Live from Crow’s Coffee: 435 Magazine. I was reading 435 Magazine (offices at 11775 W. 112th Street, Suite 200, Overland Park, KS 66210, ten miles away from here) on the airplane on my way back from California to Kansas City. I found myself getting scared.
The scary thing is that Los Angeles is not that very much larger then Kansas City. And yet it has about nine times the population. READ MOAR
…Look it up. Altruistic punishment is a ‘puzzle’ to the sort of economist who thinks of homo economicus maximizing her utility, and a no-brainer to the [evolutionary] game theorist who understands humans could never have survived if we actually were the kind of creature who succumbed to every prisoners’ dilemma. Altruistic punishment is behavior that imposes costs on third parties with no benefit to the punisher, often even at great cost to the punisher. To the idiot economist, it is a lose/lose situation, such a puzzle. For the record, I’m a fan of the phenomenon. Does that mean I’m a fan of these riots, that I condone the burning of my own hometown? Fuck you and your tendentious entrapment games and Manichean choices, your my-team ‘ridiculing’ of people you can claim support destruction. Altruistic punishment is essential to human affairs but it is hard. It is mixed, it is complicated, it is shades of gray…
…Unlike other creatures, people frequently cooperate with genetically unrelated strangers, often in large groups, with people they will never meet again, and when reputation gains are small or absent. These patterns of cooperation cannot be explained by the nepotistic motives associated with the evolutionary theory of kin selection and the selfish motives associated with signalling theory or the theory of reciprocal altruism. Here we show experimentally that the altruistic punishment of defectors is a key motive for the explanation of cooperation. Altruistic punishment means that individuals punish, although the punishment is costly for them and yields no material gain. We show that cooperation flourishes if altruistic punishment is possible, and breaks down if it is ruled out. The evidence indicates that negative emotions towards defectors are the proximate mechanism behind altruistic punishment. These results suggest that future study of the evolution of human cooperation should include a strong focus on explaining altruistic punishment.
Nature 415, 137-140 (10 January 2002) | doi:10.1038/415137a; Received 5 October 2001; Accepted 5 November 2001
University of Zürich, Institute for Empirical Research in Economics, Blümlisalpstrasse 10, CH-8006 Zürich, Switzerland. University of St Gallen, FEW-HSG, Varnbüelstrasse 14, CH-9000 St Gallen, Switzerland. Correspondence and requests for materials should be addressed to E.F. (e-mail: efehr@iew.unizh.ch).
This is a weekly post we publish on Fridays with links to articles we think anyone interested in equitable growth should be reading. We won’t be the first to share these articles, but we hope by taking a look back at the whole week we can put them in context.
Links
Dietz Vollrath points out that our system for categorizing industries and measuring their contribution to economic growth are wildly out of date. [growth economics]
Ryan Decker follows up and adds that the primary way economists think about productivity—total factor productivity—is based on thinking about a world full of manufacturing firms. [updated priors]
Eduardo Porter argues that economic inequality is having severe social consequences in the United States. [nyt]
Jordan Weissman sticks to his prediction from a few years ago: Millennials will be more frugal than previous generations. [slate]
Ufuk Akcigit, Salome Baslandze, and Stefanie Stantcheva write up their research on the effects of top tax rates on superstar inventors in the United States and Europe. [voxeu]
Friday figure
Figure from “How raising the minimum wage ripples through the workforce,” by Ben Zipperer
Over at Project Syndicate: For the past twenty-five years those of my elders whom I regard as the barons of policy-relevant academic macroeconomics–at least the reality-based and sane barons–have been asking themselves fundamental questions. The first question was whether the business-cycle pattern of the post-World War II generation of full employment, a bias toward moderate inflation, and rapid growth had in fact come to an end. The second question was how best to think about the business cycle after the end of the post-WWII era’s “Thirty Glorious Years.” READ MOAR
First out of gate, in 1991, was Larry Summers, with his “How Should Long-Term Monetary Policy Be Determined?” Summers was not certain that the economic policy régime and economic reality had changed. Thus his first goal was to stengthen the technocratic independence of the central bank. “Institutions should do the work of rules”. And attention should be devoted to “strengthening the[ir] independence”. While politicians should and could set goals, technocrats could carry them out better than politicians micromanaging or politicians prescribing rules that would inevitably fail in unexpected circumstances. That would guard against a repetition of the inflationary disturbances of the 1970s. His second goal, however, was to convince the technocrats he hoped to see running central banks that a 2-3%/year inflation rate should be the goal. He did “not see evidence that [inflation] instability results at [such a] low rate.” He saw “forgo[ing] that opportunity under a zero inflation rate” of achieving the right real interest rate if the “real rate of interest should be negative… at certain times” as very expensive. And the expense was amplified by three considerations: The first was that the presence of money illusion and downward nominal rigidities in labor and debt contracts. The second was that the productivity slowdown made wage growth more likely to bump up against zero. And the third was that the combination of the productivity slowdown and the demographic transition made interest rate more likely to bump up against zero.
