You are currently browsing the monthly archive for March 2010.
Are we seeing the Werther effect happening in india?
…these politically motivated deaths are just one aspect of a troubling trend. Suicide has become something of a phenomenon in India, especially in the south, which now has one of the highest suicide rates in the world — a fact that has both puzzled and alarmed public health experts
If so, you may want to keep your eyes to the sky.
A common framework for economic analysis is to assume that people attempt to maximize lifetime utility subject to a discount rate. But should economic analysis be concerned that your future self has different preferences than your current self? Are you really two different selves whose desires should then be weighed separately? A new paper from the Boston Fed argues that neuroeconomic evidence suggests that the answer may be “yes”, because when we make choices that affect both our current selves and our future selves, we think about the preferences of our future self in the same way we think about the preferences of a different person:
…our central idea is that essentially the same brain system is utilized when individuals attempt to predict or empathize with others and when they attempt to predict or empathize with themselves in the future.
So if the way we think about our future selves is as distant as we think about strangers, then is our current self really adequately considering the wants of our future selves when they make choices that affect our selves in the future? This naturally raises the question of whether and to what extent the state should protect our future selves from the actions of our current selves.
If one seriously considers the future self as a separate self, it seems to me a serious challenge the Szaszian idea that mental illness is just extreme preferences and that suicide should be respected and allowed as a legitimate exercise of choice; if our future selves are separate selves, then suicide is murder.
One way to incorporate this into policy making would be to consider not just the individuals who be affected today by policies, but also how their future selves will ex ante view the policy. For instance, we would consider how people who were “nudged” into quitting smoking by high cigarette taxes feel about the desirability of those taxes both before and after they quit.
Behavioralists who are pleased to see a new justification for their favorite paternalism-lite policies should not celebrate so quickly. Behavioral economic studies that demonstrated seemingly irrational choices may no longer be inconsistent with rational agents when you consider present and future selves separate agents.
People who think that economists are intellectual turf-grabbers probably aren’t going to like this one.
Climate change policy should be a conceptual challenge for the Tea Party movement. Realistically, doing nothing is not a option; even if Tea Partiers are climate change skeptics, it is undeniable that the majority of the public are not, and will not be persuaded otherwise. Nor can you tax cut or deregulate your way out of the problem. So what policy should the Tea Partiers support? If they were pragmatic, they would support this:
Two senators, Maria Cantwell, Democrat of Washington, and Susan Collins, Republican of Maine, have proposed an alternative that they call cap and dividend, under which licenses to pollute would be auctioned to producers and wholesalers of fossil fuels, with three-quarters of the revenue returned to consumers in monthly checks to cover their higher energy costs.
Ms. Cantwell…said her bill would require every pollution permit to be auctioned rather than given away and was 39 pages long, compared with Waxman-Markey, which weighs in at some 1,400 pages.
Among all politically possible outcomes for climate policy, a transparant and simple auction that returns the proceeds to consumers is the best outcome that small government Tea Partiers could hope for. If they were pragmatic they would jump on this and do what they can to prevent alternatives like the 1,400 page Waxman-Markey bill:
But in trying to assemble a majority to pass it, Mr. Waxman and Mr. Markey dished out a cornucopia of concessions and exemptions to coal companies, utilities, refiners, heavy industry and agribusinesses. The original simplicity was lost, replaced by a bazaar in which those with the most muscle got the best deals.
Of course, it is difficult to sloganeer and protest in favor of second best options, and I’m not sure this emergent movement is capable of expressing itself any other way.
On to debt – karl’s points, again, are on target in general. But in terms of effect on our ability to maintain or improve our standard of living, no and in the future, there are some real affects of debt. Karl states, ”
However, at the macro-scale resources have to be transferred out of the economy at the time they are used. There is no way to teleport resources from the future to now. Therefore, the argument that we are borrowing against our future is largely an accounting fiction. Resources that are used to today must be produced today and must detract from consumption or investment that occurs today.
Ryan Avent wonders whether Walmart can do for local communities what the federal government cannot:
Wal-Mart clearly has market power, which it occasionally uses abusively, if not necessarily illegally. But sometimes, it uses its market power to accomplish things government entities are unwilling or unable to accomplish—pressing environmental standards on its suppliers, for instance, or reining in abusive lenders.
I have previously expressed support for this idea, especially with respect to China, where local governments are even less willing and able to accomplish do things that are necessary for well functioning societies.
Avent was pivoting off of Matt Yglesias, who was calling for Walmart to get into banking for the benefit of consumers. Avent agreed, especially with regard to payday lending, arguing that more competition may be just what that market needs, which I have also called for.
So what are the other common public policy goals that Walmart could accomplish?
One obvious example is “food access”, which misguided politicians often believe is their responsibility. If there’s one thing Walmart does, it’s provide a large variety of inexpensive foods to people. With widespread unemployment, their drive to bring food prices down will also help struggling households by increasing their real income- meaning each of their dollars will buy more stuff.
Another possibility is that they could replace the Post Office in many areas. One suggestion for scaling back the USPS to a sustainable level is that they should close down some of their 32,000 offices that serve very few people (I’ve read that their are 2,000 locations that serve less than 100 people, but I can’t remember the source of that claim). In those communities that lose a post office, Walmart and other grocery stores could serve as a post office, where they drop off and pick up mail.
Other suggestions?
Maureen Responds
Responses, following in rough order Karl’s comments.
First, I disagree with his objection to lumping social security, medicaid and medicare into one concept. Of course, these are extremely different substantive programs. But they are, as Karl points out, all entitlements. This is a budgetary, legislative distinction that sets them apart from most other federal spending (which is either mandatory (read interest on the federal debt) or discretionary, meaning subject to an annual budgeting process. For spending patterns in entitlement programs to be changed requires a change in the substantive content of the law – that is, a change in level of benefits, change in qualifications for receipt of benefits. This is a different, and MUCH more difficult, legislative process than other budgetary decisions, and much, much, more difficult. It means changing authorization legislation through a different committee structure. Long term patterns (50 years plus) in outlays in these programs an incrementally growing, even through major changes to legislation and changes in political parties. There has been NO major change in the long-term growth of these programs. In budget terms, all entitlements face the same budgetary patterns, same oversight structures, and same legislative barriers to change, and thus, I am all for the idea of socialsecuritymedicaremedicaid if we want to consider their budgetary impact. My dissertation was on this topic, so I am happy to share the data on this. Now I agree that changes to provide fiscal stability for each may be different, but their growth has a similar impact on the rest of government spending and everything related to it.
I wrote this as part of a inter-department debate on fiscal policy. Thought it might be interesting to a wider audience
My Colleague Maureen Berner points the following video on the debt
The video, which is well done, is convenient in that it collects every misunderstanding about fiscal policy in one place. I’ll try to address a few of the issues
Robin Hanson points to a fascinating article on the lack of experimentation in business.
This is a typical case, I’ve found. I’ve often tried to help companies do experiments, and usually I fail spectacularly. I remember one company that was having trouble getting its bonuses right. I suggested they do some experiments, or at least a survey. The HR staff said no, it was a miserable time in the company. Everyone was unhappy, and management didn’t want to add to the trouble by messing with people’s bonuses merely for the sake of learning. But the employees are already unhappy, I thought, and the experiments would have provided evidence for how to make them less so in the years to come. How is that a bad idea?
