Statistics II

Why don't statistics work backwards? There are actually many reasons, but three are key. First, statistics requires data and data requires theory. Second, theory is about causation and statistics are about correlation. Correlation does not imply causation. Third, it just can't work backwards.

1. You can't do statistics unless you have data, so data proceeds statistics. But you can't collect data without some theory that tells you which data is relevant. There is lots of unstructured information available about the world. It can't be analyzed unless its been sorted and classified, and since that necessarily must come before statistical analysis, it can only be sorted through theory. (Even with archival data, it only exists before it's relevant.) No one is ever going to regress corporate performance against CEO hair color because, even though the information is available, it makes no theoretical sense.

2. Theory is a proposed causal relationship between two constructs. Statistics depends upon the correlation between one or more independent variables (the possible cause(s)) and the dependent variable (the supposed effect). You can't get to theory from statistics because correlation does not imply causation, though causation requires correlation. There are lots of pairs of things that correlate, even very strongly, without being causally related. Sometimes that's because both are caused by some third construct. Consider, for example, this graph of the relationship between the number of lemons imported from Mexico and US highway fatalities:



(I stole this graph from Derek Lowe, who in turn stole it from a letter to the editor in the Journal of Chemical Information and Modeling (Johnson, 2008).)

"R² = 0.97" means that Mexican lemons explain approximately 97% of the variability in US highway fatalities over time, an almost unheard of result in the social sciences and much better than lots of studies that have caused otherwise rational people to upset their way of life. Why shouldn't we, then, repeal the traffic laws and just start importing lemons willy-nilly? Because theory tells us that lemons don't cause a reduction in highway deaths, no matter what statistics tells us.

What's really going on in this graph is that we've gotten richer over time, mostly as a result of increased productivity resulting from advanced technology. Richer means that we're importing more luxuries, like Mexican lemons. Advanced technology means that cars can be safer and richer means that safer cars are affordable. (For all I know, it might also be that technology advances have made importing lemons from Mexico easier and cheaper, increasing demand.) In any event, imported lemons and highway fatalities only correlate with each other because they both have causal relationships with a missing factor or two. Only theory can tell us whether a factor is missing and what it might be. Even then, it usually doesn't.

3. The third reason we can't work backward is because that's just not how it works. This has to do with our acceptance of false positives, and with null hypothesis testing, so it's a little more complicated.

Statistics works by trying to figure out, if our two data sets really were random rather than systematically different based on the independent variable of interest, how likely it would be that we would get that distribution. Let's say we suspected, for example, that altitude effects whether a coin lands heads or tails. To test our theory, we flip a coin at ground level and at the summit of Mt. Everest. On the ground, we get 48 heads and 52 tails. At altitude, we get 62 heads and 38 tails. How likely is it that our distribution could happen at random? As it happens, I can test that: the chance of getting that distribution randomly is 0.047, or just under 5%. If I had gotten 61 heads on Everest, the chance would have risen to 6.5%.

As most of you know, the convention in science is that if the probability of a particular distribution being random is less than 5%, we can claim that the two sets of numbers are significantly different. The first thing to note about this is that this is only a convention. It is entirely arbitrary; there is no theory that makes 0.05 better than 0.04 or 0.06. If it were higher, we'd have more false positives, if it were lower, we'd have more false negatives. Just like deciding whether the speed limit should be 55 or 65, in the end all you can do is pick one.

The second thing to note is that this is not the same as saying that the chance that my result is random (and thus wrong) is 0.047. Implicitly, statistical tests compare my actual hypothesis (altitude causes a change in coin flipping results) to an opposite "null" hypothesis (altitude doesn't cause a change in coin flipping results). Generically, the hypothesis being tested is always "these two sets of numbers are significantly different" and the null hypothesis is always "these two sets of numbers are not significantly different." So the 0.047 really means, "the chance that my results are a false positive is 4.7%, if the null hypothesis is true. Of course, if the null hypothesis is false, then my theory is true and my results are necessarily not a false positive. In the real world, we can't know whether my theory is true separate from statistics, but strong theory, well founded on prior results, should be true. In other words, if my theory is convincing, the total chance that my results are a false positive is much less than 5%. (In some fields, the chance that my results are a false positive will be further reduced by replication, but in management we don't do replication.)

Now, what if we try to work backwards? The problem is that, for every hundred random regressions I do, I'll get (by definition) an average of five "significant" but false results even if there's no actual relationship in my data. Once, simply doing the regressions was onerous and something of a brake on this kind of fishing, but now, if I have the data on my computer, I can easily do 100 regressions in an hour. If I do a thousand regressions, I'll have 50 that are significant, and 10 that look really significant (p < 0.01). (One of the annoying things about popular science reporting is the focus on really small values of p. For reasons not worth going into here, if the probability of the null hypothesis being true is less than 5%, it really doesn't matter how small it is.) It is much, much, much more likely (actually, all but certain) that I'll find significance when fishing around than when testing theory. If we work backwards, we have no way of knowing what the chance of a false positive is.

[Because I want to make sure this point is clear, I'm going to beat it over the head a bit. If I come up with a theory and then test it, I know that the chance that my results are random (a false positive) is no more than 5%. Because my theory is strong and based on prior research -- and to be published it has to be vetted by experienced scholars in the field -- I know that the real chance of a false positive is actually quite a bit less than 5%. But if I work backwards, I have no idea what the chance of a false positive is. The particular relationship I found is less than 5% likely to be random, but I know -- by definition, and thus with certainty -- that if I do 100 regressions on completely random data, some of those regressions will be sufficiently unlikely (p < 0.05). In other words, when I'm fishing, the chance of a false positive is 100%, even though it is still true that the chance of any particular significant result being false is less than 5%. If I take that result and then fit a theory to it, I have no idea what the real chance of that result being a false positive is. Inherent in the math behind statistics is the assumption that I am testing a relationship I theorized a priori. That assumption is necessarily violated if I find the relationship and then develop the theory.]

Why can't we just go find significance and then go see if we can develop strong theory? Because we can always find a theory to fit if we know the end point.

Statistics I

Since it's become clear that I'm not going to write one long post on statistics, I've decided to write an infinite series of short posts on statistics.

Don't say I didn't warn you.

In this post, I'll start with the purpose of statistics: the purpose of statistics is to tell us whether two sets of numbers, that differ based on some characteristic that we suspect might be important, are really different. Although it can get very sophisticated (for example, we sometimes don't know the second set of numbers), that's really all statistics does or can do.

In particular, statistics can't work backwards. We can't see that two sets of numbers are different, and then work our way back to figure out what the difference is. Theory must drive statistics, but statistics can't drive theory.

Next time, what alpha means, and what what alpha means means.

The Annotated Brit

The inimitable John Inman:

The Nice Schizophrenic Next Door

We're making plans for a family trip to Montreal next summer, to correspond with a conference I've got to go to. (Peter -- Are you going to be in the vicinity in early August?) One of the conference hotels is the Fairmont Le Reine Élizabeth. There is something so deliciously Canadian about their insistence upon rendering the name of the Queen of England in French; it is just a constant delight.

Irony Is A Dish Best Served Cold

Remember when it was treason to sell the UK-based manager of six US ports to a state-owned UAE company? You probably don't remember who ended up buying out the six US ports instead: AIG, which is obviously a much more trustworthy manager of our precious national assets.

Are There People

... for whom it is good news when the world conforms to their expectations?

Remember The Uninsured?

Every once in a while, I have to forcibly remind myself that the long march to "Health Care Reform" started with the uninsured. It is wrong, we were told, to deny 15 20 30 40 million Americans healthcare. And who can argue?

So, the American people, coming off 8 exciting Bush years, when we had done pretty well but weren't really feeling that we had done much good (mistakenly, in my opinion, but that's neither here nor there), elected Barack Obama to do good -- including by getting health care to the uninsured.

But how to do that. One way, the traditional American way, is to provide health care insurance to the poor, the young and the old and simply let the uninsured show up when they need treatment. The other way is to get health insurance to everyone, which apparently requires spending trillions of dollars, mucking up everyone else's health care and losing sight of the uninsured along the way. The problem is that everyone who has insurance is pretty much happy with their health care, they just wanted to help their neighbors out.

Now, my neighbors are fine people and I'm more than willing to help them out, now and then. But there are limits and there's no point in my helping them out by giving up myself what they don't have. In other words, we might have reached the Robin Hood point, where the rich, having been robbed, are now the poor.

It Looks Too Much Like A Bribe To Actually Be A Bribe

Is It Just Me?

Or is Curious George at the Park Touch-and-Feel an unfortunately creepy name for a children's book?

Thought Experiment

AMENDMENT 28:

Except in time of war, the federal government shall have no power to tax but shall pay for all of its expenditures through borrowing, save only for fees charged to participants that cover the cost of their participation in enumerated voluntary activities.

The Zeitgeist Rolls On

In a New York Times article on fraud in a new book on the Hiroshima bomb, a historian describes the book this way:

“This book is a Toyota,” said Robert S. Norris, the author of “Racing for the Bomb” and an atomic historian. “The publisher should recall it, issue an apology and fix the parts that endanger the historical record.”

Just putting down a marker for the first time I saw the phrase "It's a Toyota" used to mean that the subject is a clunker.

Why Is Internet Advertising So Bad?

We all have, in the back of our minds, the idea that advertising is going to keep giving us our internet for free. But why is internet advertising so bad? If I see another ad about Acai berries, or about how a [fill in your location here] mom makes $77.00 an hour stuffing envelopes, I will cry.

