Yearly Archive for 2011

Thoughts On Inequality

Published on 12/28/2011 in Economics and Inequality. 6 Comments

NYU economist Mario Rizzo gives a list of some of the questions and issues that serious people ought to consider on inequality:

  1. There seems to be very little concern, in the popular press, for the causes of unequal distribution. This includes, especially, the causes of the increasing unequal distribution over the past few decades. (However, recessions seem to be good for reducing income at the top.) Reformers should always consider causes before advising cures.
  2. There is a confounding of the results of a process that produces a distribution with the process itself. If person A steals money from person B, I object to the process (theft) first and foremost, and not to the resultant distribution of wealth. I really don’t care if it results in a more equal or less equal distribution.
  3. If there is something wrong with the rules-of-the-game, that is, the process that generates wealth and income distribution, let us attend to that. For example, if people are getting rich because of the warfare state or because the institutions they work for are bailed out by taxpayer money, let us address those issues.
  4. What exactly constitutes a more just distribution? The economist Paul Samuelson (and other amateur “moral philosophers”) used to equate, in his textbook, equity with greater income equality. (He famously, but ignorantly, said that the Soviet Union “chose” greater equity at the expense of efficiently – but nevertheless they would surpass us in wealth soon, anyway.)
  5. Justice does not simply imply equality. Sometimes it implies equality and sometimes inequality (as when the criminal gets his punishment, but the rest of us do not).
  6. Is it important that the positive entitlement to resources must be bought with the effort of others who might believe they have better uses for their money?
  7. Why should the hierarchy of values that emerges out a political system — based on favors, special interests, power-plays, (rationally) ignorant voters, self-interested politicians, and people much less moral than you and me – dominate  over my and your moral judgments?
  8. Do the putative moral claims of the “poor” stop at the water’ edge? Given that the poor of the US are rich by world standards, what kind of objective morality of distributive justice allows that “our” poor get preference over, say, North Korea’s poor? Do we have a tribal morality?
  9. To what extent are the commentators (law professors and economists especially included) trying to publicly signal their “goodness” by using their technical skills to come up with schemes that pander to unthought-out popular prejudices. After all, how much respect from the general public can academics get by coming up with some theorem on the quasi-transitivity of preferences, or what not?
  10. Last, but not least, do the redistributioners have any idea how the so-called welfare state works in practice? Do they know how the state uses one hand to make the poor poorer (unseen) and uses the other hand to help them out (seen)? Do they see the coming bankruptcy of the welfare state?

Full post can be found here.

The Problem With Public Sector Unions

Published on 12/21/2011 in Economics and Unions. 8 Comments

Bloomberg Businessweek reports:

Moments before a single-engine aircraft and a helicopter collided over the Hudson River near Manhattan in 2009, an air-traffic controller who should have been advising the plane’s pilot was on the phone, joking with an airport worker about a dead cat.

Nine people, including three teenage boys, died. The Teterboro, New Jersey, controller, whom safety investigators said was distracted and partly to blame for the accident, still works for the Federal Aviation Administration. Although the agency tried to fire him, his punishment was reduced to a suspension, a transfer and a demotion.

What happened to the controller isn’t surprising, according to data obtained by Bloomberg News under the Freedom of Information Act. More than four of every 10 air-traffic workers the FAA tried to fire over almost two years kept their jobs or were allowed to retire, the data show. That included two-thirds of those targeted for firing over drug or alcohol violations.

…

The FAA’s firing rate, as a percentage of its total workforce, is similar to that of other federal agencies, where disciplinary terminations are also rare, government data show.
Federal workers have due-process protections to prevent wholesale firings when a new administration comes to power. Union contracts provide another layer of protection.

The full article can be found here.

Two Economic Models For The Poor

Published on 12/20/2011 in Economics, Europe, Myths and Poverty. 5 Comments

Leftists like to portray the European economic model as more “poor” friendly than the United States  economic model. But that depends on what your preferences are: if you are poor and would prefer less disposable income with more government services, then yes, the European model would be preferable. However, if you are poor and would prefer more disposable income with less government services, then no, the European model would not be preferable. It all depends on your preferences.

