No, Economics Is Good for Lots of Things

Survey Research at Work

Perhaps the greatest intellectual casualty of the 2008 financial crisis was the credibility of economics as a science. "Why didn't economists foresee the crisis?" people asked, and this lingering suspicion came to a head in a recent NYT editorial blasting economics as a scientific discipline. On first pass, I thought it was just one of those silly articles that crops up on occasion, but the more that I thought about the editorial, and compared it with some of the economic insights I have absorbed as a student, the more I was angered. And thus, I felt compelled to rant.

What should be kept in mind is that, like engineering, economics is a broad discipline that covers many different fields. Just as some engineers study computers and others study nuclear reactors, some economists study taxes, other study financial markets, and still others study how psychological biases should change the design of policy. So to use the chaos in financial markets as a reason to discredit all of economics is analogous to discrediting all of engineering on the count of a Fukushima disaster. While portions of macroeconomics may be made up of smoke, mirrors, and misleading standard errors, even a brief introspection can reveal why that is not representative of economics as a whole.

In economic models, people do whatever maximizes their self interest. However, this leaves no room for intellectual growth -- any new insight or strategy would have already been discovered by the omniscient agents! But people are of finite intelligence. As a result, their self-interest can be up for reinterpretation.

In this area, economists play the important role of introducing new *ideas* about policy. Precisely because people are not as omniscient as the agents in economic models, it's important that governments have a solid foundation on ideas to conceptualize and defend policies from critics. By introducing a new framework or a new empirical fact, economists can cast policy into a different light and redirect the conversation and agenda.

Let us first consider the canonical example of auction theory. Game theorists have been remarkably effective at designing auction mechanisms. The late Ronald Coase famously argued that the U.S. should auction off spectrum rights. Yet in his Congressional testimony, he was met with disbelief, with a congressman asking "is this a joke"? Later on, when the FCC changed its mind, it fell to economists (game theorists, no less!) to design the details of the auction. Designing such an auction is not a trivial task. Since it's advantageous to have radio frequencies in geographically contiguous areas, what a company is willing to bid on one spectrum in an area is dependent on whether it can win in other areas. Moreover, there are a host of protections you need to design. How do you stop firms from colluding? How do you make sure firms can't manipulate the bids to pay extremely low prices? When these issues were ignored in the Australian and New Zealand auctions, many hundreds of millions of dollars were lost.

Economists have also managed to change the way we talk about poverty policies in the United States. A common misconception is that impoverished people are just lazy, and that nothing can be done for them. And as a result, welfare just represents an unproductive transfer from the makers to the takers. However, survey data from the Survey Research Center at the University of Michigan has shown that poverty is most often a transitory phenomenon, and that no, welfare is not about Cadillac queens or subsidizing sloth, but rather about providing insurance for a wide range of people who live on the threshold of poverty. The fact that the national conversation sometimes forgets this point is a reminder that economists do have an important role to play in shaping the welfare policy debate, and that neglecting this can have serious human impact.

And when we take a look at the the role of economists in analyzing aid and development, the impact is even larger. The foundations of international finance and the study of capital flows explains what kinds of aid are better than others, and why it's important not only to provide money but also personnel and expertise. On a micro level, pioneering experimental work, as popularized by Esther Duflo and Abhijit Banjeree in their book titled "Poor Economics", has added an additional subtlety to the design of development policy. By integrating insights from psychology and political science, development economists like them have gone on to revise how to better provide fertilizers to farmers or how to limit the extent of patronage politics. These are all critical issues in the task of economic development, and it has fallen to economists to address them.

