Monday, January 31, 2011
One thing that struck me reading Burke's piece was that the cable news so often dismissed as simply ideology and punditry is really a product of the wider vapidity of the American news media. It has filled up the vacuum created by a lack of critical and opinionated journalism, and in this sense the bread & butter of Jon Stewart's ridicule is actually on to something. The problem is that there's also an accompanying vacuum present in American public discourse more generally. We've spent too much time listening to pointless and scripted to know what meaningful and inspired would look like. We are also so guarded about being moderated and balanced in public discourse (cf. public radio, which I appreciate but can also be pretty flat) that the more critical dialogues have been relegated to private spheres where they only interact with their own kind.
The same would be true, of course, for a human colony on Mars - division of labor is the foundation of civilized life.
But the trade would be very different - we'd probably be trading actual goods to Mars, but I doubt we would get goods back. The ones we would send would have to be absolutely essential, too, because of the cost of the trip.
So what would we trade? Knowledge. I imagine the early Martian colonists will do three things, for the most part: farm, build, and produce knowledge (maybe mining too if it turns out there's anything worthwhile up there). Knowledge is cheaper to send back to Earth than anything else, so it will likely play an important role in interplanetary trade a century or two from now (if we don't at least have a consistently manned outpost there before I die I'm going to be extremely disappointed).
Lovecraft talked some about extra-terrestrial exchange (not always voluntary, of course) when he wrote his alien stories. What was traded with the Yithians? With the Mi-Go? Knowledge.
Sunday, January 30, 2011
- For decades, a mysterious visitor has left roses and a half-finished bottle of cognac at the grave of Edgar Allan Poe, in Baltimore. Last year he did not show, and people feared the worst. This year he did not show either. This probably means - nevermore.
- The Social Democracy for the 21st Century blog has a post up on FH Hahn on gluts in a monetary economy. Brad DeLong engages somewhat similar issues here. This is a good line where he notes that Marxists miss the point that Keynes made (and Hahn recognized): "The original errors [of the Marxists] are that the divorces between exchange value and use value and the wedges between private profits and social returns have absolutely nothing to do with overaccumulation crises--Hayek and company, after all, manage to construct a perfectly coherent and functional model of overaccumulation crises without them at all."
- Waseem Wagdi in London on the Egyptian protests:
Steve Horwitz also had a post yesterday on the spontaneous order of self-government that we are seeing in Egypt. This is exactly the way we need to think about self-government. The one
objection I have to point in Steve's post that I would take special care to clarify and emphasize is the way he contrasts this with "the state" (i.e. Mubarak) in a way that could suggest to some people suggests that the spontaneous order that is emerging is not a state-like entity. He's referring to neighborhood watch type organizations that are emerging. They are armed. They require people to produce identification. I have no doubt at all that they will use violence if necessary to protect their neighborhood. They are, in a word - coercive. And they are good and they are a spontaneous order and consistent with liberty. And the spontaneous order that is emerging out of this crisis is a proto-state and will evolve into a new state. This is self-government, people. It happened in the United States too with the committees of correspondence, which laid the foundation for the Continental Congress and the slow evolution of institutions of self-governance that we live under today in the United States. Autocracy can clearly be a leech on these systems of self-governance, and you have to simply judge each government on its own merits. The point is, self-government is an emergent phenomenon. It has to be. If it were imposed from outside it would not be self-government.
- I thought this advertisement by Jeff Tucker at the Mises Institute of "the anti-Keynes collection" was another intriguing look into the mind of the Mises Institute. This line caught my eye: "J.M. Keynes is like Marx in this sense: everyone keeps announcing the death of his thought, but his ideas keep coming back and back. This is not because they work or because they are good ideas but because the fallacies are framed in a way appeal to the statist impulse." I got this same argument from a blogger named Troy Camplin at Coordination Problem recently. I don't think Tucker and Camplin realize how condescending this is, and how absurd it is as an argument (neither of which reflects well on them). He shows absolutely no respect for the insights, intellect, and intentions of his fellow man, which is a shockingly illiberal disposition to have. And how do you refute something like that? If I am really just acting on statist impulses and goals, of course I would lie and deny it! I don't do the statist cause much good if I come clean!
- Finally, C-Span had an interesting discussion of NASA on yesterday's Washington Journal.
- A quick reading update: I am reading Carl Schmitt's Political Theology and finding it fascinating.
Saturday, January 29, 2011
Murray Rothbard, Man, Economy, and State:
"Another lesson to be derived is that action does not necessarily mean that the individual is “active” as opposed to “passive,” in the colloquial sense. Action does not necessarily mean that an individual must stop doing what he has been doing and do something else. He also acts, as in the above case, who chooses to continue in his previous course, even though the opportunity to change was open to him."
Thought 2: This is going to bury the idea that democracy (1.) is impossible in the Middle East, or (2.) must be imposed by violence from the West, and that is an unbelievably good thing. I can see lots of potential reverberations from this. For one thing, it's a serious blow to the Bush legacy. The one silver lining to Bush for the history books was that he was bringing freedom and democracy to the Middle East. It's an extremely dubious claim for him, but it is even less tenable if we see Egyptian and Tunisian autocracy fall (and Iranian autocracy at least shaken) by twitter and Wikileaks and domestic protest. If history looks back and sees the bulk of Middle Eastern democracy emerging from these sorts of protests, and a mess (without Saddam Hussein, to be sure) in war-torn Iraq, they are not going to look at Bush as favorably as they might have. It also is going to have more impact in the region. It's not clear what will happen in Egypt yet, but clearly it seems like there's going to be an improvement. Other countries are going to follow. Even more if Julian Assange makes a concerted effort at it. The final ripple effect I could imagine is with Israel. Israel is an odd duck. I'm not willing to completely write it off as a democratic, free society. Given the pressures it faces and the environment it finds itself it preserves these institutions remarkably well. But we also have to be honest - it is a repressive, heavy handed, police state, apartheid of a democracy insofar as it is a democracy. What's been keeping it in the good graces of America (aside from our evangelical eschatology) is that the rest of the Middle East is even worse. If we see a spate of popular revolutions that overthrow dictatorships there will be considerably more pressure on Israeli reform.
