Connect with us

Economy

Links (10/31/19)

Published

on


  • Manufacturing Ain’t Great Again. Why? – Paul Krugman 
    When Donald Trump promised to Make America Great Again, his slogan meant different things to different people. For many supporters it meant restoring the political and social dominance of white people, white men in particular. For others, however, it meant restoring the kind of economy we had a generation or two ago, which offered lots of manly jobs for manly men: farmers, coal miners, manufacturing workers. So it may matter a lot, politically, that Trump has utterly failed to deliver on that front — and that workers are noticing. Now, many of Trump’s economic promises were obvious nonsense. The hollowing out of coal country reflected new technologies, like mountaintop removal, which require few workers, plus competition from other energy sources, especially natural gas but increasingly wind and solar power. Coal jobs aren’t coming back, no matter how dirty Trump lets the air get.
  • Stop Inflating the Inflation Threat – J. Bradford DeLong
    Given the scale and severity of inflation in America in the 1970s, it is understandable that US monetary policymakers developed a deep-seated fear of it. But, nearly a half-century later, the conditions that justified such worries no longer apply, and it is past time that we stopped denying what the data are telling us.
  • How to Tax Our Way Back to Justice – Saez and Zucman
    It is absurd that the working class is now paying higher tax rates than the richest people in America.
  • It's Time to Go – Dave Giles
    When I released my first post on the blog on 20th. Febuary 2011 I really wasn't sure what to expect! After all, I was aiming to reach a somewhat niche audience. Well, 949 posts and 7.4 million page-hits later, this blog has greatly exceeded my wildest expectations. However, I'm now retired and I turned 70 three months ago. I've decided to call it quits, and this is my final post. I'd rather make a definite decision about this than have the blog just fizzle into nothingness. For now, the Econometrics Beat blog will remain visible, but it will be closed for further comments and questions.
  • Prospects for Inflation in a High Pressure Economy: Is the Phillips Curve Dead or Is It Just Hibernating? – Brad DeLong 
    I have some disagreements with this by the smart Sufi, Mishkin, and Hooper: the evidence for "significant nonlinearity" in the Phillips Curve is that the curve flattens when inflation is low, not that it steepens when labor slack is low. There is simply no "strong evidence" of significant steepening with low labor slack. Yes, you can find specifications with a t-statistic of 2 in which this is the case, but you have to work hard to find such specifications, and your results are fragile. The fact is that in the United States between 1957 and 1988—the first half of the last 60 years—the slope of the simplest-possible adaptive-expectations Phillips Curve was -0.54: each one-percentage point fall in unemployment below the estimated natural rate boosted inflation in the subsequent year by 0.54%-points above its contemporary value. Since 1988—in the second half of the past 60 years—the slope of this simplest-possible Phillips curve has been effectively zero: the estimated regression coefficient has been not -0.54 but only -0.03. The most important observations driving the estimated negative slope of the Phillips Curve in the first half of the past sixty years were 1966, 1973, and 1974—inflation jumping up in times of relatively-low unemployment—and 1975, 1981, and 1982—inflation falling in times of relatively-high unemployment. The most important observations driving the estimated zero slope of the Phillips Curve in the second half of the past sixty years have been 2009-2014: the failure of inflation to fall as the economy took its Great-Recession excursion to a high-unemployment labor market with enormous slack. Yes, if we had analogues of (a) two presidents, Johnson and Nixon, desperate for a persistent high-pressure economy; (b) a Federal Reserve chair like Arthur Burns eager to accommodate presidential demands; (c) the rise of a global monopoly in the economy's key input able to deliver mammoth supply shocks; and (d) a decade of bad luck; then we might see a return to inflation as it was in the (pre-Iran crisis) early and mid-1970s. But is that really the tail risk we should be focused monomaniacally on? And how is it, exactly, that "the difference between national and city/state results in recent decades can be explained by the success that monetary policy has had in quelling inflation and anchoring inflation expectations since the 1980s"? Neither of those two should affect the estimated coefficient. Much more likely is simply that—at the national level and at the city/state level—the Phillips Curve becomes flat when inflation becomes low:
  • Debt, Doomsayers and Double Standards – Paul Krugman
    Selective deficit hysteria has done immense damage.
  • Fed Attempts To Conclude Their Mid-Cycle Adjustment – Tim Duy
    After spending much of the year battling the forces of uncertainty weighing on the economy, the Fed declared victory today. Absent a fresh deterioration in the economic outlook, Fed Chair Jerome Powell and his colleagues believe they are done cutting rates with this month’s policy move. Expect an extended policy pause; the Fed is neither interested in easing policy further given their outlook nor in soon raising rates back up given continued below-target inflation.
  • Fall 2019 Journal of Economic Perspectives Available Online – Tim Taylor
    I'll start with the Table of Contents for the just-released Fall 2019 issue, which in the Taylor household is known as issue #130. Below that are abstracts and direct links for all of the papers. I will probably blog more specifically about some of the papers in the next week or two, as well.
  • Does a wealth tax discourage risky investments? – Digitopoly
    The other day I wrote about the potential impact of a wealth tax. In so doing, I wrote: “we can all agree that the wealth tax likely deters risk-free saving.” This was a paraphrase of a claim made by Larry Summers who then went on to say that it was unknown whether a wealth tax would encourage or discourage risky investment. But I did wonder what the impact of a wealth tax would be on various types of investments and in examining this I realized that the claim was incorrect. In fact, a wealth tax is unlikely to have any change on the risk profile of investments in contrast to an income (or even consumption tax) that will. I discovered later that this was a known result being contained in a paper from Joe Stiglitz (QJE, 1969).
  • Will Libra Be Stillborn? – Barry Eichengreen
    Where the problem for economies and financial services is lack of competition, residents of developing countries need to look to their own regulators and politicians. The remedy for their woes is not going to come from Mark Zuckerberg.
  • Children of Poor Immigrants Rise, Regardless of Where They Come From – The New York Times 
    A pattern that has persisted for a century: They tend to outperform children of similarly poor native-born Americans.
  • The tempos of capitalism – Understanding Society
    I've been interested in the economic history of capitalism since the 1970s, and there are a few titles that stand out in my memory. There were the Marxist and neo-Marxist economic historians (Marx's Capital, E.P. Thompson, Eric Hobsbawm, Rodney Hilton, Robert Brenner, Charles Sabel); the debate over the nature of the industrial revolution (Deane and Cole, NFR Crafts, RM Hartwell, EL Jones); and volumes of the Cambridge Economic History of Europe. The history of British capitalism poses important questions for social theory: is there such a thing as "capitalism", or are there many capitalisms? What are the features of the capitalist social order that are most fundamental to its functioning and dynamics of development? Is Marx's intellectual construction of the "capitalist mode of production" a useful one? And does capitalism have a logic or tendency of development, as Marx believed, or is its history fundamentally contingent and path-dependent? Putting the point in concrete terms, was there a probable path of development from the "so-called primitive accumulation" to the establishment of factory production and urbanization to the extension of capitalist property relations throughout much of the world?
  • The Way We Measure the Economy Obscures What Is Really Going On – Heather Boushey
    By looking mainly at the big picture, we are missing the reality of inequality — and a chance to level the playing field.
  • Audits as Evidence: Experiments, Ensembles, and Enforcement – Brad DeLong
    This is absolutely brilliant, and quite surprising to me. I had imagined that most of discrimination in the aggregate was the result of a thumb placed lightly on the scale over and over and over again. Here Pat and Chris present evidence that, at least in employment, it is very different: that a relatively small proportion of employers really really discriminate massively, and that most follow race-neutral procedures and strategies:
  • Study analyzed tax treaties to assess effect of offshoring on domestic employment – EurekAlert
    The practice of offshoring–moving some of a company's manufacturing or services overseas to take advantage of lower costs–is on the rise and is a source of ongoing debate. A new study identified a way to determine how U.S. multinational firms' decisions about offshoring affect domestic employment. The study found that, on average, when U.S. multinationals increase employment in their foreign affiliates, they also modestly increase employment in the United States–albeit with substantial dislocation and reallocation of workers. The study was conducted by researchers at Carnegie Mellon University, Georgetown University, and the Federal Reserve Bank of Kansas City. It is published in The Review of Economics and Statistics.





