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MARCH BLOG


31 March

Labor Standards and Bicycle Helmets

Robert Samuelson writes in today's Washington Post (registration required) that China, though in many ways an abominable economic landscape is a lot like the US 100 years ago. He argues that while growth is a messy thing, there is hope for the future in China, and recent progress is encouraging. He notes (citing the World Bank as his source):

• From 1978 to 2002, the average annual per-person income rose from $190 to $960. It's probably now above $1,000. (The U.S. figure: about $36,000.)

• Life expectancy increased from 61.7 years in 1970 to 71 in 2002.

• Adult illiteracy fell from 37 percent in 1978 to less than 17 percent in 1999.

• Infant mortality dropped from 41 per 1,000 live births in 1978 to 30 in 1999 (the U.S. rate: about seven).

As the election heats up, we're going to hear a lot about labor and environmental standards and how we need to level the playing field in trade. China remains a very poor country. It cannot afford the luxury of our standards of today any more than America could have afforded them 100 years ago when the average work week was 67 hours (down to 34 today) and the work place was a much more dangerous place.

One way to see this is to think about bicycle helmets. Where are more bicycle helmets worn—Chicago or Shanghai? Manhattan or Mexico City? More are worn in Chicago and New York. Don't people in China and Mexico know that it's dangerous to ride a bike in traffic without a helmet? I suspect they do. It's just too expensive. Poor people are better off foregoing the helmet, keeping their kids in school a little longer and doing the best they can to avoid being hit by a car. Making the Chinese have factories as safe and clean as ours is like forcing them to wear bicycle helmets. It's a bad deal for them even though there are benefits.

March 30

Tax and Spend

On my way in to work today, I heard a snippet of a President Bush speech on C-Span radio. "Tax and spend is the enemy of job creation," he said.

That's probably true. Unfortunately for the President, if tax and spend is the enemy of job creation, so is "borrow and spend," the President's recent formula.

The size of the budget and what it's spent on is more important than how it's financed. There are really only two choices for financing—taxes today and taxes tomorrow. Borrowing just means taxes tomorrow. The President likes to describe tax cuts as letting people keep more of their own money. I like that idea. Unfortunately, I have to agree with Tyler and Alex at MarginalRevolution.com that the current administration has raised our taxes by increasing spending. So ultimately we're keeping more of our money today and expecting to give back even more tomorrow.

Ironically, Bush has raised spending in what I would guess is a labor intensive way. By expanding homeland security, a lot of workers have been drawn into public employment rather than the private sector.

Last month's job growth was "small" and almost all of it was in the public sector. That's most likely a result of government spending pulling people into public sector jobs rather than the private sector.

This Friday is a big day for Bush and Kerry. The job numbers for March will be released. If they are weak again, Bush will have to keep talking about home ownership being up.

 

March 29

Bonnfire of the Vanities

The violinists in the Beethoven Orchestra in Bonn want to earn more, reports the New York Times (RegReq). In many classical works, violinists play more notes than say, the oboists.   This is unfair.   The violinists want to be paid by the note.

Seems absurd but maybe violinists are exploited by obscenely low wages relative to their peers.   Many professions are paid by the piece and the number of notes could be an appropriate measure.   Or not.   As the Times reports:

The reports from Bonn framed the issue, nonsensically, in terms of the number of notes played. Why nonsense?

Because there are notes, and there are notes. To stick with Beethoven, take a simple passage, selected more or less at random, from the scherzo of the Ninth Symphony (measures 77-92). In these 16 bars, the first violins play 34 notes; the second oboist, 16. But the oboist's are measure-filling dotted half notes, tied together, demanding an almost constant expenditure of breath. The violinists play three notes in most measures but don't play at all in four of them. Comparisons are not only odious, they are impossible.

Are comparisons impossible?   It would seem that way.   The attractiveness of being a violinist is a complex mix of difficulty, practice requirements, satisfaction, glory and many other factors.    How do you weight these different factors to determine a "fair" wage?   It might be tempting to do a set of engineering and ergonomic studies to measure the relative challenges of each instrument.   But even if this could be done accurately surely the comparison would be ultimately impossible because of the weighting challenge.

Economics suggests you don't have to solve the problem.   The marketplace weighs these factors implicitly in setting the going wage for a violinist of a particular level of skill.

