Category Archives: Tyler Cowen is my Favorite Blogger

Martin Gurri (and Yuval Levin) watch

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The NYT reports,

In that pre-social media era, activists had to spend years mobilizing through community outreach and organization-building. Activists met near daily to drill, strategize and hash out disagreements. But those tasks made the movement more durable, ensuring it was built on real-world grass-roots networks. And it meant that the movement had the internal organization both to persevere when things got hard and to translate street victories into carefully planned political outcomes.

Pointer from Tyler Cowen.

This is one of the explanations for the declining success rate of mass protests, which is the topic of the article. Martin Gurri would say that today’s public is ready to say what it is against but unable to articulate what it is for.

Yuval Levin, in A Time to Build (alas, not available until next year), says that social media accentuate the decline of formative institutions and the rise of performative behavior. Think of the demonstrations of yesteryear as organized by people who knew what they wanted. Think of today’s demonstrations as drawing people who want to be seen demonstrating. Note that the Hong Kong protest does not have to be old school to have my sympathies.

The party changes, the policy doesn’t

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Matt Grossman writes,

once they’re in power, the two parties tend to move policy only marginally in the direction they want and the effects of those policy changes are often smaller than anticipated. Republicans’ increased political power did not reverse either the size or scope of state government through the 1990s and 2000s.

Pointer from Tyler Cowen.

What would explain this?

1. Tyler suggests the median voter theorem, which is that parties compete for centrist voters. But I am not sure that the median voter in all of these states wants big government.

2. My ;ate father’s favorite political scientist, Murray Edelman, would have said that politicians satisfy their base on symbolic issues, but they satisfy interest groups on substantive issues. In fact, Grossman points out that

Republicans were especially effective at passing legislation across multiple states on social issues like education, abortion and guns.

This fits with a Public Choice story, in which the interest groups dominate regardless. Teachers’ unions want more spending on education, and they get it.

3. One can argue that this is consistent with an increase in affective polarization (people having an emotional stake in political outcomes) without strong differences on policy.

Labor market elasticities

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John Cochrane writes,

Thus, you can’t simultaneously be for higher minimum wages and for wage subsidies. That is cognitive dissonance. Or, inconsistency. Or wishful thinking. And very common.

He is commenting on a post from Tyler Cowen. My thoughts:

1. Greg Mankiw likes to point out that a higher minimum wage is like a combination of a subsidy to labor supply and a tax on labor demand. A wage subsidy does away with the tax on labor demand, which is why Mankiw prefers it. An occupational licensing fee strikes me as a tax on labor supply.

If labor demand is inelastic, that means that large changes in labor costs are accompanied by small changes in workers employed. If labor demand is elastic, that means that small changes in labor costs prompt large changes in labor demand.

If labor demand is inelastic, then a higher minimum wage will raise labor income. Think of employers just absorbing the cost (although that is only one possible reason for inelastic labor demand). But if labor demand is inelastic, then a wage subsidy will not raise worker income. Think of employers as just pocketing the subsidy (again, assuming that this is the reason by which labor demand is inelastic).

If labor demand is elastic (the more likely case, in my view), then a wage subsidy will work to increase labor income, while a higher minimum wage will fail.

2. Cochrane’s point is that economists sometimes argue for one policy that works with high elasticity of labor demand and another policy that works with low elasticity of labor demand, without apologizing for the inconsistency. An example that I have used is arguing for a higher minimum wage (which works with low elasticity of labor demand) and for more immigration (which will depress wages if there is low elasticity of labor demand). Tyler uses that example as well.

3. Tyler’s point is that if you think that labor demand is inelastic, then occupational licensing requirements, acting as a tax on labor supply, will not affect employment very much. Again, I am inclined to think that labor demand is elastic, so I think that occupational licensing requirements do adversely affect employment.

I think that on the immigration issue and the occupational licensing issue, economists of all stripes prefer to implicitly make the elastic-demand assumption. On the minimum-wage issue, economists on the left prefer to implicitly make the inelastic-demand assumption. On the immigration issue, some conservative economists prefer to implicitly make the inelastic-demand assumption. I think that libertarian economists tend to implicitly make the elastic-demand assumption in all cases. So at least we are consistent.

Graduate school in economics

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Tyler Cowen writes,

Andy Abel wrote a problem with dynamic programming, which was Andy’s main research area at the time. Abhijit showed that the supposed correct answer was in fact wrong, that the equilibrium upon testing was degenerate, and he re-solved the problem correctly, finding some multiple equilibria if I recall correctly, all more than what Abel had seen and Abel wrote the problem. Abhijit got an A+ (Abel, to his credit, was not shy about reporting this).

I am older than Tyler, and I went to MIT rather than Harvard, but this anecdote perfectly captures the atmosphere in grad school as I remember it. Heavy math, mathematical ability the primary source of respect. It was a system designed to produce idiot savants. A few students from that period, including Banerjee, managed to do useful work in spite of their training, but I still seethe about many of my courses, which were nothing other than a form of fraternity hazing using math exercises.

