Steve Teles on Rent-seeking

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He writes,

State regulation of doctors, Commodity Futures Trading Commission rules for derivatives, and local land-use planning decisions rarely if ever occur to citizens and policymakers as having anything to do with the larger social debate about inequality. If the case is made effectively — if policymakers do start seeing these diverse policies as part of a larger problem — then it would be possible to generate political conflict in arenas that are currently too quiet and uncontested. This happened in the 1970s and 1980s when policymakers connected regulatory capture in areas like trucking and airlines to widespread concern with inflation. It could happen again if policymakers across the spectrum start to believe that rent-seeking, in all its forms, is deeply implicated in the problem of inequality.

Pointer from Mark Thoma.

But are other progressives willing to concede that government intervention in markets has such adverse consequences?

Dani Rodrik on Trade Across Borders

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He writes,

A libertarian might view much of the regulatory apparatus of the nation-state as superfluous at best and detrimental at worst. For me, the apparatus is what makes capitalism feasible and sustainable at the national level – and problematic at the global level.

Pointer from Tyler Cowen. Read Rodrik’s whole post.

Suppose that A trades voluntarily with B. Then C comes along and says that this trade harms D, so it should be prevented.

The libertarian position is that we know that A and B are better off, or they would not have done the trade in the first place. We doubt that C is such a wise, benevolent individual that we can trust his judgment that the harm to D is larger than the benefit to A and B.

Now it is true that the benefits of specialization and trade require trust, and it is possible that trust in general is higher when people believe that their government is wise and benevolent. However, I would bet that where you find people trusting their government to interfere with cross-border trade you find less overall trust and worse economic outcomes. It will take some demonstration on Rodrik’s part to convince me otherwise. It is one thing to conjure up “models” in which trade restrictions improve outcomes. I want to see examples of broad improvements in well-being arising from real-world trade restrictions.

Not surprisingly, Don Boudreaux has views on this.

What’s Missing From Refugee Cities?

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Matthew Kahn writes,

Why can’t we increase the menu of cities for individuals to choose from? What are the fixed costs for creating a city? Are these fixed costs shrinking over time? How durable would the new capital have to be? Think for a moment. The new urbanites in Gatesland would need;

1. shelter
2. food
3. water
4. electricity
5. sewage disposal
6. garbage disposal
7. transport services for moving within the city and for trading across cities
8. The children would need schools
9. basic health care

Pointer from Mark Thoma.

What is missing here are social capital and patterns of sustainable specialization and trade. I doubt that you can throw a million people together absent those elements and have it work out well.

Study Not Needed

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Ray Fisman and Daniel Markovits write,

We measured attitudes toward equality by asking hundreds of Americans to distribute a pot of money between themselves and an anonymous other person. Our subjects weren’t making hypothetical choices in responding to the survey—their decisions affected how much real money they would get when the experiment ended.

Pointer from Tyler Cowen. I added the emphasis on “themselves.” That is very different from what redistribution means in political terms. There, it means redistributing other people’s money.

The authors seem to suggest that we should be surprised that rich progressives are reluctant to redistribute their own money. I do not think we needed an experiment to show this. I think we already know from their behavior that rich liberals are averse to redistributing their own money. I believe that surveys have shown that instead conservatives and people lower down the income ladder give larger shares of their income to charity.

Political support for redistribution is costless, especially compared with actually giving away some of your wealth.

Would Universal Health Coverage Help the Poor?

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Apparently, Larry Summers wants to stake out that position. Pointer from Tyler Cowen.

I seriously doubt that medical services are the relevant margin for improving the health of the poor. Public health measures I can see. Otherwise, my bet is that economic growth and diffusion of knowledge are the relevant margins.

Of course, if Larry believes otherwise, he is always welcome to donate his own funds to relevant charitable causes. As long as he does not take my money to donate to his preferred causes.

A Fiery Analogy

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Robert Shiller writes,

The reluctance to acknowledge the need for immediate intervention in a financial crisis is based on a school of economics that fails to account for the irrational exuberance that I have explored elsewhere, and that ignores the aggressive marketing and other realities of digital-age markets examined in Phishing for Phools. But adhering to an approach that overlooks these factors is akin to doing away with fire departments, on the grounds that without them people would be more careful – and so there would then be no fires.

Pointer from Mark Thoma.

There is a school of thought (I am not a member) that would instead compare the Fed to the 10-year-old boy who starts a fire and then claims to be a hero because he then calls the fire department to come in to save it. Similarly, this school would argue, the Fed’s expansionary policies caused the housing bubble, and now the Fed earns praise for saving the economy from the resulting crisis.

