Category Archives: Economics

A Thought on GDP

Posted on January 31, 2008 | Comments Off on A Thought on GDP

Ah, Gross Domestic Product. Is there anything more exciting?

Yes.

Even so, it’s important to know about. GDP is the best proxy we have for measuring wealth. Where GDP is low, people starve. Where it is high, even the poor are fat. If you’re going to have problems, which would you rather have? Making GDP grow is one of the central issues of the 21st century.

GDP is also flawed. Suppose I buy a wristwatch for $50; GDP goes up by $50. But I really like the watch. I value it at $200, four times what I paid. My personal wealth increases by $150, but GDP only counts a fraction of that. GDP systematically understates true wealth. It is inaccurate.

This doesn’t just affect my watch purchase. Remember, people won’t buy anything unless they value it more than the dollars it costs them. With every transaction, GDP systematically understates true wealth.

The problem with GDP is that it is measured in currency, which is only a proxy for wealth. True wealth, of course, is impossible to quantify.

Whoever comes up with a way around that has a Nobel with their name on it.

Comments Off on A Thought on GDP

Posted in Economics, Monetary Theory

Government, Technology, and Growth

Posted on January 29, 2008 | Comments Off on Government, Technology, and Growth

I’m reading Bill Easterly’s The Elusive Quest for Growth for a class right now. It asks and answers the question of how to make poor countries rich. It’s a good read. I find I disagree with many details, but the core message is simple and true: people respond to incentives.

As I said, there are parts that I don’t buy into. Here’s an example:

Brazil moved more slowly into the computer revolution than necessary because of a government ban on PC imports, a misguided attempt to promote the domestic PC industry, a classic attempt by vested interests to hijack technological progress. (p. 186)

What does he conclude from this experience? “The government should subsidize technological imitation.” (ibid)

He ignores his own advice that incentives matter. As Brazil showed us, government’s incentives often hurt growth. Ask any public choice theorist.

Quibbles aside, it’s a good book. I recommend it.

And if any of my classmates read this, I’m interested in your thoughts.

Comments Off on Government, Technology, and Growth

Posted in Development Economics, Economics, Public Choice, Technology

Charity and Government

Posted on January 22, 2008 | Comments Off on Charity and Government

An editorial in today’s new York Times, entitled “Charity Begins in Washington,” calls for greater government involvement in charity:

Critics of government spending argue that America’s private sector does a better job making socially necessary investments. But it doesn’t. Public spending is allocated democratically among competing demands.

Allocated democratically among competing demands? Government does not work that way.

Public sector charity is allocated by politicians making political calculations. Yes, the private sector is imperfect. But it doesn’t have half the systemic problems that government charity has. Inefficiency, politicization, rent-seeking, corruption, people gaming the system, you name it. All the good intentions in the world can’t change that.

Charity does not, and should not begin in Washington. It begins with you, me, and everyone else who wants to help our fellow man.

Some things are too important to be left to government. Charity is one of them.

Comments Off on Charity and Government

Posted in Economics, Political Animals, Public Choice

Hillary: The Movie

Posted on January 17, 2008 | Comments Off on Hillary: The Movie

There’s a documentary coming out attacking Hillary Clinton. It’s called Hillary: The Movie. The FEC now says the movie is an “electioneering communication,” and they must disclose who their donors are.

I poked around the movie’s website and looked at the previews. It is shallow, partisan hackery. And of course it’s intended to hurt Sen. Clinton’s candidacy. That’s the point!

My point is that political speech shouldn’t be treated any differently than any other kind of speech. The FEC has no business here; it is a shame that McCain-Feingold gives them that power. No criticizing candidates!

The people behind the movie think Clinton’s policies are bad for the country. This is their way of expressing that. I doubt the movie is any good; Ann Coulter is in it, for one. But they have the right to speak their minds, and their funders have the right to anonymity, no matter what the FEC says.

Comments Off on Hillary: The Movie

Posted in Elections, Free Speech, Political Animals, Public Choice, The Partisan Mind

Modern Art

Posted on December 27, 2007 | Comments Off on Modern Art

“Thirty stolen bronze sculptures are valued at $1 million — [but] not by the scrap yards where most of them ended up.”

