Provisioning for a remoter future

Bob Murphy shares this nice passage from Mises:

"We are the lucky heirs of our father and forefathers whose saving has accumulated the capital goods with the aid of which we are working today. We favorite children of the age of electricity still derive advantage from the original saving of the primitive fishermen who, in producing the first nets and canoes, devoted a part of their working time to provision for a remoter future"

Reminds me very much of Keynes talking in Economic Possibilities for our Grandchildren about how you can trace England's industrial might back to surpluses of the Elizabethan period.

Harris's Response to Greenwald

It's excellent. The contrast between the two is stark (here's his initial article for comparison). This isn't really new for Greenwald, of course. He distorts the people he disagrees with on the drone issue too. The opening passage is an excellent treatment of the frustration of dealing with people like Greenwald online:

"A general point about the mechanics of defamation: It is impossible to effectively defend oneself against unethical critics. If nothing else, the law of entropy is on their side, because it will always be easier to make a mess than to clean it up. It is, for instance, easier to call a person a “racist,” a “bigot,” a “misogynist,” etc. than it is for one’s target to prove that he isn’t any of these things. In fact, the very act of defending himself against such accusations quickly becomes debasing. Whether or not the original charges can be made to stick, the victim immediately seems thin-skinned and overly concerned about his reputation. And, rebutted or not, the original charges will be repeated in blogs and comment threads, and many readers will assume that where there’s smoke, there must be fire."

Post-Keynesians have a name for that

Garett Jones considers why workers might want to redistribute wealth towards capitalists. Post-Keynesians have a name for such a regime: "profit-led" (as opposed to "wage-led").

The distribution of output is the meat and potatoes of Post-Keynesian models, and for a long time profit-led growth wasn't considered to be an important phenomenon. Bhaduri and Marglin (1990) changed that, as well as work by Blecker (my macro political economy professor at AU) on open economy macroeconomics. It turns out it's in these open economy models that profit-led growth starts to become really important.

Empirically it's a mixed bag - some economies seem to be consistently profit-led, some more consistently wage-led. To a large extent, this seems to turn on the sort of trade and labor institutions in place.

UPDATE: So, just to be clear - a rational worker would still want a sort of free-rider relationship where he can take output away from capitalists while most workers distribute towards capitalists. So in terms of actual behavior you may always have this distributional conflict by rational actors. The point is, in a "profit-led" regime redistribution towards capitalists bolsters employment.

Working papers of interest

Informal Care and Inter-vivos Transfers: Results from the National Longitudinal Survey of Mature Women, by Edward C. Norton, Lauren Hersch Nicholas, Sean Sheng-Hsiu Huang. NBER Working Paper No. 18948

Academic Performance and College Dropout: Using Longitudinal Expectations Data to Estimate a Learning Model, by Todd Stinebrickner, Ralph Stinebrickner. NBER Working Paper No. 18945

Race-Specific Agglomeration Economies: Social Distance and the Black-White Wage Gap, by Elizabeth Ananat, Shihe Fu, Stephen L. Ross. NBER Working Paper No. 18933

Basic income book website is up

Here.

It's not published yet but will be later this year - and you can always preorder your copy!

My chapter makes a case for a policy I don't agree with (a basic income) from the perspective of a school of thought I don't affiliate with (Austrian economics), but it was a still a fun little chapter to write.

Another way of putting my last post

Some commenters on the last post seem to be getting caught up in issues that seem to me to miss the point. Bob Murphy writes: "You guys are something else. Does it matter that that Mellon quote--which Krugman uses to characterize the 1930s record in the eyes of his readers--was produced in Hoover's Memoirs, so that Hoover could explain that he did the opposite of what Mellon suggested?"

The problem is, he didn't really do the opposite from Krugman's perspective, although he might have from Bob's perspective. "Opposite" all depends on where the origin of your particular Cartesian plane lies.

Here's one way of putting it that IMO makes much more sense in reading Krugman's article: Barack Obama is Herbert Hoover and Paul Ryan/Ron Paul is Andrew Mellon. Of course Obama/Hoover didn't exactly listen to Ryan/Paul/Mellon. But the point is the whole atmosphere is still one of austerity. Yes we have relatively less austerity than Ryan/Paul/Mellon would want us to have or that the EU has. But that doesn't mean that there isn't a problem - that there isn't still in Krugman's words "an urge to purge". That is where the center of gravity is - with austerity. Of course it's not the austerity that Bob Murphy wants. He doesn't want a hiring freeze and a 20% pay cut for federal workers. He wants them fired. But "not satisfying what Bob Murphy is interested in" is not the definition of austerity.

