Monthly Archives: April 2013

The Tenured/Adjunct Divide

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Last week, the New York Times reported,

For the academic elite — tenured professors at private research universities — average pay this year is $167,118, while at public research universities such professors earn $123,393, according to the annual report by the American Association of University Professors.

…many colleges and universities are cutting back on tenure and tenure-track jobs. According to the report, such positions now make up only 24 percent of the academic work force, with the bulk of the teaching load shifted to adjuncts, part-timers, graduate students and full-time professors not on the tenure track.

The adjuncts earn puny incomes, typically without benefits. Should there not be forces at work leading to convergence between the salaries of tenured professors and the salaries of adjuncts?

Fluency and the Three Languages of Politics

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Adam Alter says,

when you have a thought, any thought, it falls along a continuum from fluent to disfluent. A fluent thought is one that feels subjectively easy to have.

I wish I had been aware of this concept when I wrote my new e-book on the three-axis model. (I also wish that I had proof-read my survey better. I incorrectly classified the answers to question 6.) A good way to describe my thesis is to suggest that it describes the languages in which progressives, conservatives, and libertarians are fluent. Arguments that are presented in the relevant language are easy to process. It takes more work to process thoughts that are not expressed in one’s preferred language.

Later in the talk, Alter says

People get to the point where they’re absolutely sure about one candidate. The candidate represents exactly what they want and what they hoped for, but when you press them, they actually have no idea, and they end up making the decision because the candidate looks more competent—there’s a lot of research showing that—or the candidate looks more intelligent, or he’s just more likeable, but those features don’t predict policy decisions necessarily, and so they end up making decisions based on the wrong sorts of information.

He speaks of “the illusion of explanatory depth,” meaning that people think they understand something better than they do. This sounds like something I am inclined to think is important.

Also, let me include this sentence:

disfluency leads you to think more deeply, as I mentioned earlier, that it forms a cognitive roadblock, and then you think more deeply, and you work through the information more comprehensively.

Some Sentences

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1. From Reihan Salam.

Right now, we’re stuck in a political debate in which a federal government that spends, say, 24 percent of GDP represents tyranny while a federal government that spends 19 percent of GDP represents a free society, irrespective of state and local expenditures, tax expenditures, off-balance-sheet activities, and the cost of regulatory initiatives. The end result is that we have endless debates over spending levels while ignoring, for example, the shadow nationalization of the mortgage market and the perverse buck-passing dynamic created by cooperative federalism programs that fuels the growth of state and local government.

2. From Philip Moeller.

“The best childhood personality predictor of longevity was conscientiousness—the qualities of a prudent, persistent, well-organized person,” according to the two professors (he at the University of California—Riverside, and she at La Sierra University). “Conscientiousness … also turned out to be the best personality predictor of long life when measured in adulthood.”

3. Carmen Reinhart.

it is certainly more difficult for a central banker to raise interest rates with a debt to gross domestic product ratio of over 100 percent than it is when this ratio stands at 39 percent. Therefore, I believe the shift towards less independence of monetary policy is not just a temporary change.

What I am Reading

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1. The Rule of the Clan, by Mark S. Weiner. The best book I have read this year. After I re-read it, I will write a longer review. Meanwhile, a terse summary of what he has to say:

a) We have seen social orders without a centralized state.
b) However, these decentralized social orders are clan-based, with norms that are not consistent with peace, free commerce, or individual autonomy.
c) Without a strong central state, humans will revert to clan-based systems of social order.

I found his case for (b) to be very strong and interesting. I thought his case for (c) was somewhat weaker. Regardless, it is a very stimulating book, in part because it is very distinct from the economics and public choice literature.

2. Paying for the Party, by Elizabeth A. Armstrong and Laura T. Hamilton. Remember when I linked to a story about the book? I read the introduction and the two final chapters, and I skimmed the rest. On p. 220,

The finding that regional schools facilitated mobility more than the state flagship is at odds with existing research…William G. Bowen and colleagues use longitudinal survey data to conclude that students are best served when they attend the most prestigious school they can. Our findings suggest a qualification: If the more prestigious school available is a party school, students from less privileged backgrounds may be better off going to a less prestigious school

3. The Sleepwalkers, by Christopher Clark. For me, any book by a respected historian on the origins of the first world war becomes self-recommending. Even though this topic is, as Charles Kindleberger referred to the topic of the origins Industrial Revolution, a “well-squeezed orange.” I am less than half through this one. Clark’s description of the Serbian nationalists makes them sound like today’s Muslim fanatics in Pakistan. That is, they were secretive, organized into cells, integrated with key government agencies that nonetheless denied involvement, with a grandiose ideology, believing that they are the true representatives of a great ethnic power, and eager to instigate a larger conflict.

S – I = G – T

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Recently, I have seen two pieces that brought up the issue of corporate saving. Tyler Cowen cited Martin Wolf on the high corporate saving rate in Japan. John Mauldin reproduced an essay arguing that the ratio of corporate profits to GDP is currently above normal.

