My understanding of post-modernism is based pretty much on what I have read from its critics. What is the best defense of post-modernism that is out there?
Modernity and the Three-Axes Model
Modernists are those who believe in human progress within a classical Western tradition. They believe that the world can continuously be improved through science, technology, and rationality. Unlike traditionalists, they seek progress rather than reversal, but what they share in common is an interest in preserving the basic structures of Western society. Most modernists could be classified as centrists (either left or right-leaning), classical liberals and libertarians.
Postmodernists, on the other hand, eschew any notion of objectivity, perceiving knowledge as a construct of power differentials rather than anything that could possibly be mutually agreed upon. Informed by such thinkers as Foucault and Derrida, science therefore becomes an instrument of Western oppression; indeed, all discourse is a power struggle between oppressors and oppressed.
The reader who pointed me to this essay suggested that it fits the three-axes model. I am not sure that it does. It would fit the model if put traditionalists on the civilization vs. barbarism axis, modernists on the liberty vs. coercion axis, and progressives on the oppressor vs. oppressed axis. But when Aaron writes,
modernists perceive an influx of Islam, and particularly conservative strains of Islam, in the form of unbridled mass migration, to pose a threat to Western culture due to its authoritarian, sexist and homophobic views
the phrases “influx of Islam” and “threat to Western culture” strikes me as appealing to the civilization vs. barbarism axis.
High Fixed Costs and Public Goods
The June 2017 issue of Cato Unbound looks at how the private sector could provide public goods. It considers the idea of what Alex Tabarrok calls a Dominant Assurance Contract.
The dominant assurance contract adds a simple twist to the crowdfunding contract. An entrepreneur commits to produce a valuable public good if and only if enough people donate, but if not enough donate, the entrepreneur commits not just to return the donor’s funds but to give each donor a refund bonus. To see how this solves the public good problem consider the simplest case. Suppose that there is a public good worth $100 to each of 10 people. The cost of the public good is $800. If each person paid $80, they all would be better off. Each person, however, may choose not to donate, perhaps because they think others will not donate, or perhaps because they think that they can free ride.
Now consider a dominant assurance contract. An entrepreneur agrees to produce the public good if and only if each of 10 people pay $80. If fewer than 10 people donate, the contract is said to fail and the entrepreneur agrees to give a refund bonus of $5 to each of the donors. Now imagine that potential donor A thinks that potential donor B will not donate. In that case, it makes sense for A to donate, because by doing so he will earn $5 at no cost. Thus any donor who thinks that the contract will fail has an incentive to donate. Doing so earns free money. As a result, it cannot be an equilibrium for more than one person to fail to donate. We have only one more point to consider. What if donor A thinks that every other donor will donate? In this case, A knows that if he donates he won’t get the refund bonus, since the contract will succeed. But he also knows that if he doesn’t donate he won’t get anything, but if does donate he will pay $80 and get a public good which is worth $100 to him, for a net gain of $20. Thus, A always has an incentive to donate. If others do not donate, he earns free money. If others do donate, he gets the value of the public good. Thus donating is a win-win, and the public good problem is solved.
I think of a public good as a special case of a more general problem, which is that it is often the case that average cost exceeds marginal cost. In fact, one of my main complaints about courses in basic microeconomics is that they focus on the opposite situation where marginal cost exceeds average cost, which is is not so often observed in reality.
For example, if you are building a cell phone network, the fixed cost of the infrastructure will be high. However, once you have the infrastructure, the marginal cost of transmitting a gigabyte of data will be low. If you charge this low marginal cost, you will never recover your fixed cost. Instead, you need customers to “donate” to pay for the infrastructure. The “donation” comes in the form of a monthly subscription fee.
In a typical cell phone pricing model, the charge for using data is zero until you reach your limit, and then it is ridiculously high. This model helps facilitate price discrimination. You pay a higher subscription fee to be in a higher data tier, meaning that you face the zero price at higher levels of data usage. Price discrimination of this sort helps the cell phone company recover fixed cost while making sure that most customers are charged low marginal costs most of the time.
The cell phone company has the ability to exclude non-subscribers from getting its service. With a public good, such as national defense, you no longer can exclude particular individuals. Either everybody gets it, or nobody gets it. Call this the non-excludability property.
