A Partisan Nonpartisan Blog: Cutting Through Confusion Since 2012
Eliezer’s post “Evaporative Cooling of Group Beliefs” is a brilliant explanation of why failed prophecies can lead to a group with increased belief and fanaticism. What is more, this post hints at a possible future direction for mathematical sociology. This statistical mechanics perspective is also important for the economics of religion as an alternative explanatory principle.
In draft, this column had the working title “How the Transition to Electronic Money Rewards the First Movers and Punishes the Laggards.”
Several people have asked me where they could learn more about the economics of taxes. David Agrawal (a Michigan Ph.D. who is now at the University of Georgia) pointed out to me that Raj Chetty, one of the top experts in the world on the economics of taxes and redistribution, has put his lectures on taxes and redistribution online.
Make up your own mind about what the facts mean, but this article by Randall Wray explains an accounting identity worth knowing: deficits and surpluses for all economic actors in the world put together have to add up to zero. It is good to look at both sides of the coin.
Sometimes a sector of the economy has so much technological progress that over many decades, output in the sector increases while inputs into the sector–particularly the amount of labor used–decreases. Agriculture went through this transformation first. In more recent decades, manufacturing employment has been shrinking while manufacturing output has been growing. Just as we need only a few farmers to feed everyone, we are moving toward a world where we only need a few people to manufacture things, while almost everyone is employed in the service sector.
Neil Irwin describes this transformation in his post “American manufacturing is coming back. Manufacturing jobs aren’t.”
In my post “The Egocentric Illusion,” which gives my take on David Foster Wallace’s Kenyon College Commencement Address, I wrote:
Up until I was 39 or 40 years old, I genuinely believed in an afterlife, and like most people assumed my afterlife would be a pleasant one. Then I decided I did not believe in God. I had always thought that an afterlife would require someone powerful to make it happen. So not believing in God meant I did not believe in an afterlife either. Realizing that most likely there was no afterlife was a big item of bad news for me. It made me less happy than I normally would have been for several years. That unhappiness caused me to think. Then and sometimes now, I tried to imagine the intelligent aliens who might be recording my consciousness digitally for later cybernetic resurrection, but I have lacked enough social support for that belief for it to be all that reassuring.
The link (embedded in the title of this post) to Marcelo’s Gleiser’s post, shows that social support for such a belief may not be totally lacking.
In his book The Stuff of Thought, (p. 89), Steven Pinker writes (bullets added):
The beauty of the straw man is that he can be used in so many ways.
- The most hackneyed is the straw man boxing match, in which one replaces a formidable opponent with a defeatable simpleton.
- But there’s also the straw-man two-step: first set up the effigy, then acknowledge that he is not so fatuous after all, but frame his reasonableness as a capitulation to one’s devastating criticisms.
- And then there is the sacrificial straw man, useful when one worries about being on the fringe of respectable opinion: set up a fanatical version of one’s theory, then distance oneself from it as proof of one’s moderation.
This is a thoughtful piece. The worries and prescriptions are unsurprising, but Uri Dadush’s and Moises Naim’s discussion of the underlying strengths of the U.S. economy is a useful antidote to alarmism.
Bonnie puts me at #14 on her list. She writes:
Miles Kimball, an economics professor at the University of Michigan, always brings a thoughtful take to economic issues.
Thanks, Bonnie!
The title of this post is the original working title of the column.
In early drafts, I related what I say in the Quartz column to Jonathan Haidt’s six moral tastes in his book The Righteous Mind: Why Good People Are Divided by Politics and Religion. Here is a New York Times book review by William Saletan, and here is a good passage from Jonathan Haidt summarizing his theory, chosen by Bill Vallicella, in Bill’s post “Jonathan Haidt on Why Working Class People Vote Conservative.”
There is a key chunk of text making the link to Jonathan Haidt’s theory that was appropriately cut for being too wonkish, but that I think you might find valuable
Here it is:
The most important boon people want for the nation as a whole is freedom. In the words we used for the choices we gave them, the #1, #2, #10, #13, #18 and #23 things people want for the nation are
- freedom from injustice, corruption, and abuse of power in your nation
- people having many options and possibilities in their lives and the freedom to choose among them;
- freedom of speech and people’s ability to take part in the political process and community life;
- the amount of freedom in society;
- people’s ability to dream and pursue their dreams; and
- people’s freedom from emotional abuse or harassment.