Thought 3: I'm glad Christopher Hitchens is alive to see this. Part of it is simply that he's a friend to human freedom and the revolution. Part of it is also that he's been cozy with neoconservatives and the Bush administration on the idea of democracy from the barrel of a gun. Hitchens hasn't been quite as bad as them, of course. He's more about overthrowing dictators and killing terrorists than he is about the violent imposition of democratic institutions on foreign populations. I personally think overthrowing dictators and killing terrorists is perfectly respectable business (although perhaps not always the wisest or most appropriate move from the perspective of both national interest and collateral damage). Nevertheless, even if he's "better than Bush", he's still hads a trigger finger this last decade. Maybe a little homegrown revolution will bring him back to his roots and reform his mindset a little before he passes on. I say this as a tremendous admirer of Hitchens - not to say "this'll show him!!!". Hitchens has written about Tunisia here, but as far as I can tell he hasn't written about Egypt yet. I'm confident we'll be seeing something shortly.
- John Quiggen with thoughts similar to my Thought 2.
Friday, January 28, 2011
But I see this sort of planning as fundamentally different from the interventionism that Keynesians such as myself and Brad DeLong in his recent Project Syndicate article usually advocate. We need not be reminded about market efficiency. We are well aware of it. Most of us even like Hayek on the uses of knowledge in society. It's excellent stuff. You hear Keynesians complaining about Austrian Business Cycle Theory, but you rarely hear denunciations of his perspective on the uses of knowledge in society. It's because there's no great quarrel (maybe there were a few Hayekian turns of phrase that some Keynesians might have taken issue with - but no fundamental quarrel exists).
The difference between planning as Hayek critiqued it and intervention as Keynesians advocate (I'm not sure what a good word for this is - maybe "management"?) is precisely that Keynesians identify where the market functions Hayek describes aren't really relevant. Some people have taken to calling this "market failure", but I don't really like that phrase much. The market hasn't failed, it simply doesn't have the inputs required for market efficiency. It's silly to blame the market for that!
Several months ago I had a whole series of posts on this issue, which I characterized as "calculation problems vs. incentvie problems". This line of thinking is still what fundamentally informs when I sound like a Hayekian and when I sound like an interventionist, but I realized a lot of people like Prateek probably didn't read or comment here when I was thinking a lot of that through. So in case you're interested in how I approach these questions, my posts with the "calculation vs. incentive" tagline are here. Very closely related are my posts with the "externality" tagline, which are here. I think the concept of an externality is much firmer than the concept of a "market failure". I think my differences with the Austrian school come from two primary places: (1.) the difference in our theory of interest, which drives the difference in the way we think about money and general gluts, and thus the relative emphasis we place on different explanations of depressions, and (2.) our understanding of how the market process works when confronted with externalities - I think Mises, for example, butchers the question which is the source of a lot of subsequent confusion. I discuss Mises's problematic treatment of externalities here.
Anyway - just thought that background was important for people to understand my take on intervention. I'm working on some research right now comparing Calvin Hoover's (an American Keynesian) perspective on this question and one other to Hayek's perspective. Keynes died before he could engage these issues with Hayek, and I'm trying to think about Calvin Hoover as a useful lens through which we can understand how Keynes might have responded - where he would have agreed and disagreed with Hayek.
I would add a few things:
1. We should not restrict early design to the Federalists, as DeLong has done. The designs associated with western expansion (which eventually reached fruition in the the railroads and land grants that DeLong does mention) grew out of a distinctly Jeffersonian take on design. Jefferson was not opposed to manufacturing or commerce - what he was opposed to was an impoverishing version of manufacturing and commerce, which he sought to remedy with western expansion. This was a complaint Jefferson registered against George III in 1776, and with Hamilton throughout the 1790s, and it was a concern he acted on when in office and advocated after leaving office.
2. We should not confuse all design with central planning. This conflation has been very problematic for a lot of Hayekians especially.
3. In the same vein, we should not think that designed systems do not have evolutionary tendencies. Designed systems perpetuate themselves with some likelihood of (1.) ending, or (2.) changing. That is a recipe for evolution, or as some people like to put it - spontaneous order. Again, many Hayekians end up conflating two very different issues: undirected Darwinian evolution and directed social evolution. When Spencer mixed Darwin with society uncritically it did not turn out well, and it does not turn out well for a lot of modern proponents of spontaneous order either. Change in society is not driven by genetic variation, it is driven by conscious decisions and designs. Sometimes these are designs executed in a market, sometimes they are not. When designs are executed in the market there are certain informational advantages - and as we know, informational fidelity is extremely important to evolution. But the conditions for the informational advantages of markets don't always exist, so social evolution or spontaneous order simply can't be considered as always being market order.
I am guessing the Hayekian community will have a field day with this. I am guessing I will be frustrated with much of the commentary because they'll just assume that DeLong is somehow repudiating the idea of spontaneous order.
Thursday, January 27, 2011
A couple days ago Ed Glaeser said the moral center of gravity of economics was human liberty. Probably a more scientific way of putting it (because I like to think of economics as a science) is that the central message of economics is that free humans make for an efficient society. Either way - a wonderful sentiment, and I said as much.
In response (to Glaeser, not me) Robert Higgs suggested that Glaeser was tying himself up in knots. The state and liberty are anti-thetical. I was not amused. I accused Higgs of philosophical elginism - robbing a rich classical liberal tradition advocating human liberty to support his own ideological ends. Samuel Wonacott was not amused. We went back and forth for a while (my obstinancy probably dragging it out longer than necessary), and I think I've come to a better way of putting my frustration with Higgs:
Perhaps I overstated my case with Higgs because I really don't know him well enough to say where he's coming from. Let me say this at least - he comes across as being an ideologue. He clearly thinks there is an inherent opposition between liberty and government. That establishes that he and I are in disagreement - but disagreement is OK. However, he states it as if its just a self-evident fact. That's a clue-in for ideology.
Then he says this, which was the real clincher for me: "To be sure, many mainstream economists do think about policy just as Glaeser says they do. But in doing so, they are mistaken. I find it difficult to believe that a man of Glaeser’s intelligence has really given much thought to what he is saying in these passages."
I don't think I could ever say such a thing to, for example, Nozick or Hayek - or to thoughtful anarchist thinkers (even though I disagree with their conclusions every bit as much as I disagree with Higgs's). The arrogance of that statement suggests to me he's coming from a more ideological than a genuinely philosophical foundation.
The claim that the state and liberty are anti-thetical may be right or it may be wrong. But if it is right it is not tautologically right. Too many libertarians treat it as if it were tautologically right.
