Posts
Regression to the mean
4 months ago
Wednesday, August 11, 2010
Don Boudreaux on Pre-Industrial America
Don writes about how nasty life in the American colonies could be. Even our best attempts at reproducing the past, like Colonial Williamsburg, don't even begin to communicate how hard life was. A lot of this is inevitable - you're not going to start a small-pox epidemic for the sake of historical accuracy, after all.
Assault of Thoughts - 8/11/2010
"Words ought to be a little wild, for they are the assault of thoughts on the unthinking" - JMK
- Jeff Tucker, of the Mises Institute, has a great talk titled Bourbon for Breakfast. One of the many things he discusses is drinking in the morning, something he's written more extensively on in the past (and that I agree with him on). But this talk is broader than that - I suppose I would simply call it a discussion of the value of living a life uninhibited - or at least that is not unwillingly constrained - by the social construction of reality. Understand the oddness of the convention of our time and place that says we can't drink at breakfast. Understand the incongruity of the way we criminalize the mundane in this country. Read very old books. Appreciate the value of non-scarce resources, like ideas (I have some difference of opinion from him on this - reproducing and sharing ideas may be virtually costless, but producing them isn't). He frames it somewhat more narrowly and takes this as a libertarian way of living - and he's got a lot of challenges to state power in here (most of which are perfectly legitimate challenges that he makes in my mind). I think that's a somewhat narrow way for him to look at his own wisdom provided in his speech. It's more than just freedom from government coercion, and it's silly to pretend that coercion is the only potential quality of government action. Regardless of my disagreements with how he frames his points, the talk is excellent simply as a reflection on living deliberately, and living in a fulfilling and self-aware way.
- The Pentagon recently announced major budget cuts, much of which would fall on Virginia. In an effort not to sound like a parochial, pork-gobbling militant I didn't really say much about it. But this was an eye-opening post from Cowen on the issue. He writes: "Three years of 10 percent cuts to military contracting, as announced by Gates, could swallow up as much as half of the economic growth projected for Northern Virginia in coming years [I live in Northern Virginia and my wife works for a defense contractor as do a gazillion of our friends, btw]". Even if we can say objectively that we want to move away from this sort of military-industrial complex economy, the significance of that transition is still impressive. I don't know the details of what is being cut. I don't like to make vague pronouncements about dismantling the military-industrial complex or cutting military budgets because the fact is the military is very important and someone more knowledgable than I am about what is necessary and what isn't necessary should be making those pronouncements in the blogosphere rather than me. But it sure is eye-opening to take a step back and realize how important this is to your community.
- Maxine Udall, "girl economist", has an interesting post up on the "price of motherhood" (HT Mark Thoma). It brings up some very standard points about the non-market production of mothers. But it also has some interesting things to say about the fact that the productivity of future workers is dependent on the work and the costs incurred by mothers. In other words, another pervasive, systemic externality and where there are externalities we can expect that there is room for improvement over laissez-faire capitalism. Now, of course evolutionary instinct, social convention, etc. provide a pretty good emergent solution to this externality. But obviously not a perfect one either. This is a special type of externality I've been thinking a lot about in the last year (that I should really write something on) that I like to call "temporal autarky". It's an externality that occurs not because property rights don't exist necessarily, but because of the fact that we are constrained to contracting in uni-directional time. It's really an infinite transaction cost, I suppose - but that makes it act like an externality. Grown children enjoy benefits that they didn't have to pay for and mothers incur costs that they aren't compensated for. If we could contract across time and space these sorts of temporal autarky problems could be solved by the market. But we can't. So what you get is a sub-optimal investment in motherhood unless there is some other biological or cultural solution that improves on the situation to some extent.
- Jeff Tucker, of the Mises Institute, has a great talk titled Bourbon for Breakfast. One of the many things he discusses is drinking in the morning, something he's written more extensively on in the past (and that I agree with him on). But this talk is broader than that - I suppose I would simply call it a discussion of the value of living a life uninhibited - or at least that is not unwillingly constrained - by the social construction of reality. Understand the oddness of the convention of our time and place that says we can't drink at breakfast. Understand the incongruity of the way we criminalize the mundane in this country. Read very old books. Appreciate the value of non-scarce resources, like ideas (I have some difference of opinion from him on this - reproducing and sharing ideas may be virtually costless, but producing them isn't). He frames it somewhat more narrowly and takes this as a libertarian way of living - and he's got a lot of challenges to state power in here (most of which are perfectly legitimate challenges that he makes in my mind). I think that's a somewhat narrow way for him to look at his own wisdom provided in his speech. It's more than just freedom from government coercion, and it's silly to pretend that coercion is the only potential quality of government action. Regardless of my disagreements with how he frames his points, the talk is excellent simply as a reflection on living deliberately, and living in a fulfilling and self-aware way.
- The Pentagon recently announced major budget cuts, much of which would fall on Virginia. In an effort not to sound like a parochial, pork-gobbling militant I didn't really say much about it. But this was an eye-opening post from Cowen on the issue. He writes: "Three years of 10 percent cuts to military contracting, as announced by Gates, could swallow up as much as half of the economic growth projected for Northern Virginia in coming years [I live in Northern Virginia and my wife works for a defense contractor as do a gazillion of our friends, btw]". Even if we can say objectively that we want to move away from this sort of military-industrial complex economy, the significance of that transition is still impressive. I don't know the details of what is being cut. I don't like to make vague pronouncements about dismantling the military-industrial complex or cutting military budgets because the fact is the military is very important and someone more knowledgable than I am about what is necessary and what isn't necessary should be making those pronouncements in the blogosphere rather than me. But it sure is eye-opening to take a step back and realize how important this is to your community.
