Category Archives: Tyler Cowen is my Favorite Blogger

A Post to Waste My Time

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Jonathan H. Adler writes,

When newspapers make mistakes or false accusations, they publish corrections. That’s not always the case with bloggers, however. And sometimes it seems the more prominent the blogger, the less likely a correction will be made.

A recent example comes from noted economist Paul Krugman. . .

I think that Adler is wrong to frame this in terms of newspapers vs. blogs. Krugman does not limit his remorseless slander to blogs.

Everything written by, for, or against Krugman over the past 15 years is a waste of time. That includes this post as well as Adler’s. It includes various attempts by Henderson, Cowen, and Sumner to engage with Krugman. They try to treat him as if he had some sense of decency. Instead, he is Joe McCarthy with a Nobel Prize.

When do you stop reading?

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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.

Interpret These Data

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The WaPo reports,

In 2000, about 14 percent of young New Yorkers worked in finance, earning about 77 percent more than average for their age group. Now they make about 115 percent more than average, and their numbers have shrunk to about 10 percent of their cohort.

Pointer from Tyler Cowen.

I am sure that there are many possible interpretations. The one that comes to my mind is that NYC financial firms are hiring fewer mediocre/marginal young workers. This reduces the proportion of young workers in the financial industry but raises the average incomes of those who do work in that industry.

Another Theory of the Trump Phenomenon

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Someone writes,

Girard discovered the answer. Society has survived because it has developed a mechanism for concentrating violence on a limited number of victims. This he called the “scapegoating mechanism”. In fact the scapegoating mechanism exploits the very mimetic mechanisms that render it necessary for society’s survival. People who fall into violent, obsessive desire quickly lose their grip on reality. It is easy to convince them that the source of their frustration – their inability to satisfy their mimetic desires without running into violent conflict – is the fault of some group of scapegoats. It is important for the scapegoats to be a disenfranchised minority, so that the violence of society can be turned upon them without fear that they will be avenged. Here, again, Girard’s theory renders unsurprising that which economists and political scientists are at a loss to explain: for instance how the favoured ‘cure’ for economic depression is to visit structural violence upon low-paid immigrants, racial minorities, the homeless, the unemployed and the disabled.

Pointer from Tyler Cowen.

In summary, there is this:

the most historically common form of spontaneous order is that of a human community tacitly agreeing to vent all of its violent frustration upon a defenceless subgroup.

I have some doubts about Girard’s core hypothesis, which is that we all want the same few goods. It seems to me that there are all sorts of things that other people want which interest me not at all. By the same token, many of my most favorite pastimes seem to be shared by only a few others.

The theory that our tastes are modeled on the tastes of others may be right, but I am not sure that its implications are as dire as Girard would have it. When I go to a folk dance session, it is true that I will like a dance more when there are others who also like the same dance. But I don’t want to kill them so that I can “possess” the dance. Quite the contrary.

In fact, I think that this is generally true. Nobody wants to be the only person who owns an i-Phone. Even with status goods, we all want others to own them, in order to validate our tastes.

I am sure that in some sense we sometimes desire that others have less than they do. But I am not ready to sign on to the idea that this is a major driver of a lot of our behavior.

American Economic Geography

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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

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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

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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

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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

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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.