Last month, Dr. Allan Bevere and I got together to discuss the nuances of "scarcity and abundance" from theological perspectives. Too often people from the two fields talk past each other with unfair characterizations on this topic. Our conversation hopefully shines some light.
Feb 04, 2022
Dec 22, 2021
Aug 12, 2021
Jul 13, 2021
Dec 10, 2019
Billionaires do NOT pay an overall tax rate lower than the bottom 50%.
Two months ago, the New York Times uncritically ran an article claiming billionaires pay lower tax rates than the bottom half of American earners. (I see this and related pieces circulated by my progressive friends.) The unsubstantiated and yet to be reviewed data came from economists Emmanuel Saez and Gabriel Zucman, a tease to promote their soon to be released book. Their claim is contrary to other economic entities that monitor and study taxation. Once the book was released, the methodology became public. The methodology conflicts with the methodology they used themselves just a couple of years ago in peer-reviewed research.
I am not a tax expert but I have tried to follow the discussion. Econofact gives one of the best brief summaries on the claim. (Are Taxes (And Also Spending) Progressive?) A couple of observations:
“In their book, Saez and Zucman reach conclusions that are at odds with a variety of previous studies. … What explains the difference? Relative to previous estimates, the current choices and assumptions made by Saez and Zucman generate higher estimates of income among high-income households, and of taxes on low-income households.”
“Considering only positive tax payments gives an incomplete picture of the tax system. Some taxes are “refundable” and actually offer credits, such as the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). These credits can create negative tax liability for households. For example, if a household pays $1000 in a given year but receives $1,500 in an earned income tax credit, on balance, they have paid negative taxes. Conventional analyses count programs such as the EITC and the CTC as negative taxes, but Saez and Zucman exclude these credits from their analysis, making the tax system look more regressive than other studies show.”
Taking this a step further, assume you have an income of $10,000 and tax credits that net you $5,000. You have $15,000 to spend. Assume the local sales tax is 10%. You pay $1,500 in local sales taxes. But these economists don’t count the credits. So the tax rate is effectively 15% because the denominator by which you divide $1,500 is $10,000, not $15,000. It artificially inflates the tax burden even more. They do other "unique" things like count health insurance premiums as taxes.
On a further note, these two economists are key economic advisors to the Elizabeth Warren presidential campaign and this book was written and released to give support to her political objectives, not as scholarly analysis.
I am not defending billionaires or the present tax system. A factual claim was made concerning billionaires and taxes. Is it true? Outside of these two economists, writing with a clearly partisan objective and using unorthodox methods, there is no support for the claim. A disdain for billionaires and passion about inequality does not make the claim true.
Nov 06, 2019
The Keynesian Revolution and Our Empty Economy: We're All Dead - Book Review
The Keynesian Revolution and Our Empty Economy: We're All Dead (Quotes are from the e-book version.)
Is economics value-free? Can it be? Economics emerged alongside other social sciences in the nineteenth century, aspiring to apply the scientific method to the study human behavior. Economists draw a distinction between positive and normative economics - positive being descriptive and normative being prescriptive. The latter requires value judgments, making it beyond the realm of science. While an economist may wish to offer his or her perspective on what should be done, economics eschews prescriptive behavior. But is that the way economics works?
In The Keynesian Revolution and Our Empty Economy: We're All Dead, Dr. Victor Claar, professor of economics at Florida Gulf Coast University, and Dr. Greg Forster, Director of the Okonomia Network at Trinity International University, argue the story economists tell about themselves does not match reality. Simply reading the book title, one might assume this is another installment in the ongoing battle between Keynesianism economics and other economic theories. It is not. The authors say something transformative happened in the 1930s with the rise of John Maynard Keynes’ economics, misshaping the discipline. Virtually the entire discipline (including the free-market Chicago school and Austrian economics) battles about means to end from within the Keynesian framework. The authors conclude with thoughts on a reforming agenda but first take us on a rich historical journey.
“Economics” Before the Nineteenth Century
Until the nineteenth century, “economics” was part of moral philosophy - political economy more specifically. Philosophers and theologians made normative appeals for economic behavior. Human existence has ultimate purposes. They inseparably connected their normative prescriptions to teleological realities. The authors identify a succession of three ethical paradigms related to economic thought over the millennia.
Nature paradigm – Classical philosophy. “What sets classical thought apart is the idea that nature has purposes, and human excellence consists in fulfilling those purposes.” Wisdom comes from correctly understanding nature and its purposes. From this wisdom, we shape our daily affairs, including economic activity.
God paradigm – Judeo-Christian theology. “It began with the assumption that human beings are created by and under the authority of God, and are placed both within and over nature by God. Their economic needs and behaviors are structured by God’s design in creation and are being restored to that design through the redemption of the world in Christ, so conformity to God and his purposes was their standard for economic thought.”
Reason paradigm – Born in Enlightenment philosophy. “It began with the assumption that human beings are rational, and their economic needs and behaviors can be understood and arranged rationally, so conformity to reason and its purposes (they understood ‘reason’ to include moral reason, including teleology or purposes) was their standard for economic thought.”
Claar and Forster revisit these three historic paradigms throughout the book, demonstrating their normative and teleological components in contrast with Keynes emerging philosophy in the 1930s. The authors identify a fourth paradigm with Keynes, the Consumption paradigm. So how did the Consumption paradigm emerge?
The Beginning of Modern Economics
As scholars labored to establish economics in the late nineteenth century, there was substantial intra-disciplinary conflict about how to proceed; differing on what roles historicism, theory, and science should play. (The book gives some great history.) John Neville Keynes, John Maynard Keynes’ father, assumed the role of peacemaker. He popularized the “positive versus normative” frame and worked to move scholars beyond endless squabbling toward productive research, thereby gaining credibility for the discipline.
Despite these ambitions, economics was not born in a vacuum. From the 1890s up into World War I, societal gatekeepers saw themselves as stewards of a moral and cultural order, envisioning evermore progress and human improvement in keeping with the Reason paradigm. Decades before, John Stuart Mill had introduced homo economicus, human beings as rational, utility calculating machines. Mill and these later economists retained at least a sense of the progress teleology, even as they begin to apply the scientific method to evaluating behavior. Homo economicus was a knowingly simplified anthropology, but with research, one might imagine revision and nuance could be brought to bear over time. A variety of social changes in years prior to and through World War I rocked confidence in the progress narrative, leaving the discipline adrift. Enter John Maynard Keynes.
The Keynesian Revolution
We frequently view John Maynard Keynes as a tedious academic. In reality, Keynes was a core member of the highly influential Bloomsbury Group in London, a collection of intellectuals and artists including Leonard and Virginia Woolf, E.M. Forster, Clive and Vanessa (Woolf) Bell, Duncan Grant and Lytton Strachey. They embraced, in Keynes words, an “immoralist” philosophy devoted to pursuing pleasure. “Though they weren’t sure what the highest forms of pleasure might be, their sense was that they could be found only among their greatest loves—in intimate relationships and in things like the arts, theater, and music—rather than in more pedestrian forms of enjoyment.”
The Bloomsbury Group was disdainful of traditional values. This included values like diligence, frugality, self-control, found in the Reason paradigm. Wealth accumulation and consumerism were dehumanizing influences obstructing pursuit of pleasure. However, they believed only a select few were capable of pursuing pleasure the way they envisioned. A materialistic bourgeois existence was the best for which the rest of humanity could hope. It was the task of the elite to shepherd the masses toward this end as the elite went about their higher pursuit of pleasure. Claar and Forster walk us through how Keynes’ economics reflects this philosophy but I will jump to a couple of takeaways for sake of brevity.
The most revolutionary effect of Keynes’ influence is his reshaping of means and ends. Mill introduced homo economicus as a rudimentary construct to aid in economic inquiry, not a characterization of human essence. Within Mill’s construct was an assumption that we will rationally discern and pursue certain ends. Reason is the means for choosing between various courses of action in achieving those ends. These ends include teleological ends.
Keynes retains the idea of homo economicus but with substantial revision. With Keynes, there is no teleological purpose to guide economic behavior. “Animal spirits” drive human behavior, not reason in pursuit of meaningful action. Reason is how each individual can best satisfy animalistic desire. Consumption to meet these desires takes center stage. For Keynes, homo economicus is not simply a methodological construct. It is an anthropological given. We must base economic policy on this premise.
In the General Theory [Keynes seminal book), economics abandons its nineteenth-century ambition to moral neutrality. It no longer seeks a place alongside chemistry and physics as a detached, disinterested, purely positive observer. It becomes, once again, a practical discipline with a moral vision.
But now the moral vision is radically different. Instead of the virtue, piety, or the progress of humanity, the moral vision of the General Theory is an animalistic homo economicus whose only economic goal is to satisfy his own consumption appetites. …
Another aspect of Keynes’ influence is his introduction of “the economy.” Prior to Keynes, economics was microeconomics. It was focused on how individuals, firms, and other players make decisions. Keynes introduced macroeconomics, with its focus on aggregate economic phenomenon for a nation or other large societal entity - money supply, interest rates, aggregate employment, gross domestic product, and so on. Macroeconomics came to dominate the discipline to the point that when people hear “economics” today they think of macroeconomic concepts.
For Keynes, “The economy” is a machine-like entity employed by elites like himself and members of the Bloomsbury Group in transmuting humanity to an elevated state. Keynes was sympathetic to socialist aims but he writes:
It is not the ownership of the instruments of production which it is important for the State to assume. If the State is able to determine the aggregate amount of resources devoted to augmenting the instruments and the basic rate of reward to those who own them, it will have accomplished all that is necessary.
The authors note:
Keynes shares Marx’s goal of giving the state control over our economic lives, which is to say, over all the most intimate and important decisions we make. He just thinks the state can accomplish this control without seizing ownership of assets.
The authors paraphrase Keynes’ view this way:
In an ideal state, we would ‘transmute’ human nature, raising people not to care how much money they end up with after playing the “game” of money-making. However, for now we need to keep the game going. If we stop, we’ll have nothing to eat; the economy runs not on productive work but on satisfying consumer appetites. Thus it is the responsibility of government to keep the game going. Keeping the game going involves all the players being highly motivated and playing to win—“strongly addicted to the money-making passion.” The wise and prudent statesman will therefore “manage” human nature, keeping it in a state of socially beneficial greed , rather than attempt to “transmute” it toward real selflessness, at least so long as we live in the current state and not the ideal state.
Keynes has a vision of where he wants to take feckless humanity. His superior wisdom and that of people like his Bloomsbury peers will lead us there. Pragmatically, it must be done with manipulation. Moreover, some will never be transmuted. Keynes had an answer for that. He was chair of the British Eugenics Society from 1937-1944. He deemed eugenics to be most important branch of sociology.
Keynesianism and Its Rivals
Claar and Forster explain Keynes was not particularly eloquent in expressing his ideas. Articulate acolytes popularized his economic constructs. Paul Samuelson, Nobel economist and author of the leading economics textbook for decades, was probably the most important figure in advancing Keynesian ideas. However, these advocates made substantial qualifications to give us what we know as Keynesianism today.
The Keynesian advocates muted Keynes’ crusading vision and reclaimed the idea of economics as value-free science. However, they continued to embrace the view that people are bundles of appetites driven by animal spirits – Keynes’ version of homo economicus. The goal should be to maximize consumption, enabling people to satisfy their appetites. Economists should guide the economy machine in these pursuits. This was the Consumption paradigm. It effectively institutionalized Keynes homo economicus while eschewing teleological judgments.
