Four Forces Watch

Jon Birger writes,

according to separate research by University of Pennsylvania economist Jeremy Greenwood and by UCLA sociologists Christine Schwartz and Robert Mare, educational intermarriage is less common today than at any point over the past half century.

The drum he is beating (Tyler Cowen has a link to a different piece by Birger) is that within a demographic segment, ratios of females to males matter. If you define the segment as “young, college-educated,” the outlook for women looks bleak, because of the high ratio of females to males in that segment.

Would it be reasonable to infer that in the segment “young, not college-educated” that there are more men than women? Why aren’t women in that segment enjoying lots of marriage prospects?

Perhaps many males in that segment do not offer much in terms of income.

Ancient Trade and Trust

1. From Adam Davidson in the NYT magazine:

At the city gate, Assur-idi ran into a younger acquaintance, Sharrum-Adad, who said he was heading on the same journey. He offered to take the older man’s donkeys with him and ship the profits back. The two struck a hurried agreement and wrote it up, though they forgot to record some details. Later, Sharrum-­Adad claimed he never knew how many textiles he had been given.

Pointer from Tyler Cowen.

This apparently took place in the 19th century, BC. Long-time readers will know that I have taken the view that archaelogists are finding evidence of plunder and calling it evidence of trade. But this example (read the whole story) shows that I am wrong about that.

The main focus of the article is the gravity model of trade, which says that trade between any two entities (cities, countries) is positively related to their size in terms of population and negatively related to the distance between them.

2. Josiah Ober says,

The key to unlocking the puzzling success of the Greek city-state ecology is economic specialization and exchange. Specialization was based on developing and exploiting a local advantage, relative to other producers, in the production of some valued good or service. . .

the costs of transactions were driven down by continuous institutional innovations, notably by the development and rapid spread of silver coinage as a reliable exchange medium; the dissemination of common standards for weights and measures; the creation of market regulations and officials to enforce them; and increasingly sophisticated systems of law and legal mechanisms for dispute resolution.

The whole piece is interesting.

Can Computers Solve the Socialist Calculation Problem?

Malcolm Harris writes,

What if the problem with the Soviet Union was that it was too early? What if our computer processing power and behavioral data are developed enough now that central planning could outperform the market in the distribution of goods and services?

Pointer from Tyler Cowen.

This is just sad. The socialist calculation problem is not one of processing power. In The Book of Arnold, I try to explain it thusly:

In a command economy, central planners give each family ration coupons for corn flakes and wheat bread. If you were to give a family more ration coupons for corn flakes, then the family would gladly use them. If you were to give a family more ration coupons for wheat bread, then the family would gladly use those. Consumers have no way of signaling to planners that in relative terms they would prefer more corn flakes.

Similarly, workers have no way of signaling to central planners that they have untapped skills. Managers have no way of signaling that there are alternative production methods that might use a lower-cost combination of inputs. Indeed, the central planners do not know the cost of inputs. They only know the shadow prices that they have imputed to those inputs.

Tyler Cowen Interviewed

The transcript is interesting. I could have annotated almost any one of his answers with comments of my own. One example:

the best way to “educate yourself,” for most people at most stages in your life, is to make marginal adjustments in your peer group. That means more mobility along particular dimensions, including geographic. Yet in most ways our current mobility is going down.

Recall that my suggested way to speed the formation of new patterns of specialization and trade is to increase social mixing.

International Trade and GDP

Tyler Cowen finds an FT story about data from the World Trade Monitor, which calculates that global trade contracted in the first half of 2015.

Global trade is a subset of world GDP. That is, world GDP is a measure of the value of all goods and services traded, whether across borders or not.

Let us assume that world GDP expanded in the first half of this year. What ought we to conclude?

One possibility is that cross-border trade and overall trade are not perfectly correlated, and this is a blip in the relationship. However, another possibility is that GDP is mis-measuring economic activity. The value of government purchases is not market determined. The same might be said for health care and education, in that third-party payments are important.

In other words, there are three components of world GDP: goods and services exchanged at market prices across borders; goods and services exchanged at market prices domestically; and goods and services exchanged at artificial prices. If the first component of world GDP has been contracting, then my guess would be that the second component is, also.

A PSST Story for China

Tyler Cowen writes,

there is significant excess capacity on the real side of the economy. It will be very hard to fix this problem without letting significant numbers of SOEs go under. The central government fears the resulting unemployment, plus the SOEs are the Party’s power base. Yet the leaders know what must be done, and the SOEs have been reformed before. …One danger is that SOE reform leads to a loss of political stability. A second and more likely danger is that reform is incomplete and China ends up full of zombie companies and banks.

Market-oriented economies get rid of heavy accumulations of unsustainable patterns of specialization and trade through financial convulsions. For China, the process will have to be top down.

An interesting question is which sort of economy does better at putting the pieces back together. Offhand, I would say that China could get through a transition with less person-years of unemployment. However, the risk is that the new patterns of specialization and trade are no more sustainable than the ones that are discarded.

