Archive for February, 2010

Greg Mankiw on “spreading the wealth around”

Saturday, February 27th, 2010

Harvard economist Greg Mankiw has written a new paper, one inspired by candidate Barack Obama’s response to a question posed by “Joe the Plumber” during the presidential campaign of 2008. Joe asked then-Senator Obama about his proposal to raise taxes on high-income households by letting GW Bush’s tax-cuts expire. The candidate responded, in part, “It’s not that I want to punish your success. I just want to make sure that everybody who is behind you, that they’ve got a chance at success, too…. I think when you spread the wealth around, it’s good for everybody.”  (more…)

support for Obama’s health care reform

Saturday, February 27th, 2010

New York Times columnist David Leonhardt reports that an impressive list of health economists and other scholars have released a letter supporting President Obama’s proposal for health care reform. The letter states, in part:

Our health care system is in crisis. America has higher per-capita medical spending than any other industrial democracy, …. Health insurance premiums are rising rapidly, particularly within individual and small group markets. Meanwhile, the financial security traditionally offered by health insurance continues to erode, with rapid increases in out-of-pocket spending. Rising public health care program costs are driving large, ultimately unsustainable state and federal budget deficits. It is likely that more than 50 million Americans are now uninsured, with more losing coverage every day due to the twin challenges of deep recession and rising health care costs. Although this country has some of the best medical technology in the world, the quality and effectiveness of medical care often falls short of what every American deserves.

This week, the President put forth a proposal for finishing the job of enacting comprehensive health care reform with which Congress has struggled for the past year. …. Most notably, the President’s proposal would cover 30 million people who would otherwise remain uninsured. The Congressional Budget office reports that Republican proposals would only expand coverage to 3 million.

You can read the full letter at Economix.

Signers include David Cutler and Theda Skocpol of Harvard, Jonathan Gruber of MIT, Paul Starr of Princeton and Henry Aaron of Brookings.

China’s labour shortage

Friday, February 26th, 2010

Surprising news this morning: The world’s most populous country lacks workers to fuel its export-lead recovery.

The problem is particularly acute in southern Guangdong province and its Pearl river delta manufacturing heartland near Hong Kong, the region known as “the workshop of the world”. ….

Recruiters for Galanz, the world’s largest manufacturer of microwave ovens, were this week offering production line workers a relatively robust monthly base wage of Rmb1,700 ($250). Skilled technicians in much greater demand were commanding 65 per cent more.

In Dongguan, a manufacturing centre near Guangzhou, the local government estimates that there is now just one worker for every two jobs. At the height of the crisis, which for Chinese manufacturers came last spring, local officials calculated there were four workers competing for every three jobs.

Tom Mitchell, “Labour shortage hits China export recovery”, Financial Times, 26 February 2010.

collapse or survival?

Thursday, February 25th, 2010

[B]efore we begin to compare eighth-century Maya rulers to twenty-first-century CEOs, we should consider whether the transformations that marked the end of divine rulership qualify as the apocalyptic collapse that some writers and movie producers want to suggest. Certainly, total systemic failure makes for a more dramatic plot-line, but with a descendent community of several million people, it is hardly an accurate assessment and is even denigrating to descendants who read that their ancestors supposedly “died out” by the tenth century and that they are not related to the Classic Maya who built the cities – now in ruins – on which a mega-million dollar tourist industry has been built.

Patricia A. McAnany and Tomás Gallareta Negrón, “Bellicose Rulers and Climatological Peril? Retrofitting Twenty-First-Century Woes on Eighth-Century Maya Society”, in Questioning Collapse, ed. P.A. McAnany and N. Yoffee (Cambridge University Press, 2010), pp. 164-165.

University of North Carolina anthropologist Patrica McAnany is author of Ancestral Maya Economies in Archaeological Perspective (Cambridge University Press, 2009). Her co-author, archaeologist Tomás Gallareta Negrón, is a Yucatan native and staff member of the Instituto Nacional de Antropologia y Historia (Mexico).

Greece and European union

Tuesday, February 23rd, 2010

FT columnist Gideon Rachman explains that the euro was intended primarily as a step toward political union. The time has come for the EU to move to full union, he argues, with “common European taxes and a mechanism for big fiscal transfers between EU states”. This will not be easy.

