Monthly Archives: March 2016

Why taxes hit the middle class

The poor don’t have much wealth or income, so not much to tax. The rich find it worthwhile to hire accountants and lawyers to find loopholes useful for avoiding taxes. Optimizing one’s taxes is almost a fixed cost (does not depend much on the wealth or income), but the benefit is proportional to what is taxed. In other words, there are economies of scale in tax evasion. The middle class is not rich enough for professional loophole-seeking to be profitable, but has enough to tax.
This is only theoretical reasoning. Empirically, the average tax rate increases in income, as far as I know. Whether the rate of increase should be higher or lower than at present is a matter of political preference.
To avoid the unequal treatment based on the ability to hire tax advisors, the tax system should be simple. Changing income from one form to another (salary to dividends for self-employed for example), or changing the source (foreign corporation vs its domestic subsidiary) should not change the tax rate. Minimizing loopholes means no special deductions for belonging to select groups (farmers, pensioners, veterans, parents).
The existence of a profession for providing tax advice to ordinary people is a sign that the tax code is too complex. Those in a common salaried job should be able to understand and file their taxes themselves.

Publication delay provides incentives

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From submitting a paper to a journal until getting the first referee reports takes about six months in economics. It is very rare to get accepted on the first try. Most papers are rejected, and an immediate acceptance implies having submitted to too weak a journal. Waiting for the referee reports on the revision and second revision takes another six plus a few months. This seems unnecessary (reading a paper does not take six months) and inefficient (creates delay in disseminating research results), but is used for incentives.
Delay discourages frivolous submissions. It forces authors to evaluate their own work with some honesty. If the referee reports were immediate, then everyone would start at the top journal and work their way down through every venue of publication until getting accepted. This would create a large refereeing and editing burden. Delay is a cost for the authors, because simultaneous submissions to multiple journals are not allowed. Trying for high-ranking journals is a risk, because the author may not have anything to show at the next evaluation. This reduces submissions to top journals. It may be optimal to start at the middle of the ranking where the chances of acceptance are higher.
A similar incentive to submit to the correct quality level of journal can be created by imposing a submission fee, forbidding further submissions for a period of time if rejected or requiring the author to write referee reports on others’ papers. A submission fee should be distinguished from publication fees, which are used at fake journals. The submission fee is paid no matter whether the paper is accepted, therefore does not create the incentive for the journal to lower its standards and publish more papers.
The submission fee would impose different costs on authors in different financial circumstances. Some have research funds to pay the fee, some do not. Similarly, delay has a larger effect on people whose evaluation is coming sooner. Being banned from a journal for a given amount of time after a rejection is worse for a researcher working in a single field. Interdisciplinary folk have a wider variety of venues to publish in. Writing referee reports as a price of having one’s work evaluated may lead to sloppy reviewing. Any mechanism to induce self-selection has a cost. Yet self-selection is needed.

Insurance in research

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Most developed countries have programs to support research and encourage students to choose careers in it. This suggests scientists have a positive externality on the rest of their country that is not fully internalized in their income. Why not support research by paying the researchers its value, assuming the value can be measured? This would internalize the externality, leading to efficient effort provision.
A potential answer is different risk aversion of the organization supporting science and the scientists. If the institution is involved with many different projects, it is diversified and likely to be less risk averse than a researcher who only has a few projects. The arrangement optimal for both sides is then for the institution to offer insurance (at a cost). The researchers get paid a lower expected amount than the value of their work, but with a lower variance. Instead of the scientists taking loans to finance their work, becoming rich if the project succeeds and bankrupt if it fails, they avoid loans and get a fairly constant salary.
There is a tradeoff between incentives and insurance. If the salary does not depend on success, there is no incentive for effort, but perfect insurance. Having researchers take loans and get the full value of their work provides no insurance, but strong motivation. The compromise is that promotion and pay depend somewhat on research success, but not too much.

