EconLog
EconLog small logo
[Warning: More spoilers!]

Two further comments on Captain Fantastic:

1. I know of no other movie that so powerfully captures the fun of large families.  Homeschooling one kid off the grid would feel lonely and dull for parent and child alike.  Homeschooling two kids off the grid sound livelier, but still comes off as "trying to hard."  Homeschooling six kids, however, feels like a beehive of activity - and the nucleus of a new society.

2. Captain Fantastic's survival training is genuinely and needlessly dangerous for children.  When his daughter falls off her grandparents' roof on a "rescue mission," Captain Fantastic accepts that he's been endangering his kids' lives.  But he never gets a comparable "wakeup call" that would plausible convince him that homeschooling has intellectually or socially stunted his children.  Nevertheless, when the story ends he's abandoned both hard-core survival training and homeschooling.  Why couldn't he keep homeschooling, but make it safer?  No reason, other than the need to pander to the prejudices of mainstream audiences who enjoy identifying with weirdos for two hours but can't accept the possibility that the weirdos are right to defy social conventions.




Immigrants copy.jpg


I was driving home from a hiking trip on Friday and tuned into Rush Limbaugh's show for longer than I usually do. (My morning commute is 11 minutes.) He raised an issue I heard him raise a few months ago, but I thought then that he wasn't serious. However, I heard him say it again this morning.

Limbaugh advocates, and wants Republicans to advocate, allowing the 11 million or so immigrants who are here illegally to immigrate, assuming that they have not committed other crimes besides the crime of being here and working illegally. His one condition is that they not have a pathway to citizenship or that if they do, the path takes many years. He pointed out, correctly, I think that this will not get much traction among Democrats because a large percentage of Democratic politicians see a pathway to citizenship as a pathway to more Democratic voters.

Limbaugh's proposed policy is one that I have advocated for many years. (See here, for example.)

In this year of a very dismal choice between the two major-party candidates for President, there haven't been many optimistic signs other than the Gary Johnson campaign.* Limbaugh's proposal is one good sign.

*For what I think of as Gary Johnson's best showing yet (other than his Fair Tax idea which would make virtually every U.S. resident a welfare recipient), see his Fox News interview with Chris Wallace.




I was on WRKO radio in Boston this morning discussing the VAT.

Here's the link.

CATEGORIES: Taxation



cf3.jpg




































[Warning: Packed with Captain Fantastic spoilers!]

Few movies speak to me more personally than Captain Fantastic.  It's not just a movie about homeschooling; it's a movie about natalist homeschoolers living in a nearly-airtight Bubble.  And psychologically, the movie's patriarch eerily resembles me.  Captain Fantastic raises his six kids with kindness, respect, and the power of ideas, scrupulously avoiding the parental urge to dominate youths with anger, fear, or sadness.  I say this even though the content of Captain Fantastic's ideas leaves much to be desired.  My commentary on Captain Fantastic, in no particular order:

1. On the surface, Captain Fantastic is a leftist cliche: not just a socialist living off the grid, but a cultish Chomsky fan.  But I've never met a socialist remotely like him.  He's not just amazingly open to reasoned argument; his intellectual style is perfectly calm and genuinely friendly

2. Captain Fantastic is a full-blown economic illiterate.  When he looks at stores, all he can see is capitalists gutting American democracy.  The idea that stores make life easier, freeing up time for more worthwhile pursuits, is alien to him.  So is the idea that modern technology makes primitive survival skills obsolete.

3. In the real world, openness to reasoned argument and economic illiteracy do not long co-exist.  Anyone as intellectual curious as Captain Fantastic would soon encounter Econ 1.  Anyone as calm and friendly as he would quickly come to appreciate the cogency of basic economic principles.  And while Econ 1 wouldn't make him a free-market radical, it would forever eradicate his socialism and primitivism.  My idea of heaven is teaching Econ 1 to Captain Fantastic and his six kids - and watching the lightbulbs turn on one by one.

4. Captain Fantastic's academic curriculum is admirable but flawed.  The chief problem: It revolves around the Great Books.  Though I've devoted years to these works, I'm no longer a big fan.  While the Great Books were impressive in their day, they're stuffed with flimsy arguments and short on credible empirics.  Rare gems aside, I hold to this grim verdict even when I largely agree with authors' conclusion.  If you want to understand modern economies, Cowen and Tabarrok's Modern Principles of Economics will teach you far more than Smith's Wealth of Nations.

5. What's the alternative?  A curriculum that revolves around not Great Books, but Basic Facts.  Learn the global and historical distribution of GDP.  Grasp the basics of intelligence and personality psychology.  Instead of reading Marx, read quick overviews of Marxism and its critics, then study the political and economic history of Marxist regimes in great detail.  I daresay that Captain Fantastic's eldest son wouldn't be an avowed Maoist if he knew the Basic Facts about what Mao really did and why.  Or to take a far less egregious case, I would have loved to see Captain Fantastic's kids test their rhetorical objections to Citizens United against the social science of campaign finance.

