Saturday, June 26, 2010
Long engagement: a reason I'm proud to be a DC resident
Article in Washington Post on a Long Engagement
Thursday, June 24, 2010
Tuesday, June 08, 2010
Sachs' pronouncement
Article on Sachs' pronouncement of the death of Keynesianism. (Link to original within).
Saturday, June 05, 2010
Friday, June 04, 2010
Mental Spew
- A good article on capitalism in Hollywood by Alex Tabarrok
- A debate on the least Bohemian city. For most Bohemian, my vote would be Baltimore.
- Interesting paper on the labor market in this current recession. Echoes some things I am currently working on.
- Good post on some issues in Asia by Daniel over at Facts and other stubborn things. One thing to add...there are some flaws in the argument that the US situation is like Japan. The US banking system is far more solid (look how fast they have managed to return the TARP money). Japan's economy was under a dual decline of unemployment and consumer spending that helped magnify the issue (US spending has not suffered much since 2001). Government borrowing was 130 percent of GDP. I'm not downplaying the seriousness of US debt, but it is not in the same neighborhood.
- Flyers tie it up!!
World Cup by economists
Article on the incidence of economists predicting the World Cup. One note: it is troubling evidence of the ignorance of math that the author felt it necessary to add a disclaimer about the "snarls of math" referring to a simple linear equation.
Wednesday, June 02, 2010
Tuesday, June 01, 2010
Thursday, May 27, 2010
Great NHL commercials
Great new NHL ad for the Stanley Cup Finals.
I also love this one with Crosby and Ovie and this series with the old coach.
Oh and this one from Boston is one of the best ever.
I also love this one with Crosby and Ovie and this series with the old coach.
Oh and this one from Boston is one of the best ever.
Wednesday, May 26, 2010
Tuesday, May 25, 2010
Monday, May 24, 2010
NFL vs American Needle Ruling
The ramifications if the NFL won this, it would negatively affect every major US sport. Sorry baseball. Loved Drew Brees' open letter...he's a well written Super Bowl winner.
Sunday, May 23, 2010
Bourdain meets Baltimore
Anthony Bourdain has a testy history with Baltimore including disparaging remarks in his bestseller Kitchen Confidential as well as throwing it in with Buffalo and Detroit in his "Rust-Belt" episode of No Reservations.
I'm a big fan of Bourdain (and Ripert), but Bourdain and I disagree about Baltimore. He and Eric Ripert were in Baltimore this past weekend. Article here.
I'm a big fan of Bourdain (and Ripert), but Bourdain and I disagree about Baltimore. He and Eric Ripert were in Baltimore this past weekend. Article here.
Information, Coordination, Calculation, and Libertarianism II
Part II:
Here is the original posting from Facts and other stubborn things
I think I would like to perhaps clarify, partly for me, the logic between calculation, prices, and incentives. Daniel is correct in asserting that many people have a tendency to link these three but I would separate prices and calculation from incentives. As I stated in the post below, there are two aspects to the Socialist Calculation Debate (SCD). Let me start with calculation.
The calculation problem, in a parsimonious description, refers to the inability of a central planner to properly allocate resources to their most efficient and Rawlsian welfare maximizing use. This is the central tenet of Mises' 1920 monograph. He starts to lay out the reasoning for why a central planner cannot establish value.
In an exchange economy the objective exchange value of commodities enters as the unit of economic calculation. This entails a threefold advantage. In the first place, it renders it possible to base the calculation upon the valuations of all participants in trade. The subjective use value of each is not immediately comparable as a purely individual phenomenon with the subjective use value of other men. It only becomes so in exchange value, which arises out of the interplay of the subjective valuations of all who take part in exchange. But in that case calculation by exchange value furnishes a control over the appropriate employment of goods. Anyone who wishes to make calculations in regard to a complicated process of production will immediately notice whether he has worked more economically than others or not; if he finds, from reference to the exchange relations obtaining in the market, that he will not be able to produce profitably, this shows that others understand how to make a better use of the goods of higher order in question. Lastly, calculation by exchange value makes it possible to refer values back to a unit. For this purpose, since goods are mutually substitutable in accordance with the exchange relations obtaining in the market, any possible good can be chosen. In a monetary economy it is money that is so chosen.
