Tyler Cowen's Blog, page 293

What I’ve been reading

1. Richard A. Posner, Reflections on Judging.  I’m not seeing this book receive enough attention.  It is written in a somewhat fragmented manner, but it is an important and stimulating look at how growing social and economic complexity and the increased specialization of knowledge make the current organization of judgeships increasingly problematic.  Furthermore the opening “legal autobiography” offered by Posner is fascinating and it could be turned into a longer book of its own.

2. Peter Temin and Hans-Joachim Voth, Prometheus Shackled: Goldsmith Banks and England’s Financial Revolution after 1700.  This book argues that the financial revolution led to a reallocation of resources toward war and other public purposes, away from private investment, and that such shifts were partially responsible for the slow growth of living standards in the eighteenth century.

3. Gerald D. Feldman, The Great Disorder: Politics, Economics, and Society in the German Inflation, 1914-1924.  A 1000 pp. plus tome — readable throughout — on exactly what went wrong in the Weimar era, a work unlikely to be surpassed, good on both the politics and the economics.

4. Steve Lehto, The Great American Jetpack: The Quest for the Ultimate Personal Lift Device.  The title says it all.

5. Daniel Tanguay, Leo Strauss: An Intellectual Biography.  Perhaps the most frequent sets of questions I receive from readers have to do with a) time management (try here and here), b) low-skilled jobs, c) future inflation, and d) Leo Strauss.  (Bitcoin was once on that list, no more.)  This book will answer your questions on the latter, and there are few other good sources on Strauss.  But it’s more than that, it is a splendid work of intellectual history, wide-ranging an insightful on every page, I loved this book.

BS Jobs and BS Economics

David Graeber’s peculiar article on bullshit jobs (noted earlier by Tyler) does have one redeeming feature, a great example of poor economic reasoning:

…in our society, there seems a general rule that, the more obviously one’s work benefits other people, the less one is likely to be paid for it.  Again, an objective measure is hard to find, but one easy way to get a sense is to ask: what would happen were this entire class of people to simply disappear? Say what you like about nurses, garbage collectors, or mechanics, it’s obvious that were they to vanish in a puff of smoke, the results would be immediate and catastrophic. A world without teachers or dock-workers would soon be in trouble…

This, of course, is just the diamond-water “paradox”–why are diamonds, mere baubles, so expensive while water, a necessity of life, is so cheap?–the paradox was solved over a hundred years ago by…wait for it…can you guess?….the marginal revolution. Water is cheap and its value low because the supply of water is so large that the marginal value of water is driven down close to zero. Diamonds are expensive because the limited market supply keeps the price and marginal value high. Not much of a paradox. Note that, contra Graeber, there is nothing special about labor in this regard or “our society.”

Moreover, it’s good that prices are determined on the margin. We would be very much the poorer, if all useful goods were expensive and only useless goods were cheap.

Assorted links

1. Is high brow betting on the rise?

2. And a new, difficult to figure out fantasy market for betting on Nobel Prizes, source market here, maybe you have to log in to get how it works.  Discussion from The Boston Globe of how bookies pick the odds.

3. Japan to start testing self-driving vehicles on its roads.  And all you can eat cookies, from Japan.

4. Jeremy Stein on the reach for yield and recent asset price movements, the best explanation I have heard so far (pdf).

5. Is the Indian countryside doing better than we think?

6. Ten movable bridges.

EconTalk with Russ Roberts on *Average is Over*

You will find the podcast and text here, and Russ is as always an excellent interviewer.  Excerpt:

TC: And I think 50 years from now we’ll look back on that and be shocked at the notion that so many poor people got to live in Manhattan, Los Angeles, wherever we are talking about. Because in the future they will be in other places with lower rents.

Markets in Everything: Fake Articles

DISGUISED as employees of a gas company, a team of policemen burst into a flat in Beijing on September 1st. Two suspects inside panicked and tossed a plastic bag full of money out of a 15th-floor window. Red hundred-yuan notes worth as much as $50,000 fluttered to the pavement below.

Money raining down on pedestrians was not as bizarre, however, as the racket behind it. China is known for its pirated DVDs and fake designer gear, but these criminals were producing something more intellectual: fake scholarly articles which they sold to academics, and counterfeit versions of existing medical journals in which they sold publication slots.

…The pirated medical-journal racket broken up in Beijing shows that there is a well-developed market for publication beyond the authentic SCI journals. The cost of placing an article in one of the counterfeit journals was up to $650, police said. Purchasing a fake article cost up to $250. Police said the racket had earned several million yuan ($500,000 or more) since 2009. Customers were typically medical researchers angling for promotion.

From The Economist.

Hat tip: Derek Lowe.

Arresting the bad guys in Greece

Probably most of you know by now that the Greek government has moved to arrest leading members of Golden Dawn, their neo-Nazi Party, including parliamentary members and leaders of the party.  These members seem to be bad people, even by the low standards of neo-Nazi parties worldwide.

Still, it is odd to arrest the leadership the leadership of an elected political party — even a bad one — all at the same time.  At least the typical foreign sources are not completely clear on the exact nature of the “criminal gang” charges (there is a slightly more detailed summary here, and here, see also @Yiannisbab, and one reads that the charges themselves have been leaked only in part to the press).  I understand full well that this is an attempt to preserve democracy for Greece, not an attempt to eliminate it, but still the resulting situation is rather awkward.  And what if some of the key players cannot be convicted?  What kind of new elections are required?  And until conviction, what kinds of political powers, and claims to political funds, do the defendants have?  As Gideon Rachman wrote: “Mass arrests of legitimately elected politicians should always spark unease.”