This might go towards answering a question that has puzzled me for some time. Why isn’t the productivity growth rate speeding up? I am sure there are multiple underlying factors but one clear concern is that an increase in the speed of technology development does not seem to be leading to large increase in productivity. At least not at rates that seem plausible.
Some of this is undoubtedly because of changing factor prices. Technology makes manufacturing, for example, more productive but that simply spills extra workers into retail. This drives down wages and makes investments in retail technology less profitable.
Still, you would think that organic technological progress should be speeding up. That is, the rate at which businesses think up new and better ways of doing business. Yet, its not. A reluctance to use methods that have proven so useful in scientific development may be part of the reason why.
Though not nearly as strong as it sometimes appears the liberal U seems to be present in this Gallup poll on the Health Care Reform
The poor support it overwhelmingly. The affluent support it mildly and the middle class is against it.
What’s ironic is that according to the Washington Post calculator you stop getting benefits from HCR right around 90K. Just another nail in the coffin of the “people vote their wallet” hypothesis.
I truly lament that I am getting to the point where I have real trouble understanding folk-economics. Unlike many economists I explain economics to a non-captive, non-economist audience regularly. Yet, still the ability to understand some of their thinking is slipping.
Here is an example. Ken Hoagland writes to the National Review to complain about an article that criticized the Flat Tax. He says
No, Mr. Ponnuru, the FairTax does not solve illegal immigration, but it does bring millions of illegal immigrants into the tax base as consumers — as well as the illicit profits, when spent, of drug dealers and others in the $1.5 trillion–a–year underground economy. The dramatic expansion of the tax base achieved by taxing consumption instead of earnings was ignored by Mr. Ponnuru, and answers his apparent bewilderment at how various income groups can all benefit under the FairTax without tax revenue declining.
Now, it just seems inescapable to me that if the Flat Tax sweeps these folks into the tax base by taxing their consumption, it must likewise sweep part of our consumption out of the tax base when we buy their services. That is, the drug dealer now pays tax at the grocery store but I now avoid taxes when I buy drugs.1
I am not sure how you think about this issue without that occurring to you, but apparently Mr. Hoagland has.
Now, of course I usually rail on the Flat Tax on the grounds that it will drive more people into the underground economy since the profit margins from doing so are so high. This is unlike a VAT in which the benefits from tax evasion are roughly proportional to ones legal profits.
However, to think that the Flat Tax eliminates underground evasion is just wild to me.
(1) Note to Mothers and Employers: I am using the philosophic “I” by which I mean one. Not me of course.
Megan McArdle is worried about politicians passing legislation that isn’t supported by the voters:
Are we now in a world where there is absolutely no recourse to the tyranny of the majority? Republicans and other opponents of the bill did their job on this; they persuaded the country that they didn’t want this bill. And that mattered basically not at all. If you don’t find that terrifying, let me suggest that you are a Democrat who has not yet contemplated what Republicans might do under similar circumstances.
My question is this: is there anything we can do to fix the long-term fiscal problems of this country that won’t be opposed by the majority of the population? From where I’m standing, any path out of this fiscal mess is going to involve politicians making hard, unpopular choices. We’ve got some bitter pills to swallow, and since we are about to use up some of least painful cost savings in this upcoming bill, the pills just got even more bitter.
If Megan is correct, and tomorrow we are going to wake up in “a different political world” where it is easier for parties to pass large, important legislation that doesn’t have broad public support, then I say good riddance. We’re going to need some.
It appears that Pharmaceutical stocks are doing well in the wake of Obamacare. The biotech index seems to be to the plus side as well. This is important information as the Intrade contract on health care reform passing was significantly lower when the market closed on Friday.
My primary concerns surrounding the healthcare overhaul is that it would lead to shrinking profits in pharma and biotech. As of right now that doesn’t seem to be a major fear.
I’d like to start buying e-books for their convenience, but I cannot break myself from the habit or concept of owning physical books. I can not flip through a Nook as fast or effectively as an actual book; I can go 200 pages forward, 50 backwards, and 15 forward, as fast as I can turn a single page in a Nook. On the other hand, I can’t “search” a physical book like one can search Google. I’d rather read a digital version if I’m traveling, but the physical version at home. There are reasons for wanting both a physical copy and a digital copy, and really, I want both. But I can’t shake or tolerate the feeling that if I bought both digital and physical copies I’d be paying for something twice. The knowledge that others elsewhere (almost everyone, in fact) are fine with one or the other makes me feel like I’m buying some extravagantly unnecessary luxury; like a man buying two dinners at a restaurant in case he changes his mind halfway through the meal. I can’t be alone in this.
And this brings me to the puzzle: why doesn’t Amazon practice some price discrimination, and offer me a discount on a digital version when I buy a physical copy of a book?
This is a puzzle because it is a fairly general result that when it is possible to price discriminate it is profitable to do so. And in this case, all the ingredients for effective price discrimination are there.
First off, you’ve got an obvious separating mechanism, that is, a way to divide buyers into groups to whom you can charge different prices. After someone purchases a physical cop of a book, offer them a lower price on a digital copy. This way you can continue to charge the higher price to everyone else.The DRM for the digital copy also provide barriers to resale in the that would prevent arbitrage.
You’ve also got market power. Books are highly heterogeneous books; there really very few good substitutes for Sarah Palin’s autobiography. We know that publishers have the market power to price discriminate since they already do so with hardcover and paperback books. (You didn’t really think the price difference between the two was about the higher cost of making a hardcover book did you? It’s really about willingness to pay and the illusion of cost.)
On top of all of those price discrimination ingredients you’ve got an obvious difference in willingness to pay for the two separable groups of customers. If someone has already bought a physical copy of the book, then on the margin, at a price of zero, they’ve got a pretty darn good substitute for an e-book. Thus they’re going to have a much lower willingness to pay for any given e-book than someone who doesn’t already own the only good substitute for one.
A lower price on a digital edition would allow consumers (e.g. me) to think of it as an add-on or an accessory to a physical book, instead of as buying the same thing twice. Removing this conceptual barrier will increase the value of e-readers to many consumers, and quite likely sell more of them. Not only that, but for Amazon this is a bundling of goods that digital-content-only Apple can’t offer, which gives Amazon a competitive advantage.
So please, Amazon, won’t you price discriminate against us?
Diane Ravitch has become the education reform movement’s Benedict Arnold. After turning against the accountability and school choice reform movement she once staunchly promoted, she has been hitting the op-ed pages and is now taking part in a debate at TNR. Unlike some critics, both reform and anti-reform, I won’t begrudge her changing her mind. I think it took a lot of guts to do a public about-face as she has, and I think her willingness to do so lends to her credibility rather than detracting from it.
That said, I want to draw attention to one piece of evidence she that she keeps bringing up, which is that test scores are lower at charter schools on a national level:
The only major national evaluation of charter schools was carried out by Stanford economist Margaret Raymond… Her group found that compared to regular public schools, 17% of charters got higher test scores, 46% had gains that were no different than their public counterparts, and 37% were significantly worse.
