Social Security as a Public Bad

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Robert Fenge and Beatrice Scheubel write that they provide,

an empirical confirmation of the negative relationship between statutory old-age insurance or more broadly statutory social insurance and fertility. The effect amounts to a total reduction of approximately 1.7 marital births per 1000 between 1895 and 1907… [the] impact of pension insurance is comparable to the impact of an increase in urbanisation by 10-20%.

Pointer from Brian Blackstone

Off hand, it would seem to me that any form of capital accumulation by the elderly could have this effect. Private pensions certainly, and perhaps even private savings for retirement. But it might be argued that there are huge negative externalities in public pensions, in that they allow you to benefit from my having children.

DeLong-term Productivity Trend

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Brad writes,

My problem is that I believe in the slow diffusion of technology, the importance of incremental improvements, the usefulness of the incentives provided by the fact that it is easy to make a lot of money by figuring out a cheaper way to produce and supply things that people are willing to pay a lot of money for, and the law of large numbers. These make me think that–modulus the business cycle and measurement error–total factor productivity should be smooth in the level and smooth in the growth rate as well: whatever processes were going on last year that led to invention, innovation, deployment, and thus higher productivity in a potential-output sense ought to be almost as strong or only a little stronger this year.

The entire post is interesting. I think that the view that there are no sudden economic regime changes is difficult to shake. Probably my best argument against a post-2003 productivity slowdown is that we are seeing the continued expansion of education and health care, two sectors where there is essentially no reasonable way to measure productivity to begin with. Also, quality-adjustment in the goods sector is getting harder to measure, because goods tend to overlap with services (is Amazon Kindle really mostly a good, as opposed to a service)>

Pointer from Tyler Cowen.

Housing Re-Bubble?

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Nick Timiraos reports,

the [Federal Housing Agency home price] index shows U.S. prices now standing just 6.4% below their previous peak in April 2007.

…The Case-Shiller national index, which is set to report its own measure of July home prices next Tuesday, showed that home prices in June were 9.9% below their 2006 peak.

Some comments:

1. Overall, consumer prices have risen about 15 percent since 2007, so you might say that on an inflation-adjusted basis home prices are more like 20 or 25 percent below their 2007 peak.

2. However, even on an inflation-adjusted basis, house prices are higher than they were in late 2003, by whichi point cries of “bubble” already were being heard.

3. If I were Scott Sumner, perhaps I would say that this suggests that the 2007 prices were not really a bubble. Indeed, the real anomaly was the crash in house prices in 2008-2009, due to tight money. But I am not Scott Sumner.

4. The case that we are in another bubble strikes me as weak. It is certainly is not a sub-prime lending phenomenon. Two phrases that I hear a lot in casual conversation with real estate folks are “all-cash deal” and “foreign buyer.”

5. Even if house prices were to fall sharply again, my guess is that there would be many fewer loan foreclosures. Lenders are taking on much less risk, and instead home buyers are taking on more of it.

6. It seems to me that we are much closer to full recovery in the housing market than we are to full recovery in the labor market. Does that not pose a problem for the theory that the recession was mostly an aggregate-demand phenomenon caused by the loss of housing wealth?

7. Again, today’s economy feels so much like 2003 and 2004. Very low r, seemingly below g. Last decade, Bernanke labeled this a “global savings glut.” This decade, Larry Summers calls it “secular stagnation.”

8. In June of 2004, I wrote Bubble, Bubble, is there Trouble? arguing that low r was the central economic puzzle, and that given low r, housing prices were not out of line. I have been excoriated since then for failing to call the housing bubble. In 2009, that excoriation seemed warranted. Today, it seems like you could change the date to June of 2014 and re-print it.

On Science and Policy

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Pascal-Emmanuel Gobry writes,

Because people don’t understand that science is built on experimentation, they don’t understand that studies in fields like psychology almost never prove anything, since only replicated experiment proves something and, humans being a very diverse lot, it is very hard to replicate any psychological experiment. This is how you get articles with headlines saying “Study Proves X” one day and “Study Proves the Opposite of X” the next day, each illustrated with stock photography of someone in a lab coat. That gets a lot of people to think that “science” isn’t all that it’s cracked up to be, since so many studies seem to contradict each other.

This is how you get people asserting that “science” commands this or that public policy decision, even though with very few exceptions, almost none of the policy options we as a polity have have been tested through experiment (or can be).

I agree with this. I think it applies to macroeconomics and also to climate “science.”

Note that the origins of the progressive movement were based on the exact opposite view, which is that public policy could and should be based on something called social science.

Read the whole thing, so that you can reach these sentences:

the reason it took us so long to invent it and the reason we still haven’t quite understood what it is 500 years later is it is very hard to be scientific. Not because science is “expensive” but because it requires a fundamental epistemic humility, and humility is the hardest thing to wring out of the bombastic animals we are.

Sentences that I Might Have Written, Continued

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Then there are those whom Sunstein refers to as “we.” We know this, we know that, and we know better about the way ordinary people make their choices. We are the law professors and the behavioral economists who (a) understand human choosing and its foibles much better than members of the first group and (b) are in a position to design and manipulate the architecture of the choices that face ordinary folk. In other words, the members of this second group are endowed with a happy combination of power and expertise.

