Category: Uncategorized

Assorted links

by  Tyler Cowen

1. Brad DeLong has a question about ACA, and DeLong on Cowen on Nagel, and here Plantinga reviews Nagel.

2. Authors choose their favorite books of the year, from The Guardian.

3. Some reasons why celebrities and start-ups should not trade.

4. Ross Douthat wants to find a way to abolish the payroll tax.

5. EconGirl on Michael Sandel.

6. How are cell phones reshaping Indian prostitution and the fight against AIDS?

Robert Solow on Hayek and Friedman and MPS

by  Tyler Cowen

The TNR essay is here, prompted by the publication of Angus Burgin’s The Great Persuasion: Reinventing Free Markets Since the Great Depression.  Excerpt:

The MPS was no more influential inside the economics profession. There were no publications to be discussed. The American membership was apparently limited to economists of the Chicago School and its scattered university outposts, plus a few transplanted Europeans. “Some of my best friends” belonged. There was, of course, continuing research and debate among economists on the good and bad properties of competitive and noncompetitive markets, and the capacities and limitations of corrective regulation. But these would have gone on in the same way had the MPS not existed. It has to be remembered that academic economists were never optimistic about central planning. Even discussion about the economics of some conceivable socialism usually took the form of devising institutions and rules of behavior that would make a socialist economy function like a competitive market economy (perhaps more like one than any real-world market economy does). Maybe the main function of the MPS was to maintain the morale of the free-market fellowship.

Solow neglects to mention that Milton Friedman turned out to be right on most of the issues he discussed (though targeting money doesn’t work), that MPS economists shaped at least two decades of major and indeed beneficial economic reforms across the world, or that some number of the economists at MIT envied the growth performance of the Soviet Union and that such remarks were found in the most popular economics textbook in the profession.  You can consider this essay a highly selective, error-laden, and disappointing account of a topic which could in fact use more serious scrutiny.

By the way, if you read Solow’s own 1962 review of Maurice Dobb on economic planning (JSTOR gate), it shows very little understanding of Hayek’s central points on these topics, which by then were decades old.  Arguably it shows “negative understanding” of Hayek.

Or to see how important Friedman’s work on money and also expectations was, try comparing it with…um…the Solow and Samuelson 1960 piece on the Phillips Curve (JSTOR), which Friedman pretty much refuted point by point.  Here is the closing two sentences of that piece:

We have not here entered upon the important question of what feasible institutional reforms might be introduced to lessen the degree of disharmony between full employment and price stability.These could of course involve such wide-ranging issues as direct price and wage controls, antiunion and antitrust legislation, and a host of other measures hopefully designed to move the American Phillips’ curves downward and to the left.

And Solow wonders why the Mont Pelerin Society and monetarism were needed.  Solow should have started his piece with a sentence like “Milton Friedman was not right about everything, but most of his criticisms of my earlier views have been upheld by subsequent economic theory and practice….”

Greg Ransom…telephone!

For the pointer I thank Peter Boettke.

*The Dawn of Innovation*

by  Tyler Cowen

That is the new book by Charles Morris and the subtitle is The First American Industrial Revolution.  Excerpt:

The overwhelming proportion of American mechanization efforts went into basic processing industries, not precision manufacturing.  Food and lumber processors were 60 percent of all power-using manufacturing industries in 1869.  Add textiles, paper, and primary metal industries like smelting, and the number rises to 90 percent.   Industries that would plausibly lend themselves to armory practice methods — fabricated metal products, furniture, machinery, and instruments — accounted for only 7.5 percent of 1869 manufacturing power demand.

…Mid-Century America was still a predominantly agricultural country.  On the eve of the Civil War, only 16 percent of the workforce was in manufacturing.  They worked in grain milling, meatpacking, lard refining, turning logs into planks and beams, iron smelting and forging, and making steam engines and steamboats, vats and piping, locomotives, reapers and mowers, carriages, stoves, cotton and woolen cloth, shoes, saddles and harnesses, and workaday tools.  These were the industries in which America’s comparative advantage loomed largest and were the ones that dominated American output.  It was the drive to mass scale in those industries, by a wide variety of strategies and methods, that was the real American system, or perhaps the American ideology, of manufacturing.

Recommended.

Assorted links

by  Tyler Cowen

1. We’re faking a marathon, and a new and different method for liberating books.

2. Acemoglu and Robinson respond to Sachs.  And on Twitter there has been excellent back and forth, including Sachs and Blattman and ViewfromtheCave, among others, presented here, a worthwhile debate for Thanksgiving especially.

3. Still lacking the right to vote, the langur nonetheless made an unannounced appearance at a political rally.

4. One view of why the 1950s were so strong economically.

5. How easy is it to simulate the brain?

6. Some simple reasons why Catalonian independence is a bad idea.

My favorite films of 2012

by  Tyler Cowen in

Hollywood continues to collapse into mediocre tent pole franchises, but overall it has been a splendid year for movies.  Here were some of my favorites, noting that I count by “the year I saw them” and especially for foreign films this will not correspond so well to “the year of release”:

A Separation

Jiro Dreams of Sushi

Marley

Once Upon a Time in Anatolia (boring for most people, big screen only I suspect)

The Dictator

The Three Stooges

The Raid: Redemption (better Indonesian martial arts you will not see)

Your Sister’s Sister (Straussian)

Circo, Mexican circus movie

Take This Waltz

Beasts of the Southern Wild

Margaret

Ai WeiWei: Never Sorry

Samsara (makes sense on a big screen only, I suspect)

Searching for Sugar Man

Day Night Day Night (from five years ago, but a real stunner, underrated and a wonderful study of Nudge of top of everything else)

Does corruption harm economic growth?

by  Tyler Cowen in

Chris Blattman says maybe not.  Excerpt:

The reasons that corruption should hurt growth are so persuasive that economists have been pretty surprised not to find much evidence.  One team reviewed 41 different cross-country studies of corruption and development. Two-thirds of the studies don’t even find a negative correlation. Cross-country studies have mostly bad data and empirics, so we should not rest here. But Jacob Svensson has a nice overview of the broader evidence and draws the same conclusion: there’s not much to show that corruption reduces growth on net.