The next most important boons people want for the nation are goodness, truth, loyalty, respect and justice. On our list, the #3, #6, #8, #17, #19 and #21 most highly-valued aspects of the good society are
- people being good, moral people and living according to their personal values;
- people’s freedom from being lied to, deceived or betrayed
- the morality, ethics, and goodness of other people in your nation; and
- people having people around them who think well of them and treat them with respect
- the quality of people’s family relationships
- your nation being a just society.
The exact picture of “goodness” and “justice” might differ from one person to the next, but it is clear that they represent more than just money and happiness. University of Virginia psychologist Jonathan Haidt, in his brilliant book The Righteous Mind: Why Good People Are Divided by Politics and Religion argues that morality comes in six flavors (“The righteous mind is like a tongue with six tastes.”):
- liberty vs. oppression,
- fairness vs, cheating,
- sanctity vs. degradation,
- loyalty vs. betrayal,
- authority vs subversion, and
- care vs. harm.
The first five of Haidt’s flavors of morality are well represented above. The fourth flavor of morality, care vs. harm, is the one many authors focus on, to the exclusion of the others. It is the bread and butter aspects of people’s lives. In our findings, care vs. harm is reflected in 11 of the top 25 (numbers 4, 7, 9, 11, 12, 13, 16, 18, 22, 24, 25), including “the overall well-being of people and their families” in your nation, people’s health, financial security, and freedom from pain; “people having people they can turn to in time of need” and a “sense of security about life and the future in general” and balance, as reflected in the items “people’s mental health and emotional stability,” “how much people enjoy their lives” and “how peaceful, calm and harmonious people’s lives are.”
In addition to all of these, people want meaning, as reflected by #5 and #14 on our list: “people’s sense that they are making a difference, actively contributing to the well-being of other people, and making the world a better place, and “people’s sense that their lives are meaningful and have value.” In addition to his discussion of key dimensions of morality, in The Righteous Mind: Why Good People Are Divided by Politics and Religion, Jonathan Haidt emphasizes the importance of meaning—in particular, the importance of feeling one is a part of a larger whole. One of his central metaphors is “We are 90 percent chimp and 10 percent bee.” That is, Haidt believes that perhaps 90% of the time we are out for ourselves, however gently, but perhaps 10% of the time we are out for a higher cause (like the general good of everyone in our group) to the deepest level of our beings. A sense of “meaning” often comes from making that connection to something greater than ourselves.
You can see my other posts on happiness in the happiness sub-blog linked at my sidebar, and here:
This is the second guest post by Joshua Hausman on supplysideliberal.com.
An excellent historical analogy to Miles’s Federal Lines of Credit proposal are the 1931 loans to World War I veterans that I discussed in a guest blog post in August. As I described then, in 1924, Congress promised to pay World War I veterans a large bonus in 1945. When the Depression threw many out of work, veterans lobbied for early payment of the bonus. Congress acquiesced in 1931 by allowing veterans to borrow up to 50 percent of the value of their bonus. The main chapter of my dissertation focuses on the larger payment to veterans that occurred in 1936. In this blog post, I summarize my paper and discuss its possible implications for the success of a Federal Lines of Credit program.
Despite their ability to take loans after 1931, veterans continued to demand immediate cash payment of the entire, non-discounted, value of their bonus. Tens of thousands camped out in Washington, DC from May to July 1932 to lobby Congress and the President for immediate payment (see picture). Rather than agree to their demands, President Hoover allowed General Douglas MacArthur to use soldiers and tanks to evict the veterans from Washington. Soldiers burned down veterans’ shacks in Anacostia. This forcible eviction provoked a political reaction that helped propel Franklin Roosevelt to victory the next year.
In June 1936 the typical veteran received $550, more than annual per capita income and enough money to buy a new car. In aggregate, the Federal government issued 3.2 million veterans bonds worth $1.8 billion or 2% of GDP. As a share of the economy, bonus payments were roughly the same size as the American Recovery and Reinvestment Act (the Obama stimulus) in 2009.
