Category Archives: books and book reviews

Eliminate the Middleman

Posted on by

In a Russ Roberts podcast, Marina Krokovsky says,

I mean, if we really stop to think about what we do and the role that we play in our own social network, we are all middlemen.

Listen to the whole thing. By the way, there is a nice profile of Russ Roberts at a site called priceonomics. Recommended

Some pundits predicted that the Internet would eliminate middlemen, instead linking producers and consumers directly. I think that this is a misleading way to think about things.

In The Book of Arnold (which will appear this fall I hope), I point out that very few people engage in producing goods and services directly for consumers. Patterns of specialization and trade are highly complex, and nearly all of us are involved in intermediate and support roles.

What we mean by eliminating the middleman is a re-arrangement of the patterns of specialization and trade. When a pattern of specialization and trade involving physical books becomes less sustainable, Borders Books goes out of business. Other processes for connecting authors with consumers use different patterns of specialization and trade.

I think that what ought to be eliminated is the concept of “middleman.” I do not believe that it is a useful concept. It is misguided to think of economic activity as “production,” “consumption,” and “other.” (Note, however, that standard economic textbooks do nothing to discourage this way of thinking.) Instead, it is better to think in terms of the Austrian concept of roundabout production, the Smithian concept of division of labor, and the Schumpeterian concept of creative destruction. Put those together, and you have PSST.

The Early American Economic Association

Posted on by

Bernard A. Weisberger and Marshall I. Steinberg quote from a draft of the founding document of the American Economic Association

We regard the state as an educational and ethical agency whose positive aid is an indispensable condition of human progress. While we recognize the necessity of individual initiative in industrial life, we hold that the doctrine of laissez-faire is unsafe in politics and unsound in morals; and that it suggests an inadequate explanation of the relations between the state and the citizens.

We do not accept the final statements which characterized the political economy of a past generation. . . . We hold that the conflict of labor and capital has brought to the front a vast number of social problems whose solution is impossible without the united efforts of Church, state, and science.

They note that in the final version, the phrase “the doctrine of laissez-faire is unsafe in politics and unsound in morals” was removed. Their narrative (interesting throughout) laments the decline of left-wing radicalism in the AEA since the early days.

Thomas C. Leonard’s Illiberal Reformers covers the same ground, from a much less sympathetic perspective. About that book, the authors write,

Leonard argues that these views are central to, and thus taint, his [AEA founder Richard Ely] scholarship and those of his academic disciples. But Ely’s views were by no means unique among many intellectuals of his time, including those, like Godkin, who were his staunchest opponents, and those views certainly don’t invalidate the rest of his thinking. Above all, he considered himself an advocate for workers against exploitation by economic elites. Certainly, the set of people for whom he advocated is much narrower than would be the case among self-described progressives today. In those days, just as now, the interests of workers in developed countries were often pitted against those even more unfortunate than themselves, and consequently, many workers and their advocates supported what were in effect restrictions on labor supply in order to reduce their competition. The chief target of Ely’s scholarship and advocacy was the hegemony of free-market economics, against which he offered a vision of contending interests vying for shares of the pie, a contest in which bargaining power determined all.

I am only a little way into Leonard’s book, and I may only skim it. He uses the phrase “reform as vocation” to describe Ely’s cohort. That is, they professionalized the role of the progressive policy advocate. The economist became the scientific expert, based in academia, properly credentialed, who would be called on by political leaders for advice to better engineer the economic system.

From Weisberger and Steinberg’s point of view, the reformers are genuine, while their opponents are merely tools of the existing order. They certainly would fail an ideological Turing test. My guess is that Leonard would fail also, although not nearly as badly.

How Can Both Left and Right Believe that they are Losing?

Posted on by

Tyler Cowen writes,

the new book by Jacob S. Hacker and Paul Pierson, and the subtitle is How the War on Government Led Us To Forget What Made America Prosper. It is well written and will appeal to many people. It is somewhat at variance with my own views, however. Most of all I would challenge the premise of a “war on government,” at least a successful war.

This reminds me of a puzzling phenomenon that I have noticed. If you read narratives of recent history from the perspective of the left and the right, each side believes it is losing. One could dismiss this as marketing strategy. If our side is winning, then why is it urgent to read my book or donate to my organization?

But I think it is possible for the each side to sincerely believe it is losing.

The left presumes that government can solve problems. We have problems. Therefore, we must be losing!

The right presumes that the government causes problems. We have problems. Therefore, we must be losing!

Jason Collins on John Kay

Posted on by

Jason makes it sound like Kay’s book is worth reading.

One of the most interesting threads in the books is that many of the regulatory mantras are about the financial intermediaries, not the end users. The drives for transparency and liquidity in particular come in for criticism by Kay. First, the demand for transparency is a sign of the problem

The quoted passage that follows strikes me as very good. I also have argued that non-transparency is in some sense the point of financial intermediation. If I know everything about a bank’s portfolio, then I do not need the bank. I can just buy the portfolio myself.

Reviewing Roger Scruton’s Fools, Frauds, and Firebrands

Posted on by

My review is here.

A major theme of Fools is that the New Left evolved a set of intellectual tactical moves against their opponents. These included creating a false left-right spectrum, delegitimizing other points of view, indicting capitalism and tradition for all wrongs while being vague about alternatives, and using Newspeak to present authoritarianism as a defense of freedom and human rights.

