Author Archives: Arnold Kling

The proposals of a free-market economist

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Ed Glaeser writes,

Charter schools sadly remain a niche product, so pushing for their expansion—and for greater school-choice options more broadly—is necessary. Another alternative that could open up new education opportunities would be vocational training that bypasses the school system entirely. Washington could pay for programs inculcating marketable skills—from plumbing to computer programming. These programs could be competitively sourced, meaning that labor unions and community colleges and for-profit entrepreneurs could compete to offer them. But providers would get paid only if students learned real skills.

…The Social Security system should also be made friendlier to the young. The payroll taxes that fund Social Security could be eliminated for those under 30 and phased in later in life. Younger workers and their employers would initially pay nothing into the system. That shift would eliminate a large tax-related barrier to hiring the young and make it more financially attractive for young people to work. That reform would reduce revenues, true; but raising the age of retirement could offset the lost funds.

. . .The best way to preserve our vital small-business ecosystem is not to throw money at every struggling business but instead to make it as easy as possible for new businesses to open after the pandemic has passed.

If a state isn’t allowing any construction in high-demand areas, shouldn’t the federal government reduce its infrastructure support? Use money to nudge states—and let states nudge communities.

Yes, we know that these are all non-starters politically. But if we’re going to indulge in fantasies, they may as well be good ones.

Joe Rini asks me anything

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Transcript.

Some of my blog readers asked me to say more about my intellectual influences so I’ve been writing a series of posts that haven’t gone up yet about that and what I notice is the longest post I’ve written is about the Freddie Mac career which, because I learned more in those you know half a dozen years in business than I learned in my undergraduate and graduate economics. I mean in some ways the learning was complementary but if you had to throw out one it would be the classical economics. Because you know one of the things that first you know hits you if you work in business and all you’ve done is study economics is these things that that a business is supposed to optimize – like it’s supposed to minimize costs or maximize profits, you know solving a calculus problem. That’s not the problem at all. You don’t even- you don’t know – your challenge is to figure out what’s going on, and beyond that if you were in a large organization the challenge is to get the large organization to function.

Video version.

Audio version.

Elite over-production

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Malcolm Kyeyune writes,

for some time now, the West has been using a massive expansion of higher education to create a new class of functionaries—”knowledge-workers” and would-be managers—in numbers far in excess of what the labor market can or could absorb. Yet, it is only just now that we are seeing, with clear eyes, that this class of people (which, again, nobody denies the existence of) might begin acting as a class.

Peter Turchin coined the phrase “elite over-production” to describe the volatile situation in which there are too many people with elite class markers relative to high-status positions in society. We “solve” this problem in the United States by putting these surplus elites into college administration and other meaningless non-profit positions. Otherwise, even more of them would end up as baristas, where they would at least be contributing positively to society.

One very uncharitable way to describe the result is that these surplus elites have some unfulfilled desires for power and status. They take these out on the rest of us in fits of woke rage.

Kyeyune puts the uncharitable interpretation this way:

The point of this “totalitarianism” is not to force everyone to think correct thoughts at the risk of getting fired; it is to get them fired. Full stop. Like the medieval guilds of old Europe, surplus managers are threatened by the existence of a mass of people willing to do any job within their ambit that cannot be comfortably accommodated without inviting the pauperization of their entire profession.

I recommend the whole essay.

Don’t hire TIVs

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Rahav Gabay and others write,

The present research investigates this Tendency for Interpersonal Victimhood (TIV), which we define as an ongoing feeling that the self is a victim, which is generalized across many kinds of relationships. People who have a higher tendency for interpersonal victimhood feel victimized more often, more intensely, and for longer durations in interpersonal relations than do those who have a lower such tendency. Based on research on victimhood in interpersonal and intergroup relations, we present a conceptualization of TIV, introduce a valid and reliable measure, and examine its cognitive, emotional, and behavioral consequences.

. . .anxious attachment is associated with a combination of being unable to regulate hurt feelings, and being very sensitive to others’ responses, and with an ambivalent perception of others that involves anticipating rejection or abandonment, while depending on others as a source of self-esteem and self-worth (Mikulincer & Shaver, 2016). Thus, anxious attachment should be positively associated with TIV.

This is a study that is dubious yet appealing. It is appealing because it reduces the cry-bullies of the Woke movement to a personality type. It is dubious because it reduces a political orientation to a personality type. It is dubious because these sorts of psychological studies are not reliable.

