As we approach the point where human labor become obsolete and the costs of living (esp in the US) keep going up, where do you see the economy going when it’s based on humans selling time/labor? Is there going to be a split where if we go down one side (socialism) people won’t have to work, we just all share what there is, vs the other side (capitalism) where we grow faster than ever? What will the producers do with all the non-producers as the non-producers continue to vote themselves whatever they want while holding the producers hostage thru the voting system? What moral authority does a non-producer have to take from a producer and is there any limit to what a non-producer is entitled to take from a producer?
The economy is already largely based on humans selling time/labor. For decades (though less of late) people have decried America’s transition to a “service economy” – as if service is somehow less economically meaningful than tangible goods. But that’s what a service economy is – people selling their time/labor.
There will be yet another transition from “service” economy to “creativity” economy. In this transition, more and more people will produce neither goods nor services but ideas. Some will produce art, some music, some designs (software, architecture, etc.).
In a recent blog post Scott Sumner points out that capitalism has a PR problem.
Why do you think capitalism has such a negative connotation, and how can we change it?
Yes, it’s a huge PR problem. It’s partly due to nomenclature – people associate “capitalism” with “robber baron.” It’s mostly due to ignorance and ignorance about their ignorance.
People buy and sell stuff all the time, so they develop a false sense that they understand economics. After all, they engage in economic transactions almost continuously. But one can’t develop a sense of economics from buying and selling stuff any more than one can develop a sense of genetics from having sex.
It’s this false sense of understanding that causes people to think they know what economics is about and so not to listen when economists tell them things.
What’s your view on Austrian Economics?
I came to Austrian economics late in my education. My training is in the standard, “Chicago school” style – heavy on the mathematical modeling and statistical analysis.
I had never heard of Mises, Rothbard, etc. until perhaps ten years after completing my PhD. I was immediately enthralled. Here were solid philosophical arguments that arrived at the same conclusions as the mathematical/statistical arguments. That told me that the conclusions were seriously solid. I wrote an article (below) on this several years ago.
What’s your view on Post-Keynesian economics?
I’m not a fan of macroeconomics at all. To my mind, macroeconomics is simply microeconomics done poorly. The reason we have various schools of thought (which, by the way, you don’t have in microeconomics) is because we have to assume away a lot of important things in order to make the math of macroeconomics work.
So choosing among the schools of thought is really choosing among competing sets of assumptions. If we did macroeconomics correctly, we wouldn’t be making any of the assumptions.
And this is where Austrian economics goes right. It starts at the person and talks about the nature of the person and how the person behaves.
I read an NPR article saying that most economists agree with switching to a consumption tax. Do you recommend switching from an income tax to a consumption tax?
The important thing to remember is that when you tax something, the economy produces less of it. Tax income and people will work less. Tax consumption and people will buy less.
One benefit of a consumption tax is that it addresses what many people mean when they talk about “the idle rich.” Picture someone who works hard and lives frugally. That person will accumulate wealth. But certainly, that’s someone who is good to have around. This is a person who contributes a lot to society and asks for little in return.
Now, picture someone who spends lots of money on frivolous stuff. That’s really the person we mean when we talk about “the idle rich.” The problem is that an income tax hits the first person but possibly not the second. A consumption tax hits the second person more so than the first. So, in that sense, a consumption tax falls where many people really want taxes to fall.
Having said that, a consumption tax is dangerous for political reasons. The income tax was instituted via Constitutional amendment. If we institute a consumption tax, then we need to repeal the Amendment establishing the income tax at the same time. If we don’t, we’ll end up with both taxes.
If you were starting a business today, at age 25, that you would like to work on and grow for the life of your career, what characteristics would you look for to give yourself the best chance to succeed in the near and long term?
The characteristics that would be most useful are prudent fear, focus, ambition, and humility. The skills that would be most useful are a knowledge of basic business practices (rudimentary finance, accounting, marketing), an ability to speak and write clearly and concisely, and an ability to read other people. This last one means being able to sense people’s emotions and concerns – basically, practical empathy.
How does legal and illegal immigration effect the economy?
People are resources – each has talents, abilities, and ideas. The more people we have, the more we can produce and the better off everyone is.
Couple this with the fact that immigrants, on average, are a special subset of people. Immigrants (on average) are people who are willing to take the risk to move somewhere where they don’t know the people or possibly the customs or possibly the language, and do what’s necessary not only to make a living, but to provide for loved ones back home.
These are the characteristics of an entrepreneur. IOW, immigration is a giant filter that predominantly selects entrepreneurial people. That’s exactly the sort of people we want if we want to grow the economy.
I heard that you helped design the Economics major at Duquesne. That sounds like a pretty massive undertaking! Can you tell us what some of your contributions were?
Four of us worked on this – the chair and three young faculty (I among them). We had a unique opportunity because there was no economics major and so we weren’t constrained to design courses around faculty who already existed. (NB: Want to know why universities require you to take nonsense courses? Often it is because they need to create work for a tenured faculty member whose subject is in low demand.)
So, without the need to create work for faculty, we had a completely blank slate. We asked, “If we were to build the best undergraduate economics major in the world, what would it look like?”
When we were done, the BS degree covered much of what was covered in a masters program. Our undergraduates were presenting their research at academic conferences and publishing in peer reviewed journals. Not student conferences and student journals, but alongside PhDs.
In fact, we had to hide the fact that they were undergraduate students. One of our students, a senior at the time, had her research paper accepted at an economics conference. But the conference organizers discovered she was an undergraduate. So, they removed her paper from the session and put her in a session with PhD students. Against those PhD students, she won the prize for best student paper.
How come the U.S. moved away from Milton Friedman’s ideas despite how logical and effective they seem?
Because politicians benefit from big government and so will employ economists who can make arguments for big government that voters will buy. Friedman was great at making clear arguments. But they were all for smaller government.
Let’s imagine a movie is made of your life. Who plays you?
Robert Downey, Jr. – we were born on the same day.
Have you ever seen Zoolander?
No, but people keep recommending it to me. Now I have to go see it.