Saturday, December 29, 2012

Via Cafe Hayek - amen

Here’s the full text of a letter, in today’s Wall Street Journal, written my and Russ’s friend Dave Rose:

In his Dec. 20 op-ed “America’s Dangerous Powerball Economy,” Arthur Brooks quite correctly points out that earned income, indeed earned success generally, affects our happiness very differently than unearned income or success.

I would like to extend his point further with something I’ve told my college students for years.

In general, the creation of wealth is edifying. When only voluntary transactions are permitted, the creation of wealth requires cooperation, and this brings out the best in us.

Piles of wealth, however, tend to be corrupting. The fixed nature of a pile is all about apportionment, not cooperation, and this zero-sum game tends to bring out the worst in us.

It follows directly that no matter how noble the ends, government redistribution (which is hardly voluntary) tends to bring out the worst in us. Rising government redistribution over the past 75 years has produced ample evidence of this point.

We are in this mess because we have allowed our culture to be dominated by those who are bent on spreading the false and self-serving narrative that our economy is a giant zero-sum game.

As such, we might as well have the government do the dividing.

Small wonder why our politics have become increasingly about who you are for rather than what you are for.

David C. Rose

Department of Economics

University of Missouri-St. Louis

St. Louis, Mo.

Wednesday, December 26, 2012

What is useful and not so useful in economics.

A recent post at Econ Browser analyzes unemployment using Okun's law - a topic usually found in introductory macro courses. The useful . . . from the conclusion:

This leads us to conclude that there has been indeed an effect of the Great Recession on the long-term employment. Specifically, on average, since the exit of the recession (2009q2), we get that the employment is 2.7 % below its potential level (according to the non-linear ECM), meaning that, from a structural point of view, around 3 millions of jobs have been lost after the recession.

OK, a nice conclusion and useful information to consider - a number of interesting questions are raised.

OK, not so useful.

Additional remark:

As in the linear framework, it is noteworthy that a non-linear model estimated in differences, that is without integrating a long-term relationship, also leads to unrealistic results. This underlines the usefulness of having the long-term relationship into the model.

Tuesday, December 25, 2012

2012: The Year in TV Moments

Entry 13: Breaking Bad: The kid on the motorbike.

My wife and I began this show on Netflix this year and loved the first 2 seasons. Then . . . things turned bad in the 3rd season, and this comment in Slate resonated with my wife and I after the death of Jesse's girlfriend earlier in the run of the show:

Slate writes:

Why were we still watching? Had we in some measure adopted Walt’s point of view, and given his slide into evil, did that make us, as Nussbaum put it, “not merely fans but enablers?”

Monday, December 24, 2012

Interests are More Powerful than Ideas?

Mario Rizzo:

To make a long story short: I believe that intellectuals (including economists) need to be more ideological, not less. They ought to convince the general public to think in terms of big issues and big decisions. The idea of evaluating each issue on its own merits is profoundly unscientific as Herbert Spencer taught. Slippery slope mechanisms are all around us. When people begin to think of specific, narrow policies they cannot help but think in terms of their own particular interests.

It is not enough to win the battle for ideas among intellectuals. We must win in a way that makes a practical difference. Showing the limitations of case-by-case analysis of policy is important. The special interests do not care about the damage done to the general welfare. We must instruct the public that policies that benefit their own particular interests do and will generate policies that hurt them. There truly is no free lunch.

Saturday, December 22, 2012

Chicago Fed National Activity Index (CFNAI)

Economic Activity Increased in November

The Chicago Fed National Activity Index was +0.10 in November, up from –0.64 in October.

More about the CFNAI

The Chicago Fed National Activity Index (CFNAI) is a monthly index designed to gauge overall economic activity and related inflationary pressure. The CFNAI is released at 8:30 a.m. ET on scheduled days, normally toward the end of each calendar month.