But if you could test for this sort of personality, I would recommend not hiring anyone like this, regardless of their political orientation.

Virus update

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1. Casey Mulligan writes,

I was in the Oval Office with the president and his economic team in February (when COVID-19 cases were beginning to spread). His staff was worried that the FDA would not be interested in removing any more approval barriers. But the President was confident, telling us that “I’ve done it before and will do it again … bring the FDA management in here.” President Trump initiated his Operation Warp speed, led by HHS, to give many private companies incentives for “speed and scale” of vaccine production and to give all companies the opportunity for streamlined FDA approval.

Read the whole post. Pointer from a commenter.

Unless Mulligan’s account can be disputed, Mr. Trump successfully fought the bureaucracy on the vaccine issue. Thus, contrary to the standard view on the left, he is a hero rather than a villain of the virus crisis.

2. The daily average death rate seems to have finally leveled off, albeit at a high level of about 2500 deaths per day.

3. In a podcast with Russ Roberts, Jay Bhattacharya says,

if you’re under 70, the infection survival rate is something like 99.95%. 99.95%

He argues for a policy that I would call “expose the young, protect the old.” Let me play Devil’s Advocate on that.

–His numbers say that the chances of dying if you are under 70 and get the virus are 5 out of 10,000. Suppose that 200 million people get it with that death rate. That means that 100,000 of them die. Is that low for people in that age group? I don’t know.

–And what if he is a little off–and the death rate turns out to be 8 out of 10,000? That would mean 160,000 deaths in that age group.

–And what about survival but with long-term damage? I think it was Bret Weinstein who speculated that the virus takes an average of 10 years off of the life of everyone who gets it, or perhaps everyone who is symptomatic. That is a lot of life-years lost, even if it only kills people who otherwise had less than 10 years of expected life.

–And in practice can you really protect the old while the young are exposed?

Of course, he deals with these objections in the podcast.

Dear high school senior

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Tyler Cowen writes,

a lot is going on in science and also in applied science and actual invention, not just nifty articles in Atlantic. On net, this means you should spend more time consuming YouTube videos (try this one on protein folding). They tend to be current, and to explain difficult matters in visual and also in fairly memorable terms. There will be such videos for virtually every new advance. You should read fewer normal books, more vertigo-inducing books, and spend less time on social media. You should read more Wikipedia articles, and when you read books you should select more from the history of science and times of turmoil. You should read this blog more often too.

I think that the way you acquire “higher education” may be changing. College may be less all-encompassing and instead more transactional.

Why would you want to go to college these days? I am not just talking about COVID issues–assume the virus restrictions go away.

When I went to college, almost every course was serious. Even “Physics for Poets” was intended to convey important knowledge. Now if you want a rigorous education you have to select courses carefully. And if you want a mentor, you should pick someone like Tyler or someone like me.

When I went to college, there was no substitute for a good professor. Now, there are many more books on academic subjects written for a popular audience. Plus YouTube. [I wrote those two sentences before I saw Tyler’s post.]

When I went to college, high school graduates were ready to experience independence, and the institutions respected that. Today, they have administrators and counselors hovering over you. They’re worse than parents! Telling you what you can and cannot say. Giving you detailed restrictions regarding sexual conduct.

And while we’re on that subject, when I went to college it was a unique opportunity for finding potential mates. Many people my age found their spouses at college. Today, there’s an app for that. These days, by far the number one way spouses meet is through online dating services.

What to do instead of going to college right away? The old-fashioned options include getting a job or backpacking abroad, and I would not argue with either of those.

But I recommend asking for funding from your parents to take a road trip with a friend. Find a friend who is neither more nor less adventurous than you are. (If one of you wants to smoke pot and the other one doesn’t, it’s not a good match.) Get a reasonably reliable car.

Tour the United States. Read ahead of time about national parks, interesting small towns, and what to see in major cities. Save notes either on paper or in electronic format.

Pack a tent, some clothes, some electronics, some food coolers. . .Sleep mostly in the tent, usually at a campground. Every ten days or so try to get a bed and laundry facilities for a night. One approach would be to query your social network to find somebody’s friend or relative who lives in the state where you happen to be driving.

Don’t go with an unlimited data plan on your smart phone. Don’t rely on it for entertainment. Minimize your use of GPS. You can ask people for directions.

Introduce yourselves to people everywhere you go. Spend several days in one place if you find it particularly friendly.

Going to college right away will reinforce your fears and insecurities. Taking a road trip instead will help you approach grown-up life with more assurance.