- Maxine Udall, "girl economist", has an interesting post up on the "price of motherhood" (HT Mark Thoma). It brings up some very standard points about the non-market production of mothers. But it also has some interesting things to say about the fact that the productivity of future workers is dependent on the work and the costs incurred by mothers. In other words, another pervasive, systemic externality and where there are externalities we can expect that there is room for improvement over laissez-faire capitalism. Now, of course evolutionary instinct, social convention, etc. provide a pretty good emergent solution to this externality. But obviously not a perfect one either. This is a special type of externality I've been thinking a lot about in the last year (that I should really write something on) that I like to call "temporal autarky". It's an externality that occurs not because property rights don't exist necessarily, but because of the fact that we are constrained to contracting in uni-directional time. It's really an infinite transaction cost, I suppose - but that makes it act like an externality. Grown children enjoy benefits that they didn't have to pay for and mothers incur costs that they aren't compensated for. If we could contract across time and space these sorts of temporal autarky problems could be solved by the market. But we can't. So what you get is a sub-optimal investment in motherhood unless there is some other biological or cultural solution that improves on the situation to some extent.
What famous figure invented this?
Maybe this was common knowledge, but I didn't know until recently. It's a design for bouyant air chambers for steamboats. Pretty cool.Tuesday, August 10, 2010
Yglesias on the Austrians
And you all thought Krugman was bad. Matt Yglesias opines:
"Something I ponder every once in a while is the strange ideological positioning of “real business cycle” or “recalculation” or “structural” or “Austrian” analyses of the current recession, or recessions more generally. These notions are usually put forward by people on the right, very strict libertarians most typically. And the idea of how the proposition fits together with the larger ideology is that the structural analysis serves as a bullwark against government intervention to stabilize the economy.
This all seems to me to suffer from a paucity of ideological imagination. The problem, as Jim Henley points out, is that the “Recalculation Story,” if true, implies radical underlying flaws in the capitalist economic model that call not for small-bore government intervention but for wholesale rethinking of the way the economy functions. I others would look at this differently if they, like me, had been raised in a family that contained various Marxists. From inside a “left” point of view, real business cycle theory is a radical theory that rears its head in any downturn as evidence of the systemic crises of capitalism and perhaps the need for revolutionary change. New Keynesian insistence that timely public policy can, if implemented correctly, stabilize the situation is a very status quo pro-market point of view. The point of the New Keynesian analysis is that mass unemployment, where it exists, reflects a failure of the political system—exactly the kind of thing a libertarian should expect will happen now and again—rather than a failure of market exchange.
John Maynard Keynes understood himself to be a liberal trying to preserve a free enterprise system threatened by communists and fascists. Milton Friedman, I think, also understood that the grinding misery of the Great Depression only led to unhealthy politics and was an advocate of bank bailouts, helicopter drops, and all the rest to prevent disaster.
In 2010, of course, we’re not going to go communist. Which is nice. But if you tell people that high unemployment is going to exist for a long long time, and there’s nothing the government can or will do about it, then of course people are going to support policies that make the economy less flexible and less open to imports and foreigners. If laid-off workers can’t find new jobs, then protecting incumbent sites of employment from competition becomes priority number one."
Where to begin. Well, first I think he gets New Keynesianism and Friedman roughly right. They're classical liberals who understand the way the market works and want to save the free market and liberalism by proper application of standard social institutions. It's the "use the right tool for the right job" view of markets and the state; the "don't use a hammer to drive in a screw" view of the world. I think he gets Real Business Cycle Theory wrong in that (1.) it is nothing like and has nothing to do with the Austrian School, and (2.) it's not really an indictment of the market at all to say that real supply shocks caused by material considerations or policies have real consequences. No market conditions break down in Real Business Cycle Theory which is why it's odd for him to say it's radical and a failure of the market.
On the Austrian School I'm not even sure how to approach this. He's right that many in the Austrian school identify an implicit instability in capitalism (although of course there are disagreements among Austrians on the extent to which free banking would solve this - I personally can't see how free banking would change anything at all). A few who think it's all attributable to central banks alone (many of whom, to be fair, are "crude Austrians") might differ with Yglesias on this, but I think it's a fair assessment. How he thinks this justifies severe government intervention I can't make heads or tails of. The last two paragraphs are simply unintelligible.
I think Yglesias makes the mistake of making too much of the Austrian school. I accept most of what they have to say about malinvestments and the capital structure. I accept that this introduces cyclical oscillations as the credit cycle interacts with the capital structure. I simply see no reason to believe that this dynamic dominates the business cycle. Maybe in the earlier stages of capitalism I could see it as being more important, but I simply see no evidence for it now. And the fact that Austrians for the most part won't produce any empirical evidence to convince me doesn't help matters! That's just the macroeconomics of the capital structure. The Austrian school offers more than that but as a business cycle theory that's what we're dealing with primarily.
