Sunday, January 31, 2010

What's the matter with you Americans? 

More years ago than I�ll admit, I was a student in a class of the man who became my mentor, Tom Willett. The course was in economics and public policy, and the early part of the syllabus had us read on the nature of arguing about economics. One line that stuck out to me like nothing else was this: Saying �if you knew what I know you�d agree with me� is poor argumentation. I may know what you know, my professor argued, and yet find a flaw in your logic or add another piece of evidence that leads me to a different conclusion.

The notion that we know enough to know what is in someone else�s best interest is evidence of this fallacy, and I have found over the succeeding decades there are many academics that fall into it. Applied in the political sphere, it takes the form of �why does the public not understand what we are trying to do?� We heard it in President Obama�s State of the Union address last week in his claim that his failure on health care was "not explaining it more clearly to the American people." It characterizes the thoughts of Thomas Frank in "What�s the Matter With Kansas?, a book that I found alternately patronizing and pathetic, arguing that it must be false consciousness or hypnotizing demagoguery that leads the working class of Kansas, once home of agricultural Wobblies, to now vote consistently conservative.

That meme is now everywhere. David Brooks calls tea partiers anti-intellectual and Frank Rich calls them comatose. Responding to the election of Scott Brown, the BBC carries a column by David Runciman, a British academic political scientist of high birth (how else to describe someone whose Wikipedia entry notes his viscountcy?) that cannot understand why town halls are filled with people repulsed by Democrats health care reform. It�s to help them, dears!
But it is striking that the people who most dislike the whole idea of healthcare reform - the ones who think it is socialist, godless, a step on the road to a police state - are often the ones it seems designed to help.

In Texas, where barely two-thirds of the population have full health insurance and over a fifth of all children have no cover at all, opposition to the legislation is currently running at 87%.

Instead, to many of those who lose out under the existing system, reform still seems like the ultimate betrayal.

Why are so many American voters enraged by attempts to change a horribly inefficient system that leaves them with premiums they often cannot afford?
My friend Marty Andrade tweeted this link with the comment "But I stole this for you," says the plunderer. "Why do you not take it? Why do you not vote for me?" But it is not so much the politician but the wonk, the analyst who makes such pretty plans, that finds himself exasperated by the failure of the public to appreciate them. No place does this happen more than in academia, particularly in America, where as I�ve argued before the academic does not often travel in either the working class circles or in those the successful businesspeople.

The answer to Prof. Runciman�s question is inside America�s DNA. The founders, writes Prof. Carl Richard, were a deeply suspicious bunch.
The founders� immersion in ancient history had a profound effect upon their style of though. They developed from the classics a suspicious cast of mind. They learned from the Greeks and Romans to fear conspiracies against liberty. Steeped in a literature whose perpetual theme was the steady encroachment of tyranny on liberty, the founders because virtually obsessed with spotting its approach, so that they might avoid the fate of their classical heroes. It has been said of the American Revolution that never was there a revolution with so little cause. Whatever his faults, George III was hardly Caligula or Nero; however illegitimate, the moderate British taxes were hardly equivalent to the mass executions of the emperors. But since the founders believed that the central lesson of the classics was that every illegitimate power, however small, ended in slavery, they were determined to resist every such power. Even legitimate authority should be exercised sparingly, lest it grow into illegitimate powers. (pp. 118-19)
Doesn�t it seem the same today? When one points out the connection between parts of the Obama agenda and those of European socialists we are told �he�s certainly not one of those!� Of course not. But we called tyranny a level of taxation that many other places just accepted as their lot in life. Our common people believe they deserve explanations, and they are mistrustful most of those who say, �trust us.�

And this is a vital point -- a country that has the character to not use government power to plunder a minority for the sake of a majority (or vice versa, as in Saddam's Iraq) better resists the eventual trials of war, depression, famine, etc. Many Western countries took a sharp left turn after WW2. The US did only a little less so. In both the US and UK a swerve back came from Reagan and Thatcher. I still find the latter more remarkable than the former, but the common culture that ties them owes much to the ancient Greeks and Romans.

Prof. Runciman cites facts and wonders why they fail before the stories that critics of Obamacare have told. Some no doubt do not understand the facts as presented. But presenting them better will not work well in the face of America�s preternatural wariness towards power. It may worry over unemployment but that is something that is ultimately under their control. Government debt, however, appears out of their control and is used towards things we are told to trust. Trust in government is exactly NOT what this country was founded on.

UPDATE: Along with some other posts, this was cross-posted to HotAir, and has been linked by Instapundit. Thanks to all my readers, and hope if you're new here you'll check out the rest of the premises.

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Welcome to Hot Air readers 

I will be joining several other writers filling in for Ed Morrissey and Allahpundit at Hot Air (the big board -- I've been posting occasionally in the Green Room for some months now) over the next few days. The boys are apparently off to parts unknown. It's for this reason you will see a rare (for me) Sunday post at the Scholars. Some material will be just here on Scholars alone, so you will want to read both places.

I take it is unnecessary to tell you that Hot Air is a favorite blog of mine, and that I think you should read it. But I just did, so there.

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Friday, January 29, 2010

Behind the eye-popping GDP number 

I read the report and I think it's a half-full-half-empty story you can tell.

Half-full: the 5.7% headline number is supported by positive data on investment, including a 13.3% increase in equipment and software. Real disposable personal income rose 2.1% in the quarter. Personal outlays were up 4%. This would indicate some expansion of consumer spending. A sharp rise in inventories -- more than half the gain in GDP comes from there -- indicates businesses are more confident of future sales.

Half-empty: Reflecting that huge expected increase in GDP is an upsurge in business inventories. Real final sales were up 2.2% versus 1.5% in the third quarter. While better, it hasn't reached a level that gets you to a sustained decline in unemployment yet (I'd think that would happen with a final sales number in the 2.75-3% area.) The savings rate rose to 4.6% from 4.5%, so consumption growth was down to 2% from 2.8% in the third quarter. And durable goods consumption actually fell in Q4, perhaps reflecting the end of Cash for Clunkers. Personal income less transfers (my doppelganger for calling the recessions end is just back to Q2 levels, as government transfer payments added an extra $25 billion to pocketbooks.

After running out to a 100 point gain on the morning news, the Dow has slid back a good bit since mid-morning. I caution people not to read something into every turn, but I think the market is looking at these data as confirming their expectations, not changing them too much in one way or the other. I thought there was more danger from a negative surprise than happiness from a positive one, and while this number is the high end of expectations the mixture of good and bad news in these data will end up causing the largest increase in GDP in years to cause most to yawn. And that's pretty odd when you think about it.

Jim Hamilton concurs, but uses pretty graphs.


Saved or created: one consultant 

The local newspaper tells us it's raining trains.
Plans to bring high-speed rail to Illinois, Minnesota and Wisconsin got a major boost Thursday from President Barack Obama administration�s commitment of $823 million to get projects rolling.

The money comes from $8 billion set aside from the economic stimulus package passed last year to develop the nation�s first intercity high-speed rail service, a top priority for Obama.

Obama announced the funding during an appearance with Vice President Joe Biden in Tampa, Fla. A high-speed rail project linking Tampa and Orlando was awarded $1.25 billion.

In all, 13 rail corridors involving 31 states will receive funding.
Hot damn! Choo-Choo Jim must have come through for us. And $823 million sounds like a lot of money. Except that ... it's not for us, exactly.
Of the funding announced Thursday, $810 million is planned to go toward building rail service between Madison and Milwaukee, and $12 million is designated for the Milwaukee-Chicago corridor.

An additional $1 million is planned to go toward developing the Madison-Twin Cities line.
$1 million for the home state? Really? This has transportation advocates fuming, it seems. Noted progressive activist Dave Mindeman is steamed:
$1 milllion for a study? That's like saying..."thanks for trying, we'll put you on our mailing list."
You don't even build anything with that $1 million. It's for a study, which would do what? Let's ask Assistant Choo-Choo guy Tim Walz:
"I have always advocated for a data driven process to determine the route for high-speed rail that's in Minnesota's long term best interests," Congressman Tim Walz, vice chair of the House Transportation Committees Subcommittee on Pipelines, Railroads and Hazardous Materials said in a press release. "This funding will be used to study possible routes that Minnesota outlined in its recent Statewide Rail Plan - including the River Route and the Rochester Route and put Minnesota in the running for future rail construction funding that will create jobs across our state."
The rest of Bob Collins' reporting describes the back story -- infighting between the Rochester/Mayo coalition that wants the train to go through Rochester that requires more track to be laid down. There is an existing line through Winona that takes you up the river directly to the Twin Cities; going by Rochester compels you to continue on to Owatonna before you can pick up a line to St. Paul unless you lay all new track. (I base that on this map of Minnesota rail lines.) The million dollars basically buys a consultant to write a report while the two sides in this battle continue their argument.

I wonder what the conversations between Oberstar and Walz are like?

UPDATE: How could I have forgotten? Stephen Karlson has a view from the other terminus.

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Thursday, January 28, 2010

Who Is Barack Obama? 

During the 2008 presidential campaign, I remember Shelby Steele, Senior Fellow at the Hoover Institution at Stanford being interviewed about his book, A Bound Man: Why We Are Excited About Obama and Why He Can't Win (Free Press, 2007). The election proved Dr. Steele wrong but a comment he made during one interview has stuck with me over the last two years. While I'm paraphrasing, the point is worth reconsidering: "Barack Obama does not know who he is." Well, if he doesn't know himself, how are we to know whether anything about him is real? And, if he doesn't know himself, how can he deliver on any of his dreams/policies/goals?

Then this sentence from his autobiography, The Audacity of Hope, supports the "Who is Obama?" question: �I serve as a blank screen on which people of vastly different political stripes project their own views.� Which is why people didn't know whom or what they were voting for. They all assumed he was saying what they wanted to hear.

Tonight, Alex Castellanos, an NRO commentator, indicated the same trait with these sentences: "This president defended everything tonight. Im not sure America knows who he is."

I respect the office of the President but Obama just seems to shoot shotguns - where's his focus, his accountability, his responsibility, his direction, his leadership?

Does Obama know who he is or has he spent his life trying to be something he isn't? Is his latest mantra "to fight for you..." an indication of the fighting within himself?


Keep trying 

None dare call it Stimulus II.

Specifically, the president wants to give a tax break to businesses that hire workers, eliminate the capital gains tax on small business investments and use $30 billion in Troubled Asset Relief Program money to encourage community banks to lend to small businesses.

The president�s package also would pump more government money into �green jobs� and infrastructure projects and extend unemployment benefits to those still out of work.

While Obama�s emphasis on small business is new, many economists see the overall package as simply an extension of the $787 billion stimulus bill passed last year � and not a robust one, at that.

�He�s trying to turn his microeconomic policies into some macroeconomic solution. He�s grasping at straws,� said Peter Morici, an economist at the University of Maryland.

"We are just going to have to ride this out over the next six months. If things don�t get better in trade with China, we aren�t getting out of this,� he added.

Gus Faucher, director of macroeconomics at Moody�s, is not so negative, but he�s not exuberant either.

�I think the package will make a difference around the edges,� Faucher said. �But, at the end of the day, it will take a strong economic expansion to get job growth going again.�

And Anne Kim, the economic program director for The Third Way, a moderate Democratic think tank, said the White House really isn�t trying to secure a near-term boost in jobs.

�There is only so much anyone can do about the unemployment rate, and it�s largely out of the government�s control,� said Kim.

�What they�re aiming for is to lay out a long-term economic strategy and an agenda that re-engages middle-class Americans and persuades them that their best prospects for a better future lie with President Obama and Democrats,� she added.
The political spin Ms Kim places on this jobs bill is precise. The passel of job proposals offered last night are not going to change that graph very much. It is an attempt to appear serious rather than be serious.


From TARP to SEED 

I'd as soon he just returned the money as was agreed when TARP was created:

On the Senate floor, Franken proposed using $5 billion from the Troubled Asset Relief Program to subsidize job creation in the private sector.

"The SEED Act will incentivize rapid job creation by offering small and medium-sized companies, and non-profit companies, a direct wage subsidy to hire new workers and expand their operations," Franken said.

The job creation subsidy would be available for 50 percent of wages, up to a $12 per hour subsidy. The employer eligibility period would last 12 months.

Franken also proposes re-allocating another $5 billion in TARP funds to provide states, local governments, and tribes with grants for green job creation.

