Monthly Archives: January 2016

The Quotable Roger Scruton

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In Frauds, Fools, and Firebrands, he writes about those who condemn the commoditification of labor,

are we not tired, by now, of this tautologous condemnation of the free economy, which defines that which can be purchased as a thing and then says that the man who sells his labour, in becoming a thing, ceases to be a person? At any rate, we should recognize that, of all the mendacious defences offered for slavery, this is by far the most pernicious. For what is unpurchased labour, if not the labour of a slave?

1. I am reminded of Milton Friedman’s famous retort to a general defending the draft. The general asks, “Would you want to lead an army of mercenaries? Friedman replies, “Would you rather lead an army of slaves?

2. I am reminded of the widespread requirement of high school students to complete hours of “community service” in order to graduate.

Scruton says to the left: Condemn paid labor all you like. It is more voluntary than the alternative.

Separately, on the philosophy of science, Scruton writes,

Philosophers of science are familiar with the thesis of Quine and Duhem, that any theory, suitably revised, can be made consistent with any data, and any data rejected in the interest of theory.

That is certainly my view of macroeconomic theory.

The Complexity Brake

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Nick Schulz points me to an essay from a few years ago by Paul Allen and Mark Greaves.

As we go deeper and deeper in our understanding of natural systems, we typically find that we require more and more specialized knowledge to characterize them, and we are forced to continuously expand our scientific theories in more and more complex ways. Understanding the detailed mechanisms of human cognition is a task that is subject to this complexity brake. Just think about what is required to thoroughly understand the human brain at a micro level. The complexity of the brain is simply awesome. Every structure has been precisely shaped by millions of years of evolution to do a particular thing, whatever it might be. It is not like a computer, with billions of identical transistors in regular memory arrays that are controlled by a CPU with a few different elements. In the brain every individual structure and neural circuit has been individually refined by evolution and environmental factors. The closer we look at the brain, the greater the degree of neural variation we find. Understanding the neural structure of the human brain is getting harder as we learn more.

The same appears to be true with cancer, and indeed with all diseases that combine genetic and environmental factors. I would argue that the same is true for macroeconomics. With some problems, you make a lot of progress until the complexity brake kicks in.

The Future of American Cities

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Walter Russell Mead writes,

The increasing fragility of blue cities and states is the biggest problem the Democratic coalition faces. Those who hope that demographic change will create a “permanent Democratic majority” need to think about arithmetic as well as demography. The numbers don’t add up for blue cities. The governing model doesn’t produce the revenue that can sustain it long-term. Making cities work—enabling them to provide necessary services at sustainable cost levels while achieving economic development that rebuilds the urban middle class—is the biggest challenge the Democratic Party faces.

Cities have three major Democratic Party constituents, in tension with one another: gentrifiers, thanks to the New Commanding Heights industries of education and health care; urban African-American remnants of the Great Migration of the 1940s and 1950s; and public-sector union members. Among the conflicts:

–public sector unions with lavish pension benefits vs. the gentrifiers who will have to pay higher taxes or enjoy lower levels of services.

–public sector police unions vs. African-Americans upset with police mistreatment

–gentrifiers and African-Americans having different identity-politics preferences for electoral officials

The Economics of Abundant Oil

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Anatole Kaletsky writes,

For Western oil companies,the rational strategy will be to stop oil exploration and seek profits by providing equipment, geological knowhow, and new technologies such as hydraulic fracturing (“fracking”) to oil-producing countries. But their ultimate goal should be to sell their existing oil reserves as quickly as possible and distribute the resulting tsunami of cash to their shareholders until all of their low-cost oilfields run dry.

His claim is that there is no need to discover more oil. There is plenty of cheap oil available, albeit in countries that are not our favorites. But if you can pump oil for a few dollars a barrel in Iran or Russia, it is wasteful to search for oil that costs over $30 a barrel to extract elsewhere.

