Here’s a question.  When we describe people using the adjectives in the title of this post, are we describing the way they are, or they way they behave?  We have deeply ambivalent views in this area, which on close examination are probably incoherent.  Much of our social interaction is based on shared myths, which shrivel under the bright light of scientific scrutiny.  Even the language we use is subtly inconsistent with the scientific method.  For instance, consider one of society’s monsters, say a Hitler, Mao, or Osama.  Suppose someone says “I know how he felt when he committed his crimes.”  Most people would take that as condoning the crimes, even though from a scientific perspective there’s no logical connection between knowing why a person acted a certain way, and condoning their behavior.

I was reading a book about genetic engineering called “Babies by Design,” and was struck when Ronald Green claimed:

Research shows that obesity is consistently attributed to laziness and a lack of self-discipline.

In reality, the truth may be just the opposite.  Studies of identical twins reared together or apart indicate that much obesity may be caused by hereditary factors.  In technical terms, the heritability of obesity, the percentage of observed variation among people that is attributed to genes, is very high, somewhere between 50 and 80 percent.

[Before continuing, a disclaimer so that I am not misunderstood.  I have good genes for being thin.  If I didn’t I assume I’d be fat, as I don’t have much self-control.  So the following should not be viewed as criticism of fat people.]

Do you see the problem with Green’s assertion?  He asks us to believe that just because obesity is 80% genetic, it can’t also be 80% due to laziness.  But why?  What are those two hypotheses viewed as mutually exclusive?  Is it because genetic characteristics are viewed as “not one’s fault,” whereas laziness is viewed as a character flaw?  But why shouldn’t character flaws be genetic?

A new study has found a “kindness gene.”  It seems that some people are born kind and some are born “bad to the bone.”

People with a certain gene trait are known to be more kind and caring than people without it, and strangers can quickly tell the difference, according to US research published on Monday.

The variation is linked to the body’s receptor gene of oxytocin, sometimes called the “love hormone” because it often manifests during sex and promotes bonding, empathy and other social behaviors.

Scientists at Oregon State University devised an experiment in which 23 couples, whose genotypes were known to researchers but not observers, were filmed.

One member of the couple was asked to tell the other about a time of suffering in his or her life. Observers were asked to watch the listener for 20 seconds, with the sound turned off.

In most cases, the observers were able to tell which of the listeners had the “kindness gene” and which ones did not, said the findings in the Proceedings of the National Academy of Sciences edition of November 14.

Should we no longer praise people for being kind?  No, we should praise them, but if we were to use Green’s logic then meanness would no longer be viewed as the person’s fault, because we’ve discovered that it’s genetic.

And happiness is also genetic, according to an article in The Economist:

Serotonin is involved in mood regulation. Serotonin transporters are crucial to this job. The serotonin-transporter gene comes in two functional variants””long and short. The long one produces more transporter-protein molecules than the short one. People have two versions (known as alleles) of each gene, one from each parent. So some have two short alleles, some have two long ones, and the rest have one of each.

The adolescents in Dr De Neve’s study were asked to grade themselves from very satisfied to very dissatisfied. Dr De Neve found that those with one long allele were 8% more likely than those with none to describe themselves as very satisfied; those with two long alleles were 17% more likely.

That’s already pretty disturbing, but then consider the following:

Which is interesting. Where the story could become controversial is when the ethnic origins of the volunteers are taken into account. All were Americans, but they were asked to classify themselves by race as well. On average, the Asian Americans in the sample had 0.69 long genes, the black Americans had 1.47 and the white Americans had 1.12.

That result sits comfortably with other studies showing that, on average, Asian countries report lower levels of happiness than their GDP per head would suggest. African countries, however, are all over the place, happinesswise. But that is not surprising, either. Africa is the most genetically diverse continent, because that is where humanity evolved (Asians, Europeans, Aboriginal Australians and Amerindians are all descended from a few adventurers who left Africa about 60,000 years ago). Black Americans, mostly the descendants of slaves carried away from a few places in west Africa, cannot possibly be representative of the whole continent.

Note how the alleged racial gaps in happiness are inversely correlated with average income in America.  Proof God is a utilitarian?

Seriously, if society insists on continuing to probe ever more deeply into human genetics, I think we need a whole new language for discussing ethical issues.  My suggestion is that scientists give up on all the comforting notions of “just deserts.”  Yes, proof that X% of behavior in genetic still allows for 100-x% to be environment.  But environment is also not the villain’s fault.

In my view the right way to handle all this is to ignore the question of whether anything is really a person’s fault, and consider the related question of whether certain behavior is changed by external incentives (including telling them that it is their fault.)  I don’t have any problem with obese or unhappy people, but I don’t like mean people.  So as long as there is evidence that mean people can be deterred from meanness by sanctions, I’ll continue to give them a hard time.  And no amount of genetic research will change my behavior in that regard.

However I do think all this research supports utilitarian ethics.  We utilitarians are sometimes criticized for caring equally about the happiness of the deserving and the undeserving.  This genetic research suggests that much of the variation in personality is genetic, and hence “not the person’s fault.”  The optimal policy (and I’m not proposing this) would be for an omniscient government to tax mean people $X dollars for each unit of mean behavior, and then rebate the entire amount of revenue in lump sums to everyone with a mean gene in their body.

Or in Christian terms we could say “love thine enemy, but also punch them in the nose every time they misbehave.”  Does that seem contradictory?  Then you are confusing behavior with character.

Because of genetic research our view of humanity and ethics in the year 2111 will be totally different from today, just as our current views are totally different from 100 years ago (when “progressives” often favored eugenics.)

What do I fear most?  Busybodies like this:

People who have two copies of the G allele are generally judged as more empathetic, trusting and loving.

Those with AG or AA genotypes tend to say they feel less positive overall, and feel less parental sensitivity. Previous research has shown they also may have a higher risk of autism.

.   .   .

However, no gene trait can entirely predict a person’s behavior, and more research is needed to find out how the variant affects the underlying biology of behavior.

“These are people who just may need to be coaxed out of their shells a little,” said senior author Sarina Rodrigues Saturn, an assistant professor of psychology at Oregon State University whose previous research established the genetic link to empathetic behavior.

“It may not be that we need to fix people who exhibit less social traits, but that we recognize they are overcoming a genetically influenced trait and that they may need more understanding and encouragement.”

Keep your %&#@$*& hands off my anti-social traits.  Remember what Greta Garbo said.

And then there is mental illness.  Here’s Reason magazine explaining that crazy is as crazy does:

Metzl is not interested in such distinctions. “Schizophrenia is shaped by social, political, and, ultimately institutional factors in addition to chemical or biological ones,” he writes. “Too often, we assume that medical and cultural explanations of illness are distinct entities, or engage in frustratingly pointless debates about whether certain mental illnesses are either socially constructed or real.” He says “this polarizing dichotomy serves no one, and makes it harder to see how mental illness is always already both.”

It is hard to imagine someone making a similar speech about cancer or diabetes. “Unlike the conditions treated in most other branches of medicine,” observes Marcia Angell, former editor of The New England Journal of Medicine, in a June New York Review of Books essay, “there are no objective signs or tests for mental illness””no lab data or MRI findings””and the boundaries between normal and abnormal are often unclear. That makes it possible to expand diagnostic boundaries or even create new diagnoses, in ways that would be impossible, say, in a field like cardiology.” In other words, mental illnesses are whatever psychiatrists say they are. If someone is diagnosed with depression or schizophrenia based on the currently accepted behavioral markers, assuming the criteria are correctly applied, it does not make sense to say he does not really have depression or schizophrenia, since there is no test to disconfirm the diagnosis. And if the criteria change so that they no longer apply to him, his disease disappears or becomes something else; it has no independent existence.

Music to my post-modern ears.

When I read “A Beautiful Mind” there was one aspect of John Nash’s behavior that I found strange.  Every so often he was involuntarily committed to an insane asylum.  Because he hated it there, he soon began to “act sane” so that they’d have to let him out.  And they did.  I don’t recall any of the book reviews noticing this, but doesn’t it seem a bit odd that someone who is mentally ill can act sane, given that acting crazy seems to be the only way to diagnose most mental illnesses?

I’m not saying Nash wasn’t “actually crazy.”  I’m saying that like all our other behavioral traits mental illness probably isn’t what we think it is.  I look forward to the day when all human vices are relabeled “mental illness.”  Then we can clear the decks and start over with the real question: Which behaviors can be changed through incentives and which cannot?  It’s all about economics.

PS. In comments Woupiestek provided the following:

You post reminds me of “drapetomania”:
http://en.wikipedia.org/wiki/Drapetomania

Learn this from the British quiz QI. It comes up after 3 minutes in this fragment:
http://www.youtube.com/watch?v=-g3mgACXXJE&feature=colike

And around 7 minutes they start replicating this post.  Truth is stranger than fiction.  And why can’t America have TV shows like that?

Update: ChrisA points out that Bryan Caplan did discuss the John Nash case.

Option 1:  Do massive bailouts of the PIGS, unleashing enormous moral hazard and removing the incentive to address their unsustainable budget policies.  Worst case is that the entire eurozone goes broke.

Option 2:  Let the PIGS collapse, triggering bank runs all over Europe, which leads to a breakup of the eurozone and a severe recession.

Option 3:  Do 4% NGDP targeting, level targeting, from 2008.  Hopefully the various debt/NGDP ratios get more manageable in a few years.

You’ll notice that I do much more blogging on the Fed than the ECB, even though the European situation is currently much worse.  That’s because the euro-crisis doesn’t play to my comparative advantage as a blogger.  It involves issues like moral hazard, game theory, budget theory, one-size-fits-all policy problems, etc, where I have no special expertise.  So I’ll link to some other bloggers who handle these issues better than I can:

1.  Here’s Tyler Cowen explaining why we shouldn’t expect Germany to bail out the PIGS.   Tyler mentioned that the German debt is nearly 80% of GDP, but could have added that the GDP if the PIGS is much bigger than the German GDP.

2.  Here’s Matt Yglesias explaining why the “huge monetary and social costs” of a bit more inflation are tiny compared to the “huge monetary and social costs” of a deflationary collapse of the eurozone.

3.  Nick Rowe explains why a somewhat more expansionary policy would actually make the future value of the euro much less uncertain.

4.  Bill Woolsey argues that the central banks should focus not on being a “lender of last resort,” but rather accommodating changes in the demand for base money in order to keep NGDP growth on target.

PS.  Congratulations to Matt Yglesias on his new gig.  He’s arguably the best progressive economist in the blogosphere, which isn’t bad given that he’s not an economist.  I said “arguably” because Krugman’s a more talented macroeconomist.  But Yglesias can address a much wider variety of policy issues in a very persuasive fashion.  So he’s certainly in the top 5.  His blog is the best argument for progressive policy that I’ve ever read.  (But not quite persuasive enough to convince me.)

John Taylor has a new post criticizing NGDP targeting:

One change is that, in comparison with earlier proposals, the recent proposals tend to focus more on the level of NGDP rather than its growth rate. This removes some of the instability of NGDP growth rate targeting caused by the fact that NGDP growth should be higher than its long run target during the catch up period following a recession. But it introduces another problem: if an inflation shock takes the price level and thus NGDP above the target NGDP path, then the Fed will have to take sharp tightening action which would cause real GDP to fall much more than with inflation targeting and most likely result in abandoning the NGDP target.

I see lots of problems here, but in fairness this may reflect my particular vision of NGDP targeting, which is the “target the forecast” approach.  Under my plan, the Fed would constantly adjust policy so that expected future NGDP (12 or 24 months forward) remained right on target.  Ideally this would involve NGDP futures markets, more likely it would involve an internal Fed NGDP forecast, which also incorporated the consensus private NGDP forecast as well as various asset prices such as TIPS spreads.

Taylor is right that there might be inflation shocks under NGDP targeting, just like there are under inflation targeting.  For instance, the rise in oil prices in 2007-08 caused CPI inflation to rise far above the Fed’s implicit target.  But he’s wrong in assuming these inflation shocks would raise NGDP, indeed NGDP growth slowed to well under 5% during the 2007-08 oil shock.

The deeper problem with this criticism is that wages are not set on the basis of expected inflation, but rather the expected rate of NGDP growth.  That’s why wages in a country like China have been rising at double digit rates for years, despite much lower inflation rates.  It is why wages in the US remained well behaved in 2007-08, even as headline inflation rose to over 5% (as NGDP growth was slowing.)  As long as the Fed keeps targeting NGDP expectations, wage growth will remain anchored.  Workers and employers understand that wages cannot compensate for every spurt in prices at the gas pump.  If actual NGDP does change suddenly, it will be easy to reverse as long as expected future NGDP (and hence wages) remain on track.  (Note; this argument applies best if the Fed targets NGDP per capita, or per working age adult.)

If the Fed had been targeting inflation in 2008 the crisis would have been far worse, as monetary policy in mid-2008 would have been much tighter.  The Fed actually takes both inflation and real growth into account.  But an NGDP target would allow them to do so in a much more explicit fashion, and would have allowed them to ease much more aggressively in late 2008.

Taylor continues:

A more fundamental problem is that, as I said in 1985, “The actual instrument adjustments necessary to make a nominal GNP rule operational are not usually specified in the various proposals for nominal GNP targeting. This lack of specification makes the policies difficult to evaluate because the instrument adjustments affect the dynamics and thereby the influence of a nominal GNP rule on business-cycle fluctuations.” The same lack of specificity is found in recent proposals.

That may be true of Romer and Krugman, but they were basically endorsing the proposals of others.  And certainly no one can claim that my proposal lacks specificity—it is just as rule-based as Taylor’s famous policy rule.  It also has the advantage of being forward-looking, which is a huge plus in a fast moving financial crisis like 2008.  The Fed used Taylor Rule-like reasoning in deciding not to cut rates below 2% in their September 16, meeting, which occurred right after Lehman failed.  They cited a roughly equal risk of recession and inflation.  Incredibly, the risk they saw was excessively high inflation, not excessively low inflation.  How could the Fed have made such a bone-headed mistake?  They were looking in the rear view mirror, at nearly 5% headline inflation over the previous 12 months.  They should have looked down the road as Svensson suggests, as the TIPS spreads that day showed 1.23% inflation over the next 5 years.  Taylor Rule-type thinking caused the Fed to unintentionally leave money way too tight to hit their implicit inflation and employment targets.

I’m sure that today even Ben Bernanke would agree that they erred in not sharply cutting rates at the September 2008 meeting.  During the fall of 2008 the Fed needed to do enough stimulus so that forecasts of 2010 NGDP remained roughly 10% above actual 2008 levels.  They didn’t even come close, which is why the recession was so much worse than it needed to be.  The sub-prime fiasco made a mild recession almost inevitable, but the fall in NGDP (the biggest since the 1930s), made it far worse than it needed to be.  Sharply falling NGDP expectations in late 2008 led to sharply lower asset prices, which dramatically worsened bank balance sheets.  IMF estimates of expected US banking system losses nearly tripled in late 2008 and early 2009, even though the sub-prime fiasco was already well-understood by mid-2008.  What wasn’t predicted in mid-2008 was the catastrophic fall in NGDP over the next 12 months.

