I recently had an exchange on twitter about the term “Third World” (starting from a tweet pointing to the idea of “Third World America”). Here’s Wikipedia on the origins of the term:

The term ‘Third World’ arose during the Cold War to define countries that remained non-aligned or not moving at all with either capitalism and NATO (which along with its allies represented the First World) or communism and the Soviet Union (which along with its allies represented the Second World). This definition provided a way of broadly categorizing the nations of the Earth into three groups based on social, political, and economic divisions.

Although the term continues to be used colloquially to describe the poorest countries in the world, this usage is widely discouraged since the term no longer holds any verifiable meaning after the fall of the Soviet Union deprecated the terms First World and Second World. A term increasingly being used to replace “Third World” is “Majority World”, which is gaining popularity in the global south. The term was introduced in the early nineties by the Bangladeshi photographer and activist, Shahidul Alam.

I don’t think the term “Third World” has much utility, but I think it’s not useful to replace it with another dichotomous categorization which simply falls into the trap of a human cognitive bias. The bias seems universal, and doesn’t brook ideology. Racial nationalists and multiculturalist liberals both accept the dichotomy between “people of color” and whites. I believe most white liberals today would agree with the framework that white nationalist Lothrop Stoddard outlined in The Rising Tide of Color Against White World-Supremacy; they would simply invert the moral valence, looking positively upon developments which Stoddard viewed with concern. Many racial minorities in the West also buy into the white vs. non-white dichotomy for purposes of cooperation between different groups. Though it has tactical utility in white majority societies it’s frankly ignorant to presume that there’s any fundamental solidarity between “people of color.” I assume that dark-skinned South Asians and Africans who have lived in East Asia, or even the Gulf states, can confirm that racism is not necessarily conditional on the existence of white people.*

But there is also the problem that there’s a wide range of economic and social outcomes outside of the developed world. To give you a sense, here’s a chart from Google Data Explorer:

I wanted to show a two-dimensional chart to indicate that issues of development shouldn’t always be viewed in a scalar context. Many Asian nations do not have the political instability or issues with disease that African nations have, but, they’re far closer to the Malthusian limit. So in general Africans are actually relatively well fed, but that’s in part probably due to the high mortality in those regions. NGOs and relative political stability have resulted in a floor of the quality of life in very poor nations like Bangladesh (so that mass starvation is no longer a concern), but that floor is very low indeed. Low enough that South Asia is the world epicenter of nutritionally induced mental retardation in raw numbers.

And then you have nations such as Mexico or Brazil, which suffer from “contrast effect.” Mexico is next to the United States, and so it can not perceive itself as a rich nation. Brazil has long been the “Land of the Future,” and is gifted with a surplus of land, so its relative underperformance next to the USA grates. But on a world wide scale they’re both rather affluent. Mexico is the second-fattest nation after the United States. 1 in 10 Brazilians is obese. Obesity is not positive, but it is an indication that populations have moved above bare subsistence and large swaths now have a surfeit of calories.

Here’s a bar plot of malnutrition prevalence under the age of 5, with color-coding by region:

* Sometimes I feel that in terms of the model of how the universe works, white nationalists and non-white racial activists in the West can agree on the facts. Whites are supernatural creatures, the former simply view them as gods, the latter as demons. But any model which does not include whites is no model at all, for they are the Nephilim of our age. When I talk to people versed in post-colonial theory about history a history without whites does not compute. They say that love and hate are two sides of the same coin.

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Jonah Lehrer has a post up, How Preschool Changes the Brain over at Frontal Cortex. He reports on a paper, Investing in our young people, which has been around for about 5 years. The top line of it is this, an investment in a $2,500/year (inflation adjusted) pre-school program in the early 1960s seems to have been effective in improving the life outcomes of at-risk low SES young black Americans tracked over their lives up to the age of 40. Their measured I.Q.s were not initially high, 85-75, 15th to the 5th percentile (though the median black American IQ is ~85, so not so low within ethnic group). They did gain an initial I.Q. boost, but like most of these programs that boost disappeared over time. But in terms of their non-cognitive skills there remained an appreciable effect which impact their life outcomes. What were these non-cognitive skills? To me they resemble classical bourgeois values rooted in low time preference. Willing to be a “grind,” work hard and forgo short-term pleasures and not cave in to impulses with short-term gains and long-term costs.

