Ben Muse

Economics and Alaska

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The use of state licensing requirements to restrict competition and raise prices

George Leef explains why "Why Law School Costs So Much ".

I learned about this at Stuart Buck's weblog.

Two interesting facts about India

Judith Weiss posts about India at the "Kesher talk" (Judaism, Jewish culture and politics, Middle East affairs, etc.) blog: "India, our ally in the war against terror".

Changes in the operation of the Council of Economic Advisors

The Council of Economic Advisors plays an important role in coordinating administration economic policy (similar to the role played for foreign policy by the National Security Council). At a Dec 13 news conference Bill Gale, a Brookings Institution economist, made the following comments about its operations, and why it might operate in a certain way, with its new head (the following selection from the transcript has some mis-spelled names) -
    "Moderator: For our next question we go to the line of Ed Andrews, New York Times. Please go ahead.

    "E. Andrews: you have any thoughts on the role that the National Economic Council is going to play in all of this? This is kind of a new operation. Robin [Robert - Ben] Rubin was the first one to do it. Is it going to plan an important role in the way the White House is actually organizing and pushing things, or do you think the lead role will be more treasury or Glen Hopper [Council of Economic Advisors head Glenn Hubbard - Ben]… or something like that?

    "B. Gale: ...The NEC came to existence with Robert Rubin and it’s really changed its style with each of its directors. As we went from Rubin to Tyson to Gene Sperling in the Clinton administration the NEC became more active actually in formulating policy under Sperling’s tenure, whereas under Rubin’s tenure it was more of a clearinghouse and making sure that everyone got a chance to make their case. Under Larry Lindsey it was probably much more like it was under Sperling where the NEC director was directly advocating a set of policies in the internal debates. Now I would guess that Freedman [Stephen Friedman, Bush's replacement for Larry Lindsey as Director of the Council - Ben] would move back more towards the Rubin model and would be much more of the honest broker type whose job is to make sure the President hears all the voices and has enough information to make a decision. That’s just a guess, but it stems from the fact that Freedman [Stephen Friedman] is a newcomer and there are already strong forces in the administration that are trying to jockey for position. It seems very evident that what the administration needs is someone to channel all this and focus it and reduce the backbiting rather than increase it. I would guess he’d be much more in the Rubin mode and that he will serve to make policy flow much more smoothly."

Administration estimate of the cost of war with Iraq

Mitch Daniels, Director of OMB, estimates that the cost of a war with Iraq will be about $50 to $60 billion. These are lower than previous estimates by Lawrence Lindsey, and lower than estimates made by Yale economist William Nordhaus. Elisabeth Bumiller reports on Daniels' estimates in today's New York Times: "White House Cuts Estimate of Cost of War With Iraq"

Nordhaus' estimates can be found in this New York Review of Books essay: "Iraq: The Economic Consequences of War".
    "The favorable case in the first column of numbers would entail relatively modest economic costs, on the order of $120 billion. (These are the total costs over the next decade.) This outcome assumes that the military, diplomatic, and nation-building campaigns are successful.

    "The unfavorable case is a collage of potential unfavorable outcomes rather than a single scenario. It shows the array of costs that might be incurred if the war drags on, occupation is lengthy, nation-building is costly, the war destroys a large part of Iraq's oil infrastructure, and there are both lingering military and political resistance to US occupation, and major adverse psychological reactions to the conflict. Putting the different adverse effects together adds up to $1.6 trillion, most of which come outside of the direct military costs."
Daniels' didn't supply many details about how the new administration estimate was produced. It probably focuses on the purely military expenses associated with a quick Iraqi collapse. Nordhaus looks at quick and prolonged scenarios, and at additional costs associated with activities such as taking care of refugees, and post-Saddam security and nation-building.

Deflation - It can't happen here?

Paul Krugman explains why it can in Tuesday's New York Times: "Crisis in Prices?". (free registration may be required):
    "Here's how it can happen: First, for whatever reason, the economy becomes depressed. The central bank responds by cutting interest rates — but it turns out that even cutting rates all the way to zero isn't enough to restore more or less full employment.

    "At that point the economy crosses the black hole's event horizon: the point of no return, beyond which deflation feeds on itself. Prices fall in the face of excess capacity; businesses and individuals become reluctant to borrow, because falling prices raise the real burden of repayment; with spending sluggish, the economy becomes increasingly depressed, and prices fall all the faster."

What can we do about North Korea?

North Korea is taking advantage of U.S. preoccupation with Iraq, and flexing its nuclear potential to blackmail the U.S. and its neighbors for increased aid. Or does it expect that it can change the balance of power in the peninsula? Will it actually attack South Korea? How can and should we react?

Daniel Sensing has a good posting today on the conventional balance of forces in the peninsula: "What we have got and they have not". The conventional balance is a lot better than you'd expect - the numbers arrayed along the DMZ are misleading:
    If the North invades again, from the beginning Allied forces will enjoy --
    • communications dominance,

    • position advantage,

    • clear firepower superiority,

    • better weapons and equipment,

    • better trained units, staffs and procedures,

    • better combined arms integration,

    • air superiority, then air supremacy,

    • better tactical and strategic intelligence,

    • better round-the-clock combat capability."
James Kynge, reporting from Beijing in the Financial Times shows the ways in which Chinese and U.S. on the peninsula diverge: "New Korean war is Beijing nightmare as tensions rise"
    " Beijing's view, slashing the supply of commodities to its neighbour would risk turning a mercurial ally into a vengeful enemy that might soon be able to hit Chinese cities with nuclear bombs. It could also accelerate the migration of North Korean refugees into north-east China, exacerbating a problem that Beijing has been keen to play down...

    "...US and Chinese thinking on the issue are far from aligned. Beijing has misgivings over the US idea that isolating North Korea will force it to drop its nuclear programme. "North Korea has been isolated for years. Its main domestic policy is isolationism, or self reliance. If hundreds of thousands of people die of starvation, it will not bring down Kim Jong-il," said one Chinese expert.

    "...China is wary of any move that may escalate tensions on the Korean peninsula, or make a US-North Korean conflict more likely. In the medium and short term, Beijing is concerned at the economic impact growing tension could have on trade and investment in north-east Asia.

    "In the longer term, diplomats said, China's nightmare would be a US strike on North Korea's nuclear facilities, followed by war between the North and the South, leading to the collapse of the North and potentially bringing US troops to China's border for the first time since the Korean war ended in 1953..."
Peter Goodman discusses the potential for a U.S. "containment" strategy: "U.S. Faces Obstacles in Strategy on North Korea. Containment Plan Resisted In Asia, Doubted by Experts " The Financial Times draws on correspondents in Seoul, Tokyo and Moscow to report on South Korean, Japanese, and Russian reactions to the containment strategy: "Pyongyang neighbours waver from US's hard line".

Fernando Henrique Cardoso

Cardoso is the retiring president of Brazil. Brazil owes him a lot - see Larry Rohter's article in Sunday's New York Times: "Departing President Leaves a Stable Brazil". :
    "RIO DE JANEIRO, Dec. 28 — When Fernando Henrique Cardoso leaves office on Wednesday, it will mark the first time in more than 40 years that one elected civilian president here has handed over power to another [note that his candidate lost the last election - the opposition won - Ben]. Mr. Cardoso thus ends as he began eight years ago: serving as Brazil's great stabilizer...

    "Mr. Cardoso's other historic achievement is taming inflation, which for decades had eroded the standard of living here, acting as a hidden tax whose cost was borne primarily by the poor. Since 1995, total inflation is 70 percent, or about the same as the figure recorded during one particularly bad month in the early 1990's, before Mr. Cardoso oversaw creation of a new currency and imposed fiscal discipline."
He has all this to his credit, and more - see the article. This CNN piece focuses more on the intractible economic problems he leaves behind : "Brazilian president leaves mixed legacy".

Scarce resources and competing ends - Colorado River water

California's allocation of Colorado River water is about to be substantially reduced. Dale Kasler has a brief background article in the Salt Lake Tribune: "California Heading for a Major Water Crisis".

Policy paralysis in Germany and Japan - why?

John Plender addresses this question in a Financial Times column from the day after Christmas: ''Only a disaster can save Japan and Germany" :
    "has recently been made of the similar nature of the economic problems that afflict Germany and Japan. Both countries have weak banking systems and Germany now appears vulnerable to the deflationary disease that already plagues Japan. Both have made serious economic policy mistakes over the past decade. And both will have to struggle against a powerful demographic tide to generate economic growth in future decades, when a dwindling workforce will have to maintain a growing mass of retired people.

    "No less important than this economic diagnosis is the broader political question. Why is it that these hitherto highly successful countries have found it so hard to confront their respective difficulties? For in both cases governments have signally failed to measure up to the challenges they face..."
Plender locates much of the problem in the power vested interests wield in a country whose culture requires "consensually managed economies."

State budget deficits are widespread

Linda Feldmann and Liz Marlantes describe the problems faced by the states in the Christian Science Monitor: "Deepest state deficits in 50 years". :
    "These state deficits are the largest in more than 50 years, say budget-watchers. Already this year, states have grappled with nearly $50 billion in shortfalls and now face an additional $17.5 billion deficit before the fiscal year ends. In the next fiscal year, beginning July 1 in most states, the deficits will run between $60 billion and $85 billion - between 13 percent and 18 percent of state expenditures.

    " "It's a long-run structural problem, and it's going to take states - [with] maybe even some help from the federal government - a number of years to work their way through it," says Raymond Sheppach, executive director of the National Governors Association. The situation is different from the last recession, in the early '90s, when the economic recovery solved the problem, he adds. "That's just not going to happen this time." "
Remember that 49 of the 50 states are prohibited by their constitutions from running deficits - they have to raise taxes, cut spending, or get additional funds from the federal government (which can run deficits).

New biography of Samuel Pepys - public administrator

The New York Times has a review today (by Charles McGrath) of a new biography of Samuel Pepys (SAMUEL PEPYS. The Unequalled Self. By Claire Tomalin. Illustrated. 470 pp. New York: Alfred A. Knopf. $30.) here:"'Samuel Pepys': The Man Behind the Diaries" :
    "...Claire Tomalin's engaging new biography all the more remarkable: she not only brings him back to vibrant life, but makes a powerful case that he's more central, more ''relevant,'' than we ever imagined....

    "Pepys had two great accomplishments. He was the creator, in effect, of the modern British Navy, and to this day naval historians so revere him that they regard the other Pepys, the literary one, as an embarrassment and a distraction. He was also a compulsive diarist...

    "Pepys's father was a barely literate tailor, his mother a laundress, and it's doubtful that he would have got on at all in life were it not for the intervention of a wealthy cousin, Edward Montagu (later the Earl of Sandwich), who saw to it that he got an education and eventually a job as clerk in Cromwell's government. Montagu was an ardent Puritan and republican, one of Cromwell's right-hand advisers, but as the Rump Parliament fell apart after Cromwell's death, he secretly and expeditiously began negotiations with the exiled Prince Charles. When the moment was right, he changed his stripes and became a royalist. Most of England eagerly did the same, including Montagu's 26-year-old protege; it was a moment, Tomalin suggests, comparable to the fall of the Berlin Wall and the end of the cold war.

