May 18, 2007 at 04:46 PM | Permalink
So there I was surfing along, reading:
and I was thinking, "this makes a lot of sense." And then I come across the line:
Bruce Sterling doesn't get it, but Brad DeLong does.
Ah. No wonder.
Here's how Jim ends his very nice piece, a superior quality anti-Bruce Sterling rant:
The end of scarcity?
Commerce and technology are creating a world of abundance. Is there a chance that somewhere along the way, we eliminate scarcity?
Nanotechnology might do for matter what the Internet has done for information. This world is coming, and it is a vastly different world. Bruce Sterling could have written about that, he is a science fiction writer after all. I'm just a businessman.
But here is my take: limits are a surprisingly resilient thing. The state of things on the margin tends to shape the rest of the landscape.The Internet seems like it makes information free, but it doesn't quite. Information won't be free because its creation has costs. At the root, these costs derive from the fact that the production of information takes time and effort, and time and effort are scarce. We can only do one thing at a time, and only so many things in a lifetime. There are opportunity costs, and so there will have to be priorities, choices, things foregone. That means, I will bet, that there will be commerce.
Nano-tech won't make material things free either. Scarcity will find new corners to pop out of. There is a finite supply of matter with which it make things out of, a finite supply of energy. There is friction, entropy.
But what wonderful limits to come up against! How much richer we will be by the time we face these issues as pressing problems and not interesting concepts for speculation. I'd give my right arm to live to see those problems solved (why not? by then it will be trivial to get me a new one). And even if they are not solved -- even if limits and asymptotes and life-on-the-margin all prevail -- well, what of it?
It won't be so bad to have to meet in the marketplace every once in a while.
Tyler Cowen Alex Tabarrok shop at Wal-Mart, but Tyler Cowen Alex Tabarrok thinks that the government should not make him not shop at Wal-Mart:
Marginal Revolution: No one makes you shop at Wal-Mart: [Tom] Slee['s No One Makes You Shop at Wal-Mart] attacks MarketThink:
In the world according to MarketThink, the combination of choice and the market is a mechanism for solving problems and improving outcomes in areas as diverse as education, city growth and culture.Hmmm...sound familiar? (The links, also ironic, are mine not Slee's.) Let the irony continue, I recommend No One Makes You Shop at Wal-Mart.
Slee's book is the best of the anti-market books: it is well written, serious, and knowledgeable about economics. In fact, I regard Slee's book as an excellent primer on asymmetric information, free riding, externalities, herding, coordination problems and identity - Economics 301 for all those budding young Ezra Klein's.... Here is one bit. Early on Slee makes a good point about preferences and outcomes:
The prisoner's dilemma shows how, as soon as one person's choice alters the outcome for another person... choices do not reveal preferences... instead of thinking about choices as revealing preferences, it pays to think of choices as 'replies' to the actions or likely actions of others. The best choice you can make is the best reply to the likely actions of others.
Later, he drives the point home with a nice example:
Faced with the observation that few children walk to school anymore, we commonly hear that this tendency represents our preferences: that "people won't walk" anymore. But this is oversimplified. What we are seeing is one equilibrium among many, and perhaps not the best one. There is an equilibrium in which no one wants their children to walk along empty streets, and so no children walk, but there is another equilibrium in which many children enjoy walking with groups of other children, and parents feel safe about their children because there is safety in numbers on the busy sidewalks.... Too many cities have concluded that empty sidewalks are a result of our preferences... but once a city takes it as a given that most children will be driven to school, there is no need for the city to even build sidewalks in new subdivisions, and there is more temptation to build fewer, bigger schools rather than more, smaller, easily accessible schools. With these decisions, the empty-sidewalks equilibrium becomes even more entrenched: we are trapped in an outcome that was the result of individual choices, but that may not represent our true preferences.
Naturally, I have some criticisms.... As noted, the heart of the book is a well-written primer on let's call it new economics. As such, this book would make a good supplement to an advanced undergraduate class....
As [a] primer, it's fine to illustrate with examples and move on but as an attack on markets one expects a balanced consideration of opposing theories. For example, Slee looks at beer micro-breweries vs. mass brewers arguing that we are currently stuck in the bad mass-equilibrium because micro-breweries rely on word-of-mouth but the institutions which sustain the word-of-mouth equilibrium only work when there are already lots of micro-breweries about which one can talk. Nice, but here is an alternative theory. Economies of scale made mass produced beer cheaper and when push came to shove consumers chose the cheaper good product over the more expensive but slightly better product (I don't eat at 5 star restaurants every night). New technologies, however, have made micro-brewing more economic and as they have done so we are moving to the mass-customization world that Slee prefers. Consumers have gotten the best of all worlds - given scarcity - in both time frames. The beer activists in England that Slee likes moved the process along but in the direction that it was already going.
