The Political Psychology of Stimulus

by  Tyler Cowen in

David Hirschleifer writes:

Regardless of who's right on the economics, clearly the ‘stimulus'
language captures the pro side perfectly, and the con side not at all.
Indeed, the term immunizes the mind to opposing evidence. After a cup
of stimulus from Starbucks, if I'm still drowsy, by definition I need
another jolt.

….Opponents have lots of metaphors they could choose from. Instead of
the image of rousing activity, there could be the economic ‘suppression
plan,' ‘deadweight package,' or ‘growth-retardant system.' For
alliteration, there's ‘prosperity Propofol.' To honor the frugality of
government, how about ‘resource-flush scheme,' ‘wealth dump,' or
‘porkapalooza'? As for mechanical metaphors, there's ‘recovery off
switch,' ‘opportunity crusher,' and ‘investment choke button.' For the
computer savvy, how about ‘stagnation drag and-drop-down device,' or
‘system freezer'.

In recognition of our gleaming new
infrastructure, there's the ‘road-to-Hell-paving project'. And to
celebrate the new Star Trek film, how about economic ‘stasis-field
mechanism', ‘enterprise eliminator,' 'job vaporizer,' or just plain
‘black hole'?

So, here's a political psychology question. Why did opponents gullibly
swallow the stimulus terminology, and thereby defeat? Any ideas?

Thanks for your interest

by  Tyler Cowen in

It's been great (#1 Business book on Amazon yesterday) and I'm working to "fill the orders" as fast as I can.  If I'm not sending you your chapter *now*, it is because a) I am blogging, b) I am sending someone else the chapter, or c) I am getting on a flight.  I will get to it, it's also very good to hear from you all, and keep the orders coming.

If you're having trouble clicking through to other book outlets, the link for Barnes&Noble.com is here, the link for Borders.com is here.

John Calvin as behavioral economist

by  Tyler Cowen in

Tomorrow marks the 500th birthday of John Calvin.  If you read John Calvin you will find a great deal of what we now call behavioral economics.

He wrote about non-convexity:

For there is no medium between the two things: the earth must either be worthless in our estimation, or keep us enslaved by an intemperate love of it.

Here is one reason why there is "evil" in the world:

Whatever be the kind of tribulation with which we are afflicted, we should always consider the end of it to be, that we may be trained to despise the present, and thereby stimulated to aspire to the future life. For since God well knows how strongly we are inclined by nature to a slavish love of this world, in order to prevent us from clinging too strongly to it, he employs the fittest reason for calling us back, and shaking off our lethargy.

Adam Smith and David Hume were influenced by Calvin:

If we see a funeral, or walk among graves, as the image of death is then present to the eye, I admit we philosophise admirably on the vanity of life. We do not indeed always do so, for those things often have no effect upon us at all. But, at the best, our philosophy is momentary. It vanishes as soon as we turn our back, and leaves not the vestige of remembrance behind; in short, it passes away, just like the applause of a theatre at some pleasant spectacle. Forgetful not only of death, but also of mortality itself, as if no rumour of it had ever reached us, we indulge in supine security as expecting a terrestrial immortality.

It is odd to call someone so famous an "underrated thinker" but indeed Calvin is.  You'll find the whole text of the Institutes of Christian Religion here; it makes for good browsing.

This chapter is John Calvin imitating Robin Hanson.

Buy the book here on Kindle for 99 cents.

Markets in Everything: Dead and Live Souls

by  Alex Tabarrok in

Wikipedia describes the history behind the plot of Gogol's Dead Souls:

The [Russian] government would tax the landowners on a regular basis, with the assessment based on how many serfs (or "souls") the landowner had on their records at the time of the collection. These records were determined by census, but censuses in this period were infrequent, far less so than the tax collection, so landowners would often find themselves in the position of paying taxes on serfs that were no longer living, yet were registered on the census to them, thus they were paying on "dead souls."

