American Economic Geography

In the NYT, Parag Khanna writes,

The Northeastern megalopolis, stretching from Boston to Washington, contains more than 50 million people and represents 20 percent of America’s gross domestic product. Greater Los Angeles accounts for more than 10 percent of G.D.P. These city-states matter far more than most American states — and connectivity to these urban clusters determines Americans’ long-term economic viability far more than which state they reside in.

Pointer from Tyler Cowen.

Khanna’s bottom line:

the next president has to move beyond platitudes and implement a serious policy of leveraging new infrastructure investment from home and abroad and backing the shift toward a new urban political economy built around transportation engineering, alternative energy, digital technology and other advanced sectors.

In other words, we’ve had too much organic growth in cities. From now on, it needs to be planned. Needless to say, I do not (note correction) share in this assessment.

Yes, I Saw This

From Claudio Borio and others.

The hitherto unsuspected villain in this story is the misallocation of resources – in our case, labour – during the credit boom and its long post-crisis shadow. More generally, the findings support the view that the disappointing developments we have been witnessing may be the result of a major financial boom and bust that has left long-lasting scars on the economic tissue (e.g. BIS 2014, Borio 2014, Borio and Disyatat 2014, Rogoff 2015) rather than the reflection of a structural, deep-seated weakness in aggregate demand.

Pointer from Tyler Cowen.

Yes, this seems to support PSST, but they use methods that are of a sort that I cannot endorse. I do not think that “aggregate” productivity growth is well measured to begin with, and then when you try to decompose that into smaller pieces, you really lose me. Another way of putting this is that aggregate productivity is a concept borrowed from the model of the economy as a GDP factory. If your conclusion is that reallocation of resources matters for economic performance, then that suggests that the GDP factory is not a good model, which in turn makes your methods suspect.

By the way, there will be some discussion of PSST in a podcast I did with Russ Roberts that will come out in a few weeks, which in turn is about my forthcoming book, Specialization and Trade, which will come out early this summer. Meanwhile, you will find relevant papers here.

Answers on Breaking Up the Big Banks

Aaron Klein writes,

While big banks are extremely politically unpopular, people are increasingly banking at large banks.

Pointer from Tyler Cowen. My comments:

1. I guess once Brookings is bought and paid for, they stay bought and paid for. Remember?

2. Don’t try to make it sound like people are switching out of small banks as a conscious preference. Big banks do not grow organically, like Wal-Mart or Costco. They grow through mergers and acquisitions. I did not choose to bank with Capital One. Capital One simply swallowed up Chevy Chase Bank, the community bank where I had my accounts.

3. Don’t try to make it sound like an international business cannot operate without a bank at its disposal with at least $1 trillion in assets. My guess is that $10 billion would be plenty big for a bank to be able to satisfy multinational businesses. Remember that if there were fewer ginormous banks, there would be many more large banks. Banks can syndicate deals, also.

4. Don’t try to make it sound like big banks are an American comparative advantage. On the contrary, if we have a comparative advantage in finance in the world, it is that historically we have had other large institutional sources of capital.

5. Don’t tell me that you have solved the too-big-to fail problem. See my tests for that in the link in (1).

Tyler Cowen on Trends in Leisure and Work

The video is here. Recommended.

I agree with most of what he says, and to the extent that I differ I am probably wrong.

He frames the question in terms of Keynes’ prediction that by 2030 we would see a work week of about 15 hours. My thoughts:

1. As William Gibson said, the future is here, it is just not evenly distributed. Tyler says, correctly, that the elderly have grabbed a huge share of any increase in leisure. But “elderly” is not some different social class. It is us when we get to be that age.

2. Suppose that the median adult male in 1930 started working at age 16 and worked until he died, and that the median adult male today starts working at age 20, retires at age 60, and dies at age 80. Take those 20 years of leisure and spread them across the working ages of 20-60, and that amounts to 1/3 of a year of leisure. If you think that you have about 100 hours a week to allocate (otherwise you are engaged in required activities like sleeping), 1/3 of a week is about 33 hours. So maybe you can say that we’ve taken about 33 hours off the typical work week, but we’ve decided to save those 33 hours for when we’re old. So if you worked 60 hours in Keynes’ day, now in effect you work 27 hours, and he is not so far off.

3. Note that the natural distribution of leisure might be quite different, but the eligibility rules for Medicare and Social Security are a major influence.

4. Another point Tyler makes that I would have made also is that the disutility of work has fallen. My guess is that Keynes did not foresee this or take it into account.