I’ve said before that this surprises me, and is in contrast with much of the evidence I’ve seen, so I decided to dig up the study that she refers to and take a closer look.
The first thing to note is that the negative results are a based on a pooled national average, which I’m not sure is all that informative. As the authors and Ravitch both say, the performance of charters relative to traditional public schools varies widely in quality by state:
In five states ‐ Arkansas, Colorado (Denver), Illinois (Chicago), Louisiana, and Missouri ‐ charter school students experienced significantly larger growth… In six states — Arizona, Florida, Minnesota, New Mexico, Ohio, and Texas — charter school students experienced lower learning gains… In four states — California, District of Columbia, Georgia, and North Carolina — the results were mixed or no different…
Some of these low performing states probably have good policy-based reasons that they are low performing. In fact, the study found that “results vary strongly by state and are shown to be influenced in significant ways by several characteristics of state charter school policies”. For example, they found that a cap on the number of charter schools has a negative impact on student performance. The lessons I would take from this are that policies matter for charter quality, the poor performing states should learn from the good, and this may mean removing the cap on the number of charter schools. The only thing this evidence cuts against is Ravitch’s straw-man argument that charters are a magic bullet that will fix everything no matter what.
Given the high variability in state performance, it’s important to take a more detailed look at state policies. Here are how Ohio and Texas did in the Stanford study: 
Pretty terrible, and among the worst in the study. But a recent RAND study had this to say about Ohio’s negative charter school performance:
The dramatically lower estimated performance of Ohio’s K-entry charter schools appears to be attributable not to grade level per se but to virtual charter schools that use technology to deliver education to students in their homes. Virtual schools constitute a large part of the enrollment of K-entry charter schools in Ohio, and students have significantly and substantially lower achievement gains while attending virtual charter schools than they experience in TPSs.
Allowing kids to be home-schooled at “virtual schools” on the internet decreased their academic performance? Gee, that’s a big surprise. I don’t know if schools like this were included in the study Ravitch cites, but this should be a firm reminder of the problem of looking at charter schools as a class without controlling for schools like this.
Another problem state is Texas, about which the RAND study had to this say:
Relative to local averages, prior achievement levels of charter entrants were particularly low in Texas, which could be attributable (at least in part) to the success of the provision in the state’s original charter law encouraging the establishment of charter schools for disadvantaged students.
These pre-existing differences in students again should caution against high level studies, and studies that do not carefully control for selection bias.
I’d be willing to guess that if this national study had shown that charter schools outperformed public schools that reform critics would be protesting that the charters are probably just cream skimming, and the results can’t be trusted. And they’d have a point. Controlling for unobserved differences is really tricky. I haven’t looked closely at how this study does it, but no matter what you do you’re going to have a concern about this problem. This exactly why randomized studies are so important, and why we can have much higher confidence in their results.
One very good recent example is a study based on randomized school assignment in New York City that found drastically positive results for charter students:
On average, a student who attended a charter school for all of grades kindergarten through eight would close about 86 percent of the “Scarsdale-Harlem achievement gap” in math and 66 percent of the achievement gap in English… a lotteried-out student who stayed in the traditional public schools for all of grades kindergarten through eight would stay on grade level but would not close the “Scarsdale-Harlem achievement gap” by much.
Replicating the results of NYC and preventing outcomes like Ohio should be what people who care about students should be talking about and focusing on, not talking points about national averages that don’t address most of the important questions.
I’m not saying the study Ravitch cites tells us nothing. I just think if this the compelling study she’s going to use as a talking point and continue to cite to as an important result then I’m not optimistic about her ability to draw relevent conclusions from empirical evidence.
I recommend this very measured report from the Center for American Progress on what to do with and how to identify ineffective teachers. Nowhere does it mention sending teachers back to school for elaborate retraining and pointless credentialing, or other handouts dressed as reforms, nor does it deny the usefulness of standardized testing. They outline a set of broad guidelines and policies that should be adopted at the federal, state, district, and school level. This strikes me as a serious attempt to define a broad and moderate outline for addressing a serious problem, that if adopted has the potential to result in a fair and effective process for removing bad teachers.
In an article in the Philadelphia Inquirer today about a new study on selling organs, George J Annas, a professor of health law, bioethics, and human rights who opposes compensation, had this to say about whether donors should be allowed to be compensated:
“I think it is out of bounds,” Annas said. “We know we can live with the system we have now. We have no idea about what another system would do.”
A few paragraphs earlier came these statistics:
Last year, 6,453 people in the United States died waiting for an organ. Nearly 92 percent of them died waiting for organs that living donors could have supplied – 4,456 needed a new kidney and 1,452 a liver.
I think Dr. Annas needs to modify his statement: some of us can live with the system we have now, but last year 6,453 could not.
Robin Hanson doesn’t think that self-improving AI is a big deal. Usually this is type of thing is discussed in technologist terms but in a blatant attempt at turf-grabbing I will throw out a simple trial growth model.
Suppose we have an economy described by
Yt = Tt * F(Kt , Lt), where K and L are Capital and Labor and the usual Inada conditions apply
dK/dt = s * Yt – dK, where s is a constant savings fraction and d is a depreciation rate
dL/dt = p(Yt/Lt), where p is an increasing concave function that produces the demographic transition
dT/dt = i() * Tt, where i() is the intelligence function described below
Before self-improving AI, i() is a function of Lt, and Yt/Lt. Where we might assume that the more people there are and the wealthier each one is the greater collective human intelligence. However, we wouldn’t simply say that intelligence is a function of Yt because a society of 10 billion people living on subsistance is probably less “intelligent” than a society of 1 million living with 10000 times the resources per capita. In other words di/dL < di/d(Y/L). All together we will also assume that i() is constant returns to scale.
What this implies is that technology improves, which increases population and slowly increases collective intelligence. However, this effect is limited because population expansion drives Yt/Lt down and hence keeps intelligence from taking off.
At some point, however, p() starts to slow down enough that Yt/Lt rises, this induces a rise in intelligence and hence a rise in income which produces a further rise in intelligence. This is the explosion we call the Industrial Revolution.
However, now p() is falling so that collective intelligence is held back by a limited number of humans doing the thinking.
A Yudkowsky-type intelligence explosion would have i() change modes so that i is a function of T. Yudkowsky suggests that i() under AGI would be increasing returns to scale, intelligence in and of itself would then go critical and we would reach infinite intelligence in finite time. Of course, in reality that just means we hit the ceiling on intelligence in finite time.
I haven’t worked through the math but glancing at the system I don’t think this is necessary. If i() simply goes constant returns to scale in T then the entire economy Yt will go critical in its reproducible factors and the system will still reach infinite wealth in finite time. Or in the real world, the wealth ceiling.
Of course, as an economist I ultimately care about wealth not, intelligence or technology.
So what’s the lesson. Right now, i() is determined by human minds. Which means that either it is limited by the total number of humans or the average wealth of humans and these two things are inversely related. We can have more minds, but then they are poorer minds who have less time to sit and think of new techs.
However, if we can break the mind gap, so that i()is only dependent on the current level of technology then our system can go critical.
