Preview of My New Book

From the May-June issue of Cato Policy Report (I did not write the preview, or even read it before it came out, but it provides a good foretaste).

while Kling’s primary audience is other scholars of economics, his writing also provides a first-rate introduction to economic ideas that are easily accessible by students with little or no previous training in economics.

Think of this as the book that every first-year economics graduate student should read (but won’t).

Here is a provocative sentence:

Kling argues that post-World War II economists have mistakenly placed the concepts of scarcity and choice at the center of economic thought.

While scarcity and choice are certainly important concepts in economics, I have two problems with making them central.

1. Scarcity and choice are concepts that focus on a fixed pie. Yet economic growth and the enlargement of the pie are what matter most.

2. Scarcity and choice are taught using “2×2″ economics. That is, a choice between 2 activities, hiding the fact that there are millions of specialized tasks in the economy.

These two problems are related. The growth of the pie is the effect of specialization that is vast and mind-boggling in its complexity.

Also, consider where macroeconomics fits in. Your choices are:

1. Treat macro as something that departs from and even contradicts micro. This is the way things worked in the 1960s, and it is where most of the profession seems headed again today.

2. Do macro as general equilibrium theory. This was the attempt to integrate micro and macro in the 1980s, an attempt that strikes me (and others) as having failed.

3. Think of both micro and macro in terms of patterns of specialization and trade. In macro, the focus is on the process of old patterns becoming unsustainable and the process of finding new patterns that are sustainable.

The book makes the case for (3). Along the way, as the preview points out, it takes a hard swipe at MIT-influenced economics for being mistakenly mechanistic in its approach to both micro and macro.

What the Deuce is Going On?

Tyler Cowen writes,

The contemporary world is not very well built for a large chunk of males. The nature of current service jobs, coddled class time and homework-intensive schooling, a feminized culture allergic to most forms of violence, post-feminist gender relations, and egalitarian semi-cosmopolitanism just don’t sit well with many…what shall I call them? Brutes?

His point seems to be that we are becoming a more feminized society, and some of what we observe is (futile) pushback against that. My thoughts:

1. When one speaks of feminized culture (or at least when I speak of it), it is not to suggest that all women have traits that differ from all men. Rather, think of tendencies that are higher in one gender or another.

2. I am less positive than Tyler about the traits of feminized culture. While the favorable characteristics are there, I also associate with feminized culture: consensus-driven to the point of repressing unpopular ideas; elevation of feelings relative to reason; too much tolerance for roles with authority without accountability and for roles with accountability without authority, rather than constructing a hierarchy that keeps authority and accountability aligned (“the buck stops here”).

My impressions are based on experiences working in organizations as well as observations about society at large. I used to say that I felt uncomfortable at business meetings that were male-dominated or female-dominated. I felt most comfortable with close to a 50-50 mix.

3. I am considering reading another Peter Turchin book, from ten years ago, called War and Peace and War. He apparently offers a grand theory of the integration and disintegration of empires, and I wonder how well 21st-century developments fit the “disintegration” model.

Roger Simon on Moral Narcissism and Libertarians

He writes,

If your intentions are good, if they conform to the general received values of your friends, family, and co-workers, what a person of your class and social milieu is supposed to think, everything is fine. You are that “good” person. You are ratified. You can do anything you wish. It doesn’t matter in the slightest what the results of those ideas and beliefs are, or how society, the country, and in some cases, the world suffers from them. It doesn’t matter that they misfire completely, cause terror attacks, illness, death, riots in the inner city, or national bankruptcy. You will be applauded and approved of.

…Moral narcissism is the ultimate “Get out of jail free” card in a real-life Monopoly game. No matter what you do, if you have the right opinions, if you say the right things to the right people, you’re exempt from punishment. People will remember your pronouncements, not your actions.

This is from a forthcoming book.

He attempts to rope social conservatives and libertarians into his thesis. I am not sure that this works so well. Social conservatives may be wrong-headed, and some turn out to be hypocritical, but I do not see them as trying to use political posturing in order to avoid accountability for the consequences of their actions. Perhaps you can come up with enough examples to prove me wrong on that.

I think that the charge sticks better with some libertarians. When they agree with progressives, libertarians can be as preening and morally narcissistic as, well, progressives.

Also, I think that libertarians share with progressives a certain adolescent inability to admit the benefits of an institution they dislike. In the case of progressives, the difficulty is with admitting the benefits of free markets. In the case of libertarians, the difficulty is with admitting the benefits of government. For all the misguided actions that government takes, you should not take it for granted that you will have internal peace or effective urban sanitation without it.

Moral narcissism allows one to disengage from reality. Paradoxically, the moral narcissist tends to deny that humans have a propensity to be evil while believing in the evil of one’s political opponents.