It is these dead souls, manifested as property, that Chichikov seeks to purchase from people in the villages he visits; he merely tells the prospective sellers that he has a use for them, and that the sellers would be better off anyway, since selling them would relieve the present owners of a needless tax burden…

Chichikov's macabre mission to acquire "dead souls" is actually just another complicated scheme to inflate his social standing (essentially a 19th century Russian version of the ever popular "get rich quick" scheme). He hopes to collect the legal ownership rights to dead serfs as a way of inflating his apparent wealth and power. Once he acquires enough dead souls, he will retire to a large farm and take out an enormous loan against them, finally acquiring the great wealth he desires.

All this leads Marina Gorbis guestblogging at Boing Boing to note: 

So every time I see another article or an ad about how to acquire more followers on twitter, friends on Facebook, or otherwise collect more "souls" for money, fame, or reputation, I start thinking about Chichikov. He did come to an ignominous end, finally fleeing town. Makes me wonder.

*Create Your Own Economy*, special offer

by  Tyler Cowen in

As an economist I believe in the power of incentives.

If you order or buy my book before midnight tomorrow (it comes out tomorrow in stores), I will send you a free, special bonus chapter.  If you've already bought or ordered the book, don't worry, you still qualify.

Just email me and tell me you bought the book, I will take your word for it.  You can send me a copy of your on-line order if you wish.

No, it's not a bonus chapter from Create Your Own Economy.

Did you know that for years I have been, on and off, drafting a book on the philosophic foundations of a free society?  The book is still years from completion.  It won't even be my next book to come.  But I do finally have an introductory chapter for that book which I will send you.  This book is my no-holds-barred attempt to answer all of the tough questions about the philosophic foundations of our belief in freedom.  It also gives a shorthand version of why I have significant reservations about the standard neoclassical approach to economic policy.  No, it is not the book's full treatment of these issues but the chapter outlines the scope of the argument and the six major problems that any philosophy of freedom must solve. 

In return I ask only that you give me your word you will not post the chapter on-line. (Comments, however, are welcome.)

This offer will not be repeated and I do not expect other people to see this chapter (much less the manuscript-in-progress) for some time to come.  So now is the best, highest return time to order or buy Create Your Own Economy.

If you're having trouble clicking through to other book outlets, the link for Barnes&Noble.com is here, the link for Borders.com is here.

What defines the Swedish soul?

by  Tyler Cowen in

This article, from Prospect, is interesting throughout.  Excerpt:

Inevitably, the subject turns to sex and marriage. I'll never forget
asking one group what they thought of marriage in a country where most
educated young people (and half go to university) don't get married or
bear children until they are well over 30. A young woman gave me a
thoughtful answer and so I asked her, "What are you looking for in a
husband?" Without batting an eye or pausing for thought, she answered:
"Three things. One, he must be good in bed. Two, he must be a good
father. Three, when we divorce, he mustn't be bitter."

Robin Hanson comments on the USA.  Here is my earlier post on what I think of Sweden, one of my favorite MR posts.

High-speed rail in Texas?

by  Tyler Cowen in

I have never blogged high-speed rail issues because I don't (yet?) have a point of view on them.  I can see the benefits from subsidizing metro systems and buses.  I don't know whether most of the planned subsidies to high speed rail will pay off.

Ed Glaeser, in a recent Op-Ed, criticized high speed rail for Texas.  On this issue, Ryan Avent gets upset at Glaeser:

Of course, Texas has four of the nation's fastest growing
metropolitan areas, all within a few hundred miles of each other — an
ideal distance for high-speed rail. Austin, Dallas, Houston, and San
Antonio are currently home to some 16 million people, and those
metropolitan areas have added 3 million people since 2000 alone.
Congestion is an issue within those metropolitan areas and will continue to worsen as they grow.