This isn't an exclusive failing of libertarians, I hope it goes without saying. It's a failing of lots of people. But I'm not blogging about lot's of people in this case - I'm blogging about libertarians.
I hope this is clearer - I think it does better expressing my initial frustration.
The first is Rorty on "The End of Inquiry". He talks about the modern world as a world where we have stopped preparing for immortality and started preparing for our great grandchildren. This is reflected in the transition from essentially Platonic to essentially Pragmatic philosophy. We have gone from philosophizing the "ideal" and the "true" to philosophizing the useful. In Weber this transition almost emerges as a crafty trick fate plays on Protestantism - but the import for the modern economy is essentially the same - secular growth through capital accumulation. This is the picture offered in Keynes's Economic Conditions for Our Grandchildren, which I think coincides nicely with the Hans Blumenberg quote that Rorty mentions in the video:
But when we abandon Platonism and truth the world becomes far less certain. It always was uncertain, of course, but the human project was a project of rationalizing that uncertainty. Myth filled the voids in our understanding; ideas of Providence took care of the dark forces of time and ignorance that enveloped our future; philosophy, taking the Greek cue, took care of everything else and even displaced myth and Providence where it could. But with the abandonment of this project and the dawn of Pragmatism, post-modernism, critical rationalism, and whatever else may be appropriate to class together as a rejection of an idealized pursuit of "truth", the uncertainty was unavoidable.
This leads to something of a tension. The abandonment of idealism and truth means that we focus on investing in the future. But the uncertainty unleashed by this abandonment of idealism and truth means that we hoard to erect protective barriers against the unknown. It's important to note here that Rorty identifies uncertainty as a sort of luxury good. But that's largely the point, isn't it? Uncertainty, as a luxury that we did not have in earlier epochs, is a creature of the modern world - the modern economy.
I think regular readers should know how these two pieces of the puzzle work together to furnish us with Keynes's understanding of modern society: secular growth from capital accumulation combined with bouts of underutilization due to fear of the unknown. It's one thing to say "this is how the modern economy works", but I think it's useful to look at much broader social developments and see the deep roots of this Keynesian worldview.
Read this way, Keynes calls for a sort of Progressive Pragmatism. We need a society that continues to invest in possibilities for our grandchildren without succumbing to the very willingness to confront uncertainty that makes us modern.
In 1921, Keynes and Knight both published books about how we deal with uncertainty, with Keynes developing his ideas further through his career. Both men were right, and Keynes came to the same conclusion that Knight did when he wrote about "the social object of skilled investment". What we need, in response to this uncertainty, is less fear and more entrepreneurialism.
UPDATE: I was thinking about this a litle more, and it reminded me of a portion of a poem that my grandad recites from time to time - it's from Maculay's Horatius:
Then out spoke brave Horatius, the Captain of the Gate:
"To every man upon this earth, death cometh soon or late;
And how can man die better than facing fearful odds,
For the ashes of his fathers, and the temples of his Gods,
And for the tender mother who dandled him to rest,
And for the wife who nurses his baby at her breast,
And for the holy maidens who feed the eternal flame,
To save them from false Sextus, that wrought the deed of shame?
What's interesting is that Horatius doesn't see his stand as a defense of what Rome might become (this is the very early republican period), or even really for his children. The first thing he stands for is the dead. The second thing he stands for is the Gods. Then he stands in defense of several contemporaries, but he never even says he stands in defense of his children - just his wife who happens to be nursing his children at the time. Granted, this is a nineteenth century rendition of a Roman hero, but even if it cannot be taken as a transcription of the sort of classical attitude that Rorty describes, it's certainly a telling dramatization of it. Rorty's claim is that modernity experienced a wholesale temporal reorientation. When we are future-oriented we are future-oriented in a more practical, less idealistic way. It's an uncertain orientation, but in many ways a more productive one.
Wednesday, January 26, 2011
Reading things like this makes me want to drop economics and pick up political or social philosophy as a full time pursuit...
Robert Higgs on Ed Glaeser, in its entirety (HT Mark Thoma):
"In yesterday’s New York Times appears an op-ed article by Edward L. Glaeser, a professor of economics at Harvard. Glaeser’s article is remarkable because arguments in favor of freedom, insisting that economic analysis implicitly rests on a moral presumption that individual freedom has fundamental value, do not appear every day — or every month — in “the newspaper of record.” So, I am glad to give two cheers to Glaeser, one for his theme and another for his courage in placing the argument in such a hostile outlet.
I cannot give Glaeser a third cheer, however, because toward the end of the article he inserts a concession that I find wholly inconsistent with the rest of the argument. He writes:
Economists’ fondness for freedom rarely implies any particular policy program. A fondness for freedom is perfectly compatible with favoring redistribution, which can be seen as increasing one person’s choices at the expense of the choices of another, or with Keynesianism and its emphasis on anticyclical public spending.To be sure, many mainstream economists do think about policy just as Glaeser says they do. But in doing so, they are mistaken. I find it difficult to believe that a man of Glaeser’s intelligence has really given much thought to what he is saying in these passages.
Many regulations can even be seen as force for freedom, like financial rules that help give all investors the freedom to invest in stocks by trying to level the playing field.
In fact, a presumption in favor of freedom rules out virtually everything that modern governments do, certainly nearly everything they do in interfering in economic affairs. Redistribution of income, for example, requires that the government rob Peter in order to benefit Paul (and its own functionaries, who serve as middlemen in this transfer). This action is not freedom; it is a crime against Peter, a raw violation of his right to his own legitimate property. Keynesian countercyclical spending requires the government to spend borrowed money whose acquisition is premised on future taxation (that is, robbery) of taxpayers in order to service the debt and repay the principal. Again, innocent persons have their rights violated. How can anyone fail to see that robbery is incompatible with freedom? Finally, the financial rules that Glaeser finds compatible with freedom entail threats of violence against financial transactors who do not follow arbitrary government rules — often extremely foolish and even destructive rules — in making their transactions, notwithstanding the fact that the parties to the transaction may be perfectly willing to proceed without such regulatory compliance. Such regulation is the very opposite of freedom; it is instead the sheer imposition of outside force, intruding on willing transactors, and thereby discouraging them to some extent, if not entirely, with consequent loss of the wealth that such transactions would have created, in addition to the loss of liberty.
