Going To Harvard This Fall? Stick To Science & Math - Not Subjective Indoctrination Majors- Like Economics!

Harvard Astronomy Chair Avi Loeb making observations at the Harvard U. Observatory

WSJ op-ed columnist Peggy Noonan ('Kids, Don't Be Success Robots', March 16-17, p. A13)  was correct when she advised:

"My advice to students still considering college in the year 2019: Avoid elite universities if you can.  They're too often indoctrination mills anyway."

Well, let's amend that a bit. If you are lucky enough to have secured entry to Harvard this fall - say to study astronomy - you are doubly fortunate.  The reason is you will experience  actual inquiry over indoctrination.. Prof. Avi Loeb achieved some renown on the basis of his co-authored paper appearing in Astrophysical Journal Letters in November — thrilling E.T. enthusiasts and upsetting the  skeptical stuffed shirts and purists in the halls of space academia. In other words, upsetting those more indoctrinated than inclined to do actual open inquiry., which is what professional astronomy should be about.

 Recall in my post on Loeb's critics last month  I cited one popular astronomer - the late Carl Sagan - who actually expressed regrets (to Dr. J. Allen Hynek) he had not been more open about accepting the reality of UFOs.  Sagan had admitted to Hynek that he really did accept the validity of UFOs but "couldn't admit it in front of colleagues."  See e.g.

https://setiathome.berkeley.edu/forum_thread.php?id=76926

Such is the hallmark of genuine inquiry in that one can admit one is or was wrong, either in one's previous research or previous attitude to some object of inquiry.

Contrast Prof. Loeb with another Harvard prof, Martin Feldstein who - it can be argued - is more invested in indoctrinating his Ph.D. students with the codswallop of modern Pareto-based economics.  Recall, in Pareto economics "Pareto efficiency" rules and the  basic premise is that each dollar of a rich man is worth much more than that of a poor man. Hence, any transfer of money from rich to the poor hurts the rich man much more than any poor man.   

Such a template was invoked by Feldstein some years ago when he argued that ordinary folks ought to be paid money not get expensive medical screening tests, such as colonoscopies.  Indeed, Feldstein argued that given there is no way the ordinary patient could afford to pay out of his pocket for such a test (usually $3,500- 4,000) then it makes more sense to pay her to take a hike. To fix ideas: 

 If the insurance paid part is $3,000 (while the patient's reservation price is $2, 500) it makes more sense to give the prospective testee $2,499 NOT to get the colonoscopy, than to let her get the test and consume valuable specialist time and resources via $3,000 subsidy. 

(Note:  The reservation price for a given  product or service is just the maximum price a person is willing to pay. So, if I have a 1954 Henry Aaron TOPPS baseball card (now with a very high book price) and I offer it to you for sale, and ask what the top price is that you'd pay, if you respond "one hundred dollars" then that is your reservation price.)

The same scheme can be carried over to environmental considerations, especially say, in implementing global warming regulations or fuel taxes to alter behavior - say to cut carbon emissions. Since - according to Pareto economics -  the lives of all the poorer segments of the populace are worth less in terms of their dollar use (i.e. their "utils") then those like Feldstein would always argue to allow more of them to perish from climate-caused catastrophes than to cause harm to the rich.  The latter by exacting carbon costs which will upset the commodities and stock markets, and whole economies.

Now in his latest WSJ op-ed ('The Debt Crisis Is Coming Soon',  March 21, p. A19)  Feldstein continues his Pareto efficiency shtick as the be-all, end-all to the U.S. exploding debt problem. At the top of his hit list is, you guessed it, "entitlements", i.e.

"Thus the only option is to throw the brakes on entitlements.  In particular, the government needs to hold back the growth of Medicare, Medicaid  and Social Security."

