Russell Roberts's Blog, page 1471

Longhorns vs. Badgers

So are public schools in Texas worse than public schools in more 'progressive' states such as Wisconsin – as Paul Krugman, among others, argues?  Read this post from Iowahawk and decide for yourself.  (HT Steve Pejovich)

The Great Distortion

From Tyler at Marginal Revolution:

The median earnings of full-time Canadian workers increased by just $53 annually — that's right, $53 annually — between 1980 and 2005.

Here is more, or here.  This is one reason why I do not adhere to some of the progressive or "class struggle" explanations of relative stagnation in median income growth.  Canada is not ruled by the so-called Republican Right.

Tyler argues in The Great Stagnation that the slow-down or stagnation in median income growth is due to a slow-down in technological change and innovation.

Perhaps. But the numbers on median income are distorted by demographic change. When divorce rates rise, women who were not in the labor force suddenly find themselves looking for work. The number of workers and the number of households rises faster than the population. And the median slides down as a statistical artifact–there are many new households created where the head of a household, typically a woman, earns less than the median.

So changes in median income over time do not capture progress for any one person, certainly not the person who was at the median in 1980.

Here are statistics on divorce in Canada:

Years
No. ofdivorces
Rates per 100,000 population.
Rates per 100,000 Married Couples


1921
558
6.4
N/A


1941
2,462
21.4
N/A


1961
6,563
36.0
N/A


1968*
11,343
54.8
N/A


1969
26,093
124.2
N/A


1981
67,671
271.8
1,174.4


1985**
61,980
253.6
1,103.3


1986
78,304
298.8
1,301.6


1987***
96,200
362.3
1,585.5


1990
80,998
295.8
1,311.5


1994
78,880
269.7
1,246.3


1995
77,636
262.2
1,221.9


* Reform of Divorce Laws

** Divorce Act ("no fault")

*** Peak year

I didn't make the chart. I don't know why they left out he 1970s. But it's clear that divorce rates surged in the 1980s if not earlier and stayed very high. My hypothesis is that many of the women who divorced found themselves in the bottom half of the income distribution and that pulled the median down.

So a snapshot of median income in 1980 and 2005 that reveals essentially no change is very misleading. They are not the same people. Not because some have died or been born in the meanwhile, exiting and entering the data sample you observe, but because there has been a radical change in the nature of the family and who is in the workforce. There has been an increase in workers and households well above the rate of population growth, and that increase is concentrated among below-median earners. That means that if you looked at the median income worker in 1980, that person could have made great progress over time but it is obscured and distorted when you look at the two medians over time.

A similar pattern occurs in the US starting in the 1970s. If you look at panel data in the US–that is if you follow the same people over time, there is growth in every quintile of the income distribution and the biggest growth occurs among the poorest households. This can be true even though the median is unchanged across all workers. These data are from the Pew project on income mobility, comparing family income from the late 1960′s to the late 1990;s, when supposedly the median stagnated and the rich got all the gains. The panel data tell a very different story relative to the snapshot of the two medians over time.

Does anyone know of panel data for Canadian workers or households?

 

Sachs Channels Gandhi

Here's a letter to Les Echos (HT a French friend):

In "Need Versus Greed," Jeffrey Sachs asserts that current market-based forces of economic growth are unleashing upon humanity a "calamity" of resource depletion and environmental destruction (March 1).  Unfortunately, Prof. Sachs views economic growth through a lens of Gandhian banalities.

On matters of economic growth, the late Julian Simon was far more insightful than was the late Mohandas Gandhi.  (What, really, does it mean for Gandhi to say "there is enough on Earth for everybody's need, but not enough for everybody's greed"?  Jingles aren't analyses.)  Simon argued that, in markets that are at least reasonably free, resources are continually being discovered and created by human ingenuity – ingenuity powered by the drive for profit and guided by market prices which rise and fall in response to changes in patterns of consumer demands and to changes in resource supplies.

History overwhelmingly supports Simon's thesis.  Despite two centuries of unprecedentedly high and sustained economic and population growth, supplies of nearly all resources are today greater than they were at the dawn of the industrial age, and the environments that human beings inhabit are immeasurably cleaner and healthier.  As a result, we are now living longer and in better health than ever before.

Why does Prof. Sachs suppose that recent upticks in the rates of economic growth of some Asian countries will reverse this 200-year-long process?

Sincerely,

Donald J. Boudreaux

It really is a mystery why people such as Sachs believe that, having had 200-plus years of experience with high-growth capitalism – and its associated steady increase in resource supplies, living standards, population, and life-expectancy – humanity is somehow now finally on the verge of a "calamity."  Surely if the incredible economic progress of the past two centuries has caused chiefly greater abundance, whatever increases in economic growth we are experiencing today are unlikely to be a problem.

But Is this Elevation of GMU a Compliment?: An Open Letter to a Correspondent

3 March 2011

Mr./Ms. Proud American Protectionist

Dear Mr./Ms. Protectionist:

A self-described "fan of Ian Fletcher's brilliant works," you assail me today by e-mail with several wild accusations.  The most coherent of your accusations – offered in response to what you correctly interpret as my position that nations are not relevant economic entities – is this one: "The trouble with ivy-league economists like you is that your theories make you blind to plain facts everybody else sees."

