Wednesday, October 14, 2009

To Stimulate or Not to Stimulate

In this article, Daniel Gross argues that complaints about the failure of the stimulus package are wrong because most of the money hasn't been spent. Yet there are signs of a possible recovery. Here is Brad Delong quoting the data suggesting a 4% GDP growth rate for the quarter. I keep hearing on the radio that economists suspect the recession may be over, or will be over soon.

If the stimulus hasn't done much yet because not much of it has been implemented, and if we are nonetheless headed for recovery, doesn't this suggest that there exists a self-correcting mechanism for the macroeconomy, and that it seems to be working? Daniel Gross argues that this is all going exactly according to plan--things are starting to recover right now because of the $200 billion or so that have already been spent. $200 billion is not chump change, but if it really is responsible for the uptick in economic growth, the multiplier must be bigger than previous estimates. Once again, the inability to do the counterfactual experiment hinders macroeconomics: we will never know how long it would have taken the economy to recover had we not spent $787 billion on stimulus. If Arnold Kling's macroeconomic readjustment story is correct, we could find ourselves spending a lot of money to just postpone the pain for a little while.


Saturday, October 03, 2009

Discomfort with Unplanned Systems

My former colleague Art Carden has a great post over at Division of Labour. He points out that many people are uncomfortable with markets because markets do not have any goal or point or direction in mind (because they do not have a mind to begin with). Markets are unplanned systems that nonetheless produce results, and usually (but not always) pretty good ones--more and better stuff at lower prices. More amazingly, markets work because no one is in charge of them; the profit motive, plus a few simple rules (private property, enforcement of contracts, etc.) gets people who will never know of each others' existence to unknowingly cooperate. This is counterintuitive and even undesirable for many people--how can we let all these resources go around willy-nilly without anyone thinking about whether it all makes sense?

I think this is interesting because this discomfort is very similar to that felt by those skeptical of evolution. Evolution is an unplanned system that nonetheless proceeds toward increasing complexity. There's no one in charge of it; the outcomes are determined by random copying errors and the environment in which these mutations occur. Life doesn't have a point (certainly not a grand cosmological or moral point) in evolutionary biology. It just is, and humans aren't any more important to the universe than any other creature. There is no central planner. Many people--almost entirely religious conservatives--are uncomfortable with this view. They see it as nihilistic and morally troubling.

Furthermore, I think it is fair to say that the skepticism of unplanned market systems tends to exist mainly on the left, while the skepticism of unplanned biological systems exists mostly on the right. This makes me wonder why that would be. Why aren't people on the left skeptical of evolution, too? Why is the right more comfortable with less regulation of markets? Granted, conservatives in the U.S. tend not to be very market friendly, especially in regards to drugs and prostitution, but I still think it is fair to say that conservatives are more friendly towards markets than those on the left.

Maybe I need to reread Rubin's Darwinian Politics.

One more point: Government--that institution that many would like to use to direct markets and reorder society--is also an unplanned system. It has no single mind coordinating it, and the outcomes it produces are not always what one would expect, and (in my opinion) they are seldom what one should find desirable. Government is a maze of competing interest groups, using votes, campaign contributions, promises of post-politics employment, lobbying, and even threats to push for their goals.

That's not to say that there are not market failures that a government could conceivably address; there certainly are. Rather, the question is whether a real-world government could reliably fix them without creating new problems. I'm much more skeptical about that. I would love to see payroll taxes replaced with pollution taxes; the potential welfare gains are enormous. I simply doubt that such a policy could make its way through Congress without becoming something terrible in the process.

Wallace and Gromit: The Greatest Fictional Entrepreneurs

My wife and I have had some foster kids staying with us recently. We've used this as an excuse to rewatch the Wallace and Gromit shorts and movie (the shorts are better--I think The Wrong Trousers is the best).

It occurred to me after watching them that Wallace and Gromit are underappreciated for their entrepreneurial spirit. In three of their five outings, they start up and succeed in new businesses due to the application (or perhaps over-application) of new technology. In A Close Shave they run a window-washing businesses and Wallace has invented an automatic sweater-knitting machine. In A Matter of Loaf and Death they're running a bread delivery company. In the movie, The Curse of the Were-Rabbit, they have a successful no-kill pest control company (called "Anti Pesto").

There are also four video games based on the characters. I've only tried a tiny bit of the first one, but Wallace and Gromit have already started up a successful honey delivery system--fresh honey, piped directly to one's home. Do they start up more new businesses in the other episodes?

I suppose they have a bit of advantage in that they're made out of clay and live in an unrealistic world in which ridiculous inventions actually work. Still, for sheer entrepreneurial spirit, I can't think of anyone else in fiction who comes close. I mean, these guys run a successful business and then quit, just for the joy of starting and succeeding in a new business! Not even Tony Stark or Archibald "Harry" Tuttle can compare.

Are there any other entrepreneurs in fiction who stack up?