Not your 1960s protests

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Barton Swaim writes,

a walkout is supposed to be an act of rebellion, of resistance. It involves risk. Like a strike at a factory—if you participate, you might get what you want or you might lose your job. The Enough! walkout was a safe gesture, honored by our governmental and cultural authorities. The national news media—consider the lavish coverage in the New York Times—practically begged the kids to go through with it and heaped praise on them when they did.

Pointer from the WSJ. The way I would put it is that a real protest is an act of disagreeableness. It is not an act that primarily attracts the agreeables.

Let me reminisce a bit.

1. Around 1966 or so, my middle school in the tony suburb of Clayton, Missouri invited a performance by a group called “Up with People!” Their songs were upbeat and patriotic. They were trying to steer young people away from becoming hippies or war protesters. I hated the assembly, and I let other students know that I didn’t like having an agenda thrust on me like that. It was traumatic for me because a beautiful female classmate sneered at me, “Arnold, you have no soul.” It was an episode that marked me as a disagreeable.

2. The biggest cause for protest at my high school was the demand by students for a smoking lounge. It was not my cause, but lots of students fought for it, and they won. So if you think that the 60’s was all about peace and civil rights, think again. At Clayton High School, it was about a smoking lounge.

3. I remember writing a long editorial in favor of gun control for the high school newspaper, but it’s hard to pinpoint when. I want to say it was after Robert Kennedy was assassinated, but that would have been the end of my freshman year, and I don’t think I became involved with the newspaper until at least a year later.

4. It was actually during high school that I peaked as a radical. I lost my radical edge when I went to college. The Swarthmore radicals scared me, because they either seemed cult-like (this was when Lyndon Larouche called himself Lyn Marcus and was a Marxist and he recruited heavily at Swarthmore) or just not very logical in their thinking. I wanted them to be more intellectually sophisticated than I had been in high school, and it seemed more like the opposite. The bottom line is that I just didn’t connect on a personal level with any of the campus radicals.

One factor in my de-radicalization is that I arrived on campus prepared to re-think my entire personality. I had become aware that my high school persona wasn’t working well for me socially, and I made a conscious effort to be less sarcastic and hard-edged.

The group of friends I fell in with as a freshman had very left-wing views, but politics was not their focus. They were more into folk dancing (and I was not–that came later) and classical music (again, I did not really share that interest, but what little classical music I own goes back to chamber music that I saw my friends perform). If I had been more agreeable, I might have at least joined them for dancing.

Come to think of it, my freshman-year friends were very strongly on the agreeable end of the spectrum. In hindsight, I think I fell in with them because unconsciously they represented the direction I wanted to take myself, and it was exciting because they made me feel like it was working.

In my junior year, I took the first of several economics seminars with Professor Bernie Saffran. Bernie was not out to champion any one political view. He wanted to be friends with everyone in the economics profession, and in that he was very successful. He did his graduate work at Berkeley, where he be-friended many young liberals who later achieved very high status within the profession, including Peter Diamond, Laura Tyson, and George Akerlof. Yet his own views were mildly conservative, and in class he had more praise for Milton Friedman than for Paul Samuelson. Although many of his students went on to become prominent left-of-center economists, more than one of us ended up differently. Jeff Miron comes to mind.

On the whole, my memories of my political self in high school are more negative than positive. The Vietnam War was stupid, but the protest movement was stupid in its own way.

Health care prices and quantities

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Irene Papanicolas, Liana R. Woskie, and Ashish K. Jha write,

The United States spent approximately twice as much as other high-income countries on medical care, yet utilization rates in the United States were largely similar to those in other nations. Prices of labor and goods, including pharmaceuticals, and administrative costs appeared to be the major drivers of the difference in overall cost between the United States and other high-income countries.

Pointer from Tyler Cowen.

The paper is very readable, and the tables are very clear. For example, the ratio of specialist physician pay to the mean wage in the U.S. is 5.3 in the U.S. compared with 3.9 in the next-highest country. For general physicians, the ratio is 3.6 in the U.S. compared with 3.3 in the next-highest country.

The study contradicts most of what I believe about comparative health care spending. It also contradicts the findings of Random Critical Analysis. I think that the probability that the study is mostly accurate is less than fifty percent, but greater than zero.

A challenge is that data are very shaky in many areas. The authors write,

Even when data were collected from the same source, issues of comparability remain because of fundamental differences in how systems are organized and, in turn, how care is categorized. Two areas of particular concern are outpatient spending and the primary care workforce. We attempted to address limitations in the workforce data by utilizing a functionality-based approach to identifying who provides primary care services in each country and by cross-referencing resulting numbers with country experts.

Random Critical Analysis used different data on the health care work force and got very different results.