In The United States

One of our faculty members has a habit of adding "in the United States" to any generalized statement made in her presence. If one of us says that pay tends to be the largest factor in employee motivation, she'll say, "in the United States." If we say that investing in research and development tends to be associated with increased profitability, she'll say "in the United States." If we claim that reciprocity is a universal human behavior, she'll say "in the United States."

Her point is two-fold. First, she doesn't believe in universal human behavior. Second, she's reminding even those of us who are positivists -- who believe that there can be generalizable rules of human behavior and thought -- that our conclusions can't outrun our data, and in management almost all data is from the United States. (In the social sciences generally, almost all data is Euro-American. In psychology, most data is from college students. Next time the media tries to tell you about some universal truth derived from psychology experiments -- usually some left wing truth -- remember that all they're really telling you about is how college students behave.)

I'm reminded of this warning by the recent proliferation of supposed "racial code-words" identified by the racialist left and defenders of President Obama. Various observers have suggested that calling Obama "socialist," or "un-American," or "Professor" is subtle racism. As James Taranto notes, "un-American" is not particularly subtle, but it seems odd to object to it as racist. Professor, on the other hand, is a very subtle insult, and not just as racial code.

Why are these insults and honorifics both being described at racist? Partly, I'm sure, simply to deflect criticism of President Obama. But partly for a peculiarity of thought in the United States. For a certain portion of our population, blacks are not only "other," but the only other.

It's fair enough to note that, if asked to imagine the prototypical American, most of us (and not just in the United States) would imagine a white male. "Aha," shout the racialists, "we knew it. Blacks aren't really American." I have a more benign explanation, of course, that allows for the Americanism of women and minorities (who are called minorities for a reason). Our prototypical American is probably also Christian, though probably goes to Church only on Christmas, Easter, to be married and buried. Nonetheless, Jews can be Americans, too. But if you can only imagine one American, you go with the majority.

For the racialists on the left and right, though, our little thought experiment has proved, conclusively, that blacks are the other in the United States. For certain racialists on the left, however, blacks are the only other. They'd admit, if pressed, that women, atheists, Asians, gays, etc., also seem to be other, but only to the extent that their experience is like that of American blacks. When they say that "gay is the new black," they don't mean to imply that black isn't still black.

So, in the United States, the racialists can't admit that calling someone "socialist" or "un-American" or "professor" is really about whatever those words literally signify. Rather, it's a way of pointing out that the object of those words is other than prototypically American, which is to say, black.

Today Makes Me Think ...

That sanity consists of being able to step outside the logic of your own argument.

RIP Dick Francis

Proof is a nearly perfect book.

What To Do, What To Do?

Although it's not really my concern, I'm fascinated by the question of what the Democrats should do about health insurance reform between now and the mid-term elections. Should they do nothing, and alienate their base, or should they force it through and energize their opponents even more?

Their base, which might even earnestly believe that HCR will accomplish something good, badly wants reform to pass. They want the Dems in Congress to pull out all the stops, using the reconciliation process (designed for budget changes that reduce the deficit) to nationalize 1/6th of the national economy over Republican opposition. If Congress won't do that, the base at least threatens not to turn out in the fall. After all, what's the point of voting for Democrats if you can't get one measly earth-shattering, unprecedented reform through?

On the other hand, the Tea Partiers and conservative Republicans hate reform, think that it is the tool of the devil designed to make all our lives worse and think that, by electing Scott Brown, we've won. Cheat us of our victory and we'll turn out in droves. Plus, using reconciliation in this way would be, in effect, the end of the filibuster.

Add to this that the Administration probably does truly believe that HCR is not only good, but the culmination of 100 years of striving for national health care and this might be the last real chance of passing it for a generation. What should they do?

Sometimes I Wonder

why I bother (here and here).

This study is the poster child for bad reporting of social science. The reporting is that the authors found that the judge's race makes an "enormous" or "dramatic" difference in the outcome of discrimination cases. Leaving aside the fact that the study is completely unreliable and doesn't allow us to draw any conclusions at all (which I don't really blame a lay reporter for missing), the fact is that the authors' own results show that the judge's race makes little (R-squared under the best possible circumstance is only 0.03, meaning that judge's race explains only three percent of the variance in outcomes) or no (in the authors' best analysis, judge's race was not significant) difference.

That's actually an interesting result -- if we could rely on it -- since everyone assumes (look at the comments) that judge's race will make a difference. A finding that suggests that we're too cynical is an interesting finding.

P.S. The comment thread at the ABA Journal, which has now degenerated to "it's the JOOOOs," amply demonstrates the problem with bad reporting of bad studies.

Sounds Teleological To Me

Aliens are likely to look and behave like us. (Richard Alleyne, Telegraph.co.uk, 1/25/10)

Prof Conway Morris believes that extraterrestrial life is most likely to occur on a planet similar to our own, with organisms made from the same biochemicals. The process of evolution will even shape alien life in a similar way, he added.
“It is difficult to imagine evolution in alien planets operating in any manner other than Darwinian," he said.

"In the end the number of options is remarkably restrictive. I don't think an alien will be a blob. If aliens are out there they should have evolved just like us. They should have eyes and be walking on two legs.

"In short if there is any life out there then it is likely to be very similar to us."

Note that "Darwinian" here seems to mean "destined to produce symmetrical bipeds with heads."

PSA

If you use Gmail, check your Spam folder. Gmail apparently changed its Spam filter a week or two ago and it's been catching more real emails than it used to.

Epigramatically Yours

From a comment at BrothersJudd:

"Capitalism is simply what the left calls freedom, when it wants to curtail it."

Sensemaking

I was minding my own business last night, watching Fringe, when I noticed Charley in the background. That seemed somewhat odd, since Charlie had been killed last fall at the beginning of the season. I checked my cable listing, but it said that the episode was new in 2010.

Hmmm, something was up. An alt-universe story? Some sort of shape-changer Charlie (which would actually be the second shape-changer Charlie) coupled with a memory ray? Neither the characters nor the show seemed to be paying any attention to the dead walking -- although the story for the episode was about a girl who came back to life after being dead. Subtle, show, subtle.

I started to notice a nice shading to the characterizations. Walter seemed to have a harder edge and fewer tics than usual. He was more decisive and more confrontational. Olivia, on the other hand, seemed softer, more empathetic. Charley was more in the background than usual and his interactions with Olivia seemed cooler. Was that really Astrid's regular hair style, or was it bushier than it had been?

What could this all mean?

It didn't seem to be an alt-universe story, since Peter was there and Charley had no scar. The mind ray was still possible, but why wasn't the show suggesting any solution? I began to spin out ever more fantastic possibilities.

But when I looked on the internet, it turned out that Fox was just burning off an unaired episode from the first season.

Today Is 30

The Environment Is Just Grist For Our Mill

There's not much I enjoy about the humorless earnestness of green culture, but one thing that I find quite entertaining is how it is being coopted by businesses in order to push costs onto consumers.

A few examples:

Hotels now try to guilt guests into reusing their towels, relieving the hotel of the cost of doing its laundry.

Supermarkets now sell reusable grocery bags, relieving them of the need to provide bags, paper or plastic, and making the shopper do the work of schlepping their bags to the store.

It's nice to see that, to a capitalist, Environmentalism is just another way of making money.

Do you have any other examples? I would think that employment would be a fertile ground for this sort of thing, but perhaps we're all too suspicious of our employers.

Time To Start Watching Treasuries

10 year Treasuries seem to be heading towards 4% faster than expected (they touched 3.91% late last week). The yield curve is no longer inverted, for those who are about that, and, so far, interest costs for all that deficit spending we're doing are fairly cheap.

More Proof That Fascism Is Of The Left

If you can stomach it, you should go and read this Pat Buchanan column. Go ahead, I'll wait.

What I find really striking is not how silly it is (in 2000 the economy was booming, in 2010 we're just coming out of a recession: OH, WOE IS ME), but how, except for one paragraph and a hand-full of words, it could have just as easily be written by someone on the supposed left as by Buchanan, who has so long straddled the line between right and far-right.

Buchanan's is a sad story, though his functional anti-semitism prevents me from feeling too sorry for him. Working for Ronald Reagan, he was a force for good -- and for free trade. But he soon lost his soul in Washington, suffering the fate of those who take politics too seriously. He lost focus on where his path was taking him and lost sight of common sense some time ago.

I Remain Firm In My Position

that the decade doesn't end until next December 31.

In Real Life, Pocahontas Died Of Smallpox

It's a rainy day in Orlando, so we went to see Avatar today in IMAX 3D. It is excellent; well worth seeing. In fact, I'll wait while you go see it now.

That was fast.

A lot of the reviews (Roger Ebert's is a good example) claim that the movie is anti-American, or at least anti-war (and who am I to deny that the two amount to the same thing). But of course it's not possible to make an anti-war war movie. At the end of Avatar we're thrilled to see the Na'vi and their tree god demolish the mining company's mercenaries. When the leader of the mercenaries asks Jake (our hero) how it feels to be a traitor to your "race," we know he's the bad guy and cheer to see him shot twice with the giant poisoned arrows of our favorite Na'vi princess. We're not against the war, we're just against the humans.

As for anti-Americanism, there is some of that. It's just hard to tease apart from the anti-capitalism. The National Guard, slyly, answers this concern by running a full-throated ad for soldier/citizens before the movie. They understand that Jake does nothing that we don't wish our ex-Marines to do. Or, as Jake says, once a Marine, always a Marine, even if that requires that you side with the Indians against the Cowboys.

