Facts & other stubborn things

Census humor

2012-01-27T16:25:00.004-05:00

I've only ever used the SF-3 myself. Randall Munroe studied physics, so I'm impressed with his familiarity with social science datasets.

Fun fact I did not know until today - Munroe graduated from Christopher Newport University the same year I graduated from William and Mary. CNU is just a few miles down the road from W&M. My cousin went there, and Kate did a lot of joint stuff with the school's sister chapter of her sorority (Phi Mu).

Assault of Thoughts - 1/27/2012

2012-01-27T14:22:00.005-05:00

"Words ought to be a little wild, for they are the assault of thoughts on the unthinking" - JMK

- Noahpinion rightly praises Tabarrok's call for a more innovative economy. He's also right to explicitly raise the issue of public goods (although I'd rather call it "externalities" - a lot of these things aren't really public goods, they're private goods with crucial externalities). However, I'm not sure Tabarrok would be on the same page with him on that point. For me, this is an "all of the above" point. Noahpinion is exactly right that there are lots of things where simply increasing spending would be a very, very good idea. But Tabarrok is exactly right that this is about so much more than that - that a lot of it is about an environment that fosters entrepreneurialism and innovation. Previously, I've raised some concerns about the way Tabarrok talks about high skill immigration.

- Ron Paul proof-read and approved all the newsletters. Not exactly a surprise or a revelation. The guy vehemently defended them until the political winds turned. If this isn't enough to dissuade libertarians, I can understand that. But don't pretend this isn't something that we who are bothered by this should just brush off. And just admit how bad it all is like Steve Horwitz and Nick Gillespie. If the modern libertarian movement is nothing more than a Ron Paul lovefest it's hard to see how it differs from any other political personality cult with an idealistic ideology behind it.

- Troy Camplin claims that we ostracize and sneer at the commercial class. I call that bunk, and explain my position in the comment section. What do you all think? UPDATE: [More from Troy. He writes in response "I do think they are ostracized and sneered at in our literature and by many of our academics, who in turn teach college students to think of businessmen as inherently corrupt." I cannot think of a single professor I've had in my seven and half years of higher education that has said that businessmen are inherently corrupt (and I've had a couple humanities professors and a bunch of sociologists). But perhaps my case is still atypical. What about you all? Has anyone ever taught you that businessmen are inherently corrupt? He goes on: "One of the consequences is that those who go to college then go into business think that one has to be corrupt to be successful" I knew a lot of business majors (who often doubled-majored with economics at W&M), including two roommates. None of them thought this. I've never met anybody who went "into business" and thought this. But again - my case may be atypical. Can anyone confirm Troy's assertions here?]

- Happy EITC Day! Sometimes I feel like the people who whine about welfare and act as if government isn't an emergent order itself don't really understand the important landmarks in the history of our social democracy. U.S. government is a decentralized system with plenty of opportunity for information feedback and evolution. That makes for good government, and the evolution of the welfare state is an excellent example of that. Hooray for the EITC!

Unlearningecon with some thoughts on Austrian economics

2012-01-27T09:10:00.001-05:00

Here.

Well now I'm actually conflicted!!!!

2012-01-27T09:05:00.002-05:00

This isn't something you'd hear out of Ron Paul.

Good Genes + Persistent Libido = A Prolific Presidential Legacy

2012-01-27T07:15:00.002-05:00

Apparently two of President John Tyler's grandchildren are still alive today (HT - Jenn Sykes). That's what continuing to have kids into your sixties (President Tyler), and your seventies (his son Lyon Gardiner Tyler) will get you! This is of personal interest because Lyon Gardiner Tyler is closely related to William and Mary - he was its seventeenth president and has lots of stuff named after him there. President Tyler was an alum as well.

More thoughts on Lastrapes, Selgin, and White

2012-01-26T07:35:00.003-05:00

I've mentioned a few times now on the blog - including the last post - my concern about the fact that their paper is essentially a pre-post test. That's fine descriptively (Christina Romer has done a lot of work like this), but it's not as good for policy analysis.

So what might be different between the pre- and post-1913 period that might justify a difference-in-differences approach? I can think of a few things:

1. The move from extensive to intensive growth. I've referred to this previously as "the closing of the frontier" in the Cafe Hayek comment section, at which point George Selgin rather unceremoniously dismissed my views. But intensive growth and extensive growth certainly shouldn't be so controversial.

2. The move from very little of the labor force working for wages to a lot of the labor force working for wages.

3. The increased financialization of the economy (this is perhaps one of the most important points).

We could also think about the gold standard - is there a case for differentiating between the gold standard Fed and the post-gold standard Fed? The paper may have addressed this point - it's been several months since I've read it.

Can anyone think of anything else?

The paper is coming out in the Journal of Macroeconomics. If anyone has the time or inclination to run a difference-in-differences, perhaps with Great Britain or some other country as the counterfactual, I think that would be a valuable contribution. Macroeconometrics can learn a lot from microeconometrics.

Vulnerability to rent-seeking means you're not as robust as you could be

2012-01-25T21:17:00.003-05:00

Steve Horwitz has a great comment on this post, and I would restrict my response to that thread, except there are two really important points I want to make - which I think merits a new post. First, he agrees the burden of proof is on free bankers. On the institutional robustness point, I think this is definitely right, simply because they've proven less robust. I take more issue with his second and third point. He writes:

"...the increased role played by government in money production, whether in the form of NBS type regulation or true central banks, were the result not of failures of free banking but of rent-seeking by private interests and/or the desire of government actors to have access to revenue through money creation. I'm quite confident that the cases where pretty free systems became central banks fit this pattern."

This is an odd point to raise, I think. if you're vulnerable to rent-seeking in this way it means you're not a very robust institution! Communists often complain that totalitarian-minded rent-seekers spoiled the worker's paradise. We usually don't take this to be a good argument supporting the institutional robustness of Communism! If you need angels to get a system of free-banking to work, then you're out of luck - because men aren't angels.

Next Steve writes that free bankers should:

"Do what White, Selgin, and Lastrapes have done and demonstrate that generally accepted macro outcomes have been worse under central banking than more free systems. Again, I think a real preponderance of the evidence is on the side of free banking here."

White, Selgin, and Lastrapes do have an interesting paper, but coming from the world of labor market program evaluation it's always been hard for me to know what to make of it. It's essentially a pre-post test, which would never get any creedance elsewhere. What you really want is some way to identify the counter-factual, because there are lots of reasons to believe that the twentieth century was very different from the nineteenth century, and had different requirements of its monetary and financial system.

One solution I've noodled over before is reproducing the White, Selgin, and Lastrapes analysis but with Great Britain as a paired economy in a difference-in-differences analysis, a common approach in labor economics and virtually the only viable counterfactual I can think of for the sort of policy analysis they're attempting. Details on difference-in-differences estimators can be found here. The idea is that Britain had a central bank through this whole period, so if you difference out the difference between the British economy post-1913 and the British economy pre-1913, you can identify the impact of the Fed. Maybe. It's still a dicey proposition.

More agreement on something that doesn't get us anywhere

2012-01-25T08:52:00.005-05:00

Arnold Kling links to David Colander writing: "Not only are economists as a group not humble enough, what lay people are presented as economist's policy recommendations are often the policy recommendations of the least humble economist. In summary, my argument is that lack of humility in conveying the limitations of their results is the most serious ethical problem facing economists; it played a much larger role in causing the recent financial crisis than did the type of payments highlighted by Inside Job. Thus, and any new code of ethics for economists should deal with that humility problem."

I strongly agree with this - it's very similar to some of the points made by Robert Johnson in my link below.

The problem, once again, is that we all have different culprits in mind when we read something like this. When I read this, I immediately think of the mostly libertarian economists who want to radically alter and re-engineer the society that has naturally emerged and evolved in the United States by dismantling the social democracy that we have.

I highly doubt this is who Arnold Kling is thinking of as he reads this passage.

In fact, the very people that seem completely lacking in humility to me probably seem like poster children of humility to him.

I'm not sure where this gets us... probably nowhere.

Steve Horwtiz on Free Banking - a question about institutional robustness

2012-01-25T08:33:00.002-05:00

In the comment thread of this post, Steve Horwtiz writes (in response to another commenter - not my initial post):

"There was no central bank in the 1890s, but that doesn't indict "free markets" because the US money supply process was still very much affected by the federal regulations of the National Banking System that made it difficult for national banks to respond to increased in the demand for money, especially those associated with harvest season or sectoral problems (e.g. the railroads in 1893). The panics of 1893 and 1907 were classic examples of government intervention (and in the name of financing the Civil War no less) gone bad."

I don't want to endorse his history because I'm no expert on the history of this period, and I don't want to "indict free markets" because of course I am a free market economist. But if we take this to be a reference to free banking, I do want to raise a question about institutional robustness. Since we only seem to be able to point to scattered, fleeting references to free banking, can you blame us non-free-bankers for raising concerns about how robust such a system would be? It's a bit like Communists who are never happy with the totalitarian systems that always seem to result from any attempt at making Communism a reality. There are lots of reasons to criticize Communism, but one quite natural criticism is that the only Communist society they've ever really been happy with survived for a grand total of two months.

I don't think - and have never claimed - central banking is perfect, but I think it works well enough to do the institutional job that we want it to do. We know central bankers learn from their mistakes and adapt the institution over time (just look at the history of the Fed). And we know these institutions are actually stable - we're coming up on the 100 year anniversary of the Fed, and the Bank of England has been going strong for centuries.

Steve is right in this comment - the 1890s were not a free banking era as free bankers understand the term. It's hard to find such an era, actually.

Those of us who care about institutional robustness and the actual functioning of our theoretical ideas in the real world should care about that, I think.

Facts are stubborn things

2012-01-25T08:32:00.002-05:00

Well this is depressing.

I've always looked at those "fact checking" sites as being similar to Wikipedia anyway - good starting points. Still, this one is unfortunate.

Be careful reasoning from MPC

2012-01-25T08:15:00.002-05:00

I have not jumped into the recent stimulus debate. To be honest I've been pretty put off by the mudslinging, particularly from Cochrane's corner. But this was an interesting post from David Glasner on it. He makes the point that if you want to translate Lucas and Cochrane into a Keynesian model, we're talking about an MPC of zero, so that consumption is entirely determined by lifetime income.

This is all fine, but it's important not to reason an actual multiplier from a given MPC. Yes, we can get something that's been labeled "the multiplier", but what we actually care about (and what we estimate) is the change in national income in response to a change in government spending. That is generally smaller than the multiplier you get from a given MPC. Why? Because government spending can crowd out investment spending.

With crowding out, you don't even need an MPC of zero to get Cochrane's result.

Right now, of course, we're more likely to see crowding in than crowding out. I'm also not personally convinced by an MPC of zero.

Fixing Economics

2012-01-25T07:59:00.002-05:00

Robert Johnson has a few suggestions, below (HT - Mark Thoma). Regular readers know I think some of the sob stories about the "state of economics" are overblown. The two examples that Johnson leads with in the article (the Queen asking why economists "didn't see it" and the Mankiw walkout) are particularly irrelevant points. The Queen shouldn't expect anyone to be able to forecast a complex system, and the Mankiw students were being very naive.

Nevertheless, there's some really good stuff in here. I think the third point is probably already inculcated by the discipline, but the others - particularly the first - are very good.

One of the problems is that reading the first suggestion, I know different people will have different culprits in mind.

*****

"First, economists should resist overstating what they actually know. The quest for certainty, as philosopher John Dewey called it in 1929, is a dangerous temptress. In anxious times like the present, experts can gain great favor in society by offering a false resolution of uncertainty. Of course when the falseness is later unmasked as snake oil, the heroic reputation of the expert is shattered. But that tends to happen only after the damage is done.

Second, economists have to recognize the shortcomings of high-powered mathematical models, which are not substitutes for vigilant observation. Nobel laureate Kenneth Arrow saw this danger years ago when he exclaimed, “The math takes on a life of its own because the mathematics pushed toward a tendency to prove theories of mathematical, rather than scientific, interest.”

Financial-market models, for instance, tend to be constructed with building blocks that assume stable and anchored expectations. But the long history of financial crises over the past 200 years belies that notion. As far back as 1921, Frank Knight of the University of Chicago made the useful distinction between measurable risk and “unknown unknowns,” which he called radical uncertainty. Knight’s point was that in a period of radical uncertainty, expectations couldn’t be anchored because they have nothing to latch onto. Financial theories and regulatory designs that hinge on the assumption of stable and anchored expectations are not resilient enough to meet the challenges presented by real financial markets in radically uncertain times. [See Keynes on unknown unknowns as well]

The third remedy for repairing economics is to reintroduce context. More research on economic history and evidence-based studies are needed to understand the economy and overcome the mechanistic bare-bones models the students at Harvard objected to being taught.
But the economic orthodoxy continues its romance with the Enlightenment tradition of Cartesian “universal laws.” This began after the Thirty Years’ War, when society demanded both a method of investigation that did not antagonize religious factions and universal abstract laws and principles that could be objectively proven. Lost to the traumas of religious and social turmoil were the humble and pragmatic humanistic approaches of Francis Bacon and Michel de Montaigne and the suppleness of William Shakespeare. Reorienting economics away from the Enlightenment glamour of high theory and returning it to focusing on real problems, in the same way a clinical physician does, would make economics more relevant.

The profession needs to realign the incentives for doing reputable research in order to protect its integrity as a whole, as is done in medicine. Recent policies announced by the American Economic Association on disclosing conflicts of interest are a step in a healthy direction. Faculty members should also be forced to step down from consulting at the time they receive tenure.
Fourth, we must acknowledge the intimate, inseparable relationship between politics and economics. Modern debates about who caused the financial crisis—government or the private financial sector—are almost nonsensical. We are living in an era of money politics and large powerful interests that influence the laws and regulations and their enforcement. In order to catalyze the evolution of economics, research teams would benefit from multidisciplinary interaction with politics, psychology, anthropology, sociology and history.

Such interdisciplinary communication would also benefit another neglected area of economics: the study of macroeconomic systems. Psychologists mock what economists call the microfoundations of consumer behavior—a set of assumptions based on the idea that isolated individuals behave with clear knowledge of the future. That this framework is suitable for aggregate systems in a globalized economy simply because the tribe called economics has agreed to adhere to these ad hoc assumptions makes no sense. Increased interactions with disciplines that economists have often mocked as unscientific would greatly improve economists’ understanding of the real world and would be more truly scientific."

Bob on 1920-1921

2012-01-24T10:30:00.003-05:00

I'm running out now, but please see Bob Murphy on the Krugman post. He's absolutely right about the way I interpret his Freeman article - I'm going to check out the process of getting that corrected. RAE article should be free of this (thanks again to some careful review by Bob).

A somewhat stunted understanding of what free people ought to be free to do collectively

2012-01-24T07:59:00.003-05:00

Readers know I think externalities are a very important concept, and probably also know that I prefer talking about externalities to talking about public/private goods (because true public goods are quite rare, public goods can be provided privately, and there are important externalities associated with private goods... so the public/private thing just seems less helpful). But most people treat them similarly.

Public goods/externality arguments have always been an important part of the argument for free government, going at least as far back as Adam Smith. It's an important argument, but is it the only argument?

I was reading Coyne and Lemke's new article on polycentricity and disaster relief (HT Peter Boettke on the new issue of SIEO - Ostrom's work on polycentricity has interested me for a while, which is what piqued my interest in this article), and they seemed entirely focused on these efficiency/welfare maximization/incentive/calculation questions in talking about government and disaster relief. Take this passage for example:

"To date, those writing in the political economy tradition have focused on three categories of arguments related to the government provision of disaster relief. The first is how relief fails to fulfill the traditional defining characteristics of a public good. The traditional theory of public goods requires that a good be non-rivalrous in consumption and non-excludable in order to be considered public. If the good meets these criteria the market ‗fails‘ to supply the optimal amount of the good due to issues of pricing and free riding. In order to correct this market failure, it is argued that government intervention must intervene to increase production to move closer to the optimal level of output.

However, as argued by Shughart (2011), disaster relief fails to meet the necessary criteria because many components of disaster relief are scarce and, as such, rivalrous. The teams and tools needed to rescue survivors are in limited supply, and emergency provisions, such as drinking water and medical care, are also only available in finite quantities. These same goods are also easily excludable, which means that whole swaths of disaster relief efforts immediately fail to meet both criteria for being considered public goods (Shughart 2011). One particularly memorable example from Katrina is the purchase of trailers as substitute residences. Trailers are both non-excludable [sic] and non-rivalrous [sic], positioning them soundly as private rather than public goods."

There's more in the paper about knowledge and incentive problems too, but that all also falls under standard microeconomic conceptions of the role of government.

What was surprising to me about reading their paper was that I would have never even thought to justify federal disaster relief on the basis of an externality/public goods point, in the same way that I don't think I'd justify welfare on that basis (well - I may talk some in that case about the externalities imposed on children growing up in poor families against their will).