This payment had a loan component analogous to a Federal Lines of Credit program since it allowed veterans access to money in 1936 that they were supposed to receive in 1945. Furthermore, taking the money as cash in 1936 came with an interest rate penalty: veterans were issued bonds in $50 denominations and could cash as many or as few of them as they desired. If they held the bonds, they would receive 3 percent interest every year until 1945. Just as one pays interest when one borrows money from a bank, veterans had to forgo interest if they chose to cash their bonus in 1936.
But the 1936 legislation also was an outright gift, since it increased the present value of veterans’ lifetime income. In particular the legislation forgave interest on loans that they had taken against the bonus, and gave veterans in 1936 the same nominal sum they had been supposed to receive in 1945. In my paper, I calculate that for the typical veteran roughly half the bonus amount received in June 1936 was an increase in present value lifetime income.
Out of the $1.8 billion of bonds issued to veterans through June 30, 1936, $1.2 billion were cashed in June and July 1936. A further 200 million were redeemed in late summer and fall. Thus 80 percent of the dollar value of the bonds was cashed in 1936. This in itself suggests large effects from giving veterans access to cash; more generally, it suggests that a program giving individuals access to low interest rate loans, as Federal Lines of Credit would do, can be quite popular.
My paper explores whether and how veterans spent this money. The primary source of evidence is a household consumption survey administered by the Works Progress Administration and the Bureau of Labor Statistics in 1935 and 1936. By exploiting variation in when households were surveyed and in the likelihood that a household included a veteran, I estimate a marginal propensity to consume (MPC) out of the bonus of 0.7, meaning that out of every dollar of bonus bonds received, the typical veteran spent 70 cents. This result is confirmed by other, independent, sources of evidence.
Interestingly, an MPC of 0.7 is as large as that measured from the 2001 tax rebates and 2008 stimulus payments, programs that did not have a loan component. If veterans’ spending were only influenced by the part of the bonus that represented a change in the present value of their lifetime income, then it would be almost impossible to explain the amount of spending I observe. An MPC of 0.7 out of the total bonus implies a MPC out of the increment to lifetime income of about 1.4 (since the increment to lifetime income was roughly half the bonus amount). This is implausible. Instead, the much more likely explanation is that veterans’ spent more in 1936, not only because their lifetime income was higher, but because the bonus meant access to a low interest rate loan at a time when liquidity constraints were pervasive.
Further evidence on the bonus’s effects comes from differences in the proportion of the population made up of veterans across states and cities. This variation meant significant geographic variation in bonus payments received. The figure at the top of this post juxtaposes the change in new car purchases from 1935 to 1936 in a state against the number of veterans per capita as measured in the 1930 census in that state. The slope implies that for every additional veteran in a state, roughly 0.3 more new cars were sold in 1936. In the paper, I show that this result is robust to controlling for a variety of different possible confounding variables.
A third source of evidence on veterans’ spending behavior is an unpublished survey by the American Legion that asked 42,500 veterans how they planned to use their bonus. Veterans told the American Legion that they planned to consume 40 cents out of every dollar and to spend an additional 25 cents out of every dollar on residential and business investment. Evidence from the 2001 and 2008 Bush tax rebates suggests that such ex ante surveys are likely to significantly understate the total cumulative spending response (see section 5 of my paper for more on this argument). Thus, the prospective MPC of 0.4 measured in the American Legion Survey is consistent with an actual MPC that was significantly higher.
Aggregate time series are also consistent with a large spending response. GDP grew 13.1 percent in 1936, more rapidly than in any other year of the 1930s. In the paper, I estimate that the bonus contributed 2.5 to 3 percentage points to this growth.
My results are encouraging evidence for the efficacy of Federal Lines of Credit, since they suggest that even when a large portion of a transfer payment is a loan (roughly half in the case of the veterans’ bonus), the MPC can be high. 2012 is not 1936, of course, and particular features of the 1936 economy may have contributed to unusually high spending from the bonus, specifically on durables. Still, at a minimum, my results suggest that further research on the efficacy of Federal Lines of Credit is desirable.
