what forms of psychological manipulation will we consider to be acceptable business models?

--- James Williams, author of Stand out of our Light: Freedom and Resistance in the Attention Economy (CUP 2018), speaking on the Talking Politics podcast 25 April, 2018, at timecode 24:39

The fundamental question for society to answer is, what forms of psychological manipulation will we consider to be acceptable business models.

... a model ... should yield answers we believe to questions that matter

--- Paul Romer, in his 2015 blog post Speeding-up and Missed Opportunities: Evidence reflecting on the 25th anniversary of the publication of his paper "Endogenous Technological Change" (JPE 1990)

The bar I set for a model is that it should yield answers we believe to questions that matter. For a model of growth, the two questions that matter most are ...

What forms of psychological manipulation will we consider to be acceptable business models?

--- James Williams, doctoral candidate at the Oxford Internet Institute, speaking on the Talking Politics podcast, April 25, 2018, ahead of the publication of his book Stand Out of Our Light: Freedom and Resistance in the Attention Economy.

“The fundamental question for society to answer is, What forms of psychological manipulation will we consider to be acceptable business models?” (timecode 24:40)

Lots of great stuff in this discussion; for example:

“That’s what’s one of the rhetorical risks in the near term: Political issues will be reframed as design issues.” (timecode 28:10)

Disciplines are now defined too much by methods rather than by questions

--- Economist Hamish Low, in Exams and Expectations: The art and science of economics at Cambridge, The Economist, 24 December 2016

Quote in context:

Hamish Low, a Cambridge professor who works in applied economics, does not mourn the loss of philosopher kings’ grand intellectual debates. “Now we need to be much more evidence based”, he says. But the discipline’s development has come with a cost. The specialisation associated with expertise can encourage narrow thinking. “Disciplines are now defined too much by methods rather than by questions”, Low says. This narrowness feeds through to policy advice, which too often applies established models to current circumstances, rather than considering fundamental reinterpretions of the issues. Economists can give you an estimate of how much revenue a tax increase will raise, the income loss associated with Brexit, or the employment effects of a minimum wage rise. It calls to mind another aphorism from Keynes about economists being at their best as “humble, competent people on a level with dentists”, using their technical skill to solve pressing problems within a limited area of expertise.

"A policy of avoiding small recessions has resulted in the biggest downturn since the 1930s"

--- The Economist's Buttonwood columnist, "Running out of options" 30 July 2011

Just as in complex systems everywhere - this reminds me of the unintended consequences of fire suppression in the national parks - trying to prevent problems from occurring at all makes the eventual conflagration all the greater.

Quote in context - the opening and closing paragraphs of the column:

ECONOMIC policy in the developed world over the past 25 years has followed one overriding principle: the avoidance of recession at all costs. For much of this period monetary policy was the weapon of choice. When markets wobbled, central banks slashed interest rates. A by-product of this policy was a series of debt-financed asset bubbles. When the last of those bubbles burst in 2007 and 2008, the authorities had to add fiscal stimulus and quantitative easing (QE) to the policy mix. The subsequent huge rise in budget deficits was largely the result of a collapse in tax revenues that had been artificially inflated by the debt-financed boom. Britain and America ended up with deficits of more than 10% of GDP, shortfalls that were unprecedented in peacetime.

. . . 

In a sense, the bill has come due for the past 25 years. A policy of avoiding small recessions has resulted in the biggest downturn since the 1930s. Public finances turned out to be weaker than politicians thought. As a result, they have used up all their ammunition tackling the current crisis. Governments in the rich world will have very few options left if the economy weakens again.

A great follow-up via Frank Pasquale:  Hyman Minsky said, "stability breeds instability."

"public goods: things ... that everyone wants and nobody is prepared to pay for"

--- Nice definition of public goods from James Astill in The Economist's special report on forests, 25 Sep 2010; this quote from the article "Money can grow on trees"

Quote in context:

Yet in the national accounts the clearance is recorded as progress. About a quarter of Indonesian output comes from forestry, agriculture and mining, all of which, in a country more than half-covered in trees, involve felling. But this is bad accounting. It captures very few of the multiple costs exacted by the clearance, which fall not so much on loggers and planters but on poor locals, all Indonesians and the world at large.

