Author Archives: Arnold Kling

Does Ken Rogoff think this time is different?

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My latest essay is on stock prices and interest rates.

So this time is different because interest rates, after adjusting for inflation, have declined to record levels. For example, the interest rate on inflation-indexed Treasury securities is negative.

The decline in the real interest rate is the subject of a paper by Atif Mian, Ludwig Straub, Amir Sufi. They write,

The evidence suggests that rising income inequality is the more important factor explaining the decline in r*. Saving rates are significantly higher for high income households within a given birth cohort relative to middle and low income households in the same birth cohort, and there has been a large rise in income shares for high income households since the 1980s. The result has been a large rise in saving by high income earners since the 1980s, which is the exact same time period during which r* has fallen.

Of I and We

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In a review of Jonathan Sacks’ Morality, I write

I think that the problems of loneliness and loss of meaning that Sacks identifies are due to a breakdown of covenants at a small-scale level. I wish that families were larger and stronger. I wish that neighborhoods had more continuity. I wish that the school environment for children could be informal rather than bureaucratic. I wish that long-term friendships were more prevalent.

For more on these topics, see the biography of
Alexis de Tocqueville in the Online Library of Liberty; and the EconTalk podcast episode Yuval Levin on The Fractured Republic. See also “Camping-Trip Economics vs. Woolen-Coat Economics,” by Arnold Kling, Library of Economics and Liberty, Feb. 2, 2015.
But at the macro level, I think we are better off with a society of contract than with a society of covenant. The more weight we place on “We” at the national level, the less room for the sort of community that I would like to see at a local level. As we think in terms of larger scale, I think it helps to lose the “We.”

Tyler’s tests for talent

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Tyler Cowen writes,

Now if someone can pass the chess test, the art test, and the success test with flying colors…there are such people!

When I played tournament Othello, I might have been considered the top analyst, even though I was never the top player. But the best players in the world were Japanese, and they might not have passed Tyler’s chess test. Their “analysis” was often of the form “Ishii plays this square, but Tanida plays that square.” The idea was that you got to be good by copying great players and learning to intuitively mimic their styles. They did not employ the elaborate explanations of “why” that non-Japanese players used (“this takes away a quiet move to c3 and forces Black to be the first to break the double-wall pattern.”) The Japanese approach turns out to be good preparation for learning from computers, because the computer Othello program will not explain why it makes the move it does. The best you can hope is to learn to imitate its style.

For the art test, could I use folk dancing? I can appreciate good posture in good dancers. They carry their backs straight, their heads high and their shoulders wide. My own posture is graceless and hunched over, and when I try to copy dancers with good posture my wife cringes and tells me to stop looking like a [not nice word signifying homosexual].

As for the success test, I think that an intense desire for success can indeed be motivating, especially to continue to take big risks when another person would say “I’ll quit while I’m ahead.” I am definitely in the “quit while I’m ahead” camp.

Yuval Levin, Martin Gurri, and other FITs

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A self-recommending podcast. For example, around minute 7, Yuval Levin points out that what is unusual currently is that elites in various realms have similar backgrounds. It used to be that the business elite was not culturally similar to the journalistic elite or the political elite. Having elites that have much in common culturally with one another and yet differ sharply culturally from people who are not in elites is a problem.

Here is more of my coverage, along with coverage of other FITs.

Another FITs update

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This is number 4. Robert Wright cites one of the books that influenced me most strongly. And I comment,

Halberstam’s book is probably the best treatise on organizational behavior you could ever read. Principal-agent problems are everywhere. The problem of whether you can trust an expert is a principal-agent problem, and it is central to many problems that we face today. I think of the game of acquiring status in principal-agent terms, and The Best and the Brightest presents a powerful case study of people who acquired status in the foreign policy world on the basis of connections and adherence to groupthink.

NWW watch

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Armin Rosen writes,

“You have democracy in terms of framework, but it’s clan politics,” with elections serving as a method for “preventing potential conflict between clans” and “delivering stability.” Even Faysal Ali Warabe, chairman of the Justice and Welfare Party, conceded, “We campaign on issues, but we’re elected on a tribal basis.”

The description of Somaliland sounds like a limited-access order, as described by North, Weingast, and Wallis. The attempt to go beyond this to an open-access order often fails.

The importance of the status game

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I write about it here.

I believe that the fundamental issue in social epistemology is the process by which people climb the status hierarchy. If the process is meritocratic, as in a chess tournament, it is a good idea to trust the people at the top. If the process is corrupted, by rules that are unfair or easily gamed. then the high-status people are not so worthy of our trust. But the solution to corruption is to improve the process, not (just) to belittle high-status people.

Government and organizational culture

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Elizabeth Leyne and Yvette Nonte write,

For the IC [Intelligence Community] customer dataset, there was a stark dichotomy between the highest-level customers at the Cabinet level, who offered glowing praise for the IC, and customers a few echelons below, who gave the IC mixed to poor reviews.

Pointer from Larry Catá Backer.

Pleasing superiors while producing low-grade work is something that can happen in any organization. But in the private sector, this behavior will be weeded out, either by smart top executives or by the Darwinian competition of the market.