: Inequality, Technocracy, Utility, and the Federal Reserve: A Short Twitter Dialogue on Various Matters of Moral Philosophy, or, IT’S OK FOR THE FED CHAIR TO TALK ABOUT INEQUALITY!!!!
Tag: Dialogue
Must-Must-Must-Watch: FT Alphaville: Alphachatterbox
Must-Must-Must-Watch: Or, preferably I think, read–because they now have transcripts, so you can much more quickly absorb what are, I think, the best extended interview-format pieces I have seen:
: Alphachatterbox: “Our podcast chat with Reihan Salam…
…Our chat with Esther Duflo — now with transcript…. Our podcast chat with Angus Deaton (updated with transcript)…. A chat with Greg Ip about ‘Foolproof’ (and the transcript)…. A wonky chat with Martin Wolf (plus the transcript)…. Our first Alphachatterbox episode is a talk with Anne-Marie Slaughter, whose new book Unfinished Business has just been published…
Must-Read: AEI/Brookings Working Group on Poverty and Opportunity: Opportunity, Responsibility, and Security: A Consensus Plan for Reducing Poverty and Restoring The American Dream
Must-Read: The “Report” of the AEI/Brookings Working Group on Poverty and Opportunity does not have a chair or a lead author–just fifteen names listed in alphabetical order: Lawrence Aber (Brookings), Sheldon Danziger (Russell Sage), Robert Doar (AEI), David T. Ellwood (Harvard), Judith M. Gueron (MDRC), Jonathan Haidt (New York University), Ron Haskins (Brookings), Harry J. Holzer (Georgetown), Kay Hymowitz (Manhattan Institute), Lawrence Mead (New York University), Ronald Mincy (Columbia), Richard V. Reeves (Brookings), Michael R. Strain (American Enterprise Institute), Jane Waldfogel (Columbia).
I have read through the report.
My first reaction is that Brookings (and Russell Sage, NYU, Georgetown, Columbia, and MRDC) would have done much, much better from an intellectual-technocratic point of view to partner for their working group not with AEI but with something like Demos or Roosevelt.
I really don’t see what any of the AEI/Manhattan people brought to the table that was useful–i.e., both true and relevant to policy. But the Report would, I think have been much strengthened by stronger and more thoughtful engagement with things like:
- : Why Education Does Not Fix Poverty
- : The Problem With Work-Focused Poverty Initiatives
- : Promoting Marriage Has Failed and Is Unnecessary to Cut Poverty
The only justification I can think of for the form this has taken is that partnering with AEI is bringing substantial political benefits–i.e., explicit endorsement of the Report by current Republican office-holders with the power to move things through the House and the Senate, to be followed by commitments and action on their part to actually move policies based on the report through the Congress. And I see none of that here.
Thus I find myself, at first reading, relatively disappointed with:
Must-Read: Noah Smith: Unlearning Economics
Must-Read: Noah Smith is pushing me towards thinking that Econ 1 needs to teach a lot more than supply-and-demand plus macroeconomic externalities that can be dealt with by stabilizing monetary and maybe fiscal policy…
: Unlearning Economics: “Right now we’re in the middle of an empirical revolution in econ, and…
…unsurprisingly–a ton of standard, common theories are just not matching reality very well. For example: 1…. Minimum wages should harm employment in the short term. But the data shows that they probably don’t. 2…. A big influx of immigrants should depress the wages of native-born workers of comparable skill. But the data shows… the effect is very small. 3…. Welfare programs barely reduce observable work effort. 4…. Social norms (or morals, broadly conceived) matter to people…. The stuff… [of] Econ 101… are being smacked down by the heavy hand of new data. We’re slowly unlearning economics…. Econ 101 courses around the country probably need an overhaul…. Teachers should still teach the simple, classic theories that the new facts are beginning to kill… but mainly as a way to show how data can tell us when we’re wrong.
