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Bryan Caplan, David Henderson, Alberto Mingardi, and Scott Sumner, with guest blogger Emily Skarbek, blog on issues and insights in economics.
OCTOBER 14, 2016
Right after Mike Huemer speaks at GMU on Monday, I'm rushing to New York City to debate Robin Hanson on the resolution, "Robots will eventually dominate the world and eliminate human abilities to earn wages." As you might expect, Robin's arguing the affirmative, and I'm arguing the negative. Hope to see you there!
Details here.
CATEGORIES:
Growth: Causal Factors
, Growth: Consequences
, Labor Market
OCTOBER 14, 2016
The one and only Michael Huemer is speaking at the Public Choice Seminar at noon on MONDAY (not the usual Wednesday) on his new paper, "The Devil's Advocate." My continuing disagreements with Mike on the ethical treatment of animals notwithstanding, he is my favorite philosopher of all time, and a fountain of wisdom on virtually every subject of intellectual importance.
Details here. P.S. If you'd like to meet Mike this weekend, please email me.
CATEGORIES:
OCTOBER 14, 2016
The conversation continues. Huemer's in blockquotes, I'm not. My response to Bryan Caplan, on the ethical treatment of animals: True, because I'm trying to extract what I see as two major concessions: First, causing immense pain for minor gain is sometimes morally acceptable. Second, one key factor that makes such pain morally acceptable is low intelligence of the creature that suffers and high intelligence of the suffering's beneficiary.
I agree that (2) does not logically follow from (1). However, once you make the two concessions I seek, the burden of proof shifts back to the critic of conventional human treatment of animals. Happily, you try to meet that burden below.
Too strong. If you accept that killing multitudes of bugs for trivial gain is morally acceptable by a big margin, then factory farming could be vastly worse than killing multitudes of bugs, but remain morally acceptable. So all of the following premises need to be toned down. But for the sake of argument, I'll critique them as written:
On 2a, the number of bug deaths is key. By one estimate, American cars alone kill over 30 trillion bugs a year. So it seems very likely that aggregate bug suffering vastly exceeds suffering of domesticated animals.
I grant that 2b is false.
Sorry, you're not thinking enough like an economist. Yes, we'd have to end civilization (and mankind) to utterly stop killing bugs. But we could clearly vastly reduce bug suffering with marginal lifestyle adjustments. And many of these marginal adjustments would be less burdensome than adjustments vegetarians and vegans already advocate! For example, I'd much rather drive 10% less than stop eating animal products.
I embrace the parenthetical. The badness is some monotonically increasing function of the intelligence of the sufferer, but it's not proportional to intelligence.
Right. But if the badness increases much faster than proportionally, then the conventional view still follows. And that's precisely my view. Here's the problem. The total quantity of animal suffering caused by the meat industry is so unbelievably, insanely, astronomically huge that even on the above assumptions, the meat industry is still the worst thing in the world by far - it's still going to be orders of magnitude worse than any other problem that people talk about.Despite your incredulity, I think 1/1000 is excessive. If cows provided no human enjoyment, I would in good conscience sacrifice a million cows to save one creature of normal human intelligence. If this seems crazy, I say you assign similarly microscopic value to the welfare of bugs. Not that there's anything wrong with that. To close: 1. Your anti-factory farming conclusion follows readily from the premise that you shouldn't inflict immense pain on a creature for a minor benefit. 2. But this premise implies that everyone, even you, is treating bugs very wrongfully, which is absurd. (Unless bugs feel zero or vastly reduced pain, of course). 3. You can avoid this conclusion by switching to the view that bug suffering is only microscopically bad. 4. But then why are you so puzzled by the view that non-bug animal suffering is (a) more important than bug suffering, but (b) still only microscopically bad? OCTOBER 14, 2016
I often get the impression from various people's comments on my posts that they think that when I write words to the effect that "Person X didn't do this bad thing," "Person Y did this bad thing," "Person Z did this good thing," or "Person A didn't do this good thing," I'm making an overall judgment about the person. If you think that, then you don't know me. I'm a truth seeker. So when someone makes a statement that I think is true, and others are saying it's false, or makes a statement that I think is false, and others think it's true, then, if I comment, it will be to point that out. My doing so has nothing to do with my overall evolution of the person who makes the statement. I'll take two examples from recent history. The first is the deposition of Bill Clinton by the Ken Starr legal team. I'm one of the few people I know who watched every second of that long deposition. One of Bill Clinton's famous lines during the deposition, a line that led to endless ridicule, was "It depends on what the meaning of the word 'is' is." I was one of the few people around me who never made fun of him for that. It made complete sense and, although YouTube didn't exist then, so it wasn't easy to find the testimony, it does exist now, and all you have to do, if you want to know the truth, is watch a 3-minute video. Does that mean I'm a fan of Bill Clinton? No. But I'm not a fan of falsehoods and false interpretations. Here's another example. Many readers will remember the "Mission Accomplished" banner on the aircraft carrier USS Abraham Lincoln when George W. Bush landed on that carrier. In the months following, when the situation in Iraq got really ugly, many people criticized and often ridiculed Bush for his too-early celebration of the mission. But that wasn't what the banner was about. How do I know? One of my star students at the Naval Postgraduate School had been a junior officer on the carrier at the time. In the ward room one day, they discussed how to respond to a request from the White House. The White House people had said that they wanted a banner and they would provide the banner, but they wanted input from the ship's officers. So the officers in the ward room decided on "Mission Accomplished." It had almost nothing to do with the Iraq war. It had to do with the fact that the carrier had finished a 10-month deployment, which, according to Wikipedia, "was the longest deployment of a carrier since the Vietnam War." When I point that out to fellow critics of that ugly war, most of them don't want to hear it. That would be alright if they stopped using that banner as ammo for their attacks on Bush. But they typically don't. You might say that in the grand scheme of things, these things don't matter. Maybe, but they seem to matter to the people who do the ridiculing. So if it matters to make a false statement, it matters to correct it. The bad thinking that I'm going after here consists of first deciding, maybe on perfectly good grounds, one's position on an issue ("Bill Clinton is a liar," "George W. Bush messed up big time by invading Iraq and killing thousands of innocent people") and then looking carelessly for evidence that the person who did the bad thing was even worse than one might have thought. There are also ways to mess up in thinking on the other side. So, for example, one could think a policy is good and then look for evidence that the person proposing or carrying out the policy has done something else good Thus the title of this post: Deltas. I was a math major and I still use the word "delta" in daily conversation to mean "change." Someone makes a statement that he claims is factual. It's a delta in information. Is the delta true or false? If they think it's true, and they bothered making it, it must matter to them. Which is why I pursue the search for truth: If it matters, I want to know whether it's true or false.
