Tuesday, January 15, 2019

Assessing Potential Electability of 2020 Candidates

Harry Enten does an interesting job of assessing the electability of Democratic Senators that appear to be seeking their party's nomination in the 2020 presidential election. In his words:


I looked at how Brown, Klobuchar, Warren, Sen. Kirsten Gillibrand of New York, Texas' Beto O'Rourke and Sen. Bernie Sanders of Vermont did in their 2018 Senate races. Then I examined how Democratic US House candidates in those same states performed.

In other words, Enten took the percentage of votes that Democratic Congressional candidates won in the state as a baseline for candidate performance in the state and compared the percentage each Senator won to it. The implicit inference here is that if the Senator did better the baseline Democratic Congressional candidates in their state, then they are demonstrating a superior ability to win votes and hence are more electable.

While this inference would get more discussion in a scholarly paper, Enten is doing the kind of thing that social scientists do when trying to gain insight on future events (notice how I avoided using the word "predict" there), That is, they look to past events as an indicator of future ones and they identify a research question that can be answered through a systematic analysis of available data. This analysis an objective empirical finding, or what I like to call a " hard kernel of empirical truth," In the case of Enten's article, it is the findings reported in the following table:.

Most 2020 Democratic contenders outperformed the House baseline in their 2018 Senate races

2020 contenders Sherrod Brown and Amy Klobuchar strongly outperformed the baseline in 2018.

Democratic Senate candidate
Senate result*
House result*,**
Senate overperformance
Amy Klobuchar, MinnesotaD +24D +11+13
Sherrod Brown, OhioD +7R +5+12
Kirsten Gillibrand, New YorkD +34D +29+5
Beto O'Rourke, TexasR +3R +6+3
Bernie Sanders***, VermontI +40D +43-3
Elizabeth Warren, MassachusettsD +24D +36-12

Note that, by themselves, these empirical findings do not address the central question of the article, i.e., how electable will these Senators be in the 2020 Presidential election. Instead, they provide the basis for making inferences about how these Senators might perform, especially in comparison to one another. Thus, the hard kernel of empirical truth provides a springboard for making inferential leaps to a conclusion about the primary topic of interest. This is just the sort of things social scientists do all he tine.

Thursday, November 16, 2017

Partisan Gullibility: Two System Thinking and the Affect Heuristic

Jimmy Kimmel recently had some fun duping Trump supporters, first by promoting the Healthcare.gov site as "Trumpcare" and then by asking Trump supporters if they think Hillary Clinton should be impeached. In the first case, he was simply calling Obamacare by a different name, and in the second he was asking about impeaching someone who doesn't hold public office. When his targets fell for, much hilarity ensued.

But, in a way, this is somewhat unfair as he was taking advantage of a psychological blindspot that everyone has when thinking about things with which we are emotionally involved. I addressed the Two system model of thinking and the Affect Heuristics in the excerpt from a conference paper posted below. This excerpt explains the Two System model at some length (which should be generally useful for my students) before discussing the affect heuristic and how it makes people vulnerable to misinformation:

Kahneman introduces the two systems of thinking with a simple demonstration which is worth repeating here.  First, he asks you to look at the picture shown in figure 2 below
Figure 2:

(Kahneman, 2011, 19)

He notes that a single glance at the photo was probably enough for you to notice that the person in the photo was a woman with dark hair who appeared to be angry and was probably about to say something unkind. He goes on to point out that you probably deduced that without even intended to do so. Thus, you employed an automatic thought process that constitutes System 1, which he informally calls fast thinking.  In general, he notes that “System 1 operates automatically and quickly, with little or no effort and no sense of voluntary control. (Kahneman, 2011, 20)

