Results for “kenneth arrow” 48 found
Saturday assorted links
1. Why it took the washing machine so long to catch on.
2. Auerbach argues for dollar adjustment, in response to the border tax.
3. In Arlington, the chance to own a pet lion or crocodile may soon disappear. That would include snakes longer than four feet.
4. Larry Summers on Kenneth Arrow (WSJ).
5. Bilateral vs. multilateral trade deals.
6. Kevin Drum on Bryan Caplan on the “deporter in chief.”
7. Annie Lowry on UBI, the future of not working, and Kenya. Annie by the way is moving to The Atlantic.
Wednesday assorted links
1. “From Leo Strauss to the Beach Boys.” (NYT; shouldn’t it be the other way around?)
2. “Then Bryan said, “I think libertarians should be at least as libertarian as my father.”” Here is the video of the debate.
3. Robin Hanson, reluctant intellectual bouncer and eager egalitarian.
4. Damien Hirst, Coasean durable goods monopolist (NYT).
5. Possibly Kenneth Arrow’s last interview. And NYT obituary, very well done but the amazing thing is each obituary will omit more than one of Arrow’s major contributions. A Fine Theorem on Kenneth Arrow.
Should everyone crowd into New York and San Francisco?
A recent piece from the excellent Conor Sen has attracted some disputation. The main claim is that building restrictions aren’t as bad as they might at first seem. If you keep people out of Manhattan they move to Atlanta, and that produces synergies too:
Here in Atlanta, as in the rest of the Sun Belt, job migration is the driving force of the economy. Corporate relocations and expansions are celebrated here the way billion-dollar tech startups are celebrated in Silicon Valley. The “New South” would not have developed were it not for people looking to flee the crowded and expensive cities of the Northeast.
…Housing constraints in some cities accelerate economic development in emerging parts of the country. They decrease economic inequality between metro areas and lead to economic interdependence that drives civil rights. And they offer some promise to ease the pain of waning communities in the Rust Belt, Appalachia and beyond. A country where the vast majority of talented people move to one or two cities might be an economist’s idea of utopia, but a nightmare to those of us concerned about equality of economic opportunity.
Analytically, the first question is whether the biggest cities would attract too many people in the absence of building restrictions. To answer that, you have to balance crowding costs vs. synergy benefits. It can be said that average social returns to living in cities will equalize, even if marginal social returns do not. Cross-city migration equates the average returns, even in the presence of externalities, just as in the classic “two roads” problem. If one road is going faster than the other, people will switch, although the “final driver” still is not taking his entire social impact into account.
Note that if urban synergies are constant across scale, equality of the average across two cities will in turn imply equality of the marginal, and an efficient allocation of population across the larger and smaller cities will result. Building restrictions won’t change that, although they do shift where the equalization margin will be at.
(Building restrictions also may mean NYC space is used inefficiently, even if the distribution of population across cities is more or less optimal. Building restrictions are not identical to urban entry fees, but rather they shift space allocations at various margins of construction, though to potential movers their “entry fee” aspect may seem most important. These marginal distortions may interact with the “entry fee” aspects of building restrictions in various ways, muddying the analysis. Complicated!)
Now maybe synergies aren’t constant across urban scale, but suddenly the costs of building restrictions in Manhattan look lower. They are defined by the differences in synergies across scale, which may not be such a huge number. Furthermore synergies might be more important for the Atlantas than for the Manhattan, in which case the building restrictions in Manhattan could be welfare-improving.
(Note that if a city or region has really big firms, the chances that interpersonal synergies will be internalized into initial wage offers will be higher. And there is a time horizon issue. Circa the 1920s, Los Angeles synergies may have appeared much lower than those for NYC, but it probably ended up better for the nation as a whole that the racist “entry fee” for movie-making in NYC led to the creation of Hollywood on the West Coast. Similarly, was it not also a good thing that NYC blew its chances of being the center of the American venture capital market? If Peter Thiel were here, and communing with Kenneth Arrow, he might see too many risk-averse, conformist entrants into New York and look for a remedy, just as New York was itself once a respite from an overcrowded, restrictionist, religiously conforming Europe.)
OK, that’s scale but what about congestion costs? They do seem to go up in a non-linear manner with scale, and that lowers the costs of building restrictions in Manhattan. Manhattan is more likely to be too crowded than is Atlanta, as a first-order approximation. Of course differential endowments across regions can complicate this, for instance NYC has better mass transit.
