Month: October 2007

This issue will throw market-oriented economists into conniption fits.  On one hand, it sounds like free trade.  On the other hand, it sounds like nationalized industry.  If we don’t want the U.S. government owning a chunk of the S&P 500, why should we embrace Russian government ownership?  Do you feel better at a 19 percent share in a local public utility?  The $3 trillion and maybe someday $12 trillion in these funds will force us to define exactly where national security considerations start and end, never a fun job.  On the bright side:

1. Having the other country’s stock shares to nationalize gives the U.S. foreign policy leverage (wait: is that good?)

2. A falling dollar will to some extent limit this issue, though it won’t reverse the current accumulation of liquid reserves.

3. Foreigners and foreign governments rarely buy Google at the ground floor level and I suspect they earn sub-normal returns, relative to the pool of American investors as a whole.  They’ll end up financing yet some more of our consumption, albeit through a new mechanism.  What a racket!

4. As Dani Rodrik indicates, the existence of the California pension system hasn’t exactly sent U.S. companies into chaos.

5. There is a genuine chance that China and other countries, as they want to invest more themselves, will feel additional pressure to open up to foreign investment.  I’ll recognize that free capital movements are not always a boon for development, but sooner or later China has to take this plunge, if only to move toward greater freedom and transparency.

You will find it here, it seems to be a monthly compendium of economics on-line.  Thanks to Daniel Klein for the pointer.

It will not surprise readers to know that I’d enjoy a good smash of Paul Krugman’s book Conscience of a Liberal but historian David Kennedy’s negative review in the NYtimes is more trash than smash.  First, there is a bizarre attempt to argue that Krugman is not an economist because he is not laissez-faire!

And yet maybe Krugman is not really an economist – at least not
according to the definition offered more than a century ago by Francis
Amasa Walker, the first president of the American Economic Association,
who wrote that laissez-faire “was not made the test of economic
orthodoxy, merely. It was used to decide whether a man were an
economist at all.”

Most modern economists continue to celebrate
Walker’s orthodoxy, and behind it, the classical doctrines of Adam
Smith, whose fabled “invisible hand” regularly works wonders of
production, distribution, innovation and efficiency, provided it is
kept free of the meddlesome “nanny state.” Against the constant threat
of encroachment from that benighted quarter the free-market faithful
are ever vigilant.

Admittedly, even though this view is nonsense it’s nonsense that is repeated often enough so that an outsider could be forgiven for drinking the heterodox cool-aid.  At this point I was willing to forgive.

Unfortunately, the rest of Kennedy’s review has very little meat.  If the best that historian Kennedy can say against Krugman’s "factually shaky" history is that "Kansas, whatever its other crimes and misdemeanors, is not customarily
regarded as the birthplace of Prohibition; the Voting Rights Act passed
in 1965, not 1964." then maybe Krugman is on to something.  (For the record, the first point is arguable the second point is a trivial error.)

Worse yet, Kennedy agrees with Krugman when Krugman is wrong.  It’s not true, for example, that Americans "have become markedly less [secure] in
recent decades."  Nor is it true that "A tidal wave of risk-shifting – from defined-benefit to
defined-contribution retirement plans, and from employer-financed to
individually-paid health care insurance, to cite but two examples – has
set millions of American families anxiously adrift on a sea of
uncertainty."   (See e.g. Tyler here and here).

I don’t understand the divisions within the liberal fold which explain Kennedy’s review (he is no right-winger) but I know something is up when Tyler says "The Conscience of a Liberal is um…not that polemic.  It’s not that shrill."  While liberal Kennedy says "Like the rants of Rush Limbaugh or the films of Michael Moore,
Krugman’s shrill polemic may hearten the faithful, but it will do
little to persuade the unconvinced or to advance the national
discussion of the important issues it addresses."

My ultimate response to Kennedy’s review?  I bought the book.

Addendum: Brad DeLong points out that Kennedy blows the Walker quote as well.  Walker, in 1889!, was pointing out that economists were not doctrinaire proponents of laissez-faire.

Dani Rodrik asks why, Greg Mankiw gets frustrated at his now-banished comments section,  Free Exchange defends non-famous econ bloggers, and Felix Salmon chimes in.

I don’t think comparative advantage will keep (inclined) top economists away from blogging:

1. Very good economists can better use blogs to attract an amazing audience; even Dani is seeing the light, and yes his new post does mean that for trade policy he can worry less about low-cost outsourcing!  Opportunity cost may be higher but value-created is higher as well for the better economists.

2. A blog can be a loss leader; Greg’s blog promotes his textbook and Dani’s blog helps his new book.  Prominent economists are more likely to have promotable ancillary products.  Don’t the high productivity companies often spend the most on advertising?

3. Temporary blogging will become more popular.  When Ed Glaeser writes for The New York Sun, he is writing for the blogosphere more than he is writing for Sun readers but at the end of the day he doesn’t have to come up with another post for tomorrow. 

4. I predict there will arise a rotating blog, run by a consortium of top economists.  Figures such as Justin Wolfers will blog their research for two or three weeks and then turn the reigns over to a buddy, moving on, and returning perhaps a year later for another brief stint. 

5. If you are wondering about me, I face an especially low marginal cost of blogging and thus I am likely to continue for a long time.  For both consumption and research reasons, I was already reading and absorbing lots of outside material (a key base for my blogging content, though I miss being able to read quite as much as I used to), so turning it into blog posts is relatively cheap.  Dani and others will probably agree that coming up with the content is the problem, not the actual writing of the post.

Here is another good post on the benefits of econ blogging, stressing the concept of self-experimentation.