SDRS for solar panels

SDRS stands for “subsidize demand, restrict supply.” This public-choice model of policy applies to solar panels, where the restriction on supply comes in the form of a possible tariff.

Posted in public choice | 12 Comments

Phillip W. Magness on the Leonard book review

Like me, he finds the review troubling.

Oddly enough, the 19 or so pages that follow provide very little in the way of specific examples of where Leonard allegedly committed these scholarly sins. It simply asserts them as so. The charges are rendered doubly ironic when one realizes that co-author Steinbaum has also spent the last few months as one of the most vocal and public advocates of Nancy MacLean’s evidentiary train wreck of a book, Democracy in Chains.

Thanks to a commenter for the pointer. Read Magness’ entire commentary, with which I agree. I wonder how the editorial decision of the Journal of Economic Literature can be explained.

Posted in books and book reviews | 3 Comments

The iPhone X

Ben Thompson writes,

The iPhone X sells to two of the markets I identified above:

  • Customers who want the best possible phone
  • Customers who want the prestige of owning the highest-status phone on the market
  • Note that both of these markets are relatively price-insensitive; to that end, $999 (or, more realistically, $1149 for the 256 GB model), isn’t really an obstacle. For the latter market, it’s arguably a positive.

    Thompson is giving irrational reasons for people to buy this phone, and maybe those will be sufficient. But no review that I have seen has made a use case for it, and for many people $1000 is real money. If consumers behaved rationally, then the iPhone X would join New Coke in the annals of product rollouts.

    It seems to me that Apple is not going to convince Android users to switch to this new phone. So basically their goal is to gouge their existing customers when they need to replace their phones. They figure that people are afraid of losing important information if they switch from iPhone to Android, so they are picking a price point for the 8 that they think their existing users will suck up and pay. And they are hoping that these replacers will say to themselves, “Shucks, as long as we’re paying that much money, why not throw in a few hundred bucks more and get the X?” We’ll see.

    If my hypothesis about gouging existing customers is correct, then one would predict that Apple will deliberately deprecate old phones in order to coerce users into upgrading. You can expect to see “we no longer support. . .” whenever they think they can get away with it. Upgrade your iPhone 7 to the latest version of IOS? No can do. Data backup? Sorry, does not work on old phones any more. etc.

    Posted in business economics | 29 Comments

    Sociotropic voting

    Jeffrey Friedman writes,

    The assumption of self-interest does make sense as a starting point in analyzing economic behavior, because in modern societies, people are taught that self-interest is acceptable in their employment, business, consumer, and financial affairs. But they’re taught the opposite when it comes to government affairs. The standard, culturally accepted view is that public policy should advance the common good. So it’s not surprising that when non-economists talk about politics, the common good is what they talk about.

    The essay is a valuable lesson in political science. Some key points.

    1. People vote for what they think is best for the country. Of course, their thinking may be off base.

    2. Ideas matter. Political scientists, like all social scientists, are prone to treating people as machines, so that only tangible things influence votes. But in fact people vote on the basis of ideas in their heads.

    Tendencies in voting by age, class, or ethnicity are mediated by ideas. It is not that African-Americans are genetically disposed to vote for Democrats. They are acculturated to ideas that make it right to vote for Democrats.

    3. People’s ideas about politics are influenced to some extent by the media. Of course, the causality runs also in the other direction–people’s choice of media is influenced by their political inclinations.

    4. One study that Friedman cites suggests that the increase in polarization in recent years can be explained entirely by changes in the media environment.

    I think that these observations tie in with the negative feelings that Russ Roberts and I have about the political environment. We agree that ideas matter. And the trends there look bad to us. First, a lot of bad ideas are gaining currency about economic issues. Second, people on both right and left have the idea that they are certainly right and that those who disagree are certainly evil, and the media environment is serving to reinforce this. Third, the ideas that seem to be prominent on college campuses seem particularly worrisome.

    Posted in Jeffrey Friedman is provocative, Politics | 15 Comments

    Price Discrimination Explains Everything

    Alex Tabarrok writes,

    How could Tesla increase the mileage at the flick of a switch? The answer is that owners of the Tesla 60kWh version of its Model S and Model X actually have the same battery as the 75kWh vehicles but the battery has been purposely limited or “damaged” to provide only 60KWh of mileage. But why would Tesla damage its own vehicles?

    The answer to the second question is price discrimination! Tesla knows that some of its customers are willing to pay more for a Tesla than others. .. Tesla must find some characteristic of buyers that is correlated with high willingness-to-pay and charge more to customers with that characteristic.

    He cites Deneckere and McAfee on damaged goods as price discrimination. I think that Varian and Shapiro would prefer to just call it “versioning,” and of course their classic Information Rules is mostly about price discrimination in a world with low variable costs. And if you think that price discrimination is a new phenomenon in the auto industry, I’ve got an early 1960s Pontiac to sell you.

    Posted in books and book reviews, business economics | 6 Comments

    Four political parties

    In the NYT, Peter Baker writes,

    Although elected as a Republican last year, Mr. Trump has shown in the nearly eight months in office that he is, in many ways, the first independent to hold the presidency since the advent of the current two-party system around the time of the Civil War.

    If so, that is because the two-party system has fractured. Of course, the U.S. electoral system is highly conducive to two parties. But I would say that right now there are four.

    1. Hard left. Sees socialism as a term with positive connotations and capitalism as a term with negative connotations. Does not see anything wrong with refusing to allow conservatives to speak in public.

    2. Bobo center. Strongly favors lenience on immigration. Liberal on social policy. Generally content with the status quo on most economic issues, but worried about inequality.

    3. Anti-Bobo heartland. Strongly favors restrictive immigration policy and “America first” foreign policy and trade policy. Very suspicious of the other three parties.

    4. Conservatarians, meaning conservative-flavored libertarians or libertarian-flavored conservatives. I don’t count the fringe folks on the alt-right–they are electorally irrelevant and out of the picture. There are some Republicans in Congress who are conservatarians, but not any that I know of on the alt-right. Conservatarians worry about unsustainable fiscal policy, the power of the regulatory state, and a loss of key values, such as individual responsibility and respect for freedom of speech.

    Note that you might not consider yourself to be in any one of these parties. Note that in the wake of the Trump ascendancy many libertarians feel more comfortable in the Bobo center. But I am more comfortable with the conservatarian crowd.

    The Democratic Party is a fragile coalition of the hard left and the Bobo center (plus some ethnic groups that may or may not be reliably Democratic going forward). The Republican Party is an even more fragile coalition of the anti-Bobo heartland and conservatarians. Individually, none of these four parties is anywhere close to a majority. Even a landslide win in 2020 by Democrats (or, less plausibly, by Republicans) will not mean that a majority favors anyone’s agenda.

    With the debt ceiling deal, President Trump showed a willingness to break with the conservatarians. My guess is that they will end up patching things up and working together, but the message that the President is sending is that he thinks that the conservatarians need him more than he needs them.

    There is a good chance that the Democratic nominee in 2020 will cater to the hard left. If so, then this will give the Bobo center the sort of discomfort that the conservatarians feel with the Trump phenomenon. William Galston’s recent piece foreshadows this. It will also make it difficult for the conservatarians to abandon Mr. Trump.

    Posted in David Brooks, Politics | Tagged | 13 Comments

    A negative review of Thomas Leonard

    In the important Journal of Economic Literature, Marshall I. Steinbaum and Bernard A. Weisberger write (gated, unless you are a member of the American Economics Association),

    Motivated history is not good history. And the approach the book takes is particularly unlikely to yield fruitful insight: sweeping statements about what “the progressives” believed, festooned with cherry-picked quotes and out-of-context examples, without much of a hearing for either their opponents or for debate and disagreement among themselves. The result is a powerful brief arguing that the intellectual movement of that era has a decidedly problematic legacy on eugenics, racism, gender equality, immigration, and in countless other ways that would give pause to anyone looking to elevate their legacy. But all, or at least much, of that history was known—revealed decades ago

    The book to which they refer is Illiberal Reformers, which I reviewed here.

    In the paragraph above, opening sentences would lead one to believe that Leonard’s account is not accurate, but then the phrase “known–revealed decades ago” would lead one to believe that it is accurate.

    I wish that the authors had listed some of the “cherry-picked quotes” and “out-of-context examples.” I finished the review without seeing any.

    In my review, I wrote

    Leonard also point[s] out that racism was not the exclusive province of Progressives. He notes the Anglo-Saxonism of Senator Henry Cabot Lodge and other conservatives

    The authors of the JEL review claim instead that Leonard only singles out racists on the Progressive side.

    I think my review better reflects the contents of the book. But as academic economics proceeds along its road toward left-wing sociology, it hardly surprises me to see the Journal of Economic Literature publish essays that are uncharitable to those on the right.

