Friday, February 26, 2010

Big Numbers, Whaling, and Atmospheric Carbon

Whales in the atmosphere?!?!?

We have a hard time conceptualizing big numbers. Often, we simply have no frame of reference. A recent example has been a mind-boggling multi-trillion dollar federal deficit. I can't even really get my head around that, even though I hear these trillions and hundreds of billions quoted at work all the time. You'd think we were headed towards disaster, but actually it's not the current trillion dollar deficits that worry budget experts at all. Recently, a new $15 billion stimulus bill was passed. Did you have sticker-shock when you read about that? Well don't - the bill was less than 2% of last year's stimulus. That's a rounding error in Washington. These gigantic numbers can be an obstacle to an informed public precisely because we find it so hard to process what they mean.
A good example from BBC News this morning is a report that over the last century, whaling may have released 100 million tons of carbon (from their rotting bodies and burned blubber) into the atmosphere. Scandalous isn't it? Not only can we have moral outrage at the inhumanity of killing whales - we can now be mad about the role of whalers in climate change! Well I had no idea how much 100 million tons of carbon was, so I did a little sleuthing.

First, let's annualize this. 100 million tons over a century of whaling is a million tons of carbon released a year. Apparently, in 2006, humans released 8.4 gigatons of carbon into the atmosphere. Apparently, the Earth can successfully recycle three of those gigatons, leaving 5.4 gigatons released by humans into the atmosphere every year (or at least that much from 2006 on) that stays in the atmosphere. So:
Whaling contributes: 1,000,000 tons a year
All human activity contributes an additional: 5,400,000,000 tons a year

So whaling increases net additional human carbon emissions by 0.0185%. And that's probably a very high estimate for what is emitted by whaling today. I imagine most of the million tons of carbon from whaling in the last century was released much earlier, when we relied more heavily on whale oil and whaling methods were more crude.

I'm not a climate change skeptic - I think it's a very big problem. I just think it's interesting what makes the front page of the newspaper sometimes, and how easily we gloss over big numbers without really trying to understand how big they are. In fact, far from being callous about climate change by minimizing this whaling statistic, I'm actually trying to make a point that while this is an interesting study to report, BBC would probably better serve the public by detailing the source of the other 99.9815% of carbon that humans add to the atmosphere each year.
*Note - I googled all these numbers very quickly. If there's anything inaccurate in what I've written I'd be really interested in hearing about it!

Wednesday, February 24, 2010

Stockman and the Austrians

And since the Austrian School has come up a couple times recently, I thought I'd mention something intriguing that I stumbled across:

David Stockman, Reagan OMB director, supply-side high priest, and all around budget badass recently came out of the closet...

...the Austrian school closet, that is. He's praising what he calls "the Austrian masters" and getting on board with the Austrian views about money and fiat currency. Thankfully, Austrian school economists haven't played a major role in public administration since Joseph Schumpeter ran the central bank of Austria in the 1920s (and Schumpeter isn't nearly as off the wall as the rest of them, anyway). I suppose the other close-call was the well known Ayn-Randian, Alan Greenspan. But he was effectively excommunicated from that odd little cult long go.

Anyway, I just thought that was interesting. My pile of books I want to read is already massive, and now I think I need to add Stockman's The Triumph of Politics to it. I should also read this. It's a famous expose of Stockman from a 1981 issue of The Atlantic. Stockman was, in his words, "taken to the woodshed" for the his loose lips with the author of the article. Interesting stuff. Depressions do strange things when it comes to ideological realignment and soul searching.

Trying to Get in Touch with My Inner Keynes

It's no secret that I'm a Keynesian. I feel like I have eclectic interests, an open mind, and great respect for many non-Keynesian thinkers, but I am decidedly in that camp and have only found myself more firmly under the sway of the old Cambridge don since the beginning of the Great Recession. Moreover, I personally feel like I was ahead of the curve. I first read his magnum opus, The General Theory of Employment, Interest, and Money (1936) in 2006 - way before it was cool. It was this reading that confirmed my earlier suspicions about my own affiliation.

