Sounds low brow, right? But not in our hands.
==> The widely-read von Pepe sends this interesting David Glasner post about sticky wages. He includes a diagram that shows wages falling some 25% from 1929-1933, and roughly keeping pace with falling prices. My problem is that in my book on the Great Depression, I quote some economists and cite some stats arguing that wages did not fall as much as prices in this period, and that this was the opposite of what had happened in the 1920-21 depression. (I don’t have my own book in front of me to be able to say the exact stats.) Thoughts?
==> If you have kids, you MUST see the LEGO movie–in the theater. Josiah Neeley sent me a review (not by him) calling it the greatest classical liberal movie ever, but I don’t want to spoil it by linking. Seriously, it is awesome, you won’t believe it.
==> Climate scientist Roy Spencer’s take on the “consensus” models.
==> I’m a little late on this, but there were a string of prominent bankers found dead recently (in a short time frame). I don’t have any context though to know how unusual this is (or is not).
==> We’re #46! We’re #46!
You think I’m being sarcastic, but I’m not. I really like this post where Krugman argues:
In my field there is indeed a problem with abstruseness, with the many academics who never even try to put their thoughts in plain language.
And what is the nature of that problem? It’s not that laypeople don’t understand what the academics are saying. It is, instead, that the academics themselves don’t understand what they’re saying.
Don’t get me wrong: I like mathematical modeling. Mathematical modeling is a friend of mine. Math can be a powerful clarifying tool. So, in some cases, can jargon…
But it’s really important to step away from the math and drop the jargon every once in a while, and not just as a public service. Trying to explain what you’re doing intuitively isn’t just for the proles; it’s an important way to check on yourself, to be sure that your story is at least halfway plausible.
Obviously, some Austrian purists may quibble with me and say that they don’t like anybody giving any quarter at all to mathematical economics. But I’m trying to give credit to Krugman when it’s deserved, to show I am a fair guy.
I also like his specific illustration:
Take real business cycle theory – I know it’s a horse I beat a lot, but it’s not dead, and it’s a prime example within economics of what I have in mind. I still want to spend at least some time explaining that theory to my undergrads, so I’ve been looking for a simple, intuitive explanation by an RBC theorist of what’s going on. And I haven’t been able to find one!
I mean, I could do it myself. Strip the story down to basics…As I’ve written before someplace, it’s the story of a farmer who stays inside when it’s raining and puts in extra hours when the sun is shining.
But the RBC theorists never seem to go there; it’s right into calibration and statistical moments, with never a break for intuition.
Yep. That’s what happened to me in grad school (though in fairness, I don’t think any of my professors actually believed RBC). I distinctly remember sitting in the study room off the computer lab, going over a problem set where our job was to look at the “impulse response function” from a productivity “shock.” I put down the pencil and asked the other people at the table, “Does anybody know what the heck this actually means?”
No one said anything at first, and then the guy from Catalonia said, “No I just like playing with GAUSS” (which was the name of the econometrics software).
There was a funny Saturday Night Live sketch (unfortunately I don’t think they allow YouTube to host clips, since there’s barely anything from SNL on it) with Jon Lovitz playing “Frenchie,” who says really outrageous things and then acts stunned when people react. “Oh I’m sorry!” he exclaims. “Didn’t mean to offend anyone. Everything good? Good. I’m Frenchie!”
I was reminded of this sketch when reading the continuing battles of George Selgin vs. Joe Salerno on the issue of methodology in economics. In response to Joe and me, George opens by saying: “It seems that, even when I’m not trying to do so, I manage to raise the hackles of some of the 100-percent crowd.”
In the interest of avoiding future, unintentional fights, let me clarify exactly what George innocently wrote that raised the hackles of the hypersensitive 100% reservists. And to be clear, I’m not grabbing something buried in his original post; this is how he opened up the discussion:
At the close of my last post here, I referred to myself as a “non-Austrian,” causing one of our regular commentators to wonder why. “Because,” I answered, “belonging means conforming.”
That admittedly cryptic reply (I was anxious to get back to the book I was reading) led to speculation to the effect that I was inclined to identify “Austrian” economics with the economics of Murray Rothbard, and particularly with his and his devotees’ opposition to fractional reserve banking.
But although it’s true that I have a low opinion of the ideas and arguments put forward by the 100-percent crowd, and that I’d rather swallow a dozen toads than have anyone confuse my thinking with theirs, I don’t believe they’ve yet succeeded, despite trying their damnedest, in hijacking the “Austrian” brand name. There are, thank goodness, still plenty of non-Rothbardian “Austrians,” including my fellow blogger and former colleague and mentor Larry White.
There are no ellipses in the above; that’s exactly how George opened his remarks on this topic. Can anyone see why Rothbardians who advocate 100% reserve banking might have perceived an attack, and responded defensively?
Everything good, good. I’m Georgie!
A short post but perhaps profound. I was explaining to my son that Jesus would not so much talk about “getting into heaven” but rather about the Kingdom of God (or in some gospels the Kingdom of heaven, but it’s clear that it’s in an earthly context). I went on to explain that Jesus never really defined it, but from the context clues you sure understand that it was the most important thing to seek.
Then it occurred to me–duh–that the Kingdom of God is precisely that area that falls under God’s sovereignty. So when you recognize that God is in control of your life, then you have achieved the Kingdom of God. At that point, it is within you, and you will achieve utter peace and joy.