Now, to push this all one step further, is Peoria just a smaller Atlanta? Does it too have synergy benefits? (Or can we say that too many people stay in Peoria and too few go to NYC + Atlanta?) Don’t we observe the very largest synergy benefits at small scales, namely going from households of one to two, two to three, etc.? Might Peoria have the highest synergy gains of them all? At least in utility terms if not in dollar terms? Or do we need an ongoing risk of “Peoria brain drain” to induce Peoria residents to acquire the skills that they may or may not end up taking out of Peoria?
In any case, worth a ponder.
Is there a safe asset shortage?
Consider my previous hypothesis that so many yields have gone negative because of the insurance value of those relatively safe assets. If that were true (true to some extent, I am not claiming that is the only factor behind the supply and demand curves), could a problem be solved by issuing more safe assets? That could be done through more government spending or big tax cuts, either creating more government borrowing and thus more safe assets.
I often see it taken for granted that “selling more insurance” into the face of market demand would be a good thing. And maybe so. But it doesn’t follow in any simple way from theory, as is sometimes implied. For one thing, this isn’t a straightforward market setting but rather there is a monopoly supplier that is not selling market outputs, and furthermore the private and social returns to either insurance or risk-taking are not in general equal.
So ask yourself which has a higher social rate of return?
1. How the government would spend marginal funds, plus relatively wealthy people buying more insurance
2. How private consumers would spend a tax cut, plus relatively wealthy people buying more insurance
3. Relatively wealthy people allocating more funds to riskier investments, and not getting that additional insurance
There is no way to tell, not from theory or for that matter from any kind of simple, straightforward empirics. And from a social point of view, we therefore do not know if more safe assets should be put on the market. There is of course a fourth possibility:
4. Because private investors enjoy more safe assets, they end up taking greater risks and the whole PPF shifts out
Again maybe, maybe not. If it is true, a variety of subsidies to insurance markets, implicit or explicit, could improve welfare. That is in contrast to Kenneth Arrow’s older argument that it is the risky investments that need to be subsidized and subsidized directly. I say there is only so much “crowding in” to be had, especially during a time of near-full employment.
Another argument might be:
5. Selling more safe assets would raise nominal yields and make monetary policy potent again
I don’t want to go through all of that again, but suffice to say it had a better chance of being true in 2010 than today. Here is John Cochrane on related issues.
Wednesday assorted links
1. Interview with Kenneth Arrow.
3. An excerpt from Todd Rose’s The End of Average, a book with almost entirely original anecdotal examples.
4. Is St. Louis the victim of predatory monopoly?
6. Merrick Garland on regulation and antitrust (jstor gate).
Tuesday assorted links
Monday assorted links
1. How much is a dinosaur worth?
2. Session-by-session videos from the Coase conference, including myself, Sam Peltzman, and Kenneth Arrow on the future of the economics profession.
4. The creeping success of the ruble in eastern Ukraine.
5. Various negative claims about Cornel West.
6. Data is the new middle manager (WSJ).
Conference video from the Coase conference
The link is here, more or less unedited I am told. Somewhere in there (Saturday, 11 a.m.) is a panel with myself, Kenneth Arrow, Sam Peltzman, Gary Libecap and others on how academia and publishing models are evolving.
There are very likely other good bits too, but I did not catch most of the conference. A while ago I was told a disaggregated series of videos would be produced. If those come my way I will let you all know.
Assorted links
1. Can you now taste the internet? And some odd photos from the year (you have to sit through a short ad).
2. Kenneth Arrow on malaria economics.
4. Did the swine flu pandemic of 2009 kill eleven times more people than we had thought?
The Ideological Migration of the Economics Laureates
That work fills up the latest issue of Econ Journal Watch.
This issue of Econ Journal Watch (download, .pdf) is given over to a special project that considers such changes as may have occurred among the 71 individuals who, through 2012, won the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.
Ideological profiles of all 71 laureates make up the bulk of the issue. The 71 profiles are bundled in a single large document that is equipped with handy links for internal navigation.
Ideological change is interpreted in terms of either growing more classical liberal or growing less classical liberal. Daniel Klein leads the project. In his overview essay he explains the investigation, its many limitations, and the findings.
…David Colander served as overseeing referee, and he reports on the project.
Twelve of the laureates replied to a questionnaire requesting that they discuss their ideological outlooks at different times in their lives. The twelve who replied are Kenneth Arrow, Ronald Coase, Peter Diamond, Eric Maskin, James Mirrlees, Roger Myerson, Edward Prescott, Thomas Schelling, William Sharpe, Vernon Smith, Robert Solow, and Michael Spence. Their responses are included in their profiles, and they are also collected in a standalone appendix.
This is path-breaking work in intellectual history, the best contribution to the history of modern economics in recent memory, fascinating as intellectual biography and autobiography, and it should be snapped up immediately by some enterprising publisher.
Why is there no Milton Friedman today?
You will find this question discussed in a symposium at Econ Journal Watch, co-sponsored by the Mercatus Center. Contributors include Richard Epstein, David R. Henderson, Richard Posner, Daniel Houser, James K. Galbraith, Sam Peltzman, and Robert Solow, among other notables. My own contribution you will find here, I start with these points:
If I approach this question from a more general angle of cultural history, I find the diminution of superstars in particular areas not very surprising. As early as the 18th century, David Hume (1742, 135-137) and other writers in the Scottish tradition suggested that, in a given field, the presence of superstars eventually would diminish (Cowen 1998, 75-76). New creators would do tweaks at the margin, but once the fundamental contributions have been made superstars decline in their relative luster.
In the world of popular music I find that no creators in the last twenty-five years have attained the iconic status of the Beatles, the Rolling Stones, Bob Dylan, or Michael Jackson. At the same time, it is quite plausible to believe there are as many or more good songs on the radio today as back then. American artists seem to have peaked in enduring iconic value with Andy Warhol and Jasper Johns and Roy Lichtenstein, mostly dating from the 1960s. In technical economics, I see a peak with Paul Samuelson and Kenneth Arrow and some of the core developments in game theory. Since then there are fewer iconic figures being generated in this area of research, even though there are plenty of accomplished papers being published.
The claim is not that progress stops, but rather its most visible and most iconic manifestations in particular individuals seem to have peak periods followed by declines in any such manifestation.
Low interest rates vs. high risk premium
It is often claimed that the governments of the United States, the UK, and Germany should spend more money because they can borrow at low rates, thus raising the present expected return on the investment considered as a whole.
Maybe, but keep in mind that the interest rates on quality government debt are down, in part, because the risk premium is up. Non-governmental investments are perceived as riskier. It is also possible that governmental outputs are perceived as riskier, as those outputs will be evaluated by consumers. Note that Kenneth Arrow’s “the government can spread around the financial risk” point does not eliminate this more fundamental risk, namely the risk associated with the quality of government output, just as there is a risk associated with the quality of private sector output. Michael Jensen made this point in 1972.
You might think the government investments are “low hanging fruit” in terms of quality. Maybe yes, maybe no, but the low real interest rate doesn’t signal that, rather it signals merely that people expect to be repaid.
In this argument for more government investment, the notion of government investments as low hanging fruit is doing a lot of the work.
Who are the favorite economic thinkers, journals, and blogs?
The piece, by Daniel Klein, et.al., has this abstract:
A sample of 299 U.S. economics professors, presumably random, responded to our survey which asked favorites in the following areas: Economic thinkers (pre-twentieth century, twentieth century now deceased, living age 60 or older, living under age 60), economics journals, and economics blogs. First-place positions as favorite economist in their respective categories are Adam Smith (by far), John Maynard Keynes followed closely by Milton Friedman, Gary Becker, and Paul Krugman. For journals, the leaders are American Economic Review and Journal of Economic Perspectives. For blogs, the leaders are Greg Mankiw followed closely by Marginal Revolution (Tyler Cowen and Alex Tabarrok). The survey also asked party-voting and 17 policy-view questions, and we relate the political variables of respondents to their choice of favorites.
The favorite twentieth century economists are Keynes, Friedman, Samuelson, and Hayek, in that order. Kenneth Arrow doesn’t do as well as he should, though he comes in second, after Gary Becker, in the category, favorite living economists, sixty years or older.
As for favorite living economists, under age sixty, Paul Krugman wins by a long mile, followed by Greg Mankiw, then Acemoglu, Levitt, and David Card. I do not deserve my position at #16, but thanks if you voted for me! Scroll to p.13 for that list.
On p.14 there is a fascinating chart about the political orientations of the voters for various favorite economists. Krugman for instance is more popular among left-wing economists.
The votes for favorite journal are on p.16, no surprises there. p.17 has the favorite blogs chart. Krugman and DeLong are third and fourth, after Mankiw and MR.
It is a fascinating paper which says much about our profession.
That is all from the latest issue of Econ Journal Watch, the link to the whole issue is here. Here is a good piece about the embarrassment of Richard T. Ely.
