Saturday, June 9, 2012

What you know about economic history is bunk

Back to Deirdre McCloskey's book, Bourgeois Dignity: Why Economics Can't Explain the Modern World. Her main question is what caused the extraordinary sixteen-fold leap in income of the industrial revolution?I discussed the causes of the industrial revolution before in connection with Joel Mokyr's book, the Gifts of Athena. I said:

It is of course perhaps the most significant question in economic history, but the precise sequencing and details is of more limited general interest.
But I find McCloskey's points are of much broader interest. She persuasively argues that many of the conventional ways we think about growth and development are wrong when it comes to explaining the biggest surge in growth of them all.


For one thing, "competitiveness" appeals to many in journalism because it's like a horse race. And a horse race is a story. And stories sell newspapers. It is also a staple of politics and business schools. She takes issue with Michael Porter's book Competitive Advantage of Nations:

Howard Davies and Paul Ellis, though, put their finger on the central confusion underlying Porter's book-it confuses "`competitiveness' construed as productivity and 'competitiveness' construed as the market share held by a sub-set of industries." Being productive, producing a great deal with few inputs, is certainly a good idea. No one would dispute that. It is called Getting Rich By Being Smart. But getting a large market share has little to do with getting rich, or being smart.
And the cost of being less competitive are not so serious in a world where possibilities are going supernova. Take Britain's relative loss of competitiveness in the twentieth century, for example.

The prize for merely second place, or tenth place, was not poverty, or even loss of political hegemony. "Beaten' Britain is still the eighth-largest economy in the world, the second-largest source of direct foreign investment, and a permanent member of the United Nations Security Council; and London is the second-largest financial center in the world.
The familiar business world of differentiation and barriers to entry and first-mover advantage can help explain the distribution of the pie, but not the size of the pie.


Nor was the industrial revolution caused by thrift, saving, investment or accumulation. (Micawber exaggerated.) There had been high savings rates in many other times and places - extremely high, if you count peasants having to save a fourth of one low-yielding crop as seed for the next year.

Thrift or prudence did not increase in the childhood of modernity. Actual saving stood high before modern times, and did not change much at the time of modern innovation. It changed only after the innovation had given us new opportunities to invest.
The professionalization of history in the twentieth century has led to discovery that many previous arguments are simply wrong (and I take her at her word on this.)

The history of thrift was revolutionized around 1960, in other words, when economists and economic historians realized with a jolt that thriftiness and savings could not explain the Industrial Revolution. The economists such as Abramowitz, Kendrick, and Solow discovered that only a smallish fraction of recent economic growth can be explained by routine thrift and miserly accumulation (and even that fraction depended, I say again, largely upon innovations pushing out the productivity of capital accumulation).


And so it turns out that many nineteenth century thinkers, including Marx, were wrong about the facts. This is particularly interesting. I wasn't aware of the more recent historical change of mind.

For all Marx's brilliance-anyone who does not think he was the greatest social scientist of the nineteenth century has not read enough Marx, or is blinded by ideology or by the appalling effects of Marxian writings on the politics of the twentieth century-he got the history wrong... another of the discoveries of the 1960s by economic historians was that the savings demanded by England's heroic age of mechanization were quite modest, nothing like the eventually massive offspring of the "original accumulation of capital" that Marxist theory posits. Early cotton factories were not capital-intensive.
That is a little annoying if you have written a three-volume book called, er, Capital. There is a silver lining to this, however. If prosperity was not caused by capital accumulation, it means there is less potential damage from diminishing returns to capital.

During the 1930s and early 1940s the prospect of diminishing returns deeply alarmed economists such as the British economist John Maynard Keynes and the American follower of Keynes at Minnesota and Harvard, Alvin Hansen. They believed that the technology of electricity and the automobile were exhausted, and that sharply diminishing returns to capital were at hand, especially in view of declining birthrates. People would save more than could be profitably invested, the "stagnationists" believed, and the advanced economies would fall into chronic unemployment.Stagnationism proved false.' Instead, world income per head grew faster from 1950 to 1974 than at any time in history, and the liberal countries boomed. That is, innovation prevented the return to capital from declining.
This is of more than contemporary interest, given the "search for yield" in the years running up to the financial crisis. Not to mention the fact that US Treasuries have negative real yields along most of the curve, and, as we saw recently, the zero returns of most venture capital firms in the last ten years. The returns to capital are becoming increasingly mediocre. But that does not necessarily mean anything for the returns to innovation. You just can't count on being a rentier and living off risk-free government bonds. (And ask holders of Spanish bonds about that, too.)