At first glance Taylor’s piece looks like a critique of NGDP targeting.  But on close inspection it is something different.  It is a discussion of tactics; level versus growth rate targeting.  Rules versus discretion.  I’ve added the issue of forward-looking versus backward-looking rules.  These are all interesting issues, and I actually agree with Taylor on the importance of policy rules.  He is well aware that some of the most distinguished proponents of NGDP targeting (such as Bennett McCallum) have proposed explicit NGDP policy rules.  He also knows that the dual mandate embedded in NGDP targeting is not that different from the dual mandate embedded in the Taylor Rule.  Readers of critiques by Taylor and Shlaes need to keep in mind that their real target isn’t NGDP targeting, it’s discretion.  I hope John Taylor will consider jumping on board and writing an explicit “Taylor Rule” for NGDP targeting, so that if the Fed does move in that direction they do so in a responsible way.

BTW,  What’s the non-discretionary Taylor Rule suggestion for Fed policy if rates fall to zero and further stimulus is needed?

HT:  Marcus Nunes

I get tired of correcting Keynesians who don’t understand how to estimate the multiplier.  But as long as they keep saying things like this, I’ll have to keep doing so:

In general, cross-sectional comparisons are proving to be a very good way to test some propositions in macroeconomics. I’d cite, for example, the Nakamura-Steinsson paper (pdf) that uses fluctuation defense spending “” which has very unequal impacts across states “” to estimate the multiplier on fiscal policy (it’s about 1.5).

Actually cross-section studies are a lousy way to test for the multiplier, as they suffer from the fallacy of composition.  I’ve pointed this out many times, but Paul Krugman obviously doesn’t read my blog, otherwise he wouldn’t keep making these elementary errors.  Of course he’s told us that he doesn’t like to read conservative blogs because they contain nothing of value.

Then there is this, from the very same post:

Calculated Risk sends us to two papers by Amir Sufi and Atif Mian using county-level data to investigate the causes of the recession. Their work strongly supports the balance-sheet view: a fall in demand from highly indebted households is the big story, and you can confirm that by showing that the big declines in nontradable employment “” that is, employment in industries that sell locally “” is in those countries where debt levels were high.

And let me guess, counties with economies dominated by autos and steel usually suffer bigger job losses in recessions than counties dominated by hospitals and colleges.  Does that tell us anything about what causes recessions?  Doesn’t EC101 also teach that correlation doesn’t prove causation?

Let’s suppose recessions were caused by tight money, not balance sheet problems.  And let’s suppose that tight money reduces nominal income.  And let’s suppose that most debts are nominal, not indexed to inflation.  In that case wouldn’t you expect tight money to lead to bigger spending declines in highly indebted areas, even if debt played no role in causing the recession?

Fallacy of composition.  .  .

Correlation doesn’t prove causation.  .  .

Krugman’s textbook must have something to say on those topics.

David Beckworth has an excellent new piece on a theme he first developed a while back:

The ECB Needs the Fed Now More Than Ever

And it is not because the ECB needs more currency swaps.  It is because the ECB needs the Fed for cover.  Here is why.  The Fed is a monetary superpower.  It manages the world’s main reserve currency and many emerging markets are formally or informally pegged to dollar. As a result, its monetary policy gets exported to much of the emerging world. This means that the other two monetary powers, the ECB and Japan, have to be mindful of U.S. monetary policy lest their currencies becomes too expensive relative to the dollar and all the other currencies pegged to the dollar. So, to some extent U.S. monetary policy also gets exported to the Eurozone and Japan too.

Here’s a prediction.  If the Fed moves aggressively enough to sharply boost US stock prices, then eurozone stock prices will also rise even if the euro appreciates.  In other words, when it comes to macroeconomics, the income effect is way more important than the substitution effect.  Forget about all that CA deficit stuff.  The developed world doesn’t need a weaker dollar or a weaker euro.  It needs both, i.e. higher NGDP.

PS.  At least I think the ‘monetary superpower’ concept was David’s idea.  It’s possible he stole it from Krugman.