I am mad at Bob Murphy tonight for linking to Steve Landsburg - I can never unread what I just read

This is really heinous.

Bob jokes that Steve is "doing everything in his power to get fired". I honestly wonder if he should be.

He writes this of the Steubenville rape case: "As long as I’m safely unconsious [sic] and therefore shielded from the costs of an assault, why shouldn’t the rest of the world (or more specifically my attackers) be allowed to reap the benefits?"

He dismisses any sense of ownership of the body by noting that when a neighbor turns on their porch light, your body is penetrated by photons... so really how is that different from other sorts of penetration?

Happy Women's History Month, everyone!

This world is sick sometimes.

I'm not sure I'm sold on Unified Growth Theory

Of course, I'm just getting into it, so take that with a grain of salt...

It's a beautiful idea that has an answer to the whole sweep of human history from Malthusian times to today.

I'm just not sure the answer makes sense.

First the demographic transition and take off is all driven by birth rates, which at a certain point start to fall while human capital and technological progress take off ("quality for quantity"). But what actually happens is a fall in death rates, not a fall in birth rates (which comes later - perhaps with a similar virtuous cycle to what UGT describes). But it seems to me the fall in death rates happens because of the technological growth, which is supposed to be caused by the initial population increase.



The other odd thing is that it seems to get the great divergence backwards, right? If population is driving technological change, why did the UK and the US take the lead? Why not India and China?

It's a very nice model. I think endogenizing population growth and introducing subsistence issues is the right way to go. I just think all the focus on the population as the instrument of change is probably wrong. I'm guesing technological shocks due to the scientific revolution instigated the change, and the population followed as UGT predicts it would. It seems odd to think that population took the lead. This would explain the fall in death rates before the fall in birth rates, and this would explain why the UK and the US and not India and China.

Buchanan and Rorty on vision, pragmatism, and liberalism

In a Cato Policy report on "saving the soul of classical liberalism" by the late James Buchanan (HT - Bill Woolsey), Buchanan writes:

"Despite these successes, we true liberals are failing to save the soul of classical liberalism. Books and ideas are necessary, but alone, they are not sufficient to insure the viability of our philosophy. No, the problem lies in presenting the ideal.

Thus, for example, George Bush, during his presidency, derisively referred to “that vision thing,” when someone sought to juxtapose his position with that of Ronald Reagan. The “shining city on a hill,” the Puritan image that Mr. Reagan invoked to call attention to the American idea, was foreign to Mr. Bush’s mind-set. Mr. Bush did not understand what Mr. Reagan meant and failed to appreciate why the image resonated in public attitudes.

In a sense, we can say that Ronald Reagan was tapping into a part of the American soul about which George Bush remained illiterate. The critical distinction between those whose window on reality emerges from a comprehensive vision of what might be, and those whose window is pragmatically limited to current perceptions, comes clear in this comparison.

My larger thesis is that classical liberalism cannot secure sufficient public acceptability when its vocal advocates are limited to this second group of “does it work?” pragmatists. Science and self-interest do indeed lend force to any argument. But a vision, an ideal, is necessary. People need something to yearn and struggle for. If the liberal ideal is not there, there will be a vacuum and other ideas will supplant it. Classical liberals have failed, singularly, in their understanding of this dynamic...

Creating a new vision, a new soul for liberalism, is our most important task now. I am not here suggesting that attention should be limited to the design of all inclusive political packages. Politics, for the most part, proceeds in piecemeal fashion, one step at a time. What I am suggesting is that we, those who teach liberalism, focus on the vision, the constitution of liberty, rather than merely on a pragmatic utilitarian calculus that shows liberalism to yield quantifiably better results than politicized economies."

I think it's a very important point, but the juxtaposition of Bush and Reagan and of pragmatism and vision generally reminded me of Richard Rorty in Philosophy and Social Hope. I don't have the book on me at school so I can't grab passages, but the nature of the argument was that a pragmatist* approach to truth that seeks to satisfy needs (including the need to correlate our verbal descriptions of how the world works with our experience of how the world works) rather than see through to an "ultimate reality" is not inconsistent with what Buchanan calls a new vision, or what Rorty called "social hope". For Rorty, hope required action towards a goal under conditions of uncertainty in much the same way that a pragmatist's orientation to questions of "truth" involve commitments to claims about the world under conditions of uncertainty about "ultimate reality" (not just the nature of ultimate reality - but the question of whether such a thing even exists).

