This post is a sort of note-taking for my benefit. Continue reading
Dueling Samuelson’s Ghost
Peter J. Boettke, Christopher J. Coyne and Peter T. Leeson write,
the teachings of economics are necessary for understanding the complexities of social reality. Perhaps its two most important public roles are: (1) to explain how within a specific set of institutional arrangements the power of self-interest can spontaneously generate patterns of social order that simultaneously achieve individual autonomy, generalized prosperity and social peace, and (2) through means-ends analysis, to provide parameters on people’s utopian notions of economic policy. The first captures the didactic role of the economist in teaching the nuances of Adam Smith’s ‘invisible hand’ and the second captures the contribution that economics as a technical discipline can offer to public policy discourse. When we move beyond these roles and instead try to employ economics as the primary tool for social control, we run afoul and distort the teachings of the discipline.
Read the entire essay, which is a plea for economists to desist from acting as high priests of social engineering. However, I would place a (sic?) next to the word “parameters” in that paragraph. Perhaps the authors are talking about perimeters. In any case, it is the final sentence that is most important.
Specialization and Trade makes a similar case.
Timothy Taylor on Shadow Banking
if you still think banks are the core representative institutions in the financial system of high-income economies, you are a few decades out of date. If you are concerned about the dangers of financial sector risks cartwheeling into the real economy, you need to think about the shadow banking sector. Muscatov and Perez point out that while banking regulators do try to think about risks from the shadow banking sector, “Still, many areas of NBI remain obscured from regulators’ view, and not all NBI is subject to supervision.”
NBI is “non-bank intermediation.” Read the whole post.
Freddie and Fannie are non=bank intermediaries. Back in the late 1980s and the 1990s, they drove traditional lending institutions out of a large segment of the mortgage market. They did not do this through inherent advantages of scale or business model. They did it because they enjoyed small advantages from a regulatory standpoint, including lower capital requirements.
The moral of the story is that the “better” job you do of regulating banks, the more room you leave for other financial intermediaries to take over niches. I do not think that you can get financial regulation to achieve the goal of stabilizing the financial system. I think that it just winds up being a tool for allocating credit to politically preferred uses.
What I’m Reading
State Capitalism, by Joshua Kurlantzick. His theme is that many developing countries have the government own and manage large companies in important industries. However, they use prices rather than commands.
I had not been aware of how prevalent this practice has become. My reaction is that it is a viable model as long as those industries are not disrupted.
Hansonian Medicine for Pets
Liran Einav, Amy Finkelstein, and Atul Gupta write
we document four similarities between American human healthcare spending and American pet healthcare spending: (i) rapid growth in spending as a share of GDP over the last two decades; (ii) a strong income-spending gradient; (iii) rapid growth in the employment of healthcare providers; and (iv) a similar propensity for high spending at the end of life in pets and humans.
Their findings are inconsistent with the view that our high spending on health care is driven by third-party payments or supply regulations. The findings are not inconsistent with what I suggested a decade ago in Crisis of Abundance, which is that medical treatment uses human and physical capital increasingly intensively. Also, they are not inconsistent with Robin Hanson’s view that medical treatment is something that we want others to get in order to show that we care.
Thete Watch
Mark Aguiar, Mark Bils, Kerwin Charles, and Erik Hurst write,
we explore the decline in work hours for young men since 2000. Using standard parameterizations, we show that the decline in hours for LEYM (both in absolutely and relative to all prime-age men) is inconsistent with a stable labor supply curve. We propose a new methodology that exploits detailed micro data on how individuals allocate their time away from work to infer how changes in leisure technology have altered labor supply. We find that changes in leisure technology for computer goods broadly, and video games in particular, shifted in the labor supply curve for LEYM by an amount between 10 and 25 percent of the observed decline in market work hours for prime age men and between 20 and 45 percent of the decline in market work hours for LEYM.
LEYM is less educated young men. Pointer from Tyler Cowen.
How High is Geographic Mobility?
Ioana Marinescu and Roland Rathelot write,
The data is from CareerBuilder.com, arguably the largest job board in the U.S., and is broadly representative of the U.S. labor market. Using this data to document the geography of job search, we find that job seekers are more likely to apply to jobs closer to home: a job seeker is 35% less likely to apply to a vacancy that is 10 miles away than to a vacancy that is in the job seekers’ ZIP code of residence. Still, we find that, on average, a job seeker sends 11% of their applications to out-of-state vacancies.
They conclude that there is little lack of geographic mobility.
This may be correct, and I may be wrong that men nowadays are not eagerly moving to where jobs can be found, or into occupations (truck driving, construction) where jobs currently are available. But I would pick some nits about this particular paper.
1. My guess is that CareerBuilder.com is probably not a go-to web site for low-skilled, unemployed males. I amya be wrong, of course.
2. An average of 11 percent out-of-state applications could still mean that a large number of visitors to the web site apply to 0 out-of-state vacancies.
Influences on One’s Thinking
Sam Bowman of the Adam Smith Institute says who influenced him, including
How Richard Dawkins Got Pwned and An Open Letter to Open-Minded Progressives — Mencius Moldbug (Both very long.) I am not a neo-reactionary, but sometimes I think Mencius Moldbug is the greatest living political thinker. His claim that progressivism is a non-theistic sect of Protestantism, with all of Protestantism’s evangelism and intolerance of heresy, is in particular very persuasive to me. I also think ‘neocameralism’ is quite a cool model for a state and I’d like to see it tried out somewhere.
Pointer from Tyler Cowen.
Most of Bowman’s influences come from the right, but a few come from the left. I notice that all of those on the left have prestigious academic positions. Many on the right do not. I do not think that is purely coincidental. I believe that if you limit your reading to credentialed academics, you will miss many important thinkers on the right, but you won’t miss out on much from the left.
I always like to play this sort of game myself. In chronological order, some of my influences: Continue reading
Another Idiosyncratic Comment
It seems like you’re making the very mistake Smith is warning about. I don’t think historians looking at the newspapers of 2005 would be struck with the high level of trust we had in financial intermediaries. We imposed our distrust on them politically. The GSEs had four CEOs during the 2000s. All four were driven out. Ironically the second pair are accused of understating loss reserves in 2007. The first pair were paying fines in 2007 because they had been accused, among other things, of overstating loss reserves to manage earnings. It was impossible to be a GSE executive in the 2000s without being accused of fraud. The idea that the housing boom happened because of too much trust in financial intermediaries is laughably implausible. The only reason it seems plausible is because communal distrust is so ubiquitous that you will always find support for the idea that we trust them too much.
I agree that political meddling with Freddie and Fannie was harmful, and that they were better run before their CEOs were forced out in scandals that were either minor or perhaps not scandals at all. However, once that happened, confidence in Freddie and Fannie to invest in quality mortgages was unwarranted. More important, the confidence in the private mortgage securities market, based on AAA-ratings for mortgage tranches, was quite unwarranted. That form of financial intermediation got out of control.
PSST and 1946
As a first guess, would a PSST theory also predict significant disruption and delay in establishing a healthy ‘new normal’ from such a substantial and rapid transformation in the overall economy as accompanied the huge changes from the post-war demobilization? Would we expect the same thing to happen today?
I think that the rapid adaptation of the economy to peacetime in 1946 and 1947 is surprising from the perspective of patterns of sustainable specialization and trade. I have a couple ideas, both speculative.
1. Workers were much more mobile after the war. Having been overseas, a move to another city did not seem daunting. Also, men had met men from other parts of the country. A guy could say, “My buddy Joe, who lives in California, says that there are jobs near where he lives, and he can help me get settled there.”
2. Economic activity was much less geographically concentrated than it is today. My guess is that the percentage of counties where net business formation was positive was much higher than it is now.