He then asks you to look at a multiplication problem (17 x 24).  Here, he surmises that at first glance you were probably able to identify it as a multiplication problem that it involved 17 and 24. However, he suggests that most readers probably could not provide the correct answer to the problem (568) without spending some time computing the answer. Indeed, doing so would have involved some mental strain as most people would have to recall the steps of the process learned in school in a “deliberate, effortful and orderly” process that he notes is the prototype of System 2 or slow thinking. (Kahneman, 19-20)  He summarizes System 2 as follows:
System 2 allocates attention to the effort full metal activities that demand it, including complex computations.  The operations of System 2 are often associated with a subjective experience of agency, choice, and concentration. (Kahneman, 2011, 20-21)
While System 2 may be commonly associated with agency and choice, Kahneman points out that people use System 1 to do most of the things they do in life, such as carrying on a conversation, driving a car, or simple arithmetic (e.g., 2+2 =  ?).  Most of things that people do repeatedly in life, they do without ‘stopping to think’ about doing so. System 1 is what allows them to do so. In contrast, ‘stopping to think’ requires an exercise in self-control to stop other activities and devote cognitive effort to thinking, both of which are requirements of using System 2.
The seeming effortlessness of System 1 belies its complexity as can be seen in Kahneman’s description of its main function:
“The main function of System 1 is to maintain and update a model of your personal world, which represents what is normal in it.  The model is constructed by associations that link ideas of circumstances, events, actions, and outcomes that co-occur with some regularity, either at the same time are within a relatively short interval.  As these links are formed and strengthened, the pattern of associated ideas comes to represent the structure of events in your life, and it determines your interpretation of the present as well as your expectations of the future.” (Kahneman, 2011, 71)
So, System 1 is doing a lot more than just memorizing that 2+2 = 4. Rather, it is modeling and monitoring the world as one knows it, as well as interpreting and predicting events. Most importantly, it is doing so continuously and automatically with little effort.  Thus, it is doing the kinds of things specified by Burke’s model of identity verification and Gidden’s conception of practical consciousness.

As remarkable as System 1 is, Kahneman points out that it has many quirks. First among these is an ability, that tends towards bias, for finding causal connections. To demonstrate this, Kahneman offers the following brief statement:
 “Fred’s parents arrived late. The caterers were expected soon. Fred was angry.” (Kahneman, 2011, 74)

He notes that most people will automatically understand that Fred was angry because his parents arrived late, not because the caterers were expected soon. In so doing, System 1 is identifying a causal connection between Fred’s anger and one thing (the parents’ late arrival) and not another (the imminent arrival of caterers). While this is very useful for understanding the passage, Kahneman notes that System 1 tends to jump to conclusions. It is prone to impressions of causality and therefore offers a causal link between Fred’s anger and one of the other statements in the passage. It does this based on the information provided without questioning the information’s completeness or quality. As Kahneman puts it:
 “System 1 excels at constructing the best possible story that incorporates ideas currently activated, but it does not (cannot) allow for information that it does not have…  The measure of success for System 1 is the coherence of the story it manages to create.  The amount and quality of the data on which the story is based are largely irrelevant.  When information is scarce, which is a common occurrence, System 1 operates as a machine for jumping to conclusions.”  (Kahneman, 2011, 85)

Of course, System 2 is available to question the conclusions to which System 1 jumps, but there are several obstacles to System 2 doing so. First, using System 2 requires concentration and effort. System 2 does one thing at a time, which means it must block out other activities to work and cannot work if distracted. Maintaining the self-control also consumes mental energy and can led to ego depletion which impairs the functioning of all mental activity. As a result, Kahneman describes System 2 as “sometimes busy and often lazy.” (Kahneman, 2011, 81 )

Kahneman notes that both System 1 and System 2 have a confirmation bias resulting from a tendency to employ a positive test strategy that searches for confirming evidence rather than disconfirming evidence. For instance, if asked whether an acquaintance is friendly, people will tend to search their minds for instances of that person being friendly instead of instances in which the person was unfriendly. While people can learn to employ other strategies, and those individuals that do so repeatedly on a day-to-day basis may even train System 1 to do so (just as a few people might be able to automatically give the answer to 17 x 24 or a chess master can unhesitating play against several lessor opponents), Kahneman argues that most people do not have an intuitive grasp of the statistical principles used to test empirical hypotheses.(Kahneman, 2011).

