Ricardo Hausman: Tacit Knowledge Is a Key Component of Productivity; That Means Prosperity Depends on Allowing Skilled Immigration--Especially into Poor Countries

My graduate school contemporary Lant Pritchett interviews Ricardo Hausman. In a 5-minute video, Ricardo talks about how "technology" as measured by total factor productivity (or purified TFP) is really a combination of: 

  1. knowledge embodied in machines
  2. knowledge embodied in books or digital files
  3. knowledge embodied in human brains only in a nonconscious, tacit way

That means that to improve "technology," one should allow into one's country not only advanced machines, books and digital information, but also skilled individuals who have have important tacit knowledge. Remarkably, many poor countries are very restrictive in allowing skilled immigration. Ricardo argues that this not only hurts economic growth, it exacerbates inequality. 

I have a closely related blog post that you might also be interested in:

I should also mention that the YouTube page the video above is on has a wealth of other intriguing videos. 

Good News! Cancer Cells are Metabolically Handicapped

Being free of normal restraints can make a killer or a thief seem powerful. But it doesn't mean the killer is an evil genius like those so common in movies and on TV. My Dad, a criminal law professor, often told me stories about how stupid criminals are; he even cowrote a book about it in honor of one of his colleagues: Criminals are Stupid: A Tribute to Woody Deem. 

Being free of normal restraints can make cancer cells seem powerful. But the damage they have suffered that makes them go rogue is likely to handicap them in some way. There are mechanisms that keep cells on the straight and narrow. It would be hard for something to damage those good-behavior mechanisms without damaging something else as well.  

Thomas Seyfried, in his book Cancer as a Metabolic Disease: On the Origin, Management, and Prevention of Cancer argues persuasively that metabolic damage is a common path for a cell to break free of normal restraints. In Chapter 15, he writes:

According to my view, cancer cells proliferate and survive not because of their genomic instability, but because of their respiratory insufficiency. Respiratory insufficiency enhances fermentation, destabilizes the genome, and causes entry into the default state of unbridled proliferation [15]. ...

Fermentation energy is primal energy. Fermentation is linked to unbridled proliferation [15, 20]. ...

Unbridled proliferation is the default state of metazoan cells when released from active negative control [33–35].

Active respiration maintains the differentiated state and genome integrity through the RTG signaling system (Chapter 10).

To understand this passage, it is important to know how Thomas Seyfried is using the technical terms "respiration" and "fermentation." The current version of the Wikipedia article "Cellular respiration" explains:

Most of the ATP produced by aerobic cellular respiration is made by oxidative phosphorylation. This works by the energy released in the consumption of pyruvate being used to create a chemiosmotic potential by pumping protons across a membrane.

Thomas Seyfried uses the term "respiration" to refer to oxidative phosphorylation, or OxPhos. OXPHOS depends on pumping protons across the inner mitochondrial membrane, which is a delicate structure that must be constructed carefully and can easily be damaged. 

Fermentation is a similar chemical process in yeast, bacteria, and eukaryotes.  (All animals are "eukaryotes," including us). The current version of the Wikipedia article "Fermentation" describes it as follows: 

Fermentation is a metabolic process that consumes sugar in the absence of oxygen. ...

Along with photosynthesis and aerobic respiration, fermentation is a way of extracting energy from molecules, but it is the only one common to all bacteria and eukaryotes. It is therefore considered the oldest metabolic pathway, suitable for an environment that did not yet have oxygen.

Fermentation normally occurs in an anaerobic environment. In the presence of O2, NADH and pyruvate are used to generate ATP in respiration. This is called oxidative phosphorylation, and it generates much more ATP than glycolysis alone. For that reason, fermentation is rarely utilized when oxygen is available.

If Thomas Seyfried is right that cancer cells often have a damaged capability for OxPhos, then cancer cells can't extract as much energy from a given amount of nutrients as normal cells can. If there is plenty of sugar available, cancer cells will be able to do fine by taking in sugar and fermenting it. If there is less sugar available within the body, then it puts cancer cells at more of a disadvantage, since cells that can do OxPhos can wring more energy from each sugar molecule than is possible for a cell that can't do OxPhos and can only manage fermentation.

Thomas Seyfried is far from alone in thinking that many cancer cells are metabolically handicapped. A lot of research, including randomized clinical trials, are being conducted on the basis of this hypothesis, as I discuss in "How Fasting Can Starve Cancer Cells, While Leaving Normal Cells Unharmed." 

A key part of Thomas Seyfried's argument is that metabolizing glutamine and possibly other amino acids without OxPhos can mimic some of the indicators that many investigators use to judge whether OxPhos is intact or not. The following passage from Chapter 4 is important, but heavy going. The two main claims are

  • Metabolizing glutamine without OxPhos can create the illusion for a lab analyst of OxPhos.

  • Glutamine is a major energy source for cells of the immune system, which, when they become cancerous, are capable of being metastatic, spreading cancer far and wide in the body. (I added emphasis with bold italics to the two sentences on this.)

