Tyler Cowen's Blog, page 603
February 16, 2011
Assorted links
1. Division of labor and hybrids within games.
3. Correction: Charles Kenny's blog isn't dormant.
4. How to boost Egyptian entrepreneurship.
5. What does Watson mean for AI?
7. Via Chris F. Masse, which country is likely to fall next? The betting odds.
8. Korean self-constraint markets in everything.
Egypt fact of the day
Just as important as the skills deficit, however, is the trouble that many Egyptians have using their skills in the country's sclerotic economy. Three researchers — Michael Clemens, Lant Pritchett and Claudio Montenegro — recently found a novel way to measure how well various countries use the workers they have. The three compared the wages of immigrants to the United States with the wages of similar workers from the same country who remained home.
A 35-year-old urban Egyptian man with a high school education who moves to the United States can expect an incredible eightfold increase in living standards, the researchers found. Immigrants from only two countries, Yemen and Nigeria, receive a larger boost. In effect, these are the countries with the biggest gap between what their workers can produce in a different environment and what they are actually producing at home.
The article is interesting throughout.
The Failure of Keynesian Politics
Let's accept for the sake of argument the truth of Keynesian economics. It is now clear that Keynesian politics has failed. But don't take my word for it. Here's Paul Krugman on the great abdication:
...without saying so explicitly, the Obama administration has accepted the Republican claim that stimulus failed, and should never be tried again.
What's extraordinary about all this is that stimulus can't have failed, because it never happened. Once you take state and local cutbacks into account, there was no surge of government spending.
If that sounds familiar let's remember that by their own admission Keynesian's believe that Keynesian politics also failed during the Great Depression. Again, Paul Krugman on the New Deal:
...you might say that the incomplete recovery shows that "pump-priming", Keynesian fiscal policy doesn't work. Except that the New Deal didn't pursue Keynesian policies. (emphasis in original).
So we have had two major cases that massively favored Keynesian economics but Keynesian politics failed both times. Not that this should be surprising, Keynes himself told us that his theory was more suitable to totalitarian regimes:
The theory of aggregated production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state [eines totalen Staates] than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire.
More recently, other people (including Paul Krugman as I recall although I can't find a good link) have said similar things about the chaos of democracy versus the Chinese government's ability to stimulate at will.
Now I will take a large degree of laissez-faire and the chaos of democracy over authoritarian political and economic regimes any day. I assume most Keynesians would as well. Thus, if we can't count on massive increases in government spending during a recession to mop up problems ex-post shouldn't we all, Keynesians and otherwise, be spending more time thinking about ex-ante alternatives to Keynesian politics?
What are the alternatives to Keynesian politics? Greater regulation to prevent crises from occuring is a legitimate response, although one that I wouldn't necessarily buy into in all particulars. Along the same lines, increasing wage, price and real flexibilities (e.g. relocation flexibility and public and private savings flexibility) would benefit us in future recessions. Automatic stabilizers such as unemployment insurance are one area that has worked quite well. What other areas can be automatized? Funding for states? How about an automatic payroll tax cut tied to the unemployment rate?
More generally, we can probably get more agreement today on policies that will operate tomorrow than we can get agreement today on today's policies or agreement tomorrow on tomorrow's policies.
What I've been reading
1. Carsten Jensen, We, the Drowned. A series of generational tales from a Danish fishing village, starting with the 1864 conflict against Germany. The WSJ loved it, the Danes loved it, eight Amazon readers loved it, and I liked it quite a bit at first. Eventually I was wandering in a "tweener" novel -- serious enough not to be stupid, yet not enough giddy fun to be a page turner, not serious enough to be deep, and ultimately a European novel of ideas by the numbers. Some of you are likely to enjoy this, but I put it down with no regrets before p.200. Artificial gusto, I say.
2. Adrian Johns, Death of a Pirate: British Radio and the Making of the Information Age. A very good book on the history of radio, but the real bonus is the history of economic thought section, covering what Coase, Hayek, Arnold Plant and others thought of the BBC in its early years and how that related to debates over The Road to Serfdom. I hadn't know that some of the British pirate stations of the 1960s were inspired by Hayek. Plus it's only $4.68 in hardcover.
3. César Aira, An Episode in the Life of a Landscape Painter. Commonly portrayed as an Argentina eccentric, he writes a few short books each year and over time he has accumulated the reptutation as one of the most important contemporary Latin writers. Broadly in the Borges tradition, scattered and philosophical, there is little downside to giving him a try.
