John Q

Not quite 20 years ago, I got an invitation to spend a week as a visiting blogger at an exciting new group blog called Crooked Timber. In the manner of the most catastrophic house guests, I managed to turn that into permanent residence.
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Daniel Ellsberg has died, aged 92. I don’t have anything to add to the standard account of his heroic career, except to observe that Edward Snowden (whose cause Ellsberg championed) would probably have done better to take his chances with the US legal system, as Ellsberg did.

In decision theory, the subsection of the economics profession in which I move Ellsberg is known for a contribution made a decade before the release of the Pentagon papers. In his PhD dissertation, Ellsberg offered thought experiments undermining the idea that rational people can assign probabilities to any event relevant to their decisions. This idea has given rise to a large theoretical literature on the idea of ‘ambiguity’. Although my own work has been adjacent to this literature for many decades, it’s only recently that I have actually written on this.

A long explanation is over the fold. But for those not inclined to delve into decision theory, it might be interesting to consider other people who have been prominent in radically different ways. One example is Hedy Lamarr, a film star who also patented a radio guidance system for torpedoes (the significance of which remains in dispute). A less happy example is that of Maurice Allais, a leading figure in decision theory and Economics Nobel winner, who also advocated some fringe theories in physics. I thought a bit about Ronald Reagan, but his entry into politics was really built on his prominence as an actor, rather than being a separate accomplishment.

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Since the beginning of this millennium, I’ve been writing critiques of the “generation game”, the idea that people can be divided into well-defined groups (Boomers, Millennials and so on), with specific characteristics based on their year of birth. As I said in my first go at this issue, back in 2000 (reproduced here )

Much of what passes for discussion about the merits or otherwise of particular generations is little more than a repetition of unchanging formulas about different age groups Ð the moral degeneration of the young, the rigidity and hypocrisy of the old, and so on.

Demographers have a word (or rather two words) for this. They distinguish between age effects and cohort effects. The group of people born in a given period, say a year or a decade, is called a cohort. Members of a cohort have things in common because they have shared common experiences through their lives. But, at any given point in time, when members of the cohort are at some particular age, they share things in common with the experience of earlier and later generations when they were at the same age.

My most prominent contribution to the debate was this piece in the New York Times five years ago, prompted by the Pew Research Centre’s announcement that it would define people born between 1981 and 1996 as members of the millennial generation. After discussing the history of the “generation” idea, I made the central point

Dividing society by generation obscures the real and enduring lines of race, class and gender. When, for example, baby boomers are blamed for “ruining America,” the argument lumps together Donald Trump and a 60-year-old black woman who works for minimum wage cleaning one of his hotels.

Now, I’m pleased to say, Pew has changed its view, partly in response to a “growing chorus of criticism about generational research and generational labels in particular.”
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Kevin Drum points to an obscure, but radical proposal to change the way the US government does benefit cost analysis. The Office of Management and Budget has released draft guidance saying

One practical approach to implementing weights that account for diminishing marginal utility uses a constant-elasticity specification to determine the weights for subgroups defined by annual income. To compute an estimate of the net benefits of a regulation using this approach, you first compute the traditional net benefits for each subgroup. You can then compute a weighted sum of the subgroup-specific net benefits: the weight for each subgroup is the median income for that subgroup divided by the U.S. median income, raised to the power of the elasticity of marginal utility times negative one. OMB has determined that 1.4 is a reasonable estimate of the income elasticity of marginal utility for use in regulatory analyses.

This is pretty obscure, but what it means is that, a project that delivers a dollar of benefits to each of a group of poor people is worth more than a project that delivers a dollar of benefits to each of a group of poor rich people.

A lot more !

Kevin uses a graph to illustrate, showing that an extra dollar for the median household is worth 50 times as much as an extra dollar for a household with an income of $1 million a year. Conversely, an extra dollar for households at the bottom of the income distribution is worth 12 times as much as an extra dollar at the median.

