Hey hey,
We are six today, a full year after we turned five.
Help us celebrate by getting drunk and writing inappropriate comments all over the blog. Or even better, offer us some of the exciting guest posts you are hiding in the third draw down on your desk at work – especially if they are in the vein of “a day in the life of an economist” … a series of posts I really need to add to.
An interesting paper by Acemoglu and Robinson, who have long discussed the interaction between economics and politics. The basic point is that economists cannot afford to ignore politics when they make policy prescriptions. It’s well-known that policy prescriptions based on partial equilibrium models can be risky. A&R take that a step further and point out that economic policies can affect political equilibria in unpredictable ways that may end up being counter-productive. For example,
Faced with a trade union exercising monopoly power and raising the wages of its members, most economists would advocate removing or limiting the unions’ ability to exercise this monopoly power, and this is certainly the right policy in some circumstances. But unions do not just influence the way the labor market functions; they also have important implications for the political system. Historically, unions have played a key role in the creation of democracy in many parts of the world, particularly in Western Europe; they have founded, funded and supported political parties, such as the Labour Party in Britain or the Social Democratic parties of Scandinavia, which have had large impacts on public policy and on the extent of taxation and income redistribution, often balancing the political power of established business interests and political elites. Because the higher wages that unions generate for their members are one of the main reasons why people join unions, reducing their market power is likely to foster de-unionization. But this may, by further strengthening groups and interests that were already dominant in society, also change the political equilibrium in a direction involving greater efficiency losses. This case illustrates a more general conclusion, which is the heart of our argument: even when it is possible, removing a market failure need not improve the allocation of resources because of its impact on future political equilibria.
Hey, I didn’t realise the Institute of Policy Studies was doing their inequality thing today. The outline suggests they are asking good questions – we need to ask about causes before we can really interpert policy! This summary from Bryan Perry from MSD on the data was neat as well – clear and too the point. How we interpret this data is a much bigger and separate question 🙂
I will have a look at the papers, and Max’s book (which I have purchased) when I get a chance (next couple of weeks).
I would note that I’ve stated a few posts around this in the past: Top 1% in NZ, middle class rant, middle class rant 2, median incomes, Spirit Level review. But you could read the latest report on trends by MSD for more up-to-date information!
I have heard a bunch of criticism of the Spirit Level book based on its “sample” and “cheery picking” (Note: This started life as a typo, but I liked it and used it throughout 😛 ). I’ve decided to ignore that, and to read the book on the merits it gave in the text. Given this how did I find it?
Warning, this is an exceptionally long post given that I am putting down brief notes on each chapter (the review is over 4k, the summaries just that again). I have signposted sections so if there is something you want to swing to (tl;dr, conclusion, general issues) you can swing to that. Also note that I link to an excessive number of old posts from the blog – essentially many of the ideas noted down over the last few years here will come in useful for reviewing the book. For that reason, I’ve put a pdf of my blahing here MN Spirit level review.
I have also explicitly avoided reading other people’s reviews – except for the postscript that I have written later. As a result, I can’t promise I’ve added anything, but I can promise that I’m being honest in my views 🙂
Note: This review is also a blog post – not some external thing you just read, but something you can interact with. If I’m wrong on statistics, on logic, on interpreting the authors, or I’m just plain immoral as a person, throw down a comment and tell me. If you convince me, I add updates onto the review to say you’ve changed my mind – party times! I am here to steal all your knowledge.
Via NBR and Agnitio (note behind paywall) I see that Don Brash has decided to attack Auckland Council Chief Economist Geoff Cooper. Usually I ignore economist fights – but when one economist has decided to act like an ideolog and attacks other people to hide it, while the other economist is consistently reporting facts, I have to take sides. Geoff Cooper is right in every sense of the word, and Don Brash is just being a class-A douche (to use the technical term).
To summarise what is going on in the article, Cooper reports that house prices have risen and that this appears to be driving a lift in consumption and house building activity – lifting measured activity in the region. This is a factual statement.
