Tag Archives: Economics

Links: Reading, photos, teaching, life

June 20, 2014 By in Links Tags: , , , , Leave a comment

* Inadvertently depressing, though it does raise the relative status of photographers: “Photos are the killer content type on mobile. Quick to consume like text, but easier to produce on a phone.”

* “The Moral Inversion of Economic Thinking,” or, why economics offends through counterintuitive facts and principles.

* “Putting Teacher Tenure In Context,” which has revised my opinions.

* “Reading: The Struggle” (maybe).

* Is tax evasion the key to understanding nonsensical-seeming data about first-world indebtedness?

* Someone found this blog by searching for “nurses making love.” I don’t know either.

* “When Literature Was Dangerous.”

* “Teaching college is no longer a middle-class job, and everyone paying tuition should care.“

Most volunteering is a waste of time for anyone except the volunteer

June 19, 2014 By in Culture, Philosophy Tags: , , , 11 Comments

Volunteering is primarily driven by the need of the volunteer to feel good about themselves, not to do the most good; the way to really do the most good is to know how to do something valuable, like make a computer do what a person wants, or building things. Not that many people can or choose to learn how to do something really valuable, but many people can rehab trails or serve meals to the homeless.

Nonprofit and public agencies know this and many don’t really want volunteers, though they also can’t really turn volunteers away for PR reasons.* Nonprofit and public agencies want cash, which is fungible and can then be spent hiring professionals who don’t consume a lot of time and energy. Programmers know that the smallest number of programmers possible should work on a given project, because each additional programmer increases the communication overhead of the project. Sufficiently large projects often collapse because programmers cannot communicate effectively and ensure their code works coherently together. Volunteers face a similar problem, albeit to a lesser extent.

Low-wage labor is also widely available. Someone with a skill that can be sold for a couple hundred dollars an hour is better off doing that, and then donating their wages to hire at least ten people for ten dollars an hour. That’s much more useful to society as a whole. We’re in the habit of automatically admiring volunteers and volunteerism, to the extent that claiming volunteer hours has become yet another way of gaming college admissions through dubious altruism.

The primary way to usefully volunteer is to have a specialized skill that can be effectively deployed by the organization, but that rarely seems to happen. If the organization really needs a given skill, it tends to pay for it, because it needs that skill delivered reliably and, often, to precise specifications.

Mastering a complex skill, however, is a labor-intensive process; it’s famously been said to take ten years. Maybe one can master a skill in less time, but certainly it takes thousands of hours of dedicated practice. No one can wake up and decide to write a (good) novel or (good) operating system or whatever. One can go off and seal envelopes or make cold calls or serve meals for a couple hours.

One sees this at work in the misguided efforts to send expensive American teenagers to developing countries to build houses. Developing countries by and large do not have a shortage of effective construction workers (the U.S. imports plenty of Mexican construction workers)—they have a shortage of money. The thousands of dollars it takes to feed, secure, and transport American teenagers or twenty-somethings would be much more effectively spent on local labor and materials. But the purpose of volunteer trips is of course not about building houses but about making the volunteers feel good and useful.

Still, if the choice is between volunteering or watching T.V., volunteering is probably a “better” thing, but if the choice is between volunteering and mastering a unique skill, master that skill (and perhaps teach it to others). Be an example to others by becoming an expert, instead of by sacrificing time that should be optimally spent doing something useful for a large number of people.

* I’m a grant writing consultant. Many nonprofit and public agencies will admit in private that they don’t want volunteers. I suspect all or nearly all professions generate uncommon or counter-intuitive knowledge. The Internet is pretty good at letting people discuss that knowledge in a pseudonymous environment.

Albert Hirschman succinctly describes the academic problem

March 12, 2014 By in Academia, Culture Tags: , , , , , , Leave a comment

“the rapid exit of the highly quality-conscious customers [. . .] is tied to the availability of better-quality substitutes at higher prices” (51). That’s from Albert Hirschman’s brilliant Exit, Voice, and Loyalty.

In other words, those with the best alternative options, even if the “price” of such options are high, tend to leave declining situations first. That’s essentially what is happening in academia: the people who can get real jobs leave and the ones who can’t stay and put up with geographical mobility and other problems. The result is plain to many grad students and smart, aware undergrads.

