Introducing Economics

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How should we introduce economics to the interested public?

This year I have the privilege of helping to run ICES’ High School Economics Workshops.  In doing so, I get to introduce interested students to the economic way of thinking, and take them on a romp through all the various sub-fields, and analyze all the classic economic & policy problems from minimum wages to rule of law.  But the most important and most difficult (at least in my view) lecture is the first one – a cold introduction economics.

I’ve always thought that Principles courses are the most important in undergraduate economics departments – they’re the classes that most students will take (by requirement) and it will be their only exposure to [good] economics, quite possibly in their lives.  Don’t worry about the actual Econ majors – sure they’re important too, but there’s several courses in Micro, Macro, and 3 or 4 field courses for them to hone their skills and beliefs.  I’ve learned from some of my mentors and professors that Econ 101 is really the chance to correct all of the fallacious beliefs that today’s youth have about the world, and replace them with solid, economic thinking.

If we’re being honest, in Econ 101 we’re spreading “good” propaganda to counter all the “bad” propaganda that students have been exposed to their whole lives (and will continue to be overwhelmingly exposed to).  It’s Econ 101 that correctly teaches that protectionism, tariffs, minimum wages, & government regulation tend to be bad, decentralized markets & voluntary cooperation tend to be good, and that we need to restrain ourselves from our overconfidence in forseeing unintended consequences.  It is often the first course (maybe the only course, other than those in philosophy) that actually teaches people to critically analyze their sincerely-held beliefs.

So how do you teach it?  What do you focus on?  What’s the style?   Continue reading →

Andy Kessler on the Rise of Consumption Equality

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Andy Kessler’s Op-Ed in the Wall Street Journal brings up a great lesson about the power of markets and social order.  In a time where everyone actively focuses on the obvious rise in the income gap, it’s a shame that they’re passively neglecting the less conspicuous closing of the consumption gap:

 For the most part, the wealthy bust their tail, work 60-80 hour weeks building some game-changing product for the mass market, but at the end of the day they can’t enjoy much that the middle class doesn’t also enjoy. Where’s the fairness? What does Google founder Larry Page have that you don’t have? Continue reading →

Gabe Newell on the Surprising Economics of Modern Video Games

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Earlier this fall, an article came out on Geekwire’s website featuring an interview with Gabe Newell, the man in charge of one of the most successful PC game developers and distributors – Valve Corporation.  This interview highlights a lot of strange, interesting, and puzzling phenomena found in the online PC market that puts a lot of economic principles to test.

Valve is in a unique position to collect data and analyze economic theories, being the largest distributor of online PC games through their Steam distribution service.  Through Steam, Valve can observe consumer behavior, purchases, and game activity in real time and base policies on data trends.

I want to highlight three interesting insights that emerge from the interview, and provide some brief commentary on what makes them so strange, and how we might go about exploring their consequences.  Some of the language of the interview is a bit unclear, so below is my attempt to glean the basic results of it.   Continue reading →

Competition: The Solution to Politics

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Politics has a lot of problems. Lacking a price system to make rational decisions, government is very inefficient. Lacking the incentives of competition, government pursue’s it’s own interests and is unaccountable to the populace. Lacking effective external constraints, government overreaches its bounds.

How to go about getting better government is an age old problem. But economics has some profound insights to offer. In free markets, competition serves to create market prices, which enable economic efficiency and cooperation on a global scale; competition creates strong incentives for firms to be accountable to their customers; competition from other firms limits the power of any one firm.

Competition between governments can bring these benefits to politics. But governments are large territorial monopolies, and citizens are basically captive given the costs of switching countries. Enter Patri Friedman (grandson of the famous economist Milton Friedman), a visionary who wants to build floating self-governing cities on the ocean. Patri analyzes governance as an industry, and points out that there has been practically no innovation at all since the advent of representative democracy. There are no start-ups experimenting with new ideas in governance. This is because the costs of entering the industry are enormous: since all land has been claimed by governments, you would need to win a war or a revolution.

Patri’s solution is to build on the ocean and open up a new frontier for startup governments to innovate and compete for customers. He founded the Seasteading Institute to make it happen. A similar land-based vision is promoted by the fellow-traveler Free Cities Institute. A related project is the Charter Cities initiative, which is essentially to replicate the Hong Kong model by creating special economic zones governed by market friendly rules.

Provided that international legal challenges can be overcome, these projects to create start-up governments and increase competition between governments could very likely radically transform the world. The benefits are too many to count, but I’ll list a few important ones. There would be much more choice of what type of society you could live in. More importantly, people in countries with bad governance (i.e., the third world) would have new opportunities to escape, especially since start-up countries would be seeking new residents. Competition would foster innovation and discovery of better rules and institutions that every other government could adopt. And emigration from bad countries to good countries would put competitive pressure on bad countries to shape up or lose its residents.

This decentralized, bottom up approach to revolutionizing politics is a great example of the power of spontaneous order. In fact, this was the central motivation for the whole Sporder project. Our long term goal is to create a virtual frontier—in a massively multi-player video game—to allow for the emergence of social order from within the game. Let a thousand nations bloom!

Here’s a short video of Patri Friedman explaining why seasteading is such an amazing idea:

Why the Sporder Approach? Or, Is Economics Enough?

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This could have easily become another blog about economics or politics or philosophy or current events, as all of us are eagerly interested and fairly qualified to comment on these subjects.  But we chose to center our blog around the idea of sporders.

