Responding to Noah Smith, Krugman says the following about the long term effects of the “Macro Wars”.

 On the academic side: look, to a first approximation nobody ever admits being wrong about anything. But my sense is that a lot of younger economists are aware, even if they don’t dare say so, that freshwater macro has been a great embarrassment these past four years, and that liquidity-trap Keynesianism has done very well. This will affect future research; it will, over time, break the stranglehold of decadent Lucasian doctrine on the journals.

He doesn’t use the term, but I usually associate this with Kuhnianism, particularly in the way he describes dogmatism. Scientific progress has never been made changing the minds of adherents.The antagonists are far too dogmatic for that and attached to their theories. One theory only “wins” by convincing the audience, which is the next generation of scientists. That’s how we see knowledge progressing in the physical sciences – despite the naive Positivist sentiment that the scientific mind would be convinced solely by prediction and evidence. Ideally maybe [fn1], but never in practice.

And why on earth would we expect economists of all people to be less dogmatic? This is why I think Steven Grenville’s criteria for success in economic debate is a little flawed. If we insisted that an admission of wrongness was a criteria for success in every field of knowledge, then we’d struggle to find one. Certainly not in regard to plate tectonics or the big bang theory where the losers took their views to the grave. Most likely the same will occur between adherents of string theory and quantum loop gravity.

The only problem is that in macro, the view vindicated by evidence is not promoting a new paradigm, but an old one. Perhaps Kuhn should have also written The Structure of Economic Restorations.

[fn1]And by “maybe” I mean no, but that’s a debate for another time.

Risk theories typically assume individuals make risky choices using probability weights that differ from objective probabilities. Recent theories suggest that probability weights vary depending on which portion of a risky environment is made salient. Using experimental data we show that salience affects young men and women differently, even after controlling for cognitive and non-cognitive skills. Men are significantly more likely than women to switch from a certain to a risky choice once the upside of winning is made salient, even though the expected value of the choice remains the same.

Booth, Alison L. (Australian National University)
Nolen, Patrick J. (University of Essex)
Paper here.

In the USA (a presidential election year), there is a considerable debate on how much emphasis government policy should assign to economic growth (properly interpreted to encompass all externalities and market failures) and how much to income and welfare distribution. The argument in the US revolves around economic efficiency, individual freedom and fairness.

Let us deal first with economic efficiency. Conservatives tell us that an increase in income tax policy will discourage economic growth, even at current levels of taxation. A contrary view (http://economistsview.typepad.com/economistsview/2012/03) is that the “optimal” income tax rate in USA – before it would deter the wealthy from trying to earn more – is well above the present 36% level and is much closer to 50 to 60%. One can at least say that the effect of a higher marginal tax is small to insignificant.

On the question of individual freedom, there is no doubt that many Republicans, which are now condemning gay marriage, abortion, access to contraception etc., are effectively attacking individual freedom. As Reich says, “a society where one set of religious views is imposed on a large number of citizens who disagree with them is not a democracy. It’s a theocracy”. See http://economistsview.typepad.com/economistsview/2012/03/the-difference-between-private-and-public-morality.html I am sure that most libertarians would agree with this view. As to the impact of smaller government on freedom, this depends on one one’s perspective on fairness.

One’s notion of what is fair is a subjective issue. The average income of the vast majority of Americans is today slightly below the average back in 1966, whereas the top 1 percent share of real income growth has been strongly increasing over this whole period. The gains of the super-rich have made the US one of the most inequitable in the developed world..

Personally, I do not accept the view that distribution effects do not matter. The US has a long way to go to ensure that it has an adequate safety net to provide enough income mobility (at least relative to Scandinavia and Australia). More importantly (and less subjectively), the enormous rise in relative income of the super-rich has occurred in a period of rapid productivity growth – with all of the productivity growth going to the super-rich! It is hard to accept that there is any semblance of “fairness” in the US system.