So far, I have focused on micro topics. But there are actually a surprisingly robust set of results about how emerging markets should handle capital flows. Stephen Salant (who is teaching me applied micro modeling this fall!) laid the foundation for speculative attacks on stockpiles of resources, such as oil or food. His model later led to Krugman's pioneering work on how currency crises happen, and the lessons from the literature on currency crises showed why external debt could be so harmful for developing economies. Anton Korinek has also made great contributions outlining the welfare arguments for avoiding external debt and currency crises. Indeed, those economies who had large stocks of external debt relative to foreign reserves were precisely the ones who suffered the most during the financial crisis. While it may not be a direct result, it is now clear to all emerging markets that a combination of external debt and exchange rate pegs can be extremely dangerous. And the absence of those two fault lines has put the emerging markets on much more stable footing during the current sell-off.

Even in the controversial field of monetary policy we're doing better. Back in the 1920's, it was thought that monetary policy should ease during the boom and tighten during the bust. This was called the Real Bills Doctrine, and ended up amplifying the business cycle. Doubt about the effect of Quantitative Easing is not equivalent to ignorance about money's effect on the macroeconomy. We might not be clear on magnitudes, but we at least know which way goes up and which goes down.

From a methodological standpoint, economists are valuable because we are trained to think about social issues through a quantitative and empirical framework. While other social sciences such as sociology and psychology are also known for their increasingly quantitative measures, economists are special because the variables we are interested in -- income, prices, population -- are easily measured and interpreted quantitative measures.

(As a digression, I was surprised that this notion of economics as socially applied statistics was completely missing from the conversation about economath. Without the work in mathematical statistics, economists would have been unable to do the measurements that we do, and the empirical studies that I describe above would not have been possible. I remember Miles Kimball joking with me that empirical macro is all about interpreting measurement error, yet without the work of generations of econometricians, we would not know of how to do that kind of analysis.)

From a personal standpoint, I will also be contributing towards this kind of research this year. Since University of Michigan is a state school, we are of course very concerned about how all of our students -- across socioeconomic classes -- are doing. And therefore I will be heading a project to design a survey instrument and analysis methodology to measure how students are doing in the off campus housing markets and to identify the potential severity of this kind of socioeconomic segmentation. (See picture). While it may be true that my project will have various flaws, I still think of it as representative of the power of empirical economics. Identify problems. Collect data. Make lives better. Wash, rinse, repeat. And at least from personal experience, this mode of analysis -- of looking at bivariate relationships, of thinking about longitudinal effects -- is not as common among my fellow social scientists from psychology or political science.

This explicitly empirical tack built into modern economics is important because the alternative to a world with economists is not some non-partisan paradise. Rather, it will be filled by the Keith Olbermanns and Sean Hannities of the world, who rely instead on cheap rhetorical tricks instead of well grounded theory and empirics.

Yet in spite of my strong conviction that economists do create value for society, I do recognize that economics, on the most part, is not an experimental science. But that should not necessarily be seen as a flaw. Economists are tasked with evaluating policies that can play such a large role in the welfare of the masses. And once you know that a certain policy is harmful, it would be a profound breach of ethics to repeatedly apply such failed policy so that you could "replicate" and make the results "scientific".

I want to wrap up this post with a joke.

A physicist, a chemist and an economist are stranded on an island, with nothing to eat. A can of soup washes ashore. The physicist says, "Lets smash the can open with a rock." The chemist says, "Let’s build a fire and heat the can first." The economist says, "Lets assume that we have a can-opener..."

The punchline suggests that instead of solving problems, economists just assume them away. But the real work of economics actually comes after the initial assumption. A real economist goes "..then if we had a can opener, we would be set. So let's go make a can opener." The joke misrepresents the work of economists by focusing on "opening a can" -- a task that has neither ambiguity nor great subtlety. On these issues, of course the hard sciences will be superior. But what if we asked a different question such as "how should we reduce carbon dioxide emissions"? In this case, there is no clear answer. But the economist would go "let's assume there were a price to carbon. Then the first welfare theorem means there's no inefficiency. So let's go price carbon!"

