Jeffrey Friedman: Public Choice Theory and the Politics of Good and Evil: “So now we finally know. Libertarians aren’t the ditzy bumblers exemplified by 2016 presidential candidate Gary (“What is a leppo?”) Johnson…

Should-Read: One very good line here is that Nancy MacLean’s book is true about Murray Rothbard even though (largely) false about James Buchanan. But I have considerably more sympathy for MacLean than Friedman does: Just how is MacLean supposed to read “The Public Choice Theory of John C. Calhoun” anyway? The disjunction between the public statements and the private correspondence of, say, a James J. Kilpatrick makes her—makes one—confident that a bunch of Southern white herrenvolk discourse in the second half of the twentieth century was profoundly Aesopian: “liberty” in large part did mean “our power over Blacks”—and that was what the bulk of conservative Virginians from the 1950s to, well, very recently thought a good political system should preserve. It is hard to find American libertarians for whom liberty-as-power-over-minorities is not in the mix: everyone who draws a distinction between state action and state funding, or between state funding and public accommodation, does so: Jeffrey Friedman: Public Choice Theory and the Politics of Good and Evil: “So now we finally know. Libertarians aren’t the ditzy bumblers exemplified by 2016 presidential candidate Gary (“What is a leppo?”) Johnson…

…Nor are they ideological extremists, like the proprietor of the Ayn Rand School for Tots. In reality, the libertarian movement is a cabal of racist plutocrats engaged in “a fifth-column assault on American democratic governance” at the behest of their billionaire paymasters, the Koch brothers.

Or so Nancy MacLean, the William H. Chafe Professor of History and Public Policy at Duke University, tells us in her widely discussed book, Democracy in Chains: The Deep History of the Radical Right’s Stealth Plan for America. As a long-time critic of both libertarianism and the branch of economics, public-choice theory, on which MacLean focuses most of her attention, I was open to being persuaded by her dark musings. Yet, as a small army of aggrieved libertarian bloggers has pointed out, MacLean presents no evidence for her sensationalistic accusations. Instead what she presents are quotations taken out of context or so mangled by ellipses that they suggest the opposite of the quoted libertarians’ intentions (some examples can be found here, and here, and here, and here, and here, and here, and here, and here). As a work of history, this book is a fiasco.

Nevertheless, it is worth reading. Libertarians can benefit from it if they put aside the author’s conspiracy theorizing and think about how their movement is perceived by those outside it. Non-libertarians can take the occasion to wonder if MacLean’s Manichean view of politics is not uncomfortably similar to their own. Theorists of democracy can think about how close public-choice theory is to one of the most common forms of political criticism in mass democracies: the very form of criticism MacLean directs at libertarians. In short, everyone can profit from the chance to reflect on why MacLean, who in previous work showed herself to be a fine historian, was able to call forth no interpretive charity in attempting to understand libertarians in general and, in particular, her bête noir, James Buchanan, the 1986 Nobel laureate in economics and founder of the public-choice school…

Michael Jordan: On Computational Thinking, Inferential Thinking and Data Science

Should-Read: We are moving from a statistical culture that focused on the taming of sampling variation to a different statistical culture that… what? Guarding against overfitting and computational economy seem to be the most important goals, and they are linked And behind everything lurks the problem of induction: in what ways are we justified in assuming that the future will be like the past, and in what ways are we not? For if we assume the future will be like the past in ways that it will not, we are simply hosed: Michael Jordan: On Computational Thinking, Inferential Thinking and Data Science: “The rapid growth in the size and scope of datasets in science and technology has created a need for novel foundational perspectives on data analysis…

…That classical perspectives from these fields are not adequate to address emerging problems in Data Science is apparent from their sharply divergent nature at an elementary level—in computer science, the growth of the number of data points is a source of “complexity” that must be tamed via algorithms or hardware, whereas in statistics, the growth of the number of data points is a source of “simplicity” in that inferences are generally stronger and asymptotic results can be invoked. On a formal level, the gap is made evident by the lack of a role for computational concepts such as “runtime” in core statistical theory and the lack of a role for statistical concepts such as “risk” in core computational theory. I present several research vignettes aimed at bridging computation and statistics, including the problem of inference under privacy and communication constraints, and including a surprising cameo role for symplectic geometry…

Dan Morain: California congressional Republicans seek gas tax repeal

Should-Read: This seems likely to be profoundly counterproductive: the people who would be triggered to go to the polls to vote to repeal the state gasoline tax hike are also people who would like more of their SALT deduction back. They would seem eager to punish McCarthy and company for taking that away. Does the California Republican House delegation have any polling indicating otherwise?: Dan Morain: California congressional Republicans seek gas tax repeal: “Now that most of California’s House Republicans have voted for a tax overhaul that will raise taxes for many of their constituents, you have to wonder what more good cheer they’ll bring…. I’m thinking roads and other infrastructure…

