Headlines to ponder
German business confidence soars
Those are two of the countries which have done the most to commit to subsequent decreases in government spending. It would be wrong, wrong, wrong to causally attribute their growth to those spending decreases. Still, fairly firm expectations of spending decreases don't exactly seem to be driving them under, and we do know that AD stimulation is all about credible expectations, not just the current flow of spending…
Beware some markets in everything
Whenever you see an "investigator" charge patients to undergo an experimental protocol, be very very wary. Be very, very afraid. In general, with very few exceptions, reputable medical researchers do not charge patients to undergo experimental protocols; their studies are funded with grants from the government, private foundations, or pharmaceutical companies.
That is Orac on Luc Montagnier, Nobel Laureate; hat tip goes to Steve Silberman on Twitter. Steve also links to this article about a recent Randian educational scam.
Local news or rumor?
Washington Post columnist Steven Pearlstein is joining the faculty at George Mason University and will cut back his twice-weekly column to once a week.
Pearlstein, a Pulitzer Prize-winner, wouldn't confirm the newsroom buzz about his new dual role when The Cutline reached him Tuesday morning. "I'm going to write about that in my column tomorrow," Pearlstein said, adding that he's "not going to scoop myself."
Here is more, from Yahoo. Only his hairdresser knows for sure.
Arnold Kling on the political spectrum
Here in the United States, one thing that strikes me about my most liberal friends is how conservative their thinking is at a personal level. For their own children, and in talking about specific other people [TC: especially in the blogosphere!], they passionately stress individual responsibility. It is only when discussing public policy that they favor collectivism. The tension between their personal views and their political opinions is fascinating to observe. I would not be surprised to find that my friends' attachment to liberal politics is tenuous, and that some major event could cause a rapid, widespread shift toward a more conservative position.
Here is more. I would make the related point that, in the economics profession, academic liberals are especially likely to believe in statistical discrimination: "Does he have a Ph.d. from Harvard or MIT?" On the right, Chicago's previous reputation as an outsider school blunts this tendency, plus there have been Arizona, VPI, and other off-beat centers of market-oriented thought.
Podcast with Tyler Cowen and Jerry Brito
Some time ago I asked MR readers to request podcast questions. The 30-minute podcast consists of Jerry Brito picking out some questions from that list and interviewing me. You can find it here. Jerry sums it up:
Cowen discusses why people will be appalled that we ever questioned intrusive searches by TSA, what should have been done to minimize unemployment and other harm from the financial crisis, how the “famous American formula” for good government is broken, what might force us to sit around opening cans of dog food with our teeth, and which global sites should be connected by Stargate portals to create the most value. He also asks, “Why read books?”, speculates about the value of his blog, addresses price discrimination of chicken McNuggets, talks about a modern day Athens in Asia with good food, suggests that internet comments are a relatively harmless form of stupidity, and opines about the best thing that government does.
Assorted links
2. Economists working at hi-tech firms.
3. Tuataras routinely live to 100, or longer.
4. Markets in everything: dealing with your health insurance paperwork.
5. A dispute over Peter Diamond's district.
6. The world's most powerful economist.
7. Via Ireland, a good argument for a King.
8. Chalmers Johnson has passed away.
9. David Nolan, founder of the Libertarian Party, has passed away; more here.
The Friendly Skies
Cars are far more dangerous. From Nate Silver.
Why Timur Kuran is one of our most important thinkers
Timur is well-known as an economist, but his true importance remains neglected. What follows is my view of "what he achieves," not "what he intends."
Timur grew up in Ankara and Istanbul and he brings economics, rational choice, public choice theory, law and economics, and a strong knowledge of history to bear on the history and current dilemma of the Middle East.
I view Timur as our most important apologist for the history of Islam, and I mean that word apologist in the classical sense, not cynically. I am not claiming he is a Muslim (I have no idea), but rather that he has insight into Islam. He is telling us: "this stuff isn't as screwed up as it might seem to some of you. It is more like you than you probably think." Yet, like so many good apologists, you get mostly biting criticism of what he is apologizing for; he is seeking to reform the world he cherishes.
