Thursday, February 18, 2010

Why I Am Not a Libertarian

In many ways I am, but I find hard-core libertarianism to be one-dimensional and boring. It has little practical significance because realistically, Galt's Gulch isn't anywhere on the horizon. Advocating libertarianism, in my mind, is useful only if you are trying to shift the center. It doesn't represent a recipe for a long-term successful nation.

Anyway, that all stems from Arnold Kling and Nick Schulz's book From Poverty to Prosperity. I have been enjoying it and wanted to take a quote from their interview with Paul Romer:

One interesting example of a beneficial government action was when the FAA started forcing the airlines to report on-time performance for their flights. This led to really big changes in how the airlines did their scheduling, and on time performance went up dramatically...

Good example of a reform that market participants would likely not have undertaken on their own that has huge benefits for everyone. The book, so far, is full of stories like this, and I have been thoroughly enjoying it. Kudos to Kling and Schulz on a very good story!

Wednesday, February 10, 2010

Great Paragraphs

From James M. Buchanan, continuing to demonstrate how worthy was his Nobel victory:
Unfortunately, economists, generally, failed to understand that aggregate variables that may be measured with tolerable accuracy ex post may not be variables subject to control, directly or even indirectly. The fundamental misconception here lies in the understanding of what ‘the economy’ is. The ‘economic problem’ is not (despite Lionel Robbins) an engineering problem that may be defined simply as the allocation of scarce resources among alternative uses. The economy, in some inclusive definitional sense, is perhaps best described as an order that consists of an interlinked set of exchanges, simple and complex, from which outcomes emerge that may in some respects be meaningfully measured but that cannot be chosen, and thereby controlled, by concentrated decision takers.

The whole essay seems incredibly important for any aspiring economist.

H/T Tyler

Wednesday, February 3, 2010

Very Good Sentences

From Matthew J. Slaughter in the Wall Street Journal:

When parent firms based in the U.S. hire workers in their foreign affiliates, the skills and occupations of these workers are often complementary; they aren't substitutes.

H/T Mark Thoma

Tuesday, February 2, 2010

Evolutionary Economics May Not Be Useful After All

Thanks to Matt Lister, via an MR comment, for recommending Alexander Rosenberg's Darwinism in Philosophy, Social Science, and Policy. "Does Evolutionary Theory Give Comfort or Inspiration to Economics" was a good cautionary tale and I'm glad to have read it, though I'm still digesting all of its implications.

The idea that Darwinian theory isn't a good predictor for individual agents was a nice ah-ha moment for me. I'm trying to resolve that with my intuition that macroeconomics doesn't necessarily need to make individual prescriptions for action. This is going to require its own dedicated post.

Additionally, Rosenberg points out that the "environment" in economics is constantly changing, while the environment in evolution is essentially constant. This problem might be resolved by looking at relative time horizons, describing economic time as instantaneous, but since I'm taking an Austrian class at the moment I'm not sure I am well-prepared to do this.

Finally, his point near the conclusion that information affects economic agents and evolving creatures very differently feels like a dagger. "The information that the environment provides about relative adaptedness is costless and universally available." This is inescapably unlike anything I have heard from an economist and will need to be closely considered.

So, my initial reading of Rosenberg has led me to three points that suggest combining economics and evolution is a dumb idea. There are certainly more but on first reading those are the ones that stuck out to me, and I'll have my hands full simply trying to address them. I wasn't going to bother but Rosenberg extensively quoted Armen Alchian's paper "Uncertainty, Evolution, and Economic Theory," so I decided I better read that over as well. Alchian sees what I saw after finishing Dawkins: "The economic counterparts of genetic heredity, mutations, and natural selection are imitation, innovation, and positive profits."

So perhaps addressing Rosenberg will be an upcoming series for me. If you've got any recommended readings that might help, please leave them in the comments. (I'll be starting into Nelson and Winter, An Evolutionary Theory of Economic Change, as soon as it gets returned to the library).

Monday, February 1, 2010

Seeking Regulation

From my textbook for "Economics of Energy" (Energy, Economics and the Environment, page 61)-
Although initially skeptical, many electric and gas and telephone companies actively began to seek state regulation. They were being bedeviled by all sorts of inconsistent demands by local governments and they saw state regulation as a way to preempt them. Consequently, most public utilities acts preempted local regulation.

I heard this argument regularly last semester from Andrew Light in the run-up to Copenhagen. Right now, it looks like regional agreements are going to dominate the next few years in terms of carbon pricing. My question is this: if/when companies want to ask for one universal price on carbon, who are they going to ask? It seems the UNFCCC, with its emphasis on consensus, has played its way out of a role in future negotiations. The US is still the top dog in terms of emissions but China is growing fast; however, I don't see any country (America included) with the international clout to make a system happen quickly. Is there any chance of businesses banding together to self-regulate, and simply not providing service to any government that did not accept self-regulation?

Alex T Gets It

The title is Do Animals have Animal Spirits and here is the conclusion:
Could a natural system provide a model for business cycle behavior? It would be odd if only people had animal spirits. Biology and economics have much to offer one another.

The intersection of economics and - I would use ecology instead of biology, mostly because I think it's important that they have the same prefix - is a place lots of people, myself included, should spend more time.

Compared with the totality of knowledge which is continually utilized in the evolution of a dynamic civilization, the difference between the knowledge that the wisest and that which the most ignorant individual can deliberately employ is comparatively insignificant. ~Fredrich Hayek in The Constitution of Liberty