Anyway, I've penned more than a few critiques of the Austrian school so that's not what I have a problem with here. Yglesias simply does a terrible job at it. It's not the first time I've gotten frustrated with Yglesias acting like he knows about things that he doesn't know a thing about. He gives away his relative ignorance of questions of monetary economics with the way that he parrots Scott Sumner and Paul Krugman talking points. It's obvious that's the only place he derives any insights on the subject. And he gives away his ignorance of the Austrian school here by calling it "recalculation" - suggesting that he basically gets what he knows about it from EconLog (who knows how he attaches "structural" and "real business cycle theory" ideas to all that - I assume it's because he knows they're all "conservative"). I know sometimes people get frustrated with my take on the Austrians and I know Mattheus thinks I should read more Mises - but at the end of the day I think its fair to say I'm about as broadly aware of the Austrian position as just about any Keynesian in the blogosphere. And I didn't start opining on it until I was at least decently well informed.
"Something I ponder every once in a while is the strange ideological positioning of “real business cycle” or “recalculation” or “structural” or “Austrian” analyses of the current recession, or recessions more generally. These notions are usually put forward by people on the right, very strict libertarians most typically. And the idea of how the proposition fits together with the larger ideology is that the structural analysis serves as a bullwark against government intervention to stabilize the economy.
This all seems to me to suffer from a paucity of ideological imagination. The problem, as Jim Henley points out, is that the “Recalculation Story,” if true, implies radical underlying flaws in the capitalist economic model that call not for small-bore government intervention but for wholesale rethinking of the way the economy functions. I others would look at this differently if they, like me, had been raised in a family that contained various Marxists. From inside a “left” point of view, real business cycle theory is a radical theory that rears its head in any downturn as evidence of the systemic crises of capitalism and perhaps the need for revolutionary change. New Keynesian insistence that timely public policy can, if implemented correctly, stabilize the situation is a very status quo pro-market point of view. The point of the New Keynesian analysis is that mass unemployment, where it exists, reflects a failure of the political system—exactly the kind of thing a libertarian should expect will happen now and again—rather than a failure of market exchange.
John Maynard Keynes understood himself to be a liberal trying to preserve a free enterprise system threatened by communists and fascists. Milton Friedman, I think, also understood that the grinding misery of the Great Depression only led to unhealthy politics and was an advocate of bank bailouts, helicopter drops, and all the rest to prevent disaster.
In 2010, of course, we’re not going to go communist. Which is nice. But if you tell people that high unemployment is going to exist for a long long time, and there’s nothing the government can or will do about it, then of course people are going to support policies that make the economy less flexible and less open to imports and foreigners. If laid-off workers can’t find new jobs, then protecting incumbent sites of employment from competition becomes priority number one."
Where to begin. Well, first I think he gets New Keynesianism and Friedman roughly right. They're classical liberals who understand the way the market works and want to save the free market and liberalism by proper application of standard social institutions. It's the "use the right tool for the right job" view of markets and the state; the "don't use a hammer to drive in a screw" view of the world. I think he gets Real Business Cycle Theory wrong in that (1.) it is nothing like and has nothing to do with the Austrian School, and (2.) it's not really an indictment of the market at all to say that real supply shocks caused by material considerations or policies have real consequences. No market conditions break down in Real Business Cycle Theory which is why it's odd for him to say it's radical and a failure of the market.
On the Austrian School I'm not even sure how to approach this. He's right that many in the Austrian school identify an implicit instability in capitalism (although of course there are disagreements among Austrians on the extent to which free banking would solve this - I personally can't see how free banking would change anything at all). A few who think it's all attributable to central banks alone (many of whom, to be fair, are "crude Austrians") might differ with Yglesias on this, but I think it's a fair assessment. How he thinks this justifies severe government intervention I can't make heads or tails of. The last two paragraphs are simply unintelligible.
I think Yglesias makes the mistake of making too much of the Austrian school. I accept most of what they have to say about malinvestments and the capital structure. I accept that this introduces cyclical oscillations as the credit cycle interacts with the capital structure. I simply see no reason to believe that this dynamic dominates the business cycle. Maybe in the earlier stages of capitalism I could see it as being more important, but I simply see no evidence for it now. And the fact that Austrians for the most part won't produce any empirical evidence to convince me doesn't help matters! That's just the macroeconomics of the capital structure. The Austrian school offers more than that but as a business cycle theory that's what we're dealing with primarily.
Anyway, I've penned more than a few critiques of the Austrian school so that's not what I have a problem with here. Yglesias simply does a terrible job at it. It's not the first time I've gotten frustrated with Yglesias acting like he knows about things that he doesn't know a thing about. He gives away his relative ignorance of questions of monetary economics with the way that he parrots Scott Sumner and Paul Krugman talking points. It's obvious that's the only place he derives any insights on the subject. And he gives away his ignorance of the Austrian school here by calling it "recalculation" - suggesting that he basically gets what he knows about it from EconLog (who knows how he attaches "structural" and "real business cycle theory" ideas to all that - I assume it's because he knows they're all "conservative"). I know sometimes people get frustrated with my take on the Austrians and I know Mattheus thinks I should read more Mises - but at the end of the day I think its fair to say I'm about as broadly aware of the Austrian position as just about any Keynesian in the blogosphere. And I didn't start opining on it until I was at least decently well informed.