The big social problems of our day -- long term poverty, global warming, the middle income trap -- have few direct solutions, and any solution will affect portions of society in largely differing ways. And without economists to help work out the theory and empirics, how do you plan on tackling such dilemmas?

---

Update: Indeed, long term unemployment is a more severe problem than just an intellectual scruffle. But it really does seem that after the Great Recessions, economists are (perhaps rightly) viewed with more skepticism.

What Can the Stock Market Tell Us About War With Syria?

One of the books in my every-expanding to-read pile is Barton Biggs' Wealth, War and Wisdom. Biggs was a Morgan Stanley director, Hedge fund honcho (and later day survivalist) and the book (as I understand it) argues that stock markets correctly anticipated the course of WWII.

The basic idea is as follows: the price of a given company's stock is a sort of collective prediction about the future profitability of that company. If the price of that stock responses to some new event by going up, that suggests that the event increases the likely profitability of the company. If it goes down, that suggests that the company is likely to be less profitable (or is less likely to be profitable). Likewise, if a stock index goes up or down, this suggests something about the aggregate profitability of the companies that make up the index, and if the index is sufficiently broad based, we might even be able to infer something about the effect of the event on the overall economy.

This sort of reasoning has it's critics, and it isn't perfect by any means. For one thing, it is possible for the collective judgment of the market to be wrong (even a fierce advocate of the Efficient Market Hypothesis would concede as much). And there is always a risk that one might misinterpret a given market movement. Still, even if the market isn't perfect, it probably has a sounder basis than the source of a lot of punditry, which is just making stuff up.

This week the Congress is debating an Authorization for the Use of Military Source in Syria. As with any great matter of war and peace, there are a lot of unknowns. Will military strikes deter Assad from using chemical weapons again? Could it destabilize the region? Etc. Personally I think military strikes are a bad idea. But that's just my opinion. What, if anything, does the Great and Powerful Stock Market think of it?

Looking at the Dow and S&P 500for the last month, it seems that, at first, the stock market did not treat Assad's chemical weapons attack as a big deal. Shortly after 3:00 pm on August 26th, however, both the Dow and S&P fell sharply, as Secretary of State John Kerry gave an afternoon press conference in which he called the Syrian attacks a "moral obscenity" and intimated that the U.S. would take military action against the regime.

Over the subsequent week both Dow and S&P edged back upward as domestic opposition to military strikes led Obama to seek Congressional authorization (which, it increasingly looks as if he will not get). Then, on Monday, an off the cuff statement by Secretary Kerry that Syria could avoid reprisals if it allowed international control of its chemical weapons appears to be turning into an actual realistic option for avoiding war. Coincidentally or not, the Dow rose around 140 points.

You see the same general trend (albeit inverted), by looking at oil prices. When military strikes appear more likely, the price of oil goes up; when their probability falls, the price falls as well. Syria isn't a big source of oil, of course, but they are backed by Iran, and the price movements suggest that military strikes could have larger consequences. I was a bit of a jerk to Matt Yglesias when he mentioned this last week, but his methodological point is sound. Higher oil prices hurt the U.S. economy, and so to the extent that military action against Syria would lead to higher oil prices, that is at least one reason against military action. 

UPDATE: Asian markets appear to be reacting positively to President Obama's announcement that he is delaying a vote on the Syria AUMF.

Low Interest Rates, Savers, and the Recovery

This is a brief addendum to my recent post, "Do Savers Need to be Saved?"

Back in March, I wrote about Paul Krugman and Charles Plosser's takes on near-zero nominal interest rates and household saving. Both noted that households were deleveraging and the zero lower bound was binding. Both agreed about Krugman's diagnosis of a "persistent shortfall in aggregate demand that can’t be cured using ordinary monetary policy." But their suggested cures were quite different.

