Most of Malcolm Gladwell’s appearances in this blog involve me complaining about his various writings (such as my review of Outliers), but his recent piece on the NBA lock-out is a gem (HT Rob Brooks). I wish I could write like that.

Gladwell argues that owning a sports team is akin to owning a painting – there are benefits beyond the monetary. He writes:

Pro sports teams are a lot like works of art. Forbes magazine annually estimates the value of every professional franchise, based on standard financial metrics like operating expenses, ticket sales, revenue, and physical assets like stadiums. When sports teams change hands, however, the actual sales price is invariably higher. … Forbes is evaluating franchises strictly as businesses. But they are being bought by people who care passionately about sports — and the $90 million premium that the Warriors’ new owners were willing to pay represents the psychic benefit of owning a sports team. If that seems like a lot, it shouldn’t. There aren’t many NBA franchises out there, and they are very beautiful.

The big difference between art and sports, of course, is that art collectors are honest about psychic benefits. They do not wake up one day, pretend that looking at a Van Gogh leaves them cold, and demand a $27 million refund from their art dealer. But that is exactly what the NBA owners are doing. They are indulging in the fantasy that what they run are ordinary businesses — when they never were. And they are asking us to believe that these “businesses” lose money. But of course an owner is only losing money if he values the psychic benefits of owning an NBA franchise at zero — and if you value psychic benefits at zero, then you shouldn’t own an NBA franchise in the first place. You should sell your “business” — at what is sure to be a healthy premium — to someone who actually likes basketball.

Having praised Gladwell, I should note that he does miss an obvious explanation for the “psychic benefits” of owning a sports team (although most of the literature on psychic benefits also misses this element). Owning a sports team is a form of conspicuous consumption. It is a signal of wealth.

The additional cost of an NBA team over its value as a business is a nice illustration of an important element of a reliable signal – waste. It is only a truly wealthy man who can afford to tie up $90 million of capital in the premium he pays for the Warriors. If the money paid for the team represented a prudent investment, someone of less wealth might buy it (including by convincing a lender to give them the money). That potential return on $90 million invested in productive uses is the amount of waste required to fend off the next most wealthy man in the bidding for the team.

So, now that the NBA owners are complaining, we can assume that they are not as rich as their signal might suggest. I have an alternative to Gladwell’s recommendation. Instead of selling the teams to someone who actually likes basketball, the owners should sell their “business” to someone who actually has the wealth representative of the signal they are making.

It’s not normally a good sign when an attempt to skewer measurement of heritability opens with a link between genetics and eugenics via Francis Galton, and Brian Palmer’s critique of twin studies is no exception (HT Razib at Gene Expression).

Twin studies are one of the primary methods to estimate the heritability of a trait. As monozygotic (identical) twins are more genetically similar than dizygotic (fraternal) twins, the similarity between identical twins and fraternal twins can be used to infer heritability. Palmer argues that this technique has a flaw:

That identical twins do not, in fact, have identical DNA has been known for some time. The most well-studied difference between monozygotic twins derives from a genetic phenomenon known as copy number variations. Certain, lengthy strands of nucleotides appear more than once in the genome, and the frequency of these repetitions can vary from one twin to another. By some estimates, copy number variations compose nearly 30 percent of a person’s genetic code.

These repeats matter. More than 40 percent of the known copy number variations involve genes that affect human development, and there are strong indications they explain observed differences between monozygotic twins. For example, it’s often the case that one identical twin will end up victimized by a genetically based disease like Parkinson’s while the other does not. This is probably the result of variations in the number of copies of a certain piece of DNA. Copy number variations are also thought to play a role in autism spectrum disorder, schizophrenia, and ADHD, all of which can appear in only one member of a monozygotic twin pair (PDF).

This point is starting to be raised more regularly in attacks on twin studies, but  it is not particularly damaging. In fact, to the extent that identical twins are less genetically similar than assumed, it is possible that heritability is being underestimated. If the similarity in traits occurs despite less than identical genetic similarity, this suggests that we should attribute more of the similarity to genes. Of course, if fraternal twins are also less similar than assumed due to these same effects, we are back where we started. However, we are no worse off than our starting point. I’ll start to worry when results from other techniques start to contradict twin studies, but so far, estimates of heritability from genomics are pointing in the right direction.

