Pushing to Other Margins

This Dilbert strip (which I stole from Greg Mankiw’s blog), is a nice illustration of what Russ Roberts and Mike Munger discuss in this EconTalk podcast.

Especially how interventions into the market with price controls just winds up pushing differentiation to another margin.

One example they give is minimum wage.  By setting a floor on the price of labor above the value that some labor is worth, that results in fewer job opportunities for folks with productivity that is worth near or below that floor.  So, now employees put up with their bosses poinking paper wads off their heads because the employees have fewer job options.

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A good way to start a productive discussion

Well respected Harvard econ professor and sometimes political economic adviser, Greg Mankiw, was surprised with the attention his latest New York column attracted.  On his blog he wrote:

I did not expect such as reaction, as the point of the column–an explanation of Republican economic philosophy–did not strike me as particularly novel or controversial.

I’m not surprised.  But I am glad that Professor Mankiw wrote his column.  We need more plain language explanations of what all sides fundamentally believe.  We need to dispel with the straw men (e.g. “tax cuts for the rich”) and ad hominems (e.g. “they’re soulless creeps, so of course they’re wrong) and get to why we think our way is better so more people can make reasoned judgments rather than be confused by sound bites designed to tug on emotion.

I urge anyone who scratches their head about conservative or Republican economic philosophy to read Mankiw’s column.  And here’s some great advice from Mankiw’s column (second emphasis added):

DON’T MAKE THE OPPOSITION YOUR ENEMY Last month, when you struck your tax deal with Republican leaders, you said you were negotiating with “hostage takers.” In the future, please choose your metaphors more carefully.

Republicans are not terrorists. They are not the enemy. Like you, they love their country, and they want what is best for the American people. They just have a different judgment about what that is.

One of the great disappointments of my adult life has been our nation’s childlike inability to have productive discussions.  It reminds me of my brother and I when we were kids.  “Yes you did!”  “No I didn’t!”

Both sides are guilty.  We’re busy and have little time to think about everything deeply.  But, Mankiw’s advice is a good place to start.  Don’t assume your opposition has bad intentions.  Assume they have good intentions.

Better yet, assume that you both have nearly the same end goal in mind.  Then ask your opposition to explain why they think their way is better to achieve that goal.

Don’t expect they’ll be able to articulate why very well.  It’s likely nobody has asked them to explain it before, so they haven’t had much practice.  They may even be surprised, just like Professor Mankiw about the interest his column generated. They are use to be called names.  When they stumble, resist going in for the kill.  Instead, ask questions and give feedback about whether you understand or not.

Of Course Not

Here’s a crystal clear observation from Megan McArdle and I love crystal clear observations.

In this blog post of her’s, Megan writes about Harvard Econ professor Greg Mankiw’s New York Times column about his tax rates that, to use Professor Mankiw’s words, inflamed “the left-wing blogosphere.”

Megan writes about those inflamed left-wing bloggers:

Interestingly, no one thought it was odd that they should have opinions on Greg Mankiw’s taxes; apparently, it is only opinions on your own taxes that are in bad taste.

Nice work Megan.

It Took This Long?

Greg Mankiw, a well-respected Harvard economics professor wonders if all of the smart economists working for Obama have explained to him that price controls are a bad idea.

I’m certainly no Harvard econ professor, but did it really take Mankiw this long to question Obama’s economics team?

They lost me a year ago with the word “multiplier”.

If they believe their multipliers on the economic impact that results from government spending (i.e. $1 of government spending results in more than $1 of economic activity), that are derived from multiple regressions on imperfectly aggregated and lagging historical economic data from times that might be different than these times and future times, then I think they’re crazy.

True measure: If their models were really that good at predicting the future, they should have been able to prove it by using their models to grow wealthy.

I’m not sure it can be said any better than F.A. Hayek’s character in the Keynes vs. Hayek rap video of such economic models:

I’ll begin in broad strokes, just like my friend Keynes
His theory conceals the mechanics of change,
That simple equation, too much aggregation
Ignores human action and motivation

And yet it continues as a justification
For bailouts and payoffs by pols with machinations
You provide them with cover to sell us a free lunch

Then all that we’re left with is debt, and a bunch