Tyler Cowen's Blog, page 606
February 11, 2011
Assorted links
1. The role of public sector research in drugs and vaccines, and here.
2. China five books of the day.
3. There is no Great Stagnation. And Dutch strandbeests: There is no Great Stagnation. And Dirk reviews TGS. And a Robert Teitelman review. And why an eBook?
4. Deirdre McCloskey's lecture from Wednesday night.
5. Rio murder rate is falling.
6. One hour of Milton Friedman on Hayek and The Road to Serfdom. Better than most recent discussions of the book.
In my pile
1. Edward Glaeser, Triumph of the City: How Our Greatest Invention Makes us Richer, Smarter, Greener, Healthier, and Happier. Self-recommending. I've browsed a few pages and he seems like...such a normal, happy man.
2. Bengt Holmstrom and Jean Tirole, Inside and Outside Liquidity. This is a take on what follows from the imperfect pledgeability of corporate assets, by two of the world's leading economic theorists.
3. Jonathan Bendor, Daniel Diermeier, David A. Siegel, and Michael M. Ting, A Behavioral Theory of Elections. The point is to predict both turnout and voting behavior (hard to get both right at once in a model), and the authors a computational model on top of all of that. I have long been wanting more behavioral public choice.
State support of the arts
Jon Chait (a progressive) is against it, Ezra asks for my view. I favor indirect subsidies for the arts, and indeed to non-profits in general, through our tax system, as we already do. This tax policy is also a major subsidy to religion and, for me, a somewhat difficult decision to accept and also encourage...how shall I put it?...certain features of the American cultural landscape. Nonetheless I believe in "diversification across countries" and I don't want the United States to become too much like Europe.
In America at least, direct arts subsidies have both very low costs and very low benefits.
The issue currently at hand is whether various state-level arts agencies should be abolished or cut back, as is now the talk, including in Texas, Kansas, Arizona, and Washington state. I say these states are doing the right thing. If you're a libertarian, the choice is obvious. If you're a progressive, it is better to spend the money on Medicaid expansion or other more worthy goals. There really is an opportunity cost of this money, and reframing the choice as "so many cents per head" merely disguises that we could use those funds to save some lives. Most of the benefit of arts subsidies goes to the relatively wealthy and well-educated.
I don't see any "intermediate" argument that beats back both the libertarian perspective, on one side, and the redistributive perspective, on the other. The two extreme positions are more defensible than the middle, in this case, and each leads to the same conclusion.
Don't, however, think that cutting state arts funding will much matter for state-level fiscal problems. It won't. The budget problems are mostly about a mix of falling revenue and rising Medicaid expenditures. I am against using such cuts to promote the idea that we are solving our budgetary problems; read David Brooks on this topic.
The real news is that some states are willing to cut arts funding even when they will cease receiving their transfers from the NEA.
If you're an arts snob and wish to mix aesthetics and politics for philosophic reasons, it is better to have arts money spent at the federal rather than the state level. The state agencies are more aesthetically conservative and more oriented toward "economic development" (a myth, for the most part) and local special interest groups. The state-level spending is less meritocratic and the NEA comes closer to serving an "R&D" function for the arts. It didn't help the arts in this country when the NEA had, for political reasons, to start sending forty percent of its budget to the state arts agencies.
The case for state-level support for the arts is strongest, by far, for the state of New York for reasons related to tourism and New York City. But Manhattan, Kansas? Let them watch YouTube.
Addendum: Here is my book on government support for the arts, and the proper roles of the aesthetic and political in liberal thought.
Arbitrage
Whypaytuition.com, created by Rick Conley, an air traffic controller in Texas, is a matchmaking site for couples seeking to marry in order to gain in-state tuition privileges and other savings that come from being classified as independent. It has attracted only 56 registered users since going online in 2008.
Here is more. For the pointer I thank Daniel Lippman.
What conservatives want (don't want)
This is from a poll of self-identified conservative Republicans:
When we asked last month about their thoughts on the best way to reduce the deficit, here's how they replied:
• 56 percent said cut spending across the board
• 27 percent said cut spending from all government budgets except the military
• 10 percent said pass a balanced budget amendment
• 3 percent said cut taxes
• 3 percent said fix Social Security and Medicare so they don't pay out more than they take in
That was pretty revealing. Social Security and Medicare will drive our long-term structural deficits and crush our economy along the way. But even though the issue is getting some play in the media, it doesn't seem to be getting through to the grassroots.