Also, a second sort of lesson is that we only need the economy to go critical in its reproducible factors. Technology is one of them but so is ordinary capital.
Robin Hanson recently said that we should count satisfying the preferences of the dead as a benefit in cost benefit analysis. I disagreed, arguing 1) that it would lead to horrible outcomes, and 2) the dead don’t know whether their preferences have been satisfied, so satisfying them benefits nobody.
In response, Robin has offered some comments. First he states that efficiency is not morality, so we should not be surprised that using efficiency criteria would deliver us outcomes that are not moral. That’s fine, but the conclusion I draw then is when efficiency would have us select obviously highly immoral outcomes –like, say, slavery, holocausts, and orphan eating– we reject efficiency in that circumstance. Robin, in contrast, bites the bullet: bring on the orphan eating!
Robin’s second objection is that we should definitely care about outcomes that we can’t see, like having our preferences satisfied after we’re dead:
Many of us want things we will never experience directly; we want our children to prosper after we are gone, for example. This is especially true of our moral wants; we want our donations to Africa to actually help real Africans. So we are understandably wary of deal-making frameworks which explicitly suggest that they seek only to achieve the appearance, not the substance, of our wants. So yes, a deal-finding analysis tool should definitely count unseen wants!
What he’s saying is that people prefer to believe that their preferences are going to be satisfied, even the ones they won’t see themselves. This is an argument for satisfying unseen preferences but only to the extent that it allows us to believe our own unseen preferences are satisfied.
This is really a classic time-inconsistency problem: we’re all better off if we live in a world where we can trust our unseen preferences are satisfied, including preferences for things that happen once we are dead. But the most efficient outcome is to commit to satisfying unseen preferences, and then later reneging on them. Of course once you break that promise once, it will be hard to credibly commit to keeping them in the future. Thus breaking the promise now will mean that current and future generations will not believe their preferences will be satisfied, which may be an inefficient outcome relative to not breaking the promise in the first place.
Of course we never promised our ancestors anything. They observed what we are observing today, which is the fact that “Our contract law system refuses to enforce many win-win deals between distant generations.” So by not caring about the preferences of our ancestors, we are not reneging on any promise or refusing to fulfill commitments they expected to be fulfilled, which means we could still credibly commit to honoring the preferences of the future dead. So while future people should defer to us, we should definitely not defer to our ancestors, because to do so would be inefficient.
And what if our future ancestors renege? It doesn’t matter as long as we die believing that they wouldn’t, and they can find some way to convince themselves they’ve credibly committed to their future generations. It’s all a con game where our own irrationality can make us better off. How perversely un-Hansonian of a conclusion is that to derive from a Robin Hanson argument?
The debate over green jobs continues at the Economist. The polls show that Van Jones is winning this debate so far, taking an early lead away from his opponent:
I suppose one does not rise to the stature of Czar without the ability persuade people of the usefulness of whatever it is one will be Czaring over.
I think Morris’ is losing because he failed to immediately make clear that there are things the government should do. Since the more radical forms of libertarianism are often what people have in mind, it’s important when arguing for libertarian ideas to establish that there is a legitimate role for the government (only, of course, if there is in fact a legitimate role for the government). Coming out of the gate crowing “Let the market handle it!” when the problem at hand is a classic market failure will solidify you in people’s minds as the extreme libertarian caricature they generally default to anyway.
That said, Morris does a much better time this round. He makes the case for innovation prizes, and argues against fighting dirty energy subsidies with clean energy subsidies, mocking Jones thusly:
Rather than get rid of wasteful subsidies that transfer money from consumers to special interests in fossil fuels, his solution is to give others their chance at the trough.
Both sensible ideas, both defining a legitimate role for the government. He should have opened up with this point.
Jones rebuttal drives home three points: 1) green energy is more labor intensive than dirty energy, 2) the market is already distorted in favor of dirty energy, and 3) doing nothing is not a good option. If one is to argue for green jobs, this is the tract to take. One of his weakest points this time around is an argument that quite frankly works against him:
Mr Morriss claims that the work of moving to a cleaner economy is hampered by the lack of a universal and timeless definition of the term “green jobs”. This is a red herring. In public policy, we continually debate, revisit and reshape what should be included under any important label, whether the term is “American made”, “organic food” or “green jobs”. In a democracy, these kinds of debates are continuous and any resolution only provisional.
It would agree with everything he said, except to replace “continuous” with “ridiculous”, and “provisional” with “arbitrary”.
He has two points near the end I’d like to highlight. The first one is completely false and highlights an unfortunate thinking that I think drives a wedge between progressives and libertarians who actually agree on the second statement:
One, we do not have infinite amounts of carbon in the ground to burn. At some point, our earth will run out. Thus, it is sensible for governments to create incentives for alternatives to carbon-based fuels on a grand scale, now.
Two, our atmosphere does not have infinite capacity to absorb all the carbon that humanity could potentially extract and burn. If we emit too much, we will do irreparable damage to the climate.
There are very few useful things on this earth that we have an infinite capacity of. It is absurd to claim that a lack of unlimited supply of something we value justifies government action on a “grand scale”, and immediately. The fact is that we have alternative, non-carbon-based ways to create energy now, and if scarcity drives the price of carbon based fuels up (which is exactly what scarcity does!), people will begin buying them. If Jones is right and higher prices of carbon-based fuels would not lead consumers and firms to begin demanding clean energy technologies en masse, then we should not be spending a single dollar on existing clean energy technologies, since they are apparently so incredibly far from being cost effective.
Unsurprisingly, Robin Hanson has a surprising take on fulfilling the wishes of the dead:
Economic welfare cares not about giving people experiences but about satisfying their preferences, i.e., giving them what they want. And even long dead people still have (or “had” if you prefer) preferences that we could now better satisfy. If we do something a dead person would have wanted, that counts as a benefit.
But we care about satisfying people’s preferences because, unlike the dead, they can know that those preferences being satisfied, and having their preferences satisfied increases their utility. Tyler Cowen has previously argued on pragmatic grounds that we should not count the preferences of the dead, because if we did, the world would be a terrible place:
Dead people don’t count in the social welfare function. (If they did, how many of them would prefer non-democratic or racist outcomes? And would we count that? We shoudn’t and we don’t.)
Their are other serious consequences to accepting the preferences of the non-existent as worth the same as those of the existent. Consider, for starters, that above all else, the non-existent would prefer to exist. The vast majority of the time, the vast majority of people would not be willing to cease existing for any amount of money. Whereas most people who want someone else not to exist have some finite value dollar amount that it is worth to them. Thus, the dollar valued benefit to someone of existing is greater than the dollar valued benefit anyone else would get for them to cease existing. So if were going to count the preferences of the non-existent, then it would seem that the number one priority of all society would be to bring as many of them as possible from non-existence into existence. The easiest way to do this is to mandate pregnancy. Think of every woman who could have a child next year but isn’t going to. Surely if we are considering the preferences of the non-existent babies (discounted 9 months), then it is worth mandating woman be pregnant at every possible moment.
Obviously, this would be horrible and is not what almost anyone would want. But isn’t it implied by what Robin has said, or is my reasoning incorrect somewhere?