Here’s a figure from the paper which I’ve reedited with labels:

Intuitively we understand this. Through experience we know of this. There are individuals with high intellectual aptitudes who lack self-control. Who do not succeed in life because of poor life choices. There are individuals with mediocre intellectual aptitudes who achieve a certain amount of comfort and prestige in their life because of their rock solid focus on their goals. By analogy an old under-powered computer with Ubuntu installed on it running Open Office will still perform at a higher level in achieving productivity goals than a high-powered computer which is loaded with Windows riddled with spyware and mostly running games which require a lot of computational muscle power beyond the specs of the box.

My main question is one of interpretation: is the change in non-cognitive skill portfolio due to intervention at a “critical period” in a neurobiological sense? The authors make explicit analogy to language. If children are exposed to a language before the age of 12 they generally can learn and speak it without an accent with marginal effort. Severely abused, or in rarer cases “feral children,” who are not exposed to language at all in their formative years, may remain unable to speak fluently in any language for the rest of their years after recontact with mainstream society. This is likely a function of the biological aspect of language acquisition and learning. Or at least that is the contemporary consensus.

Does this apply to non-cognitive skills? I am moderately skeptical, though my attitude here is provisional at best. Through the pre-prints the authors take a methodological individualistic perspective. Individuals invest in their skills, and the earlier they invest in their skills the more positive feedback loops can emerge so that their skills can mature, extend and sharpen. There’s clearly something to this. But the focus on family environment and such in the paper makes me a touch skeptical. There is a large behavior genetic literature which suggests that family environment, “shared environment,” is not very predictive of long term outcomes. Rather, “non-shared environment” explained about 1/2 of the outcomes for many behavioral traits (the balance is genetic variation).

In The Nurture Assumption Judith Rich Harris argued that the non-shared environment really referred to peer groups. Again, the analogy to language is illustrative. Children do not speak with the accent of their parents, they speak with the accent of their peer groups. There is an exception to this: autistic children (or, children who consciously want to have a particular affect). Though I was not explicit, this is the sort of dynamic I was indicating when I suggested that culture matters in saving. Different cultures have different norms, values, and frameworks in which you can express your personality predispositions. In genetic terminology I’m talking about a norm of reaction.

Quickly skimming through the original paper which Jonah Lehrer’s post was based on (and skipping over the guts of the economic modeling) I was unclear if there was a long-term peer group effect, as they didn’t seem to explore this possibility. Perhaps instead of a critical period in a neurobiological sense, what we’re seeing here is the emergence of specific peer groups which reinforce and buffer individuals in decision making and goal setting? Perhaps the original intervention resulted in the emergence of a new subculture within the low SES black community of Ypsilanti, Michigan?

Life outcomes can vary a great deal based simply on social norms.

In terms of the bottom line this may not change the policy conclusion that much. The operational outcome of a given policy may be the same even if the means by which the outcomes are realized differ. That being said, I probably does matter on the margins if the effect is due to individual level biological changes vs. group level norm shifts when it comes to details of policy formation.

Image Credit: CDC

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The New York Times has an interesting piece, As English Spreads, Indonesians Fear for Their Language. It is dense with the different strands of this story. Basically, upper and upper middle class Indonesians are switching from Bahasa Indonesian to English to give their children a leg up, and are sending their children to English-medium schools. Because these children have a weak command of Indonesian some authorities are fearing for the cohesion of the Indonesian nation. Though the piece alludes to other languages in Indonesia, such as Javanese, it does not emphasize the fact that the widespread knowledge of Bahasa Indonesian was the outcome of a top-down project of nation-building, and that that language is the native tongue of only a minority of the citizens of Indonesia!

From Wikipedia:

Whilst Indonesian is spoken as a mother tongue (first language) by only a small proportion of Indonesia’s large population (i.e. mainly those who reside within the vicinity of Jakarta), over 200 million people regularly make use of the national language – some with varying degrees of proficiency. In a nation which boasts more than 300 native languages and a vast array of ethnic groups, the use of proper or ‘good and correct’ Indonesian (as opposed to Indonesian slang or regional dialects) is an essential means of communication across the archipelago. Use of the national language is abundant in the media, government bodies, schools, universities, workplaces, amongst members of the Indonesian upper-class or nobility and also in many other formal situations.

