Monthly Archives: September 2017

Scott Winship on labor-force participation

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From a summary of his research:

Obama’s Council of Economic Advisers (CEA) makes the argument that the decline in prime-age male labor is a demand-side issue that ought to be addressed through stimulative infrastructure spending, subsidized jobs, wage insurance, and generous safety-net programs. If the CEA is mistaken, however, then these expensive policies may be ineffective or even counterproductive.

The CEA is mistaken—the evidence suggests there has been no significant drop in demand, but rather a change in the labor supply driven by declining interest in work relative to other options.

  • There are several problems with the assumptions and measurements that the CEA uses to build its case for a demand-side explanation for the rise in inactive prime-age men.
  • In spite of conventional wisdom, the prospect for high-wage work for prime-age men has not declined much over time, and may even have improved.
  • Measures of discouraged workers, nonworkers marginally attached to the workforce, part-time workers who wish to work full-time, and prime-age men who have lost their job involuntarily have not risen over time.
  • The health status of prime-age men has not declined over time.
  • More Social Security Disability Insurance claims are being filed for difficult-to-assess conditions than previously.
    Most inactive men live in households where someone receives government benefits that help to lessen the cost of inactivity.

Perhaps the CEA was doing normative sociology.

Off-topic: marriage and grandchildren

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I do not attach any political or economic significance to what I writing about in this post. Ordinarily, that would be clear, but this blog usually deals with political economy and these days people can find a political dividing line in just about anything.

Here is the background:

1. Tyler Cowen said that both he and David Brooks enjoyed Eli J. Finkel’s The All-or-Nothing Marriage.

2. I read the book. I thought that the research methods were good (they included some controlled experiments) and the author’s synthesis of others’ research was very competent.

3. From my perspective, the book seemed off base. While I was reading it, my daughter sent an adorable video of my one-year-old grandson sitting in his high chair, taking food off his tray and reaching down to hand it to their dog. Dog and boy are clearly delighted with themselves. The video vividly illustrated what the book is missing.

4. I got around to reading the David Brooks column, and it turns out that he also rejects the thrust of the book, although perhaps less vehemently than I do.

Very briefly, Finkel views marriage as an institution that has evolved to move up the Maslow hierarchy. Prior the industrial revolution, it was about survival. Once material needs became more secure, it was about love in a highly gendered society–the man as bread-winner and the woman as home-maker. With more gender equality, marriage now is about mutual self-actualization.

I see marriage in a larger context of relationships, including the extended family and the community. Finkel is focused solely on the couple. Children only get mentioned once, when Finkel says that they are big time-sink. Grandchildren are not mentioned at all. My own informal research says that grandparent couples are happy couples. Some of that is selection bias–if you stuck it out as a couple long enough to have your grandchildren born, you are in good shape as a couple. But I think that some of it is that if you have children, then you want grandchildren, and when they arrive you feel real joy and satisfaction. Finkel’s self-realization blather is beside the point.

The 1960s and the present

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David Brooks draws an analogy.

So in the late 1960s along came a group of provocateurs like Abbie Hoffman, Jerry Rubin and the rest of the counterculture to upend the Protestant establishment. People like Hoffman were buffoons, but also masters of political theater.

He goes on to suggest that President Trump is playing a similar role today. While I agree with much of what he says about the current cultural struggle, Brooks is not old enough to really remember the 1960s, and I don’t think he has his history right.

What Brooks calls the Protestant establishment was not brought down by Abbie Hoffman. It brought itself down, largely because of Vietnam War guilt. Think of Robert McNamara as the canonical figure. The Protestant establishment lost its arrogance. Its denizens engaged in soul-searching. They became tentative and uncertain.

What Brooks famously labeled bourgeois bohemians (Bobo) and what he now refers to as today’s meritocratic establishment is not feeling so wracked with guilt. Instead, they are mostly circling the wagons and doubling down on arrogance. For example, mainstream economists will tell you that heroic macroeconomic policymakers saved the country in the wake of the financial crisis. I think that the policies only served to bail out investment banks. Maybe I am wrong about that. What strikes me is how vehement and closed-minded the economics establishment has become on this issue. Instead of trying to see what can be reasonably inferred from observation, they are working backward from the elite-friendly conclusion to analysis that justifies it.

In the 1960s, much of the establishment rightly or wrongly viewed itself as discredited. It yielded its authority, and new cultural and political power structures emerged. Today, I don’t see the same sort of humility and self-doubt afflicting the Bobo elite. It seems to me that the most likely outcome of the current cultural struggle is that the Bobo power structure will return to power–with a vengeance.

Robin Hanson on competitive social engineering

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He writes,

Perhaps we could create more clear and direct contests, where the two political sides could compete to do something good. For example, divide Detroit or Puerto Rico into two dozen regions, give each side the same financial budget, political power, and a random half of the regions to manage. Then let us see which side creates better regions.