Market Failure and Analytical Failure

Tyler Cowen writes,

The upshot is that economists hold a lot of views whose justifications they cannot articulate very well. I think you would find the same when it comes to the Ex-Im Bank (are you sure it fits the model of strategic trade theory?), the mortgage agencies (what was that externalities argument for home ownership again?) or all sorts of random regulations. The relatively interventionist economists will pull some justification out of a hat, and the relatively pro-market economists will be pretty skeptical.

In The Book of Arnold, I have a chapter called “Policy and Practice” in which I go to great lengths to emphasize the analytical gap between the theory of market failure and actual policy. My prime example is housing policy. I write,

The policy pattern that consists of subsidizing demand and restricting supply is not limited to the housing market. It pervades government regulation of industry. For example, in education, the government subsidizes demand by helping to pay for education, and it restricts supply by limiting accreditation. In health care, government subsidizes demand through Medicare, Medicaid, and various tax breaks and subsidies for obtaining health insurance. Yet it restricts supply by regulating the practice of medicine, requiring a “certificate of need” before a new hospital may be built, and requiring inventors to undertake extensive studies to demonstrate efficacy of their treatments to the satisfaction of the Food and Drug Administration.

From the standpoint of the theory of market failure, the subsidize-demand, restrict-supply pattern almost never makes sense. If there is a market failure that results in under-production of a good, then it makes sense to subsidize both demand and supply. If the market failure results in over-production, then it makes sense to restrain both demand and supply. Subsidies for demand and restrictions on supply inherently work at cross purposes.

However, from the standpoint of another theory, called Public Choice, in which government policy tends to serve concentrated interests rather than address market failures, it is understandable for government to subsidize demand and restrict supply. In a specialized economy, we know that the market for what you produce affects your well-being much more than the market in any one of the myriad of goods and services you consume. Thus, concentrated interests develop on the supply side, not on the demand side. The pattern of subsidized demand and restricted supply is what you would expect to result from successful political action in a specialized economy.

Teach Yourself

Tyler Cowen said,

But the second skill, and this is a tough one, is to be very good at teaching yourself new things. Right now, our schools are not so good at teaching this skill. The changes we’ve seen so far are just the beginning; 20-30 years from now, we’ll all be doing different things. So people who are very good at teaching themselves, regardless of what their formal background is, will be the big winners. People who do start-ups already face this. They’ve learned some things in school, but most of what they do they’ve had to learn along the way; and that, I think, is the future of education. I’m not convinced that our schools will or can keep pace with that; people will do it on their own.

Several months ago, I had this odd desire to recover some of the gymnastic skills of my youth. I soon developed rib-cage muscle problems, which I never had way back when. I ended up reaching out on Facebook for advice and going to YouTube for instructions on exercises that would help. Note that I could have taken a Yoga class, but that is not the direction I went. That may tell you something about the future of learning.

Possibly related: Gary Vaynerchuk on entrepreneurship. Right off the bat, he says he does not think that it can be taught. He says that the most important thing is to know yourself. It reminds me of what ‘Adam Smith’ (George Goodman) wrote in The Money Game about the stock market:

If you don’t know who you are, this can be an expensive place to find out

Vaynerchuk reminds me of my main former business partner. Lots of smarts (with zero educational credentials), lots of passion, lots of testosterone. Our partnership clicked because we aligned in terms of intuition and competitive drive, but it was a good thing that we were separated by thousands of miles. If you watch the video, let me know what you think, and see if you can identify/articulate what I find off-putting.

Playing the Status Game

Tyler Cowen writes,

So much of debate, including political and economic debate, is about which groups and individuals deserve higher or lower status. . .

I hypothesize that an MR blog post attracts more comments when it a) has implications for who should be raised and lowered in status, and b) has some framework in place which allows you to make analytical points, but points which ultimately translate into a conclusion about a).

My comments:

1. Lowering another group’s social status is the most powerful message of all. It is more powerful than raising the status of those who one likes.

2. It would be an interesting exercise in honesty for everyone who uses social media for political discussions to say, “My main purpose is to lower the status of the following three groups. . .” What would my answers be? MIT economists would be high on the list. Also progressives. And people who align entirely on one of the three axes.

3. How much of writing in the social sciences and the humanities (can you broaden this to other academic disciplines?), including research papers and journal articles, is motivated and made popular by the way that it affects relative group status?

You can take man out of tribal society, but you cannot take tribal society out of man.

Occupational Licensing

The Obama Administration reports a sort of meta-analysis. One excerpt:

Estimates suggest that over 1,100 occupations are regulated in at least one State, but fewer than 60 are regulated in all 50 States, showing substantial differences in which occupations States choose to regulate. For example, funeral attendants are licensed in nine States and florists are licensed in only one State.

Pointer from Tyler Cowen.

I have only skimmed the report, but I did not see a reform that was suggested at dinner the other night. That is, licensing should not be delegated to boards that consist solely of incumbent practitioners.