Month: April 2008
Here is my latest New York Times column. Here is the conclusion:
Lately, it’s become fashionable to assert that, in this time of financial market turmoil, the market-oriented teachings of Milton Friedman
belong more to the past than to the future. The sadder truth is that
when it comes to food production – arguably the most important of all
human activities – Mr. Friedman’s free-trade ideas still haven’t seen
the light of day.
Here is the most interesting paragraph:
The reality is that many of today’s commodity shortages, including that
for oil, occur because ever more production and trade take place in
relatively inefficient and inflexible countries. We’re accustomed to
the response times of Silicon Valley, but when it comes to commodities
production, many of the relevant institutions abroad have only one foot
in the modern age. In other words, the world’s commodities table is
very far from flat.
Here is the most tragic part of the piece:
Poor rice yields are not the major problem. The United Nations
Food and Agriculture Organization estimates that global rice production
increased by 1 percent last year and says that it is expected to
increase 1.8 percent this year. That’s not impressive, but it shouldn’t
The more telling figure is that over the next
year, international trade in rice is expected to decline more than 3
percent, when it should be expanding. The decline is attributable
mainly to recent restrictions on rice exports in rice-producing
countries like India, Indonesia, Vietnam, China, Cambodia and Egypt.
Yesterday I went to a party at Robin Hanson’s. Megan McArdle, Bryan Caplan, Will Wilkinson, Tyler and many others were in attendance, as was my 6-year old.
"How was the party?," my wife asked the 6-year old.
"It was like this," he answered, "Blah, blah, blog. My blog, blah, blah, blah. Blog, blah, blog."
Tyler’s more enthusiastic report is below.
John Nye, Megan McArdle and I debated this question at a party today (Robin Hanson asked that we not ban robots, some people called for open borders, John and I explained the hierarchy of the economics profession to Will Wilkinson, and Bryan Caplan told me I have the uncanny ability to predict when people will die, among other highlights; sadly Alex had to leave early). We also asked some questions that are seldom asked.
Under one model, local gangs have a more or less fixed ability to terrorize a neighborhood. Even if everything is legalized, the gangs will continue local monopolies to maximize tribute, subject of course to constraints from other gangs and the police. In this model, legalizing drugs doesn’t do much good. The local gang either shifts its monopoly to another area (milk and sugar, if need be), or de facto the gang’s local monopoly on the drug trade continues. The gang busts you if you try to get your supply of crack cocaine from Merck. I call this the Rio de Janeiro model; no, drugs are not formally legal there but I don’t think it would much matter if they were.
Under a second model, the ability of a local gang to monopolize and terrorize depends on the availability of drug trade revenue. Take away illegal drugs and the gang collapses — Merck outcompetes them — and the neighborhood revitalizes.
Libertarian arguments for legalization typically envision the second model rather than the first. I expect something in between. So I don’t favor the War on Drugs but I believe the benefits from stopping that war are often exaggerated. Note that whether the first or second scenario holds may depend on just how easy drugs are to get legally.
One claim was that — a’la Freakonomics — current drug suppliers don’t reap huge rents, so legalizing drugs won’t much discourage them.
Another question from the evening is how much the abolition of zoning in New York City would boost gross national product. I heard some overoptimistic estimates on that one.
On a scale of 1 to 10, I give the party at least a nine.
Between Clinton and Obama, that is. One thing we learn is just how unpleasant a politics of confrontation can be and that’s no matter what your political point of view. Most voters don’t define their views along the distinctions set down by the policy wonks. So if you wish to start a political conflict to get your way on the wonky issues, that means you also end up starting a war — possibly unintended — on identity politics and also power politics. Furthermore at least one of the sides in that war will care more about winning and seizing/keeping power than about policy per se. Over time that’s the side most likely to get its way.
We also learn that the American public polarizes along undesirable fault lines, observes a fight and puts a pox on both houses, and in general becomes more cynical about politics. Think about this before pursuing polarization and quasi-class warfare.
The implication, however, is not that you always should stay put. After all, today’s status quo is a) highly imperfect, and b) the result of the ugly identity wars inherited from the past and surely that is not sacred either.
Nonetheless constructivist attempts to remake America will, by political debate, be reshaped along traditional fault lines. That means your good idea — be it libertarian, progressive, or whatever — had better be pretty robust to mangling by the stupid, the emotional, the cynical, and the ill-informed. It also means your policy analysis had better start with a good understanding of the relative strengths and weaknesses of the United States and try to build in a sustainable direction with the weights and the angles favoring what you wish to accomplish. Tocqueville, Montesquieu and Madison look smarter and smarter all the time.
A while ago the progressives told us that we needed to fight a battle against the Republicans to reshape America. Now there is a prior battle within the Democratic Party itself, noting of course that the hedge fund managers are sending most of their donations that way. And even Paul Krugman and Ezra Klein can’t agree on which candidate is the real progressive. How many steps further backward will be taken? We haven’t even gotten to the point of trying to write progressive legislation or get it through Congress.
