Posts tagged ‘Via Cafe Hayek’

The Science of Complex Systems -- Economics and Climate

I saw two statements written about economics over the weekend that could easily have been written about climate as well.  These are both complex systems where researchers try to link one output variable (e.g. global average surface temperatures or economic growth) to one input variable (e.g. CO2 or government spending).

Via Cafe Hayek, here is Bob Gelfond discussing Keynesian multiples

When it comes to the “evidence” demonstrating the magic of the Keynesian Multiplier, what we see, in fact, is merely careful curation of statistical flukes on a grand scale over decades. Economist Ryan Murphy, who runs a project called that attempts to catalog scholarly measurements of the Keynesian Multiplier, has categorized and analyzed 128 papers on the subject. Only four papers even attempt to include this kind of statistical test, and none of these validate the original results, meaning simply that none of them prove the Keynesian Multiplier actually leads to more dollar-for-dollar economic growth. And this is after these models are ginned up to make their theory look as good as possible. If attempts to employ macroeconomics purport to be science, they must boldly make predictions about the future, not rummage around for convenient data from the past. But no peddler of the Keynesian Multiplier has been able to make demonstrable predictions borne out by the test of time.

Morgan Housel on economic data, but applies to climate without changing a word.

Ideally we’d have 500 years of unimpeachably perfect data. In reality we have about 50 years of so-so data. If we had the former, we’d learn that so much of what we’ve learned from the latter is wrong and incomplete.

Update:  Here is a third bit from Arnold Kling in the same vein:

Sometimes, I think that there are macroeconomists (Krugman is not the only one) for whom there is no path of economic variables that could ever contradict their point of view. They remind me of the climate scientists who tell us that Buffalo’s Snowvember came from global warming.

Macroeconomics is infinitely confirmable because of its high causal density and lack of controlled experiments. The macroeconomist has enough interpretative degrees of freedom to twist any pattern of economic activity to fit his or her priors.


Laissez Faire and the Potato Famine

Via Cafe Hayek

As explained by historian Stephen Davies, after defeating James II in 1690, protestants subjected Irish Catholics to harsh restrictions on land ownership and leasing.  Most of Ireland’s people were thus forced to farm plots of land that were inefficiently small and on which they had no incentives to make long-term improvements.  As a consequence, Irish agricultural productivity stagnated, and, in turn, the high-yield, highly nutritious, and labor-intensive potato became the dominant crop.  In combination with interventions that obstructed Catholics from engaging in modern commercial activities – interventions that kept large numbers of Irish practicing subsistence agriculture well into the 19th century – this over-dependence on the potato spelled doom when in 1845 that crop became infected with the fungus Phytophthora infestans.

To make matters worse, Britain’s high-tariff “corn laws” discouraged the importation of grains that would have lessened the starvation.  Indeed, one of Britain’s most famous moves toward laissez faire – the 1846 repeal of the corn laws – was partly a response to the famine in Ireland.

Had laissez faire in fact reigned in Ireland in the mid-19th century, the potato famine almost certainly would never had happened.

That Great Public Service

Via Cafe Hayek:

American Postal Workers Union president William Burrus complains that "It is deeply troubling that Journal editors advocate ending the Postal Service's exclusive right to sort and deliver mail.  The Postal Service must remain a public service if we are to honor our nation's commitment to serve every American community "“ large or small, rich or poor, urban or rural "“ at affordable, uniform rates"

My family has  a ranch that is absolutely in the middle of nowhere in Wyoming - it is 30 minutes by dirt road from a town of 2,000.  The USPS delivers mail to a box 3 miles away from the ranch, and does it 3 days a week.  The USPS will not deliver overnight mail.   UPS delivers 6 days a week right to our door, including overnight mail.

The word "uniform" is the key -- what the USPS government protected monopoly buys us is a massive cross-subsidy, where city dwellers subsidize rural communities, Alaska, and Hawaii.   Further, because the USPS knows that these subsidized routes are cost black holes, they tend to cut back on service to try to save money.  The result is that no one is served well, as is often the case when a large cross-subsidy exists -- cities pay more for their mail, and everyone gets worse service.

Help, Help! We're All Getting Poorer!

Or not.  Via Cafe Hayek and the WSJ, the median new home is 40% bigger than just a generation ago.


US Finally Fulfills Treaty Obligations, Maybe

After more than a decade, the US may finally allow Mexican truckers on US highways, something we actually agreed to in NAFTA:

The 9th Circuit Court of Appeals in San Francisco late on
Friday denied an emergency petition sought by the Teamsters
union, the Sierra Club and consumer group Public Citizen to
halt the start of a one-year pilot program that was approved by
Congress after years of legal and political wrangling.

I guess I can understand the Teamsters attempt to have the government shield them from competition -- that has practically become a national sport.  And I presume that the Sierra Club has some environmental concerns with Mexican trucks, though that seems flimsy given trucks must meet US environmental requirements and my guess is that Mexican trucks are at least as fuel efficient as US trucks.   But how can a nominal consumer group possibly justify this action?  Blocking competition in any part of the economy can only increase prices and reduce choices for consumers, particularly in an area like trucking that has almost no impact on the safety of the products actually being shipped.   I wish I could say this was some strange exception, but  consumer groups have for years backed protectionist efforts that do nothing but hurt consumers.

Via Cafe Hayek

Can Entrepeneurship Survive at Harvard?

Its pretty clear that open academic discourse is on life support at Harvard in the wake of the recent Larry Summers vote of no confidence.  Now, there is a question about whether simple entrepreneurship can survive.   Via Cafe Hayek, several Harvard students created dormaid to provide maid services to dorm students that wanted to pay for it.  Seemed like a great idea to me, which I would have loved at school, but the Harvard student magazine has hammered the entrepreneurs:

By creating yet another differential between the haves and have-nots on
campus, Dormaid threatens our student unity.... We urge the student
body to boycott Dormaid

Socialism has been rejected by countries around the world.  It seems like it is still alive and well at Harvard.  Here is the angst coming through of a frustrated top-down Stalinist planner:

A service like Dormaid can bring many levels of awkwardness into this
picture. For example, do two people sharing a double split the cost?
What if one wants the service and the other does not? What if one
cannot afford it? Hiring someone to clean dorm rooms is a convenience,
but it is also an obvious display of wealth that would establish a
perceived, if unspoken, barrier between students of different economic

Here is the Cafe Hayek response:

This episode is too typical. An enterprising soul perceives a need
and creatively offers a product or service -- at his own financial risk
-- to satisfy that need. Everything is voluntary. No one is forced to
buy the service; no one is forced to work for it. But well-read
ignoramuses, infatuated with their own imaginary higher capacity for
caring for others, viscerally react against commercial exchange. In
this case, those opposed to Dormaid worry that because some but not all
students will find it worthwhile to buy maid service, "inequality"
among the Harvard student body will increase.

Is the typical Harvard student so immature that he suffers envy when
some of his fellow students buy maid service that he chooses not to
buy? (Bonus question for economics students: Why did I say "that he
chooses not to buy?" rather than "that he can't afford?")  Is he so
sensitive, so very, very tender, that he loses emotional stability at
the sight of a friend's dorm room freshly cleaned by maids?  Is he so
intellectually and socially inept that he can't work out an amicable
arrangement with his roommate if one wants to use Dormaid and the other
prefers not to do so?

Read the rest - Cafe Hayek has links to the original Harvard Crimson article.  I will tell you that my roommates would have been fine if I had used this service in college.  In fact, I was such a mess that they might have paid for it for me!