Just a space to link to reading that’s focused on the future of capitalism:
Rebecca Henderson (forthcoming)
Just a space to link to reading that’s focused on the future of capitalism:
Rebecca Henderson (forthcoming)
This is a great thread from Ben Casselman, economics reporter at The New York Times and formerly FiveThirtyEight, on working with data.
Casselman is careful to note that he’s not an economist and that losing sight of that would lead him to err. But the approach he outlines — humble, integrative, quantitative — is why I suspect analytical journalists can outperform experts in some circumstances in terms of reaching better empirical assessments. See here, here, and here.
A couple pieces that made me a bit hopeful for the internet:
Can “Indie” Social Media Save Us? – New Yorker
Could the IndieWeb movement—or a streamlined, user-friendly version of it to come—succeed in redeeming the promise of social media? If we itemize the woes currently afflicting the major platforms, there’s a strong case to be made that the IndieWeb avoids them. When social-media servers aren’t controlled by a small number of massive public companies, the incentive to exploit users diminishes. The homegrown, community-oriented feel of the IndieWeb is superior to the vibe of anxious narcissism that’s degrading existing services. And, in a sense, decentralization also helps solve the problem of content moderation. One reason Mark Zuckerberg has called for the establishment of a third-party moderation organization is, presumably, that he’s realized how difficult it is to come up with a single set of guidelines capable of satisfying over a billion users; the IndieWeb would allow many different standards to emerge, trusting users to gravitate toward the ones that work for them. Decentralization still provides corners in which dark ideas can fester, but knowing that there’s a neo-Nazi Mastodon instance out there somewhere may be preferable to encountering neo-Nazis in your Twitter mentions. The Internet may work better when it’s spread out, as originally designed.
Data collected by the Pew Research Centre has showed that social media user growth is plateauing among most age groups. Twitter’s active users actually declined in the US in 2017 whilst teenagers are either leaving Facebook in droves or are becoming ‘Facebook-nevers’ having never signed up to the platform. ‘While the idea that social media could go out of fashion or that popular sites could suddenly disappear may seem unthinkable, it’s possible to discern the beginnings of another radical change bubbling under the surface,’ Alex Warren, author of Technoutopia: How Optimism Ruined The Internet, says.
One final bellwether: I started using Feedly this week (Teams) and for the first time I’m seeing an RSS reader that’s not just a sad clone of Google Reader but actively better. Who knows, maybe blogging will even come back into fashion…
There was a bunch of Twitter discussion this week inspired by a Vox article by Dylan Matthews about Raj Chetty’s introductory economics course at Harvard. TLDR: The course is basically a review of recent, large-scale empirical work on important social problems like inequality. And it has little to no theory. I’ve watched some of the lectures and I’d recommend them. But the discussion on Twitter was about whether this was a good way to introduce students to economics. Some stuck up for traditional Econ 101; some argued it complemented Chetty’s big data course; some plugged the excellent new(ish) CORE introductory text.
My reaction was this:
About fixing Econ 101… whatever one decides to change content-wise, the biggest thing IMO would be to open w/ a full lecture on models & many-model thinking. Then say: What follows are not ironclad truths but partial explanations that will sometimes prove to be useful.
— Walt Frick (@wfrick) May 23, 2019
Whereas academic economists are concerned with the science of economics, including making their models as accurate as possible, most people who take econ 101 need to learn how to use those models in some way in their work and lives. They need to learn to be analysts, not scientists.
And the way to use economic models is to recognize that they are deeply incomplete approximations of the world, that they’ll be more useful in some cases than in others, and that the best results come from combining them with other useful models from other disciplines. I’m all for more people learning economic models other than just perfectly competitive markets, of course. But even more important is for people who do learn about competitive markets to realize that it’s an approximation that is never true but can sometimes be useful.
