My Economics Textbook (part two)

Let’s start today’s post with the following quote(emphasis mine):

Some economists say that ghe distribution of annual consumption is more meaningful for examining inequality of well-being than is the distribution of annual income. In a given year, people’s consumption of goods and services may be above or below their income because they can save, draw down past savings, use credit cards, take out home mortgages, spend from inheritances, give money to charities, and so on. A recent study of the distribution of consumption finds that annual consumption inequality is less than income inequality. Moreover, consumption inequality has remained relatively constant over several decades, even though income inequality has increased.

after reading that, I had to go check when this book was originally published. I mean, we’ve just been through a massive economic crisis caused in part precisely by consumption being greater than income. And we’ll be spending a LOT of time recovering from it! At the end of that article is an even more stupid quote from The Economist:

More than 70 percent of Americans under the official poverty line own at least one car. And the distance between driving a used Hyundai Elantra and a new Jaguar XJ is well nigh undetectable compared to the difference between motoring and hiking through the muck. … A wide screen plasma television is lovely, but you do not need one to laugh at “Shrek”.
Those intrepid souls who make vast fortunes turning out ever higher-quality goods at ever lower prices widen the income gap while reducing the differences that really matter.

First, that must have been written by someone who has never driven a used anything; because my experience with old cars is that they have a very bad habit of breaking down when I need them to get to work most. And of course 70% of poor people have a car; there’s virtually no public transportation system, and living near jobs is unaffordable. In fact, virtually every application I’ve ever had to fill out asked whether I had “reliable transport”, which translates to “do you have a car that won’t break down” in most circumstances. And yet, 30% DON’T have a car, and when oil-prices spiked a few years back people had to quit their jobs because they couldn’t afford putting in enough gas to get to their jobs. To praise America’s car-dependence is some sort of perverse (and the same goes for the “even homeless people have cellphones” argument: of course they do, how else are they supposed to stop being homeless? cellphones have become a necessity for many of them), and so is the “reducing the differences that really matter” comment. The ability to watch TV is “what really matters”? The ability to drive a car is “what really matters”? Really!? And here I thought that would be affordable housing, nutrition, healthcare, and education. You know, the things more and more Americans are simply not able to afford. And I could write a rant about “higher-quality goods at lower prices”, too, since for the ACTUAL things that matter this is often not true. My ancient cast iron pans are worlds better than any newfangled teflon-coated piece of shit I could buy from Walmart and which will fall apart in a year or two. Electronics might be the only exception here.

Anyway, the entire chapter on inequality is like the quote, a longwinded attempt at pretending it’s not so bad. For example, they explain that the rising inequality since the 70’s was primarily caused by a sudden increase in the need for highly skilled workers in biotech, IT, etc instead of blue-collar workers. And then smoothly transitioning into explaining how this increased demand for skill explains the astronomic rise of CEO pay. Which, as far as I can tell, are actually two entirely separate things, but whatever. Also, I was under the impression that the demand for blue-collar work was replaced by a demand for service-industry jobs, which are mostly even less skilled and more importantly not unionized. That, combined with their claim that “incomes have risen in all quintiles, income growth has been fastest in the top quintile” (is that so? I was under the impression that the lowest quintiles were barely, if at all, keeping up with inflation, nevermind an actual rise in incomes) seems to indicate that they want to claim that rising inequality means that no one got poorer, but that plenty of people got richer. Which is pure and unadulterated bullshit.

And then they top this off with a beautiful tu quoque: “Second, increased income inequality is not solely a U.S. phenomenon. The recent rise of inequality has also occurred in several other industrially advanced nations”. Indeed it has. And? It’s still a bad thing. And “in several” implies that it didn’t increase in ALL of them. Did these other nations not have an increased need for IT, biotech etc. professionals? Do they have no need for highly skilled CEO’s and highly paid athletes and entertainers? Or is it maybe that these things alone don’t explain the rising inequality?