…November 2018 ballot… repeal the 12-cent per gallon gasoline tax increase… to pay for road repairs, bridge maintenance and some public transit…. Potholes don’t fill themselves. That’s not stopping House Majority Leader Kevin McCarthy, R-Bakersfield, and most of California’s Republican congressional delegation from backing that repeal–with a notable exception, Rep. Jeff Denham, R-Turlock. McCarthy, a guy who knows politics, dumped $100,000 into the initiative to repeal the gas tax. Rep. Mimi Walters, an Orange County Republican, and Rep. Ken Calvert, R-Corona, chipped in $50,000 each, recent campaign finance reports show. “This is politics at its worst,” California Transportation Secretary Brian Kelly told me. “They’re trying to make sure Republicans get to the polls in California. It’s not much other than that, in a year that looks pretty shaky for them.”

California Republicans will be facing a bleak reality in 2018…. 66 percent of us disapprove of the Republican Party’s leader, President Donald Trump, and 57 percent strongly disapprove…. Any Republican politician who thinks he or she has a future in the Golden State ought to be especially alarmed by… 77 percent of people between ages 18 and 39 disapprove of Trump. An entire generation in the nation’s largest state has turned against the GOP’s standard bearer, roughly the reverse of numbers recorded at the end of Barack Obama’s first year in office. “I’ve never seen the depth of disapproval so strongly held,” said pollster Mark DiCa…

And:

Dan Morain: California congressional Republicans seek gas tax repeal: “Building trade unions, major road builders, engineering firms and Los Angeles, Orange County and Bay Area business groups–many of them Republican donors – sent letters urging California’s congressional Republicans to stand down and not push to repeal the gas tax hike…

…We appreciate that your primary goal is to protect all incumbent Republicans and increase the number of Republicans in the House as well as other elected bodies. However, a strategy to use an initiative to repeal SB 1 to reach your goal may be counterproductive to your objectives. Fundamentally, any attack on SB 1 amounts to an attack on improving our badly deficient transportation system, endangering our economic growth and competitiveness, and increasing unemployment…

[Representative] McCarthy pointedly pushed back:

If Democrats in Sacramento are rewarded with a gas tax bailout now, what is to stop them from looking at the industries represented in your coalition to pay for the next fiscal crisis? These are principles we should stand shoulder-to-shoulder to defend…

McCarthy and 10 other House Republicans from California signed the letter. Denham was among the absentees. His office offered no explanation for his failure to stand “shoulder-to-shoulder” with fellow Republicans. But… the Central Valley Republican would be in line to become chairman of the committee that oversees transportation and infrastructure. Denham would be dealing with construction companies, engineering firms and unions that represent the building trades, the very same ones who will be spending millions to defeat the initiative that McCarthy is funding. Politics aside, they understand the hard reality that decent roads come at a cost. And, evidently, so does Denham…

And Josh Marshall comments:

Josh Marshall: Saving the California GOP House Delegation: “California is one of the states hardest hit by the end of most deductions for SALT taxes…

…Altogether it could crush what remains of the still sizable Republican House delegation from California (39-D, 14-R). How to survive? Led by House Majority Leader Kevin McCarthy, they plan to hitch their fates to a proposition to repeal a new gas tax dedicated to roads and infrastructure spending. The aim seems less to change minds as simply to make certain Republicans turnout. They need every angle they can get. Not surprisingly, the new tax is not terribly popular, certainly not among Republicans. But it actually has a fair degree of support among business groups who are major GOP donors but yet realize that a decrepit infrastructure is bad for business…

Must- and Should-Reads: December 28, 2017

Yes: this feature fell by the wayside during the overly-busy and chaotic month of December. Why do you ask? But now it is time to catch up:

Must-Reads:


Should-Reads:


Links:

Should-Read: Kai Stinchcombe: Ten years in, nobody has come up with a use for blockchain

Should-Read: The Winklevii’s line is that BitCoin disrupts gold: that BitCoin is currently undervalued by a factor of two if only one-fifth of the world’s gold bugs decide that it is appropriate to move half of their hoard into gold. And since the goldbugs of the world ain’t too tightly wrapped, it could happen. That it could happen is why there has not been a crash yet. But his is nuts—there is still no compelling use for a blockchain, ingenious as it is, and no compelling reason why BitCoin would be the and they only blockchain in whatever blockchain future might emerge: Kai Stinchcombe: Ten years in, nobody has come up with a use for blockchain: “For the person paying for a product, the key feature of a new payment system…