A new book has just popped out – The Epigenetics Revolution by Nessa Carey – and accompanying it is the usual epigenetics-related suggestions that Darwin was wrong. Take this from Peter Forbes in the Guardian:

[E]pigenetics finally reaches that “everything you’ve been told is wrong” moment when it claims that some epigenetic changes are so long-lasting they cover several generations: they can be inherited. This flouts one of biology’s most cherished dogmas – taught to all students – namely that changes acquired during life cannot be passed on – the heresy of Lamarckism.

But the evidence that this can occur in some cases appears to be growing. There are lab experiments with mice and rats in which epigenetic effects on coat colour and obesity can be inherited. More suggestive evidence comes from a vast, unwitting and cruel experiment played out in the second world war. In 1944, during the last months of the war, a Nazi blockade followed by an exceedingly harsh winter led to mass starvation in Holland. This had a huge effect on babies born at the time, and the effects of poor nutrition on the foetus seem to have persisted through subsequent generations.

Thankfully a few people such as Jerry Coyne are placing this noise in context:

I haven’t read the book, and although it might make Darwin swoon if the old git were to be resurrected, the discoveries of genetics and the mechanism of inheritance itself would make him swoon far more readily.  And I know scientific revolutions; scientific revolutions are friends of mine; and believe me, epigenetics is no scientific revolution.

….

So, Mr. Forbes, our “cherished dogma” of non-Lamarckian inheritance still holds strong, and you’ve done your readers a disservice by implying otherwise.  Lamarckism is not a “heresy,” but simply a hypothesis that hasn’t held up, despite legions of evolution-revolutionaries who argue that it flushes neo-Darwinism down the toilet.  If “epigenetics” in the second sense is so important in evolution, let us have a list of, say, a hundred adaptations of organisms that evolved in this Larmackian way as opposed to the old, boring, neo-Darwinian way involving inherited changes in DNA sequence.

Forbes can’t produce such a list, because there’s not one.  In fact, I can’t think of a single entry for that list.

Despite having quoted Coyne with approval, I am still going to read the book. Although epigenetics may leave neo-Darwinism unscathed, it matters for economics – and people’s welfare. A single generation matters. If epigenetics suggests that some effects are more persistent or have an effect in the next generation, it is an important consideration. For example, will the current famine in East Africa be felt for one generation or two?

In an interview published in 1996, Garret Hardin stated:

The view that I and a number of other ecologists share is that ecology is the overall science of which economics is a minor specialty.

(HT to Rob Brooks for the quote – it is at the beginning of his book Sex, Genes & Rock ‘n’ Roll)

I agree with Hardin’s sentiment. As I have advocated in this blog before, economics would be much richer, have more predictive power and offer a better description of the world if economists used the fact that humans are a product of billions of years of evolution and this process shaped our traits and preferences. Economics will always be within that framework.

However, I have two disagreements with Hardin’s choice of wording.  First, I would leave out the word “minor”. While humans are one of millions of species, humans are important – with this belief held by most humans. When we seek to explain these rather important creatures, such as examining our day-to-day life, economics provides some of the most important tools. Despite being a part of ecology, economics is important for us.

Also, on ecological grounds, humans are rather dominant. Paul MacCready estimated that humans and their livestock have moved from less than 1 per cent of the world’s vertebrate biomass before the dawn of agriculture to around 98 per cent now (I picked this factoid up from a speech by Daniel Dennett). When we address the ecological issues humans have created, economics plays a central role.

The second point of disagreement is the implicit description of ecology as the “overall science”. It is, of course, possible to take this deconstruction further. Is biology just glorified chemistry? Or physics?

Despite the potential for arguments that some branches of science are derivative of other, the division of the branches is useful. In economics, we don’t always need to ask what the evolutionary basis of a specific characteristic is. If we see it in experimental results, it might be useful to take it as given and to ask what this trait means economically. Similarly, if we see a certain behaviour in animals, we don’t always need to inquire into the brain chemistry. What level is appropriate will depend on the hypothesis being tested.

