*The Great Persuasion*

That is the new book by Angus Burgin and the subtitle is Reinventing Free Markets since the Depression.  As I had suspected, it is interesting.  Here is the core thesis:

To Hayek and the other founders of the Mont Pelerin Society, Friedman’s ascent within its orbit reflected the collapse of its attempt to integrate a restrained defense of free markets into a traditionalist worldview.  In the broader social environment Friedman’s rise portended, and precipitated, the triumphant return of laissez-faire.

One thing which strikes me reading this book, as it does when I reread Friedman’s 1962 Capitalism and Freedom, is how much market-oriented writers of that era were not focused on the problems of old people, even though today those problems take up a huge chunk of the budget of the federal government.

I found this excerpt interesting:

In stark contrast to the early post-war years, Friedman would conclude near the end of his career that “there are too many damn think tanks now,” adding that they simply “don’t have the talent for it.”

Growth tigers of the 1950s

If we pull out Japan, Israel, and postwar European catch-up, and do per capita growth, B.R. Shenoy’s list of top performers looks like this:

Jamaica, 6.9%

Trinidad and Tobago, 5.9%

Algeria, 5.7%

Puerto Rico, 5.5%

Rhodesia and Nysaaland, 4.1%

Turkey, 2.9%

Philippines, 2.5%

If you do absolute rather than per capita, many of those numbers go up by a few percentage points, for instance the Philippines becomes 5.8% and Algeria becomes 8.0%.

Those numbers are from B.R. Shenoy’s book Indian Economic Policy.  Are there lessons?  One is that parts of the Caribbean are in fact wealthier than many people think.  Another is that the 1950s were a very good decade for the Caribbean, culturally too.  A third lesson is that the top performers in one period may not have legs.  Finally, looking at this table makes one realize, yet again, how good it was to more or less rid the world of communism.

*Keep from All Thoughtful Men: How U.S. Economists Won World War II*

That is a new book out by Jim Lacey.  Here is one good review by Christopher Tassava:

…Lacey (a retired U.S. Army officer and current writer on defense matters) describes the bureaucratic fights between civilian experts and military staff over the extent and speed to which the American economy — hardly firing on all cylinders as war began in Europe — could be reoriented to produce the munitions necessary for a serious military effort. At the center of Lacey’s story are three economists who, he shows, had far-sighted views of the true capacity of the American economy: the reasonably well known Simon Kuznets and two nearly forgotten figures, Robert Nathan and Stacy May.

Lacey capably uses archival and secondary sources to show that these three men, along with a small group of other civilians inside the federal bureaucracy, were able to use social-scientific methods, including, crucially, statistical techniques, to assess how large the U.S economy could grow, how quickly that growth could occur, and how much war materiel the economy could produce for use by the U.S. and Allied militaries. Lacey persuasively shows that Kuznets, Nathan, and May were able to forecast in late 1942, before the first anniversary of Pearl Harbor, that June 1944 would be the moment at which the American “arsenal of democracy” would be able to produce sufficient materiel to launch a substantial invasion of Europe.

The new tug of war over Medicaid

My New York Times column is here, it has two parts, a prediction and a proposal.  The prediction:

Medicaid has never been especially popular, and when its expanded role becomes more widely understood, it is likely to become less popular still.

I am not expecting that governors will turn away nearly-free federal dollars outright.  (Though probably some will, here is an update on how the governors are reacting, which as I see it involves lots of bargaining.)  I am predicting that the extreme subsidies for states to hop on to the expansion will at some point weaken or go away.

Change might come soon. If Mitt Romney wins the presidential election, and if Republicans control both houses of Congress, they could turn Medicaid into a block grant program, where states can spend the money as they wish.

Even if President Obama is re-elected, some state governments will work hard to reduce the number of people covered by Medicaid. State officials know that limiting Medicaid will place more individuals in the new, subsidized health care exchanges, and that those bills will be paid by the federal government. The basic dynamic is that state and federal governments have opposite incentives as to how many people should be kept in Medicaid.

The proposal?  Here is my best take on how Obamacare might evolve into something more practical:

1. Many of the states slip out of expanded Medicaid obligations and many employers slip out of expanded mandate obligations to cover their employees (waivers, willingness to pay fines, lobby to have the law altered).  The system evolves toward a form of means-tested vouchers, sold on the exchanges.

2. The subsidies for the private exchanges become so expensive that the individual mandate is limited in scope.  Eventually the mandate applies to catastrophic coverage only.

3. For catastrophic coverage, we move toward a mandate and subsidized exchanges, and for non-catastrophic coverage there is no mandate and health savings accounts, the latter supplemented by public contributions if needed or if you wish.

I am not predicting that, nor is it my first or even preferred second-best solution.  It is however the best solution I can see evolving out of ACA in its current form.

Will it be drones that end the great stagnation?

