General Motors facts
Ratio of active workers at General Motors to retirees on its pension rolls: 2:5
Total pension costs of the company per vehicle it produces: $675
Those are from Harper’s Index, April issue.
Will a wealthier China democratize?
Maybe not. Daron Acemoglu, Simon Johnson, Pierre Robinson, and Pierre Yared report:
We revisit one of the central empirical findings of the political economy literature that higher income per capita causes democracy. Existing studies establish a strong cross-country correlation between income and democracy, but do not typically control for factors that simultaneously affect both variables. We show that controlling for such factors by including country fixed effects removes the statistical association between income per capita and various measures of democracy. We also present instrumental-variables using two different strategies. These estimates also show no causal effect of income on democracy. Furthermore, we reconcile the positive cross-country correlation between income and democracy with the absence of a causal effect of income on democracy by showing that the long-run evolution of income and democracy is related to historical factors. Consistent with this, the positive correlation between income and democracy disappears, even without fixed effects, when we control for the historical determinants of economic and political development in a sample of former European colonies.
Here is the full paper for $5. Here is a version for free.
Does prekindergarten help kids?
…early education does increase reading and mathematics skills at school entry, but it also boosts children’s classroom behavioral problems and reduces their self-control. Further, for most children the positive effects of pre-kindergarten on skills largely dissipate by the spring of first grade, although the negative behavioral effects continue. In the study, the authors take account of many factors affecting a child, including family background and neighborhood characteristics. These factors include race/ethnicity, age, health status at birth, height, weight, and gender, family income related to need, language spoken in the home, and so on.
In other words, you learn both how to read and how to raise hell, but a head start is useful only for the latter talent. Here is the link to the summary and study.
Unintended consequences, installment #637
..if this case [Schiavo] has prompted a marked increase in the number of people specifying when they do not want heroic measures used to extend their biological life, then by their actions the Bush administration and both houses of Congress will have retarded rather than extended the culture of life.
Just a thought.
That is from Daniel Drezner.
Junk mail
I’m reading Adam Hochschild’s excellent history of the abolition movement, Bury the Chains. I’ll post more in the future but there are lots of interesting tidbits on people, institutions and economic history. Debates about who should pay for incoming cell phone calls, for example, are nothing new.
Reverend James Ramsay was an outspoken critic of the slave system and was attacked in a variety of ways by the sugar plantation owners, including this:
His enemies sent him packages of stones from the West Indies, because under the prevailing postal system, charges were paid by the recipient.
Complementary Goods
In the box with my TaxCut software, a coupon for Prilosec.
Is blackmail coercive?
On some level, I do believe blackmail is a kind of coercion, but I fear my structuralist explanations for this view would be deeply upsetting to the average libertarian Joe, so I will keep my dirty little Foucault-inspired secrets to myself.
Here is more from Alina Stefanescu.
And how about the economics of blackmail? If blackmail victims are bad guys, why not allow a horde of potential bounty hunters to profit from uncovering their wrongdoing? We can keep "false blackmail" illegal, while allowing blackmail based on truth, no? We likely underinvest in the gathering of such information, and the profit incentives of blackmail would help correct (and overshoot?) this institutional failure.
Yet I remain convinced there is, somewhere, a sound economic and utilitarian case against blackmail. But what is that case?
My favorite exotic explanation (it is not quite sound) is that legal blackmail would lead to inefficient blackmail. Perhaps the ones who should blackmail you are your family and close friends. That is when transaction costs are low and both parties strike a good deal, often based on an implicit rather than explicit blackmail. ("If you run off with that floozy…") The wrongdoer pays a penalty, and the would-be wrongdoer remains deterred. Nothing gets too messy. But if you open up this business to outsiders, well…trust breaks down. Blackmailers fabricate stories, they send weird threatening letters, and they cause extreme anxiety. Outsiders don’t even know when they should believe the word of a blackmailer, which limits blackmail possibilities from those in the know. Under this hypothesis, we keep blackmail illegal to keep blackmailers we can trust.
Addendum: I have turned on the comments function, in case you have good ideas on this topic.