CATEGORIES:
Economic Methods
OCTOBER 13, 2016
This Washington Post story (by Ylan Mui) from a couple months back makes me kind of sad: During the long recovery from the Great Recession, the central bank kept its benchmark interest rate at virtually zero and pumped trillions of dollars into the economy in hopes of fostering faster growth. Republicans lambasted the effort as creating potentially dangerous imbalances in the financial markets. Democrats backed the moves as essential to ensuring the nation did not slip back into recession. The left has it all wrong. The period from late 2008 through the early 2010s was when the progressives should have been out marching in the street for easier money. It was an easy call, as money was far too tight. But they were silent. Today there is a case for easy money, but it's far weaker. The Fed's target is 2% PCE inflation, and an unemployment rate close to the natural rate. Their most recent forecast is that PCE inflation will average 1.9% in 2017, and 2.0% in 2018 and 2019. So they have set policy at a position where they expect to hit their inflation and employment targets. Now let's look at some arguments for easing: "The economy has recovered for much of white America. But for black and Latino workers, it hasn't," Fed Up member Rod Adams, a neighborhood organizer from Minneapolis, said. "If you decide that we are at maximum employment now and you intentionally slow down the economy, you will be leaving us behind, pulling up the ladder after you've climbed it."
Another argument is that the Fed's inflation forecasts are non-credible, for various reasons. Inflation has only averaged 1.12% over the past 8 years, and TIPS spreads suggest lower than target inflation going forward. Those are good arguments, but in defense of the Fed it should be pointed out that the consensus private sector forecast calls for 2.1% inflation in 2017. That probably refers to the CPI, but even so it's pretty consistent with the Fed's 1.9% PCE forecast. So if the Fed is wrong, then so are private forecasters. Another argument is that NGDP growth has recently been below 3%, and that's the variable the Fed should be focusing on. I agree that the Fed should focus on NGDP, but they have decided not to do so. If you give the Fed advice based on NGDP growth, and they are targeting something else, you will merely destabilize the economy. Here's an example. Suppose you favor 4% NGDP growth. Also suppose that you advise the Fed to stimulate based on that policy target, and the Fed momentarily takes your advice. Now suppose that the Fed's actual policy is 2% inflation, during a period when trend growth has slowed to 1.2%. In that case your advice will drive inflation up to 2.8%. The Fed will respond by tightening policy, and you'll go into recession. So then why (in the past) did I often advise the Fed to ease policy, while citing the low NGDP growth figures? Because during most of the period I've been blogging, policy was far too tight even using the Fed's inflation/employment objectives. I mentioned NGDP because I thought that was a more useful indicator/target, and hoped the Fed would switch to NGDP targeting. But if they do not, then any short-term success in pressuring them to get NGDP growth up to 4% will be a Pyrrhic victory, merely leading to more macroeconomic instability down the road. In my view the current Fed policy is very unwise. But not because the interest rate target is currently set in the wrong place, and not because policy is way too lose or way too tight. Rather I object to policy because the regime is too procyclical---leading to above target inflation during booms and below target inflation during recessions, when the reverse cyclicality is appropriate. And that problem is going to be there regardless of whether they raise rates in December, or not. "It's the regime, stupid." (Not you, of course) If I were on the FOMC and had to vote on the assumption that the current policy regime stayed in place, I think I would vote against raising rates, due to TIPS spreads, but it would be a close call. If I got to choose my policy regime, I'd definitely vote against a rate increase, and try to nudge NGDP trend growth up to something more like 4%. Of course in an ideal regime, neither my opinion nor Janet Yellen's opinion would matter.
CATEGORIES:
Macroeconomics
, Monetary Policy
OCTOBER 13, 2016
Questioner: If there was one economic idea you could explain to everyone on earth, what would it be? Economist Steve Horwitz: The idea that prices are knowledge surrogates. Prices aren't mere numbers--they are [a] form of communication that goes beyond language and math. Without them, we are blind and deaf in figuring out how to make choices and allocate resources. It is the price system that enables us to be as rational as we are and is a key part of what McCloskey calls "The Great Betterment." This is from Steve Horwitz's "Ask Me Anything" session on Reddit.