Most citizens of the EU still feel far more attached to their own nation than to the Union. “Europeans” are much less willing to bail each other out than they are to bail out their own fellow countrymen. West Germany spent billions to turn around East Germany. But there is little sign that the Germans are willing to spend further billions to turn around Greece – with the spectre of similar crises to come in Spain and Italy. The Germans may feel very “European” in principle. But when they are asked to start writing large cheques to support a bankrupt Greek state, they start to feel strangely German again.

As for the Greeks, they too have counted among the most ardently pro-European people in the Union. But the price of any EU bail-out of Greece is likely to be savage austerity measures, overseen by officials sent in from Brussels. That is likely to feel more like colonisation than a voluntary “political union”.

Gideon Rachman, “Greece threatens more than the euro”, Financial Times, 23 February 2010.

Gideon Rachman (1963-) became chief foreign affairs columnist for the Financial Times in July 2006, following a 15-year career at The Economist. He maintains a blog at

what we are reading

Monday, February 22nd, 2010

Larissa MacFarquhar., “The Deflationist: How Paul Krugman found politics”, The New Yorker, 1 March 2010. Long profile that describes Krugman’s wife, their two cats, their three homes (in Princeton, New York City, Virgin Islands), plus how -and why- he became politicized.

Questioning Collapse: Human Resilience, Ecological Vulnerability, and the Aftermath of Empire, edited by Patricia A. McAnany and Norman Yoffee (Cambridge University Press, 2010). Great collection of essays written (mostly) by anthropologists upset by geographer Jared Diamond’s best-selling books Guns, Germs, and Steel (Norton, 1997) and Collapse: How Societies Choose to Fail or Succeed (Viking, 2005). Anthropologists react to Jared Diamond in much the same way as economists react to Friedman (Thomas, the NY Times journalist, not Milton!). Both Friedman and Diamond write well for the masses, but have the unfortunate habit of inserting a lot of nonsense into their books. No, the reaction of professional economists and anthropologists, respectively, is not driven by envy – at least not in my opinion.

Alexander M. Danzer, “Retirement Responses to a Generous Pension Reform: Evidence from a Natural Experiment in Eastern Europe”, IZA Discussion Paper No. 4726 (January 2010). Labour market effects of the introduction of a quasi-universal, almost flat age pension in the Ukraine.

Herbert Gintis on schooling

Monday, February 22nd, 2010

And now, a pro-choice argument from the political left. Herb Gintis, like Tom Paine, understands that meaningful choice is possible only when parents have the means to pay for the schooling of their choice. Government finance is needed, but there is no compelling reason to limit this to government-run schools.

Education is one of the few areas of economic life where the model of “regulated competitive delivery” has not penetrated to an appreciable extent. In most market economies the whole range of educational services is delivered by government monopolies, although families who can afford to do so are permitted to opt for private schools. (p. 11)


The government must provide some services monopolistically, because the market failures involved in competitive delivery are excessively costly. Examples include tax collection, police protection, national defense, and regulatory agencies. In each case we can provide compelling reasons why competitive delivery would not work. No such reasons can be given in the case of educational services. Indeed, … competitive delivery of educational services should better meet the private needs of parents and children, while fulfilling the educational systems traditional social functions as well.

People have rather prosaic goals for schools: reading, writing, history, math, and science, punctuality and self- discipline. When they are dissatisfied with what they are getting, they would doubtless benefit from having the power to induce the school to change, using the threat of taking their “business” elsewhere. The existing educational system disempowers parents by obliging them to initiate a complex political dynamic (influence the school board, affect the outcome of a local election, initiate a court battle) against great odds to induce their providers to change. (p. 18)

Herbert Gintis, “The Political Economy of School Choice”, Teachers College Record, 96:3 (Spring 1995).

Herbert Gintis (1940-) is coauthor, with Samuel Bowles, of Schooling in Capitalist America (Basic Books, New York, 1976), and a founder in 1968 of the Union for Radical Political Economics. He is currently Professor at Central European University (Budapest) and External Professor at Santa Fe Institute in the USA.

From the Thought du Jour archive.