Can something be done in the USA to shift power to the working class? Reich says: Congress has lost interest; Unions have no voice; most of the press are controlled by vested interests which seek to retain the present distribution of political power; and the working class have neither the time nor access to wealth nor the sense of unity it needs to demand change. In some cases the Republicans are trying, with its deficit reduction policy, to make distribution worse.

This is one good reason why Governments need to balance fairness against alleged economic efficiency effects. What do you think?

We are in the middle of the electoral cycle, which seems a good time to give advice on which policies make good economics in the sense of being in the interest of the long-run welfare of Australia. My top 5 of do-able economic policies, some big and some small, that a government from either side could implement:

1. Have an independent Medicine Procurement Authority. We should pay much less for our medicines, both patented and generic medicine, by increasing the distance between politics and medicine pricing. As my colleague Philip Clarke keeps pointing out, Australia pays way too much for its medicine. Whilst we spend about 1% of our GDP on subsidised medicine, we should probably spend no more than half that. And the main reason we spend too much is political, i.e. the minister for health is put under direct pressure to hand out favours to big Pharmaceutical companies (such as via this fairly scandalous Memorandum of Understanding that commits Australia to uncompetitively high prices for generic medicines). An independent medicine procurement authority would have a budget fixed by parliament, revised every so often, with the single task of deciding what to buy for the allocated money. That fixed-budget constraint would force us to constantly review which medicines we still subsidise and what price we pay for them, getting us out of the lazy equilibrium whereby Pharmaceutical companies (invariably foreign) are getting rich because politicians are kept under direct pressure not to put the screws on the pharmaceuticals.
2. Set up a Long-term Leasing Office charged with auctioning off the right to run public services, coupled with an ex-post regulation regime. I am here for instance thinking of inviting foreign universities to bid for the right to run existing inner-city universities, whereby the foreign bidders would get a long-term lease (say, 30 years) on the community land on which a current university stands, together with a regulatory requirement to deliver certain services (i.e. the land cant be used for other purposes) whilst also guaranteeing regular access to government student subsidy schemes and the like. Long-term leases are also a possibility for things like primary and secondary schools, hospitals, airports, prisons, and residential care. In all cases, we would be talking about outside organisations getting access to existing land and facilities with associated obligations to provide services and access to subsidies and the like. Whilst implementing this wholesale would be fairly revolutionary and difficult, any government could experiment with setting this up for a smaller set of current public service providers. It would not merely be a question of private providers taking over public tasks from public providers: public providers could bid to take over other public providers too. It is primarily a means to reduce overhead and encourage real competition.
3. (One of Nick Gruen’s favourites) Set up an independent national budget office with the statutory obligation to calculate the long-run effects of major changes in the tax and spending plans of the government, including the vetting of major infrastructure projects like the National Broadband Network. Such institutions already exist in many major economies, witness the Congressional Budget Office in the US or the Rekenkamer in the Netherlands. The great advantage of such an institution is that it gives much greater confidence in projections of major changes and would replace the fairly dodgy current practise of having private consultancy firms give dubious projections on the impact of major changes in taxes. Such a budget office is a fairly low-cost institution and would partially serve as a training ground for fiscally-knowledgeable politicians and civil servants.
4. A real mining tax. There is little doubt that Ken Henry’s long-run tax reform advice is basically sound: as a country we should reduce taxes on activities with close economic substitutes (such as small business incomes) and increase taxes on things that cannot run away, most notably the minerals we own in the ground. The companies that mine it currently are 85% foreign owned meaning the huge price increases in the international mineral markets are lining the coffers of New York and London stock traders, not Australian households. And yet, minerals cant run away and taxes on their profits have little (if any) deadweight loss, particularly given how few Australians actually work in the mining industry anyway. A 50% or higher profit tax on resources would clearly be in our interest. I would personally also favour putting the proceeds in a future fund that invests the revenue in the world stock markets, which reduces the impact of the mining boom on our exchange rate and thus doesn’t kill off other industries. As an aside, the mining tax we have now is clearly worse than nothing since it indirectly entails the duty of the federal government to prevent the states from increasing their royalties, co-opting our commonwealth government into doing the bidding of foreign-owned companies. One estimate is that this deal cost us 6 billion a year, but complicated tax-offset rules probably mean it is much more. A more realistic figure is that Gillard’s deal cost the country in the order of 50 million a day in lost revenue.
5. (in the category small) Reduce the budget of the Australian Bureau of Statistics by about 90%, reducing it to merely being in charge of running the Census, and instead commission private providers of statistics to generate surveys of Australian businesses and the population. This would involve a quick reduction of around 300 million a year in expenses and would immediately improve the data available for economic decision making. The rational for cutting off the ABS is that it is completely secretive about the data it gathers: only ABS officials are trusted with using the full data by the ABS, not other government departments or Australian researchers. We are thus in the fairly ridiculous situation that those who devise the Australian budget in the Treasury do not have access to all the data gathered on the finances of individual industries. The ABS hides behind laws promising confidentiality to prevent anyone else from using its data, but similar laws on secrecy exist in other countries that have not been interpreted as ‘only people in our statistics organisation can be trusted’. Quite simply, the ABS has turned into a secretive rent-seeking organisation that draws huge subsidies but does not feel obliged to share its products with its paymasters. Why then should the Australian public pay for data that is not used to improve our knowledge of Australia? It might as well not exist and if it didn’t exist, the community would be free to buy data from other sources that are more consumer-friendly.