His first book Private Truth, Public Lies: The Social Consequences of Preference Falsification (one of the best economics books of the last twenty years) is about how societies can stick with screwed up beliefs and defend them publicly, yet without everyone being evil or stupid, even if they sometimes sound as such. It has major implications for the theory of revolution, and sudden flips of opinion, yet I read it as a defense of [fill in the blank] society. His work with Sunstein on availability cascades extends the basic point of how falsehoods spread in otherwise normal environments; it applies directly to U.S. regulation also global religion.
Timur has written a great deal on how "Islamic economics," as the formal movement is known, has not done Islamic economies any great favors. It is precisely when he seems most critical of Islamic doctrines that he is doing the most repair work, by indicating another path forward.
He now has a new book out — The Long Divergence: How Islamic Law Held Back the Middle East. The book explains a large part of why the Middle East and Turkey fell behind the West and law and economics has a lot to do with it. Various laws in Islamic societies were not conducive to large-scale economic structures, at precisely the time when such structures were becoming profitable and indeed essential as drivers of economic growth. This is not a book of handwaving but rather he nails the detail, whether it is on inheritance law, contracts, forming corporations, or any number of other topics.
Timur writes clearly but his understated prose doesn't hop off the page at you, no matter how good the content. He sometimes sounds small when he is in fact writing on a very large canvas. Yet the relevant unit of labor here is his career's work, not any single article or even book. I wonder if the economics profession forces on him too specialized a voice or an ill-fitting conception of what Wertfreiheit means.
Here is the final paragraph of the new book and it is one place where the larger vision peeps through more explicitly:
The good news is that the region borrowed the key economic institutions of modern capitalism sufficiently long ago to make them seem un-foreign, and thus culturally acceptable, even to a self-consciously anti-modern Islamist. These institutions can be improved, recombined, and applied to new domains creatively without opposing Islam as a religion, or even dealing with it. They can be debated essentially in isolation from public controversies over what Islam represents and its relevance to the present. Furthermore, Islamic economic history offers abundant precedents for promoting free enterprise and limiting the government's economic role. In no period has private enterprise been lacking. Widely admired empires had shallow governments that left to waqfs the provision of social welfare, education, and urban amenities. A predominantly Muslim society is not inherently incompatible, then, with an economy based on free competition, openness to borrowing, and innovation, and a government eager to support, rather than stifle, private enterprise.
[Segue to Stockholm dialogue:
T: James Buchanan is fundamentally a regional thinker. I toy with the view that most social science thinkers are, fundamentally, regional thinkers.
B: Is that good or bad?
T: It depends on the region.]
Here is Timur's home page. You can buy the new book — which I strongly recommend – here. Here is the book's home page. Here is a related podcast. Here is a video of Timur. Here is a picture of Turkey:
Richard Thaler’s question
I am doing research for a new book and would like to hope to elicit informed responses to the following question:
The flat earth and geocentric world are examples of wrong scientific beliefs that were held for long periods. Can you name your favorite example and for extra credit why it was believed to be true?
Please note that I am interested in things we once thought were true and took forever to unlearn. I am looking for wrong scientific beliefs that we've already learned were wrong, rather than those the respondent is predicting will be wrong which makes it different from the usual Edge prediction sort of question.
There are many answers here (scroll down). Hat tip goes to Edge on Twitter.
Second thoughts on Ireland
Irish political economy seems to be falling apart in front of our eyes and the bond market isn't so happy, even after Ireland accepted the EU/IMF bailout. That would appear to be political risk. Maybe there won't be a happy ending even in the short run.
Here is Thomas Friedman, a number of years back, touting the wonders of the Irish model. Cato and Heritage made similar claims. What are we to make of this broader span of Irish history? I see a few candidate views, not necessarily mutually exclusive:
1. The Irish had some excellent economic policies, but they needed to regulate their banks more. They were simply too optimistic and too sloppy.
2. Irish troubles could have been contained, at some point over the last two years, had Ireland not been on the euro. They would have devalued, defaulted, and had a rapid bounce back up, within the next three years.
3. Ireland never should have guaranteed the liabilities of its banking sector. Indeed, Ireland (as New Zealand did long ago) should have encouraged larger, more diversified foreign banks to dominate its financial sector.
