Department of Yikes
According to USA Today:
Overall, federal workers earned an average salary of $67,691 in 2008 for occupations that exist both in government and the private sector, according to Bureau of Labor Statistics data. The average pay for the same mix of jobs in the private sector was $60,046 in 2008, the most recent data available.
These salary figures do not include the value of health, pension and other benefits, which averaged $40,785 per federal employee in 2008 vs. $9,882 per private worker, according to the Bureau of Economic Analysis.
Thus, if these numbers are to be believed, federal workers on average earn in wages and compensation 50% more than workers in the private sector doing the same job. Bear in mind that the federal workers are paid by the private sector workers. We can't all be insiders.
The figures do seem large to me, however, and they do not correct for a variety of factors such as age or experience so take them with a grain of salt.
The Philosophical Cow
Suppose that you are a cow philosopher contemplating the welfare of cows. In the world today there are about 1.3 billion of your compatriots. It would be a fine thing for cows if all cows were well treated and if none were slaughtered for food. Nevertheless, being a clever cow, you understand that it's the demand for beef that brings cows to life. How do you regard such a trade off?
If each cow brought to life adds even some small bit of cow utility to the grand total of co
w welfare must not beef eaters be lauded, at least if they are hungry enough? Or is the pro beef-eater argument simply repugnant?
Should a cow behind a haystack of ignorance choose the world with the highest expectation of utility? In which case, a world of many cows each destined for slaughter could well be preferable to one with many fewer but happier cows.
Or is it wrong to compare the zero of non-existence with existence? Should a cow philosopher focus on making cows happy or on making happy cows? If the former, would one (or two) supremely happy cows not be best?
I think these questions are important both for thinking about cows and animal rights and for human beings. Tyler has thought a lot about these issues (e.g. here, here and elsewhere). Some people, however, think that cow philosophy is just a bunch of bull.
Super-K
The High Cost of Free TV
Despite the fact that 91 percent of American households get their television via cable or satellite huge chunks of radio-spectrum are locked up in the dead technology of over-the-air television. In his Economic View column today Richard Thaler features the work of our GMU colleague Tom Hazlett who argues that auctioning off the spectrum to the high value users would generate at least $100 billion for the government and generate a trillion dollars of value to consumers. Thaler writes:
I KNOW that this proposal sounds too good to be true, but I think the opportunity is real. And unlike some gimmicks from state and local governments, like selling off proceeds from the state lottery to a private company, this doesn’t solve current problems simply by borrowing from future generations. Instead, by allowing scarce resources to be devoted to more productive uses, we can create real value for the economy.
Evidence for Hell Freezing Over
Washington has had a lot of snow recently but until now I had not realized that this was due to hell freezing over.
Insiders, Outsiders and Unemployment
From today's NYTimes:
The Obama administration is planning to use the government’s enormous buying power to prod private companies to improve wages and benefits for millions of workers, according to White House officials and several interest groups briefed on the plan….
Because nearly one in four workers is employed by companies that have contracts with the federal government, administration officials see the plan as a way to shape social policy and lift more families into the middle class.
At a time of 10% unemployment when real wages need to fall this is bad business cycle policy. I am more worried, however, about the long term consequences of creating a dual labor market in which insiders with government or government-connected jobs are highly paid and secure while outsiders face high unemployment rates, low wages and part-time work without a career path.
Long-term unemployment is at shockingly high levels which in itself creates a dynamic of persistence because the longer a worker is unemployed the less employable they become (in part due to loss of human capital and signaling problems). Thus, getting these workers back to work is going to be hard enough as it is. Labor regulations which raise wages and make hiring and firing workers even more costly will make re-employing the long-term unemployed even more difficult.
Moreover, once an economy is in the insider-outsider equilibrium it's very difficult to get out because insiders fear that they will lose their privileges with a deregulated labor market and outsiders focus their political energy not on deregulating the labor market but on becoming insiders–see Blanchard and Summers on hysteresis in unemployment and more recently Larry Ball here. Many European economies found themselves stuck in the insider-outsider equilibrium and as a result unemployment levels in places like France and Italy hovered at 9% or more for decades.
