Many years ago I had to supplement my income teaching evening classes in public administration. At the time — and maybe now for all I know — something called the “Baumol effect” was being widely blamed for higher inflation in the public sector than in the private sector. I was reminded of this recently when reading the “France Profonde column in the latest Prospect”:http://www.prospect-magazine.co.uk/LoginPage.asp?P_Article=12327 (subcribers only – free to web in about 3 weeks). The latest article bemoans the decline in French traditional cooking both at home and in restaurants. The basic problem seems to be the same in both establishments: traditional French dishes are often very time consuming and labour intensive. The result: people don’t bother much at home (except on special occasions) and restaurants buy in inferior pre-prepared vacuum-packed versions of favourite dishes.
From the category archives:
Economics/Finance
If anyone knows of a position for an experienced, highly qualified technical writer, you could do no better than contact Ginger Stampley at immlass@yahoo.com.
If anyone knows of a position for a QA or CM position, and is looking for a bright, hardworking guy who had previously managed a project staff of fifteen (I believe), you will probably want to contact Michael Croft* at michael@whiterose.org. They would relocate for a good offer.
* Croft, not Stampley. I plead utter idiocy.
Via “William Sjostrom”:http://www.atlanticblog.com/archives/001196.html#001196, this rather remarkable “specimen of codswallop”:http://www.opinionjournal.com/editorial/feature.html?id=110004152 from Gary Becker, Edward Lazear and Kevin Murphy. These gathered luminaries argue in the Opinion Journal that cutting taxes has a double pay-off. It starves the beast, making cuts in welfare state spending more likely, and it also encourages workers to invest in “human capital,” i.e. job skills.
bq. The evidence is clear: Cutting taxes will have beneficial effects. Tax cuts will keep government spending in check and will provide the incentives necessary to produce a highly skilled, productive work force that enables high economic growth and rising standards of living.
This claim rests on some rather heroic assumptions which I won’t go into. It’s also, very possibly, self-contradictory; you can make quite a strong case that the two effects interfere with each other. Torben Iversen and David Soskice provide some decent “evidence”:http://www.people.fas.harvard.edu/~iversen/PDFfiles/SocialPreferences.pdf to suggest that people with high levels of specific skills actually want a beefy welfare state. More pertinently, where people don’t have such a welfare state, they may have a strong incentive to “avoid investing”:http://www.people.fas.harvard.edu/~iversen/VofCchapter.pdf in job-specific skills. If this result holds, then the benefits of tax cuts for human capital formation are _not_ clear at all. Starving the welfare state will deplete valuable forms of human capital.
Here’s my contribution to the “M-Type versus C-Type” debate. Basically, just as it’s a useful analytical distinction to make that all UK Prime Ministers are either bookies or vicars, it’s always worth remembering that all economic policy debates of interest can be usefully analogised either to blackjack or to three-card monte.
The FT’s economist-as-agony-aunt column takes a look at the “costs and benefits of suicide”:http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1059480520343&p=1012571727126 .
“Arnold Kling”:http://www.techcentralstation.com/100703B.html posts an essay on Tech Central Station, criticizing Paul Krugman’s punditry for deviating from sound economic theory. Kling suggests that Paul Krugman should stick to “Type C” arguments, about the consequences of policies, and that he should avoid “Type M” arguments about the motives underlying these policies. According to Kling, type M arguments are difficult to prove, and are anyway unimportant compared to policy outcomes, which are what we should care about.
Kling’s tone is reasonable and moderate, as compared, say, to the mendacious and economically illiterate ravings of Donald Luskin and his ilk. He’s still wrong.
No, it can’t be! I thought … and it wasn’t. “Some other bloke”:http://news.bbc.co.uk/1/hi/business/3172538.stm .
My education is clearly sadly lacking
Meanwhile, as a break from the hysterical, obsessive and politicised world of weblog disputes, I decided to have another look at an uncontroversial, scientific topic like John Lott’s research into gun control. And I discovered that I have been quite appalingly conned by two institutions that I thought I could trust. Instapundit has printed a letter from someone called Benjamin Zycher, a “Senior Economist”[1] at the Rand Corporation, supported by Raymond Sauer, a professor at Clemson University. Zycher says, and Sauer supports him in saying that the Ayres and Donohue paper on Lott’s work is all wet.
As an further antidote to the Paul Johnson rant, I thought I’d link to euro-cheerleader Philippe Legrain’s “hymn to European dynamism in Prospect”:http://www.prospect-magazine.co.uk/ArticleView.asp?accessible=yes&P_Article=12246 . There are one or two moments when Legrain has to turn up the volume in the hope that people won’t notice weaknesses here and there, but it is a pretty gutsy response to a certain widely-received view of Europe and America:
bq. over the past three years, living standards, as measured by GDP per capita, have risen by 5.9 per cent in the EU but by only 1 per cent in the US. So says the IMF, an institution hardly biased against the US. An unfair comparison, perhaps, given America’s recent recession? Then look at how the EU and the US size up since 1995, a period that includes America’s late 1990s boom. While living standards in the US have risen by a healthy 16.1 per cent over the past eight years, they are up by 18.3 per cent in the EU. This is not a sleight of hand. Pick any year between 1995 and 2000 as your starting point, and the conclusion is the same: Europe’s economy has outperformed America’s.
bq. It is true that the US economy has grown by an average of 3.2 per cent a year since 1995, whereas Europe’s economy has swelled by only 2.3 per cent. These headline figures transfix pundits and policymakers. But this apparent success is deceptive. Not only are US growth figures inflated because American statisticians have done more than their European counterparts to take into account improvements in the quality of goods and services, but the US population is also growing much faster than Europe’s. It has increased by nearly one tenth in the past eight years, whereas Europe’s population has scarcely grown at all. So although the US pie is growing faster than Europe’s, so too is the number of mouths it has to feed. Most people care about higher living standards, not higher economic growth.
