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Posts Tagged ‘Tyler Cowen’

I teach my undergraduates that trade has no long-run effect on aggregate employment. I teach it because it’s right, and very few economists would disagree. Tyler Cowen’s recent postings on MR about the negative employment effects of trade have the potential to mislead. To the extent that trade and technology correlate with persistent disemployment in local areas, this is a reason to think that there are structural inefficiencies in the labor market. If these structural rigidities exist, then it can be hard for people who lose jobs to get new ones. Anything that disrupts existing employment patterns — trade, technology, macroeconomic changes like price shocks — will then associate with employment declines.

What are these structural inefficiencies? For market monetarists, the “zero lower bound” is a favorite. But we’re now five years out from the NGDP shock that plausibly caused the big increase in U.S. unemployment. The rise in the minimum wage, the extensions of unemployment insurance, the expansion of welfare programs like food stamps, and perhaps most importantly, housing lock-in due to the collapse of the real-estate bubble are all plausible candidates. But these structural rigidities deserve the real blame for disemployment, not trade and technology. Blaming trade and technology is a bit like blaming the weather. Labor markets will always be disrupted by something or other. Policy makers cannot insulate an economy from shocks. What they can do is gum up the works so that the economy cannot respond nimbly to these shocks.

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Tyler Cowen makes the case that a large, inefficient public sector can be a good thing:

we should not be trying to squeeze the entire economy into the shoebox of the dynamic but risky “Economy I.” For public choice reasons, as well understood by Karl Polanyi (an underrated public choice theorist if there ever was one), the polity requires some respite from Economy I, whether we like that or not… Furthermore the more “sluggish” Economy II, by operating under different principles, often serves as a useful R&D lab for Economy I. Think MIT and Stanford, or note that Adam Smith ended up as a customs commissioner, as his father had been. Goethe and Bach worked for governments for much of their lives. It’s about balance and synergy, though it is perfectly fair to see contemporary Western Europe, especially in the periphery, as a region which has far too much Economy II and too little Economy I.

The first point in particular reminds me of Dani Rodrik’s argument for the welfare state under conditions of globalization: the government sector is relatively “safe” and can buffer dislocations due to global markets. Cowen isn’t referring exclusively to the public sector as “Economy II,” since the latter also includes labor-intensive, service-sector occupations, but he does imply here that the university system is a desirable public subsidy in part because it is inefficient and gives researchers respite from the private market.

I never really grasped that argument from Rodrik, and I still don’t. It seems to me that if you want inefficiency as a risk hedge, you could just bury some boxes of money and set fire to some of it in good times, then dig up what’s left in bad times. Less facetious: why not invest in a global equities index? Even better: why not push for globalization as a solution to its own problems? After all, there’s nothing about the economies we live and work in that’s inherently national. I live and work in the Erie County, New York economy. It’s a highly open economy. Why doesn’t Erie County, New York have an even bigger welfare state than the U.S.? Because we can buffer risk by investing in or, in the limit, moving to other parts of the country. So labor mobility and capital mobility are themselves solutions to the very risks posed by globalization of the merchandise trade combined with volatility in the terms of trade.

And you don’t have to set fire to any money.

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I have just finished reading a fascinating symposium of papers on America’s sovereign debt crisis published in the most recent Econ Journal Watch (volume 9, number 1: January 2012). It is introduced by Tyler Cowen, and includes short papers by Jeffrey Rogers Hummel, Garett Jones, Arnold Kling, Joseph Minarik, and Peter Wallinson.

It is fascinating, if sobering. I am among those who believe the debt matters—indeed, that it may soon become the only issue that matters, because it will cripple our ability to handle any other issue. If you care about national defense, health care, education, investment in “green” energy, or anything else, beware: the ever-larger portion of our wealth that will need to go to paying interest on our debt, and of course the entitlements of Social Security, Medicare, and Medicaid, will mean that there is ever-less wealth available for anything else.

(By contrast, some, like Paul Krugman, argue that the debt is not as big an issue as I believe it to be, but I have a harder and harder time believing that position has credibility. Scott Winship has a point when he argues in National Affairs that we often exaggerate the economic “bogeymen” we face, but the national debt is one bogeyman he rather conspicuously leaves out of his discussion.)

So, back to the EJW symposium. I highly recommend reading it, sharing, as I do, the editors’ “hope that it’s not too late for them to make a difference” (22). I will not attempt reproduce their arguments and data, but I will offer a handful of short reflections that might whet your appetite for the papers themselves.

1. One thing the contributors seem to agree on is that there is only a handful of possible ways we might address the impending fiscal crisis. As Jones puts it, “There are four possible tools: Higher revenues, lower spending, inflation, and default” (41). But it strikes me that there is at least one other possible way we might address the potential crisis, a possibility that none of the contributors mentions: imperialism. By that I mean that we might start invading other lands, territories, and countries, and simply appropriating their assets. There is certainly ample historical precedent. I do not think we should discount the potential attraction of large-scale theft and confiscation as a method of financing our debts and the lifestyles to which we have become accustomed.

2. There is some disagreement about how likely default is. Jones, for example, argues it is relatively unlikely; Kling argues it is relatively more likely. I would be interested to hear how Jones and Kling might respond to one another, but, beyond that, another striking feature of the discussion is the astonishing degree to which they seem to agree that no one really knows. We are in uncharted territory here. The prospect of the largest wealth-producing nation in the entire history of humankind, whose economy has huge and deep ramifications in the rest of the world’s economies, facing the prospect of being unable to service the largest amount of debt that any nation has ever produced in the history of humankind—well, who knows? Kling writes, “much of what I will be discussing is outside the competence of . . . well, anybody, making the exercise highly speculative” (51; ellipsis in the original). Perhaps this fact contributes to the reason Tyler Cowen writes, in his introduction to the symposium, “Our times are now truly scary” (21). Indeed.

