Monthly Archive for March, 2008

Going To Cancun, Mexico

…for spring break and all I’m going to say is that it’s not to see the pyramids. 😉 I’ll be back Tuesday.

[youtube:http://www.youtube.com/watch?v=m5LX16zia2k]

Quote Of The Day

“What I have always liked about Obama (and what Paul Krugman appears to hate) is that he sees the America not as a system of antagonisms defined along race or class lines, but as a fundamentally cooperative venture for mutual advantage. What I have never liked about Obama is his apparent failure to grasp how certain kinds of market institutions promote precisely the kind of positive-sumness he is rightly looking for…And I have always been struck by his rhetorically resourceful but intellectually bankrupt failure to apply the same logic of mutuality beyond our borders”. —Will Wilkinson, giving his reaction to the Obama speech

Quote Of The Day

“No developed country approaches American giving. For example, in 1995 (the most recent year for which data are available), Americans gave, per capita, three and a half times as much to causes and charities as the French, seven times as much as the Germans, and 14 times as much as the Italians. Similarly, in 1998, Americans were 15 percent more likely to volunteer their time than the Dutch, 21 percent more likely than the Swiss, and 32 percent more likely than the Germans. These differences are not attributable to demographic characteristics such as education, income, age, sex, or marital status. On the contrary, if we look at two people who are identical in all these ways except that one is European and the other American, the probability is still far lower that the European will volunteer than the American”. — Arthur C. Brooks, writing in The American magazine

The Dumbing Down Of Our Education

[youtube:http://www.youtube.com/watch?v=ymvSFunUjx0]

From a professors perspective. He shows how the dumbing down of our education system by ‘feel good’ math instructions has resulted in a drastic decrease in the quality of education.

For those who would argue that traditional methods of teaching mathematics will not work, here is a recent report on how Singapores tough approach is working wonders in the Los Angeles Unified School District, see here.

Link via CarpeDiem who has more here.

Quote Of The Day

“Not only are government subsidies for government tuition unnecessary, they also victimize the truly disadvantaged people in our society: those who lack the educational qualifications to go to college in the first place (usually due to a combination of poor public schooling and a flawed family environment). These people pay some of the taxes that support subsidized tuition for college students who are likely to end up far wealthier than they are. They are also indirectly harmed by the diversion of public funds to tuition subsidies and away from other priorities that might do more to advance the interests of the truly poor. Government tuition subsidies are a classic example of a policy that redistributes wealth to the relatively affluent under the guise of helping the poor.” — Ilya Somin, Assistant Professor at George Mason University School of Law blogging at the Volokh Conspiracy

The Incentives To Raise Tuition

Kevin Carey, research and policy manager at Education Sector, writes in the Chronicles of Higher Education:

The fact that increased prices go hand in hand with more-selective admissions is all the better, since that leads to increased status, wealthier alumni, and higher rankings in U.S. News & World Report. In a normal market, businesses can cut prices to attract more customers. In the higher-education market, colleges have found that cutting tuition reduces demand, because the lower price signals lower prestige — and thus value — to prospective students. Ten percent of the U.S. News rankings are based on spending per student, which means that a college that became more efficient and passed part of the savings on to its customers in the form of reduced prices would see its status decline. Unsurprisingly, that hardly ever happens.

He goes on to argue that we need to ‘sever the iron bond between price and perceived quality’. A noble goal, but one that is sure to (and already is) meet strong resistance from the very powerful Washington higher-education lobby. For more on this, economist Robert Whaples working for the Teaching Company gives a short introduction on the economics of University tuition…and why it has gotten so high, see here. Just one more reason why I continue to believe that increasing university subsidies does not help the poor. See more here.

The Age Of Milton Friedman

Harvard economist Andrei Shleifer has a new paper on The Age Of Milton Friedman that begins with:

The last quarter century has witnessed remarkable progress of mankind. The world’s per capita inflation-adjusted income rose from $5400 in 1980 to $8500 in 2005.Schooling and life expectancy grew rapidly, while infant mortality and poverty fell just asfast. Compared to 1980, many more countries in the world are democratic today.

The last quarter century also saw wide acceptance of free market policies in both rich and poor countries: from private ownership, to free trade, to responsible budgets, to lower taxes. Three important events mark the beginning of this period. In 1979, Deng Xiao Ping started market reforms in China, which over the quarter century lifted hundreds of millions of people out of poverty. In the same year, Margaret Thatcher was elected Prime Minister in Britain, and initiated her radical reforms and a long period of growth. A year later, Ronald Reagan was elected President of the United States, and also embraced free market policies. All three of these leaders professed inspiration from the work of Milton Friedman. It is natural, then, to refer to the last quarter century as the Age of Milton Friedman.

The full paper can be found here. Link via Greg Mankiw.

The Inequality Myth

Brad Schiller, professor of economics at American University and the University of Nevada, Reno writes on the inequality myth:

While there is some substance to these fears of widening inequality and middle-class stagnation, the situation is not nearly as clear-cut. Demographic changes in the size and composition of U.S. households have distorted the statistics in important ways.

First, we can easily dismiss the notion that the poor are getting poorer. All the Census Bureau tells us is that the share of the pie consumed by the poor has been shrinking (to 3.4% in 2006 from 4.1% in 1970). But the “pie” has grown enormously. This year’s real GDP of $14 trillion is three times that of 1970. So the absolute size of the slice received by the bottom 20% has increased to $476 billion from $181 billion. Allowing for population growth shows that the average income of people at the bottom of the income distribution has risen 36%.

They’re not rich, but they’re certainly not poorer. In reality, economic growth has raised incomes across the board.

The Census data originate from an annual survey of households. The data don’t track individual households from year to year, but instead just take a snapshot of the households in existence in March of each year. From these annual snapshots, we try to infer what’s happening to the typical household over time.

The “typical” household, however, keeps changing. Since 1970 there has been a dramatic rise in divorced, never-married and single-person households. Back in 1970, the married Ozzie and Harriet family was the norm: 71% of all U.S. households were two-parent families. Now the ratio is only 51%. In the process of this social revolution, the average household size has shrunk to 2.57 persons from 3.14 — a drop of 18%. The meaning? Even a “stagnant” average household income implies a higher standard of living for the average household member.

Last year, the Census Bureau published a new set of income statistics that adjusted for changing household size and composition. In a single year (2006), this “equivalence-adjusted” computation increased the income share of the poor by 8% and reduced the standard measure of inequality (Gini coefficient) by 4%. Such “equivalency” adjustments would mute unadjusted inequality trends even more.

A closer look at household trends reveals that the percentage of one-person households has jumped to 27% from 17%. That’s right: More than one out of four U.S. households now has only one occupant. Who are these people? Overwhelmingly, they are Generation Xers whose good jobs and high pay have permitted them to move out of their parental homes and establish their own residences. The rest are largely seniors who have enough savings and income to escape from their grandchildren and enjoy the serenity of an independent household. Both transitions are evidence of rising affluence, not increasing hardship. Yet this splintering of the extended family exerts strong downward statistical pressure on the average income of U.S. households. Had the Generation Xers and their affluent grandparents all stayed under the same roof the average household income would be higher, but most of us would be worse off.

The supposed decline of the poor and middle class is exaggerated even more by the dynamics of population growth. When people look at the “poor” in any two years, they think they’re looking at the same people. That’s rarely true, especially over longer periods of time.

Since 1998, the U.S. population has increased by over 20 million. Nearly half of that growth has come from immigration, legal and illegal. Overwhelmingly, these immigrants enter at the lowest rungs on the income ladder. Statistically, this immigrant surge not only reduces the income of the “average” household, but also changes the occupants of the lowest income classes.

To understand what’s happening here, envision a line of people queued up for March Madness tickets. Individuals move up the line as tickets are purchased. But new people keep coming. So the line never gets shorter, even though individuals are advancing.

Something similar happens with the distribution of income. People keep entering the distribution line from the bottom. Even though individuals are moving up the line, the middle of the line never seems to move. Hence, an unchanged — or even receding — median marker could co-exist with individual advancement. The people who were at the middle marker before have moved up the distribution line. This is the kind of income mobility that has long characterized U.S. income dynamics.

When you look at the really big picture, it’s apparent that living standards are rising across the entire spectrum of incomes. Just since 2000, GDP has risen by 18% while the population has grown by 6%. So per capita incomes have clearly been rising. The growth of per capita income since 1980 or 1970 has simply been spectacular.

Some people would have you believe that all of this added income was funneled to the rich. But the math doesn’t work out.

