Truck and Barter Where Sympathy and Hedonism Collide
Friday, February 28, 2003
BY
Kevin
Do State balanced budget amendments prohibit the funding of State budget shortfalls through taxes levied on its citizens through the Federal Government? Wouldn't that make sense? After all, isn't a federal bailout an indirect way for a state to tax its citizens--and the citizens of other states--by using the Federal Government to finance deficits. Does this not circumvent the intent of a BBA? To what extent have the citizens of States with balanced-budget amendments told their government NOT to accept federal bailouts? To me this is a complicated and interesting question, but legally it probably has no bearing on the current situation.
But in the future, how would citizens of a state guarantee that the Federal Government cannot bail out their State government?
Scott Ott "reports" that the Federal Government will prop up the confidence of consumers by "letting them know they're really doing well even if they're not buying anything." After ready.gov, such a government program would no longer feel absurd, outrageous, or pointless... just ordinary.
David Warsh observes that "with 40 million viewers, Fox Television’s "Millionaire" pulled the network’s biggest non-sports audience ever Monday night... Instead of planning kitchen gardens, we have 40 million people tuning in to watch good-looking young men and women traveling in limousines between hotel rooms and empty houses to their dates."
I understand that watching television can make one a participant in a mass movement--yielding immense cultural connections--but I think to keep this in perspective it is vital to know what the other 250 million U.S. residents were doing during this time. What we all do with our free time is a large part of our culture. For instance, with my free time, I watch science fiction and crime dramas on television, and enjoy reading on very diverse subjects--from operations research to modern fiction.
David makes it sound like viewers of Joe Millionaire partake in little other cultural activity at other times--all they do is immerse themselves in television. While this is true of some Americans, I do not think this is representative. (Where are the data on this?) Most Americans have a lot of free time in which to create their culture, and many choose to spend at least some of their free time enjoying a variety of activities. In the big picture, planning kitchen gardens and watching television are not mutually exclusive activities; people do not live as if they are.
But the argument we face is that "'un-preferred preferences,' inculcated by market participants, have begun to gain the upper hand over second-order preferences, as social institutions that traditionally have served to alleviate the mismatch between them and our deeper desires have weakened with the dramatic turn towards markets of the last thirty years." Unfortunately, I was not alive before markets took over, so presumably I have little direct knowledge of social institutions (networks) that match my deeper desires to my second-order preferences.
But then we must find out how markets have shaped my preferences a calm, quite life. Just how did I come to value working for research organizations that refuse to conclude something because government bureaucrats what them to? Why do I prefer to buy cheap cars, and invest in a home and education? Just why should I value honesty and integrity over popularity and comfort?
Apparently, I shouldn't, since "the result is that our "better selves" today are exposed almost exclusively to market forces that have been specifically designed to loosen self-reliance and self-control." No, the result today is that individuals can choose their own way of social interaction, and can form their own patterns of organization, with far fewer formal social "institutions" to hinder or prevent them.
But I know the real answer as to why I am not a screw-up--my parents. They didn't like the calm, quiet life, didn't like classical music, and never read anything. They watched television--lots of it--and I did with them. But my parents were small business entrepreneurs; they sent me to private school, paid taxes and went on with life, respected authority when it stayed within limits proscribed by its citizens, saved up for retirement by themselves, had a real health insurance policy that covered them voluntarily, and had no interest in gardening--they loved boating.
My parents were not part of a decaying social fabric. To me, they are social institutions worth preserving. I will do so by passing their initiative and self-reliance onto my children.
For some time now, the Bureau of Labor Statistics has been tasked with outputting measures of changes in prices and in the costs of living in the United States, and making such data easily accessible to policymakers and the general public. When given larger budgets, the BLS improves data collection, updates computer systems, and experiments with new methodologies. In the latest CPI release, we see one of these new techniques at work--the Chained CPI for Urban consumers. The C-CPI-U is supposed to be "a closer approximation to a “cost-of-living” index than the CPI-U and CPI-W".
What's different about the C-CPI-U? Well, both the CPI-U and the CPI-W measure the change in prices of a basket of goods that stays fixed for several years, but the C-CPI-U will continually adjust for changes in consumer preferences between different types of goods. All three account for changes in consumption within types of goods--like choosing between macintosh apples and fuji apples. However, only the C-CPI-U will account for changes in consumption across broad categories--say between food at home and education.
Being able to change the consumption basket quickly means that the BLS must initially estimate on incomplete data. Reasonably, it will get the C-CPI-U wrong on the first try, but will revise annually when better data come along. The good news is that "The C-CPI-U index revisions are expected to be small."
I must ask myself, though, how much of a difference this can make and will make. And how much has the C-CPI-U cost the taxpayers?
