Arnold Kling has a new book out entitled From Poverty to Prosperity. His brief, basic description:
Overall, compared with what you learn in introductory economics, the book puts much more emphasis on entrepreneurs and innovation. It also puts much more emphasis on both institutions and culture.
Worth a look.
Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts
More Stimulus Talk
I think it is worth noting I may have gotten in over my head when discussing some macro issues with Rob. Rob was an economics major who possesses a strong understanding of the technical side of the subject. I on the other hand never found this approach stimulating or interesting and resorted to approaching economic issues from a more philosophical/political perspective. Thus, Rob is the more traditional academic purist, and I'm more of the haphazardly self-taught mutt. This being said, I do not think it restricts either of us, or at least Rob from effectively conversing. Rob and I could have a political philosophy debate mixing in the likes of Keynes, Hayek and Marx for hours on end. Unfortunately I do not think I can say the same for myself when it comes to the more textbook/academic material, particularly on the macro side. So over the next few months during my free time I plan on reviewing some old college textbooks and reacquainting myself with the material so I can become little more useful over here.
That being said, I would like to challenge (though that might not be the right word) Rob's defense of the stimulus by posing five questions based on what I consider the main critiques of central planning [in America].
1. Price Distortion (Mises): What effects (negative/positive/neither) do you think taking $787 billion out of the private sector and putting into specifically determined areas of the public sector will have on levels of consumption, investment and saving?
2. Knowledge Deficiency (Hayek): Can we reasonably believe that Washington bureaucrats will effectively and efficiently spend this money?
3. Public Choice (Buchanan): Can we reasonably expect Washington bureaucrats not to succumb to perverse spending incentives?
4. Private Incentives (unknown): How will private actors react when they realize significant amounts of their income will be seized by the government to be spent as said government sees fit because said government does not believe said private actors are capable/responsible/smart enough to spend said money themselves?
5. Morality/Constitutional (unknown): Under the Rule of Law, is stimulus spending immoral? Under the Constitution, is such a practice unconstitutional?
That being said, I would like to challenge (though that might not be the right word) Rob's defense of the stimulus by posing five questions based on what I consider the main critiques of central planning [in America].
1. Price Distortion (Mises): What effects (negative/positive/neither) do you think taking $787 billion out of the private sector and putting into specifically determined areas of the public sector will have on levels of consumption, investment and saving?
2. Knowledge Deficiency (Hayek): Can we reasonably believe that Washington bureaucrats will effectively and efficiently spend this money?
3. Public Choice (Buchanan): Can we reasonably expect Washington bureaucrats not to succumb to perverse spending incentives?
4. Private Incentives (unknown): How will private actors react when they realize significant amounts of their income will be seized by the government to be spent as said government sees fit because said government does not believe said private actors are capable/responsible/smart enough to spend said money themselves?
5. Morality/Constitutional (unknown): Under the Rule of Law, is stimulus spending immoral? Under the Constitution, is such a practice unconstitutional?
A Note to a Comment Made by Rob
Rob recently wrote something that I believe is worth responding to. He derided my thoughts on stimulus in part due to my advocating the ideas of economist Russell Roberts, who has only published works of fiction, and stated his [Rob's] ideas were valid because he was advocating the ideas of a Nobel Laureate, Paul Krugman. This was an ignorant and arrogant thing to say, and as I know Rob quite well to not be either of these things, I am surprised he said it. But in my eyes he is reflecting two enormous problems in the mainstream economics community.
The first is methodology. The Nobel Prize in Economics is technically known as The Nobel Memorial Prize in Economic Sciences. So, is economics "science"? If so, is it more like physics or biology? I think with the rise of such folks like Paul Samuelson, economics imported much of the methodology of rigid systems like physics and consequently fostered a culture of mathematical zealotry. I do not believe this is the correct approach to the subject. In my view, economics should be approached from the bottom up and adapt to millions of unique variables and premises. It should focus on the incentives that drive individuals to interact, the consequences of those interactions, and the new incentives those interactions create. Every interaction is unique and to bundle them all together, as macro does, is counterintuitive in my mind. This is why I believe this in turn led to the second large problem in the community today: lack of diversity.
Take a look at Elinor Ostrom recently winning the Nobel Prize in Economics. She was derided by many (I read some particularly harsh comments from graduate students) for being a political scientist and using case studies to advance her studies and conclusions. Or take the smaller issue of Rob downsizing the worth of Robert's contributions for his outside the box approach to the subject. Along with writing works of fiction, all well-reviewed works that focus on individual economic interactions, Roberts regularly blogs, conducts a podcast, writes academic as well as more mainstream articles, and gives seminars. I have been following his work closely for the past three years or so and find it to have played an enormous role in my education; far more than any textbook or formal economics professor has ever done. There is no doubt he and others have done the same for many others. So should his contributions be diminished and marginalized because they do not conform to the mainstream in terms of methodology or ideology? Of course not. But as Ostrom's detractors and my good friend Rob illustrate, that is the close-minded state we are in.