Think about what you're saying when you point out that goods and services needed in a disaster are private goods (they are - I agree on that), and therefore should be provided by the market. People who get goods in the market are those with the willingness and ability to pay the market price. Normally we think those two things are a pretty good indicator of where the good should be allocated, right? We want people to have the good who have the highest opportunity cost of not having the good.

But in a disaster situation (particularly in poor areas) you have major constraints on the ability to pay the market price, particularly if supplies are limited and there's a lot of income inequality. It's not clear at all that traditional market allocation is ideal in these situations. Maybe until things settle down everyone should have (1.) dry clothes, (2.) food, (3.) water, (4.) medical attention, and (5.) some kind of shelter regardless of their willingness and ability to pay a market price. If that's the case, it's unclear what the fact that these are private goods has to do with anything. They are private goods, but the market won't allocate them in the way that we probably think is best in these situations.

*****

Two other points:

1. Obviously that doesn't mean you shut down markets. That should go without saying, but in case someone thinks I'm advocating shutting down markets I want to clarify this point. Nobody who knows their economics should get upset at "price gouging" in a disaster. But there's also no reason to act like the government and the market are any more in contradiction with each other than charities and the market are. When government and charities have distributed all the supplies they have on a non-market, equitable basis that source of egalitarian supply is unlikely to have fulfilled everyone's demand. So you don't want to outlaw price gouging or anything like that - the market offers another avenue for fulfilling people's needs. Liberal governments, liberal private organizations, and liberal markets are complements to each other.

2. I haven't really gotten into the polycentricity discussion of the article (which is what I was really reading the article for), but that point is important too. One of the great strengths of the United States is that government and governance here are decentralized. We could have more of that. In addition, we have a lot of non-profit, humanitarian, NGO, and other organizations with overlapping missions and capacities. That polycentric response makes disaster relief a lot more robust than it otherwise would be.

*****

In summary - what could possibly justify limiting our view of government to such a weak concept as "public goods"? That just seems strange to me. You could argue that national defense is a public good, but personal and local security certainly isn't. We don't provide that because it's a "public good" or because it can't be provided on the market. We provide that because we believe that all men and women should have secure lives and property. There's lots of things that the government does besides providing public goods. It's very risky to let welfare economics dictate your political philosophy.

Some details on how our non-Keynesian president thinks about space policy...

2012-01-24T06:09:00.001-05:00

...at a time when we need big public investments. From the Space Politics blog:

"The [New Yorker] article notes that as a candidate for president in 2008, Obama “had promised a bold space program”, a reference to his space policy white paper the campaign released in August 2008. However, according to the New Yorker article, those plans foundered on projections of growing budget deficits. “Especially in light of our new fiscal context, it is not possible to achieve the inspiring space program goals discussed during the campaign,” a November 2009 memo (authorship unstated) advised the president. That sentence, the article noted, was in bold and underlined for particular emphasis. The result:

'Obama was told that he should cancel NASA’s Bush-era Constellation program, along with its support projects, like the Ares launch vehicles, which were designed to return astronauts to the moon by 2020. The program was behind schedule, over budget, and “unachievable.” He agreed to end it. During the stimulus debate, Obama’s metaphorical moon-shot idea—the smart grid—was struck down as unworkable. Now the Administration’s actual moon-shot program was dead, too.'

Later, the article notes the president received a letter dated February 2, 2010—one day after the release of the 2011 budget proposal that announced plans to cancel Constellation, as Obama was advised the previous November—from a Virginia woman whose husband was working on the program. “I voted for you. I supported you. But I am very disappointed in you. You are not the President I thought you were going to be,” the woman, identified only as “Ginger”, wrote, after criticizing the president for cancelling Constellation while continuing to fund wars in Iraq and Afghanistan.

Obama’s response to his staff: “can I get a sense of how Ares fit in with our long term NASA strategy to effectively respond”. A few days later he got that information and then instructed an aide to “Draft a short letter for Ginger, answering her primary concern—her husband’s career—for me to send.” What the president was told, and how he decided to respond, aren’t disclosed."

Need not be from the Onion (but it is)

2012-01-23T18:30:00.001-05:00

"He's not afraid to give Americans no-nonsense straight talk about his completely delusional fantasy world. That's why I'm part of the highly unlikely Ron Paul revolution."

Paul fans will like the last line too.

Good discussion of 1920-1921

2012-01-23T11:14:00.003-05:00

In the comment section of this post.

One of the things they bring up that I haven't explored much is how the banking system fared. I'll have to make a mental note to look into that.

Plus there are several very kind references to me. Always nice.

Note that the three pieces that Zywicki links to as forming his own background on the depression are exactly the three pieces (which are actually quite different from each other - something I have to thank Bob Murphy for impressing upon me) that I respond to in my RAE article.

Warren Harding is A-OK with me

2012-01-23T10:16:00.007-05:00

Another thing on the 1920-1921 stuff.

A lot of this inevitably turns into "Warren Harding was great" or "they don't like Harding". As a non-Harding scholar but as someone who is modestly conversant in the economic events of 1920-1921, I want to make clear that I think Harding was a fine president, for the brief time that he served. Labor unrest played a major role in the downturn, and he could have cracked down on that, but I know of no particularly draconian action from the Harding administration. Harding released Debs from the jail that Wilson threw him in on inexcusable, trumped up charges. Harding wisely cut taxes which, while not some depression-curing elixir, was the right move. Harding was a "return to normalcy" and a long-term growth president. He was a good president.

The one stain (which I don't know much about) is the Teapot Dome Scandal. I'm told he didn't have direct involvement in that. That's good, but not great. Presidents ought to know what goes on in their administration. So that's not ideal, but overall I don't judge Harding to be a "bad president" or anything like that. The caveat - as I said above - is that I'm certainly no Harding scholar.

UPDATE: Oh! And I almost forgot! Harding established the OMB which was an extremely wise move that was probably long overdue.

Krugman on 1920-21

2012-01-23T09:51:00.002-05:00

Yesterday, Paul Krugman had another quick post on Harding and the 1920-1921 depression. It's been odd how the timing on his posts has worked - last time he commented on it, my RAE article just came out, so I sent it to him and he linked to it. This time, too, he posted shortly after my CJE article came out, so I sent that to him as well, and then I got another link!

I suggested if he was short on time he scroll down to the figure - I thought he'd like that.

I do want to clarify something on the passage he cites. It makes it sound like I may even think that post-war austerity caused the 1920-21 depression. That was certainly something you heard at the time (and a big part of the reason why a few people thought there might be a depression after WWII). I don't actually think it's quite that simple, myself - and I don't want people to be thrown by the passage Krugman cited. In my opinion Christina Romer (1988) has amply demonstrated that demand shocks had little to do with the 1920-21 depression. I agree. What I think is reasonable to say is that the sort of demand shock implicit in the rapid demobilization might have made things a little worse than they would have been to boot. That was really the intention of that passage.

Certainly if fiscal austerity was an important determinant of recovery, as some claim, the deep cuts of the Wilson administration should have prevented us from ever falling into the 1920-21 depression in the first place!

An odd sentence about Gingrich

2012-01-23T08:04:00.002-05:00

Andrew Sullivan has a post up spelling out the appeal of a Gingrich v. Obama race. This last sentence seemed strange to me: "Say what you like about the man [Gingrich], but he has ideas, says arresting things, and most of all, would make the clearest possible contrast with Barack Obama in the general election."

The idea is that Romney would say anything to get elected, and Gingrich would just be Gingrich.

I don't see why people think this about politicians. I think we've seen ample evidence that every one of these candidates would say anything to achieve their ultimate goal of being elected. But the Gingrich point about the "clearest possible contrast" with Obama was especially surprising. Gingrich has been going around saying that Obama wants more people supported by the government while he wants more people supported by their own jobs. Since the election is going to be largely about the economy, we're going to hear more of that. How can anyone call that "the clearest possible contrast"? It's a compeltely fabricated contrast and it muddies the actual differences between them.

Cool Alaska population animation

2012-01-22T17:42:00.003-05:00

I'm essentially done with the NBER chapter on new supply to the engineering labor force, and starting to contribute more to the other one on petroleum engineers - and as a result I'm reading more about trends in the Alaskan economy, including following the Alaska Department of Labor blog. This was a cool graphic they had featured - demonstrating the shift from a male-dominated territory to a more balanced population.

UPDATE: And apparently it's not animated on this post, but if you click on the picture it will open and animate.

Not a bad paragraph, for a Marxist

2012-01-22T10:01:00.001-05:00

"Science, in content, form, and purpose, is fundamentally social, collective. It is invariably, in its every branch, the sum of knowledge attained by many different people, by past generations and by contemporaries. It is the composite product of collective labours. The facts and conclusions which it comprises are expressed in the form of concepts, definitions, and formulae; they are recorded in writing or in print. The purpose of all this is to facilitate the communication of knowledge to other people, to one's class, one's state, to humanity as a whole. Finally, and this is most important, science is a powerful instrument helping to disclose new productive forces in nature and new means of production. It gives man the means of struggle and of defence. Therefore, science comes into being and develops simultaneously with the rise and development of society, as an inevitable consequence and at the same time an indispensable condition for this development."

- S.I. Vavilov, 1948

Andrew Sullivan shares some of Louis C.K.'s political philosophy (which seems like a lose label for what he talks about)

2012-01-21T18:12:00.004-05:00

Here. Whatever you want to call it, it's very good. Particularly the very last line. If you had to put a label on it, I'd call it Pragmatism.

Furthermore, I think the few issues he talks about on where he's a conservative and where he's a liberal - as well as more things from Louis, if you're familiar with some of his other discussions - show very nicely how "populism" and "libertarianism" aren't the only two things you can get when you mix some "liberal" views and some "conservative" views. People can take that Nolan chart way too seriously sometimes.

Steve Horwitz is exactly right about thinking about labor market discrimination

2012-01-21T15:26:00.004-05:00

He provides a defense of his youtube video here. These arguments are very similar to the ones I made on Martin Luther King day about racial disparities - a literature I'm more familiar with than the gender disparities literature.

The point is, late stage discrimination is the tip of the iceberg when it comes to disparities, although it's often the most trumpeted. Steve and I do make slightly different points. Mine emphasizes the fact that when we define the problem as "the portion of the disparity that is not accounted for by legitimate observable variables, like education, intelligence, etc.", we miss the fact that inequality in those "legitimate observable variables" is often not acceptable either - often because of earlier-stage discrimination or inequality that we would not approve of. So only focusing on the "unexplained" variation at the later stages downplays the problem of racial disparities.

Steve's video's point is more highlighting the fact that the problematic disparities we do see are - for lack of a better term - "compounded" inequalities that occur well before the employer, rather than "discrimination" by the employer. Steve's post's point is that in saying what he did in the video, he did not mean to imply there aren't problems further upstream (the problems I spent time discussing in my post the other day).

An excellent source on this kind of compounding of inequality is Charles Tilly's book Durable Inequality, as is Oliver and Shapiro's book, Black Wealth/White Wealth. I read both in an economic sociology course I took with Deirdre Royster at William and Mary, and to this day are very important for how I think about inequality and racial disparities.

More libertarian labeling puzzlement

2012-01-21T14:15:00.004-05:00

There are times that it seems to me the only difference between a liberal calling themselves a libertarian and a liberal not calling themselves a libertarian is that they like the ethos of one or the other group. Or perhaps they have friends that thought similarly and called themselves libertarians. I don't know - but analytically I find the term to be very undistinctive in a lot of cases. I've talked several times on here about Mark Pennington's defense of libertarianism which to me sounds like a defense of the liberal tradition in general - anyone in the liberal tradition.

I had the same feeling reading this description of John Tomasi's new book, linked to by Don Boudreaux. Like Don, I agree it sounds like an interesting read.

Unlike Don, the description makes me feel like I'm a "libertarian" by Tomasi's standards and Tomasi's argument about the relationship between liberty, property, fairness, justice, etc.. Here it is:

"Can libertarians care about social justice? In Free Market Fairness, John Tomasi argues that they can and should. Drawing simultaneously on moral insights from defenders of economic liberty such as F. A. Hayek and advocates of social justice such as John Rawls, Tomasi presents a new theory of liberal justice. This theory, free market fairness, is committed to both limited government and the material betterment of the poor. Unlike traditional libertarians, Tomasi argues that property rights are best defended not in terms of self-ownership or economic efficiency but as requirements of democratic legitimacy. At the same time, he encourages egalitarians concerned about social justice to listen more sympathetically to the claims ordinary citizens make about the importance of private economic liberty in their daily lives. In place of the familiar social democratic interpretations of social justice, Tomasi offers a "market democratic" conception of social justice: free market fairness. Tomasi argues that free market fairness, with its twin commitment to economic liberty and a fair distribution of goods and opportunities, is a morally superior account of liberal justice. Free market fairness is also a distinctively American ideal. It extends the notion, prominent in America's founding period, that protection of property and promotion of real opportunity are indivisible goals. Indeed, according to Tomasi, free market fairness is social justice, American style."

A lot of people don't think much of this "defining libertarianism" thing. What really interests me about it is that it's a window on how people view others. So when a libertarian offers a definition of "libertarian" that describes particular views on liberty, the market, government, etc. - and they consider someone like me to not be a libertarian, the implication is they think I don't agree with those views of liberty, the market, and government.

It's fascinating to me, then, that in so many cases not only do my views coincide with these definitions of "libertarian" - they coincide quite strongly.

What is it about the way humans think about ideology that this is possible?

I think that's why some of these discussions interest me - because it' offers some insights into a broader class of human behavior and understanding. It's more than just a definition.

Two good links

2012-01-21T09:32:00.002-05:00

- Krugman, going back to the public debt issue. Maybe this one clarifies his position a little? I still think he said what I always thought he said, and I still think that (1.) Nick and Bob highlighted excellent points - even points that I hadn't thought about before seeing the modeling, but (2.) they still were not challenging or contradicting Krugman's argument. Neither was Don. Steve and Gene were right to come to Krugman's defense. This is actually a very good thing, people. It's OK if six professional economists choose to emphasize different aspects of a problem because they think different aspects are more important. It's more disconcerting if six professional economists come to wildly different conclusions on the same point. I don't think that is what happened.

- Andrew Sullivan shares some good points on the intergenerational obligations of government. This relates to things I've said in the past about temporal autarky and intertemporal externalities. Paine and Jefferson would heartily agree. I am less sure than I used to be about this "compact" language. It's probably safer to just say that government is an institution that emerges to solve many of these problems, it has characteristics similar to compact, but it's not exactly a compact - and leave it at that.

Rampell on Science and Engineering Education and Workers

2012-01-20T16:31:00.002-05:00

Rampell discusses the NSF's new Science and Engineering Indicators, here. There are a few lines in her post I don't like, but there's good discussion of academic major choice.

Isaac Newton: Proponent of Theocratic Police States

2012-01-20T12:57:00.002-05:00

"Enlightenment" is such a nice word. It's important to remember that it took time for the various strands of the enlightenment to coalesce. Case in point:

“Every good Prince ought by Gods commandment to punish even by death all such as do seek to seduce the people of God from his true worship.”

- Isaac Newton, c. 1688

However, as the blog post linked above notes, Newton's real target and intent is not entirely straightforward. It's an interesting read.

A dream class to teach

2012-01-20T11:31:00.002-05:00

I've been working on the NBER chapter all this morning - thinking about a lot of things, including the issues raised in this post - and a really interesting course idea came to mind: Economics for Natural Science Majors. I think Economics for Non-Majors courses are fairly common (just as the "for non-majors" courses are common in many disciplines). In economics, usually these sorts of courses draw in public policy, government, and other social science people.

What would be interesting is to teach and economics course tailored to natural science majors. It would do two things:

1. Go over (in a more general way) material on the economics of science: occupational choice, labor market adjustment, compensating differentials, human capital investment, public goods nature of R&D, endogenous growth theory, etc.

2. Go over basic economic concepts as applied to science. You can teach things like the price mechanism and opportunity cost and how they relate to peak oil fears, discounting and thinking about climate change, etc.

At schools with some sort of social science general education requirement I think you could get a real critical mass for a class like this. Does anyone know if such a class exists? I think it would be a blast to teach.

Paul Romer on Regulation

2012-01-20T09:05:00.002-05:00

Here (HT Tyler Cowen).

Experimentation, evolution, responsibility, and robustness in thinking about regulation. All absolutely essential. Romer's work on the science and engineering labor market has always bothered me, but everything else of his I've come across is quite good.

Predicting the future of complex systems is hard

2012-01-20T07:43:00.003-05:00

Even when you've got a sample of millions to draw on. This article describes how doctors are essentially making educated guesses when they offer prognoses, particularly as their ability to treat illnesses has improved. Doctors have a lot of data to work with, and a lot of variation in the data to extract estimates from. But it's still hard for them.