Source link

قالب وردپرس

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Economy

Market Talk – July 14, 2020

Published

on


ASIA:

The United States is sending two aircraft carriers into the South China Sea at the same time as China is conducting military exercises in the contested waterway, the Wall Street Journal reported. The USS Ronald Reagan and USS Nimitz would be in the South China Sea from Saturday, the US news outlet quoted the strike group commander as saying.

China’s trade improved in June in a fresh sign the world’s second-largest economy is recovering from the coronavirus pandemic. Chinese imports rose 3 percent over a year earlier to $167.2 billion, rebounding from May’s 3.3 percent decline, customs data showed Tuesday. Exports edged up 0.4 percent to $213.6 billion, an improvement over the previous month’s 16.7 percent contraction.

India’s retail inflation picked up in June, pushed by price increases for some food and fuel items, but economists said the central bank could still ease rates because of concerns about economic slowdown caused by the lockdown. Annual retail inflation rose to 6.09% in June, compared to 5.84% in March, and 5.30% forecast in a Reuters poll of economists. June’s inflation remained above the mid-point of the Reserve Bank of India’s 2-6% target range; the Ministry of Statistics data showed on Monday.

India’s exports of gems and jewelry fell a record 55% in June quarter from a year ago to $2.75 billion as processing units were affected by a lockdown to curb the spread of the novel coronavirus, a leading trade body said on Monday. The country’s cut and polished diamond exports in the quarter fell 50% from a year ago to $1.8 billion, the Gems and Jewellery Export Promotion Council (GJEPC) said in a statement.