Why does he argue thus? Well because of the metastasizing debt.   As Marty is wont to complain (ibid.):

"According to the Congressional Budget Office, the deficit this year will be $900 billion, more than 4 percent of gross domestic product.  It will surpass $1 trillion in 2022.  The federal debt is now 78 percent of GDP.  By  2028 it is projected to be nearly  100 percent of GDP."

But in fact, "part of the increase in the deficit was attributable to the shift in timing of certain payments, which made the deficit appear larger.  If not for those timing shifts the deficit would have risen only 25 %  from the same period in 2018." (WSJ ,   March 23-24, p. A4).

Apart from that, let's bear in mind the 2017 Trump- GOP tax cuts added nearly $1.5 trillion to the deficit by itself.  ("The tax code overhaul in 2017 had constrained federal revenues over the past year." - ibid.)   It was evident from the time this trash was passed the GOOPs would need to find ways to make up for the losses, so have focussed  on cutting Medicare ($845b in Trump's recent budget, and gutting the ACA - which would toss tens of millions off their health care.)

So how does Feldstein propose to deal with these entitlements? His plan emphasizes (ibid.):  "Raising the age of eligibility for full Social Security benefits from 67 to 70."  Here, Feldstein shows that - like Alan Greenspan - he's oblivious to the the fact  that a third of seniors have Social Security as their only income. Also, more than 50 percent of Americans claim their Social Security by age 62.  

Why are so many citizens doing this? It isn't always a case of not wanting to work but rather, for too many,  not being able to last at demanding physical jobs, i.e. landscaping, roof repair, nursing home aide,  etc.  It is fairly easy to work past 70 when it's all consulting, paper pushing or brain work.   But not so much when one is involved in heavy day -to -day labor like a nursing home caretaker moving an elderly patient from bed to chair and back many time a day - not to mention other tasks, such as bathing, toilet use etc. Work that takes its toll on the back, as well as many other parts of the anatomy.

Interestingly, nowhere in Feldstein's op-ed is there any mention of cutting the defense budget, despite the fact we have ample evidence it's one of the biggest yearly deficit engines, e.g. 

We also know that at $716 billion annually, the U.S. spends more on the military than the next 11 nations combined, That includes Russia and China. As one recent WSJ letter writer put it: "The Pentagon already has enough enough resources to keep America secure.":

The sad fact is that too many of the nation's seniors do not, yet those like Marty Feldstein would just as soon indoctrinate more Harvard economics students into a useless system that's also heartless.

Kids, if you're headed for the ivy halls of Harvard, pick astronomy to study, not econ from a Feldstein clone; adjunct, lackey or TA.  Your brain will thank you for it, so will millions of us on "entitlements"!

See also:

Social Security

Honoring Frances Perkins, the 'Mother' of Social Security

AND:

Healthcare Policy

Rural America Needs Medicare for All, and Fast

Is "Moral Hazard" a Myth?

This was actually addressed (and answered in the affirmative) in a 2005 piece in The New Yorker, titled “The Moral Hazard Myth,” in which author Malcolm Gladwell noted that people with health insurance don't go into hospitals for their enjoyment (unless maybe they are One percenters in the "amenities units"), and that people without medical insurance often forgo preventive care that could save thousands of dollars. So how is that "moral hazard"?

Conveniently, when the pundits and elites bloviate about moral hazard, they overlook the noneconomic costs of risky actions like smoking, e.g. costs from lung cancer, the attendant suffering and death. Nor is gobbling giant burgers and fries every day (or even once every week) at Mickey D's deemed a "moral hazard". We are informed instead by the pundits that to try to regulate such behaviors is tantamount to intrusion by a "Nanny state", never mind our costs from obesity and diabetes will soon bannkrupt us if our military overstretch doesn't!

One law professor at the University of Pennsylvania, a Tom Baker, once wrote a historical account (1996) entitled On the Genealogy of Moral Hazard,” that: “Moral hazard signifies the perverse consequences of well-intentioned efforts to share the burdens of life, and it also helps deny that refusing to share those burdens is mean-spirited or self-interested.”