The first is methodology. The Nobel Prize in Economics is technically known as The Nobel Memorial Prize in Economic Sciences. So, is economics "science"? If so, is it more like physics or biology? I think with the rise of such folks like Paul Samuelson, economics imported much of the methodology of rigid systems like physics and consequently fostered a culture of mathematical zealotry. I do not believe this is the correct approach to the subject. In my view, economics should be approached from the bottom up and adapt to millions of unique variables and premises. It should focus on the incentives that drive individuals to interact, the consequences of those interactions, and the new incentives those interactions create. Every interaction is unique and to bundle them all together, as macro does, is counterintuitive in my mind. This is why I believe this in turn led to the second large problem in the community today: lack of diversity.
Take a look at Elinor Ostrom recently winning the Nobel Prize in Economics. She was derided by many (I read some particularly harsh comments from graduate students) for being a political scientist and using case studies to advance her studies and conclusions. Or take the smaller issue of Rob downsizing the worth of Robert's contributions for his outside the box approach to the subject. Along with writing works of fiction, all well-reviewed works that focus on individual economic interactions, Roberts regularly blogs, conducts a podcast, writes academic as well as more mainstream articles, and gives seminars. I have been following his work closely for the past three years or so and find it to have played an enormous role in my education; far more than any textbook or formal economics professor has ever done. There is no doubt he and others have done the same for many others. So should his contributions be diminished and marginalized because they do not conform to the mainstream in terms of methodology or ideology? Of course not. But as Ostrom's detractors and my good friend Rob illustrate, that is the close-minded state we are in.
The Film Industry
Alex Tabarrao's brother Nicholas is guest blogging over at Marginal Revolution. His first post is quite interesting. I recommend it along with the long comments section that follows. Nicholas writes:
One interesting thing that I've always found about the film business from an economic point of view is that unlike in any other business I can think of, the cost of manufacturing the product has no affect on the purchase cost to the consumer. For example Honda can make a cheaper car with less features and cheaper finishes than BMW without losing all of their customers to the superior car because they sell their product for less. You spend less to make something, you charge less for it. Makes complete and obvious sense. Not so in the film business. I am an independent film producer and I make films that typically cost somewhere between $5M and $10M. But when I make, say, an $8M film it has to compete at the same price level as the studios' $80M or $100M film. It costs the consumer the same $12 at the multiplex (and whatever it costs to rent a DVD from Blockbuster these days) for either film. There is no price advantage to the consumer for choosing to see a less expensive film. This naturally makes it terribly difficult for smaller films to find an audience. I find this quite fascinating and I can't readily think of another industry like it.
There are a couple of things to point out here. One is I think he is confusing the idea that production cost is directly correlated with price. It's not. Price is a function of supply a demand, an equilibrium in which cost in various forms is a major variable in ultimately determining that price. Prices, really, are just information. So if costs a lot to make something, he's right, most likely you are going to demand more to compensate for you producing it. But levels of demand and profit models (volume vs margin) have more influence in the long-run.
More practically speaking is how theaters make money. Relatively little profit is earned from ticket sales. Instead concession sales are the real moneymakers. So it makes sense that a theater manager would try and maximize the volume of customers by trading off ticket sale profits for increased concessions revenue.
One interesting thing that I've always found about the film business from an economic point of view is that unlike in any other business I can think of, the cost of manufacturing the product has no affect on the purchase cost to the consumer. For example Honda can make a cheaper car with less features and cheaper finishes than BMW without losing all of their customers to the superior car because they sell their product for less. You spend less to make something, you charge less for it. Makes complete and obvious sense. Not so in the film business. I am an independent film producer and I make films that typically cost somewhere between $5M and $10M. But when I make, say, an $8M film it has to compete at the same price level as the studios' $80M or $100M film. It costs the consumer the same $12 at the multiplex (and whatever it costs to rent a DVD from Blockbuster these days) for either film. There is no price advantage to the consumer for choosing to see a less expensive film. This naturally makes it terribly difficult for smaller films to find an audience. I find this quite fascinating and I can't readily think of another industry like it.
There are a couple of things to point out here. One is I think he is confusing the idea that production cost is directly correlated with price. It's not. Price is a function of supply a demand, an equilibrium in which cost in various forms is a major variable in ultimately determining that price. Prices, really, are just information. So if costs a lot to make something, he's right, most likely you are going to demand more to compensate for you producing it. But levels of demand and profit models (volume vs margin) have more influence in the long-run.
More practically speaking is how theaters make money. Relatively little profit is earned from ticket sales. Instead concession sales are the real moneymakers. So it makes sense that a theater manager would try and maximize the volume of customers by trading off ticket sale profits for increased concessions revenue.
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