Credit Snobs II
The volte-face in this post by Robert Reich is a real howler.
When the Fed decides to fight inflation by raising interest rates and
cooling the economy, it’s the poor who are the first to be drafted into
the inflation fight because their jobs are the most tenuous, and
they’re the first to lose them. When the Fed decides to ease up and
reduce rates, it’s the poor who are among the first to get the new jobs
because employers who are most likely to hire at the start are small
service businesses offering jobs at the bottom rungs of the wage scale.
I might not put it that way but nothing crazy so far. He continues:
But the Fed affects the poor in another way, too. It determines their
access to credit. And here as well, the Fed’s decisions can either be a
great boon to poorer Americans or a huge curse, depending on how
responsibly the Fed manages the credit markets.
I agree. So where do you think the argument is going from here? He’s going to make the point that when the Fed reduces rates that helps the poor to get credit and a too quick tightening could increase unemployment and create a credit crunch, right? Nope.
In this respect, it’s done a lousy job in recent years. In the early
2000s, rates were so low that banks didn’t know what to do with all the
extra money they had on hand. But instead of keeping an eye on bank
lending standards, the Fed looked the other way. The result: Credit
standards were disregarded in a tidal wave of sub-prime lending to the
poor home buyers…
Ouch, that one gave me whiplash. The Fed has done the poor a disservice by looking the other way while the poor got loans at really low rates of interest. Thus, high interest rates are bad for the poor because they can’t get jobs and low interest rates are bad for the poor because they borrow too much money.
Reich argues this way, of course, because he thinks that the poor can’t handle their money. I’ll add Reich to the list of credit snobs.
H/T to Steven Bass at Trivial Reasons.
P.S. Person 1, Dave 0.
Safety nets
From the loyal:
Safety nets, what kind (if any) is desirable.
Yes, we should have a safety net. This is a huge topic, but here are a few select points:
1. The more time a person has spent working in private philanthropy, the less likely he or she is to think that private charity can substitute for the government’s safety net.
2. It remains a puzzle why we don’t have more insurance for long-term risks to health and income, but we don’t. In the meantime we have to assume institutional failure.
3. I am a fan of David Beito’s Tocquevillean work on workingman’s societies and private club insurance in early 20th century America. But it is a tale of how insurance institutions changed over the course of a century, and not a new recipe for how market completeness was on its way until government botched it.
4. Some societies, such as in East Asia, use the family to pick up a greater share of income and health risks. I doubt if the highly mobile United States could do the same, but even so this option is costly. Most of all, the welfare state liberates the productive and the creative from their sometimes burdensome family ties. The welfare state is the Randian’s secret dream, and that is what clinches the case for a government safety net.
5. I’ll invoke an argument from authority for my libertarian readers and note that both Hayek and Friedman favored a governmental safety net.
6. A safety net (strict Asian families aside) is probably a prerequisite for a well-functioning capitalist democracy, even if its curative powers are sometimes overrated.
But on the other side of the debate, we are all going to die. Nasty outcomes await us, no matter how much is spent on a safety net. The "You can’t let that happen to a human being" posturing isn’t especially helpful. We cannot rely on a safety net to remedy every human tragedy, but if society is rich enough, let’s do some safety net.
#34 in a series of 50.
What is wrong with the World Bank?
I am a fan of Sebastian Mallaby’s The World’s Banker, a biography of Jim Wolfensohn’s tenure at the World Bank. Jeffrey Hooke’s The Dinosaur Among Us: The World Bank and its Path to Extinction is the next excellent book on this institution. Do you want to know exactly why the Bank doesn’t do better, explained in language of property rights and incentives?
I read Hooke as placing the final blame on the very active role of the Board in the Bank’s regular operations. The incentive is to have the Bank lend lots and create contracts which funnel money back to corporate interests in the U.S. and Western Europe. As a result Bank loans don’t embody much accountability and the loan or aid recipients can game the system and turn it toward their own political ends and away from growth enhancement.
Contrary to what the title of the book might imply, Hooke wishes to reform rather than eliminate the Bank. This is not "one of those libertarian rants," and it can be read with profit by all. Hooke has spent six years working at the Bank and he knows his material very well.
And if you think, as I do, that most books should not exceed 100 pages, you will like this one all the more. Recommended.
My favorite things German: J.S. Bach
One reader requested "My Favorite Things German" for weeks (possible, but yikes), instead he’ll get selected tidbits, today is J.S. Bach.
1. Organ music: I favor the Trio Sonatas, most of all by Christopher Herrick. After that, buy any collection by Herrick or Peter Hurford.
