Author: ken

Economics and Wizardry

Economics may no longer be the “dismal science,” the English historian Thomas Carlyle once said it was. So many students are drawn to it today and go on to enjoy lively and lucrative careers. Some can even become celebrities and earn Nobel Prizes along with considerable stature and respect. But how much of a science is it?

Two economists writing for Project Syndicate have suggested that it was pseudo-scientific models of economic behavior and financial risk that contributed to the financial meltdown 5 years ago: “These models provided the supposedly scientific underpinning for policy decisions and financial innovations that made the worst crisis since the Great Depression much more likely, if not inevitable.”

Driven by pressure from banks and other financial institutions to leverage their assets as much as possible, economists devised models that claimed to forecast precisely the risk they faced. In retrospect, according to Roman Frydman and Michael Goldberg, they placed too much faith in their models.

There is plenty of blame to go around: the mortgage industry that made mortgages available to those who could not afford them, the regulators who looked the other way, the rating agencies who handed out AAA ratings without understanding the derivatives they evaluated, legislators who removed safeguards, etc, etc. Clearly the credit bubble that led to the crash and the Great Recession from which we are still struggling to emerge was a kind of mass mania that swept up the whole industry, a process where competition and greed trumped reality.

But one benefit might be a more realistic appreciation of what economists can and cannot do, and the relationship between their models and fiscal reality. Freydman and Goldberg add, “We must accept what economic analysis cannot deliver in order to benefit from what it can.” That means: “Rather than trying to hit precise numerical targets, whether for inflation or unemployment, policymaking [should] dampen excessive fluctuations. It thus responds to actual problems, not to theories and rules.” (See “Did Capitalism Fail?)

Interestingly, that would bring it back to the realm of real science, away from the wizardry it was seen as being. Real scientists know the difference between a model and reality. That’s why they constantly test and retest, experiment and observe. Old theories are replaced with new, as scientists more than anyone else appreciate the gap between what they think and what they know.

Economists could learn to think that way too – and many already do. Investors and speculators, of course, will seize on any advantage they can to get ahead of the markets. And they will probably rush to conclusions prematurely. So it might be a good idea to label economic models, like other consumer products: “MAY BE DANGEROUS TO YOUR HEALTH,” or “EXPIRES IN SIX MONTHS.”

Right now, many in the industry still remember the debacle of 2007 and their part in it. But new bankers coming along will not, while many old bankers will eventually come to be persuaded the problems of reliability have been solved. More important, the pressure of competition in the financial industry will not abate.

How can they remind themselves that managing risk is more complicated that they want to believe?

The Income Gap Grows

The campaign for Mayor of New York City pits a Republican defender of the retiring billionaire, Michael Bloomberg, against a severe critic who is calling for higher taxes on the rich. The media is calling it “class war.”

A new analysis of the income gap suggests that may be plausible: Last year, the “top 1 percent took more than one-fifth of the income earned by Americans.”

A closer look at the recovery from the Great Recession, suggests how the rich have rebounded: “The new data shows that the top 1 percent of earners experienced a sharp drop in income during the recession, of about 36 percent, and a nearly equal rebound during the recovery of roughly 31 percent. The incomes of the other 99 percent plunged nearly 12 percent in the recession and have barely grown — a 0.4 percent uptick — since then.” The economists conclude: “Thus, the 1 percent has captured about 95 percent of the income gains since the recession ended.” (See, “The Rich Get Richer Through the Recovery.”)

The last time the income gap was this great, the world was convulsed with revolution, and governments toppled. In the 30’s, a vast army of unemployed marched to Washington and camped out on the Mall. The new president, Franklin Roosevelt, feared an insurrection. The Times noted in its account of this recent report that not only is the income gap growing but also the employment situation is not getting significantly better: “businesses are under no pressure to raise their employees’ incomes because both workers and employers know that many people without jobs would be willing to work for less.” It summed up the situation with another stunning statistic: “The share of Americans working or looking for work is at its lowest in 35 years.”

The idea of class war is looming up around the edges of our consciousness. It’s far from imminent, and it frightens people to go there. But as the Occupy Wall Street movement demonstrated two years ago, it doesn’t take much to spark an outbreak in this climate. A potential army is in reserve, over-indebted students, displaced former home-owners, the unemployed and underemployed, as well as uncounted angry citizens who see the system stacked against them.