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

Wednesday, December 19, 2012

MCC Center for Economic Ed names 2012 Teacher of the Year

Pictured left to right: Ardie Sturdivant, Greg Pratt, Michelle Barton, John Balentine

Ms. Michelle Barton, Math Instructor at Ward Traditional Academy has been named the 2012 Middle School Teacher of the Year by the MCC Center for Economic Education.

Typically, this recognition is awarded to a social studies teacher. This year, our center is pleased to recognize Ms. Barton for integrating the standards based Stock Market Game in her math curriculum. Ms. Barton has creatively integrated standards based instruction across disciplines both in her classroom and for the entire Ward community. Beyond her creativity in applying a social studies based activity to mathematics instruction, Ms. Barton models collaboration and community building though her work with colleagues at Ward in language arts and social studies.

Barton explained her rationale for utilizing the stock market game in her class and her motivation for sponsoring the Economics Club at Ward: "Integrating economics into my curriculum has allowed me to bring math to life. Students always used to ask me, "When will I ever use this?" Introducing concepts like slope, graphing, and linear equations using the Stock Market Game allowed me to show students a real life application before they even thought to ask."

The results of Ms. Barton’s mentoring are reflected in the results of the Fall, 2012 Arizona Stock Market Game - Ward student teams captured first and second place in the elementary division and swept first, second and third places in the middle school division.

Ward Traditional Academy is a k-8 traditional school in the Tempe Elementary School District. The school has received an A grade as an excelling school and attracts students from across the valley.

Ms. Barton attended training sponsored by the Center for Economic Education in August, 2012 to implement The Stock Market Game in her math curriculum. She is one of a small number of math instructors who has taken advantage of the Center for Economic Education programming to address the emergence of common core requirements in the middle school curriculum. Ms. Barton is a graduate of Arizona State University and has taught pre-algebra, algebra and geometry at Ward since 2009.

The Center for Economic Education at MCC supports innovation in economics instruction across the curriculum and across grade levels in Arizona. John Balentine Director, K-12 Social Studies at the Arizona Department of Education reflected on the work of the Center and our partner the Arizona Council on Economic Education:

“Today’s employers are seeking graduates that have key skills of critical thinking, problem-solving and collaboration. Arizona’s teachers and students are fortunate to have a cross-curricular resource, The Stock Market Game, hosted by the Arizona Council on Economic Education, develops these skills and helps ensure all of our students are prepared for college, career and civic life”

Ms. Barton was honored December 17, 2012 at Ward Traditional Academy. . Debbie Henney, Executive Director of the Arizona Council on Economic Education, John Balentine, Director of K-12 Social Studies, Ardie Sturdivant, Principal Ward Traditional Academcy and Greg Pratt, Director of the Center for Economic Education presented the 2012 Middle School Teacher of the Year award to Ms. Barton.

Tuesday, December 18, 2012

Immigration and American Power

While too rapid a rate of immigration can cause social problems, over the long term, immigration strengthens US power. It is estimated that at least 83 countries and territories currently have fertility rates that are below the level needed to keep their population constant. Whereas most developed countries will experience a shortage of people as the century progresses, America is one of the few that may avoid demographic decline and maintain its share of world population.

For example, to maintain its current population size, Japan would have to accept 350,000 newcomers annually for the next 50 years, which is difficult for a culture that has historically been hostile to immigration. In contrast, the Census Bureau projects that the US population will grow by 49% over the next four decades.

Today, the US is the world’s third most populous country; 50 years from now it is still likely to be third (after only China and India). This is highly relevant to economic power: whereas nearly all other developed countries will face a growing burden of providing for the older generation, immigration could help to attenuate the policy problem for the US.

Monday, December 17, 2012

A Nation of Takers: America's Entitlement Epidemic - Society and Culture - AEI

A Nation of Takers: America's Entitlement Epidemic - Society and Culture - AEI

In "A Nation of Takers," author Nicholas Eberstadt draws on an impressive array of data to detail the exponential growth in entitlement spending over the past fifty years. As he notes, in 1960, entitlement payments accounted for well under a third of the federal government’s total outlays. Today, entitlement spending — everything from Medicare to disability payments — accounts for a full two-thirds of the federal budget. While these economic developments are indeed astonishing, the cultural costs of this epidemic are equally troubling, and Eberstadt shows in unflinching detail how this run-away spending is making a very real, long-lasting, negative impact on the character of our citizens.