More importantly, for the purposes of this paper, System 2 is susceptible to an affect heuristic through which their emotional likes and dislikes affect their beliefs about the world. While there are many instances when System 2 is able to resist accepting the conclusions to which System 1 jumps and apply logical analysis, System 2 is less able to do so in situations in which the affective attitudes and beliefs are involved. In such cases, Kahneman describes System 2’s functioning as follows:
“…System 2 is more an apologist for the emotions of System 1 than a critic of those emotions – an endorser rather than an enforcer. Its search for information and arguments is mostly constrained to information that is consistent with existing beliefs, not with an intention to examine them. An active coherence-seeking System 1 suggests solutions to an undemanding System 2.” (Kahneman, 2011, 103 - 104)

To see this in action, consider the photo in figure 2, which made the rounds in forwarded emails circa 2002 (in the days before Twitter and Facebook. The photo seems to show then-Senate Majority Leader Tom Daschle using the wrong hand to salute during the pledge of allegiance. The accompanying text usually interpreted the photo as evidence of how clueless and/or unpatriotic Daschle and Democrats were.
Figure 2

(Source: https://www.truthorfiction.com/daschle/)

Of course, it is patently absurd that a Senator would not know which hand to use in the pledge, or for that matter where his own heart was, but it takes close and careful examination of the photo to determine that it is photo-shopped. Specifically, one needs to notice that Daschle’s suit jacket is buttoned the wrong way and that hand he is using does not have a wedding ring or wristwatch on it as it would if he was saluting with his left hand. To do that kind of methodical analysis requires using System 2 and, therefore, requires an individual to devote some concentrated cognitive effort to the task. Most importantly, this requires someone to choose to devote that effort because System 2 does not function automatically.

The implication of the affect heuristic is that people who have a positive emotional response to the image, or more precisely the conclusion to which System 1 jumps when interpreting the image, will be unlikely to engage System 2 to question it. Indeed, if system 2 is engaged in such a case, it is likely to search for confirming rather than disconfirming evidence for System 1’s conclusion. Therefore, someone who is emotionally committed to being a partisan Republican, or to the non-partisan view that all politicians are idiots, would have a very hard time not believing that this photo is authentic.  Conversely, someone who is a partisan Democrat would be motivated to use System 2 to reject the implied message of the photo (not to mention the explicit message that accompanied it in the forwarded emails).  It is important to note that this appears to be the ‘correct’ response only because we know that the photo is a fake.

PS- It is vital to keep in mind that the affect heuristic is not unique to republicans but rather is something to which we are all vulnerable.


Monday, November 13, 2017

Dusting Off the Old Blog

It seems like most blogs have a post in them somewhere in which the blogger makes groveling apologies for neglecting it. This is one of those.

I pushed back from the blogging table a couple years ago as I became concerned that I was overwhelming students with too many posts (which were being assigned as course readings).

Then along came Trump and all the oxygen got sucked out of the daily news cycle. I didn't want to be constantly commenting on or fact-checking Trump, but I was nevertheless caught up in exactly that.

But now I am pushing past that and trying to get back on track. As part of that effort, I have established a Facebook page at https://www.facebook.com/ThinkingAboutIR  This will constitute my frontpage, if you will, and I will be posting links to and comments on news items there.

This blog will continue to function as place for me to, as the name implies, think out loud about various issues in IR. In particular, I am going to be discussing the link between identity driven behavior and populism. Of course, other topics are likely to come up as well. 

Wednesday, March 22, 2017

Innovation and Creative Destruction

Mark Perry recently has a useful post on the economics lessons from the demise of Gander Mountain. This post is particularly useful for explaining the ideas of creative destruction and consumer sovereignty.

How the mighty are fallen: Back in 2015, Mark Perry noted that only 12% of the 1955 Fortune 500 companies were still on the list in 2015.  He gives American Motors, Brown Shoe, Studebaker, Collins Radio, Detroit Steel, Zenith Electronics, and National Sugar Refining as examples of corporations that were on the list in 1955 but in 2015. Newcomers to the list since 1955 include Facebook, eBay, Home Depot, Microsoft, Google, Netflix, Office Depot and Target.

Innovation and Growth: In another AEI blog, James Pethokoukis reports on research  by Leonid Kogan, Demitris Papanikolaou, Amit Seru, and Noah Stoffman that measures innovation in terms of patents issued to companies from 1926 to 2010 and the stock market response to those patents. The combination gives the a way to measure the economic significance of  the innovation contained in the patent.


Creative Destruction: The face of innovation only an economist could love: All the above is fine and good, but it should be obvious that creative destruction is destruction nonetheless and the creativity of it is probably lost on the people having their livelihoods destroyed.


