Category: History

What should we do with Medicare?

Daniel Shaviro offers the following suggestions:

1. Reduce Medicare’s low-end coverage of routine expenditures, and use replace deductibles with lesser copayments that extend over a broader range.

2. Provide prescription drug and catastrophic care coverage without increasing the overall value (net of premiums and copayments) of Medicare [Ha!, interjects TC, this must have been written before the Bush bill passed]

3. Impose a tax on Medigap coverage of Medicare copayments, or else bar such coverage altogether.

4. Make copayments income-related…[“means-tested”]

5. To the extent that income tax increases are needed, use base-broadening in lieu of rate increases to the extent possible.

6. Enact a consumption-style VAT without transition relief for old wealth.

7. Use accounting rules to discourage Congress from dissipating the net revenue from tax increases that are meant to help meet future Medicare liabilities.

8. Attempt to realize cost savings by modifying Medicare’s current fee for service structure. While managed care has had disappointing results as applied to workers under age sixty-five, this may reflect the political and legal obstacles to imposing rationing.

My take: This is a serious effort to solve a real problem. I’ll endorse 1-4 and 7. When it comes to higher taxes, let’s just hope that productivity growth remains high. If I have to, I’ll get out and push. #8 sounds too much like putting old people out on ice floes, but it would solve at least twenty percent of the problem with only minimal impact on life expectancy. And for the proposal to be effective, how voluntary would managed care be? For those reasons, I can’t press the “do it” button on #8; I’ll give it a pass and plead political infeasibility. And while I am fully aware that Medicare is the fiscal train wreck, compared to which most other economic problems pale, shouldn’t the words “cut spending” somehow play a role?

Here is my previous post on Shaviro’s illuminating book. Today was Shaviro on “what should happen.” Stay tuned for Shaviro on “what will happen.”

Mourning in America

Reagan was the first, and so far the only, politician who I have ever found inspiring. I came of political age during the Reagan years when I was a high school student in Canada. In political science class we learned that the essence of the Canadian philosophy of government could be remembered with the mnemonic POGG – peace, order, and good government. I preferred life, liberty, and the pursuit of happiness and hearing Reagan speak was always a thrill for me.

The record, of course, is never as glorious as the rhetoric but a number of important accomplishments occured under Reagan’s watch. In the economic sphere, the reduction in marginal tax rates was a great and lasting achievement. It’s hard to believe today that top marginal rates used to approach 70%.

Reagan also deserves great credit for standing up to the air traffic controllers thereby sending a strong signal that the country would not be taken hostage by the labor unions as had happened and continues to happen in much of Europe.

Inflation was also brought under control under Reagan – the 1982 recession was second only to that of the Great Depression but it’s hard to see how that pain could have been avoided. Reagan had the fortitude to take the political heat of the downturn and stay the course thereby laying the groundwork for growth in the following decades.

Deregulation began under Carter but continued under Reagan, leading to innovation in previously moribund industries.

In foreign policy of course, Reagan saw further than anyone else. Only Reagan predicted that communism would end up on the dustbin of history and at critical moments he took the actions necessary to make it happen.

Not all was positive of course but the rest can wait for another day.

My favorite Polish things

My favorite Polish novel: Solaris, by Stanislaw Lem. Don’t worry if you hate science fiction, this is possibly the best novel ever penned about erotic guilt and the nature of personal identity.

My favorite Polish music: My traditional favorites have been the Chopin Etudes and the Polonaise Op.40. But arguably the Mazurkas hold up best over time. Here is a recent Chopin CD that will blow you away.

My favorite Polish movie: Kanal, directed by Andrzej Wajda. A European movie of great depth with a plot as gripping as Hollywood.

My favorite Polish TV show: The Decalogue, episode four. This audiovisual classic is now available in its entirety on DVD. In the fourth episode, a daughter receives an envelope from her father, with the written instructions: “Don’t Open This Until I Die.” I leave the rest up to your imagination.

I’m enjoying my time here very much, soon I will be in Kracow.

Addendum: Let’s not forget the goose in cranberry sauce, the pork knuckle pate, the wild boar with dumplings, the sour soup with sausage, the duck with cherry sauce, or the wonderful Brazilian restaurant they have here. Polish food in Brazil is fantastic, so now they are returning the favor, all to the benefit of me.

The myth of free trade Britain?

Was nineteenth century Britain really a free trade wonder? Just how entrenched is protectionism in French national history?