4. Irish troubles are intimately connected with low corporate tax rates. Revenue starvation induced the Irish government to court and tolerate a real estate bubble. One claim is that Ireland relied too much on property taxes.
5. The good and bad policies are a bundle of sorts, and Ireland needed the mix to rise from squalor and the dominance of anti-commercial interest groups, no matter how painful the present day may seem. I recall vividly, growing up, that Ireland was thought of as not much more than a Third World country.
6. We are overreacting to the Irish failure. It is one of the first European dominoes to fall, but over time many different policy models will look like mistakes.
What other candidate views are there?
Assorted links
1. Download all of Bach's organ music for free.
2. New results on British vs. French colonialism.
3. Prophets of the Marginal Revolution.
4. The world's countries, rearranged by population. The U.S. can stay put.
Sentences to ponder
The biggest creditor to Portugal is Spain.
Here is more, on the issue of intra-EU contagion.
Observations on computer chess spectatorship
1. People enjoy watching a live internet human vs. human game more, when they can watch a computer judging the human moves and evaluating the position.
2. Few people enjoy watching live computer vs. computer games, even though the quality of play is much higher and the likelihood of a complex, wild position is much higher. Even if you care at all, there is little in-progress suspense; you might as well look back at the moves once they are over. How many other activities would we enjoy watching or experiencing less if they were done by computers?
3. The quality of play in a computer vs. computer game is so high it is often difficult for humans to tell where the losing computer went wrong, even if the spectator human has the help of a chess-playing computer.
4. I find only the very best computer (Rybka) of interest, although I do not feel the same way about the human players. Furthermore the fifth best computer is still much better than the best human players.
5. The notion of a computer chess tournament taking place "in time" is an odd one. You can play all the games back-to-back or simply use multiple copies of the programs and finish the entire tournament in a few hours; see #2.
6. Watching a computer play chess is a window onto a world where, once the opening is past (often, computers are simply told what to do by a pre-programmed "openings book"), there are many fewer presuppositions than what a human mind will bring to bear on the problem. It's a very good way of learning, in convincing form (the computer will beat you), how much your intuitions lead you astray. It's not just your "bad moves" which cause you to lose, it's also the moves which still seem pretty good to you.
7. There are nonetheless many computer moves which I simply cannot believe are any good. It does seem that every now and then computers get stuck in a "dogmatic trap," usually because of their limited time horizons for evaluation. Playing against a computer, you will do best in the early middle game and then progressively fall apart as its combinatorial powers destroy you.
8. You can watch chess computers play against each other at www.chessbomb.com. Click on "enter" and then TCEC5.
Further thoughts on the TSA debates
The biggest flying/airport outrages are a lack of markets in allocating scarce resources, and the resulting unacceptable airport and flight delay problems in places such as JFK and LaGuardia. Next come airlines which ruthlessly screw you over, repeatedly, and lie to you and mistreat you. I do understand the trade-off and prefer the lower prices and fewer quality assurances; still, you can object to their behavior at the margin — it's often unethical. Let's get worked up over these problems first.
I view good scans as, in the long run, a substitute for patdowns. One option is to have very very good scans, nude "photos," fewer patdowns, and to have Americans shift to a more European attitude on nude bodies. There's even an available status attitude where you don't mind or notice the scans, much as the King allowed himself to be dressed and handled by commoners. That's the intelligent argument for the current shift in policy. Maybe the enhanced scans simply aren't useful or maybe Americans can't or won't shift their norms. Those would be reasons not to do it (and I am not pronouncing a definitive opinion here) but it's simply not, in principle, that objectionable of a policy. There's a locked-in structure which prevents a competitive test of safety levels and so all alternatives are coercive in some manner, including the difficulty any airline would face in attempting an even more restrictive set of security procedures.
It's worth asking how intrusive a search markets would provide, but keep in mind there are significant negative externalities from exploding airplanes and also there are government bailouts which limit the downside. Furthermore companies do not always care enough about "extreme negative skewness," as we have learned in financial markets and thus there is a case for regulating a tougher security standard.
Hovering in the background is the reality that a few successful downings will kill many people and furthermore probably wipe out the insurance market and thus lead to nationalization of the airlines. It's not clear what the freedom-enhancing path looks like and there is no default setting of market accountability. It's "elephant interventions" all the way down.
