Quotulatiousness

May 15, 2014

The “typical American voter [is] a moderate national socialist who strongly supports state intervention in many areas”

Filed under: Economics, Media, Politics, USA — Tags: , , — Nicholas @ 11:42

Kevin Williamson responds to Michael Lind’s recent hit piece on Bryan Caplan:

Mr. Lind’s piece contains no analysis. Like a great deal of what currently passes for commentary, it is mostly a half-organized swarm of insults out of which emerges the occasional tendentious misstatement of Professor Caplan’s views and those of the libertarian thinkers with whom he is sometimes associated. Mr. Lind begins by bemoaning our alleged national descent into plutocracy and writes: “Some on the libertarian right have responded to this research by welcoming our new plutocratic overlords. Among these is Bryan Caplan.” Professor Caplan, author of The Myth of the Rational Voter, is a trenchant critic of electoral decision-making. Voters, he argues, suffer from specific, predictable biases — anti-market bias, anti-foreign bias, make-work bias, and pessimistic bias — that causes them to hold, and act on, untrue beliefs about the way the world works. Being an economist, Professor Caplan focuses on what voters believe about economics vs. what professional economists believe. He characterizes the typical American voter as a moderate national socialist who strongly supports state intervention in many areas, and remarks, “Given public opinion, the policies of First World democracies are surprisingly libertarian.”

There is a great deal of agreement among the poor, the middle class, and the rich on most political issues, but the rich are significantly more libertarian than are the poor. As Professor Caplan notes, the wealthy and the poor both support raising the minimum wage, but the poor much more strongly so. You might think that that is a question of narrow self-interest, but self-interest, counterintuitively, has little effect on public opinion. And the rich are more libertarian than the poor not only on economic issues but also on social issues. The poor are “much more anti-gay,” Professor Caplan writes. “They’re much less opposed to restricting free speech to fight terrorism.” On the relatively few issues on which there is strong disagreement between the poor and the rich, the preferences of the rich have tended to prevail, and that pleases Professor Caplan, because that means that more libertarian policies are put into place than public opinion would suggest. “To avoid misinterpretation,” he writes, “this does not mean that American democracy has a strong tendency to supply the policies that most materially benefit the rich. It doesn’t.” But there is no avoiding misinterpretation when the opposite side is committed to misinterpreting you. Professor Caplan celebrates the advance of gay rights, pushback against the surveillance state, and, regrettably (especially for the author of Selfish Reasons to Have More Kids), abortion rights, among other items on the progressive social agenda. Mr. Lind sees only a champion of plutocracy — because that is all he is inclined to see.

Mr. Lind, who shares with fellow former conservative David Brock the convert’s zeal, is something of a fanatic on the subject of libertarianism, and the bulk of his piece is dedicated to abominating every libertarian thinker he’s ever heard of, making the case that the abominable Professor Caplan should fit right in. He starts with the predictable home-run swing (“you might be tempted to dismiss Bryan Caplan as just another Koch-funded libertarian hack …” and follows up with “Koch-subsidized intelligentsia of the libertarian right,” “almost all of them are paid, directly or indirectly, by a handful of angry, arrogant rich guys,” “third-rate minds like Peter Thiel”), goes right into the shallow insults (“that near-oxymoron, libertarian thought”), and then proceeds to the greatest hits: “Ludwig von Mises praised Mussolini,” “Friedrich von Hayek” [NB: The Hayek family ceased being the “von Hayek” family in 1919, when Hayek was twelve, and he did not use the honorific himself, but that “von” sounds kind of Nazi-ish, so, there you have it] admired the military dictator Augusto Pinochet,” and closes out with moral preening: “Our squalid age of plutocratic democracy has found a thinker worthy of it.”

May 13, 2014

The global 1% includes almost all North Americans

Filed under: Economics, USA — Tags: , — Nicholas @ 07:14

Peter Jaworski explains that as with so many other issues, where you sit on the issue of economic inequality determines what you see:

When people talk about the “1%”, I think they think that they are talking about a specific group of individuals, who have been and remain in that category over time.

