EconLog
Issues and insights in economics Edited by Arnold Kling and Bryan Caplan
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- Roberts Rules, by Arnold Kling
The New York Times turned Russ Roberts loose, along with some other economists, on the Republican Presidential debate. One of Roberts' comments:
Mr. Romney is asked if he still supports trade even though weve lost 5 million jobs to foreign trade since 1989. Mr. Romney should say, Thats fewer new jobs than the economy produces in THREE MONTHS. Foreign trade cant be the source of our economic challenges. Unfortunately, Mr. Romney answers like a good mercantilist, an economic position that was first put forward in the 14th century and has been out of favor among economists since 1776 when Adam Smith shot it down. (John McCainthis would be a good place to mention that book you did before).Trade is good, Mr. Romney explains, because we get to sell stuff to foreigners. He claims that the average American family benefits $9,000 a year from EXPORTS because so many Americans work in the export sector. Weird number. Weird idea. Only a minority of Americans work in the export sector so using the average is a meaningless measure of how the TYPICAL American benefits. The only reason to trade with the rest of the world is to be able to IMPORT. The only reason you export is because foreigners want something for what they send us.
It would be fun to see Roberts debate the candidates face to face. Maybe they'll agree to appear on a podcast...
Tue, 09 Oct 2007 18:27:28 -0500 - Odyssey Years, by Arnold Kling
People who were born before 1964 tend to define adulthood by certain accomplishments moving away from home, becoming financially independent, getting married and starting a family.In 1960, roughly 70 percent of 30-year-olds had achieved these things. By 2000, fewer than 40 percent of 30-year-olds had done the same.
Read the whole thing. Brooks' economics is often execrable, but his sociology seems on target (but I'm no sociologist).His term "odyssey" is quite apt. Young people today do a lot more foreign traveling than they used to.
My wife's view of the odyssey years is not so sanguine. She sees a failure of college to provide a transition to the job market.
Ben Casnocha strikes me as someone who is doing a lot of things right as a young person. He also strikes me as someone who ought to benefit from college, unlike the majority of young people who just happen to show up there. His perspective will be interesting to follow.
Tue, 09 Oct 2007 07:42:46 -0500 - The Nonprofit Boom, by Arnold Kling
in a few decades we'll find that most people will produce services and products that could be produced as easily in the nonprofit sector as in the profit-making one. Some cities like the District are harbingers of that new reality. It's not just that nonprofits employ 25 percent of private-sector workers in the city and more than 10 percent in the region, according to a report of the Nonprofit Roundtable of Greater Washington. Roughly half of the area's private-sector workers are in fields related to information and health care. Add in government workers, and these fields dominate.
For several years, my line has been, "I'm hoping that one of my daughters works for a profit." I thought that their goal of working for non-profits reflected misplaced idealism. Instead, it apparently represents catching the wave of business trends.In fact, daughter #2's first job is as a research assistant for what amounts to a consulting firm organized as a nonprofit. It shows that Steuerle is correct about the fuzzy boundary between profit and nonprofit.
Why the trend toward nonprofits? Steuerle says that on the demand side, as we get wealthier, there is more government spending, some of which is channeled through nonprofits, and also more private charitable spending.
On the supply side, the information-intensive white-collar sector does not require much in the way of capital. If you don't need investors, then you do not need to organize as a for-profit corporation. I would add that if you organize as a nonprofit then you can avoid paying corporate income taxes, which are unusually high in this country.
Tue, 09 Oct 2007 06:47:23 -0500 - Why is Africa Still Under-developed?, by Arnold Kling
Megan McArdle asks this question more colloquially.
there's a whole, very large literature on why Africa is particularly screwed up. The awful climate under which most of it labors. The bad maritime geography: apparently one of the two coasts offers extremely little scope for building ports, the rivers don't go where you want them, and when they do happen to meander near something interesting, they are hard to navigate. The huge patchwork of ethnicities. The bad borders--in Asia, borders were drawn somewhat along ethnic power lines, whereas in Africa, they were drawn mostly to suit the convenience of whatever western country wanted to do business there after the colonian powers left, and there is an emerging literature indicating that border that cut across ethnic lines are a recipe for conflict, and thus poverty. The unique medical problems of Africa...