But lately I've been doing quite a bit of introspection on the nature of my inner Keynes, namely: am I a Post-Keynesian or a New-Keynesian? Specifically, do I think that nominal wage cuts are effective at fighting depressionary conditions? It's the sort of school of thought sub-sub-classification internecine struggle that seems somewhat appropriate to this blog (particularly now that I know we have at least a couple economics-inclined readers). However, like most who engage in these internecine struggles, I'm personally convinced of the importance of the question. Millions of livelihoods and perhaps trillions of dollars are on the line, after all! Why haven't I decided!

Well, because it's a very tough question. Standard theory says that wage cuts should raise the employment level, and some very smart people have highlighted rigid or sub-optimally high wages as the source of involuntary unemployment. That's the New Keynesian position, and if pressed that's what I'd call myself. It's a safe and respectable default. The problem with that is, standard theory often breaks down in unstandard times - and we're living through very unstandard times in the economy right now. Markets are gumming up and failing to function normally all over the place. It's important to recognize that it's not just a hard period - things are not really working how they're supposed to work. The government borrows around a tenth of GDP and interest rates on short-term government debt are bumping around at 0%?!?!? The money supply shoots through the roof and we're seeing exceptionally low inflation?!?!? For an economist, this is the equivalent of a Salvador Dali painting. But we've been here before, and one of the most prescient thinkers on these problems the last time we were here was John Maynard Keynes. And Keynes (1936) said that nominal wage cuts in depressions would worsen depression.

So what motivated this blog post? What do I have to share with you besides my own soul-searching? Well, there has been quite a bit of chatter on other blogs over this very question that I wanted to share. Because some of the recent posts reference back to it, we can start with a year-old op-ed by Paul Krugman, arguing the classic Keynes position on the issue. Krugman is interesting - he's always been in the New-Keynesian camp, but he's been sounding a lot like a Post-Keynesian lately. Bryan Caplan responded at that time. A recent heated exchange between Brad DeLong (New Keynesian) and Steve Horwitz (Austrian School) over a somewhat different (but related) question turned up this comment by DeLong on David Henderson's (ummm... I guess Austrian School) blog. This is when the real nominal wage discussion begins.

Henderson responds to DeLong's comment. Menzie Chinn (I suppose also a New Keynesian) responds to Henderson's head scratcher of an attempt at ad hoc empiricism. Caplan responds to Henderson and DeLong. And as usual, Scott Sumner makes me wonder if I have everything wrong and should just become an unrepentant Monetarist. Then again, Scott Sumner is sort of out in left field... by which I mean the parking lot. I don't mean that as an insult at all - he just has a very different perspective on things from most people.

So there's a bunch of links to wade through - and my guess is there will be more today. The other reason why I mention this is because the back-and-forth mentions the last time nominal wage cuts did decidedly lead us out of a recession: the 1920-21 Depression, to be exact. I'm currently about half to two thirds of the way through a paper critiquing the Austrian School interpretation of the 1920-21 Depression, so that caught my eye in a big way. Throughout the last year, several Austrians and libertarians have argued that the quick exit from the 1920-21 Depression vindicates the Austrian school and proves that active fiscal and monetary policy only makes depressions worse. I point out that the 1920-21 Depression was very unusual. It was a manufactured depression - the Federal Reserve created it. Moreover, they justified their quite deliberate actions with arguments that Keynes himself put forward in 1923. Depressionary conditions that necessitate a Keynesian response (liquidity trap, low interest rates, high savings, depressed aggregate demand) were not in force through 1920-21, so a Keynesian response was entirely unmerited. And the coverage the 1920-21 in the recent blog debate only drives home that point (which is nice... makes me more confident in my thesis) - if Keynesian depression conditions don't hold, then we shouldn't be surprised that wage cuts got us out of depression in that case. If Keynesian depression conditions did hold, then successful wage cuts would lead you to question Keynesian prescriptions. So anyway, as a result of this work I'm officially obsesssed with the 1920s now. It was a fascinating time. Perhaps look for more on that in the future.

By the way - I found a piece by F.A. Hayek on the 1920-21 depression and its aftermath that he wrote in 1925. If anyone knows of anything that Ludwig von Mises wrote about the post-war downturn, I would be very, very interested in hearing about it. I don't know von Mises very well.

Monday, February 15, 2010

Edmund Phelps Interview

Edmund Phelps, who is probably one of my favorite living economists, was recently interviewed on EconTalk by George Mason economist Russ Roberts. I admire Phelps because he really saved Keynes from the Keynesians when he provided an expectations-based explanation for the stagflation of the 1970s. Phelps's work on expectations and wage determination grew out of Keynes's very strong emphasis on uncertainty and expectations - an emphasis which was downplayed by many American Keynesians in the '50s and '60s. In this interview, Phelps mentions other economists - including Friedrich Hayek and Frank Knight - who also influenced his views on uncertainty and expectations. That's one of the most rewarding parts of this interview in particular: that it reveals the considerable common ground shared between the Austrian School and Keynes on these questions. It's unfortunate that the interviewer (Roberts) tries to highlight this as a Hayekian side of Phelps, but Phelps himself squarely acknowledges the influence of Keynes as well. Another important critique that Phelps makes of American Keynesians is that Keynesian economics doesn't not require a bloated public sector.

Many other interesting topics are covered in this interview. Two I would note are (1.) Phelps's anticipation of New Keynesian economics with his model of efficiency wages, and (2.) at the end of the interview he discusses recent work he has been doing on "the good life".

It was interesting to listen to this, having recently finished Keynes's Tract on Monetary Reform (1923) myself. As I was reading the Tract, I couldn't help but think "if Keynesians in the '50s and '60s had spent as much time reading this as they did reading Keynes's General Theory, Phelps probably wouldn't have had to make the innovations that he did in the '60s and '70s. And then, lo and behold, a week after finishing the book EconTalk interviews Phelps himself.

One other thing I'd like to point out about Phelps is that he is a strong proponent of job subsidies, something I have also taken great interest in recently. The Senate recently produced a new (smaller) stimulus bill that includes a small job subsidy that is roughly along the lines that Phelps suggests.

I should also note, for those of you that aren't aware, that Phelps was the recipient of 2006 Nobel Prize in Economics. His Nobel lecture can be found here.

Friday, February 12, 2010

A theological basis for human rights

I have never been especially enthusiastic about "rights" language, at least when it is used in terms of inherent rights of nature. My concern has been the fundamental theoretical difficulty of affirming something like "rights" given the radically contingent nature of human life. It doesn't strike me that we're in much of a position to make any sort of appeal to a moral standard that is ours by right in this sense. Right as a matter of justice exterior to oneself doesn't need to be abandoned, but the idea of rights as possessed by persons has never really seemed to me to be a proper way of speaking.

I've relaxed a bit on this; while I would still generally agree with what I've said above, I'm not so staunchly opposed to modern "rights" talk, and I realize a little better that it's quite important as a legal fiction, even granting some deeper philosophical difficulties with the idea. Also, much opposition to modern rights talk is more an opposition to modern modes of talk in general, rather than with the point that any particular theory of right is trying to convey. (I'd add that I'm not well-read on the history of the concept of right, so my assessment here is of course open to severe correction).

Yesterday, I was reading an interesting theological account of right from Kathryn Tanner, one of the most prominent living American theologians. I am mostly familiar with Tanner's work in dogmatic theology, and I imagine she gets into this further in The Politics of God or in Economy of Grace, neither of which I have read. The following passage is from Jesus, Humanity, and the Trinity, which is a brief systematic theology published in 2001. I'm going back to this book in preparation for a conference panel that I'll be giving a paper for at the end of March, on Kathryn Tanner's latest book Christ the Key.

