Mark and I both remarked on this post

Noah Smith: 

A homeless girl turns out to be a science genius. I see stuff like this all the time. My brother-in-law grew up in a trailer with a teenage single mom, and he's now completing his PhD. My friend grew up poor in rural Northern California with a drug-abusing single mom, and now she's a neurosurgeon. There is so much human capital hidden in the poverty-stricken backwaters of America, it's absurd. And yet I still read pronouncement after smug pronouncement from guys like Bryan Caplan, declaring that success is all about I.Q., and that it's no use trying to increase economic opportunity because everyone is already just where their I.Q. dictates they should be. What a load of poppcock, rubbish, stuff & nonsense.

 The idea that social position is already perfectly distributed based on merit is reassuring for those in high socio-economic positions but seems dangerous.  At some point I will give my Ayn Rand critique again (the places where Ms. Rand's philosophy is unable to cope with actual people).

But the world is filled with people who have been successful despite being poor or disadvantaged.  That should be celebrated and not suppressed.

Futurism

Something that Mark and I have been talking about is how much less audacious we have been (as a country) since the 1950's.  Back then there was a real sense of inevitable progress and an idea that there were great accomplishments lurking around the corner.  Noah Smith weighs in with an example of this:

If we had found better ways to unlock the vast stores of energy that we know are lurking inside the nuclei of atoms, we'd have those flying cars and Mars colonies and everything people thought we'd have back in the 50s (OK, the Economist doesn't say that, but it's true).

When did we lose this ambition and can we get it back?  

Landsberg's latest

Noah Smith points out a Steve Landsburg column that doesn't make a lot of sense.  I am going to try (although it is hard) to ingnore the moral dimension here (although I am very much on Sandra's Fluke's side) and focus on the inherent logic of the positions being staked out.  Consider Landsberg's comments:

To his credit, Rush stepped in to provide the requisite mockery. To his far greater credit, he did so with a spot-on analogy: If I can reasonably be required to pay for someone else’s sex life (absent any argument about externalities or other market failures), then I can reasonably demand to share in the benefits. His dense and humorless critics notwithstanding, I am 99% sure that Rush doesn’t actually advocate mandatory on-line sex videos. What he advocates is logical consistency and an appreciation for ethical symmetry. So do I. Color me jealous for not having thought of this analogy myself.

There’s one place where I part company with Rush, though: He wants to brand Ms. Fluke a “slut” because, he says, she’s demanding to be paid for sex. There are two things wrong here. First, the word “slut” connotes (to me at least) precisely the sort of joyous enthusiasm that would render payment superfluous. A far better word might have been “prostitute” (or a five-letter synonym therefor), but that’s still wrong because Ms. Fluke is not in fact demanding to be paid for sex. (Not that there’s anything wrong with that.) She will, as I understand it, be having sex whether she gets paid or not. Her demand is to be paid. The right word for that is something much closer to “extortionist”. Or better yet, “extortionist with an overweening sense of entitlement”. Is there a single word for that?

But whether or not he chose the right word, what I just don’t get is why the pro-respect crowd is aiming all its fire at Rush. Which is more disrespectful — his harsh language or Sandra Fluke’s attempt to pick your pocket? That seems like a pretty clear call to me.

 Noah Smith comments that:

First, from an economic efficiency standpoint, in-kind benefits are inferior to direct cash payments, as Ed Glaeser will tell you. Instead of giving Rush a sex tape, it would be more efficient to simply hand Rush some cash and let him buy whatever he wants with it. 

But I think that this critique also misses the point of the most relevant exmaple given.  In this case (a lesbian student who wanted to be prescribed these medications to prevent cyst growth on her ovaries -- which led to surgery to remove an ovary) -- the rationale for taking the drug had nothing to do with sex and everything to do with preventing unnecessary surgery.  From a strict cost perspective, Landsburg should be praising Fluke for trying to save the state money by improving medical efficiency.  From a utiliatarian perspective, it's probably worth a few thousand dollars to preserve a person's otherwise healthy organ.  So this policy (in this case, at least) is costing extra money for all parties involved. 

So I am mystified by Landsberg's clear call.  He wants to spend more money on unecessary medical procedures that could be avoided with inexpensive and commonly available drug therapies?  Is this because Landsberg thinks his personal tax rate is too low? 

Not only do I find the substance of the argument repugnant, it seems to fail on even on it's own terms.  So I am confused by what Landberg is trying to accomplish wit it.  Is he hoping that we will turn it around and support open access to oral contraceptives?  Is he advocating for higher tax rates to enable a greater degree of social engineering?  Or am I missing something here? 