And that's the real transgression of Avatar. Cameron tells a story in which the Indians win, turning our founding myth upside down. That might be disturbing, if it were possible to take seriously. Avatar is a retelling of Disney's Pocahontas in which Pocahontas gets John Smith (excuse me, Jake Sully) and her people keep "their" land. It shares with Disney's Pocahontas the conceit -- perhaps better suited to science fiction -- that the Indians are fundamentally different from you and me -- when they talk to trees, the trees talk back. We have machines; they have a mystic bond with the land.

Cameron spends no time on the question of what else the Na'vi don't have, besides mechanized killing machines of all types and sorts. We don't see many Na'vi older than what, for the humans, amounts to the late 20s. We don't see healthcare or education that isn't exceedingly practical. We don't see the arts or even much in the way of crafts. Na'vi fashions are, to put it mildly, minimalist. The Na'vi have no interest in anything the humans have. Indeed, both the Na'vi and the humans seem weirdly uninterested in what makes their mountains fly, and how much that would be worth on Earth. It seems fair to say that no Na'vi Adam Smith is pushing for free trade. How many Na'vi children die of dysentery or malaria or malnutrition? The Na'vi are at one with nature, but it's made clear that the bond doesn't make nature any nicer.

In Avatar, the Indians were able to use their mystic bond with all life to use nature as a weapon and send the white man (literally and figuratively) packing. In real life, Pocahontas died of smallpox in Gravesend, England.

Merry Christmas To All

May non-dominational authority figure of your choice bless us every one.

What Is Performance?

One of the hardest questions in Strategic Management -- the study of why some organizations outperform other organizations -- is how to measure performance? Is there one universal measure? Does it depend on industry or structure? How do we make sure that our comparisons are apples-to-apples?

So what measurement do you use to say this organization outperforms that organization?

I Put The Over/Under At Two Days

Dear Prudence,

My partner and I are adopting twins! We plan to raise them without diapers. There's a method for this, and most of the world goes without diapers. We will also use only organic clothes and linens, and only natural wooden toys. I'm wondering how we can politely express this to the people attending our baby shower. It would seem a bit brash to simply tack a list of what we don't want to the bottom of the invitation. I'm afraid that giving no indication about our organic preferences would lead to us throwing out or giving away almost all of the gifts we receive, and that doesn't seem right, either.

—Two Dads, Two Kids, One Problem

Identify All Legal Issues And Briefly State The Controlling Law

Sam Scientist from Springfield was hired by Big Pharma Inc. to research new drugs. On his first day, Sam, who was the company’s first African-American employee, was given an employee handbook that said that employees would be treated fairly, that he would only be fired for good cause and that Sam was here to work so no unproductive doodling was allowed on the job. While doodling one morning while on a corporate jet on its way to a conference in Boston, Sam invented an ink that would make someone forget anything they had read printed in that ink after two weeks.

Sam’s manager punished him for doodling by putting a memo in his file that Sam now had one strike. Big Pharma Inc. filed a patent for the ink invented by Sam. Sam was not given any of the profits from his ink, even though other scientists, all of whom were white, were given bonuses for inventing new drugs.

Big Pharma Inc. started a subsidiary, Fair Use LLC, to publish books using Sam’s ink. Fair Use LLC was owned 50% by Big Pharma Inc. and 50% by Big Pharma’s CEO and his secretary/mistress. Fair Use’s business model was simply to republish all best sellers without paying royalties to the authors. When Sam complained that he should be given 25% of Fair Use LLC, he was fired.

An Inquiry

Does anyone know the point of the really odd comment spam I've been getting for the last week or so?

The Hardest Choice Since Sophie's

Orrin raises the possibility that we can defeat health care reform, or defeat President Obama, but not both. This is similar to the idea that attempting health care reform saved Clinton's presidency by electing a Republican House and making him into a caretaker President. Of course, with Clinton we defeated healthcare reform but were stuck with the President for two terms.

With Obama, it's a harder choice. Clinton, at least, was relatively innocuous on foreign affairs and even, with NAFTA, the ICC and Kyoto, good for the country. I really don't want healthcare reform, which if passed will torture us for generations, but Obama (Nobel speech excepted) can't be trusted with foreign affairs. What do we do?

Cognitive Dissonance Explains It All

In the course of making fun of Ann Althouse for voting for Obama on the assumption that he was lying about his belief in God, I had a minor epiphany.

When our intentions, attitudes and behaviors don't match, we suffer from cognitive dissonance, which turns out to be a pretty powerful force. It is not, though, generally powerful enough to change our behaviors, so most often we avoid dissonance by changing our attitudes and/or intentions. So even if Obama joined the church as a cynical move to find a political power base in Chicago, years of attendance combined with his intention to live an authentic black life in America, would cause cognitive dissonance most easily eased by changing his attitude and believing in God.

To Think That Epistomology Must Be A Subset Of Ontology

Is wrong. But I can't decide if it is a mistake born of optimism or pessimism.

This Is Fun To Play With

Hampshire County is where I live; Nantucket County is where Nantucket is.

Well, I Was Wrong About That

Instapundit posted this coffee ad without comment, but I remembered it as soon as I hit play. In the 80s, coffee was worried that it might be permanently replaced by soda and other soft drinks; that Americans were losing their coffee addiction. These series of ads were meant to boost coffee drinking among the young (which, at the time, included me).

Although by 1984 I was drinking coffee by the pot, I didn't think that the industry had a chance to remain anything but an also-ran. Coke uber alles.

The research into entrepreneurship indicates that one of the few traits that really seems to separate entrepreneurs from the rest of us is a representation bias. That is, entrepreneurs think that their own experience, tastes and judgment are more representative of the population at large than is actually the case. So, if they like some new product, everyone else will, too. If that's true, than I'm the anti-entrepreneur. I think the things that I like are doomed to failure.

Anthropogenic Global Warming

Seems like a good time to revisit anthropogenic global warming: what do we know, what can we assume, and what can we do it about it.

Anthropogenic global warming is a series of nested propositions:

1. The global temperature is rising. This is the heart of AGW, and until this week, it was the real consensus of informed scientists. After the CRU leaks, it turns out that we can't even be sure that the globe has been getting warmer over the last century. Other questions are, what is "global temperature" and is it even relevant. Maybe we should worry about peaks and not averages. Maybe we should worry more about temperatures at the poles or at the equator rather than global averages. Because it turns out that the only good temperature record we have lasting longer than decades is for particular spots in the US and Japan and some of those will have changed due to local urbanization (and in at least one case, because someone pointed an air conditioner dump vent at the thermometer). Of course, at some point we all agree that the globe's gotten warmer; we used to be in the little ice age, which ended about 1880, so the world has clearly gotten warmer since then. Of course, that's been a good thing, leading to the need for proposition 2.

2. Rising temperatures would be bad. In fact, the experience of mankind is to the contrary. Rising temperatures are good. We get more crops, we gain arable land, fewer seniors drop dead shoveling snow, etc. So AGWists need to posit large increases in temperature that push us past a tipping point at which civilization is devastated (or, at least, Bangladesh is under water). We can't get there through CO2 alone, though, even though AGWists put a lot of time into arguing proposition 3.

3. Carbon dioxide causes higher temperatures. This is probably true. Carbon dioxide is a greenhouse gas in that it absorbs sunlight and emits heat at levels higher than the atmosphere generally. But the direct effects of carbon dioxide on temperature are well understood and relatively mild; about one degree for every doubling of CO2 in the atmosphere. Since we're unlikely to double CO2 even twice from this point on -- even as India and China industrialize -- that really isn't going to get us over the tipping point, so

4. Carbon dioxide warming will be amplified by positive feedback mechanisms -- that we've never seen, can't describe and don't understand. The historical evidence seems pretty clear: temperature increases have been followed by atmospheric CO2 increases but never preceded by them. Even worse for the AGWists, we do understand at least two negative feedback mechanisms: more CO2 leads to more plant growth, which, by reducing the Earth's albedo, cools temperatures be reflecting more energy into space; and rising temperature leads to more cloud cover, which reduces Earth's albedo, etc. Basically, AGW's appeal to science just breaks down here, even though positive feedback is absolutely essential to the AGW as disaster scenarios.

5. Industrialization, which leads to release of CO2 into the atmosphere, causes AGW. This is actually more problematic than it appears, because industrialization also leads to the emission of particulate air pollution and other gases, like sulfur dioxide, that cause atmospheric cooling. Do the traces of CO2 we release into the atmosphere overpower the traces of SO2 we release into the atmosphere? Your guess is as good as the CRU's. At least one AGWist theorizes that the reason there hasn't been any warming over the last 10 years has been because of the increase in SO2 pumped into the atmosphere by India and China. That, of course, implies that the clean air act threatens to destroy the world.

6. Global warming is bad because it's anthropogenic. Lot's of AGWists seem to argue that we are obliged to do something about global warming because it's anthropogenic. But what difference does that make? If global warming were natural but disastrous, should we let it? If it were man-made but good (a real possibility, of course) should we stop it just because we're changing "nature?" This (and the continued opposition to nuclear power) is where it becomes clear that AGW isn't scientific at all for many proponents; rather it is political/religious/spiritual.

Stupid President

I don't really dislike Barrack Obama. He's no Bill Clinton -- the best president in my life time I never voted for -- but he isn't (yet) Jimmy Carter, either. I'm all for an arrogant foreign policy but I do understand why the nation was ready for a break.

