Polemics on payday loans
Yours truly, vs. Nouriel Roubini.
Evolution and Moral Community
Paul Rubin argues that our evolutionary heritage biases us against seeing larger moral communities.
Our primitive ancestors lived in a world that was essentially static; there
was little societal or technological change from one generation to the next.
This meant that our ancestors lived in a world that was zero sum — if a
particular gain happened to one group of humans, it came at the expense of
another.This is the world our minds evolved to understand. To this day, we often see
the gain of some people and assume it has come at the expense of others.
Economists have argued for more than two centuries that voluntary trade, whether
domestic or international, is positive sum: it benefits both parties, or else
the exchange wouldn’t occur. Economists have also long argued that the economics
of immigration — immigrants coming here to exchange their labor for money that
they then exchange for the products of other people’s labor — is positive sum.
Yet our evolutionary intuition is that, because foreign workers gain from trade
and immigrant workers gain from joining the U.S. economy, native-born workers
must lose.
What makes England free
The English were well known for their disposition to provide help in emergencies. This disposition went to the heart of their conception of society, as a duty-bound relation between strangers. Their charitable behaviour was a way of emphasizing that strangers are just as important as friends — because all of us, in the end, are nobodies. By devoting yourself to the distressed stranger you make it clear that you too are a stranger in this world. You reaffirm the distance between yourself and others, by showing that the motive that binds you to society is one of impartial justice and objective duty. The charitable relief of strangers was simply another aspect of English reserve.
That is from Roger Scruton’s over the top but nonetheless fascinating England: An Elegy; he portrays the English as a people who have substituted morale and teamwork for intimacy. If you are looking to understand why so many parts of the world find it difficult to adopt either capitalism or free political institutions, this is one of the very best places to start. The English recipe is by no means the only way to go, but from Scruton one gets a good sense of just how much cultural background is needed to sustain liberty.
Better than nothing
Lucas will make two more live-action films set in everyone’s favorite galaxy far, far away. These films will likely be an hour each, and will air on television, though he doesn’t know on what channel (The Sci-Fi network?). Says Lucas of the films, "they won’t have members of the Skywalker family as characters. They will be other people of that milieu."
Here is one report. The episodes are supposed to be set between installments III and IV and they are scheduled for 2009.
A Second Opinion
To most economists and businesspeople, it probably seems perfectly natural that health care should be sold like a commercial service by profit-seeking firms, despite the fact that until the late 1960s, there was neither organized private investment in the delivery of health care, nor large publicly traded for-profit health care corporations.
That is from Arnold Relman’s A Second Opinion: Rescuing America’s Health Care. I read Relman as offering three major arguments:
1. To the extent the private sector handles health care, we should look toward not-for-profit and cooperative means of provision.
2. Single-payer systems will work only if the supply side of health care is reformed. Government provision (see the UK) fails but so will for-profit corporate suppliers, even when combined with greater government involvement. He favors a single-payer system and urges that health care supply be reorganized into multi-specialty prepaid group practices, where doctors receive fixed salaries rather than fee for service. Many of the favored European systems involve some version of this mix.
3. He believes that market-driven or consumer-driven health care, whether of the libertarian or David Cutler pay-for-performance variety, is bound to fail.
This short book is underargued, but anyone interested in health care policy should read it.
Is Sarkozy wrong on the Euro?
Free Exchange reports:
Defending the central bank’s independence, European finance ministers warned Nicolas Sarkozy, the incoming French president, not to blame the ECB for France’s economic woe. While electioneering, Sarkozy suggested the ECB’s policy objective be amended from achieving price stability within the Euro Zone to focus on job creation and growth.
Sarkozy is, in my view, correct to think that a bit more inflation would improve the French macroeconomy. France has about the stickiest nominal wages on Planet Earth. A little extra inflation would boost the labor market by allowing real wages to fall. Some inflation might also spur exports in the short run. Do note that the latter effect is, in the first best, cancelled by the inferior French command over non-Euro-denominated imports. Still the job gains might offer some second best benefits in this context, such as alleviating social tensions.
That said, two very important qualifiers are required:
1. It is not useful for a French politician to make ECB policy a political issue in front of the public. If the ECB gives in to French politicians at their whim, it is not long for this world.
2. The Euro probably requires a lower rate of price inflation than does the dollar, even though European wages are stickier. "Price stability" is focal, more or less. "Three percent inflation" is not. There are now 13 countries in the Eurozone, maybe someday 25. Zero is a good number to agree upon, perhaps it is the only number they can agree upon.
This all reflects a very real tension behind European monetary policy. It is much harder to have monetary discretion when many nations belong to the currency union and have an ultimate voice in what happens. I view the current structure of the ECB as somewhat of a contraption. France and Germany had favored strong ECB independence and a price stability mandate and they more or less forced everyone else in Europe to play that game, whether they liked it or not. Can Portugal and Italy really today make such a stink about tight monetary policy? No. But Germany can’t do the enforcing all on its own. Sarkozy needs to not only give in to Merkel, he needs to signal that he will return France to its previous role as partial enforcer of tight monetary policy. Is he up to so much humbling so soon?
Sarkozy is still right on the economics, so I wonder if he’ll be able to see his way past that. Three percent inflation would be better for France over the next five years. It would not be better for Europe over the next thirty.
