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Mrs. Rooted is an erstwhile national champion figure skater, so of course we are quite deep into these 22nd Winter Olympic Games. After watching just about everything NBC felt like broadcasting over the past week, she posed me a very good question: are most of these athletes from just a few countries?

Indeed, if it seems to you as though a handful of countries at the intersections of Rich and Northern have provided most of the competitors at these games, you wouldn’t be wrong. Using data from Wikipedia, I mapped the origins of this year’s Olympians:

cutting costs on the flag assembly line

So if you’re watching the games and wondering why it looks like everyone is from the same few countries over and over again…you’re right!All data from the Oracle; note that due to the limitation of the shapefile I was working with, the three athletes from Tai…er, Chinese Taipei and the one from Hong Kong were combined with China’s 66, and Serbia’s 8 were combined with Montenegro’s 2. As you can see, a relatively small handful of countries are producing vast numbers of Winter Olympians while most countries produce little or none. In fact this map may even understate the lopsidedness; the top five countries by size of team – the United States, Russia, Canada, Switzerland, and Germany, respectively – comprise 35% of the entire Olympic field, and the top ten – adding Norway, Austria, Italy, Japan, and Sweden, respectively – accounts for 56% of the entire field! To put it as nerdily as possible, it’s almost a classic power-law distribution, with 20% of the countries providing 75% of the athletes.


Will Wilkinson, whose CRaSTO rating (Cantankerous Rants as a Share of Total Output) has lately approached one, wrote a cantankerous rant about the apparent atrocity against logic, language, and political theory that Sunstein and Thaler have committed in coining and promoting “libertarianism paternalism.”  Without quoting the whole thing, I want to start by singling out this part:

But there aren’t any “anti-paternalist” objections to making organ donation the default or featuring healthy food in cafeterias, because these ideas have nothing to do with paternalism.

I mean, what could organ donation possibly have to do with paternalism? How can the disposition of one’s organs after one dies possibly redound to the welfare of one’s corpse? This whole discussion is rife with this sort of conceptual and linguistic muddle.

So Wilkinson has basically committed a somewhat-offensive omission, here, since lots of people, for personal or religious or cultural reasons, may actually strongly object to having their organs removed from their body after their death, or object more narrowly to the way that organ donation is practiced, or are fearful that the institution of organ donation may incentivize doctors to, on the margins, alter the way they perform care. So, in fact, a traditionally paternalistic law that mandated organ donation would, in fact, be paternalistic and the subject of no small controversy.

It’s what he concludes, however, that really cuts to the heart of it – but the wrong way, methinks:

Paternalism has to do with making people go in a direction they don’t want to go. The gist of paternalism is that it takes away choices other people think are bad for us to make. By definition, “choice-preserving” policy is not paternalistic policy. By definition, paternalistic policy is not libertarian…

If the sensitivity of human decision-making to the vagaries of context calls into question the wisdom of leaving citizens free to make decisions about their own welfare, then that would suggest an argument against libertarianism and for paternalism. Go ahead. Make the argument against autonomy, if you think it’s an argument worth making. But, for God’s sake, leave the English language alone.

Will: the reason the organ donation example is such a classic example of why “nudging” works is because there is no neutral option. The non-neutrality of choice architecture is, in fact, a fundamental assault on one of the central conceits of libertarianism: that such a thing as “leaving citizens free to make decisions about their own welfare” actually exists as a single, obvious thing.

Classical and neoclassical economics models do not include choice architecture in their factors of what will incentivize individuals to make certain decisions. Yet, these architectures can and do have a very large influence on the choices people make. Libertarianism, at least a certain popular form of it, is if not entirely predicated then strongly reliant on the predictions of classical and neoclassical economic models that laissez-faire policies are not only desirable philosophically but also pragmatically. But there is no one thing that is “leaving people alone” and “giving people choice.” The costs, in thought, time, and effort in opting in or opting out of organ donation are trivial in almost every way. But yet in Germany, where you opt in, 12% are donors, and in Austria, where you opt out, 99% are donors.

So let’s go back to the root of paternalism and say that, much like parents and children, governments have ideas about what is best for citizens and society. But smart parents know that simply issuing orders is often both disrespectful to the autonomy and personhood of the child (especially older children) and likely to backfire as a practical matter. Similarly, smart states know that there are ways to preserve the fundamental freedom that choice offers while still structuring choice in a way that, while not unfair or exploitative, results in socially-beneficial results. That’s libertarian paternalism. It’s a thing, man. It’s cool.

