The Democrats will run on the $12 minimum wage.
The Republicans will run on economic nationalism.
Economists and libertarians will watch this from under the bus, as usual.
Have a nice day.
Monthly Archives: May 2015
Adult-supervised Motivation
I think one of the issues is we tend to think of education as being the content. We overemphasize the importance of content, as opposed to emphasizing the part that’s really difficult in any good education, which is adult-supervised motivation—the motivation of the child to learn something.
The interview, on the limits of technology as a solution for problems in underdeveloped areas, is wise throughout.
Larry White on Free Banking History
Central banks primarily arose, directly or indirectly, from legislation that created privileges to promote the fiscal interests of the state or the rent-seeking interests of privileged bankers, not from market forces.
Pointer from Mark Thoma (!).
I think that one could write essentially the same sentence to explain quantitative easing.
What is a Job?
In a recession, we speak of jobs being “hard to find” and “the need to create jobs.” As intuitively reasonable as these phrases seem, they run counter to conventional economics.
The goal of an economy is not to create work. What we want is higher productivity, which means that more goods and services can be obtained with less work.
The traditional view of the economic problem is that we have unlimited wants and limited resources. The folk Keynesian view is the opposite: we have resources that are superfluous because of limited wants (low aggregate demand).
When we focus on trade as the central principle of economics, we can resolve this tension. That is, we can explain a shortage of “jobs” even though the economic problem is to try to produce more with less.
The most striking thing about a modern economy is specialization. Most of us produce goods or services that cannot be directly consumed. And all of us consume goods and services that we could not possibly produce.
As an individual, I earn a living by doing a few tasks that do not produce a single item that I consume. Instead, my few tasks allow me to exchange for goods and services that require many tasks. Think for a moment about all of the tasks required to produce a pencil or a toaster.
How many tasks go into the production of the goods and services that I consume in a single day? My guess is that the number is in the millions. And yet I only have to perform a few tasks myself in order to earn the means to obtain these goods and services. That is the miracle performed by complex patterns of specialization and trade.
So I arrive at this definition of a job:
A job is a context for performing a particular small set of tasks that can be exchanged for the means to obtain goods and services produced by a far larger set of tasks.
This definition of a job is consistent with the ordinary intuition that jobs must be “created.” You cannot just do any random set of small tasks to earn the means to obtain the goods and services of the market. That is why I do not define a job as the set of tasks. Instead, I define it as the context in which those tasks are undertaken. Without a context in which the set of tasks adds value, there is no basis for exchange. In order to have a job, you or an employer must discover a context in which sufficient value is created by a particular set of tasks that you are capable of performing.
This definition avoids the suggestion that jobs are lacking because of a scarcity of wants. It also avoids the suggestion that the labor market should be described as a “matching problem,” with employers and potential employees in search of one another. It is a definition of a job that reflects the importance of patterns of sustainable specialization and trade.
Behavioral Politics: Over-reaction to Recent Events
I have a new essay about this phenomenon.
Unfortunately, the political process tends to focus on only one error at a time. This causes policymakers to overreact to the most recent error, leading to an even larger error of the opposite sort.
Michael Strong Asks a Question
He asks,
Has Romer “thought seriously” about a large scale government that can put people in jail? Not to mention ubiquitous police abuse and civil rights violations.
Apparently, Paul Romer is skeptical of private police forces.
My thoughts:
1. Suppose I were to fly to Honduras for a vacation, and I encounter individuals in uniforms who have the power to enforce laws, including putting me in jail. Would I prefer that those individuals be employed by elected officials or by a private corporation? It is not obvious to me that I should place more confidence in the former.
Actually, I think that most people are like Romer in that it does appear obvious to them that police accountable to elected officials will be more trustworthy than private police. This could be a self-fulfilling equilibrium. If people believe that their voice gives them status under a state, they may be more inclined to obey the laws of that state. When people confer legitimacy on the police and the state, the police need to employ less violence in doing their jobs. This reinforces the trust that people place in the state.
2. FOOL rules. I think that the issue of the power to put people in jail illustrates the importance of Fear Of Others’ Liberty. When one thinks of it as “the power to put me in jail,” it seems hard to trust anyone with that power. But when one thinks of it as the power to put an incorrigibly destructive person in jail, one wants someone to have that power. For example, I bet that if you took a public opinion poll after the non-stop television coverage of riots in Baltimore, the support for police incarcerating those involved would have been overwhelming.
Because of FOOL, I think that most people are willing to tolerate the existence of police and of punishment, including incarceration. I think that once you accept that those institutions will be present in a society, the best one can hope for is that laws are just and that they are justly enforced. I do not think that we can reach an ideal in practice, but I would like to see competitive forces at work. It seems to me that if we had competitive government with free movement of people and businesses, then perhaps places where laws are unjust or enforced capriciously would tend to lose population. Or perhaps one might see a pattern where different laws are considered just by different cultures.
3. If you think about how people actually choose where to live, they tend to place a high priority on avoiding areas with reputations for a lot of crime. This tends to produce a population distribution in which some areas are safe and affluent, while other areas are relatively dangerous and also poor. Police work in the former is relatively simple, and police work in the latter is relatively difficult.
4. As an aside, note that the three-axes model has predicted the reactions to the events in Baltimore among progressives, conservatives, and libertarians with uncanny accuracy.