Showing papers in "Econ Journal Watch in 2009"

Adam Smith and the invisible hand: From metaphor to myth

Abstract: Adam Smith and the ‘invisible hand’ are nearly synonymous in modern economic thinking. Adam Smith is strongly associated with the invisible hand, understood as a general rule that people in realising their self-interests unintentionally benefit the public good. The attribution to Smith is challengeable. Adam Smith’s use of the metaphor was much more modest; it was re-invented in the 1930s and 1940s onwards to bolster mathematical treatments of capitalism (Samuelson, Friedman) and to support innovative analysis by associating the metaphor with ‘spontaneous order’ (Hayek). The effect has been to ignore insightful explanations about how markets function as a process in favour of semi-mystical beliefs in imagined outcomes, wrapped in an isolated 18th-century literary metaphor, which does not explain anything.

Rent Control: Do Economists Agree?

Abstract: This paper organizes the judgments of economists regarding the impact of rent controls in the American context. The review is limited to journal articles listed by the American Economic Association’s electronic bibliography, EconLit, under the subject search “Rent Control,†and articles cited by those EconLit-listed articles. My findings cover research on many dimensions of the issue, including housing availability, maintenance and housing quality, rental rates, political and administrative costs, and redistribution. It is fair to say that the literature points to a conclusion against rent control, yet as of 2001, about 140 jurisdictions in the United States persist in some form of the intervention.

The Policy Views of American Economic Association Members: The Results of a New Survey

Abstract: This article presents the results of a 2007 policy-views survey of a random sample of members of the American Economic Association. The new survey contains questions about many policy issues not treated by previous surveys. The questions treat issues such as trade restrictions, social insurance for those put out of work by international competition, genetically modified foods, curbside recycling, health insurance (several questions), medical malpractice, barriers to entering the medical profession, organ donations, unhealthy foods, mortgage deductions, taxing internet sales, Wal-Mart, casinos, ethanol subsidies, and inflation targeting. Additional questions treat the relationship between economic growth, happiness, and well-being, whether the typical American consumes too much, works too much, saves too little, and live in a house that is too large. The results show disagreement on many issues but evidence of considerable agreement on others, including a consensus that the benefits of Wal-Mart stores typically outweigh their costs, that Americans save too little and that economic growth in developed countries increases well being. The survey finds a consensus in favor of eliminating trade barriers, eliminating or cutting ethanol subsidies, allowing payments to organ donors, and against requiring employers to provide health insurance.

More Guns, Less Crime Fails Again: The Latest Evidence from 1977 – 2006

Abstract: In their reply to our comment on their initial paper, Moody and Marvell continue their analysis of right-to-carry (RTC) laws using panel data for the period 1977–2000. But with six additional years of data now available for analysis, we think the need for further parsing of older data is of limited value in assessing the more guns, less crime hypothesis. In this comment, we add six years of data to what Moody and Marvell previously analyzed. We show that, whether one looks at the original Lott and Mustard specification, the latest Moody and Marvell specification, or a plausible alternative specification, there is consistent evidence for the unsurprising proposition that RTC laws increase aggravated assault. We address some anomalies in these models and their resulting estimates. The Lott and Mustard model, for example, suffers from omitted-variable bias in failing to control for the impact of incarceration. In addition, the Moody and Marvell model generates odd predictions of the impact of incarceration on crime for most crime categories, and it appears to suggest (anomalously) that crack had no impact on murder. These and other problems raise questions about how well these regressions work to reveal the true effect on crime of RTC laws. For instance, would better data and models reveal that the estimated increases in murder and robbery are also statistically significant, as they are for the related violent crime of aggravated assault? Or might the estimated effect of aggravated assault be altered if we knew the full impact of changing police responses to domestic violence?

In Adam Smith's Invisible Hands: Comment on Gavin Kennedy

Abstract: Professor Gavin Kennedy’s essay on the invisible hand raises several issues: (1) whether the three occurrences of the phrase in Adam Smith’s writings are reconcilable; (2) whether the phrase may properly serve as tag for an important idea in natural jurisprudence; and (3) the importance Smith attached to the phrase. In line with A.L. Macfie, I argue that the three occurrences are reconcilable, and, in line with a great many others, that the phrase may properly serve as a tag for the comparative merit of liberty. Whether Smith intended for the phrase to be used that way is uncertain, but does not matter much to its serviceability.