A key component in all cost models that deal with the action in the future is the discount rate applied to future streams of costs and benefits. Even after adjusting for inflation (the change in the average price level), we must still account for the preference for goods today over tomorrow, and the benefits of paying bills later rather than sooner.
The Federal Government requires a Cost/Benefit Analysis of all major federal programs and projects. Since these programs will occur in the future, a discount rate must be used to find the Net Present Value of the programs (i.e. all costs and benefits are crunched into a single number, facilitating comparison of different projects). Most estimates of Net Present Value (NPV) are extraordinarily sensitive to the discount rate used in the analysis. We should be careful to find and utilize the right discount rate. Otherwise, the government may undertake projects that actually have a negative NPV (Costs>Benefits), and not undertake those with a positive NPV.
The official regulation dealing with discount rates is Circular A-94, published by The Office of Management and Budget. OMB annually updates its schedule of discount rates, but does not list its source data or its methodology. In fact, these annual updates reveal a wide variance in year-to-year guidance on the discount rates to be used. This means that projects that had a positive NPV one year, will have a negative NPV the next.
Certainly, this is not a desirable state of affiars. I have requested clarification from OMB on their source data and methodology. Perhaps, with OMBs help, I'll be able to devise a more stable estimate of the discount rate.
Through ArgMax, I found Steven Pinker's OpEd in the Times about what we need in education. He states the problem:
Observers from our best scientists to Jay Leno are appalled by the scientific illiteracy of typical Americans.
You can add me in there, too. Also,
The obvious solution is instruction at all levels in relatively new fields like economics, evolutionary biology and statistics.
Well, I don't know... But he sums up with:
In a world with complexities that constantly challenge the abilities nature gave us, serious thinking about trade-offs in education cannot be responsibly avoided — by scientists, educators or policy makers.
Now, Pinker does not fully specify the problem. He should say, instead, that not everyone thinks with the same rigor; within limits, Pinker believes they can--and should. Using the scientific method, we (the elite?) will find ways that work to make people think more scientifically. We think elementary, middle, and high schools are the proper time and place to teach people how to think. Some more:
Yet most curriculums are set in stone, because no one wants to be the philistine who seems to be saying that it is unimportant to learn a foreign language or the classics.
I don't think so. Most curricula are set in stone because they are set by government bureacracy, and not by parents. It is very doubtful that homeschoolers' curricula are "set in stone". It is doubtful that the finest private prep schools have curricula "set in stone." Perhaps in those government bureaux, there sit unscientific phillistines unwilling to admit the tradeoffs of content and method, leading to public and regulated private schools in which "Classroom practice is often guided by romantic theories, slick packages and political crusades."
That's why I'm saving up to send my kids to private schools.
Costs have been, are, and always will be purely subjective; that shouldn't stop us from trying to estimate them. Even if we don't, others with less care and conscience, will. I think it helps to understand the crucial difference between measuring and estimating. That difference is one of both precision (repeated, close observations) and accuracy (on-target observations). To a reasonable degree, we know how to obtain data about physical objects with precision and accuracy; we can Measure. However, as of yet we can only Estimate opportunity costs; most economic data cannot be obtained precisely (i.e. we cannot repeat observations), and we have few ideas on how to obtain data that's on-target. That doesn't mean we can't or shouldn't try to estimate. At least, that's what I tell myself so I don't feel guilty.
We must ask ourselves, whom do we seek to convince? Precisely who is supposed to be thinking in an orthodox manner? Are the teachers of principles courses the primary culprits? Or is it the editors of the major journals? Or is it the vast majority of Ph.D. economists, who respect, admire, and promote what they've been taught? Or perhaps it is the government policymakers who use neoclassical theories in support of their policies?
The first task of heterodox economists must not be to join coalitions, groups, and associations. Our first task must not be to lobby for a change in course methods and content. We must not begin a joint crusade with a public debate about the role of political economy. What we must first do is demonstrate clearly the power, usefulness, and insightfulness of our work to each other and, more importantly, to orthodox economists. We will advance only by convincing most economists that heterodox economics solves interesting problems not even addressed by neoclassical economics.
Personally, I do not oppose the PAE movement, but I am cautious of it. I do not oppose change, originality, pluralism, radicalism, or conscience. However, I am troubled by a movement that seeks to coerce en-masse--with platitudes, intimidation and politics. Promote one's side--of course! Bash the opponents emptiness--a must! However, PAEs opponent is a school of thought. My opponents are individual economists; I believe the only successful arguments are the ones that will convince individual opponents. I believe in arguing not with repititions the absurdity of the enemy's contentless abstractions, but with the constructive, problem-solving, empirically-based economics that must be every economist's end goal. Those are the only unanswerable arguments that heterodox economists can make; those are the only convincing arguments.
It is one thing to desire that students be taught multiple ways of thinking about a problem, it is another to desire that most economists believe in a pluralistic approach. If we want the former, then we must first have the latter.
