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Economics

August 19, 2014

"An astonishing record – of complete failure"

As I've noted before, macro is hard.

Now Loungani, with a colleague, Hites Ahir, has returned to the topic in the wake of the economic crisis. The record of failure remains impressive. There were 77 countries under consideration, and 49 of them were in recession in 2009. Economists – as reflected in the averages published in a report called Consensus Forecasts – had not called a single one of these recessions by April 2008. . . .

More astonishing still, when Loungani extends the deadline for forecasting a recession to September 2008, the consensus remained that not a single economy would fall into recession in 2009. 

"We should only adopt government programs that work well with real-world politicians and ignorant voters in charge"

Amen. Amen!

Many people are tempted to resist this insight, because they hope that we can elect better and more virtuous political leaders. But politicians who prioritize principle over staying in power are not likely to stay in power for long – or even get there in the first place. For that reason, most successful political leaders are people who are willing to sacrifice the public interest when it conflicts with their own interesting in seeking power.

"In a stew over inversions"

Three fine paragraphs from George Will:

Progressives say corporations using inversions are unpatriotic, which is amusing. When the Supreme Court’s Citizens United decision stipulated that Americans do not forfeit their First Amendment right to political advocacy when they act together through corporations (including, and especially, incorporated nonprofit advocacy groups), progressives ridiculed the idea that corporations should be treated as people. Now, progressives charge that corporations resorting to inversion are not behaving like patriotic people. . . .

This is the progressive premise in action: Because government provides infrastructure (roads, etc.) affecting everyone, and because government-dispensed money flows everywhere, everything is beholden to the government, and more or less belongs to the government, and should be subordinated to its preferences, which always are for more control of the nation’s wealth. Walgreens retreated, costing its shareholders, employees and customers billions. . . .

This illustrates the grandstanding frivolity of the political class. It legislates into existence incentives for what it considers perverse behavior, and then waxes indignant when businesses respond sensibly to the incentives.

See also "Three Cheers for Tax Inversions".

August 18, 2014

"Unicorn Governance: Ever argued public policy with people whose State is in fantasyland?"

Mike Munger, doing what he does, so very, very well.

When I am discussing the state with my colleagues at Duke, it's not long before I realize that, for them, almost without exception, the State is a unicorn. I come from the Public Choice tradition, which tends to emphasize consequentialist arguments more than natural rights, and so the distinction is particularly important for me. My friends generally dislike politicians, find democracy messy and distasteful, and object to the brutality and coercive excesses of foreign wars, the war on drugs, and the spying of the NSA. 

But their solution is, without exception, to expand the power of "the State." That seems literally insane to me—a non sequitur of such monstrous proportions that I had trouble taking it seriously.

"Why Improving Things Is Hard"

Should be required reading for dopey do-gooders of all stripes.

"Reaching for yield"

"I have seen this movie before. I know how it ends."

Me, too. Yikes.

August 14, 2014

"When crime stops paying"

Guess what happens when penalties for crime increase. Go ahead, guess.

August 12, 2014

"Piketty's Terrifying Dystopia"

I thought I was done posting links about Piketty's book, but Eric Falkenstein induces me to post another. For two reasons. One is there are a number of very fine bits. Examples:

When I was growing up it was common for progressives to caricature the 1950s as a period of bigotry, materialism, and conformism, now those same progressives consider this a golden age; What if the key to reducing inequality is bigotry? . . . 

In sum, his main concern is that the rich don't create wealth, they mainly just take it from others, and so social justice is negatively related to their wealth. Stalin's thoughts on the Kulaks were similar. . . .

Yet, Piketty merely attacks inequality without any serious discussion of how, exactly, wealthier rich people is worse than poorer rich people. It is petty and perverse to assert that a year where the stock market rises 20% is worse than one where it only rises 5%, because of its effects on inequality. Intellectuals generally hate evangelical Christians in good part because they are so similar in temperament and their preoccupation with eschatology; progressives are the new Puritans, whose haunting fear is that someone outside the state may be rich and not even feel guilty.

If inequality within a country is bad per se, should we curtail unskilled immigration (after all, immigration was much lower in Les Trente Glorieuse)? Is the inequality of capitalism worse than that of politics? Note Chelsea Clinton is currently paid $75K for a speech, surely not due to any trenchant analysis of today's issues, but rather, she's part of a political dynasty. Jeb Bush's son is often mentioned as a potential Presidential candidate, and so too Hillary Clinton. US Vice President Joe Biden's son is on the board of a Ukrainian gas company, probably not because he is expert at energy logistics.  Nepotism is less common in business than politics because shareholders lose patience with the founder's grandson much quicker than voters lose patience with the latest Kennedy, Gandhi, or Papandreou.

Read the whole thing for more.

The second reason is that in the second half of the post Falkenstein zeroes in on the fundamental flaw of all arguments for Big Government: the huge, consistent gap between government as Liberals like to imagine it could be from the way it actually is. To well-trained economists this is known as the subject matter of Public Choice, and both theoretically and empirically, Liberals have little answer for it. The standard replies from Liberals that I see nowadays are of two principal types. One is a sneer that conservatives are essentially anarchists with a inexplicably deep attachment to the market and a quasi-religious hatred of government. This is, of course, completely false. I simply note that religion deals largely with matters of the unseen; conservatives' criticism of Big Government is firmly grounded in history and tons of contemporary evidence.

The second reply is the "Here's a government program that clearly, demonstrably made these people better off. So there!" But it is physically impossible to spend trillions of dollars per year and not make somebody, somewhere better off. That is not now, nor will it ever be, the issue. The issue is, at the margin, does government spending and regulation provide more--properly accounted for--benefits than costs. Liberals rarely want to discuss that because somewhere, deep down, they're probably scared of the answer.

Bonus: two University of Chicago scholars offer "Thomas Piketty Is Wrong: America Will Never Look Like a Jane Austen Novel".

"The Future of Iced Coffee"

So it seems like coffee--soon even iced coffee--is going the way of beer, some clothes, and other items. For a while, big companies, mass production, and low prices dominate. Then, almost as soon as critics decry the loss of quality and craftsmanship as one of the horrors--horrors!--of the free market, the market produces . . . quality.

August 11, 2014

"Why We Shouldn’t Raise Teacher Pay"

Nicely done.

Why has increasing teacher pay not led to a corresponding increase in teacher skills? Vanderbilt University economist Dale Ballou has an answer. Simply put, even when schools are offered highly-skilled teachers, they don’t seem to want them. Writing in the Quarterly Journal of Economics, Ballou demonstrated that many of the most attractive teaching applicants—those who graduate from more competitive colleges, earn higher GPAs, or hold degrees in specialized areas such as math or science—schools often reject them in favor of less-impressive candidates who took the traditional route of majoring in education. An education degree was generally preferred even for applicants preparing for a secondary-school position. . . .

Ballou and fellow economist Michael Podgursky of the University of Missouri have shown that higher pay without reforms could actually lower teacher quality. Their argument starts with the observation that increasing pay reduces the number of job openings (because fewer teachers will quit or retire), and increases the number of new applicants (because the salary is more attractive). This necessarily lowers the chance that any given teaching applicant will receive a job offer.

That reduced probability may discourage certain would-be applicants from making the costly investment of time and money in becoming certified for teaching, especially if they do not perceive that schools favor them in the hiring process. And, unfortunately, the best-qualified applicants are probably most discouraged.

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