Roughly speaking, I would classify the factors that have been introduced into the discussion into the following categories:1. Physical factors, including transportation difficulties and climate.
2. "Top-down" institutional factors, such as poorly-drawn colonial borders, or corruption reinforced by the "resource curse" and the "aid curse" (unearned wealth tending to foster corruption more readily than earned income).
3. "Bottom-up" sociological factors, such as bitter ethnic rivalry or low IQ.
At last Friday's Cato luncheon featuring Gregory Clark, Clark emphasized that settled agriculture is a much more arduous lifestyle than hunter-gathering (he said if he had to be tossed back in time prior to 1800 he would rather be placed in a hunter-gatherer society than in an agricultural one). To get the same amount of food, the civilized farmer has to work a much longer day.
When a modern factory becomes available, it's not such a great stretch for a farmer to adapt. But for a hunter-gatherer, the long work day and monotonous nature of labor are really alien. Thus, it was much easier for Japan or China to eventually industrialize than it has been for Australian aboriginals or for Africans.
UPDATE: lots of good comments. Some folks, who seem to know more than I do, say that Africa had mostly settled agriculture. Also, some links to interesting sites, such as a chart ranking the institutional quality of sub-Saharan African nations (Botswana is #3, Zimbabwe--as of 2005--is 31, ahead of 17 others)
Mon, 08 Oct 2007 18:35:19 -0500 - Crime Fiction versus Crime Fact, by Bryan Caplan
I'd guess that fictional serial killers outnumber real serial killers by at least 100:1. After all, how many movies and t.v. shows are there about serial killers - and how many are there in real life? That's hardly surprising - serial killers are ideal dramatic villains. If they didn't exist, it would be necessary to invent them. And since they are virtually non-existent, it often is.
What's more surprising to me, though, is that fictional prison murders outnumber real prison murders by a similar ratio. As Steve Levitt explains:
In 2005, 56 prisoners were murdered. There are roughly 2 million inmates held in state prisons, meaning that the homicide rate per 100,000 prisoners last year was only 2.8. That number is less than half the rate of New York City (6.6 per 100,000) and an order of magnitude lower than Baltimore (42 per 100,000). Indeed, of the 66 largest cities in the United States, only El Paso, Tex. and Honolulu, Hawaii have lower homicide rates than the state prisons.
In short, the number of prison murders on the shows Prison Break (which I love) and Oz (which I don't) roughly adds up to the actual annual total for the nation.What gives? Here's the voice of experience:
[P]risons are incredibly highly controlled environments. Whenever I have visited prisons, I have been amazed at how safe I felt. In contrast, when doing ride-alongs in police cars, Ive always had the feeling that something crazy could happen at any moment.
Mon, 08 Oct 2007 13:38:39 -0500 - The Cultural Relativism of Columbus Apologists, by Bryan Caplan
Critics of multi-culturalism often mock its proponents for (a) cultural relativism and (b) disrepecting Columbus. The problem, as I've explained before, is that Columbus was a pioneer of slavery and barbarism. The only way to excuse his behavior is to say "Oh, you can't judge Columbus by our standards. In those days, people thought that slavery was OK. Everyone was doing it."
If that excuse makes sense to you, you're a cultural relativist. Change your heroes, or change your meta-ethics!
Mon, 08 Oct 2007 12:41:39 -0500 - Becker vs. Caplan, by Arnold Kling
the evidence that has been accumulated since Schumpeter's book gives good marks to free market systems in promoting the interests of the poor and middle classes, including minorities. And examples abound of corrupt and incompetent government officials who either mess things up for everyone, or promote these officials' interests. This evidence has impressed the man and woman in the street, but intellectuals are more removed from the real world, and tend to rely on and trust ideas and intellectual arguments.This would be my primary explanation for the questions raised by Posner about why faculty (and I add other intellectuals too) have become further to the left of their students and the general population. In effect, intellectuals have changed their views far less than other groups in response to the evidence. While intellectual opinions have stood rather still, the general population has moved their thinking against government solutions and toward solutions that use markets and other private transactions and relations.
Bryan's reading of the evidence is that well-educated people are more likely than others to support free trade and markets in general.But Caplan is talking about absolute levels of support, and Becker is talking about trends. And I agree with Becker about the trend in academia relative to the trend in the public at large.
