Monday, November 5, 2012

A couple links

I wish I had more time to talk about these, but I didn't want to miss them.

First, John Cochrane agrees with me that the electoral college is a great institution.

Second, Jonathan Catalan has good thoughts on disaster economics. He writes of my post about demolition vs. disasters: "There is another thing I’d like to comment on, not necessarily related to natural disasters (but, they have been brought up in the blogosphere discussion of “disasternomics:” creative destruction versus capital shocks.

What brings me to address this is a recent post by Daniel Kuehn, linking to an article on a demolition to construct a brand new hotel building... His argument seems to be that it’s hypocritical to lambast capital destruction as a result of capital shocks merely because k has been reduced, when we see benefits in capital destruction all the time. But, there is a crucial difference between the two! The latter doesn’t represent an economic loss."

I'm still a little unclear on what he thinks my argument is, but I just want to clarify that I agree with the last two sentences - that was the whole point of my post after all! Buildings that are demolished have actual value when they are standing, but they also represent an opportunity cost (two buildings can't exist in the same place). So when demolition is voluntary (the answer to the question I posed in the link), you know that having that building there was a net loss, and so the demolition and rebuilding represented a net gain (otherwise they wouldn't do it). My point was that a lot of people seemed to be talking as if the mere fact of physical destruction was what was wrong with hurricanes. That's not really the right way to think about it. The problem with hurricanes is that they're indiscriminate and that they knock down a lot of buildings that to not represent a net gain! Focusing on the physical disaster alone is a misleading guide to the economic disaster.


  1. The reason people focus on the "physical disaster" alone is because they know intuitively that this isn't the same as creative destruction. So, if your point was that destroying physical capital does sometimes lead to increases in value, and it was meant as a nitpick, it's that kind of nitpick where the other person is likely to respond, "We're beyond baby steps." But, I don't see how looking at the physical destruction of a natural disaster is "misleading," at all. It's more misleading to confuse the person by mentioning the desirability of creative destruction, as if the two types of changes in the capital stock could be the same.

    But, in any case, the point of the second part of my post is to show that the results of physical destruction in the two cases aren't the same. So, we really can simply look at the physical destruction wrought by a natural disaster and assume an economic loss. For that to be unjustified, it'd have to be incredibly likely that the natural disaster just destroy capital that was going to be scrapped anyways .

    1. Right - I think we can assume an economic loss without any equivocation, which I thought I said in my post.

      A lot of the discussion has been of the "how can there be good out of this - it destroys things and hurts people". Seems to me in the midst of that it's worth inserting an example that helps to differentiate between physical and economic loss.

    2. Right, but your example has nothing to do with natural disasters, and so doesn't offer an explanation for how there can be any good out of the wanton destruction of wealth. Yea, if you totally change the context a physical reduction in the capital stock could be an economic gain, but it's the context that matters.

    3. The whole point I'm trying to make is that wanton destruction of wealth doesn't provide a net good! That's why I picked a case that wasn't a natural disaster!

  2. Actually there is a point in Cochrane's post I do not get, at least not in and of itself. But it is probably just my lack of knowledge concerning the US political map. He writes:"And "polarization" is only the beginning. Look again at that map. The blue states are all together and the red states are all together. We have polarization with strong geographic concentration -- a poisonous combination." Then he points, sort of tongue-in-cheek, to the Jesusland map. What I don't get: if you have a popular vote, the aggregation you see in terms of states doesn't make much sense. In such an election Texas, or California, or any other state is no meaningful entity. Perhaps a map of voter preferences broken down to much smaller parcels results in a bulk image that shows more or less state limits (which I don't know). But otherwise I do not really understand what a map that shows likely electoral college outcomes is supposed to prove with regard to popular vote. Where do I screw up?

    I'd also note that he is a bit sloppy in his comparison with Europe. I don't think that Cochrane means to say that every abitrarily large cultural disparity could be overcome by elecoral college. In Belgium, for example, the two blocks in question do not even share a common language - the country is a result of complicated historical processes that include the aggregation of completely different nations under nothing else than a common crown. How does he judge the depth of that cultural rift? Can he exclude that Belgium is not simply a smaller, modern Austrian-Hungarian empire (with a less powerful monarch)? It's easy to come up with counterfactuals to his comparisons.


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