Lots of economic policy debates end up going like this: First, one economist or policy wonk will propose a government intervention -- a minimum wage increase, a tax on sugar or subsidies for solar electricity. Another person, usually someone of a more free-market bent, will demand to know exactly which market failure justifies the intervention. A market failure, in the parlance of economics, means a situation in which free markets produce wasteful outcomes. If the advocate can’t produce a theory justifying the policy, the critic claims triumph. If the advocate can find a theory that seems to support the intervention, the critic will typically then criticize the assumptions of the theory. Since most econ theories are highly stylized and have questionable ability to fit the facts, this means that free marketers claim victory quite a lot.
The demand to demonstrate a market failure isn’t fair, because it puts too much burden of proof on advocates of intervention. But it’s often rhetorically effective, because of two sociological quirks. First, many people assumes that free markets are the natural state of things. The flow and bustle of the business world seems much like a jungle, while government action feels forced and artificial. Government interventions can seem a lot like medical procedures. And of course it makes sense for doctors to diagnose an ailment before they start prescribing treatments. The medical rule of first, do no harm is a good one because nature has had millions of years to turn human bodies into self-correcting systems. That principle also makes sense for human societies tampering with natural environments.
But economies are a little bit different from natural ecosystems or the human body. Where the latter is the result of evolution, economies are defined by systems of rules, made by human beings. In some cases, those systems appear to lead to a lot of wealth and prosperity -- the U.S., Japan and much of Europe, for instance. In other cases, as in many poor countries, markets are dysfunctional, inefficient and fail to produce growth. We can’t always know why.
Because the economy is to a large extent a human construct, there’s no reason not to believe that we should always be tinkering and trying to improve it. Think of the economy as somewhere between a jungle and a factory -- the latter is something that can almost always benefit from intentional improvement.
The second sociological quirk behind the show-me-the-market-failure argument is the econ profession’s lingering fetish for theory. There’s a shift underway from what labor economist David Card calls mathematical philosophy to a more data-focused discipline, but theory is still far more privileged and prized in economics than in many natural sciences. The insistence on citing a theory can be a sort of measuring contest.
In fact, economic theory suggests that real-world markets are probably a dense thicket of market failures -- asymmetric information, limited enforceability of contracts, incomplete markets, externalities, public goods and human irrationality. Often, one policy is needed to correct for the failings of another -- a phenomenon economists call the theory of the second-best. It can be politically easier to patch the system up than to overhaul it entirely.
But these theories are usually highly abstract. In order to make the math work, economists simplify their models so much that it can be hard to apply the theories to specific cases -- they end up being more like parables. That’s why when free-marketers demand to see a theory supporting a particular intervention in the real world, they’re making what usually amounts to an impossible demand.
So I propose we minimize our use of the show-me-the-market-failure argument. Sometimes there are policies that people have tried in the past, which seem to work even though it’s hard to tell exactly why. Public education is a great example. It seems to make economies more prosperous, and most economists support it, but no one can point to just why the free market doesn’t educate enough people on its own. Road-building is another -- there are essentially no countries with mostly private high-quality road systems, and economists struggle to explain why.
We know these government interventions work; figuring out why they work is a task for the future. Like the people who chewed tree bark to relieve pain long before the discovery of aspirin, or the engineers who used lithium-ion batteries without quite understanding the physics, sometimes it pays to go with evidence even before you have a theory in hand.
In 2015, Forbes writer Adam Ozimek suggested that a “new liberal consensus” is forming in the economic-policy world. The data back him up. Many economics professors now tend to favor government intervention in the economy more than the general public. And the profession’s biggest public stars, from Paul Krugman to Thomas Piketty to Joseph Stiglitz, are now more likely to lean to the left than to the right. Meanwhile, I’ve tried to document the flood of new research showing that policies like public housing, welfare and public education spending are more beneficial than conservatives have recognized in decades past.
But there are not one, but two big trends in liberal economic thinking. One wants to modify the economic thinking of the past few decades, and the other wants to rip it up. I expect to see a lot of the economic debate in the coming years play out not between the left and right, but between these two strains of thought.
The research and people I’ve been writing about fit into what we might call the New Center-Left Consensus. This strain of thought is based on data and empiricism. Support for higher minimum wages, for example, has grown among economists because a large amount of careful empirical analysis has shown that minimum wage hikes don’t usually cause sizable immediate disruptions in local labor markets. These economists aren’t ignorant of the basic theory of labor supply and demand -- the kind that every undergrad econ student is forced to learn. They just realize that it might not be the right theory in this case.
The New Center-Left Consensus is attractive to academics and policy wonks. It draws on an eclectic mix of mainstream economic theory, empirical studies and historical experience. It refuses to assume, as many conservatives and libertarians do, that free markets are always the best unless there is a glaring case for government intervention. It’s more willing to entertain all kinds of ways that government can improve the economy, from welfare to infrastructure spending to regulation, but it also recognizes that these won’t always work. It embraces a philosophy of careful experimentation. Sometimes the new center-left is even in favor of deregulation -- for example, loosening zoning restrictions and reducing occupational licensing. It’s not ideologically opposed to the free market.
For example, suppose the U.S. government is considering opening up trade with a large, poor country. The move would make most consumers a little better off -- they would have cheaper clothes and toys. But a few workers in the textile and toy-manufacturing industries would be devastated -- their careers would be down the drain, all their knowledge suddenly rendered obsolete. If they couldn’t retrain for new careers -- and let’s face it, how many 45-year-olds can retrain for new careers? -- they’d be stuck in low-wage, low-prestige service jobs, or dependent on government handouts.