That is Jeremy Waldron, and I recommend the entire essay.

A Puzzle

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Kevin Williamson writes,

New York City is not only poorer than the New York State average, its median household income is, in absolute dollar terms, lower than that of such dramatically less expensive areas as Austin, Texas, or Cleveland County, Okla., where the typical household income is a few thousand dollars a year more than in New York City but the typical house costs less than a third of what the typical New York City home costs

So why don’t people move from NY to cheaper cities, until something closer to parity is restored in the cost of living? Some possibilities:

1. By some more accurate measure, the cost of living is not so much higher in NY.

2. Living in NY is an expensive taste that occurs among many people, even those of modest means.

3. NY has jobs for lower-income people that are not available in the other cities.

4. NY’s rent controls and other housing regulations have created a lot of inframarginal winners whose housing costs are well below those of the marginal resident. (Think of those who are able to buy their apartments when they turn co-op at ridiculously below-market prices.)

5. Location adjustment is a very slow process. In fifteen years, these differentials will be noticeably smaller.

I do not claim to have the answer.

Still More Sentences I Might Have Written

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an ideal epistocracy would know that on some issues, democracies make better decisions. On those issues, it would consult with and defer to democratic opinion. Similarly, an ideal democracy would know that on some issues, epistocracies make better decisions. On those issues, it would consult with and defer to epistocratic opinion. Accordingly, under ideal conditions, epistocracy and democracy perform equally well.

That is Jason Brennan, paraphrasing theKling indifference theorem. Both Brennan and I were responding to Helene Landemore, who claims that democratic voting should lead to better outcomes than elite decision-making. In my comment, I said that “The whole issue boils down to who is more over-confident. If the people are over-confident, then you may want decisions made by the elite. If the elite are over-confident, then you may want decisions made by the people.” I go on to raise the Hayekian point that the elite are likely to be over-confident and hence markets are to be preferred.

I found Brennan’s most devastating criticism to be this:

If one can show that citizens are systematically mistaken, this is bad news for all three a priori defenses of democracy. If citizens are systematically mistaken, then by definition their errors are not randomly distributed, and so the so-called miracle of aggregation does not occur….According to the Jury Theorem, if citizens’ mean competence is less than 0.5, the probability that democracy will get the wrong answer approaches 1…citizens so not have cognitive diversity–they instead share the same incorrect model of the world–and so the Hong-Page Theorem does not apply.

In the real world, we do not observe direct democracy. Some people think that if we did, we would like the results.

I doubt that direct democracy is feasible. For example, we know that poll results depend on how questions are worded. So who will decide how questions are worded in a direct democracy? If it is a small group of experts, then that sort of defeats the point of direct democracy. So before people vote on a question, they have to vote on the wording of the question. And before they can do that, they have to vote on the wording of the question of how to word the question. etc.

If you can think you can solve the question-wording problem, then go on to deal with the “who decides which questions get voted on” problem.

Tyler Cowen vs. Ezekiel Emanuel

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Tyler writes,

And to sound petty for a moment, I don’t want to pass away during the opening moments of a Carlsen-Caruana match, or before an NBA season has finished (well, it depends on the season), or before the final volumes of Knausgaard are translated into English. And this is a never-ending supply. The world is a fascinating place and I fully expect to appreciate it at the age of eighty, albeit with some faculties less sharp. What if the Fermi Paradox is resolved, or a good theory of quantum gravity developed? What else might be worth waiting for?

Off hand, I would say

1. Grandchildren
2. Medical progress to reverse degenerative illness

Jason Collins Reviews Scarcity

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He writes,

I also doubt that Mullainathan and Shafir’s description of the poor as suffering from scarcity is generally true. When it comes to time, the poor watch more television, invest less time in caring for their children, have plenty of free time to think about what they will eat, and yet are more likely to be obese. Their characterisation of the poor having a lot on their mind whereas the rich are relaxed despite their more complex employment does not seem particularly strong.

Read the whole thing.

Threat Exaggerated or Minimized?

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Robert Wright writes,

A central lesson of the disastrous Iraq War is that one job of a post-9/11 president is to calm fears, not feed them. Some of us voted for Barack Obama thinking he would do that, and help restore reason to foreign policy discourse. For a while it looked like we were right. Now it looks like we weren’t.

He suggests that the threat to the U.S. from ISIS is exaggerated. Here are some reasons to agree:

1. The threat from Saddam Hussein was exaggerated.

2. It is in the interest of government officials to exaggerate (at least some) threats in order to expand their power.

The alternative view is that the threat has been minimized. Some reasons to agree are:

1. We have been way too optimistic that civilized values will prevail in that part of the world.

2. We have been reluctant to hold Muslims to our standards of civilized behavior. It could be that this “soft bigotry of low expectations” comes from a deep-down instinct that predicts a lot of uncivilized behavior.

I could argue either side of this issue.