But Obama's habit of kowtowing (almost literally) to foreign prince's and potentate's is disgusting. And not just disgusting, but stupid. He's the American president. He's the head of state. HE IS THEIR EQUAL. He is their equal on principal, because that's what Americans believe, so no American should give Elizabeth or Abdullah or Emperor What-his-face-sama anything but a brief nod. But he's also their equal as a matter of mere protocol. The Administration just looks dumb when they do this and I wish they would stop it.

Um...Huh?

I enjoy reading Camille Paglia, who is also responsible for the post below this one. Her most recent Salon column viciously attacks Nancy Pelosi, national health care, Hillary Clinton and Richard Dawkins. What's not to like?

And then she says something like this:

What mal-education goes on at killer prices at the elite schools! Skyrocketing tuition costs are legalized piracy. It's a national scandal, which the mainstream media has shamefully neglected. A few weeks ago, I was bemused to discover the bill from my first semester (fall 1964) at Harpur College of the State University of New York at Binghamton. The tuition was $200, which was offset by my state scholarship for that amount. My shared room was $150; linen was $6.50. Board at the cafeteria was $225. The physical education fee was $2, and there was an activity fee of $17.50 and a general college fee of $12.50. The grand total my parents owed for the semester was $413.50 -- for which I received the superb education that is still the basis of my professional life as a teacher and writer. If only the billions upon billions that this country has thrown down the drain in Iraq and Afghanistan had been redirected to education and healthcare!

That someone as smart as Paglia doesn't understand that, not only have we thrown billions (probably trillions) of government dollars at higher education, but that those billions are the reason college costs so much today, is discouraging. Of course, Paglia, like me, feeds at the big ed/governmental trough, which can warp even the smartest observer.

The Second Time As Farce

Remember when the spat between Neil Young and Lynyrd Skynyrd was the battle between good and evil?

Place Holder

I'm feeling some internal pressure building up to blog (or maybe even write) about how Harvard Business School destroyed American business. Basically, it's a story of two post-war trends. First, a belief in planning -- the more massive the better -- as the answer to every problem. Second, the decision of the large foundations -- Ford, Carnegie and Rockefeller -- to pour money into management education so long as it looked "social scientific."

It turned out that these trends left management a little up in the air. Isn't wasn't quite clear what we should be teaching. As a result, a lot of schools hired psychologists and sociologists and focused on what we call micro management (yes, really). Basically, this was human resource management. The problem is that it's never been possible to convincingly (i.e., scientifically) show that any particular hr technique leads to better firm performance. Basically, hr (also called organizational behavior) focused on reducing absenteeism and turnover while increasing what's called "organizational citizenship behavior, which is doing things for your employer that aren't, technically, your job. For example, the person who takes it upon herself to empty and clean the lunch room refrigerator is demonstrating OCB. Frankly, it's all sort of a mess of warring medium-term theories and we can't even say with certainty that employee satisfaction is a good thing for the company.

This left Harvard with a problem. HBS does not see itself as being in the business of churning out middle managers and vice presidents of human resources. It sees itself as being in the business of turning out CEOs whose value is in their ability to lead their company to sustained high returns. Before the focus on planning and scientification, they did this by hiring retired CEOs to come in and tell war stories to the graduating MBA students. This is probably as good a way of teaching strategic management as any, and survives today in the Harvard case study method. But it's very ad hoc and highly unscientific.

The other problem facing Harvard was that there's no obvious place for economists in this new management education. Economists are social scientists, but they assume that over time there are no meaningful firm level differences. All firms, in the long run, are fungible in economic theory. So it's not just that economists don't have much to say about the proper strategy to pursue to obtain sustained high returns, it's that they don't think that there can be any such thing.

All this came to a head in the person of a economics student at HBS name Michael Porter. Porter was studying IO (industrial organization) economics, which is the branch of economics that advises policy makers on how the legal environment should be structured to promote competition within industries, and thus avoid sustained high returns. Porter, true to his training, accepted that firms within the industry would, in the long term, all look identical and thus there was no point on wasting time on firm strategy. But he turned IO economics on its head and started educating executives on how to use lobbying and industry-level devices (e.g., trade associations and collective bargaining agreements to reduce competition within the industry and block entry, allowing all of the established firms in the industry to share sustained high returns. Basically, the Porter school (Porter, by the way, would object to this as an overly simplified summary of his views) teaches that the most important strategic decision made in business is about what industry to enter, after which there isn't much any individual firm can do to set itself apart from its competition. After that, all you can do is work together with your "competition" to try to rig the game at the industry level.

Porter's success at Harvard, and Harvard's success at educating CEOs, seems to me to explain much of what we've witnessed over the last few decades. (Porter published his early and most influential work in the late 70s and early 80s.) The co-dependent corporate state and the corrupt bargains struck by management, labor and government owe quite a bit to the presence, at the top of the corporation, of CEOs educated to think that management consists of rigging the game.

Cupcake Bloggers Are The Unacknowledged Legislators Of The World

The Invigorating Sight Of New Non-Green Shoots Of Unhope

Poll: US belief in global warming is cooling (Dina Cappiello, AP, 10/21/09)

Americans seem to be cooling toward global warming.

Just 57 percent think there is solid evidence the world is getting warmer, down 20 points in just three years, a new poll says. And the share of people who believe pollution caused by humans is causing temperatures to rise has also taken a dip, even as the U.S. and world forums gear up for possible action against climate change.

I could get all wigged out about the AP's ignorance of the scientific consensus that "pollution" causes global cooling and part of whatever warming happened in the latter half of the 20th century was due to cleaning up the air. But why spoil this moment.

Dr. Duess

(WARNING: The following is not in any way nuanced, satirical or sophisticated. It is not an allegory for our times. There is no hidden meaning or moral, and those searching for one will be shot. The Proprietor)

Giants come,
Witches come,
Rumbling, bumbling giants come.
Slithering, dithering witches come.
How they run!
How they come!
They come to the house of Johnny Rum.

Johnny Rum is home in bed.
Johnny Rum with a cold in his head.
Laying in bed, cold in his head,
Johnny hears the giants run.
Mom is gone.
Dad is gone.
Billy and Jilly and Tilly are gone.

Johnny Rum grabs the phone,
Johnny Rum, home alone.
Johnny Rum calls 911.
"Witches, you say?"
"Giants, you say?"
"Please check your number and dial again,"

The Queen of the witches comes to the door,
The Queen of the witches chills to the core.
The biggest giant comes to the door,
The biggest giant, with the head of a boar.
Knock, goes the door,
Knock, goes the door.
"Who's there?," goes Johnny Rum.

A giant rumble comes to Johnny,
A witchy shrill grabs for Johnny,
"We've come for you," rumble the giants.
"We've come for you," shrill the witches.
"Abandon hope, Johnny Rum."

Johnny Rum knows the score.
Johnny Rum has learned the lore.
Johnny Rum opens the door.

A bucket of water pelts the Queen.
A bucket of water melts the Queen.
Melt, Queen.

The largest giant snorts and steams.
Johnny runs.
Johnny dashes.
The largest giant bends and bashes.
Johnny grabs his big shoe laces.

Johnny ties and knots and splices.
Johnny joins and knits the laces.
Johnny runs, the giant follows,
Down he goes into a hollow.
The earth shakes.
The ground quakes.
Bones break.
Mountains flake.
Thunder wakes.
In the mountains, a dam breaks, a lake quakes, a flood wakes.

All the witches scream in horror,
All the giants run in fright.
The ground shakes; the ground quakes.
A flood comes.
A rushing, gushing, shaking, quaking, moaning, groaning, frowning, drowning flood comes.

In the swirling waters, all the witches start to melt.
In the twirling waters, all the giants start to fall.
Giants run,
Witches run,
Rumbling, bumbling giants run.
Slithering, dithering witches run.
They run from the house of Johnny Rum.

Mom is home.
Dad is home.
Billy and Jilly and Tilly are home.
Johnny Rum is in his bed.
Johnny Rum, with a cold in the head.

Coase Gets His Second Nobel

Donna this morning mentioned that she heard on NPR that some American had been awarded the Nobel for his work on the boundaries of the firm. After making the mandatory Barrack Obama joke, I said that it must be Oliver Williamson, and I was right.

As it happens, I just spent a measurable portion of my summer reading Williamson and about Williamson. (I've pulled three of his books from the shelf, The Mechanisms of Goverance, The Economic Institutions of Capitalism, and The Nature of the Firm, and I highly recommend them. Williamson is an accessible writer and if you're interested in why some functions necessary to produce a product are in the firm and others aren't (and who isn't), Williamson makes for a good read.) The old saw is that an economist is anyone who calls himself an economist, but I think of Williamson as an organizational theorist. Org theory is a name more than a discipline -- psychologists, sociologists, anthropologists and economists all write org theory -- and the line between org theory and strategy (my field) is whisper-thin. If you look at organizing, you're an org theorist, unless you look at whether different ways of organizing effect performance, in which case you're in strategy.

As Prof. Williamson would be the first to admit, his work owes much to Ronald Coase. Coase first asked why organizational boundaries exist where they do? This is a more subtle question, and a more fundamental question, that first appears. The question really is why, if the market is so great at delivering the right product at the right price, does so much economic activity take place within the firm, where decisions are made bureaucratically by a hierarchy. Why have an HR department when the market could deliver the right worker for the right price? Why did Ford try to control the entire supply chain from mining the iron ore through selling the completed car, but buy it's tires from Firestone?