The Debate on Shall Issue Laws, Continued

Abstract: In the September 2008 issue of this journal we criticized work by Ian Ayres and John Donohue on the relation between right-to-carry gun laws and crime rates. They replied in the January 2009 issue. Here we respond to their reply.

A reply to Daniel Klein on Adam Smith and the invisible hand

Abstract: Daniel Klein generously invited me to ‘rejoin and conclude’ our exchanges on “Adam Smith and the Invisible Hand” (Kennedy 2009a; Klein 2009b). Of all the debates I have had with disputants since I began publishing on the mythology of the invisible hand (Kennedy 2005a, 165-68; 2005b, passim), Daniel’s is by far the most thoughtful and constructive, and I treat his views accordingly.

Yet Another Refutation of the More Guns, Less Crime Hypothesis – With Some Help From Moody and Marvell

Abstract: Moody and Marvell’s recent article in this journal examines a regression-based calculation in Ayres and Donohue (2003a) that indicated, based on state-specific estimates that were generated using county data from 1977-1997, that right-to-carry concealed handguns (RTC) laws were associated with higher overall crime costs. Moody and Marvell criticize that calculation for not extrapolating our trend estimates further, but since we had limited post-passage data for roughly half of our states, we were uncomfortable projecting crime trends far beyond our data. Our caution has now been validated, as the sharp crime declines of the 1990s disappeared after 2000. Moody and Marvell now repeat our state-specific regression-based calculation using county data through the year 2000 (but with a slightly altered specification), which finds that RTC laws have increased crime costs by $3 billion (in total) for 23 of the 24 jurisdictions they evaluated (Florida is the exception). Nonetheless, they conclude that RTC laws are “generally beneficial” because they claim that the Florida RTC laws (inexplicably) reduced crime costs by $31 billion. But the one paper to focus on the impact of Florida’s RTC law – of which Marvell was a coauthor! – found that the law had no impact on crime. If Marvell’s Florida paper is correct, then the Moody and Marvell findings are reconciled with Ayres and Donohue’s Table 14 showing RTC laws increase crime costs (Ayres and Donohue 2003a). We also show that estimating aggregate (rather than state-specific) effects of RTC laws using the same data and same specification of Moody and Marvell provides statistically significant evidence of increases in aggravated assault, and no evidence of crime decreases. Similarly, Ayres and Donohue (2003b) showed that, after we corrected some coding errors in John Lott’s data set used in Plassmann and Whitley (2003), their aggregated analysis on 1977-2000 county data also showed statistically significant evidence only of crime increases from RTC laws.

Occupational Licensing: Scant Treatment in Labor Texts,

Abstract: We review the literature on occupational licensing and its importance as a labor market institution. We examine five labor economics texts and find that their coverage of occupational licensing is either scant or nonexistent. We speculate on why textbooks fail to treat the topic adequately.

Great Apprehensions, Prolonged Depression: Gauti Eggertsson on the 1930s

Abstract: Gauti Eggertsson uses a dynamic stochastic general equilibrium model in arguing that the period 1933 to 1937 represented recovery from the Great Depression, by virtue of regime change between the Hoover and Roosevelt administrations. He claims that the Hoover administration was defined by adherence to three “policy dogmas,†and that Roosevelt shifted expectations for the better by making credible commitments rejecting those dogmas. Eggertsson’s argument is wrong on several counts. He misrepresents Hoover’s economic policies, he mischaracterizes Roosevelt as “dogma-free†and committed to a clear alternative plan for recovery, and he misreads the economic consequences of Roosevelt’s policies. Eggertsson’s problems begin with his notion of “recovery,†wherein the economy’s progression from critical condition to prolonged infirmity is trumpeted as “recovery.†Eggertsson’s article is entitled “Great Expectations;†I have titled this piece “Great Apprehensions†because the Hoover-Roosevelt period needs to be seen a whole, in which the statist trend of policy and rhetoric created great uncertainty about the rules under which enterprise and investment would proceed. Moreover, Eggertsson’s narrative cutoff at 1937 is misleading and opportunistic, as the ensuing years are all part of the same prolonged apprehension and under-performance.