CATEGORIES:
Economic Education
OCTOBER 13, 2016
These are just some of the difficult- and often controversial- questions EconTalk host Russ Roberts explores in this week's conversation. His guest, last year's Nobel prize-winner, Sir Angus Deaton. Deaton speaks out against what he calls "cosmopolitan prioritarianism," suggesting that indeed we ought attend more to those suffering within our own community. This of course raises questions about the nature of borders and national identity. Deaton, a Scot, feels more affinity with fellow Scots-men, for example, than with other citizens of the larger United Kingdom. So does this mean that you (if you're an American) should worry more about rural Mississippi than the Central African Republic? And in either case, how can we best assess the true level of poverty in which people are living? It's another intriguing episode, and we hope you'll head over and give it a listen or check out the highlights. And if you've not been following Russ Roberts on Medium, you'll find lots of extra links, images, and more to keep tickling your brain...
CATEGORIES:
EconTalk
OCTOBER 13, 2016
He fights back. "Cet animal est tres mechant; quand on l'attaque, il se defend" ("This animal is very wicked; when you attack it, it defends itself.") I've read various articles about why people like Donald Trump, or, even if they don't like him, will probably vote for him. All have an element of truth, sometimes small, sometimes large. I don't want to get into how true. I don't know that many Trump supporters or, at least, I don't that many people who admit they are Trump supporters. But here's what I see people responding positively to Trump about and it's something that caused me to respond positively to him when I watched the second "debate" between him and Hillary Clinton: he's a fighter and he calls people out. When the debate started last Sunday night, my plan was to watch maybe 20 minutes to see if Hillary took my advice not to shake his hand (she did take my advice, not that she asked for it) and to see how he handled the groping women issue. Although I knew in advance that designated allegedly-undecided voters would ask questions, I just knew that either Anderson Cooper or Martha Raddatz would run with that issue like a dog with a bone. It turned out to be Cooper. (The transcript is here.) But once we got past that, it got more interesting. I've often been in the situation that Trump was in. No, not that situation. Rather, the situation of being ganged up on in an intellectual or semi-intellectual forum. I've written about that before. I've had situations where I was on one side of the issue and the interviewer had 2, and occasionally 3 people on the other side and the interviewer himself was on the other side. And, with the exception of a few tough questions, Cooper and Raddatz were on Clinton's side. One little instance: The audience was told, in no uncertain terms, before the debate started, not to applaud. Many in the audience broke the rule, applauding for Hillary. Neither Cooper nor Raddatz objected. My guess is that pro-Trump people in the audience thought "Ok, I guess they aren't enforcing that rule." They got their chance a few minutes later. Clinton warned people about putting Trump in charge of the law. (By the way, neither Anderson nor Raddatz pointed out that the president is not in charge of the law. They, like Clinton and, apparently, Trump all shared the same premise. I guess that's because that's how U.S. presidents have behaved for a long time). Trump replied that if he were in charge, she would be in jail. Many in the audience applauded. Did Cooper let one that go? Of course not. He said, "We want to remind the audience to please not talk out loud. Please do not applaud. You are just wasting time." And what did the Donald do? A few minutes later, he pointed out that it was "one on three." He didn't do it every time. For example, Anderson Cooper had the gall to flesh out a question asked by one of the participants by summarizing the New York Times article that had speculated, on skimpy evidence, that Trump might not have paid taxes for over a decade. Trump didn't call him out on that one but he did on others. When Clinton's emails were raised and she bobbed and weaved, neither Cooper nor Raddatz gave any background. It was clearly asymmetric. At one point, when Trump fought back, I laughed at their being called out and slightly cheered. I was talking to a good female friend about it later, someone who was appalled at the groping issue that had come out earlier in the week. She dislikes Trump even more than I do. But she told me she also was appalled by their unfair treatment of him. The high point of her being appalled was when Raddatz decided to enter as a third debater and challenge Trump about a fairly obvious point he was making about not signaling the enemy in advance what you will do. And Martha (I'm calling her by her first name because I'm tired of correcting my spell checker when it changes her last name to "Radiate") didn't show a lot of knowledge about it either. I was disappointed, actually, that Trump decided to debate her instead of saying, "Hold it. Your job is to moderate, not to be another debater against me." So even Trump didn't go as far as he could have in calling for fairness. But he at least did it at times. Compare Trump's occasional fighting back to Romney's response in 2012 when Candy Crowley decided to take Obama's side on the issue of Benghazi. Romney looked stunned but he didn't fight back. He didn't say, "Listen lady, do your job. Your job is not to take Barack Obama's side or do instant fact checking based on what you think you know. Butt out." Actually, Romney didn't even address it publicly until 2014, in an interview with Hugh Hewitt. Trump did fight back. Someone said that a lot of Republicans go to Washington thinking it's a sewer and end up, after a few years, thinking it's a hot tub. A big part of it is that they have made peace--not just with the interest groups but also with the dominant pro-government ethos. I don't have any reason to think that Trump is that different. But Trump has given many voters reason to think he's different. When Trump loses the election, and I'm pretty confident that he will, there will be a lot of Wednesday-morning quarterbacking. One of the things that I hope happens is that potential candidates learn that, all other things equal, they will do better by defending themselves strongly from unfair attacks. Postscript: After I started writing this yesterday, I saw a piece by Mark Bauerlein that covers related ground and, in some ways, does it better.
