Category Archives: Mark Thoma is Indispensable

Dean Baker’s Libertarian Socialism

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He proposes replacing the corporate income tax with having corporations give government shares of stock. He notes that this could be optional–corporations could choose to opt out of the corporate income tax by donating shares. However, one suspects that the cleaner approach would be to make it a requirement.

The shares would be nontransferable, except in the case of mergers or buyouts, but they otherwise would be treated just like any other shares. If the company paid a dividend to its other stockholders, then it would pay the same per share dividend to the government. If it bought back 10 percent of its shares, then it would buy back 10 percent of the government’s shares at the same price. In the event of a takeover, the buyer would have to pay the same per-share price to the government as it did to the holders of other shares.

Pointer from Mark Thoma.

This approach would get rid of the distortions and rent-seeking of the corporate income tax. It would align the interests of government and corporations, in that costly regulations would cut into tax revenue. In that sense, it is a step in a libertarian direction. Because government would have partial ownership of businesses, it looks like socialism, but I think one can argue that the power to tax is equivalent to partial ownership, and that if anything the government uses its taxing powers in more meddlesome ways.

The Case Against Economic Sanctions

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Branko Milanovic writes,

They impose a collective punishment, over people who have no influence on the policies for which they are sanctioned.

Pointer from Mark Thoma. There is more at the link.

My view of economic sanctions is that they are an act of war. If you are not willing to declare war against another country, then my presumption is that economic sanctions are morally wrong.

Justin Fox on Academic Journals

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He writes,

in economics almost every paper of significance is now available in some form free on the Internet before it is published in a journal. Yet economics journals that keep their articles behind paywalls and charge hundreds or thousands of dollars a year for library subscriptions continue to thrive.

This is apparently because the journal editors and referees are still needed to certify the quality of research, certification that informs hiring and tenure decisions and provides information on the relative quality of university academic departments. Also, scholars who want to cite others’ work in their own academic papers need access to the published versions to make sure they get the wording and the page numbers right.

Pointer from Mark Thoma.
These days, I am seeing the world through Martin Gurri’s lenses, as a conflict between the uncredentialed public and the credentialed elites. Thanks to the Internet, the uncredentialed public now has as much access to information as the credentialed elites. One consequence of this is that institutions like accreditation, selective college admission, faculty tenure, and publication come to be seen less and less as essential tools to promote scholarly quality and more and more as artificial gate-keeping.

Dean Baker on the One Percent

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He writes,

This paper argues that the bulk of this upward redistribution comes from the growth of rents in the
economy in four major areas: patent and copyright protection, the financial sector, the pay of CEOs and other top executives, and protectionist measures that have boosted the pay of doctors and other highly educated professionals.

Pointer from Mark Thoma. Baker backs up this opinion with evidence. he then concludes

The implication of this argument is that progressives need not think of themselves as using government against the market. Rather they should seek to find ways to use market mechanisms to bring down the incomes of the wealthy in the same way that wealthy have sought to structure markets to lower the income of everyone else.

If progressives want to look at ways that financial policy, patent policy, and occupational licensing create artificial rents rather than create “public goods,” that works for me.

Dean Baker, Watch Your Back

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He writes,

This argument seriously misrepresents the issues with Fannie Mae and Freddie Mac. The real problem was that they issued trillions of dollars in MBS that were implicitly backed up by the government. At the time they failed in the summer of 2008, the generally held view in financial circles was that the government would be obligated to honor their MBS regardless of whether or not it kept Fannie Mae and Freddie Mac in business. In other words, the issue was not the $180 billion bailout (about which elite types routinely and misleadingly say we made a profit) the issue was the huge amount of bad MBS that helped propel the housing bubble.

This was a direct result of the perverse incentives created by a system where private shareholders and top executives stood to profit by passing risk off to the government. This incentive does not exist today. This incentive does not exist today. (The line is repeated because policy folks have a hard time understanding it.) As long as Fannie and Freddie are essentially public companies, that do not offer high returns to shareholders and pay outlandish salaries to CEOs, no one has incentive to take excessive risks.

