Monthly Archives: January 2018

Quotation of the Day

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Politics also reflects the new division. In the United States suspicion or resentment is no longer directed to the capitalists or the merely rich. It is the intellectuals–the effete snobs–who are eyed with misgiving and alarm. This should surprise no one. Nor should it be a matter for surprise when semiliterate millionaires turn up leading or financing the ignorant in struggle against the intellectually privileged and content. This reflects the relevant class distinction in our time.

This is from the 1971 edition of The New Industrial State, by John Kenneth Galbraith. He gets many things spectacularly wrong, of course. But offers insights into the role of technical expertise and Weberian organization within a large firm that are too little appreciated by today’s economists. He deserves to be re-read.

The clustering of the world

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Razib Khan writes,

Serbia has a much stronger affinity with Russia, Croatia is in Catholic Europe, while Slovenia seems more like Northern European nations than Croatia.

You have to go read the whole thing. He discusses a cultural map of the world, based on two scales: traditional values vs. secular/relational values; and survival values vs. self-expression values.

He then goes on to discuss the Peter Turchin, et al paper that I’ve seen referenced on several blogs. It’s the paper that develops an index of social complexity. I think of it as something like an IQ measure that operates at a cultural level.

Patri Friedman on competitive government

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Fifteen years ago, he wrote,

Government service providers have monopolies over wide areas. Most people live in buildings and own lots of physical property. They are likely to have family and friends in the surrounding geographical area, and to work at a nearby job. While there may be people who live in RV’s, only have friends on the internet, and telecommute every day, they are surely rare. Thus if an individual wishes to switch providers, they must physically relocate to a new country. This involves an onerous series of steps: sell their house, pack up all their possessions, quit their job, move to a new country, deal with immigration requirements, buy a new house, get a new job, make new friends, learn a new culture. This is an extremely costly process.

In other words, government is like Facebook. You can complain about it, but there is not much you can do about it, because you are stuck there.

He comes up with proposals for a system for competitive government, which he calls dynamic geography. If we already were living under his system, then it would work. But the problem is to get from where we are today to something new, given the switching-cost problem. The same switching costs that make government lazy and unresponsive to constituents make it very hard to get a new system going.

My approach to more competitive government would be to institute a right to secession or recombination, subject to a sort of common-law court. That is not a perfectly workable solution, but the idea would be to allow people who are otherwise happy with their location take advantage of competition in government services.

My essay on financial bubbles

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For Medium, I wrote on financial bubbles, with plenty of Bitcoin trolling thrown in.

it is mathematically impossible for all of the bullish investors to get out with a profit. If a stock goes from $10 a share to $100 a share and back down to $5 a share, then on average the shares bought on the way up have to be sold for less than their purchase price on the way down. If you buy into a bubble, then the chances are you will lose.

My review of Haskel and Westlake

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The book is Capitalism without Capital. Recall that this is the one book that made both Tyler’s and my list of books of the year. I write,

defending the use of a cost-based method to value intangible capital strikes me as based on hope rather than theory or evidence. The overall economic value of intangible investment does not necessarily equal the resource cost spent. Indeed, strong economic performance may come from particularly good investment choices being made on average, while weak economic performance may be due to misallocation of intangible investments.

New Year, old complaint about economists’ rhetoric

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John Cochrane writes,

It’s better to win on logic and fact and ignore motivation. Contrariwise, when you see an argument my motivation, which Austan made three times in as many sentences, you should infer that the arguer has neither fact nor logic to offer.

In 2003, I wrote,

you are teaching by example that making speculative assessments of one’s opponent’s motives is more important than thinking through the consequences of policy options. If everyone were to use such speculative assessments as the basis for forming their opinions, then there would be no room for economics in public policy discussions.

The economics profession is willing to look inward about matters of proper conduct, for example the issue of how women in economics are treated. The method of conducting policy arguments in the media is matter of proper conduct that deserves attention.