Not
only is it entirely appropriate to build transportation infrastructure
with future growth in mind, it's imperative. America's current
sprawling growth pattern resulted in no small part from the mass
construction of interstates and highways, which drew suburbanites to
previously unsettled areas.

Moreover, Texan metropolitan
areas are working to accommodate future growth in a denser fashion by
building miles of metropolitan transit systems. Transit and rail are
complementary technologies, each of which will increase the return on
investment of the other.

My question is simple: how could you take rail from Dallas to Houston and cope once you got there?  San Antonio I can see, at least provided you will camp out in city center (a mistake, but that's a question for a different day).  I am willing to be converted, but what are the odds of such a line attracting significant patronage, with or without ongoing subsidy to the fares and not just to line construction?  Or is the vision that everyone takes the train and then rents a car on arrival?  According to Matt Yglesias, the plan won't even directly link Houston to Dallas.  By the way, here are some of the other planned links from Texas.  Will people really take trains from Houston to Meridien, Mississippi? 

Inquiring minds wish to know.

*Realizing Freedom*

by  Tyler Cowen in

That's the title of the new Tom Palmer book and the subtitle is apt: Libertarian Theory, History, and Practice.  It delivers what it promises plus the very short essays (Iraq, gay pride in Moscow) are quite interesting.  I view this book as defining one of the main threads in modern libertarian thought:

1. Cato-influenced (for lack of a better word).  There is an orthodox reading of what "being libertarian" means, defined by the troika of free markets, non-interventionism, and civil liberties.  It is based on individual rights but does not insist on anarchism.  A ruling principle is that libertarians should not endorse state interventions.  I read Palmer's book as belonging to this tradition, broadly speaking.

2. Rothbardian anarchism.  Free-market protection agencies will replace government-as-we-know-it.  War is evil and the problems of anarchy pale in comparison.  David Friedman offered a more utilitarian-sounding version of this approach, shorn of Misesian influence.

3. Mises Institute nationalism.  Gold standard, a priori reasoning, monetary apocalypse, and suspicious of immigration because maybe private landowners would not have let those people into their living rooms.

4. Jeff Friedman and Critical Review: Everything is up for grabs, let's be consequentialists and focus on the welfare state because that's where the action is.  Marx is dead.  The case for some version of libertarianism ultimately rests upon voter ignorance and, dare I say it, voter irrationality.

5. "Hayek libertarianism."  All or most of the great libertarian thinkers are ultimately compatible with each other and we have a big tent of all sorts of classical liberal ideas.  Hayek and Friedman are the chosen "public faces" of this approach.  "There's a classical liberal tradition and classical liberal values and we can be fuzzy on a lot of other things."

What am I leaving out?  And which will win out as the dominant strand?

The eloquent Craig Garthwaite

by  Tyler Cowen in

He emails me:

There is also a broader point that I have always wondered when people cite the low administrative costs of Medicare.  At least a portion of it has to come from the fact that they cover everything with little dispute.  In addition, Medicare is also approaching fiscal insolvency.  These are not two unrelated points, and therefore I wonder if perhaps Medicare might want to spend a little bit more on administrative costs?

Addendum: More from Megan McArdle.

Matt Yglesias reviews *Create Your Own Economy*

by  Tyler Cowen in

The review is here, excerpt:

It’s a bit hard to do the book justice because the subject matter is so unorthodox. So I’ll put it this way instead. I first cracked the book one afternoon intending to read for about ninety minutes and then go get on my bike and meet someone. While reading, I decided to change plans and take the bus instead so as to create more time (both coming and going) when I could read more Create Your Own Economy. There’s no real discussion of policy issues here, but you do get a fascinating analysis of Sherlock Holmes.

You can buy the book here.

Administrative Costs

by  Alex Tabarrok in

In the latest debate: Paul Krugman attacks Greg Mankiw for linking to a study by Robert Book arguing that administrative costs under Medicare are not as low as many people think.  Book defends against Krugman's attack here.  I find the debate peculiar for a number of reasons:

1)  Picking out one measure of health care "costs" to compare systems is sadly reminiscent of the arguments for socialism.  Do you remember those arguments?  Under socialism:

  • "Think of how much money we will save on advertising!"