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A voice of reason from way out West speaks clear unvarnished truth.
That the minerals Mother Nature once laid down in her youth,
are the hope of teeming millions seeking sanctuary and jobs.
Free Enterprise the means by which we’ll fill their starving gobs.

We hear the message Mistress Gina. We hear it loud and clear.
There’s mung bean munching Greenies fomenting doubt and fear.
And a bloated Government in thrall to Maynard Keynes,
Threatens to drag our economy down to something worse than Spain’s

Yet still the bleating bleeding hearts bleat their bleeping bleats,
Their carping and their harping filling the Eastern States broadsheets.
But hope (no not your mother), has come upon the scene
Fairfax board control?  Next a better tax regime?

And elitists, may mock your meter and your rhyme
But in the hills of the Kimberley, you have found the time
To tastefully put into words rare wisdom and what’s more,
Bolt them down upon a ruddy great lump of Iron Ore.

The sentiment contained therein makes me go all misty.
I applaud your stand against those who’ll turn us Socialisty.
For I too am a man of enterprise at heart,
A modest mini-mogul with Soft-Serve Ice Cream cart.

I have a plan to travel West and make a fortune through,
Serving Soft-Serve Ice-Cream to the starving millions who,
have travelled to the Pilbara seeking work within your mines.
Can I take up a concession? Can you offer credit lines?

I understand, by the way, that you are without bloke.
A woman needs a feller like a Salmon needs a smoke.
Although I’m slightly married, that’s not something ‘ can’t be fixed,
If you’ll have me Darling Gina I’ll be rapidly unhitched.

Incidentally did I mention that you are quite a beauty.
A West Australian Rose (not her) with a most impressive booty.
If the Ice Cream thing doesn’t work I’ll not throw up my hands,
‘cause I trust you’ll be happy for me to sink a shaft upon your lands.

Via Mark Thoma

Languages differ widely in the ways they partition time. In this paper I test the hypothesis that
languages which grammatically distinguish between present and future events (what linguists call strong-
FTR languages) lead their speakers to take fewer future-oriented actions. First, I show how this prediction
arises naturally when well-documented effects of language on cognition are merged with models of decision
making over time. Then, I show that consistent with this hypothesis, speakers of strong-FTR languages
save less, hold less retirement wealth, smoke more, are more likely to be obese, and suffer worse long-
run health. This is true in every major region of the world and holds even when comparing only
demographically similar individuals born and living in the same country. While not conclusive, the
evidence does not seem to support the most obvious forms of common causation. Implications of these
findings for theories of intertemporal choice are discussed.

