Category: Data Source

Beliefs about welfare

Why does Western Europe spend so much more on welfare payments than does the United States?

Why is the latter system (45% of GDP) bigger than the former system (30% of GDP)?

While 29% of Americans believe that poor people are trapped in poverty, 60% of Europeans share this belief.

While 30% of Americans believe that luck determines income, 54% of Europeans share this belief.

While 60% of Americans believe that poor people are lazy, 24% of Europeans share this belief.

Robert Tagorda continues with the following:

These statistics come from the Economist, which has a fascinating review of Fighting Poverty in the US and Europe: A World of Difference. Authored by Harvard scholars Alberto Alesina and Edward Glaeser, this forthcoming book argues that institutional and political differences lead to contrasting American and European approaches.

More provocatively [we now move to Tagorda citing The Economist]:

The other half of the explanation lies in America’s racial diversity. In spite of 20 years of unprecedented immigration, European countries, particularly smaller ones like Portugal and those of Scandinavia, are still highly racially homogenous. America, by contrast, has great diversity, which is especially wide in some states. In addition, the poor in America are disproportionately non-white. Non-Hispanic whites are 71% of America’s population but only 46% of the poor.

Racial diversity in individual states is correlated with the generosity of welfare. For instance, the authors find that in 1990 Aid to Families with Dependent Children ranged from over $800 per family per month in mainly white Alaska to less than $150 in Alabama and Mississippi, where almost one-third of the population is black. Even after adjustment for inter-state differences in average incomes, the correlation with race remained strong. Across countries, too, racial diversity goes with low government spending on poverty relief.

The reason, argue the authors, is that “race matters”, and they marshal statistical evidence, much of it from opinion surveys, to back this up. People are likely to support welfare if they live close to recipients of their own race; but are antipathetic if they live near recipients from another race. The divergent attitudes of Europeans and Americans to the poor are underwritten by the fact that the poor in Europe tend to be ethnically the same as most other folk. In America, their skin is often a different colour. [Emphasis added by Tagorda.]

My take: I buy the basic results. The sorry truth is that a fully cosmopolitan society is an impossible ideal. Furthermore the proffered questions don’t fully get at the real beliefs of many Americans, which is that most poor people deserve their status. (I think some of the poor are lazy, but being a determinist I don’t assign fault.) That being said, it is such false beliefs that keep American welfare spending at reasonable, non-European levels. By the way, here is a related paper by the authors.

Measuring globalization

Foreign Policy magazine has just published its globalization index. The top five?

1. Ireland
2. Switzerland
3. Netherlands
4. Finland
5. Canada

The losers include Indonesia, Egypt, India (outsourcing has not taken over the country), and Iran. The index includes factors of economic integration, personal contact, technology, and political engagement. The link includes the full data plus a detailed discussion of how the index was constructed.

Check out this graph, levels of globalization vs. life expectancy. Globalization vs. religious participation is harder to read but interesting nonetheless.

My favorite is levels of globalization vs. women’s well-being, take a guess which way it goes. This graph should be enshrined in the undergraduate curriculum of every major university.

Economic freedom in North America

The Fraser Institute has just put out its Economic Freedom of North America, 2004 report, here is the full and lengthy text, including all the data.

And how do the freedom rankings look? If you look at all sources of government intervention, the winners are:

1. Delaware
2. Colorado
3. Georgia
4. Nevada
5. New Hampshire

Louisiana comes in seventh, Alberta comes in ninth. Here is a short piece on enterprise culture in Alberta, here is a press release on possible declines in economic freedom in Alberta.

The eight biggest losers are all Canadian provinces, with Prince Edward Island as the least free. Here is a bureaucratic report on their current economic situation. Here is a summary of other Canadian results, including a recent upward freedom trend in Canada as a whole.

As for the States, West Virginia comes in last; for the full list go the linked report. If you look only at “sub-national” freedom (state-level regulations but not federal impacts), Colorado moves into first place, most of the other results do not change very much.

Economic freedom and prosperity are strongly correlated (Louisiana is an outlier), although the direction of causality of course can be debated. Here is a link to other Fraser data sources.

Haiti, continued…

Remember the Haitian embargo? One group of bad guys took over from another group of bad guys (i.e., Aristide and his cronies), so we stopped trading with them?

Georgie Anne Geyer offered some apt words on why this embargo was a disaster:

The economic part of the Haitian disaster was laid down in 1991, all with the best of intentions…The U.S. and other countries had imposed a severe embargo upon Haiti. This had the not-unexpected effect of (1) turning the military to smuggling, their first love anyway, and (2) utterly and tragically destroying the small businesses of Haiti.
“In the 1980s, we were planting up to 10 million trees a year in reforestation,” the ambassador to Haiti in that era, Ernest Preeg, reminisced sadly with me this week. “We had an anti-malaria program, secondary road programs and a brand-new container port. Haiti made textiles, footwear, toys, and baseballs. Three years of the embargo destroyed all the job-creating programs, and then Aristide destroyed the rest. After that, most of the aid went strictly to ‘democracy projects.’ In short, we took everything away from the long-term; we sacrificed the long-term for the short.”

