Thursday, February 22, 2018

Cohort hoarding

An important and often unremarked reality. From How Building Regulations Subsidize Mansions by Alex Tabarrok.
Consider the buildings below: a mansion on a 1 acre lot in Atherton, and a 350 unit mixed use condo on a 1.6 acre lot 2 miles further up the peninsula in Redwood City. The mansion just sold for $6m. The condo building, when finished, will probably fetch hundreds of millions.

If it weren’t for Atherton’s zoning code, you’d never be able to buy that mansion for a mere $6m. A developer that wanted to tear it down and build condos could bid far more than that. But the zoning code mandates single-unit buildings with a floor area ratio below 18% on lots of at least 1 acre, so $6m it is. Quite the bargain.
I would call this an example of cohort hoarding.

There is a lost valuation of externalities between the restricted value dictated by the zoning rules and the valuation set by an unrestricted market. If my mansion under zone controlled regulation is worth $10 million and the land is worth $100 million under free market conditions, why would I put up with that lost valuation?

I call into being the concept of informal oligopolistic multi-generational cohort hoarding. Sure, under restricted zoning requirements, the value of land is suppressed but the annual increases in value can still beat the general market if the zoning creates a positional good valuation. People don't have to know one another or even coordinate but they need to share some degree of cohort shared identity. Non-estimable externalities compensate for the lower land value arising from restrictive regulations.

Yes, my mansion is only worth $10 million compared to its free market value of $100 million. In this extreme example, the unrealized value of $90 million must equate to the value that that particular cohort attaches to living in such a selective environment (only equally accomplished, intelligent, wealthy people can live in my area with me). Some portion of that $90 million may actually be realized by unrelated network effects, i.e. financial deals and opportunities being generated and realized through high quality geographically determined network events (e.g. white-shoe law firm partner lands a large account with the start-up billionaire across the street).

Such enclaves of unrealized value can last generations as long as 1) they share a perceived cohort value, 2) they derive value from the aesthetic of exclusion, and 3) there is indeed some generative effect on value creation arising from network effects that off-sets some of the unrealized value. The unstable equilibrium will collapse if the cohort loses cohesion, if the valuation of exclusion collapses, or if there is no financial offset through network effects.

In that event, the first rats off the ship achieve a disproportionate share of the unrealized cohort value. Cohesion is imperative to sustain the zoning restrictions for exactly this reason.

An alternative to Left:Right

It is always difficult to capture the hundreds of shades of difference on a political spectrum, and it is especially hard to use neutral terms. Some terms carry loaded meanings, some carry historical baggage. From left to right, perhaps one model might be:
Illiberal Anarchists - Antifa, White Supremacists, etc.

Illiberal Postmodernists - Coercive legislation, regulatory capture, equality of outcomes, group identity, etc.

Liberal Rent Seekers - Anti-federalism, centralized decision-making, technocrats, managed economy. Establishment Democrats, Establishment Republicans.

Classical Liberals - Locke, Smith, Hume, Mills. Rationalism, evidence-based decision-making, individualism, consent of the governed, bias towards free markets, opposed to monopolies, tea partiers, rule of law, equality before the law, equal rights not equal outcomes, etc.

Large fortunes through public assets

From Income Inequality Isn’t The Problem by David R. Henderson. An interesting discussion of the different forms, beneficial and destructive, of inequality. This is the interesting piece of information I did not know.
Now let’s consider the second figure. In the early 1940s, as a Congressman from Texas, this man defended the budget of the Federal Communications Commission when a more senior member of the House of Representatives was trying to cut it. So the FCC owed him a favor. One FCC official suggested the politician have his wife apply for a license for a radio station in the underserved Austin market. She did so and within a few weeks, the FCC granted her permission to buy the license from the current owners. She then applied for permission to increase its time of operation from daylight-hours-only to 24 hours a day and at a much better part of the AM spectrum—and the FCC granted her permission within a few weeks. The commission also prevented competitors from entering the Austin market.

These moves made Lyndon Johnson and his wife very rich. When he ran for President in 1964, the radio station accounted for over half of his $14-million net worth. This increase in his wealth added slightly to wealth inequality. But customers in the Austin market were, due to the FCC restrictions on further radio stations, slightly less well off than if more stations had been allowed. When I tell this story to college audiences and ask them if they think there’s an important difference between McCulloch’s and Johnson’s methods of increasing wealth inequality, virtually all of them do, and few will defend the latter way.
$14 million in the 1960s? How much is that worth today? A different article sheds light. LBJs net worth in 2010 dollars was $98 Million.

