Month: February 2011

What conservatives want (don’t want)

This is from a poll of self-identified conservative Republicans:

When we asked last month about their thoughts on the best way to reduce the deficit, here’s how they replied:

†¢ 56 percent said cut spending across the board
†¢ 27 percent said cut spending from all government budgets except the military
†¢ 10 percent said pass a balanced budget amendment
†¢ 3 percent said cut taxes
†¢ 3 percent said fix Social Security and Medicare so they don’t pay out more than they take in

That was pretty revealing. Social Security and Medicare will drive our long-term structural deficits and crush our economy along the way. But even though the issue is getting some play in the media, it doesn’t seem to be getting through to the grassroots.

There is more at the link.  You might think that the desire for across the board spending cuts is picking up the fiscal conservatism, but the follow-up questions don't show a great desire to limit Social Security or Medicare.  Only thirty-five percent of the recipients favor both raising the retirement age for benefits and also means-testing. 

You may recall that fiscal conservative Paul Ryan didn't mention Social Security or Medicare in his response to Obama's State of the Union address.

Addendum: Here is a related poll.

The history of U.S. productivity, in a nutshell

There have been some recent confusions in the comments about the historical record on productivity.  The excellent Alexander J. Field sets it straight, after noting that TFP (Total Factor Productivity) growth in the interwar years was remarkably strong:

…TFP persisted at high although more modest rates during the golden age (1948-73).  But then it ground to an almost complete halt between 1973 and 1995.  Output per hour continued to rise, albeit much more slowly, but this was almost entirely attributable to physical capital deepening.  Data are now available for the entire century, and it is no longer possible to interpret the high rate of TFP advance during the interwar years that prompted the Abramowitz/Solow generalization [TC: the generalization was about knowledge-based progress] as a defining characteristic of the century as a whole.

In this context, think of TFP as the growth due to new ideas, rather than just throwing capital or labor at a problem or production process.  Here is a related Field paper.  It's also wrong to think of the post-WWII period as the peak of progress, rather as Field shows high TFP growth starts post Civil War and the time after WWII is somewhat slower than many previous decades.  The early 19th century, by the way, was not so splendid for TFP.

The critical responses to The Great Stagnation prefer to attack median income measures and in general they are reluctant to talk about total factor productivity.  Yet we are pointed very much toward the same conclusion.  My first post on TGS also considered these issues and you will find some relevant Charles Jones papers here

*The Limits of Market Efficiency*

There is a new paper by James M. Buchanan, here is the abstract:

The framework rules within which either market or political activity takes place must be classified in the non-partitionability set under the Samuelson taxonomy. Therefore there is nothing comparable to the profit-loss dynamic of the market that will insure any continuing thrust toward more desirable rules. ‘Public choice’ has at least partially succeeded in getting economists to remove the romantic blinders toward politics and politicians as providers of non-partitionable goods. It is equally necessary to be hard-nosed in evaluating markets as providers of non-partitionable rules.

Hat tip goes to

A new mortgage plan?

I am not sure whether this article is describing progress, or lack of progress, but here was one interesting bit:

One potential compromise described in current drafts of the administration’s proposal would reduce the government’s role to a last line of defense for the mortgage market. A version of this idea has been advocated by David S. Scharfstein, a finance professor at Harvard who previously worked as an adviser to Mr. Geithner.

The core of Mr. Scharfstein’s proposal is to create a new government-owned corporation for the sole purpose of providing guarantees to mortgage investors. During normal times, the insurer would guarantee no more than 10 percent of mortgages, but in times of crisis, the government could raise that cap, offering guarantees to a broader range of investors so that money continues to flow into the mortgage market and credit remains available.

This plan is a good example of why public choice analysis remains an underrated field in economics.  How are these restrictions self-enforcing in light of special interest and electoral pressures?  Along related lines, Arnold Kling has interesting comments on Peter Wallison.

Malaria and IQ

The figure below, from Bill Gates's annual letter, shows that countries with a higher disease burden have lower average IQs. The theory is that building brains and fighting disease are metabolically costly so more effort to fend disease diverts resources from brain development lowering IQ. 

Tyler blogged this research earlier writing "I'm not sure the authors have a very good test against alternative hypotheses, but still a correlation remains after making some appropriate adjustments."

Further evidence on causality is given by Atheendar Venkataramani in Early Life Exposure to Malaria and Cognition and Skills in Adulthood. Venkataramani finds that men born after widespread malaria eradication began in Mexico in the late 1950s have higher IQs (Raven scores) and are more likely to work in white collar jobs than men born shortly before eradication efforts began. Importantly, the effect is larger for men born in those states that began with high exposure to malaria.   

Were bankers fools or knaves?

This is a long "Control C" for a blog post, but it's worth it.  Via Simon Johnson:

New evidence in favor of the second interpretation [knaves] has just become available, thanks to the efforts of Sanjai Bhagat and Brian Bolton, who went carefully through the compensation structure of executives at the top 14 financial institutions in the United States from 2000 to 2008.

The key finding is that chief executives were “30 times more likely to be involved in a sell trade compared with an open-market buy trade” of their own bank’s stock and “the dollar value of sales of stock by bank C.E.O.’s of their own bank’s stock is about 100 times the dollar value of open market buys.” (See page 4 of the report.)

If the chief executives had really believed in what their banks were doing, they would have wanted to hold this stock – or even buy more.


Professors Bhagat and Bolton argue that if this incentive problem is important, we should see chief executives make a great deal of money while long-term buy-and-hold shareholders lose money.