Intellectual Hazard: A Liberal Selection of Quotations

Abstract: This article contains a selection of 97 quotations concerning hazards to intellectual integrity The quotations are grouped under 16 headings: Lock-in of ideological sensibilities by age 25; Reverence of the powerful and longing for their favor; Unminding important things; Popular sentiments and approval; Escapism; The professional academic pyramid; Groupthink; Privileges of graduation make for cartels and social pyramids; Cynicism and acquiescence; Officialdom validates base thinking; Government force and funding; Pyramids validating one another; The pretense of knowing well enough to manipulate beneficially; Temptation of a governing-set selfhood; Taboo; A cycle of irrelevance and bad judgment

Does Economics Have a Gender

Abstract: We are pleased that our paper on gender balance in the economics profession incited a number of commentaries on "Why few women in economics?" ( all in May 2008 Econ Journal Watch). The commentators include one sociologist, one psychologist, and three non-traditional economists-making for great breadth. Here we address the issues that seem most important to us. Our paper provided original documentation of the low representation of women in academic economics in Sweden, and drew on other studies for Australia, Canada, Great Britain, and the United States. Across the five countries, the trends are remarkably similar. From being totally absent or having a very low presence among doctoral students in economics in the 1970s, women have since made significant gains. Today they account for about one third of the PhDs granted in the five countries. Nevertheless, that figure is lower than the percentage of women among the doctoral degrees as a whole, today approaching one half, and even more so compared to the share of women PhDs within the other social sciences. This brings out the question: Why is the representation of women in economics low relative to other fields? An answer must account for a second matter; namely, why we have seen a strong inflow of women to economics during recent decades-especially pronounced in Sweden during the 1990s and 2000s. We find that our commentators are more eager to point out explanations of why women would not be attracted to economics than to analyze the forces which have in fact enhanced women's interest in economics in recent years. Another issue is women's lack of progress in academic faculty rank, especially to full professor in economics. Despite women's inroads in economics, many countries still count only a handful of women full professors, their proportion in the five countries we studied ranging between 5 and 9 percent. Figures presented at the 2008 meeting of the American Economic Association (CSWEP 2008) show a rising female proportion of newly completed PhDs ( 35 percent), but lagging female shares of assistant and associate professors, and women full professors hovering around 8 percent.(3) Yet another question is whether it matters whether more women learn economics and gain position of influence in academic economics. Will it bring about any changes in economics or in society at large?

Goldin and Katz and education policy failings in historical perspective

Abstract: In The Race Between Education and Technology, Claudia Goldin and Lawrence Katz employ a powerful theoretical framework to investigate how inequality is affected by the interrelation between changes in technology and changes in job-market skills. The investigation is carried out with great vision and a combination of scholarly methods. In this review essay, we embrace the theoretical core of the book, but find a number of problems in the execution. We see a need to distinguish between attending school and acquiring the pertinent skills; we criticize the way that Goldin and Katz talk about “years of schooling†as a continuous variable, when the underlying phenomenon is that the combination of high school graduation rates and college attendance rates increased more slowly after 1970 primarily because of a slowdown in the former, a slowdown which was arithmetically driven by the fact that high school graduation rates can only go up to 100 percent. We criticize the way they break up time periods in a way that buries the productivity acceleration of 1990-2005. This increase in productivity growth suggests that in the race between education and technology the speed of the latter is more important than the slowdown of the former. We see a need to recognize the profound institutional changes that occurred during the twentieth century, for their consequences can help to explain why the populations’ skills are not “keeping up†with technology. Finally, Goldin and Katz make a reasonable argument that the wage premium for college graduates would be lower if more young people earned qualitymaintained college degrees. However, at the margin, sending additional students to college probably does little or nothing to increase the number of successful college graduates.

Do Economists Believe American Democracy Is Working

Abstract: Fresh results of a 2006 survey of members of the American Economic Association suggest that many economists do not seem to believe that American democracy is working—that is, advancing society’s welfare. Regardless of political party affiliation, a large majority of economists appear to be skeptical of elected officials and the political process. We discuss these findings in relation to what many, including ourselves, perceive to be a problem in the economics profession, namely, an undue focus on the policy status quo. If economists do not believe that the political process works well, why is there so much focus on the status quo, and, more specifically, so little challenge to status quo interventions?

