Monthly Archive for June, 2011

Quote of The Day

“The recipe sounds familiar: merit pay for teachers, rigorous testing, national academic standards. Is it a school turnaround effort in New York City, New Orleans, or Los Angeles? No, it’s happening in Shanghai. Over the past decade authoritarian China has been able to achieve what has eluded generations of educators in the U.S., who have had to contend with political feuds, a history of local control of education policy, and the inherent difficulties of reaching consensus in a democracy. Shanghai, China’s largest city, with more than 20 million people, topped all rivals in the latest Programme for International Student Assessment, a closely watched gauge of educational achievement. The U.S. ranked 31st in math among the countries and regions tested, 23rd in science, and 17th in reading.” — BusinessWeek Magazine

Gender Inequality And The Plow

The Freakonomics blog has an interesting perspective:

From a pair of Harvard economists, Alberto Alesina and Nathan Nunn, and a UCLA business school professor, Paola Giuliano, comes this working paper (Abstract here and below; full version here) that tests the hypothesis that current gender role differences can be traced to shifting methods of agriculture, particularly the introduction of the plow, which required significant upper body strength, grip strength, and burst of power that favored men over women.

Some of their conclusions:

  • We find a strong and robust negative relationship between historical plough-use and unequal gender roles today. Traditional plough-use is positively correlated with attitudes reflecting gender inequality and negatively correlated with female labor force participation, female firm ownership, and female participation in politics.
  • We find that women from cultures that historically used the plough have lower rates of labor force participation in the US. This provides evidence that part of the importance of the plough arises through its impact on internal beliefs and values.

Full post here.

Quote Of The Day

“I’m visiting a friend who does due diligence for his private equity fund’s investments in various U.S. companies. As a result, he talks to businessmen every week. For many months now, he has found businessmen complaining about the Obama administration’s criminalization of various failures, many of them small, to comply with detailed regulations. What Charley Hooper and I wrote about on Forbes.com recently applies, it turns out, not just to the pharmaceutical industry but also to other industries. See this recent Associated Press story for more. On top of that, the Obama administration is producing a huge volume of new regulations, many of them not finalized. Look at this graphic on Dodd-Frank, for example. And of course, there’s Obamacare: whether you’ll be under it will depend on whether you can get a waiver and who knows who can get a waiver or by what standard waivers are granted? When people fear that their investments will be for naught because they won’t be allowed to operate, that has a chilling effect on investment. I think we are in a period like that of the mid-1930s in that sense. Robert Higgs has written about the regime uncertainty under FDR because businessmen and investors weren’t quite sure about the rules. I think the same thing is happening now.” — David Henderson, economist

GDP and (Female) Median Income

Most of you are probably familiar with the GDP vs Median income graphs showing that since around the 1970’s, GDP has been growing faster than median income. This has lead to various theories as to why this is the case. Common explanations range from technology change, higher premiums for education, globalization, to the conspiracy Brenton Woods Accord. What all of these seem to fail to explain adequately is that if you look only at Female Median Income, GDP and Female Median Income both are rising equally. See picture below.

Keep this in mind next time someone offers a grand explanation for the supposedly “stagnant” wages.

Economist Alex Tabarrok, blogging at Marginal Revolution, has more here.

David Leonhardt On Liberal Economists

On Monday, I posted a quote from Paul Krugman stating that it’s usually conservatives who are less aligned with facts than liberals. Well I dug up a post from David Leonhardt (a well respected liberal), implying the opposite.

He writes:

The difference, I think, is that conservative economists’ blind spots overlap more with general conservative blind spots than is the case for liberal economists and liberal blind spots. That’s not a value judgment so much as an observation: liberal economists tend to be more economically conservative than average liberals. (emphasis added)

This is my main point. The commonality is so strong that if you put three of us in a room: a liberal economist, a liberal non-economist and a conservative NON-economist, my hunch is that the conservative non-economist will have more in common with the liberal economist than the liberal does.

Sure, we will disagree on the importance of income inequality, what side of the phillips curve we should be on, and redistribution among other things – and these are not minor issues to say the least, but our fundamentals will also be drastically more similar. We are predisposed to support free-trade. We understand the trade-offs to the minimum-wage, vacation pay, the benefits of the market economy, the view that regulation should not be the default view, the power of the price system, rent-control is bad, the benefit of Wal-Mart, the limitation of lobbying, the limitation of unions etc Now of course, we may still come down on opposite sides on each of these issues – but the reasons for doing so will be drastically different than what the liberal non-economist gives. It’s much harder to argue against Wal-Mart, or globalization, or to argue for a raise in the minimum wage, within the context of economics than it is outside of it. Also, the arguments for such a case would have to be far more nuanced.

I’m not saying who is right or wrong on any of these issues – my only point is that conservatives tend to be less removed from basic economic principles than liberals are.

Americans Sympathize With Israel

This is the fundamental reason the Jewish lobby is so strong:

See more here.

Liberal Economists

Paul Krugman gave an interview on book recommendations where he said this:

In my experience with these things – which I find both within economics and more broadly  – is that if you ask a liberal or a saltwater economist, “What would somebody on the other side of this divide say here? What would their version of it be?” A liberal can do that. A liberal can talk coherently about what the conservative view is because people like me actually do listen. We don’t think it’s right, but we pay enough attention to see what the other person is trying to get at. The reverse is not true. You try to get someone who is fiercely anti-Keynesian to even explain what a Keynesian economic argument is, they can’t do it. They can’t get it remotely right. Or if you ask a conservative, “What do liberals want?” You get this bizarre stuff – for example, that liberals want everybody to ride trains, because it makes people more susceptible to collectivism. You just have to look at the realities of the way each side talks and what they know. One side of the picture is open-minded and sceptical. We have views that are different, but they’re arrived at through paying attention. The other side has dogmatic views.