You might think that the goal is to help the distressed people. Or to prove once and for all which party has better ideas. But the more modest goal is to let the two sides let off steam in less dangerous ways. Kind of like my father’s idea in the 1950s for solving the Cold War: turn it into a contest between the U.S. and the Soviet Union to see who could destroy Germany first.

Populism, progressivism, and the Trump phenomenon

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Jeffrey Friedman writes,

The Populists had inadvertently added, to the traditional democratic tenet that power should be in the hands of the people, the sociotropic tenet that the government should use this power to serve the people’s interests. These two tenets have been all-but-universally accepted ever since—although the sociotropic premise can be turned against the democratic premise, justifying government by experts, whose knowledge might serve the people’s interests. . .

In the first decades of the twentieth century, the Populists’ Progressive successors widened and deepened the new understanding of the purpose of government. Progressives tended to be relatively well-educated and urban, producing an elitist image that’s largely inaccurate. They actually favored a massive expansion of democracy, including the direct election of presidents and senators; primary elections to choose the candidates and weaken party bosses; initiative and referendum elections; recall elections; the election of judges; campaign-finance legislation; and congressional reforms that would expose back-room dealings to “sunshine” and popular accountability. Each of these political reforms was designed to enable the people to enact far-reaching social reforms to solve problems caused by industrial capitalism. As Theodore Roosevelt memorably put it, political reforms would be “weapons in the hands of the people,” enabling them to enact minimum wages, worker’s compensation, food and drug regulation, antitrust laws, and the rest of the endlessly proliferating measures that have, ever since, been the routine business of government.

Mencken said that “Democracy is the theory that the common people know what they want, and deserve to get it good and hard.” Populism re-emphasizes that theory. In some sense, Mr. Trump represents the culmination of progressivism. That is the irony which Jeffrey Friedman would have us appreciate.

Mis-education of health care economics

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Responding to a post by John Cochrane, on his own blog Greg Mankiw refers readers to this piece that Mankiw claims to provide readers with education on the economics of health care.

various features of this market complicate the analysis of their interactions. In particular:
1. Third parties—insurers, governments, and unwitting bystanders—often have an interest in healthcare outcomes.
2. Patients often don’t know what they need and cannot evaluate the treatment they are getting.
3. Healthcare providers are often paid not by the patients but by private or government health insurance.
4. The rules established by these insurers, more than market prices, determine the allocation of resources.
5. In light of the foregoing four points, the invisible hand can’t work its magic, and so the allocation of resources in the healthcare market can end up highly inefficient.

There is much more at the link. In my opinion, the ideas are a fair representation of where the profession stands on health care, and these ideas do more harm than good.

1. I agree with the Grumpy One (Cochrane) that in terms of economics health care is not much different from other goods and services. Health care does not fit the model of perfect competition, but almost nothing does fit that model. Yes, it is hard to be an informed consumer in health care. It is also hard to be an informed consumer of economics textbooks, and yet nobody insists that the economics textbook market requires extensive government intervention to avert disaster.

Almost nothing in the real world obeys the textbook model of perfect competition. I have argued that what makes health care different are cultural factors. In fact, if you look at Mankiw’s list of complicating factors, three of the four relate to the use of third parties to pay for health care, which is entirely a cultural phenomenon.

There is nothing intrinsic to health care that makes it impossible for buyers to pay sellers directly. It is a cultural choice. Even for very large health care expenses, insurance could be structured like auto insurance, where the insurance company writes you a check based on an estimate of the “damage,” and you can then shop for either a more or less expensive treatment. (I am leaving out the case where you arrive at the emergency room unconscious. That is an event where third party involvement is necessary, but it accounts for a tiny fraction of health care spending.)

The basic cultural point I make is that each of us individually would like unrestricted access to medical services without having to pay for them. This is not sustainable for the nation as a whole. Health care policy that leans left will lead to government restrictions on access to medical services. Health care policy that leans right will lead to people choosing to forego some medical services because they do not wish to pay for their cost.

2. Mankiw views health care regulation as a cost-benefit trade-off between “too much” (inefficient) or “too little” (consumers not protected). In fact, health care regulation should be viewed through a public choice lens as an example of Subsidize Demand, Restrict Supply.

3. Mankiw offers pertinent facts about health care spending, but he neglects the important fact that we spend a huge amount on medical services with high costs and low benefits. That is one of the main themes of my book Crisis of Abundance. A related theme of that book is that much of our spending is on treatments and diagnostic procedures that did not exist forty years ago.

4. Mankiw discusses health insurance as if it were like car insurance or fire insurance. But what is really important is how it is not like those other types of insurance. With classic insurance, people rarely make claims, they make claims only for large, disastrous losses, and the premiums are low. What Americans think of as “good health insurance” is the opposite on all counts. I call it “insulation” rather than insurance, because it insulates people from having to make even small-dollar payments.

