Robert Lucas once said about the topic of economic growth: "The consequences of human welfare involved in questions like these are simply staggering; once one starts to think about them, it is hard to think of anything else."
I like this quote; it captures one of the reasons I went into economics.
Interestingly, I think there is a parallel with regards to race in America. When one starts reading, learning, and thinking about the role of race in American history, it is hard to think of anything else as it pertains to this great country.
My wife and I saw the movie Selma this Martin Luther King, Jr weekend. Here is a beautiful song from the movie: Glory
Incredibly poor mindset by the Packers who, led by their coach, played not to lose instead of playing to win:
1) 4th and goal from 1-2 feet in the first quarter. I can somewhat understand kicking the FG at 4th and goal fron the 2 on the next series, but from 1-2 feet, are you kidding me? You have to be aggressive to win the NFC championship game against the best team on the road, with the best D. When you have an opportunity like that, you have to go take it...
2) In the 3rd quarter, the Seahawks faced a 2nd and 31. They had a ten-yard run, but still faced a 3rd and 21. At this point in the game the Seahawks had been absolutely horrendous on offense and the score was 16-0 in favor of the Packers. The Packers D had been dominant. So what did the Packers do? They rushed 2, sat back and Wilson had about 7 seconds to complete a 30-yard pass that led to their first points a few plays later...
3) The Packers completely avoided Richard Sherman, the all-pro CB for the 'Hawks in the first game of the season. Then on the 1st drive of the NFC Championship game, he intercepted Aaron Rodgers in the end zone. He is good. I get that. But then, he hyper-extended his elbow early in the 4th quarter. Essentially he played the 4th quarter with one arm. And not once did the Packers run a play in his direction in the 4th quarter to see if he could defend a pass or make a tackle...
4) With 5:13 left in the 4th quarter, R. Wilson threw his 4th interception. M. Burnett intercepted that pass with plenty of room to run, but instead went down. What??? That was unbelievable. He could have run the ball easily into Seahawks territory. Click here to see how much room he had to run...
5) After that interception, here are the next three plays by the Packers:
(i) Run for loss of -4 yards
(ii) Run for loss of -2 yards
(iii) Run for 2 yards
Where kind of play calling is that to win the game? If you want to take time off, try a screen pass, a bootleg swing pass, something. This play-calling was beyond conservative and led to...
6) When the 'Hawks got the ball next, they were still down 19-7. They had been dominated by the Packers D for 56+ minutes. So what the Packers do? They offered the 'Hawks a nice, cushy prevent D from the Packers. Not the D that had shut them down the entire game. The 'Hawks promptly went down the field and scored a TD in just over a minute...
Look, if the Packers had stopped the 'Hawks on either the unbelievable 2-point conversion or the onside kick, the would have won the game. The players have to execute. I understand that.
But coaches have the responsibility to put their players in positions to execute and win. And looking at the evidence, the person with most culpability for the Packers collapse yesterday is Mike McCarthy. Answer this question: would Belichick and the Pats done any of the 6 situations above? No. As much as I dislike the Patriots, they are champions because they go out and win games. They dont play to lose. Playing not to lose is an excellent recipe to lose...
Bill Barnwell of Grantland writes, "...Mike McCarthy is one of the worst in-game managers in the league..." After what I saw yesterday, I can't argue with that assessment.
One of the biggest challenges that society will face going forward is how to handle the impact of technology on society. The challenge has a new twist but not because technology is replacing human labor. That has been happening for centuries. Think luddites of yesteryear. But the luddites have been wrong over the last few centuries as economies have been able to weather technological change via a mix of economic growth, expanding education, labor-based institutions, and re-distributive policies.
The uniqueness of today's situation is rather the rate at which labor-saving technological progress is potentially occurring. If an industry replaces human capital with technology over the course of 100 years (as was the case with agriculture in the US), that provides society with plenty of time to soften the adjustment and re-deploy human capital. When it happens over 10 years, that is a significant challenge.
Note: Globalization has exacerbated the effects of technological change but by itself is not as worrying because economic theory tells us that the effects of globalization cannot go on forever, whereas technological disruption can and likely will.