Austrian School Posts: The Good, the Great, and the Ugly
The Good: Jeff Tucker announces that an Austrian wiki has been set up. I think this is a very good development. I'm often disappointed by the Austrian presence on Wikipedia. They dominate economics pages, ostensibly in the interest of everybody getting their two cents in, but the Austrian amendments are always long and disproportionate. People who don't know much economics that look at these pages end up getting a very skewed picture of what economists think as a result. The other problem is that there is a lot of disagreement and discussion among Austrians on different issues that doesn't get highlighted on Wikipedia. Austrian positions usually look monolithic and in agreement. This Austrian wiki hopefully provides a solution to both - it can be linked to from Wikipedia I'm sure, so perhaps naive readers don't get the impression that a third of economists are Austrian (what percentage are self-identified Austrian? Does anybody know if we know this?). It will also provide a venue for disagreements among Austrians.
The Great: Economic Thought is up and running again! Jonathan has a good post on Bob Higgs's The Transformation of the American Economy, which covers the post-war economy (Civil War, of course!). In the post, he also highlights a new Mises Daily article he wrote on Rothbard's History of Money and Banking in the United States, contrasting it with Friedman and Schwartz's Monetary History of the United States. I'm not sure I agree with everything Jonathan says about Friedman and Schwartz (for example, it's simply not true that they derive theory from data rather than bringing a theory to the data, or that they treat events "as if they were solely a product of the market"), but if nothing else it presents a contrast between the two works. I haven't read either book in its entirety, but I've read large portions of the Monetary History for class, I've read the entire section on the Great Depression, and a lot of the early stuff for my 1920-21 depression paper. Same with Rothbard - haven't read him cover to cover, but I read a large selection for the paper. This all leads me to ask - what are people's favorite books on American economic history? I'm well into the first volume of Joseph Dorfman's The Economic Mind in American Civilization - the three volumes cover the period from 1606 to 1919. I highly recommend it to anyone that is interested in the history of economic thought. but I have a pile I've collected that are waiting for me. At a used bookstore I recently picked up Doug North's The Economic Growth of the United States: 1790-1860 (I already had his Institutional Change and American Economic Growth), and James Cobb's Industrialization and Southern Society 1877-1984. One of the ones I might read soon after Dorfman is Curtis Nettels's The Emergence of a National Economy, 1775-1815. I've also been meaning to read Bailyn's The New England Merchants in the Seventeenth Century and Frederick Toles's The Meeting House and The Counting House. From the Urban Institute library closing I recently acquired Legerblott's The Americans: An Economic Record. On my list for a long time has been Cooke's Tench Coxe and the Early Republic. And then there are several on the Great Depression which I still haven't gotten into yet (the Great Depression is like the Civil War for me - it's silly I know, but I feel like the entry barriers for this period of history are extremely high. There are so many experts out there that I don't want to dive in and be the naive one. Better to know 1910-1930 well, rather than be a perpetual novice at 1930-1945. Of course, that's an excellent way for me to stay a novice).
Does anyone have any other suggestions for good American economic history? I'm done with theory for a while - I've missed reading history so much so I think economic history is a lot of what I'll be reading this fall. I feel like a lot on my list are just classics that I feel like I ought to read and know, but that doesn't necessarily mean they're the best to read. If anyone out there is looking for suggestions, I can highly recommend Drew McCoy's The Elusive Republic: Political Economy in Jeffersonian America, and Susan Dunn's Dominion of Memories: Jefferson, Madison, and the Decline of Virginia.
BTW - there are also new Economic Thought posts on Structural Unemployment, and Economic Calculation.
The Ugly: More gems fromWayne William Anderson... thinking government should light street lamps = state worship (if that's all it takes to worship the power of the state, I don't know what my support of the space program makes me!). I wish I could have the Mises blog on my blogroll minus any post that Wayne William Anderson writes. Vaccuous and inconsequential - every last one of them. I gather from Wayne's William's profile that he's a religious man - if that's sincere he oughta know what worship is when he sees it. He'd do better to focus on analysis rather than these non-sequitors, grudges, and these mean-spirited and simply non-sensical posts.
The "No Comment": Steve Horwitz should not quit his day job :)
*****
The Great: Economic Thought is up and running again! Jonathan has a good post on Bob Higgs's The Transformation of the American Economy, which covers the post-war economy (Civil War, of course!). In the post, he also highlights a new Mises Daily article he wrote on Rothbard's History of Money and Banking in the United States, contrasting it with Friedman and Schwartz's Monetary History of the United States. I'm not sure I agree with everything Jonathan says about Friedman and Schwartz (for example, it's simply not true that they derive theory from data rather than bringing a theory to the data, or that they treat events "as if they were solely a product of the market"), but if nothing else it presents a contrast between the two works. I haven't read either book in its entirety, but I've read large portions of the Monetary History for class, I've read the entire section on the Great Depression, and a lot of the early stuff for my 1920-21 depression paper. Same with Rothbard - haven't read him cover to cover, but I read a large selection for the paper. This all leads me to ask - what are people's favorite books on American economic history? I'm well into the first volume of Joseph Dorfman's The Economic Mind in American Civilization - the three volumes cover the period from 1606 to 1919. I highly recommend it to anyone that is interested in the history of economic thought. but I have a pile I've collected that are waiting for me. At a used bookstore I recently picked up Doug North's The Economic Growth of the United States: 1790-1860 (I already had his Institutional Change and American Economic Growth), and James Cobb's Industrialization and Southern Society 1877-1984. One of the ones I might read soon after Dorfman is Curtis Nettels's The Emergence of a National Economy, 1775-1815. I've also been meaning to read Bailyn's The New England Merchants in the Seventeenth Century and Frederick Toles's The Meeting House and The Counting House. From the Urban Institute library closing I recently acquired Legerblott's The Americans: An Economic Record. On my list for a long time has been Cooke's Tench Coxe and the Early Republic. And then there are several on the Great Depression which I still haven't gotten into yet (the Great Depression is like the Civil War for me - it's silly I know, but I feel like the entry barriers for this period of history are extremely high. There are so many experts out there that I don't want to dive in and be the naive one. Better to know 1910-1930 well, rather than be a perpetual novice at 1930-1945. Of course, that's an excellent way for me to stay a novice).
