Category Archives: Tyler Cowen is my Favorite Blogger

Dani Rodrik on Trade Across Borders

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He writes,

A libertarian might view much of the regulatory apparatus of the nation-state as superfluous at best and detrimental at worst. For me, the apparatus is what makes capitalism feasible and sustainable at the national level – and problematic at the global level.

Pointer from Tyler Cowen. Read Rodrik’s whole post.

Suppose that A trades voluntarily with B. Then C comes along and says that this trade harms D, so it should be prevented.

The libertarian position is that we know that A and B are better off, or they would not have done the trade in the first place. We doubt that C is such a wise, benevolent individual that we can trust his judgment that the harm to D is larger than the benefit to A and B.

Now it is true that the benefits of specialization and trade require trust, and it is possible that trust in general is higher when people believe that their government is wise and benevolent. However, I would bet that where you find people trusting their government to interfere with cross-border trade you find less overall trust and worse economic outcomes. It will take some demonstration on Rodrik’s part to convince me otherwise. It is one thing to conjure up “models” in which trade restrictions improve outcomes. I want to see examples of broad improvements in well-being arising from real-world trade restrictions.

Not surprisingly, Don Boudreaux has views on this.

Study Not Needed

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Ray Fisman and Daniel Markovits write,

We measured attitudes toward equality by asking hundreds of Americans to distribute a pot of money between themselves and an anonymous other person. Our subjects weren’t making hypothetical choices in responding to the survey—their decisions affected how much real money they would get when the experiment ended.

Pointer from Tyler Cowen. I added the emphasis on “themselves.” That is very different from what redistribution means in political terms. There, it means redistributing other people’s money.

The authors seem to suggest that we should be surprised that rich progressives are reluctant to redistribute their own money. I do not think we needed an experiment to show this. I think we already know from their behavior that rich liberals are averse to redistributing their own money. I believe that surveys have shown that instead conservatives and people lower down the income ladder give larger shares of their income to charity.

Political support for redistribution is costless, especially compared with actually giving away some of your wealth.

Would Universal Health Coverage Help the Poor?

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Apparently, Larry Summers wants to stake out that position. Pointer from Tyler Cowen.

I seriously doubt that medical services are the relevant margin for improving the health of the poor. Public health measures I can see. Otherwise, my bet is that economic growth and diffusion of knowledge are the relevant margins.

Of course, if Larry believes otherwise, he is always welcome to donate his own funds to relevant charitable causes. As long as he does not take my money to donate to his preferred causes.

Tyler Cowen after the Republican Debate

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He writes,

The two participants who have done the best relating to voters, through the media, are the two former CEOs, Donald Trump and Carly Fiorina.

A priori, you would think that being a professional politician selects exactly for people who can do well in a televised national debate. Yet, from this limited number of data points, it is the CEOs who have the relevant skills.

Politicians make more speeches. CEO’s participate in more business meetings.

Think of making a speech as like playing rhythm guitar on a 1960s pop single. You play continuously, and your job is to give the song atmosphere through your use of volume, tempo, and tone.

Think of participating in a business meeting as like playing lead guitar. You come in for short “fills,” and your job is to move the song from where it has been to where it is going by hitting a few really striking notes at just the right time.

Because there are so many candidates at this point, Republican media events are more like business meetings than speech-making opportunities. So that would be my explanation. I think that the comparative advantage of the lead guitarists will be much less when there are only two or three candidates on stage.

Earnings of College Graduates

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Kevin Carey reports,

The Department of Education calculated the percentage of students at each college who earned more than $25,000 per year, which is about what high school graduates earn. At hundreds of colleges, less than half of students met this threshold 10 years after enrolling. The list includes a raft of barber academies, cosmetology schools and for-profit colleges that often leave students with few job prospects and mountains of debt.

But some more well-known institutions weren’t far behind. At Bennington College in Vermont, over 48 percent of former students were earning less than $25,000 per year. A quarter were earning less than $10,600 per year. At Bard College in Annandale-on-Hudson, the median annual earnings were only $35,700. Results at the University of New Mexico were almost exactly the same.

Pointer from Tyler Cowen.

Environmental News

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1. From the Boston Globe.

The research, published this week in Nature, drew on global satellite imagery and more than 400,000 sample counts from forests around the world in order to estimate that there are currently 3.04 trillion trees on earth. This is 750 percent more than the previous best estimate, which was 400 billion.

Pointer from Tyler Cowen. Even though the estimate of the number of trees may be much higher, I gather that this does not necessarily change estimates of the total biomass of trees. Otherwise, I would say that the inputs to climate models might need some adjustment.

2. From Katherine Mangu-Ward.

The Blue Ocean Society for Marine Conservation is just one organization among many that claim that more than 1 million birds and 100,000 marine mammals and sea turtles die each year from eating or getting entangled in plastic.

Morris and Seasholes reconstructed an elaborate game of statistical telephone to source this figure back to a study funded by the Canadian government that tracked loss of marine animals in Newfoundland as a result of incidental catch and entanglement in fishing gear from 1981 to 1984. Importantly, this three-decade-old study had nothing to do with plastic bags at all.

Overall, the five-cent bag tax appears to be a case of regulatory miscalculation.

We Don’t Make Things Any More

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Justin Fox writes,

The U.S. economy has grown so much during that period that people now are still buying more physical stuff than they did in 1950. Still, there are signs of a plateau.

Pointer from Tyler Cowen.

This follows a chart showing that the share of consumer spending going to goods has dropped from 60 percent in 1950 to 30 percent today.

One of the many reasons that the U.S. is not going to go back to the economy of the 1950s is that physical goods are less important to people now than they were then.

Four Forces Watch

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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

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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?

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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.