Ronald Coase, 1910-2013

Nobel Prize-winning economist Ronald Coase died recently at the age of 102. Many fine tributes have been written over the past week, but a common theme in many of them is that Coase was an economist interested in what actually happens in the economy. Or, as he explains below, “the approach [to economics] should be empirical.”

Read moreRonald Coase, 1910-2013

Reconciling Murray

GMU’s Bryan Caplan has an interesting 2012 post on reconciling the work of controversial political scientist Charles Murray. Caplan views Murray’s three main books on poverty–Losing Ground, The Bell Curve, Coming Apart–as complementary. To review:

Charles Murray

Losing Ground: American Social Policy, 1950-1980 criticizes the welfare state for giving the poor perverse incentives.

The Bell Curve: Intelligence and Class Structure in American Life (written with the late psychologist Richard Herrnstein) argues that the poor tend to have lower IQs.

Coming Apart: The State of White America, 1960-2010 claims that the poor are generally lacking in particular virtues and social norms, namely marriage, industriousness, religiosity, and honesty (in relation to rising crime rates).

Caplan sets it up as follows:

  • The Bell Curve emphasizes the most stable difference between the rich and the poor: The poor tend to be less intelligent. Cognitive ability is an important determinant of success in almost any society. Smarter workers are simply more productive, and competing employers reward them accordingly. In the long-run, therefore, people with low intelligence tend to have correspondingly low incomes.”
  • “People with low IQs aren’t just less productive; they’re also more impulsive…Implicit: One of the best ways to help impulsive people reach decent long-run outcomes is to give them a lot of strong short-run feedback.”
  • “In Losing Ground, Murray shows what happens when the welfare state shelters people from this short-run feedback.”
  • “The impulsive are swayed more by guilt and shame than careful calculations about the distant future. In Coming Apart, Murray shows that over the last few decades, this tradition/social pressure mechanism has gradually broken down for the working class – and transformed the working class into a dysfunctional leisure class…Removing short-run feedback led to worse behavior, which undermined traditional norms about work and family, which reduced social pressure, which led to worse behavior.”
  • “Elites live in a high-IQ, low-impulsiveness Bubble. When they introspect, they correctly conclude that the welfare state has little effect on their behavior. They then incorrectly infer that the welfare state has little effect on anyone‘s behavior.”

Read moreReconciling Murray

I…Coffee?

Another interesting addition to my past “I, [Insert Item Here]” posts:

For instance, even the relatively simple GVC [global value chain] of Starbuck’s (United States), based on one service (the sale of coffee), requires the management of a value chain that spans all continents; directly employs 150,000 people; sources coffee from thousands of traders, agents and contract farmers across the developing world; manufactures coffee in over 30 plants, mostly in alliance with partner firms, usually close to final market; distributes the coffee to retail outlets through over 50 major central and regional warehouses and distribution centres; and operates some 17,000 retail stores in over 50 countries across the globe. This GVC has to be efficient and profitable, while following strict product/service standards for quality. It is supported by a large array of services, including those connected to supply chain management and human resources management/development, both within the firm itself and in relation to suppliers and other partners. The trade flows involved are immense, including the movement of agricultural goods, manufactured produce, and technical and managerial services.

The Bet

There was a review in The Wall Street Journal last week of the new book The Bet: Paul Ehrlich, Julian Simon, and Our Gamble Over Earth’s Future, which covers the Simon-Ehrlich wager (you know, the one where population doomsdayer Paul Ehrlich lost to economist Julian Simon regarding the dropping price of commodities). As the WSJ explains,

Mr. Ehrlich was allowed to select the five commodities that would be the yardstick…As they settled on their terms, Mr. Sabin notes, Messrs. Ehrlich, Holdren and Harte “felt confident that they would prevail.” They didn’t. In October 1990, Mr. Ehrlich mailed a check for $576.07 to Simon…Although world population had increased by 800 million during the term of the wager, the prices for the five metals had decreased by more than 50%. And they did so for precisely the reasons Simon predicted—technological innovation and conservation spurred on by the market.

Pic from Mark Perry

Ehrlich’s reaction to the lost bet is instructive:

Mr. Ehrlich was more than a sore loser. In 1995, he told this paper: “If Simon disappeared from the face of the Earth, that would be great for humanity.” (Simon would die in 1998.) This comment wasn’t out of character. “The Bet” is filled chockablock with Mr. Ehrlich’s outbursts—calling those who disagree with him “idiots,” “fools,” “morons,” “clowns” and worse. His righteous zeal is matched by both his viciousness in disagreement and his utter imperviousness to contrary evidence. For example, he has criticized the scientists behind the historic Green Revolution in agriculture—men like Norman Borlaug, who fed poor people the world over through the creation of scientific farming—as “narrow-minded colleagues who are proposing idiotic panaceas to solve the food problem.”

