Economics Still Not a Science; History Remains a Discipline

In this post Paul Krugman laments the ignorance and mendacity of many of his colleagues and in this one extolls history as means of informing economics. I would go further and insist that one needs to think historically to aid in the creation of policies and the single most important "lesson" from history is that lots of things that were once true, particularly about social, political, and economic arrangements, were contingent truths and that reliance on contingent truths is a really lousy way to run a railroad.

Tax Policies Aren't Necessarily Tax Policies

After noting that changes in tax policies might explain the growth of income inequality in these United States, long may humor be her best medicine, Megan McArdle concludes

Explanations involving very US-specific factors, like "culture", our tax policy, or some sort of capture whereby the wealthy have somehow rigged the system in their favor, become much less compelling.  Rising inequality (and slower income growth) have been a rising trend across most of the developed world for three decades.  We need a better explanation than greedier rich people, or stupider politicians.

So it wasn't that greedier rich people supported stupid politicians who changed the tax code in a way that allowed the rich to be open about their richerness it was, as her source put it

However, let's instead assume the post-1986 U.S. trend is an artifact of the 1986 tax reform. 

The "let's assume" bit is, I believe, the way economist think and it is, I think, unfortunate that they think that way. Even if you disagree with the assumption the cause of the spike was a change in tax policies and the there isn't an argument that there is no rising income inequality in the source just that the US isn't especially worse then elsewhere.

Read the Damn Book: Baumol Edition

Recently, Matthew Yglesias argued that the Baumol Effect required lowering educators wages. Foolishly, I took him at his word that the Wikipedia entry offered an accurate account of Baumol's argument. I may have done so because of his truly magnificent econ cred:

I’ve never actually taken an intro economics course. The best I can say is that I have read both the Krugman and the Mankiw textbooks and I think I understand the material well enough to be taken seriously by economics bloggers with PhDs and everything.

As it turns out, of course, I was wrong. Baumol's essay is titled "The Macroeconomics of Unbalanced Growth: The Anatomy of Urban Crisis."[1] In it he argues that increased productivity can led to increased wages so long as unions exist to see that the gains from reduced labor costs are translated into wage increases and that cities cannot overcome the problems of urban decay without increased federal subsidies for things like culture and education. He also rejects increased reliance on teaching technology to improve educators productivity as being kind of creepy. Mark Kleiman endorses Yglesias' misreading of Baumol's argument and insist that the way forward is more reliance on teaching technology.

This last point is especially unnerving. Kleiman argues, inter alia, that

[t]he future of education is for students to educate themselves, individually and in groups, with the help of computers, networks of computers, recorded media (including, of course, the greatest educational innovation of all, the printed book), and the skilled facilitation of a relatively small number of live helpers. If you think it’s impossible to get masses of young people to spend astounding numbers of hours on cognitively-demanding tasks, then how do you explain the success of the video-game industry?

And insists that

yes, that means universities, too. How many people, right now, are preparing to give a lecture tomorrow in introductory economics or organic chemistry? And how many of those lectures have more educational value than would a video of the best such lecture being given tomorrow? Or, better yet, a professionally-produced lecture on DVD, with hot-links to relevant materials?

While he (grudgingly?) admits that professors also create new knowledge, he seems confident that that difficulty can be got around.

Leaving aside the evidence that distance learning of the sort he advocates hasn't worked nearly as well as the video game industry in capturing the leaders of all of our tommorrows' imagination. How, one wonders, do we identify the "best" introductory lecture in economics?  Is it the one in which Keynes is right or its opposite? The one where Adam Smith loved capitalism or the one where Smith thought that market based economic exchange freed from the distortions of mercantilism but regulated to protect against nefarious businessmen did a better job of channeling  humanity's essential concupiscence into socially beneficial results?  What about the ever increasing difficulties in selected the best lectures on any subject in the disciplines of literature, history, sociology, anthropology, and so on.

