Comments on: Summers’s incentives A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: Juan1 Wed, 03 Nov 2010 04:34:18 +0000 “Tendencies to pick up the opinions of people around you and to follow the thought of eminent leaders are not responses to incentives as the concept is used in economics.”

Then maybe you have to redesign the “science” of economics to include more Shakespeare.

“But my friends said 1+1=3!!”

By: Dollared Wed, 03 Nov 2010 00:19:03 +0000 I offer two contributions: one is to note that Felix truly should be proud of this thread – the comments are extraordinary and I would be proud to meet any person on this thread and continue this conversation.

The second is that this is truly a complex problem, as RobertWaldman points out. There is an element of pure, pleasant social compliance. There is an element of natural selection, as it is natural to select people who think the same way as you for advancement and rewards, and that is not about “incentives,” and at the same time it concentrates the rewards in the hands of people like Greg Mankiw and Larry Summers. I also think that there can also be an element of conscious self-manipulation, to find it more likely to get invited/published/quoted to agree, and that is an “incentive.”

But I also think there is a change in culture, one that I have certainly seen since the 1980s. And that is that independence of thought and reputation for honesty is truly less valued. I would argue that there is a subtle, uh, Malthusian effect – there are plenty of people to replace me if I cause a ruckus at work, and there are fewer tenured positions at Universities, etc, and finally, there are loan officers who will outearn me if they don’t care about processing liar loans, and investment bankers who will outearn me – and replace me – if they bundle up bad mortgages and put lipstick on them when I won’t. And of course, there are reporters who will replace me if I can’t find Sarah Palin as endlessly fascinating as some of my readers do.

The values of integrity and trust, and independent judgment, are simply valued less today. I would argue that this, too, is another miracle of our greatly expanded market economy.

By: robertwaldmann Tue, 02 Nov 2010 22:34:57 +0000 Oh and how exactly does one get from being mentored by Rubin to opposing a Tobin tax ? My anonymous source says that Rubin expressed interest in how to make a Tobin tax work when he was chairman of the NEC.

Also speaking of Summers dismissing warnings about new financial products you do know that he said Rubin’s views on new financial instruments were like telling people they had to play tennis with wooden rackets. Not as rude as the word “Luddite” but hardly polite.

By: robertwaldmann Tue, 02 Nov 2010 22:31:16 +0000 This post is very strange indeed. The word “incentives” and the names of economists appear in the title, but the post does not seem to involve any consideration as to what economists might mean by incentives. We do not refer to anything which might influence action. We refer to the effect of the future consequences different actions on a choice.

Regulatory capture as described here would *not* be called an incentive. Importantly, behavioral economists argue, among other things, that incentives are not the only explanation of action. Note this is a new appraoch and, while no longer widely rejected as heterodox, most economists generally consider it irrelevant to their work.

Do I mean to say that most economists think that actions are a function of their consequences and nothing else (including the difference between perceived and actual consequences). Of course not. But most economists assume that is a good first approximation and then go on as if they did believe that crazy extreme view.

Tendencies to pick up the opinions of people around you and to follow the thought of eminent leaders are not responses to incentives as the concept is used in economics. I think that the only way to reconcile this post with its title is to argue that all action must by definition be the effect of incentives. That makes the claim tautological and robs the word “incentive” of all useful meaning.

Also have you ever met Larry Summers ? He is not a go with the flow kind of guy. He tends to debate everything so when among economists he can say that basically all of economic theory is a big mistake. I quote him “I think the day in which they came up with the idea of the utility function was not an especially good day in the history of economic theory.*” Then at the World Bank he signs memos about how there isn’t enough pollution in developing countries, because the lives of people in developing countries are worth less than the lives of people in developed countries (his instructions to the memo writer were to write as an economist haters parody of an economist).

Rubin wasn’t his first mentor you know. Before that it was Martin Feldstein. Some of Summers very good very early work was proof that Feldstein was full of it.

I have no idea how Summers got so confused about finance and incentive contracts. When I knew him, he was advocating a Tobin tax. But I don’t think it had to do with incentives in any meaningful way and I sure don’t think it had to do with group think, going with the flow or anything like that.

*This quote is from memory and I was one of two people there. I can’t provide any independent evidence that Summers said that. I am quite confident that I am the only person who remembers the event and I definitely mean that I’m sure Summers has long since forgotten saying that.

By: Juan1 Tue, 02 Nov 2010 19:20:37 +0000 “there is nothing unique about economists. everyone wants to kiss the ass of the people above them hierarchically.”

