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October 18, 2009

Economist's View - 4 new articles

Global Warming in SuperFreakonomics: A Reply to Critics

Stephen Dubner replies to critics. Paul Krugman replies briefly to Dubner in the process of a "broader analysis of what it all means."

The Pundit's Dilemma

Mark Liberman at Language Log says the game theory can explain why pundits "best move always seems to be to take the low road":

...Overall, the promotion of interesting stories in preference to accurate ones is always in the immediate economic self-interest of the promoter. It's interesting stories, not accurate ones, that pump up ratings for Beck and Limbaugh. But it's also interesting stories that bring readers to The Huffington Post and to Maureen Dowd's column, and it's interesting stories that sell copies of Freakonomics and Super Freakonomics. In this respect, Levitt and Dubner are exactly like Beck and Limbaugh.

We might call this the Pundit's Dilemma — a game, like the Prisoner's Dilemma, in which the player's best move always seems to be to take the low road, and in which the aggregate welfare of the community always seems fated to fall. And this isn't just a game for pundits. Scientists face similar choices every day, in deciding whether to over-sell their results, or for that matter to manufacture results for optimal appeal.

In the end, scientists usually over-interpret only a little, and rarely cheat, because the penalties for being caught are extreme. As a result, in an iterated version of the game, it's generally better to play it fairly straight. Pundits (and regular journalists) also play an iterated version of this game — but empirical observation suggests that the penalties for many forms of bad behavior are too small and uncertain to have much effect. Certainly, the reputational effects of mere sensationalism and exaggeration seem to be negligible. ...

I think it's correct that the penalties pundits face for "many forms of bad behavior are too small and uncertain to have much effect," but I'm not sure that was always true to the extent it's true today. So the question to me is why the tolerance for this behavior has changed over time (has it changed?).

I'm not sure I know the answer to that, but I suspect it has something to do with increased competition among media companies for eyeballs and ears combined with profit incentives that cause information organizations to maximize something other than the output of credible information (maximizing profit may not be the same as maximizing the output of factual, useful information).

Though this type of behavior was always present in the media, it seems to have gotten much worse with the proliferation of cable channels and other media as information technology developed beyond the old fashioned antennas on roofs receiving analog signals. I don't want to go back to the days where we had an oligopolistic structure for the provision of news (especially on network TV), competitive markets are much better, but there seems to be a divergence between what is optimal for the firm and what is socially optimal.

Some people have argued that there are big externalities to good and bad reporting, and therefore that "some kind of tax credit scheme for non-entertainment news reporting might enhance societal efficiency and welfare." That might help to change incentives, but I'm not sure it solves the fundamental problem. There must be reputation effects that matter to the firm, some way of making the firms pay a cost for bad pundit behavior. But that is up to the public at large, people must reward good behavior and penalize bad, it is not something the government can control. I suppose we could try something like British libel laws to partially address this, but looking at the UK press does not convince me that this solves the problem.

So I don't know what the answer is. It drives me crazy that, for example, people invited to appear on CNN will say something that is an outright lie, and the person saying it clearly knows it is a lie or misrepresentation, but yet they get invited back anyway due to their entertainment value. Why isn't the rule that if you lie once on the air, you can never come back again? No matter what they say or how accurate they are, the line-up on the news, op-ed pages, etc., etc., is pretty much the same tired old group of people who have proven they will say controversial things that draw ratings. And that is what matters, never mind the accuracy.

The distressing part is that there doesn't seem to be a good way to change these incentives so long as the public continues to lend their eyeballs and ears to those who play this game.

Is there a solution?

links for 2009-10-17

"An Obama Report Card"

Alan Blinder grades the administration's accomplishments on macroeconomic and banking issues:

Comedy Aside, an Obama Report Card, by Alan Blinder, Commentary, NY Times: First, "Saturday Night Live" parodies President Obama's "achievements." Then Mr. Obama wins the Nobel Peace Prize, bringing yet more head-scratching. Clearly, the nation's attention is focused squarely on a question few presidents want to answer just nine months into their term: What has your administration accomplished?
I'll leave foreign and military affairs to the Oslo Five and concentrate on domestic economics. ...
Stopping the Slide Let's remember that the new president was dealt a dreadful hand on Inauguration Day — including a shattered financial system and a national economy teetering on the brink of disaster. The administration's chief accomplishment to date surely is devising and executing — with huge assists from the Federal Reserve — a comprehensive program to pull us back from the abyss. ... Thus Job No. 1 — stopping the train wreck — appears to have been done rather well.
Enacting the Stimulus Package The much-maligned fiscal stimulus has been criticized from both the left (as too small) and from the right (as too big, especially the spending parts). My own judgment is that both its magnitude and composition were reasonable, though not perfect. But ... speed of enactment merits substantial weight in the overall grade. By that standard, the stimulus package scores well — especially considering that Republican obstructionism... Give it a B or B+.
Rescuing Banks ...[T]he Treasury secretary ... wisely resisted the siren songs coming from both the left ("nationalize the banks") and the right ("let 'em fail"), opting instead for the high-risk "stress tests" of 19 big financial institutions. Today, all 19 are alive and breathing. None have been nationalized. ... Most are not just showing a pulse but also actually have pink in their cheeks. ... (In fairness, the Fed and other regulators deserve great credit for executing this delicate task so skillfully.)
So give the bank rescue plan an A–. The minus comes from being too soft on many banks and bankers, who failed us and then benefited from public largess.
Reducing Foreclosures Mr. Obama's efforts to mitigate foreclosures have been more modest — and less successful. ... Give them a C.
Trying for Regulatory Reform While it is still only a set of proposals,... the Treasury worked at breakneck speed ... to produce an intelligent and comprehensive set of financial regulatory reforms after just five months in office. The ... proposals ... are not perfect. ... And I continue to be distressed that the president, having overloaded his plate, has been unable to devote enough time and effort to pushing the proposals through Congress — leaving the lobbyists far too much running room.
At this point, we can't even guess what may pass. So give this policy an "incomplete," noting, however, that the first draft shows promise.
Etc. In addition to these efforts on the macroeconomic and financial fronts, the president appears to be making some headway on health care reform... By contrast, the betting is against getting through Congress a cap-and-trade system for reducing carbon emissions.
On balance, then, this assessment leads to a Nobel-like verdict in the areas of financial regulation, health care and energy: the ideas have great merit, but any real achievements are hopes for the future. They don't award prizes for that in Washington, even if they do so in Oslo.
Yet on the crucial macroeconomic and banking issues,... Mr. Obama's accomplishments in just nine months are palpable and were very much needed. ...

Let me add one more category, how the benefits from the stimulus package and the bank bailout package have been distributed. With so many of the benefits of the financial bailout accruing to the same people and institutions that helped to cause the problems, with employment still lagging, and with social insurance programs to help those who cannot find employment coming under increased budgetary pressures, particularly at the state and local levels, it seems evident that the distribution could have been much better without compromising (and perhaps even enhancing) the speed of recovery.

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