade-off between the depth and breadth of knowledge one can amass. Read more