Monthly Archives: March 2015

Is Voice the Answer?

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In a symposium on libertarian strategy, Jim Powell writes,

Libertarian ideas are unlikely to prevail until we get to stage three. That stage involves a peaceful mass movement to mobilize large numbers of people to pressure politicians to support liberty by enacting some laws and repealing others. A peaceful mass movement is basically what you can do in a democracy when politicians fail to respond to demands.

I am not signing that petition. To me, voice is the problem, not the solution. I prefer libertarian strategies that focus on lowering the cost of exit.

Pointer to the symposium from Alberto Mingardi, who takes a more tolerant view. He writes,

any successful strategy to change the minds of people needs different actors: pluralism, in a sense. it is not just that a “monistic” approach won’t be very libertarian, but you do actually need different kinds of people and lines of effort if you hope to have success.

TANSTAAFM (M stands for market)

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So writes Yuval Noah Harari, in Sapiens.

There is simply no such thing as a market free of all political bias. The important economic resource is trust in the future, and this resource is constantly threatened by thieves and charlatans. Markets by themselves offer no protection against fraud, theft, and violence. It is the job of political systems to ensure trust by legislating sanctions against cheats and to establish and support police forces, courts, and jails which will enforce the law. When kings fail to do their jobs and regulate markets properly, it leads to loss of trust, dwindling credit and economic depression. That was the lesson taught by the Mississippi Bubble of 1719, and anyone who forgot it was reminded by the US housing bubble of 2007, and the ensuing credit crunch and recession.

There is perhaps something to be said for the notion that there is an interior optimum for trust in government. Too little, and you have weak property rights and an inability to safely make long-term investment. Too much, and government takes on too much power and creates a false impression that it can guarantee the safety of dangerous and misguided investment.

Comment on the Intelligence of Foragers and Farmers

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A commenter on this post writes,

Under the Hariri / Diamond theory, you would expect [foragers] and their current descendants to be some of the of the most cognitively gifted people in the world, doing great in school with high test scores, and easily punching well above their weight in all sorts of intellectual pursuits, or at least in the those areas where the hypothetical forager intelligence provides a comparative advantage versus those dull farmers. If, for example, they really need such a phenomenal memory to remember all those plants, then we should see that many of their descendants have exceptions memories and succeed in careers that leverage that special talent.

But not only do we not see this, we see exactly the opposite.

Indeed, one should be wary of just-so stories, particularly when plainly visible evidence runs counter to them.

Trade, Employment and Wages

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Derek M. Scissors writes,

If trade deficits have caused job loss for decades, millions of jobs on some counts, we should see a clear and sustained relationship between trade and unemployment. We don’t.

Right away, I can think of two reasons not to find a relationship.

1. As with many macroeconomic variables, there is causal density. Many factors affect the trade balance, and many factors affect unemployment. In standard international macro, anything that strengthens domestic demand will cause employment to rise along with the trade deficit.

2. Deviations from full employment are temporary (they last for several years, but not forever), at least according to many economic theories. In the long run, the primary effect of globalization should be on the wage rates of various workers, not on the employment rates. And indeed a recent paper by Ebenstein and others claims to find such effects

Subway Externalities

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Paul Romer says,

If the only way to support Manhattan densities is with the subway system, then you’ve got to figure out how to finance the subway system. And, you know, part of what we’ve learned is that the value of the subway system will show up to a large extent in the value of the land. So that you can’t just think about sending out, giving out a contract for somebody to build the subway system and try to finance it based on the fare revenue. What you’ve got to do is somehow internalize the increases in the value of the land induced by the kind of access that the subway can provide.

This in a Russ Roberts podcast. Russ has had other interesting guests the last few weeks, also.

The Flynn Effect Puzzle

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From a BBC article.

Richard Lynn notes that measures of infants’ mental development increased in the UK and US at rates correlated to the increasing IQs of slightly older children. It’s difficult to see how Flynn’s theories are enough to explain this. “Are infants thinking more scientifically today?” he asks rhetorically.

Pointer from Neerav Kingsland, who writes,

For gains in IQ, I wonder whether changes in the method of harnessing energy caused IQ gains (our brains adapted to the needs of the new economy), or whether gains in IQ led to the development of new ways of harnessing energy (we got smarter and invented new ways of doing things).

My guess is that, for the transition from farming to industry, it’s the former.

Or to put it another way: humans developed the IQ we needed.

In Sapiens, Yuval Noah Hariri argues that foragers need more intelligence than farmers. Foragers need to know much more about their environment, including information about many varieties of plants. Farmers just need to know a routine for raising a staple crop.

One can argue that ordinary workers in the early stages of the industrial revolution did not need to know much, either. More recently, the skill demands of jobs have gone up, so that we may be reverting to forager-level intelligence.

But what is the mechanism by which “humans developed the IQ we needed.” For foragers, the mechanism is Darwinian. If you cannot remember which plants are edible, you die without passing on your genes. By the same token, farming is dysgenic. It allows more intellectually weak people to survive.