As I said yesterday, Hoover was an austerity president. So was the early Roosevelt. They both did some nice things on the margin. In the monetary realm the early Roosevelt did some very good things. But it was still a period of relative austerity. Would a hypothetical President Mellon have been even more austere? Well of course he would have. So?

Krugman gets Hoover (essentially) right

I think there is some sloppiness out there on Hoover and there's some revisionism on Hoover. The sloppiness is on the part of people who say he cut or did not increase spending. I believe Krugman has done this before. If not him, certainly many have. It's easily verified that this is not true, but it's an impression we've had for a long time.

The revisionism comes in with the critics of Krugman and people like him that try to act like a lack of cuts makes Hoover an activist. This is extremely misleading. Hoover didn't cut, but there's a good reason that he's perceived as being austere (even aside from the tax increase austerity - I'm talking about if we just stick to the spending and deficit numbers). A recent example is this criticism of Krugman by David Henderson (although he's careful to note that Krugman never actually says anything that's wrong, which makes Krugman "clever"... I guess the idea is that Krugman is trying to be dishonest but knows how far to push it??? I don't know).

I put this together a while ago - it puts Hoover's spending in the context of Harding, Coolidge, and Roosevelt:

 

There is an uptick in spending under Hoover, but it's barely perceptible unless you do what the revisionists do and zoom in on that portion. When you zoom out, two things jump out at me:

1. - In the context of the fiscal injection that is credited with (in combination with monetary policy) getting us out of the Depression, the Hoover increase is a rounding error, and

2. Harding's budget - which is allegedly a paragon of austerity virtue - is higher than Hoover's budget. So someone please explain to me why proponents of austerity lionize Harding in 1921 but act like Hoover is some kind of Keynesian in the early 1930s.

When I posted on this before, this was my position and it's still my position:

"The early 1930s was a period of fiscal austerity. Tax rates were raised precisely when they should have been maintained or probably lowered. It's quite true that Hoover did not slash spending - he increased it. Indeed, he increased it through programs like the Reconstruction Finance Corporation that laudably generated important institutional infrastructure, which would serve the country well during the New Deal and the second world war. But the Hoover administration and the early Roosevelt administration spent at a level that was consistent with the post-WWI spending of the Wilson administration, the Harding administration, and the Coolidge administration. That was fine for the 1920-1921 depression and the 1920s, but it was not an appropriate fiscal policy response to the early 1930s. It was far too austere. While the Hoover administration and the early Roosevelt administration both increased spending levels, there was no practical difference from a macroeconomic stabilization perspective between their spending policy and that of the Coolidge administration. Both men did a lot of bad things and both men also did some good things, but the real regime change in fiscal policy did not come until the late 1930s and early 1940s."

David is principally concerned with the "impression Krugman leaves the reader". Of course any given account will vary, but in my view any account that is more or less like what I said above is giving the right impression, and I think Krugman does just fine (although as I said in the beginning - sometimes the account gets a little sloppy. He's not a historian - not big deal in my opinion. The important thing is the impression Krugman leaves that reader).

Two Keynesian fault lines

The Morality of Capitalism event at AU yesterday was excellent. I'll start with the second panel I went to first. It featured Richard Boyd talking about Smith, Brad Bateman talking about Keynes, and Peter Boettke talking about Hayek. All were excellent. It was especially nice to hear Bateman talk, because he sees Keynes very similarly to the way I do (relatively independently, I should add - I had a lot of my thoughts formulated about Keynes before coming across Bateman a couple years ago). He also said flat out that Buchanan and Wagner were wrong on Keynes. It's something I've always thought seemed very obvious, so it was nice to see him say it so adamantly.

A lot came up, but I'd characterize one of the issues that came up as a discussion of the fault lines that Keynes falls on. There are at least two: the economic and the philosophical.

Philosophically the point of contention is whether he was a liberal in the classical sense. Many of course say "no" but the thesis that Bateman presented yesterday was that he was and that people mistake the objections that he had to capitalism for an opposition to it or for some kind of illiberalism, when actually he was a staunch proponent of capitalism that was sophisticated enough to recognize that not all was well or pleasant with it. Bateman decried this modern tendency to either think of capitalism as all things to all people or as the scourge of civilization. It's really neither. Boettke made a statement at some point about Keynes being a "sort of liberal", if I recall, but he was obviously more skeptical of the claim (although I don't think he ever actually called him illiberal - though obviously some people do).

