I don’t quite agree with Jason Furman today

by  Tyler Cowen in

I very often do, but I think he overreaches when responding to Steven Landsburg (who himself overreaches).  Jason writes:

…there is near universal agreement (and if it were not for you I probably would not have needed the word "near") that when the economy is operating below its productive capacity the problem is insufficient aggregate demand, and the solution is to temporarily boost spending or investment through monetary or fiscal policy.

Usually, yes.  Sixty percent of the time, I will agree.  But sometimes real shocks and sectoral shifts are the problem.  Can expansionary monetary policy help an economy adjust to sectoral shifts?  Sometimes but not always.  Is Furman correct that deregulation won’t help in the short run?  Yes.  Is "the solution…to temporarily boost spending or investment through monetary or fiscal policy"?  Probably not.  The solution is for the economy to adjust.  The flow of investment is hard to encourage and the best monetary policy can do in such instances is to prevent a deflation.  If the government can do something to help short-run sectoral adjustments, it is usually clarity of expectations and legal and regulatory benchmarking in the interests of transparency.  Today that means clear standards for future lending and securitization.

As an aside, if you are someone who complains about stagnant American median wages, that means many particular nominal and real wages have been falling.  (It could be in theory that the entire distribution is strictly stagnant but in reality no.)  Tricky distinctions between real and nominal wages lie beneath the surface, but overall this flexibility of wages makes it harder to embrace the Keynesian framework.  Keynesianism requires sticky nominal wages and since we have been having low inflation times (until now, at least) that means relatively sticky real wages as well.  Yet it is claimed implicitly that many real and nominal wages have been falling.  Beware the Keynesian who wants to have it both ways (I’m not accusing Jason of this).

Do “influentials” drive The Tipping Point?

by  Tyler Cowen in

In the past few years, Watts–a network-theory scientist who recently
took a sabbatical from Columbia University and is now working for Yahoo
(NASDAQ:YHOO) –has performed a series of controversial, barn-burning
experiments challenging the whole Influentials thesis. He has analyzed
email patterns and found that highly connected people are not, in fact,
crucial social hubs. He has written computer models of rumor spreading
and found that your average slob is just as likely as a well-connected
person to start a huge new trend. And last year, Watts demonstrated
that even the breakout success of a hot new pop band might be nearly
random. Any attempt to engineer success through Influentials, he
argues, is almost certainly doomed to failure.

Here is the full article.  Here is the home page of Duncan Watts.  Thanks to John DePalma for the pointer.

Tyler whines to an Indian readership

by  Tyler Cowen in

Here is the opening of the piece, in the latest Mint:

Sometimes my life feels like a series of never-ending frustrations. The
last three products I bought at Best Buy–a large electronics store–had
to be returned because they simply didn’t work. The DVD from Amazon has
a fatal skip. My wife’s new Mac computer doesn’t function on our
wireless network. I dread any call to customer service. A wait is
followed by a transfer, which is followed by two more transfers, which
is in turn followed by a promise to call me back. The return call never
comes. My billing dispute on my AT&T credit card dragged on since
May, mostly because they simply didn’t find it worth their while to
respond to my letters.

But there’s a happy ending, sort of:

If you need consolation, I have two suggestions.

First, count your blessings and read some Buddhist or Stoic philosophy. Second, take your revenge in the form of lower prices.

In
the short run, one supplier can rip you off pretty easily. In the long
run, it is harder for the world as a whole to avoid giving you a pretty
good deal.

Blog what you know

by  Tyler Cowen in

I have to side with Matt Yglesias’s claim that Russian women have been beautiful for a long time and that it is not the recent advent of capitalism which elevated their looks.  I’ve seen pictures of the younger Natasha, pre-capitalism, and she was beautiful back then too.  I know many of her female friends, or have seen early photos of them, and almost all of them are (and were) beautiful.  I visited Russia in the early 90s, just as capitalism was taking hold.  There was plenty of beauty to go around, although admittedly people dress better now.  Countries don’t develop networks of beautiful women overnight.  Furthermore, once you get past the point of malnutrition, beauty is not related to per capita income in any simple way.  I’ll take Cuba, Croatia, Senegal, and Brazil over Australia and Finland, or to cite a closer comparison Slovakia over Austria.  One hypothesis is that inequality of male income and power encourages female beauty for competitive reasons.  Admittedly much more research needs to be done on this question.