Second was Paul Krugman in 1998, with his book The Return of Depression Economics2 and his paper “It’s Baaack: Japan’s Slump and the Return of the Liquidity Trap.3 Krugman argued powerfully that central banks had succeeded in anchored inflation and inflation expectations to a low level. Thus, he believed, the global economy–or at least the North Atlantic economy–had returned to an earlier pattern. The pattern was the pre-World War II pattern of “depression economics”. And in it shortages of aggregate demand, risks of deflation, financial crises, and liquidity traps would become important and perhaps dominant features.
Summers believed that technocratic central banks under loose political reins could guard against both the inflationary dysfunctions of the 1970s and the depression-prone dysfunctions of the pre-WWII era. Krugman believed that hope was vain, and that the régime of depression economics had returned. And at the third point of the triangle was Ken Rogoff. Ever since his 1998 Brookings Institution comment on Paul Krugman he has found himself “not quite buy the view that short- and medium-term full-employment real interest rates… are negative. And even if they are… the right policy is probably to raise the real interest rate through expansionary fiscal policy… free[ing] monetary policy from its supposed liquidity trap.” He has viewed what Krugman sees as a long-term vulnerability to “depression economics” as, rather, the temporary consequences of failures to properly regulate and curb debt accumulation. It is such debt accumulation cycles which cause the problems by inevitably ending in a great deal of underwater loans in and economy. And then they can and must be cured only by painful deleveraging accompanied by heterodox government-enforced debt writedowns.
And the other barons–Joe Stiglitz, Ben Bernanke, Marty Feldstein, and many others–have not so much staked out their own positions as remain in some Schroedingerian superposition. Sometimes they argue as if we still lived in the 1953-1986 world in which central bankers like William McChesney Martin, Arthur Burns, and Paul Volcker operated. Sometimes they sound like Krugman, Summers, or Rogoff.
So what can we say about this debate, which has now been ongoing for twenty-five years?
Most importantly, we can say that the answer to the first question–whether the business-cycle pattern of the first post-World War II generation has come to an end–is: “yes, definitely.” The models and approaches developed to understand the small size of the post-WWII generation’s cycle and its bias toward moderate inflation are worse than useless for today. Second, Summers has more-or-less abandoned his 1991 belief that central banks can and will and perhaps even should interpret “price stability” flexibly enough to keep the return of depression economics away. In his view, with which I concur, more of the risk-bearing and long-term investment-planning and investing role in society needs to be taken over by governments. And we strongly believe that at least those governments with exorbitant privilege that issue the world’s reserve currencies can take on this role without any substantial chance of so-loading future taxpayers with inordinate debt burdens. Rogoff, by contrast, continues to hold to the rather Minskyite position that has underpinned his thinking since at least 1998: that successful macroeconomic performance requires regulating finance and curbing debt accumulation in the boom.
The triangle of positions has thus collapsed to a line. Perhaps central banks could have managed to attain the technocratic utopia of macroeconomic business-cycle management Summers hoped for back in 1991. But they have failed to do. And few if any seem to have good ideas as to what institutional changes could provide them with both the will and the power to a accomplish that mission.
And the line reflects different positions not so much on the situation but on whether macroeconomic management can provide a cure. Summers and Krugman now both believe that more expansionary fiscal policies could accomplish a great deal of good. Rogoff still believes that attempting to cure an overhang of bad underwater private debt via issuing mountains of government debt currently judged safe is too dangerous–for when the private debt was issued it too was regarded as safe.
It is a far cry from the optimism of the Great Moderation era.