If violinists are underpaid, orchestras will have trouble attracting players and will find themselves having to raise the wage in order to fill the chairs.   The result is that orchestras that are well run will have a feel for what it takes to attract a quality violinist.   That "going wage" will implicitly weight all the factors that make up a violinist.   It could never be done by an expert in a vacuum.   Instead, the wage emerges from the interactions of orchestras and their players.

The music of the marketplace is played without a conductor.

Thanks to Tyler Cowen at MarginalRevolution.com for the pointer.

March 29

Bootleggers and Baptists

The Arizona Daily Star reports that Nogales, Arizona will be opening a new state-of-the-art truck inspection station:

The governor touted the new Motor Carrier Inspection Station as a state-of-the-art facility that will improve homeland security while not slowing down international traffic between the United States and Mexico.

It gives state and U.S. federal officials a one-stop shop to inspect drivers' immigration papers, the safety of their semi-trucks, and the quality and safety of cargo crossing into the country.

But a legal challenge hangs over the new facility:

Attorneys about to argue a federal lawsuit against the NAFTA plan allowing Mexican trucks into the United States aren't satisfied. They will plead their case before the the U.S. Supreme Court on April 21.

The problem with the new station: It isn't required to check emissions on incoming trucks.

That means they aren't being held to the same standards as U.S. trucks and will only worsen air quality standards, said John Weissglass, the San Francisco-based attorney representing the International Brotherhood of Teamsters in the lawsuit. In 2002, the Teamsters, watchdog group Public Citizen, and environmental groups sued the U.S. Department of Transportation to stop the NAFTA plan, citing environmental concerns, which eventually forced the government to conduct a $1.8 million study looking at the plan's environmental impact.

They say politics makes strange bedfellows, but the Teamsters and Public Citizen? Bruce Yandle of Clemson explains it with a theory he calls Bootleggers and Baptists. The bootleggers like prohibition because it gets rid of competitors. But a politican who wants to listen to the bootleggers needs a more high-minded cause to sell to the public. The Baptists give the politicians cover with the argument that drink is from the devil—it leads to social unrest, unemployment, higher social costs and so on. Same with Mexican trucks. Who can justify keeping out lower cost Mexican trucks just to keep the wages of Teamsters high. Enter Public Citizen. This isn’t about greed. It’s about keeping American air clean.

The appeal of self-righteousness partnering with self-interest also explains why companies often support regulation of their industry. They'll claim a concern for safety or the environment but often such regulations fall more heavily on smaller competitors and will drive them out of business.

There's nothing wrong with politicians having both high-minded and low-minded motives. The real problem is that the bootleggers always push the form of the regulation to create higher profits.

NAFTA was supposed to allow Mexican truck companies to compete in the US. We're still waiting. Before the environmental issue, the alleged worry of the Teamsters was safety. My take on that claim is here.

 

March 28

Nothing Secedes Like Secession

I’m in Tucson for a conference. Haven’t been here for a while and it’s striking how different the world looks here in the Southwest compared to the East Coast and most everywhere else. Desert. Cacti. The architecture. Javelinas—little wild boars. Saw some on the 18th hole of the resort's golf course, wandering around. Even the squirrels are different here.

We take it for granted that this is part of America. But this nation from sea to shining sea could easily be lots of different countries a la Europe. Jay Winik in April 1865: The Month That Saved America talks about how unlikely it appeared in say, 1790 or 1820 that the US would become what it is today. Before the Civil War, the Whiskey Rebellion threatened to split off the western part of the United States. New England almost signed a treaty with England and split rather than join in on the War of 1812. California and Oregon considered forming a Pacific Nation.

By the end of the 1820s and into the early 1830s…when many Americans spoke of the Union, however much they had come to love it, they spoke of “our confederacy,” or more simply of “the Republic.” The Constitution, however revered, was a “compact.” The United States was just as often “the states United,” or “the united States,” or even “a league of sovereign states,” and was invariably spoken of as a plural noun.

Would it make any difference if Arizona were another country? Besides the hassle of going through customs for this conference, it might make a lot of difference. It would depend on the institutions and culture. Without American culture, trust, legal system and so on, there might not be a resort here, there might not be a booming Tucson. And of course, it could be even better. And had Arizona or other states broken away, it would have changed how the rest of the country evolved along the way.

Here’s David Friedman’s theory of the size and shape of nations.