There is no comparative analysis in the book at all. No discussion, for example, of how free riding, asymmetric information, herding etc. distorts government choice. Also, no appreciation that what some of us MarketThink people really advocate is civil society which includes non-profits and voluntary collective action of all kinds. And, no we are not all corporate shills (p. 106).
It's true that outcomes do not always illustrate preferences but often they do.... Tom seems all too eager to call in the government to force us into the better equilibrium. I worry when people start talking about how government can help us to express our true preferences....
The chapter on power is terrible, I did throw the book against the wall. Perhaps in order to prepare us to welcome government as the deliverer of our true preferences, Slee wants to diminish the distinction between liberty and coercion. But a true liberal should never write things like this:
...the formal structure of democracy and free markets is not enough to rule out exploitation and plunder - characteristics usually associated with repressive regimes....
[R]epressive governments around the world threaten, rob, torture and murder with impunity. Courageous individuals have died trying to escape such regimes while others have died fighting for their rights. No matter how great are differences in wealth, it is morally wrong to equate what goes on in repressive regimes with capitalist acts between consenting adults.
Mark Thoma sends us to George Borjas, who is unhappy with immigration proposals:
Economist's View: Borjas on Immigration: A Lemon in the Senate: George Borjas on the immigration reform bill:
- Amnesty for 12 million illegal immigrants.
- A guest-worker program that will admit 400,000 workers each year.
- Vague promises of border enforcement sometime in the future.
- A proposed change in the legal immigration system, away from the family preferences that now dominate the system and towards a point system that rewards skills.
Any “reform” that gives amnesty to 12 million illegal immigrants without taking care of the underlying illegal-immigration problem is a lemon. After all, what guarantees that the current batch of 12 million illegal immigrants will not be replaced by another 12 million in just a few years? What guarantees that guest workers will not stay illegally in the United States after their visa expires? What guarantees that border enforcement will be taken seriously...? There is one dim light at the end of this dark tunnel, however. Much of the political elite in the Senate is now on record as supporting a point system that allocates entry visas on the basis of skills — a move that I have long advocated....
No bill is better than this bill.... An amnesty is an amnesty, no matter how it is packaged and spun. The guest worker program will... exacerbate the downward trajectory in the economic status of poorer workers.... [T]he Bush administration will [not] seriously enforce border security in the time they have left.
The bill neatly summarizes the intellectual flimsiness of the Bush administration — a flimsiness that has cost us dearly in so many other areas. Perhaps they can convince themselves otherwise.... But we all know that, in the end, their promises are a sham, a travesty, and a mockery of what immigration policy should be about...
Mark Thomas remarks:
I don't think there is a good answer to the immigration question. It helps the poor in Mexico raise their standard of living and that is certainly worth something. But although the evidence is mixed, the work Borjas has done indicates that immigrants do depress the wages of low-income workers and may also increase the cost of social services.... Since Borjas has his say above, and since it's a view that is more nationalistic than my own, I'll repeat this from Alex Tabarrok:
I would argue... that economists are too quick to take the nation as the relevant moral community.... Why should we cut the cake in one way, excluding some from the moral community, but not in another?... I understand individual rights and I understand [utilitarian] counting everyone equally but I see less value in counting some in and some out based on... which side of the border the actors fall on...
Dani Rodrik clearly explains just what parts of the "trade lowers prices" arguments are erroneous:
Dani Rodrik's weblog: Brad DeLong, prices, and trade: The argument on prices is often presented as if it is an add-on to the income-side effects of trade, and one that can override otherwise important distributional consequences. "Yes, these workers might lose their jobs, but look how much the rest of us benefit on account of lower prices." See for example the post by Dan Drezner that started me off. My point was that the "but..." part of the argument is irrelevant or need not hold. In particular:
(a) In our workhorse model of trade (the HOS model), certain groups will lose out from trade, regardless of price movements.
(b) And in other models (such as those with some sector-specific factors), whether any particular group of workers gains from the price effects of trade depends on how their consumption basket relates to traded goods. If you are a worker who consumes a lot of the export good (my Argentine example), you will be worse off, regardless of the aggregate relationships discussed by Brad (i.e., even though exportables may have a smaller share in consumption than in production in aggregate).