Does anyone have any other suggestions for good American economic history? I'm done with theory for a while - I've missed reading history so much so I think economic history is a lot of what I'll be reading this fall. I feel like a lot on my list are just classics that I feel like I ought to read and know, but that doesn't necessarily mean they're the best to read. If anyone out there is looking for suggestions, I can highly recommend Drew McCoy's The Elusive Republic: Political Economy in Jeffersonian America, and Susan Dunn's Dominion of Memories: Jefferson, Madison, and the Decline of Virginia.
BTW - there are also new Economic Thought posts on Structural Unemployment, and Economic Calculation.
*****
The Ugly: More gems from
*****
The "No Comment": Steve Horwitz should not quit his day job :)
Assault of Thoughts - 8/10/2010
"Words ought to be a little wild, for they are the assault of thoughts on the unthinking" - JMK
- Dani Rodrik debunks the myth of rapid economic growth under authoritarianism. For every authoritarian that does well there are many that don't. This is really something of a no-brainer, but still always important to highlight. For all the disagreements that go on here, two sorts of freedom are always identified as essential for beneficial economic outcomes: the freedom to produce and exchange and the freedom to collectively self-govern in instances where the market might not work as well. Neither of these freedoms are fully available in an authoritarian regime.
- Brad DeLong scratches his head over the policy uncertainty argument. Wasn't there policy uncertainty in 2001 and 2003? And extreme policy uncertainty in 1994? He fails to mention 1996 but that seems like a major instance of policy uncertainty too. To a certain extent policy uncertainty is important, of course. Nobody denies that. But if you look into it, the story very quickly unravels as a major deciding factors. All of the surveys of business owners point to concerns about consumer demand, not policy, as the primary obstacle to hiring. Since survey evidence isn't on their side, guys like Jerry O'Driscoll have to cite anecdote. Anecdotes are fine and what the people are going through is quite real - but what are you going to do with that when mountains of survey evidence (i.e. - lots and lots of anecdotes) dispute the one case you choose to highlight. The concern a year ago was that since we didn't know what was happening with health care, that was the source of the uncertainty. Now we know what's going to happen - and yet the uncertainty argument is still being made. It's all more than a little disingenuous. Look - major policy changes are happening. Policy uncertainty isn't non-existent. But it's getting harder and harder to take the people that highlight it seriously.
- Brad DeLong links to Phil Greenspun and Greg Clark on technological unemployment. This has been an interest of mine for a while now, but it's picked up recently in my work on Lovecraft's economic ideas. He, like many Americans in the interwar period, associated a lot of the country's problems with technological unemployment. It's an interesting and slippery argument because it juxtaposes the long-run with the short-run. I think people disparage it more than they should, simply because it's such a ridiculous idea in the long-run. It takes time for labor to adjust, particularly if the technological change is biased towards certain skills or if it makes other skills obsolete. It's also worth noting on this that I'll be writing the entry for "technological unemployment" for the forthcoming Encyclopedia of American Populism. I might write a few entries on some late nineteenth century monetary issues as well. Sort of a neat little gig - I'm trying to pick up writing projects wherever I can now.
- The Center on Budget and Policy Priorities is writing a lot on a House vote on aid to the states. Obviously state level spending is something I'm really concerned about, but I can't help having mixed feelings about this. States governments are never going to function as economic policymakers if the federal government bails them out. That having been said, we're in for trouble if they don't continue to fill the hole that the states are digging. Not a good situation.
- Dani Rodrik debunks the myth of rapid economic growth under authoritarianism. For every authoritarian that does well there are many that don't. This is really something of a no-brainer, but still always important to highlight. For all the disagreements that go on here, two sorts of freedom are always identified as essential for beneficial economic outcomes: the freedom to produce and exchange and the freedom to collectively self-govern in instances where the market might not work as well. Neither of these freedoms are fully available in an authoritarian regime.
- Brad DeLong scratches his head over the policy uncertainty argument. Wasn't there policy uncertainty in 2001 and 2003? And extreme policy uncertainty in 1994? He fails to mention 1996 but that seems like a major instance of policy uncertainty too. To a certain extent policy uncertainty is important, of course. Nobody denies that. But if you look into it, the story very quickly unravels as a major deciding factors. All of the surveys of business owners point to concerns about consumer demand, not policy, as the primary obstacle to hiring. Since survey evidence isn't on their side, guys like Jerry O'Driscoll have to cite anecdote. Anecdotes are fine and what the people are going through is quite real - but what are you going to do with that when mountains of survey evidence (i.e. - lots and lots of anecdotes) dispute the one case you choose to highlight. The concern a year ago was that since we didn't know what was happening with health care, that was the source of the uncertainty. Now we know what's going to happen - and yet the uncertainty argument is still being made. It's all more than a little disingenuous. Look - major policy changes are happening. Policy uncertainty isn't non-existent. But it's getting harder and harder to take the people that highlight it seriously.