    "Montagu was given a peerage and appointed Master of the King's Wardrobe; he got Pepys an appointment with the Navy Board. This was the single luckiest stroke of Pepys's life, and it was the making of him. The navy at that time was the biggest industry and the biggest employer in all of England, and Pepys proved to be brilliant at his job, the first naval administrator to keep accurate and useful records and to codify standards and procedures. He was, even in today's terms, a workaholic; by 17th-century standards he was a marvel of energy and efficiency. Most of his peers worked to live; Pepys lived to work, and the diary is full of accounts of early rising and long hours, of getting up in the middle of the night to rush back to the office. The job came with a house, a good salary and, just as important, an opportunity not for bribes, exactly (though he accepted those too), but for ''considerations.'' Pepys was shrewd with a pound, and soon became well off."
Phil Gyford is planning to blog Pepys' diary, one day at a time, here: "The Diary of Samuel Pepys". One entry is posted now (December 28) and regular posting is set to begin on January 1, 2003. Gyford is planning to add notes on the 17th Century references in each entry. This looks like a well planned and carefully constructed site.

Does the minimum wage work?

Does it help the working poor? And what about "living wage" policies?

The minimum wage

Federal and state minimum wage laws are designed to keep the wage paid for low wage work above the market level. If compliance can be enforced, workers would receive more cash income for the hours they continue to work (although firms may "offset" the impact by reducing other attractive dimensions of the job), but if firms had to pay more for low wage labor time they would buy less of it. Theory doesn't say anything about the relative impacts of the increased payment for hours and the reduced hours purchased, and their resultant impact on changes in net income for the working poor. We have to look at what actual programs have done to make inferences about these.

A National Bureau of Economic Research (NBER) research summary by David Neumark reviews the evidence on this (paying particular attention to his own work): "Raising Incomes by Mandating Higher Wages" Neumark's review of the literature indicates
  • a 10% increase in the minimum wage (I assume inflation adjusted) reduces employment of "low-skilled individuals" by one or two percent.

  • On balance, "...workers initially earning near the minimum wage are on net adversely affected...higher-wage workers are little affected."

  • Although wages increase, the employment impact dominates, and earned income drops.

  • Since many minimum wage earners come from high-income families (middle class teenagers with summer jobs for example), "knowing the effects of minimum wages on low-wage workers does not led to any firm prediction regarding the effects of minimum wages on poor or low-income families."

  • These are short-term impacts. In the longer term, minimum wages tend to reduce school enrollments of teenagers and on-the-job training in the current job. This can't be good.
Living wage policies

Since 1994 a number of cities have passed "living wage" ordinances, requiring certain companies to pay their employees a living wage. The living wages tend to be higher than minimum wages and aimed at providing a wage that brings a family up to the poverty level. Some cities impose the requirement on firms receiving assistance from the city, some on city contractors.
    " economic theory would lead us to expect, living wage laws present a trade-off between wages and employment...Overall, the evidence suggests that living wages may be modestly successful at reducing urban poverty in the cities that have adopted such legislation...the probability that families have incomes below the poverty line falls in relative terms in cities that pass living wage laws. Paralleling the findings for wage and employment effects, the impact on poverty arises only for the broader living wage laws that cover employers receiving business assistance from cities...The narrower contractor-only laws have no detectable effects."
Neumark raises the following question:
    "Why, despite the anti-poverty rhetoric of living wage campaigns, do they often result in passage of narrow contractor-only laws that may cover a very small share of the workforce?...One hypothesis that I explore is that municipal unions work to pass living wage laws as a form of rent-seeking. Specifically, by forcing up the wage for contractor labor, living wage laws reduce (or eliminate) the incentive of cities to contract out work done by their members, and in so doing increase the bargaining power and raise the wages of municipal union workers. There is ample indirect evidence consistent with this, as municipal unions are strong supporters of living wage campaigns. As further evidence, I explored the impact of living wage laws on the wages of lower-wage unionized municipal workers (excluding teachers, police, and firefighters, who do not face competition from contractor labor). The results indicate that these workers' wages are indeed boosted by living wages..."

National Bureau of Economic Research (NBER)

The NBER is an important sponsor of policy-relevant economic research. It's the NBER that makes the formal determination about whether or not the economy is in recession - not a government agency. David Warsh - longtime economic columnist for the Boston Globe supplies a brief and readable history of the NBER, and its place in U.S. economics over the last 50 years here: Who Will Replace Marty?" [who will replace Martin Feldstein as head of the NBER if he is appointed to replace Alan Greenspan as head of the Federal Reserve system - Ben].

Warsh had a Globe column called "Economic Principals" for about 18 years. This past March he moved it to the web, where you can access the most recent issue and the archives for free at the address above. You can also subscribe by email to the weekly column for free at the web site. The Globe column was aimed at a general audience, and the email column is as well. The purpose:
    "EP reports on university economics, as it affects historical awareness and public policy. It follows newspaper and magazine coverage of these topics. And it seeks to put under-noticed economic journalism in touch with a wider audience. EP is not about the business cycle."

Samuel Pepys was a public administrator

So the news that his diary is being blogged is appropriate to this page for UAS MPA students: See "The Diary of Samuel Pepys". The diary covers the ten years 1659-1669, during which Pepys was deeply involved in the administration of the British navy. A new entry will be posted to the blog each day, supplemented with useful notes about 17th Century persons and places.

I learned about this from the weblog of Brad Delong who says that the "naughty bits" will be expurgated from this online version. It doesn't matter, this is going on my daily check list along with DeLong, Jane Galt/Mindles Dreck, Donald Sensing, and the rest of the gang.

MPA students may also be interested in the blog of that other noted public administrator, Julius Caesar (Governor of Gaul): "Bloggus Caesari".

Merry Christmas!

No blogging tomorrow. A blog should be a personal thing, so let me offer Christmas contributions that have personal meaning for me - a description of early 20th Century (about 1905-1918) Christmases in Mexico and England by my grandmother, Beatriz de Regil Muse: "Christmas in Mexico and England"

Also, a Christmas poem by G.K. Chesterton:

    THERE fared a mother driven forth
    Out of an inn to roam
    In the place where she was homeless
    All men are at home.
    The crazy stable close at hand,
    With shaking timber and shifting sand,
    Grew a stronger thing to abide and stand
    Than the square stones of Rome.

    For men are homesick in their homes,
    And strangers under the sun,
    And they lay their heads in a foreign land
    Whenever the day is done.
    Here we have battle and blazing eyes,
    And chance and honour and high surprise,
    But our homes are under miraculous skies
    Where the Yule tale was begun.

    A Child in a foul stable,
    Where the beasts feed and foam,
    Only where He was homeless
    Are you and I at home
    We have hands that fashion and heads that know,
    But our hearts we lost -- how long ago
    In a place no chart nor ship can show
    Under the sky's dome.

    This world is wild as an old wives' tale,
    And strange the plain things are,
    The earth is enough and the air is enough
    For our wonder and our war;
    But our rest is as far as the fire-drake swings
    And our peace is put in impossible things
    Where clashed and thundered unthinkable wings
    Round an incredible star.

    To an open house in the evening
    Home shall all men come,
    To an older place than Eden
    And a taller town than Rome.
    To the end of the way of the wandering star,
    To the things that cannot be and that are,
    To the place where God was homeless
    And all men are at home.
(cribbed from the "Chesterton Day-by-day" site at the University of Notre Dame's "Jacques Maritain Center". I'll also link to Donald Sensing's blog post on the virgin birth at "Jesus' birth to a virgin: Text and Context".

Is Saddam Hussein reckless - or is he a rational international actor?

He isn't reckless, he is rational, and he is deterrable say political scientists John J. Mearsheimer and Stephen M. Walt writing in the Carnegie Institution for International Peace's Foreign Policy - the article is online here: "An Unnecessary War". The Iraqi war with Iran and the invasion of Kuwait are often offered as evidence of the opposite. With respect to the war with Iran, the authors write:
    "Iran was the most powerful state in the Persian Gulf during the 1970s. Its strength was partly due to its large population (roughly three times that of Iraq) and its oil reserves, but it also stemmed from the strong support the shah of Iran received from the United States. Relations between Iraq and Iran were quite hostile throughout this period, but Iraq was in no position to defy Iran’s regional dominance. Iran put constant pressure on Saddam’s regime during the early 1970s, mostly by fomenting unrest among Iraq’s sizable Kurdish minority. Iraq finally persuaded the shah to stop meddling with the Kurds in 1975, but only by agreeing to cede half of the Shatt al-Arab waterway to Iran, a concession that underscored Iraq’s weakness.

    "It is thus not surprising that Saddam welcomed the shah’s ouster in 1979. Iraq went to considerable lengths to foster good relations with Iran’s revolutionary leadership. Saddam did not exploit the turmoil in Iran to gain strategic advantage over his neighbor and made no attempt to reverse his earlier concessions, even though Iran did not fully comply with the terms of the 1975 agreement. Ruhollah Khomeini, on the other hand, was determined to extend his revolution across the Islamic world, starting with Iraq. By late 1979, Tehran was pushing the Kurdish and Shiite populations in Iraq to revolt and topple Saddam, and Iranian operatives were trying to assassinate senior Iraqi officials. Border clashes became increasingly frequent by April 1980, largely at Iran’s instigation.

    "Facing a grave threat to his regime, but aware that Iran’s military readiness had been temporarily disrupted by the revolution, Saddam launched a limited war against his bitter foe on September 22, 1980. His principal aim was to capture a large slice of territory along the Iraq-Iran border, not to conquer Iran or topple Khomeini. “The war began,” as military analyst Efraim Karsh writes, “because the weaker state, Iraq, attempted to resist the hegemonic aspirations of its stronger neighbor, Iran, to reshape the regional status quo according to its own image.”

    "Iran and Iraq fought for eight years, and the war cost the two antagonists more than 1 million casualties and at least $150 billion. Iraq received considerable outside support from other countries—including the United States, Kuwait, Saudi Arabia, and France—largely because these states were determined to prevent the spread of Khomeini’s Islamic revolution. Although the war cost Iraq far more than Saddam expected, it also thwarted Khomeini’s attempt to topple him and dominate the region. War with Iran was not a reckless adventure; it was an opportunistic response to a significant threat."
With respect to the invasion of Kuwait:
    "Saddam’s decision to invade Kuwait was primarily an attempt to deal with Iraq’s continued vulnerability. Iraq’s economy, badly damaged by its war with Iran, continued to decline after that war ended. An important cause of Iraq’s difficulties was Kuwait’s refusal both to loan Iraq $10 billion and to write off debts Iraq had incurred during the Iran-Iraq War. Saddam believed Iraq was entitled to additional aid because the country helped protect Kuwait and other Gulf states from Iranian expansionism. To make matters worse, Kuwait was overproducing the quotas set by the Organization of Petroleum Exporting Countries, which drove down world oil prices and reduced Iraqi oil profits. Saddam tried using diplomacy to solve the problem, but Kuwait hardly budged. As Karsh and fellow Hussein biographer Inari Rautsi note, the Kuwaitis “suspected that some concessions might be necessary, but were determined to reduce them to the barest minimum.”

