Ten Pieces Worth Reading, Mostly Economics: March 5, 2010
1) Jeff's Cheap Talk: Your Brain Wants You To Help The Poor. Are You Listening?:
In a paper in Nature; the authors Tricomi, Rangel, Camerer, and O’Doherty used fMRI experiments to reveal that the brain is wired for egalitarianism. 'Activity rose in rich people when their poor colleagues got money. In fact, it was greater in that case than when they got money themselves, which means the “rich” people’s neural activity was more egalitarian than their subjective ratings were. Whereas in “poor” people, the vmPFC and the ventral striatum only responded to getting money, not to seeing the rich getting even richer.' Neuroskeptic provides some perspective: 'Notice that this is essentially a claim about psychology, not neuroscience, even though the authors used neuroimaging in this study. They started out by assuming some neuroscience – in this case, that activity in the vmPFC and the ventral striatum indicates reward i.e. pleasure or liking – and then used this to investigate psychology, in this case, the idea that people value equality per se, as opposed to the alternative idea, that “dislike for unequal outcomes could also be explained by concerns for social image or reciprocity, which do not require a direct aversion towards inequality.”'
2) Mark Thoma: New Claims for Unemployment Insurance Fall Slightly - CBS MoneyWatch.com:
Looking at the numbers over the last several weeks in the graphs above, it’s evident that the labor market is moving sideways — there’s certainly no sign yet of an aggressive downward move. Thus, labor markets are stalled and continue to need all the help they can get. But so far, while the government has implemented some job creation programs, the programs have not been large enough to make a big dent in the unemployment problem. I don’t expect Congress to do much more to try to stimulate job markets beyond a few token bills legislators can point to when reelection rolls around. In fact, sentiment seems to be moving in the other direction. There are many in Congress who are anxious to end the programs intended to stimulate labor markets and the broader economy as soon as possible. It’s important that we resist these calls so that we don’t remove the existing help that labor markets are getting, meager as it is, too soon.
[W]ell over a hundred GOP lawmakers have voted against or condemned the American Recovery and Reinvestment Act, while later touted the funding or asked for more money. The latest person to point out this hypocritical behavior is Republican Gov. Charlie Crist (FL). Yesterday, while speaking at his last State of the State as governor, he called out governors who “may have rather loudly condemned the stimulus money” but who accepted it anyway: CRIST: "A few governors may have rather loudly condemned the stimulus money, but that did not stop any of them from quietly accepting it. … During these very difficult economic times, we do a disservice to the people who elected us., the people who are counting on us, to elevate ideology over problem solving. We are here to guide our ship through a storm."... Indeed, several governors who were stimulus opponents have proudly touted its funds in their states. Gov. Bobby Jindal (R-LA), who said that he would’ve voted against the stimulus if he was still a member of Congress, presented a jumbo-sized check of federal grant money authorized under the Recovery Act to residents of Vernon Parish. He later toured the state in a “Louisiana Working” tour, handing out millions of dollars of stimulus money while simultaneously attacking “Washington Spending.” Similarly, Gov. Tim Pawlenty (R-MN) bashed the stimulus, while his top economic adviser acknowledged that there were “tangible results from this spending.”
4) James Wimberley:
[Pierre Gourinchas wrote:] ¨The fundamental disequilibrium at the root of the crisis.. lies .. in the imbalance between the global demand for safe and liquid debt instruments –both within and outside the U.S.—and the limited supply of this asset.¨ Which suggests that what we need is much higher national debts. Bring back the 290% debt-to-GDP ratio of victorious Britain in 1815! This constituted a practically bottomless pool of safe instruments for parking savings when riskier opportunities looked bad, thus making capital accumulation a much more attractive option than before.
