26 March 2013

The Unnatural Rate Hypothesis

Paul Krugman:

When I read opinion pieces by insiders, I often find the ostensible argument less interesting than what is taken for granted. It’s the throwaway lines, the statements that obviously are meant to refer to what “everyone knows”, that can be truly revealing about the state of conventional wisdom.

25 March 2013

Three Cheers for the Nanny State

Sarah Conly:

WHY has there been so much fuss about New York City’s attempt to impose a soda ban, or more precisely, a ban on large-size “sugary drinks”? After all, people can still get as much soda as they want. This isn’t Prohibition. It’s just that getting it would take slightly more effort. So, why is this such a big deal?

Obviously, it’s not about soda. It’s because such a ban suggests that sometimes we need to be stopped from doing foolish stuff, and this has become, in contemporary American politics, highly controversial, no matter how trivial the particular issue. (Large cups of soda as symbols of human dignity? Really?)

Markets in almost nothing

23 March 2013

Attacking Success

Paul Krugman:

OK, this is rich. Or actually, it’s anti-rich. Or anti-rich liberal. Or something.

Anyway, Jonathan Chait informs us that the right-wing blogosphere is all-aTwitter over the fact that Matthew Yglesias just bought a nice condo. Apparently this is hypocritical because you can’t be a liberal and own private property, or something. Chait has a lot of fun with the whole thing, and its notion that a liberal supporter of mild redistribution is the same thing as a Communist; check out his picture caption.

But I think there are two more things to be said here.

First, you should bracket this with the Rob Portman/gay marriage story as an example of the perversion of the ideas of civic virtue and sincerity. On today’s right, not only is civic virtue, nay patriotism, associated with narrow defense of your own self-interest, any deviation from that standard — like being an affluent person who nonetheless supports aid to the poor paid for by progressive taxation — is considered prima facie hypocritical. Somehow, though, this never gets to the obvious conclusion: that defending your nation is obviously hypocritical unless a member of your own family has been killed by terrorists …

But second, notice how quickly a staple of right-wing outrage goes out the window if there’s possible political gains to be made by violating a supposed principle. All through the 2012 campaign we were lectured about the evils of “attacking success“, which was defined as any criticism of how a wealthy individual got that way. But as soon as they think they spot an opening, right-wingers go ahead and … attack success. And unlike Romney, who was criticized for his business practices rather than his wealth per se, Yglesias is under attack simply for doing well.

But this is nothing new. Remember the pure envy-based attacks on John Kerry in 2004?

The lesson here is never to take right-wing huffiness about the process of politics and political debate seriously. These guys don’t actually believe in any rules at all; whatever rule they may lay down in one case, they’ll break in an instant if they think they see an advantage.

The Economics of Evil Google

Google’s decision to shut down Google Reader has upset a number of people I know, and provoked a lot of discussion about the future of web-based services. The most interesting discussion, I think, comes from Ryan Avent, who argues that Google has been providing crucial public infrastructure — but doesn’t seem to have an interest in maintaining that infrastructure.

I’ve been trying to think this through in terms of more or less standard microeconomics, and here’s what I’ve come up with:

First, it’s a well-understood though not often mentioned point that even in a plain-vanilla market, a monopolist with high fixed costs and limited ability to price-discriminate may not be able to make a profit supplying a good even when the potential consumer gains from that good exceed the costs of production. Basically, if the monopolist tries to charge a price corresponding to the value intense users place on the good, it won’t attract enough low-intensity users to cover its fixed costs; if it charges a low price to bring in the low-intensity user, it fails to capture enough of the surplus of high-intensity users, and again can’t cover its fixed costs.

What Avent adds is network externalities, in which the value of the good to each individual user depends on how many others are using it. To some extent the monopolist can capture these externalities, since they add to the price people are willing to pay, so I’m not sure they change the logic of provision or non-provision. But they mean that if the monopolist still doesn’t find it worthwhile to provide the good, the consumer losses are substantially larger than in a conventional monopoly-pricing analysis.

So what’s the answer? As Avent says, historical examples with these characteristics — like urban transport networks — have been resolved through public provision. It seems hard at this point to envision search and related functions as public utilities, but that’s arguably where the logic will eventually lead us.

Update: Illustrating my point: here’s a hypothetical case in which the demand comes both from high-intensity users who are willing to pay a lot for a service, and low-intensity users who aren’t willing to pay that much. Because of fixed costs, the average cost per user declines with the number of users. You can see from the way that this is drawn is that there is no price at which a monopolist can cover its costs here; yet the losses from providing the service at a price that draws in the low-intensity users would be much less than the gains to high-intensity users from having the service available.

21 March 2013

"If it were any less diverse it would look like the Senate."

"There is one Latino represented in the collection today. There are six American Indians, one Hawaiian, and zero African Americans. (Parks and Martin Luther King Jr. are both featured as part of a separate collection.) If it were any less diverse it would look like the Senate."


20 March 2013

What Ben Bernanke would say...


Is capitalism moral?

By Steven Pearlstein, Published: March 15

Steven Pearlstein is a Washington Post business and economics columnist and a professor of public and international affairs at George Mason University.

Careening from debt-ceiling crisis to sequestration to a looming government shutdown, the nation is caught up in a historic debate over the proper size and role of government.

That’s certainly one way to think about it. Another is that we are caught up in a historic debate over free-market capitalism. After all, if markets were making most of us better off, regulating their own excesses, guaranteeing equal opportunity and fairly dividing the economic pie, then we wouldn’t need government to take on all the things it does.