Table 4 in their paper (Pages 45-48) shows the amounts of money involved, and they are simply staggering. Collectively, the people who headed these 14 institutions pocketed – in hard cash terms – more than $2.6 billion during 2000-8. It’s true that the paper value of their wealth dropped in 2008, although this was an unrealized paper loss. Even including that notional loss, the chief executives made an impressive $650 million profit [emphasis from TC].

In contrast, long-term shareholders in these 14 banks did very badly, particularly in 2008 (see Figure 1 on Page 61 of the paper). Professors Bhagat and Bolton show that shareholders in the biggest banks – where chief executives got their hands on more cash – did significantly worse than investors in smaller banks.

Interestingly, chief executives in the smallest banks in their sample did not sell much stock relative to their purchases of their own bank’s stock. The big bank-small bank contrast is quite striking.

British Prime Minister Harold Macmillan used to call them "banksters."

The Nordic triangle?

Via Conor Friedersdorf, and Bagehot, here is a discussion of Henrik Berggren and Lars TrägÃ¥rdh:

Conor writes:

Here's an interesting frame for the difference between America, Germany, and Sweden: every society has a different relationship to "the triangle formed by reverence for the Family, the State and the Individual." 

Bagehot writes:

Americans favour a Family-Individual axis… suspecting the state as a threat to liberty. Germans revere an axis connecting the family and the state, with a smaller role for individual autonomy. In the Nordic countries… the state and the individual form the dominant alliance.

Here is Reihan on this topic.  Here is my earlier and very directly related post on Sweden and the Swede as individualist.  Does anyone have a link to the Pippi Longstocking paper itself?

Here is Bagehot again:

(Before you scoff, you should perhaps know that the French–a conservative and statist lot–have a very complicated relationship with Pippi Longstocking as a children's book. For many years, the only French translation available was a bowdlerised version, that played down Pippi's wilder, anti-authoritarian side. There is a moral in there somewhere.)

*The Evolution of Progress*

The excellent Brink Lindsey pointed my attention to this fascinating book, subtitled The End of Economic Growth and the Beginning of Human Transformation (like many subtitles, that one is an exaggeration), wirtten by C. Owen Paepke and published in 1993.  A brief book summary is here.

It is fascinating to read his take on how the biosciences will be the wave of the future and how much of human progress will come in the "interior" dimension.  Here is one excerpt:

The United States enjoyed the dubious honor of leading a world-wide parade toward lesser productivity gains.  The growth of both total factor productivity and labor productivity of every advanced economy, notably including Japan, has slowed since 1973.  Only the newly industrialized countries, such as South Korea and Singapore, maintained or increased their productivity growth during the 1970s and 1980s, largely by exploiting innovations earlier pioneered in the advanced economies.

In fairness to the data, this productivity trend was temporarily reversed in the mid-1990s, for a few years, right after Paepke wrote.  And:

By the middle of the next century, a new generation will surpass its precedessor, not in the traditional realm of possessions of life-style, but in the more fundamental one of genetic endowment.

It seems Paepke is a lawyer (one source has him running a pharmaceuticals company), here is Paepke on "Facebook like."  Here is Paepke's patent for "affinity analysis."  Here are Paepke's thirteen trademarks.

How do great entrepreneurs think?

Here is one interesting study:

That is not to say entrepreneurs don't have goals, only that those goals are broad and–like luggage–may shift during flight. Rather than meticulously segment customers according to potential return, they itch to get to market as quickly and cheaply as possible, a principle Sarasvathy calls affordable loss. Repeatedly, the entrepreneurs in her study expressed impatience with anything that smacked of extensive planning, particularly traditional market research. (Inc.'s own research backs this up. One survey of Inc. 500 CEOs found that 60 percent had not written business plans before launching their companies. Just 12 percent had done market research.)

…Sarasvathy explains that entrepreneurs' aversion to market research is symptomatic of a larger lesson they have learned: They do not believe in prediction of any kind. "If you give them data that has to do with the future, they just dismiss it," she says. "They don't believe the future is predictable…or they don't want to be in a space that is very predictable."

The article is interesting throughout and hat tip goes to The Browser.

Stagnation is not just about technology

According to data based on students who graduated in June, 2009, 5.1 percent of Rochester students who entered high school in the 2005-06 school year graduated school prepared for college or a career.

Rochester's graduation rate for that period was 46.6 percent, but because few of those graduates passed regents exams with scores of 80 or higher in math and 75 or higher in English, they were not deemed college or career ready.

The story is here.  In Syracuse and Buffalo, the readiness rate was a much higher fifteen percent.  Of course when it comes to gdp, all of these expenditures on their high schools are valued at cost.

Is Los Angeles in trouble?

For over a decade, Gregg Donovan, former valet to Bob Hope, greeted tourists on the street in a top hat and red tailcoat and yelled "Welcome to Beverly Hills!"  His original assigned job was to counter the impression — often derived from the Julia Roberts movie Pretty Woman — that Rodeo Drive was full of snooty sales clerks.  He often would escort people into the shops by hand and ease their way into the culture and show them how friendly the place really is.

Now he has been laid off, another casualty of the recession.  His image will live on:

Mr. Donovan has come to represent the city so thoroughly that there is now a debate over the rights to his likeness.

As part of the separation agreement sent to Mr. Donovan, the Conference and Tourism Board sought the right to continue to use his image on promotional materials. Mr. Donovan has refused to sign the agreement, his lawyer said.

It turns out Donovan is supposed to give up his personal rights to use his image in the job, which he does not want to do.

Elsewhere, Watts Towers — one of my favorite American landmarks — is facing budget cuts.  The three city workers who look after the towers have been laid off, so there is an attempt to recruit the Los Angeles County Museum to do the work and also to renovate the site.