John Nye offers some provocative answers:

Britain preached the gospel of free trade and France was cast in the role of the sinner, but there was little truth in this stereotype. France did have more protected products than England did but the average level of French tariffs (measured as total value of duties divided by total value of imports, cf. Figure 1) was actually lower than in Britain for three-quarters of the nineteenth century.2 In other words, tariffs had a smaller impact on French trade than British duties had on Britain’s trade. The French, while eschewing free trade, and openly rejecting the Anglo doctrine of open markets, actually succeeded in making their trade more liberal and more open than that of the more vocal British. The master of this was Napoleon III–Bonaparte’s nephew–who throughout the 1850s promoted the most radical liberalizing reforms of the French economy, all the while insisting that France was only interested in moderate reform.

The revisionism continues:

Indeed, it was not British unilateral tariff reduction that moved the world to freer trade. Despite the belief that is still common today that British exhortation opened the doors to European free trade in the late 19th century, it was the 1860 Treaty of Commerce, promoted by the Napoleon III and concluded between Britain and France, that really ushered in the age of nineteenth century “globalization”. British demands for unilateral tariff reduction usually fell on deaf ears.

Might this advantage of bilateralism be true more generally? If so, it would mean that a serious U.S. free trade agreement with Japan would be the best outcome imaginable for promoting free trade.

Read the whole thing, and don’t miss the illustrative chart.

Telephone history: lessons for today

Have you ever wondered how America became a world leader in mass media and telecom? Paul Starr’s excellent The Creation of the Media addresses this question. Here is one good bit from the book:

French policy was…unfavorable to the telephone. Unwilling to spend public funds on the medium, the French government, beginning in 1879, granted local concessions for telephone service lasting only five years. The idea was to let the private sector assume the risk of a new business, giving the state time to see if it was worth taking over. Private capital could lose money on the telephone, but if the medium proved profitable the government would step in: a policy nicely designed to depress investment. In 1885, the government itself began building long-distance lines but limited construction so as not to cause too rapid a depreciation of its investment in the telegraph. Four years later, it nationalized the local telephone carriers as well, not so much because of a positive commitment to improve telephone service as because of a defensive concern about the erosion of the state’s telegraph monopoly…

By 1895, while the United States had one telephone for every 208 people…France [had] one for every 1,216…In 1927, while Bell was reporting an average delay of 1.5 minutes in placing long-distance calls, it took, on average, more than an hour to put through a call from Paris to Berlin.

The bottom line: Keep this story in mind the next time you hear politicians talking about the regulation of VOIP.

ReHomesteading the Great Plains

Frederick Jackson Turner defined the frontier as a density of less than 6 people per square mile and declared that in 1893 the frontier was closed. But in the past fifty years, farming has become more efficient and millions of people have moved from the Great Plains to the coastal cities. As a result, the frontier has been reborn. Kansas is more of a frontier state today than it was in 1890!

Some people see the depopulation of the Great Plains as a wonderful opportunity to create the world’s largest wildlife reserve – the Buffalo Commons. Depopulation, however, is not pleasant for the people who remain who find themselves unable to afford those public goods and amenities supportable only with a larger population. Residents are fighting back, however, with an old policy, homesteading.

It’s not Lincoln’s 160 acres but Marquette, Kansas is giving away a little less than an acre to anyone willing to homestead (literally build a home) on nearby land. Several other small towns in Kansas have competitive offers (one even offers free cable).

Thanks to Curtis Melvin for the link.

Height

For two centuries, the American man stood tall in the world. Literally. But today the average Dutch man is six foot one and the average American man is much shorter. Even as little as fifty years ago, American men were considerably taller than Dutch or other European men but since the mid 1950s the Northern Europeans have shot up while Americans have grown wider but not taller. No, it’s not a composition effect due to immigration. Native born, English-speaking American men are only five feet nine and a half and this has not changed much in more than a century. Why then the difference?

One possible clue is the enormous impact that nutrition can have on height. In Guatemala the native Mayan man averages only five foot two, so short compared to the Spanish-descended Ladinos that most people assumed the difference was genetic. But lo and behold when a million Guatemalans fled to the United States a natural experiment began – the children of the American Maya are four inches taller than the Guatemalan Maya of the same age and about as tall as the Ladinos. Good nutrition, especially in the growth years of infancy, 6-8 years and adolescence can increase height in remarkable fashion.