My thoughts on Wolfowitz
Brad DeLong sums them up.
Memo to self
Visit London every year. Bar Shu, 28 Frith St., near Leicester Square, is the best Sichuan food I have had. The "Exploded Pork Kidneys" are especially fine, as are the green beans. Also noteworthy is Hot Stuff, 19 Wilcox Rd., a small Pakistani takeaways place which is rapidly gaining global fame.
For the first time in my life, I no longer feel I live in or near the center of the world.
What are the best novels for teaching economics?
Ezra Klein asks me:
What do you think the best fiction books are for understanding economics? Left and right? From my perspective on the spectrum, I’d go with Steinbeck’s Grapes of Wrath, but I’d be interested to hear your favorites…
Some will cite Harrison Bergeron, the Vonnegut anti-egalitarian short story. Others would nominate Ayn Rand, anarcho-capitalist science fiction, and of course there are the fictional-economic creations of Russ Roberts. But what are the Western classics that — policy polemics aside — teach one how to think like an economist?
My attention is usually drawn to 1660-1775 in British fiction, starting with Defoe and continuing through Swift, Boswell, and just about everyone else. To my eye they all thought like rational choice economists, albeit strange ones with a focus on approbation, self-deception, and the perverse social consequences of individual action (see my In Praise of Commercial Culture, the chapter on literature, for more detail). They are the true roots of Smith’s TMS. Dickens and Balzac are contenders, but I find them a bit too one-note, as is Harriet Martineau. Nonetheless the eighteenth century works remain ahead of their time and they certainly don’t teach basic economics or help one think much about policy.
What are your picks?
The vocabulary of economists
Key lexical nouns in Economic Journals:
American Economic Review, 1990s: equation, model, equilibrium
Economic Journal (UK), 1990s: pension, unemployment, wages
Journal of Economic Perspectives, 1990s: insurance, liability, health
American Journal of Economics and Sociology, 1990s: land, property, poverty
Here is the cite and a longer discussion. The paper has many more interesting results.
Do you learn cooperation from your parents?
Some people say no:
This paper studies whether prosocial values are transmitted from parents to their children. We do so through an economic experiment, in which a group of families play a standard public goods game. The experimental data presents us with a surprising result. We find no significant correlation between the degree of cooperation of a child and that of his or her parents. Such lack of cooperation is robust across age groups, sex, family size and different estimation strategies. This contrasts with the typical assumption made by the theoretical economic literature on the inter-generational transmission of values. The absence of correlation between parents’ and children’s behavior, however, is consistent with part of the psychological literature, which emphasizes the importance of peer effects in the socialization process.
Here is the paper. The alternative interpretation, of course, is that social cues learned from parents are specific to particular contexts. Put people in some new and hitherto unexpected context — the lab games — and you can’t make much out of what goes on. But if you’re predicting whether a Bedouin will bring water to someone lost in the desert, or whether a Swede will engage in recycling, I expect parental behavior has more predictive power.
Sarkozy sentence of the day
Merkel will not rally to Sarkozy’s agenda on reining in the ECB, fighting tax competition and developing an EU-wide industry policy.
That’s from today’s FT, "Victor given a wary welcome in Europe." A headline on the same page reads "Sarkozy will put French interests first." That is perhaps a duh, but the risk is that Sarkozy will find it easier to implement the nationalistic parts of his agenda than the liberal parts. I’m not going to call Sarkozy the "Thatcher of France" until the first strikes start, and end. I am, however, amused by his plan to push through key legislation while everyone is on vacation.
Odd signs in taxicabs
Red light indicates Your voice may be Heard by the Driver.
If they are going to have little flashing red lights (it was off on today’s trip from the Tate to Harrod’s), that is not one of the five verifiable contingencies I am most curious about. It’s not even my greatest curiosity about the driver.
Two steps backward
Remember the health care debates of the 1990s? Defenders of the status quo, or more market-oriented versions thereof, placed their hopes in HMOs and managed care. Managed care did show promise in lowering costs, but few people liked the idea that mainstream institutions would simply say "no" to patients.
Democrats pushed a plan for national health insurance, based on a Hillary-led modification of the German health care system. Health insurance would be detached from specific jobs, reorganized into regional cooperatives, and new taxes would finance universal or near-universal coverage. For all its flaws and complications (and no, I do not support the idea), this idea still makes more sense for the American context than do the single-payer plans. They put all those smart Democrats in a room way back when, and there is a reason why they came up with this. It not only had some chance of passing, but compared to the single payer model it was more consistent with America’s decentralized, federalistic, corporate interest-heavy ways of running government.
Sadly, current debates on health care have yet to reattain their status in the 1990s. I know full well why both ideas failed and lost popularity. But still, if we wish to debate health care today, we probably should be taking two steps backward.
Eight more years to go
The sophistication of financial decisions varies with age: middle-aged adults borrow at lower interest rates and pay fewer fees compared to both younger and older adults. We document this pattern in ten financial markets. The measured effects can not be explained by observed risk characteristics. The sophistication of financial choices peaks at about age 53 in our cross-sectional data. Our results are consistent with the hypothesis that financial sophistication rises and then falls with age, although the patterns that we observe represent a mix of age effects and cohort effects.
Here is the paper.