Economic Thought - Latest Comments

Re: Thoma, Meet Hayek

JCatalan — Wed, 19 Jun 2013 18:28:03 -0000

I think growth in a complex economy is also a probabilistic phenomenon: the more firms there are, the more likely a successful micro plan can be found (and once it's found it can be copied until a better one is discovered). Regarding socialism, the overbearing problem is knowing how to allocate resources, and it's not clear how this information would become available without prices, profit and loss, and competition. This has something to do with the probabilistic approach to capitalism, but I'm not sure if anybody has followed this route in expanding the theoretical argument against socialism (I know it's briefly touched upon in Engineering the Financial Crisis, although the main topic of that book is much narrower).

Re: Thoma, Meet Hayek

Roman P. — Wed, 19 Jun 2013 14:48:52 -0000

I think that Hayek is more on target than neoclassicals. His views have the kernel of truth, while the neoclassical views on the desirability of the perfect competition are fragile: it takes MC<0 cases to flip the argument on its head, and as we know from Blinder that's about half of all firms. My humble opinion: the markets' magic is not that they efficiently allocate resources amongst some firms within some stage of production, but rather that they coordinate between the different stages of production.
It's possible to plan the economy in its entirety (a la Barone), just not easy for practical purposes - USSR can attest to it. Market process splits this up into many little plans of different firms and then glues them up with a monetary system. The resultant system is largely stable because firms don't usually screw up their planning too much and they have buffer stocks to deal with inevitable failures of their local planning.

Re: Do We Expect Too Much From Economists?

JCatalan — Wed, 19 Jun 2013 01:15:03 -0000

I think that's right; the position you take is the one I try to sum up first (differences in what is being measured vs. complexity).

Re: Do We Expect Too Much From Economists?

D4md0n3 . — Wed, 19 Jun 2013 00:37:15 -0000

I have been out of it for a little bit. Tell me if any of this sounds incorrect:

Complexity is certainly one way of looking at it. Non-regularity of economic data is also a major sticking point, in that the data is qualitatively different than the data collected by the natural sciences. Ostensibly they both appear to be numbers, but economic quantities are governed by forward looking valuations or by appraisals which provide context for the said valuations.

Re: Teach Your Kids About Taxes

JCatalan — Tue, 18 Jun 2013 21:01:44 -0000

I'm willing to bet O'brien recycled it too.

Re: Informational Limits to the Size of States

JCatalan — Tue, 18 Jun 2013 15:19:13 -0000

Unanimity implies that nobody is being coerced; the relationship between the state and members of that society is voluntary. If there is a mistake it's that if unanimity is possible, then there's a strong case that the same outcome can be accomplished privately -- "the state" becomes some kind of arbitrator, or some venue by which people express their preferences.

This alleged "benchmark" is no benchmark, in the scientific sense of the term.

I'm not sure what you mean. Is your belief that it's not scientific based only on your emphasis on coercion? If so, I don't see your logic. Edit: What makes the unanimity rule what it is is that it proves that there are external costs to government -- that's how Buchanan and Tullock use it.

Re: Informational Limits to the Size of States

Dan(DD5) — Tue, 18 Jun 2013 13:03:37 -0000

The "unanimity benchmark" is what exactly if not "people agree to be coerced as long as everybody is coerced"?

Really, you have to read more than what the authors literally feed you in their writing.. You have to realize the logical implications of their assumptions.. This alleged "benchmark" is no benchmark, in the scientific sense of the term.

Re: Friday Night Music

John S — Tue, 18 Jun 2013 06:22:45 -0000

The recent development of MLS academies is one of the big reasons I'm bullish on American soccer. It wasn't until a couple of years ago that an agreement was reached allowing academy players to retain NCAA eligibility. Previously, youth development was completely haphazard and unprofessional (really, it's amazing that players like Clint Dempsey ever developed in such an environment). Every team now has its own academy (finally!), something taken for granted in Europe for decades.

But progress at the nat'l level can still take decades. Look at American hockey--the youth development system is far superior to soccer, but it's only in recent years that the youth team has shown good results (although they have been very impressive in recent years).

Re: Euro scouting in American--this is becoming much less of a problem. All top young Americans are on European radars, for sure, esp. in player-exporting leagues like the Netherlands and others in Scandinavia. The trickle of US players has slowly but surely grown into a small stream over the last few years.

Re: Teach Your Kids About Taxes

George Machen — Mon, 17 Jun 2013 20:19:41 -0000

http://bit.ly/1bPbRUz

Re: Teach Your Kids About Taxes

Rob Rawlings — Mon, 17 Jun 2013 20:12:15 -0000

30%? They Clearly don't live in California:

Fed Income Tax Tax 35%

State Tax 9.5%

Property tax 1% of property value, which is probably at least 5% of income for most people ,

sales tax 9%

That's 60% !