The major Asian stock markets had a negative day today:

  • NIKKEI 225 decreased 197.73 points or -0.87% to 22,587.01
  • Shanghai decreased 28.67 points or -0.83% to 3,414.62
  • Hang Seng decreased 294.23 points or -1.14% to 25,477.89
  • ASX 200 decreased 36.40 points or -0.61% to 5,941.10
  • Kospi decreased 2.45 points or -0.11% to 2,183.61
  • SENSEX decreased 660.63 points or -1.80% to 36,033.06
  • Nifty50 decreased 195.35 points or -1.81% to 10,607.35

The major Asian currency markets had a mixed day today:

  • AUDUSD increased 0.00266 or 0.38% to 0.69709
  • NZDUSD decreased 0.00136 or -0.21% to 0.65276
  • USDJPY decreased 0.08 or -0.08% to 107.19
  • USDCNY increased 0.00646 or 0.09% to 7.00800

Precious Metals:

  • Gold increased 8.15 USD/t oz. or 0.45% to 1,809.70
  • Silver increased 0.04 USD/t. oz or 0.23% to 19.1520

Some economic news from last night:

China:

Exports (YoY) (Jun) increased from -3.3% to 0.5%

Imports (YoY) (Jun) increased from -16.7% to 2.7%

Trade Balance (USD) (Jun) decreased from 62.93B to 46.42B

Australia:

NAB Business Confidence (Jun) increased from -20 to 1

NAB Business Survey (Jun) increased from -24 to -7

Singapore:

GDP (QoQ) (Q2) decreased from -3.3% to -41.2%

GDP (YoY) (Q2) decreased from -0.3% to -12.6%

Some economic news from today:

Japan:

Capacity Utilization (MoM) (May) increased from -13.3% to -11.6%

Industrial Production (MoM) (May) increased from -9.8% to -8.9%

India:

WPI Food (YoY) (Jun) increased from 1.13% to 2.04%

WPI Fuel (YoY) (Jun) increased from -19.83% to -13.60%

WPI Inflation (YoY) (Jun) increased from -3.21% to -1.81%

WPI Manufacturing Inflation (YoY) (Jun) increased from -0.42% to 0.08%

 

EUROPE/EMEA:

The U.K. announced on Tuesday it will ban Huawei from its 5G networks, in a significant U-turn by the government that could significantly dent relations with China while appeasing the U.S. Speaking in Parliament, U.K. Culture Secretary Oliver Dowden said mobile network operators in the country would be forced to stop buying equipment from Huawei by the end of the year. They will also be required to strip out Huawei gear from their infrastructure by 2027.

Face coverings are to be mandatory in shops and supermarkets in England from July 24, Matt Hancock confirmed. The health and social care secretary said a store could refuse someone entry if they aren’t wearing one and to call the police if there’s a problem. People who don’t wear one will face fines of up to £100. Children under 11 and those with disabilities will be exempt from the new rule.

The major Europe stock markets had a mixed day:

  • CAC 40 decreased 48.77 points or -0.97% to 5,007.46
  • FTSE 100 increased 3.56 points or 0.06% to 6,179.75
  • DAX 30 decreased 102.61 points or -0.80% to 12,697.36

The major Europe currency markets had a mixed day today:

  • EURUSD increased 0.00496 or 0.44% to 1.13989
  • GBPUSD decreased 0.00054 or -0.04% to 1.25555
  • USDCHF decreased 0.00284 or -0.30% to 0.93881

Some economic news from Europe today:

UK:

U.K. Construction Output (YoY) (May) increased from -44.2% to -39.7%

Construction Output (MoM) (May) increased from -40.2% to 8.2%

GDP (MoM) increased from -20.4% to 1.8%

Index of Services decreased from -10.7% to -18.9%

Industrial Production (YoY) (May) increased from -23.8% to -20.0%

Industrial Production (MoM) (May) increased from -20.2% to 6.0%

Manufacturing Production (MoM) (May) increased from -24.4% to 8.4%

Manufacturing Production (YoY) (May) increased from -28.2% to -22.8%

Monthly GDP 3M/3M Change decreased from -10.4% to -19.1%

Trade Balance (May) increased from -4.80B to -2.81B

Trade Balance Non-EU (May) increased from -0.94B to 0.65B

NIESR GDP Estimate decreased from -19.1% to -21.2%

Germany:

German ZEW Current Conditions (Jul) increased from -83.1 to -80.9

German ZEW Economic Sentiment (Jul) decreased from 63.4 to 59.3

German CPI (YoY) (Jun) increased from 0.6% to 0.9%

German CPI (MoM) (Jun) increased from -0.1% to 0.6%

German HICP (YoY) (Jun) increased from 0.5% to 0.8%

German HICP (MoM) (Jun) increased from 0.0% to 0.7%

Swiss:

PPI (YoY) (Jun) increased from -4.5% to -3.5%

PPI (MoM) (Jun) increased from -0.5% to 0.5%

Spain:

Spanish CPI (MoM) (Jun) increased from 0.0% to 0.5%

Spanish CPI (YoY) (Jun) increased from -0.9% to -0.3%

Spanish HICP (YoY) (Jun) increased from -0.9% to -0.3%

Spanish HICP (MoM) (Jun) increased from 0.1% to 0.4%

Euro Zone:

Industrial Production (YoY) (May) increased from -28.7% to -20.9%

Industrial Production (MoM) (May) increased from -18.2% to 12.4%

ZEW Economic Sentiment (Jul) increased from 58.6 to 59.6

US/AMERICAS:

The US budget deficit topped $867 billion in June, the Treasury reported, which brings this fiscal year’s federal deficit to $2.7 trillion. Around $240 billion worth of taxes were collected in June; however, federal spending totaled $1.1 trillion. Last June, the deficit was only $8 billion and $984 billion for the duration of the year.

