Category Archives: Tyler Cowen is my Favorite Blogger

Asymmetric Intolerance

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In the United States, the average number of automobile accidents per year is 5.25 million (source). The average number of fatalities per year is 30,000 to 35,000. (source).

How many accidents are we willing to tolerate involving self-driving cars before we stop trying to restrict their usage? Pretty much zero, right?

Let’s call this “asymmetric intolerance.” We accept a phenomenon that is highly flawed (human-driven cars) while we refuse to tolerate a phenomenon if it has any flaws at all (self-driven cars).

If asymmetric intolerance had been a policy principle 125 years ago, might we not still be transporting ourselves in horse and buggy?

Some further thoughts:

1. Maybe this is in line with the issue of resistance to change that is a theme of Tyler Cowen’s latest book.

2. Is an obsession with terrorism an example of asymmetric intolerance?

3. I have a relative in California who buys “organic toaster pastries” (non-GMO, of course). In other words, Pop-Tarts that have been blessed as all natural. Isn’t that an example of asymmetric intolerance?

4. Where else do we observe dramatic examples of asymmetric intolerance? Or is this the only example that comes to mind?

My Review of Tyler Cowen’s Complacent Class

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I conclude,

there is an important category of people who are dissatisfied with the status quo and at the same time are averse to risk and to change. It is an interesting pathology, but I think it is misleading to term it complacency.

A few more thoughts.

1. There is a lot to the book. You should read it. Even though it is getting a lot of coverage, don’t just assume that you can pick up its contents by osmosis. But prepare to disagree with him at times.

2. I wrote the review in a hurry. I can imagine re-reading the book and writing a different review.

3. I am still not happy with Tyler’s use of the term “complacency.” I can think of three senses of the word that are floating around in the book.

a. Complacency is “a general sense of satisfaction with the status quo.”

b. Complacency is a desire to avoid risk and resist change.

c. Complacency is a belief that the current social order is stable, that we will not suffer from a sharp increase in violence or a major breakdown of norms and institutions that maintain order.

Tyler explicitly writes (a), but I don’t think he really means it. The first three-quarters of the book are about (b), amassing evidence that modern Americans suffer from (b) much more than our forefathers. The last quarter of the book is about (c) and why Tyler believes it is wrong. He wants to claim that a big reason that (c) is wrong is that (b) has become so prevalent. Think of a Minsky model of social change: stability leads to instability.

The Case for Libertarian Despair

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John J. Dilulio, Jr. writes,

State and local governments and their governors associations, mayors associations, state legislatures, corrections commissioners, and more; big and small business lobbies; and, yes, nonprofit sector lawyer-lobbyists—all three federal proxies exert nonstop pressure in favor of federal policies that pay them to administer federal business, with as few strings attached as possible, and with lots of paperwork but little real accountability for performance and results.

Pointer from Tyler Cowen. DiLulio coins the phrase “proxy-administered state” to describe how government works today. It is hard to say which is more despair-inducing in the essay–the facts or the analysis.

I have said before that there are three forms of political economy:

1. Market economy: the private sector sets goals and owns the means of production

2. Socialist: the government sets goals and owns the means of production. Think of the public school system.

3. Corporatist (or Cronyist): the government sets goals and the private sector owns the means of production. Think of Freddie Mac and Fannie Mae back when they were owned by shareholders, or think of Obamacare. These are examples of the proxy-administered state.

Speaking of Obamacare, it seems increasingly clear that it has moved the Overton Window on health care policy. You are not allowed to substitute individual responsibility for Obamacare. Instead, you must come up with a “better” system. The ground rules for any new health care system now state that responsibility for your ability to obtain health insurance ultimately rests with the Federal government.

Tyler Cowen Reminds me of Charles Murray and Neal Stephenson

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I just opened my (Kindle) copy of The Complacent Class. He describes three complacent sub-groups. First is “the privileged class.”

the wealthiest and best educated 3 to 5 percent of the American population

This is Charles Murray’s Belmont (or Neal Stephenson’s Vickies). It is easy to see why they might feel complacent.

The third group is “those who get stuck.”

Their pasts, presents, and futures are pretty bad. . .A lot of these people never really had a fair chance.

