Taking Gains as Leisure

The BLS’ Shawn Sprague writes,

workers in the U.S. business sector worked virtually the same number of hours in 2013 as they had in 1998—approximately 194 billion labor hours.1 What this means is that there was ultimately no growth at all in the number of hours worked over this 15-year period, despite the fact that the U.S population gained over 40 million people during that time, and despite the fact that there were thousands of new businesses established during that time.

And given this lack of growth in labor hours, it is perhaps even more striking that American businesses still managed to produce 42 percent—or $3.5 trillion—more output in 2013 than they had in 1998, even after adjusting for inflation.

Pointer from Timothy Taylor.

Some comments:

1. The gains in real well-being can be vastly under-estimated or over-estimated, depending on how well one adjusts for inflation and other factors, like un-measured consumers’ surplus and the greater variety of goods and services to choose from. My own view is that the gains are somewhat under-estimated.

2. There has been a large increase in leisure. How much of this is a welfare gain, though? My hypothesis is that many more people would work if government policy did not create so many disincentives to supply and demand labor. Just look at Social Security, with its huge payroll-tax disincentive for young people to work and its large subsidy to older people to consume leisure. If my hypothesis is right, then reducing these disincentives would lead to a lot more market work and a slower growth rate in leisure.

3. What accounts for the increase in leisure since 1998? The biggest factor is probably demographics, as many Baby Boomers have gone from prime working years to retirement years. Next, I point to factor-price equalization and to an increase in the wedge between compensation and take-home pay represented by health insurance costs. For the most recent five years, give some weight to Casey Mulligan’s narrative. A lot of economists would point to aggregate demand, but I no longer respect that concept.

Student Loans and Risk

Atif Mian and Amir Sufi write,

We believe they should recognize that the central problem with student loans is that they force graduates to bear a disproportionate amount of risk for circumstances completely outside their control.

The right way to think about student loans is that they are a gift from taxpayers to the higher education industry, both non-profit and for-profit. Most of the benefit goes to those who work in that industry, not to students. Most of the risk is borne by students and taxpayers, not by those who work in the industry.

The main risk for students is not, as Mian and Sufi imply, macroeconomic risk. Instead, the biggest risk is not graduating. Another risk is not getting a useful education.

The obvious reform is for the higher education industry to have more skin in the game. For example, the institution could be responsible for paying the first ten percent of any losses on a loan undertaken to attend that institution.

Actually, I do not believe that the public interest is served at all by government student loan programs. If the government got out of the business, then it would be up to the market to supply loans to students. Lenders (either the schools themselves or third parties) would have to try to identify students who are likely to profit from attending college, and there would be much more pressure on colleges to pay attention to graduation and to value added.

Some further points:

1. Keep in mind that if government student loan programs went away, tuition probably would fall.

2. Colleges retain the ability to engage in price discrimination, offering lower tuition to students who otherwise would not attend.

Timothy Taylor on Economics and Morality

He writes,

After all, many academic subjects study unsavory aspects of human behavior. Political science, history, psychology, sociology, and literature are often concerned with aggression, obsessiveness, selfishness, and cruelty, not to mention lust, sloth, greed, envy, pride, wrath, and gluttony. But no one seems to fear that students in these other disciplines are on the fast track to becoming sociopaths. Why is economics supposed to be so uniquely corrupting?

I think that economics is singled out for opprobrium because of the way that it challenges the intention heuristic. The intention heuristic says that if the intentions of an act are selfless and well-meaning, then the act is good. If the intentions are self-interested, then it is not good.

The intention heuristic is what generates the veneration of non-profits. One can readily suppose that the intentions of a non-profit are better than those of a for-profit institution. Accordingly, it seems morally superior to work at a non-profit. However, once one drops the intention heuristic, the case for non-profits becomes much weaker.

I think that the ability to think beyond the intention heuristic is very important in social and political philosophy. However, there are many people who are heavily invested in the intention heuristic, and it is my hypothesis that such people are anxious to discredit economics.

