Category Archives: Tyler Cowen is my Favorite Blogger

Election Over-read

Posted on by

Tyler Cowen writes,

I see Democrats as somewhat concentrated in particular cities and also in particular occupations, more than Republicans are. There is nothing wrong with that, but it is another way in which Democrats are less diverse.

Read the whole thing. He is delicately suggesting that Democrats might have a notion of diversity that is too narrow. However, I doubt that he would have written that post if the election had gone the other way. Moreover, the election easily could have gone the other way. Maybe if it had been held a few weeks earlier or a few weeks later the outcome would have been different. Maybe if the Democratic ticket had been more attractive the outcome would have been different. Maybe if Rubio or one of the other Republican establishment favorites had won the nomination the outcome would have been different.

I should note that all election-reading, including my own, tends to be self-serving. One crude way to describe the social order in this country is that straight, white progressives are at the top, conservatives are in the middle, and various presumably oppressed groups are at the bottom. Progressives prefer to read the election as a kick in the pants of the folks at the bottom. Conservatives prefer to read the election as a kick in the pants of the folks at the top. I might add that some progressives see a social order that includes two layers on the left, with centrist Clinton Democrats on top of true progressives. In this view, the centrists are the ones who received the kick in the pants.

Elections prove much less than we are inclined to think they do. I would say that if progressives and Democrats were right about policy issues before the election, then they are still right. If they were wrong, they would still be wrong, even if they had won.

What I take away from recent elections is that other people bought into Barack Obama and Donald Trump much more than I would. I am not sure what else I should read into the results.

President Nixon’s Wage and Price Controls

Posted on by

Burton A. Abrams and James L. Butkiewicz write,

We uncover and report in this paper evidence that Nixon manipulated his New Economic Policy to help secure his reelection victory in 1972. He became convinced that wage and price controls were necessary to grab the headlines away from the defeatist abandonment of the Bretton Woods Agreement and the closing of the U.S. gold window. Nixon understood the impact of his wage and price controls, but chose to trade off longer-term economic costs to the economy for his own short-term political gain.

Pointer from Tyler Cowen. The paper is based on President Nixon’s secret tapes.

I think that Nixon’s New Economic Policy is under-studied by economists. At the time, many people though that the central policy was getting rid of the gold peg and that wage and price controls were a “cover.” The cover worked, both in the short term and the long term, as people focused on the wage and price controls then and now.

The conventional story of the inflation of the 1970s is that Fed Chairman Arthur Burns printed a lot of money. But as you know, I need to fined a different explanation. My alternative is that abandoning fixed exchange rates set off an inflationary wave, starting with traded goods but spreading elsewhere.

It was less than two years later that OPEC was able to quadruple the dollar price of oil. After that, inflationary psychology took over. Even though we retained price controls on refined petroleum products, such as gasoline, this regime probably raised costs (such as gasoline shortages) more than if prices had been allowed to rise.

What alternative did the Nixon Administration have? The U.S. had been losing reserves of gold and foreign currency at an unsustainable pace. Higher domestic interest rates would have stemmed the outflow, but this would have been unpopular. A lower government budget deficit would have raised net domestic saving (T-G + S-I) and reduced the outflow from the trade deficit, but Mr. Nixon did not go for that, either.

Two Questions about Convergence

Posted on by

1. If culture socially communicated thought patterns and behavioral tendencies are what determine economic performance, why do we not see more convergence?

2. Assuming that genetic engineering of humans becomes feasible, what traits will parents select for, and will this lead to convergence in the human race?

Tyler Cowen posed the first question to Joseph Henrich in his conversation with Tyler (you may need to Google for a link, and it may not be up yet). Tyler pointed out that even within the United States, we are seeing divergence in economic outcomes across geographic areas.

Later, at a private dinner, Tyler posed the second question.

It is possible to give similar answers to both questions. Two factors are involved.

a) parents want children to be like themselves, not simply copies of people that the parents admire.

b) we do not understand the processes well enough to reliably get the outcomes that we want. There is too much causal density.

Because of (a), we will never get complete convergence. Also, the fact that parents want children to be like themselves slows down the process of cultural convergence of thought patterns and behavioral tendencies across countries. Even if a family moves from a poor country to the United States, parents will want their children to retain a lot of the “old ways.” If it takes a few generations for people to assimilate thought patterns and behavioral tendencies when they are immersed in them, imagine how much longer it takes for people to assimilate distant thought patterns and behavioral tendencies when their immediate surroundings differ.

