Arnold Kling  

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Jason Collins writes,


Incarceration removes young men from the mating market during their mating prime. As the propensity to commit crime is heritable, the removal of criminals from the mating market will reduce the frequency of the genes associated with crime in the next generation.

So prison sentences that are created for the stated purposes of punishment and deterrence have primarily eugenic value? Read the whole thing, as well as the article to which he refers.

Stephen Gordon writes,


the last time the real, per capita value of US housing equity was at its current level. Even after looking at all of these graphs, the answer astonished me: 1978

As Tyler Cowen would say, we are a lot poorer than we thought we were. Read the whole thing. Note that a big reason that housing equity is so low is that mortgage borrowing grew by more than even the bubble-inflated value of houses. It very much fits Cowen's story that people borrowed and consumed a lot because we over-estimated our wealth.

Russ Roberts writes,


Today, a couple of workers can manage an egg-laying operation of almost a million chickens laying 240,000,000 eggs a year. How can two people pick up those eggs or feed those chickens or keep them healthy with medication? They can't. The hen house does the work--it's really smart. The two workers keep an eye on a highly mechanized, computerized process that would have been unimaginable 50 years ago.

Yes, there is technological unemployment. Russ continues,

Somehow, new jobs get created to replace the old ones. Despite losing millions of jobs to technology and to trade, even in a recession we have more total jobs than we did when the steel and auto and telephone and food industries had a lot more workers and a lot fewer machines.

Re-reading the first sentence, with its passive voice, I can almost feel his hands waving. The PSST story is that entrepreneurs must figure out how to reallocate resources when productivity rises faster than demand in some industries. I want to suggest that it can be a very difficult process. As labor gets more specialized and production processes become more roundabout, large adjustments require more steps.


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COMMENTS (15 to date)
Daublin writes:

" I want to suggest that it can be a very difficult process."

Worth emphasizing is that the difficulty is only if we are talking about one person cracking the nut by themself.

Suppose you had a million people working on the problem. A million talented people with just the right personality to try out businesses that will more than likely fail. Now imagine the million most plausible new business models. Have the million people try out the million business models. If even 1% of them work, we will be awash in new job opportunities.

I think it's very easy to solve these problems if we have a culture of experimentation in business models. If we take a million swings at the ball, we'd have to be impossibly unlucky to strike out.

One part of that culture is to recognize that people experimenting in business models are heroes. They are the source of the job market.

Adam writes:

Daublin: Great comment and insight! Thanks.

bandit writes:

"If we take a million swings at the ball, we'd have to be impossibly unlucky to strike out."

In baseball you only get 3 strikes.

Effem writes:

"Suppose you had a million people working on the problem. A million talented people with just the right personality to try out businesses that will more than likely fail. Now imagine the million most plausible new business models. Have the million people try out the million business models. If even 1% of them work, we will be awash in new job opportunities."

Yes, but what if, as a result of technological change, these business models tend to have the common theme of replacing labor with technology? Then this creative destruction could actually be a net negative for labor as more labor intensive businesses are driven out of business.

This is an amazingly complicated analysis - not sure broad brush strokes (in either direction) have any prayer of being accurate.

Ted writes:

I have a few questions about PSST for you.

1) How similar is your idea of PSST to David Levine's Production Chain's? The concepts seem pretty similar and I'm wondering if yours is just a vague literary expression of Levine's idea.

2) What observation could falsify PSST? It seems to me every piece of data could be rationalized with PSST because is so vague. In fact, your concept is so vague it's to the point of being meaningless. Just tell me what reasonable piece of observable data could disprove your theory. Most of your evidence is, frankly, anecdotal.

3) For that matter, what data would distinguish your theory from other plausible mechanisms of the business cycle with far greater quantitative and microeconomic foundations?

4) Why is this recession so persistent? You can't just say reallocation is a "difficult process" - like a lot of things about your theory this is so vague that it's a worthless statement. If everything is about reallocation wouldn't we have seen some experimentation and reallocation already? Maybe not enough to close the unemployment gap, but coming on the third year shouldn't we have seen some kind of reallocation - any kind? The Beveridge Curve evidence suggests there is some structural unemployment (though I caution this doesn't tell us about recruiting intensity, which could be problematic), but not enough to explain the current high unemployment - especially once you consider the labor force participation rate, which probably puts "unemployment" well above 10%. I guess you can argue the idea is entrepreneurs are still trying to figure out what to do and that's why the vacancy data doesn't support a reallocation story. But then isn't the recession really just a story of entrepreneurs suddenly becoming dumber? Also, you can't appeal to the idea of a skill mismatch problem since an intelligent entrepreneur wouldn't try an idea where the necessary labor didn't exist.

5) Why do some reallocations happen slowly over decades or years and some happen quickly? Is the problem anticipated versus unanticipated?

Lord writes:

If there has been a Great Stagnation, it is no wonder we are a lot poorer than we thought we were. It is also no wonder reallocation has been glacial.

Clay writes:

The eugenic effect of incarceration is obvious, but I'd argue that it's dwarfed by the larger trend that fertility is inversely correlated with responsibility and education.

Anecdotally, most individuals that I know who've served lengthy prison sentences for repeated serious crimes have all sired large numbers of children, while the most responsible couples that I know often don't have biological kids, adopt kids, or only have one or two.

Mark writes:

The eugenic effect of incarceration could be strengthened through voluntary means: offer inmates state-provided sterilization, and take sterilization status into account for parole.

Arnold Kling writes:

Ted,
I will speak to your first question in a subsequent post.