Coase's answer was that it must cost less to do it that way, at least in the long run. As Williamson says, "What is one to do with a 'gift' that is patently right, eludes analysis, and upsets foundations?" Essentially what org theory (and economics) did was ignore it for 50 years until Williamson based his career on building on Coase's analysis. His first book, and in some ways his best book, is Markets and Hierarchies (1975) which does a great job of combining work on information theory, organizational innovation, transaction costs and the behavioral theory of the firm.

Overall, Williamson's work allows us to make predictions about broad trends in org theory. Recent advances in information management and the collapsing costs of communicating across distances led to a predictable (and predicted) increase in outsourcing and vertical dis-integration. In other words, we're now in a period in which we should expect to see market mechanisms substituting for hierarchical/bureaucratic command and control mechanisms. Which is just another reason that the move to nationalize healthcare is a bad idea.

In fact, the work of both of this year's economic laureates suggests that nationalizing healthcare is a bad idea. (Elinor Ostrom's work suggests that the revealed preferences of local consumers does a better job of allocating scarce resources than diktats from national hierarchies.) Predictably this will be ignored by the very people who expect us to defer to the wisdom of the Peace Prize committee.

Next To The Nobel Committee Wearing Sashes Announcing "We're Racist Dupes And Hypocrits"

This news couldn't be any better.

I've been thinking over why I find this news so amusing and so gratifying. It comes down to a line from Deep Space Nine: "A true victory is to make your enemy see they were wrong to oppose you in the first place. To force them to acknowledge your greatness."

What we really want is for our intellectual opponents to come to us one day and admit that we were right all along to believe that they couldn't really believe the bilge that they were speaking. We were right; they were wrong; and they knew it at the time.

Of course, in real life that never happens, making this the next best thing.

I'm Sure I'm Against It ...

It is university policy to provide equal employment opportunity to all employees and applicants for employment regardless of their race, religion, color, national origin, ancestry, age, sex, sexual orientation, gender identity and expression, disability, atypical hereditary cellular or blood trait, marital status, civil union status, domestic partnership status, military service, veteran status, or any other category protected by law

Rutgers University web site

But what the heck does it mean?

Should'a Put A Ring On It

Does Single Ladies even have any competition yet for best pop song of the century?

And The Olympics Goes To Rio

Heh. Heh, heh. Heh.

Step Away From The Google

Not to hijack the, "There's too much internet" meme, but this thread is the poster child for "too much internet."

Being intelligent and yet socially awkward =/= Asperger's Syndrome.

Why Did GM Fail?

There's a bit of a discussion in the comments to the next post down about why GM failed. Since that's what I'm studying (except not GM, I'm just studying generally why some firms outperform other firms), I probably ought to have an opinion. And I do.

It was management's fault. It's always management's fault. It's in the job description. But that's not a particularly satisfying or interesting answer.

I'm not sure why GM died, but there's one explanation (or rather one set of explanations) that's worth looking at. I think that it's fair to say that most strategic management scholars (and I) think that strategy matters. That organizations can effect their own performance by choosing strategies that fit their environment. The sub-field I'm working in, strategy process, is the study of how organizations monitor their environment, move information to the places in the organization best able to act upon it, and then develop strategies to fit the current environment. This side of strategy assumes strategic choice.

But there is a another side of strategy called, not entirely appropriately, determinism. These theories basically assume that strategy doesn't make a difference; that individual organizations don't really have much control over their own performance. Michael Porter, who some of you have probably heard of, started strategy by more or less teaching that what industry a business is in makes all the difference -- all companies can do to help performance is choose the right industry and then work with their competitors to shape the industry by, for example, getting the government to restrict entry. Other scholars think that organizations are subject to the laws of population ecology; or that corporate routines are like genes, immutable in the organization but mutable as new organizations are created. Other scholars think that young organizations can be entrepreneurial, but then bounded rationality, risk and loss aversion, satisficing, etc., embed the existing strategy which cannot thereafter by changed. My off-the-cuff reaction is that this last description fits GM.

Miles and Snow (1978) -- a great book I recommend to lay business people and Harry -- divides up corporate functions between the entrepreneurial, the engineering and the administrative. Different companies emphasize different functions, and the result is four types of companies: prospectors, analyzers, defenders and reactors. Any of the first three can be fine, depending on the environment. Being a reactor is fatal. GM was founded to concentrate on the administrative function. Toyota and Honda focus on the engineering function, with some attention paid to the entrepreneurial function. GM never could shake its focus on the administrative function; they always thought that they could manage themselves out of the predicament. Over time, they slid from analyzer to defender to reactor, and then they died. This makes it sound as if GM could have saved itself if it had become entrepreneurial, or if its unions had allowed it some engineering slack. But GM was what it was. There's no sense telling the lobster that it could save itself from the pot if it would only sprout wings.

Of course, that suggests that the government bailout was exactly the wrong thing to do.

What Is To Be Done?

Even knowing that I sometimes work with long lead times, I'm somewhat embarrassed to admit that I'm still toying with a thought I first had about fifteen years ago. When Hillary Clinton was pushing for national health insurance -- and how times change -- she was asked about the effect compulsory health insurance for employees would have on employers. Her response was something to the effect of "Why should I worry about the fate of undercapitalized businesses."

I was struck then, and have been struck repeatedly since then, by the relationship (I would even say co-dependence) of big government and big business. Big government needs big business, because big businesses are a nice pot of assets that can be coopted for the purposes of big government without having to use the "t" word. Big business likes big government because (a) in a world where only big businesses can afford the cost of regulation only big businesses survive and (b) big government will be a big client.

Mix in some Olsen (Theory of Collective Action) and some Stigler (Regulatory Capture) and, hey presto, you've got the corporatist state not through right-wing fascism but as the most likely path from where we are (or were 20 years ago) to lefty nirvana.

It strikes me that there is some meaning to all this, and something should be done about it, but after 15 years, I'm just not sure what.

A Nice Illustration Of An Odd Rule Of Evidence

From a comment at Firedoglake:

How about when Wilson was asked about the outburst one of the first things out of his miserable pie hole was, “It was totally spontaneous.” He was never asked if it was planned or spontaneous; he volunteered that information right off the bat. That’s what made me first believe it was all planned. And who better to do it than a piece of work like Wilson?

One of the important rolls played by a jury at trial is to disbelieve evidence. The jury is supposed to watch the witnesses and, using their common sense and everyday experience, decide whether or not the witness is telling the truth. If they decide that the witness is lying, they can disregard that testimony.

But the fact that they decide that the witness is lying about a particular point is not evidence of the opposite. The usual example given is a trial in which whether it was raining at a particular time is important. If one party testifies that it was not raining, the jury can disbelieve him. But that is not evidence that it was raining; the other side still needs to enter its own evidence on that point, which the jury -- again -- can believe or disbelieve.

I think, though, that the comment illustrates a better example. We are free to disbelieve Joe Wilson's statement that his outburst was spontaneous. But that disbelief is not evidence of a plan to embarrass the president.

Doh! Spoke Too Soon.

Apparently, I wasn't quite correct to concede, below, that the uninsured exist. After all, Barack Obama wiped 15 million uninsured off the map last night.

US Health Insurance Myths

As we go along debating health insurance reform, I am constantly amazed by the myths people believe about US health insurance. As I run across these myths, I'll try to note them here.

1. Preexisting conditions: People seem to think that this limitation is some sort of trick. Instead, it is a fundamental part of insurance. You can't insure your car after the accident or your life after you die. But so long as you have insurance, a preexisting condition does not stop you from changing your insurance. You cannot get trapped in a job and you can't lose your insurance because your employer changes plans; so long as you have insurance, you can't be excluded from a new group plan. Under federal law (lots of states have more generous laws), preexisting condition exclusions only apply if you have been uninsured for at least 63 days, apply only to conditions for which you have sought treatment and only allow a look-back of one year. A nice primer on preexisting conditions and federal law is here.

2. What we have is "insurance": As implied above, insurance policies are basically bets we make against catastrophe. I bet that my house will burn down, the insurance company bets that it won't. I bet that I'm going to die in the next year, the insurance company bets that I won't. I bet that my car is going to get stolen, the insurance company bets that it won't. If I lose the bet, there I am with my life, my house and my car. If my car explodes when I plow into my house, my wife and kids have a big pot of money to sit up at family dinners and call "Daddy."

There are things I can do to adjust my odds in these bets. I can get an alarm for my car and garage it in Northampton Massachusetts rather than the Bronx. I can get an alarm for my house. I can stop smoking and flying airplanes. For each of these, my premiums go down. But note that I the insurance company doesn't take my higher premium and then pay for alarms. Because that would be nuts.

But my health insurance pays for costs that are entirely predictable. It pays towards my annual physical. It pays towards medicine for chronic conditions that are very common among men my age. There's no sense betting on my having an annual physical, so why am I insured against it? I'm sure that all of you know the answer, but note that, when it comes to paying for relatively small, foreseeable expenses, all of the carping about wasteful spending is entirely correct. It makes no sense for me to pay my employer (think about it) to pay the health insurer to pay my doctor for an annual physical. I should just pay for it directly.