That’s the point isn’t it. If you call yourself a serious intellectual you don’t kiss anybody’s ass, ever. And now intellectuals supply the idealist’s quantified Platonist theory of other people’s ass-kissing. Who needs history (even your own[!!]) when you have reason?

When my mother’s first husband went to work in the White House his friends called him a sell-out: he’d abandoned the life of the mind, thrown disinterested reason out the window. His response as far as I can tell was that hacks were necessary in this world. And they are. But he ended up pitching the Great Society and the Vietnam war. Call it a mixed bag.

Now technocratic banality is the ideal. This blog is part and parcel technocratic culture. Anyone who doesn’t give a rats ass about the market one way or the other would call this post rediscovering the given. Everybody fantasizes their own stable foundations. You don’t have to call it religion, just call it faith. DeLong and Summers are liars who believe their own lies. And this is shocking?
What’s the meaning of life Brad? Felix? Progress? Faster? Towards what?

The firsts rules for any technocrat are or should be should in the twin facts that life is pointless and the people are stupid; and the first principle is of limiting harm. Beginning with these you begin to construct the parameters of a system of flexible authority. But expertise is no replacement for maturity. Mathematics is useless if you don’t have a Shakespearean understanding of life and people. The greatest technocrats would rather be doing other things. Are there any adults in the room?

God save us all from businessmen who call themselves moral. No wonder I spend all my time with drug dealers and arms merchants. “Morality is for other people, I have a job to do”

Their clarity of purpose is strangely calming.

By: bwickes Tue, 02 Nov 2010 19:07:55 +0000 I think you need to read Summers comments. He did not say Luddite. He said “lead-eyed premise.” Not the same thing. Why not read something before pronouncing.

By: dowty Tue, 02 Nov 2010 18:24:41 +0000 It is not necessary to assume that economists such as Summers do not sincerely believe in the same things as the commercial interests their policies favor. The economists who do not believe in those things will simply not be supported for office or given money for themselves. This sort of preference is often invisible to those who receive it. On the other hand there is no reason why self-interested individuals would not deliberately slant their “academic” views even without prepayment, in the expectation of rewards later.

Anyway, to a physical scientist – or anyone who observes the absurd and contradictory things spouted in the name of economics – the idea that there is no self-interest or other outside influences in the “science” of economics is laughable.

By: maynardGkeynes Tue, 02 Nov 2010 18:13:29 +0000 Whenever I see Larry’s rather ample frame on TV talking about joblessness, I’m always reminded of these lines from WH Auden:

“When he ordered a jacket, the New England mills.
For months had no more unemployment ills.”

By: robertogreen Tue, 02 Nov 2010 16:51:49 +0000 there is nothing unique about economists. everyone wants to kiss the ass of the people above them hierarchically. it results in the following: a higher salary, a better job, a nicer house, kids at a better private school (or moving to a neighborhood for a better public school).

this is why people sell out (or, quote a movie i worked on, “i didn’t sell out son, i bought in. i bought in.”). our society has been poisoned by this set of facts. the worst have risen to the top of most of our key sectors in our plutocracy, we have moved quickly from the plutocracy to the inevitable kleptocracy, and the rest of us now have to kiss the ass or suck the dick (never confuse the two, as roseanne once sagely observed!) of thieves and scumbags. and yes, larry summers is both. he’s a terrible person. it may be hard from brad’s cocoon of like-minded liberalism in berkeley and in academia (NB: i’m from a liberal college town and am politically very left–i know whereof i speak) to understand, but questioning the motives of our alleged betters is not necessary–they are all venal and base. period.

anyway, i do hope that whatever it is that that people like brad and other a-list economists want is what they get for being useful idiots.

By: Juan1 Tue, 02 Nov 2010 16:46:23 +0000 How many times have I said this:
Academics construct models of social and economic self-interest. But for those who call themselves “liberal” these models go side by side calls for “objective” “responsible” and “serious” journalism and the defense of “reason” by which I can only assume they mean “disinterested” reason. The cognitive dissonance gets to be annoying.

Is reason the acceptance of simple self-interest or the promulgation of an academic ideal of collaborative sociability? Idealism or realism, and the rigors of competition? I prefer reason, but reason says greed is inevitable but stupid: useful only in its side effects. And anyway the useful thing isn’t greed but simple fear. it keeps you on your toes.

I’m a socialist and a pessimist so there’s no contradiction. But DeLong imagines himself an idealist even as he defends the glories of cardboard tomatoes for the masses. Hypocrisy is more corrupt than honest indifference.
Q: How can a liberal idealist be a realist?
A: If it’s only others who can’t be trusted.

To the pure all things are pure. Technocracy is not democracy. But geeks like technocracy. Shiny happy monads. My kingdom for an adult conversation.