Is it the best of times or the worst of times?

In the Spring 2009 Journal of Economic Literature, Christian Broda, Ephraim Leibtag and David E. Weinstein report on "The Role of Prices in Measuring the Poor's Living Standards". They find that the poor pay less, not more. And once this is properly accounted for, poverty rates in America are much lower than we hear via the daily drumbeat -- and real wages higher. Read it.

Multiplier sprung a leak

Today's WSJ reports "Europe Listens for U.S. Train Whistle ... Europe's engineering and rail companies are lining up fo some potentially lucrative U.S. contracts for high-speed rail."

I have been told numerous times that its the multiplier effect that matters. Forget about negative NPVs.

But what if we get neither? Multipliers do spring leakages when the spending is abroad.

The special world of politics

PERC has just published 7 Myths About Green Jobs. Read it. I thought that there was just one: There are no trade-offs.

Nevertheless, wherever I go, I see smart people (from the President on down) espouse the no-trade-offs religion. And they do this with impunity. To be sure, they are careful to be on guard for anyone espousing flat-earth theories or creationism.

Bond markets are reflecting another unpleasant trade-off. When government debt explodes so that politicians can promise everyone that they will "solve" every problem, bond traders get nervous and push up interest rates. And what will that do to the recovery that the President announced in Beverly Hills just last night?

Empathy

"Empathy" is much in the news these days. Trouble is that it only embellishes the sanctimony of politicians bearing gifts.

The June 8 Forbes includes "Wal-Mart's Weight Effect. Surprisingly, discount retailers make people healthier." The piece cites research that highlights how the income effect of low prices can trump the substitition effect. Lower prices have the effect of higher income and encourage the purchase of fewer junk food items.

The piece by Art Carden concludes, "Do you want to make the poor healthier? Then restricting the growth of discount chains is the last thing you should do. Instead repeal programs that distort incentives -- like agricultural subsidies that make junk food made from corn and soybean derivatives artificially cheap. Next, cut payroll taxes. With more take-home pay in their pockets, lower-income workers can afford to buy foods that are better for their health."

But do any of these policies lend themselves to empathy posturing?

Where are those Greens?

The June, 2009, Reason features "It's Alive! Alternative energy subsidies make their biggest comeback since Jimmy Carter". Science has advanced, but politics has not.

Not included in the online version is Lynne Kiesling's excellent companion piece "Electric Intelligence ... Establishing smart grid requires regulatory reform not subsidies ... President Barack Obama included $4.5 billion in smart grid subsidies in the stimulus package Congress enacted in February. But absent substantial regulatory reform, mostly at the state level, such federal spending may simply reinforce a century-old model that is all but obsolete."

The technology has advanced, but the textbook clunker rationalization of "natural monopolies" has been seized by the utilities and their politician allies to assure that the money will be spent, but that the grid status quo endures. It could have been the other way around.

Where is the Green lobby when it could do some good?

Renewed emphasis

Greg Mankiw has a sensible piece in today's NY Times ("The Freshman Course Won't Be Quite the Same ... The financial crisis will require subtle changes in teaching"). Keep the basics, but elaborate re the financial sector, leverage and monteray policy.

Behavioral economics gets a lot of press because everyone gets to feel virtuous about thrashing the rational (straw) man. But it's just a model! And all sensible people point that out.

What Mankiw's piece does not address is the role of hubris. Being a part of the human condition, it afflicts those in the private as well as the public sectors. So we want checks on these human tendencies. Competition and the possibility of bankruptcy (where these are not pre-empted by you-know-who) play this role in the private sector. But electoral competition and a vigilant electorate are not up to the job in the public sector.

These are simple thoughts, but they bear emphasis in light of Mankiw's discussion.

Cap and Trade = Baptists and Bootleggers

How could it not?

Bjorn Lomborg calls if "The Climate-Industrial Complex" in yesterday's WSJ.

David Theroux comments further.

History and art

The carnage in eastern Europe unleashed by the Nazis has been described many times. Richard J. Evans' The Third Reich at War is nevertheless especially haunting because he cites the everyday diaries and letters sent home by German soldiers. These were not just the SS. Most of them eagerly engaged in unfathomable barbarity, routinely and sadistically dispensed against the Jewish populations they conquered. Before there were death camps, there were nooses, kerosene and matches, pistols and automatic weapons, nail-studded clubs, truncheons and attack dogs -- not to speak of cold, starvation and disease.

The author probes the combinations of racist, nationalist and religious impulses that drove the murderers. The enthusiasm of the Nazis' many eager helpers among the Polish, Latvian, Lithuanian and Romanian(and other) populations is documented.

Reading these materials makes one ache for demonstrations of acts of humanity, courage and heroism. I had never seen Hiding and Seeking, which my wife and I viewed last night. It is about Jewish survivors, some of whom were sheltered by courageous Poles, and the pilgrimage that three generations of the Jewish family make to rural Poland to seek and thank their saviours. Both the Jews and the Poles are conflicted and the movie shows this masterfully. See it.