3. People are dying because they don't have health insurance: OK, that's not exactly a myth, but the general conception of how people are dying from lack of insurance is wrong. People with acute conditions -- heart attacks, trauma, etc. -- don't die from lack of insurance. They get treatment regardless of insurance. Someone falls down clutching their chest, you call the ambulance, the paramedics start treatment and get him to an emergency room and they get to a hospital bed before anyone even starts to try to figure out if they have insurance. Outcomes from acute treatment are pretty much invariant by income status.

People die -- more exactly, their life-span is shortened -- because of chronic conditions. High blood pressure isn't treated, cancers aren't caught as early, high cholesterol isn't treated, diabetes isn't caught as early, etc. This is what people mean when they say that we substitute treatment for prevention.

The problem here is that "prevention" is of questionable value and is incredibly expensive. For every heart attack delayed (and delay is basically all that can be accomplished) by blood pressure or cholesterol drugs, a large number of potential victims have to be treated. It is that "unnecessary" but unavoidable treatment that will make reform incredibly costly -- and the costliness of reform will lead, in turn, to government guidelines that avoid new expensive drugs. But can the government really prohibit people with government insurance from getting access to the newest and best drugs available to people with private insurance? Isn't avoiding that the whole point of reform? So, in the end we either end up with incredibly expensive government insurance (the most likely result) or no new drugs (an even worse result).

4. Reform is meant to benefit the uninsured. For reasons we've discussed, the uninsured tend to be middle-class and young. Forty percent are between 18 and 34, as opposed to 23% of the population. Generally, the uninsured young are making a good bet; the average health insurance premium for an individual in the states is $4000 and the young -- barring acute need, for which they'll get care and then have to worry about paying -- never spend that much. Far from giving health insurance to these people, which seems to be what they assume is going to happen, the reform plans on offer now mandate that they buy insurance or pay a penalty for non-insurance. These premiums or penalties will be at "community rate," which is (more or less, we don't know the details yet) the average cost of health insurance in their county/state/region/nation. In other words, the purpose of reform isn't to provide free health care to the young uninsured as it is to force the young uninsured to subsidize health insurance for those who already get government funded health insurance.

Can't Even Make Fun Of Ireland Anymore

Massachusetts General Laws Chapter 272: Section 36. Blasphemy

Whoever wilfully blasphemes the holy name of God by denying, cursing or contumeliously reproaching God, his creation, government or final judging of the world, or by cursing or contumeliously reproaching Jesus Christ or the Holy Ghost, or by cursing or contumeliously reproaching or exposing to contempt and ridicule, the holy word of God contained in the holy scriptures shall be punished by imprisonment in jail for not more than one year or by a fine of not more than three hundred dollars, and may also be bound to good behavior.

In Which We Try To Be Informative And Constructive

If you manage to find a supporter of nationalized health care to debate, and you manage to move them past "fascist dupe," they often point out that we have rationing, of a sort, now. Health insurance companies won't pay for certain procedures on the basis that they're not cost effective, or are experimental, or some such. "Wouldn't you rather," they say, "have these decisions made by government."

"No, I bloody well wouldn't," you respond. Correctly. But why wouldn't you? In addition to our well-founded suspicions of government, which the left share in most other situations, there are several tangible reasons not to want to fight with the government.

Now, if you and your health insurer disagree about a treatment, you go through a relatively simple internal appeal, they deny you coverage, and then you sue them in federal court. (You get to go to federal court because most people get their health care through their employer and employee benefits are regulated by ERISA, a federal law. If you buy your insurance directly and get to go to state court, that's even better for you and yet another advantage lost to nationalized health care.)

If the government denies you coverage, you get to appeal, in the first instance, to an Administrative Law Judge. Despite his title, an ALJ is not a judge. He is an executive branch bureaucrat, answerable to the same agency hierarchy that made the decision to deny coverage in the first place. Now, so far this isn't too much different than the private sector internal appeal. But there are differences. First, ALJ proceedings, in my experience, take longer than internal appeals. Second, health insurer appeal panels tend to include practicing doctors, so there's some chance of a favorable verdict. ALJs will be lawyers, not doctors, beholden to the agency for reappointment (they serve for a fixed term (6 years, usually) and not for life). So there's somewhat less chance of a favorable result.

But the real difference comes when you go to court. Now, we don't know what the final statute is going to look like, so I'm going to assume that you will be able to appeal the ALJ's decision to the district court for determination de novo, that is, without the court deferring to the decisions of the ALJ. If you have to appeal to a federal appeals court, or if the court has to defer to the findings of fact of the ALJ unless they are clearly erroneous, then you are sunk. If you sue a private insurer, you just have to prove that your version of the facts is more likely than not.

If you sue your private health insurer, you'll go in front of a federal judge who, probably, doesn't particularly like insurers. In other words, a lawyer. Even if he doesn't hate insurers, he is the judge; he won't want to defer to the company. (Does ERISA suggest that the judge should defer to the company's denial? Arguably, but I've done a lot of ERISA work and, believe me, they don't.)

If you sue the federal health provider, on the other hand, the judge -- a federal employee -- is now meant to second-guess the workings of other federal employees. Is he going to treat them the same way he treats insurers? No way. In fact, he shouldn't. Even if the judge doesn't have to defer to the factual findings of the ALJ, he must defer to the expertise of the agency within the scope of its mandate and to its legal interpretation of its own regulations and establishing statute. So if the agency says that, as a matter of law, grandma doesn't get her hip replacement, then the judge must accept that decision unless it is arbitrary. Which it never is.

If you sue a private insurer, you can argue that they are estopped from denying coverage. That is, that they told you there was coverage in this situation, you relied on the statement to your detriment, and now they're not allowed to change their mind even if the first statement was wrong. You can never estop the government. (There is an argument under ERISA that you can't estop insurers, but I don't think that's the prevailing law. In fact, this is a nice example of how judges give private insurers less latitude than they'd be forced to give to a public insurer.)

If you sue a private insurer, then the court will construe any ambiguity in the policy -- and there is always ambiguity in an insurance policy -- against the insurer. If you sue the government, the court will defer to the government on how any ambiguity should be construed.

Judges have no hesitation to order insurers to spend money. Although they will do it, judges are supposed to be reluctant to order the government to do anything.

Basically, this comes down to the question, would you rather sue a private company or would you rather sue the government. You'd much rather sue a private company.

Why Don't People Disbelieve Obama Now?

One thing that's always struck me as strange about President Obama's supporters is the extent to which they support him because they think that he's lying about key policy positions. The best example of this is gay marriage: Obama announced that, as a Christian, he believes that G-d has mandated that marriage be the union of one man and one woman. The people who vociferously support gay marriage (Andrew Sullivan leaps to mind) shrug and tell each other, "he has to say that, but we know that he's lying." Robert Wright has said much the same thing about Obama's professed belief in Jesus. Wright can just tell that, in private, Obama is an atheist. I don't remember a candidate for whom perceived lying has been such an important selling point.

So why, I wonder, are people starting to believe him now. His real problem with the public on this lunatic idea of nationalizing health care (or the 2/3's of health care not already nationalized) is not that it's lunatic, but that he promises to cut spending. Since seniors have realized that cutting spending translates to not giving them hip replacements on demand -- the single most common surgery under Medicare -- they're up in arms. But isn't this just a completely transparent lie?

I don't know if Obama is really a Christian. I don't know if his religion forces him to oppose same-sex marriage. Pretty much, I'm with the courts. All we can know is what people say and do, so I have to give Obama the benefit of the doubt here. But one thing I'm sure of is that there is no way nationalized medicine is going to cut costs. The evidence from every other government welfare program, as well as common sense, is clear: the government is going to spend, spend, spend. Obama knows this perfectly well. He's clearly lying when he says that we're going to drive down the cost curve. No matter where the line is drawn on spending, some cute little kid or gray-haired Nana is going to fall just outside. The papers will have a field day, politicians will pontificate and bureaucrats will soon learn that the only downside is denying care. Pretty soon, we'll be looking back wondering how the 10-year cost appraisal could have been so wrong.

But I'm still puzzled: why do so many people suddenly believe the President the one time he is clearly lying?

"That's What Gods Do"

Again with the idea that finding a biological explanation for belief would make it less likely that G-d exists. The truth, of course, is that such a biological foundation for belief would be weak evidence in favor of G-d's existence. It is more likely that G-d would create us with the biological ability to believe in Him than that such an ability would develop randomly. Thus, the existence of such an biological ability is somewhat more consistence with G-d's existence than not.

Health Care And Trust

I just saw this passage, quoted from a supporter of nationalized health care, over at Just One Minute:

What we're seeing here is not merely distrust in the House health-care reform bill. It's distrust in the political system. A healthy relationship does not require an explicit detailing of the "institutional checks" that will prevent one partner from beating or killing the other. In a healthy relationship, such madness is simply unthinkable. If it was not unthinkable, then no number of institutional checks could repair that relationship. Similarly, the relationship between the protesters and the government is not healthy. The protesters believe the government capable of madness. There is no evidence for that claim, which means that there is no answer for it, either.

In my field, we divide trust into three different types (Barney & Hansen, 1994). The first, called weak form trust, results from two parties in a relationship not being vulnerable to each other. This is really more indifference than trust. The second, semi-strong form trust, is where two parties to a relationship trust the other party to do what they have agreed to do; this is the trust of contract law, enforced by formal governance and law. Strong form trust, the third form, is where the parties have the power to act opportunistically, but trust each other not to. We see this mostly in very good friendships and strong marriages. Arguably, just having a joint checking account is strong-form trust.

