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What constitutes a racist statement?

James Watson, joint winner of the 1962 Nobel Prize in Physiology or Medicine for his contribution to “discoveries concerning the molecular structure of nucleic acids and its significance for information transfer in living material,” has been getting himself a public lashing (and, indeed, has lost his job) after making some controversial statements about race and intelligence. Here is an article from The Times:

The 79-year-old geneticist said he was “inherently gloomy about the prospect of Africa” because “all our social policies are based on the fact that their intelligence is the same as ours – whereas all the testing says not really.”. He said he hoped that everyone was equal, but countered that “people who have to deal with black employees find this not true”.

He says that you should not discriminate on the basis of colour, because “there are many people of colour who are very talented, but don’t promote them when they haven’t succeeded at the lower level”. He writes that “there is no firm reason to anticipate that the intellectual capacities of peoples geographically separated in their evolution should prove to have evolved identically. Our wanting to reserve equal powers of reason as some universal heritage of humanity will not be enough to make it so”.

He claimed genes responsible for creating differences in human intelligence could be found within a decade.

The upset has revolved largely around his quotes included in the first paragraph above, but it’s the second paragraph that I want to focus on.

For the record – and I want to stress this – I believe that early childhood environmental factors play by far the greatest role in determining how a person will score in standardised tests of mental aptitude later in life. Steven Levitt (of Freakonomics fame), working with Roland Fryer, has a working paper that I find compelling enough. Here is the paper. Here is the abstract:

On tests of intelligence, Blacks systematically score worse than Whites. Some have argued that genetic differences across races account for the gap. Using a newly available nationally representative data set that includes a test of mental function for children aged eight to twelve months, we find only minor racial differences in test outcomes (0.06 standard deviation units in the raw data) between Blacks and Whites that disappear with the inclusion of a limited set of controls. Relative to Whites, children of all other races lose ground by age two. We confirm similar patterns in another large, but not nationally representative data set. A calibration exercise demonstrates that the observed patterns are broadly consistent with large racial differences in environmental factors that grow in importance as children age. Our findings are not consistent with the simplest models of large genetic differences across races in intelligence, although we cannot rule out the possibility that intelligence has multiple dimensions and racial differences are present only in those dimensions that emerge later in life.

That said, I want to make a controversial statement of my own: While Professor Watson’s comments will certainly be popularly perceived as racist and might well be able to be regarded as an incitement to racism, they are not necessarily racist in and of themselves. Indeed, without ever having met him, I seriously doubt that Professor Watson has anything other than the highest regard for any member of any race.

Watson simply gave a statement of his beliefs about the facts of the world. Those beliefs may be controversial and even wrong, but that alone does not imply any kind of moral judgement on his part. Let me give a couple of examples to illustrate my point:

  • I believe that white Australians, on average, have worse eyesight than Australian Aboriginals. That does not imply that I think that white Australians are somehow intrinsically less human than Australian Aboriginals. It does not in any way condone or encourage discrimination against white Australians.
  • I believe that women, on average, are weaker and possess less physical endurance than men. That does not mean that I think that all women are weaker than all men, or that men are somehow more worthwhile than women. I pass no moral judgement when I make this statement.

I will grant you that Watson’s ideas are dangerous, but he should be challenged to justify them; he should not be vilified for expressing them. Steven Pinker wrote an article on this very topic for the Chicago Sun Times in July 2007. I’d strongly encourage you to click through and read it all, but here are a few highlights:

By “dangerous ideas” … I have in mind statements of fact or policy that are defended with evidence and argument by serious scientists and thinkers but which are felt to challenge the collective decency of an age.

Dangerous ideas are likely to confront us at an increasing rate and we are ill equipped to deal with them. When done right, science (together with other truth-seeking institutions, such as history and journalism) characterizes the world as it is, without regard to whose feelings get hurt. Science in particular has always been a source of heresy, and today the galloping advances in touchy areas like genetics, evolution and the environment sciences are bound to throw unsettling possibilities at us.

What makes an idea “dangerous”? One factor is an imaginable train of events in which acceptance of the idea could lead to an outcome recognized as harmful … [T]he fear is that if people ever were to acknowledge any differences between races, sexes or individuals, they would feel justified in discrimination or oppression. Other dangerous ideas set off fears that people will neglect or abuse their children, become indifferent to the environment, devalue human life, accept violence and prematurely resign themselves to social problems that could be solved with sufficient commitment and optimism.