Comparing dictatorships

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Why compare evil regimes? Sometimes a choice must be made which one to support. Inaction and refusal to choose is also a choice and may favour one or another. The help or harm to some regime may be indirect, e.g. through the enemy of an enemy.

How to compare evil regimes? I have encountered people who compare based on words, justifying crimes against humanity by some countries with the argument that their goals were good or the ideology was good, just wrongly implemented. (The subtext here is that if it was wrongly implemented in the past, perhaps it should be tried again in the hopes of implementing it rightly.) I disagree. Actions should be the basis of judgement, not narratives. A failure of a political system is a negative signal about it. Regardless of whether it signals a fundamental flaw or a low likelihood of right implementation, until all other systems have been tried and have accumulated a similar weight of negative signals, the failed system should not be tried again. This can be mathematically formalized as optimal sequential control under incomplete information.

I believe comparisons of countries should be based on objective criteria, preferably specified before the data is gathered (as in the scientific method). These objective criteria are for example the number of people killed, tortured, wrongly imprisoned, expropriated, the number and extent of wars started, the territory and population conquered and for how long, the economic and environmental damage caused. The number of ethnic or religious groups eliminated may also be counted, but this has the effect of weighting the deaths of people from smaller groups more.

The measures can be total or divided by time or by the number of supporters of the regime. The total of these criteria is generally larger for bigger countries. There is simply more opportunity to kill, torture, etc when there are more people available. The total measures are of interest because they show the whole negative impact on the world.

Division by time results in criteria that measure the flow of evil done. If the decision is which regime to eliminate first, it is optimal to focus on the one with the greatest predicted negative influence per unit of time. This strategy minimizes the total impact of evil regimes.

To find the expected number of crimes of a person from a dictatorship (or its leadership) without other data about them, the total crimes of the regime should be divided by its population (or number of leaders). Dividing by both people and time gives the expected flow of evil per person, suggesting an optimal strategy of removing leaders of criminal regimes.

The above focusses on past evil, but for predictive purposes the attractiveness or “selling power” of the regime also matters. How likely is the dictatorship to survive and expand? If more people favour and justify it, including outside its borders, it has a greater opportunity to do evil in the future. So the niceness of the narrative used to excuse its actions is actually a negative signal about an otherwise criminal regime. If the stories the dictatorship tells about itself make people consider its goals good or ideology good, then the dictatorship is more dangerous than another that cannot manipulate audiences into supporting it.

Principles help in resisting the siren call of “the end justifies the means.” For example the principle that nothing justifies crimes against humanity. No story about the greater good, no idealistic ideology. Another good principle is that actions speak louder than words. If a regime fails at good governance, excuses should be ignored.

On Trump and strategic voting

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Edit 9 Nov 2016: I was wrong. To avoid publication bias, I will leave this post up. It will teach people not to trust my political judgement.

Commenting on Trump is fashionable lately, so let me jump on the bandwagon. Probably these points have all been made before.
It seems the people most against Trump are the Democrat supporters, which suggests they are ignoring strategic voting. A famous voting example is that if A is preferred to B by the majority, B to C and C to A by different majorities (1/3 of people prefer A to B to C, 1/3 prefer B to C to A and 1/3 C to A to B), then with naive voters the order of votes matters. If first the A vs B vote is held and the winner goes against C, then A wins against B, after which C wins against A. But if B and C are voted first, then B wins, after which it loses to A.
One possibility is that Trump is preferred to other Republican candidates, who in turn are preferred to Democrats, who are preferred to Trump. In this case the Democrats should strategically support Trump against other Republicans and be happy that the primary vote between Republicans happens before the general election, not after. A conspiracy theorist might even suspect collusion between Trump and the Democrats or at least secret Democrat support for Trump to split the Republicans, like in the plot of All the King’s Men.
What if the polls show swing voters to favour Trump over the Democrats? Who people claim to support in elections is not necessarily who they actually support (the Bradley effect). Voters may claim to support Trump as a joke, or actually favour him now, but reconsider closer to elections. Putting Trump in power is like a dangerous adventure – there is a thrill at the possibility and many (claim to) want to do it when it is in the distant future. When the opportunity actually arrives, it may look too scary and people may get cold feet.
In the end, if Trump actually becomes President, he has antagonized many Republicans. There is a good chance of a bypartisan effort to block all his initiatives. The crazy and illegal things Trump has promised to do are just election promises – politicians break those all the time. Even reasonable promises are broken – radical ones are even more likely to be ignored. If Trump tries to do the unconstitutional lunacies, both parties have an incentive to impeach him. The enemy of my enemy is my friend, so taking down Trump may be just the thing to make Republicans and Democrats strange bedfellows and narrow the political polarization in the US.

