Should you lambaste your intellectual adversaries?

Lam`baste´
v. t. 1. to beat with a cane;
        2. to scold, reprimand, or berate harshly.


Paul Krugman is well known for attacking his intellectual opponents harshly (and many of them do the same to him). Here is how he defends that rhetorical approach:

When I was a young economist trying to build a career, I...believed that by and large better ideas tended to prevail: if your model of trade flows or exchange rate fluctuations tracked the data better than someone else’s, or resolved puzzles that other models couldn’t, you could expect it to be taken up by many if not most researchers in the field... 

This is still true in much of economics, I believe. But in the areas that matter most given the state of the world, it’s not true at all. People who declared back in 2009 that Keynesianism was nonsense and that monetary expansion would inevitably cause runaway inflation are still saying exactly the same thing after six years of quiescent inflation and overwhelming evidence that austerity affects economies exactly the way Keynesians said it would. 

And we’re not just talking about cranks without credentials; we’re talking about...Nobel laureates...academic [macro]economics, which still has pretenses of being an arena of open intellectual inquiry, appears to be deeply infected with politicization. 

So what should those of us who really wanted to be part of what we thought this enterprise was about do?... 

Point out the wrongness in ways designed to grab readers’ attention — with ridicule where appropriate, with snark, and with names attached. This will get read; it will get you some devoted followers, and a lot of bitter enemies. One thing it won’t do, however, is change any of those closed minds... 

It really would be nice not having to do things this way. But that’s the world we live in — and, as I said, there’s some compensation in the fact that one can have a bit of fun doing it.

So let's represent these considerations as value functions:

V = value of writer pursuing polemical strategy
V_p = value of improved public policy that results from writer pursuing polemical strategy
V_e = entertainment value of writer's polemical strategy
V_d = value of improved quality of public debate from writer pursuing polemical strategy
V_pr = V_p if writer is right about correct policies
V_pw = V_p if writer is wrong about correct policies
p_r = probability that writer is right about correct policies

V_es = self-entertainment value from writer's polemical strategy

V_eo = entertainment value to others from writer's polemical strategy

V = p_r*V_pr + (1-p_r)*V_pw + V_es + V_eo + V_d

(Sorry for not making that pretty; I was too lazy, and I'm watching a webinar while writing this.)

So V_es is something you know really well. You know how much fun you have from lambasting people.

V_eo is hard to know. Many people are entertained when you lambast your opponents, but many people are also angered. It's hard to tell which group is more numerous, and how intense their like/dislike is, and it also depends on how much you care about each group. Looking at your own popularity only gives you a little information about this, because if you're hated by 90% of people and loved by 10%, you'll still be very popular.

V_d is extremely hard to know. If by lambasting people you cause the whole public debate to become more politicized, for example, your strategy could have a negative indirect effect on public policy, even if your direct effect on policy is good.

p_r comes from people's personal confidence in their own ideas. A lot of people seem to think that the people who talk about macroeconomics in the media - and probably a lot of academic macroeconomists - are highly overconfident in their own ideas. I tend to agree with that assessment.

So basically, deciding whether to adopt a polemical strategy is a decision that is full of uncertainty. What if for every person you entertain, you are making two people feel bitter and aggrieved? What if you're poisoning future debates with politics even as you fight off politicized opponents in the current debate? And, most troubling...what if you're just plain wrong?

Although this is a difficult decision to make, I think there are some general things you can do to minimize the risks of a polemical strategy:

1. Instead of insulting people in a mean-spirited way, tease them in a funny way. Do not accuse people of dishonesty without direct evidence of corruption. Don't call people stupid, because calling people stupid gets under people's skin more than it should. Teasing, from what I've seen, is just as effective as insulting in terms of discrediting an opponent and his ideas, but it runs less risk of poisoning the debate and making bystanders feel bad.

(Obviously there is still risk. Personally, I generally find Brad DeLong's jabs to be funny and lighthearted, but many others seem to find them mean. Over the internet, it's especially hard to tell, since different people pick up on humor in different ways.)

2. Don't hold grudges. If someone seems to be engaging in irrational, politically motivated thinking in one situation, don't assume they always will. Don't hold past arguments over people's heads. Don't pull the "Oh, but you're the guy who said [whatever] back in 2004!" thing. Holding grudges prevents people from being able to come over to your side, but doesn't actually help you discredit someone; thus, it seems entirely pointless to me.

3. Always make a good-faith effort to figure out ways you might be wrong. Even when you're still convinced you're right, verbally acknowledge the possibility you might have made a mistake somewhere.

I believe that if you use these techniques, you can get almost all of the benefits of the polemical strategy, while avoiding most of the costs. You will minimize the downside risks embedded in V_eo, V_d, and V_pw.

Back to corporatism?