Macroeconomists, on the other hand, are working with very small samples which makes prediction harder and makes inaccurate predictions more glaring (everyone's only looking at one time series after all). None of this is surprising - we're dealing with complex systems in both cases. This isn't planetary motion, people.

And yet for some reason these experts are often judged by their predictions. But we shouldn't ever turn to experts on complex systems for prediction. Expertise isn't about prediction, it's about explanation. A doctor may be bad at prognosis, but they are quite good at explanation (and thus figuring out workable solutions). That's why we should keep them around. Not because we expect them to have a crystal ball.

Virginia wineries, doing what we do best - absolute advantage can be better than comparative advantage

2012-01-20T00:23:00.004-05:00

Barboursville Vineyards won best in class for their 2008 Cabernet Franc Reserve at the San Francisco Chronicle Wine Competition, which is apparently the largest competition for American wines. Barboursville also won best Cab Franc and best Viognier at a San Diego competition.

This is nice to see because Cabernet Franc and Viognier are recognized as being excellent grapes to grow in Virginia. That's all well and good, but sometimes I think we as Virginia wine enthusiasts wonder if that's just a relative claim. These grapes grow strongest here, but are we still trounced by California in all cases? In other words - as economists would say - do we have a comparative or an absolute advantage?

These prizes are at least one piece of evidence in favor of "absolute advantage", which is nice.

Kate and I have visisted Barboursville Vineyards once. It's a little outside of Charlottesville. We went there after visiting the newly refurbished Montpelier - home of James Madison. I don't remember being particularly impressed by the winery, although the wines were nice enough. The problem was, it was a mob scene. Lots of people, so not as pleasant of a tasting environment.

I do, however, highly recommend Montpelier if you are ever in that part of the state.

Good sentences on externalities from Mike Kimel

2012-01-19T07:35:00.002-05:00

Here:

"This issue of other people using one's property rights has long existed with physical property. If you're neighbor doesn't wish to keep the music or odor or pollution he produces on his property, which is usually the case, he exports onto other people's property. Causing an earthquake on someone else's property [a reference to recent events surrounding fracking] is not an issue of bargaining over conflicting property rights, its taking someone else's property rights away. Ditto placing toxic fumes on other people's land. Because the party producing those fumes only has the property rights to its own property, not to someone else's. If the music one neighbor produces crosses the boundary onto property someone else is paying for, the producer of that music is trespassing. Sure, to some degree, everyone produces externalities, but the question is, how big can the externalities be before they must be regulated?"

As I said in previous posts, questions of externalities are always questions about standing. Everyone has subjective values. What we identify as externalities and how we solve those externalities revolves around determination of which subjective values "count".

This is one of many reasons why I always feel like barfing every time I hear "free market economist" used as a synonym for "libertarian economist". It's quite easy to make the case that the "free market" solution to pollution would be to outlaw any and all actitivies that pollute, because they all violate property rights. Property rights should be sacrosanct in a market economy, so anyone that isn't in support of outlawing all pollution as a violation of property rights is really thumbing their nose at the market economy. Almost all of us choose to abandon "free market economics" interpreted this way. Instead, we like having states that give monopoly priveleges that allow polluters to impose some costs on other citizens. Libertarians love trampling over these rights, along with a lot of non-libertarians like me. Nobody is a "free market economist". At least in that interpretation of "rights" (which logically speaking is not all that crazy of an interpretation, despite its problems on a pragmatic level).

The point: (1.) all these things are crucially dependent on underlying understandings about rights and standing, and (2.) stop using the term "free market economist".

The Fable of the Bees

2012-01-18T23:27:00.002-05:00

This is a really great piece of research that I'm going to try to digest more tomorrow. From the blog post anouncing it: "If you were to rely on media reports alone, you might be inclined to believe that honeybees and honey are now in short supply. Based on the recent documentaries about Colony Collapse Disorder, you might believe that crops are at risk of going unpollinated and that we are heading towards a different “silent spring”—one in which the familiar springtime buzzing of the bee is no more. Yet, somehow, the honey is in the cupboard and farmers across the country are still able to supply food to stock our shelves, all with little or no economic impact from CCD. How can this be? As two prominent agricultural economists, Walter Thurman and Randal Rucker, discuss in a new PERC Policy Series, the market response of beekeepers provided a solution to the problem. Despite early predictions that CCD would cause billions of dollars of direct loss in crop production, beekeepers reacted so swiftly that virtually no changes were detected by consumers. While overcoming the difficulties of CCD has been no easy matter, beekeepers have proven themselves adept at navigating such changing market conditions."

I've been thinking of writing up something for a while about how we really bear a big cost when natural scientists don't accept social science as an important science to consult. Social science is a crucial scientific enterprise. We are studying the social behavior of a highly evolved, highly intelligent primate species that has a tremendous impact on the planet. We ignore it or dismiss it as something wishy washy or not "hard science" at our peril.

This is one good example about how understanding both bees and humans would have been very helpful - much more helpful than just relying on knowledge of bees.

Other examples include, of course, climate change. Someone like Lomborg, Mankiw, Nordhaus, Krugman, or friend of F&OST stickman (an environmental econ blogger) who know how our particular branch of the primate family tree reacts to adversity, can often provide much better commentary about what to expect from climate change than Al Gore or a climate scientist.

Another example I like a lot is nuclear weapons. At the dawn of the nuclear age lots of physicists got very concerned and got deeply involved in the anti-nuke movement. But prominent economists came up with the antithesis of the anti-nuke movement: the strategic concept of mutually assured destruction. Credible threats. Game theory. Instead of ridiculously imbuing an inanimate object like a nuclear weapon with moral content, these economists used what they knew about the human species to figure out a system that was most conducive to a lasting peace (or at least freedom from nuclear war).

There are likely many other examples - I'm interested in hearing any that you have.

A quick clarification on the externality thing...

2012-01-18T22:50:00.002-05:00

...because there's some interesting conversation going on here.

First, commenter Mark was wondering about some of the things I said about subjective value in response to this sentence in Don's post: "This is not science; it is metaphysics: value judgments and political goals will enter into the determination of whether externalities occur in our world." When I concurred with this, noting that we're dealing with subjective value (i.e. - peoples' value judgements) I didn't mean that it's debatable or subjective whether there are externalities. There absolutely are. But those externalities are introduces by individual subjective valuation - value judgements - and these alone don't make externalities "unscientific" any more than anything else in economics is unscientific.

One tricky thing about the way that subjective valuations impact externalities is that there are really two layers of value judgements: first, peoples' own subjective valuations of externalized costs and benefits, and second - our decision as a society whether we want to recognize or give standing to those subjective values. For example - thieves like to take money from people. OK, that's their subjective value. As a society, we say "tough shit" to thieves. We don't really care about that subjective value and we give it no standing whatsoever. That seems like a silly example, right? It's actually quite relevant to these arguments that economists have over whether markets or government solves externalities more effectively. One "market" solution is to have the two parties bargain - people can pay to have polluters reduce pollution. Sounds fine, and if you draw it out the model, it looks fine. But this is still entirely contingent on a social value judgement. Think of it this way - why don't we say to people "well, you can pay the thief not to steal your money". We don't accept this. We give standing to polluters to impose costs, but not to thieves.

"Crime" is just the word we use to describe the actions that impose externalized costs that we consider it unreasonable to expect people to make a Coasean bargain over. We are OK talking to students about swimmers paying polluters not to pollute. We generally don't like to talk to students about paying a murderer not to kill you. Another way of saying this is that ransoms are just a type of Cosean bargain.

These are all value judgements, so coming out and saying "the market does better than the government" or "the government does better than the market" is not a question you can answer unless you can clarify what you mean by "better".

The other thing about this whole bargaining issue (which is central to the question of governments vs. markets in externalities) is that a lot of externalities involve public goods (and bads). Cleaner air is non-excludable, for example. So when we think about bargaining over this stuff we have to think about public goods issues too.

I do agree with some of Mark's points about just figuring out an objective measure of these things. We do that all the time. There's a ton of literature over the discount rate (as Current alluded to in his comment), and over the value of a human life. People estimate all sorts of demand elasticities precisely for this reason - to get a rough estimate of what these costs and benefits might look like.

That's all pragmatic application of the economics, and in my opinion it's much better than flying blind.

But it's important to recognize that these are rough estimates. It's not a measure of "utility" it's a measure of willingness and ability to pay. We need to be careful about two things when we do this: (1.) make sure we always recognize we're not really measuring subjective value - we're just trying to get better acquainted with the costs and benefits, and (2.) make sure we understand that we still have to bring value judgements about who has standing and who doesn't!

An assist on a DeLong smackdown over mercantilism

2012-01-18T21:58:00.005-05:00

OK - I am wording this very carefully, so make sure you read it very carefully. Because I'm doing two dangerous things: offering a mild defense of mercantilism, and assisting Noah Smith in a "DeLong smackdown".

Noah Smith pushes back on a claim by DeLong and Don Boudreaux from a couple years ago that mercantilism could be a sound economic policy. In a casual conversation, I would be on DeLong and Boudreaux's side. Free trade is so crucial that you don't want to muddy the waters on a question like that.

But we're all people interested in the nitty-gritty here, and we're talking about scientific explanations of reality not dogmatism, so I think you can all handle my limited defense of mercantilism.

- First, one crucially has to ask exactly what the object of economic policy is. Cutting yourself off from specialization and exchange bears a very real cost, but if for any reason you think it's legitimate to maximize your relative position there may be some justification for a mercantilist position. This is ~~essentially~~ [somewhat sorta tangentially related to] the point that Noah Smith makes in answering Boudreaux's question about why we constitutionally disallow mercantilism between states. The reason seems obvious to me: we are negatively disposed towards a policy of relative deprivation between states (much less an escalating tariff war) in a way that we may not be negatively disposed towards relative deprivation between other countries. This is particularly true when it's a developing country defending a nascent industry (it seems less justified of developed countries). Maybe Don and Brad think that's insufficiently cosmopolitan, and I'd tend to agree with them. But that's a value judgement "bad policy" depends on how you make those value judgements about what is "bad".

- Second, as Noah points out, new trade theory (which is fundamentally Smithian, I'll remind everyone right now) provides a limited defense of limited protectionism. But Paul Krugman has always attached important cautions to these findings. Predicting the advantages of this sort of industrial policy gaming can be very hard. But it seems intellectually dishonest to say that it's always a bad policy. When you look at the really disastrous economic policies its really limited to socialism and actual planning. You have lots of anecdotal evidence for well-played mercantilism that speeds up the industrialization process and entrepreneurial activity. Anecdotal evidence is limited and what new trade theory tells us is that success is always going to be highly circumstantial. This makes it harder to demonstrate the case for mercantilism with standard empirical methods; randomly or quasi-randomly assigning a trade barrier isn't going to get you the right answer to your question because new trade theory's version of mercantilism also predicts that randomly assigned trade barriers are going to be bad policy. What we're interested in is strategic trade policy, and I have no clue how to think about randomly assigning strategic trade policy.

- Third, is that I think we need to clarify when in history we are talking about this. One important reason why mercantilism could be considered a "right" answer in the context of seventeenth and sixteenth century England but a "wrong" answer in twentieth century America is that mercantilism played an important role in maintaining the money supply (or NGDP for those of you that swing that way). Obviously that concern doesn't apply after the late seventeenth century. Again, we find these arguments have to be circumstantial.

I am not a "mercantilist" and if you gave me one of those surveys of what economists think I would check the free trade box. But we're grown-ups here and we can handle Alfred Marshall's wise words: "Nature's action is complex, and nothing is gained in the long run by pretending that it is simple, and trying to describe it in a series of elementary propositions".

Anthony Gregory on Ron Paul and foreign policy as a campaign plank

2012-01-18T15:01:00.004-05:00

Bob Murphy brings my attention to a post by Anthony Gregory on the question of whether the handful of issues libertarians always talk about when promoting Ron Paul should be enough to earn a vote for him.

I'm not sure what Gregory feels about Nader - perhaps he's like Gene and would vote for him. I hope so - someone like that would be consistent. Unfortunately, I would wager that only a small minority of libertarians would vote for Nader on these grounds (and the ones that would would be either hard-core anarchists that have suspicions about Ron Paul in the first place, or those on the fringe of the movement).

It's an interesting read either way.

This line jumped out at me: "Ron Paul, from a genuine antiwar leftist perspective, shouldn't be considered good on 10% of the issues — but closer to 90% of the issues. Anyone who would prefer federal genocide and slavery to curbing the EPA and cutting taxes on the wealthy has some twisted priorities."

The first sentence is striking because it seems like we're talking about two different groups of people. If you're going after the "antiwar left", good luck with that - you'll probably get a fair amount of them - but that group is really, really small. People talk about how the antiwar movement hasn't been against Obama. It's bogus. The antiwar movement has been every bit as much against Obama as they were against Bush, because like Bush, Obama prosecutes wars. Code Pink has been plenty angry with him. The thing is, they haven't been able to attract as big crowds to their events because most of the people who came to the antiwar events under Bush weren't antiwar - they were anti-Bush's version of war. I went to protest events and teach-ins organized by pacifist groups, for example - but I never claimed to be a pacifist. So we have thinning crowds at these events, but that's because the actual antiwar left is fairly small. Most people left of center don't particularly like war but do not have a blanket disapproval of it. They are willing to accept a certain amount of civilian casualties as a consequence of war. They are comfortable treating prisoners of war differently than convicted criminals. They do not think there is any inherent problem in building and maintaining extremely lethal machines and training young men to use them against other young men. Or better yet - build lethal machines that don't require our young men to be put in harm's way.

But these sorts of people are not indiscriminantly comfortable with war. Not at all. We want it done in a certain way. And most of us that were in the protests in the 2000s but not as much now are not and never were antiwar. We also see a difference between Bush and Obama and Obama and Paul and think Obama's approach makes more sense than either Bush or Paul.

So if Gregory wants to convince the "genuine antiwar left", he should go for it. But I think that constituency is a lot smaller than he thinks, and a fair number of them are already positively disposed towards Paul.

Now, the second sentence of that quote is striking to me because of how condescending it is. And people say this sort of thing a lot. Paul says this sort of thing a lot. Somehow he gets treated like he's a "nice guy" but this sort of thing sounds more like "condescending asshole" than "nice guy" to me. These are big issues, though. So even though that's my reaction, I try not to be quite so blunt when I read things like this. But when you say things like that, just remember - we could shoot it right back at you and say that you're supporting slavery and genocide for not supporting judicious military engagement. That's why I'm not a pacifist, after all. Because I am opposed to slavery and genocide and I think pacifism will lead to slavery and genocide. That's what motivates me, but you don't see me calling pacifists promoters of slavery and genocide. Why don't you see me calling them that? Because I know that just because that's how I see the world, that's not how they see the world. They actually do care about slavery and genocide, and it would be wrong of me to act like they don't. Just something to keep in mind when you find yourself saying something like that. And perhaps also something to keep in mind when you scoff at those troglodyte Republicans booing Ron Paul - because Ron Paul has said stuff like that too. Maybe they're booing because they feel like Ron Paul has a history of being condescending to them.

Don Boudreaux is largely right about externalities

2012-01-18T08:14:00.004-05:00

I'm shocked he's posted something on this topic that I agree with so much, so I ought to link it.

Don quotes Carl Dahlman who writes:

"This is not science; it is metaphysics: value judgments and political goals will enter into the determination of whether externalities occur in our world. You cannot show analytically that the government, in principle and in all cases, handles externalities better than the market; nor can you prove the opposite: it all depends on what point of reference you choose. And that is not a question of positive economics…. It is doubtful whether the term “externality” has any meaningful interpretation, except as an indicator of the political beliefs and value judgments of the person who uses (or avoids using) the term."

The only thing I disagree with is the first sentence that it's not science - it's metaphysics. This was my comment on the post, which should explain what I mean:

"Exactly right - I'm shocked you've posted something I agree with on this topic! Although I'm not sure this means it's "metaphysics". It means its subjective - and all values in economics are subjective.

In a market transaction, each person acknowledges the standing of the other person in dealing with these subjective values. That's the strength of market transactions. But of course not all actions occur in the market, and when it doesn't occur in a market there are very real questions about a person's standing.

Do I have standing when it comes to the way I subjectively value pollution? That's a much tougher question that people disagree on. It's not metaphysics. Nobody can contest that I bear a subjective value about those things any more than you can contest that I bear a subjective value about the market transactions I make. The question is, what do we do about my subjective values regarding these externalities. But that was never a positive question anyway - that was always a normative question."

Last weekend I read an article by Pete Leeson on the theory of clubs and public choice - but it touched on externalities and dismissed them. The article was good as a whole, but I thought he did a really atrocious job handling the externality question. That and Don's post really make me want to write more about this now.