Thoughts on Debt: The First 5,000 Years — David Graeber

April 28, 2013 By in Books, Culture, Nonfiction Tags: , , , , , , , 1 Comment

Mike Beggs’ review of Debt expresses my reservations about the book better than I can. In Debt there are many solid-seeming micro-insights but the overall narrative doesn’t cohere (I say “solid-seeming” because of Graber’s many errors—see the last paragraph of this post). Beggs describes the problems with Debt better than I can.

One point: Graeber notes religious prohibitions on debt—”The Catholic Church had always forbidden the practice of lending money at interest, but the rules often fell into desuetude[. . .]” (10)—and religiously-inspired depictions—”Looking over world literature, it is almost impossible to find a single sympathetic representation of a moneylender—or anyway, a professional moneylender, which means by definition one who charges interest” (10)—but my understanding is that those prohibitions arose prior to the Industrial Revolution and Enlightenment—in other words, times when growth could be negative for decades, and when growth, even when it did occur, was usually under 1% a year.

In that atmosphere, taking on debts would be ruinous for the vast majority of people. Today, by contrast, many people can use debt safely and successfully for things like education or business. I don’t know how much of that is a just-so story and how much is empirically supported, however.

It is also easy to find many nasty representations of women in world literature, and especially of prostitutes, but, if I may stereotype for a moment, that doesn’t mean that a bunch religious lunatics from the Middle Ages should control modern conceptions of femininity or sexuality. Depictions of groups, professions, or practices from the past may be revealing or important, but they don’t and shouldn’t bind what we think in the future.

Another point: Graeber writes that, in recent times, “the bankers were doing it [that is, making “utterly irresponsible loans”] on an inconceivable scale: the total amount of debt they had run up was larger than the combined Gross Domestic Products of every country in the world [. . . ]” (16). I agree that having “too-big-to-fail” banks is a problem and that the U. S. federal government should get out of the business of subsidizing and guaranteeing mortgages, which are practices that contributed to the size of the financial sector but were probably not decisive to it, but that doesn’t stop me from also noting that every lender needs a borrower. So far as I know, few borrowers had guns held to their head with orders to borrow. Borrowers took loans freely. The story of the last five years should not be a homily about the evils of bankers; they played a role but did not act alone. Everyone who could have taken out a large mortgage in the 2000s but chose to rent instead knows this.

Graeber appears to successfully bury the idea, often mentioned in economic textbooks, that money systems arose from barter. But I don’t think that conception is essential to many, if any, modern ideas in economics. He seems to want to deliberately misstate what economics does:

for there to even be a discipline called ‘economics,’ a discipline that concerns itself first and foremost with how individuals seek the most advantageous arrangement for the exchange of shoes for potatoes, or cloth for spears, it must assume that the exchange of such goods need have nothing to do with war, passion, adventure, mystery, sex, or death. (32–33)

This misunderstands economics to a degree that seems like willful ignorance: economics is a discipline that studies how people respond to incentives and trade-offs.

The book is frustrating because it has many fascinating descriptions of how native peoples barter and trade, but those observations are marred by moments like this one. Graeber describes positively how native peoples develop ongoing business relationships, and that indeed sounds good, but having ongoing relationships with every single person with whom one wants to trade for goods and services would be incredibly time-consuming in a modern economy. The social arrangements that work well for native people will not necessarily work well for modern people dealing with clerks at Walgreens.

Some points are viable and important: for example, Graeber brings up the example of third-world debt incurred by autocratic leaders and enforced after those leaders are deposed. In instances like that he’s right: the people of third-world countries shouldn’t be forced to repay debts created by dictators. But that doesn’t mean all debt everywhere is automatically bad. Nor am I convinced that the sexual-economic practices of indigenous people, though interesting, necessarily tell us how we should arrange sexual-economic practices today.

Many indigenous people seem to have more fun than most Americans, and in that respect maybe we should emulate, but I can’t judge whether Graeber is cherry-picking examples. The U.S. could improve its sexual culture in many ways, and take some cues from indigenous people, but those cues can be lifted without taking along economic practices.