Primitive Accummulation

Marx and his followers since have also been wrong in believing that there had to be some kind of original sin in capital accumulation.

The original accumulation was necessary (Marx averred) because masses of savings were necessary, and "conquest, enslavement, robbery, murder, briefly, force, play the greater part." He instanced enclosure in England during the sixteenth century (which has been overturned by historical findings that such enclosure was economically minor) and in the eighteenth (which has been overturned by findings that the labor driven off the land by enclosure was a tiny source of the industrial proletariat) and enclosure happened then mainly in the south and east where in fact little of the new sort of industrialization was going on, and where agricultural employment in newly enclosed villages in fact increased).'
Not only does Marx not explain what happened in England. The theory does not explain why the frequent murder, conquest and slavery through the rest of recorded history did not produce an industrial revolution. The West is not rich because the developing countries are poor, either.

Modern economic growth has not depended on saving, and therefore has not depended on stealing to get the saving, or any other form of original accumulation.

Education and human capital

Nor was the industrial revolution a consequence of education or knowledge in isolation. After all Chinese mandarins had been superbly educated for millennia. It mattered what kind of knowledge and eduction and attitudes people had. In fact, the wrong kind of education could kill off innovation.

Yet education without the new bourgeois rhetoric is merely a desirable human ornament, not the way to human riches. It makes for a clerisy that may in fact be hostile to bourgeois values, and very willing to be of professional service to the antieconomic projects.Without a liberalized attitude toward innovation, however, such sophisticates would have worked at keeping their country impoverished. The educated Chinese elite did. The educated Spanish elite did.
She keeps coming back to her core argument: Innovation is the key. And innovation requires living with the consequences of change. And that requires respect for bourgeois dignity rather than aristocratic or traditional status. Of course, it's possible that the causes of the industrial revolution two centuries ago may have little to tell us about the prospects or dilemmas which confront us now. But all of these argument have substantial relevance to contemporary policy debate. For example, I'll have to think a bit harder about the rationale for lower capital gains taxes (much as I like their effect on my portfolio.) And the arguments about primitive accumulation have huge implications for many left-wing projects. There was no original guilt. She says near the end:

The Marxist and the reactionary views of economic history-in many ways they are the same view-have poisoned our political lives for a century and a half. If we're going to have a future, it is desirable that we know what really happened, and listen to the lessons derived from the really-happened, and not go on and on getting inspiration for our politics from historical fairy tales of left or right.
I'll be interested to see if other economic historians dispute some of her historic points. But the logic seems sound to me, at least as presented here. And that is a matter of some importance. And there's quite a bit of ground left to cover in coming posts, too.


Friday, June 8, 2012

The Mythic Golden Age of Bookstores?


Very few people had access to bookstores. Alex Madrigal writes of the state of the book business in 1931 in the Atlantic, based on a study by historian Kenneth C. Davis: 

"In the entire country, there were only some four thousand places where a book could be purchased, and most of these were gift shops and stationary stores that carried only a few popular novels," Davis writes. "In reality, there were but five hundred or so legitimate bookstores that warranted regular visits from publishers' salesmen (and in 1931 they were all men). Of these five hundred, most were refined, old-fashioned 'carriage trade' stores catering to an elite clientele in the nation's twelve largest cities."


You've Got Mail and may still look messy .. but not so bad.


We skid over the concepts underling economics

I want to briefly divert and develop one point in the last post, about how the 'givens' in economics and resistance to examining ideas,.

It isn't just in the areas McCloskey talks about in her book, of course. Many other of the central concepts in economics need a lot more fresh and rigorous thought.

Capacity and potential output is at the top of the list for me. Some measure of an output gap is at the hear of nearly every major forecasting macro mode, of course, and plays a central role in most central bank decision-making.

