Eric Rasmusen’s Weblog

I was thinking on the way into work of how in modern America a man who wishes to father children without providing for their upbringing can count on pretty much the same survival-to-reproduction-age rate as one who does care for his children. That makes such a strategy a winner, evolutionarily. It means, though, that if such a strategy is genetic (or even transmitted merely by imitation of one’s genetic father), the fraction of provider fathers will shrink. If it shrinks far enough, then the survival rate for “cuckoo” children falls. An interesting question is what happens then.

Let’s depart from the realistic context now, to simplify. This is very much like an Altruist-Imitator model in biology. I wonder if such models have looked at the possible ultimate extinction of the species?

Here is how one might set it up. There are two types of agents, Nf Free Riders and Nw Workers, who cannot be distinguished. Workers each generate V in output. Output is shared equally, so each agent’s consumption is C= NfV/(Nw+Nf). Reproductive success depends on consumption. Each agent has g(C) offspring, where g’>0, g”<0, and, crucially, g(Cbar) < 0 for the subsistence consumption Cbar.

In that model, the Free Riders would increase in population relative to the Workers. Both might increase in absolute terms at first, but eventually the Worker population would start to decline, and at some point the Free Riders too. Once the number of Workers per Free Rider fell below some key level, the species is doomed and the population will shrink to zero.

The evolution of Machiavellian intelligence is related to this. Sexual selection means that it is useful for a man to be able to seduce women, pretending to be a Worker when he is a Free Rider–w hat I might call “offensive Machiavellian intelligence”. But it is equally important to be able to detect Free Riders– “defensive Machiavellian intelligence”. If this second type of intelligence does not develop, the first type will kill off the species. If both exist, they can survive forever in equilibrium, at least if defensive intelligence has some reproductive cost.

Update: A colleague tells me the idea below is developed in a classic 1993 paper: “Risk Management: Coordinating Corporate Investment and Financing Policies,” Kenneth A. Froot; David S. Scharfstein; Jeremy C. Stein The Journal of Finance, Vol. 48, No. 5. (Dec., 1993), pp. 1629-1658.

For some reason the novel The Man with the Golden Arm was drifting through my head, and I started thinking about bookies laying off risk. Why would they want to sell off half of a big risk? Is it concave utility? No, more likely it is because if they did lose a lot, their capital would be too small and they’d have to go out of business. This suggests a reason for risk aversion that I haven’t heard of before: the bankruptcy constraint.

Actually, this reason is well known, perhaps, in a different context: the illiquidity costs of a business in distress. A business near bankruptcy finds that it cannot borrow, or even get trade credit. This could apply to individuals too. If your wealth gets too small, you can’t pursue profitable opportunities.

Let’s think about how to model that. A risk neutral person has wealth K. There are two periods. In period 1, the person has a choice between the safe project, which costs 1 per unit and returns (1+r) per unit, and a risky project, which costs I and returns either 0 or (2+2v_1)I with equal probability. In period 2, the person has a choice between the safe project, which costs 1 per unit and returns r per unit, or a risky project, which costs I returns either 0 or (2+2v_2)I with equal probability.

Assume that (1+r) (K-I) < I, so if the person chooses the risky project in period 1 and loses, he cannot choose the risky project in period 2.

This has a combination of bankruptcy constraint and option value effects.

CASE 1. r=v_1=v_2. No borrowing allowed.

The person is indifferent as to what he does, because of his risk neutrality. He would be willing to choose the risky project in period 1, in particular.

CASE 2. r < v_1 <v_2. No borrowing allowed.

Now if v_2 is big enough, but not if it is just a little bigger than v_1, the person will reject the risky project in period 1, because he would rather take a shot at the risky project in period 2.

CASE 3. r <v_2 <v_1. No borrowing allowed.

Now the person will take the risky project in period 1, since it has the highest return.

CASE 4. r < v_1 <v_2, Borrowing allowed.

Now the person will take both risky projects, borrowing in the second period if he has to (at a high interest rate perhaps, given the high probability that he will default).

My conclusion is that if someone expects to have unusually great investment opportunities in the future– but opportunities limited, yet available given his current capital– then he will act today as if he were risk averse.

