Curt Doolittle

Theme: Incentives

  • John Cochrane on Krugman on Friedman: The Austrian Approach Vs The Keynesian

    John Cocharane argues:

    Paul Krugman, in a most recent post, argues “Backward moves the macroeconomic debate” with “the result that our economic discourse is significantly more primitive now that it was 70 years ago.” Per Krugman, this backward movement is apparent in the use by some opponents of active demand management policy, such as Amity Shlaes, and of the “supposed legacy of Milton Friedman.”

    via Krugman on Friedman: An Austrian Approach | The Circle Bastiat.

    Then he follows up with:

    While Keynes’s verbal analysis in the General Theory continued to emphasis the role of investment, interest, and money in determining output and employment, his abandonment of the natural rate concept masked the intertemporal coordination issues at the heart of fundamental economic problem, made it easier to ignore the important capital theory issues involved in the original Hayek-Keynes debate, and facilitated the morphing of the economics of Keynes into the IS-LM single macroeconomic output aggregate Keynesianism. Relative to most quantity theorists, old or new, and most modern macroeconomics which model the economy with a single aggregate production measure, Keynes, even in the General Theory, continued to stress the importance of the distribution of production and resources between present uses, consumption, and the future oriented uses, investment. The single aggregate approach makes it nearly impossible to even recognize intertemporal coordination problems. Keynes does recognize potential problems. But a major factor differentiating Keynes from the Austrians is Keynes’s lack of any well defined capital theory compared to the Austrian use of structure of production capital theory, a capital structure -based macroeconomics (Cochran and Glahe 1999, pp. 103-118 and Horwitz 2011). Hence, “In the judgment of the Austrians, Keynes disaggregated enough to reveal potential problems in the macro economy but not enough to allow for the identification of the nature and source of the problems and the prescription of suitable remedies” (Garrison 2001, 226).

    To which I replied: John First, Krugman has a political agenda and Keynesian policy supports that agenda. Everything he says and does is in support of that political agenda. It has absolutely nothing to do with any moral assumption of meritocracy or the common good implied by economics as a tool for assisting in policy decisions. Second, he never uses prewar data or historical examples which would expose his ideas to scrutiny. Third, he argues that the good that comes from Keynesian spending compensates investors and entrepreneurs for the costs. Fourth, he ignores the misallocation of human capital and the long term social consequences of that misallocation – again, because it suits his political agenda. Austrians assert that not only are we misallocating capital and human capital, and not only are we creating perverse incentives and moral hazards like confetti at an italian wedding, and not only are we destroying the civic virtues, but that entrepreneurs and investors are not compensated for the impact upon their planning. (Some even make a purely moral argument which I think is specious on all accounts.) The problem is, as far as I can tell, we cannot produce a mathematical model for an argument either way. I’m sure that we intuit that we are kicking the can down the road and creating bubbles of every possible kind. But I’m not sure that we can argue (yet) that the use of aggregates and all the implied redistribution that the use of aggregates entails, is either good or bad. It’s pretty clear that the conservative (aristocratic classical liberal) social model is being affected. it’s pretty clear that entrepreneurs are being prevented from solving many social problems like education. But these are difficult causal relations to prove. And to many they’re desirable outcomes. Freedom is and always has been the desire of the minority. Everyone else just wants ‘aristotle’s relishes’: to consume without consequence. Curt

  • The Real Reasons There Aren’t Many High-Earning Female CEO’s And Business Owners

    Peak Oil is nowhere near as troublesome as the different points of Peak Female and Male participation in the workforce. Unemployed women can participate in child rearing. Unemployed men create civil disruptions. via The Real Reasons There Aren’t Many High-Earning Female Business Owners; A New Study from American Express OPEN Explains | Business | TIME.com.

    A new study released this week shows that more women-owned businesses are generating upwards of $1 million in yearly revenue. But while this seems like something to cheer, it obscures the real truth behind women’s progress as firm owners. First of all, the basics. The study, published by American Express OPEN, shows that more women business owners are raking in the seven-digit revenues, according to a Wall Street Journal report. The bad news? These high-earners account for just 1.8% of all female business owners. Even worse, that percentage is identical to what it was in 1997.