White House economic advisor Larry Kudlow confirmed that it is “increasingly clear” that a fourth round of stimulus payments will be provided to Americans. “We will try to make it targeted, we will try to incentivize not just work, although work is crucial, and going back to work. We want to incentivize investments, we want a pro-growth package,” Kudlow stated. Senate Majority Leader Mitch McConnell said he forsees the next package as being the last government handout.

Crime in the US is on the rise as cities continue to defund their police forces. “Shootings up 358%, over 300 people shot last month and NYPD retirements have quadrupled,” President Trump retweeted this Tuesday. “Under this administration, we are going to defend the police,” Vice President Mike Pence stated today. Over this past weekend alone, New York City reported 28 shooting victims. According to CBSN Chicago, “at least” 64 people were shot in Chicago over the weekend with 11 reported fatalities.

Transportation Canada announced that all travelers destined for Canada will be subject to a temperature screening. The new measure will begin in September 2020 at the busiest airports in the country (St. John’s, Halifax, Québec City, Ottawa, Toronto – Billy Bishop, Winnipeg, Regina, Saskatoon, Edmonton, Kelowna, Victoria). Travelers displaying a fever will not be permitted to enter the country for at least fourteen days.

US Market Closings:

  • Dow advanced 556.79 points or 2.13% to 26,642.59
  • S&P 500 advanced 42.3 points or 1.34% to 3,197.52
  • Nasdaq advanced 0.94% or 97.73 points to 10,488.58
  • Russell 2000 advanced 24.69 points or 1.76% to 1,428.26

Canada Market Closings:

  • TSX Composite advanced 269.04 points or 1.72% to 15,908.45
  • TSX 60 advanced 16.59 points or 1.76% to 958.31

Brazil Market Closing:

  • Bovespa advanced 1,743.17 points or 1.77% to 100,440.23

ENERGY:

The oil markets had a green day today:

  • Crude Oil increased 0.21 USD/BBL or 0.52% to 40.3100
  • Brent increased 0.19 USD/BBL or 0.44% to 42.9100
  • Natural gas increased 0.03 USD/MMBtu or 1.74% to 1.7530
  • Gasoline increased 0.0031 USD/GAL or 0.25% to 1.2492
  • Heating oil increased 0.0052 USD/GAL or 0.43% to 1.2204

The above data was collected around 13:53 EST on Tuesday.

  • Top commodity gainers: Natural Gas (1.74%), Palm Oil (1.48%), Orange Juice (1.12%), and Lumber (9.30%)
  • Top commodity losers: Sugar (-1.99%), Corn (-1.96%), Oat (-10.18%), and Ethanol (-7.34%)

The above data was collected around 14:00 EST on Tuesday.

BONDS:

Japan 0.03%(-0bp), US 2’s 0.15% (-1bps), US 10’s 0.61%(-3bps); US 30’s 1.29%(-5bps), Bunds -0.44% (-4bp), France -0.13% (-3bp), Italy 1.29% (-2bp), Turkey 12.34% (+3bp), Greece 1.30% (+7bp), Portugal 0.44% (-3bp); Spain 0.44% (-1bp) and UK Gilts 0.15% (-4bp).

  • Spanish 3-Month Letras Auction increased from -0.554% to -0.501%
  • US 52-Week Bill Auction decreased from 0.200% to 0.155%
  • Italian 3-Year BTP Auction decreased from 0.46% to 0.30%
  • Italian 7-Year BTP Auction decreased from 1.10% to 0.95%

 



Source link

قالب وردپرس

Continue Reading

Economy

Extending the $600 weekly unemployment boost would support millions of workers: See updated state unemployment data

Published

on


The U.S. Department of Labor (DOL) released the most recent unemployment insurance (UI) claims data yesterday, showing that another 1.4 million people filed for regular UI benefits last week (not seasonally adjusted) and 1.0 million for Pandemic Unemployment Assistance (PUA), the new program for workers who aren’t eligible for regular UI, such as gig workers. As of last week, more than 35 million people in the workforce are either receiving or have recently applied for unemployment benefits—regular or PUA.

Figure A and Table 1 show the total number of workers who either made it through at least the first round of regular state UI processing as of June 27 (these are known as “continued” claims) or filed initial regular UI claims during the week ending July 4. Three states had more than one million workers either receiving regular UI benefits or waiting for their claim to be approved: California (3.1 million), New York (1.7 million), and Texas (1.4 million). Seven additional states had more than half a million workers receiving or awaiting benefits.