Should we treat some ideas as dangerous? Let’s exclude outright lies, deceptive propaganda, incendiary conspiracy theories from malevolent crackpots and technological recipes for wanton destruction. Consider only ideas about the truth of empirical claims or the effectiveness of policies that, if they turned out to be true, would require a significant rethinking of our moral sensibilities. And consider ideas that, if they turn out to be false, could lead to harm if people believed them to be true. In either case, we don’t know whether they are true or false a priori, so only by examining and debating them can we find out. Finally, let’s assume that we’re not talking about burning people at the stake or cutting out their tongues but about discouraging their research and giving their ideas as little publicity as possible. There is a good case for exploring all ideas relevant to our current concerns, no matter where they lead. The idea that ideas should be discouraged a priori is inherently self-refuting. Indeed, it is the ultimate arrogance, as it assumes that one can be so certain about the goodness and truth of one’s own ideas that one is entitled to discourage other people’s opinions from even being examined.

Now, if you’re still with me, go back up to where I quoted the article from The Times and reread the second paragraph. He is not being racist here. He is being controversial. Unfortunately, that seems to have been enough for him to be fired.

As a bit of a plug for my newfound profession … After Professor Pinker’s article was published, Steven Levitt noted:

What did strike me about the list of questions was how many are linked in some way to economists. Larry Summers comes to mind on gender differences and shipping pollution to Africa, Alan Krueger on the education of terrorists, Milton Friedman on the legalization of drugs, Richard Posner on a market for babies, Gary Becker on a market for organs, and even John Donohue and me on legalized abortion and crime. I’m not saying these ideas necessarily originated with economists, but that, at a minimum, economists often find themselves on the “wrong” side of dangerous ideas.

I would love to see what would happen if economists got the chance to run the world. My guess is it would be fun for a while, but the ending wouldn’t be happy.

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Oz Election (again)

I’m still not that interested in general, but these two bits looked interesting in their specifics:

  • Looking at Bryan Palmer’s “Day 6 report,” it seems that the betting markets have started moving sharply in favour of the Coalition. Labor is still being billed as the favourites, but it’s narrowing fast.

* The action is really at the top. The only difference between the Howard and Rudd tax cuts is that Rudd wouldn’t cut tax rates from 45% to 42% for those earning over $180,000. Assuming the same rate of wage growth that we’ve had over past years, only 1.4% of adults in 2010-11 will have an income in that range, while only 3% of families will have an income-earner in that range.

* This means that the richest 1% of families get 7% of the Howard tax cuts, but only 4% of the Rudd tax cuts. The richest 10% get 28% of the Howard tax cuts, but 25% of the Rudd tax cuts.

* The education credit is fairly evenly distributed across the income spectrum (as Labor pointed out on Friday, 2/3rds of families with children are eligible for it). So the Rudd package looks more even – but only a little – if you take account of it.

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Search costs

There is a bank on campus at LSE. It has four cashpoints (as the Poms call them, or ATMs to the rest of us), arranged like this:

ATMs at LSE

There is frequently a queue to use the cashpoints at A and D, but almost never at B or C. They are, at most, four metres from cashpoint A, but at all times they either have no queue, or if they do, it is always shorter than that for A or D (since they are next to each other, they typically produce a single queue). This includes those times when it is raining, despite the fact that B and C are under cover, while A and D are exposed.

This poses a puzzle. Why do B and C not get used more? Why are the queues at A and D longer than they need to be?

Part of the answer lies in this next bit of information:

B and C are readily visible from the street if you stand in front of the entrance, but they are not immediately visible from a little way along the street. In particular, they are not visible from the queues that build up for cashpoints A and D. Cashpoint A is not immediately obvious when looking up from the main street.

The standard economic answer would therefore involve search costs and cut-off thresholds. There is a time (and annoyance) cost involved in checking other cashpoints and there is no guarantee that you will find one with a shorter queue. Provided that the time cost of staying with your current queue is below your reservation cost (the threshold), it’s optimal for you to stay where you are.

Most people that use D are passers-by that just happened to be walking along the main street and won’t be aware that A, B or C exist. For these people, the believed search costs could be quite high (there is not another bank in the immediate area) and the prior belief on the probability of finding a cashpoint with a shorter queue quite low (since people generally want to use cashpoints at the same time).

But the people that use A, B and C are generally all LSE staff and students who are well aware of all four cashpoints. For those waiting at A, the search cost for checking B and C is vanishingly small and for the sufficiently observant of them, their prior beliefs on the queue length at B and C will be that they are quite likely to be shorter.

So why don’t they do it?