Pliny the Younger on schooling

Monday, February 22nd, 2010

Yesterday I posted the views on schooling of Thomas Paine and Adam Smith. Today I turn to an earlier writer, one whose views are remarkably similar to those of Adam Smith.

[K]ids and schools did not just appear on the scene five decades ago, and neither did the debate over school governance. That point is most sharply driven home by a letter from a successful lawyer, outlining his views on schooling. He was born in the early sixties in a small town and lamented the fact that it didn’t have a high-school, so he decided to found one himself. But rather than fully endowing the new school, which he could easily have afforded to do, he chose to supply only a third of the necessary funds. In his letter, he explained his decision this way:

I would promise the whole amount were I not afraid that someday my gift might be abused for someone’s selfish purposes, as I see happen in many places where teachers’ salaries are paid from public funds. There is only one remedy to meet this evil: if the appointment of teachers is left entirely to the parents, and they are conscientious about making a wise choice through their obligation to contribute to the cost. People who may be careless about another person’s money are sure to be careful about their own, and they will see that only a suitable recipient shall be found for my money if he is also to have their own… I am leaving everything open for the parents: the decision and choice are to be theirs-all I want is to make the arrangements and pay my share.

What’s remarkable about his letter isn’t so much its contents as its context. As I said, it’s author was born in the early sixties–not the early 1960s or the early 1860s, but the early 60s of the first century A.D. His name was Pliny the Younger, and he was a citizen of the Roman Empire.

Andrew J. Coulson, “Forgotten Lessons”, June 13th, 1997.

Andrew Coulson is Director of the Cato Institute’s Center for Educational Freedom, and serves on the Advisory Council of the E.G. West Centre for Market Solutions in Education at the University of Newcastle, UK. He is author of Market Education: The Unknown History (Transaction Publishers, 1999).

Lifted from the Thought du Jour archive.

the American dream

Sunday, February 21st, 2010

Clive Crook, the British journalist who migrated to the United States in 2005, has some interesting thoughts on wealth and poverty in his new country of residence.

[T]he American dream is something of a fraud. Intergenerational social mobility–your chances of moving up from poverty, or down from great wealth–are lower in the US than in most of Europe. ….

My impression is that white Americans are less given to racism than white Europeans. (See who they elected president.) They are more prejudiced against poverty than they are against black people. The idea of the “deserving poor” has little purchase in American culture. If you are poor, it is probably your fault, says the culture: it might be better all round if you and the other losers live together and stay out of our way. The poor seem willing to put up with it.

Clive Crook, “Reflections on the American dream”, CrookBlog, 19 February 2010.

Tom Paine on schooling

Sunday, February 21st, 2010

One does not ordinarily think of Tom Paine [1737-1809] when considering education or schools. As the author of Common Sense and the American Crisis papers, he was a revolutionary, not only a radical in the eyes of the English, but a traitor. ….

[I]n Part 2, Chapter 5 of The Rights of Man, he places himself squarely in the company of Adam Smith and Thomas Jefferson, among others, when he urged the education of students by providing for the costs of their schooling directly through the students themselves. While the term “voucher” didn’t come into common usage until after its introduction by Milton Friedman in the 1950s, the concept is the same. ….

In Paine’s words, … “Public schools do not answer the general purpose of the poor…. Education, to be useful to the poor, should be on the spot and the best method, I believe, to accomplish this, is to enable the parents to pay the expenxe themselves with the aid mentioned above.”

David W. Kirkpatrick, “Tom Paine on Education”, 17 February 2010.

I was previously unaware of Paine’s writings on this subject, but the views of Adam Smith are well-known – for example:

The public can facilitate this acquisition [of basic education] by establishing in every parish or district a little school, where children may be taught for a reward so moderate that even a common labourer may afford it; the master being partly, but not wholly, paid by the public, because, if he was wholly, or even principally, paid by it, he would soon learn to neglect his business.

Adam Smith, Wealth of Nations (1776), book V, chapter 1.

Tom Paine’s views were clearly more radical than those of Adam Smith. (I am not sure about Thomas Jefferson.) Paine, unlike Smith, favoured full public funding of schooling, so long as payments are channelled through parents, who can ‘vote with their feet’ when schools fail.