It's worth comparing the current American response to earlier British crises (IRA troubles, and eventual CCTV) or for that matter Israeli responses to Palestinian suicide bombings. In these kinds of situations something has to give — usually by public demand for better outcomes more than a state usurpation of power.
I would not say that "we are now at war with the terrorists" but our situation has some war-like elements. Any persistent war has required major social changes, if only temporary ones, in how the body is viewed and handled. If we are so unwilling to even consider these changes in body viewing norms, I wonder how we will respond when scarier events happen, as they likely will.
The funny thing is this: when Americans insist on total liberty against external molestation, it motivates both good responses and bad ones. It supports a libertarian desire for freedom against government abuse, but the same sentiments generate a lot of anti-liberal policies when it comes to immigration, foreign policy, torture, rendition, attitudes toward Muslims, executive power, and most generally treatment of "others." An insistence on zero molestation, zero risk, isn't as pro-liberty as it appears in the isolated context of pat-downs. It leads us to impose a lot of costs on others, usually without thinking much about their rights.
The issue reminds me of the taxation and spending debates; many Americans want low taxes and high government spending, forever. For airline security, at times we want to treat it as a matter of mere law enforcement, to be handled by others, and one which should not inconvenience our daily lives or infringe on our rights. At the same time, so many Americans view airline security as a vital matter of foreign policy and indeed as part of a war. We own and promote this view and yet we are outraged when asked to behave as one might be expected to in a theater of war.
The main danger to liberty here is not the TSA but rather a set of American attitudes which, at the same time, take our current "war" both far too seriously and also not nearly seriously enough.
Overall, I'd like to see less posturing in these debates and more Thucydides.
Faith in the Fed- my last word
In his response to my critique, Tyler calls the Federal Reserve the "saviour institution," a most un-Tyler like phrase although consistent with his earlier plea that all will be well if we just put our faith in the Fed.
Clearly, I am less of a true-believer than Tyler but lets turn from faith based argument towards substantive matters.
I said the case for the Fed is weak, Tyler responds that the case for free banking is weak–this is not a rebuttal. The point is more than rhetorical since there are many alternatives to the Fed as we know it, Scott Sumner has relentlessly made the case for nominal-GDP targeting (with futures markets), Kotlikoff makes the case for limited purpose banking, Tyler and Randy Kroszner once made the case for a similar idea, mutual fund banking (Tyler is less favorable today), Selgin and White make the case for free banking, and of course there are also commodity standards such as a gold standard and the BFH system (e.g. see this piece by Bill Woolsey). Since the case for the Fed is weak, I see work on all these alternative institutions as important and valuable.
In the 1970s and 1980s there was a large literature on rules versus discretion at the Fed, that literature faded out with the great moderation. The great moderation today looks more like a combination of luck and structural change rather than discretionary wisdom. The Selgin, Lastrapes, White paper can be read as an argument to put greater weight on rules.
Tyler argues (but compare here) that "Many of the Fed's most serious mistakes are sins of omission, not commission…" and then he seems to argue (it's not entirely clear) that alternative institutions are all omission and thus cannot do better. The rules versus discretion debate shows us the falsity of this conjunction. As Sumner has repeatedly reminded us a nominal GDP rule would have required more action not less. Moreover, it's quite possible that other alternative institutions such as free banking would also do better on avoiding sins of omission as well as commission.
Tyler says:
It takes a good deal of imagination to believe that the Fed's periodic overreaches outweigh the benefits it provides through countercyclicality.
If this were correct the benefits of the Fed in reducing variability would be obvious in the data. The benefits are not obvious in the data, why not? I see several possibilities.
1) As Milton Friedman showed, once we take into account lags and uncertainty it's quite easy to see how counter-cyclical monetary policy can backfire even when the case for monetary policy is strong.
2) As I suggested above, it could also be that alternative institutions performed about as well on counter-cyclicality as the Fed.
3) It could also be that counter-cyclical monetary policy is not as important as we think. Tyler has argued strongly that the current recession is majority structural (e.g. here, here, here) and thus that neither monetary nor fiscal policy is very effective. If a lot of recessions are structural then monetary institutions of any kind might not matter that much.