Twitter matters

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Nicholas Grossman argues that political Twitter matters a lot.

There’s always been a national conversation, just as influential people will always spend a significant amount of time participating in and absorbing it. But thanks to Twitter, it’s faster, more interactive, more present. It’s easier to put down a newspaper, walk away from the television, or put off in-person conversations than it is to fully disconnect from your smartphone. Traditional information gatekeepers used to have much more control; now, access to information has been democratized.

But these are bugs, not features. “Faster, more interactive, more present” means that people react with emotion, not reason. People behave better when they do disconnect. And the democratized access is mostly to slurs and distortions.

Twitter excites its users. But if you step back and watch, it enfeebles them. I generally find about 20 percent of the links on Tyler Cowen’s blog to be interesting. But that percentage drops to near zero when the link goes to a Twitter thread. I think he (and everyone else) would benefit from quitting Twitter.

Legitimacy and information control

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Sergei M. Guriev and Daniel Treisman write,

Rather than terrorizing or indoctrinating the population, rulers survive by leading citizens to believe—rationally but incorrectly—that they are competent and benevolent. Having won popularity, dictators score points both at home and abroad by mimicking democracy. Violent repression, rather than being helpful, is counterproductive: it undercuts the image of able governance that leaders seek to cultivate.

They are offering a theory of dictatorship in which the dictator obtains power through nonviolent persuasion. In political science, I believe that this is known as “legitimacy.” In this case, their thesis is that dictators achieve their legitimacy through the control of information.

But the relationship between legitimacy and control over information also might be important in a democracy. That is what Curtis Yarvin argues in a recent essay.

all modern regimes are Orwellian thought-control regimes.

. . .we can explain how a decentralized civil society, effectively protected from democracy, can, does, and indeed must become a distributed Orwellian despotism. But we’ll postpone these loose ends till the final essay.

Any ruling elite must “survive by leading citizens to believe—rationally but incorrectly—that they are competent and benevolent.” The phenomenon that Martin Gurri calls The Revolt of the Public is the loss of this belief in the era of the Internet and social media.

Note: Tyler Cowen recently pointed to a paper by Guriev and others that also is pertinent to Martin Gurri’s thesis.

The Monopoly Capital Theorem

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Jose Azar writes,

In an economy where everyone holds the market portfolio, all the companies have the same shareholders. If, in addition, firms act in the interest of their shareholders (i.e., if the agency problem is solved), the equilibrium outcome is equivalent to an economy-wide monopoly.

This is one of those theorems, like the Modigliani-Miller theorem, that tells you more about what has to be false than about what is actually true.

When I was at Freddie Mac in the 1990s, some of the economists there asked, “Why do our shareholders want us and Fannie Mae to compete?” Here you had a situation where we were a duopoly, with a lot of room to charge higher fees without mortgage lenders finding another outlet for their business, and many of our investors also owned shares in Fannie. Yet if a Countrywide Funding or a Prudential Home Mortgage wanted to play Freddie and Fannie off against one another, they could do it. We would cut fees to the bone and lower the standards on the mortgages that we would buy.

Actually, there was one instance where we colluded. Around 1990, there was an outbreak of “low-doc” lending, and Freddie’s CEO went to Fannie and obtained an agreement that neither firm would buy low-doc loans. Of course, low-doc loans made a big comeback during the housing boom, and this time around under different management Freddie and Fannie went all in on “no income, no job, no assets,” meaning that what those lines stated on the loan application went unverified by supporting documentation.

In fact, if there is going to be collusion, the initiative is not going to come from shareholders. Shareholders are represented by the Board of Directors, but you don’t see two companies in the same industry with Board members in common. And if you did, it wouldn’t take a particularly aggressive anti-trust regulator to make an issue out of it.

Some insights from Rene Girard

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In an essay on Peter Thiel by David Perell.

Girard wrote that social differences and rigid hierarchies maintain peace. When those differences collapse, the infectious spread of violence accelerates. The fiercest rivalries emerge not between people who are different, but people who are the same. The more two people share the same desires, the greater the risk of Mimetic competition.

I arrived at this essay following a thread from a link posted by Tyler Cowen. You can tell that Tyler absorbed this idea long ago, because he has often argued that people in the middle of the income distribution are more fiercely jealous of their neighbors than they are of the very rich, who are remote.

Now, think of us in the past two decades being brought closer together by the Internet. What chaos might result?

Too banal for Tyler

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Tyler Cowen writes,

Just looking at the Patreon list [of 50 largest grossing recipients], my uneasy conclusion is that, in the culture war between the mundane and the grand, the grand has already lost — and without the battle ever having come much into public view.

If you think that the banality of popular culture is a new phenomenon, I’ve got some episodes of My mother, the car to show you.