21 Jan 2017

Flashback: January 2009

Due to popular demand some helpful replies to this post, I am back with posts of interest (out of over 100 in one month. Damn, I was busy then... even THIS post took an hour to compile!)

I still agree with what I said here:
  1. The Cost of Rationing businesses is MUCH greater than everyday, higher prices that reduce shortage risk
  2. Why the Peripheral Canal Will Happen Politicians don't listen to economists, and farmers are happy to get citizens to pay (A Word from the Farmers). You voted for the PC (Poll Results -- Peripheral Canal), but I stand by my conclusion that "sustainable" requires an end to Delta exports.
  3. Farmers Don't Use Much Water and How Much Water Do Farmers Use? It's complicated when you look deeper into "use"
  4. Pigouvian Tax Fail? Maybe, but effectiveness depends on conditions and other instruments in use
  5. Border Issues can really mess up water management (Trump and other nationalists are a danger)
  6. ZanAqua's distiller doesn't have a lot of potential. They seem to be gone/bankrupt now.
  7. Missing the Point -- Peter Gleick says "water awareness", I say "water prices" since Shower Incentives hardly work, and Stupid Water Bills certainly don't. OTOH, a strong community can result in Non-price Demand Destruction
  8. British Climate Change Skeptics in favor of a carbon price. Today's skeptics seem to be fewer and more entrenched in denying that CC is happening, let alone acting on it.
  9. Ethics and Water -- water managers cannot be trusted to be ethical, and Water and Lifestyle must match up
  10. Water Markets [sic] -- California didn't and still doesn't have them :(
  11. Soda Taxes are a good idea (I'd just tax sugar tho')
  12. The Real Estate Market Index -- is one of my better ideas on how to understand the MARKET (not prices). You can download it here [pdf]
  13. Me on Bloomberg Radio -- with a massive list of relevant posts
  14. Your Government NOT at Work -- The TVA spill inspired my "performance insurance for managers" idea [pdf]. More here: Fixing Monopolistic Utilities
  15. Manned space programs are STILL Bad Science. Trump, sadly, seems to think that we need it
  16. Fishes... and Seas -- an excellent paper on how fishermen are destroying their own future
  17. Peak Water? Nope.
  18. Silver Linings -- SD should reuse their wastewater. Now they are!
  19. Central Planners, Big Mistakes (China)
  20. Preventing the Tragedy of the Commons -- Yay, Elinor Ostrom!
  21. The Steady State Economy is a good (but non-implemented) idea
  22. Too Small to Succeed (small water companies can't afford to meet regulations)
  23. Amending AB2882 -- California law more or less prohibits pricing water for scarcity. Sad.
  24. Quid pro Quo on Groundwater i.e., we let you sell if you monitor your use (also Managing Groundwater)
  25. It's Hard Being a Revolutionary as an economist. Clearly it is if you promise fantasy #MAGA
  26. Who Cares about the Poor? First they need to care about themselves.
  27. Arctic Ice Past Tipping Point -- this is much worse now :(
  28. Madoff's Ethanol Accounting -- yep. More at Ethanol Debated
  29. The Economics of the USPS -- monopolies are not that good at delivering value for money
On these posts, I've changed my mind (or been wrong):
  1. Poll Results -- Oil Prices hit $140/bbl b/c (poll votes) "spectators," which I did not like, but I think that was probably the driving force, more than changes in physical S or D that could drive prices up so fast. (They had already dropped below $50/bbl by Jan 2009.)
  2. Water Jobs Bleg We sure need a site. Luckily, Josh's Water Jobs has stepped into the breach!
  3. Fun Times Ahead -- Obama will release lots of data. Whoops. That didn't go so well :(
  4. The End of the Western Population Boom? Nope. More people piling into risky places to live
  5. Carbon Neutral Is a Fad -- I was wrong here (it's still around) but not when it comes to its (non) impact

20 Jan 2017

Friday party!

This promo to study in Lisbon is obviously fake/scripted, but it gives you an idea of the increasing competition for students and the creative classes. (I was just in Lisbon, and it's surely interesting -- cheap, kind, cultural -- for folks who can work anywhere.)

19 Jan 2017

Having an opinion doesn't mean you're right

H/T to enviroecon

Note to readers: Someone said it was "a little annoying" that I sometimes point out when I'm right ("like an economist would"), but I only do this because I am constantly checking on myself, to see if I'm understanding how current trends will turn out or if people will gravitate towards a position or belief. I make claims or predictions in the same way as you might place a bet or buy shares. Those actions force you to face black and white changes in your wallet, which tend to percolate up to the brain. I also, of course, try to admit when I am wrong (help me out if I don't!) or when I've changed my mind. This is not just a useful lesson in humility; it's a good way to help people see that you're willing to face facts.