I should add that because of these distributional effects, the median (i.e., typical) consumer can also end up worse off, to the extent that her income sources and budget shares differ from those of the average. So before you take too much comfort about all the cheap prices at Wal-Mart, these are some of the things you have to worry about...
Tyler Cowen accuses me of being "too quick" to resort to the Marshallian scissors in defending Goldin-Katz "inequality the result of too few people going to college" against Becker-Murphy "inequality the result of wonderful technological progress." How can an economist be too quick to resort to the Marshallian scissors--i.e., supply and demand? As J.R. MacCulloch said in the early 19th century:
It is very simple to turn a parrot into a tolerable political economist. All you must do is to teach it to say, "Supply and demand! Supply and demand!"
Apparently, "Pieces of eight!" and "Yo, ho, ho, and a bottle of rum!" are optional.
Marginal Revolution: Education as the critical problem behind current inequality: Here is an excerpt from my New York Times column today:
The return for a college education, in percentage terms, is now about what it was in America’s Gilded Age in the late 19th century; this drives the current scramble to get into top colleges and universities. In contrast, from 1915 to 1950, the relative return for education fell, mostly because more new college graduates competed for a relatively few top jobs.... Goldin and Katz portray a kind of race. Improvements in technology have raised the gains for those with enough skills to handle complex jobs. The resulting inequalities are bid back down only as more people receive more education and move up the wage ladder.
Income distribution thus depends on the balance between technological progress and access to college and postgraduate study. The problem... is that American lower education does not prepare enough people to receive gains from American higher education. Bottlenecks currently keep more individuals from improving their education...
Note that education is a fundamental issue behind the kinds of inequality we should worry about most, namely the failure of many poor people to do better over time.... In a dynamic era does educational access have much of a chance of keeping up with technological improvement?
The answer is "Yes." 1915-1950 was a time of extraordinary technological dynamism. And it does not seem to be the case that lousy public schools diminish the returns to higher education. Lousy schools lead people not to pursue further education, they don't seem to make further education unuseful. As Tyler says:
the data (see David Card's Econometrica 2001 piece, plus the work of James Heckman) still find relatively high returns to additional education...
And this seems to be as true for those who have no college as for those with some college and those with B.A. degrees: it seems that there is a 7% to 10% real return on investments in education, including as a cost of the investment the money you don't earn because you are in school rather than working, no matter how much education you have. (Some disciplinary Ph.D. programs excepted, of course.)
One additional point: the "current scramble to get into top colleges and universities" is the result of a large increase in the pool applying--300 million Americans rather than 200 million, plus a huge increase in foreigners who can afford American college--coupled with a failure of the "name" colleges to add slots for students. Demand for places at the top 50 name colleges has outrun supply, demand for places at colleges has not.
Clerk Kerr saw this coming fifty years ago: that Berkeley-the-city was happy to benefit from surrounding Berkeley-the-university, but that Berkeley could not grow as fast as California would. Hence his attempt to make "University of California" the brand. To this day my stationery lists all the UC campuses: Berkeley, Davis, Irvine, Los Angeles, Merced, Riverside, San Francisco, Santa Barbara, Santa Cruz. (And we professors at the older campuses resist this: we teach at "Cal" or "Berkeley" and our colleagues in Westwood teach at "UCLA" rather than at "UC.")
And with that, it's time for graduation.
Robert Waldmann writes:
Robert's Stochastic thoughts: Land Reform in Venezuela: My personal thought is that it's about time.... [Simon Romero's] article is interesting but I think it is slanted against the land reform which is described as "brutal and legal" because:
The violence has gone both ways in the struggle, with more than 160 peasants killed by hired gunmen in Venezuela, including several here in northwestern Yaracuy State, an epicenter of the land reform project, in recent years. Eight landowners have also been killed here.
Sounds to me that the resistance to land reform is roughly 20 times as brutal as the land reform effort. The disproportion between quotes of supporters and opponents is much less extreme. The part that irritated me (and makes an alternative title "why do people hate economists") is that "economists" appear to be all opposed to land reform. "Economists say the land reform may have the opposite effect of what Mr. Chavez intends, and make the country more dependent on imported food than before." "agricultural economists say the government bureaucracy, which runs a chain of food stores, is also rife with inefficiencies" Finally economists get a name:
Carlos Machado Allison, an agricultural economist at the Institute for Higher Administrative Studies in Caracas.... “The double talk from the highest levels is absurd,” Mr. Machado said. “By enhancing the state’s power, the reforms we’re witnessing now are a mechanism to perpetuate poverty in the countryside.”