The Chicago School (and the older but smaller Austrian School) emerged as the primary competition to Keynesian economics, rejecting Keynesian interventionism in favor of free market systems. They offered resistance to “economics” as purely about large aggregate concepts and called for greater attention to microeconomic decision making. Claar and Forster write:
However, the attention-grabbing conflict between these schools conceals a deeper uniformity. Both counter-revolutions accept most of the key elements of the Consumption paradigm. Most importantly, they accept Keynes’ redefinition of the purpose of economic systems: to maximize consumption possibilities. They also accept Keynes’ redefinition of Mill’s homo economicus, which lay at the heart of the new focus on maximizing consumer satisfaction—they accept the instrumental rather than substantive understanding of rationality, and they accept the reversal of the relationship between gaining wealth and enjoying wealth.
The Keynesian constructs became so dominant that even schools that emerged to challenge aspects of Keynesian economics have internalized core Keynesian concepts.
The Consequences
The consequences extend well beyond an intra-disciplinary dispute. To a degree unparalleled by other social sciences, economics has succeeded in exerting influence over public policy and commerce, which has had ripple effects into other societal institutions. With varying degrees of resistance, homo economicus is largely how we institutionally treat our existence.
The problem, the authors would argue, is that we are not homo economicus. Human beings are meaning makers. We see ourselves inside of teleological narratives. We want not only to experience pleasure but also to participate in activities with lasting significance. We have not only have consumption preferences but also production preferences. The impact of homo economicus is a world with greater prosperity but that is largely vacant of meaning. In an existential sense, “we are all dead.” This lack of meaning has people restless and increasingly impatient with societal institutions. A consequence is the rise in populism ranging from Donald Trump to Bernie Sanders, amassing power by feeding on palpable anger and frustration.
The empty economy produces polarization, because our daily economic activities no longer convey meaning and purpose (leaving us to seek those things in extreme movements) and because our daily economic activities no longer establish shared, public moral commitments (leaving us convinced we have no common ground with our neighbors).
A Way Forward
“What would it look like to study economics on the assumption that people really do have higher purposes in life, but that we need not agree about everything concerning those purposes?”
The authors argue that the way forward is to escape the Consumption paradigm with its “animal spirits” anthropology, and revisit teleological and anthropological assumptions. We may not thoroughly agree on every value across nations and cultures, or even within them, but our values have much more in common than we may think. Some things are good whether everyone chooses to do them.
* People have production preferences as well as consumption preferences, including a desire to participate personally in the production of the intrinsically good. A sustainable economic life must account for both types of preferences (production and consumption) at the individual and cultural level.
* Production preferences can also be understood as stewardship preferences, meaning a desire to leave the world with more intrinsic good than it had when we arrived. A sustainable economic life must account in complex ways with the long-term time frames within which people make cost-benefit calculations, at the individual and cultural level.
* People are substantive reasoners who have the right and responsibility to discern the intrinsic good for themselves and participate personally in its production. A sustainable economic life must make this personal process of discernment and participation, not impersonal aggregate metrics, the goal of economic policy and discourse.
To conclude the book the authors write:
In the long run, we are all dead—but life will go on when we are gone. We all know this, and in our economic lives we do not always behave as shallow, short-term consumers who don’t care what we leave behind. If the discipline of economics wants to understand economic behavior as it really is, it must come to terms with the moral reality of human life. To ignore normative and teleological realities is to ignore the human, and to ignore the human is strange way to conduct a scientific study of how humans behave.
If we do not care what kind of world we are leaving, our economic systems will continue to be wracked by moral anxiety and the outrage it produces. Nationalists and socialists have their own reasons for wanting to block any movement toward a moral renewal that would restore confidence in our systems, but the rest of us should be seeking such a renewal with all the energy that the urgency of our situation demands. A return to economic vitality must begin with a restoration of confidence in our economic systems and practices, on the basis of a sustainable moral consensus for a pluralistic society.
We love economics. We love it because it matters—a lot. Tough new questions that overturn old certainties are already being asked in the discipline. We look forward to finding out what comes next.
Assessment
In short: teleology matters. Claar and Forster pack a lot into this book. My summary only scratches the surface. It is well worth the read for both economists and for those who think more broadly about economics and values. While I work to be conversant with economics and the history of economic thought, I am not an expert in either of these fields. People with better bona fides will have to evaluate the veracity of details presented in this book. Yet based on what I do know, the overall argument rings true to me.
The history of how the Consumption paradigm came to dominate economics - with economists simultaneously fixating on consumption and claiming to be value free - is helpful. There is no way to do social science without anthropological models and value assumptions. Economics is no exception. Homo economicus may be useful as a methodological tool for aspects of economic research but it us insufficient as a model for grasping the complexities of human decision-making. I do not think that economics has so much rejected teleology, as it has uncritically embraced a teleology that is inadequate and subhuman.
I sense a discussion has been building on this topic in recent years. As with other social sciences, there seems to be an ongoing clash between those who pursue a grand unified theory and those who prefer more modest research into micro-level behavior from which larger models of human behavior can be derived. Economics, unlike other social sciences, is unique in that “economics” and the concept of “the economy,” a machine that can be directed toward particular ends by skillful elites, has gained considerable credibility in broader society. That likely makes challenges to macroeconomic models more difficult but the importance of economics in policy making also underscores the importance of getting underlying models of humanity right.
I think the most critical point the book makes is that “we are all dead.” Human beings have desire for the transcendent, to be a part of something meaningful, to pass on a legacy. Teleology matters. To use the authors’ words, there is a production preference as well as a consumption preference. The Consumption paradigm is dehumanizing in that it robs people across economic strata of meaning-filled work. Resurrection of meaning in daily life will have to come from moral institutions outside of economics but we cannot realize that ambition of understanding human decisions without economics. If economics is a study of human behavior, can it be said to be to accomplishing its mission if it ignores the production preference aspects of human decision-making?
I appreciate the authors’ advocacy for finding common ground on teleology across human cultures. Maybe a first step is for those of us invested in moral institutions to clarify our own values. As someone who has invested decades of service to Mainline Protestantism, it strikes me that there is profound need for Christian theology to genuinely and respectfully engage economics, and to move away from what all too often is a sophomoric and adversarial posture. Repeatedly I encounter theologians and Christian thought leaders pontificating on economic issues, demonstrating they have not made the most rudimentary attempts to grasp basic economic concepts or to represent those concepts faithfully. That is a conversation for another day. For now, we have this thought provoking tome by Claar and Forster to serve as a point of engagement. It is well worth the read.
Oct 01, 2019
Why Population Control Is Not The Answer to Climate Change
Population control is sometimes championed as a way to fight climate change. Bernie Sanders recently raised this idea. The world population is growing. There are 7.7 billion people today. There will be nearly 11 billion in 2100, according to United Nations estimates. Extra people mean extra CO2 emissions. While two children per woman may seem reasonable, women in the poorest countries can average five or sex. Sanders and others believe this excess fertility is why the world population is growing. Fewer children will mean less CO2. Unfortunately, this perception is decades out of date.
We are already at “peak children.” Globally, there are 680 million children under the age of five. U.N. projections show a peak of 700 million about 2060. There are projected to be 650 million children in 2100, less children than there are today. Yet the overall population will grow by nearly 50%. How can that be? It is the compounding effect of people already born that will drive population growth over the next century, not excessive birth rates.
Trends in Fertility
Assume women have two children over their lifetime. They replace themselves and one other. Population size will be stable from generation to generation. (The actual replacement fertility rate for an affluent nation is 2.1 children per woman.) Throughout history, the total fertility rate has been six or seven children. One quarter of children died before their first birthday. Another sizable percentage died before age five. Of those who made it past five, many died before marrying and having children. High fertility rates ensured a couple of children would survive to continue the family.
As affluence emerged and health practices changed (first in Europe and then spreading elsewhere) more children survived into adulthood. We needed fewer births to perpetuate a family but it took a while for customs related to fertility to adjust downward. That lag between declining death rates and declining fertility rates is what led to the population explosion that began two centuries ago. That growth accelerated into the twentieth century and continues into its final stages today. As recently as the 1960s, the global total fertility rate was as high as five children per woman.
Today, the global total fertility rate is about 2.4 and dropping, but the rate is not evenly spread throughout the world. Europe, the Americas, China, Japan, and other regions have fertility rates below the replacement rate, well below it in many nations. A handful of smaller poor countries have fertility rates of five or six, but they also have some of the highest child death rates. The world average is fast approaching the 2.1 replacement rate. However, because the global fertility rate has usually been higher than the replacement rate for most of us now living, it means the cohort of people born one year is usually larger than the cohort of people born the previous year. So let us think about what that means for the future.
The Compounding Effect in Future Fertility
To keep things simple, assume going forward that we birth the same number of children each year, the death rate stays the same, and no one lives past one hundred years. Now say there are 100,000 people age 100. By next year, all will have died. The group that was 99 will now be 100. Because more of them were born, there will now be, say, 105,000 people 100 years old. After two years have passed, the new group of 100 hundred year old people will be the people who are 98 years old today. They will be a still larger group. That will continue for one hundred years.
At the other end of the age continuum, we have the largest number of children ever born in a year and the largest age cohort alive. A year later, this youngest age cohort will replace a smaller cohort a year older than them. But keep in mind that for the next forty-five years the number of women of childbearing age will be increasing each year. Therefore, each year the total fertility rate will need to fall slightly more below the replacement rate if the population is to stabilize. It can then rise to the replacement rate after forty-five years. This will continue until 2120 when each age cohort is the largest age cohort that has ever existed for that age. This is the primary driver of population growth going forward but there is at least one other key factor. (Clearly, I am oversimplifying to illustrate my point. We are not down to replacement rate fertility, so there is still some marginal population growth due to “excess” fertility.)
Furthermore, actual global death rates are not constant. They are dropping. People are living longer. So not only is each age cohort larger than the one before, it is living slightly longer than the one before. This too contributes to population growth over coming decades.
Therefore, we would need considerably less than replacement-rate fertility to limit global population growth substantially. In fact, there are credible projections of a population peak at fewer than nine billion. Demographers once assumed transition to low fertility and death rates would stabilize at about the replacement rate. Instead, the fertility rate has dropped well below replacement rate in nearly every affluent nation, in some cases nearly one child per woman. From the narrow view of CO2 emissions, this may look like a good thing. From a holistic standpoint, many social scientists are troubled. Depopulation can be as destructive to human well-being as overpopulation.
The Depopulation Problem
A vibrant society needs a critical mass of productive workers relative to its dependents (primarily children and the elderly.) This is the dependency ratio (dependents divided by workers multiplied by 100). With excessively low fertility rates, it is possible to have a great imbalance with a large number of seniors and too few workers to provide for society. We have already seen that current UN projections say we will have nearly the same number of children now as in 2100 but the overall population will be nearly 50% larger at eleven billion. That growth is a consequence of a burgeoning number of elders. A smaller population of nine billion may mean fewer total people but an even worse dependency ratio.
Modest help may come from lengthening the number of years people work or a higher participation rate in the work force for working age people but at some point that will be insufficient. Then consider the possibility of medical breakthroughs that cure cancer or dramatically reduce heart disease. That means more people living longer, intensifying the dependency ratio imbalance.