When they say “We are the 99%” I think they think that that’s a static category, designating a group of people who persist as members over their lifetime.

Would people be so upset if it turned out that the individuals who made up the 1% were different people over time? That those who are in the 1% spend most of their lives in the 99%, and will go back to being 99%ers after a few years of being 1%ers?

I’m not sure. I am sure that if those categories represented a permanent group of specific individuals, we would be justified in lamenting the state of the economy.

But at any rate, if you’re someone who worries a great deal about the 1 and 99 %ers, would you be as worried if the following were true?:

Suppose just over one-in-ten (or 12%) would be in the 1% for at least a year of their lives.
Suppose further, to expand our view a bit, that just over one-in-three (or 39%) would hit top 5%, just over one-in-two (or 56%) would hit top 10%, and two-in-three (or 73%) would hit top 20%, each for at least a year of their lives.

And now suppose that less than one-in-150 (or a mere 0.6%) remained in the top 1% for 10 consecutive years.

If all of that were true — if the income distribution were that fluid — would you still be so upset?

All of that isn’t a hypothetical: “it’s a description of the income distribution over time in the U.S.” (and Canadians are probably similarly distributed).

For people in India, I bet they think the heated discussion about top 1%ers and 99%ers in Canada and the U.S. is a great big joke. The very same kind of joke that we would laugh about if the Tremblays in the Westmount area of Montreal were to bitterly complain about the Jones’ living in the Bridal Path area of Toronto. Sure, the Tremblays with their average $8 million net worth have half what the Jones’ and their $16 million net worth have, but it would take a comic to suggest we should lament and despair about the Tremblays’ attempts to keep up with the Jones’.

But it’s not a joke. Or, maybe, the people who occupied Bay Street and Wall Street didn’t get it.

Us Canadian 99%ers are not just rich, which we are. By global standards, we’re filthy, stinking rich. It takes roughly an annual net income of $41,600 to be in the global 1%.

If that’s you, then take a deep breath, find a mirror, and repeat these words, “I am the 1%.”

May 10, 2014

What did King Solomon and David Lee Roth have in common?

Filed under: Business, Economics, History, Media — Tags: , , — Nicholas @ 12:59

Actually, more than a few things, as the Freakonomics team of Dubner and Levitt explain:

King Solomon built the First Temple in Jerusalem and was known throughout the land for his wisdom.

David Lee Roth fronted the rock band Van Halen and was known throughout the land for his prima-donna excess.

What could these two men possibly have had in common? Well, both were Jewish; both got a lot of girls; and both wrote the lyrics to a No. 1 pop song (“Jump” in Mr. Roth’s case and, in Solomon’s, several verses from Ecclesiastes that appeared in the Byrds’ 1965 hit “Turn! Turn! Turn”). But most improbably, they both dabbled in game theory, as seen in classic stories about their clever strategic thinking.

[…]

And so it was that David Lee Roth and King Solomon both engaged in a fruitful bit of game theory — which, narrowly defined, is the art of beating your opponent by anticipating his next move.

Both men faced a similar problem: How to sift the guilty from the innocent when no one is stepping forward to profess their guilt? A person who is lying or cheating will often respond to an incentive differently than an honest person. Wouldn’t it be nice if this fact could be exploited to ferret out the bad guys?

We believe it can — by tricking the guilty parties into unwittingly revealing their guilt through their own behavior. What should this trick be called? In honor of King Solomon, we’ll name it as if it is a lost proverb: Teach Your Garden to Weed Itself.