In the end (and I know Wilkinson no longer identifies as libertarianism, but frack it) I think the failure to grasp not simply that local and private power will usually fill the vacuum left by the absence of federal power (and usually to the detriment of freedom and welfare), but that even before you reach that point there is no obvious form that “being left alone” or “having choice” entails is one of the major flaws in libertarian thinking, and why libertarian solutions to problems that don’t engage with that fall flat. It’s especially frustrating since thinkers like Sunstein and Thaler are practically duct-taping a road map to the steering wheel of the libertarian car and it still finds itself spinning circles in abandoned parking lots claiming to be the last defenders of freedom.

I was listening to The Economist’s podcast summarizing their special report on Germany and and when I got to the equivalent of this line:

It is the largest creditor country in the euro zone, and as chief paymaster it has the biggest clout in determining the single currency’s future.

And I guffawed. And it’s worth explaining why.

When a creditor loans money to a debtor, there is the potential for everyone to be better off – the debtor can make an investment they could otherwise not afford, and the creditor receives some interest in return. However, there is a large potential opportunity for the debtor to rip off the creditor and never pay back their money, thus getting free money. Therefore, creditors have traditionally tried to employ both the power of the state and extra-legal threats to ensure compliance. There is a long history of violence and threats of violence in this regard, from Mafia kneebreaking on the black-market side to the Venezuelan blockade on the macro-side. The reason the Iron Bank of Braavos* gets paid back is because they have proven their willingness in the past to depose and assassinate kings to collect.

But modern norms have changed that. Sure, you can still be imprisoned for debt in certain parts of the United States, but remember that the entire state of Georgia was originally envisioned as a debtor’s colony. And on an international scale, while you will suffer for sovereign default, you won’t be invaded and expropriated, and note that countries like Argentina have done surprisingly OK after even a spectacular sovereign default. Not that being shut out of most financial markets, both as an individual and a nation, is without consequences, but it’s a lot better than being behind bars or under the gun.

What’s the point? The key is the huge power of social and cultural norms, and how many can persist even as related ones change. For example, our increased unwillingness to use violence and imprisonment to punish debtors would seem to encourage double-dealing by borrowers and recalcitrance by lenders; yet our powerful social norm in favor of paying back debts and in viewing creditors as virtuous (“savers” “investors”) and debtors, especially debtors who fail or struggle to repay, as sinners (“deadbeats” “spendthrift” “profligate”) then debtors will largely continue to pay and creditors will largely continue to lend even though debtors, not creditors, are gaining in leverage and material power. They have your money! Germany isn’t invading Greece or Italy or Spain or Portugal or Ireland! But debtors don’t have anyone’s respect and that matters tremendouslyAnd economic models (and economic commentators) fail to account for it.

*You seriously thought I was going to go all day on this blog without a reference to “A Song of Ice and Fire?” Ha! Ha, I say, ha!

So I’m listening to the latest Planet Money, re: Bitcoin, and lately I’ve also been listening to FT’s Hard Currency podcast, and I’ve just got to say: foreign exchange markets are really, really weird. And there’s a reason for that – unlike other asset markets, the point of currencies is not to become more valuable, ceteris paribus. Usually, if your currency becomes more valuable it is a signal that good things are happening in the relevant political unit (if there is one), but the direction of causality here is important. Stocks are supposed to become more valuable, as are bonds, etc. But currencies are supposed to be stable. They are supposed to make all the other stuff in the economy possible.

So it’s odd to hear things like "which currency had a good year?" or "I’m long that currency" or other things like that. Forex traders serve an extremely valuable role in ensuring exchange rates reflect social information, but the mindset that leads to is in-and-of-itself a strange one. If Japanese folks decided to buy more Swiss chocolate and Americans decided to buy exactly the same amount less, the Swiss franc would appreciate against the yen and depreciate against the dollar and then the dollar would appreciate against the yen to exactly the amount that would forestall arbitrage and then Swiss and American consumers might decide to buy more Japanese stuff than they did before and so on and so forth until you get to "general equilibrium" (whatever that is) but the whole point is that if the central banks were targeting, oh, say, the level of nominal gross domestic product, none of these secular changes in consumer preferences (unless they were really huge) would have any effect on the overall level of economic output in any of these countries.