5. In fact, one of Tyler’s claims, which I do not dispute, is that for many people the utility of work is actually positive. In any event, if you gave people the wealth they have in 2016 but they faced the composition of jobs that existed in 1930, I bet a lot fewer people would choose to work full time.

6. Tyler points out that one factor increasing reported work hours is women substituting market work for home production. Again, I agree. In a variation on (5), suppose you offered a modern working woman a chance to earn her current wage for doing housework and child care as it was done in 1930. How many women would take you up on that? I’m guessing not many.

7. Tyler predicts that more people will work more hours going forward. His reasoning is that in cross-section, we observe the highest earners tending to work more hours. If that same pattern holds in time series, and earnings go up, then we should see more hours of work.

I think that is a dubious inference. The “one percent” are different not just in terms of ability but also in terms of preferences. They choose wealth-maximization with more gusto than the rest of us.

There are plenty of reasons to choose something other than the wealth-maximizing career path. In my case, I have inexpensive tastes. I also have a low tolerance for interpersonal stress. Others may have a low tolerance for risk. Some may have a strong attachment to living in a location that does not offer the highest nominal salary.

There are many margins along which people can adjust to higher wealth. I do not think that we can extrapolate from the behavior of the “one percent” to predict how the rest of us will choose.

Related: Timothy Taylor on what is a good job.

A good job has what economists have called an element of “gift exchange,” which means that a motivated worker stands ready to offer some extra effort and energy beyond the bare minimum, while a motivated employer stands ready to offer their workers at all skill levels some extra pay, training, and support beyond the bare minimum.

Tyler Cowen Talks with Jonathan Haidt

Self-recommending. Here is one excerpt:

Whenever there was an empire, the empire always ran into trouble. At that point, there are those who say, “Our misfortunes are because we have lost the ways of the elders. The gods are punishing us for departing from the wisdom. We need to return!” Those are the people I would bet who if you could transplant them, they would grow up to be more conservative. They feel the moral decay. They feel the loss of the tradition.

Here is another:

The basic fact about moral argument is that we’re not really listening to each other, we’re not actually open to reasoning. We start with our gut feeling or our partisan loyalty, and at that point we become lawyers. We’re really good at being lawyers and knocking down the other guy’s arguments, and giving them our own…

Once it becomes left versus right over Obamacare, it doesn’t matter however good your arguments are, I’m not listening. I’ve got my team, and we’re on a mission to defeat your team.

But read the whole thing.

Honor, Face, Dignity, and Victimhood

Jorg Friedrichs writes [UPDATE: link fixed],

In short, status is more salient for honor and face than for dignity cultures. In honor cultures, hierarchy is like a “pecking order” with “cockfights” rife among status-anxious rivals because the honor code requires defending honor against real or perceived challenges from peers. In face cultures, hierarchy is engrained in the collective consciousness of the group and status anxiety cannot burst into conflict because people must know their place. In dignity cultures, self-worth is a birthright so status and, by implication, status anxiety should matter less.

There is a lot of interesting, speculative discussion along these lines.

On a related note, in a recent Cowen-Haidt discussion, Jonathan Haidt brought up one of his old posts.

I just read the most extraordinary paper by two sociologists — Bradley Campbell and Jason Manning — explaining why concerns about microaggressions have erupted on many American college campuses in just the past few years. In brief: We’re beginning a second transition of moral cultures. The first major transition happened in the 18th and 19th centuries when most Western societies moved away from cultures of honor (where people must earn honor and must therefore avenge insults on their own) to cultures of dignity in which people are assumed to have dignity and don’t need to earn it. They foreswear violence, turn to courts or administrative bodies to respond to major transgressions, and for minor transgressions they either ignore them or attempt to resolve them by social means. There’s no more dueling.

Campbell and Manning describe how this culture of dignity is now giving way to a new culture of victimhood in which people are encouraged to respond to even the slightest unintentional offense, as in an honor culture. But they must not obtain redress on their own; they must appeal for help to powerful others or administrative bodies, to whom they must make the case that they have been victimized.

Liberty, Conformity, and Academic Diversity

Miles Kimball writes,

John Stuart Mill argued that protecting civil liberty is not enough; social liberty must also be protected. It is possible to force most people into conformity with prevailing opinion by criticism, disapproving glances, and mockery of nonconformity.

Pointer from Tyler Cowen.

