Archive for August, 2010

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socialism in the USA

Sunday, August 22nd, 2010

Canadian economist David Henderson, who resides in California, shares his thoughts on politics and life in the United States and in Canada.

Peter Suderman of Reason interviewed me last week in connection with a short article I did on how Canadian politicians Jean Chretien and Paul Martin turned around the federal budget from persistent deficits to persistent surpluses (until the latest recession.) After the e-mail interview, I learned that he would use only pieces of it and so here’s the whole thing.

[snip]

PS: Do you think most citizens and politicians are serious about limiting government’s reach in the U.S.?

DRH: They’re serious at some margin; but the scary thing is how far the margin has shifted. Remember what Norman Thomas of the Socialist Party told reporters about why he wouldn’t run again for President in 1956. He said that the Republican Party had accepted virtually the whole of his 1932 platform. The way respect for property rights matters so little in the ground zero mosque case is frightening. I used to be able to use, only about 15 years ago, the idea of government regulation of fat content of food as a reductio ad absurdum in arguing against regulations on smoking. I no longer can. And it’s outrageous that Bush and Congress trashed our freedom to travel by air, one of the most important freedoms we have.

David Henderson, “My Reason Interview”, EconLog, 21 August 2010.

Henderson is a research fellow with Stanford’s Hoover Institution and teaches economics at the Naval Postgraduate School in Monterey, California. In the interview, he responds to questions comparing life in Canada with life in the United States. He tends to give the US high marks. For example: “I can buy liquor at Safeway and it’s way less taxed than in Canada.” But he is sometimes critical. For example: “[Y]ou don’t see many people going around saying ‘God bless Canada’. I loved the ‘God Bless America’ stuff when I first moved here, but now that I’ve been here 38 years, I’ve come to believe that it means ‘God make an exception for America’.”

Henderson, by the way, is 59 years old, so has lived in the USA longer than he has lived in Canada.

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Stiglitz on the efficient markets hypothesis

Friday, August 20th, 2010

The blame game continues over who is responsible for the worst recession since the Great Depression – the financiers who did such a bad job of managing risk or the regulators who failed to stop them. But the economics profession bears more than a little culpability. It provided the models that gave comfort to regulators that markets could be self-regulated; that they were efficient and self-correcting. The efficient markets hypothesis – the notion that market prices fully revealed all the relevant information – ruled the day. Today, not only is our economy in a shambles but so too is the economic paradigm that predominated in the years before the crisis – or at least it should be.

It is hard for non-economists to understand how peculiar the predominant macroeconomic models were. Many assumed demand had to equal supply – and that meant there could be no unemployment. (Right now a lot of people are just enjoying an extra dose of leisure; why they are unhappy is a matter for psychiatry, not economics.) Many used “representative agent models” – all individuals were assumed to be identical, and this meant there could be no meaningful financial markets (who would be lending money to whom?). Information asymmetries, the cornerstone of modern economics, also had no place: they could arise only if individuals suffered from acute schizophrenia, an assumption incompatible with another of the favoured assumptions, full rationality.

Joseph Stiglitz, “Needed: a new economic paradigm”, Financial Times, 20 August 2010.

The full column is posted at Economist’s View.

What should replace these discredited models? On this, Stiglitz reveals little, saying only “a new paradigm, I believe, is within our grasp”. He, with Jeffrey Sachs, George Akerlof, Kenneth Rogoff and other economists, is creating a new paradigm this very moment at the Institute for New Economic Thinking, a think-tank funded by financier George Soros. Stay tuned for further developments.

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universal pensions in Mauritius

Thursday, August 19th, 2010

The greatest hope (wildest dream?) of any researcher is that his work might be noticed by the next generation of scholars. For this reason, I was more than pleased to come across the following words in a master’s thesis that was drafted recently by a student of international studies:

In understanding the origins of the welfare state and social democracy in Mauritius, and the factors which led to emergence of the latter, a historical account is imperative. Richard Kearney (1989), Sheila Bunwaree (2001, 2002, 2005, 2007), James Meade (1961), Richard Sandbrook (2005, 2007), Larry Willmore (2003, 2006, 2007) and the 1989 World Bank report on Mauritius, attempt to give detailed accounts of such. ….