From this distance, it is difficult to judge whether the right thing has been done.  In any case, when you feel you have to arrest your neo-Nazi party to limit their influence, things have gone far indeed in a very bad direction.  Some sources indicate that fifty percent of the police voted for Golden Dawn.

Addendum: Interestingly, for all of their anti-immigrant stances, the Golden Dawn party seems to have used migrants to sell products illegally on black markets as a revenue raiser.

A point on Spanish economic adjustment

Yesterday Edward Hugh wrote an intriguing passage:

Despite the fact that Spain’s unemployment rate is currently around 27% immigrants continue to arrive in the country (often risking their lives to do so), a fact which puzzled the Financial Times demography correspondent Norma Cohen when we spoke about this article. “Why on earth,” she asked me “would people want to come to Spain with such a high rate of unemployment?” Because salaries are better than in their home countries would be the simple answer, and because they are willing to do work which many Spaniards are reluctant to do, at least at the salaries which are on offer. So economic migrants continue to arrive, an estimated 300,000 of them last year, even though the net migrant flow reversed since more left (both native Spaniards and immigrants) with Spain’s population falling for the first time in modern history as a result.

One interpretation of this finding (not one that Hugh necessarily endorses) is thus.  Given the quality of its institutions, Spain is due for a lower wage structure, with lower quality jobs, as they might be perceived by the workers themselves.  To some extent, Spain will achieve this new equilibrium by population adjustment and exchange.  Spanish engineers will move to southern Germany and Ecuadorans will move to Spain.

Hugh’s post is mostly about Latvia, here is another interesting bit:

…three IMF economists (hereafter BGG) effectively signed off on their study of “what just happened on Latvia” and, they hoped, drew to a close a debate which has been going on now for some 6 years. In fact, far from closing the debate, what they may have done is effectively extend it into new terrain, since these apparently harmlesss words – “the recovery from the slump is largely complete” – have far reaching implications, as does the methodology they use for reaching it. These implications reach well beyond Latvia, and even far beyond the Baltics and the CEE in general, despite the conclusion that everyone seems to be reaching that Latvia was just a “one off”. Possibly without intending to do so, they have drawn onto the clinical investigation table issues which have been mounting  up in the theoretical lumber rooms of neoclassical growth theory for some time now, issues which begin to assume a paramount practical importance in the context of our rapidly ageing societies. What, for example, do we understand by the term “convergence” these days? And if “steady state” growth can no longer be understood as implying a constant growth rate (trend growth in developed economies is now systematically falling) should we be considering the possibility that headline GDP growth will at some point turn negative, even if GDP per capita may continue to rise, due to the fact that populations are steadily starting to shrink. And if the answer to the former question is “yes”, then what are the implications of this for the financial system, for the system of saving and borrowing, and for the sustainability of legacy debt? Not little questions these, but one which will need to find answers and responses in countries like Latvia over the next couple of decades.

A simple account of the pending government shutdown

The House GOP has voted to repeal Obamacare 41 times, as of last count, but that link is from Sept.12 and maybe by now the number is higher yet.  One can thus conclude that the GOP sees advantage in staking out a public position against Obamacare, whether this be with voters, donors, primary opponents, whatever.

By threatening a government shutdown over Obamacare defunding, the GOP is again staking out a public position against the law.  Such a statement is more focal, and generates more publicity, than a 42nd vote for repeal.  Everyone is talking about it, even me (sorry people).  If you’ve voted 41 times for repeal, you will like the fact that everyone is concerned with this new dispute.

If the GOP lets the government actually shut down, people will talk about their Obamacare stance even more.  But the party, and its representatives, will bear costs from being associated with the shutdown, which is inconvenient, hurts the economy, and lowers our international status.  We don’t know whether they will cross this threshold, but either way it is a purely political calculation and not especially mysterious or “irrational.”

It seems to me that ideally the GOP would prefer to “negotiate” forever, without having to shut down the government at all, see this recent report.

The GOP also wishes to combat the notion that it is the intransigent party, and a battle over the relatively unpopular ACA (“why will Obama negotiate with Putin and Assad but not with us?”) is a better arena for them than most of the other venues where this clash of reputations might pop up.

The GOP, from its budget strategies, might manage to repeal the medical devices tax.  Repealing a tax, and chipping away at ACA, is in this setting a major victory for them, especially given that right now they are not winning so many victories.  It doesn’t matter so much that the medical device tax repeal would be relatively small in its impact.  “We forced the repeal of one part of Obamacare” is a big symbolic victory.

Recent events are simply public choice theory in action.

*The Essential Hirschman*

Jeremy Adelman, Hirschman’s biographer, is the editor behind this one, and you can pre-order your copy here.  It contains many of Hirschman’s best known essays, with an afterword by Amartya Sen and Emma Rothschild.

Self-recommending, to say the least.  I find only the title strange, as I would have preferred “Some of the essays by Albert Hirschman which perhaps we are not still underrating,” though I grant that might sell fewer copies.

My interview with Eric John Barker

It is here in excerpts, mostly about Average is Over, but with some twists, here is one part:

TC:…That’s right, and Obi-Wan also tells Luke, “Finish your training in the Dagobah system,” right? How many times did he tell him? Yoda tells him. Yoda. What does Luke do? He tells Yoda to get lost. So I think as humans we’re somewhat programmed to be a bit rebellious and to not want to be controlled, which is perfectly understandable given that others are trying to control us as often as they are. But that’s going to mean in those new settings, which we’ve never biologically evolved to handle, we’re going to screw up an awful lot. Just like Luke did not finish his training in the Dagobah system.

Eric’s very interesting blog you will find here.