Centralization, Decentralization, and Coordination

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David Rosenthal writes,

very powerful economic forces drive centralization of a successful decentralized system. . .

the fundamental problem is that decentralized systems inherently provide users a worse experience than centralized systems along the axes that the vast majority of users care about.

Pointer from Tyler Cowen.

The argument over whether software should be centralized or decentralized is analogous to the argument about command vs. a market. In Specialization and Trade, I describe two forms of coordination, or resource allocation. A command system is used within a firm. A price system is used in the market.

I discovered during my business career that software does not evolve independently of the context in which it is created. I used to say that every organization gets the information system it deserves. Tightly-run organizations end up with very reliable systems. More free-flowing organizations end up with very fragmented systems.

People’s needs differ from and conflict with one another. In a command system, a central planner determines which needs will be met. In a market system, the price and profit system directs entrepreneurs to which needs will be met.

A command system is fine if the pattern of needs is given, or if you have enough power over people to treat their needs as given. A central planner can seek to optimize to meet a given set of needs. But a market system works better at discovering needs.

The original communication network–the telephone system–was centralized. That is because switches were expensive relative to bandwidth. But as computers took over switching, the cost of switching plummeted, obeying Moore’s Law. This opened the way for the Internet to take over communications around the turn of the 21st century.

When the Web first arrived, people did not know how it was going to be used. The challenge was one of discovering needs, and decentralization was most appropriate.

Eventually, some needs coalesced, and we started to see well-worn paths through the Internet jungle. So there emerged big, centralized systems, such as caching servers and search engines.

Amazon, Google, Facebook, and Apple are able to take people’s needs as given. They try to optimize to meet those needs.
One of them could falter if and only if it gets caught flat-footed by a new service that has discovered needs that its customers have that are not being met.

If you don’t know exactly what your software will need to do, then a decentralized architecture might make sense. But once you find a clear pattern of usage, you will want to optimize the software for that pattern, and one can predict that the architecture will evolve in a centralized direction.

The nightmare transparent society

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Over twenty years ago, David Brin wrote The Transparent Society, which offered a vision of how we could learn to live with surveillance technology. I would describe his vision as having two components:

1. Symmetry or mutuality, leading to deterrence. Government would have the ability to spy on us, but government itself would be transparent. Because we could see what government is doing, we could deter government from abusing power.

2. Forbearance. In the restaurant, I could hear everyone’s conversation, but I don’t listen.

It seems to me that right now we have the opposite. The big tech firms see everything about us, but we know very little about how they work.

And people are fighting for attention, rather than for privacy.

Speaking of Mr. Trump’s personnel

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Rachel Bovard writes,

The Trump administration suffered from an abundance of heavyweights, “experts,” and vipers, but a notable lack of loyalty to the president’s agenda. The result was an unwillingness to subordinate D.C. political machinations to a focus on accomplishing the president’s agenda, and long periods of infighting, drift, and internal gridlock that hamstrung the Trump policy agenda in key areas.

Her essay aligns with my view that personnel failures were important, as well as my view that it is difficult for an outsider to find the right people. But she puts little or no blame on Mr. Trump himself. I am more inclined to say “You had one job,” and to fault him personally for handling that job clumsily.

Why are conglomerates the dominant Internet business model?

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The National Affairs symposium on regulating big tech has a piece on market power that did not address the issue that most concerns me. The authors are basically arguing that no matter how badly the tech firms behave, government intervention can and probably will make things worse.

What concerns me is the way that the big tech firms do not seem to engage in narrow specialization. Instead, they have become conglomerates. Facebook buys Oculus. Google buys YouTube. Amazon buys Whole Foods. And so on.

Why is this happening? Some possibilities.

1. It is an artifact of our financial system. Wall Street funnels enormous amounts of capital to the big names, so that everyone else faces the choice of being bought out or getting trampled. If YouTube had not sold to Google, Google might have bought someone else (Vimeo?) and buried YouTube.

2. Market specialization is no longer such a thing. What tech firms specialize in nowadays is hiring and managing software engineers and knowing what markets to tackle next. There is so much “learning by doing” in fast-growth management that by the time you see a firm that has made it big, it has acquired skills that can be thrown at many different problems. If a firm has survived the process of going from start-up to big success, it has a great team and highly refined management processes. With that going for you, and access to the nearly unlimited funding that venture capital and Wall Street can provide, you can get into almost any market you want.