Consider some basic national income accounting, and simplify by ignoring international capital flows. We have

S + T = I + G

which means that

S – I = G – T

On the left, we have net private saving, which is private saving minus investment. On the right we have the government deficit.

We can separate private saving into saving by corporations and saving by individuals. Corporate saving consists of profits that are not invested (call this E). Call saving by individuals P. Then we have

S – I = E + P = G – T

So why is E so high? From a pure accounting standpoint, when the government runs a big deficit saving has to be high elsewhere. If individual savings flows do not rise, then the savings must flow to corporations.

Hyman Minsky viewed this as a causal model. Government dis-saving turns into corporate profits. He thought that this was how Keynesian deficit spending worked–it siphons profits into corporations. When they are in their conservative mode (“hedge finance”) they will only invest if their balance sheets are strong, so that is why you need deficits to recover from a financial crisis.

I think it is often misleading to treat accounting identities as causal models. But by the same token, when you propose a causal model you should work it through in terms of the identities. And I do not think that one should treat corporate profits as some sui generis phenomenon.

Both Japan and the U.S. have run soaring deficits. From an accounting perspective, there has to be an offsetting increase in saving somewhere in the private sector. Note that corporations are owned by people. So there is a sense in which the question you should be asking is, “Why are people choosing to do so much saving indirectly, via corporations, rather than in personal accounts?” Rather than attach great economic significance to this, as Cowen and Mauldin are inclined to do, I would guess that institutional habits and/or tax incentives are the story.

Scott Sumner Explains the Monetary Approach to Macroeconomics in Nine Lessons

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The index is here. Highly recommended.

For my perspective on this topic (including where I disagree with Sumner), see my “million mutinies” essay series:

part one

part two

part three

In the last essay in my series, I wrote

For mainstream economists, the financial crisis has produced a new intuitive model of the economy which has yet to be articulated in any formal theory.

Scott Sumner, on his blog The Money Illusion, articulates what I believe would have been the consensus five years ago, which is that fiscal and monetary policy (he emphasizes the latter)—as opposed to bank capital management—are the tools of macroeconomic stabilization. Today, his views are classed as “heterodox.”

I write so much that I sometimes forget earlier pieces that meant a lot to me, such as this one. I was looking for some more “color” to add to this post, and I stumbled on the series.

Charles Calomiris on Politics and Banking

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From the WSJ:

That anti-populist political system — known in political science as liberal constitutionalism or liberal democracy — is a key ingredient in Canada’s stable banking track record, Mr. Calomiris contends in his paper, which is a summary of a much longer book he’s written with Stephen Haber due out in September. That’s because this kind of political system makes it difficult for political majorities to gain control of the banking system for their own purposes, the authors contend.

Having only experienced the American system, I think of politics and banking as hopelessly entangled. As I recently put it,

Politicians want to make credit allocation decisions. Whatever its nominal purpose, bank regulation is used to enable politicians to undertake credit allocation.

Calomiris seems to take the same point of view, but he argues that some political systems are less susceptible to interest groups gaining control of bank regulation. I am interested in reading more about the research. Meanwhile, you should at least read the whole WSJ piece.

Redistribution Recession watch

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The WSJ reports,

Michael Feroli, chief U.S. economist for J.P. Morgan, JPM +1.40% estimates that since the recession, the worker flight to the Social Security Disability Insurance program accounts for as much as a quarter of the puzzling drop in participation rates, a labor exodus with far-reaching economic consequences.

Pointer from Tyler Cowen.

This is one of those topics where the three-axis model correctly predicts that there will be no communication across ideological boundaries.

1. From the progressive perspective, an unemployed person is oppressed by a lack of aggregate demand, end of story. Anyone who suggests otherwise (I’m looking at you, Casey Mulligan) is going to be attacked without mercy. And these are people on disability, for crying out loud. If they are not members in good standing of the oppressed class, then who is?

2. Libertarians see government coercing some of us to give others incentives to be unemployed. In fact, if I were one of those libertarians who felt schadenfreude pleasure out of pointing out the stupidity and perversity of the way that government executes programs, disability insurance would make me happy.

3. Conservatives think that everyone should be like this guy:

Mr. Mann, age 30, said many disabled people can work with the right help, and he included himself. Paralyzed in a diving accident as a teenager, he graduated from Princeton University and earned a doctorate in economics from the University of Pennsylvania. He uses a motorized wheelchair to navigate Mathematica’s Princeton, N.J., offices.

Now that’s civilization for ya.

Since I do not think that there will be a meaningful debate or attempt to reach middle ground, I want to lie low on the issue. For substantive analysis, I outsource to Reihan Salam.

Personal Saving and Public Policy

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1. Ezra Klein writes,

This is the other, perhaps more pressing, Social Security crisis: It’s not generous enough to counteract the sorry state of retirement savings nationwide. In a report for the New American Foundation, Michael Lind, Steven Hill, Robert Hiltonsmith and Joshua Freedman survey this data and conclude that the ongoing debate over how to cut Social Security is all wrong: We need to make Social Security much more generous.

