Potpourri
I’m cleaning out the pages from my iPhone’s browser, so some of the later links below are old (but good).
==> I know a lot of you travel through Argentina in late August, so make sure you stop by for my keynote address.
==> A good episode of the Tom Woods Show featuring Walter Block discussing ocean privatization. Little bit of trivia: In college my debate partner and I were undefeated when we advocated ocean privatization to protect marine life. In the beginning of the season, before our reputation preceded us, teams were helpless; they had never heard something so nutty and were utterly unprepared to rebut our claims.
==> Nick Rowe pushes back against Noah Smith, by arguing that he (Nick) was ignoring the lesson of comparative advantage when drawing up faculty teaching assignments. The thing is, I’m not sure I agree with Nick that he had originally been making a mistake. In any event, it just proves his point, that this stuff is far from obvious, and so Noah is wrong to think that if the layperson rejects the textbook case for free trade, it’s because the layperson has grasped the “obvious” Ricardian point and is thinking of something more subtle.
==> This 2013 Caplan essay is in his hall of fame, in the sense that he has since linked to it (I think I missed it when it first ran), and people in the comments are telling him it’s top notch. So my point in linking to it, is to say, “I don’t get it.” Far from being cavalier about the unemployed, I think if anything free-market economists are patronizing in their discussion of the minimum wage, the effects of ObamaCare on employer incentives, licensing restrictions on hair braiding, etc. In other words, rather than worrying (as Bryan does) that free-market economists come off as not caring about the unemployed in their analyses, I worry that some progressive might say, “Oh give me a break, like I’m sure you really care about teenage workers at Burger King! Get real Murphy, you really just want to fatten corporate profits and you’re couching your argument in terms of helping unskilled workers because you know that will resonate better with the public.”
Now if you want to see an economist who is quite flippant about unskilled workers being unemployed, here’s a much better example. (Look at his third paragraph in particular.)
==> Tyler Cowen links (and has a funny comment) to a hilarious paper from Harvard.
==> I don’t know who this guy is, but listen to his critique of Scott Sumner:
Scott Sumner asks the question, regarding macroeconomics: who should we listen to? He tries to suggest that we should assign a higher Bayesian prior probability to someone who has made several qualitative and ill-defined conditional predictions with a model only that person can use that are declared correct by the person who made them.
Yikes! I don’t sound that mad, do I?
==> Speaking of Scott Sumner, remember when I tried to take his thermostat analogy seriously? Well, it also requires saying things like, “Jim turned the thermostat DOWN from 60 degrees to 70 degrees.” Look, if you think the Fed should print more money, fine. But don’t let your sanity go with Scott over the falls. Or should I say, under the falls?
==> But I’m glad Scott’s around, because he linked to this hilarious post from Scott Alexander, about hardball questions for the next Republican debate. It’s geeky to be sure, but very clever.
“Far from being cavalier about the unemployed, I think if anything free-market economists are patronizing in their discussion of the minimum wage …”
In one sense, it’s appropriate to be cavalier about the unemployed:
Laborers have to align their jobs with consumer preferences, just like their employers, in order to make a profit.
If consumer demand hasn’t resulted in enough profit, from the employer’s perspective, to justify hiring someone, then the laborer should either offer a lower wage, look somewhere else, or kill some squirrels or something. If there are regulations against killing squirrels, then it’s the government that’s preventing people from feeding themselves.
Also, in a nod to the latest Contra Krugman episode, the unemployed could be lowering their costs if not for zoning laws or building codes.
Or they could just die, if that aligns best with consumer preferences.
Well, they should at least have the option.
It could, if the consumers are Chicago’s democrat machine.
Gene, what you are saying is that I personally owe these people a living (presumably all people who ask) under all possible circumstances. Is that correct?
I think Gene would say that society owes these people a living one way or another, one particular person doesn’t need to hire all the unemployed people in the country.
You are both wrong. Gene Callahan is only saying people are entitled to their demanded wage, no matter what the circumstances.
People are entitled to the wage they and their employer can agree on, but only for the duration of the employ, which either party may terminate at will.
Unless otherwise contracted.
If those people can also demand to be employed, as well as being entitled to demand a certain wage… that’s exactly the same as saying I personally owe them a living.
Admittedly, I’m an employee, and not an employer but I have to do the work to make up for other employees who don’t. I mean the work doesn’t get done by itself. Hiring freeloaders exactly implies punishing hard workers.
“Or they could just die, if that aligns best with consumer preferences.”