Pragmatism also fostered a social hope because there is not an end-point if you're not seeking out an ultimate reality. A pragmatist view of things is construct claims about the world based on what seems to work, given the task or question at hand. This is inherently progressive and visionary because you're oriented towards "what do I want to do next, and how do I achieve it?", rather than something like "I know exactly what the end-point is and I will be on this quest until I reach it, and then I am done".

Rorty called the sort of liberal that had this orientation a "liberal ironist" - ironist because the most central beliefs and desires of this sort of liberal are understood to be and really embraced as ultimately contingent.

Liberal ironists are not natural rights liberals or Objectivists, in other words.

Sometimes we think of idealism and realism (each in the more colloquial sense - not the technical sense) as being incommensurate orientations for people have. That's sort of the message of Buchanan's essay (although the essay is historically grounded and strategic in nature - so I wouldn't attribute this to Buchanan too much, personally). For Rorty, this need not be the case. It was one of many dualisms he didn't see much of a need for.

* - Pragmatist being of course different from, but of course not unrelated to, Buchanan's discussion of the pragmatic position.

Productivity figures have their limits.

We talked before about the fact that output per worker is not the same as the marginal revenue product of labor.

Bob Murphy also points out that composition matters for how much stock we put into productivity figures with the following hypothetical:

In 1968, a nation of identical workers collectively puts in 1 billion labor-hours, to produce 1 billion units of finished consumer goods, at a price of $1 per unit. (There are different types of goods, but they all have the same unit price.) Everyone gets paid $1/hour. This is the only production, so nominal GDP is $1 billion. The government also happens to set a minimum wage law of $1/hour, but this has no effect because that’s what the competitive wage was anyway. (Assume that not only the average product, but also the marginal product, is $1/hour.)  

In 1971, there is a major policy change that unleashes the printing press. The government’s cronies start getting humongous payments of new $100 bills, which they do partially spend on consumer goods, but which mostly go into financial assets, real estate, and precious metals. After decades of this new pattern, we find…  

In 2013, the same workers collectively put in 1 billion labor-hours, to produce 1 billion units of finished consumer goods, at a price of $2 per unit. Everyone gets paid $2/hour. This contributes $2 billion in nominal GDP. However, the fat cats provide “financial services” of $8 billion in nominal GDP, for a total nominal GDP of $10 billion. Since CPI has doubled, in 1968 dollars real GDP is $5 billion, a five-fold increase.  

EPI publishes a paper saying that if the minimum wage kept pace with “inflation,” it would be $2 in 2013. If it kept pace with real productivity growth, it would be $10/hour.

BLS does produce productivity figures by industry and presumably that would stand up to Bob's scrutiny better (I don't personally know how non-financial productivity behaved relative to the economy's productivity).

It's an interesting sort of thought experiment... maybe I'm not understanding it but workers seem to be paying other for consumption goods and fat cats pay other fat cats for financial services? I don't know. Even so, it still shows the limits of these figures especially if you think the financial sector is bigger than it ought to be.

UPDATE:

From the BLS tables -
Nonfinancial productivity grew 125.7% between 1968 and 2011
Total productivity grew 131.5% between 1968 and 2011

So there is some fat-cat finance outpacing but there's still been a lot of productivity growth since 1968.

btw - I know the division chief for major sector productivity at BLS, Susan Fleck. She was my gender micro professor and wrote a recommendation for me for that long term care fellowship I mentioned the other day. She has an essay on the productivity/wage gap here.

Scattered thoughts I leave my readers to organize for me...

Let's say productivity growth and marginal revenue productivity growth are about comparable, for the sake of the argument. See the earlier post if you don't understand why we shouldn't be literally thinking in terms of output per hour of labor - but let's say the growth rates are comparable so the divergence is real and relevant to think about.

Then let's say we have a conflicting claims model of inflation.

We have been looking at this in terms of taking the macroeconomic environment as given and then asking about the extent to which the divergence in productivity and wages implies that labor is undervalued. In other words, we are looking at these numbers and saying that the pie is divided inequitably and just bracketing off questions about the size of the pie (nominal and real).

