Sunday, April 18, 2021

Local COVID-19 Trivia (Not Required)

It's not a secret, but no one talks about it much: body bags are also something that we've had shortages of over the last 14 months.

Someone local here in Cedar City who has a budget and authority to order body bags for future use is pleased that the ones ordered over a year ago have finally shipped.

FWIW: I have permission to post this tidbit.

Tuesday, April 13, 2021

Learning Some Marxism? (Not required for Spring 2021 Final Exams)

In class, CM asked (with respect to the Marxist/radical/heterodox/post-Keyensian views in the thread about J.W. Mason's post):

When am I going to learn why modern economists have rejected Marx's conceptions of macroeconomics? The labor theory of value, falling rate of profit, and reserve army of labor especially stand out as interesting and important macroeconomic ideas--Do we cover these things in Senior Seminar?

The easy answer to this is your mostly not going to learn about them at all. As I remarked in this post about the implications of J.W. Mason's post, most departments are neo-classical (including yours) and are simply uninterested in covering that stuff.†

I would not say that there is any suppression of views going on here. This is not really about flavors of economics that all students should be exposed to. It's really about completely different fields that ought to have their own departments. Noting that the neo-classical economists at SUU don't cover Marxist/radical/heterodox/post-Keynesian thought is akin to noting that they don't cover accounting. It's sufficiently different that it's just not what we do.

I am not sure about this, but I've gotten a pretty good exposure through the years, and I might be the best equipped to point you in the right direction. Having said that, these are neo-classical criticisms. 

Labor Theory of Value: check out Steven Horwitz's "We're Still Haunted by the Labor Theory of Value". I really like his point that to Marxists, the value of output is determined by what we put in to get it, but to neo-classicals the value of what we put in is determined by what we get out. For example, in the first one, a meal is good because someone put a lot of time into it, while in the second one the people we like to cook for us are the ones who produce meals we like. This is part of a bigger discussion about marginalism, the diamonds vs water paradox, and the contributions of Menger, Jevons, Walras, Marshall, and Clark (although people are trying to cancel him).

Falling Rate of Profit: does it suffice to say this prediction is 150 years old, and this hasn't happened yet? To me, Marx sounds like he's describing free entry and perfect or monopolist competition. He doesn't spend much time discussing economies of scale and monopoly in the context of increasing rates of profit. He also seems unaware of the idea of a firm working in multiple product lines, and accepting zero profit in most of them, while always looking for one that will temporarily deliver monopoly profits.

Reserve Army of [unemployed] Labor: I indicated in class that this is part of Marxist (but maybe not really Marx') theories that I tend to like. But that's not the same thing as seeing that all around me. Historical perspective on this is important: during Marx' lifetimes unemployment went from non-existent to a common thing. This was new in human history, and Marx attempted to explain why it would happen. Through the lens of 175 years of experience with how unemployment works, I tend to view it as a coordination problem: the potential worker is here and now, and the potential job is over there and then, and perhaps they don't match up well. I also tend to think the JOLTS data points to this idea not being very important: for example, while quits dropped a lot in 2008-9, this is the period in the data when a worker would be most concerned about that reserve army, and they just weren't.

Having pointed you in some directions, I would say that the way to learn Marxist economics is definitely not to go and learn it from someone who is not an economist at all. The issue here would be that they might be unlikely to know any neo-classical economics at all. And yet the whole thing is about an entire profession trying Marxism on for size, and finding it lacking.

And I would object to a word used in CM's question. This is not a rejection by "modern" economists. This is a wholesale rejection by just about everyone in the field going back for about 125 years. It's not modern in the scheme of a field that's coming up on 250 years old.

And if you want to be autodidactic, I know of no better source than my old buddy Ajit Sinha.

† The closest you will come in our department is some of Dave Berri's non-sports, non-required, classes. Recommended.