26 March

"Curing" Obesity

I've written previously on the threat of the obesity "epidemic" to good public policy. Now it turns out, we've discovered one of the key causes of the problem. The AP reports:

Researchers say they've found more evidence of a link between a rapid rise in obesity and a corn product used to sweeten soft drinks and food since the 1970s.

The researchers examined consumption records from the U.S. Department of Agriculture for 1967-2000 and combined it with previous research and their own analyses.


The data showed an increase in the use of high-fructose corn sweeteners in the late 1970s and 1980s ``coincidental with the epidemic of obesity,'' said one of the researchers, Dr. George A. Bray, a longtime obesity scientist with Louisiana State University System's Pennington Biomedical Research Center. He noted the research didn't prove a definitive link.

That's science for you—the link isn't "definitive." No I guess it wouldn't be. Obesity is surely also "linked" to the Iran hostage crisis and the stagflation of the late '70s and early 80s. Maybe I shouldn't be so skeptical. The study may be a little more scientific than merely looking at correlation rather than causation. But if the research is right, it will be easy to make America thin again. Just ban those high fructose sweeteners. One problem with this will be explaining why the advent of low calories weetneners didn't stem the tide of fat that allegedly threatens to overwhelm us.


My theory is that we're fat because we enjoy it. We like food. It gives us pleasure. We're wealthy and food's cheap so we're taking on a few pounds. Here is the paper by Glaeser, Cutler and Shapiro that takes the economists' approach.

26 March

Water on Mars?

Maybe there was once water on Mars. Maybe not. Reuters reports:

"We think Opportunity is now parked on what was once the shoreline of a salty sea on Mars," said Steve Squyres, principal investigator for the science payload on Opportunity and its twin Mars exploration Rover, Spirit.

On March 2, astronomers announced that the Red Planet was "drenched with water" at some point. But the rovers' analysis of Mars rocks has now produced the first concrete evidence that liquid water might actually have flowed on planet's surface.

"If you have an interest in searching for fossils on Mars, this is the first place to go," said Ed Weiler, NASA's associate administrator for space science.

Love that alliteration—the shoreline of a salty sea. It conjures up images of beachcombers and cottages or at least seashells and seaweed with terns turning in the sunlight. Seems like a bit of a stretch. NASA thinks they've found not just moisture, not just a few molecules of H2O but a sea with rocks drenched with salty spray, rocks lovingly shaped by streaming water. Pardon my skepticism, but it seems that NASA has just a bit of interest in stretching the results. Notice that even Reuters uses the word "might."

This hasn't dampened any of the enthusiasm. Here's one analysis headlined "Mars water discoveries loom huge" that compares the finding to Galileo's discoveries.

...the sheer disclosure of the presence of water on a planet other than our own is monumental. It ranks with the moment, nearly 400 years ago, when Galileo Galilei peered through his telescope and discovered spots on the sun, mountains on the moon and four tiny bodies circling Jupiter.

Those revelations, which today are taken for granted, also were monumental in their day. Prior to their disclosure, people confidently -- even fervently -- believed Earth was the immovable center of the universe, surrounded by all the heavenly bodies, each of which was a perfect, featureless sphere. Galileo's announcement was considered so shocking at the time he was charged with heresy by the Roman Catholic Church.

Opportunity's findings have been treated more matter of factly, with NASA officials holding a news conference and bubbling over with enthusiasm at the images Opportunity has transmitted, and members of the media duly reporting the information and displaying the rover's images.

Yet the importance of this finding cannot be overstated.

Until now, we have known for sure of only one planet on which liquid water has flowed -- and water is absolutely essential for supporting life as we know it. There are no chemical processes that will permit the formation of the long, complex organic molecules composing living organisms other than in the presence of water.

It is an extremely simple rule: No water, no life. As long as Earth was the only planetary body containing liquid water -- and, more particularly, seawater -- then it was the only place in the universe where life was possible.

Now, suddenly, there are two.

Is this a huge discovery? Huge for NASA, certainly, eager to send people to Mars in search of fossils or at least an abandoned sailboat.

I'm in the middle of Simon Morris's Life's Solutions: Inevitable Humans in a Lonely Universe. I suspect Morris is unimpressed with the latest Martian chronicle. He argues that it is very likely that we're alone in the universe. The first part of the book that makes this claim is fascinating with quirky writing and lots of good information. The rest of the book argues for the inevitability of humanity evolving. The writing and narrative of the second half is less spritely and slower going but the first part of the book is very much worth a look.

