Dr Paul Frijters - Socio Economic Mysteries - Economics Program - RSSS

Socio-Economic Puzzles

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Here are some of the puzzles that keep me interested in social science and for which I'm not aware that anyone has either addressed them or solved them satisfactorily. Probably someone has, but for those oblivious to the answer, the attractiveness of the puzzles remains. As always with such puzzles, it is perfectly arguable that they do not exist in reality but are due to my misinterpretation of events. Tentative answers are given to speculative questions. What follows below is hence speculation of the worst kind. View them as intellectual pingpong. If anyone has any nice arguments on any of these puzzles, I'll put them on the page (contact by email ) .

1. Why does the messenger of bad news get punished?
    In most organisations I know of and from historical records of grave punishments that befell the messengers of bad news, it seems very probable that a messenger of bad news indeed often gets punished. Taking this as a fact, the question arises why? One possibility is that the punishment serves as a signal of the irrationality of the decision maker. Being irrational (such as having outbursts of temper at hearing bad news or refusing "unfair" situations) can improve pay-offs in bargaining situations in which take-it-or-leave-it offers arrive. Irrational individuals get better offers because the person making the offer anticipates being rejected if he does not offer enough, even if a small offer is in a strict sense better than no offer for the decision maker. A second possible explanation is that the decision maker has imprecise information about the causes of the bad news and that his optimal response is to punish anyone associated with the bad news. This is then a signal to anyone associated who is capable of influencing events that they should make sure no bad news arrives by having no bad news to report. Obviously one can think of several ways to model this, but some informational imperfection between who is actually to blame for bad news coupled with the need for reputation on the side of the decision maker seems plausible.
Dennis Botman (UvA) pointed out that there is a paper from 1998 on this issue which argues in the vein of imprecise information: Tinbergen Institute Discussion Paper 98-061/2, Arnoud W.A. Boot, Todd T. Milbourn, Anjan V. Thakor, Killing the Bearer of Ill Tidings. Bas Jacobs (UvA) concurs with the imperfect information view and mentions that this practice seems to be very prevalent in politics.
A model in which individuals guard their reputation for being irrational has not yet been located.

2. Why do hunter gatherer groups make such bad slaves?
Although difficult to prove, it seems that both the North-American indians, the aborigines and the bush men of South Africans (all hunter-gatherers) made extraordinary bad slaves, even though some agricultural groups living in the same regions did manage to adapt to the slave system. Often this meant these hunter gatherer groups were virtually wiped out as they could serve no purpose for the invaders. Taking this as a fact, why can't the individuals in these groups perform as slaves, even when their lives depended upon it? For my best guess approach, see project x .

3. Why do there seem to be so few military coups in the history of some countries (Scandinavia, Germany, Benelux, France, Austria, Russia, India, the US, early Rome) and so many in other countries (Latin-America, Pakistan, late Rome, etc.)
    Why in some countries the military always seem under political control (whilst in terms of firepower they could immediately crush all opposition) and in others the military can organise a coup at will, is puzzling. Given that the US army could easily crush all opposition and give its leaders immense wealth and power, it seems a puzzle why they haven't even attempted a coup yet (at least not one that succeeded in becoming widely known). It must have something to do with the ability of groups of officers to organise themselves within the army. It can't be institutional because often armies that arranged coups and their states were themselves formed in the spitting image of armies and states of countries where coups do not take place (i.e., the States or the armies of foreign colonisers). The armies of India and Pakistan for instance were I believe moulded similarly, but whereas one country has gone on from coup to coup, the other has not depsite the fact that both did not do very well economically since their seperation in 1948. Some Latin-American countries had both consitutions and armies formed in the spitting immage of the US (I believe Colombia is a good example), yet experienced one coup after the other. Harsh economic conditions seem an obvious explanation but doesn't really seem enough because many of the mentioned stable countries have had terrible periods of economic downturns yet had no coups. It also can't really be associated with inequality of earnings, because the US or India with its immensely unequal income distribution would then have had to have a coup a year. It can't also be just the existence of a large middle class, because some mentioned stable countries didn't have a large middle class for the greater part of their history (I believe that in Russia a middle class is something only quite recent. If I'm not mistaken, Spain had a large middle class before the military coup of the 1930's that resisted the coup but failed. For discussions about Russia, see Wittfogel's account of hydraulic societies (1963)). Hence the existence of a civil society may help, but cannot suffice as an explanation. Perhaps a combination?
Other guess: could it have to do with the existence of an idealistic group spread out over all organisations (whose members are not a priori recognisable and hence isolatable), who will blow the whistle on planned coups even if that would cost them their own lives? Then coalition-formation within subgroups (such as the army) that are large enough to substantially challenge current ideals of democracy and the like is made much more difficult. But where does this group of idealistic true believers that is present in all organisations come from? See ahead for more speculation on the issue of idealism.