    "Saddam reportedly decided on war sometime in July 1990, but before sending his army into Kuwait, he approached the United States to find out how it would react. In a now famous interview with the Iraqi leader, U.S. Ambassador April Glaspie told Saddam, “[W]e have no opinion on the Arab-Arab conflicts, like your border disagreement with Kuwait.” The U.S. State Department had earlier told Saddam that Washington had “no special defense or security commitments to Kuwait.” The United States may not have intended to give Iraq a green light, but that is effectively what it did.

    "Saddam invaded Kuwait in early August 1990. This act was an obvious violation of international law, and the United States was justified in opposing the invasion and organizing a coalition against it. But Saddam’s decision to invade was hardly irrational or reckless. Deterrence did not fail in this case; it was never tried."

Allocating scarce resources among competing ends

The Washington Post has an article by Barton Gellman on progress so far in the war on terrorism: "In U.S., Terrorism's Peril Undiminished". The thrust of the article is that we haven't made much progress. One interesting item - a discussion of how a war of Iraq will force us to redeploy existing assets from the pursuit of al Qaeda:
    "Bush and his senior advisers argue that war to dislodge Iraqi President Saddam Hussein, should it come, would be integral to the global struggle with al Qaeda. They say Iraq's undeclared biological and chemical weapons, in potential combination with al Qaeda's ruthless intentions, make for the most dangerous possible terrorist threat. Deputy Defense Secretary Paul D. Wolfowitz has taken to using a new shorthand for that formula: "weapons of mass terror."

    "Most officials interviewed acknowledged some tradeoffs at the tactical level between the two conflicts.

    "The FBI, according to sources, has been obliged to shift some emphasis in its counterterrorism and counterespionage units from al Qaeda to Iraq, though senior officials said the shift was modest. And in the event of war with Iraq, formal priorities in intelligence-gathering will give that war first call on scarce resources such as photo interpretation, translation and satellite coverage.

    " "There's no such thing as a tie in priorities," one national security official said. "One of them is going to win, and for the duration of any war it will be Iraq."

    "Among the costliest tradeoffs comes in the currency of linguists and regional specialists. No authorized government spokesman acknowledged a conflict, but every affected agency has said in the past year that it had shortages in those skills.

    "Downing said the scarcity of foreign language speakers with top-secret security clearances had left "reams of material waiting to be exploited" in the war against al Qaeda. He was so alarmed by the gap that he suggested, before leaving the White House job, that intelligence agencies hire native speakers with abbreviated security checks."
The whole article is worth reading.

Funny Christmas-themed advertisement

Over at Slate Rob Walker provides an analysis, and online view, of a funny Heineken TV ad: "Is Enron Funny Yet? Heineken's jokey corporate-scandal ad."

What Alaska gets next year - a preview

The December issue of Reason magazine has an interview with Nobel Prize winner (and 2003-04 University of Alaska, Anchorage faculty member) Vernon Smith in its December issue (interview by Mike Lynch and Nick Gillespie). The interview is available online here: "The Experimental Economist". Much of the interview deals with the use of experimental methods for designing public policy initiatives. Smith explains the iterative procedure:
    "My colleagues and I have developed techniques to design market mechanisms that are likely to work in the real world. But we don’t trust ourselves without doing experiments. The experiments are the means by which we test our knowledge. We use the laboratory to make our mistakes at low cost -- and we make plenty of them. We always learn stuff and end up making changes to our model institutions, to our rules, and to our payoffs.

    "The next step is to bring in the people who will actually be using the system. They put design elements in, and then we run experiments with them. When they’re comfortable with it, we go out in the world with it."
The following snippet may be interesting to students from "Economics of Public Policy" in the Fall of 2001 - when we did the case on allocation of airline slots:
    "Reason: What are other areas where experimental economics is playing a role?

    "Smith: We’re doing work on creating a market for the exchange of landing and takeoff slots at airports. In normal circumstances, those rights have been fully allocated among the airlines at a given airport. But let’s say a bad weather front moves in, so there’s a ground delay. They’ve been doing maybe 60 landings and takeoffs per hour, but now they’ve got to reduce that to 30. What airports tend to do is just stretch out the existing schedule, which leads to cancellations and other problems. What you need is a market mechanism so that the flights that have higher priority get out. What would be a higher priority? Bigger planes, probably, but also full planes and planes with a lot of passengers who have connecting flights.

    "Suppose we’re talking about planes leaving LaGuardia in New York. If a plane’s going to Los Angeles, it’s probably the final destination for a lot of the passengers. Planes going to Chicago or Dallas probably have a lot passengers who are catching connecting flights. Maybe those flights should have a higher takeoff priority in bad weather. In any case, you need a market mechanism where the airlines can compensate one another -- and their passengers -- to cancel their flights and trade takeoff slots.

    "Such a system doesn’t exist now. First, the airlines have to be convinced that’s the way to go. Then the Federal Aviation Administration has to cooperate. And you really need Congress to approve this, since it gave the original allocation of slots. The danger is that Congress will say, "Wait a minute, we don’t like this because they’re buying and selling these slots. We gave them to you, and now they’re making money by reselling them." "
Smith also talks about his philosophical evolution from socialism to libertarianism.

What went wrong in Argentina

Diego Aycinena points to Argentine government deficits in this Tech Central Station column: "Celebrate Bad Times, C'mon!". Argentine fiscal arrangements were partly to blame for the deficits:
    "The high levels of government spending in Argentina can be blamed on a vicious incentive structure of centralized taxation and revenue sharing with decentralized budget determination and spending. Under this system, the provinces do not have to face the political costs of spending more, since their revenues depend to a considerable extent on the taxes raised by the federal government. When examined in this light, it's no wonder the provinces spend, spend, spend and then, like a spoiled child whose parents have been bled dry, beam with outrage when the money stops flowing."

Relief for the states

William Gale, Brookings Institution economist, argued in Friday's Los Angeles Times that the best thing the administration can do to stimulate the economy is to provide fiscal relief for the states. The column is reproduced here at the Brookings web site: "Now Is the Time for All Good Feds to Come to the Aid of States" After reviewing and dismissing each of the stimulus proposals currently believed to be under consideration by the administration, he gets to the crux:
    "The best way to boost the economy right now would be to increase federal aid to the states, which are facing their worst financial crisis in decades.

    "Unlike the federal government, which is able to run a deficit, the states must balance their budgets. During a recession, revenue falls and spending needs rise, so states raise taxes or cut spending. This helps restore their budgets but provides a negative stimulus to the overall economy. This year it has cost in the range of $40 billion to $50 billion, with higher costs expected in 2003. And because the states are cutting spending on education, health and infrastructure, the long-term ramifications will be negative. Several states are cutting their prison budgets by releasing inmates early."

Some of the economics of reparations for slavery

Robert Fogel won the Nobel Prize in economics for "applying economic theory and quantitative methods in order to explain economic and institutional change." His most important work dealt with the economics of southern slavery. On April 11 the Economist carried an article on some of his analysis that bears on the current question of reparations for slavery. Part of it reads:
    "But what was the financial cost borne by the slaves themselves? One measure is the difference between slaves' wages and those of free workers with the same skills. Mr Fogel reckons that, between 1780 and 1860, just before the American civil war, slaves were paid (in food, shelter and so on) around 10% less than similar free workers. He estimates a cumulative bill for slaves' expropriated wages of $24 billion in 1860.

    "Compound interest on this sum for 142 years has a massive effect. A risk-free interest rate of 6% a year, which is what Mr Fogel estimates is the long-term rate, brings the
    cost to $97 trillion, more than nine times the size of America's economy today. Awarding interest of just 3% a year would cut the total bill to $1.6 trillion, not far from
    damages cited in the current lawsuit. These figures are merely for lost wages. They do not take into account other pain and suffering caused by slavery, which is harder to

    "If the principle of reparations were ever agreed upon, what of ascertaining who were the beneficiaries of slavery? Slave-owners make the likeliest targets, yet only 5% of
    American households had slaves. What is more, owners received only a small fraction of the benefits from slaves' forced labour. Most of the gains, Mr Fogel reckons, were
    passed on to consumers in Europe (and England in particular) in the form of cheap cotton and tobacco. Mr Fogel suggests that reparations are, at least in part, "a debt for the European Union."
I learned about this from December Journal of Economic Perspectives column "Recommendations for Further Reading, by Bernard Saffran.

Online commerce

Hal Varian has a column on online commerce in today's New York Times: "Online Sales Offer Fresh Look at Economy" (free registration may be required). Online commerce is still small - total U.S. retail sales in the third quarter of 2002 were $827 billion, while online retail sales came to $11 billion. Despite the relatively limited scale of the online retail market, online markets generate lots of data, and economists are making use of them. I buy a lot of books at Amazon, so I found these paragraphs interesting:
    "Judith A. Chevalier and Austan Goolsbee, professors at the Yale School of Management and the University of Chicago Business School, respectively, have looked at a particular case of online competition: versus

    "Each seller ranks titles by total sales on its Web site and reports actual book sales to publishers. Some publishers, like the computer book publisher O'Reilly & Associates, have used these reports to determine the relationship between rank and actual sales.

    "Professors Chevalier and Goolsbee draw on such estimates, as well as other sources, to determine actual sales for particular books at the two online booksellers.

    "The data on actual sales can be used to estimate how demand responds to price changes. The authors find that a 1 percent price increase at Amazon reduces sales there by about 0.5 percent, but a 1 percent price increase at Barnes & Noble means a 4 percent sales decline — eight times as large.

    "The difference in price responsiveness is striking. It appears that Amazon's investment in building customer loyalty has paid off. Of course, all that investment in customer loyalty is expensive, and loyalty doesn't necessarily translate directly into profit."

Hudson River wrecks

This is a little off topic, but there's a good story by Kirk Johnson in the New York Times about over 200 shipwrecks found in the Hudson in the course of environmental mapping: "Hudson Shipwrecks Found, but No Loose Lips" The maps are being kept secret for now by the State of New York until it can figure out how to protect the historical information in the wrecks. The river mud, which is low in oxygen, is belived to have preserved many of these wrecks very well. There's also this bit:
    "The surveys have also turned up more mysterious structures, including a series of submerged walls more than 900 feet long that scientists say are clearly of human construction. They say the walls are probably 3,000 years old because that was the last time the river's water levels were low enough to have allowed construction on dry land.

Do we tax the poor enough?

The Bush administration wonders, says this Washington Post story: "New Tax Plan May Bring Shift In Burden Poor Could Pay A Bigger Share".
    "As the Bush administration draws up plans to simplify the tax system, it is also refining arguments for why it may be necessary to shift more of the tax load onto lower-income workers..."