Cute story: what do Marxists and neo-classicals talk about over dinner? Ajit and 2 radical friends were in New Orleans at a conference when I worked at UNO and Tulane. I offered to take them out to dinner. They wanted to try alligator. The conversation worked its way around to how unusual it is for humans to eat carnivores. That evolved into, if the alligator ate a dog, and the dog had bitten a human, would we four be guilty of indirect cannibalism? We resolved that the alligator was very good, so we would worry about that some other day.

Is Coastal Flooding an Existential Threat? (Not required for Spring 2021 Final Exams)

MZ asked in the Chat during class:

... I would be interested to see what data you have disconfirming climate change as an existential threat!

It's off topic for lecture, so I didn't answer it there. But I will here. There's a lot to unpack in that one sentence.

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First, no one has data from the future. So there can be no data that might disconfirm an existential threat.

Instead, most of the discussion about climate change is about the implications of models.

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Second, in the methodology of science, a position that can't be disconfirmed isn't a theory at all. 

This is clearly very problematic since the only way we can then test some theories of climate change is to live through the periods they are forecasting. Potentially ... not fun.

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Third, many views that something is an existential threat rely on a supposed change in the world that is at variance with our past experience with the data. 

For example, you may be afraid of dogs, and your friend may tell you their dog has never bitten anyone. Your fears can be valid, but the consequence you fear still requires a change in the world that is at variance with your friend's past experience with their dog. 

With climate change, it's not easy to forecast catastrophic outcomes when the data we have doesn't show any in the past. One can always build a model in which there is  catastrophic outcome, but that isn't the same thing is it?

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Fourth, as an economist, existential is a word you should be very careful with.

Lots of people outside of economics use words like "priceless" and "existential".

This is often a shortcut for either 1) not measuring the price at all, or 2) covering up the fact that the price isn't what you think it is or ought to be.

If you're going to be an economist, avoid thinking about prices as being infinite, and start thinking about putting numbers on them. 

I like the punch line of this video:


In economics, pay attention to what people do, not what they say.

Oh and ... above I remarked that I like data better than a model. I also prefer a model to no-model-at-all. A lot of people who use words like existential ... don't have a model.

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Fifth, "existential" is also something that ought to have a probability attached to it. Is it a low probability of certain death? Or a higher probability but of only a possible death? Or something else? It matter. A lot.

What I say to many people when they say this sort of thing (and no insult intended MZ) is that if you don't know you should stop talking, and ideally come back when you know more.

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MZ wanted a source. I could overload you with stuff, but let's start with one. This is the (free) link to an article that just came out in the most recent issue of American Economic Journal: Macroeconomics entitled "Evaluating the Economic Cost of Coastal Flooding". That's a very good journal, and the authorship team includes economists, geoscientists, and climatologists. It's not the whole spectrum of climate change, but it's one issue that people worry about a lot. Here's the first part of the abstract:

Sea level rise will cause spatial shifts in economic activity over the next 200 years. Using a spatially disaggregated, dynamic model of the world economy, this paper estimates the consequences of probabilistic projections of local sea level changes. Under an intermediate scenario of greenhouse gas emissions, permanent flooding is projected to reduce global real GDP by 0.19 percent in present value terms. [emphasis is mine]

First off, that's in present value terms. So that's all costs of coastal flooding from the future, brought back to today's terms.

Second, is 0.2% large? Most people don't think so. Plausibly, the U.S. would be hit by roughly that percentage. Just to ballpark it, typically GDP grows 3.0%/year, and is in the range of -2% to +7% routinely. Would anyone even notice 0.2% if it was spread over many years?

And ... I'm not being dismissive. A "quick fact" I often give my principles students is that the limit of what you can feel in real GDP is a change of plus or minus 0.5%. So by a rule I've used on and off for 20 years ... this particular threat that some might call existential is not something we would even notice.

Do note that this does not mean that no one would notice it, or no one would be hurt by it. But it is saying that the collective pain would be minute.

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It's also worth learning what an economist with expertise writes about existential events and climate change. Here's Robert Pindyck from MIT (I don't know Pindyck's politics, but MIT is not a place known for, really, and conservatives at all). 