4. Javier Cercas, The Anatomy of a Moment: Thirty-Five Minutes in History and Imagination. In the waning of Franco's time, how did Spain turn away from military rule and toward democracy? Can a mediocre man make a difference in history simply by retreating at the right moment? Can a political life boil down to a single response, under gunfire at that? Half of this book is brilliant writing, the other half is brilliant writing combined with obscure, hard-to-follow 1970s Spanish politics (does Adrian Bulli understand the life of John Connally? I don't think so). Cercas is a novelist, intellect, and historian all rolled into one, and he is sadly underrated in the United States. There's nothing quite like this book. On top of everything else, if you can wade through the thicket, it is an excellent public choice account of autocracy.
5. Patrick Cockburn and Henry Cockburn, Henry's Demons: Living With Schizophrenia, A Father and Son's Story. Interesting but never insightful (can I coin that as a new phrase?). On the surface this book shows the difficulties of having a son with schizophrenia, from both the perspective of the parents and also in the son's own words. In reality, it turned me (further) against the idea of forced institutionalization of an adult. They lock the son up for years and they don't seem to regret it, even though he repeatedly tries to escape from what are obviously inhumane conditions and brutal, dehumanizing medications. They were there and I wasn't, but still by putting it into a book they invite reader reactions and that is mine. Is the ultimate argument for the son's commitment that they cannot live with the thought of his suicide risk? For me that's not enough and I wonder if "empathy" always leads to better moral decisions. The parents themselves stress that he probably was not a danger to others and also he had committed no crime.
February 15, 2011
Interfluidity has a dream
A few nights ago, a gentleman accosted me in a dream and declared himself to be "Tyrone", Tyler Cowen's evil twin. Tyrone told me that his brother had "as usual" got it all backwards. In fact, he told me, we've been in the Great Stagnation for a century as a result of, rather than for the lack of, technological progress. The median household is experiencing wealth stagnation caused by technological change. Households are feeling the pain now more than in the past, even despite a relatively modest pace of change, because over the past few decades we have managed to avoid employing the sort of durable and effective countermeasures to stagnation that have succeeded in the past.
Here is much more, interesting throughout. Here is another excellent sentence:
I worry that specialization in the information asymmetry industry could be an antidevelopment strategy for developed countries.
*Pirates of Barbary*
The author is Adrian Tinniswood and the subtitle is Corsairs, Conquests, and Captivity in the 17th-Century Mediterranean. Excerpt:
I found that robbery on the high seas was far from being the private enterprise I'd imagined it to be: behind it lay a sophisticated system of socialized crime, state-sanctioned and state-regulated, an early and efficient example of public-private partnership. And I came to understand the enormous economic importance of the Mediterranean trade in slaves, a trade which took the liberty of around one million Europeans and at least as many North Africans in the course of the seventeenth century.
He covers a different set of pirates than does Peter Leeson and in this sense there is no contradiction; still, this is an interesting book for an alternative perspective on pirate economics and history.
*Getting Better*
The author is Charles Kenny and the subtitle is Why Global Development is Succeeding -- and How We Can Improve the World Even More.
This is an excellent book on catch-up growth, which is proving remarkably robust. Ongoing democratization is proving more stable in countries such as Turkey and Brazil than many people, including myself, had expected. Here are previous MR mentions of Charles Kenny. Here is Kenny's now dormant blog.
Bloggingheads with Matt Yglesias
The topic is The Great Stagnation, find the dialogue here. My favorite part was when we both discussed why we find David Ricardo an interesting thinker. One way of summing up TGS is to cite local diminishing returns and yet longer-run increasing returns, though right now we're on the diminishing segment of that curve. Ricardo got the first part right, and it took the world some number of decades to prove him wrong about the longer run. TGS is a book set in the traditions of classical economics, which was a lot of the first economics I ever read.
Is the cow a silo of option value?
I was struck by this argument, which I had never heard:
The overriding advantage of meat is that demand for it is elastic. People don't need it but they like it, and up to a point, however much you produce, they'll keep on buying it. The demand for cereals for human consumption, on the other hand, tends to be inelastic. People need their pound of grain a day, but they don't need much more, and they won't buy any more unless they have sufficient wealth to invest the grain in animals, either to produce higher value food, or else to keep it "on the hoof" for a rainy day (or a drought).
The existence of meat means that a farmer can sow wheat, barley, oats, beans, maize, and so on with reasonable confidence that, in the event of a good harvest, someone will buy it, because even if everybody has sufficient, it can be fed to animals. This dynamic is not restricted to a money economy. It works exactly the same for Melanesian subsistence farmers who can sow enough sweet potato and manioc to cover a bad year knowing that it is not a waste of effort, because in a good year the surplus can be fed to pigs.
Take the animals, the elastic element, out of the equation and the business of sowing grain suddenly become far more risky...This elementary matter of the need for a feed buffer fails to feature in most of the literature that is written about meat-eating and vegetarianism...
That quotation is from Simon Fairlie's quite interesting Meat: A Benign Extravagance.
As they used to say on the U. Chicago Ph.d. qualifying exams, true, false, or uncertain? And under what conditions?
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