Discontinuities: not just for identifying models

Do you always think "model identification!" when you see discontinuities in otherwise smooth series?

I know I do.

But sometimes it has other uses!

This is a really great post by James Schneider at EconLib on discontinuities in the number of expeditions up Himalayan mountains, and what that says about status seeking.

Why do so many people act like labor supply curves are such mysterious, contentious things???

WSJ? I can understand them sensationalizing it I guess. They are in the business of selling exciting stories. But that isn't all.

Et tu David Henderson?

The big controversial thing about Mulligan is that he says we had a redistribution recession. It is most decidedly not controversial that he says that people reduce labor supply to maintain benefits.

Wise words from Rudy Penner on the debt limit

This is Rudy Penner, not some wild eyed leftist (although as E.J. Dionne somewhat awkwardly pointed out today, left and right has been jumbled up by a new beast lately). Here's Rudy (more in the link):

"I think that the debt limit is a crock, basically. There’s a paradox here, and that is they always say that to be effective in negotiations you’ve got to be willing to shoot the hostages. We’ve never been willing to do that in the 100 years that the debt limit has been in existence.

The real place to negotiate over spending and tax matters, including entitlements, is when you’re debating the budget resolution. That’s when we set our targets for spending and revenues.

Having a separate debt limit—I don’t think it has served much of a purpose. It certainly hasn’t brought about fundamental reforms in entitlements. One of the biggest things that happened around the debt limit was the Gramm-Rudman-Hollings [Balanced Budget Act of 1985] but that quickly became bipartisan, and once the debate got going, you hardly heard any mention of defaulting on the debt.

So in terms of what to do, obviously my first choice is to get rid of the debt limit law altogether."

Noah Smith channels William James

Here.

Rorty of course makes a similar argument. When we were covering Marx last semester, I had my students read a small portion of one of Rorty's essays on whether and how we should read Marx, and he essentially gave the Jamesian argument on religion and specifically tied the New Testament to Capital. Do read Marx, Rorty said. Read and internalize what it behooves you to and no more. This was argued in contrast to some statements from Derrida on the modern relevance of Marx.

This is a problem with a lot of Post-Keynesians too...

The problems I mentioned in the last post about how many Austrians want to talk about Austrian economics, I mean. So it's not just some concern I am making up because I disagree with the conclusion. I (generally) agree with most Post-Keynesian conclusions. But a lot of them have the same sort of issues (it comes with heterodoxy to a large extent). They want to talk about broad underlying concepts that they assume everyone else misses instead of the actual model and the actual empirical tests of the model.

I am very lucky to have taken my Macro Political Economy class with a Post-Keynesian that cared a lot about the models themselves, as well as the empirical literature on the models. Imagine a class on Austrian macro co-taught by Roger Garrison, Gerry O'Driscoll, and Andrew Young. It was like that for Post-Keynesian economics. You don't get that with all Post-Keynesians though.

Peter Boettke responds

Regular readers know that when I present a criticism of someone's position and they respond in the comments, I like to pull it up to a main post. The other day I raised some concerns about the Mercatus Center in general and the way a recent Templeton grant to the Hayek Program in particular was framed by Boettke. He responded:

"Daniel -- I assure you, this is about science and scholarship even when you don't like the conclusions. The only economics that is economics is microeconomics and in particular the economics of relative price adjustments. That isn't as outlier a position in the history of the discipline as you might want to believe. Also, I'd encourage you to read VERY closely F. A. Hayek's Nobel Prize address -- "The Pretense of Knowledge" -- and contemplate the challenge it represents to the entire macroeconomics project of the neo-classical synthesis. It is not a food fight to discus the logical coherence of a position, and its place in the sciences of man."

The comment is frustrating to me, but in a way that provides a nice illustration of the initial issues I raised. Take this whole issue (and it's not the first time Boettke has said this to me) that relative price economics is something foreign to either my position or the Keynesian position. It makes no sense. I don't know why anyone would think I, personally, "might want to believe" that it is an outlier position, but beyond what Boettke apparently thinks of me he clearly thinks the status of relative price economics is something that's questioned.

And if you read Boettke regularly you know that he particularly thinks it comes under fire from Keynes. To me this demonstrates a lack of the familiarity with the Keynesian position - both Keynes himself and modern Keynesians - and it provides an example of these artificial food fights that get ginned up between Keynes and Hayek. This is not science, in my opinion. I don't know what it is. It's like a pseudo-intellectual history that I don't think contributes to economic science. Obviously there are gradations of Keynes-skepticism. I am not saying that anyone that comes to the conclusion that there were problems with Keynes doesn't count as science. There is just a point where I get tired of this fight about how Keynesians or the left or fill-in-the-blank don't understand how markets or prices work.

It would be akin to Peter spending time discussing the intricacies of the arguments of people who thought that Austrians think everyone is a greedy atomistic individual. If Peter decided he did not want to spend his time on that and that it was more of a food fight than a serious scientific discussion of the Austrian position would anyone accuse him of just not liking their conclusions? Would I begrudge him that response? Of course I wouldn't.

I like to discuss economics with Austrians like Bob Murphy. He hasn't taken a traditionally academic career path like Peter (not that I'm currently planning to take one - this isn't judgement), but when you talk economics with him there is a common understanding that:

1. We are both on the same page on relative prices.
2. We are both on the same page on how markets work.
3. We are both on the same page on empirical work - its importance, its functioning, the sorts of claims it can and can't make.