Pindyck is one of the foremost experts on investment under uncertainty ... like, say, averting climate change (he's so big that he wrote the math econ book I used in my first year of graduate school in 1985, and it wasn't even in the first edition then).

Six years ago he has a very tough AER article entitled "Averting Catastrophes: The Strange Economic of Scylla and Charybdis" with you can get for free here. In it he does talk about climate change, and other possibilities (including pandemics!!!) from the point of view of you can't insure against everything, so how should you ensure against a variety of existential threats that have low probabilities? And he has a model, and numbers, and simulations. Interestingly, while in some climate is a problem to be ensured against, and in others it is not ... a pandemic is always something you should ensure against.

He also wrote a JEL paper entitled "Climate Change Policy: What Do the Models Tell Us?" about the usefulness of the climate change models. It isn't pretty.

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I do think it's worthwhile asking why others are not talking about results like this.

And perhaps you are not reading between the lines ... but this is similar to the Biden administration that doesn't really seem to want to have economists involved in their economic decisions?

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I'll close with a simple suggestion that a budding economist can actually figure out. If you're concerned about climate change, what is the elasticity of your chosen temperature measure with respect to atmospheric carbon dioxide concentrations? But, of course, that comes from industrialization, so what is the elasticity of atmospheric carbon dioxide concentrations with respect to something like global GDP? And what do you make of those numbers?

Those are questions I first looked at in 1990, after becoming concerned about global warming in 1988. In 30+ years I have been unable tot reconcile them with my lived experience of climate change politics.

Saturday, April 10, 2021

A Change In ECON 3020 Students (Not Required)

I have been asking students to solicit questions for a Quodlibet every Spring since 2009. I have copies of every question and answer that are searchable.

Prior to that, I also asked students to do this in 2002-3. At that point, this was a smaller class offered every semester, but I'm not sure when I started, or if I still have copies of all of those. So I'm using the best of my recollection, and what I could find, for that.

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I spotted something unusual in the Quodlibet this semester.  

I am not picking on these students, but I think it might represent a worthwhile change in attitudes towards the world that's worth noting.

Anyway, two students asked question that used variations on the word "ban". (And, in going through them just now, I also saw that BS's post is about banning, but doesn't use the word).

The questions are fine. They reflect current events and discussions in the media.

But I went back and searched, and no one has ever used a variation on "ban" in this format before. Ever.

To me, this makes me think that banning things is part of the zeitgeist in a way that it never was before.

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To be clear, neither student suggested that we ban anything. 

But, they did ask questions about political discussions to ban things.

So I think it's useful to think about what the economics are of a political decision to ban something.

  • Governments ban lots of things. Some of those bans are really serious and work (e.g., it's just about impossible to obtain physical copies of certain books published in Germany in the 1930s that support Nazi policies), and some are not so serious and don't work well (e.g., the speed limit on the interstate). So there's definitely a matter of degree involved.
  • Governments make bans work by going through the enforcement, judicial, legal, incarceration, financial (fines), tax, and moral suasion dimensions. In some, but not all of these, it uses its "monopoly on legal physical violence".
  • Going back to the works of Becker and Ehrlich, there are two components traded off along to these dimensions: probability of getting caught, and amount of punishment when caught.
  • All of this can be viewed as increasing costs to suppliers (shifting supply up and to the left), and increasing costs to demanders (shifting demand down and to the left). Both of these can be thought of as excise taxes, as covered in principles of micro. Always keep in mind that the government would enforce a ban by labeling those costs as falling on one of those two groups, but that the economics means that the incidence falls primarily on the more inelastic of the two groups.
  • Imposing those costs on demanders and suppliers has costs to the government too. It's not always clear that they are willing to pay the costs needed to enforce the bans they already have in place.
  • It is hard to know in practice if the demand or supply in a particular market intersects the axes or not. We draw them as straight line, but that's a convenience. They may be asymptotic to one or both axes. This means that a ban may never eliminate some things.
  • Both demanders and suppliers have an interest in avoiding government imposed costs. Avoiding costs incurs more costs (commonly called "shoe leather costs" or transactions costs). But, there's a tradeoff: if the cost of avoidance is cheaper than the cost of getting caught, then an otherwise law abiding person will choose to break the law.
  • A common justification for government action is that not doing something has costs too, and that the tradeoff may favor enforcement costs.
  • There are also costs associated with banning something, not ponying up the money to make the ban work, and the resultant arbitrary enforcement. 
  • Some people are control freaks. To them, banning may sound like a good idea.

So here's some questions to ask yourself the next time you hear about a proposal to ban something.

  • Do you know what the costs of doing nothing are? Does anyone? Are they even asking? In particular, beware if the costs are labeled with emotional trigger words like "huge", "threat", "red", "black", "alert", or "existential".
  • Does it seem like the suppliers or demanders being targeted are part of a group with less power? Can they vote (foreigners and corporations can't)?
  • Absolutely keep in mind that the old are most likely to vote, the young can't vote at all yet, and the unborn in the future have no vote whatsoever.
  • Who would benefit in another market from a ban in this market?
  • Does the government seem interested in committing to the full enforcement costs?

There are other questions, but this leads me to some implications for the zeitgeist:

  • Increased interest in banning may be related to overstatement of the costs of the not banning. Does this seem more common to you?
  • Increased interest in banning may be related to understatement of the costs of enforcing bans. Does this seem more common to you?
  • Increased interest in banning may be related to cost reductions in production that make things that might be banned more readily available. Does this seem more common to you?
  • Increased interest in banning may be related to increased utility on the part of demanders for things that might be banned. Does this seem more common to you?
  • Increased interest in banning may also reflect that demanders simply have more money to spend, and are buying more of everything. Does this seem more common to you?
  • Increased interest in banning may also reflect increased uptake in the enforcement sectors of people with control issues. Does this seem more common to you?

Towards the end of the long series of posts riffing on what J.W. Mason wrote about progressives and the "Biden stimulus package" I noted that there seems to be a strong movement, particularly amongst Democrats, to be aprecautionary (i.e, to flout the precautionary principle). Perhaps this is another example.


Thursday, April 8, 2021

Ezra Klein On the Biden Administration's Economics (Not required for Spring 2021 Final Exams)

Klein is an opinion columnist for the New York Times. He also co-founded Vox. Definitely Democratically-oriented.

A lot of this is coming from his opinion piece in the New York Times entitled "Four Ways of Looking at the Radicalism of Joe Biden". That may be gated. It's worth your time to find a way around that. Here's an idea: try our library.

So it's a Democrat writing about how the Biden administration has moved to the left of Democrats.

The standard explanation for all this is the advent of the coronavirus. The country is in crisis, and Biden is rising to meet the moment. But I don’t buy it. That may explain the American Rescue Plan. But the American Jobs Plan, and the forthcoming American Family Plan, go far beyond the virus. Put together, they are a sweeping indictment of the prepandemic status quo as a disaster for both people and the planet — a status quo that in many cases Biden helped build and certainly never seemed eager to upend.

Klein has 4 explanations for this. 

1)

Republicans have completely stopped engaging with the Democrats. You can't compromise with someone that won't talk to you. So the mainstream Democrats are compromising with the Democrats further to the left instead.

2)

Most people don't seem to understand this point:

Washington is run by 20- and 30-somethings who run the numbers, draft the bills, brief the principals. 

It's always been that way. And this younger generation has "... Sharply different view on the role of government ... and the risks worth taking seriously".

Now, and this is my personal opinion, I can see how someone in that generation would look at the last 20 years and see government failures all around, but I don't see how from this one concludes that it will be different this time. 

3)

I'm actually OK with this. I think highly of economists, but I don't think other people have to:

Biden has less trust in economists, and so does everyone else [in his administration].

Obama’s constant frustration was that politicians didn’t understand economics. Biden’s constant frustration is that economists don’t understand politics.