Statements that I violently disagree with

From Tyler Cowen via Scott Sumner:

Congratulations to Matt Yglesias on his new gig. He’s arguably the best progressive economist in the blogosphere, which isn’t bad given that he’s not an economist. I said “arguably” because Krugman’s a more talented macroeconomist. But Yglesias can address a much wider variety of policy issues in a very persuasive fashion. So he’s certainly in the top 5. His blog is the best argument for progressive policy that I’ve ever read. (But not quite persuasive enough to convince me.)

Now do not get me wrong: I post a lot about Matt Yglesias because I think that he is a fine thinker and has some really nice points to make. But there is now way he is competitive to be the top progressive economist in the blogosphere. I can't claim to be an expert but, off the top of my head, I have have:

Noah Smith
Paul Krugman
Bradford Delong
Mark Thoma

Plus the Worthwhile Canadian Initiative folks occasionally drift into progressive territory and are always worth reading. And this is just off the top of my head and including blogs I read regularly. Again: the provocative policy thinker with good ideas and a solid grasp of economists label definitely applies to Yglesias. But I find him a very odd choice for #1 given the alternatives. If anything, I find him awfully centrist on economic matters, at times (which, I suppose, could explain the appeal).

Hard work

Noah Smith has a couple of interesting posts up, but the one that I really found interesting was "Why conservatives can't get people to work hard". It had several insightful comments including the classic:

One basic idea is that hard work should be rewarded. Obvious, right? I mean, we're supposed to be economists here! People respond to incentives, and they are risk averse. A winner-take-all society is not very conducive to hard work; I'm not going to bust my butt for 30 years for a 1% shot at getting into The 1%. But I am going to bust my butt for 30 years if I think this gives me a 90% chance of having a decent house, a family, some security, a reasonably pleasant job, a dog, and a couple of cars in my garage. An ideal middle-class society is one in which everyone, not just anyone, can get ahead via hard work.

Even more interesting, he points out the underlying ambivalence among conservatives as to whether hard work has a causal link to productivity:

Conservatives, meanwhile, are all too often divided on whether they actually believe that hard work works. Plenty of conservatives have undermined Cowen's hard-work-and-discipline bloc by saying that success in life is all due to natural differences in ability. These "I.Q. conservatives" see inequality as the natural order of things. They have focused on getting people to accept their place in society and learn to live with what they have, rather than strive to move up in the world. This is a very Old British sort of conservatism, a nobility-and-peasants ethos dressed up in the faux modernism of psychometric testing.

Conservatives need to look in the mirror and ask themselves: "Do we really want people to work hard and be disciplined? Or do we just say that in order to keep the peasants from getting restless, when deep down we believe that it's all about good genes?" Because if it's the former, conservatives should do some hard thinking about what actually gets people to work hard. And they should think about how to respond to those among their colleagues for whom it is simply the latter.

I think that the "I.Q. conservatives" (as Noah calls them) are actually a fairly concerning movement. We all know that social structures based on accepting one's lot in life (think feudalism) have shockingly low levels of productivity. A social creed that suggests that this lack of productivity is due to innate personal differences is also one that cannot address any social dysfunction that may be present. After all, if the reason person A is successful is that they are the "right sort of person" then we don't have to handle questions like "why is person B unsuccessful".

A broad adoption of this ethos would be an unfortunate outcome for any society because it then concentrates decision making ability into a more and more restricted class. Democracy and capitalism succeed by making the information base broad. It's not that they always succeed in creating good outcomes. But the track record of a narrow elite making decisions is . . . poor.

Cross sectional reasoning

I want to follow up on a post by Bad Astronomy that has been discussed by both Mark and Noah Smith. The post comments on the results of the 2010 census on employment rates:

I highlighted one in particular: Astronomy and Astrophysics. Note that it has a 0% unemployment rate; in other words, last year everyone who majored in these fields got a job! Now, I find myself being a tad skeptical about this, but if there’s some weird thing going on with this survey, I can at least make the broad assumption that the relative job numbers are probably OK. Majoring in astronomy is still a good idea, and will strengthen your chances of getting a job after college.

I want to take this in a different direction. What this metric shows is that, if you were lucky enough to have majored in Astronomy in 2005 then you were very likely to be employed in 2010. It says nothing about what will happen to somebody who enters the program in 2011 and whether they will be employed in 2015.

