Knowledge problem

 See Farrell at Crooked Timber has a discussion of the "Knowledge Problem". If I understand, it's the argument that market prices encapsulate a lot of information and provide a key basis for a decision.  

Based on that understanding I can agree to support market capitalism, at least partially. The argument depends on the framework that someone is deciding what to buy and when to buy, and the price conveys information.

But as a failed historian I'm struck by the idea that humans make decisions based on history as well.  Some of our history-based decisions are also economic decisions; we know what prices were yesterday and have an expectation of what they'll be tomorrow.  Or we know how good or bad our last car has been and how good the service from the dealer has been, which has a big impact on which new car we buy and who we buy it from.

But we also have history-based noneconomic decisions with little or no price involvement.  We know, or think we know how good or bad a politician or political party has been; the knowledge guides our future.

Women's Economic Activity

 Reading "The Wife of Bath".  Stumbled on the first sentence of Chapter 3, where the author Marion Turner claims that "women have also always been economically active.."  She's focused on European women and the Middle Ages, but somehow the phrase caused me to think.  "Economically active" isn't defined here, but I'd expect it to mean earning and spending money, which would make it more limited than working, although there might be a Venn diagram there.

I think we can assume that almost all women everywhere have worked for much of their lives, if competent, just as almost all men have worked, if competent. I don't know that we'd usually consider spending money as working, at least in common parlance, but we would, I think, consider it as economic activity.

The formal definition of "work" seems to be the expending of effort or thought to accomplish something.

Somehow the subject is fascinating, even if I'm not going anywhere with it today.

HIve Mind and the Mathew Effect

 Reading Hive Mind by Garret Jones. Finding it good through the first chapters, until he got to the "Ingredients for Good Politics" and the Coase Theorem.  A fast summary: if a state has people focused on the long term, and willing to accept the results of elections, there can be effective bipartisan deals to handle externalities (like pollution) using Coase.  Coase says that if you have good negotiators they can find a win-win solution without the need for regulation. 

Then I started thinking about the Matthew Effect.

An assumption in the discussion is that high IQ people are more future-oriented and more able to do tit for tat bargaining, without holding grudges which lead to mutual destruction. The problem when you apply the idea to politics is that those with the gold/assets are able to hire those with IQ (lobbyists and lawyers) to rig the bargain.

Making Decisions--Roberts

 I believe Russ Roberts was an economist before he became head of a college.  Anyway, he's got a piece in the NYTimes on decision making in which he describes the process Darwin went through before marrying. When I read about it in a recent bio I didn't pick up everything he did.

Back when I joined ASCS I was sent to a Kepner-Tregoe training class.  One of the things taught was the same sort of calculus Darwin went through--figuring out pros and cons of a decision, assigning weights to each, and deciding according to the balance.

I tried that approach in choosing the house I was going to buy in Reston.  It was useful, but then, like Roberts, I threw away the calculations and went with my gut feeling--the house I chose didn't come out as the best choice.  The process can only go so far, and whenever there are imponderables and unknowns, as in deciding whether to marry, it's limited. 

Inflation and Greed

 Newshour is doing a program on corporate profits now.

There was a piece in the news today that mentioned the "rockets and feathers" effect, at least with respect to oil and gas. Crude oil prices can soar--the rocket effect--because the markets for crude are pricing the future.  Gas stations are slower to raise prices because of slack in the supply chain--current inventories were bought at lower prices.  

But while crude prices can fall quickly gas stations are likely to be slower to drop prices.

The wikipedia article also used crude/gas in the example.   I wonder about whether the effect applies much more widely.

Bad News on Inflation

 I saw Paul Krugman yesterday on Newshour admitting he'd been wrong about inflation.  Today we got another bad report.

I never wrote this, so take it with some salt, but I believe back in the day, when MMT (modern monetary theory) was the hot topic that I remembered back in the middle 60's when economists believed they had solved the problem of balancing growth and inflation.  They hadn't.

I'm tempted to say that it's a generational thing--humans become overcome by hubris, they push too far and meet trouble and learn to pull back, but as time goes on those with scars die off and the stage is set for another round of hubris.

Rational Consumers and Personal Histories

 Anthony Downs died recently--he was an economist who argued that people assess their choices rationally, particularly their political choices, which often leads to them not voting. 

A recent paper here argues for the importance of personal experience in shaping choices.  A recent article on inflation in the Post got a number of comments--I was struck by the number who recounted their history, or their parents history, with high mortgage rates back in the 1980s.  As for myself, when I bought in 1976, I ended up buying from Gulf Reston, choosing a new townhouse, although one of the last remaining in a 220 unit townhouse development.  Part of the factor for my choice was the 8 percent rate for the mortgage, as Gulf still had access to financing at that rate, although the going rate was IIRC closer to 9.  Rates cited in the comments on the Post piece were double digits.

That personal history makes me more sensitive to the dangers of inflation returning than most of my fellow liberals, who seem these days to believe it can't happen again. 