Perhaps it is unseemly for someone such as I to make a recommendation to a Harvard professor, yet I cannot resist the urge to suggest that Glaeser read, say, Murray Rothbard’s Power and Market. Expositions of that sort would help him to gain a clearer vision of the distinction between individual freedom and state domination in economic affairs. Glaeser quotes Milton Friedman to good effect in his article, but Friedman’s writings ought to be the beginning, rather than the end of wisdom in this area. In regard to freedom, Friedman’s arguments were good as far as they went, but they did not go nearly far enough. Like Glaser [sic], Friedman was prepared to make many concessions to state power, and his focus on utilitarian arguments, as opposed to moral principles, diminished the intellectual force of his laudable efforts to enlarge the scope of liberty in economic affairs."
"Economists often present a cold public persona, emphasizing dollars and sense over the rousing rhetoric of moral argument. But by appearing as technocrats who seem concerned only with the bottom line, we allow ourselves to be portrayed as people without a sense of right and wrong.
Two weeks ago, I wrote about ethics and economics, calling for appropriate steps that economists could take to disclose conflicts of interest. Today, I focus on a larger issue: the complaint that economics is a discipline without a moral core.
Modern economics began with Adam Smith and the Scottish Enlightenment, a movement full of ethical debate by thinkers like David Hume, Francis Hutcheson and Lord Kames. Smith himself, who followed his teacher Hutcheson in the chair of moral philosophy at the University of Glasgow, wrote “The Theory of Moral Sentiments,” which included such ideas as “to feel much for others and little for ourselves, that to restrain our selfish, and to indulge our benevolent affections, constitutes the perfection of human nature.”
As Smith moved from moral sentiments to political economy, his focus changed from the perfection of private nature to the improvement of public systems. Most economic writing since then has typically shied away from offering moral advice to individuals and instead focused on improving public institutions and policies.
But that shift doesn’t mean that there isn’t a deep moral tenet – a belief in the value of human freedom – at the core of our discipline."
He mentions The Theory of Moral Sentiments, which reminds me - Robert Shiller was recently interviewed about his five favorite books and "human traits essential to capitalism". The interview is here. The first book on his list was Moral Sentiments.
Peter Boettke also has a great post up on philosophy and economics that comes to much the same conclusion that Glaeser does. He writes:
"In his very readable On Ethics and Economics, Amartya Sen argues that modern economics has existed in the corner solution of economics as engineering as opposed to economics as philosophy. At the time he wrote that book, Sen was agitating for a movement away from economics as engineering and toward economics as philosophy.
I agree with Sen. I have made the distinction in my writings between the "mainline of economic teachings" that can be traced back to David Hume and Adam Smith and runs forward to F. A. Hayek, James Buchanan, etc., and "mainstream economics" which is more or less a sociological concept related to what is currently scientifically fashionable among elite academic economists. It is contributing to the "mainline" of economic thought that is more important in the long run, whereas fashion is fleeting. A phrase I often invoke in conversation with my PhD students is "shelf-life", which simply means how long will that idea stay in the heads of economists. I first heard this distinction between "mainline" and "mainstream" from Kenneth Boulding, and I got my attitude about "shelf-life" from James Buchanan.
Anyway, I am optimistic that the last decade has seen considerable movement along the lines Sen argued for in On Ethics and Economics, and with that a renewed appreciation for the "mainline" of economics as opposed to an exclusive pre-occupation with what is considered "mainstream" in the contemporary literature. Economics continues to be a more fascinating discipline year after year, and it is more interesting precisely because that leading thinkers are compelled to rethink the sort of questions in moral philosophy that David Hume, Adam Smith, F. A. Hayek and James Buchanan wrestled with throughout their careers.
I was very interested to see this article in today's NYT by Edward Glaeser on "The Moral Heart of Economics." Glaeser reaches back in time to Hume and Smith and forward to Milton Friedman in his essay, and concludes that:
Economists are often wary of moral exhortation, as many see the harm so often wrought by arguments that are long on passion and short on sense. But don’t think that our discipline doesn’t have a moral spine beneath all the algebra. That spine is a fundamental belief in freedom."
I have a comment on it - third one down.
On a somewhat related note, Stephen Williamson has a post up complaining about Paul Krugman's earlier post on demand. This was an especially weird point by him:
"Of course, Krugman is thinking about a Keynesian Cross model, which is not what modern macroeconomists (of any stripe) work with. If you buy into the Keynesian Cross, what recession would not be a shortfall in aggregate demand?"
I commented: "This is silly. Why can't you have a supply shock in a Keynesian cross model? It's just income, expenditures, quantity consumed, and quantity invested. There's no aggregate demand in it to speak of. Let's say there was an oil supply shock, reducing oil consumption. How would that show up in the Keynesian cross? Wouldn't it look EXACTLY like an oil demand shock?
The Keynesian cross isn't an illustration of demand driven recessions - it's an illustration of the concept of the multiplier.
And why do you even think Krugman has that in mind here?"
The Keynesian cross is kind of like the AD-AS curves... there's not that much to it. It can't tell you that much on its own. You have to bring a story to it to make it useful. Its use is in illustrating the multiplier, period. It's also something of an accounting identity: E=I. That's the identity that drives the Keynesian cross. Because it's an identity, we can plug it in to other models that otherwise wouldn't be fully identified. But mostly it's a cheap little drawing to drive the concept of the multiplier home. It says absolutely nothing about demand unless you bring a demand story to it.
These sorts of things make me want to be a humble undergraduate macro professor. It's so easy to misuse these tools and these identities. You misuse the Keynesian cross and you get crude Keynesianism. You misuse the equation of exchange and you get crude Austrianism (or crude Bimetallism!). There's too much crudeness in the world already. Economics doesn't have to add to it.