Here is the passage:

Although many tumor cells have active TCA cycles and might appear to respire, in that they consume oxygen and produce CO2 and ATP in the mitochondria, I will present data showing that this is pseudo respiration in some cases. In other words, pseudo respiration has all the characteristics of respiration, but does not involve ATP synthesis through OxPhos. I propose that this apparent respiratory energy is derived from amino acid fermentation. Just as tumor cells ferment glucose in the presence of O2, some tumor cells also ferment glutamine and possibly other amino acids in the presence of elevated glucose and O2. ...

The neutral amino acid glutamine is readily taken up into cells through simple uniport mechanisms [15, 18]. Glutamine can serve as a major source of metabolic fuel for generating ATP through TCA cycle, substrate-level phosphorylation when OxPhos is deficient [42, 44]. Glutamine is also anapleurotic in replenishing metabolites for the TCA cycle [59, 65]. We recently described how cancer cells could generate energy through mitochondrial fermentation and substrate-level phosphorylation in the TCA cycle using glutamine as a substrate [44, 58, 66] (Fig. 4.8). Glutamine is also a major energy fuel for cells of the immune system [67]. As myeloid cells can be the origin of many metastatic cancers following fusion hybridizations, glutamine becomes an important fuel for driving metastasis [66, 68] (Chapter 13). Indeed, targeting glutamine can significantly inhibit systemic metastasis as we have shown [69] (Chapter 17). ...

It is well documented that glutamine enters the mitochondria where it is rapidly metabolized to glutamate by mitochondrial glutaminase [18, 83]. Glutamate is then metabolized to α-ketoglutarate through either a transamination reactions with aspartate or alanine as products or through the action of glutamate dehydrogenase [15, 18, 65, 83].

The bottom line is that plenty of amino acids, like plenty of sugar, can keep cells that can't do OxPhos well-fed. Protein is made of amino acids. My hypothesis to be tested is that the sudden bursts of sugar-abundance in the body generated by eating easily-digestible carbohydrates and the sudden bursts of amino-acid abundance generated by eating the concentrated protein in meat and other animal products can improve the environment for cancer cells. In my own practice, I have quit eating sugar and other easily-digestible carbohydrates, which have many other bad effects as well, and have cut back on milk and meat without eliminating them.

Thomas Seyfried makes another important claim: that cancer cells will have trouble metabolizing fats and the ketone bodies made from body fat during fasting, especially given the low blood-sugar levels during fasting. Again from Chapter 15:

Because tumor cells ferment rather than respire, they are dependent on the availability of fermentable fuels (glucose and glutamine). Normal cells shift metabolism from glucose to ketone bodies and fats when placed under energy stress. ...

Ketone bodies and fats are nonfermentable fuels in mammalian cells. Tumor cells have difficulty in using ketone bodies and fats for fuel when glucose is reduced.

 

Conclusion: Races that Cancer Can Win and Races Cancer Can't Win

If cancer cells have already made the adjustments to switch over to fermentation, injuries that deprive cells of oxygen by interrupting blood flow could give cancer cells an advantage. But fasting, which shifts the nutrients available to cells toward fats and ketone bodies, should give an advantage to normal cells. 

More generally, eating less should be harder on cancer cells than normal cells. Many people bemoan the fact that when they lose weight, their metabolism becomes more efficient, so that they burn fewer calories in a normal day. But there is a silver lining to an efficient metabolism: if normal cells are running their metabolism at maximum efficiency, getting a lot of energy from a relatively small amount of food, cancer cells that can't do OxPhos won't be able to keep up. And if cancer cells die because they can't keep up, the day you die can be put off. 

 

Don’t miss my other posts on diet and health:

I. The Basics

II. Sugar as a Slow Poison

III. Anti-Cancer Eating

IV. Eating Tips

V. Calories In/Calories Out

VI. Other Health Issues

VII. Wonkish

VIII. Debates about Particular Foods and about Exercise

IX. Gary Taubes

X. Twitter Discussions

XI. On My Interest in Diet and Health

See the last section of "Five Books That Have Changed My Life" and the podcast "Miles Kimball Explains to Tracy Alloway and Joe Weisenthal Why Losing Weight Is Like Defeating Inflation." If you want to know how I got interested in diet and health and fighting obesity and a little more about my own experience with weight gain and weight loss, see “Diana Kimball: Listening Creates Possibilities” and my post "A Barycentric Autobiography. I defend the ability of economists like me to make a contribution to understanding diet and health in “On the Epistemology of Diet and Health: Miles Refuses to `Stay in His Lane’.”

Economists' Open Letter Open Letter to President Trump and Congress Against Protectionism →

John Locke: By Natural Law, Husbands Have No Power Over Their Wives

 

John Locke lived from 1632 to 1704. So one should not expect him to be free of sexism (or of heterosexism). He assumed that in case of any disagreement, husbands would hold more sway than their wives over their common enterprise of mutual support and of bearing, rearing and providing for children. In Section 82 of his 2d Treatise on Government: “Of Civil Government,” in Chapter VII, "Of Political or Civil Society," John Locke writes:

... it therefore being necessary that the last determination, i. e. the rule, should be placed somewhere; it naturally falls to the man’s share, ...

But he insisted that the authority of husbands extended only to their common enterprise and no further:

... this reaching but to the things of their common interest and property, leaves the wife in the full and free possession of what by contract is her peculiar right, and gives the husband no more power over her life than she has over his; ...