But what does capacity mean now? Marginal costs of accommodating extra demand for computing capacity, for example, is virtually zero. You call up Amazon internet services if you need to add to your website transaction capacity. What does capacity mean in the US if you can get the folks in Bangalore to catch up with work overnight? What is the capacity of the "US economy" in that circumstance?

What does depreciation of the capital stock mean? Software doesn't depreciate in the same way as a physical structure or automobile. Does it depreciate more slowly, because it does not wear out and can continue its function. Or does it depreciate faster because it becomes obsolete and replaced by newer and better methods so quickly that there is no choice but to replace it much faster than old depreciation schedules imply?

What is the capital stock if more of it than ever before is locked up in human brains rather than on shop floors? How do you measure the capital value of new organizational techniques or better management processes?

We've seen before how intangible goods and services are likely hugely mismeasured. And the bulk of the economy is now intangible.

We have a system of economic statistics which is very good at measuring manufacturing and very poor at measuring service output. If you want to know all about cold rolled steel production, you're in luck. If you want to know how many Kindles Amazon has sold - we have no idea.

And how many people really deeply think about this at a conceptual level in economics departments? Very few, as a rule. They just want to run regressions.


Thursday, June 7, 2012

Getting past a prejudice against ideas

We're talking about Dierdre McCloskey's book The Bourgeois Virtues: Ethics for an Age of Commerce, starting [here].She has several leading intellectual enemies in the book. One is the majority of her colleagues in economics departments, on methodological grounds. She spent the first part of her career as a hard-core Chicago-school economist, and still remembers the sense of rigor and certainty.

.. few of my social-scientific and even many of my humanistic colleagues will be strongly inclined to disagree, and not merely about my praise for the bourgeoisie. They have the idea, held with passionate idealism, that ideas about ideas are unscientific. For about a century, 1890 to 1980, the ideas of positivism and behaviorism and economism ran the social-scientific show, and many of the older showpeople still adhere to the script we learned together so idealistically as graduate students.'
This is a consistent theme on this blog. It is not just economics. Psychology turned positivistic for half a century, and helped obscure the real problems we faced. But it is very hard to persuade people that they are wrong when their joe or self-respect depend on it. As McCloskey says,

.. opponents of ideas as causal are what the modern Marxists call with a sneer "vulgar" Marxists-wanting passionately to be seen as tough-minded behaviorists, positivists, materialists, quantitative, "evidence based," every single time, regardless of the common sense or the historical evidence. Their methodology, they are quite sure, yields the only scientific truth. It is their identity, which is why they become upset and abusive when some unScientific fool claims that something was caused by ideas.
In fact - and this is a lovely quote -

The great economist Simon Kuznets, notes his student Richard Easterlin, believed that "the `givens' of economics- technology, tastes, and institutions- are the key actors in historical change, and hence most economic theory has, at best, only limited relevance to understanding long-term change." Mokyr and Goldstone and Jacob and Tunzelmann and I and some others would go one step further, to ideas.
How can I disagree when the very name of this blog is Big Sky Ideas? I've always found the history of ideas particularly important. Unexamined ideas can be profoundly damaging. A preference for theorems and lemmas is mostly just an esthetic preference for a particular style of argument. Claims of greater "precision" or "consistency" are usually overdone.


Wednesday, June 6, 2012

Bourgeois Dignity and the Causes of the Modern World

We talked extensively a few months ago about Deirdre McCloskey's book The Bourgeois Virtues: Ethics for an Age of Commerce, which I thought was magnificent. She argues that economics and other social sciences went wrong in promoting prudence - maximizing utility - over the other older virtues.McCloskey is a Chicago-school trained economic historian who now believes that more attention to rhetoric and ideas is essential. And she is dazzlingly well-read and original, flitting from philosophy and literary trends to the math of modern endogenous growth theory. I've read the next book in her planned six book series, Bourgeois Dignity: Why Economics Can't Explain the Modern World.The main subject of this latest book is the cause the industrial revolution. Once more, she says, you cannot properly understand it without looking at ideas and the balance of different virtues.

People believe, for example, that imperialism explains European riches. Or they believe that markets and greed arrived recently. Or they believe that "capitalism" required a new class or a new self-consciousness about one's class (as against a new rhetoric about what an old class did). Or they believe that economic events must be explained "ultimately," and every single time, by material interests. Or they believe that it was trade unions and government protections that have elevated the working class. None of these is correct, as I hope to persuade you. The correct explanation is ideas.