CATEGORIES:
Public Choice Theory
OCTOBER 13, 2016
Guest post by Mike Huemer begins... now. My response to Bryan Caplan, on the ethical treatment of animals: As far as I understand it, Bryan's argument is something like this: 1. Killing bugs isn't wrong. Sub-argument: He spent most of his time talking about (1). But (2) is the controversial claim and indeed seems clearly false. Why would one think (2)? I guess the assumption is that there are no morally significant differences between factory farming and killing bugs, or at least no factors that would render factory farming *worse* than killing bugs. But how could that be defended? It seems that one would have to claim: 2a. Factory farming doesn't cause more pain and suffering than killing bugs. If
any of 2a-2c are false, then it would be plausible that factory farming
might be wrong even if killing bugs is not. Bryan might endorse 2a (he
appears to hold that bugs feel pain just like the pain of other
animals), though I myself find 2a highly dubious. But I'm pretty sure Bryan doesn't believe 2b or 2c (both of which are obviously false). Bryan was even explaining some reasons why 2c is false - we would have to abandon civilization (and perhaps even commit suicide) in order to stop killing bugs. So it seems that by Bryan's own lights, it is easy to see why factory farming is much worse than killing bugs. And so I just don't see how the main argument could be convincing. Maybe I misunderstood the main argument. Maybe the argument was something like this: There are two theories: T1 A being's suffering (of a given intensity & duration) is equally bad regardless of the being's intelligence. Perhaps the argument is roughly: 4. Either T1 or T2 is true. (I have labeled these #4-7, to avoid confusion with the previously mentioned propositions #1-3.) Now it seems to me that 6 is certainly false. If the badness of suffering is proportional to one's intelligence, factory farming is still definitely wrong. Here is a story. There are two people, call them "Jeb" and "Don". Jeb is a person of normal intelligence. Don is a severely retarded person. You are thinking of torturing one of them for fun. Assume that there will be no further consequences (e.g., torturing Jeb won't prevent him from doing some great thing, torturing Don won't cause him to commit a great evil, etc.) Now consider: Question 1: Is it morally much worse to torture Jeb than Don? Question 2: How much worse is it? Here's the problem. The total quantity of animal suffering caused by the meat industry is so unbelievably, insanely, astronomically huge that even on the above assumptions, the meat industry is still the worst thing in the world by far - it's still going to be orders of magnitude worse than any other problem that people talk about. The number of land animals slaughtered for food worldwide, per year, is estimated between 40 and 60 billion. (If you include sea creatures, closer to 150 billion.) Almost all of them suffered enormously on factory farms, in conditions that we would certainly call "torture" if they were imposed on any person. For simplicity, let's take the number to be 50 billion. That is seven times larger than the entire human population of the world. Obviously, if 50 billion people were subjected to torture on an ongoing basis, that would be the worst problem in the world. But now, we're assuming that suffering by farm animals is only one tenth as bad as human suffering, because farm animals are so much less intelligent than humans. So the problem is really "only" as bad as the situation if 5 billion people were being tortured on a regular basis. Still the worst problem in the world, by far. Okay, what if you hold a really extreme view: the suffering of a cow is only 1/100 as bad as similar suffering for a human, because humans are so smart. In that case, the factory farming situation is "only" as bad as having 500 million people subjected to constant torture. What if farm animal pain is only one thousandth as bad as human pain? Then the situation is only as bad as having *50 million* people being tortured in concentration camps. Again, this would still be far and away the worst problem in the world. And that is assuming that you take what seems to me an incredibly, implausibly extreme view about the relative importance of humans compared to animals. What is the worst thing that ever happened in human history? Many people would say it is the Holocaust, during which 11 million people were subjected to severe suffering before being killed, in concentration camps. Animals, however, are regularly subjected to similar (or even more severe) suffering before being killed in factory farms. Suppose that the suffering and death of an average human in an average concentration camp is one thousand times worse than the suffering and death of an average animal in an average farm. In that case, a single year of the meat industry is about five times as bad as the Holocaust. It's as if we were repeating the Holocaust five times every year. Again, that's on extremely optimistic assumptions. It might actually be as bad as 500 Holocausts per year. It's hard to see how this amount of badness might be justified by the extra pleasure that we get three times a day by tasting the flesh of the creatures who are being tortured. I don't know exactly how much suffering it is permissible to cause to other creatures in return for some pleasure for myself, but it seems to me that there has to be *some limit* - and it seems to me that this case must surely go over the limit if anything does. Now I haven't addressed whether it is permissible to buy meat from humane (e.g., free range) farms. My view is that that is mostly a red herring, because almost all meat comes from factory farms, which are unbelievably awful. We should first try to get people to stop doing the clearly, unbelievably horrible thing that almost everyone is doing almost every day, before we start worrying about some much more debatable and much rarer practice.
CATEGORIES:
Cost-benefit Analysis
, Economic Philosophy
OCTOBER 12, 2016
Adam Davidson, in the New Yorker, highlights the thinking of Peter Navarro, a Ph.D. economist who is on Donald Trump's economic team.* In 2010, I reviewed Seeds of Destruction, a book by Glenn Hubbard and Peter Navarro, and quoted some sections of it in a blog post. My review was titled "Good on Taxes, Bad on Trade." I think it's even clearer now, and it was pretty clear even then, that the sections on trade were written by Navarro, not Hubbard. Some excerpts from my review: So what's not to like about the book? Most of the worst parts are in the sections on international trade. Let's start with what economists know about international trade. We know that, by standard measures of economic well-being, a country is better off having free trade than not having it. We can go further. We can show that even if the government of another country restricts imports or foreign investment, we are better off if our government does not retaliate with its own restrictions on trade. The other government hurts its own consumers by restricting imports and, if our government retaliates, it hurts not only the other country's exporters, but also our country's consumers. Ronald Reagan, although he did not always practice free trade, understood this argument and, in a 1982 speech against protectionism, used a beautiful analogy to make the point. Imagine you and someone else are in a lifeboat in the middle of the ocean. If the other person foolishly shoots a hole in the boat, so that water comes pouring in, are you better off, asked Reagan, if you shoot a second hole in the boat? For more on Navarro's thinking, see Alan Reynolds, "Trump Adviser Peter Navarro: Reagan Critic, Industrial Policy Fan," October 11, 2016. * Davidson calls Navarro the "only economist" on Trump's team, but he has too narrow a view of economist. Steve Moore is on Trump's team too and, although I have my differences with him and he has "only" a Masters degree in economics, I certainly think of him as an economist. One way of judging (though, admittedly, not a sufficient way) is whether Steve understands the economics of trade. He clearly does. ** When I wrote this in 2010, that was true, if the measure is exports plus imports. It's no longer true. I should not have said "fairly distant second." That's too vague.