- Brad DeLong links to Phil Greenspun and Greg Clark on technological unemployment. This has been an interest of mine for a while now, but it's picked up recently in my work on Lovecraft's economic ideas. He, like many Americans in the interwar period, associated a lot of the country's problems with technological unemployment. It's an interesting and slippery argument because it juxtaposes the long-run with the short-run. I think people disparage it more than they should, simply because it's such a ridiculous idea in the long-run. It takes time for labor to adjust, particularly if the technological change is biased towards certain skills or if it makes other skills obsolete. It's also worth noting on this that I'll be writing the entry for "technological unemployment" for the forthcoming Encyclopedia of American Populism. I might write a few entries on some late nineteenth century monetary issues as well. Sort of a neat little gig - I'm trying to pick up writing projects wherever I can now.
- The Center on Budget and Policy Priorities is writing a lot on a House vote on aid to the states. Obviously state level spending is something I'm really concerned about, but I can't help having mixed feelings about this. States governments are never going to function as economic policymakers if the federal government bails them out. That having been said, we're in for trouble if they don't continue to fill the hole that the states are digging. Not a good situation.
Monday, August 9, 2010
Central Planning as a Solution to Externalities
Anyone who has really absorbed the posts I've written on calculation vs. incentive problems, and my thinking on externalities knows that I approach issues like climate change and the environment from a thoroughly market-based angle. Markets are not always the tool in the toolbox that I pull out as a solution, but there is no disillusionment about the power and simply the reality of markets and the knowledge problem.
Inevitably, of course, I'm accused of approaching the issue from an angle that is not cognizant of market processes. I'm at a loss for how this can still be thrown at me (even if you don't agree with my conclusions from a practical standpoint), but it is. I'm guessing it has more to do with ideology than anything else.
Anyway, if you want to see central planning as a solution to an externality problem, look to China. This sort of approach is, of course, disastrous according to the market-based logic that I use. By the "market failure" approach that I take, this is precisely what you shouldn't do. And yet this is exactly the sort of central planning that people like Arnold Kling want to use to test my sort of approach. This is central planning, pure and simple, and the Chinese are proceeding with it in complete contravention to a proper understanding of the market process. It is diametrically opposed to an approach like a carbon tax.
Inevitably, of course, I'm accused of approaching the issue from an angle that is not cognizant of market processes. I'm at a loss for how this can still be thrown at me (even if you don't agree with my conclusions from a practical standpoint), but it is. I'm guessing it has more to do with ideology than anything else.
Anyway, if you want to see central planning as a solution to an externality problem, look to China. This sort of approach is, of course, disastrous according to the market-based logic that I use. By the "market failure" approach that I take, this is precisely what you shouldn't do. And yet this is exactly the sort of central planning that people like Arnold Kling want to use to test my sort of approach. This is central planning, pure and simple, and the Chinese are proceeding with it in complete contravention to a proper understanding of the market process. It is diametrically opposed to an approach like a carbon tax.
The Unpaving of America
Paul Krugman writes:
"The lights are going out all over America — literally. Colorado Springs has made headlines with its desperate attempt to save money by turning off a third of its streetlights, but similar things are either happening or being contemplated across the nation, from Philadelphia to Fresno.
Meanwhile, a country that once amazed the world with its visionary investments in transportation, from the Erie Canal to the Interstate Highway System, is now in the process of unpaving itself: in a number of states, local governments are breaking up roads they can no longer afford to maintain, and returning them to gravel.
And a nation that once prized education — that was among the first to provide basic schooling to all its children — is now cutting back. Teachers are being laid off; programs are being canceled; in Hawaii, the school year itself is being drastically shortened. And all signs point to even more cuts ahead."
I have a question to my right and to my left.
To the right: how can "crowding out" even come into your lexicon at a time like this? You clearly understand the concept of simultaneously determined investment decisions. Have you even given a thought to the prospect of "crowding in"?
To the left: why are you always so quick (as Krugman does further down in the column) to suggest that the federal government oughta fund these state level decisions? Why is local, decentralized governance not even in your toolbox? Is it a practical issue for you? I suppose that might make some sense. But why is federal provision always the option you jump on?
"The most immediate threat to the welfare of the citizens of Maryland in the present age arises not from excessive power in their state government, but from a lack of power which prevents their state government from acting effectively... it must be recognized that... oppression can result as much from governmental inaction, as it can from governmental action."
- H. Vernon Eney, 1967
"The lights are going out all over America — literally. Colorado Springs has made headlines with its desperate attempt to save money by turning off a third of its streetlights, but similar things are either happening or being contemplated across the nation, from Philadelphia to Fresno.
Meanwhile, a country that once amazed the world with its visionary investments in transportation, from the Erie Canal to the Interstate Highway System, is now in the process of unpaving itself: in a number of states, local governments are breaking up roads they can no longer afford to maintain, and returning them to gravel.