Assault of thoughts - 1/18/2012

2012-01-18T06:13:00.004-05:00

"Words ought to be a little wild, for they are the assault of thoughts on the unthinking" - JMK

- Brad DeLong reposts an excellent obituary he wrote for Milton Friedman. It especially highlights Friedman's push for an all-volunteer military. It's a literature I knew about from school, but really got familiar with when preparing a proposal on recruitment for the Army Research Institute. Friedman did some excellent work on that, and it's shaped my view of the intersection of public economics and labor economics - particularly a lot of my thoughts on the science and engineering labor market. Unlike Bob Murphy, I do think we should tax to stop an asteroid and I also think a draft in a truly existential crisis is a different matter. But that's a pretty specific situation. Also, for those of you who are not aware, there's a relatively new Milton Friedman institute at the University of Chicago which Evan has been keeping me abreast of (and which actually appears to have been renamed the Becker Friedman Institute). I haven't been keeping up with it, but they can certainly be expected to have quality work there.

- Margaret Simms, my colleague at the Urban Institute, has two recent media pieces. First there's a quick interview about the economic circumstances of blacks here. Also interviewed in that one is William Rodgers, who used to be at my alma mater, William and Mary, and is now a colleague of Hal Salzman, my co-author for the engineering labor market work, at the Heidrich Center at Rutgers. Margaret also has a column on inequality that makes similar points to the Krugman column I posted on Monday.

- Paul Krugman has a good post on the dissemination of research in economics, and the role of the blogosophere. He's made many of these points before.

- It's official now, so I wanted to note that I will be authoring a chapter in a book on a basic income guarantee that Guinevere Liberty Nell has just gotten approved from Palgrave. I'm actually not currently a proponent of the basic income guarantee, mostly because of it's labor supply effects. But I will be writing a "pro-" chapter, or at least a chapter highlighting some salutary qualities of a basic income guarantee as a monetary policy tool. The theme of the book is to present the basic income guarantee as an alternative to the welfare state that market socialists and Austrian economists can both support. As you all know, I don't fall into either of those categories but I'm addressing my chapter mainly to monetary disequilibrium Austrian economists (although as I learn more about market socialism, I think I can work some of that in as well).

A question for libertarians who promote Ron Paul to non-libertarians

2012-01-18T06:02:00.004-05:00

How many of you were enthusiastic supporters of Ralph Nader in the last few election cycles because he was "consistent", anti-war, and an opponent of the drug war?

Stupid Wikipedia isn't working!

2012-01-18T05:41:00.000-05:00

Someone needs to pass a law to fix that - geez!

A great update on the private space industry at Reason

2012-01-17T07:35:00.002-05:00

Here. I found the discussion of the relationship between profitability and enthusiasm especially interesting. The author, Brian Doherty, writes: "The private space industry is not yet normalized in the sense of being just another job that people gravitate toward. All 30 or so XCOR folk are, Greason and Massee tell me, space enthusiasts—though Greason denies what I detected was an accepted truism at the Space Salon: that the space community must convert more outsiders, especially young people, into space enthusiasts. Make it a profitable business, Greason says, and that enthusiasm will follow."

I think this is only half right. There's always this entrepreneurial tension of pulling yourself up by your own bootstraps. Firms seek profits but what is profitable is often something innovative - meaning there's no precedent such that firms can compare a profitable to an unprofitable option. Keynesian uncertainty, you might say. That's what Doherty is getting at here, and that's a big part of the story.

But when it comes to space, much of the benefits aren't ever going to be "profitable" in the sense that the private benefits exceed the private costs. For that reason, I do think independent enthusiasm is essential to generate. Just to make it clear - that's to add a point to Doherty's original point, not to subtract from Doherty's point.

The article also has a good discussion of off-the-shelf technology which is of course very important for this industry.

New semester

2012-01-17T06:25:00.002-05:00

Econometrics today, U.S. economic history tomorrow, macroeconomics on Thursday. TAing an intro and an intermediate micro section, and I have some computer lab duties.

Urban Institute work is closed up as far as I know, and I've made good progress on the paper I started over break - such that I think it will actually be finished soon.

A good start!

My CJE article has been published

2012-01-17T06:02:00.002-05:00

Here - it's free access too! I wrote this up quite quickly. I like it because I was able to make a couple points I did not make in the RAE article. I do wish I took more time to discuss the details of Romer's analysis - something I realized would have been valuable after the RAE article. But there was a deadline for the special issue so I really had to get down a brief note rather than a full article. I ain't done with 1920-1921 yet, so hopefully I'll discuss it in more detail in the future.

This is the issue - it's a special issue on austerity. I haven't read any of the articles yet, but they're all free too. Some names you might recognize among the authors are James Galbraith, Robert Pollin (of Political Economy Research Institute), and Stephen Kinsella (a guy Krugman cites a lot when discussing Ireland).

Some Sachs links

2012-01-17T05:41:00.004-05:00

Steve Horwitz is getting very mad at me, which is both confusing and frustrating. It's confusing because I've been presenting a fair and straightforward case for why I like the Sachs post. As far as I can tell the only thing that separates libertarians from non-libertarian liberals is that libertarians give primacy to liberty in a way that non-libertarians don't. Sachs said this. There are deontological and there are consequentalist libertarians and Sachs said this - he communicated that distinction fairly effectively to Huffington Post audience - which is not easy. On top of that he did what most critics of libertarianism don't do. He acknowledged the wide range of opinion on government that exists among libertarians. It genuinely struck me as a good short treatment of the subject for an audience that is likely to be unfamiliar with the nuance.

I found Horwitz's dismissal of me frustrating because I've always looked at Steve as one of the good guys that doesn't just dismiss people for disagreeing with him. And he's also someone that's respected what I've had to say in the past and taken me at face value - he was the one that invited me to publish at the Review of Austrian Economics and suggested my paper would be a good fit.

What's most insane about his concerns is that Steve and the BHL crew are a perfect example of the second sort of libertarian that Sachs mentions - he calls them "economic libertarians", but we might call them "consequentialists".

*****

Bob Murphy actually does think the Sachs article zeroes in on libertarianism, noting the exact same points that I have been. He also links to this site. Bob makes an extreme deontological point, linking back to his views on the asteroid. But you don't even have to be that extreme. You could tax to fund asteroid protection and still make Sachs's point. After all - he points out the acceptance of certain government functions by Friedman and Hayek.

*****

Ryan Murphy is worried about essentialism in all this. I'm not sure why. Essentialism is a problem for exactly the reasons that Ryan states, but I don't think that's a persuasive reason to call defining these things "pointless". If it were pointless, then dictionaries wouldn't sell so well. We need words to label and talk about things precisely because things don't have essential essences. It's precisely because one thing bleeds into another that we need words to demarcate boundaries when we talk about abstract ideas. If we end up fighting over the exact edges (is Friedman a libertarian or not?) then I think we've started to get pointless. If we're just trying to get a workable definition of libertarianism so that it doesn't encompass 94% of the Western world, I don't think that's pointless.

And actually I didn't even think we'd be arguing over this. I thought this Sachs article was good and I genuinely didn't think anyone would raise any hackles over it.

*****

But I do wonder if we're ever going to get a reasonable discussion about this sort of thing. Commenter Tel and Bob Murphy's blog drives that point home for me when he writes:

"I don’t like the way Jeffrey Sachs describes it because it falls into the same trap that Statists always use: if you don’t like government taking over education, then you must be opposed to all education; if you don’t like government taking over health care then you must be opposed to all health care; if you don’t like government taking over charity then you must be against all charity… and so it goes."

Granted, using the word "statist" is a tip-off, but if you think Sachs said that, then we have much more fundamental problems here. We're not even talking about the same article and people like Tel clearly have other issues they need to work out on their own.

Perhaps this is part of the confusion...

2012-01-16T15:52:00.002-05:00

So when I read Jeff Sachs talking about "to the exclusion of..." I interpreted it as meaning "if liberty comes into conflict with equality, choose liberty" or "if liberty comes into conflict with democracy, choose liberty". That seemed like a fair assessment of libertarianism to me.

It seems prepostrous to me to read that as "libertarians, by definition, don't care about human welfare or equality or any of these other values". But perhaps it's because some people are reading it that way that they are up in arms... that may explain the Horwitz post that I found so puzzling.

I don't think it's sensible to read the Sachs article as saying you hate puppies and orphans.

I do think it's sensible to read the Sachs article as saying that the classical liberal value of liberty is prioritized over other classical liberal values by libertarians.

Definitions of Libertarianism, contd.

2012-01-16T15:21:00.003-05:00

- For example, according to the Libertarian Party website (this is one example, don't freak out), I am certainly a libertarian. But this makes sense - the Libertarian Party wants to get elected and broaden its following so it offers a broader definition. This isn't particularly surprising, either. If I were to look at the Republican Party website or the Democratic Party website for a definition of what they stand for, I'd probably be a Democrat and a Republican in addition to being a Libertarian.

- The Institute for Humane Studies offers a range of definitions. Under some of these definitions I would be a libertarian, and under some of them I wouldn't be a libertarian. I am a libertarian under the initial definition IHS offers. Then they give Nigel Ashford's definition. I meet all of his ten qualifications except for one: (1.) "liberty as the primary political value". Surprise! Surprise! That's where Jeff Sachs identified the primary difference too! It's not like he just made this stuff up. Liberty is not the primary political value for me, it is co-equal with a couple other classical liberal values. And that is really the only reason why you don't see me calling myself a libertarian. Other definitions of libertarianism - some of which include me and some of which don't - follow Ashford's definition on the IHS website.

- The Wikipedia page for libertarianism starts with a broad definition of libertarianism that does include me and then goes in detail from there. It offers one definition from Rod Long which is both interesting and vague. In an expansive interpretation of his definition I'm a libertarian. But knowing how Long views things, I doubt I fall under his intended interpretation. But yet again we see the same trend that we saw with the Libertarian Party definition: making definitions vague so that they're more palatable.

- I am a libertarian by David Boaz's definition.

*****

Let me know if you find others. I don't think I'm pointing out anything too outrageous in the last post or this one. Any definition of libertarianism that includes me probably isn't a good definition of libertarianism. Any definition of libertarianism that doesn't include me and seems to include a lot of libertarians is probably getting close to a good definition of libertarianism.

That's the whole purpose of definitions, right - making useful distinctions????

Krugman on Martin Luther King and Inequality

2012-01-16T07:32:00.005-05:00

An excellent op-ed here.

The connections he draws between (1.) discrimination, (2.) inequality, and (3.) mobility are very important.

This has cropped up in a lot of the racial disparities work I've done at Urban. People are always shocked when they find fairly high racial parity in a controlled setting. For example, one project I was on looked at racial differences in the transition to adulthood and some important variables we looked at had to do with "risky behavior". Drugs, teen sex, fighting, carrying weapons, etc. There wasn't any significant difference between black and white youth on these points when we controlled for youth characteristics. More recently (in a brief that will be coming out soon) when we looked at black males in the Great Reccession we found that given a certain educational level employment outcomes were relatively close (wages may not have been - we did not look at those).

I'm not saying this happens everywhere or even that the conditional differences were exactly the same in all of our cases. But it often surprises people that these things can be close.

But that conditional difference really just tells you about is discrimination, bias, or unequal treatment for one reason or another on a particular indicator. Given a set of characteristics, what is the disparity, in other words? What drives a lot of the disparities in society is that often blacks have much less of this "set of characteristics" that we're controlling for than whites do. So we found that controlling for parental education, family structure, and income, blacks and whites are about as likely to be arrested. The problem is black youth are much more likely to have parents with less education, come from an unstable family structure, and grow up in poverty. The real factor driving a lot of later racial disparities in the U.S. is that too damned many black kids grow up poor.

That's why talking about inequality and mobility (the way Krugman does) is so important for getting a full sense of racial disparity in the country. Simply talking about discrimination only gives you a partial answer. It doesn't matter if a young black man with a college degree and a young white man with a college degree get treated comparably in the labor market (they don't, but let's say they do). That doesn't matter if considerably fewer young black men get college degrees in the first place.

Conditional differences only get you so far. This is a major problem with how a lot of people trained in economics think about disparities. We're too quick to just toss things into a regression. The problem is that we don't live in a counter-factual world. We can't hold everything else constant. And in the case of racial disparities, what we can't hold constant matters a lot.

Jeff Sachs has a great article on libertarianism

2012-01-16T07:20:00.004-05:00

Here. I think it presents a good explanation for people who may be unfamiliar with it, and an excellent treatment of the problems with libertarianism. He also provides a great review of deontological vs. consequentialist perspectives that is accessible to people who don't know much about this. And finally he presents differences and nuances in the thought of people like Nozick and Hayek.

A lot of people are in the habit of screaming bloody murder when their outlook is not represented exactly how they would like it to be represented by a critical writer in the press I understand that - I do that too. But I think Sachs avoids these criticisms. Yes, he doesn't agree with libertarianism but he does an excellent job presenting it here. I would love to see a libertarian explain an American (i.e. constitutional and federalist) centrist, pragmatic Keynesianism like this. I have yet to see one do as good a job.

Loudon Trip

2012-01-15T08:18:00.002-05:00

Kate and I were in Loudon the last several days, staying at a bed and breakfast and doing wine tastings.

For those in the D.C. area I have to recommend a couple and warn you away from one.

First, Swedenburg and Willowcroft wineries are excellent. We were lucky enough to catch the winemaker at Swedenburg, who was running the tasting table. We dropped by on a Friday which was slow. We were apparently the first ones and we hung around and talked to him for almost an hour, which is always good to do if you can. Catching the winemaker, rather than someone just running the tastings or the owner, is always good. Chatting with the winemaker for almost an hour is great. And doing that with a really high quality set of wines is an excellent way to spend a Friday. We got half a dozen from there, and we got a wide variety (which is unusual - if we buy that much we're often buying several bottles of a staple).

Willowcroft was also nice. This is the oldest winery in Loudon County so they know what they're doing. This was also on a slow Friday and we caught the owner. We've had Willowcroft wines before that our friends had, but this is the first time we were at the winery itself.

Dry Mill is a relatively new one that we visited for the second or third time this trip. Always good. Cobbler Mountain is a brand new winery that seems to still be getting on its feet, but it did not disappoint. The owners are very friendly. Pearmund is a classic that should be familiar to anyone that's ventured out this way.

The one that I would caution against is Quatro Goombas. I think we got one bottle there, but we didn't enjoy their wine too much. They ship in grapes and juices from California. That's fine but if we want a California wine it seems like we'd just buy from a California winery. The service there wasn't as welcoming or interesting as some of the other wineries either. It wasn't a bad experience, but there are much better places to drop by if you're in the area.

*****

On a related note, Kate and I are probably going to start a new blog on Virginia wine, as well as our trips (we often take in the historical sites - more than just the wine - on these trips), and our food adventures (we are aspiring foodies, but certainly not as authoritative on that as on the Virginia wines). I'll link that here if/when we get that up.

Assault of Thoughts - 1/15/2012

2012-01-15T08:01:00.002-05:00

"Words ought to be a little wild, for they are the assault of thoughts on the unthinking" - JMK

- Unlearningecon has more critiques of neoclassical economics here.

- LK has an interesting discussion of Hayek's racial prejudices here. I think these things are important to know about and share, but not dwell on (so long as they're quite historical, as in this case... if they come up more recently obviously we need to talk more about it). The denials that come up over Keynes and his anti-semitism, or Mises and his embrace of Italian fascism are not appropriate. We need to know and accept this stuff. I had a recent post on Keynes's anti-semitism here. [Greg Ransom - if you troll this post inappropriately I'm warning you now your comments will be deleted].

- Evan shared an article with me on early "market liberal" and "neoliberal" acceptance of Keynesianism and the welfare state. He specifically shared this reply to this original article on the topic in The Historical Journal. The original article seems to argue that what are called "neoliberals" initially argued against socialism and were actually quite receptive to Keynesianism and to the welfare state, which they (correctly in my opinion) understood to be completely different. Keynesianism and clearly the welfare state explicitly rejected that the emergent order of the economy could be planned centrally. The reply suggests that Hayek's negative disposition towards Keynesian policy and the welfare state developed in the mid- to late-forties. This seems to be a different dialogue than the one I'm used to. It's a history journal, after all. We here of course know about the sharp disagreements with Keynes in the early thirties, but I imagine the authors have something somewhat different in mind. I haven't read it yet, but since it piqued Evan's interest (and since commenters frequently ask for more discussion of "neoliberalism"), I thought I'd share it.

- Neil deGrasse Tyson is worried about Chinese space ambitions. I'm not sure whether they offer the stiffest competition, or the Europeans and Russians do. The Chinese have expressed interest in the moon too. My hope is the Chinese send a manned moon mission that gets us seriously thinking about our investments in space exploration, motivating us to be the first to Mars. Tyson has a new book coming out in February which I've already ordered. It's a collection of a lot of previous material, plus some new discussion. But it focuses a lot on what motivated us in previous waves of exploration and what Tyson thinks of our future in space.