6. Captain Fantastic is a case study in weird collectivism.  Despite the family's bizarre counter-cultural lifestyle, their favorite slogan is "Power to the people."  How can they not realize that if they were paying attention, "the people" would view their family with antipathy - and casually crush their family's experiment in living?

7. Captain Fantastic treats his homeschooling as all-or-nothing: Either you do it his way, or you surrender to the mediocrity of the world.  One of the first lessons in Econ 1 is that this binary thinking is counter-productive drivel.  Life is permeated with endless adjustable margins - and each of these margins is an opportunity for progress.  His kids want to try hamburgers?  At least let them try one.  His kids are clueless about the Real World?  Let them spend two weeks with their suburban cousins to broaden their horizons.  Mountain climbing is too dangerous for little kids?  You can switch to something safer without sending your kids to a public school that will bore them out of their minds.

8. Captain Fantastic's love of parental candor is touching and exemplary.  He consistently answers even his youngest kids' awkward questions with clarity and comfort.  This upsets his sister, but she's simply wrong.  With very rare exceptions, kids handle the truth well.  They're also good lie detectors.  If the truth is scary enough to give a kid nightmares, don't lie; say, "I'll tell you when you're older."  Otherwise, answer their questions and reap the greatest fruit of the virtue of honesty: your children's trust. 

9. I wish Captain Fantastic had been a fan of Thomas Szasz instead of Noam Chomsky.  He tells his kids that their bipolar mom's brain "can't transmit electrical signals," but somehow that doesn't stop her from lobbying to rejoin society, helping their son secretly apply to elite colleges, or writing a Dadaist will to outrage her square parents.

10. Captain Fantastic's Chomsky idolatry barely bothered me, but it's objectively awful.  Economic illiteracy aside, Chomsky's long history of apologizing for totalitarian socialist regimes makes it absurd to treat him as a paladin of human rights.  Like Howard Zinn, Chomsky is the kind of pacifist who gives pacifism a bad name.

11. On balance, I would have hated being raised by Captain Fantastic.  I would have loved the intellectual experience and his charming personality.  But I would have grown to hate his primitivism and asceticism - and my negativity would have gradually poisoned an otherwise idyllic experience.  In slogan form: There's nothing wrong with Captain Fantastic's parenting that suburban living and Econ 1 wouldn't fix.

12. Since the 60s, radical lifestyle experiments and left-wing ideology have normally been a package deal.  When radical lifestyle experiments perform poorly, outsiders usually treat it as proof that radical lifestyle experiments are bad.  Critical reviews of Captain Fantastic tend to draw this very lesson.  But given the confounding variable of left-wing ideology, this is a rush to judgment.  Maybe the real problem is leftism, not radicalism. 

13. What would radical lifestyle experimentation without leftism look like?  Start with a heavy dose of superforecasting and the Betting Norm.  Radicalism is no excuse for wishful or unempirical thinking.  Indeed, the more radical your dreams, the more you need to test your dreams against harsh reality.

14. I've already seen Captain Fantastic twice.  Overall review: 9/10.  If it weren't fascinating on many levels, I wouldn't bother to criticize it.  I grinned through 90% of the movie.  See it!




David R. Henderson  

Sunday Reading

David Henderson

On Gary's goofs, smugglers solve alleged public good problem, FDA-caused massive deaths, and reparations from descendants of slave owners.

These are some of the most interesting things I found on the web this morning.

1. Robert Murphy on Gary Johnson's incoherent answers to some questions. Bob's bottom line:

Johnson fires from the hip on his personal feelings about a situation, someone points out that this position is neither libertarian nor coherent, and then Johnson refines the original statement with an arbitrary exception that neuters that one specific objection.

2. Smugglers repair roads to help their smuggling.
Gangs smuggling goods into Russia have secretly repaired a road on the Belarussian border in order to boost business, the TASS news agency reported Monday.

HT to Scott Alexander and Jason Kuznicki.

3. FDA's anti-vaping regs will cause a minimum of 9360 deaths.

Excerpt:

So let's do this. A 1.9 QALE (from here ) loss from smoking, 8.3 million vapers in the U.S, 95% risk difference between vaping and smoking, and let's say 1 in 20 vapers goes back to smoking (this is an underestimate since it just focuses on the existing vaping population instead of those who might switch from smoking to vaping in the future.) And an 80-year life expectancy.

This is roughly equivalent to ~9360 (probably more) people dying.


HT to Scott Alexander.

4. Walter Block makes an important point about reparations for slavery:

Subject: Question about Reparations. You said: "You are not responsible for any of your "father's" horrific crimes. It is only if he gave you any of the proceeds of his criminality that you must return them." I cannot find any reason to disagree with your above statement. But I believe the reparations argument is different. The descendants of the victims of slavery are requesting restoration of inheritance from several generations before. But if nothing was bequeathed to their fathers from their grandfathers from their great grandfathers from their great great grandfathers, what claim do they really have? If I go to the casino and gamble away my wealth, or have it taken by a swindler, or lose it in bad investments before I ever bequeath it, how could my great great grand child have possibly any claim to recover it? There is no guarantee that even a child of a slave would have been bequeathed his parent's wealth had he even received it, Furthermore, the descendants of slaves, several generations removed...

