LSE Debate

It's up here. I haven't had time to listen to it yet - have you? What do you think?

I've heard some disappointing reviews - it sounds like Jamie Whyte did a particularly bad job. But we'll see - I'll try to listen to it Friday or Saturday.

UPDATE: OK - I've been listening to this while getting ready. It's not particularly good. What's amazing to me is that George keeps saying "consumption isn't the problem - investment is and the Keynesians ignore this". Ummmm... yes... isn't this the entire Keynesian point?

Also, I think this is quite edited - anyone know of a longer version?

This is funny.

Drunk Ben Bernanke.

I think I saw him in the crowd singing Neil Diamond with Bob Murphy.

Outsourcing pulling my hair out over Casey Mulligan...

Casey Mulligan is a very well respected economist - I should point out to those who don't realize - but he's done a lot of sloppy blogging, particularly in criticizing Keynesian understandings of the crisis, that I've drawn attention to several times on here. Sometimes his own data disproves his point (as in the summer employment post).

This time I'm outsourcing the critique of Mulligan's most recent post to Nick Rowe. People need to keep aggregate and disaggregated (i.e. - relative) effects distinct.

Nick also has this great warning at the end: "Of course, we could say that same thing about people who draw conclusions about macro fiscal multipliers from estimates of micro fiscal multipliers. They are mistaking shifts in relative demand for shifts in aggregate demand."

And there are a surprising amount of people who make this mistake. The most recent example I've seen is Matt Yglesias's intern goofing this blog post of an alleged example of Keynesianism in South Carolina (where I am now on a site visit, as it happens). I've also criticized several studies lately for doing the same thing with state-level estimation of fiscal multipliers. Fiscal multipliers need to be measured relative to a counterfactual of the same aggregate you are looking at. You cannot make relative comparisons. There are spillover concerns and there are also crowding out concerns (I think this is the sort of thing Nick has in mind at least).

Pulling my hair out over a few things...

I got an email from Evan that I chuckled at but then nodded in understanding over. He wrote: "Dude, I need to stop reading budget/debt related stuff on facebook or I'm going to write a helluva rant on your blog. If I read one more complaint about supposed welfare queens from someone I think I'm going to break my computer."

Indeed. Most people that complain vocally about welfare don't know the first thing about it. Of course there are incentives to consider and things to debate and even disagree on. But the mythical welfare queen never really was true, and what a lot of people don't realize is that to the [limited] extent that it was true on rare occasions at one point in time, it has not been true since welfare reform in 1996. And it's so infuriating to hear idiots dump on low income families - often with kids that didn't do a damned thing to deserve the tough position they're growing up in - that I'm usually disinclined to even engage...

...then right after reading that from Evan I come across Don Boudreaux - not an ignorant man - asserting that people should be "ashamed" to take welfare and that they lack the "values" of his parents for doing it. I bit my tongue when a couple eye-roll-worthy posts on Keynes came out of Don and Russ recently, but this one is really infuriating.

Some people seem to think our safety net - which we are blessed as a country to have the resources to provide - is a vacation hammock. And what's worse - reasonable people are happy to concede the disincentive effects associated with certain programs to support low income families. This isn't a controversial point - it's a quite reasonable point. But often, ill-mannered or outright ignorant people could care less about the work and reform that people have put into addressing these problems over the last two decades. To them it's still about welfare queens.

UPDATE: Share thoughts, but if you bad mouth low income people or welfare recipients in the comments I'm going to delete it.

This is why I prefer talking about "externalities" rather than "public goods"

Tyler Cowen is getting rightfully bashed for presenting both non-scaled and nominal federal spending projections (apparently his critics aren't satisfied with "but the numbers are from a well known Washington think tank" - go figure).