CATEGORIES:
International Trade
OCTOBER 12, 2016
A few weeks ago I presented a graph that showed the trade-off between a big central bank balance sheet and faster NGDP growth:
In the other path, an expansionary monetary policy is adopted, but it takes a while before it has any credibility. Initially, the central bank does the same sort of QE as the BOJ did in Japan, causing the Base/NGDP ratio to increase. But in this case there is a subtle difference. Now the quantity of base money is above the money demand curve, resulting in excess cash balances. Over time, the excess cash balances leads to a hot potato effect, which gradually boosts the NGDP growth rate. As NGDP growth expectations rise, the demand for money (as a share of GDP) begins to fall, and you move from point C to point D. The point is that the move from A to B looks pretty similar to the move from A to C. You can't just look at variables such as the monetary base (i.e. QE) or nominal interest rates, and ascertain the stance of monetary policy. You need to look at NGDP growth expectations. How does the central bank insure that you move from A to C, rather than from A to B? There are many options, including currency depreciation, NGDP futures targeting, level targeting, and a "whatever it takes" approach to open market purchases.
CATEGORIES:
Macroeconomics
, Monetary Policy
OCTOBER 12, 2016
Now, journalists want to paint Greenspan as a great free-marketeer, as if he spent his career fending off cries for more financial regulation. In fact, there was a consensus in the 1980s that inter-state banking had to arrive and that the Glass-Steagall separation of investment banking from commercial banking was being eroded by innovation. The deregulation that ratified these changes would have happened under any conceivable Fed chairman at that time. Moreover, the deregulation was accompanied by what banking officials were convinced at the time were stronger and more effective regulations regarding safety and soundness. They were particularly proud of risk-based capital regulations, and it was the market-oriented economists of the Shadow Regulatory Committee who warned that those were not adequate to prevent a crisis.This is from Arnold Kling, "The Greenspan Fed," October 11, 2016.
CATEGORIES:
Regulation
OCTOBER 11, 2016
To understand their work, start with a pillar of economics that I teach on the first day of class: Incentives matter. Mr. Hart and Mr. Holmstrom take that principle and run with it, seeking to understand incentives within both individual companies and the larger market structure. These are two paragraphs from David R. Henderson, "From Corporate Pay to Private Prisons--Lessons From the Nobelists," Wall Street Journal, October 10, 2016 (electronic) and October 11, 2016 (print.) As has become a tradition, I wrote the Wall Street Journal article on the Nobel Prize winners in Economics this year. If I'm counting correctly, I think that makes 16 out of the last 21 years. I highlight these paragraphs for two reasons: (1) they're my two favorite paragraphs, and (2) the basic idea for the second paragraph was stated by Bob Lawson in a Facebook discussion and, when I used it, Alex Tabarrok gave me a better formulation. Some things about writing the piece are getting harder and some easier. The main harder one is that they announced at 2:45 a.m. PDT. So I got up then to see who won and started researching. I started writing, as per usual, around 7:00 a.m. and finished at about 9:30 a.m. The main easier one is the support and help I got from my economist friends. Once I had a version I was reasonably pleased with, I sent it to Lynne Kiesling, Tyler Cowen, and Alex Tabarrok for comments. All had valuable comments. I incorporated Tyler's and Alex's suggestions. The main comment by Lynne was one I totally agreed with but couldn't figure out how to put in within my word limit: the fact that so much of this work on contracting flows from the now-classic 1972 American Economic Review article by Alchian and Demsetz. I still think that Demsetz should win, but am now very pessimistic about whether he ever will. The Nobel Prize in economics has become much more of a prize for technical economics--read, mathematical modeling--in the last 20 years. Although their ideas did not get implemented in my piece due to time and word constraints, Edward Lopez and Peter G. Klein had excellent suggestions. Indeed, I think Peter Klein's article on the two winners is competitive with mine and possibly better. I've had a lot of people ask what my time line is. I start researching as soon as I've watched the live presentation from Stockholm. Then I break for early breakfast and go into my downtown office sometime between 5 and 6 a.m. I research until about 7:00 a.m. and then start writing, going back and forth between the writing and the research from 7:00 a.m. to 9:30 or 10:00 a.m. I then send the draft out for comments, get them back within half an hour, tweak the article, send it to my wife, Rena Henderson, who makes her living editing economists, get it back from her within 15 minutes, tweak, and send. I used to promise to send by noon. I now promise to send by 11 a.m. The one upside of the 2:45 a.m. announcement is that makes the promise easier to keep.
CATEGORIES:
Business Economics
, Labor Market
OCTOBER 11, 2016
Here's my reply to Mike Huemer's reply to my challenge to animal rights. Huemer's in blockqutes, I'm not.