There are Americans who don't trust the government at all. But I think the main stream American attitude towards the government -- which is to say, towards our fellow citizens -- is to trust the government to do what it is legally bound to do, and no more. It is inconceivable to me that many Americans could have strong-form trust in the government; that many Americans believe that, in situations in which it can act opportunistically, that shifting set of coalitions we call a government will act in their own best interest. Of course, that I believe that strong-form trust in the government is inconceivable is likely tied to my preference for limited government.

Given my semi-strong form trust in government, nationalized health care seems like a bad joke. There are two many situations that will occur that we haven't, and can't, tie the government's hands. There are too many ways that the government, or the controlling coalition of the day, can act opportunistically and little chance that it won't. We need only look at the public schools -- where opportunistic choices are routinely made for the benefit of the teachers and administrators -- to understand my worry about a decision to (strong-form) trust the government with my family's health care and 14% of the economy.

The Point Of Statistics

It strikes me as worth saying, because I don't see it out there very often, that the only point of statistics is to try to determine whether an apparent difference between two sets of data is a real difference rather than simply an artifact of error and randomness.

Also, that statistics is a fairly blunt instrument and no one study "proves" anything. All generalizations from studies are a leap of faith, albeit some more than others.

The Mystery of CEO Compensation

Over at the Daily Duck, a discussion of minimum wage laws slopped over into a discussion of CEO compensation because ... because ... well, it just did. Harry complained that CEOs are overpaid and I responded that, given sales and revenues, American CEOs are modestly paid. I offered to look at particular companies and see if their CEO compensation was high, or modest. Harry suggested looking at Duke Power, Bank of America and Four Seasons Hotels.

Before we get to that, though, I though that it might be useful to look at the role of the CEO and why CEOs are well-paid. The problem is that we -- and by "we," I mean people who study organizations -- don't really know, because we don't really know what CEOs do.

My own area of org. studies is Strategic Management, which expressly tries to determine why some firms outperform other firms. This is a relatively new area of study -- Strategy dates back to about 1980 -- but we do know some things. We know that the overall economy plays a large role in organizational performance and that the industry firms are in plays an even larger role. So, right away, we know of two important factors in organizational performance where CEOs, seemingly, can't make much of a difference.

There are at least two strands of Strategy, the deterministic school, that say, more or less, that the particulars of the individual firm have almost nothing to do with performance. The Industrial Organization school (representated by Michael Porter and pushed most energetically at Harvard) basically says that, over time, firm performance is a function of five industry level forces: competition, suppliers, customers, new entrants and substitutes. Over the long run, all the firms in an industry will earn the same return and look the same. Strategy is limited to industry level actions, like trying to get the government to prohibit new entrants into the industry. In this world, having one CEO or another doesn't make much difference.

The other deterministic school are the Pop Ecologists (most notably, Hannan & Freeman (1977), if you want to Google them), who basically apply biologically derived population rules to organizations. Again, performance results from the environment, rather than from any choice the firm makes.

I tend to believe, however, that strategic choice (Childs, 1972) does make a difference, and there is some good research to back me up. Although the research confirms that industry level and business level effects are important, they also show that corporate level effects made a difference. The best of these studies (Misangyi, et al, 2006) found that differences between businesses accounted for about 37% of observed variation in performance, while industry and corporate effects both accounted for about 14% of observed variation. (Although it might not be obvious, this is also how we know that related diversification, particularly if the related businesses can share a valuable, unique corporate resource, makes more sense than unrelated diversification. It's pretty clear that the returns from one business do not say anything about the expected returns from another co-owned business in an unrelated industry).

If corporate differences explain about 14% of the difference in returns, then we might think that choosing one CEO over another could only effect a portion of that 14%. I'd argue, though, that the CEO in a large, complex business -- and the businesses Harry suggested we look at are all large and complex -- is somewhat more influential than that. The CEO, after all, is ultimately responsible for deciding what industries the corporation will compete in (acquisitions and divestitures are decisions classically made by the CEO personally). Thus, the industry level effects are, in part, attributable to the CEO. Similarly, the CEO is ultimately responsible for steering corporate resources to one business or another, so the CEO is also responsible, in part, for the business level variation in performance.

On the other hand, the compensation question isn't really, how important is having a CEO to corporate performance. The question is, how important is having this CEO instead of some random, but lower paid, CEO. In other words, how much better is performance because the organization has this CEO and is it worth paying him a lot of money to keep him.

That's a question we can't answer (although my own research, which I'm going to be presenting to the Academy of Management next Monday, suggests that new CEOs reduce organizational returns for about 2 years after they take office because they just can't stop themselves from fiddling with things that aren't broken). There is a fairly large subset of Strategy that argues that the top-management team is the most important determiner of strategy, and thus performance (Hambrick & Mason, 1984). That research has looked at demographic characteristics of the CEO and TMT and has found consistent statistically significant effects on performance. Those effects, however, have been pretty small, explaining about 1% of the observed variance across organizations (Certo, et al 2006). Since we don't know which CEO characteristics, if any, really make a difference, and because organizations are reluctant to change CEOs as part of an academic experiment, we can't really say how much difference CEOs make.

Furthermore, it's not clear that the market has any better idea of what goes into making a good CEO. In fact, it's pretty clear that the market for CEOs is not efficient. The small number of CEOs hired every year, along with the opportunities for opportunism, ensure that (Arrow, 1974; Williamson, 1975). Given that the relationship between CEO identity and performance is, at best, causally ambiguous, it seems clear that the CEO (e.g., Steve Jobs, Jack Welch) can be a unique strategic resource that allows for above-average returns while other CEOs can have neutral or even negative effects on performance. This sort of small number, highly opportunistic, causally ambiguous, high transaction cost issue is exactly where we would expect the market not to function well and, in fact, we don't see companies bidding to pay a market-clearing price for CEOs. Rather, we'd expect to see what we do see, a bureaucratic, path-dependent, authoritarian mechanism for hiring and compensating CEOs. (This is also why government regulation won't make any difference; we already have a regulatory approach and no reason to think the government would do it any differently.)

Having said all that, let's look at the three companies Harry suggested (which I'll probably do over time, since I'm incredibly busy getting ready from the AOM and then comps).

1. Duke Energy.

Duke Energy's 2009 Proxy Statement is here and includes, starting on page 22, a really excellent discussion of its executive compensation policy. This is, in fact, an odd choice for Harry to have made, because this is a state-of-the-art compensation policy that touches all the right bases. It also includes, starting on page 39, a separate discussion of the CEO's compensation. In 2008, it shows that the CEO, James Rogers, received a salary of, um, $0. He received a bonus of $0. Duke Energy has decided to base their CEO compensation entirely on long-term results by giving him various forms of stock grants that he's not allowed to sell for several years after receipt. Based on various objective and subjective factors, the compensation committee awarded him about 80% of the shares he could theoretically have received had Duke exceeded all of its goals. This included a 5% stock bonus due to the fact that no work-related employee or contractor fatalities in 2008, which strikes me as an astonishing achievement for a utility company. All in all, Mr. Rogers received stock worth about $5.5 million, none of which he could sell for years. His pension increased in value by $300,000, which Duke counts towards compensation but I probably wouldn't. He received other compensation worth almost $525,000 (health insurance, flying on the company planes, etc.) for total compensation worth $6.3 million. Duke Energy's sales in 2008 were $13 billion and net revenue was $1.3 billion. Paying the CEO $5.5 million in stock he can't sell strikes me as perfectly reasonable and certainly not outrageous. Also, I can't emphasize enough how impressive the report by the compensation committee is; this is gold-plated corporate governance.

Still to come, Bank of America and the Four Seasons.

Forget Famines, Blame The Market For This

Do You Know What Would Really Boost Food Output?

INSTANT VIEW-G8 summit pledges $20 bln to boost food output (Reuters, 7/10/09)

Following are comments from aid experts on the G8 summit's global food security initiative, which pledged $20 billion over three years to spur agricultural investment in poorer countries to fight hunger.

STAFFAN DE MISTURA, VICE EXECUTIVE DIRECTOR, WORLD FOOD PROGRAMME

"$20 billion was a last-minute agreement and it was greeted with great happiness by all of us in the conference room. While we are rebuilding agriculture we need to continue supporting food assistance because the financial crisis is pushing another 103 million people into hunger this year."

Higher temperatures and increased atmospheric CO2. Best of all, they're free.

Unfair Moments In Photo Journalism

Sarkozy: A thing of beauty is a joy forever.
Obama: Yeah, baby. Yeah.

I Don't Know What That Big Ball Of Fire Is Doing In The Sky

But it burns ... it burns.

Serendipity

Sri Lanka astrologer is arrested (BBC.com, June 26, 2009)

The authorities in Sri Lanka have arrested a popular astrologer who predicted that the president will be ejected from office, police say.

Chandrasiri Bandara announced last week that the government would flounder in September and October because of political and economic problems.

The opposition have condemned the arrest and warned that the country is heading towards a dictatorship.

Astrology is taken seriously by numerous Sri Lankan politicians.

We've been having a desultory conversation over at Think of England about why, personally and as a society, we tolerate charlatans. I tried to suggest, perhaps too obliquely, that Brit was more bothered than Peter and I because Brit thinks that his particular belief system, rational empiricism, is True and Right and Better than the belief systems of women who purchase silver bracelets to improve their chances of getting pregnant and of the charlatans who sell them. Rational empiricism, especially as practiced by the Brits of the world, has its advantages, G-d knows, but it has its disadvantages, too.

