Tuesday, January 24, 2017

Uncommon Knowledge Interview

A broad-ranging interview on economics and policy by Peter Robinson as part of the Hoover "Uncommmon Knowledge" series. Click above for youtube, or

· Hoover Institution: http://www.hoover.org/research/whats-wrong-american-economy

· Twitter: https://twitter.com/uncknowledge/status/823926553058775042

· Facebook: https://www.facebook.com/UncKnowledge/

· Instagram: https://www.instagram.com/p/BPF8TnJgsBz/?taken-by=uncommon_knowledge_show

· Youtube: https://www.youtube.com/watch?v=spe619WX-Q4

· Bitly Link: http://hvr.co/2jqxNkp

The full transcript is available on the episode page at http://www.hoover.org/research/whats-wrong-american-economy.


  1. Uncommon Knowledge is one of my favorite shows, and I try never to miss an episode. The host is very good at presenting his guests as reasonable and thoughtful people, which has really helped me see beyond the caricatures circulated within my usual media feeds.

  2. Saw the interview this morning on the Hoover website, and naturally, I had to stop everything I was doing, and watch it… :-)

    I have two small comments:

    1) you said that there is a big difference between a 0% corporate rate and 2% corporate rate, because the latter one, politicians can always increase.
    However, remember that there was a time when this country did not have a personal income tax rate (effectively, a rate of 0), but then they suddenly enshrined it into the US Constitution, no less. All to say, even a 0% or elimination, politicians can resurrect a corporate rate.

    2) At the end of the interview, Peter Robinson touches on automation and jobs. And you give the standard answer that we have see this before, that we had technological change since 100 years ago with jobs displacement, and we survived and thrived.
    My understanding of the automation argument is a bit different: it is that automation, robots and artificial intelligence will take over all of it, not just certain sectors. All of it – eventually, in 100 years or so, robots will build and repair robots, make widgets and perform services. Thus, no humans needed, because Siri and Alexa will be able to do it all.
    Therefore, humans will be superfluous, not needed. And thus, the cries for “Universal Basic Income” (UBIs). The spoils from such technological advance should be shared widely via UBIs.
    These cries for UBIs are becoming louder and louder – the winner of the French Socialist primary two days ago (Benoit Hamon) is promising one.
    Robinson did not frame the question is this way, but I think this is where the current automation and jobs issue comes from.

    1. Cochrane's point though is that we never know where the new jobs will come from, but every time this fear arises, new jobs happen. If you told a farmer in 1900 that advances in farming (fertilizer, mechanization, plant breeding, etc.) would eliminate 90% of of farm jobs, at a time when half the population was in farming, since the future is unknowable he couldn't have conceived of the jobs his children and grandchildren would have. Auto factory worker? Engineer? Airline pilot? Airplane flight attendant? Computer programmer? Unthinkable. Think of it this way: robots will make production way more efficient and the country, indeed the world, will produce more per capita. Prices will fall, leaving (otherwise) unspent income for new services, because people with money in their pockets will find things they want to spend it on and other people (or the same in some cases) will figure out how to provide the desired services. The point is, we are never able to imagine what new jobs can be created any more than we can imagine what new technologies will be created. Who among us predicted the internet or smartphones in 1980? Yet despite the computerization of the last 40 years, the unemployment rate is about where it was in 1969. Suppose, for the sake of argument, robots got so efficient that they created and provided all goods and services without human intervention. Well then, for one thing, there will be enough stuff and enough services for everyone and anyone who wanted stuff and services. The nature of work will have to change. Humans will either spend their time entertaining themselves, entertaining others, or challenging themselves in other ways. How awful is that?

  3. Simple comment:

    If corporations should not exist under tax law - there is no corporate tax, then why should they exist in any other legal framework?

    For instance - https://en.wikipedia.org/wiki/Corporate_law

    Corporate legal personality

    "One of the key legal features of corporations are their separate legal personality, also known as personhood or being artificial persons. However, the separate legal personality was not confirmed under English law until 1895 by the House of Lords in Salomon v. Salomon & Co."

    Or in more recent news, consider the many bankruptcies of companies owned by Donald Trump - none of which resulted in personal bankruptcy.

    If Trump Corporation does not exist as a taxable enterprise, then it should also not exist as an enterprise able to renegotiate it's debt in a bankruptcy proceeding.

    I agree that some expenditures (especially those of the discretionary nature) can be discussed independently of the tax rates and tax code. Others - for instance funding our system of courts, paying for our military, etc. are shared benefits that should be borne by all legally recognized members of our society.

