Response to George Selgin

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On this post, he comments,

So far as I’m aware, every innovation that caught on during the Industrial Revolution did so because it was a better response to prevailing scarcities than what existed before, and never despite the fact. I see no reason why this shouldn’t remain the case today.

I take his point to be that technology to replace labor will only emerge if labor is scarce. If there is plenty of unused labor around, then there is no need to develop robots to replace it.

I think that this argument is compelling if an incipient surplus of labor would cause wages to fall dramatically. At sufficiently low wages, it does not pay to use robots. However, for a variety of reasons, wages are not going to fall. Instead, workers will be driven to take more leisure. They may be counted either as unemployed or out of the labor force.

Will Better Contraceptives Make A Difference?

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Vox reports,

the MicroCHIPS implant will last up to 16 years, and women will be able to turn it off via remote control if they’re trying to get pregnant. Trials in humans are expected to start next year, but the same microchip technology has been tested successfully in women with osteoporosis. MicroCHIPS Biotech says the implant could reasonably be on the market by 2018.

Pointer from Jason Collins., who has other interesting links this week.

My prediction is that this will make little or no difference in the number of “unwanted” births. My intuition is that a relatively small proportion of these are truly unwanted. To put this another way, I do not believe that the important margin is the change in quality of contraceptives.

Happy Valentine’s Day.

Marriage != Children

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“Dalrock” writes,

The jump in the late thirties bracket is striking, with 17% of White women in their late 30s having never married

This figure was just 10.4 percent as recently as 2003. However, the proportion of never-married white women in their early 40s has remained below 12 percent. Arithmetically, one can predict either that a large proportion of women in their late 30s will marry within the next five years or there will be a sharp rise in the proportion of women in their early 40s who never have been married. “Dalrock” writes,

women marrying after forty means their fertility window is all but closed by the time they walk down the aisle.

We know that many children are being born out of wedlock. It looks like we are going to see a lot of marriages that do not produce children. The disconnect between marriage and children is a striking change over the past fifty years. My guess is that it has large effects on the distribution of income.

I Missed This Story on Income Distribution

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Last fall, The WaPo created an interactive map inspired by Charles Murray’s idea of indexing zip codes by median household income and percent of college graduates. My zip code is in the 80th percentile. The zip code of the suburban St. Louis location where I will be speaking next month, in part about the forces driving the distribution of income, is in the 99th percentile.

The WaPo story says,

In 1970, 65 percent of families lived in middle-income neighborhoods; four decades later, 42 percent did.

Meanwhile, the share of families living in affluent neighborhoods doubled, from 7 percent to 15 percent, as did families living in poor neighborhoods, from 8 percent to 18 percent.

They are citing this report.

I am not sure why I did not see this earlier. For the pointer I thank Jason Brennan on Facebook.

Who Do You Least Admire?

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Tyler Cowen discusses the people he most admires.

the very top of my personal list would be shaped more by how much individuals had sacrificed

I think that the question of who you admire can be interpreted two ways. One way is aspirational. “I wish that I could dance like Inbar.” Another is gratitude. “I admire people who serve in our armed forces, even though I do not aspire to be like them.” I am not sure that Tyler has sufficiently articulated how he would weigh these two interpretations.

I find it easier to think about who I least admire. The answer that comes to mind is “toadies.” People who ingratiate themselves with politicians or business executives. Or academics. To me, the meetings of the American Economics Association are just mass exercises in toadyism.

Based on that, I would say that the people I admire are people who are not toadies.

A Question about Inequality Within States

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Salil Mehta writes,

Let’s start by looking at this chart below. It shows the differences in state-level ratios, contrasting the typical incomes at the top 1% versus the typical incomes at the bottom 1%… the Economic Policy Institute (EPI) chart above has a clear concordance between income dispersion and the population size itself.

Pointer from Tyler Cowen.

My question is this. Suppose that we ignored the actual geography of states, and instead we produced artificial pseudo-states by taking random samples of all U.S. data. We took one sample the size of Texas, and called it pseudo-Texas. Another the size of Vermont, and called it pseudo-Vermont. etc. My guess is that the pattern of inequality across pseudo-states would look a lot like the pattern across actual states. If that is true, then there is not really much information in the pattern of inequality across states.

Moore’s Law is Faster than Market Adaptation

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James Pethokoukis quotes (but does not link to) what he calls a Citi report, “The Future of Technology and Employment,” as saying,

The upcoming digital age may cause more upheaval than previous technological revolutions as it is happening faster than before and is fundamentally changing the way we live and work.

The classical economic theory is that because we have unlimited wants, better technology will not eliminate jobs. The economy just needs to develop new patterns of specialization and trade.

