Carlos Lozada Reviews Yuval Levin

Lozada writes,

So how do we go about strengthening families, religious organizations, schools and all those mediating institutions? Levin’s recommendations are aggressively vague, and where they get specific they seldom surprise. He calls for a “mobility agenda,” with economic growth spurred by tax and regulatory reform, a more competitive and low-cost health-care system, lower budget deficits — all part of a standard conservative recipe. He proposes education reform that includes more professional certificates, apprenticeships “and other ways of gaining the skills for well-paid employment that do not require a college degree.” He prefers to untether employees’ retirement accounts and health insurance from any particular workplace, but acknowledges that this would require “more fundamental policy innovations, and it is not yet evident just what those will be.” Okay, then. It’s nice if the things you want are all bottom-up and empowering and networked and diverse and flexible, but adjectives are not policies.

The review is more sympathetic than what I expected. In my view, Lozada makes too much of the contrast between Levin and Trump. Of course, that contrast is quite strong, but dwelling on it does not help the reader of the review understand what is distinctive about Levin’s thought. For that, you should go back to my review. And read the book when it comes out, which will be in a few days.

Four Forces and Urbanism

Justin Fox writes,

Basically, urban life is becoming a luxury good in much of the U.S., in part because there isn’t enough of it to go around.

Pointer from Mark Thoma.

I think of this in terms of the four forces. The New Commanding Heights of education and health care tend to concentrate in inner cities. This helps draw affluent professionals to cities, leading to gentrification. Then you get the sorts of amenities that affluent professionals like–bike lanes, sushi restaurants, yoga studios. The urban-suburban demographics becomes sorted by taste as well as by occupation.

Martin Gurri on Elites vs. Democracy

He writes,

The elites’ loss of faith in democracy is directly proportional to their heightened loathing of the public. According to Cohen, the public is susceptible to “greed, prejudice, ignorance, domination, subservience and fear.” It worships political thugs like Donald Trump in the US and Jeremy Corbyn in the UK. It erupts into Tea Parties and Occupations that upset the steady progress of history. The elites, in brief, have come to doubt that their pet projects can be implemented democratically. They are shopping for alternatives.

Gurri ends up suggesting that Estonia and Iceland’s Pirate Party might offer workable models for the future. I think that it is fair to say that you won’t find that view widely expressed.

Idiosyncratic Housing Market Perspective

Kevin Erdmann, whose comments on this blog are much appreciated, wrote

There wasn’t even a housing boom. We all just decided to freak out about the one type of homebuilding that was growing – single family units for sale – and ignore every single other category of housing supply, which included homes built by owner, multi-unit homes, and manufactured homes. All of those categories had been in decline. Of course, it was the decline that created the illusion of a boom, because it was precisely those cities where we can’t build, yet where income opportunities are available, where home prices were skyrocketing, because households were bidding up the stagnant pool of homes in those cities in an attempt at economic opportunity in a country that has become inflexible.

What I think he is saying is this (and I could be wrong in my characterization):

1. Because of natural and artificial constraints on supply in cities like SF, the housing stock stays just about fixed, so any increase in demand shows up in price.

2. People have to live somewhere. When supply is fixed in some places, some households get pushed to other places. However, the rise in supply in those other places was never much ahead of demand.

3. If there were excess supply, we would expect rents to fall, and they have not.

4. The sharp fall in house prices came from tightening mortgage credit by much more than was necessary.

My own thoughts:

1. A fact that is salient to me is that the share of mortgages for non-owner-occupied homes went from about 5 percent before 2004 to at least 15 percent in 2006. To me, this says that at the margin there was some demand that was not driven by housing needs. Also, I believe that in housing the marginal supplies and demands exert big effects on prices, even though those marginal Q’s are small relative to the stock of housing and the total number of household.

2. Another salient fact is that the average price-to-rent ratio also shot up over this period.

3. This suggests to me that something other than “pure” supply and demand was at work in driving up house prices. I am inclined to see some combination of looser credit and (unrealistic) expectations for house price increases.

