The Road to Medicare, not The Road to Serfdom

by  Tyler Cowen in

Here is my latest NYT column, which they titled "The Pendulum Swings Back to Austerity."  Excerpt:

The unfolding of the financial crisis has also changed the public’s sense of where change is needed, both in the United States and Europe. The tragedies of 2008 were represented by Bear Stearns and Lehman Brothers – both private-sector institutions. In 2010, the financial crisis has spread to sovereign debt, with Greece as the most obvious example.

All of these developments are part of one broader story of overreach and complacency. Yet the 2008 crises were attached more directly to market institutions, while the 2010 crises are more closely linked to governments. Because politicians and voters are more influenced by the latest developments than by news from two or three years earlier, a cautious attitude toward public-sector spending has been further cemented.

And this:

Democracies, like markets, have some self-correcting mechanisms, and we are now seeing those at work in the United States and many European countries. (Spain and Britain, for example, are pursuing fiscal austerity aggressively.)

The lessons are straightforward. First, to paraphrase the French moralist La Rochefoucauld, things are never as good, or as bad, as they seem. Second, the Obama reforms, like the Reagan revolution, are turning out to be radically incomplete, which should come as no surprise.

Finally, effective political ideas are those that can still do good in half-baked form. We have neglected this insight in designing financial reform, and it remains to be seen if we can apply it successfully to climate change.

Overall, I believe we are headed toward slower growth and a larger public sector, but I do not believe we are headed down the road to serfdom.  At the same time, I am aiming at a different target.  Critics of incrementalism are usually too focused on the single issue at hand — where they are sure they know best — and not sufficiently aware of the efficiency properties of the broader system, which introduces self-correction mechanisms to counter or limit most major changes.

If I had to stress one sentence from the piece, it would be this one:

Finally, effective political ideas are those that can still do good in half-baked form.

Profile of David Mitchell

by  Tyler Cowen in

Here is one good bit of many:

“I can’t bear living in this huge beautiful world,” Mitchell said, gesturing to the rolling green hills and the glittering calm sea, “and not try to imitate it as best I can. That’s the desire and the drive. But it’s maybe closer to hunger or thirst. The only way I can quench it is to try to duplicate it on as huge a scale as I can possibly do. I want to capture that,” he said, turning in a circle on the sand and gesturing beyond the beach and the hills, “all the way around the world and all the way to your home and all the way around and back. I want to do all of that here and transmit it through ink.”

David Hume on signaling

by  Tyler Cowen in

Longterm Guy, a long-standing MR reader, sends me this:

A Treatise Of Human Nature, by David Hume, Volume Two
BOOK II  OF THE PASSIONS
PART I  OF PRIDE AND HUMILITY
SECT. XII  OF THE PRIDE AND HUMILITY OF ANIMALS

It is plain, that almost in every species of creatures, but especially of the nobler kind, there are many evident marks of pride and humility. The very port and gait of a swan, or turkey, or peacock show the high idea he has entertained of himself, and his contempt of all others. This is the more remarkable, that in the two last species of animals, the pride always attends the beauty, and is discovered in the male only. The vanity and emulation of nightingales in singing have been commonly remarked; as likewise that of horses in swiftness, of hounds in sagacity and smell, of the bull and cock in strength, and of every other animal in his particular excellency. Add to this, that every species of creatures, which approach so often to man, as to familiarize themselves with him, show an evident pride in his approbation, and are pleased with his praises and caresses, independent of every other consideration. Nor are they the caresses of every one without distinction, which give them this vanity, but those principally of the persons they know and love; in the same manner as that passion is excited in mankind. All these are evident proofs, that pride and humility are not merely human passions, but extend themselves over the whole animal creation.

The Dave Weigel resignation

by  Tyler Cowen in

One summary of the details is here (I don't know whatever inside story there may be), but the bottom line is that he had to resign from The Washington Post because of negative comments he made about conservative figures on a supposedly private email list.  Weigel's job for the Post was to cover the conservative movement and it seems the Post expected him to maintain a more objective stance, including in his private emails.  Matt Yglesias has more extensive coverage of the episode and here is Ross Douthat.  Here is Weigel's account and apology, which includes the postings which got him into trouble.  And here is a detailed Politico article.

It is likely I prefer Weigel over his replacement, and if you're wondering I don't know Weigel well, even though he lives nearby.

At a more general level this is a tax on journalists, who now have a greater fear of being fired for past actions.  It's also a tax on the moody, the volatile, the web-savvy, the non-mainstream, and a subsidy to in-control smooth talkers and careful writers.

The Washington Post wrote:

“But we’re living in an era when maybe we need to add a level” of inquiry, he [a WP web site managing editor] said. “It may be in our interests to ask potential reporters: ‘In private… have you expressed any opinions that would make it difficult for you to do your job.”

I'm not sure what kind of answers they expect to that question nor what they understand by the word "private" in that context. 

Conceptually, the core problem is that the distinction between the private and public spheres is breaking down, but at different rates for individuals and mainstream institutions.  The practical question is what an equilibrium would look like for the WP, given that the paper courts advertisers, relies on political contacts, and wishes to avoid becoming a target for right-wing (and left-wing) media.  It's easy to imagine the targets of Weigel's criticisms citing them repeatedly against the Washington Post and questioning the Post's objectivity.  "Oh, that was written by the guy who said that…"

One possible outcome is that the current public code of behavior becomes applied to writers' private lives and I suppose that is what we are seeing and it is also what a lot of "common knowledge" models would predict.  That is, most of us know that many writers say such things in private, but that's tolerated as long as it doesn't become common knowledge about any particular writer.

Common knowledge mechanisms often lead to inefficient (and unfair) outcomes, in part by non-convexying returns with regard to the actions of the individual.  Maybe we would like taxes to be linked to individual type, but common knowledge mechanisms tend to link the actual "tax" to how social forces process information about an individual.  A polemicist who is secretly taped encounters a greatly different outcome.than a polemicist who is not taped.

One option is for public institutions to adopt a "statute of limitations" for private remarks and with a short time window.  That would not help in this case, since Weigel's relevant postings do not predate his Post employment; still it might be a good reform.  Another option is for public institutions to adopt different norms for their web writers.  There are already different norms to some extent (web writings receive less editing, for instance), but it is hard to spread the different norm for the writing to become a different norm for the writer.  Web traffic is already massive for newspapers, and most readers probably do not distinguish between different kinds of paper employees, such as web vs. non-web.  Anyway, it's a fuzzy line if a writer has both web and non-web output.

A more radical change would move away from the manufactured image of the objective newspaper, but this is especially difficult for the Post, given that it relies on both conservative and liberal sources for its key political coverage.

Overall, we need more incentive-compatible, generalizable organizational reforms which will allow mainstream institutions to have more flexible relationships, and indeed sometimes more distanced relationships, with their writers.  Yet reputational forces are often quite blunt, and grossly calculated, and mainstream institutions are not very far along on making such reforms work.

Not from the Onion: EPA Classifies Milk as Oil

by  Alex Tabarrok in

New Environmental Protection Agency regulations treat spilled milk like oil, requiring farmers to build extra storage tanks and form emergency spill plans.

Local farming advocates says it’s ridiculous to regulate a liquid with a small percentage of butter fat the same way as the now-infamous BP oil spill.

“It’s just another, unnecessary over-regulation by the government just lacking any common sense,” said Bill Robb, dairy educator for Michigan State University Extension…

The EPA regulations state that “milk typically contains a percentage of animal fat, which is a non-petroleum oil. Thus, containers storing milk are subject to the Oil Spill Prevention, Control and Countermeasure Program rule when they meet the applicability criteria…"

Seriously, this is not from The Onion.

Do note that the issue is not even regulation of milk spills it's regulation of milk under the oil spill prevention law.  Given the power of farmers, my bet is that these laws will not go into effect; even so I do not expect a milk gusher.

Hat tip to Joshua Hedlund.

The U.S. Soccer President, Sunil Gulati

by  Tyler Cowen in

Gulati graduated Magna Cum Laude from Bucknell University and earned his M.A. and M. Phil. in Economics at Columbia University. He served on the Columbia Economics Faculty from 1986 to1990 before joining the World Bank through its Young Professionals Program in 1991 and serving as country economist for the emerging country of Moldova.

The full story is here, hat tip Yoram Bauman.  Is he still a Lecturer there?  This interesting Jonah Lehrer article, via Michelle Dawson, covers the U.S. goalie:

He [Howard] refuses to take medication for [Tourette's] for fear it will make him "zombielike" and impair his motor skills. "I'm very adrenaline-filled, and I wouldn't want to suppress that," Howard said. "I like the way I am. If I woke up tomorrow without Tourette's, I wouldn't know what to do with myself."

How to eat well in Berlin

by  Tyler Cowen in

Paris has dozens of restaurants which are better than any in Berlin, and then hundreds more better than the rest.  Yet it may be the case that you have, overall, a better food life in Berlin than in Paris.

Berlin has a weak reputation among foodies, but culinary life in the city is much improved.  Here are my tips for a good eating life in Berlin:

1. Find a steady source of innovative rolls, buns, and dark breads.  These are the glories of Berlin and in many parts of town there will be at least one such source per residential block.  The more irregular the colors, seeds, and topologies of the breads, the more enthusiastically you should buy them.  Do not treat this as the French bread buying experience.

2. Find a source for good spreads, such as cherry, raspberry, etc. and stock up.  Repeatedly apply the spreads to the breads, until death of the researcher intervenes.  This procedure is the basis for everything else you will do.  It ensures that all of your food days will be good ones.

3. Seek out mid-level German restaurants, of the kind promoted in the Time Out Guide; Renger-Patzsch is a good example.  The vegetables in such places will be consistently excellent.

4. The speed and service quality of most meals will be much better if you arrive before 7 p.m.

5. Don't obsess over German food.  It's underrated, but still a lot of it isn't that good.  In Berlin, and many other parts of Germany, you have first-class delicatessens or stores with foodstuffs from France, Italy, and many other parts of the world.  Use them.  Berlin offers one of the best overall selections in this regard, better than New York City or Paris, for instance, in terms of real access.  You can eat first-rate French cheese every day.

6. When it comes to Berlin German food, don't eat anything in a sauce.  It will be either boring or disgusting.  Sorry.

7. The sausage spread at the KaDeWe (make sure you live near that place) is probably the best in the entire world.  Go there regularly.  They also have first-rate sausages from France, Spain, and other countries, as well as an unparalleled selection of sausages from the different regions of Germany, organized one region per case.  This food source, like #1, insures that each of your food days will be a splendid one.

8. Go to Berlin's numerous and varied ethnic restaurants, especially in the slightly lower rent districts.  If the food is supposed to be spicy, you must repeat the following incantation several times: "Ich will es essen, genau wie Sie es zu Hause essen.  Ich bin kein deutscher."  [I want to eat it exactly as you eat it at home.  I am not a German."]  Repeat especially that last part: "Ich bin kein deutscher."  Repeat it even if you are a German.  This will usually work and typically your Chinese or Thai or Indian server will smile and laugh in response.  If they view you as a German, you are screwed no matter what.  Simply asking for the food to be "spicy" or even "very spicy" is laughable.  It is showing yourself to be a fool and a sucker.

9. Food here is much cheaper than in Paris, and it is much easier to get into virtually any restaurant.  Take advantage of both features.

10. Italian food here is almost always reasonably good, and reasonably cheap, but it is rarely great.  Lots of cream sauces.  It's a good enough fall back and you find it virtually everywhere.  A quite good pasta for $6 or even less is a common experience.  Sometimes it's actually German food in disguise, or not in disguise, such as when you get Carpaccio with Pfifferlinge.