But this paragraph in his response provides a good example of why I hate references to "public goods" when talking about the appropriate function of government:

"Some MR commentators raise the issue of per capita measures of discretionary spending and whether they will decline. It might be nice to have growing public sector per capita quality with growing population and growing wealth. But if the good in question is a public good (and is it not supposed to be?), adding extra people to the mix, ceteris paribus with no spending boost, is compatible with those additional people getting more or less the same services as the previous consumers. Falling per capita expenditures on public goods, if it is not too big a fall, still means a greater real quantity of public goods enjoyed, given non-rivalry of consumption."

Are there public goods? Sure there are. But there are also lots of normal goods with externalities, and those are the really important ones. Those expenditures also grow with population and the size of the economy.

For the record I also don't like "market failure" although I probably use it somewhat more than the phrase "public good". "Market failure" implies there's something inadequate or bad about what the market is doing under certain circumstances. That seems like a strange way to think about it. It's like saying that the fact that hammers don't bang in screws well implies "hammer failure". I don't think most economists think the market is "bad" when they think about "market failures" but it's still sloppy language and it opens you up to sloppy critics who would rather presume you're insulting the dignity of the market than formulate a real argument.

Ethics and Economics

Martha Starr, a professor at my soon-to-be-home of American University argues that economists need an ethical code.

People were raising a lot of concerns about this sort of thing when the Inside Job documentary came out (which is referenced in the link above). Bob Murphy picked it up, agreeing with Martha Starr about these problems and pointing to specific cases with Mishkin and Hubbard. I'm not going to recount my views on those two cases - but you can look at my comments in the linked posts of Bob's.

I lean a little more towards the market view described in the article, and against Starr and Murphy. To a large extent this might be based on my experiences, and of course my reaction is going to depend on exactly what "ethical code" is proposed. I doubt I'd be opposed to any kind of ethical code Starr or Murphy have in mind, I probably just don't think it's as necessary as they might. What do you all think?

Gary on Paradigms and Economics

In a comment thread Gary writes: "Most scientific disciplines have some sort of over-arching paradigm to them (or series of paradigms which are some times linked, sometimes not) - in biology you have evolution, cell theory, etc. Nothing like that exists in economics - obviously economics has gone through a variety of paradigmatic shifts (e.g., Smith, then Ricardo, then marginalism, then Keynes, etc.), but the paradigms are never really complete or uncontested and thus they tend to be fairly weak. And yes, there are debates about evolution by evolutionary scientists, but those debates regard specific mechanisms and so forth, no one doubts the basic story about the evolution of species. Instead of something like the Big Bang or wave particle duality or what have you, you've got in economics something more a kin to one of the undemonstrated UFTs. Most of the grander economic theories that are supposed to explain a lot look a lot more like M theory or loop quantum gravity theory; they don't seem to be able to convince people like the Big Bang does or evolution or quantum theory in chemistry."

I think he's deeply misunderstanding economics. First we do have at least two paradigms that are universally accepted:

(1.) the gains from trade/the law of supply and demand (the "theory" is supply and demand but of course the accepted understanding of the gains from trade is what motivates the behavior in question). The law of supply and demand is like natural selection for economics. It supports everything and is universally accepted.

(2.) marginalism/subjectivism

I think the paradigm shifts we go through are also fairly thorough and happen at about the rate that they do in any other science. In my mind the first real thorough paradigm we had was Ricardianism. Then there was marginalism (a micro paradigm), then Keynesianism (a macro paradigm). And I'm not sure we've ever come out of the Keynesian paradigm.

Moreover, Keynesianism as a paradigm is relatively uncontested. This is what Arnold Kling refers to as the AS/AD mentality. I think Kling unfairly caricatures the perspective, but that's another discussion entirely. We don't use the word "Keynesian" to refer to the whole paradigm, of course. When we use it in every day language we're really refering to a more specific class of models and perhaps even some policy persuasions. So we oppose "Keynesian" to "Monetarist" and "New Classical", etc. when really monetarists and new classical economics are very firmly in the Keynesian paradigm - they just tweak a few assumptions in their models to try to solve puzzles that they feel earlier work didn't solve. The paradigm, though, is fairly stable. To borrow Gary's words from the comment, the big debates you see between economists "regard specific mechanisms". I'd probably agree with Gary that a lot of models are comparable to UFT work - but then nobody ever claimed that we've broken a new paradigm in economics and nobody in physics is quite ready to claim that for UFTs yet. So? This is where the paradigm leads us. Do seemingly intractable puzzles bother Gary? Kuhn says these are solved in a couple ways: first, with new empirical technology, or with a paradigm shift (and often the former facilitates the latter). We're getting new empirical technology all the time. We have longitudinal employer-employee household datasets now. We didn't have that in the 1990s. Now we can test the new advanced in theory in the 1980s that was just awarded a Nobel Prize last year. Who knows where these advances are going to eventually lead us? I don't.