The remainder of the surroundings passage, Section 77-83, points out how big and important the common enterprise of husbands and wives is. He argues in effect that the magnitude of the common enterprise over which John Locke assumes that husbands will have the last determination or rule can create the misunderstanding of a general authority of husbands over wives. 

Besides his denial of any general authority of husbands over wives, John Locke's description of the nature of the "conjugal society" between spouses is of lasting importance. In section 83 he writes:

Conjugal society could subsist and attain its ends without [absolute authority of the husband]; nay, community of goods, and the power over them, mutual assistance and maintenance, and other things belonging to conjugal society, ... that contract which unites man and wife in that society, as far as may consist with procreation, and the bringing up of children till they could shift for themselves; ...

In the quest for equality between men and women, our society has run the risk of underemphasizing the importance of child-rearing. For example, in principle, a duty of staying home to take care of the kids could fall on husbands and wives equally. So there is nothing inherently sexist in believing that one parent should stay home to take care of the kids. But those pushing for greater equality for women have often taken the path of least resistance by arguing that it is OK for both parents to leave the kids in the care of someone else rather than insisting that fathers and mothers on the whole pick up an equal share of child-rearing responsibilities, with the arrangements as much as possible leaning toward at least one parent staying home with the kids. 

One might argue that one could never succeed in getting to a situation in which there are just as many stay-at-home dads and stay-at-home moms. But our society hardly even tries. Stay-at-home dads, like stay-at-home moms, should be praised for making an economic sacrifice for the sake of the next generation, not looked down on.

I suspect that in the case of most families, the positive spillovers to others outside the family from devoting more resources to child-rearing will exceed the loss of positive spillovers to others outside the family that would arise from work outside the home. Whether or not I am right that child-rearing externalities are on average bigger than market-work externalities is an important area for research. At the micro level, in quantifying child-rearing externalities, it is important to realize that, to the considerable extent that children care about themselves more than their parents care about them, that one minus the coefficient of parental altruism times any benefit to kids must be counted as a child-rearing externality. I make my case for the importance of any effect we have on the next generation at the macro level in "That Baby Born in Bethlehem Should Inspire Society to Keep Redeeming Itself."

 

For links to other John Locke posts, see these John Locke aggregator posts: 

For reference, here is the full passage from John Locke's 2d Treatise on Government that I am analyzing in this post:

§. 77. GOD having made man such a creature, that in his own judgment, it was not good for him to be alone, put him under strong obligations of necessity, convenience, and inclination to drive him into society, as well as fitted him with understanding and language to continue and enjoy it. The first society was between man and wife, which gave beginning to that between parents and children; to which, in time, that between master and servant came to be added: and though all these might, and commonly did meet together, and make up but one family, wherein the master or mistress of it had some sort of rule proper to a family; each of these, or all together, came short of political society, as we shall see, if we consider the different ends, ties, and bounds of each of these.

  §. 78. Conjugal society is made by a voluntary compact between man and woman; and though it consist chiefly in such a communion and right in one another’s bodies as is necessary to its chief end, procreation; yet it draws with it mutual support and assistance, and a communion of interests too, as necessary not only to unite their care and affection, but also necessary to their common offspring, who have a right to be nourished, and maintained by them till they are able to provide for themselves.

  §. 79. For the end of conjunction between male and female, being not barely procreation, but the continuation of the species; this conjunction betwixt male and female ought to last, even after procreation, so long as is necessary to the nourishment and support of the young ones, who are to be sustained by those that got them, till they are able to shift and provide for themselves. This rule, which the infinite wise maker hath set to the works of his hands, we find the inferior creatures steadily obey. In those viviparous animals which feed on grass, the conjunction between male and female lasts no longer than the very act of copulation; because the teat of the dam being sufficient to nourish the young, till it be able to feed on grass, the male only begets, but concerns not himself for the female or young, to whose sustenance he can contribute nothing. But in beasts of prey the conjunction lasts longer: because the dam not being able well to subsist herself, and nourish her numerous off-spring by her own prey alone, a more laborious, as well as more dangerous way of living, than by feeding on grass, the assistance of the male is necessary to the maintenance of their common family, which cannot subsist till they are able to prey for themselves, but by the joint care of male and female. The same is to be observed in all birds, (except some domestic ones, where plenty of food excuses the cock from feeding, and taking care of the young brood) whose young needing food in the nest, the cock and hen continue mates, till the young are able to use their wing, and provide for themselves.

  §. 80. And herein I think lies the chief, if not the only reason, why the male and female in mankind are tied to a longer conjunction than other creatures, viz. because the female is capable of conceiving, and de facto is commonly with child again, and brings forth to a new birth, long before the former is out of a dependency for support on his parents’ help, and able to shift for himself, and has all the assistance that is due to him from his parents: whereby the father who is bound to take care for those he hath begot, is under an obligation to continue in conjugal society with the same woman longer than other creatures, whose young being able to subsist of themselves, before the time of procreation returns again, the conjugal bond dissolves of itself, and they are at liberty, till Hymen at his usual anniversary season summons them again to choose new mates. Wherein one cannot but admire the wisdom of the great Creator, who having given to man foresight, and an ability to lay up for the future, as well as to supply the present necessity, hath made it necessary, that society of man and wife should be more lasting, than of male and female among other creatures; that so their industry might be encouraged, and their interests better united, to make provision and lay up goods for their common issue, with uncertain mixture, or easy and frequent solutions of conjugal society would mightily disturb.