    Posted in books and book reviews, links to my essays | 4 Comments

    Heterodox introductory economics

    Samuel Bowles and Wendy Carlin write,

    The Economy takes on board the fundamental innovations of Hayek and Nash used in contemporary economics research. But concerns about climate and other market failures as well as economic instability provide reasons to doubt Hayek’s argument that governments should limit their activities to enforcing property rights and other rules that permit markets to function.

    Pointer from Mark Thoma. They refer to this free textbook. I can see that I disagree with a lot of it. For example, The Economy says,

    Through most of their history, humans have regarded natural resources as freely available in unlimited quantities

    This seems wrong to me. Prior to the invention of agriculture, humans had to take into account the limited availability of resources. If nothing else, when hunter-gatherers exhaust a food supply in an area, they have to move or face starvation.

    Instead, I would emphasize that the price-and-profit system encourages humans to use our ingenuity to reduce our dependence on scarce resources. This natural tendency toward conservation in a capitalist economy is one of the most important concepts for economists to teach. Thus, the environmental lesson in their book is nearly the opposite of mine in Specialization and Trade.

    Still, there are many ways in which their textbook strikes me as a constructive improvement over the textbooks in the Samuelson tradition. I am very sympathetic to their effort to bring more heterodox views into introductory teaching.

    Posted in Introductory Economics, Mark Thoma is Indispensable | Tagged , | 5 Comments

    Don’t let it bring you down

    To paraphrase Neil Young, here is a new essay that’s guaranteed to bring you right down. It’s by Russ Roberts.

    The current state of the country and the current state of political and intellectual conversation depresses me in a way that it never has before.

    I share his despondent mood. Here are what I see as the causes.

    1. For a conservative-flavored libertarian, or libertarian-flavored conservative, the Overton Window is moving away from our views all over the place. Health care policy obviously, where Obamacare is most likely to be replaced by full-on single payer. Fiscal policy in general, where tax and spend (or maybe just spend and spend) is entrenched. Trade policy, where protectionism now has bastions in both parties.

    Mainstream economics will soon be all about inequality, secular stagnation (i.e. the theory that government needs to spend because everyone else is saving too much), climate change, race/gender bias, market failure, and market power. In other words, reinforcing rather than counteracting what Bryan Caplan calls anti-market bias in the general population.

    The Trump Presidency is not the solution to this Overton Window trend, and one can argue that it is part of the problem. The Republican Party won about as much as it possibly could last November, but in terms of American football, the Republicans have not moved the ball. When the Democrats get it back, they will have excellent field position.

    2. The people who care most about politics want to have their outrage validated. The media cater to that desire. Does the sight of neo-Nazis marching validate your outrage as a progressive? The progressive media will make as big as story as possible out of it. Do the antics on campus validate your outrage as a conservative? The conservative media will make as big a story as possible out of it. This reinforces the destructive feedback loop to which Roberts refers.

    3. The Internet encourages immediate reactions. As articles appear, your instinct is to share those with which you agree and denounce those with which you disagree You don’t take the time to think through an issue in a nuanced way. In fact, stories come and go so fast that by the time you think about something, it is no longer being discussed.

    4. The U.S. lacks an external threat that is widely recognized and powerful. Sure, some people think that Muslim radicalism is an existential threat. Some people think that climate change is an existential threat. But for an external threat to lead us to pull together, there needs to be a consensus about the threat. Without the consensus, these sorts of fears instead exacerbate divisions. Russ and I worry that the outrage cycle is an existential threat. But that is an internal issue, not an external one.

    In conclusion, it looks as though the country is in what some have called a cold Civil War. That is unsettling enough. Moreover, it seems highly probable that the left will come out on top, and that it will in victory show no signs of heeding Lincoln’s call for “malice toward none and charity to all.”

    Posted in Politics | 9 Comments

    Hanson, Hurricanes, and Price Gouging

    Describing our primitive ancestors, Robin Hanson writes,

    when the group was stressed and threatened by dominators, outsiders, or famine, the collective view mattered less, and people reverted to more general Machiavellian social strategies. Then it mattered more who had what physical resources and strength, and what personal allies. People leaned toward projecting toughness instead of empathy. And they demanded stronger signals of loyalty, such as conformity, and were more willing to suspect people of disloyalty. Subgroups and non-conformity became more suspect, including subgroups that consistently argued together for unpopular positions.

    I suppose that people see charging a high price for something in the wake of a hurricane as disloyal. The situation calls for group solidarity, and instead here is this merchant looking out for himself.

    Posted in culture | 9 Comments