It's not completely horrible, though. I did some reading on the research regarding wage subsidies, and at least one recent study seems to find some positive effects of it. Maybe they're not very large. It appears the best results come from Germany. What we don't know is whether the money could be better spent elsewhere, says Paul Walker. Nor do we know why the Congress seems to continue to think TARP repayments are a windfall.

One wonders -- if reducing the net cost of labor to business is a good idea, why is increasing the minimum wage a good idea?

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Wednesday, January 27, 2010

Media alerts 

Two places to hear me tomorrow:
All times Central, of course.


Promise only What You Can Deliver 

Tonight's SOTU speech by President Obama may or may not improve his ratings. Americans are beginning to see that scripted rhetoric, while well-delivered, does not mean follow through. Unfortunately for most Americans, what Obama promised, he had little clue as to how to implement. Does this mean I want a president to be able to dictate his wishes on demand? Absolutely not but it does mean something else: Words matter; actions matter.

Years ago I was assigned to a teacher who was not enamored with getting a rookie. She was one of those really good instructors who got the "problem kids because she could handle them" and was an excellent mentor. Within two days of my arrival, she pointed her finger at me and stated, "Don't you ever say what you can't deliver."

Some of the best advice I ever got. Obama and his handlers should have considered the delivery aspects of his campaign speeches that "meant anything you wanted." Then again, if your playground is Chicago and you own all the toys, maybe you never learned that words mean something and that not delivering on your word sooner or later catches up with you.

For the sake of the US, I hope Obama wakes up but he has a long way to go and I'm not sure if his mentors know how to help him.


Ideas for the SOTU 

A drinking game.

A different drinking game


Please drink (or write poetry) responsibly.

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What are ya in for, kid? 

And I, I walked over to the, to the bench there, and there is, Group W's where they put you if you may not be moral enough to join the army after committing your special crime, and there was all kinds of mean nasty ugly looking people on the bench there. Mother rapers. Father stabbers. Father rapers! Father rapers sitting right there on the bench next to me! And they was mean and nasty and ugly and horrible crime-type guys sitting on the bench next to me. And the meanest, ugliest, nastiest one, the meanest father raper of them all, was coming over to me and he was mean 'n' ugly 'n' nasty 'n' horrible and all kind of things and he sat down next to me and said, "Kid, whad'ya get?" I said, "I didn't get nothing, I had to pay $50 and pick up the garbage." He said, "What were you arrested for, kid?" And I said, "Littering." And they all moved away from me on the bench there, and the hairy eyeball and all kinds of mean nasty things, till I said, "And creating a nuisance." And they all came back, shook my hand, and we had a great time on the bench, talkin about crime, mother stabbing, father raping, all kinds of groovy things that we was talking about on the bench.
We come to find out that the city of St. Cloud is going to charge the fellow who put up the stupid posters. What is his crime?

A Waite Park man who posted anti-Muslim cartoons in several St. Cloud locations has been cited with violating a city ordinance that prohibits posting materials on fixtures.

Each of the two civil charges carry a maximum fine of $250.
This ordinance has kept St. Cloud safe from garage sale announcements and lost dog notices for many years now. Along with more than a few bits of graphic art including pictures of Abu Ghraib. (This one was on a junction box near North Junior High where I often take cigars for a walk.)

The thirst for justice has not been slaked:
Many speakers questioned local authorities' response to the incident, and asked why the man who has admitted to posting the cartoons doesn't face criminal charges. Others criticized city leaders for not doing enough to combat long-standing discrimination against Muslims and people of color.

Lam told city leaders she's been to plenty of "kumbaya meetings" about discrimination. This time, Lam wanted to know what will happen next.

"I've been here for four years, and I'm scared of this city," Lam said. "What are you going to do to show that you are going to protect all citizens of St. Cloud?"
In times of trouble, I often turn to Arlo Guthrie:
And everything was fine, we was smoking cigarettes and all kinds of things, until the Sergeant came over, had some paper in his hand, held it up and said.

"Kids, this-piece-of-paper's-got-47-words-37-sentences-58-words-we-wanna-know-details-of-the-crime-time-of-the-crime-and-any-other-kind-of-thing-
officer's-name-and-any-other-kind-of-thing-you-gotta-say", and talked for forty-five minutes and nobody understood a word that he said, but we had fun filling out the forms and playing with the pencils on the bench there, and I filled out the massacre with the four part harmony, and wrote it down there, just like it was, and everything was fine and I put down the pencil, and I turned over the piece of paper, and there, there on the other side, in the middle of the other side, away from everything else on the other side, in parentheses, capital letters, quotated, read the following words:

Were the scribbler at the open house last night -- hosted by the Council on American-Islamic Relations, a group with an excellent track record on free speech -- he might have gotten that form.

The city is trying to have it both ways. It recognizes that the poster, hateful and disgusting as it is, is nevertheless free speech protected by the First Amendment. The city attorney says criminal charges "wouldn't hold up in court." So rather than that, he uses a selectively-enforced ordinance against that person, and names the person in public. Will his picture next appear on those electronic billboards alongside the child molesters? How big a target does the city wish to paint on this person?

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An object lesson for health care 

Last week Ed Morrissey commented on another "public option" stalking a market: the college loan market. In order to get more students into colleges -- driving up demand and thus raising tuition above the rate of inflation -- the government wanted to encourage private lenders to give credit to teens and 20-somethings, a group that tends to be quite risky to lend to. So government decided it would share the risk with banks and other creditors by covering interest rate risk (subsidizing lower interest rates) while taking back some money if interest rates drop too low. Most of you educated in the 1970s and on know these as Stafford Loans.

The Clinton Administration had government directly enter the marketplace through direct lending -- skipping the banks. That in effect was the public option, and for about 15 years its had between a fifth and a fourth of the market. Both co-existed but, since the private market lenders were subsidized by the state, the government had both sides of the market. And along with that you had asset-backed securities backed by student loans (with great ratings, naturally -- example) to encourage even more lending. Unsurprisingly that part of the market was not spared in the credit crunch of 2008-09.

Now as the credit crunch subsides, some lenders are trying to get back in the market, some say, the Obama Administration intends in tonight's State of the Union Address to turn student loans even further into a plan to create a larger public sector.

As part of the White House�s �middle-class� aid initiatives unveiled today, President Obama proposed that students making payments under federal college loan programs would have monthly payments capped at 10% of income exceeding a �basic living allowance.�

That would lower the payment cap for qualified borrowers from the current maximum of 15% of income. The 15% maximum took effect in July under the government�s income-based repayment program, although some very-low-income borrowers are making no payments at all under that program.

As an example, the White House said, the 10% cap would mean that the maximum monthly payment for a borrower earning $30,000 a year who owes $20,000 in loans would be $115 a month, instead of $228 under the standard 10-year loan repayment plan.

The administration also proposed expanding the government�s debt-forgiveness program for student borrowers. Under current rules, all remaining federal student debt can be forgiven after 25 years. The White House wants to cut that to 20 years.

Already, borrowers who take public-service jobs can have their remaining debt canceled after 10 years. The administration would retain that cutoff for public-service workers.
Andrew Clark lists many things wrong with the legislation, including the possibility of having AFSCME getting into the student loan processing business, while Neal McCluskey shows how the bill includes billions in new dollars to colleges and university supposedly for retention and graduation of students, but with fairly easy guidelines to get the money. Ed points out that this should be instructive:
This is a perfect example of what the government will wind up doing to health care, either in the near term or somewhat down the road. [Obviously more down the road now that last week when Ed wrote this --kb] They intervene to promote a social agenda, and eventually decide that total government control is �more efficient� than the private sector. We need to stop the nationalization of student loans, but more importantly, we need to learn the right lesson of what happens when we allow the federal government to compete with the private sector. Eventually, the private sector gets eliminated, and we�re seeing that unfold in real time with student loans.

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Tuesday, January 26, 2010

Graph of the day 

Total nonfarm employment peaked in 2007 at 137.6 million, fell slightly in 2008 and then dropped precipitously in 2009 to 132 million, for a two-year loss of 5.6 million jobs. In 2009, total employment was approximately equal to its level in 2001, though the labor force had grown substantially in the interim, making the 2000-2009 period America's second "lost decade" (the first being the 1930s during the Great Depression).

The sharp decline in nonfarm employment, which normally increases from year to year along with the labor force, has been bad enough. But when the components of aggregate employment are examined, we discover even worse news.

We find that the loss of employment has occurred entirely in the private sector, where employment fell from 115.4 million in 2007 to 109.5 million in 2009, a decline that took private employment back to its level at the end of the 1990s.

While private employment was collapsing, government payrolls have been increasing, ticking up slightly from 22.2 million in 2007 to 22.5 million in 2009, an increase of roughly 1.7 million above the 2000 level.
Robert Higgs, in this morning's Investor's Business Daily. Worth noting the size of the decline in 2002-03 and how far it went past the last recession. Do we think it will be better this time? Why?

I had thought this was the manufacturing sector story -- I was surprised when I drew the graph above that it extended to all private sector employment.


Taxing banks so satisfying 

We would prefer that the government convincingly precommit to a policy of not saving financial institutions that fail. However, given everything that has transpired in the past couple of years, such a policy announcement would be greeted by laughter. No one would believe it.

As a result, the key issue for policymakers is not whether some banks are too big to fail, but who bears the cost of this status. The best solution is to change the way banks are regulated so the burden of getting too big to fail is carried by the same stakeholders who allow the company to get that way in the first place. Some regulator, perhaps the Federal Reserve � which tends to be relatively more isolated from political pressure � should have the discretion to certify if a financial company gets too big to fail or �TBTF.�

If the Fed designates a company as TBTF then some pre-set extra regulations should be triggered to make sure the bank does not take excessive risk at taxpayer expense.
Brian Wesbury and Robert Stein yesterday in their weekly outlook. This addresses the who decides question, but who is TBTF and what is the consequence? I think this is the important part of their proposal:
However, it is important to remember that every company should have a free choice about whether it wants to be in this position. Regulators would need to work with the banks to communicate when they are getting close to TBTF status, so banks know whether they are going to trigger this extra layer of regulation.

One key problem with President Obama�s drive to tax bank liabilities is that it would apply to many companies that are not particularly large, signaling investors that maybe some midsized companies are now TBTF. In other words, it casts the net way too wide. Another problem is that it�s based on a desire to raise revenue lost because of past policy mistakes, when it should be focused on preventing future policy mistakes.
It is interesting that the LA Times also editorialized on this point on Sunday.
How many initiatives can President Obama justify by pointing to the public's outrage over excessive bank bonuses? Last week the administration called on Congress to tax big banks, insurance companies and brokers to recoup what taxpayers spent bailing out the financial markets. This week the administration added two more items to its legislative to-do list: a cap on the size of banks, and a ban on certain types of investing. Although an argument can be made for the proposals, they go further than necessary to protect taxpayers against the risk of future bailouts. And that's the real goal, even if it's less politically satisfying than hammering banks.
But this administration's economic policy has never seemed to do anything that wasn't politically satisfying. At least when Bush wanted to do something satisfying he chose something hard like Social Security reform. Say what you will about the proposal, but populism was not in it. One has to wonder where this president would be if he didn't have "fat-cat bankers" to bash?

For a different take see Tom Cooley (h/t: Mankiw)

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The balance of trade in academic economists 

This article on the training of European economists in the U.S. is vital reading for several reasons. Its author, Guy Sorman, argues that the U.S. is the only place to go.
�When one wants to become a real economist, to accumulate knowledge and recognition, one has no choice but the United States,� says Chicago�s Luigi Zingales, an Italian who is a leader in the hot field of financial regulation. ...

Many of the Europeans first came to the U.S. as graduate students, frustrated by the limited options offered by European universities. �I was initially trained at Brussels Free University,� says Zingales�s colleague Marianne Bertrand, who has been at the Booth School since 2000. �But when I decided to go for a Ph.D. in the 1990s��she earned hers from Harvard in 1998��the U.S. was the only sensible destination.� Getting a doctorate in her native Belgium was unappealing, she explains, because students were left on their own, with little academic support or oversight; many Ph.D. candidates she knew became discouraged after a few years and gave up. In the U.S., by contrast, the university was geared toward the student. Professors were approachable; research facilities, including libraries, were first-rate; and financial and other assistance was readily available.
I think this point is true; my own experience years ago was one where the faculty members knew me, inquired if I had what I needed to succeed (including enough money to live on!) and included me in their study. Joint papers with faculty and graduate students were not uncommon, and after interviewing hundreds of new PhDs during my time as chair (filling seven positions in the last eight years) I think that story is quite common. But there's more to it than just good customer service:
Nor did Europe offer much appeal once the doctorate was in hand. Zingales tried to return to Italy in 1984, after completing his degree at MIT, but the best job offer he could get was a mediocre research assistantship at a second-rate university. Twenty years later, he might have won tenure at the school, he says, but only if he had the right connections. Even the best Italian universities�and this was true of European schools in general�were dominated by autocratic and hierarchical traditions. Without belonging to the right academic network and having the right sponsors, career progress was difficult, if not impossible.