Debt ends this way:

A debt is just the perversion of a promise. It is a promise corrupted by both math and violence. If freedom (real freedom) is the ability to make friends, then it is also, necessarily, the ability to make real promises. What sorts of promises might genuinely free men and women make to one another? At this point, we can’t even say. It’s more a question of how we can get to a place that will allow us to find out. And the first step in that journey, in turn, is to accept that in the largest scheme of things, just as no one has the right to tell us our value, no one has the right to tell us what we truly owe. (391)

But a debt isn’t really “the perversion of a promise;” it’s a particular kind of promise. If you don’t like “math and violence,” then don’t take debt. It’s not all obvious, even after almost 400 pages, how Graeber gets from the first two sentences in the paragraph to the last sentence—is anyone “tell[ing] us our value?” Who is this person? And when we start life, “no one has the right to tell us what we truly owe,” but if we want to buy a car for $0 down and $499 a month, then someone does have the right to tell us what we owe, because we gave it to them. There are many edge cases, which you can read about in Contracts law textbooks, but the overall principle is reasonable.

It is hard for me to imagine wanting to re-read Debt.

(I title this post “Thoughts on” because I don’t have sufficient knowledge for a comprehensive review, and because the book is sufficiently broad in scope that a real review would probably need to be thousands of words even if many of them are citations.)

EDIT: See also Brad DeLong on Graeber’s many errors of fact.

An economic model of paid sex: Coase’s “The Nature of the Firm,” gains from trade, and the gift economy

August 25, 2012 By in Culture, sex Tags: , , , , , , , , , , 4 Comments

In Roosh’s “Orgasm or Money” story, he describes encountering yet another semi-pro prostitute in Latvia,* and he ends by wondering about sexual cultures around the world:

Then I thought about what she had said, how it was stupid for American girls not to ask for money before sex. Was it possible that the sexual culture in America and other Western countries is fantasy, and that the best move for women was to get as much as she could out of a guy?

It’s possible that getting “as much as she could out of a guy” in terms of money is optimal for an individual woman in some circumstances, but if she plays that game she’s likely to find guys who are unwilling to make long-term investments in her. A guy who pays for sex expects to dump the provider: as the philosopher Charlie Sheen once supposedly said regarding prostitutes, “I don’t pay them for sex. I pay them to leave.”

But there are deeper problems.

Moving unpaid “labor” into the “paid” labor can have the nasty, unintended effect of monetizing a lot of activity that’s better left outside the conventional economy. Roosh is really describing is the difference between a gift economy and market economy, which Lewis Hyde describes in his eponymous book. Moving all or a great deal of sexual activity to a market economy will result in fewer people forming mutually beneficial relationships in which both reap gains from trade and specialization. Monetizing such relationships increases transaction costs for both buyers (men, usually) and sellers (women, usually), which can leave both sides worse off for transaction costs and other reasons.

Ronald Coase’s famous essay “The Nature of the Firm” (alternately, here’s Wikipedia on it) points out that firms exist to reduce friction / transaction costs that arise from alternate arrangements—like having a large number of consultants work together. When individuals are try to gain every last monetary or other advantage at the margin, they aren’t working towards the good of the whole. It’s cheaper and better for large groups of people to get lump-sum payments and then work together, to the best of their abilities, to further the total enterprise. That’s true of firms and of marriages.

A relationship can be conceptualized as a very small firm, as people continually rediscover—in “Marry Him! The case for settling for Mr. Good Enough,” Lori Gottlieb realizes that often “Marriage isn’t a passion-fest; it’s more like a partnership formed to run a very small, mundane, and often boring nonprofit business. And I mean this in a good way.” She realizes this after having a child on her own, however. Instead of figuring out that she can reap major gains from finding a decent guy and marrying him, she decides to date around and has a child via a sperm seller, only to find what should really be obvious and only isn’t to someone who’s been taught to never “compromise.”

As noted above, both parties reap gains from specialization in a firm or marriage: one person might like to cook, for example, while the other person does dishes, or runs errands, or builds stuff. Granted, this only works if both parties actually have useful skills: one time I was in a bar, listening to a nasty-sounding woman complain to two friends, one male and one female, about the guy she was divorcing, and the woman was going on about how she wouldn’t cook, or run errands, or acquiesce to any number of normal-seeming things. Finally I asked her, “What do you bring to the relationship beyond your vagina?” The guy started laughing, hard, and the other woman began chuckling, and the complaining woman didn’t know what to say, so she told me I was rude (true, although I prefer to call it “honest”) and asked how I dare ask her that sort of thing—I dare many things. But she didn’t and probably couldn’t answer the obvious question, perhaps because she already knew the answer in her heart.