New world symphony

Megan McArdle asks whether California is to big to let fail and what sort of moral hazard would be involved in this sort of bail out. And is this the end of federalism? The U.S. Treasury's (actually the Fed's) printing presses may soon be available to state legislators as well as local officials.

Just before California's legislators agreed to the package that was soundly defeated at the polls yesterday, I attended an event at which California House speaker Karen Bass lamented that the rest of the world could move forward if just one or two Republicans would "get it" and get over their narrowly partisan hang-ups. Just a few days later, she got her few Republican votes. And yesterday it all went up in flames. I have no idea whether the speaker was being disingenuous or whether she had spent too much time in the Sacramento echo chamber. Perhaps some of each.

If Bastiat wondered whether government is the illusion that everyone can live at the expense of everyone else, what would he say and do in a world of unfunded liabilities and the power of the printing presses extended to bail outs that may soon extend to local politicians??!

The male animal

Most people are overconfident -- even though not everyone is above average. Given the choice beyond systemic underconfidence and overconfidence, I can see arguments for the latter. Animal Spirits will probably do more to end the present recession than all of the industrial policy coming from the political establishment. Indeed, we hope that the former is not defeated by the latter.

This study reported in the May/June 2009 Federal Reserve Bank of St. Louis Review presents findings from a study that corroborates that overconfidence is international. And, other things equal, less of it is shown by males.

The survey says

Evoking American Exceptionalism is always a good conversation starter. And post-2008election, I encounter many who express relief because the world should now think better of us. Putting aside much of the civilized world, I have had trouble embracing the idea that getting the continent that gave us Hitler, Stalin, Franco, Moussolini, Petain (to name a very few) not so long ago is by any stretch morally superior.

This morning's WSJ includes "Getting to Know You" by Naomi Schaefer Riley. I liked this passage:

Political scientists Robert Putnam of Harvard and David Campbell of Notre Dame are trying to find out. Their book, "American Grace: The Changing Role of Religion in American Civic Life," won't come out until next year, but the two scholars shared some of their findings at a recent gathering sponsored by the Pew Forum on Religion and Public Life.

The authors said that they had conducted a survey of 3,100 people in the summer of 2006 and reinterviewed the same people a year later. They found that Americans have remarkable rates of "religious bridging," a phrase they use to describe relationships between people of different faiths. Such bridging -- at least in part -- accounts for Americans' warm feelings toward people of other faiths.

If you ask Americans about their five closest friends -- the sociological equivalent of T-Mobile's "fave five" -- it turns out that, on average, between two and three of them are of other faiths. And more than half of Americans are actually married to someone of a different faith from the one in which they were raised. Just to be clear: For two people to be counted by Messrs. Campbell and Putnam as of different faiths, they must be from significantly different traditions; if they are both Protestants, one must be evangelical and the other mainline.

These are remarkable findings. While the authors have not broken down data from other countries yet, one need not spend a lot of time in France or Saudi Arabia to realize that these kinds of interfaith friendships and marriages are the exception, not the norm, there.

War stories

Stories on and about the financial crisis (even what to call it) come at us almost daily. Some of the best ones are in the New Yorker, including the recent one by Nick Paumgarten. The bon mots flow.

And speaking of stories and story telling, I am reading Ed Leamer's new Macroeconomic Patterns and Stories: We are Pattern-Seeking, Story Telling Animals.

Our best data and best econometrics actually tell us very little until we have good stories. It's an old point, but Leamer tells it best. In terms of aha-moments per page, very few authors that I have read can touch what Leamer has accomplished.

Up from tribalism

I, for one, am happy to see the Pope in Jerusalem. James Carroll's Constantine's Sword: The Church and the Jews keeps coming to mind. Tribalism was once universal, and Europe's rabble was mired in tribalism for far too long. But it also took its elites (in Rome, Berlin, Paris, etc.) a very long time to rise above it. One can say that it took the Holocaust.

Breaking news

From today's LA Times, this speaks for itself.

White House calls for $17 billion in budget savings
The administration, which is proposing record deficits in its $3.55-trillion budget, calls its list of suggested cuts a worthy start.

Reporting from Washington — The Obama administration plans to deliver to Congress today a guide for saving about $17 billion in federal spending next year -- as part of the $3.55-trillion budget for 2010 that the president has proposed.

Acknowledging that the savings would be a fraction of what President Obama is asking Congress to spend in the record federal budget, the White House called it a worthy start.

"Seventeen billion, to anyone's accounting, is a significant amount of money -- that's in one year alone," a senior administration official said, requesting anonymity when discussing administration planning. "This is an important first step," the official said, "but it is not the end of the process."