Obsolete and disproved Marxist and socialist thinking also remained strong within European universities, including in economics departments. Many young economists, scientifically oriented and so recognizing the superiority of free markets, found the climate intellectually stultifying. It remains the case that most French and Italian universities teach economics as a philosophical subject�with opinions mattering as much as facts�not a scientific subject. A Keynesian, statist perspective still dominates most European curricula: free-market professors are an embattled minority.

American economic departments were�and are�much more rigorous and nonpartisan by comparison. Yet isn�t there an ideological opposition between, say, the University of Chicago, known as a cradle of free-market theory, and Harvard, a supposedly liberal campus? �This perception hasn�t much to do with reality,� Bertrand responds. �We are scientists, above all; ideologies do not dictate our research or our teaching.� Alesina, a strong proponent of markets, agrees: �The notion of Harvard being liberal and Chicago free-market doesn�t coincide with academic reality.�
In almost any department you might find people who supported Republican candidates as well as Democratic candidates, and for the most part they are quite able to work together, even write together.

Sorman argues that some European schools are now making a comeback, including Toulouse, Bonn and Pompeu Fabra in Barcelona. Salaries that were once meager in Europe are now being boosted and research grants are getting larger too. But it is hard to wrest away leadership once it is established.

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The resource curse, there and here 

Francesco Caselli and Guy Michaels research the use by municipal governments in Brazil of money they receive from oil royalties. It's a nice experiment of the "resource curse" that is part of the development economics literature, since most of that is cross-national data that has so many competing explanations for why resource-rich countries appear corrupt that you cannot make your case that convincingly. Caselli and Michaels find that the money appears to be squandered.
Our finding that oil windfalls translate into little improvement in the provision of public goods or the population�s living standards raises a key question � where are the oil revenues going? As a way of addressing this question, we put together a few pieces of tentative evidence:
  • First, oil revenues increase the size of municipal workers� houses (but not the size of other residents� houses).
  • Second, Brazil�s news agency is more likely to carry news items mentioning corruption and the mayor in municipalities with very high levels of oil output (on an absolute, though not per capita, basis).
  • Third, federal police operations are more likely to occur in municipalities with very high levels of oil output (again in absolute terms).
  • And finally, we document anecdotal evidence of scandals involving mayors in several of the largest oil-producing municipalities, some of which involve large sums of money.
More locally, consider a place that has a large power plant, say, Becker or Monticello.) Those plants generate a good deal of revenue to the municipality and in good times the property tax revenues permit cities to add lots of services, and hold down property taxes for residents. But they also become very dependent on that money and when times get bad it creates a lot of stress. (The city administrator in Becker blogs and here's what he's written about taxes from the coal plant there, called Sherco.)

But the taxes are the result of intense lobbying between the power or oil companies and the state. The state forces different property tax rules on the localities here in Minnesota and then the cities have to lobby back (from the rest of us) to get the money taken away (to make energy firms richer.) This story replays not just in Minnesota but in resource-rich states like Alaska, where dependence on oil firms colors the politics that gave us Ted Stevens and Sarah Palin.

I'm very happy to join my friends in talking about nuclear power, but explain to me why that conversation between state and corporation should produce a deal any better for the taxpayer than having the government talk to Zygi Wilf?

What is needed, as always, is competition. The resource curse happens in a world where the resources are monopolized by the government (I struggle to think of a place where this isn't so. Can anyone name one for me?)

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New Zealand a counterpoint 

Over the weekend I read this from Daniel Hannan on why we bailed out the banks:
Why did MPs and Congressmen support a policy that their constituents disliked? Partly because of the �Something Must Be Done� fallacy: the baleful modern notion that the government�s response to a crisis must be proportionate to the degree of media anxiety rather than the scale of the problem. Mainly, though, because ministers allowed their policy on banking to be determined by bankers. As Douglas Carswell says, we are in the world of Atlas Shrugged, a world of back-room deals, of ententes between big government and big corporations, of conspiracies against the public weal hatched in the name of necessity.

What would my alternative have been? The alternative to nationalising financial instititutions is, you know, not nationalising them. The alternative to rescuing some very rich individuals with taxpayers� money is to let taxpayers keep their money. I have told the story before of how, in New Zealand, the withdrawal of agrarian subsidies prompted fears of a banking collapse. On that occasion, though, ministers refused to give the bankers the bail-out they demanded, with the result that the banks had to sort the problem out themselves � thereby almost certainly averting the meltdown that a bail-out would have provoked.
I wish the story was so apt. In New Zealand the withdrawal of agrarian subsidies revised downward the value of agricultural land, but that is hardly a bubble story. It is not a story like the one some tell of home prices driven by government policies to increase home ownership.

Still, it's worth asking what the New Zealand economy is like given the change in policy. Based on this report from the government's treasury, it appears to be no better or worse than the U.S. (Be very cautious comparing NZ unemployment rates to the U.S. They are not the same measurements.) While the economy is not in decline the baseline forecast calls for a 2% growth rate for the country, slower than the previous decade.

You can look at that result one of two ways: Good, in that the country didn't implode when the government refused to bail banks out, supporting Hannan. Or bad, that the economy's turnaround is not any better than those countries that threw in for the banks. It's a question worth coming back to in a few years.


Monday, January 25, 2010

Just to be sure I understand 

The president is proposing a partial budget freeze that saves $250 billion over a decade. At least from the August 2009 CBO estimate, total outlays for 2010-2019 are $41,314 billion. That comes out to about 0.6% reduction in spending over a decade, and in the early years about $10-15 billion per year. (There's a new long-term budget due this week, I think. Doubt it makes much difference.)

And somehow Sen. Evan Bayh is happy?
�The president can say in this State of the Union address, �I�m going to include in my budget a freeze on discretionary spending, I�m drawing a line in the sand, and I�m going to use my veto pen to enforce that,�� Bayh said in an interview on Bloomberg Television�s Political Capital with Al Hunt.
The president, of course, won't even be there to enforce the latter parts of this agreement. And it would be dwarfed in the out-years by the planned spending from health care.

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Second verse, same as the first 

This paper examines the likely growth of U.S. GDP in the decade beginning in 2010. I analyze the two components of the rise in GDP over this ten year period: (1) the recovery from the substantially depressed level of economic activity at the start of the decade; and (2) the rise in potential GDP that will result from the expansion of the labor force, the growth of the capital stock, and the increase of multifactor productivity. I calculate a likely growth rate of 2.6 percent a year. Not all of that extra output will remain in the United States. If the trade deficit is reduced by three percent of GDP, the rise in exports and decline in imports will reduce output available for U.S. consumption and investment by about 0.3 percent a year. The effect of a decline of the dollar could be equally important. If the real trade-weighted value of the dollar declines by 25 percent over the decade and the full effect of that dollar decline is reflected in the prices of imports, the increased cost of imports would reduce the the growth of our real incomes by about 0.4 percent a year. These two international effects would leave the net growth of real goods and services available for US consumption and investment -- both domestically produced and imported -- at 1.9 percent a year. That is the same as the average growth during the past decade.
Martin Feldstein, in a new NBER paper (gated, ungated?) This does not include the effects of a cyclical rebound. 2000 was a peak in the 1990s expansion, while the end of 2009 was the bottom of this recession most likely. If we add in a cyclical rebound, Feldstein estimates an average growth rate of 2.6% per year. That is not as high as the forecast from CBO, but quite close on eyeball inspection.

UPDATE: A less technical version is at Project Syndicate.


"Neither conservatives nor liberals as a whole are racist" 

Thus speaks Eric Austin, writing about a post by Leo Pusateri. And of course this is true. Leo's post tries to take the concept of welfare dependency (I hear strains of Daniel Moynihan in Leo's hypothesis) and say that those who support broader social spending encouraging dependency are holding back minority families and children. Even if so, that cannot be attributed necessarily to a racial impetus. (This essay by Larry Dewitt seems to help fill in the history for those unaware.)

I appreciate Eric's distinction between what one says and what one is when it comes to race. I also think Leo's point is clear -- that despite one's noble intentions, the effect of one's policy prescriptions can be to harm those you wish to help. But Leo seemed to bend that further than the point is meant to go.


Total factor productivity in developing countries 

One thing economists think about growth theory is that poor countries, once believed to converge towards rich countries in per capita GDP, don't seem to do so. And yet productivity gains in the latter half of the decade were much stronger than we thought.
The Conference Board compared productivity trends across 111 countries and found an upsurge in output per worker in developing economies while developed country productivity slows. Between 2005 and 2009, for instance, the research group finds output per worker in emerging economies grew at a 5.9% annual rate. In the U.S. it grew at a 1.5% annual rate during the same period, while it grew 0.8% in Japan and 0.5% in the Euro area. In each of the developed markets, worker productivity slowed while it sped up in developing economies.

Emerging economies are charging ahead on one especially important measure of worker productivity called �total factor productivity,� which teases out productivity improvements that come from firms investing in new technology or hiring better-educated workers. What�s left is a pure measure of workers and firms learning to operate more efficiently. In emerging economies, TFP rose at an annual rate of 2.4% from 2005 to 2008, compared to 0.2% in advanced economies.

Bart van Ark, the Conference Board�s chief economist, sees two reasons for the productivity gains. First, he says, poorly run firms in emerging markets are shutting down and being replaced by more efficient firms. Second, many firms are opening up with capacity to produce on a large scale and as these economies grow swiftly firms are reaping benefits from these �economies of scale.�
One reason for conditional convergence would be the adoption by developing countries of better institutions. Could this have happened in the developing world, at a time when industrialized countries were failing to contain the excesses of the real estate bubble and banks were too close to their governments?


Saturday, January 23, 2010

Haiti Airlift = Berlin Airlift Redux+++ 

From the ground in Haiti comes a personal report available at Jerry Pournelle's site (you must scroll to the bottom of the January 22 posts to find it in total). The media coverage has focused on the negatives (as too often they do) and ignored the yeoman efforts behind the scenes.

Prior to the Haiti disaster, the largest and most incredibly successful humanitarian effort in the world's history to supply the fundamental needs of food, fuel and clothing to a large population under enemy siege was the Berlin Airlift of 1948-49((available here).

To summarize that program, consider that the airlift: coordinated 300,000 flights on three (3) runways over a span of 330 days; delivered 6,000,000,000 pounds of supplies to about 2,000,000 West Berliners . The grid here shows the mind-boggling logistics. No room for error.

In Haiti, the US military took control of the SINGLE runway in the airport in Port au Prince. (The UN manages the city but the US military controls the air space - thankfully.) This P au P airfield typically sees 5-15 flights a day. Now the US military is coordinating 280 flights a day, round the clock. That is 1 flight every 5 minutes.

Now consider the Haiti situation: population of 3,500,000; over 30 "hospitals" but only 3 had more than 100 beds; total beds: around 1600 beds, BEFORE the earthquake struck. There are an estimated 250,000 injuries to be treated. A fourth grader could look at this arithmetic and realize there's a problem.

The pleas for orthopedic surgeons and medical personnel are being addressed as many doctors are voluntarily going to Haiti to help. However, the real need is for more beds, medical supplies, and operating rooms.

What's being done? In addition to the thousands of volunteers, USNS Comfort ship arrived on the 22nd (just as navy ships sailed to SE Asia after the typhoons of a few years ago). The ship is a floating hospital with 1000 patient beds, 80 intensive care beds, 950 naval hospital staff and 12 operating rooms.

The Israelies sent help at the first notice of the earthquake. Withing eight hours, they had set up a state-of-the-art hospital, on the ground. Their experience in rescuing victims of terrorism and war is being used extensively in Haiti. (Does not appear that any of their enemies are helping....)

The Canadian expeditionary force chose to focus its efforts in Jacmel and expect to have a functioning field hospital operating by this Friday.

As mentioned above, the base need is for supplies. You can go here or here or here to donate.

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Friday, January 22, 2010

Bernanke a victim of Brown-mania? 

(Sorry for late posting, but Friday is catch-up day and there was more than the usual amount to catch up.)