I just came across a piece written in May by Raghuram Rajan, new Governor of the Reserve Bank of India, called "Central Bankers under Siege," that takes on the same issue. He, too, makes a similar diagnosis but suggests different cures. In my post on savers and low interest rates, I discussed the income and substitution effects of low interest rates, and mentioned that near-retirees are commonly cited as examples of people for whom the income effect dominates. Rajan actually uses this exact example:

"First, while low rates might encourage spending if credit were easy, it is not at all clear that traditional savers today would go out and spend. Think of the soon-to-retire office worker. She saved because she wanted enough money to retire. Given the terrible returns on savings since 2007, the prospect of continuing low interest rates might make her put even more money aside. 

Alternatively, low interest rates could push her (or her pension fund) to buy risky long-maturity bonds. Given that these bonds are already aggressively priced, such a move might thus set her up for a fall when interest rates eventually rise. Indeed, America may well be in the process of adding a pension crisis to the unemployment problem."

Rajan and Plosser match up point for point. Here's Plosser:

"In fact, low interest rates and fiscal stimulus spending that leads to larger government budget deficits may be designed to stimulate aggregate demand or consumption, but they could actually do the opposite. For example, low interest rates encourage households to save even more because the return on their savings is very small...

I have heard from various business contacts that the low interest rate environment is spurring institutional and individual investors to “search for yield.” This may entail taking on more credit risk than these investors are typically comfortable with in a reach for yields that may ultimately be illusive and result in losses they are ill-equipped to handle. Very low yields may also be distorting other investment decisions, inducing firms to undertake long-run investment projects that may prove to be unprofitable in a rising interest rate environment."

Both Rajan and Plosser fear that lower interest rates won't help the economy because either the income effect dominates the substitution effect or because low interest rates will cause "reaching for yield." My fellow Not Quite Noahpinion author John Aziz suggests:

"Savers looking for a larger rate of return should... take their money out of low interest savings accounts and out of the failed financial intermediation industry and invest it into quality economic projects that create jobs and growth. This could involve buying the stock or debt of large companies that wish to expand, or it could involve starting your own business, or investing in a startup or a mixture of these things. The easiest way to return to growth — and thus higher interest rates, and higher returns for things like pension funds — is for today’s savers complaining about low interest rates to turn into tomorrow’s investors seeking out and pouring money into quality projects that increase incomes, create jobs and create products that people desire and want to use."

The question is whether low interest rates have the beneficial effect on investment that Aziz describes, or the harmful reach-for-yield effect. Returning to Plosser, Krugman, and Rajan, it is interesting that the three economists seem to diagnose what is ailing the economy quite similarly (a "persistent shortfall in aggregate demand that can’t be cured using ordinary monetary policy"), but make different prescriptions. First, they differ in their opinions of unconventional monetary policy:

• Plosser: "The first step is to wind down our asset purchases by the end of the year in a gradual and predictable manner. As I said, I see little if any benefit from these purchases, and growing costs. The second step is for the FOMC to commit to its forward guidance on the fed funds rate path, that is, to begin treating the 6.5 percent unemployment rate and the 2.5 percent inflation rate in the guidance as triggers rather than thresholds."
• Krugman: "Unconventional monetary policy is both controversial and an iffy proposition (which doesn’t mean that it shouldn’t be tried)."
• Rajan: "We really don’t know. Given the dubious benefits of still lower real interest rates, placing central-bank credibility at risk would be irresponsible."

They also differ in their general policy prescriptions:

