economists don’t even know that they don’t know what inflation is. They talk as if it’s some sort of objective fact, like the height of Mt. Everest, which we ascertain with ever more accurate measurements.
I agree, and by the same token, we do not know the rate of productivity growth. The aggregation problems involved in trying to characterize the economy as a GDP factory are just too daunting.
A major theme of Fools is that the New Left evolved a set of intellectual tactical moves against their opponents. These included creating a false left-right spectrum, delegitimizing other points of view, indicting capitalism and tradition for all wrongs while being vague about alternatives, and using Newspeak to present authoritarianism as a defense of freedom and human rights.
Read the whole review, and I recommend the entire book.
1. Universal social programs that “help everyone” are folly. Regardless of your political philosophy, taxing everyone to help everyone makes no sense.
2. In the U.S. (along with virtually every other country), most government social spending is devoted to these indefensible universal programs – Social Security, Medicare, and K-12 public education for starters.
3. Social programs – universal or means-tested – give people perverse incentives, discouraging work, planning, and self-insurance. The programs give recipients very bad incentives; the taxes required to fund the programs give everyone moderately bad incentives. The more “generous” the programs, the worse the collateral damage. As a result, even programs carefully targeted to help the truly poor often fail a cost-benefit test. And while libertarians need not favor every government act that passes the cost-benefit test, they should at least oppose every government act that fails it.
Read the whole thing. However, these first few paragraphs made me worry about a nirvana fallacy. Nirvana would be a program that gives money or services to poor people without creating incentives that tend to discourage work. I do not believe that nirvana exists, so that in the real world we have to compromise. You either let poor people suffer or you provide a program that dilutes their incentive to work. Some further remarks:
1. Programs to help the poor do not necessarily have to be provided by the national government. They could come from local governments, or from private charity. I personally would like to see a mix. I can make a case for a universal basic income provided by the national government, with a marginal tax rate of 25 percent or less. For example, with a 25 percent tax rate, if a household of 4 with zero income gets $12,000. then when its income reaches $20,000 it gets $7000 and when its income reaches $48,000 it gets zero. Beyond the basic income, local governments and private charities could provide supplemental income and services to households with special needs, such as a child with expensive medical problems. If we are worried that households will not budget to meet their basic needs, we can give them money not in dollars but instead in the form of a flexible benefit that can only be spent on food, housing, medical care, and education.
2. I also can make a case for having generous welfare states, but with no involvement at the national level. Denmark and Sweden have less than 10 million people each. Why do we need to spread a welfare state over 300 million people?
3. I think that the case for abolishing or phasing out existing social welfare programs is very strong.
4. Those who favor a role for the national government in providing a welfare state should worry about a political nirvana fallacy. Take your ideal welfare state. Maybe it looks like (1) above). Maybe it looks like some idealized version of Scandinavia. In practice, how do you get from here to there?
Overall, I think that there is a powerful pragmatic utilitarian case for reducing the role of the national government in the U.S. in providing support for education, health care, housing, and income security. Not because we do not wish to be generous in helping people with those benefits. But because the set of national programs is so wasteful and inefficient.
For a more philosophical counter to Bryan, see Matt Zwolinksi. I do not like to discuss these issues solely at an abstract philosophical level. I am more focused on taking reality as it is and posing the question of what is the direction for improvement.
If grade inflation is bad, fighting it is worse. Our goal should be ending the centrality of grades altogether. For years, I feared that a world of only A’s would mean the end of meaningful grades; today, I’m certain of it. But what’s so bad about that?
I think that the best approach is to unbundle teaching from assessment. An enterpreneurial idea would be to start a national collegiate assessment service. This company would administer at least three types of examinations.
1. Exams for generic courses, such as calculus or freshman economics or freshman psychology. These exams would work like AP exams.
2. Assessments for more specific courses, such as the economics of sports, or 20th-century Japanese poetry. For these, the professor will provide a syllabus that includes a set of objectives for the students. The company will design and implement an assessment geared toward the syllabus. (At Swarthmore College, the honors exams used to work that way, with professors from other institutions writing and administering exams.)
