Marginal Utility

by Tom Bozzo

Suzanne showed this morning that she's been the spouse of an economist maybe a little too long, as she asked, "Would I be doing my part to help the situation if I went shopping today?"

In alarm-clock land, NPR seemed to be in "Don't Panic!" mode as the news of course led with the Lehman story but they didn't mention, e.g., European markets being down 4-5% as of this (Monday early AM CDT) writing. Then David Wessel of the W$J was asked if this was the wildest time ever, and he lifted my spirits by answering that he was not alive in 1929.

We ran the nightmare scenario courtesy of Nouriel Roubini here at AB over the weekend. Our own Ken has an excellent follow-up explaining why we really should be glad that his Old Firm was bailed out as in that case a broader financial 'contagion' was 99 and 44/100 percent likely; if the financial world was Smart then the Lehman failure ought to be priced in. It's the 'if they were smart' part that's worrisome in a 'how do you think we got into this fine mess' way.

Labels: Crisis Management, Econoblogs, Moral Hazard

by Tom Bozzo

Robert Waldmann, who clearly would be a higher-valued recipient of the money paid to Democratic "strategists":

I do not understand why the Democrats didn't make the Republicans actually filibuster this one. Delaying the AMT patch and the mailing out of refunds to protect the interests of a small number of hedge fund managers and private equity partners can't be popular can it ? The Democrats seem to have just decided that they will be blamed if the Republicans block them from doing what the public wants. Given the rules of the Senate, if the majority makes it clear that it is willing to cave to get things done on time, the minority can become more powerful than the majority. I really don't see why Reid caved so quickly on this one. A few days of denouncing the Republicans for blocking the AMT patch to serve the super rich who pay 15% of their income in taxes would have made the claim that "we have tried every alternative possible," a lot more convincing.

Given who pays the Republicans' bills, they may have been operating a little bit short of political suicide, but they were clearly willing to spin the barrel for some Russian Roulette. Why the eagerness to snatch the guns out of their hands?

Labels: Econoblogs, The New Gilded Age

by Tom Bozzo

Megan McArdle writes:

[W]hy is America's high-speed rail so dreadful? [...] The answer is that the Acela uses existing track, which is twisty, the better to serve every congressional district between here and Boston.

The little problem here is that this was either pulled out of her backside, or perhaps more likely pulled out of the backside of a libertarian welfare recipient who'd had a few too many at some U St. bar and duly parroted on the website of the Atlantic. (The pulled quote is prefaced as part of a "discussion" she'd been in "recently.") This is linked approvingly by the theoretically more trustworthy Tyler Cowen at Marginal Revolution, where McArdle's account is smacked down in the thread's first comment. (See Stephen Karlson for the extended version.)

This seems par for the course for Ms. McArdle, but what's Cowen's excuse?

Largely unmentioned anywhere is that the correct answer to why America's high-speed rail is so "dreadful" — in our neck of the woods, we say, "nonexistent" — that is, chronic underinvestment in rail infrastructure.   Karlson makes his usual [*] point that outside of the Northeast Corridor, perfectly useful 110 MPH trains could be run over a lot of existing track with mostly regulatory changes.  But remember, for approximately the price of reconfiguring the runways at O'Hare to accommodate air traffic that may never (future path of oil prices and all) materialize, you could build 300 km or so of electrified 350 km/h line.  The French did.

Labels: Econoblogs, Glibertarianism, Trains Planes and Automobiles

by Tom Bozzo

Bradrocket:

God, can you imagine what Megan McArdle’s gonna be like when she has kids of her own and they ask her for lunch money?

“For that to be moral, the entire enormous class of school children who are hungry and unemployed must have some justified claim on the money of their working parents,” she’ll tell her weeping son.

Meanwhile, an outer sociologist meets Tyler Cowen's inner economist and isn't so impressed.

To commenter Ralph Hitchens, you could find commentary on Freakonomics (e.g., Jeremy's) that acknowledged that some of the underlying real research was interesting without succumbing to the hype. I guess I was dissuaded from picking up Freakonomics by elements of what struck me as falsity in Stephen Dubner's original NYT magazine article on Levitt that serves as the enterprise's frame tale and/or creation myth. [*] Plus, Levitt very helpfully makes much of his research available online. Let me say that while I think the "freaks and geeks" critique of Levitt is unfair, I'd be interested to spy on a parallel universe in which Levitt, who professed, "I'm not good at math, I don't know a lot of econometrics, and I also don't know how to do theory," accordingly graduated from a 20th ranked PhD program.

As for Inner Economist, well, why buy the cow when I can gaze at my navel for free?


[*] For instance, "The average economist is known to wax oracularly about any and all monetary issues. But if you were to ask Levitt his opinion of some standard economic matter, he would probably swipe the hair from his eyes and plead ignorance."

Labels: Econoblogs, Economics, Glibertarianism

by Tom Bozzo

To Dani Rodrik's new-ish blog (h/t The Street Light):

Imagine some change in the economy leaves Tom $3 richer and Jerry $2 poorer, and I ask you whether you approve of this change. Few economists, regardless of their political and philosophical orientation, would be able to give a straight answer without asking for more information. [True; snip. M]ost of us [i.e., non-economists] would care about the manner in which the distributional change occurred--i.e., about procedural fairness. The fact that the shock created a net gain of $1 is not enough to conclude that it is a change for the better.

Economists of many stripes tend to like the pie-increasing changes on the theory that the extra pie could, in principle, be redistributed to provide everyone with more pie (leaving aside the thorny question of the 'optimal' portions of pie). Of course, when there's no mechanism to efface a serious redistribution of the pie, it is not unlikely to be considered small comfort that the other guy could give you back your two slices of pie, were he less of a pie-hogging jerk. [*] This led various blogiversal commentators to dub the improvement-with-redistribution concept as a 'fallacy,' not at all without reason.

Back to Rodrik:

[This] clarifies... why the archetypal man on the street reacts differently to trade-induced changes in distribution than to technology-induced changes (i.e., to technological progress). Both increase the size of the economic pie, while often causing large income transfers. But a redistribution that takes place because home firms are undercut by competitors who employ deplorable labor practices, use production methods that are harmful to the environment, or enjoy government support is procedurally different than one that takes place because an innovator has come up with a better product through hard work or ingenuity. Trade and technological progress can have very different implications for procedural fairness. This is a point that most people instinctively grasp, but economists often miss.

People also may recognize that procedural fairness shortcomings increase the likelihood that the additional piece of pie may be a lobbyist's fiction or the like.

Kash Mansori notes approvingly in the Street Light post that Rodrik files his post in a category of "Economists' blindspots." It's a good one, indeed, to which we might eventually add something along the lines of, "Not even trying to resolve the contradictions." Cf. the NPR interview with Vivek Wadhwa this morning on outsourcing and the "engineer shortage," in which Wadhwa notes with concern trends towards outsourcing increasingly high-level tasks (while also making it clear that the private incentives favor hollowing-out), undermining arguments along the lines of, "Don't worry about outsourcing, it just means that we're retaining (indeed, specializing in) higher-valued intellectual property creation jobs."


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[*] Madisonian FYI: LMNO'Pies' "pie bites," available at the Westside Community Market when LMNOPies [site layout really screwed up in Mac Firefox?!] makes an appearance, are really good.

Labels: Econoblogs, Economics, Outsourcing