While the largest U.S. states unsurprisingly have the highest numbers of UI claimants, some smaller states have larger shares of the workforce filing for unemployment. Figure A and Table 1 also show the numbers of workers in each state who are receiving or waiting for regular UI benefits as a share of the pre-pandemic labor force in February 2020. In four states and the District of Columbia, more than one in six workers are receiving regular UI benefits or waiting on their claim to be approved: Hawaii (19.7%), Nevada (19.3%), New York (17.8%), District of Columbia (17.6%), and Oregon (17.0%).

Figure A

Figure A and Table 2 show the total number of workers who either made it through at least the first round of PUA processing—the new federal program that extends unemployment compensation to workers who are not eligible for regular UI but are out of work due to the pandemic—by June 20 or filed initial PUA claims during the weeks of June 27 or July 4. We do not sum the PUA claims with regular UI claims because some states have misreported PUA claims in their initial claims data, leading to potential double counting.1

As of last week, DOL reported that over 15 million workers across 48 states and the District of Columbia are receiving or waiting on a decision for PUA benefits, which underscores the importance of extending benefits to those who would otherwise not have been eligible. Five states have at least a million workers in this category: Pennsylvania (3.0 million), Arizona (2.3 million), California (1.9 million), Michigan (1.1 million), and New York (1.1 million). New Hampshire and West Virginia still have not reported any PUA claims. Florida, Georgia, and Oklahoma have reported initial PUA claims, but have yet to report any continuing claims.

We should despair for the millions who have lost their jobs and for their families, and our top priority as a country should be protecting the health and safety of workers and our broader communities by paying workers to stay home when possible, whether that means working from home some or all of the time, using paid leave, or claiming UI benefits. When workers are providing absolutely essential services, they must have access to adequate personal protective equipment (PPE) and paid sick leave. The current spike in coronavirus cases across the country—and subsequent re-shuttering of certain businesses—show the devastating costs of reopening the economy prematurely.

As we look at the aggregate measures of economic harm, it is also important to remember that this recession is deepening racial inequalities. Black communities are suffering more from this pandemic—both physically and economically—as a result of, and in addition to, systemic racism and violence. Both Black and Hispanic workers are more likely than white workers to be worried about exposure to the coronavirus at work and bringing it home to their families. These communities, and Black women in particular, should be centered in policy solutions.

To mitigate the economic harm to workers, Congress should extend the across-the-board $600 increase in weekly unemployment benefits well past its expiration at the end of July. If Congress does not extend these benefits through next year, it could cost us more than 5 million jobs and $500 million in personal income. Figure B, at the end of this post, shows these expected job losses by state.

As part of the next federal relief and recovery package, Congress should also include worker protections, investments in our democracy, and resources for coronavirus testing and contact tracing (which is necessary to reopen the economy). At the same time, policymakers should prioritize long-overdue overhauls of federal labor law and continue to strengthen wage standards that protect workers and help boost consumer demand.

The package should also include substantial aid to state and local governments so that they can invest in the services that will allow the economy to recover, particularly public health and education. Without this aid, a prolonged depression is inevitable, especially if state and local governments make the same budget and employment cuts that slowed the recovery after the Great Recession. More than five million workers would likely lose their jobs by the end of 2021, harming women and Black workers in particular since they are disproportionately likely to work for state and local governments.

Figure B

Figure B

Table 1

Table 1

Table 2

Table 2

1. Unless otherwise noted, the numbers in this blog post are the ones reported by the U.S. Department of Labor (DOL), which they receive from the state agencies that administer UI. While DOL is asking states to report regular UI claims and PUA claims separately, many states are also including some or all PUA claimants in their reported regular UI claims. As state agencies work to get these new programs up and running, there will likely continue to be some misreporting. Since the number of UI claims is one of the most up-to-date measures of labor market weakness and access to benefits, we will still be analyzing it regularly as reported by DOL, but we ask that you keep these caveats in mind when interpreting the data.

Enjoyed this post? Sign up for the Economic Policy Institute’s newsletter so you never miss our research and insights on ways to make the economy work better for everyone. 



Source link

قالب وردپرس

Continue Reading

Economy

Escaping Paternalism Book Club: Part 1

Published

on


Summary

Rizzo and Whitman (R&W) begins with a primer on the “new paternalism” – the influential policy reform movement powered by the engine of behavioral economics.

For most of history, paternalists have drawn their support from religious or moral notions of goodness. They have claimed special knowledge, from God or some other source, about how people ought to live. The overtly religious character of temperance movements in the nineteenth and early twentieth centuries exemplifies this kind of “old” paternalism. Given their moral convictions, the old paternalists did not usually appeal to the preferences and desires of those whose behavior they wished to regulate. The very desire for alcohol – or drugs, or deviant sex – was condemned directly.

[…]

Behavioral economists, like most economists, still accept subjectivism. However, they have rejected the notion of accurate preference revelation. Experimental evidence suggests that individuals may systematically deviate from the behavior that would best satisfy their own preferences. The list of alleged deviations from strict rationality includes – but is not limited to – status quo bias, optimism bias, susceptibility to framing effects, poor processing of information, and lack of willpower or self-control. To the extent that these phenomena cause people to make errors, paternalist policies can in principle help them to do better – not by some exogenous standard, but by their own standards. This is the defining feature of new paternalism that distinguishes it from the old: the new paternalists claim to help people better achieve their own preferences, not someone else’s.