Or they could threaten to starve themselves to death if consumers don’t choose to buy what *their* employers produce.
If employers are producing what consumers don’t want, or in a quantity or at a price they don’t like, that is sufficient to justify the employer’s current labor force, then people *should* lose their jobs because they make no economic sense.
Producers *must* align their processes with consumer preferences in order to be profitable. It logically follows from this that laborers must work for producers who are doing this in order for their jobs to be sustainable.
The consumer drives the economy, not the producer.
And no one is entitled to another person’s stuff.
I think a lot of people, subconsciously, don’t REALLY distinguish between minimum wage earners and the unemployed. In their mind, both categories are lumped into the general category of “the poor.” It probably doesn’t help that there is high turnover in minimum wage jobs and most of us probably DO know people who go back and forth between minimum-wage employment and unemployment very frequently.
So, opposing an increase in the minimum wage makes people see you as an enemy of “the poor,” even if it technically means that more jobs are available, unemployment goes down, etc.
I had not thought of this but I think you are right. They consistently undervalue what even a low paying job means to helping the poor, and this might be part of why.
I like Nick’s stuff, and he certainly is a quality teacher, but he is such a textbook thinker, and there are a consistent and entirely predictable set of presumptions that people advocating comparative advantage always make, and never talk about. Here’s Nicks example:
Ok, why not teach both cases? While teaching, also be sure to outline the assumptions:
* First assumption: Portugal and England have a fixed number of acres and we cannot merely optimise this by Portugal creating as many new acres as they need to satisfy Portuguese demand (creating new acres may theoretically be a better option than ANY international trade).
* Second assumption: it isn’t possible to convert the infrastructure of a given acre to make it better for either wheat or wine.
* Third assumption: acres are not portable.
I’ll point out that for the simple case of 18th century agriculture, those assumptions are quite reasonable in the short term (although even then, England did create new acres by using technology to drain the Midlands marshes, a major engineering undertaking which took several generations).
In the case of human labor none of these assumptions is remotely close to true. Humans learn new skills (especially if those skills are only slightly removed from the theoretical base they already know) and new humans can be produced (takes time) and also humans are portable.
Thus, it might be efficient to build a new factory in China, fill those factories with cheap local labour and then for the US to buy Chinese produce, or it may be efficient to bring in large numbers of immigrants to provide cheap labour inside the US with existing factories, or it might be better to simply encourage home grown population growth, and just buy raw materials from China. Nothing in comparative demand will answer that, and usually it comes down to politics.
Also from comments on Nick’s blog.
Regarding the trade deficits, of course they are always bad! Think about it… if you believe there are gains to be made by trade then you must also believe that the parties do trade something. You know, the concept of exchange and all that. A trade deficit (or surplus) implies that one party is not exchanging. The deal is not reciprocal. Nothing to do with comparative advantage… it would not matter where you believe the gains from trade are coming from.
Regarding the wage competition, of course as an individual I’m going to be worse off if (for example) I’m a programmer, and suddenly I’m in competition with a whole bunch of Indian programmers at a quarter of the price.
It may be more efficient in the bigger picture for me to retrain as something else, based on the theory of comparative advantage but that’s still a cost to me, and it presumes I want to do something else. The folks on Tom Woods blog were turning circles trying to explain how it’s going to make me better off when my wages drop by a substantial fraction on the basis that I can buy cheap software… but I want to buy other stuff cheap!
Besides, unless you believe in aggregate utils, there is no “bigger picture”… there’s only some people made better off and others made worse off. That’s the entire analysis.
“but I want to buy other stuff cheap!”
Barring significant state intervention, wouldn’t “other stuff” open up to foreign markets at roughly the same time that your particular job did?
It’s not like programming is the ONLY thing being outsourced to foreign countries where labor is significantly cheaper…
Well some products are more portable than others.Software is intrinsically highly portable so competition is just going to happen in that industry and no government and no individual can stop it.
Suppose I want cheap electricity though? Well electricity is great for short distance portability, but not the sort of thing you want to ship around the Earth. Other thinks like restaurants, bars, home improvement… those just don’t work at a long distance.
Thus, some industry is vulnerable to union hold-up problems, other industry is tempting for government to regulate because they see it as easy to get hold of (e.g. any industry that uses land, can quickly be strangled by land usage regulations).
If we were going to have a general agreement (that is to say, a pact between individuals) that all the different sectors of the economy were equally exposed to competition, then as an individual I would support that, in as much as it’s fair, and the overall spirit of competitive industry probably would improve efficiency.