Colin Powell has pledged, albeit in ambiguous words, that the U.S. will not intervene in the current collapse of order. Observers speculate that the prospect of Haitian refugees, mostly arriving in the electoral swing state of Florida, may change this calculus.

My view: The U.S. government built some valuable roads for Haiti in the 1920s, during our failed nation-building episode there. Otherwise our government has done many things to harm the Haitians, and few things to help. I’m all for greater free trade, but we are past the point where this would be very useful. Here is a previous post on Haiti, here is another.

How much is a bathroom worth?

Economists are now applying econometrics to the time-honored questions of real estate. Based on a sample of 29,000 sales, and a proper set of statistical controls, the researchers derived an extensive set of valuations. The numbers given express the percentage change in the value of the home:

1. A full bathroom: 24 percent
2. A water view: 8 percent (I would have expected more)
3. Waterfront location: 18 percent
4. View of a golf course: 8 percent
5. A garage: 12.9 percent
6. A tennis court: 3.1 percent
7. In-ground sprinkler systems: 8 percent (surprisingly high)
8. An in-ground pool: 7.9 percent
9. A separate laundry room: 15 percent (surprisingly high)
10. An above-ground pool: minus 2 percent.
11. Is your house a “fixer-upper”?: minus 23.6 percent.

Here is a summary table of the results. Here is original research. Here is a Washington Post story.

Many of these amenities sell for more than what they cost to install. So the bottom line here supports the conventional wisdom of the trade. People don’t fix up their homes enough before selling them.

Health and education charts

The GapMinder site has some interesting charts and animations of things like income distribution over time, world health measures and so forth. The authors have obviously read their Tufte. The example below shows a child mortality statistic plotted againstGDP per capita. The sizes of the circles indicates populations, colors indicate regions of the word. Click on the image and it will open at full-size in another window.

WorldHealth.GIF

What is the most corrupt state?

In a recent study Louisiana only comes in third, Mississippi takes top honors, followed by North Dakota. The District of Columbia has a disproportionate share of convictions, but it does not count as a state. Nebraska is measured as the least corrupt state, Oregon, New Hampshire, and Iowa are also near the bottom. Here is the story, here is the source account and study.

A Baton Rouge headline reads “La. not No.1 in Corruption.” Former governor Edwin Edwards received ten years in prison for corruption-related charges, one case of many in Louisiana history. The last three insurance commissioners have gone to jail for corruption.

Is music file-swapping down?

Maybe not, according to Business Week, from the issue of 16 January. Some sources will tell you the practice is plummeting:

Two widely cited surveys seemed to show that legal action, which began in September, was chilling file-sharing activity. In December, a phone survey by the Pew Internet Project of 1,358 U.S. Net users found music downloading had dropped by half since May. And in November, comScore Media Metrix, monitoring 120,000 U.S. users, saw big yearly declines at four popular file-sharing services — KaZaA, Grokster, BearShare, and WinMX.

But the reality is more complex:

…those surveys provide a relatively narrow view of the file-swapping universe. BayTSP, a Silicon Valley watchdog that works for three of the major record labels, tracks the number of songs available for download worldwide. It sees just a 10% drop since July and also notes steady migration from older, virus-ridden programs like KaZaA to hipper peer-to-peer networks such as eDonkey and Bit Torrent — which were absent from comScore’s tally.

And Los Angeles-based researcher BigChampagne, which monitors millions of global file swappers, actually sees a 35% increase in illegal traffic from 2002 to 2003. Given BayTSP’s and BigChampagne’s broader sample sizes, says John Palfrey, of Harvard Law School’s Berkman Center for Internet & Society, “They’re going to have more accurate empirical data.”

Note that the Pew study simply calls adults and asks them if they break the law. It underrepresents children and of course the respondent might think he is talking to the RIAA instead of a researcher. And much of the current growth in file-sharing is coming at the international level, not in the United States.

My predictions: Within two years Congress will revisit the 1998 Digital Act and give the music companies some extra legal weapons. It still won’t work, as downloaders will move to anonymous networks, possibly emanating from outside the United States.

How fast did China grow?

From 1978 to 1998 China grew a measured average of 8.0 percent a year, a breathtaking performance. But how fast did the country really grow? And how much did Chinese productivity improve?

Alwyn Young, at the University of Chicago, turned his attention to these questions in his recent “Gold Into Base Medals: Productivity Growth in the People’s Republic of China during the Reform Period,” in the December 2003 Journal of Political Economy. Here is an earlier, on-line version of the paper. Young, who is renowned for his thoroughness and care with data, found the following:

1. Chinese enterprises systematically underreport inflation.

2. In the non-agricultural sector, such underreporting accounts for 2.5 percent growth per year.

3. The main drivers of Chinese growth have been rising economic participation rates, improvements in educational attainment, and the movement of labor out of agriculture.