A Sixteen-fold leap

At the center of her argument is a dazzling fact that we too often forget. The industrial revolution was not an incremental improvement in the $3 a day or so living standards that most people had been condemned to since the beginning of recorded history. Living standards improved at least sixteen times over. Growth in income had been flat more or less forever, and then in a few short decades turned up almost vertically like a hockey stick. Other proposed explanations have to account for the sheer scale of the increase, and explain why it happened at that time in northwest Europe, as well.

Economics, though, can't explain the rise in the whole world's (absolute) advantage from $3 to $3o a day, not to speak of $137 a day. That is the main scientific point of the book. Economics can't explain the blade of the hockey stick. It can't explain the onset or the continuation, in the magnitude as against the details of the pattern, of the uniquely modern-the widespread coming of automobiles, elections, computers, tolerance, antibiotics, frozen pizza, central heating …
Indeed, an increase of sixteen in income may substantially underestimate the actual improvement in tangible living standards. People spend much less on basic needs, as calculated by Nobel winner Robert Fogel:

Fogel calculates that in 1875 in the United States the average family spent 74 percent of its income on food, clothing, and shelter. In 1995 it spent 13 percent
And if you calculate the improvement in the quality of many things we spend money on, the improvement is larger still. For example, she says, William Nordhaus calculated the cost of light from earliest firelight through candles to electric light. He estimated the cost fell over eleven millennia by a factor of 417,000. So,

Nordhaus concludes that from 1800 to 1992 in the American economy the real wage-the money wage divided by the prices of things, but properly corrected for their improving thingness-grew not by that conventionally and crudely measured factor of thirteen, but anywhere from a low estimate of a factor of forty to a high of a factor of 190. One hundred and ninety.
And despite claims of increasing income disparity, the system is still working:

Most economists reckon that on account of quality improvements the inflation rate conventionally measured was overstated in the period by about 1 percent a year (and continues to be overstated by about the same extent)." When allowing for the better quality of goods and services, therefore, the period of nominal stagnation in real wages witnessed (at 1 percent per year and no other improvement) a rise of about a third in the properly corrected real wage, which is what matters."

Eliminating other explanations

Why? Or, to put it more emphatically, WHY?She systematically examines the usual explanations put forward for the huge leap. If none of the other explanations work, she says, the answer must be in what is left over - and that is a change in ideas about bourgeois dignity and liberty in tne late eighteenth century. The leap forward cannot be explained in purely material or prudential terms, she says. It must involve other virtues as well, especially courage and hope.

Toward 1800 many northwestern Europeans, and toward 1900 other Europeans, and then toward 2000 many ordinary people elsewhere, came to accept the outcome of the market with more or less good grace.But ideas, not mere trade or investment or exploitation, did the creating and the releasing. The leading ideas were two: that the liberty to hope was a good idea and that a faithful economic life should give dignity and even honor to ordinary people, to My Sovereign Lord Cheeseman as much as to Your Grace the Duke of Leicester.
One thing she does not do, as we shall discuss, is explain why a change in bourgeois dignity could make such a vast difference to outcomes. That is presumably left until future books, or perhaps she does not have a full explanation yet. In fact, I think there is a neat dovetailing between what she says and some of the results of recent evolutionary theory, as we shall see.As usual, we'll split the discussion into several posts to make it more tractable. When done, I'll put links to the other posts [here]. I'll use direct quotes a bit more than a print review would do, to be fair to the author and let her speak in her own words. It's worth reading the whole book, of course.


The Last Days of MF Global

The firm spirals to disaster grim detail by grim detail in this Fortune report. It's a bit like watching a car wreck in a Hollywood movie.

It beats me how anyone could have been that positive on European sovereign debt. There must be other sovereign debt losses lurking around the US financial system, too.


Tudor Psychological Chills


I read Hilary Mantel's new novel, Bring Up the Bodies: A Novel last week as well, about Thomas Cromwell and the fall of Anne Boleyn in sixteenth century England. The successor to her Booker-Prize -winning Wolf Hall: A Novel, it is a chilling evocation of politics and court psychology around Henry the Eighth in the mid-1530s.