Cass Sunstein and Richard Thaler are the popular and intellectual leaders of the new paternalists.  As R&W succinctly explain:

Cass Sunstein and Richard Thaler, coming from an economic perspective, support policies that will make people better off “in terms of their own welfare.” That welfare is best advanced by the choices people would make “if they had complete information, unlimited cognitive abilities, and no lack of willpower” (Sunstein and Thaler 2003, 1162). In other words, Sunstein and Thaler define the correctness of choices in terms of what people would choose for themselves – if only they were not afflicted with cognitive biases.

New paternalists then present novel rationales for a wide range of government interventions.  For example, they advocate “sin taxes” to help not society, but the “sinners” themselves.  Fat taxes help fat people weigh what they “really want to weigh.”

R&W close the chapter by explaining their multi-stage argumentative strategy.

Our case will consist of a series of challenges – in effect, hurdles that behavioral paternalist proposals must clear in order to be justified as a matter of policy. We will begin with the most abstract and conceptual, then proceed to more pragmatic and applied challenges.

The most abstract: Behavioral economists take simple models of rational choice too literally.

We refer to the traditional economic definition of rationality, adopted by mainstream and behavioral economists alike, as “puppet rationality.” It is a brand of rationality well suited for building models of how the world works. Models are not unlike stage plays, and puppets are the players. The puppets are always well behaved. They play the roles they were designed to play. They follow the rules. They have no motive force of their own. Real human beings, however, are not puppets. Their preferences and behavior may deviate from what is expected of agents in a model. But such deviation does not provide sufficient warrant for deeming them irrational.

But even if standard notions of rationality are solid, the much-hailed experimental evidence is sorely lacking in external validity:

Much of the evidence for “failures of rationality” derives from experimental settings that are effectively context-free. Such experiments may identify “raw” or unmodified propensities in human behavior in the laboratory. But they do not tell us how strong those propensities are “in the wild,” where people make real decisions…

We also argue that people are often (though not always) aware of their cognitive biases, and sometimes they act to counteract or control them. People “self-debias” in myriad and idiosyncratic ways…

Pragmatically, R&W argue that the new paternalism suffers from a massive yet neglected knowledge problem.  Most fundamentally: “If actions do not reveal preferences, then what does?”

Last, the book explores public choice and slippery-slope problems with paternalism in great detail.

This is only Chapter 1.  In Chapter 2, R&W appeal to “inclusive rationality” to critique behavioral economics at its root.

Are human beings rational? …But it is not easily answered, because the word “rational” has many meanings. Rationality can simply mean purposefulness, that is, trying to use the best means available to satisfy your goals or preferences given your beliefs about the world. It can mean taking an abstract approach to solving problems, applying universal systems of thought and inference, and following scientific methods. It can mean avoiding errors of logic and reasoning. It can mean revising one’s beliefs in accordance with Bayes’ Rule. It can mean having preferences that conform to certain axioms – transitivity, completeness, and so forth – which together guarantee the preferences are internally consistent and have a certain structure. In neoclassical economic theory, it has historically meant all of the above.

[…]

In this book, we will defend what we call inclusive rationality. Inclusive rationality means purposeful behavior based on subjective preferences and beliefs, in the presence of both environmental and cognitive constraints. This notion of rationality preserves the core notion of purposefulness, and in that sense it should seem familiar. But unlike other notions of rationality – many of which were invented for modeling purposes but have since taken on a life of their own – inclusive rationality… allows a wide range of possibilities in terms of how real people select their goals, form and revise their beliefs, structure their decisions, and conceptualize the world.

They continue:

[R]eal people may do all of the following and still qualify as inclusively rational:

  • Experience internal conflict that has not yet been (and may never be) resolved;
  • Have preferences that change over time;
  • Have preferences that are indeterminate or incomplete – i.e., that do not specify attitudes over all possible decisions at all possible times and states of the world;! Have preferences that are in the process of being created or discovered;
  • Have preferences that depend on context, including both the options available and the way in which decisions are framed;
  • Hold beliefs that serve purposes other than truth-tracking, such as providing motivation or intrinsic satisfaction;
  • Make inferences based not on the strict rules of classical logic, but on contextual and linguistic cues they have learned from human interaction;
  • Indulge “biased” modes of decision-making when the costs are low and rein them in when the costs are high;
  • Economize on scarce mental resources by refusing to impose perfect consistency on their preferences and beliefs;
  • Structure their environments, possibly in ways that constrain their own choices;
  • Adopt personal rules and resolutions that create internal incentive systems;
  • Enlist the help of friends, family, and other groups to assist in attaining goals;
  • Rely on institutions, social customs, and market structures to assist in attaining goals;
  • Employ heuristics that minimize cognitive effort and/or informational input.

R&W are well-aware of the methodological objection:

Because our notion of inclusive rationality is very broad, we might be accused of offering a theory that cannot be falsified. We should therefore clarify that we do believe positive claims should, in principle, be falsifiable. But some claims are more easily tested than others, and there is no guarantee that the most easily tested claims are also normatively relevant.