The larger point contained in that anecdote, however, is that both parties gain, or should gain, from not having search for sex partners or pay for sex. In addition, long-term plans, like offspring, are easier to make.

Most of us don’t want to live in a purely market economy with every potential transaction: when our significant others come over, we don’t charge them for dinner, and, if we did, the charge would create very different expectations. Dan Ariely describes the expectation issue in Predictably Irrational and elsewhere. Once market norms, as opposed to gift-based norms, are activated, they’re very hard, and perhaps impossible, to de-activate.

Plus, to return to Coase, it’s very inefficient to price everything, and to continually think of pricing. It’s better for individuals and the economy as a whole if people trust each other and create value for each other without (always) charging for it. Relationships are, in part, a movement from market economies to gift economies, and in the process they create a lot of value, along with love, trust, and assorted other positive feelings. If there’s a large-scale culture shift away from non-paying relationships and towards women trying “to get as much as [they] can” out of guys, as Roosh describes, both sides lose, including the woman trading sex for money.

Granted, if a woman isn’t looking for long-term relationships or real help, it can make sense to move to a mercantile economy: this might be why a fair number of college girls get into stripping or even hooking, only to quit at or near graduation: they’re shifting from short-term expectations to long-term ones, and they know that violating social taboos can have a (major) economic payoff, but it’s easy enough for many of them to shift back into the “normal” relationship economy when their interests shift to long-term relationships.

* “Semi-pro” meaning someone who doesn’t explicitly advertise their wares but does eventually demand money for sex, or simply tries to drain guys through overpriced bar drinks and the like.

Alex Tabarrok’s Launching The Innovation Renaissance and what normal people should do about interest group accretion

December 13, 2011 By in Books, Nonfiction Tags: , , , , , , , Leave a comment

In Alex Tabarrok’s Launching The Innovation Renaissance, I noticed his discussion of regulatory thickets* and patents, both of which are real but hidden problems of the kind that accumulate in democracies, like free radicals in the body. But there’s not an obvious way for random people to do anything, which led me to ask Tabarrok directly:

I have a question about Mancur Olson [if you’re interested, see The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities] and interest group accretion: what, if anything, could and/or should normal people do about it? If normal people are worried about free speech, they can put their money where their online complaints are and join the ACLU or EFF, but I don’t see any obvious parallel for the accretion of interest groups. Is there an anti-interest group interest group out there?

The ACLU / Electronic Frontier Foundation (EFF) model is an obvious one to me because a lot of people online complain about things like the police abuse of photographers and the patent system. Complaining online is better than doing nothing, but it’s even more helpful to support interest groups that are trying to preserve freedom in the face of growing state power. I get the sense that relatively few people move from the “complaining” to “doing” stage.

Tabarrok replied:

Excellent question. Unfortunately, Olson isn’t too helpful on this score as he says one of the few times the interest groups are cleared is after losing a terrible war! I am hopeful that as we see other countries such as China and India leaping forward that we will clean our house. Not much of any answer, I know. We have to develop a base that supports innovation even when we don’t know what innovation will bring.

It seems like a lot of large-scale, serious problems do not have simple or obvious solutions. Reading Launching the Innovation Renaissance helps at the margin—Tabarrok is after all the co-writer of Marginal Revolution—but I am also looking for space to expand that margin, which inspired the question.

* Example: “The problem is that building even a small hydro-electric project requires the approval of numerous agencies, including the Federal Energy Regulatory Commission, the U.S. Fish and Wildlife Service, the Army Corps of Engineers, State Environmental Departments and State Historic Preservation Departments. It’s simply too expensive, time-consuming and risky to build these projects when any of these agencies could veto the project at any time.”