I worry more about corruption than those remarks would indicate, though I agree with Chris that the issue isn’t nearly as important as stopping a civil war.

First, I see a strong correlation between high levels of per capita income and low corruption.  (I don’t worry about the lack of correlation with growth rates because, for one thing, poor countries, even many corrupt ones, may grow more rapidly for reasons related to the Solow model.)  The causality here is hard to sort out, but there is plenty of micro evidence that corruption harms prosperity; it’s not just an aesthetic taste of wealthy people to limit corruption, the way they might buy nice interior drapes.

Furthermore, the correct corruption/poverty model may have multiple equilibria, depending on expectations.  In that setting, making your country “look clean” may improve outcomes by shifting the economy up to better equilibria, even if lower corruption isn’t a direct cause of greater prosperity.  There is worse advice than “Act like a rich country, and in the meantime you may become one,” at least provided you do not take this as liberty to spend above your means or to slack off with the work hours.

Second, even high levels of wealth will in some regards bring more corruption, especially as a country moves out of “fourth world” status or other forms of extreme poverty.  Corruption very often rises with complexity and so along some margins it is correlated with wealth levels too.  Similarly, we find that economic growth tends to bring more sexual harassment in the workplace, if only because more women are working outside the home.  Yet it is still correct to think of the harassment as a very real negative, as is corruption.

In any case, this week’s new videos are up at MRU and they cover the topic of corruption, go over and take a look.  Here is one video on the causal question about corruption and growth.  Here is our video on the causes and predictors of corruption, historically speaking.  Here is our video on how corruption can trap economies.

Why so many men’s suits for the communists?

by  Tyler Cowen

David Stearns asks:

I was looking at Kim Jonh-Il looking at things, and it struck me how many of his hangers on were wearing suits.  It seems odd given that this is probably the most anti-western country around.  Do you have any ideas on why this style of formalwear basically became the world standard?

Of course the Chinese communists experimented with other styles. Yet pushback came; in 2008, one part of the Chinese Communist Party began an anti-pajamas campaign, on the grounds they looked “uncivilized.”

Here is a rather frank web site on etiquette campaigns in China.  Recently, Chinese leaders seem to prefer red ties.

I would stress that non-free states tend to encourage conformity along many dimensions, and what better code of dress to match conformity into than men’s suits?

The Incidence of Mandated Maternity Benefits

by  Tyler Cowen in

I know that is from 1994, but it is by Jonathan Gruber (pdf) and the point is an important one:

I consider the labor-market effects of mandates which raise the costs of employing a demographically identifiable group. The efficiency of these policies will be largely dependent on the extent to which their costs are shifted to group-specific wages. I study several state and federal mandates which stipulated that childbirth be covered comprehensively in health insurance plans, raising the relative cost of insuring women of childbearing age. I find substantial shifting of the costs of these mandates to the wages of the targeted group. Correspondingly, I find little effect on total labor input for that group.

This has become more relevant in light of a recent story out of California, excerpt:

The ability of the exchange to lower healthcare costs remains unclear. Experts said average premiums could rise in the exchange because the Affordable Care Act requires improved benefits, but consumers’ out-of-pocket medical costs could decrease under those same changes.

California insurance officials have expressed concern about substantial rate hikes for some existing policyholders going into the exchange.

Under a new rating map approved by state lawmakers, the Department of lnsurance estimated that premiums for similar coverage could increase as much as 25% in West Los Angeles, 22% in the Sacramento area and nearly 13% in Orange County.

I believe some of that is from a pooling effect and some from a greater coverage effect.  I do not, by the way, find this reassuring:

Janice Rocco, the state’s deputy insurance commissioner for health policy, said her agency is pushing a new rating map that would cap increases at 8%. That proposal could be considered during a special legislative session in the coming months.

“We want to minimize the rate spikes,” she said.

I’ve said it before and I’ll say it again: the mandate as currently constituted probably won’t work.  The Medicaid extension can, in principle, work, and yet the state-level rebellion against it does not seem to be fading away.

Indian economists want the Food Security Bill modified

by  Tyler Cowen in

You will find their petition here, signed by many notables including from MIT and Princeton.  They want to “abolish the distinction between general and priority households, and give the same PDS entitlements to all households outside the excluded category.”  Furthermore cash transfers are raised as an alternative possibility, a good idea in my view.

Vipin Veetil and Atanu Dey raise some issues which these economists neglected, for instance:

On the production side, laws restricting for-profit corporate investments in agriculture (like those forbidding corporate ownership of agricultural land) starve the rural economy of capital investment and technology transfers. Such laws have two effects. First, they impoverish farmers by reducing demand for their primary asset – agricultural land. Second, corporations bring efficiency gains through large-scale knowledge-intensive farming. This is equally damaging but more difficult to detect. In addition they furnish a steady wage income to workers; this is desirable for low-income households. In the absence of corporations (and markets for insurance) farmers have no way of transferring the risk of production, i.e. they borrow money on fixed rates but face an uncertain return on investment. A crop failure then has the potential to begin a debt-cycle.

All those smart economists on the first petition, and not nearly enough talk of markets.