by Brian on March 5, 2004

Some of the most charmingly pointless controversies on “my other blog”:http://brown.edu/Departments/Philosophy/tar/ have been about just what region is denoted by ‘Midwest’. (For prior installments, see “here”:http://www.brown.edu/Departments/Philosophy/tar/Archives/001580.html, “here”:http://www.brown.edu/Departments/Philosophy/tar/Archives/001568.html and “here”:http://www.brown.edu/Departments/Philosophy/tar/Archives/002519.html.) I think those are fun, but we seem to have run out of things to say on that word. So it’s time for something new. Just which parts of New York State are denoted by ‘upstate’?

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Cutting the Gordian Knot

by Maria on March 5, 2004

Wow. Here I am trying to figure out how to give a good kick in the arse to my humdrum mid-level policy career, and there Gordon Brown is, trying to decide whether to be Prime Minister of the U.K. or Director of the I.M.F.

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How far

by Ted on March 5, 2004

I’m in a social group called “Thinkers and Drinkers”, who meet every two weeks to debate. I submitted a question yesterday that I thought would be pretty controversial. I was surprised when it wasn’t, and I’d be very interested in thoughts from our readers.

It’s a two part question, with a hypothetical to set up the actual question. Here’s the hypothetical part:

There are a number of books with titles like “The Hitman’s Handbook”, which ostensibly tell you how to kill someone and get away with it. Let’s say that someone reads one of these books, takes its advice, and kills someone. That person is caught, convicted, and sent to jail. Then the family of the victim sues the publisher in a civil suit. The ACLU is defending the publisher on First Amendment grounds.

No one would doubt that the murderer, and the publisher, are morally in the wrong. The question is, given that there’s a world full of hurt out there, is it wrong for the ACLU to offer its time and money in support of the publisher?

The discussion group, which is largely made up of center/ center-left, religious, young female professionals, uniformly came down in defense of the ACLU. There was widespread agreement that publishers can’t be held responsible for the actions taken by people who read their books, and that a victory would set a dangerous precedent. We refused to see a distinction between fiction that could inspire people to commit crime and explicit how-to books. It would be easy to lightly mask a how-to book with a fictional veneer, and we didn’t want courts trying to interpret that distinction. We all agreed that this book doesn’t make anyone commit murder- that only the murderer, and people who actively aid him, could be held responsible.

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Stocks, bonds and social security

by John Quiggin on March 5, 2004

Brad DeLong has had a string of posts referring to the possibility that some or all of the US Social Security fund should be invested in stocks rather than, as at present, in US Treasury bonds, of which the most pertinent is this one. This idea first came up in a major way in Clinton’s 1999 State of the Union speech, and has since had some play on the Republican side, especially now that privatization individual accounts seem to be off the agenda.

The key fact that makes the idea attractive is the equity premium, the fact that, historically the rate of return to investment in stocks has been well above that in bonds. This used to be explained by the fact that stocks were riskier than bonds. But ever since the work of Mehra and Prescott in the 1980s it’s been known that no simple and plausible model of the social cost of risk that would be generated by efficient capital markets can explain more than a small fraction of the observed premium. The immediate response, that of finding more complicated, but still plausible models hasn’t gone very far. The alternative explanation is that capital markets don’t do a very good job of spreading risk. For example it’s very hard to get insurance against recession-induced unemployment or business failure, even though standard models imply that this should be available.

Simon Grant and I have done a fair bit of work on this, with some specific attention to the Social Security issue. In this paper (large PDF file), published in the American Economic Review, we argued that substantial gains could be realized by investing Social Security funds in the stock market. We didn’t put a number on it, but I don’t find Brad’s half-embraced suggestion of $2.4 trillion in present value implausible.

An important point, though, is that investing in stocks will generally not be the best way to go, at least if the amount invested is large. A government agency holding, say 20 per cent of the shares in Ford and General Motors, would seem to have big problems. Leaving aside the specific institutional issues of the US Social Security fund, the obvious implication of the equity premium is that, unless there are large differences in operating efficiency between private and public enterprises, government ownership of large capital-intensive enterprises like utilities will be socially beneficial. The case is strengthened if monopoly or other problems mean that the enterprises have to be tightly regulated in any case. Again, Simon Grant and I have written this up, this time in Economica (PDF version available here)

A disaster stamped “Made in England”

by Daniel on March 5, 2004

With the pressure increasing on Robert Mugabe’s extremely unpleasant government, I thought I’d repost an old comment of mine from D2D on the subject of how things got this way. There is an unfortunate tendency on the left to lose their nerve in the face of human rights disasters in left-wing regimes and take their eye off the ball – to commit the fundamental attribution error of assuming that the problems they see aer the result of particular moral corruption in the regime in question, rather than maintaining more plausible structural assumptions. As I say below, there is no exonerating Mugabe; there is always the option of not being a bastard and he didn’t take it. But it is very hard to see how any good outcome could have come out of the situation created by the British.

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The pursuit of happiness

by John Quiggin on March 5, 2004

My view of the US is probably overly influenced by Hollywood, but I had the impression that the right to marry your high school sweetheart was a crucially important instance of the inalienable right to the pursuit of happiness set out in the Declaration of Independence. If so, it seems as if there’s a contradiction between this and this.