With grandad

The hat's pretty cute if she just stopped scowling about it...

Klassy Krugman

Thank goodness.

For some reason there's been a spate of nastiness lately. I don't know why - maybe it just got kicked up by Ferguson. One thing I do know is that if it escalated I'd feel obligated to read up and comment. Krugman's relative patience in the face all the haters is otherworldly. Very impressive. And when he's not patient, the times when he is makes it more forgivable.

I'm with Noah Smith, though. I'm personally more of a DeLong yes-man than a Krugman yes-man. Krugman is more likely to overstate his case or comment prematurely. Makes it harder to be a good yes-man. I guess I'm technically still in the "claque" though (I did not know this was a word before reading Ferguson [well, the beginning of Ferguson... I couldn't stomach reading too far], so that's at least something he offers).

Some links

1. Jonathan Catalan has a great post on Akerlof's lemons paper, criticizing some skeptics. I think if most economists really thought about it they'd be in Jonathan's group 3 (accept the conclusions of the paper and think for the most part we have private solutions). I think people get a sense that most economists are in his group 2 (seek out public and private solutions) because the thing about private solutions is that they kind of take care of themselves. Plausible public solutions are in our face precisely because these are the cases that don't solve themselves (or at least not as easily). But that's not the case for most asymmetric information problem (or any other "market failure"). I'd differ a little with Jonathan on his point at the end that we don't see a lot of markets characterized by a lemons situation. He seems to conclude that Akerlof thought markets for lemons would eventually collapse. But this is only one outcome. It all depends on the critical points in the distribution of quality and expected quality and peoples' demand for quality. For certain critical values, in the Akerlof model, markets for lemons can be and are sustained indefinitely. Presumably many such markets exist and we just deal with it (or else we solve the asymmetric information problem).

2. Kevin Quinn has a really excellent paper in the latest issue of Critical Review on Adam Smith and education. I want to assign it to my class, since we spent a lot of time talking about the relationship between the division of labor and Smith's egalitarianism. Alas we're past Smith and I'm probably assigning too much anyway.

3. Gene Callahan on the Mises/Hayek divergence.

4. Yesterday J. Michael Dunn, of Indiana University, lead the discussion in our Infometrics Seminar. Unfortunately I don't have a link to the talk (although it looked like it was being taped), but you can find info on his work in the link above. Our seminar is basically on information theory, and he spent a lot of time connecting the math of information theory to code and computation.

If Marx had a greater appreciation of subjective value...

...then we would have C-M-C' in addition to M-C-M', and all these internal contradictions and such would be a lot less scary.

The worst rise to the top...

When you don't treat your workforce well you lose high quality workers. Federal workers have lived with almost four years of pay, hiring, and promotion freezes. Many agencies have had furloughs this summer and all are experiencing some level of furlough now. Oh, and a large portion of the public - frothed up by extremists in the GOP - act like the work they do is worthless.

That's not an environment that people with outside options like to stay in for very long, and the people with outside options are the high quality workers.

Kate just heard of a third case of one of the more competent workers in her department leaving for the public sector since the beginning of this sequester mess a couple months ago. No hiring, still. Which means more work for her when she gets back from maternity leave. Precious little appreciation except from some of her superiors who can only show appreciation when they get a chance to catch their breath from all the work there is to do.

It's not a good situation, and the eventual result of all this is that the worst will rise to the top.

Shutdowns, sequesters, pay freezes, etc. make for bad governance.

Josiah Neeley and Adam Gurri do the Lord's work...

... defending Constitutional institutions such as the presidential system from their detractors (here and here).

It's very easy to think the division of powers is just an archaic hassle in times like this, but it's worth remembering that if we had a prime minister instead, for example, it would not be Prime Minister Obama making sure that none of this silliness goes on. It would be Prime Minister Boehner, constantly looking to the maintenance of his coalition.

You think he's desperate to keep the speakership?!? What do you think will happen if you make him head of government.

When an institution works this well for over two hundred years I'm personally wary of dispensing with it so completely.

ALL THE THINGS!!!!

My favorite picture of Caroline so far

A few labor market links

- I don't entirely agree with LK's thoughts on Hutt here. I will concur that there is a rose-colored glasses view of unemployment in his Theory of Idle Resources and I also agree that it is over-touted as a refutation of Keynes (by Hutt himself and by his fans), but if we put that aside the idea is essentially sound. In fact, I'm near finishing a chapter on the ways we think about unemployment that discusses Hutt and Beveridge as having broadly similar approaches to the question which lay the foundations for modern search theories (where unemployed workers are not "idle" because they are searching for work), and Beveridge obviously is no thorn in the side of Keynesianism.

- Bryan Caplan has good thoughts on "malemployment" (I always thought this was just called "underemployment", although I suppose that has specific connotations about hours worked... or maybe "mismatch"?). I advise that people approach the "Team Georgetown" that Caplan discusses carefully. They are active in the STEM workforce debate and can be similarly misleading on these skilled labor classification questions.

- Obamacare and doctor shortages (HT Ryan Long). Readers know I don't think much high skill labor shortage claims, but this is one area where the problem is very real, largely due to AMA regulations.

- I am quoted in this article on the impact of the shut-down. There's nothing wrong with what is attributed to me but I don't think it really captures the details I communicated to the reporter. For those that are interested, here's our email exchange:

- What are you studying at AU? How many years left do you have and are student loans a concern?
A: Economics Phd, two or three years left, student loans not a concern.

- Do you and your family live in the District? How does this impact your household finances and ability to pay loans, a mortgage or rent?
A: We live in Falls Church, VA. The shut-down itself doesn't threaten our bills too much. We've saved, I have some grant income, and in all likelihood we should get backpay from the shutdown.

- Are you worried about the impact on household finances immediately or in the future? Do you have vacations or plans you need to cancel that are paycheck dependent?
A: This is the right question. What I'm really worried about is what this indicates about the future. I'm increasingly concerned about not raising the debt ceiling and more continuing resolutions as a result of these political dynamics. That puts increasing pressure on us. We have definitely scaled back vacation and been more frugal over the last several years because of this. This is what I think a lot of people don't understand. This is coming on top of years of pay freezes, hiring freezes, and a summer of furloughs for federal workers.

- How are your child care needs impacted?
A: Nothing directly yet. I work a lot from home and can take care of our newborn, and my wife is on maternity leave right now. This definitely will reduce our ability to pay for child care as our daughter gets older if the continuing resolutions and pay freezes continue.

- Where is your wife working? Has she already been hit by sequester-related furloughs and now facing another furlough through shutdown?
A: National Defense University. She has been hit by sequester, and she also hasn't had a raise since she's been hired. This is despite the fact that she is taking on more and more work because of the hiring freezes that are in place.

- Did you save money in the event of a shutdown impacting finances?
A: Not with a shut down in mind, but yes, we are very conscious of trying to save money.

- Who do you blame for the inaction in Congress? Do you see it getting better in Washington, or is this rock bottom? Will elections in 2014 turn things around?
A: The Republicans without exception. There is room for improvement on the Democratic side, but the only reason why this is an issue is that it is tied to the ACA, and that falls directly in the lap of Republicans. Republicans are also chiefly to blame for the fiscal austerity of the last several years.