Finally, I've been reading a lot of an early American Keynesian named Calvin Hoover for a project I'm working on. This is something he wrote about full employment in 1940:
"Human beings will make these decisions and some of them will be crucial. It is impossible that they could all be co-ordinated by some central intelligence. If it were possible for omniscience and omnipotence to do so, no doubt we would indeed have the optimum utilization of resources. Fortunately, we can get along not too badly upon something much less perfect. When the concatenation of administrative decisions does not produce full employment it is always possible by means of government intervention in the form of relief and employment creation projects to bridge over a crisis without social disaster... The problem of deciding what the irreducible minimum of regulation and control by government agencies must be throughout the economic complex becomes likewise more nearly capable of solution once we abandon the concept of a deceptively simple economy. We are never going to have a final solution to this problem, since the decision every year would be different from that of the year before. We can only depend on a sort of evolutionary groping towards a solution. But I have considerable confidence in that process of evolutinoary groping if we can exorcise the poltergeist which manifests itself either in the form of the conviction that we must set up totalitarian planning or in the form of the belief that if we remove all governmental control a nineteenth century economy will once more materialize." - Calvin B. Hoover (1940), "Economic Planning and the Problem of Full Employment" AER 30(1).
Tuesday, January 25, 2011
Her last post from last Monday was on microfinance specifically, but more generally on the willingness to work for less if you know you are doing good for the world. I glossed over it at the time - international/development econ isn't my primary interest. But now that I reread it I'm struck by this little insight. I had an "ah ha!" moment last Thursday on a site visit I was on for work that was along the same lines. We were interviewing some workers that had gone through an apprenticeship program for a low wage occupation. With several economists on the team, we had been tackling apprenticeship as a human capital development program. It increased worker productivity, which increased wages. Human capital makes a worker more productive, wages are equal to a worker's marginal product, and workers want higher wages. That's the story.
That's not the story we heard at the site. It was jarring to talk to these people. They went on and on about how proud they were of the accomplishment. They were proud to be recognized for their commitment to the rigors of the apprenticeship program. They took joy from sharing what they learned with their colleagues. When we asked about labor market conditions and wage rates we got some chuckles. Yes - there was a wage progression associated with the apprenticeship and that was great of course. But this was still a low wage job in a sea of other low wage jobs. What really distinguished the whole experience for these apprentices was the prestige and the sense that they were doing good in the world (it was a service job).
This is very important, and it's not entirely foreign to me of course. If I had chosen to do something other than work in a non-profit research organization that focuses on low income working families I certainly could get more money than I do. I choose to work here because I feel like it's important work.
We have good models, but I think it's good to take a step back from them every once in a while. Profit maximization is probably straightforward enough, but the utility maximization of a worker is far more complicated.
First was this review of Ron Chernow's new Washington biography in The New Republic. The author writes:
"Modern biographers have sought to rescue George Washington from his monumental stature by revealing a lively and conflicted man within. In the latest and best of these recent attempts to humanize the great man, Ron Chernow offers a “real, credible, and charismatic,” a “vivid and immediate,” and, best of all, a “hot-blooded” Washington. Chernow insists that the father of our country began as a “deeply emotional young man who feared the fatal vehemence of his own feelings” and struggled to “conceal the welter of stormy emotions inside him.” Earthy, passionate, and ambitious, Washington even told an occasional lie."
Now granted, I don't know exactly what he means when he says "modern". Sometimes that means "recent". Sometimes that mean "everything since the 1500s". But what's interesting is how long we've been "humanizing" the founding fathers and "debunking" their monumental stature. All of this - every humanizing detail they mention in Chernow - is center stage in, for example, Douglas Southall Freeman. I used to be a big Washington fan (I've been more into Jefferson lately), and got around to reading a few biographies including several volumes of Freeman's authoritative work. I haven't read anything earlier than that - I haven't read Washington Irving's for example. But I really can't help but feeling like everything written about Washington is essentially a footnote to Freeman. What would be new and different and an interesting to read is one that actually tries to recapture a "Great Man Theory" sort of conceit for him.
The second interesting thing I saw was this report that David McCollough is coming out with an intellectual history of American intellectuals and artists in Paris from 1830-1900. I've come to like intellectual histories. I'm still reading The Metaphysical Club - a great intellectual history of pragmatism. I'm into John Dewey - finally moving along at a reasonable clip. Recently I finished the first volume of Joseph Dorfman's The Economic Mind in American Civilization. Waiting for me is Amy Sue Bix's Inventing Ourselves Out of Jobs? America's Debate over Technological Unemployment 1929-1981. Intellectual histories are nice because they give you a broad selection view of the import of primary source material that would take a lot longer to absorb independently. It's also a very illuminating way to learn history. You understand what happened much better if you interrogate what people thought was happening as your subject. You also learn to sympathize with the views of others when you really get into the question of why they thought what they thought.
Krugman starts, and marvels that the very idea that we could have an effective demand problem is so repugnant to people. The post is mostly just expressions of dismay, but he mentions a few interesting things. First, the baby-sitting co-op experience. This is a fascinating little episode and if you're not familiar with it you should click through the link. It's a microcosmic example of a monetary disequilibrium, demand side depression. George Mason University does lots of experimental tests of microeconomic phenomenon and the market process. I wish they'd do macroeconomic experiments like this one - perhaps with free bankers and a central banker? The other interesting point that Krugman raises is that the Monetarist advocates of a monetary disequilibrium theory are really - in the eyes of the intellectual vandals jettisoning demand-side thinking - just as bad as Keynes. I think this is basically right. One thing that he does not seem to be aware of is that by the same token there are monetary-disequilibrium Austrians out there too that offer an important in-road that simply isn't available in the RBC or New Classical side of the demand-skeptic camp.
Nick Rowe follows up by highlighting "short-side thinking". What position would you rather be in right now - in the market to buy a product, or in the market to sell a product? In the market to buy a product, clearly. Rowe points out that there's obviously a limit to this. At some point, the tables turn and you start to get pressure on prices. Nick points out that because of the obviousness of "short-side thinking", what's really amazing is that anyone doubts the primacy of the demand side.
But there are good reasons to doubt - and the doubt has to do with the distinction between the long run and the short run. In the long run, secular growth is determined by the supply side: by capital accumulation and technological progress. But in the short run demand is largely the concern. I'll also refer people to a post from November by Peter Dorman that does a great job laying the microfoundations for these demand-side problems. He also references a prominent critic of socialist calculation, Janos Kornai. That's right - the logic of one of the most famous critics of socialism also leads to the expectation that market economies will be plagued by effective demand problems.
Monday, January 24, 2011
1. He agrees with me that the contractionary monetary policy was consistent with Keynesianism, but he thinks Keynes would have recoiled immediately upon the appearance of deflation. In other words, he feels that Keynes would stop the inflationary run-up but would have no interest at all in restoring a more appropriate price level from the recent past. I would disagree.
2. He says that 1920-21 is consistent with ABCT. I don't disagree with this in my article, but I would be more nuanced. Nothing that I have seen demonstrates the incompatibility of 1920-21 with ABCT, but we have a very long way to go until we can say that it is a good example of ABCT. I know of no work that actually shows there was a distortion of the capital structure as a result of low interest rates at this time. I know of no work that actually shows that the readjustment of these distortions is the source of the depression. I know of no work that shows that recovery would have been possible without an easing of monetary policy by the Fed. ABCT is not out of the running, but a lot more work needs to be done to call 1920-21 an Austrian downturn.
Profitez de l'article de blog!
Sunday, January 23, 2011
That's all preface, though, and not really the point of what I wanted to write about. What interests me is the extent to which the Gosnell abortions really damage one of the prominent arguments made by pro-choice folks for legalizing abortions... that if abortions are illegal, they will simply go on in back alleys and under very unsafe conditions. Legalization allows regulation of procedure.
It's an ironic sort of argument in the first place. Obama and others tout it under the mantra, "safe and legal", but its form is eerily similar to the gun-happy Second Amendment fetishists who say that if you make gun ownership illegal, only criminals will have guns. A confluence of ideological opposites as American as apple pie, I suppose.
With Gosnell's clinic exposed, we see an even greater reason to doubt whether this argument is anything more than mere rhetoric. What's so great about clinics that can operate under the freedom of the law when oversight is so atrocious as to allow Gosnell's clinic? Selwyn Duke wrote about this yesterday at length, and offered some information about the lack of oversight in Pennsylvania. And this isn't even new with Gosnell. It seems unwise to assume that the legal system isn't overlooking other similar cases as we speak.
Will the argument that legal abortions prevent unsafe procedures be convincing anymore? How can anyone really take it seriously, when there are multiple demonstrations of the fact that back-alley style procedures currently face such spotty oversight?
If pro-choice legislators hope to regain our trust, and to keep using the "safe and legal" slogan, will they start by investigating the Pennsylvania system of oversight that allowed this to happen, and taking the proper legal response to those officials who cost so many women and children their lives? Further, will they cease to condemn restrictions on abortions such as mandatory monitoring beforehand or various standards of inspection and consent as "anti-choice"? How are these regulative efforts anything but completely in line with the "safe and legal" principle? Until now it's been the pro-life politicians who have been pushing for stricter regulation of abortion practices even though the pro-choice politicians have enjoyed so much political gain from the rhetoric of safety and regulation of procedure. This sort of simultaneous piggy-backing and demonizing of the pro-life cause is becoming increasingly transparent.
Will these abortion clinic killings create a space for progressive political action in the direction that the pro-life movement has been advocating for years? Unfortunately, I doubt the tragedy will have very much effect if the media silence on it so far is any indication.
- Rick Ungar with more on Thomas Jefferson's support of public health insurance mandates. This is in reference to the merchant marine insurance scheme I mentioned earlier on here (HT - Brad DeLong). I think a lot of the perceived libertarianism of the founders is due to the simple lack of resources in the late 18th century. No, for the most part there is no public health program to speak of. The thing is - there was no real private health program to speak of either. Health care simply wasn't that advanced and where it was advanced there was no effective demand for it because people didn't have resources to spend on it. To speculate that that means any sort of public involvement was rejected by the founders from that is absurd.
- Gene Callahan calls for more empirical arbitration between the Austrian School and Keynesianism. I'm not quite sure I fully agree with his and Garrison's point on the primary difference between Keynesianism and the Austrians - but I'd have to think about it.
- The Social Democracy for the 21st Century blog provides a discussion on early post-war Keynesianism.
- Frances Fox Piven is now receiving death threats. I first became familiar with Piven several years ago in college. My reaction - "eh, she's a 60s liberal that's written a lot about activism and welfare". She didn't really hold my interest till her name started popping up again in the last two years or so. Must be a total coincidence - totally unconnected to the state of rhetoric in America - that she's now being targeted with death threats, right?
- Scott Sumner suggests that many different problems cause downturns and that a collection of problems causes big downturns. I would whole-heartedly agree.
Saturday, January 22, 2011
Getting words on paper on this project which is a very good thing... normally my ideas languish in outlines, notes, and collected sources.
"Good wine is a necessity of life for me" - Thomas Jefferson
For example, in this recent post Jonathan responds to me about "sustainable" levels of economic activity (we're discussing Garrison's PPF): "I don't think you can push consumption to an "unsustainable" level. Consumption is what decides the degree of capital intensiveness. I think investment is the specific part of expenditure which may be unsustainable."
I then respond to him with a reductio ad absurdum of sorts. I ask him to consider a situation where 100% of income goes to consumption. Is this sustainable? Of course its not sustainable. You cannot sustain 100% consumption at current production, so this is clearly "unsustainable". Consumption certainly has sustainable and unsustainable levels given productive technology and preferences, just like investment does. I used the reductio ad absurdum to provide a stark example of why you couldn't rule that out.
Don Boudreaux regularly does something very different. He uses reductio ad absurdums almost exclusively to rule things out. I'll reproduce an "open letter" he had on his blog in full:
"Dear Mr. or Ms. FedupwithHayek:
You write: “You [Don Bx] wrong[ly] assume workers don’t want more job security. They do. They don’t appreciate trade lowering that security.”
I disagree, at least with the implication that the value to workers of greater job security exceeds the costs of supplying such security. Consider:
Nothing prevents a firm – say, Acme, Inc., a hypothetical chain of hair-styling salons – from offering the following sort of deal to consumers: “Acme will cut your hair, but only on condition that you agree to buy at least six haircuts each year from Acme for the next 25 years.” If Acme gets enough customers to buy haircuts on this condition, then it can offer more job security to its stylists, receptionists, and other employees than can Acme’s competitors who do not condition the sale of haircuts on customers’ willingness to sign such contracts.
Obviously, consumers won’t buy haircuts from Acme on these terms unless Acme makes these terms worthwhile to consumers – say, by offering haircuts at much lower prices.
But to operate profitably while charging much lower prices, Acme would have to find enough employees who value job security so highly that they’re willing to work for wages far below what they would earn by working elsewhere.
Because I see no such successful attempts by firms to cater to the alleged demand that workers have for greater job security, I conclude that workers in general are not willing to pay the cost of securing more job security. In short, the value to workers of greater job security is less than is the value to them of higher wages today.