And a nation that once prized education — that was among the first to provide basic schooling to all its children — is now cutting back. Teachers are being laid off; programs are being canceled; in Hawaii, the school year itself is being drastically shortened. And all signs point to even more cuts ahead."
I have a question to my right and to my left.
To the right: how can "crowding out" even come into your lexicon at a time like this? You clearly understand the concept of simultaneously determined investment decisions. Have you even given a thought to the prospect of "crowding in"?
To the left: why are you always so quick (as Krugman does further down in the column) to suggest that the federal government oughta fund these state level decisions? Why is local, decentralized governance not even in your toolbox? Is it a practical issue for you? I suppose that might make some sense. But why is federal provision always the option you jump on?
*****
"The most immediate threat to the welfare of the citizens of Maryland in the present age arises not from excessive power in their state government, but from a lack of power which prevents their state government from acting effectively... it must be recognized that... oppression can result as much from governmental inaction, as it can from governmental action."
- H. Vernon Eney, 1967
Assault of Thoughts - 8/9/2010
"Words ought to be a little wild, for they are the assault of thoughts on the unthinking" - JMK
- Discover Magazine shares some really amazing information on the human migration to Australia 50,000 years ago - a story which becomes more amazing the more we learn about it. Humans are capable of some really amazing things. This reminds me of one of my favorite books - "Kon Tiki". It's an old one, but if you haven't read it you should. It's about Thor Heyerdahl's journey on a raft across the Pacific to Polynesia. So a little farther east than Australia, but the same idea - that the feats that humans can accomplish with relatively underdeveloped technology are astounding. I recently picked up a used copy of Heyerdahl's book "Fatu-Hiva" as well - this one is about his honeymoon, which he also spent on a raft, on the ocean, and then on Fatu-Hiva, in the Marquesas Islands.
- David Henderson picks up the Phelps op-ed I wrote about recently and makes a really strange counter-argument. He writes:
- At Critical Rationalism, Alan Forrester clarifies a point about the relationship between evolution and epistemology. There was a somewhat strange post on ThinkMarkets about this recently - I'm glad Alan cleared it up.
- Kate and I went to (among others) Vint Hill Craft Winery, just west of Manassas, this weekend. I highly recommend it for anyone in the D.C. area. Vint Hill makes and bottles its own wine, but it also has people contract for a barrel of their own wine, which apparently makes about three hundred bottles. The winemakers at Vint Hill work with you to produce whatever character you want for your wine. They'll ship in fruit from wherever it needs to come from to get it right. In the end you have 300 bottles, and Vint Hill will buy five or six cases of it to provide at tastings and sell if they like it enough. So we heard about that whole process, and got to try, in addition to several Vint Hill wines, some wines made by other people in the area. It was an interesting business model and a great experience. If you do make the trip to Vint Hill, make sure you also go to Winery at La Grange and Pearmund Cellars, which are owned by the same people. All are excellent.
- A commenter on a much earlier post with similar concerns about the Austrian school shares the blog Human Action, out of South Africa, with me. It seems somewhat typical of the "crude Austrian" genre - everyone is a "socialist" and a "statist". It hits all the usual hot button issues. It doesn't seem to be particularly poorly written. Anyway - maybe check it out. I'm going to follow it for a while and see if it's worth engaging. While I'm on the subject, I also recently started following Roderick Long's "Austro-Athenian Empire". It's a fascinating blog - you should check it out if you haven't already.
- Discover Magazine shares some really amazing information on the human migration to Australia 50,000 years ago - a story which becomes more amazing the more we learn about it. Humans are capable of some really amazing things. This reminds me of one of my favorite books - "Kon Tiki". It's an old one, but if you haven't read it you should. It's about Thor Heyerdahl's journey on a raft across the Pacific to Polynesia. So a little farther east than Australia, but the same idea - that the feats that humans can accomplish with relatively underdeveloped technology are astounding. I recently picked up a used copy of Heyerdahl's book "Fatu-Hiva" as well - this one is about his honeymoon, which he also spent on a raft, on the ocean, and then on Fatu-Hiva, in the Marquesas Islands.
- David Henderson picks up the Phelps op-ed I wrote about recently and makes a really strange counter-argument. He writes:
"If that were true, we could not explain the behavior of oil companies or drug companies. Both could raise their short-term profits by cutting their spending on discovery (oil) and R&D (drugs) to zero. They haven't done that. Why? Precisely because they care about share prices and share prices reflect the market's expectation of the present value of the future stream of net income."What an odd thing to say. So because oil and pharmaceutical companies don't exemplify the most extreme version of Phelps's point they disprove Phelps's point? Strange. Note well readers: reductio ad absurdum and economics generally speaking do not mix. Economic decisions are not scalar.
- At Critical Rationalism, Alan Forrester clarifies a point about the relationship between evolution and epistemology. There was a somewhat strange post on ThinkMarkets about this recently - I'm glad Alan cleared it up.