My main reaction is that we sure have come a long way from “peak oil” theory.

Russel Arben Fox on Jacob Levy

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He writes,

It introduces, in clear and compelling language, a new way of making sense of the development of liberal ideas, by distinguishing between what he labels “rationalist” (consistent, transparent, state-centric) and “pluralist” (variable, private, culture-dependent) responses to the threats to individual freedom which have arisen throughout the history of liberalism.

Pointer from Tyler Cowen. I also recommend this podcast with Levy, Aaron Ross Powell,, and Trevor Burrus.

Should a restaurant owner be allowed not to serve someone based on race? The “rationalist” theory of liberalism says “no.” The pluralist theory of liberalism says “yes.” An often forgotten aspect of Milton Friedman’s Capitalism and Freedom is that he took the pluralist side on this issue.

Before you jump to the pluralist side of this debate, consider what Fox calls

the rational reformer who wishes to get rid of inconsistent trade barriers and idiosyncratic excise and sin taxes, all in the name of maximizing the benefits of creative destruction

Think of the Commerce Clause as being on the rationalizing side.

Guess Who Wrote This

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Historical experience offers little guide to the social and political consequences of the much greater numbers and more pronounced cultural differences at stake in the postwar migrations to Europe, especially from the Muslim world. The incompatibilities are much greater.

The nub of the problem is that contemporary European civilization is secular, whereas Muslim civilization is religious. In Europe, religion has lost its authority over law, legislation, education, morals, and business life. The Islamic world has undergone no comparable process. There is no systematic separation of faith and state; the family, not the individual, remains the basic social unit. The essential elements of modern European political life – individual rights and duties, and the accountability of government to the governed – are lacking, particularly in the Arab Middle East.

Hints:

1. It’s not Steve Sailer
2. He is known mostly for his contribution to economic biography.
3. His macroeconomic views are not at all conservative.

Answer at the link.

Dean Baker’s Libertarian Socialism

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He proposes replacing the corporate income tax with having corporations give government shares of stock. He notes that this could be optional–corporations could choose to opt out of the corporate income tax by donating shares. However, one suspects that the cleaner approach would be to make it a requirement.

The shares would be nontransferable, except in the case of mergers or buyouts, but they otherwise would be treated just like any other shares. If the company paid a dividend to its other stockholders, then it would pay the same per share dividend to the government. If it bought back 10 percent of its shares, then it would buy back 10 percent of the government’s shares at the same price. In the event of a takeover, the buyer would have to pay the same per-share price to the government as it did to the holders of other shares.

Pointer from Mark Thoma.

This approach would get rid of the distortions and rent-seeking of the corporate income tax. It would align the interests of government and corporations, in that costly regulations would cut into tax revenue. In that sense, it is a step in a libertarian direction. Because government would have partial ownership of businesses, it looks like socialism, but I think one can argue that the power to tax is equivalent to partial ownership, and that if anything the government uses its taxing powers in more meddlesome ways.

Faculty Inequality

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Liang Zhang and Ronald G. Ehrenberg write,

The share of part-time faculty among total faculty has continued to grow over the last two decades, while the share of full-time lecturers and instructors has been relatively stable. Meanwhile, the share of non-tenure track faculty among faculty with professorial ranks has been growing. Dynamic panel data models suggest that employment levels of different types of faculty respond to a variety of economic and institutional factors. Colleges and universities have increasingly employed faculty whose salaries and benefits are relatively inexpensive; the slowly deteriorating financial situations at most colleges and universities have led to an increasing reliance on a contingent academic workforce.

Slowly deteriorating financial situations? Then why are the salaries of tenured faculty so high?

The amazing fact about the economics of college teaching is that a subset of professors is completely insulated from the excess supply that is all around them. Between subsidies to demand handed out by the government and restrictions to supply imposed by limitations on tenured faculty, salaries are maintained far above where they otherwise would settle.

