Month: March 2011

Common mistakes of left-wing economists?

T., a loyal MR reader, asked for a compendium.  This is my off-the-cuff list, but in the interests of fairness I'm doing one on market-oriented economists as well.  What are some of the common views found on the left which I consider not just disagreements but more along the lines of a mistake?  

By no means is everyone is guilty of these mistakes, nor does it have to mean that the associated conclusions are wrong.  Still I see these frequently:

1. Suggesting that money matters in politics far more than the peer-reviewed evidence indicates.

2. Evaluating government spending on a program-by-program basis, rather than viewing the budget as a series of integrated accounts.  Cross check with the phrase "Social Security," or for use to take many discretionary spending cuts off the table.

3. A reluctance to incorporate sophisticated "public choice" theories into the analysis of favored programs.  

4. Sins of omission: there are plenty of bad policies, such as occupational licensing, which fail to come under much attack from the left.  Sometimes this is because the critique would run counter to the narrative of needing more government or needing more regulation.

5. Significantly overestimating the quality of the political economy of an America with more powerful labor unions and underestimating the history of labor unions as racist, corrupt, protectionist, and obstructions to positive change.

6. Overestimating the efficacy of fiscal policy, underestimating the power of monetary policy, and sometimes ignoring or neglecting how the two interact ("the monetary authority moves last").

7. Citing weak versions of structural unemployment theories and dismissing them with a single sentence or graph, while relying on stronger versions of structural theories in other, non-cyclical contexts.

8. Lack of interest in discussing ethnicity and IQ as relevant for social policy, except in preferred contexts.

9. Overly optimistic views of the fiscal positions of state governments.  Since the states don't have the same tax-raising powers that the feds do, and since state government spending is favored, there is a tendency to see these fiscal crises as not so severe, or as caused by mere obstructionists who will not raise taxes to the required levels.

10. A willingness to think that one has "done one's best" in the realm of policy, and to blame subsequent policy failures on Republican implementation, rather than admitting that a policy which cannot be implemented by both political parties is perhaps not a good policy in the first place.

11. Use of a strong moral argument for universal health care coverage, combined with a fairly practical, hard-headed approach to the scope of the mandate, and not realizing the tension between the two.  Failure to indicate where the "bleeding heart" argument actually should stop and at what margins we should (and will) let non-elderly people die, if only stochastically.

12. Implicitly constructing a two-stage moral theory, which first cordons off the sphere of the nation-state (public goods provision, etc.) and then pushing cosmopolitan questions off the agenda in the interests of expanding a social welfare state.  (In fairness, many individuals on the right don't give cosmopolitan considerations even this much consideration, although right-oriented economists tend to be quite cosmopolitan.)

13. What about countries?  Classical liberals are increasingly facing up to the enduring successes of the Nordic nations.  There is not always a similar reckoning with the successes of Chile and Hong Kong and Singapore; often this is a sin of omission.  (Addendum: comment from Matt here.)

14. Reluctance to admit how hard the climate change problem will be to solve, for fear of wrecking any emerging political consensus on taking action.

In most cases you can find evidence and links by searching back through the MR archives.  

Common mistakes of right-wing and market-oriented economists?

This is a companion piece to my post on left-wing economists; see the caveats in that post.  Not everyone commits these, nor are the associated conclusions necessarily false, nor am I postulating any equivalence of mistakes across the two groups.  I am simply serving up two lists.  Here goes:

1. There is excess fear of inflation and hyperinflation in the current economic environment.  Further there is often an excess estimate of the costs of inflation in the two to five percent range.

2. We know much less about the causes and drivers of economic growth than we like to admit, and when pushed on this issue we fall back to citing relatively simple cases with extreme differences, such as East vs. West Germany.

3. Lower taxes don't spur economic development as much as it is often claimed, at least not below the "fifty percent or less of gdp" range.

4. There are many climate change issues of relevance here, not mostly economics, but it seems remiss not to mention them.

5. I'm all for Health Savings Accounts, but unless done on a Singaporean scale, and with lots of forced savings, they're not a health care plan to significantly benefit most Americans.  There is less of a coherent health care plan, coming from this side, than one might like to think. 

6. There is already considerable health care cost control embedded in the ACA, most of all for Medicare, and this is not admitted with sufficient frequency.

7. When it comes to the historical determinants of the Industrial Revolution, the Great Divergence, and the like, the importance of state-building in that process is often neglected.

8. The story of steady and significant economic progress for most Americans is accepted too readily.

9. The role of market failure in the recent financial crisis is underestimated.  It is also believed that we can somehow commit to a policy of no future bailouts.  Promoting that myth will make future bailouts more likely.

10. Relying on liability law, whether or not it is a good idea, is not intrinsically more pro-market, more libertarian, or less interventionist.

There are more, but those are what to come to mind right away.  If you wish, you can interpret this list as saying more about me than about the doctrines I am referring to.  Again, you can very often Google back to find more detailed discussions of these individual points.

*Economist* symposium on *The Great Stagnation*

You will find it here, with contributions from Viral Acharya, Scott Sumner, Hal Varian, and Paul Seabright.  From elsewhere, Noah Smith cautions economists not to invoke technology too often.  Brad DeLong chimes in.  From a few years ago, Austan Goolsbee measures the consumer surplus from the internet; his numbers do not refute the standard view that median income growth has become much much slower.

Assorted links

What is the consumer surplus of the internet?