This isn't inconsistent with Downs theory, but it does fit the NBER paper.

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China and Farmland

 Once again people are getting upset by the idea of citizens of a rising Asian power buying American farmland. See this and this.

As I blogged previously, this is an old story. Back in the 1970's Congress passed  AFIDA, but back then it wasn't China which was the perceived threat.  China was a poor backwards country struggling under communism.  Instead it was Japan, which was selling us cars, not electronics, and using a few of the dollars they got to buy real estate, some agricultural land, some urban properties including Rockefeller Center.

In the long run who owns what is determined by economics.  Japan's star has faded, China's risen.  In the next 30 years it may be India or Nigeria which has the money to buy some land.  

Barbershop/Beauty Shop Networks

 In a market economy the vendors sell something and the buyers decide to buy based on price. If it's not a commodity then quality and features come into play, but the market is supposed to be impersonal.

Got my hair cut today and got musing about networks. My experience with barbershops and my wife's experience with her hairdressers (actually just cuts) says there's a lot of networking going on.  I'd say half the patrons of my shop ask for a specific barber. (It's not a big sample; the shop is old-fashioned male-oriented and I go when there's least likely to be other patrons.) And my wife does the same thing.

You can understand why--a haircut is very personal so someone who cares will choose their barber on particular features. I guess that the market works well enough because buyers have different preferences, and there's enough of us who don't care to keep the market fairly liquid. 

Am I Destroying Capitalism?

 I was a relatively early investor in Exchange Traded Funds (ETFs) which Annie Lowery in the Atlantic thinks may be dangerous to capitalism (along with index based mutual funds).

If I understand the concerns: in the good old days of individual stock ownership and actively managed mutual funds people, fund managers and investors, were actively concerned about the performance of companies. They bought and sold stock based on that information, resulting in a an efficient sharing of information related to performance  via financial markets.  But with ETFs and index funds dominating the scene these days, many fewer people are tracking performance and incentives for managers to perform are less.

It sounds okay to me.  Although I would point to Billy Hwang's financial distress to observe that financiers can be pretty stupid; they seem to be chasing returns through ingenuity rather than hard work.

Another aspect is the rise of global financial markets.  Back in the days of actively managed funds we had much less  in the way of global financial flows.  Over time I've diversified our investments away from Spdrs and QQQ (the early ETFs tracking the S&P 500 and the Russell index) to include several with foreign investments. While fewer people may be tracking GM  and Ford against each other, the competition between US car manufacturers and foreign manufacturers is being  tracked.

At any rate, I expect the current setup will outlast me; at least I hope so.

Free Trade and Religion

 Noah Smith has a Substack thing, and in this post argues that experts, like public health people vis a vis masks and economists on free trade, have lied.  Masks do help and free trade hurts some people and some countries (when a multi-country trade agreement is implemented).

There's a lot of comments, too much for me to engage so I'll comment here.

Smith says, I think, that the lying is understandable but doesn't like it because it's elites deciding what's good to tell people. 

In some ways I'd argue that the economists' perspective is a Christian one--an expansion of the Golden Rule. The economists are saying that overall the benefits of free trade are greater than the losses.  The Golden Rule is usually stated as a one-on-one rule, but a reasonable expansion would be to say: act so that the world is a better place for its inhabitants, then free trade fits. 

The Racism Behind the Decline of Black-Owned Record Stores?

I have a problem with some descriptions of the decline of black-owned farms over the last 100 years.

My problem can perhaps be illustrated by developments in another industry: record stores.  This article describes the growth of black-owned record stores.  But they are no more.  Why?  I agree that black-owned stores were more likely to fail than white-owned ones.  The owners were probably less wealthy to start with, and faced bias in getting capital for their operation. To the extent they were focused on a niche market they may also have been more vulnerable. (I'm not sure that's right--it seems that independent booksellers often have survived in niches where the Border chain went under,but for the sake of argument I'll include that factor.

But a major factor in the decline of black-owned record stores is the change in demand--people don't want vinyl or CDs these days, or not enough do to sustain a lot of stores. I'd make the same observation about the type (and size) of farm operations black farmers were mostly engaged in during the last century.

The Future of Vertical Farming

 This asks the question: Can Vertical Farming Grow Beyond Herbs and Leaves?

I'm dubious, if we're talking generally.  I can see vertical farming might work in niche areas: on the moon and Mars or in permanently inhabited space stations, where it's the only economical alternative.  Or in areas such as Iceland, where geothermal power means cheap cheap electricity, which current powers aluminum smelters and datacenters for block-chain systems. Or in the grand future when we have practical fusion.  

Or there may be a technological breakthrough which drastically changes the economics.  But bottom line, I don't see its broad comparative advantage, particularly as long as we use fossil fuel to generate electricity and, if as I assume, it's a net contributor to carbon dioxide emissions.