• Plosser wants removal of fiscal-policy-induced uncertainty: "There remains significant uncertainty about the choices that will be made. How much will tax rates rise? How much will government spending be cut? U.S. fiscal policy is clearly on an unsustainable path that must be corrected. Efforts by Congress and the administration at the end of last year reduced some of the near-term uncertainty over personal tax rates. But the impact of the sequester, the debate over the continuing resolution to fund the federal government beyond this month, and the debt ceiling, which will once again become binding in the spring, all have clouded the fiscal policy situation. So, the resultant uncertainty will likely be a drag on near-term growth. In my view, until uncertainty has been resolved, monetary policy accommodation that lowers interest rates is unlikely to stimulate firms to hire and invest."
• Krugman thinks the fiscal multiplier is large, and fiscal retrenchment would be destructive: "the logic for a biggish multiplier and the logic of the crisis itself are very closely linked: times like these, the aftermath of a credit bubble, are precisely when you expect fiscal multipliers to be large. And that in turn says, once again, that fatalism — or worse yet, demands for fiscal retrenchment — in the aftermath of such a bubble are deeply destructive."
• Rajan looks to helping households refinance, and (somehow) improving workforce capabilities: "We cannot ignore high unemployment. Clearly, improving indebted households’ ability to refinance at low current interest rates could help to reduce their debt burden, as would writing off some mortgage debt in cases where falling house prices have left borrowers deep underwater (that is, the outstanding mortgage exceeds the house’s value)... But it is also important to recognize that the path to a sustainable recovery does not lie in restoring irresponsible and unaffordable pre-crisis spending, which had the collateral effect of creating unsustainable jobs in construction and finance... Sensible policy lies in improving the capabilities of the workforce across the country, so that they can get sustainable jobs with steady incomes."

Whistleblowers, Snowden, the press: a global perspective?

The commentariat has spent a lot of pixels over the last couple of months discussing what information originating from NSA leaker Edward Snowden does and does not constitute “whistleblowing,” and therefore should or should not be published.

Is NSA revelation x “whistleblowing”? Then it’s okay and Snowden is a patriot.

Does x not constitute whistleblowing (in the author’s judgment)? Then either everybody knew this was going on and there’s no point in publishing it, or publishing the information is treason, Snowden is a traitor, and Glenn Greenwald and David Miranda are terrorists.

Here’s a random example of these sentiments:

@ggreenwald 's latest "bombshell": USA spies on foreign leaders, incl the Mexican and Brazilian presidents. #notwhistleblowing #dogbitesman
— Bill Bishop (@niubi) September 2, 2013

There’s a lot of this stuff on Twitter, but bloggers are not immune to it.

As a non-American, I am a little bewildered by some of the assumptions underlying these arguments, which I will try to state as I understand them. Americans (and lawful permanent residents in the US) have been reassured that the NSA only spies on foreigners. Notwithstanding the fact that GCHQ may spy on Americans’ communications and cooperates closely with the NSA, this doesn’t reassure me much because as a nonimmigrant in the United States, I am not exempt from the NSA’s net. And after the latest revelations it looks like US citizens and LPRs aren’t very well protected either.

I’ll try to address some of the arguments I have seen.

It’s not whistleblowing when it’s about abuses by non-US agencies such as GCHQ.   Why should I care about that? Why should The Guardian, which is a Manchester based internet cafe, care? Should Americans ignore Russians who blow the whistle on abuses by the Russian intelligence services?

Everyone knows this is going on.   I agree that it’s not exactly shocking that US spy agencies spy on governments, organizations, and individuals. On the other hand, the exact details—who is spied on? how often? for what purpose—are certainly unknown to the public, and they are newsworthy. Those details may also be surprising or even shocking depending on what they are.

You might think that it’s acceptable for the US to spy on its enemies, including heads of state. And that it’s acceptable to spy on allies and other friendly governments. I think that it is certainly newsworthy that the NSA is doing so. Don’t forget that the NSA also spies on foreign individuals and private companies, people we might be more sympathetic too. We can all run the risk of protesting too much, but I’d like to know about all threats to my privacy, whether they are from the “good” or “bad” guys.

It’s their job to spy.   Sure. But in many cases it’s also illegal. The Vienna Convention on Diplomatic Relations protects diplomatic communications. The Convention on the Privileges and Immunities of the United Nations bans spying on the UN. It would be silly to be extremely surprised that the US violates these obligations. On the other hand, it is also possible to earnestly condemn the spying or at least to want to know more about it. It may be legitimate to violate international treaties because spies gonna spy, but then it should also be legitimate to try to expose it.