May 9, 2014

QotD: Real history and economic modelling

Filed under: Economics, History, Media, Quotations — Tags: , , — Nicholas @ 08:23

I am not an economist. I am an economic historian. The economist seeks to simplify the world into mathematical models — in Krugman’s case models erected upon the intellectual foundations laid by John Maynard Keynes. But to the historian, who is trained to study the world “as it actually is”, the economist’s model, with its smooth curves on two axes, looks like an oversimplification. The historian’s world is a complex system, full of non-linear relationships, feedback loops and tipping points. There is more chaos than simple causation. There is more uncertainty than calculable risk. For that reason, there is simply no way that anyone — even Paul Krugman — can consistently make accurate predictions about the future. There is, indeed, no such thing as the future, just plausible futures, to which we can only attach rough probabilities. This is a caveat I would like ideally to attach to all forward-looking conjectural statements that I make. It is the reason I do not expect always to be right. Indeed, I expect often to be wrong. Success is about having the judgment and luck to be right more often than you are wrong.

Niall Ferguson, “Why Paul Krugman should never be taken seriously again”, The Spectator, 2013-10-13

May 7, 2014

Peak inequality in England – about 200 years ago

Filed under: Books, Britain, Economics, History — Tags: , , , — Nicholas @ 10:18

An interesting article that starts and ends talking about Thomas Piketty’s new book, but in the middle goes a long way to explain what happened to English aristocracy over the last few hundred years:

Extravagances like the stately homes of England made economic sense before the 19th century because the relative wages of servants and construction workers mostly fell from 1500 to 1800 as the supply of English workers slowly recovered in size from the Black Death of the 1340s.

But, outside of economic theory, the rich have often tended to get poorer, especially when they spend more than they make. It’s a common theme in English literature (Evelyn Waugh’s A Handful of Dust) and television (Downton Abbey). For instance, by the time of Winston Churchill’s birth in 1874, the English ultra-rich weren’t getting richer.

[…]

The long agricultural depression of 1873-1896 meant the great houses of England began falling apart. Wings had to be shut as servants found higher paying jobs in factories. Repairs could not be paid for.

The usual solutions were to first auction off the art collection, then marry American heiresses, as in Downton Abbey, where Countess Cora, played by Elizabeth McGovern, is from the Chicago Levinsons. Winston’s mother Jenny was from the Jeromes of Wall Street.

[…]

Servants had steadily become more expensive in England. One reason was the increase in jobs elsewhere in a modernizing economy. On Downton Abbey, to illustrate, a maid applies for a job in town as a secretary, which is a much better post.

A forgotten reason, though, was that the massive emigration from the British Isles reduced the supply of workers and thus raised their wages. While Tony Blair’s Labor Government liked to claim that Britain had always been a nation of immigrants, it was in truth a nation of emigrants. Today, there are perhaps two or even three times as many people descended from the British Isles living in the United States, Canada, Australia, New Zealand, South Africa, and Argentina as there are in Britain and Ireland. Without all that outflow, wages in Britain would be lower and land prices astronomical.

H/T to Kathy Shaidle for the link.

May 6, 2014

Climate change and positive effects

Filed under: Economics, Environment, Media, Science — Tags: , — Nicholas @ 08:30

Matt Ridley explains that according to the experts, it’s believed that ongoing climate change actually provides net benefits for most of this century:

Climate change has done more good than harm so far and is likely to continue doing so for most of this century. This is not some barmy, right-wing fantasy; it is the consensus of expert opinion. Yet almost nobody seems to know this. Whenever I make the point in public, I am told by those who are paid to insult anybody who departs from climate alarm that I have got it embarrassingly wrong, don’t know what I am talking about, must be referring to Britain only, rather than the world as a whole, and so forth.

At first, I thought this was just their usual bluster. But then I realised that they are genuinely unaware. Good news is no news, which is why the mainstream media largely ignores all studies showing net benefits of climate change. And academics have not exactly been keen to push such analysis forward. So here follows, for possibly the first time in history, an entire article in the national press on the net benefits of climate change.

There are many likely effects of climate change: positive and negative, economic and ecological, humanitarian and financial. And if you aggregate them all, the overall effect is positive today — and likely to stay positive until around 2080. That was the conclusion of Professor Richard Tol of Sussex University after he reviewed 14 different studies [PDF] of the effects of future climate trends.

