It is a project for Canada’s Fraser Institute. It will launch next week.
Boudreaux starts with a “nobody knows how to” introduction. He uses paper and ink as examples of mundane goods that require many different people and specialized tasks to be produced.
As I start my book on specialization and trade, I find myself doing the same thing. This is in a great tradition. Adam Smith used the woolen coat. Leonard Read used the pencil. My thought was to use a bowl of cereal.
At this session on higher education. About 1 hour and 49 minutes in, I ask how we know what works in higher education. People afterward told me that they like the question better than the answers. But Alex did give an answer.
A reader pointed me to their classic paper, which is exactly on point.
there is a source of gain from cooperative activity involving working as a team, wherein individual cooperating inputs do not yield identifiable, separate products which can be summed to measure the total output. For this cooperative productive activity, here called “team” production, measuring marginal productivity and making payments in accord therewith is more expensive by an order of magnitude than for separable production functions.
In their summary,
While ordinary contracts facilitate efficient specialization according to comparative advantage, a special class of contracts among a group of joint inputs to a team production process is commonly used for team production. Instead of multilateral contracts among all the joint inputs’ owners, a central common party to a set of bilateral contracts facilitates efficient organization of the joint inputs in team production. The terms of the contracts form the basis of the entity called the firm-especially appropriate for organizing team production processes.
Dana Milbank says that it shows that the Republicans have gone crazy.
Conservative groups howling about corporate welfare and big government have, for the moment, bested the corporate interests that have previously co-opted grass-roots conservatives.
And he thinks that this is a bad thing.
Meanwhile, Tim Carney writes,
So why would Ex-Im agree to subsidize exports that had already been made, shipped, and installed? This seems odd if Ex-Im was trying to support U.S. jobs at Solyndra. It makes sense if Ex-Im was trying to change the financing of an existing export, so as to shore up Solyndra’s financing. In other words, Ex-Im may not have helped Solyndra make a sale (which is what it is supposed to do), but it may have slowed down Solyndra’s cash-flow trainwreck — a crucial objective for the Obama administration, which had stuck out its neck holding up Solyndra as the poster company for the new subsidized green economy.
Ex-Im seems to me to be another one of those issues, like housing policy, on which conservative economists have it right and the prominent left-leaning economists are silent.
In an interesting post on self-delusion and leadership, he writes,
if leaders are so often self-deluded, how come so many organizations succeed, or at least don’t collapse?
Pointer from Jason Collins. Some thoughts:
1. Perhaps we are looking at survivorship bias. There may have been hundreds of CEO’s, each with “reality distortion fields,” playing the tournament that Steve Jobs wound up winning.
2. Bureaucracy may provide a check against self-deluded leaders. Bureaucracy tends to err on the opposite side of overconfidence. Anyone who has ever tried to sell something to a big company has found that one “no” vote can cancel out many “yes” votes. Every CEO faces what Lewis Gerstner of IBM called a “culture of ‘no’.”
In France, the rate is 42 percent; in Germany, it is 39 percent; in Italy, 40 percent; and in Spain, 37 percent.
That is from Diana Furchtgott-Roth and Jared Meyer Disinherited: How Washington Is Betraying America’s Young. I see it as saying “left-wing economics is bad for children and other living things,” but they are trying to position it differently. In any case, they are suggesting that we could be headed for much higher payroll taxes ourselves.
I had not realized that these tax rates are so high. I find it hard to reconcile Germany’s relatively low unemployment rate with this high payroll tax rate.
almost all of the most prominent economists in the public sphere — Paul Krugman, Summers, Thomas Piketty, and the rest — lean to the left, and lean significantly more to the left than in years past. Conservative economists are largely hiding out in academia, emerging only to write the occasional Wall Street Journal op-ed. That suggests that they are not optimistic about how their ideas would be received by the general public.
Pointer from Mark Thoma.
Actually, I cannot remember a time when conservative economists were important in the public sphere. Name another one apart from Milton Friedman. Are you thinking Greg Mankiw? Tell me what policy he influenced. Are you thinking Arthur Laffer? He influenced Reagan’s tax cut, but then he disappeared from the public sphere, leaving behind only one drawing on a napkin. Alfred Kahn? Very influential, did not disappear right away, but he was a Carter appointee. Alan Greenspan? I suppose a lot of lefties will say he was the prominent villain in creating the atmosphere of deregulation and outbreak of greed that they say caused the financial crisis. Trouble is, the substantive evidence is not really consistent with that narrative. And Greenspan, like Laffer, never had any academic cred.
Currently, I can name a number of policy areas where conservatives are more likely to be correct than liberals. Housing policy, obviously. Entitlements and the long-term budget. Education reform. Capital taxation policy. On those issues, the prominent economists in the public sphere are largely silent.
Instead, the prominent economists focus on macroeconomics and inequality. Those are two areas where one can smugly advocate policies on the basis of the intention heuristic, comfortably protected from any evidence of efficacy.
My bottom line is that Smith is correct that the battle for mainstream media prominence has been won by the left. One possibility is that they have earned it. But there are other possibilities.
In a discussion with Aaron Ross Powell and Trevor Burrus, he makes a point that I have made about MIT economics. That is, economists used to debate issues of method in their papers. Then, they stopped debating and just said, in effect, “economists do what economists do.” He suggests that Paul Romer’s “mathiness” discussion may re-open this debate. However, I see most economists trying to duck the issue of method and instead treat Romer’s complaint as applying only to Chicago and Minnesota. Anyway, there is much more in the podcast.
Boettke argues, as he has elsewhere, that there is a “main line” in economics (not mainstream). That main line is often forgotten, and then rediscovered by a “new school.” For example, rent-seeking has been in the main line (Bastiat’s story of candle-makers complaining about the sun) but had to be rediscovered. I think that PSST might very well fit into that category.
In 1960, countries with an education level of 8.3 years of schooling were 5.5 times richer than those with 2.8 year of schooling. By contrast, countries that had increased their education from 2.8 years of schooling in 1960 to 8.3 years of schooling in 2010 were only 167% richer. Moreover, much of this increase cannot possibly be attributed to education, as workers in 2010 had the advantage of technologies that were 50 years more advanced than those in 1960. Clearly, something other than education is needed to generate prosperity.
Pointer from Tyler Cowen.
Note that this is not necessarily support for the null hypothesis. It could be that the “something other” is quality of education rather than quantity.
China’s economic growth has been dominated by the coasts, and the Great Canal, for approximately one thousand years; today Xi’an is a backwater for instance, although in the Tang dynasty it was possibly the most advanced city in the world. Can this now-deeply entrenched pattern — water transport beats land transport — be reversed by a lot of government spending?
The advantages of water transport are difficult to over-estimate. Consider that well after the Golden Spike completed the transcontinental railroad, the Panama Canal was still a big deal.