Note: The textbook definition of a public good is one that is non-excludable and non-rivalrous. What I am suggesting here is any good that has very low marginal cost is “pretty close to” non-rivalrous. These “pretty close to” non-rivalrous situations are very common. {And with the Internet, they become more common. As maps turned into Google Maps, the marginal cost of producing a tryptich plummeted. As travel agents became TripAdvisor, the marginal cost of vacation planning services plummeted. etc.] Those that are also non-excludable, and therefore meet the textbook definition of public goods, are less common.
Governments, like private firms, can and do use price discrimination and bundling to cover fixed costs. People pay different tax amounts. People receive bundles of services–you pay for trash collection and government schools, even if you desire one but not the other.
Non-excludability is a different issue. Governments typically solve the problem of non-excludability by using coercion–you are forced to “donate.” Coercion produces the “everybody gets it” outcome instead of the “nobody gets it” outcome.
Alex’s contract is an alternative to coercion. The idea is that a typical consumer will receive a small benefit in the “nobody gets it” outcome, but only if that consumer is willing to donate. With the “everybody gets it” outcome, the consumer gets a benefit above that consumer’s willingness to pay. That is the sense in which either outcome is a win for a consumer who is willing to donate, so that it is in the consumer’s interest to be willing to donate.
My problem is that I cannot see a way to combine Alex’s contract with price discrimination and bundling. And I think that price discrimination and bundling are very important for funding government in practice.
Racism a Century Ago
A commenter provides supporting evidence for my view that it was worse back then. He cites three articles from the North American Review. For example, one of them says,
The original population of the States, it is true, was mixed. But there was nothing unassimilable in the Dutchman, the Frenchman or the Swede. Irish immigration frightened Americans into Know-nothingism. But about the worst that it did, after all, was to fill the ranks of Tammany. It has found its level and is a source of alarm no more. Not so the Italian, with his Mafia, or the Eussian and Polish exile. The spirit of European revolution and of European anarchism is invading American cities.
Read the whole comment.
Google and Bell Labs
What Google et al are doing is a lot like the Bell Labs of old. Just as AT&T’s monopoly profits paid for a lot of research of uncertain short term direct value to Ma Bell, the Internet bigs have poured a lot of money into side projects that may not actually be profitable, but the core business prints so much money that investors aren’t inclined to ask too many questions.
In hindsight, we owe a lot to Bell Labs and Xerox PARC. Maybe in twenty years the effect of research projects at Google and Amazon will be just as significant.
The decline of GDP
Television has gotten much better over the last few decades, but—for many reasons—total advertising has not grown.
Without more advertising revenue, the contribution of better TV to GDP is zero. A few remarks:
For me personally, the value of television is close to zero. I never turn on the TV. Still, if I did have to watch, I would find prefer new shows to the type of shows that were available when I was a kid.
But Greenstein’s larger point is that free services, like Google Maps, do not get valued properly in GDP.
I would like to make the point larger still. The economy is much less legible today than it was in 1950. The most legible components of the economy are agriculture and manufacturing. In 1950, the majority of people worked in those sectors. Today, if you add up farm labor and manufacturing production workers (not including white collar workers in manufacturing), you get maybe 7 percent of the labor force. Pretty much everyone else works in sectors like finance, government, health care, and education, where we do not know how to measure or value output.
The Department of Commerce hums along, producing a number for GDP. And many economists read a lot into the behavior of this number. In the process, they treat an increasingly illegible economy as if it were still legible.
Now vs. Then
I have resisted two claims made in recent conversations.
1. Compared with the early Irish, Italian, and Eastern European immigrants, Hispanics today face more prejudice.
I am afraid that the Irish, Italian, and Eastern European immigrants faced a great deal of prejudice, and that this has been mostly forgotten. Thomas Leonard’s Illiberal Reformers is a must-read for its coverage of the eugenics movement. My reading of that book makes me suspect that the prejudice back then was even worse.
2. Compared with the 1960s, the stability of our country is less threatened in the Trump era.
This is a tough one, because it involves assigning probabilities to non-stochastic phenomena. Even if the probability of chaos is in some sense lower today than it was in 1965, it is still higher than zero today, and meanwhile we know that the country stabilized after the 1965-1980 period receded. So in some sense, it is simple to claim that we live in more dangerous times now.
I am prepared to argue that we survived the 1960s because politics was still coalitional and fluid rather than being entirely identity-driven. The Democratic Party absorbed the anti-war movement, even though the Vietnam war was initiated by a Democratic Administration. The Republican Party absorbed what had previously been the core constituency of the Democrats, the Solid South.