They would keep today’s income-based Social Security program, but add a “Part B,” which would be a flat payout to all retirees. When parts A and B are combined, all retirees would be guaranteed 60 percent of their average working wage in retirement, with low earners seeing closer to 100 percent replacement. Part B would be pricey, adding almost a trillion dollars to Social Security’s costs in 2037, and the authors don’t have a clear proposal, much less a politically realistic plan, for how to pay for it. But not paying for it doesn’t mean those costs disappear: It either means living standards for seniors will tumble, or families will strain as they try to support older relatives.

When I read this, it came across to me as a poor use of economic language. Instead, I would have pointed out that if Baby Boomers are not saving enough for retirement, and someone suggests using transfer payments to give them more resources, then in order to know whether or not this is a good idea one needs to know where the resources will come from. Take any year, say, 2018. If you increase Baby Boomers’ consumption in that year, then either you have to decrease the consumption of other people who are alive that year or you have to diminish the rate of capital accumulation. Those are the costs that do not disappear in using transfers to solve the problem of Baby Boomers’ consumption needs in retirement. Perhaps this sounds picky. But as an economist I think that, particularly when one is writing for a lay audience, it is appropriate to employ the principles of scarcity and trade-offs.

2. Richard H. Thaler writes,

Payroll savings plans are vital because they are essentially the only way that middle-class Americans reliably save for retirement. Your grandmother probably knew that the best way to save is to put money aside before you have a chance to spend it. That approach has always worked — and is a core idea embedded in these plans.

…The Obama administration has proposed a simple solution to this problem: the automatic I.R.A. This plan, originally proposed by scholars at the Brookings Institution, would require any employer that doesn’t offer its own plan to enroll workers automatically into individual retirement accounts, with the option to opt out. The burden on employers would be tiny, and the benefit to workers could be life-changing.

Pointer from Mark Thoma.

I liked Thaler’s piece better. He sees the problem as one of encouraging people to provide for their own future consumption by deferring current consumption. If his suggestions were adopted and they work as intended, then there will be more capital in 2018 than otherwise, which would result in more output. Therefore, Thaler’s solution is consistent with economic principles.

As an aside, Klein covers another topic in his column, which is the cost of health care. He writes,

A key fact — perhaps the key fact — about American health care is that the prices we pay for the health care we consume are far, far higher than in any other country.

He recommends putting people age 55-65 on Medicare and negotiating down the compensation of health care providers.

Maybe I was in an uncharitable mood, but I was disturbed by the tone of the quoted sentence. In Crisis of Abundance, I spent a chapter talking about various narratives that have been used to explain health care spending in the United States. On page 25 I wrote,

The most awkward fact for the narrative that attributes high health care spending solely to prices is the finding by John Wennberg and his colleagues…by looking directly at utilization figures, it is clear that when it comes to explaining spending differences across regions it is not prices. Patients in high-spending regions see more physicians and undergo more procedures than patients in low-spending regions.

After surveying a lot of literature, I concluded that the most important narrative for explaining American health care spending is that we use a lot of what I dubbed “premium medicine.” I offered evidence that health care in the United States uses more physical and human capital, meaning medical equipment and specialists, than health care in other countries.

Klein is entitled to disagree with me, of course. But I cringed when he pronounced the over-pricing narrative as if it were a “fact.” In fact, there are many economists who doubt that we can have a free lunch by paying providers less for their services.

3. Turning back to Baby Boomers’ retirement, Reihan Salam writes,

In recent months, opponents of reducing the growth of Social Security benefits have been making the case that Social Security benefits should actually increase, to reflect the inadequacy of private retirement savings. A month, I wrote about Josh Barro’s call for an expanded Social Security program and how it might be reconciled with Andrew Biggs’ center-right vision for Social Security reform. Basically, Barro is open to expanding the public commitment to retirement security through a number of strategies, including mandatory savings accounts….

while policy intellectuals are thinking hard about Social Security’s future — another good example is the work of Charles Blahous and Jason Fichtner on how to make the Social Security payroll tax more work-friendly and fertility-neutral — there has has yet to emerge a consensus among Republican lawmakers on Social Security reform, hence the fact that the House Republican budget proposal didn’t tackle the issue head on. My sense is that there is a way to draw on the work of Biggs (the larger architecture), Barro (his idea of a new class of government securities linked to wage growth or GDP growth merits consideration), and Blahous and Fichtner (thinking through how we can connect their work on fertility-neutrality to the Stein tax reform agenda) to craft an attractive retirement security agenda that would actually prove more generous, when all elements including the mandatory savings element are taken together, than the current system while also proving more fiscally sustainable. Fundamentally, this would be a “conservative” reform, as it would improve work incentives and emphasize pre-funding.

Read the whole thing. Salam is my favorite policy wonk.