The Indonesian exchequer, for one, is missing out. Illegal logging is estimated to cost it $2 billion a year in lost revenues. But that can be fixed by policing. A bigger problem is that most of the goods and services the country’s forests provide are invisible to the bean-counters. Many of them are public goods: things like clean air and reliable rains that everyone wants and nobody is prepared to pay for. And where they are traded, they are often undervalued because their worth or scarcity is not fully appreciated.

"Economists will have to learn to live with messiness"

--- Nobel economics laureate Paul Krugman in a NY Times column "How Did Economists Get It So Wrong?", 2 September 2009.

After outlining the causes of economics' failure to foresee the crash, Krugman writes

 It’s much harder to say where the economics profession goes from here. But what’s almost certain is that economists will have to learn to live with messiness. That is, they will have to acknowledge the importance of irrational and often unpredictable behavior, face up to the often idiosyncratic imperfections of markets and accept that an elegant economic “theory of everything” is a long way off. In practical terms, this will translate into more cautious policy advice — and a reduced willingness to dismantle economic safeguards in the faith that markets will solve all problems.

Towards the end of the piece he writes

Economics, as a field, got in trouble because economists were seduced by the vision of a perfect, frictionless market system. If the profession is to redeem itself, it will have to reconcile itself to a less alluring vision — that of a market economy that has many virtues but that is also shot through with flaws and frictions. The good news is that we don’t have to start from scratch. Even during the heyday of perfect-market economics, there was a lot of work done on the ways in which the real economy deviated from the theoretical ideal. What’s probably going to happen now — in fact, it’s already happening — is that flaws-and-frictions economics will move from the periphery of economic analysis to its center.

.... and

So here’s what I think economists have to do. First, they have to face up to the inconvenient reality that financial markets fall far short of perfection, that they are subject to extraordinary delusions and the madness of crowds. Second, they have to admit — and this will be very hard for the people who giggled and whispered over Keynes — that Keynesian economics remains the best framework we have for making sense of recessions and depressions. Third, they’ll have to do their best to incorporate the realities of finance into macroeconomics.

For an interesting discussion among Sante Fe Institute researchers prompted by this piece, see http://blog.santafe.edu/?p=150 (thanks to Rich Thanki for the link)

"To predict economic agents’ behaviors an economic theory does not have to be true; it simply needs to be believed by everyone"

--- Michel Callon paraphrasing a claim in G. R. Faulhaber and W.J. Baumol (1988) “Economists as Innovators: Practical Products of Theoretical Research,” Journal of Economic Literature 26:577-600.

Source: Michel Callon, “What does it mean to say that economics is performative?”, Chapter 11 in Donald MacKenzie, Fabian Muniesa & Lucia Siu (eds.), Do Economists Make Markets? On the performativity of economics, Princeton University Press 2007 (includes Google Book Search), p. 322

In context:

To predict economic agents’ behaviors an economic theory does not have to be true; it simply needs to be believed by everyone. Since the model acts as a convention, it can be perfectly arbitrary. Even if the belief has no relationship with the world, the world ends up corresponding with it.We can thus consider that the famous Black and Scholes formula has no truth value, that it says nothing of real markets, and that it is simply a coordination tool that allows mutual expectations. It constitutes a false but effective representation, and can be seen as pure convention. This is what Faulhauber [sic] and Baumol suggest in their article.

"Today’s economists tend to be open-minded about content, but doctrinaire about form"

--- The Economist, "The other-worldly philosophers", Jul 16th 2009

Quote in context:

Today’s economists tend to be open-minded about content, but doctrinaire about form. They are more wedded to their techniques than to their theories. They will believe something when they can model it.