As Alex Tabarrok's Bon Mot suggests, today it is the faculty who are inflexible. In fact, I argue that over the past 50 years, faculty have switched places with corporate CEO's in terms of intellectual flexibility.
In 1957, a typical CEO did not arrive at his view of the world through broad reading or keeping up with developments in the natural and social sciences. Instead, his (no need for a gender-neutral pronoun in 1957) opinions came from the prejudices of those within his narrow circle.
Today, that describes academia better than it describes corporate CEO's.
I should point out that I believe that Becker is too optimistic in his view of the general public. I do not think that pro-market sentiment runs particularly deep. True, people seem to have low trust levels in political leaders. But I do not see that stopping the politicians from expanding government's grip on health care, education, etc.
UPDATE: Lots more data and analysis of academic political views summarized here. The paper is here. Incidentally, I worry about people who self-describe as "moderates." That description depends a lot on context. I could describe myself as a moderate compared with Don Boudreaux or Bryan Caplan, but many people would regard my views as radical.
Thanks to Tyler Cowen for the pointer.
Mon, 08 Oct 2007 06:42:52 -0500 - Malthusian Myopia, by Bryan Caplan
The Malthusian model is not as crazy as Greg Clark's interpretation of it in A Farewell to Alms (here's Clark's reply; here's my rebuttal, with a second reply from Clark in the comments). But even correctly interpreted, the Malthusian model is deeply flawed.
A key assumption of the Malthusian model is that when population goes up, average living standards go down.
Intuitively, this make sense: When more people share a pie, each slice gets thinner. And in the short-run, this Malthusian assumption is clearly correct. When a couple has its first child, the family's per-capita income plummets by one-third. Clark documents, similarly, that when repeated plagues cut England's population in half, living standards for the survivors roughly doubled.
But here's the problem: As Michael Kremer and especially Julian Simon explain, there are powerful long-run effects of higher population that go in the opposite direction. Most notably:
1. More people increase both the supply and demand for new ideas.
2. More people make it possible to exploit economies of scale - including scale economies of transportation and communication.
3. Since human diversity rises with human population, more people allow for efficiency gains from specialization and trade.
These effects could easily suffice to overpower the Malthusian diminishing marginal returns effect, so the right diagram looks like:
If this seems implausible, imagine a world populated by a million immortal, sterile human beings at the hunter-gatherer level. There's plenty of land per person, but that's hardly enough to give you the Internet, the airplane, German opera, or any of the countless wonders that we take for granted. How long would it take these million immortals to invent our standard of living? Would the sun burn out first?
A Farewell to Alms briefly acknowledges population benefit #1: "There is clearly a core of sense to the idea that increased population size, the product of past technological change in the preindustrial era, increased the rate of technological advance." (p.228) In comments on this blog, Clark makes the point more strongly: "And indeed the book accepts that one of the things bringing about the Industrial Revolution was the much greater population of the world in 1800 than in 100,000 BC." But this admission plays almost no role in Clark's larger story - and it absolutely should.
Once you accept the long-run benefits of higher population, praising the Black Death for raising the average standard of living is severely myopic. Halving the population may double the standard of living of the survivors in the short-run. But in the long-run, a smaller population delays the arrival of modernity. On Clark's account, it took England about two centuries to return to its pre-plague population. On his own terms, then, it is entirely possible that - but for the plague - the Industrial Revolution would have begun two centuries earlier.
In fact, once you take the long-run benefits of population on living standards seriously, the "Malthusian trap" takes on an new cast. Perhaps the real trap is that you have to be pretty rich to keep a big population alive long enough to reap the long-run benefits of a big population. For the pre-modern era, this story fits the facts as well as Clark's, but it has the added virtue that it fits the facts of the modern era as well.
Update: Clark responds in the comments.
Sun, 07 Oct 2007 12:02:59 -0500 - Mandatory Health Insurance?, by Arnold Kling
Glen Whitman writes,
To enact any mandate, legislators and bureaucrats must specify a minimum benefits package that an insurance policy must cover. Yet this package can't be defined in an apolitical way. Each medical specialty, from oncology to acupuncture, will push for its services to be included. Ditto other interest groups. In government, bloat is the rule, not the exception.
