Author Archives: Arnold Kling

Norms and unwed motherhood

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Dale Brumfield writes,

Martha had what she may have considered numerous good reasons to conceal her pregnancy and childbirth — she was almost 40 years of age and had divorced her husband in 1950 after a 16-year marriage. She may have also been painfully aware of the struggles of a single working mother in a socially oppressive post-war era that lionized couples, marriage, God and family and especially, conformity. Accidental childbirth to an unwed woman was not only maligned but frequently received with ostracism from families and employers and in a few rare cases, criminal charges.

He accurately describes the moral norms that existed at the time and the harsh consequences that those norms had for unmarried women who became pregnant, and in this particular case the harsh consequences for the baby. Implicitly, he sees the change in social norms as all for the good.

But in the 1950s, the percentage of children growing up in single-parent households was much smaller than it is today. I don’t know the figure for the 1950s, but I believe that today it is over 50 percent. I wish we could arrive at norms that steered us away from both the harms of the 1950s norms and the harms of current norms.

Profits in financial markets

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Reviewing Gregory Zuckerman’s book on the trading firm Renaissance Technologies, I write

Much of the book consists of tales of the gifted mathematicians who ran the firm, along with their foibles and conflicts. These are entertaining enough, but I want to focus instead on two deeper economic issues that arise from the story.

1) Does the success of Renaissance show that financial markets are inefficient?

2) Are the social benefits of the trading conducted by firms like Renaissance commensurate with the profits that they earned?

Ray Kurzweil and the nanobots

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Yes, that would be a good name for a 1980s punk rock band. But it is how I might title a conversation I listened to between Peter Diamandis and Ray Kurzweil. As you know, Kurzweil views as inevitable the growth of computer intelligence beyond that of current human intelligence. He sees computers catching up to humans in about a decade, and then the computers will continue to improve at a rapid pace that will leave ordinary human intelligence behind.

Taking that as given, he sees two important roles for nanobots.

1. Fixing degeneration in our bodies, so that we can live healthy lives indefinitely.

2. Going into our brains to connect our neocortex to the cloud, allowing us to tap into the abundant computer intelligence that will be available.

I gather that he expects this to be possible in about 25 years or so. If he is correct, then it kind of makes concerns about economics or politics seem petty. In fact, I wonder, what will we worry about or care about in a trans-humanist scenario?

Europe in the 19th century

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Alberto Mingardi paints a rose-colored picture.

While no government adhered religiously to the principles of laissez faire, nineteenth-century Europe represents perhaps the best approximation of the ideal. Free trade, championed by England, swept away most protectionist measures; durable goods and people moved virtually freely. Passports were viewed as relics of an odious past—only states like Russia and the Ottoman Empire issued them. A Victorian idea prevailed: individuals should put checks on themselves, without state interference. John Stuart Mill and Herbert Spencer became household names among the educated class. Europe thrived in a period unshackled by government controls, with millions able to afford new and more sophisticated goods, including products created by an ongoing technological revolution.

Mingardi’s essay reviews Norman Stone’s analysis of the decline of liberalism starting in the 1870s and draws some parallels to the present environment.

On Modern Monetary Theory

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Greg Mankiw concludes,

In the end, my study of MMT led me to find some common ground with its proponents without drawing all the radical inferences they do. I agree that the government can always print money to pay its bills. But that fact does not free the government from its intertemporal budget constraint. I agree that the economy normally operates with excess capacity, in the sense that the economy’s output often falls short of its optimum. But that conclusion does not mean that policymakers only rarely need to worry about inflationary pressures. I agree that, in a world of pervasive market power, government price setting might improve private price setting as a matter of economic theory. But that deduction does not imply that actual governments in actual economies can increase welfare by inserting themselves extensively in the price-setting process.

I prefer my own analysis of MMT as a claim that government can run an unlimited Ponzi scheme.

The best analysis of the financial outlook for the U.S. government comes from the Congressional Budget Office. And some experts believe that the CBO reports show that the government will not keep all of its promises.

If these experts are correctly interpreting the CBO projections, then the U.S. government is running a Ponzi scheme. As with any Ponzi scheme, the collapse, when it comes, will be sudden and unexpected.

In any Ponzi scheme, the fact that it has not yet collapsed is by no means a guarantee that it will never collapse. In fact, the longer that a Ponzi scheme can be sustained, the more catastrophic will be its collapse.

My guess is that Mankiw had to reach to find this economic interpretation of MMT. I am reminded of Paul Samuelson claiming that the only way most economists could reproduce classical and neoclassical monetary theory was to think “If I were a jackass, where would I go?”

I predict that no devotee of MMT will agree that Mankiw’s interpretation is the correct one. I fear that MMT is deeply irrefutable, because there will be no agreement about what it means.

That sort of irrefutability is not a unique feature/bug of MMT. I have written,

Keynesian economics has always eluded a precise definition. The controversy over “what Keynes really meant” that began as soon as The General Theory was published remains active and unsettled. This poses a problem for those of us who would attack Keynesian economics. There is usually a rebuttal available that says “You are criticizing a straw man. What Keynesians really believe is . . . ”

You should read that essay. It is probably my best writing on the subject of macroeconomics and PSST.

Should libertarians heart state capacity?

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Tyler Cowen thinks they should.

State Capacity Libertarians are more likely to have positive views of infrastructure, science subsidies, nuclear power (requires state support!), and space programs than are mainstream libertarians or modern Democrats.