However, we do need to know when to call on these other sciences. In the same way that chemists should know some physics and biologists should know some chemistry, economists should know some biology to place the discipline its context and to know when it is useful to treat economics as a part of a larger science.

Sorry for the slightly inflammatory post title – but I went to a speech tonight that reminded me of one case where an economist was well ahead of evolutionary biologists in cracking a puzzle.

The speaker was Michael Spence, 2001 Bank of Sweden prize winner and author of the recently released The Next Convergence: The Future of Economic Growth in a Multispeed World (the subject of his speech).

In 1973, Spence wrote a paper called Job Market Signalling, one of the main reasons he won the prize. The idea of his paper was simple. Take two groups of people with different productivity (call them low and high). This productivity cannot be directly observed by the employer, but the employer can observe their level of education. Spence showed that if the low productivity workers had a higher cost of education than the high productivity workers, a separating equilibrium could arise where only the high productivity workers would educate themselves and the employers would pay these workers a higher wage. The assumption of the different costs of education was vital for this equilibrium to exist, or else low productivity workers would fake the signal. And it is a reasonable assumption. For example, if the worker is of low productivity due to low intelligence, they will have difficulty understanding lectures and doing assignments and will have to invest more time that the high productivity worker to get the same educational result.

The following diagram shows Spence’s result. Each type of worker could be paid high or low wages. The employer will only pay high wages to workers with an education level above y*. In this case, the cost of education for the low productivity “Group I” is such that they do not undertake education, while members of the high productivity “Group II” educate themselves to y*. The benefit of education outweighs the costs for “Group II” only.

Two years after Spence’s paper was published, Amotz Zahavi had a paper published titled Mate selection – a selection for a handicap. This paper spelt out Zahavi’s handicap principle, which described how honest signals of quality between animals could evolve. The signals are honest because they impose a handicap on the signaller that only a high quality signaller can bear.

The handicap principle was not accepted at first. Richard Dawkins wrote in an early edition of The Selfish Gene:

I do not believe this theory, although I am not quite so confident in my scepticism as I was when I first heard it. I pointed out then that the logical conclusion to it should be the evolution of males with only one leg and only one eye. Zahavi, who comes from Israel, instantly retorted: ‘Some of our best generals have only one eye!’ Nevertheless, the problem remains that the handicap theory seems to contain a basic contradiction. If the handicap is a genuine one-and it is of the essence of the theory that it has to be a genuine one-then the handicap itself will penalize the offspring just as surely as it may attract females. It is, in any case, important that the handicap must not be passed on to daughters.

John Maynard Smith published papers (such as this) suggesting that no model could be found in which the handicap principle could hold (although he did not rule out someone else finding one).

Finally, in 1990, Alan Grafen published two papers in which he established the population genetic and game theoretic foundations to the handicap principle. Mathematically, it could work. It convinced people such as Dawkins that the handicap principle could be right. And the key element in Grafen’s analysis was different costs – as used by Spence in 1973. While Grafen’s papers are quite technical, the following diagram by Rufus Johnstone provides a simple illustration of how it works – and how similar it is to the work of Michal Spence. If two different quality individuals face differential costs and the same benefits (or differential benefits and the same costs), they will signal at different levels, making their signal a reliable indicator of their quality. The high-quality individual maximises costs relative to benefits at s_high, while the low-quality individual maximises their benefits relative to costs at s_low.

The seventeen year gap between Spence and Grafen’s papers appears quite long for a solution to essentially the same problem – although obviously they were framed in quite different ways. How many other instances have there been of fields facing a parallel problem but the solutions were reached such a long-time apart (not to mention independently – Spence’s work was not used used in solving the handicap principle problem)?

Bryan Caplan writes:

If people envy people richer than themselves, I say we should fight envy, not inequality. A number of people have objected that “Envy is ‘hard-wired.'” They’re right – but it doesn’t matter.

…

“[H]ard-wired” does not mean fixed. All humans may feel these emotions to some extent. But there’s plenty of room to maneuver. You can become less envious than you are. Make an effort to monitor your thoughts and behavior. Count your blessings. Give credit where credit is due. Focus on improving yourself instead of comparing yourself to other people. Spend more time with less envious people.