Earthquakes and spending and deficits
Brad titles his post: “I Genuinely Do Not Understand Why There Is A Question Here…” and after quoting my post from yesterday writes:
If people thought that government debt was risky, its price would be falling as well. The fact that people are willing to pay more for government debt indicates that it is increasingly valuable–and so we should make more of it.
Ryan Avent comments as well. A few points:
1. My post and question is about spending, but Brad has shifted the discussion to borrowing. It’s easy enough to borrow more without increasing spending, if that is needed. It’s still an open question whether spending should go up.
2. The countervailing forces which might favor lower government spending simply aren’t mentioned. Those include lower wealth and higher tail risk. If those can’t, at least possibly, imply lower government spending, what could? The Japanese will need to spend on recovery, but must the U.S., normatively speaking, now feel compelled to spend more on its domestic programs? A priori? No way.
3. The earthquake and related events are a negative supply shock, so on Keynesian grounds they need not increase the case for activist fiscal policy.
4. Don’t forget that Mike Jensen answered Kenneth Arrow on risk in 1972. Even if government spreads its pecuniary losses over many taxpayers, the relevant real risk is the covariance of the value of government output with private consumption. Given that, an increase in risk still implies at least one force operating in favor of less government spending.
5. It is an oddly non-Keynesian or perhaps even anti-Keynesian point. In 1936 Keynes argued that the rate of interest did not allocate investment properly, or correctly signal the proper amount of investment, because interest rates also channeled liquidity preferences. Today this is a claim which DeLong and Krugman are arguing against.
In other words, it’s an open question, as my original post implied.
Megan McArdle had some to-the-point words:
It’s hard to argue that we should become more willing to borrow because Japan had an earthquake that will cut into global GDP.
And:
And the bad signals aren’t just to the federal debt market–the flight to quality is ultimately going to push things like mortgage rates down too. Would the people urging the government to take on as much debt as possible also urge our homeowners to once again leverage themselves as far as the banks will allow?
Update (12:25 pm) Reader abUWS has perhaps the best, most succinct metaphor I’ve ever seen for this argument:
“When the Titanic was sinking everyone eventually rushed to the stern of the ship. That didn’t mean that that part of the ship was actually safe.”
Addendum: Arnold Kling offers relevant comments.
What next on climate change?
David Leonhardt has a very interesting column, here is one excerpt:
…history shows that government-directed research can work. The Defense Department created the Internet, as part of a project to build a communications system safe from nuclear attack. The military helped make possible radar, microchips and modern aviation, too. The National Institutes of Health spawned the biotechnology industry. All those investments have turned into engines of job creation, even without any new tax on the technologies they replaced.
“We didn’t tax typewriters to get the computer. We didn’t tax telegraphs to get telephones,” says Michael Shellenberger, president of the Breakthrough Institute in Oakland, Calif., which is a sponsor of the proposal with A.E.I. and Brookings. “When you look at the history of technological innovation, you find that state investment is everywhere.”
Here's the good news, sort of: we often hear, especially from left of center economists, that ideas are a public good which require subsidy, especially at the level of pure science. This argument has a strong pedigree, most of all from Kenneth Arrow. In that framework, if the relevant idea is a public good, a higher price of fossil fuels may not encourage its creation very much. If oil and coal are more expensive, it's still not worth it for a single firm or institution to produce this public good. If you think that technologically, we are fairly far from solving the problem (my view), you will be less crushed by the absence of a price incentive for something which is a public good anyway.
If you think we are fairly close to solving the technological problem — maybe souped up wind, nuclear, and hybrids can do it — then you should be quite disappointed by our inability to raise the price of fossil fuels. The switch to the already-available technologies is at least partially a private good and a higher price for fossil fuels would help a lot.
There is a kind of "utility diversification" at work here. If you are happy on "technological closeness," you are very unhappy on "policy implementation." If you are unhappy on technological closeness, you are less unhappy about failures at the policy level.
I believe we are far at the technological level because of institutional constraints. Wind and nuclear, whatever you think of them, run into fierce local opposition and they are not allowed to reach their potential. It seems we're only going to adopt a solution which is quite easy and cheap in any case, and doesn't crash into NIMBY; maybe that's a much-improved form of solar. And with that constraint in place, our inability to raise the price of fossil fuels may matter less than is sometimes suggested. Maybe only really cheap solutions will be adopted in any case and the rate of their discovery may depend more on research subsidies than on prices at the user level.
In the meantime, it still makes sense to clean up dirty coal, limit cow farts by taxing meat, and spread better indoor heating and cooking technologies in the poorer countries.
Addendum: Here is more from Leonhardt.