That Uncertain Feeling

September 5. 2011
Posted by Jay Livingston

(A shorter version of this is posted at Sociological Images) 

Long before the Freakonomics guys hit the best seller list by casting their economic net in sociological waters, there was Gary Becker.  If you want to explain why people (some people) commit crimes or get married and have babies, Becker argued, just assume that people are economically rational.  Follow the money and look at the bottom line.  You don’t need concepts like culture or socialization, which in any case are vague and hard to measure.*

Becker wrote no best-sellers, but he did win a Nobel.  His acceptance speech: “The Economic Way of Looking at Behavior.” 

In a Wall Streeet Journal op-ed Friday about the recession, Becker started off Labor Day weekend weighing in on unemployment and the stalled recovery.  His explanation:  in a word, uncertainty.

These laws [financial regulation, consumer protection] and the continuing calls for additional regulations and taxes have broadened the uncertainty about the economic environment facing businesses and consumers. This uncertainty decreased the incentives to invest in long-lived producer and consumer goods. Particularly discouraged was the creation of small businesses, which are a major source of new hires.

It’s the standard right-wing, anti-government line, and Becker has impeccable conservative credentials, so I shouldn’t be surprised.  Still there’s something curious about it.  He pushes uncertainty to the front of the line-up and says not a word about the usual economic suspects – sales, costs, customers, demand.  It’s all about the psychology of those people in small business, their perceptions and feelings of uncertainty,  Not only are these vague and hard to measure, but as far as I know, we do not have any real data about them.  Becker provides no references.  The closest thing I could find was a small business survey from last year, and it showed that people in small business were far more worried about too little demand than about too much regulation.

Compared with Regulation, twice as many cited Sales as the number one problem.  (My posts on uncertainty from earlier this summer are here and here.)

Desperate for data, I looked at unemployment rates.  Which sectors should be most plagued by uncertainty?  I turned to Becker:

political leaders wanted to reformulate antitrust policies away from efficiency, slow the movement by the U.S. toward freer trade, add many additional regulations in the medical-care sector, levy big taxes on energy emissions, and cut opportunities to drill for oil and other fossil fuels.

OK, got it. The financial sector, medical care, and mining/fuel-extraction.  That’s where we find the greatest threat of government interference, so that’s where we should find the highest uncertainty. So those are the sectors where unemployment should be highest.   

And here are the rates as reported in the BLS August report. 

The three most uncertain sectors are also the three that are suffering the lowest rates of unemployment. 

If financial regulation has Wall Street shaking in its boots with uncertainty, that trepidation doesn’t show up in the employment numbers.  As David Weidner writes in the WSJ (here)

The securities industry still employs about 800,000 people nationwide, according to the Securities Industry and Financial Markets Association. That is only 7.8% fewer than the all-time high, and roughly the same as in 2006, when Bear Stearns Cos. and Lehman Brothers Holdings Inc. still roamed the earth.

As for other businesses, with both taxes and interest rates at an all-time low, the time to invest and hire should be now.

[The uncertainty-about-taxes-and-regulation argument] would make more sense if, say, taxes were already high and might be going higher or regulatory burdens were heavy and might be getting heavier. But when taxes are at a 60-year low and the regulations are pretty much the same as they were in the 1990s boom, the argument makes no sense at all.  (Mark Thoma quoting an e-mail from Gary Burtless. )

Surely there must be some data showing the importance of uncertainty.  This is the US economy, not a Bob Hope movie.  I can’t imagine that a Nobelist like Becker would pull unsupported ideas out of the air.  

Personal note: As I mentioned in an earlier post, my family is trying to sell a condo in Pittsburgh.  We could put more money into fixing the place up – hiring workers to trim the garden, fix the loose tiles, replaster and paint that moldy spot on the wall where the leak was.  This hiring would be our own small contribution to economic recovery.  But when we’ve discussed it, none of us has ever mentioned uncertainty about Pennsylvania taxes or regulations.  Instead, we talk about the demand, specifically the demand for truly elegant, spacious, ideally situated condos in Shadyside.

