Profit vs. Nonprofit

Natalie Scholl writes,

AEI’s Values and Capitalism program just released a new book titled “Entrepreneurship for Human Flourishing.” In it, the authors, Chris Horst and Peter Greer, argue that entrepreneurial businesses, “which sustain productive development long after charitable giving dries up,” are the real engine of true human flourishing. Here, Horst and Greer answer a few questions about the book.

In a number of posts, I have argued that we should raise our estimate of the moral standing of profit-seeking enterprises relative to that of non-profits.

Russ Roberts and Chris Blattman

Interesting throughout. One early excerpt:

Russ: Yeah. I have a different perspective. I give money to food banks, also. But I also like giving cash to poor people, particularly [?]–I hate to say this; my offense on people, and I don’t know if I’ve talked about this on EconTalk because, particularly if they are going to spend it on drugs and alcohol, I sometimes feel like it’s good to give them cash. Because sometimes when you are desperately miserable, drugs and alcohol might be what you want. People say to me: Doesn’t the donor have a right to decide what the money is spent on? Of course the donor can earmark it. You can give to the food kitchen if you want, or I can. But I like the idea that I respect the recipient, and I treat the recipient like an adult, not like a child, and I don’t decide for that person what’s good for them. I let them make that decision. And I think that’s a dignified way to interact with desperately poor people. Even when they are a little bit off the beaten track

This Story Angered Me

It is about Brandeis professors.

Basically, they expressed some typically left-wing, occasionally anti-Semitic opinions on a Listserv.

In response, the university vigorously defended their right of free speech. Which is absolutely the correct response, in my opinion.

However, this is the same Brandeis that would not allow Ayaan Hirsi Ali to receive an honorary degree. Where was the vigorous defense of free speech back then?

I don’t think it occurs to Brandeis administrators and others on the left that if they are going to defend free speech and open inquiry, that this includes opinions with which they disagree.

Scott Sumner on AS-AD

A good post. Read the whole thing. He ends up,

I’d like to dispense with all discussion of AS and AD, and replace it with nominal shocks and real shocks. A nominal shock is an unexpected change in NGDP. A real shock changes the price/output split for any given level of NGDP. As Tyler suggests, one type of shock is often entangled with the other. But it’s still important to keep them clear as a theoretical matter, so that we can think clearly about how monetary policy should respond (or not respond) to various types of situations.

PSST is all about real shocks. I am inclined to think of money and inflation as “consensual hallucinations.” That is, people get into habitual ways of undertaking transactions and adjusting prices. In the 1970s, these habits changed quite a bit. In other periods, they have been more stable. Often, the “noise” in prices (problems with measuring the “aggregate price level”) is large relative to any signal that might be inferred from changes in the measured rate of inflation. So I think that attempts to explain inflation on the basis of alleged causal variables, whether monetary or real (e.g., the unemployment rate) involve torturing the data to obtain a confession.

John Hussman on the Phillips Curve

He writes,

The resulting relationship can be stated very simply: wages rise, relative to other prices, when unemployment is low and labor is scarce; wages fall, relative to other prices, when unemployment is high and labor is abundant. The chart below nicely illustrates this relationship in U.S. data. It relates current unemployment to subsequent real wage inflation.

The charts (at the link) shows very noisy relationships between nominal variables and unemployment but a reasonably strong inverse relationship between unemployment now and real wage growth later.

Thanks to a commenter for the pointer. I remain concerned that macroeconomists have very elastic theories and empirical methods that can be used to confirm almost any story.

The Era of Mood Affiliation

Menzie Chinn, who may or may not endorse the content, offers a guest post by Alex Nikolsko-Rzhevskyy, David Papell and Ruxandra Prodan. They write,

How does this relate to the proposed legislation? Our evidence that, regardless of the policy rule or the loss function, economic performance in rules-based eras is always better than economic performance in discretionary eras supports the concept of a Directive Policy Rule chosen by the Fed. But our results go further. The original Taylor rule provides the strongest delineation between rules-based and discretionary eras, making it, at least according to our metric and class of policy rules, the best choice for the Reference Policy Rule.

