DISQUS

You and Hanson are talking past each other. He's saying economists are good at separating cost from benefit... for thinking in that mode of thought. You're saying its not always obvious what the meaning of a particular cost or benefit is.

There's no reason why you can't do plural cost/benefit analyses, one for each of your plural meanings. Of course, in this case CBA doesn't resolve the conflict.

I'm sympathetic to this concern about cost/benefit analyses, but I don't think its that important. Most times everyone shares the same objectives (e.g. help poor people) and because people are bad at cost/benefit analysis they pick the wrong policies to meet those objectives (e.g. minimum wages)

Don't ask my opinion. I'll elicit an objective function from you and tell you what *your* opinion is... assuming you want to maximize that objective.

Economics is a discipline not a doctrine. We're supposed to be good at writing down objective functions and then cranking the knob on the cost/benefit calculations. Not everyone can be good at those things.

So there's a couple billion Christians or something. One of them makes a silly youtube video and this is suppose to say what about Christianity? If we make judgments about groups using the actions of their craziest member, none of them would look very sane.

Ron Paul anyone?

If your point was to find crazy videos on youtube, then you could do a much better job.

BTW, from the GSS, those that have strong beliefs about God (believers or atheists) are less likely to have self reported mental illness. Those that take the bible literally report about a quarter less mental illness than those that think the bible is "a book of fables".

"But people aren't sociopaths, which is why homo economics isn't such a great model."

The map isn't the terrain so its a bad map?

Isn't it possible that for the collective behavior we want to understand (or most of it), hypersociality is second-order? The bee hive acts as-if it reasons about the optimal division of labor between indoor and outdoor bees when in fact individual bees are unthinkingly reacting to certain pheromones. Ascribing the ability to reason to the hive doesn't do injury to our ability to predict its behavior. Make no mistake, economics is about predicting the behavior of the hive not the individual bees.

Humans respond to incentives... or they appear to at astonishingly low levels of aggregation. There may be a few exceptions (name one!), and maybe then we need to bring in more complex models of human behavior, but let's not throw the baby out with the bath water.

"Cynical"? I, on the other hand, fall a little more in love with the human species when I hear stories like this.

"But a worker may become more productive due to some innovation in a technology that complements his or her skills without having done anything to increase his or her productivity."

People don't accumulate skills in a vacuum. They try to anticipate future demand for skills when they make decisions about what skills to acquire. So Boudreaux is right, there's intention and increased effort being rewarded by the market.

Personally, I think this process of intentional skill accumulation is important. A worker might trade years in a lower paid job to accumulate skills he hopes will be valuable in the future. If his bet pays off, he's rewarded with a higher wage, but notice what happens to the dispersion of wages in aggregate.

I say getting the prices right is "going green". Is the normative fight about words alone?

I confused if Will's beef is with government interference with innovation or only with the way it does so. Given the negative externalities associated with carbon-based energy sources, a social policy of "going green" is a no-brainer. The issue is with how to implement such a policy. I think everyone can agree that picking winners is the wrong way to go about it, but that is not the only policy instrument available (e.g. Pigovian taxes).

"confirm that there is in fact a Keynes-ish sort of pack psychology about appropriate consumption behavior"

What people *say* isn't confirmation of much of anything.

Friedman's contribution was to show inflation stabilization was the best policy. This means technocratic interventions, exploiting long-run trade-offs between inflation and unemployment, weren't. The economic question is which policies bring about constant inflation.

The best argument for fiscal stimulus is that traditional and untraditional monetary policy have failed. In my opinion, people in support of this fiscal policy too easily dismiss untraditional forms of monetary policy or assume monetary policy comes just in its traditional, "normal" times form. Delong gets Friedman's views on policy wrong in just this way:

"In Friedman's view, if the task of monetary stabilization could be accomplished via technocratic manipulations by a non-political central bank, there would be no need for much of the apparatus of the post-World War II social insurance state."

