Monthly Archives: June 2013

Alberto Mingardi’s Reading List

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Compiled in 2002, it is here, and I am sorry to say that I have (so far) read none of these works.

Pointer from Amy Willis.

Mingardi writes,

Carl Schmitt’s Concept of the Political (University of Chicago Press, 1996, reprint) regarded by Leo Strauss as “an inquiry into the ‘order of human things,'” is fundamental. Schmitt conceptualizes the “political” in terms of a primordial and definitive antithesis between “friend” and “enemy” (“foe”). The very existence of the state rests on this dichotomy. This means that, far more than being a third, “impartial” actor, the state is always the expression of a particular group of individuals. Schmitt teaches that no political order can be conceived as universal, but always and only as a form that originates from a concrete partiality. Against the manipulated justification of government by law, Schmitt’s realism demonstrates how, in reality, there are no abstract institutions, but only clusters of men counterposed as “friends” and “enemies.”

This is what my father (no libertarian) always tried to impress upon me. Politics is about conflict. The “public good” is a woolly concept. So, for that matter is “the state.” Many of the other books on Mingardi’s list appear to treat “the state” as if it were a single individual, rather than an arena through which various individuals and groups engage in conflict.

Labor’s Share of Income

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Timothy Taylor quotes a report by the International Labor Organization showing that labor’s share of income has declined between 1990 and 2009 in 26 out of the 30 countries surveyed. Taylor comments,

When a trend cuts across so many countries, it seems likely that the cause is something cutting across all countries, too. Looking for a “cause” based on some policy of Republicans or Democrats in the U.S. almost certainly misses the point.

This is a stereotypical Tim Taylor find–who else would read through an ILO report?

Aggregate Supply and Demand

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A lot of economics bloggers have been discussing the merits and flaws of the paradigm of aggregate supply and demand. Mark Thoma linked to a couple of the more recent examples.

I think that, viewed on its own terms, AS-AD is confusing (or confused). That is, mainstream economists do not know what to put on the vertical axis. If you put the price level on the vertical axis, you get a nice textbook model, but no connection to the real world, where economists talk in terms of inflation rather than the price level. On the other hand, if you put inflation on the vertical axis, that does not work very well, either, as I explain in this 8-minute video. (Comments, other than about my handwriting, are welcome.)

I developed PSST as an alternative to AS-AD. PSST does not appear to explain nearly as much as AS-AD. That may look like a feature in AS-AD, but on closer inspection it is a bug. The explanatory “power” of AS-AD is a delusion.

1. The AS-AD paradigm is invoked to explain changes in the combination of inflation and unemployment. If one goes up while the other goes down, we call this an aggregate demand shift. If both move in the same direction, we call this an aggregate supply shift. Thus, we can explain anything. But there is a lot of hand-waving involved. The stories we tell about AD and AS are always post hoc, just-so stories.

2. In the 1970s, we had a huge rise in the combination of inflation and unemployment. What caused this? The rise in the price of imported oil is often cited, but it cannot possibly account for the large acceleration in inflation. At most, it would cause a temporary increase in inflation, followed by a decrease. Many (most?) macroeconomists attribute the 1970s disaster to a “rise in inflation expectations.” Prices rose because they were expected to rise. Through habit and repetition, we have come to accept this story. But how intellectually satisfying is that?

3. Turning to events since 2008, the typical macroeconomist describes the rise in unemployment as the result of a “demand shock.” However, they do not all agree on what the shock was. Scott Sumner says that it was a contraction by the Fed. Others say that it was the wealth effect of a decline in house prices. Others say that it was a credit crunch. Others say that it was the effect of inflation dropping too close to zero. All of these are just-so stories.

From April of 2003 through April of 2008, the rate of growth of the CPI averaged 3.2 percent. From April of 2008 through April of 2013, it averaged 1.6 percent. If in 2007 you had asked macroeconomists to predict the consequences of a decline in the inflation rate of that magnitude, how many would have told you to expect unemployment to rise above 7 percent? None of them would have foreseen it. My guess is that many of the macroeconomists would have regarded a drop in inflation of 1.6 percentage points as close to a non-event for unemployment. (Note to Scott Sumner: yes, the decline in nominal GDP growth was much bigger than the decline in inflation. But that only restates the mystery–it doesn’t solve it.)