The Bonus March photo is from http://www.loc.gov/exhibits/treasures/images/at0058f2as.jpg
All other material is taken from my job market paper, with sources documented there. One other paper, Telser (2003), examines the 1936 bonus in detail. Telser studies a variety of time series and concludes that the bonus “brought a large measure of recovery to the economy’‘ (p. 240).
In his Daily Beast article “Schadenfareed,” Tunku Varadarajan has something interesting to say about a side-effect of the winner-take-all tendencies of online journalism:
It’s lonely at the top. As the traditional news media shrivel and other platforms proliferate, celebrity public intellectuals like Zakaria (think, also, of Tom Friedman and David Brooks) become the only bankable resource left. Recognizable across all the mediums, the branded few become mini-industries unto themselves. Simultaneously, a huge cloud of excluded people, regular civilians and workaday journalists alike, can now respond on the Internet, many of them resentful that their voices go unheard while the Zakarias loom ever larger. So they pick over every word.
Tunku is explicit about the envy of the many against the few big winners in the tournament as a motivating force for the heat Fareed got for his bit of plagiarism:
What one has seen in the past few days can only be described as a hideous manifestation of envy—Fareed Envy.
It occurs to me that, while college teaching has only recently had the technological potential for such dynamics of winner-take-all, coupled with envy, academic research has long has exactly these dynamics of winner-take-all plus envy. Although often unpleasant, those dynamics are part of what keep science honest, as those on their way up make their bones by finding flaws in the work of those who are already big guns.
An illustration of a traditional Christian conception of Heaven
Last Sunday, in my post “An Agnostic Grace,” I described a possible pattern for a mealtime blessing appropriate for agnostics who lean toward non-supernaturalism, but have some Christian background themselves or are aware that some Christians are also present for the meal. In this post, I want to modify that ritual to make it appropriate for opening a religious gathering sensitive to the presence of agnostics, such as Unitarian Universalist Sunday services, or a small group meeting of Unitarian Universalists. But I want to stress that this invocation could work well in any religious gathering where the intent was to make agnostics feel welcome. The theological background for this agnostic invocation is discussed in “An Agnostic Grace,” and in my post “Teleotheism and the Purpose of Life.”
From the beginning:
May this gathering uplift our hearts, enlighten our minds, and inspire our endeavors to bring us closer to, and glorify, the God or Gods Who May Be.
This is then followed by extemporaneous expressions of one or more of the following:
The final words are:
And may we understand more fully the mystery of the humanity we all share, and act as one family to bring this Earth nearer to Heaven. Amen.
I find this post by Duncan Green about the direction of the field of Economic Development especially interesting because I know people on both sides of this debate. I met Lant Pritchett when he was in graduate school at MIT and I was at Harvard since we were both in the same Mormon congregation at that time, and my wife Gail and I have kept up with Lant and his wife Diane to some degree in the years that followed. On the other side of the debate, several of my colleagues are involved in randomized controlled trials in the developing world.
In my post “The True Story of How Economics Got Its Nickname ‘The Dismal Science,’” I told how economics got its nickname “the dismal science” as a result of the opposition of John Stuart Mill (who was a noted economist as well as philosopher) to slavery. But the nickname sticks partly because people think of economists as bearers of bad news. But in fact, economists are prominent among those who remind people that over the long haul “Things Are Getting Better.” Steven Johnson’s article “We’re Living the Dream, We Just Don’t Realize It” has the same message. For a book-length treatment of this theme, I recommend The Progress Paradox: How Life Gets Better While People Feel Worse.
The economic slump we are in will someday be over. We should not let it falsely color our picture of the broad, progressive sweep of modern history.
The UK made the unusual move of appointing a Canadian as head of the Bank of England. I applaud this small step toward a more global market in central bankers. Sometimes, the best candidate is a foreigner, even after taking political and national security concerns into account.
In this article, Joe Weisenthal expresses his admiration for Mark Carney’s record as head of the Bank of Canada.
This is an interesting summary on the African Arguments website of the book “Poor Numbers: How We are Misled by African Development Statistics and What to Do About It” by Morten Jerven. There are many problems with government economic statistics in Africa. But the emphasis in this summary is that by using historical weights they often give much too much weight to declining or stagnant sectors of an economy as compared to the growing, dynamic sectors of an economy. Thus, much of the economic growth is missed.