I want to take a moment to describe why I think several economically-savvy bloggers, most of us aspiring to become professional economists, are taking a broader leap outside of normal “economics” to explore sporders.  Of course, this is just my own opinion and ex-post facto rationalization.  But nonetheless, I think this approach brings something new and useful to the table of understanding our world and seeking to improve it.  The sporder framework seems to be effective, honest, and interesting.   Continue reading →

Starling Murmuration Sporder

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Wired has an interesting article on the science of the spontaneous order of starling flocks, prompted by this amazing viral video:

There is no leader directing the flock. Each starling follows local rules, and order emerges on a global level.

Starling flocks, it turns out, are best described with equations of “critical transitions” — systems that are poised to tip, to be almost instantly and completely transformed, like metals becoming magnetized or liquid turning to gas. Each starling in a flock is connected to every other. When a flock turns in unison, it’s a phase transition.

At the individual level, the rules guiding this are relatively simple. When a neighbor moves, so do you. Depending on the flock’s size and speed and its members’ flight physiologies, the large-scale pattern changes. What’s complicated, or at least unknown, is how criticality is created and maintained.

It’s easy for a starling to turn when its neighbor turns — but what physiological mechanisms allow it to happen almost simultaneously in two birds separated by hundreds of feet and hundreds of other birds? That remains to be discovered, and the implications extend beyond birds. Starlings may simply be the most visible and beautiful example of a biological criticality that also seems to operate in proteins and neurons, hinting at universal principles yet to be understood.

Design woes for sporders

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I am almost 3 months into my first programming class (we are learning python), and I am starting to grasp some of the difficulties in programming sporders. I wanted to share a couple of my thoughts on the subject:

First, a reminder of what we are trying to accomplish:

The overall goal is to facilitate the emergence of a spontaneous order through human interaction in a video game medium. Sporders are a relatively common occurrence in video games, but when we create one we want to be consciously aware of what is happening, and be able to observe the process. By understanding what is occurring, I hope that we can repeat the process in the future (thus making is possible to do basic hypothesis testing).

Second, what are the troubles that might arise when trying to create a Sporder:

Sporders often take something simple and build upon it to make it more complex. Programming has been a process of taking a complex problem and breaking it down into simple code-able components. They are at odds with one another. When I think about how to make a sporder I often just find myself replicating each individual process that the sporder has created. In the end I have something with the functionality of the sporder, but none of the adaptibility that makes them interesting. I didn’t realize just how pervasive design bias is unless you try and program something.

Another problem is that I should have started learning how to program five years ago. Learning code is a process very similar to learning a new language, but with none of the forgiving ears of an actual human. Luckily it is an enjoyable process, and I often get the same satisfaction that I would from solving a difficult puzzle.

Third, and finally, some good news:

One of the programming assignments for my class involves creating Conway’s game of life. =)

 

The Sporder of Knowledge, Critical Rationalism, and a Bookstore

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I have particularly obsessed with epistemology in the last few weeks – that is, the nature of knowledge.  I’ve always found the subject interesting, but since my intellectual transformation to (and through) the Austrian school of Economics, methodology of the social sciences has always puzzled me.  Apriorism and extreme rationalism no longer sits well with me like it once did, so I am exploring its ontological possibility and its practical limits.  But that’s for another series of posts and probably a paper.

At the beginning of the summer, I wrote a blog post called “A Critical Rationalist Epiphany at a Bookstore” (on my old blog, now long gone), exploring the nature of critical rationalism and the sporder of knowledge.  I wrote this before we launched Sporder and I started re-framing most of my thoughts in terms of sporders.  I wanted to repost it here for two reasons (aside from the fact that I find the subject fascinating): 1) It deals with the sporder of knowledge and 2) I want to use it as a reference to dive more deeply into epistemology in some forthcoming posts.

And I am currently reading Popper’s Logic of Scientific Discovery so I am slowly gaining credibility to grapple with his ideas.

Below is the original post, unaltered:  Continue reading →

The Benefits of Increased Population

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Following up on Ryan’s post about population fears, I find it interesting that almost nobody ever mentions the substantial benefits of greater population. I’ll admit that I struggled with the economic arguments at first. It just seems so obvious that a population of billions is too much for the planet. My problem was that I was thinking of it as a physical problem rather than an economic one.

The economic argument for greater population is so simple that I’m surprised it didn’t occur to me right away. It rests on Adam Smith’s insight: “The division of labour is limited by the extent of the market.” Simply put, in a world of just one person, there would be no division of labor, and that person would (maybe) barely survive. With more people in the world, trade makes specialization and division of labor possible, greatly increasing each person’s productivity through economies of scale. Moreover, the range of consumer goods expands, as low-cost mass production of a good is economical only with a sufficiently large consumer market for that good. More people makes us all better off. Likewise, more trade makes us all better off.

As Matt Ridley argues in The Rational Optimist, as population has increased, our ecological footprint has shrunk. Greater division of labor has decreased each person’s ecological footprint so much that it more than offset the addition of more people. For example, greater efficiency in agriculture allows more people to move to cities and reduces the amount of land needed to produce food, both of which lessen our ecological impact. So more trade and more population is better for the planet too!

So rather than celebrate falling rates of population growth, we should really consider it as a bad thing, and encourage more child-having.