Then there’s a chapter on healthcare. In the beginning paragraph is this sentence: “Those with insurance or other financial means receive the world’s highest-quality medical treatment, but many people, because of their inability to pay, fail to seek out the most basic treatment.” While the second half of that sentence is correct, the first is only true for a subset of the insured. Plenty of people with insurance get shitty care, get denied treatments or payment for treatments, have their treatments delayed while the hospitals and the insurance fight over what is or isn’t covered, etc. And then there’s the fact that many insurance plans still don’t cover preventive care (The insurance plan for NDSU students for example only covers visits to the doctor when you’re sick).

Then they do some “international comparison”: they admit that “for whatever reason”, the U.S. has the highest spending, but at least, “there’s general agreement that medical care (although not health and not “preventive care treatment”) in the United States is probably the best in the world.” and what the bloody fuck does it mean to have the best medical care in the world if your preventive care and your health sucks? Anyway, then they list all these awesome things brought to you by the U.S. medical system. And they’re the very same things that the not-best-in-the-world systems in Europe have achieved as well, at much lower costs: rising life expectancy, “most advanced” equipment and technology, virtual elimination of polio, angioplasty, bypass surgeries, transplants, prosthetics, joint replacements, etc. The only point I’m willing to give them is that most of the medical research funding comes from the U.S.

And then comes the section that talks about the Moral Hazard Problem of health insurance. Now, I know that this is hypothetically relevant, but come on… “if their insurance covers rehabilitation programs, some people may be more inclined to experiment with alcohol or drugs”? Really? I’m thinking that belongs into the “hypotheticals I pulled out of my ass” category. Plus, they list people going to the doctor more often and requesting more test as a negative effect of health insurance.

In the chapter on Supply and Demand, we get the following essay:

Ticket prices for athletic events and musical concerts are usually set far in advance of the events. Sometimes the original price is too low to be the equilibrium price. Lines form at the ticket window and a severe shortage of tickets occurs at the printed price. What happens next? Buyers who are willing to may more than the original ticket price bid up the ticket price in resale ticket markets.
Tickets sometimes get resold for much greater amounts than the original price – market transactions known as “scalping”. For example, an original buer may resel a $75 ticket to a concert for $200, $250, or more. Reporters sometimes denounce scalpers for “ripping off” buyers by charging “exorbitant” prices.
But is scalping really a rip-off? We must first recognize that such ticket resales are voluntary transaction. If both buyer and seller did not expect to gain from the exchange, it would not occur! The seller must value the $200 more than seeing the event, and the buyer must value seeing the event at $200 or more. So there are no losers or victims here: Both buyer and seller benefit from the transaction. The scalping market simply redistributes assets (game or concert tickets) from those who would rather have the money (and the other things that the money can buy) to those who would rather have the tickets.
Does scalping impose losses or injury on the sponsors of the event? If the sponsors are injured, it is because they initially priced tickets below the equilibrium level. Perhaps they did this to create a long waiting line and the attendant news media publicity. Alternatively, they may have had a genuine desire to keep tickets affordable to lower-income, ardent fans. In either case, the event sponsors suffer an opportunity cost in the form of less ticket revenue than they might have otherwise received. But such losses are self-inflicted and separate and distinct from the fact that some tickets are later resold at a higher price.
So is ticket scalping undesirable? Not on economic grounds! It is an entirely voluntary activity that benefits both sellers and buyers.

Yes, this is a defense of scalpers. As an explanation of supply and demand, using scalping would have worked; but actually defending it? It doesn’t even work “on economic grounds”, since the scalpers don’t provide a service that wouldn’t be available to the buyers otherwise: the tickets they sell are not tickets that magically add capacity. Rather, scalpers remove tickets from the original supply-pool, and distribute them back to the pool of people wanting the tickets, to whom these tickets are now not available at the original price. They get something for nothing. (and what’s with the implication that scalpers sell “their” ticket? If it’s an event the scalper actually wants to attend, they will. Scalpers sell additional tickets, i.e. ones that have no value to them beyond the price they themselves paid for them).