In his speech today in the White House East Room, President Obama clearly indicated that he is going to press for a comprehensive, and not a piecemeal or “skinny,” health care reform bill. He also made it abundantly clear that he will accept, if necessary, a party-line simple majority vote in the House and the Senate in order to get the bill through. Reconciliation here we come. Obama’s speech represents a major departure from the politics of his presidential campaign and of his first year in office. In his campaign, Obama pledged to defy partisan gridlock and to “change the way Washington works.” During the campaign, some liberal commentators believed that he was merely employing a clever tactic to highlight the rigid partisanship of his opponents. “If we understand Obama's approach as a means, and not the limit of what he understands about American politics, it has great promise as a theory of change,” Mark Schmitt wrote in The American Prospect. But it is now evident that Obama’s approach was what he understood about American politics—it was the guiding light gleaned from his years as an Illinois state senator—and he planned to apply it to Congress. And it was, of course, nonsense. Republicans were able to use Obama’s naiveté about their motives to undermine his initiatives. As Noam Scheiber explains in his profile of Rahm Emanuel, the principal obstacle to getting health care reform through Congress last year was Obama’s dogged insistence last summer that Senate Finance Chairman Max Baucus continue to plug away at nailing down a bipartisan agreement. What Obama got was not an amicable agreement but a summer of discontent, highlighted by Senator Charles Grassley’s denunciation of Democratic “death panels” and by the emergence of the Tea Party movement. But it’s not an easy job being president. It took Bill Clinton most of his first term to figure out how to do domestic and foreign policy. Like Clinton, Obama has stumbled, but his slip-ups have been more dramatic because, with the economy cratering and two wars raging, the stakes have been higher from the first. However, in Obama’s speech today, and in his artful performance at the health care summit last week, he showed that he has learned something from his first year in office. Obama is now using the rhetoric of bipartisanship as Schmitt and other liberals thought he was doing in 2008: He is using it to paint Republicans as intransigent. He clearly no longer believes that a bipartisan agreement on health care is possible. Moreover, he is now drawing clear lines between the politics of Democrats and the politics of Republicans. "Republicans," he said, "believe the answer is to loosen regulations on the insurance industry--whether it's state consumer protections or minimum standards for the kind of insurance they can sell. I disagree with that approach. I'm concerned that this would only give the insurance industry even freer rein to raise premiums and deny care.” And in summing up, Obama said that that if Republicans “truly believe that less regulation would lead to higher quality, more affordable health insurance, then they should vote against the proposal I’ve put forward.” Those are strong words. They make clear that Democrats and Republicans don’t share the same politics. Obama portrayed Democrats as the patrons of a “middle class that gets squeezed” by higher insurance costs. Republicans, on the other hand, were tarred as friends of the insurance industry who are willing to let the WellPoints of the world run amok...
6) DELONG SMACKDOWN OF THE DAY: I am sorry, but I cannot find one of high enough quality to be worth reposting. Help me out here guys--write some good critiques: I know that there is lots of low-hanging fruit. But I don't want to have to turn this feature into a self-struggle session...
7) GRAPH OF THE DAY: Pelin Berkmen, Gaston Gelos, Robert Rennhack, and James P. Walsh: The Global Financial Crisis: Explaining Cross-Country Differences in the Output Impact:
8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Duncan Black: Powerless:
I've long been fascinated by the weird conceit - feigned or not - that journalists and media figures, even opinion opinion journalists, have no power to influence people, that the topics chosen are beyond their control, that they are mere conduits for Truth and What People Are Talking About. It's all bullshit of course, and I don't think they even believe it, but I guess it's just a way of giving themselves free passes in the accountability free era. Not. Our. Fault.
9) STUPIDEST THING I HAVE SEEN TODAY: New York Times ombudsman Clark Hoyt, as observed by Bloix:
In order to give [New York Times ombudsman Clark] Hoyt even the fig leaf of implicature you have to omit the first part of the sentence. The article stated that O'Keefe "made his biggest national splash last year when he dressed up as a pimp and trained his secret camera on counselors with the liberal community group Acorn." What did O'Keefe do? He made a splash. How did he make it? He dressed up and trained his secret camera. He made a single splash by performing a single act.
This is not a debate about ordering. It's different from the John and Mary example, which involves two discrete events (they married first and had the baby months later.) This is about unity of action. We often use "and" to express a unified act. "He aimed and fired." "We met and talked." "The child climbed into bed and fell fast asleep." "Sit down and shut up." It's not implicature to say that "we met and talked" means "we met and we talked while we were meeting, not later by telephone." Try to express what O'Keefe in a way that eliminates Hoyt's reading, and you'll see that it can't be done without wandering into English of the sort that lawyers use in drafting contracts - English that is written to be impossible to intentionally misunderstand, even at the cost of space and of ordinary intelligibility.
O'Keefe "made his biggest national splash last year when he dressed up as a pimp and then, while still in costume, trained his secret camera on counselors with the liberal community group Acorn." No one would write that. Hoyt isn't arguing in good faith. He's telling people to f--- off.