Hard to believe, but the Bernanke reconfirmation may be in serious trouble. Ed Morrissey fleshes out the story. The stock market sags partly in response. The WSJ Market Beat blog has a roundup of economists' reactions. A current tally shows 17 votes for reconfirmation, 12 against (including five Democrats), with five more Democrats answering that they are at this time undecided. Many of the Democrat opponents, including Barbara Boxer and Russ Feingold, announced their opposition today. Majority Leader Reid and Minority Leader McConnell are now jointly counting noses to see if they have 60 votes (as the more anti-Fed types like Jim Bunning are placing a hold on Bernanke's nomination.)

Opposition to the Fed chair seems to have increased since the election of Scott Brown on Tuesday. The Huffington Post reports this afternoon that

The election in Massachusetts has senators who previously considered themselves safe watching their backs, and they don't relish the prospect of a vote in favor of a man who failed to foresee the financial crisis and is closely associated with Wall Street.

A recent poll found that 47 percent of Americans think Bernanke cares more about Wall Street than Main Street, while only 20 percent think he works for Main Street. Independents, who swung heavily for Brown in Massachusetts, are even more opposed to Bernanke than Democrats or Republicans. Fifty percent of independents think he cares first about Wall Street; 15 percent think he prioritizes the needs of Main Street. That's a difficult vote in the face of an angry public.

If Bernanke is confirmed, he'll have to rely on the same coalition that moved the bailout through Congress, when the leadership of both parties joined forces to oppose the rank and file.

We get this rather unprincipled announcement from Sen. Boxer:

"I have a lot of respect for Federal Reserve Chairman Ben Bernanke. When the financial crisis hit in late 2008, he took some important steps to prevent what many economists believe could have been an even greater economic catastrophe," said Boxer.

"However, it is time for a change -- it is time for Main Street to have a champion at the Fed. Dr. Bernanke played a lead role in crafting the Bush administration's economic policies, which led to the current economic crisis. Our next Federal Reserve Chairman must represent a clean break from the failed policies of the past."

No, Senator, it is not the job of the Federal Reserve to be a champion for Main Street, Wall Street, or anyone else. The Federal Reserve is an independent institution, a feature that Congress chose wisely almost a century ago.

First, central bank independence has been shown to be essential for controlling inflation. Sooner or later, the Fed will have to scale back its current unprecedented monetary accommodation. When the Federal Reserve judges it time to begin tightening monetary conditions, it must be allowed to do so without interference. Second, lender of last resort decisions should not be politicized.

Finally, calls to alter the structure or personnel selection of the Federal Reserve System easily could backfire by raising inflation expectations and borrowing costs and dimming prospects for recovery. The democratic legitimacy of the Federal Reserve System is well established by its legal mandate and by the existing appointments process. Frequent communication with the public and testimony before Congress ensure Fed accountability.

The Fed, as Robert Samuelson points out, has had officials testify before Congress 32 times. Its actions are not a secret, and attempts to find out who got direct loans from the Fed are more meant to intimidate than illuminate. The assault on its independence has helped push down stock prices and could set off a currency crisis in a G-7 currency, which is extraordinary. At a time where financial crisis still looms large in the rear view mirror, it is highly irresponsible to engage in scapegoating.

UPDATE: This tweet from Jim Geraghty got a hearty chuckle:

Overnight, every senator realized the quickest, easiest way to populist street cred is to treat Bernanke like he's the third Salahi.

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Thursday, January 21, 2010

Media alert 

I will take my monthly turn on KKMS Live at 5pm CT. Topics expected are the Minnesota jobless rate, the changing agenda in Washington (if we are to believe the reports) and the proposal to increase federal government borrowing by $1,900,000,000,000. Yes, eleven zeroes, for those of you scoring at home. KKMS broadcasts on 980 AM in the Twin Cities; streaming starts on the listen live button from here.


Minnesota job loss 3% for 2009 

Data released this morning by DEED indicates we've lost 80,800 jobs in Minnesota in 2009. Job loss was 4,100 for December, along with a downward revision in November to a -1,500 from a +3,000.
�December�s results are consistent with the ebb and flow of a recovering economy. We expected the pace of recovery would be slow, although generally the Minnesota economy is on the mend and should continue to improve in the coming months,� DEED Commissioner Dan McElroy said.

...In the state Metropolitan Statistical Areas, over-the-year job losses occurred in the Duluth-Superior MSA (down 3.4 percent), St. Cloud MSA (down 3.1 percent), Minneapolis-St. Paul MSA (down 2.7 percent) and Rochester MSA (down 0.5 percent).
The decline in St. Cloud for the 12 months to Novmeber 2009 was 3.6%, so the rate of decline is slowing, but at a job loss of 3,100 it is still the largest yearly decline in St. Cloud since we started tracking the data in 1988.

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If after 20 or 21 times you don't succeed, try again 

Last year on my old radio show on AM1280 I had on my sister-in-law, Deb Banaian, who is remarkably trying for her 19th time to get on as a contestant on Survivor. Her story is remarkable both for its perseverance and desire, and for overcoming disabilities. To see her story, watch this video posted on CBS.

Here's the Facebook page for her fans. We want people to vote for her to get CBS, after nine years, to finally get Deb onto the show. Thanks for watching the video and joining up.

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Opportunistic drive-by smearing of political opponents 

The local media have reported on the posting of a cartoon in front of a shop run by a Somali family and near a local Islamic center in St. Cloud. Based on discussions with people in a position to know, the drawing was reprehensible to any decent human. If we had laws about p*rnography based on community standards for decency, this drawing would have been a violation. (I have had it described to me by multiple people who have seen it; I have not personally viewed it.) Because we have a First Amendment, however, the scribbler of this cartoon (artist? no, sorry, you don't get that title) is not going to be charged for anything more than trespassing on a public utility pole, a rule that if enforced will lead to the arrest of hundreds of garage sale operators.

Somalis are upset, and rightly so. When the campus announced that its Somali student organization wanted to hold a speak-out, that seemed a very reasonable thing to do. The best way to deal with hateful acts is by speaking about them. But the news report this morning about this event contains two statements that I found deviated from speaking against the cartoon. And, unfortunately not a surprise, it comes from two faculty. First,
Luke Tripp, a professor of community studies, said the same "conservative white" mind-set led to the election of U.S. Rep. Michele Bachmann, R-Stillwater.
This is an outrageous accusation. It says that anyone who voted for Rep. Bachmann has the same mind-set as the scribbler, is capable of being the scribbler, and is a reprobate. By what perverted analysis do you determine the moral principles of tens of thousands of area citizens that voted for this woman, many of them twice? What inspires a man to take a speak out against hateful speech of his students as an opportunity to engage in the worst stereotyping of political opponents?

I'm also moved to say something about the comments of a second faculty member who said "There are perpetrators on this campus who abuse students of color continually." This statement is either true or false. If the faculty member believes it to be true, he has an obligation as a member of this community to use the proper channels to have these allegations investigated and acted upon if they are judged to be factual. If not, or if he is not sure, his behavior should be consistent with the responsibilities that attach to his right of academic freedom. From the AAUP's 1940 Statement:
College and university teachers are citizens, members of a learned profession, and officers of an educational institution. When they speak or write as citizens, they should be free from institutional censorship or discipline, but their special position in the community imposes special obligations. As scholars and educational officers, they should remember that the public may judge their profession and their institution by their utterances. Hence they should at all times be accurate, should exercise appropriate restraint, should show respect for the opinions of others, and should make every effort to indicate that they are not speaking for the institution.
Prof. Tadame's statement is not prefaced in this news story as being his own opinion, or an "I have heard that ..." or any such thing. He is an officer of this university as much as any faculty or staff member. To make such a statement without either bringing facts for investigation or expressing them clearly as his own opinion, not that of the university, is a shocking abdication of his responsibilities as an academic.

Sadly, we've been over this ground for many years. Indeed, these slanderous statements were part of why Scholars was created at one time (see our about page for the history.) And even more sadly, the best statement at the speak-out as reported comes from the only Somali quoted.
Mohamed Mohamed, president of the Somali Student Association, said he's encountered discrimination in St. Cloud. But Mohamed added that Wednesday's rally shouldn't be about pitting one race of people against another.

"This issue is not white and black," Mohamed said. "It's human rights."
Emphasis added, in case the professors missed it.

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Wednesday, January 20, 2010

Typecasting academics 

Maybe you've seen this article already, that argues that academics are liberal because of typecasting. It is based on a study by -- surprise! -- academics.

Typecasting, of course, is not the only cause for the liberal tilt. The characteristics that define one�s political orientation are also at the fore of certain jobs, the sociologists reported. Nearly half of the political lopsidedness in academia can be traced to four characteristics that liberals in general, and professors in particular, share: advanced degrees; a nonconservative religious theology (which includes liberal Protestants and Jews, and the nonreligious); an expressed tolerance for controversial ideas; and a disparity between education and income.

The mismatch between schooling and salary complements a theory that the Harvard professor Louis Menand raises in his new book �The Marketplace of Ideas.� He argues that the way higher education was structured by progressive reformers in the late 19th century is partly responsible for the political uniformity of today. In the view of the early reformers, the only way to ensure that quality, rather than profit, would be rewarded was to protect the profession from outside competition. The tradeoff for lower salaries was control; professors decide who gets to enter their profession and who doesn�t.

As I've noted before, this comes in no small part from the peculiar position of the American academic versus his European counterpart. Ludwig von Mises described it in The Anti-Capitalistic Mentality thus:

Access to European society is open to everybody who has distinguished himself in any field. It may be easier to people of noble ancestry and great wealth than to commoners with modest incomes. But neither riches nor titles can give to a member of this set the rank and prestige that is the reward of great personal distinction. The stars of the Parisian salons are not the million�aires, but the members of the Acad�mie Fran�aise. The intellec�tuals prevail and the others feign at least a lively interest in intel�lectual concerns.

Society in this sense is foreign to the American scene. What is called �society� in the United States almost exclusively con�sists of the richest families. There is little social intercourse between the successful businessmen and the nation�s eminent authors, artists and scientists. ...

American authors or scientists are prone to consider the wealthy businessman as a barbarian, as a man exclusively intent upon making money. The professor despises the alumni who are more interested in the university�s football team than in its scholastic achievements. He feels insulted if he learns that the coach gets a higher salary than an eminent profes�sor of philosophy. The men whose research has given rise to new methods of production hate the businessmen who are merely interested in the cash value of their research work. It is very significant that such a large number of American research physicists sympathize with socialism or communism. As they are ignorant of economics and realize that the university teachers of economics are also opposed to what they disparagingly call the profit system, no other attitude can be expected from them.
Because the university system does not depend on profit most professors disparage it, but that dependency was tossed away at the expense of higher wages which would have let them join the ranks of higher society. We get paid less so we can pick who works with us, but rather than recognize the trade we resent the system that produces enough wealth to give us the ability to turn our universities into exclusive clubs.

If Mises' hypothesis is correct we should find more conservatives in the European universities. Is this true? I haven't seen a study to support or refute the hypothesis.


Quick question 

You've probably seen this report on how few people who see their Google News front page actually click through to the story. Is there any evidence out there on how many people who take in a printed newspaper actually read the stories rather than scan the headlines? One has a click measure, the other does not. You could only get the latter from a survey, where may be some false reporting of reading. Not saying, just saying...

I understand, by the way, that the question is whether the newspapers are getting the clicks to report to their online advertisers. But I think some want to draw a point about the news knowledge of the online reader. I just don't think it's that clear.


Tuesday, January 19, 2010

Media alert 

St. Cloud, MN, January 2010: - Three prominent local economists will speak at the St. Cloud Public Library on Wednesday, Jan. 20, 7:00 � 8:30 p.m., about �St. Cloud�s Economy: Past, Present and Future.� The meeting is open to the public and will take place in the library�s Bremer Community Room.

The presenters are King Banaian, Ph.D., professor and chairman of the Department of Economics at St. Cloud State University; Louis Johnston, Ph.D., associate professor of economics at the College of St. Benedict and St. John�s University; and Rich MacDonald, Ph.D., assistant director of the Center for Economic Education at St. Cloud State University.

Their presentation will describe the economy of the St. Cloud area, including a brief history, a description of the economy�s performance in 2009, and thoughts on how the economy is likely to fare in the future.

For more information about programming at Great River Regional Library, visit the library�s Events page at, or contact the library at 320-650-2500.

I draw "present" out of that list of three. Johnston, an excellent economic historian as well as macroeconomist, does "past" and MacDonald will do "future". It's not the biggest of rooms, so if you want a seat come early.