What I say about mandatory health insurance is that I can be for it in theory but not in practice. That is, I might support mandatory catastrophic health insurance, meaning a high-deductible policy with narrow coverage.But that is like saying I could be in favor of unicorns. No one is ever going to see mandatory health insurance plans that are narrow in coverage and have the kinds of deductibles that I consider to be high. The way that the Romney mandate worked out in practice, the mandates in mandatory coverage were so broad that 600,000 people who had health insurance before the law was passed were told that their plans no longer qualified as health insurance in the state of Massachusetts.
Also, the Massachusetts idea of a high-deductible policy is $1000 or $2000, which is less than one-third of average annual per capita health care spending in the state. My idea of a high-deductible policy would be something like $10,000 or $15,000 a year. Better yet, a five-year deductible of, say, $30,000.
Needless to say, my idea of an appropriate health insurance policy would not be allowed in any state. Health care providers would go ballistic.
Thanks to Tyler Cowen for the pointer.
UPDATE: Tyler has more good points to make.
Sun, 07 Oct 2007 07:49:37 -0500 - The Golddigger's Dilemma, by Bryan Caplan
Here's a thoughtful question from an unabashed golddigger:
Are there any guys who make 500K or more on this board? Any wives? Could you send me some tips? I dated a business man who makes average around 200 - 250. But thats where I seem to hit a roadblock. 250,000 wont get me to central park west. I know a woman in my yoga class who was married to an investment banker and lives in Tribeca, and shes not as pretty as I am, nor is she a great genius. So what is she doing right? How do I get to her level?
My best guess is that the "plain jane" boring types were rich before they got married. The upshot is that rich guys don't have to worry that they are just after their money. As I explained in one of my favorite posts of yesteryear:[...]
Why are some of the women living lavish lifestyles on the upper east side so plain? Ive seen really plain jane boring types who have nothing to offer married to incredibly wealthy guys. Ive seen drop dead gorgeous girls in singles bars in the east village. Whats the story there?
[T]he fact that people don't want to be married for their money explains some puzzles about the marriage market. For one thing, it explains why people prefer to marry within their social class. If you're rich guy, you would rather marry a rich girl because you know she's not after your money. If disaster struck her family fortune the day after the wedding, you might not care at all about the financial loss, because at least you know that she married you for yourself.
In short, my answer to the golddigger's question is if you have to ask how to marry a rich guy, you probably can't afford one.HT: Tyler via Megan via Thomas Hawk.
Sat, 06 Oct 2007 18:34:15 -0500 - My Contigency Plan, by Bryan Caplan
After this morning's lecture on the life cycle model, I explained to my students that I'm never going to retire. Why would I give up a decent fraction of my income and most of my social network, when a professor's only observable responsibility is teaching 6 hours of class 30 weeks a year?
One sharp student shot back: "What if you get Alzheimer's?"
Good question. My answer:
"I'll teach intro."
Fri, 05 Oct 2007 23:52:30 -0500 - Stanford Marshmallow Experiment, by Arnold Kling
I went to hear Greg Clark give a noontime seminar at Cato today. He is fairly persuasive in person. One thing about pursuing a line of thought for a long time when most people disagree with you is that your arguments tend to get pretty sharp.
During the discussion afterward, somebody brought up the Stanford Marshmallow Experiment. You can Google that subject to find out much more, but here is one site that mentions it.
In one of the most amazing developmental studies ever conducted, Walter Michel of Stanford created a simple test of the ability of four year old children to control impulses and delay gratification. Children were taken one at a time into a room with a one-way mirror. They were shown a marshmallow. The experimenter told them he had to leave and that they could have the marshmallow right then, but if they waited for the experimenter to return from an errand, they could have two marshmallows. One marshmallow was left on a table in front of them. Some children grabbed the available marshmallow within seconds of the experimenter leaving. Others waited up to twenty minutes for the experimenter to return. In a follow-up study (Shoda, Mischel, & Peake, 1990), children were tested at 18 years of age and comparisons were made between the third of the children who grabbed the marshmallow (the "impulsive") and the third who delayed gratification in order to receive the enhanced reward ("impulse controlled").The third of the children who were most impulsive at four years of age scored an average of 524 verbal and 528 math. The impulse controlled students who scored 610 verbal and 652 math! This astounding 210 point total score difference on the SAT was predicted on the basis of a single observation at four years of age! The 210 point difference is as large as the average differences between that of economically advantaged versus disadvantaged children and is larger than the difference between children from families with graduate degrees versus children whose parents did not finish high school! At four years of age gobbling a marshmallow now v. waiting for two later is twice as good a predictor of later SAT scores than is IQ.