11 March 2013

Don't Believe Restauranteurs Who Say They're Going to "Pass On" the Cost of Obamacare

Matt Yglesias:

Another day, another restaurant owner whining about Obamacare:
" 'Any added costs are going to have to be passed on,' said Mike Ruffer, a Five Guys franchise holder with eight of the popular restaurants in the Raleigh-Durham, N.C. area. He will need all the profits from at least one of his eight outlets just to cover his estimated added $60,000-a year in new Obamacare costs."
This is self-refuting nonsense. The only situation in which it would make sense for Ruffer to raise prices is if price increases will on net lead to higher revenue. And if price increases will lead to higher revenue (which they might) then it makes sense for Ruffer to raise prices no matter what happens with Obamacare. In fact, Ruffer himself articulates the truth later which is that Obamacare is going to reduce his profits by about one-eighth and he (and any investors in his business) will eat the loss. With corporate profits as a share of the economy at an all-time high, nobody's going to cry for him either.

UPDATE: More from Karl Smith

06 March 2013

World’s Wrongest Man Ventures Latest Prediction

Best line: "If you chained a thousand Boskins to a thousand keyboards for a thousand years, eventually one of them would make a correct prediction."


04 March 2013

SimCity, Now With Microfoundations

Homepage - Slate Magazine
SimCity has been lying to you. For decades, the legendary city-simulation game has given players the sense that they possessed real power over virtual people. When you played SimCity—whether you got hooked by the original game, created by Will Wright and released in 1989, or its many wonderful sequels—you imagined yourself as a city-planning savant who had the power to make life awesome or awful for thousands of hapless simulated citizens.

One study explains why it’s tough to pass liberal laws

 via Wonkblog by Dylan Matthews on 3/4/13

Last year, a group of political scientists took a random sample of state legislators and asked them a slew of questions, most of which boiled down to: "What do your constituents think about policy?" Do they support gay marriage? Do they support Obamacare? Do they support action to combat global warming?
Friend-of-the-blog David Broockman and Christopher Skovron, graduate students at Berkeley and Michigan, respectively, have released a working paper based on that research and the findings are rather astonishing.
Broockman and Skovron find that all legislators consistently believe their constituents are more conservative than they actually are. This includes Republicans and Democrats, liberals and conservatives. But conservative legislators generally overestimate the conservatism of their constituents by 20 points. "This difference is so large that nearly half of conservative politicians appear to believe that they represent a district that is more conservative on these issues than is the most conservative district in the entire country," Broockman and Skovron write. This finding held up across a range of issues. Here, for example, are their findings for health care and same-sex marriage:

03 March 2013

Today in Well, Duh

Paul Krugman

Ezra Klein mans up and admits he was wrong. He had written a piece suggesting that if only Republicans knew how much Obama has been willing to offer, they might be willing to make a deal. Jonathan Chait set him straight, informing him that no matter what Obama put on the table, Republicans would find a way to say that it’s not enough. And sure enough, a Twitter exchange lets Klein watch that process in real time, as a top Republican consultant, confronted with evidence that Obama has already conceded what he said was all that was needed, keeps adding more demands.

So Klein admits that Republicans just don’t want to make a deal. Their objections to the deals on the table aren’t sincere; if convinced that Obama has met their demands, they just make more demands.

I think it’s important here to understand the broader implications.

The whole push for a Grand Bargain has been based on the notion that we can reach a fiscal deal that takes the whole fight over the budget off the table. What Klein has belatedly learned is how unlikely such a Bargain really is; but the same logic tells us that any Grand Bargain that might somehow be struck, via Obama’s mystical ability to mind-meld Star Trek and Star Wars or something, wouldn’t last. In a year — or more likely in a minute or two — Republicans would be back, demanding more tax cuts and more cuts in social programs. They just won’t take yes for an answer.

Meanwhile, it’s not just Republicans who refuse to accept it when Obama gives them what they want; the same applies, with even less justification, to centrist pundits. As people like Greg Sargent point out time and again, the centrist ideal — deficit reduction via a mix of revenue increases and benefits cuts — is what Obama is already offering; in fact, his proposals have been to the right of Bowles-Simpson. Yet the centrist pundits keep demanding that Obama offer what he has already offered, and condemn both sides equally (or even place most of the blame on Obama) for the failure to reach a deal. Again, informing them of their error wouldn’t help; their whole shtick is about blaming both sides, and they will always invent some reason why Obama just isn’t doing it right.

Anyway, props to Ezra — and is the use of Twitter exchanges to document political hypocrisy a new frontier in reporting?

02 March 2013

The Philosopher Politicians Reappear at the New York Times

by Dean Baker

Saturday, 02 March 2013 06:27

It seems pretty obvious to most of us that politicians get elected by appealing to powerful interest groups. They spend enormous amounts of time calling up rich people to ask for campaign donations and speaking to individuals who can help to deliver large numbers of votes. This is hardly a secret.

Yet, the New York Times again tries to tell us that these people are really philosophers, telling readers in a headline:

"Deep philosophical divide underlies the impasse"

in reference to the budget sequester.

01 March 2013

Conservative Radio Host Warns Listeners of Impending Doom if Their Kids Learn Economics


Mark Thoma:

Obama Will Abolish the Suburbs?

Homepage - Slate Magazine
Pssst! Have you heard about Agenda 21? The secret plot to collectivize private property—hatched by United Nations internationalists and midwifed by operatives ensconced within our own government—all in the name of "ending sprawl" and "encouraging sustainability"? The seizure of suburban homes by jackbooted, gun-toting U.N. thugs? The involuntary relocation of displaced suburbanites to cramped dwellings in densely packed cities?