This misrepresents Friedman's views in both its antecedent and its consequent. First, Friedman didn't insist on a particular implementation of his optimal policy. His "helicopter drop" is the ultimate in untraditional monetary policy (notice in its implementation, this would be considered fiscal policy). Second, he wasn't against social insurance. For example, he originated the idea of the negative income tax, aka EITC. In that famous video, he said he shared the goal to help the less well off. He just complains that usually policies aimed at doing this have the unintended consequence of hurting the people they're trying to help.

Its amazing how often people confuse the measurable proxy, "quantity of educated citizens,” with the thing policy makers should care about “quantity of citizens with economically remunerative skills” . This confusion stems from a belief that the mechanism linking education and outcomes is that it directly increases skills.

Anyone who has taught undergrads couldn't have stared out into a classroom full of half-asleep, uninterested faces and still believe sitting there is making those students more efficient. Yet most that teach undergrads believe more education directly leads to better labor market outcomes.

Goldin/Katz don't discuss any evidence that this is the true mechanism. (I'm too lazy to dig the book up, but I believe the explicitly mention they just assume this is the true mechanism.) This is disappointing because its a key assumption underlying their policy prescriptions that they believe the correlations between years of schooling and outcomes that existed in the data in the past will continue to hold in the future.

Also, I'll just point out that university-based academics have incentive to believe more (rather than better, whatever that means) education leads to more labor market efficiency.

It occurs to me that my argument that macro folks don't study particular events in history is kinda lame given the paper I linked to was about analyzing the new deal. Fine. We study historical events.

The point is that preexisting models, tested on modern data, are being tested using data from that era. This back and forth between Eggertsson and Cole/Ohanian has taught us that we don't know much about "animal spirits" when inflation expectations are unanchored by monetary policy. These papers have pointed in the right direction though for figuring this stuff out.

Generating the models involves making assumptions about how people make economic decisions. These assumptions generate model economies that generate model data (i.e. predicted behavior of actual economies). The assumed cause (people attempt to maximize such and such utility under such and such budget constraints) is being tested by comparing the model data to the actual data. This has nothing to do with how much data (N big or not) is generated by the model.

I don't see how the method I'm describing is any different than making assumptions about the behavior of particles of matter, deducing expected behavior and then comparing those measurements against actual behavior.

These aren't just-so stories. Its true macroeconomic data is observational, but unlike in history or evolutionary psychology or whatever, the economy keeps running and new data are generated all the time. Models die when new data contradict their implications.

I think a disconnect here is that macroeconomists study business cycles (or growth) in general but not particular recessions. Studying particular recessions/depressions is what historians do and their stories are just-so. To macro people, historical events are just data. Our models explain or they don't. To the extent they do, they're good models. To the extent they don't, they're bad models.

I plead guilty to the charges of meeting the market demand for my product.

In a perfect world, macroeconomists could give advice to policy makers, and it would be taken, that perfectly reflected the findings of the science. Because the science tells us inflation expectations are key, policies should reflect that. Monetary policy is the best way for policy to affect expectations, but the President wants to "do something" and the congress want to "do something". Giving rose colored speeches seems least harmful while being most likely to have an a positive impact on expectations.

Delong and krugman do not a professional consensus make. No disinterested objective observer would accuse those two of being apolitical either.

The real problem here is the political bias for "do something" advice.

You shouldn't infer from the actions of politicians (who after all have incentive to "do something" and so more inclined to arguments for fiscal policy) a consensus among economists.

Mankiw recently documented a number of well respected MACROeconomists who don't support the fiscal stimulus and thus don't think what we're experiencing is extraordinary.

"If booms or recessions are really based in coordinated psychological changes, then why should we think that monetary or fiscal policy is the most relevant policy lever?"

I don't think anyone is making the claim that ALL booms and recessions are based on coordinated psychological changes (i.e. expectational shocks). The claims is being made that THIS recession is being driven by coordinated pessimism.