CATEGORIES:



Scott Sumner  

The Monster in the Mirror

Scott Sumner

I seem to vaguely recall a horror story where the protagonist searches everywhere for the monster, and at the end sees himself in the mirror, realizing that he is the monster. If there is no such story, there should be.

mirror.jpg
I was reminded of this when reading an article about Janet Yellen's recent speech at the Fed's Jackson Hole conference:

For all the talk of a radical shift in central banking policy, from the permanent use of negative rates to helicopter money drops, Federal Reserve Chair Janet Yellen appears to believe she can tackle any future downturn using the tools currently at her disposal.

Speaking in Jackson Hole, Wyoming, on Friday after a Fed policymaker and other economists proposed a radical overhaul of central banking, Yellen argued that bond purchases and the ability to pay interest on excess reserves as well as forward guidance would be enough to combat any downturn.

"Our current toolkit proved effective last December (when the Fed raised rates)," Yellen said in a speech in which she firmed up expectations of a second rate rise from the Fed, possibly as soon as September. . . .

Yellen on Friday defended the models used by the Federal Reserve.

She said that barring an "unusually severe and persistent" recession, its policy tools were sufficient and rates did not need to go negative, as even at the lower bound for interest rates asset purchases and forward guidance could push long-term rates even lower on average than when nominal rates fell below zero.


There's an element of circular reasoning in these remarks. In the past, "unusually severe and persistent recessions" tend to occur when the economy is at the zero bound. Even worse, these recessions are almost certainly caused by a failure of monetary policy. The Fed persists in viewing itself in a role similar to a fireman, rescuing the economy when it goes off course. But that's not at all the right metaphor. They are more like a ship captain, steering NGDP or inflation, and if the ship is off course it's because they've done a poor job in steering it.

Interest rates tend to fall about 500 basis points during recessions. How can we have confidence in the Fed's current regime, which relies on conventional policy tools, if the level of interest rates is likely to be no more than 1% at the peak of the next boom? (According to fed funds futures markets.) How will the Fed prevent another sharp drop in NGDP, as occurred in 2008-09? They don't have any good answers, and outside economists are not impressed:

"Yellen seems to have developed into the ultimate 'status quo'-chair," said Lars Christensen founder and owner of Markets and Money Advisory, an independent firm focused on monetary policy issues.

"It is clear that she fundamentally does not want to see any change to the Fed's policy framework despite the fact that inflation expectations have become de-anchored and markets have lost trust in the Fed really fundamentally wanting to deliver on its 2 percent inflation target," Christensen said.


One option is negative interest on reserves:
Yellen's seeming reliance on more quantitative easing was challenged at Jackson Hole by Marvin Goodfriend, a professor of economics at Carnegie Mellon University and a former policy adviser at the Richmond Federal Reserve bank, who said he believed negative rates would be a far more effective policy tool.

"Interest rate policy is by far the most flexible, the least intrusive to markets, and has proven capable of targeting low inflation," he said in a presentation after Yellen spoke.


I first suggested this idea back in early 2009, and it's clearly a useful policy tool. But I think a much more fundamental change is needed. Switzerland has cut its interest on reserves to negative 0.75%, and still falls short of its inflation target. Even worse, 50-year government bond yields in Switzerland recently went negative.

Elsewhere I've criticized the NeoFisherian model, but they do make one good point. A policy regime of low interest rates forever is likely to be associated with very low inflation. Hence low nominal interest rates alone are not an adequate form of monetary stimulus. As I've said 100 times before:

It's the regime, stupid.
We need level targeting, preferably NGDP level targeting.



In recent months the rest of the world has finally begun to accept the market monetarist view that interest rates are likely to stay low indefinitely. But there's still a lot of confusion as to the reasons why. The Financial Times has a long article on the topic; here are a few excerpts:

"The emergency to pension schemes has been caused by QE," she said. "I don't see how it is reasonable to ask companies with pension schemes to fill a £1tn hole and put money into their businesses as well. It doesn't add up." . . .

"It's scary and it's surreal," says Carsten Stendevad, who heads ATP, the $110bn national Danish pension plan. "First, if you're in the business of offering annuities, your product just became very expensive to produce. But secondly we can see that the impact of QE is affecting other asset classes as well. That's the scarier part. There's nowhere really to hide."


Who's to blame for all this confusion? Not Milton Friedman, who said extremely low rates are a sign that money has been tight. I'd blame the Keynesians. Yes, this is a bit unfair, as the more sophisticated practitioners of New Keynesianism, such as Michael Woodford, always emphasize that interest rates don't measure the stance of monetary policy---you need to compare market rates to the Wicksellian equilibrium rate. But in the end the public fails to absorb these nuances, and instead assumes that their EC101 textbooks were teaching them that low interest rates mean easy money.

Maybe they were.

Of course if that were true, then the Fed tightening of last December would have led to higher interest rates. Instead, bond yields have fallen sharply over the past 8 months.

David Beckworth has an excellent post on this topic, and shows that rates have remained low even as QE has been unwinding. He shows that the Fed's share of total Treasury debt outstanding is now lower than back in 2007, before any QE had occurred. Here's a graph from David's post:

Screen Shot 2016-08-26 at 9.37.21 PM.png
Keynesians need to try harder to explain to the public that low interest rates do not imply easy money. Otherwise policymakers looking for "solutions" to the pension crisis might end up enacting policies that make the "problem" even worse, as the ECB did in 2011, when it twice raised its target interest rate.




There is a sudden interest in NGDP targeting in Australia. Here's Greg Jericho, in the Guardian:

For the most part economic debate can revolve around the margins, with few bold ideas promulgated. This week however, Senator Nick Xenophon proposed a major shakeup to the way economic policy is run. He is proposing the Reserve Bank shift from its nearly quarter of a century policy of targeting inflation to instead targeting nominal GDP growth.

It's an idea that deserves discussion if only to shake us out of the rut of the "new normal" of low growth and low inflation.


In the past, I've argued that NGDP targeting might have some problems in Australia, due to wild swings in the prices of commodities. Jericho makes a similar point:

Were the RBA to target nominal GDP it would likely need to factor out much of those wild swings lest it be jacking up interest rates just because iron ore prices took a jump.

Critics on nominal GDP targeting suggest that would in effect mean just using the CPI figure like they do now.

A look over the past two decades suggests that the RBA's decisions on interest rates were not completely unconnected to nominal GDP growth:


Rather than target the CPI, I've suggested that Australia target total nominal labor compensation, which would remove the distortion of sudden swings in commodity prices. This would help stabilize the labor market, as sudden commodity price swings impact profits, not wage income.

That's not to say I oppose NGDP targeting for Australia. I still think it's better than inflation targeting, it's just that total labor compensation targeting would be even a bit better.

There's one area I disagree with Jericho:

Targeting nominal GDP resets the conversation.

Rather than having the government cutting spending (which reduces growth) in order to allow the RBA to cut interest rates to stimulate growth, both the fiscal and monetary arms could focus on improving growth - and it would put more pressure on the government rather than the current situation where it is leaving most of the work up to the RBA.


Under NGDP targeting, fiscal policy would have no (demand-side) impact on growth.




Bryan Caplan  

Neurotic Politics

Bryan Caplan
Neuroticism - the tendency to experience negative emotions like anger, fear, and sadness - is a pillar of the Five Factor Model of personality.  Human beings routinely attribute their emotions to external circumstances.  For proximate causes, they're often right.  The underlying reality, though, is that some people - the highly neurotic - naturally focus on negativity. 

Which brings me to one of my pet theories: neurotic politics.  Quick version: When neurotics turn to politics, they find an infinite series of reasons to feel bad, which helps them stay one step ahead of the realization that their fundamental problem is inside their own heads and can be fixed by no one but themselves. 

In light of my pet theory, I was struck by this passage in War and Peace:
"This is what they have done with Russia!  This is what they have done with me!" thought Rostopchin, an irrepressible rage welling up in his soul against the someone to whom what was happening might be attributed.  As often happens with hot-tempered men his wrath had taken possession of him while he was seeking as object for it.
There is decent evidence that anti-market people are more neurotic, but is there a broader literature on neurotic politics I should know about?




Interesting reaction to Tuesday's post from my friend Perry Metzger.  Perry, with his permission:


My biggie is the number of people who die from medical errors and bad hygiene in hospitals. It's thousands a day globally. Unlike the global murder problem, this one is probably quite straightforwardly fixed by improving process. My #2 is the mosquito borne disease problem, where something like 3000 people die a day, possibly much more as we really don't know -- this is now easily fixed, though anti-GMO hysteria will probably delay the fix until after literally ten or twenty million more people have died.




EconLog small logo  

#TWET...Slavery & Racism

Amy Willis

chains2.jpg
Incentives matter, sure. But isn't there a limit to what institutional analysis can (and ought) explain? That's what lingering in my mind after listening to this week's EconTalk episode with everybody's favorite guest, Mike Munger of Duke University. How and why did the attitudes of white Southerners change over time in the pre-Civil War era? This week's episode is uncomfortable to listen to in many respects, and Munger admits that his research for the paper the episode is based on gave him nightmares. But I think it's important...Let's see if you agree.

Munger posits that it's too facile to look back on American slaveholders and call them evil. As he said himself on twitter, "Slaveowners may have been 'evil.' But you likely would have been evil, too. I expect I would have.." Roberts pushes back; sometimes, things are just wrong, he says. Was slavery upheld for so long in the American south because of the incentives facing slaveowners? Or did they really believe in the sort of familial, paternalistic order on which they tended to justify the continuation of slavery? And if so, how were they able to convince themselves of such beliefs? Both Munger and Roberts note that there was opposition to slavery, even in the South. The discussion raises really interesting questions about how ideologies are formed and subsequently maintained. Even though emergent, they may still be repugnant. But is Munger really claiming that the justificatory ideology underpinning slavery was emergent? Or was it initially crafted in response to incentives, then perpetuated as an accepted set of norms? It's a lot to think about...




This academic year, I'm in charge of the Public Choice Center Seminar series.  Seminars are normally on Wednesdays from 12:00-1:15 PM, and are open to the public.  Since I am not a fan of actually-existing seminars, I'm experimenting with a new format, which I will strictly enforce:
1. Split the talk into two parts.  Part 1 is the first two-thirds of the allotted time.  Part 2 is the last third of the allotted time.

2. During Part 1, the audience may not ask any questions.  No exceptions.

3. However, the speaker retains the option to ask the audience questions during Part 1.  If the speaker sees a lot of confused faces, he can query, "Are you familiar with the efficiency case for Pigovian taxation?" and adjust his presentation accordingly.

4. The speaker scrupulously ends Part 1 on time, then turns the rest of the talk over for questions.
The Fall speakers are Dan Klein, Truman Bewley, John Mueller, Areendam Chanda, Jim Schneider, Mike Huemer, John Lott, Amy Wax, Gary Lucas, and Zac Gochenour.  I very much look forward to hearing them speak, and new seminar rules should ensure that they actually get to deliver their full talks!

CATEGORIES: Economic Education



David R. Henderson  

The Twenty-Niners

David Henderson

"We're Hiring Economics Writers," says the headline of a post at the web site FiveThirtyEight.

Good for them.

Then they write:

This is a part-time staff position (up to 29 hours per week) and does not offer benefits.

Any idea why they chose 29 hours?

Answer: Obamacare.

Here's how a video at Prager University puts it:

This is Kelly. She's a hard-working, independent college student. To pay for school, she works between 35 and 39 hours a week at her local grocery store.

But today's been rough for Kelly. She has just been told that she's now part of a new group of Americans: the "29ers"...

Starting in 2015, the Affordable Care Act requires many companies to offer health insurance to employees who work 30 hours or more a week. As you may have guessed, the grocery store Kelly works for is one of these companies.


HT2 Tyler Cowen.




Here's Tyler Cowen:

The thing is this: whether rationally or not, the American public hates higher rates of price inflation. Perhaps they mis-sample or mis-estimate prices, or perhaps the higher prices really do erode their real wages in a way they can't get back through a new labor market bargain.

So a higher price inflation target would mean that everybody would hate the central bank. It would not shock me if the first thing they did was to dismantle...the higher price inflation target.

Under nominal gdp targeting, the rate of price inflation would not have to significantly rise until worse times were upon us. That is precisely when such upward price pressures would be most useful.


Here's a comment I added at the end of his post:

Here's the easiest way to sell this, without giving up the 2% inflation goal. And yes, it 's a goal, not a target. If it were a target then there would be no dual mandate:

1. Set a NGDP target at the Fed's estimate of long run RGDP trend growth, plus 2%.

2. Every five or ten years re-estimate the long run trend RGDP growth, and (slightly) adjust the NGDP target accordingly.

3. Do level targeting.

They won't get exactly 2% inflation in the long run, but they will actually get closer to 2% than they do now.

The Fed can tell Congress with a straight face that they are aiming for 2% inflation, but with some countercyclical fluctuations to address the dual mandate (employment) THAT THEY ARE ALREADY LEGALLY REQUIRED TO ADDRESS IN ADDITION TO INFLATION.

This isn't rocket science. . . .

The Fed can tell Congress that NGDP is the intermediate goal and inflation is the long run goal.


Pure NGDP targeting would be slightly better, but this is close. And it's far better than current policy.

PS. My "vacation" is almost over, and I should be able to address comments tomorrow.




Emily Skarbek  

Equilibrium and Foresight

Emily Skarbek

A recent piece by Raphaële Chappe discusses the uses and limitations of general equilibrium theorizing. The post is a long-read, but Chappe briefly summarizes the point when she writes:

...the theory lacks explanatory relevance, providing instead a language through which one can say both too much and too little. The theory's abundance of riches within its own multiverse is to be contrasted with its complete neglect of some important aspects of real-world markets, such as for example the presence of increasing returns to scale, the role of institutions and their effects (including money), and the place of innovation, all of which are difficult to model within the theory.

Having recently re-read Hayek's Economics and Knowledge, it made me recall this passage where he writes:

Correct foresight is then not, as it has sometimes been understood, a precondition which must exist in order that equilibrium may be arrived at. It is rather the defining characteristic of a state of equilibrium. Nor need foresight for this purpose be perfect in the sense that it need extend into the indefinite future, or that everybody must foresee everything correctly. We should rather say that equilibrium will last so long as the anticipations prove correct, and that they need to be correct only on those points which are relevant for the decisions of the individuals. (1936: 3.17)

In other words, in Hayek's framework equilibrium occurs when the subjective data of buyers dovetails with the objective offers of sellers - and - the subjective assessments of alternative costs on the part of sellers dovetail with the objective bids of buyers. Framing the problem in this way, it points to the question of why "the data in the subjective sense of the term should ever come to correspond to the objective data" as being one of the main problems of economics.