…think of PayPal in its early days—is the confidence that if the goods aren’t as described you’ll get your money back. And for the person accepting payment, basically the key feature is that their customer has it, and is willing to use it. Add in points, credit lines, and a free checked bag on any United flight and you have something that consumers choose and merchants accept. Nobody actually wants to pay with bitcoin, which is why it hasn’t taken off. Plus, it’s not actually that good a payment system — Visa can handle sixty thousand transactions per second, while Bitcoin historically taps out at seven… for those seven transactions a second Bitcoin is already estimated to use 35 times as much energy as Visa…

Heather Boushey: SiriusXM Radio interview about economic inequality and the new tax law

On December 20, Equitable Growth Executive Director and Chief Economist Heather Boushey appeared on the Dean Obeidallah Show on SiriusXM Radio. Listen for a lively and informative discussion of economic inequality, mobility, the recently enacted tax bill, and the kinds of policies that are needed to reduce inequality in the United States.

Greg Ip: A Tech-Driven Boom Is Coming; Please Be Patient

Should-Read: When I consider how much time people spend on their smartphones—and how incredibly expensive it would have been in any previous decade to actually produce what the smartphone does—I do wonder about the math behind slow measured economic growth. The pessimists must die on the hill that everything smartphones do are close substitutes for things that were done cheaply in the past. But is that really the case? I want to see a sample of representative daily smartphone use patterns to assess this. And, of course, the very sharp Greg Ip thinks we ain’t seen nothin yet: Greg Ip: A Tech-Driven Boom Is Coming; Please Be Patient: “There isn’t a paradox: automation hasn’t advanced nearly as far as evangelists claim, and where it has, it’s often created more jobs than it’s destroyed…

…But that’s the past; what about the future?… History shows that technological breakthroughs commonly take decades to move the needle on economic growth. Blame it on false starts, costly implementation, human resistance, and simple math…. Lags… the cost and time it takes for businesses to adapt to new technologies, obstacles they see at work today. Online shopping came along in the 1990s but retailers struggled to adapt business processes to the internet. They needed to build complementary infrastructure such as fulfillment centers, and, the authors note, customers had to adapt their habits, as well….

What about AI? Banks first used machine learning—a type of artificial intelligence that spots patterns in massive data sets—to spot credit-card fraud in 1987. But to gain widespread acceptance first computing power had to get a lot cheaper, datasets a lot bigger, and lots of people had to spend lots of hours deciding what questions to ask and then training algorithms to answer them. Hype always runs well ahead of reality, bringing failure and dashed expectations.

Jeffrey Funk, an independent researcher, studied the predictions of breakthrough technologies made by MIT Technology Review…. Of 40 predictions it made between 2001 and 2005, most never became a market worth more than $5 billion by 2015, and only one—data mining—become a market worth more than $100 billion. Meanwhile, the magazine completely missed smartphones ($400 billion), cloud computing ($175 billion), social networking, e-books, fintech and wearable computing. Mr. Funk says the lists better reflected ​the hottest trends in scientific laboratories whereas commercial breakthroughs are more often extrapolations of existing technology….

A third of the rise in the S&P 500 stock market index this year is attributable to Apple Inc., Amazon.com Inc., Google parent Alphabet Inc., Facebook Inc. and Microsoft…. Perhaps the U.S. is at a point when technology and an economy growing solidly with low unemployment become mutually reinforcing. “Entrepreneurs are more willing to take risks, including investments in new technologies and new business models when the economy is running hotter,” says Mr. Brynjolfsson…

Noah Smith: A Road Map for Reviving the Midwest

Should-Read: Originally dense populations had to be located in productive agricultural regions and on water trade routes. Then with the coming of the railroad and manufacturing we added raw material locations and transport routes to the mix. Now? Weather, local recreational amenities, density and amenities created by past cycles, and opportunity—opportunity for immigrations, both immigrants to the place and immigrants to the human capital-based economy—are where it is at. And the Trumpist Midwest looks as hosed as does Appalachians expecting the coal mining jobs to somehow come back: Noah Smith: A Road Map for Reviving the Midwest: “John Austin believes that there are ‘two Rust Belts’…

…languishing [regions] that have failed to find a strategy… [and] two… types of success stories—arge, economically diversified metropolises, and college towns… [plus] smaller cities that have found success through industrial policy… Kalamazoo… biotech; Warsaw, Indiana… medical-device manufacturing… Jasper, Indiana… advanced manufacturing. Austin also sees social, racial and political divergence between the successful towns and the lagging ones. Declining Midwestern areas are often white enclaves… once destinations for white flight… [now with] fewer immigrants, more stagnant economies and higher levels of support for the angry, nostalgia-tinged campaign of… Trump. But more ethnically diverse regions have flourished economically….