Arnold Kling has a column in Tech Central Station on the need to do something about Medicare: "Phase Out Medicare". The problem:
    "Largely because of Medicare, the default scenario for the United States in the middle of the century is that government spending on health care will be about 10 percent of GDP...

    "As large as Social Security looms when the Baby Boom retires, it will be smaller as a proportion of GDP than Medicare. An analysis for the Concord Coalition reports that starting from a current ratio of 2.2 percent of GDP and making some conservative assumptions "just the increase in Medicare spending over the next forty years - 4.5 percent of GDP - would be greater than everything we spend today on Social Security."

    "A column by David Wessel in the Wall Street Journal includes a dramatic chart showing projected Federal outlays over the next half century. While Social Security levels off at around 5 percent of GDP and other spending shrinks from about 10 percent of GDP to about 5 percent of GDP, by 2050 spending on Medicare and Medicaid hits 10 percent of GDP and is still climbing.

    "These projections for Medicare and Medicaid costs may be optimistic. Speaking as part of a broad-ranging round table discussion, economic historian Robert Fogel says that the health care sector of the economy is undergoing a secular increase, which he believes could take it from 14 percent of GDP today to 21 percent of GDP later in this century. My guess is that if he is correct, then Medicare spending alone will be more than 10 percent of GDP."

Bush Economic Team

The U.S. Trade Representative (USTR) is an important player in determining any administration's trade policy, and therefore an important part of it's economic policy team. The current USTR, Ambassador Robert Zoellick, is another part of the team (along with Council of Economic Advisors Chair R. Glenn Hubbard) not affected by the recent shakeup. This post by Daniel Drezner describes current U.S. trade strategy and activity: "THE PATH TO FREE TRADE:". The web site for the Office of the U.S. Trade Representative is here.

Vernon Smith coming to Alaska

This morning's Juneau Empire has an Associated Press story that Vernon Smith - one of this year's Nobel Prize winners, is coming to the University of Alaska, Anchorage (UAA) for the coming academic year: "Economics Nobelist accepts UAA position". The chair is supported with a $5 million endowment from the estate of Anchorage banker Elmer Rasmussen. It appears Smith will hold the position for a year, and that University officials expect that it will be easier to get other high-powered economists in subsequent years given Smith's stature as a Nobelist.

Once we thought that economics was not an experimental science. Like astronomers, economists depended on theory and on observations of natural events. Vernon Smith is important for his work in developing experimental methods for economists. Volunteers are placed in a situation with carefully designed rules and payoffs, and their reactions are observed. I use informal versions of these experiments for teaching in "Economics of Public Policy" - think back to the voting and public goods experiments we ran in class. These experiments - akin to the experiments run in psychology departments - make it possible to have control and treatment groups, and to experiment with alternative rules and payoffs. These experiments have helped us advance our understanding of economics at both the theoretical and practical levels. As a practical matter, for example, they are used to test out alternative auction and market mechanisms.

I posted several items on this Nobel in late October and early November. One posting with lots of links: "2003 Nobel Prize in Economics". One of the links I liked quite a bit was this piece by Lynne Kiesling: "The Market Laboratory". Here's one paragraph, emphasizing some of the very practical implications:
    "Laboratory experiments have been used to analyze interactions as simple as two people dividing a dollar (not as simple as it sounds) and as complex as restructuring electricity regulation and creating new electricity markets. In electricity experiments that Mr. Smith has done, some retail customers could choose whether and when to shift their demand in response to price changes. That demand response interacted with supply-side incentives and limited the ability of electricity-generating suppliers to exercise market power. These experiments have powerful policy implications, both for encouraging regulators to move away from regulated retail rates and for harnessing demand-side consumer response to provide "market monitoring" functions instead of relying on regulatory institutions to do it."
This is a great deal for Alaska! My thanks to the Rasmussen estate, my congratulations to UAA, and Jonathan - can we wrangle a visit to Juneau?

Why Goldman, Sachs?

In yesterday's New York Times Leslie Wayne notices that a lot of high level economic talent in the Clinton and Bush administrations has been drawn from the New York investment bank Goldman, Sachs. Goldman alumni serving in the Clinton administration included Robert Rubin, who rose to be Treasury Secretary, Kenneth Brody, director for the Export-Import Bank, and Gary Gensler, Assistant Treasury Secretary for Financial Markets. In the Bush administration they include Stephen Friedman, the incoming director of the National Economic Council, Josh Bolten, White House Deputy Chief of Staff, and Reuben Jeffrey, who coordinates the Federal contribution to rebuilding lower Manhattan. Wayne points out that Goldman, Sachs has contributed to administrations back to WW II. He also points out that Goldman, Sachs alumni,
    "...have a good track record. No Goldman reputations have been sullied by the taint of scandal. Nor have they exhibited the tin ear for politics that have tripped up some other Wall Streeters."
Wayne points to a corporate teamwork culture as one important reason for this success:
    "...many insiders attribute the firm's stature in Washington largely to a Goldman culture that values teamwork over individual self-gratification. In a city where politicians often elbow each other to grab the limelight, Goldman alumni have been trained to stand in the back and let their bosses shine.

    "Senator Corzine [D- NJ, also from Goldman - Ben], who took the more unconventional route of running for high public office, said: "At Goldman, you work as a team. It's not about individuals as much as about a group of people being successful. That was part and parcel of the partner's culture."

    "He continued: "It's not about ego gratification. It was the hallmark of the Rubin era and it was the way with Whitehead [a Goldman alumnus who served as a Deputy Secretary of State in the Reagan administration - Ben] , too. They were willing to work hard to make the president look good and take on tasks that were not necessarily the most glamorous, but were important contributions."
Other reasons: (1) Goldman partners tend to get wealthy young and retire looking for second careers, (2) "an expectation at Goldman that people would give back to their communities...a general expectation that Goldman people had a responsibility to serve on boards, participate in philanthropy" (quoting Corzine), (3) Goldman partners who took government positions early on served as role models for others.

The Economics of U.S. Israeli Policy

Earlier this week I posted a link to a Christian Science Monitor article by Thomas Stauffer on the costs of U.S. support for Israel since 1973: "Economic costs of our support for Israel".

Howard Feinberg has a column in the "Tech Central Station" critiques Stauffer's figures and highlights benefits to the U.S. flowing from some of these expenditures: "Economists Against Israel "

The new Secretary of the Treasury

What does the Treasury Secretary do? Brenden Koerner explains in Slate: "What Does the Treasury Secretary Do All Day?"

Who is John Snow? Daniel Gross provides some background, again in Slate: "Snow Job. President Bush appoints yet another phony businessman, this time as treasury secretary" Gross contrasts Snow with William Donaldson, selected by Bush Tuesday as new head of the Securities and Exchange Commission (SEC). Snow is an "access capitalist," that is, "a bureaucrat-turned-corporate lobbyist who views investors primarily as providers of lavish salaries and perks and sees public service as a means of parachuting into a top corporate post." Donaldson is "a classic businessman of the old school," an entrepreneur creating wealth in the private and the public sectors. There are a couple of ways to get rich - you can arrange to rearrange existing wealth in your own direction, or you can create new wealth. The article draws this implicit contrast between Snow and Donaldson; Snow is a lobbyist, Donaldson is an entrepreneur.

The Economics of Free Stuff

Ronald Bailey at Reason Online discusses the importance of using market prices to allocate water: "Water, Water Nowhere?".

The Economist discusses the importance of pricing road access to address congestion: "The Politics of Congestion".

Who is R. Glenn Hubbard?

In the past week President Bush has replaced two of his top three economic advisors: Paul O'Neill, the Secretary of the Treasury, and Larry Lindsey, Director of the National Economic Council. R. Glenn Hubbard survived. Who is R. Glenn Hubbard? Greg Ip and Dan Machalaba wrote about him in a story in Monday's Wall Street Journal:
    "...The survivor in the shake-up is R. Glenn Hubbard, chairman of the Council of Economic Advisors, a low-key academic shows solid credentials on tax policy and organizational discipline have helped his panel go beyond its historical role as a font of abstract economic advice...

    "The shortcomings of Mr. O'Neill and Mr. Lindsey have resulted in a steady rise in respect for Mr. Hubbard, 44-years old, who is regularly described as disciplined and organized. He starts work every day at 5 a.m. His two years at the council's helm have been nearly gaffe-free...

    "He is a key participant in the administration's tax-change efforts. Jerry Jasinowski, president of the National Association of Manufacturers, said in recent weeks that Mr. Hubbard and Commerce Secretary Don Evans have been the "principal players" soliciting advice for short-term tax-stimulus measures. Mr. O'Neill "wasn't very involved."

    "Mr. Hubbard also has played key roles in responding to labor disruption, prodding the Japanese government to address its serious financial problems, and developing the administration's alternative to the Kyoto treaty on controlling carbon-dioxide emissions to curb global warming.

    "Mr. Hubbard was one of the few administration insiders to oppose steel tariffs, said several people familiar with that decision."
    (Greg Ip and Dan Machalaba, "Bush Moves to fill Posts After Shuffle of Advisors." Wall Street Journal Monday, 12-09-02. page A12.)
Hubbard has a Ph.D in economics from Harvard. An article sidebar describes his career highlights as professor of economics at Columbia, and Deputy Assistant Secretary, U.S. Treasury.

Drezner on Krugman

Daniel Drezner's take on Paul Krugman's recent columns in the New York Times is here on his blog: "KRUGMAN’S WORLD":
    "...there’s a palpable sense that since Krugman started his New York Times op-ed column, the ratio of shrillness to insight has been increasing ... Implicit in Confessore’s [the author of a story on Krugman in the most recent Washington Monthly - Ben] story is that his current columns pale in comparison to his sparkling mid-1990’s essays for Slate and Foreign Affairs. Krugman admits that, “I'd like to make a big difference, but I'm not sure I have much of a chance of doing that.” Why does Krugman seem less influential now even though his megaphone is larger? Here’s my two-part answer, employing as much economic logic as I can muster this early in the morning..."

The EPA tries alternative ways of valuing changes in the risk of death

The EPA experiments with alternative approaches to valuing changes in the risk of dying. Cindy Skrzycki explains in her Washington Post column, "The Regulators": "The Wrong Price on a Life Lost?".

Steven Landsburg on the economics of spanking

Steven Landsburg explains the economics of spanking in today's Slate: "Beat on the Brat
The economics of spanking"

Economic costs of our support for Israel

The Christian Science Monitor reports on a recent study of the economic costs of our support for Israel since 1973: "Economist tallies swelling cost of Israel to US".

Has Hawaii really passed a gas price control law that doesn't take effect until 2004?

It's provided economist Thomas Sowell an opportunity to discuss price controls here:"An Ancient Fallacy: Price Controls."

Amongst other things, price controls lead to quality deterioration:
    "It is not just the quantity supplied that declines under price controls. Quality also declines.

    "When there are more people trying to rent apartments than there are apartments for rent, landlords no longer have to maintain the appearance of their buildings. They do not need to pay for painting, repairs or maintenance as often as they did when there was no housing shortage and they needed to attract tenants.