Sunday, December 16, 2012

The Declining Work and Welfare of People with Disabilities: What Went Wrong and a Strategy for Change

The U.S. disability insurance system is an important part of the federal social safety net; it provides financial protection to working-age Americans who have illnesses, injuries, or conditions that render them unable to work as they did before becoming disabled or that prevent them from adjusting to other work. An examination of the workings of the system, however, raises deep concerns about its financial stability and effectiveness. Disability rolls are rising, household income for the disabled is stagnant, and employment rates among people with disabilities are at an all-time low. Mary Daly and Richard Burkhauser contend that these outcomes are not inevitable; rather, they are reflections of the incentives built into public policies targeted at those with disabilities, namely the SSDI, SSI-disabled adults, and SSI-disabled children benefit programs. The Declining Work and Welfare of People with Disabilities considers how policies could be changed to improve the well-being of people with disabilities and to control the unsustainable growth in program costs.

Saturday, December 15, 2012

Profiting From a Child’s Illiteracy


In the New York Times?

This is painful for a liberal to admit, but conservatives have a point when they suggest that America’s safety net can sometimes entangle people in a soul-crushing dependency. Our poverty programs do rescue many people, but other times they backfire.

Some young people here don’t join the military (a traditional escape route for poor, rural Americans) because it’s easier to rely on food stamps and disability payments.

Antipoverty programs also discourage marriage:

Friday, December 14, 2012

CEI: Tell Americans NOW How Much Time Govt. Workers Spend On Union Duties | Competitive Enterprise Institute

CEI: Tell Americans NOW How Much Time Govt. Workers Spend On Union Duties | Competitive Enterprise Institute

Federal employees spent about 3.4 million hours performing union duties while on the clock in 2011, according to an unreleased Office of Personnel Management (OPM) report made public in a November 26 Federal Times article. This amount of time, referred to as “official time,” cost the federal government $155 million. It represents an 11 percent increase in the amount of official time in 2010.

Unfortunately, the problem is not exclusive to federal employees. State and local governments all across the country also allow workers to labor for union bosses on taxpayer time, at an incalculable cost. Part of the problem, as Mallory Factor noted recently in The Wall Street Journal, is that ”states and municipalities don’t generally track official time for their employees, much less disclose it, so data on the subject are hard to come by.” However, Factor hazards an educated guess as to the extent of the problem:

Monday, December 10, 2012

Bloomberg Notable books

Gratifying to see the number of ASET book club reads made this list.

“Thinking, Fast and Slow” by Daniel Kahneman,

“Why Nations Fail: The Origins of Power, Prosperity and Poverty” by Daron Acemoglu and James Robinson

“Lords of Finance: The Bankers Who Broke the World” by Liaquat Ahamed.

“Coming Apart: The State of White America, 1960-2010” by Charles Murray

Looks like some other interesting titles on this list for our group to consider.

Sunday, December 9, 2012

Friday, December 7, 2012

Federal Government Loses Big in Supreme Court Property Rights Case

Federal Government Loses Big in Supreme Court Property Rights Case

The federal government suffered a major defeat today at the U.S. Supreme Court in the case of Arkansas Game & Fish Commission v. United States. In their unanimous decision, the justices rejected the government’s sweeping claim that a series of recurring floods induced by the U.S. Army Corps of Engineers did not qualify as a taking of property under the Fifth Amendment because the flooding was only temporary in duration. As Justice Ruth Bader Ginsburg wrote for the majority:

Because government-induced flooding can constitute a taking of property, and because a taking need not be permanent to be compensable, our precedent indicates that government-induced flooding of limited duration may be compensable. No decision of this Court authorizes a blanket temporary-flooding exception to our Takings Clause jurisprudence, and we decline to create such an exception in this case.

