Daily Archives: 02/18/2011

Mitch Daniels

There seems to be a boomlet of support based in part on his CPAC speech.  I’ve seen some not so impressed, I think at least partially because he does seem to suggest that Social Security and Medicare are unsalvageable in their current forms. 

But I’m at least interested here is I think my favorite section of his speech and I’ve highlighted some parts that I think less thoughtful conservatives don’t seem to get:


We must display a heart for every American, and a special passion for those still on the first rung of life’s ladder. Upward mobility from the bottom is the crux of the American promise, and the stagnation of the middle class is in fact becoming a problem, on any fair reading of the facts. Our main task is not to see that people of great wealth add to it, but that those without much money have a greater chance to earn some.

We should address ourselves to young America at every opportunity. It is their futures that today’s policies endanger, and in their direct interest that we propose a new direction.

We should distinguish carefully skepticism about Big Government from contempt for all government. After all, it is a new government we hope to form, a government we will ask our fellow citizens to trust to make huge changes.

I urge a similar thoughtfulness about the rhetoric we deploy in the great debate ahead. I suspect everyone here regrets and laments the sad, crude coarsening of our popular culture. It has a counterpart in the venomous, petty, often ad hominem political discourse of the day.

When one of us – I confess sometimes it was yours truly – got a little hotheaded, President Reagan would admonish us, “Remember, we have no enemies, only opponents.” Good advice, then and now.



A new continuing item, I expect.
The House Republicans acted to repeal ACA back on January 19. Since then, they’ve, well, repealed it again, or they’re in the process of doing so, this time by zeroing out funding in the 2011 continuing resolution. I should expect that they’ll repeal it several more times over the course of the next two years, at the rate they’re going.
Now, back on January 19, they also promised, as they did in the campaign, that they were actually going to repeal and replace ACA. Perhaps they will! But I’ll note that they’re about to leave for a recess, and as far as I know no replace bill has been introduced. No hearings on a replace bill seem to have been held. I checked
Ways and Means, which has had hearings on ACA implementation but nothing on the repeal bill; Energy and Commerce, which has also had hearings on the effect of ACA; and Education and Labor the Workforce, which had its own hearing on the effects of ACA. Not that there’s anything wrong with oversight hearings; to the contrary, that’s one of the things the committees should be doing.
Replace, however? Not a trace of it, so far.Well, that’s not quite true: I did find a link to an
op-ed by five House Chairs, from a month ago, entitled "Repeal is first, not last, step" and pledging throughout that replace is just around the corner:

Replacing this law is a policy and a moral imperative…The committees we lead will tackle these challenges with the seriousness and steadfastness of purpose they deserve. We will pursue changes on which there is widespread agreement as we seek to meet the monumental challenges of a nation on an unsustainable fiscal trajectory.

And as I said, perhaps they will. It’s only been a month, so far. And I do think it’s fairly likely that they’ll bring a tort reform bill to the House floor at some point, although claiming that it would be comprehensive reform, or really do anything significant about either costs or access, would be a major stretch. But of course doing those things is really hard, and a few stale talking points are a long ways from legislation.
So maybe I’ll have a new continuing item to run for some time. I guess we’ll see.

Jonathan Bernstein
Fri, 18 Feb 2011 22:40:00 GMT

On Tyler Cowen’s “Great Stagnation”


I’m late to this party, but I’m late to every party. Tyler Cowen’s recent microepic, The Great Stagnation, has been pretty throughly chewed over by the blogosphere. The essay is a quick read, thought-provoking, and getting to give Cowen a couple of bucks for the privilege only adds to the pleasure. The quick summary, for those who’ve been living in a cave, is that since 1973, we’ve been living in a “great stagnation”, during which the pace of growth experienced by the median American household slowed relative to expectations set in the period preceding. Cowen suggests that the explanation for this is a slowdown in the rate of technological change combined with an exhaustion of “low hanging fruit” afforded us by earlier advantages and innovations. Cowen simultaneously disputes both conventional measures of economic performance (we do not observe a “great stagnation” in headline GDP) and left-ish arguments that economic unhappiness stems primarily from maldistribution. We suffer instead from an absence of anticipated wealth. As Cowen puts it, we’re simply “poorer than we thought”.