Why might this be a useful way to understand and conceptualize equilibria? It lends itself well to addressing some of the limitations Chappe identifies. If we are to venture an approach to answering Hayek's question, the focus of our analysis must include (1) the institutions and rules that influence how prices form and change over time; and (2) entrepreneurial action that brings about market movements. Market process in this framework doesn't require getting rid of equilibrium theorizing, but it may require a more diverse set of analytical tools and empirical methods in order to understand the determinants and dynamics of change.

CATEGORIES: Austrian Economics



Evaluate this simple cynical theory of what almost every politically aware person really wants: Minimizing the negative emotions they personally experience when they read/see/hear top news stories.  In other words, the politically aware strongly care about even objectively minor problems that get a lot of coverage, but barely care about even objectively major problems that get little coverage.  And almost all their political efforts - voting, arguing, slacktivism - revolve around their ill-considered emotions.

Public obsession with terrorism but apathy about the global murder rate (over 1000 per day) is a prime example of what I have in mind.  Hideous headlines call for drastic action, but vastly greater evils the media ignores aren't worth worrying about.

Please show your work.




Bryan Caplan  

An ITT I Cannot Pass

Bryan Caplan
I pride myself on my ability to fairly and accurately explain views with which I disagree.  I've tried to enshrine this skill in what I call the Ideological Turing Test - the ability of non-believers to mimic believers in a blind trial.  But when I read these passages in Noah Smith's recent column, I realized I'd met my match. 
The tendency toward ideological commitment is now being tested in the U.S., as free-market dogma -- sometimes known as neoliberalism -- is coming under increasing attack.

Certainly, free markets haven't produced dramatic failures on the level of the USSR or Venezuela, but "not as bad as communism" is a fairly low bar to clear, and there's a definite sense that the reigning economic policies have run out of steam.
The claim that "free-market dogma" is the "reigning economic policy" of the United States or any major country seems so absurd, so contrary to big blatant facts (like government spending as a share of GDP, for starters), that I'm dumb-founded.  Sure, I could defend this position with demagoguery.  But if I wanted to intelligently argue in favor of the claim that neoliberalism actually guides economic policy in any major country, I literally wouldn't know where to start.

A little help?

Or a lot of help?

P.S. Here's David's complementary take on Noah's piece.




The latest installment in my lost works of Michael Huemer series is his 1992 essay, "Relativism and Tyranny."  The paper begins with an infamous quote from 1984, then distinguishes nine theses moral relativists (whether self-conscious or by default) routinely equivocate between.
The following are versions of relativism:

(1) Moral values generally are established by social conventions.

(2) All cultures/value systems are equally good.

(3) Cultures/value systems cannot be compared morally.

(4) What is right is identical with what is ordained by whatever society a given agent belongs to.

All of these propositions are different, and all of them are false.  The following are not versions of relativism, at least not for the purposes of my attack on relativism in this paper:

(5) It is good to be tolerant of people with differing practices and views.

(6) Different people/cultures endorse different values.

(7) People tend to value what they are taught to value.

(8) Sometimes, when faced with a choice, there may be multiple different courses of action that are equally moral.

(9) Morals cannot be resolved by some fixed algorithm but must be judged case-by-case.

All of these propositions are to some extent true, and none of them is what I am arguing about herein.  This point can scarcely be overemphasized, that all of the above nine propositions are distinct, and that I am attacking the first four, not the latter five. Obstinate failure to take cognizance of this can lead to extensive arguments both irrelevant and exasperating.
The space Huemer spends linking relativism and tyranny is surprisingly brief, but his essay strongly influenced this essay I wrote a year later on "Hobbes' Foundations for Totalitarianism."  Me:
Moral relativism also tends to support a total state. Only if some things are objectively right or wrong is it possible to rationally critique the existing order. If moral relativism is true, then it isn't wrong for the state to coerce or even kill individuals; for the doctrine of individual rights is a moral theory, and if moral relativism is right, then all moral theories are false or nonsense. Overall, since most of the things that total governments do intuitively seem immoral, a would-be total ruler must undermine morality in order to quell protest against his policies.
If you know Huemer's mature writings well, much of "Relativism and Tyranny" will be familiar territory.  But if you know Huemer's mature writings well, you'll also know everything he writes has great epistemic value-added.  Enjoy.

CATEGORIES: Economic Philosophy



Noah Smith recently wrote a piece titled "Being an Ideologue Means Never Having to Say You're Wrong."

It starts out well. He writes:

"Communism would have worked, if the Soviet Union had only tried it for real." I must have heard this argument a dozen times from die-hard leftist friends. Marxist economists such as Richard Wolff and Stephen Resnick even wrote a book making exactly this claim.