The origins of Indonesia are complex. Though the islands of maritime Southeast Asia were long part of the Dutch “sphere of influence,” true direct rule came to much of the archipelago only in the early 20th century. Before that local identities were paramount, whether it be Javanese, the various ethnic groups in Sumatra or Sulawesi, and of course the culturally more distinctive peoples to the east on the island of New Guinea (the pre-modern precedent for an Indonesian state is Majapahit, but like the Dutch colonial empire for most of its history, Majapahit directly controlled and influenced only a small proportion of the archipelago).

I think the complexities and peculiarities of Indonesian history before the rise of the nation-state can be illustrated by Blambangan in eastern Java. This kingdom was deeply influenced by, and to a large extent a cultural satellite of, Bali. As such it was the last major Hindu polity within Java in the 18th century (though isolated communities managed to avoid Islamicization, all Javanese political entities had switched to Islam as their state religion except Blambangan). The VOC, the Dutch East India Company, participated and encouraged what was notionally religious war, a jihad against Blamgangan. The Dutch collusion with Muslim religious enthusiasm was purely a matter of self-interest, as the rulers of Bali were major impediments to VOC hegemony. With the fall of Blamgangan this last region of Java was subject to Islamicization and most of the population converted.

The point of recounting this episode is to show that prior to the construction of Indonesian identity after World War II the ties which bound the archipelago together were very loose. Some regions, such as Aceh, had been Muslim for nearly one thousand years. Java, the demographic and cultural heart of the archipelago had switched to Islam far more recently, and retains a strong pre-Islamic stamp to its culture (e.g., Hindu epics remain popular in Java, while the Javanese elite has not repudiated its own mystical tradition which pre-dates Hinduism and Islam). And finally, the eastern islands were only marginally influenced by the Indian and Islamic trends which were prominent in more populous western islands, and their population converted to Christianity during the colonial period. Many Ambonese, who feared Javanese Muslim hegemony in Indonesia because of their support for Dutch rule were relocated to the Netherlands.

Abstract principles such as Pancasila and concrete policies such as the promotion of Bahasa Indonesian, which was already an interregional lingua franca analogous to Swahili, were seen as critical to cementing national cohesion. Despite the national motto of Indonesia, loosely translated as “unity in diversity”, the post-World War II period has seen the spread of a unifying national language, and a deeper connection among many of the nation’s Muslims with international-normative Islam. The rise of santri Islam as Islam qua Islam in Indonesia, and the decline of local Muslim traditions which are strongly inflected by Dharmic and indigenous religious influences, is part of the cultural revolution in uniform manners.

Indonesia’s conundrum is simply a more extensive and contemporary manifestation of what many European nations faced centuries ago. When France was declared a republic some estimate that only 1/3 of the citizens spoke standard French. The proportions of Italians and Germans who spoke the standard national languages may have been even smaller (in the case of Italy I have seen estimates of less than five percent speaking Italian at the founding of the Italian nation-state!). The period of the Wars of Religion in the 17th century may have pushed theological motivations to the back-seat in the game of kings, but it is important to note that religious homogeneity increased due to the migrations compelled by the conflicts, as well as subsequent expulsions in France, and persistent legal and social disabilities for Roman Catholics in England. The emergence of Germany in its modern form, which did not include the Austrian domains, was driven in part by considerations of religious and ethnic homogeneity (the Austrian lands included many more Magyars and Slavs, and would have resulted in Catholic demographic majority, as opposed to a overwhelming Protestant dominance in the Prussian-dominated “Little German” state).

In A Study of History Arnold Toynbee introduced the concept of “still-born” civilizations. The Christianity of the Church of the East, which grew out of the Christianity of the Sassanid Empire, is a perfect illustration of the type. On the eve of the Islamic conquest of Persia there was a vibrant Christian community, which in some ways was engaged in a rivalry with the Zoroastrian state religion. It had pushed beyond the frontiers into Central Asia, to the point where it managed to persist even after the collapse of the Sassanids in the face of the Arab conquests. In the early 13th century many of the Turkic and Mongol tribes of Central Asia were Christians in the tradition of the Church of the East, including one of Genghis Khan’s daughter-in-laws (the mother of Kublai and Hulagu Khan). But this Christian tradition never gained the prominence, the embeddedness within steppe society, to become a religious monopoly and spread its wings with the rise of the Mongol Empire. Though many of the Mongols were sympathetic to Christianity, none of the great leaders died as Christians (though some were baptized at some point in their life), and the Mongol Empire was religiously pluralistic. Without this state support Eastern Christianity did not bloom, and became a minority sect in the lands of Islam and South India, fading away in Central Asia and China after the decline of the first Mongol Empire.

