Saturday, August 28, 2010

An economist does not free ride but everyone else does

I occasionally review books for Choice Magazine, a publication of the American Library Association. About six weeks ago I sent my contact person this e-mail after submitting a review via their website:
I just submitted a review via your website at I guess no one has ever mentioned that when you get to the end of the process, there is a link at the bottom that says "Choice Home Page." Clicking that link gets you to a error page that says "Sorry, Page Not Found."

It is rather amazing that this bad link is still there, but maybe it is there because no one has ever bothered to report it.
I got back this response:
Thanks very much for notifying us about this broken link. You are the first to report it! The CHOICE home page was redesigned about a year ago and the URL changed, and apparently we missed updating this link.
I'll report it to our tech people.

Research says that it is economists who free-ride, but in this case for a year no one took the time to report this little glitch even though hundreds of people from almost every academic discipline must have encountered it. The cost of the error to any one individual was minimal, but the overall benefit of fixing the error was certainly greater than the individual cost of reporting it. It was finally fixed when an economist took the time to do what was good for the group and report the problem.

Friday, August 13, 2010

Obama's intelligence

I read some of this interview from April 2, 2009 and part of it intrigued me enough so that I still remember it, especially this exchange:
Robinson: You are quoted in the Boston Globe, "I like Obama but I reject the suggestion that he is an intellectual. He is an activist merely mimicking the mannerisms of an intellectual." How good is Obama's mind?
Epstein: His mind is pretty good, but it is a clever "means-ends" mind. He has never written a scholarly article in his entire life. 
 I still do not know exactly what that a clever "means-ends" mind is.

Epstein's assessment here is rather frightening, but may explain a lot of what we have seen in the past 18 months:

But, the difficulty you get, for someone who has only worked in that situation, is that he believes the creation of private wealth is something the government cannot influence or destroy. He has many fancy redistribution schemes, in addition to his health plan and new labor laws, which are all wealth killers.

Thursday, August 12, 2010

Two in one

Two of my favorite ideas, feedback and the importance of rent-seeking, made it into a book review at The Wall Street Journal. The book in question was asking why Great Britain was the first to industrialize.
Mr. Mokyr's answer—articulated in densely packed but gratifyingly lucid prose—is that in Britain ideas interacted vigorously with business interests in "a positive feedback loop that created the greatest sea change in economic history since the advent of culture."
The reason for Britain's exceptionalism, Mr. Mokyr says, lies in the increasing hostility to rent-seeking—the use of political power to redistribute rather than create wealth—among the country's most important intellectuals in the second half of the 18th century. Indeed, a host of liberal ideas, in the classic sense, took hold: the rejection of mercantilism's closed markets, the weakening of guilds and the expansion of internal free trade, and robust physical and intellectual property rights all put Britain far ahead of France, where violent revolution was needed to disrupt the privileges of the old regime.
Implicit in this argument is that countries that cannot develop are locked in a rent-seeking trap, and my limited knowledge of economic develop suggests that is a plausible argument. Unfortunately, rent seeking seems to be increasing in the U.S. If there a feedback loop in which rent-seeking in some way creates more rent seeking, then deep pessimism is in order.

(found via Newmarks Door.

Wednesday, August 11, 2010

Buyers' remorse

I liked this conclusion to an opinion piece in the Wall Street Journal, though I think he is being a bit too optimistic:
Slowly, the nation has recovered its poise. There is a widespread sense of unstated embarrassment that a political majority, if only for a moment, fell for the promise of an untested redeemer—a belief alien to the temperament of this so practical and sober a nation. 
I know people who still cling to the belief that we have a redeemer as POTUS.

The coming fiscal crisis

The Congressional Budget Office put out an amazing document on July 27, 2010 titled "Federal Debt and the Risk of a Fiscal Crisis " The purpose was not to say that there was no risk of a fiscal crisis. On the contrary, the document outlined how fiscal crises come about and said that the U.S. will eventually have a fiscal crisis unless the government greatly reduces the level of deficits:
But as other countries’ experiences show, it is also possible that investors would lose confidence abruptly and interest rates on government debt would rise sharply. The exact point at which such a crisis might occur for the United States is unknown, in part because the ratio of federal debt to GDP is climbing into unfamiliar territory and in part because the risk of a crisis is influenced by a number of other factors, including the government’s long-term budget outlook, its near-term borrowing needs, and the health of the economy. When fiscal crises do occur, they often happen during an economic downturn, which amplifies the difficulties of adjusting fiscal policy in response.
The most arresting passage in the piece, though, was this one:
According to the Congressional Budget Office’s (CBO’s) projections, federal debt held by the public will stand at 62 percent of GDP at the end of fiscal year 2010, having risen from 36 percent at the end of fiscal year 2007, just before the recession began. In only one other period in U.S. history—during and shortly after World War II—has that figure exceeded 50 percent.
The Democrats want to blame Bush for this, but there is an inconvenient truth that they have to ignore to do that: they captured control of congress in the 2006 elections and have had control the purse strings since then.

You can find a link to the document on Greg Mankiw's blog here, or get the document directly here.

Tuesday, August 3, 2010

Problems in academia

The Wall Street Journal has a review of a book critical of higher education. A sample paragraph:
A lot of criticism of academia hasn't stuck in the past, Mr. Hacker and Ms. Dreifus imply, because people have almost unthinkingly believed in the economic power of the degree. Yes, you didn't learn a lot, and the professors blew you off—the reasoning went—but if you got a diploma the job offers would follow. But that logic may no longer be so compelling. With the economy tightening and tales of graduates stuck in low-paying jobs with $50,000 in student loans, college doesn't look like an automatic bargain.
 There is also an interesting comment on salary differences in academia, which is the center of concern about fairness in pay:
Take the adjunct issue. Everyone knows that colleges increasingly staff courses with part-time instructors who earn meager pay and no benefits. But who wants to eliminate the practice? Administrators like it because it saves money, professors because it saves them from teaching labor-intensive courses. And adjuncts themselves would rather continue at minimum wage than leave the profession altogether. In a "coda," Mr. Hacker and Ms. Dreifus declare that "it is immoral and unseemly to have a person teaching exactly the same class as an ensconced faculty member, but for one-sixth the pay."
It is interesting that although the faculty at the elite colleges fret over the inequalities of American, they are an important part of the system that promotes inequality.