Alex Tabarrok's Launching The Innovation Renaissance and what normal people should do about interest group accretion

December 13, 2011 By in Books, Nonfiction Tags: , , , , , , , Leave a comment

In Alex Tabarrok’s Launching The Innovation Renaissance, I noticed his discussion of regulatory thickets* and patents, both of which are real but hidden problems of the kind that accumulate in democracies, like free radicals in the body. But there’s not an obvious way for random people to do anything, which led me to ask Tabarrok directly:

I have a question about Mancur Olson [if you’re interested, see The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities] and interest group accretion: what, if anything, could and/or should normal people do about it? If normal people are worried about free speech, they can put their money where their online complaints are and join the ACLU or EFF, but I don’t see any obvious parallel for the accretion of interest groups. Is there an anti-interest group interest group out there?

The ACLU / Electronic Frontier Foundation (EFF) model is an obvious one to me because a lot of people online complain about things like the police abuse of photographers and the patent system. Complaining online is better than doing nothing, but it’s even more helpful to support interest groups that are trying to preserve freedom in the face of growing state power. I get the sense that relatively few people move from the “complaining” to “doing” stage.

Tabarrok replied:

Excellent question. Unfortunately, Olson isn’t too helpful on this score as he says one of the few times the interest groups are cleared is after losing a terrible war! I am hopeful that as we see other countries such as China and India leaping forward that we will clean our house. Not much of any answer, I know. We have to develop a base that supports innovation even when we don’t know what innovation will bring.

It seems like a lot of large-scale, serious problems do not have simple or obvious solutions. Reading Launching the Innovation Renaissance helps at the margin—Tabarrok is after all the co-writer of Marginal Revolution—but I am also looking for space to expand that margin, which inspired the question.

* Example: “The problem is that building even a small hydro-electric project requires the approval of numerous agencies, including the Federal Energy Regulatory Commission, the U.S. Fish and Wildlife Service, the Army Corps of Engineers, State Environmental Departments and State Historic Preservation Departments. It’s simply too expensive, time-consuming and risky to build these projects when any of these agencies could veto the project at any time.”

College graduate earning and learning: more on student choice

October 31, 2011 By in Academia, Culture, Teaching Tags: , , , , , , , , 2 Comments

There’s been a lot of talk among economists and others lately about declining wages for college graduates as a group (for example: Arnold Kling, Michael Mandel, and Tyler Cowen) and males in particular. Mandel says:

Real earnings for young male college grads are down 19% since their peak in 2000.
Real earnings for young female college grads are down 16% since their peak in 2003.

See the pretty graphs at the links. These accounts are interesting but don’t emphasize, or don’t emphasize as much as they should, student choice in college majors and how that affects earnings. In “Student choice, employment skills, and grade inflation,” I said that colleges and universities are, to some extent, responding to student demand for easier classes and majors that probably end up imparting fewer skills and paying less. I’ve linked to this Payscale.com salary data chart before, and I’ll do it again; the majors at the top of the income scale are really, really hard and have brutal weed-out classes for freshmen and sophomores, while those at the bottom aren’t that tough.

It appears that students are, on average, opting for majors that don’t require all that much effort.

From what I’ve observed, even naive undergrads “know” somehow that engineering, finance, econ, and a couple other majors produce graduates that pay more, yet many end up majoring in simple business (notice the linked NYT article: “Business majors spend less time preparing for class than do students in any other broad field, according to the most recent National Survey of Student Engagement [. . .]”), comm, and other fields not noted for their rigor. As such, I wonder how much of the earnings picture in your graph is about declining wages as such and how much of it is really about students choosing majors that don’t impart job skills of knowledge (cf Academically Adrift, etc.) but do leave plenty of time to hit the bars on Thursday night. Notice too what Philip Babcock and Mindy Marks found in “The Falling Time Cost of College: Evidence from Half a Century of Time Use Data:” “Full-time students allocated 40 hours per week toward class and studying in 1961, whereas by 2004 they were investing about 26 to 28 hours per week. Declines were extremely broad-based, and are not easily accounted for by compositional changes or framing effects.”

If students are studying less, maybe we shouldn’t be surprised that their earnings decline when they graduate. I can imagine a system in which students are told that “college” is the key to financial, economic, and social success, so they go to “college” but don’t want to study very hard or learn much. They want beer and circus. So they choose majors in which they don’t have to. Schools, in the meantime, like the tuition dollars such students bring—especially when freshmen and sophomores are often crammed in 300 – 1,000-person lecture halls that are extraordinarily cheap to operate because students are charged the same amount per credit hour for a class of 1,000 as they are for a seminar of 10. Some disciplines increasingly weaken their offerings in response to student demand.