25 March

Stadium Construction and Broken Windows

USA Today reports on a study by University of Dayton economists Marc Poitras and Larry Hadley: privately financed sports stadiums pay for themselves. Tax dollars aren’t necessary to make them viable. Somehow I doubt that the study will slow the pace of publicly financed sports stadiums. While it may make it more embarrassing for franchise owners to ask for public handouts, what’s a little stigma among friends? The success of the begging strategy is mainly due to the threat of exit—owners demand public financing as a way of extracting money from cities fearful that teams will leave. There isn’t free entry into sports leagues—leagues tightly control new entrants—so cities are always vulnerable to the threat of a team leaving.

The claim that sports teams and new stadiums are good for the economy is a classic case of the “broken window fallacy” of Bastiat. The benefits are seen—the jobs building the stadium, the fans who spend money at the restaurants near the stadium. Unseen are the jobs lost elsewhere and the restaurants on the other side of town that lose business. Roger Noll and Andrew Zimbalist found that the net benefit of public stadiums is basically zero—there’s no stimulus to the local economy worth talking about. Their conclusion:


In our forthcoming Brookings book, Sports, Jobs, and Taxes, we and 15 collaborators examine the local economic development argument from all angles: case studies of the effect of specific facilities, as well as comparisons among cities and even neighborhoods that have and have not sunk hundreds of millions of dollars into sports development. In every case, the conclusions are the same. A new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment. No recent facility appears to have earned anything approaching a reasonable return on investment. No recent facility has been self-financing in terms of its impact on net tax revenues. Regardless of whether the unit of analysis is a local neighborhood, a city, or an entire metropolitan area, the economic benefits of sports facilities are de minimus.

The U of Dayton study is here.

You can find the entire Noll and Zimbalist book online here.

24 March

Child Labor

The concerns about outsourcing are partly a result of outsourcing, partly a result of the slow recovery of the job market from the recession and partly the result of the evolution ofthe tech sector. On the last point, people naturally have trouble adjusting to a world where they now earn a fraction of what they once earned. In 1999, if you knew how to design and create a web site, you made a lot of money, maybe $50 an hour and up. Now a 14 year old can design a web site. That makes it hard to keep a job designing web sites and the wages are going to be lower.

Eric Hysen is a busy entrepreneur, with a small but growing business that designs Web sites for other small businesses. He's got four clients right now, which may not sound like that many, but since Eric is 14 and in the ninth grade at Montgomery Blair High School in Silver Spring, he's got other things he has to do -- like homework.

And Eric is not alone. He's one of the many kids who are building their own Web sites -- for all kinds of reasons. Some, like Eric, are creating their own businesses. Others use their sites to further causes they support (Amnesty International, for example) or provide help for private problems (anorexia support groups and advice to other teen moms).

The rest of the story (from the Washington Post—registration required) is here.

23 March

Graduation Rates

According to a Washington Post story (registration required), most of the teams left in the NCAA tournament have low graduation rates for their players over the last four years. Some folks aren't happy about this and want schools with low graduation rates banned from the tournament:


Three-fourths of the men's basketball teams that have advanced to the round of 16 in the NCAA men's basketball tournament would have been barred from this year's event because of their low graduation rates if a proposal advocated by the Knight Commission on Intercollegiate Athletics were adopted.

Love that next to last word. What are the odds that such a high-minded proposal will be adopted? And what are the odds it will be good for student-athletes? With so much money at stake, will schools be tempted to water down course requirements and grades to make sure that students "graduate"? Maybe instead of a graduation requirement, which is a pretty blunt instriument, how about an exit exam on calculus, Thucydides and art history? With that in place, all we'll need to add is some kind of DNA testing to make sure that ringers don't take the tests.

22 March

Rising Gasoline Prices

CNN reports, relying on AAA data, that gasoline prices are rising. AAA spokesman Geoff Sundstrom gives his take on the reasons why:

Among the reasons for the current spike in prices, Sundstrom said, are new formulation requirements in several states and an increased reliance on imported oil and gasoline. Also, oil producing nations have cut back production.