10) HOISTED FROM THE ARCHIVES: DeLong (2003): Evsey Domar: The Causes of Slavery or Serfdom: A Hypothesis:
Paul Krugman's post, Serfs Up!, reminds me of one of my major sins this spring (for which I must atone): my cutting Evsey Domar (1970), "The Causes of Slavery or Serfdom: A Hypothesis," Economic History Review 30:1 (March), pp. 18-32, from my spring 2003 Economics 210a reading list. As Krugman summarizes Domar's main point: "Domar was motivated by his knowledge of Russian history. Serfdom in Russia, he knew, wasn't an institution that dated back to the Dark Ages. Instead, it was mainly a 16th-century creation, contemporaneous with the beginning of the great Russian expansion into the steppes. Why? He came up with a simple yet powerful insight: there's no point in enslaving or enserfing a man unless the wage you would have to pay him if he was free is substantially above the cost of feeding, housing, and clothing him. Imagine a pre-industrial society where population is pressing on limited land supplies, and the marginal product of labor - and hence the real wage rate under competitive conditions - is barely at subsistence. In that case, why bother establishing property rights in human beings? It costs no more to hire a free worker than to feed an indentured laborer. Indeed, by 1300 - with Europe very much a Malthusian society - serfdom had withered away from lack of interest. But now suppose that for some reason land becomes abundant, and labor scarce. Then competition among landowners will tend to push up wages of free workers, and the ruling class will try, if it can, to pin peasants down and prevent them from bargaining for a higher standard of living. In Russia, it was all about gunpowder: suddenly steppe nomads were no longer so formidable, and the rich lands of the Ukraine were open for settlement. Serfdom was an effort to keep peasants from taking advantage of this situation. (And if I've got it right, those who were venturesome enough to run away and set up outside the system became Cossacks.) Meanwhile, the New World opened in the west. Sure enough, the colonizing powers tried various forms of indentured servitude - making serfs of the Indians in Spanish territories, bringing over indentured servants in Virginia. But eventually they hit on a 'better' solution, from their point of view: importing slaves from Africa..."
Domar's contribution is truly one of the most effective and powerful pieces of synthetic social science I have ever read. It isn't perfect. He has more predecessors than he realizes (Marx, for example, especially Marx's observations on the Swan River Colony in Australia, and the whole section on primitive accumulation and the creation of agrarian capitalism in Britain). And Domar misses one big cause of serfdom and slavery. During the formation of the Roman Empire, in Poland at the end of the Middle Ages, and in the Caribbean islands during the early modern period, slavery and serfdom did not emerge because a high land-labor ratio meant that the ruling elite could not afford to bid for labor in a free labor market. Slavery and serfdom emerged, instead, because high demand for staple products (grain, sugar, tobacco...) greatly lowered the gap between the productivity of free and the productivity of bound workers. Staple production is easier for gang-bosses to monitor than more diversified farming. Staple production also has lower skill requirements for workers. When demand for staple products is very high--to feed the proletariat of imperial Rome, to feed the growing cities of late-Medieval Flanders, or to supply the cheap luxuries demanded by early modern England--slavery or serfdom can emerge even without an extraordinarily high land/labor ratio.
But Krugman is right in ending his piece by asking two big questions: First, why didn't the Western European nobility re-enserf the peasantry after the Black Death and the resulting big rise in the land/labor ratio? Domar wrestles with this question unsuccessfully in his paper. And I have to say that it is still largely a mystery. Second, why hasn't bound labor reemerged in the modern world? Elites in developing countries can no longer be confident in their ability to earn hefty incomes by employing workers and paying them much less than their average product: an elite monopoly of land ownership is no longer worth much. So why haven't they responded to the potential erosion of their collective economic edge by turning to politics and force to bind workers. One answer is that, to some extent, they have: Consider that modern states are surprisingly effective as tax-collection machines, and in large chunks of the world the elite's power and (relative) prosperity is rooted in its "new class" control over the flow of resources from the state. Consider, also, the Communist Party of Vietnam--what is it but a gang labor boss for unfree labor deployed to produce shoes for Nike?
Very good questions, a very good paper, and I cannot feel but that my 210a class would have gone better this year had I kept Domar on the reading list, canned the "labor scarcity and interchangeable parts" part of the course, and spent not half a class on American slavery but a whole class on Unfree Labor in Historical Perspective. So how can I atone? Well, Paul Krugman was disappointed to find that there was no copy of Domar out there on the publicly-available internet...
