Sunday, May 15, 2011

Follow-up: Free Marketer Supports Consumer Financial Protection Bureau

Shortly after posting Free Marketer Supports Consumer Financial Protection Bureau  I came across this report of a new Supreme Court decision.  This case involved a class action against ATT regarding their practice of charging customers taxes on cell phones that were advertised as being free.  In this case the conservative majority of the court ruled that a class action suit could not be pursued because ATT’s agreement with the customers specified that the customers had to utilize arbitration individually to pursue their claims.  Judge Breyer observed in his dissent, "What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim? . . . ‘The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.’"  

Now that the Supreme Court has barred even class action suits, individuals who lose relatively small amounts of money have no recourse against corporations who write impenetrable agreements that are designed to prevent consumers from recouping their losses.  There is a need for government to intervene on behalf of consumers by law or regulation to make sure that consumers at least understand the risks and have a reasonable opportunity for redress.  

It is a market failure when the costs of understanding a contract and seeking redress for breach are vastly larger than the amounts at issue, so that consumers have no reasonable action to take.  In such cases it is reasonable for the government to represent the consumers as a group ensuring that the agreement terms be clear and that there is an opportunity to pursue reasonable redress if the agreement is breached (for example, by means of a class action suit).

Incendies - Movie Review

Today I digress from the usual themes of my blog, to discuss a movie.

My wife and I just saw the Canadian film Incendies directed by Denis Villeneuve and based on a play by Wajdi Mouawad.  This movie portrays the journey by Jeanne and Simon Marwan to discover the traumatic life-history of their recently deceased mother, Nawal Marwan.  After immigrating from an Arab country, Nawal had worked in Montreal for many years as a secretary for a notary, Lebel, and uneventfully raised her twin children.  At the reading of Nawal’s will, the notary hands two envelopes to the two children.  Their mother, through the will, instructs her children to deliver one envelope to their father whom they thought was deceased and the second envelope to a brother whom they did not know existed.  Jeanne travels to the country of her mother’s birth (a thinly disguised Lebanon) to fulfill her mother’s wishes.  Soon after, her brother Simon - reluctantly - joins her at the insistence of Lebel who comes along as well.

Through a series of flashbacks Nawal’s history is disclosed.  Nawal was born into a Christian family, but as a young woman fell in love with a Muslim.  Through Nawal’s eyes we observe brutal Christian-Muslim warfare with reprisal mass killings on both sides. We also observe the recruitment of child soldiers to participate in the violence.  The story has many twists and turns, and it would not be fair to divulge the resolution of the mystery which Jeanne and Simon ultimately untangle.

One of the most sympathetic characters in the movie is Lebel who takes on the role of father figure to Jeanne and Simon – he helps orchestrate the self-discovery journey of the children.

One theme of the film is how environment and culture shape us.  Nawal and her two children lived uneventful lives in Montreal; her children regarded their mother just as a bit strange and difficult. Nawal’s prior life and behavior were unimaginable in the context of city life in Montreal – and indeed until she died her children knew nothing of her past. Nawal was shaped by her past, but her children were shaped by Montreal.

While revelations in the movie are truly shocking, the message of the movie is perhaps hopeful.  Individuals are not born good or evil, but family and the surrounding culture can lead them to commit horrors on the one hand or, on the other hand, can lead them to be productive members of civil society. Personal redemption (in the non-religious sense) may be possible. Even under the worst of circumstances, some individuals can stand up against the evil that surrounds them.

If you have a stomach for the violence, the movie is worth seeing.

Monday, May 9, 2011

Free Marketer Supports Consumer Financial Protection Bureau

The Senate Republicans have pledged to block the appointment of a director for the Consumer Financial Protection Bureau (CFPB).  They claim that they have objections to the structure of the agency.  Others claim that the Republicans are just trying to scuttle an agency whose formation they could not block last year.

I would like to make the point here that those who support free markets should support the existence of a consumer protection agency.  In a free market a producer sells his/her product to a customer in a mutually voluntary transaction.  Each party acts in his/her own best interest.  The net result is that this process leads to a rational allocation of resources by each party individually and by the society collectively.

