Monthly Archives: June 2016

Question from a Commenter

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He asks,

If we are over-educating our workforce, then why don’t entrepreneurs find and train non-college workers at lower lifetime salaries?

Very good question. Equivalently, why don’t non-college workers try to convince entrepreneurs that they can do the same work at lower pay?

Some possible answers:

1. The Caplan answer is that the non-college worker is attempting to work around the system, and thereby signaling a non-conformist personality that will be difficult to train and integrate into the firm.

2. The Cowen answer is that the college-educated individual is better able to deal with authority–knowing when to question and when to keep silent–and will therefore be more productive. In other words, college makes someone more productive even in a job that does not “require” a college education.

3. I would suggest another possible answer. Perhaps college-educated workers do not get higher salaries than non-college workers in the same jobs.* Perhaps the goal of attending college is to maintain or raise one’s social status. Getting a “college-appropriate” job would be nice, but it is not absolutely necessary in order to feel that you have raised your status, or at least made the attempt.

*Note: I believe that studies that have looked at this *do* show college-educated workers earning higher salaries, even in the same jobs. But I think it is hard to do this quasi-experimentally, which you would have to do in order to control for cognitive ability and conscientiousness.

When the Political Going Gets Weird. . .

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Alberto Mingardi writes,

So, the nationalists are going to be more socialist, because they want to vindicate the power of the nation state in taking control of the national economy, and the socialists are going to be more nationalist, because strengthening regulation and advancing redistribution is all the more difficult in supranational arrangements, where a cooperative understanding is seldom reached.

I think the diagnosis is fair; I couldn’t make a prognosis. But I fear there is a symmetric problem for libertarians. If we take Applebaum’s points seriously, as we should, we are put in a very awkward position: which is defending the status quo, made of relatively free international trade plus relatively weak supranational institutions, as the least bad of all possible worlds. And yet libertarians are highly critical of the status quo and won’t feel well in the company of the current global elites.

Interestingly, this year the Libertarian Party, rather than nominating two bomb-throwers, is putting up a ticket of two former moderate governors. And one can make a case that an upset victory by the Libertarian ticket would be more likely to avoid four years of political strife and antagonism than a victory by either Mrs. Clinton or Mr. Trump.

Upward-Sloping Demand Curves

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Why are big cities becoming expensive places to live? One answer is that they have good jobs and restrictions on housing construction. That may be right.

But one possibility I want to throw out there is that people want affluent neighbors. If I want an affluent neighbor, and an affluent neighbor is going to live in a neighborhood with high prices, then in some sense I want to live in a neighborhood with high prices. In the extreme, this makes my demand for neighborhoods upward-sloping. Higher prices make me want to live there.

I first considered this possibility many years ago when thinking about school vouchers. I thought that if what people really want for their children is to have them go to school with affluent children, then vouchers would not work as well. Instead of allowing non-affluent parents to send their children to good private schools, the result would just be that good private schools would raise prices so that only affluent children can attend.

I also think that some colleges that are not in the top tier may face upward-sloping demand. George Washington University, which is hardly an academic icon, may benefit from charging very high tuition. Affluent parents come and see a student population that is predominantly affluent, and this gives them comfort that sending their children to GW is a high-status thing to do.

Back to cities. Suppose that an important “urban amenity” is having a lot of affluent people around. Young singles may wish to meet potential marriage partners who are affluent. People who have acquired affluent tastes (sushi, yoga, wine) may want to be around people with similar tastes.

If that is the case, then there is not much that a mid-sized midwestern city can do to lure affluent people. The cost of living there is not high enough to create a barrier to non-affluent people living there. And that means that affluent people will not want to live there.

The Fed is not about Monetary Policy

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Lawrence H. White writes,

The fact that M2 has hardly budged from its established long-term path indicates that quantitative easing was not a change in monetary policy, in the sense that it was not used to alter the path of the standard broad monetary aggregate in a sustained way.