With the rise of the idea of the nation-state, modern communication, and the models of European states in their generation of cohesion via both top-down and bottom-up processes, you are seeing I suspect both the flowering and still-birth of new national complexes bound together by common language. Both India and Pakistan have attempted to forge a national unity with a South Asian language, overlain atop the preexistent diversity. Pakistan privileged Urdu, the traditional language of upper class Muslims throughout the subcontinent, as well as the day to day language of the Muslim population of the Gangetic plain excluding Bengal. At independence only a small minority of the population of the state spoke Urdu as their native tongue, but while in the western provinces there was acceptance of the necessity of Urdu as a link language, in the east Bengalis objected, and the rejection of Urdu became one of the symbolic aspects of conflict which led to the emergence of Bangladesh.* India has not had the same faction due to language, but standard Hindi plays the same role that Urdu does in modern Pakistan. And yet over 60 years since independence English remains commonly used as an elite language among a segment of the upper classes. Hindi is not understood in much of southern India, but since this region is demographically inferior to the north, as opposed to Bengal, which was demographically superior to West Pakistan, the tensions are not of the same magnitude. Additionally, English serves as a prestigious alternative lingua franca for Indians with a weak or nonexistent command of Hindi. Over the long term Hindi may suffer the same fate of Nahuatl and Quechua after the Spanish conquest. Because of the superior communication technologies, as well as the more persistent and powerful integrative institutions introduced by the Spaniards, the language of the fallen pre-Columbian empires actually spread in the centuries leading up the independence of Mexico and Peru from Spain, at the expense of local languages. Only in the modern period has Spanish started to marginalize the elite native languages.  Why the change? In The Rule of Empires the author notes that the Peruvian highlands in the centuries after the Spanish conquest was dominated by a local indigenous elite who served as intermediaries between the authorities of the Crown based out of Lima and the vast Andean peasantry.  With the rise of international trade, the collapse of the Spanish Empire and greater national integration, and globalization writ large, the power and attraction of such sub-national elite identities faded. Quechua or Nahuatl may have been lingua francas in segments of the Spanish Empire, but Spanish opens up much more of the world to aspirants for status, power and wealth.

It is cliche today to say that the “world is flat,” and that globalization is inevitable. There was famously another period of globalization before World War I, and it took 50 years after its collapse for the engine of international integration to slowly start up. But assuming that globalization and an international political economy is inevitable I wonder as to number of languages which we will stabilize at. Consider religion. Since the rise of Islam there really hasn’t been another great international religious revolution which has given rise to a global civilization. The fracturing of Western Christianity into Protestant and Roman Catholic domains are the closest analog, but do not rise up to the same level of impact (the shattering of the Western Christian commonwealth with the rise of Protestantism was healed in large part by the marginalization of religion in the public realm after the Enlightenment and the acceptance by most Christian groups that religious monopolies enforced by the state were no longer feasible or moral). There are really only four religions of civilizational import, Islam, Christianity, Hinduism, and Buddhism (Judaism is culturally influential, but there is only one Jewish nation, so no Jewish bloc could emerge). Why so few religions, and why such religious homogeneity so early in relation to language? I think this is because world religions are the concern of elites, whose numbers are small, and whose information networks were much more globalized in the pre-modern era than that of the masses. A “republic of letters”, or peregrinations of men such as Ibn Battuta, are only relevant for tiny elites in a pre-modern era because of economic constraints. No longer today; every man is a potential prince of letters with mass literacy and the internet. If the international dynamics which were long operative with world religions are now operative with languages, then will we see the world winnowing down to half a dozen languages? Right now linguistic diversity experts the focus on the small-scale societies and micro-languages hovering at the point of extinction, but over the next century much of the change might occur in the “middle-weight” category. Languages which rose to prominence in the era before globalization as regionally prominent mediums, but which lack comparative advantage set next to global languages. Bahasa Indonesian for many families is a new language, of only the past few generations, so its sentimental value should be relatively shallow. It is a utility, and when a newer utility offers superior services for a cheaper price, why not switch? Well, sometimes the government imposes monopolies and shields native firms. So we’ll see.