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The Election in Oz

So, the campaigning has formally begun for the 2007 Federal Election in Australia. I’m interested, but mostly in an abstract sense and at the same time have a definite feeling of “blah” towards the whole thing. When I do end up wanting to know what’s happening, I’m pretty sure that Bryan Palmer will be a superlative aggregator of information that I ought to care about.

I did notice, with a sigh and a rolling of eyeballs at the stereotypes involved, that the two sides are squabbling over the debates: how many to have and when to have them. The Coalition is calling for just one and early in the campaign (before most policies have been released), while Labor wants three spread out over the entire length of the campaign.

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Justifying my continued existance

… as a blogger [*], that is.

Via Alex Tabarrok (with two r’s), I note that the National Library of Medicine (part of the NIH) is now providing guidelines on how to cite a blog.

There are the ongoing calls for more academic bloggers and, while there are certainly questions over incentives and the impact on research productivity, academia continues to dip the odd toe in the water. Justin Wolfers just did a week of it at Marginal Revolution and now I see this brief post by Joshua Gans:

As more evidence that blogging is going mainstream, a bunch of faculty at Harvard Business School are now in on the act (including economist Pankaj Ghemawat)

[*] I didn’t think it was possible for me to dislike any word more than I do “blog,” but it turns out that I do. To call myself “blogger” required a supression of my own gag reflex.

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Two policies that I would vote for

  • I think that all forms of leave (annual/recreation leave, sick leave, public/bank holidays, etc.) should be bundled together into a single, generic pool that workers can draw down on when they wish, subject to managerial approval. However, it should be illegal for managers to deny approval for days of significant ceremonial importance to the major religions or for days of national significance (e.g. Australia Day and ANZAC Day in Australia).
  • I think that all fines issued for misdemeanours should not be for a fixed amount, but for a percentage of the transgressor’s income. When faced with the prospect of a $400 fine, somebody earning $20,000 a year will pay attention, but somebody earning $200,000 will not care nearly as much. I also think that any money raised through fines (a) should not be available to the department that issued the fine, but go into broader government funding (the police should not have a direct economic benefit from fining people for speeding) and (b) should be carefully tallied and reported publically on a regular basis. People need to be able to see that, for example, the money raised through speeding fines is contributing to funding hospitals.
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Article Summary: The Marginal Product of Capital

This paper (forthcoming in the QJE) by Francesco Caselli (one of my professors at LSE) and James Feyrer (of Dartmouth) has floored me. Here’s the abstract:

Whether or not the marginal product of capital (MPK) differs across countries is a question that keeps coming up in discussions of comparative economic development and patterns of capital flows. Attempts to provide an empirical answer to this question have so far been mostly indirect and based on heroic assumptions. The first contribution of this paper is to present new estimates of the cross-country dispersion of marginal products. We find that the MPK is much higher on average in poor countries. However, the financial rate of return from investing in physical capital is not much higher in poor countries, so heterogeneity in MPKs is not principally due to financial market frictions. Instead, the main culprit is the relatively high cost of investment goods in developing countries. One implication of our findings is that increased aid flows to developing countries will not significantly increase these countries’ incomes.

… which seems reasonable enough. Potentially important for development, but not necessarily something to knock the sense out of you. What blew me away was how simple and after-the-fact obvious their adjustments are. They are:

  1. Estimates of MPK depend on first estimating national income (Y), the capital stock (K) and capital’s share of the national income (?): MPK = ?Y/K. National income figures are fine. A country’s capital stock is typically calculated using the perpetual inventory method, which only counts reproducible capital. Capital’s share of income is typically calculated as one minus the labour share of income (which is easily estimated), but this includes income attributable to both reproducible and non-reproducible capital (i.e. natural resources). Therefore estimates of MPK are too high if they are meant to represent the marginal product of reproducible capital. This error will be more severe in countries where non-reproducible capital makes up a large proportion of a country’s total capital stock. Since this is indeed the case in developing countries (with little investment, natural resources are often close to the only form of capital they possess), this explains quite a lot of the difference in observed MPK between rich and poor countries.
  2. Estimates of MPK based on a one-sector model implicitly assume that prices are not relevant to it’s calculation. However, the relative price of capital goods (i.e. their price relative to everything else in the particular economy) is frequently higher in developing countries. This will force the necessary rate of return higher in poor countries because the cost of investing will be higher.

They give the following revised estimates (Table II in their paper, standard deviations in parentheses):

Measure of MPK Rich countries Poor countries
“Naive” 11.4 (2.7) 27.2 (9.0)
Adjusted only for land and natural resources 7.5 (1.7) 11.9 (6.9)
Adjusted only for price differences 12.6 (2.5) 15.7 (5.5)
Adjusted for both 8.4 (1.9) 6.9 (3.7)

The fact that the adjusted rate of return appears lower in poor countries then goes some way to explaining why the market flow of capital is typically from poor countries to rich countries and, as they say, has some serious implications for development.But that first adjustment! How on earth can that have skipped attention over the years? It seems like something that should have been noticed and dealt with in the ’50s!