Kleiman's position essentially constrains us to agree to transform our institutions of higher learning into a series of technical schools teaching only those subjects in which a command of a discrete set of facts whose mastery enables the holder to perform some activity or another, like designing a building's plumbing, and assumes that the discrete set of facts is now and forever perfect.

For if you eliminate more teaching positions, who is going to train to get a PhD and thus add to our shared stock of knowledge?  The market for academic positions has already cratered and the process of getting a PhD in any discipline and then a full time position is already as competitive as getting into professional sports; does Kleiman actually think that reducing the positions will solve that problem.

Right now my money is on Baumol in terms of the appropriate response to the effect, should it in fact exist, more subsidies and stronger unions while eschewing the mechanization of education because information isn't knowledge and a world in which students gain their understanding of complex issues from one great video game isn't one I'd want to occupy.

[1] You can find Baumol's text on the Intertubes with minimal googling.  You can also find Brian Champman's “Baumol’s Disease”: The Pandemic That Never Was," which discusses contemporary criticism and adds some of his own.

Financial Crises Explained

A couple of days ago I suggested the Matthew Yglesias' praise for a book that explained the current economic crises as the result of "overconfidence" was misplaced. Today I read a review of several books that make the case of understanding the crises is slightly different terms. Of the books under review, I can only comment on Stiglitz's, which I found to be very persuasive.

Welcome to the 19th Century

Glenn Beck is right about one thing, there is, in fact, a war of Progressives and Neoliberals in this country.  The right wing of the Neoliberal camp wants to turn the clock back to the glory days of pre-TR America where life was nasty, brutish, and short but at least only the most colorful of crooks got the cash.  As evidence, in the great state of Missouri, on Jane Cunningham (R) want to pass a law that

modifies the child labor laws. It eliminates the prohibition on employment of children under age fourteen. Restrictions on the number of hours and restrictions on when a child may work during the day are also removed. It also repeals the requirement that a child ages fourteen or fifteen obtain a work certificate or work permit in order to be employed. Children under sixteen will also be allowed to work in any capacity in a motel, resort or hotel where sleeping accommodations are furnished. >It also removes the authority of the director of the Division of Labor Standards to inspect employers who employ children and to require them to keep certain records for children they employ. It also repeals the presumption that the presence of a child in a workplace is evidence of employment.

The damn kids today with all their fingers and an education have it too damn soft, why her great great grandmother died in the Triangle fire when she was only 10. What are these people thinking?

Robots and Education

From here, I went here and learned that

one school, Carnegie Mellon, has come very close to a self-contained course with no instructor at all, but still toes the party line on the notion that human capital is crucial to the educational experience.

But what’s keeping a less-scrupulous school from making professors disappear entirely? The cost of the technology, explains Stross:

Developing that best-in-the-world online course — in which students would learn as much, or more, than in an ordinary classroom or a hybrid online class — requires significant investment. The Open Learning Initiative at Carnegie Mellon University, which has developed about 15 sophisticated online courses, mostly in the sciences, spent $500,000 to $1 million to write software for each.

Proponents of distance education might tell you something about how wonderful it is that students can learn all the way from India or in their pajamas, but anybody who knows anything about labor history knows that this kind of large-scale technological investment is really all about costs. Professors demand salaries. Cut out the professors and save the cost of their salaries.

But that’s where the labor history analogy breaks down. The Bonsack cigarette rolling machine not only destroyed the jobs of untold thousands of workers, it led to really, really cheap cigarettes. Online education, an education so bad that some employers won’t even consider someone with a degree earned from a for-profit college administered this way, is actually seven times more expensive than a real education at a typical community college. Professors haven’t disappeared entirely yet, but obviously none of the cost-savings from online education have been passed on to students. Since even online courses with poorly-paid adjuncts save schools so much money in costs compared to real classes, shouldn’t they cost less rather than seven times more?

