“Second, the argument that elites are generally opposed to government involvement in the economy reveals the very US-centric focus of Krugman and Wells. Even a perfunctory look at recent or distant history (or at our book!) should have been enough to convince one that in most societies, even in the supposedly laissez-faire 19th century Britain, elites work very hard to make the government intervene in the economy — of course, in a very specific way, to support them. It should thus be no surprise that extractive institutions are rarely built on the foundations of laissez-faire economics — think of slavery, labor draft systems such as the mita, government monopolies, institutions such as the “colour bar” in South Africa designed to keep blacks disadvantaged and forced to supply cheap labor, and government corruption.” — Economists DARON ACEMOGLU AND JAMES ROBINSON, blogging at Why Nations Fail

Remember a while back, during the Wisconsin governor Walker fiasco, the debate that raged regarding government workers and their wages with respect to private sector workers? You had right wing economists arguing that federal workers were indeed overpaid and left wing economists arguing the opposite. An honest observer might have found it difficult to know who was right.

Well now, the CBO has weighed in on the topic and has come down on the side of right wing economists:

Differences in total compensation—the sum of wages and benefits—between federal and private-sector employees also varied according to workers’ education level.

Federal civilian employees with no more than a high school education averaged 36 percent higher total compensation than similar private-sector employees.
Federal workers whose education culminated in a bachelor’s degree averaged 15 percent higher total compensation than their private-sector counterparts.
Federal employees with a professional degree or doctorate received 18 percent lower total compensation than their private-sector counterparts, on average.
Overall, the federal government paid 16 percent more in total compensation than it would have if average compensation had been comparable with that in the private sector, after accounting for certain observable characteristics of workers.

Of course I, a huge fan of Andrew Biggs at AEI, knew this long ago. For more on Andrew Biggs research on this see here, here and especially here.

Megan McArdle on President Obama’s speech:

I think the speech made it even clearer that other speeches have that the president’s vision of the world is a lightly updated 1950s technocracy without the social conservatism, and with solar panels instead of rocket ships. Government and labor and business working in tightly controlled concert, with nice people like Obama at the reins–all the inventions coming out of massive government or corporate labs, and all the resulting products built by a heavily unionized workforce that knows no worry about the future.There are obviously a lot of problems with this vision. The first is that this is not what the fifties and sixties were actually like–the government and corporate labs sat on a lot of inventions until upstart companies developed them, and the union goodies that we now think of as typical were actually won pretty late in the game (the contracts that eventually killed GM were written in the early 1970s).

And to the extent that the fifties and sixties were actually like this, we should remember, as Max Boot points out, that this was not actually the day of the little guy. Big institutions actually had a great deal more power than they do now; it was just distributed somewhat differently–you had to worry less about big developers slapping a high-rise next to your single-family neighborhood, and a whole lot more about Robert Moses deciding he wanted to run a freeway through the spot where your house happened to be.

The military model of society–employed by both Obama, and a whole lot of 1950s good government types–was actually a kind of creepy way to live. As Boot says, “America today is far more individualistic and far more meritocratic with far less tolerance for rank prejudice and far less willingness to blindly follow the orders of rigid bureaucracies.” If you want the 1950s except without the rigid conformity and the McCarthyism, then you fundamentally misunderstand what made the 1950s tick.

Finally, there’s the fact that the 1950s ended in the 1970s. In the 1950s, American products were envied all over the world; by 1980, they were a joke. This is not some radical disconnect; it is the beginning and end of the same process. The technocratic American institutions became sclerotic agents of inertia. Bosses whose pay was capped poured their energy into building personal empires instead of personal fortunes. Unions like the UAW began making demands on their companies so heavy that even the UAW president who had negotiated these amazing pay increases began to fear that his members had lost their minds.

Full post here.