Could be. But one of the interesting aspects of gas prices is not their changing over time, but variation across space at a point in time. In the AAA data, gas in California is $2.18 a gallon for regular, but only $1.57 in South Carolina. Why the big difference? Usually this creates an arbitrage opportunity—buy the gasoline in South Carolina and ship it to California and make a killing. Why doesn't this happen? Two answers. One is differential tax rates across states. But the other is alluded to in the AAA quote above—different formulation requirements across states.

 

19 March

Vaccine Shortages

Yesterday, I wrote about the beef shortage in Cuba. It's more than a shortage. A shortage simply means people want to buy more of a particular good than is available. That comes from an artificially low price.

There are really two problems in Cuba. One is that people want to buy beef and there isn't enough available. That's the shortage. But it's an acute shortage. There isn't much beef available, period.

We expect shortages in planned economies. And we expect acute shortages as well. Shortages are rare in the United States because prices and profts adjust freely. But vaccines are different. Last winter there was a vaccine shortage. They (and there are a few "theys"—clinics and manufacturers) ran out of vaccine. I suspect there's a shortage every winter. The pricing (regulated in ways that are arcane) does not encourage the manufacturers to carry much of an inventory. They make a guess, make the stuff and that's it for the year.

I don't understand the role of the government in this whole process but here's an example of how weird it is. The news came yesterday that the FDA has chosen next year's flu vaccine. From the AP story:

A Food and Drug Administration committee, meeting Wednesday by teleconference, reached a final decision on the components of the next vaccine.

The flu vaccine is reformulated every year to try to match the strains that specialists predict are most likely to strike. A decision has to be made months in advance so manufacturers have time to make the vaccine.

The key word in those two paragraphs is a very small word. The word is "a." There's no committee at the Department of Transportation that decides next year's car model. Why is there a committee deciding on the one vaccine that will be produced next year? Why don't drug comapnies compete in trying to predict the best choice of flu to fight against? The narrow answer is that there are only a few companies (two, I think) in this business. But why is that? The legal environment? Price controls? I think the answers are yes and yes but I've yet to read a clean account of how this market works or doesn't.

By the way, the committee decision was to pick a vaccinee that would fight against the most common strain from last winter. I wonder if that's good science or just the most politically defensible decision.

18 March

Worker's Paradise

Turns out there's a chronic beef shortage in Cuba. So reports this story in the Chicago Tribune (registration required). It's not surprising that in a centrally planned economy, people can't find beef (or other stuff) whenever they want. What's interesting is the lengths the government has to go to stifle the people's urge for a steak:


In communist Cuba, only the state is allowed to slaughter cattle and sell the meat. Citizens who kill a cow--even if they raised it themselves--can get a 10-year prison sentence. Anyone who transports or sells a poached animal can get locked up for 8 years.

"My brother-in-law got a 12-year prison sentence for killing 12 cows," said an accountant who lives in the cattle-raising region.

But it's not unheard of for Cubans to sneak into a pasture at night and butcher a cow on the spot. Residents have been known to descend on a cow struck by lightning, carving it up in minutes even though the meat often is charred and they risk a fine if caught by police.

That opens up a whole new answer to how you'd like your steak—well done, medium, rare, and charred by lighting. It sounds apocryphal but here's another delightful example of innovation:


Ulises Cutino, who works at a large dairy farm, recounted how scores of people scrambled to a nearby railway with knives and machetes when word spread that more than a dozen cattle had been struck by a passing train.

Some places advertise free-range chicken or milk-fed veal. But in Cuba you can get train-killed beef.

At the same time, per capita beef and veal consumption in Cuba has fallen from about 3.7 pounds per month in 1961 to just over 1.2 pounds per month in 2001, according to the United Nations. That compares with about 8 pounds of beef and veal per month consumed by the average American.

No doubt the government has pursued its beef policy to reduce red meat consumption out of concern for the health of the Cuban people. An official quoted in the story admits the shortage but claims that there is no hunger in Cuba because there's plenty of state-subsidized rice and chicken. I'd love to see the UN stats on per-capita chicken consumption in Cuba.

 

17 March

The Economics of Paternalism

When is it a good idea to tell people how you think they should run their lives? We often convince ourselves that we know better than someone else rather than accepting the idea that the other person does indeed know but just chooses a different path for a whole raft of reasons. Lecturing people on how to improve themsleves is usually either immoral, counterproductive or both. Here's Carolyn Hax's advice column from the Washington Post (registration required) that takes the right approach to the question of obesity.

