Sunday, February 20, 2005

Maybe Sociology Isn't Non-Sense!

Sociology is a popular whipping-boy among economists, I'm sure we've all heard the jokes (if you haven't I can tell you a few). But Pub Sociology delievers an example (as it so often does) that makes me think sociology isn't the joke some economists make it out to be.

Check out: A Sociological Apporach To College Drinking

Political differences aside this is really interesting to me.

I'd imagine that a typical economist's approach to curbing binge drinking would be to "raise the price" of the activity--probably by establishing tougher fines/punishments or raising the probability of being caught. Sociologists are trying a different approach by trying to change behavior directly by removing the social norm that binge drinking is an accepted and popular activity.

IOW: While economists are busy adjusting the parameters of the utility function, while sociologists are attempting to change the utility function itself.

I don't think the Sociological approach in this case is any less reasonable than Economical approach, and it might actually be less costly and more effective. Maybe, just maybe, we should consider listening to people outside of our own discipline. Sometimes, SOMETIMES, they might have something informative to say.

Thursday, February 17, 2005

Marginal Revolution Agrees with [Econ_Punks]

I doubt he reads our stupid blog, but Alex Tabarrok seems to agree with our point that Paul Krugman is ignoring the growth effects of social security privitization. But, we said it first! So nah nah nah nah!

Here's their post:

Here's our post:

Sunday, February 13, 2005

Are Markets In Our Blood? Doubtful.

Dr. Don Boudreaux, from the blog Cafe Hayek, makes an interesting point that markets might be "in our genes".

"Are markets an extended phenotype of humans? A case can be made that they are. We are programmed to trade, to exchange, to seek bargains, all in order to make ourselves better off and, hence, to promote our survival. Markets certainly do promote our survival. By promoting the division of labor, exchange increases the total amount that humans produce and enable those with relatively little in the way of valuable resources to increase the value of their holdings. For sure, without the enormously deep division of labor that now marks much of the globe, and the market institutions that sustain and guide it, billions of us would perish.

So, yes, as I understand the concept of phenotypes, the market-driven extensive global division of labor is an extended human phenotype. It's in our genes."
Click Here For Full Post

It's an interesting idea, but it doesn't seem very likely to me. Looking back over human history markets seem to be less important for resource allocation next to tradition, war, and command. In fact, up until 250 years ago, most of the important things in western society life ( like what people did for a living) were determined by tradition and class. Certainly, there were markets for individual goods like spices and silk, but there wasn't the pervasive market structure that characterizes modern life. In "Economics Explained", Robert Heilbroner and Lester Thurow described markets of the historical west as "the ornaments of society" while tradition and command were its "iron structure."

But, If markets were truly in our genes, then we must ask why an understanding of how markets work seems to be essential for making markets work. Why are people in former communist nations having such a hard time "learning" how to behave in markets, if it is truly in our genes? Are Russians genetically different from Americans? I doubt it.

Did Krugman forget Hazlitt's Lesson?

I was reading a recent column by the wonderful economist Paul Krugman on Social Security privitization and I think he might have forgotten something very important.

"Which brings us to the privatizers' Catch-22.

They can rescue their happy vision for stock returns by claiming that the Social Security actuaries are vastly underestimating future economic growth. But in that case, we don't need to worry about Social Security's future: if the economy grows fast enough to generate a rate of return that makes privatization work, it will also yield a bonanza of payroll tax revenue that will keep the current system sound for generations to come.

Alternatively, privatizers can unhappily admit that future stock returns will be much lower than they have been claiming. But without those high returns, the arithmetic of their schemes collapses."
I'm wondering, wouldn't the reduction of social security benifits have an effect on economic growth by affecting people's saving habitts? If people are consumption smoothing, then reducing future retirement benifits from Social Security will inspire them to save more. According to the traditional Solow model of economic growth, this increase in the rate of saving will increase the sustainable ammount of capital per worker. As businesses invest and build up the capital stock the economic growth rate will also increase until we start approaching our new stready-state.

IOW: We would EXPECT the growth rate to be higher under the "privatized" system than under the current one. It is NOT a contradiction.

Is Paul Krugman ignoring an unintended consequence of government policy action? Isn't that suppose to be the fundamental lesson of Henry Hazlitt's "Economics In One Lesson"? For Shame Krugman.

Wednesday, February 02, 2005

Atlas Sold, I Shrugged

Well, it looks like today is Ayn Rand's birthday. Going over my nightly blog rounds, it seems like there isn't much I can say that hasn't already been said. Her fictional writings were populated with wooden characters that spoke in monolouges. Her non-fiction was filled with careless factual errors and reasoning pitfalls. She might be a best selling author, but I can't buy what she was selling.

I'm suprised that NO ONE mentioned Ayn Rand's anti-feminism! She literally thought men were the dominant sex. It's implicit in her fiction and she explained her belief openly in her book "The New Left". This really makes the Randroid pill to swallow for me.

Thanks to Jacqueline Paisley Passey for the initial tip.

Steven Landsburg Is A Troll.

It looks like tonight is all about grinding old axes with SL. In Steven Landsburg's book "The Armchair Economist" there is a wonderful essay on interest rates called "Ideas of Interest". But in the middle of this lucid essay is this odd and inappropriate insult...

Flood the economy with money and the nominal interest rates go up in lockstep with inflation to keep the real rate constant, not down, as the typical Wall Street journal reporter seems to expect.
- "The Armchair Economist" page 183

Well, you heard it here first, folks. Not only are Wall Street Journal reporters stupid, but so are many economists that foolishly believe that if prices don't adjust immediately, then changes in the money supply can cause changes in the real interest rate. Obviously, expectations and price rigidity don't matter! Thanks for the beacon of insight, Steven.