Monday, April 11, 2016

China's Currency Today

When it comes to China's currency, and their supposed manipulation of it, you've got to keep on top of changing mid-term circumstances and policies. That is to say, what was true a couple years ago may not be true today.

In a past post, which I assigned to several iterations of IPE students, I focused on research from around 2014 that was itself largely focused on the 2012 political debate about Chinese currency manipulation. To my mind, the most interesting factoid there was Gagnon's finding that, while China had been manipulating the value of the RMB after moving to a crawling peg, the large purchases of T-bills that kept the value of the Yuan down had largely stopped in 2011. In other words, by the time Mit Romney was complaining about China's manipulation, the Chinese had already changed their behavior.

Unfortunately, the political debate has not caught up to that reality in the past four years, even while the reality has been changing even further. Indeed, David Goldman invoke Alice in Wonderland imagery in describing the political rhetoric in his column "Alice in Trumperland and China’s currency." (Note: if you are one of my IPE students, you really need to read this article in its entirety.)

Where Gagnon had to dig down into the data on monthly purchases of T-bills to discover China's change in behavior in 2011, Goldman needs only to look at broader measures to see the situation in 2016. Goldman notes the following:

  1. The RMB's real effective exchange rate has gone up 40% since 2008. (Note: This is not the Yuan/Dollar rate but the rather the rate of exchange between the Yuan and a basket of currencies.)
  2. Since 2008, the annual growth in US imports from China has dropped dramatically since 2008.
  3. The trade weighted value of the Dollar has risen over 25% since 2014 while the Yaun/Dollar rate has fallen slightly. This is what dragged the value of the RMB up so much against the other currencies in the world.
  4. Chinese refusal to let the RMB fall (more) vs the  Dollar correlated with later drops in Chinese exports. China also had to maintain high domestic interest rates to keep up with the Dollar's rise.
The point here is that if you look at the RMB/Dollar exchange rate, you won't see much movement in the past few years. However, this ignores the fact that the world is bigger than the US and China. To see a little more about what is going on in the world, the graph below shows the trade weighted dollar index from 2000-2016. This shows how the dollar was doing against the major currencies of the world. As you can see below, the Dollar was declining in value from 2002-2008, fluctuated in and after the Great Recession, and then stayed more or less from 2012-2014. Then, BAM!, it shot up in 2014-2016.


Note that from 2002-2008, the Dollar was generally declining in value and, therefore, pegging the RMB to the Dollar meant riding down with the US exchange rate. This meant that the Dollar was not devaluing against the RMB as much as it was against other currencies while at the same time essentially devaluing the RMB against those currencies

However, thing look very different since 2014. The Dollar has shot up in value in the past few years and the Chinese have, apparently to their detriment, not only gone along for the ride, but worked at keeping up. These efforts may be deemed "currency manipulation" but it has been manipulation that has prevented a devaluing of the RMB versus the Dollar (in other words, the opposite of what they would do to maximize exports to the US).

Indeed, if the RMB was fully floating, it would probably have dropped in value versus the Dollar as the latter jumped up in value in 2014. For this reason, one might claim the the RMB is currently overvalued. Again, this is the opposite of what US critics of China claim.

Postscript: Goldman's column alluded to Donald Trump in the title, but the body focused on a talk radio host attacking Cruz. However, Trump does make the standard currency manipulation charges against China in this Op-Ed from November 2015 (reprinted this April). What strikes me when I read it is that the language might be straight out of something written in 2012, including the vague reference to economists estimating that the Yuan is undervalued 15-40%. This runs counter to the tenor of most current commentary about the government trying to prop up the RMB.

  Interestingly enough, the top result Google news search for "China Currency" turns an article in Barron's entitled "Sorry, Trump, but Chinese Currency Is Actually Way Overvalued", with a subtitle of "Amid other bizarre episodes, allegations of China’s cheapening of its currency remain contrary to facts."  (Note: This article largely relies on Goldman's column for its content.)

Thursday, April 07, 2016

Unusually Good Column on the US Trade Deficit

Steve Chapman wrote an unusually well informed column for the Chicago Tribune, "What Donald Trump and Bernie Sanders don't get about the causes of our trade deficit."