The increase in nominal GDP since 2000 amounts to over $4 trillion annually. If you assume that all that money went to the wealthiest 10% of U.S. households, that bonanza would come to a whopping $350,000 per household. Yet according to the Census Bureau, the top 10% of households has an average income of $200,000 or so. The implied bonanza is so absurd that the notion that only the rich have gained from the economic growth can be dismissed out of hand. Clearly, there is a lot of economic advancement across a broad swath of population. Dramatic changes in household composition, household size and immigration tend to obscure this reality.

That broad swath of economic advancement shows up in personal consumption. According to the Labor Department, personal consumption spending has risen by $2.5 trillion since 2000. More Americans own homes and new cars today than ever before, despite slowdowns in both industries. Laptop computers, iPhones and flat-panel TVs are fast becoming necessities rather than luxury items.

The average American household is doing pretty well. The evident gap between income realities and political rhetoric may help explain why the “two Americas” theme, first asserted by John Edwards and since echoed by Mrs. Clinton and Mr. Obama, may ultimately fail to resonate with voters. On Election Day, voters may well turn to the candidate with the greater focus on a strong economy that increases everyone’s income.

The full article can be found here.

This is one of the many reasons why I don’t particularly care about income inequality. I could think of many scenarios where income inequality, as far as poverty alleviation and a rise in mobility is concerned, is a good thing. The above demonstrates one of those scenarios.

The Candidates And Education

The New York Sun reports:

The candidate who looks strongest on the education issue at the moment is Senator McCain. It hasn’t escaped the Arizona Republican, apparently, that the daughters of both Senator Clinton and Obama attended elite private schools of the kind that can be accessed by pupils from ordinary families only where there are scholarships or experimental voucher programs. “I believe parents should be empowered with school choice to send their children to the school that can best educate them just as many members of Congress do with their own children,” Mr. McCain says on his campaign Web site.

“I find it beyond hypocritical,” Mr. McCain continues, “that many of those who would refuse to allow public school parents to choose their child’s school would never agree to force their own children into a school that did not work or was unsafe.” Mr. McCain’s campaign has not yet issued a statement explaining that the candidate didn’t really mean what he said or claiming that his words were taken out of context. It’s the difference between a candidate who is a straight-talker and one who, on this issue at least, for all the hype about change, is just a talker.

The full article can be found here.

Link via The Hispanic CREO blog.

Parents Want Choice

School choice that is.

“100 Texan families camped outside a charter school for two days because parents want to enroll their kids in River Oaks rather than their traditional public school”. LibertyIsForMe has more here.

The Traps Of Universal Healthcare

The New York Times writes about a cancer patient in the British Health Care System:

Debbie Hirst’s…breast cancer had metastasized, and the health service would not provide her with Avastin, a drug that is widely used in the United States and Europe to keep such cancers at bay. So, with her oncologist’s support, she decided last year to try to pay the $120,000 cost herself, while continuing with the rest of her publicly financed treatment.

By December, she had raised $20,000 and was preparing to sell her house to raise more. But then the government, which had tacitly allowed such arrangements before, put its foot down. Mrs. Hirst heard the news from her doctor.

“He looked at me and said: ‘I’m so sorry, Debbie. I’ve had my wrists slapped from the people upstairs, and I can no longer offer you that service,’ ” Mrs. Hirst said in an interview.

“I said, ‘Where does that leave me?’ He said, ‘If you pay for Avastin, you’ll have to pay for everything’ ” — in other words, for all her cancer treatment, far more than she could afford.

Officials said that allowing Mrs. Hirst and others like her to pay for extra drugs to supplement government care would violate the philosophy of the health service by giving richer patients an unfair advantage over poorer ones.

Greg Mankiw has more.

Republicans And Immigration

John McCain, as everybody had been expecting, has officially clinched the Republican nomination. This just goes to show something I had believed all along: Republicans, as a whole,  are not anti-immigration.

The Republican relationship with immigration is a lot like the Democrat relationship to education – you have a few people that make alot of noise about the subject but in the end, nobody really cares. The fact that the most pro-immigration candidate has won the GOP primary and the most anti-immigration candidate dropped out early because of a lack of support testifies to that. Anybody who says otherwise just does not understand the GOP.

Environmentalism: Luxury Of The Rich

Going through the trouble of getting my smog check this weekend reminded me of one of my pet peeves in politics: wealthy environmentalists feeling moral about themselves while others (primarily the poor) pay the burden.