Will we deregulate drones?  Should we?  When might that become possible?:

There are very few drones over our cities. Commercial interests are not allowed to fly overhead. Nor most local governments. Hobbyists can, if they keep their drones under 400 feet. And the skies will eventually open up to everyone. “Ironically, my nine-year-old can fly drones, but the police department can’t.” Anderson says.

The problem is that our airspace is governed by a policy called sense-and-avoid. Flying vehicle control systems — be they people or computers — are ultimately responsible for avoiding other vehicles. And today’s drones, as a rule, have no facility to make them aware of other aircraft.

Anderson says there is still a long way to go when it comes to autonomous vehicles. The videos we’ve seen of quadcopters flying through tiny slits or playing instruments are taken in highly-controlled environments, he says.

Out in the real world, GPS and wind leads to much less precise positioning.

Here is more.  I enjoy following @GrishinRobotics on Twitter.

Barriers to entry cocoa bean counter edition

Becoming a cocoa beans grader is about four times harder than passing the New York State Bar exam, judging by a comparison of the two tests’ pass rates.

Candidates must correctly identify defects in beans such as mold, infestation from insects and cocoa that is “smoky or hammy”—a sign that the beans have been dried over a fire, not in the sun. Since beans easily absorb odors, the fire can give the beans a smoky flavor. In another section, they must identify the origin of various beans, most of which look identical to the layperson’s eye.

David Morales, one of the three men huddled over the beans in the ICE’s grading room, says he failed twice before he passed the exam two years ago. “I was studying for it, but not enough,” said the 37-year-old Bronx native, who noted the origin section tripped him up.

Is it a public sector monopoly, private sector monopoly, or some combination of both?  Or is it just really hard to do well, requiring individuals of truly specialized abilities and with a lot of value at stake?:

The problem is that there are only 24 certified graders for ICE and the exchange is concerned that retirement and old age will deprive it of a crucial cog in its commodity-trading machine.

In an effort to “keep the talent pure and fresh,” the exchange is offering its licensing exam in October for the first time in two years, said Valerie Colaizzo, managing director of commodities operations for the exchange.

The full article is here, hat tip goes to the excellent Daniel Lippman, note by the way that Daniel’s most recent piece is here.

How to improve firms’ treatment of workers

Say a firm screws over a worker on ten dimensions at once, subject to some constraint of the worker leaving.  With those ten depredations, the firm tries to extract from the worker as efficiently as possible, but again so the worker does not leave or leaves only with some lower probability.

Let’s then say the law alters one of those dimensions to favor the worker, for instance the firm cannot force the worker to consent to a body search.  The firm may then increase one of the other depredations. Perhaps not for individual workers on the spot (there is “depredation stickiness”), but over time firms will fill the niches of new depredations to the maximum degree possible.

The new depredations will be less efficient ways of extracting rents than the old, which may hurt the worker.  At the same time, the firm’s rate of return on enforcing depredations may decrease, which may help the worker.

The net effect is indeterminate.  Note also that the lower efficiency may in the longer run limit firm entry and production, which will hurt workers and consumers (and possibly shareholders).  Again, the net effect still is indeterminate but the more you think about this model the less you will see it as an effective way to help workers.  You might try “regulating all ten depredations” but for that to work you also must fix the wage, and so on.

Maybe some of the model variants here will help the workers, but come on, let’s be realistic.  Is it the case that the commentators have firm beliefs about these models for well-argued reasons?  I don’t think so.  It is more likely the case that there is a core belief something should be done, with not too much concern for the systemic effects nor with the “not totally sound but still better than what the critics are serving up literature on compensating differentials.”  I am worried by the common tendency to first cite a lack of perfect competition and then assume the proverbial pony.

Here is Henry Farrell’s response to Matt Yglesias.

Fortunately there is a rather smooth path forward.  Raise the utility of unemployment to workers.  This could be a guaranteed annual income, better unemployment insurance, more food stamps, whatever.  Call it the welfare state.  Improving the welfare state will improve worker bargaining across virtually all workplace dimensions and in the longer run limit the scope of all the employer depredations.

We’re back to the point that what helps is to give people cash, or something cash-like, including when it comes to the dimensions of workplace quality.  It is also a huge help to institute policies which will raise rather than lower worker productivity.

As I said before, the criticisms haven’t even yet dented the traditional economic point of view on this issue.  Those criticisms are operating within the current frontier of analysis, not on it much less beyond it.

Medicaid Wars, Episode IV

While the resistance of Republican governors has dominated the debate over the health-care law in the wake of last month’s Supreme Court decision to uphold it, a number of Democratic governors are also quietly voicing concerns about a key provision to expand coverage.

At least seven Democratic governors have been noncommittal about their willingness to go along with expanding their Medicaid programs, the chief means by which the law would extend coverage to millions of Americans with incomes below or near the poverty line.

Here is more.