    The article then goes on to list the stereotypical reasons: a) Women tend to have multiple priorities in life, while men tend to be myopic. b) Women are less likely to risk capital (take out loans) than their male counterparts. c) Women are more risk averse than men. Or perhaps, men are more risk tolerant than women. To which I’d add two points: THE ECONOMY OF RISK The first is a clarification. What women see as bias men see as efficiency. Men look for a ‘hunting pack’ to belong to constantly, and join more easily, and absorb risk on behalf of the pack more readily. In exchange for risk tolerance, males invest in other males. Over a lifetime of experience, a man learns that women are a higher cost and higher risk partner than men. This risk tolerance shows up in interesting ways: men will take risks on less information especially if they see negligible losses. Failure (especially in the USA) among men is the result of attempting to be heroic and it sends positive status signals to other men and women to have taken risks. Women do not tend to share this self perception even when they appreciate it in men. THE ELEPHANT IN THE ROOM Secondly, at the risk of being offensive on a terribly sensitive topic, there is one unpleasant elephant in the room: CEO’s of large companies tend to have IQ’s of 130 or higher. And men vary in IQ more widely than women (there are more males below 85 and above 115 than women). At 125 there are two men for every woman. This imbalance continues to a five-to-one, and eventually to as much as a thirty-to-one difference. If we also account for time spent in the work place, it should be statistically unlikely that the number of female CEO’s will increase substantially. At least numerically, it appears that we are already at or near the maximum, and that explains why the curves have flattened. This argument and the supporting data has been out there for quite a while now and simply presents an uncomfortable truth. At the extremes (and ceo’s are outliers) males dominate numerically not only by preference for risk, but by ability. There are just many more males in the upper and lower IQ ranges. Like professional sports, when we are talking CEO’s we are de-facto talking about outliers. This exceptionalism at the margins canot be applied to ‘average’ people. And if they are compared, women possess clear advantages in short term memory and ease of adaption to existing social groups. Men possess clear advantages in dealing with quantitative analysis, risk and abstractions. Female superiority in short term memory is not an advantage in the most demanding roles, but it is a distinct advantage in most roles. Empathy assists in obtaining understanding and compromise, but running large companies is a matter of ‘sensing’ the world through empirical data rather than through empathy. The majority of jobs in the white collar world favors women’s abilities more than mens. And this can be seen in the data. However, this fact has no impact on the small business market in which success is more a matter of relationship building and sales. Women have taken over any number of industries and specializations. The most obvious are medicine: veterinary and general practitioners. Two occupations that were almost exclusively male. But more importantly, women continue to displace men in the middle. And jobs that have been a male specialty because of physical strength continue to disappear. Beginning with farming in the 1850’s, then manufacturing, then construction. All the muscle-work is being replaced by machines. This is creating an unemployment problem for ‘lower end’ men — who usually become a problem for society. So to some degree we have displaced men permanently. And while we may have women feeling unfulfilled to some degree, we have legions of men who are increasingly likely to simply check out of society, and in some cases return to violence and drugs — or the modern equivalent: video games and sports, while remaining permanently underemployed. Otherwise the article is honest and correct. Which is rare for an article on this topic. CONCLUSION? What does this mean? Well, it means that there is a ‘peak’ to women’s participation at the extremes, and a peak to men’s participation in the middle. It looks like both genders have peaked. This doesn’t mean women should stop trying to achieve increases. It means that there is no ‘male conspiracy’ to keep women down. And as a member of the anti-misandry movement, I would prefer that we dealt with the truth rather than ideological fancy that demonizes men as a means of obscuring material differences in ability at the extremes, while ignoring differences in the middle — where most men and women actually exist.

  • The Real Reasons There Aren’t Many High-Earning Female CEO’s And Business Owners

    Peak Oil is nowhere near as troublesome as the different points of Peak Female and Male participation in the workforce. Unemployed women can participate in child rearing. Unemployed men create civil disruptions. via The Real Reasons There Aren’t Many High-Earning Female Business Owners; A New Study from American Express OPEN Explains | Business | TIME.com.

    A new study released this week shows that more women-owned businesses are generating upwards of $1 million in yearly revenue. But while this seems like something to cheer, it obscures the real truth behind women’s progress as firm owners. First of all, the basics. The study, published by American Express OPEN, shows that more women business owners are raking in the seven-digit revenues, according to a Wall Street Journal report. The bad news? These high-earners account for just 1.8% of all female business owners. Even worse, that percentage is identical to what it was in 1997.

