Sean Carroll on social science vs. natural science

I generally don't like to repost other people's blog posts in full on my blog, because it deprives the writers of pageviews. And of course the fact that I say that reliably indicates that I'm about to make an exception. Sean Carroll, who writes for the physics blog Cosmic Variance over at Discover, has written an absolute must-read post on social science vs. natural science. So here it is in full, with emphasis added by me:

Over on the Google+, Robin Hanson asks a leading question: 

Explain why people shouldn’t try to form their own physics opinions, but instead accept the judgements of expert physicists, but they should try to form their own opinions on economic policy, and not just accept expert opinion there. 

(I suspect the thing he wants me to explain is not something he thinks is actually true.) 

There are two aspects to this question, the hard part and the much-harder part. The hard part is the literal reading, comparing the levels of trust accorded to economists (and presumably also political scientists or sociologists) to the level accorded to physicists (and presumably also chemists or biologists). Why do we — or should we — accept the judgements of natural scientists more readily than those of social scientists? 

Although that’s not an easy question, the basic point is not difficult to figure out: in the public imagination, natural scientists have figured out a lot more reliable and non-obvious things about the world, compared to what non-experts would guess, than social scientists have. The insights of quantum mechanics and relativity are not things that most of us can even think sensibly about without quite a bit of background study. Social scientists, meanwhile, talk about things most people are relatively familiar with. The ratio of “things that have been discovered by this discipline” to “things I could have figured out for myself” just seems much larger in natural science than in social science. 

Then we stir in the matter of consensus. On the very basics of their fields (the Big Bang model, electromagnetism, natural selection), almost all natural scientists are in agreement. Social scientists seem to have trouble agreeing on the very foundations of their fields. If we cut taxes, will revenue go up or down? Does the death penalty deter crime or not? For many people, a lack of consensus gives them license to trust their own judgment as much as that of the experts. To put it another way: if we talked more about the bedrock principles of the field on which all experts agreed, and less about the contentious applications of detailed models to the real world, the public would likely be more ready to accept experts’ opinions. 

None of which is to say that social scientists are less capable or knowledgable about their fields than natural scientists. Their fields are much harder! Where “hard” characterizes the difficulty of coming up with models that accurately capture important features of reality. Physics is the easiest subject of all, which is why we know enormously more about it than any other science. The social sciences deal with fantastically more complicated subjects, about which it’s very naturally more difficult to make definitive statements, especially statements that represent counterintuitive discoveries. The esoteric knowledge that social scientists undoubtedly possess, therefore, doesn’t translate directly into actionable understanding of the world, in the same way that physicists are able to help get a spacecraft to the moon. 

There is a final point that is much trickier: political inclinations and other non-epistemic factors color our social-scientific judgments, for experts as well as for novices. On a liberal/conservative axis, most sociologists are to the left of most economists. (Training as an economist allegedly makes people more selfish, but there are complicated questions of causation there.) Or more basically, social scientists will often approach real-world problems from the point of view of their specific discipline, in contrast with a broader view that the non-expert might find more relevant. (Let’s say the death penalty does deter crime; is it still permissible on moral grounds?) Natural scientists are blissfully free from this source of bias, at least most of the time. Evolution would be the obvious counterexample. 

The more difficult question is much more interesting: when should, in completely general terms, a non-expert simply place trust in the judgment of an expert? I don’t have a very good answer to that one. 

I am a strong believer that good reasons, arguments, and evidence are what matter, not credentials. So the short answer to “when should we trust an expert simply because they are an expert?” is “never.” We should always ask for reasons before we place trust. Hannes Alfvén was a respected Nobel-prizewinning physicist; but his ideas about cosmology were completely loopy, and there was no reason for anyone to trust them. An interested outsider might verify that essentially no working cosmologists bought into his model. 

But a “good reason” might reasonably take the form “look, this is very complicated and would take pages of math to make explicit, but you see that I’ve been doing this for a long time and have the respect of my peer group, which has a long track record of being right about these issues, so I’m asking you to go along this time.” In the real world we don’t have anything like the time and resources to become experts in every interesting field, so some degree of trust is simply necessary. When deciding where to place that trust, we rely on a number of factors, mostly involving the track record of the group to which the purported expert belongs, if not the individual experts themselves. 

So my advice to economists who want more respect from the outside world would be: make it much more clear to the non-expert public that you have a reliable, agreed-upon set of non-obvious discoveries that your field has made about the world. People have tried to lay out such discoveries, of course — but upon closer inspection they don’t quite measure up to Newton’s Laws in terms of reliability and usefulness. 

Social scientists are just as smart and knowledgable as natural scientists, and certainly have a tougher job. But trust among non-experts isn’t demanded, and shouldn’t be based on credentials; it is given on the basis of a long track record of very visible success. Everyone would be in favor of that.

As far as I am concerned, every single thing written in this post is spot-on. I just have a few additional points:

1. What Carroll is saying is far more true of macroeconomics than microeconomics. Microeconomists are pretty good at predicting how bidders will bid at an auction, or how many people will use a new planned subway extension. (An old prof of mine once successfully managed to predict the relative amounts of denominations of money that counterfeiters would fake!) People don't often hear about these quiet successes, caught up as they are in the failures of macro. But they are real.

2. Although the lack of consensus among (macro)economists should give laypeople pause, the converse does not hold; the fact of consensus on a particular issue doesn't mean economists are right. The "Great Moderation" idea, for example, was as near to a business-cycle theory consensus as one could find, but collapsed in the wake of the recent crisis. As another example, a common defense of the DSGE modeling paradigm is that "everybody's doing it." Sorry, but no.

3. Carroll doesn't go into this, but the microfoundations of a discipline are also a factor in how much its experts should be trusted. Climatology has too long a horizon to make repeated verifiable predictions, but it's microfounded by physics that everyone agrees on. Macroeconomics, on the other hand, is microfounded on the parts of microeconomics that we don't really understand yet - consumption-saving behavior, firm investment decisions, technological change, expectation formation, risk aversion, and the like. Once micro people get these nailed down (and I think they will), we'll get some much more credible macro models.

Anyway, go check out the original link, which has some interesting links of its own.


Update: Robin Hanson responds to Carroll. The key argument is this:

Yes, economists were only a supporting influence in creating all those great economic institutions...But similarly, physicists were only a supporting influence in creating all those great physical devices...There were useful steam engines long before thermodynamics helped explain them, and it took far more than basic physics to get men to the moon, just as it took far more than basic economics to create modern industries. It is actually quite hard to say which discipline has been more useful overall to the world. 

This just seems wrong to me. You need to know Newton's Laws to hit the moon with a rocket. You don't need to know supply and demand curves to build a company. Physics theory has been absolutely essential to the creation of a number of industries, economics only to a couple, macroeconomics to basically none. And it should also be noted that before the mid-1900s, economics was non-quantitative, basically a type of philosophy. Which means that back when things like the corporation and the factory were being invented, economists' role was mainly as cheerleaders for free markets. Which was a very important role, but was a political role, not a scientific one.

Tinkering at the margins

Still swamped with work, but time for a quick post to reward myself for getting my dissertation proposal approved...

Harvard profs Greg Mankiw and Robert Barro, two giants of the macro world, have twin editorials in the NYT suggesting what we should do to improve the economy. Mankiw favors free trade agreements and steps to improve international wage competitiveness...

Myriad government actions influence the expected future profitability of capital. These include not only policies concerning taxation but also those concerning trade and regulation. 

For example, passing the free trade agreement with South Korea, which has languished in Congress more than four years after first being negotiated, would be a step in the right direction. So would reining in the National Labor Relations Board; its decision to block Boeing from opening a nonunion plant in South Carolina may have been hailed by organized labor, but it surely did not hearten investors.

...while Barro suggests switching from corporate and estate tax to a VAT:

A broad-based expenditure tax, like a VAT, amounts to a tax on consumption. If the base rate were 10 percent, the revenue would be roughly 5 percent of G.D.P. One benefit from a VAT is that it is more efficient than an income tax — and in particular the current American income tax system... 

Abolishing the corporate income tax is similarly controversial. Any tax on capital income distorts decisions on saving and investment.