TLP makes a cameo appearance

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in a new book by Eunice and Sabrina Moyle, called Be the Change. In the section of the book that discusses political activism, they write,

Arnold Kling says that people tend to act according to a dominant axis–a trade-off between two ideas. On one end of the axis is what you want. On the other end is what you don’t want. When people make decisions, they tend to rely on their dominant axis to make a quick decision.

My remarks:

1. In a book that will appeal primarily to those on the left, it is nice to see an attempt to un-demonize conservatives and libertarians. I hope that readers stop and think about these pages and don’t just skip over them.

2. They cite Jonathan Haidt as well, and in fact they replace the oppressor-oppressed axis with Haidt’s care/harm dichotomy. That is an interesting shift. I think that oppressor-oppressed better describes the loudest voices on the left, particularly on college campuses. On the other hand, care/harm represents a less militant and more tolerant form of progressive expression, but one which is not so prominently on display.

3. Without the discussion of the three-axes model (and perhaps even with it), progressives might be inclined to use the book as a “how-to manual” for political action along the lines of the recent nationwide high school student walk-out to support gun control.

4. As a nitpick, I would prefer to replace “tend to act” with “seek a sense of moral certainty and political tribal solidarity” and I would prefer to replace “make decisions” with “communicate to signal approval and disapproval.”

5. The book has very rich graphic design. It reminds me of the look that many publishers are trying to achieve for “family seder” books for Passover. I guess I should not be surprised that the design is striking, given that this is what they do in their cards and stationery business.

Disaggregating the economy: consumption tribes

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In a paper marked “preliminary and incomplete,” Brent Neiman and Joseph Vavra write,

Our key findings, that household product concentration and cross-household variance are both rising, is pervasive and robust: it holds in every geographic market in Nielsen data and so is not simply the result of growing differences across regions. Similarly, while household concentration levels differ with some observable demographic characteristics, the rise in household concentration and cross-household variance holds within income, race, education, age, and other demographic groups. The pervasiveness of the patterns suggest a key role for marketing, production or search technologies, or broad-based increases in preference heterogeneity. We demonstrate the salience of product innovation and the expansion of available varieties for the increase in concentration and segmentation of consumption: these trends hold within most retailers but are strongest in those with the largest increases in offered UPCs. In addition, when we compute concentration growth separately for existing and new products, we find that household concentration increases much more in the bundle of new products. That is, the products accounting for rising shares of consumption within narrow categories are predominantly new products not previously consumed by the household. Over the last decade there have been large increases in the set of products available within particular retailers, and our results suggest this enhances the scope for households to sort into particular product niches.

Thirty years ago, we already knew that households could be sorted into different consumption groups. Looking at just the period 2004-2015, the authors write,

Increases in household-product Herfindahls are even larger, rising by roughly 10 percent over the same time span. Overall these increases in household product concentration are nearly monotonic across time, highly statistically significant, and robust to a variety of specification changes.

Is personality psychology just a baloney sandwich?

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I say no, although it is not like physics. We are talking about modest correlations, not strict laws.

What made the marshmallow test famous was the follow-up work which suggested that a child’s ability to defer gratification on the test helped predict future outcomes, such as SAT scores. These correlations with longer-term outcomes speak to the usefulness of the test in revealing some important trait.

Road to Sociology Watch

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Regarding a code of conduct promulgated for the American Economic Association, women in economics at Berkeley write,

In order to craft an effective and appropriate Code of Conduct, the AEA must commit to a longer process that enlists and compensates a diverse group of economists to draft a robust document with a set of tangible commitments to improving conduct in our profession. We expect the group of economists crafting this document to include women, people of color, LGBTQ economists and those from a diverse set of socioeconomic, religious, national and intellectual backgrounds. These economists should be compensated financially for drafting a complete and thorough Code of Conduct that outlines concrete types of behavior that are deemed unacceptable and that institutionalizes a process through which violations can be reported and addressed.

…Professions such as sociology and law have modeled the type of robust code of conduct that a profession such as economics could adopt.

Within twenty years, economics will have all of the ideological diversity of sociology and law.

Nathan Smith

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On Facebook, he writes,

The most overrated economist in the world is Daron Acemoglu; the most underrated may be Arnold Kling. For years, I’ve been getting more and more disillusioned with economics, as the noise of pointless rent-seeking “publications” (the term is a falsehood because articles are more public on SSRN than in a subscription journal) marginalizes fresh insight, and excessive respect (to the point of sycophancy) for legacy ideas and a few academic stars prevents newer and truer ideas from capturing the heart of the discipline. I’ve been wanting to write a book that builds economics from the ground up in a new way, rethinking the basics, selecting a truer set of ideas and integrating them into a new curriculum that would do more to help people understand capitalism… but what publisher would take me seriously? And then I found that Arnold Kling has written it! This is a well written book with good explanations, but more importantly, he picks the right ideas, the ones that aren’t just gimmicks or too unrealistic fort the gap with reality to be bridged, the ones that really matter and have limitless applications and are worth understanding and reflecting on. And then he sequences them well so that they build on each other. I’d like to see this book adapted to become the standard textbook for college freshmen studying economics. If you want to understand capitalism, this is the book I’d recommend.