4. Why is there so much displayed pornography in the lower levels of male dominated organisations and is all the pornography hidden or even outlawed at the highest levels of organisations?
    In transport companies, farm floors, building sites and other male dominated low-level professions there is a great amount of displayed female nudity on walls and vehicles. Yet in management offices and generally at the top of hierarchical organisations, which are at least equally male dominated, I've never seen pornography openly displayed. Some may have had some in their desks or on the pc but never out in the open. Given that in the animal world it seems that the dominant individuals get more sex and more overtly display this than the others this is puzzling: why do the dominant males in human hierarchical organisation have to be more cautious about sexual displays than the less dominant males (notice that this says nothing about who actually has more sex). Again, for my best guess approach, see project x.
Bas Jacobs (University of Amsterdam) argues that individuals who are more in control of their urges are more productive. The fact that managers and other individuals in the top of organisations then do not display pornography is then a signalling device for their higher productivity. What is crucial is that performance is hard to measure at that level of organisations. Where performance is easier to measure (at the bottom and in many male-dominated low paid professions), such a signalling serves no further purpose and hence pornography gets displayed there.

5. Where does the negative attitude towards some pleasurable drugs come from?
    This is a great mystery, especially for the US situation: in terms of health dangers most drugs-takers run less risk of getting killed than those driving a car or those taking up dangerous sports. In terms of disruption to society the immense amount of money earned with drugs trafficking would seem to corrupt many societies (e.g. Columbia or the Surinam and even the US) and would seem a far worse problem. Outlawing drugs in this respect has proven to be very bad for many societies. It is even very questionable whether legalising drugs altogether (with some regulations for advertising and the like) would lead to more drug abuse: most people abusing drugs are people with a history of tremendous social and personal problems (low chances of jobs, desperate childhood experiences, etc.) and it seems quite likely that most of these would end up at the bottom of the societal scale, whatever their intake of substances. The fact that these people move from one drug to another, which is often used as an argument for the idea that the use of one type of drug leads to the use of another, hence says nothing about the causes of drug abuse. Dutch research for instance shows that despite a great reduction in the price of cannabis since the 70s intake has not increased consumption, neither do the Dutch have a greater than average problem with drug abuse (junkies). Given the increasing trade flows, effective control on flows of drugs is failing anyway and seems a hopeless task. Add to this the fact that US citizens seem to pride themselves on urging others to take responsibility of their own lives, it is immensely puzzling why they should want to interfere with the consumption of those who want to take drugs. Indeed, other addictive activities, such as drinking, seeking power, sex, and chocolate eating (which, believe it or not, is also addictive) are not outlawed at all but seen as natural. The actual reasons for outlawing some drugs can hence have nothing to do with either the health of the users or the health of the nation as a whole. Perhaps the underlying reason that some drug use is so much frowned upon is that many have an emotional reaction to seeing others "cop out" of society by using drugs instead of competing for jobs and partners which the rest is addicted to. If this would be the case, drug use associated with lessened work commitment would have to be most frowned upon, which seems reasonably apt though not entirely (arguments supporting this statement: the legal substance of cafeine (in coffee) does not impede work as it makes you more alert and work-prone, whereas the illegal substances cannabis, opium, nicotine and relaxing drugs in general do seem to go against a work ethos. On the other hand this reasoning should imply that something like speed or XTC which makes you more alert should be legal substances, which they are not. Speed is quite unhealthy though, but the health risks of XTC are reportedly minimal). The negative attitude against drugs and especially its intensity is hence still a mystery.

6. Why does idealism seem mostly concentrated amongst the middle class, with the upper class being without morals and the bottom class either blind followers of rules or crooks?
    Again though hard empirical evidence for this "observation" is scant, as far as I can make out it is taken as the truth in most of political science. Most revolutionary leaders were middle class. Why they? One purely speculative possibility could occur if you assume that individuals need to feel superior to others. The upper class can feel superior because they hold more possessions and can take that as a reference point for feeling superior. Hence they needn't be idealistic to feel superior. The middle class is inferior in terms of possessions and has to find another yardstick to feel superior by. They can then try to feel superior by being more virtuous than the upper class and not doing too badly materially. They can then refer to their superior morals for their feeling of superiority. The bottom class, having given up hope of feeling superior because they are materially too far behind the upper class to be able to compensate with morals, does its best to get by, either by following the dominant set of rules laid down by the then powerful blindly (most coppers are lower class) or by ignoring them altogether (most criminals are lower class). The weak link in this story is the behaviour of the bottom class. Perhaps an intervening relative issue here is whether an individual uses a critical mind in his daily activities. For the lower class, most professions do not require any critical thinking and the two approaches (full subordination to domination or total indifference) seem optimal. For the middle classes, perhaps there are more professions where critical thinking is needed, which coupled with the dominance drive may lead to idealism. This could be empirically examined by looking at the professions of revolutionary leaders (or the professions they came into frequent contact with, such as the profession practiced in their family). Some subjective scoring of the extent to which critical thinking is necessary in different professions would have to underpin such an endeauvour however. In current surveys one could however directly couple scores on idealism questions with scores on self-reported levels of criticality needed in the job of the respondent.

7. Why does economic development in Africa seem to be such a dismal failure everywhere, whereas in Asia many countries have managed to get onto a path of sustainable development.
    This is one of the biggest economic questions, if not the greatest, of our time. At the start of the 1950's many african countries had higher GDP's per person than most of Latin America or Azia, had more natural resources, less internal unrest and had been occupied for much shorter periods by colonists (Ethiopia for instance had only been conquered by the Italians at the outbreak of WW2, whereas India had been occupied for over a century by the English). The almost universal lack of development in Africa is a big conundrum on which libraries have been written. I have no plausible answer, just a big question mark. Some blame the west or some other outside influence (such as the cold war, big business, agricultural lobbies), but given the great diversity in situations, affiliations, history and starting positions of the African countries, it is always possible to come up with one or more countries which do not fit the proposed "external" explanation. Internal factors, such as ethnic unrest and rampant corruption also fail as sufficient explanations: Japan has notoriously in-bred politicians yet thrived nevertheless. Thailand, India and Birma are as much an ethnic melee as any African country with its artificial boundaries. Some African countries were not artificially formed and had cultures far older than almost anywhere else. Egypt for instance had no artificial borders. As to corruption, there is always the cause-result problem: if you see corruption as just one way for an individual of obtaining money the reason for rampant corruption in many underdeveloped countries may be due to the lack of development. Then the question is why there weren't equally good opportunities in business to become rich.
The most interesting and also dangerous possibility seems the cultural explanation. There seems to be a lot of evidence suggesting that different ethnic groups fare completely differently as immigrant in both the US or the EU, even given a certain level of ex ante wealth or position. This is perhaps the strongest indication that something cultural (learned human characteristics transmitted by lineage) is involved in development. The cultural explanation is dangerous because wrong stories loom everywhere. As an example of how easily we can misjudge culture is illustrated by the Chinese: Weber (in his book "...the spirit of protestantism") argued that the Chinese culture of confucianism with its insistence on obedience and lack of independent thinking was very bad for development. Nowadays the same Confucianist culture, with its emphasis on savings and hard work, is seen by many as a positive influence. "Cultural" explanations and crap are hard to distinguish therefore. As cultures in Africa are also very divers, what we need are sound measures of culture which can be systematically compared. Hofstede (1980) reviewed the many tries before him and convincingly argued they were no good. His own attempt involved such dimensions as "masculinity" "power distance", etc.. These are really too vague to be of much use. Besides that, his empirical methods were inadequate (he basically labeled a set of answers to vague questions in an appealing way and could only focus on different reports of individuals in offices of one multinational in different countries. Hence he interviewed only those people in underdeveloped countries who did manage to fit into a complex organisation. This almost makes it impossible by design to find anything worthwhile).
A recent cultural explanation, made popular though not originally conceived by Fukuyama (1995), is "trust". In regions with low trust levels, business is hard because one need costly pre-commitment devices to trade and no-one has an incentive to become more trusting because the chance of having one's trust betrayed is very high and detection probabilities for being untrustworthy are very low. In regions with high-trust, business is easier (less transaction costs associated with pre-commitment devices) and no-one has an incentive to become less trusting as the few untrustworthy individuals have a high detection chance. Though appealing intuitively and supported by cross-sectional evidence from the World Value Survey (about 50000 respondents in 45 different countries in 1980 and 1990) this is not a very convincing explanation however because there is no reason why recent immigrants moving from a supposedly low trust region in Africa to a high trust region like the US could not immediately switch to a different level of trust once they have been in a different trust environment for a couple of years. Also, there is again a cause-result problem (do people resort to becoming untrustworthy if other options of obtaining money are depleted? + trust is not static but changing over periods). Again, for my best guess approach, see project x .

8. What are the long-term consequences of the proliferation of weapons of mass destruction?
We are now and then told by arms experts that it is increasingly easy to build devestating weapons. What are the long-term consequences for our survival and economic activity if it is indeed the case that small groups could wreak immense havoc on anyne else (let's say, when 20 determined men could cause millions of deaths). See the attached word document , where I argue that the most likely scenario is that those with the power to do so will eventually eradicate all others perceived as potential threats when a really devestating threat materialises. I argue that the best approach the current stable nation states could take is probably to embark upon a second pacification wave. In any case, the complete dismantling of the notion of privacy seems likely. Ian McDonald of the University of Melbourne has kindly formalised many of these arguments in the attached document and has added to them the idea that small groups are more prone to allowing psychopaths to rise to the top than others, because small groups may have less checks and balances, less developed procedures for organising political activity, and, perhaps most important, less intelligent leaders. Thus the ability of small groups to get control of nuclear weapons increases the likelihood of catastrophe.

9. What makes its so difficult to overcome the political power of small interest groups, even if this power is at the expense of large fractions of the population?
In the Netherlands, as in many other countries, tremendous inefficiencies arise because of the vested interests of small groups. The best-known example of this is the agricultural lobby in Europe and the US, who represent no more than 5% of the population, yet via their combined market distorting efforts deprive large slices of the rest of the world's population from a fair income. Even domestically, the costs of maintaining agricultural subsidies means a disproportionate subsidy towards a small group. Other examples abound. It has for instance proven politically infeasible in the Netherlands to challenge laws allowing 15% of the working population to enjoy 70% of their last income indefinitely as 'disabled'. In reality, this benefit is abused by employerss and union to get rid of 'difficult' or unproductive individuals. A similar problem is created by the rule that many pensions (including for civil servants) are based on the incomes earned at the end of working lives. This creates a tremendous incentive for people to stop working just after the peak of their productive life because otherwise they will see their pensions fall to such a degree that total future earnings is simply higher when stopping work earlier. For such reasons, work participation between the age 55-65 is the lowest in the Netherlands of anywhere in the OECD (about 20%).
It has also proven politically infeasible to challange the effective cartel of the medical specialists who themselves are allowed to determine how many new competitors they will educate. The predictable shortage of medical specialists leads to ever increasing prices for their services, political lobbying by specialists to keep out foreign trained competitors, power imbalances in hospitals, all with tremendous inefficiencies as a result. Similar problems hold for the cartel by actuaries, notaries, and accountants. Many other such examples of inefficincy creating vested interests abound in the Netherlands, as in any other country.
The interesting aspect of these problems is that these are widely known by top civil servants and intellectuals. Indeed, many economists warned of these problems at the time these laws were introduced. Debates within political parties often rage about this. It is hence not a lack of knowledge of the inefficiencies of these laws that keeps them where they are. The inefficiencies are also so large that they cause serious problems for all other functions of the state. Any extra money thrown at the Dutch health service is for instance directly gobbled up by the specialists using their market power. Nevertheless, no political party seems to have a hope in hell in overturning this 'coordinated mutual robbery'. Why not?
Machiavelli also notes that any politician who overtly proposes to go against a small vested interest will immediately feel the full wrath of such a group, whilst enjoying no support from the majority. Only after reforms will a ruler be credited, and then only if the reform is seen to have been done by someone whose power was unassailable (only the king is popular, never his servant). It seems a situation whereby the vested interests aggressively attack declared adversaries until no one challenges them and then credibly announce they will hit with full force on the first adversary to appear. This makes it very difficult to get organised resistance against the vested interest going (the first to try is literally often killed). Machiavelli gives as advise never to appear to be a reformist. Reforming should according to him be done in a big bang, i.e., all at once and unexpectedly, such that the vested interests are taken by surprise and are effectively powerlessly given new facts 'on the ground'. If Machiavelli is right, the only hope for structural improvement in the Netherlands (or indeed most other countries) would seem to lie in a crisis situation where a crisis manager would have to opportunity of improving things in such a big bang.
Modern economists have suggested several explanations. Game theorists note that coordination problems are more easily overcome if the individual gain from coordination rises above a threshold level. The argument is that a small group of people who loose a lot thus organise quicker and scream louder than the masses. This begs the question though why mayor political parties can't bunch a whole set of such issues into a reform platform supported by the vast majority. A more interesting explanation is that the persistence of interest groups allows them to, over time, generate a new set of beliefs amongst the populations that supports their interests. Irrational fears of medical errors supporting a ban against importing foreign medics would suit such an argument. Irrational fears against GM food supporting a ban against foreign imports in the case of French farm products also fit into this. A nice example is that of the French government, egged on by its farmers, which actively disseminates misleading science on GM that implicitly supports the interests of its farmers but destroys opportunities for foreign farmers or French consumers. The development, maintainance, and adoption of irrational fears however needs further explanation.

10. The need for guilt in some Western societies. In many Western countries, feelings of guilt can be observed when it concern slavery, the holocaust, colonialism, and other tragedies. Guilt is usually appropriated by whites. The logic behind this is often strange to follow however. Take for instance the guilt of Western European whites who live in countries heavily involved in the slave trade. That slave trade stopped over 150 years ago. Hence anyone involved in it has long since died. Is it the case that those feeling guilty are the descendant of these slave traders? No! The vast majority of the population 150 years ago in Western Europe were farmers who were under the cultural and military cosh of the urban elites. Slave traders were invariably urban and often migrated with their slaves. The urban elites in those days also made sustained efforts to culturally change the rural community: via education programmes and armies, the rural dialects and traditions have been gradually destroyed. The movement of the rural population to the cities was mainly after the slave trade had already seized. Hence in terms of genetic lineage, those whites currently apologising for the slave trade are in all probability descendents of farmers culturally oppressed themselves by the same urban elite that benefitted from the slave trade! Is it then the case that the slave trade is so objectionable that promoting feelings of guilt about it stops it happening nowadays? Also, clearly not. Not only are there various forms of modern slave trade still active and not particularly frowned upon, but 'the Arabs', who have been involved in the slave trade much longer than Westeners, are not overladen with the same guilt or reproach. Neither by themselves or by 'us whites'. Hence it is clearly not the slave trade per se that draws in accusations of guilt. Is it then the case that the slave trade represents just a series of wrong-doings by whites? Again, clearly not, because the advances in agriculture that Eurasia made in the course of 10000 years were also tranferred to African countries when white colonists came, effectively allowing its population to increase far beyond historical population levels. Hence, if Africa were to go back to pre-slave trade technology, more than 90% of its population would perish. Life expectancy of the remaining 10% would reduce by over 20 years. Surely on aggregate thus, Africa's human population has gained from interacting with Eurasia. Why then this need for guilt and the insistence that a racially defined group (us whites) are somehow to blame? It seems like the worst form of racism possible to assume blame 'collectively' for no other apparent reason than skin colour.
Similar things can be said about all the other sources of guilt taken up by groups of predominantly white people: whilst nations with something to apologise for invariably don't, we're seeing a spate of calls to apologise for things like colonialism, crusades, and other things no well-minded person could possible apologise for without demanding that the whole world apologise for something some ancestor might have done. Where does this need for guilt come from?
A first-thought explanation would be that we are seeing the effect of small interest groups trying to wangle something out of a majority by appealing to a presumed guilt of a majority. Although small groups undoubtedly attempt this, the question is then why a majority allows itself to be lulled into guilt that is not theirs and why it is prone to adopt guilt anyway. This can hence be no more than a piece of the puzzle.
One possible 'ultimate' explanation is that we are merely seeing at the aggregate level a by-product of 'positive guilt' at the micro-level, by which is meant that in everyday life it is useful to let people feel guilty for mistakes. Avoiding guilt then becomes synonymous with avoiding mistakes that cost others. Because many of our actions are not observed by others a 'personal guilt' is effectively a pre-committment device to care for others even if they are not looking. Teaching the next generation to have guilt or adopting such a personalised notion of guilt ourselves (if guilt is observable) can thus in some sense be productive. The need for historical guilt is then no more than 'guilt running away with itself'; an unintended by-product of something that does make sense. Such a theory would predict that guilt is more prevalent in places where production requires a lot of 'unseen actions' or where production is greatly increased if one can blindly trust others to 'do their bit'. There is something to be said for this in the sense that network economies, which most modern nations are becoming, are invariably about people filling the holes other people leave without this ever being apparent to any observer (i.e. constantly switching duties that depend on need rather than formal rules, which thus begets a lot of room for unseen actions).
Other 'ultimate' explanations would have to involve some causal story for the presence of individual guilt. That the guilt we see at the aggregate level is an unintended by-product of something that does make sense, seems very likely because of the glaring lack of sensible reasons for this aggregate guilt.