To be precise, Prof Tol calculated that climate change would be beneficial up to 2.2˚C of warming from 2009 (when he wrote his paper). This means approximately 3˚C from pre-industrial levels, since about 0.8˚C of warming has happened in the last 150 years. The latest estimates of climate sensitivity suggest that such temperatures may not be reached till the end of the century — if at all. The Intergovernmental Panel on Climate Change, whose reports define the consensis, is sticking to older assumptions, however, which would mean net benefits till about 2080. Either way, it’s a long way off.

[…]

You can choose not to believe the studies Prof Tol has collated. Or you can say the net benefit is small (which it is), you can argue that the benefits have accrued more to rich countries than poor countries (which is true) or you can emphasise that after 2080 climate change would probably do net harm to the world (which may also be true). You can even say you do not trust the models involved (though they have proved more reliable than the temperature models). But what you cannot do is deny that this is the current consensus. If you wish to accept the consensus on temperature models, then you should accept the consensus on economic benefit.

May 2, 2014

PC “credentials” as a “positional good”

Filed under: Economics, Media, Wine — Tags: , , , , — Nicholas @ 14:56

Kristian Niemietz agrees with much of the pro-free speech coverage in sp!ked, but suggests that the real reason for politically correct attitudes are not quite as presented:

Over the past few years, spiked online magazine has consistently and robustly defended the principle of free speech against the censorship demands of the politically correct, whatever quarter they may come from. It is great, of course, that there is at least one magazine in which the phrase ‘I believe in free speech’ is unlikely to be followed by a ‘but…’, and more likely to be followed by an ‘even for…’. But while I fully support the spiked line, I also think the spiked authors sometimes misinterpret the intentions of the ‘PC brigade’, and would like to offer an alternative interpretation rooted in boring, old-fashioned textbook economics.

Spiked authors believe that PC is driven by a loathing for ordinary people. According to spiked, PC brigadiers view ordinary folks as extremely impressionable, easily excitable, and full of latent resentment. Exposure to the wrong opinions, even isolated words, could immediately awaken the lynch mob. PC, then, is about protecting ‘the vulnerable’ from the nasty tendencies of the majority population.

But if PC was not really about protecting anyone, and really all about expressing one’s own moral superiority, PC credentials would be akin to what economists call a ‘positional good’.

A positional good is a good that people acquire to signalise where they stand in a social hierarchy; it is acquired in order to set oneself apart from others. Positional goods therefore have a peculiar property: the utility their consumers derive from them is inversely related to the number of people who can access them.

Positionality is not a property of the good itself, it is a matter of the consumer’s motivations. I may buy an exquisite variety of wine because I genuinely enjoy the taste, or acquire a degree from a reputable university because I genuinely appreciate what that university has to offer. But my motivation could also be to set myself apart from others, to present myself as more sophisticated or smarter. From merely observing that I consume the product, you could not tell my motivation. But you could tell it by observing how I respond once other people start drinking the same wine, or attending the same university.

If I value those goods for their intrinsic qualities, their increasing popularity will not trouble me at all. After all, the enjoyment derived from wine or learning is not fixed, so your enjoyment does not subtract from my enjoyment. I may even invite others to join me – we can all have more of it.

But if you see me moaning that the winemakers/the university have ‘sold out’, if you see me whinging about those ignoramuses who do not deserve the product because they (unlike me, of course) do not really appreciate it, you can safely conclude that for me, this good is a positional good. (Or was, before everybody else discovered it.)

April 30, 2014

Inheritance taxes actually perpetuate the 1%

Filed under: Britain, Economics, USA — Tags: , , , — Nicholas @ 08:18

Here’s Tim Worstall’s counter-intuitive post at the Adam Smith Institute blog from last week:

… Note “family foundation” there. Because of that inheritance tax rich people do tend to (and they have to be very rich for it to work) stick all of the money into a foundation. This wealth can then be maintained by professional money managers down the generations. Tax free, of course, as it’s inside a foundation. The stipulation is that said foundation must give away 5% of its assets each year. But such “giving away” obviously includes employing family members to run it. At pretty much any salary desired.