    The article then goes on to list the stereotypical reasons: a) Women tend to have multiple priorities in life, while men tend to be myopic. b) Women are less likely to risk capital (take out loans) than their male counterparts. c) Women are more risk averse than men. Or perhaps, men are more risk tolerant than women. To which I’d add two points: THE ECONOMY OF RISK The first is a clarification. What women see as bias men see as efficiency. Men look for a ‘hunting pack’ to belong to constantly, and join more easily, and absorb risk on behalf of the pack more readily. In exchange for risk tolerance, males invest in other males. Over a lifetime of experience, a man learns that women are a higher cost and higher risk partner than men. This risk tolerance shows up in interesting ways: men will take risks on less information especially if they see negligible losses. Failure (especially in the USA) among men is the result of attempting to be heroic and it sends positive status signals to other men and women to have taken risks. Women do not tend to share this self perception even when they appreciate it in men. THE ELEPHANT IN THE ROOM Secondly, at the risk of being offensive on a terribly sensitive topic, there is one unpleasant elephant in the room: CEO’s of large companies tend to have IQ’s of 130 or higher. And men vary in IQ more widely than women (there are more males below 85 and above 115 than women). At 125 there are two men for every woman. This imbalance continues to a five-to-one, and eventually to as much as a thirty-to-one difference. If we also account for time spent in the work place, it should be statistically unlikely that the number of female CEO’s will increase substantially. At least numerically, it appears that we are already at or near the maximum, and that explains why the curves have flattened. This argument and the supporting data has been out there for quite a while now and simply presents an uncomfortable truth. At the extremes (and ceo’s are outliers) males dominate numerically not only by preference for risk, but by ability. There are just many more males in the upper and lower IQ ranges. Like professional sports, when we are talking CEO’s we are de-facto talking about outliers. This exceptionalism at the margins canot be applied to ‘average’ people. And if they are compared, women possess clear advantages in short term memory and ease of adaption to existing social groups. Men possess clear advantages in dealing with quantitative analysis, risk and abstractions. Female superiority in short term memory is not an advantage in the most demanding roles, but it is a distinct advantage in most roles. Empathy assists in obtaining understanding and compromise, but running large companies is a matter of ‘sensing’ the world through empirical data rather than through empathy. The majority of jobs in the white collar world favors women’s abilities more than mens. And this can be seen in the data. However, this fact has no impact on the small business market in which success is more a matter of relationship building and sales. Women have taken over any number of industries and specializations. The most obvious are medicine: veterinary and general practitioners. Two occupations that were almost exclusively male. But more importantly, women continue to displace men in the middle. And jobs that have been a male specialty because of physical strength continue to disappear. Beginning with farming in the 1850’s, then manufacturing, then construction. All the muscle-work is being replaced by machines. This is creating an unemployment problem for ‘lower end’ men — who usually become a problem for society. So to some degree we have displaced men permanently. And while we may have women feeling unfulfilled to some degree, we have legions of men who are increasingly likely to simply check out of society, and in some cases return to violence and drugs — or the modern equivalent: video games and sports, while remaining permanently underemployed. Otherwise the article is honest and correct. Which is rare for an article on this topic. CONCLUSION? What does this mean? Well, it means that there is a ‘peak’ to women’s participation at the extremes, and a peak to men’s participation in the middle. It looks like both genders have peaked. This doesn’t mean women should stop trying to achieve increases. It means that there is no ‘male conspiracy’ to keep women down. And as a member of the anti-misandry movement, I would prefer that we dealt with the truth rather than ideological fancy that demonizes men as a means of obscuring material differences in ability at the extremes, while ignoring differences in the middle — where most men and women actually exist.

  • THE PAINFUL EXPLANATION 1. Low IQ puts people at risk of poverty 2. Virtue can c

    THE PAINFUL EXPLANATION

    1. Low IQ puts people at risk of poverty

    2. Virtue can compensate for low IQ

    3. The welfare state removes incentives for virtuous behavior

    Source date (UTC): 2012-03-13 05:02:00 UTC

  • Why Can’t Progressives Learn? They Don’t Learn From “Fables”. And They Think Numbers Convey Objective Meaning.

    via This is Really Why the Economy Is Looking Up(Snarky) « Modeled Behavior.

    I remember some folks telling me that the Lehman bankruptcy would be no biggie. [Whaaaat? “That’s how capitalism works!”], they said.

    Seems they are right. You declare bankruptcy and badabing-badaboom a little over three years later everything is cleared up. Easy peasy.

    From CNBC

    One-time financial powerhouse Lehman Brothers emerged from bankruptcy on Tuesday and is now a liquidating company whose main business in the coming years will be paying back its creditors and investors.

    Lehman, whose September 2008 collapse is often regarded as the height of the financial crisis, will start distributing what it expects to be a total of about $65 billion to creditors on April 17, it said in a statement.

    That first group of payments to creditors, many of whom lost money in its collapse 3-1/2 years ago, will be at least $10 billion, Lehman has said previously.

    The move is a legal milestone, but does not indicate the immediate end of Lehman Brothers.

    We always said that after the storm had passed the seas would be calm, and here you go.