Here is the original posting from Facts and other stubborn things
I think I would like to perhaps clarify, partly for me, the logic between calculation, prices, and incentives. Daniel is correct in asserting that many people have a tendency to link these three but I would separate prices and calculation from incentives. As I stated in the post below, there are two aspects to the Socialist Calculation Debate (SCD). Let me start with calculation.
The calculation problem, in a parsimonious description, refers to the inability of a central planner to properly allocate resources to their most efficient and Rawlsian welfare maximizing use. This is the central tenet of Mises' 1920 monograph. He starts to lay out the reasoning for why a central planner cannot establish value.
In an exchange economy the objective exchange value of commodities enters as the unit of economic calculation. This entails a threefold advantage. In the first place, it renders it possible to base the calculation upon the valuations of all participants in trade. The subjective use value of each is not immediately comparable as a purely individual phenomenon with the subjective use value of other men. It only becomes so in exchange value, which arises out of the interplay of the subjective valuations of all who take part in exchange. But in that case calculation by exchange value furnishes a control over the appropriate employment of goods. Anyone who wishes to make calculations in regard to a complicated process of production will immediately notice whether he has worked more economically than others or not; if he finds, from reference to the exchange relations obtaining in the market, that he will not be able to produce profitably, this shows that others understand how to make a better use of the goods of higher order in question. Lastly, calculation by exchange value makes it possible to refer values back to a unit. For this purpose, since goods are mutually substitutable in accordance with the exchange relations obtaining in the market, any possible good can be chosen. In a monetary economy it is money that is so chosen.
Mises is writing strictly about the socialist system where there are no prices and therefore valuations are impossible. Therefore, the central planner will not know how to best allocate scarce resources. In particular, where and when to allocate capital such as building a new factory when supply and demand intersection is impossible to determine.
For me, the calculation problem ends there. I think that others try to say more about it than is really there. I believe that the Hayek extension of Mises' argument, the response to Lange, is really the brilliant point in the SCD. One that gets mixed up with the calculation problem.
Hayek uses the problem with establishing value to write about prices and their composition. He lays out an argument that develops Mises' calculation problem to describe exactly why prices are not calculable and in turn why market derived prices are impossible for a central planner to determine.
I cannot find the direct quotation, but Hayek uses the example of a tractor to show how no central planner could price a used tractor. To me, the point that a central planner cannot possibly price the tractor is far less important than the awesomeness of the information implicitly contained in a market derived price. I remember getting chills reading how a single price can communicate the mileage; the age of the tractor; the condition both overall and any particular attributes; the need for tractors in the location in which it is being sold; the value of the tractor to the owner and the buyer, simultaneously; and so on.
Hayek's essay is what convinced me that distortions to market derived prices must result in some loss of economic efficiency. My guess is that Daniel would agree with this, where we might disagree is how much efficiency loss is acceptable given some other set of objectives.
This is my reading of the SCD and I think that many people have a tendency to overlap and merge these arguments into a murky mess. What this has to do with incentives, I am not sure, but I do have some thoughts about it which I will discuss later. I think that what tends to happen is that in the overlap, the calculation problem=>a failure of central planning=>incentive problems as central planners misallocate resources. I do not agree that the last step follows the logical progression.
Hayek uses the problem with establishing value to write about prices and their composition. He lays out an argument that develops Mises' calculation problem to describe exactly why prices are not calculable and in turn why market derived prices are impossible for a central planner to determine.
I cannot find the direct quotation, but Hayek uses the example of a tractor to show how no central planner could price a used tractor. To me, the point that a central planner cannot possibly price the tractor is far less important than the awesomeness of the information implicitly contained in a market derived price. I remember getting chills reading how a single price can communicate the mileage; the age of the tractor; the condition both overall and any particular attributes; the need for tractors in the location in which it is being sold; the value of the tractor to the owner and the buyer, simultaneously; and so on.
Hayek's essay is what convinced me that distortions to market derived prices must result in some loss of economic efficiency. My guess is that Daniel would agree with this, where we might disagree is how much efficiency loss is acceptable given some other set of objectives.