This obviously wouldn’t happen if the money could just be left directly to children without tax being due. And the effect of it going into such a foundation where the professional money managers can maintain it, rather than the heirs blow it, is that we’ve lost one of the major forces that disperses wealth through the society. The feckless heir.

So, we end up with the imposition of the tax leading to the continued concentration of old wealth, as the avoidance of the tax reduces the ability of the inheritors to waste it.

As an example, who thinks that any of the Kennedys would still be rich if they’d been able to get their hands on old Joe’s money directly?

I rest my case.

As one of the comments on that post points out, it’s not just the inheritance tax: it’s the interaction between the tax and the rules governing family foundations that create this unexpected-to-most-of-the-99% situation. I’m sure the 1% who can benefit from this are fully aware of it. This could be fixed either way, but the very people who benefit are the ones who would be pivotal in whether the changes could be made. So, it’s technically possible but not at all likely.

Disturbing US unemployment figures

Filed under: Economics, Government, USA — Tags: , — Nicholas @ 06:58

Michael Snyder says the official unemployment rate actually conceals more than it reveals:

According to shocking new numbers that were just released by the Bureau of Labor Statistics [PDF], 20 percent of American families do not have a single person that is working. So when someone tries to tell you that the unemployment rate in the United States is about 7 percent, you should just laugh. One-fifth of the families in the entire country do not have a single member with a job. That is absolutely astonishing. How can a family survive if nobody is making any money? Well, the answer to that question is actually quite easy. There is a reason why government dependence has reached epidemic levels in the United States. Without enough jobs, tens of millions of additional Americans have been forced to reach out to the government for help. At this point, if you can believe it, the number of Americans getting money or benefits from the federal government each month exceeds the number of full-time workers in the private sector by more than 60 million.

[…]

A number that I find much more useful is the employment-population ratio. According to the employment-population ratio, the percentage of working age Americans that actually have a job has been below 59 percent for more than four years in a row…

US Employment-Population Ratio 2002-2014

That means that more than 41 percent of all working age Americans do not have a job.

When people can’t take care of themselves, it becomes necessary for the government to take care of them. And what we have seen in recent years is government dependence soar to unprecedented levels. In fact, welfare spending and entitlement payments now make up 69 percent of the entire federal budget.

April 28, 2014

Megan McArdle on The Up Side of Down

Filed under: Books, Business, Economics, Media, USA — Tags: , , — Nicholas @ 00:01

I posted a shorter interview yesterday, and this is a longer presentation Megan McArdle did back in February at Politics & Prose Bookstore in Washington, D.C.:

Published on 15 Feb 2014

Failure, however devastating, is not the end. In fact, as McArdle, a journalist and blogger who has charted the fall and rise of a variety of ventures shows, failure can be just the teacher you need to push you forward to greater success. For those of you who missed her talk at Sixth and, maybe failing to come is the insight you need.

April 27, 2014

Reason.tv – Megan McArdle: Why Failing Well is the Key to Success

Filed under: Books, Business, Economics, Media — Tags: , , — Nicholas @ 10:28

Published on 25 Apr 2014

“There’s nothing as dangerous as perfect safety,” says Megan McArdle, author of the new book, The Up Side of Down: Why Failing Well is the Key to Success.

Failure is inevitable, says McArdle, who’s also a Bloomberg View columnist. But how we handle our own failures and whether we learn from them go a long way in shaping individuals, institutions, and entire societies.

Drawing on personal anecdotes, current events, literature, and cutting-edge research, McArdle dissects our beliefs, myths, and cognitive biases about failure.

