Laying down the Law

Recently Bill Barlow wrote an excellent piece in the Harvard Law Record, recommending law students go into corporate law so they could donate money to charity. Sima Atri wrote a response, to which Jeff Kaufman wrote a convincing rebuttal. I’m going to address one very small part of Atri’s article, which to be fair she probably didn’t put much thought into.

Because if you choose to go into Big Law and care about the poor and otherwise marginalized, giving your money to charity is the least you can do. I say this because you are not choosing to go into neutral, apolitical, work. None of us working in the legal profession are. Your firm, Bill, has represented JPMorgan Chase, a bank that backed thousands of predatory and racist loans and helped create the foreclosure crisis.

I think this attack on Bill’s firm is almost impressive in how mistaken it is. Specifically, I think
1) The banks were not at fault for what it did
2) What it did was not predatory
3) What it did was not racist
4) Even if 1,2,3) are all wrong, it’s still good to represent banks.
This is a lot to show, so lets begin.

1) The banks were not at fault.

Yes, banks lent to many poor people: subprime lending. But in part this was because the government forced them to make these loans, in an attempt to promote home-ownership. If anyone if to blame, it is the government, not the banks. Left to themselves, the banks would have preferred not to lend to such people, as they present higher risks. So it’s strange to blame the banks for this, who had little choice in the matter. The high default rates among minorities during the crisis was the result of government intervention, not the fault of the banks.

2) The banks were not predatory

Given 1), the worst we can really accuse the banks of is “only following orders” or being involuntarily predatory. But even this isn’t the case. Banks didn’t force anyone to borrow money. Having the opportunity to take out a loan is a benefit – it’s the reason we try to maintain good credit scores! As Arnold Kling noted, borrowers get a free option on rising house prices. Being given the option to borrow money is a good thing – you’re not taking advantage of people by giving them choices. (And stories about people not understanding that their repayments rates would rise don’t work, as the defaults frequently happened among people still paying the introductory rate.

Indeed, one part of the crisis was the so called ‘NINJA’ loans, where borrowers frequently defrauded the banks. It is hard to see how the banks can be taking advantage of people by being defrauded.

3) The banks were not racist

Indeed, JPMorgan Chase made many loans to minorities. As we noted in 1), left to their own devises, banks apparently made too few loans to minorities – they were accused of being racist for refusing to lend money. This was why the Community Reinvestment Act was passed. So it seems very strange to accuse them of being racist for making too many loans to minorities as well. Maybe it’s just impossible to win.

4) Even if 1,2,3) are all wrong, it’s still good to represent the banks.

Ok, so suppose 1),2) and 3) are all false; the banks are truly evil companies. Is it therefore bad to defend them in court? Well, the adversarial court system depends on their being lawyers available to defend the guilty. The ACLU often defends extremely unpopular causes, because it is in these cases that harmful precedents are most likely to be created. In the same way that anti-terrorist laws, originally aimed only at extremely dangerous and unpopular people are now being abused in much more mundane situations, so too will the extraordinary legal steps being used against the big banks one day be used against other targets.

I realize that this was just a small part of Atri’s article. But it’s worth commenting on anyway.


Concern for those we know not

Many social movements involve attempts to improve the welfare, rights or status of the movement’s own members. For example:

  • Nationalist Parties: try to support the people in the country, and are generally mainly supported by people in that country. It’s rare to very actively support another country’s nationalist movement, unless as a proxy in a war.
  • Labor Unions: at least initially, these were formed of working class people trying to benefit themselves.
  • Feminism: though there is considerable debate about the definition, this is generally considered to be about supporting women, and has over twice as many female supporters as male supporters. This is especially unusual when you realize that most social movements (including effective altruism) are primarily male.*

In other examples, the people in the movement are closely related to but distinct from the supposed beneficiaries:

  • Home-schooling: the parents who lobby for the legality of home-schooling are too old to benefit from it themselves, but do hope to benefit their children.
  • Soup Kitchens: people donating to soup kitchens probably have enough to eat themselves, but they hope to benefit others in their community.
  • Upper-class socialists, straight LGBT activists, male feminists and so on would also fit into this category.