Pointer from Mark Thoma. The argument to which he refers is that government support for mortgage securitization is fine, you just do not want to depend on one or two big securitizers.

I think that Baker should watch his back, because the ruthless housing finance lobbyists are back in action. For saying similar things, I have had quite a few epithets hurled at me (“Koch brothers mouthpiece” being one of the milder ones). Agree or disagree with Dean Baker, at least you can say that his opinions are not for sale to the mortgage finance lobby.

Brad DeLong Stumbles

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He writes,

The combination of representative-agent modeling and utility-based “microfoundations” was always a game of intellectual Three-Card Monte. Why do you ask? Why don’t we fund sociologists to investigate for what reasons–other than being almost guaranteed to produce conclusions ideologically-pleasing to some–it has flourished for a generation in spite of having no empirical support and no theoretical coherence?

Pointer from Mark Thoma.

About the very same methodology, Olivier Blanchard famously wrote, “The state of macro is good.” Instead, Brad DeLong has stumbled over the truth, but will he pick himself up as if nothing happened?

We have one historical macroeconomic path, and we have many interpretive frameworks from which to choose. We can reconcile very disparate frameworks to the observed data. How shall we choose among frameworks?

The “microfoundations” criteria, whether used by New Classicals or New Keynesians, are silly. The macro-economy is not one owner-worker employed (or not) in a single GDP factory.

Still, there is something to be said for using microeconomic principles to guide your interpretive framework in macroeconomics. Every economist does so. We just diverge in which microeconomic principles we use as focal points.

In my view, the workhorse AS-AD model is already too aggregated. I am convinced by neither DeLong’s Wicksellian version nor Sumner’s Market Monetarist version. Instead, A short version of my macro framework is here. A longer version is in progress.

Women’s Education and Childbearing

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Moshe Hazan and Hosny Zoabi write,

while highly educated women had fewer kids than women with lesser education in the US until the 1990s, it is no longer true today. During the 2000s, highly educated women had higher fertility rates than women with intermediate levels of education.

Their explanation:

childcare has become relatively more expensive for women with less than a college degree but relatively cheaper for women with a college or an advanced degree. Note that the changes are quantitatively large. Over the past three decades, the relative childcare cost has increased by 33%, 16% and 5% for women with no high-school diploma, a high-school degree and some college education, respectively. In contrast, this relative cost decreased by 9% for women with a college degree and by nearly 16% for women with an advanced degree.

Read the whole article. Pointer from Mark Thoma.

Chris Blattman on Experiments

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In a must-read post, he describes a number of methodological problems with the interpretation of experiments in social science, but says

There’s no problem here if you think that a large number of slightly biased studies are worse than a smaller number of unbiased and more precise studies. But I’m not sure that’s true. My bet is that it’s false. Meanwhile, the momentum of technical advance is pushing us in the direction of fewer studies.

For me, the crux of the issue is this remark from Blattman.

It’s only a slight exaggeration to say that one randomized trial on the shores of Lake Victoria in Kenya led some of the best development economists to argue we need to deworm the world. I make the same mistake all the time.

The way I would put it is that there is no such thing as a study that is so methodologically pure that by itself it can serve as a reliable guide to policy. As I wrote in What Else Would be True?, the results of any study need to be thought about in the context of other knowledge.

Often, one encounters studies with conflicting results. You tend to focus on the methodological flaws only of the studies with results that you do not like. But remember Merle Kling’s third iron law of social science: the methodology is flawed. That law applies to every study, including experiments.

Ricardo Hausmann on Specialization and Trade

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He writes,

a market economy encourages specialization: We become very good in a narrow set of skills or products, and exchange them for millions of other things we have no clue how to do or make. As a consequence, we end up doing remarkably few things and buying everything else from others.

Pointer from Mark Thoma.

The Book of Arnold starts this way. Hausmann’s main point is that industries that compete in world markets tend to progress more rapidly than local industries.

One thought I have is that national retail chains have forced retail to become more competitive. The resistance of some countries, such as Japan, to competition in retail have held back their economies.

Another thought I have is that there is much resistance to competition in the U.S. in health care and education.