April 26, 2014

We’re not “running out of resources”

Filed under: Economics, Environment, Technology — Tags: , , — Nicholas @ 10:00

In the Wall Street Journal, Matt Ridley explains that claims that we’re running out of this or that resource are almost always bogus:

How many times have you heard that we humans are “using up” the world’s resources, “running out” of oil, “reaching the limits” of the atmosphere’s capacity to cope with pollution or “approaching the carrying capacity” of the land’s ability to support a greater population? The assumption behind all such statements is that there is a fixed amount of stuff — metals, oil, clean air, land — and that we risk exhausting it through our consumption.

[…]

But here’s a peculiar feature of human history: We burst through such limits again and again. After all, as a Saudi oil minister once said, the Stone Age didn’t end for lack of stone. Ecologists call this “niche construction” — that people (and indeed some other animals) can create new opportunities for themselves by making their habitats more productive in some way. Agriculture is the classic example of niche construction: We stopped relying on nature’s bounty and substituted an artificial and much larger bounty.

Economists call the same phenomenon innovation. What frustrates them about ecologists is the latter’s tendency to think in terms of static limits. Ecologists can’t seem to see that when whale oil starts to run out, petroleum is discovered, or that when farm yields flatten, fertilizer comes along, or that when glass fiber is invented, demand for copper falls.

That frustration is heartily reciprocated. Ecologists think that economists espouse a sort of superstitious magic called “markets” or “prices” to avoid confronting the reality of limits to growth. The easiest way to raise a cheer in a conference of ecologists is to make a rude joke about economists.

[…]

In 1972, the ecologist Paul Ehrlich of Stanford University came up with a simple formula called IPAT, which stated that the impact of humankind was equal to population multiplied by affluence multiplied again by technology. In other words, the damage done to Earth increases the more people there are, the richer they get and the more technology they have.

Many ecologists still subscribe to this doctrine, which has attained the status of holy writ in ecology. But the past 40 years haven’t been kind to it. In many respects, greater affluence and new technology have led to less human impact on the planet, not more. Richer people with new technologies tend not to collect firewood and bushmeat from natural forests; instead, they use electricity and farmed chicken — both of which need much less land. In 2006, Mr. Ausubel calculated that no country with a GDP per head greater than $4,600 has a falling stock of forest (in density as well as in acreage).

April 21, 2014

Clive Crook reviews Piketty’s Capital in the Twenty-First Century

Filed under: Books, Economics, Media — Tags: , — Nicholas @ 07:40

Clive Crook takes a jaundiced look at what some enthusiastic fans are calling the “most important book ever”:

As I worked through the book, I became preoccupied with another gap: the one between the findings Piketty explains cautiously and statements such as, “The consequences for the long-term dynamics of the wealth distribution are potentially terrifying.”

Piketty’s terror at rising inequality is an important data point for the reader. It has perhaps influenced his judgment and his tendentious reading of his own evidence. It could also explain why the book has been greeted with such erotic intensity: It meets the need for a work of deep research and scholarly respectability which affirms that inequality, as Cassidy remarked, is “a defining issue of our era.”

Maybe. But nobody should think it’s the only issue. For Piketty, it is. Aside from its other flaws, Capital in the 21st Century invites readers to believe not just that inequality is important but that nothing else matters.

This book wants you to worry about low growth in the coming decades not because that would mean a slower rise in living standards, but because it might cause the ratio of capital to output to rise, which would worsen inequality. In the frame of this book, the two world wars struck blows for social justice because they interrupted the aggrandizement of capital. We can’t expect to be so lucky again. The capitalist who squanders his fortune is a better friend to labor than the one who lives modestly and reinvests his surplus. In Piketty’s view of the world, where inequality is all that counts, capital accumulation is almost a sin in its own right.

Over the course of history, capital accumulation has yielded growth in living standards that people in earlier centuries could not have imagined, let alone predicted — and it wasn’t just the owners of capital who benefited. Future capital accumulation may or may not increase the capital share of output; it may or may not widen inequality. If it does, that’s a bad thing, and governments should act. But even if it does, it won’t matter as much as whether and how quickly wages and living standards rise.