I kid. I kid. We all know that Landsburg realizes that his statement isn't unconditionally true. In fact, he briefly mentions the possibility that changes in the money supply might affect the real interest rate in a footnote, but in very little detail. So little detail in fact that unless the reader is already educated on the subject he or she probably won't realize how much Landsburg is leaving out of his presentation. This could lead the reader to a serious misunderstanding of how interest rates actually behave. This misunderstanding is only re-enforced by the fact that when Landsburg talks directly about how changes in the money supply affect interest rates his language isn't conditional. He plainly says that an increase in the money supply will increase nominal interest rates leaving the real interest rate unchanged. No ifs, ands, or buts.

So, I just wonder why he did it. Why did Landsburg make such a strong statement if it wasn't totally accurate? Maybe Because a more complex treatment is too much for an introductory essay? I wouldn't think so, but if it were, then Landsburg should have been even more careful to use conditional language to avoid oversimplifications.

The only explanation I can think of is that Landsburg decided to sacrifice precision for punch. It was more important to him to buck "popular convention" and to insult the Wall Street Journal than to lay things out carefully. And If you look at Landsburg's other popular writings there is nothing he loves doing more than defying convention for the sake defying convention. In short, Steven Landsburg is a troll--one who argues for the sake of argument or entertainment.

GG Landsburg. Good Game
I still love you. *smooch*

Landsburg needs to read some Landsburg

Way Way back last year Steven Landsburg wrote the following in a Slate article on the costs and benefits of executing hackers.

" Some might argue that capital punishment has moral costs and benefits beyond its practical consequences in terms of lives lost and lives saved. Those who make such arguments will want to modify a lot of the calculations in this
column. As for myself, I hold that the government's job is to improve our lives, not to impose its morality."

I just have one question. Why does Landsburg seem to think his normative criteria isn't imposing his own moral values on other people? Doesn't his criteria involve personal moral judgments (for example, that life is worth improving) which are being forced on others? I'm certain the person being executed would consider Landsburg's criteria as being forced on him.

In this column Landsburg seems to think that his criteria is totally divorced from moral philosophy. This isn't the story he was telling in his book "The Armchair Economist". In the chapter "Telling Right From Wrong", Landsburg seemed to be saying that his criteria was the result of a sequence moral judgments and reasoning, just like any other normative criteria. Here's a quote I particuarly like: "When all the facts are in, we still need a moral philosophy to guide our decisions". Now he seems to be saying that we can make our decisions without any moral judgments at all. So, I would like to know what happened between then and now? Did SL change his mind or am I reading the column incorrectly?
Haloscan commenting and trackback have been added to this blog.

Tuesday, February 01, 2005

Relativism by any other name

In an old post from last month, Tyler Cowen seems to imply that there's nothing wrong with a 66-year old woman apparently "buying" IVF services so that she could have a baby. I don't know if I agree with the conclusion, but I know I don't like his reasoning.

His post seems to be saying that since the procedure was a voluntary transaction between the doctor and the woman we can assume that a pareto improvement was made and wealth was maximized. He's right, but so what?

Both the woman and the doctor might be "better off" as result of the trade, but was the transaction "moral"? I certainly don't know the answer to that question, but why isn't "morality" a criteria worth using to evaluate this market outcome? What makes pareto efficiency the best criteria to judge this or any market outcome? Dr. Cowen doesn't attempt to answer these questions.

I'm not advocating some sort of "social justice" agenda and I know none of these questions are new to Dr. Cowen. I just think economists should articulate the fact more often that efficiency is just one of many criteria we could use to judge market outcomes. I've met too many fellow econ students who think that they can declare "policy X leads to a reduction in efficiency, therefore we should not implement the policy". Maybe that's true, but you're going to have to work to convince me that efficiency is the best criteria we can use, and that's going to involve an argument from moral philosophy.

To me efficiency is basically moral relativism when we use it in the world of "good" and "should". And this relativism can lead to some awkward outcomes. The market for slaves in the 19th century was probably efficient, but did that make it "good"? The market for cloned harvest-ready bodies could be very efficient, but does that mean we "should" establish one?

There are still other problems with the efficiency criteria I can't go into here (this post is long enough alread), but I hope I've made my basic point that there is more to evaluating market outcomes than efficiency.


All of that being said, I still love Marginal Revolution and Tyler Cowen is my idol. *smooch*

Starting Out On The Wrong Foot

We came up with two main reasons why we shouldn't start this blog.

  1. The world probably doesn't need another economics blog. The blogosphere already has smart and educated people blogging on economic issues. Hell, Nobel prize winners Gary Becker and Richard Posner already run a blog! What could we possibly add that's worth reading?
  2. The blogosphere is full of self-important people that get off on telling other people they're wrong. If you don't believe us, then just ask Dan Rather.

But, after careful consideration, we decided that these are exactly the reasons we SHOULD blog. Here we have an almost endless supply of knowledgeable people that are willing to tell you that you're wrong and why. That is so exciting! None of our classmates are willing to engage in this type of open discussion and we're too scared or embarrassed to talk openly to our professors. It's liberating to have this kind of outlet!

We want to have free discussions on economics and we aren't afraid if some of our ideas are wrong. In fact, We can't wait to get knocked around! We want to go down bloody in a fight, so that we can stand up tougher in the next match. Learning is what it's all about. If our fellow bloggers help us, this could be the best informal training in economics we could ever get. All we ask is that you be willing to get in the ring with us.