This actually does have big implications for corporate finance. I ought to write it up, as well as my extension of my old mutual banks idea to family corporations.

Byron York at National Review has an astounding fact for us.

Although Democrats often maintain that their unprecedented outside-the-party campaign against President Bush last year, led by the so-called 527 groups, was a broad-based, grassroots effort, it was, in fact dependent in substantial part on just five donors: financier George Soros, Progressive Insurance chairman Peter Lewis, Hollywood mogul Stephen Bing, and the California investors Herbert and Marion Sandler. Together, they spent about $78 million in the effort to defeat the president– more than the $75 million in federal funds that each presidential candidate received to conduct his entire general election campaign. (It was also more than twice what the late-starting top five Republican 527 donors spent on their side.)

Is it good that millionaires can dominate campaign spending in this way? It’s probably good that they be allowed to spend the money, but if so, why bother with all the regulations?

The Chronicle of Higher Education reports on how important it is to teach economics well to our students:

Iraj Hashi has supervised enough students as director of the economics Ph.D. program at Britain’s Staffordshire University to know when someone is angling for an extension. So when a fourth-year doctoral candidate, Fatmir Besimi, took him aside in November at a dinner party, Mr. Hashi had an inkling of what to expect.

“He came and said, ‘I have some bad news for you,’” Mr. Hashi recalls. “Usually bad news for me is anything that interrupts a student’s work.” But Mr. Besimi’s excuse was both unexpected and unprecedented. He had been asked by the new prime minister of his native Macedonia to join the government as minister of the economy.

Of course, Mr. Besimi will have had both better and more up-to-date training than most finance ministers in the world.

I wonder what the best place in the world is for flowering trees? Bloomington, Indiana might well be it. Certainly it is beautiful right now. I was out with the children this afternoon mushroom hunting, and though we found no mushrooms, it was was amazing to see the pink redbuds and white dogwoods in the forest, not to mention the planted crabapples, magnolias, plums, and cherries we saw on the drive out.

The reason I think southern Indiana might excel in this form of beauty is that we are far enough north to have real winters, but just barely. Thus, fruit trees do well here, but magnolias can survive too. Moreover, right now we have the backdrop of a mostly leafless forest combined with the hint of opening leaves and underwoods shrubbery that is absolutely necessary to get the full effect of flowering trees. The great thing about redbuds is that they grow on the edge of a forest, and behind them are the bare branches of the bigger trees. The great things about dogwoods is that they grow in singletons in the middle of the forest, and suddenly you see white flowers when all around is desolate.

I cannot claim more than latitude, of course. Southern Illinois, Southern Ohio, and West Virginia– the Copperhead belt, in fact– is probably just as good. Perhaps Japan is even better, since it has volcanic rocks and the ocean to help the backdrop– and South Korea ought to be equally good. It is no accident that Japan has the excellent custom of Viewing the Cherry Blossoms. Did the geography cause the aesthetic? We lack it in Indiana– we look down at the morels rather than up at the redbuds– but we are a young country, after all.

Baylyblog reports extraordinary news about liberal theologian Judy Brown’s no-contest plea to charges of trying to murder another minister (and benefactor) with a crowbar in furtherance of a lesbian affair.

As we discover from Pastor Bayly’s blog, this has delayed the publication of what was to be the definitive work reconciling evangelicalism with feminism, Intervarsity Press’s Discovering Biblical Equality Gender Complementarity Without Hierarchy. An old prepublication link, noting Judy Brown’s name in the list of contributors, is here. Doug Wilson notes that the sentencing was in March 2004 and the first edition was published in October 2004. (See here for more). Intervarsity Press says it just found out about this in April 2005, and they sure do act quickly. The first edition is no longer available, and a second edition, without Judy’s Brown’s chapter and with, it seems, a new chapter 25 on “Marriage as a Partnership of Equals” will appear in July 2005. Will it talk about how women, too, can use a crowbar to jimmy apart one marriage and start a new, lesbian, one? (The image is odd, but no doubt the images in the deleted chapter, “God, Gender and Biblical Metaphor,” were equally odd.)