I think that the best way to think of all forms of government intervention in financial markets, including regulation and so-called monetary policy, is to remember that the goal is to allocate credit. Talk about financial stability or economic management is just smoke and mirrors.

White’s paper is on the problem of “exit” for the Fed, meaning reducing its balance sheet. But “exit” is not desired if my hypothesis, that the goal of government is credit allocation, is correct. Already, the balance sheet has remained large for far longer than was expected by anyone who thought of the Fed as conducting monetary policy. My hypothesis predicts that five years from now the Fed will have a balance sheet of approximately the same size, or larger. If the Fed were about monetary policy, such a prediction would seem ludicrous.

Current Thoughts on Neo-reaction

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As a characterization of neo-reaction (not as his own point of view), Tyler Cowen writes,

If you are analyzing political discourse, ask the simple question: is this person puking on the West, the history of the West, and those groups — productive white males — who did so much to make the West successful?

My thoughts.

1. Various sources credit me with popularizing the term “neo-reactionary.” However, the links go back to this post from 2010, which today strikes me as quite confused. I wrote,

Other writing in this vein ranges from the best-selling (Jonah Goldberg’s Liberal Fascism) to the obscure (Mencius Moldbug’s old blog posts) to somewhere in between (Arthur Brooks’ The Battle, which I still have not read.)

To which, the current me says “Hunh?” I do not know what I meant, and reading the rest of the post does not help.

2. Let us follow Tyler and say that a major role of political ideology is to attempt to adjust the relative status of various groups. The extreme ideological combatants are the post-modernists and the neo-reactionaries.

The post-modernists seek to elevate the status of women, minorities, and nationalities they view as oppressed. They want to knock down the status of American white males. Neo-reaction can be thought of as expressing the feeling that the status re-alignment has gone too far and needs to be rolled back. A middle ground might be that the status re-alignment to date is fine but that further denigration of white males would be going too far.

3. I would like to elevate the status of people who work in the for-profit sector and reduce the status of people who work in the non-profit sector. Instead, we seem to be intent on reversing the status-change that Deirdre McCloskey says helped produce the Great Enrichment.

4. Consider the principle of “welcoming and assimilating outsiders,” which I think of as central to American success. I believe that we are seeing dangerous extremism against that principle. The neo-reactionary does not want to welcome outsiders. The post-modernist does not want to assimilate them.

5. Of course, every adherent to an ideology seeks to elevate the status of those who share that ideology and to downgrade the status of those with different ideologies. That is why it matters that journalists and academics are overwhelmingly on the left. This means that the institutions of the mass media and higher education are inevitably and relentlessly going to seek to lower the status of conservatives.

My Review of Kim Holmes

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Is here.

Holmes claims that the left has largely abandoned liberalism. To back this claim, he offers a depressing litany of examples, which I will not recite here. Instead, what I found particularly interesting is the way that Holmes blames post-modern philosophy for leading the left away from the Enlightenment values of free speech and individual liberty.

It is from reading Scruton and Holmes that I have come to see post-modernism as something other than a minor intellectual diversion.

Assortative Sex Ratios

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Jon Birger writes,

Multiple studies show that college-educated Americans are increasingly reluctant to marry those lacking a college degree. This bias is having a devastating impact on the dating market for college-educated women. Why? According to 2012 population estimates from the U.S. Census Bureau’s American Community Survey, there are 5.5 million college-educated women in the U.S. between the ages of 22 and 29 versus 4.1 million such men. That’s four women for every three men. Among college grads age 30 to 39, there are 7.4 million women versus 6.0 million men—five women for every four men.

In the Mad Men era, when there were men than women who had graduated college, some men married “down.” Now, when there are more women than men graduating college, we have assortative mating. The result is that women have a harder time finding a “suitable” husband.

And there is this:

One fact that becomes apparent when studying the demographics of religion is that it is almost always the women who are more devout. Across all faiths, women are less likely than men to leave organized religion. According to the Pew Research Center, 67 percent of self-described atheists are men. Statistically speaking, an atheist meeting may be one of the best places for single women to meet available men.

The Low-skilled Labor Market

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Andre Spicer claims,

The fastest-growing jobs are low-skilled repetitive ones in the service sector. One-third of the US labour market is made up of three types of work: office and administrative support, sales and food preparation.

The majority of jobs being created today do not require degree-level qualifications. In the US in 2010, 20% of jobs required a bachelor’s degree, 43% required a high-school education, and 26% did not even require that. Meanwhile, 40% of young people study for degrees. This means over half the people gaining degrees today will find themselves working in jobs that don’t require one.

Some thoughts:

1. Too often, popular discussions of labor markets speak as if “supply” and “demand” are fixed, with no equilibrating mechanism. Instead of upward-sloping supply intersecting with downward-sloping demand, these accounts implicitly depict vertical supply and demand curves.

If it is true that colleges are dumping an excess of high-skilled workers into the market, then the wages of highly skilled workers should fall until supply and demand balance there. Meanwhile, if there are so many excess jobs for low-skilled workers (recall Conor Sen predicting a shortage of construction workers), then wages should rise there.

2. I doubt that it is true that colleges are dumping an excess of highly skilled workers into the market. Instead, I think that our society is dumping an excess of non-college-ready students into college. There, some of them at best may be upgrading their skills to those of a high-school graduate.

3. If the imbalance is real, what are entrepreneurs doing about it? They should be working on ways to eliminate low-skilled jobs, while figuring out ways to use workers with college degrees (the latter supposedly in abundance). I see the first taking place. The second, not so much.

The Construction-worker Bottleneck

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Conor Sen writes,

From a labor slack standpoint, the pool of potential construction workers is probably well-represented by unemployed men under the age of 55. To get back to late ‘90s levels of male unemployment (from a level standpoint, not an unemployment % standpoint), we would need essentially every single male unemployed worker who finds a job in the coming years to go into construction.

Generic pointer from Tyler Cowen. Like Kevin Erdmann, Sen sees us having to build a lot of housing to make up for under-production from 2008-present.

I am not sure there is a housing shortage. A lot of people my age have too much house. That is why they do not mind having their kids move back in with them. It could be that what we need is not so much a surge in construction as a redistribution of housing.

Indeed, Mark J. Perry writes,

In 2015, the average size of new houses built in the US increased to an all-time high of 2,687 square feet (see dark blue line in top chart above), and the median size new house set a new record of 2,467 square feet (see light blue line in top chart). Over the last 42 years, the average new US house has increased in size by more than 1,000 square feet, from an average size of 1,660 square feet in 1973 (earliest year available from the Census Bureau) to 2,687 square feet last year. Likewise, the median-size house has increased in size by almost 1,000 square feet, from 1,525 square feet in 1973 to 2,467 last year. In percentage terms, both the average and median size of new US houses have increased by 62% since 1973.

Combined with a decline in household size, this means according to Perry that living space per person has nearly doubled.

Because we need more space to store our cookbooks, vinyl records, maps, encylopedias, radios, and photo albums.

Back to the 1960s

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Olivier Blanchard writes,

The IS relation remains the key to understanding short-run movements in output. In the short run, the demand for goods determines the level of output. A desire by people to save more leads to a decrease in demand and, in turn, a decrease in output. Except in exceptional circumstances, the same is true of fiscal consolidation.

Pointer from Scott Sumner, who disagrees for different reasons than mine.

In the 1960s, macro was distinct from micro, and few people worried about that. If “spending creates jobs and jobs create spending” was contrary to Walrasian general equilibrium, then so be it. By 1985, the situation (at the graduate level) was totally reversed. Every macro model had to nod in the direction of general equilibrium. It stayed that way until 2008.

Now, the best that MIT economists can do is revert back to 1960s thinking. In my forthcoming book, I offer the alternative of PSST.