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Beware arguing with an economist 

This is why you don't want to mess with us:
I raced to the sole fax service provider in town, a small office supply shop. He charged two bucks. I opened my wallet and discovered that only had a dollar. (To this day I rarely have more than five bucks in my wallet.) I asked him if he'd please fax it for a buck. He flat out refused my offer. "I have my overhead to consider."

The shopkeeper obviously didn't know he was dealing with an economist. "No, you really don't have overhead to consider. You face the same overhead expense whether or not you fax my paper. It will cost you no more than fifty cents for the phone call. Period. I give you a buck and you can make fifty cents that you can allocate to your overhead or anything else for that matter. If you keep insisting upon two bucks, you receive nothing for your overhead expenses. You lose. You don't make a penny."

He accepted my offer. I don't know if he bought my marginal cost / marginal revenue argument, or if he just wanted me out of his store. In either case, it's the margin that mattered.
I have used this argument to get hotel rooms at very cheap prices without needing William Shatner's assistance, including a Vegas Strip hotel for $20 many years ago. (I promised the clerk I'd never say which hotel, so the secret's still safe...)


Monday, January 18, 2010

Go here to see a 2-minute video on Scott Brown's rally yesterday. Not only did he pack Mechanics Hall with at least 2000 people but the Crowne Hotel, up the street, opened its halls for a second visit, at least another 1500 and that doesn't count those who couldn't get in. Compare the enthusiasm here with the dull response at Martha aka "Marcia" Coakley's rally on Sunday. Hmmmmm

For the record the teachers' union members were not appearing at their phone bank this morning because of the weather. But, Scott's phone banks were fully staffed.

Go Scott. Go here to help with phone calls. We have to get out the Republicans and independents voting our way. We have no choice.

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A list of proposed taxes from the Democrats in D.C., via David Boaz. There is a similar list for the state DFL from Faegre and Benson last June:
Expect many of those to make a return performance in 2010.

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About that Vikings stadium article 

I've had several people forward me this article from the weekend WSJ (alternate non-WSJ copy here) on how to measure the value of the Minnesota Vikings. I found an ungated version of the paper (I think) here. Much as the article suggests, there's some technical analysis in here. But here's the basic point I think they are making.

Your child is threatening to leave if you don't let him go out with his friends tonight. Your decision whether to cave in to this kid or not depends in part on whether you think he'll carry out his threat. If you think the threat is real, you may be more willing to relent. (Of course not me. I'm a hard dad.)

Likewise, we've been through this with the Twins. They at one time told us they were leaving, taking their marbles and going to Charlotte. While some fans panicked, many others and the state of Minnesota called Carl Pohlad's bluff, which ended up failing. It took another 8 years before the papers got signed for a new Twins stadium. Interestingly, at that time there was no threat of leaving.

This matters greatly to the reaction of people to a survey asking "how much would you be willing to pay to build a new stadium for the Vikings?" When such a survey was done for the Jacksonville Jaguars, they got a very low number (about $36 million, well below what Jacksonville subsidizes for the Jags.) The authors of the Viking study point out that at the time the Jag survey was done the threat of Jacksonville leaving had disappeared. So you had to ask Viking fans at the time of a threat. The use of 2002 in that Viking study is not an accident. It's the time Red McCoombs was threatening to sell the team to an out-of-state party because his in-state offers were too low.

The answer that the paper gives of $515 per household overstates the case the authors made, since building the new stadium costs them a perceived amount of future income as well. The authors measure this as well, and the net-of-stadium benefit to Minnesotans is $292. They might be willing to pay this if you have a credible threat of leaving ... which is why sports leagues go to such lengths and torture fans. It's a pretty ugly thing to do to people, but when the payoff is that large, it's hard to pass up that temptation.

There are many people skeptical of this paper's methodology, but it continues to be used in cost-benefit analysis to measure the benefits of public goods, and if anything I think the authors over-sampled non-metro population to be sure they were a little conservative on their value. If you compare that number to today -- when while Viking fans are giddy, they do not think the Vikings will leave next year -- you will find it an obvious exaggeration. That's not what the paper measured though. It is more the answer to the question "how much would each Cleveland resident have paid if they saw Modell closing the door on the van?" Doesn't sound as far-fetched then, does it?

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Regulating the poor out of a car 

I had tweeted over the weekend on a story that the Tata Nano, which is sold for $2500 in India, is being fitted with safety and emissions features that will drive up its cost to $8000.

Tata Motors already has made a European version of the four-seat car that will cost about $8,000 when it debuts in 2011, and a Tata Technologies official said privately that the U.S. version is expected to have a comparable price. The official did not want to be identified because the price has not been made public.

Warren Harris, Tata Technologies president, would only say that the price would be more than the roughly $2,500 charged in India.

"The structural changes that would need to be made, the changes that would be required as far as emissions are concerned, and some of the features that would be appropriate to add to the vehicle for the North American market, obviously that would drive up the price point," he said.

Charlie Quimby thinks ... well, I am not sure what his protest is. See if you can figure this out:
Now maybe the professor intended it as a one-liner, but my hobby is digging into one-liners attempting to become political memes � in this case, that government regulation is denying American consumers a great, inexpensive mode of transportation.

You know, like it denies toddlers baby charms made with lead, forcing their moms to buy cadmium instead. I mean, how many kids actually gnaw on their bracelets?

King says:

But the young fella with only $3000 to spend on a car can buy it in India but not in the US due to regulators. Is that right?

No, it's not.

Here's a bit more about the Tata Nano, from Car and Driver.

We must not forget that the Nano is first and foremost a car for India, a country of about one billion people where fewer than two percent own a car. It was instigated by Ratan Tata, the chairman of the Tata conglomerate, India�s biggest corporation, in a gesture that looks as much philanthropic as business savvy. Watching the way whole families travel on motorcycles�rider, pillion passenger, and two children hanging on�and noting the terrible toll in road deaths involving two-wheelers, Tata called for a safer four-wheeled vehicle that bike riders could afford.

To be able to make a car so cheaply, the designers threw out safety features like airbags and stability control. Ever driven a golf cart at full throttle? Well, the Nano's flat-land top speed is allegedly 65 mph on 12-inch wheels. They also put no emission controls on what's essentially a pepped-up, 35 hp lawnmower motor.

So I cannot tell which of these points he's making:
  1. Young fellas would never drive a pepped-up lawnmower.
  2. Those cars are inherently unsafe on US or European roads.
I suppose he could be arguing that we should keep those people on bicycles, because Charlie likes bikes, but I'll bet that's not it.

As to the first point, I say that's why we have markets. I'm watching commercials during football yesterday and see an ad for Pepsi Throwback, or as I think of it, Mexican Pepsi. You know, the kind with real cane sugar. "For a limited time." Is there a market for that? Given the number of Anglos I know who go to Mexican groceries to buy it, and given Pepsi had to sue a Georgia distributorship to get it to stop making the cane sugar version, I'd say there is. So why does it persist in the corn-syrup variety? There was a time we decided corn syrup was better, now we think it might be worse, in terms of obesity. But corn is plentiful while cane sugar has to be imported and is subject to lots of tariffs ... from the corn syrup vendors (and the beet farmers.) So tastes will change, and eventually people may be willing to pay higher prices for sugar. But there will be others who continue to sell cheaper cola products with corn syrup. Why can't both products co-exist? Of course they can, and so can a Tata Nano alongside your Honda Civic. You can scoff at the idea that there's a market for that car, but it's Tata's decision to make.

People are willing to pay for safety, certainly, as well as a heater or air conditioning. But not an unlimited price. To take Charlie's second possible point, let's look at the demand curve for Nanos:

When we raise the price from $2500 to $8000 by adding safety doodads, heaters, etc., we reduce the number of Nanos sold from Q1 to Q2. Those who buy the Q2 Nanos are perhaps not as happy as they would have been with the $2500 car -- they have forked over $5500 for something they might have spent on tuition for their child to go to that private school down the road -- but they decide the car is still worth it at $8000.

What to say about the consumers represented between Q1 and Q2? Perhaps they can, as Charlie later suggests, buy a used car. But that market contains car without warranties, and with repair bills that have a lot more volatility than a new car. For a poor family, a broken car is a serious burden. Or they could use public transportation, or ride a bicycle, or walk. All of these are possible, but they limit job choices and make shopping for bargains harder. Their lives are made poorer. The use of the substitute to the Nano removes value from their lives (what economists call "deadweight losses," represented by the area of triangle A in the graph above. If it was 1000 people who were pushed out of Nanos because of the regulation, that cost would be $2.75 million (the area of A for a triangle with base 1000 and height $5500.)

Add to this the possibility that walking and biking are perhaps more dangerous than riding in a Nano -- isn't that why Mr. Tata made them? -- and it is not at all clear that a family is better off with regulations that add $5500 to the price of a car.

Why not let people decide for themselves between the $8000 and $2500 car?

P.S. Cars also help you get out of the way of a natural disaster.


Who's going to buy that debt? 

Greg Mankiw writes in the New York Times:
Yet, despite having the two classic ingredients for high inflation, the United States has experienced only benign price increases. Over the last year, the core Consumer Price Index, excluding food and energy, has risen by less than 2 percent. And long-term interest rates remain relatively low, suggesting that the bond market isn�t terribly worried about inflation. What gives?

Part of the answer is that while we have large budget deficits and rapid money growth, one isn�t causing the other. Ben S. Bernanke, the Fed chairman, has been printing money not to finance President Obama�s spending but to rescue the financial system and prop up a weak economy.

Moreover, banks have been happy to hold much of that new money as excess reserves. In normal times when the Fed expands the monetary base, banks lend that money, and other money-supply measures grow in parallel. But these are not normal times.
Indeed they are not. Mankiw points out two: quantitative easing and interest paid on reserves. He does not note that excess reserves may be encouraged by the payment of interest. Moreover, as John Mauldin writes in his weekly analysis, we know that the quantitative easing will end soon:
The Federal Reserve has been very clear about the fact that they intend to stop the quantitative easing program at the end of March. What that means in practice is that they are going to stop buying mortgage securities. That does two things. As Bill Gross so aptly points out, those mortgage purchases helped keep mortgage rates low. But they also financed the US government fiscal deficit, albeit indirectly. It seems that funds and banks that sold the mortgage securities turned around and bought US government debt or put the cash right back at the Fed.

Foreigners bought about $300 billion of the $1.5 trillion in new government debt. The rest came from the US, courtesy of the Fed buying mortgages. But that program stops (theoretically) at the end of March. The government still plans to run yet another $1.4-trillion-dollar deficit (give or take a few hundred billion). The question is, who will buy the debt? Foreigners will kick in another $300 billion, unless they decide to stop selling us stuff, or buy other less liquid or physical assets. So far there is no sign of that.

But as I asked last year, who is going to buy the multiple trillions in government debt that the G-7 countries want to issue? Who is going to buy another $1 trillion here in just the US? That is 7% of GDP. That means that consumers and businesses will have to save an additional 7% of GDP just to finance government debt at the federal level, not counting state and local debt.
The quantity of Treasuries bought has to equal the quantity of Treasuries sold. If you can't sell them at current interest rates, don't they have to go up? Mankiw wonders too:
Investors snapping up 30-year Treasury bonds paying less than 5 percent are betting that the Fed will keep these inflation risks in check. They are probably right. But because current monetary and fiscal policy is so far outside the bounds of historical norms, it�s hard for anyone to be sure. A decade from now, we may look back at today�s bond market as the irrational exuberance of this era.
One can only imagine what this does for investment and housing.


Saturday, January 16, 2010

A note from Haiti 

A note this PM from one of my alumni who knows a family there.
Some friends of my family, the Williams', have been working with Mission Aviation Fellowship in Haiti for the past 20ish years. They are affiliated with a school that is engaged in the relief effort that is accepting paypal donations:

Everyone except Mark, the father/husband in this family, is currently safe state side. The two younger boys left for college a week or so ago. Here's something Glee, the mom/wife, said in her facebook status yesterday morning: We just had another large, rumbling aftershock that sent us out into the streets again. Then we heard singing from the ravine, in Creole tranlated, On Christ the Solid Rock I Stand, All Other Ground is Sinking Sand. The Haitian people are amazing!
Glee notes separately, when we asked permission to post this, that she and the children have left because to stay would drain very scarce food resources. "Pray the gas holds out for transportation," she concludes. The school's website says they have converted themselves into an orphanage and temporary hospital; there are people camping on the soccer field.