Interesting to compare that to the net worth of the President who might be considered the archetype of the wealthy, privileged president, Franklin Delanor Roosevelt, acknowledged patrician with an inheritance of $60 million, acquired via inheritance and marriage.

So the son of poverty and public service (LBJ) had net wealth 50% greater than that of the silver spoon president FDR.

Kind of shocking that the "man of the people" president acquired the bulk of his immense fortune through "public service" and essentially via deep state bribery. But to be fair there are pretty obvious parallels of such rent seeking among certain politicians in recent years.

Wave Ruler in Liverpool by Edgar Hodges

Wave Ruler in Liverpool by Edgar Hodges

Click to enlarge.

Productivity? Work with people like yourself and tell the truth

This looks interesting. From Preferences for Truth-Telling by Johannes Abeler, Daniele Nosenzo, and Collin Raymond. From the Abstract:
Private information is at the heart of many economic activities. For decades, economists have assumed that individuals are willing to misreport private information if this maximizes their material payoff. We combine data from 72 experimental studies in economics, psychology and sociology, and show that, in fact, people lie surprisingly little. We then formalize a wide range of potential explanations for the observed behavior, identify testable predictions that can distinguish between the models and conduct new experiments to do so. None of the most popular explanations suggested in the literature can explain the data. We show that only combining a preference for being honest with a preference for being seen as honest can organize the empirical evidence.
It is complex work with its limitations clearly articulated. The general finding is that people have a low level of lying and the reason they do not lie more is that they inherently value honesty and they also value being seen as honest.

A reason this work is interesting is that trust is a function of truth-telling and there is large, consistent economic literature linking trust with higher national and individual productivity. Abeler et al are not measuring trust per se but truth-telling, to some degree a necessary prerequisite to trust. It will be interesting to see how this research develops.

I think trust is materially a function of truth-telling AND shared assumptions. A proclivity towards non-truth-telling lowers trust. Absence of shared assumptions can also significantly reduce trust. Interactions in the absence of shared assumptions can lead to communication issues resulting in negative outcomes. Negative outcomes are often attributed to dishonesty when in fact they are a product of communication confusion.

You want higher national (and individual productivity)? Implement policies which improve the cultural value attached to honesty and reduce the knowledge/values variance between people.

The New Colossus by Emma Lazarus

The New Colossus
by Emma Lazarus

Not like the brazen giant of Greek fame,
With conquering limbs astride from land to land;
Here at our sea-washed, sunset gates shall stand
A mighty woman with a torch, whose flame
Is the imprisoned lightning, and her name
Mother of Exiles. From her beacon-hand
Glows world-wide welcome; her mild eyes command
The air-bridged harbor that twin cities frame.
“Keep, ancient lands, your storied pomp!” cries she
With silent lips. “Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tost to me,
I lift my lamp beside the golden door!”

Real numbers prompt hard questions

From Animal Cruelty Does Not Predict Who Will Be A School Shooter by Hal Herzog. An article interesting in its own right but also in some of the information it conveys.
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I love animals and have had pets all my life. I have fostered fledglings and other rescued animals. I suffer great anguish when animals suffer. I regard this as simply a part of the general condition of human empathy. It does not, I don't think, color my view of others who have no interest in animals and pets. Our animal companions are a burden, it is not unreasonable to not take that on. But I would expect most people to have at least some empathetic response to animal suffering though that response might take many forms.

The thought experiment prompted by this article is along the following lines. Would it be reasonable to exclude from your business and/or social life people who indulged in deliberate and intentional cruelty to animals?

My first response would be, Of course! It is analogous to asking, Would it be reasonable to exclude from your business and/or social life a person who was a habitual spouse beater? Of, course you would. All the arguments are readily available at hand to justify the proposition. Danger, absence of empathy, etc.

But think about that answer. You assume no one you know is intentionally cruel to animals (or spouses). You assume, "Everyone I know is good and innocent of that accusation." And social self-selection and affiliative groups do make it more likely that like attracts to like and that your assumption will be true.

How prevalent is intentional cruelty to animals? 1% of the population? 5%? 10%. Surely not more than that.

Herzog reports:
To understand rates of animal abuse among school shooters, we first need to examine the strength of the link between animal cruelty and human-directed violence. Many investigators have compared rates of animal abuse in violent criminals and in people with no history of violence. In 2016, Dr. Emily Patterson-Kane used a statistical technique called
meta-analysis to combine the results of 15 of these studies. She found that 34% of violent offenders had a history of animal abuse. But so did 21% of non-violent individuals in the control groups. Patterson-Kane concluded these differences in abuse rates were, from a statistical point of view, real but small. Indeed, she is more impressed with the fact that most people who commit violent crimes against humans do not have a history of violence directed at animals.