    "Sometimes quality deterioration takes the form of waiting -- not just cars waiting in line at filling stations, but also sick people remaining on waiting lists for months to get surgery or other medical treatment they need. Cheap medical care is one of the most expensive things there is."
I learned about this essay from Lynne Kiesling's blog "The Knowledge Problem".

Is terrorism a result of poverty?

If it is, development assistance (assuming it works) should be a component of the war on terrorism - as many suggested following September 11. Alan Krueger and Jitka Maleckova look into the question in this July 2002 working paper from the National Bureau of Economic Research (NBER): "Education, Poverty, Political Violence and Terrorism: Is There a Causal Connection?".

In general, they find little relationship between income levels (or variables correlated with income) and a propensity to engage in terrorism. Some of their results:
  • A review of the literature indicates that there is no apparent relationship between income and a propensity for individuals to engage in hate crimes. An important study from 1933 which inferred that lynchings were more likely when incomes were low (based on an apparent rise in lynchings when cotton prices were low) has been rendered out of date by a new study in 1998 using better specifications and data unavailable earlier. The new study found no relationship between income and lynchings. (pgs 10-13)

  • A 2001 public opinion survey in the West Bank and Gaza found "no evidence in these results that more highly educated individuals are less supportive of violent attacks against Israeli targets than are those who are illiterate or poorly educated." (p 15) The same survey also found that "...the unemployed are somewhat less likely to support armed attacks against Israeli military, and especially civilian, targets." (p 16)

  • Opinion surveys in the West Bank and Gaza between 1998 and 2000 found an expectation that economic conditions were improving. There was also a downward trend in the unemployment rate. Nevertheless, the current wave of attacks against Israel began in September 2000. (p 17)

  • The authors compared a biographical information from a sample of 129 Hezbollah members killed in action from 1982 to 1994 with demographic information from the general Lebanese population (the Hezbollah fighters ranged in age from 15 to 38, so the Lebanese population studied was restricted to this age range as well). A statistical analysis suggested "that poverty is inversely related with the likelihood that someone becomes a Hezbollah fighter, and education is positively related with the likelihood that someone becomes a Hezbollah fighter." (p 25).

  • "In the late 1970s and early 1980s, numerous violent attacks against Palestinians were conducted by Israeli Jews in the West Bank and Gaza Strip...these Israeli extremists were overwhelmingly well educated and in high paying occupations..." (pgs 26-27)

  • The authors found a statistically significant positive relationship between major terrorist attacks in Israel and real gross domestic product (GDP) growth in the West Bank and Gaza over the period 1969-1996. (p 28)

The authors are careful to note that the evidence is "tentative" and not definitive. For one thing, the focus is on the Middle East and "may not generalize to other regions or circumstances." (p 29). There are also numerous data limitations. Their analysis is generally conducted at an individual person level, or at trends within a region through time. It does not look at the relation between terrorism and "poverty at a national level." They call for cross-country analyses.

Why does a propensity to engage in terrorism appear to be unrelated or positively related to a person's income or education? The authors speculate. Terrorism is " a violent form of political engagement. More educated people from privileged backgrounds are more likely to participate in politics, probably in part because political involvement requires some minimum level of interest, expertise, commitment to issues and effort, all of which are more likely if people are educated and wealthy enough to concern themselves with more than mere economic subsistence." (p 32)

Nordhaus on the economic costs of a war with Iraq

William Nordhaus has a working paper available from the National Bureau of Economic Research (NBER) website on the costs of a potential war with Iraq: "The Economic Consequences of a War in Iraq " (you will need to access the document from a site with a subscription). For references to alternative versions of Nordhaus' analysis, and to sources for other analyses of this issue, see my blog entry on November 27, "The Economics of Way with Iraq". The abstract for the NBER paper reads:
    "Much has been written about the national-security aspects of a potential conflict with Iraq, but there are no studies of the cost. A review of several past wars indicates that nations historically have consistently underestimated the cost of military conflicts. This study reviews the potential costs of a conflict including the postwar expenses that might be required for occupation, humanitarian assistance, reconstruction, nation-building along with the implications for oil markets and macroeconomic activity. It considers two potential scenarios that span the potential outcomes, ranging from a short and relatively conflict-free case to protracted conflict with difficult and expensive postwar reconstruction and occupation. The estimates of the cost to the United States over the decade following hostilities range from $100 billion to $1.9 trillion."

Administration choice for Treasury Secretary - John Snow

Some background from the blog "Counterspin": "SNOW JOB: Who the hell is John W. Snow?".

The source of the term "dismal science"

Eugene Volokh at the "Volokh conspiracy" blog locates the source of the term in a 19th Century pro-slavery tract by Thomas Carlyle: "DISMAL SCIENCE: Little-known fact...".

This is a great title for a paper:

"Economic Experiments That You Can Perform At Home On Your Children". This paper, by Kate Krause of the Economics Deparment at the University of New Mexico,and William Harbaugh of the Economics Department at the University of Oregon, covers the following ground:
    "Abstract: ... This paper describes some simple economic experiments that can be done using children as subjects. We argue that by conducting experiments on children economists can gain insight into the origins of preferences, the development of bargaining behavior and rationality, and into the origins of “irrational” behavior in adults. Most of the experiments are exploratory, and the objective is as much to learn how to conduct economic experiments on children and suggest avenues for further research as to describe specific results. Preliminary results suggest that while children are very different from adults in some ways, such as their rate of time preference, they are very similar in others, such as their bargaining and altruistic behavior. We also find that children can make choices that generally satisfy the usual transitivity test for rationality, and that in some ways they may even be more rational than adults. The paper includes protocols which can be used to replicate the experiments."

DeLong weighs in

Brad DeLong posted a long item on Larry Lindsey's firing Sunday night (12-8): "In the Bush Administration, Loyalty Is a One-Way Street Only". Delong indicts the Administration for a poorly conceived economic program driven by spin and public relations, and for its treatment of O'Neill and Lindsey.

Howard Kurtz in the Washington Post "Media Notes" column also points to the administration's poor treatment of O'Neill and Lindsey: "A Very Public Ousting. White House Trashing of Economic Team Was Unexpected ". The White House set out not just to replace O"Neill and Lindsey, but to do it in a very public and humiliating way in order to dramatize to the public that it was making changes to address the poor economy.
    "Someone at the highest levels had made a political calculation that the only way the administration could benefit from throwing the two men overboard was to administer a public spanking. This, presumably, would show that the president was dissatisfied with the nation's sluggish economy – without the inconvenience of actually having to come up with a new plan...
The message was conveyed by heavy leaking from administration sources. Kurtz does a paper by paper review of the coverage. Quoting the comments by designated leakers to the Washington Post Kurtz writes:
    ""...'That made it clear Larry just didn't get it,' one official said."

    "And then, this absolute stunner:

    ""Bush blamed Lindsey for many of the administration's economic missteps in recent months and even complained privately about his failure to exercise physically, aides said."

    "Get it? Not only was he a lousy adviser, but he was too fat!""
Is this what happened?, Lindsey a good sport:
    "O'Neill and Lindsey were told Thursday that they were expected to resign. They were told they could inform their staffs on Monday, and then Bush would thank them and announce their departures. But a furious O'Neill sped up the process by making his resignation letter public Friday morning.

    "Lindsey accepted the news placidly and showed up for the senior staff meeting at 7:30 a.m. Friday as if nothing had happened. In an interview yesterday, he said he had no regrets and will continue cheerfully in his position until Friedman is ready to take over. "We're parting on very good terms," Lindsey said.

    "Bush has not met with Lindsey or O'Neill since they were ousted, but Lindsey said Bush sent him a warm typewritten letter with a handwritten addition. "He was very gracious," Lindsey said. "He thanked me, told me I did a good job, and thanked my wife for all she put up with."

    "Lindsey said that after Christmas, he's taking his three young children to Florida. "It's almost like the commercial," he said with a jolly laugh. "I lost the White House, but I'm going to Disney World." "
    ("Bush Picks CSX Corp. Chief for Treasury Railroad Executive Is In Final Review Stage ").
Revised Monday evening, December 9

Republican tax planning

A Washington Post story on the O'Neill resignation by Jonathan Weisman and Mike Allen says that planning on administration proposals for tax reductions, meant to stimulate the economy, is advanced. The turnover in the economic policy leadership will delay announcement of the program until January, but is unlikely to lead to substantive changes. What's in store?:
    "The goal ... is to push the economy to a 4 percent growth rate, about where it was in the quarter that ended in September but well above the current level. Many forecasters say the economy will have grown at an anemic 1.5 percent rate in the final quarter of this year.

    "Opting against dramatic measures to put money into consumers' pockets, the White House is forming a package that will lean heavily toward investment incentives, senior Republican congressional aides say. It will include some reduction of the tax on corporate dividends, an added tax write-off for corporations investing in plants and equipment, and a higher limit on annual contributions to retirement accounts, such as 401(k)s and Individual Retirement Accounts.

    "For consumers, the administration is expected to accelerate income tax cuts planned for 2004 to 2003, and is still considering whether to speed up the scheduled increase in the per-child tax credit. Last year's 10-year, $1.35 trillion tax cut slowly increases the child credit from $500 to $1,000, but so far, it has been bumped up to only $600. House Republican leaders would like to see it go higher faster, possibly to $1,000 immediately."
    ("New Team To Sell Policy on Economy")
A story by Daniel Altman in today's New York Times says something about longer term, and more fundamental, Republican brainstorming:
    "Most of the Republicans' proposals aim to improve incentives for working and saving. A flat rate for the personal income tax, for example, might be set somewhere between the current lowest and highest rates. The change would make it more attractive for high-earning — and presumably highly skilled — people to work more.

    "Another idea — abolishing the tax on earned income and replacing it with a national sales tax — could also lead people to work harder. It would almost certainly make collections easier, because tax returns would become much simpler and most retailers already collect sales tax.

    "Republicans are also talking about doing away with three taxes that affect the return on investments: the tax on corporate profits, the double tax on dividends and the tax on capital gains."
    ("If Tax History Is a Guide, the Poor Are in Trouble" - free registration may be required)
Altman thinks these proposals may "improve incentives for working and saving" but at the cost of increasing the relative burden on the poor.

Is it only about the oil?

Is the crisis with Iraq just about the oil? Daniel Yergin, oil analyst and historian, thinks not and explains why in a Washington Post column today: "A Crude View of the Crisis in Iraq". His argument is that, short term or long term, Iraq (despite its large reserves) is not going to be a decisive factor in world oil markets:
    "...Yes, Iraq is a major oil country, with the world's second-largest known reserves. But in terms of production capacity, Iraq represents just 3 percent of the world's total. Its oil exports are on the same level as Nigeria's. Even if Iraq doubled its capacity, that could take more than a decade. In the meantime, growth elsewhere would limit Iraq's eventual share to perhaps 5 percent, significant but still in the second tier of oil nations...
In the short term:
    "To get back to 3.5 million barrels could take three years or more, at an estimated cost of at least $7 billion. This would put Iraq back into the leagues of Norway, Iran, the United Arab Emirates, Mexico and Venezuela. Another 2 million barrels per day would require a major push, and it would still leave Iraq several rungs below the capacity of the Big Three producers -- Saudi Arabia, the United States and Russia. Making that leap to 5.5 million barrels a day would come sometime after 2010 -- at a cost of upwards of $20 billion.
while in the long term there will be important new producers in the competition:
    "One can already see the beginning of a larger contest. On one side are Russia and the Caspian countries, primarily Kazakhstan and Azerbaijan; on the other side, the Middle East, including Iraq. Over the last three years, spurred by what has been called "the miracle in the Russian oil fields," Russian output has increased by about 25 percent, to 8 million barrels a day. The race heated up with the recent announcement by four Russian oil companies of their intention to build a new Arctic port to export directly to the United States.