Does this one case say anything about feminist writers? Yes. It of course does not say that they are all murderers, or all lesbians. Rather, it is one more piece of evidence to add to our general knowledge about them. A common idea is that a person’s theology is related to their behavior. I don’t know if I should call that a conservative idea, or if saying that liberals disbelieve the idea would be unfair to them. A corollary is that if a person departs from the Bible in one sphere of their life, they will depart in others. The general prediction would be that theological liberals will have a greater tendency (not necessarily “great”, but “greater”) to indulge in rumor-spreading, adultery, perversion, and murder, other things equal. To see if this prediction is correct would require data we don’t have. It would be interesting, for example, to compare the tax returns of the authors of the conservative authors of the chapters in Recovering Biblical Manhood and Womanhood and the liberal authors of the reply book, Discovering Biblical Equality Gender Complementarity Without Hierarchy and try to detect the extent of cheating. But in the absence of data, we accept what we have.

Here are some excerpts from the newspaper story. Note that Judy Brown lived next door to the Smarts, and had lived in the same house with them earlier.

The only thing standing between the Rev. Judy Brown and a future with Toby Lynn Smart was Smart’s minister husband, so Brown came up with a chilling plot to kill him.

That’s how Salem Commonwealth’s Attorney Fred King would have argued the case, anyway, had it gone to trial. Instead, Brown entered two Alford pleas Wednesday, meaning that she admitted no guilt but acknowledged that prosecutors would likely have proven the charges.

The Rev. Judy Lynn Brown, 51, was charged with breaking and entering with intent to commit murder and malicious wounding in connection with a crowbar attack on Edwin H. “Ted” Smart in his dark basement last summer. …

After the Smarts’ son left for school that morning, the minister was left alone in his house.

The power went out so Smart went down to the basement to check the fuse box, Clayton said. Smart was then struck on the back of the head by someone wielding a crowbar.

Clayton said Smart went to his knees, then stood and turned around to see Brown there. He was struck two more times before he was able to wrestle the crowbar away, run upstairs and call the police.

Clayton said Smart was bleeding from the head when officers arrived and Brown was in the front yard complaining of back injuries. Officers who searched the Smart home found a Wal-Mart bag in the basement kitchenette . The bag contained a large outdoor trash bag, a long knife, three pairs of latex gloves, a flashlight, a bottle of water and a washcloth , Clayton said.

A crowbar found in the basement did not belong in the house, Clayton said, nor did some of the other items. Also found was a large butcher knife belonging to the Smarts that had been removed from a drawer in their kitchen and placed on the counter upstairs.

King said someone would have had to enter the house upstairs in order to get down to the basement apartment.

Brown told police after the attack that she had seen “a black male on her property and she had scared him off,” then went to the Smarts’ house, where she let herself in with a key and fell asleep in the basement.

The failure of the attack is typical. No conservative would engage in premeditated murder using just a crowbar— and then have it wrestled away from him even after successfully surprising the victim. How many feminists does it take to skullcrush a pastor?

Updated on April 19, 2005.

From “Bicycles for the Toddler Set,”WSJ 14 April 2005, page D4, I discover that:

According to the federal government, about 13% of children walk or bike to school today, compared with 66% in 1970.

This is a major change in childhood. What is its effect? I don’t know. One of my early memories is of my mother showing me where to make the one turn I needed to make to get to school as a kindergartener, at Coler and California streets. I fondly remember walking to school each day, often with Ricky Schult, the smartest boy in the class, who lived a block away from me. Often, we’d walk through alleyways, and it was fun to see the little rivers and deltas that the rain would make in the dirt.

“Gay rights observed in silence; Three North students disciplined for opposing Day of Silence,” goes the headline in the Bloomington Herald-Times of April 14 (p. C1). Here’s part of the story (on the web perhaps, but only in the pay section of the newspaper):

“A male student was suspended Wednesday for making inappropriate comments.

Andrea Mobley, assistant principal at North, did not say what the comments were, but said it was not the student’s first offense.

Two other students expressed opposing views with the messages on their T-shirts. “God made Adam and Eve” was printed on the front with “Not Adam and Steve” on the back.

The two female students were sent to Mobley’s office. After a few hours, they agreed to put on their coats to cover the backs of their shirts, the message on which had offended some students. The dress code at North prohibits anything that singles out a particular group.

I’ll no doubt be posting more on this, as it seems to be blatant viewpoint discrimination, with, ironically, the school authorities silencing those students who bravely oppose vice.

Jay Nordlinger has an especially good column at National Review today. The comments below on Congressman Rangel are just one of several gems:

Bear in mind that Charles Rangel is not some street-corner ranter. He is a member of the U.S. Congress, and the ranking Democrat on the House Ways and Means Committee. If his party wins a majority next year, he will be chairman.

Rangel gave a speech about Social Security before black retired workers outside New York’s City Hall. Meghan Clyne of the New York Sun reports:

. . . For black Americans, the congressman added, the struggle against the proposed changes in the entitlement system was “not only a civil- rights fight, but a fight for America.” Mr. Rangel called on African-Americans to continue their “missionary” work against the Social Security proposals and likened the effort to his marching with Martin Luther King Jr. from Selma to Montgomery.

“We have to get rid of the bums that are trying to take it away from us,” Mr. Rangel said of the Social Security system, referring to Republicans in Washington and City Hall — “people who sleep with Bush, Cheney, Wolfowitz , and the rest of them.”

A member of the City Council from Brooklyn, Charles Barron, joined Mr. Rangel in urging African-Americans to stand against alterations to the system. “It’s bad enough they won’t pay us our reparations,” Mr. Barron, who for a time was seeking the Democratic mayoral nomination, said. “Now they’re trying to take away our Social Security!”

Neither Mr. Barron nor Mr. Rangel detailed at the meeting why the president’s proposals were harmful to the black community. When asked for specifics by The New York Sun after the event, Mr. Rangel said, “The progressive nature of being able to get returns means that lower-income people benefit more than higher- income people” from the Social Security system. Since members of minority groups disproportionately constitute the lower income brackets, the congressman said, they stand to lose the most from Mr. Bush’s efforts — which the congressman labeled “fraud” and an “impeachable offense.”

That every issue is a civil right issue is old news– similar to every issue being a race issue in the pre-1960 South. The most interesting parts of this are the suggestion that proposing Social Security reform is an impeachable offense (and remember, this is a senior, very powerful, leader of the Democratic Party, not an ordinary kook), and the sliding in of the sinister Jewish animal.

I happened across a copy of the famous 1991 Larry Summers “toxic waste” memo, which starts

‘Dirty’ Industries: Just between you and me, shouldn’t the World Bank be encouraging MORE migration of the dirty industries to the LDCs [Less Developed Countries]? I can think of three reasons:

1) The measurements of the costs of health impairing pollution depends on the foregone earnings from increased morbidity and mortality. From this point of view a given amount of health impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages. I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that.

It still makes sense today, and your reaction to it is a good sign of whether you understand economics, or, indeed, logic.

Herbert Meyer’s “Doing Intel Right The right people can overcome structural flaws,” is very very good on how to run the CIA, though the article refutes its own premise that people count more than structure. The two are linked, though, and really what Mr. Meyer is arguing is that Reagan’s director, William Casey, was good at setting up structure and Clinton’s directors were not. Here are some good bits:

My job was to manage production of these estimates, and one day early on Casey issued these instructions: “Look, I want the president to see where we disagree and to understand what the argument is about. Sometimes these guys at the Defense Intelligence Agency have a very solid point but they don’t say it very clearly. They’re soldiers, not wordsmiths. When they come in with a dissent, you go meet with them. Understand what they’re driving at, then write it yourself and clear it with them. Then let’s put the dissents in italics in the estimates so that no one can miss them.”…

Even with all this, it’s possible to go wrong because we humans have a tendency to hear what we want to hear and to filter out whatever doesn’t suit us. So we had an internal “fail-safe” system to minimize the chances that we would be so much in love with our own judgments that no inconvenient fact could stop us. It was called the senior review panel (SRP) and it was composed of four savvy and immensely experienced individuals whom Casey had cajoled out of retirement to lend a hand. Among the four — membership in the SRP changed over time, of course — were one of the State Department’s most revered career ambassadors, an Army general who had spent much of his active-duty service in military intelligence, and a former CIA officer who knew his way around the ultra-secret world of satellites and electronic intercepts.

