Sunday, June 24, 2012

Two good links and a bad lecture

- Arnold Kling on a new McKinsey report warning of shortages of educated workers of all levels of education. I was reading the report the other day, and it's pretty bad for a lot of the reasons Arnold raises. First and foremost, of course, supply and demands are schedules - not just quantities. Of course you can have shortages with supply and demand schedules, but you've got to have a good way of explaining that. I spend most of my time thinking about higher skill labor, and in those fields the real "market failures" (much as I hate that terminology) are in the product markets - the output produced by these workers. There are much fewer problems in the labor markets. One you could point to is credit constraints, but we have an awful lot of policy to deal with that. So what's causing these enigmatic "shortages"? Nothing I'm aware of. The other problem with studies like this that do forecasts is that it's really impossible to forecast demand trends especially (even if you were treating demand like a schedule, and not like a fixed quantity). Supply trends are somewhat easier. Complex systems are very tough to forecast, and labor market forecasts have proven fairly inaccurate in the past (see Richard Freeman's work on the BLS forecasts).

- Peter Dorman has a good post on the "reflexive libertarianism of mainstream economics". He's specifically talking about conditional cash payments to parents in developing countries who promise to make their children attend schools. The mainstream impulse, he alleges (and I think he's right) is that just giving them cash would be better because that would have an endowment effect on them and they'd be able to reoptimize themselves however they see fit. The primary problem he raises with this is about the cultural determination of norms. He has a great sentence about using these methods to break these cultural patterns: "no, trying to shift norms is no more paternalistic than choosing to not shift them.  Welcome to the inevitability of politics." This is the point I make a lot (and that I usually get support from Gene Callahan on) about how I'm not a libertarian because it's not pro-liberty enough - and that it's not clear that changing property rights is definitely the more coercive option. I'm probably more likely to appeal to more mainstream economics to make my case than Dorman. For example, I'd note something like hyperbolic discounting, the fact that parents are agents acting on behalf of their children (so there's a principle-agent dynamic where the child has very little power), and the uncertainty of the payoff of educational investments to explain why you might want to condition cash transfers rather than just handing out money. It's a much more mainstream story than Peter's that seems more convincing to me. The point is, though, that the naive mainstream view is just a very simple model and you have to be careful about understanding it as gospel truth. If you observe in the real world that handing out cash in developing countries and conditioning the handing out of cash produce two very different results, you need to be prepared to explain why that is. Right now I'm nearing the end of writing a chapter on the basic income guarantee as a macroeconomic policy, and I'm actually making the "reflexive libertarian" argument that Dorman talks about - endowments don't distort important trade-offs and so are superior to conditional transfers. I don't quite believe it myself (and I think I'm going to add a brief note of skepticism at the end) - I'm just making the argument in the chapter because I think it's important to focus on the basic income's macroeconomic implications, which is a somewhat rarer approach. Insofar as people do talk about it as macroeconomic policy they often ignore the issue of price distortions. So it's worth going over even though I don't entirely buy it myself.

- And finally, Niall Ferguson has a really condescending Reith Lecture. All you young kids - if you knew what was good for you - would be in the Tea Party! OK, Niall - whatever you say (HT - Peter Boettke, who was a little more enthusiastic about Ferguson than me).


  1. Daniel, we really need to come up with a stable definition of what "libertarian" and "free market" mean. I think "anything short of communist totalitarianism" surely is out, right? How much further do we both agree we can push that boundary?

    1. If you're talking about "reflexive libertarian" - that's his phrase that I was quoting. He seems to just mean pro-market more broadly when he says that.

  2. So, what's wring with Niall Fergusons' lecture, apart form being condescending? What's your answer to the debt problem Daniel?


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