Here's a multiple-choice quiz for you: who wrote the following?

However, in the face of so many nasty surprises, arising in so many different circumstances and under so many differing regimes, we must be suspicious that some basic assumption or other is in error, most likely an assumption so much taken for granted that it escapes identification and skepticism.

Macro-economic theory does contain such an assumption. It is the idea that national economies are useful and salient entities for understanding how economic life works and what its structure may be: that national economies and not some other entity provide the fundamental data for macro-economic analysis.  This assumption is about four centuries old, coming down to us from the early mercantilist economists who happened to be preoccupied with the rivalries of European powers for trade and treasure during the period when Portuguese, Spanish, French, English, and Dutch were exploring and conquering the New World and the lands and seas that lay along the trade routes around Africa to the Indies and beyond. The early mercantilists assumed that the national rivalries unfolding before them were the very keys to understanding what wealth itself is and how it arises, how it is maintained, how lost.  According to the theory they propounded, wealth consists of gold, and gold is amassed as a nation manages to sell more goods than it buys….  Nations are political and military entities, and so are blocs of nations.  But it doesn't necessarily follow from this that they are also the basic, salient entities of economic life or that they are particularly useful for probing the mysteries of economic structure, the reasons for the rise and decline of wealth.

A.    Economist Adam Smith

B.    Economist David Ricardo

C.    Economist Milton Friedman

D.    Non-economist Jane Jacobs

The correct answer is "D."*

Sincerely,

Donald J. Boudreaux

* Jane Jacobs, Cities and the Wealth of Nations (New York: Vintage, 1984), pp. 29-31.

Some Links

My GMU colleagues and students – in this case, Dan Klein, Xiaofei (Sophia) Pan, Dan Houser, and Gonzalo Schwarz – do excellent and interesting and relevant research.  Here's the abstract:

The idea of political community is appealing on a gut-level. Hayek suggested that certain genes and instincts still dispose us toward the ethos and mentality of the hunter-gatherer band, and that modern forms of political collectivism have, in part, been atavistic reassertions of such tendencies. Picking up on Hayek, Klein (2005) has suggested a combination of yearnings: 1) a yearning for coordinated sentiment (like Smithian sympathy); and 2) a yearning that the sentiment encompass the whole group. This paper reports on an experiment designed to explore the demand for encompassment by having subjects sing together. In each trial, one person in the room was designated not to sing unless every one of the others in the room had made a payment sufficient so as to have that person sing. Subjects chose to sacrifice money to achieve encompassment 47.4 percent of the time, with 59.6 percent of the subjects doing so in at least one trial. An exit questionnaire showed that subjects' chief reason for making such a sacrifice was a belief that the singing would be more enjoyable if it encompassed the whole group, and reported enjoyment is significantly higher with encompassment. We discuss the experiment as a parable for a penchant toward political collectivism.

Clemson University's and PERC's Bobby McCormick reflects on enviropreneurs.

Daniel Ben-Ami says let economies grow!

While I agree with this Fordham Law Review article by Peter Schuck and John Tyler, I would liberalize U.S. immigration even further – much further.

Bryan Caplan on Michael Clemens on migration.  (I'm really bummed that my teaching duties yesterday prevented me from attending Michael's seminar.)

And here's Tyler Cowen on income stagnation in Canada.  (I wonder how much these Canadian data reflect real income stagnation, or how much the apparent stagnation is a statistical artifact.  I don't know, but I suspect that real income growth in Canada is higher than these data suggest.)

Wal-Mart and Creative Destruction

A friend asked me earlier today a Wal-Mart question.  I remembered this letter to the editor of The Economist that I wrote in 2006; I post it here at the Cafe for the first time:

In "Opening up the big box" (Feb. 25) you overlook a significant benefit of Wal-Mart – namely, by relieving Main Street's retail spaces of the need to supply staple goods such as groceries and hardware, Wal-Mart frees these spaces to be transformed into ethnic restaurants, wi-fied cafes, art galleries, arts theaters, and specialty retail shops.

Wal-Mart makes downtown areas more diverse and lively.

Sincerely,

Donald J. Boudreaux

This happy effect of Wal-Mart first dawned on me back in the mid-1990s when I lived near Greenville, SC.  Many of my older friends in South Carolina – such as Bruce Yandle, the late Hugh Macaulay, and the late Wallace Trevillian – remembered Main St. in Greenville from the '40s, '50s, '60s, and '70s.  They described the hardware store that no longer exists on Main St., as well as the barber shop, the mom'n'pop grocery store, the diner, and the pharmacy.  But the Main St. in Greenville that I knew (having moved to South Carolina only in 1992) was booming and lively with fusion restaurants, art galleries, wine bars, and up-scale gift shops.

See also here.