Bayesian vs frequentist statistics – how to decide?

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Which predicts better, Bayesian or frequentist statistics? This is an empirical question. To find out, should we compare their predictions to the data using Bayesian or frequentist statistics? What if Bayesian statistics says frequentist is better and frequentist says Bayesian is better (Liar’s paradox)? To find the best method for measuring the quality of the predictions, should we use Bayesianism or frequentism? And to find the best method to find the best method for comparing predictions to data? How to decide how to decide how to decide, as in Lipman (1991)?

On grants, evaluation and efficiency

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Getting grants counts positively in an academic’s evaluation and results in promotions and raises. But grants are supposed to be inputs for research, not outputs. Other things equal, it should be preferable to get the same output with fewer inputs (more efficiently and cheaply). Given an academic’s publications and patents, the grants they received in order to create these outputs should count negatively in their evaluation. The university administration is interested in motivating grant-getting, because they tax the grants – take a fraction of each for themselves. The motivating is done by promotions and raises. Rewarding more use of inputs inflates the cost of research and diverts effort from scientific output to getting more inputs.

A justification for rewarding grant-getting is that having current grants makes it easier to do research, thus increasing the expected scientific output in the near future. This only applies to a person’s current grants, not those already spent. Perhaps the current grants may count positively in an evaluation, but the spent ones should still have negative weight.

Once the system is in place, there may be an additional incentive to follow it: signalling obedience to rules. If academics are expected to apply for grants, then the ones that publicly do not may be considered contrarian, which may have negative consequences.

A similar reasoning applies to researchers from rich and poor institutions. If university resources are used for the work, then the person from a rich institution had more inputs for their work. The same output from a scientist in a poor university should be a more favourable signal about them.

An analogous adjustment is done in US college applications when low socioeconomic status confers an advantage. The direction of the correction is right, but its appropriate size remains to be determined.

Yoga teachers are not using their comparative advantage

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A substitute good for yoga classes is yoga videos on the web. The advantages of following a video over going to class are that you can do it at home, at any time that suits you, can skip or repeat parts, it is free, clothes are optional and the selection of teachers and classes is much larger. If you prefer to do yoga in a group, you can get some friends together, but this reduces the time flexibility and a large group needs a large room. The advantage of a yoga teacher is that they can correct your posture mistakes, either by telling you (doable in a video call based yoga class) or by physically moving your limbs to a different posture. A teacher may also be a commitment device – if you have trouble motivating yourself to exercise, then someone’s oversight may substitute for willpower.

Most yoga teachers seem to not use their advantage, meaning they just instruct in front of the class and don’t correct people’s postures. I have seen this in online yoga videos taken in actual classes and experienced it in most classes I have attended. I have tried about 30 yoga teachers overall.

Maybe some students do not want to be touched for physical posture correction or the yoga teacher has a phobia of touching, or (especially in the US) there is a fear of litigation related to any physical contact. Even telling someone about their wrong posture may be psychologically difficult (people may be taught that “if you have nothing good to say, don’t say it”), or a student not used to criticism may react negatively to it, however gentle and well-intentioned it is. Maybe the philosophy is “whatever is, is right” and that yoga is so individual that there is no such thing as wrong posture. I disagree on this, having sometimes caused myself slight injury by overextending joints in wrong postures (that went uncorrected).