No doubt, true believers will be just as unwavering in the face of Venezuela's collapse. That country, which embarked on a misguided "Bolivarian revolution" under Hugo Chavez and his successors, has imploded almost as spectacularly as the USSR -- the country is in such dire straits that the government is now calling for forced labor. Yet there will be many who claim that the dramatic reversal of what some on the left hailed as an economic miracle just a few years ago tells us nothing about the efficacy of socialist revolutions.


Then Smith writes:
This demonstrates that for any political-economic ideology, there is always a hard core of believers who will never waver in their conviction that if only the program were tried in its pure form, it would succeed. Any failures -- even debacles on a grand scale, including the fiasco of 20th century communism -- will be chalked up to ideological impurity and improper application.

See what Smith did? He took two examples from the left and then concluded that this applies to "any political-economic ideology." It may well apply to any political-economic ideology. But he doesn't demonstrate that. He demonstrates it only for the left.

He then writes:

In economists' models, humans are a rational bunch, willing to change their beliefs as soon as new evidence presents itself.

Actually, and, admittedly, this is a detour, that's not totally true. Especially within Public Choice models, we often talk about rational ignorance. And co-blogger Bryan Caplan goes further, talking about rational irrationality.The point is that unless you have a strong incentive to change your mind, you tend not to, no matter how strong the evidence. Because your individual vote doesn't matter, you lack the incentive to change your mind when presented with new evidence about the effects of various government policies.

But Smith tries to apply his idea, well-backed about the left, to people who are strong believers in free markets. How does he do it?

Here's how. He writes:

The tendency toward ideological commitment is now being tested in the U.S., as free-market dogma -- sometimes known as neoliberalism -- is coming under increasing attack. Bernie Sanders's presidential campaign gained a surprising amount of support from young people. Economists, both in the public eye and out of it, are focusing more on inequality and embracing a more activist role for the state. Business professors are starting to question the short-termism of financial markets and shareholder control. Some researchers at right-leaning think tanks are saying that Republicans need to move away from Reaganomics and its mix of tax cuts and deregulation.

Notice his introduction of the word "dogma." Also notice something else. Although Smith points out correctly that many young people voted for Bernie Sanders, that many economists are embracing more government intervention, that some business professors are claiming that financial markets are too short-term, and that some researchers "at right-leaning think tanks are saying that Republicans need to move away from Reaganomics and its mix of tax cuts and deregulation," none of this is evidence of free-market failures. At most it's evidence that some people believe free-markets have failed. It's not even close to being in the same league as the evidence on Communism and socialism.

So how will Smith make his case, which he hasn't made yet: his case that believers in free markets are ideologues who don't change their views with the evidence? Here's how he tries. He writes:

Certainly, free markets haven't produced dramatic failures on the level of the USSR or Venezuela, but "not as bad as communism" is a fairly low bar to clear, and there's a definite sense that the reigning economic policies have run out of steam.

It's true that "not as bad as communism" is a low bar. Perhaps then he will show us where free markets have failed. Can it be that his evidence is that "there's a definite sense that the reigning economic policies have run out of steam." Actually, yes, that's about it. There are three problems with this:
(1) His passive "there's a sense" doesn't tell us who has this sense and what they base it on.
(2) The "reigning economic policies" are not free-market policies--they are a mix of free market policies, subsidies (would Smith say that subsidies to agriculture are "free market policies?), and heavy regulation (The FDA's new regulations of e-cigarettes are an example; heavy state regulation in the form of occupational licensure that prevents various people from getting various jobs is another example), and a very distorting system of taxation. The White House recently published an excellent critique of occupational licensure. It wrote:
"There is evidence that licensing requirements raise the price of goods and services, restrict employment opportunities, and make it more difficult for workers to take their skills across State lines."
That is a critique of a subset of "reigning economic policies." Is it a critique of the free market? Obviously not.
(3) He still hasn't given evidence. Which free-market policies have failed? Smith doesn't tell us.

Smith continues:

In the face of this wave of attacks, many proponents of free-market ideology will be tempted to double down. If we had only tried real laissez-faire, they will say, we wouldn't be experiencing problems like declining median income, decreased economic dynamism and excessive health care costs. On Twitter, my friend Russ Roberts, host of the EconTalk podcast and a staunch free-marketer, opined that we should "actually try" free markets, "instead of just talking about it."

I encounter sentiments like Roberts's on a regular basis, when I call for a more activist government. Many people bought into the laissez-faire idea very strongly over the past few decades, and are not prepared to abandon it just because a socialist candidate wins some votes or an economist writes a paper suggesting we need higher taxes. They will chalk up our problems to insufficient rather than excessive free-marketism.


This is as close as Smith gets to making his case. He criticizes Russ Roberts for calling for more economic freedom but doesn't actually show that the problems we have come from the economic freedom we have. So Russ Roberts is wrong in calling for more economic freedom only if the problems we have are due to too much economic freedom. Again, zero evidence from Smith.

Smith finally gets to something I agree with, writing:

That's why I think there's very little hope for political-economic programs whose benefits only become apparent after a very large dose. For an ideology to be successful, a moderate amount of it has to do a moderate amount of good. Relatively few nations have the unity and commitment to push through the doldrums in search of some grander success that's just over the next hill.