But Gary's simply wrong on the paradigms. We have a few big ones and we definitely have laws that are universally accepted.

*****

People get really weird when they talk about the scientific status of economics, despite it's very long and very firm status as such. The reason, it seems to me, is that people don't like to be pinned down and studied. That's what we do to inanimate objects and that's what we do to animals but we like to think there's something "special" about humans. We don't like to be reminded that we're just a highly evolved primate and that we are as amenable to scientific study as other primates.

Catalan on "Shadow Scholars"

If you haven't noticed, Jonathan Catalan has been churning out a ton of material at mises.org lately. I usually like reading him because I think he makes a lot of very good points, but even when I don't agree with what he writes is well reasoned.

His most recent piece, though, is one I simply cannot endorse but is intriguing enough that I thought it was worth sharing to get reactions. Jonathan has a side business writing term papers for other students. He's mentioned it before, and I've kept my thoughts to myself for the most part - I have strong views but I don't want to be a proselytizer. But since he's putting it out there in such a straightforward way in this venue it seems more appropriate to respond.

I adamantly disagree with him on at least four fronts:

1. First and foremost selling or buying term papers is very unethical in my mind, although Jonathan argues that it is not. The person buying these term papers is lying and cheating. I'm not sure what more needs to be said about it. People who sell term papers profit from lying and cheating. Nobody that's unwilling to produce their own work (or work with others in an appropriate way - i.e. with all contributing) should be at a university that expects them to.

2. Jonathan is wrong about curricular decisions. He writes: "Curricula, more often than not, are decided by boards and administrative groups who simply dictate what is to be taught. So the skills that someone may acquire as a university student are determined, not actually by the individual, but instead by someone else, who has absolutely no idea about the goals and objectives of that individual." For one thing, the people making these curricular decisions are usually educators. But even if they weren't, Jonathan is wrong to suggest that the goals and objectives of the individual aren't taken into account. Students make educational decisions based on course offerings. It made a big difference in my application decisions at all levels of education. Students also demand a degree that will be of recognized quality in that field, and to do that universities rely on experts in that field to design curricula. If universities aren't meeting student demand, application rates will go down. This is how choice works.

3. Jonathan is also wrong about the interaction between university education and the labor market. He writes: "They saw a correlation between higher productivity and an increasing degree of human capital. What they failed to come to terms with is the causality of the relationship. Higher human capital does not create more productive jobs. You can train as many engineers as you want, but if you train 1,000 engineers for 500 positions, then you will have a surplus of engineers, and that surplus will have to do something else for a living." People respond to incentives and their own subjective preferences when choosing fields, and labor markets have proved to be incredibly efficient. People choose to get engineering degrees when there is a demand for engineers (or people with engineering skills). I should know, I've spent the last year working through the major research of the last 75 years or so on labor supply in the engineering labor market, I've been pouring over 30 years of data on it, and I'm drafting a chapter for an NBER volume on it. The consistent conclusion has been: markets work. Students make investments that benefit them and that are in demand in the market. It's not like you show up to a university and are ordered by an administrator to be an engineering major, after all.