As an ever shrinking number of people (potentially a minority of the population) is expected to support everyone else, improvement in living standards will begin to stall and possibly reverse, making the world ripe for any number of societal dysfunctions. It will not take eighty years for this challenge to become real. Japan is already struggling with these issues. China is already headed down this road. One can envision China opening up to immigration from the remaining regions with the highest fertility rate and investing there resources in growth economies, but if every nation is headed to fertility rates well below the replacement rates, that is only a temporary fix. The dependency ratio for a world with eleven billion people is already seen as a challenge. The only way to get a peak population under nine billion people is to achieve fertility rates well below replacement rates substantially intensifying the dependency ratio imbalance just a generation or two down the road. (For more detail see the Brookings' piece, How will we cope when there are too few young people in the world?)
Decoupled Economic Growth
At the most basic level, climate policy needs to be about economic growth decoupled from CO2 emissions. Population growth is one issue driving this need for economic growth. But also consider people are advocating for a $15 living wage for every worker in the United States. That would put nearly every US worker in the top 10% of wage earners in the world. Meanwhile, despite astonishing improvements in human well-being around the world and the dramatic reduction in extreme poverty, there are still hundreds of millions of people in extreme poverty. A couple billion more have more stable lives but still live well below standards we would consider tolerable. If it is a matter of justice that everyone in the US has a $15 an hour living standard, then it is only just that all citizens of the world have something approximating that standard. The only way that happens is through economic growth. Measures like population control are shortsighted and potentially calamitous. The principle mission is decoupling economic growth from fossil fuel consumption, along with other disruptive measures like decoupling land use from agricultural production.
May 02, 2019
Why I Have Never Met a Neoliberal
I recently rediscovered this excellent blog post I read last year, The problem with “critical” studies. Joseph Heath's observations about the term neoliberal are spot on. This explains why I have ever met one, and likely neither have you.
"For instance, I had noticed a long time ago that the term “neoliberal” functions as the most important piece of cryptonormative vocabulary in critical studies. For those who don’t know, here’s the basic problem with “neoliberalism.” It’s a made-up thing. It’s just a word that Foucault popularized, to talk about economic ideas that he didn’t really understand. There is no group of people out there who actually describe themselves as a neoliberals. Because of this, there are no constraints on what it can refer to, and there is no one to answer any of the criticisms that are made of it. Compare that to terms like “conservative” or “libertarian.” Because there are real people who call themselves “libertarian,” if you write something that criticizes libertarianism, an actual libertarian might write back and contest what you say. With “neoliberalism,” on the other hand, you can say whatever you want, without any fear that a real-life neoliberal will write back and contest your claims – because there are none. As a result, people who use this term in their writing are basically announcing, up front, that their intended audience is the left-wing academic echo chamber. After all, if they wanted to engage with people outside that chamber, they would have to address one or more of the ideologies that are actually, and self-consciously, held by people outside that chamber. (In this respect, people who criticize neoliberalism are the cowardly lions of academia. If you think you’ve got what it takes, why not go out and find an actual right-winger to argue with?)
The fact that there are no self-identified neoliberals in the world does, however, have one desired consequence. Use of the term limits one’s audience to those who share the underlying normative judgment, allowing academics to feel completely unanimous in their belief that neoliberalism is a bad thing. As a result, no one ever feels obliged to say what is so bad about it."
(Photo: Wikimedia Commons)
Apr 29, 2019
Socialism Is A Freighted Word According To David Bentley Hart. So Why Is He Defending It?
Theologian David Bentley Hart just wrote an op ed Can We Please Relax About ‘Socialism’. The byline says “Only in America is the word freighted with so much perceived menace.” As he frames it, socialism is simply about creating a more equitable economy, not about recreating the Soviet Union or Venezuela. This is what people like Sanders and Ocasio-Cortez are promoting.
What Hart is describing is social democracy, not socialism. Democratic socialism is the systematic transformation of capitalism (private ownership and market exchange) into socialism (state ownership and control of the economy), while social democrats embrace capitalism, looking for ways to make it more equitable. Social democrats and democratic socialists may dovetail on some incremental policies but they have divergent missions.
Let’s assume Sanders, Ocasio-Cortez, and others want a more equitable market system of government. Let’s go further and agree to Hart’s questionable protest that this is all socialism means. Hart acknowledges that “socialism” is a freighted word. Why are they using a freighted word to describe their position? People promote similar policies all over the world without using this language and have done it for generations in the United States. They choose the word precisely because it is inflammatory. They are populist demagogues.
Trump and the Freedom Caucus go out of their way to frame things in a way that maximizes enemy outrage while communicating to the base that they are the reasonable ones at war with the crazies. That is why Sanders, AOC, and Hart say “socialism.” In their communication strategy, the hyperbolic Fox News response to “socialism” is not a bug. It is the objective. It maximizes the ire of their enemies and stokes the commitment of their base. As with Trump, the specific policy prescriptions are not serious, but serve to antagonize enemies and keep a base, giving them power from which to accomplish other agendas.
Hart is wrong about Europe. While there are cadres of democratic socialists throughout Europe, there are no democratic socialist governments. There are a great many social democracies. “Socialism” is not a widely embraced term. Sweden experimented with democratic socialism from the 1970s to the 1990s before returning to their present social democratic capitalism. Furthermore, Scandinavian countries are among the most free-market countries in the world. Their generous social safety net is oriented around capitalist self-interest, not a sense of altruism. They designed their nets to maximize the productivity of people in their capitalist economy. This is not Democratic Socialism.
The Democratic Socialists of America, to which Sanders and OAC give allegiance, has as their stated aim, not the creation of a more equitable capitalism, but the incremental and systematic replacement of capitalism with socialism. So, while I have no doubt the Fox family goes to hyperbolic lengths to stoke fears, their base criticism is legitimate. This is the left’s Tea Party/Freedom Caucus moment. The answer to our problems is a winsome person who can mobilize a sizeable majority to embrace prudent solutions, not another populist fringe to counter the right’s populist fringe. Unfortunately, all I read of Hart is an audition to be a Franklin Graham or Jerry Falwell, Jr., in the Left’s version of the Freedom Caucus.
(If you want to be more informed about comparative economic systems I would recommend this excellent piece by economist Timothy Taylor, Capitalism with Scandinavian characteristics. This Finnish-American offers insights on the role of the welfare system in Nordic countries, What Americans Don’t Get About Nordic Countries. And from Denmark's prime minister, Denmark's prime minister says Bernie Sanders is wrong to call his country socialist.)
Feb 20, 2019
European (Scandinavian) Capitalism is not Democratic Socialism (But is that what matters?)
Mall of Scandinavia. Wikimedia: Arild Vågen
I continue to reflect on the hype in the U.S. about "democratic socialism." I think most people who use the term are saying they want a market economy with a greater emphasis on social justice (open to varying definitions) and the promotion of basic human well-being. When pressed to give an example, they typically point to Scandinavian economies. Yet these countries do not consider themselves socialist in the least. In fact, Sweden embraced a move toward true democratic socialism from the 1970s until the mid 1990s. Standards of living dropped, debt went up, and the overall economy fared poorly. They have now embraced market economics while providing a carefully crafted welfare system. People truly committed to democratic socialism, while appreciating some features of Scandinavian economies, find them an unsuitable compromise. These countries might be characterized as social democracies but they are not democratic socialist. As the Democratic Socialists of America party makes clear, they seek the eventual elimination of capitalism (market exchange and private ownership) through democratic means over time. These Scandinavian economies are at best a step along a progression to an ultimate socialist end. I think it is important to be clear about our terms but I my concern runs deeper.
I just came across an excellent piece about comparative economic systems, Capitalism with Scandinavian characteristics. It is written by economist Timothy Taylor. You may know him from the Great Courses class on economics. Taylor tackles some of the issues I just raised and more. But I particularly resonate with the closing paragraph of his piece.
"It seems inaccurate to me to label the Scandinavian model of capitalism as “socialism,” but arguing over definitions of imprecise and emotionally charged terms is a waste of breath. What does bother me is when the “socialist” label becomes a substitute for actually studying the details of how different varieties of capitalism have functioned and malfunctioned, with an eye to what concrete lessons can be learned."
Bingo! My concern with the "democratic socialist" label is not a predilection toward etymology. We need to be clear about what we mean. If your vision is something akin to Nordic capitalism (aspects of which I find very positive), using terms like "socialism" and "democratic socialism" does not advance productive discussion.
Please read Taylor's piece. Good stuff!
Jan 08, 2019
Democratic Socialism IS Socialism
This article, Here's the difference between a 'socialist' and a 'Democratic socialist' has been circulating as an explainer as to why “democratic socialism” is different from socialism. Democratic socialists merely believe a range of services – like health care and education – should be provided by the government. People circulate this article as evidence that people who suggest that democratic socialists want to end private property and usher in a state-run economy, are either fear-mongers or ill-informed. Did they read the article?
As the economist author notes (and as any standard dictionary will tell you) socialism at its core is state control of the economy and the virtual elimination of private property. Democratic socialism is committed to the ultimate socialist ideal but works to achieve it incrementally through democratic processes. I want to point out two quotes from the article, highlighting a key word in caps:
“In the present day, "Democratic socialist" and "socialist" are often treated as interchangeable terms, which can be confusing given Democratic socialists don't necessarily think the government should IMMEDIATELY take control of all aspects of the economy.”
“As the DSA's website states: "At the root of our socialism is a profound commitment to democracy, as means and end. As we are unlikely to see an IMMEDIATE end to capitalism [i.e., market exchange and private ownership] tomorrow, DSA fights for reforms today that will weaken the power of corporations and increase the power of working people."”
Immediate means not now but eventually. Democratic socialism has state control of the economy and abolition of private property as its end game. Democratic Socialists of America say so in their own words! And fully-realized socialism inescapably leads to totalitarianism, not democratic.
Despite having sympathy with the notion of a greater state role in some aspects of meeting basic needs, I will adamantly contest socialism. Market exchange is paramount to generating and sustaining human well-being. It is what has led to the “great divergence” from a world where the overwhelming majority had a subsistence existence during short difficult lives, into a world where extreme poverty is on the verge of elimination. Life expectancy has more than doubled in recent generations and indicators of well-being are improving on nearly every front. Furthermore, I’ll say that the freedom to own property, to truck and trade, to partner with others in productive enterprises, and to reap the rewards is a basic human right. Not absolute but a right nonetheless.
Advocating for a social safety net that cares for the most vulnerable is a matter of social justice. Advocating for private stewardship of property and market exchange is as well.
Mar 01, 2017
Recycle Or Not? The Need To Test Good Intentions
This article from October 2015, asks, Are We Recycling Too Much?
Our study made the first known attempt to combine these various costs and benefits into one analysis to estimate what recycling rate is best. Our conclusion was that recycling up to 10% appears to reduce social costs, but any recycling over 10% costs the environment and the economy more than it helps. The environment and economy suffer as we transport some recycled materials to destinations as far afield as China.
These provocative results certainly require confirmation from future independent and objective research before broad policy goals can be adjusted. Also, many of the benefit and costs associated with waste disposal and recycling vary across regions of the country and world, and thus optimal recycling rates may also vary. For example, we used municipal cost data from Japan for this study because the United States and most European countries do not keep such data.
But if these results hold for other developed countries, then society should collectively rethink how to approach recycling.
And
But the substantial environmental benefits outlined above of using recycled materials in production vary substantially across materials. Aluminum and other metals are environmentally costly to mine and prepare for production. Paper, too, is costly to manufacture from raw sources. But glass and plastic appear relatively easy on the environment when manufactured from raw materials.
