Month: August 2008

In Memphis, a local FOX News reporter, Jason Carter, donned old
clothes and hit the streets earlier this year, earning about $10 an
hour. “Just the quasi-appearance of being homeless filled my cup,”
Carter observed. That all the money is beyond the tax man’s clutches
adds to the allure of professional panhandling.

Carter prepared for his stint on the street by surfing the Internet,
where a variety of websites dispense panhandling advice. NeedCom, for
example–subtitled “Market Research for Panhandlers”–offers tips from
Baker and other pros on how to hustle. The website’s developer, Cathy
Davies, wants it to get people “thinking about panhandling as a
realistic economic activity, rather than thinking that panhandlers are
lazy or don’t work very hard.”

More here, overly sensationalistic but interesting in parts.

Thanks to Tim Groseclose for the pointer.

Karl, a loyal man, has a request:

In your post from a few years ago, "If I believed in Austrian business
cycle theory," you made some of the most apt predictions you have made
on this blog. Nearly everything has come true. Obviously though you are
not touting these predictions because being associated with the
"intransigent" Austrians will damage your credibility as a hip, quirky
thinker. So instead, can you just give me a socio-economic cost-benefit
analysis of breast implants.

Here is my original post.  Two points:

1. What happened is best thought of as a bubble where loose monetary policy was one of several triggers but the market response was more at fault than was government.

2. Second, one important false market signal was that people thought rising asset prices could substitute for savings out of disposable income.  That is not the Misesian or Hayekian scenario.

My "predictions in the subjunctive" were largely correct — more correct than I knew at the time — but that doesn’t mean Austrian business cycle theory is largely correct.  I would, however, endorse a modified version of the theory which goes beyond the "blame the government inflation" for everything interpretation.

On Karl’s other question, it’s not just a zero-sum game, socially speaking, but my personal preference would be for Q = 0.

Addendum: Walter Block wrote a 58-page critique of my earlier writings on ABC.  He has sent it to me twice and I am happy to link to it.  Update: Here is the correct Block link.

The Congressional Budget Office estimates that there is only a 7% probability that someone born in 2000 will receive their Social Security benefits as promised today. The better news is that with a probability of 58% the cut in benefits will be 20% or less.

Since the CBO isn’t trying to predict future policy, these "probabilities" should be taken with more than a grain of salt.  Sill these numbers are an arresting way of presenting the basic data on projected Social Security revenues and scheduled payments. 

Hat tip to Paul Krugman.

That’s another request; the exact wording was "The five best reasons to think you should be more dogmatic about the economic beliefs you are not dogmatic about." 

I’ll give one reason, namely that, somewhat counterintuitively, dogmatism can further the generation of new ideas.  Yes, this does require a special meaning of the word dogmatic.  I’m not talking about a grouchy guy who goes "harumph" whenever he counters a new idea.  I’m talking about the person who generates the new idea!  In strict Bayesian terms, most innovators are not justified in thinking that their new ideas are in fact correct.  Most new ideas are wrong and the creator’s "gut feeling" that he is "onto something" is sometimes as epistemologically dubious as is the opinion of the previous scientific consensus.  Yet we still want that they promote these new ideas, even if most of them turn out to be wrong. 

In this view, the so-called "reasonable" people are selfishly building up their personal reputations at the expense of scientific progress.  They are too reasonable to generate new ideas.

To put it another way, there are two kinds of truth-seeking behavior:

1. Hold and promote the view which leads to society most likely settling upon truth in the future, or

2. Hold and promote the view which is most likely to be correct.

These two strategies coincide less than many people think.  Which do you prefer and why?

Addendum: Here is a recent NYT article.  Excerpt:

Voters who insist that they are undecided about a contentious issue are
sometimes fooling themselves, having already made a choice at a
subconscious level, a new study suggests.  Scientists have long known that subtle biases can skew evaluations of
an issue or candidate in ways people are not aware of. But the new
study, appearing Thursday in the journal Science, suggests that
professed neutrality – sitting on the fence – leaves people more
vulnerable to their own inherent biases than choosing sides early.

Will Bryan Caplan endorse this?

The column is entitled: "Finding the Mess Behind the Mess."  The key line is:

The fundamental [macroeconomic] problem in the American economy is that, for years,
people treated rising asset prices as a substitute for personal
savings.

After discussing some adjustment problems, here are comments on policy:

One path that is likely to prove
counterproductive is further fiscal stimulus in the form of tax
rebates. Such stimulus can raise consumer spending and bolster the
economy in the short run, but it works – if it works at all – only by
pushing consumers to spend rather than to save. It merely postpones
needed adjustments by providing a grab bag of goodies at exactly the
wrong time.

Here is the conclusion:

Have you ever tried to undo a bunch of tangled wires or cords? If
you don’t pull on the right wires in the right order, the mess becomes
worse. If you pull too hard, the whole thing can break. But if your
first pulls are good ones, the untangling becomes easier with each
move.

That’s like our economy’s situation today. If we expect
too much too quickly, we’ll make matters worse. But there is a way out
of the mess, and it lies in our hands.

Be careful, and start pulling.

I’ve become increasingly interested in how an economy can be "tangled up," a notion I first learned from Axel Leijonhufvud.  The literature on self-organizing critical systems considers this idea, but I don’t think it has been expressed in simple, intuitive form and in a manner that can be integrated with other macroeconomic ideas.

Libertarian paternalism is the brainchild of Profs Thaler and
Sunstein, but nudging is not. Nudging is good architecture, good design
or good marketing and most nudges have been invented by private sector
companies. Prof Thaler’s best policy idea – a pension plan called Save
More Tomorrow – was tried by a manufacturing company rather than a
government.

Effective nudges are so common in the private sector
that politicians should be asking themselves why.

Here is more.