Must-Read: Paul Krugman: Demand, Supply, and Macroeconomic Models
Paul Krugman talks to journalists during a news conference. (AP Photo/Francisco Seco)
Must-Read: A key factor Krugman omits in which standard Hicksian-inclined economists’ predictions have fallen down: the length of the short run. The length of the short run was supposed to be a small multiple of typical contract duration in the economy–perhaps six years in an economy characterized by three-year labor contracts, and perhaps three years in an economy in which workers and employers made decisions on an annual cycle. After that time, nominal prices and wages were supposed to have adjusted enough to nominal aggregates that the economy either would be at or would be well on the road to its long-run full-employment configuration. Moreover, the fact that price inertia was of limited duration combined with forward-looking financial markets and investment-profitability decisions to greatly damp short-run shortfalls of employment and production from full employment and sustainable potential.
It sounded good in theory. It has not proved true in reality since 2007:
: Demand, Supply, and Macroeconomic Models: “If you came into the crisis with a broadly Hicksian view of aggregate demand…
…you did quite well… [arguing] that as long as we were at the zero lower bound massive increases in the monetary base wouldn’t be inflationary [and would have near-zero effects on broader aggregates]… budget deficits would not drive up interest rates… large multipliers from fiscal policy…. What hasn’t worked nearly as well is our understanding of aggregate supply… the absence of deflation… [of] the “clockwise spirals”… in inflation-unemployment space as evidence for… Friedman-Phelps…. The other big problem is the dramatic drop in… potential output… correlated with the depth of cyclical slumps….
[The] policy moral[?]… Central banks focused on stable inflation may think they’re doing a good job… when they are actually failing…. Fiscal contraction in a liquidity trap seems… absolutely terrible for the long-run as well as the short-run, and quite possibly counterproductive even in purely [debt burden] terms…. I don’t think even Hicksian-inclined economists have taken all of this sufficiently into account.
Must-Read: David Leonhardt: ‘Chicagonomics’ and ‘Economics Rules’
Must-Read: : ‘Chicagonomics’ and ‘Economics Rules’: “Adam Smith’s modern reputation is a caricature…
…He was a giant of the Enlightenment in large part because he was a careful and nuanced thinker. He certainly believed that a market economy was a powerful force for good…. Yet he did not have a religious faith in the market…. Lanny Ebenstein’s mission, in ‘Chicagonomics,’ is to rescue not only Smith from his caricature but also some of Smith’s modern-day acolytes: the economists who built the so-called Chicago school of economics…. Ebenstein argues that the message of the Chicago school has nonetheless been perverted in recent years. Many members of the Chicago school subscribed to ‘classical liberalism,’ in Ebenstein’s preferred term, rather than ‘contemporary libertarianism.’…
Dani Rodrik… has written a much less political book than Ebenstein has, titled ‘Economics Rules,’ in which he sets out to explain the discipline to outsiders (and does a nice job)…. Rodrik has diagnosed the central mistake… [of] contemporary libertarians have made… conflat[ing] ideas that often make sense with those that always make sense. Some of this confusion is deliberate… act[ing] as a kind of lobbyist working on behalf of the affluent…
Must-Read: Jared Bernstein: Models of the Minimum Wage
Must-Read: The economics of the regulation of natural monopolies tells us that such entities reduce utility by artificially restricting what they produce in order to improve their terms-of-trade and profits–and that one tool to deal with this is rate regulation. The Card-Krueger and other evidence on low-wage employment suggests the same rationale for the minimum wage:
: Models of the Minimum Wage: “We can introduce some ideas… that comport a bit more with reality…
…In the low-wage labor market… workers/employers are not that responsive in terms of employment to changes in wages (dlog(emp)/dlog(wage)=small number like -0.1 to -0.3, or something…). When you draw inelastic supply and demand curves, you end up predicting a lot less unemployment…. If this model is more accurate, significant estimates of job loss effects are hard to pull out of the data. Which they are…. [The world is] trying to tell us something about low-wage workers and their employers’ tempered responsiveness to increases in the wage floor…. There’s [also] a model… [of a] a monopsony labor market…. The monopsony model may sound arcane—the classic example is the one-company coal town–but it may not be too much of a reach to conclude that the low-wage labor market in a given town or city works kind of like this…. The competitive model as conventionally drawn is misleading. Economic models vastly simplify… can yield some insights…. But at the end of the day… when the theory doesn’t match the evidence, trust the evidence.