I know that most people don't pay 60% of total income in tax, but even ignoring property tax, your paying a marginal tax rate of over 50% in California if you spend any of that marginal income on goods liable for sales tax.

Re: Friday Night Music

JCatalan — Mon, 17 Jun 2013 18:01:12 -0000

One of the issues is that American players have a hard time getting noticed by European teams. There are no American players in any league winning team in a major European league. Their outlet is the national team, but lately the national team has not been preforming well. Arguably, maybe in the near future we will see some improvement, since the U.S. is now looking to be the strongest national team in their conference (Mexico has been playing fairly poorly).

But, with an ethnically heterogeneous population of 300 million or so, there has to be a large talent pool. The key is maximizing their potential through good youth programs and competitive leagues. I don't know anything about American youth systems, but if they improve over time I can see an improving MLS.

We also have to consider that the MLS is a lesser league within the U.S. The NFL and NBA are probably always going to be earning more revenue. In Europe, and even in Mexico, football (soccer) will always be the main sport and so commands the largest revenue of all other sports leagues, which is why Europe tends to have poor basketball leagues (except, arguably, Spain, although Spain's is not even close to the NBA). Without revenue you can't have fancy youth academies and you can't afford to pay high salaries for high-end players.

Re: Informational Limits to the Size of States

JCatalan — Mon, 17 Jun 2013 16:57:06 -0000

What fallacies? I never said, anywhere, that we can make a priori quantitative measures of public good problems. Neither did I write, "[p]eople want to be coerced as long as everybody is coerced." I don't even know what your last sentence has to do with the preceding ones! (Unanimity is used as a benchmark in the book, not as a description of real world political systems.)

Re: Informational Limits to the Size of States

Dan(DD5) — Mon, 17 Jun 2013 16:04:30 -0000

I am familiar with the Calculus of Consent. I do not need to address it specifically because you have just read it (and I have so way before you probably even heard of it). The fallacies are there right in your article and that is what I am addressing. People want to be coerced as long as everybody is coerced, or just forget about the coercion, and let's talk about the government as just another agency providing service... Now let's analyze the costs... All this talk about unanimity is just pure pure nonsense, and frankly, quite dangerous..

Re: Do We Expect Too Much From Economists?

Predrag Rajsic — Mon, 17 Jun 2013 15:05:24 -0000

Excellent discussion!

Re: Informational Limits to the Size of States

JCatalan — Mon, 17 Jun 2013 14:51:11 -0000

I'm not sure you're really that familiar with what's being discussed. I think you have a distorted idea of how economists have approached the topic. For example, you throw out the term "cost function," but I don't know what relationship between these functions and the quantitative definition of a public good you see. Whatever your answer is, the actual answer is none. Nobody is pretending to be able to fix public goods theoretically, by building random cost functions. Nobody is forgetting the socialist calculation problem. You may be interested in actually reading some of the material.

Edit: I think you will be positively surprised if you read The Calculus of Consent. A lot of it has to do with the process of how relevant information is made known through exchange (but, exchange in political institutions, as opposed to institutions of the market). And the external costs of collective actions are well understood -- it's all in the book.

Re: Informational Limits to the Size of States

Dan — Mon, 17 Jun 2013 14:21:07 -0000

It is impossible to demonstrate that even a single person values the benefit of the "public good" more then what he pays for it via taxes. Yet, this doesn't apparently bother you and the public good theorists.. You construct cost functions and theorize about efficiency of "collective action". This is after all, nothing more than attempts to overcome the calculation problem of socialism. You think that because some alleged "free marketeers" have constructed these cost functions, then they are more credible, but really, it all comes down to the fact that you cannot even solve the main problem - that before you talk about costs, benefits, and efficiency, you must have an exchange system where actors can actually demonstrate their preferences and values, and not have a few people just assume it for everybody..

Re: Friday Night Music

Stadius — Mon, 17 Jun 2013 11:36:16 -0000

The Club World Cup is unfortunately (and counterintuitively) not a particularly prestigious, or even well known, competition. At the big English, Spanish, Italian, etc. clubs, it's always going to come second to the Champion's League or Europa; I also don't recall it being reported upon in the press.

That said, I'm willing to bet that the standard of football in the US has come a fair way, since the US national team have performed quite respectably in the last few competitions. MLS will probably lag behind for quite some time, however, because promising US players will tend to be bought up by the big European and South American clubs.

P.S. I've always wondered why Rugby isn't popular in the US, since it's basically American Football without the pads, playbooks or forward passes. The skills would be largely transferrable (apparently Johnny Wilkinson was offered an incredible sum to become a kicker for an AF team, just as his rugby career was coming to an end), so I'd have thought there'd be a niche for it among College Athletes who didn't quite make the AF team.

Re: Informational Limits to the Size of States

Alex Salter — Mon, 17 Jun 2013 09:35:18 -0000

Solid post. My only complaint is that efficiency, or at least its desirability as an end, is also normative. At the very least, the analytical egalitarianism on which efficiency rests represents an implicit value judgement about who gets counted in the welfare calculus.