On aliens

2012-01-15T06:59:00.005-05:00

Because it's been a little while since I've done an alien post.

Bryan Caplan is convinced of the existence of alien life. Very good to see. He has an interesting twist on the recent announcement of hundreds of billions of planets in our galaxy. I haven't read the studies but I imagine the point is that as we collect information on more and more exoplanets it becomes easier to extrapolate exactly what sort of galaxy it is that we live in. Caplan's point is that if planets are so hard to detect life is going to be particularly hard too. This is especially true of intelligent life which itself hasn't developed space-faring or advanced communication technology.

This is a good time for me to bring up Annie Jacobsen's history of Area 51, which I'm almost done with. It's an excellent book based on a surprising amount of first-hand interviews from personnel, and recently declassified material. Most of it is about the U-2 and A-12 spy planes and the nuclear testing that went on there, but of course substantial sections of the book also cover the Roswell incident. I think Jacobsen's Roswell chapters offer a good example of how people can let bias slip in when talking about aliens. What concerned me most was Jacobsen's tendency to cite Occam's Razor. My initial reaction when reading these passages of the book was "Jacobsen doesn't seem to understand the concept of Occam's Razor", but of course a more charitable interpretation is that she brings certain assumptions to the evidence that I think are completely unjustified, and as a result all manner of claims can be justified by Occam's Razor.

There shouldn't be anything particularly shocking about noting that intelligent (and unintelligent) life outside of the Earth exists If you accept that life on Earth evolved over millions of years. I'd go as far as saying that the default assumption should be that there is life elsewhere, although certainly there are a couple more hurdles for intelligent life. Extraordinary claims require extraordinary evidence, but it doesn't seem to me that "extraterrestrial life exists" is an extraordinary claim at all. The extraordinary claim would seem to me to be that phsyical and chemical processes here on Earth happen in the rest of the universe but for some reason biological processes don't happen anywhere in the whole universe except here. That seems like a quite extraordinary claim that I can't personally justify.

Jacobsen clearly doesn't agree, and as a result that influences her use of Occam's Razor. Her explanation - which she contends is the simplest explanation of the evidence about the 1947 Roswell crash - is that Joseph Stalin sought out Nazis associated with two research efforts: Mengele's biological experimentation and the Horton brothers' experiments with hover technology and flying discs. Stalin got Mengele to produce surgically altered children who were made to look like aliens and the Hortons to produce a flying saucer so that he could send the children in the saucers to crash at Roswell so that it would create a public panic about aliens. Why? As revenge for Truman's lies to Stalin at the Potsdam Conference about the U.S.'s nuclear capabilities.

To me, the explanation comes off as highly contrived and unnecessarily complicated, which is why I was surprised to see that she cited Occam's Razor - a principle that I would have thought would lead her to reject the explanation.

This isn't to say I'm 100% convinced that the Roswell crash was an alien ship. The eye-witness accounts suggest to me that the whole weather-balloon story is easily rejected as an explanation, but we of course don't only have aliens and weather balloons to choose from. I'm quite willing to accept that it was either a U.S. or a Soviet (or hell, even a rogue Nazi) test flight. The Horton brothers were working on hovering discs in Nazi Germany, and it's entirely plausible that either the U.S. government or the Soviets continued to work on this after the war.

What's striking about Jacobsen's explanation is that she clearly accepts the testimony of several eye-witnesses who assert that several small grey humanoids with large heads and large black eyes were recovered from the wreck, and that some had not yet died. She just explains it with Mengele. I don't know if the testimony about the pilots is true or not, but if it were true, the Mengele story seems at least as contrived and overcomplicated as the claim that it was aliens.

But I guess the point I'm trying to make is that I say all this because the existence of intelligent aliens doesn't strike me as absurd, where it does seem to strike Jacobsen as absurd. That can really influence how you think about these things.

For the record I accept it as almost certainly true that intelligent life exists elsewhere in the universe. I do have a harder time accepting that they've visited us. That is an extraordinary claim, and the evidence is not decisive enough to be convincing. The Roswell incident is by far one of the most compelling cases, and I attach a small but non-trivial (single digits to teens) probability that it was an actual alien crash. I also find the consistency of a lot of the abduction stories at least something to take seriously. They may all be crazy, but it seems silly to just assume that they are. I find a lot of the UFO reports interesting, but less convincing. I think everybody, on all sides of the issue accept that the lion's share of reports are quite easily explained. As for the cases that are harder to explain, I think that what we don't know about military technology rules out jumping to conclusions about aliens. Of the "unexplained" UFOs, I bet they're mostly military tech. That's what's so compelling about Roswell - there's lots and lots of eye-witness evidence that this was more than just a military test flight that got out of control...

...maybe. But then aside from the obvious importance of extraterrestrial life, it's precisely the "maybe" that makes all this so interesting.

UPDATE: One more point on this. Two more recent sci-fi shows reject intelligent alien life as an important part of humanity's space-faring future: Firefly, and Battlestar Gallactica. There are strange creatures in the universe in each of these cases, to be sure - but they are entirely man-made. I think this is probably the most likely vision of our future. We will be an interplanetary species, hopefully in my lifetime. We will eventually be an inter-stellar species. But if it turns out that intelligent aliens haven't visited us yet (something that - as I note above - I consider the most likely but certainly not the only possibility), then it's doubtful we'll meet them in any sojourns in the near future. As for unintelligent aliens, I think that's far more likely. I'm still optimistic about finding life in the soil of Mars.

Krugman and Truth-Telling in the Media

2012-01-12T17:00:00.004-05:00

Andrew Sullivan links to this post by Jay Rosen, which has a really excellent discussion of truth-telling in media. Rosen is commenting on another post by Arthur Brisbane, public editor of the New York Times, who wrote:

"I’m looking for reader input on whether and when New York Times news reporters should challenge “facts” that are asserted by newsmakers they write about... on the campaign trail, Mitt Romney often says President Obama has made speeches “apologizing for America,” a phrase to which Paul Krugman objected in a December 23 column arguing that politics has advanced to the “post-truth” stage. As an Op-Ed columnist, Mr. Krugman clearly has the freedom to call out what he thinks is a lie. My question for readers is: should news reporters do the same? If so, then perhaps the next time Mr. Romney says the president has a habit of apologizing for his country, the reporter should insert a paragraph saying, more or less: “The president has never used the word ‘apologize’ in a speech about U.S. policy or history. Any assertion that he has apologized for U.S. actions rests on a misleading interpretation of the president’s words.”"

I'm glad he recognized Krugman's work at the Times, which despite the vilification of some, has really been a reliable source of speaking truth to political power: all sources of power. Democrat and Republican (and, yes, libertarian). There aren't many people that do that, and almost none that can enlighten people about economics the way Krugman can. Public intellectuals like this are very important. This is a big part of the reason why so many of us thought Krugman was the obvious "modern Bastiat": a champion of the liberal tradition with a deep knowledge of economics, a willingness to directly challenge politicians, and a skill for public communication. This is why a lot of us were really puzzled by the people who seemed to think "modern Bastiat" just meant "most prolific libertarian blogger".

There's good stuff in the Boettke article too

2012-01-12T15:09:00.004-05:00

I find Boettke's claims about mainstream economics to be very wrong, but he's obviously got a lot of good discussion in the article. The guy is a student of the market economy, so while I may disagree with 95% of what he says about the economics profession, I agree with a ton of what he says about the economy - and we should never lose sight of that. Later in the article, he gives us one of my favorite quotes from WN:

“What is the species of domestic industry which his capital can employ [ie what he should invest in], and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him. The statesman, who should attempt to direct private people in which manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.”

Is Boettke right here?

2012-01-12T14:52:00.003-05:00

A lot of people have been critical of recent bad interpretations of the Austrian school (say, by Matt Yglesias most recently) including me. I wonder what those of you who criticized him think of Peter Boettke's recent criticism of mainstream and Keynesian economics. It seems to me to be very similar to Yglesias's, in that it doesn't really tell you much about mainstream economics, but it does tell you a lot about where Boettke is coming and how he views economics. I was most surprised by this paragraph:

"Imagine a two-by-two matrix, in which the rows are defined by whether you are dealing with a simple problem situation, or a complex problem situation. The columns are social order or social disorder. Then you look at the individuals pursuing their individual self-interest. What’s going to result? In simple problem situations – where agents are perfectly informed, they live in large number situations and are dealing with homogeneous products – you can get social order, because no one individual can influence the effect on any other individual. But once you introduce complexities into the system, the system no longer generates the invisible hand, and you can get disorder. So in a simple problem situation with free markets everything is popcorn and candy canes, and then we move to a complicated problem situation and we get unemployment and irrational exuberance etc. This is Keynesian economics and market failure theory – all very mainstream.

What Marxists believe is that even under simple problem situations, the market can’t do its job – you get monopolies, you get exploitation. Classical economists, Austrian economists, and New Institutional economists reside in the box that starts with a complex problem situation but nevertheless gets you social order. The way you do that is not based on the behavioural assumptions of the actors, but on the institutional assumptions underlying them, ie things like the political, legal and cultural context within which individuals engage and exchange. If that context is the right context, then even in the most difficult of situations, individuals can generate social order. They can cope with their ignorance, they can take care of uncertainty. When the market goes astray, it’s not because there is something wrong with the market mechanism, it’s because the rules under which the market mechanism operates have got distorted."

It surprised me for two reasons. First, because if you had asked me I would have put modern mainstream economics and Keynesian economics in the box that thinks markets can solve complex problems. I'm certainly in that box.

But the second astonishing thing is why Boettke puts us in the other box - because note that sometimes we get outcomes that we don't like from market economies. I definitely think this too. The issue is, when people like Matt Yglesias or Brad DeLong or Paul Krugman or other alleged neanderthals come around and criticize the Austrians for thinking that the market offers a panacea these same guys protest against the accusation! They point out proudly the George Mason mantra of "markets fail - use markets". Free competition is not the same thing as perfect competition. Markets with "inefficiencies" in the lingo of welfare economics exist but there are also emergent solutions to those problems. So sometimes markets don't give us exactly the panacea that we would all like but (1.) that's no reason to be against markets, (2.) institutional solutions emerge to address these problems, and (3.) market solutions can even emerge over time to address these problems.

How come when someone working at George Mason University makes this claim and notes (1.), (2.), and (3.) they're in the pro-invisible hand box, but when someone like me makes this claim and notes (1.), (2.), and (3.) they're in Boettke's anti-invisible hand box?

Hell if I know.

But Boettke's been making claims like this for years.

Assuming your own conclusions

2012-01-12T14:37:00.002-05:00

The only historical labor statistics I've really worked with are from the 1920-21 depression. I have not read much of the Great Depression literature, but this post suggests that official unemployment statistics did not include CCC or WPA employment (they provide an adjustment in the post)! Does anyone know if this has been adjusted in the literature?

That's absolutely unbelievable. I guess at the time I could see the logic. You didn't want to look like you were gaming the numbers and large non-military public employment was unusual. But these are people getting paid to work on legitimate projects. I'd hate to think the official statistics excluding these jobs are widely used. Does anyone know the situation on that?

This is like Bob Higgs' outrageous decision to just subtract federal spending out of the numbers to determine the end of the depression. Surprise, surprise! When you just decide that growth and jobs that would work against your theory don't count, your theory magically gets supported by the data!

I don't know if this is what's going on with the labor data. Maybe they're just noting an adjustment that is made regularly. If anyone has more information on these things, I'm very interested.

Speaking of the Urban Institute...

2012-01-12T12:21:00.004-05:00

Traditional think tanks are notoriously slow to get research out - for mostly good reasons (they keep working at the research and research can take a long time). Government agencies that we contract with can slow things down too, often for bad reasons (it's gotta work through many, many layers of bureaucracy before being released).

Well my report on apprenticeships is apparently finally released. I wrote section IV, and conducted the analysis on all but one of the sites. This took up massive amounts of my time in late 2008, 2009, and early 2010, but it was a very rewarding project to be a part of.

UPDATE: Something I forgot - if you have any interest in quasi-experimental methods, like the propensity score matching and the regression discontinuity design that I use in the report or if you just want to dig into the numbers more, my Appendices are worth looking at in addition to the report. The principal investigator was concerned that the discussion of the methods was too technical for the main report, so a lot of the material that I thought was the most interesting got pushed into an appendix. It's all there - you just have to look for it a little.

Kling, Troy, and Schultz on Think Tanks

2012-01-12T11:56:00.002-05:00

I'm about halfway through.

First - what they refer to as "think tanks" I don't even think of as "think tanks" - I think of them as adovcacy organizations, and that's probably because of my own background with the Urban Institute which is very serious about keeping that distinction.

They talk a lot about the Center for American Progress here, and I should note that Urban's new president is coming from CAP. I can tell you from experience, people at Urban definitely have these things in mind - people there almost universally want the Urban Institute to remain a "think tank" rather than an "advocacy organization". But part of the logic of bringing someone over from CAP is precisely to get our research out there and in peoples' hands. I think that would be a very good thing. Think tanks loose out to advocacy organizations, simply because of the time lag. I think it's certainly possible to cut that time lag without becoming an advocacy organization, and I personally am giving the new president the benefit of the doubt that that's the plan.

I have no idea what I'll be doing in five years, but I put the highest probability on being back in the think tank world. I like it a lot. But I hope you never catch me at one of these more advocacy oriented organizations.

More from Scott Sumner on savings

2012-01-12T10:13:00.003-05:00

Here.

And I'm still not sure exactly what he's criticizing. Dismissing Keynesians on savings, he concludes with "Physical goods (and services) and the medium of account—focus like a laser on those two things, and macro becomes incredibly simple."

Right... isn't that why Keynesians talk about physical goods and services and the unit of account? I'm really baffled by what he's thinking of what he talks about Keynesianism.

On Iran

2012-01-12T08:40:00.003-05:00

Another scientist is dead, as I'm sure all of you know. I don't know what the current thinking is, but I imagine this is Israel rather than us (at least directly... obviously a lot of what Israel does is associated with us - and for good reason). This is extremely dangerous stuff. I'm reading a history of Area 51 right now, and they're discussing Powers and the U-2 that was shot down by Krushchev. The Soviets had known for a while that we were doing fly-overs and it was a huge deal - potentially interpretable as an act of war with the U.S. as the aggressor. There was just no precedent for violation of sovereignty like this. These covert actions were much more than traditional spycraft with people passing along information.

This isn't to say I'm opposed to covert action or even lethal covert action. I think both have a place and now that they've both been normalized they don't imply an act of war the way they potentially did in 1960. But this sort of provocation - the targeting of scientists (not revolutionary guardsmen on their way to see a terrorist cell) in broad daylight - is not the way to interact with a regime that's already on the edge.

I don't understand what's so hard to accept about a nuclear Iran for people. It's not that I like the idea of course, but if we can stomach a nuclear U.S.S.R. and a nuclear China, why do people have a problem with the idea that this is simply where warfare is in 2012, that's it's not going to go away, and that there is no more an implicit act of aggression in obtaining the bomb than there is in obtaining an airforce or a machine gun or a longbow in prior eras. Nothing will prevent another useless U.S. war in the Middle East faster than the discipline of mutually assured destruction. Better to have this all formalized and normalized rather than shady scientists and military people hiding these activities at the same time that they're consorting with terrorists.

Bob Murphy has two good videos on the subject here. Some of the comments on the second one I found odd - I discuss my reservations in Bob's comment section, if you're curious. I do think we need to be careful to understand that our options aren't Ron Paul or Rick Santorum - Pacifism or Warmongering. There are a lot of Phil Donahues and Piers Morgans in the world that recognize that we don't have to make war on everyone we find distasteful, that we can be clear about our willingness to make war without being perceived as a threat to these countries, and that we can oppose a war with Iraq and a war with Iran without being dismissed as pacifist or weak.

Very strange talk about Keynesian economics

2012-01-12T07:40:00.002-05:00

Yesterday I was really scratching my head over this post by Scott Sumner. I wasn't quite sure how to respond to it, or if I even should. On the one hand he was making some strange statements about Keynesianism, but then he also attributed that to a "naive version" of Keynesianism. And his alternative sounded an awful lot like... well... like Keynesianism to me so I wasn't sure what to do with it.

Brad DeLong and David Glasner have good responses, though (Brad's is to a related post - not the one linked above). DeLong had the same reaction that Sumner seemed to be acting like he was disagreeing when he more or less agreed - which made me feel better).

Then Nick Rowe wrote an even stranger post that also seemed to take issue with pretty elementary Keynesianism, and instead offering... more pretty elementary Keynesianism. He doesn't like the concept of saving because it obscures whether that saving is invested, hoarded, or spent on goods produced in a previous period. But it only obscures it if you're teaching it in an shockingly neglectful way!