The second adjustment managed to shed more light (for me) on just how terrible price controls can be. Under the assumption that if inflation is going to happen, it’s going to happen no matter what you do, if you put a cap on the prices of some goods (or services) then the prices of the rest will simply rise commeasurately further. When Messers Chavez and Mugabe institute price caps in an attempt to hold back inflation, they invariably put them on consumer goods because that’s where the populist vote lies. However, that means that inflation in capital goods will be higher still, making them more expensive relative to everything else in the economy. That will increase the rate of return demanded by investors and — in the meantime — chase investment away. By easing the pain in the short run, they are shooting themselves in the foot in the long run.

Caselli and Feyrer’s results also make me wonder about the East Asian NICs. What attracted the flood of foreign capital if not their higher MPKs? Remember that their TFPs were not growing any faster than those of the West. Their human capital stocks were certainly rising, but – IIRC – no where near as quickly as their capital stocks were growing.

Update (11 Oct):
Of course, the NICs also had – and continue to have – very high savings rates, which at first glance goes a long way to explaining their physical capital accumulation. There are two responses to this:

  1. Even with their high savings rates, they were still running current account deficits. I understand, although I haven’t looked at the figures, that these were driven by high levels of investment rather than high levels of consumption.
  2. Did their savings rates suddenly rise at the start of their growth periods? If so, that is extraordinary and needs explaining in itself; at the very least it raises the question that their savings rates (or, if you prefer, their rate of time preference) were endogenously determined. If not, then we still need to explain why their savings were originally being invested overseas, then domestically and now (that they’ve “caught up”) overseas again.
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Richard Freeman, WorkChoices and the dead hand of government

Richard Freeman is continuing his assault on WorkChoices:

[T]he new Australian labour code is such a massive break with Western labour traditions that it merits [global] attention. It was enacted in the midst of prosperity, without union or management excesses that endangered the economy, or public support. From the perspective of social science, we cannot get much closer to the ideal random assignment experiment at the national level than WorkChoices – an extreme change in law with no economic rationale or cause.

… Downloading the Workchoices legislation, I found a 687-page law with 565 pages of accompanying memorandum, all amending [i.e. not replacing] the government’s previous 861-page labour act …

… Parts of the law made so little economic sense that it seemed as if the Howard government had found a new band of whigged judges and labour lawyers to write it, on behalf of management. Which, in fact, I learned, was more or less how the law was developed. Writing the law was outsourced to the major Australian law firms that represented management …

… If re-elected this fall, the government will stay the course with Workchoices and we will see the results of this extraordinary effort to destroy collective action by workers. For the sake of social science, it would be great to see the experiment carried through to completion. For the sake of Australia, it would be great to see the election end the experiment.

He has managed to attract the attention of Justin Wolfers, guest-blogging on Marginal Revolution:

This is what happens when conservative governments confuse decentralization and deregulation.

Professor Freeman visited Australia back in September, speaking at the University of Sydney (I can’t seem to find a transcript online; only the event details and the press release) and on the ABC. He is not without his critics on the topic, but I think his points are valid. Even if you hate the unions, you’ve got to oppose Workchoices for the sheer weight of it. Where are the small-government Liberals in Australia?

Cam Riley wrote on this a while back:

When I read through the Workchoices legislation a while ago it was a brain dulling experience. The bill was long, boring and complex. It recently received a one hundred and eleven page amendment to add to the Workplace Relations Amendment Act, the Workplace Relations Amendment Bill, the Explanatory Memorandum, the Supplementary Explanatory Memorandum and the Second Reading Speech. Human Resources just got job security in the same way accountants do with the complex tax system.

Have a look at the graphs on Cam’s page. Make sure you take note of the scale on the vertical axes.

Meanwhile, John Quiggin has a suggestion for the Labor party in their campaign:

If I were running Labor’s campaign, I’d take the government’s total ad spending this term (around $750 million, IIRC) and convert that into around $5 million per electorate. Then find, for each electorate, $5 million of spending effectively foregone (two extra teachers at X High School, a local road project etc). Finally, promise to create a fund for worthwhile local projects like these, to be funded by a cessation of large-scale government propaganda.