And this weird robot could never carry and deliver the mail



Certainly the last thing we would want to do is have a discussion about creative destruction and technological innovation because that might mitigate against the market's genius

Stagnation as Misinformation

Alerted to a "bravura performance by one of the most interesting thinkers out there" on the cause of the current economic mess, I rushed, metaphorically speaking, to the Kindle store and spent 4 dollars on Tyler Cowen's How The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History,Got Sick, and Will (Eventually) Feel Better. This is fairly awful book. Cowen's tone is condescending; his use of history is superficial, his notion of the cause odd, and his notions of how to get better depressing.

On causation. Cowen blames overconfidence. "[R]ealtors" are not to blame because "[t]he financial crisis was not fundamentaly about the bursting othe real estate bubble" (706-17)  Okay, but then, one thinks, those who used various chicanery to spin bad loans into huge profit for no socially beneficial purpose bear the bulk of the blame. Nope: "The financial crisis is not even fundamentally about mistakes in the banking sector, although such mistakes were made" (717-28). Note the passive voice.  Well then who might be responsible oh most interesting of thinkers out there? "We were all, more or less, overconfident.  It gets increasingly harder," he argues, "to escape the conclusion that many millions of people were complicit, whether intentionally or not." He then illuminates this, apparently inescapable, conclusion by recourse to a museum director planing building expansion(718-30 to 730-40). Innovative thinking indeed.

On condescension: The title is one example. His invocation of the "fun" of the internet working to limit a sober understanding of economies' general crappiness is another (746-57 to 757-67). This bit, from his conclusion, [t]hese days, you can read the latest scientific papers, whether or not you are based at Harvard or Princeton" (797-808) ignores the fact that disseminating the latest findings in all manner of disciplines predates Jstor. Darnton's work on the Encyclopedia is one example; Francis Bacon's Novum Organon published by Society For The Diffusion Of Useful Knowledge, which yet another example of making cutting edge thought available to the masses, another. It is also an example that leads to a discussion of his use or, more precisely, abuse of history.


On roads and their history.  He makes much of the notion of "core" versus "optional" state functions. Using the example of investments on infrastructure, he argues that [w]e're valuing dollars spent on highway extensions as if they were worth as much as the dollars we spent on building the core roads that link major cities" (267-78 to 278-88). This characterization of the roads in American history is misleading in two ways.  In the first instance, he ignores the origins of the Good Road Movement, which arose from a combination of commercial and leisure interests. Cyclists intent on increasing the pleasures of live had long advocated for improved roads while agricultural and extractive commercial interests wanted to ease the movement from productive to markets. Railroads already connected "major" cities, the Interstate system came rather later and its designers had rather more in mind than linking major cities. Does this really matter, you might ask. Well, yes. The push for good roads was as much about pleasure as commerce and trying to reading the former out of the equation transforms state infrastructure investment into an activity solely dedicated to matters economic, which conveniently ignores the fact that there is more to life than making money. 


The Central Theme or Metaphor: Cowen makes much of his notion of the fact that 

the American economy has enjoyed lots of low-hanging fruit since at least the seventeenth century, whether it be free land, lots of immigrant labor, or powerful new technologies.  Yet during the last forty years, that low-hanging fruit started disappearing, and we started pretending it was still there.  We have failed to recognize that we are at a technological plateau and the trees are more bare than we would like to think.  That's it.  That is what has gone wrong.(60-71)

He accepts that some of this stuff was "not completely new"; however, he insists they "expanded rapidly" in the period under consideration effectively "tying together the world economy." Although there was a "somewhat longer time frame, agriculture" underwent a similar process.  What was, he suggests, "fundamentally new to human history" was the "gains . . . from playing out the idea of advanced machines combined with powerful fossil fuels" (81-81).

And to be clear, when he discusses low-hanging fruit he doesn't mean the fruits you ate first:

Have you ever walked into a cherry orchard? There are plenty of cherries right there for the  picking. Imagine a tropical island where the citrus and banannas hang from trees.  Low-hanging literal fruit-- you don't even have to cook the stuff (60-71).