He is plugging Specialization and Trade. So I’ll plug his (semi-dormant) blog, called Reinventing Economics.

Models, Marx, and Mises

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Recently, I have made the case for updating economics in an essay and in this podcast with Russ Roberts. As I expected, I encountered resistance from three sources: people who think in terms of models; people who think in terms of Marxist sociology; and people who think in terms of Mises.

Somebody on twitter threw the Diamond-Dybvig model against my claim that economists do not understand modern finance. I get this a lot. People hold up that model and say, “See? We understand the financial crisis! We understand the financial crisis!”

I happen to know the paper, which shows that we can have a bank run in a mathematical model. It’s better than a model that does not allow bank runs. But apart from that, I don’t think that gives them much insight into how financial markets operate nowadays. (I actually prefer another Douglas Diamond paper, on financial intermediation as delegated monitoring.) I happen to think that one needs to understand phenomena related to housing, mortgage originations, capital regulations, mortgage-backed securities, CDO’s credit rating agencies, credit default swaps, repurchase agreements, and other components of modern reality. I say “stare at the world, not at your model,” and they say “stare at Diamond-Dybvig.” We have no common ground.

Other commenters say that everything one needs to know is in Mises. Regarding Mises, there seems to be no middle ground. His detractors under-rate him. His fans over-rate him. I don’t see him as having anticipated the issue of asymptotically free goods, just to take one example.

Finally, you get the folks who say that I am correct to stress the importance of culture in affecting economic behavior and who proceed to claim that this shows that Marxist theories of power explain everything. They don’t.

Jonathan Tepper on slow wage growth

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He writes,

Americans have the illusion of choice, but in industry after industry, a few players dominate the entire market:

  • Two corporations control 90% of the beer Americans drink.
  • When it comes to high-speed internet access, almost all markets are local monopolies; over 75 percent of households have no choice with only one provider.
  • Four airlines completely dominate airline traffic, often enjoying local monopolies or duopolies in their regional hubs. Five banks control about half of the nation’s banking assets.
  • Many states have health insurance markets where the top two insurers have 80-90% market share. For example, in Alabama one company has 84% market share and in Hawaii one has 65% market share.
  • Four players control the entire US beef market.
  • After two mergers this year, three companies will control 70 percent of the world’s pesticide market and 80 percent of the US corn-seed market.

The list of industries with dominant players is endless.

Pointer from John Mauldin. Read the whole thing. Tepper also makes the case that many local labor markets are monopsonistic, meaning that only a few employers are available.

Wither the center? post-election Italy

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Alberto Mingardi writes,

A country like Italy ought to have a moderate, responsible, free enterprise-oriented right. But it is indeed an “ought”: not, in our case, an “is” and a truly felt tradition in this country.

Michael Barone writes,

As in France, Austria, the Netherlands, and Germany, the traditional center-left party largely collapsed, with just over 20 percent of the vote

My guess is that if the U.S. had a similar electoral system, we would observe the same thing. As of now, a center-left party would do less well than a far-left party. The right would be split among libertarians (not a large bloc), Trump supporters, and traditional conservatives, with the latter possibly split into a faction that stresses social issues and a faction that stresses the economy and foreign policy.

It could be that Martin Gurri is correct, and that the new media environment helps to foster a revolt against elites. But another possibility is that the financial crisis of 2008 had an effect on the perception of elites in America not unlike the Vietnam War. That is, the “best and the brightest” looked really foolish, and they lost the trust of many people.

Taste-makers in the press have not been kind to Vietnam War architects Robert McNamara, McGeorge Bundy, and Dean Rusk. But for policy makers involved in the financial crisis, the outcome has been different. Henry Paulsen, Timothy Geithner, and especially Ben Bernanke are often described by journalists in heroic terms, and they have vigorously patted themselves on the back in their memoirs. Barney Frank and Chris Dodd etched their names in history as the co-author of post-crisis banking legislation, blotting out their prior role as bosom buddies of Freddie Mac, Fannie Mae, and Countrywide Funding when those firms were running up dangerous risks.

The public may have a better intuitive sense of the policy elite’s role in all this. For the center not to wither, it has to earn the trust of the people.