These differences are vital. Although the optimal overall recycling rate may be only 10%, the composition of that 10% should contain primarily aluminum, other metals and some forms of paper, notably cardboard and other source of fiber. Optimal recycling rates for these materials may be near 100% while optimal rates of recycling plastic and glass might be zero. To encourage this outcome, a substantial subsidy offered only on those materials whose life cycles generate positive environmental benefits should be applied.
The article illustrates once again that whether we are talking tax cuts, living wages, rent control, tariffs, or recycling, good intentions unsupported by empirical evidence can be counterproductive.
Number of Job "Wanters" is About 14 Million (Not The President's 94 Million)
Last night, the president said there are 94 million people "out of the labor force" needing a job. No.
The number of people wanting a job is about 14 million people.
Let us do the math:
- US Population = 330 million
- Population age 16 and older = 254 million (non-institutionalized)
- Adult population in the labor force = 160 million (7.6 million unemployed)
- Adult population not in the labor force = 94 million (254-160=94)
- Adult population wanting a job but not looking = 6 million (aprox.)
- Adult population not wanting and not looking for a job = 88 million
- Adult population wanting a job, looking or not = 14 million (aprox.)
Who are the 88 million adults not wanting and not looking for a job? Some examples:
- High school students ages 16-18
- College students
- Stay at home parents
- Adult caregivers
- Retired people
- Disabled people
The president said 1 in 5 working prime working age adults (25-54) are not working. Well, yes. This includes:
- Stay at home parents
- Adult caregivers
- Disabled persons
- People who retired early
- Older adults who have gone back to school
The unemployment rate for this age segment is 4.1%, which means 1 in 25 people who want a job and are actively looking for a one are “not working.”
The number of people without a job and wanting one, whether they are looking or not, is about 14 million people. Trump overstates the problem by nearly seven-fold. (94/14=6.7) He has been called on this repeatedly, yet he continues to repeat a faulty number that would flunk a high school economics student. One of two things is true. A) He is incredibly ignorant of the most basic of economic concepts and is unwilling to listen to correction, or B) he is being willfully and cynically deceitful. (Some of his mistakes can likely be attributed to off-the-cuff remarks that, while inaccurate and unwise, may just be mistakes. This issue has been raised multiple times.) Neither bodes well for becoming a swap-draining renewal president.
Sources:
Nov 17, 2016
History Doesn't Repeat Itself ...
... but sometimes it rhymes.
Nov 01, 2016
Polarity Management Versus Problem Solving
Question. When it comes to breathing, do you prefer inhaling or exhaling?
I have asked this question many times and it always elicits a chuckle. Clearly if you choose one over the other, you end up dead. And if your body decided that this ongoing struggle between inhaling and exhaling was a problem to solved, you would end up dead. Breathing is not a problem to be solved. It is a polarity to be managed.
Polarity management has a much wider application then biology. It applies to a wide range of features in human systems. Economist John McMillian (Stanford) wrote an insightful book called, “Reinventing the Bazaar: A Natural History of Markets.” McMillian makes the case that the never-ending struggle in political economy has been to find the right mix of centralization and decentralization. If power becomes too centralized, then it will become oppressive and destructive. Yet, without centralized power, local tyrants emerge, injustice proliferates, and warring factions square off, sending society into chaos. In this sense, political economy is a polarity to be managed, not a problem to be solved.
Writing in the Atlantic, Eric Liu makes an important observation (emphasis mine):
"We don’t need fewer arguments today; we need less stupid ones.
The arguments in American politics today are stupid in many ways: They’re stuck in a decaying two-party institutional framework; they fail to challenge foundational assumptions about capitalism or government; they center on symbolic proxy skirmishes instead of naming the underlying change; they focus excessively on style and surface.
Americans can do better. Remember: America doesn’t just have arguments; America is an argument—between Federalist and Anti-Federalist world views, strong national government and local control, liberty and equality, individual rights and collective responsibility, color-blindness and color-consciousness, Pluribus and Unum.
The point of civic life in this country is not to avoid such tensions. Nor is it for one side to achieve “final” victory. It is for us all to wrestle perpetually with these differences, to fashion hybrid solutions that work for the times until they don’t, and then to start again.
"America is an Argument." Bingo! I think you will find the same is true in all human structures, including church and family. Part of what facilitates better discussion and arguments is appreciating that we are often wrestling more with polarities and less with virtue and vice.
Mar 18, 2016
Socialism. You Keep Using That Word …
Many Americans, especially progressives, are now “socialists.” The rise of Bernie Sanders has had much to do with it. Yet, when I hear them talk, I keep hearing Inigo Montoya, “You keep using that word. I do not think it means what you think it means.”
According to Marxian theory, Socialism is a transitional economic system between capitalism and communism. Capitalism (i.e., private property ownership and the distribution of goods and services through market exchange) will run its course and one day a classless society with no private property will evolve. The workers will hold things in common and goods will be distributed according to need.
Some Marxists believed they could accelerate this evolution through violent revolution and imposition of communist principles. We saw that tactic attempted several times in the last century. Others believed economic evolution should run its course. People could work for greater social justice within the system as they methodically brought every aspect of the economy under the control of the government, eventually ending private ownership of the means of production. From there, it would be just a few more steps to the communist utopia. This transitional system is socialism.
Socialists called themselves “social democrats,” or “democratic socialists,” advocating “social democracy.” The emphasis here is democracy. Since communism is the inevitable outcome, there is no need to short circuit the process through violent revolution. People will choose their way into communism.
During the last century, it certainly became clear that relying on markets and philanthropy alone was not an optimal strategy for a just and flourishing society. Government has assumed control of some functions to ensure the broader welfare of citizens in all of today’s capitalist societies. These functions have been “socialized.” But the broader context is still private property and market systems. “Socializing” selected functions is not a tactical progression toward communism. This is welfare capitalism.
However, a funny thing happened to socialism along the way through the last century. It was mugged by reality. It has become clear that socialism is fatally flawed. Market systems provide a real-time feedback loop of information, matching ever-changing demands with an ever-changing supply. Markets empower countless strangers to benefit each other through specialization and exchange. There is simply no way a centralized entity can manage the production of goods and services. Assuming those with the sufficient information could be trusted to have the wisdom and ethical courage to make optimal decisions, the endless churn of supply and demand makes sufficient information utterly impossible. (Other insurmountable barriers exist but that is for another day.) The “inevitable” road to communism was wrong.
Most political parties variously named “democratic socialist” or “social democrats,” have become advocates for expanding welfare capitalism. For precisely this reason, the word “socialist” has fallen out of favor in many regions. So in short, we have learned that neither pure libertarianism nor socialism is workable. We are all welfare-capitalist now: We rely primarily on private ownership and market exchange, and quibble about what societal functions might be better if socialized.
So let us look for a minute a Bernie Sanders, the “socialist” icon for hipster intellectuals. Sanders talks of making America more like Denmark – or the Nordic economic model. Are Nordic countries socialist? Finnish-American journalist, Anu Partanen, author of The Nordic Theory of Everything: In Search of a Better Life, recently noted:
The problem is the way Sanders has talked about it [Nordic economic model.] The way he’s embraced the term socialist has reinforced the American misunderstanding that universal social policies always require sacrifice for the good of others, and that such policies are anathema to the entrepreneurial, individualistic American spirit. It’s actually the other way around. For people to support a Nordic-style approach is not an act of altruism but of self-promotion. It’s also the future.
In an age when more and more people are working as entrepreneurs or on short-term projects, and when global competition is requiring all citizens to be better prepared to handle economic turbulence, every nation needs to ensure that its people have the education, health care, and other support structures they need to take risks, start businesses, and build a better future for themselves and for their country. It’s simply a matter of keeping up with the times.
In a recent address at Harvard University, Denmark’s prime minster, Lars Løkke Rasmussen, made this observation:
I know that some people in the US associate the Nordic model with some sort of socialism. Therefore, I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy. … The Nordic model is an expanded welfare state which provides a high level of security to its citizens, but it is also a successful market economy with much freedom to pursue your dreams and live your life as you wish.
Are you getting that? A robust welfare system is a means to a robust market economy! And that raises another issue: markets.
Paraphrasing Partanen, progressive Americans see Nordic social policies as anathema to market capitalism. They argue that allowing corporations to rig the system in the favor of a few, allegedly an inherent feature of capitalism, is social injustice. It makes no sense. If corporations are rigging the system, then it is not truly a market! The socialist answer would be for the government to assume ownership of corporations. If you just want to end inordinate privilege for big-business, then what you are advocating is – wait for it – freer markets!
In reality, there is no such thing as "free markets." Market economies are based on the premise that absent fraud, misinformation, and externalities, people will make the best and most efficient decisions about what to consume and produce for their own needs, mediated through price information generated by supply and demand. Producers who produce well will be rewarded and those that do not will eventually fold. The reality is that there is always incomplete information and there are nearly always some externalities inherent in trade. Taxes and regulation are also necessary. But generally speaking, trade unencumbered by planners or by gamers of the system leads to higher living standards.
Big-business capitalists use political power to block competition and preserve economic power. They constrain markets. Writing 240 years ago, Adam Smith wrote, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Free markets are the answer to powerful economic players conspiring with government to choke off competition and preserve their privileged status through subsidies, tariffs, and onerous legislation.
Socializing some aspects of society is not antithetical to market economics. We cannot deliver some social goods through markets, or at least not deliver them well. But we must have a robust market economy to generate the tax revenue to make socialized services sustainable. Denmark is the top rated country in the world on business and trade. The other Nordic countries are right behind them. This is not the Sanders model.
Sanders wants to institute protectionist policies, raise taxes on corporations (USA is already on the high side), set a minimum wage 50% higher than other developed countries, and do a host of other trade unfriendly measures. Meanwhile, taxes for all but the wealthiest will stay low (taxes in Nordic countries are high for everyone.) He wants to expand the safety net golden egg while strangling off the goose that lays it. He thrives on populist anti-market and anti-business sentiment. Curiously, Clinton is probably closer to the Nordic model, embracing an expanded and smarter welfare model, while championing (at least in the past) trade and business. Yet she dismisses Denmark as contrary to this vision. Partanen speculates Clinton knows her plans are more genuinely like Denmark than are Sanders’ but she avoids association with the Nordic model because of public misconceptions. I think that is true.
So why are so many supposedly well-educated people now calling themselves socialists? One big reason is surely economic illiteracy. Going back to at least the 1930s, conservatives warned of “socialism” with the advent of Social Security. Same with Great Society programs in the 1960s - now also with ACA and talk of single-payer healthcare. To some degree, left-leaners just decided to own the moniker. Simultaneously, enough libertarian-leaning folks falsely used free markets to rationalize away ANY government involvement in anything; so many lefties just owned this misconception of “free market.” What they want is a more robust version of welfare capitalism and less big-business domination. Economic illiteracy is my generous reading of why people call themselves socialist. But I have a less generous reading as well.
Partanen writes:
Americans are not wrong to abhor the specters of socialism and big government. In fact, as a proud Finn, I often like to remind my American friends that my countrymen in Finland fought two brutal wars against the Soviet Union to preserve Finland’s freedom and independence against socialism. No one wants to live in a society that doesn’t support individual liberty, entrepreneurship, and open markets. But the truth is that free-market capitalism and universal social policies go well together—this isn’t about big government, it’s about smart government. …
Like the Finns, countless Americans fought to keep America free from the totalitarian ideologies that emerged in the last century. They largely won. They considered it a legacy to pass to future generations of America and to the world. Rightfully so. So why would people seeking a more robust welfare state and less big-business domination call themselves socialists?