Psychologists typically measure beliefs and preferences using self-reports, whereas economists are much more likely to infer them from behavior. Prediction markets appear to be a victory for the economic approach, having yielded more accurate probability estimates than opinion polls or experts for a wide variety of events, all without ever asking for self-reported beliefs. We conduct the most direct comparison to date of prediction markets to simple self-reports using a within-subject design. Our participants traded on the likelihood of geopolitical events. Each time they placed a trade, they first had to report their belief that the event would occur on a 0–100 scale. When previously validated aggregation algorithms were applied to self-reported beliefs, they were at least as accurate as prediction-market prices in predicting a wide range of geopolitical events. Furthermore, the combination of approaches was significantly more accurate than prediction-market prices alone, indicating that self-reports contained information that the market did not efficiently aggregate. Combining measurement techniques across behavioral and social sciences may have greater benefits than previously thought.
An excellent piece arguing against the “skills gap” hypothesis. The conclusion:
There is no denying the importance of education and training to long-term outcomes for workers. But that does not mean the solution to stagnant or inadequate wage increases lies in addressing a skills gap. To address the wage problem, Congress and regulators need to ensure that workers retain the ability to organize into unions, and unions need to have the power to bargain collectively—and effectively—to negotiate fair wage levels. In addition, policymakers need to establish wage floors that spill over into higher pay for workers along the distribution. Policies like these will compensate for power imbalances that have maintained wage stagnation.
It is possible to overstate the importance of skills, and it’s also possible to understate it. But that piece is well done and links to great evidence throughout. My writing on this subject is here, here, here.
“Don’t blame robots for low wages,” writes Paul Krugman. “Automation just isn’t a big part of the story of what happened to American workers over the past 40 years,” he continues. “We do have a big problem — but it has very little to do with technology, and a lot to do with politics and power.”
This is misleading, which is a real shame because Krugman’s ultimate point is incredibly important.
His argument is roughly:
I want to sign on to where he ends up (#5) but not the way he gets there.
Do stagnant wages really have “very little to do with technology”? As I’ve already said, I don’t think technological change necessarily leads to stagnant wages — though it has happened before.
However, I think a more straightforward reading of Krugman’s claim would start with a counterfactual. Holding power and politics constant, what effect has information technology had on wages?
There is abundant evidence that information technology has contributed to stagnant wages and rising inequality, by changing the skills that are demanded and polarizing the labor market. This is occurring across advanced economies. Within the policy variation we observe in OECD countries, at least, it seems that some increase in inequality is the norm.
It therefore seems much more reasonable to conclude that stagnant wages and rising inequality have quite a bit to do with technology. Of course, they also have quite a bit to do with politics and power. The latter likely helps explain why these phenomena have been particularly pronounced in the U.S., and why the U.S. has seen such a staggering increase in the incomes of its top 1%.
I’ve written about this all before, and that was also in response to weirdly overstated claims by Krugman. My assumption is that this is well-intentioned, that he hopes to shift the U.S. policy debate away from fatalism toward action, and that he thinks implicating politics over more impersonal forces like technology will help.
Maybe he’s right.
I certainly don’t think we should be at all fatalistic about inequality, and I certainly agree that politics and power are a major contributor. I’ve emphasized this in my writing and my editing. But technology clearly is a big part of the inequality story, as are education and skills. I suspect that brushing them aside will make solving our problems harder, not easier.
Economist, blogger, and former Clinton-era Treasury staffer Brad DeLong made waves with a Twitter thread and subsequent interview with Vox in which he says center-left neoliberals like himself should “pass the baton” to more left-leaning Democrats.
His argument is largely political; more on that later. But what about the policies?
To understand where Obama stands, you first have to know that, for 15 years, Democratic Party economics have been defined by a struggle that took place during the start of the Clinton administration. It was the battle of the Bobs. On one side was Clinton’s labor secretary and longtime friend, Bob Reich, who argued that the government should invest in roads, bridges, worker training and the like to stimulate the economy and help the middle class. On the other side was Bob Rubin, a former Goldman Sachs executive turned White House aide, who favored reducing the deficit to soothe the bond market, bring down interest rates and get the economy moving again. Clinton cast his lot with Rubin, and to this day the first question about any Democrat’s economic outlook is often where his heart lies, with Reich or Rubin, the left or the center, the government or the market.
