Claude S. Fischer vs. Libertarianism

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He writes,

using the Human Development Index, which measures a population’s well-being in terms of health, education, and wealth. The HDI, corrected for internal distribution (the Bill Gates-makes-all-Americans-look-rich factor), is typically higher in OECD nations where governments are relatively large.

In fact, the HDI is very highly correlated with the Fraser index of economic freedom, and in that sense it supports libertarianism. I like to group countries by population size. Take countries with population size between 5 and 10 million. Of the top ten of these countries according to the Fraser Index, seven are also in the top 21 in the HDI. The only three that are not are Jordan (ranked 100th in HDI), United Arab Ameriates (ranked 41st), and Slovak Republic (35th).

Next, consider the 18 countries with a population over 76 million. The top three in terms of the Fraser index are the U.S., Germany, and Japan, and they are ranked 3rd, 5th, and 10th respectively in the HDI.

In an earlier essay, I suggested that large countries in general have poorer governance, as measured by the Fraser index. The HDI shows the same thing. Apart from the U.S., Germany, and Japan, the next highest-ranking large country in terms of the HDI is Russia, at 55th. 10 out the 18 largest countries are ranked 101 or worse in the HDI.

In fact, the correlation between the HDI and the Fraser index is sufficiently high that I could have written my essay using the HDI as my measure of governance and shown the same results: government tends to be poorer in countries with large populations, which is consistent with a libertarian view that centralized power is a bad thing.

Turning back to Fischer, the piece is not really worth reading, unless you enjoy grinding your teeth over another attack on libertarianism that is based on the idea that dislike of government is crazy and anti-social.

Suppose instead that we say that what libertarians oppose is the use of centralized, coercive power. Does that still make us seem crazy and anti-social? To me, it seems as if progressives appear to believe that centralized, coercive power is a great boon, an endless source of social betterment. Am I being uncharitable? Do they believe something else? Alternatively, if they do wish to extol the virtues of centralized, coercive power, am I really crazy for having doubts?

My Macro Book

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IF you go here, you will find a link to a download page. I am not sure how many downloads my internet host will allow before siccing the bandwidth police on me. So please do not download it unless you are seriously planning to read it (it is about 120 pages, pdf).

Feel free to leave comments on the book on any blog post.

Two Interesting Abstracts of NBER Papers

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1. Philip J. Cook and many co-authors write,

This paper reports on a randomized controlled trial of a two-pronged intervention that provides disadvantaged youth with non-academic supports that try to teach youth social-cognitive skills based on the principles of cognitive behavioral therapy (CBT), and intensive individualized academic remediation. The study sample consists of 106 male 9th and 10th graders in a public high school on the south side of Chicago, of whom 95% are black and 99% are free or reduced price lunch eligible. Participation increased math test scores by 0.65 of a control group standard deviation (SD) and 0.48 SD in the national distribution, increased math grades by 0.67 SD, and seems to have increased expected graduation rates by 14 percentage points (46%). While some questions remain about the intervention, given these effects and a cost per participant of around $4,400 (with a range of $3,000 to $6,000), this intervention seems to yield larger gains in adolescent outcomes per dollar spent than many other intervention strategies.

2. Daron Acemoglu and many co-authors write,

An increasingly influential “technological-discontinuity” paradigm suggests that IT-induced technological changes are rapidly raising productivity while making workers redundant. This paper explores the evidence for this view among the IT-using U.S. manufacturing industries. There is some limited support for more rapid productivity growth in IT-intensive industries depending on the exact measures, though not since the late 1990s. Most challenging to this paradigm, and our expectations, is that output contracts in IT-intensive industries relative to the rest of manufacturing. Productivity increases, when detectable, result from the even faster declines in employment.

Links to ungated versions would be appreciated.

UPDATE: Cook here, Acemoglu here.

As the Economy Churns

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Mark Perry finds an article by Richard Foster, who wrote,

US corporations in the S&P500 in 1958 remained in the index for an average of 61 years. By 1980, the average tenure of an S&P500 firm was 25 years, and by 2011 that average shortened to 18 years based on seven year rolling averages. In other words, the churn rate of companies in the S&P500 has been accelerating over time

It seems to me that this is just one of many important structural changes that have taken place in the U.S. economy since 1960. It seems very unlikely that the same macroeconomic behavior would be observed today as was observed in past decades when the labor force had different education levels and a different gender mix, when corporate turnover was lower, when we lacked computers for inventory management, when there were restrictions on interstate banking, and so on.

Mankiw on the Chetty Paper

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He writes,

Chetty et al. finds that the regression of kids’ income rank on parents’ income rank has a coefficient of 0.3. (See Figure 1.) That implies an R2 for the regression of 0.09. In other words, 91 percent of the variance is unexplained by parents’ income.

I would be willing venture a guess, based on adoption studies, that a lot of that 9 percent is genetics rather than environment. That is, talented parents have talented kids partly because of good genes. Conservatively, let’s say half is genetics. That leaves only 4.5 percent of the variance attributed directly to parents’ income.