…to a very significant extent as having one primary objective – low and stable inflation (with some countries in addition including a broad employment mandate) – and one policy tool, the policy interest rate. I think that this definition involving a very small set of objectives and one policy tool was fundamentally mistaken…
…the kind of inequality discussed is almost always that of income or wealth. But when it comes to economic wellbeing, wealth and income aren’t the only shows in town. Consumption is also important, especially considering consumption is the primary reason to earn income and acquire wealth. Unfortunately, trends in consumption inequality aren’t as well understood as trends in wealth and income. But what we do know is quite interesting…. [Derek] Thompson sees consumption and income inequality moving together. But… consumption inequality hasn’t increased nearly as much as income inequality…. It looks like the rich are saving at a higher rate compared to the rest across the income spectrum than in the past. Yet there appear to be flaws in the CEX data…
…Has he really read nothing about TPP? Is he completely unaware of the nature of the argument Personally, I’m a lukewarm opponent of the deal, but I don’t see it as the end of the Republic and can even see some reasons (mainly strategic) to support it. One thing that should be totally obvious, however, is that it’s off-point and insulting to offer an off-the-shelf lecture on how trade is good because of comparative advantage, and protectionists are dumb. For this is not a trade agreement. It’s about intellectual property and dispute settlement; the big beneficiaries are likely to be pharma companies and firms that want to sue governments. Those are the issues that need to be argued. David Ricardo is irrelevant.
…[They say that because] the FOMC’s projections of economic growth have been too high… monetary policy is not working and efforts to use it to support the recovery should be discontinued. It’s generous of the WSJ writers to note… that ‘economic forecasting isn’t easy.’ They should know, since the Journal has been forecasting a breakout in inflation and a collapse in the dollar at least since 2006, when the FOMC decided not to raise the federal funds rate above 5-1/4 percent….
They fail to note that, while the FOMC (and virtually all private-sector economists) have been too optimistic about growth… growth in output has been slow… because productivity gains have been slow…. But nobody claims that monetary policy can do much about productivity growth…. The Fed’s aggressive actions are an important reason that job creation in the United States has outstripped that of other industrial countries by a wide margin.
The WSJ… argues that because monetary policy has not been a panacea… we should stop using it…. But the right inference is not that we should stop using monetary policy, but rather that we should bring to bear other policy tools as well. I am waiting for the WSJ to argue for a well-structured program of public infrastructure development…. We shouldn’t be giving up on monetary policy…. We should be looking for a better balance between monetary and other growth-promoting policies, including fiscal policy.
What is there to say other than to agree?
That eight years of being not just wrong but completely and totally wrong about the macroeconomic situation have provoked precisely zero rethinking of any issues by Paul Gigot and company is… not unexpected.
These are the people, after all, who claimed that the Clinton tax increase of 1993 would lead to a deep and long economic depression.
These are the people, after all, who claimed that the Reagan tax cut of 1981 would reverse the productivity slowdown of the 1970s and restore the growth rates of the 1950s and 1960s.
The point of the Wall Street Journal editorial page is to pander to the prejudices of its core readers. It is not as malevolent and destructive as Fox News, which takes its mission to be to scare its core readers so that they keep their eyeballs glued to the screen so that those eyeballs can be sold to advertisers. But its mission of reinforcing evidence-free right-wing epistemic closure against any incursion of empirical reality is a malevolent and destructive one.
…It’s generous of the WSJ writers to note… that ‘economic forecasting isn’t easy.’ They should know, since the Journal has been forecasting a breakout in inflation and a collapse in the dollar at least since 2006, when the FOMC decided not to raise the federal funds rate above 5-1/4 percent…. They fail to note… unemployment, which has fallen more quickly than anticipated…. The relatively rapid decline in unemployment in recent years shows that the critical objective of putting people back to work is being met…
No, no, no, no, no, no, no, no, no. NO! NO!!!!
It is not the case that since 2000 three percent of our 25-54 year olds have decided that being at work is not what it is cracked up to be, and it is better to live in their parents’ basement surfing the net.
It is the case that the low-pressure economies and resulting lousy labor markets since 2001 have degraded the social networks that Americans–especially young Americans–use to find jobs, and that an extra three percent of our 25-54 year olds are discouraged, largely rationally discouraged, from looking for jobs. And that other age groups are in the same situation.
You can trumpet the rise in the prime-aged employment rate from its nadir of 74.8% to its current 77.3% as a triumph of monetary policy. (It certainly is not a triumph of fiscal or credit policy.) You can regrettably doubt that further monetary policy expansion would do much to raise that 77.3% further, either at all or without also provoking an outbreak of higher inflation.
But you should not say that: “the critical objective of putting people back to work is being met…”? No, no, no, no, no.
You should say that it is being partially met. You should say that it is being left substantially unmet.
Must- and Should-Reads:
Over at Equitable Growth—The Equitablog
Might Like to Be Aware of: