Advocates of Reason: 26 November 2012

Man has only one tool to fight error: reason.

Ludwig von Mises

1. Scott Sumner, “Inequality without Poverty.” Sumner writes on his experiences in Singapore. Here and here is Bryan Caplan on the same subject.

2. Adam Davidson, “Skills Don’t Pay the Bills.” The primary driver of unemployment is not skills-mismatch. If it were, skilled labor in high demand, and in low supply, would increase in price but, they haven’t. People can interpret this as evidence for a “demand-side” story, but I’m not so convinced. “Skills mismatch” seems to be trumpeted the most by non-economists, and to me doesn’t represent the correct “supply-side” narrative of the Great Recession.

3. Lawrence C. Strauss, “The Financial Crisis’s Top Culprit: Human Nature.” Strauss interviews Carmen Reinhart and Kenneth Rogoff. There’s a lot of good information about  the nature the crisis and how it compares to other recessions. I think the conclusions are sometimes highly idealized and not that useful, but there is a lot of good stuff that makes the interview well worth reading.

4. World Bank, “Migrant Workers Worldwide to Remit Over $530 Billion in 2012.” While worldwide remittances have recovered and are growing, the region-by-region picture is not as favorable. Migrants in Europe are still having a difficult time finding employment. Where remittances are highest, naturally, are where the migrants work in recovering or recovering receiving states. For example, the authors note that remittances to Southeast Asia have increased; Southeast Asian migrant workers often migrant to nearby countries, such as Singapore, Malaysia, Hong Kong, Dubai, et cetera. These countries are not fairing as badly as Europe.

5. Lane Kenworthy, “It’s Hard to Make it in America.” This is an interesting piece on inequality, with some good points. What these authors oftentimes don’t consider, though, are the costs to programs meant to reduce inequality. There are certainly things we can do and should do (not all of them are interventionist in nature; some of then necessitate changes in the current regulatory framework), but that doesn’t mean that we need to eliminate all inequality, or, more accurately, that we have the means to eliminate all inequality. One extreme example: consider Kenworthy’s point about differences in the ability to pay for different types of educations (e.g. private language and music lessons). Suppose we implemented a wide range of programs to even this asymmetry out. What if the costs to these programs is the ability of future generations to supply these goods at much lower prices? We forgo greater material wealth, and an efficient solution to some degrees of inequality. In most real world cases, the contrast isn’t as extreme, but the general point still holds. That there exists a “problem” (for some people) doesn’t mean that we should solve it.

6. Dan Gay, “Two Stories About the Crisis.” Gay discusses two narratives of the crisis: Steve Keen’s and Michael Roberts’. According to Gay, Keen essentially argues that the culprit is an increase in debt, and the expenditure of that debt on financial assets. Keen’s story isvery incomplete. Also responsible for the increase in the money supply, through loan extension, were the commercial “loan originators.” This money went directly into the housing market. In fact, it was this, and the corresponding increase in housing prices, that stimulated the increase in investment in mortgage backed assets. An analysis that overemphasizes the “instability” of the financial sector is missing the forest for the trees. When I read “rate of profit” next to Roberts’ name I was excited, but I quickly revised my expectations.

7. New Afghan mine clearing technology,