American whistleblowing should only benefit Americans.   Perhaps governments and terrorists don’t have a right to privacy, but shouldn’t innocent individuals expect at least a little? Or even if you don’t believe in a right to privacy, I stand by the weaker claim that I have a right to know exactly how my privacy is being violated. It may be true that Snowden revealed information about the NSA’s activities in China to curry favor with his erstwhile hosts in Hong Kong, but I’m sure hundreds of millions of ordinary Chinese people would be interested to know that the American government (in addition to the Chinese one; is it wrong to reveal that?) is spying on their text messages.

Corporate Personhood: Why It's Awesome

In my past life as an attorney, I worked at a firm specializing in election law. When I would tell people this, their typical reaction would be to say "ah, that's nice. What is election law?" To which I would respond "You've heard of Citizens United? That was us."

It's true. My old firm represented Citizens United in the early stages of their legal challenge (at the Supreme Court they were represented by Ted Olson). I did zero work on the case personally, but perhaps because of my proximity to the center of the action I do have a perspective on the issues involved (or supposedly involved) in Citizens United that is a little atypical.

The Citizens United case has been, to put it mildly, controversial, with much of the controversy focusing on the notion that the Supreme Court have decreed that corporations were people. Polls show large majorities oppose legal personhood for corporations, and attempts to amend the constitution to deny corporations constitutional rights have sprung up across the nation. 

That’s unfortunate. Because behind an admittedly implausible-sounding slogan is a quite sensible idea. 

 Soylent Green is people, and so is Soylent Green, Inc.

Contrary to popular impression, corporate personhood did not start with Citizens United. In fact, corporate personhood dates back to the old English common law, where it was originally conceived as a consumer protection measure.

Suppose I buy meat from a butcher and it makes me sick. I might wish to sue the butcher for damages. But suppose that I bought the meat not from an individual butcher but from Acme Meat, Inc. It was a central doctrine of the common law that only persons could sue or be sued, own property, or make legally binding contracts. So if a corporation is not a person, I am out of luck. The response to this was to treat corporations as legal persons, who could sue or be sued, make and enforce contracts, buy, sell, and hold property, and so on.

Of course, courts could have granted corporations all the same rights, abilities and duties without calling them persons. But this would have been merely a semantic difference. Once a society decides to have corporations, it has to grant them something along the lines of legal personhood if for no other reason than to protect those who deal with it. 

Likewise, once a society decides to grant corporations the right to own property, it is absurd to deny them constitutional protections. The New York Times, the AFL-CIO, and the Sierra Club are all corporations. But it would be ridiculous if the government tried to use those organizations’ corporate status as a justification for regulating the editorial position of the New York Times, or controlling the advocacy position of the Sierra Club or the AFL-CIO. 

Consider the facts of Citizens United. The plaintiff in Citizens United was not Exxon, or GE or some other giant multinational business corporation. It was a small, nonprofit, political corporation that wanted to run a documentary critical of Hilary Clinton, during her presidential run. It was the equivalent of Michael Moore’s Fahrenheit 9/11 or Dinesh D’Souza’s Obama 2016. Yet according to the Federal Election Commission, Citizens United’s movie was not protected by the First Amendment because Citizens United had made its movie for political reasons, whereas the main purpose of Michael Moore’s movie was to make money. Needless to say, this is ironic on a number of levels.

During oral argument, the government claimed that if it wanted it could ban books that advocated the election or defeat of a candidate so long as the book was paid for partly using corporate money. Yet according to many, it was Citizens United who was advancing an extreme and dangerous position in the case. 

More than 150 years ago Alexis de Tocqueville noted in his Democracy in America that the genius of the American political tradition lay in what he called associations but what in today's terminology we would call corporations. In Europe, to advance some political, social, or economic cause required some wealthy patron. In America, by contrary, groups of people who individually might not have had deep pockets could come together and pool their resources by founding an organization to advance the cause.