A son wonders whether he should tell his mother that he's noticed how much wieght she's gained as a way of getting her to slim down. Part of Carolyn's answer:


But you're up against some steep irony, in that the very assumption driving you to speak up is the one that will render you moot -- that you, well-meaning son, know something that Mom's mirrors haven't told her already. (And that she has somehow missed the obesity-shortens-life memos, all 30 squillion of them.) Bulletin: She knows.

 

17 March

The Onset of Madness

The NCAA tournament is under way. Here are the top eight seeds:

1. Kentucky

2. Duke

3. Stanford

4. St. Joseph's

5. Connecticut

6. Mississippi St.

7. Gonzaga

8. Oklahoma St.

Notice that none of them are traditional football powerhouses. I don't think any of them have won a football championship in the last 50 years. Here are the top eighfootball teams from last December as ranked by the BCS:

1. Oklahoma

2. Louisiana State University

3. University of Southern California

4. Michigan

5. Ohio St.

6. Texas

7. Florida St.

8.Tennessee

The list is dominated by large state universities. the basketball list has lots of small, private schools.Large state schools churn out thousands of grads who want to see their alma maters excel in football. I suspect this affects the political constraints that affect University presidents in their negotiations with state legislatures. That in turn affects the importance thses schools place on athletics rather than academics. Football is expensive relative to basketball. So only the biggest schools with the help of that taxpayer money can compete. I know this doesn't go too well with our romantic view of Saturday afternoons, pom-poms and rah-rah, but I think it's true.

17 March

The Sports/Entertainment Nexxus

We understand that sports is about entertainment. But the line between the two grows ever thinner. I noticed this a few months ago when I heard a sports radio talk shop discussing first, sports movies, then movies generally. No one complained or found it peculiar. Now ESPN has launched "Page 3" on their web site, a page that's a lot of popular culture and a little bit of sports.

"Page 2" at ESPN which is nominally a sports page has this wacky bracket which is a mock NCAA tournament where the entries are items like Saddam Hussein vs. Nick Nolte and Paris Hilton vs. Jessica Simpson.The idea isn't that funny, but the execution is pretty good.

Did they name her Paris because it's the nicest Hilton?

17 March

Steroids and Outliers

Here's a guy really going out on a limb. Jim Palmer, former Orioles ace speculates on steroid use:

In an interview broadcast on a Baltimore radio station Sunday, Palmer said that Anderson's Orioles-record 50-homer output might have been tainted by steroid use. Anderson's previous best was 21 homers in 1992 and his subsequent best was 24 in 1999. He hit 16 and 18 the seasons before and after he hit his 50.

Palmer did say "might." It would be interesting to do a statistical analysis to predict steroid use. How many times in the past has a guy hit 50 homers after never hitting more than 24? How many times has a 38 year-old guy hit 73 home runs? (I think the answer to both of those questions is "never." Some outliers are generated by a strange draw from the urn of chance. And some are due to a different underlying set of forces.

 

16 March 2004

Dep't of Economic Corrections I

Quiztime. Find the mistaken economics in this Associated Press article on gasoline prices. Here's the headline:

Gasoline Demand Rising Despite High Prices

Here's a key excerpt for those too lazy to click through:

The most recent statistics from the Department of Energy (news - web sites) show that gasoline demand has been roughly 3.7 percent higher than last year over the past four weeks. At the same time, nationwide supplies of gasoline are 1.2 percent below year ago levels at 220.4 million barrels, and 5 percent below the 5-year average.

Average daily gasoline consumption for the month ended March 5 was about 8.9 million barrels, up from 8.5 million barrels a year earlier.

 

15 March 2004

Unfair Competition

A lot of people seem to be worrying that ALL of America's jobs are going to India.   After all, they have lower wages and surely this is how employers make decisions.   All they care about is cost, so if costs are lower in India, then all the jobs are going to go there.

Here's a billboard that sums up the argument.

 

In the billboard's view of the world, it's just a matter of time before every job slips away.

This is like saying that McDonald's is going to drive all restaurants out of business.   But who chooses a restaurant solely on price? Price does matter. But quality matters, too.   Same with employers.   Otherwise all jobs would go to Mexico or Haiti or Afghanistan.   But quality matters.   The average American worker is many times more productive than workers in poor countries. It is that productivity that keeps jobs here and explains our standard of living.

Can you imagine how bizarre and surreal this whole debate must sound from the other side?   Can you imagine how Indians feel about being told that they compete unfairly?