In order for this process to work effectively both parties must understand the transaction that they are entering into.  There are many transactions however where this is not possible.  While the CFPB’s role is limited to protecting consumers in their dealing with financial companies, let us consider an example of a familiar non-financial company transaction.  Apple compels the many millions of individuals who wish to use itunes to digitally sign a 30 to 40 page single-spaced legal agreement. Few read, or could understand, this agreement that one may surmise that Apple had a staff of expensive lawyers draft.  It is not feasible, nor would it be efficient, for each individual to hire an attorney to review this and similar agreements that one must sign for a variety of online services, financial services, etc.  For all one knows, in the middle of such an agreement the vendor might state that the vendor assumes title to the customer’s house.

The lengthy obtuse legal agreements involved in such transactions lead to a type of market failure.  It is not logistically nor financially feasible to have such agreements reviewed by an attorney representing the consumer each time a consumer becomes involved in a transaction involving such an agreement.

Even the preeminent free market advocate, Milton Friedman, believed that “market failure” is a basis for government intervention.  A government agency steps in as the consumers’ representative, not to set the terms of the transaction, but to make sure that the terms and risks are made clear to the consumer.  For example, an individual taking on a mortgage should clearly understand the repayment terms, the interest rate being paid, the risk that he/she might not be able to make the payments and the consequences thereof. Similarly, the terms and risks of credit cards should be stated in clear terms that the consumer can understand. The terms and risks should be stated in a uniform way so that consumers can comparison shop.  Financial companies should make their profits by providing financial services, not by deceiving their customers regarding the terms of the transactions.  The financial collapse that started in 2008 was in part attributable to hard-driving mortgage brokers convincing customers to take on terms and risks that they did not understand.

Elizabeth Warren is an articulate advocate for the CFPB.  From what I know of her, I think that she would be an outstanding director.

Of course, any government agency can be mismanaged and one can certainly argue about the best structure for such an organization.  Also, such an agency should continually prospectively test the rules and regulations that it implements in terms of their desired and undesired outcomes.

However, the need for the government to play a role in consumer protection should be clear even to the most devoted advocates of free markets – like me.

Thursday, May 5, 2011

Republicans are the Party of Big Intrusive Government

I have criticized the Obama administration several times in previous posts for the manner in which major government initiatives were planned and executed and for issues related to the Bradley Manning affair.  I now would like to turn my attention to the Republicans.

By way of disclosure, I am not a member of any political party – I am enrolled as an independent.  In my view, both US major parties tend to approach issues more on the basis of doctrine and politics than on the basis of evidence and hypothesis testing.

In terms of the role of government in society, I believe that government interventions should be made cautiously.  I think that individuals should be accorded the maximum freedom to pursue their goals to the extent that their activities do not impinge upon the freedom of others.  Markets are an extension of individual freedom allowing mutually-agreed-to, voluntary, exchanges between parties. Furthermore, numerous experiments of history have shown that centrally planned economies have performed poorly, and that when countries convert from centrally planned economic systems to free market systems their economies start to flourish.

At the same time there is clearly a role for government. 

There are functions that are the government’s natural responsibility: protection of individual rights, national defense, law enforcement, courts, etc.

The government may also need to intervene in situations where there is, in the words of Milton Friedman, “market failure.”  Milton Friedman (perhaps the most articulate advocate of free markets) discussed, for example, why a free market approach would fail with regard to the private ownership of roads. In principle, one could have privately built and owned roads – but then one might have to pay a toll every block and there would be many geographically imposed monopolies. 

Finally, we as a society have decided that it is appropriate for the government to intervene to provide a social safety net to those in need.  A completely free market system would mandate no government intervention to prevent starvation, to treat the impoverished sick, and to provide shelter for the homeless.  Milton Friedman believed that private charities could largely provide these services.  However, historically as a society we have decided that private charity is not sufficiently reliable and that the government should ensure the presence of a social safety net.  This decision is a reflection of our ability to empathize with other human beings less fortunate than ourselves.

My approach to government intervention is cautious.  Government should spend resources only when it is confident that those resources are better spent by government than by the taxpayers themselves.  The government should limit its overall expenditure level.  The government should intervene only when a critical analysis of the evidence indicates a clear need for government intervention.  Whenever feasible, one or more hypotheses should then be developed regarding what the proposed intervention should be.   Then these hypotheses should be tested on a small scale to determine whether or not they are in fact beneficial before being implemented on a wide scale (see for example my post on health care).

Republicans claim that they support many of these same ideas.  In particular, Republicans claim that they want the government to intervene to the minimum extent possible in citizens’ lives.  In practice however their actions are often quite the opposite.

The Republicans currently have a preoccupation with the “social issues.” Some of the most prominent “social issues” involve denying rights to gay people, preventing women from having abortions, and inserting religion into government.

