There are too many interesting things to write about at length this morning and so I’ll just say a little about three.
EU Dispersion: Check out this graphic of hypothetical monetary unions to see how incredibly diverse are the members of the actual Euro union compared to other hypothetical unions. Of course, the devil is in the details and I don’t know the specific “over 100 characteristics” the studiers used. In 2001, I bet an Austrian central banker that least one country would have left by 2006. Of course, I lost. What I learned from this and other failed bets is something that Milton Friedman learned relatively late in life also: he was almost always right about an outcome but almost always wrong, in one direction, about how quickly that outcome would happen.
HT to David Levey.
Austerity Policy: Bob Barro has a good piece in the Wall Street Journal this morning. Great excerpt:
Two interesting European cases are Germany and Sweden, each of which moved toward rough budget balance between 2009 and 2011 while sustaining comparatively strong growth–the average growth rate per year of real GDP for 2010 and 2011 was 3.6% for Germany and 4.9% for Sweden. If austerity is so terrible, how come these two countries have done so well?
I would have liked him to drop the word “austerity,” though, and instead dig into the details: there’s a lot of difference between austerity due to tax increases and austerity due to cuts in government spending. Tyler Cowen has made this case cogently.
And, of course, as I’ve said many times, the post-war drop in federal spending as a percent of GNP by about 35 percentage points, with the unemployment rate never going above 4 percent, is Exhibit A against the Keynesian model.
MIT economist Esther Duflo, in her first Tanner lecture at Harvard, said the following:
The emphasis on self-reliance can go too far. When you create the conditions where the basic constraints are more or less automatic, you give freedom, not take it away.
I don’t know what Professor Duflo meant by “freedom.” I’ll wait until I can see the transcript to see if she ever defined it. She illustrated with the case of water. Here’s an excerpt from the news report:
What her research in India and other developing countries has shown is that too much choice about everyday needs, such as whether to boil water or trust the government to immunize children continually, imperils the poor. If your basic health relies on your remembering to boil the water, you are not more free, she said.
“In Boston, I would have to go on a camping trip to drink unchlorinated water,” she said. “In both senses, the rich are subject to a more paternalistic policy than the poor. Does that make them less free?” she asked.
Um, yes, it does. If the government mandates chlorination, you are not free to drink unchlorinated water out of your tap. That one seems simple. The only way I can understand why she asks that question as if it’s rhetorical is if she equates freedom and wellbeing. But, again, I’ll have to wait and read the whole lecture.