Category Archives: Timothy Taylor is my Favorite Blogger

Timothy Taylor gets a story wrong

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He writes,

There was a time, less than 20 years ago, when a major concern for the US government was how it would deal with the problems of paying off all government debt, which was projected to happen by about 2010. Alan Greenspan, then chairman of the Federal Reserve, made it a major point in his “Outlook for the federal budget and implications for fiscal policy” when he testified before the US Senate Budget Committee on January 25, 2001.

Tim tells the story as if this was a cognitive failure. Look at how hard it is to forecast! In hindsight, it looks like Greenspan’s crystal ball was cracked. Haha!

That is not the right story. It was a moral failure. I feel very strongly about this. Although I still consider Tim a great blogger, he muffed this one.

The context for Greenspan’s testimony was that newly elected President George W. Bush wanted to enact a big tax cut. One of the potential arguments against it was that it would cause the deficit to worsen. The responsible thing for Greenspan to do would have been to keep out of this issue, maintaining the political independence of the Fed. Instead, he waded in, with his ridiculous forecast, going so far as to say that it would cause dire problems for the Fed in the long run, because it would run out of government securities to buy. I hated that testimony from the moment it appeared. It was so craven (obviously, he was currying favor with the new President), so wrong on the economics, and so evil in its deception that I marked Greenspan as an irredeemable villain right then and there. I have not budged from that opinion.

Maintaining political sanity

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Channeling anthropologist Clifford Geertz, Timothy Taylor offers this advice.

  • What effort do you make to see yourself as those from the other sides of the partisan divides see you?
  • Do you have the “merest decency” to see those with other political beliefs as sharing a nature with you?
  • Do you see yourself and your political beliefs “as a local example of the forms human life has locally taken, a case among cases”?
  • To what extent is your objectivity a matter of self-congratulation?
  • To what extent is your tolerance a sham?

In a similar spirit, I wrote,

I wish that people could treat their political beliefs the way that they treat their religious beliefs: as ideas and values that they find appealing, but which are by no means the one true way.

Timothy Taylor on corporate social responsibility

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He writes,

It seems to me that many discussions of the “social responsibility” of firms do not pay sufficient attention to these gains from pleasing customers and paying workers and suppliers. Such gains should not be taken for granted.

I think that people place corporate wealth in a mental category that is used for natural resources, like water or minerals. If you control such resources, then you must be rich, and you must recognize an obligation to share them. When you think in terms of endowments of resources, you don’t think in terms of corporations creating wealth or competing just to survive.

Maybe I should expand on that thought. Meanwhile, read the rest of Taylor’s post.

Virtue signalling may be a signal of less virtue

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Timothy Taylor writes,

In a mild form, moral licensing is an issue for all of us. Anyone who exercises hard and then feels that they “deserve” a high-calorie treat knows the feeling. At an extreme form, it is manifest when some of those who claim to be leaders in family values or social justice or religious/spiritual leadership are found to be acting in ways that counter to the values they claim to profess. Such cases may just be hypocrisy, but I suspect there is often an element of moral licensing as well: that is, being identified with doing good can free someone up to do bad, as well.

Read the whole post, which covers research on the topic.

How did Bangladesh escape from extreme poverty?

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Timothy Taylor is on the case. He quotes from Kaushik Basu:

“One notable point is that the main garment firms in Bangladesh are large—especially compared to those in India, owing largely to different labor laws. All labor markets need regulation. But, in India, the 1947 Industrial Disputes Act imposes heavy restrictions on firms’ ability to contract workers and expand their labor force, ultimately doing more harm than good. The law was enacted a few months before the August 1947 independence of India and Pakistan from British imperial rule, meaning that both new countries inherited it. But Pakistan’s military regime, impatient with trade unions from the region that would become Bangladesh, repealed it in 1958.

“Thus, having been born without the law, Bangladesh offered a better environment for manufacturing firms to achieve economies of scale and create a large number of jobs. And though Bangladesh still needs much stronger regulation to protect workers from occupational hazards, the absence of a law that explicitly curtails labor-market flexibility has been a boon for job creation and manufacturing success.”

Carl Shapiro on anti-trust for tech

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The abstract says,

This article discusses how to move antitrust enforcement forward in a constructive manner during a time of widespread and growing concern over the political and economic power of large corporations in the United States. Three themes are emphasized. First, a body of economic evidence supports more vigorous merger enforcement in the United States. This can and should be done in a manner consistent with sound economic principles. Tighter merger control can be achieved by utilizing the existing legal presumption against highly concentrating mergers and by reinvigorating the potential competition doctrine to block mergers between firms that may well become important direct rivals in the foreseeable future. Second, close antitrust scrutiny is appropriate for today’s largest and most powerful firms, including those in the tech sector. However, the coherence and integrity of antitrust require that successful firms not be attacked simply because they obtain dominant positions. Proper antitrust enforcement regarding unilateral conduct by dominant firms should continue to focus on identifying specific conduct that harms customers or disrupts the competitive process, especially conduct that excludes pesky, disruptive rivals. Third, while antitrust enforcement has a vital role to play in keeping markets competitive, antitrust law and antitrust institutions are ill suited to directly address concerns associated with the political power of large corporations or other public policy goals such as income inequality or job creation. Campaign finance reform, tax policy, labor, education, and other policies are far better suited to address those critical public policy goals.