But does that mean that we should seek a eugenic explanation for the Flynn effect? That is, for the past hundred years, has the trend within a given country been for the proportion of children born of less-intelligent parents to decline? Researchers, including Lynn, seem to prefer nurture-based explanation.

MIT Economics and Academic Prejudice

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The MIT economics department’s dominance was fading just as I entered grad school there. David Warsh, himself a long-time chronicler of the department, reviews a book edited by E. Roy Weintraub on the golden age of economics at the Institute.

A sixth factor, advanced by Weintraub in the Transformation volume, argues that the rise of MIT stemmed from its willingness to appoint Jewish economists to senior positions, starting with Samuelson himself. Anti-Semitism was common in American universities on the eve of World War II, and while most of the best universities had one Jew or even two on their faculties of arts and sciences, to demonstrate that they were free of prejudice, none showed any willingness to appoint significant numbers until the flood of European émigrés after World War I began to open their doors. MIT was able to recruit its charter faculty – Maurice Adelmam, Max Millikan, Walt Rostow, Paul Rosenstein-Rodin, Solow, Evsey Domar and Franco Modigliani were Jews – “not only because of Samuelson’s growing renown,” writes Weintraub, “…but because the department and university were remarkably open to the hiring of Jewish faculty at a time when such hiring was just beginning to be possible at Ivy League Universities,”

Pointer from Mark Thoma. My Swarthmore College professor Bernie Saffran emphasized the anti-Semitism factor also. Bernie’s version was that Harvard’s anti-semitism made Samuelson feel that he would be better off at MIT, and once he went to MIT he went about using Jews to build a superior department to pointedly punish Harvard. It took almost three decades (roughly from the end of World War II to the late 1970s) for Harvard to come back.

Economists generally view prejudice by a firm as unsustainable, because that firm will lose out to competitors. The lesson I take from the Harvard-MIT story is that in academia prejudice can persist for a while, with long-term detrimental effects. Consider that as you read stories about prejudice against conservatives.

Read Warsh’s entire article, which covers much more ground.

UPDATE: For more on the economics of discrimination, check out the links on David Henderson’s post.

The Null Hypothesis for Income and Wealth

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The abstract of a working paper by David Cesarini and others says,

We use administrative data on Swedish lottery players to estimate the causal impact of wealth on players’ own health and their children’s health and developmental outcomes. Our estimation sample is large, virtually free of attrition, and allows us to control for the factors ‒ such as the number of lottery tickets ‒ conditional on which the prizes were randomly assigned. In adults, we find no evidence that wealth impacts mortality or health care utilization, with the possible exception of a small reduction in the consumption of mental health drugs.

Our estimates allow us to rule out effects on 10-year mortality one sixth as large the cross-sectional gradient. In our intergenerational analyses, we find that wealth increases children’s health care utilization in the years following the lottery and may also reduce obesity risk. The effects on most other child outcomes, which include drug consumption, scholastic performance, and skills, can usually be bounded to a tight interval around zero. Overall, our findings suggest that correlations observed in affluent, developed countries between (i) wealth and health or (ii) parental income and children’s outcomes do not reflect a causal effect of wealth.

Pointer from James Pethokoukis.

Somebody should replicate this study in the United States. I would not be surprised if the effects on child outcomes were closely bounded to a tight interval around zero here, also.

This is the sort of evidence that I wish Robert Putnam would confront.

Harari on Money

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He writes,

Money. . .involved the creation of a new inter-subjective reality that exists solely in people’s shared imaginations.

money is the most universal and efficient system of mutual trust ever devised.

This is from his book Sapiens that I am currently reading.

I like to say that money is a consensual hallucination, using the phrase the William Gibson coined to describe cyberspace, a term that he also coined.

I want to push back against the materialist idea of money, in which its value is determined by the “quantity of money” in relation to other goods. Think of money as a protocol for exchanging goods, the way that TCP/IP is the basic Internet protocol for exchanging information between computers. The concept of a three percent increase in the supply of TCP/IP is nonsense.

What about the Fed? Think of the Fed as a big player in the repo market. It is a peer of Goldman Sachs.

What about hyperinflation? Think of that as the government needing to pay for its deficit spending through an enormous counterfeit operation, one that ultimately undermines the trust in money and wrecks the protocol for exchanging goods.

What I’m Reading

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Sapiens: A Brief History of Humankind, by Yuval Noah Harari. I think I mentioned this the other day. Harari argues that in prehistorical times humans were responsible for the extinction of many large species. I was reminded of this today when Tyler Cowen pointed to a piece on the relatively recent extinction of woolly mammoths on a large island. The story says,

Archaeological evidence suggests that humans reached Wrangel Island at roughly the same time the last mammoths vanished, but there’s no evidence yet to indicate that they ever hunted the mammoths. The more likely answer is climate change, which as a side effect might well have made it easier for humans to reach the island to serve as witnesses to the mammoths’ final days.

Harari points out that humans do not have to hunt creatures in order to cause their extinction. For example, humans could disrupt food sources.

I am only part way through the book. My ultimate evaluation may not be favorable.