This is my reading of the SCD and I think that many people have a tendency to overlap and merge these arguments into a murky mess. What this has to do with incentives, I am not sure, but I do have some thoughts about it which I will discuss later. I think that what tends to happen is that in the overlap, the calculation problem=>a failure of central planning=>incentive problems as central planners misallocate resources. I do not agree that the last step follows the logical progression.
Friday, May 21, 2010
Thursday, May 20, 2010
Wednesday, May 19, 2010
Brian Burke doing good work
From Puck Daddy:
Using his name, Burke is doing something many might not feel comfortable with, but knowing that only good will come out of his support for MyGSA.ca, he is helping to promote a message that Brendan may have ended up doing himself after he came out publicly last year.
Using his name, Burke is doing something many might not feel comfortable with, but knowing that only good will come out of his support for MyGSA.ca, he is helping to promote a message that Brendan may have ended up doing himself after he came out publicly last year.
Number 1 picks
From DC Sports Bog:
And find me another city that has a No. 1 overall pick on its MLB, NBA and NHL teams, all at the same time. Maybe our luck is starting to turn. You could build some sports fans around a core of Wall, Strasburg, Zimmerman, Ovechkin, Backstrom and Orakpo.
Interesting....given the draft lotteries, it would be very unlikely to have a city with #1 picks on its major teams.
And find me another city that has a No. 1 overall pick on its MLB, NBA and NHL teams, all at the same time. Maybe our luck is starting to turn. You could build some sports fans around a core of Wall, Strasburg, Zimmerman, Ovechkin, Backstrom and Orakpo.
Interesting....given the draft lotteries, it would be very unlikely to have a city with #1 picks on its major teams.
Mexican faux pas
I'm not sure that serving Mexican food, even if it is Rick Bayless cooking, at a state dinner for the President of Mexico is not a faux pas of some sort. It would be like going to Tokyo for omakase at Jiro and being served burgers and fries. Article here.
Tuesday, May 18, 2010
Monday, May 17, 2010
Wage rigidities
I am getting behind in my responses to Daniel about calculation etc., but he has a new post up on his blog Facts and other stubborn things on new Keynesian approaches to wages and employment.
I think we do see rigidities in the labor market wrt real wages. Let me suggest this is a problem with the makeup of the labor supply due to skill mismatches, immigration policies, shifts in the composition of firm birth and death, and other structural elements. I guess what I am saying is that the wage-supply-demand model is not very generalizable and this appears as wage rigidity when in fact it is much more a case of substitutability of labor inputs and the labor demand curve changing slope rather than shifts out or in.
I think we do see rigidities in the labor market wrt real wages. Let me suggest this is a problem with the makeup of the labor supply due to skill mismatches, immigration policies, shifts in the composition of firm birth and death, and other structural elements. I guess what I am saying is that the wage-supply-demand model is not very generalizable and this appears as wage rigidity when in fact it is much more a case of substitutability of labor inputs and the labor demand curve changing slope rather than shifts out or in.
Cool food blog you should read!
My friend Meg has a blog from a really interesting perspective...she's a ex-pat from Maryland living in Helsinki.
What to do about failed cities
These 2 articles are about the downslide of Detroit and more importantly, what can be done about it. The first is from the WSJ on efforts to raze empty houses. The second is an older post by Harvard Urban Economics professor Ed Glaeser.
Sunday, May 16, 2010
Top restaurants this year
Article on the state of the restaurant business and the San Pellegrino Top 100.
Pinhole cameras
I have never made one but think pinhole cameras take really interesting pictures. Here's how to make and use a more complicated tri-film version.
Saturday, May 15, 2010
Baltimore Free Store
I like this concept and am glad someone is doing it. I am not sure how this is incompatible with capitalism though.
Guilty pleasure
I have a guilty pleasure....infomercials. Here are 3 of my favorites and a compilation that was accompanied on the Woot blog with the following, hilarious description:
From dogs who stink up your couch to ketchup that dribbles all over your new tie, infomercials have chronicled a litany of "problems" most of us didn't know we had. In tribute to the actors who bring such overwrought panache to their roles as incompetent shlemiels, a YouTube auteur assembled clips from over 50 infomercials depicting all the awful things that can happen when you're not properly equipped. Now, where did I put that Adjust-A-Slice?