The Court also rejected the government’s assertion that the Army Corps of Engineers needed to be free from the constraints of the Takings Clause in order to effectively do its job:

Time and again in Takings Clause cases, the Court has heard the prophecy that recognizing a just compensation claim would unduly impede the government’s ability to act in the public interest. We have rejected this argument when deployed to urge blanket exemptions from the Fifth Amendment’s instruction.

As for the surprising claim made during oral argument by Deputy Solicitor General Edwin Kneedler, who told the justices that no property owner whose land lay below a government dam could ever bring suit under the Takings Clause in response to a government-induced flood, the Court observed that because this novel argument “was not aired in the courts below, and [was] barely hinted at in the brief the Government filed in this Court...we express no opinion on the proposed upstream/downstream distinction.”

I’m a little surprised the Supreme Court didn’t reject Kneedler’s bogus upstream/downstream distinction outright, given that most of the justices seemed so dismayed by it during oral argument (Justice Anthony Kennedy likened Kneedler’s position to the “old moral refuge” of German rocket scientists who said “I make the rockets go up; where they come down is not my concern”), but perhaps the justices opted for a unanimous ruling against the government rather than a divided opinion where the majority delivered an even more forceful denunciation.

Bottom line: The federal government went to court in the hopes of restricting property rights and came up short.

Wednesday, December 5, 2012

The Race Between Education and Technology

The ASET Book club will discuss The Race Between Education and Technology on December 6, 2012.

At our meeting we will also schedule 2013 meetings days and books. (See end of this post.

Possible questions for our discussion:

1. Daron Acemoglu, author of a previous ASET book club read - Why Nations Fail? Describes Goldin and Katz’s The Race between Education and Technology is a monumental achievement that supplies a unified framework for interpreting how the demand and supply of human capital have shaped the distribution of earnings in the U.S. labor market over the 20th century. What did you learn about the supply of labor from reading this book? In what ways did this information about the supply of labor challenge your previously held views or beliefs about education?

2. Goldin and Katz describe an evolution (deterioration) in the supply side of the labor market beginning in 1970? How convincing was their argument – do you view that these is in fact a deterioration and if so, how persuasive is the author’s explanation for this change?

3. In the current issue of The Journal of Economic Perspectives Martin West summarizes “Global Lessons for Improving U.S. Education.” “. . . Rigorous studies confirm that students in countries that for historical reasons have a larger share of students in private schools perform at higher levels on international assessments while spending less on primary and secondary education.. . . In addition, the achievement gap between socioeconomically disadvantaged and advantaged students is reduced in countries in which private schools receive more government funds. . . .”

The authors find a similar outcome as they describe the virtues of the American education system (130+) and contrast American higher education with other countries (last paragraph of page 283) with the observation: “the enormous competition between and within the public and private sectors, and its laissez faire orientation.” (see page 64 for example) What other evidence to you find for this within the text and your reading and how does this evidence challenge or contradict your experience as an educator. How might your resolve any conflict between your reading of the book and your beliefs.

4. Where you surprised by the finding that historically “the supply of quality teachers was extremely elastic”(240)? Might this still be the case and account for the status of teaching wages?

5. Goldin and Katz write: “Education was also a form of insurance . . . (192). How might this account for the historic and contemporary incentives in the labor market, specifically the supply side?

6. What insight did the analysis of technology skill complementarity (121) offer and did this insight broaden your understanding of the demand for labor over the period of this economic history?

7. What is your view of the contention: “Two factors appear to be holding back the educational attainment of American youth: college readiness and finances”(347)?

8. Relative demand and relative supply of labor analysis – “Technology has been racing ahead of education in recent years because educational growth has been sluggish, not because skill biased educational change has accelerated.”(303). Did you find this conclusion surprising and, more importantly, does this provide a satisfactory explanation for the rising college wage premium?

Claudia Goldin speaking on the book.