Must-Read: Miles Corak: Inequality: A Fact, an Interpretation, and a Policy Recommendation
Must-Read: That Miles Corak describes the three aspects of rising-inequality denial as “a common storyline” is a measure of how completely divorced from reality even so-called policy professionals in the right-of-center echo chamber have become. Sensible technocratic dialogue is thus going to remain very, very difficult for quite a while to come…
: Inequality: A Fact, an Interpretation, and a Policy Recommendation: “A common storyline…. Inequality has not increased…
…even if it has… little… can be done… and even if… policy has punch, the effort… diverts attention from more pressing problems, like poverty…. [But we can] address both inequality and poverty in a smart way…. A more nuanced interpretation… give[s]… another storyline…. Inequality has increased; there is something that can be done about it; and if public policy has punch, the effort directed to fighting inequality contributes to solving other pressing problems, like poverty.
Must-Read: Steve Pearstein: The Value and Limits of Economic Models
Must-Read: Let me agree with Steve Perlstein here: the economics that the very sharp Dani Rodrik praises is not the strongest current, outside of our liberal-arts non-business school ivory towers, and not always even in them.
: The Value and Limits of Economic Models: “The alleged failings of economics are now widely understood…
…except perhaps by economists themselves. You hear that economics is ideology masquerading as hard science. That it has become overly theoretical and mathematical, based on false or oversimplified assumptions about the ways real people behave. That it systematically misunderstands the past and fails to anticipate the future. That it celebrates selfishness and greed and values only efficiency, ignoring fairness, social cohesion and our sense of what it is to be human. In his latest book, ‘Economics Rules,’ Dani Rodrik tries to bridge the gap between his discipline and its skeptics….
What economists forget, Rodrik says–or even worse, what they never are taught–is that the answer to most important questions is “It depends.” What’s right for one country at one time may not be right for another country or another time. Context matters. And because context matters, he argues that too much of the focus in economics has been on developing all-encompassing models and grand theories that can be applied to every context, and too little on expanding the inventory of more narrowly focused models and developing the art of knowing which ones to use….
Rodrik no doubt set out to offer an evenhanded view of modern economics, [but] in the end he winds up delivering a fairly devastating critique. “The discipline hobbles from one set of preferred models to another, driven less by evidence than by fads and ideology,” he writes. He despairs that his profession has become one that values “smarts over judgment,” has disdain for other disciplines and is content to produce mathematically elegant research papers that few outside the guild will ever use or understand. The standard economics course offered to undergraduates, he rightly complains, winds up presenting nothing more than “a paean to markets” rather than a “richer paradigm of human behavior.” Rodrik’s plea is for economics to be practiced with a bit more humility both by those who extol free markets and those who would tame them. Economics, he argues, is less a hard science capable of producing provable truths than a set of intuitions disciplined by logic and data and grounded in experience and common sense…
Must-Read: Walter Ong: Towards a Theory of Secondary Literacy
Must-Read: : Towards A Theory of Secondary Literacy: “I have also heard the term ‘secondary orality’ lately applied…
…by some to other sorts of electronic verbalization which are really not oral at all—to the Internet and similar computerized creations for text. There is a reason for this usage of the term. In nontechnologized oral interchange, as we have noted earlier, there is no perceptible interval between the utterance of the speaker and the hearer’s reception of what is uttered. Oral communication is all immediate, in the present. Writing, chirographic or typed, on the other hand, comes out of the past. Even if you write a memo to yourself, when you refer to it, it’s a memo which you wrote a few minutes ago, or maybe two weeks ago.
But on a computer network, the recipient can receive what is communicated with no such interval. Although it is not exactly the same as oral communication, the network message from one person to another or others is very rapid and can in effect be in the present. Computerized communication can thus suggest the immediate experience of direct sound. I believe that is why computerized verbalization has been assimilated to secondary ‘orality,’ even when it comes not in oral-aural format but through the eye, and thus is not directly oral at all. Here textualized verbal exchange registers psychologically as having the temporal immediacy of oral exchange. To handle such technologizing of the textualized word, I have tried occasionally to introduce the term ‘secondary literacy’…