4. I think that Kevin is right to stress that the characteristics of housing markets differ in different locations. In SF or DC, rapid gentrification combined with restricted supply gives you one dynamic. (I don’t think I would pin it all on people bidding for “an attempt at economic opportunity,” as if these cities offer better jobs to people of every skill, which is what Enrico Moretti has claimed. Instead, I see a shift in economic opportunity inside cities away from low-skilled workers and toward professionals in the New Commanding Heights sectors.) In rural Ohio, a long decline in economic opportunity gives you another dynamic. In Texas, a big population inflow with more elastic supply gives you yet another dynamic. I could imagine that national averages, including the national averages I tout as “salient facts,” could be quite deceiving. Perhaps to understand the whole you need to study the parts.

The Problem of Ignorance

Two recent discussions.

1. David Harsanyi wrote,

by weeding out millions of irresponsible voters who can’t be bothered to learn the rudimentary workings of the Constitution, or their preferred candidate’s proposals or even their history, we may be able to mitigate the recklessness of the electorate.

2. John Cochrane wrote,

Like most economists, I was a bit baffled by the Administration’s announcement of stricter overtime rules. The Jonathan Hartley and many others cover the obvious consequences on jobs, business formation and destruction, and so forth. A bit less mentioned, it reduces employee flexibility. If you like working more hours one week and less the next — perhaps you have child or parent care responsibilities — you’re going to be stuck working an 8 hour day. It’s part of the general regulated ossification of American employment. Or, it could be one more inducement to substitute machines for people or make people independent contractors.”>WSJ, and Jonathan Hartley and many others cover the obvious consequences on jobs, business formation and destruction, and so forth. A bit less mentioned, it reduces employee flexibility. If you like working more hours one week and less the next — perhaps you have child or parent care responsibilities — you’re going to be stuck working an 8 hour day. It’s part of the general regulated ossification of American employment. Or, it could be one more inducement to substitute machines for people or make people independent contractors.

As far as I know, the economically ignorant rules that Cochrane complains about were not demanded by the economically ignorant voters that Harsanyi complains about. So I think that the problem of ignorance is more complex than Harsanyi implies. Perhaps the elites are a bit less ignorant than the masses. Perhaps if the ignorant masses did not vote, elites would lean toward better better policies. Perhaps, but I doubt it.

My own view is that at the very highest academic levels, economics is a mess. At elite colleges, inane “sustainability initiatives” are launched without a peep of protest from the economics department. Macroeconomists still fill the air with the mumbo-jumbo of aggregate demand. There is much talk of market failure and hardly any talk of market self-repair or political failure.

I am most troubled by the bad intellectual habits of economists and other academics. My hope is that the ideas in my forthcoming book will eventually be re-discovered. Although hardly anyone is going to read the book, other authors with similar ideas may at some point prove successful. Restore sanity in the academy, and then see if the ignorance of the general public is still a large concern.

Scott Alexander Puts Me in His Corner

On the subject of poverty, he offers a two-by-two matrix to classify viewpoints.

On one axis, you can think that the capitalist system is basically competitive or basically cooperative. The former view is that it creates winners and losers. The latter view is that it is a rising tide that lifts all boats.

On the other axis, you can be optimistic or pessimistic. If you are optimistic, you think that a bit of social change can take care of poverty. If you are pessimistic, then if you think of the system as competitive you want revolution. If you think of the system as cooperative, you end up like this:

we’re all in this together, but that helping the poor is really hard. . .capitalism is more the solution than the problem, and that we should think of this in terms of complicated impersonal social and educational factors preventing poor people from fitting into the economy. . .worry school lunches won’t be enough. Maybe even hiring great teachers, giving everybody free health care, ending racism, and giving generous vocational training to people in need wouldn’t be enough. If we held a communist revolution, it wouldn’t do a thing: you can’t hold a revolution against skill mismatch. This is a very gloomy quadrant, and I don’t blame people for not wanting to be in it. But it’s where I spend most of my time.

Me, too. Except note that over the past two hundred years the tide has lifted more and more boats, quite dramatically. It is still lifting more and more boats, but those boats are more likely to be in China, India, or Africa than in the rural United States. And places like St. Louis.

Preview of My New Book

From the May-June issue of Cato Policy Report (I did not write the preview, or even read it before it came out, but it provides a good foretaste).

while Kling’s primary audience is other scholars of economics, his writing also provides a first-rate introduction to economic ideas that are easily accessible by students with little or no previous training in economics.

Think of this as the book that every first-year economics graduate student should read (but won’t).