Mr. Sabin’s portrait of Mr. Ehrlich suggests that he is among the more pernicious figures in the last century of American public life. As Mr. Sabin shows, he pushed an authoritarian vision of America, proposing “luxury taxes” on items such as diapers and bottles and refusing to rule out the use of coercive force in order to prevent Americans from having children. In many ways, Mr. Ehrlich was an early instigator of the worst aspects of America’s culture wars.

When it comes to political disagreements, try a little more evidence and a little less name-calling.

U.S. Competitiveness

The World Economic Forum recently released their latest Global Competitiveness Report and after years of decline the US finds itself back in the top five at…#5. This time around, America falls behind Germany (#4), Finland (#3), Singapore (#2), and Switzerland (#1). Gains over the Netherlands and Sweden provide reason to hopeful. What stands out, however, are the things that the survey identifies as America’s biggest hindrances to competing in the global economy: tax regulations (the US was #69 in “Paying Taxes” in the World Bank’s Doing Business rankings), tax rates, and inefficient government.

Pic from James Pethokoukis

Food for thought.

Getting It Wrong On “Gatsby”

Leonardo DiCaprio as Gatsby

The 2013 version of The Great Gatsby was recently released on DVD/Blu-ray. I haven’t seen the film yet, given that I’m pretty lukewarm toward Baz Luhrmann. (Moulin Rouge! was enjoyable enough, Romeo + Juliet had its moments, but Australia?) But when I heard a radio advertisement for the DVD last night, I was reminded of a Nick Gillespie article from the April 2013 issue of Reason entitled “The Great Gatsby‘s Creative Destruction.” Gillespie is, according to The Denver Post, “a true intellectual, who can, before finishing his lunch, discuss how “The Great Gatsby” might be written today, switch to a riff on free-market reasons for supporting a value-added tax, reference economic studies that detail the “self-correcting” tax distribution in European countries that have applied a VAT, chart from memory the nation’s deficit spending patterns since the Great Depression, and all while handling a pretend-I’m-interested discussion with a political candidate whose conversation is limited to repeating the phrase, “It’ll be a real dog-fight, in every sense of the word.”” Not bad for #18 on The Daily Beast‘s list “The Right’s Top 25 Journalists.” (He would cringe at being lumped on “the Right” given his strong libertarianism.) The fact that he has a Ph.D. in English literature probably helps with his analysis of The Great Gatsby. And it is an interesting one.

He begins,

Based on the trailers and ads made available so far, the new movie likely errs in the same fundamental way that the Redford version did. That is, it conceives of Gatsby ultimately as a grand love story between the title character and the object of his obsessive love, Daisy Buchanan. Given the barebones plot of the book, that’s understandable but regrettable, as those two are the least compelling characters in the novel. Despite occasional moments of darkness and depth, Daisy works hard and mostly succeeds at maintaining a superficial lightness. Gatsby, despite the whirl of excitement and mystery about him, is an empty suit. Even the novel’s adulatory narrator confesses that when he’s alone with Gatsby, “I found to my disappointment, that he had nothing to say.”

The reason that Gatsby (the novel, if not the character) still has plenty to say to us is that it captures the precise moment that modern America came into recognizable shape. It is about the move from countryside to metropolis, from unum to pluribus, from hierarchy to heterarchy in all aspects of cultural and economic life. It captures a world in which nothing is fixed in terms of status, fortune, and self-fashioning—and it narrates the anxieties by such freedom.

Gatsby…is not simply a story about class differences. It’s about the breakdown of class differences in the face of a modern economy based not on status and inherited position but on innovation and an ability to meet ever-changing consumer needs. Ultimately, Gatsby is the great American novel of the ways in which free markets (even, and perhaps especially, black markets) overturn established order and recreate the world through what Joseph Schumpeter called “creative destruction.”

Certainly one of the more novel takes on Gatsby I’ve read. The whole thing is worth reading.

The Slow Hunch: A More Perfect Union?

Nearly two years ago, I graduated from UNT with a BBA in Organizational Behavior & Human Resource Management. As part of my curriculum, I did an internship at a unionized freight company. I was required to write a research paper based on my experience and the company itself. Having dealt with grievances, discipline, and other administrative duties, I focused on the effect the union had the company’s operations. I posted an excerpt of that paper at The Slow Hunch (I left out the company specifics and focused on the overall economic effect). Even though I’ve become softer on unions and harder on management over the past couple years (despite the unsavory history of labor unions and their contribution to unemployment), I still think the post is worth a look. If anything, it is a good reminder of a point I’ve made before: true growth comes from capital investment, creation of wealth, technological advances, increased skill and education, and competition.

Pic from Mark Perry