My emphasis. Pointer from Timothy Taylor.

I think that a lot of problems with the dominant firms in tech would go away if somebody were to come up with a subscription model that can displace the advertising model. With subscriptions, the interests of the consumer and the service provider are better aligned. Anti-trust is ill suited to fixing that.

Too little price discrimination?

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Timothy Taylor writes,

Imagine yourself as the profit-seeking owner of a chain of retail stores. Would you charge the same (or nearly the same) price across all the stores? Or would you vary prices according to average income level of consumers who use that store, or according to whether the local economy was robust or shaky, or according to whether the store had geographically nearby competitors?

He points to a working paper by DellaVigna and Gentzkow suggesting that chain retailers are leaving money on the sidewalk by not engaging in price discrimination.

My thoughts:

1. Changing computer systems to allow this would be difficult. Note that the computer systems would have to avoid making the mistake of letting a customer buy a product at the low-price store and return it at the high-price store for a higher price.
2. Consumers might adapt. Some might be willing to drive long distances to save. It would create an opportunity for an arbitrageur to offer to buy stuff at the low-price store and ship it to customers who live near the high-price store.
3. Competitors might advertise that the high-price store is gouging its customers.

In general, saying that strategy X would work without thinking about how the market might adapt seems rather brave.

Sluggish economic adjustment

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Timothy Taylor writes,

In the decades after World War II and up into the 1980s, the US economy experienced regional convergence: that is, the economies and incomes in poorer regions (like the US South) tended to grow more quickly than the economies of richer regions (like the US North). But in the 1980s, this pattern of regional convergence slowed down.

He cites interesting papers on the topic by Peter Ganong and Daniel W. Shoag as well as by Elisa Giannone.

Also relevant is the paper by Ryan A. Decker and others, cited by Tyler Cowen.

Disaggregating the economy: cost of living

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Timothy Taylor writes,

here are the US states color-coded according to per capita GDP with an adjustment for Regional Price Parities: that is, it’s a measure of income adjusted for what it actually costs to buy housing and other goods. With that change, California, New York, and Maryland are no longer in the top category. Hoever, a number of midwestern states like Kansas, Nebraska, South Dakota, and my own Minnesota move into the top category. A number of states in the mountain west and south that were in the lowest-income category when just looking at per capita GDP move up a category or two when the Regional Price Parities are taken into account.

Taylor’s post indicates that the Bureau of Economic Analysis has some very interesting data on output and prices down to state and local levels. This would really help with a project of disaggregating the economy. Here is a recent press release about the data.

Peter Zeihan’s world view

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I am reading his book The Absent Superpower. You can get a lot of his ideas by watching this video. You can also see his intellectual style, which is certainly more confident than mine. He deals in strong pronouncements, and he does not worry much about establishing causality or conceding the plausibility of alternative hypotheses.

I view recent history and the near-term outlook as dominated by the four forces: increased resources devoted to education and health care (the New Commanding Heights); bifurcated marriage patterns; globalization; and computerization.

Note that a lot of economists’ bandwidth these days is focused on the computerization issue. For example, Tyler Cowen attended a conference of heavy hitters on the economic implications of artificial intelligence.

Zeihan igores those four forces in order to focus on energy markets and demographics. In the case of energy, he sees the shale revolution as a geopolitcal game-changer. Where I assume that “oil is oil,” so that the location of supply matters less than the overall match between supply and demand, he attaches great significance to the ability of the U.S. to match its own oil supply and demand. He sees this leading the United States to completely lose interest in global security and the international trading system.

Zeihan asserts that without our adult supervision, the world playground will erupt into wars: along Russia’s borders, in the Persian Gulf, and in Northeast Asia as China and Japan struggle over the sea lanes for oil in a world of energy supply disruptions.

In the case of demographics, he sees financial markets in terms of a simple life-cycle model of behavior: younger workers spend, older workers (40 – 65) save and take financial risks, and retired workers become risk averse. The Baby Boom generation has been in the older-worker phase, helping to drive up prices of risky assets throughout the world. But they are transitioning to retirement, which means they want to shift away from risky assets to low-risk assets.

Also important is the overall aging of the developed world, with the U.S. a bit of an exception. See Timothy Taylor on Asia. This is going to expose many countries to financial strife. The ratio of workers to dependents will be too low to support pensions systems.

Watch the video and/or read the book. I am curious what you think.