Far from being a tool of repression, corporations advanced the interests of democracy and equality by allowing the little guy to organize to accomplish what otherwise could only be achieved by the very rich. Ending corporate personhood would not stop billionaire individuals like the Koch brothers or George Soros from using their wealth to affect the political process, but it would hamper small grass roots organizations which choose to use the corporate form. Ultimately, the long tradition of corporate personhood represents not a threat to democracy, but a support of it.

UPDATE: Our beloved blog owner, Noah Smith, says that Corporate speech is bad because violates the rights of individual shareholders who disagree with it. I don’t think that works as an objection. After all, corporations are inevitably going to be engaging in all sorts of non-political speech: advertising, press releases, business publications, etc. The fact that a single Apple shareholder disagrees with a commercial for the new iPad doesn’t mean that his rights have been violated. So why would political speech be different?  

it.

Four Ways to Answer Economics Questions

I recently came across a saying about the four ways of answering questions according to the Pañha Sutta.

1. There are questions that should be answered categorically [straightforwardly yes, no, this, that].
2. There are questions that should be answered with an analytical answer, defining or redefining the terms. 
3. There are questions that should be answered with a counter-question. 
4. There are questions that should be put aside.

A lot of the questions that economists get asked a lot can be answered in all four ways. I thought it would be fun to play a little "Economics Q&4A." I'll provide a few examples. If you wish, chime in with your own Q&4As in the comments.

Q: Is economics a science?

1. Yes.
2. This depends on exactly how you define science and what you consider to be the bounds and scope of economics. For the most part, economists cannot do controlled laboratory experiments. You can see lots of people's opinions on this question here, and you can read Mark Thoma and Paul Krugman here.
3. Does this really matter? If it were not a science, should we stop trying to do it?
4. **goes back to work**

Q: Is all this quantitative easing going to cause an inflation problem?

1. No.
2. You are probably asking about the Federal Reserve's unconventional monetary policies. For an explanation of why they haven't (and probably won't) cause problematically high inflation, see these posts.
3. What do you mean by inflation problem? Isn't it possible that a bit more inflation would be a good thing? Do you see any signs of an inflation problem? Don't we have bigger problems than inflation?
4. **sighs**

Q: If households have to tighten their belts, shouldn't the government?

1. No.
2. By belt-tightening, I presume you mean reducing the deficit of the federal government. You might have heard President Obama say, in 2010, "Small businesses and families are tightening their belts. Their government should too." But households are different than the government. You can read some bloggers' reactions here and here.
3. Is the government a household?
4. **slumps**

Q: How should I invest my money?

1. Wisely.
2. This depends on your situation and your financial goals. I don't know of any guaranteed get-rich-quick investment schemes. You should probably try to diversify, and not keep all your money under your mattress or in gold. I'm also not an investment adviser, just a young academic economist with no experience, so I'm horribly underqualified to help you with this.
3. How much money do you have? And what are your investment goals? And why are you asking an economics grad student?
4. **shrugs wildly**

Q: Should we go back on the gold standard?

1. No.
2. Here is an excerpt from Barry Eichengreen's answer: 

"Envisioning a statute requiring the Federal Reserve to redeem its notes for fixed amounts of specie is easy, but deciding what that fixed amount should be is hard. Set the price too high and there will be large amounts of gold-backed currency chasing limited supplies of goods and services. The new gold standard will then become an engine of precisely the inflation that its proponents abhor. But set the price too low, and the result will be deflation, which is not exactly a healthy state for an economy...The distributional effects of deflation are no happier than those of inflation.... The populist revolt of the 1880s was stoked by farmers with fixed mortgages who labored under growing debt burdens and financial distress as a result of falling crop prices. Nor is deflation likely to support robust economic growth, as any close observer of the Japanese economy will tell you.... 