Read the whole post. In fact, if the correlation between kids’ income and parents’ income is only 0.3, then this is considerably lower than the heritability of many other traits.

Save the Death Panels!

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Thomas A. Firey writes,

imagine how quickly and dramatically the iPAB provisions will be altered when the news media begin reporting on how some telegenic children or senior citizens will be deprived of vital medical treatment because of the pencil-pushing decision of some isolated group of bureaucratic eggheads…I submit that no legislative language or one-time “repeal window” will prove an impediment to presidential directives and congressional action to countermand IPAB recommendations or terminate the board altogether.

He cites previous attempts by government agencies to highlight cost-ineffective medical treatments. When the firestorm hits, the politicians cave.

Too bad. When people ask me what I think of Obamacare, I always say that the aspect that its best feature is the death panels.

The Propagation Issue

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In the event featuring Tim Harford and Alex Tabarrok, this issue came up. The issue is how fluctuations in output and employment become broad and long-lasting. For advocates of real business cycles, the challenge is to explain the breadth of a recession. For example, if you want to say that the recession in 2009 came about because we overbuilt housing, you have to explain why so many other sectors declined. To standard macroeconomists, the breadth of the slowdown requires an aggregate-demand story.

On the other hand, as Alex points out, the many years over which the high unemployment has played out raises questions about the aggregate-demand story. In the AS-AD paradigm, sticky wages and/or prices play a crucial role. But five years on, are sticky wages such a plausible story, given all the churn that has taken place in the labor market? Alex also challenges the idea that “menu costs” could account for price stickiness lasting so long and with such devastating effects.

Personal-Brand Journalism

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The Washington Post (hardly a disinterested spectator) looks at the phenomenon, focusing on Andrew Sullivan.

It’s not clear that Sullivan’s relatively slow start as his own boss says much about the prospects for others who want to do the same, says Rick Edmonds, the media-business analyst for the Poynter Institute, a journalism education organization. Greenwald, Silver, Mossberg and the others, he notes, have deep-pocketed backers who can afford to sustain years of losses and experimentation.

I have thought about the issue of “Information wants to be free but people need to get paid” for close to 20 years now. Here are my views, as articulated in 2001.

One alternative that cannot be exhausted soon enough is banner advertising. I have been eager to see this concept die since it first was introduced in 1995. Another alternative that I believe should be euthanized is the subscription model for individual periodicals. The marginal cost of distributing the publications online is zero, so subscription models are very difficult to sustain. Finally, there is the alternative of micropayments, meaning small payments for access to particular slices of information. I am now persuaded by Clay Shirky’s argument that the mental transaction costs involved in micropayments are too high to make micropayments workable.

Ultimately, I think that a new form of content aggregator might get away with charging for subscriptions. The Washington Post is a content aggregator, but it is based mostly on its legacy model. On the Internet, you could become a very different aggregator. You could negotiate with individuals and publications around the world to obtain the ability to bundle their content into a subscription service. As a consumer, I might pay $10 a month to a service that offers me everything I like to read. But I am unlikely to pay even $2 a month to read just on blogger or to get behind one newspaper’s paywall. As I put it in 2001,

For an economic model, I continue to recommend the idea of “clubs.” A club would provide content aggregation, recommendation, and annotation services. Journalists would be paid by clubs, rather than by individual publications. For a consumer, joining a club will provide access to value-added services relative to online content. Most of the articles that you are able to read when you join a club may be freely available without joining the club. What your membership fee would give you is better access to individual authors, as well as to indexing tools and cross-reference tools. Some of these tools would be provided by community members, as in the Amazon book lists. The raw content is not what you are paying for. The haystack is free. But if you want help finding the needle, you have to join the club.

Over the years, I have become a bit less optimistic about the “club” model and more inclined to predict an outcome in which journalists require patronage for support. In some sense, Andrew Sullivan is using a patronage model. However, I think that patronage is most likely to come in the form of support from a few wealthy donors than from a broad base of subscriber-donors.

The Case Against Y = f(K,L)

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1. You want to use it to explain incomes. But you end up having to make up all sorts of alternative types of capital in order to do so.

2. It makes it seem as if you found a planet identical to earth and inhabited only by hunter-gatherers, that you could give them all the equipment that we use to make a brand-new Honda, combine this K with their L, and produce said Honda.

3. In general, it completely overlooks the path-dependency and context-dependency of the value of capital and of labor skills. Fischer Black’s theory of economic fluctuations is focused on the fact that people make investments in an uncertain environment, and sometimes a lot of those investments turn out sour. The way I would put it is that people start down paths expecting them to lead one way, and then the paths do not lead where they want.

In general, it might be better to think of production “paths” rather than production functions. The path enabling the hunter-gatherers to build a Honda would be long and complex. It would include general-purpose technologies, like language, writing, electric motors, the internal combustion engine, computer chips, and radio-frequency communication. It would include the accumulation of human skills, know-how, infrastructure of various kinds, business norms, and regulations.