Because of (b), even if we knew that we wanted a particular outcome (a highly-growth economy, a high-IQ child), we do not know which changes to make to achieve that outcome. We do not know which genes to edit in order to produce high IQ. We do not know which social institutions will promote the thought patterns and behavioral tendencies of Iraqis in order to transform that country into a Jeffersonian democracy.

Null Hypothesis Watch

Posted on by

1. Pro:
Timothy Taylor writes,

Why do the academic effects of early childhood education so often fade out? Is it lack of lack of follow-up in schools? The importance of peer effects as student who received pre-K assistance are blended in later grades with those who do not? Maybe the pre-K programs themselves vary in some way?

Read the whole post. Not all of the evidence is consistent with the null hypothesis, but it is very difficult to reject.

2. Con: David Leonhardt writes,

“The gains to children in Massachusetts charters are enormous. They are larger than any I have seen in my career,” [education researcher Susan] Dynarski wrote. “To me, it is immoral to deny children a better education because charters don’t meet some voters’ ideal of what a public school should be. Children don’t live in the long term. They need us to deliver now.”

Pointer from Tyler Cowen. For this research to be convincing to me, it would have to show that there is not much fadeout and also that the interventions are scalable.

What Will be the Significance of Mr. Trump?

Posted on by

I recommend reading these three pieces in their entirety.

1. Tyler Cowen wrote,

I think his natural instinct will be to look for some quick symbolic victories to satisfy supporters, and then pursue mass popularity with a lot of government benefits, debt and free-lunch thinking. I don’t think the Trump presidency will be recognizable as traditionally conservative or right-wing.

2. Yuval Levin wrote

this election is at the very best a mixed blessing. It is less a show of strength of any sort than a cry of resistance and outrage. It is a cry that our politics clearly needed to hear and will now be forced to take seriously. But by itself it has not charted a way forward.

3. David French wrote,

I had no idea that the Democratic party was so thoroughly alienating it’s own voters. Hillary is will likely end up with almost 10 million fewer votes than Obama in 2008. She’ll end up with almost six million fewer votes than Obama in 2012. Those voters didn’t move to the GOP. People just stayed home. Given our growing population and the enormous media interest in this campaign, those numbers are simply astounding. The Democrats alienated roughly 14 percent of their 2008 voting base.

The Republicans tend to do better in off-year elections, because Democratic turnout is lower. I am tempted to say that Mrs. Clinton managed to turn this into an off-year election.

[UPDATE: David French takes back his earlier analysis, because it was based on incomplete vote totals.]

Let me speak to the significance of Mr. Trump from the perspective of the person, the party, and ideology.

As a person, his victory is astounding. Like any Republican, he had the liberal media against him. But they were less restrained and balanced than they have been in the past. On top of that, he had some mainstream conservative media (including Yuval Levin and his colleagues at National Review) against him. You can argue that Mr. Trump’s unpopularity with the establishment actually helped to firm his support, but even so you have to give him credit for pulling off such political jujitsu.

As for the party, I expect the schism within the Republican Party to heal quickly. I am reminded of Winston Churchill’s reaction to the Nazi invasion of the Soviet Union.

No one has been a more consistent opponent of Communism than I have for the last twenty-five years. I will unsay no words that I’ve spoken about it. But all this fades away before the spectacle which is now unfolding.

I do not expect that the Republican establishment will unsay any words that they have spoken about Mr. Trump. But I expect all that will fade away once he is engaged in political combat with Democrats in Washington.

I also think that those progressives who are predicting that the election will have dire consequences for women, gays, and people of color are making a tactical error. They are setting a very low bar for Mr. Trump and the Republicans. When four years from now we still have civil rights laws in place, mostly-legal abortion, and widely-legal gay marriage, these putative victim communities will be wondering what all the fuss was about.

Going forward, the Republicans desperately need to catch on with one or more of the demographic groups that currently is in the bag for the Democrats. Read David French’s piece again. My takeaway is that if the Republicans stand still, then all the Democrats have to do to win the Presidency is find a candidate who does not turn off the weakly-attached voters.

