Monthly Archives: September 2017

Greg Ip Praises Economics

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He writes,

By stripping the emotions from pressing problems, economists can often illuminate the most practical ways to tackle them—but only if ordinary people and their representatives are prepared to listen.

There is a gulf between small-scale society and large-scale society. Use the Dunbar number as a breaking point, so small scale means less than 150 people and large scale means more than that. At small scale, coordination problems can be solved by intuition and mutual recognition. You do not need markets or centralized command. But at small scale you cannot have much specialization, and you cannot provide complex goods and services.

At large scale, the coordination problem becomes much more complex. Economists pay attention to this, and that makes them wiser than non-economists who do not.

But many economists are far too oriented toward the possibilities of centralized command (government regulation) as a coordinating mechanism. And they are too smug about what they can accomplish using math and statistics.

For my perspective on the topic of Ip’s essay, see How Effective is Economic Theory?

Cheerleading vs. Analysis

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Mike Rappaport writes,

While I found Kling’s idea quite interesting, I should say that in my own mind all three of these values (as well as others) are important. I am a consequentialist libertarian. I start with liberty as the basic building block of good consequences. But one of the features of liberty is that it allows a sophisticated civilization to grow that is of great value. And I also believe that liberty greatly helps to prevent oppression and to help the oppressed of the world. So I care about all of these values, but, as a libertarian, liberty is the basic building block.

I am starting to think that The Three Languages of Politics is the book that everybody understands but nobody gets. The aspect that nobody gets might be termed the difference between cheerleading and analysis.

If you are playing the role of a basketball analyst, you evaluate strategy. You might say, “The Cougars should use a zone. If they get too far behind, they should use a full-court press.”

If you are playing the role of a basketball cheerleader, you recite chants that exalt your team and disparage the opposing team. If you say, “Adam, Adam, he’s our man, if he can’t do it, Bobby can” you are not really talking about strategy for using Adam and Bobby.

The three-axis model is about how we do political cheerleading, not how we do political analysis. Of course, everyone is against oppression, barbarism, and coercion. But when we do political cheerleading, we prefer one axis over the others. And we disparage the other political teams by accusing them of being on the opposite side of our preferred axis.

From capitalism to financialism

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Fredrik Erixon and Björn Weigel write,

In 2013, natural persons owned only 40 percent of all issued public stock, down from 84 percent in the 1960s. And if we take all issued equity, the trend has been even more pronounced. In the 1950s only 6.1 percent of all issued equity was owned by institutions but, in 2009, institutions held more than 50 percent of all equity.

…the shift from capitalist ownership to institutional ownership has undermined the ethos of capitalism and has created a new class of companies without entrepreneurial and controlling owners. Contrary to some expectations, that has not created new space for free-wheeling and entrepreneurial managers to act on their own judgment instead of following the instructions of owners. Rather, managers are subject to a growing number of rules and guidelines designed for and by risk-averse owners with little knowledge about their investees.

I am not convinced that the current system is as dire as the authors make it out to be. Fifty years ago, it was difficult to keep a large firm from throwing capital at investments with poor returns. Today, reallocating away from firms with poor opportunities is easier.