What is your paradigm?

Again evolutionary perspective is called to explain why some people have trouble grasping the basic economics.

Alan Fiske, an anthropology professor at UCLA, believes that there are 4 mental models, or paradigms, that we use to make sense of our social interactions:

Communal sharing is how you treat your immediate family: All for one and one for all. Or as Marx put it: From each according to ability, to each according to need.

Equality matching, by contrast, means we all take turns. From kindergarten to the town meeting, it's all about fair shares, reciprocity, doing your part.

Authority ranking is how tribes function, not to mention armies, corporations and governments. Know your place, obey orders, and hail to the chief.

Market pricing, of course, is the basis of economics. It's what we do whenever we weigh costs and benefits, trade up (or down), save or invest.

When we have conflicts, usually it is because we are thinking from different models:

...[Y]ou might see housework as a communal-sharing function, while your spouse approaches it as equality-matching. Neither is wrong, yet you still end up angry or guilty when the laundry isn't done.

The same problem can afflict whole societies, as Fiske described to me recently. "The Danes pride themselves on being fair," he said. "They can't understand why they don't get along with their Middle Eastern immigrants."

But Fiske does: "The immigrants expect authority ranking. The Danes expect strict equality matching. Each side sees people constantly violating the models."

And evolution explains why market pricing model does not come naturally to us:

...[F]or hunter-gatherers in small bands, sharing, matching and ranking were probably as fundamental to survival as eating and breeding. But market pricing involves complex choices based on mathematical ratios.

...[C]ommerce and global trade, of course, require a finely honed version of the market-pricing model. But if humans developed this model relatively late, it might well be less than universal, even today.

In other words, to have an intuitive grasp of economics, you might just need to take a step or two up the evolutionary ladder.

Here is the link to the article.

Marriage Penalty

Here are the main points of this artile in NY Times:

1. Women are catching up with men in terms of education and income.
2. Assortative mating -- the tendency of like to marry like -- is becoming easier with Internet.
3. As the result of #1 and #2, the gap between the well-paid and well-educated couples and those of less privileged ones is getting bigger.

And that leads to an interesting question:"are we achieving more egalitarian marriages at the cost of a more egalitarian society?"

This might well be one of the reason for the increasing inequalities when they are measured by households. But I am more amused by the funny side point:

Putting love aside, as men's and women's roles continue to shift, other standards for selecting a partner may come to the fore. Indeed, the sociologist Julie Press recently offered what she called "a gynocentric theory of assortative mating", moving the focus from what men now desire in a marriage partner to the evolving preferences of women. What would-be wives may be seeking now, she proposed in The Journal of Marriage and Family, is “cute butts and housework” — that is, a man with an appealing physique and a willingness to wash dishes. Could this be a feminist slogan for our time?

Funny indeed.

Another Sad Day

Milton Friedman died today. From WSJ:

Nobel prize winner Milton Friedman, one of the most influential economists of the last century, died today. He was 94.

Mr. Friedman was awarded the Nobel prize in 1976. He has long championed the cause of political and economic freedom and the links between the two. He has originated, or been associated with, many breakthroughs in economics since the 1950s. He is best known for explaining the role of the money supply in economic and inflation fluctuations. He also, with this year's Nobel prize winner Edmund Phelps, developed the theory in the 1960s that policy makers couldn't achieve a permanent tradeoff between lower unemployment and higher inflation, and that efforts to do so would simply result in the same unemployment rate and higher inflation, a view that holds sway at major central banks today, including the Fed.

I hope this is the last sad post for this year before I get into holiday cheers.

Ed Bradley

When the news came out last Thursday that Ed Bradley passed away, I instantly recognized him even though I am not a regular viewer of 60 Minutes of CBS. His style, voice and manner left quite an impression on me.

I knew CBS would run a tribute program for him last night, so I recorded the 60 Minutes show and watched it. It's no doubt that he will be remembered as a first-class journalist, but what strikes me is that he's lived such a meaningful life, rich and compelling. He loved Jazz and Gospel, travelled all around the world, interviewed all kinds of poeple, reported from war zone in Vietnam, lived in Paris for a few years where he picked up his style. And above all he has lived his nomadic life in the mordern time. What a lucky man.

Inequality, globalization and offshoring

There have been a lot of discussion in econ blogsphere about inequality, globalization and offshoring as the mid-term election draws closer. Economists and policy makers are increasingly concerned with the widening income gap between the rich and the poor and shrinking of middle class. The consequences could be disastrous if they are not addressed timely. Even though this election is mainly a referendum on the war in Iraq, the dissatisfication of middle class with their economic well-being could also play an important role in determining the outcome.

Two distinct trends stand out when we look at the landscape of gloabl economy. Technology has greatly increased the economy of scale: it's more and more like winner-take-it-all than ever before, if you are the top one or two in the field, you get to reap most of the benefits. That might partly explain why the rich keeps getting richer.

Another one is latest development in offshoring -- electronic offshoring of white-collar middle-class service jobs. That really puts a lot pressure, real or perceived, on the middle class. It's no longer the uneducated or unskilled workers that are at risk of losing their jobs, this time we are talking about losing well-paid service jobs.

Facing those gigantic challenges, economists are struggling to come up with convincing arguments for free-trade to counter the increasing protectionism and anti-globalization rhetoric, often from those that have been made worse off in the process. Simply saying trade makes everybody better off won't cut it: there are winners and losers even though the overall economic pie is bigger, and it seems like that the pact of losers is getting larger and larger while the very few is reaping off most of the benefits.

I think it comes down the fundamental tradeoff between efficiency and equality. I wish every rich person would be as generous as Bill Gates, that would avoid the involuntary high tax on them, which is at odds with my libertarian slant. But in reality we probably have to go for more progressive taxing, which is the least damaging (and most effective) tool in addressing the issue of inequality.

Politics

Here is Cowen on whether more education of economics would improve our world:

Once a reasonable degree of human diversity is introduced, coalitions need to be built. Building coalitions requires politics. That includes compromises, horse-trading, shading the truth, and so on.

His essential point is that government is inefficient because of the high cost of coalition-building, and the best political leaders are those with best coalition-building skills.

It's the people that matter

The textbook answers to long term economic growth are physical and human capital, and institutions. This paper tries to put more emphasis on human capital, which by itself is not a bold statement. But some of the implications could be very controversial, if not provocative.

1. Some cultures(if not ethnicities or races) are just superior to others in that they are more conducive to the organizing of modern production.

2. Foreign aids may make things worse for poor countries.

3. Advance in health care leads to rapid population growth in poor nations, which cuts down the per-capita resources, which in turn causes the worsening of the quality of human capital.

4. Some part of the world is doomed in this mordern world.

Something to watch

Here is a paper on how sustainable the rapid growth of China's economy is.

FIEs(Foreign Invested Enterprises) employ only 24 million workers out of a total workforce of 752 million, and their labor productivity is around 9 times that of the workers in the non-FIE sub-economy. The FIEs account for over half of exports and 60 percent of imports. Industrial FIEs are responsible for over 30 percent of China's industrial output....The FIE sub-economy currently is growing at around 18 percent per year, while the non-FDI portion is growing at about 5-6 percent annually. This suggests that if FDI inflows level off (as appears to have happened in 2005), the sustainability of Chinese growth in the 7-10 percent range may be doubtful.

This indeed is something disturbing.