Meetings with the SRP were among the most contentious, verbally violent meetings in which I’ve ever participated. The SRP members weren’t building careers so they didn’t care whom they offended, and they never let anyone forget that they were busting their chops solely to keep the intelligence community from screwing up. When they thought we had our heads up our rear ends, they said so. And they were usually right.

The SRP also weighed in on the estimate draft — saying, for instance, that our judgments weren’t supported by the evidence, or that we were relying too much on one super-secret source whose credibility the SRP doubted….

Here’s how the intelligence business really works: You start with a hypothesis, which is a leap of imagination based on your expertise, your judgment, and your “gut-feel” about what you think is really going on. Then you figure out what you would expect to find if your hypothesis is correct, and you convey all this to the collectors so they can get to work.

A couple of National Review article recently have been on the topic of how to influence intellectuals, one on Princeton’s Madison Program and another on the Olin Foundation. The Madison Program (Robert George’s outfit) is an example of an island of conservative thinking akin to the Women’s Studies departments that exist on the Left. The Olin Foundation is famous as a foundation that its founder ordered to use up all its money within one generation so as not to pervert it to purposes he would abominate.

Nationalism is not altogether natural, unlike the desire of people to be happy and prosperous. Usually people prefer good government to either self-government or government by rulers of their own race. This is obscured by the natural desire of some people to be rulers and oppress their fellows, which causes them to claim that everyone wants them to be rulers, not some foreigner. Josephus’s Antiquities of the Jews has a speech by one Nicolaus advocating for the Jews the right to keep to their own law and customs under Roman rule:

Is there any people, or city, or community of men, to whom your government and the Roman power does not appear to be the greatest blessing? Is there any one that can desire to make void the favors they have granted? No one is certainly so mad; for there are no men but such as have been partakers of their favors, both public and private; and indeed those that take away what you have granted, can have no assurance but every one of their own grants made them by you may be taken from them also; which grants of yours can yet never be sufficiently valued; for if they consider the old governments under kings, together with your present government, besides the great number of benefits which this government hath bestowed on them, in order to their happiness, this is instead of all the rest, that they appear to be no longer in a state of slavery, but of freedom.

Now the privileges we desire, even when we are in the best circumstances, are not such as deserve to be envied, for we are indeed in a prosperous state by your means, but this is only in common with others; and it is no more than this which we desire, to preserve our religion without any prohibition; which as it appears not in itself a privilege to be envied us, so it is for the advantage of those that grant it to us; for if the Divinity delights in being honored, it must delight in those that permit them to be honored.

Such was British colonial rule in Africa compared to the rule of the oppressive liberators who came after.

I was just editing someone’s paper on French fries and came across this cute typo.

“The final step for preparation simply reheats the fries. This had led to the emergence of French fires on the American market as the most popular form to consume the potato.”

Economic Principals is a good site for economics gossip. See the very interesting post on Summers at Harvard. The author thinks Summers’ presidency has not been successful, but he doesn’t say why, so I would discount all of that. Complaints from students about professors and about college presidents from professors both can be a sign either of unusual failure or unusual success. Even leftwing professors are conservatives at heart, in the sense that they hate change.

Professor Bainbridge refers me to this depressing debate between James Glassman and Tyler Cowen at Reason magazine. Why depressing? Because I’m more libertarian than the libertarians, it seems (see a short post on my views here). In their principal magazine, both sides in a debate support Social Security- and the only disagreement is on how do it. Both writers agree that we should preserve the current high levels of taxation for many years, and even after a transition period we should put everybody’s retirement under massively intrusive federal regulation.