This is the most interesting post I have read this year. Note that I am composing this on January first.

What’s not to like about state capacity?

One strand of conservatism, represented nowadays by Yuval Levin, sees the state taking away functions from other institutions, weakening them. For some folks, that is a feature, but for these conservatives it is a serious bug.

One mainstream libertarian argument against a strong state stresses the lack of skin in the game. Wrong coat, wrong price, in Milton Friedman’s famous explanation. But that is a distributional problem, and Tyler doesn’t care much about distribution or static efficiency. Focus instead on growth.

Rent-seeking? Again, if it only affects static efficiency, it’s a second-order problem. Same with Hayek’s knowledge problem.

Perhaps minarchism was appropriate when wealth was embedded in tangible land and capital. Just have government protect private property.

But Tyler would argue that intangible sources of wealth require more complex rules and more concentrated expertise.

I don’t think that it follows that we need more state capacity. Private coalitions can put together rules. The Internet Engineering Task Forces are an example. If you respect technocrats, fine. Just don’t pretend that government does a great job of hiring and incenting them.

In a democracy, politicians specialize in instilling fear. I see the climate issue as an illustration of fear-installation rather than as an issue where our best hope is more state capacity.

It is true that state capacity and development are positively related. But I suspect that once you control for average cognitive ability the state-capacity variable drops out of the growth equation.

Race and higher education

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Heather MacDonald writes,

Social-justice pedagogy is driven by one overwhelming reality: the seemingly intractable achievement gap between whites and Asians on the one hand, and blacks and Hispanics on the other. Radical feminism, as well as gay and now trans advocacy, are also deeply intertwined with social-justice thinking on campus and off, as we have just seen. But race is the main impetus. Liberal whites are terrified that the achievement and behavior gaps will never close. So they have crafted a totalizing narrative about the racism that allegedly holds back black achievement.

Starting from a premise that racial gaps are due entirely to white oppression, the social justice movement is deforming higher education. Even if it is true that white oppression is the root cause of the racial achievement gap, that gap is not going to be closed at the college level by social justice methods. Colleges cannot manufacture successful graduates out of unprepared students, where successful means learning according to standards of excellence and preparation means a combination of ability, conscientiousness, and knowledge.

If Harvard takes minority students who are not prepared for Harvard (in addition to those minority students who are sufficiently prepare), but who might be prepared for the University of Michigan, then Michigan has to take minority students who are not prepared for Michigan but might be prepared for Nebraska, etc. The result is racial gaps everywhere, and a perpetual-motion machine of social justice complaints.

ICYMI: sex differences and personality

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Scott Barry Kaufman writes,

On average, males tend to be more dominant, assertive, risk-prone, thrill-seeking, tough-minded, emotionally stable, utilitarian, and open to abstract ideas. Males also tend to score higher on self-estimates of intelligence, even though sex differences in general intelligence measured as an ability are negligible [2]. Men also tend to form larger, competitive groups in which hierarchies tend to be stable and in which individual relationships tend to require little emotional investment. In terms of communication style, males tend to use more assertive speech and are more likely to interrupt people (both men and women) more often– especially intrusive interruptions– which can be interpreted as a form of dominant behavior.

Pointer from Alex Tabarrok. I think that the fact that women are relatively more likely to be in charge of small businesses than large corporations has something to do with personality differences.

See also Tyler Cowen’s post on gender differences in word use in research papers.

Stagnation in research

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Les Coleman offers evidence and proposes solutions. Note this:

An excellent example is provided by American Economic Review, which is its discipline’s premier journal. AER celebrated its centenary in 2011 by commissioning a distinguished panel of researchers to choose the top 20 most “admirable and important articles” that the journal had published. This presumably would list economics’ most innovative and influential thinking. So it is staggering that the most recent of these articles dates to 1981: the leading economists of our day think it is almost 30 years since the pre-eminent AER published an important idea!

For solutions, Coleman suggests that

Funders should develop a detailed code of research practice; and—without affecting researchers’ independence—prioritise research that solves puzzles in paradigms and enables forecasts of important phenomena.

. . .universities should restrict funding to publishers with robust integrity programs, and preference journals which promote research quality. Publishers should centralise integrity checks of all submissions and send quality papers for review by qualified peers chosen at random. Journals should require self-replication of research so that innovative findings are confirmed in a totally independent setting. They should also adopt a multidisciplinary perspective, and encourage review articles which critically evaluate the prevailing paradigm with summaries including strengths and weaknesses and provide informed commentary on developments in research and its strategy.

I think that we should instead regard the peer-reviewed journal as an institution that is beyond reform. A whole new institution needs to be developed in the Internet age.

Uber and macroeconomic adjustment

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Vyacheslav Fos and other write,

Following Uber’s entry into a market, workers with access to the ridesharing platform are 4.8 percent less likely to receive UI benefits. Moreover, they experience a relative decrease in total outstanding balances of $544, or 1.3 percent of the average individual’s debt burden. Finally, we find that the effects of the ridesharing platform extend to credit performance, with workers experiencing a relative decrease in delinquencies of 2.9 percent.

I know someone who does IT consulting who, between jobs, used driving for Uber to make ends meet. The article insinuates that the ability to do this helps reduce the burden of unemployment in general. But this has not been stress tested by a recession. I doubt that we could add half a million Uber drivers in the course of a couple of months without creating a significant excess supply.