    1. Frank, what Cochrane was referring to is to the theory of tax incidence. In the theory of taxation, only people pay taxes, not artificial legal entities called "corporations". Every public finance textbook has this treatment. It started with a now classic paper by Arnold Harberger, "The Incidence of the Corporation Income Tax", Journal of Political Economy, June 1962. It is widely cited, because this paper started a whole literature of "who actually pays the taxes". It's pity that Harberger did not get the Nobel (so far) for this paper.

    2. Manfred,

      I had a longer response, but it got deleted some how.

      In short:

      1. Corporations that pay taxes are no more artificial than governments that levy taxes.

      2. It is conceivable in a digital currency world with direct deposits and automatic bill paying for a corporation to exist with no human intervention whatsoever - all profits could be given to charity by a computer without ever touching human hands. Those profits (under current law) would still be the subject of taxation. And in legal terms, that computer run company would having standing in a court of law to sue for payment - I foresee a John Grisham novel addressing this at some point in the future ;-)

      3. While Mr. Harberger's paper addresses the cost differential in terms of taxation for corporate vs. non-corporate enterprises, it fails to mention the differences in benefits available to these different types of organizations. Chief among those benefits is the limited liability afforded to ownership in a corporation - hence my reference to Trumps numerous corporate bankruptcies while simultaneously never suffering personal ruin.

  4. Great interview. But I think you were unfair to Trump. It is very difficult to build a brand and get people to pay you millions of dollars just to write your name on their door. Also, his TV show was a great success. (Neither I nor probably most of the people who read this blog ever watched it but still)

    1. I thought I bent over backwards not to say anything bad about either Trump or Clinton. (This was before the election). What did you have in mind here? I looked back at the transcript but can't find what you're thinking about.

    2. "Trump, in fact, does not build stuff. He licenses his name to other people who build stuff."

      Well that may be technically true, but he did build his brand. Steve Jobs didn't assemble the phones either. Trump gets paid millions to have his name on the door of the hotels. Also, lots of people are willing to pay more to have a tie with his logo.
      Building a brand is very difficult and requires a lot of talent. If all you have to say about his career is that he doesn't actually build the buildings, well that seemed to me quite unfair. Apart from that, I agree with you 100%.

    3. Except that, if we are to think of the economy as "people doing useful stuff" along with "useful stuff being shared amongst people", then a brand is not actually useful stuff. Sure it is a mechanism for filtering money (tickets for useful stuff) out of the system. But it does not actually add to the pile of stuff that is useful to people as end consumers. So in this sense you are not claiming that Mr T did anything useful in exchange for his millions received.
      Arguably Apple created much more than a brand. The brand is just a string tied around the product. Apple products, themselves, are useful to people quite apart from the brand.

  5. Coming soon to the City of Chicago - Martial Law


    "If Chicago doesn't fix the horrible carnage going on, 228 shootings in 2017 with 42 killings (up 24% from 2016), I will send in the Feds!"

    1. I'm not sure that is such a bad idea. Really, you can't get anywhere without safety, and "freedom from fear" is both a pretty basic expectation of citizens under our government. Trump is getting pretty zero credit for taking seriously the problems of inner city neighborhoods and wanting to do something about it. Tom Lehrer once sang of the marines "to the halls of tripoli, but not to mississipoli" Maybe he had a point. Jobs, housing, infrastructure, food deserts.. nothing will get better in ungoverned areas of Chicago any more than they will in ungoverned areas of Yemen. Also, you're guilty of standard liberal Trump Derangement and Exaggeration Syndrome. "send in the Feds" is not the same thing as "Martial Law." I don't think Trump needs any help on his tweets.

    2. John,

      You completely missed the point. I have always viewed a lot of Trump's proclamations as idle hot air - or as Trump likes to call it locker room talk.

      "Trump is getting pretty zero credit for taking seriously the problems of inner city neighborhoods and wanting to do something about it."

      He became President with the authority to deploy feds / troops on January 20th if I am not mistaken. If he wanted to do something about, why aren't there troops loaded on C140's set to land in Chicago?

      There is nothing deranged about trying to separate truth from fiction with him. And certainly nothing overtly liberal - truth and fiction don't have a political bent in my world.

      "Send in the Feds" is not the same thing as "Martial Law". You are correct. Trump could send in the Feds to stand around and chew bubble gum all day. What would you expect the Feds to do if they were sent in?


      "Martial law is the imposition of the highest-ranking military officer as the military governor or as the head of the government, thus removing all power from the previous executive, legislative, and judicial branches of government. It is usually imposed temporarily when the government or civilian authorities fail to function effectively (e.g., maintain order and security, or provide essential services)."

      And so the question is simple - In Chicago, have civilian authorities failed to function effectively in providing the essential service of public safety? If they have failed, why wouldn't martial law be imposed?