We are “hard-wired” to feel envy as, historically, those who felt envy were more reproductively successful. Presumably it is a driver behind the success of some people -they aspire to the levels of status, wealth and power of those they envy – and as a result, they were better able to attract mates. In a post supportive of Caplan’s position, David Henderson characterises envy as “self-destructive”. In an evolutionary sense, envy could not have been self-destructive (on average) for it to become “hard‑wired” and so ubiquitous. I am not aware of any evidence that this has changed.

So what would the world look like if there was less or no envy? It may be a less dynamic, interesting and creative world than the one we live in. How many people have created an invention or business with envy of others a motivating factor? Envy has its benefits.

If Caplan’s encouragement to be less envious did work (although I consider convincing many people is a lost cause), it may be a temporary result. The less envious person might be happier. But they may also have less status, wealth and power and a reduced ability to attract a mate. To the extent there are less “envy free” people in next generation, envy will be back.

Having said the above, I do try to follow Caplan’s advice – but not always successfully.

At Gene Expression, Razib Khan writes:

[T]he logical end point of a quasi-”blank slate” policy position is the diminution of environmental impacts so that only genes matter

….

If it turns out that the heritability of intelligence is relatively high in the developed world, then it may be that the Left-progressive project of ameliorating class based differences in access to cognitively enhancing environments has succeeded to a large extent. Barring genetic engineering this is the “end of history” for this project. It is a matter of when, not if (i.e., if you reject that the project has hit sharply diminishing marginal returns, logically it should at some point if the Left-progressive project succeeds). Assortative mating and more transparent meritocracy should allow for cleaner sorting within the population, and inter-generational class churn should decrease and stabilize at a basal level dictated by the random environmental variables which no amount of social engineering can squeeze out of the system. A perfect meritocracy would replace cultural class with biological caste.

A decrease in social mobility would signify the project’s success. I expect this contrasts with one of the primary measures of success for those who hold the blank slate policy position. Will they use an indicator of their success to argue that opportunity (in an environmental sense) is becoming less equal?

More people means more ideas. This concept underlies arguments ranging from Julian Simon’s belief that human living conditions will continue to improve through to Bryan Caplan’s argument that we should have more kids. While I don’t always take this concept to the extent of Simon or Caplan (as I have posted on before), the concept must be right at some level. One person will have more ideas than zero people. One hundred people will have more than one person. You can argue about diminishing returns and so on, but the basic concept must hold.

For me, some of the more interesting evidence is over the long-run, which Michael Kremer discusses in a paper titled Population Growth and Technological Change: One Million B.C. to 1990. Kremer bases his argument on the Malthusian concept that population is a measure of technology. In a Malthusian state, the environment and level of technology constrain population. As technology grows, a given area can support a higher population, so technological progress is directly linked to population growth.

Kremer showed that population growth has accelerated over the last million years (although this has slowed the last hundred or so), with population growth faster than exponential growth. This is consistent with the idea that as the population grew, people generated ideas faster and faster, further accelerating the technological growth rate, and hence population growth. The following diagram shows Kremer’s point, with the population growth rate increasing with population size until recent times.

Kremer  created a number of models to show this point. In one model, he included the concept that research productivity increases with income, which might explain why some large populous countries (China and India) have lower levels of technological development (for the moment). Kremer showed that even though this creates some ambiguity about the relationship between population and technological growth, the concept that larger populations have higher levels of technological progress held.

Another concept addressed by Kremer is that productivity might depend on the size of the population. This encompasses positive network effects whereby more people allows more specialisation and service of a larger market, and negative effects such as “stepping on toes” whereby researchers duplicate each others’ efforts. Including these effects in his model did not change the basic finding that technological progress increases roughly in proportion with population.

Kremer tested the model predictions with some basic regressions against long-term population data. Not surprisingly, they all showed a strong correlation between population size and population growth.