Addendum: Free Exchange weighs in.

John Edwards and the virtues and limits of democracy

by  Tyler Cowen in

Mark Thoma writes: "I’m getting pretty tired of Democrats caving in on important issues rather than standing up and fighting for their core principles…"  The lesson is that politicians’ core principle is reelection and pandering, not promoting the ideas of Mark Thoma or Paul Krugman or for that matter Milton Friedman or Tyler Cowen. 

I find the (former) support for John Edwards to be one of the most striking features of the primary season.  Although Edwards ran an explicitly progressive campaign, a great deal of his (meager) support came from Democrats in lower socioeconomic strata.  They were voting their demographic, or perhaps their feelings of victimization, rather than their ideology.  (Here is Chris Hayes on John Edwards, worth reading.)  There is no large-scale progressive movement coalescing around stagnant median wages and the inequities of skill-based technical change.  Instead we have Hillary Clinton insulting Barack Obama, and maybe it is working. 

The lesson is this: democracy is a very blunt instrument.  Especially as it is found in the United States, democracy just isn’t that smart or that finely honed or that closely geared toward truth or "progressive" values.  (NB: Democracy in smaller, better educated, ethnically homogeneous nations is, sometimes, another story.)

But unlike one of my esteemed colleagues, I believe that we should revere democracy as one of the modern world’s greatest achievements.  We should step off a British Airways flight with a tear in our eye, in appreciation for all that country has done to promote democratic government (sorry, former colonies, but perhaps you are democratic today).  This is no exaggeration or blog tease: I want to see you crying at Heathrow.  The future is far more likely to have "too little democracy" than "too much democracy."  I do believe in checks and balances, but within a broadly democratic framework, such as we have in the United States.

That all said, we should not demand from democracy what democracy cannot provide.  Democracy is pretty good at pushing scoundrels out of office, or checking them once they are in office.  Democracy is also good at making sure enough interest groups are bought off so that social order may continue and that a broad if sometimes inane social consensus can be manufactured and maintained.  We should expect all those things of democracy and indeed democracy can, for the most part, deliver them.

But democracy is very bad at fine-tuning the details of economic policy.  Democracy is very bad at bringing about political solutions which are not congruent with the other sources of economic and social influence in a country.  The solution is not to be less democratic, but rather to appreciate democracy for what it is good for.  And the excesses of democracy should be fought with ideas, albeit with the realization that not everyone will be convinced.  Those are the breaks, as democracy needs all the friends it can get.

Just as I love democracy, so do I love Chiles in Nogada.  But I do not ask that Chiles in Nogada can solve most of the world’s problems or for that matter get me to work in the morning.  Social democrats and progressives often view democracy as a potential instrument of control, and as a way of giving us "the best policies."  I do not, and that includes for my own economic views as well.

Here is Matt Yglesias on libertarianism and democracy.  Here is a Hilton Root review of the new Michael Mandelbaum book praising democracy.

Didn’t Bob Tollison write a paper on this once?

by  Tyler Cowen in

What words of wisdom.  Via email, Ed Lopez fills me in:

Laband and Tollison’s 2000 JPE paper speaks to your MR post yesterday on co-authorship [TC: I’ve added the links]:  

"In this paper, we compare the incidence and extent of formal coauthorship observed in economics against that observed in biology and discuss the causes and consequences of formal coauthorship in both disciplines. We then investigate the economic value (to authors) of informal comments offered by colleagues. This investigation leads us naturally into a discussion of the degree to which formal collaboration through coauthorship serves as a substitute for informal collaboration through collegial commentary. Data on manuscript submissions to the Journal of PolzticalEconomy permit us to shed additional empirical light on this subject. Finally, we demonstrate that while the incidence and extent of formal intellectual collaboration through coauthorship are greater in biology than in economics, the incidence and extent of informal intellectual collaboration are greater in economics than in biology. This leads us to search for evidence (which we find) of quids pro quo offered by authors to suppliers of informal commentary on manuscripts and to speculate that the greater importance of intellectual collaboration in economics (relative to biology) might imply greater pay compression in economics than
in biology (Lazear 1989). We find compelling evidence of such pay
compression in terms of the distribution of formal intellectual property rights to scientific contributions."