2. Brandenburg Concerti: I don’t like most recordings of these; they either sound like sewing machines or they are whiny. But both Felix Prohaska or Otto Klemperer are supremely musical with these pieces.
3. Keyboard music: Go for piano not harpischord. For Well-Tempered Klavier get the dreamy Samuel Feinberg or Richter, for the English Suite in A Minor get Glenn Gould, for the Partitas get Glenn Gould, for the Goldbergs get both Gould recordings. Best of all is the Art of the Fugue, for piano, by Grigory Sokolov.
4. B Minor Mass: Gardiner or Herreweghe.
5. St. Matthew’s Passion: Klemperer (the best voices), Suzuki (all-Japanese, and fantastic), or Herreweghe.
6. Solo Violin music: Get the second Nathan Milstein set, the stereo recording. Perlman’s version is technically perfect but doesn’t sound like a real violin.
7. Solo Cello Suites: Rostropovich is romantic, Starker is analytical, and Navarra is underrated.
That, in my view, is the truly essential Bach. I’ve never developed the same love for his Cantatas, too many of them were churned out or recycled. They were better to buy on LP, when you could get one excellent cantata on each side. Most of the available CD cantata collections contain a fair amount of chaff.
#33 out of 50.
French health care
Many people (Jon Chait also) argue that France has the best health care system in the world.
As of 2003, the average income of a French physician was estimated at $55,000; in the U.S. the comparable number was $194,000.
A visit to a GP’s office (half of the doctors in France are GPs) had a reimbursement capped at 20 Euros, again circa 2003. It is not hard to pay ten times that amount in the U.S.
Did I mention that health care is a labor-intensive industry?
This is the major reason why French health care is cheaper than U.S. health care. France also spends less per unit on other inputs, such as prescription drugs.
Note that France still spends more than all or most other European systems, namely about 11 percent of gdp.
When comparing health care outcomes, France only does slightly better than many Mediterranean countries with obviously non-enviable health care systems. It is not obvious that France does better on health care outcomes than Japan, again a country with non-enviable health care institutions. In other words, France spends lots of money making people feel good about their health care processes, with only very marginal measured health care results. The United States also spends money on customer comfort, albeit in a more expensive and less egalitarian way.
It is easy to argue that the French system is better than that of the United States. But a defender of the French system must, in reality, fight "a war on two fronts," to paraphrase Derek Parfit. The French system does not, by the standards which have been erected in the debate, appear noticeably better than many other cheaper systems around the world. It does spend more money producing "customer satisfaction" and papering over some of the obvious inhumanities of the cheaper systems. That’s why it is easy to hold up as a model.
The disconnect arises because single-payer defenders wish to use international data to compare health care systems — France > U.S. — while pushing under the table the more radical (apparent) implications of that data, namely that France is spending far too much as well.
If we are going to be umm…transitive here, let’s have the debate where it belongs: expensive health care with marginal impact on measured health outcomes vs. saving lots of money and giving people much less in the way of health care services. I do think there is a good case for the latter, though looking toward the future I would myself prefer the former.
I might add I do favor taking action to lower doctors’ wages in the United States. Letting in a greater number of qualified foreign doctors is step number one. But if we’re going to criticize the U.S. system for its costliness, let’s put the blame where it belongs.
European secularism
Why is Europe becoming ever more secular?
As in American academia, European secularism is a mark of identity and (supposed) reasonableness. Europeans are surrounded by Islam on one side, Russia on another, and the United States across the ocean. Reasonableness is a natural identity for their smart people to slot themselves into. Yes state churches have made European religion bureaucratic and sluggish, but that is not the main story. Competitive religious alternatives, albeit unfunded by government, could have sprung up and captured hearts and minds but they didn’t.
Nonetheless the rise of European secularism will be reversed. Most people are only casually religious, but a chunk of every society has a tendency to be enthusiastically religious. European religions will restructure and make a comeback, at least among this chunk. Unlike in times past, I doubt if this segment will have the social status to pressure many others to go along, but it would still represent a fundamental shift in the European intellectual climate. This development would probably happen immediately, if not for the European fear of becoming too much like the United States. In any case the identity of reasonableness is not a sustainable meme for so many people in the long run; it doesn’t demand enough from its adherents. Hume wrote of cycles between monotheism and polytheism, had he lived later he could have tossed secularism into that mix.
And then there is Islam.
#32 out of 50.
By the way, Happy Fiftieth Birthday to the European Union. For all its bureaucracy, it has done more for human liberty in the last ten years than any other institution. I mean "enlargement" and Eastern Europe, of course.