Based on the works documented above, it is the intention of this study to keep the fire burning on issues of the contemporary welfare state in Mauritius, specifically Larry Willmore’s works on the subject of pensions in that country. However this study will add the social dimension to it as it explores exactly the direct impact of the above pensions on the elderly and their households when poverty and deprivation are concerned, thus adding value to the work done on universal non-contributory old age pensions.

Letuku Elias Phaahla, “Development with Social Justice? Social Democracy in Mauritius”, MA Thesis, Stellenbosch University, South Africa, March 2010., pp 21-22.

Posted in Pensions, Universal Transfers | Comments Off

the cost of medical care

Wednesday, August 18th, 2010

From the Thought du Jour archive:

The contribution of improved health care to living standards … is little reflected in the national income accounts.

Instead, what is most visible in everyday statistics is the growth of health-care spending — [in the US] from around 5 percent of GDP in 1960 to around 14 percent today and rising.

Often that gain is attributed to something called “cost disease” ever since economist William Baumol diagnosed it in a famous 1967 paper (“Macroeconomics of Unbalanced Growth: The Anatomy of Urban Crisis”).

The idea is doctors and nurses aren’t much more productive that they were forty years ago — nor are teachers, entertainers, policemen, auto repairmen or fiddlers in string quartets. Some activities just can’t be made more productive. We are doomed to pay some workers more and more for the same amount of work.

But “cost disease” is mostly bunk — because it relies on measures of input prices instead of output prices. The cost of playing a Mozart quartet may not have changed much since the piece was written. The cost of hearing it played has plummeted to nearly zero, thanks recording and telecommunications technology. Much the same is true of health care: great as are the resources we put into it, the value of what we take away is much, much more.

David Warsh, “What’s the Limit?”, Economic Principals, 10 August 2003.

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Conservatives and stupidity

Monday, August 16th, 2010

I never meant to say that the Conservatives are generally stupid. I meant to say that stupid people are generally Conservative. I believe that is so obviously and universally admitted a principle that I hardly think any gentleman will deny it.

John Stuart Mill, in a letter to the Conservative MP, Sir John Pakington (March 1866)

Mill was referring, apparently, to the Tories of his day. (Note his use of a capital ‘C’ for Conservative.) One can only speculate as to what he might think of modern Conservatives, or Republicans for that matter.

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stimulus and austerity

Sunday, August 15th, 2010

A recent op-ed, written jointly by the IMF’s chief economist and its head of fiscal affairs, contains the sensible reminder that stimulus is needed in bad times, but budget surpluses are needed in good times, in order to keep debt at reasonable levels.

Today’s debt problems … result not from how fiscal policy was managed during the crisis, but rather from how it was mismanaged before the crisis. Advanced countries entered the crisis with some of the highest public debt ratios ever reached in the absence of a major war. A basic fiscal policy lesson of sowing in good times and reaping in bad times was ignored.

Olivier Blanchard and Carlo Cottarelli, “The great false choice, stimulus or austerity”, Financial Times, 12 August 2010.

Clive Crook agrees, and adds:

[O]nce this crisis is behind us, it will be essential to prepare for the next. Imagine going into the next Great Recession with levels of public debt at anything like currently projected long-term levels.

Clive Crook,“The false fiscal choice”, Crookblog, 12 August 2010.

This is standard economics. I distinctly recall, four decades ago in graduate school, being taught that Keynesian stimulus and automatic stabilizers are useful, but budgets ought to be balanced over the business cycle. This is difficult to accomplish in developing countries, but in those days we expected more from the G-7.

Posted in Finance | 1 Comment »

early ICT entrepreneurs

Sunday, August 15th, 2010

Johannes Gutenberg (1398-1468) did not find a way to profit from his technical achievements. The Gutenberg Bible, a gigantic project, required large amounts of capital that needed replenishing over time, long before there was any hope of profit. The finished product inspired awe, but the print run was 180 copies. Gutenberg “died bankrupt and disappointed.”

Nor was he alone. Apparently, it took decades before some people figured out how to make money from this remarkable invention. For decades after Gutenberg, it was not even clear that print would become a success. How do you market books? How many should you run off at one time? Piracy was a problem, as were texts changed, mutilated or combined in unauthorized editions. Many printers were ruined, trying to exploit the new medium.

Robert Pinsky, “Start the Presses”, New York Times Sunday Book Review, 15 August 2010.