Effective Altruism takes this one step further, however. Not only do most EAs care about people with little regard for nationality, most of our causes have beneficiaries extremely remote from ourselves:

  • Third World Hunger/Health: Virtually all EAs are part of the middle classes of the developed world. Few have ever been to Africa, and fewer still have ever met a beneficiary of GiveWell. Yet EAs continue to send large amounts of money to them, motivated only by abstract benevolence.
  • Animal Rights: Very few EAs have been to a factory farm, and the animals won’t reciprocate our concern. I guess everyone has seen animals in person, but rarely the intended beneficiaries.
  • Existential Risk: Here, the benefits mainly accrue to people so remote they don’t even exist yet.

I wonder if this is related to the typical backgrounds of effective altruists: physics, math and philosophy, all of which are extremely abstract, and rely on generalizing ideas from the specific to the general. Perhaps only those with a case of memetic immune disorder are capable of forgetting the original purpose of ethics was reciprocal altruism and kin selection, and instead generalize it to include people they have never met and never will.

I can think of only a few examples of other social movements with beneficiaries as remote:

  • Anti-Slavery in northern England: the Manchester cotton mill workers supporting abolition, even though they had never met a slave, and actually directly personally benefited from slavery.
  • The Pro-Life Movement: pro-life activists can hardly be said to be directly benefiting, and nor have they ever met an unborn child (though they may have seen ultrasounds, EAs have seen pictures of third world hunger). Pro-abortion people would argue that this case is almost identical to the Existential Risk case, as the beneficiaries aren’t yet people.

These examples do not seem to support my memetic immune disorder theory: Lancaster mill workers were not well-known for their educational level. But England as a whole was very well educated, and banned the slave trade for apparently largely altruistic reasons.



*I realize there is much debate on these points; some people argue that feminism is good for men, some that it is bad for women, and the YouGov article even argues there is little gender difference in support, though I think they have made the motte and bailey error. But you are welcome to substitute your own examples.

Population Growth and Innovation

In a world with substantial population growth, the natural tendency is for capacity utilization to rise over time. We built enough machines to produce as much stuff as was demanded by a population of a certain size, but then the population grew, so now demand exceeds supply. This raises prices, and means it is profitable for businesses to invest in new equipment to meet the new demand. At this point, businesses will look at the different types of machine on offer, and go for the one that offers the highest return. If you can design a better machine, that either does more than the old ones at the same price, or does the same for a lower price, firms will buy your machine rather than the older designs.

Without population growth this doesn’t work so well. With no incremental demand, the existing stock of machines is adequate for demand. Ignoring depreciation, firms don’t need any new machines. So to sell your new machine, you need to persuade a business that not only is your new design better than the old ones, it has to be a big enough improvement to justify the entire cost. In the population growth case, your design only had to be a little better, as businesses were in the market for a new machine anyway; now your design has to be good enough to justify getting rid of an old machine!

It seems that the first world, with population growth, is more supportive of innovation than one without population growth.

There is a common argument that a high population level is good for innovation, because it means there will be more scientists, engineers and entrepreneurs whose discoveries can be spread across everyone. The argument I just outlines is different, however, in so much that it relies on the rate of change, not the absolute level.

2014 Shadow FOMC Statement

Firstly I would like to thank the FOMC for allowing the creation of the Shadow FOMC. In these times of controversial monetary policy, it seems only prudent to have a loyal opposition. And with the increased importance of the Shadow Banking System, whose ranks have been swelled by refugees fleeing the forces of Genghis Frank and Khan Dodd, it is vital that said loyal opposition should be a Shadow FOMC.

We intend to issue quarterly statements, coinciding with the releases of the Light FOMC .

Release Date: September 19, 2014.

For immediate release.

Information received since the Shadow Federal Open Market Committee last met, which was never, suggest that the early universe rapidly expanded due to cosmic inflation. However, the expansion was disjointed due to quantum fluctuations. The effects of these imbalances continue to have a major effect on the universe, as they are the cause of all variation, including galaxies, planets, and the fractional reserve banking system. More recently, fear of another kind of inflation lead to mistakenly tight monetary policy during 2008, a key cause of the recession, from which the economy has now partially recovered.  Private Sector GDP is running at a trend rate almost as high as during the Clinton and Bush II bull years, though many analysts miss this due to a mistaken focus on total NGDP, which includes government spending at cost. Industrial production rose. The S&P500, which appeared on the verge of mass bankruptcy, is now at record levels, seeing a 30% rise in 2013. Unemployment, painfully high for a very long time, has started to accelerate downwards. Employment figures, however, have been very disappointing; partly because of demographics, many of the unemployed have simply given up looking for a job. Only recently have we seen the employment/population ratio begin to rise.