UPDATE, Sept. 10:  A day after I posted this, Greg Ip had much better post on this topic at The Economist.

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* This is an oversimplified version, but it will do for present purposes.

Doubles Down

September 4, 2011

Posted by Jay Livingston

I went to the US Open on Friday.  I’ve been going every year since back in the days of Forest Hills.  I usually try to find a good doubles match.  It’s not hard.  Doubles has more action – the rapid flurry of volleys back and forth across the net, the ball zipping at a pace that leaves you gasping at how the player can even get a racket on it let alone zing it back to a precise spot.  

Yet doubles remains pretty much ignored – ignored by the media and by the public, even those who trek out to the Open.  Only the Bryan twins can attract a crowd, and they lost in the first round.  (I’m told they were off their game.)

When the team that beat the Bryans, Ivo Karlovic (6' 10") and Frank Moser (6' 6") played their next match, against an Italian team, the stands were all but empty.

And I had the feeling that about half the people there had some personal connection (coach, friend, wife, girlfriend) to one of the players.
I can think of a few reasons

1.  Fans follow individual players.  In other sports, fans follow teams, but the teams are connected with cities.  (I still check the Pirates scores even though I couldn’t name a single player on the team.)   Tennis teams are less permanent.  Part of the appeal of the Bryan twins is that we can be sure they will stay together as a team.

    To bring in new fans and generate enthusiasm among old fans, you need not just a star – a highly talented player. You need a celebrity – a Michael Jordan, a Joe Namath, a Tiger Woods.  If someone is really good, the publicity machine and turn him or her into a celebrity.  It’s hard to make teams into celebrities.  (This is true in other fields.  Yo-yo Ma, Andres Segovia, and Wynton Marsalis expanded the audiences for their respective instruments and musics.)

    The other quality that develops fan following is consistency.  Fans want someone who’s going to be in the finals tournament after tournament.  That’s much more likely in singles, which is often dominated by a single player (Connors, Sampras, Agassi) or just a handful of players who meet regularly in the finals (Federer and Nadal, Borg and McEnroe).

2.  In singles, it’s easier to see athleticism.  In doubles, the players make incredible shots, but they work in a relatively confined space.  Singles players run back and forth across the whole court, speeding and sliding and occasionally diving. 

3.  Television wants the individual celebrity.  The medium brings us “up close and personal.”  It wants a simple story with a clear ending, a head-to-head match.  I suspect that’s one of the reasons soccer still cannot find much of a TV audience.  Doubles, like soccer, depends not just on individual performance but on strategy that may be hard to see.  Singles is easier to understand.*

4.  The USTA relegates doubles to the periphery.  The difference in prize money tells the players what’s worthwhile and what isn’t.  In the old days, many players entered both the doubles and the singles draws.  No more.  It doesn’t make economic sense. 

    In its scheduling of matches at the Open the USTA treats doubles matches as though they were like the restrooms.  You have to have them, and some people may want to go, but they’re not something you want people looking at, and you don’t want to talk much about them in public.
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*Single strategy, despite the efforts of commentators, is not all that complicated.  I remember a post-match press conference where an interviewer kept asking the winner about his strategy and his opponent’s counter-strategy.  I can’t remember who the player was – this was many years ago – but he was European, and he seemed puzzled by the question.  Finally he answered, “I heet the ball to heem.  He heet the ball to me.” 

Stop Making Sense

August 31, 2011
Posted by Jay Livingston

Stephen Moore, in a Wall Street Journal editorial, says that he is “surprised how many students tell me economics is their least favorite subject.”  I’m surprised too, surprised that all these students are talking to Moore.  As far as I know, he has never held a teaching job.  Presumably, they are the students he meets in the WSJ editorial room or at Arthur Laffer’s firm, not exactly a random sample.  Whatever. The reason these many students dislike Econ, says Moore, is this:

Too often economic theories defy common sense.

It’s not just students.  In the title of the article and the closing line, Moore expands the anti-economics population:

Why Americans Hate Economics

For us sociologists, that’s strange, because we’re told that the trouble with sociology is that “it’s just common sense.” 