I couldn't find the song in Creole, but here is the song those Haitians were singing at the bottom; I'll be asking the band I sing with to do this song soon. There was a wonderful caller -- "Paul in Alabama" -- on Dennis Miller's show this week, where Dennis was wondering that most basic of questions, how can a loving God permit such pain in the world. He had referred to it as an "act of God" and the caller gave a mild correction (paraphrasing; if you are a Dennis Miller Zone member, it's the Thursday call of the day.): "An earthquake is not an act of God. It is an act of nature. The act of God is what we do about the earthquake and the suffering."

What are you called to do?

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Massachusetts, Scott Brown, the Numbers 

The range of polling results for the upcoming MA US Senate race have been inconsistent, but show an upward trend for the Republican candidate, Scott Brown. I don't often follow polls but in this race, they are interesting. MA is supposed to be a very blue state, perhaps the bluest so one would expect the polls to reflect a disproportionate number of Democrats as being polled.

Then I saw these surprising numbers in the WSJ: "And many people do not realize that independents outnumber Democrats�51% of registered voters in the state are not affiliated with a party, while 37% are registered as Democrats and 11% as Republicans." Hmmmm. Even with a 3+:1 advantage for Democrats, the percent of independents really impacts the results. If you add the independents and Republicans, the total is 62%. Another hmmmm. My non-statistical observations have led me to conclude that Independents vote for Democrats far more often the Republicans. If 'my' observations are correct, then the polls in MA showing Scott Brown even or ahead indicate that independents are moving right for whatever reason.

I still believe the result is still too close to predict and possibly, Coakley could end up with a huge win. But, then again, Brown may pull off an incredible win.

Jon Keller, author of the article and a political analyst for WBZ radio and TV in Boston, sums up the article with this observatin: "Are we in for another shot heard 'round the world? Perhaps. More likely, listen for the sound of horse hooves on the pavement, and a modern-day version of Paul Revere's historic warning�the backlash is coming."

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Friday, January 15, 2010

Odds 'n' Ends 

The Massachusetts US Senate race has come alive. A few observations: Whether or not Scott Brown is a "true conservative" he has energized the conservative/Republican base. He has raised over $1,000,000/day M-F this week. The Democratic Senate caucus now has to spend their money on a race they thought they had in the bag. Hmmmmm - what does this mean?

Conservatives understand anyone besides a Democrat is a breakthrough in blue, blue MA. Frankly, I think it's still a toss-up. And with Obama heading to MA - well, let's say, he needs a trip with a positive (for him) versus negative (Copenhagen 1, Copenhagen 2, HC, etc.) outcome. Heck, if Brown comes within 10 points, it will shake the Dems to the core.

Haiti - the US military provides the world standard for handling crises. They are organized, efficient, smart, and definitely hard working. Forget the bureaucrats, trust our Army, Navy, Air Force and Marines to get the job done.

1 - The aircraft carrier USS Carl Vinson and half a dozen other U.S. Navy ships are steaming toward Haiti. They will join some 900 soldiers from the 82nd Airborne Division in providing emergency aid. 2200 Marines will also be on hand.
2 - Our military basic business is protecting our freedoms but it also provides incredible humanitarian relief. After the 2004 tsunami hit Indonesia and Thailand, when ports and roads were destroyed, the U.S. deployed 15,000 troops, a carrier task force (including a floating hospital and water purification systems), and a Marine expeditionary force. This flotilla supervised the delivery of tents, water, food, medicine, and other supplies before any other aid could arrive. (# 1,2 sourced from Mona Charen)

Other nations have sent help and will continue to do so but when it comes to making 'it' happen, our guys are the best. Haiti is a mess, has had corrupt government for a long time, and will be dicey for quite a while but if our guys can be given the means and backing they need, we can help them get back on their feet. There is no room for political correctness here - just do the job! They can.

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Tomorrow on the King Banaian Show 

The housing market continues to be the focus of much news, what with the workout of "phantom inventory" from banks, the HAMP failure, what is happening to the FHA, etc. I have been looking for a housing specialist, and on the show tomorrow I have Mary Tootikian, author of Stunned in America. She is a mortgage industry specialist with over 20 years in the business, and her book argues that the banks have overreacted to the loss of housing prices. Are we too tight with lending now? Who is responsible, and what can be done?

Please tune in! The show starts at 9am on KYCR (from the linked page you can open the stream) and Ms. Tootikian is expected to join us in the 10 o'clock hour. After that, head on over to the Sportsman Show with the NARN, 11-3.

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A little respect, please 

I have resisted speaking on the Norm Coleman for governor debate that rages around the MN blogs, but some posts have I think been more than a little disrespectful. Without naming names, I can characterize most of the discussion among the right and center-right blogs as being of the following varieties:
The last group bothers me in their vitriol, but many blogs thrive on it and for the most part my decision is not to read them. (Their quotes come to my via other blogs.) Sometimes they strike me as people who would rather be right than win, think it's better to lose an election to win back the party's soul. Just to remind them, there was a 16 year gap between Goldwater defeat and Reagan's election.

But the penultimate group bothers me as well because while the writer can certainly "see through Coleman" she or he does not trust the others at the state party convention to do so as well, thus losing the endorsement. (Let me add that I fully expect if Coleman asked for the endorsement and failed to get it, he would not run in the primary. I would be the first to voice disappointment if he did challenge the endorsed candidate in the primary. The other party does that; Republicans don't.)

There is a process by which one gets the endorsement. Whatever happened to "let the best man win?" Why would it produce a candidate that cannot win? If it would, then it's the process that has the problem, not the candidate. Any party member in good standing has the right to seek the endorsement and, after all his troubles last year, Sen. Coleman should have that right as much as any other GOPer.

Either trust the process or fix it. Don't use disrespect and bile to cover your lack of faith in your fellow party members to pick the best candidate.

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The importance of knowing your statistic's quality 

Because I seem to have exasperated poor Benjamin, let me give an example of what I mean by watching your measurements. The use of principal components analysis (PCA) allows for the construction of a synthetic temperature measurement to replace whatever poor or non-existent data you have. My caution -- not a refutation, though Benjamin would have you believe I am skeptical of the whole global warming hypothesis (which means nothing -- I'm skeptical of the law of demand -- what you want to know is the diffusion of my prior beliefs in a Bayesian sense) -- my caution is from experience that PCA can give you very different synthetic measures depending on choice of proxy. That is my considered opinion from having written papers on the subject as a social scientist.

Now perhaps that isn't a problem in the natural sciences. I don't know; I'd be surprised if that was true, but I would respect a scientist's opinion on it. But one thing we probably COULD agree on is that if you had actual temperature data, you would rather use that than a synthetic measure.

Comes then to the discussion one Lubos Motl, a Czech physicist who has collected 351 years of annual average temperatures from a single site in central England. He uses a moving average of different lengths (beginning with a 30-year window, but varied between a decade and a century) and looks at the results. What does he find?
In the late 17th and early 18th century, there was clearly a much longer period when the 30-year trends were higher than the recent ones. There is nothing exceptional about the recent era. Because I don't want to waste time with the creation of confusing descriptions of the x-axis, let me list the ten 30-year intervals with the fastest warming trends:

1691 - 1720, 5.039 �C/century
1978 - 2007, 5.038 �C/century
1977 - 2006, 4.95 �C/century
1690 - 1719, 4.754 �C/century
1979 - 2008, 4.705 �C/century
1688 - 1717, 4.7 �C/century
1692 - 1721, 4.642 �C/century
1694 - 1723, 4.524 �C/century
1689 - 1718, 4.446 �C/century
1687 - 1716, 4.333 �C/century

You see, the early 18th century actually wins: even when you calculate the trends over the "sufficient" 30 years, the trend was faster than it is in the most recent 30 years.
Motl's graphs do better that that chart, but you get the point. 300 years ago, a period without the industrial age and CO2 in abundance, and it's just as warm. Bad for those who blame CO2 for the warming.

Suppose you wanted to be skeptical of this measurement? What could you say? You could argue the thermometer was bad -- after all, the earliest part of this period was a period of rapid development of thermometer technology. Maybe the calibration just isn't good enough.

Or you could argue central England is itself anomalous. Maybe -- Motl calls it a "decent proxy" for world temperature, but maybe it isn't. You would want to read more about that before you accepted it.

So here's the problem in a nutshell: I have a measure that I know, think it measured temperature well, measured it directly. I understand the underlying statistical technique well, and because the data is right there, I can replicate it. My confidence is improved by this, different from PCA. But because there's a chance they might have changed the thermometer, or that you can't generalize Northern Hemispheric temperatures from a single point in central England, I could not use it definitively. It's a skepticism not unlike my skepticism of people's claims about job loss based on the household survey. It could be that PCA's issues are not as severe as these. And it may be that there are other studies that give different experiences than the PCA studies and studies that support PCA. At the end of the day your beliefs are updated by the studies; you learn. And what you think is true evolves, with questioning and skepticism all along the way.

Or at least, that's what Scholars do.

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Thursday, January 14, 2010

Greed is like gravity 

Pedro Albuquerque is an economist at the University of Minnesota at Duluth and has a blog I've started to read regularly. A Brazilian, he's already been blogging for two years -- I feel bad I missed him before now. This piece is very interesting, on banker incentives:
A popular answer to the question [Why Are Bankers Reckless?] above based on political populism and inept moralism is: "because they're greedy." As an explanation it's as sophomoric as saying that airplanes crash because of the force of gravity, but apparently it gets some people elected.

University of Minnesota law professors Hill and Painter came with a better explanation based on sound economics: "because of wrong incentives created by poorly designed government regulations."
What the law professors propose is interesting -- a personal liability for bank debts created by paying in assessable stock. As Pedro would say, incentives matter, and making bank CEO income dependent on not taking too many risks would help. But I would wonder how to handle banks that gamble over time -- assessable stock would either have to be restricted to not sell for several years or you lose the stick that keeps the incentive in place. But which bankers would accept the loss of income from being assessed for bank mistakes that could happen after that banker moves on? I haven't read all of their paper, but it is an intriguing idea.

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Nervous smiles 

According to, an online database of job openings for PhDs in economics, the number of jobs advertised in the last four months of the year, when almost all jobs for newly minted economists are listed, was 1,285 in 2009, down by 21% on 2008�s figure. American economics departments churned out an average of 948 PhDs each year between 2006 and 2008. Add the number of candidates from European universities, which reckons is more than 350, and the supply of economists may exceed demand.
From the Economist, courtesy an anonymous reader. Not all those jobs are for new PhDs. We're one of those jobs for a new one, for now. Many state universities are sitting on offers "subject to budgetary approval", which risk-averse administrators may later choose to pull.

So should new PhD's wait to graduate like my undergrads? My experience is no -- you may see more job openings in future years, but also more candidates who didn't place, or placed in a school that is a poor match, etc. I tried to come out in January 1983, had ten interviews at the ASSAs and two fly-outs ... and no offers. Next year 23 interviews, five fly-outs and only two offers. Competition was fierce.

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Wednesday, January 13, 2010

Discouraged workers just isn't a new phenomenon 

Ed and Jim Geraghty have responded to yesterday's post on unemployment rates. I won't say anything about Ed's except that I agree with his and Crudele's point on Goolsbee (I find the latter's performance in the Administration more disappointing than any other economist's.) Geraghty makes the point:
Even when the economy starts creating jobs in bunches, you�re going to see the unemployment rate stay steady or perhaps even increase as these folks who dropped out of the labor force jump back in. The size of the U.S. civilian labor force in the third quarter of 2009 was 154,235,000; in the December figures it is 153,059,000. That�s 1,176,000 people who stopped counting towards the unemployment figure. Right now, the Obama administration's economic management is getting graded on a curve, because hundreds of thousands of frustrated out-of-work citizens are treated as nonentities under our usual statistics.
Well yes, but that's always been true, though this recession has been particularly harsh. Let's look at the last three recessions' data for the labor force participation rate, which is equal to the total people employed plus those (officially) unemployed divided by the population over age 16.

Geraghty certain has a point, that this time it's more than before, but we saw a drop in that rate from 66.8% to 66% around the 1990-91 recession and 67.2% to 66.5% in the 2001 case. This recession has twice the drop, which returns us to participation rates of the early 1980s (more on this in the next paragraph.) Like the others, that persists for awhile after the end of the recession. If you want to argue about the magnitude -- why is it so much more this time? -- you could point to extending unemployment benefits or that specialization makes job search longer. This doesn't obviate Geraghty's point that the official unemployment rate is masking some other people suffering the effects of recession, but that was Commissioner Shiskin's point in the literature I first reviewed.