Tanner is here in the midst of discussing the gifts and benefits imparted by God to all of God's creatures; "the gift" is a central theme throughout the book, as well as the overflow of God's goodness:
In order to be proper ministers of God's benefits, we would therefore need to recognize the common right of all to the goods of God, simply as creatures; we would have to recognize our obligation to advance the fortunes of that universal community of creatures that is the object of God's favor. God's giving is not owed to creatures but if those gifts are being given unconditionally by God to all in need, creatures are in fact owed the goods of God by those ministering such benefits, without being or having done anything in particular to deserve them. Our good works, in short, are not owed to God but they are to the world.

Those in need have a rightful claim on the ministers of divine beneficence in imitation of the way the Son and Spirit have by rights of nature what the Father nonetheless gives to them. On an equal footing with the Father, the Son and the Spirit already are by nature what they are given by the Father; in this sense they have by rights of nature what they are given; they are given what is their very own. The humanity assumed by the Word in Christ, though in the needy situation of sin, has by rights of nature the gifts bestowed on it in virtue of its being the Word's very own. Though creatures are never owed anything by God -- God's gifts are nothing but gracious here -- God's decision to give them everything means an oddly analogous coming together of gift and right. In the creature's case, one is given that to which one has a right in that what one lacks is one's due. Because of God's unconditional beneficence, need determines a right here; we are only giving the needy their due when we try to meet their needs.

The community of concern to human beings as the ministers of divine benefit should therefore be as wide as God's gift-giving purview. In this universal community, humans should try to distribute the gifts of God as God does without concern for whether they are especially deserved by their recipients. Without bothering themselves, for example, with distinctions between the deserving or undeserving poor, they should give their full attention, instead, to the various needs of members of this worldwide community. They must offer special protections, moreover, as these become necessary, to those most likely to be left out of the community of concern at any point in time -- the outcasts and strangers in their midst.
(pp. 89-90, emphasis mine)

In Tanner's understanding of human right, the problem of contingency is avoided... in fact, contingency is approached from another angle so that it can become the very basis of "rights" talk. As creatures we do not ourselves deserve any right. God, however, imparts gracious gifts to creatures in need, entirely out of God's grace. Insofar as this is done, relationships between people, who are the vehicles of God's good work in creation (as Tanner says, "the ministers of divine beneficence"), can be understood as a situation where rights are present. That is, because God grants certain goods to my neighbor, my neighbor by rights can expect such goods from me, as need requires. My neighbor's right does not come from an inherent state that the neighbor possesses, but rather from my own state as a radically contingent and creaturely being who can claim no inherent right to my own goods. Given a situation where no one can demand rights in and of themselves, rights work themselves into the system by means of the ultimate Giver of Good Things.

This understanding has some advantages over the vagueness of a Rawlsian idea of justice as fairness, while still preserving the idea of basing right to goods on necessity. It also shatters the flimsy individualism of libertarian notions of inherent right, without abandoning the natural basis of right that is important to classic statements: this natural basis is simply located more thoroughly in God, and the creator-creature distinction is maintained more thoroughly than in conceptions of natural right where we supposedly just have them, self-evidently and God-given. Only God has rights by nature. See the second paragraph I've quoted for more on this... this is exciting for theologians: a liberal notion of natural right that is actually sophisticated in its reference to God (no vague deist references here) and true to trinitarian doctrinal standards! God's right by nature is maintained analogously in creatures because God gives... not rights, but goods, to creatures... and so creatures can come to expect good from their neighbors by virtue of the fact that these goods are not the neighbor's, but the benefits of God to humanity.

As I said, I have not read Tanner's more political writings... nor have I read more recent theological accounts of rights language that also might engage with this further. It strikes me as a very workable alternative to usual talk about rights in political philosophy, though, and probably worth a discussion.

Monday, February 1, 2010

Evolution and Economics

I wanted to share a series of three posts on evolution and economics, pointed out to me by a former professor.

It introduces evolutionary and behavioral economics, and discusses the resistance to these approaches. It also discusses the early behavioral foundations of Keynesian economics, and the continuation of this behavioral Keynesianism through guys like George Akerlof. It also discusses the reformalization of economics thanks to the New Classical school, and Milton Friedman's work on methodology.