Indeed, in recent interviews, Shiller has warned that stock prices are too high and we could see a crash. He would say that this is because markets are irrational. As far as I know, he is not calling on the Fed to raise interest rates in order to try to stop what he might call another financial epidemic. Again, I am not of the school of thought that thinks that the Fed is responsible for the stock market boom. But I think that Shiller ought to engage with those who are of that school of thought.

Incidentally, I received a review copy of Phishing for Phools, by Shiller and fellow Nobel Laureate George Akerlof. My views of the financial crisis are informed by my knowledge of institutional characteristics and history of housing finance. Their views are not. I find that this is the case with many economists who have written on the crisis, but their book left me especially frustrated. UPDATE: Alex Tabarrok also reviewed the book negatively.

Our S.O.B

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1. I thought that some Republican once told Senator McCarthy, “Joe, you’re a real S.O.B. But you’re our S.O.B.” But apparently no one ever said exactly that, although Senator Bricker said something close.

2. When President Obama uses high-handed means to achieve his ends, I think of Progressives murmuring that he is “our S.O.B.”

3. Interpreting voter opinion is a fool’s game, on the order of interpreting short-term movements in the stock market. Still, I am going to be a fool, and offer an interpretation of the Trump boom as a desire on the part of some voters for “our S.O.B.”

Why would a Republican voter be in the mood for an S.O.B.? I think it is perhaps a reaction against John, John, and Mitch.

President Obama has used a “words mean whatever I say they mean” approach to implementing the Affordable Care Act. Instead of slapping him down, as an S.O.B. might have done, John Roberts effectively said, “I’ve got your back.”

When Republican voters delivered a landslide in November of 2014, the Republican leaders acted as if it never happened. Instead of acting like S.O.B.’s, Boehner and McConnell have compromised with and caved into Obama like they were John Kerry at a meeting with the Iranian nuclear delegation.

Hence, the longing for “our S.O.B.”

In any casey, if you were one of those libertarians who sensed a yearning for someone who wants to return America to its roots of limited government and aversion to foreign intervention, it appears you might have over-estimated the American voter just a tad. Sorry, Nick, Matt, David, …

Maybe it’s time to give Seasteading another look.

Tyler Cowen after the Republican Debate

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He writes,

The two participants who have done the best relating to voters, through the media, are the two former CEOs, Donald Trump and Carly Fiorina.

A priori, you would think that being a professional politician selects exactly for people who can do well in a televised national debate. Yet, from this limited number of data points, it is the CEOs who have the relevant skills.

Politicians make more speeches. CEO’s participate in more business meetings.

Think of making a speech as like playing rhythm guitar on a 1960s pop single. You play continuously, and your job is to give the song atmosphere through your use of volume, tempo, and tone.

Think of participating in a business meeting as like playing lead guitar. You come in for short “fills,” and your job is to move the song from where it has been to where it is going by hitting a few really striking notes at just the right time.

Because there are so many candidates at this point, Republican media events are more like business meetings than speech-making opportunities. So that would be my explanation. I think that the comparative advantage of the lead guitarists will be much less when there are only two or three candidates on stage.

How Bad was the Victorian Era?

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Not bad at all, if you believe this historian.

My husband and I have slowly, gradually worked to base our lives around historical artifacts and ideals because — quite frankly — we love living this way. People assume the hard part of our lifestyle comes from the life itself, but using Victorian items every day brings us great joy and fulfillment. The truly hard part is dealing with other people’s reactions.

1. The irony of this story appearing on Vox.

2. I really wanted to tie this in with Vickies and Thetes, but I leave that to the reader.

3. Thanks to Michael Gibson for the pointer.

How Bad was 2008?

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Timothy Taylor writes,

my point here is not to parse the details of economic policy over the last seven years. Instead, it is to say that I agree with Furman (and many others) on a fundamental point: The US and the world economy was in some danger of a true meltdown in September 2008. Here are a few of the figures I used to make this point in lectures, some of which overlap with Furman’s figures. The underlying purpose of these kinds of figures is to show the enormous size and abruptness of the events of 2008 and early 2009–and in that way to make a prima facie case that the US economy was in severe danger at that time.

Taylor highlights the fall in house prices, the drop in bank lending, and the rise in the TED spread. However, if you look at just these indicators, the crisis ended relatively quickly. But employment just kept dropping (long after the official end of the recession). So it looks to me like the policies had a neutron bomb effect. The buildings (banks) were left standing but the people (workers) died.

As Taylor says, these are points that are not going to be settled. In my terminology, there are many frameworks that can be made consistent with observed economic performance. Some of these frameworks will be consistent with policies having made a positive difference, and others will not.