Addendum: For a personal perspective see also Eric Raymond today in a post titled Marginal Devolution. Hat tip on the latter to Arnold Kling who also comments.
Behavioral Economics in Song
Liam Delaney gives The Flaming Lips "a honourable place in the
behavioral economics songs hall of fame for the 'yeah yeah yeah song' which
reminds us that it is 'a very dangerous thing to do exactly what you
want because you cannot know yourself…'."
I take Delaney's Yeah, Yeah, Yeah and raise it with Chris Smither's Heh, Heh, Heh song which runs in part:
Pretty soon you're gonna ask me,
How come the life you lead,
Doesn't make you very happy,
Or satisfy your needs,
You talk about your needs as though
You know just what they are,
When in fact to really know them,
Is like traveling to a star,
It takes so long you die along the way,
So I say hey, hey, hey.
One of my papers, which never got very far, took this as inspiration to think about how preference discovery could modify various economic concepts.
Your nominations?
Assorted Links
- Andrew Gelman can't take von Mises seriously as a philosopher. Oh brother.
- To improve happiness, imagine valued things gone.
- Charlie Munger's parable.
Hat tip: Andrew.
Dominance Displays
Compare:
Alcohol Poisoning
Deborah Blum writes about the Federal program to poison alcohol during prohibition:
Frustrated that people continued to consume so much alcohol even after it was banned, federal officials had decided to try a different kind of enforcement. They ordered the poisoning of industrial alcohols manufactured in the United States, products regularly stolen by bootleggers and resold as drinkable spirits. The idea was to scare people into giving up illicit drinking. Instead, by the time Prohibition ended in 1933, the federal poisoning program, by some estimates, had killed at least 10,000 people.
What Blum fails to mention is that the Federal program to poison alcohol continues to this day. Drinking-alcohol is heavily taxed but ethanol is heavily subsidized so poisoning or denaturing is used to prevent arbitrage. Even today some people occasionally go blind or die when they try to drink some form of denatured ethanol but this is rare since safe, drinking alcohol is readily available, even if expensive.
(FYI, Tyler and I mention this unusual method of preventing arbitrage in our chapter on price discrimination in Modern Principles.)
Commodity Prices
Following up on my post, Revisiting Simon-Ehrlich, Mark Perry graphs the Dow-Jones AIG monthly index of 19 commodities, inflation adjusted, 1934-2010.
Revisiting Simon-Ehrlich
Paul Kedrosky revisits the famous Simon-Ehrlich bet:
Without getting into it too deeply, here are some things worth knowing. Given
the above graph of the five commodities’ prices in inflation-adjusted terms, it
will surprise no-one that the bet’s payoff was highly dependent on its start
date. Simon famously offered to bet comers on any timeline longer than a year,
and on any commodity, but the bet itself was over a decade, from 1980-1990. If
you started the bet any year during the 1980s Simon won eight of the ten decadal
start years. During the 1990s things changed, however, with Simon the decadal
winners in four start years and Ehrlich winning six – 60% of the time. And if we
extend the bet into the current decade, taking Simon at his word that he was
happy to bet on any period from a year on up (we don’t have enough data to do a
full 21st century decade), then Ehrlich won every start-year bet in the 2000s.
He looks like he’ll be a perfect Simon/Ehrlich ten-for-ten.
So, what does all this mean? A few things. First, and most importantly, it
means Simon was right but fairly lucky. There is nothing wrong with being lucky,
of course, but compulsive Simon/Ehrlich-citers need to be reminded that it is no
law of nature (let alone of rickety old economics) that commodity prices
(inflation-adjusted or otherwise) trend inexorably downward, even over a
decade.
If the conclusion is that prices go up as well as down, even over a 10 year period, then there isn't much to complain about in Paul's analysis. But I think he misses the key point. The bet was never fundamentally about prices, the bet was about scarcity, living standards and whether we were running out of natural resources–remember that at the time Ehrlich was predicting hundreds of millions would die of starvation and even that England would not exist in the year 2000! Prices were just a convenient but imperfect way to mark the bet to market.