I don't think the best way of determining whether x is true is by seeing whether x-advocates are hypocritical or morally flawed.I never claimed it was the best way. But I do claim that the Argument from Hypocrisy and the Argument from Conscience provide us with additional moral insight, which occasionally suffices to break otherwise intractable moral impasses. (Btw, on this criterion, the slavery-defenders who knew Thomas Jefferson would presumably have declared that slavery is probably right, since even Jefferson held slaves.)"Probably right"? No. But Jefferson's hypocrisy at least slightly undermined the credibility of the case against slavery. And the more morally thoughtful and morally scrupulous he seemed overall, the more his continued practice of slavery would undermine its credibility. Rather, the best way to find out whether x is true is to just look at the arguments for and against x, especially if those arguments are simple and easy to find.Normally, yes. The arguments on ethical vegetarianism are simple and easily found. It seems wrong to cause extreme amounts of pain and suffering for the sake of minor benefits to oneself.I agree this claim has great superficial appeal. But I think that like utilitarianism, Kantianism, and other grand moral theories, it's subject to devastating counter-examples. Like: "What if you have to painfully kill one bug to build a house rather live in a tent?" If you just look at some of the things that go on on factory farms, you're going to be horrified. If you look, I think you are going to find it extremely difficult to say, "Oh yeah, that seems fine."I agree I would be horrified. However, I would also be horrified to watch life-saving surgery on humans. On reflection, both seem morally fine to me despite my squeamishness. If you think it is not wrong to inflict severe suffering as long as the victim of the suffering is stupid, then you'd have to say that it is permissible to torture retarded people for fun. Etc. (I don't have anything to add to the standard arguments.)It depends on the degree of stupidity. I'm not saying it's okay for Einstein to murder his secretary. But if a creature with human appearance literally had the mind of a bug, then it would be morally appropriate to treat him like a bug. Almost all humans classified as mentally retarded are far smarter than that, of course. A stronger objection is that human babies are much stupider than adult humans, but everyone knows it's wrong to inflict pain on babies. The obvious amendment here, though, is that creatures that will normally develop human-level intelligence are also of great moral importance, though probably not as much as creatures that already possess such intelligence.* You also have to explain why pain isn't bad when the victim is stupid.If the victim is as stupid as a bug? At minimum, it seems obvious that the pain of such a creature is extremely morally unimportant. Now, what is the proposed response to the argument? The fact that people kill many insects is supposed to be evidence that . . . pain isn't really bad?It's supposed to be evidence that people who deny the obviousness of my preceding claim - that the pain of extremely stupid creatures is morally unimportant - actually find it obvious, too. That it's not really wrong to cause lots of bad things for the sake of minor benefits to oneself? But how could the number of insects that people kill be evidence for any of these things?Suppose a seemingly morally thoughtful and morally scrupulous person such as yourself painfully kills many bugs for minor benefits. But he stills says it's "obvious" that you shouldn't painfully kill any creature for minor benefits. My Argument from Conscience says, "Since you're morally thoughtful and morally scrupulous, you wouldn't do that if you really thought it was wrong." This seems like a good argument to me - good enough to break what otherwise looks like a moral impasse. The blog post even seems to suggest that it's impossible that it's wrong to cause pain to stupid creatures.No. My argument is only meant to provide some additional insight, not prove that anything's "impossible." That is, that we know that pain is only bad if you're smart.More precisely, that the badness of the pain depends on the intelligence of the creature experiencing it (as well as the intelligence it will normally attain). But really, could that plausibly be said to be something that we know? How would that be? Is there some proof of that proposition?It seems obvious once you ponder basic counter-examples to your general principle. Do you really think painfully killing bugs to build a house is morally wrong? Maybe the suggestion is that it's self-evident that pain is only bad if you're smart. But then, rather than trying to draw inferences about this by looking at the behavior of PETA-members, etc., it seems like we could just introspect and see whether that's self-evident. When I do, I see that it's not self-evident (indeed, it isn't even plausible). I don't have to make any inferences or look at anyone else's behavior, since I can just look and see.To repeat, I insist it ultimately is highly plausible to you, since you painfully kill a lot of bugs - at least indirectly by living in a house, driving a car, etc. And you're a wonderful person, so you wouldn't do such things if you really believed your general principle. You could protest, of course, that bugs don't feel pain. That seems unlikely to me, for reasons well-explained by the pro-bug rights people I discussed. But suppose we grant that bugs don't feel pain. Your position still implies that if bugs did feel pain, it would be morally impermissible to build a house. After all, you could just live in a tent and leave the bugs in peace. Is that really plausible to you? * While this doesn't imply that abortion is murder, it strongly suggests that killing a fetus is far worse than killing a bug. OCTOBER 9, 2016
Looking over my posts in the last few years, I realized that I had promised to tell my story of dealing with the toughest editor I ever had: the legendary Dan Seligman of Fortune magazine. I'll tell it in two parts. The first, today, is how I maneuvered to get past security in the Time/Life Building in Manhattan so I could get to his floor and meet him. But first some context to explain why this was a big deal. Many libertarians and conservatives, when they got their copy of Fortune in the mail in the 1970s and 1980s, turned first to his "Keeping Up" column. It was entertainingly written and always insightful. Although as far as I know, Dan never took a course in economics, he had a solid understanding of economics. I've written about him a little here. In August 1983, Fortune published my article "The Myth of MITI." In it, I took on the idea that Japan's Ministry of International Trade and Industry (MITI) (a) was a powerful planner of Japan's economy and (b) made good decisions about Japan's economy. At the time, industrial planning was all the rage with a certain segment in the United States and people were using MITI as Exhibit A of a successful industrial planner. My article started as follows: Early in the 1950s, a small consumer-electronics company in Japan asked the Japanese government for permission to buy transistor-manufacturing rights from Western Electric. Permission was necessary because at the time foreign exchange was controlled by the tax and trade ministries. The Ministry of International Trade and Industry refused, arguing