Should economists recommend this policy, reasoning that the good of the many outweighs the good of the few? Or should they be opposed to hurting a few people a lot so the majority can reap a modest benefit?
For decades, economists have tried to sweep these hard questions under the rug. Uncomfortable with telling leaders and voters what’s right and wrong, they have focused on the objective, or positive side of their discipline -- finding the facts as best they can, and leaving hard moral (normative) decisions to the democratic process.
In some ways, that was an admirable impulse. But it’s getting harder and harder to maintain that just-the-facts attitude, because society seems to be facing increasingly tough choices about who should receive the fruits of prosperity. As productivity growth slows and inequality becomes more severe, questions about how the economic pie should be divided have come to dominate our national discourse.
Albert Einstein was one of the most important physicists of all time. His scientific predictions have withstood 100 years of scientific challenges. His thinking fundamentally changed the way we understand the universe. Yet people are more likely to be convinced Einstein wasn’t a great physicist than to change their minds on topics like immigration or the death penalty.
It has nothing to do with a person’s intelligence (or the quality of information on Einstein or immigration policy). It’s due to the fact that we’re simply more open to changing our minds on nonpolitical topics. Scientists have been keen to figure out why — because if they can, it may open the door to the hardest challenge in politics right now: changing minds.
Psychologists have been circling around a possible reason political beliefs are so stubborn: Partisan identities get tied up in our personal identities. Which would mean that an attack on our strongly held beliefs is an attack on the self. And the brain is built to protect the self.
But these results are an intriguing step: The brain processes politically charged information (or information about strongly held beliefs) differently (and perhaps with more emotion) than it processes more mundane facts. It can help explain why attempts to correct misinformation can backfire completely, leaving people more convinced of their convictions.
The results also jibe with some of Kaplan and Harris’s past work on religious beliefs. “When we compared evaluating religious statements to nonreligious statements, we [found] some of the same brain regions that are active in the current study,” Kaplan said. Which makes sense, because religious beliefs also factor into our identities.
What the new study definitely doesn’t show is that “political beliefs are hardwired,” Kaplan says. We can change our minds. Reflecting on his work and his own experience, Kaplan says a good way to make facts matter is to remind people that who they are and what they believe are two separate things.
Rising Income Inequality Is Throwing The Future Of Capitalism Into Question, Says World Economic Forum
On March 7, 2007, the late Steve Jobs sent an email to Eric Schmidt, who was at the time Google’s CEO and still a member of Apple’s board of directors: “Eric, I would be very pleased if your recruiting department would stop doing this. Thanks, Steve.”1)
“This” was a cold call from a Google recruiter to an Apple engineer trying to convince the engineer to move to Google. The next day, Schmidt sent the following email to Google’s HR department: “I believe we have a policy of no recruiting from Apple and this is a direct inbound request. Can you get this stopped and let me know why this is happening? I will need to send a response back to Apple quickly so please let me know as soon as you can. Thanks, Eric.” Shortly thereafter the recruiter was fired.
This exchange between two of the most powerful people in the tech world—and definitely in Silicon Valley—was one of the pieces of evidence in a 2010 antitrust lawsuit by the DOJ against Adobe, Apple, Google, Intel, Intuit, Lucasfilm, and Pixar (US v. Adobe Systems Inc., et al.). The DOJ claimed that the defendants entered into an illegal “no cold call” agreement, thus limiting their respective employees’ career options.
The DOJ used harsh words in its complaint: “Defendants’ concerted behavior both reduced their ability to compete for employees and disrupted the normal price-setting mechanisms that apply in the labor setting. These no cold call agreements are facially anticompetitive because they eliminated a significant form of competition to attract high tech employees, and, overall, substantially diminished competition to the detriment of the affected employees who were likely deprived of competitively important information and access to better job opportunities.”2)
The DOJ and the defendant companies proposed a settlement on the same day that the suit was filed. Although the DOJ was not timid in the way it described the defendants’ conduct—and although it was definitely a high-profile case that was not just well-covered by the press but also followed closely by corporate executives—the outcome was only moderately impactful: in the settlement that was approved by the court, the companies agreed to broader limitations on the recruitment practices for a period of five years. The settlement included no compensation for the employees. However, a class action resulted in Adobe, Apple, Google, and Intel paying $415 million, Pixar and Lucasfilm paying $9 million, and Intuit paying $11 million.
This is how the unemployed get work, and how we find a way to live.
Suffering is only worthwhile if it is shared.
Those who succeed despite all odds do so because of community.
Community employment programs showing significant promise over traditional government programs.
Is that the core idea behind providing homes to the homeless?
Just watched "There Will Be Blood" the D D Lewis character -the oil magnate- ultimately had no sense of community. Everyone was a competitor and and obstacle.
People are happier in more equal countries where there is more community.
A message to the Koch brothers and Tyler Cowen: yes we can do something about inequality, ex close down tax havens
"At the same time, governments around the world have become increasingly concerned with “double non-taxation”, i.e., companies not paying tax in either the country where they make their profits or the country where their headquarters are. Double non-taxation is one of the targets of the OECD/G20 project to counter tax base erosion and profit shifting (<http://www.oecd.org/tax/beps.htm>BEPS). Over 120 countries have participated in the project in recognition of the fact that a country trying to tackle BEPS on its own would probably lose out to more generous rivals. With the recent release of the final BEPS package, and the ongoing work on <http://www.oecd.org/ctp/exchange-of-tax-information/>exchange of tax information, governments are well equipped to meet this challenge."