I know there are many readers of this blog who won’t like the above statements. Well, that’s what I think the fabric of reality simply is, and I’m telling it as I see it. If a doctor says, “Drinking milkshakes twice a day will end up making you miserable,” you don’t refute him by saying, “I don’t want to live in that kind of a world.”
Now I understand why Krugman feels driven to use examples like alien invasions; it’s the only way to shake everyone and say, “This is my point!!!”
And with that, I offer you my lastest salvo in the ObamaCare work incentive debate:
There is a feeling that giving low-income workers means-tested subsidies is harmful because the resulting drop in labor output is “involuntary” or a “mandate.”
But no, that’s not what those words mean. In standard economic analysis, the government is only giving more options to someone when it says, “We will give you this bonus money under such-and-such conditions.” After all, the worst-case scenario is for the possible recipient to reject the offer. For an extreme example, if the government says to people, “We will give you $50,000 a year if you punch yourself in the face every morning,” that actually provides more utility to the people who choose to collect the money; if it didn’t, they would simply refuse to punch themselves in the face, and would be right where they were in the absence of the offer.
My latest at Mises Canada. Key excerpt:
For example, if the government says to workers, “We’ll give you $50,000 in annual support payments, so long as you don’t ever take a job,” then this would obviously be a disaster. I think Yglesias would agree wholeheartedly with me.
Yet suppose instead the government said, “We will randomly pick ten percent of citizens from the phone book, and we will provide each of them with vouchers entitling them to $50,000 worth of housing, food, and car leasing. The citizens are free to earn additional income if they want; they will be given these vouchers regardless of their official wage and salary income.”
This second scheme would also lead to a huge reduction in work effort offered by the 10 percent selected citizens, and it would be through an income effect: They would quite rationally choose to work fewer hours, and enjoy more leisure, because the government was now providing many of the items that they otherwise would be buying with their labor earnings.
One might argue that the first scheme is more disastrous than the second, and in this sense a given expenditure of taxpayer subsidies is less harmful if done in the form of income effects. But even so, the second scheme is still bad (if you agree that the first one is).
I do not claim to know the future, but I am quite confident that Daniel Kuehn in the comments will argue that Yglesias said nothing wrong.
UPDATE: Over at EconLog Scott Sumner has a similar post. He quotes from Jonathan Gruber who makes an important distinction between “voluntary” and involuntary reductions in labor supply emanating from the ACA, but–as Sumner explains–these categories are both voluntary from the individual worker’s perspective. Sumner et al. aren’t using the terms “substitution effect” and “income effect,” but it’s comparable to my discussion about Yglesias and Douthat.
Since Tyler is so much gentler than me, perhaps his opinion on this won’t be dismissed as mere Krugman Derangement Syndrome. In any event, he is saying the same thing as me on this one:
Following the CBO report that Obamacare will induce many people to leave the workforce or cut back on their hours, I have read numerous blog posts suggesting this is benign or possibly even favorable. After all, why should people be forced to work just to keep their health insurance? Imagine a 57-year-old man, freed from the necessity to grub for pay at a second-class retail job, which he had to take just to get insurance to cover the bills for his periodic back treatments.
Alternatively, when I read about demand-side shocks which induce unemployment, I am reminded of the work of Alan Krueger. In two papers, one of which is quite recent…Krueger shows rather convincingly that the unemployed maintain reservation wages which are simply too high. They would be better off lowering those wages, being more realistic, accepting work, and getting back on their feet again. In other settings (not considered by Krueger), other workers seem to be too slow to move to new areas for new jobs, given the costs of being unemployed long-term.
A lot of Keynesians try to maintain the communication of the feeling (if not the outright statement) that demand-driven employment shocks have very little to do with the choices of workers but that is closer to wrong than right. (By the way, sarcastic comments about soup kitchens causing the Great Depression belie an understanding of both this argument and of contemporary search models for the labor market.)
OK, given all that, when those workers, hit by negative shocks, do not rush to go back to work at lower reservation wages, we then read a portrait of hysteresis, despair, and soul-crushing joblessness, a psychic swamp so difficult to escape that even summoning up the strength to go back to work may be difficult.
In other words, would-be workers irrationally undervalue the benefits of having a job and they also underestimate the costs of remaining unemployed.
Now let’s switch settings. A benefit shock comes along, positive for many people, and it induces many of them to work less or not work at all. How happy should we be? And here I mean happy at the margin, due to their change in employment decision.
People, it is rather difficult to have it here both ways. I guess it is possible that workers are irrational in changing their employment decisions in response to changes in relative dollar wage opportunities, but rational when changing their employment decisions in response to changes in relative benefit opportunities. It really is possible.
But are any of you actually arguing that or holding some deep-seated reason for believing in that difference, other than perhaps the reason this post might have induced you to come up with? No, I see one assumption about a destructive choice in one context and the opposing assumption about a beneficial choice in the other context, without much regard for the tension or contradiction between those two assumptions. A lot of you may be subbing in general feelings — “unemployment is terrible,” and “ACA is good,” and simply transferring those general feelings to feelings about the respective marginal changes in employment in each case. That is a fallacy and dare I say it is a “mood affiliation” fallacy?
I am reading what people write on this topic and seeing massive fog through my spectacles, a bit on both sides of the debate in fact.
Bold added by me.