Economists over the last few generations have learned a lot about what drives the business cycle... real shocks, nominal rigidities, etc. For that intellectual progress, economists shouldn't feel ashamed. The claim here by the pro-stimulus folks, for example, is all that understanding of "normal" business cycles doesn't help us in this particular down turn. Somehow this time is different.

If this time really is different, by definition economists won't understand it. Its unlike anything we've seen before or at least, current conditions are so infrequent there's too little data to get good results from. Thus, we see arm chair social psychology from those economist that think today's circumstances are unique.

But all that depends on the antecedent... is the current macroeconomic environment unprecedented? My own guess is no, but many economists, for what ever reasons, have assumed otherwise.

grats!

Isn't every ideology about human flourishing?

Some of my European friend roll their eyes when I argue against socialized medicine by using arguments for liberty. They tell me we Americans have a funny sense of liberty. Are we free if we're sick?

I don't see where your libertarianism ends and social democracy begins. Are libertarians for pursuing different objectives? Is it just a matter of different means to the same end?

What if it impinges on my freedom to exercise my faculties if I see others suffer? even if --- especially if --- that suffering was compatible with the possession of like liberty by those suffering (i.e. I didn't cause that suffering by the exercise of my freedom)? My freedom might be limited by taxes, but it is expanded by using those tax dollars to fund make-work programs for the poor. Are tax laws social norms?

The paper equates transaction cost with information cost. No transaction costs means perfect information. You wouldn't need to negotiate because you'd know everyone's potential consumer surplus so trades would just happen.

There seems to be an assumption in there that because you know someone else's utility, you'd act to maximize it too. Not sure why that would be true. It seems to me that selfishness is more than ignorance of others' preferences. Its a nice thought though.

On that assumption, though, reducing information costs is equivalent to increasing empathy which I take to be a morally superior policy objective. At least that's what Mom used to say.

Conchis, does Tulane not sit high enough up on the pecking order or do you have substantive criticism of the paper? Its weird, but why "astoundingly bad"?

Meanwhile, Will, you've been farked.

Will, are there panel studies of happiness testing this hypothesis? I think its clear that parents are (very slightly) less happy than those without children, but are we sure its the kids causing the unhappiness?

Often its the case cross-sectional results don't jive with time-series results (e.g. the link between inequality and growth) and its a mistake to think that variance across groups explains variance within groups (e.g. IQ and wages across countries and within).

The point is that its easy to imagine unhappy people become parents at higher rates. There's movies about it and we all have that friend that has at least speculated that having kids would save their marriage.

"How can I help you?" is such a weird question to ask in that situation, I'd be suspicious and defect in the PD.

Assuming the PD is played today and given people cooperate (even, famously, game theorists) in repeated game situations, I'd ask if they wanted to go to the zoo or something with me tomorrow. This, hopefully, would prime them for repeated play.

I'd still defect, of course. :-)

Changes in relative *current* incomes says nothing about the change in relative "capabilities".

Capabilities or opportunities or the size of the budget set or whatever are determined by lifetime (not current) incomes. Current income has a tenuous relationship to lifetime income. (see the Ambrosini Critique link above for citations)

This exposes a potential problem in the B/R paper. People use their current incomes to purchase current consumption and to finance past or future consumption. Deflating income by the cost of current consumption baskets involves deflating some amount of future and past consumption by current cost of living. In other words, just as current income is bad proxy for lifetime income, current cost of living could potentially be a bad proxy for lifetime cost of living.

I think this is an instance of a common mistake made when thinking about income groups. When we're talking about groups of "rich" and "poor" people we're not talking about individuals. Individuals can move in and out of those groups over time (taking their changing consumption patterns with them).

The revealed preferences of a group (if there even are such things) aren't the same as the revealed preferences of the individuals in those groups. In other words, its logically consistent to have individuals' consumption patterns change as their wealth increases, but to have the average consumption pattern of a group stay the same, especially given the group is defined by income level. Some "poor" are becoming rich, and thus changing their consumption patterns to be more like the "rich", but they are leaving the "poor" group and entering the "rich" group. Similarly for the rich becoming poor.