If technology changes slowly, then there is plenty of time for entrepreneurs to come up with new types of work and for workers to adapt to the new needs in the workplace. However, Moore’s Law produces much faster change than what we saw during the Industrial Revolution. And it’s not as if the social dislocation of the Industrial Revolution was anything to sneeze at.

I would argue that what we are observing today and are likely to observe in the foreseeable future is much more influenced by the short-run dislocation than by the long-run equilibrium. And the long-run equilibrium may involve a lot of modification of human characteristics, using genetic engineering and computerized implants.

End of the Pax Americana?

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Fonzy Shazam summarizes a talk by Tyler Cowen.

1. Globalization will decline.
2. There is a myth of the rational autocrat.
3. “Fortress (North) America” will see a continuation of the current stagnating trend.

To me, this sounds as if the underlying theme is the end of Pax Americana. Imagine a world in which irrational autocrats launch wars, and the U.S. is unable/unwilling to stop them. Global trade will decline, and the U.S. will see little economic progress, in part because our progress relies on increased globalization. I cannot tell which way the causal arrows run–from American stagnation to American weakness to an inability to contain armed conflict, or the other way around. In fact, the prospect of increased armed conflict is something that I am imputing–it may not factor into Tyler’s forecast at all.

I have been reading George Friedman’s Flashpoints. One theme that struck me was the way that Europe changed in 1914-1918 from being accustomed to civilization to being accustomed to barbarism. He argues that World War I desensitized people to barbarism, and this in turn made possible Soviet and Nazi atrocities. So far, I have only read the historical parts of the book, not any discussion of the present situation or future scenarios.

On a related note, what should we make of the fact that in response to the murder of one of its citizens, the United States is less forceful than Jordan? Your choices include:

a) Jordan currently has more forceful leadership than the U.S.
b) In fighting ISIS, the United States has a strategy that is more nuanced and will ultimately be more successful.
c) The United States is wisely playing down the significance of terrorism in order to save its resources for dealing with bigger threats.
d) The United States in fact does not have the military capability to defeat ISIS, and attempting a decisively forceful response would only expose that fact.

George Selgin on Calomiris and Haber

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He reviews their book Fragile by Design.

the observed interdependence of states and banks isn’t as deep-seated and inescapable as Calomiris and Haber claim. Consequently, keeping bankers and governments from getting too cozy with one another isn’t quite so difficult as they suppose.

Later, Selgin writes,

they seem unaware of the adverse effects of the “bond-deposit” provisions included in misnamed state “free banking” laws. These provisions allowed banks to issue notes only after tendering eligible securities to state authorities for the ostensive purpose of securing the notes’ holders from loss. Calomiris and Haber (p. 169) note that, by making their own bonds eligible for this purpose, states were able to force banks to lend to them “in exchange for their right to operate.” Still they fail to point out that some states force-fed their banks, not “high-grade” bonds (ibid.) but junk ones, and that it was this practice, rather than unit banking, that was the main cause of bank failures during the so-called “free banking” era

…In Canada, in contrast, banks’ almost unrestricted ability to issue notes
contributed to the banking system’s stability no less than banks’ branch networks did.

You may also wish to read my review of the book.

Sentences I Might Have Written

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Instead, they were written by Richard E. Wagner and Vipin P. Veetil.

Our analysis suggests that the decline in the velocity of money is a consequence–not a cause–of real problems. To turn Leland Yeager’s (1997) dictum on its head: when output shutters, the veil flutters. Injecting money into the economy–however it may be done–cannot help economic actors coordinate their plans. Money is not a substitute for information. We differ from both those who assume velocity of money is stable and those who don’t, for both the stability and instability in the velocity of money is a reflection of human action at the micro-level. All problems and solutions must be sought and found at the micro-level. A macroeconomics that begins with the velocity of money, irrespective of whether it treats velocity as stable or unstable, assumes away all that is of economic significance.

Actually, the paper is filled with sentences I might have written. Another excerpt:

Aggregate variables like GDP are not account entries that belong to action-taking entities. Instead, they are aggregations over interactions among the plans of many entities. The data of accounting do not account for the actions of economic entities. Counting is not creating.

The interesting question is what will happen if the Fed tries to stabilize nominal gross domestic product. As the authors point out, at the ground level, all the Fed is doing is swapping money for securities. Those swaps will benefit some people and hurt others. From a PSST perspective, this will create different patterns of specialization and trade from what would emerge otherwise. Presumably these new plans will be less sustainable than the plans that would have occurred without Fed intervention. In that sense, even if NGDP is stabilized, the economy is made worse off.