Resist the temptation to put the backward steps into the category of "the utopian should." Such a move runs as follows: "OK, we didn’t do that, we should have done that. I never predicted we would do that. I just should we should have." (Libertarians I might add often commit a similar vice.) That response is non-falsifiable and so you can hold on to it all you want, but you’d get further by embracing the evolutionary yet non-Panglossian tradition in political thought. Similarly, libertarians should take more seriously the idea that Sweden should build on its current strengths as well.
I’ll be frank: I’m not rooting for Hillary Clinton. But that’s not for any instrumental reason or for that matter for any quasi-libertarian reason or not even for the many reasons you’ll find outlined by Andrew Sullivan. It’s for purely subjective and arbitrary reasons and I won’t say more than that (though I could). Maybe I’d drop that dislike if she’d wave around a copy of Fredric Bastiat but in the meantime there you go. Note also that I am hardly the most biased person evaluating this political race and that I didn’t feel this way a year ago.
The bottom line is this: real world political debate is not fundamentally a macro-cosm of the thought processes of a smart person, or of one smart person debating another. The politics of confrontation usually turn ugly.
Omkar, a loyal MR reader, asks:
I’m looking for an
apartment (Fremont), and it’s my first one. Do you think that most
people over or underinvest in the quality of their accommodations? On
one hand, it’s where you spend the most time (especially if you’re like
me and have in-house hobbies). On the other, I think it’s probably easy
to overestimate the impact an additional unit of luxury housing will
have on everyday life.
The standard results from the happiness literature are that people grow accustomed to lots of living space but that we undervalue the hassle of a lengthy or stressful commute. Kahneman’s work also suggests you should spend more time with your friends, so maybe that means living near them as well. I don’t know if these results are true at all margins. Moving from a mid-sized mansion to a large mansion probably doesn’t make you happier, but the switch from a one- to two-bedroom apartment might.
Personally, I’ll stress the benefits of rooming with someone who is both compatible and intelligent, but that isn’t exactly the question that was asked. Your apartment should also be a gateway to new experiences, so perhaps you should live near the highway. or other effective modes of transport.
So, readers, when we are looking for an apartment, what is the bias we are most likely to have?
Another way of investigating the relationship between inequality and
trade with poor countries implies that China may actually help the
poor, suggests new work from University of Chicago economists Christian Broda and John Romalis.
Instead of focusing purely on what’s produced outside of the
country, Broda and Romalis turn their attention to an interesting but
obvious relationship between imports and consumption within our border:
The goods exported by poorer countries are typically consumed by
lower-income Americans. Our typical methods of quantifying inequality,
however, don’t take this into account.
At the same time, inflation in the price of these goods has fallen
behind inflation in services, which make up a greater portion of what
wealthier people buy. Taken together, these trends imply that official
measures may be overstating the rise in inequality.
Looking at trade data between 1994 and 2005, Broda and Romalis
construct inflation rates for different income groups and find that
rates for the richest outpaced rates for the poorest by about 4 percent
over the period. Since income inequality between the top and bottom 10
percent of earners grew by about 6 percent, the different inflation
rates among income groups wipes out about two-thirds of the rise in
The emphasis in that last sentence is mine. It continues:
China’s role in this new way of analyzing inequality is large, accounting for about 50 percent of the total reduction.
And scream this part from the rooftops too [how do you scream a parenthesis?]:
(A very interesting aside. Broda and Romalis also find that the poor
are more likely than the rich to buy newer goods. Because of the lag in
how quickly the CPI tracks new products, the researchers argue that
once this "new goods bias"
which serves to keep official inflation rates higher than they actually
are since newer goods are typically cheaper, is factored out,
inequality between the rich and the poor between 1994 and 2005 may not
have changed at all.)
3. What do we understand about recessions?, by Bob Hall, via Mark Thoma
4. What should the World Bank know about governance?, starring Acemoglu, Rodrik, North, Fukuyama and others
5. When learning by example backfires
A small but passionate minority is deeply dissatisfied
with current political systems. These people seek the autonomy to live
under and experiment with different political, social, and economic systems
than currently exist. It is this search for sovereignty, for the freedom of
self-government, which is the fundamental motivation for seasteading.
That’s Patri Friedman (son of David, son of Milton) and Wayne Gramlich in their seasteading manifesto. In interesting news, The Seasteading Institute has secured funding of $500,000 from PayPal founder Peter Thiel to help make the idea a reality.
Long-term trends are somewhat favorable for seasteading because with a cell phone and internet access more and more people could live on a seastead and make a living. Cruise ships are already floating cities with few regulations or taxes. Harold Berman argues that the rise of the West was due to competitive law. Homeowner’s organizations, hotels and condos are private governments (for more see my edited book The Voluntary City.).
