But even building bridges to nowhere would create jobs, not destroy them, as the congressman from nowhere knows. To be sure, that is not a valid argument for building them. Dumb public spending deserves to be rejected—but not because it kills jobs.

I am sure he means jobs in a gross sense. Here’s an extra credit opportunity for folks however. What if Mr. Blinder did, indeed, mean that building bridges to nowhere creates jobs on net — as many green jobs advocates in fact claim for their pet projects. What is the meaning of this and what is the relevant economic concept that we all should be thinking about instead of the number of jobs?

One of the points Veblen tries to make and that Mencken criticizes in his essay is that what made something a “luxury” was that it was exclusive. I suppose I always implicitly agreed with that view. But that view embeds in it a logical fallacy. Not everything that is exclusive is a luxury. Nor if we dig deep is the “luxuriousness” of something solely or always in its exclusivity. From reading his work, it is hard to understand if he is cognizant of these points. They, on their own, do not refute his idea that lots of luxury goods tend to be exclusive, but the modern popular condemnation of luxury goods consumption and the evils of inequality and unhappiness that are tied to it are with us today, and no doubt owe their strength to Veblen’s arguments.

Many exclusive “goods” are incredibly undesirable. I don’t think being the only person in snowy Rochester to have a case of Dengue Fever is the height of luxury. Nor do I think that if you had the only autographed copy of the “Collected Works of Wintercow” that this would be the mark of luxury – even if you viewed that as being so profound and insightful that no lesser person than you could appreciate having it. You may feel that it is a luxury, but the rest of us would have no comprehension that this is so. Nor does a good being expensive mean it is the mark of luxury, and causes envy, resentment and injustice. If my very home were replanted in Southern California, it would cost four times what we paid for it. New York Jets season tickets are very expensive, but holding onto them is not the sign of luxury or affluence – in fact it is a sign of dedication for many, as Jets fans have a reputation for coming from middle class New York backgrounds, with these tickets making up a considerable chunk of their free cash expenditures. “The rich” certainly are not clamoring to sit in 10 degree weather, downing $12 watered down beer while yelling at every player on the team despite the exclusive nature of these tickets. Sure, the poor who are football fans might wish they could go to the games – but would we want to say that “anything the poor cannot afford” is a luxury good, and causes resentment and envy? You know where that idea logically takes us, it is absurd. In that kind of a world, only the single richest person in the world does not suffer from the supposed tyranny of luxury.

Mencken spends time in his essay on my second point – that the luxuriousness of something need not lie in its exclusivity. Is the reason you get so much pleasure out of drinking a piece of aged strip steak because your poorer neighbors could not afford it. And if they suddenly could afford it, would that make that steak less enjoyable to you? Does taking in a spectacular view of Yellowstone Falls thrill you because a poor inner-city family is unlikely to be able to afford the trip out there? And here is Mencken per the title of the post:

“Did I prefer kissing a pretty girl to kissing a charwoman because even a janitor may kiss a charwoman—or because the pretty girl looked better, smelled better and kissed better?

Look, I certainly appreciate that there are “positional goods” out there, goods whose value is derived based on where you stand in the relative distribution of the thing. For a variety of reasons, as I have written here before, I am not moved that the existence of such goods justifies any coercive action. The points above however are intended to argue that even IF there is a case for coercive aggressive taxation to put a halt to the consumption of such goods, there are far fewer “positional” goods out there than the popular view seems to appreciate, and identifying them is no less difficult and is no more arbitrary a process than the identification of a price cut as being predatory. In the meantime, do read that Mencken piece, I promise you will get a good chuckle out of it. Here is one more gem from it:

But Marx, at this business, labored under a technical handicap; he wrote in German, a language he actually understood. Prof. Veblen submitted himself to no such disadvantage. Though born, I believe, in These States, and resident here all his life, he achieved the effect, perhaps without employing the means, of thinking in some unearthly foreign language—say Swahili, Sumerian or Old Bulgarian—and then painfully clawing his thoughts into a copious but uncertain and book-learned English. The result was a style that affected the higher cerebral centers like a constant roll of subway expresses.

Competition, in this case, had a perverse effect: It caused a race to the bottom — a race to provide ratings that were most favorable to those being rated.

Ughh. I guess being a Nobel Prize winner allows you to change the meaning of competition so that the square peg can be put into your “competition is destructive” round-hole. In this case, Stiglitz is referring to the fact that Moody’s, S&P and Fitch, the three Nationally Recognized Statistical Rating Organizations, ended up marking many securities as “very safe” with a AAA rating because investors really wanted lots of AAA securities to invest in.

Here Stiglitz conveniently leaves out of his story a 1975 decision by the Securities and Exchange Commission (regulators) to confer NRSRO status on the three existing rating agencies at the time, basically granting them an unchallenged oligopoly in credit rating. Further, earlier regulations in 1936 edition of New Deal regulations, forced many securities issuers to obtain credit ratings from said agencies.

So now we live in Stiglitz’s world where cartelization counts as competition. What is next? Is he going to assail the teachers’ unions for competing with each other and that this is the reason public school quality is suffering? The competitive threat that markets rely upon occurs both at the intensive and extensive margins. Stiglitz here focuses only on the intensive margin. These rating agencies faced not a single threat that new agencies could put forth ratings that modeled risks differently, or offered a different way of being compensating than the cartelized NRSRO. Indeed, in this same volume, Jeffrey Friedman summarizes how “disgruntled” workers at S&P and Moody’s, who had concerns about the risk-modeling used in real-estate securities ratings, had no way to act on this information.

And let’s take bets on what Mr. Stiglitz would have been writing had there been real robust competition in the ratings agencies leading up to the crisis. “Why, this competition is destructive for informational reasons too. There would be too many ratings for investors to consider, and therefore we need to limit competition among the rating agencies to make this information digestible.”

It must be nice to live in a world where anything can confirm you view of how the world works. Some of us do recognize that the financial crisis poses problems for our views of markets (for example, despite the regulatory failures, just because it was possible for banks to make huge profits by leveraging up and investing in securities of unknown quality, it does not mean they should do it, does it?), are there folks who would do the same about regulation and government?

– Studies in Philosophy, Politics and Economics

“Many advocates of free trade claim that higher productivity growth in the United States will offset pressure on wages caused by the global sweatshop economy, but the appealing theory falls victim to an unpleasant fact. Productivity has been going up, without resulting wage gains for American workers. Between 1977 and 1992, the average productivity of American workers increased by more than 30 percent, while the average real wage fell by 13 percent. The logic is inescapable. No matter how much productivity increases, wages will fall if there is an abundance of workers competing for a scarcity of jobs — an abundance of the sort created by the globalization of the labor pool for US-based corporations.” (Lind 1994: )

What is so remarkable about this passage? It is certainly a very abrupt, confident rejection of the case for free trade; it is also noticeable that the passage could almost have come out of a campaign speech by Patrick Buchanan. But the really striking thing, if you are an economist with any familiarity with this area, is that when Lind writes about how the beautiful theory of free trade is refuted by an unpleasant fact, the fact he cites is completely untrue.

More specifically: the 30 percent productivity increase he cites was achieved only in the manufacturing sector; in the business sector as a whole the increase was only 13 percent. The 13 percent decline in real wages was true only for production workers, and ignores the increase in their benefits: total compensation of the average worker actually rose 2 percent. And even that remaining gap turns out to be a statistical quirk: it is entirely due to a difference in the price indexes used to deflate business output and consumption (probably reflecting overstatement of both productivity growth and consumer price inflation). When the same price index is used, the increases in productivity and compensation have been almost exactly equal. But then how could it be otherwise? Any difference in the rates of growth of productivity and compensation would necessarily show up as a fall in labor’s share of national income — and as everyone who is even slightly familiar with the numbers knows, the share of compensation in U.S. national income has been quite stable in recent decades, and actually rose slightly over the period Lind describes.

There’s much wisdom in this piece. There might be a few nits to pick with it. Where have you gone Joe DiMaggio?