Here is a provocative sentence:

Kling argues that post-World War II economists have mistakenly placed the concepts of scarcity and choice at the center of economic thought.

While scarcity and choice are certainly important concepts in economics, I have two problems with making them central.

1. Scarcity and choice are concepts that focus on a fixed pie. Yet economic growth and the enlargement of the pie are what matter most.

2. Scarcity and choice are taught using “2×2″ economics. That is, a choice between 2 activities, hiding the fact that there are millions of specialized tasks in the economy.

These two problems are related. The growth of the pie is the effect of specialization that is vast and mind-boggling in its complexity.

Also, consider where macroeconomics fits in. Your choices are:

1. Treat macro as something that departs from and even contradicts micro. This is the way things worked in the 1960s, and it is where most of the profession seems headed again today.

2. Do macro as general equilibrium theory. This was the attempt to integrate micro and macro in the 1980s, an attempt that strikes me (and others) as having failed.

3. Think of both micro and macro in terms of patterns of specialization and trade. In macro, the focus is on the process of old patterns becoming unsustainable and the process of finding new patterns that are sustainable.

The book makes the case for (3). Along the way, as the preview points out, it takes a hard swipe at MIT-influenced economics for being mistakenly mechanistic in its approach to both micro and macro.

Will the Media Notice the Libertarian Party?

David Boaz writes,

Lots of Republicans are looking for a sane alternative to Donald Trump and Hillary Clinton, and it looks like the Libertarian Party has just given it to them, now that former Massachusetts governor William Weld has joined former New Mexico governor Gary Johnson’s ticket.

If someone had told two years ago that one party was going to run a ticket with two ex-governors who were regarded as competent and scandal-free while another party was going to run Trump, which would you have guessed would be the mainstream party and which would you have guessed would be the wacko third party?

Between now and November, could the mainstream media take notice of this? How would it affect the race if the media started to take the Libertarian ticket seriously?

It seems to me that any enthusiasm for Clinton is based on the fact that many people fear and loathe Trump. If it started to look as though Trump represented a small splinter party and Johnson-Weld represent a major party, then the “stop-Trump” rationale that bolsters Clinton’s candidacy disappears, and she is left with whatever support comes from people who genuinely think she is wonderful. Or, to put it another way, I think that there are enough voters who are negative about Trump and Clinton to make it possible for Johnson and Weld to get more votes than either one of them, provided that the media give the Libertarian ticket as much attention as the other two.

PSST Watch

Kerwin Kofi Charles, Erik Hurst, and Matthew J. Notowidigdo write,

while the decline in manufacturing and the consequent reduction in demand for less-educated workers put downward pressure on their employment rates in the pre-recession 2000–2006 period, the increased demand for less-educated workers because of the housing boom was simultaneously pushing their employment rates upwards (Charles, Hurst, and Notowidigdo 2016, 2015). For a few years, the housing boom served to “mask” the labor market effects of manufacturing decline for less-educated workers. When the housing market collapsed in 2007, there was a large, immediate decline in employment among these workers, who faced not only the sudden disappearance of jobs related to the housing boom, but also the fact that manufacturing’s steady decline during the early 2000s left them with many fewer opportunities in that sector than had existed at the start of the decade.

This seems like yet another paper supporting a PSST interpretation of macroeconomic phenomena instead of an AS-AD interpretation.

Contradictory Sentences

From Larry Summers.

although 2009 could have seen a repeat of 1929-33 and it did not happen, there are no grounds for complacency. As the chart below illustrates, on current forecasts the economy will have performed as badly over the 2007-18 period as it did over the Depression period from 1929-40.

So we avoided another Great Depression, except that we didn’t. On a charitable interpretation, these sentences are not directly contradictory. The good news is that the economy performed better from 2007-2011 than it did from 1929-1933. The bad news is that it seems on track to perform worse from 2012-2018 than from 1934-1940, so that for the periods as a whole we came out the same.

I would suggest looking at both long periods from a PSST perspective. The Great Depression represented a failure to come up with new patterns of specialization and trade to deal with workers with 8th-grade educations, including farm laborers displaced by tractors and factory workers displaced by electric motors. The recent period represents a failure to come up with new patterns of specialization and trade for workers displaced by Chinese labor and computers.