I’ve spent the past couple of days at the second of a series of conferences with the title “Priority in Practice” which seek to bring political philosophers in contact with more gritty policy questions. It was good fun, there were some good papers and I learnt a fair bit. One of the interesting papers was by John O’Neill from Lancaster who discussed the controversial question of “contingent valuation”, which is a method by which researchers engaged in cost-benefit analysis attempt to establish a shadow value for some (usually environmental) good for which there is no genuine market price, by asking people what they’d be prepared to pay for it (or alternatively, and eliciting a very different set of answers, what they’d need to compensate them for its loss).
Naturally, people often react with fury or distaste to the suggestion that they assign a monetary value to something like the preservation of an ecosystem. They think that just isn’t an appropriate question and that it involves a transgression of the boundaries between different spheres of justice or value. John had a nice quote to show that researchers have been asking just this sort of question (and getting similar tetchy responses) for rather a long time:
bq. Darius, after he had got the kingdom, called into his presence certain Greeks who were at hand, and asked- “What he should pay them to eat the bodies of their fathers when they died?” To which they answered, that there was no sum that would tempt them to do such a thing. He then sent for certain Indians, of the race called Callatians, men who eat their fathers, and asked them, while the Greeks stood by, and knew by the help of an interpreter all that was said – “What he should give them to burn the bodies of their fathers at their decease?” The Indians exclaimed aloud, and bade him forbear such language. (Herodotus, _Histories_ , III).
I suppose lots of people will have seen it anyway, but for those who didn’t it’s worth pointing out that Kevin Drum has an excellent but thoroughly terrifying interview with Paul Krugman.
An appropriately spine-chilling taster:
Train wreck is a way overused metaphor, but we’re headed for some kind of collision, and there are three things that can happen. Just by the arithmetic, you can either have big tax increases, roll back the whole Bush program plus some; or you can sharply cut Medicare and Social Security, because that’s where the money is; or the U.S. just tootles along until we actually have a financial crisis where the marginal buyer of U.S. treasury bills, which is actually the Reserve Bank of China, says, we don’t trust these guys anymore — and we turn into Argentina. All three of those are clearly impossible, and yet one of them has to happen, so, your choice. Which one?
I’m almost certainly spending too much time reading lefty American blogs, but I now have far more emotional investment in the result of the US Presidential Election in 2004 than I have in that of the next electoral flurry in the UK.
Daniel’s post on the Cancun trade talks explains that their failure was rooted in disagreement about restrictions on foreign investment and capital controls. This reminds me that it’s time you all re-read Pierre-Olivier Gourinchas and Olivier Jeanne’s paper “The Elusive Benefits from International Financial Integration,” which I blogged about a few months ago.
Apparently the Cancun ministerial conference of the World Trade Organisation has got to such an appalling standstill that they all decided to pack up and go home. And the interesting thing is that what killed it wasn’t EU intransigence on agricultural subsidies, but rather something called the “Singapore issues”; a set of proposals about foreign investment on which the developed world is more or less united. Which is really rather a scandal., but as I argue below, the good thing about the Cancun collapse is that it allows us to get the measure of the character of the WTO as an organisation.
In today’s FT, Samuel Brittan reviews John Gillingham’s European Integration, 1950-2003 : Superstate or New Market Economy?. One interesting snippet, which I knew about but deserves wider publicity:
bq. Readers may be more surprised to find the name of Frederich Hayek given as the source of the alternative neoliberal interpretation. For most of today’s self-proclaimed Hayekians view everything to do with the EU with intense suspicion. Indeed I was sufficiently surprised myself to look up some of Hayek’s writings on the subject. Although he played no part in the post war institutional discussion, he had written at some length on the problems of federalism in the late 1930s. Hayek was among those who believed that some form of federalism, whether in Europe or on a wider basis, was an important step towards a more peaceful world. In a 1939 essay, remarkably anticipating the EU Single Market Act, he argued that a political union required some elements of a common economic policy, such as a common tariff, monetary and exchange rate policy, but also a ban on intervention to help particular producers.
John Quiggin gives a modest defence of existence theorems in economics, one of the three real vices of economists according to Deirdre McCloskey.
bq. Existence theorems, for McCloskey are the archetypal example of ‘blackboard economics’, mathematical games yielding purely qualitative results that can be overturned with modest changes in assumptions. They were the high point of mathematical economics in the 50s and 60s … There are a wide variety of ‘impossibility theorems’ demonstrating the non-existence of index numbers with various properties [an area of research interest for John]. Familiarity with such theorems can save a lot of pointless effort, and they are therefore worth looking for. But an impossibility theorem is just the negative form of an existence theorem (or, if you prefer, an existence theorem proves the impossibility of the corresponding impossibility theorem).
bq. This is a rather prosaic defence, that certainly does not justify the high status accorded to the kind of theory exemplified by existence theorems. But the argument can be pushed a bit further by considering the most famous impossibility theorem, that of Arrow who showed (roughly speaking) that no voting system having a set of seemingly desirable properties could work for all possible sets of voter preferences. This impossibility theorem precluded a lot of potential effort in designing ideal voting systems. [Emphasis added.]
This is a nice parallel. Actually, it’s so nice that it may prove more than John intended. (I absolve him of responsibility for what follows.)