Competitive law appears to increase efficiency but it’s less clear that competition among governments gives rise to a libertarian world. Homeowner associations, for example, often impose stricter zoning regulations than cities. You could say that the system as a whole is more libertarian, but no one lives in the system as a whole.
Maybe liberty comes not from choice of government but from forcing people who are unlike to live together. Isn’t the real reason the First Amendment has any force not that people agree on the value of freedom of speech but rather that they disagree on who they want to shut up? Is religious freedom a product of agreement on the value of religious freedom or is it a product of disagreement on who is going to hell?
Still I hope for the best and congratulate Patri. Seasteading has come a long way.
Why do affluent, middle-class, and poor voters all seem so exquisitely sensitive to election-year income growth for the wealthiest families?
Oddly, the voting of lower-income voters is relatively insensitive to their own election-year incomes. One option is that media reporting is biased toward coverage of the rich and famous. Another option is that we, as voters, are biased toward considering our pleasure or displeasure with the strength of the high-ranking members of our tribe.
That question is from Larry Bartels’s Unequal Democracy: The Political Economy of the New Gilded Age.
Here is a previous installment in the series.
You’ve heard the reasons why professors don’t trust RateMyProfessors.com,
the Web site to which students flock. Students who don’t do the work
have equal say with those who do. The best way to get good ratings is
to be relatively easy on grades, good looking or both, and so forth. But what if the much derided Web site’s rankings have a high
correlation with markers that are more widely accepted as measures of
faculty performance? Last year, a scholarly study found a high correlation
between RateMyProfessors.com and a university’s own system of student
evaluations. Now, a new study is finding a high correlation between
RateMyProfessors and a student evaluation system used nationally.
Strike another victory for Web 2.0. Here is more.
This is stupid but it makes me laugh the more I think about it. The original idea is due to Claude Shannon. Hat tip to Boing Boing.
Who better to ask than Air Genius Gary Leff:?
…the usually sober, sometimes brilliant, and certainly prolific judge
and scholar offers up an unusually misguided rant on why he believes
“airline service is so bad” over at the Becker-Posner Blog…
Here is Posner’s charge, which I might add calls for air travel reregulation. Read Gary’s whole response. I don’t, as they say, have a horse in this race (noting that Gary and I work together at GMU). What I do know points to two major problems: badly run airports (rather than air travel deregulation per se) and too many flights clustered at peak hours. That puts me closer to Gary’s analysis than Posner’s. Congestion pricing and true markets for all airport services would solve many of the problems, in my view.
A loyal MR reader asks:
I am now beginning the process of choosing classes for next year. I thought your advice might again be useful. I am in the unusual position of finding nearly all fields potentially interesting. I also feel relatively capable of pursuing most of them, with the exception of pure theory or pure econometrics…I am tempted to do economic history + something else. If I do history, perhaps I ought to do finance, micro, or metrics in order to signal technical capability?If you were in my place, what fields would you choose? Are their particular people…at XXXX…whom you would absolutely want to take a course with/work with? Is it possible to be a macroeconomist without doing extremely technical work? Are some fields more tolerant of heterodox views than others? You told us [once] that you thought econ. grad. school should be Micro 1 – Micro 16. Does this mean I ought to take more micro next year? Given my limited ability to know where my interests will lie in the future, how should I think about this decision?
1. To potential academic employers you are defined by your job market paper, your letters of recommendation, and by your publications, if you have any. Your formal "fields" aren’t that important, nor are your classes per se.
2. Pick classes to learn skills and choose your classes on the quality of the professor, not on the topic per se.
A quick classroom visit often reveals this quality within thirty seconds.
3. Pick a mentor that you, on a personal basis, relate to very well. This is of extreme importance. If he or she doesn’t like you, all is lost.
By the way, here is Ben Casnocha’s advice on how to be a good mentee. What other advice would you all give this person?
During a recent book interview, an ABC news anchor asked me what kind of impact the real world’s subprime mortgage crisis and related fallout would have on Second Life’s economy. I speculated that it would probably provide an ironic boost, noting how the last recession of 2003 was important to Second Life’s early growth. "I can’t tell you how many people I met then," I told her, "who were out-of-work programmers and web designers creating content in SL while they looked for jobs."
That was an off-the-cuff answer, but the latest economic figures from Linden Lab suggest a similar pattern may indeed be happening now. In-world spending activity has been increasing steadily since the mid-2007 prohibition against virtual gambling. "The Second Life economy," Zee Linden noted, "does not appear to be affected by the slowing economy of the United States." SL blogger Roland Legrand took a look at the numbers, and had a similar thought to me: "Could it be that people find refuge from the ‘real world’ troubles in virtual worlds and that the SL economy ‘profits’ in that way from the crisis?"
Here is the link. Here is the first installment of The Countercyclical Asset.