Most of Chapman's column rehearses the argument that the US trade deficit is driven by the US capital account surplus. He couches this in terms of Trumps frequent lament that the US "doesn't win anymore" and that the trade deficit is one example of the US losing. Chapman points out that the trade deficit is a result of a capital or investment surplus and is, therefore, evidence of the US winning with regard to attract foreign investment. He notes:

The little-known secret of international commerce is that foreigners can't invest more here than we invest abroad unless they also sell us more than we sell them. This is not a matter of academic theory. It's a matter of accounting.
The late economist Herbert Stein wrote the entry on "balance of payments" in "The Concise Encyclopedia of Economics." "A deficit in the current account is always" — always — "accompanied by an equal surplus in the capital account, and vice versa," he noted.
Confronting that simple fact means recognizing that the trade deficit is merely the flip side of a healthy phenomenon. If no one wanted to invest here, we'd be running a trade surplus — and we'd regret it.

Thursday, January 07, 2016

US Voters: Economic Anxiety and Political Anger

Politico Magazine had an interesting op-ed a month ago entitled "Why Bernie Sanders Can't Win." In it, Daley, Cowan, and Hatalsky of the Third Way (a centrist think tank) argued that, based on their surveys and focus groups of voters, Bernie Sander's populist stance wasn't going to win most of those voters.

What I found interesting was Daley, Cowan and Hatalsky's diagnosius of swing voters' view on the economy. They found that voters were more anxious than angry about the economy. Where Sanders and Occupy-esque activist are trying to stoke anger about the economy being rigged to favor the so-called 1%, swing voters don't see the economy as rigged against them. Instead they are anxious about the qualitative changes that have occured in how the economy works. As the authors put it:

So what are middle-class voters looking for in an economic platform? An agenda that makes these huge, scary economic forces work for the middle class, not against them. When Kodak went under, 145,000 jobs disappeared—not because of unfairness but because we take pictures on our iPhones. Airbnb was just a twinkle in someone’s eye five years ago. Next year, it will serve more visitors than the entire Hilton chain but employ fewer people than North Dakota has hotel desk clerks. Borders Books has all but disappeared because of the Kindle; 300,000 sales jobs have vanished thanks to Amazon. People live in this world; they’re part of it, and they know it’s not because a handful of rich guys are pulling the strings.
 Since that is the world voters see, the main populist economic ideas seem aimed at the wrong targets and tethered to a different time. Expand Social Security for everyone? That would cost trillions and confer a huge share of its benefits to wealthy, married senior couples. Single-payer health care? That comes with a $15 trillion price tag, a giant increase in middle class taxes, and another huge government program. Doubling the minimum wage to $15? All Democrats want to raise it, but a bump of nearly $8 nationwide would cost far too many jobs. All told, core populist policies would increase taxes on someone earning $60,000 by over five thousand dollars. And not a single one of these ideas addresses the middle class anxieties that are driven by the modern economy.
That’s why populist economic policies may poll well in the abstract, but most voters feel they do little to address their own concerns. In our focus groups, they felt that the populist proposals simply were not relevant to their own lives. Over and over, we heard variations on this: “Democrats are for the poor; Republicans are for the rich. No one fights for the middle class.” And tellingly, though every voter in our groups supported raising the minimum wage, not a single one thought it would directly help them or their family.
If voters believe the biggest challenge they face is navigating a new economy, then Democrats must have an agenda to meet that challenge. Voters know we can’t go back to the way things were. As one female swing voter from the Northeast said it, “I do not think we will ever ‘recover’ to the same place or economy we were before.” A male swing voter from Virginia described it this way: “The printing industry is not going to be what it’s going to be anymore, and soon everybody starts moving towards something else, transitioning towards something else, the better it’s going to be.”
American voters see a brave new economic world. They want a real path to the skills, jobs, and wages they need to succeed, and a modern set of policy ideas made for this irreversible age of globalization and technological change.
The authors move on to analyze Democratic electoral chances but I think the above paragraphs lay out an interesting diagnosis of voter views. It is interesting because the views described by the authors are exactly the views I would say voters should have based on everything I know about the modern global economy. So, if the authors' analysis is correct, voters appear to be fairly prescient.

Of course, this begs the question of why politicians aren't equally prescient.