And any number of other common denominators.

Our extensive back-and-forth recently on the minimum wage is only one example, but I can talk with him about Hayek and Keynes too and not have to deal with the constant instruction in mutually agreeable points (relative price economics) or the blowing out of proportion of very different ways of talking about what are fundamentally mutually agreeable points (market process).

When I compare Hayek and Keynes, for example, as I have recently in the pages of Critical Review, I want to talk about:

1. The main thrust of their models,
2. How the models worked,
3. How they are similar and different,
4. The theoretical merit of their models, and
5. The empirical work on their models.

And then I want to come to a conclusion.

I don't want to expound on the point that all economics is relative price economics and I certainly don't want to waste time defending Keynes on that point.

As I said in concluding my last post on this, I hope I'm wrong and the $2 million is not going to fund a lot of food fight economics of the sort we've seen in spades in the last five years. There are a lot of people doing good science at GMU - again as I had said in the last post. I want to see, for example, some GMU economists taking up the challenge offered by Luther and Cohen (2013) to Lester and Wolff's empirical work on ABCT. It's a point I had not thought of in writing my article up (which reviewed Lester and Wolff). It's a good point. It's a valid criticism of their empirical test. Does it mean Lester and Wolff were wrong? It's hard to say until we do some further analysis.

That would be awesome work on Hayek's macro work.

Hopefully that sort of thing will get done.

But when the program gets promoted with a line about how Keynesianism is a failure, I worry that that's not the sort of orientation of the program. First and foremost because that line presents Hayek not as a theoretician that is being tested by the likes of Lester and Wolff (and Callahan and Garrison and Mulligan and Carilli and Dempster and Schnabl and Hoffmann and Bismans and Mougeot and Wainhouse and Butos and Hughes and Powell and le Roux and Ismail and Young and Cachanosky and Whittle and Keeler and Weber and in a very tiny smidgen of an analysis, Kuehn) - he is instead presented as some kind of opposing figure to Keynes. But I also admittedly worry a little because a statement about Keynesianism being a failure should lead to a little bit of healthy skepticism just as in any science odd out of sync claims should be greeted with a healthy skepticism. "Don't reject it because of its conclusions" is true within reason. It's an extreme example, but we don't give flying spaghetti monsters a seat at the table. So we are at least entitled to some skepticism at certain conclusions. A little skepticism is not too much to ask for - certainly not in a science.

I've got a bone to pick with Beatrix Potter

The Tale of Squirrel Nutkin has an awful moral to it. All of Nutkin's cousins (along with his brother Twinkleberry) act completely servile to Old Brown. And not only that, but they sacrifice other animals to him. For his part, Brown is a jerk and a bully and he revels in his tribute. And in the end of course he's violent. Squirrel Nutkin wasn't even trying to take Old Brown's nuts. He was just hanging out - playing marbles with berries and bowling with pine cones. And he just sang and told riddles. At worst he was annoying. But he's the only one in the whole story that's not a jackass or pushover. And in the end we're supposed to think that Nutkin got what he deserved for what - for annoying Old Brown the bully?

I don't know... this one may have to come out of the rotation.

Plus she calls paddles "oars".

Cowen on declining German apprenticeships

Here.

Young Germans are increasingly going to a university rather than entering an apprenticeship. The article Cowen links to offers some reasons why:

"The reasons for the falling number of apprentices are hotly debated. Partly it reflects demographic trends: there are fewer young people around today than when the baby boomer generation came of age. Studying for an undergraduate degree has become more attractive, in part because it no longer takes so long. German students can obtain a bachelor’s degree in just three years, instead of five years for the old-style diploma. Almost 500,000 Germans began a university degree last year, compared with fewer than 360,000 a decade ago. Nevertheless, around one-quarter of German students break off their studies prematurely and do not graduate at all. Meanwhile, trade unions accuse cost-conscious companies of offering an insufficient number of apprenticeships, and point to an increase last year in the number of young people who were unable to find one."

He concludes with: "The Germans can’t quite seem to extend a model that everyone else is falling in love with and trying to copy…".

Apprenticeship is extensive in Germany and Switzerland already. I'm not quite sure there's cause to second guess the system if people seem to be responding to reasonable incentives in their choice between apprenticeship and college. To say that apprenticeship is an important training model in a modern economy is quite different from saying that it will be the most important or will always grow.

The real problems - for apprenticeship or traditional formal education - seem to me to be establishing the institutions and coordinating the collective action to provide training of any variety for people to choose from in response to market signals. A liberal college education may be hard to get off the ground because of the positive externalities it offers. Apprenticeships may be hard to get off the ground for Becker type reasons and perhaps due to a lack of recognition of credentials not offered in a formal setting. These are the sorts of obstacles to think about and worry about. If we can overcome these obstacles and thereby provide a suite of choices to students, the fluctuations between different degrees and different forms of education don't seem to merit concern. We expect that to fluctuate. Developing the institutions to provide the opportunities in the first place can be a bigger challenge.

I spend way too much energy criticizing libertarianism on this blog, so I'm taking a different approach with this new Max Borders piece...

1. It is an excellent example of what libertarians think liberalism consists of.
2. It is an excellent example of what libertarians are under the impression liberals don't like about libertarianism.

Evidence for these two propositions is all the libertarians that are drooling over it.

Caroline is very helpful