Guero and Crunchy Frog
Amazon.com lists Beck’s new album —Guero — as coming out next week, but today I found copies in my local Starbucks, bless their hearts. The sound is muddier and murkier than usual, with plenty of rhythm changes and scratching. On first listening it is at least as good as Odelay (and similar in style), but not quite up to my favorite, Mutations. But then again, I’ve underrated every other Beck album on first listening, so why should this one be any different?
While we are off the topic of economics, Entertainment Weekly lists the 20 Best Monty Python sketches. Most of the picks are on target but "Miss Anne Elk" and "Summarize Proust" are conspicuous for their absence. And "The Argument Clinic" (the original inspiration for "Markets in Everything," I might add) deserves to be way higher than #20.
China fact of the day
Two weeks ago, the government announced that 58,000 people had been punished for misappropriating money or making unauthorized loans at just two of the big four state-owned banks. In 2003 alone, officials said that the equivalent of nearly $8 billion was pilfered from state-owned enterprises.
Here is the full story. OK, they have more than a billion people, but that is from only two banks. And let us not forget:
In the last four years, at least 25 government officials have been sentenced to death for accepting bribes and kickbacks. Hundreds more are serving lengthy prison terms.
Who commits suicide?
In one of the largest studies on suicide ever conducted, researchers found that men with especially low scores on intelligence tests are two to three times more likely than others to kill themselves. Men with low IQ scores and only a primary education were no more likely to kill themselves than men with high IQ scores and a higher level of education. But men with low IQ scores and higher education were at a greater risk of suicide. And men with low IQ scores and highly educated parents were at the highest risk of all.
Could the problem be the high expectations of parents? Or is this proxying for some other relevant variable? Here is the story.
Fabulous Favicon
We now have our own favicon (the tiny image that appears in the web address bar). If you are using Mozilla you should be seeing it already. If you are using IE and don’t see it, grab the current icon and drag it a couple of millimetres – do this a couple of times and the MR favicon will appear (no, I don’t know why IE works this way either.) You need do this only once. A better implemented feature in IE is that if you drag the MR favicon to the desktop it will appear as a larger image linking to MR.
If you want your own favicon, you can have one designed for $75, generate one from an image or create your own.
Does trade with animals remedy market failure?
…the externalities in these problems might be remedied if animals can trade with humans or offer contingent rewards for better treatment. A farm animal might offer affection, for instance, if made a pet. If the farmer knows he can expect some benefit of this kind, he will be more likely to keep more animals in the pet sector.
The idea of animal trade is not as absurd as it may at first sound. Even if the animal does not understand contingent rewards, a disposition towards loyalty may cause animal behavior to mimic a consciously trading animal. (Animals that co-evolve with trading animals, such as dogs co-evolving with humans, may themselves develop trading characteristics, even if they do not trade consciously.) For this reason, the allocation of dogs may show greater efficiency than the allocation of less intelligent and less loyal animals. Buying a dog comes bundled with a credible (?) precommitment of good behavior from the animal, whereas buying a lizard does not. Even within the category of dog, some breeds seem able to precommit to good behavior (German shepherds?) whereas others do not (Irish setters?). On the side of the owners, the agreement may be self-enforcing. The owner of the pet may "send the animal to the glue factory" if the animal misbehaves or fails to deliver enough surplus to the owner.
Even if we buy into the basic idea of animal trading, this mechanism will not solve most of the institutional failures we observe in the real world. If we have too many animals in the farm sector, for instance, remedying this problem would require the farmer to trade with farm animals. Most farm animals find it difficult to signal that they would be docile and loving pets, if only they could be brought inside the house. And the very best sectors, such as family petdom, have only limited room for a large number of animals, even at zero price. Or if we think of reallocating animals from a worse farm sector to a better farm sector, it is not clear what the animals can offer the farmer in exchange for being sent to the better sector. The farm animals are already exploited to maximum yield. The animal might try to signal greater cooperativeness on the farm, but under many forms of factory farming animal cooperativeness is not required. The animals are kept in large halls, fed, and simply slaughtered once they reach a certain age. In short, even if animals can trade, often they have nothing to offer.