This accumulated frustration and disappointment is hard to measure, but that hardly means it isn’t there. The rush to see the mayoral race in these terms is a sign, not to mention the increasing willingness of politicians to raise the issue. Charles Blow pointed out, “a Gallup poll released Thursday found that one in five Americans say they have struggled to afford food in the last year and that access to basic needs is near a record low.” He also cited a Pew Center poll that found, “fewer than 8 percent of respondents thought that, after the recent recession, government policies have helped the poor, the middle class or small business a great deal. About five times as many believe they’ve helped the wealthy, large banks and other financial institutions, and large corporations.” (See, “Occupy Wall Street Legacy.”)

Something is happening here.

What Can be Changed?

It is no longer just a matter of opinion. Evidence has been accumulating that shows exposure to violence on TV and the movies increases the likelihood that people will act violently in life.

The debate used to be different, more a matter of prejudice and social class. Those who deplored violence on the screen may well have feared its impact on the young, but, more importantly, they deplored what was happening to popular culture. Violence was — how to put it? – lower class. Punks went into boxing, while the children of the affluent went into business. Poor kids brawled and poor neighborhoods erupted in violence. People in wealthy neighborhoods read books and mowed their lawns. Those were stereotypes, of course, but in the absence of hard evidence they underlay the discussion and shaped opinion.

But then popular culture, including gangsta rap and dirty dancing went mainstream. Many may have deplored those changes, but increasingly they kept their opinions to themselves. Violence became democratized.

Now we have evidence. According to a report in The New York Times, “There is now consensus that exposure to media violence is linked to actual violent behavior.” That is different from saying media violence causes violent behavior, and there are serious questions about the strength of the effect, but increasingly studies seem to be moving researchers in that direction. According to a review of the literature published in The Lancet: “The weight of the studies supports the position that exposure to media violence leads to aggression, desensitization toward violence and lack of sympathy for victims of violence, particularly in children.” (See, “Does Media Violence Lead to the Real Thing?”)

Will this change the debate? And, if so, how?

It is a bit like pollution and global warming. We keep spewing out the gases that block warm the atmosphere. The economy demands it, and we are hooked on the standard of living that inevitably produces it. Increasingly we understand the consequences of this behavior and we can modify it to some extent, as we sometimes have done by regulating automobile emissions. We seek alternatives, but despite what we can do, we will still be stuck with levels of pollution that will inevitably raise global temperatures. We lack the will and the political ability to make the radical changes we need to make to do anything but slow the process down.

Similarly, our culture glorifies struggle and combat. We have the highest prison population in the world, and if we are not at war with Iraq or Syria, we are at war with drugs or cancer or each other over issues like teaching evolution or offering birth control. We can’t regulate the sale of guns. According to The Children’s Defense Fund: “The number of children and teens killed by guns in 2010 was nearly five times the number of U.S. soldiers killed in action that year in Iraq and Afghanistan.” (See Blow) The stories that capture the attention of the public are about threats of annihilation, intergalactic warfare, gang fights, evil plots to take over the world, etc.

To be sure, much of this is displaced frustration from lives of boredom or thwarted ambition or suppressed desire, the varied ways in which we do not actually act violently towards each other. But our culture does seem obsessed with violence, and as long as that is so we will be imagining it — and it will erupt with alarming frequency.

Perhaps the answer – to the extent there is one – is to get better at just accepting who we are.

The Mind Never Stops

Some unsurprising news about the mind: “even when people stayed asleep, the noise of planes taking off and landing caused blood pressure spikes, increased pulse rates and set off vasoconstriction and the release of stress hormones. Worse, these harmful cardiovascular responses continued to affect individuals for many hours after they had awakened and gone on with their days.”

We may go to sleep and find rest, but our brains never stop responding to stimuli. In the service of our evolutionary struggle for survival, they never stop working. But there is also a price to pay.

As reported in The New York Times: “Dr. Wolfgang Babisch, a lead researcher in the field, went on to say, there is no physiological habituation to noise. The stress of audible assault affects us psychologically even when we don’t consciously register noise.”

