Brexit Along Three Axes

I do not think that the 3-axes model performs as well as usual at interpreting the post-Brexit feelings. But here is a try.

Let us treat the vote as an anti-immigrant backlash. That might not be correct, by the way. The journalists who are offering that interpretation are the ones who are shocked and appalled by the vote. But suppose it is a major factor.

The oppressor-oppressed view would have to treat the immigrants as the most oppressed group. So, even though working-class natives were traditionally treated as oppressed, you would expect the progressive defense of “remain” to emphasize the plight of the immigrants. I am not really seeing much of that. Instead, I get the sense that there is instead more of an emotional attachment to the project of a united Europe, along with some snobbery toward working-class provincials. I understand how the united Europe fits in with Progressive beliefs, but it does not line up with the oppressor-oppressed axis.

The civilization-barbarism view is that immigration has to be restricted in order to protect British civilization. That would be the language in which conservatives would express support for “leave.” I think we more or less see that.

Finally the freedom-coercion axis says that restrictions on immigration are an especially cruel form of coercion. So it argues for “remain.” And I think that there are some libertarians who express that point of view. But for others, the salient issue is not immigration but instead the Brussels bureaucracy. Regardless of how they come out on net, libertarians do use the language of freedom-coercion in articulating their position.

So on a generous reading, we can say that the three-axes model gets two out of three right.

Was the Fed necessary?

George Selgin writes,

Nationwide branch banking, by permitting one and the same bank to operate both in the countryside and in New York, would have avoided this dependence of the entire system on a handful of New York banks, as well as the periodic scramble for legal tender and ensuing market turmoil.

Selgin’s thesis is that the banking laws as of 1900 gave privileges to New York banks and that part of the impetus for the creation of the Fed was the preservation of those privileges.

The Bond Bubble

Balazs Csullag, Jon Danielsson, and Robert Macrae write,

A rational buy-and-hold investor who trusts the central banks should not buy long-dated bonds. While a high degree of central bank credibility used to be important to bond holders, today this seems to be no longer the case, especially for those buying German bonds.

The only way to get decent long-term returns with current yields so low is to go back to the persistent deflation of the gold standard, because most post-war inflation rates imply losses. For example, there are only eight years in Germany with lower than breakeven inflation for our 30-year buy-and-hold investor today.

Pointer from Mark Thoma.

The thing is, once interest rates start rising, they could explode, because at that point people may doubt the ability of governments to pay back their debts.

What if the central banks hold all of the bonds? That means that those central banks will be sitting on losses. If their cost of funds rises (say, because the central bank has to pay a higher interest rate on reserves), then central banks become a drain on the treasury.

A Commenter and I Think Along Similar Lines

He (or she) writes,

Not enough talk about elite hypocrisy; Elite professions like finance or law have a [boat]load of regulatory protectionism but even economists don’t really like to talk about that; but when non-elites want protectionism for their trades they are racists and economically ignorant and what not

One of my fantasies is of a classroom in which a tenured economics professor at an accredited institution of higher learning says, “We must have free trade,” and a few students leap out of their chairs and shout, “You first!”

We are all natural-born hypocrites when it comes to competition. My new book helps to explain why. As producers, we specialize in a few tasks. As consumers, we enjoy products that come from millions of tasks. So if competition emerges in a small set of tasks, it has only a small effect on us–unless it happens to be in the set of tasks that we do to earn a living. Then we get very upset, and make up reasons for that competition to be dangerous and unfair.

The other night, we had several friends over for dessert. All of them were licensed professionals. I can imagine that the social workers would be appalled if suddenly they faced competition from unlicensed social workers. I can imagine that the attorney would be appalled if suddenly he faced competition from uncredentialed lawyers. And so on. So is it surprising that British blue collar workers are appalled at facing competition from a rapid influx of Poles and Hungarians?

Those of us with a lot of educational credentials are happy to speak up for free trade and free movement of people, and I believe that we are right to do so. But it would be better if we were to say, “Me first” when it comes to encouraging competition.

Recent Pre-K Studies Not Optimistic

Lindsey Burke and Salim Furth write,

New studies of large-scale preschool programs in Quebec and Tennessee show that vastly expanding access to free or subsidized preschool may worsen behavioral and emotional outcomes.

You may have seen it claimed elsewhere that pre-K has been proven to work. Read the whole article. I am reminded of David Weinberger’s observation that nowadays for every fact there is an equal and opposite fact.

Meanwhile, long live the null hypothesis.

