Links on Forgiveness and Infrastructure

Below are links to two articles (well, one’s basically a graph with a tiny bit of explanation) that I found engaging on the moral front and the policy front:

1.) Ezra Klein writes a beautiful piece about Pope Francis’ striking phrase: “We don’t have the right to not forget” when speaking on forgiveness. Klein connects forgiveness being the giving up the right not to forget with the political cycle he covers so well, saying: “The pope says we don’t have the right to not  forget, but today, we have the technology to unearth many more sins, and to make sure they’re never forgotten. There’s not a lot of mercy in the Google oppo dump, but there can be a lot of page views, or points in the polls, in it.” It’s a wonderful article that’s short of prescriptions and long on musings (and it’s especially interesting because Klein is not known for this sort of musing).

2.) Noah Smith posts and summarizes some thoughts on a new McKinsey Global Institute Study. He reproduces the following graph about actual vs. estimated infrastructure spending by country:

I’ve been on the fence on this policy issue because I wasn’t sure of the facts of the matter. But Noah, the McKinsey study are well on their way to changing my mind (for the reasons I was a skeptic, see Tyler Cowen). Quick primer: many economists, and many Democratic politicians, mention that our infrastructure is terrible (they always note that the Civil Corps of Engineers give us a “D+” rating for our infrastructure). Democrats argue that now would be a great time to make those investments, since government borrowing costs are so low right now and because the investments would need to be made anyway (so why not now, when the private sector is depressed/still recovering?).

Republicans (and other economists, like Tyler Cowen) counter that the Civil Corps of Engineers is hardly unbiased, and they raise a number of good points about how long such investment actually takes (Tyler has said that there really aren’t that many “shovel ready” projects just sitting on the shelf, ready to be implemented).

This McKinsey study addresses the argument over bias. McKinsey Global Institute is not some infrastructure advocacy group. Their numbers may or may not be accurate, but seeing their numbers line up with other people, including the Civil Corps of Engineers, strengthens the pro-infrastructure now people.

Why the Title? Or, A Tale of Two Explanations

I’ve often thought about starting a blog, and thus far I’ve stood back from the edge, mostly for two reasons. First, I didn’t think I had all that much to say that other people weren’t already saying, and second, I’ve always been too busy.

The latter certainly hasn’t changed (Nolan seems to be getting close to crawling, and Jamie starts grad school in less than a month). As for the former, well, I figured I could use this blog as a conduit to many of those other people who are saying the things I find challenging, illuminating, or new. I hope to publish some type of post three times a week (although it may just be a link.

As for the title: I read a shameful number of blogs, commentaries, and papers, mostly about policy, politics, and economics. I’ve noticed that most people need much stronger doses of uncertainty in their thinking about policy. In its place, many people let their strong priors (i.e. their beliefs prior to the observed data) drive most conclusions about a policy or story.

Let me give you two examples, on the same topic, one that displays a lack of uncertainty, and the other which displays a wonderful understanding of how complicated the world is, and how foolish it is to use “just-so” stories or pet theories to explain everything.

My brother showed me a link to this op-ed piece by an economics professor from Duquesne University and a fellow at the Institute of Political Economy in Utah State University. They asked a fascinating question: namely, “Why did Detroit fail, and Pittsburgh not?” The question is interesting because, on the surface, these were two similar cities. Pittsburgh and Detroit were each defined by a single industry, and Pittsburgh is doing alright at the moment, while Detroit recently declared bankruptcy on billions of dollars of obligations.

What is the authors’ answer to this intriguing question? Pittsburgh came back after the recession because it did not have a heavy dose of government assistance, while Detroit failed because it received government assistance. This is an appealing story to many. The authors cite statistics about how poorly Detroit’s economic situation is now, and statistics about how Pittsburgh has largely put the recent Great Recession behind it. They argue:

How did it come to this? Pittsburgh and Detroit were both largely single-industry cities that saw their single industries, steel and automobiles, collapse. Pittsburgh took the hit, got back on its feet and thrived. But Detroit just stayed down.

The reason is markets and government assistance. When Pittsburgh’s steel industry collapsed, there were no government bailouts. The steel industry disappeared and with it, 85,000 jobs. Times were tough, as anyone who lived through it can easily remember, but Pittsburghers rolled up their sleeves and shifted their talents and resources to other things.

Then, about Detroit, they give the following pejorative picture:

But Detroit came to depend on government. Rather than curing the automobile industry, the handouts and bailouts prevented the industry from dying and making way for more healthy industries. Now when we think of Detroit, we think of cars we don’t want to drive funded by taxes we don’t want to pay.

This is a tempting sentiment. It is generally true that markets work better than governments at allocating resources and talent. It is also true that the U.S. government gave a lot of money to General Motors and Chrysler to keep them afloat during the Recession. Should we then conclude that it was the government bailouts that caused Detroit to collapse, and the lack of government intervention in Pittsburgh that allowed its economy to recover quickly?

Their story, however, does not hold up to scrutiny. First, if the primary cause was government intervention in 2009, were Detroit’s financial problems primarily caused by either the Great Recession or the bailouts? That’s not true. My brother also sent me another article, which shows a history of journalists documenting the slow decline of Detroit since the 1950s. Also, empirical inquiry demands some sort of causal linkages. The authors provide no reason as to why the government bailouts of the auto industry might cause Detroit to be bankrupt. They apply a cute theory to some stylized facts about the world. The only people who will update their beliefs based on that op-ed will be people who already believed that government intervention is the main reason for problems within the U.S..

Now for the second article. Over at Bloomberg View, Megan McCardle writes an article addressing the same issue. She also tackles the fascinating question of what led such a major U.S. city down the road to bankruptcy.

Here is how she begins her discussion of the causes:

If you listen to the interwebs, the answer is “terrible, Democratic-run urban politics.” Or “union-busting anti-labor policies” in Southern states that transformed solid middle-class jobs in the Midwest into near-minimum-wage jobs in states such as Alabama and Tennessee. Or maybe “racism.” Or “the urban underclass.”

All of these answers are impossibly reductive. The city of Detroit has no one problem; it has a constellation of them. Here, in no particular order, are some of the most important factors.

Note that she listed some of those “just so stories” that others are giving, but rejects them. Why? Because the real world is a messy place with many causes of any major event.

What reasons does she give for the decline of Detroit? The lessening importance of Detroit’s geography for trade, the overall slow motion death of the U.S. auto industry (which, by the way, is a trend that is reversing markedly, see Ford and GM news for the first half of 2012. GM, by the way, was bailed out, and Ford was not. Both are doing very well at the moment), lavish labor union contracts that did not keep pace with the reality of new foreign competition, rising crime, race, and, you guessed it, poorly run government.

McCardle concludes her article with the following:

So no one factor pushed Detroit over the edge; they were the victims of decades of bad decisions and bad luck.

Her article was longer, more nuanced (well, actually had nuance), and provided empirical evidence for her claims. She engaged with the history and the data to present a compelling picture of the causes of Detroit’s social and economic woes. She did not take her favored explanation of the causes of political events, and bludgeon the facts of the matter to fit her fancies. All of her analysis was driven by a fitting uncertainty about what she thought she knew. At the outset of her article, she rejected cute theories as being “impossibly reductionistic.” That crucial step allowed her analysis to get past the cute and toward understanding what actually happened to Detroit.