* My parents grew up in the united Pakistan, and do recount the imperiousness of Urdu speakers in Bengal during that period. For example, Urdu speakers would demand the best positions on a buses, and berate drivers in Urdu (who likely did not have a good grasp of what they were saying) when their demands were not met. Though both know Urdu, I definitely get a sense that their experiences during this period left them with little sympathy for the idea that Urdu should be the common language of South Asian Muslims.

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In yesterday’s link dump I expressed some dismissive attitudes toward the idea that loss of linguistic diversity, or more precisely the extinction of rare languages, was a major tragedy. Concretely, many languages are going extinct today as the older generation of last native speakers is dying. This is an issue that is embedded in a set of norms, values which you hold to be ends, so I thought I could be a little clearer as to what I’m getting at. I think there are real reasons outside of short-term hedonic utility why people would want to preserve their own linguistic tradition, and that is because I am no longer a total individualist when it comes to human identity. I have much more sympathy for the French who wish to preserve French against the loss of their linguistic identity against the expansion of English than I had a few years ago.

Language is history and memory. When the last speaker of English dies, or, when English is transmuted to such an extent that it is no longer English as we today understand it, our perception of the past and historical memory, our understanding of ourselves, will change. There is a qualitative difference when Shakespeare becomes as unintelligible as Beowulf. Though I tend to lean toward the proposition that all languages are a means toward the same ends, communication, I agree that there are subtleties of nuance and meaning which are lost in translation when it comes to works of literature and other aspects of collective memory. Those shadings are the sort of diversity which gives intangible aesthetic coloring to the world. A world where everyone spoke the same language would lose a great deal of color, and I acknowledge that.

But we need to look at the other side of the ledger. First, we’re not talking about the extinction of English, French, or Cantonese. We’re talking about the extinction of languages with a few thousand to a dozen or so speakers.  The distribution of languages and the number of speakers they have follows a power law trend, the vast majority of languages have very few speakers, and these are the ones which are going extinct. We are then losing communal identity, a thousand oral Shakespeare’s are turning into Beowulf’s and Epic of Gilgamesh’s, specific stories which have to be reduced to their universal human elements because a living native speaking community is gone. Let me acknowledge that there is some tragedy here. But this ignores the costs to those who do not speak world languages with a high level of fluency. The cost of collective color and diversity may be their individual poverty (i.e., we who speak world languages gain, but incur no costs).

Over the arc of human history individuals and communities have shifted toward languages with more numerous following. Sometimes, as in the case of the marginalization of the dialects of France for standard French in the 19th century, there was a top-down push. In other cases there needed to be no top-down push, because people want to integrate themselves into networks of trade, communication and participate in the family of nations on equal footing. Losing the languages of your ancestors means that your ancestors are made to disappear, their memory fades, and is replaced by other fictive ancestors. Modern Arabs outside of Arabia will often acknowledge that they are the products of Arabization (this is most obvious in the case of regions like Egypt or Mesopotamia which have long and glorious historical traditions pre-dating Islam). But they also in particular circumstances conceive of themselves as descendants of Ishmael, because they are Arab. A similar sort of substitution occurs when peoples change religions. The early medieval European monarchies, such as the Merovingians and the House of Wessex, traced their ancestry to German pagan gods. Later European dynasties tended to establish fictive ties to the House of David.

But letting one’s ancestors die also means that one can live with other human beings, and participate clearly and with a high level of fluency. You may object that this does not entail monolingualism. And certainly it does not, but over the generations there will be a shift toward a dominant language if there is economic, social and cultural integration. The way we can preserve local traditions and languages in the face of the homogenizing power of languages and cultures of greater scope is to put up extremely high barriers to interaction. The Amish have preserved their German dialect and religious traditions, but only through opting out of the mainstream to an extreme extent (and the Amish are bilingual too).

On a deeper cognitive level some readers point out that there are hints that the Sapir-Whorf hypothesis may be correct. This is still not a strong enough reason for the perpetuation of linguistic traditions which are not widely subscribed. Humans have a finite amount of time in their lives, and the choices they make may not be perfectly rational, but quite often in the aggregate they are. When it comes to some aspects of cultural diversity, such as dress and religion, the importance we place on these traits is imbued by aspects of human psychology. Not so with language. Communication is of direct utilitarian importance.

Now that I’ve addressed, at least minimally, the tensions on the macro and micro level when it comes to linguistic preference, I want to address the aggregate gains to linguistic uniformity. My family is from Bangladesh, which had a “language movement”, which served as the seeds for the creation of that nation from a united Pakistan. Though there was a racial and religious component to the conflict I don’t think it would have matured and ripened to outright civil war without the linguistic difference. Language binds us to our ancestors, and to our peers, but also can separate us from others. A common language may not only be useful in a macroeconomic context, reducing transaction costs and allowing for more frictionless flow of information, but it also removes one major dimension of intergroup conflict.

So if only everyone spoke the same language there would be peace and prosperity? Perhaps not. Recently I have been convinced that it is best to have an oligopoly of languages so that “group-think” doesn’t impact the whole world in the same way. I’m basically repeating Jared Diamond’s argument in Guns, Germs, and Steel, as to why Europe was more cultural creative in the early modern period than China. Institutional barriers can allow for more experimentation, and prevent “irrational herds” from taking the whole system into dead-ends. Another way to think of it is portfolio diversity. Though linguistic diversity will introduce frictions to communication, on the margins some friction is useful to prevent memetic contagion which might occur due to positive feedback loops.

Below I present my model in graphical form. One the X axis is a diversity index. Imagine it goes from 1 to 0. 1 is the state where everyone speaks a different language, and 0 is the one where everyone speaks the same language. A state of high linguistic diversity converges upon 1, and one of low diversity upon 0. I believe that as linguistic diversity decreases one gains economies of scale, but there are diminishing returns. And, beyond a certain point I suspect that there are decreases to utility because of the systematic problem of irrational herds. I didn’t put a scale on the X axis because I don’t have a really clear sense of when we’re hitting the point of negative returns on homogeneity, though I don’t think we’re there yet.

Note: My confidence in the hypothesis that there are negative returns at some point is modest at best, and I have a high level of uncertainty as to its validity. But, I have a high confidence about the shape of the left side of the chart below, that very high linguistic diversity is not conducive to economic growth, social cooperation, and amity more generally scaled beyond the tribe.

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I’ve been hearing about structural adjustment due to technology and gains to productivity from people since the early 1990s. The sort of dynamic which motivated the original Luddites. But this chart from Calculated Risk makes me lean toward the proposition that the time is nigh. In relation to previous post-World War II recessions the big difference in unemployment seems to be in the area of the long term; these are those whose skills will degrade, and are probably least likely to reenter the labor force at an equivalent position.

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Larry Witham’s Marketplace of the Gods: How Economics Explains Religion is a manifestly ill-timed book. He states that “…around 2006 I began to notice a good deal of hoopla in the book market about economic explanations for just about everything-books that were best sellers.” Marketplace of the Gods was obviously written to capitalize on the prestige of economic explanations, but unfortunately it has come out after the bubble had burst on that market, so to speak. Within the past few years even many economists have come to admit that the power of their discipline’s logic can explain far less than they’d once thought. In fact, it seems a bit much for economics to explain everything when the core competency in financial domains are themselves being challenged. Even in 2008 in The Logic of Life Tim Harford was engaging in a rearguard attempt to prevent behavioral economists such as Dan Ariely from knocking the legs out from under the central thesis of his book. A more accurate subtitle for Marketplace of the Gods would have been “economic explanations of religion.” Not punchy or imperialistic, but true to the content of the text.

These explanations are rooted in a few assumptions derived from conventional economic methodology and applied to religion. Humans are rational, they settle upon strategies which can fulfill their preferences, and their world is characterized by scarcity and opportunity costs. Phenomena are best explained in a reductionist framework which takes a methodologically individualist stance. In other words, what’s in it for the individual, not society. Larry Witham documents the intellectual journeys of two giants in the field, Rodney Stark and Laurence Iannaccone. I have read Iannaccone’s papers, as well as most of Stark’s academically oriented books. There’s a lot of clear and crisp thinking there. Marketplace of the Gods reviews the long history of woolly theorizing about religion which explained everything and so nothing, and served as the ideal seedbed for the invasion of the subject by those wielding sharper tools.

But the supply side model of individuals consuming goods and services from competing religious firms, to translate religious phenomena into economic language, can not explain everything. The author acknowledges this in the text, but falls into traps whereby the theory which he has encountered allows for superficial inferences which are plainly false if one was aware of a richer set of data. Consider this passage:

In traditions that invest more intensely in human religious capital the rentention rate is highest. For example, Hindu, Catholic, and Jewish groups lose the least number of adherents over their lifetimes. In America today, 90 percent of Hindus were reared in that tradition, and the same goes for 89 percent of today’s Catholics and 85 percent of today’s Jews….

This sounds plausible enough, but the explanation that Hindus and Catholics have high retention because they “invest more intensely in human religious capital” is probably wrong. Hindus and Catholics have huge immigrant communities, and come from societies where religious switching is rare or taboo. The majority of American Hindus are immigrants, so they are not integrated into the American marketplace of gods. The Religious Landscape Survey which Witham references makes it obvious that American Hindus are not even particularly religious. Witham assumes they invest more intensely in human religious capital probably because of the 90 percent figure, but theory is misleading him because of the incompleteness of his data base. Similarly, Catholics have been the biggest contributors in the past decade to the irreligious segment of Americans. The last finding is relatively recent, and so may not have been available when Marketplace of the Gods was being written, but it shows the lack of robusticity of the set of inferences which one can generate from these models. New data easily overturns novel inferences on a regular basis.

Obviously there’s some real insight that can come out of the intersection of economics and religion. And Marketplace of the Gods serves as a decent precis of the literature, and its bibliography is well worth perusing. But if you know anything about religion it will be rather clear that the current theoretical contributions of economics in explaining most of the variation in the phenomenon is limited. Religion is a big topic, and a true “explanation” necessarily has to encompass evolution, psychology, history, and, economics.

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Below I referenced a talk that Peter Thiel gave at the Singularity Summit 2009. In the Q & A I recall that Thiel was skeptical that we’d head into another irrational bubble craze after having gone through two speculative boom & bust cycles in less than 10 years. My friend Michael Vassar points me to an article in Wired from January where Thiel asserts that we are in a bubble. Either I don’t recall correctly, or he’s changed his mind. Here’s the relevant part:

Wired: You’ve had a rough year. The stock market rallied strongly, and Clarium Capital bet the wrong way.

Thiel: I think we’re back to a zone of irrational exuberance.

Wired: Like before the Internet bubble burst?

Thiel: I think it’s maybe even more irrational because there’s no story about the future. At least in ‘99 there was a story.

In ‘99 there was a story based on something concrete, the internet. In the aughts we had a fake story. Now we’re down to no story. Well, at least above the board. If you haven’t you might be interested in listening to this week’s This American Life, which chronicles the market manipulation which one hedge fund engaged in, and which bankers allowed them to get away with because it was in their private (as opposed to corporate) interest. Some people can make money off bubbles, even if aggregate utility is less after than before.

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For the past year I’ve been having periodic discussions with a friend who has a nice amount of money which he invests (he’s a single male cresting up to his peak earning years after receiving an advanced science degree from an elite institution). He is pessimistic about the long term prospects for the American economy, and believes that the current run of stock market gains are simply a bear market rally. Even when he made his assertion last year I pointed out that if it was a bear market rally it was unprecedented in its magnitude. Of course I wasn’t too confident about appealing to historical precedents after what’s happened in the past few years. Look at the comments I elicited after mooting fears of a recession in May 2007. I know some of the commenters are regular readers to this day, so I hope everyone enjoys watching the frankly moronic confidence. I use the term not as an aspersion but as an accurate description of the hubris and complacency on display. I myself told a friend that the credit crisis was overblown in the summer of 2008, relying on moronic conventional wisdom from overeducated morons that the Great Moderation was in effect. I was wrong, and I don’t have a word to capture the contempt which I have for the likes of me, a fool who relied naively on the foolish. I am reckoned a young man by some, so that’s the excuse I’ll give.

With all that stated then as to my profound uncertainty I have to say I’m a bit perplexed by green shoots of economic optimism which seem to be sprouting here and there. Ultimately I would dismiss this, but the stock market performance is mystifying to me. We know from historical precedent that market run ups presage economic growth in the future. This is presumably because investors are pricing information which they receive before the rest of us, and the NBER, and so give us a more accurate crowd-sourced preview of the future. But like my friend I have a hard time understanding where the fundamentals are which could give rise to a robust cycle of growth. We are, thankfully in my mind, being weaned off of consumer credit. So we can’t fake the growth through debt fueled consumption, we have to produce. But what new technologies are causing structural changes in the economy? I don’t see it.

But it is important to remember that most people didn’t see the internet being of economic relevance in 1994. Deep into 1995 Microsoft was “all in” on the next big technological breakthrough…interactive television! And while the .com bubble was blowing up no one had any idea of the awesome investing potential represented by the revolutionary economics of 21st century homebuilding…oh, oops! But let’s just assume that the stock market is telling us something real, that growth which is not fueled by consumers or the state taking on more debt is in the offing. Where does that growth come from?

I have no idea, so I’ll offer a speculative theory: in the next few years we’ll see the rise of magic, which will revolutionize modern economies with supernatural green forms of transport. Screw the Segway, imagine how efficient magic carpets will be as personal vehicles! Not only do they run on supernatural fuel which has no carbon footprint (all the waste is emitted in magicland, which is parallel to the real world), but they take up very little space, and are multipurpose as well as aesthetically customizable. The main downside is you’re exposed to the elements, and velocity has to be modest so you don’t fall off the carpet.

You might think this is a silly prediction to offer. So what’s your theory? Peter Thiel has billions, invested in PayPal and Facebook, and claimed that the markets are not so retarded that they’ll invest irrationally in a new bubble for a generation after being burned twice in the past 10 years. Is Thiel wrong? Are the markets not-so-efficient. Or are we going to have to get ready for some magic?

I seek a true guide to the perplexed, not platitudes from latter day kleptocrapts.

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Ezra Klein references the old Shaggy hit “It wasn’t me” to characterize Alan Greenspan’s testimony yesterday. It’s not just Greenspan, Robert Rubin is pulling it too. The point isn’t that these people have plausible deniability, they don’t, the issue is that there’s no real recourse anyone has to hold them accountable. They can lie to your face because there’s no consequence. I noted below that institutional investors demand risk so that they can have an opportunity for high returns. This isn’t necessarily just from on high, pension funds need the high returns to fulfill their obligations, and those obligations were entered into by labor and management. The fact is that we don’t have the economic growth to come through over the long term through a conservative investing strategy, so the managers start rolling the dice. If they fail and it blows up, they’re fired, and if they luck out, they’re heroes for the day.

It wasn’t just the big shots. Unless you’re a prodigy (i.e., you’re a 2 year old reading this weblog) and you’re an American you lived through the real estate bubble of the mid-aughts, and you know people who treated their homes like ATMs. People who bet on a “sure thing” future which never came about. Yes, there were greedy mortgage brokers and shady speculators, but if it wasn’t for the avarice of the average man and woman it wouldn’t have been so widespread. But here’s the difference: the average American has experienced a lot of economic distress or insecurity. There have been real consequences for their bad calls. The unemployment rate is high enough that anyone who isn’t a shut-in knows someone who’s been negatively impacted. Not so for Sirs Greenspan and Rubin. The high & mighty are too big to fail, they may have their reputations tarnished but ultimately their lot is one of comfort and ease. This is of course not atypical, it’s most of human history.

I think the ultimate long term problem for American society is that many Americans now perceive the elites as rent seekers and not engines of productivity. The vision of the expanding pie is starting to recede, and once the spell is broken I fear for the well being of the “virtuous circles” which economists praise.

Anyway, I was referencing Shaggy long before Mr. Klein.

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The Best Jobs Report In a Long Time:

Less than a high school diploma: 14.5%
High school with no college: 10.8%
Some college or associates degree: 8.2%
Bachelor’s or higher: 4.9% (this is near full employment from an economic perspective).

If you read the media sometimes it seems like the past recession was total hell in the white-collar sector, but really it wasn’t (comparatively). For what it’s worth, 84% of readers of my weblogs have university degrees or higher….

(Yes, I know the issues in regards to underemployment, part-time employment and those who have dropped out of the labor force, but all the issues seem more relevant to those with less education from what I’ve seen. Correction with data welcome)

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