I greatly enjoyed it, even if I had to take breaks from confronting the conniving fractiousness and cruelty of humanity in the book. It is absorbing and evocative, although not quite as rewarding as Wolf Hall. Cromwell is established and powerful. It is less intrinsically interesting and dramatic than the story of this rise to the top.


Nor is Anne Boleyn a particularly interesting or attractive character. Instead, the chief angle is the dreadful spectacle of how someone like Anne can fall so quickly and terribly. Just three years after her triumphant marriage, she is beheaded in 1536 by a French swordsman on a platform in the Tower of London.


The history is familiar. But Mantel brings it alive with vividness and insight.


Internet Privacy: It could be the worst deal ever

Cory Doctorow writes in the MIT Technology Review:

Why do we seem to value privacy so little? In part, it's because we are told to. Facebook has more than once overridden the privacy preferences set by its users, replacing them with new system-wide defaults.

..Even if you read the fine print, human beings are awful at pricing out the net present value of a decision whose consequences are far in the future.

Browser makers have imposes some sort of order before, he says, especially when they gave users the ability to block the pop-up ads that infuriated them. And the same principle should apply again.

Far from destroying business, letting users control disclosure would create value. Design an app that I willingly give my location to (as I do with the Hailo app for ordering black cabs in London) and you'd be one of the few and proud firms with my permission to access and sell that information. Right now, the users and the analytics people are in a shooting war, but only the analytics people are armed. There's a business opportunity for a company that wants to supply arms to the rebels instead of the empire.


Indeed. I haven't posted anything on Facebook for years because I distrust it so much. I take grim satisfaction in seeing its stock price plunge.


And I notice cookie permission requests popping up on major sites in recent weeks, so things are beginning to tighten up.


That same wariness is why I like to stay anonymous even if I love blogging here.


Tuesday, June 5, 2012

Mindless managerialism is intended to slow down social change?

So here's a left-wing article by David Graeber, who turns out to be an anarchist professor and occupy protestor in London. He argues technology hasn't produced the flying cars and moon bases we were promised in the 1950s because capitalism is being throttled by managerialism and timid bureaucracy:

And so a timid, bureaucratic spirit suffuses every aspect of cultural life. It comes festooned in a language of creativity, initiative, and entrepreneurialism. But the language is meaningless. Those thinkers most likely to make a conceptual breakthrough are the least likely to receive funding, and, if breakthroughs occur, they are not likely to find anyone willing to follow up on their most daring implications.

Marxists like Frederic Jameson and Ernest Mandel had pondered what the new technological age of capitalism would mean in the 1960s and 1970s. What if factories were automated and technology solved many ordinary problems? 

End of work arguments were popular in the late seventies and early eighties as social thinkers pondered what would happen to the traditional working-class-led popular struggle once the working class no longer existed. (The answer: it would turn into identity politics.) Jameson thought of himself as exploring the forms of consciousness and historical sensibilities likely to emerge from this new age.

Alvin Toffler argued from the right that there needed to be controls on the pace of change.

The only solution, Toffler argued, was to begin some kind of control over the process, to create institutions that would assess emerging technologies and their likely effects, to ban technologies likely to be too socially disruptive, and to guide development in the direction of social harmony.

Partially as a result, instead of investing in robot factories, corporations preferred to invest in cheap labor instead in places like China. And they focused on more incrementalist technology, or defense contracts. Corporations and governments became uncomfortable with socially disruptive technological innovation.

The upshot was we got less daring incrementalist and consumerist technologies , iPhones instead of rockets ships.

And now we have, Graeber says, a culture of cautious managerialism. Innovators spend their time in universities doing administration and applying for grants, the author says. (Yale apparently refused to put him up for tenure.) Capitalism cannot innovate any more, or produce "poetic technology", he claims.

About one conclusion we can feel especially confident: it will not happen within the framework of contemporary corporate capitalism—or any form of capitalism. To begin setting up domes on Mars, let alone to develop the means to figure out if there are alien civilizations to contact, we’re going to have to figure out a different economic system. Must the new system take the form of some massive new bureaucracy? Why do we assume it must? Only by breaking up existing bureaucratic structures can we begin.