The terms “aggregate demand” and “aggregate supply” are highly loaded. That is, they lead economists to imagine something analogous to supply and demand in microeconomics. But the analogy is mostly misleading, and economists who invoke AS and AD are the ones who are most misled.

Reform Conservatism

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Ross Douthat defines it.

The core economic challenge facing the American experiment is not income inequality per se, but rather stratification and stagnation — weak mobility from the bottom of the income ladder and wage stagnation for the middle class. These challenges are bound up in a growing social crisis — a retreat from marriage, a weakening of religious and communal ties, a decline in workforce participation — that cannot be solved in Washington D.C. But economic and social policy can make a difference nonetheless, making family life more affordable, upward mobility more likely, and employment easier to find.

Let’s evaluate this along the three-axes model. Even though Douthat shows concern for low-skilled workers, he views the problem in terms of the civilization-barbarism axis rather than the oppressor-oppressed axis. On the freedom-coercion axis, although Douthat throws libertarians a bone by saying that the problems cannot be solved in Washington, he thinks that Washington “can make a difference nonetheless.”

Pointer from Reihan Salam. Indeed, the paragraph above sounds like a reprise of Douthat and Salam’s Grand New Party. Not that there is anything wrong with that.

Read the entire post. If we think in terms of the current institutional structure, I would be willing to sign on to Douthat’s agenda. (One difference is that I would be more favorably disposed to easing up on immigration for low-skilled workers. I think it is at least as likely that low-skilled immigrants are complements for low-skilled domestic workers as it is that they are substitutes. And in general I do not think that protectionist measures can do much for low-skilled workers: protect them from labor at home and they still can face competition from labor abroad, from capital, and from consumer substitution away from artificially high-cost goods and services.)

However, I think that for libertarians, attempting policy reforms within the current institutional structure is an exercise that uses up a lot of energy without moving the ball very far, if at all. I think that any significant motion in a libertarian direction will have to come from an evolution toward competitive government. We need to restructure government services so that there is less centralization, less bundling, and less protection from private competition.

Of course, that is nothing but a reprise of the widely-unread Unchecked and Unbalanced.

My Latest Review Essay

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About The End of Power by Moises Naim, I write.

Naim combines strong conceptual thinking with an ability to summon impressive statistical evidence. His book is particularly valuable in showing the importance of growth and change happening in the emerging economies of the world. If those of us who lean libertarian differ from Naim’s conclusions, we should still be aware that his views are much closer than ours to those of most of the world’s elite.

It might be interesting to compare and contrast his book with my book on the knowledge-power discrepancy.

The Null Hypothesis and Online Education

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Bradford S. Bell and Jessica E. Federman write,

The meta-analyses reviewed above show that when instructional design characteristics are held constant across delivery conditions, e-learning and classroom instruction generally produce similar learning outcomes.

Pointer from Timothy Taylor–read his whole post.

The null hypothesis is that there is no difference in outcomes, and apparently the “meta analysis” does not reject the null hypothesis. Taylor interprets this as evidence that online learning has “caught up” to classroom learning in terms of quality. My more cynical interpretation is that there was never any catching up required, because what students learn does not appear to depend in any way on how they are taught. I am sure that there is a limit to this: presumably, if you do a randomized experiment in which one group of students gets $50,000 worth of instruction and another group gets zero, you will see some difference in outcomes. However, I would bet that, relative to what we do today, the way to improve cost-effectiveness in education is to slash costs. That is, my view of the null hypothesis is that most of what we spend on education has no marginal impact.

Note, however, that the authors of the study seem convinced that the null hypothesis is false. They believe that empirical evidence shows that pedagogical techniques do affect outcomes.

Manzi on the Oregon Medicaid Study

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Russ Roberts draws him out. Much of the focus is on the fact that almost half of the people who won the lottery to obtain Medicaid coverage then did not apply.