It does bug me that the people in charge have less trust of economists about the economics itself. 

This especially bugs me because it does not happen in other fields. The idea that we'd have less trust in soccer coaches about soccer itself is not something most people would accept.

4) 

Biden is a political chameleon. This is simple. The electorate moved left, and so did Biden.

Do not fool yourself that this was about electoral shenanigans (I'm not even denying the relevance of those). 

Instead keep in mind that Trump was a lifelong Democrat. If the Republicans can fall in behind Trump, it means they were moving to left at least several years ago.

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Klein also tweets, and there are some cool clarifications and comments there. Plus he gets replies from people from the stratosphere like Paul Krugman:

Mostly this seems right, but "not listening to Larry Summers" is not the same as "not listening to economists." The really big difference with Biden is the reduced influence of Wall Street ...

I agree with this on one level: I didn't think the people that both Bush and Obama brought in from Wall Street were very good.

But on another level I disagree. The Biden executive is heavily staffed with people who've rotated through a particular Wall Street firm: Black Rock. 

Bush and Obama pulled Wall Streeters mostly from Goldman Sachs. To me, switching to Black Rock is a lateral shift.

On a different note, Mason made clear that the direction of the Biden team shows a lot less interest in incentives than in the past. That's all about the microeconomics and the efficiency of doing things in certain ways. Here's Matt Yglesias:

The danger is that the more successful you are at saying “fuck it, we just need full employment” the more micro/efficiency considerations actually end up mattering a lot.

That reflects an essential truth: when something works seamlessly it starts to seen unimportant, and we begin to take it casually. For example, most people drive more carefully after an accident, and that helps them avoid another one, but that discipline fades, and when it does the probability of an accident goes back up again. This is Cochrane's point: the people on the Biden team have forgotten that moves like this in the 60s ended badly all through the 70s.

I would say both Krugman and Yglesias are to the left of Klein, but neither one is in the league of Jared Bernstein or Heather Boushey.

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And what does Tyler Cowen think about Klein's hypotheses?

I would frame the described truths in a quite negative manner. I would say that in essence they are making decisions based on their own sociology and class and conformism, and also on the basis of what they think (poorly informed) voters want, rather than focusing on scientific reasoning and trying to see that through. And whatever problems economics might have, including as a predictive tool, one does not do better with those who are trying to take its place.

That's raw.

Discussion Roundup for 4/8

There was no discussion.

I asked the class if anyone had read anything from the large series of posts linked through "Table of Contents ...". I got no takers.

I asked 2 students specifically, and they kinda' sorta' admitted to not doing the readings, as directed in class on Tuesday.

That was the Tuesday, several days after I'd announced through email that the set of posts was largely done and that you should start reading them immediately.

GP then indicated that he'd done a few of them. 

Class, this is not acceptable. 

In class I recommended that you read at least the first 10 items in that post, and that it would be better if you read the first fifteen, prior to next Tuesday's class.

Wednesday, April 7, 2021

Robert Mundell Has Passed Away (Not required for Spring 2021)

Mundell is a name that macroeconomics students need to be familiar with. 

He won the Nobel Prize in 1999, largely for integrating international economics into macroeconomics in the early 1960s.

At the IMF between 1961-63, Mundell added a crucial model to existing views of closed, or self-contained, national economies.The effects of economic policies depend crucially on the exchange-rate regime, he demonstrated: floating rates made monetary policy powerful and denatured fiscal policy, whereas with fixed exchange rates the reverse is true. Encapsulated by a pair of equations, described by a couple of intersecting curves, the Mundell-Fleming model (Marcus Fleming, his IMF boss, died in 1976), brought Samuelsonian clarity to the analysis of international finance.

He is also called the "father of the Euro" for providing the insights that indicated that a European monetary union was workable.

And he was very influential in the exposition of "supply side economics" to the Reagan and Thatcher administrations in the early 80s.

There are obituaries around, but this piece from about 10 years ago covers the important stuff well.