The Liberty not to be Subordinate
I once asked a wise professor of mine what the best thing about being a professor was. He replied, "The fact that I can go into the office of the department chair, tell him he’s an #*$!%! and there’s not a damn thing he can do about it." Shocked, I said, "but you’re a level headed, nice guy, you would never want to do that." He replied "yeah, I never would, but the thought that I could if wanted to is worth a huge amount."
The lesson? Liberty is not always an instrumental value subordinate to positive capabilities.
Assorted links
1. Does music suffer from a cost-disease?
2. What are the best-selling classical music CDs of all time?
3. Abhijit Banerjee: Where is development economics — and education — heading?
4. Dalton Conley: What have we learned about poverty?
The best sentence I read this morning over breakfast
That is why in France, candidates not only kiss babies, they kiss cows.
That is by Stephen Clarke, in the New York Times Op-Ed page.
How progressive is the American budget?
Not very.
#32 in a series of 50.
FDA payola?
The FDA will soon stipulate that researchers who accept more than $50,000 in corporate grants, contracts and consulting fees cannot sit on FDA advisory committees. This will rule out many current advisors.
First, I wonder how this fits into the old Sam Peltzmann story that the FDA is too conservative in approving new drugs.
Second, what if we reformed in the opposite direction? Why not do away with all the mandatory drug trials and the like, and simply let drug companies purchase approval for new drugs? Think of the companies as posting bonds, and of course they still can be sued ex post if the drug harms somebody. The companies still will have reason to conduct their own tests. Set the price high if you wish.
To be sure, how much a company will pay for approval will depend on expected profits, not social welfare. But even with market power there is usually some connection between those two magnitudes. Or maybe the fear of lawsuits won’t deter poorly capitalized companies, but at the very least we could let the corporate giants take this path.
Some companies might be too overconfident about their drugs. If you believe that, I hope you are buying puts on them. Other companies might have excessively short time horizons. If you believe that, I hope you are loading up on drug companies with heavy R&D and raking in your excess returns.
So does this idea have any takers? If not, why not?
Addendum: Matt Yglesias argues regulation is a substitute for litigation.
Tom Palmer on positive and negative liberty
My view, simply put, is that "Libertarian Liberty" (to be specific with the terminology) is for the most
part an instrumental value subordinate to the enhancement of positive
capabilities. When the two conflict, I opt for the capabilities, and
in that sense I admire the philosophical premises of many contemporary
American liberals. I also believe in a governmental safety net, unlike many of the people at Cato, and partly for this reason.
On the other hand, I favor zero taxation of capital income, deregulation of the medical sector, cuts in government spending, no special privileges for labor unions, and I reject the philosophy of egalitarianism. So I’m not quite ready to be writing for The American Prospect and competing down the wages of Matt and Ezra.
My worry about vouchers
Here is one good bit, you can trace back an interesting debate through Kevin Drum, Matt, Ezra (can’t find the link), and Jane. I have two worries:
1. The federal government will pay for vouchers, to some extent, and thus extend its control over schooling. Admittedly this is happening anyway.
2. No politically feasible vouchers program will apply immediate depth charges to current public schools or even reduce their initial budgets ("oh, you aren’t letting public schools compete…). That means the new money must come from somewhere. That means our taxes will go up.
Vouchers would create a new middle class entitlement, ostensibly aimed at education but often simply capitalized in the form of cash. In the meantime public schools would require additional subsidies to stay open. How pretty a picture is this?
For sure, I favor selective vouchers for inner cities and voucher experiments. But Yana is finishing high school now, and we have had quite a cozy local arrangement in Fairfax County. I don’t wish we had had vouchers, and I’m a libertarian (Bryan can laugh if he wants). That’s why the vouchers idea has not really gotten off the ground.
I would be happier with vouchers if we were starting from scratch in designing educational institutions. And while I agree with Jane that children have a positive right to an education, I think the out-and-out laissez-faire option doesn’t get enough attention. Keep the public schools we have, but make them charge tuition. I’m not sure that the number of good educations obtained would actually go down. Even if we can’t institute this reform today, might it become possible at some level of per capita income?
When it comes to teachers’ unions, I don’t have much sympathy.
Tim Worstall asks
…is a single payer system actually any cheaper, once the deadweight costs of…taxes are taken into account?
More here, this man would warm the heart of Doug Gibbs. I recall learning that deadweight losses from taxation are about 20 percent of revenue raised, which is just about the size of overhead costs for the private insurance industry. Don’t ignore this sentence either:
The French system, the one that is generally rated as being number 1 globally, is neither single payer nor single provider.
$$$$: The David Teece story
Here is the full link, via Greg Mankiw.