1970's Oil Shock

Noah Smith has a piece in Bloomberg, describing the 1970's rise in oil prices and attributing several structural changes in the economy to that cause.   This shows gas prices over the last 100 years.  In 1968 when I first began driving as a civilian prices were $.34 a gallon.  Sometimes you had gas price wars, which would drive the prices even lower. Stations might offer premiums, like steak knives, for filling a tank. (Back in the day, banks used to offer premiums to open savings accounts, since interest rates were capped--but that's another subject.) We're still using a couple knives I got back then.

By 1980 the prices had risen to $1.19--tripling in price. That's after embargoes and long gas lines as people panicked (rather like the toilet paper shortages this spring). 

Scalia Says a Strong Economy--Not So

The Secretary of Labor, Mr. Scalia, says we have a strong economy. 

He's wrong.  We had a strong economy in January 2020; one which well by many of the usual criteria and under the conditions existing at the beginning of the year.  But those conditions changed; covid-19 emerged and suddenly our economic activity had to deal with a new world, one to which it was poorly adapted. 

We won't have a strong economy until we can adjust to these new conditions.

Furman and I: Great Minds

Politico reports that some Democrats, led by former Obama economist Furman, are worried that the fall will see lots and lots of positive economic news, as the economy starts to recover from the pandemic shutdown.  That's similar to my post here.

On the other hand, a FiveThirtyEight survey of economists has a prediction of a relatively slow recovery, a slight majority predicting a Swoosh (i.e., Nike logo) recovery.

Revising the US Food System

In the wake of the pandemic I'm seeing calls for the US to change the way we produce and distribute food.  Some of the proposals are intended to make it more resilient to disasters, some just hope for environmental friendlier ag.  See this piece and this 

I've doubts.  The way our food system currently works was never planned, but evolved. The forces at work were economic,governmental, social--the market system meant rewards for greater productivity and lower costs; the government ensures uniform food regulations for the country, government programs have eased the dislocations caused by the growth of more productive agriculture, the society as a whole values education, science and technology and the new, people place less of a priority on the taste and provenance of food and more of a priority on fast, cheap food which they don't have to prepare themselves.

Can these forces be changed, even if you have a popular cause that supports government action? Tastes can change, norms can change, but I'm not sure how well any social movement can manage such change.

Impacts of the Pandemic--Social Science

Social science will have a field day analyzing the impacts of the pandemic.  Economists and other social scientists have had to make do with "natural experiments".  They look at the differences in outcome for those who win a lottery (for money, for healthcare, for college entrance) and those who don't.  Or they try to compare different but comparable political subdivisions.  Or, as when air traffic was grounded after 9/11 they look as disasters. As the pandemic subsides they will find:

• a vastly expanded set of such experiments, given how the timing of events has varied.
• a new scope to such experiments, examining the effects of the pandemic shutdown on all aspects of social activity.
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What's the Metaphor for the Covid-19 IMpact

I like metaphors, as I've said before.

The other day I ran across a metaphor used by someone, perhaps an economist, who said the course of the economy will be like driving a car on a highway--you run into a jam, a slowdown where all the traffic slows down, but once the jam is resolved you and the rest of the traffic resume their usual speed.

That's a reassuring image.  Let me offer a differ one, more realistic in my opinion;  In spring and fall you sometimes encounter fog banks on interstates.  In winter you sometimes get a storm which lays down some ice in an area where traffic isn't expecting it.  In these situations you can have a sequence of rear-end accidents, resulting in 20, 30, or more vehicles involved in some damage.  Some cars can run, but are blocked in;; some are a total loss.  Traffic is stopped for a time.

Now I'm not comparing the covid-19 impact to such an accident. Let's imagine a four-lane highway, like the Dulles toll road or the CApitol Beltway. There's a multi-car accident which blocks 2 or 3 lanes and damages some cars.  Rubbernecking slows the traffic in the unblocked lanes. 

That's my metaphor. It seems to me part of the question in sending people back to work is this: how many cars have been damaged in this accident--is the major problem a blockage of the lanes or the damage to the cars.

Damage to the cars in this example equates to impacts on employers and employees. If there's little damage, the economy could easily resume its speed. If there's lots of damage, it will take time to repair it. 

I'm thinking that the more damage we see, the greater the importance of getting the economy going again. 

Innovation--Uses of Social Media

I think it's true that whenever things change some humans adapt to it.  It's like invasive species in biology--when a new ecological niche opens some opportunistic species will take advantage of it.

Anyway, what seems to be going on today is, given the challenge of Covid-19, humans are finding ways to use the internet and social media to counter its effects.  Using Amazon to order supplies, using Zoom for online learning, having a community sing over media, joining friends for online meals.

These uses aren't unprecedented, I'm sure, but tweaks on existing uses and expansion to new audiences.  These uses and audiences are likely to persist even after Covid-19 becomes a normal part of the world's health picture.

Kevin Drum has a post today arguing the greater speed of information exchange now as compared to 1918's Spanish flu explains a greater economic impact.  I'd agree, but also point to the advantages this speed offers--we can learn from the esperiences of others much quicker than in 1918.