"Doing econometrics is like trying to learn the laws of electricity by playing the radio"

--- Economist Guy Orcutt, cited by Edward Leamer in “Let’s take the con out of econometrics” (PDF), American Economic Review 73(1), March 1983

Like elaborately plumed birds…we preen and strut and display our t-values

--- UCLA economist Edward Leamer, 1983, quoted in an excellent review of instrumental variables in The Economist,"Cause and defect", Aug 13th 2009.

The quote is from “Let’s take the con out of econometrics” (PDF), American Economic Review 73(1), March 1983. In full:

"This is a sad and decidedly unscientific state of affairs we find ourselves in. Hardly anyone takes data analyses seriously. Or perhaps more accurately, hardly anyone takes anyone else's data analyses seriously. Like elaborately plumed birds who have long since lost the ability to procreate but not the desire, we preen and strut and display our t-values."

The Economist article describes how "instrumental variables" have been used to address these problems, and reviews two recent articles criticixing these techniques. Angus Deaton of Princeton contends that using such instruments to estimate causal parameters is like choosing to let light “fall where it may, and then proclaim[ing] that whatever it illuminates is what we were looking for all along.”

The Economist's conclusion:

"This is too harsh. It is no doubt possible to use instrumental variables to estimate effects on uninteresting subgroups of the population. But the quarter-of-birth study, for example, shone light on something that was both interesting and significant... Proponents of instrumental variables also argue that accurate answers to narrower questions are more useful than unreliable answers to wider questions... A more legitimate fear is that important questions for which no good instrumental variables can be found are getting short shrift because of economists’ obsession with solving statistical problems."

Leamer is quite the wit. Here's another quip from about half-way through the paper: "This rhetoric is understandably tiring. Methodology, like sex, is better demonstrated than discussed, though often better anticipated than experienced. Accordingly, let me give you an example..."

The more you value financial stability, the more you have to sacrifice financial innovation

--- Dani Rodrik in opinion piece on regulating global finance (or not), The Economist March 14, 2009

In context:

But the most fundamental objection to global regulation lies elsewhere. Desirable forms of financial regulation differ across countries depending on their preferences and levels of development. Financial regulation entails trade-offs along many dimensions. The more you value financial stability, the more you have to sacrifice financial innovation. The more fine-tuned and complex the regulation, the more you need skilled regulators to implement it. The more widespread the financial-market failures, the larger the potential role of directed credit and state banks.

Different nations will want to sit on different points along their “efficient frontiers”. There is nothing wrong with France, say, wanting to purchase more financial stability than America—and having tighter regulations—at the price of giving up some financial innovations. Nor with Brazil giving its state-owned development bank special regulatory treatment, if the country wishes, so that it can fill in for missing long-term credit markets.

In short, global financial regulation is neither feasible, nor prudent, nor desirable. What finance needs instead are some sensible traffic rules that will allow nations (and in some cases regions) to implement their own regulations while preventing adverse spillovers. If you want an analogy, think of a General Agreement on Tariffs and Trade for world finance rather than a World Trade Organisation. The genius of the GATT regime was that it left room for governments to craft their own social and economic policies as long as they did not follow blatantly protectionist policies and did not discriminate among their trade partners.

They took these non-linear stochastic dynamic general equilibrium models into the basement and beat them with a rubber hose until they behaved

--- Willem Buiter, a former member of the UK’s Monetary Policy Committee who blogs for the FT, complaining that macroeconomists have simply discarded the difficult stuff to make their models more elegant. Quoted in an FT opinion piece by Tim Harford, "Are those who sweat the big stuff in meltdown?", April 11 2009.

Also amusing in this piece was a recollection of P.J. O’Rourke’s explanation of the difference between micro and macro: microeconomics concerns things that economists are specifically wrong about, while macroeconomics concerns things that they are wrong about generally.

And Mark Thoma of the University of Oregon, another economics blogger, is reported as saying: “I think that the current crisis has dealt a bigger blow to macroeconomic theory and modelling than many of us realise.”

There is almost no limit to the ability of investors to ignore the lessons of the past

--- Vanguard founder John Bogle, opening line of a Wall Street Journal op-ed "Six Lessons for Investors: Be diversified and don't assume past performance will continue", January 8, 2009.