And lastly, this is another instance of “assume robots”. Imagine for example that the sponsors of the Soccer World Cup decided to price their tickets at “equilibrium price”, which would mean the tickets would go for hundreds of thousands of dollars. The result would be worldwide riots, not a calm “oh well, I can’t afford it, I guess I’ll watch it on TV instead”. NO ONE wants that kind of publicity, especially since it would be likely to result in dead people.

And even in less drastic situations, you REALLY don’t want to price yourself out of theoretical range of too many of your fans. After all, very few sports teams and musical entertainers primarily earn money from their shows. Most of it comes from sales of merchandise and advertisement, with the live performances being more like the “free gift with purchase” enticement that mostly is just supposed to cover the costs of maintaining/renting the venue. With musical events, there’s of course some balance necessary between the need of the venue owners to make a profit and the performers to maintain mass appeal, but only venues that actually strive for a certain level of “elite” appeal would use high pricing to limit the number of people who will show up, in my experience. The entertainment business simply cannot be reduced to its economic components only.

In the same chapter you get another essay, this time proposing a legal market for human organs. Their main arguments for it are that people should be free to make any transaction they want, that this would increase the number of people who sell their bodies at death(!), and that not making it legal just means the trade goes on illegally.

Goddamn robots again. After all, the same argument could be used for selling oneself (or one’s children) into slavery. After all, that also happens on the black market already, it’s economically viable-ish, and will increase the availability of cheap human labor. It’s also still a really shitty idea once we remember that we’re talking about human beings, not robots and their spare parts. Besides, the claim that it would increase the number of people who give their bodies away after death is disingenuous, since it blatantly ignores that there’s already better ways to do that (opt-out instead of opt-in policies), and that no one gives a flying fuck about what people do with their dead bodies; it’s the sale of organs out of still perfectly alive bodies, which actually might still need those organs, that’s the problem.

Lastly, a possibly minor point is also the selectiveness on some of their graphs. For example, when showing examples of countries on the Index of Economic Freedom, they use Hong Kong, Ireland, and the US as examples of “free” countries, but not Denmark; similarly, they use Venezuela, Cuba, and North Korea as examples of “repressed” countries, but not Zimbabwe or Syria. This isn’t much, but it still makes it look like you need to be a neo-con country to be free, while all (and only) socialist countries are repressed. Also, that graph is sourced to The Heritage Foundation; not exactly the world’s most unbiased source.

There’s still about 1/3 of the book I haven’t looked through. I expect the same problems to crop up there. If they piss me off enough, and are interesting enough to write about, I might make a third post about them in the future. But I think this is quite a lot of clusterfuckery already, and certainly pretty good evidence that these sorts of textbooks are what produces so many libertarians in this country :-/

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17 comments on “My Economics Textbook (part two)

  1. jemand says:

    ugh… now I know why my brother became a libertarian right after taking an introductory economics course.

    :(

  2. Rutee says:

    Holy Fuck that is some messed up shit. I don’t even know how to respond to some of this, my brain is just baking over at the incredibly horrid moral premises these people argue on.

  3. Feynmaniac says:

    what the bloody fuck does it mean to have the best medical care in the world if your preventive care and your health sucks?

    It means that if you’re rich from writing economics textbooks then the US has a great medical care system for you.

    Healthy for the wealthy!

    To praise America’s car-dependence is some sort of perverse (and the same goes for the “even homeless people have cellphones” argument: of course they do, how else are they supposed to stop being homeless? cellphones have become a necessity for many of them)

    Things that maybe should be luxuries are turned into necessities in a society oriented towards increasing the profits of corporations, rather than making things better for people. And things that should be necessities (e.g, healthcare) are turned into luxuries.

    The only point I’m willing to give them is that most of the medical research funding comes from the U.S.

    And even then some of that is to be expected because the US is the richest country in the world. The US government also pays about 36% of all medical research.