Unforunately I read that just before bed, so it bugged me all night. Whorfism – the belief that characteristics of a language alter the neurology, thought or behaviour of its speakers. Whorfism,  the linguistic equivalent of Austrian Business Cycle Theory ; seductive rubbish readily ensnaring the lazy minded.

Back when I did my own work using language as an explanatory variable I was at pains to point out that the characteristics of the language were of no account. When I thought the idea was arising  elsewhere on Troppo I intervened. In that last case I was even using a Future Tense hypothesis like Chen uses, only to mock the idea.

Still Chen (the author) does not appear to be lazy or feeble minded. He’s certainly aware of the esteem in which the Whorf Hypothesis is held. So I think it’d be wise to treat this as legitimate, but in my mind probably spurious research. I still think the economics of language, or linguoeconomics is ripe for more research. If this opens up the doors a little, it only does good.

At Language Log, Geoffrey Pullum critiques Chen on the linguistics. Interestingly:

When I engage in amateur reflection on how language might affect thought, I find that I might just as well be convinced that a language with grammatical future tense marking would have speakers who paid MORE attention to worrying about the future. After all, they use a linguistic device that explicitly picks it out. Chen’s hypothesis is that instead they would naturally pay LESS attention to what the future might hold in store. Which hypothesis is right? Why is it Chen’s favorite that is right?

The alternate hypothesis Pullum is actually the one I used to mock Whorfism here, the reverse relationship Chen proposes would never have occurred to me [fn1]. Earlier he uses the Pirahãas a counterexample to Chens hypothesis when I used as an example of false correlation (the “small tribal group”) .

His Stable mate Mark Liberman merely focuses on the potential for spurious correlation. Chen graciously responds on the same blog, but I think their skepticism is well warranted…..even if they appealed to my preconceptions.

[fn1] Which weakens the findings in a Bayesian light I guess.

A small plea to Kevin Rudd and everyone else in the country: can we restrict the term “faceless men” to people who are actually unknown?

Today I see a reference to “Crean and other faceless men”. For pity’s sake, Simon Crean has been in public life since 1979 and in Parliament since 1990. He has spent years as a minister. He served two years as Opposition Leader. He’s been photographed, televised, caricatured. I wouldn’t be surprised if there’s a bronze of him somewhere.

Faceless? Really? This is what you get for two decades of public service?

Simon Crean’s about as much a faceless man as the PM.

For that matter, “faceless men” like Senator Don Farrell have web pages and are fairly well known to a lot of people in Adelaide. Farrell has been elected to Parliament; you can go in and watch him at work most sitting days in Canberra.

Faceless? Really?

The term “faceless men” was also applied back in 2010 to AWU head Paul Howes – one of Australia’s best-known union officials – in the wake of Rudd’s original ousting. Bizarrely, the term “faceless” seems to have been applied as a result of Howes’ appearance on Lateline. And yes, Lateline showed his face. They do that all the time. It’s a television program.

Faceless? Really?

Robert Menzies invented the term “faceless men” in 1963 as a reference to the 36-member all-male ALP executive of the day, most of them genuinely unknown outside ALP and union circles. The story is well told by Ross Fitzgerald and Stephen Bolt in The Australian. Menzies went on to describe the ALP executive as men “whose qualifications are unknown, who have no elected responsibility to you”.

In 1963, “faceless men” was hard politics, but legitimate politics. It was also a great phrase. But its day is long gone. Today it’s not mere cliché – it’s idiocy.

Post-challenge update: Elsewhere on Troppo, Derrida Derider argues – and I think he’s right – that the 2012 challenge has been remarkable for the fact that factional warriors were less important than ever before:

“In fact the trouble with the 2012 [challenge] is that, far from being an unaccountable process by unknown factional warriors, it was all too open. Both opposition and support for Rudd cut right across all factional lines. Quite simply there were no backroom deals here …”