4. Labor and total factor productivity improvements, in the non-agricultural sector, are 2.6 and 1.4 percent respectively.

The bottom line: The Chinese economy has indeed done well. But once we cut through the mysteries of the numbers, we find an explicable reality. The Chinese growth experience is in reality comprised of “reasonable and comprehensible” numbers, rather than miracles. Young even wonders if the Chinese could not have done better than they did. On one hand, most economies would be delighted with a sustained 2.6 percent rate of labor productivity growth. But on the other hand, China has been moving away from a centrally planned economy. We might have expected even larger productivity boosts, given the incentive benefits of economic freedom. We also can interpret the figures as showing that China has enduring problems, and has not moved as far away from central planning as we might wish.

The return of Horatio Alger

Paul Krugman published a December article in The Nation called “The Death of Horatio Alger.” He argued “America actually is more of a caste society than we like to think. And the caste lines have lately become a lot more rigid.”

Recent research by Kerwin Kofi Charles and Erik Hurst looks at intergenerational mobility in more detail. Here is a brief summary of the article, and here is a pdf of an earlier version of the paper.

The published version, “The Correlation of Wealth Across Generations,” in the December 2003 Journal of Political Economy, tells us the following:

1. “Age-adjusted parental wealth, by itself, explains less than 10 percent of the variation in age-adjusted child wealth.”

2. 20 percent of parents in the lowest quintile of the parent’s wealth distribution have children who end up in the top two quintiles of their generation. One-quarter of the parents in the highest wealth quintile end up with kids in the two lowest quintiles.

3. The age-adjusted intergenerational wealth elasticity is 0.37. What does this mean? If parents have wealth 50 percent over the mean in their generation, the wealth of their children will be 18 percent above the mean in the childrens’ generation.

4. Income levels account for about one-half of the parent-child wealth relationship. In other words, high income parents tend to produce high income children, to some extent. The children earn much of their wealth. Education and financial gifts account for very little of the correlation across parents and children.

5. Parents and children allocate their financial portfolios similarly, whether for reasons of genes or learned behavior. These common patterns of investment and savings are the second biggest factor behind the intergenerational wealth correlations we observe.

Note that the figures above do not include income from bequests. In this regard they underestimate some of the intergenerational correlation. On the other hand, large numbers of individuals do not receive bequests until they are at least in the 50s, so the figures measure the opportunities open to them in the earlier stages of their lives. And note that the data are recent, the wealth of the children is measured in 1999.

So what is the bottom line? Yes, there is some correlation in wealth across the generations. But most of that correlation (almost seventy percent) comes from continued hard work and savings. The authors do not examine Krugman’s claim that mobility once was greater, but it seems premature to suggest that the American dream is gone.

Addendum: Cardinalcollective.com offers some useful discussion and links, here is Daniel Drezner’s treatment, again replete with links.

What does the American public believe?

Many things that ain’t so, according to our colleague Bryan Caplan. They believe that protectionism creates jobs, and they think that big corporations, rather than supply and demand, set the price of gasoline. See the link for a longer discussion and some citations of specific questionnaire evidence.

Here is my favorite bit:

The only category of spending that the public invariably wants to cut is foreign aid–which amounts to about 1% of the federal budget!

Believe it or not, it is not unusual for a member of the general public to think that foreign aid consists of forty percent of the United States government budget. Of all the biases we observe in voters, “suspicion of foreigners” appears to be the most pronounced. Bryan, who has done the relevant work here, is writing a book on how and why democracy can go astray through irrational voters, I await its release eagerly.

Here are some broader polls on NAFTA and free trade, compiled by AEI. Even the people who favor free trade, presumably for its benefits to consumers, think it costs us jobs. Given how the public feels, I am always surprised that we have as much free trade as we do.

Two things that you don’t want to see made

Hint: both contain a lot of pork. Senator John McCain has a list (link via Bruce Bartlett’s Talking Points.)

Here are a few of my favourites from recent legislation:

$1.5 million for the University of Nevada-Las Vegas to conduct safety and risk analysis. (I did some risk analysis in Las Vegas once, but not on taxpayer money).

$278,000 for asparagus technology and production (WA)

$2,000,000 for exotic pet diseases (CA)

$300,000 for future foods (IL)

Not less than $2,300,000 for the International Fertilizer Development Center. (Hmmm…Nahh, too easy.)

$1,000,000 for the Amanut Society.

Bear in mind that these projects have not been through any sort of peer-review process – these are pet projects of particular members of Congress that are inserted into larger bills.

Everything you always wanted to know about currency boards…

Here is an extensive web site on currency boards and dollarization, maintained by Kurt Schuler (conflict of interest notification: he is a former student of mine).

If you doubt Kurt’s thoroughness, follow the link to a piece on currency boards in St. Helena, yes that’s right the place where Napoleon went. The site also offers an extensive discussion of what went wrong in Argentina, again all links run through the main page. Thanks to the Mises blog for the pointer.