Confession of an Economist: Writing to Impress Rather than Inform

Abstract: Think back to your first years in graduate school. The most mathematically complex papers required a great deal of time and effort to read. The papers were written as if to a private club, and we felt proud when we successfully entered the club. Although I copied the style of these overly complex and often poorly written papers in my first few research attempts, I grew out of it quite quickly. I didn’t do so on my own. I was lucky to be surrounded by mature confident researchers at my first academic appointment. They taught me that if you are confident in your research you will write to include, not exclude. You will write to inform, not impress. It is with apologies to my research and writing mentors that I report the following events. The preference falsification in which I engaged was to intentionally take a simple clear research paper and make it so complex and obscure that it successfully impressed referees. That is, I wrote a paper to impress rather than

Some Anomalies Arising from Bandwagons that Impart Upward Sloping Segments to Market Demand

Abstract: In Gary Becker’s (1991) theory of bandwagon effects, a portion of market demand is positively sloped. In this, he ignores Harvey Leibenstein’s (1950) hypothesis that market demands for bandwagon goods are everywhere negatively sloped (stemming from scarcity imposed constraints). A substantial literature now invokes Becker’s bandwagon, also ignoring Leibenstein. Two anomalies attend Becker’s bandwagon demand when it slopes upward: 1) straightforward parameterizations are inconsistent with the economic requirement that quantities demanded be non-negative; 2) regardless of parameterization, the comparative statics of Becker’s demand carry unworldly implications.

Economic Dissociative Identity Disorder: The Math Gamer, the Anti-Policy Econometrician and the Narrative Political Economist

Abstract: According to Wikipedia, dissociative identity disorder (DID), as defined by the American Psychiatric Association's Diagnostic and Statistical Manual of Mental Disorders, is a psychiatric diagnosis that describes a condition in which a single person displays multiple identities or personalities (known as alter egos or alters), each with its own pattern of perceiving and interacting with the environment. One of the individuals who wrote an outside letter for my promotion to full professor several years ago stated that, until he saw my vita, he did not realized that the Bruce Benson who wrote The Enterprise of Law (1990) was the same Bruce Benson who wrote a number of spatial-price-theory papers. I obviously have had multiple economic personalities in my career, but I believe that my struggle with this disorder has been resolved. One of my colleagues recently sent me comments on a job candidate who had presented a macro general equilibrium model, stating that the candidate “had simplified … [the] model so much as to strip out most of anything that was really interesting and important. It

Confessions of a College Non-Economizer

Abstract: The writer observes that the fundamental economic principles taught in our higher education classrooms have not found their way into our colleges’ administration suites. Administrators rely on enrollment and tuition increases to balance their budgets. Although there are some cost-containment measures that are viable, administrators face internal opposition from faculty and too little pressure from their boards to contain costs.

Desperately Seeking Smithians: Responses to the Questionnaire about Building an Identity

Abstract: The September 2008 issue of Econ Journal Watch carried an essay about building an identity for “our†economics. It attempted to motivate a questionnaire on the matter, a questionnaire that was then sent out to 408 individuals, mostly economists. Responses were received from 42 individuals, including Bryan Caplan, Peter Boettke, David Henderson, Steven Horwitz, Deirdre McCloskey, Thomas Mayer, Robert Nelson, Edward Prescott, Colin Robinson, Richard Timberlake, Robert Tollison, and Leland Yeager. This piece is a brief introduction to the compendium of responses that is provided as an appendix.

Preference Falsification in Teaching

Abstract: Today’s macroeconomics courses are built around Solow and Romerstyle growth theories, and micro-founded equilibrium macro models of the ‘real business cycle’ variety. Hewing to a course description with such an intellectual structure is a derogation of my personal and professional views. This short, confessional note explores the activity of teaching what one does not believe, and argues this is preference falsification writ large. The act of teaching equilibrium business cycle theories to students who take these theories out into the world and act upon them there is, I believe, socially destructive. Yet many economists engage in this public activity contra their personal preferences. One solution is judicious use of the course description, in order that a broad church be maintained.