Category Archives: Tyler Cowen is my Favorite Blogger

John Quiggin’s neoclassical economics

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Tyler Cowen writes,

John Quiggin, Economics in Two Lessons: Why Markets Work So Well, and Why They Can Fail So Badly. The third lesson, however, is government failure, and you won’t find much about that here. Still, I found this to be a well-done book rather than a polemic.

I also received a review copy of the book. No, the term “Public Choice” is nowhere to be found in the index.

It is straight neoclassical economics, which, as you know, I find frustrating.

Suppose that in baseball, every time a batter makes an out we call it “batter failure.” By that definition, Mike Trout is guilty of “batter failure” more than half the time. A really naive manager would replace Mike Trout with a pinch-hitter. But if you know anything about baseball, you know that pinch-hitting for Mike Trout is pretty unwise.

Neoclassical economics takes the naive approach. It suggests pinch-hitting for markets without making any estimate of the pinch-hitter’s propensity to fail.

My review of Tyler Cowen’s latest

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I wrote,

Much of Big Business musters arguments and evidence against the accusations critics articulate concerning the corporate sector. But to me, this is an exercise in Whack-a-Mole, where every time you knock down one canard against big business another one will pop up.

Overall, Big Business is a genuine attempt to be charitable to those who disagree and to try to nudge them to change their minds. Sadly, my sense is that most people read to reinforce their views rather than challenge them.

I worry about what deplatforming signifies

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Tyler Cowen writes,

I worry about deplatforming much less than many of you do. I remember the “good old days,” when even an anodyne blog such as Marginal Revolution, had it existed, had no platform whatsoever. All of a sudden millions of new niches were available, and many of us moved into those spaces.

In recent times, a number of the major tech companies have dumped some contributors, due to a mix of customer and employee protest. So we have gained say 99 instead of say 100, and of course I am personally happy to see many of the deplatformed sites go, or move to other carriers. Most of the deplatformed sites, of course, I am not familiar with at all, but that is endogenous. I would say don’t overreact to the endowment effect of having, for a while, felt one had literally everything. You never did. You still have way, way more than you did in the recent past.

Suppose we grant that we should not worry about a few uncouth individuals losing platforms on major web sites. We still might want to pay attention to what deplatforming signifies about the inclinations of the zealots of the new religion.

Those who seek to eliminate blasphemy see themselves as cleansing society of its impurities. It is a short step from cleansing society of blasphemy to cleansing society of “impure” people themselves.

Imagine that it’s 1931 and Tyrone is telling the Jews of Germany that he worries much less than many of them do. He reminds them that they still have way, way more than they did in the recent past.

Philosophy and economics

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Diane Coyle writes,

Yesterday, an undergraduate emailed me to ask for book recommendations about the overlap between economics and philosophy. I recommended:

Amartya Sen The Idea of Justice
Michael Sandel What Money Can’t Buy: The Moral Limits of Markets
Agnar Sandmo Economics Evolving
and
D M Hausman and M S McPherson and D Satz Economic analysis, moral philosophy, and public policy
Then I asked Twitter, and here is the resulting, much longer, list. [snipped]

Pointer from Tyler Cowen.

I have not read any of these. I have read some on the longer list. Thinking of the most lively reads, and trying to include left, right, and center, I would recommend:

The Worldly Philosophers, by Robert Heilbroner.
Radicals for Capitalism, by Brian Doherty.
Capitalism and the Jews, by Jerry Muller.

If I were teaching an undergraduate course in philosophy and economics, I would include as articles

Hayek’s “The Pretense of Knowledge”
McCloskey’s “Why I am no longer a Positivist”
Leamer’s “Let’s take the Con out of Econometrics”
my own “How Effective is Economic Theory?”

In my view, there are two issues at the center of the overlap between economics and philosophy.

1. What methods best serve economics? In particular, what are the pros and cons of treating economics as a science?

2. How do markets fit in to the moral universe? What problems do they address? What problems do they cause?

The essays on my list deal primarily with the epistemological issue. The books on my list deal mostly with the moral issue.

High-impact geeks

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Tyler Cowen quotes from Clive Thompson’s new book on high-impact geeks.

The 10Xers he [Marc Andreessen] has known also tend to be “systems thinkers,” insatiably curious about every part of the technology stack, from the way currents flow in computer processors to the latency of touchscreen button presses. “It’s some combination of curiosity, drive, and the need to understand. They find it intolerable if they don’t understand some part of how the system works.”

1. I have argued before that CEOs with a coding background have an advantage. You make better decisions when you understand how software development works.

2. In 1989, when I was at Freddie Mac in charge of developing simulation models for calculating the cost of mortgage prepayment and default risk, I first taught myself option pricing and understood the importance of the entire path of interest rates over the life of a mortgage. Also, one of the first decisions concerned a programming language. We went with C, in large part because the investment bankers were working with C. But first I had to teach myself C and do some of the coding myself, to make sure that it “felt” right.

3. In 1994, when I launched my Internet business, I had an understanding of the economics and basic operation of the Internet, based on the working-paper version of Hal Varian and Jeffrey K. MacKie-Mason’s analysis and Ed Krol’s Whole Internet Catalog. I also launched it when I was very high in personal Minsky cycle, basically conceiving the first version in a single sleepless night.

4. When Netscape introduced server-side JavaScript, I learned that. I started a local “users’ group” for the Netscape server, and I found a software developer at that users’ group.

5. He was even more into understanding “every part of the technology stack” than I was. In those days, nothing was reliable. The typical Windows computer crashed several times a day. Browsers were poorly implemented. The Internet itself was not all that reliable. Server software was often unreliable. Many web sites relied on Perl scripts, which someone once aptly described as looking like comic-strip curse words, so that they were nearly impossible to modify or debug.

6. When Java was released, I took a course in it, so that I would understand it. I formed the opinion that it would be more useful on the server side than on the client side. This was fortunate, because the Netscape server was a disaster, and when the Java Web server was released as a beta product, we went with it, and it was much more stable. I continued to code, even though my net contribution was close to zero (my developer had to spend time fixing some of what I wrote). Again, I needed to have a feel for everything, so that I could understand the decisions he was making. We got the point where every page we served was assembled on the fly by pulling elements out of a database.

7. In 2008, when the financial crisis hit, I coined the phrase “suits vs. geeks divide.” I could tell that some of the central players, including executives at large financial institutions and the leading policy makers, did not understand the behavior of options that I learned about in (2). The suits did not know what they were doing. They enacted TARP, an $800 billion program, under the assumption that you could just buy up the bad mortgage securities and hold them for a while. I knew that this was not the case, and after a few months they gave up.

8. About five years ago, I tried another start-up. I wanted to do some of the coding myself this time. But I did not understand how much the software world had changed. It seems to be all about stitching together different packages. I was too much of a dinosaur.

Anyway, I hope that the book is as interesting as Tyler says it is.

Internet culture and legacy culture

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Tyler Cowen writes,

In the internet vs. culture debate, the internet is at some decided disadvantages. For instance, despite its losses of mindshare, culture still holds many of the traditional measures of status. Many intellectuals thus are afraid to voice the view that a lot of culture is a waste of time and we might be better off with more time spent on the internet. Furthermore, many of the responses to the tech critics focus on narrower questions of economics or the law, without realizing that what is at stake are two different visions of how human beings should think and indeed live. When that is the case, policymakers will tend to resort to their own value judgments, rather than listening to experts. For better or worse, the internet-loving generations do not yet hold most positions of political power (recall Zuckerberg’s testimony to Congress).

For a different perspective, Jordan Hall writes,

the dynamic of Culture War 2.0 shows up as one of intense fragmentation and disorientation, where none of our 20th Century techniques for generating social coherence stand up to the rapidly changing reality. From this level, the experience will likely be one of increasing chaos in all aspects of culture, society and individuality. If you are running a 20th Century sensemaker, it will feel like a descent into some flavor of madness.

Is Hall’s essay an insightful piece or a word salad? Maybe a bit of both. He links to a somewhat more digestible essay, by Peter Limberg and Conor Barnes.

We define a culture war as a memetic war to determine what the social facts are at the core of a given society, or alternatively, to determine society’s boundaries of the sacred and the profane. Political arguments have become indistinguishable from moral arguments, and one cannot challenge political positions without implicitly possessing suspect morals. This makes politics an exhausting and unproductive game to play, and it makes the culture war intractable.

What I take away from the latter two essays is that our culture is splintering. If our political system reflected this, then we would have many small parties.

Politics used to consist mostly of negotiation about interests. The legacy political parties used to be coalitions. Members with somewhat divergent interests were willing and able to work together and aim for common objectives. The median voter model was in force.

Today, politics is about cultural identity. That is not something that is negotiable. It does not lend itself to coalition politics.

Going back to Tyler’s post, I think that the denizens of legacy culture are not equipped to deal with the fragmentation that the Internet has wrought. So I think they are mostly at a disadvantage.

A sex survey: what’s not to love?

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The story is behind a WaPo paywall.

1. It is not a story about sexual frequency. It is about the incidence of people who have not had sex with a partner in the past year. Call these folks abstainers. Sorry, Tyler, but I disagree with Christopher Ingraham that it is amazing that there are more abstainers in the 18-30 age bracket than among fifty-somethings. My guess is that the proportion of married people is quite a bit higher among 50-somethings, and if you’re looking for abstainers, you are more likely to find them among people who are not married. To be blunt, the survey does not say that older folks are having more sex. It just says that fewer of them are abstaining for a year.

2. Robin Hanson also could not resist commenting.

it won’t at all do to point to effects that are constant in time, such as people not always telling the truth in polls, or men having lower standards for sex partners. It also won’t do to point to changes over this time period that effected [sic] all ages and genders similarly, such as obesity, porn, video games, social media, dating apps, and wariness re harassment claims. They might be part of an answer, but can’t explain all by themselves. To explain an unusual burst over the last decade, it is also problematic to point to factors (e.g., computing power) that changed over the last decade, but changed just as much over prior decades.

3. Here’s a way to simplify the data in one of the graphs on Robin’s post, which looks at people in the 18-30 age bracket. Suppose we had 100 heterosexual men and 100 heterosexual women. Ten years ago, there were 10 abstainers of each gender. Among the more recent cohort,there are 28 male abstainers and 18 female abstainers.

4. Here’s a way to think about this. Ten years ago, there were 10 female abstainers, each with a “partner” who abstained also. In the more recent cohort, the number of abstainer “partnerships” increased by 8. Some of that could be a decrease in marriage rate, but how much could the marriage rate of have fallen in the last decade?

5. Another interesting development is that there are now 10 male abstainers who don’t have a “partner.” To put it another way, there are now 82 women who did not abstain and only 72 men who did not abstain. (Of course, ten years ago, there were 90 non-abstainers of each gender, so definitely don’t think of this as women getting friskier.) Who did these extra ten women find? Older men? Men who already had non-abstained with someone else?

6. Robin writes,

it seems that. . .the latest age cohort has switched to a new sex culture wherein the less desirable half of young men are now seen as even less desirable by young women than previous cohorts would have seen them. And within this culture it is seen as more acceptable for young women to share the more desirable half of young men

I agree that this is likely the basic story, but I would not overstate it. It could be that we should be talking about the less desirable quarter of the male population. And the number of women who are ok with sharing desirable men may still be very small. My arithmetic exercise suggests that the proportion of women who are sharing (in the sense that they have a partner who in the past year has had additional partners) is 10 percent, and a lot of that may not be sharing by choice.

What is a firm? an organizational culture

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I just received a review copy of Tyler Cowen’s latest, Big Business, which will be released in a week. As is my habit, I started reading it from the outside in, and I quickly landed on the appendix, in which he writes

in lieu of the Coase and Williamson transactions-cost appraoch, I typically view a corporation in terms of the following properties:

  1. It is a collection of assets, assembled at favorable purchase prices (or at least the prices were favorable for the case of successful corporations.
  2. It is a nexus of external and internal reputation and norms.
  3. It is a carrier of contractual and legal responsibility.

My inclination is to elaborate on (2). I might describe a firm as an organizational culture.

I think we need to distinguish among types of firms. The local restaurant run by a family of recent immigrants is not the same as Microsoft.

I want to ignore most types of firms, including the restaurant, and instead focus on young, ambitious firms and mature, established enterprises.