This is Charles Murray’s Fishtown (or Neal Stephenson’s Thetes). I think it is a stretch to put them in the “complacent” class. Tyler himself says that “they are not happy about their situations.” They are just not capable or motivated to do what is required to change.

Anyway, I need to read more than a page or two before reviewing the book.

Republican-free Zones

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Christopher Caldwell writes,

Washington, D.C., with its 93-to-4 partisan breakdown, is not that unusual. Hillary Clinton won Cambridge, Massachusetts, by 89 to 6 and San Francisco by 86 to 9. Here, where the future of the country is mapped out, the “rest” of the country has become invisible, indecipherable, foreign.

Pointer from Tyler Cowen.

These statistics, while not surprising, are staggering. Some thoughts:

1. It is easy to understand why the Washington Post is the way it is. It has to satisfy its market.

2. 60 percent is a landslide. 85 percent is a bubble.

3. In the past, the heavy DC vote for the Democrat would have been written off as a reflection of what was twenty years ago a heavily black population. That “excuse” no longer holds.

4. Perhaps much of the “resistance” to the Trump Presidency was inevitable, and it would have erupted with any Republican winner. If you and all of your friends are Democrats, it is hard to credit a Republican with legitimacy. And in the age of social media, it is easy to mobilize demonstrations.

Arthur Brooks on the Dignity Deficit

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He writes,

even though poverty has become less materially miserable, it is no less common. In Martin County, just 27 percent of adults are in the labor force. Welfare is more common than work. Caloric deficits have been replaced by rampant obesity. Meanwhile, things aren’t much better on the national level. In 1966, when the War on Poverty programs were finally up and running, the national poverty rate stood at 14.7 percent. By 2014, it stood at 14.8 percent. In other words, the United States had spent trillions of dollars but seen no reduction in the poverty rate.

Of course, the poverty rate doesn’t take into account rising consumption standards or a variety of government transfers, from food stamps to public housing to cash assistance. But the calculations that determine it do include most of the income that Americans earn for themselves. So although the rate is a poor tool for gauging material conditions, it does capture trends in Americans’ ability to earn success. And what it shows is that progress on that front has been scant.

Read the whole essay, because it was hard to find a summary excerpt. He argues that the policy focus should be less on providing handouts and more on providing the dignity of employment.

This is easier said than done, of course. Most of Brooks’ suggestions strike me as reasonable, but I am skeptical that they would prove effective. And note that one approach, more vocational education, has a not-surprising down side, which is that today’s vocation can become obsolete tomorrow. Tyler Cowen points to an article by Hanushek and others.

with technological change, gains in youth employment may be offset by less adaptability and diminished employment later in life. To test for this tradeoff, we employ a difference-in-differences approach that compares employment rates across different ages for people with general and vocational education. Using microdata for 11 countries from IALS, we find strong and robust support for such a tradeoff, especially in countries emphasizing apprenticeship programs.

In The Diamond Age, the Thetes do not have much dignity.

Educational Signaling and Aggregate Productivity

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One of Tyler Cowen’s readers writes,

Traditional productivity forecast research tends to assume the wage premium is entirely human capital.
[but] If sheepskin effects are purely relative status effects, then the impact on total output and income should be zero, right?

In a cross section, workers with more years of schooling will have higher wages. If you take this as an indicator of productivity differences, then in a time series in which years of schooling increase, you will predict higher productivity as these more-schooled workers enter the labor force. However, if education is only a signal of productivity and not a causal factor in productivity, then what?

Suppose that education produces zero useful work skills, and all useful skills are learned on the job. However, the workers with the best ability to learn on the job also are good at completing school. What does it mean when over time the number of workers with more education goes up? If it means that the pool of workers is getting better in terms of ability to learn on the job, then productivity should go up. If it means that more low-ability workers are somehow completing more years of schooling, then productivity should not go up at all.

Continuing with this scenario, my intuition is that the salary premium for highly-educated workers should fall, other things equal. However, in a time series, other things are not equal. For example, the technology may be changing so as to increase the value of high-ability workers. In that case, the wage premium for the high-ability educated workers could rise while that of the low-ability educated workers could fall.