  • I think the deepest issue Cowen brings out has less to do with technology than with problems in what economists measure (and people perceive) as “revenue” or “production”. In particular Cowen makes two related points:

    1. Many activities that generate apparent revenue are detached from reliable judgments of value. Using revenue as a measure of production requires, at a minimum, that discriminating, budget-constrained actors determine that whatever is “paid-for” offers real-economic value superior or at least comparable to activities that could be inspired by alternative expenditures of the funds.

      Cowen is appropriately general with this critique. Expenditures by government may not meet this “market test” because political actors may direct expenditures for reasons other than inspiring high-value economic activity, or because, for informational or organizational reasons, government may be unable to discern relative value. But the private sector is not immune. In spheres such as health care and education, the benefits of private sector as well as public sector expenditures are difficult to evaluate relative to alternative uses of resources. Cowen reminds us that health care and education are widely viewed as “growth” sectors, but to the degree we collectively overpay for them, “revenue” overstates economic value. A substantial portion of these expenditures should probably be accounted for as transfers and excluded from measures of aggregate production. But of course, we have no means of estimating the size of the appropriate haircut.

      I’d add another important industry to government, health care, and education: financial services. Like with health care and education, we simply are unable to evaluate the degree to which payments to financial service providers represent wise use of resources and to what degree they represent transfers to financial industry stakeholders. Inherent informational problems associated with investment quality, combined with the temptation by service providers to exploit these difficulties to extract transfers, renders financial sector revenue highly suspect as a marker of value. Also, financial services are intimately involved in the other problematic sectors: One thing that binds government, health-care, and education is that all are financed in roundabout and sometimes opaque ways that soften near-term budget constraints and that shift costs and risks, both across time and onto people other than the purchasing decisionmaker. The means by which government, health-care, and education are financed help keep them vulnerable to agency and information problems.

      I think of government, education, health care, and finance collectively as the “information asymmetry industry”, and I find it terrifying that many people presume that they are the future growth industries for the United States. Dani Rodrik has pointed out that tradable goods are special, in terms of engendering development in often corrupt emerging markets. Cowen offers an astute explantion: tradables that compete in international markets are usually low-information-asymmetry goods. Apparent value (revenue from trade) and real value are likely to be closely aligned and hard to fake. I worry that specialization in the information asymmetry industry could be an antidevelopment strategy for developed countries.

    2. Conversely, Cowen points out that many new technologies generate value without generating commensurate revenue. It is clear that we would collectively pay a lot more for recorded music or news, for example, because we did in the past (and it’s more likely that our reduced payments have more to do with technology and industry changes than with changes in our preferences). Cowen suggests that many of the current era’s technologies are like this, which is nice from a certain perspective (yay! free stuff!) but can cause a kind of sclerosis in an economy that nourishes itself via flows of monetary exchange.

    I think that Cowen is right on both counts. And note that these two factors, in and of themselves, go some way towards explaining “The Great Stagnation”, even before we get to the headline argument about a slowdown in technological change. I’m not referring to an argument Cowen addresses (but cannot entirely dispose of) that there is no great stagnation at all, once we account for measurement error. Instead, rather than a paucity of new technologies, we might be experiencing a breakdown of an older gizmo that economists refer to as “markets”. As our economy tilts away from sectors in which value (however defined) and financial revenue are reliably cojoined, our primary means of orienting our behavior towards valuable activity, individually and collectively, become less and less effective. We simply don’t know what we ought to do. So we err. If the quality of economic decisionmaking is poorer than it was in past, that has consequences for welfare.

  • An interesting corollary of Cowen’s argument is that a substantial fraction of notional savings are in fact empty claims — no meaningful real real economic activity accompanied the generation of that income, so no real investment could have attended its non-consumption. This suggests that any attempt to mobilize savings in aggregate — any net dissaving — is likely to be attended by either inflation or displacement of consumption by current earners. I think that this is true, that it is now and increasingly will be a source of social and political problems.

  • Despite the evidence that Cowen is able to muster (and lively internet debates about kitchen appliances and time travel), I remain agnostic on the question of whether a slowdown in the pace of technological change is largely to blame for whatever it is that ails us. I wouldn’t rule it out, but like Kevin Drum and others, I see a lot of very real “low hanging fruit” arising enhanced capabilities to coordinate and collaborate via internet and information technologies. These benefits go well beyond “cognitive surplus” and bemused infovoria. [1] Coordination technologies, ranging from assembly lines to the limited-liability joint-stock corporation, contributed mightily to past golden ages of advancement and growth.

    Cowen is clearly right that, with the exception of the internet, recent years have offered few technologies that radically and visibly altered how people live. But I think we need to think carefully about an “extensive” and “intensive” margin for technological change. The early industrial revolution largely streamlined manufacture of existing categories of goods (think textile factories rather than spinning wheels and molded products replacing hand-smithed metal). Producers saw their world turned upside-down, but consumers mostly found themselves with recognizable stuff, just more and cheaper. Still, one wouldn’t characterize it as a low-growth era.

    Cowen seems really focused on the “extensive margin” — the development of qualitatively new goods. I don’t think “growth”, in aggregate or as experienced by the median family, really captures what Cowen thinks we are missing. Instead, I think that Cowen is lamenting a scarcity of breathtaking resets. Developments like electrification and the widespread adoption of automobiles didn’t make people richer as much as they completely changed the circumstances of everyday life. Indirectly, they also made the production and marketing of previously extant goods much more efficient: Electricity helped make bread cheaper. But I don’t think cheap bread impresses Cowen as much as the fact that, post-electricity, humans colonized the night and Presidents colonized living rooms. Income statistics do end up capturing these sorts of changes, but in a manner that is arbitrary and formal. Ultimately, different technological regimes are incommensurable in welfare terms. While most of us would choose more food over inadequate nutrition and better health over worse, adoption of new technology is less a matter of individual choice than social evolution. One must adopt an automobile-centric lifestyle if workplaces move far from available housing. One must become internet proficient if current modes of employment are contingent upon it. The fact that the gas we are forced to purchase is factored into computations of real income and GDP doesn’t really imply that our preferences have been satisfied more completely than they would have been in a different-technology alternative. [2] It might be the case that the big changes whose absence troubles Cowen are welfare-destructive in and of themselves, but occurred only because they come bundled with large improvements in the productivity of prior goods, or simply because new possibilities rendered unstable earlier equilibria that were superior outright. If this is the case, we should celebrate rather than fret if recent modes of innovation have succeeded at increasing productivity without reseting the technological terms of our existence. [3] Ultimately, society is a game and big technological changes rescramble both the available strategies and payouts, leading to changes that are unpredictable both in form and in terms of welfare (under almost any welfare criterion that you might choose).

  • Suppose that it is true that we’re poorer than we’d anticipated, that past growth trends have eased. It’s not at all clear that what people conventionally think of as technology is the growthlimiting factor. Cowen looks to emerging markets for examples of how the availability of low-hanging fruit — technology and institutions already prevalent in developed economies — can hypercharge growth. But the less-developed world offers a different set of examples as well. There are many many economies where despite free and full availability of scientific information and plenty of institutions to emulate, low-hanging fruit is left to wither on the vine. We have (usually cartoonish and patronizing) explanations for other economies’ failures — “they” are corrupt and their cronies keep them down; they were scarred because of colonization by Belgians rather than Brits; (in whispers) they are culturally or even genetically inadequate to the task of development; they simply fail to make good choices. Whatever your just-so story, it’s pretty clear that from the inside, intelligent people struggle unsuccessfully to find means to overcome barriers that prevent them from picking delicacies that are hanging in front of their noses. We might be in a similar situation, with plenty of technological fruit ripe for the picking, but invisible barriers — political, cultural, whatever — that prevent us from doing so.

  • A few nights ago, a gentleman accosted me in a dream and declared himself to be “Tyrone”, Tyler Cowen’s evil twin. Tyrone told me that his brother had “as usual” got it all backwards. In fact, he told me, we’ve been in the Great Stagnation for a century as a result of, rather than for the lack of, technological progress. The median household is experiencing wealth stagnation caused by technological change. Households are feeling the pain now more than in the past, even despite a relatively modest pace of change, because over the past few decades we have managed to avoid employing the sort of durable and effective countermeasures to stagnation that have succeeded in the past.

    For the most part, Tyrone pointed out, technological progress, is labor displacing. It simultaneously creates valuable new techniques for reconfiguring real resources while diminishing the number of people who are required to participate in those transformations, and who can therefore trade their participation for spending power. There is a myth among neoliberal economists that labor markets have always “adjusted” sua sponte, that when laborers were displaced from farms “higher value” factories arose to employ them, that when the factories were downsized and offshored, a more pleasant, higher-valued service economy came to be, etc. That narrative is wrong, he told me. At best it is criminally incomplete. With each technological change, new social institutions had to arise to sustain dispersed purchasing power despite a reduction of numbers and bargaining power of labor in old industries. Displaced workers ultimately did find new work, but only because the new social institutions “artificially” created buyers for all the things displaced workers reinvented themselves to sell. Without this institutional innovation, Tyrone tells me, something like the Great Depression would have been the new normal. Historically, institutions that have arisen to sustain purchasing power despite increasingly labor-efficient core production include direct government transfers and expenditures, labor unions, monetary policy interventions, financial bubbles and financial fraud.

    Cowen (Tyler, that is) argues that technological development creates opportunities for “bigger”, more extensive and intrusive government than existed during earlier periods. As Tyler tells the story, there is a progressive expansionary impulse to government, for which technological change creates opportunities, so government expands until those opportunities are fully exploited. Tyrone says his brother has the story backwards. Why, asks Tyrone, does government not only expand in absolute terms as a response to technological change, but also in relative terms? After all, as Tyler points out, private enterprise also has a natural expansionary impulse. With technological change, Tyler writes, “Everything was growing larger.” Yet, to the degree that we can measure it, government has grown dramatically in its share of the overall economy. Why does government win? Tyrone says government is a reluctant adopter of new technology (“Have you been to a government office?”), but that government outgrows the private sector despite this, because the concentration of economic power that attends technological changes demands countervailing state action if any semblance of broad-based affluence and democratic government is to be sustained. Tyrone (who is much more arrogant and less pleasant than his brother) proclaims this to be his “iron silicon law”: In (non-terminal) democratic societies, technological change must always and everywhere be accompanied by the growth of institutions that engender economic transfers from the relatively few who remain attached to older productive enterprises to the many who require purchasing power not only to live as they did before, but also to employ one another in novel or more marginal activities that were not pursued before. Inevitably those institutions develop in state or quasi-state sectors (which include the state-guaranteed financial sector and labor unions whose “collective bargaining” rights are enforced by the power of the state). Tyrone tells me that the only thing the post-Reagan “small government” schtick has accomplished is to push this process underground, so that covert transfers have been engineered by a “private” financial sector in ways that are inefficient, nontransparent, and often fraudulent according to the laws and norms traditionally governing investment. Some of these weak institutions upon which we relied to conduct transfers broke in 2008, so now we’re really feeling the pain. We’ll continue to feel the pain until we restore the ability of the financial system to hide widespread transfers, or until we employ some other sort of institution to provide a sustainable dispersion of purchasing power.

    Having met both brothers Cowen, I can state with some confidence that Tyler is smarter, better-looking, and much more engaging company over lunch. Tyrone is kind of icky, hygienically speaking, and he strikes me as gratuitously mean. But I think he has a point.

    [1] Cowen does acknowledge the possibility the internet is generating low-hanging fruit, but that there are lags in the indirect process by which a communication and coordination technology translates into consumer visible improvements.

    [2] Even a thought experiment that holds health and nutrition constant but contemplates switching technologicolifestyles doesn’t cut it, because preferences are history-dependent. Emigration is a painful option even when better health and more food await on the other side of the border. We love the world that makes us. We’d really need to ask people in 1900 whether they’d prefer to move to our strange, televised world or to stay where they are but with 21st century health and wealth in terms of then-extant goods. If we allowed cross-migration between the 1900 and 2011 on those terms, giving people of both eras ample time to sample both eras, it’s not clear to me in which direction net migration would flow. To run this experiment, we’d have to correct for population differences and exclude groups that were plainly oppressed in 1900. (We’d want to exclude those groups from the sample, if what we are interested in is the welfare associated with technological, rather than social, change. It’s not obvious that the civil rights movement could not have happened independently of electricity or automobiles, although one could make a case that relaxation for the need for exploitative labor was a precondition for that movement.) Also, there’s the difficulty of simultaneously allowing both ample information for comparison and the sublime pleasure associated with not knowing what you are missing with respect to life in the other era.

    [3] I hasten to add that I, personally, am a technophile, and curious enthusiasm for technological resets is much of what I live for. But I don’t think that’s a very general or even common preference.

On Tyler Cowen’s “Great Stagnation”
Steve Randy Waldman
Tue, 15 Feb 2011 21:39:06 GMT

Cowen, Malthus and Watson


Could Tyler Cowen be raising awareness of a failure of Information Revolution to trickle down to the common man, just as it begins to rain buckets.

For a long time a certain set of economists has griped about health care. One of my particular gripes has been the very concept of a physician in the modern era.

A physician is more or less a human database and an incredibly expensive one. With medical training we basically take some of the most valuable brains on earth and hack them into doing something a brain is not intended to do: store and retrieve massive amounts specific information on demand with very low error rates.

On the other hand we have this machine called a computer which does this effortlessly and at low cost. Bare minimum we should forget about cramming drug interactions into human minds and just let them look it up in a database.

But, why not take it a step further and just get rid of the human altogether? Literally tens of thousands of people die every year because doctors are, well, only human, and make diagnostic mistakes which can later be identified as violating evidence based medicine.

The problem I always saw was how to convince people that yes, a computer can beat House, MD. Well IBM can’t go head-to-head with House but maybe beating Ken Jennings and Brad Rutter might help.

Looks like that’s what they had in mind for Watson. From IBM

Beyond Jeopardy!, the technology behind Watson can be adapted to solve problems and drive progress in various fields. The computer has the ability to sift through vast amounts of data and return precise answers, ranking its confidence in its answers. The technology could be applied in areas such as healthcare, to help accurately diagnose patients, to improve online self-service help desks, to provide tourists and citizens with specific information regarding cities, prompt customer support via phone, and much more.

For now,  I see via Dan Bowman, that IBM is saying very kind, political things like

“You’re never going to replace a trained doctor or nurse,” Dr. Joseph Jasinski, a member of IBM Research’s healthcare and life sciences team said in the video. “But certainly a system like Watson could be a physician’s assistant. It could help to check on things: ‘Did you consider this? Did you consider that?’”

This is how you always open. Oh don’t worry. You’re irreplaceable. We’re just here to help. I mean a robot can lift heavy things for you, but you’ll always need a trained autoworker.

Filed under: Economics

Cowen, Malthus and Watson
Karl Smith
Thu, 17 Feb 2011 22:44:23 GMT

Charles Dickens Call Your Office (via The Erstwhile Conservative: A Blog of Repentance)

Charles Dickens Call Your Office Most of the civilized world has evolved to the point where it is no longer debatable whether children ought to be sent off to work each day. But not in neo-Victorian Missouri, if State Senator Jane Cunningham has her way. Via FiredUp!Missouri, I learned that Mike Hall, at AFL-CIO Now, had written a post detailing what Sen. Cunningham has in mind for Missouri's youth.  Mr. Hall commented on her proposal by calling it "insane."  No, no, no.  It's n … Read More

via The Erstwhile Conservative: A Blog of Repentance