When I taught my students Keynesian macro last semester, whenever I would derive the S=I from Y=C+I+G and then the multiplier too I would always have a money supply and liquidity preference schedule right next to it on the dry erase board. And then right next to that I would have a loanable funds market. Nick can fault me for not having an antique furniture market up there too, but I think we did pretty well for a group of freshmen. But the thing is, that's the whole argument. Keynes didn't talk about saving without talking about liquid assets. I didn't learn Keynesianism with saving but no liquid assets. And I'm sure as hell never going to get up and teach it without it. That's the whole point.

Scott agrees with Nick and says we should be teaching M and V rather than S and I. I'm not sure what the point would be of replacing it. We currently teach all of it. We talk (perhaps unfairly) about classical notions of the neutrality of money with the quantity theory, but then we also talked about the relationship between V and liquidity preference.

I don't see how this really solves the problem either. After all, we can talk about a quantity theory with current output, or we can talk about a transactions quantity theory (the only one that really makes sense) with antique furniture and liquid assets. But then if we do the transactions version that's not NGDP anymore. It's nominal transactions. You're facing the same dilemmas that you had with the Keynesian model. It doesn't solve any of this stuff - you have to talk about these issues in either case.

The other problem with just jettisoning savings and talking instead about investment, hoarding, and antique furniture buying is that these aren't distinct in the real world. One of the points that Keynes makes emphatically is that different assets have different degrees of liquidity, and that an increase in liquidity preference shifts the demand for liquidity across a whole spectrum of assets. Even what we traditionally think of as "investments" have some liquidity properties to them. Think about investing in a company's stock vs. investing in your buddy's company. There's a difference in the liquidity of those investments. Or the easiest thing to talk with students about is their own savings - think about what you have in a checking account vs. a savings account vs. a longer term savings vehicle. All of it's intermediated by the banks into some other investment, but each is progressively less liquid. But you can't point to a given dollar and say "that is hoarded" or "that is invested".

None of this is to disagree with the points that Nick and Scott are making on the economics - but I do think pedagogically they're worrying about the wrong thing - or perhaps just denouncing a straw man version of "savings" in macroeconomics when in reality it's a very useful concept.

Krugman on Mankiw: Yes and No

2012-01-11T16:39:00.002-05:00

Krugman has some criticism of Mankiw's note on the liquidity trap.

I'm not sure Krugman is thinking about this entirely right. It seems like the really relevant question is whether the coefficients are estimated in a period that is (1.) stable, (2.) we think the Fed behaved correctly, and (3.) we'd like them to behave that way again.

Why does Krugman's estimate make it look like we've got longer to go? Well for a lot of the years he adds to the analysis (i.e. - the early 2000s) the Fed probably had rates that were low relative to Mankiw's rates. Krugman perhaps thinks this is justified - he's said before that rates weren't too low. But of course if you develop a "where the Fed should be if they could be there" rule from a decade where policy was particularly loose, you're going to get a number that says they're farther from where they should be than you otherwise would.

So it's not that Mankiw is wrong to use his coefficients - it turns on what periods you think are best for modeling the answer to the question "where should Fed policy be now if it could be there?" If you think the 1990s are better than the 2000s for that, Mankiw has your answer. If you think the 2000s are just as good, Krugman has your answer.

His point is certainly right that none of this says anything about what's going to happen in the future. But I still like the direction its heading.

I think A.V. Hill would have been a good blogger

2012-01-11T13:29:00.003-05:00

I'm doing research now that has wandered over to A.V. Hill, Keynes's brother-in-law. This is a wise line from his autobiography, which is a reference to his years in Parliament (in a seat that was initially offered to Keynes himself, actually):

"After many years I came to the conclusion that it never (repeat never!) pays to lose one's temper; but that occasionally in a good cause it is useful to pretend to lose it."

This is encouraging

2012-01-11T08:04:00.003-05:00

Greg Mankiw says we're almost out of the liquidity trap.

This graph also offers an opportunity to ask a question of tight money people: I am entirely willing to accept money was too loose in the 2000s. Not only am I "willing to accept it", I've said it. I'm not sure it's the primary explanation of what happened, but you can throw it on the pile of things to talk about. But how in the world can anyone look at the 2000s and say "monetary policy was too loose" and not look at monetary policy since 2007 and say "monetary policy was too tight". If you're anything like a Wicksellian, I don't know the mindset that produces that view. What conception of the natural rate of interest makes it higher than the actual rate of interest in both 2000-2007 and 2007-2012?

UPDATE: That is, of course, if there are any tight money people left. Somehow in the fall of 2011 it seems like every Austrian in the blogosphere turned into an avid supporter of maintaining nominal spending. I'm still not sure exactly how that happened. I'm still not even sure if it did happen or if it's just a way to diffuse blogosphere criticism.

Sullivan on Eisenhower

2012-01-11T06:00:00.000-05:00

I think there's a whole lot to be said for Sullivan's arguments here, but I really couldn't pass over Roosevelt quite so easily. Roosevelt certainly did more wrong than Eisenhower, but what he did right was considerably more important than any particular thing Eisenhower did right. The stability that Eisenhower presided over and the sort of investments Eisenhower made in the country were possible because of what Roosevelt did. Warts and all, there's still a lot to recommend Roosevelt, and I'd present the stability of the early post-war period in the "arguments for Roosevelt" column in addition to the "arguments for Eisenhower" column.

A little bit of optimism dawned on me

2012-01-10T20:57:00.007-05:00

I was just in the car listening to Romney's speech in New Hampshire - figuring it highly likely that he'll be the nominee - and I realized that IMO at least there's reason to be optimistic politically. I know lots of you may not agree with me, but hey - it's my blog.

I realized that as I see things, if Romney gets the nomination we will have had three presidential slates in a row that successively improve each time. Bush-Kerry was awful on the Republican side and pretty disappointing on the Democratic side. Obama-McCain was only marginally better on the Republican side (unless, God forbid, McCain died and it would have been considerably worse) and quite good on the Democratic side. And now it looks like we're going to have a good Democrat and a Republican that I could actually end up liking (particularly if a recovery takes hold). You never get a perfect choice, but this isn't bad. If the economy really starts picking up by November and we look like we'll need a post-depression president I might even have to read up a little on Romney and consider him more seriously! The point is - things aren't always as atrocious as the punditry like to suggest.

Granted, the Congress has been erratic over that period and who knows where that'll go. But it could be a lot worse.

OK, now Gene can chime in and tell me that we're barrelling into war with Iran and the rest of you can try to deny the obvious fact that a Paul administration would be horrendously bad for the country. But for the next five minutes I'll keep enjoying my "eh - this could be a lot worse" mood.

UPDATE: I focused on Romney here because I think it's pretty clear he's going to get the nomination at this point. At least he's the best bet for it. This is not to say Romney is the best of the Republican field, although he is near the top for me. I agree with Ryan Murphy that Huntsman offers the best Republican option for me (I'm not sure if Ryan is agreeing on that), if we were dealing with that question. My point here is just that Obama = Obama > Kerry, and Romney > McCain > Bush. By convexity and transitivity, that means 2012 > 2008 > 2004.

Perfect summary of what I mean by "libertarian social engineering" and why I hate it when people say being pro-liberty and libertarian are synonymous

2012-01-10T15:17:00.005-05:00

(HT - Guinevere Nell)

I've got my marching orders

2012-01-10T13:35:00.003-05:00

I'll be TAing an introductory and an intermediate microeconomics course in the spring, working, at my own request, with Bob Lerman - an AU professor and Urban Institute researcher I've mentioned on here before. I'm looking forward to it!

I think Karl Smith is right on David Brooks and liberals

2012-01-10T11:54:00.005-05:00

I read the Brooks article on liberalism earlier today and had much the same reaction that Smith does, particularly this point (although I probably wouldn't put it exactly this way):

"First, the term liberal is heavily associated with the social-sexual mores of the American upper class. Most Americans reject those. And, members of the upper class who are right-of-center on economic issue tend to call themselves fiscal conservatives or libertarians. My baseline sense is because Milton Friedman and his disciples convinced them that this was an acceptable cosmopolitan alternative to the label liberal.

Thus, one has to both embrace upper class social-sexual mores AND be traditionally left-of-center to be comfortable with the term liberal. The term progressive does better precisely because it does not carry that social-sexual baggage."

The main point is, I think it's a labeling issue. For all intents and purposes I'm probably a "liberal". I've certainly been called that by tons of people in the blogosphere. But I've never in my life associated myself with the term. I've at one point or another in my life been happy to label myself a "conservative", a "libertarian", a "centrist", and a "moderate" but I'm not sure I've ever called myself a "liberal". There's just something wishy-washy and unrealistic about the word, and I don't consider myself wishy-washy and I definitely consider myself a realist. I think this association is mostly a PR thing over the past several decades. For better or worse, it's not a label many people embrace but it's a label that others love to use to describe all matter of sins (and perhaps this is why "liberal" is such a toxic term).

So what does that really mean? I think it's pretty unclear. When I'm feeling particularly liberal, I usually say I'm "left of center". Is that a substantive difference? I don't know.

UPDATE: It also probably has to do with my bizarre combination traditionalist/hippie of a brother. Whenever he whips out the hippy-dippy stuff I convulse a little and lose a small piece of any existing desire to associate with the term "liberal".

*****

Speaking of really dumb terminology, I might as well take this opportunity to once again vent about the use of the term "free market economist" to mean "libertarian economist". I don't have a problem if you want to call yourself a "free market economist", but I hate talk about "free market economists vs. Keynesian economists". The very phrase sounds non-sensical to me - or more accurately, it sounds like a category error to my ears. In fact, it sounds so strange to me I have consciously remind myself that people who talk like that probably aren't intending to make the implication that it sounds like they're making (or maybe they are? maybe I'm being too generous). End rant.

MAKE IT STOP!!!!!!

2012-01-10T11:00:00.004-05:00

And I thought Bob Murphy of all people would stand firmly against these enhanced interrogation techniques!

He has one more post on the debt issue, which I'm not even going to touch (much), but there are some interesting "loose ends" you all might want to look at.

I do have to respond briefly to this, though: "It is clear that Daniel Kuehn still has no idea what Nick Rowe (and later me) are bringing to this discussion. And I say that, acknowledging that Daniel and I are the MVPs of the two teams, respectively. It’s also true that I was misunderstanding Landsburg and Daniel for much of the debate. Nonetheless, since Daniel thinks Nick’s slogan is goofy, it shows Daniel still doesn’t understand the absolutely critical perspective Nick (and Boudreaux) brought to this issue."

I really think I do know what they're bringing to the debate. Note that what I thought was goofy was the idea that macroeconomics wasn't about GDP. I don't think it's goofy to say macroeconomics is about people. I also don't think the point about "generations" (the two period individual experiences in Bob's model) is irrelevant and I certainly recognize it. Debt imposes costs. Debt hurts people in the future to help people now. That's all quite important which is why everyone (including Krugman and myself) have noted it. Rowe and Murphy bring an emphasis on these issues to the debate, and Murphy especially has done a great job presenting them.

I'm not sure why noting that that's not the only thing I think is important and that's not quite what Krugman was arguing against means that I don't recognize this.

Also - people should tread carefully in reading Bob's account of "flipping" the result. He says you can only do it with a surplus and a negative interest rate. That's not really true - what I showed was you can also do it with inheritance. Bob doesn't like including inheritance, which is entirely fine - but that doesn't invalidate the model. One of Bob's critiques is that it's hard to track whether people are happier. Again, we really need to watch terminology here. If you are talking about welfare that's one thing, and inheritance does introduce complications. But if you are talking about whether the future is poorer or not it's less clear how that's a legitimate critique. Anyway - I completely concede Bob's result if we are ruling out inheritance.

Brief update

2012-01-10T10:52:00.002-05:00

- This morning I submitted my review of Beyond Stock Stories and Folktales: African Americans' Paths to STEM Fields. I have mixed feelings on it. It was a little rough around the edges and I disagreed with the approach in a few of the chapters, but overall it was a good contribution to the literature, I think. The real strength was that in dedicating a whole volume to the issue, they were able to explore a lot of sub-dimensions (like the interaction of race and gender), they had lots of mixed-methods, and they also had a good mix of traditional program evaluation and broader "think pieces". So the collection as a whole stood up well, even though there were weaknesses.

- Last week Marla and I submitted our paper on employment outcomes for drop outs to the Review of Black Political Economy. I also completed my chunk of work that I had to do for our Journal of Economic Behavior and Organization R&R. So hopefully that's two more.

- Now I'm writing up a very interesting paper that covers Keynes, Newton, and the Soviets.

- I am also going to be spending the week pretending that I don't have to put the finishing touches on this NBER chapter and send it back to my co-author. This is probably the one thing I know I'll be able to get done.

Can't let this one slip by...

2012-01-10T07:40:00.003-05:00

I want to spend today writing (which is very hard for me... the blogosphere is quite a distraction), but I did want to address this positively goofy claim from Nick Rowe:

"OK, just one last slogan: macroeconomics is about PEOPLE, not GDP!"

It started over on Bob Murphy's blog and he was so tickled by it he proclaimed it on his own.

Bah! - meaningless propagandizing for sentimentalism! The statement on its face is completely absurd of course. If you had to boil macroeconomics down you could even say soemthing like "the study of the determinants and the nature of national income", or if you prefer a more cosmopolitan rendering, "of aggregate income" it's about nothing if it's not about GDP. You may not like it, but that's the reality of it.

Of course, if the only way to stick it to Krugman is to insist we're all talking about parts of aggregates and their existence over several time periods, then you might be inclined to say it's about people.

And there's a reason for this, too. It's a science of aggregate income (and other relevant aggregates, of course) - that's what it's "about". But why do we care about it? Two reasons at least, I propose: (1.) scientific curiosity (in which case, "people" be damned), and (2.) the recognition that both a stable GDP and a growing GDP are extremely important for human flourishing because most humans (in the developed world) rely on income from employment for sustenance and employment depends crucially on the production and sale of new goods and services. We also experience life in snippets of time, so it seems to me the state of things in a given period matters. So you can care about macroeconomics because you care about people, but let's not fool ourselves: it's about GDP.

*****

Don't worry people - while I believe every word I just wrote, this is in jest w.r.t. Nick. I am not outraged or anything.

Bob Murphy, playwright

2012-01-09T07:33:00.005-05:00

Wow.

Bob summarizes the whole discussion in dialog form here. Impressive. I have to admit I only skimmed the first gazillion lines until my lines came up. I was quite happy with Bob's presentation of what I've been saying. Plus I drove David Brooks insane, which is always nice.

Bob introduces new OLG schemes that are also worth looking at carefully. Now instead of one person at the end holding the hot potato when the government redeems the debt, he has everyone after a certain point earning less than 200 over their lifetime by continuing rolling over a portion of the debt at a 100% interest rate (yes you read that right) and taxing to pay for the other portion. So essentially he takes that old tax on Iris and doles it out over time rather than in one go at the end.

UPDATE: What I learned from Bob's dialog is that instead of being fooled by these politicians with empty promises, we should pay for transfers to the elderly with a dedicated tax that puts money in a fund entirely separate from the general fund, and we should hire a bunch of actuaries to keep the program as steady as possible. If only a kickass president in the 1930s thought of that one... oh wait! And it's a good thing too - we needed that wiggle room in the debt five years later to make a real investment in civilization: namely, driving fascists out of Europe, Africa, and Asia (and now we have a new interminable debate topic: democratic pacificism in the face of imperial fascism - can anyone with a pulse support it? I will be arguing the negative, Bob (I presume - as a pacifist himself) will be arguing thte affirmative).

A few links questioning neoclassical economics

2012-01-09T06:51:00.002-05:00

- Unlearningecon argues that static neoclassical models are useless. I could agree with him if he could tell me a good way of learning dynamic models without static models. To agree with him I would also require a dynamic model that one could teach to freshman non-econ majors in one semester so that they can go into the world with a solid intuition. Without impugning Unlearningecon at all, I'm not sure he's up to the task. He also criticizes comparative advantage, and I think that's more straightforwardly wrong. Is comparative advantage the only thing that matters in trade? Of course not - we know from Paul Krugman's Nobel winning work (and really since Adam Smith and before) that it's not the only thing that matters. But it does matter a lot. And what's even more important - comparative advantage explains transactions between individuals very well, even if a lot of other things are going on in international trade.

- Evan sent me this recently. It's a Guardian article suggesting that economics is not value-free, as it claims, and that: "This theory [mainstream economic theory] of how the economy would work if there were free competition has thus been put to the test. The result is what I believe will prove to be the worst economic disruption in the history of the developed world." First - that last sentence is ridiculous. As far as I'm concerned that was the Great Depression, not this episode, and mainstream economics helped this episode avoid a Great Depression. I also obviously disagree on the value-free point. True, many economists do overlay their own values, but that does not mean the science itself is a normative one or that identification of rational behavior and self-interest valorizes those things (as the article claims). It's simply an explanation of how humans act in the real world.