that the technology wasn't impressive enough to justify the expenditure. Two years later the company persuaded MITI to reverse its decision and went on to fame and fortune with the transistor radio. Its name: Sony. The article made a bit of a splash. Indeed, it won the 1984 Mencken Award for Best Investigative News Article. I knew in the spring of 1984 that my pregnant wife and I were moving out to Monterey in the summer of 1984 so that I could be on the faculty of the Naval Postgraduate School. I had bargained for a pretty decent salary for an academic but because my wife and I both wanted for her to be a full-time mom with only a little free-lance work on the side, we needed more than my salary for us to buy a house in the, even then, high-price Monterey market. So my income plans required that I make at least $10,000 a year in free-lance income. The Washington bureau chief for Fortune, Paul H. Weaver, who had given me my opportunity with "The Myth of MITI," told me that I should consider writing book reviews for the "Books and Ideas" section of the magazine, which Dan edited. At the time, book reviews were typically about 1,500 words long, so that a reviewer could have space to really critique the book. And the author's fee was $1,500. My plan was to do 5 or 6 of those a year. But that required that I actually meet Dan. I'm usually better at selling myself in person. I love people, and that shows when I meet them. Less so on the phone. In April 1984, while I was a senior economist at the President's Council of Economic Advisers, I was in New York on a Friday to give a speech. I had a few hours before heading home to D.C. and so I went into Manhattan to see Dan. When I went to the building, I learned that you had to give them the name of someone you were visiting so that they could write out a pass and you could get by the guard at the elevator. I thought it was too high risk to give them Dan's name. David who? So I thought through the names of people I had dealt with long-distance as part of the editing process for Myth of MITI. As the woman called up each of the two people, she struck out. They were either gone or not at their desks. Then I remembered that I had met Fortune writer Al Ehrbar in Rochester in 1976 when he, his wife, Michael Jensen, his wife, and I had gone out for dinner. Al was a star graduate of the University of Rochester's B-school Executive MBA program and had used his degree to move up from the Rochester Democrat and Chronicle to Fortune. I asked the woman at reception to call up. Al was at his desk and invited me up. We had a nice chat and I then asked where Dan's office was. He pointed the way and I went to Dan's office, saw his door was open, and knocked on the open door. I told him who I was. It turned out that he remembered, and liked, Myth of MITI. He warmly invited me in and we talked about the people we knew, or knew of, in common: Mike Jensen, Gene Fama, and Armen Alchian are three who come to mind. I told him that I wanted to write book reviews for him. He asked me if I could handle reviews of books that got technical: math, econometrics, etc. I told him I could and he perked up. He said he had no one in his stable of writers who could do that. (Spoiler: Not once, in the approximately 20 reviews I wrote for him, did I ever need those skills.) He promised to keep me in mind for book reviews. I knew to strike when the iron was hot. "Do you have anything now?" I asked. He went to a huge pile of books behind his desk and pulled out Arjo Klamer's Conversations with Economists. I told him I would read it and tell him whether I thought it was appropriate. To be continued.
CATEGORIES:
Entrepreneurialism
OCTOBER 9, 2016
Tyler Cowen and Alex Tabarrok have a new debate on "Econ Duel", discussing whether robots are taking our jobs. Who's right? I don't think we know. Tyler argues in the affirmative, and suggests that this problem will increase over time. Larry Summers has also made this argument. At least in Tyler's case, he's not using one of those old "lump of labor" type arguments. He understands why fears of the effect of automation during the Great Depression later proved inaccurate, or at least premature. Instead, he argues that automation is reducing the job prospects, including the relative wage level, of certain sectors of the labor force---especially less skilled males. Alternatives such as video games are becoming more appealing. He points to the fact that labor force participation for men has been declining for quite some time. Until the past 10 or 15 years, that trend was covered up by rising participation among women. But that rising trend for women has also ended, and perhaps reversed. Because of factors such as college education and early retirement, many people like to look at the 25-54 age demographic, which is considered a prime age to be working. If lots of people in this age group are not looking for work, then it suggests something might be wrong. Here's the data:
What makes this tricky is that these factors may interact. Thus robots might replace some of the jobs that ex-cons used to do. In that case, it's the interaction of automation and incarceration. I think it's possible that automation plays at least a small role in the 2.5% drop---perhaps by depressing the wages of unskilled workers, and making the unskilled work still available less attractive than other options. In this area, it's always best to try to approach the issue as unemotionally as possible. It doesn't help to draw sweeping conclusions, such as "it's all about laziness, after all the Mexican immigrants can find jobs" or "it's all about a lack of aggregate demand, after all the big drop occurred during the recession." People are complicated and dozens of factors can interact to produce a given outcome. Look at the comment section after their debate, and you'll see how not to think about this sort of issue. When I think about causation, I approach it in terms of counterfactuals. Suppose we moved away from free trade? Suppose we discouraged automation. Suppose we reduced the benefits paid to middle age people not working. Each policy counterfactual might or might not have much effect, at the margin. My hunch is that reducing benefits and reducing incarceration would slightly boost the participation rate--but nothing dramatic. (Reduced incarceration may be worth doing for other reasons.) I'm agnostic on the impact of trade and automation restrictions, but if pressed I think automation is probably more important than trade. (Read my earlier post on the steel industry, where the effects of trade were vastly smaller than automation.) I simply don't know if the negative side effects (on jobs) of those restrictions on trade and automation would more than negate any positive benefits on jobs through reduced inequality of wages. To conclude, economics is not (yet) a powerful enough science to tell us whether automation is costing jobs. If robots are taking our jobs it's not the direct effect, as the lump of labor argument is a fallacy. It's not due to falling AD, as the central bank offsets that factor. It's not due to less income going to labor---their share of national income is almost identical to the level back in 1965. Rather it would be due to increasing wage inequality, which reduces the attractiveness of work for low skilled people---especially men. Also, even if robots have cost some jobs over the past 15 years, we have no idea whether they will continue to do so.