In Chapter 3, R&W flesh out this critique in great detail.  To take one example: In real life, people often seem to change their preferences.  Yet behavioral economists either refuse to consider this possibility, or treat changing preferences as ipso facto “irrational.”

The second interpretation is that the agent’s preferences have simply changed over time. In other words, if someone chose A over B on Monday but B over A on Tuesday, that could be the result of consistent (complete and transitive) preferences on Monday, and a different set of consistent (complete and transitive) preferences on Tuesday.

In general, economists resist preference change as an explanatory strategy because it feels ad hoc. Virtually any change in behavior can be rationalized as resulting from changing preferences, but economists usually wish to show the reasons why behavior may change even if tastes do not – for example, because of changing relative prices. To resort to saying preferences have changed seems like cheating. These are valid concerns from a positive perspective. But from a normative perspective, they hold little weight. There is no reason a person’s preferences should remain fixed. Rational people may change their minds – and we have not encountered anyone arguing otherwise.

Critical Comments

1. Escaping Paternalism focuses almost entirely on the “new paternalism.”  Yet the more I read the book, the more I concluded that “new paternalism” is largely an attempt to repackage “old paternalism” for an elite, secular audience.  Even today, no more than 5% of people who want to forcibly reduce alcohol consumption think they’re helping heavy drinkers “achieve their true preferences.”  Instead, they seek to give drinkers “what they need, instead of what they want.”  The main audience for the new paternalism is: meddlers who also have an ideological ax to grind against the want/need distinction.

2. On present bias, behavioral economists don’t go far enough.  It’s not enough to have exponential discounting rather than hyperbolic discounting.  Instead, I say the rational discount rate for utility is no time discounting at all.  Contrary to what you may have heard, this would not lead you to starve to death.  And you should still discount for uncertainty, finite life, and so on.  But, pace Hume, ’tis contrary to reason to prefer a present pleasure to a future pleasure solely because the present is now and the future is later.

3. R&W repeatedly mention behavioral economists’ support for mandatory “cooling-off periods.”  I wonder how many behavioral economists have ever examined how often people even take advantage of this opportunity to cancel a contract.  The last time I refinanced, we had to sign paperwork apprising us of our right to renege.  When I asked the banker how often people exercised this right, he furrowed his brow and laughed, “Never.”  I believed him.

4. R&W repeatedly discuss behavioral economists’ support for “employee-friendly” labor contract defaults.  Given all the evidence that unemployment breeds misery, a wise paternalist would strive to “nudge” labor’s total compensation down, not up!

5. R&W insist that “inclusive rationality” is falsifiable, but I don’t think they name a single concrete counter-example.  This is arguably intentional, for they often say things like:

We do not, however, claim that everyone is always fully rational. We are happy to concede that they are not. But it is one thing to say people make mistakes; it is another to clearly and definitively identify which actions are, in fact, mistakes.

Strikingly the word “opioid” does not appear in the text.  (“Heroin” does, but sans empirics).  I sincerely wish they had provided an “inclusive rationality” take on the putative opioid crisis.

6. One of my favorite passages:

We don’t expect that every reader will find all of our challenges to paternalism equally compelling. Some may find our conceptual objections persuasive, others may see the knowledge problem as definitive, etc. But our hope is that, taking the gauntlet of challenges as a whole, readers will recognize just how tenuous the entire new-paternalist enterprise is. Behavioral paternalism’s proponents often present it as just common sense – a set of smart, simple, straightforward corrections that will make us all better off. All we’re trying to do is correct some mistakes; who could be opposed to that? But the reality is far more difficult, complicated, and even dangerous.

As you’ll see, I find the conceptual objections only moderately persuasive, but the rest of their critique is strong indeed.

7. R&W go through a lengthy list of defensible “mistakes” people make in experiments.  Let’s consider them one-by-one:

When real people take tests designed to test neoclassical rationality norms, they do not leave their inclusive and contextually shaped rationality at the testing room door. Instead, they may behave as they do in the real world. For example:

  • They may assume, in accordance with ordinary conversational norms, that experimenters provide only information that is relevant to solving the problem – i.e., no irrelevant or “tricky” information. They do not immediately assume the experimenters are trying to fool them.

Reasonable.

  • They may resist the distinction between the validity of a syllogistic inference (e.g., “People with red hair are Martians, John has red hair, therefore John is a Martian”) and the truth of a conclusion itself (John is not a Martian). Normally, in everyday life, it is the truth that is more important.

This isn’t entirely wrong, but the ability to recognize such logical errors really is a crucial real-life skill.  Anytime you propose an explanation for anything, logical reasoning opens your theory up to testing.  Even for an explanation as simple as, “If I go to McDonald’s before 7 AM, the line will be less than 5 minutes long.”

  • They may not assume that prior probabilities about something – such as the likelihood that someone has a disease – must be equal to the “base rates” from the population provided to them. Instead, their priors may be affected by their evaluation of the significance of the base rates to a particular problem in front of them – say, whether a specific person who chose to visit the doctor and chose to take a test has the disease. Treating priors in this way is fully consistent with the subjectivist Bayesian view that prior probabilities are subjective – a fact frequently ignored in the rush to deem subjects “irrational.”