Business appears to be one of those majors. It’s in the broad middle of Payscale.com’s salary data, which is interesting given how business majors presumably go into their discipline in part hoping to make money—but notice too just how many generic business majors there are. The New York Times article says “The family of majors under the business umbrella — including finance, accounting, marketing, management and “general business” — accounts for just over 20 percent [. . .] of all bachelor’s degrees awarded annually in the United States, making it the most popular field of study.” That’s close to what Louis Menand reports in The Marketplace of Ideas: “The biggest undergraduate major by far in the United States is business. Twenty-two percent of all bachelor’s degrees are awarded in that field. Ten percent of all bachelor’s degrees are awarded in education.” If all these business majors graduate without any job skills, maybe we shouldn’t be all that surprised at their inability to command high wages when they graduate.

I’d like to know: has the composition of majors changed over the years Mandel documents? If so, from what to what? Menand has some coarse data:

There are almost twice as many bachelor’s degrees conferred every year in social work as there are in all foreign languages and literatures combined. Only 4 percent of college graduates major in English. Just 2 percent major in history. In fact, the proportion of undergraduate degrees awarded annually in the liberal arts and sciences has been declining for a hundred years, apart from a brief rise between 1955 and 1970, which was a period of rapidly increasing enrollments and national economic growth. Except for those fifteen unusual years, the more American higher education has expanded, the more the liberal arts sector has shrunk in proportion to the whole.

But he’s not trying to answer questions about wages. Note too that my question about composition is a genuine one: I have no idea of what the answer is.

One other major point: if Bryan Caplan is right about college being about signaling, then there might also be a larger composition issue than the one I’ve already raised: people who aren’t skilled learners and who don’t have the willingness or capacity to succeed after college may be increasingly attending college. In that case, the signal of a college degree isn’t as valuable because the people themselves going through college aren’t as good—they’re on the margins, and the improvement to their skillset is limited. Furthermore, colleges universities aren’t doing all that much to improve that skillset—see again Academically Adrift.

I don’t know what, if anything, can be done to improve this dynamic. Information problems about which college major pay the most don’t seem to be a major issue, at least anecdotally; students know that comm degrees are easy and other, more lucrative degrees are hard. There may be Zimbardo / Boyd-style time preference issues going on, where students want to consume present pleasure in the form of parties and “hanging out” now at the expense of earnings later, and universities are abetting this in the form of easy majors.

This is the part where I’m supposed to posit how the issues described above might be improved. I don’t have top-down, pragmatic solutions to this problem—nor do I see strong incentives on the part of any major actors to solve it. Actually, I don’t see any solutions, whether top-down or bottom-up, because I don’t think the information asymmetry is all that great and consumption preferences mean that, even with better information, students might still choose comm and generic business.

Mandel ends his post by saying, “Finally, if we were going to design some economic policies to help young college grads, what would they be?” The answer might be something like, “make university disciplines harder, so students have to learn something by the end,” but I don’t see that happening. That he asks the question indicates to me he doesn’t have an answer either. If there were one, we wouldn’t have a set of interrelated problems regarding education, earnings, globalization, and economics, which aren’t easy to disentangle.

Although I don’t have solutions, I will say this post is a call to pay more attention to how student choices and preferences affect education and earnings discussions.

EDIT: See also College has been oversold, and pay special attention to the data on arts versus science majors. I say this as someone who majored in English and now is in grad school in the same subject, but by anecdotal observation I would guess about 75% of people in humanities grad schools are pointlessly delaying real life.

The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History,Got Sick, and Will (Eventually) Feel Better — Tyler Cowen

January 26, 2011 By in Nonfiction, Reviews, status Tags: , , , , , , , , , , 10 Comments

Tyler Cowen’s The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better is, at $4.00, cheap and packed with ideas that have been circling Marginal Revolution for some time. The mix includes the trajectory of history, the current economic crisis, technology, and economics. These might sound like disparate topics, but they come together, and Cowen summarizes the current economic crisis this way: “We thought we were richer than we were” (emphasis his). The book is an attempt to explain why we, collectively, operated under this delusion and what continuing to operate under it might entail. Note that The Great Stagnation is only available on the Kindle and is blessedly short: you won’t find the kind of padding that would be necessary to make a traditional, commercial book. I wonder if he will write one or two more of these booklettes (for lack of a better term—do we really want to call them “Kindle shorts” or something like that?) and eventually publish the collection through traditional channels as well.