In any event, as Mr. Banadara is discovering, in cultures that believe in the power of astrology, astrologers have power.

This Is Cool

The Terribly Attractive Terrible Idea

It occurs to me that, in my Intro to Law course next semester, I should burn a copy of the Constitution while denouncing it as a pact with the Devil (as, of course, it is). I would also make clear that, simultaneously, the Constitution is the pinnacle of human intellectual achievement and that the two characteristics are intimately related.

What To Spend On Grandma?

So, I've been brushing up on my healthcare policy in preparation for the debates about Obama Care. I'm agin it, I'm just trying to figure out why.

My best guess right now is that one reason I'm against it is that it's going to have to ration care to deal with the last 6 months problem. About half of all life-cycle health spending comes in the last 6 months of life. An aging population that, more and more, doesn't die young just makes the problem bigger: young people tend to die quickly and cheaply, old people die slowly and expensively. On the one hand, this is likely to be a nice case of giving the people what the ask for, good and hard. People who hate those heartless, profit-making HMOs are going to love the cuddly and benevolent government when it tells them they've lived long enough; "Here, have some nice morphine."

In any event, in doing my research, I stumbled across this nice .pdf of a presentation on long-term health care spending (at the rate we're going, every dollar of gdp will be spend on health care in 2082) by Peter Orszag, who, in 2007, was director of the CBO. This presentation has lots of nice information in it, but I was particularly struck by this slide showing not much correlation between per capita healthcare spending an quality of care:

Now, I don't want to rest too heavily on this graphic. I don't know how quality of care was defined, and it's possible that hard cases are shipped to hospitals in high spending areas, but this chart is certainly suggestive. Combined with another slide in the presentation showing that, in 1975, 33% of personal health care expenditures were paid out of pocket while today only about 15% are paid out of pocket, we start to see a way out of the "health care crisis," which is really a "paying for health care crisis."

Today...

My marriage can drink.

PETI?

Apparently, PETA is mad at President Obama for swatting a fly. But what business is it of PETAs, given that flies are not animals. Another example of mission creep. (Of course, I'm really just in it for the title.)

A Picture...

Sometimes people ask me why I went back to school. In terms of this diagram, I wanted to move left from the area labeled, "Learn to say 'No.'"

LGBTQ

The week before last I spent on two university campuses, separated by a pretty far distance on any spectrum you'd care to name. On both, I was walking through campus with a (different) friend when we saw signs saying "LGBTQ." In both cases, my friend, no stranger to campuses in either case, stopped to wonder what "Q" added to "LGBT."

The answer turns out to be that, while Gays think of themselves as men and Lesbians think of themselves as women, Queers -- in the words of the surprisingly good Wikipedia entry -- deny that gender [sic] is part of the essential self. That is, Queers theory holds that no fact about gender is not socially constructed.

Now, much of sexual identity is socially constructed. Little Victorian boys in both Britain and upper class America ran around in long hair and dresses, which in no way prevented them from conquering the world. Gay men claim that a cornucopia of anonymous sex is the true expression of male sexuality, but I beg to differ. Much of who we are as men and women depends on what society expects us to be.

But that doesn't mean that Queer Theory isn't fundamentally nuts. First, there are differences between men and women beyond the purely biological. For example, while different cultures have different rates of violence, the ratio of violent acts committed by men to those committed by women is surprisingly stable across cultures. Across cultures, young men die at disproportionately high rates when compared to young women -- men take risks that women don't take.

Second, like the academic feminism that birthed it, Queer Theory consigns itself to impotence. Society is so warped by the patriarchy that all that can profitably be done about it is peer reviewed whinging for tenure. We are where we are; we can't go back. Make the best of it.

Third, notice how these peerless thinkers have divorced themselves from mainstream Western history, philosophy, thought and science. They misread Foucault and Derrida by thinking that anything can be treated as text, from our genetic code to what we non-Queer Theorists laughably refer to as the facts on the ground. What more anti-Darwinist idea can there be then that we are really self-defined selves free from constraint? At the same time, what more anti-religious idea can there be?

Swallow A Camel, Strain At A Gnat

I don't know what to make of the great expense scandal playing itself out in Westminster. For those who aren't following, what I gather is this:

1. Like Congressmen, Members of Parliament are reluctant to vote themselves raises;

2. Like Congressmen, Members of Parliament want to make more money (at least for Congressmen, I think this is less greed than an assumption that everyone should get a raise every year, which explains a lot about the laws they enact);

3. Unlike Congressmen, Members of Parliament arranged to get more money by enacting incredibly generous expense reimbursement policies for themselves, which they were expected and encouraged to take advantage of to the farthest reaches, leading many (most? all?) to collect about 18,000 Pounds per year for things like dredging the moat around their castle;

4. Recently, Britain passed a Freedom of Information Act and now the public knows about the entirely legal expense scam.

So, this is something like the House bank scandal, but with more of a sense of a pox on both your houses, in that all MPs, no matter the party, seem to have participated with both hands.

On the other hand, this is a group that corporately has, over the last few decades, moved quite a bit of regulatory power, authority and responsibility to international bureaucrats in Belgium who never need to answer to the British electorate, so what's really the bigger scandal?

Do The Boy Scouts Have A Vagina Monologues Merit Badge?

I don't usually blog stories from Instapundit because, seriously, who's going to see it first on the Secret Blog without having first seen it at Instapundit? Not even me, obviously.

But you should make it a point to read this story from insidehighered.com, trying to explain and propose responses to the recent decline of men on college campuses. It seems the problem is socially imposed pressure to perform hegemonic masculinity. The solution is more women's studies courses, so that men will feel free to be themselves rather than, well, men.

Oh, and be gay -- you know you want to.

How any man could resist that program is beyond me.

Let's Commit Philosophy I: The Nature Of Mathematics

This post over at Thought Mesh raises to related philosophical questions that are fun to think about. The first is the nature of mathematics, which I'll discuss in this post, and the second is the nature of science (or the problem with Einstein), which I'll discuss in a post to come.

Alternate universes, the subject of AOG's post, is an example of a set of scientific speculations (time travel is another) that is allowed, but not compelled, by our current models of reality. One question this raises is the reliability of our models, which, in turn, raises the question of the nature of mathematics.

Is mathematics inherently tied to the nature of the universe, or is it just a really good modeling tool that, if done right, has not yet been inaccurate in our experience. Put another way, does putting two objects down next to two other objects have to result in four objects, or does it just so happen to work out that way?

We tend to assume that mathematics is inherently tied to the nature of reality for two reasons. First, as I've already said, because our experience doesn't include an example of where it doesn't. Second, because math has been usefully predictive. (Are these actually two different reasons, or just separate aspects of one reason? It is in any event useful to discuss them separately.)

The first reason seems compelling -- or, rather, feels compelling -- but is obviously problematic. We have, in fact, a rather small sample of different situation in which math has been a useful modeling tool -- those that can be experienced on Earth, with the tools available to us, over the last 10,000 years. How many different types of situations have we really been in, compared to the age and size of the universe. Plus, we're by nature connection seeking, satisficing animals. Once we've experienced an event, the fact that we can go back and show that the math works isn't really all that interesting. We can always find connections after the fact (connection seeking) and once we've found one tend to stop looking (satisficing). So that fact that mathematics conforms to our experience, as we've experienced it, might not be great evidence about the nature of mathematics.

The second reason, because it avoids the problem of looking backwards, seems the stronger. If we can use math to model unknown facts about the universe, and then test to conform them (Popper looks around triumphantly) then it is that much more likely that mathematics is inherently tied to the nature of the universe. But this, too, proves less than it seems. Because we also do make predictions based on mathematics that, when we test them, are disproved -- otherwise, we wouldn't bother to check, would we. In other words, science, in the Popperian sense, requires that we be skeptical that mathematics, or at least our ability to do mathematics, does accurately mirror reality. We don't accept our models until we confirm them.

So it seems that, speaking of Popper, our intuitive sense that mathematics is inherently tied to the nature of reality is unfalsifiable.

Does this matter? Actually, it seems to matter quite a bit. The rocket-sciences who gravitated to Wall Street over the last 15-20 years made billions with models of the financial market used to value options and derivatives without a history of performance or any tangible, real world, analog. The mathematicians and their banks all assumed that their mathematical models were tied to some underlying reality; that the constructs "really" had the value that the models suggested. We know how that turned out.

Now we're about to engage in an even more drastic economic experiment based on the assumption that global climate models can reliably reflect the future, a proposition that, to the extent it can be falsified, has been. Moreover, we not only have to consider whether mathematical models can model future climate, but also whether the people performing the modeling are doing so honestly and competently. Of course, every time you fly, you're also betting your life (albeit with much better evidence) that there is some relationship between mathematics and reality.

Harken To The Names Of The King's Base Ballers

All Taxes Are Regressive

One point that gets overlooked in all our debates about spending, taxing and borrowing -- and that is particularly germane to the debate over turning our economy upside down because of global warming -- is that we present-day Americans aren't nearly as rich as future Americans. Given that, and given our social consensus in favor of progressive taxation, why do we tax ourselves for their benefit? Aren't all taxes regressive, if time is considered?

It would have been nonsense for the US to have abstained from World War II because it couldn't be paid for out of tax revenue. We benefit, we're better off, it's entirely just that we should pay.

What other costs should we shove off on the future?

Has Anyone Noticed...

That recently OJ has become the voice of reason at BrothersJudd, while the commenters have gone off the deep end?

(Posting will continue to be light through the end of the semester.)