One more post, for Bob's sake.

2012-01-09T06:27:00.006-05:00

Bob doesn't like that I used inheritance in my example three. Fine. If the debate on the national debt turns on the question of inheritance now, that's fine by me because... well... we have fairly ample evidence that inheritance does happen.

I also say "fine" because I hope Bob realizes this was just to highlight the importance of the transfer itself - the initial government transaction - for the result. Bob and Nick specifically chose a debt-financed transfer from young to old. If you had chosen an investment that would have turned out differently, but since we were in an endowment economy I just wanted to flip the direction of the transfer.

My point, Gene's point, Steve's point, and Krugman's point still remains: you cannot find a future time period that is poorer as a result. You can find individuals in the future that are poorer. That's the whole point of debt - pushing the burdens into the future. The thing is, the way you do that is by pushing assets into the future too.

Anyway, if Bob is fine with endowments from nature but not endowments from parents, this gets tricky in a model with two people that only overlap in one period (that forces the direction in which you can make transactions). But perhaps this unannotated three period, three person example will be of interest to people (and if you can't figure out an unannotated version you've probably tired of the discussion by now anyway):

I'm not going to do the utility calculations Bob suggests.

Here in the last period two of the three people are coming out on top, one is bearing a cost. If we had investment instead of a pure endowment economy that one wouldn't have to bear a cost.

Maybe this still doesn't satisfy Bob because one person is still bearing a cost. I'm not sure if I can tweak it anymore - I just did that quickly. I would even be willing to say (until someone proves me wrong) "without inheritance the cost-bearer must be the last person even if there are also benefit-earners in the last period". I'm not entirely sure why that matters. We've always agreed that individuals in the future bear burdens that they otherwise wouldn't as a result of debt. That point was in Krugman's very first post. I don't understand what the significance is of this last person for Bob.

What I hope Bob understands is that in my opinion, he was making Krugman's point even with his own example 1 and 2. And it's not just my opinion - that's what Gene and Steve were telling him too.

A question for/about perhaps the smartest septuagenarian on Earth

2012-01-08T16:28:00.005-05:00

It's Stephen Hawking's 70th birthday today. A lot of the coverage has been marveling at how he's overcome the odds by living this long with Lou Gehrig's disease. I imagine that when I'm that old or when I'm buffeted with such health challenges that's not what I'd like to be at the center of discussion.

I'm going to take a chance that that's Hawking's view too and instead commemorate his birthday with a question concerning Hawking's work that's been bugging me for a couple month's now (longer even than why we exchange gifts on Christmas and not Epiphany - which, in response to some questions, I really had scratched my head over since before Christmas).

Earlier generations perhaps knew Hawking for his black holes work, but by the time I got familiar with him he was well into obsessing over the grand unified theory issue. Even in Black Holes and Baby Universes and A Brief History of Time, Hawking talked a lot about this - but lately it seems like the only time he isn't talking about a grand unified theory is when he pauses to upset religious people by saying something controversial about God or to generate prime-time news fodder by saying something about aliens.

What's the big deal? Hawking has said that a theory of everything (as I understand it, GUT that incorporates the gravitational force too) would be the "ultimate triumph of science". Why?

I want to be clear about what I am and am not curious about here.

I am not asking why a brand new discovery would be cool. I know that. Obviously finding out something new about the universe is in and of itself important, particularly something this fundamental.

What I am asking is why a single theory for four things would be better than discovering that four things were actually explained by two theories. Or even that in reality we need six theories to best explain these four phenomena.

Is it simply the uniqueness of the number one that makes him so excited about a "theory of everything"? And if that's all it is, is that really a responsible way for a scientist to think about things?

That's really what I'm asking.

I'm also asking, of course, if there's a technical reason for why we should be excited about either a grand unified theory or a theory of everything - because there may be a technical reason I'm not aware of. Is it that we expect that there should be a theory of everything, but we just aren't able to nail it down yet? If that's what it is - if we know it should be there somehow, but haven't figured it out - that would make sense too.

But as it stands I'm not quite clear on why Hawking is so adamant about this. It seems to me we should want to understand the world effectively, regardless of how many distinct relations it takes. Right?

Assault of Thoughts - 1/8/2012

2012-01-08T07:30:00.002-05:00

"Words ought to be a little wild, for they are the assault of thoughts on the unthinking" - JMK

- A record decline in government jobs under Obama (that's record percentage point decline, not just levels). I tell ya - Obama does a pretty crappy job at this socialism thing.

- Peter Klein complains about Yglesias on the Austrian school and economic journalism in general. I especially liked this: "I once heard a lecture by the sociologist Steven Goldberg about his work on male social dominance, expressed in his books The Inevitability of Patriarchy (1974) and Why Men Rule (1993). I remember him saying that whenever he presents his dominance thesis, someone invariably raises the objection, with a smug and self-satisfied expression, “What about Indira Gandhi?” or “What about Margaret Thatcher?” He went on (I’m paraphrasing): “Right. . . . Like I’m going to devote three years of my life to researching and writing a book called The Inevitability of Patriarchy, and someone’s going to say ‘What about Indira Gandhi,’ and I’m going to slap my forehead and say, ‘Oh, crap, why I didn’t think of that!’” Goldberg was a funny guy, with a great Brooklyn accent too. (His books point out that Gandhi-led India and Thatcher-led Britain were male-dominated societies, particularly in matters of state.)." Now that reminded me of a bunch of people on Keynesianism, but I won't name names here. I have a comment that does defend one grain of truth in Matt's post - about how Austrians moved away from their business cycle theories as the depression wore on. I imagine this is a reference to the move towards Haberler's explanations and therefore is not all that incorrect. Plus how many freaking times do we have to hear that Hayek apparently liked NGDP targeting - and yet now Yglesias is wrong to say that his position changed? Anyway - the rest of Yglesias is fairly bad, but there's a grain of truth there.

- Harry Holzer of Georgetown University (formerly of the Urban Institute) has an article on skills an a competitive grant program for job training in the new Issues in Science and Technology. And in a previous issues Diane Auer Jones has an article on apprenticeships.

What's in a name?

2012-01-08T06:54:00.003-05:00

I tried, in the last post, to show exactly how you can get tripped up by playing fast and loose with words like "individual", "generation", and "time period" in this national debt discussion. The words of these terms and what people are refering to matter. Individuals in the future are richer and poorer in the example. The nation at a specific time period is not richer or poorer. Whether a "generation" is richer or poorer depends on whether you definte that like an individual (i.e. - Iris is a future generation and she is clearly poorer), or more like a time period.

Now I'll be the first to admit - Paul Krugman didn't define his terms at the outset, but it always seemed pretty clear to me what he was saying. Was he saying that individuals who live in the future couldn't be hurt by debt? Well that's just silly because in several examples and in the conclusion of the first post he said just the opposite of that! Plus it would be a ridiculous claim in general and Krugman isn't in the habit of making ridiculous claims.

His second post was all about how individuals in the future could be made poorer by debt, but not the nation. If anyone wasn't sure after that, his third post mused on whether the debt would "force America as a whole to spend less than it would have if the debt hadn't existed". The issue here is clearly the relationship between debt and national income. On this point my models and Bob's models unambiguously come out with the same answer - Krugman's answer: national income does not change, but individuals in the future can be richer or poorer as a result.

The Krugman claim was very simple: nation as a whole stays the same, although future people can be richer or poorer relative to the counterfactual.

Can someone explain to me how this isn't exactly what we've all converged on?

And now Bob is offering me to bet against the position I've been trying to expound upon, which says to me we probably need to close shop on this. He says he's genuinely surprised at my response. I'm surprised he's surprised, but I'll trust he is. Like I said in my very first post in response to Nick, I think the big disagreement here is over who thinks what - not over the debt. Even Don Boudreaux was sounding like he was basically making the Krugman claim with a few public choice nuggets thrown in, so I'm not personally convinced this was ever that huge of a divide in the first place.

Expanding Bob's OLG Example

2012-01-07T08:54:00.012-05:00

Bob had a good OLG exposition of the national debt issue here (if you're coming in this late in the game, you're on your own tracing back links). He was also kind enough to send me the excel file that he used to make the diagram so I could expand it by two examples.

But first I want to make a few points about Bob's post.

1. Gene and I have both pointed this out already, but I want to make it very clear: you have to realize that Bob has not disproved Krugman's point anyway. Add up each row sequentially in Bob's OLG model. All of them add up to 200. There is no burden on future generations in Bob's example. None. He can't get a burden with his model. What he has is individual people (in his case, the last person in the chain - Iris) getting screwed and others benefiting (this is what Paul originally called a "different kettle of fish", and a real problem). But within each period we have the same GDP level. In other word, Bob Murphy's example agrees with Paul Krugman. Bob may have changed his mind but so far he has not offered us a model that supports Bob's decision to change his mind. So why did Bob change his mind? I'm still not sure. He's always welcome back over on our side, though.

2. I will still not get into this in my expansion of Bob's example, but let's also remember what Bob doesn't include: growth and investment. This is not a minor issue, and it strains the extent to which we can really go to these models to tell us something about real life human action. Ask yourself - why in the world would you borrow money without some rate of return? It doesn't make sense. However, I don't fault Nick or Bob over that bit of parsimony because we still have a lot to talk about without it. But you should always keep that in mind.

*****

OK - new examples. My contention has always been that the burdens in these models are the burdens introduced by the transfers. Debt does not burden any particular generation. What it can do is make different people bear the burden of a policy. That's an important distinction if you're thinking about the impact of debt on GDP. We saw this in Bob's model. Each generation in Bob's model had the exact same income before and after he added debt. However, Iris had a much bigger burden than anyone else in his example. No effect on GDP - big effect on Iris.

To see how debt and transfers interact, I think it's useful to add two numerical examples to what Bob already has. The first two, below, are his (except I change the title of his second example). The third and fourth are mine. The third example considers the case where the government borrows from Old Al to make a transfer to Young Bob. The fourth example introduces the point of Ricardian Equivalence. Let's say we fund Bob Murphy's initial transfer from Young Bob to Old Al with a tax on Young Bob rather than a deficit.

In the third example, then, we have the same financing method but a different transfer.

In the fourth example, we have the same transfer but a different financing method.

First - what doesn't change? One thing that clearly doesn't change is GDP in period 1 through period 9. That is exactly the same in every row, in every scenario.

Point, Krugman (and whoever else is willing to acknowledge they actually do agree with him and he's not some crazy guy stuck in the 1950s).

What does change? The incidence of the burden. In Bob's transfer example, Iris had the highest burden by far, and everyone benefited a little bit as they earned interest over time. In the third example, everyone bears a small burden, Iris bears a slightly smaller burden than she did in Bob's example, and John earns a large benefit. In the fourth example, Al gets a benefit, John bears a burden, and everything else is the same. So while there is no generational burden there are lots of different burdens on different people depending on the scenario.

Point, Krugman (And whoever else is willing to acknowledge they actually do agree with him and he's not some crazy guy stuck in the 1950s).

What causes what does change? What makes the incidence of the burden change in these different examples? Both the nature of the transfer (we know this causes some of the change because we see a difference between example 2 and example 3) and the financing method (we know this causes some of the change because we see a difference between example 2 and example 4). If you want the burden and the benefit to be borne by people living in the future, finance it with deficits. If you want to spread out the costs and the benefits of the deficit differently, change the nature of the transfer (i.e. - note that example 2 gives out a lot of small goodies and then imposes a big cost at the end, while example 3 gives out a lot of small costs and imposes a big benefit at the end).

Point, well, me, because I don't think anyone made this point in the discussion yet.

Where does the burden come from? Unambiguously it comes from the transfer. We have a burden on someone with and without borrowing, after all. One exercise is to add up everyone's lifetime incomes and calculate the deviation of that lifetime income in each example from the baseline (i.e. - example 1). I've done this in the chart below:

We have burdens on people with debt and without debt. If Bob and I had used real numbers rather than intergers for the bond amounts, it would be clear that the total burden in examples 2, 3, and 4 were all the same. Clearly what adds burdens here is the transfer itself, and all debt or tax decisions do is shift the burden around on different people. This is what Krugman said initially. Krugman's point was that if we're thinking about debt and the prospects for growth and the income of future generations, there is no burden on "our children" together.

Bob demonstrates this amply, and I'm just trying to drive the point home. If you still don't get it, add up all of Bob's rows individually yourself and see what income is with and without the debt.

This is very different from how most people think about the national debt. Krugman is right to highlight this and talk about this in the New York Times op-ed page.

Now, what we've learned is that the real costs or benefits are introduced by the nature of whatever it is government is financing. So can we please put this one to rest and get back to things like "is the stimulus a good or bad idea?" without worrying about financing it with deficits (quite) so much?

More complaining about things that I suppose don't matter all that much

2012-01-06T14:05:00.002-05:00

Azaleas in a lobby? Bleh.

That newly installed lobby adornment greeted me this morning at Urban. I like azaleas a lot, but they belong outside, not inside.

It's also early January. If you're going to replace the lobby plants and if you have to put in azaleas, for God's sake don't put in pink azaleas. Wait until April.

This place has really gone downhill since I left in August.

A question that has been bothering me a lot for the last two weeks...

2012-01-06T10:54:00.002-05:00

...why do we exchange gifts on Christmas rather than Epiphany? Isn't it more natural to do gift exchanges on Epiphany?

Many people do it on December 6th. That makes sense, because gifts were St. Nicholas's thing.

But if you're not going to do it on December 6th, why would you do it on Christmas rather than Epiphany?

If you find yourself at a party explaining the Slutsky decomposition to someone...

2012-01-06T10:37:00.003-05:00

...and you've broken out the calculus - stop.

Explain it this way instead.

And then never discuss the Slutsky decompositon at a party again.

It ain't the debt - it's the transfer

2012-01-06T09:11:00.002-05:00

I've been complaining about consumption vs. investment, but a better way to emphasize that Nick and Bob really aren't hitting on a debt problem is to consider a different transfer: from Bob's older rational actor (Abraham) to the younger rational actor (Isaac).

Isaac gets 10 more apples, Abraham gets an IOU which he leaves to Isaac. In the next period Isaac holds an 11 apple IOU and has to pay 11 apples in taxes to redeem it. That's a wash for him.

So now - given a particular transfer arrangement - we have a different situation.

Would Bob and Nick accept the claim that this proves that deficit spending burdens older generations for the benefit of younger generations!

No - of course not. They'd point out that the only burden to speak of was entirely determined by the nature of the transfer. The method of financing didn't burden older generations at the expense of younger generations. That's bonkers.

So why is Krugman wrong when we change the nature of the transfer but don't change anything about the financing?

What would we do without Gingrich?

2012-01-06T08:46:00.002-05:00

Wait a minute - jobs? That's brilliant! Why didn't anyone else think of that! What would we do without you, Newt? And all this time all anyone really wanted was food stamps. Who knew?

More Diamond (1965)

2012-01-06T07:50:00.005-05:00

First - I figured my readers were aware, but in case you weren't this guy was the one of the three 2010 Nobel laureates.

In the last post I agreed strongly with Gene's conclusion that Bob actually disproved what he set out to prove. Transfers of consumption from young people to old people by definition impose burdens on young people. If we then ask "how does our method of financing this affect the burden?" we find that in a simple model, it doesn't affect the size of the burden at all, although it can shift the burden forward in time if we finance it with deficits. But the point is, a burden isn't imposed by deficit financing. Deficit financing is a way of manipulating the incidence of a given burden (Krugman's initial point). And of course, if we were financing new apple trees rather than apple consumption there might not even be a net burden on future generations to speak of.

Diamond (1965) actually notes that we should be careful to make this distinction, shortly before the passage that I cited earlier.

He writes:

What Bob and Nick have been doing is what Diamond refers to as "balanced budget incidence". That's fine - that sort of analysis is important when we make decisions about policy. We find that a consumption transfer from young to old introduces a burden on the young, and so we have to ask ourselves "is that worth it?". I would say yes. I'm guessing Bob would say no. That's a balanced budget incidence question.

Diamond (1965) argues that if we're interested in the question of whether deficits burden the future, we should restrict ourselves to analysis of differential incidence.

That way, we wouldn't make Bob's mistake of looking at the burden of a transfer and mistaking it for the burden of a deficit.

Callahan on Debt

2012-01-06T07:34:00.002-05:00

The man just can't quite quit unstable career politicians (although he's much closer to it than many), but he does have some good things to say about the national debt.