I find it curious that a leftwing author is attacking bureaucracy. Then again, one doesn't often come across a real, live anarchist (although some extreme libertarians are not so different, come to think of it).

And it is odd to see someone arguing the US has a particular problem with corporate rigidity. True enough, the US has its share of mindless managerialism. But it is still more enterprising and less corporate as a rule than France or Germany or Russia.

The article has a strange nostalgia for failed Soviet technological dreams. It just doesn't hang together. All the same, at some point I'm going to have to grapple with more post-Marxist arguments, for completeness and intellectual honesty. I'm even planning to watch David Harvey's famous video series on Marx at some stage.

It may be true that some areas of technology have slowed down, even if the Internet has had a vast impact. We mentioned Tyler Cowen's ideas on that score some time ago on the blog. All the same, this kind of vague pronouncement about the "final stage" of capitalism just annoys me.

(h/t AI Daily)




Ancient Egypt: Tyranny and Dark Ages

I read Toby Wilkinson's The Rise and Fall of Ancient Egypt last week, just for a change. I like to read history of all kinds, and ancient history can have extra freshness and variety in the human drama simply because of its disorienting distance from us.

The book is a relatively detailed political history of ancient Egypt, pharaoh by pharaoh and dynasty by dynasty. Wilkinson says after a career studying the period, he has grown "increasingly uneasy about the subject of my research."

Scholars and enthusiasts alike are inclined to look at pharonic culture with misty-eyed reverence. We marvel at the pyramids, without stopping to think too much about the political system that made them possible. ... From human sacrifice in the First Dynasty to a peasants' revolt under the Ptolemies, ancient Egypt was a society in which the relationship between the king and his subjects was based on coercion and fear, not love and admiration - where royal power was absolute and life was cheap.

The ancient Egyptians invented the concept of the nation-state that still dominates our planet, five thousand years later.

So he aims to give a more balanced view of Egyptian civilization.

It really helps to have a historic framework to understand the evolution of the culture. It would be hard to understand Greece without having some sense of the chronology of the conflict between Athens and Sparta, or Rome without knowing about the decline of the Republic and the main events of the empire. So I found it very interesting to have a better sense of what was going on in the Old Kingdom or New Kingdom. A walk around the Egyptian rooms of the Met is more rewarding.

What does not fully come across, however, is why the remarkable achievement of the Old Kingdom arose so suddenly.

The surprising fact is the era of the pyramids arrived only three hundred years after the first historical pharoah, Narmer, comes to power. Narmer initiated what we call the First Dynasty in 2950 BC. Djoser built the first major pyramid, the Step Pyramid at Saqqara, arrives in 2650. Khufu, the Fourth Dynasty pharoah who built the Great Pyramid at Giza, came to the throne in 2545. That is still very early in the span of Egyptian history. The sequence of dynasties does not end until Cleopatra and Rome's final conquest in 30 BC.

Wilkinson concentrates on the fact that the institutions of kingship seem to have appeared almost fully grown. But how could even tyrannical kings turn a valley full of agricultural villages into a society capable of creating staggering engineering projects whose scale and precision still baffle us almost five thousand years later? Astonishing organization and technical achievement seem to appear fully grown as well.

What made Egypt different? it isn't clear from the book. Political tyranny alone can hardly account for it, otherwise most tyrants since would have similar edifices.

The other thing I am left with is a sense of some of the gaps in historical knowledge, most of all the invasions of the Sea Peoples in the Twentieth Dynasty, 1190-1069. We came across this catastrophe before in the history of the Mediterranean. Most of the shore of the Great Sea was burned. Civilization collapsed across much of the area. Mycenae fell. The Hittite Empire fell. The great trading cities of the Lebanese Coast like Ugarit were burned to the ground.

It was the first terrible dark age in history.

Throughout the Near East, palls of smoke hung in the air where once there had been hubs of commerce and culture. Rich palaces and famous cities lay in ruins. (p328)

And we know so little about who the Sea Peoples were, or where they came from, or what motivated their invasions. Interestingly, it is about the same time as the traditional date for the siege of Troy.