4. There is value to a liberal education and if you don't agree, don't pursue a liberal education. Jonathan ridicules the idea that people really need to write term papers. In many careers people don't have to of course. Even at my job as a researcher, the kind of writing I do is often nothing like what you do in school, and it's not even the activity I spend most of my time doing. But Jonathan ignores the pedagogical purpose term papers. It's not because people write these papers in the real world - it's a method for forcing students to read and learn material, process and synthesize it, and articulate their ability to understand and apply what they've learned. It's a matter of critical thinking skills and being an articulate person. That does have value in most jobs. A lot of people would benefit from just going to technical schools. One problem with the American educational system is that it's bifurcated: we have lots of people that drop out and don't go to college and lots that go to four year institutions, because we have failing secondary schools and a culture of liberal education. We could benefit from a culture of technical and vocational education too. But as of right now, that's in weak demand. Given what's in demand, though, there's nothing illegitimate about writing papers.

And if you don't want to write papers at a school where you are expected to write your own papers you shouldn't pay someone to do it and then lie about it: you should simply refrain from attending.

On the Debt Deal

The politics:

- The clearest demonstration in a while that politicians are either simply ignorant or they care more about their own reelection than the country. Not exactly a news flash, but sometimes it comes out more clearly than others.

- You hear a lot that we have a divided Congress. It's important to remember that with filibusters operating how they are operating in the Senate we really don't. What we have is a Republican majority in the House and no majority in the Senate, and while the White House is occupied by a Democrat he obviously has no legislative authority.

The deal:

- This is basically a Republican deal. All spending reductions, no tax increases, and increasing the debt ceiling. Granted, it's not a Tea Party murder-suicide pact that fails to raise the debt ceiling. But it's absolutely a Republican win.

- Debt ceiling is increased to 2013. I obviously think the mere existence of a debt ceiling is absurd but this is still much better than fighting it out again a few months from now.

- The debt ceiling is really the most important thing - I personally would have been willing to pay a pretty high price to get that. Yes, Obama had other options. I entirely agree. But I don't like the idea of a non-trivial portion of our population who already thinks he's illegitimate and tyrant thinking that he also blanatly flaunted the will of Congress. The fiscal policy outlook looked crappy even if Obama had to resort to these extraordinary measures, which means the economy would have stayed weak regardless. Why piss off that portion of the population unnecessarily? If we could do those extraordinary measures and have a robust fiscal policy I'd say poking the hornets nest might be worth the risk.

- No balanced budget amendment it seems - thank God. I don't know what prospect that had of passing anyway. But that was a supremely dumb idea.

- The language around the plan is odd, but it sounds like discretionary and defense caps immediately, which produces $1 trillion in savings over ten years. I don't know how much cuts that means in the next year or two, which is the important thing.

- Bigger cuts to come after 2013. I would have preferred the emphasis be on this, of course. Drop those caps in the near term and set up two commissions: an entitlement reform commission and a tax reform commission. Announce that we can't hold this long-term debt reduction hostage to the immediate requirements to raise the debt ceiling, so these commissions would work and argue and testify and report to Congress in 2013, when Congress would take up entitlement reform and tax reform. Seize the debt reduction issue by focusing on the actual debt reduction problem (the medium to long-term debt), rather than by caving on the short-term deficits which are not the problem.

Assault of Thoughts - 8/1/2011

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

- It was Milton Friedman's 99th birthday yesterday. His Nobel Prize lecture is here.

- David Glasner on why central bankers are not central planners.

- Stan Collender notes that on the debt deal it ain't over till it's over.

-What do people think about presidential candidate Thaddeus McCotter? I listened to an interview with him on C-Span and was impressed. He's sort of like Romney - he's a Republican that I could support if we weren't in a depression right now, but of course he relies on all the belt-tightening cliches that you always hear which makes it something of a non-starter at a time like this. Anyway - he seems extremely competent, not an ideologue, not a moralizer, and the discussion of the resolution authority as an alternative to TARP was especially good. He's apparently an avid Iraq War supporter too. I doubt I'd ever vote for him but it's worth pointing out the positive elements of the Republican field. And who knows - ten years from now when we're out of our wars and our depression and starting down Medicare and structural deficits I may come around to him (and Republicans in general) again. It seems a ways off at this point.