I am afraid that this is the price that we pay for living in society. Any cohesive society will reward cooperators and punish defectors. Social sanctions are going to be part of that.

To put this another way, I would argue that conformity is usually good and nonconformity is often bad. Yes, we want our society to accept some nonconformity. However, I believe that those who profess to want to live in a society with a much higher tolerance for nonconformity are probably kidding themselves. Note that in the 1960s how quickly the expressions of non-conformity (long hair, etc.) came to be themselves enforced by standards of conformity.

In another interesting paragraph, Kimball writes,

As an academic, I notice how powerfully the opinion of other economists–whether right or wrong–operates in controlling the behavior and the research priorities of the typical academic. It is hard to think of many people who could be more safe from harsh practical consequences for a dissenting opinion than tenured professors, yet most still meekly follow the opinion of the crowd within their discipline. Is this the way it should be? Is this the way to best advance science? I don’t think so. Surely, a bit greater variance in expressed opinion would be more productive of scientific progress than the degree of conformity that prevails within most scientific disciplines, including economics.

My comments.

1. Do you remember what Paul Romer said?

The only way I can see to protect scientific discourse is to limit entry into the discussions of science.

2. If you are looking for an optimum degree of tolerance for divergent ideas, I do not think you will find it at either 0 percent of 100 percent. I do think that right now in economics, the tolerance for divergent ideas is too low. However, it is better than it was 30 years ago.

How Can Both Left and Right Believe that they are Losing?

Tyler Cowen writes,

the new book by Jacob S. Hacker and Paul Pierson, and the subtitle is How the War on Government Led Us To Forget What Made America Prosper. It is well written and will appeal to many people. It is somewhat at variance with my own views, however. Most of all I would challenge the premise of a “war on government,” at least a successful war.

This reminds me of a puzzling phenomenon that I have noticed. If you read narratives of recent history from the perspective of the left and the right, each side believes it is losing. One could dismiss this as marketing strategy. If our side is winning, then why is it urgent to read my book or donate to my organization?

But I think it is possible for the each side to sincerely believe it is losing.

The left presumes that government can solve problems. We have problems. Therefore, we must be losing!

The right presumes that the government causes problems. We have problems. Therefore, we must be losing!

Entertaining Debate on the Economics of Education

I recommend this EconDuel between Tyler Cowen and Alex Tabarrok, with the latter channeling Bryan Caplan, on whether education is content or signaling.

Tyler argues that students pick up valuable intangible forms of knowledge in college. One might term this cultural learning.

When I showed the debate to my high school students, they were somewhat put off by Tyler saying that students learn to “submit to authority.” I think that a better formulation would be to say that students learn to please authority in ambiguous situations. That is, a skilled worker in today’s economy needs to meet expectations in a setting where instructions are not precise. Your boss does not want to spend time telling you exactly how to do your job. Instead, the boss wants to set some general expectations and have you figure out how best to meet or exceed those expectations. In college, writing a paper or trying to prepare for a test requires similar skills–the ability to anticipate and satisfy what the professor is expecting without being given a precise set of step-by-step instructions.

When I gave job interviews, the crucial point in the interview was when I said, “Tell me what questions you have.” I took the view that someone who was going to do a good job would have the ability to ask relevant, probing questions. Someone who lacked that ability would be too passive and create too many opportunities for communication failures between me and the employee.

In theory, a better educated person would do better in my interview. That person would have a better sense of the right questions to ask in order to be successful as an employee.

On the other hand, the cultural learning aspect of college education might be nothing but an Eliza Doolittle effect. Because you are able to speak with the proper intonation and express the views of a well-educated individual, you ingratiate yourself with people who can hire you into or connect you with well-paying jobs. But someone with more lower-class conversation patterns might actually be as good or better at doing the work.

Personality and Ideology

Alan Gerber and others write,

Agreeableness is strongly, and consistently, associated with liberal economic positions and Emotional Stability is strongly associated with conservative economic positions.

… while previous research has rightly identified Conscientiousness and Openness as the traits most
consistently related to ideology, our analysis shows that the other Big Five traits—particularly Emotional
Stability and Agreeableness—significantly and substantially affect political attitudes.

Pointer from Tyler Cowen.

The authors departed from previous research by separating issues into economic and social issues. By not confounding the two, they find different patterns of relationships between personality traits and conservatism. People who dislike markets tend to score higher on agreeableness, meaning that they like to be seen as pleasing to others. They tend to score low on emotional stability, meaning that they are prone to worry and fear.