Annie Lowrey asks:

But providing an alternative measure of what we produce or consume based on the value people derive from Wikipedia or Pandora proves an extraordinary challenge–indeed, no economist has ever really done it. Brynjolffson says it is possible, perhaps, by adding up various "consumer surpluses," measures of how much consumers would be willing to pay for a given good or service, versus how much they do pay. (You might pony up $10 for a CD, but why would you if it is free?) That might give a rough sense of the dollar value of what the Internet tends to provide for nothing–and give us an alternative sense of the value of our technologies to us, if not their ability to produce growth or revenue for us.

Here is much more.

Genetic Enhancement v. Artificial Intelligence

Will robots and artificial intelligences take human jobs? Perhaps but the nature of humanity is not carved in stone. Genetic enhancement (GE) is within a hairsbreadth of reality.

It's true that the practical applications of AI are moving faster than GE but GE has a head start of over a billion years. Moreover, although GE is still impractical, the costs of GE are falling fast. The costs of sequencing Cost_per_genome a genome (shown at right, click to enlarge), for example, are falling far faster than even Moore's Law would predict. Sequencing takes us only part of the way towards H+ but it's an important part.

Genetic engineering already works wonders, even when used haphazardly. My own efforts at GE (I had the help of a PhD microbiologist) have produced two promising NIs. When used in a more controlled manner the results of GE will be even better ("it's still us, only the best of us.")

I used to worry that religious objections would prevent the evolution of H to H+, especially in the United States. But should courage fail us, the Chinese, the Indians, the Russians or perhaps even the Singaporeans will move humanity forward. In this case, the slippery slope works in favor of progress: from avoiding genetic disease towards making improvements will prove irresistible. You can't keep a better man down.

The contrast of GE and AI in the title is meant to remind us that AI is not the only technology relevant to debates about future jobs but the opposition of GE and AI is obviously false. AI is helping to create GE, of course, but it's deeper than that. In the not so long run it's not about computers substituting for labor or even complementing labor, it's about designing labor to complement computers (and vice-versa). Think about how quickly the phone has migrated from the desk, to the hand, to the ear, to the ear canal. The technology to enhance humanity with access to the internet is literally burying itself into our heads, call it I-fi. There is more to come.

And now for some music.

*The Philosophical Breakfast Club*

The author is Laura J. Snyder and the subtitle is Four Remarkable Friends Who Transformed Science and Changed the World.  This is an excellent book about the history and status of science in 19th century England and in particular the contributions of Charles Babbage, John Herschel, William Whewell, and Richard Jones, the latter an economist and of course Whewell debated induction and scientific method with Mill.  Babbage too had writings on economics.  Here is an excerpt from Snyder:

De Prony had been commissioned to produce a definitive test of logarithmic and trigonometric tables for the newly introduced metric system in France, to facilitate the accurate measurement of property as a basis for taxation.

De Prony had recently read Adam Smith's Wealth of Nations…Smith discussed the importance of a division of labor in the manufacture of pins…

De Prony was the first to see that a Smithian division of intellectual labor could be equally valuable in the work of computation of mathematical tables — although his idea had been anticipated by Leibniz, who believed that talented mathematicians should be freed from tedious calculations that could be done by "peasants."

If you enjoy the history of science, this book stands a good chance of being the best one in that genre to come out this year.  Here is one good review of the book.

The elephant in the room

Paul Krugman writes:

Brad DeLong is mad at Tyler Cowen, with reason – for Cowen writes about US fiscal irresponsibility, fairly sensibly, without mentioning the elephant, and I do mean elephant, in the room: the role of the post-Reagan GOP.

Look: until 1980 or so the United States generally paid its way; the ratio of debt to GDP generally fell over time. Then starve-the-beast came to power, and fiscal realism went away. That’s the story; anyone who glosses over that, who makes it a plague-on-both-houses issue or, worse, makes it seem as if Obama is the villain, is in an essential way misleading his readers.

Brad DeLong offers further comment.

Marketplace for retired economists

Via Al Roth:

The AEA is attempting to make another part of the job market thick: it is linked from the main JOE page at  http://www.aeaweb.org/joe/

Here is the direct link.

Available Retired Faculty Listing: "As an experiment, the AEA is initiating a listing of retired economists who may be interested in teaching on either a part-time or temporary basis. Individuals can add or delete their name at any time during the year. The listing will be active from February 1 through November 30 each year. Listings will be deleted on November 30; the service will be closed during December and January, re-opening on February 1."

Right now the list is waiting to be populated by retired faculty seeking part time or temporary work.

Assorted links

What to do about wage polarization?

I like this Paul Krugman column, but I would have given it a different ending.  Krugman writes:

So if we want a society of broadly shared prosperity, education isn’t the answer – we’ll have to go about building that society directly. We need to restore the bargaining power that labor has lost over the last 30 years, so that ordinary workers as well as superstars have the power to bargain for good wages. We need to guarantee the essentials, above all health care, to every citizen.

What we can’t do is get where we need to go just by giving workers college degrees, which may be no more than tickets to jobs that don’t exist or don’t pay middle-class wages.

I would suggest three different points of emphasis:

1. Trade unions, even if they could become strong again (which is hard to see), would likely accelerate this process of substituting capital for labor, rather than counteracting it.  A one-time union wage premium, even if it does not come at the expense of other workers, will put only a small dent in the long-term trend.

2. Let's reform education, so people either make effective teams with computers, or they specialize in areas where computers are not effective.  The nature of "education" is not carved in stone, even if the sector is hard to reform.

3. I have never seen it suggested that this "hollowing out" process will lead to lower output, quite the contrary.  Those gains go somewhere.  This is a reason to encourage the ownership of capital and on a quite broad basis.  Let's start by repealing Sarbanes-Oxley, but along these lines there is much more we could do.  How about low-load mutual funds backed by claims to intellectual property or whatever else will prove the scarce input for the future?  Identifying that scarce input is the key to making progress on this issue.