Obama has obviously studied this debate… He [believes] that both have come to acknowledge that the other man is, in part, correct. The two now occupy more similar ideological places than they did in 1993. The battle of the Bobs may not be completely over, but it has certainly been suspended.
DeLong is arguing the Rubin camp should pass the baton to the Reich camp and its left-leaning allies.
But Leonhardt argued in that piece that Obama and his incoming administration had forged a kind of synthesis out of the Reich-Rubin divide. What did the Obama synthesis include? There’s no single paragraph to quote, but here’s roughly how I’d describe it, based on Leonhardt’s article:
Was this synthesis so obviously wrong? Does the Obama synthesis need to pass the baton, too?
Mike Konczal shows why he’s among the best in the policy-writing business by making “center-left neoliberalism” far more specific, and therefore easier to analyze. His account I think makes it easier to talk about whether the Obama synthesis does or doesn’t hold up. Here’s Konczal:
Here are two statements about acceptable tradeoffs that I associate with left neoliberalism, both of which have failed to describe the economy as it currently exists. The first is that neoliberal policies would create more growth. Sure, inequality might increase, but so would wages; and even if not wages, mobility up and down the income ladder. Delong phrases it this way: “Economic growth first, redistribution and beefing up the safety net second.”
The second is that if we get government out of corporations’ way, the market would become more dynamic, competitive and innovative. Sure, there might be some level of profits and questionable behavior in the short term, but the market itself would fix it, such that in the long term the corporate sector looked much healthier in terms of profits and dynamism.
I want to ground it this way, in two intellectual statements about the tradeoffs of a policy regime, to help understand why the confidence that left neoliberalism once held over the baseline assumption of economics has collapsed.
A full neoliberal would maintain 1) that there is a tradeoff between growth and inequality 2) that maintaining innovation and dynamism in the economy requires a light touch. What would the Obama-synthesis view be on these two questions?
One proxy for that is to look at the views of Jason Furman, Obama’s economic policy director and later chairman of Obama’s Council of Economic Advisors. Furman is, to my mind, a synthesis figure. What would he say about the neoliberal tradeoffs Konczal identifies?
On the second tradeoff, about competition and profits, Furman clearly departs from the neoliberal view as Konczal frames it. In fact, Furman was a key figure in drawing notice to the problems of rising rents and declining dynamism — along with his former Obama administration colleague Peter Orszag.
What about growth and inequality? Here Furman takes more of an in-between view. He argues that this is the wrong question to focus on, and that there is no definitive answer to how inequality affects growth.
By my count, then, Furman gets a 0.5/2 on the Konczal-neoliberalism-scale. He clearly does not adhere to the second tradeoff — the idea that leaving corporations alone is the key to dynamism and innovation. And he’s not lining up to take the neoliberal view that there’s a tradeoff between inequality and growth, either. He just isn’t sure and isn’t focused on it.
One might argue, then, that the Obama synthesis holds up just fine in terms of its position on two failed neoliberal doctrines. That doesn’t mean it has no flaws or that it’s better than the alternatives to its left. But it hardly ought to be seen as a failure in the way that various versions of neoliberalism tend to be. (Side note: One could argue that Cass Sunstein’s cost-benefit book is step toward furthering the Obama-synthesis project, more at the theoretical and methodological level.)
Now, back to the politics.
DeLong argues that center-left neoliberalism was the way it was largely because it was “premised on the understanding that at least a faction of the Republican Party would be willing to support market-friendly ideas like Obamacare or a cap-and-trade system for climate change.”