The paper gets more interesting with some of Kremer’s analysis of inter-regional differences. Taking five successively smaller populations: the old world, the Americas, Australia, Tasmania and Flinders Island. For each of these areas, population density increases with land area, suggesting that higher population are able to sustain a higher level of technology. Kremer writes:

As the model predicts, in 1500, just after Columbus’ voyage reestablished technological contact, the region with the greatest land area, the Old World, had the highest technological level. The Americas followed, with the agriculture, cities, and elaborate calendars of the Aztec and Mayan civilizations. Mainland Australia was third, with a population of hunters and gatherers. Tasmania, an island slightly smaller than Ireland, lacked even such mainland Australian technologies as the boomerang, fire-making, the spear-thrower, polished stone tools, stone tools with handles, and bone tools, such as needles [Diamond, 1993]. Flinders Island, near Tasmania, has only about 680 square kilometers of land, and according to radiocarbon evidence, its last inhabitants died out about 4000 years after they were cut off by the rising seas-suggesting possible technological regress.

In some ways, the general message of Kremer’s paper appears obvious. However, it is one of those papers where the feedback relationship between population and technology makes it difficult to confirm the direction of causation (even though I agree with the general concept). Regardless of the source of technological progress, the Malthusian model predicts that population will increase to match it. Higher population levels will always have a higher level of technology, regardless of the source of innovation.

The element in the data which lends strength to Kremer’s argument is that technological progress accelerates when there is a larger population. However, the length of time over which Kremer makes his observations raises an important question. Human ancestors only achieved our modern brain size in the last 100,000 or so years (peaking 30,000 years ago). There is evidence of a cultural leap forward around 50,000 years ago. The source of ideas is a very different creature at each end of Kremer’s time series. How much of the acceleration is generated by greater population, and how much by a more productive population?

This month’s Cato Unbound has another interesting subject, this time on the decline of men. In the lead essay, Kay Hymowitz runs through the mass of ways men are starting to fall behind women. Many of the statistics were a surprise to me. Take the following:

In an analysis of recent census data, Reach Advisors found that childless twentysomething men now earn 8% less than their female counterparts in 147 out of 150 of American cities. That’s despite the fact that college-going women major in subjects that tend to lead to lower paying jobs. Young single men are less likely to own a home than women. While on average men continue to earn more than women, their wages, unlike those of women, have stalled.

In her response essay, Jessica Bennett counters that women are still behind in many areas:

By the time women enter college, studies show they’ll have given up many of their leadership roles. The rise of the knowledge economy may have multiplied opportunities in other fields (Hymowitz sites public relations, graphic design, and management). But women will still make up just a third of business-school students and barely a quarter of law firm partners. …

Women still have trouble penetrating the highest rungs of the corporate world: they are also just 3 percent of Fortune 500 CEOs, less than a quarter of politicians, and just 22 percent of the leadership positions in journalism.

Between the two essays, there is a thread that young women are overtaking men in many areas, while not yet penetrating the top. So, what is going on?

It always surprises me how often this discussion ignores that men and women are different. That is not to say that the entire gender gap is due to inherent male-female differences, but differences exist and they shed some light on the situation.

Bryan Caplan notes one of these differences, namely that women seem to have less variance in traits than men in many dimensions:

But isn’t the obvious explanation just that men have higher variance in general?  This is easiest to prove for cognitive ability – see Garett Jones’ review of the evidence.  But it also seems very plausible for interests and obsessiveness.  Anyone can start a blog, but men are much more likely to do so.  The reason, I’ll warrant, is that the male distribution of ego has a right tail that stretches far into the horizon.

From an evolutionary perspective, the higher variance for men makes sense. In a winner takes all competition for women, men at the top can have many children. Meanwhile, women are constrained in the maximum of number of children they can have. The jackpot of being the best male far outweighs the cost of being the worst. Genghis Khan was so reproductively successful (as was his grandson Kublai Khan) that one in 200 men globally are direct descendants along the male line and hence carry his y-chromosome. Such success would be impossible for a woman. Being a rich, successful male could buy additional access to mates and reproductive success that being a rich, successful woman does not. The evolutionary incentives are stacked in favour of the man seeking those top positions.

An evolutionary perspective also assists in the following, in which Hymowitz asks whether the loss of the historical male role as provider has played a part in the “decline of men”:

Consider another recent study by S. Alexandra Burt at Michigan State University. Burt followed 289 pairs of male twins for 12 years, between the ages of 17 and 29. More than half of the twins were identical. She found that men who had shown less antisocial behavior as adolescents were more likely to marry as they got older, which argues for self-selection. But she also found that a married twin had fewer antisocial behaviors—aggression, irritability, financial irresponsibility, and criminal involvement—than his unmarried brother. This suggests there is some truth to the very unfashionable idea that marriage helps to discipline men.

Obviously, less anti-social men have a higher probability of getting married – they are better at providing something women want. In the case of the anti-social, unmarried brother, their risk taking activity reflects that, having failed to initially get a mate, they move to progressively riskier activity until they succeed, die or are jailed, or they somehow survive as their testosterone fades into old age. Marriage helps discipline the man by providing the man with his objective.

Ultimately, I wonder how long the trend that triggered the essays will last. Many women, as they have for the last 40 years, are choosing to remain childless. The genes of these women, and any inherent traits that result in a predisposition to remain childless, disappear from the gene pool. The women that form future generations are the children of mothers who chose to take time out to have children despite the growing options for their own careers. As Hymowitz notes:

The point is that today, with the important exception of the technical and financial sector, younger women (that is, childless women, an important caveat) have shown they can easily be men’s equals, and possibly even their superiors, in the knowledge economy.

That important caveat will be applied more and more in the future. In that case, some of the gap will remain. (And as an aside, I recommend that you read all of Hymowitz’s essay – there are a lot of interesting ideas in it)

Update: A follow-up post is here.

While many have dusted off Keynes during the last few years and asked “what would Keynes do”, it is fair to question whether Keynes would have done anything at all. If he were here today, he might be writing a mountain of blog posts and opinion pieces, but from the perspective of 1930, it is unclear whether he would consider the developed world to have a problem. In his essay Economic Possibilities for Our Grandchildren (pdf), he figured that over the next 100 years the economic problem might be solved:

All this means in the long run that mankind is solving its economic problem. I would predict that the standard of life in progressive countries one hundred years hence will be between four and eight times as high as it is to-day. There would be nothing surprising in this even in the light of our present knowledge. It would not be foolish to contemplate the possibility of afar greater progress still.

Keynes’s prediction of massively improved living standards has come true. By that measure the economic problem is solved. Once solved, Keynes foresaw that we could turn our attention to areas other than the economic problem, such as leisure and science. People would no longer need to work endlessly to meet basic needs. However, he did see some constraints:

Now it is true that the needs of human beings may seem to be insatiable. But they fall into two classes –those needs which are absolute in the sense that we feel them whatever the situation of our fellow human beings may be, and those which are relative in the sense that we feel them only if their satisfaction lifts us above, makes us feel superior to, our fellows. Needs of the second class, those which satisfy the desire for superiority, may indeed be insatiable; for the higher the general level, the higher still are they. But this is not so true of the absolute needs-a point may soon be reached, much sooner perhaps than we are all of us aware of, when these needs are satisfied in the sense that we prefer to devote our further energies to non-economic purposes.

The recognition that many human beings care about relative status fits comfortably with an evolutionary view of humans, whereby higher fitness depends on competition with other humans. However, when Keynes turns to evolution, he misses the core driver of this competition:

[I]f, instead of looking into the future, we look into the past-we find that the economic problem, the struggle for subsistence, always has been hitherto the primary, most pressing problem of the human race-not only of the human race, but of the whole of the biological kingdom from the beginnings of life in its most primitive forms.

Thus we have been expressly evolved by nature-with all our impulses and deepest instincts-for the purpose of solving the economic problem. If the economic problem is solved, mankind will be deprived of its traditional purpose.

Evolution is not only about subsistence and survival. It is also about reproductive success and the raising of viable offspring. While the economic problem is largely solved as it relates to survival, the question of reproduction remains. Keynes’s vision that people would cease to worry about accumulating wealth is unlikely to be realised as long as humans remain human and reproductive success is linked to status, wealth and power.