  §. 81. But though these are ties upon mankind, which make the conjugal bonds more firm and lasting in man, than the other species of animals; yet it would give one reason to enquire, why this compact, where procreation and education are secured, and inheritance taken care for, may not be made determinable, either by consent, or at a certain time, or upon certain conditions, as well as any other voluntary compacts, there being no necessity in the nature of the thing, nor to the ends of it, that it should always be for life; I mean, to such as are under no restraint of any positive law, which ordains all such contracts to be perpetual.

  §. 82. But the husband and wife, though they have but one common concern, yet having different understandings, will unavoidably sometimes have different wills too; it therefore being necessary that the last determination, i. e. the rule, should be placed somewhere; it naturally falls to the man’s share, as the abler and the stronger. But this reaching but to the things of their common interest and property, leaves the wife in the full and free possession of what by contract is her peculiar right, and gives the husband no more power over her life than she has over his; the power of the husband being so far from that of an absolute monarch, that the wife has in many cases a liberty to separate from him, where natural right, or their contract allows it: whether that contract be made by themselves in the state of nature, or by the customs or laws of the country they live in; and the children upon such separation fall to the father or mother’s lot, as such contract does determine.

  §. 83. For all the ends of marriage being to be obtained under politic government, as well as in the state of nature, the civil magistrate doth not abridge the right or power of either naturally necessary to those ends, viz. procreation and mutual support and assistance whilst they are together; but only decides any controversy that may arise between man and wife about them. If it were otherwise, and that absolute sovereignty and power of life and death naturally belonged to the husband, and were necessary to the society between man and wife, there could be no matrimony in any of those countries where the husband is allowed no such absolute authority. But the ends of matrimony requiring no such power in the husband, the condition of conjugal society put it not in him, it being not at all necessary to that state. Conjugal society could subsist and attain its ends without it; nay, community of goods, and the power over them, mutual assistance and maintenance, and other things belonging to conjugal society, might be varied and regulated by that contract which unites man and wife in that society, as far as may consist with procreation, and the bringing up of children till they could shift for themselves; nothing being necessary to any society, that is not necessary to the ends for which it is made.

Why We Want More Jobs

PODCAST BASED ON THIS POST CREATED BY GOOGLE’S NOTEBOOK LM

All I know of the book above is the cover. But it raises a good question: "Why do we want more jobs?" Inside the models taught in Principles of Economics, people don't want more jobs. In those models, if anyone worked any more, they would be working more than they wanted to. In those models, the firms and the government also think everyone is working just the right amount, too. Famously, some of those who believe too much in models along the lines of this taught in Principles of Economics argued that the Great Depression was caused by people suddenly deciding they hated working more than they used to—a story that seems at some variance with the narrative history of the Great Depression. So what is difference between the real world and those models that makes households, the government and firms all cheer when employment goes up? 

Before tackling the question, I need to clarify the question I have in mind. First, I think it is obvious why people who earn wages want high wages. That is not my question. My question is why we like the idea of more jobs even at the current wages. And firms that employ people dislike having to pay high wages, while most firms seem to like the idea of aggregate employment going up. 

Second, when I say we want more jobs, I am ignoring the effect of more jobs on inflation. The Fed could probably drive the unemployment rate down to 1% for a while, but if it tried to keep it there, for ten years, without any other policy change other than monetary policy, it is almost certain that inflation would go up, up and away into hyperinflation. So when I ask why we want more jobs, it is equivalent to asking why we wish that more jobs weren't so inflationary. If we didn't want more jobs, we wouldn't care if more jobs were inflationary, since on other accounts we didn't want more jobs anyway. But we do want more jobs, it is sad that having a lot of jobs would ultimately be quite inflationary.  

My answer boils down to three wedges. I might have titled this post "The Three Wedges," but then many potential readers would have no clue what it was about. Economists use the word "wedge" to describe a situation where some transactions that would make both parties better off don't happen because the buyer is being charged more than what something is worth to the seller. The simplest case is a tax wedge. Take a simple sales tax like the gasoline tax. If the seller is charged the tax, you could think of it is a shift in the supply curve, like this:

If the buyer is charged the sales tax, you could think of it as a shift in the demand curve, like this:

Slide2.png

But for same size tax, the effect is the same: the reduction in the quantity sold is the same, the amount the buyer ends up paying is the same, and the amount the seller ends up getting is the same. So regardless of who is paying the tax, economists like to think of the tax as a gap or "wedge" between the price the seller gets and the amount the buyer pays, like this:

Once you get use to it, this is a much easier way to think about the effects of taxes than shifting the supply curve or demand curve. The two-sided blue arrow is the tax wedge. And the triangle formed by the two points of of that two-sided blue arrow and the intersection where things would be if there were no tax is the deadweight loss triangle. The deadweight loss triangle represents the value of the good transactions that don't happen because of the tax.  

