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Institutional Economics
Economic Freedom and Divergence
A just-concluded conference in honor of Milton and Rose Friedman produced some interesting papers. For example, James D. Gwartney and Robert A. Lawson find that an index of economic freedom helps to account for the failure of the standard of living of underdeveloped countries to converge toward that of developed countries. when the consistency of .. MORE
Macroeconomics
Bernanke on the Jobless Recovery
Federal Reserve Board Governor Ben S. Bernanke offers his views on current issues in macroeconomics. He points to research which suggests that the household survey of employment, which shows a stronger labor market than the payroll survey, may be misleading. That is because the household survey has to be “multiplied up” by a factor that .. MORE
International Trade
Buffet’s Trade Proposal
A reader forwarded a proposal made by Warren Buffet in Fortune. We would achieve this balance by issuing what I will call Import Certificates (ICs) to all U.S. exporters in an amount equal to the dollar value of their exports. Each exporter would, in turn, sell the ICs to parties–either exporters abroad or importers here–wanting .. MORE
Behavioral Economics
St. Petersburg Paradox
Will Baude brings up the St. Petersburg Paradox, in which a bet with an infinite expected payoff is rejected by the typical individual. Baude points out the problem with trying to resolve the paradox by invoking diminishing marginal utility. here’s the pet peeve. While this ad hoc (but plausible) assumption solves this particular version of .. MORE
International Trade
Free Trade in Tech Labor
Is the case for free trade weaker when the traded good is high tech labor? Julian Sanchez says no. [Protectionists] might fondly wish that highly educated professionals in Asia would be kind enough to lobotomize themselves and go back to farming for the sake of inflating U.S. programmers’ wages. Alas, that’s unlikely to happen. If .. MORE
Tax Reform
Consumption Tax?
Pejman Yousefzadeh makes the case for a consumption tax. A consumption tax such as the one contemplated by H.R. 25 and S. 1493 will reduce transaction costs to a minimum, eliminate the need for concerns about loopholes and exemptions, and save people the time and expense of having to consult tax experts for the payment .. MORE
Macroeconomics
Credit Bush for Recovery?
Is a real economic recovery underway? If so, do President Bush’s tax cuts deserve credit? These questions have been raised by Paul Krugman and others. When I was a young economist working in the forecasting section of the Federal Reserve Board, one of my most memorable experiences was when Governor Lyle Gramley sat down at .. MORE
Social Security
Comments on Science and Social Security
Many interesting comments on my suggestion that science could bail out social security. First, Andrew writes, Social Security pays retirees a benefit based on their pre-retirement wages, targeting a ‘replacement rate’ rather than a real benefit level. If GDP grows faster so do their wages, all other things equal. Higher wage growth raises payroll tax .. MORE
Growth: Consequences
Science vs. Social Security
In an essay called Will Science Save Social Security?, I write, Overall, if events play out over the next quarter century as the technology optimists predict, then GDP will be so astronomical that the costs of Social Security and Medicare will be dwarfed. In such a world we may face difficult philosophical issues, but maintaining .. MORE
Regulation and Subsidies
Wal-Mart controversy
Wal-Mart is controversial. On the issue of labor costs, Steve Pearlstein writes, I’m talking about a minimum wage that would put a family with two full-time workers above the poverty line in high-cost metropolitan areas — and no doubt put upward pressure on wages at places like Wal-Mart. Or how about requiring employers like Wal-Mart .. MORE
Social Security
Aging Europe
The aging of Europe is not a problem, according to Dominic Standish. On present trends of rising productivity, employing the same number of people in 2040 as now would produce over double the amount of wealth we currently have to provide for the pensions and care of the over 60s. However, others disagree. William G. .. MORE
Austrian Economics
Hayekians vs. Stiglitzians
I contrast Hayek and Stiglitz on the importance of imperfect information. Hayek would have the government tolerate messy competition. His point is that with the optimal outcome unknown, government resolution of issues shuts off the learning process that market competition provides. Stiglitz sees the messiness in real-world economies, and he claims to have the right .. MORE
Growth: Consequences
Electric Liberation
A paper by Jeremy Greenwood, Ananth Seshadri, and Mehmet Yorukoglu examines the role of modern appliances in liberating women from housework. To understand the impact of the household revolution, try to imagine the tyranny of household chores at the turn of the last century. In 1890 only 24 percent of houses had running water, none .. MORE
Supply-side Economics
Over-worked or Over-taxed?
Americans work more than Europeans. Do we work too much, or does Europe tax work too much? Edward Prescott argues the latter. Americans on a per person aged 15-64 basis work in the market sector 50 percent more than do the French. This was not always the case. In the early 1970s, Americans allocated less .. MORE
Economics of Health Care
Health Care Spending, Continued
Alex Tabarrok finds evidence that supports more spending on health care. It has been estimated, for example, that increases in life expectancy from reductions in mortality due to cardiovascular disease over 1970-1990 has been worth over $30 trillion dollars – yes, 30 trillion dollars (for this research see: book, papers, summary). A conservative estimate is .. MORE
Economic Growth
Economists Too Linear?
In an essay on nonlinear thinking, I wonder if economists spend too much time studying calculus. economists know that many of the processes that are important in our field, such as compound interest and economic growth, are nonlinear. But the economics curriculum in graduate school is focused on training students to make linear approximations. Studying .. MORE
Regulation and Subsidies
Japanese Banks
Joe Peek and Eric S. Rosengren explain how regulatory incentives contribute to the persistent mis-allocation of capital by Japanese banks. Bank regulation and supervision policies in Japan provide banks that have significant nonperforming loans and impaired capital little incentive to be strict with troubled borrowers. In fact, it is in the self-interest of banks to .. MORE
Economics of Health Care
Health Care Spending
Business Week’s Howard Gleckman successfully distinguishes between health care cost and health care spending. Medical technology is no different than consumer electronics. When DVD players cost $500, few people bought them, so total spending on the devices was insignificant. Now that they cost $50, everyone is buying. As unit costs fall, total spending rises. Same .. MORE
International Trade
Our Loss, China’s Non-gain
Joseph Carson of Alliance Capital Management decided to investigate how many manufacturing jobs China has gained at the expense of other countries. The result was somewhat surprising. According to our analysis, between 1995 and 2002 roughly 22 million jobs were lost globally, a decline of 11%. Yet over the same period, global industrial production jumped .. MORE
Public Choice Theory
Online Trade Barriers
Michael Cox writes about trade barriers that affect Internet commerce. Georgia requires buyers to purchase contact lenses in person, ostensibly to protect their health but in effect as a boost to in-state eyewear retailers. Oklahoma won’t allow its citizens to be buried in a casket bought out-of-state. South Carolina inhibits Internet mortgage brokers by requiring .. MORE