11. For ethnic food, I recommend the following: Tian Fu in Wilmersdorf (very good Sichuan), Suriya-Kanthi (Sri Lankan in Prenzlauer Berg), Genazvale (Georgian food in Charlottenburg), Degirman is one good Turkish place of many, a slew of authentic Mexican restaurants (more than in Virginia), DAO restaurant in Charlottenburg (Thai food, best papaya salad I've had, all-around excellent), and Schneeweiss has first-rate Wiener Schnitzel.

Overall Sri Lankan and Nepalese and East bloc cuisines are better here, or more available, than in the USA.

If you visit for one day, you won't be so impressed with culinary life in Berlin.  If you stay for a month, you won't want to go back to what you had before.

How is trade affecting wages?

by  Tyler Cowen in

There is a very good new paper by Lawrence Edwards and Robert Z. Lawrence.  In this case the conclusion is clearer than the abstract:

…the fear of rising US wage inequality from developing-country imports in recent years are unwarranted.  While conventional trade theory makes such expectations plausible our investigation reveals they are far off the mark.  At the most disaggregated level for which comprehensive skills are available we have found that the US industries competing with developing country imports are not particularly intensive in unskilled labor.  Moreover, the relative effective prices of the US industries that are unskilled labor-intensive have actually increased rather than decreased since the early 1990s.  Changes in effective US prices form whatever cause have not mandated changes in relative ages.  Neither have changes that can be ascribed to import prices mandated increases in wage inequality.

The most likely explanation for the data is:

The goods exported by developing countries are highly imperfect substitutes for those produced by developed countries.  This means that for the most part, unskilled US workers are not competing head to head with their counterparts in developing countries.

You can find ungated copies here, though in some browsers they seem to create problems.

How sticky are wages today anyway?

by  Tyler Cowen in

Keep in mind that unemployment rates today are disproportionately concentrated in low-income and low-education workers.  Haven't we been told, for years, that these same individuals are seeing some mix of stagnant and eroding wages?  That they are experiencing downward mobility?  That the real value of health care benefits has been falling and that more and more jobs don't offer health care benefits at all? 

Doesn't that mean…um…their wages aren't so sticky downwards?  And thus Keynesian economics is not the final story?

Or take illegal immigrant Mexican construction workers, a group which lost jobs in large numbers following the crash.  Are they — who often came from $1 a day environments – also supposed to have sticky wages?  They are out of work in massive numbers.  A lot of them went back home, which is a sign they are willing to make major adjustments.  It simply may be they were no longer employable in the United States at any plausible wage.

The alternative model is that many low-education workers are not employable through marginal changes in current conditions.  It may require a big upward Schwung for the entire chain of labor, so that desperate employers at the bottom of the ladder, unable to find anyone else, grudgingly hire these not-so-productive individuals because there is no other way of expanding.  In other words, it requires conditions which raise the marginal value product of these workers to the private sector, keeping in mind that the fixed costs of hiring a worker mostly have been going up due to the greater bureaucratization of society.

Under this hypothesis, the stimulus that works in the short-run is direct government employment of low-skilled labor, not funneling money through private contracting, and hoping the unemployed get picked up.

What should the government do with these workers?  Does their direct employment conflict with the Davis-Bacon Act or other regulations?  What wage should we pay to make sure we don't drain off workers from private sector jobs?  How much longer does it take such forms of stimulus to result in sustainable, private sector jobs?

As you'll see in my Principles text with Alex, we both believe that wage stickiness (both nominal and real) is a genuine issue in market settings, even in the absence of government intervention.  Still, I'm not convinced stickiness is the major problem today, at least not in a simple, direct manner.

If there is going to be more U.S. stimulus, it's exact nature should be thought through very carefully.  It's an additional question whether our politics is up to that.