Ben Hunt on Financial Narrative

He wrote,

the current Narrative associated with Federal Reserve policy is just as powerful and just as real as any historical Narrative I am aware of, including the Narratives of global religions and major nationalities. Fifty years from now, will we look back on Central Bank Omnipotence as a dead myth, as something akin to Manifest Destiny, or will it continue to shape our expectations and behaviors as the Founding Fathers

…What you want to know is what everyone thinks that everyone thinks about the Fed statement, and you can’t find that in the Fed statement, nor in any private information or belief. You can only find it in the Narrative that emerges after the Fed statement is released. So you wait for the talking heads and famous economists and famous investors to tell you how to interpret the Fed statement, but not because you can’t do the interpreting yourself and not because you think the talking heads are smarter than you are. You wait because you know that everyone else is also waiting. You are playing a game, in the formal sense of the word. You wait because it is the act of making public statements that creates Common Knowledge, and until those public statements are made you don’t know what move to make in the game.

I visited the web site because a John Mauldin email newsletter reprinted a different Ben Hunt essay. From yet another Ben Hunt essay:

the Narrative of Central Banker Omnipotence. Like all effective Narratives it’s simple: central bank policy WILL determine market outcomes. There is no political or fundamental economic issue impacting markets that cannot be addressed by central banks. Not only are central banks the ultimate back-stop for market stability (although that is an entirely separate Narrative), but also they are the immediate arbiters of market outcomes. Whether the market goes up or down depends on whether central bank policy is positive or negative for markets. The Narrative of Central Banker Omnipotence does NOT imply that the market will always go up or that central bank policy will always support the market. It connotes that whatever the central bank policy might be, it will drive a market outcome; whatever the market outcome, it was driven by a central bank policy.

…debate over the merits of open-ended QE only intensify the Common Knowledge that Fed policy was responsible for market outcomes in 2012.

In some sense, it does not matter whether you are in favor of QE or against it. If you are passionate about it, you reinforce the Narrative of Central Banker Omnipotence. Regular readers will know that I instead hold a view of central banker near-impotence. That makes me quite out of tune with the conventional narrative.

Politics and Policy

William Galston writes,

The document’s emphasis on the middle class is a thinly veiled repudiation of the Romney campaign, whose emphasis on “job creators” reduced the 2012 Republican convention to a gathering of the National Federation of Independent Businesses. As Sen. Mitch McConnell noted at a “Room to Grow” public event last week, Republicans must stop imagining that average Americans are anything like John Galt in Ayn Rand’s “Atlas Shrugged.” Few of them are entrepreneurs, let alone heroic individualists. Most of them are holding jobs or looking for them. A political party that doesn’t address their needs isn’t likely to get their votes.

Pointer from Reihan Salam.

Let me propose the following distinction between politics and policy. Politics is a set of gestures and poses that politicians use to win votes, either in elections or in Congress concerning legislation. Policy is what actually gets done.

The Obama team has been magnificent at executing gestures and poses and thereby winning votes. Their approach to policy appears to have been much more haphazard, with results that I imagine disappoint even many of their supporters.

My criticism of “Room to Grow” is that it while it purports to be a policy document, it is in fact a set of gestures and poses. I think that the way Galston and Salam discuss “Room to Grow” tends to confirm that. Rather than complain that these are just gestures and poses, they are willing to engage with the gestures and poses and ask how well they will work politically.

I seem to be the only one who cares whether there is a coherent, implementable policy agenda embedded in “Room to Grow.” Maybe it is premature to worry about that. If you don’t get the poses and gestures right, you won’t have the opportunity to implement anything. But I do not think you should come in as unprepared as the Obama Administration was to deal with actual policy.

Regulatory Arbitrage Uber Alles

Mark Thoma points to an essay by Dean Baker accusing airbnb, uber, and other services of cashing in on regulatory evasion as opposed to the Internet or other economic fundamentals. Thoma comments,

Agree about the level playing field, but perhaps it will serve as a catalyst for changing regulations that “were originally designed to serve narrow interests and/or have outlived their usefulness”?

Or a catalyst for encouraging the incumbents to act differently. The original low-cost bus services between NY and DC ultimately spurred the legacy bus companies to set up low-cost subsidiaries in order to compete.

Unreformed Conservatism?