They
find the more quantitative work increases likelihood of co-authorship.
It’s also been increasing over time with decreasing information costs.
They also cleverly get citation and salary effects from the number and
stature of scholars listed in the acknowledgments.

The Mercatus Masters Fellowship

by  Tyler Cowen in

George Mason University has a new program for people who want a Masters in economics — not a Ph.d. — and wish to apply their knowledge to the so-called real world.  The value of the scholarship award is up to $80,000 (over two years); more information, including contact information, is here.  The application deadline is March 15.  Good bloggers, by the way, tend to be good teachers.  Just think, if reading us for free is worthwhile, if the non-convexities are not too severe being paid to hang out with us is maybe not so terrible either.

Should we abolish trays?

by  Tyler Cowen in

Behavioral economics in action, or call it voluntary paternalism:

Students ran a test last semester showing that on two days when trays
weren’t offered, food and beverage waste dropped between 30 and 50
percent, according to Kathy Woughter, vice president for student
affairs at Alfred. That amounts to about 1,000 pounds of solid waste
and 112 gallons of liquid waste saved on a weekly basis, according to
the college.

And why?:

Think back to your undergraduate days eating in the dorm dining hall.
When you moved through the buffet line, did you ever get a little too
ambitious with portions just because you had extra room on that plastic
tray?

If I ran a cafeteria I would consider abolishing utensils, thereby encouraging South Indian and Ethiopian food, but I don’t expect that would be popular with all patrons.

Second sad thought for the day

by  Tyler Cowen in

Arnold Kling has sad news about his father and also a very important point:

…[in the hospital] what you deal with are people who are doing their job. For example,
the cardiologist’s job is to make sure his heart does not give out,
even if it means he lies on his back for so long that the prospects for
restoring diginity recede. Everyone wants to shunt him around, giving
him more Hansonian medicine, which detracts from his ability to remain
lucid.

For the larger goal of trying to do the best with his remaining life, nobody is in charge and nobody is empowered.

Haiti food fact of the day

by  Tyler Cowen in

At the market in the La Saline slum, two cups of rice now sell for 60 cents, up 10 cents from December and 50 percent from a year ago. Beans, condensed milk and fruit have gone up at a similar rate, and even the price of the edible clay has risen over the past year by almost $1.50. Dirt to make 100 cookies now costs $5, the cookie makers say.

Here is more information.  Here is one review:

A reporter sampling a [mud] cookie found that it had a smooth consistency and
sucked all the moisture out of the mouth as soon as it touched the
tongue. For hours, an unpleasant taste of dirt lingered.

Thanks to William Griffiths for the pointer.

What if you always get the same outcome?

by  Tyler Cowen in

Imagine a matching game.  Imagine also that you always get the same outcome.  It might be a happy relationship, a sad relationship, a repeating pattern of dysfunctionality, lots of affairs with librarians, or whatever.

In many models, an unusual similarity of outcomes means that we let partners choose us, rather than choosing partners ourselves more actively.  The other side of the matching process is doing the work.

How can this be?  The intuition is that "you searching for hidden matches in the rough" is a process that will have higher variance in outcomes than "lots of hidden matches in the rough searching for you." 

If you don’t observe that much variance in your outcomes (e.g., lots of librarians), it means one of two things.  Maybe you are choosing the non-varying quality very directly and very intentionally, such as having a fetish.  That possibility aside, maybe it is a sign that you’re not really choosing but rather being chosen and thus you live in a world of thick search processes and low variance outcomes.  Imagine a man who will take whatever comes his way, and spends lots of time in libraries.

If there are recurring outcomes of this kind in your life or relationships, perhaps you are being chosen, whether you know it or not.