The reason prices have risen in the 1990s is not that things are getting worse but that things are getting better–especially in China and India where things have been getting much better. As China and India have become richer demand has increased tremendously in these countries putting upward pressure on prices. In other words, prices have risen because the value of resources has risen. That's quite different–indeed the opposite–of what Ehrlich was predicting.
To see this concretely take a good which is really fixed in supply, Picasso paintings. Now consider two worlds – in one world the price of a typical Picasso is $50,000; in the other, it's $5 million. Which world would you guess has a higher standard of living?
Publish Referee Reports?
A number of prominent scientists working on stem-cell research have written a letter calling for peer-reviews to be made publicly available:
We suggest a simple step that would greatly improve transparency, fairness and accountability; when a paper is published, the reviews, response to reviews and associated editorial correspondence could be provided as Supplementary Information, while preserving anonymity of the referees.
In cutting edge fields such as stem-cell research it's very common for scientists to be working on exactly the same problem with the first to publish receiving the bulk of the plaudits. As a result, peer-sabotage can be a problem. Sabotage is not such a problem in economics because researchers rarely work on exactly the same problem but laziness and low-quality reviews are real concerns. (Note that my experiences with journal editors and reviewers has been more good than bad so I don't speak with sour grapes).
But would publishing anonymous referee reports really increase quality? Blog comments are public and anonymous and they can be stupid, rude, and ill-informed (not this blog of course). Indeed, the trend in blogs has been to remove anonymity as a way of increasing accountability and quality. In science, however, anonymity is essential because the opportunities for repeat play and thus collusion are too common.
The primary effect of published referee reports would be on editors who would have their work put under greater scrutiny. That is not necessarily a bad thing although editors are professionally under-rewarded in my view so more work is not necessarily going to lead to a better selection.
Note also that regardless of any change in quality, the value of the referee comments themselves should not be overlooked. Referees may also appreciate the opportunity to have their work published in some form. Early results from the EMBO Journal which recently switched to publishing referee reports online appear to be satisfactory. Thus, I favor experiments along these lines.
Here are previous MR articles on the peer-review process.
Addendum: Seth Roberts comments. See also Barkley Rosser in the comments.
Stata Data Repository
Even when every dataset is nicely formatted and documented it can be time consuming to merge two or more datasets when, for example, they use different identifiers for countries.
Giulia Catini, Ugo Panizza and Carol Saade have started a Macro Data 4 Stata repository which collects and creates common identifiers for the Penn World Tables, Barro and Lee's Educational data, the World Bank's Development Indicators and about 20 other datasets commonly used in macroeconomics. Any dataset in the repository can be merged with any other with just a couple of standard commands.
Check it out and please do add your own data!
The Dangers of Common Knowledge
WASHINGTON–The U.S. economy ceased to function this week after
unexpected existential remarks by Federal Reserve chairman Ben Bernanke
shocked Americans into realizing that money is, in fact, just a
meaningless and intangible social construct.…"Though raising interest rates is unlikely at the moment, the Fed
will of course act appropriately if we…if we…" said Bernanke, who then
paused for a moment, looked down at his prepared statement, and shook
his head in utter disbelief. "You know what? It doesn't matter. None of
this–this so-called 'money'–really matters at all.""It's just an illusion," a wide-eyed Bernanke added as he removed
bills from his wallet and slowly spread them out before him. "Just look
at it: Meaningless pieces of paper with numbers printed on them.
Worthless."According to witnesses, Finance Committee members sat in
thunderstruck silence for several moments until Sen. Orrin Hatch (R-UT)
finally shouted out, "Oh my God, he's right. It's all a mirage. All of
it–the money, our whole economy–it's all a lie!"Screams then filled the Senate Chamber as lawmakers and members of
the press ran for the exits, leaving in their wake aisles littered with
the remains of torn currency.
More here.