Magic Bullet
Better Marriage Blanket
Slap Chop
The compilation
From dogs who stink up your couch to ketchup that dribbles all over your new tie, infomercials have chronicled a litany of "problems" most of us didn't know we had. In tribute to the actors who bring such overwrought panache to their roles as incompetent shlemiels, a YouTube auteur assembled clips from over 50 infomercials depicting all the awful things that can happen when you're not properly equipped. Now, where did I put that Adjust-A-Slice?
Magic Bullet
Better Marriage Blanket
Slap Chop
The compilation
Friday, May 14, 2010
Information, Coordination, Calculation, and Libertarianism I
I have recently found a really great blog (by a former classmate of mine from grad school) called Facts and other stubborn things. Daniel posts really well thought out pieces on a variety of topics and his posts are well informed and very insightful. Check it out...link to the right------->
He has recently written quite a lot about libertarianism, the Socialist Calculation Debate (SCD), which is linked to on the right hand side of this blog, and its ramifications today. I started this when he had only 2 posts on this but he has been posting things faster than I can respond. So I will respond to each...apologies if my comments are addressed in later posts.
1. http://factsandotherstubbornthings.blogspot.com/2010/05/calculation-problems-vs-incentive.html
First, I'd just like to say that I was fortunate to read the Socialist Calculation Debate in depth with noted Austrian economist Howard Baetjer as an undergraduate in comparative economic systems. It was truly one of the cornerstone moments in my intellectual development and the impetus for a profound chnage in my political and overall world view.
I'd like to address some issues and perhaps clarify some points. Quotes from Daniel are in italics.
the "socialist calculation problem" has never really interested me that much. It just strikes me as so obvious...[the debate came after] my primary influence (Keynes) had made his impression on the discipline, and wrapped itself up before I was even born and with all the modern economists that I admire coming down against Lange and Lerner. Moreover, none of the economists in the interim that I admire - Phelps, Friedman, Hicks, Modigliani, Minsky, Coase, Williamson - really succumbed to the Lange-Lerner infatuation with socialism. I can certainly understand why someone who grew up during the Cold War could maintain an interest in this skirmish even into the twenty-first century, but it doesn't hold any particular interest for me, because it seems so eminently obvious and conclusively decided.
On a cursory reading the SCD is a fairly obvious critique ex post. Socialism clearly failed and history has shown that the failure of the Soviet Union was in a large part due to the problems in central planning of an economy. But I believe that to call it a calculation problem leads one away from the central point of Hayek's essays from 1945 and 1948. In my reading, I find that what is important is not that socialism failed, not that calculation could not be made, per se, not that resources could not be allocated properly, but that market derived prices are so important. The information in market prices is awesome and they are a wonderful example of spontaneous order. The most important, relevant point is that interference in the markets' ability to freely set prices, unencumbered, has to be the very highest priority.
I think Hayek's essays after the war had two points of relevance and he and Keynes were not just two great economists passing in the night as it were. First, historically, Hayek's writings must have been influenced by Keynes at this time. Hayek and Keynes' close relationship, particularly during the war (I love the mental picture of the two of them arguing economics while on fire duty together on the roof of Kings College at Cambridge), must have influenced Hayek's writings at this time. Second, I would argue that while although no one would call Keynes a socialist, he did take an approach that diverged from the classical liberals who dominated economics prior to the Great Depression and placed a heavier emphasis on reliance on government intervention. In some way perhaps, Hayek's essays served to try to influence Keynes to place the priority of market prices higher rather than sacrificing some of their robustness in the pursuit of full employment.
I agree wholeheartedly with Daniel that the framing of the efficient allocation argument has degenerated into a senseless disagreement because of confusion from both sides about calculation and incentives (if I am reading your term incentive problems correctly). Hayek was not writing about incentives in the SCD. The calculation problem exists even in the presence of the so-called benevolent dictator.
I do think that a large portion of the population does believe that government can allocate resources better than individuals. Not economists in general, but this is a widespread belief among a wide swath of the population; even the concept of scarce resources is difficult for many educated, thoughtful people.
Daniel asks 2 questions:
First, is a "market failure" a genuine market failure or is it, as Boettke says, an opportunity for arbitrage? If it's just an opportunity for arbitrage then "market failure" is a misnomer. If it is a genuine market failure, we then of course have to ask ourselves what the best solution is. In some cases a public solution will be appropriate, and in some cases a private solution will be appropriate.