But another question I would ask: do we really know that in the current economy, with its current demographics and with all the new labor-enhancing technologies created, that 66 or 67% labor force participation rates are the right ones, those we would find in full employment equilibrium? What is it that made 64% or 65% full employment in 1980s but not now? Please don't expect me to have an answer to that question right now, because I don't, but I am wondering if "the new normal" means a lower LFPR.


Important graph 

On average, consumers� out-of pocket healthcare costs increased 6.7 percent each year, while national healthcare expenditures increased by an average 9.8 percent each year.

By contrast, increases in expenditures by private insurers, Medicaid, and Medicare accounted for the majority of this excess cost growth�since 1965, private insurers� spending has increased by an average 10.8 percent annually, Medicaid spending has increased by an average 15.4 percent, and Medicare spending has increased by an average of 15.6 percent each year. Also, as you can see, the rate of growth in both Medicare and Medicaid spending far outpaces the rate of growth in out-of-pocket and private insurance costs.

And it�s about to get much worse. On Christmas Eve, the Senate passed the Patient Protection and Affordable Care Act, which further expands Medicaid and Medicare�s roles in the U.S. healthcare system.
Veronique de Rugy. I can't remember or find who said this first -- it does not originate with me -- but the difference between conservative and liberal solutions to health care are that conservatives think holding down costs requires us to make individuals responsible for more of the spending. (That could be vouchers, as Arnold Kling points out, if you worry about distributional effects.) Liberal solutions require a shifting of costs onto a broad tax base and use monopsony to control costs. But doesn't the graph say we've already tried this?

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Being where you hadn't before 

The brain is a neural tangle of near infinite possibility, which means that it spends a lot of time and energy choosing what not to notice. As a result, creativity is traded away for efficiency; we think in literal prose, not symbolist poetry. A bit of distance, however, helps loosen the chains of cognition, making it easier to see something new in the old; the mundane is grasped from a slightly more abstract perspective....
Jonah Lehrer, arguing that travel is integral to a healthy mind. I agree, and it's why I want my students to study abroad. If you're a student reading this, read Lehrer, then go!

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Tuesday, January 12, 2010

Wages fell more than employment 

Data now available from the U.S. Department of Labor�s Quarterly Census of Employment and Wages (QCEW) shows how the Great Recession�s impact has been distributed across the state. The QCEW data show that between the second quarter of 2008 and the second quarter of 2009 employment in Minnesota fell by 3.6 percent and total wages paid by the employers fell by 5.0 percent.

Job losses exceeded the state-wide average in central Minnesota, northeast Minnesota, and the Twin Cities region. Job losses in southwest, southeast and northwestern Minnesota were less than the statewide average, but still exceeded three percent.

Total wages paid by Minnesota employers fell by five percent over that same period. The declines in wages were largest in the twin cities and northeast Minnesota. Total wages grew slightly in southeast and southwest Minnesota even though the numbers of jobs declined.
From the new Minnesota budget update. The data for QCEW for Minnesota is here. (National data is due later this week.) The budget update showed income taxes were almost equal to forecast for November and December, but the latter was set to show very low growth in Q4 anyway. We're still way down on sales tax receipts, which indicates still to me a slow first half of 2010, inventory adjustment or not.

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Unemployment is a state of mind 

I confess that the most annoying thing about listening to conservative pundits is when they start using economic statistics. Like most of my more liberal ones, they often get them wrong. So reading Jim Geraghty or Ed Morrissey this morning in praise of John Crudele's NY Post column is causing me a little heartburn. Alan Reynolds explains:
The 17.3% figure [the U-6 figure that is all the rage on the right lately --kb], by contrast, starts with those looking for jobs during the past month and adds �all marginally attached workers, plus total employed part time for economic reasons.� That phrase �marginally attached� means people who looked for work at some point during the past year, but not lately. Contrary to press reports, relatively few of the �marginally attached� are those discouraged about job prospects. Adding discouraged workers would only push the unemployment rate up by half a percentage point, to 10.5%. And even that small number of discouraged workers is not simply those who could not find work, but those who simply �think� no work is available, or think they are too young, too old, or that they lack the necessary schooling or training.

The rest of the �marginally attached� don�t even think they can�t find work. Instead, they are not looking for work �for such reasons as school or family responsibilities, ill health, and transportation problems.� To describe such people who are not available for work as �underemployed� (much less unemployed) is an abuse of the language.

As for those �working part-time for economic reasons,� only a fourth say they could only find part-time work. Those who normally work a 9-to-5 schedule (35 hours a week) are counted as working part-time for economic reasons if they miss even one hour �for reasons such as holidays, illness and bad weather.� That isn�t really underemployment, much less �real� unemployment.
These measures have a history going back to 1994, when the Bureau of Labor Statistics developed a way of dealing with an issue found by its former commissioner Julius Shiskin. The whole idea of measuring unemployment is to see if we are efficiently using all our labor resources. But what is "efficient", and what are "all" our labor resources? Reynolds' dissection helps get at what one thinks is unemployed is an opinion about what people would do about their labor-versus-leisure choices in different states of the economy. That means you get inside their heads. And I don't know why you'd pick U-3 or U-6 or U-whatever unless you tell me what you think it means to efficiently use all available labor resources. In 1993 the BLS revised how they assessed those measures by changing the questionnaire (this is why you can't look for U-4 through U-6 before then.) See this article from the Monthly Labor Review in Sept. 1993 on how they changed measuring discouraged workers, in particular at page 24.

A shorter, more recent explanation of the U-# series is here. In a recent working paper from BLS researcher Steven Haugen writes:
These new questions on prior job search and current availability for those who wanted a job but were not currently looking also were used to identify a larger group of persons attached to the job market. Some persons indicate that other impediments, such as transportation problems or child care requirements, keep them from current job search. This larger group of persons (of which discouraged workers are a subset) is referred to as marginally attached workers, and are included in alternative indicator U-5.

The uppermost indicator in the range, U-6, adds in all persons employed part time for economic reasons. Including a group of employed persons is a large conceptual break from the other measures, but since many would agree that these persons are visibly underemployed, those who want to treat the underemployed on an equal basis with the unemployed may find this alternative measure useful.
But as Reynolds has pointed out above, the "part time for economic reasons" is also a state-of-mind concept -- many workers who are on 35 hour schedules consider themselves working full time and not deprived of income. They may not think they are underemployed -- that is left to researchers and pundits to decide. Why? What gives them the insight to know who wants a job and who doesn't, particularly when the Current Population Survey tries to remove subjectivity and takes usually about a 6-minute phone call?

Let me conclude with an anecdote sent by a reader whose large firm which is in "voluntary layoffs."
What surprised me was the attitude of more than one junior engineer also taking the voluntary layoff. In these cases, the junior engineers were viewing the layoff as a sabbatical. They plan to take their severance, then apply for unemployment and planned to mostly use it up before looking for another job.

When a few of us senior engineers heard this story we were amazed. None of us would have ever considered following such a plan during our careers. I guess we are all so work oriented we never would have considered it. I have read cases in the MSM about a "different attitude" toward unemployment during this recession.
Maybe it's different attitudes this time? The Current Population Survey won't tell you a thing about attitudes towards one's job status and neither does U-whatever.


No big man -- or woman 

Sadly, it comes to this for Ukraine.

It is humiliating for Ukraine that Mr Yanukovich, whose 2004 presidential campaign was widely seen as fraudulent, has not been hounded out of politics. He has survived thanks to a cynical political culture and the backing of big business. Even Mr Yushchenko has done deals with him.

Ms Tymoshenko should, in principle, be a more attractive choice, given her Orange credentials. But she has proved herself shamelessly opportunistic and shares the blame with Mr Yushchenko for the failures of the Orange camp. Her economic policies show a unnerving penchant for populist intervention, eg with arbitrary price caps.

In international affairs, both would balance ties with Russia with a slow push for European Union integration. Not much to choose between Ms T and Mr Y on this score.

So, whom to back in Sunday�s first round and next month�s run-off? Given the candidates� shortcomings, voters must focus on what is important. The key now is political stability. Only a stable Ukraine can achieve economic reform and recovery. Ms Tymoshenko is the polar opposite of a stabilising force. Mr Yanukovich, for all his manifest faults, may prove the lesser evil. Pity Ukraine that it has come to this.
One will recall long ago that Yushchenko had to make a constitutional deal to gain his victory, which left the government's real power in the fractious parliament, the Rada. Now, says LEvko, whomever wins will want to free themselves from the chains that bound Yushchenko.

Everyone favors democracy and freedom when they don't have power; the trick is to favor it when you do. Sacking it for the expediency of 'political stability' is no virtue.


Two sounds of financial crisis to the south 

The financial crisis may be subsiding in the U.S. -- may be -- but I am much less sanguine about its effects on our neighbors to the south. Friends send along to me two stories. In Argentina, a highly inflationary act by the government was opposed by the central bank, and so the government tried to get its governor to resign. When the governor refused, President Christina Fernandez fired the governor -- which it does not appear the law allows her to do. Monday a judge reinstated the governor and did not allow the reserves to be taken to pay off Fernandez' profligate spending. The battle continues. (h/t: Margaret Martin.)

This is not the first time the government has treated the BCRA as its piggy bank. It took $9.6 billion from reserves to pay off the IMF for its loans from the 2001 recession (during which the 1990s monetary reforms were lost.) For those who argue against central bank independence, this current crisis is a cautionary tale.

To the north, Venezuela is devaluing its currency. (H/T to both my former student Norm and to some of my show's Twittizens.) Angus at Kids Prefer Cheese thinks this is a good move; undoubtedly, the country could not afford to use its oil revenues to defend an overvalued exchange rate. But why does Venezuela have a 30% inflation rate?

I think the answer can be seen in part by its initiation of a dual exchange rate regime. As Caracas Chronicles shows, the dual exchange rate allows preferred businesses -- those with connections to Hugo Chavez -- to receive extra earnings from their exports, and potentially to screw those who are not preferred.

But as Caracas Chronicles puts into an earlier post, it has played the very same game the Argentines are trying to now. It receives dollars for the oil it sells and converts it to bolivars ... which the state oil company gives Chavez to spend. Then, when it wants to spend more money, it has to borrow it. How to pay for the borrowings? With the dollars they left at the central bank. Eventually there is inflation, and fewer international reserves supporting the bolivar. So what to do? Devalue, and any imported goods Venezuelan citizens were buying are suddenly much more expensive. In short, they are paying for Chavez' profligacy by loss of purchasing power for imports.

The Argentine story will get a little ink because it's a conflict between immediate needs and the law in that country. In Venezuela the law is simply one guy, and it's not news.

UPDATE: Price controls, Chavez-style. (h/t: Munger.)


Monday, January 11, 2010

Robust not, fragile more likely 

Just a quick note here after finally reading Iowahawk's hockey stick treatise. (h/t: Stephen Karlson.) I've no comment definitively on man-made global warming (except that my feet are cold, and I hope my grandchildren appreciate my sacrifice.) It's not an issue into which I've read deeply. But if the evidence we are discussing depends on principal components analysis, I can say I've spent time practicing that technique. Most social scientists thing of its use as a bit of a dark art largely because -- at least where I've used it -- the results are fragile (in the statistical sense of that word.) It's easy enough nowadays to run principal components, as Iowahawk shows, but it's also quite easy to change one item included in the list of proxy variables and get quite different results. Any social scientist who does statistics and has used PCA knows this (I talked to as many as I could find when I did the central bank independence and economic freedom papers. Most were not economists, because economists are even more leery of PCA than political scientists or sociologists.) What I did not know was that it was the method used to append the pre-1850 temperature data to the graph. It increases my skepticism to know this was the method they used.

Note, this doesn't make the scientists arguing for global warming wrong; it only means I want to see the raw data and run lots of permutations of the proxy variable list. Not providing that data or, worse, destroying it makes me suspicious, however.

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Should you come out of college this year? 