Intergenerational Income Immobility

Guglielmo Barone and Sauro Mocetti write,

We focus on the Italian city of Florence, for which data on taxpayers in 1427 – including surnames, occupations, earnings, and wealth – have been digitalised and made available online. We matched these data with those taken from the tax records relating to the city of Florence in 2011. Family dynasties are identified by surnames. Table 1 offers a first flavour of our results. We report for the top five and bottom five earners among current taxpayers (at the surname level) the modal value of the occupation and the percentiles in the earnings and wealth distribution in the 15th century (the surnames are replaced by capital letters for confidentiality). The top earners among the current taxpayers were already at the top of the socioeconomic ladder six centuries ago – they were lawyers or members of the wool, silk, and shoemaker guilds; their earnings and wealth were always above the median. In contrast, the poorest surnames had less prestigious occupations, and their earnings and wealth were below the median in most cases.

Yes, this is reminiscent of and reinforces the findings of Gregory Clark in The Son Also Rises. Recall my review of Clark’s book.

When do you stop reading?

Tyler Cowen was asked this question.

My answer is based on my classification system for op-eds and political blgs.

1. A piece that speaks to people on the same side as the author and tries to close their minds.

2. A piece that speaks to people on the same side and tries to open their minds.

3. A piece that speaks to people on the other side and tries to open their minds.

I try to read 2 and 3 and to avoid 1. But there is so much 1 being written that even though I try my best to avoid it, I still probably read more of it than anything else.

There is much more pseudo-3 than actual 3. That is, the “advice” to the other side is to admit that you are stupid and evil. It might look like 3 but it is really 1.

The book by Kim Holmes that I have been reading has a bit of 2 and 3. I think it would have been better if he had focused more consciously and consistently on those aspects of his message.

I think that 30 years ago there was much less 1 and more 2 and 3. Back then, people on the left seemed to me to have open minds.

I think that Holmes would blame the influence of post-modern philosophy, which denies that issues can be dealt with through reason.

I blame Paul Krugman.

Question from a Reader

Are there one or two books you would recommend to understand the current state of the economy?

1. I am tempted to answer “no” and stop there.

2. Depends on what you want to understand. I think that Kindleberger’s Manias, Panics, and Crashes is probably good for understanding the way that financial bubbles show up and affect things. I think that McAfee and Brynjolfsson’s The Second Machine Age is good on contemporary structural change. Probably McCloskey’s Bourgeois Equality is good on the deep causes of what she calls “the great enrichment” (note, however, that I have yet to plow through the book).

3. When Specialization and Trade comes out, I am going to wish that a lot more people would read it than actually will do so.

What did Dodd-Frank Reform?

In this book compiled by the Heritage Foundation (long PDF), Ed Pinto writes (p. 33),

a home-purchase loan that qualifies under QM could have a 580 FICO credit score, no down payment, and a 43 percent DTI. A loan with these characteristics acquired by Freddie in 2007 had a 42 percent failure rate under the adverse conditions that prevailed between 2007 and 2012.

In case anyone thought that having the government set credit standards for mortgages would allow one to sleep at night.

At this point, I am completely pessimistic about the future of housing finance in America. There is a powerful lobby at work to maintain policies that subsidize demand and mortgage indebtedness. And the prospects for electing someone with ideological opposition to government involvement in housing finance are quite dim.

Overall, I find the book painful to read. It shows the extent to which Dodd-Frank produced costly, counterproductive policies, based on misguided diagnoses.

From Genes to Institutions?

According to Jason Collins, Oded Galor and Quamrul Ashraf will soon write,

there is little evidence to support the claim that the variation in institutions across societies is driven by differences in their endowment of specific genetic traits that might govern key social behaviors.

I believe that in Hive Mind Garett Jones endorses the view that higher average IQ can lead to better institutions. So I will want to read the Galor-Ashraf paper when it appears.

Racism Everywhere

Carlos Lozada writes,

“So many prominent Americans, many of whom we celebrate for their progressive ideas and activism, many of whom had very good intentions, subscribed to assimilationist thinking that has also served up racist beliefs about Black inferiority,” Kendi writes. They did so by promoting freedom but forgetting equality; by placing the burden of combating racism on black shoulders, not white ones; by implicitly accepting notions of inferiority, no matter how righteous their indignation; by conflating anti-racist claims and racist fears in an effort to claim a moralizing middle ground.

He is reviewing a book by Ibram X. Kendi, along with another book also focused on the history of racism by Nicholas Guyatt. It is too bad that Lozada did not include (and probably will never read) Thomas C. Leonard’s Illiberal Reformers. Lozada would have learned that racism became “scientific” in the latter part of the 19th century, and that American progressive economists too the lead in developing and implementing policies, including the minimum wage, that were intended to prevent “race suicide.”

The theory of race suicide was that members of inferior races could subsist on less than what superior races required. This meant that inferior races could drive wages below what the superior races needed to live on. Hence, the need for a minimum wage.

By the way, while I am not especially keen to read Kendi’s book, I would be curious to know what he means by “assimilationist thinking” and why it is a boo-phrase.