What that means, Manzi suggests, is that the group of people who obtained Medicaid coverage, rather than blow it off, may have been different from the control group that lost the lottery. That is, you don’t have two groups–winners and losers. You have three groups–losers of the lottery, winners who took coverage, and winners who did not take coverage. Manzi is saying that one cannot be sure that the winners who took coverage are comparable to the losers, which makes the results difficult to interpret.

Previously, Russ interviewed Austin Frakt on the study.

Peter Thiel Wants a Rat Thing

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Look at what Peter Thiel is investing in:

Over the past six years RoboteX has developed a lineup of sturdy robots versatile enough to be used by the military, police, or people who think they might have heard something in the shed. Their Avatar series Security Robot goes on patrol so humans don’t have to. Realtime video is fed to a control center wirelessly for monitoring, and a two-way audio feed allows controllers to ask questions first and get answers hundreds of miles away. Its camera has full 360 degree coverage and shoots in both visual and infrared – so there’s no hiding in the dark. It’s also hard to get away from – capable of climbing stairs and moving over carpets, wet floors, even rugged outdoor terrain

It reminds me of the Rat Thing, one of my favorite elements in Neal Stephenson’s Snow Crash. If people believe that they can address their own safety issues without government, that becomes a big deal.

Vacation in Croatia and Slovenia

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That is where I was for most of the latter part of May. A few notes:

1. Travel in the Internet age is amazing. An interesting question is which countries/regions/towns will benefit most as travel becomes easier and more affordable. We only stayed in one legitimate hotel, but all of our accommodations were clean, comfortable, friendly, and well-run. We put over 1000 miles on a car. I did not bring my computer, but Internet access was easier than it is when you travel in the U.S. Free WiFi seemed to be everywhere. We did not use any tour group or travel agent. We relied on friends. One friend was “Rick,” meaning the guidebook written by Rick Steves. Another friend was tripadvisor.com, which we used to double-check (and occasionally override) Rick. Another friend was “Bonnie,” our English-speaking navigation system in the rental car from British firm Sixt. Bonnie did not always choose the most obvious routes. Once, when we were trying to connect up with a major highway, she took us down a narrow lane through a vineyard that dumped us onto a road that indeed took us to the freeway entrance. Another time, however, she kept trying to get us to the highway using a route that simply was not operable, and we had to ask for directions.

2. Another interesting question is what happens if/when English loses its dominant role as everybody’s second language. In a place like Croatia or Slovenia, we see that Russians, Germans and Asians have to speak English in order to communicate with one another and with locals. But the presence of native-speaking English tourists is relatively low (more Brits than Americans). What if China becomes the largest source of tourist revenue? What if translation apps on cell phones become good enough to enable one to order a meal, register for a hotel, ask someone to take a picture, or ask for directions in any language?

3. Yet another question is what is the optimum currency area? I think that many economists nowadays doubt that the eurozone is an optimum currency area. But is Croatia? In any event, the dollar has lost its role as tourism’s medium of exchange or unit of account. Do not expect to get anywhere by offering to pay using greenbacks. In Bosnia, Montenegro, and Slovenia, you transact in euro. Croatia has its own currency, but prices for tourists are often quoted in euro. Given the importance of tourism, should all these countries simply adopt the euro?

4. On the European Union (Slovenia is in, and Croatia is in any day now), we had a very small sample of opinion (one person in each country) . Our sample thought that being in the European Union was more likely to inhibit trade than to help it. For example, Bosnian farm exports to Croatia will now be subject to costly regulation. Our sample also did not like the undemocratic nature of EU policy-making. Our sample complained of being “sold down the river by our politicians.”

5. It is very sobering to realize that this region was torn apart by war just two decades ago. What does the bitter post-Tito breakup of Yugoslavia tell us about, say, Mark Weiner’s thesis? Arguably, NATO replaced Tito as the hegemon required to keep the lid on ethnic hatreds.

6. Now that they are separate states, at least some of the countries are thriving, but I can imagine them doing better with more integration. If one could get the ethnic groups to remain peaceful with one another and at the same time avoid excessively statist economic policies, I imagine they would have to better off if they were federated in some way. If nothing else, it would get rid of a lot of wasteful border crossings. However, given the historical reality, perhaps the Balkans are better off…Balkanized. Continue reading →