Read the whole review, and I recommend the entire book.

Really Bad Sentences

Posted on by

Ilya Somin’s Democracy and Political Ignorance suffers from the fallacy of composition: It uses individual-level evidence about political behavior to draw inferences about the preferences and actions of the public as a whole. But collective public opinion is more stable, consistent, coherent, and responsive to the best available information, and more reflective of citizens’ underlying values and interests, than are the opinions of most individual citizens.

Those sentences, from Benjamin Page of the political science department of Northwestern University, were published in 2015. I don’t think that they hold up so well in 2016. I wonder how many of the critical participants in the symposium on Somin’s book (note: in several months, this link may lead somewhere else) would care to reconsider their views. As always with academics, I expect fewer to reconsider than should do so.

[Note: I wrote this post before Tyler also posted on the symposium, but I scheduled it for now.]

I think that a lot of conventional wisdom in political science is starting to look like pre-September 2008 conventional wisdom in macroeconomics. As Daniel Drezner put it,

the political science theories predicting that someone like Trump was highly unlikely to win a major-party nomination were so widely believed that they turned out to refute themselves.

A Handle Comment

Posted on by

He writes,

1. My vision of the future is indeed that the political parties will divide up the middle class into two groups of ‘beggars’ fighting each other for a bigger slice of the pie. And I agree that government interventions in the big three sectors have made things worse than they would otherwise be, but that the trend of prices increasing faster than wages would still be happening had those policies remained static, or even without them. And it’s the policy-indifferent trend, and the forces behind it, that matters.

Remember, prices of real estate are reaching for the sky in the central economic or political hubs of almost every country in the world, regardless of the huge variety of local zoning and development rules. . .

2. I think that those ‘cultural reasons’ will fade in importance, and, if anything, become mere badges and ways to signal tribal membership but without any genuine political significance. The culture war is over and the progressives won a decisive victory against traditionalist social conservatives, and we are presently observing the mopping-up operations. You may be pleased or saddened by that result depending on your perspective – and might does not make right – but it’s a fact. A lot of people are in denial about this. The once mighty force of religion in American politics was reduced to impotence and must now try to survive an era of increasingly overt persecution.

…progressivism is unique and has a special competitive advantage because of its emphasis on equality of results and willingness to use the government to intervene to achieve it.

It can claim to be a transcendent ideology and at the same time tell its ethnic and identity-group clients that disparities in life outcomes are caused by oppression and that correcting these unfair evils requires leveling which just so happens to take the form of government payments and preferences that disproportionately benefit these groups. That is, it can rationalize treating citizens differently in order to achieve social justice. The other ideologies can’t do that, they claim neutrality and prize uniform treatment and non-intervention.

Unfortunately that probably means a much more racially-conscious politics in our future on all sides.

It would be interesting to see a dialogue between these views and those of Yuval Levin in his forthcoming The Fractured Republic.

The Agony of the GOP, 2016

Posted on by

My take on the Barry Goldwater debacle is derived from a book I read 50 years ago by Robert Novak, called The Agony of the GOP, 1964. The book was to tap the market that Theodore White found with “The Making of President, 1960” and subsequent works. I don’t think that Novak’s book did nearly as well. I read it only because my father was sent a review copy, and he was not interested.

What I remember from the book was all of the idiosyncratic factors that went into the 1964 election. For example, George Romney (Mitt’s father) gaffed himself out of the race by saying that a briefing he had received on Vietnam consisted of “brainwashing.” In hindsight, that remark seems like a nugget of insight, but it offended Republicans who were staunchly anti-Communist and saw Romney as giving aid and comfort to the enemy by accusing our side of brainwashing. [UPDATE: that gaffe came after 1964. I was a bit worried about my memory when I put up this post. I should have checked. By the way, I don’t still have a copy of Novak’s book. I with I could have remembered more of the idiosyncratic factors that were actually in it.]

Another random event that effected 1964 was Nelson Rockefeller’s remarriage. Having survived politically after a divorce, he figured that getting remarried would not be a problem. But he married the woman who had broken up his first marriage, an in those days that offended people, particularly married women. Down went Rockefeller.

Think of the events that are conspiring to make Donald Trump a possible (likely?) nominee. The primary schedule, with the largest early voice going to small states and southern states. The large field, which allows a candidate to appear to be a big winner with less than 50 percent of the vote. The strange “debates” in which the issues take a back seat to the dynamic between the media personalities and the candidates.

Unless Hillary Clinton is indicted I (and perhaps even if she is), I think that a Trump nomination will lead to a Republican debacle comparable to 1964. In a sense it will be worse, because the best the Republicans could have hoped for in 1964 was a respectable defeat. This year, they would be throwing away a reasonable chance of winning.

All Interventions Work?

Posted on by

This year’s Economic Report of the President has a chapter on improving outcomes for disadvantaged children. It surveys the literature and finds that, in short, everything works. There is not a single program identified as not providing significant benefits. There is not a single study cited showing anything other than benefits.

I know that as biased as journals are against “null-effect” results, there have been published studies that are not as optimistic as what the ERP reports. My perhaps uncharitable view is that this chapter in the ERP does not qualify as a survey of the literature. It is only a survey of every published finding that appears to support existing government interventions.

I believe that if economists are going to play a constructive role in policy analysis, they have to be free to report objectively. It seems to me that for many years now, particularly under this President, the Council of Economic Advisers has not been allowed to be objective.