If we take a conflicting claims perspective, you have to think about the prospect that maybe we should not be bracketing off the macroeconomy.

Let's say wages grow with our crude productivity measure which we take for the sake of argument to be a decent marginal productivity measure for all classes of workers, and that we have this insane $22 minimum wage implemented. It results in unemployment if we think that that's the margin on which adjustment will occur.

But in a conflicting claims setting there's another marign - the price level.

Maybe these productivity statistics are telling us that the distribution of the pie is fine or close to fine (obviously CEO pay is fucked up, but maybe the broader income distribution ain't so far off) but the price level has been far too low for far too long.

This may not make any sense. Be kind in the comments if it doesn't - just a thought.

And if you're going to comment and you think I'm saying a $22 minimum wage is a great idea, you're not getting my point. My point is that we bracket off the macroeconomic significance of these sorts of things precisely because our usual models for thinking about the economy don't take distritbuional fights like this into account - the conflicting claims model does.

Is this not what I have been saying???

Krugman on deficits and voters.

You don't have to like Keynesianism, but the crude public choice argument that it's a boon for politicians makes no sense at all.

To bureaucrats who may want to maximize their own budgets, the costs and the benefits of advocating tax increases are both diffuse. For politicians who do the budgeting, running deficits is definitely a political cost. The reason why we run deficits is that (1.) as a policy question it is so overwhelmingly obvious that balancing budgets would be sub-optimal, (2.) the commitment of automatic stabilizers like a progressive tax system and a counter-cyclical safety net. If politicians were unconstrained by the economic reality of (1.) and the policy reality of (2.) - if they were optimizing in an unconstrained rather than a constrained environment - we'd probably have far fewer deficits.

On the Warren thing

People. On all sides. Please.

Let's remember what we've got here. Productivity is output per labor hour.

On the left, you really don't want to argue that people should be earning their output per labor hour. Just stop and think of what that entails for other factors of production.

So why cite productivity? Because so far we have not come up with a good way to calculate the marginal revenue product of labor and publish regular statistics on it. We certainly don't have a good way to do that for the marginal revenue product of the group of workers earning around the minimum wage. But these metrics ought to grow together, right? Marginal revenue product of labor and productivity ought to move around in the same ways.

So I maintain (and Elizabeth Warren appears to maintain), that it's a good metric to keep track of. And indeed, productivity growth has been closely related to wage growth (until recently, where there have been some interesting divergences). I see the EPI graph looking at the growth of the minimum wage if it grew with productivity and think "Gee - that's really interesting. We always talk about the real minimum wage, but that's actually incomplete - productivity growth is important for thinking about whether a minimum wage is binding at a given point in time. A steady real minimum wage ought to be progressively less binding over time."

I don't agree with Warren on everything, but she's a smart cookie.

I don't think she wants a $22 minimum wage. Exhibit A in evidence is that (as far as I'm aware - correct me if I'm wrong) - she's never said she wants a $22 minimum wage. That's an awkward little factoid that no salacious post title at Huffington Post or Daily Kos is going to undo (again - correct me if I'm wrong on this).

She's a very intelligent person. I imagine she sees the EPI/productivity graph in much the same way I do - as indicative that workers have been losing some ground and that a given real minimum wage is less binding now than it was several decades ago when worker productivity was lower.

This is why I love the Urban Institute

The Urban Institute Tax Policy Center in this case.

Howard Gleckman reigns the politicos in a little:

"To our GOP critics, I am fairly sure our modelers were not under the influence of illicit drugs while running the Ryan budget. I can’t say for sure, but they mostly prefer to hang out in the gym.  

To the Democrats who so enthusiastically embraced our analysis, thank you for your support. However, we did not say what you wish we had said."

There are some days I think the coffee is the most valuable thing covered by my research grant overhead...

...that's not a slight on all the other things covered by overhead at all - it's a statement about how essential the coffee is.

If only they stocked the department fridge with beers. Then I'd really be getting my money's worth.

What a waste

They tore up all the azaleas in front of the economics building - a whole truck full - presumably for some kind of new landscaping. I was going to go out there and ask if they were throwing them away and if so whether they could put some to the side for me to drive back to campus and grab, but when I finished a few pressing obligations they were gone.

I really hope they don't just end up in the trash somewhere, but they probably will.