I really do not wish to make this a personal attack on Greg Mankiw. His job as a textbook writer is to represent the center of the profession, and he is doing so. The problem I have is with the center of the profession. And as you know, I fear that things will get worse rather than better in this regard.

Big cities vs. the rest

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Philip Auerswald suggests that this is the key political and tribal divide.

the 21st century, certainly the 20th century going into the 21st, has been an era in which the largest cities have become even more dominant and have driven the advance of human society and human prosperity. . . .in a way, when we think about the origins of populist surges–and I really want to point out that this isn’t just the United States: that the point is this is a global phenomenon–that it is something that is really kind of the revenge of the country

This podcast with Russ Roberts covers many topics, all interesting.

Luis Bettencourt on cities

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In 2013, Emily Badger wrote,

At their most fundamental, cities are not really agglomerations of people; they’re agglomerations of connections between people.

Bettencourt is basically describing interconnected relationships between the population growth of a city; the incremental expansion of the infrastructure networks that more people require; the socioeconomic outputs that come from our social interaction; and the density that necessarily develops over time so that we can still benefit from ever-more social connections without spending ever-more energy to reach each other.

There may be a lot of merit to these ideas. However, it seems to me that the prosperity of cities depends a great deal on accidental and historical factors.

I got to this story by starting from the Russ Roberts podcast with Philip Auerswald.

Andrew Sullivan on tribalism

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He writes,

I mean two tribes whose mutual incomprehension and loathing can drown out their love of country, each of whom scans current events almost entirely to see if they advance not so much their country’s interests but their own. I mean two tribes where one contains most racial minorities and the other is disproportionately white; where one tribe lives on the coasts and in the cities and the other is scattered across a rural and exurban expanse; where one tribe holds on to traditional faith and the other is increasingly contemptuous of religion altogether; where one is viscerally nationalist and the other’s outlook is increasingly global; where each dominates a major political party; and, most dangerously, where both are growing in intensity as they move further apart.

That describes the Bobo vs. anti-Bobo divide. But the tribalism among ideological conservatives, progressives, and libertarians also is strong, as I discuss in The Three Languages of Politics.

Read Sullivan’s whole piece, which deals with the social psychology of tribalism.

What are the antidotes to tribalism? Sullivan suggests trying to view yourself and others as individuals, not as tribes. He also recommends mutual forgiveness, rather than wallowing in the offenses committed by the other tribe. Russ Roberts and I also recommend humility, rather than insisting that your tribe is certainly right and that the other side’s view has no merit. We also think that reading TLP can help.

Aaron Ross Powell on the X

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He emails

gotta say, I think you’re completely misreading Apple’s motives for releasing the iPhone X, and so misreading their strategy for the device.

The iPhone X is out now, instead of seeing similar features roll out in a year or two in the “regular” iPhone, because (a) Apple wanted to release something special for the 10th anniversary and (b) they wanted to put out a device that was a look ahead in terms of features, while marketed as premium, in part because they are supply constrained on components (in particular, the OLED screens). Apple has said it expects it’ll be well into 2018 before they can meet demand for the iPhone X. By giving it a premium price, they’re reducing demand, while still netting a profit, and they’re less likely to run into the bad press of the phone taking months to ship to new customers. Tim Cook cares, above all else, for customer satisfaction. (Which is why he mentions their “customer sat” numbers in nearly every keynote.)

There are also plenty of perfectly rational reasons to purchase an iPhone X. It has the same size screen as an 8 Plus, while having a form factor closer to a regular 8. That’s a big difference. It has a considerably better screen—and a considerably better screen than any Android phone on the market. It sports a better camera, with optical image stabilization on both lenses, instead of just one like on the iPhone 8 Plus. It has FaceID. To a lot of people, these are likely worth a $300 premium. (I’d also predict that Apple’s profit on the iPhone 8 is about the same as the iPhone X, or even slightly higher, given the increased cost of the cutting edge components in the X. At any rate, it’s highly unlikely Apple is “price gouging.”)

As to old devices, the “Apple is forcing us to upgrade” refrain is common, but there’s never been any evidence to support it. iOS 11, released today, supports devices all the way back to the iPhone 5s, released in 2013. And Apple will never pull something like “You can only get your backups if you buy a faster phone.” You might need a new phone to run the latest OS, of course, but they won’t turn off iCloud access in prior OS versions. It’s not how they roll—and they’ve certainly never pulled anything like that in the past.

I probably should not have taken such an uncharitable view of Apple’s motives. It’s the motives of Apple’s consumers that I find suspect.

If your current phone is working, then buying the X means that you think that at the margin a better screen and a better camera are worth a thousand bucks. Is that the best use one can make of a thousand dollars?

If Aaron is right that Apple is facing supply challenges, then the price should come down when the supply situation improves. To me, that makes buying the X now even less rational.