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Here is Noah Smith on trade,

The development of these new models is good news for the economics profession. It means that mainstream economists are diversifying their approaches, supplementing their old simple models with new ones that recognize the fantastic complexity of the real-world economy

You mean, like Hayek and most real economists? Maybe the devil is in our differing interpretations of “mainstream?”  It would also be lovely to see a deeper discussion of where the desire for diversification versus total specialization blurs. After all, banking and finance theories do not encourage specialization at the product/investment/capital levels. And in 23 years in economics, I cannot recall ever reading something that said, “Country X should really just spend most of its time doing Y, that is a good way to develop.” Who said that? What books is that in? That seems to be a monstrous misapplication of simple comparative advantage, or a clarion call to the problems with representative agent, simplistic macro models.

The piece ends with:

Old development strategies based on simple approaches like deregulation and free trade might turn out not to be enough.

It is written to be a pragmatic statement. Perhaps I am too sensitive but I read it as combative and uncharitable. Maybe my reading, too, is uncharitable. But column space is limited and perhaps there was no room to elaborate or add nuance because again, I’d love to go find anywhere in any of the papers or texts I was provided with in both my undergraduate and graduate training that have as policy proscriptions, “deregulate! free trade!” … if you find those terms, you will surely see them with many caveats, with calls for appreciating the rich institutions those are embedded in, that a term like deregulate doesn’t exactly have clear meaning, and if indeed some author were promoting absolute laissez-faire, which almost none do, then the effect (or reason) for doing so is precisely because laissez-faire lets the so called thousand flowers bloom, and not the hyper-specialized problem-child development that the article is writing about.

In discussing kidney donations, I’ve encountered the argument that offering compensation to donors would be problematic, not just morally, but because it may reduce incentives to donate due to intrinsic motivation declining with payment.

That’s a fine argument, and we’ve seen monetary incentives backfire for sure especially when we try to apply it to non-traditional settings, like perhaps securing a kiss from your date, performance at certain tasks, and so on.

On the other hand, I have also been in conversations with folks who argue that K12 teachers should get paid more because they are so passionate, committed and intrinsically motivated that it is just the right thing to do. Actually, not only is it the right thing to do, the fact that we “underpay” our teachers is emblematic of how far off the rails our society’s priorities have gone. In other words, the intrinsically motivated deserve the highest monetary rewards.

Aside from pointing out the obvious here, I had two beer-ponderance questions: first, would the sentiment about kidneys be symmetric? How would people feel if the default policy was that people paid larger income and estate taxes if they were not kidney donors? From a monetary perspective, such a policy would be the equivalent of “paying” kidney donors, but I am pretty sure that we would see both a different behavior response and moreover we would see a sharper moral philosophical response, with some mental jujitsu saying that this is actually not the same as paying people.

Similarly, is the education argument symmetric? Suppose that rather than paying teachers more, we docked everyone else an additional X% of their income with the exception of teachers. Would this be viewed (as it actually is) as rewarding teachers? Would this undermine the intrinsic motivation for people to become teachers?

Any good theories on: (1) why the case of kidneys and teachers are treated differently? and (2) why the seemingly symmetric questions would likely (in my view) produce different reactions?

 

My faith in humanity is being regularly rocked, but perhaps that is just too much of an overreaction to current events. But for the sake of intellectual consistency, will those folks delighting in the tarring of the entire classical liberal program through dark and nefarious long arcs of the work of James Buchanan now be happy to tar and delegitimize the entire modern liberal program due to the long (and very much out in the open) arc of Woodrow Wilson and others in his circle?

Or how about WNY’s own beloved Susan B. Anthony? We have a large dorm named after her on campus. It is pretty clear that she held pretty mainstream white superiority views at the time, she opposed the 15th amendment (because well, if blacks win the right to vote and not women, then she cannot support it), and so on. So, while I do very much believe that more of that part of her story and the entire 19th century suffrage movement should be told and understood, does it follow that the modern feminist movement is illegitimate?

 

I’m too lazy to extract the data, but roughly speaking, in the mid-1950s, the federal government spent between 17% and 20% of GDP.  Of that percentage, between 80% to 85% of that spending was discretionary. What this means in an 8th grade sort of way was that there was lots of money to quibble over and to be allocated to public goods.

Move forward to today, where for the last decade or so the federal government has spent between 20% and 25% of (a much larger) GDP. Of that percentage, about 33% of that is spent on discretionary funds, with the lions’ share of that being allocated to Defense.

The “lock-in” of entitlement spending is happening at the state and local level and in some sense was at one point “discretionary” too.

On Blackpacking

First off, Backpackers in South America (and I assume other regions) are the least diverse group of people that I’ve ever come across. Pretty much everyone is white. Like super white

Go check out the musings of a terrific former student, who spent a couple of years trekking around South America.

Should I Scream?

So, within a short bicycle ride or car ride from where I live there are five (probably more) ice cream shops that I like to visit. I was going to say that my kids like to visit, but I am driving the proverbial bus on this one.

I won’t name their names, but if you live in and near Bushnell’s Basin you will know at least a few of the places I am referring to.

In the last 5 places I visited, I counted 19 total employees behind the counter. And all 19 of the workers were high school to college-aged girls. Does someone have a good theory for this? It surely can’t be random. Are the shops themselves favoring the hiring of women? If so, why? It’s not like we are talking about bartending here – the customers of ice cream shops seem to come from a pretty wide swath of the population. Similarly, are young boys avoiding working there? If so, why? My wife has a theory, but I’d love to hear yours. It’s a bit of a puzzle methinks.

Saturday Pro Tip

As you are chugging your Hatorade … just because someone is providing a commentary on the means, that is not synonymous with a commentary on the ends. Enjoy your weekend.

My call is going to be William Nordhaus for his work broadly in Environmental Economics and more specifically on the Economics of Climate Change. I would have predicted a share with Wallace Oates had be not passed away in 2015 or William Baumol who sadly passed this year. I think it is time for Environmental Economics issues to be raised in stature, and I think the committee is going to award it in part because it messed up by not recognizing Baumol. If the prize is a share and it is kept to Environmental questions, I am not sure who I’d bet on. I guess some names would include Pindyck, Stavins, Fullerton, Greenstone …

 

Just wanted to put this up since I’m never right about anything. And if I am wrong, I think it is healthy to show people that too.

To borrow the phrase/idea from Tyler Cowen, craft beer average is over. Quickly following the purchase of Anchor (that’s like buying the Constitution, I mean the actual physical thing) by Japanese Sapporo brewery, local conglomerate Constellation Brands has purchased Florida’s most identifiable (or second most) craft brew, Funky Buddha. I don’t think my take on this is newsworthy. I won’t sit here and rail on the “biggization” and selling-out of craft beer, maybe some other day we’ll have that discussion. But what is clear to me is that the early movers in wave one of the craft industry (Sierra really) and the movers in wave two (Bells, Founders, Dogfish Head, etc.) were able to fine tune their flavors and identity and make huge national and regional inroads. I would be stunned if any recently created brewery were able to get significant regional and certainly national distribution. Those that have started big seem to have made a mistake in my mind, unless they are preparing to be contract brewers for when the smaller places need to ramp up a little, or when there is a shakeout and a little room on shelves opens up. In any case, I think Will Cleveland is spot on when he says that the beer market will have a few huge nationally distributed players, and an increased focus on small, local breweries. I can jog to 2 craft breweries right now, and am hoping one pops up within walking distance to make it a true neighborhood brewery. I would have loved to have done that.

 

A particularly thorny philosophical problem for limited government classical liberal types is that while they want to see voluntary exchanges and private property governing as many human interactions as is “reasonable”, they typically leave it to the state to defend property rights and handle contracting disputes and third party spillovers. You can see the problem here – voluntary exchange is great and all, but for the most very important part of a philosophy of protecting private property, the theory seems to “require” not only strong government, but also impartial and reliable government. I have not yet seen a great response to this problem from the small government types – in this case I think the more philosophically consistent positions are held by those with more extreme views – either toward full socialism or full anarchy.

With that in mind, I think some critics of property rights protections and small government find themselves in a similar bind when making specific claims against markets. For example, I was reading an old article today that had at its core the very Smithian idea that corporations will find it in their interests to conspire against the public. I don’t disagree. The argument obviously continues in the usual way, with proposals for how government actions can make it harder for firms to do this. Think about simple cases of price fixing by firms (by the way I wonder if elite Universities ever worry about a collusion case being brought against them?) … the idea is that firms must get together and provide incentives for both colluders and non-colluders to behave. Among the obvious challenges to doing this is parties to the collusion must find a way to enforce their agreements.

But here’s the rub. Since these parties are breaking the “law” they cannot turn to the government to protect and enforce these “contracts.” You obviously see the philosophical tension here with the argument we started with. If markets and exchange can’t be said to be free, or cannot actually be free, because they require strong government protections of property rights, then one would probably have to believe that collusive behavior by firms to operate against the interests of consumers is not possible. On the other hand, if one wishes to argue that corporations are going to be successful in enforcing contracts among themselves to enforce shady behavior, while likely to be the case, this sort of undermines the philosophical necessity to argue that government is an important piece of markets and that they cannot operate in its absence.

My own view is, of course, that these arguments are fun to have and serve to discipline our thinking, but that thinking about markets absent broader institutional and cultural considerations is like, well, it’s not the right thing to do.

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