Are Moral Absolutists Easier to Trust?

Molly Crockett says,

We’ve done experiments where we give people the option to play a cooperative game with someone who endorses deontological morality, who says there are some rules that you just can’t break even if they have good consequences. We compare that to someone who’s consequentialist, who says that there are certain circumstances in which it is okay to harm one person if that will have better consequences. The average person would much rather interact with and trust a person who advocates sticking to moral rules.

A Libertarian Conundrum

Alfred Moore writes,

Hayek regards his own understanding of spontaneous orders as scientific. For all his talk of the distribution of knowledge in society, knowledge of society was concentrated among people initiated into the science of complex orders, and consequently Hayek sees as the major problem of politics how to bypass the tendency of people to be seduced by the idea that there are plausible alternative ways of organizing society.

You want people to resist conceding authority to those who claim to have scientific knowledge that they can use to design programs and regulations. But does that mean you have to tell people to cede authority to Hayekians?

Sort of related to this conundrum is Buchanan’s idea of using a constitution to prevent a democracy from degenerating into a rent-seeking free-for-all. That suffers from the “a Republic if you can keep it” problem.

Moore wonders whether there is not an authoritarian undertone to Hayekian liberty. Does it take a dictator to establish a free-market state? Lee Kuan Yew comes to mind. As does the idea of competitive government subject to “foot voting,” which is attractive in theory and problematic in practice.

UPDATE: I think that this comment is related.

…one of the big contradiction of the libertarian movement. Which is libertarians love the movement of increase of people and goods can not co-exist their love small local governance, institutions and religion. Long term the free movement destroys the the local governance at some point. In reality the EU has increased this flow of people and goods over the decades although in very clumsy bureaucratic way. Most likely the UK & EU breakup will be minor (I am amazed people voted leave without even a real plan here.) but there is potential for further rejection of the EU and decrease movement of people and goods….

The White House on Prime-Age Males

This report created a splash, although the findings are hardly news.

The prime-age male labor force participation rate has been falling in the United States for more than half a century. This long-term trend is worrisome, since it indicates that American men between the ages of 25 and 54 are increasingly disconnected from the labor market, lowering potential gains in productivity and economic growth. Although many higher-income economies have also experienced long-term declines in prime-age male labor force participation, the decline in the United States has been noticeably steeper, leaving our labor market—a crucial engine of growth—operating below its potential. Absent policy changes, this long-standing decline could continue, as more Baby Boomers move into retirement, and as younger cohorts enter the labor force at lower rates.

No single factor can fully explain this decline, but analysis suggests that a reduction in the demand for less skilled labor has been a key cause of declining participation rates as well as lower wages for less skilled workers.

Yes, if quantity goes down and price goes down, then you should interpret it as a demand shift.

Long-time readers of this blog know that I focus on what I call the four forces: New Commanding Heights (away from manufacturing and toward education and health care; factor-price equalization (easier for foreign workers to compete with U.S. workers; technology; and assortative mating. All of these play a role in reducing demand for the prototypical low-skilled male. And none is reversible.

A Commenter’s Suggestion

He writes,

May I humbly/respectfully suggest, Arnold, that you consider replacing your economics-is-not-a-science meme with an economics-is-like-applied-science (i.e. engineering and medicine) one.

Reading a draft of Jeffrey Friedman’s next book, I gather that this was John Dewey’s notion. Just as doctors often “treat empirically” (by trial and error), policy science can improve by trial and error.

The parallels with medicine are interesting. Just as it seems to be the case that a lot of health care spending goes to medical treatments with high costs and low benefits, it is the case that a lot of government programs and regulations have high costs and low benefits.

I reject Dewey’s model as a description of actual policy practice. Policy makers almost never design proper trials, and they almost never correct errors. Pretty much every anti-poverty program that has been tried since the 1960s is still around, regardless of how (or whether) it was evaluated.

In my latest book, I argue that the profit system does a much better job of trial-and-error learning. The incentives to learn are much stronger. If you make enough mistakes, you lose money and go out of business. Also, upstart companies are much more willing to attempt a radical innovation than are established organizations, whether those established organizations are corporations or government agencies.

Also, I believe that social phenomena are more complex than the problems that engineers encounter. That is why I see mathematics in economics as pretentious. More than that, it can be harmful, as it focuses economists on building models that are so simple that they are deceptive rather than helpful.

All that said, I prefer that economists present themselves as doctors than as scientists, as long as they make it clear that they have not discovered the cures for the diseases with which they are presented.