Robert Pinsky (1940-), 39th Poet Laureate of the United States (1997-2000), is founder of the Favorite Poem Project (favoritepoem.org). He is reviewing The Book in the Renaissance by Andrew Pettegree (Yale University Press, 2010).

Posted in History | Comments Off

the other Churchill

Saturday, August 14th, 2010

[In Pakistan, the young Winston Churchill] gladly took part in raids that laid waste to whole valleys, writing: “We proceeded systematically, village by village, and we destroyed the houses, filled up the wells, blew down the towers, cut down the shady trees, burned the crops and broke the reservoirs in punitive devastation.” He then sped off to help reconquer the Sudan, where he bragged that he personally shot at least three “savages.” ….

After being elected to Parliament in 1900, he demanded a rolling program of more conquests, based on his belief that “the Aryan stock is bound to triumph.” As war secretary and then colonial secretary in the 1920s, he unleashed the notorious Black and Tans on Ireland’s Catholics, to burn homes and beat civilians. When the Kurds rebelled against British rule in Iraq, he said: “I am strongly in favor of using poisoned gas against uncivilized tribes.” It “would spread a lively terror.” ….

This is a real Churchill, and a dark one — but it is not the only Churchill.  ….

In the end, the words of the great and glorious Churchill who resisted dictatorship overwhelmed the works of the cruel and cramped Churchill who tried to impose it on the world’s people of color.

Johann Hari, “The Two Churchills”, New York Times Sunday Book Review, 15 August 2010.

Johann Hari, a columnist for The Independent newspaper (London), is reviewing British historian Richard Toye’s biography Churchill’s Empire: The World That Made Him and the World He Made (Macmillan, 2010).

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culinary delights

Friday, August 13th, 2010

When police in Western New York pulled over Gary Korkuc for blowing off a stop sign on Sunday, they found a live cat in his trunk, covered in cooking oil, peppers, and salt. Korkuc told authorities that his pet feline was “possessive, greedy, and wasteful” and that he intended to cook and eat it. Korkuc has been charged with animal cruelty. Is there a legal way to cook and eat a cat?

Maybe in some places, but not New York.

Brian Palmer, “Here, Kitty, Kitty, Kitty: Is it legal to eat your cat?”, Slate, 12 August 2010.

HT: The Browser.

This is curious. Did you find the phrase “blowing off a stop sign” strange as well? What in the world does “blow off” mean? Does it mean that Mr Korkuc blew up a stop sign? Or did he just go through it without stopping?

The Cambridge Dictionary of American Idioms (2006) provides two definitions:

blow off something also blow something off

1. to get rid of something: The old millionaire blew off one marriage to wed his new partner. Your average worker can’t just blow off his credit-card debt.

2. to consider something to be unimportant: Some students will simply blow off exams they don’t think will be part of their records.

The second definition seems relevant. Mr Korkuc simply paid no attention to a stop sign.

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elder abuse in Tanzania

Friday, August 13th, 2010

[W]omen’s rights continue to be violated [in Tanzania]. Indeed, in January 2009, Prime Minister Mizengo Pinda revealed in Parliament that 2,866 elderly people had been murdered in 10 regions over the past five years – an average of 573 a year – under the pretext of witchcraft and many more suffer abuse and marginalisation as a result of witchcraft allegations. When household resources are overstretched older widows can be perceived as a burden and are particularly vulnerable to witchcraft accusations or simply being discriminated against during intra-household resource allocation decisions. Researchers have identified the link between livelihood shocks and increased incidences of murder of older women in the name of witchcraft. In this context it has been argued that a “potentially attractive policy option is to provide elderly women … with regular pensions, which would transform them from a net household economic liability into an asset” (Miguel, 2005 cited in Willmore, 2007 p.25).

Ministry of Labour, Employment and Youth Development Achieving income security in old age for all Tanzanians (HelpAge International, Dar es Salaam, Tanzania, May 2010), p. 20.

A shocking 94% of the elderly in Tanzania have no access to pensions. This report, which was funded by the German Federal Ministry of Economic Cooperation and Development, calls for a modest transfer of around US$11 per month to all Tanzanians over the age of 60. Every age-qualified person would be eligible for a universal pension, with no tests of income, assets or contributions.

Today’s post up-dates three earlier TdJ posts: 13 February 2006, 22 June 2006 and April 13, 2008.

Posted in Pensions | 1 Comment »

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