Economist Tim Taylor, in contrasting government redistrubition trends around the world points this out:

On the tax side, the U.S. tax code is already highly progressive compared with these other countries. The OECD published at 2008 report called “Growing Unequal: Income Distribution and Poverty in OECD Countries, which states (pp. 104-106): “Taxation is most progressively distributed in the United States, probably reflecting the greater role played there by refundable tax credits, such as the Earned Income Tax Credit and the Child Tax Credit. … Based on the concentration coefficient of household taxes, the United States has the most progressive tax system and collects the largest share of taxes from the richest 10% of the population. However, the richest decile in the United States has one of the highest shares of market income of any OECD country.After standardising for this underlying inequality … Australia and the United States collect the most tax from people in the top decile relative to the share of market income that they earn.”

This finding is surprising to a lot of Americans, who have a sort of instinctive feeling that Europeans must be taxing the rich far more heavily. But remember that European countries rely much more on value-added taxes (a sort of national sales tax collected from producers) and on high energy taxes. They also often have very high payroll taxes to finance retirement programs. These kinds of taxes place a heavier burden on those with lower incomes.

If Supermarkets Were Like Public Schools

Published on 12/19/2011 in Education. 8 Comments

A great analogy by economist Don Boudreaux:

Suppose that groceries were supplied in the same way as K-12 education. Residents of each county would pay taxes on their properties. Nearly half of those tax revenues would then be spent by government officials to build and operate supermarkets. Each family would be assigned to a particular supermarket according to its home address. And each family would get its weekly allotment of groceries—”for free”—from its neighborhood public supermarket.

No family would be permitted to get groceries from a public supermarket outside of its district. Fortunately, though, thanks to a Supreme Court decision, families would be free to shop at private supermarkets that charge directly for the groceries they offer. Private-supermarket families, however, would receive no reductions in their property taxes.

Of course, the quality of public supermarkets would play a major role in families’ choices about where to live. Real-estate agents and chambers of commerce in prosperous neighborhoods would brag about the high quality of public supermarkets to which families in their cities and towns are assigned.

Being largely protected from consumer choice, almost all public supermarkets would be worse than private ones. In poor counties the quality of public supermarkets would be downright abysmal. Poor people—entitled in principle to excellent supermarkets—would in fact suffer unusually poor supermarket quality.

How could it be otherwise? Public supermarkets would have captive customers and revenues supplied not by customers but by the government. Of course they wouldn’t organize themselves efficiently to meet customers’ demands.

Responding to these failures, thoughtful souls would call for “supermarket choice” fueled by vouchers or tax credits. Those calls would be vigorously opposed by public-supermarket administrators and workers.

Opponents of supermarket choice would accuse its proponents of demonizing supermarket workers (who, after all, have no control over their customers’ poor eating habits at home). Advocates of choice would also be accused of trying to deny ordinary families the food needed for survival. Such choice, it would be alleged, would drain precious resources from public supermarkets whose poor performance testifies to their overwhelming need for more public funds.

As for the handful of radicals who call for total separation of supermarket and state—well, they would be criticized by almost everyone as antisocial devils indifferent to the starvation that would haunt the land if the provision of groceries were governed exclusively by private market forces.

Quote Of The Day

Published on 12/13/2011 in ModernPolitics. 0 Comments Tags: .