Says Glassman:

• Guarantee the benefits of everyone now getting them, as well as others on the brink (say, those 55 and older).
• Gradually index future benefits to inflation, rather than wages, and increase the retirement age (currently 65 for those born before 1960, 67 for those born afterwards) by another year or two.
• Allow those under 55 to opt out of the current system by investing up to half of the retirement part of their payroll taxes (which totals roughly 10 percent of pay, including both the employee and employer contributions, for middle-income Americans) in an account with mandatory provisions that would restrict investment choices and require phased withdrawals starting perhaps at age 60 or when sufficient funds are acquired.

Says Cowen:

I agree with James Glassman’s first and second suggestions, namely that we should guarantee benefits for the current elderly and gradually index future benefits to inflation. The latter proposal would cause benefits to rise at a slower rate than otherwise, since current benefits are indexed to wages rather than to prices. It also would suffice to bring the system into future fiscal balance.

But here we begin to differ. Glassman proposes new private but government-regulated accounts. My alternative proposal is simple: Keep the limits on benefits but do not create the new system of accounts.

Both of these proposals are big improvements over the current system, I would agree, and I would not be displeased if I saw Democrats in the New Republic making such proposals. Nor would I be unhappy if I saw President Bush making such proposals, I suppose. Indeed, they are more daring than what he is talking about now.

But these are intellectuals writing for a libertarian magazine. They are taking positions as advocates of the Welfare State, with the New Deal Democrats and as supporters of Roosevelt and Bismarck, not Coolidge and Gladstone. Both of them like heavy government regulation of retirement investments– they just want to fine-tune the present system and restore it to solvency. This is the essence of Rockefeller Republicanism– do the same thing as the liberal Democrats, but do it more competently and honestly. In my college days of the late 1970′s, our political club was split between the admirers of Rockefeller and the admirers of Goldwater, with the true libertarians, of the heroin-in-vending-machines ilk, in a different club altogether. Now, the libertarians have become Rockefeller Republicans, it seems.

But what about political viability? Well, what about it? I am not talking about what Congressmen, but about intellectuals. Intellectuals don’t have to get re-elected, and don’t have to make compromises to get a majority of elected officials for their position. They are free to honestly say what they think is best, and to try to sway the public debate by saying what is true, not what is appealing. In the debate over Social Security, moreover, both the Cowen and Glassman proposals, moderate though they are, are completely impractical politically. Remember, President Bush hasn’t dared float any proposal even as reformist as theirs, and the ideas he has floated have met with a lukewarm reception in his party. *Any* reform is impractical here. It won’t happen until the train wrecks, or until intellectuals persuade the average voter that reform is needed.

In the Schiavo Affair, the courts of Florida and the 11th Circuit fought the authority of legislature and Congress. I didn’t follow the Florida parts of this carefully, but what happened in 2005 seemed to be that the 11th Circuit was unwilling to call the Congressional bill unconstitutional (and unable at that stage, procedurally) but ignored or willfully misinterpreted its key de novo provision. What response is appropriate?

A good first step would be legislative hearings, on both the State and Federal level. In Congress, the House Judiciary Committee could hold hearings on the subject of judicial misbehavior and what should be done about it. The Chairman could invite prominent scholars, including some who would advocate impeachment as a solution, others who would advocate more careful judicial appointment, and others who would advocate repetitive legislation of the kind that the courts ignored. Some scholars would testify as to exactly what the courts did, and how the judicial rhetoric conceals disobedience to the law.

The judges who were involved would also be invited to appear before the Committee. I don’t know enough about the procedure of hearings to know whether they should be compelled to appear by subpoena, but even if not, they should be invited to appear voluntarily, just as officers of the executive branch are invited to appear.

Most likely no legislation would appear at the end of this process, but the effect on public and judicial opinion would be good.

To dress up the truth well, you need to see it naked first.

The 2 Blowhards give me a new word, Detournement, in a long post on the Whole Earth Catalog:

Turning browsing into a positive was was a piece of radical detournement. Aha, a word from the past! Detournement was a phrase much used circa 1970. It’s French, and it literally means de-turning; what it was used to mean was taking something that was meant for one purpose and putting it to use for other purposes. The form of the catalogue, for instance. Catalogues were used to sell products. Stewart Brand and his associates took the catalogue idea and asked: Why not use a catalogue to make interesting stuff available?