Monthly Archives: October 2016

The Folk Dance Test

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Tyler Cowen asks Should we stop worrying about this election so much? Separately, he speculates that Suburbs will Soar on the Wings of Tech.

I have my own test for How We Will Be Affected by X. That is, how will X affect my folk dancing?

The Internet definitely affected my folk dancing. The dances have gotten harder, because dance session leaders know that you can watch YouTube videos to figure out steps that you miss at the sessions. So even though at first I could barely followthis dance watching the teacher, by now I can do it without copying someone (I still sometimes mess up).

Also, good dances spread much faster. And when I travel, I can easily look up dance sessions, and using GPS makes it easier to get to those sessions.

I don’t think that the outcome of election will affect my folk dancing, so I don’t think that the election is so important.

I also don’t think that self-driving cars or drones will affect my folk dancing. They will not make dance sessions less plentiful in the Maryland suburbs or more plentiful in other parts of the country.

My deeper point is that the reasons people have for choosing where they live these days have a large idiosyncratic component. Therefore, I would be reluctant to make sweeping generalizations about how self-driving cars will affect location choice.

And as much as people are emotionally worked up over the election, its effect on your day-to-day life may not be all that great. I’m much more worried about my favorite dancers leaving the area (for idiosyncratic reasons) than I am about who will win the election.

The Three Iron Laws, Illustrated

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Tyler Cowen writes,

I find few people are willing to embrace the more consistent statistical preference plus agnosticism, rather they play the game of “statistical noise for thee but not for me.”

He is writing about what is now a seemingly ancient question about the stock market’s reaction to the ups and downs of Mr. Trump. I want to say that this issue illustrates Merle Kling’s three laws of social science.

1. Sometimes it’s this way and sometimes it’s that way. In this case, sometimes one can find an affect of a change in Mr. Trump’s prospects and the market, and sometimes one cannot.

2. The data are insufficient. In this case, there is not enough data to make a definitive judgment.

3. The methodology is flawed. In this case, one can argue that the analyst is basing a conclusion on statistical noise.

Maybe the quote from Tyler suggests a fourth iron law: if the issue is emotionally salient, given that the first three iron laws hold, motivated reasoning and confirmation bias take over.

My Review of Erwin Dekker

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is now available. I write,

he identifies a number of tensions in their thought: the economist as detached observer versus the economist as political participant; progress versus decline; liberty versus restraint; individualism versus culture; modernity versus tradition; and what Jacob T. Levy would call rationalist versus pluralist.

The book, The Viennese Students of Civilization, is published by Cambridge University Press, about which I have several complaints.

1. After several tries, I still have not found it on their web site. Here it is on Amazon.

2. The price is terribly high, particularly for the Kindle version.

3. To add insult to injury, it appears to me that CUP did not spend a dime (or should I say a pence?) on editorial assistance. The book is filled with errors of English usage.

It is an important book, and shame on CUP for making it hard to afford and difficult to read.

Dueling Samuelson’s Ghost

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Peter J. Boettke, Christopher J. Coyne and Peter T. Leeson write,

the teachings of economics are necessary for understanding the complexities of social reality. Perhaps its two most important public roles are: (1) to explain how within a specific set of institutional arrangements the power of self-interest can spontaneously generate patterns of social order that simultaneously achieve individual autonomy, generalized prosperity and social peace, and (2) through means-ends analysis, to provide parameters on people’s utopian notions of economic policy. The first captures the didactic role of the economist in teaching the nuances of Adam Smith’s ‘invisible hand’ and the second captures the contribution that economics as a technical discipline can offer to public policy discourse. When we move beyond these roles and instead try to employ economics as the primary tool for social control, we run afoul and distort the teachings of the discipline.

Read the entire essay, which is a plea for economists to desist from acting as high priests of social engineering. However, I would place a (sic?) next to the word “parameters” in that paragraph. Perhaps the authors are talking about perimeters. In any case, it is the final sentence that is most important.

Specialization and Trade makes a similar case.

Timothy Taylor on Shadow Banking

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He writes,

if you still think banks are the core representative institutions in the financial system of high-income economies, you are a few decades out of date. If you are concerned about the dangers of financial sector risks cartwheeling into the real economy, you need to think about the shadow banking sector. Muscatov and Perez point out that while banking regulators do try to think about risks from the shadow banking sector, “Still, many areas of NBI remain obscured from regulators’ view, and not all NBI is subject to supervision.”

NBI is “non-bank intermediation.” Read the whole post.

Freddie and Fannie are non=bank intermediaries. Back in the late 1980s and the 1990s, they drove traditional lending institutions out of a large segment of the mortgage market. They did not do this through inherent advantages of scale or business model. They did it because they enjoyed small advantages from a regulatory standpoint, including lower capital requirements.

The moral of the story is that the “better” job you do of regulating banks, the more room you leave for other financial intermediaries to take over niches. I do not think that you can get financial regulation to achieve the goal of stabilizing the financial system. I think that it just winds up being a tool for allocating credit to politically preferred uses.

What I’m Reading

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State Capitalism, by Joshua Kurlantzick. His theme is that many developing countries have the government own and manage large companies in important industries. However, they use prices rather than commands.

I had not been aware of how prevalent this practice has become. My reaction is that it is a viable model as long as those industries are not disrupted.

Hansonian Medicine for Pets

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Liran Einav, Amy Finkelstein, and Atul Gupta write

we document four similarities between American human healthcare spending and American pet healthcare spending: (i) rapid growth in spending as a share of GDP over the last two decades; (ii) a strong income-spending gradient; (iii) rapid growth in the employment of healthcare providers; and (iv) a similar propensity for high spending at the end of life in pets and humans.

Their findings are inconsistent with the view that our high spending on health care is driven by third-party payments or supply regulations. The findings are not inconsistent with what I suggested a decade ago in Crisis of Abundance, which is that medical treatment uses human and physical capital increasingly intensively. Also, they are not inconsistent with Robin Hanson’s view that medical treatment is something that we want others to get in order to show that we care.

Thete Watch

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Mark Aguiar, Mark Bils, Kerwin Charles, and Erik Hurst write,

we explore the decline in work hours for young men since 2000. Using standard parameterizations, we show that the decline in hours for LEYM (both in absolutely and relative to all prime-age men) is inconsistent with a stable labor supply curve. We propose a new methodology that exploits detailed micro data on how individuals allocate their time away from work to infer how changes in leisure technology have altered labor supply. We find that changes in leisure technology for computer goods broadly, and video games in particular, shifted in the labor supply curve for LEYM by an amount between 10 and 25 percent of the observed decline in market work hours for prime age men and between 20 and 45 percent of the decline in market work hours for LEYM.

LEYM is less educated young men. Pointer from Tyler Cowen.