It's helpful to ask if we didn't have to cook the stuff that, literally and metaphorically, hung so low. Take, as one example, access to America's wide-open lands.  If you ignore the long history of the "Age of Exploration" or, if you want to consider things from the opposite perspective, the "Age of Conquest" leading up to the seizure of lands from the pre-existing inhabitants, then yes easy peasy.  Did you know that over 50% of the conquistadors perished either during the trip over or on first landing?[2] Or that the technological changes, financial support, and religious justification of the Portuguese expansion and colonization came from the state?  It's true.The longer time frame for the agricultural sector? Depending on how you want to think about it, agricultural revolution's time frame is rather longer.

You can do the same thing for each and every low-hanging fruit Cowen mentions.  They didn't just appear all of sudden when needed for the economic exploitation of this or that resource but rather they came about through the intersection of state and society seeking to improve the condition of men even on this earth and individuals more concerned with lining their own pockets then anything else. The American Transcontinental railroad is a nearly perfect example of the inter-mixture of state, society, cupidity, and charity, in is ancient meaning. What I think Cowen actually means is if you ignore the actual history of the picking of the fruit, it hung very low indeed.


On the state of technological breakthroughs he argues that "[t]he period from 1880 to 1945 brought numerous major technological advances into our lives"; he then lists the usual suspects and argues that "life [now] in broad material terms isn't so different from what it was in 1953" (81-91).[1] His pessimism on the future of innovation relies, in part, on the work of Charles I. Jones, who "has 'disassembled' American economic growth into component parts" and "[l]ooking at 1950-1993. . . found that 80 percent of the growth . . . came from he application of previously discovered ideas . . . with heavy additional investment in education and research, in a manner that cannot be easily repeated for the future" (177-88).  Cowen also reproduces the work of Jonathan Huebner which shows that current rates of "innovation" are nearly medieval (188-93); Huebner suggests that we will out do the medievals in our lack of inventiveness by 2024.

It would be nice to know why we can't  repeat investments in education and research. It would also be nice to know why figuring out how to use the technology we have right now to improve the conditions of humanity without regard to ever expanding profits is, apparently, off the table.

This brings me to Cowen's cure for what ails us. He argues that one "favorable trend" is his expectation that "[o]ver time, we can expect" China and India "to assume a greater role as innovators" and that "their manufacturing and services efforts" will "free up a lot of our time and energy for innovation."  He is, of course, unclear as to why the Chinese and Indians will be able to that which he has ruled out for us; although, to be fair, Cowen waves his hands toward markets.(787-96 to 797-808) Secondly, the "internet may do more for revenue generation in the future." (ibid.) See, the way out of the current bubble induced crises is a new  bubble. He likes the various market-based solutions to the "crisis" in America's educational system, despite the evidence that they don't work. (808-19). And, improve the "status" of science by adopting "one point that Ayn Rand . . . got right, namely that we should all revere creators and scientific innovators (830-42 to 841-52). Want a better economy?  All Hail John Galt lest Galt go.

Taken in the round, this is a remarkable passive response to the current malaise for such an interesting thinker; given that the take-away seems to be that we can't do much except wait for the system that failed so spectacularly to fix itself except train ourselves to revere our Galtian overlords.



[1] This last has set off a enormously contentious discussion of kitchen utensils.

[2] Here some stuff on one of them, Cabaza de Vaca, who is actually worth googling.

Federal Government: What is it Good For?

The National Renewable Energy Laboratory announced recently that it had invented a new kind of air conditioner

that promises to cut electrical demand by up to 90 percent — and it works well in both Gulf Coast humidity and desert heat.

and

[i]n addition to reducing the load on the electrical grid, which should translate into lower carbon emissions, DEVap cooling eliminates the need for ozone-depleting CFC and HCFC refrigerants. Judkoff notes these compounds are actually worse greenhouse gases than carbon dioxide. For each unit of mass, “they can be 10,000 times more debilitating to the atmosphere,” he says.

That's right the damned Federal Government that does nothing but steal our hard-earned dollars to fund things like highways and education now adds insult to injury by being more innovative than the air conditioner industry.  What's next?  Are Obama and Co. going to continuing working on our current economic problems until they get it right?  I just bet they will.

via