Again, convenient. But the question that occurs is why is this attribution and designation so selective? Tending to focus on the missteps, benefits or foibles of ordinary people as opposed to those of hedge funds, giant banks or bankers? Notably here, Baker also adds (ibid.):

"The economics of moral hazard work to convince us that, however well intentioned, social responsibility is a bad thing,”

Now where have we seen this before? Give up? It is in Vilfredo Pareto's Pareto distribution. See, e.g.

http://brane-space.blogspot.com/2011/06/modern-economics-its-evil-basis-pareto.html

and

http://brane-space.blogspot.com/2011/06/modern-economics-its-evil-basis-pareto_13.html

As noted in the top-linked blog, at the heart of "Pareto efficiency" is what's called the reservation price for a given object or service. This is just the maximum price a person is willing to pay. (Or more often, can pay....given financial circumstances!)

Example: say a new apartment complex opens up and is selling apts. (1-3 bedrooms) ranging from $1,500/month (for single Bdr) to $2,400 for 2 Bdr, to $3,600, and people want to buy. Obviously, a relatively poorer couple will have a reservation price probably lower (e.g. $1,000) than any of the apartments, and hence need a Section 8 HUD rental subsidy to offset costs, while the rich couples or families can move into any of them.

But, according to modern economics and the Pareto distribution, offering a rent subsidy on the order of $1,000 (for the single Bdr apt.) effectivly removes it from the actual competitive market . Because this exerts a price below reservation, though offering the apt IS sociall responsible, the Pareto economist regards it as "moral hazard".

This is exactly where and how the discussion was evolved to reject any economic actions that confer such social responsibility, because it is believed the recipients will not then exercise self- initiative and instead become dependent on "government handouts". The same arguments are often used against providing food stamps for any length of time. People - never mind jobs are unavailable- become too dependent on them and get "addicted" to handouts.

Thus, to these economists, "moral hazard" came to be equated with "Pareto inefficient".

Obviously, this was also the basis for Fed Chairman Alan Greenspan going on record in an appearance before congress (in 2003) and asserting that "Social Security benefits need to be cut to pay for Bush’s tax cuts." Social Security payments, especially with COLAs, do everything the Fed Chairman detested. They poured more money into the economy, but not via productive labor or market indices, or investment returns. People received their checks on the basis of a social insurtance contract....thus, merely by existing and breathing day to day, and having paid into the system with FICA deductions.

In effect, providing Social Security benefits, especially with COLAs that kept pace with inflation, was a "moral hazard". Socially responsible, yes, okay. But a hazard morally because those elderly people were now making haste to collect on the government dime (often as soon as they hit 62) instead of getting their butts out there and working longer ....earning on their own. (Never mind most employers won't hire them ...other than maybe as Walmart greeters!)

What about health insurance? Let's say the productive cost of the typical primary care physician's visit is $150. This is what she charges, or what her Affiliated Primary Care center does. The non-wealthy person (having shelled out $250 for an insurance deductible) is then happy to pay only $15 for a co-pay. But this "skews the system" and makes it Pareto INEFFICIENT while introducing "moral hazard" - because the patient will then likely come to underestimate ongoing real medical expenses.

If one therefore takes the difference ($150 - $15 = $135) it makes more sense to just give the unwealthy person say $134 NOT to visit the doctor and consume resources. This then, also avoids feeding the moral hazard. With Medicare and Medicaid it's even worse, because the moral hazard -Pareto poppets argue that medical services are even more undervalued by those government-served populations.

I noted as a special example getting a preventive test, like a colonoscopy which normally would run $3,500. But there's no way the insured regular patient can afford that total cost, most of which his or her insurance picks up. Meanwhile, calculations- based on Pareto Efficiency- show if the insurance paid part is $2,000 (while the patient's reservation price is $1.500) it makes more sense to give the prospective testee $1,499 NOT to get the colonoscopy, than to let her get the test and consume valuable specialist time and resources via $2,000 subsidy.