First, he calls Nick Rowe's model logically incoherent. I wouldn't go that far at all. It's logically coherent it just might not be applicable to reality. But even there I would quibble, because it is applicable to the reality we find ourselves in if we're dealing with deficit-financed transfer payments from the young to the old. And we do have quite important transfer payments from the young to the old, and it can represent a burden on the young. That's why we hire an actuary - to try to forestall that issue.

There are two problems with this, though. One that Gene points out in this post and one that he points out in his next post. The first problem, of course, is that there's no investment in this economy. The imposition of intertemporal costs without talking about the intertemporal benefits we see all around us seems like a really funny way of making a claim about intertemporal costs, doesn't it? Pure time preference is the only thing driving intertemporal choices.

In the next post, addressing Bob's models, Gene says more bluntly about Nick and Bob's models something that I've been saying too: "Bob Murphy's model proves exactly the opposite of what he set out to prove". Bob's model does show that costs can be imposed on younger generations. But simply looking at the payoffs in his Abraham/Isaac model demonstrates pretty blatantly that there is no difference between taxing to pay for Abraham's consumption and borrowing to pay for Abraham's consumption. In either case the exact same cost is imposed on Isaac to the benefit of Abraham. That is not a burden introduced by deficit financing, in other words. This is the Ricardian Equivalence case. The burden is the transfer, not the debt. Everyone already knew zero-sum transfers burden one party and benefit another. The question is, does financing that transfer with a deficit add a burden to future generations? No, it doesn't. It may change who bears the burden of the transfer, but it doesn't add any burden whatsoever.

"Because screw it"

2012-01-06T05:20:00.002-05:00

Way too many people get way too analytical about actually taking action on things, particularly when it involves political answers. It's a bizarrely unnatural way of acting for humans, and yet for some reason those of us who study human action and decision making are some of the most prone to falling into it. The human condition, in a nutshell, is never knowing exactly what the hell is going on but caring about exercising control so that we can actually try to make progress (whatever that is) in our lives. We don't just follow instinct where it takes us, but we are also limited by our frail faculties.

OK now I'm waxing poetic, so I'll get to the point. The fourth bullet point in Ryan Murphy's four point summary of what he's learned from James Buchanan so far is: "Even if you don’t have unanimous consent because people are being difficult, it’s reasonable to still assume that rules agreed to by a large enough majority constitutes a Pareto improvement, because screw it."

It sounds flippant, but there's a lot of wisdom there. At some point you have to just act. We will never know anything completely. The question is never "is this right or is this wrong". The question is always "is doing this more likely to be right than not doing this, or is it more likely to be wrong than not doing this?". Too many people have talked themselves into a rationalist ethics that weights sins of commission more heavily than sins of omission.

I don't get the logic that pushes people into saying things like "but you don't know if the carbon tax is the right price, so how can you justify that - the government can't possibly know what's optimal". Of course it can't possibly know what's optimal. I don't really know of anyone that's made that claim. But that's not the question at hand. The question at hand is whether it's likely to turn out better if we take this action than if we don't take this action.

So many times in life we have to just say "because screw it". You learn what you can learn (and ideally you learn a lot about the world you life in ahead of time so that you can make good decisions on the fly), and you make your decision. This is not a world where we pile up all our actions at the end of our lives and only count those actions and whether they are good or bad. In that sort of world you can wait to act until all the evidence is in. But that's not the real world. This is a world where throughout our lives we change things by both taking actions and not taking actions.

Guest post from Bob Murphy on the national debt

2012-01-05T21:38:00.005-05:00

So Bob is having trouble with the blog again, but wanted to share this OLG graphic and post:

****

I note that in the above, everything the government does is consensual, except the taxing in Period 10. Looking at this sequence of events, Joe Sixpack says, "Wow! In Period 1 Al got 10 apples for free. Then the generations kicked the can down the road through the decades, until 5 generations later, the piper finally had to be paid. Shocking how irresponsible that all was. That poor 5th generation really got burdened with a massive government debt."

Paul Krugman says, "Joe you idiot! In Period 10, it's a wash, since Kelly and John owed the debt to themselves."

Landsburg, good heavens man, surely you don't want to say that Krugman is basically right?

Back to Diamond

2012-01-05T18:01:00.000-05:00

So I was looking over Diamond's (1965) OLG national debt model today, and was interested in this paragraph:Of course, the simple modeling that we've seen in the blogosphere on the debt recently has only covered half of this: the consumption half.

I think it would be worthwhile redoing either Nick or Bob's model with an investment good instead of a consumption good, because we're really only presenting half the OLG picture when we focus on consumption.

It should come out much different (correct me if I'm wrong).

With that established, I think we have to ask ourselves: have we really been fighting over deficit financing and its impact, or have we been fighting over what is done with deficits financing.

Three questions about a Buchanan quote

2012-01-05T16:58:00.003-05:00

Don Boudreaux quotes Buchanan thusly:

"But the 1930’s were perilous times, and the Great Depression left deep scars. The revolution in economic thought stirred men’s souls; the banner of full employment was to be advanced at all costs and against whatever odds. This became the vital center of attention. Little time was available for careful examination of the intellectual stumbling blocks which the old-fashioned ideas on public debt seemed to represent. Out these ideas went, and the “new” ideas were left only to be picked up and carried forward, not by scholars of public debt theory, but by fiscal policy advocates."

I have three questions:

1. Is this a historically accurate or inaccurate description of way people thought at the time?

2. Is this a a historically accurate or inaccurate description of the way people approached scientific analysis of the economy at the time (not whether the analysis is now considered completely right, but whether they were uncareful, whether they were just being advocates, etc.)?

3. If the answer to one or both of the preceding questions are "no", how should feel about this quote and about Buchanan's argument about the impact of Keynesianism on the late 20th century?

An intriguing, but I think wrong, statement by Eric Falkenstein

2012-01-05T10:05:00.002-05:00

He writes about a statement by Brad DeLong that:

"Keynesians think $97B was created via this spending and taxes this year, which is why they love government spending regardless of what it is spent upon. But if they issued $100B in bonds to create this 'new demand', where would that $100B have have gone otherwise? I don't think this makes sense in general equilibrium. I guess if you could caricature the two views: one thinks supply creates its own demand, the other that demand creates its own supply."

I find the bolded point interesting, but not quite right. I think the better thing to say is:

"...the other that new demand creates its own supply when the economy is demand constrained, and supply creates its own demand when the economy is supply constrained, and market economies are demand constrained, not supply constrained"

Thoughts?

Oh, and one could add: "Even when there is a balance between supply and demand, there is no guarantee that that balance will be struck at a full employment level"

For the umpteenth time, I'll remind people that a clearing labor market is not the same thing as a full employment labor market.

MAD question

2012-01-05T08:36:00.002-05:00

Does anyone know a good, authoritative account of von Neumann's role in the development of the idea of mutually assured destruction? I can google - just curious if anyone is personally aware of one they got a lot out of.

A couple debt updates

2012-01-05T07:49:00.002-05:00

- I emailed Paul Krugman this morning pointing him to Nick Rowe's post and asking him if he was a #1 or a #4. I think he's clearly a #4 and his point was never to prove the "logical impossibility" of anything. Nick thinks he's a #1. We've both marshalled quotes from his blog. But this is silly - we need to just ask him. We'll see if he responds - he's been responsive to me over email in the past.

- Bob Murphy provides an example here. It's very similar to Nick's but I actually think the exposition is a little clearer. Bob also goes to great lengths to note that he's had his mind changed on this one, and he's been very obliging to Krugman, which he should be credited for. Still - I'm not quite sure what to make of this one. I'd be much more interested in a model where debt is funding investments that will help the second generation rather than pay for the consumption of the first. And it would be nice to have a growing economy. What Bob illustrates is obviously a burden on future generations, but as Steve Landsburg and I point out, the burden is the transfer itself - not the public debt. If Bob and Nick want to say "transfers from one person to another are a burden on the people that it is transferred from", then I would say "no duh, guys!". But that's a very different proposition from asking whether public debt is inherently burdensome. As Krugman would say, that's a different kettle of fish. I don't think anyone was ever disputing that.

- Now in this post it's clear that it's the transfer itself that Bob is really concerned about. If that's your concern, fine. We always knew that some of us think that the state is a legitimate way for free people to pursue their own prosperity, and some of us didn't. Bob conceives of it as the state telling Isaac (his second-generation rational actor in his model) what to do. I'd argue it's more like Isaac and Abraham (the first generation rational actor) getting together and deciding what to do together. But that's not really relevant (except as a rhetorical flourish to advance Bob's point). If his point is that government allocation (1.) can be zero-sum, and (2.) can be distortionary, I obviously agree - particularly in the case of transfer payments... but I thought we were talking about the nature of the public debt.

Commenter Major_Freedom appears to agree with Bob's focus on the nature of government in this post, although he doesn't have anything like Bob's character. Responding to me, he writes: "I think it’s very, very reasonable for you to find yourself a different career, because obviously you’re more concerned with how to advance the violent state and hurting innocent people’s lives than you are with economic science."

Yes - that's what I'm interested in MF. Hurting innocent people. Geez - now I remember why I've been enjoying Bob commenting over here and talking with him over email so much more ever since ~~the CIA shut down his blog~~ his blog has been having technical problems.

Peace Prize hypothetical

2012-01-04T15:38:00.005-05:00

For reasons I won't go into now, I've been doing some thinking about the 1962 Peace Prize recently, but something else dawned on me: should Keynes have won a Nobel Peace Prize, and was he ever in the running for one?

It's obvious why he didn't win an economics prize - he didn't live long enough. If he had lived longer, I think it's a foregone conclusion that he would have. But he was also a strong contender for a Peace Prize. 1919, 1920, 1921, 1925, 1926, and 1927 were all awarded for pulling Europe together after the war. There weren't any awards for Peace in 1923 or 1924. Keynes of course also helped put the world back on track after the second world war, and the 1944, 1945, and 1953 awards were all related to establishing a peaceful post-war order then.

Keynes's work on the Treaty, on shaping public opinion, on working with Germany after the war, and the alleviation of the depression, and on establishing a new order after the second world war all seem to make him a strong contender for the Peace Prize in his lifetime, even though he never had a chance at the Economics Prize.

Does anyone know if this was ever even discussed?

UPDATE: From the comments, he was nominated.

DAMN IT! We lost Murphy.

2012-01-04T14:01:00.002-05:00

Here.

I can save face by maintaining what I have been from the beginning pointing out the good points that Nick Rowe and Don Boudreaux have been making, and actually suggesting it's not all as conflicting as it's being presented as.

I thought - and I still think - that Krugman's point was not that public debt is a free lunch, but rather that unless we're thinking about weird scenarios (like no-growth consumption-funding debt) the "man on the street" view that "national debt = burden on future" is very naive. Public debt isn't just something we have to pay for. It's also an asset we hold and it's also a source of investment. Big debt = bad debt doesn't follow from that automatically.

That sounds like a #4 position from Nick Rowe to me.

Iowa

2012-01-04T13:54:00.004-05:00

So apparently a more moderate and a less moderate conservative did quite well, and Ron Paul came in third.

And apparently two other conservatives are out and their backers are free to look for someone else. Let me guess how New Hampshire is going to turn out...

I swear, guys - when we said Ron Paul had no chance it wasn't anything personal. It's (a.) just math, and (b.) well maybe a little personal 'cause the guy thinks we're statists and we're amazed you think he's a "nice guy" despite the fact that he's pretty mean to people like me.

But it's mostly (a.) just math.

Ron Paul's demise is a foregone conclusion, I think. I'm personally a little worried about Romney now. And I'm only worried about Romney because I'm worried about Obama. If Obama's going to be a one term president, I want a President Romney.

Work is like a pushy grandmother...

2012-01-04T13:51:00.002-05:00

...every time you think you successfully cleared off your plate, another helping seems to spring up.

Can some more prominent blogger than me get this into the news cycle, please?

2012-01-04T11:53:00.004-05:00

Andrew Sullivan talks about the "Rockwell strategy" with the Ron Paul newsletter thing, but informed opinion (I'm thinking Gene and Bob, and presumably others - not GMU critics trying to take a shot at the Mises Institute), seems to agree that it's really the "Rothbard strategy", not the Rockwell strategy. I'm still not sure Rockwell is the sort of guy I could get along with. He considers Keynesianism the "economics of state power", which to me says he's either not well informed, not a nice guy, or both. I have a hard time warming to people that think I and people like me are statists. But I trust the people who seem to think this is Rothbardian in its origins. That should be common knowledge, and I say this as much for Austrians' benefit as anything else. Gene Callahan calls Rothbard a Leninist-turned-inside-out, and I dare say he's not the only one that fits that description. Twentieth century Marxists got a chance to intellectually redeem themselves by recognizing Leninism and Stalinism for what it was and rejecting it. The Austrian School's Lenins are of a different scale and substance, to be sure - but I still think there's value in calling them out.

Megan McArdle makes me chuckle

2012-01-04T09:31:00.004-05:00

I know, I know - I need to be more specific with a title like that!

She weighs in on the MR/Krugman spat. I found this pretty funny though: "I will note that the commenters Paul Krugman sends to other sites harbor a very strange faith in his predictive powers"

"Sends to other sites"??? What a bizarre thing to say! I love how people act like those of us who are positively disposed towards Krugman and DeLong are somehow enthralled to them. It couldn't possibly be that we're convinced by them or just think they have good points to make. No! They "send us to other sites".

One thing you won't here me talking about much on here is "predictive powers" of Paul Krugman or anyone else. That should not be surprising, since I've long noted the problems associated with forecasting complex systems. What we need is explanatory power, not predictive power - and Paul Krugman does actually do pretty well in that regard. I don't know his "predictions" in any great detail - but if they're right I think that has more to do with (1.) luck, or (2.) stating the obvious than any great skill in economics.

Facts & other stubborn things

Census humor

Assault of Thoughts - 1/27/2012

Unlearningecon with some thoughts on Austrian economics

Well now I'm actually conflicted!!!!

Good Genes + Persistent Libido = A Prolific Presidential Legacy

More thoughts on Lastrapes, Selgin, and White

Vulnerability to rent-seeking means you're not as robust as you could be

More agreement on something that doesn't get us anywhere

Steve Horwtiz on Free Banking - a question about institutional robustness

Facts are stubborn things

Be careful reasoning from MPC

Fixing Economics

Bob on 1920-1921

A somewhat stunted understanding of what free people ought to be free to do collectively

Some details on how our non-Keynesian president thinks about space policy...

Need not be from the Onion (but it is)

Good discussion of 1920-1921

Warren Harding is A-OK with me

Krugman on 1920-21

An odd sentence about Gingrich

Cool Alaska population animation

Not a bad paragraph, for a Marxist

Andrew Sullivan shares some of Louis C.K.'s political philosophy (which seems like a lose label for what he talks about)

Steve Horwitz is exactly right about thinking about labor market discrimination

More libertarian labeling puzzlement

Two good links

Rampell on Science and Engineering Education and Workers

Isaac Newton: Proponent of Theocratic Police States

A dream class to teach

Paul Romer on Regulation

Predicting the future of complex systems is hard

Virginia wineries, doing what we do best - absolute advantage can be better than comparative advantage

Good sentences on externalities from Mike Kimel

The Fable of the Bees

A quick clarification on the externality thing...

An assist on a DeLong smackdown over mercantilism

Anthony Gregory on Ron Paul and foreign policy as a campaign plank

Don Boudreaux is largely right about externalities

Assault of thoughts - 1/18/2012

A question for libertarians who promote Ron Paul to non-libertarians

Stupid Wikipedia isn't working!

A great update on the private space industry at Reason

New semester

My CJE article has been published

Some Sachs links

Perhaps this is part of the confusion...

Definitions of Libertarianism, contd.

More on the Sachs article, and a request to Steve Horwitz or whoever else

Krugman on Martin Luther King and Inequality

Jeff Sachs has a great article on libertarianism

Loudon Trip

Assault of Thoughts - 1/15/2012

On aliens

Krugman and Truth-Telling in the Media

There's good stuff in the Boettke article too

Is Boettke right here?

Assuming your own conclusions

Speaking of the Urban Institute...

Kling, Troy, and Schultz on Think Tanks

More from Scott Sumner on savings

On Iran

Very strange talk about Keynesian economics

Krugman on Mankiw: Yes and No

I think A.V. Hill would have been a good blogger

This is encouraging

Sullivan on Eisenhower

A little bit of optimism dawned on me

Perfect summary of what I mean by "libertarian social engineering" and why I hate it when people say being pro-liberty and libertarian are synonymous

I've got my marching orders

I think Karl Smith is right on David Brooks and liberals

MAKE IT STOP!!!!!!

Brief update

Can't let this one slip by...

Bob Murphy, playwright

A few links questioning neoclassical economics

One more post, for Bob's sake.

A question for/about perhaps the smartest septuagenarian on Earth

Assault of Thoughts - 1/8/2012

What's in a name?