It’s actually simpler to get the intuition of you use an elasticity of 1, which corresponds to logarithmic utility. Then you can sum up the implications by saying that a given percentage increase (or reduction) in income yields the same additional (or reduced) utility no matter who gets it. So, for example, if a policy halved Elon Musk’s income, while doubling the income of a single randomly chosen US household, it would be evaluated as neutral. If the policy doubled the income of two households, it would be beneficial. More generally, you can just add up all the percentage changes in income from the project (included the taxes needed to finance* it). If that sum is positive, the project should be approved.

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I had an odd intellectual experience recently. A US high school student wrote to me as part of an assignment, asking for my thoughts on Brave New World, and its current relevance. I replied talking about the role of “Our Ford”, and Gramsci’s contemporary concept of Fordism.

That got me thinking about post-Fordism, and then to the idea of post-post-Fordism, referring to the information economy that has emerged since the rise of the Internet. I expected that this would be a reinvention of the intellectual wheel on my part, but when I popped the phrase into DuckDuckGo, I got a single hit, which was part of a 2015 interview with UK radical economist Robin Murray. whose ideas about the concept were very similar to mine, but whose comments were very brief.

I didn’t know of Murray, but I thought I should write to him and ask him how he had developed the idea. Sadly, I was led to Wikipedia, which reported that Murray had died in 2017, apparently without writing anything further on the topic. I’ve found a handful of citations, but of the “in passing” variety.

I’m not sure where to go next with this. I’d like to revive the idea (if indeed it died with Murray), but I’m not sure how to deal with an intellectual history like this. Perhaps some of my readers knew (or knew of) Murray or have seen the idea of post-post-Fordism?

Yesterday was May Day, celebrated as the Labour Day public holiday here in Queensland. And this week, appropriately enough I’m giving two presentations on the case for a four-day working week, one to the Committee for Economic Development of Australia, a business-oriented thinktank, and one to a parliamentary inquiry.

I started writing a post about the prospect of a radical change in the relationship between workers and managers in the information economy, arising from the combination of near full-employment and the shift to remote work for large groups of workers. But I ran out of time, so for now, I will just toss up some points I want to discuss

• Will full employment be sustained, or will central banks succeed in recreating the reserve army of labor ?
• How real is the threat of employer spyware extending surveillance into home workplaces ?
• How should we conceptualise the relationship between workers, managers and owners of capital ?
• What are the implications for unions?

I’ll throw it open for comments, and think some more about all this.

There’s been a lot of recent discussion about relative economic performance of the EU and US as well as (mostly separately) discussion of differences in mortality rates.

One way to integrate the two is to think of living in the US as a (very) dangerous occupation, and think about the wage premium demanded by workers to take up such occupations, relative to comparable low-risk jobs.

The typical estimate from econometric studies is that a 0.1 per cent chance of death on the job (a really dangerous job) implies a wage premium of around $10000/year.

For Americans aged between 25 and 65, the annual death rate in 2019 (pre-Covid) ranged between 0.13 and 0.88. EU mortality rates were one-third to half of that.

Doing the math, the wage premium that would be needed to take on the extra risk of being a working-age American, compared to the EU, is somewhere between $10000/yr and $40000/yr.

Even the lower figure would push the US down to the middle of the rich-country pack based on standard comparisons of median income.

(From my Substack)

There’s been yet another big leak of US secret intelligence. As usual, the main result was embarrassment for the US state, from the (re)confirmation that it routinely spies on its allies, and from the publication of some unflattering comments on those allies. The substantive content was uninteresting, revealing no greater insight (and sometimes) than that available to careful observers with no access to secret information (Daniel Drezner has more on this).

There don’t seem to be any lessons to be learned here that weren’t already evident from the last big leak (Snowden), except that believers in the spy myth never learn any lessons. I’ve been over this again and again, as did Daniel Davies, back in the day.