Further, animal cruelty is surprisingly common in “normal” people. For example, studies have found that nearly 30% of college students admit to having committed some form of animal abuse. Indeed, in a recent paper, the psychologists Bill Henry and Cheryl Sanders concluded “Some participation in animal abuse may be considered normative in American males.”

In short, most violent criminals do not have a history of animal abuse, while a large percentage of apparently normal people do.
30% of college students have a history of animal abuse? That makes it reasonably probable that you assumption that no one in your affiliate groups has a history of animal abuse.

It is real easy to automatically conclude that it would it be reasonable to exclude from your business and/or social life all people who indulged in deliberate and intentional cruelty to animals? It's easy because you don't think the rule would be pertinent to your circle of friends.

Herzog's numbers suggest otherwise. Does the knowledge that a not immaterial portion of your circle of friends might have some history of animal abuse change your answer?

I don't know. Visceral anger over animal abuse is a fairly bedrock issue for me but who among my friends might I be startled to lose were I to discover such abuse.

Of course, being human we love black and white rules as long as they are not relevant to ourselves. Show us a cost to those rules (unexpected loss of friends) and we will start coming up with subordinate clauses (Oh, it was only when they were a teenager; Oh, it was accident; Oh, they were drunk, etc.) to carve out exceptions to the rule.

No answer to the rumination but it was an interesting catalyst to examining assumptions.

The article is interesting in itself and worth a read. Lots of, to me, surprising information. For example, from a study of 23 mass school murders between 1988 and 2012.
Consistent with other studies, they reported that most of the shooters (57%) had no history of animal cruelty. They did, however, find that the types of cruelty committed by the perpetrators who were animal abusers were often different than the cruelty committed by “normal” animal abusers. In nine of the ten cases, the animal abuse was “up close and personal.” That is, the acts involved hands-on direct contact with the animal. Indeed, only one of the school shooters had used a method of torment which did not require touching the animals. In seven cases, the abuse was directed at dog and cats. But in no case did the animal cruelty involve the shooters' personal pets or even animals in their neighborhood.
Ok, that seems to be a signal. On the other hand, there is this.
But here is the big surprise. Arluke and Madfis found that four of the school shooters had a record of pronounced empathy and affection for animals. Sandy Hook Elementary School killer Adam Lanza, for instance, apparently became a vegetarian because he did not want to harm animals. And Charles Andrew Williams who killed two classmates and wounded 13 others became extremely upset when one of his friends killed a frog. Whit­­­­­­­­man would keep field mice as pets and even have little funerals for them when they died.

Also a related article, How reliably does animal torture predict a future school shooter? by Arnold Arluke. From the concluding two paragraphs:
Future tipsters and law enforcement workers should be cautious, though, about assuming that animal abuse is a necessary precondition for a shooter. In fact, a systematic investigation of targeted school shootings revealed that there simply “is no accurate or useful ‘profile’ of students who engaged in targeted school violence,” whether demographic, psychological or social. In many cases, animal abuse isn’t, and when it’s there, it takes a specific form. And even with research-based checklist items such as animal abuse, some cases will inevitably not be red-flagged. If we flag every incident of animal abuse, our mental health and justice systems would be overwhelmed with tens of thousands of cases to review.

It is understandable that people will call for more reliable checklist items that can spot future killers and prevent school massacres. As Adam Lankford, a criminologist at the University of Alabama, lamented: “In many recent cases, law enforcement has known about a future mass shooter before his attack but failed to recognize the threat he posed. With more accurate warnings signs, they may be able to prevent the next tragedy.” Given the complexity of predicting any human behavior, let alone extreme killing, more precise warning signs will not identify every future shooter. But our research offers hope for spotting warning signs of — and thus preventing — at least some school shootings.
We would wish to reduce human violence in all forms to near zero. But human systems are complex and the fact that extreme forms (such as school massacres) are so rare, it means that it is near impossible to create a rigorous algorithm that narrowly and accurately forecasts those likely to commit such acts.

As soon as we relax the parameters even a little, the pool of candidates explode logarithmically and overwhelm the relevant systems (security, mental health, school, etc.). It also overwhelms of foundational principles of governance such as freedom, privacy, negative rights, rule of law, etc. Big data systems and data collection around the world (so that we have a more statistically reliable pool of data) might help us in the future but we seem a long way from a state of cognitive grace at the present time.