Inigo Montoya is wrong with regard to many of the new “socialists.” They know exactly what the word means! They know the emotion it stirs. The misuse is intentional. Calling yourself “socialist” is the left’s version of Trumpist politics: Stir up tribal rivalry with incendiary language. Raise a verbal middle finger to your opponents. When they call you on it, roll your eyes with incredulity that people would accuse you of advocating totalitarianism. “After all, we just want to improve the safety net end reign in corporate greed like any good social democrat.” So to my “socialist” friends who cannot fathom the origins of anger in Trump voters, part of the answer is staring at you in the mirror. Sow the wind and reap the whirlwind.
If your sole concern is fomenting tribal political battles, then the above is mostly irrelevant to you. Calling yourself a socialist is effective for your purposes. If you care about clarifying the truth in pursuit of a greater good for humanity, then you will use language that is faithful to what is being described. Whether through illiteracy or insolence, “socialism” fails that standard. You really need to stop using that word.
Mar 01, 2016
Rosling Univeristy (How to be smarter than a chimp)
Are you smarter than a chimp? When it comes to knowledge about global socioeconomic trends, there is a good chance you are not. For years, Swedish global health expert, Hans Rosling, has been giving Ted talks and making presentations about global trends. One his favorite teaching tools is to ask people a question like this:
Globally, over the past 20 years, the rate extreme poverty has:
- Doubled.
- Stayed the same.
- Decreased by more than half.
Now chimps will select at random, giving a 33% chance of each answer. Yet when Rosling asks audiences, at least half will say A, a sizable percentage will say B, while a few will say C. Yet C is the correct answer! This is the case on one variable after another. Audiences routinely score worse than chimps, choosing the most negative option.
As an old adage has it, "It isn't what we don't know that gets us in trouble. It's what we know that ain't so." That we routinely pick the wrong answer more often than chimps shows that we clearly we have bias.
In the Ted talk, How not to be ignorant about the world, Hans' son Rosling notes that part of the problem is our education system. Teachers go to college at a particular point in time and learn the state of the world at that time. But they tend not to learn about ongoing developments. The data has often been hard to come by and hard to interpret. So teachers are biased by what they learned years ago. (Reporter have the same problem.) But there are other factors.
During our evolutionary history, our brains became wired to notice threats. Hunters walking through the brush who were attentive to the possibility of tigers lying in wait, likely survived those who went about carelessly enjoying a beautiful day. So when we reflect on broad human trends, we are disposed to fixate on perceived threats. What was useful for us in the wild, is counter-productive for us as we try to interpret socioeconomic trends. If you want to outscore a chimp on an exam about global well-being, Ola Rosling suggests that you must drop your predispositions and adopt these four rules of thumb:
1. Assume most things are improving.
2. Assume most people are in the middle of a distribution, not a binary of rich and poor.
3. Assume social development precedes becoming wealthy. (Don’t assume that a population must be rich before meeting basic social needs.)
4. Assume you are exaggerating the threat if the topic is something about which you personally have great fear.
Additionally, Hans, Ola, and others have been working to build the Gapminder website to provide you with data that can be presented in meaningful ways. But one of the most important contributions the Roslings have made is their collection of entertaining and informative videos. In this post I am including every video I can find with a brief annotation. (I'll add more as I find any.) Many of the videos overlap or cover similar data but they are all well worth viewing. So here is your resource for becoming smarter than a chimp. Don't say I never gave you anything.
(This link also has links to most of these videos including some shorts not listed here: Gapminder Video)
Hans Rosling's 200 Countries, 200 Years, 4 Minutes (2010)
If you are just getting acquainted with Rosling, I'd begin here. This 4 minute presentation gives you a quick sense of what he is talking about.
Hans and Ola Rosling: How not to be ignorant about the world. TED June 2014
This is the second video to watch. The front half is Hans making his case that the world is improving and the back half is Ola explaining, as I recounted above, why are so disinclined to see positive change.
Hans Rosling: The magic washing machine. TED December 2010
This is the third one to watch. This one of my favorites. While fully embracing the concern about environmental impacts of economic growth, Rosling shows the importance of economic growth through the story of the washing machine.
THE REST ARE IN CHRONOLOGICAL ORDER
Hans Rosling: The best stats you've ever seen. TED February 2006
The TED presentation that kicked it all off. He focuses on the positive changes underway in world and points to his efforts to liberate, integrate, and animate data, and to find ways to present data the public finds understandable.
Hans Rosling: New Insights on Poverty. TED March 2007
Rosling shows that social development tends to precede economic development. He addresses the issue that unfortunately to date, economic development has always been based on fossil fuels. Higher yields, technology, and markets are key to ending poverty but there are more dimensions that need our attention like human rights, environment, governance, economic growth, education, health, and culture. The ending has a great surprise!
Human Rights and Democracy Statistics- Gapminder c. 2008
Rosling describes why human rights are so hard describe and evaluate.
Yes they can! - Gapminder c. 2008
Rosling explains that poor nations will one day become prosperous and we should welcome that.
Poor Beats Rich in MDG Race - Gapminder c. 2008
Rosling shows that countries that have developed from poverty to well-being have done so at far faster rates that Western nations did. Poor countries today can make the transition much quicker because of what previous countries have learned.
What stops population growth? - Gapminder c. 2008
The key to ending population is small families, and the key to small families is childhood survival.
Hans Rosling: Insights on HIV, in stunning data visuals. TED February 2009
Uses Gapminder data to show nuances in how AIDS has spread and what it takes to defeat it.
Hans Rosling: Let my dataset change your mindset. TED June 2009
This is the third video should watch. Rosling deconstructs the dichotomy of wealthy and developing nations, and challenges the idea of thinking in sweeping terms like "Africa."
The Joy of Stats with Professor Hans Rosling - Gapminder c. 2010
Rosling shows how making data available and animating is empowering people to make better decisions, sometimes without really realizing they are using statistics.
Hans Rosling: Asia's rise -- how and when. TED Nov 2009
Rosling forecasts when China and India catches up with the USA and UK.
Hans Rosling: Global population growth, box by box. TED June 2010
Rosling says that child survival is the new green. This video explains why.
Hans Rosling: The good news of the decade? We're winning the war against child mortality. TED September 2010
Rosling breaks down the remarkable trends in child mortality. Education of women accounts for at least 50% of the drop.
Hans Rosling: Religions and babies. TED April 2012
Religion is not a factor in family size. No significant difference between Islamic and Christian countries when it comes to births per woman. The defining difference is economic well-being.
DON'T PANIC — Hans Rosling showing the facts about population. BBC November 2013
A one hour investigation into the dynamics of population growth using stories about real live families interspersed with Rosling's entertaining presentation of data.
Don't Panic - How to End Poverty in 15 Years. BBC September 2015
No embed is available.
Here is a link to a series of short videos on how to use development data visually.
An introduction to visualising development data
Dec 11, 2015
Minimum Wage, Nativism, and the Illiberal Roots of Progressivism
Virginia Postrel has an interesting article at Bloomberg "Progressive and Racist. Woodrow Wilson Wasn't Alone," a book review Thomas Lenoard's Illiberal Reformers: Race, Eugenics and American Economics in the Progressive Era. Here are a few key quotes:
The progressives believed, first and foremost, in the importance of science and scientific experts in guiding the economy, government, and society. Against the selfishness, disorder, corruption, ignorance, conflict and wastefulness of free markets or mass democracy, they advanced the ideal of disinterested, public-spirited social control by well-educated elites. The progressives were technocrats who, Leonard observes, “agreed that expert public administrators do not merely serve the common good, they also identify the common good.” Schools of public administration, including the one that since 1948 has borne Woodrow Wilson’s name, still enshrine that conviction.
Later, she writes:
Advocates similarly didn’t deny that imposing a minimum wage might throw some people out of work. That wasn’t a bug; it was a feature -- a way to deter undesirable workers and keep them out of the marketplace and ideally out of the country. Progressives feared that, faced with competition from blacks, Jews, Chinese, or other immigrants, native-stock workingmen would try to keep up living standards by having fewer kids and sending their wives to work. Voilà: “race suicide.” Better to let a minimum wage identify inferior workers, who might be shunted into institutions and sterilized, thereby improving the breed in future generations. ...
... Clark’s theory is now a foundation of mainstream labor economics. In his day, however, it was highly unpopular. “A key element of resistance,” writes Leonard, “was that many progressives were reluctant to treat wages as a price,” rather than a right of citizenship and social standing. Informed by their beliefs in scientific racism, most progressives preferred wages to favor some groups over others: men over women, whites over blacks, and most prominently, native stock over immigrants.
Although they generally assumed black inferiority, progressives outside the South didn’t worry much about the “Negro question.” They were instead obsessed with the racial, economic, and social threats posed by immigrants. MIT president Francis Amasa Walker called for “protecting the American rate of wages, the American standard of living, and the quality of American citizenship from degradation through the tumultuous access of vast throngs of ignorant and brutalized peasantry from the countries of eastern and southern Europe," whom he described in Darwinian language as “representing the worst failures in the struggle for existence.”
So restricting immigration was as central to the progressive agenda as regulating railroads. Indeed, in his five-volume History of the American People, Wilson lumped together in one long paragraph the 1882 Chinese Exclusion Act and the 1887 Interstate Commerce Act as “the first fruits of radical economic changes and the rapid developments of trade, industry, and transportation” -- equal harbingers of the modern administrative state. With a literacy test and ban on most other Asian immigrants enacted in 1917 and national quotas established in 1924, the progressives bequeathed to America the concept of illegal immigration.
The first paragraph is preface for what follows. It relates why I eschew the label "progressive" despite having some sympathies for some aspects of what today's progressives espouse. In my estimation, "progressivism," then and now, contains substantial hubris - believing that through dispassionate logic, science, and a superior moral locus, we are justified in moving heaven and earth to bring about a brave new world. Institutions and practices that have emerged through time as practical ways of making the world work be damned! I believe most change should be modest reform, not revolution. It is in this sense that I would claim the term conservative. We want to conserve the good as we seek improvement. We aren't that smart and we aren't that noble, when it comes to redesigning the world.
The minimum wage piece is particularly interesting. While impacts of minimum wage increases art notoriously complex and difficult to summarize with precision, most economists agree that substantial increases in the minimum wage dampen job growth overtime. There are studies that show, just as the early progressives logically surmised, that increased minimum wages have a negative impact on the employment of minorities, particularly young black men.
I am definitely going to read this book!
Oct 20, 2015
Double-Edged Denmark: What we Should Learn
Denmark became a central topic during the Democrats' debate last week. Bernie Sanders calls himself a democratic socialist. Hillary Clinton loves Denmark but is dismissive of the idea that America can be Denmark. This inspired a number of articles by various commentators about the truth behind Denmark economic model (or the Nordic model more generally.) Progressives like the high taxes, low inequality, and high government spending. Conservatives counter by noting that the Nordic countries rank among the countries highest in free trade and low corporate taxes. I've been linking articles on Facebook but I thought this piece in Niskanen was the best. Double-Edged Denmark
Right-leaning arguments about the free-market marvel that is Denmark cut both ways. Denmark shows us that a much larger public sector and a much more robust social-insurance system need not come at the expense of a dynamic market economy. In other words, Denmark shows us that capitalism and a large welfare state are perfectly compatible and possibly complementary.