I’m appending my first post on this, going back to an article published in the Australian Financial Review around the turn of the century.
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Pseudo-objectivity about pseudo-objectivity

Jay Rosen coined popularised the phrase “the view from nowhere” (originally due to Thomas Nagel) to describe the default stance of political journalism in the US and elsewhere, often defended as “objectivity”. This is closely linked to the concept of the Overton window, which I wrote about recently in relation to the AUKUS nuclear subs deal

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I’ve lived through quite a few financial crises, some local to Australia, and others global. Invariably, the first failures are those of obvious shonks (Australianism?) who would probably have failed anyway. Then there are seemingly reputable institutions that turn out to have been shonky. Then there are institutions that played by the rules, but it turns out the rules weren’t good enough. After that, no one is safe and the government steps in to bail the bankers out.Of course, ordinary people pay the bill.

So, I thought I’d get a headstart on listing the hierarchy of excuses, explaining why this isn’t just an inherently corrupt system, doing its inherently corrupt thing. Here we go:

*Silvergate: jumped up crypto bank, not really a bank at all
*Silicon Valley: mismatched assets and liabilities, classic mistake, also woke
* Signature: more crypto, more mismatch, also Trump
* First Republic: all these midsized banks misused the 2017 deregulation
* Credit Suisse: turns out all those capital adequacy requirements could be gamed. And just to prove this, we’ll wipe out the bondholders who helped make the books look good, while bailing out the equity holders
* TBC

I’ve enjoyed Miriam’s posts on things, little and big, that restore our faith in humanity, so I thought I would share a little hope of my own.

I spend a lot of my time thinking about global heating, where it’s often hard to be optimistic about the future. But there are some bright spots. In particular, there’s a good chance that 2023 will be the year that coal use finally begins a sustained decline, and relatedly the year the carbon dioxide emissions from electricity generation start to fall.
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Last year, I wrote a couple of posts defending historical presentism, that is, the view that we should examine events and actors in history (at least in modern history) in the light of our current concerns, rather than treating them as exempt from any standards except those that prevailed (in the dominant class) at the time.

Those posts referred to controversies within the history profession. Unsurprisingly, given the current state of the US, they have now been embroiled in the culture wars. Rightwing critics of wokeism have now added presentism to the list of evils against which they are fighting, along with critical race theory, cancel culture and so on.

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While we are on the subject of universities, it’s worth noting the likely acquisition of the so-called University of Phoenix by the University of Arkansas System.

After a string of similar acquisitions, closures and conversion to non-profit status, this is pretty much the end of explicitly for-profit university education in the US. It’s a striking development given the strong support the sector got from Betsy de Vos in the Trump Administration, which turns out to have merely staved off the inevitable. The boom in online education during the lockdown phase of the pandemic seems only to have increased the marketability of for-profits to public universities looking to expand their options.

In retrospect, the whole for-profit boom was not an upsurge in enthusiasm for the free-market but a straightforward regulatory scam, exploiting public aid to low-income students. Australia had an almost identical experience with for-profit vocational education. As Richard Mulgan observed, this is a predictable outcome of introducing the profit motive into a system built largely on assumptions of professionalism and trust.

That’s true of contracting out of public services in general. Without tight regulation (which may or not be feasible) contracts will go to those who’ve worked out clever ways to rort the system[1], not those able to provide a better service at lower costs.

fn1. This Australianism roughly translates as “game the system”.

Yesterday, I dug into the deepest nest of folders on my MacBook Pro to find an article I wrote on a 512K Mac in 1987, for a magazine that no longer exists and isn’t (AFAICT) digitally archived. The file must have made transitions from “hard floppies” to removable 44Mb drives (remember them?) to hard drive to SSD and then, when that filled up, to my iCloud backup.

Today, I read about “digital hoarding“. Count me in!

Whatever the psychological causes, it’s hard to imagine negative real-world consequences from storing files. And it’s easier to search for stuff when you need it than to spend a lot of time filing. I used to sort my email, but now I just delete 90 per cent as it comes in, and archive the rest every couple of years.

In the physical world, I’m the opposite. I’m hopelessly untidy, but I follow Marie Kondo in throwing out anything that no longer sparks joy, and in trying to avoid acquiring stuff I don’t need. Being free of paper has been a huge boon in this respect.