It’s interesting because my experience is exactly the opposite: it’s the conservative economists and laymen that understand both sides, and it’s the liberals that usually don’t, especially the laymen. This is why I primarily stick to reading academic type liberals: Paul Krugman, Matthew Yglesias, Ezra Klein, Dean Baker etc….because even though I disagree with these liberals, often strongly, they tend to atleast know what us conservatives are thinking and trying to argue – they deal with the argument head on, and not some straw man (usually, not always). They also all tend to agree to the fundamental premises of economics.

Every time I venture off, and try to deal with liberal pundits, or especially leftist pundits, not trained in economics, I always find myself first explaining the fundamentals of economics – and then find myself having to debate that which is standard economics. That which the Krugman’s of the world would agree with without argument.

It seems like another economists agrees, see here. In fact, my favorite living economist of all, Bryan Caplan, is willing to put a wager on the belief that libertarian/conservative economists know more about liberal economists then the reverse, see here. Any takers?

Inequality And Patents

Dean Baker, in the March issue of the American Prospect (Yes, I am about 3 months behind in my magazine reading – I’ve been busy!) wrote something that surprised me:

In a recent paper, the Organization for Economic Co-operation and Development found that by far, the largest single factor contributing to the growth of wage inequality over the last three decades was the amount of patent rents earned in a country. Remarkably, few progressives pay any attention at all to patent and copyright policy, despite the enormous sums at stake and the huge impact that such policy has on inequality.

Really? “by far”??? Wow.

Targeted Killing Of Civilians

CATO Unbound runs a monthly debate where a position is taken, and experts throughout are allowed to rebut and debate the point. This months topic is The Targeted Killing Of Civilians And The Rule Of Law.

Should be interesting.

Timothy Taylor On Social-Security

He warns:

The figure, taken from the annual report of the Social Security actuaries released in May 2011, tells the story.  Up until 2011, the “non-interest income” for the Social Security trust fund–which basically means payroll taxes–exceeded the costs of the system. Under the rules of federal budget accounting, Social Security was providing extra funds that could be used to purchase Treasury bonds, and thus reduced the amount size of the budget deficit that needed to be financed by borrowing from the public.After 2011, however, the costs of the system are slated to exceed non-interest income. Under federal budget accounting rules, now each year the rest of the budget will need to repay the Social Security trust fund. . 

Thus, we are switching from a situation where the Social Security system helped to hold down the federal deficit each year, to a situation where the Social Security system will be contributing to a larger federal deficit each year. To be sure, this effect won’t be large for a few years. But I suspect that this change will gradually bring changes to Social Security into the debates over reducing budget deficits in a way that they haven’t previously been. 

The link can be found here.

Quote Of The Day

“This week, Bloomberg BusinessWeek put the financial woes of the U.S. Postal Service on its cover with a story titled “The End of Mail.” The dire plight of the USPS isn’t exactly news — it’s been losing money since 2006, including nearly $20 billion since 2007. But the cliff the agency has been driving toward is fast approaching. The agency is now almost $15 billion in debt. Unless the government steps in, it will default on $5.5 billion of retiree health-care costs in September. By October it will reach its legal debt limit, and by the end of the year, the USPS will be out of cash — insolvent and unable to operate.” — Freakonomics Blog

Quote Of The Day

“What is true is that the U.S. Medicare is expensive compared with, say, Canadian Medicare (yes, that’s what they call their system) or the French health care system (which is complicated, but largely single-payer in its essentials); that’s because Medicare American-style is very open-ended, reluctant to say no to paying for medically dubious procedures, and also fails to make use of its pricing power over drugs and other items. So Medicare will have to start saying no; it will have to provide incentives to move away from fee for service, and so on and so forth. But such changes would not mean a fundamental change in the way Medicare works.” — Paul Krugman

Quote Of The Day

None of this is to say that that’s not in fact “the way it should be”. If we are to trust the Economic Policy Institute, a union-funded think tank overseen by big-labour bigwigs, Ohio public-sector workers earn less than allegedly comparable private-sector workers. Surely it’s true that government lawyers make less than their private-sector peers. But I suspect that a good deal of EPI’s “controlling for education level” conclusion involves a boatload of masters degrees in education, and I’m sceptical that the “market value” of a masters in education approaches what teachers with MAs are paid. Furthermore, I suspect the value of high job security, early retirement and low income volatility ought not to be underestimated, but are by studies like EPI’s.  ” — Economist Blog

401(K)’s or Pensions?

Which is better? Andrew Samwick, professor of economics at Dartmouth College answers it this way:

My colleague Jon Skinner and I made that comparison in an article in the American Economic Review.  The result was that the projected distributions of retirement income were surprisingly similar under the old-style DB plans that were dominant in the 1980s and the 401(k) plans that supplanted them in the 1990s, assuming workers were covered by the same plan over a long career.  (The comparison was better for 401(k) plans when workers switched jobs — vested deferred benefits under DB plans are often quite low.)

In truth, this should not really come as a surprise.  The amount of retirement income that will come from pensions is determined by workers’ willingness to give up current earnings for current pension contributions, regardless of whether they are making the contributions directly or the employer is (allegedly) contributing for them.  If 401(k) plans are proving to be inadequate, it is because we are a nation of inadequate savers, not because we had a great system of DB pensions that we no longer have.

Full article can be found here.