I talk about being right or wrong in public (and on the blog) because my professional/public intellectual reputation depends on (a) being right, (b) learning from mistakes and (c) separating opinion from fact.

I'm curious how you deal with being right or wrong -- or do you never take a side that loses?

17 Jan 2017

Water innovation lab in the Netherlands!

I participated at the last WIL in Scotland. It was really an exciting opportunity for "young leaders" and guest speakers (like me) to think big and different about how to address water problems around the world.

Here's my little Oct 2015 presentation of "What's a plausible 2060?" (3 min MP3 and PDF slide)

The WIL definitely got me thinking about topics that led to Life Plus 2 Meters.

I highly recommend this workshop for its great opportunities and low costs.

Deadline for applications is 26 Feb, but I'd apply TODAY!

Freakonomics -- the review

I’ve heard of this book for years, but never bothered to read it because I was already an economist and didn’t think I needed to read a popular summary of Steven Levitt’s work.[1] My impression was that the book summarized his work in a popular (non-academic) style that helped people understand what economists do. I though that the book was useful in this respect in helping people understand what I do. Indeed, the most common reaction I get from people when telling them that I am an economist is that they have read Freakonomics, which implies that they have at least seen some work similar to what I do at aguanomics.[2]

It turns out that I was mistaken in my initial beliefs.

I just read this 2004 book 2006 revision, and it's made me think a bit more about how we (economists) communicate with the general public, and I think that some ways are better than others. First, there are textbooks, which describe the tools that economists use to put their theories into practice. Many many people have told me “I didn’t learn anything in economics. All I remember was a lot of math and curves.” This depressing outcome results from lecturers who merely reproduce problems and equations on the blackboard, without helping students understand either why those theories are used or how they came to be so popular with economists.[3] Second, there are books that explain how economists think or how their thinking has evolved as they have tried to understand and summarize the people’s behaviour. These books, in my opinion, are the most interesting — and challenging — because they push people to revisit their assumptions and perspectives.[4] These are the books that I would recommend to people looking to “think like an economist” or, to be blunt, to think more accurately about how they and those around them actually behave. Third, there are books like mine [pdf] that try to explain how to improve failing policies using basic economic insights and incentives. Finally, there are books like Freakonomics that reproduce academic papers in a popular form. These books — like Economic Gangsters — give the public a limited vision of research without explaining the struggles of getting the right data or explaining the limitations of theories that are used (or not) in the final paper.

Freakonomics is therefore NOT the book that I would recommend to anyone interested in (a) learning economic theory, (b) learning about how economists think, or (c) understanding the world or thinking of ways to improve it.

This book with a memorable (but useless) name provides readers with just-so stories that are good for  cocktail conversations but not for understanding economics.[5]

For example,
  • Legalized abortion explains the drop in crime in the US. Not only do Steve and Steve back off from the main claims of the original paper (they add other factors), but this theory has been falsified by others (see this and this). What struck me is their ongoing attempts to hold onto at least some elements in the original claim in later blog posts in what I’d call a “my-ladydoth-protest-too-much” manner.
  • Real estate agents serve themselves better than they serve clients when selling their own homes. As a former real estate agent, I had to agree with their basic premise, but I thought their explanation too simplistic.[6] The most obvious problem is that agents have an entirely different understanding of themselves as sellers as well as of the markets. Surely that different information (and the resulting “patience” that gets them a higher price as sellers) matters?
Looking over their other chapters (on cheating sumo wrestlers, drug dealers who live with their moms, the KKK as a multilevel marketing organization, etc.), I agree that the chapters are interesting and thought provoking, but they do not provide “lessons on the hidden side of everything.” Instead, they read like a series of magazine articles whose quirky “insights” might contribute to your next cocktail conversation.

The authors say that they want you to ask more questions and see the world differently, but what tools have they given to you in this book?[7] I didn’t detect any reliable technique (except perhaps to collect a neat dataset and call Steve Levitt), and that’s where I was disappointed. Freakonomics does not really reveal the hidden side of everything. Indeed, it’s more likely to mislead you into thinking you’ve learned something, when you’ve only learned an interesting angle on a complex topic on which you may lack either the experience or methods needed to put it into a useful context.[8]