A potted history of American political economy goes like this: After WW2 and the Depression, the laissez-faire/cronyist developing-country economy we had earlier was replaced with a corporatist one. The corporate welfare state, supported by a thicket of government regulation and high taxes, and given a sense of stability and security by the deglobalization that occurred in the mid-20th century, created a middle-class nation. Most workers had well-paying, secure jobs, although some outsiders (women, blacks, the poor) were excluded from the cushy system. Worker bargaining power was strong and unions flourished. The power of the corporation was yoked to the interests of the workers. Then, beginning in the early 70s, neoliberal policies replaced corporatist ones, Deregulation, the rise of shareholder capitalism, and the resumption of globaliztion crushed the old corporatist system, leading to a bifurcation of the middle class and to the end of job security.

If you believe something resembling this potted history, that still leaves a big question: Was the end of corporatism driven mainly by globalization or mainly by domestic politics (assuming we reject conservatives' preferred explanation, the "rise of the robots")? If foreign competition, first from a resurgent Europe and Japan and later from China and a whole host of poor countries, made America's cushy managerialist corporate welfare state simply unviable, then neoliberalism can be seen as a natural, necessary response, however suboptimal its implementation was. But if you think that domestic political changes - the switch of the South to the Republican party, for instance, or the introduction of big money into politics - drove the neoliberal revolution, then you'll probably conclude that neoliberalism can be politically reversed without doing much damage to the economy.

I see this as being big debate among American liberals. The ambivalence can be felt in this recent Brad DeLong post:

On the two-year and ten-year agendas...are dealing with and reversing the enormous upward redistribution that has taken place with the rise in the social, political, and economic power of the Overclass. That is:

• Restoring full employment as a priority…

• Rebalancing the corporation so that shareholders and the financiers top managers who can initiate corporate control transactions are no longer the only stakeholders that matter…

• Restore long-run productive investment as a priority in public budgeting…

Underlying this position is a belief, perhaps, that so much of what is produced is so close to a joint Leontief product that something like the marginal product theory of distribution is profoundly unhelpful, and that questions of distribution are overwhelmingly resolved by economic bargaining power conditioned by social mores and politically-chosen institutions. Perhaps there used to be three sources of bargaining power, and thus three sources of durable advantage:

• Possession of the intellectual property and expertise needed to construct the high-throughput mass-production assembly lines of what used to be called “Fordist” capitalism…

• Control over the brands and other distribution channels necessary in order to sell the products of high-throughput mass-production factories to the middle classes of the North Atlantic who could afford to buy them at a good price…

• A blue-collar working class that had sufficient class consciousness to bargain for itself, and that was insulated by the requirement that the factories be located near to the engineers and to the corporate headquarters which needed to be placed so as to keep their eyes on the market…

And then, perhaps, over the past generation the third has dropped away, with the coming of globalization and the successful war against private sector unions. The rest are now themselves in flux. And perhaps they have been joined as a source of rent-extraction by those with the ability to tap into the savings produced in this age of the Global Savings Glut… 

But I think that the sources of this enormous upward redistribution have not yet been properly sorted-out.

DeLong is conflicted. He is a rationalist, and so he concludes that he does not have enough data to decide whether globalization or domestic politics was mainly to blame. Not having enough data, he cannot bring himself to make a policy conclusion about how to achieve the second of his three objectives ("rebalancing the corporation", i.e. restoring corporate welfare). DeLong is like me in this way. I try to assess the data objectively first, then think about solutions only after making the assessment of the facts.

But Marshall Steinbaum, the young colleague whose post DeLong is responding to, is no such rationalist. There is no question which culprit he will blame. And there are many others like him. So I think that in the internal liberal argument over the reason for corporatism's collapse, the people who think the shift was political are almost certain to win.

There are three reasons for my prediction.

First, people would rather be powerful than powerless. If globablization is responsible for the end of the corporate welfare state, then the corporate welfare state is not coming back in our lifetimes. And the veto points in the American political system, combined with an increasingly rejectionist Republican party, mean that a government welfare state along European lines will be very difficult to implement here in America. So believing that we could choose to reinstall corporatism without big adverse effects is an empowering belief.

Second, people are afraid to be seen as anti-trade, or protectionist. In actuality, globablization couldn't be reversed by U.S. protectionism. Corporatism might be restored here at home, but the loss of our export markets would make it a pyrrhic victory. So believing that globalization killed corporatism is NOT actually an argument for protectionism. But people will see it as such. That means if American liberals start blaming globalization, they'll get A) a lot of people actually trying to implement protectionist measures, and B) a ton of flack from defenders of free trade, a concept that is still enshrined with pride of place throughout the econ and public policy worlds.

Third, people like to blame their political enemies for bad things, rather than nature or chance. Blaming the Koch brothers and the South for killing corporate welfare is more pleasing than blaming globalization, because doing the former gives us a reason to beat up on the Koch brothers and the South, while the latter does not.

So for these reasons, I predict that we will see more liberals decide that the corporate welfare state can and should be restored by political fiat - whether or not that is actually possible or desirable.

Is human capital really capital?

Is "human capital" really capital? This is the topic of the latest econ blog debate. Here is Branko Milanovic, who says no, it isn't. Here is Nick Rowe, who says yes, it is. Here is Paul Krugman, who says no, it isn't. Here is Tim Worstall, who says yes, it is. Here is Elizabeth Bruenig, who says that people who say it is are bad.