But if the problem is poor nutrition then surely the figures for the average American ought to be masking a growing drift in height between the well-fed rich and the poorly-fed poor? And yet that appears not to be the case. The mystery remains.

The discussion is based on Burkard Bilger’s excellent piece in the New Yorker. See also this interview with Bilger.

Life in the United States in 1904

Average life expectancy was 47.

Only 14 percent of homes had a bathtub.

Only 8 percent of the homes had a telephone.

There were 8,000 cars and just 144 miles of paved roads.

Alabama, Mississippi, Iowa, and Tennessee were each more heavily populated than California. With a mere 1.4 million residents, California was only the 21st most populous state in the Union.

More than 95% of all births took place at home.

90% of all physicians had no college education.

Most women only washed their hair once a month and used borax or egg yolks for shampoo.

The five leading causes of death were: 1. Pneumonia & influenza 2. Tuberculosis 3. Diarrhea 4. Heart disease 5. Stroke

And worst of all,

The population of Las Vegas, Nevada was 30.

Here is the link, thanks to www.geekpress.com for the pointer. And read Michael at 2blowhards.com for some further commentary, excellent as always.

Bastiat’s house is for sale

The Dufaur de Gavardie de Monclar family, who jointly own Bastiat’s property in Souprosse, inform us that they have reluctantly decided to put it up for sale, as no one member of the family is able to purchase it. It consists of a fine 17th century manor house, with early 20th century alterations, approached via a long tree-lined driveway, a barn and an outbuilding, all set in grounds of 28,000 m².

The main house has a surface area of 200m², on three levels, that is 600m² of living space. The barn, with a timber-frame roof of outstanding architectural interest, has a surface area of 400m² and consists of three levels. The outbuilding is a house on two levels, with a surface area of 100m².

The whole property is for sale for 426,900 euros.

Here is the link, thanks to the Mises blog for the pointer. Here is a short biography of Bastiat that also contains links to many of his works. Perhaps I will stop by the house to pay my respects.

The ten most successful kleptocrats?

Directly below you will find a list of the most influential businessmen in history. For purposes of contrast, Ben Muse refers us to a list of the ten biggest political kleptocrats, here goes:

1. Mohamed Suharto President of Indonesia from 1967-98: US$15 to 35 billion
2. Ferdinand Marcos President of the Philippines from 1972-86 US$5 to 10 billion
3. Mobutu Sese Seko President of Zaire from 1965-97 US$5 billion
4. Sani Abacha President of Nigeria from 1993-98 US$2 to 5 billion
5. Slobodan Milosevic President of Serbia/Yugoslavia from 1989-2000 US$1 billion
6. Jean-Claude Duvalier President of Haiti from 1971-86 US$300 to 800 million
7. Alberto Fujimori President of Peru from 1990-2000 US$600 million
8. Pavlo Lazarenko Prime Minister of Ukraine from 1996-97 US$114 to 200 million
9. Arnoldo Alemán President of Nicaragua from 1997-2002 US$100 million
10. Joseph Estrada President of the Philippines from 1998-2001 US$78 to 80 million

It depends, of course, on what you count as stolen. Arguably some Saudis should make the list, though they claim to own the oil legitimately. Of course relative to gdp, Haiti’s Duvalier is a clear number one.

Addendum: Here is a good article on how Suharto did it.

Who are the most influential businessmen in history?

Joel Mokyr offers his list:

Matthew Boulton (1728-1809) †¢ Powered Industrial Revolution (Marginal Revolution’s first post was on Boulton and his friends.)

Andrew Carnegie (1835-1919) †¢ Carnegie’s Steel Built America

Walt Disney (1901-1966) †¢ Mega Media Blueprint

Henry Ford (1863-1947) †¢ Democratized Transportation

Edward H. Harriman (1848-1909) †¢ Proto-turn-around artist

Henry J. Kaiser (1882-1967) †¢ Fathered the HMO

Ray Kroc (1902-1984) †¢ Founding Father Of the Fast-Food Nation

William Lever (1851-1925) †¢ Invented “The Brand”