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On “fair trade”

I’ve never been comfortable with the “fair trade” movement. The motives are commendable enough (who doesn’t want higher and more stable prices paid to farmers?), but it has always seemed to me to be predicated on a basic misunderstanding of economics, or at least the belief that in this case, economic incentives can be overruled by political and social will.

My brother and I occasionally debate whether economics or politics is supreme in the life of a nation and it’s people. It’s hard to argue that politics and populism don’t trump economics on occasion. Witness the madness of the U.S.S.R.’s draining of the Aral Sea, or the fact that Robert Mugabe is still in power. However, while terrible and life-destroying, these events nevertheless seem to me to be short-term in the grand scheme of things. In the end, I suspect that the power of economic incentives is (almost) inexorable. The power of personality might hold it at bay for a lifetime, especially if the country has a common enemy to rail against (Cuba), but not forever.

So when it comes to the fair trade movement, I cannot help but wonder how guaranteeing above-market prices for some farmers can — in the end — achieve anything other than to encourage more coffee to be cultivated. As any first-year economics student can (or at least ought to be able to) explain, an increase in supply will lead to a lowering of equilibrium prices, and while a few farmers will be protected by the fair trade scheme, the great majority will be further impoverished.

I also worry that new crops may be planted on poorer quality land that suffers from more variable conditions, meaning that output (and therefore prices) will also be more volatile.

I am reminded of all of this because Dani Rodrik, a strong advocate of attempting to ameliorate the negative aspects of free trade, has just blogged on this very topic. He raises three very good questions (all quotes are from his entry):

  1. “[E]ven though fair trade brands sell as premium products, they often … sell at exactly the same price as the regular one. [T]his is a puzzle because farmers are supposed to get more when they produce the fair trade brand … Here is how the industry explains this: ‘Michael Ellgass, the director of house brands for Sam’s Club, said the company could afford to pay fair trade’s premium because it has reduced the number of middlemen.’ … Come again? So let me get this straight. The company could actually increase profits by cutting out middlemen, but waited to do so until fair trade came around and the increased revenues could be passed on to farmers instead of the bottom line?”
  2. “Fair trade certification requires that growers commit to various farming practices, and often other things too [such as rules on pesticides, farming techniques, recycling and mandating that the children of farmers were were enrolled in school]. Now, which one of us really know what “fair trade” certification is really getting us when we consume a product with that label? The market-based principle animating the movement is based on the idea that consumers are willing to pay something extra for certain social goals they value. But clearly there is an opaqueness in what the transaction is really about. And who gets to decide what the ‘long list of rules’ should be, if not the consumer herself?”
  3. “Isn’t the farmer himself a better judge of how his extra income should be spent? Should these decisions be made by Starbucks instead? (There are of course social assistance programs where cash grants are conditional on things like this, but they are (i) meant to be aid rather than fair payment for work rendered, and (ii) designed and administered by national governments rather than foreign firms.) Is conditionality imposed by multinational companies better than conditionality imposed by the World Bank or the IMF?”

Dani is not alone in his concerns. Joshua Gans has publically worried about this before (here, here and here). The Economist wrote late last year on the topic here (well worth a read). Indeed, in Australia two (admittedly pretty conservative) academics lodged formal complaints with the ACCC against Oxfam Australia, suggesting that it might be guilty of misleading or deceptive conduct.

The London School of Economics cafeterias exclusively stock Fairtrade coffee. You can see mention of it in the official newsletter of the university here (13 March, 2006). Within the sub-discipline of Trade & Development, LSE’s economics department is ranked in the top few in the world. I wonder if any of those faculty members were consulted before the school made their decision?

Update:

Tim Harford covers the topic tangentially in his book, The Undercover Economist, suggesting that retailers that offer both fair trade and regular products are simply using the fair trade brand as a form of price discrimination. This benefit (to the retailer) disappears, though, when they stock fair trade goods exclusively (as LSE’s cafeterias do) or decline to charge more for the fair trade brand (as Prof. Rodrik focused on). As noted by Free Exchange over at The Economist, this latter example implies a lessening of the retailer’s profit and a greater capture of the final product value by the original farmer, unless there really were greater profits to be had by cutting out the middlemen and the retailers waited until the fair-trade movement to exploit them.

Perhaps we have a coincidence of two phenomena. On the one hand, a consumer-driven (or interest-group-inspired) push for non-market-determined prices to be paid to the farmers gave rise to the fair trade movement. On the other hand, perhaps a lessening of administrative and logistic costs have made increased vertical integration (a.k.a. capturing more of the value chain, or cutting out the middleman) economically feasible or even desirable. If this is true, the coincidental timing would answer Rodrik’s first question.