So as usual, it's up to your friendly neighborhood Noah to settle the debate once and for all. *chuckle*

Here's the thing. Calling anything "capital" at all requires a simplification and abstraction. A drill press is different than a building, an oil field, or a computer. Lumping a bunch of stuff in together, putting a dollar value on it, and calling it "capital" is a huge abstraction. This was pointed out in a famous debate called the "Cambridge Capital Controversy." Well, folks, that's how modeling works. Any time you make a model, you make simplifications and abstractions.

Human capital, no matter what you call it, is different than other kinds of capital. It's different in the way it's produced. It's different in the ownership laws applied to it. It's different in the way you extract value from it (in the costs of extraction, how it enters into production functions, etc.). It's different in the way it depreciates with time and with usage. Etc.

Lumping human capital in with other forms of capital requires you to take a stand and say "I don't think those differences are important, at least for the phenomena I'm trying to model right now." Other times, if you think the differences matter, you'd keep human capital and other capital separate.

Economists do the same thing with consumption. In models where economists think the main important feature of consumption is its timing, you lump all consumption together if it happens during a certain period. That's where you get your "u(c)" in macro models. But if you want to model the consumption of, say, peanut butter and jelly, you might separate your utility into u(c_peanutbutter, c_jelly). Etc.

There's nothing wrong with this, per se. You can make stupid assumptions, of course, but that doesn't mean all simplifying assumptions are stupid.

So how should we think about human capital? Here's an analogy that I think works well. You agree that a chainsaw is capital, right? OK, now imagine a chainsaw that you graft permanently onto someone's arm, like Bruce Campbell in the movie Evil Dead 2. It's so thoroughly grafted on that you can't remove it without making it permanently useless.

This chainsaw is very very much like human capital.

Like human capital, the arm-attached chainsaw requires resources to create, including the resources of the eventual owner (he has to hold his arm still, at least, and spend some time undergoing the grafting procedure). Like human capital, you can use the chainsaw to create future value - for example, you can use it to chop up skeletons, demons, and other baddies, like Bruce Campbell does in Army of Darkness. Like human capital, creating value from the chainsaw requires the owner to sacrifice some leisure. Like human capital, the owner can rent the chainsaw out, but he can't sell it to anyone.

(The main difference between the chainsaw and human capital is depreciation. Skills often increase as you use them, while the chainsaw will eventually wear out from chopping up baddies.)

So if you think a chainsaw is capital until you graft it onto Bruce Campbell's arm, but then suddenly becomes non-capital, fine. But now the ways in which human capital acts like other forms of capital should be clear. (By the way, if you think this example is fanciful, watch this video.)

Here's another analogy that I think is useful for understanding the difference between "capital" and "labor". It's a finance analogy. "Capital" is an option (which gives you the right to extract value from something), and "labor" is the exercise fee for that option. "Human capital" is an option you can't resell - the only way to extract value from it is to pay the exercise fee (the labor). "Physical capital" and "land capital" are options you can resell.

Therefore, whether human capital is really capital depends on what decisions you're trying to model. It might be, or it might not be. If you're trying to model a company's decision to invest in worker training, and the workers have lifetime employment, then you probably can go ahead and model human capital the same as other capital. If you're modeling a country's decision to invest in education as a development strategy, you can also probably treat human capital as capital. But if you're modeling people's decisions to get PhD's, then you probably shouldn't model human capital the same as other capital.

For some applications, actually, you can actually represent anything as capital - just calculate its expected present discounted value, and voila, you're done.

So what about the moral dimension of human capital?

If our social welfare function cares about wealth inequality, should we count human capital as wealth? Well, I think it depends on that exercise fee - on the disutility of labor. Suppose I really love writing silly blog posts, and I know that people will always be willing to pay me to do it. In this case, my blogging skill really is a kind of wealth, because since I love doing it anyway, the exercise fee is low. But suppose I also had coding skills with which I could make money, but really hated to sit around coding. Well, in that case, the cost of extracting value from my human capital would be very high, and it wouldn't really represent much wealth.

Some people oppose the use of the term "human capital" because they think it allows conservative types to claim that wealth inequality isn't as severe as it appears, since poor people have human capital. Actually, this is wrong - if you count human capital, wealth inequality will be much much much worse. Rich people have a lot more lifetime earning potential than poor people, and their work is probably more pleasant too.

Other people oppose the term "human capital" because they value leisure as a special good. If I own physical capital I can resell my capital, and have all the leisure I want. But if I have human capital, I have to give up leisure to get value. The more our social welfare function values leisure relative to other things, the less human capital adds to welfare.

You are, of course, entitled to your own social welfare function, so you can care about anything you darn well please. And you're also entitled to your own modeling conventions and definition of terms. So whether human capital is capital is up to you.


Update: One more objection to the use of the term "human capital" is that it objectifies people - it seems to imply that human beings can be bought and sold (even though this is not actually the case, as the chainsaw analogy demonstrates). In fact, "skills capital" would be a better term - especially because in the future, AIs will be able to learn skills too. One great thing about economics is that you can make up and use your own terms. So I say, if you don't like "human capital", use the term "skills capital" instead. There's really no reason not to. Maybe it will spread.