Re-distributive policies must remain a component of the solution going forward (to preserve the pareto efficient nature of technological change). But the key trick will be to identify clever solutions beyond re-distribution. One framework is to think about ways of increasing the number of people who are owners of capital ("owners of robots"). This allows people to diversity their income so that even if robots replace their labor income, they can maintain their capital income. And if robots do not replace their jobs, they maintain their labor income. The problem is that capital ownership is risky and poorer people often do not have the means to manage risk. So how to circle that square?
One thing I have been thinking about borrows from finance theory. Even if capital ownership is risky, if it is negatively correlated with labor risk, the overall portfolio of income becomes less risky. More thoughts to come on that idea.
Another idea, put forth by Dani Rodrik here, is that the state can play a role in managing some of the risk.
One of the early discussions at the founding of our nation was the topic of Federalism: how much power should be given to the central government and how much should remain with the states? This is a very interesting, important, and fascinating philosophical, legal, political, and social question and highlights the intelligence and sophistication of our founders.
The pro-Federalist view was captured in the writings of Alexander Hamilton, James Madison, John Jay and others in the Federalist Papers as they put forth the intellectual arguments for a Constitution that would provide powers for a strong federal government. These debates led to the Constitution, the Bill of Rights, and other important documents.
Crudely, conservatives today are more aligned with the anti-Federalist view and progressives are more aligned with the Federalist view. I say this alignment is crude for two reasons.
First, it is arguable that the federal government today is more powerful than even the pro-Federalist founders envisioned. So Hamilton, Madison, and Jay may have been Federalists in the 18th century when the United States was a loose collection of states but it is possible that they would view the power of the federal government today with weariness. Many legal scholars debate whether the Federalist papers apply only to the specific context of the founding of our country or represent a broader philosophical position.
Second, the stance of conservatives today, while ostensibly anti-Federalism at first glance, reveals itself as a 'pick and choose' your Federalism on deeper examination. On many issues, conservatives argue that the Federal government is getting too powerful and that responsibilities should be pulled back to states. However, when it comes to a few significant issues (gay marriage, legalization of marijuana), conservatives have tried to use the courts and the power of the federal government to over-ride decisions made by states. Many conservatives have tried / wanted to pass a constitutional amendment against gay marriage. The House of Representatives is trying to over-ride DC's vote to legalize marijuana. And attorney generals from Oklahoma and Nebraska are suing Colorado for legalizing marijuana. For conservatives, federalism often seems to be an opportunistic cover to oppose any policies they dislike.
1) Interesting interview with James Heckman on recent work coming out of Chicago Economics. Money quote:
"I think that what happened is that people got too far away from the data, and confronting their ideas with data. That part of the Chicago tradition was neglected and it was a strong part of the tradition."
More here.
Here is a very interesting graph on income growth by global income percentiles. In the last 20 years, two broad groups have done very poorly: (1) the global very poor and (2) the lower middle class in developed countries. The explanation for the former is very complex and likely context specific. The poor performance of the latter is driven primarily by globalization, automation, and de-unionization.
In the same time frame, two broad groups have done very well: (1) the middle class in developing countries, especially driven by China and to a lesser extent India and (2) the global rich. The explanation for the former is primarily that India and China opened up to trade and capitalism and there has been a strong increase in the market prices for resources (which has helped resource rich developing countries like in Africa). The explanation for the latter is complex but I would argue is partly due to the superstar effect in a time of globalization, de-regulation of many sectors, and regulatory capture. See more here.
Kevin Drum makes an interesting observation: "the Internet is a major driver of the growth of cognitive inequality...in other words, it makes dumb people dumber and smart people smarter."
He proposes two main mechanisms for this:
1) If you dont know how to search the internet well, you will not be able to access good information and you will be easily misled;
2) If you dont know how to differentiate good versus bad information on the Internet, you can also easily be misled or you will merely confirm your existing biases rather than learning
I think the second mechanism is a really interesting one. Being naively misled or purposely looking to confirm biases are two ways the Internet can make people more ignorant. But I am not sure confirmation bias is more correlated with being "dumb." Humans are very susceptible to confirmation bias, and I would wager that overcoming confirmation bias is more correlated with curiosity and humility than with IQ.