Now, I broadly agree with all the policies described above (yes, including allowing South Carolina to compete with Washington state on wages). But do prof.'s Mankiw & Barro really believe that these will get us our of our slump? Where have we seen an example of a country that got itself out of recession by tweaking its tax and labor policies? I can't think of one. Europe has a VAT and a corporate tax rate that is 15 percentage points lower than ours, and they don't seem to have made a quick exit from this slump. Maybe FTAs will have more of a countercyclical effect, but it's important to remember that Korea is one-seventh our size.

And another point. All of these policy suggestions are structural things. They are one-off policies that cannot be repeated. Even if improving tax policy helps us out of this recession, what do we do when the next recession comes along? Now, maybe Mankiw and Barro don't believe that real countercyclical policy exists, and that instead the best we can hope for is that crises will make needed structural changes politically feasible. But then I think they should say this. (Update: Brad DeLong agrees.)

As for me, I doubt that these tweaks will have much of an effect. What do I think will? Well, my hunch - and this is just a hunch - is that we should start taking a very hard look at exchange-rate policy...but that is a blog post for another day...

(Note: Barro also makes an argument for fiscal austerity. I'm not going to get into that now, except to say that the approval I expressed toward his tax policy ideas do not extend to his call for austerity. Just in case anyone was wondering.)

NAIC Provides Forum for Ivory Tower Attack on Self-Insurance

The National Association of Insurance Commissioners (NAIC) has never been known as an organization where the self-insurance/alternative risk transfer industry is treated fairly, but its penchant for bias became even more visible this past week. Worse yet, this bias is now being fomented by an “ivory tower” expert.

Professor Timothy Stoltzfus Jost is the designated “consumer representative” on the NAIC’s ERISA (B) Subgroup , which is tasked with developing various policy recommendations related to how states should adapt their insurance regulations to better coordinate with PPACA implementation. The esteemed professor is not shy in sharing his opinion that smaller self-insured group health plans, facilitated by stop-loss insurance, should be made extinct.

During the Workgroup’s last conference call, Professor Jost presented a formal statement entitled The Affordable Care Act and Stop-Loss Insurance. This scholarly work was quite the hit piece on self-insurance disguised with big words, extensive footnoting and misleading legal references.

His central thesis is that smaller employers should not be allowed to self-insure because they do so primarily to escape state regulation, and going forward to sidestep new PPACA regulation. He also pushes the dubious argument that self-insured plans contribute to adverse selection (see my earlier blog post on this subject).

Virtually all of Professor Jost’s points can and will be rebutted privately and publicly as this NAIC policy development process moves forward, but first let’s take some time to consider the source.

He is currently a law professor at the Washington and Lee University of Law, with multiple other academic appointments dating back to 1979. Along the way, he has written several books and academic papers on the subject of health care with titles such as The Threats Facing our Public Health Care Programs and a Rights-Based Response; and Health Care at Risk: a Critique of the Consumer-Driven Movement.

And by the way, he is a graduate of the University of California at Santa Cruz. In case you are not familiar with this school, it makes U.C. Berkley look like a bastion of conservatism.

So what about private sector experience over his 35 year career? You guessed it, zero. How about past experience as a regulator who at least could interact with the private sector? No again. What we have here is the classic liberal elite academic who looks at the world through prisms of theory and ideology.

Professor Jost holds himself out to be a patient’s rights advocate and clearly views the NAIC as a forum to present his “ivory tower” perspective. OK fine, there’s certainly room for a diversity of qualified opinions as part of the policy development process.

The problem is that while Professor Jost may well have valid perspectives to contribute on true consumer (patient) protection issues, he’s out of his league in commenting on how health care delivery should be financed.

Moreover, if he was truly concerned about the ability of individuals to receive quality, affordable health care, Professor Jost should actually be a proponent of self-insured health plans (regardless of size) because these plans generally do a better job on both counts as compared to the fully-insured marketplace.

It appears the professor is in need of some timely continuing education.

RRG Legislation Snagged by Dodd-Frank Creation

After some initial good progress in moving federal legislation to modernize the Liability Risk Retention Act (LRRA), a new rhetorical roadblock has been raised.

The Risk Retention Modernization Act (H.R. 2126) includes a dispute resolution provision whereby RRGs who believe they are being illegally regulated in non-domiciliary states can access the equivalent of a federal arbitration process as an alternative to initiating costly legal action.

An earlier version of the legislation provided that this dispute resolution mechanism would be administered within the Treasury Department due to technical jurisdiction requirements, but left discretion Treasury to fit this function in as part their exiting organizational chart.