The other fault line where Bateman and Boettke agreed was that there is a big difference between the economics of Keynes and Keynesian economics - the old Leijonhufvud dichotomy. On a very superficial level I think this is true, but this is where I part company and think the point is overstated. Is the architecture of Keynes's theory different from neoclassical synthesis Keynesianism or New Keynesianism? Well of course it is. If that's all the claim is then that's fine. But usually there's a deeper claim of incompatibility, and this - I think - is overwrought. It's like comparing Newton and Einstein. Of course there is a degree of incommensurability between them. You can't even find a hint of Einstein in Newton just like in a lot of ways you can't even find a hint of New Keynesianism in Keynes. But it seems odd to talk about Einstein as being opposed to Newton. Sometimes paradigm shifts in science actually do overthrow older ideas, but in the case of Newton and Einstein you have superficially an entirely different science but Newton is still well preserved as a special case in this new way of talking about physics. Of course it's interesting to talk about the difference between the way that Newton talked about his ideas and the way Einstein talked about those same ideas, but to me that is just antiquarianism. Fundamentally, those ideas are still there in the new paradigm. As I said, this doesn't always happen in the case of shifts in science, but I do think that is the case with Keynes and modern Keynesians. The Keynes antecedents in Keynesian economics are clear.

But among history of thought types, this is a lonely quadrant. You can think about it this way:

Another way I like to think about it is to ask what Keynes would think if he were alive today. Going back to Newton, if Newton were alive today do you think he would have any qualms about embracing relativity or quantum mechanics? I doubt it. Would Darwin object vigorously to Neo-Darwinism? No. And even more importantly - would they think "Gee I was so wrong back then!" No - none of them would say that. All of them would say "Wow - you guys have learned a lot since I died! Get me up to speed!". Some - Ptolemy for example - would say "Oh well, I guess I've got to start over", but I don't personally think that's the case with Keynes. Another way to put this is that a lot of the advances have been modeling advances (and  yes, they are advances - and we are continuing to make progress) rather than theoretical advances.

I think too often people mistake the model for the theory (this is relevant, for example, to Boettke's point about "institutionally anti-septic" economics - those are institutionally anti-septic models. I would contend that most economists theory isn't institutionally anti-septic at all [and of course many models aren't institutionally anti-septic]).

There's not much Keynes left in our models. There's quite a bit of Keynes left in our theory.

Cited at Science Careers

Here.

The treatment of our forthcoming report looks good. Some economics-minded people might be interested in this line:

"Since then, however, a large and continuing flow of foreign IT workers on temporary visas has caused drastic change. "The IT industry [now] appears to be functioning with two distinct market patterns: a domestic supply (of workers and students) that responds to wage signals (and other aspects of working conditions such as future career prospects) and a guestworker supply that appears to be available independent of standard wage and employment signals, plentiful even when wages decline or are stagnant. … [T]he flow of guestworkers from low-wage countries appear[s] to provide firms access to labor … in plentiful supply at wages … too low to induce increased supply from the domestic workforce.""

The author must have had an old draft. I made sure the line "appears to be available independent of standard wage and employment signals" was changed to clarify that they are responding to wage signals, but because of the wage differential between the United States and abroad there is a steady supply regardless of wage trends in IT here.

I think it's an interesting lesson that different people talk about things in different ways. I am writing with a sociologist and a demographer and it's going to be read by policy analysts, natural scientists, and economists. Everyone has a slightly different perspective on it and is going to take a slightly different story away. People with an economics background know why that line bothered me initially.

I'm very excited for this report to come out. Different people are going to take it different ways. Some people will take it as an anti-immigration argument (I don't think it has to be at all but I can see what people who are against immigration would like about it). I'm trying to prepare myself to take it all in stride.

My view is this (shouldn't be new to readers): I am pro-immigration, but I think people have legitimate interests in differentiating between immigrants and guestworkers. In other words, I want lots of immigrants and tend to leave it to democracy to decide how many guestworkers we have (I'd be pretty generous myself). I think our current guestworker programs are badly structured, and that they ought to give guestworkers more mobility between employers (part of this has to do with the interaction of employer sponsored green cards and guestworker visas) and not distinguish between different types of workers (low skill, high skill, etc.).

Quote of the day

“The government’s us. These officials are elected by you. They are constrained as I am constrained, by a system that our founders put in place.” - Barack Obama

I probably don't agree with Obama on everything around gun control, but he makes a good point here. Certainly the reason for the second amendment was defense against tyranny. But the founders had many other defenses in mind besides that. Obama picks up on the defense against tyranny that is perhaps more important than the second amendment:

- Democratic elections
- A system that constrains elected officials

Now you know what would be really wacky - if someone tried to make the case that Obama was saying that the government is not democratic - it is concentrated in himself, and that a system that constrains elected officials (like the Constitution) is not important.

That would be nuts!

That would be like taking the quote and then saying the exact opposite of the quote!