My colleague Jim Weber points out an interesting story in Newsweek on earnings of those who enter the labor force during a recession.
Some optimists�pointing to a recent spate of positive economic data, including increases in car sales, upticks in factory production, and a robust stock market, say no: the downturn simply hasn't been bad enough, for long enough, to create the next Depression generation. Yet there is powerful evidence that belies this argument; a National Bureau of Economic Research (NBER) paper released this past September looking at data from 1972 to 2006 shows that even one really tough year experienced in early adulthood is enough to fundamentally change people's core values and behaviors. Meanwhile, there's an entire body of research to show that recession babies not only invest more conservatively, they tend to make less money, choose safer jobs, and believe in wealth redistribution and more government intervention.
The research on attitudes comes from Paola Giuliano and Antonio Spilimbergo, and NBER has a summary of the research. Ungated version is here. They find that a college age student who lives through a severe recession believes more that luck plays a role in lifetime income than hard work. This leads to divergent views on the role of government, believing both that government should do more about income distribution but distrusting government's ability to do so. The effect is most pronounced when the "recession shock" strikes an 18-25 year old, and is much less of a shock to older adults.

Now the question really is whether it's the beliefs that do this, or stickiness of labor markets. A pure neo-classical story says that the shock to one's income in a recession is temporary and it should not matter (much) whether you come out of college in a recession. But if there are long-term contracts and searching for a job is costly, coming out of a school in a recession could depress earnings for years, regardless of what one believes. See this paper for one strand of evidence that the neoclassical model doesn't bear up too well: graduates in a recession earn about 8-10% less than those who come out in a boom, and it may take a decade for the difference in earnings to disappear. Even OMB director Peter Orszag has been reading this research, concluding
The evidence thus suggests that a recession hits young people particularly hard, knocking them off course with effects that last for years to come. As we rebuild a new foundation for economic growth, it�s critical that we keep this in mind.
Yes, keep it in mind, but what's a government to do about it? If it is the result of beliefs, government can't really do much. You could say it should prevent deep recessions, but it does not appear they are capable of preventing these. And if it's all sticky wages and long-term contracts, then the answer is to not sign those and jump jobs frequently. Like the ballplayer who signs a one-year contract in a bad market or jumps to a lesser league overseas, the college graduate can either be sure to take jobs that have easy exits or go to graduate school.

I graduated college in 1979 just as we began the first of two recessions in 1980 and 1981-82. Were it not for that, I probably would have married my high school sweetheart right away, found a job and stayed in my home town. That bad economy might have been the best thing to happen to me. But I am in academia, one of the most risk-averse career choices one can make.

By the way, I write this at the start of a new semester in which we have a record number of seniors in our undergraduate capstone course. Does this support or refute the hypothesis?

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Thursday, January 07, 2010

Waiting for family 

I visit my parents often in the winter in Myrtle Beach.  It has an airport that reminds me of how the old Ontario, CA, airport was before LA County decided they wanted it to be the alternative to LAX and enlarged it without regard for passengers.  In the old days you walked in, through security, and outside to gates that had benches.  Myrtle Beach doesn't have you wait outside, but you still walk on tarmac and up trucked-stairs to the plane.  There is something very 1960s about it; you expect an airplane door to open and John, Paul, George and Ringo to pop out.

But better for me is the airport's receiving area.  Passengers come out of the secure area down a long aisle.  Along one side are chairs, where people wait for their friends to arrive.  You never see these seats anywhere else.  Why?  My parents are typical -- seniors waiting for family to come to visit.  Even though it has been 30 degrees most of the week here, children my age arrive daily with smiles to see their parents who have managed to live well enough to be in a vacation area.  Those older people are the ones that need the seats, and there you are.  It is for me a reminder of a pre-9/11 time when going to the airport was exciting and fun.  When my parents picked me up I had been waiting for them, watching these people greet each other.  It was as happy a place as you've seen in an airport in many years, more like those mob scenes at foreign airports when the emigrants to America come back to visit Mom and Dad.

The area here is experiencing 12%+ unemployment; the first two restaurants we tried to visit were closed "temporarily".  (Had a fantastic meal at a small Greek place where we were served by Albanians who had worked in Greece -- figure that out for me please!)  Parking is easy everywhere.  The hospitality industry is still in trouble almost everywhere.  

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Stop the Health Control Legislation 

It's not "care" and it's not "insurance" it's "CONTROL" of 1/6 of our economy, period. If you are so sure we have problems, check out waiting times, MRI availability, etc. in other nations. It's not pretty.

How to stop it? This article on Scott Brown, taking on the Kennedy/Democrat/control machine in MA describes the best chance Republicans have had in a very long time, to get some balance in the MA representation group in DC. In addition, Scott's election could derail the health hurricane that will affect all of us, including those of you who are so enamored with central control.

If you can possible make a contribution to Scott, please do. Info is here - yes, I sent a check yesterday.

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Wednesday, January 06, 2010

Quote of the day 

I guess in a way there�s humor in everything, and everytime one of these delightful scholars get caught, the first thing all our giant brains say is, �Well, we don�t know if he�s connected to Al Qaeda.�

What exactly does that mean? You mean, does he get the newsletter? Is he a regular attendee of their annual regimental dinners, where the proceeds go to the Ronald McDonald House? Does he give up one weekend a month for drilling, and then they pay for college?
Larry Miller. If they had to wait for planes like I am right now, maybe they'd show their AQ cards and to see if they can go to the club and get free wi-fi and the complementary bar. "72 virgins AND a $7 meal voucher? I love America!"


Tuesday, January 05, 2010

Random question 

Is there a law that says when the temperature in any part of the old Confederacy gets below 35 degrees that all transportation ceases to function? It is clear but cold at Atlanta right now, and I have sat at the gate for my plane, scheduled for 10:24 departure, since 9:30. It is now 11:45. The plane is just now leaving Mobile (they say.) What? Did the plane just get cold in its bones and have the rumatizz (rheumatism -- alternate spelling for Beverly Hillbillies fans) flare up?

Climate change happens, people. Learn to deal with it. A $7 meal voucher in an airport with a $5 hamburger isn't dealing with it.

Meanwhile, Delta is now sending Northwest down the memory hole to "unlock more merger benefits." I miss you, Northwest. Never thought I'd say this, but I miss you.

UPDATE: One way to stop complaints: co-opt your competition. Run away Japan! Run away!


Monday, January 04, 2010

Trade as oppression 

One of our faculty teaches a course called "The Global Politics of Food" (not from the Political Science Department, by the way, so be sure not to direct any comments their way.) I am directed by that site to read more on why food matters. Being a guy who likes to eat, I thought I didn't need 20 more reasons, but what the heck, I'll find out. Maybe they can help my diet.

Most delightful is #10.
We can engage in oppressing communities of color when we seek to eat the food as a way of experiencing their culture. To whites, the culture of people of color can represent the unknown and "consuming" the culture through eating food can be a way to dominate it.
I am obviously not smart enough to be a sociologist. I thought when I offered to pay $15 for that plate of tofu and spinach tonight at Hsu's, and afterwards I say thank you and the owner says thank you (the double thank-you that John Stossel discusses) I had honored that person by engaging in mutually beneficial trade. I wanted the food more than the $15, and Hsu wanted the $15 more than the ingredients, time and labor, and overhead that went into serving me. So when I saw the pictures of NBA stars Larry Bird and Magic Johnson in the entryway, posing with the owner, they were just "oppressing communities of color."

I even waited 30 minutes for a table to get on with my oppressing. Man, when I want to oppress there is NO stopping me! So when I went to the Turkish restaurant last night, that was me getting even. You got me. In fact, I need to go now and get some more grape leaves. I have got a LOT of getting even to do.

OK, sorry if that is too sarcastic for some of you. But it does seem that if a person of pallor should ever engage in a trade with a person of color, and the paler person gains from it, some leftists have to find some way to show that that transaction is wrong. And I find that thinking simply primitive.


Compared to Minnesota, Atlanta is balmy, but at 28 degrees I sure don't feel this way. The conference seems as busy as ever, and the geek parade seems as always. (Yes, I saw that damn article in the weekend WSJ. They run one of those every year it seems. Made for good radio Saturday, little else.) Yet I sense the job market for economists is not as good this year as even last year, when it was really not good. (One way to know -- people who interview with us do not look at their watches to be sure they're not late for their next interview.)

I find the meeting more is an opportunity to see old friends and make new ones than to hear the latest research. I have not gone to any of the plenary sessions that will make most of the news reports from here. Not they're not interesting or important, but that I can get 85% of what they say from news and blogs, but nothing replaces the personal contacts -- talk to a publisher, another econ ed center director, and an old cousin of mine who lives in Atlanta, all in the last 24 hours. No matter how sophisticated we make these things, little will replace that aspect of the conference life, and little should.


Saturday, January 02, 2010

Today on the King Banaian Show 

The King Banaian Show will be LIVE tomorrow starting at 9am. Here's the show's site, and be sure to use Twitter either by #kbrs or by following the show on Twitter. We'll have not just a year in review but a whole decade of it. What were the best business stories, and the worst? (I'm pretty sure we know what #1 of the latter was!) It's a New Year Edition of KBRS, and I look forward to your listening and phone calls at 651-289-4477.

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Friday, January 01, 2010

A great decade: Microwaves, VCRs and PCs, oh my! 

In thinking about wealth, income and poverty over the last week I found myself coming back to a blog post I had clipped by Steven Horwitz about the ubiquity of appliances in the households of the poor. (Clipped because it will make part of a lecture in my freshman economics and citizenship class this spring.) Horwitz's data is to compare the share of families living below the poverty line over time and with all families in terms of whether they own a refrigerator, a dishwasher, a color TV, etc. It reminded me of the 1993 Dallas Fed Annual Report by Michael Cox and Richard Alm, but with much newer data.

One thing that jumped off the table to me was the microwave. I have posted about microwaves before. They are a great invention, and were a rarity in 1971. They save time for me. I had one in grad school, when my income was below the poverty line. I lived on nuked potatoes, mac and cheese and hot dogs. It saved time and money. My last year in grad school was 1984, and in that year only 12.5% of families below the poverty line had them. In 2005, 91.2% of poor families do.

When I posted about income and poverty earlier this week, I wasn't as clear as I want to be on what it is we mean by poverty. I find the data Horwitz provides very persuasive -- the poor are much better off than they were 30 years ago -- but most critics will not be concerned with absolute levels of poverty. What they care about is relative measures, the gap between rich and poor. Seeing someone else doing better than you are, even when both your life situations are improving, seems to make some people unhappy. (Maybe that explains this relationship between happiness and red/blue states that Allysia Finley wrote about this morning.) I don't admire jealousy, though, and when I see my children succumbing to that vice I try to correct it. Correcting it seldom means taking toys from my son and giving them to my daughter. Markets, though, by bringing down costs, remove one by one the sources of jealousy.

And it's more than microwaves. What the microwave is in the 1970s, the VCR is for the 1980s and the personal computer in the 1990s. Horwitz's table shows how market economies have allowed these inventions to spread. I recall marveling at a Kaypro "portable computer" in an economist's home in 1984. Now 42.4% of families living in poverty have a PC far more powerful than that dinosaur. That Kaypro cost that economist about 80 hours of his labor in 1984 (estimating his income at that time; his Kaypro II cost $1595 in 1983.) On the wage I got when I first came to SCSU, it would have cost me 122 hours of work. The MacBook I am working on right now cost me 33.2. It would cost someone making minimum wage about 133 hours, but they can buy a PC for half the price of my Mac, and it won't weigh 26 pounds and it will get on that information superhighway.

I looked for an emergency cellphone for Mrs, who almost never uses one but should have one in her car. With 300 minutes. Cost? $30. What was this option to cost me a decade ago. 48.3% of those below the poverty line have cell phones in 2005 according to Horwitz' table. (As I mentioned in China, the share of people using them must be higher. Our cell phone industry is ineffective in reducing prices ... and yet ...)

So, what will be the item that spreads down -- in the homes of the well-to-do now but commonplace to the poor in a generation? Better question: Will any not become commonplace?


Mrs. S writes 

About New Year's resolutions, mostly by interviewing me and a local triathlete. If you are still thinking about making a resolution, the triathlete says go for it, I say don't. Read and decide.

I resolve to wish everyone a Happy New Year!


Happy New Year 

To Our Readers,

Thank you for your interest, comments and support during 2009. It was quite the year.

May the US continue to lead and prosper. For all our internal squabbling, this is the only nation in which I wish to live. We have our faults but if one were to dig below the surface of other nations, cultures, history, etc. one would discover that what makes us different is most of us are willing to learn, correct mistakes and move forward.

We remain the one place where drive, effort, work and taking risk can result in success across the board: emotional, social, physical and mental. One's "tribe" does not restrict one's opportunities. We need to remember this. Ingenuity, guts and freedom have produced a fantastic culture and the entire planet benefits.

Best wishes in all aspects of your life for 2010.