Reviews of the book -

Tuesday, December 4, 2012

Teaching the History of Capitalism

In November 2011, the conference on Teaching the History of Capitalism gathered a small group of scholars in the field at Harvard University to reflect on their own teaching, learn from the wisdom and experience of our colleagues, and develop a clearer sense of the field’s pedagogical aims. The conversation focused on how the history of capitalism might enhance college curriculums. Several scholars who could not attend in person also sent their syllabi and suggestions.

Monday, December 3, 2012

Reviews - The Race Between Education and Technology

Daron Acemoglu, author of a previous ASET book club read - Why Nations Fail?

Goldin and Katz’s The Race between Education and Technology is a monumental achievement that supplies a unified framework for interpreting how the demand and supply of human capital have shaped the distribution of earnings in the U.S. labor market over the 20th century. This essay reviews the theoretical and conceptual underpinnings of this work and documents the success of Goldin and Katz’s framework in accounting for numerous broad labor market trends. The essay also considers areas where the framework falls short in explaining several key labor market puzzles of recent decades and argues that these shortcomings can potentially be overcome by relaxing the implicit equivalence drawn between workers’ skills and their job tasks in the conceptual framework on which Goldin and Katz build. The essay argues that allowing for a richer set of interactions between skills and technologies in accomplishing job tasks both augments and refines the predictions of Goldin and Katz’s approach and suggests an even more important role for human capital in economic growth than indicated by their analysis.

The New York Times -

The authors skillfully demonstrate that for more than a century, and at a steady rate, technological breakthroughs — the mass production system, electricity, computers — have been increasing the demand for ever more educated workers. And, they show, America’s school system met this demand, not with a national policy, but in grassroots fashion, as communities taxed themselves and built schools and colleges.

Beginning in the 1970s, however, the education system failed to keep pace, resulting, Ms. Goldin and Mr. Katz contend, in a sharply unequal nation.

The authors allow that a decline in union membership and in the inflation-adjusted minimum wage also contributed to the shift in who partook of a growing pie. But they rule out the usual suspects — globalization (trade) and high immigration — as significant causes of rising inequality. Amid the current calls to restrict executive compensation, their policy prescription is to have more Americans graduate from college.

If only it were that easy.

The authors’ argument is really two books in one. One offers an incisive history of American education, especially the spread of the public high school and the state university system. It proves to be an uplifting tale of public commitment and open access. The authors remind us that the United States long remained “the best poor man’s country.” A place where talent could rise.

The other story rigorously measures the impact of education on income. The authors’ compilation of hard data on educational attainment according to when people were born is an awesome achievement, though not always a gripping read.

History Net and Peter Linkert write:

Where next for research in the economic history of American education? This is the perfect time to ask, now that Goldin and Katz have achieved closure on so many questions. The view from their shoulders reveals two key areas to explore.

First, who was it that under-invested in education? Did private individuals pass up money lying on the sidewalk, or was it the political process failing to realize high social rates of return that took into account both fiscal effects and knowledge externalities? For the purposes of their book, Goldin and Katz are able to finesse these tough questions. By focusing on contrasts between American epochs, they successfully explain the contrasts in “returns” in terms of movements in wage ratios that were dramatic enough to drive movements in all definitions of the rate of return on education. Yet we still need to explore the separate levels of the private versus “social” (private and fiscal only) versus overall rates of return, the last being the one that draws on the recent literature on externalities. Only then can we distinguish private irrationality, or private capital constraints, from a failure of policymakers to capture high societal returns to extra years of education. The new research will have to proceed on different levels for different time periods. For the present day debate, scholars will have to jump the higher econometric hurdles imposed by Heckman, Lochner, and Todd in their rejection of the convenient Mincer return analysis. For earlier periods, it should suffice to make rougher contrasts between the likely private and fiscal returns for different eras and different places.

A related frontier is the political economy of education finance. Who voted for or against taxes for schools, in which states, and why? Goldin and Katz have advanced the political economy agenda with econometric evidence on the determinants of high school and college attendance, and the funding for public state universities. Yet there is much more to be done.

On both these research frontiers, our progress will be accelerated because Goldin and Katz have paved the way.