Reasonable.

  • They may not agree with model-builders on the informational equivalence of different descriptions of a situation. Instead, they may infer implicit information or advice from how a problem is presented. For example, they may perceive an important difference between a stated probability of success equal to 0.7 and a stated probability of failure equal to 0.3. Perhaps the former conveys greater optimism, despite the formal mathematical equivalence of the two statements. Conversational norms and expectations do not always align with logic and probability theory. The former can be adaptive in the real world while the latter is adaptive on experimental tests. Which is more important?

Seems pretty crazy to me.  Sure, if you’re marketing a product, you’re better off saying “70% success” rather than “30% failure.”  Yes, the former phrasing suggests “greater optimism.”  The only reason such rhetoric works, however, is that some potential customers are confused.

  • They may attach satisfaction or utility to things other than what the analysts expect. For instance, they may value an object more because it is theirs already. Or they may care about feelings of gain and loss experienced during the experiment, not just how much money they have when they leave the laboratory. Or they may gain satisfaction purely from having a particular belief, irrespective of its truth (“My wife is beautiful and my children are gifted”).

Somewhat reasonable, though it’s usually tempting to call such behaviors “childish.”  Picture a kid who wants his teddy bear, not an identical teddy bear that’s a hundred miles closer.

8. While we’re on the subject, R&W never discuss children.  Are they, too, “inclusively rational”?  If so, should parents stop treating them paternalistically?  Or what?

9. Suppose someone has inconsistent preferences.  How are we supposed to identify their “real” preference?  While this might seem like nitpicking, R&W show that behavioral economists have been cavalier  at best.

Some defenses have been offered for favoring some preferences over others in cases of conflict, but we find these defenses weak:

Verbal Statements and Survey Responses: When asked, people may say they would rather behave differently or have different preferences. For instance, smokers may say they would rather not smoke, and overweight people may say they would like to eat less. It is indeed possible that these statements reveal “true” preferences. However, the incentives for speech differ from the incentives for other kinds of action. Behavioral research has cast doubt on many economic principles previously taken as given, but the principle that talk is cheap remains intact. Speakers who say one thing while doing another may simply be expressing what they regard as socially approved attitudes – a phenomenon known as social desirability bias (King and Bruner 2000; Grimm 2010). Or their statements may simply reflect “experienced opportunity cost,” i.e., the dissatisfaction that always results from options the agent has forgone.

Note: If we take Social Desirability Bias seriously – as I think we should – we can readily identify the “real” preference.  Namely: Contrary to the new paternalists, the real preference is what people really do!

Regret: A person may feel, and express, feelings of regret about the choices they have made: “I wish I had not done that.” Although regrets are real, they do not necessarily reflect all costs and benefits associated with an action.  specially for intertemporal choices, such as getting inebriated last night and having a hangover today, the regret is typically experienced while the cost is being experienced in the present and the benefit is already in the past. That does not mean the costs outweighed the benefits at the moment of choice – only that the remaining costs outweigh the remaining benefits. In addition, it’s worth noting that regret can also be felt about the kinds of choices that behavioral paternalists favor. When approaching death, people often express regret at not having lived a more spontaneous and present-oriented life (Ware 2012).

They’ve got them there!

If regret may be experienced regardless of the action taken, then it offers little guidance to the paternalist about which preferences are “true.” As with verbal statements, regret can simply reflect the experience of opportunity cost…

Self-Constraint and Commitment Devices: People will often use various devices and strategies to try to keep their vices under control: planning automatic deductions for savings, avoiding locations where they will be tempted to smoke or drink, etc. These activities do provide further evidence of conflicting preferences, and we will discuss them more in future chapters. They do not, however, show which preferences are superior. Commitment devices reveal one set of preferences at work – but other choices show other preferences at work. Furthermore, the outside observer has no means of knowing whether the right amount of self-constraint has been performed.

Planned versus Unplanned Choices: Behavioral paternalists often favor the preferences of a “planning self” over the spontaneous or “acting self.” The idea is that the planning self is more likely to take all costs and benefits into account and render a considered decision. But the planning self does not necessarily represent a disinterested party; rather, the planning self may represent only the longer-term and more self-denying parts of one’s personality (Cowen 1991). This becomes most apparent in the case of extreme behaviors such as anorexia, where the planning self dominates an acting self that might wish to indulge more often.

10. When I began Escaping Paternalism, I skipped over chapters 1-5, fearing they’d be long-winded, half-baked Austrian philosophy.  I was so impressed with chapters 6-10, however, they I started reading the book from the beginning as soon as I finished chapter 10.  I swiftly concluded that unlike so many other Austrian-inspired works, Escaping Paternalism was not only conceptually thoughtful, but eager to engage with an array of empirical literatures.  If you’re impatient with economists waxing philosophical, I urge you to make an exception here.

(2 COMMENTS)



Source link

قالب وردپرس

Continue Reading

Trending