      By your answer - "I'm not sure that is such a bad idea.", it seems you are inclined to agree.

    3. An interesting perspective in the CS Monitor ....
      Moving away from the view that a person committing a crime is, permanently, a criminal.
      Sending in a bunch of troopers would probably just make things worse ...... make people into more entrenched criminals.

  6. Your analysis of decision making on taxation - separate the issues - captured exactly what I am going through on the board of a Homeowner's Association. [This has been my only direct experience with democratic politics.] My instinct got that questions of principle should be separated from questions of spending. Now I can articulate that much better, but I wonder if it will help, for most people, most of the time, just care about the cash.

  7. Frank, you might want to read "The Long Divergence" by Timur Kuran. He examines this question and uses it as the pivotal factor to explain vastly different economic performance between the Western developed world, and other regions that have lagged significantly in their development.

    1. Anwer,

      Thanks for the reply and this is also mentioned in the Wikipedia article that I reference above:

      "In a December 2006 article, The Economist identified the development of the joint stock company as one of the key reasons why Western commerce moved ahead of its rivals in the Middle East in post-renaissance era."

      I can't gain access to the Economist article and so it might be a reference to the same material that you are referring to.


  8. Thanks Prof.,
    Another factor I’ve been talking about quite a bit is, on Treasury bonds - Treasury bonds have become almost the penultimate ideal negative beta asset. What I mean by that is, when the Dow goes down 500, 600, there’s a big negative shock. Everyone runs to Treasuries. Now this didn’t happen in the ’70s and ’80s, but it does happen now. So, as a result, being again a countercyclical asset has put tremendous premium on holding that debt.
    A lot of short-term asset holders, traders, say, “I like it, because if there’s a negative shock, I make part of it up on that.” And of course what does that do? That drives the equilibrium price up. It drives the equilibrium yield down. And although they play this more with the longer-term Treasuries, it’s got to have its impact down the yield curve into the short range. That’s another—what I think is a tremendous source of an increase in demand for the sovereign debt.
    And now another aspect that we think is important that probably distinguishes the our view from some of the other related views that are out there is that we don’t think this means that all returns are necessarily low. If you look at the GDP accounts and start calculating a rate of return to capital out of the GDP accounts, you’ll get a slight decline over the last 30 years, but not too much. It’s really held up pretty well.
    And if you look at something else, theory would suggest maybe consumption growth rates or something like that, they’ve probably held up pretty well. And so I think it’s reasonable to think that there are other assets that pay higher rates of return. But it’s really the government paper and the extremely safe assets, there’s a big liquidity premium on those.

  9. Three things: (1) Correct instagram link is: https://www.instagram.com/p/BPp5OvOAw6p/?taken-by=uncommon_knowledge_show; (2) Peter Robinson is a great interviewer. (3) Studying programming is not necessarily more painful than studying art history; but I see that this was probably said just to exemplify that higher pay to IT guys is helping to get more IT-experts (especially of those who was ex-ante indifferent between IT and art)

  10. There is a simple argument why California's high speed rail initiative is a bad idea ..... California does not have a low speed rail network.
    Everywhere that high speed trains are useful there is already a vibrant, widespread, public transportation network (typically including slower trains and cheap buses) that connects passengers to and from the high speed system. If California already had all this then regulatory permissions would be no-brainers.

    1. Though we should be careful what we wish for there. Uber already vastly improves the situation, and by the time the train is built (!) there will be cheap self-driving ubers everywhere.

      OTOH, there could also be a cheap self-driving high speed bus going down I5 instead. Could, heck, will!

      And an extra lane of I5 would cost ($5 million per mile?) about 1/20 what this train will cost ($200 million per mile).

  11. Since 10 years I protest learning how to drive, because I look forward to self-driving cars!

  12. Good stuff. But I have to say at times I was reminded of this article:


    In particular your comments on the reasons some students do poorly in school (teachers unions), why African countries do poorly (bad governance), and the idea that the US can let in immigrants from anywhere in the world, who will then assimilate into US socio-economic outcomes, not to mention our (very unique) culture and norms.

    These ideas strike me as Utopian, and fly in the face of mountains of empirical evidence. Alternative hypotheses are admittedly not "nice", but that doesn't mean they can't be true.

    In the ways that truly matter, contemporary libertarianism is really a form of leftism.

    For instance, I have heard you say that it is morally equivalent for a country to 1) refuse entry to foreigners and 2) deny its citizens the right to leave. This is like saying that it is morally equivalent to 1) refuse someone entry into your house and 2) lock them up in a prison cell. This is Marxism pure and simple. It is like saying that not giving someone something nice ("education! health care!") is morally equivalent as taking that thing away from them.


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