Monthly Archives: February 2015

You Won’t Think I’m Being Charitable

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Do you think I should submit this essay somewhere?

The central concept of the sociologists is privilege. Privilege is like status, except that it is based on membership in a group rather than in characteristics of the individual. One’s privilege is based on his her membership in a economic class, race, religious group, or sexual category. Rich people enjoy a lot of privilege, while poor people are underprivileged. In America, whites are privileged, while African-Americans and Hispanics are not. Similarly, Christians are privileged, and Muslims are not. Male heterosexuals are privileged, and people with other sexual orientations are not.

It goes on to claim that this is how the Obama Administration views terrorism. I actually don’t think I’m being uncharitable. I think I could pass an ideological Turing test as a sociologist or as a member of the Administration.

Economic Report of the President, 2015

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I have only glanced through it, but I like what I see. Previous reports under President Obama I found to be long on cheerleading for the his policies and much shorter on substance than what we used to see. This one appears to represent a return to substance. Greg Mankiw points out the way in which the report hints that the median household income has been hurt more by slow growth than by increased inequality.

I give the authors credit for putting a lot of focus on labor force participation trends. They write,

Overall, the most important factor affecting the aggregate participation rate in the recession and recovery has been the aging of the population. But there are a number of important trends and developments relevant for understanding the changes in participation of different subgroups of the population:
• Increased participation by older Americans, which may be attributable to an increase in skills among this population and also to changes in Social Security retirement benefits;
• Reduced participation by younger Americans as they stay in school longer;
• Continuation of an at least 65-year long trend of declining male labor force participation, which is especially stark for young minority men; and
• Tapering of the long-term trend of increasing female labor force participation, which dates back to before World War II.

Don’t get me wrong. I don’t think much of the policy recommendations in the report. I also think that if you are looking for clues to declining labor force participation, you should pay some attention to the high implicit marginal tax rates faced by people who are eligible for food stamps and other government benefits. As regular readers will remember, I favor replacing the hodge-podge of means-tested programs, including Medicaid, with a single cash grant that tapers off gradually as income rises (I would suggest that the implicit marginal tax rate be limited to something like 20 or 25 percent).

Old Predictions of Mine, Mostly Wrong

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An editor of a publication asked if it would be ok to reprint this essay. Since it is 15 years old, I thought it would look pretty silly if it were reprinted now. There are a few lines in the essay that I still like.

All of these features are feasible with existing technology. The problem is that if you tried to combine them into a single device, you’d probably need to carry around a power pack the size of a cantaloupe.

Today, a teacher in a classroom or a speaker in a meeting has a presumptive ownership over the attention of the audience. My guess is that within five years or so this will have broken down completely. You simply will take it for granted that while you address an audience, people will be engaged in electronic communication with external parties, only intermittently tuning in to what you have to say.

But mostly, there are clunkers like this:

I do not see signs of mobile Internet devices crossing the chasm. Palm Pilots have been around for a few years now, and I am still waiting for a compelling reason to buy one. I’m sorry, but the way see it, if I need something to keep myself occupied when I’m traveling, I can pack a book.

IQ and Institutions

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Jason Collins dares to write,

Those nations with high-IQ, educated populations tend to have higher levels of economic development. Although rich countries tend to have good political institutions and policies that are not completely crazy, the direction of causation is population to institutions. If you have the “right” people in a nation, decent political frameworks tend to follow.

You can read my cross-country study, which supports Jason’s view. The appendix is where I introduce an IQ variable, which is very powerful. If you don’t like my dependent variable, which is an index of economic freedom, you could redo the analysis using the United Nations human development index and get very similar results.

Heritability, Left and Right

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Chris Dillow writes,

there’s no conflict between leftism and a belief in the heritability of ability. In this respect at least, the left has nothing to fear from science.

Suppose that one believes that intelligence is heritable and that intelligence affects economic status. To the extent that you believe those two things, you have to maintain a somewhat lower belief in the importance of effort in determining economic status. Accordingly, in scoring a policy of pure income redistribution, as Dillow points out, you have to give it additional philosophical points because the well-off are the beneficiaries of lucky inheritance. In addition, such a policy loses fewer economic-efficiency points, because taxes that discourage effort will not diminish total wealth as much as they would if wealth were entirely determined by effort.

So Dillow would appear to be correct. And in fact Gregory Clark, who is well known for his findings supporting heritability of economic status, says that his findings support income redistribution.

Why, then, is heritability of intelligence a problem for the left? I believe that the three-axes model can help provide the answer.

In the three-axes model, progressives want to squeeze every issue into an oppressor-oppressed narrative. To suggest that ethnic groups differ in average income for reasons other than oppression would be to weaken that narrative. So even if from a policy perspective a belief in heritability is tolerable, from a narrative perspective a book like The Bell Curve represents a huge threat.

My sense is that this produces a great deal of cognitive dissonance on the left. I have many friends on the left, and I do not know a single one who would instinctively deny the heritability of intelligence. On the other hand, they have been instructed to regard Murray and Herrnstein as vile racists.

Evidence that runs counter to the oppressor-oppressed axis narrative is difficult for people on the left to process. I think that, notwithstanding Dillow’s reasoning, the left is going to continue to be uncomfortable with the science of heritability of intelligence.

Economists and Greece: Finish the Sentence

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Greece will achieve economic success when ____.

My inclination is to feel as unable to complete the sentence as I was the similar sentence about peace in the Middle East. Yet Simon Wren-Lewis writes,

To be able to say intelligent stuff about what is going on at the moment (which you would hope an economics education would enable you to do), you need to know quite a lot of economic theory. A lot of macro of course, but quite a bit of finance, and also at least some game theory. . .And if you want to get into all those ‘reforms’ imposed by the Troika, you need a lot of micro.

Pointer from Mark Thoma.

To be fair, Wren-Lewis is saying that knowledge of these topics is necessary in order to offer opinions on Greece. He is not claiming that it is sufficient to finish the sentence.

I just want to emphasize the extent of our ignorance here. Somebody with legitimate training in mainstream economics could easily argue that the best thing for Greece right now would be to get off the Euro. After all, many mainstream economists, perhaps a majority, would say that it was a mistake for Greece to go on the Euro in the first place. Still, there are many other mainstream economists who would argue that it would be better for Greece to remain in the Euro.

As for supply-side reforms, the economic analysis is the easy part. The hard part is dealing with the historical and cultural baggage of the country.

If you forced me to take my best shot at addressing the historical and cultural baggage, I would be inclined to fill in the sentence with “some time after the government runs out of other people’s money.” But there are many economists who would disagree.

In any case, my prediction is that this will not happen soon. Again, I think that the route by which German money gets to the Greek government will be opaque and circuitous for face-saving reasons, but I expect such an outcome. Note: I gather that Tyler Cowen assesses the situation differently. I think we agree that it is possible to claim a symbolic win and take a substantive loss, we just disagree as to which party is most likely to end up doing that.

Four Forces Watch

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Seth G. Benzell, Laurence J. Kotlikoff, Guillermo LaGarda, and Jeffrey D. Sachs write,

over time, as the stock of legacy code grows, the demand for new code and, thus for high-tech workers, falls.

The resulting tech bust reflects past humans obsolescing current humans. . .these robots contain the stuff of humans – accumulated brain and saving power. Take Junior – the reigning World Computer Chess Champion. Junior can beat every current and, possibly, every future human on the planet. Consequently, his old code has largely put new chess programmers out of business.

. . .tech busts can be tough on high-tech workers. In fact, high-tech workers can start out earning far more than low-tech workers, but end up earning far less.

Furthermore, robots, captured in the model by more code-intensive good production, can leave all future high-tech workers and, potentially, all future low-tech workers worse off. In other words, technological progress can be immiserating

They use an overlapping generations model, which would not be my first choice for this sort of analysis. In fact, it makes me highly skeptical of the value of this paper.

I am starting a new category, called Four Forces Watch, for my pointers to pieces on the four forces that I see shaping the economy over the longer term: New Commanding Heights (health care and education absorbing more resources); Marriage Stratification; Factor-price Equalization (aka globalization); Moore’s Law. The piece quoted above falls under Moore’s Law.

Response to a Comment

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Concerning Gregory Clark’s findings of the absence of high multi-generational mobility, a commenter writes,

I still can’t believe things are quite as static as he makes them out to be, but I don’t know enough to dispute any of his specific findings. The model of human social behavior I carry around in my brain just doesn’t match the one he presents.

One thing we know is that there is high variance in outcomes across siblings. Back when people had many children, it may have been the case that if you were well off it was very likely that at least one of your grandchildren would be well off, but not so likely that every one of your grandchildren would be well off. With people having fewer children, either multigenerational mobility will go up or other forces (such as stronger assortative mating) will offset what otherwise would be an increase in random variation across generations.

Finish this Sentence

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Peace will come to Syria, Iraq, Libya, and the rest of the Middle East when ______.

I define peace as a situation in which at least 99 percent of the people do not have to consider abandoning their homes for fear of violence.

Off the top of my head, I do not have an answer. But I find myself drawn more to the conservative civilization-barbarism axis than to the progressive oppressor-oppressed axis or to the libertarian freedom-coercion axis. Along those lines, you may wish to re-read Jeanne J. Kirkpatrick’s classic Dictatorships and Double Standards. Among many possible excerpts I might choose, there is this:

Although most governments in the world are, as they always have been, autocracies of one kind or another, no idea holds greater sway in the mind of educated Americans than the belief that it is possible to democratize governments, anytime, anywhere, under any circumstances.

She argued against this brand of wishful thinking. If you think that you have a reliable answer to my question, then ask yourself whether you are engaged in wishful thinking.

For example, I would give a low grade to anyone who thinks that the solution is to focus on empowering communities. In other words, community organizers are the solution to terrorism. When I read that, I did not know whether to laugh or cry. I am afraid that I could not come up with anything charitable to say.

If anything, libertarians tend to think more wishfully than progressives. My own wishful thought has been that violence would wane at some point because so many people would become fed up with it. [UPDATE: I am not entirely wrong about that.] I think that in fact more people are getting fed up with it, but they are not being provided with a reason to hope that the militants will be defeated.

I am not saying that the solution is to bomb the heck out of the Middle East. It may very well be that the most prudent thing to do is nothing. But the policy articulated by our leaders sounds like it came out of a class discussion in freshman sociology. I find it demoralizing. And I imagine that anyone who is on the front lines against the Islamic militants has to feel totally bereft.

Macroeconomics and Expertise

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As part of a general blog conversation, Noah Smith writes,

Scott Sumner expresses incredible confidence that NGDP targeting is best. Paul Krugman expresses incredible confidence that fiscal stimulus is effective and that austerity is counterproductive. John Cochrane expresses incredible confidence that structural form – removing “sand in the gears” – is the best medicine for an economy in recession. Robert Lucas said that the “central problem of depression prevention has been solved.” And so on, and so forth.

I think normal people realize that that certitude is basically never warranted. Yes, those economists often (but not always) have some evidence to back up their claims. But not the kind of evidence that people have in disciplines where data is more abundant, controlled, and replicable.

Pointer from Mark Thoma. I disagree that this is how normal people think. I believe that the main problem with non-expert opinion in macroeconomics is that normal people can be just as dogmatic in their macro views as self-proclaimed experts.

I would amend the last paragraph to substitute “thoughtful economists” for “normal people.” With that amendment, the quoted passage would have my vote.