“Even among recipients of bachelor’s degrees, 90 percent manage to graduate with less than $40,000 of debt. What happened to the other 10 percent is no particular mystery: they are less likely to come from wealthy families, but they attended pricier schools and paid for more years of tuition (see chart below). Compared with other graduates, these students are 20 percentage points more likely to have attended schools costing $20,000 or more a year (including room and board), and 20 percentage points less likely to have attended a public institution. Ten percent attended a private for-profit institution, compared with only 1 percent of their lesser-borrowing peers. High-borrowing students also took significantly longer to finish their degrees.” – Judith Scott-Clayton, assistant professor at Teachers College, Columbia University writing in the New York Times Economix blog

Quote Of The Day

Published on 12/12/2011 in DayToDay. 0 Comments

“In general, anything that increases economic well-being, according to McKenzie, makes us fat. While the standard of living increased over the past several decades, the price of food relative to other goods has fallen about 17%. Research has shown that for every 1% drop in the price of food, people increase food consumption by .6%. Food may become cheaper and more readily available, but our 20,000-year-old metabolisms don’t adjust for the added intake of calories. – John Goodman blog

Megan McArdle On Fiscal Stimulus

Published on 12/7/2011 in Economics, Fiscal Stimulus and ModernPolitics. 0 Comments

McArdle makes a decent case to be cautious about fiscal stimulus here:

Starts to pick up at the 3 min mark.

Quote Of The Day

Published on 11/16/2011 in ModernPolitics. 3 Comments

“As I pointed out just yesterday, many Democrats not only passively acquiesce to Obama’s continuation of core Bush/Cheney Terrorism policies, but enthusiastically cheer it as proof that they, too, can be Tough and Strong (manly virtues demonstrated by how many human beings their leader kills from afar). So here you have Think Progress heaping praise on Obama for seizing what is literally the most radical power a President can seize: the power to target — in total secrecy and with no checks or due process — their fellow citizens for execution: specifically, assassination-by-CIA.” — Glenn Greenwald

Quote Of The Day

Published on 10/31/2011 in (modern day) Liberalism. 8 Comments

“As a side note, the Communist Party has also given their endorsement.  While Communists are certainly responsible for more deaths and misery than the Nazis could ever dream of, at least their intentions were good, so I’ll give them a pass.” — Post on the very liberal DailyKos blog

Quote Of The Day

Published on 10/28/2011 in Economics and Inequality. 10 Comments

“Here is a fact that you might not have heard from the Occupy Wall Street crowd: The incomes at the top of the income distribution have fallen substantially over the past few years. According to the most recent IRS data, between 2007 and 2009, the 99th percentile income (AGI, not inflation-adjusted) fell from $410,096 to $343,927. The 99.9th percentile income fell from $2,155,365 to $1,432,890. During the same period, median income fell from $32,879 to $32,396. ” — Greg Mankiw, Professor of economics at Harvard University

Stupid In America

Published on 10/25/2011 in Education and Vouchers. 0 Comments

This John Stossel series is a great watch and touches on most of the fundamental points driving the education debate:

[youtube:http://www.youtube.com/watch?v=zyswCDwe3uo]

Understanding The Israel vs Palestine Conflict

Published on 10/20/2011 in Foreign Policy. 5 Comments

I admittedly don’t know much about the foreign policy issues surrounding the Israel and Palestinian conflict aside from what I have heard/read from Chomsky and leftists in general. They make some good arguments, but I am suspicious of taking them at face value since these same people make economic arguments – a topic I do claim to have some knowledge about – that suffer from very elementary and erroneous perceptions and facts. So to fill the void, I search for discussions/debates on the topic between two knowledgeable people from each side.

In that aspect, I found this bloggingheads discussion between Peter Beinhart, representing the leftist view, and Eli Lake, representing the center-right view, informative.

Why This Recovery Is Different

Published on 10/19/2011 in ModernPolitics. 2 Comments

The best explanation of why this economic recovery is both taking so long and especially affecting those at the lower end of the economic spectrum was given by economist Bryan Caplan who I quote in full here:

Nominal wages rarely fall – even when there’s high unemployment. Part of the reason is regulation, of course. But even under laissez-faire, employers have to cope with human psychology. Almost all workers think that nominal wages cuts are unfair. And while employers might be tempted to say, “Fairness be damned,” they have to face the fact that hurting worker morale hurts productivity and profits. (See here for lots of supporting evidence). [Broken link fixed.]

So how can the market get back to equilibrium? The simplest solution is to freeze nominal wages and wait for inflation to bring the real wage back to realistic levels. A more proactive solution, though, is to cut benefits, and hope workers don’t mind.