The fact that some currency goes up or down against another doesn’t really tell you anything about relative levels of inflation or prosperity. So there’s no underlying normative preference for one direction in exchange rate fluctation over another. I’m going to Turkey and Germany in September, so I really hope the dollar appreciates against the euro and the lira between now and then but if in October I get hired by a company that exports a lot to Germany then boy do I hope the dollar depreciates againts the euro. But there’s no reason to prefer one over the other from the standpoint of the overall national interest unless you’re super-dependent on a certain kind of international trade pattern.

Also, I realize I’m pretty down on Bitcoin generally on this blog, so I should say – certain things about Bitcoin are awesome, and I’m certain that whatever money looks like in 10-20 years, it will look more like Bitcoin then it does today. I’m just down on Bitcoin specifically due to Bitcoin-specific issues of trust and governance. I’d gladly use Bitcoins to transact, but I’d also gladly use Paypal or Square and be certain that the ~225 USD I sold my Pebble watch for last week can still be exchanged for the same basket of goods next week or next month or even next year, more or less. If I wanted or had to transact in BTC I’d want to get in and out of having any position in the currency ASAP, but somebody has to hold them and those people either need BTC for transaction-specific reasons or are speculating. I want to be able to hold my money (or deposits denominated in money) for long periods of time without having to feel like I have a position (although I of course do). You’ve got to have some liquidity so if the value of your currency is pretty stable it’s pretty easy to just hold cash or deposits.

Tyler Cowen continues his German sympathy tour with this little number:

You meet an employed professional with a $300,000 house, $100,000 in the bank, a nice car, a few (illiquid) Renaissance paintings, and very nice shoes. His name is Fabio.

He is $60,000 in debt, which is about equal to his yearly income. An unanticipated ARM reset requires him to pay off that debt at a faster pace than expected, which means he must restrict his consumption.

He threatens to mistreat his longstanding girlfriend Angela, unless she works harder to maintain his previous level of consumption. Angela refuses to help much, citing a false economic theory in defense of her position.

Fabio’s brother relentlessly attacks Angela’s false theory. His cousin in Naples claims that Angela is obliged to help because she has benefited from being in the relationship.

Forget, for just a minute, whether this "feels" wrong or right, or accurately analogizes the current situation in Europe. Tyler Cowen is not the German "mensch on the street!" He is the Holbert C. Harris Chair of Economics at George Mason University! He is General Director of the Mercatus Center! He has a Ph.D. from Harvard! He has written informative, challenging, and well-received books! He is a popular blogger about economics and ethnic food, and writes a column for the New York Times!

All this is to say that Tyler Cowen is an expert – the kind of person you turn to when you’re not sure if your gut instincts or folk wisdom or "common sense" are sufficient to devise a solution to a complex or esoteric problem. The kind of person who doesn’t merely relate or rephrase those kinds of objections but corrects or rebuts them when they are not guiding one towards a solution! I could get Tom Friedman or David Brooks to tell me why the Germans feel a certain way. I want to turn towards Tyler Cowen to tell me what should be done.

all in

In what I guess could become a series about mental errors, reading Lords of Finance has reminded me of another common mental error people make: failing to realize they’re betting. Essentially, baked into every action and decision humans make is a probability assessment of future conditions. Some of these are screamingly obvious, of course; ie, “gravity, ergo, don’t drive off a cliff” or “that’s a rocket – rockets explode!”

But sometimes in our more complex decisions we forget this, which leads to decisions like “hyperinflation of the dollar is imminent, ergo buy gold” when really the analysis should be “if monetary collapse in the United States is imminent, buy bottled water and ammunition.”

The decision from Lords of Finance that really sticks out for me is the Treaty of Versailles, which essentially set out pretty baldly with the aim of vengeance, but made a crucial error to extract part of that vengeance through contentious reparations. When you buy a nation’s bonds you are betting on that nation’s success, but the Allies acquired such vast quantities of German debt it would clearly destabilize and cripple the German economy (not to mention the provisions of territorial loss and other provisions designed towards the aim of collective punishment). From a financial standpoint the Allies made a huge bet on German bonds and immediately went about ensuring those bonds would default. Clearly they didn’t think about the fact that they were essentially rigging the house against them since they allowed their thinking to be clouded by the resentments of the war but that’s what they did.

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