Processes are those events that occur in nature, practices are the creations of people

From Conscientious Objections by Neil Postman. Page 5.
A pervasive and lively energy, especially in our great universities, is being directed toward the expansion of categories, models, and theories, toward the development of new subjects. Among the most prominent of these is the subject known variously as "Communication," or "Media Studies," or (as we call it at my university) "Media Ecology." This takes as its domain the study of the cultural consequences of media change: how media affect our forms of social organization, our cognitive habits, and our political ideas. As a young subject, media ecology must address such fundamental questions as how to define "media," where to look for cultural change, and how to link changes in our media environment with changes in our ways of behaving and feeling. But such questions rest on another, larger question which is as yet unanswered— namely, what kind of subject is this to be? Is it a science? Is it a branch of philosophy? Is it a form of social criticism? Where, in short, do we place it in the catalogue?

The usual, indeed the only, answer is that the subject must be a social science. Therefore, in this essay I will address two fundamental questions: What are legitimate forms of research in the social sciences? And, what are the purposes of conducting such research?

I must say at the start that I reject the implications of the phrase "social science." I do not believe psychologists, sociologists, anthropologists, or media ecologists do science, and Michael Oakeshott's distinction between processes and practices is definitive in explaining why. Oakeshott means by processes those events that occur in nature, such as the orbiting of planets or the melting of ice or the production of chlorophyll in a leaf. Such processes have nothing to do with human intelligence, are governed by immutable laws, and are, so to say, determined by the structure of nature. If one were so inclined, one might even say that processes are the creation of God. By practices, on the other hand, Oakeshott means the creations of people—those events that result from human decisions and actions, such as this essay or the formation of a new government or our conversations at dinner or falling in love. These events are a function of human intelligence interacting with environment, and although, to be sure, there is a measure of regularity in human affairs, such affairs are not determined by immutable laws. Now, I have been told by friendly colleagues that this last statement, namely, that human actions are not determined by immutable and universal laws, cannot be proved, and that to assert it is in the nature of a metaphysical speculation. Fair enough. You may consider it, then, to be part of my metaphysics that I believe in free will and in choice; that human beings are fundamentally different from orbiting planets and melting ice; and that while we are profoundly influenced by our environment, our ideas and behavior are not irrevocably determined by natural laws, immutable or otherwise. In other words, I believe with Oakeshott that there is an irrevocable difference between a blink and a wink. A blink can be classified as a process, meaning it has physiological causes which can be understood and explained within the context of established postulates and theories; but a wink must be classified as a practice, filled with personal and to some extent unknowable meanings and, in any case, quite impossible to explain or predict in terms of causal relations.

As I understand it, science is the quest to find the immutable and universal laws that govern processes, and does so on the assumption that there are cause-and-effect relations among these processes. In this definition, I place myself, even if only beside their feet, with Newton and the last of the great Newtonians, Albert Einstein. It follows that I believe the quest to understand human behavior and feeling can in no sense except the most trivial be called science. The trivial-minded point, of course, to the fact that students of natural law and human behavior both often quantify their observations, and on this common ground may be classified together. A fair analogy would be to argue that since a house painter and an artist both use paint, they are engaged in the same enterprise, and to the same end.

The scientist uses mathematics to assist in uncovering and describing the structure of nature. At best, the sociologist (to take one example) uses quantification merely to give some precision to his ideas. But there is nothing especially scientific in that. All sorts of people count things in order to achieve precision without claiming that they are scientists. Detectives and bail bondsmen count the number of murders committed in their city; judges count the number of divorce actions in their jurisdictions; business executives count the amount of money spent in their stores; and young children like to count their toes and fingers in order not to be vague about how many they have. Information of this kind may sometimes be valuable in helping a person get an idea, or, even more so, in providing support for an idea. Numbers may even be useful in browbeating people into accepting an idea that otherwise has no merit. I have, myself, harbored several such worthless ideas, one of which has recently been supplied with some impressive numbers that not only will permit me to continue to believe this nonsense, but may help me to persuade others to believe it. I refer to my theory that living in California, Florida, and other warm climates tends to shrivel the brain and makes people dumber than those living in colder climates, such as New York, Pennsylvania, Illinois, and Iowa. Since there is no idea so bad that a social scientist will not find support for it, I was not surprised to come across a study by two doctoral students at Texas Technical University who found that the ten states with the highest average SAT scores all had cold winters. Indeed, every state with an average of 510 or higher on both the verbal and quantitative parts of the SAT had an average high temperature in January of less than 42 degrees Fahrenheit. At the other end, five of the ten states with the lowest SAT scores were warm-weather states. Moreover, temperature had a significant relationship to SAT scores even when the researchers took into account such factors as per-pupil expenditures on schooling. So there!