See, I was actually a physics major in the mid 1990's, in a school with a large astrophysics group. I knew a lot of these students and even took classes with them. Do you know what they mostly ended up as: High School Teachers. Plus a few academics. At the time there was a terrible job placement rate in physics and we were all depressed by the poor employment outcomes. Using the tool, I see a 4.5% unemployment rate for physics, which does make me wonder how many astrophysicists are counted in this group.

But, in general, past performance is no guarantee of future employment. A depressed job market could easily have led to full employment years later, long after only the most dedicated students remained. I've seen this phenomenon in a lot of fields -- people go where the markets signal but, in education, the signals are lagging indicators.

So maybe we are seeing the unemployment ghettos of the future?

You should read this

Science is about discarding models, not making them

Tax Policy

Mark has been discussing the concerns about the hardship that tax increases would inflict on those with an income exceeding $250,000 per year. In part I think that this line of discussion began with Greg Mankiw trying to use himself as an example of a person who might do less labor if the marginal tax rate increased. There were a number of great points brought up as to why this example had issues: see here, here, and here.

There was a second economics professor who also made similar claims although I found them a bit harder to evaluate as the example was not as clear. This argument seemed to be more about how hard this person would find it to make cutbacks rather than a specific example of how he would become less productive.

Yesterday,Noahpinion linked to a great article by Karl Smith that went to the heart of this discussion. The argument was whether tax increases (at the sort of marginal rates we currently have) really depress productivity. Karl Smith made a number of arguments that were worth considering, including:

Third, high income people don’t seem to be working that much more than low income people despite the fact that a natural propensity towards work can make one high income.

Indeed, the data show us that low income folks used to work a little more, but now they work a little less than high income folks. Yet, if the income and substitution effects were balanced for each person we would still expect higher income people to work more.

That’s because working hard can lead to more education, more experience and more promotions. Being hard working is also associated with having a conscientious personality type which is itself more valuable.

So if someone was simply born with a stronger propensity to work, we would expect that person to earn more income per hour. Thus we when look at the data we should see that all these high income people are working lots of hours.

Yet, we actually don’t see that. We see only a mild effect and even then that effect is not robust over time. Sometimes, high income folks are working less.

But the piece is a must read in the entirety. The key argument here, though, is whether the extremely small tax increases that are under discussion (a raise in the marginal tax rate for the highest income bracket from 36% to 39.6%) is really likely to make high income Americans less productive. Because if these tax increases don't disincent work and we accept that government finances really are a mess then the tax hikes seem to be a logical way to "share the cost of these increases".

But I also think that these points don't necessarily go far enough. Are we really convinced that a small decrease in productivity among the wealthy will be that devastating? What is the source of productivity in the American economy? Is it highly paid CEOs, hedge fund managers, lawyers and medical doctors, or is it the majority of workers who drive productivity?

I think it is essential to get this correct. A top down model of an economy (where the people at the top make the key decisions and are responsible for the output) did poorly in Soviet Russia. A bottom up theory of economic gains seems to make a lot more sense and that suggests that small productivity losses among the wealthy are not a serious concern.

It is worth emphasizing that, at this time, I am aware of two proposals to increase the tax rates of the wealthy: increasing the amount of wages on which FICA can be charged and returning to Clinton-era tax rates. Neither of these increases is a vast change in the marginal tax rate of this group. Clearly there are tax increases that would cause issues, but we can handle those when they show up and not now when all of the possible rates under discussion are sane.

The last example that people tend to bring up is innovation and how important it is to reward innovators. Now, as part of a first principle I would like to point out that the innovator is not always the person who profits the most from an invention (consider Nikola Tesla). But it is also worth noting, as Mark points out, that copyright law already provides enormous rewards for intellectual property holders.

So I think we should look to balance harms. Recent events have included layoffs of government workers into a economy with an extremely high unemployment rate. Are we sure that the consequences of a large body of long term unemployed workers will be better than that of small increases in tax rates?

Noahpinion on Public Goods

One explanation of why the narrative on taxation has become toxic in the United States:

Well, I think conservatives (and not a few liberals!) have really fallen into the rut of thinking that all government spending = redistribution. Part of this may be a simple failure to recognize that America's gravy days are over, and that arresting the rapid shrinkage of our national pie is more important than squabbling over who gets which slice.

I think that this insight is entirely correct. Without public goods, a country inherently weakens (imagine no roads, rule of law or sewage). That being said, I do think that redistribution is also an important function of taxation. High income individuals gain a lot from a fully functional society and it is not unreasonable to share the benefits with other members of the society.