What's the Point of Listening to (Macro) Economists?

Steve Chapman writing in Reason Magazine has a good point:

So why should we listen to what macroeconomists say? Some economists think that often we shouldn't. Russell Roberts, a scholar at George Mason University and the Hoover Institution, told me, "I think some of macro is useful—what causes inflation, for example. I just don't believe we're very good at testing theories at the macro level in a convincing way." Many times, he says, all macroeconomists can do is concoct stories that explain events after the fact.

Microeconomists, by contrast, make predictions about the effect of policies on individual markets, and those predictions are easier to confirm or refute. They virtually all agree, for example, that price controls lead to shortages, and governments occasionally take the trouble to prove them right.

But macroeconomists can almost always claim to be right, no matter what happens. If they recommend Policy X and the economy weakens, they can say it prevented a complete disaster. If they say Policy X will hurt and things improve, they can say without it, we'd be even better off. Being a macroeconomist means never having to say you're sorry.

Economics is an art, not a science. Any given economist can look at a set of numbers and all have different subjective opinions. Forecasting the course of the economy is like picking who is going to win a football game. Nobody knows.

Reason Magazine: Legalize Drugs, Gambling and Prostitution

Reason Magazine is at the cutting edge of libertarian writing in the US. In his article Nick Gillespie argues about legalizing drugs and while we're at it, the other vices too: (read)

Legalizing the world's oldest profession probably wasn't what Rahm Emanuel, the White House chief of staff, meant when he said that we should never allow a crisis to go to waste. But turning America into a Sin City on a Hill could help President Obama pay for his ambitious plans to overhaul health care, invest in green energy, and create gee-whiz trains that whisk "through towns at speeds over 100 miles an hour." More taxed vices would certainly lead to significant new revenue streams at every level. That's one of the reasons 52 percent of voters in a recent Zogby poll said they support legalizing, taxing and regulating the growth and sale of marijuana. Similar cases could be made for prostitution and all forms of gambling.

In terms of economic stimulation and growth, legalization would end black markets that generate huge amounts of what economists call "deadweight losses," or activity that doesn't contribute to increased productivity. Rather than spending precious time and resources avoiding the law (or, same thing, paying the law off), producers and consumers could more easily get on with business and the huge benefits of working and playing in plain sight.

This is a no brainer. All this stuff goes on anyway, why not be open about it? Here in Vancouver, vice is largely ignored, due to lack of police resources. There are marijuana cafes and casinos. I knew a person who was a Crown litigator, and he told me that the Vancouver Police have an unwritten rule for prostitutes, they can solicit in designated areas, and will only get arrested, if they street walk in areas deemed off limits. Also, there are escort classified ads in free weekly newspapers, right out in the open. So you have to think, why not just go all the way and legalize these vices, and then tax and regulate it?

UPDATE: I'm pleasantly surprised by the traffic that this post has generated. This afternoon, I have gotten over 100 hits on it from New Zealand, to Pakistan, to the UK, and across the US and Canada. Welcome to my site!

Taking Down a Snob

I love this book review from Michael C. Moynihan in Reason magazine. He makes a fool of elitist New Yorker film critic David Denby, who has a new book out on the culture of the "snark." (read)

The byproduct of this conversation is a pungent and angry little book called Snark: It’s Mean, It’s Personal, and It’s Ruining Our Conversation. In just over 100 pages, alongside the first-name references to his famous friends and descriptions of his high-class meals, Denby attacks the online boobeoise who, he argues, have altered the tone of debate by supplanting thoughtful conversation with snide and indiscriminant denunciations of the “douchebags” with whom they disagree. “In a media society,” he writes, “snark is an easy way of seeming smart.” If the bloggers at Gawker and Wonkette, two websites dedicated to all things snarky, delight in puncturing the pretentions of the old-guard bourgeois intelligentsia, Denby has provided them a slow-moving target.

(...)

Denby wants things as they once were, when American culture was effectively a dictatorship of the bourgeoisie; when the Ivy League guardians of “our conversation” ruthlessly protected it from contamination by the jealous and uncouth. “Whatever its miseries, the country in the thirties and forties was at peace with itself spiritually: We were all in the same boat,” he argues. Today we have “income inequalities and Rovian tactics that exacerbate ethnic and class differences”; then we merely had Nazism and the Depression.

(...)

Denby identifies Wolfe’s “Radical Chic” as a progenitor of today’s snarky style, but it fails, he says, because the writer’s teasing of haute-liberal infatuation with the Black Panthers “now seems more fatuous than the assembled partygoers.” How so? Because according to Denby, “In the end, [Wolfe’s trademark] white suit may have been less an ironic joke than the heraldic uniform of a man born in Richmond, Virginia, who entertained fancies of a distinguished Old South in which blacks kept their mouths shut, a conservative who had never accustomed himself to the new money in the Northeast.” While denouncing bloggers for rumor-mongering and for besmirching reputations with nothing but conjecture, Denby nevertheless finds it appropriate to imply that Wolfe’s writing is steeped in white supremacy.

The New Era of Irresponsibility

Jacob Sullum in Reason magazine points out the paradox of wanting the American public to continue to spend recklessly:

Remember when the problem with Americans was that we saved too little, preferring instant gratification even when we couldn't afford it? As Obama put it in October, "we were allowed and even encouraged to spend without limits, to borrow instead of save."

Economists worried that our low saving rate made our economy and our government dangerously dependent on the whims of foreign investors. Yet on Monday, when Commerce Department data showed that the U.S. saving rate had risen sharply, from less than 1 percent of after-tax income a year ago to 3.6 percent in December, the press treated the increase as bad news.

"Putting away money and paying down debt may be good for one family's kitchen-table economics," The New York Times reported, "but the broader economy suffers in the short term when millions of families do it." The Associated Press agreed: "What's good for individuals—spending less, saving more—is bad for the economy when everyone does it."

This is comical. The best they can come up with is shop more, don't worry about debt. The whole problem in the first place. Do you get the feeling that the administration really don't know what they're doing?

Zombie Businesses

Anthony Randazo has an excellent piece in Reason magazine on what lessons we can learn from the Japanese by examining the steps they took when their bubble collapsed in the early 90's. Unfortunately, the US government aren't learning and falling into the same trap. (read here)

With the government propping up poor business models rather than allowing further job losses, firms wound up operating over the long-term without making a profit or adding any value to society. Their utter lack of vitality earned these perpetual money-leaching entities the moniker "zombie businesses." And unless American policymakers understand the failures of the Japanese response, we will suffer the same zombie fate.

...

The length of Japan's asset deflation, recession, and liquidity struggles has been blamed largely on the lack of foresighted policies and political leadership. Politicians bent on retaining their power took action that sought to solve the present day concerns, such as infrastructure projects, without regard to their long-term effects. As a result, economic growth was not sustained.

America suffers from a similar vision problem. Intent with avoiding any semblance of economic pain, federal officials have thrown moral hazard and laissez-faire principals to the wind. Creative destruction has been rejected, despite long historical proof that it is the best way for an economy to grow.

Read the whole thing. There is a living, breathing example for us to study in Japan. It bothers me that there seems to be such a rush for government to do something. This notion that we can't waste any time or the whole economy will collapse. No, we need to think about this. There needs to be a big debate. Unfortunately, the majority of the population are just waiting for government to make it better and aren't concerned about the details, or considering the consequences. What if they don't make it better but make it worse?