    "Right now, Russia and the Caspian nations seem to have the edge in this race. All that, however, is subject to change...

    "...After "the day after," Iraq will be in a better position to compete for its share. But it will be only one of several strong contestants."

Are the poor overeating?

Do our food support programs for the poor (food stamps, the school lunch program, and the Department of Agriculture's "Women, Infants, and Children" (WIC) program) encouraging bad eating habits? Do these programs, designed in, and for, another era, need reformulation so that they do not encourage recipients to eat too much of the wrong things? We should think about it, says Douglas Besharov in today's Washington Post, "We're Feeding The Poor as If They're Starving":
    "Being overweight is not simply a matter of aesthetics. The growing girth of Americans is a major health catastrophe. Overweight people are three times more likely to have coronary artery disease, two to six times more likely to develop high blood pressure, more than three times as likely to develop Type 2 diabetes, and twice as likely to develop gallstones as people of normal weight. Obesity, of course, is more serious, causing an estimated 50 to 100 percent increase in the risk of premature death.

    "About 65 percent of all Americans are overweight, and nearly half of those are obese. The best estimates place the rates for the poor at 5 to 10 percentage points higher. Adolescents from needy families are twice as likely to be overweight. Yet today, low-income families have access to more free or low-cost food than ever before, and many can be enrolled in all three federal feeding programs at the same time, plus Temporary Assistance for Needy Families, a welfare program that pays out $12 billion a year."

How much wilderness is there in the world?

According to a recent study:
    "Excluding urban centers, Wilderness Areas cover 46 percent of the globe’s land surface but are occupied by only 2.4 percent of the world’s population. Nineteen of the areas have remarkably low population densities – approximately one person per square kilometer or less – and these are often indigenous communities."
Conservation International's (CI) Center for Applied Biodiversity Science (CABS) was an important sponsor of the study. For more information (including the full text of the press release, the map below, and various fact sheets) see CI's press release web site: "Two-Year Study Identifies Earth's Most Pristine Regions"

Click here for a: map of world wilderness areas.

Why was O'Neill replaced?

On Wednesday the President decided to ask for the resignations of Treasury Secretary Paul O'Neill and of National Economic Council Director Lawrence Lindsey. They were informed on Thursday and the announcements were made on Friday. Why did O'Neill have to go?

What does a Secretary of the Treasury have to do?

Friday Brad DeLong described the essential features of the job:
    "...The Treasury Secretary should (a) be a strong voice helping the U.S. pursue good economic policies, (b) understand what the economic policies of the United States are, (c) be effective at using his extremely prominent and powerful post to tell outsiders about the economic policies of the United States, and (d) know how to use his--truly excellent, dedicated, and very large--career staff inside the Treasury building. Paul O'Neill was zero for four."
Problems with the economy on his watch

The economy isn't doing well - the recession that began late in the last administration is lingering on - the Labor Department said Friday (in an apparently unrelated development) that the unemployment rate reached 6%. There may have been little he could have done. The recession began in the preceding administration, the link between federal action and the economic cycle isn't all that strong, and involves important lags. On the other hand, the Administration is held responsible, no matter what. To protect the President, a cabinet secretary should take the blame and "take the fall." It's to the administration's credit that it was able to make a hard personnel decision.

The L.A. Times points out that we're now entering the two year runup to the 2004 Presidential election and that the weak economy seen as Bush's main weakness. There is a certain urgency here. Jonathan Weisman and Mike Allen report in the Washington Post that:
    "...Bush's senior adviser, Karl C. Rove, was very aware that President George H.W. Bush did not get credit in 1992 for a recovery that was underway, but only began registering with the public after he had lost reelection.

    ""The most important thing in '04 is to have a year of economic growth under your belt," the lobbyist said. "People have to hear things are getting better for a long time before they really believe it.""
    ("New Team To Sell Policy on Economy")
The loose cannon

O'Neill said a lot of imprudent things. The Washington Post supplies a selection of these here. His sayings were entertaining but costly. The lost him the confidence of the domestic and international financial communities. This August Post editorial explains the implications for IMF efforts to help Brazil's economy:
    "At the end of June, the treasury chief said he opposed fresh International Monetary Fund loans to Brazil because its problems were "political." This remark spooked the markets and raised questions about Mr. O'Neill's command of the issues he deals with. Just a few days earlier, the IMF had in fact lent money to Brazil in an attempt to bolster confidence; Mr. O'Neill was needlessly undoing that effort. What's more, the secretary's logic was odd. Countries with political problems -- in Brazil's case, an election campaign featuring strong left-wing candidates -- are often more deserving of IMF help than those with economic problems. The point of an IMF loan is to tide a country over during a temporary difficulty: An election campaign is likely to be more temporary than an unsustainable mountain of debt.

    "After that remark, the Treasury issued a regretful statement expressing confidence in Brazil's economic management. But the episode did not prevent Mr. O'Neill from jumping into more hot water last weekend. Referring to Argentina and Uruguay as well as Brazil, the secretary said the challenge for these governments is to make sure that financial assistance "doesn't just go out of the country to Swiss bank accounts." In Mr. O'Neill's defense, it's true that capital flight is a danger. But invoking that danger on television is not a smart way to bolster confidence in the region, and the subsequent fall in Brazil's currency was hardly surprising."
    (See "Mr. O'Neill's Gaffes").
He wasn't interested in the politics.

These extracts from a Post article by Paul Bluestein make it clear that he wasn't interested in the politics of the job:
    "It never seemed to matter much to Paul H. O'Neill that his job description included winning over Wall Street, schmoozing members of Congress and engaging in financial diplomacy abroad. To the tart-tongued Treasury secretary, those duties often came second to telling the truth as he saw it.

    "He derided traders of stocks, bonds and currencies as "people who sit in front of flickering green screens" whose jobs he could learn "in about a couple of weeks." He riled congressional Republicans by dismissing as "show business" a bill passed by the House Ways and Means Committee..."
    ("Often Outspoken, Now Out of the Picture")
Policy differences?

Paul Bluestein again:
    "Distancing himself from colleagues who favor boosting the economy with a new round of tax cuts, the Treasury chief declared that the economy doesn't need much stimulus because it will grow just fine without one.

    "He made it clear he didn't think a large, broad-based stimulus package was necessary, and it's kind of tough to go rah-rah-rah about a new economic package if your leading spokesman at the Treasury isn't for it," said David Solin, a partner at Foreign Exchange Analytics in Essex, Conn."
Does O'Neill have a legacy?

He was willing to tell the truth as he saw it. Unfortunately, that's not necessarily a good thing.

This Washington Post story points out that he drew attention to the problems of poor nations with the ways aid is distributed to poor nations:
    "Among his most significant accomplishments was to throw a spotlight on the problems of poor nations, and on the ineffectiveness of much of the aid doled out by the World Bank and other development agencies.

    "Although many aid experts felt O'Neill went overboard when he asserted that "there is precious little to show" for the billions of dollars showered on poor countries over the past 50 years, his insistence on demanding better, more measurable results has become widely accepted and has forced changes both at the World Bank and in U.S. aid programs.

    "Reflecting O'Neill's success at focusing attention on the plight of the world's poor, the aid agency Oxfam America struck a sorrowful note in a statement on O'Neill's departure, saying that his "presence on the Bush economic team brought these issues into the debate in a way they otherwise would not have been included."

    "Often, when O'Neill blurted out a statement that later had to be clarified or smoothed over, "he was saying things that people knew were true but wouldn't dare say," said Kristin Forbes, a Massachusetts Institute of Technology professor who recently left Treasury.

    "For example, few disputed the validity of his concern about aid to Latin countries going to waste."
In this connection, remember his tour of Africa last summer with rock star Bono.

Why did things go wrong?

At the time O'Neill was chosen, Paul Krugman (as quoted by Brad DeLong yesterday) wrote:
    "What's wrong with Mr. O'Neill? He built his business reputation by reversing efforts to transform Alcoa into something more than an aluminum company, instead refocusing on the core business and engaging in ruthless cost-cutting. This is all very well — but overseeing world financial markets is nothing at all like running a large, very old-economy, command- and-control corporation (or, for that matter, working the details of the federal budget). Mr. Rubin excelled at the deft strategic intervention — persuading investors, when the situation was on a knife edge, not to pull their money out and turn a temporary loss of confidence into a self-fulfilling prophecy of collapse. Perhaps Mr. O'Neill will reveal a comparable talent, but nothing in his career to date suggests that this is his sort of thing."

John Rawls

The Economist has an obituary for John Rawls: "John Rawls". I've posted other collections of obituaries and memorials here and here.

Is the FCC facilitating monopolization of the Internet?

Paul Krugman sounds the alarm in Friday's New York Times: "Digital Robber Barons?". Free registration may be required.

The states are having a hard time balancing their budgets - who's to blame?

Jonathan Weisman in the Washington Post reports that, while the states bear responsibility:
    "A report last month by the Center on Budget and Policy Priorities pointed to a different culprit of the states' own making. The report noted that between 1994 and 2001, 43 states enacted major tax cuts. Those tax cuts are costing the states $40 billion in lost revenue each year, three-fifths of the current shortfall. States also made the choice to expand social programs and the reach of Medicaid, the costs of which are now exploding."
the President and Congress do as well:
    "On the tax side, last year's 10-year, $1.35 trillion tax cut included a little-noticed provision aimed directly at state coffers. Under the tax law, the federal estate tax diminishes at glacial speed over the next decade. But the law makes swift work of a provision that allows states to claim a credit from the federal government for estate taxes paid. The "state death tax credit" has already been cut by 25 percent, and will be gone by 2005, at a cost to the states of $4 billion a year, according to Harley Duncan, executive director of the Federation of Tax Administrators.

    "This year's stimulus bill, which granted an additional tax break to businesses that invest in plant and equipment, also hit the states, because almost all of them have tied their own corporate income tax systems to the federal government's. Thirty states scrambled to "decouple" their corporate tax rates from Washington's to save as much as $15 billion over the next three years, but 15 other states have absorbed the revenue blow..."
Check the article for more.

The economics of changes in forest planning regulations

Douglas Gantenbein argues in Slate that proposed changes in forest planning are meant to expand timber production and are bad economics because (a) timber is not very valuable now,and (b) extractive uses of forests never really led to prosperous rural communities: "Dead Wood. The lousy economics of Bush's new forest policy". The administration announced these changes just before Thanksgiving (this is not the same initiative as the forest fire proposals). I posted here: "Forest Planning Regs Proposed".