James Pethokoukis writes,

Reagan-era nostalgia, unfortunately, is not much of a superpower. Without recognition that new economic challenges require new thinking and new solutions, this tired GOP sequel is unlikely to attract much of an audience.

He refers to the manifesto entitled Reform, Restore, Modernize. I also find it unsatisfying, but I think James is too quick to dismiss it the way he does. My main problem is that the “specifics” in the manifesto are mere bullet points stating wished-for policy achievements. Until they drill down into “how,” they have not done enough.

Looking at this manifesto and at “Room to Grow,” I am happy to see this sort of ferment but disappointed with what i see so far. Of course, as long as SNEP remains vaporware, I have to be cautious in my criticism.

Work for a Profit

Let me re-post a recent quotation of the day from Don Boudreaux of Cafe Hayek.

from page 184 of Thomas Sowell’s 1995 book, The Vision of the Anointed: Self-Congratulation as a Basis for Social Policy (original emphasis):

The call for more “public service” is then a call for more people to work in jobs not representing the preferences of the public, as revealed through the marketplace, but the preferences of third parties enforced through government and paid for by the power of taxation. Sometimes work for foundations and other nonprofit organizations is also included in “public service.” What is crucial is that public service not be service defined by the public itself through its choices of how to spend its own money in market transactions, but defined for them by third-party elites.

For my recent birthday, my daughters wrote me a song in which they included my line about wishing that one of them would work for a profit. If there is one notion that K-12 teachers and college professors drill into students’ heads, it is that non-profit is good and profit is bad. When I teach about the difference between profits and non-profits, I say that the main difference is that for-profit organizations are responsive to customers while non-profit organizations are responsive to donors.

Herbert Gintis on the Economics of Public Policy

It his Amazon review of Complexity and the Art of Public Policy: Solving Society’s Problems from the Bottom Up.

First, neoclassically inspired public economics provides a very powerful and largely correct framework for analyzing when markets work well and when they fail. Second, markets are often fragile and easily destabilized unless properly regulated. Third, markets and regulating institutes are not alternatives but rather complements. Fourth, neoclassical economics cannot model state failure, and therefore overstates the latitude for government intervention in stabilizing the economy and correcting market failures. On reason for this failure is that government is subject to political forces that lead it to favor special interests rather than the general good. What Colander and Kupers tell us is that there is a second reason: the market economy is a complex, dynamic, and adaptive system more like a natural ecology than a man-made machine.

The complex economy cannot be controlled, as the planners would like, but it can be influenced by very carefully formulated and judiciously applied “rules of the game” that move market dynamics in preferred directions. In this respect, traditional planners are like the Queen of Hearts in Through the Looking Glass who cannot stand the fact that she cannot order the flowers in her garden to heed her bidding, and employs a bevy of “gardeners” to paint the flowers to her specifications. The situation is worse for an economy because there is no regulatory counterpart to painting the flowers. “The [effective] government does not impose norms, or even force individuals to self-regulate. Instead it attempts to encourage the development of an econstructure that encourages self-reliance and concern about others.” (p. 9).

Gintis’ Amazon review essays, such as this one, are often outstanding. For the pointer to the book, I thank Tyler Cowen.

Another Proto-Libertarian

Philip K. Howard writes,

Generations of lawmakers and regulators have written so much law, in such detail, that officials are barred from acting sensibly. Like sediment in the harbor, law has piled up until it is almost impossible — indeed, illegal — for officials to make choices needed for government to get where it needs to go.

I might term this sort of thinking proto-libertarianism. A proto-libertarian is someone who, like Peter Schuck, recognizes that government performance falls far short of its promises, yet still believes that government could function effectively at its current size and scope.

In Howard’s case, I would make the following suggestions for climbing further up the mountain of libertarianism.

1. Recognize that it is not only well-meaning government officials who can be prevented from doing the right thing by legal paralysis. Private individuals and corporations also are often prevented from doing the right thing, not only by law but by regulations issued by well-meaning government officials.

2. Consider that legislation may be an inferior form of law not just recently, or occasionally, but usually. Instead, consider the ideas of Bruno Leoni, which suggest that common law that emerges from individual cases represents a spontaneous order, while legislation represents an attempt at top-down control that works less well.