Monday, September 26, 2011

Regime uncertainty

Donald Boudreaux contrasts two theories of depression, the Keynesian and one from Robert Higgs:

Perhaps ironically, one of the most powerful challenges to any Keynesian diagnosis of economic ailments also focuses on inadequate investment spending, but from a wholly different perspective. That challenge is today most closely associated with the economist Robert Higgs.
Higgs' careful look at the data on the Great Depression and World War II convinced him that (1) a U.S. economy producing genuine prosperity wasn't restored until 1946, and (2) investors hunkered down, especially from 1935-40, because New Deal regulations -- along with President Franklin Roosevelt's increasingly vocal hostility to enterprise and successful risk-takers -- created too much uncertainty about how government would treat profits and wealth accumulation.
The "regime uncertainty" -- described by Higgs as "a pervasive uncertainty among investors about the security of their property rights in their capital and its prospective returns" -- unleashed by actual and threatened New Deal interventions made private innovation and entrepreneurial effort simply too unattractive. So private investment spending largely ground to a halt during FDR's reign.

Higg's view is shared by Amity Shlaes in her The Forgotten Man: A New History of the Great Depression.
Both are essentially arguing that the focus should not be on the demand side, as both Keynesians and monetarists have argued, but on the supply side. To understand the reason that recovery was so slow in the Great Depression, and by extension the reason we see so little recovery now, look not to the theories of macroeconomics, but to some of the literature on economic growth and development that argues that secure property rights and an impartial legal system are keys to economic growth.

The price of sex

From "Cheap Dates" in the New York Post:

“Every sex act is part of a ‘pricing’ of sex for subsequent relationships,” Regnerus said. “If sex has been very easy to get for a particular young man for many years and over the course of multiple relationships, what would eventually prompt him to pay a lot for it in the future -- that is, committing to marry?”
So, what can women do to return the balance of sexual power in their favor? Stop putting out, experts say. If women collectively decided to cross their legs, the price of sex would soar and women would regain control of the market. Like a whoopie cartel.
“Let’s be realistic: It’s not going to happen here,” Regnerus says. “Women don’t really need men and marriage -- economically, socially, and culturally -- like they once did. What I hear in interviews with women is plenty of complaining about men or about the dating scene, but their annoyance is seldom directed at other women.”

There is a prisoner's dilemma problem involved--what looks good to the individual may not be good for the group. Plus it is arguable that the end effect of the women's liberation movement of the 1960s and 70s may have been to make many women worse off, not better.

Tuesday, September 20, 2011

Less than .9

How low can fertility rates fall? This is from The China Post in Taiwan reporting that many married couples abort their first pregnancy for financial reasons:
Statistics compiled by the Ministry of the Interior (MOI) showed that Taiwan's total fertility rate stood at a low of 0.895 in 2010, far lower than the level of 2.1 needed to maintain a stable population structure. This constituted a warning signal for the island's declining population.
The experiences of Taiwan and Japan suggest that China, having reduced its fertility rate, will not be able to increase it even when it abandons its one-child policy.

Monday, September 19, 2011

Thursday, September 8, 2011

Barack Obama and affirmative action

I recently stumbled on this quotation in a letter that Barack Obama wrote when he was at Harvard:
I must say, however, that as someone who has undoubtedly benefited from affirmative action programs during my academic career, and as someone who may have benefited from the Law Review's affirmative action policy when I was selected to join the Review last year, I have not personally felt stigmatized either within the broader law school community or as a staff member of the Review.

Three things jumped out at me.

1) Opponents of affirmative action see three possible harms from affirmative action. The most obviously harmed are those who would otherwise get positions that go to the affirmative-action candidates. These people are usually white or Asian. Second are those minority members who could attain the positions without affirmative action. They are the ones that may suffer from being stigmatized. Third are those who get positions from affirmative action but are not really qualified. They are usually helped but can be harmed if they are put into situations in which they are not competitive; the claim is that they might prosper and do better in the long run in a less competitive situation. Since Obama has identified himself as being in the third group, he should not be claiming that he was immune from the harm that is posited to those in the second group.

2) This admission undercuts the often-heard argument that Obama's Ivy League credentials and his position at the Law Review are proof of superior intellect.

3) Obama may be the greatest success story of affirmative action because without affirmative action Obama would not have had the Ivy League credentials that were essential for his election as president.  If Obama is an excellent president, then his presidency validates of the wisdom of affirmative action. I have not seen this argument made proponents of affirmative action, perhaps because of point two above.

Samuelson on Social Security

 From Jonathan Last:
The first person I’ve found drawing the parallel is economist Paul A. Samuelson. In the November 13, 1967 Newsweek Samuelson defended Social Security by pointing out that it was linked to population growth and that “A growing nation is the greatest Ponzi scheme ever devised. And that is a fact, not a paradox.” (I found this quote in Phillip Longman’s excellent essay “Missing Children,” in the latest issue of the journal The Family in America. I can’t find the original Newsweek cite to provide full context, but Longman says that Samuelson was defending Social Security and I’m happy to trust him because Phillip Longman is stone-cold awesome.)
This view is really not that surprising. Laurence Kotlikoff writes in Jimmy Stewart Is Dead: Ending the World's Ongoing Financial Plague with Limited Purpose Banking:
For its part, economics places no moral stigma on the words: "Ponzi scheme." Indeed, there is a significant economics literature concerned with the question of whether Ponzi schemes--chain letters--are preferred investments for everyone. (p. 61)
Kotlikoff goes on to say that if population or productivity is growing faster than the rate of interest, social Ponzi schemes work well. However, when population growth and productivity slow or come to halt, the programs will run into trouble.

(Kotlifkoff's proposal for reforming the financial sector is to abolish limited liability for any financial institution that uses leverage.)

update: A fuller version of the Samuelson quote is here.

Update 2: More on people recognizing that Social Security is structured in the same way a Ponzi scheme is.