And even if we are lucky enough to get it right at the outset, consider what happens subsequently. As the economy grows, the price level will have to fall. The same amount of gold-backed currency has to support a growing volume of transactions, something it can do only if the prices are lower, unless the supply of new gold by the mining industry magically rises at the same rate as the output of other goods and services. If not, prices go down, and real interest rates become higher. Investment becomes more expensive, rendering job creation more difficult all over again. Under a true gold standard, moreover, the Fed would have little ability to act as a lender of last resort to the banking and financial system...Its proponents paint the gold standard as a guarantee of financial stability; in practice, it would be precisely the opposite." 

3. What have you learned from history?

4. **cowers**

Q: When is Noah coming back?

1. In about 3 months.
2. If you mean coming back to the blog, that will be in about 3 months. However, he has never left Twitter. If you mean coming back to the United States, I think that already happened. 
3. What, don't you like us?
4. **checks watch**

Your turn!

The Libertarian and the Union Organizer Can Be Friends (Maybe)

Today is labor day. Throughout most of the developed world, organized labor is celebrated on May 1st,  May Day. But when the federal holiday was first created in 1894, President Grover Cleveland was concerned about annual union celebration so near the anniversary of the Haymarket bombing (as well as by the Communist associations of International Workers Day). And so, the first Monday in September.

These days, of course, Labor Day is less a chance to reflect on the labor movement than it is a commemoration of the end of summer, a chance to barbecue and (weather permitting) make one last trek out to the beach. This is perhaps not so surprising when one considers the current state of American labor unions. It is no surprise that the U.S. labor movement has not been thriving in recent decades. In fact, union membership has been declining as a percentage of the American workforce for more than half a century.

Similar declines have been seen throughout most of the developed world (although the decline has been steeper than average in the United States), and the causes of the decline are complicated. The situation is so bleak, that strong pro-labor voices like Richard Yeselson have proposed a strategy of Fortress Unionism, whereby labor gives up major attempts to organize new industries in favor of trying to hold on to what it still has.

I confess to being personally ambivalent about this trend. On the one hand, as a good right-winger I am skeptical of many of the claimed economic benefits of unions, and politically unions in the contemporary U.S. seem to mainly function as an impediment to needed reforms in education and other areas. On the other hand, as Catholic I am mindful of my Church's longstanding support for the right to organize.

My own thoughts on this subject are influenced by this paper by  Kevin Carson, which suggests that labor unions might be better off under a regime of pure laissez-faire than they are in the current system. Carson's main idea is that the formalized and routinized structure of modern labor law has tended over time to favor employers, while prohibiting many of the labor tactics that historically have proven most effective:

The AFL-CIO's Lane Kirkland, at one point, half-heartedly suggested that things would be easier if Congress repealed all labor laws, and let labor and management go at it "mano a mano."

It's time to take up Kirkland's half-hearted suggestion, not just as a throwaway line, but as a challenge to the bosses:

We'll gladly forgo federal certification of unions, and legal protections against punitive firing of union organizers, if you'll forgo the court injunctions and cooling-off periods and arbitration. We'll leave you free to fire organizers at will, to bring back the yellow dog contract, if you leave us free to engage in sympathy and boycott strikes all the way up and down the production chain, to boycott retailers, and to strike against the hauling of scab cargo, etc., effectively turning every strike into a general strike. We give up Wagner (such as it is), and you give up Taft-Hartley and the Railway Labor Relations Act.

As with a lot of libertarian ideas, this proposal probably doesn't have a prayer of actually being enacted. Nor is it clear that unions would in fact come out on top in a no holds barred fight. Instead of revivifying a moribund movement, it might simply hasten its death. But it's not as if unions have a lot of better options right now. And to the extent that such a move would pressure unions to reinvent themselves as a structure for increasing worker productivity and security, it is certainly a movement I could get behind.