Update, 23 April: David Harsanyi says the book is amazing — not for its content, but for the way it is being siezed upon by big government fans, inequality monomaniacs, and confiscatory taxation buffs.

As I write this, Thomas Piketty’s book Capital in the Twenty-First Century is #1 on Amazon. It’s been deemed an “important book” by a bunch of smart people. Why not? It validates many of the preconceived notions progressives have about capitalism: Inequality is growing. Mobility is shrinking. Meritocracy is dead. We all live in a sprawling zero-sum fallacy. And so on.

The book, as you probably know, has also sparked nonstop conversation in political and media circles. Though it’s best to let economists debunk Piketty’s methodology and data, it is worth pointing out that liberal pundits and writers have not only enthusiastically and unconditionally embraced a book on economics, or even a run-of-the-mill leftist polemic, but a hard-left manifesto.

Now, I realize we’re all supposed to accept the fact that conservatives are alone in embracing fringe economic ideas. But how does a book that evokes Marx and talks about tweaking the Soviet experiment find so much love from people who consider themselves rational, evidence-driven moderates?

[…]

The thing is, some of us still believe that capitalism fosters meritocratic values. Or I should say, we believe that free markets are the best game in town. Not that long ago, this was a nearly universal position. A lot of people used to believe that even the disruptions of capitalism — the “caprices of technology” as Piketty dismisses them — that rattle “social order” also happen to generate mobility, dynamism and growth. Today this probably qualifies as Ayn Rand-style extremism.

Then again, I haven’t read Ayn Rand since college (or maybe it was high school) but if I still believed she was the most prophetic writer of her generation, I might feel compelled to defend her ideas. But Piketty’s utopian notions and authoritarian inclinations — ones that I’m pretty sure most Americans (and probably most Democrats) would still find off-putting — do not seem to rattle the left-wing press one bit. While Piketty’s economic data might be worth studying and debating, his political ideas are unworthy of discussion.

Despite the extremism of his positions, Piketty has already become a folk hero to inequality alarmists everywhere. So if his popularity tells us anything, it’s that many liberal “thought leaders” have taken a far more radical position on economic policy than we’re giving them credit for.

Update the second, 28 April: Megan McArdle hasn’t read the book yet, but she addresses one of the ideas most positive reviewers have praised in their glowing reviews.

What I want to quarrel with is not the book’s methods or conclusion, but with the general idea that income inequality is the most important thing going on in the world. In terms of how it matters to lived human experience, I doubt it even makes the top 20.

I am not disputing that something unhappy is going on in the global economy. Nor am I disputing that this unhappiness is unequally distributed. But the proportion of this unhappiness due to income inequality is actually relatively small — and moreover, concentrated not among the poor, but among the upper middle class, which competes with the very rich for status goods and elite opportunities.

If we look at the middle three quintiles, very few of their worst problems come from the gap between their income and the incomes of some random Facebook squillionaire. Here, in a nutshell, are their biggest problems:

  1. Finding a job that allows them to work at least 40 hours a week on a relatively consistent schedule and will not abruptly terminate them.
  2. Finding a partner who is also able to work at least 40 hours a week on a relatively consistent schedule and will not be abruptly terminated.
  3. Maintaining a satisfying relationship with that partner over a period of years.
  4. Having children who are able to enjoy more stuff and economic security than they have.
  5. Finding a community of friends, family and activities that will provide enjoyment and support over the decades.

This is where things are breaking down — where things have actually, and fairly indisputably, gotten worse since the 1970s. Crime is better, lifespans are longer, our material conditions have greatly improved — yes, even among the lower middle class. What hasn’t improved is the sense that you can plan for a decent life filled with love and joy and friendship, then send your children on to a life at least as secure and well-provisioned as your own.

How much of that could be fixed by Piketty’s proposal to tax away some huge fraction of national income from rich people? Some, to be sure. But writing checks to the bottom 70 percent would not fix the social breakdown among those without a college diploma — the pattern of marital breakdown showed up early, and strong, among welfare mothers.

