The Best Post-Election Piece So Far

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From Joshua Mitchell.

“Globalization” and “identity politics” are a remarkable configuration of ideas, which have sustained America, and much of the rest of the world, since 1989. With a historical eye—dating back to the formal acceptance of the state-system with the treaty of Westphalia in 1648—we see what is so remarkable about this configuration: It presumes that sovereignty rests not with the state, but with supra-national organizations—NAFTA, WTO, the U.N., the EU, the IMF, etc.—and with subnational sovereign sites that we name with the term “identity.”

…When you start thinking in terms of management by global elites at the trans-state level and homeless selves at the substate level that seek, but never really find, comfort in their “identities,” the consequences are significant: Slow growth rates (propped up by debt-financing) and isolated citizens who lose interest in building a world together. Then of course, there’s the rampant crony-capitalism that arises when, in the name of eliminating “global risk” and providing various forms of “security,” the collusion between ever-growing state bureaucracies and behemoth global corporations creates a permanent class of winners and losers.

Pointer from Tyler Cowen.

Read Mitchell’s whole piece, as well as the earlier essay to which he links. I find his thoughts congenial, because I agree that the election pitted cosmopolitan vs. anti-cosmopolitan.

However, this is far from the last word. In fact, I would say that the longer you take to react to news, the better off you are. In general, I like to schedule my posts several days in advance. (This one is being drafted 3 days before it is scheduled to appear.) That gives me time to revise or delete a post before it appears. You may have noticed that when stock futures plummeted the night of the election, Paul Krugman predicted that the plunge would be permanent. I bet he wishes he had scheduled that post for a few days later, in which case he could have deleted it before it became public. In fact, I rarely have to revise or delete, because scheduling a post in advance forces me to be less reactive and to think ahead.

A lot of social media lacks the “schedule in advance” feature. I don’t think Twitter has it (I only use Twitter automatically, to announce blog posts, so I do not know how Twitter actually works.) Facebook does not have it. Software for posting comments does not have it. (If you like to comment on this blog, feel free to hold back for a few days. Old comments on old posts show up for me to read just as well as fresh comments on fresh posts.)

Thus, for the most part, social media leads people to be reactive and trigger-happy, as opposed to reflective and sober. It is something that one has to be aware of and push back against.

Election Over-read

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Tyler Cowen writes,

I see Democrats as somewhat concentrated in particular cities and also in particular occupations, more than Republicans are. There is nothing wrong with that, but it is another way in which Democrats are less diverse.

Read the whole thing. He is delicately suggesting that Democrats might have a notion of diversity that is too narrow. However, I doubt that he would have written that post if the election had gone the other way. Moreover, the election easily could have gone the other way. Maybe if it had been held a few weeks earlier or a few weeks later the outcome would have been different. Maybe if the Democratic ticket had been more attractive the outcome would have been different. Maybe if Rubio or one of the other Republican establishment favorites had won the nomination the outcome would have been different.

I should note that all election-reading, including my own, tends to be self-serving. One crude way to describe the social order in this country is that straight, white progressives are at the top, conservatives are in the middle, and various presumably oppressed groups are at the bottom. Progressives prefer to read the election as a kick in the pants of the folks at the bottom. Conservatives prefer to read the election as a kick in the pants of the folks at the top. I might add that some progressives see a social order that includes two layers on the left, with centrist Clinton Democrats on top of true progressives. In this view, the centrists are the ones who received the kick in the pants.

Elections prove much less than we are inclined to think they do. I would say that if progressives and Democrats were right about policy issues before the election, then they are still right. If they were wrong, they would still be wrong, even if they had won.

What I take away from recent elections is that other people bought into Barack Obama and Donald Trump much more than I would. I am not sure what else I should read into the results.

Picturing Genetic Engineering

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A commenter writes,

Imagine you have a button on the wall you could press which would which would eliminate schizophrenia in all people born after say January 1, 2017. Would you press it?

That is not the way I picture genetic engineering working, at least in the near future. Instead, the question might be posed as, “This gene raises the probability of schizophrenia by .03, but it also raises the probability of artistic genius by ___. Would you like us to edit that gene out of your offspring?”

To put it another way, if there is a single gene that caused schizophrenia, and it has no beneficial effects that compensate, then how does that gene persist?

My amateur understanding is that many characteristics are determined by multiple genes, and many genes have multiple impacts. That means that for genetic engineers the choices will not be clear-cut for a long time, perhaps never.

TLP watch

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Sean Blanda wrote,

Sharing links that mock a caricature of the Other Side isn’t signaling that we’re somehow more informed. It signals that we’d rather be smug [jerks] than consider alternative views. It signals that we’d much rather show our friends that we’re like them, than try to understand those who are not.