If there are three wedges instead of one, then the situation looks like this: 

With three wedges, the quantity bought and sold goes down a lot more, and the deadweight loss triangle is much, much bigger. Typical formal macroeconomic models in the economics journals only deal with one of the wedges listed below at a time, and so miss how much bigger the issues are when one wedge piles on top of another. 

Here are the three wedges:

The Product Market Wedge: P > MC

To me, increasing returns to scale are central to macroeconomics. Three of my blog posts focus on this:

If it were just as efficient and productive to have one person working alone as to have big firms, everyone could be self-employed, and there would be no problem of unemployment. So increasing returns to scale is central to unemployment. Direct evidence of increasing returns to scale comes from the business world, where business people talk about having a fixed cost that can be spread over more units if they can increase the scale of their operations. I consider the kind of increasing returns to scale one gets from having a fixed cost and constant marginal cost quite reasonable. This yields an average cost curve that declines from a high value and ultimately gets very close to the flat average cost curve.

This, not the ridiculous U-shaped average cost curve, is what should be taught to students in their microeconomics classes. (See my Wakelet story "Is There Any Excuse for U-Shaped Average Cost Curves?")

As discussed in detail in "Returns to Scale and Imperfect Competition in Market Equilibrium" (and in "Next Generation Monetary Policy"), as long as there is free entry and exit of firms, increasing returns to scale goes hand in hand with imperfect competition. There is also direct evidence of imperfect competition. If a firm can raise the price of a product without losing every last customer, it faces imperfect competition. If a firm has to work hard to sell more at the same price, it faces imperfect competition. If a firm even is in the position of setting its own price at all, as opposed to just accepting a price determined on some exchange, then it faces imperfect competition. 

Under imperfect competition, when a firm adjusts its price, it should look for a price that, on average, is above its marginal cost. The graph for either a monopolist or a monopolistic competitor looks like this:

The marginal revenue curve shows how much the firm makes by selling an extra unit if it has to cut its prices overall in order to sell an extra unit. 

Now think of the firm's situation in the short run when it doesn't adjust its price. To be concrete, suppose it costs a firm $1.60 to produce a widget, but the firm sells a widget for $2. In that situation, a firm makes extra profit of 40 cents on every extra widget it sells if it didn't have to make any effort to sell that widget. As mentioned above, if it had to cut its prices to sell an extra widget, that doesn't get the firm ahead. And if it has to pay for advertising to sell an extra widget, that might not be so attractive. But if the economy as a whole heats up so that the firm sells an extra widget without any extra effort, that is going to look great to the firm:

This is an example of the firm being able to sell more widgets without extra effort, and make 40 cents on each extra widget it sells. So on this account, the firm is happy about the economy heating up. If wages get pushed up, that is good for the workers and bad for the firm. But leaving that aside, the firm cheers any increase in aggregate demand because of the extra profit that goes along with higher sales. 

The Firm's Willingness to Pay for Labor: To translate from the price and marginal cost of widgets to the value of what a worker produces and what the firm is willing to pay, imagine that an extra hour of work leads to 10 extra widgets being produced. Then at $2 per widget, the value of the extra production from an extra hour of work is $20: the price times the 10 widgets per hour marginal physical product of labor. But since selling the extra widgets would require cutting the price of widgets or advertising, the firm only nets $1.60 in marginal revenue after cutting prices to sell an extra widget, so it is only willing to pay $16 an hour: the marginal revenue of $1.60 a widget times the 10 widgets per hour marginal physical product of labor.

(Actually, although this is usually called the marginal revenue product, when marginal revenue is equal to marginal cost, one can also call this the "marginal cost product." And in the short-run when prices are sticky it is the marginal cost product (the marginal cost times the marginal physical product of labor), not the marginal revenue product (marginal revenue times the marginal physical product of labor) that matters. Indeed, while a price is sticky, marginal revenue doesn't do anything at all. Marginal revenue only matters when a firm is in the process of adjusting its price. So it would be odd if marginal revenue product mattered while a firm has a temporarily fixed price. It doesn't. While a firm has a temporarily fixed price, it is the marginal cost product that tells how much a firm is willing to pay a worker.) 

The Marginal Tax Rate Wedge

Since I started explaining the idea of wedges by talking about tax wedges, it shouldn't be hard to understand the marginal tax rate wedge. I have in mind taxes like social security taxes where the total amount of tax goes up with one's total labor income or income taxes that go up with one's total income, including labor income. It is very important here to distinguish between a lump-sum tax that may be painful, but doesn't get any worse if one works more, and something like social security wage taxes or a general income tax that goes up if one works more. (See “How Marginal Tax Rates Work” and the links it has at the bottom of the post.)

Suppose that, combining both the firm's and worker's social security taxes and income taxes, the marginal tax rate for an extra hour of work is 25%. Then the firm is willing to pay $16 an hour, but after all those taxes, if the firm shells out $16 an hour, the worker gets 25% less: only $12 an hour. $4 an hour goes to the government through the IRS.

This is now the second reason we want more jobs. When there are more jobs, there is more government revenue. That means the government can pay off the debt, provide more public goods or transfers, or cut taxes: all good things. People may disagree about what to do with the extra government revenue, but something desirable is likely to happen. So when aggregate demand goes up, the government and the taxpayers and those who benefit from government purchases and transfers cheer.  