Their argument is that not getting the colonoscopy avoids moral hazard! (Never mind that if the patient then gets colon cancer much larger health costs will be imposed on the system)

In effect, to grasp the reasons for selective assignment of "moral hazard" in our society it is important to grasp the perverted basis of our economic system which rests on Pareto's distribution. This basis will always disfavor social benefit or social responsibility, when lined up against economic advantage.

The obverse is that the true villains who unjustly profit and display real moral hazard, get away with murder. Thus with the S&L crisis in 1989, massive public bailouts were made. Private entities collected massive public rewards. Same with the bailout of Long Term Capital Management in 1997, and more recently, AIG and the banks in 2008. The latter, especially, were guilty of using public money - put into the banks on trust - to speculate in the securities markets via credit default swaps. (See the movie, 'Inside Job', if you haven't already!)

According to Elyse D. Cherry, the C.E.O. of a community development group, Boston Community Capital, "moral hazard is hogwash.” Why would she say such a thing given her company is putatively a live laboratory for active moral hazard? (It buys homes that have gone into foreclosure, then sells them back to the original owner at a price they can afford).

Her response is insightful and discloses she can see through the moral hazard smokescreen and rubbish of the Elites and realize that people aren't just toddling toward endless and limitless benefits! Thus, the ruined credit of milliions - say who declare personal bankruptcy- makes it harder to borrow money, or get an apartment. Moreover, given nosy employers are increasingly doing credit checks on prospective hires, it makes it damnably difficult to find a job to escape their existing economic morass. Meanwhile, to even search for a job in greener pastures far away is hard on families because they may not be able to get the selling price they need for a home ...and moving is often a logistical and timing nightmare. Then there are the larger social costs when desperate people - like the subprime mortgage purchasers in 2007-08 - aren't assisted: pockmarked neighborhoods and declining property values.

So, in effect, while using the moral hazard PR weapon may temporarily save some economic costs it exacts profound social costs. This, of course, is for the average person in our society, not the big hotshot investment banker who maybe used millions in public money but lost it all in the risky credit derivatives markets. He can usually expect to get bailed out in some way with the usual modus operandi: "private rewards- public costs".

Meanwhile, the "moral hazard" evoked by the Pareto optimality fetishists always ensures the public square, the common good and the little guys.....inevitably get screwed.

The REAL Christmas Grinches: "Rational" Economists!

"We rational economists demand you give cold hard cash if you must give a gift!"


While over the past decade the Right's Culture Warriors have depicted Secularists and Atheists as "grinches" trying to "steal Christmas" - by attacking everything from the placement of creches to the gift- obsession of the holiday period itself, the truth is more complex. Most of us, in fact, enjoy the emotional uplift at this time of year, which seems to bring out more of a spirit of generosity for whatever reason. Just look at the numbers of people paying off the layaway balances of total strangers! We also enjoy the music peculiar to this time of the season, and my favorite seasonal music is anything by the Kings College Choir of Cambridge. No, it's not the usual fare and much of it is over laden with religioisity, but I for one pay more attention to the musical composition and tones - not the words. Nor am I unusual.

But interestingly, the real grinches appear now to be economists and namely a specific breed called "Rational Economists" who suddenly appear to be going ape shit over the whole giving Zeitgeist in whatever form it takes - whether paying for others' layaway balances, or simply giving gifts to friends and relatives. According to a W/E WSJ piece ("Is It Irrational to Give Holiday Gifts?') these guys are pitching a fit right now. According to the piece:

"One much-cited study estimates that as much as a third of the money spent on Christmas is wasted, because recipients assign a lower value than the retail price to the gifts they receive. Rational economists thus make a simple suggestion: give cash or nothing!"