Two of Austin’s main suggestions for the Rust Belt include directing more resources to universities and being more welcoming to immigrants…. Education and immigration are important for Texas, Florida and California, too. But they hold special relevance for the upper Midwest, simply because there are so many other forces working against the region… the weather… economic geography… at a structural disadvantage relative to the West Coast…. Finally, existing development patterns…. Sprawling Sun Belt suburbs are cheaper and more attractive for families, while except for Chicago, the upper Midwest lacks the kind of fun, exciting metropolises that draw young talented people to the coasts…. Higher education and immigration look like the only realistic lifelines for the region….

Unfortunately, this ray of hope itself is clouded by threats from government policy and reactionary social attitudes…. Midwestern states… have been cutting back on… public universities… the region’s history of segregation…. States of the Great Lakes… can… harness the modernizing forces of universities and immigration… or… give in to… nativism… hostility to higher education, and… more decades of bitter, grinding decline…

The 10 most popular Value Added posts of 2017

U.S. currency banknotes.

With the end of 2017 approaching, let’s take a look back at the 10 most popular Value Added posts this year:

Is the Fed being misguided by the Phillips curve? | June 21, 2017

One of the biggest trends in the U.S. economy this year was the lack of acceleration in inflation. The Federal Reserve kept thinking—and continues to think—that inflation is just around the corner. But does the model behind its thinking still hold up?

U.S. income inequality trends in the 21st century | April 17, 2017

The rise in income inequality beginning in the late 1970s was due to higher inequality of labor income—wages and salaries. But starting around the beginning of the 21st century, U.S. income inequality started to look different. Capital income started playing a bigger role.

How corporate profit-shifting distorts the measurement of U.S. productivity | April 10, 2017

Corporate profit-shifting abroad was discussed quite a bit this year in the context of changes to the tax code. But the ability of corporations to shift profits overseas has an interesting impact on economic statistics: distorting productivity growth figures.

What’s the problem a U.S. corporate tax cut is supposed to solve? | February 23, 2017

What will boost business investment growth in the United States? One hypothesis (a favorite of many Republican policymakers) argues that reducing the cost of financing investment will significantly boost investment growth. There’s some reason to be skeptical of that argument.

Time for the Fed to look beyond 2 percent target inflation? | June 13, 2017

Frustration with the current monetary policy response to sub-2 percent inflation could lead to complaints that the current rules aren’t being followed or to requests for new ones. The 2 percent inflation target might have been the right target at a certain point in time, but it looks like its time has passed. The conversation to have is how much policymakers want to shake things up.

Another take on declining productivity growth in high-income countries | March 28, 2017

What’s behind the weak productivity growth in the United States and other high-income countries? No one is sure quite yet. But research looking at the impact of new startups and old firms closing suggests something is wrong with workers moving between firms.

A potentially new and rising concern: inflation inequality in the United States | March 14, 2017

Do prices fall or rise equally for everyone in the U.S. economy? Research published this year makes a case that declines in prices for goods and services are much stronger for high-income households.

The gender gap in economics has ramifications far beyond the ivory tower | October 30, 2017

“[G]iven the extent to which every individual’s life is intertwined with the economy,” writes Bridget Ansel, “the need to increase diversity in economics is not just about fairness or productivity within the ivory tower. It affects whether and how the needs of everyone—and not just certain groups—are reflected in our understanding of the economy and accounted for in our national policies.”

Monetary policy via income redistribution | June 5, 2017

What does redistribution have to do with monetary policy? Quite a bit, according to a working paper published this year. By shifting money toward households most likely to spend their next dollar, monetary policy may be expansionary because it is redistributionary.

Is declining competition causing slow U.S. business investment growth? | July 18, 2017

U.S. policymakers say they are concerned about weak business investment, but what’s behind this trend? Research finds an important role for declining competition in the United States in holding back corporate investment.

Should-Read: Söhnke M. Bartram and Mark Grinblatt: Agnostic fundamental analysis works

Should-Read: Söhnke M. Bartram and Mark Grinblatt: Agnostic fundamental analysis works: “We take the view of a statistician with little knowledge of finance…

…[who] uses… least squares to estimate peer-implied fair values from the market values of replicating portfolios with the same accounting statements as the company being valued. Divergence of a company’s peer-implied value estimate from its market value represents mispricing, motivating a convergence trade that earns risk-adjusted returns of up to 10% per year and is economically significant for both large and small cap firms. The rate of convergence decays to zero over the subsequent 34 months…