The Labor Market Wedge

The most difficult of all the wedges to suss out is the labor market wedge. We don't fully understand it, but we know it is there. How? Even at the after-tax wages on offer after the firm worries about the difficulty of selling more goods and the government takes its cut, workers are happy to get jobs. 

In the example I have been laying out, suppose that someone is happy to get the $16 an hour job that nets $12 an hour after taxes. If they are happy to get the job, rather than just feeling meh about it, what they are giving up—namely, the cool things they could be doing at home or out and about—must be worth less than $12 an hour to them. To be concrete, let's say the opportunity cost of their time is $8. Then, the social marginal benefit of an hour of their work is $20, while the social marginal cost of an hour of their work is only $8. If they work an extra hour due to extra aggregate demand, society as a whole is $12 ahead:

  • the firm is $4 an hour ahead due to extra profits

  • the government and taxpayers are $4 an hour ahead due to extra government revenue

  • the worker is $4 an hour ahead due to the $12 an hour after-tax wage being higher than the $8 an hour opportunity cost of time

These are all good reasons for us to want more jobs. 

Why would a firm stop hiring with an after-tax wage of $12 an hour instead of hiring more workers at a lower wage when workers might be willing to work for $8 an hour? One possibility is wages kept up by a minimum wage or a wage a union insists on. Another possibility is that a wage higher than the opportunity cost of time is necessary to induce workers to go through the arduous process of searching for a job. But my favorite explanation is efficiency wages: higher wages make a job valuable, so the worker has something to lose if they get fired. So higher wages give workers an incentive to do what the boss tells them to. I discuss this in detail in "Janet Yellen is Hardly a Dove—She Knows the US Economy Needs Some Unemployment." 

The Bottom Line

Higher aggregate demand that raises sales and employment makes profits, government revenue, and household utility go up. So what's not to like? Inflation. Unfortunately, the three wedges mean that extra output and the jobs the extra output brings become inflationary long before we are at the level of jobs we would otherwise like to have. Firms pushing price above marginal cost makes output inflationary sooner. Taxes that go up with income make output inflationary sooner. And anything that pushes wages above the bare minimum people needed to get people to work makes output inflationary sooner. 

Inflation—and not just a little inflation, but the specter of hyperinflation—is the threat that enforces supply-side relationships. By supply-side relationships, I mean simply the real equations that determine the medium-run equilibrium and the long-run equilibrium of the economy. On these ideas, see "The Deep Magic of Money and the Deeper Magic of the Supply Side" and "The Medium-Run Natural Interest Rate and the Short-Run Natural Interest Rate."

There are many things that can be done to get output and employment closer to the ideal level and get the extra jobs we want:

  • antitrust to reduce the degree of imperfect competition and get prices down closer to marginal cost

  • lower marginal tax rates to make what workers get after taxes closer to what firms pay

  • ways of putting the fear of the boss into workers or getting workers to work hard on the job that don't depend on losing a job being a terrible thing for the worker

There are also policies to raise productivity for a given number of work hours and so have a bigger pie. Prominent among these is government funding of basic research, which could easily be worth the extra distortion from somewhat higher taxes if it was funded by the income tax. 

But none of these are monetary policy. Close to the best that monetary policy can do is to keep output at the "natural" level of jobs that is neither inflationary nor disinflationary. The natural level of jobs is below the ideal level of jobs in the absence of inflationary worries. But it is sustainable, where the otherwise ideal level of jobs is not. And it is likely to be better than the other sustainable policy of sometimes having more jobs than the natural level and sometimes having fewer. That policy is likely to have such a big deadweight loss triangle when jobs are fewer, that it isn't worth it, even though it is nice to sometimes have more jobs. You can see more on this in this Powerpoint file.

Conclusion

Many macroeconomics courses fail to ever explain our intuition that it would be good to have more jobs. The feeling that it would be good to have more jobs is so basic to the real world, a macroeconomics course that fails in this respect fails in an important way. I hope this post helps fill the gap. 

Postscript, added March 20, 2020

The three wedges above all make us want more jobs. Is there anything that could make us want fewer jobs if it were bigger than all the three wedges above combined? Theoretically yes, if the activities of those jobs would create large negative environmental externalities that are not taken into account by firms and households. Fortunately, if this is the case, there are policy remedies. For examples, see “How to Fight Global Warming.”

Gary Taubes Makes His Case to Nick Gillespie: How Big Sugar and a Misguided Government Wrecked the American Diet

Update: My views on Gary Taubes have evolved. In the list of links to related posts at the bottom, I have a section on other posts about Gary Taubes and his work, most notably “Vindicating Gary Taubes: A Smackdown of Seth Yoder.”

The video above is an excellent interview of Gary Taubes by Nick Gillespie. I recommend it to anyone looking for inspiration to begin a more effective weight-loss program. The text of the interview appeared as the Reason article "Meet the Man Who Hated Carbs Before It Was Cool: Gary Taubes on how big sugar and big government wrecked the American diet."