Another final question: if we care about satisfying the preferences of the dead even though they won’t know their preferences are satisfied, does that mean we should not be concerned with whether or not living people know when their preferences are satisfied? Or do we discount satisfying someone’s preferences when they won’t realize their preferences are satisfied. If not, then that implies that people would be indifferent between knowing and not knowing their preferences are being satisfied, which is obviously false. So at the very least it seems to me we should certainly discount the preferences of the dead simply because they are dead.
Last night I saw the excellent Butch Cassidy and the Sundance Kid for the first time. There’s a lot of economics in that movie, with several instances of the “hold-up problem”.
For instance, when Butch Cassidy finds out the expensive lengths the train company is going to in order to stop he and Sundance from robbing them, he identifies and laments a pareto improving road not taking.:
“A set-up like that costs more than we ever took…If he’d just pay me what he’s spending to make me stop robbing him, I’d stop robbing him.”
This is a lesson in the limitations of the Coase theorem, especially when one party has shows a willingness to break the law. Reputation and trust matter for effective contracts.
Later Butch wants, and in fact tries, to make a bargain with the government, offering to fight in the Spanish-American war and stop his criminal ways if all their past crimes will be forgiven. Again, the reputation and the commitment problem prevent a pareto improving outcome.
In the literature on the hold-up problem, vertical integration is one proposed solution, which is exactly what Butch and Sundance attempt. They get a job for a company as security, stopping robbers like themselves. This solution fails because of their preferences; they don’t like to kill people. Security requires more violence than robbery because when you’re a robber you’re can make credible threats that actually prevent violence (“don’t move or I’ll shoot!”), and so you can avoid actually killing people. When you’re on the security side, once someone has decided to rob you they have already decided that the level of violence you are implicitly threatening is not enough to stop them, and so you have to use more violence than they were expecting to stop them.
To avoid being arrested Butch and Sundance move to Bolivia, and this is where they began working as security. The irony is that had they been working as security in the United States, their reputations as excellent gunmen would potentially have made their threats successful so they wouldn’t have had to use violence to stop robbers.
One way criticize someone’s reasoning is by showing that if followed through it leads you to absurd conclusions. The occasional radical will simply bite the bullet and accept the absurd, often ridiculous, conclusion, but by and large people will change their reasoning, or just refuse to accept logic. Protectionists in the State of New Jersey have decided to eagerly bite the bullet.
A popular argument against protectionism is that if you follow the logic through, it implies you should have protectionism between states. Here is Russ Roberts laying it out:
If it’s true that theory and evidence in favor of protectionism are sufficiently strong to warrant economists abandoning their conclusion that free-trade policy is generally sound, then why shouldn’t economists… also start exploring the potential benefits of intra-national protectionism? Surely a scholar not benighted with the free-trade “faith” ought to take seriously the possibility that, say, Tennesseeans could be made wealthier if their government in Nashville restricts their ability to trade with people in Kentucky, Texas, Rhode Island, and other states?
The usual protectionist defense rejects this absurd conclusion via some argument about differences in laws and institutions… or something like that. New Jersey’s protectionists, on the other hand, have decided to bite the bullet and are actually embracing the idea that interstate protectionism can make them better off. State legislators are trying to pass a law that mandates that all public servants must be New Jersey residents. The impacts would be far reaching:
The bill would affect teachers, firefighters, police officers, and all other employees of state, county, and local governments, as well as public authorities, boards, agencies, commissions, and state colleges and universities. Both full-time and part-time employees would be affected.
What’s great about this is that it really illustrates the flaws of protectionism that are often unintuitive when it occurs between nations. The tradeoffs you face are much clearer when the town you live in can’t hire the most qualified firefighters and teachers, and instead you’re left less qualified individuals who wouldn’t have gotten hired if they didn’t happen to live on the right side of the state line. If you want protectionism in your schools and public services, you’re going get lower quality schools and public services.
She composed songs – “Mississippi Goddam,” “To Be Young, Gifted and Black” – that spoke directly about the civil rights struggles, and she turned her act into a theater of the absurd in which she played the role of dominatrix to guilt-ridden white liberals in need of ritual humiliation.
The audience could expect her to show up late, sometimes by an hour or more. She would then offer a mixture of songs, insults, harangues and lectures, all delivered with what one friend called the attitude of a “benevolent dictator.”
Can you guess who it is? The answer is here.
H.T ALDaily.com
The following is my Facebook response to a friend who argued first that Obamacare was the death knell for Capitalism, and second that my proposal to remove all medical licensing and prescription requirements was anarchy.
Imagine for example a system where I wanted to buy a table but first:
I have to go to a state licensed interior decorator to see if the table was appropriate. Based on over a decade of required training she would inspect my house to see if a new piece of furniture was appropriate.
If she wasn’t quite sure she might send me to a dining room specialist who would run a series of tests on my dining room before giving me clearance.
Then I would go to the furniture store, where I could only buy from someone who was licensed and trained in dispensing furniture. This person also need years of advanced education insure that some furniture I buying on the advice of one decorator didn’t clash with other furniture I was buying on the advice of another decorator.
That furniture in turn could only be dispensed to me if the a government agency had shown that not only was the furniture safe, but that more people thought the furniture was beautiful than thought a rock was beautiful when I stamped "award wining rock" on it.
Now, in such a world furniture is likely to be very expensive and I don’t even know for sure when in my life an interior decorator is going to approve me. So, to smooth my consumption I might want to buy furniture insurance that would pay for the furniture if I was approved.
Now the government steps in and says "40 million Americans have no furniture insurance and may have homes that are dreadfully decorated"
THE HORROR.
So, they devise a plan to subsidize the purchase of furniture insurance in exchange for proposals that will limit the total amount of furniture bought by old people. Being frail and in need of sitting down old people get free furniture.
But no! This is the breaking point. The requirement to see an interior decorator, the licensing of furniture dispensing, the approval process for each piece of furniture. That I could understand. But subsidies for the poor! Reductions in the amount of FREE stuff given to the elderly.
This is an assault on the foundations of capitalism! It must be stopped!Storm the BASTILLE! Liberte! Liberte! Liberte!
This shocking and bizarre fact is the only conclusion once one assembles four pieces of information
- The Philosophical Musing of David Chalmers
- Some More Serious But More Creepy Work by Nick Bostrom
- The Unassailable Logic of Fuck You, Penguin
- My Own Google Images Search Results
First, David Chalmers suggests that we should attempt to create smarter than human intelligence by simulating natural selection. After all, natural selection created us, so its proof that something dumb can make something smart. We’re pretty dumb so that works in our favor.
Second, Nick Bostrom argues that at least one of the following is true:
- Most human-level civilizations will not advance to the point where they can create intelligent simulations
- Most civilization which can create intelligent simulations don’t want to
- We are probably living in a simulation.
Using Chalmers’ reasoning we can rule out both (1) and (2). That is, even a dumb civilization can create intelligence using natural selection and it would want to since that’s the best way to get to super-intelligence.
Thus, we are living in a simulation and we were created so as to be super-intelligence for some other life form
Third, Chalmers further argues that once we have created this super-intelligent simulation we should upload ourselves into its world rather than downloading it into ours.