The lesson Bernie Sanders needs to learn is that you cannot finance a Danish-style welfare state without free markets and large tax increases on the middle class. If you want Danish levels of social spending, you need Danish middle-class tax rates and a relatively unfettered capitalist economy. The fact that he’s unwilling to come out in favor of either half of the Danish formula for a viable social-democratic welfare state is the best evidence that Bernie Sanders is not actually very interested in what it takes to make social democracy work. The great irony of post-1989 political economy is that capitalism has proven itself the most reliable means to socialist ends. Bernie seems not to have gotten the memo. But Bernie Sanders isn’t the only one failing to come to terms with the implications of Danish social-democratic capitalism.
The lesson free-marketeers need to learn is that Denmark may be beating the U.S. in terms of economic freedom because it’s easier to get people to buy in to capitalism when they’re well-insured against its downside risks. That’s the flipside irony of free-market “socialism. ...
... the reason the U.S. is lagging so far behind big-government Denmark on free trade, corporate taxation, ease of doing business, and more may very well be that the American safety net isn’t good enough, and economic insecurity at the bottom and middle makes free-market policies a tough sell to anxious American voters.
I don’t know that this is true. But, then again, libertarians and free-market conservatives don’t know that it’s not. Mostly, ideological American capitalists really badly want to believe it’s not true that we’re falling behind Denmark as capitalists because we’re not redistributive enough. (I mean, the previous paragraph made me feel like I was channeling E.J. Dionne, which was … unsettling. But let us put away childish things.) Because if it is true, and social insurance and capitalism are complementary in this way, then champions of economic liberty will be forced to face up to the possibility that attacking the welfare state undermines support for laissez faire economic policy. Some of us might even be forced to choose between our love of capitalism and dislike of the welfare state. Awkward. ..."
Economic development always includes, in some broad sense, an embrace of trade and freedom from arbitrary interference in market activity. Yet when you look at the various nations that rose to affluence in the last century, diverse paths were taken to get there. The particular path toward trade and freedom seems not to be as important as is the issue of stability. When the various players in the economy and society behave in predictable patterns, they are better able to predict and coordinate their behavior, even if the patterns are not optimal in terms of trade and freedom. Imposition of trade and freedom that generates too much instability may be worse than simply staying with less effective economic models in the short-run and letting things evolve.
This need for security and stability is a piece that is frequently undervalued by most libertarians at both the macro and micro levels. Economic historians will tell you that one of the pivotal developments in history (among several) was the emergence of limited liability. People could pool their resources and form joint ventures without putting their entire assets at risk. Bad choices or unforeseen developments would not leave you destitute.
If the aim is a dynamic risk-taking economy leading to high productivity and economic growth, then we need security and stability for citizens. With a basic safety net in place (here I’m thinking mostly of a guaranteed minimum income as opposed to our wasteful welfare industry), people would become less risk-averse, knowing that trying new stuff doesn’t lead to destitution if you fail.
But if libertarian conservatives are blind to issues of security, then progressives are blind to productivity and economic growth. Take the living wage debate. It is said that Walmart’s low wages are possible because we taxpayers subsidize the workers through the welfare system. Nonsense. Welfare support drives up wages. If the wages aren’t at least comparable to welfare options, then why work?
Furthermore, while each business should have the aim of helping their employees flourish (improving their skills and providing opportunity to gain more responsibility in a safe environment), businesses are neither benefactors nor aid agencies. They are the institutions responsible for transforming matter, energy, and data from less useful forms to more useful forms on a sustainable basis. Sustainability means creating more value than the value of resources being used. Wages artificially set above the economic value contributed by labor are unfavorable to productivity and sustainability.
I know of no country, including the Nordic countries, who presume that every job in every circumstance should provide a “livable” income “unsubsidized” by government. Minimum wage is a temporary introductory wage people earn as they develop skills and experience. Few earn it for more than a period of few months. Excessively high introductory wages compels businesses to adapt in ways that reduce the amount of this labor they use, and decrease the opportunities for the least-skilled to find an on-ramp into the economy.
So while precisely replicating the Danish or Nordic model in a large diverse nation like the United States may not be feasible, there are lessons here. To the degree the Nordic models have worked, they have done so because they have successfully married security and growth. This is a managed polarity for them, much like breathing embraces both inhaling and exhaling. In America, our partisan factions each grasp one pole of the polarity and demonize the other. To the degree either succeeds, we are in deep trouble. That is the lesson I learn from double-edged Denmark.
Oct 12, 2015
Jun 01, 2015
'Great Decoupling' of Wages and Productivity Driven by New Technology
Huffington Post: 'Great Decoupling' of Wages and Productivity Driven by New Technology
Interesting chart.
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May 07, 2014
Is Income Inequality Really the Problem? It Depends on What You Call Income
Are the rich getting richer and the poor getting poorer? Stories about inequality typically talk about how the rich, especially the top 1%, are seeing their incomes grow rapidly while people at the bottom are seeing their incomes stagnate and drop. A gap is widening between the top and the bottom. Is that true?
The Federal Reserve Bank of Minneapolis has just published an interesting report that studies the relative income performance of households from 1967-2012. It compares households at the 95th, 50th, and 20th percentiles of the income distribution. The reports distinction between two types of income is revealing: Market income and disposable income.
Market income (pre-tax and pre-transfer income) is what we typically see reported. But when we adjust for taxes (which substantially decreases the income of the wealthy) and add in transfer income like social security, unemployment, and welfare payments (which substantially increases the income of people in poverty) we get disposable income. Disposable income paints a much different picture than market income. Let's look at two important graphs:
The top line in the chart is the ratio of market income (pre-taxes and transfers) of households at the 95th percentile as ratio to households at the 50th percentile. For example, it appears the households at the 95th percentile made 2.7 times as much as those the households at 50th percentile in 1967. By 2012, they were making about 3.6 times as much. The bottom line tells a different story.
Disposable income (after taxes and transfers) follows a similar pattern until about 2000 when the ratio leveled out at just below 3.0, and has remained between 2.9-3.0 ever since. That means that despite market income having risen faster for the 95th percentile compared to the 50th percentile, inequality in terms of what people have to spend at the end of the day hasn't really changed for almost fifteen years.
Then there is this chart:
This chart shows the ratio of the 50th percentile to the 20th percentile. Note the ratio of market income continues to widen with each business cycle. The recessions, shaded gray, result in spikes of unemployment. That expands the ratio and then the ratio contracts a little as employment improves. The sharp jump at the end correlates with very high unemployment and underemployment.
But the striking thing is the disposable income line. It is flat from 1983 onward (until a slight increase since the 2008 financial meltdown.) There has been virtually no change in inequality between the 50th percentile and the 20th percentile for thirty years!
Some observations:
1. The debate raging around inequality typically points to the widening gap in market income between the top and bottom. More transfer of wealth is proposed to balance out the income people receive. Market income and disposable income are conflated. If a household with a market income of $15,000 gets transfers of an additional $15,000, for a total of $30,000 in disposable income, they still have a market income of $15,000! Pointing to market income statistics as an indicator that distribution of income is insufficient is erroneous. By this reasoning, a $15,000 household could get $1,000,000 in transfers but they would still be "living in poverty" because transferred income is not being considered in the income calculation.
2. This analysis focuses only on households at the top 5%, not the top 1%, where so much of the debate has been. For reasons reported in the article, the data did not lend itself to a study of the very top 1% or 0.1%. The ratio of disposable income of the very top to lower percentiles may be increasing. But it is certain that the ratio of disposable income is much lower than market income.
3. This study seems to suggest that public policy has been doing a very good job of preserving disposable income ratios for many years. We may want to debate if these ratios are just but they are not widening.
4. The fact the market income ratio continues to widen, meaning it takes evermore transfers to keep disposable income constant, suggests that low wages and unemployment, not insufficient transfers, are becoming the problem. Left leaning figures like Robert Reich argue that decline of union bargaining and failure to raise the minimum wage are the culprits. Companies aren't paying employees relative to their economic contribution. That leaves taxpayers to subsidize the work that these companies get from low wage workers. Other economists suggest the labor market is more efficient then that and that most employees are being compensated relative to their economic contribution. While very modest minimum wage increases are likely without much impact on the total labor market, substantial jumps in the minimum wage are likely to lead to automation and off-shoring, thus more unemployment and even more need for transfers than the alleged subsidization of low-wage workers today. Who knows exactly where the truth lies.
We do know that technology and the economy is rapidly changing. That means we need a workforce with the human and social capital to take advantage of such changes. Strong families and educational systems are central to developing that capital and we know these institutions have been weakening for some time. That doesn't help the market income challenge.
Bottom line, disposable income inequality is not getting worse for the bottom 95%, and it seems likely that whatever inequality is growing between the top 1% and the rest is substantially less than the market income widely reported. Maybe present distributions of disposable income are unjust. That is worthy of debate. But that is different from saying inequality is growing. Market income inequality continues to rise and what is unclear is if there is a policy fix for this or if this is market income inequality is inherent in a post-industrial and digital economy.
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Apr 07, 2014
The World’s Bottom 10%: 7.5% Live in North America and None Live in China … And Other True But Worthless Facts
Back in January, Oxfam published a statistic saying that 85 people have more wealth than the bottom half of the world population. It has become a widely circulated stat in the debate about inequality. (Forbes recently countered that the number is actually 67 people.) But what to do these numbers mean? I know full well that when most people hear “wealth” they envision how much money and stuff people own. That is incorrect. These are assets. Wealth is your assets minus your liabilities (i.e., debt). What difference does that make?
Felix Salmon, a writer at Reuters, did some digging into the Oxfam report to find the data upon which they based their claims. (See: Stop adding up the wealth of the poor) It comes from Credit Suisse’s 2013 Global Wealth Databook and here is a graph Salmon clipped showing another take on the data:
Notice the top left corner of the chart. It shows that 7.5% of North Americans are in the bottom 10%. If you look further down you will see that virtually no one from China is. How is that possible?
Take two hypothetical people:
1. American Physician – A new physician with a salary of $150,000 a year. She has $125,000 dollars in student loans and a car with a $25,000 loan. That totals to $150,000 of debt. She is renting an apartment. Her total assets including cash, car, and other items equal $50,000. That means her wealth is a -$100,000.
2. Chinese Peasant Farmer – A Chinese farmer who earns the equivalent of $3 a day, or $1,400 a year. He has managed to save $50 in cash and he has property worth about $250. He has no debt. His wealth is $300.
The physician would likely be found in the lowest decile while the farmer will be in the third or fourth decile. By Oxfam’s reasoning, the farmer is much wealthier than the physician! That is technically true but does this have any correspondence with what most people think of when the think of "wealth?"
Just as advanced economies have upper income levels that far outstrip the upper levels of emerging nations, so do they also have people with huge sums of net debt that far outstrip what people would have in emerging nations. Consequently, people from more advanced economies are going to dominate at either end of the wealth distribution. (You see evidence of this in the chart by the higher percentages at the extremes for North America, Europe, and Asia-Pacific excluding China and India.) People who are unable to earn or borrow much are going to be more toward the middle of the distribution. But as with the physician, high debt doesn’t necessarily mean deprivation.
Wealth is a useful measure for some purposes but if we want to get an accurate picture of economic well-being we most also include measures like income. Particularly important is consumption per capita because “income” doesn’t include transfers and non-cash assistance. Statistics often show people routinely consuming as much as double their cash income because of this discrepancy. Consumption tells much more about how people actually live. In short, Oxfam’s stat is great for sensational headlines but does little to educate us about the challenges people face.
(Related: Your New Born Is Wealthier than 60 Million Americans)
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Feb 28, 2014
Employment is the Issue, Not the Minimum Wage
There is a lot of talk about raising the minimum wage to $10.10. I sense many advocates believe this will lift countless millions out of poverty. Is that true and is the minimum wage a central factor in reducing poverty?