Unlike Boettke, I differentiate between market failures and information problems. They are overlapping sets, but do not share all elements. Strictly speaking, I think the term market failure is misused as many problems are attributed to market failures, but no market is without distortions. I have no reason to believe that a truly free market won't arbitrage away market failures, but show me a free market. Information problems are another story. Information problems is one area in which I split with the Austrians. There is overwhelming evidence that information problems exist, even in the most transparent environments and, as the amount of information has exploded exponentially in the recent past, there is no way to sort through it all. At its most basic level, both buyers and sellers have the incentive to work in their own best interest, but it is much easier to hide information from each other now or mislead and both sides are usually at fault.
The second question is: [D]oes the admitted fallibility of the state preclude a public solution or doesn't it[?]
Given that the state is fallible, we should not expect a solution, simply a Pareto improvement at best. I would also suggest that any "solution" is an intervention subject to the risk of the Theory of the Second Best. I also invoke Bastiat here: "There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen." These ideas can be applied easily to the example of the carbon emissions Daniel gives. A negative externality exists, the lack of a market (because of no property rights) creates a public bad. This is not a market failure and not an area (sorry anarcho-capitalists) that property rights will fix (true for many externalities). What Daniel suggests is directly in line with my thinking about Pareto improvement. However, where we differ is how to deal with it. I am not entirely convinced that a small tax is better than doing nothing. A tax costs overall welfare, a tax on carbon emitters has enforcement costs, and a broadly applied tax has free rider problems. I would be in favor of tax cuts for carbon emitters and shift the burden of proof of reduction of carbon emissions to the companies if they want to take advantage of the tax cuts, vastly reducing enforcement costs.
More to come
He has recently written quite a lot about libertarianism, the Socialist Calculation Debate (SCD), which is linked to on the right hand side of this blog, and its ramifications today. I started this when he had only 2 posts on this but he has been posting things faster than I can respond. So I will respond to each...apologies if my comments are addressed in later posts.
1. http://factsandotherstubbornthings.blogspot.com/2010/05/calculation-problems-vs-incentive.html
First, I'd just like to say that I was fortunate to read the Socialist Calculation Debate in depth with noted Austrian economist Howard Baetjer as an undergraduate in comparative economic systems. It was truly one of the cornerstone moments in my intellectual development and the impetus for a profound chnage in my political and overall world view.
I'd like to address some issues and perhaps clarify some points. Quotes from Daniel are in italics.
the "socialist calculation problem" has never really interested me that much. It just strikes me as so obvious...[the debate came after] my primary influence (Keynes) had made his impression on the discipline, and wrapped itself up before I was even born and with all the modern economists that I admire coming down against Lange and Lerner. Moreover, none of the economists in the interim that I admire - Phelps, Friedman, Hicks, Modigliani, Minsky, Coase, Williamson - really succumbed to the Lange-Lerner infatuation with socialism. I can certainly understand why someone who grew up during the Cold War could maintain an interest in this skirmish even into the twenty-first century, but it doesn't hold any particular interest for me, because it seems so eminently obvious and conclusively decided.
On a cursory reading the SCD is a fairly obvious critique ex post. Socialism clearly failed and history has shown that the failure of the Soviet Union was in a large part due to the problems in central planning of an economy. But I believe that to call it a calculation problem leads one away from the central point of Hayek's essays from 1945 and 1948. In my reading, I find that what is important is not that socialism failed, not that calculation could not be made, per se, not that resources could not be allocated properly, but that market derived prices are so important. The information in market prices is awesome and they are a wonderful example of spontaneous order. The most important, relevant point is that interference in the markets' ability to freely set prices, unencumbered, has to be the very highest priority.
I think Hayek's essays after the war had two points of relevance and he and Keynes were not just two great economists passing in the night as it were. First, historically, Hayek's writings must have been influenced by Keynes at this time. Hayek and Keynes' close relationship, particularly during the war (I love the mental picture of the two of them arguing economics while on fire duty together on the roof of Kings College at Cambridge), must have influenced Hayek's writings at this time. Second, I would argue that while although no one would call Keynes a socialist, he did take an approach that diverged from the classical liberals who dominated economics prior to the Great Depression and placed a heavier emphasis on reliance on government intervention. In some way perhaps, Hayek's essays served to try to influence Keynes to place the priority of market prices higher rather than sacrificing some of their robustness in the pursuit of full employment.