That is from my paper-in-progress on animal welfare; I must submit it very soon. Here is my previous post on that paper.
Two notes on social security
Brad DeLong and Paul Krugman are taking Joe Lieberman and others to task for asserting that the cost of fixing the social security problem increases at $600 billion a year. I agree that Lieberman is confusing an increase in the nominal present value of the debt with an increase in the cost of fixing social security but in correcting Lieberman both DeLong and Krugman meander towards the opposite error – that the costs of fixing social security is not increasing.
But almost inevitably a fix to social security will involve tax increases and the longer we wait the larger the costs of those increases will be. The technical explanation is that deadweight loss increases more than proportionately with an increase in taxes. The common sense explanation is that you don’t want to take all your hits at once – instead, if you must take a hit, it’s best to spread it out over time. Thus, the sooner we deal with the problem the lower the total costs will be. Lieberman’s message is correct, even if the details are wrong.
Also this week, Robert Shiller’s simulation study of returns to personal accounts is getting some attention. There is really nothing new in Shiller’s study, what he concludes is that based on historical data private accounts invested in stocks are great but if returns are lower in the future well then returns will be lower in the future.
Although Shiller’s paper is filled with all kinds of scenarios about stock market risk he has hardly a word to say about the risk of social security (even referrring at one point to the "guaranteed Social Security benefit," yeah right). But social security payments are going to be cut and they are going to be cut more the lower are stock market returns.
A realistic comparison of social security and private accounts would make consistent assumptions about stock markets returns, taxes, and benefits and the full government budget constraint. I have yet to see such a study.
The War on Drugs
Becker and Posner both argue against the War on Drugs. Becker writes:
After totaling all spending, a study by Kevin Murphy, Steve Cicala, and
myself estimates that the war on drugs is costing the US one way or
another well over $100 billion per year. These estimates do not include
important intangible costs, such as the destructive effects on many
inner city neighborhoods, the use of the American military to fight
drug lords and farmers in Colombia and other nations, or the corrupting
influence of drugs on many governments.
The best economics piece on this issue is Drug War Crimes a short book by Jeffrey Miron published by Independent Institute where I am the director of research. Miron demonstrates that the war on drugs greatly increases the violent crime rate (just as it rose during alcohol prohibition) and that the policy is not very effective in reducing consumption.
One interesting reason why the drug war reduces consumption less than people imagine is that prohibition reduces some costs. Drug sellers, for example, do not pay social security taxes for their employees, they do not follow minimum wage laws and they do not obey costly FDA regulations. On net prices are still pushed up by the threat of prosecution but the lack of taxes and regulations is a countervailing factor.
How much do we waste on health care?
Arnold Kling writes:
I am prepared to make the following bet: ten years from now, it will be objectively clear that the United States provided significantly better health care to its citizens between 1990 and 2005 than did other developed countries. From the vantage point of 2015, the policy blunder of the past fifteen years will not be that the United States spent too much on health care, but that other countries spent too little. The socialized systems, forced to ration health care because tax revenues are not sufficient to pay for state-of-the-art care, are constraining their citizens from being diagnosed and treated as well as Americans.
And why do we spend so much on health care?
While the usual suspects receive attention that is disproportionate to their true impact on U.S. health care spending, two important factors receive relatively little attention: physician compensation; and the utilization of high-tech procedures. Both of these are much higher in the United States than elsewhere.
Physicians are paid more than twice as much in the United States as in other developed countries. Because physician services are about one fourth of all health care spending, we could eliminate one eighth of our health care spending by reducing doctor salaries to the levels of other countries.
The other big factor is utilization of high-tech procedures, such as MRI’s, CT scans, and open-heart surgery. If Americans would cut back on the utilization of these procedures, that would reduce health care spending by hundreds of billions of dollars.
The question is whether our medical care would deteriorate if we were to pay our doctors much less while at the same time reducing our utilization of expensive capital resources. It seems reasonable to conjecture that the quality of diagnosis and treatment ultimately would suffer.
Read the whole thing; this could be my favorite Arnold Kling essay. And if there could be five issues I wish I understood better, this would be one of them.