Just as counting things does not a scientist make, neither does observing things, though it is sometimes said that if one is empirical, one is scientific. To be empirical means to look at things before drawing conclusions. Everyone, therefore, is an empiricist, with the possible exception of paranoid schizophrenics. To be empirical also means to offer evidence that others can see as clearly as you. You may, for example, conclude that I like to write essays, offering as evidence that I have written this one and that there are several others contained in this book. You may also offer as evidence a tape recording, which I will gladly supply, on which I tell you that I like to write essays. Such evidence may be said to be empirical, and your conclusion empirically based. But you are not therefore acting as a scientist. You are acting as a rational person, to which condition many people who are not scientists may make a just claim.

Some time ago, I had a conversation with a young communications professor from a midwestern university who repeatedly claimed to be a member of the community of social scientists. The basis of her claim was that she had conducted what is called a correlational study of television viewing and aggressive behavior in children, the conclusion of which was that some children in the state capital who watch lots of violent programs are also apt to act more aggressively than some of the children who watch fewer violent programs. She could not say — and had no hope of saying — whether they were aggressive because they watched television violence, or watched television violence because they were aggressive. She could also not say — and had no aspiration to say — why it was that some children who watched many violent programs did not act aggressively, or why some of those who didn't watch violent programs did act aggressively. Moreover, she told me that within the past five years there have been more than 2,500 such studies conducted in American universities, with the result that there is no agreement on very much except that watching violent television programs may be a contributing factor in making some children act aggressively, but that in any case it is not entirely clear what constitutes aggressive behavior. In other words, after 2,500 studies, we have a statement that is somewhat less meaningful than my saying that Ronald Reagan's telegenic charm may have been a contributing factor to his being elected President.

Confronted by such a desiccated view of science, I naturally asked what her definition of science was. She replied that it required one to be empirical, to measure things, to make one's methods and conclusions public, and to test one's assertions. Because this definition would not distinguish the act of science from the normal working of a sane mind engaged in problem-solving, it did not take me long to get her to acknowledge that such actions, while necessary in science, were hardly sufficient, and I was able to reduce her to saying, "Well, what difference does it make what you call it?" Now, this is not normally the way one ought to treat a young professor, but I did so because I believe it is important to distinguish science from non-science.

Wednesday, February 21, 2018

Her intentions are good, and her information is bad - a prescription for disaster

From State of Fear by Michael Crichton. Page 482.
"You're playing with words."

"Hardly. Is changing the world to suit one's purposes unnatural?"

"Of course. It is interfering with nature."

"Ever seen a termite mound? A beaver dam? Those creatures change the environment dramatically, affecting many other creatures. Are they interfering with nature?"

"The world is not in danger," she said, "from termite mounds."

"Arguably it is. The total weight of termites exceeds the total weight of all the humans in the world. A thousand times greater, in fact. Do you know how much methane termites produce? And methane is a more potent greenhouse gas than carbon dioxide."

"I can't continue this," Ann said. "You enjoy arguing. I don't. I just want to make the world a better place. I'm going to go read a magazine now." She went to the front of the plane and sat down, her back to Kenner.

Sarah stayed where she was. "Her intentions are good," she said.

"And her information is bad," Kenner said. "A prescription for disaster."

[snip]

"I think you're being harsh," Bradley said, in his presidential tone. "Why should you call someone like Ann a prescription for disaster?' She cares very much about these issues. She has devoted her life to them, really. She cares."

"So what?" Kenner said. "Caring is irrelevant. Desire to do good is irrelevant. All that counts is knowledge and results. She doesn't have the knowledge and, worse, she doesn't know it. Human beings don't know how to do the things she believes ought to be done."

I Got You Babe by Sonny and Cher.

I Got You Babe by Sonny and Cher.


Double click to enlarge.

I Got You Babe
by Sonny and Cher

They say we're young and we don't know
We won't find out until we grow
Well I don't know if all that's true
'Cause you got me, and baby I got you

Babe
I got you babe
I got you babe

They say our love won't pay the rent
Before it's earned, our money's all been spent
I guess that's so, we don't have a plot
But at least I'm sure of all the things we got

Babe
I got you babe
I got you babe

I got flowers in the spring
I got you to wear my ring
And when I'm sad, you're a clown
And if I get scared, you're always around

Don't let them say your hair's too long
'Cause I don't care, with you I can't go wrong
Then put your little hand in mine
There ain't no hill or mountain we can't climb

Babe
I got you babe
I got you babe

I got you to hold my hand
I got you to understand
I got you to walk with me
I got you to talk with me
I got you to kiss goodnight
I got you to hold me tight
I got you, I won't let go
I got you to love me so

I got you babe
I got you babe
I got you babe
I got you babe
I got you babe
I got you babe
I got you babe
I got you babe