One would think that “small” government would mean taking the view that the government should let individuals have the freedom to make their own decisions except when those decisions directly infringe on the freedoms of others.  In virtually all circumstances, the government would defer to individuals the power to make decisions about their own lives.

Perhaps the most prominent current civil rights issue is the right of gays to marry and receive the benefits associated with marriage - now that the “Don’t Ask Don’t Tell” law regarding military service by gays is fortunately in the process of being reversed.  Marriage rights are extremely substantial including tax, pension, health insurance, visitation, and inheritance rights to name just a few.  Republicans have promoted constitutional amendments and legislation in many states to ban gay marriage and, on a national level, oppose repealing the federal Defense of Marriage Act (DOMA).  DOMA prevents the federal government from conferring federal benefits on same-sex spouses who are legally married in a state that recognizes same-sex marriage.  DOMA also directs other states that they need not recognize the marriage. 

Why should it be any of the government’s business what an individual’s sexual orientation is?  If two people want to join in marriage and start a family – why should the government arrogate to itself the right to check applicants' gender before issuing a government license? The claim that same-sex marriage diminishes opposite-sex marriage is patently absurd.   The claim that the government should ban same-sex marriage because it has an interest in promoting procreation is also absurd – do we ban the marriage of old people, or of people who are infertile for other reasons, or of people who do not intend to have biological children?  All of these claims (as so elegantly argued by the noted conservative lawyer Ted Olson and noted liberal lawyer David Boies in the federal courts in the California Proposition 8 case) are just a subterfuge for an intent to discriminate against gay people and their ability to lead their own independent lives. 

Gay rights is the civil rights issue of our day. I am confident that in a few decades people in the US will look back and consider discrimination against gays to be in precisely the same category as the discrimination against African Americans or any other ethnic group and in precisely the same category as discrimination against women.  Banning same-sex marriage will be considered to be in exactly the same category as banning marriage between whites and African Americans (the infamous anti-miscegenation laws).

Similarly, the Republicans in states and in the Congress are doing whatever they can to prevent women from having abortions which the US Supreme Court has determined that they are legally entitled to. 

With regard to abortion there are two issues that ought be discussed. 

First, does a fetus at some point during gestation acquire some degree of legally protected independent rights? In this regard, does an embryo immediately after conception acquire full rights as a human being? Is a newly conceived embryo consisting of a clump of cells with no developed nervous system and no consciousness  to be considered a person will full civil rights?  What about an embryo at the exact same level of development which was created for purposes of in vitro fertilization and is now sitting frozen in a freezer and is no longer needed for that purpose?  Should disposing of such a frozen embryo be considered murder?  Does that frozen embryo have a civil right to be implanted in a uterus and be born?  Should we conscript women (whether a woman is the biological mother of a given frozen embryo or not) and force them to be impregnated with each of the existing frozen embryos (which now may exceed one million in number) currently sitting in freezers?    

As the above rhetorical questions indicate, I think it is difficult to argue that immediately upon conception an embryo should take on rights of personhood – as the proponents of the mantra “life starts at conception” loudly proclaim.  On the other hand, once a fetus is fully viable and able to live on its own outside of the mother’s body, a concept of personhood would seem appropriate.  It would seem reasonable that if a viable fetus were to be removed from the mother that, whenever possible, it should be removed in a fashion that would enable it to survive.

Second, should the government be able to deny the right of an adult woman to control her own body even if at some point during gestation the fetus were considered to have some independent rights?  Ability to control the use of one’s own body is perhaps the most fundamental of rights.   Along these same lines, should the government mandate that a living individual be compelled to donate his/her body parts (cells, tissue, organs) to a second individual, even if there were no significant risk to the donor and the recipient would die without the donation? We currently don’t require, even after death, that an individual’s body parts must be donated.   I would suggest that one who supports the banning of abortion, to be consistent, should also support compulsory donation of body parts.  Furthermore, to be consistent, those who support the banning of abortion should also support universal health care legislation (I do support such legislation but most Republicans do not).  If one would compel a woman against her will to carry a pregnancy in order to make sure each fetus gets to be born, it would seem that one would certainly be willing to compel taxpayers to give up merely dollars to protect the lives of all human beings after they have already been born.