Donald J. Boudreaux"
The emailer is talking about - and Don starts to talk about - trade-offs. On the margin, there is a trade-off between income and security. Both income and job security cost employers money so they can't provide increases in both at the same time. You have to trade it off on the margin. A marginal increase in security for a marginal decrease in pay, etc.
But then Don abandons this marginal thinking and reaches for the extreme. One extreme way to guarantee job security is to demand complete customer loyalty. Then you can be assured of consumer demand, which means you can guarantee labor demand. This is an absurdity, clearly. It's a very extreme example. This is what economists call a "corner solution".
When you first learn constrained optimization you're always taught to check the "corner solutions" first, to see if any extreme option solves the optimization problem. When you rule those out, though, you don't say "well I guess there's no solution" - you then solve for an interior solution. You find the point at which the marginal cost is the same as the marginal benefit and you're at a trade-off point that satisfies all preferences of everyone involved. There is a some optimization point and there is some trade-off that workers will make for more job security. It will be a marginal trade-off. Excessive strategies for guaranteeing job security such as the one that Don offers are not in the cards because the employer and the consumer has to make these trade-offs as well. Wage rates, benefits packages, prices, hours, etc. change all the time to respond to these changes in preferences. Don should have agreed with the commenter that there may be demand for job security (makes good sense in this economy) and he should have laid out the concept of marginalism and constrained optimization and assured the commenter that market exchange will adjust to these changes in preferences. Instead, he sees some sort of threat, he grabs for his old stand-by - the reductio ad absurdum - he completely drops marginalism in the process, and because of this poor analysis he makes very bad claims like "Because I see no such successful attempts by firms to cater to the alleged demand that workers have for greater job security, I conclude that workers in general are not willing to pay the cost of securing more job security."
Friday, January 21, 2011
A few obvious questions emerge from this explanation from Murphy. The first one that comes to my mind is also mentioned by Cowen - why would monetary expansion encourage investment but not capital maintenance? Wouldn't those same low interest rates that encouraged malinvestments also encourage capital maintenance? It seems to be an awfully convenient thing for Murphy to grab for.
But the whole discussion also reminded me of something that Hayek said in Prices and Production (lecture 2) that has bothered me since I first read it. It solves the co-movement problem without resorting to Murphy's capital maintenance explanation. The problem is, I'm not sure why we should believe this "solution". Hayek writes:
"The raison d'etre of this way of organizing production is, of course, that by lengthening the production process we are able to obtain a greater quantity of consumer' goods out of a given quantity of original means of production. It is not necessary for my present purpose to enter at any length into an explanation of this increase of productivity by roundabout methods of production."
So Hayek says that you don't even need to resort to the neglect of capital maintenance. Investment and consumption move together because the lengthening of the capital structure makes investment more productive.
I wish he had explained it more because I see absolutely no reason to think this is true. He's not talking about technological progress that happens to elongate the capital structure. He's simply talking about increased roundaboutness itself. Why does that - in and of itself - make things more efficient? Does anybody believe this?
This line always bothered me for precisely the reason that I think Murphy's explanation bothers Cowen - it seems like a very convenient solution to the problem that is also conveniently short on details, citations, or empirical support. Take this assumption away and (it seems to me) you still have a theory of the business cycle that makes some sense (unsustainable changes in the capital structure - malinvestments that might need to be liquidated later on), but one that seems less binding theoretically (why can't we just grow into these malinvestments - clearly some roundabout production is necessary, and regular growth rates should allow us to eventually make use of investments that, just a few years ago, where malinvestments) and less convincing empirically (Tyler's co-movement problem reemerges).
UPDATE: Peter Boettke has thoughts here.
Wednesday, January 19, 2011
It's so clear! All the ill-will and name calling was akin to pre-adolescent boys teasing the girls they like. I always figured they actually despised the guy! But now, Krugman puts one link to a Bob Murphy post and the Austrian blogosphere is all atwitter.
And like that Aussie chick in Grease, everyone wants to know more!
- Bob Murphy starts off by swooning and asking for everyone's opinion.
- Gene Callahan is beside himself.
- Jonathan Catalan defensively questions how genuine the overture is.
- And Peter Boettke sagely counsels Bob on how to approach the insatiable demands that Krugman is going to make of him.
The only remaining question is how Murphy's biggest schoolyard competition for Krugman's heart, William Anderson, will react.
UPDATE: Not "Wayne Anderson"... I have a colleague by that name... now I'm wondering how many times I've done this before... (HT the ever-good-natured Bob Murphy).
Nobody get too upset - I'm just having fun...
With all the work on doctoral applications and a few reports to finish for work, I haven't gotten the chance to look at this or think about it in any great detail, but here are a few thoughts:
1. First, I think we have a (correct) tendency to look at the labor productivity numbers as effect and not cause. American workers probably aren't different now - firms just react differently to them. This is why productivity gets connected with talk of labor hoarding. Several decades ago, an unproductive worker would be kept on as a human capital investment, lowering average productivity. Today unproductive workers are dropped more quickly, raising average productivity. This is probably the right way to look at it, but we also shouldn't discount the prospect of some technological development that is causing some technological unemployment. These "modern recessions" did emerge with the spread of computers, after all. This is the Arnold Kling take on things. I doubt that explains all of it, but it's always a possibility.
2. We also need to remember that productivity figures are measures of current productivity. If you think of human labor as a raw material, it makes sense to talk about that. But if you think of human labor as an investment, it doesn't. What firms care about when they think of human labor as an investment is the discounted value of the stream of income that can be derived from the employment relationship. This raises another explanation - maybe labor hoarding behavior has changed not because the current productivity of an individual worker has behaved all that differently. Maybe it has changed because the expected discounted value of the stream of income from the employment relationship has been reduced.
3. Tyler Cowen talks a lot about the zero marginal product worker... maybe... but I wouldn't fixate on the "zero". What we may be dealing with here is a change in the marginal efficiency of human capital, which is lower than the real interest rate. Firms drop workers not because unions are weak or because their current productivity is strictly zero, but because it pays more to hold idle assets than it does to make a human capital investment. Wages are rents paid to a special kind of capital. My workload ebbs and flows, as does the workload for a lot of people in the modern economy. The paycheck I get when work is lighter is like rent paid on capital. I'm essentially on retainer. And when the workload gets heavy, I still get paid the same. I am an investment. I am not a raw material. And my employer treats me like an investment, rather than a raw material.