So students – and (let me be Moorishly grandiose here) Americans  – dislike economics because it defies common sense, and they dislike sociology because it confirms common sense.   Go figure.

What Moore means by “economics” – the kind that students and Americans hate – is Keynes.

the “invisible hand” of the free enterprise system, first explained in 1776 by Adam Smith, got tossed aside for the new “macroeconomics,” a witchcraft that began to flourish in the 1930s during the rise of Keynes.

Others have criticized Moore’s economics (see here and here for example).  It’s the common sense part that interests me.  For example, Moore ridicules an Obama spokesman’s defense of unemployment insurance  – that it pumps money into the economy, and people use the money to buy stuff they otherwise couldn’t.

But Moore says, “That's a perfect Keynesian answer, and also perfectly nonsensical.” 

I’m not sure why.  To me, it sounds like common sense.  To meet the increased demand, the suppliers buy more materials and hire more workers.  It’s all good for the economy. Wasn’t it George Bush who, when the economy got tough, encouraged people to go shopping?

I would think that for many people, it’s that invisible hand that defies common sense – and not just because it requires  belief in something that is invisible.  The basic idea of classical economics is this: if you set a bunch of greedy suppliers free to pursue their own selfish interests, you’ll wind up with greatest good for greatest number – lots of stuff at low prices.  It’s Gordon Gecko’s dictum “Greed is good,” and it may be true.  But it is not common sense.   

Free market economists (like Robin Hanson) also tell us that getting rid of immigration restrictions will similarly lead to good things.

We economists tend to expect open immigration to increase overall wealth and value (and liberty), and to reduce inequality. . . . Open those borders!

Again, It may be true, but it is not common sense.

Here is Moore again:

“All economic problems are about removing impediments to supply, not demand,” Arthur Laffer reminds us.

Since Moore quotes this favorably (he works for Laffer’s firm), he must believe that it’s common sense.  But when I think about, say, the economic problems in the housing market, my common sense tells me that the source of the problem is that people aren’t buying houses.  It does not tell me that the problem is builders being impeded from supplying more houses.* 

It all makes me wonder if common sense is a useful idea.  In these economics examples, common sense is not held in common.  What’s common sense to the Keynesians is not common sense to the supply siders. 

In either case, if economics were common sense, professors wouldn’t have to spend semesters teaching it.** Teaching common sense – that’s sociology.
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* I myself am trying to sell a condo in Pittsburgh.  I encountered no real impediments in supplying this condo to the market.  My problem is that I haven’t encountered any buyers.

** I would guess that when you add up the student semester hours, classical free-market economics courses far outnumber Keynesian courses.  So I don’t know why Moore seems to think that what’s turning students off is the Keynesian domination of the field

The Morning After

August 28, 2011
Posted by Jay Livingston

When Norman Mailer ran for mayor of New York in 1969, he proposed “Sweet Sunday.”  On one Sunday each month, powered vehicles would be banned from the city.  No cars, no buses, nothing. 

Today, we’re getting a sense of what that would be like.  The hurricane has pretty much passed through the city, but subways and buses are still out of service (they were shut down at noon Saturday).  A few cabs cruise the streets, but almost no cars.  Broadway in the 60s and 70s is usually full of cars, even on Sunday.  Not today.

Here is West 72nd looking west from Broadway towards the Park (the famous Gray’s Papaya is at the right). 

As a result, the scale of city life has been reduced.  People are out, and they walking in their own neighborhoods.  The restaurants and shops that are open are the small independents.  The large chains – McDonalds, Starbucks, and the like – are closed. 

But it’s the non-commercial areas, the parks, that seem to be attracting the most people. 

Above is the pier at 70th Street.  Of course, in New York, each zip code is its own UN. 

Not all were locals.  The World Police & Fire Games are in town, and apparently the Hong Kong and Swedish teams are staying in West Side hotels.

The hurricane was exciting, and it did some serious damage, especially outside the city.  But the West Side was spared.  Somewhere, Norman Mailer is smiling (and maybe sharing a drink with Jane Jacobs.)