On immigration, I agree with Tyler that Mr. Trump’s border control efforts may prove mostly symbolic. I do not think he needs to make much progress on the wall. He could simply ask ICE to make a regular public display of rudely and forcefully deporting people. I am cynical enough to guess that if every night on television there are scenes of suffering and humiliated deportees, this will satisfy the anti-immigrant crowd without having to build the wall. (For those of you new to this blog, I am against causing suffering and humiliation among deportees. I am not even in favor of deportation in the first place–if it were up to me, the most we would do to deter anyone wanting to take up residence here is charge some sort of one-time fee.)

Assuming Mr. Trump succeeds in creating the impression that our border controls are tight, some of his supporters might countenance giving long-time undocumented residents a path to citizenship. What is unacceptable to those who make an issue of illegal immigration is giving a path to citizenship without much tighter controls.

As for ideology, Mr. Trump is not a man of strong principles. He will not treat his victory as a conservative mandate, nor should he.

On health care policy, pundits are talking as if a Senate filibuster is inevitable if the Republicans try to repeal Obamacare. I would bet against this. For one thing, I don’t think Democratic pollsters are going to be advising their clients to fall on their swords to keep Obamacare. For another thing, I would not put it past Mr. Trump to work with Democrats on a new law. You may have forgotten that before Mr. Obama, whose idea of talking with the other side was to say “I won,” we had Presidents who were able to negotiate bipartisan bills. Do not be shocked if Mr. Trump does this. That would, however, result in health care policy that is at best a mixed bag for those of us with a preference for market-oriented solutions.

Still, I am more optimistic than Tyler that conservatives will win some victories during the Trump Administration. After all, we do have a Republican Congress that is licking its chops. In particular:

1. I would bet that the courts get packed with a lot fewer strongly progressive judges than they would have been under Mrs. Clinton.

2. I would bet that the EPA, the Department of Education, and the Department of Labor pursue a much less expansive regulatory agenda.

3. I would bet that some of the regulatory red tape that impedes infrastructure projects will go away.

Et tu, Tyler?

Posted on by

Tyler Cowen writes,

inflation would leave many workers with permanently lower wages, as in essence the central bank would be giving them a wage cut that their own employers probably would not have dared. Maybe wages would adjust upward over the years, but workers would not be guaranteed this recompense.

I disagree with many of the views that are either explicit implicit in this column.

1. I do not endorse the view that economy-wide increases in prices help to increase employment by lowering real wages. To put this another way, I do not endorse the view that the real wage rate is countercyclical.

2. I do not endorse the view that the Fed can fine-tune the rate of inflation.

3. I do not endorse the view that higher inflation would be easier to live with. Prices are signals, and higher inflation creates more distortion in those signals.

Final Meditations on the Election

Posted on by

Tyler Cowen writes,

Now, social media make it possible for a candidate’s reach to far exceed his or her internal capabilities to formulate policy. Even at this very late stage, we still don’t have much sense who Trump’s advisors would be or what his cabinet would look like.

I recommend the whole column. Meanwhile, here are my final thoughts.

1. I can think of two positives for Mrs. Clinton. One is that she strikes me as more capable then Mr. Trump of reading and digesting information. Another is that she will have access to the best and the brightest among Democratic advisers. On the Republican side the best and the brightest are NeverTrumpers, and I don’t see Mr. Trump reaching across those burned bridges. I do worry that Mrs. Clinton is so personally insular that instead of relying on wise figures on her side she will remain ensconced with her immediate entourage of unimpressive long-time aides.

2. Unfortunately, the best and the brightest on the Democratic side are not as good as they were two decades ago, because the whole country has moved to the left. Indeed, Mr. Trump strikes me as more like Huey Long than Barry Goldwater. When Bill Clinton was President, a lot of leading figures in the Democratic establishment had genuine respect for markets. Today, that is not the case.

3. I can think of one positive for Mr. Trump. He would sign a bill to repeal and replace Obamacare with a more market-oriented alternative. Instead, with Mrs. Clinton, government will try to fix the problems it has caused by exerting more control, which is likely to make things worse.

4. I think that the main theme of the election is cosmopolitan vs. anti-cosmopolitan. I take the cosmopolitan side, which alienates me from Mr. Trump and his supporters.

5. Another theme is elite vs. anti-elite. There, I don’t have a dog in the race. I would generally side with an elite, but it needs to be a humble elite. We mostly have an arrogant elite, which I fear is even worse than a non-elite.