Henry Luce (1898-1967) †¢ Mass Media Pioneer

J. P. Morgan (1837-1913) †¢ Saved Wall Street

Alfred Nobel (1833-1896) †¢ Invented Dynamite, Holding Company

John D. Rockefeller (1839-1937) †¢ Spawned Global Energy Industry

Meyer Amschel Rothschild (1744-1812) †¢ International Financier Pioneer

Alfred P. Sloan (1875-1966) †¢ The Perfect Organization Man

Gerard Swope (1872-1957) †¢ Wove Capitalism’s Safety Net

Sakichi Toyoda (1867-1930) †¢ Smarter Machines Sage

Sam Walton (1918-1992) †¢ Perfected Mass Retailing

Aaron Montgomery Ward (1843-1913) †¢ “No Store” Retailer

Thomas J. Watson Jr. (1914-1993) †¢ Wired Corporate America

Josiah Wedgwood (1730-1795) †¢ Invented Celebrity Endorsements

A good list, but it fails to reflect just how much business has transformed our society. How about Zukor, Laemmle, Fox, or Cohn, some of the early founders of Hollywood? You could add the Medici, the unknown father of double-entry bookkeeping, or how about Gutenberg for that matter?

Here is the complete article. Thanks to Lynne Kiesling for the pointer.

Is Russia a normal country?

Conventional wisdom in the West says that post-Cold War Russia has been a disastrous failure. The facts say otherwise. Aspects of Russia’s performance over the last decade may have been disappointing, but the notion that the country has gone through an economic cataclysm and political relapse is wrong–more a comment on overblown expectations than on Russia’s actual experience. Compared to other countries at a similar level of economic and political development, Russia looks more the norm than the exception.

That’s the take of Andrei Shleifer and Daniel Treisman. Here is the full article. Here is a longer unpublished version.

Here is their view on economic performance:

The best estimate is that Russia’s genuine output decline between 1990 and 2001 was small and that it was completely reversed by 2003, following two additional years of rapid growth. Considering the distorted demand, inflated accounting, and uselessness of much of the pre-reform output, it is likely that Russians today are on average better off than they were in 1990.

My take: Mostly I agree. Remember how The New York Times speculated about mass famine, civil war in the streets, or attempted reconquests of the Soviet empire? None of those dire events have come to pass. Parts of the Shleifer piece might be interpreted as Putin apologetics, but put that question aside. For the most part the former Soviet Union has made unexpected progress. If you don’t believe me, read my post from yesterday.

Soviet observations

1. Here is the second sentence of Robert Conquest’s The Harvest of Sorrow: Soviet Collectivization and the Terror-Famine: “We may perhaps put this in perspective in the present case by saying that in the actions here recorded about twenty human lives were lost for, not every word, but every letter, in this book.” That sentence represents 3,040 lives. The book is 411 pages long.

2. Joke: Why are the USSR and America the same? A: Because in the USSR you can joke about America and in America you can joke about America.

3. Stalin famously said: “Death solves all problems. No man, no problem.”

4. In the first weeks of the war the Soviet Union lost 30 percent of its ammunition and 50 percent of its reserves of food and fuel. In the first three months the air force lost 96.4 percent of its planes…By the end of 1942, 3.9 million Russian soldiers had been taken prisoner – 65 percent of the Red Army…It would be pat, but also accurate, to say that from 1933 to 1941 the only human being on earth that Stalin trusted was Adolf Hitler.

5. But progress has already been made. The argument, now, is about whether Bolshevik Russia was “better” than Nazi Germany. In the days when the New Left dawned, the argument was about whether Bolshevik Russia was better than America.

From Martin Amis’s excellent Koba the Dread: Laughter and the Twenty Million. The material is quoted directly from Amis, I have added the numbering.

Income inequality over time

How great a share has the top ten percent of the American income distribution earned over time?

Ben Muse tells us (based on, Income Inequality in the United States, 1913-1998, by Thomas Piketty and Emmanuel Saez):

In 1917, the top 10% of “tax units” had about 40% of national income. The percent of the income earned by this group rose until about 1929, ranged from about 44% to about 46% until 1940, then plummeted to the area of 32% during the war, and sat there until about 1972. From 1972 to 1998, the share of income received by this group rose almost continuously, ending the period in the area of 42%.

Here is the graph (click to expand):

IncDist.jpg

Breaking the top 10% into even finer gradations we see that:

Percentiles 90-99 appear to rise gradually from 1917 to 1940, do the 1940 WWII drop, then, following the war, begin a long sustained increase through 1998.

But the top percentile is all over the place. The authors had enough data to start this series up in 1913, before the start of WWI. It plummets on U.S. entry into the war and during a post-war depression, rises through the boom of the 1920s, peaking in 1929, plummets with the onset of the Great Depression, and again with the onset of WWII, then continues to fall following the war, bottoming out about 1972, and then rising over the period 1972-1998. A large part of this last rise takes place in 1987 and 1988, following the Tax Reform Act of 1986….