- Kate and I went to (among others) Vint Hill Craft Winery, just west of Manassas, this weekend. I highly recommend it for anyone in the D.C. area. Vint Hill makes and bottles its own wine, but it also has people contract for a barrel of their own wine, which apparently makes about three hundred bottles. The winemakers at Vint Hill work with you to produce whatever character you want for your wine. They'll ship in fruit from wherever it needs to come from to get it right. In the end you have 300 bottles, and Vint Hill will buy five or six cases of it to provide at tastings and sell if they like it enough. So we heard about that whole process, and got to try, in addition to several Vint Hill wines, some wines made by other people in the area. It was an interesting business model and a great experience. If you do make the trip to Vint Hill, make sure you also go to Winery at La Grange and Pearmund Cellars, which are owned by the same people. All are excellent.
- A commenter on a much earlier post with similar concerns about the Austrian school shares the blog Human Action, out of South Africa, with me. It seems somewhat typical of the "crude Austrian" genre - everyone is a "socialist" and a "statist". It hits all the usual hot button issues. It doesn't seem to be particularly poorly written. Anyway - maybe check it out. I'm going to follow it for a while and see if it's worth engaging. While I'm on the subject, I also recently started following Roderick Long's "Austro-Athenian Empire". It's a fascinating blog - you should check it out if you haven't already.
Sunday, August 8, 2010
Literature and Social Science
Mark Thoma links to an interesting blog post on the relationship between literature and social science - specifically, the extent to which we can use literature as data in social science.
This was very interesting because it's been on my mind a lot as I grapple with Lovecraft's political economy. He left a lot of letters and essays that lay out his ideas clearly in straightforward non-fiction. But what to do about the stories and poems? They have insights too, but I want to be very careful about how I use them. One of the most interesting divergences between his stories and his non-fiction is that his explanation of human fear of the unknown and of the future (very important in economics) is completely different in each. Read the first section of Call of Cthulu and the first section of his essay Supernatural Horror in Literature and you get two diametrically opposed understandings of our fear of the unknown. I've approached this under the assumption that the view in Supernatural Horror in Literature is Lovecraft's own view, and that the inversion of that argument in the Call of Cthulu was for dramatic effect - to make the fear he considers to essential to good literature more potent (precisely as he says a good author should in the essay!). But this shows some of the pitfalls. This is a straightforward case, but it demonstrates how careful you have to be when you use literature to make objective statements like this.
Here are some good selections from the blog post:
Anyway, these are interesting issues to think about at least. Ultimatley I think literature at best can provide a nice frame for social science. Framing is going to be a more fruitful contribution than the provision of any data.
This was very interesting because it's been on my mind a lot as I grapple with Lovecraft's political economy. He left a lot of letters and essays that lay out his ideas clearly in straightforward non-fiction. But what to do about the stories and poems? They have insights too, but I want to be very careful about how I use them. One of the most interesting divergences between his stories and his non-fiction is that his explanation of human fear of the unknown and of the future (very important in economics) is completely different in each. Read the first section of Call of Cthulu and the first section of his essay Supernatural Horror in Literature and you get two diametrically opposed understandings of our fear of the unknown. I've approached this under the assumption that the view in Supernatural Horror in Literature is Lovecraft's own view, and that the inversion of that argument in the Call of Cthulu was for dramatic effect - to make the fear he considers to essential to good literature more potent (precisely as he says a good author should in the essay!). But this shows some of the pitfalls. This is a straightforward case, but it demonstrates how careful you have to be when you use literature to make objective statements like this.
Here are some good selections from the blog post:
So, what about it? Can a work of fiction have realistic, referential content? Is a novel sometimes an empirical statement? Can a fictional character truthfully represent aspect of what it is like to be black in America, South Asian in Manchester, or gay in a suburban Illinois high school?...The author goes on to embrace the second option, and I think I do too. The comparison to ethnographers is apt, I think, and to make myself clear and not understate my skepticism I should probably note that I don't put a great deal of stock in ethnographers! But it's not a completely useless effort either. It's simply something that you need to approach with a great deal of caution. You need to be able to determine whether the fiction writer is saying something (1.) about the world that he observes, (2.) about his normative position on the world he observes, (3.) about a world he doesn't observe but wants to describe, or (4.) some mix of the three. Usually it's the last option - some mix of the first three. To have any hope of navigating this, I think it's very important to have a sense of the author's literary theory - to know what they think they are doing. Without that there's really no hope of getting useful information because you have no way of arbitrating between those four options. And even with that it's still highly speculative.
...Here is one possible answer: fiction is always fiction, and normally does not have empirical validity. If we want to make empirical statements about social relations, class attitudes, or typical social values of specific groups, we need to do so based on valid methods of social research: surveys, focus groups, interviews, and observations of behavior...
...Another very different response goes along these lines. Novelists are sometimes skilled social observers, and some of these are also skilled "painters" or evokers of what they have seen. A great novelist can pull together his/her many insights and observations into a powerful description of a fictional world or experience that captures an important sociological truth about the society depicted. So these novelists do in fact gain knowledge of social life through observation, and they represent that knowledge through the fiction they produce. Both parts of this epistemic process are subject to criticism; but both are valid knowledge practices...
...Seen in this way, a novelist is somewhat akin to an ethnographer, trying to make sense of a complex system of behaviors and meanings and expressing his/her findings in a way that is truthful to the social reality observed. It seems that one would have to be a pretty narrow-minded epistemologist to hold that there is
only one kind of knowledge, and that literature necessarily falls outside its
bounds.
Anyway, these are interesting issues to think about at least. Ultimatley I think literature at best can provide a nice frame for social science. Framing is going to be a more fruitful contribution than the provision of any data.
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