0:36 Intro. Truth: How do we know what we know is true? How do we know what we believe to be true is actually true when it comes to economics? Can economics make any claim to being a science. Couch of economic psychoanalysis with bias therapist, Robin Hanson. Monolog. Podcast with David Henderson, conversation about why economists disagree. Making fun of economists. Response: Well, actually the agreement's bigger than you think: micro, incentives, policies: minimum wage, tariffs. What about the areas where we disagree? Response: our studies, data, evidence are better. Robert Frank podcast. More likely to argue that competition will lead to a certain result vs. arguing price discrimination. U. of Chicago, competition vs. imperfect competition. What's the evidence either way? Ian Ayres podcast. Not enough statistical analysis, should use it more. John Lott example, handguns and crime: possibility that citizen has concealed handgun deters criminals. Lo-Jack, device to help you find your car. Ayres and Lott disagree. Why do we accept some empirical work and not others? Ian says: Give me an example of an empirical study that forced you to change your view? Hard to think of a lot of them. Can you think of a sophisticated empirical study, two-stage least squares, instrumental variables, as opposed to facts? Not going to argue that facts, data, don't matter, but that sophisticated empirical analysis is not scientist, but scientism, faith-based economics. Leamer podcast. Any examples of consensus in the field of economics vs. a study that changed that consensus view? Abortion legalization reducing crime study did that somewhat; it's since been rejected. Friedman and Schwartz, A Monetary History of the United States, scholarship, people forced to confront it. Irony: not sophisticated statistical analysis; and it's in macro, the area where people have no consensus. In microeconomics, hard to find examples where studies changed people's minds. Minimum wage: dozens of studies show minimum wage hurts poor people and minorities. Recent years, study by David Card shows minimum wage increases employment. People who liked the minimum wage latched onto that study. But that's one study, vs. 40 or 80 to the contrary. Not good argument, that you have more studies. Maybe Card's study is really the right one. Or maybe all of the studies are flawed. Trying to tease out one policy out of many. Unemployment is low, so obviously minimum wages have an effect, vs. lots of policies at once. Why would you ever be confident enough that you could tease out one thing? Regression tries to hold one thing constant; surely can't control for everything.

14:30 Minimum wage: belief based on evidence or just the logic? Virtual couch sitting up. U. of Vermont, Bill McKibben debate on buying local. Mainly empirical arguments vs. logical arguments. Studies not peer-reviewed, not in journals, but often sophisticated. Argument is often: are you kidding? give me half an hour and I'll find an argument against that. Ironically find my own lousy study, or logic. In the eye of the listener, finding a study sounds better. Wal-mart wages study. Logic: wouldn't you think that Wal-mart it would increase the demand for labor and drive up wages? Study: Wal-mart lowered wages but not in small towns. Isn't that even harder to explain empirically? Neo-classical view of the world: supply and demand: in larger cities share would be relatively small, vs. I just looked at the data. Counter-argument: Are you kidding me? Do you really think you've been able to hold constant other things? Not compelling as a counter-argument.

19:32 Application: current financial mess and implications for the economy. Symposium at Cato, on Cato Unbound. Larry White: Don't want to use greed because it's always there. Explanation has to do with government's guarantee of Fannie and Freddie, pushing up the demand for housing, bad tax policy pushing up the demand for housing, lowering interest rates pushing up the demand for housing.... Housing bubble, securitization. Brad Delong critiqued Larry's explanation: The timing's been all wrong; just like greed's always been around, Fannie and Freddie have always been around, Community Reinvestment Act (CRA) has always been around, therefore those can't be the cause of the crisis. Ignores that Fannie and Freddie's mission did change around 1995 explicitly to lend more to poor people. Don't want to argue that just because they've existed longer that nothing changed. Magnitudes. At end of Delong's critique: So why does Larry White's diagnosis of what is going on differ so much from mine? I think that what is going on is a characteristic weakness of the Austrian tradition: the baseline assumption that all evils must have their origin in some form of government misregulation. If government could be drowned in the bathtub, then an Eden in which people indulged in their natural propensity to truck, barter, and exchange would emerge. And this automatically rules out what I regard as the most likely and fruitful road to walk down to understand this financial crisis: the road that starts from investigating how human psychological limits lead to bad private-sector contract design that then magnifies psychological biases. I am not happy with the state of such explanations--they seem to involve, at the moment, a great deal of handwaving. But in my judgment it is less handwaving than required to make the case that our current financial crisis is the result of our abandonment of a proper gold standard and our embrace of fractional-reserve banking and government-sponsored mortgage lending enterprises. Poor Larry White, hampered in understanding. Could make same critique of Delong; or Joseph Stiglitz, who in an article in Vanity Fair blames it on deregulation, Glass-Steagal Act, Bush tax cuts and failure by Greenspan to regulate. If we could just get the right regulation an Eden would emerge. So, is there any way to get to the truth about what happened in this financial mess? Both sides try to create an ex-post narrative to explain a single event. Not the best way to do science. Podcasts on the New Deal. Do we just need a really big stimulus package? Paul Krugman? What's the evidence? Very thin. Opposition not empirical but logical: spending on one thing will reduce spending on something else. Crucial policy issue: how much evidence either way, or do sides just talk at each other? Trust, optimism: economics doesn't have much to say about that. Maybe whole system is too complex to manage. Economics may be most useful about what not to do, providing a language for thinking about complex matters in an organized way. As a science, coming up short these days.

28:13 Robin Hanson, conversation. Therapist, role is to repeat. In the end, no question here. Sounds like you know the answer but are not very happy with it. Not just random opinions, but correlation here, my side and their side. Debate try to appeal to the data, but it's not very reliable on either side. Theory more powerful when you understand it but listeners don't understand it and other theories exist. What comes out depends on what goes in. Worse: confirms a view that is repugnant, public's view of economists, lay 'em end to end and they don't reach a conclusion. Grading final exams [taping Dec. 17, 2008]; get impression that experts know a lot more than amateurs; answers so confused. Do we as economists know things that non-economists don't? Can we identify some things we agree on? Think we have that. Students before taking class versus after taking the class. Well, you know, the whole economy is just a house of cards, just built on debt. Strange over-reaction to the current situation. Problem is imprudent debt, totally guaranteed debt. Late-night TV, no such thing as risk-free. Two things: 1. Things we understand aren't very useful, don't apply to very much. Like astronomy, pretty pictures but what are you going to do with it? Sometimes applications. 2. Economics has applications but we like to talk about the areas where we disagree. Not giving credit for that. Glass is half-empty but it looks half-full, 7/8 full. Be thankful that we know some things and get listened to, in paper and in government because we know some things, and good when we argue because it shows the border of what we know. People should just listen to us when we don't argue. 3. Third theory: We know a lot about a lot of things, but the process by which these opinions come to public attention is biased by the incentives of that process. Anti-trust trial, both sides could hire lawyers to give compelling arguments even when every economist would agree side A is right and side B is wrong. Expert testimony. Translation from what we know to what matters. Distorting incentives. When something is at stake, can buy opinion, donate money to universities or foundations, or just by staking out a position raise probability of getting a job somewhere in particular, etc. Intensity and animosity in the public form of these debates versus private conversations. People accept physicists except when it's about something the public cares about, like global warming. String theory, get full page coverage. Global warming: evidence, complexity, skepticism perhaps because of money at stake. Topics interesting and matter. If it matters, level of deference goes down unless we are saying what outsiders want to hear.

38:59 Continuing on third theory: maybe we could do better, prediction markets--Hanson's own bias! If you are part of this process, if you are one of these people, get money from foundations for points of view, then your perception that your conclusions are well-justified by your data; look at others as biased. If you think people all over academia are allowing themselves to be tempted, you have to ask yourself: Why do I think I'm different? Like to think we'd threaten our relationships with our colleagues or jobs. Niche market. Can't do it more than once. Unless I have some evidence to think I'm more honest, more likely to have rejected these temptations, I'm likely to be affected, too. We humans leak our insincerity. Most of us can't lie very well. If we are in an environment that rewards us for believing something, we have to say we are not as careful and honest as I would have liked. I'm human. Challenge podcast interviewees: Yeah, you are probably right. They back off. You are not going to defend it, versus other times, listeners get upset when interviewees are not hammered. Philosophical note: influenced in college by philosophy profession, Richard Smyth, pragmatism. Charles Peirce. Your grandmother is right: is it okay to do xyz, but why? no answer, it's just wrong; Belief in reason, Descartes. Examine all my beliefs. Benjamin Franklin: "When fortresses and virgins get to talking, the end is in sight." Will eventually come up with a reason ex post, but that reason is not so reliable despite the hubris. Pragmatists argue there is wisdom in the community, not mere superstitions. Hayekian.

48:12 Some truth to that; how much? Given some time, can come up with a reason. Academics should be focused on finding reasons for things. Any one person has the reasons in their head; how often should you be aware? Your mind is thinking stuff you are not aware of. If you try to make a computer do things, our mind is doing things we are not aware of. Amazing correlation. Also: other people have other reasoning, and we need to give credit. If I have reasonings in my head, I am not aware how I got from A to B; but also lots of considerations that I don't see. Lots, lots more. Reason to pause. There are clues you can get, but not as easy as you might think. If you in fact gave up something of great value to you because it didn't make sense, it's a red flag that you have some principles or would be honest against the type. Weak clues, don't add up to a lot, but can weigh on your side. Journal article example. If others have same reaction. Various signs of these sorts. Disagree with an influential colleague, etc.--weak signs, everybody wants to feel proud of themselves. Financial mess, idealogue; knowing nothing. Started looking into government's involved, shocked, Arnold Kling podcast; list, some important, some less so. CRA not likely source of the problem. Situation like this: Maybe 75% of each side is a reasonable person. Those people shut up, don't show up on panels, don't get invited to debates. Credit for modesty and inability to decide. Public debate misleading because they select for the confident people. Ideologues on one side or the other, something's going wrong or truth is illusive. Or move to middle position. Economists, thinking people: hard to consistently say "I don't know." Most people do say they don't know. It's the people who have intellect as part of their identity.

58:07 Poll: $100 billion stimulus package. People will state an opinion. Any time a pollster asks you for something, you put yourself into the position and answer. Three months later, correlation really low. Prediction markets. Individuals don't have sufficient incentives to be honest. Betting market. New York Times. Congressional compensation: give Congressman a financial stake. What happens to the President sticks to the Congressmen. Clinton rewarded or not for what he did in 1995? Hoover, free-market ideologue reputation, historical legacy; didn't do very well. Bush, non-free market stuff, nice argument for people who want to blame free markets. Why are they doing that? Shows up more in hearings and eventually influences public opinion. If public opinion were very discerning, not a problem. Customer isn't very discerning. Betting markets say: listen to a betting market price. Impulse: encourage people to be skeptical. Could just say no to everything, don't impress friends and relatives. As an ordinary voter, don't affect anything, but can look with-it. Leaves us with ourselves. How important is our own honesty to us? If others out there who care about honesty, where are they and how can we get together or work together? Which is the least Quixotic strategy? Self-referential. Prediction markets versus people becoming skeptical of empirical studies? By definition, all theories are simplistic. Where does it kick in? 1000 people, whole town? Changing hearts and minds is inherently Quixotic.