Even though this scenario is extreme (education produces useful work skills in some cases), I think it may be approximately correct. In that case, the average wage premium for highly-educated workers overstates the marginal productivity premium of additional highly-educated workers over time.

In a Caplanian world, workers who do not complete a lot of schooling send an adverse signal. However, completing a lot of schooling is only a necessary condition for convincing employers that you are trainable. It is not sufficient, and firms use additional screening devices to distinguish among workers with equal numbers of years of schooling. The econometrician does not use those screening devices, and the econometrician ends up lumping together workers with different levels of ability in a way that firms do not. The firm, unlike the econometrician, sees through the worthless college degree in ____ studies. The econometrician is fooled into thinking that putting more kids through college will raise average productivity. The firm knows otherwise.

Shorter Version of Tyler Cowen’s New Book

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From one of my comenters.

the chief anti-libertarian human tendency is the wish to minimize risk by distributing it which leads to all the “too big to fail” and social security and regulatory boondoggles. The bigger and richer the society the easier it is to fulfill this wish at least in the short-medium run

This sounds like the problem of the “complacent class,” as reviewed by Walter Russell Mead or Edward Luce.

The Economics of a Border-Adjustment Tax

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Timothy Taylor writes,

Most countries around the world and all high-income countries other than the United States have “border adjustments” in their tax code, but a key point to recognize is that border adjustments are typically part of a value-added tax–not the corporate income tax.

. . .the Trump administration proposal for revising the corporate income tax is actually a first-cousin-once-removed of a value-added tax.

Taylor cites scholars of various political persuasions in support of this analysis. Greg Mankiw makes a similar point. If you prefer taxing consumption to taxing saving and labor, then you should get to know the economics of the border-adjustment tax in the context of a shift from taxing corporate profits to taxing corporate net revenue.

But John Cochrane points out

a tax system in which you tax $100 of sales, but offer $99 of deductions (costs, wages, earnings retained for investment), then tax only the last $1, then tax that $1 again as personal income, would seem to offer lots of room for shenanigans on just what gets deducted. Along with interesting financial engineering to “invest” more earnings and pay less dividends and interest.

The more radically you reform taxes, the more you risk creating new distortions, both foreseen and unforeseen.

Tyler Cowen has a point about politics.

I say anything complicated they will just screw up, and the lack of transparency in the plan means eventually it will lead to a tax hike and furthermore a good deal of favoritism and rent-seeking along the way. Best hope is simply that they cut the corporate tax rate and don’t do much else on that front.

It is true that lowering the corporate tax rate would reduce the malincentive effects of loopholes in the tax. Lowering the stakes involved would lower the rent-seeking. Also, simply lowering the rate seems less risky (see John Cochrane’s whole post.

The economic theory of how a border-adjustment tax should work is worth knowing. However, theory tends to apply to concepts in the abstract. In practice, a lot of tax policy turns on what gets defined as taxable and what does not. And those regulatory and legislative decisions are where the rent-seeking and the distortions kick in.

Defending those with whom you disagree

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Tyler Cowen writes,

write occasional material in support of views you don’t agree with. Try to make them sound as persuasive as possible. If need be, to keep your own sense of internal balance, write a dialogue between opposing views, just as Plato and David Hume did in some of their very best philosophical works.

I can do that with macroeconomics. I used the dialogue method in my Memoirs of a would-be macroeconomist.

I find it more difficult to do with politics. The Three Languages of Politics sort of does it, although it looks more at the more simplistic and dogmatic arguments of progressives, conservatives, and libertarians.

In fact, what bothers me the most in political discussions is simple-minded dogmatism. As I watched people in my neighborhood head to the subway to the march against Trump, my head was filled with the Stephen Stills lyric, “Singin’ songs, and they’re carryin’ signs. Mostly say ‘Hooray for our side.'”

So, relative to my views, the most contrarian position I could take would be a really dogmatic view, whether it is libertarian, conservative, or progressive. But I cannot make dogmatism sound persuasive.

A better approximation of Tyler’s idea for me would be to champion central planning. To do that, I would argue primarily on grounds of risk aversion. That is not the usual progressive case, which is more utopian. I might suggest that having elites in control may limit the magnitude of mistakes. Even that is difficult for me to argue–probably the most formative experience on my political beliefs was the Vietnam War.