In 1967, blue-collar workers and college students were like two distinct tribes. But by 1973, blue-collar workers were sporting long hair, listening to hard rock, and experimenting with drugs and sexual freedom. I would be willing to bet that in 2023 we won’t see erstwhile Trump supporters adopting the race and gender doctrines that are prominent on campus today.
I’m not seeing the sort of coalitional politics that I saw in my youth. Mr. Trump won by gaining votes from among the anti-Bobos. The Democrats are doing remarkably little to try to get those votes back. Indeed the Bobos who form their base do not want the anti-Bobos in their coalition.
Because today’s divide seems less fluid to me, I think that the danger is higher that conflicts will not be reconciled peacefully.
Landlords and Speculators, Again
Some good comments on the earlier post, better than it deserved.
I regret writing that mortgage lenders and owners are on the opposite end of a transaction. It is more apt to say, as Kevin Erdmann pointed out, that the house is financed with debt and equity. Both can earn a return.
Another commenter offered a numerical example. Let me riff off some of the numbers.
Suppose the house costs $200,000, it is 100 percent financed, and the mortgage rate is 4.0 percent. Then you can think of the interest expense as $8000. Pretend that it is the same for the owner-occupant as it would be for a landlord. Both the owner-occupant and the landlord can deduct the interest expense for tax purposes. They also can both deduct property taxes. I think that 3 percent is high, so I would go with something like 1.5 percent, or $3000.
If depreciation is 2 percent per year, it amounts to $4000, which is what the commenter suggested for repairs. Depreciation is tax deductible for the landlord but not for the owner-occupant. The commenter suggests that insurance is $1200, which again the landlord could deduct as an expense. If the landlord pays for utilities, then the landlord can deduct those as an expense. That might be another $2400 in deductions. Condo fees or Homeowners’ Association fees, if any, would work similarly.
If the price/rent ratio is 10, then annual rent is $20,000. If the price/rent ratio is 20 (high by historical standards), then the annual rent is $10,000. In any case, that is income to the landlord, who has to pay taxes on it. So overall, the owner comes out ahead.
Erdmann offers an interesting take on cities where supply is clearly constrained by regulation.
political obstacles to the allocation of capital into new residential housing has caused market prices to be wholly unmoored from replacement cost in those cities. In those cities, buying a house is like buying a taxi medallion. It is not so much a claim on shelter as it is a claim on political exclusion.
His point is the return on investing in housing would be more predictable, and much of the speculative aspect of home purchase would go away, if house prices were more closely tied to construction costs. And they would be more closely tied to construction costs if development were less constrained by regulatory restrictions.
College, Critical Thinking, and the Null Hypothesis
According to a WSJ story, as described by Newsweek,
The Journal found that at about half of schools, large groups of seniors scored at basic or below-basic levels. According to a rubric, that means they can generally read documents and communicate to readers but can’t make a cohesive argument or interpret evidence.
The WSJ story itself says that
At some of the most prestigious flagship universities, test results indicate the average graduate shows little or no improvement in critical thinking over four years.
Sounds like another win for the null hypothesis.
Yuval Levin on the CBO
Rather than produce stark hard-number projections behind a heavy veil, the CBO and JCT could act more as developers and stewards of an open public model, available online to anyone with sufficient technical prowess to use it. The two agencies, with outside help, would create and maintain the model, and would decide on a set of official economic assumptions and policy expectations to be used in modeling for formal budget-process purposes. Anyone could “score” any policy proposal using those official assumptions and could also use the model with other assumptions to project a proposal’s consequences under alternative circumstances.
I do not think that any fix of the Congressional Budget Office or Joint Committee on Taxation gets at the problem.
Alan Blinder once pointed out what he called Murphy’s Law of economic policy. That is when economists agree on something and are confident about it, nobody listens. But when economists are engaged in speculation and biased argument, they get attention.
When it comes to “scoring” health bills for their effect on the proportion of the population with health insurance, the CBO is engaged in speculation, and Levin points out a form of bias.
It is by this point basically a quirk of the CBO model that it judges the mandate to be exceedingly effective — far more effective than the evidence of the past few years would suggest.
If your model tells you that a lot of people purchased health insurance because of the mandate, then it will predict that a lot of people will decline health insurance without it. And, of course, the press will report this as people “losing” their health insurance.
On the other hand, when the CBO puts out its reasonable forecasts that entitlement spending is not sustainable, pundits tell us not to take those seriously. But as far as I can tell, those forecasts are still on track.