Driven from their homelands (unknown, but possibly the western Mediterranean or Anatolia) by drought, famine and the desire for a better life, and possessed of a fierce and warlike nature, the Sea Peoples had proved an unstoppable force...(p329)

Rameses III won a battle against them in the Nile Delta and spared Egypt the fate of other eastern Mediterranean civilizations. But foreign trade with the shattered remainder of the region had been lost . Egypt never really reattained the splendid peaks of her civlization.

One book I read years ago was The Collapse of Complex Societies (New Studies in Archaeology). I don't remember much of it right now, but it's on my shelf and i should take another look.

It's sad, isn't it, that there is an infinity of things to read, a sea of knowledge which overwhelms any one person. And you know you'll never get to read more of a small fraction of what matters. And what you do read you tend to forget over time.


Monday, June 4, 2012

Bonds in outer space

The 10-year treasury hit 1.47 last night, and is trading at 1.51 this morning. Unbelievable. Valuation is stretched as far as the moon. This is one heck of a flight to quality, and a sign that fear is rampant. Surely this overprices any chance the Fed will do QE3 in enough scale to justify this.  

It is strange, though, that equities are holding in by comparison to the extreme craziness in bonds.

The Soda Ban and changing behavior

The NYT has a fascinating additional angle on Mayor Bloomberg's ban on large servings of sugary drinks in New York City. This 'Room for Debate' article asks what it means for our ability to influence or change human behavior in general. And that is obviously a central interest on this blog.

Some libertarians see this as a chilling example of an interfering nanny state. No doubt prohibition often only makes people want something more, as some contributors argue. Good intentions can often be counterproductive.

On the other hand, this kind of view doesn't help matters:

We are not an overweight-obese nation just because we drink sugary beverages. We are obese and overweight from self-medicating with sugar, starch, alcohol, tobacco and other forms of serotonin increasing, anxiety decreasing substances because we live in a psychological culture that deprives us of essential social nutrients such as respect, dignity, being listened to and valued as human beings.

Maybe Mayor Bloomberg should ban all public displays of rude and insulting behavior, and mandate respect and appreciation toward one another as a way of healing the real cause of why we are eating, drinking and inhaling substances to help numb ourselves against the onslaught of the disrespect and disconnection we experience daily.
It replaces the issue with a root-causes argument of such staggering broadness that it defeats any chance of incremental improvement. Yes, people should have more respect sometimes. But we surely don't have to wait for utopia to make minor changes to NYC fast food menu options.

And here's another view:

Of course we should be informed about risks; such education can cut through collective misunderstandings. But information alone rarely does the job. Changing the norms that guide our behaviors will take more. Persuasive campaigns that employ the insights of advertising and social marketing will be critical.

As we have learned from anti-tobacco efforts, taxing dangerous products and raising their price can dramatically shape consumer behaviors. Making unhealthy choices too expensive — “not worth it” — ultimately changes consumer norms.

This gets at the problem of will: people often do not act in their own self-interest, even when rationally they want to. And dieting is the classic example. Is it wrong to give people a little help or a nudge to do what most want to do anyway? Very few people actually want or choose to be obese. It is rarely a conscious outcome of liberty.

I think the ban is worth trying. Buying 20 oz servings of fizzy drinks is hardly a fundamental freedom, and I think most arguments that there is a slippery slope from this to tyranny are a little silly.

Some on the right think it's a sign that if government is involved with healthcare, then it will gradually be impelled to interfere with most of our lives. But I don't think it should be turned into a partisan argument about government healthcare. With or without Obamacare, the federal government will spend a trillion dollars on Medicare and Medicaid each year. It's not wrong to try to make citizens healthier, and save billions of dollars in the process. Better to spend scarce tax dollars on useful things like the Coastguard or protecting us against foreign hackers, than preventable diseases caused by obesity.

And obesity is just as big a problem for the private sector, as skyrocketing health insurance premiums undermine competitiveness, take-home pay and other consumer spending.

It does show there is a lingering public resentment of experts telling us what to do, especially when expert wisdom is often wrong or misguided. (Medical advice had often been suspect, from the days of leeches to current controversies over salt intake or cancer screenings). But that is not a reason to ignore all expert guidance, or claim making people healthier is not a legitimate aim of public policy.