In the long term I favour a Europe—indeed, a world—of much smaller states. I don’t just favour breaking up the UK; I favour breaking up the United States, India, and China.
That is Charlie Stross, writing on the Scotland independence referendum. Read the whole thing. I thank a reader for the pointer.
A pro-innovation agenda begins instead by recognizing that markets are far more likely to resolve market failures than regulators, and to do so at a lower cost. This is not because markets are perfect, or appropriate subjects of uncritical reverence, but simply because markets react more quickly than do governments to the negative but usually short-term side effects of disruptive innovation. The next generation of technology is far more likely to remedy consumer harms than regulatory intervention can, and with considerably less economic friction.
They come from Larry Downes.
The problem with macroeconomics is not that it has become overly mathematical – it is not the tools and techniques we use to answer questions. The problem is the sociology within the economics profession that prevents some questions from being asked.
But I see these as the same problem. The sociology of the profession essentially forced anyone who wanted to have an academic career to engage in mindless mathematical self-abuse. If the sociology of the profession had been better, very different sorts of articles would have been published in journals, very different sorts of economists would have earned tenure at major universities, and very different sorts of techniques would have prevailed. And don’t just blame Lucas. Fischer is every bit as much of a villain.
Ed Pinto is pushing something he calls a “wealth builder home loan.” Here is his thought process:
1. With a 15-year mortgage, the borrower accumulates equity faster than with a 30-year mortgage. However, by the same token, the monthly payment is higher, which creates a hurdle for low-income home buyers.
2. With an up-front payment, you can buy down the interest rate on a 15-year mortgage, making the monthly payments more affordable.
3. Therefore, a 15-year mortgage with an interest-rate buydown is a way to help low-income borrowers afford mortgage payments and build up equity rapidly.
(1) and (2) are true. However (3) is false. The problem is that the interest-rate buydown undermines the borrower’s equity. Consider two cases.
Case 1: the borrower pays for the buydown. As this article describes it,
let customers of modest means use a down payment of up to 5 percent to “buy” a lower interest rate
So, if you buy a $200,000 house and you have $10,000, you use that $10,000 to buy down the rate. But you could have used that $10,000 as a down payment on the house! That would have given you 5 percent equity to start with, instead of starting with zero.
Case 2: the seller pays for the buydown. If the seller pays $10,000, then the transaction price will be $10,000 above what the house would sell for without a seller concession. So if the borrower makes no down payment, the borrower starts out with $10,000 in negative equity.
There is no free lunch in mortgage lending. People with low incomes and little money to put down on a home are home speculators. There is no reason to encourage them to become home speculators.
Help people save for the down payment. That is the only “affordable housing” approach that does not foster speculation.
A study completed by the Boston Consulting Group points to a significant rise in the number of drugs and complex devices approved in the EU long before the United States. As devices get more complex, the United States is likely to fall further behind. Although the FDA does not issue clear data on backlogs or processing times, research points to shortcomings in our current system when it comes to researching and approving complex devices. This has broad implications for the quality of health care that Americans receive. In 2010, for example, the medical device company Biosensors International shut down its operations in California due to the time and expense associated with getting FDA approval for a cardiac stent. That device is available globally, including in Mexico and Canada.
She discusses a solution in which the FDA expands its pool of experts. I don’t think that this gets at the problem.
Robin Hanson quotes from a subscription-only New Scientist article by Deborah MacKenzie.
hierarchical control structures ballooned, with more layers of middle management. Such bureaucracy was what really brought people together in nation-sized units, argues Maleševic. But not by design: it emerged out of the behaviour of complex hierarchical systems. As people do more kinds of activities, says Bar-Yam, the control structure of their society inevitably becomes denser.
In a sense, I began thinking about this fifteen years ago.
Consider two evolutionary processes that could lead to a winner at a particular business.
a) natural selection. Many small firms enter the market and make decisions, and one of them has the skill and luck to make the fewest mistakes, becoming the dominant firm.
b) bureaucratic filtering. A single firm with a large bureaucracy faces many of the same choice points, and it uses its resource-intensive planning processes to sort out the decisions. These processes minimize mistakes, enabling the firm to reach the same point that would be reached in the natural selection process.
My guess is that process (a) will increase in importance in the future, and that process (b) will be less productive. The challenge with defending this guess is the fact that large companies with bureaucratic management are so successful at present.
That particular essay did not deal with the issue of nation-states. But it is consistent with the idea that industrialization and the nation-state would evolve at the same time, because bureaucracy was more important and effective in an industrial economy than in a pre-industrial or post-industrial economy.
In the latest Critical Review, Jeffrey Friedman argues against those who would interpret politics entirely in terms of individual interests. He says that ideas matter, and that ideas do not necessarily coincide with interests. However, things like the squelching of patent reform are indicative that interest matter.
The Murray Edelman view of politics that I learned at my father’s knee was one in which ideas do not matter. Instead, politics is a contest among insiders (as in the linked story, between tech lobbyists and trial-lawyer lobbyists), who have rational interests. The public is treated to political theater, using what Edelman called symbols. While the public is paying attention to the theatrics (think of Ferguson, or ISIS, or the controversies over contraception and Obamacare), the insiders are helping themselves to the real goodies.
1. A review copy of The Mystery of the Invisible Hand, by “Marshall Jevons.” A didactic novel, better than I expected, but not as good as The Price of Everything. I did finish it. My favorite passage, though, is when the author quotes Carl Christ.
Some people think that economists care only about money. I have heard an unkind critic say that an economist is someone who would sell his grandmother to the highest bidder. This is quite wrong. An economist, or at least a good economist, would not sell his grandmother to the highest bidder unless the highest bid was enough to compensate him for the loss of his grandmother.
2. How Civilizations Die, by David P. Goldman, who writes columns as “Spengler.” Very anti-Islam, very pro-Jewish and pro-Christian, very heavy on the civilization-barbarism axis. Not a book you turn to for even-handedness or diplomacy. One representative sample:
Wherever Muslim countries have invested heavily in secondary and university education, they have wrenched their young people out of the constraints of traditional society without, however, providing them with the skills to succeed in modernity. An entire generation of young Muslims has lost its traditional roots without finding new roots in the modern world. The main consequence of more education appears to be a plunge in fertility rates within a single generation, from the very large families associated with traditional society to the depopulation levels observed in Western Europe. Suspended between the traditional world and modernity, impoverished and humiliated, the mass of educated young Muslims have little to hope for and every reason to be enraged.
I think that recent events will lead people to give more consideration to such darker outlooks. If Presidents Bush and Obama had something in common, it is that they both believed that the process of political modernization among Arab Muslims would prove simpler than it has. Bush was overly optimistic about Iraq, and Obama was overly optimistic about the revolutions in Egypt, Libya, and Syria.
For a different take from the civilization-barbarism axis that is too long to excerpt but interesting, see Forfare Davis.
By the way, my Facebook feed has changed radically in recent months, with much less political snark and a surfeit of cute animal videos. Part of me wonders if something like that happened in Britain when Hitler took power in 1933. Was politics just too unpleasant to contemplate at that point?
Our discussion leads to the hypothesis that fluid labor markets promote high levels of employment. Conversely, according to this hypothesis, a secular decline in labor market fluidity is a force for lower employment rates.
…The loss of labor market fluidity suggests the U.S. economy became less dynamic and responsive in recent decades. Direct evidence confirms that U.S. employers became less responsive to shocks in recent decades, not that employer-level shocks became less variable…
The authors only speculate about the reasons for a less fluid labor market. An older labor force; changes in business models (I think of big firms coming in to replace mom-and-pop retailers), occupational licensing, health-insurance job lock?
Jeffrey Friedman’s latest essay in Critical Review. A snippet:
On a question of values, as Max Weber recognized, one’s decision is simple, for values are matters of axiomatic faith: there one stands and can do no other. Empirical issues, while not nearly as dramatic as valence issues, are much harder to decide.
Recently, I was asked to write a short piece on why it is that economists who support a welfare state tend to also support a regulatory state, and conversely. I claim that economists have common values but differ on the empirical issue of whether or not technocrats are able to improve market outcomes. I came to take this view in part because of years-ago conversations with Friedman.
The focus of the essay is on thinking about what political actors believe. One particularly interesting issue concerns when elites hold different opinions from the democratic majority. In such cases, is it best to have a political system that defers to elites or one that defers to the majority? If you need an example, think of open borders.
The issue of Critical Review is self-recommending, but I am just getting started with it.
Possibly relevant: Cass Sunstein, who writes,
It’s not easy to solve the knowledge problem, but in the modern era, regulators are in a far better position to collect dispersed information from the public. On this view, the goal of notice-and-comment rule-making is emphatically not to conduct an opinion poll, to take some kind of political temperature, to see how much applause a proposal is able to attract, to defuse public opposition, to engage in some communications strategy, or to collect the digital equivalent of postcards (even though a number of those are sometimes sent in). Instead, the goal is overwhelmingly substantive, in a sense even Hayekian—to fill gaps in knowledge and to see what might have been overlooked. In particular, the agency’s assessment of the likely consequences of regulations is subject to close scrutiny. If the agency has inaccurately assessed costs and benefits, public participation can and often will supply a corrective. Democratization of the regulatory process, through public comment, has an epistemic value. It helps to collect dispersed knowledge and to bring it to bear on official choices.
As is often the case, I do not find Sunstein persuasive.