Cutting benefits sounds crafty. But on reflection, it might be even worse than cutting wages. Consider: Most workers’ main benefit is health insurance. If employers curtailed this benefit, would workers find it unfair? I don’t know of any survey research on this point, but I’ll bet that most workers would react viscerally to cuts in health insurance. Higher co-payments? Unfair! Tighter coverage? Unfair! Cheaper plan? Unfair, unfair, unfair!

It gets worse. Unlike wages, health insurance costs go up automatically – at a rate well above inflation. So even in the midst of severe unemployment, total nominal labor costs keep rising – unless employers choose to risk severe morale problems.

In past recessions, this was probably a small effect. Back in 1980, health care was only 9.2% of GDP. By 2009, this percentage had nearly doubled to 17.6%. To get a feel for the numbers, consider George Mason. My total Kaiser premium is $1448 per month. If this rises 5% per year, labor costs soar $2700 in just three years. Relative to an econ professors’ salary, that’s not much. But for lower-paid workers, it’s huge. Even if there were a “total pay freeze,” a worker who cost $30k in 2008 would cost 9% more in 2011.

My speculation: The high and rising cost of health insurance, combined with health insurance fairness norms, is a major reason why employment is recovering so slowly. If I’m right, we’ve got a serious problem with no easy solution. As always, though, we should start with the low-hanging fruit: Don’t mandate coverage, don’t punish firms for trying to control costs, and above all, don’t amplify workers’ dysfunctional beliefs about fairness with demagoguery. Sigh.

For The Record: On The Economy

Published on 10/18/2011 in DayToDay, Economics and ModernPolitics. 5 Comments

For the record, I agree with every single point David Frum makes here against Republicans in general:

On the most urgent economic issue of the day – recovery from the Great Recession – the Republican consensus is seriously wrong.

It is wrong in its call for monetary tightening.

It is wrong to demand immediate debt reduction rather than wait until after the economy recovers.

It is wrong to deny that “we have a revenue problem.”

It is wrong in worrying too much about (non-existent) inflation and disregarding the (very real) threat of a second slump into recession and deflation.

It is wrong to blame government regulation and (as yet unimposed) tax increases for the severity of the recession.

It is wrong to oppose job-creating infrastructure programs.

It is wrong to hesitate to provide unemployment insurance, food stamps, and other forms of income maintenance to the unemployed.

It is wrong to fetishize the exchange value of the dollar against other currencies.

It is wrong to believe that cuts in marginal tax rates will suffice to generate job growth in today’s circumstance.

It is wrong to blame minor and marginal government policies like the Community Reinvestment Act for the financial crisis while ignoring the much more important role of government inaction to police overall levels of leverage within the financial system.

It is wrong to dismiss the Euro crisis as something remote from American concerns.

It is wrong to resist US cooperation with European authorities in organizing a work-out of the debt problems of the Eurozone countries.

It is wrong above all in its dangerous combination of apocalyptic pessimism about the long-term future of the country with aloof indifference to unemployment.

With that said, I also agree with every single point he makes here.

Quote Of The Day

Published on 10/17/2011 in DayToDay. 10 Comments

“I don’t feel any obligation to represent liberal Democrats. Over the years I’ve argued, for example, in favor of getting rid of the corporate income tax, creating school vouchers inversely related to family incomes, and extending free-trade agreements — positions not exactly favored by liberal Democrats.” – Robert Reich

Good For The Unions, Bad For The Consumer

Published on 10/14/2011 in Economics and Unions. 0 Comments

This inevitable tradeoff appears again in UC online class offerings:

Lecturers make up nearly half the undergraduate teaching corps. They fear — with good reason — that the classes they teach are the most likely to be moved online. Their union, an affiliate of the American Federation of Teachers, has negotiated a deal with UC that requires union approval for new online courses or programs that threaten lecturers’ jobs.  “We feel that we could stop almost any online program through this contract,” union president Bob Samuels told Inside Higher Ed.