Month: September 2003

Niclas Berggren offers a very useful survey of the economic freedom indices, what they show, and their limitations. The piece just appeared in The Independent Review. The introductory blurb states:

Although not without limitations, the EFI [economic freedom index] supports Adam Smith’s contention that free-market processes, more than any alternatives, can advance wealth and welfare.

If you are interested in another point of view, here is a left-wing critique of the Fraser index, suggesting that economic freedom is not positively correlated with the real quality of life.

My take: Even economists, much less the general public, underestimate the long-run value of economic growth for human welfare. Today’s poor have a higher standard of living than the upper middle class of a century ago. While it makes good sense to discount the dollar returns on investments, there is less of a good normative argument for the positive temporal discounting of human welfare. So we should care greatly about the standard of living in the distant future, which suggests investing in economic growth today. For a lengthy presentation of the argument on discounting, click here.

As dance relies more on corporate support, the question has arisen who owns a dance. Is the choreographer the owner as an independent creator, or are the choreographers mere employees of a larger organization?

Martha Graham left her dance work in her will to an heir, but a federal district court ruled against the will; she had sold her dance school and its name to other parties, arguably selling the dances as well. The ruling is now under appeal. Joffrey Ballet faces similar issues. See this discussion of the “work for hire” doctrine in the context of music.

“This is definitely a success problem,” says one dance director, “These problems would never have existed 50 years ago, because the concept of a penny being made by a choreographer or from a dance was unheard of.”

The dilemma again shows how far copyright law is behind the times. An economic approach would suggest rewarding the rights to the parties whose contributions create the most value at the margin. If dance geniuses are especially scarce, and responsive to monetary incentives, this would argue for granting the rights to the dance creator.

From “Dance and Profit: Who Gets It?”, The New York Times, September 20, 2003, click here to buy the article.

In an economy based on labor, leviathan government faces an inherent, albeit weak, constraint – tax and regulate too much and you will kill the goose that lays the golden eggs (or the goose will run away). But in an economy based on oil the goose can’t run away and is almost impossible to kill. As a result, natural resource based economies tend to be corrupt, war-stricken, and slow growing. After 35 years and some 350 billion dollars in oil revenues the people of Nigeria, for example, have had no increase in per-capita GNP.

Iraq is another case in point, which is why it’s crucial that we not squander the opportunity to create new institutions for getting oil wealth away from governments and into the hands of the people. Norway and Alaska distribute revenue from “stabilization funds” but these appear not to be very effective, especially in countries that begin with weak institutions. Economists Xavier Sala-i-Martin and Arvind Subramanian argue in favor of direct payments of revenues to citizens but I think Vernon Smith, our colleague and recent Nobel prize winner, offers the best approach – distribute shares, real ownership, in the oil producing lands to every citizen.

Aside from the benefits to the Iraqi’s can you imagine what a great public relations boost this would be to the United States? In one swoop, we would credibly demonstrate to the Muslim world that the war was not about our rapacity, provide for a thriving domestic economy in Iraq, and lay the foundations for a stable democracy.

Imagine Cass Sunstein and Richard Thaler writing a co-authored book review for The New Republic. The book is Michael Lewis’s Moneyball, which pretends to be about baseball but is in fact a profound meditation on behavioral economics, management science, and how hard it is to measure value. An obvious question: if it is so hard to measure the performance of first basemen, when there is a slew of publicly available statistics, how about the rest of the economy?

Thanks to Will Baude for the pointer.

“In a sense we are determinists and in another sense we can’t let ourselves be. But you can’t really justify free will.”

So spoke Milton Friedman in a recent interview. Read here for the full account.

I have long felt that this whole issue poses great difficulties for the merit-based argument for the market. If people don’t “deserve” the value they create, the moral case against redistribution becomes weaker.

The usually crystal-clear Friedman also says the following about luck:

“My wife and I entitled our memoirs, ‘Two Lucky People.’ Society may want to do something about luck. Indeed the whole argument for egalitarianism is to do something about luck. About saying, `Well, it’s not people’s fault that a person is born blind, it’s pure chance. Why should he suffer?’ That’s a valid sentiment.”

So what are the implications of luck for public policy?

“You’ve asked a very hard question,” he said. In part, he added, because it’s not clear that what we think of as luck really isn’t something else. “I feel,” he said, “and you do, too, I’m sure, that what some people attribute to luck is not really luck. That people are envious of others, you know, `that lucky bastard,’ when the truth of the matter is that that fellow had more ability or he worked harder. So that not all differences are attributable to luck.”

Newsweek magazine is running a feature article on last year’s Nobel Laureate and father of experimental economics (and our colleague) Vernon Smith. The most interesting part is toward the end, when the article discusses how experimental economics is improving real world business practices, such as allowing people within a firm to bet on which ideas will prove successful.