Fast forward to the recent passage of the Dodd-Frank financial reform legislation, which among other things created a new Federal Insurance Office (FIO) to be housed within the Treasury Department. As a result of this development, the current version of the legislation specifically designates FIO as the entity responsible to arbitrate RRG disputes with state regulators.

Supporters of the legislation have always known that there would be some push back in Congress from members concerned that such a dispute resolution would infringe on the authority of state insurance regulators. Of course, the opposite is actually true and this position has gained traction in recent months.

But just as the policy argument has largely been settled, at least one member of Congress key to the legislation’s eventual message has raised a new concern. In a meeting earlier this week to discuss the legislation, Rep. Judy Biggert (R-IL), chairwoman of the House Subcommittee of Capital Markets within the House Financial Services Committee, voiced strong concerns about this new responsibility assigned to the FIO.

Her objection was not really specific to RRG regulation, but rather reflects a broader view held by many Republicans that the FIO is being given too much authority. In hindsight, this objection was not particularly surprising.

While PPACA has garnered the lion share of public attention for those critical of government expanding its regulatory reach, the distaste for Dodd-Frank is significant among most Republican members of Congress. As a result, any manifestation of this law, such as the FIO, can spark a reflexive push back as demonstrated by Rep. Biggert’s comments.

It is important to note that this new wrinkle does not mean that H.R. 2126 cannot pass. The lobbying process on Capitol Hill is inherently complicated and this is just the latest example.

In the end, if the case can be made that the practical advantages this legislation offers to small and mid-sized companies trump more abstract political concerns, the LRRA will be successfully modernized.

Stay tuned for additional inside reports on how this legislation is progressing on Capitol Hill.

Regulatory Overreach Compromises Workplace Safety Initiatives

In case you had any doubt that the current public debate over the scope of federal regulation is more about political ideology rather than practical reality, look no further than OSHA’s ramped up oversight of workplace safety issues.

Now on the surface, this may sound like a laudable focus because almost everyone agrees that there is a role for government in making sure that sensible workplace safety standards are established and adhered to. But of course, in this current political climate Obama regulators just don’t know when to say when.

Specifically, OSHA has recently started to subpoena workplace safety audits prepared by workers’ compensation self-insurers and insurance carriers. Keep in mind that that these audits are prepared on voluntary basis so that employers/insurers are better able to proactively address any safety deficiencies that may exist. Such audits are particularly important tools for workers’ compensation self-insurers because they “own” every dollar saved on payments to injured workers.

Historically, OSHA has not attempted to access such audits because everyone understood that employers would likely stop preparing these risk management tools if they could be used against them in regulatory enforcement and/or legal proceedings.

This precedence has been overturned by a recent federal district court ruling stating that OSHA does have the right to subpoena safety audits and related documentation. Specifically, the ruling in the case of Solis v. Grinnell Mutual Reinsurance Company concluded that audit subpoena are generally enforceable if:

1) They reasonably relate to an investigation within OSHA’s authority;
2) The requested documents are relevant to OSHA’s investigation;
3) The request is not too vague
4) Proper administrative procedures have been followed; and
5) The subpoena does not demand information for an “illegitimate purpose”

According to OSHA’s internal policy regarding voluntary self-audits, the agency will not “routinely” request such audits at the beginning of an inspection, or use the audits to identify hazards to inspect.
But now with a favorable court ruling in their back pocket, it’s very reasonable to expect that OSHA regulators will, in fact, make safety audit subpoenas a routine part of their investigative process.

Of course, and ironically, the real victims are the workers as many employers are likely to curtail such formal audits in response to OSHA’s invasive zeal. Another classic example of “no good deed goes unpunished” apparently embraced by this administration.

Directors and Officers of Non-Profit Organizations

Many people today have a servant’s heart and wish to volunteer on different non-profit boards to help better their community.  As board members they steer the path of the non profit organization by helping with fiscal policy and with major decision making.  We at Fey Insurance strong encourage people to take part in boards to help better their community; however, we caution them to make sure these boards have Directors and Officers Liability. 

Many people think that if they buy a personal umbrella policy they will be covered for anything that could happen to them while serving on a board.  Unfortunately this is not always true.  Many umbrella policies only cover you for Directorships or Trusteeships if they are non-profit and only for Bodily Injury, Property Damage and Personal Injury.  Most lawsuits that could arise out of your service on a non for profit board will not be for Bodily Injury, Property Damage or Personal Injury.  They will be because other members of the organization that are not on the board disagree and disapprove of a financial decision or just an overall steering decision that the board made.  Lawsuits such as these are considered wrongful acts and do not fall under the Bodily Injury, Property Damage or Personal Injury and would therefore in many cases not be covered by your homeowner or personal umbrella.

This possibly large gap in coverage is why we strongly encourage our customers that sit on boards (for-profit or not-for-profit) to make sure the boards have Directors and Officers Liability (D&O liability).  D&O Liability is special coverage designed to protect for wrongful acts or supposed wrongful acts of the board.  We recommend this coverage to all boards not only to protect our individual insured’s but to also protect the organization itself.  Even if a claim of wrongful acts is frivolous it can still cost the organization thousands or tens of thousands of dollars just to defend itself.

So next board meeting you attend be sure to ask if they have Directors and Officers Liability.  If they say no and tell you that you should be fine if you have a personal umbrella be sure to reference this article to help them understand the possible large limitation that a personal umbrella has in covering you as a board member.  

Inside Politics in Michigan Demonstrate That Self-Insurance Priorities Are Too Easiliy Dealt Away

Michigan Governor Rick Snyder is poised to sign legislation that would impose a one percent tax on medical claims paid by health plans, including self-insured group health plans. This is big news and is certainly a disturbing development for those concerned about the erosion of ERISA preemption. But there is a more interesting story behind the headlines that is instructive for self-insured employers in other states as well.

In anticipation of this legislative development, I spoke with senior representatives from a leading Michigan employer organization to explore possible response options, including litigation coordination if necessary. When asked specifically what their appetite was for legal action assuming the legislation is signed into law, their answer was pretty clear – “zero.”

Given that this association represents many self-insured employers such strong push back was surprising to say the least. Then the “off the record” discussion began.

It turns out that there had been some significant wheeling and dealing between the Legislature, the governor and the business community in order to craft various budget reform initiatives designed to head off a projected deficit.

My contacts confided in me that their organization is privately opposed to the health plan tax proposal but will not go on record to say so, much less getting involved in possible litigation. They cite two reasons for this seemingly contradictory stance.

First, their membership includes health insurance companies in addition to self-insured employers and they believe an outspoken defense of self-insurers would alienate this other membership constituency. The other rationale is if the boat was rocked on this issue, then some of the other “deals” presumed to be favorable to the employer community could fall apart.

Of course, the big picture was not taken into account. They acknowledge that the immediate negative financial impact for self-insured employers is bad but manageable. Not considered was that if state efforts to tax and/or regulate self-insured health plans are left unchecked, self-insurance may cease to be an attractive option for employers in Michigan and elsewhere, which would effectively trap employers in the traditional health insurance marketplace – a much more ominous situation than being subject to a one percent tax as problematic as that may be.

My contacts appreciated this analysis and agreed that there are, in fact, bigger issues at play. That said, the bottom line is that many within the leadership of their very influential organization would likely applaud an effort to push back against the health plan tax, but this would be private support with no organizational fingerprints.

So there you have it. The very important fight over ERISA preemption has been dealt away in Michigan in favor of other business community priorities that likely are less important to employers from a P&L perspective. It’s uncertain how things will eventually play out in Michigan, but this look behind the curtain on the relationship between state employer organizations and government exemplifies why the self-insurance industry has an ongoing challenge at the state level.

While the ability of employers to self-insure is more significant than most tax and regulatory initiatives (again from a P&L perspective), self-insurance issues simply do not get much attention for state organizations, which tend to have more broad-based legislative agendas. To be fair, this is understandable because these groups generally have diverse membership constituencies and not have the resources to focus on issues that only a single constituency. Moreover, the member representatives do not generally insist that their organization put self-insurance issues front and center.

To the extent that employers can be mobilized to rattle the cages of state business associations to pay more attention to self-insurance issues we may be able to turn “private support” to visible public advocacy on the future threats that are almost certain to arise.

Let the cage rattling begin.