3. Assessments of general areas of competence. Examples might be: the ability to read an essay and summarize its key points; the ability to read how a study was conducted and assess the weaknesses of the methods used; the ability to trace the historical roots of a contemporary political or economic phenomenon.
If this sort of enterprise could get off the ground, I think it holds the potential for radical change in the academy. My hope is that many students might decide that the best way to do well on third-party assessments is to take more control over their own learning.
In a strange way, modern climatology shares much in common with the approach of 1950s Keynesian macroeconomics. It usually starts with a number of sweeping assumptions about the relation between atmospheric carbon and temperature, and presumes to isolate them to specific forms of human activity. It then purports to “predict” the effects of those assumptions with extraordinarily great precision across many decades or even centuries into the future. It even has its own valves to turn and levers to pull – restrict carbon emissions by X%, and the average temperature will supposedly go down by Y degrees. Tax gasoline by X dollar amount, watch sea level rise dissipate by Y centimeters, and so forth. And yet as a testable predictor, its models almost consistently overestimate warming in absurdly alarmist directions and its results claim implausible precision for highly isolated events taking place many decades in the future. These faults also seem to plague the climate models even as we may still accept that some level of warming is occurring.
Pointer from Don Boudreaux. Read the whole thing. I have this same instinct about climate models, which does not necessarily mean that I am correct in my skepticism.
Agreeableness is strongly, and consistently, associated with liberal economic positions and Emotional Stability is strongly associated with conservative economic positions.
… while previous research has rightly identified Conscientiousness and Openness as the traits most
consistently related to ideology, our analysis shows that the other Big Five traits—particularly Emotional
Stability and Agreeableness—significantly and substantially affect political attitudes.
Pointer from Tyler Cowen.
The authors departed from previous research by separating issues into economic and social issues. By not confounding the two, they find different patterns of relationships between personality traits and conservatism. People who dislike markets tend to score higher on agreeableness, meaning that they like to be seen as pleasing to others. They tend to score low on emotional stability, meaning that they are prone to worry and fear.
Concerning the issue of voter rationality, a commenter writes,
When applied to markets, this is known as the wisdom of crowds. Should we therefore be skeptical of that as well?
The arguments about voter irrationality say that individuals have less incentive to think carefully about their votes than about their purchases. As a result, they will act more wisely in markets than in the voting booth.
However, I do not make a “wisdom of crowds” argument for markets. Seeing the goods and services that many people consume but I don’t, as well as the goods and services that I consume that others don’t, I cannot say that I am a believer in crowd wisdom.
On the contrary, for me one of the main virtues of markets is that they allow for a diversity of preferences to be satisfied, so that I do not have to rely on the crowd’s wisdom, or lack thereof. The market offers me a spectacular array of goods and services to choose from, and the bundle that I select keeps getting better all the time. This fall, the voting booth may end up offering me a choice between Hillary Clinton and Donald Trump. Enough said.
3.
It’s unprecedented. With almost 50 million empty houses and with big inventories of major commodities, China’s lenders, builders, and manufacturers are still going for more. As one small example, the world, led by China, is still on track to produce as much as 40 percent more iron and steel than it needs this year.
No, it’s not Tyler Cowen. It’s Richard Vague (what a name to live down!).
Since 1995, durable goods (cars, televisions, computers and the like) have been getting cheaper in the U.S. That’s even as the prices of services and nondurables have mostly kept rising.
Read the whole post. Pointer from Mark Thoma.
At one point, Fox recycles the often-told tale of Fed Chairman Paul Volcker vanquishing inflation. My alternative view is that bond market vigilantes took over. That is, lenders got tired of generously offering borrowers negative real interest rates.
Tyler Cowen reproduces a chart from Sober Look purporting to show that house prices are now above their 2005 peak. Several commenters on Tyler’s post are skeptical, and so am I.
Consider figure 2 in this piece by San Francisco Fed economists. It shows the price/rent ratio, and while it has gone up considerably since the trough, it is nowhere near back to the peak. Their figure also shows that mortgage indebtedness is not in a danger zone, either.
Look, if you want to suggest that house prices in San Francisco and Los Angeles are hard to justify, I won’t argue with you. But at the risk of saying something that could look stupid later this year, I will say that most of the country is not yet in a housing bubble.