Here's a quote from Friday's Washington Post where Steven Pearlstein talked about outsourcing:

on a recent trip to India, U.S. Trade Representative Robert B. Zoellick warned officials that it would be folly to expect the United States to allow outsourcing to continue growing unless India can find a way to allow for "fair job creation on both sides."

Fair job creation on both sides?   Can you imagine how this makes an Indian worker feel about US workers?   Here we are living in the most productive economy on the face of the earth with the highest standard of living with incredible physical and human capital and we're complaining about competition from a country where people actually starve to death in the streets.   What do you call that? Chutzpah doesn't really do it justice.

15 March 2004

The Hobgoblin of Little Minds?

Peter Singer, the Princeton ethicist has written a book on the ethics of President Bush. Yesterday, Colin McGinn, a Rutgers philospohy professor, reviewed it in the Washington Post (registration required). It turns out that President Bush is not the most moral man. It turns out he is expedient. Bush may be the first President, nay, the first politician, whose policy positions shift with the political wind. The review's closing paragraph sums it up nicely:


The conventional view of George W. Bush is that, while he is a man of marked intellectual limitations, he is governed by a consistent set of deeply held moral convictions. Singer's book refutes this comforting myth. Bush is a man of sporadically good moral instincts, perhaps, as with his AIDS initiative, but he sways inconsistently and opportunistically in the political breeze, and has no idea how to make his beliefs fit coherently together.

Why does this quote remind me of Claude Rains? (Hint: Google "Rains shocked Casablanca")

In the opening paragraph, the reviewer talks wistfully about the benefits of politicians studying philosophy. It reminds me of people who would tell me I should explain how international trade works to Richard Gephardt. If he understood it, surely he would be less protectionist.

An old professor of mine, George Stigler, used to call this the Ralph Nader theory of regulation. The problem with government in this view is that the "wrong people" get elected. If we could just get the right people, the ones who majored in philosophy or maybe even economics, then everything would work out fine. The alternative viewpoint might be called the public choice theory, the branch of economics that argues that incentives affect politicians in the way they affect everyone else.

There was a lovely example of this last week when Mark McClellan who is up for Congressional approval to be head of the FDA recanted his previously held views on Canadian drug re-importation.

 

12 March 2004

Oh Say Can You Not See

An incredible admission from Chinese authorities: the Great Wall, allegedly the only man-made structure visible from outer space is in fact NOT visible from outer space. Astronaut Yang Lewei admits he couldn't see it during his 21.5 hour space trip last year. Another myth bites the dust.

The next thing we'll learn is that if every one in China gets up on a step stool and jumps off it simultaneously, there WON'T be a tidal wave that will demolish San Francisco and LA. (This was one was one of the favorites of my youth among my friends.)

Here's the highlight from the BBC's story:


An unnamed official was quoted in the Beijing Times as saying the textbook publisher had been asked to remove the relevant passages.
"Having this falsehood printed in our elementary school textbooks is probably the main cause of the misconception being so widely spread," the paper said.

I wonder what else is in those textbooks.

I think it was in the Gulag Archipelago that I read the story that when Beria fell out of favor and was killed, they excised him from the encyclopedias and merely expanded the section on the Bering Sea by an additional forty pages. What's great about that story is there's no way of knowing whether the part about the Bering Sea is a joke or the total truth.

11 March 2004

Will Hubble Rise from the Ashes?

NASA recently announced that the Hubble telescope will be left to its own devices—the last planned repair/maintenance trip by a space shuttle will not be made and it will eventually lose its capabilities to see accurately.

Not so fast, says Barbara Mikulski, who concindentally is a Senator from Maryland, the home of the Goddard Space Center that controls Hubble. NASA is going to reconsider.

I've also noticed in recent weeks a lot more Hubble pictures gettting news play. I'm sure it's just a coincidence. Love those pictures myself. Just not sure the money isn't better spent elsewhere rather than beautifying my desktop and stimulating my sense of wonder.

Maybe we should see if a private organization would like to pay for the next round of repairs and have ownership of the images. Wonder what the top bid would be.