Re: Friday Night Music

John S — Sun, 16 Jun 2013 23:23:42 -0000

Altidore prob has the most potential in Europe. Agudelo hasn't quite panned out yet, but he is only 20 and is having his best year.

Sure, playing on the MNT is key. But MLS has contributed a ton to the player pool both directly and indirectly (a large majority of the team started off in MLS).

Overall, no league in the world has as much upside as MLS. But from a viewing perspective, I'm sure it's less satisfying than Europe (can't say myself, as my knowledge of football strategy/tactics is close to nil). Still, in terms of live games, it's the only option for Americans.

Re: Friday Night Music

JCatalan — Sun, 16 Jun 2013 15:12:26 -0000

To some extent, I was just joking. But, I don't follow the MLS because I find it to be somewhat more boring than the major European leagues (and I have an emotional investment in Atlético de Madrid in La Liga). They've been saying that about American players playing in Europe for a long time, and the most successful American players are who? Tim Howard, Clint Dempsey, and maybe Michael Bradley? The major way of making it internationally is the U.S. national soccer team, not MLS. Juan Agudelo was supposed to be the revelation striker, and it seems that that story has burnt out. I don't know; I'm a skeptic.

Re: Friday Night Music

John S — Sun, 16 Jun 2013 00:13:10 -0000

Ok, I don't have a twitter account, but I have to respond to your recent tweet on MLS. C'mon, there's been an enormous improvement in the quality of play. The last two CONCACAF Champions Leagues have seen MLS come very close to qualifying for the Club World Cup (more impressive now, since Mexican clubs actually take it seriously). It doesn't come close to the royalty of La Liga, for goodness sake, but don't be a Eurosnob, Jon! :)

And also, I follow MLS to see the next generation of US stars that will go to Europe. I've been following Jack McInerney's career since he was on the youth team, and I'm thrilled over his recent success. More stories like this will follow.

Re: Informational Limits to the Size of States

Stadius — Sat, 15 Jun 2013 05:18:13 -0000

Economies of scale is when marginal costs fall with growing output, implying high fixed costs.

Falling marginal costs don't imply fixed costs; here's an example:

Totalcosts1=100+2q-0.25q^2 Totalcosts2=1000+2q-0.25q^2

=>Marginalcosts1=Marginalcosts2=2-0.5q

So, I don't know, maybe you maybe you meant

Economies of scale is when average costs fall with growing output, implying high fixed costs.

Though even in this case, fixed costs are just one potential explanation, the others being falling marginal costs, or both.

Re: Informational Limits to the Size of States

JCatalan — Fri, 14 Jun 2013 22:09:03 -0000

I know Austrians have done some work with firm size and the calculation problem. I swear I've seen something similar recently in the non-Austrian literature, but I don't remember where. And you're point about cascading is a good one. A larger government may overinvest in some public good and underinvest in other public goods that would actually be better supplied by smaller, more local governments.

Re: Free Riding and the State

JCatalan — Fri, 14 Jun 2013 22:04:12 -0000

Right, profit and loss don't help much in the case of public goods. Public goods are "market failures;" they're cases when markets can't achieve the "optimal solution." Presumably, the government needs other ways of collecting information on the public goods problem, which includes democratic voting and representation. To a large extent, I'd argue, there's also intuition at play. We know what goods suffer from shades of non-excludability and non-rivalry. But, for the most part, I'd say that it's right to argue that government provision of public goods is not the least costly solution (although, it also depends on the kind of public institutions we're talking about -- that's why I think smaller governments will attain better solutions). So, the public goods that government ought to provide, if any, would be a small subset of the whole range of public goods.

And, the payers in some cases are made worse off because of free riding -- it's a normative argue insofar as we decide what it means to be worse or better off, but I wouldn't say it's an ethical argument (or that it has anything to do with fairness). Rather, suppose you pay $10 for a hamburger and some random person eats half of it -- you basically subsidized him eating half of your hamburger. I'd say you're worse off. The hamburger example is not exactly a public goods example, but the concept is very similar in terms of cost to the payer. Imagine that you pay the full cost of national defense, but the benefits are spread over you and 99 other people -- you pay 100 percent of the cost, but receive only one percent of the benefit.

Re: Free Riding and the State

JCatalan — Fri, 14 Jun 2013 21:57:55 -0000

Dan, the definition of public goods is the economic one (i.e. non-excludability and non-rivalry), not goods that "serve the public." And the problems aren't "alleged;" they exist, whether you support government provision or not (and there are a lot of good reasons to doubt that states can provide public goods at the least cost, and a lesser cost than the public goods problem itself). The informational costs to knowing the size of the public good doesn't say anything with regards to whether public goods exist or not -- it's not an argument against public goods, it's an argument, maybe, against the provision of public goods by the state.