I agree wholeheartedly with Daniel that the framing of the efficient allocation argument has degenerated into a senseless disagreement because of confusion from both sides about calculation and incentives (if I am reading your term incentive problems correctly). Hayek was not writing about incentives in the SCD. The calculation problem exists even in the presence of the so-called benevolent dictator.
I do think that a large portion of the population does believe that government can allocate resources better than individuals. Not economists in general, but this is a widespread belief among a wide swath of the population; even the concept of scarce resources is difficult for many educated, thoughtful people.
Daniel asks 2 questions:
First, is a "market failure" a genuine market failure or is it, as Boettke says, an opportunity for arbitrage? If it's just an opportunity for arbitrage then "market failure" is a misnomer. If it is a genuine market failure, we then of course have to ask ourselves what the best solution is. In some cases a public solution will be appropriate, and in some cases a private solution will be appropriate.
Unlike Boettke, I differentiate between market failures and information problems. They are overlapping sets, but do not share all elements. Strictly speaking, I think the term market failure is misused as many problems are attributed to market failures, but no market is without distortions. I have no reason to believe that a truly free market won't arbitrage away market failures, but show me a free market. Information problems are another story. Information problems is one area in which I split with the Austrians. There is overwhelming evidence that information problems exist, even in the most transparent environments and, as the amount of information has exploded exponentially in the recent past, there is no way to sort through it all. At its most basic level, both buyers and sellers have the incentive to work in their own best interest, but it is much easier to hide information from each other now or mislead and both sides are usually at fault.
The second question is: [D]oes the admitted fallibility of the state preclude a public solution or doesn't it[?]
Given that the state is fallible, we should not expect a solution, simply a Pareto improvement at best. I would also suggest that any "solution" is an intervention subject to the risk of the Theory of the Second Best. I also invoke Bastiat here: "There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen." These ideas can be applied easily to the example of the carbon emissions Daniel gives. A negative externality exists, the lack of a market (because of no property rights) creates a public bad. This is not a market failure and not an area (sorry anarcho-capitalists) that property rights will fix (true for many externalities). What Daniel suggests is directly in line with my thinking about Pareto improvement. However, where we differ is how to deal with it. I am not entirely convinced that a small tax is better than doing nothing. A tax costs overall welfare, a tax on carbon emitters has enforcement costs, and a broadly applied tax has free rider problems. I would be in favor of tax cuts for carbon emitters and shift the burden of proof of reduction of carbon emissions to the companies if they want to take advantage of the tax cuts, vastly reducing enforcement costs.
More to come
Thursday, May 13, 2010
Gloomy outlook from John Judis
An article on some of the reasons why the US isn't out of the woods wrt the crisis.
H/T: Coordination Problem
H/T: Coordination Problem
Facebook privacy
A subject that keeps coming up...but this author takes the wrong approach. Don't like it? Delete your account. What could be more harmful to Facebook than it losing its market share and weakening its expected IPO?
Not to say it's not happening.
Not to say it's not happening.
"How government support and less competition is fueling Wall Street’s revival"
A good article on the banking sector response to the bailouts.
A good piece on the Greek crisis
Here is a link to a pdf that summaries the Greek crisis in a neat, concise way.
Wednesday, May 12, 2010
Tyler Cowen Article
A great article on Tyler Cowen...one of the most interesting economists and true renaissance man.
Paper on economic enlightenment
Daniel Kuehn over at Facts and other stubborn things has a good piece on this paper from Econ Journal Watch.
Negative equity in the US housing market
If you want to know why the real estate market is frozen...
http://calculatedriskimages.blogspot.com/2010/05/negative-equity-by-state-q1-2010.html
http://calculatedriskimages.blogspot.com/2010/05/negative-equity-by-state-q1-2010.html
Taking a new tack
This blog is going to be less opinion and more of a venue to post interesting things and some ramblings about sports. Sorry, but I am now in a position where I can't be controversial.
Subscribe to:
Posts (Atom)