For the time being, the US Supreme Court has established a woman’s right to abortion until the fetus becomes independently viable. The Republicans are attempting in many ways to circumvent the Supreme Court ruling in order to deny women the right to abortion.  These attempts involve passing state laws that set up hurdles to make it difficult or impossible for women to obtain abortions, harassing physicians and clinics who perform abortions, and denying any government funding, not only for abortions, but for any organization which provides abortion services as part of a much larger set of health services (e.g. Planned Parenthood).

The Republican behavior in these two areas represents, on the part of many party members, an attempt to impose specific religious views about homosexuality and abortion on the entire citizenry.  Individuals have the right to hold whatever beliefs (religious or otherwise) they wish, but not the right to impose those views on the rest of the public.  The writers of the First Amendment to the US Constitution wisely required that, "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof…”

Apparently, the Republican concept of “small” government involves inserting itself into the most private aspects of the lives of its citizens.

Tuesday, May 3, 2011

About Richard J. Cohen

Richard J. Cohen is the Whitaker Professor in Biomedical Engineering at the Massachusetts Institute of Technology (MIT) in the Institute of Medical Engineering and Science and in the Harvard-MIT Division of Health Sciences and Technology.  Dr. Cohen obtained his AB degree in Chemistry and Physics at Harvard College in 1971.  He obtained an MD degree from Harvard Medical School in 1971 and a PhD degree in Physics at MIT also in 1971.  He pursued clinical training in Internal Medicine and Cardiology at what is now the Brigham and Women's Hospital in Boston.  He has been on the faculty at MIT since 1979 where he has conducted research on the applications of physics, engineering and mathematics to problems in medicine - particularly in the cardiovascular area.  His teaching activities have covered a wide range of topics including quantitative physiology, cell and tissue biophysics, cardiovascular pathophysiology, pharmacology and biomedical enterprise.

Monday, May 2, 2011

More About this Blog

My goal in writing this blog is to promote the questioning of existing beliefs and to promote prospective testing of hypotheses as a means of discovering the world around us and making decisions.  I contend that this is an approach which has great value not only for science but for most all aspects of human activity including social, political and behavior issues.

Hypothesis testing involves the process of hypothesis formation, designing an experiment to test the hypothesis, conducting the experiment and evaluating the results. 

Hypothesis formation involves reviewing existing data and theories and then formulating a hypothesis.  There are many types of hypotheses.  One hypothesis could be a proposed mathematical formula for the prediction of the behavior of elementary particles.  Another hypothesis might be a prediction regarding the impact of a change in scheduling of work shifts in a factory. Another hypothesis might be a prediction regarding the impact of a change in health care policy.

A valid hypothesis must be falsifiable. That is, it must be possible to design an experiment which, in principle, could have an outcome which disproves the hypothesis.   The actual outcome of an experiment will, of course, depend on the validity of the hypothesis.

Designing an experiment to test the hypothesis in essence involves planning a study which tests the predictive ability of the hypothesis under a specified set of conditions.  All the details of the experiment need to be specified in advance including how the data generated by the experiment will be analyzed.  This makes the experiment truly prospective in nature and not dependent on retrospective analysis of data.  An experiment generally cannot prove a hypothesis to be true because most experiments test the hypothesis under only one specific set of circumstances where the hypothesis applies.  It is always possible that when the hypothesis is applied to a different set of circumstances that the hypothesis might fail.  So, experiments generally can potentially disprove hypotheses but not prove them to be always true.

The experiment must then be conducted fully according to the predetermined plan and the data analyzed also according to the prescribed plan. 

In this blog I will attempt to address all aspects of this approach.  The first step is a critical analysis of current beliefs and behaviors to see if they are consistent with existing data.  Critical thinking is the first step in hypothesis formation.  It is not always possible to prospectively test our hypotheses, but we should attempt to do so when feasible, especially if the potential impact of an action based on a hypothesis is likely to be large.  We should attempt to determine if there are practical ways too conduct experiments in order to test a hypothesis.

I hope this blog will be engaging.  I plan to comment on public affairs, hopefully from an evidentiary and not doctrinal perspective.  Where possible I will try to cite experiments that have been conducted to test beliefs and hypotheses.  In other case, much of what I say will likely be opinion directed towards hypothesis formation based on what will hopefully be a critical analysis of existing facts.  I will try to bring in science whenever appropriate and to propose ways to test hypotheses when feasible. 

Finally, this is a blog and not a research paper.  I look forward to readers commenting to bring to light relevant facts and to share their analyses.  I hope my views will be challenged and I expect that they will evolve as a consequence of the dialogue.  John Maynard Keynes when he was challenged for having changed his view on an economic matter, replied “When the facts change, I change my mind. What do you do, sir?”  I hope that will be the case here for all of us.

See also About this Blog.

About this Blog

Instead of giving this blog the title: Evidence Trumps Common Sense, the title of this blog might more properly have been:

"Prospectively obtained evidence, obtained in the context of an experiment to test a hypothesis, is more reliable than common sense as a basis to judge the validity of that hypothesis."

But that title would have been a bit too long and perhaps still not clear.

So, let me explain.  Human beings make decisions continually.  What to prepare for breakfast, how to walk across the room to avoid obstacles, when to step on the brake to stop at a red light, which Presidential candidate to vote for, etc.  Our brains evolved to equip us to make these decisions.  Our brain circuitry incorporates a basic structure dictated by our genes but also incorporates a massive amount of information generated from our entire life experience of interacting with the external world.  Using these resources one’s brain constructs an internal model of the external world.  Each of us utilizes this internal model as a guide in making decisions and anticipating what the consequences of our individual actions might be.  For example, one might anticipate that if one went up to a big strong fellow, whom one didn’t know, and threw a pie in his face – the consequences might not be pleasant. As a consequence, one would likely make a decision not to take that action, even if one had a perverse inclination to do so.  One similarly might decide not to swim in an alligator infested swamp.

Common sense is the judgment one’s brain makes about a certain situation based on applying the brain’s internal model of the outside world to that particular situation.  Our common sense is often expressed as a set of beliefs, as judgment, as experience, or as philosophy.  We couldn’t function on a day to day basis without common sense.  However, common sense is not infallible.  One’s range of experience may not encompass every new situation, and even if one has appropriate experiential data, one may not have interpreted that data correctly.

Here are a few examples where common sense has failed:
  • As mentioned in an earlier post, our common sense dictates to us that time is immutable  - a clock placed on a ship or an airplane should run at the same pace as an identical stationary clock.  Yet Einstein’s theory of relativity violates common sense in demonstrating that clocks advance at different rates when they are moving with respect to each other.   The difference in rate is only appreciable when the relative motion of the clocks occurs at a speed close to the speed of light.  As a result, an astronaut sent out on a journey on a spacecraft that can accelerate up to a speed close to the speed of light might return home one year older than when she left.  However, the earth she returns to could be 100 years older and, under such circumstances, her entire generation would have died out.
  • We observe that all functioning complicated machines have been carefully designed by intelligent engineers.  Thus our common sense dictates that living things, which are fantastically complicated machines, must have been similarly designed.  However, Darwin’s theory of evolution demonstrates that, in fact, living things were not designed, but evolved through a process of random variation and natural selection occurring over billions of years.
  • We observe that alcohol abuse is the cause of much illness, death and social dysfunction.  Our collective common sense thus dictated at one point in US history that alcohol should be prohibited.  However, prohibition in practice fostered widespread crime and corruption and failed to eliminate alcohol consumption and, as a result, was ultimately repealed.
Does this mean that common sense is usually wrong?  No, in fact in most instances it is probably correct.  However, our experience is too circumscribed, our powers of analysis too limited, and the world is too complex for us to rely on common sense in all circumstances.  We should realize that common sense is just one basis for coming up with a hypothesis for what the outcome of a specific action might be.  Whenever feasible this hypothesis should be tested with new data generated in an experimental test of that hypothesis. This is particularly so if the impact of the contemplated action is likely to be large.

In this regard, not all evidence is equal.  We look back in time at existing evidence to generate a hypothesis (in many instances existing evidence gets incorporated into our common sense).  A pattern we discern in the existing data goes into our hypothesis.  However, retrospectively detected patterns are not proof – random variability generates things that look like patterns but in fact are just the result of randomness. A hypothesis can only be properly tested with, new prospectively obtained, data generated specifically to test that hypothesis.

It is not feasible to conduct an experiment to test every hypothesis.  However, particularly when making really important decisions or setting major policies we should attempt to do so.  Examples include government decisions about health care, public health, national security, energy policy, financial regulation, drug policy, crime prevention, etc.   Policy decisions should be driven by evidence, hypothesis testing, science and not just politics and political doctrine.  At the very least we should realize that because our common sense dictates a certain belief, that does not make that belief true.  We should be open to examining and testing all of our beliefs.

See also More About this Blog.