<>11. Why is there such a mass support amongst intellectuals, politicians, bureaucracts, and social scientists (like economists) for a policy emphasis on growth of the national economy? This 'growth fetish' seems the main stumbling block in effective climate change treaties and effective cooperation on scarce natural resources (ocean fish; pollution): whereas nearly all countries pay continual lip-service to the idea that humanity as a whole should unite to overcome these problems by limiting its growth (a nice example are the 'millenium goals of the UN'; pipe-dreams if ever there were any), national goverments invariably back down when truly invasive measures are needed. Agreements on limiting greenhouse gasses have taken over 20 years to negotiate and the resulting protocols (Kyoto and other ones in the pipeline) are projected to have virtually no effect at all because they exclude the major growth economy and do not entail any effective big reduction of the current players whereas major reductions are needed to actually balance CO2 levels. Similarly, international agreements on reducing the fishing capacity of humanity have miserably failed, leading to the current collapse in fishing stocks. The most immediate puzzle is what is actually 'in it' for the elite of countries to keep insisting on national economic growth, thereby creating the free-riding problem we see in environmental matters?
A first naive thought is that economic growth increases the national pie and that it is easier for the elite to appropriate an increase in the pie than to appropriate a piece of the existing pie by dispossessing others. Psychologists indeed tell us that such a territorial instinct (a strong willingness to protect whatever we have now, termed status quo bias; loss-aversion; etc.) applies to the current division of the current pie. Yet, this does not explain why the scientists, politicians, and advisers are so in favour of economic growth for these are not particularly well-placed to syphon off an additional piece of the pie: its the powerful elite interest groups which have that privilege.
What is a scientist thus actually thinking of when they consider the benefits of economic growth? Do they really think individuals get much happiers on aggregate when they all get much richer? Especially for rich countries, like the US, the UK, and Germany, this has been shown not to have held in the last few decades (happiness levels have remained fairly constant despite more than trebbling economic wealth). Hence only misinformed scientists could think that. More importantly though, do scientists and advisers actually really care for everyone of their national population individually? Or would they, like anybody else, not really personally want to know the vast majority of their population and shun them whenever they meet them in person? Surely the latter appears likely. What is it then about the idea of economic growth that is so appealing? One thought is that such a scientist has an abstraction in their head of their country as a whole and wishes that abstraction to 'grow', 'compete', and preferably 'overtake' the alternative nationalities. They take pride in the aggregate power and standing of their country, not the happiness of the individual citizens, because its the former that corresponds to what they have in their heads. Note that such a theory has quite strong implications: it's not about happiness at all then, nor would this 'group impulse' go away with any environmental problem. One would truly need an involuntary uniting of all countries into a single command-and-control centre to get rid of this impulse. Scary thought.

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