Comments Off on Modern Art

Posted in Economics, The Arts

Coffee and Corporations

Posted on December 17, 2007 | Comments Off on Coffee and Corporations

P.J. O’Rourke has an interesting review of Taylor Clark’s Starbucked, an anti-corporate biography of the coffee chain. O’Rourke paints a kindly portrait of the author as a young groupthink anti-corporatist who, in writing his book, came to realize some of the limits of his dogma:

“I never came to like “Starbucked.” But I grew very fond of its writer. Most books about social and business phenomena give the reader something to think about. This book gave the author something to think about… I experienced the pleasure a teacher must feel when he watches a kid with promise outgrowing the vagaries and muddles of immaturity (and the jitters of too many coffee-fueled all-nighters) and coming into his own as a young man of learning, reason and sense.”

Comments Off on Coffee and Corporations

Posted in Certainty, Economics, Philosophy, The Market Process, The Partisan Mind

Corporate Taxes: Feel the Excitement

Posted on December 6, 2007 | Comments Off on Corporate Taxes: Feel the Excitement

This is the first in a series of videos that Cato’s Dan Mitchell is doing for the Center for Freedom and Prosperity. Dan makes a persuasive case for a lower corporate tax. It’s a little on the polemic side, but this is good stuff — just never mind that he pronounces “Celtic” the same as the NBA team’s nickname.

One problem I have with the corporate tax is that corporations don’t even pay it. Businesses pass on their costs, remember. Corporate taxes are a business cost; we consumers are the ones who actually pay the tax.

Watch the video for arguments more nuanced than mine, not to mention a boatload of empirical evidence.

A second video, on international tax competition, is online here.

Comments Off on Corporate Taxes: Feel the Excitement

Posted in Economics, Taxation

Congress to Cut Back Work Week

Posted on December 4, 2007 | Comments Off on Congress to Cut Back Work Week

The Politico reports that Congress will largely abandon the new five-day workweek that Speaker Pelosi implemented this year.

I think I like this development. The less they’re in session, the less damage they can do. Right?

Comments Off on Congress to Cut Back Work Week

Posted in Economics, General Foolishness, Political Animals, Public Choice

The Growing School Choice Movement

Posted on November 30, 2007 | Comments Off on The Growing School Choice Movement

Good news from this article:

“More than 1,200 foundations contributed some $380 million to 104 organizations advocating for school vouchers and K-12 education tax credits from 2002 to 2005, a new report from the National Committee for Responsive Philanthropy finds.”

Looks like more people than I thought are getting fed up with the public education monopoly. This bodes well.

Comments Off on The Growing School Choice Movement

Posted in Antitrust, Economics, education

Doing Good vs. Looking Good

Posted on November 23, 2007 | Comments Off on Doing Good vs. Looking Good

E.J. Dionne’s latest column praises Maryland governor Martin O’Malley. It begins:

Imagine a place where the leading politician pokes fun at those who “regard all taxes as a pestilence, a plague or a disease.”

Imagine the same politician saying: “Not one of us wants to pay more in taxes. But you know what we want even less? What we want even less is to leave our country to our kids in a worsened condition.”

O’Malley probably thinks he looks Pragmatic and Moderate. That will get him Votes, which are a politican’s lifeblood. Forgive me then, for being more concerned with being correct than popular.

O’Malley gives us a choice here between keeping taxes low and bettering the country – for the children, natch. It is a false choice.

Look at some of Maryland’s new spending initiatives the tax increase will fund: more money for health care. More money for education. Transportation. Environmental cleanup. Wonderful things all. But O’Malley is choosing the wrong means for pursuing these ends.

For example, Maryland has some lousy public schools, especially in Baltimore. But giving them more money literally rewards their failure. This problem is systemic; the solution then is to get government out of the education business. Even if it isn’t Pragmatic or Moderate.

And we’ve all heard the stories about how well government health care intiatives work – they don’t. And when something doesn’t work, you should stop doing it. Even if it costs you Votes.

Someone should tell Governor O’Malley that it is better to do good than to look good. Cut spending. The $550m in cuts this year is a good start, even if it’s negated by other increases. After spending is down and the deficit is under control, cut taxes. The children will thank you for it later.

Comments Off on Doing Good vs. Looking Good

Posted in Economics, education, Philosophy, Political Animals, Public Choice