9 March 2004

The Choices We Make

Here's a very interesting picture from a Joint Economic Committee study on health care spending, I noticed in a comment by Alex Tabarrok at MarginalRevolution.com:

The picture is a little confusing because a quick glance makes it looks like a supply and demand graph. The red line is out-of-pocket share. It's like a price. In 1960, a dollar of health care cost the average consumer about 50 cents. Today, that "price" is down to about a dime. For very dollar I spend on health care, someone else (the government, my insurance company) pays 90 cents and I pay ten. So it's not like a normal price where lower mean better. Lower here only means lower to the individual. Someone else has to make up the difference.

Not surprisingly perhaps, as Alex points out, when price falls, people want more than they wanted before. That explains the blue line, a lovely application of what economists call incentives. The five-fold drop in price has resulted in about a five-fold increase in real per-capita spending.

Here's my question. Why has the price fallen? One answer is obvious—the growth in government subsidies to health care and the growth in employer-provided health care. But those are only the proximate causes. The puzzle is why those programs were structured in a way to lower the cost to consumers of an extra dollar of medical care, particularly the privately provided health insurance.

Another way to ask the question: why do private health care plans have such a low co-pay? In many plans, you pay a flat amount of $10 or $20 no matter what you actually have done. I understand the appeal of such plans. But the costs are hidden. They end up costing a lot of employees a lot of money in higher premiums. Why is there so little variation in choices? I suspect the answer has something to do with a combination of tax law and various regulations and mandates.

9 March 2004

Killing Us Softly

We are eating ourselves to death. So says a study from the Center for Disease Control (CDC) in this story reporting the findings.


"It's [obesity] going to overtake tobacco" if the trend continues, Gerberding [CDC director and an author of the study] said. "At CDC, we're going to do everything we can to prevent it," she said. "Obesity has got to be job No. 1 for us in terms of chronic diseases."

Calling it a chronic disease is an interesting example of framing. One effect of this noenclature is to suggest that we, the masses have no control over our weight. Here's my take on the economics and politics of this issue.

 

4 March 2004

Ralph Nader's Legacy

In the current issue of the New Yorker, Hendrik Hertzberg in the Talk of the Town assesses Ralph Nader's legacy:

More than any other single person, Ralph Nader is responsible for the existence of automobiles that have seat belts, padded dashboards, air bags, non-impaling steering columns, and gas tanks that don’t readily explode when the car gets rear-ended. He is therefore responsible for the existence of some millions of drivers and passengers who would otherwise be dead. Because of Nader, baby foods are no longer spiked with MSG, kids pajamas no longer catch fire, tap water is safe to drink than it used to be, diseased meat can no longer be sold with impunity, and dental patients getting their teeth x-rayed wear lead aprons to protect their bodies from dangerous zaps.

The point of the piece is that by running for President again, Nader is jeopardizing this legacy. By running again, Nader may again be the reason that Bush is President, a President who will roll back the environmental and consumer protections that Nader created.

I am skeptical that Nader made Bush President in 2000. You can't simply assume that every vote that Nader received was a vote lost by Gore; I assume a lot of people voted for Nader who wouldn't have voted otherwise. I'm also skeptical of the thesis that Bush is poisoning the water and killing consumers. But I want to think about the other claim in Herzberg's piece, that Nader is responsible for automobile safety, consumer protection and so on.

It might be true. But if you look at trends in safety over the long run, there's no obvious effect from Nader or other factors people often point to, such as the 55 mile an hour speed limit's effect on auto safety. Almost any measure of safety, fatalities per million miles driven, mining deaths per hour worked, and so on, show a steady decline over time any period of time since 1900. So OSHA will claim that sinceit was established it has cut accidents in half, but will fail to mention how much accidents declined before OSHA was established.

 

Here are safety deaths (measured in '000s) per million miles driven, 1900-2001. The data are taken from the Census Bureau.

 

An alternative explanation to Herzberg's is that as we get wealthier as a nation, we choose to spend part of our wealth on making our lives safer. We demand safer cars, safer jobs and so on. These improvements aren't free but we're willing to spend more on safety as we get richer. Markets respond to these demands by having car makers compete by making safer cars. I would like to see a careful study of which of these explanations, the market vs. the activist is more powerful at explaining the trends over time.

 

2 March 2004

Saving Social Security

Workers under the age of 30 often ask if social security will be there for them when they retire. We can surely reform social security. But should we want to? Would it be better for the next generation to take responsibility for their own retirement? Robert Kuttner and I come down on the opposite sides of this question in this interview on National Public Radio's Talk of the Nation. You can listen to our conversation here.

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