    Now, I know that this is hypothetically relevant, but come on… “if their insurance covers rehabilitation programs, some people may be more inclined to experiment with alcohol or drugs”?

    Wow.

    And lastly, this is another instance of “assume robots”.

    I prefer to say “you have two spherical cows….”.

    In the same chapter you get another essay, this time proposing a legal market for human organs.

    And it was NOT a A Modest Proposal in the 21th century?!

    they use Venezuela, Cuba, and North Korea as examples of “repressed” countries,

    Huh? Cuba and North Korea I’ll give them, but whatever you might think of Hugo Chavez he was democratically elected. They seem to be using “US opponent” and “repressed” interchangeably.
    _ _ _

    If this is typical of US economics textbook then it’s far worse than I had thought.

  4. Feynmaniac says:

    oops…that should be:

    And it was NOT a A Modest Proposal in the 21th century?!

  5. Jadehawk says:

    Huh? Cuba and North Korea I’ll give them, but whatever you might think of Hugo Chavez he was democratically elected. They seem to be using “US opponent” and “repressed” interchangeably.

    they don’t mean political oppression. this is about Index of Economic Freedom; having been designed partially by the Heritage Foundation, it’s almost guaranteed to be biased, but even so, some Ebil Socialist Countries end up near the top regularly, most notably Denmark. In fact, looking at this year’s report, Denmark outscores the USA;

  6. Walton says:

    The World Index of Economic Freedom is, indeed, a joint publication of the Heritage Foundation and the Wall Street Journal. IIRC, it uses a range of factors – including taxation, effective protection of property rights, effective enforcement of contracts, deregulation of the labour market, and ease of moving capital in and out of the country – to estimate, in effect, how good a country is to do business in.

    I have (at home) a copy of the World Index from 2008. It ranks Ireland very near the top, thanks to its low corporate tax rates and business-friendly climate… I have a feeling that will have changed in this year’s edition. :-/

  7. Walton says:

    (Ironically, one thing I also remember from the Index is that many developing countries scored higher than one would expect. Although they scored poorly on enforcement of property rights and contracts, they tended to score quite highly when it came to deregulation and low taxes – not because they didn’t have taxes or regulations, but because the state was so corrupt and inefficient that these weren’t actually enforced. Though it’s a while since I looked at it, so I’m not sure how clearly I’m remembering this.)

  8. Jadehawk says:

    Ireland comes in at #7 this year. The USA is 9th. Colombia is at #45, 9 spots above Saudi Arabia, which is 10 spots above France.

    Just sayin’

  9. David Marjanović says:

    The pages of that book must have been bleached with stupid oxide.

    What the sociopathic fuck are all these “ought” arguments even doing in a textbook? I thought economics at least pretended to be a science!?! And citing the fucking Heritage Foundation? It seems some people have given up trying.

    The example of “oh, if rehabilitation were paid by health insurance, people would just say ‘whatever, I’ll wreck myself with booze and then spend several excruciating years in rehab, at least that part is paid for'” is so painfully abstruse it cannot possibly be anything other than a really desperate rationalization for puritanism, “the nagging suspicion that someone somewhere might have some fun”. I mean, they don’t believe that shit themselves, do they.

    My ancient cast iron pans are worlds better than any newfangled teflon-coated piece of shit I could buy from Walmart and which will fall apart in a year or two.

    Hmmm. I’ve seen one teflon-coated pan get holes in its coating. The others in this household have been lasting maybe 15 to 20 years now. And the one I bought in France was advertized as being especially scratch-resistant; I haven’t dared seriously test this, but so far it’s not scratched at all, and I regularly ate out of it with a (metal) spoon.

    (And I don’t remember how much that pan cost, but if I bought it, it must have been very cheap indeed!)

    So… is the general decline in the quality of consumer goods even worse in the US than over here!?!

    I prefer to say “you have two spherical cows…”.

    Thread won.