The quoted source sees the Marshmallow experiment as showing the importance of emotional intelligence. The economists at the Clark seminar just thought of it as a remarkably reliable indicator of general intelligence--apparently even better than IQ. Also, the economists see this as a measure of time preference, rather than impulse control. That may be more than a mere matter of terminology.Clark's view of the world is that differences in average individual characteristics, such as time preference, account for a lot of differences in the standard of living, even holding things like institutions constant. He acknowledges that places like North Korea and Zimbabwe are poster children for the role of institutions, but he warns us not to get caught up in confirmation bias. There are, he argues, also quite a few poster children for countries where institutions appear to be decent, but poverty is still severe.
Anyway, if you, like me, were unaware of what clearly must be a classic in empirical psychology, consider yourself enlightened.
Fri, 05 Oct 2007 18:05:41 -0500 - What Racism Is, by Bryan Caplan
Megan asks, "What is racism?":
Part of the problem with talking about race and gender in America is the definition of racism and sexism. Most of us use a working definition of racism and sexism that is something like "Holding (bad) false beliefs about racial minorities and women". But if that is our definition, everyone is going to fail a racism/sexism self-check: no one believes that their own beliefs are false.
Under the influence of the economics of discrimination, I distinguish between:(1) Pure aversion/dislike/hatred of members of a group.
(2) Aversion/dislike/hatred of members of a group caused by what some members of their group did. (In short, assigning collective guilt).
(3) Having unrealistically negative beliefs about the average characteristics of a group.
(4) Having realistically negative beliefs about the average characteristics of a group.
So where do you draw the line of racism/sexism/etc.?
(1) instantly qualifies.
(2) also seems clear-cut, but don't be hasty. It depends in large part on whether group membership is a choice. To hate all Germans for the Holocaust is racist (or chauvanist, anyway). To hate all Nazis for the Holocaust is not.
(3) is often evidence of (1) or (2); people easily rationalize pure hatred into false accusations. But by itself, (3) could just reflect a mistake, and we all make mistakes.
(4) isn't racist/sexist at all. Constantly pointing out the shortcomings of another group could be symptom of (1); but on the other hand, it could easily be a response to unjustified accusations of (1).
Fri, 05 Oct 2007 11:53:32 -0500 - Surowiecki's Levy and Peart's Mistake, by Bryan Caplan
In my book, I reference Surowiecki's "guess-the-weight-of-an-ox" anecdote. My colleague David Levy and his co-author Sandra Peart show that isn't quite right. Contrary to Surowiecki, Galton reported the median guess, not the mean - which was reported by Pearson years later. (Since my account doesn't mention Galton or Pearson, I said nothing false; but I was thinking something false...)
For historians of thought, Surowiecki's error is serious. But note that Levy and Peart don't claim that Surowiecki's numbers are incorrect. Surowiecki correctly reports the mean of the distribution; he just failed to correctly report who calculated that mean.
On reflection, moreover, it's clear why Surowiecki wanted to report the mean. As he explains at length, it's possible for the mean guess to be more accurate than any individual's guess. It's not possible, however, for the median guess to be more accurate than any individual's guess - because the median guess IS the guess of the median individual!*
The other funny thing: Despite Levy's love of medians, this is an example where the mean is closer to the truth!
* Unless there is an even number of respondents, and the two middle respondents disagree.
Update: By their own admission, Levy and Peart didn't check Surowiecki's footnote. Galton provided the mean guess in a letter to Nature. My apologies to James Surowiecki for repeating their mistake.
Fri, 05 Oct 2007 11:41:43 -0500 - Bon Mot, by Arnold Kling
From Alex Tabarrok:
In fact, liberalism, meaning classical liberalism, has never been conservative. It began as a movement of the left against feudalistic, conservative insiders and it remains so today.
Fri, 05 Oct 2007 09:48:32 -0500