I’ll say again. Ask people if they would rather have 1975 health care at 1975 prices or current health care at current prices, and many will admit that they would prefer what we have today. But many people would say that although college education costs far more today, the quality of what students get is actually worse. Of course, the benefits of a college education appear to be higher today, until somebody figures out alternative ways of providing assortative mating and credentialing.

Two Layers of Occupation

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My wife and I are planning a trip to Israel later this month. We also were there in 1980 and a couple of times since 2000. I have been thinking about my impressions about what changed between 1980 and 2000.

1. The economy improved a lot. In 1980, I remember seeing a concerned look on an Israeli’s face when my wife used her dryer, because of the electricity it was consuming. In fact, infrastructure like electricity and telephone service seemed to be at third-world levels.

2. There was hyperinflation in 1980. Around that time, Stanley Fischer advised the government to tighten its budget and issue a new currency that would have stable value. This approach saved the country.

3. By 2000, Israel was clearly a first-world economy.

4. By 2000, Israeli society was much more fractured. Income differences were considerably wider. The division between secular and religious Israelis was sharper. Differences among Israelis of European origin, Russian origin, and Middle Eastern origin seemed more pronounced.

5. In 1980, Israeli Arabs, meaning Arabs living within the pre-1967 borders, were visible everywhere. They appeared to be integrated into the society as a whole. That is no longer the case. Some of the de facto segregation is due to the intifada. But some of it may reflect the same forces that are increasing class segregation in America. When I spoke in St. Louis last March, I pointed out that 50 years ago if you sat in box seats at old Sportsman’s Park, you were as likely to be sitting next to a blue-collar worker as a white-collar worker. Now, if you were to sit anywhere other than the remote outfield seats you would not be among blue-collar workers. Or, to take another illustration, consider the disconnect between typical college-educated Americans and supporters of Donald Trump.

6. In 1980, Israel still controlled Gaza, and we visited settlements there. The Arabs living there were the poorest people I had ever seen–starving and dressed in rags. I have not been back to Gaza, so I have no idea how things have changed. I certainly hope that there has been at least some improvement.

7. In 1980, the Arabs of East Jerusalem seemed well-dressed, animated, and cultured. There was genuine economic activity and commerce. My sense is that since then among those Arabs, there has been a decline. Certainly spiritually, if not materially. Some of that you might attribute to the Israeli occupation. But I think that East Jerusalem and the West Bank are in a sense victims of a double occupation. In 1994, the Olso accords imposed on the Arabs there a Palestinian Authority which was not really indigenous. Yasser Arafat and his government were outsiders, and their control reduced the status that had been achieved by the local Arabs that made an impression on me in 1980. The way to obtain a living changed from one of commerce to one of control over the disbursement of foreign aid.

I don’t see much discussion in the press of the impact of the imposition of the Palestinian Authority on Arab society in the West Bank and East Jerusalem. Perhaps my casual impressions are wrong. But I wonder whether this second layer of foreign occupation is what did the most significant damage to the economy and the morale there.

Meanwhile, the fraction of Israelis who are militant and extremist has grown over the last 15 years.

PSST?

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A reader asks if John Hussman is stealing the PSST story.

Emphatically, recessions are primarily points where the mix of goods and services demanded by the economy becomes misaligned with the mix of goods and services being produced. As consumer preferences shift, technology introduces new products that dominate old ones, or market signals are distorted by policy, the effects always take time to be observed and fully appreciated by all economic participants. Mismatches between demand and production build in the interim, and at the extreme, new industries can entirely replace the need for old ones. Recessions represent the adjustment to those mismatches. Push reasonable adjustments off with policy distortions (like easy credit) for too long, and the underlying mismatches become larger and ultimately more damaging.

Looking over the entire piece, I would say that the Hussman is 90 percent generic Austrian and maybe 10 percent PSST. I find Hussman worth reading when people point me to his commentaries, but I do not go all in on his or any other market/macro analyst’s viewpoint.