    [callout]A CONCEPTUAL GEM: …the knowledge necessary to estimate the risk in any investment is not reducible to numbers that are semantically portable between individuals and therefore not convertible to commodities.[/callout]

    But this *IS* how capitalism works. That organization will be gutted and torn apart and investors who supported their behavior will be punished. That we have created an institutional framework for the distribution of liquidity that cannot tolerate human failure is a comment about our foolhardiness in governance. The solution to banking is the Swiss method: if you invest in it you own it, since the knowledge necessary to estimate the risk in any investment is not reducible to numbers that are semantically portable between individuals and therefore not convertible to commodities. That strategy would lead to lower interests rates and near zero consumer interest rates. Of course, this would throw havoc into your innovations on the ISMP curve, but it would require we spend and provide liquidity differently than we recommend now. It’s the answer you know. Not MMT. Numbers are a knowledge problem. And yes, the purpose of the system is to teach us fables. You’re just a prisoner of your method, and the inherent assumption that smart people can solve complex problems. And that’s a convenient illusion. (This last bit is a reflection of one of his earlier posts that openly states that economic failure is not informative nor do we learn from it. Really. That’s his position. Really. I know. It’s crazy.)

  • Why Can’t Progressives Learn? They Don’t Learn From “Fables”. And They Think Numbers Convey Objective Meaning.

    via This is Really Why the Economy Is Looking Up(Snarky) « Modeled Behavior.

    I remember some folks telling me that the Lehman bankruptcy would be no biggie. [Whaaaat? “That’s how capitalism works!”], they said.

    Seems they are right. You declare bankruptcy and badabing-badaboom a little over three years later everything is cleared up. Easy peasy.

    From CNBC

    One-time financial powerhouse Lehman Brothers emerged from bankruptcy on Tuesday and is now a liquidating company whose main business in the coming years will be paying back its creditors and investors.

    Lehman, whose September 2008 collapse is often regarded as the height of the financial crisis, will start distributing what it expects to be a total of about $65 billion to creditors on April 17, it said in a statement.

    That first group of payments to creditors, many of whom lost money in its collapse 3-1/2 years ago, will be at least $10 billion, Lehman has said previously.

    The move is a legal milestone, but does not indicate the immediate end of Lehman Brothers.

    We always said that after the storm had passed the seas would be calm, and here you go.

    [callout]A CONCEPTUAL GEM: …the knowledge necessary to estimate the risk in any investment is not reducible to numbers that are semantically portable between individuals and therefore not convertible to commodities.[/callout]

    But this *IS* how capitalism works. That organization will be gutted and torn apart and investors who supported their behavior will be punished. That we have created an institutional framework for the distribution of liquidity that cannot tolerate human failure is a comment about our foolhardiness in governance. The solution to banking is the Swiss method: if you invest in it you own it, since the knowledge necessary to estimate the risk in any investment is not reducible to numbers that are semantically portable between individuals and therefore not convertible to commodities. That strategy would lead to lower interests rates and near zero consumer interest rates. Of course, this would throw havoc into your innovations on the ISMP curve, but it would require we spend and provide liquidity differently than we recommend now. It’s the answer you know. Not MMT. Numbers are a knowledge problem. And yes, the purpose of the system is to teach us fables. You’re just a prisoner of your method, and the inherent assumption that smart people can solve complex problems. And that’s a convenient illusion. (This last bit is a reflection of one of his earlier posts that openly states that economic failure is not informative nor do we learn from it. Really. That’s his position. Really. I know. It’s crazy.)

  • ideology of the short time preference

    http://www.capitalismv3.com/2012/03/05/karl-smith-watch-learning-from-fables/The ideology of the short time preference

    Source date (UTC): 2012-03-05 09:13:00 UTC

  • It’s Not That I Value Free Markets In The Abstract.

    Last night, a wonderfully intelligent Canadian I’ve recently met referred to me as a ‘free marketer’. Which in Canadian lingo is a synonym for Libertarian. (We clearly need a Mises chapter up here in eastern Canada.) And, I’m fussing with writing a page the separates Propertarians from Anarcho Capitalists. If it was possible to regulate trade intelligently, I don’t have a problem with it per se. I have a problem with market regulation because its not possible to regulate it without causing harm. I don’t see regulation as an abstract ethical question, because I see markets as intentional not natural constructs. (Which I’ve addressed elsewhere.) I see it as a time-knowledge problem. That’s a long way of stating that it’s kind of interesting to be referred to by a property of one’s classification, where the property is tangental to the classification. 🙂 I’d prefer to be called a conservative or libertarian. I want freedom on principle. The economy is just a tool. Propertarian reasoning says that we cannot do certain things. It explains why we must do certain things. It allows us to do stupid things if we want to. It allows us to do beneficial things if we want to. We pay or gain the consequences either way. Just like any other corporation.