  • "Socialism will lower costs by maximizing economies of scale!" 

  • "Money will be used for production not profits!"

Exactly these arguments are regularly trotted out in the debate over administrative costs in health care so color me unimpressed.  To be clear, the point is not that these statements are false – the point is that these premises to the argument are all in some sense true it's just the conclusion, socialism is more efficient than capitalism, which turned out to be false.  We tried that and it didn't work. In other words, you have to compare systems not arbitrarily pick out for comparison one type of costs.

2)  Closely related to this point is the bizarre habit of taking about costs without mentioning benefits.  The implicit argument appears to be that administrative costs are simply waste – this is the ancient cutting out the middleman fallacy.  Administrative benefits, for example, reduce fraud and are a necessary consequence of making it easy for patients to get second and third opinions from different doctors.

3)  Even if we could switch from a private to a public system and save administrative costs, the deadweight costs of taxation will far exceed any reasonable savings.

4)  Any savings on administrative costs is a one-time level effect but the real issue with health care costs is growth as a share of GDP.  (By the way, this same point explains why the debate over whether the public plan will discipline private monopolies is not especially important, monopoly–even if it is a  problem–could at best explain a level effect not a growth effect which is where the action is.)

5)  I'm not surprised that administrative costs under Medicare and under Canada's system suggest some potential cost reductions from moving to a single-payer system–again, Lada did save on marketing expenses–but it's a complete blunder to use Medicare administrative costs as an argument in favor of a "public option."  The whole point of the public option, so we are told, is to compete on a level footing with private plans which means marketing expenses and all the rest.     

Addendum: n.b. this post is about administrative costs not other reasons for preferring one system to another.  See also Tyler on administrative costs further below.

Symposium on Paul Collier

by  Tyler Cowen in

You will find a Collier essay on democracy and development along with numerous comments, including from Bill Easterly and Nancy Birdsall, all courtesy of Boston Review.

Easterly is not happy:

I have been troubled by Paul Collier’s research and policy advocacy for
some time. In this essay he goes even further in directions I argued
were dangerous in his previous work. Collier wants to de facto
recolonize the “bottom billion,” and he justifies his position with
research that is based on one logical fallacy, one mistaken assumption,
and a multitude of fatally flawed statistical exercises.

Nancy Birdsall suggests that donors support more investment in policing.  She also notes:

The economy of sub-Saharan Africa–including Nigeria and South Africa–is smaller than the economy of New York City.

There is much more at the link.

Administrative costs, a simple point or two

by  Tyler Cowen in

Andrew Gelman serves up some links.  Mankiw's addendum serves up some more.

Public sector programs usually have higher administrative costs — all relevant costs considered — than corresponding private sector programs.  The public sector program is funded by taxation.  That means the public sector doesn't have to worry so much about marketing or meeting payroll on commercial revenue alone.  That will bring significant cost savings on administrative matters.  But you can't stop counting there.

The deadweight loss from taxation is perhaps twenty percent or more.  (It depends on which tax you consider as "the marginal tax" and there is not a simple factual answer to that question.)  That should be factored into any comparison, even if you define that cost as "not an administrative cost." 

The public sector also engages in less monitoring of who receives its services.  If you're 67 and have worked a lifetime in this country, usually you can receive Medicare benefits.  The "indiscriminate" nature of the program may be either a net social cost or a net social benefit but certainly it should not be counted as zero or ignored.

If you favor "indiscriminate" programs over targeted programs, OK.  But the accompanying lesson is not one about the relative efficiency of the public sector at a comparable task.  The lesson is that sometimes the public sector can be more effective when you don't wish to discriminate in supplying a particular kind of service.

TANSTAAFL.