What else do we learn? War and other disruptions appear to damage capital income more than labor income. If that is the case, a healthy and peaceful society might have increasing income inequality. In other words, if we are lucky, income inequality will increase even more.

Born to Sue?

Frank Sulloway’s Born to Rebel (BTR) was a smash hit when it was published in 1996. Sulloway’s thesis, that laterborns are born to rebel while first-borns are conformist defenders of the status quo, was initially greeted with some skepticism among experts who knew of an earlier review of the large literature on birth order that had found little evidence for an effect on personality. The thesis struck a cord with the public, however, and Sulloway seemed to have gathered so much data from so many different sources (including scientific revolutions, political revolutions, religious revolutions etc.) that with a few exceptions (such as the great Judith Harris) the book won over skeptics and carried the day. Michael Shermer, Mr. Skepticism himself, said, for example, that Born to Rebel was “the most rigorously scientific work of history every written.”

Two devastating studies of BTR, however, have just now been published in the September 2000 issue of Politics and the Life Sciences (alas this issue is not online, perhaps for reasons discussed below). After exhaustive efforts, the studies failed to replicate key results in BTR – that is the authors tried to replicate what Sulloway said he did, on the data that he said he used and they could not reproduce anything close to his results. Now, you may be asking, how it is that the September 2000 issue of PLS has only now been published? And therein lies a story.

When Politics and the Life Sciences decided to publish the initial critique of BTR by Frederic Townsend, after peer review by four referees, it invited Sulloway to respond along with a number of others in a roundtable format that they had used in previous debates. Sulloway was guaranteed ample room to respond to Townsend and was invited to submit his own names for roundtable participants. He initially agreed but shortly thereafter he wrote to Gary Johnson, the editor of the journal, threatening that if the critique were published he would sue both the journal and the editor personally for what he considered to be defamation. Even if the Townsend article were thoroughly revised he insisted to the editor that it would be “appropriate – indeed legally mandatory – for you to preface his article with an editorial forewarning that reads more or less as follows”:

It is not normally the policy of this journal to publish data that are known, in advance, to be actually or potentially in error, especially when such data are being used in an attack on another scholar. However, as editor of this journal, I have decided…to publish these erroneous data in their present form. Readers are warned, however, that none of Townsend’s empirical claims, or the conclusions based upon them, can be trusted with any degree of certainty. Townsend has also made other blatant errors of fact and interpretation that are now known to the editor and that seriously affect the credibility of this paper….

Of course, the editor refused this absurd request. Sulloway later wrote to the president of the editor’s university (with copies to the chair of the Board of Trustees and the university’s legal counsel), saying:

…I intend to file charges of misconduct against one of your faculty members, Gary R. Johnson….these allegations include, but are not necessarily limited to: defamation/libel, false light invasion of privacy, fraud, promissory estoppel, and breach of fiduciary duty…I will also be blowing the whistle by filing formal charges of scientific misconduct against Gary Johnson with the American Political Science Association, the Human Behavior and Evolution Society, members of Congress who have shown a concern about science fraud, and all other professional organizations with which Professor Johnson or his journal….are affiliated.

Bear in mind that Johnson is only the editor of the journal and not even the primary critic! Naturally, Sulloway’s threats delayed publication of the journal, as more referees were involved and revisions took place, but the worst was yet to come. The journal’s publisher refused to publish the debate unless the parties involved committed not to sue him, his printer, his distributor, the journal, or the association. Of course, Sulloway refused. The heroic Johnson and the association then decided to publish the journal on their own. As a result, the final publication, including Sulloway’s response, is nearly five years late.

All of this, and there is much more that I have not reported, is from Johnson’s shocking editorial explaining the long delay. Perhaps the most disturbing aspect of the whole ordeal is that our legal system, sometimes described as Russian Roulette, has gotten sufficiently capricious and arbitrary that Sulloway’s abusive legal threats were nearly successful. Johnson writes:

The virtual terror that Sulloway’s legal threats have prompted in some of those associated – directly or indirectly – with the events described in this editorial suggests to me that contemporary science must adapt to a changed socio-legal environment if the capacity for open dialogue and critical exchange that is the lifeblood of science and scholarship is to be protected. Scholars, scientists, and publishers cannot focus properly on what should be their principal concerns if the threat of catastrophic legal costs hangs over them and their organizations and journals.