Tom Powers is a professor of economics at the University of Montana at Missoula. He's written a valuable book on the role of extractive resource industries in rural western economies - Lost Landscapes and Failed Economies. The Search for a Value of Place (Island Press, 1996). Gantenbein cites him in the column above. Powers offers his thoughts on the Bush initiative here: "Abandoning Environmental Safeguards in Our National Forests". This column is located at the web site of the Forest Service Employees for Environmental Responsibility.

Who is Bush's domestic policy coordinator?

Timothy Noah of Slate follows up on the DiIulio story here: Meet Bush's Domestic Policy Chief. Where's she been hiding?. For background on the Dilulio story link to my earlier post here: "Policy analysis in the Bush White House".

Forest fire trends

On November 27 I posted about a story from the Ventura County Star on trends in forest fires (click here). This story asked if forest fires have actually been worse in recent years:
    "Curiously, for all the high-volume angst among politicians over the terrible cost of this year's fire season -- and the haste of some to blame the devastation on impediments to logging and forest thinning -- historical data suggest the problem is no worse now than in the past. Since 1960, according to the Interagency Fire Center, total acreage burned has equaled or exceeded this year's figure four times: 1963 (7.1 million acres), 1969 (6.7 million), 1988 (7.4 million) and 1996 (6.7 million)."
The actual statistics are available at the National Interagency Fire Center Fire Statistics web page:

Acreage burnt (from 2000-2002) is relatively small compared to a period as recent as the 1950s - higher relative to the '60s-'90s. Looking at the annual data in the lower figure, three of the last four years have been unusually high. The uptrend looks very recent to me, not part of a longer term process.

Don't let the good times roll

The National Bureau of Economic Research (NBER) released the working paper, "Deaths Rise in Good Economic Times: Evidence From the OECD" by Ulf-G. Gerdtham, Christopher J. Ruhm this week (click here). The abstract:
    "This study uses aggregate data for 23 OECD countries over the 1960-1997 period to examine the relationship between macroeconomic conditions and fatalities. The main finding is that total mortality and deaths from several common causes increase when labor markets strengthen. For instance, controlling for year effects, location fixed effects, country-specific time trends and demographic characteristics, a one percentage point decrease in the national unemployment rate is associated with a 0.4 percent rise in total mortality and 0.4, 1.1, 1.8, 2.1 and 0.8 percent increases in deaths from cardiovascular disease, influenza/pneumonia, liver disease, motor vehicle fatalities and other accidents. These results are consistent with the findings of other recent research and cast doubt on the hypothesis that economic downturns have negative effects on physical health."

This looks like it will be interesting

Help Brad DeLong design his Spring 2003 economic history class (or watch while he designs it) here at this collaborative web site: Economic History (Econ 210a).

Short, but worth reading

"Happy Birthday, King Bhumibol" (at Brink Lindsey's blog).

What should we do about second-hand smoke?

What should we do about second hand smoke - no answers but unexpected reflections on the actual health impacts of second hand smoke, government's fiscal responsibility to restrict second hand smoke when government pays the medical bills, and the actual costs to the government from second-hand smoke, all here: "HARNESSING FISCAL RESPONSIBILITY IN THE SERVICE OF TYRANNY" courtesy of Sasha Volokh.

Why are we wealthy?

Virginia Postrel highlights the ideas of economic historian Joel Mokyr in her New York Times column today: "When Knowledge Was Spread Around, So Was Prosperity"
    ""In the Middle Ages they invented lots of things," said Professor Mokyr, whose 1990 book "The Lever of Riches" (Oxford University Press) chronicled many medieval inventions. "But the people who invented things were people out in the field who were smart and came up with things" by trial and error, he added.

    "These inventors had no connection to the educated elite, and they had no general theories to explain and extend their inventions. Medieval inventors could not generalize from a water mill to the laws of hydraulics, for instance.

    "Without widely applicable scientific theories, one invention was not likely to lead to another.

    ""In 1796 Edward Jenner invents vaccination, but he has no clue why it works," Professor Mokyr noted. "There is no other vaccination for almost another 100 years, because nobody has an idea why it works.""
Check Postrel's article for the rest - or read Mokyr's new book, The Gifts of Athena (Princeton University Press).

I learned about this from Arnold Kling's "Great Questions of Economics" blog.

Population growth and economic growth - "everything you know is wrong"

At least, "everything you know may be wrong." (I think I recall the title version of this line from an old Firesign Theatre sketch).

The Economist reports on a new UN report titled "People, Poverty and Possibilities" : "Unequally poor". According to the Economist, the report argues that investments in reproductive health care (birth control?) lead to lower fertility rates,
    "...Smaller families lead to slower population growth. That, in turn, results in more investment, higher savings and higher productivity....The UN reckons that better family planning accounts for a third of the decline in fertility between 1972 and 1994...Poverty is an obvious consequence of rapid and unsustainable population growth. So is inequality, both between different income groups and between men and women. Worryingly, both gaps are widening. Expenditure in certain areas can also have the effect of widening the gap. For example, spending on education tends to benefit relatively better-off groups in society, says the report."
This makes a lot of intuitive sense, but is it really true? There is no negative correlation between population growth and economic growth according to William Easterly, author The Elusive Quest for Growth. Economists Misadventures in the Tropics, (MIT Press, 2001). Easterly was a senior economist with the World Bank for many years, specializing in development issues. His book deals with what doesn't encourage economic growth in poor nations, and what might. Easterly says,
    "If population growth causes famine, water shortages, massive unemployment, and other disasters, we would expect to see it show up in overall economic performance. Countries that have rapid population growth should have low or negative GDP growth per capita. The population growth is, according tot he alarmists, overwhelming the existing productive capacity's ability to generate jobs and outstripping food production, so GDP per capita should fall when population growth gets "too high."

    "The prediction can be - and has been - easily tested. The relationship between per capita economic growth and population growth is one of the most intensively studied in all of the statistical literature. The literature has grown so extensive that we now have surveys of surveys. One survey concludes that "most economists who have specialized in population issues" have a "distinctly non-alarmist" view. The general wisdom among economists from these studies is that there is no evidence one way or the other that population growth affects per capita growth. The most well-known statistical relationship between growth and its most fundamental determinants finds no significant effect of population growth on per capita growth. When the effect of population growth on economic growth is allowed to vary for plausible reasons like the level of development or resource scarcity, population growth still does not matter for economic growth. When I control for government policy determinants of growth in the 1960s through the 1990s, I find a positive but insignificant relationship between population growth and per capita GDP growth.

    "There are some facts about the world that make the lack of a relationship between population growth and per capita economic growth unsurprising. First, we know that both population growth and per capita economic growth have accelerated over the very long run. Both population and income growth were slow until the nineteenth century for today's industrial nations; then both accelerated at the same time. Over the past few decades, both population growth and per capita economic growth slowed in industrial nations. it's hard to reconcile this fact with the idea that population growth is disastrous and that population control is a panacea for growth.

    "The second fact about the world is that population growth does not vary enough across countries to explain variations in per capita growth. GDP per capita growth varies between -2 and +7 percent for all countries for the period 1960 to 1992. Population growth varies only between 1 and 4 percent....

    "Third, population growth has slowed down by about 0,5 percentage point from the 60s to the 90s in the Third World. but as we have seen, Third World per capita growth slowed down over the same period...." (pages 91-92).
On the other hand, the executive summary for the UN study says:
    "The impact of population growth on economic development has been debated along these lines for decades. With hindsight, we can see that many positions were based on poorly framed questions and inadequate responses. Much of the research questioned whether population growth restricted, promoted or had no overall effect on economic growth. Another debate asked whether economic growth was a precondition or consequence of slower demographic growth.

    "Both arguments revolved around aggregate growth in population and the economy, but the chances for economic development and poverty alleviation do not depend only on aggregates. Data on over four decades of economic and demographic change provide new insights into how development prospects are shaped (3).

    "In 1986 a study on relationships between population and development from the National Research Council in the United States concluded that, despite its important effects at the household level, population growth had no effect on overall economic growth (4).

    "This seemed to settle an old argument. But the council's study did not have all the evidence. It used data from the 1960s and 1970s, when many countries were still relatively early in the "demographic transition" from high to low birth and death rates, and when centralized planning prevented some countries from making the most of increasingly favourable population dynamics. The study continued to rely on analyses of aggregate growth, both in population and economic development.

    "BETTER DATA, BETTER ASSUMPTIONS In the 1990s the scientific community looked at the question again. By this time it was possible to use data from longer periods, during which the demographic transition progressed in many countries. This time the conclusion was different. More important, researchers recognized that the demographic transition was reflected in changes in the age structure of populations-as life expectancy increased and fertility declined-not just in decreasing aggregate growth rates." (Accessed at on December 4, 2002)
The UN and Easterly can't both be right. I haven't read the actual UN report yet, and there may be more details there. One thing that makes me uneasy about the UN report. I think the summary sets up and knocks down a strawman (the 1986 National Research Council (NRC)). I haven't read the actual UN report yet, and there may be more details there. Easterly cites several sources in his section, all from the '90s, none from the NRC.

The web page for the UN study is here (the full report, summaries, and press kits).

On the other hand...

Romain Wacziarg (of Stanford), in a very favorable review of Easterly's book in the September Journal of Economic Literature writes:
    "...Finally, Easterly's statement that "the general wisdom among that there is no evidecne one way or another that population growth affects per capita growth" (p. 91) may seem at odds with several studies, such as Barro (1991) and Barro and Xavier Sala-i-Martin (1995), where fertility rates consistently enter with a statistically significant negative coefficient. There is perhaps less consensus on this point than the author may imply.

    Easterly's real critque of these variables as growth determinants is that they explain too little of the variation in growth to consistitute panaceas fro development policy, and this is a very good point. But whether they enter significantly is subject to more debates than th eauthor concedes. Consensus is not common in this literature..."
    ( p 911) Wacziarg, Romain. "Review of Easterly's The Elusive Quest for Growth." Journal of Economic Literature September, 2002. pages 907-918.
Revised with information on Wacziarg review on December 5, 2002

Summer camp isn't what it used to be

"Notes on Camp by Kay S. Hymowitz in the . (While many summer traditional summer camps remain, many others have either given up the struggle against, or embraced, modern consumption driven culture).

I learned about this from Iain Murray's blog "The Edge of England's Sword.

”Do Corrupt Governments Receive Less Foreign Aid?”

The Bush Administration’s new foreign aid proposal would direct $5 billion in foreign aid (a 50% increase in U.S. aid) towards the poor nations that can make the best use of it. (for links to news stories see "Bush Administration Foreign Aid Initiative"). This means the money should be going (among other things) to countries with governments that are not going to waste it. The governments must be competent, and presumably not corrupt. Do aid donors discriminate between corrupt and honest governments now?