About half of the proposed savings come from the Defense Department -- largely cuts that Secretary Robert M. Gates has recommended, such as curtailing purchases of F-22 fighter jets and development of a new Marine One presidential helicopter fleet.

The White House is proposing cuts in 121 areas, including about 80 the administration had not previously disclosed.

Among the proposed cuts:

* A Long Range Radio Navigation System that has been rendered obsolete by Global Positioning System satellites, yet costs $35 million a year -- "perpetuated by inertia," the official said.

* Abandoned mine land payments, with the federal government continuing to pay states for mine cleanups after they are finished, at a cost of $142 million a year.

* Even Start, an early-childhood education program that costs $66 million a year. Though supporting Head Start and other early childhood programs, the White House called this one inefficient.

* An attache for the Department of Education in Paris, France, who costs the agency $632,000 a year.

"We are trying to cut back on the things that don't work and spend more on the things that do," the official said.

While promoting possible savings, the Obama administration also is proposing record budget deficits, with a promise of cutting the annual deficit in half by the end of the president's term. The deficit is expected to exceed $1.2 trillion in the 2010 budget year.

"We inherited . . . a large budget deficit. . . . We necessarily had to add to it," another senior administration official said Wednesday. But "our long-term growth requires that we tame these deficits. . . . So the president ordered a line-by-line review of the federal budget . . . so that we could make room for the things that we truly do need."

Very very nice

Via Private Sector Development Blog, have a look at this. The exponential growth of cell phone networks and use in rural and poor areas of the world means that wonderful applications follow.

Follow the twins

Studies of twins are among social scientists' most powerful tools. And everyone knows that North and South Korea differ dramatically in just about every way. Twenty-five years ago, the same could be said about East vs. West Germany, and Taiwan-Singapore-Hong Kong vs. mainland China. Culture was held constant, so performance differences could be pinned to policies. The simple conclusion was always that socialism does not work.

In "A Tale of Two Islands", the authors compare the performance of Barbados and Jamaica. Similar history and background, but different outcomes and contrasting policies. Statism, again, comes up way short.

No shame

This is an old theme, but it cannot be ignored. Those who make a career of bleeding for "inequity" in America are culpable (and hypocritical) via their support of the education establishment. At least Arlen Specter was up-front on what it's all about.

Last Sunday's LA Times included this story about the impossibility of firing incomptent (and worse) LA public school teachers. The details of the story are chilling. Today's Times follow-up editorial mentions that, "Striking a balance between students' rights and legitimate job protection can be tricky, but it is also achievable." Huh? And who will do all this?

Today's WSJ calls attention to who in Washington DC opt to send their own kids to private (or suburban) schools, but work hard to take a few meager vouchers away from poor families. (Here is another take from today's WSJ)

I know the story. The much preferred way to "help" the riff-raff is to funnel more public money to corrupt and incompetent big-city school districts. Politicians do know how to count votes.

Cases and lessons

If you are in business or in business school, cases studies are oxygen. The studies that find their way into the curriculum are just the sampling; you want to spend your whole career learning about the poignant episodes as they unfold. Billion Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years is of a genre and a mostly a good read. The stories are worth knowing, but the authors spend too much time and space reiterating the obvious.

Yesterday's NY Times included "Encyclopedic Knowledge, Then vs. Now ... Ultimately Encarta couldn't match a search engine." Most of us are now big fans of Wikipedia and naturally smile at the big Microsoft misstep. Well, I never predicted Wikipedia and I do not know who did. The nature of progress is that there will be many misses before the market selects a hit.

Being open to new approaches and letting the other models fail is all we have. Sounds simple, but it's not. A substantial part of what politicians do all day is to try to stop or police new approaches while they do what they can to prop up the failures.

Free advice

What's a blog for if not to advise the President of the U.S.? Barak Obama will now make his first appointment to the U.S. Supreme Court. Why not go with the smartest man in the land? That would be Richard Epstein. Anyone who does not believe me should read Epstein, in particular his latest book, Supreme Neglect: How to Revive Constitutional Protection for Private Property.

I agree, it's a longshot.

Rising star

City life breeds the ideas that are essential to economic success. Economists are late to the party, but now working hard to incorporate the insights of Jane Jacobs. Here and here are some of the examples of recent progress by urban economists.

Some very smart people are making progress towards a better understanding of how economic growth, human capital, innovation, agglomeration, location and urban structure interact.

Richard Florida has also taken a crack at the problem. But his critics (notably Joel Kotkin) chide him for his focus on a "creative class" that is seemingly defined in terms of just the "hip, cool, single, culture-oriented". Some of my best friends are pretty creative, but not at all hip, cool, single, etc.

Now comes this via Pierre Desrochers. There are predictable criticisms and there are less predictable criticisms. But who among us is so skilled (or so lucky) that he is attacked from, both, the right and the left? Florida's star is still rising.