Friday, January 26, 2007

More Milton Friedman

Who Was Milton Friedman? In the New York Review of Books, Paul Krugman explains:
Milton Friedman played three roles in the intellectual life of the twentieth century. There was Friedman the economist's economist, who wrote technical, more or less apolitical analyses of consumer behavior and inflation. There was Friedman the policy entrepreneur, who spent decades campaigning on behalf of the policy known as monetarism—finally seeing the Federal Reserve and the Bank of England adopt his doctrine at the end of the 1970s, only to abandon it as unworkable a few years later. Finally, there was Friedman the ideologue, the great popularizer of free-market doctrine.
Krugman gives Friedman thumbs up on the first role, thumbs down on the other two.

Meanwhile, Econbrowser asks: What Would Milton Do? (Answer: Look at M2 Growth)

Wednesday, January 24, 2007

Bush Health Insurance Proposal

The Bush administration is proposing to change the tax treatment of health insurance. Employee health benefits would become taxable income (i.e. a tax increase - gasp!), but people who have health insurance would get a deduction ($7500 for individuals, $15ooo for couples). You get the same deduction whether you get insurance from your employer or buy it individually and no matter how much is actually paid for the insurance. The idea is to "level the playing field" by removing the tax advantage to employer provided insurance and to give consumers more incentive to take into account the costs of the care they purchase. Essentially, the "problem" this would solve is over-consumption of health care by people with good (i.e. low deductibles and copayments) employer-sponsored health insurance. Whether that's really a major problem seems to be the source of some disagreement among economists. Economist's View has a good roundup from the econo-blogo-sphere, and Mankiw finds supportive analysis, but the (leftish) Economic Policy Institute is critical.

Monday, January 22, 2007

Dealing drugs: the worst job in America

Steve Levitt describes life as drug dealer in this video. It is a very interesting talk that is based on his work from Freakonomics. (hat tip to Mark Mcbride)

Wednesday, January 17, 2007

Samuelson on Keynes

Economist's View unearthed a delightful essay by Paul Samuelson on John Maynard Keynes. A good intro to the man and his contributions, for those of you not quite ready to take on Robert Skidelsky's magisterial three-volume bio.

Saturday, January 13, 2007

Economists: Still Dealing with New Deal

Seventy years on, the Great Depression continues to be the subject of argument among economists. It sometimes seems to be an economic Rorschach test that reveals fundamental beliefs about the ability of markets to correct themselves and the govenment to intervene effectively in the economy.

Another round of argument was sparked by this George Will column in the Washington Post criticizing the proposed increase in the federal minimum wage. Will writes: "A federal minimum wage is an idea whose time came in 1938, when public confidence in markets was at a nadir and the federal government's confidence in itself was at an apogee. This, in spite of the fact that with 19 percent unemployment and the economy contracting by 6.2 percent in 1938, the New Deal's frenetic attempts had failed to end, and perhaps had prolonged, the Depression."

Brad deLong says "A normal person would not argue that the New Deal prolonged the great depression... but George Will is not a Normal Person." James Hamilton gave more thoughtful consideration to the effects of the New Deal. Economist's View has Paul Krugman's take, and links to another of other posts on the subject.

Tuesday, January 09, 2007

Chinese Capitalism?

In an extract from his forthcoming book about China, "The Writing on the Wall," British thinker Will Hutton argues that China's economy is far from a free enterprise success story:

"The truth is that China is not the socialist market economy the party describes, nor moving towards capitalism as the western consensus believes. Rather it is frozen in a structure that I describe as Leninist corporatism - and which is unstable, monumentally inefficient, dependent upon the expropriation of peasant savings on a grand scale, colossally unequal and ultimately unsustainable. It is Leninist in that the party still follows Lenin's dictum of being the vanguard, monopoly political driver and controller of the economy and society. And it is corporatist because the framework for all economic activity in China is one of central management and coordination from which no economic actor, however humble, can opt out."

Hutton describes rampant corruption in China, which he attributes to the lack of institutions such a free press and an independent judiciary which might check the power of Communist party officials. He argues that true capitalism requires much stronger property rights and greater individual freedom than currently exists in China.

"The west is unforgivably ignorant about China's shortcomings and weaknesses, which leads it vastly to exaggerate the extent of the Chinese "threat"....Rather, the west needs to understand the depth of China's problems and the possibility, if not probability, of an economic and political convulsion as China seeks their resolution."

Wednesday, January 03, 2007

Productivity Revival, We Hardly Knew Ye?

The Washington Post's Robert Samuelson worries about a slowdown in the growth of labor productivity:

"The start of a new year is a good time to take stock, and there are few better indicators of our long-term economic prospects -- and also our prospects for political and social peace -- than productivity... The good news is that productivity has been growing strongly; the bad news is that it may be moving to a much slower path."

According to the BLS, US annual labor productivity fell in the mid-1970's and picked up in the mid-1990's...

Annual labor productivity growth rate
1948-73 - 2.79%
1974-95 - 1.40%
1996-05 - 2.84%

The statistical basis for Samuelson's fretting is that the average for the last 4 quarters is 1.4%. It may be premature to declare a slowdown, but as he points out the lack of saving by US households, and the dis-saving by the government are not exactly conducive to investment.