April 20, 2014

Those dismal, uncaring economists

Filed under: Economics, Religion — Tags: , , , — Nicholas @ 10:39

Tim Harford found a recent assertion by a clergyman to be troubling:

‘Some research on students suggests economics either attracts or creates sociopaths’

Justin Welby, the Archbishop of Canterbury, recently bemoaned the way that “we are all reduced to being Homo financiarius or Homo economicus, mere economic units … for whom any gain is someone else’s loss in a zero-sum world.”

The remarks were reported on the 1st of April, but I checked, and the Archbishop seems serious. He set out two ways to see the world: the way a Christian sees it, full of abundance and grace; and the way he claims Milton Friedman saw it, as a zero-sum game.

Whatever the faults one might find in Friedman’s thinking, seeing the world as a zero-sum game was not one of them. So what do we learn from this, other than that the Archbishop of Canterbury was careless in his choice of straw man? The Archbishop does raise a troubling idea. Perhaps studying economics is morally corrosive and may simply make you a meaner, narrower human being.

However, the Archbishop appears to have been misinformed:

Economists did actually give more to charity in Frank’s survey. They were richer, and while they gave less as a percentage of their income they did give more in cash terms.

What about those hypothetical questions about envelopes full of cash? Were economics students selfish or merely truthful? Anthony Yezer and Robert Goldfarb (economists) and Paul Poppen (a psychologist) conducted an experiment to find out, surreptitiously dropping addressed envelopes with cash in classrooms to see if economics students really were less likely to return the money. Yezer and colleagues found quite the opposite: the economics students were substantially more likely to return the cash. Not quite so selfish after all.

Most importantly, classroom experiments with collective goods or the prisoner’s dilemma don’t capture much of economic life. The prisoner’s dilemma is a special case, and a counter-intuitive one. It is not surprising that economics students behave differently, nor does it tell us much about how they behave in reality. If there is a single foundational principle in economics it is that when you give people the chance to trade with each other, both of them tend to become better off. Maybe that’s naive but it’s all about “abundance” and is the precise opposite of a zero-sum mentality.

In fact, some of the more persuasive criticisms of economics are that it is too optimistic about abundance and peaceful gains from trade. From this perspective, economists should give more attention to the risks of crime and violence and to the prospect of inviolable environmental limits to economic growth. Perhaps economists don’t realise that some situations really are zero-sum games.

April 19, 2014

Transaction costs, takedown notices, and the DMCA

Filed under: Economics, Law, Media — Tags: , , , , — Nicholas @ 09:59

Mike Masnick reports on an inadvertent natural experiment that just came to light:

We’ve written a few times in the past about research done by Paul Heald on copyright and its impact on the availability of certain content. He’s recently published an interesting new study on how the DMCA’s notice-and-takedown regime facilitates making content available by decreasing transaction costs among parties. As we’ve discussed at length, the entertainment industry’s main focus in the next round of copyright reform is to wipe out the notice-and-takedown provisions of the DMCA. The legacy recording and movie industries want everyone else to act as copyright cops, and hate the idea that notice-and-takedown puts the initial burden on themselves as copyright holders.

However, Heald’s research looks at music on YouTube and concludes that the notice-and-takedown system has actually enabled much greater authorized availability of music, by reducing transaction costs. The idea is pretty straightforward. Without a notice-and-takedown provision, someone who wants to post music to YouTube needs to go out and seek a license. Of course, getting permission from all the various rightsholders is frequently impossible. The transaction costs of getting permission make it such that it’s way too high. Yet, with notice-and-takedown, the person can upload the content without permission, and then the copyright holder is given the option of what to do with it. On YouTube, that includes the option of monetizing it, thus “authorizing” the use. That creates a natural experiment for Heald to explore, in which he can see how much content is “authorized” thanks to such a setup. And the result, not surprisingly, is that this system has enabled much greater authorized (and monetized) access to music than an alternative, high transaction cost system, under which uploaders must first seek out permission to upload everything.

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