The Red Sox and opportunity cost

The Red Sox made some dramatic off-season moves, adding Carl Crawford and Adrian Gonzalez. They are the favorites to win the AL East and now there is talk that they might win 100 games. Despite being an enormous Red Sox fan who loves being optimistic in the springtime, this seems very improbable to me. My analysis continues below the fold.

Yes, the Sox added Crawford and Gonzalez. But there is a weird thing in baseball. You can only use nine players at a time either in the field or in your batting lineup. So while Crawford and Gonzalez are indeed good or maybe even exceptionally good players, they have also lost two very good players–Adrian Beltre and Victor Martinez, who both had excellent years last year. So it's not even obvious that the Sox will be better on offense. So at first base, they have replaced Youk with Gonzalez. That is a slight expected upgrade on offense but AG is coming off shoulder surgery. They have replaced Beltre with Youk. That is likely a slight upgrade. They have replaced Martinez with Saltalamacchia who has not proven he can be a major league hitter. Huge downgrade. The outfield should be a big upgrade. Crawford and Ellsbury should be better than say, Bill Hall and Darnell McDonald and a broken down Mike Cameron, but Hall and McDonald weren't horrible. JD Drew, on the other hand, is another year older. I would expect him to have a worse year.

If Pedroia is healthy and a rising Jed Lowrie materializes, there will be more improvement there.

The bullpen is improved on paper. Bard is a year older and should be better. Papelbon is a question mark. His WHIP, HR/9 and BB/9 have risen steadily over the last three years.

The starting pitching is very uncertain. Lester should be strong. Beckett, Lackey, and Dice-K are all question marks. Buchholz had a very low BABIP last year suggesting he may regress this year.

All in all, the Red Sox should be a good or maybe even a very good team this year. My only comfort is that the Yankees are a year older. I expect declines in Jeter, Posada, A-Rod and Rivera. But that doesn't always happen. Their starting pitching is also suspect.

It will be an interesting year. I would be surprised and very happy if the Red Sox ran away with the pennant.

Liberalize the Market for Bone Marrow

Here's a letter to the Los Angeles Times:

Your strongest argument in favor of the current prohibition on monetary payments to bone-marrow donors is that, by permitting such payments, donors will be more likely to lie about their health, thus endangering the lives of patients who receive bone-marrow transplants ("Battling over bone marrow," March 3).

But the lone example you use to bolster your point is the tragic case from three years ago of an unpaid blood donor who lied about his sexual history and, thus, transmitted AIDS to unsuspecting blood recipients.  (I'm curious: do you also favor bans on payments for newspapers because persons paid to report the news might be lured by the prospect of earning money to lie in order make their 'reports' more exciting?  Do you believe that the increased trustworthiness of newspapers supplied only by persons who volunteer to produce newspapers would outweigh the dramatic reduction in the supply of newspapers that would follow upon a ban on payments for newspapers?)

While it's true that liberalizing the market for bone-marrow will not eliminate all problems, surely persons whose lives are already severely at risk because of today's government-created shortage of transplantable bone-marrow ought at least be given the option of quickly receiving marrow from a paid donor or of waiting indefinitely for marrow from an unpaid donor.

Sincerely,

Donald J. Boudreaux

Another Open Letter to Ian Fletcher

2 March 2011

Mr. Ian Fletcher

Dear Ian:

Crusading against competition and consumer choice – that is, crusading against free trade – you today claim that low-wage foreign workers pose a "threat" to higher-wage American workers ("Dreamy Thinking on Free Trade," sent to me, from you, via e-mail).  You further suggest that the only response that free-trade proponents offer to this claim is to point out that the wages of foreign workers will rise over time.

As my 13-year-old son, Thomas, would say about your 'argument': "epic fail!"

The chief response that economically informed free-traders offer to calm the fears of those who worry that high-wage Americans can't compete against low-wage foreigners is not to point out that foreign wages will eventually rise but, rather, to point out that the reason foreign wages today are lower than those of American workers is because the productivity of foreign workers today is lower than that of American workers.  Therefore, foreign workers whose wages are, say, one-twentieth the wages of American workers are hardly a bargain for a producer if those foreign workers are only one-twentieth as productive as are American workers.

If you doubt that worker productivity matters – that is, if you really believe that employers seeking to hire workers look only, or even chiefly, at the wages workers request – I've an offer for you: the next time you need medical attention (Lasik surgery; a hip replacement; a coronary artery by-pass; whatever) give me a call.  I'll perform the procedure for you at a price that is a mere 1/20th of what you'll pay should you patronize a skilled physician.  Now I have absolutely no knowledge of medical science but, hey, my wage is really, really low!  How can you resist?

Of course, if you would resist – if you'd actually choose to employ the higher-wage skilled physician – then you might want to rethink your suggestion that high-wage American workers can't hope to compete against lower-wage foreign workers.

Sincerely,

Donald J. Boudreaux

P.S. In case you missed it, Carpe Diem's Mark Perry recently edited another of your essays attacking free trade.

George Will on the state of American politics

Here's an excerpt from this week's EconTalk with George Will. He discusses whether politics has gotten nastier over time:

The whole thing is here.