4. There was one guy that talked a lot about marginal efficiency of capital... I forget what his name was...
Maybe more on this later... I had to cut short - got an early conference call.
Tuesday, January 18, 2011
The guy was crazy. He should have had psychiatric attention. Let's do a feature story on schizophrenia and its warning signs. How could someone like Loughner have obtained a gun? But let's remember that the dude is crazy. This is about a deranged act of violence that we just can't wrap our minds (or more importantly, our flag!) around. I mean, how could this happen?! We didn't see it coming because we couldn't fathom it, because... you know... he was crazy. Not like us. Which is why we can't fathom any sort of political violence with which we might be complicit or to which we may some day feel an ethical necessity to appeal.
Most of that isn't technically wrong, I guess, but the belaboring of the point that Loughner was disturbed has served to make political violence something that we just can't possibly attribute to ourselves. It's just something that crazy people do. That stuff is for conspiracy theorists living in bunkers, or young nihilists who can't put together a coherent thought. It's not the sort of thing that Democrats or Republicans do. It's not the sort of thing that a military does (well, our military at least).
This is why protest movements in the United States are so anemic. No one has a sense that political violence is something that we do. If it's state sanctioned, then we cease to worry about it and let those who are hurting for a paycheck enlist to go overseas for us. If it's not an act of state violence, or if it's domestic in any way, then the perpetrator is either crazy or a terrorist. That's not to say that Loughner wasn't crazy, or that someone like the Unabomber wasn't a terrorist in some real sense... but the fact that this is the only sort of political violence we can process puts us in an extremely vulnerable position. Heaven help us if we're put in a situation like Iran or Tunisia. Yes, Americans were really supportive of protests in Iran (because Iran is a part of the axis of evil, dontchaknow), but the buzzword with Tunisia amongst the media class is now not "liberation", but "stability". Folks who don't like the current transition government are "angry"... but why? Can't they be happy with what they've got? Why do they need to keep acting up? Any disruption of the status quo that can't be attributed to mental disturbance or explained as a bullet point in our foreign policy agenda makes us uncomfortable.
That's not to say that we can't process this stuff at all, but I think that doing so brings us quite out of our element. Beyond the mundane stating of the facts of Loughner's mental problems, I think the continued dwelling on it in analysis of the assassination attempt is primarily a strategy of depoliticization. Whether or not this depoliticization is appropriate in the case of this particular event, the result of its continued reinforcement within our political dialogue is that we can't talk about political violence (of either oppressive or liberative sorts) without freaking out and trying to explain away any reason why we should either make use of it or strongly oppose it.
Monday, January 17, 2011
The reason why you would want a microeconomic theory (or theories) of racial disparity is quite obvious. Discrimination, which always looms large in the diagnosis, is a microeconomic phenomenon. Human capital investment and education is likewise a traditional labor problem. Many have highlighted the importance of wealth inequality in perpetuating disparities, and those sorts of saving, investing, and asset building questions are similarly microeconomic. There's also still a tendency to talk about parenting, culture, crime, etc. - all of which are best engaged at the microeconomic level. You can't do without microeconomics in thinking about these questions, but it still seems like there is a notable gap.
What we're dealing with is a situation of a persistent underemployment equilibrium in the black community. A persistent underinvestment equilibrium. A persistent failure to utilize productive capacity that happens to find itself in darker skin. That sounds like a macroeconomic problem to me, and a fertile area for thinking about solutions.
A lot of groundwork is laid. There are shelves of research on labor mismatch and black unemployment, and as the recent Nobel laureates demonstrate, matching is a fundamental component of modern macroeconomics. Normal work with the matching literature is hard, though, because how do you define a job vacancy? It's easy to define a black job seeker and the duration of their search process, but you'd have to think about how to conceptualize job vacancies. On the one hand there are clearly not "black vacancies" and "white vacancies" like there might have been several decades ago. But you also don't want to assume an equivalence of job offer rates.
More traditional macroeconomic models are hard to work through too. I was sketching out a basic IS-LM model last night, and I came up with some plausible reasons to expect an underemployment equilibrium for blacks but not whites, but it was unclear how to model some things. I relied on varying the slope of the investment demand curve and the liquidity preference curve between the black and the white community for my result - but other questions remain. Do the two communities share the same money market? The same rate of interest? If we think credit rationing is important in some communities the answer probably isn't strictly "yes", but it's unclear to me at least how to take all this into account.
I also took some time to read through the report of the 1966 White House "Conference To Fulfill These Rights", which discussed practical steps to help the black community benefit from what was achieved legislatively by the Civil Rights movement. They do mention traditional Keynesian responses to black unemployment, specifically a federal jobs guarantee and public works program. But I can't help feeling that this has more of a welfare function than a full employment function. Any improvement in effective demand from such a policy would be divided between the black and the white community. It's precisely the problem that you have in a currency union with open economies where one depressed economy implements fiscal policy and the other economies in the currency union don't. The benefits are going to leak out. This isn't a reason to oppose a jobs guarantee, but it is a reason to be hesitant about its benefits as a macroeconomic policy.
Where to go from here? Well an article in The Nation from last year suggests I oughta pick up King's last book, Where Do We Go From Here: Chaos or Community?, in which the author suggests:
"King articulated a Keynesian, demand-side critique of the American marketplace. He argued, "We have so energetically mastered production that we now must give attention to distribution." Unless working Americans and the poor were able to obtain good jobs and increase their purchasing power--their ability to pump money back into the economy--it would be sapped of its dynamism. "We must create full employment or we must create incomes," King wrote. "People must be made consumers by one method or the other."
King criticized Johnson's War on Poverty for being too piecemeal. While housing programs, job training and family counseling were not themselves unsound, he wrote that "all have a fatal disadvantage. The programs have never proceeded on a coordinated basis.... At no time has a total, coordinated and fully adequate program been conceived."
Rather than continuing with "fragmentary and spasmodic reforms," King advocated that the government provide full employment. "We need to be concerned that the potential of the individual is not wasted," he wrote. "New forms of work that enhance the social good will have to be devised for those for whom traditional jobs are not available.""
I think another way to move forward is for me to look more into open economies in currency unions, because that's precisely the circumstance of the black community.
Anyone else have any thoughts or know of any work that has been done?