Cash? Cold, hard, unadorned, unwrapped (for mystery) CASH? Who are these unfeeling bastards making such a proposal? Need you ask? (Hint: Think of Vilfredo Pareto. Ring any bells? Think of a statistical distribution. Think of the parable of the sheep and wolf collective and how it is to be rendered maximally happy.)

Of course, "rationalist economics" is predicated on the Pareto Distribution and Pareto "optimality" or "efficiency". Thus, if one's spending - consumption doesn't make the cut for these, one is "Pareto inefficient" and hence, irrational!

Recall the earlier blog on this:

http://brane-space.blogspot.com/2011/06/modern-economics-its-evil-basis-pareto.html

Wherein I noted the concept of the "reservation price" for a given object or service. Ultimately, along with the Pareto distribution, this factors into what is called the Pareto efficiency. This is just the maximum price a person is will to pay. So, if I have a 1954 Henry Aaron TOPPS baseball card (now with a very high book price) and I offer it to you for sale, and ask what the top price is that you'd pay, if you respond "one hundred dollars" then that is your reservation price.

In the context of Xmas gifting, it would be the maximum price I am willing to pay for a gift to a friend or relative. Say then that I pick out a book, maybe the latest one ('The Grand Design') by Stephen Hawking and Leonard Mlodinow on the multiverse, retailing currently at $15.95. I send this book to my friend or brother, but he doesn't read it. According to the rational, errr.....Pareto-based economists, then the money I spent is totally wasted...and the primary reason is that their valuation price was far below my reservation (gift) price. Thus, in this sense, I am irrational.

If on the other hand, I buy a porcelain display doll for my sister, say for $6.95, and she uses it or at least props it up for display someplace, then her valuation price meets my reservation price and I have acted with proper economic behavior or Pareto optimal and rational.

If meanwhile, my wife's Aunt Bessie spends $50 on a sweater for her that she ends up wearing just once, then her valuation price is ridiculously below her aunt's reservation gift price which means, according to Pareto economists, Bessie's hard-earned money has simply evaporated, especially if wifey doesn't even like the present! But is the money truly wasted? What about the surprise of seeing an unopened gift that then has materialized into something which embodies the thought (and feelings) of the gifter?

According to rational economists, it's neither here nor there. Bessie could as well have taken the fifty with U.S. Grant on it and burned it up with a match. In examples such as this, or my giving a book that never gets read or dvds that never get played, rational economists go bonkers over what they see as orgies of wealth destruction, as opposed to occasions of joy.

There is one exception they do make, which is the "practical" gift that is deliberately sought and known about before hand. A classic case is that I need new socks because mine are in holes. My wife knows this and buys them for me, and I know already what's coming. I have no problems with this and to rational economics there is no waste. The money was used by the gifter for something repeatedly used by the giftee, never mind there's no surprise component!

Another option with which rational economists are ok is the gift card, but the main proviso here is that its reservation cost to the gifter not be more than the valuation acknowledged by the giftee. (Also that the giftee not let it expire!)

At the other end of the spectrum are the behavioral economists, who basically tell the rational types to ease up. They are more sympathetic to "irrational" holiday giving because well....behavioral economics draws on psychology as opposed to funny looking statistical distributions purported to represent the optimum ways for people to part with their wealth. Thus it is that these behavioralists better understand why people prefer not to give up the mystery and fun of "blind" gift giving. Sure two bucks out of three may be wasted, but what the hey? Are you going to just reduce the holiday to cold, hard cash exchanges?

By the arguments of the behaviorists, it's not that blind gifts are irrational but that the Pareto-obsessed rationalists haven't factored in their genuine social utility. Still, the behaviorists suggest one can still optimize gift giving by "getting inside the giftee's mind". Behavioral psychology shows we are all partial prisoners of our own preferences and thus have great difficulty seeing another's perspective or preferences. But if we can supersede those limitations, we can not only hit the social utility mark but the maximizing of economic cost mark too.

Perhaps. But I'm willing to bet most of us stick with gift cards!