    BTW, The French version of the “you have two cows” article is a lot better, with a looooong list of examples that are more sophisticated than the ones in the English article. (So sophisticated, indeed, that I need the dictionary for some.) Some day I should translate the whole thing. The one on Hongkong capitalism made me LOL in meatspace!

    Colombia is at #45, 9 spots above Saudi Arabia, which is 10 spots above France.

    Just sayin’

    Easy. The Medellín cartel has so much economic freedom that it drags the rest of Colombia with it. Saudi Arabia has very restrictive laws (I mean, if lending money for interest is forbidden, what can you do anymore?), but the 7000 or more princes have enough economic freedom to make up for that. France has EU laws and only a few top politicians that engage in major corruption scandals, not thousands; Sarko and Chirac and the late Mitterrand haven’t got enough buddies and nephews to make up for what’s on the books. Oh, and the Heritage Foundation may know about TotalFinaElfAquitaine (oil corruption that went all the way to Germany’s conservative party), but I wonder if they’re even aware of Françafrique. “Ease of moving capital in and out of the country” and all that.

  10. David Marjanović says:

    Heh. I got so worked up that I forgot the obligatory quotation of “the closer you get to humans, the worse the science gets [because people gotta rationalize their puritanism]”.

  11. Walton says:

    I don’t think the Index is useless: but its use of the term “economic freedom” is ideologically-slanted. By “economic freedom”, what they mean is “how easy it is for corporations to do business there”.

    So countries with high taxes, a highly-regulated labour market, lots of tariffs and trade barriers, bureaucracy, a slow and inefficient court system, and so on, generally score poorly. By contrast, countries with low taxes, a deregulated labour market (no minimum wage, easy to fire people, etc.), free trade, openness to foreign investment, and so on, tend to score well.

    What it doesn’t measure is the level of practical economic freedom (in the sense of autonomy, choice, bargaining-power, etc.) that ordinary people in the country have. It doesn’t factor in economic inequality, average household incomes, average living standards, or anything of that nature. Hence why it gives surprisingly low scores to some European social democracies, while some countries with high levels of inequality and poverty get surprisingly high scores.

    IOW, the Index isn’t useless, but its definition of “economic freedom” is very much a partisan neo-liberal or libertarian one. In reality, it measures only one specific dimension of a country’s economic wellbeing – that is, how easy it is to set up and run a business – and ignores a number of other factors that we might consider to be important.

    ====

    On a related note, as I’ve learned more about the social sciences, one of the things I find strange is the ideological divergence between different social-science disciplines.

    In my experience, the majority of scholars in the field of sociology (and related fields such as criminology, gender studies, etc.) are, broadly speaking, on the left. In particular, when I was studying criminology, I encountered a lot of scholarly work which was very critical of neo-liberalism.

    By contrast, the bulk of economists seem to be, broadly speaking, on the right, with capitalism and neo-classical economics being the dominant schools of thought. Even “left-wing” economists like Krugman or Stiglitz are not all that left-wing: they advocate regulated markets and Keynesianism, not socialism, and they don’t challenge the basic framework of the capitalist system. And, anecdotally, most of the people I know with backgrounds in economics or finance tend to be libertarians.

    I don’t know why this is, exactly. I guess different disciplines have different approaches to the study of human society, which tend, in turn, to build different worldviews and political outlooks.

  12. 'Tis Himself says:

    Walton wrote:

    By contrast, the bulk of economists seem to be, broadly speaking, on the right, with capitalism and neo-classical economics being the dominant schools of thought. Even “left-wing” economists like Krugman or Stiglitz are not all that left-wing: they advocate regulated markets and Keynesianism, not socialism, and they don’t challenge the basic framework of the capitalist system.

    Most Western economists are taught neoclassical economics. Neoclassical economics dominates microeconomics, and together with Keynesian economics forms the neoclassical synthesis*, which dominates mainstream economics today.

    There is a movement away from neoclassicism towards more heterodox schools of thought. However these range from the Austrian School to Marxian economics** with no particular school gaining many followers.