I'm not advocating for or against the minimum wage. The Congressional Budget Office did a review of the economic literature and concluded that, on balance, a raise to $10.10 would have a net positive impact. So let's go with that for now (more below). My question is about the minimum wage as a poverty fighting tool.
There were 46.2 million people below the poverty income threshold for income before taxes, transfers, and noncash benefits. By definition, the minimum wage will only have in impact on people earning a wage (and their dependents). So let's break down the overall poverty number. Keep in mind that being in the "labor force" means being employed or actively looking for work.
Here is data from two government reports, A Profile of the Working Poor, 2011, from the Bureau of Labor Statistics and Income, Poverty, and Health Insurance Coverage in the United States: 2011, from the Census Bureau. (I'm using 2011 data because it is the most recent year for which all the below data exists.):
Observations:
- Nearly twenty million of the poor were not of working age. (Teens and seniors who were in the work force at least 27 weeks totaled to a little more than 100,000 people.) That leaves 26.5 million working age adults..
- There were 13.7 million of the 26.5 million who were of working age but were not in the work force at all. About a third of these folks (4.3 mil) were disabled. The remaining people 9.4 million likely included the incarcerated (probably about a million), stay at home parents, or the otherwise not employed and not looking. That leaves 12.8 million in the labor force for at least part of the year.
- Of those 12.8 million in the labor force, 2.4 million were in for less than 27 weeks, leaving 10.4 million who were in the labor force for at least 27 weeks.
- Of the 10.4 million in the labor force, 1.6 million were not employed at all, and another 3.9 were employed only as part-time workers, leaving 4.9 million usual full-time workers in the labor force.
Only in this remaining group of 4.9 million workers do we have the possibility of low-wage workers employed the full year but not making enough to get above poverty. But this group would also include people who may have had a wage sufficient to put them above the poverty level but were only employed for, say, thirty weeks. The number of people working the full 52 weeks is likely small.
Now let's add another layer. The Bureau of Labor Statistics also published Characteristics of Minimum Wage Workers: 2011.
- There were 3.9 million people who earned the minimum wage or lower. (There were 1.7 million workers that earned exactly the minimum wage. Another 2.2 million earned below the minimum wage due to exemptions like tipped work, full-time student status, and disabled workshops.)
- The median age for minimum wage workers was 24 years old.
Less than one quarter of minimum wage workers live in households that are below the poverty threshold, just under 1 million people. Note that above we said there were 4.9 million workers in the labor force for at least 27 weeks. Assuming all the 1 million worked the full year (grossly unrealistic) then only one fifth of the 4.9 million would meet the image of the worker earning a minimum wage for 52 weeks. The great majority of the 4.9 are people who worked more than 27 weeks but less than 52.
Also keep in mind that two thirds of minimum wage workers earn more a year later, the median increase being 24% according to one study. That means one third are making at least $9.00 a year later.
So here is the bottom line in dealing with poverty and employment. There were 9.4 million working adults who weren't in the labor force at all and another 2.4 million who were not in the labor force for half of the year. That is 11.8 million people. We add to this 1.6 million who were in the labor force but never found work for a total of 13.4 million people. Add 24 million dependent or disabled people in poverty to 13.4 million who weren't in labor force or who never found work, and you have 37.4 million people of the 46.2 million (81%) for whom the minimum wage has virtually no direct impact (though a small number of dependents would benefit from having a breadwinner with an increased wage.) For the remaining 8.8 million working age people in poverty the challenge appears to be insufficient hours, not the hourly wage.
Who benefits from the minimum wage is a complex calculation. Clearly it would have a positive impact on people making between $7.25 and $10.10, although to a diminishing degree as you go to the top end of that range. There would be some residual benefit to some people making more than $10.10. But here are some key observations from the CBO. There would be a $31 billion increase in wages but on 19% (about $6 billion) of this would go to poverty households while 30% (about $9 billion) would go to families who make three times the poverty level. Furthermore, CBO estimates 900,000 jobs that otherwise would have been created will not exist.
Employment is by far the key issue relating to poverty. Full-time work for 52 weeks, even with low starting wages, is the key to staying out of poverty for all but a tiny fraction of the population. The meme of the full-time minimum-wage worker working 52 hours a week while living in poverty is way overblown. The main challenge is not enough work, not too little wages. And to be sure, living just above poverty is not living in luxruy. But there are programs like Earned Income Tax Credits that could be expanded to help these low-income workers. CBO says that an increase to $10.10 is a good thing on balance. Fine. Let's go with that. But let us stop pretending that this is some monumental triumph for social justice and the elimination of poverty. Let's get some economic growth and start creating jobs. Let's invest ourselves in helping people in poverty aquire the human capital they need to flourish in a rapidly changing economy.
Feb 25, 2014
Limits to Growth: Still Wrong, Still Influential - Bjorn Lomborg
Below is a presentation by Bjorn Lomborg at Creative Innovation 2013: Asia Pacific. I think this is a remarkable presentation. First a few remarks.
How much can the global economy grow? That is a big issue in economics and in environmentalism. Clearly the earth has a fixed quantity of resources. If the economy grows exponentially, then one day we run out of resources and the world system collapses. We must limit growth if we are to survive. It seems so plainly obvious. Limits to Growth was an attempt to quantify just how this all played out and to advocate for changes.
My Dad was a professor and research chemist during my childhood. He was intensely focused on energy. Limits to growth conversations were in the ether all around me during my junior high, high school, and college years in the 1970s. I volunteered in the 1980 John Anderson presidential campaign, in part because he wanted to impose a $.50 a gallon gas tax that would get us off of petroleum and move toward nuclear and renewable fuels. Limits to Growth (LTG) was very much a product of the thinking of the 1970s mindset but its influence is still very strong today.
But the problem is that the LTG framing is spectacularly wrong! In the video below, Bjorn Lomborg unpacks why this is so. LTG focused on five factors:
- Population
- Agricultural Production
- Natural Resources
- Industrial Production
- Pollution
Each of these was believed to be growing exponentially. Population was growing exponentially. It requires a certain amount of acreage to generate enough food to feed each person. Feeding this growing number of people will mean cultivating evermore acreage. Supplying basic goods to these people will mean exponential growth in industrial production, with an attendant rise in resource consumption and pollution.
What the scenario spectacularly overlooks is human innovation and substitution. For example, population is growth is slowing and will likely stop at between 10 and 11 billion in the second half of this century. The growth was a direct result of the life enhancing technology that caused a sharp decline in death rates. But birth rates took far more years to adjust. Thus, millions of children that would have died young in past eras were now becoming adults and having children. But overtime, the fertility appears to drop back down to the replacement rate and even lower in some places. People innovated.
Another example. The amount of agricultural land to feed one American stayed constant until about 1910, when 310 million acres were in production. Now if you went back in time and told Americans that the population would triple during the next century and asked them how much agricultural land would be needed they could easily tell you? An additional 600 million acres, or most of the land area east of the Mississippi. How many acres are in production today? 310 million acres, the same as 1910. Innovation and technology allowed us to become magnitudes more efficient in agriculture to the point that not only are we able to feed the additional Americans but we export food. This is called decoupling because the two variables of population and agricultural land use no longer move in tandem. Americans innovated.
Here is one chart from the video below that shows a similar development in world agriculture.
Even with population growth, the land needed for agricultural is projected to remain about the same, or a little higher by other estimates. More decoupling through innovation.
Then there is this recent chart. It suggests that energy consumption may be decoupling from economic output:
As Lomborg notes, innovation is the missing element in LTG. Through recycling of some non-renewable resources, using nanotechnology to redesign materials at the molecular level, and eventually substituting renewable materials for non-renewables, the possibilities for growth are inestimable.
There is a caveat here. As we innovate it is possible that we may not find it possible to innovate quickly enough on a particular challenge to avoid creating considerable hardship for segments of the human race at a particular time. I’m not suggesting we should be without caution, just that the limits idea is very flawed.
Here is the video. Enjoy:
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Economics Links
1. Brookings: Prospects for Ending Extreme Poverty by 2030
2. Carpe Diem: World trade and output both reached new all-time record highs in November and are nearly 10% above previous peaks
3. PBS Newshour: More than 200 million people were unemployed in the world in 2013
Worldwide, the number of unemployed people rose by 5 million in 2013 to 202 million, according to the International Labor Organization’s Global Employment Trends report. The global unemployment ratio of youth to adults has reached a new high. The jobless rate for 15- to 24-year-olds hit 13.1 percent in 2013 (or 74.5 million), nearly three times the adult rate.
The organization predicts unemployment will worsen, with 215 million jobless by 2018. Roughly 40 million net jobs will be added each year, the ILO estimates, but that won’t be enough to absorb the 42.6 million people expected to enter the labor force each year. ...
4. Conversable Economist: Limited U.S. Power in a Globalizing Economy
Just to be clear, the U.S. economy is not becoming a economic minnow like Belize or Burundi. But 65 years ago, as the high-income countries climbed out of the wreckage left by World War II and today's emerging economies had not yet engaged in the global economy, the U.S. economy had an extraordinary time of dominance. For a time in the 1960s, it was common to hear that the planned economy of the USSR would outstrip the U.S. economy. In the 1970s and into the 1980, Japan was going to rule the world economy. Around 2000 and the launch of the euro, there was talk about the economic rise of the European Union. But now, we are seeing the rise of a multipolar and distributed world economy, with faster growth happening in the emerging economies, but with stronger linkages of trade and global supply chains reaching across the world economy. The U.S. can certainly be an active and leading participant in shaping the world's economic future. But neither the U.S., nor some combination of high-income countries around the world, has the power to dictate what configurations will emerge.
5. Business Insider: Here's A Chart Of Interest Rates Going Back To 3000 BC
6. PBS: Is the famous ‘paradox of choice’ a myth? Barry Schwartz
"Paradox of choice" is tha notion that too many choices become overwhelming and make life decisions less satisying.
... Often people choose on the basis of essentially irrelevant features of plans, just because the relevant features are too complex to evaluate. Has anyone ever suggested that the sensible alternative to too many options is a single option? Absolutely and unequivocally not. Psychology has known about “single option aversion” for a half century. With too few options, there is the risk that none will be satisfactory, whereas with too many, there is the risk of paralysis, confusion and dissatisfaction.
The trick is to find the middle ground — the “sweet spot” — that enables people to benefit from variety and not be paralyzed by it. Choice is good, but there can be too much of a good thing. Adam Grant and I recently published a paper suggesting that this “too much of a good thing” phenomenon is pervasive in psychology. ...
7. TED: Paul Piff - Does money make you mean?
"It's amazing what a rigged game of Monopoly can reveal. In this entertaining but sobering talk, social psychologist Paul Piff shares his research into how people behave when they feel wealthy. (Hint: badly.) But while the problem of inequality is a complex and daunting challenge, there's good news too. (Filmed at TEDxMarin.)"
8. Forbes: Downton Abbey Makes A Powerful Case For Economic Freedom
... One of the great things about Downton Abbey is that it allows fans to escape their worries and fantasize about life on a luxurious estate in early 20th century England. But the truth is, few of us could tolerate what we’d be forced to live with, and live without, in that world. ...