SIMON ROMERO notes, in his own voice, that "Top-down land redistribution projects have a troubled history in Latin America" which is true. However, Latin America is not the whole world. Consider some countries which have had massive Top-down land redistribution projects : Japan, Taiwan, South Korea and Italy. Italy might seem to be l'uomo dispari fuori (odd man out), but [even it] experienced an economic miracolo from the year of the reform 1953 through 1962.
Key feature[s] of successful land reforms include enough compensation of landowners that they don't fight... and clear rules. The Venezuelan approach based on the initiative of squatters does not work.... [E]ach of the four miracle-preceding land reforms... were implemented by anti-leftists who wanted to get it over with.
I do fear that Venezuela will follow the path of Peru, Mexico or Zimbabwe exactly because the struggle is politically useful to Chavez. However, the facts about the ground make it possible that a land reform has great potential.... [O]il wealth plays [havoc with] the economy... a strong currency during times of high oil prices [makes] it cheaper to import food than to produce it at home.... [Smallholder sa]griculture less integrated into world markets will suffer less from exchange rate havoc and, more importantly, [currently] production is kept low because landlords have less fear that cattle will get uppity than that tenants will become squatters.
The pattern of low productivity land use reminds me of what I heard from an extremely elderly Italian once.
But why oh why did Simon Romero have to make these obvious arguments in his own voice. Has no economist in Venezuela noticed the costs of the current pattern of ownership?
But I'm not a supervising technician! I'm a technical supervisor!
Social Science Statistics Blog: Is There a Statistics/Economics Divide?: OK, so now that I have a job, I feel like I can stick my foot in something smelly to see what happens. When I was on the market this past year, I was often asked about the difference (lawyers are always careful to ask about "the difference, if any") between a degree in statistics and a degree in something more "traditional"... particular interest in the difference between statistics and economics/econometrics. I had a certain amount of trouble answering the question.... [T]he statistical version of things... is that statisticians invent data analysis techniques and methods that, after ten to twenty-five to forty years, filter into or are reinvented by other fields....
So what is the difference between an empirical, data-centered economist and an applied statistician?... [E]conomists tend to focus more on parameter estimation, asymptotics, unbiasedness, and paper-and-pencil solutions to problems (which can then be implemented via canned software like STATA), whereas applied statisticians are leaning more towards imputation and predictive inference, Bayesian thinking, and computational solutions to problems (which require programming in packages such as R)...
I'm confused. Dani Rodrik says that free trade does not bring lower prices:
Dani Rodrik's weblog: Does Free Trade Bring Lower Prices?: Advocates of globalization love to argue that free trade lowers prices, and the argument seems sensible enough. Think of all the cheap goods from China that we can buy at Wal-Mart. But anyone who understands comparative advantage knows that free trade affects relative prices, not the price level (the latter being the province of macro and monetary factors). When a country opens up to trade (or liberalizes its trade), it is the relative price of imports that comes down; by necessity, the relative prices of its exports must go up! Consumers are better off to the extent that their consumption basket is weighted towards importables, but we cannot always rely on this to be the case.
Consider your typical Argentinian for example, who consumes a lot of wheat and beef. Since these are export products for Argentina, free trade implies a rise in the relative price of the Argentine consumption basket. (The gains from trade are still there, of course, but they derive from the usual allocative efficiency improvements, not from lower prices across the board.) And in the U.S., the Wal-Mart effect has to be qualified to take into account the fact that the relative price of the goods that the U.S. exports (including for example agricultural commodities) is higher than it would have been absent trade. Similarly, when the U.S. gets better market access abroad for its agricultural exports (a key demand under the Doha round), you can be sure that this will raise domestic prices for these goods, not lower them.
Yes, prices of exportables rise and prices of importables fall. But importables have a higher weight in consumption than in production (that's why we import them). And exportables have a lower weight in consumptio than in production (that's why we export them). So if the average price of production stays the same--and incomes stay the same, because everything paid to buy our production winds up as somebody's income--then the average price of consumption falls.
It seems perfectly fine to me to give the following shorthand description of trade: Trade on average raises the prices of what you make and sell, and lowers the prices of what you buy and consume. A better description might be: Trade raises your income relative to the prices you pay if you are a net buyer of importables, and lowers your income relative to the prices you pay if you are a net buyer of exportables--but as a country, on average, we are net buyers of importables (that's why we import them) and net sellers of exportables (that's why we export them). But the first shorthand description seems to me to be correct, if incomplete.