This makes some sense as an explanation for Obamacare. We’ve long known you can set up a universal healthcare system through government provision; private provision and government insurance; or a highly-regulated system of private insurance and provision. The argument for an Obamacare system was partly that you should be able to get some centrists and conservatives on board by going with a regulated private system. DeLong’s view of things here makes a lot of sense.
For climate change, though, things are different.
In the case of climate change, the logic of attracting centrist support through market-based policy made sense, at best, only in seminar rooms. If you proposed a carbon-pricing scheme, sure maybe that’d play better in the University of Chicago economics department than proposing massive public spending on infrastructure or direct subsidy of certain technologies. But I worked on clean energy policy a bit in the Obama years, and it was obvious by then that carbon pricing was politically hard. DeLong distinguishes cap-and-trade from a carbon tax. He frames cap-and-trade as the more politically plausible alternative compared to a carbon tax plus R&D. And that is probably true. DeLong:
A belief in cap and trade — rather than the carbon tax plus huge, honking public research — was both a belief that the market really ought to rule here, plus a belief that stakeholders who are producing carbon energy can be bought off with cap-and-trade: that the Koch brothers would rather be selling their carbon allowances than having to actually burn coal to produce things. Plus, a belief there were Republicans who would actually think that global warming is a menace, and be willing to argue strenuously within the Republican coalition that something needs to be done about this.
But the idea that politics was one of the reasons to favor cap-and-trade — even if narrowly true relative to a carbon tax — reminds me that political economy was never the center-left’s strength. Even if a market-based approach won you some points from centrist wonks, carbon pricing was the sort of technocratic policy that hurt lots of interest groups (polluters) and didn’t inspire much of anyone. Yes, you could try and buy off various adversaries, but it was fundamentally a case of concentrated costs and distributed benefits. I’m a big supporter of carbon pricing and I (still!) see it as the backbone (though not the entirety) of good climate policy. But if your goal is to draw up something that’s really politically appealing, carbon pricing isn’t it.
Anyway, if the center-left is passing the torch, whether for political reasons or because their core policy ideas turned out to be misguided, what’s next? You might argue that if the Rubin camp is ready to pass the baton, what’s needed is the next form of Democratic synthesis. Instead of Rubin-Reich, maybe we need a Furman-Warren synthesis. (Pick your own stand-ins.) The Center for Equitable Growth under the leadership of Heather Boushey and others strikes me as a natural home for such a synthesis — in fact, DeLong is a contributor. Here is another relevant discussion.
Or maybe that’s just too much focus on policy wonkery and mostly missing the point. Henry Farrell at Crooked Timber makes a really strong argument about the center-left and its weakness on issues of political economy:
If [the center-left is] pushing for market means towards social democratic ends, that is fine and good – markets can indeed sometimes be the best way to deliver those ends, and few of us would want to be completely without them (including Marxists like Sam Gindin). But one key lesson of the last couple of decades is that market provision of benefits makes it harder to build and sustain coalitions – private gain and public solidarity are at best uncomfortable bedfellows. Figuring out the political tradeoffs – when market means are worthwhile even when they make collective action tougher, or where non-market means might be better for sustainability reasons, even when markets are more efficient – is going to be hard, and we need to start building shared language and concepts to make it easier to resolve the inevitable disputes.
He notes, though, that there is no guarantee that the left will achieve its aims:
There may be no plausible choice in American politics other than the left right now. That doesn’t mean that the left has a very good chance of doing the things that it needs to do.
My favorite part of DeLong’s take on all of this is how he recommends center-left neoliberals like himself stay useful:
We need to find ways to improve left-wing initiatives, rather than demand that they start from our basic position and do minor tweaks to make them more acceptable to their underlying position.
This post is part of a series where I quote and link to short descriptions of different social-science models and perspectives. The idea is to collect important models in easily accessible formats to help people aspiring to take a “many-model” approach to reasoning.
This video on the equilibrium price and quantity is from Marginal Revolution University, the online economics education site run by economists Tyler Cowen and Alex Tabarrok: