The Andy Grove essay

by  Tyler Cowen in

Many of you have sent me this, and requested comment, thanks for the pointer.  Read the essay, here are a few remarks for perspective:

1. The current results on trade, wages, and jobs do not support his basic claims.  Those results are not definitive, and might be wrong, but so far they're better than anything Grove serves up.  And his entire argument depends on the assertion that trade is a major factor hurting the U.S. job market.

2. Only he who first shows he understands comparative advantage has license to partially reject it.

3. There is so much talk about scale, scale, scale.  The big exporting success these days is Germany, which has less "scale" than does the United States.  What is the evidence that lack of scale is the problem, rather than a symptom, even assuming it is a generalizable symptom?  I don't see it.

4. He doesn't once mention that we might get useful ideas from China and other countries, or that their prosperity is good for America.

5. I would like him to state how Asians enter into his social welfare function.

6. He calls for a tax on Chinese imports; at best, given the logic of his argument, this would imply a tax only on the increasing returns industries, not a general tax.  He doesn't seem to realize this. 

7. Is he assuming that the whole world works like his sector — semiconductors — does?

8. An innovation shortfall may well be a serious problem today, as every reader of Michael Mandel should know.  But what are Grove's solutions?  The government tries to pick winners, on a massive scale with public funds, and we start a big trade war against China?  The evidence for these proposals is one citation to Robert Wade.  Sorry, I'm not convinced.  I heard that in the 1980s except China was Japan.  We ignored that advice in the 80s and in the 90s the job market was fine.  Grove is writing from a time warp in which these debates never happened or never were settled or never something — I don't know what.

9. And now for something completely different: Analects of Boettke.

Laissez-Faire Genetic Engineering

by  Alex Tabarrok in

Every few minutes, every one of the microbes in your body (and the ocean, and the soil, and the air) is defying precaution and the sacred, playing God, performing an act illegal in Europe — swapping genes around in the endless search for competition or collaborative advantage.

Another good sentence from Steward Brand's Whole Earth Discipline: An Ecopragmatist Manifesto.

When will we know if Irish pre-emptive fiscal austerity is a failure?

by  Tyler Cowen in

Brad DeLong asks:

When would it be time to judge the Irish experiment in preemptive fiscal austerity to be a failure, Tyler?

The immediate question is whether Ireland had a choice in the first place.  When it comes to total external debt, private plus public, Ireland is in one of the most desperate situations.  (Be careful, though, some published figures include financial institutions to which the Irish government has no real liability and thus overstate Irish external debt by quite a bit).  Ireland doesn't have the same flexibility as do Germany and the United States, nothing close to that.  Read this article for an estimate of the change in primary fiscal balance required for Ireland; it's scary and doesn't indicate a lot of flexibility, which supports the conventional wisdom on Ireland, from the OECD, the European Commission, from Ireland itself, and arguably you add the IMF to that list as well. 

Furthermore, Ireland as a small, open economy experiences a relatively high degree of fiscal leakage.

By the way, you shouldn't simply assume that the initial fifteen plunge in gdp was due to fiscal caution; Ireland was after Iceland perhaps the most overextended country in the crisis.

Here's a Morgan Stanley analysis of Ireland, which basically suggests "it's complicated."  It also suggests a reasonable chance the current strategy will work out OK.  It is complicated, and the mere fact that spending is a component of national income accounts doesn't mean that more spending is always a good thing. 

Ireland in fact has done a negative fiscal stimulus.  Earlier, Ireland made the mistake of joining the Eurozone.  See also this study of Ireland, 1987-89, an earlier decisive and successful fiscal adjustment, in the days of the Irish Punt.  The Euro today makes matters harder for Ireland, yet that doesn't imply they have greater license to spend today, in fact it can imply the contrary.

Paul Krugman pointed out that the fiscally tighter Ireland did not have a better CDS price than the more wishy-washy Spain.  Yet Ireland has a bigger external debt problem, may be less protected by "too big to fail," is a smaller nation, and has less control over its destiny; the (roughly) equal price may reflect what is a superior Irish effort.  In any case, Spain is hardly a walking advertisement for not going the Irish route.

The Irish also hope that whatever output they "leave on the table" today, they can make up with Solow catch-up growth.

If you would like to read a brief on behalf of Irish stimulus, try this.  The author admits that Ireland would have to significantly raise corporate taxes, a former linchpin of its growth (whether you think that efficiency-enhancing or international rent-seeking, it is still true).  Is it worth it?  How much would such a policy damage Irish growth and credibility?

Kevin O'Rourke also has good but scattered writings on the topic of Irish stimulus.  His first preference is greater fiscal federalism within the EU.  Last month he also wrote that, lacking such a reform, Ireland had no choice.

This June, Irish consumer confidence hit a three-year high.  Here's one estimate that wages have been falling four to five percent a year, and will continue to fall, plus the Euro has been falling.  You could argue there has already been an adjustment in the twenty-five percent range.  None of that is proof of recovery, but there are some green shoots.  Here is the very latest report, indicating that economic growth may be resuming; admittedly it's just a forecast from the government.  Exports are showing growth and retail sales are rising slightly.

The Irish Times reports today: "For the first time in three years, there are now more reasons for hope than for despair.  This week a raft of indicators, when taken together, give grounds to believe that the foundations of a jobs-generating recovery are falling into place."

Do interpret that with extreme caution.  For various debates, follow The Irish Economy blog, including in the comments.

On these critical questions, in the pro-stimulus for Ireland posts, I don't see a level of detail which would rebut these quite mainstream, not-emanating-from-the-gamma-quadrant opinions — that the Irish did more or less the right thing in a very unpleasant situation. 

The Irish experiment remains an open book.  In the meantime, it's simply not true that the pre-emptive austerity advocates are committing some kind of economic malpractice.  Three years out from now, let's compare Ireland to the other PIIGS.

James Crimmins on the portfolio approach

by  Tyler Cowen in

He writes to me:

While dogmatism seemingly requires balance so do most of life’s activities mental or otherwise. Show me the adventurous eater or traveler and I will show you a stick in the mud reader, investor, dresser. Show me the wide-eyed dreamer in one area and the odds are she or he has an anchor to windward somewhere else, if only what they wear to work or play. Human beings who are wildly adventurous in one area, say sports, tend to dine on hamburgers, but think they are adventurous in all things.  he same applies to free thinkers who are downright sodden when it comes to design. The chance takers forget they also have their safe sides. We tend to huddle with like chance takers, somehow our security blankets are seldom shared.  

I am likely to bring up such points, especially to some of my colleagues who think of themselves as non-conformists.  

Randall Holcombe’s case against a VAT

by  Tyler Cowen in

I don't agree with everything in this paper, but it's the best case against a VAT that I have seen to date.

…the tax is not a good fit for the United States. It taxes a base that has traditionally belonged to state governments, its introduction would bring with it intergenerational inequities, it has a cumbersome administrative structure that would impose large compliance and administrative costs, and it would slow economic growth. Because of slower economic growth, tax revenues from existing tax bases will fall if a VAT is introduced. 

If you're wondering, as an alternative he favors a mix of spending cuts and, if needed, increases in the income tax.

Who should a utilitarian root for in the World Cup?

by  Tyler Cowen in

The very excellent Sandor writes to me:

From a maximum utility point of view, who's the right team to root for in the 2010 FIFA World Cup (TM)?

The off-the-top-of-head first order model seems something like

num_native_fans * (joy_of_native_fans_upon_winning –
misery_upon_losing) + num_foreign_fans * (joy – misery),

where the second term is probably negligible compared to the first,
except maybe for Uruguay and Paraguay.  The "joy" term probably is larger the longer it's been since the team won?  But maybe the misery is less for teams that have never gotten far—wouldn't Ghanaians be
pretty thrilled with a loss in the semifinal?

What are the second order and higher effects?  Germany's lost productivity from a long tournament run is worth more in absolute terms but maybe less in utility terms?  Do we need terms for foreign anti-fans?—I've heard a surprising number of people express extreme anti-Germany and anti-Brazil feelings, the former for past crimes, the latter for general arrogance.

I'm attracted to the Netherlands and the two 'Guays, which are probably the lowest three in utility terms.  Maybe I'm just a misanthrope.

Does Derek Parfit like football?

My view is that a Brazilian victory does the most to maximize happiness, although I worry about the effects on second-order violence.

If you wish to rationalize the victory of a small country team, try the argument that too many young people invest career time in becoming athletes.  By having a small nation grab the glory, this wasteful effect is minimized.

Are there hidden codes in Plato?

by  Tyler Cowen in

Take this one with a grain of salt, but here is the latest:

Kennedy's breakthrough, published in the journal Apeiron this week, is based on stichometry: the measure of ancient texts by standard line lengths. Kennedy used a computer to restore the most accurate contemporary versions of Plato's manuscripts to their original form, which would consist of lines of 35 characters, with no spaces or punctuation. What he found was that within a margin of error of just one or two percent, many of Plato's dialogues had line lengths based on round multiples of twelve hundred.

The Apology has 1,200 lines; the Protagoras, Cratylus, Philebus and Symposium each have 2,400 lines; the Gorgias 3,600; the Republic 12,200; and the Laws 14,400.

Kennedy argues that this is no accident. "We know that scribes were paid by the number of lines, library catalogues had the total number of lines, so everyone was counting lines," he said. He believes that Plato was organising his texts according to a 12-note musical scale, attributed to Pythagoras, which he certainly knew about.

Do note this:

Kennedy believes his findings restore what was the standard, mainstream view which held for 2,000 years "from the first generation of Plato's followers, up through the renaissance". This held that "he wrote symbolically and that if you worked hard and became wise you could understand the symbols and penetrate his text to his underlying philosophy." Only in the last few hundred years has an emphasis on the literal meanings of texts led to a neglect of their figurative meanings.

It also explains why it is that Aristotle, Plato's pupil, emphatically claimed that Plato was a follower of Pythagoras, to the bafflement of most contemporary scholars.

I used to consider allegiance to this idea (Montaigne, also, for symbolic codes) as one of my absurd beliefs, but maybe now it is looking better.  I will have to look elsewhere.