Nick Gillespie makes Gary Taubes look good, and I find myself agreeing with everything Gary Taubes says in this interview. But that is not because I agree with everything Gary Taubes says in general.  In my post "The Case Against Sugar: Stephan Guyenet vs. Gary Taubes," I gave this summary of my views on Taubes:

... whatever the flaws in Gary Taubes's books, he is ultimately convincing on two points: 

  • Sugar is very, very bad. I will say more below on why convincing people of that is an important accomplishment.

  • What the nutrition establishment is telling us needs to be closely examined and cross-checked by scientists outside the nutrition establishment. It is very unwise to simply trust the nutrition establishment.

In my later post "The Case Against the Case Against Sugar: Seth Yoder vs. Gary Taubes," I added this:

Seth Yoder, in his post "The Case Against the Case Against Sugar" fully convinced me that Gary Taubes displays a serious lack of reportorial honesty in his book The Case Against Sugar. And Seth somehow made reading through the trainwreck of how Gary Taubes routinely misquotes or otherwise misrepresents dead people's views perversely entertaining. 

In "The Case Against the Case Against Sugar: Seth Yoder vs. Gary Taubes" I walk through a reevaluation of every post in which I had relied on what Gary Taubes had said. But I neglected to put a note about my new qualms about Gary Taubes in my earlier post "Salt Is Not the Nutritional Evil It Is Made Out to Be." That led to this interesting exchange in the comments section: 

Michael: Hi Miles. l used to follow you ~five years ago but fell out of the blogosphere. l have recently returned to twitter and came across some of your writings again. l was particularly intrigued by your health focused research as of late. However, as someone who really respects your economic opinions (and follows nutritional / longevity research pretty closely), you really should stop paying attention to hyper-sensationalist authors like Taubes. l am truly astounded to hear that that such a praiseworthy, truth-discerning economist such as yourself would even bother reading anything he publishes. Never mind endorse and promote his work... Look, l understand that health may not be your forte and that your biology background may be weak, but for the love of God, read anyone but Taubes. I'm honestly surprised the haughty, agenda driven style that Taubes espouses didn't set off any alarm bells for you. And also...citing WebMD? Come on, Miles, you know you're better than that. Really just shows that you are way out of your depth here with anything health / medicine related. l certainly don't think you're too stupid to tackle health issues. Far from it actually. But maybe spend some time reading cell biology / biochemistry books before you dive any further. Because this honestly all reads like bitcoin maximalists writing pet-theories about economics / finance / investment advice: people with no background in an area writing somewhat convincing arguments at the surface that just really hold little water when scrutinized by people with actual grasps on the topics.

You can continue to blog about health. Just maybe keep those thoughts to yourself until you’ve fortified your biology background a bit. Then you can open it up to the public. Because Honestly, citing Taubes taints all of the other interesting other work you’ve done in your actual field.

I’m not sure what the fascination is with economists moving into health (probably because epidemiology and such is "easy" work and does not really require much background biology), but you guys really have to stop speaking so authoritatively about it. Especially when you are referencing wikipedia…Not because wikipedia is wrong per se, but because it shows you are engaging with such limited material (in comparison to, say, Pub Med).

Anyway, l hope this was more enlightening than it was offensive. If you want to follow a health nut on the internet, go with someone like Rhonda Patrick or researcher Valter Longo over Taubes and Fung. Fung isn’t awful, he is just too much of keto acolyte for my taste. Looking forward to your future entries on health and disease.

 

Miles:  I trash Gary Taubes [in] The Case Against the Case Against Sugar: Seth Yoder vs. Gary Taubes and distance myself from Gary Taubes while defending him as much as is possible (which isn't much) here: The Case Against Sugar: Stephan Guyenet vs. Gary Taubes So on Gary Taubes, I agree.

On issues of diet and health more generally, I am delighted to have people correct me where I am wrong, but I plan to keep writing about what I am thinking along the road of my intellectual journey in this area.

That is the same standard I apply to others. I never say "Stay silent until you have studied economics for a couple more years; then come back and talk to me." I say "What you said was wrong for this reason." Or sometimes I say "You're right."

On that last point, below here I am in the comment section of "Carola Binder: The Obesity Code and Economists as General Practitioners" telling a different commenter he is wrong. The topic is one where I am I am on the same page as Gary Taubes. In the right hands, calories in/calories out can be a useful identity for thinking about technical scientific issues, but it is a bust as an instrument for public health education.

mike: Ultimately the biggest reason your fat cells have their fat metabolized is the body needs energy ... and because there isn't enough from food it undergoes lipolysis (fat burning) to get more energy and atp...and the reason is their is a net caloric deficit :)

basically as you state calories in are easier to be less than calories out when you fast and go low carb... I am fine with that formulation, but the basic means is simply energy deficit. let semantics continue on.

Miles:  As Carola reinforces, calories in/calories out is a true identity, but it is not much of an explanation of anything. The big questions are (a) Why are calories in what they are? (b) Why are calories out what they are? (c) OK, so calories in are less than calories out, how good or bad does the individual feel in that calorie deficit situation? (d) What are the side effects of a particular way of getting to that calorie deficit situation[?]

The implicit answers for many people's thinking are (a) It is a matter of psychology what people eat. (b) Activity levels, such as how much people exercise is the only thing that matters for calories out. (c) There is no way to have a significant calorie deficit without suffering. (d) The way to undesirable side effects of a calorie deficit is to have regular meals but have the overall number of calories restricted.