Our conscious minds, on the other hand, do get habituated. We gradually stop paying attention to repeated sounds. Those of us who live in cities screen out the background noise of traffic, the underground rumbling of subways, the hubbub of sidewalk conversation. Sometimes we don’t even hear the sirens that try to cut through the normal cacophony of city life. But, Dr. Babisch, is saying, our unconscious is always alert and that always affects our psychological well-being.

And so too are our bodies, and that’s what causes stress. As George Prochnick reported in The New York Times, “Indeed, our capacity to tune out noises — a relatively recent adaptation — may itself pose a danger, since it allows us to neglect the physical damage that noise invariably wreaks.”

He cites a report of the World Health Organization that “conservatively estimates . . . Western Europeans lose more than one million healthy life years annually as a consequence of noise-related disability and disease. Among environmental hazards, only air pollution causes more damage.” (See, “I’m Thinking. Please. Be Quiet.”)

Many cities already have regulations concerning acceptable noise levels, and this new research when it is replicated and publicized will no doubt intensify the pressure to legislate noise levels more thoroughly. It is quite common to see “No Horn Blowing” signs or noise barriers erected when Interstates pass through residential communities. But what to do about airports, jackhammers, bulldozers, lawnmowers – the accumulated and now seemingly indispensible accompaniments of modern life?

People have known about the potential damage to their ears from excessive noise; they cover them up when a train screeches past them in an underground station or when they walk past a construction site. But how do you protect yourself from the physiological stress? The loss of concentration? The disruptions and distractions now built into contemporary life?

It looks as if that will be up to us as individuals. Having this research lends support to out intuitive understanding of the stress that noise forces us to cope with. But as The Times pointed out: “In American culture, we tend to regard sensitivity to noise as a sign of weakness or killjoy prudery.”

It will take a while to change that.

Visions of Frankenstein

There has been a lot of excitement about neuro-scientists at M.I.T managing to plant a false memory in the brain of a mouse. The New York Times suggested that this provided “detailed clues to how such memories may form in human brains.”

Dr. Tonegawa, head of the research team, went on to ask: “Why is our brain made in such a way that we form false memories?” He noted the importance of making people “realize even more than before how unreliable human memory is,” particularly in criminal cases when so much is at stake. He speculated that it might have “to do with the creativity that allows humans to envision possible events and combinations of real and imagined events in great detail.” (See “Scientists Trace Memories of Things That Never Happened.”)

The Guardian’s more sober account of this new research, made it clear to their readers how complex memory actually is. Chris French, the head of a Psychology Research Unit at Goldsmiths, University of London, said: “Memory researchers have always recognised that memory does not, as is often assumed, work like a video camera.” It is “a reconstructive process,” built out of recalled incidents, images and emotions newly put together in the brain each time we remember something. As a result, every memory is different. The same events will be recalled differently at different times.

Yes, one could say, it is a “creative” process, but it’s more useful to think of it as adaptive. Each time we remember an incident from the past, we are drawing on associations that are relevant to our particular context in the present moment. The memory changes because what we need to remember at any given moment is also changing.

In other words, what the researchers did was not so much “create” a memory as insert an additional association, caused by an electrical shock, to an existing memory. That is not insignificant, as the precision in mapping the brain and the technology of inserting stimuli are remarkable achievements.

But as the researcher at Goldsmith’s cautioned: this is “far simpler than the complex false memories that have generated controversy within psychology and psychiatry, for example false memories of childhood sexual abuse, or even memories for bizarre ritualised satanic abuse, abduction by aliens, or ‘past lives’.” (See “False Memory Implanted in Mouse’s Brain.”)

The accounts of this research in the news, however, conjured up just those kinds of associations. Partly, of course, it’s just hard to grasp the meaning of a real scientific advance. But it also speaks to our continuing anxiety about what science is capable of doing to us, the Frankensteins it creates, or the surveillance and control it enables others to exert over our lives.

We crave the miracle cures that extend our lives, the technological breakthroughs that extend time and space, the virtual worlds that entertain us. But we also fear the weapons of mass destruction, “Frankenfoods” and other genetic improvements to our lives, implants, chemicals, the invasion of our bodies and minds. Our popular culture is haunted by Zombies and robots, vampires and aliens. Dystopian visions play at our multiplexes.

If our memories can be tampered with, we fear, what will be left that can’t be taken away?