If this is true then the creators have probably uploaded themselves into our world. How can we tell who they are?
Several clues:
First, they will probably try to manipulate us so as to use our (relative to them) super intelligence to their advantage. Fuck You, Penguin brilliantly documents all of the ways in which cute furry animals attempt to infiltrate our brains and get us to do their bidding.
However, we cannot assume that all furry animals are the creators. No, the creators are likely to be the most sinister, the most snide, the most self-important. They are likely to have millions of humans serving them while they give nothing in return.
And, most importantly once they realize that we are on to them they are likely to hit back with a public relations campaign that strikes adoration into the hearts of humans across the globe. They are likely to use our most powerful communications medium, the internet, to spread this propaganda.
You can see by now that I speak of only one thing. Below the fold, behold the face of true totalitarian oppression:
The Economist is hosting a green jobs debate between former Green Jobs Czar Van Jones and Andrew Morriss, one of the authors of “The Green Jobs Myth”. The pre-debate vote of reader support for the statement “This house believes that creating green jobs is a sensible aspiration for governments” was close to 50-50, so this one could go either way.
When green jobs are created by the public sector they are at best a coincidental byproduct of other worthy goals. Making green jobs an explicit policy goal means having two contradictory objectives: maximizing efficiency, that is output per dollar, and maximizing jobs, that is maximizing workers per output. If you consider that jobs cost dollars, these goals are almost exactly opposite. The only way they don’t work against each other is the extent to which you can costlessly exchange capital for labor, a rare if non-existent condition. Remember, maximizing workers per output is the same as minimizing output per worker.
The easiest defense of green jobs is to contrast it with doing nothing. The most difficult defense is to contrast it with a gas tax or cap-and-trade. This is where Jones is at his weakest:
Furthermore, governments will need to go beyond a simple cap-and-trade system for global warming pollution. Renewable energy standards and codes for energy efficiency will help build markets. Green banks and new financing tools will use public underwriting to help unleash private capital. And public investments in infrastructure will create a platform for innovative businesses to thrive and hire more workers.
Notice that when contrasted with cap-and-trade, the actions that he argues the government needs to take are completely unrelated to the kind of policies promoted by green jobs fans. For instance, weatherization would not fall under any of these categories, nor would direct subsidies to particular companies or technologies. Unless what he means by “green banks… will use public underwriting” is that “the government will subsidize things”, in which case he hasn’t really made an argument so much as an assertion. Once the cost of pollution is priced in to an activity, there is no more externality. What is the remaining justification for government action? He has dodged a very critical question here.
Jones is most successful in arguing that since government intervention in energy markets is inevitable and desirable, they need to explicitly prioritize green technologies, and cannot simply let the market handle it. This is a good argument for why the government should consider the environmental impact of it’s regulatory actions.
As to whether or not green jobs policies are protectionism, he argues that “In this context, policy is not a restraint on trade. It is a driver of innovation”. However, in reality it almost certainly is a restraint on trade. When a policy goal is to maximize American jobs, that has the effect of a “Buy American” provision. Here’s one recent example:
…when American stimulus funds subsidized a joint U.S.-China wind-power farm in West Texas, it turned out that Texas stood to get 30 permanent jobs to China’s 3,000. After Sen. Charles Schumer (D., N.Y.) protested, the Chinese agreed to build a wind-turbine factory in Texas.
Clearly, prioritizing American jobs often means a de facto restriction of American companies’ ability to spend money abroad, which is protectionism and a restraint on trade.
This post is even more of a brain dump than usual. I would really appreciate any feedback that you have.
One of the big lessons of economics is that a market economy functions as an equilibrium system. As such pushing out on it, for good or ill doesn’t cause the effects you might think. Obvious“bads” like greed and selfishness, can work out just fine. Obvious “goods” like insisting on co-operation don’t always have the benefits one might expect.
Nonetheless big thing do happen. Most famously the classical economist Thomas Malthus was in the middle of explaining why nothing could be done raise wages above subsistence when suddenly and dramatically something was done about it.
What then should we as economists say about the potential for new really big ideas? On the one hand, our training makes us skeptical of their existence, but on the other observations like the industrial revolution make it clear that when really big things happen they can swamp everything else.
The FBI’s “Most Wanted List” will turn 60 years old this sunday. It’s success rate had been impressive: 463 of the 494 fugitives on the list since 1950 have been caught, which adds up to a 94% success rate.
What does the future hold for the program? Social networking:
As technology progresses, authorities expect even more success from the “Top Ten” list, said Special Agent J.J. Klaver, a Philadelphia FBI spokesman. The list is everywhere, from newspapers and TV to digital billboards and online sites like Facebook, Twitter and YouTube. There’s even a cell-phone application.
Here is the current list.
Pennsylvania State Police have recently taken to armed raids of bars offering an unregulated level of consumer choice:
As in armed raids conducted last week against three Philadelphia taprooms, the State Police alleged that the targeted beers were not properly registered with the state Liquor Control Board for sale in Pennsylvania – a process involving limited paperwork and a $75 fee.
The raids began a few days ago as police acted on an “anonymous tips” that three bars, all owned by the same people, were offering unlicensed beers. The embarrassing part, aside from the embarrassing existence of the law itself, is that many of the beers were in fact licensed:
Checking their inventories against the state’s official list of more than 2,800 brands, the cops seized four kegs and 317 bottles, totaling 60.9 gallons of beer, according to police calculations.
In fact, according to Maida, more than half the beer removed by the State Police was properly registered – but the cops couldn’t find it on their lists because of “clerical errors” or “blatant ineptitude” between the police and the Liquor Control Board, with whom the officers were conferring by telephone.
She estimated the total value of the confiscated stock at $7,200, representing about 20 brands, some of which go by multiple names.
Apparently, the raids are aimed at wiping out this dangerous trend:
Registration is further complicated by the growth of under-the-radar one-offs: unique, limited-production, highly sought-after draft beers that appear briefly – perhaps as quickly as an hour – on tavern taps. While they pay the necessary state and federal taxes, breweries sometimes do not bother to register the brands because they are produced in extremely small amounts.
Among the brands that the State Police reportedly sought during its raid was Pliny the Younger, recently named the No. 1 beer in the world by Beer Advocate, a popular online beer-rating site. The ale is made once a year by Russian River Brewing, in California.
Yes, I can see why this is a legitimate use of police force and public dollars. Imagine if the poor patrons of these bars didn’t have a $75 fee and some paperwork protecting them from cheap, unregulated swill like the world’s best beer.
The proposed Consumer Financial Protection Agency was supposed to regulate payday loans -those extremely high interest rate short term loans- but it now appears that it may not. This could turn out to be a good thing for consumers, since the best way to help payday borrowers might be to deregulate the industry…. Bare with me, I know that sounds ridiculous.
A recent paper from Robert DeYoung and Ronnie Phillips at the Kansas City Fed provides some cautionary results about potential negative side effects of increasing regulation, and suggests possible positive impacts of deregulation. What they find is that more competition among payday lenders can decrease the exorbitant interest rates on payday loans. Increasing competition decreases prices; this is not so surprising.