He's right. People want to see that a little more economic freedom leads to more net benefit. And that's exactly what we can show and have shown. Take airline regulation. Please. When Fred Kahn took over the Civil Aeronautics Board in 1977, he started de facto deregulating airline fares and routes. Result: more competition and lower fares. Then Congress stepped in and deregulated further. Result: even more competition and lower fares. The next step would be "open skies," whereby any airline in the world could compete in the U.S. market. The result would be even lower fares.

Or consider deregulation of surface transportation, particularly trucks and railroads. That deregulation, that happened in the late 1970s and early 1980s, brought more competition and lower rates to those sectors.

Deregulation of oil prices under Carter in his last year in office and Reagan in his first month in office undercut OPEC's power and helped bring down world oil prices.

Freer trade in textiles has made clothing substantially cheaper for 300 million residents of America.

So the evidence that steps toward more freedom do bring more net benefits is strong.




This post will be about macro theory, but let's begin with a related example. You are a libertarian and your best friend is also a libertarian. You tend to see eye to eye on most issues, favoring small government. Then some new issues arise, and your views don't quite align. Maybe Muslim terrorists, illegal Mexican immigration and gay rights become big issues. What is the libertarian position? Suddenly your friend supports a candidate that seems wildly non-libertarian to you. "What's happened to that guy?"

Now consider macroeconomics during the Great Moderation. Monetary policy seems pretty successful, targeting inflation at close to 2%. The Taylor Principle and other New Keynesian ideas are increasingly popular. This successful policy has many fathers, all happy to take credit. Keynesians points to discretionary use of interest rates to stabilize the economy. Monetarists point to the new realization that monetary policy drives the nominal economy, no long run inflation/unemployment trade-off, and fiscal stabilization policy is out of the picture. New classical types are happy that New Keynesian models feature rational expectations, and that people approach policy issues from a "policy rule" perspective, thinking in terms of policy credibility, and what's best in the long run. Policy is working and there seems to be some sort of a consensus that we are on the right track, or at least pretty close. Even Milton Friedman grudgingly accepts the fact that Greenspan's policy seems effective.

And then it all blows up. Now elite economists can't believe all the crazy things their colleagues believe. "I thought that guy was rational." Keynesians drift back to primitive old Keynesian concepts, such as the paradox of thrift, and jealousy over trade surpluses. Monetarists are predicting high inflation from QE. New classicals are saying that fiscal stimulus is snake oil. Paul Krugman and John Cochrane can't believe how silly the other guy is.

The disputes of the 1960s and 1970s were never really resolved during the Great Moderation, they were simply swept under the rug, as a compromise policy seemed to work---and indeed might have continued working if not for the zero bound. If in the 1990s the Fed had decided that Volcker's 4% inflation was low enough, then I would not be a blogger today.

So here's my claim. A new consensus will eventually coalesce around a new and more effective policy approach, and the current debates will not be resolved. Instead they'll merely be swept under the rug, just as they were in the 1980s and 1990s.

For instance, assume I was to get my dream policy. The Fed targets NGDP growth at 4%/year, level targeting, and they do so by stabilizing NGDP futures prices. Since there is no zero bound on NGDP futures, the entire liquidity trap debate fades away. We will never know how much the central banks could have done with QE at the zero bound, but it won't matter anyway. "That which has no practical implications has no theoretical implications."

Or say that Miles Kimball gets his way, and we move to a monetary system with negative interest on money, and hence no zero lower bound. Then we are right back to the successful policy regime of the 1990s. Again, the current debates about what could have been done short of adopting Miles's proposal become a moot point, of interest only to antiquarians, like the debate about how much the Fed could have done in the 1930s.

Macroeconomic debates never get resolved; rather policy innovations make them irrelevant.




Return to top
Blogroll
OUR REGULAR READING:
Tyler Cowen and Alex Tabarrok
Russell Roberts and Don Boudreaux
Greg Mankiw
Scott Sumner
Robin Hanson
David Friedman
Mark Thoma
Megan McArdle
Matt Zwolinski, et al
Jason Kuznicki, Gene Healy
Daniel J. Mitchell, Ilya Shapiro, et al
Reason Online
Nathan Smith, et al
John Cochrane
James Hamilton
Bob Murphy
Karl Smith
WE TRY TO KEEP UP WITH:
Stephen Bainbridge
Stan Collender, Pete Davis, Andrew Samwick
Brad DeLong
Evan Goldstein
The Economist
Nicolai Foss, Peter Klein
Lynne Kiesling
Steven Levitt and Stephen Dubner
Mike Rappaport and Michael S. Greve
Wall Street Journal
John Taylor
David Tufte
A FEW MORE:
Chris Dillow
Peter Gordon
Heritage Foundation
Stephen Karlson
Stephen Kirchner
Michael Munger
Craig Newmark
William Parke
Virginia Postrel
(was Prestopundit) Greg Ransom
David Warsh
Return to top