Thing is, we never talk about this aspect of it… there’s this strange belief that no one could ever rationally oppose free trade because there never could be any losers. That’s rubbish… plenty of US auto workers are worse off now than they were before the rise of Asian manufacturing muscle… it’s bleedingly obvious. Of course the car buyers are better off, but now we are back to one man’s preferences vs another man’s preferences, and the constant head–in-the-sand avoidance of this massive intellectual gap just won’t fix it. Unless you can get out and measure the “common good” then empirically you must accept it does not exist.
“Thing is, we never talk about this aspect of it… there’s this strange belief that no one could ever rationally oppose free trade because there never could be any losers. That’s rubbish …”
“… Of course the car buyers are better off, but now we are back to one man’s preferences vs another man’s preferences …”
It depends on what you mean by the term “loser”.
If a producer finds that he’s producing what consumers don’t want, or at a price that’s higher than they can get elsewhere, does that make him a loser or just misinformed about consumer preferences or about your potential competition for their patronage?
When you become a producer, you’re taking on the risk that consumers may not want your product in that future for which you’re producing, or they may want it cheaper from someone else.
And the further up the production process your business is from the goods that consumers buy, the more risk is involved.
That’s just the nature of the production process.
Wait a moment, it’s not “just the nature of the production process” because competition in terms of mass immigration, or other significant shifts in the playing field is a consequence of the political process.
A producer cannot seriously plan for the eventuality that government will arbitrarily change the rules.
Yes, that’s true.
Although, it’s not the consumer’s job to be plannable for the producer, and it’s not the producer’s job to be plannable for the laborer. (You didn’t say it was. I’m just anticipating an objection, here.)
Also, I would say that, to the extent that mass migration is voluntary from the perspective of the migrants *and* that they are not subsidized by government theft of its citizens (such as the DREAM Act), then I would include that in my description of “the nature of the production process”.
The reason is because it’s the employers who are hiring cheaper labor, and it’s the consumers who are spending elsewhere (again, as is their prerogative), that existing businesses and workers lose that source of income to better competitors.
I mean, you’re technically right that there are trade-offs and that any policy means that some will be better off and others will be worse off.
Of course, this is also true for things such as, banning theft. This makes thieves worse off. How come we never talk about that?
Probably because nobody believes you have a right to steal. And similarly, I think most people who are even mildly trained in economics do not believe you have a right to government protectionism of your preferred occupation…
But now you are bringing in the idea of Democracy… if a lot of people think something is reasonable, then that’s what gets laid down as the rule. Not necessarily because it’s a great idea, but because that’s what a lot of people want (presumably if it was a really bad idea, they wouldn’t want it, but I guess depends on education).
In the case of “nobody believes you have a right to steal”, clearly that isn’t absolutely nobody, that’s just a small number of people. But then we run into the problem that each person has a slightly different idea about what should be allowed as property, and a slightly different idea about stealing. Even amongst the majority we don’t have perfect consensus.
In the spirit of Potpourri:
An important goof made by Donald Boudreaux on EPJ:
The Extreme Importance of Capitalist Advertising and Marketing
http://www.economicpolicyjournal.com/2015/12/the-extreme-importance-of-capitalist.html
“More fundamentally, consumers’ tastes are not exogenous or “given” to the market system. (What would have been your ‘taste’ or ‘preference’ for smart phones had you lived in the 12th century?) Consumers’ tastes are very much a product of not only the society and culture of which they are a part but also of the economy in which they participate.”
Consumers don’t have to have a preference for a specific product to have a preference for features of that product.
People may not have had wireless social media in the 12th century, but they did have writing and social functions the streamlining of which would have been sought, had streamlining services been available, simply because they lowered the costs of *already existent preferences*.
The iPhone didn’t shape consumer preferences – it satisfied pre-existing ones.
Aside: For some reason, Boudreaux considers this position Leftist. Huh?! He’s the one attempting to lend credibility to a form of the Labor Theory of Value in that he believes the iPhone *adds value* (my words) such that it shapes consumer preferences.
Unrelated, but these are actually pretty good:
https://www.stlouisfed.org/education/economic-lowdown-podcast-series
Basic concepts, but better than most schools are teaching them.
I’ve been reading this site, they go into a lot of detail and analysis on the whole “open borders” question.
http://www.cis.org/
Probably a lot of other people knew about it, but anyway maybe useful to someone…