This description from Reihan Salam, pointed to by Cowen, is a good one: “I’m wary of summarizing [The Great Stagnation] — I really want you to read it for yourself — but the basic idea is very straightforward: Americans have grown accustomed to painless, automatic increases in prosperity.” I think this main point leaves out the idea of technological innovation as something underlying the fact that “Americans have grown accustomed to painless, automatic increases in prosperity,” but the point is good enough to observe.

Nonetheless, one unstated idea in The Great Stagnation is that by learning about the idea of stagnating industrial economies, we might learn how to get out of them. Cowen has one answer, which is to raise the social status of scientists (this is always a good idea but seems improbable to me: admiring athletes and celebrities seems like a nearly universe behavior). Once alerted to this large-scale danger, we might be able to take small-scale steps to get out of it. One might be to combine Cowen’s description of slowing technological change, which he explains thoroughly, to Steven Berlin Johnson’s Where Good Ideas Come From.

Johnson says good ideas often spring from the “adjacent possible” and that the idea of pure, lone genius may in some ways be overwrought. Notice the important weasel words in that sentence: Johnson is not opposed to the idea of genius, but it is not his chief concern. If we’re going to get more people together in the dense clusters that might lead to the major innovative breakthroughs necessary to power the economy, the solution might be to find a system or systems to implement some of Johnson’s major ideas. Universities already do a reasonably good job of this, but there may be other ways. For example, I imagine that Johnson would favor the idea of cities without major height restrictions, which would allow more people to interact and exchange ideas while spending less commuting time. I don’t think it a coincidence that Salam also thinks about transportation issues; he says “Commuting and congestion should be taken much more seriously then they are at present. Long commutes are a big source of misery for individuals and families” but mentions telecommuting as a possible solution. For many kinds of jobs I think that impractical; larger cities more amenable to families (through, for example, 50 story buildings with four bedrooms in each unit) might be a better option. If gas prices get high enough, this may become necessary, and it will have the side benefit of possibly increasing the number of Johnson’s adjacent possibles.

Cowen touches on how World War II may influence current American expectations. America was protected during World War II, while Europe destroyed itself; memories of the destruction are much more alive on the continent, which may lower their expectations for material success. I would have liked more of a discussion on how World War II may have driven scientists, artists, and others to the United States and thus driven some of the applied prosperity from 1945 – 1973. Is that part of the “low-hanging fruit” that is much discussed? If so, how great a component is it? Other aspects of immigration policy may have helped the U.S. in that regard too. Did the Immigration and Nationality Act of 1965, which, according to Oliver Wang, “created preference categories for science, math and engineering-trained immigrants to come over” lead to a substantial advantage to the United States in technology? Incidentally, the act in turn favored Asians with strong math and science backgrounds, which may be part of the reason Asians are stereotyped with strong skills in those areas.

One chapter deals with the Internet and how much it lessens the overall costs of fun while employing a relatively small number of people. Computers do an extraordinary job of leveraging the talents of a single highly skilled person; this is part of Paul Graham’s point in “How to Make Wealth” and “Inequality and Risk.” If politicians want to redistribute wealth because there won’t be as many spoils from growth, as Cowen as they are and will be tempted to do, they will largely be doing it from the kinds of people Graham is talking about. Graham is also unusual because he is putting his money and mouth where his time is through the creation of Y Combinator, a startup incubator / funder premised around the idea that a small number of people can have a disproportionately lucrative or effective tech business. So far Graham appears to be right. The very lean startups he funds probably employ relatively few people compared to large, existing companies, and they also provide the kinds of “cheap fun” Cowen writes about. If they’re not employing relatively unskilled people, who will? Possibly no one, except perhaps the Federal government; hence the zero marginal product ideas that have been discussed by Cowen and others. But if the cost of fun is cheaper, from the perspective of an individual we might be frustrated, but not as worse off as we might otherwise be.

Although Cowen doesn’t say this, the whole world might be moving toward a university model, where the people who are having ideas (professors) do not capture very much of the economic benefit of those ideas. The people who have lots of Facebook friends or who get many people to watch YouTube videos derive little income from those activities but still like to do them. Professors obviously derive some income, but most people with the tenacity and intelligence (in that order) to get through a PhD program and become a tenure-track or tenured professor could probably earn more elsewhere. But if this kind of thinking and these kinds of life choices—trading income for prestige and raw knowledge—become more pronounced throughout the economy, it may lead to lower tax revenues and make people who like traditional kinds of consumption (cars, houses, vacations) less happy than they would otherwise be. There would be less money to pay off special interest groups. People who like writing blog posts to the point of doing so for no effective payment, like your correspondent, are probably better off thanks to the Internet, which Cowen identifies as the major technological innovation of the last 30 years.

So using the Internet may take the place of other kinds of (expensive) consumption. Still, how satisfying is the Internet “fun” compared to other kinds? I would guess more satisfying than TV but perhaps not as satisfying as other kinds, which books like Hamlet’s Blackberry or Nicholas Carr’s The Shallows discuss. Does checking Facebook or e-mail 20 times a day make most of us better off, or do we have some kind of quasi-information addiction going on that leaves us hollow, like a conventional addiction of the coke / alcohol kind? I lean towards the Cowen large net benefit view but think the Hamlet’s Blackberry and “Disconnecting Distraction” view merit attention.

One other thing is worth noting: Cowen is more positive than normative. This is refreshing, since many people are primarily trying to write unsatisfying or simplifying polemics or argue about how a pie should be distributed instead of how to increase the pie’s size or why the pie looks like it does. Distribution makes some better off at the expense of others and may worsen status inequalities that often make people unhappy. Growth makes everyone better off. He is not overtly political, as when he describes how modern bureaucracies are enabled by record keeping and dissemination technologies. Such technologies can be deployed to great much larger organizations:

Despite the anticorporate bias of some left-wing thinkers, the New Deal and Progressive era initiatives were a direct result of the growth of big business and the rise of a consumer society. Big government and big business have long marched together in American history. You can call one good and the other bad (depending on your point of view), but that’s missing their common origin and ongoing alliance

He also observes:

Given that bubbles have popped in just about every asset market, and in many different countries, we can only understand the financial crisis by looking at some pretty fundamental and pretty general factors. It’s not about a single set of bad decisions or a single group of evil or misguided people It’s not Republicans or Democrats or farmers or bankers or old people or young people or stupid people or Christians or Muslims.

There are no boogeymen. There is (or was) a flawed system or set of system premised on false belief. Cowen explains some ways this happened and some ways we might react. The details of his ideas are too fine to continue discussing here.

Overall, The Great Stagnation does an impressive job of thinking at the margin, which very few people do, and in this respects may expand what we know and how we should think about the direction of the world. Still, it is hard for me to see it changing the overall shape of the debate in the U.S. There may not be an efficient way for individuals or small groups to change the debate, much as it is hard for a random person on their own to affect global climate change.

I still wonder how a particular individual should respond to The Great Stagnation, beyond working to raise the relative status of scientists and perhaps lowering the status of athletes and celebrities, approving of school reform efforts, and recognizing that high rates of growth may not return in the immediate future. If you’re trying to maximize income, you may want to think about learning more math and programming, since many jobs in growth fields now require them (I majored in English and am in English grad school but think I’ve picked up enough technical acumen to be slightly more dangerous than others in my field). You should also know that The Great Stagnation is non-technical and easy to read. Density of ideas in this case does not lead to impenetrable or overwrought prose.

A personal note: I’m pretty sure this is the first time I have reviewed a “book” that exists only in electronic form as I would another book. This may be a harbinger of things to come. In addition, based on how many other people are writing about The Great Stagnation, I suspect the eBook has spread to the chattering classes.

Economics joke of the day: the kindness of Milton Friedman

December 8, 2010 By in Briefly Noted, ideas Tags: , , , , , Leave a comment

“. . . It isn’t axiomatic in economics that people are relentlessly selfish. . . . Everybody agrees that money isn’t everything. Even Milton Friedman used to be kind to animals and give money to charity.”

That’s from Ken Binmore’s Game Theory: A Very Short Introduction, which I like for its British cheek and dislike because I wish it had more detail.

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