Take their example of the “underpaid” drug dealer who they say faces a higher risk of death than someone on Death Row in Texas (and thus must be overestimating the gains from their job). Does this statistical analysis mean that those street dealers are irrational? I don’t think so. As all economics students learn, you need to look at their opportunity cost (i.e., the costs and benefits of their potential other choices). In this case, street dealers are (a) NOT condemned to death, (b) not able to find other work with their experience, and (c) not aware of their statistical mortality as much as their potential wealth. Those street runners are “taking their chances” in the same way as Americans are “living the dream,” i.e., in ignorance of reality.[9]

Bottom Line: I give this book THREE STARS. Dubner and Levitt present interesting puzzles worthy of cocktail conversation, but they overstate their contributions and accuracy (“numbers don’t lie” but theory can be incomplete or just wrong). I suggest that anyone interested in understanding how economics works and applying those lessons to “the hidden side of everything” read Economics in One Lesson by Henry Hazlitt. It’s free to download and provides a really useful perspective that anyone can apply to any topic they care about.[10]

  1. I’ve met Steven Levitt. He's a fine person and excellent economist, but this book is too “pop” in its oversimplification of his work and hagiographic treatment of his insights. Yes, he brings interesting statistical tools to“freaky” questions, but he’s not a “rogue economist exploring the hidden side of everything.” He’s just a guy with a dataset and empirical theory who finds some strong correlations. As I explain later on, he does not deliver the last word on pretty much any topic in this book. (It's interesting to see the two authors pooh-poohing people's objections to their claims in this revised edition. I get the impression that their answer is "bestseller, bitch!" more than "hmmm..., maybe we claimed too much.") Also see note 8.
  2. I wrote on the human right to water and oil and water for their Freakonomics blog.
  3. I published an article [pdf] on how students don’t really understand the “downward sloping demand curve” because its form is based on advanced techniques they won’t see for a few more classes (meaning "never" for those who take one class or drop the major).
  4. Of those I have reviewed, I recommend Small is Beautiful, the Calculus of Consent, the Company of Strangers, Predictably Irrational, etc.
  5. "Freaky" anything sounds bad to me, and "freaky" economics -- unlike most economics -- isn't useful to most people. Even worse, there's nothing freaky to the stories in terms of the economics. I wish the authors had spent more time on the basic economics (making the book a useful learning experience) and less time defending empirical research that is interesting and provocative but not really wise.
  6. I corresponded with Levitt’s co-author on my objections to their working paper back in 2005. The main one was that their analysis missed the most important point: it’s better to have an agent than not to have an agent — an obvious insight that saved me about €10,000 when I bought a flat in Amsterdam. Going further, would an agent work harder for you if their commission was a flat rate rather than a percentage of the sales price? They harp about commissions as detrimental to the client’s interest due to the small share of the additional profits an agent gains from working harder on your behalf — e.g., 3% of another $10,000 is only $300, but why would an agent work any harder on a flat-rate commission? In my experience, agents love on referrals from old clients, which may explain why they work hard "despite the weak incentives."
  7. My definition of an expert is “someone who knows what’s missing.” As an example of this, I give a fourth reason why it’s NOT irrational to vote (they give three weak reasons in the blog post included in their revised edition), i.e., the benefits to an individual from study and engagement in a topic.
  8. My years of experience traveling in 100+ countries leads me to respect the diversity of beliefs and institutions that result in a variety of outcomes. Most academics need to exit the Ivory Tower and hit the road more often.
  9. On page 134, they write “The typical parenting expert, like experts in other fields, is prone to sound exceedingly sure of himself. An expert doesn’t so much argue the various sides of an issue as plant his flag firmly on one side. That’s because an expert whose argument reeks of restraint or nuance often doesn’t get much attention.” They need to apply the same critique to themselves. (They cite themselves in later chapters — p139 on abortion and crime — as if their earlier claims were facts.) As another example, take Dubner on page 199, who writes “that paper [on police officer counts and crime] was later disputed… a gradate student found an obvious mathematical mistake in it — but Levitt’s ingenuity was obvious.” I’m not sure I’d say the same about someone whose claims rested on logic with “obvious mathematical mistakes”!
  10. Hazlitt says "the art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups," which he summarizes as "...and then what?" That's a good question, and it's how I can easily predict that cheap water prices will lead to failing infrastructure or water shortages, why climate change is arriving "too fast" (due to a lack of carbon taxes), and so on. I'd prefer people to ask "and then what?" more often and spend less time showing off their knowledge of cheating sumo wrestlers.

14 Jan 2017

Should I stop flashbacks?

I'm not sure anyone wants to read old blog posts (even if they are good), because I don't know if people are even reading new ones.


Edit: I've restarted the feed ("tweet new posts") and will carry on with flashbacks. Thanks for all the feedback. It's helpful when I'm stuck in my echo chamber :)