  • Karl Smith Is A Better Public Intellectual Than Paul Krugman

    Today, Karl reminds us that he has been harping for a long time on the fact that we could borrow money very cheaply during the recession — actually, with negative real costs — and put it to use in the economy. This post is another example of why Karl Smith is a better public intellectual than Paul Krugman, and why we need to get Karl a top ten news media publication vehicle. In the end, no matter how many insights Krugman has had in the field, he is an ideologue advancing a METHOD for intellectual, and personal reasons, not a practical intellectual seeking meaningful solutions to tactical problems. Krugman is the proverbial hammer looking for a rusty Keynesian, government-expanding, nail.

    [callout]Please encourage informed people to read Karl’s work on Modeled Behavior. Karl is both an exceptional analyst, a moral public intellectual, and an accessible teacher.[/callout]

    Karl Smith is the real thing: a public intellectual with potential to be the rarest of creatures: a statesman. A “skeptical empiricist” who is willing to employ a far wider toolset, constantly seeking innovative means of altering the economy. The only thing Karl needs to do is incorporate the practical reality of the use of political systems as the pursuit of power by interest groups, who have permanent, irresolvable, mutually exclusive, conflicting goals, not only because of differences in group preferences, ability and resources, but because of the conflict between the conservative constrained vision of hubristic human nature, and the progressive unconstrained vision of egoistic human nature. And the conflict between the conservative desire to regulate birth rates among the lower classes and to accumulate capital, and the progressive desire to expand the birth rates of the lower classes, and distribute and consume capital. Politics is the pursuit of power. Political systems exist to resolve conflicts between groups who compete for power. The “Common Good” is an accidental byproduct of the political competition between groups who seek expansion of power, rents, status, and opportunity. Karl, like most sentimental Progressives, (in contrast to his Smithian intellectual framework) believes that the future is uncertain and we can and must adapt to it. Conservatives believe that the scope of the kaleidic future can be narrowed if we ‘do no harm’ in the short term. One cannot make meaningful economic policy in a democratic polity without treating political powers as materially meaningful weights which must be applied to any model, and an integral part of any consequential recommendation for political action. Ignoring politics is unscientific. Plain and simple.

  • A Hobby Can’t Be A Market Failure

    On economics help, we get to see a how political failure is cast as market failure.

    Agriculture often appears to be one of the most difficult industries, frequently leading to some form of market failure. In the EU, agriculture is the most heavily subsidised industry, yet despite the cost of the subsidy, it fails to address issues relating to agriculture.

    Then the author compounds the error by stating that the volatility of weather creates a volatility in prices:

    The problem of volatile prices is that: 1. A sharp drop in price leads to a fall in revenue for farmers. Farmers could easily go out of business if their is a glut in supply because prices can plummet below cost. 2. Cobweb Theory. The cobweb theory suggests prices can become stuck in a cycle of ever-increasing volatility. E.g. if prices fall like in the above example. Many farmers will go out of business. Next year supply will fall. This causes price to increase. However, this higher price acts as incentive for greater supply. Therefore, next year supply increases and prices plummet again!. 3. Consumers can be faced with rapid increase in food prices which reduces their disposable income.

    To which I replied: Fascinating. Fascinating that you would consider any of these properties a market failure. 1) Farming has declined as an employer of people since 1900 to the point where it is now little more than a subsidized hobby industry that we support for purely aesthetic reasons. For that reason alone, it cannot experience ‘market failure’. It’s a commoditized industry. Farming is an industrial occupation for conglomerates. Everyone else in the business is in it out of love or habit not profit. 2) The US western expansion was created in an era of farming, and the land settled by farmers (and ranchers). The era of industrial expansion was created to support the expansion of farming. Now that farming has become mechanized and industrialized, people are leaving the breadbasket for the commercial and technological centers – that’s why those parts of the country are being depopulated. 3) It is impossible for farming to experience ‘market failure’. It is only possible for people to cling to an unproductive means of production, and to fail to develop alternative careers. The problem is political failure. Not market failure. Markets can’t fail. They can be insufficient to solve certain problems of capital concentration that only governments can accomplish. The political failure of attempting to persist farming is a failure because the market is telling us that farming is no longer valuable as an occupation. The political system is failing because it cannot develop alternatives to farming fast enough. It’s a problem of political failure not market failure. And it’s human failure. The romantic and luddite desire for antiquated means of production.