3. Finally, I wish there had been more discussion of possible solutions. The contributors seem to agree both that we are facing a desperate situation and that, nevertheless, we can avoid catastrophe if we act quickly. They offer various reasons for being pessimistic that solutions will actually be forthcoming (see particularly Minarek’s and Wallinson’s contributions), but perhaps recommendations about positive steps that might actually help, along with some discussion of how these steps might be feasible, would be helpful. Diagnosing the true extent of the sclerosis is, of course, the first step; but recommended courses of treatment are the next step.

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AEI is sponsoring a debate tomorrow on whether Facebook is destroying human relationships. The debate boasts a formidable lineup: Roger Scruton, Adam Keiper, and Tyler Cowen.

It occurred to me recently that one unintended negative consequence of Facebook is the potential destruction of, not friendships, but acquaintanceships.

I have many friendly acquaintances who are my Facebook Friends but with whom I am not close enough in real life to be friends. These are people I may see from time to time—at academic conferences, say—and know well enough to have a friendly “how have you been?”-type chat. Many of these acquaintances have different, sometimes very different, political or religious worldviews from mine, but because we see each other infrequently enough, that doesn’t matter: We have plenty to chat about in those irregular brief encounters that we can avoid altogether any sticky issues or hot topics.

But that’s not the case on Facebook. There I am the recipient of their regular updates, which sometimes attack or mock people with views like mine in not-very-friendly terms, and certainly not in terms, I am sure, they would have used with me in person. Let’s face it: We sometimes have not-so-charitable thoughts about people who differ from us politically, religiously, or in other ways that matter to us. That is okay. And sometimes we confess some of those thoughts to a close circle of friends we know are sympathetic to our own view. Within reason, that is okay too.

But we also have to maintain at least friendly and civil associations with these same people who we might secretly, occasionally, even only fleetingly wish to attack or mock. And so we keep those thoughts largely to ourselves. That allows us to get along with all sorts of people, to have civil if not close relationships with people holding many kinds of views, and thus to get on with the business of social life peacably. Just think how destructive of human relationships it would be if people always knew what we sometimes think to ourselves about them.

Well, that is precisely what Facebook can do. We put our more personal thoughts in our updates, and everyone sees them—including those among our friendly acquaintances who are sympathetic to, or are part of, the group we’re targeting.

Here’s an example. One of my Facebook Friends recently linked an article with his own comment that if you did not accept what the article argued, you must belong either to “Team Evil or Team Very, Very Stupid.” Funny, I know. But then again, not so funny to someone who is not yet persuaded. Another Facebook Friend spoke recently of the “Bullshit Brigade,” which included people for whom I have a great deal of respect and whose work I think that Friend does not fully appreciate. Less remarkable examples are all the times people post things asking how anyone with half a brain can possibly think x, or suggesting that the people who disagree must be come combination of stupid, naive, or evil.

I think that these posts, while not utterly destructive in isolation, nevertheless slowly poison relationships. If the only regular things you hear from one of your Facebook Friends is his mocking of people who hold views like yours, it is hard not to be affected by that—and to be thinking about the contempt he has for people like you the next time you see him face-to-face. Whereas before you two might have been able to enjoy a long-term, perfectly friendly and civil acquaintanceship, now you might harbor a low-level anger or resentment toward him.

Now, is Facebook to blame for this? Or are people themselves to blame for posting what they do? It is the latter, of course, but Facebook has certainly made it easier.

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The Wall Street Journal had an interesting article yesterday by Stanford economist John Taylor (of Taylor Rule fame) looking at three different U.S. budgets as a percentage of GDP over the next decade.  Here is a chart which nicely tells the tale:

My chief quibble with the article is that this sentence is misleading: “And if GDP and employment grow more quickly, as they would if private investment increased as a result of lower government spending and debt, then that 19% to 20% share of GDP could provide much more in the way of public goods.”  Yes, that extra revenue could theoretically provide much more in the way of public goods — but most of what government does is not public goods provision and so that extra spending is probably not very likely to be on public goods.  Moreover, the US government could pay for a heck of a lot of public goods with a lot less spending than 19-20% of GDP. 

As you can guess, I have a big problem with the use of this term outside its narrow economic sense  because to use it more loosely is to do so either in a sloppy fashion that doesn’t tell us much or as a political weapon  swung against those who don’t think certain things are legitimate targets of government action.

Here is a nice short discussion of public goods by Tyler Cowen.  The defining characteristics of public goods are that they are non-excludable and non-rival.  As you might guess, this means there are very, very few public goods or things that are even close.  If only government focused its spending on these things!

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I have a colleague who tapes dozens and dozens of news articles outside his office on the hall walls.  If you are a professor, I’m sure you have a similar colleague around. 

So, are these people consciously engaging in signaling to their colleagues and students about their political preferences?  Their erudition?  That they keep up on current events?  That they belong to the group?  Are these professors more or less likely to be active researchers or great teachers? 

Or are they just honestly attempting to provide a public service to those who might linger in the hallway and see articles of note that will improve their understanding of the world?  In other words, is such activity just an annex to their typical educative function?

Or is it a strictly political act?

Or are they subconsciously signaling while believing they are providing a public service or engaging in a political act?

Before anyone brings it up in the comments, the same questions could be asked about bloggers.

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On behalf of Pileus, I wanted to thank Tyler Cowen at Marginal Revolution for introducing us to his readers.  I also wanted to welcome those readers to our blog; I hope you’ll find Pileus to be an interesting addition to your daily blog reading.

As I noted earlier, MR is one of my regular reads and a top 10 blog in my book.

I especially look forward to Tyler and Sven Wilson conversing between the two blogs.

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