Author Archives: Arnold Kling

Scott Sumner’s new book

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On p. 33, he writes,

it’s far easier to understand inflation and deflation if we think in terms of explaining changes in the value of money than if we try to imagine the factors that would be changing the prices of each and every good, service, and asset in the economy.

During much of the Great Inflation [1966-1981, in his telling], people did try to explain the problem by searching for factors that were pushing up specific wages and prices. Indeed, in a sense the Great Inflation was caused by this misconception.

As I see it, we are seeing the same misconception this year. But on his blog, Sumner seems to disagree. He is willing to buy into the theory that we are facing transitory supply shocks in a few sectors. I think the main reason he goes with this story is that trust in the forecasting ability of financial markets is part of his worldview. But financial markets got it wrong during the Great Inflation, also.

I have just started the book. I am sure I will have more to say about it at a later date.

The Fed takes duration risk

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Larry Summers writes,

when the Fed substitutes short-term bank reserves for longer-term debt, the government is unaccountably “terming in” the debt and shortening the maturity of its liabilities. This approach makes little sense — no homeowner in the present circumstances would opt for a variable-rate mortgage with rates so low. It is unwise at a time of unprecedented growth in federal debt and prospective deficits, along with record-low real long-term borrowing costs. If ever there were a moment to increase longer-term borrowing, it is now.

Let’s say that the Treasury issues a 10-year bond. Good news! It locks in low rates. But then let’s say the Fed buys the bond by crediting a bank with reserves and paying interest on those reserves. It holds a fixed-rate asset funded by variable-rate liabilities. If it were a private bank, it would be dinged for taking too much duration risk.

Why math education has suffered

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Percy Deift, Svetlana Jitomirskaya, and Sergiu Klainerman write,

Far too few American public-school children are prepared for careers in science, technology, engineering, and mathematics (STEM). This leaves us increasingly dependent on a constant inflow of foreign talent, especially from mainland China, Taiwan, South Korea, and India. In a 2015 survey conducted by the Council of Graduate Schools and the Graduate Record Examinations Board, about 55 percent of all participating graduate students in mathematics, computer sciences, and engineering at US schools were found to be foreign nationals. In 2017, the National Foundation for American Policy estimated that international students accounted for 81 percent of full-time graduate students in electrical engineering at U.S. universities; and 79 percent of full-time graduate students in computer science.

That report also concluded that many programs in these fields couldn’t even be maintained without international students. In our field, mathematics, we find that at most top departments in the United States, at least two-thirds of the faculty are foreign born. (And even among those faculty born in the United States, a large portion are first-generation Americans.) Similar patterns may be observed in other STEM disciplines.

Later,

China pursues none of the equity programs that are sweeping the United States. Quite the contrary: It is building on the kind of accelerated, explicitly merit-based programs, centered on gifted students, that are being repudiated by American educators. Having learned its lesson from the Cultural Revolution, when science and merit-based education were all but obliterated in favor of ideological indoctrination, China is pursuing a far-sighted, long-term strategy to create a world-leading corps of elite STEM experts.

Have another nice day.

Have property rights gotten complicated?

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Russ Roberts talks with Michael Heller and James Salzman, co-authors of a book on issues with property rights. Roberts says,

I think most human beings think about the historical nature of property rights: something’s either mine or it’s not. And, that’s like my house, as long as I don’t have a mortgage. But, we tend to think of property rights is on or off: one, zero. And, what your book does beautifully is explore the rich nuance and subtlety of property rights, currently and in history.

For a number of reasons, I think that property rights are much more complicated now than they were two hundred years ago.

1. Because we are more likely to live in dense urban settings, what you do with your land affects me in many more ways than if we lived on separate farms or in a small village.

2. A lot of wealth now is intangible. That makes patents and trademarks and business rules more important. My claim to own a machine or a piece of land is pretty easy to verify. Intellectual property creates a lot more ambiguity.

You have to use force to take tangible property from me. But you may not have to use force to take intellectual property. Indeed, I may have to initiate the use of force (perhaps with the government on my side) to stop you from using my ideas. So libertarians do not necessarily support intellectual property. As David S. D’Amato put it,

Libertarians are seldom indecisive or wishy‐​washy on the question of intellectual property. We tend either to favor or oppose it strongly, depending on whether we see it as a necessary and proper guardian of legitimate individual rights, or a precarious and inherently unjust form of coercive monopolism. In an era when so much of what is even considered free competition depends on our answer to the intellectual property question, it is important to grapple with the theoretical work that was handed down to us, regardless of our ultimate stances.

My personal view is that information wants to be free, but creators need to get paid. As I see it, not all types of creations should be compensated in the same way. So I don’t take a simple, binary view of intellectual property.

3. There is much more specialization and trade than there was two hundred years ago. That means we depend on many more strangers than was the case back then. As a consumer, when I buy something, I believe–correctly or not–that various rights have been conferred to me. When I rent a bicycle, if the chain breaks when I am ten miles down the trail, do I have the right to be rescued by someone from the bike rental shop? If a drug causes a harmful side effect, do I have a right to compensation from the drug company? from my doctor? from the doctor’s malpractice insurance company? from my own health insurance?

4. Studying the “terms and conditions” for all of the software and web site subscriptions I have purchased probably would take me more than a lifetime. Like most people, I don’t do it. But that means I probably don’t really know what my property rights are.

Overall, if you were a New England farmer in 1800, you could go for months, perhaps your entire lifetime, without encountering a situation in which you were unsure about who owned what. Everything on your land you could sell or give away at will. Today, every time you use your smart phone you probably are encountering a situation in which property rights are unclear. Who owns your email archive? Your location data? Is an app that you “own” something you can sell of give away at will?

Think about all this. Clear, straightforward property rights are probably a necessary condition for a libertarian utopia of minimal government and maximum voluntary exchange. 21st century society requires a lot more governance (not all of which needs to come from government. Social media can censor politicians as well as the other way around).

And if you believe that blockchain by itself can settle all of these property rights issues, you have some work to do to persuade me of that.

Why epistemology has suffered

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Andrew Potter writes,

the need for our beliefs to connect or respond to reality has become increasingly unimportant. We are free to believe literally anything, from the wildest alt-right QAnon political conspiracies to the wackiest Gwyneth Paltrow health-nut fantasies of the contemporary wellness movement. None of it really matters—the lights still come on in your house, your car still runs, the grocery stores remain stocked with food. As nanotechnology expert J. Storrs Hall puts it, humans have an enormous capacity to hold beliefs not because they are true, but because they are advantageous to hold.

Society functions best when people of high status are truth-seekers.

Potter’s new book is On Decline: Stagnation, Nostalgia, and Why Every Year is the Worst Year Ever. Have a nice day.

Another edition of catching up with the FITS

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I thought I would wait a week to do this, but I came up with so much good material in a couple of days that I posted this. A taste:

The challenge for us as a society is to better align “get-ahead” with “understand reality.” In a sense, the Fantasy Intellectual Teams project is an attempt to do that, by using a scoring system that prioritizes the type of discourse that is associated with “understand reality.”