There is more at the link. You might think that the desire for across the board spending cuts is picking up the fiscal conservatism, but the follow-up questions don't show a great desire to limit Social Security or Medicare. Only thirty-five percent of the recipients favor both raising the retirement age for benefits and also means-testing.
You may recall that fiscal conservative Paul Ryan didn't mention Social Security or Medicare in his response to Obama's State of the Union address.
February 10, 2011
The history of U.S. productivity, in a nutshell
There have been some recent confusions in the comments about the historical record on productivity. The excellent Alexander J. Field sets it straight, after noting that TFP (Total Factor Productivity) growth in the interwar years was remarkably strong:
...TFP persisted at high although more modest rates during the golden age (1948-73). But then it ground to an almost complete halt between 1973 and 1995. Output per hour continued to rise, albeit much more slowly, but this was almost entirely attributable to physical capital deepening. Data are now available for the entire century, and it is no longer possible to interpret the high rate of TFP advance during the interwar years that prompted the Abramowitz/Solow generalization [TC: the generalization was about knowledge-based progress] as a defining characteristic of the century as a whole.
In this context, think of TFP as the growth due to new ideas, rather than just throwing capital or labor at a problem or production process. Here is a related Field paper. It's also wrong to think of the post-WWII period as the peak of progress, rather as Field shows high TFP growth starts post Civil War and the time after WWII is somewhat slower than many previous decades. The early 19th century, by the way, was not so splendid for TFP.
The critical responses to The Great Stagnation prefer to attack median income measures and in general they are reluctant to talk about total factor productivity. Yet we are pointed very much toward the same conclusion. My first post on TGS also considered these issues and you will find some relevant Charles Jones papers here.
*The Limits of Market Efficiency*
There is a new paper by James M. Buchanan, here is the abstract:
The framework rules within which either market or political activity takes place must be classified in the non-partitionability set under the Samuelson taxonomy. Therefore there is nothing comparable to the profit-loss dynamic of the market that will insure any continuing thrust toward more desirable rules. 'Public choice' has at least partially succeeded in getting economists to remove the romantic blinders toward politics and politicians as providers of non-partitionable goods. It is equally necessary to be hard-nosed in evaluating markets as providers of non-partitionable rules.
Hat tip goes to www.bookforum.com.
A new mortgage plan?
I am not sure whether this article is describing progress, or lack of progress, but here was one interesting bit:
One potential compromise described in current drafts of the administration's proposal would reduce the government's role to a last line of defense for the mortgage market. A version of this idea has been advocated by David S. Scharfstein, a finance professor at Harvard who previously worked as an adviser to Mr. Geithner.
The core of Mr. Scharfstein's proposal is to create a new government-owned corporation for the sole purpose of providing guarantees to mortgage investors. During normal times, the insurer would guarantee no more than 10 percent of mortgages, but in times of crisis, the government could raise that cap, offering guarantees to a broader range of investors so that money continues to flow into the mortgage market and credit remains available.
This plan is a good example of why public choice analysis remains an underrated field in economics. How are these restrictions self-enforcing in light of special interest and electoral pressures? Along related lines, Arnold Kling has interesting comments on Peter Wallison.
Malaria and IQ
The figure below, from Bill Gates's annual letter, shows that countries with a higher disease burden have lower average IQs. The theory is that building brains and fighting disease are metabolically costly so more effort to fend disease diverts resources from brain development lowering IQ.
Tyler blogged this research earlier writing "I'm not sure the authors have a very good test against alternative hypotheses, but still a correlation remains after making some appropriate adjustments."
Further evidence on causality is given by Atheendar Venkataramani in Early Life Exposure to Malaria and Cognition and Skills in Adulthood. Venkataramani finds that men born after widespread malaria eradication began in Mexico in the late 1950s have higher IQs (Raven scores) and are more likely to work in white collar jobs than men born shortly before eradication efforts began. Importantly, the effect is larger for men born in those states that began with high exposure to malaria.
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