Alberto Alesina and Beatrice Weder address this timely question in an article with the title above in September’s American Economic Review. They note that, “The rhetoric that accompanies these programs [international programs to alleviate poverty – Ben] is that they serve the purpose not only of reducing poverty, but also of regarding good policies and efficient and honest governments…The critics of aid programs argue instead that, contrary to the more or less sincere intentions of the donors, corrupt governments following very poor policies receive just as much aid as less corrupt ones.” (p 1126).

The presumption is that foreign aid to corrupt governments is largely wasted. Moreover, “Many critics make an even stronger argument, namely, that not only are corrupt governments not discriminated against in the flow of international assistance, but, in fact, foreign aid fosters corruption by increasing the size of resources fought over by interest groups and factions.” (p 1126).

Alesina and Weder examined aid donations with respect to various characteristics of donor and recipient countries, including measures of corruption. “Corruption measures are available from various sources. Most of them are risk assessments by private companies, which sell their expertise to multinational companies and investors.” (p 1128).

What they found:
  • ”…there is no evidence that bilateral or multilateral aid goes disproportionately to less corrupt governments.” (p 1126)

  • Debt relief is a form of foreign aid that has gained prominence during the last decade and has been little studied: we find no evidence that debt relief programs have been targeted to less corrupt countries. (p 1126).

  • ”Scandinavian countries and Australia give more to less corrupt governments…”(p 1127)

  • ”…corruption is positively correlated with aid received from the United States, although this donor favors democracies over dictatorships. We do not intend to claim that the United States favors more corrupt government on purpose. The reasons for this correlation is probably that the United States pays little attention to corruption, and the other motivations for aid-giving end up favoring more corrupt governments. The reason why Scandinavian donors and Australia can better discriminate is that they did not have colonies and are free from specific political pressures.”

  • ”Multilateral aid, namely aid from international organizations, does not discriminate against corruption of the receiving country.”
Source: Alesina, Alberto and Beatrice Weder. “Do Corrupt Governments Receive Less Foreign Aid?” American Economic Review 92(4):1126-1137. September 2002.

How not to make a poor country rich

The Economist and Brad DeLong discuss "The Zimbabwean Model of Development".

How to make a poor country rich

Arnold Kling asks "What Causes Prosperity?".
    "...a country that wants to improve economic performance should stabilize its currency, encourage foreign capital, privatize government enterprises, aim for a high rate of national saving, adopt democratic institutions, and reduce tariffs. The counter-examples merely illustrate that none of these policies, individually, is decisive.

    "There are two reasons that economists are unable to develop a fool-proof program for economic growth. The first issue is that growth is a nonlinear feedback process. The second issue is that economic policies themselves are only one ingredient in the recipe for growth..."

Just War Theory

George Weigel explains just war theory here: "Moral Clarity in a Time of War. The Second Annual William E. Simon Lecture" in this essay sponsored by the Ethics and Public Policy Center.

I learned about this from Donald Sensing's blog.

Policy analysis in the Bush White House

The January Esquire (released Sunday) reports comments by former Bush Administration domestic policy insider John DiIulio that are very critical of administration policy analysis. I haven't read the article, but it is said to be based, in part, on the email from DiIulio to Esquire reporter Ron Suskind (the author of the article) that can be found here, on Brad Delong's blog: "The Bush Administration Policy Process ".

DiIulio is currently a professor of political science at the University of Pennsylvania. On Monday he released a statement claiming that he was misinterpreted. A story on his apparent recantation can be found on "DiIulio Knocks His Own Criticisms of White House"
    ""John DiIulio agrees that his criticisms were groundless and baseless due to poorly chosen words and examples...

    ""... I gathered up [Suskind's] questions and responded in a single long memo in late October 2002. However, several quotes and anecdotes concerning or attributed to me in the article are not from that response," DiIulio said in a written statement.

    ""Obviously, I cannot speak to the veracity or accuracy of comments in the article by numerous named and unnamed others, but, in my opinion, the article is unjustly hard on Mr. Rove [Karl Rove - Ben] and over-the-top complimentary to me, thereby creating a too-pat contrast that is, I feel, most unfair to Mr. Rove," he wrote."
Suskind stands by his story, as quoted in this Democratic Underground posting: "DiIulio: I did not say that. Don't Disappear me Karl."
    "With all due respect, I'd like to respond to a few of John's points. The vast majority of the quotations attributed to Mr. DiIulio in the article are from a sweeping, sober letter he wrote me as I reported the piece. As well, our first, telephone interview was on the record. At the end of that lengthy interview, Mr. DiIulio respectfully asked whether the preceding conversation could be off-the-record. I declined.

    "As it happened, only a few comments from the original interview appear in the published story. They include the comment about Ms. LaMontagne and the brief exchange between Mr. DiIulio and Mr. Rove. That last exchange--about not cozying up to Mr. Falwell--was read to Mr. DiIulio prior to publication and he confirmed that it was correct.

    "In the end, Mr. DiIulio replaced most of his spoken comments with the landmark, 3,469-word letter he sent to me on October 24, in which he offered his critique of policymaking at the White House. That is, in large measure, why he wrote the letter. It is that thoughtful and comprehensive memo, excerpted without editorial change, that comprises the sum of Mr. DiIulio's assessment of this White House."
In his email to Suskind (which no one denies is authentic), DiIulio is critical of the administration for its lack of a domestic policy, and particularly for its failure to implement the policy of "compassionate conservatism" which Bush had advocated in the campaign. DiIulio locates the domestic policy failure in the disinterest (from Bush on down) in policy and policy analysis. This White House is more inclined than others to vest "...ever more organizational and operational authority with the White House's political, press and communications people..." While there are "extremely gifted" policy-people, the White House has been "organized in ways that make it hard for policy-minded staff, including colleagues (even secretaries) of cabinet agencies, to get much West Wing traction..." Policy people are bypassed, and generally irrelevant. Analysis is even treated dismissively, "Even quite junior staff would sometimes hear quite senior staff pooh-pooh any need to dig deeper for pertinent information on a given issue."

The result is policy driven by nothing more than political expedience. The results (in the debate on the faith-based initiative) were a politically driven policy proposal that sought to satisfy a marginal constituency, but that "reflected neither the president's own previous rhetoric on the idea, nor any of the actual empirical evidence that recommended policies promoting greater public/private partnerships involving community-serving religious organizations..." and that missed the opportunity for a bipartisan success. If the analytical resources aren't integrated into the decision process, good policies aren't going to be implemented, "But translating good impulses into good policy proposals requires more than whatever somebody thinks up in the eleventh hour before a speech is to be delivered, or whatever symbolic politics plan-"communities of character" and such-gets generated by the communications, political strategy, and other political shops."

This orientation has also frustrated progress in the coordination of domestic security efforts:
    "Contrast that, however, with the remarkably slap-dash character of the Office of Homeland Security, with the nine months of arguing that no department was needed, with the sudden, politically-timed reversal in June, and with the fact that not even that issue, the most significant reorganization of the federal government since the creation of the Department of Defense, has received more than talking-points caliber deliberation. This was, in a sense, the administration problem in miniature: Ridge was the decent fellow at the top, but nobody spent the time to understand that an EOP [Executive Office of the President - Ben] entity without budgetary or statutory authority can't "coordinate" over 100 separate federal units, no matter how personally close to the president its leader is, no matter how morally right they feel the mission is, and no matter how inconvenient the politics of telling certain House Republican leaders we need a big new federal bureaucracy might be."

Economics of immigration

D'Vera Cohn reports today, in the Washington Post, on an upcoming Northeastern University study finding that about half of the new workers joining the labor force in the 1990s were immigrants - up from about 10% in the '70s and about 25% in the '80s - and that this labor source contributed powerfully to the economic growth of the '90s. See "Immigrants Account for Half of New Workers".
    "...For decades, the nation's immigration policy has been a subject of intense debate, with critics saying the large numbers strain schools and other government services and take jobs from American-born workers. One of the authors of the Northeastern study argues that the research indicates the opposite: The U.S. economy would have stumbled in the past decade without the new arrivals, and most immigrants contribute more in taxes than they use in services.

    ""The American economy absolutely needs immigrants," said Andrew Sum, director of the labor market center [The report was prepared at the Center for Labor Market Studies at Northeastern University - Ben] . "I realize some workers have been hurt by this, and some people get very angry when I say this, but our economy has become more dependent on immigrant labor than at any time in the last 100 years."

    "Sum said many of the new immigrant workers, possibly half, are here without legal papers, meaning that the immigrants have an uncertain future and that the economy is dependent on people in a legal no man's land.

    "The center's report was commissioned by the Business Roundtable, a group of corporate chief executives..."

Does the Bush Administration deserve credit for acting to preserve tropical forests?

The Bush Administration supported restrictions on the mahogany trade in recent meetings of the signatories to the Convention on International Trade in Endangered Species (CITES). These trade restrictions are expected to help protect the tropical forests where mahogany grows. Does the Bush Administration deserve credit? There are different schools of thought, reports Howard LaFranchi inthe November 21 Christian Science Monitor: "With mahogany, Bush goes a shade greener".

On the one hand:
    ""This was a tremendous victory not just for mahogany but for rain forests more generally, but I don't give the administration much of the credit for it," says Carroll Muffett of Defenders of Wildlife in Washington. "The fact that they came here [to the Santiago meeting] without a firm stand on how they would vote, when in fact mahogany is the single biggest problem in illegal logging, tells me they aren't that focused on the issue.""
On the other:
    "...other experts say they are encouraged that the administration is paying attention to global environmental issues - even if the explanation for it is not purely green. "At the end of the day, the US saw this was going to pass, so they went with it as an opportunity to show leadership on illegal logging," says Scott Paul of Greenpeace...

    "...But he [Scott Paul - Ben] joins administration officials in pointing out other initiatives that predate the mahogany vote, backing up the claim that the administration didn't just discover trees last week. Manson says that recently the administration announced an ambitious Congo Basin initiative to be undertaken with several African countries and nongovernmental organizations for the preservation and sustainable use of millions of tropical forest acres.

    "And earlier this year, the US demonstrated its sensitivity to the mahogany issue by impounding millions of dollars' worth of mahogany in US ports after Brazil put a freeze on its trade."

Endangered species versus development

The New York Times reports on the conflicts between economic development and the protection of the Delhi Sands fly, a species listed as endangered under the Endangered Species Act in Monday's paper: "Endangered Fly Stalls Some California Projects.
    "...The United States Fish and Wildlife Service has determined that the breeding grounds for the fly, an ecosystem that once filled 40 square miles in the Inland Empire, amounts to a fragmented 1,200 acres of dunes. The clash between man and fly over these acres, in San Bernardino and Riverside Counties, has become so heated that many favoring development say the only solution is to allow the fly to become extinct.

    "Since 1993, when the fly was placed on the endangered list, some development in its habitat has been allowed, depending on the impact on the fly and conservation measures, but many more projects have been delayed or abandoned because of the fly. With a projected population increase of 1.7 million people by 2020, to 5 million, according to the Southern California Association of Governments, the Inland Empire is under heavy development pressure..."