The authors even go so far as to suggest increasing competition by removing regulations that limit the ability of local banks, thrifts, and credit unions to offer payday loans. This makes sense, since reputation is probably more important to local banks, thrifts, and credit unions than it is to payday lenders, they would be more likely to offer actuarily fairly priced payday loans and less likely to try and manipulate borrowers with confusing contracts, etc. In fact, DeYoung and Phillips provide evidence that payday lenders with large franchises are less likely than mom-and-pop stores to engage in exploitative pricing behaviors. Getting banks and other financial institutions into payday lending could help prevent a “race to the bottom” in lending standards that might otherwise result from increasing competition.
Another caution provided by DeYoung and Phillips is that setting a rate cap may provide a Schelling point for payday lenders to collude around, so that for many borrowers rates could actually go up. What this means is that the payday lending industry has the market concentration to collude, but without explicitly communicating with each other (“Hey, if you charge 1,000% and I’ll charge 1,000% too) they cannot find a stable equilibrium price point to settle on, thus the resulting market is somewhat competitive. A rate cap provides them with a natural price point to collude around. So if the government says “You can’t charge more than X%”, then that rate becomes a Schelling point and all lenders begin collusively charging X% for all loans, which can actually be a higher price point than they were previously charging for many loans. The evidence they provide is not conclusive, but it is consistent with studies that have shown similar responses resulting from credit card rate ceilings.
I would not say this paper is conclusive enough to declare that these impacts are what will occur if we get national rate capes for payday loans. But as we debate whether payday lending should get regulated as a part of the CFPA, these possible outcomes and deregulatory means to improving the industry are worth thinking about.
Robin Hanson sends along some commentary that simply can’t be ignored.
Merit pay for teachers is an idea that is almost 100 years old and has been subject to much research. In one study conducted in 1918, “48 percent of U.S. school districts sampled used compensation systems that they called merit pay.” … The evidence shows that merit-pay plans seldom last longer than five years and that merit pay consistently fails to improve student performance. … [Researchers] also showed that cheating [by teachers] was quite sensitive to the size of the incentives provided for enhancing student scores. … The same problems emerged when merit-pay systems were implemented in the 1980s. … “It is like policy makers suffer from amnesia.” (pp.22-24) …
The evidence strongly suggests that students learn better when they are not graded and certainly not when they are graded on a curve. … When drill instructors were tricked into believing that certain randomly selected soldiers would achieve superior performance, those soldiers subsequently performed far better on tasks like firing weapons and reading maps. (p.38)
Ending social promotion harms students and schools, and the strongest negative effects are found in the best, most rigorous studies. At least 55 studies show that when flunked students are compared to socially promoted students, flunked students perform worse and drop out of school at higher rates. One of the most careful studies found that, after controlling for numerous alternative explanations including race, gender, family income, and school characteristics, students held back one grade were 70 percent more likely to drop out of high school. (p.51)
I don’t know the authors and I don’t know the studies but you this has to peak interest on this issue.
Especially interesting that students reportedly perform better when they are not graded. Its hard not to think that selection effects are not at work here. I just can’t picture the student model which produces this, even given a really large “nervousness” effect that degrades performance.
The size of European and Asian country’s green energy industries and the generous government subsidies and industrial policy they thrive on is looked at jealously by many American commentators who wonder “why not us?”. Leaving aside for the moment the disagreement about whether the composition of American industries is a worthwhile goal of public policy, there are reasons to be wary of heavy-handed green industrial policy. An article in the New York Times today is a great cautionary tale.
Generous subsidies from the Spanish government created a fast growing solar industry the small city of Puertollano. Things did not stay so rosy, however:
But as low-quality, poorly designed solar plants sprang up on Spain’s plateaus, Spanish officials came to realize that they would have to subsidize many of them indefinitely, and that the industry they had created might never produce efficient green energy on its own.
In September the government abruptly changed course, cutting payments and capping solar construction. Puertollano’s brief boom turned bust. Factories and stores shut, thousands of workers lost jobs, foreign companies and banks abandoned contracts that had already been negotiated.
This is the same government which, according to the Economist, spent an estimated 570,000 euros per green job. These are things to remember when people wonder why we can’t have “successful” green jobs programs like they have in Europe and Asia.
Andrew Sullivan is the latest to point out that the Health Care Bill would be more popular as law than as a proposal. And, he has some data to back that up
There is considerable polling evidence that passage of health insurance reform will do two things: it will create a critical impression of the country moving forward in tackling its problems and will reassure and revive Democratic voters. Mark Blumenthal notes a fascinating aspect of a poll from NB/WSJ above. It showed reform to be unpopular in the abstract but much more popular if it became law:
"If the current health care legislation becomes law, will you consider it to be a step forward or a step backward?" Asked this way, the margin closed: 44 percent said it was a step forward and 49 percent said it was a step backward, leaving just 7 percent unable to answer
The key lesson I’m learning from the last three Presidency is that the voters reward good news, not good policy. If the have jobs, feel safe and the number of dead Americans they read about in the paper’s isn’t too great you get to stay in office. If not you have to leave.
To wit, its probably best to ignore public opinion entirely and simply ram through an agenda that you think will work. If you’re wrong you won’t get to stay, but you will have the made the best stab at what you want anyway. Both Bush and Obama seemed to govern this way and by and large I think its worked out for them.
Whatever the public may think of Bush, we have a fledgling democracy in Iraq and that’s what he wanted. If Obama rams through health care we will have near universal coverage and that seems to be what he wants.
Megan McArdle and Felix Salmon run roughshod over the NYT
I’m not even going to try to enumerate all the inaccuracies here. Were credit default swaps really pivotal in the U.S. crisis? They certainly brought down AIG, and a couple of smaller monolines. And they made synthetic CDOs possible — without them, the “unfunded super-seniors” which did so much damage to many huge banks could never have existed. But they weren’t pivotal in the sense that absent CDS, the crisis wouldn’t have happened.
But we’ll give the NYT the “pivotal role” bit just because it’s simply untrue that credit default swaps “are emerging as one of the most powerful and mysterious forces in the crisis shaking Europe”. (Even assuming there is a crisis shaking Europe.) In what way, exactly, are CDS emerging as particular powerful in the latest Eurocrisis? CDS volumes on Greek debt are a fraction of the total amount of debt outstanding, and certainly no sovereign has written huge amounts of credit protection, thereby racking up enormous contingent liabilities, in the way that AIG did. In fact, European sovereigns aren’t players in the CDS market at all.
You see this sort of folk mythology among market watchers very frequently. They note that there are financial instruments which convey negative information about the soundness of the underlying institution. Furthermore, they quickly realize that just before institutions fail, there is often quite a lot of activity in those sorts of financial instruments. Therefore, if you could only eliminate the instruments, you could also eliminate the failures!
I don’t know enough about Greece’s situation to say whether or not CDS played a pivotal role but it is certainly theoretically possible. That is, one need not be quite as dull as Felix and Megan suggest, in order to believe that financial instruments could break a country.
I suspect and Felix seems to confirm that the market for CDS on Greek debt was orders of magnitude smaller than the market for the debt itself. Its therefore far more vulnerable to manipulation whether purposeful or accidental.