CATEGORIES:
Labor Market
, Labor Mobility, Immigration, Outsourcing
, Macroeconomics
OCTOBER 9, 2016
This Wednesday, former EconLog blogger James Schneider is coming to GMU to present a draft of his amazing new book, The Deadly Sins: An Exploration of Behavioral Health Economics. Schneider, a true polymath, interweaves research in economics, medicine, and psychology to teach us how to think and what to think about diet, exercise, addiction, mountain-climbing, and much more.
I've been reading drafts of this book for years, and I am a huge fan. This is the book that deserves to be the next Freakonomics. Publishers, you heard it here first!
CATEGORIES:
Behavioral Economics and Rationality
, Books: Reviews and Suggested Readings
, Economics of Health Care
OCTOBER 8, 2016
Seems like a new theme...Again this week, I was happy to see Jason Zweig's post on his experience with "one of the best interviewers anywhere," our very own Russ Roberts. And it turns out that this week's guest is also quite the blues enthusiast, frequently jamming with her band, the Tomtown Ramblers. And here's Clay Shirky's review of O'Neil's book, Weapons of Math Destruction, in the New York Times. (Shirky, too, was a guest on EconTalk back in 2008. I loved "Here Comes Everybody"...) Another recent EconTalk episode that generated its share of controversy was this one with Terry Moe, in which he proposes greater legislative power for the President at the expense of the Congress. So I was interested to see this Washington Post story about the move to increase the US House of Representatives. Which one seems the better plan to you? If you've been following the unfolding Brexit drama, the Telegraph reprints Theresa May's speech at the Conservatives' annual conference in Birmingham. She calls for "an economy for everyone" and a much more activist role for government. Not quite the sort of vision for Britain offered here by Pedro Schwartz... Also a lot of noise this week regarding who will be announced as the newest Nobel laureate next week... Our own David Henderson offered his thoughts here, and Don Boudreaux here. At Marginal Revolution, Tyler Cowen put out two possibilities. The folks from Reuters, who have a pretty good track record, name these two. Here's the list of all the past recipients; you can also access their Nobel addresses. What do you think? Who WILL win, and who SHOULD win? What else are you reading these days?
CATEGORIES:
EconTalk
, Economic Education
OCTOBER 8, 2016
Constitutional issues are very intricate, and this one isn't an exception. As happened in England with Brexit, it is easy to forecast that a fair number of people will be voting one way or another not because they have a reasoned opinion over the new constitutional text - but to signal satisfaction or dissatisfaction with the way prime minister Renzi is helming the country. This should come as no surprise: indeed, most people are not eager to invest time and effort to make sense of something as arcane as constitutional change. One of the reasons Mr Renzi and his allies claim this reform is needed is to provide the country with more stability. That might be true, but almost invariably in the international media that idea is echoed by comments on the fact Italy has had governments with "mayfly-like lifespans:" 63 executives in 70 years. This should be qualified with another observation: Italy may have had 63 governments in 70 years, but it has had only 27 heads of governments. What I want to say is that between 1948 and 1994--the 46 years during which Italy had 50 different governments--the country wasn't politically unstable: it has been remarkably, perhaps excessively, stable instead. All these governments were voted by a parliamentary majority in which the biggest party was invariably the Christian Democracy: before it was swiped away by corruption allegations, a remarkably successful party, which had stayed in power without interruption since the end of World War Two. Top government positions were easily rotated precisely because just the same people were in power all the time, and giving them ministerial jobs was the way to keep them happy. There are several reasons why this happened; the most important one was geopolitical constraints. Italy was part of the Western bloc and, while the Communist Party was regularly the second largest one in national elections, they could not really gain national government. Many of the Italian diseases, still here today, came about because in this regime of "blocked democracy," the Christian Democrats bought consensus by public spending. But the phrase "you go to London to see the change of the guard and to Rome to see the change of the government" is a nice joke, but not a good description of the kind of system Italy has had since the end of WWII.
CATEGORIES:
Eurozone crisis
OCTOBER 7, 2016
The Financial Times has a report that Americans are becoming increasing supportive of globalization: While Donald Trump has called for a rewrite of US trade deals and moots the imposition of tariffs on imports from China and Mexico, two in three Americans still believe globalisation is "mostly good" for the US, according to the Chicago Council on Global Affairs. This reminds me of pot legalization---the people strongly support it, while the leaders of both parties are opposed. If only we had a democracy. Americans are also less and less likely to worry about the effects of immigration: The survey found a deep divide among voters on the critical topic of immigration -- one of the driving forces behind Mr Trump's support. If you average the Democrat and Republican numbers, you get 60% seeing immigration as a critical threat in 2002, vs. only 47% today. That may be because the largest number of immigrants now come from Asia and tend to do well economically, whereas back in 2002 most came from places like Mexico, which led to anxiety about a new underclass of poor Americans. So how can we explain the Trump phenomenon? While a greater share of Republicans than Democrats were supporters of globalisation in 2006, today the position is sharply reversed. Three-quarters of Democrats put themselves in that category, compared with 59 per cent of Republicans and less than half of Mr Trump's supporters.It's clear that Trump (and Bernie Sanders) have a hard core of support for their anti-trade message, but the country as a whole is becoming increasingly pro-trade.
CATEGORIES:
International Trade
, Labor Mobility, Immigration, Outsourcing
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