In The Three Languages of Politics, I also discuss political discourse that is designed to close the minds of the people on your side, as opposed to opening their minds or those of the opponent.

Blanda linked to another piece, from 2015, written by self-described leftist Fredrik DeBoer, who wrote,

Right now I just think there’s this fundamental problem where so many people who identify themselves as being part of the broad left define their coalition based on linguistic cues, cultural overlap, and social circles. The job of politics, at its most basic, is finding common cause with people who aren’t like you. But current incentives seem to point in the opposite direction — surveying the people who are just like you and trying to come up with ways in which that social connection is actually a political connection.

The essay ended with a plea

You have to be willing to sacrifice your carefully curated social performance and be willing to work with people who are not like you.

Now, apply those thoughts to libertarians.

If California Wants a Divorce, We Need a Pre-Nup

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Reportedly, the election of Trump has caused some Californians to talk about secession. Secession got a bad name when the slave states did it, but the concept appeals to me. In general, I wish secession were easier in this country. I would like to see little towns be able to secede from counties, or counties secede from states, or what have you.

However, I have a hard time figuring out the logistics of a California secession. Take Social Security (please). On secession day, I assume that Californians stop paying taxes to the Federal government. So, somebody somewhere has to pay taxes in order for a Californian to continue to receive Social Security benefits. (You do know, don’t you, that the government never “saved up” your taxes to pay for your Social Security?) Will California taxpayers pick up the tab? Or will elderly Californians be encouraged to emigrate back to the legacy U.S. in order to get their benefits? And if the latter happens, will the legacy U.S. agree to let them in and give them their benefits?

Somebody needs to work out a generic pre-nup agreement if we are going to sort out the logistics of a state getting a divorce.

Martin Gurri Watch

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Jim Newell writes,

The Democratic Party establishment has beclowned itself and is finished.

I think of the lawmakers, the consultants, the operatives, and—yes—the center-left media, and how everything said over the past few years leading up to this night was [baloney sandwich].

Once again, Martin Gurri’s Revolt of the Public seems to be the best guide to events. It seems as though the Democratic Party is ripe for the sort of anti-establishment revolt that hit the Republicans this year.

Speaking of Gurri, prior to the election, he wrote,

In somewhat slower motion than the Republicans, the Democratic Party is unbundling into dozens of political war bands, each focused with monomaniacal intensity on a particular cause – feminism, the environment, anti-capitalism, pro-immigration, racial or sexual grievance. This process, scarcely veiled by the gravitational attraction of President Obama and Clinton herself, will become obvious to the most casual observer the moment the Democrats lose the White House.

That moment has come, and we’ll see how the prediction plays out.

President Nixon’s Wage and Price Controls

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Burton A. Abrams and James L. Butkiewicz write,

We uncover and report in this paper evidence that Nixon manipulated his New Economic Policy to help secure his reelection victory in 1972. He became convinced that wage and price controls were necessary to grab the headlines away from the defeatist abandonment of the Bretton Woods Agreement and the closing of the U.S. gold window. Nixon understood the impact of his wage and price controls, but chose to trade off longer-term economic costs to the economy for his own short-term political gain.

Pointer from Tyler Cowen. The paper is based on President Nixon’s secret tapes.

I think that Nixon’s New Economic Policy is under-studied by economists. At the time, many people though that the central policy was getting rid of the gold peg and that wage and price controls were a “cover.” The cover worked, both in the short term and the long term, as people focused on the wage and price controls then and now.

The conventional story of the inflation of the 1970s is that Fed Chairman Arthur Burns printed a lot of money. But as you know, I need to fined a different explanation. My alternative is that abandoning fixed exchange rates set off an inflationary wave, starting with traded goods but spreading elsewhere.

It was less than two years later that OPEC was able to quadruple the dollar price of oil. After that, inflationary psychology took over. Even though we retained price controls on refined petroleum products, such as gasoline, this regime probably raised costs (such as gasoline shortages) more than if prices had been allowed to rise.

What alternative did the Nixon Administration have? The U.S. had been losing reserves of gold and foreign currency at an unsustainable pace. Higher domestic interest rates would have stemmed the outflow, but this would have been unpopular. A lower government budget deficit would have raised net domestic saving (T-G + S-I) and reduced the outflow from the trade deficit, but Mr. Nixon did not go for that, either.

Two Types of Beliefs

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Kevin Simler writes,

From the inside, via introspection, each of us feels that our beliefs are pretty damn sensible. Sure we might harbor a bit of doubt here and there. But for the most part, we imagine we have a firm grip on reality; we don’t lie awake at night fearing that we’re massively deluded.

But when we consider the beliefs of other people? . . .

Later,

I contend that the best way to understand all the crazy beliefs out there — aliens, conspiracies, and all the rest — is to analyze them as crony beliefs. Beliefs that have been “hired” not for the legitimate purpose of accurately modeling the world, but rather for social and political kickbacks.

Still later,

The trouble with people is that they have partial visibility into our minds, and they sometimes reward us for believing falsehoods and/​or punish us for believing the truth.

My thoughts:

1. One might suggest that incentives apply only to beliefs that you espouse. You can choose your private beliefs on merit. However, it is hard to maintain a private/public disparity. You might have to reveal your true beliefs at some point. Also, when you espouse something, I think it makes you more inclined to believe it.

2. Of course, all beliefs are socially communicated. One way to rephrase Simler’s thesis is that some beliefs are transmitted via reason and others are transmitted via incentives.

3. It might be hard to avoid proceeding from the insight that beliefs can be affected by incentives to go on to say that well, my beliefs are based on merit but yours are based on incentives. Simler, too, is worried about this. His solution is to recommend embedding oneself in a community where the norms of behavior go against maintaining confidence in beliefs that are affected by incentives. Such a community will create good incentives to counteract bad incentives.

My concern is that we are prone to deceive and to self-deceive. Suppose that economist X at Yale and economist Y at GMU are each convinced that he or she is part of a community that creates good social incentives for shaping one’s beliefs. Yet their beliefs differ. What should we do then? I think Simler would say that in that case we should reward those who have low confidence in their beliefs and punish those who have high confidence. But what if neither the Yale nor the GMU economics department effectively does this?

Interpretive Frameworks and the Election

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Robby Soave wrote,

Trump won because of a cultural issue that flies under the radar and remains stubbornly difficult to define, but is nevertheless hugely important to a great number of Americans: political correctness.

Read the whole essay. I was not persuaded.

After the financial crisis, it was remarkable how many economists found their world view confirmed by it. Keynesians said that it proved Keynesianism, Those who thought that loose monetary policy is the root of all evil felt vindicated. Scott Sumner and others put the blame on tight money. Economists on the left blamed neoliberalism and deregulation. Economists on the right blamed government-sponsored enterprises and affordable housing goals.

I’m getting the sense that last week’s election is going to have a similar follow-up. Everyone is going to use it to climb on to their favorite hobby horse. It proves that America is racist. It proves that the economy is not working for some people. It proves that nationalism is more popular than globalism. It proves that elites have failed. It proves that the American political process is flawed. It proves that new media have altered the electoral landscape. It proves that Obamacare is not working. It proves Hillary Clinton is unpopular. It proves that the American people do not care about facts. It proves that Americans are still mad at Wall Street. It proves that Americans want to get out of the Middle East. It proves that terrorism is a major issue. It proves that issues don’t matter, and that it’s all identity politics. Americans wanted anyone but another Bush or another Clinton. It was a repudiation of Barack Obama. It shows that democracy is flawed.

I am going to climb on to my own hobby horse in order to offer a meta-interpretation. We face a blooming, buzzing confusion of interpretive frameworks for the election. Because it is only one event, we are not going to be able to sort it out.

I would argue that the same holds true for many economic phenomena. There are many plausible interpretive frameworks. If we are looking at singular events, like the financial crisis, we have no chance of definitively sorting them out. When we look at macroeconomics in general, too many factors change to enable us to draw firm conclusions. With microeconomics, there is enough similarity across markets and across time to develop more confidence in crude interpretive frameworks, such as basic supply and demand. But attempts to get more refined and precise are likely to fail.

The Monopsony Issue

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A reader asked me to comment on the issue, raised by the President’s economist Jason Furman, that labor markets are monopsonistic. I do not have much to add to other blogosphere comments, but here goes:

1. Just to clarify, a monopsonist in the labor market is an employer who can set wages below a competitive rate, because its workers have no other potential employers.

2. Suppose that we accept as true the finding by Richard Freeman that the highest wages are paid at the most profitable firms. If there is a monopsony story there, I do not see how to tell it. A monopsonist would exploit its workers by paying low wages, so I would expect that if monopsony were prevalent then we would see the highest wages paid to the least profitable firms (the ones who are competitive in the labor market and cannot exploit their workers). I think that to account for Freeman’s results, you either have to say that the most profitable firms have monopoly power in the markets for their output, and they share some of the rents with their workers, or you have to be like me and be skeptical of Freeman’s ability to measure the true productivity of various workers.

3. If you have some government policy to force employers to pay higher wages, this only helps increase labor’s share if the demand for labor is inelastic. Even if firms have monopsony power, that does not necessarily make their labor demand inelastic.

4. One way for government to make workers better off would be to decouple health insurance from employment, while replacing Obamacare.

5. Another way for government to make workers better off would be to reduce the payroll tax and cut spending by a corresponding amount.