    And, anecdotally, most of the people I know with backgrounds in economics or finance tend to be libertarians.

    Some of us aren’t libertarians. In fact the vast majority of economists aren’t libertarians, since libertarian economists tend to be either Austrian School or Chicago School.

    *Neoclassical synthesis attempts to absorb the macroeconomics of John Maynard Keynes into neoclassical economics. Mainstream economics is largely dominated by the resulting synthesis, being largely Keynesian in macroeconomics and neoclassical in microeconomics.

    **Marxian economics attempts to combine capitalism with Marxism. Most Marxians are academic theoreticians. Marxians see Marxism as a political ideology and sociological theory. They argue Marx’s approach to understanding the economy is intellectually independent of his advocacy of revolutionary socialism or his belief in the proletarian revolution.

  13. David Marjanović says:

    Keynesianism, not socialism

    When Austria’s Socialists –> Social Democrats formed the government alone, they practiced Keynesianism. (Well, somewhat delayed Keynesianism, but never mind.) At the same time, the Federal Republic owned a steel factory.

    Austrian School or Chicago School

    What’s the difference, actually?

  14. 'Tis Himself says:

    Austrian School or Chicago School

    The Austrian School emphasizes the spontaneous organizing power of the price mechanism. Its contributions to mainstream economic thought include involvement in the development of the neoclassical theory of value and the subjective theory of value on which it is based, as well as participating ine economic calculation debate about the allocative properties of a centrally planned economy versus a decentralized free market economy. Austrian School economists have become marginalized since the 1930s.

    The Chicago School advocates unfettered free markets and little or no government economic intervention other than strict monetarism run by central banks. The school is considered neoclassical. Its macroeconomic thought is heavily based on the assumption of rational expectations.*

    Both schools favor free markets. However there are major differences. Austrian economists reject most forms of model building (von Mises was described as an intuitive economist). They are against any type of government economic intervention (hence the school’s popularity with libertarians.

    The Chicago School favors macroeconomics based on the importance of rigorous microeconomics. This macroeconomic model tries to provide neoclassical microeconomic foundations for macroeconomic analysis. This is in contrast with the Keynesian school which uses microfoundations such as price stickiness and imperfect competition to generate macroeconomic models.

    *Rational expectations is a hypothesis in economics in which predictions of future values of economically relevant variables are not systematically wrong in that all errors are random. An alternative formulation is that rational expectations are model-consistent expectations, in that the agents inside the model assume the model’s predictions are valid.

  15. David Marjanović says:

    I see… I think. :-)

    I don’t think the errors in the predictions people make about the economy are all random. There are systematic errors caused by tradition (such as established theories), wishful thinking, oversimplified comparisons to past events, and so on, aren’t there?

  16. johannes says:

    puritanism, “the nagging suspicion that someone somewhere might have some fun”

    Victorian literature based on “common knowledge”, rather than scientific research, probably can’t be trusted when dealing with 17th century radicalism. The primary sources sometimes show a different picture; Laurence Clarkson’s (Claxton’s) remark – from his 1650 tract A Single Eye – that the concept of sin was invented by the ruling class to keep the poor in order doesn’t sound repressive, but rather like the receipt for a summer of love…

    The Medellín cartel has so much economic freedom that it drags the rest of Colombia with it.

    It was destroyed in 1993, leaving little more than Escobar’s private zoo, now a tourist attraction (and the source of a growing feral hippo population). But its role was probably taken over by sombody else – the Norte de Valle Cartel, or FARC?

  17. David Marjanović says:

    My bad. I sort of knew about the Medellín cartel, and of course about Escobar’s private zoo and the feral hippos, but I know that coca is still being farmed in Columbia on a large scale, so I… abbreviated…

    On puritanism, read that as “what puritanism has become in the modern-day USA”. There seem to be millions, if not tens of millions, of people around today who have just that nagging suspicion.

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