9. Carpe Diem: The middle class is shrinking ... because they are moving into the upper class! Census data on income distribution reveal evidence of rising income levels for a rising share of American households
10. AEI: This chart shows how tough it is for the poor to recover from a bad start in life
11. Business Insider: Millennials Are The Most Financially Conservative Generation Since The Great Depression
... According to a new report from investment banking company UBS, Millennials are the most financially conservative generation to come around since the Great Depression. The report, which focused on investors between the ages of 21 and 36, found that Millennials are risk averse when it comes to investing — dedicating 52% of their investment portfolios to cash, compared to 23% cash for other investors. They are also more likely to believe that working hard (69%) and living frugally (45%) puts you on the path to success rather than long-term investing (28%). ...
12. NPR: The Middle Class Took Off 100 Years Ago ... Thanks To Henry Ford?
January 1914 was a frigid month in Detroit — much like January 2014 has been, but nonetheless thousands lined up in the bitter cold outside to take Henry Ford up : $5 a day, for eight hours of work in a bustling factory.
That was more than double the average factory wage at that time, and for U.S. workers it was one of the defining moments of the 20th century. Five dollars in 1914 translates to roughly $120 in today's money. While many economists say today's employers could take some pointers from Ford, they also say 2014 is a totally different world for U.S. businesses and workers. ...
... "It was mainly to stabilize the workforce. And it sure did," Kreipke says. "And raised the bar all over the world."
He says to understand why Ford thought this was a smart move in January 1914, you have to go back to another huge shift that happened a few months earlier: By 1913, Model T production totaled 200,000 — a feat made possible by the creation of the first moving assembly line. Conveyor belts transported small parts to workers, each of whom performed a specific task.
This tremendously sped up production, but Ford still had a problem: While he had standardized production, he hadn't standardized his workforce. Now, he didn't need particularly skilled workers; he just needed ones who would do the same repetitive, specialized tasks hour after hour, day after day.
Kreipke says there was chronic absenteeism and lots of worker turnover. So Ford gambled that higher wages would attract better, more reliable workers. ...
... "Today, overwhelmingly employers view the lowest wage as the most competitive wage," Shaiken says.
These days, global supply chains feed a hypercompetitive auto industry where no one wants to give up even an inch of ground, and keeping up with technology takes precedent over stabilizing the workforce. This just isn't Henry Ford's economy anymore, Shaiken says.
"There are very real economic pressures out there that push down on wages," he says. "So it's not a simple story, but that doesn't mean that there isn't a core truth into what Ford found." ...
13. Business Insider: An Economist Explains Why Wage Growth Is Poised To Take Off
14. Conversable Economist: U.S. Household Finances Rebound
15. Greg Mankiw: Does income inequality increase mortality?
Angus [Deaton] writes the following (emphasis added):
Darren Lubotsky and I 7 have investigated the relationship between income inequality, race, and mortality at both the state and metropolitan statistical area level. In both the state and the city data, mortality is positively and significantly correlated with almost any measure of income inequality. Because whites have higher incomes and lower mortality rates than blacks, places where the population has a large fraction of blacks are also places where both mortality and income inequality are relatively high. However, the relationship is robust to controlling for average income (or poverty rates) and also holds, albeit less strongly, for black and white mortality separately. Nevertheless, it turns out that race is indeed the crucial omitted variable. In states, cities, and counties with a higher fraction of African-Americans, white incomes are higher and black incomes are lower, so that income inequality (through its interracial component) is higher in places with a high fraction black. It is also true that both white and black mortality rates are higher in places with a higher fraction black and that, once we control for the fraction black, income inequality has no effect on mortality rates, a result that has been replicated by Victor Fuchs, Mark McClellan, and Jonathan Skinner9 using the Medicare records data. This result is consistent with the lack of any relationship between income inequality and mortality across Canadian or Australian provinces, where race does not have the same salience. Our finding is robust; it holds for a wide range of inequality measures; it holds for men and women separately; it holds when we control for average education; and it holds once we abandon age-adjusted mortality and look at mortality at specific ages. None of this tells us why the correlation exists, and what it is about cities with substantial black populations that causes both whites and blacks to die sooner.
In a review of the literature on inequality and health, I note that Wilkinson's original evidence, which was (and in many quarters is still) widely accepted showed a negative cross-country relationship between life expectancy and income inequality, not only in levels but also, and more impressively, in changes. But subsequent work has shown that these findings were the result of the use of unreliable and outdated information on income inequality, and that they do not appear if recent, high quality data are used. There are now also a large number of individual level studies exploring the health consequences of ambient income inequality and none of these provide any convincing evidence that inequality is a health hazard. Indeed, the only robust correlations appear to be those among U.S. cities and states (discussed above) which, as we have seen, vanish once we control for racial composition. I suggest that inequality may indeed be important for health, but that income inequality is less important than other dimensions, such as political or gender inequality.10
16. Pew Research: There's More to the Story of the Shrinking (Gender) Pay Gap
17. The Daily Beast: No, Women Don’t Make Less Money Than Men
... In its fact-checking column on the State of the Union, the Washington Post included the president’s mention of the wage gap in its list of dubious claims. “There is clearly a wage gap, but differences in the life choices of men and women… make it difficult to make simple comparisons.” ...
... Much of the wage gap can be explained away by simply taking account of college majors. Early childhood educators and social workers can expect to earn around $36,000 and $39,000, respectively. By contrast, petroleum engineering and metallurgy degrees promise median earnings of $120,000 and $80,000. Not many aspiring early childhood educators would change course once they learn they can earn more in metallurgy or mining. The sexes, taken as a group, are somewhat different. Women, far more than men, appear to be drawn to jobs in the caring professions; and men are more likely to turn up in people-free zones. In the pursuit of happiness, men and women appear to take different paths.
But here is the mystery. These and other differences in employment preferences and work-family choices have been widely studied in recent years and are now documented in a mountain of solid empirical research. By now the President and his staff must be aware that the wage gap statistic has been demolished. This is not the first time the Washington Post has alerted the White House to the error. Why continue to use it? ...
18. Atlantic: How When Harry Met Sally Explains Inequality
A new study says that educated people marrying each other has increased inequality by 25 percent.
19. Reuters: The real future of U.S. manufacturing
... The assertion that the United States, or any nation, requires continued investment in the technologies that will drive future production is indisputable. On that score, at least, the Obama White House is fighting the proverbial good fight.
The contention, however, that these technologies and the factories that harness them for production will be sources of well-paid, solidly middle-class jobs, is flawed. In our political debates, we maintain the comforting fiction that a manufacturing revival can and will go hand-in-hand with a jobs revival. Yet, as Obama’s initiative shows, the two can be — and increasingly are — uncoupled.
The issue is not the hollowing-out of manufacturing as defined by less production. Yes, many less expensive, simpler products are now made more cheaply elsewhere and are unlikely to be made in the United States anytime soon — even with the “on-shoring” of manufacturing. Though China ceases to be the place of low-cost production, Vietnam, the Philippines and who knows where else (even Mexico) will be more attractive for apparel, furniture, electronics and anything plastic for a long time to come.
The high-end production that these new U.S. innovation hubs seek to promote is indeed in demand around the world. It is something where, as yet, China and other low-cost manufacturing centers have not excelled. This is why China actually imports considerable billions of higher-end equipment – particularly from Japan and Germany. So it is true that the United States could have a competitive advantage, especially given the plethora of research universities and the wealth of highly-educated talent that can be used for just this type of production.
But all this is not the same as a job creator for a workforce of at least 120 million and counting in nation of more than 320 million people. These high-tech factories might employ hundreds of people in conjunction with industrial robots, using sophisticated software systems for design and production. These factory workers bear little resemblance to the 1950s line workers doing rote tasks. They are more like Silicon Valley engineers or lab technicians. These are high-skill jobs — and not nearly as plentiful as the factory jobs of the past. ...
Related: Bloomberg - Factory Jobs Are Gone. Get Over It
... In 1953 manufacturing accounted for 28 percent of U.S. gross domestic product, according to the U.S. Bureau of Economic Analysis. By 1980 that had dropped to 20 percent, and it reached 12 percent in 2012. Over that time, U.S. GDP increased from $2.6 trillion to $15.5 trillion, which means that absolute manufacturing output more than tripled in 60 years. Those goods were produced by fewer people. According to the Bureau of Labor Statistics, the number of employees in manufacturing was 16 million in 1953 (about a third of total nonfarm employment), 19 million in 1980 (about a fifth of nonfarm employment), and 12 million in 2012 (about a tenth of nonfarm employment).
Service industries—hotels, hospitals, media, and accounting—have taken up the slack. Even much of the value generated by U.S. manufacturing involves service work—about a third of the total. More than half of all people still employed in the U.S. manufacturing sector work in such services as management, technical support, and sales. ...
20. PBS: Paul Soloman on Man vs the Machine: Will Human Workers Become Obsolete?
21. Huff Post: The End of Capitalism
Interesting thoughts. I don't know if he has it just right but I do think he is correct that we may be on the verge of something as transformative to captialism as industrialization was to agricultural societies:
... The location of creation has switched. Under industrial capitalism, machines operating centrally created riches. James Watt perfected his steam engine, but then the machines took on a life of their own - the machines themselves, and machine-like corporations built around them, churned out money. People danced around the edges, enlarging and improving the machines, putting them together in large mills or mines to turbo-charge productivity, adapting their pace of work to that of the machines. The machines and the capitalists were in charge.
Now it is not machines or their owners, but creative individuals who are center-stage. People not only invent new technology - they are the new technology. As sociologist Manuel Castells says, "For the first time in history, the human mind is a direct productive force ... Computers, communication systems, and genetic decoding and programming are all amplifiers and extensions of the human mind."
In the West, knowledge has become personalized. Open innovation requires it. The effect of open innovation is to transfer initiative and wealth from established corporations to new ones, and from shareholders to individuals. From thought to action, individuals are at the heart of creation, including wealth creation. Every element of the unique human personality takes part in creation - intellect, imagination, emotion, calculation, empathy, and the ability to evoke enthusiasm from other seriously talented people. Each person does it their way. Steve Jobs may not have been the nicest person in Silicon Valley, but he got amazingly talented people to distort reality and create previously unimaginable products. The individual is everything.
In all kinds of ways, therefore, we are moving away from capitalism, from an economy centered on capital and large, established, hierarchical corporations. But we are not moving from private hierarchy to public hierarchy, from capitalism to socialism or communism. Free enterprise is alive and well - arguably too alive and well. The new system is even more market-oriented than capitalism, and much more decentralized. It is as decentralized as any system can possibly be, because it is decentralized to individuals, and above all to a tiny minority of new superstar individuals. Welcome to the personalized economy. ...
22. Carpe Diem: Cash for kidneys will solve the organ shortage, save money spent on dialysis, and then we’ll wonder why it took so long
(Not necessarily agreeing here. Just reporting.)
Economists Gary Becker and Julio Elias make the case in today’s WSJ that a market for organs and donor compensation of about $15,000 would eliminate the growing kidney shortage. As the chart above shows, the kidney waiting list has nearly doubled from 50,000 in 2001 to almost 99,000 today, while the number of annual kidney transplant operations has increased only slightly from 14,279 in 2001 to fewer than 17,000 in 2013. Over the last eight years, kidney transplants have remained stuck at slightly below 17,000 per year, while the kidney waiting list has swelled by almost 30,000. Therefore, there an additional 30,000 patients today (99,000) than in 2006 (69,600) competing for the same number of transplants. And that’s why, as Becker and Elias point out, the average waiting time for a kidney has increased to 4.5 years from 2.9 years a decade ago. The authors argue that “Paying donors for their organs would finally eliminate the supply-demand gap.”
Isn’t donor compensation immoral? No, according to Becker and Elias (emphasis added: ...
Jan 23, 2014
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