Buying large quantities of over-the-counter protection on Greek debt could cause discontinuous jumps in the price. Because the CDS is over-the-counter we would not expect the market to move in constant equilibrium but in a jerky fashion as buyers and sellers discovered one another.
Nonetheless, CDS on debt carries a lot of information. The holders of sovereign debt are typically looking for one of the securest investments in that currency. The mechanics of this are much more complex for a currency union like the Eurozone. Nonetheless, It seems reasonable that a significant portion of Greek debt purchases are not interested in doing detailed analysis on the Greece’s credit worthiness.
A spike in the CDS on Greek debt means that some set of parties who are interested in the creditworthiness of Greek debt have contracted on the assumption that the creditworthiness is getting worse.
That’s enough to encourage one to stick his Euro’s elsewhere and importantly its enough for some to believe that others will want to stick there Euro’s elsewhere. Such a move would lead to higher interest rates for Greece and hence an even rougher time paying back its debt. Hence, if I think all of this might happen, it becomes in my interest to get out.
This is the key difference between debt and equity on the functioning of an enterprise. If someone raids my equity that might not be good for my shareholders but generally speaking it doesn’t curtail my ability to do the things I want to do.
If someone raids my debt, however, that leads to a chain of worry about who will be the last person holding my debt and in turn makes it far more difficult to issue or turn over debt. This in turn can break me. So, running a stock and running CDS are totally different beasts.
Now, like I said, I really don’t know or claim to know a lot about Greece’s situation. I am only arguing that the notion that “the CDS did it” is not crazy from an enterprises point of view.
Whether or not corporations should care about social issues is often debated, notably in series of essays from Bill Gates, Larry Summers, and others, published in a book called Creative Capitalism. But when you see the positive impacts that a highly image conscious Walmart is having in China, it certainly suggests those pushing for socially conscious corporations may be correct.
A recent article in the Washington Post highlights some of these positive impacts:
Wal-Mart’s suppliers have been forced to get serious about pollution, Ma said. “Wal-Mart says if you’re over the compliance level, you’re out of business. That will send a powerful signal.”
In many cases, Wal-Mart is first trying to bring firms up to government standards. Ma added that suppliers “may not care about government fines, they may not care about exposure. . . . But they care about the order from the buyers.”
In a country without sufficient private property rights and an effective government needed to deal with pollution externalities, a company like Walmart can enforce behavior that brings the level of pollution closer to a socially optimal level. The amount of environmentalism that Walmart demands probably has a closer correspondence to what the people would demand from a democratic government, or would arise in a system with perfect property rights and efficient pigouvian taxes, than the status quo that would exist without Walmart.
A well-functioning economy needs laws and the institutions to enforce them. In China the enforcement of laws can be subject to the often corrupt or rent seeking local communist party officials. What Walmart seems to be doing is using it’s massive supply chain to provide local companies with strong incentives to obey the law in a way that local governments can’t or won’t. This is another aspect of globalization and Walmart that I think is underappreciated.
If I’m right that Walmart’s social conscience is having a positive impact on China, then we also have the tireless Walmart critics of the last 20 years to thank. They were wrong that the old, non-socially-conscious Walmart was doing more harm than good -amoral globalization is better than no globalization- but their criticisms may have helped create a Walmart that does even more good than before.
According to a new NBER working paper from Claudia Sahm, Matt Shapiro, and Joel Slemrod, about 20% of households increased their spending as a result of the 2008 tax rebate stimulus, and 50% used it to pay down debt. Thus they argue that there was only a small direct stimulus per dollar of rebate. However, due to the size and speed of the disbursement, they find that the program did have a significant impact on GDP in 2008:
Overall, the results suggest that the rebate program provided only a modest stimulus per dollar of rebate. Nonetheless,the rebates were so large and so quickly disbursed and the fraction spent was spent so rapidly that they had a non-trivial effect on aggregate spending in the second and third quarters of 2008. Although the rebates clearly did not stave off the sharp drop in economic activity in 2008, they did affect the timing of its onset by making growth in household spending noticeably stronger in the second quarter and noticeably weaker in the fourth quarter than it would have been absent the rebate.
An excellent slideshow from NPR highlights once jobs that were once ubiquitous but are now largely extinct. Some are the classic extinct jobs you would think of, like milkman and switchboard operator. Others, like lector and pinsetter are less obvious. There are many interesting facts, like New York City lamplighters were responsible for lighting 200-300 lamps and hour, and switchboard operators were initially teenage boys but they were replaced by woman for nearly a century because the boys were playing too many pranks.
It makes you wonder, what jobs of today will be obsolete in 2100 and will the people of the future find curiously antiquated? It’s hard to picture cashiers existing for much longer, especially at the grocery store. Coal mining, which already seems like an out-of-date occupation, would go away pretty quickly with the advent of some scalable, cheap, high-tech source of energy in the future. Others?
Re: Adam
I don’t think that Solow, in particular, has ever tried to come to grips with any of these issues except by making jokes
~Bob Lucas
Though, these exchanges are funny I think they reveal something deep and its why I tend to side with Mankiw-Solow camp. Lucas is essentially saying that Keynesian doesn’t make any sense. Solow is responding that Frictionless Markets don’t match reality.
My take is that at its heart this is exchange is about whether economics is philosophy or science. For philosophy logical consistency is paramount. But, in science, empirical observation wins. I side with science.
If the world doesn’t act like its described by Freshwater Models then all the elegance in the world can’t save you. If the only explanation anyone can think of that fits the data is that a Giant Purple Elephant did it. Then Giant Purple Elephants it is.
That doesn’t mean we have to be satisfied with GPE model, but unless you got something better . . .
I won’t let the rejection of the last liberaltarian bargain I proposed deter me. There are others out there. For example, you have Matt Yglesias’ enthusiastic support for getting rid of “tax expenditures”. These are the millions of little tax cuts that turn us all into special interest groups, which according to Andrew Leonard of the Fiscal Times add up to $1 trillion a year and are growing at several times the inflation rate.
You know these tax cuts, they are the political bread and butter of stump speeches and debates. They allow politicians to say things like:
“I voted for a tax break for working mothers who want to back to school and learn the skills for tomorrow’s green jobs!”
“I voted for a tax break for sustainable health insurance for the children of veterans that would have provided health care and green manufacturing jobs for a million working class South Carolina children, and my opponent voted against it!”
“Senator Dickle and I passed a bipartisan small business investment tax credit that helped entrepreneurs create manufacturing jobs for middle class families; just like Dan Bindle from Dumpsville Alabama who used that tax credit to reopen his grandfathers tugboat factory and put 2,000 sustainable-small-business-working-mother-veteran-entrepreneurs back to work!”
They’ve got the buzz words of “tax credit” and “tax cut”, with all of the benefit of being highly targeted to achieve maximum political value. It’s this high political value that makes me skeptical we’ll ever get rid of them in any significant and permanent way. Remember, if they are designed for maximum political upside as a “tax cut”, they will have maximum political downside as a “tax raise”. Pity the politician who votes to “raise taxes” on working mothers who are going back to school to… you get the point.
Modeled Behavior 