All of these 4 answers are wrong.

To learn more about why, see these other posts on diet and health and on fighting obesity:

I. The Basics

II. Sugar as a Slow Poison

III. Anti-Cancer Eating

IV. Eating Tips

V. Calories In/Calories Out

VI. Wonkish

VIII. Debates about Particular Foods and about Exercise

IX. Gary Taubes

X. Twitter Discussions

XI. On My Interest in Diet and Health

See the last section of "Five Books That Have Changed My Life" and the podcast "Miles Kimball Explains to Tracy Alloway and Joe Weisenthal Why Losing Weight Is Like Defeating Inflation." If you want to know how I got interested in diet and health and fighting obesity and a little more about my own experience with weight gain and weight loss, see “Diana Kimball: Listening Creates Possibilities” and my post "A Barycentric Autobiography.

 

 

The Shards of My Heart

"Wolf," by Spencer Miles Kimball, 2008If you want to use this image for any purpose, you need to include a link back to www.resilienceconspiracy.com, where the original of this post can be found.

"Wolf," by Spencer Miles Kimball, 2008

If you want to use this image for any purpose, you need to include a link back to www.resilienceconspiracy.com, where the original of this post can be found.

My wife Gail has appeared in one previous guest post, "Marriage—Not for the Faint of Heart." In this post below, she beautifully and poignantly addresses the death of our son Spencer by suicide—a topic I haven't known how to broach on this blog. I have referenced his death obliquely with posts about depression around the anniversary of the day of his death, and on one such occasion a post with my science fiction story "Ragnarok" that Spencer encouraged me to complete. 

Spencer still has a blog of his own in existence. He is the author of a book of poetry, You Owe Me This, published by Redbeard Press, which was named after Spencer's red beard. You can see the book here. 

Gail's words below first appeared on her blog The Resilience Conspiracy, at resilienceconspiracy.com

On September 21, 2009, our son Spencer wrote a suicide note and overdosed on his antidepressants.  He soon thought better of this and called his girlfriend who summoned both an ambulance and his parents.  We rushed to Spencer's side in the emergency room.  He was still alert enough to tell us he was sorry.  Hours went by as the overworked emergency room staff researched what to do for the particular antidepressant cocktail Spencer had taken.  

We eventually left his bedside that evening feeling gut-punched by Spencer's choice, but certain he would live.  We were wrong.  On Saturday, September 26th, after spending five days in a medically induced coma, Spencer's temperature soared due to the massive amount of serotonin from his antidepressants.  Spencer died that evening.  He was 20 years old.

Our daughter, Diana, wrote of her brother:  "Spencer was a writer and a poet. Music and reading were his solace and joy.  He believed in the power of fiction and the elegance of truth. He loved his family and his friends fiercely, and was loyal to a fault." He was all of this, and he was our beloved son. 

When you have a child you have a visceral, nearly cellular urge to keep them from harm's way. You protect them from open stairways, busy streets, head injuries, angry siblings, stray dogs, poison ivy, and sunburn.  It is one of the horrible truths of death by suicide that the victim is also the perpetrator.   When someone dies young, blame comes into play and we lean into explanations extra hard for solace and closure.  When your child dies by their own choice, where do you place the blame?

I felt my heart was shattered, sharp shards of it waiting to bring fresh wounds any time I thought about Spencer.  Endless "What ifs?" became my thought companions during a siege of chronic insomnia that still troubles me to this day. I am grateful for a good therapist, great friends, and a life companion who has suffered with me and held onto me when I was in danger of drowning in our shared sorrow. 

Grief is a beast.  It howls and tears at your equilibrium. When it's not active, you feel its presence next to you and you become afraid to wake it.  Will its next active phase unmoor you once again? The answer is always, yes.  It will unmoor you and send you flailing after answers and stable ground on which to stake your intentions and hopes.  

Grief is a gift, wrapped in the worst possible package. It shows you who you are, and teaches you lessons you would never have learned otherwise. Your compassion for others is magnified. Your understanding of what motivates people sharpens. You are grateful for small wonders and embrace happy moments as never before, because you know—you are absolutely clear about this—that you must celebrate when you can and while you can. Grief has taught you not to take these moments for granted.  You become an open invitation for wonder.

Spencer would have turned 29 years old on April 21st. I wonder, as you might expect, what he would be doing if he had lived. He would have loved some of the movies that have come out since 2009.  He would have loved many of the books that have been written.  I would have loved to read the books he could have written.

A few weeks ago Miles and I took a piece of art to be framed.  I told the framer that our son, Spencer, who had died too young, had made this piece. For many years after his death, and through a move from Michigan to Colorado I could not look at this piece without feeling undone. Miles and I are ready to look at it now.

Instead of the searing pain it once caused, I look into the yellow eyes of the wolf and see a fierce desire.  Depression robs its victims of so much. In this piece, Spencer created a watchful, knowing creature with a question I'm ready to hear:  How will you live your life bravely, authentically, and truthfully?

I begin by picking up the shards of my heart and owning the shattered aspect, the lessons of the fissures that will never go away.