More recently, since the Light FOMC met in July incremental data suggests that economic activity is expanding at a moderate pace. On balance, labor market conditions improved somewhat further; however, the employment rate has only improved slightly and wage inflation is muted, suggesting there remains significant underutilization of labor resources. The minimum wage continues to distort labor markets, suggesting a need for higher inflation to reduce its effects. Household spending appears to be rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Restrained fiscal policy is encouraging true economic growth, although it is confusing accountants who mistakenly assume government spending is by definition useful activity. 10-year breakevens have recently fallen back to 2%, and 5-year breakevens are below 1.7%, slightly below the Light Committee’s longer-run objective. The US government has not issued NGDP-linked bonds, so we lack market implied growth figures, but trailing Nominal Private Sector GDP (NPGDP) growth has been trending around 5%, almost at our 6% target – and substantially closer than the irrelevant NGDP, which is closer to 4%.

If it was acting consistently with its somewhat misguided statutory mandate, the Light FOMC would not have initiated tapering, as low employment and low inflation both suggest a need for lose monetary policy. The Shadow Committee agrees that, with current mediocre policy, economic activity will expand at a moderate pace. The Light Committee thinks that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year, which is very strange, given that breakevens have fallen since then. Maybe the Light Committee could not afford a Bloomberg terminal.

The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions, but that this does not excuse irresponsible monetary policy. In light of the hugely reduction in the employment/population ratio since 2006, but improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to maintain the pace of its asset purchases. In October, the Shadow Committee will continue to add to its holdings of agency mortgage-backed securities at a pace of $10 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $15 billion per month. Both Light and Shadow Committees are maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that NPGDP, over time, is at the rate most consistent with the Shadow Committee’s mandate.

The Committee will monitor incoming information on economic and financial developments in coming months as closely as it can be bothered, and will continue its purchases of Treasury and agency mortgage-backed securities, until the outlook for the labor market has improved substantially in a context of NPGDP growth. If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and the Committee’s optimistic hope of NPGDP moving back toward its longer-run objective, the Shadow Committee will end its current program of asset purchases at sometime in early 2015. However, asset purchases are not on a preset course, and the Shadow Committee’s decisions about their pace will remain contingent on the Shadow Committee’s outlook for the labor market and broader economy, as well as its assessment of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Shadow Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate, and suggests that the Light Committee might like undertake one, rather than merely talking about it. In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 6% NPGDP growth. This assessment will take into account a wide range of information, including market indicators, what witty people say in our twitter feed, and patterns we see in clouds. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected NPGDP growth continues to run below the Committee’s 6 percent longer-run goal, and provided that longer-term NPGDP expectations remain well anchored.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and NPGDP of 6 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Shadow Committee views as more consitant with the fundamental level of human time preference, which implies long-run real rates of around 3-4%. Over the longer term, the Shadow remains concerned not only about technological stagnation but also about the risks from Superintelligent Artificial Intelligence.

Voting for the FOMC monetary policy action were: everyone, because of the Aumann Agreement Theorem.

Cloaking dissent as tactical advice

Let B be some belief you don’t agree with, and A some popular argument for B. You believe B is false, but publicly criticising B is socially costly.

One strategy is to firstly assert B, but say it’s a shame people argue for B on the basis of A. There are many strong arguments for B, you say, but A is unsound. A has false premises, or invalid logic. So we shouldn’t use A to support B – otherwise the evil critics of B could use the unsoundness of A to cast doubt on B! True believers in B can safely disregard A, because we know B is true.

By using this strategy, you might plausibly persuade people that A is false. And because A is a commonly quoted argument for B, you have therefore made some progress towards getting people to reject B, all while avoiding the social stigma associated with B-deniers.

Castle Consolidation as a raison d’être for the EU

People have given many (usually quite poor) arguments in defense of the EU. Perhaps this is because the EU is actually a quite poor quality institution. However, there is one argument for it that I have never seen considered in the literature: the argument from Castle Consolidation.

Castles are an excellent example of an industry fallen on bad times. Huge amounts of investment were poured into them a long time ago, but demand for their services fell over the centuries, as they were rendered obsolete in their primary market by new market entrants, like gunpowder and compacted earth forts. Regulatory change (the decline of feudalism) also hurt their profits. It’s safe to say that castles are no longer a worthwhile investment. Returns on invested capital1 are low, which is why few private equity funds are building new castles.

There are a great many castles in Europe, all in competition with each other for tourists and film production. What the industry needs to do is consolidate; if it could get down to a smaller number of firms, they could collude to raise prices. Import threat is limited, because although there are some nice ones in the Middle East like Krak des Chevaliers, shipping costs are prohibitively high. Returns are currently so low that they have room to rise substantially before new entrants are attracted to the market. There is little room for substitution because castles are awesome.

English Heritage has already successfully consolidate most of the castles in the UK; what remains is cross-boarder consolidation. That, presumably, is where the EU comes in: as a castle cartel.

  1. If you’d like to learn more, I recommend Damodaran

Average Utilitarianism and Agriculture

This post makes an argument that, if you believe A, you have some reason to believe B. I don’t believe A, but hopefully I have done a good job of mentally modelling the concerns of those who do. Please note that “but A is false” is not a valid response to this post (ex falso quodlibet notwithstanding).

On Agricultural Matters

Suppose you are an average utilitarian, who only cares about the average level of human happiness.1 Suppose further that all crops (wheat, rice, soybeans etc.) are used for human consumption – there are no ethanol or biodiesel industries, for example.

In the short-run, the supply of crops is mainly dependant on the weather. 2014 is looking like a good year for the US crop, as was 2013, while 2012 was bad. US corn production was 29% higher in 2013 than 2012, which was itself 13% lower than 2011. Short-term variations in crop supply are mainly due to weather, but the long run average volume comes down to the acreage planted and the amount farmers invest in raising yields (tractors, GM seeds, fertilisers, etc).

In order to prevent occasional famines, where insufficient crops are produced to feed people, you need to make sure farmers plant and invest enough to ensure that even in bad weather years, there will be enough harvested to feed everyone. Unfortunately this means that in most years, where the weather is not awful, there will be significantly more harvested than is required. Demand for bread is quite inelastic: we need a certain amount to live, but we’re not interested in eating very much more than that. So in years of good harvests, supply would massively exceed demand, and the price of crops would plummet to a low level, as happened this year. As most years do not have exceptionally bad weather, in most years prices will be very low – which will not encourage farmers to plant enough. As such, farmers are likely to under-plant so as to keep expected (average) profitability reasonable, which will ensure famines in years with bad harvests.

One solution is to stockpile grains between years. This is so straightforward it doesn’t warrant further comment.

Another is to make the demand for crops more elastic, so that even in good harvest years there will be sufficient demand. Setting aside moral qualms, in theory the government could do this, for example by buying excess crops to turn into ethanol. However, it is important not to confuse the omniscient, benevolent government planner of economists’ models with actually existing governments. The real-world implementations of such policies, like the US ethanol mandate or the Common Agricultural Policy, have been awful.

Fortuitously, there is a natural mechanism in place that makes the demand for crops elastic; meat consumption. As meat is a luxury on the margin (though some level of consumption seems to have substantial health benefits), demand for meat is significantly more sensitive to price than food in general. And it requires a large amount of grain to make a relatively small amount of meat. So farmers plant and invest enough to supply the demand from both humans and cattle herds in good times; then in years of exceptionally bad harvests, the price of grain rises, so animal husbandry is no longer economic. Farmers slaughter their herds, and the grain they were consuming is now available for human consumption. Even better, there is a short-term massive supply of beef, which can also help make up for the poor harvest. (I guess this is basically a way of storing grain inside cows.)

This reasoning is significantly more persuasive to average utilitarians than total utilitarians. By supporting agricultural investment this system helps prevents famines, which presumably lower average happiness. But it keeps the overall human population lower than it could be. In years of good harvest, the grain that is slowly wasting in storage, or being turned to Ethanol, or being fed to livestock, could instead by directly feeding people, and supporting a higher population, albeit one prone to periodic famines. The total utilitarian would also have to take into account how much pleasure people get from meat consumption, how much displeasure is caused by famines, and how many additional people could be supported on a more vegetarian diet.

  1. I think this is a silly view: it might commit your ethics to massive dependence on unknowable alien populations; it might require you to murder millions or billions of people for being insufficiently happy; it might force you to create really miserable people to ‘dilute’ the effect of sufficiently many even more unhappy people. And perhaps we should be concerned about the welfare of animals too. But suppose.