Don Brash turns around, says this is a bad thing, attacks Cooper, attacks the university Cooper studied at, and then rants about how a house bubble can have serious social and economic consequences. Obviously Brash hasn’t been reading our discussion here on how we need to think about the consequences and causes of a bubble carefully and with reference to banking regulation – and I would think a former central bank governor would know better than to make such loose statements.
In response Cooper merely points out that he is describing what is going on in the Auckland economy, not trying to argue about what is “right or wrong”. In other words, he is being an economist, and trying to inform debate as part of his job. How doing his job well reflects poorly on him, the council, or his university is a mystery to me.
He also managed to avoid calling Don Brash a confused and angry man who appears to have forgotten how to “think like an economist at all times” following his foray into politics. As I’m not encumbered by the same social constraints, and given my disgust at Brash’s comments, I feel more comfortable making these statements 😉
It is Brash’s own fault that he has confused something increasing measured GDP right now with something that is “good” – not Coopers. And if Brash has that much trouble reading economic reports without flushing his value judgments all over them and making unsubstantiated attacks on people, he needs to sit back and let his inner economist take over the running of the Brashmobile from now on (In case your confused – I like to add mobile to the end of surnames to represents someones mind and consciousness). Brash’s comments were not the comments of Brash the economist – they were opportunistic comments of Brash the ideolog.
I woke up this morning with a headache, and the only thing I could think about was Olympic athletes taking drugs.
After all, why do we have such a problem with it. If elite athletes decide to take drugs and do really cool stuff that we can watch in our own homes isn’t this all good.
People say stuff like “it isn’t in the spirt of the game” or “they are supposed to be role models for kids” but this sounds like a bunch of blah – we want our elite athletes fighting in cages with robot body parts and hyped up on all sorts of drugs right!
Well let’s assume we do – just for fun. Even in this case there is a clear reason why we may want to try banning drugs – the prisoner’s dilemma faced by athletes.
Assume there is some inherent ranking of athletes, but that the difference in ability from bottom to top in some set is 20%. Then assume there is a drug that will boost performance by 21%. Then the “worst” athlete could take the drug and be the winner! Of course, all the athletes up to the “second-best” know they can improve their position by taking the drug – and they know, as does the “top” athlete, that if someone else is taking the drug the only way to maintain their position is to take the drug also. As a result, even though the drug taking has a cost (shorter life) it is a dominant strategy.
This is a bit loose, as it is not actually a dominant strategy for the worst athlete – as if everyone else is taking the drug it doesn’t change his position, he just has lower health, so won’t bother with it. But then we have the potential for a mixed strategy equilibrium with the second-to-worst athlete (as if the bottom athlete doesn’t SWA won’t want to, but if SWA doesn’t the worst athlete will want to, so they will both take drugs with some positive probablity less than 1) – and in the end we aren’t going to worry about this too much 🙂
So say this prisoner’s dilemma holds – we can ensure that the same “outcome” in terms of ranking takes place, and that the athletes have better health than they would get taking drugs, if we just ban drugs and enforce it well. Drugs in this case are banned from the Olympics because we care about the health of athletes, isn’t that nice! This illustrates the useful role of regulators and government in the face of issues to do with co-ordination or prisoner’s dilemma types games!
Update: Now I’ve woken up, this story is dumb. Better game to get my point across – take two equal athletes that both have a 50% chance of winning. Taking a drug can make this 100% if the other person is not taking it, or 50% if the other person is, but there is some positive cost to taking it. In that case both athletes take the drug – both end up in the same position as not taking – and both have worse health than not taking. Why didn’t I just say that?
However, the idea that drug taking for the best athlete is a strategic complement (when someone else takes it increases the incentive for them to take), but for the worst it is a strategic substitute (when someone else takes it decreases the incentive for them to take), is pretty cool – that makes for a neat game to think about!