In the current political climate, the proposed legislation will inevitably be interpreted in partisan terms because it was introduced in the House Financial Services Committee by two Republican Congressman. Not surprisingly, the first reporting on the legislation by Reuters was entirely political. This is both unfortunate and misleading. We divided our rules-based and discretionary eras with the original Taylor rule between Republican and Democratic Presidents. If we delete the Volcker disinflationary period, out of the 94 quarters with Republican Presidents, 54 were rules-based and 40 were discretionary while, among the 81 quarters with Democratic Presidents, 46 were rules-based and 35 were discretionary. Remarkably, monetary policy over the past 50 years has been rules-based 57 percent of the time and discretionary 43 percent of the time under both Democratic and Republican Presidents. Choosing the original Taylor rule as the Reference Policy Rule is neither a Democratic nor a Republican proposal. It is simply good policy.

I would take the empirical work with a grain of salt. Imagine that monetary policy has no effect whatsoever. Then the Fed may be more likely to appear to be following a Taylor rule when the economy performs well than when it performs poorly.

(Tyler Cowen comments tersely on the post, “not my view.” See Nick Rowe as well.)

But the larger point is that the authors correctly guess that the reaction to the legislation will be based on mood affiliation rather than substance. See my earlier post.

The other recent example suggesting that we are in an era of mood affiliation is the Ex-Im bank.

Two SNEP Goals Connected

Jed Graham writes,

The $2.8 trillion Social Security Trust Fund is on track to be totally spent by 2030, the Congressional Budget Office said Tuesday. That’s one year earlier than projected in 2013 and a decade earlier than the CBO estimated as recently as 2011.

Graham points out that lower estimates for employment are contributing to the more adverse outlook for Social Security. I would say that this links two of the three main goals for SNEP, one of which is to increase employment and another of which is to work toward a sustainable Federal budget.

In fact, the third goal, to get the FCC and the FDA out of the way of progress, also links to the other two.

Break up California?

Tim Draper’s proposal.

“It’s important because it will help us create a more responsive, more innovative and more local government, and that ultimately will end up being better for all of Californians,” said Roger Salazar, a spokesman for the campaign. “The idea … is to create six states with responsive local governments – states that are more representative and accountable to their constituents.”

…But the plan has raised bipartisan hackles across the state, and opponents say it stands little chance of gaining voter approval. If it does win the support of voters, it must still be passed by Congress, which opponents say is also unlikely.

This may be the best hope for those of us who want better, less-intrusive government. Governmental institutions need to be broken up into smaller parts, both in size and scope. Narrowing scope means having different units of government for education, transportation, trash collection, etc.

Boudreaux on McCloskey

He writes,

Until the 17th century, those who earned their living through trade were the Rodney Dangerfields of their eras: they got no respect. Merchants and other people operating on the supply side of commercial activities and transactions were tolerated. But they were viewed and spoken of with contempt. Unlike warriors who dirtied their hands honorably (namely, with blood), traders dirtied their hands dishonorably (namely, with profit). Unlike the nobility who got their riches honorably (namely, by idly collecting land rents), merchants got their riches dishonorably (namely, by actively trading). Unlike the clergy who won their rewards honorably (namely, by pondering the eternal), the bourgeoisie won their rewards dishonorably (namely, by responding to what Hayek later called “the particular circumstances of time and place”).

In the same symposium, Joel Mokyr writes,

Corruption is the institutional dog that did not bark. It is perfectly reasonable to think of a hypothetical world in which predatory rent-seeking by a powerful elite could have expropriated the profits of innovative entrepreneurs in the Industrial Revolution, as was traditionally done in the medieval world. Instead, the British aristocrats who ruled the country in the 18th century let the entrepreneurs have their way and pocketed the capital gains on their real estate holdings and the interest on their railway bonds. Organizations such as the rent-seeking monopolies, set up in the age of mercantilism (think of the East India Company or the Bank of England), were either dismantled or turned into public institutions. Slowly but certainly rent-seeking institutions were weakened. By 1850 or so the country was as free of it as any nation had the right to hope for.

How then to think of the “ideas vs. institutions” debate? Oddly enough McCloskey and Acemoglu-Robinson both seem committed to a “one-or-the-other” mode. But it is not so. Institutions rest on beliefs. If we have rules against the sale of narcotics, it is because someone in power believes that such drugs are socially bad. When those beliefs change, the institutions (hopefully) adapt. Adaptiveness requires meta-institutions that can change the rules when beliefs and/or circumstances change. Britain’s great success between 1750 and 1914 rested on the existence of such meta-institutions. When needed, Parliament set up a committee that researched and investigated matters ad nauseam and then changed the rules. Slowly, and perhaps not always quite perfectly, British formal institutions adapted. But the same was true for private-order institutions: the rather sudden rise of country banks in the second half of the 18th century illustrates the high degree of adaptiveness of private-order British institutions