I think of PSST as a paradigm, not as a theory. Hence, I do not look for a decisive test. It is a way to incorporate theories, as opposed to a theory itself.

Standard AS-AD comes across as more precise. But by the same token it tends to rule out or overlook many plausible theories. It tends to look for the One Key Market Imperfection that explains everything.

What I am saying is that the economy is really, really complicated, and AS-AD closes off too much thinking. In the mainstream, it doesn't include technological unemployment, or Kindleberger, or Leijonhufvud, or real-world adjustment without the Walrasian auctioneer, or the trial-and-error process of entrepreneurial experiments.

We may need all those theories, and more, to explain macroeconomic phenomena. So PSST is quite vague, but the idea is to try to move economists out from under the lamp post of AS-AD and instead look for where the watch got lost.

Ted writes:

@Arnold

So, you are arguing for incorporating these ideas into macroeconomic models? I don't find that objectionable, I just wish you would be more explicit about what PSST actually is. I have a feeling from your writing you have a better background story of what PSST really is than you let on in your blog posts and that's what I'm interesting in hearing.

I'm actually interested in the ideas of explicitly thinking about production and trade - rather than just throwing in under a representative firm with some production technology. As far as frameworks go, I think you would be interested in Angeletos and La'O's Decentralization, Communication, and the Origins of Fluctuations. Basically, they take an economy with multiple islands (in the sense of the old Lucas island model), make them have heterogenous information and specialization and engage in pairwise trade between islands and production and employment decisions must be made prior to trade. Now, the point of their paper is to demonstrate how heterogenous information and imperfect communication leads to extrinsic shocks which could themselves be origins of business cycles -without any fundamental shocks involved. What I think might be interesting would be to introduce Levine's Production Chains between islands and then talk about how imperfect communication and production chains interact with fundamental shocks to sectors. My guess is, this would actually be fairly fruitful and would begin to get at the issues you discuss in PSST. What I'm curious about though, is their model structure (e.g. multiple islands with specialization and trade with imperfect communication) in line with what you think macro should be doing?

Also, AS-AD is pointless - I think it's hard to argue against that. But I don't think you are arguing against AS-AD per-say, at least the way I read you. You seem more like you are arguing there are limitations to the aggregated approach as seen in New Keynesian DSGE models. When you use purely aggregated models without heterogenous agents; heterogenous production and specialization; financial intermediation; different classes of assets you run into problems. You can sweep these problems under the rug during "normal" times, but in events like what we've had for the last 3 years it just doesn't cut it..

Arnold Kling writes:

Ted, I do have a longer academic-style paper on PSST. However, it contains no equations. It may not ease your sense of vagueness.

Ted writes:

Do you have a link?

Also, I don't have any special penchant for equations. Nascent ideas are generally expressed better without equations first. Before an idea is firmly though out and explored I find using equations can sometimes actually lead you astray. I think they are useful expositive devices and I think quantitative analysis is important, but they are hardily required as a means of understanding. I just read your explanations of PSST and I feel like there is more thinking behind your sentences than just "people are trying to find new patterns of trade and specialization."

Evan writes:

@Clay

The eugenic effect of incarceration is obvious, but I'd argue that it's dwarfed by the larger trend that fertility is inversely correlated with responsibility and education.
If that's the case then why is crime going down?

Eric S. Raymond posted about this and proposed several theories to reconcile the falling crime rate with the idea that criminality is heritable, including:
-Criminality is correlated with attention span, so criminals are more likely to kill themselves on the highway.
-Criminality is correlated with heavy drug use, the ease of acquiring drugs in modern times means criminals are likely to overdose and die.
-Abortion and contraceptives have reduced the criminal population's size.

To this I might add that heritability could mean it's culturally transmitted, not genetically. Most criminals are poor men, and poor men are more likely to not live in the same household as their children as they were in the past. This could reduce cultural transmission of criminality. (Bryan has said his parental irrelevancy position doesn't neccessarily apply to poor people)

Peter writes:

"The PSST story is that entrepreneurs must figure out how to reallocate resources when productivity rises faster than demand in some industries."

I know what you mean, but entrepreneurs don't actually do that. They look for market opportunities and those idle resources are people looking for jobs who may or may not find one in the entrepreneurial activities. Whether an entrepreneur even thinks about idle workers is a whole other thing. The process is way round about.

Clay writes:

@Evan,

I'd suggest different reasons for decreased crime in the past few decades:

- More effective law enforcement. Law enforcement serves as a deterrent, and also stops repeat offenders and offenders who escalate from one crime to another. I recently heard pieces of the Ted Bundy story, and was shocked at how primitive law enforcement was in the 70's compared to today. I don't think a similar criminal could cause nearly as much damage today.

- Cheap passive entertainment has flourished. The quality, variety, and availability of Internet content, video games, and recorded video and music entertainment has soared. Even the lowest income Americans consume much more passive entertainment today than they did in previous decades. Maybe this is luring would-be criminals away from criminal activity and pacifying them?

- Success of the welfate state? A popular belief is that poverty causes crime and the article you linked claims that recent unemployment combined with reduced crime disproves that. I still think this effect holds when there is less of a social safety net and poverty can push families into crime infested shanty town slums without access to basic food, housing, education, and health care. But in America, even adults who've been unemployed for twenty years, often live in nice, safe, middle class neighborhoods, in free government single family homes with separate bedrooms for each child, have generous food stamp allowances with extra to sell for discretionary spending, and enjoy high quality medical care and education.

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