I would describe a young, ambitious firm (or a “promising business” in Amar Bhide’s terminology) as an organizational culture embodied in its top management layer. To be successful, the members of this team must:

  • generate good ideas and discard bad ones
  • have the skills, experience, and drive to execute on ideas
  • work well together
  • manage the transition to a mature, established enterprise

In a mature enterprise, the organizational culture permeates the entire firm. A set of rules, systems, processes, habits, and institutional knowledge is deeply ingrained in every layer of the organization. One of the things that struck me about Minerva, the innovative college, is the terminology that I called “Minerva-speak.” This sort of firm-specific terminology can contribute to a shared organizational culture.

When Tyler points out that bureaucracy is both good and bad, I interpret that in terms of the tension between organizational culture and individual initiative. I picture Minerva in those terms. Its culture is more clearly defined than that of a typical college, but ultimately that could feel stifling to some faculty and students.

Recall that one of my rules for work and financial life is:

When you have little left to learn on a job, it is time to move on.

A lot of what you learn when you work at a firm is its organizational culture. Moving within a firm means you learn new subject matter, but you are largely staying within the same culture. The psychologically more challenging move to a different organization gives you an opportunity to experience a different culture, sort of like spending time abroad.

Large, established enterprises are in one sense easy for a CEO to run and in another sense very difficult to run. With a deeply-ingrained organizational culture, an enterprise can operate on auto-pilot in a stable business environment. In a changing environment, which seems to be more prevalent nowadays, the CEO has to know when and how to discard cultural baggage. Changing the culture of a large organization is risky and wrenching. In a large corporate merger, cultural integration is both challenging and very important.

Perhaps the biggest challenge faced by top management in a large organization is to know what the organization needs to learn and to unlearn as its environment changes. I can think of many examples where the environment changed quickly and a large enterprise unlearned too slowly. Or maybe the value of its legacy rules, systems, processes, habits, and knowledge was decimated by the new environment, and there was not much that top management could do about it.

But I can think of at least one example where a new top management layer insisted that the organization unlearn its approach and the outcome was tragic. That was when Freddie Mac’s board brought in Richard Syron as CEO. Syron and his executive team discarded the organizational knowledge about credit risk, which included a reluctance to deal in “low-doc” mortgages. Under Syron, Freddie Mac dove into the “low-doc” business, with results that were disastrous, both for the company and for the country.

Tyler Cowen on the SJW mentality

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He writes,

Many social justice warriors seem more concerned with tearing down, blacklisting, and deplatforming others, or even just whining about them, rather than working hard to actually boost social justice, whatever you might take that to mean. Most of that struggle requires building things in a positive way, I am sorry to say.

What concerns me about SJWs is their reliance on intimidation. To use a current example, AIPAC always aimed to be strictly non-partisan. It used to be able to get ambitious Democrats to speak at its convention. No more. The SJWs have successfully delegitimized AIPAC among Democrats. Going forward, Democratic Congressmen will think twice about receiving visitors from AIPAC. AIPAC has been castrated.

Maybe you don’t care much for AIPAC. I have never attended the convention, and I wouldn’t call myself a fan. The point I am making is not about AIPAC, but about the manner in which it was shot down.

If SJWs can scare Democrats away from AIPAC, then they can intimidate anybody. If this is what these folks can do as a cult minority, imagine the climate of fear we will live under once they seize the apparatus of the state.

Marrying a person and a job, as an economist

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By now you may have read–see Tyler’s post or the WSJ coverage–about the survey of the American Economic Association that found that nearly 100 women economists have been sexually assaulted by another economist. I condemn the perpetrators, but I don’t see this statistic as a reason to condemn the entire economics profession or all of its male practitioners.

1. Can you easily find elsewhere a sub-population of similar size with fewer sexual assaults?

2. I haven’t looked at the study. Did they tabulate the number of male-female pairs of economists who are happily married? I bet that off the top of his head Tyler can think of at least 15 economist-economist marriages. In the entire economics profession, how many such pairs are there? 1,000? More?

3. Did they ask how many consensual relationships there were between economists? I’ll bet that it would be almost impossible to find a different sub-population of women with a higher ratio of consensual relationships to sexual assaults.

I don’t get invited to conferences. Should I feel sorry for women who are afraid to speak up at conferences for fear of “disrespectful treatment”?

The tiny, back-scratching cabal that largely controls academic economics is mostly male. But the fact that it is male is not the real scandal. The real scandal is that it is a tiny, back-scratching cabal.