Here in California, in order to register your car you have to get a smog check every two years. They typically start around $50/car and go up from there, depending on the size of the car. However, if your car has the ‘service engine soon’ light on, for any reason, it will not pass smog. No ifs ands or buts. On top of that, if you are lucky enough to get your car serviced, thereby removing the ‘service engine soon’ light, you still can’t smog your car…you have to drive it around for a few days, under different conditions, for atleast 20 miles before you even have a chance to pass smog.

Luckily for me, I can pay my mechanic (a family friend) to drive to San Diego and replace the part needed to remove the ‘service engine soon’ light. But I am reminded of how difficult and terrifying this situation was when I didn’t have that luxury. When I was growing up, I had (like most of my friends and neighbors) a cheap, used, beat up, automobile, and the thought of having to pay the cost of bringing it up to smog was terrifying. Most of the time we would simply buy off the smog check operator. Giving him $50 on top of the smog fee to get him to do what was needed to ‘pass’ the car. California has gotten smarter about that and I hear now, it’s near impossible to fake a ‘pass’ on smog (though I haven’t needed to try). So if you have an old, beat up, car that you use to get to work and pick up your groceries with, one that is vital to your parenting, income and free time, and and it doesn’t pass smog – too bad for you (don’t get me started on the ‘assistance’ offered either), it’s time to take the bus (and even here, environmentalists will cheer, as greater use of buses is encouraged). Yet, how many rich environmentalists do you think would even have to deal with a smog check problem?

The smog check is just a minor reminder of environmentalism in general: it is a luxury of the rich. The richer you are, the more you can afford to be an environmentalist. Whether we are talking about environmental land regulations, emission regulations, a gas tax, or any other contentious environmental issue, the costs are usually disproportionately paid for by the poor.

Nothing demonstrates this better than looking at the trends in global poverty and environmentalism. David Friedman writes:

For someone in favor of helping poor people, the economic development of China and India is arguably the best news of the past fifty years. Development was, after all, the explicit goal of foreign economic aid, development planning, a variety of programs in the post-war period that were supposed to lift the third world out of poverty–and didn’t. The fact that more than two billion people are now in the process of moving from extreme poverty towards the sort of life westerners have long lived represents an enormous improvement in the condition of the world’s poor.

It also represents a sharp increase in the consumption of depletable resources and production of carbon dioxide.

Take China as an example, a country where millions of people are moving out of poverty yearly. Great news for those interested in poverty. But bad news for environmentalism, as China moving from rural agricultural society to urban industrialized society means they will burn alot more coal (coal being one of the cheapest sources of energy), thereby increasing the production of carbon dioxide. Some environmentalists, seeing the contradiction try to get around it by making an argument that the environmental impact affects China (and poor areas in general) the most, but this pales in comparison to the economic impact that environmental regulations would impose. Economic development, in many inherent ways, is really at odds with environmental development.

Of course this means nothing to the wealthy environmentalists living in the comfort of the wealthiest countries in the world. Being outside the realm of absolute poverty gives them the luxury to be environmentalists and pontificate on the ‘evils’ of global warming. People in China on the other hand, are more concerned with feeding their children and reaching the standard of living that we in the west have long enjoyed.

The same general pattern applies here in the United States. The higher up on the income ladder you are, the more you can afford to be an environmentalist, and the rest of us have to hear your moral tripe and – worst of all – pay for it.

For more on this go here, here, here, here, and here.

John McWhorter On BloggingHeads

A video of John McWhorter and Glenn Loury can be found here. McWhorter with Megan McArdle can be found here.

Update: Another one here (this video is a must watch, far better than the two above. Again, highly recommended!).

Quote Of The Day

Trade is just one manifestation of consumer sovereignty. Just as there are, by Blinder’s calculus, winners and losers from consumers shifting their expenditures from goods made in America to goods made abroad, there are winners and losers from consumers shifting their expenditures from goods made in Illinois to goods made in Arizona – and from consumers shifting their expenditures from donuts, beef, cigarettes, whiskey, and train travel to bagels, fish, yoga lessons, wine, and air travel. Trade plays no unique, or uniquely important, role as an avenue of economic change spurred in part by consumer sovereignty. The only practical way to rid the economy of such “loses” is to try to freeze it, a futile step that will in the long-run only make losers of everyone.” — Don Boudreaux, professor of economics at George Mason University