6. When I was in Boston last week, I overheard a concierge in an apartment building claim that Mr. Trump is one of the greatest businessmen of all time. Similarly, I have seen Facebook posts from supporters of Mrs. Clinton extolling her long career in public service. I get the sense that there is a tendency to vastly over-rate the candidate that one supports. I find that sad and troubling.

7. As the campaign has progressed, my impressions of Mrs. Clinton, Mr. Trump, and Gary Johnson have all suffered declines. Still, I plan to vote for Mr. Johnson.

Ben Bernanke takes on Sebastian Mallaby

Posted on by

Bernanke writes,

Mallaby’s argument that Greenspan should have known that a tighter monetary policy was appropriate in 2004-2005 (if that was in fact the case!) strains credulity. In 2003 the Fed was navigating a deflation scare and a jobless recovery from the 2001 recession—no net payroll jobs were created in the U.S. economy over 2003—which had led the Federal Open Market Committee to cut the fed funds rate to a record-low 1 percent. The FOMC did not stay at that level for long, however; Greenspan began to prepare the ground for a rate increase in January 2004, when the Committee’s language about keeping policy accommodative for a “considerable period” was modified. As Brad DeLong has pointed out, citing the FOMC transcript, at that point Greenspan was far from certain that the rise in housing prices was a nationwide bubble or that it could pose a threat to financial stability. Indeed, much of the increase in housing prices was still to come

Pointer from Tyler Cowen. Read the whole thing. I take Bernanke’s side on this one. Feel free to re-read my earlier post on Mallaby.

Tyler Cowen on Inequality

Posted on by

He writes (link is to enormous PDF file)

if American productivity growth had not slowed after 1973, today the median household would earn $30,000 more each year. Alternatively, if income inequality had not accelerated after 1973, today the median household would earn an extra $9,000 more. That is less than one-third of the loss from the productivity slowdown.

His point is that we should pay more attention to productivity. Of course, many policies that ostensibly reduce inequality serve to harm productivity. And there are some ideas, included in Tyler’s essay, that could help with both. Reducing occupational licensing, for example.

My guess is that on policy issues, Tyler is not terribly far from his “opponent” in the volume, Melissa S. Kearney. If anything, her proposals for reducing inequality would take longer to work than his.

Probably the most contentious debate in the volume concerns the employment-reducing effects of government tax and transfer programs. Robert Moffit says that the effect is small, while Casey Mulligan says that it is large. It would be nice to see if they could pin down the reason for their difference of opinion–is it that Mulligan looks at more programs in more detail, or do they take a different view of the shape of the labor supply curve?

Cowen and Pinker: Two Moments

Posted on by

If I forget to put up a link, just Google for it. Tyler Cowen had a conversation with Steven Pinker. I found two moments interesting.

1. Tyler posed a scenario in which anyone with $10,000 could afford to blow up a large part of a major city. He asked how long it would be before someone carried out such a deed. The implication is that in spite of past trends in which rates of violence are down, we should not be optimistic about the future.

Pinker objected that it might never become that inexpensive to destroy a city. He also seemed to suggest that somehow our culture might evolve so that nobody would want to do that.

Another way to treat the scenario is to say that yes, it could happen, but it could still happen in a context in which the overall rate of violence is declining. One or two such explosions would not destroy civilization. But if people believe that it is becoming commonplace, then we would be in big trouble.

The David Brin solution is the transparent society, in which surveillance is effective. Brin’s solution to the threat of tyranny is to have ordinary people able to see into and affect their government at the same time as government can identify threats of mass destruction.

2. At the end, Bryan Caplan asks Pinker if there is not a conflict between Pinker’s view of the triumph of reasons and the fact that Pinker thinks that many intelligent people are wrong on important issues. I thought that Pinker was flummoxed by this question.

First of all, Pinker recommended “naming and shaming” those who would quash free speech. I think that “naming and shaming” is itself a form of speech suppression.

I would define the problem as bad ideas becoming fashionable among intellectual elites. A big part of the problem is that there is not a good feedback mechanism between the bad ideas and their consequences. The people who proclaim their allegiance to socialism do not have to live in Venezuela. They do not even have to live in Denmark. They get to impose regulations on others’ lifestyles, while reducing regulations that might impinge on their own.