Gayle Allard and the ever-interesting Peter Lindert write:

How have labor market institutions and welfare-state transfers affected
jobs and productivity in Western Europe, relative to industrialized
Pacific Rim countries?  Orthodox criticisms of European government
institutions are right in some cases and wrong in others.  Protectionist
labor-market policies such as employee protection laws seem to have
become more costly since about 1980, not through overall employment
effects, but through the net human-capital cost of protecting senior
male workers at the expense of women and youth.  Product-market
regulations in core sectors may also have reduced GDP, though here the
evidence is less robust.  By contrast, high general tax levels have shed
the negative influence they might have had in the 1960s and 1970s. 
Similarly, other institutions closer to the core of the welfare state
have caused no net harm to European jobs and growth.  The welfare
state’s tax-based social transfers and coordinated wage bargaining have
not harmed either employment or GDP.  Even unemployment benefits do not
have robustly negative effects.

These are underexplored but not easy to explore questions; here is the paper.

I would feel better if Ireland were removed from the data set, since a booming economy can afford many sins.  After this adjustment, coordinated bargaining wouldn’t look as good.  And when we calculate average productivity, should not the unemployed count for "zero productivity," or even negative, in the appropriate measure?  I believe that tax rates matter, but only at particular thresholds.

I also would like to argue the following: "Don’t think we can pick and choose the egalitarian interventions which turn up as the very best in econometric studies.  We are unlikely to know in advance which policies are the least harmful and politics is even less likely to turn those proposals into legislation." 

But would I be committing The Libertarian Vice?

Here is a nice, relaxing vacation idea for my wife:

The 20 or so people fleeing the Border Patrol aren’t undocumented immigrants – they’re tourists about 700 miles from the border.  Most are well-heeled professionals more likely to travel to the United States in an airplane than on foot.

They’ve each paid 150 pesos – about $15 – for what is perhaps Mexico’s strangest tourist attraction: A night as an illegal immigrant crossing the Rio Grande.

Advertising for the mock journey, which takes place at a nature park in the central state of Hidalgo, tells the pretend immigrants to "Make fun of the Border Patrol!" and to "Cross the Border as an Extreme Sport!"

As craven as the advertising sounds, the organizers say they are trying to build empathy for migrants by putting people in their shoes.

Here is the full story.  Here is an interesting recent article on sympathy.

The Bartels result may be just showing that in an economy when
average incomes are are rising rapidly, the low income groups benefit
more than the higher income groups.  Since WWII, with the exception of
Eisenhower, no Republican was president when the average income was
rising rapidly.

Here is the link for a relevant graph.  Here is a graph of the Bartels result.  And here is Greg Mankiw on inequality and unions, in case you missed it, perhaps Greg’s best post so far.

It starts here, from Xavier Sala-i-Martin, via of Bryan Caplan.  Bryan himself is proof positive of his point.

Andrew Samwick asked a very good question last week: if Paul Krugman says that rising wages at the top are due to nasty Republican policies and not due to rising returns to education/skill how does he explain his own high income?  Unfortunately Mark Thoma interpreted Samwick to be saying that Krugman was hypocritical.  That, however, was not the point at all.

The point is that Krugman is a very good example of someone in the top 1% of income – someone whose earnings have increased tremendously in the 1980s and 1990s thus generating much income inequality.  Krugman wants to say that earnings in the top 1% have gone up because of a reduction in the minimum wage or fewer labor unions.  Huh?  Remember, it’s not just inequality that has increased it’s absolute earnings at the top – where are these earnings coming from?

The idea that reductions in the bottom generate big earnings at the top reminds me of the theory, once popular among theorists of development, that the way to get rich is to steal from poor people.  At best what you can get from lower labor earnings at the bottom is a slightly higher return to capital in general – not a big return to a few people at the top.

Krugman says it’s Republican policies that are generating inequality  Or does he?  Let’s go to the tape.  Here’s what Krugman had to say when it was revealed that Enron paid him $50,000 for a speaking engagement.

My critics seem to think that there was something odd about Enron’s
willingness to pay a mere college professor that much money. But such sums
are not unusual for academic economists whose expertise is relevant to
current events…

Remember that this was 1999: Asia was in crisis, the world was a mess.
And justifiably or not, I was regarded as an authority on that mess. I
invented currency crises as an academic field, way back in 1979; anyone
who wants a sense of my academic credentials should look at the Handbook
of International Economics, vol. 3, and check the index….

And I wasn’t an ivory-tower academic. In 1994 I had published an article… in August 1998 I had advocated temporary
capital controls …in 1998 I had taken on the Japanese
situation, with a series of papers…

I mention all this not as a matter of self-puffery, but to point out
that I was not an unknown college professor. On the contrary, I was a hot
property, very much in demand as a speaker to business audiences: I was
routinely offered as much as $50,000 to speak to investment banks and consulting
firms. They thought I might tell them something useful. For what it’s worth,
Citibank officials said – you can check it out with a Nexis search – that
a heads-up I gave them in 1996 about the risks of an Asian currency crisis
saved them hundreds of millions of dollars.

Now all this is amusing but that’s not my point (really, it’s just a side-benefit.)  My point is that Krugman’s earlier explanation for his high income was all about the rising return to education ("Look at all my papers!")  I would supplement this basic story with a greater winner-take-all market, more economies of scope etc.  (See also Tyler’s comments.)   

I think Krugman’s earlier explanation for his own income is mostly correct.  Where Krugman and I apparently disagree is that I think that the very same explanation Krugman gives for his income also explains why other people in the top 1% are earning more.  Krugman, however, no longer wants to talk about education and skill he wants to talk about nasty Republicans.

So let me rephrase Samwick’s question.  Paul, If you’re not so smart, why are you so rich?

On average, taller people earn more because they are smarter.

Maybe it’s not greater self-esteem.