Matthew Yglesias explains why in India chauffeurs and street food are so cheap, which helps account for the popularity of fast food restaurants over street vendors in the US:
Average productivity in the US is much higher than average productivity in India, so wages are much higher in the US. But American drivers are no more productive than Indian ones, so chauffeurs are unaffordable here and affordable prepared food needs to economize on labor with fast food techniques.
But as someone who rightly calls attention to the way dentists and barbers create cartels and restrict entry into the market drives up prices I’m surprised he failed to mention all the laws restricting licenses for street vendors.
In a recent post Scott Sumner challenges a number of progressive assumptions and calls them out for the “”faith-based” reasoning that they tend to deride in conservatives.” Sumner is a monetary economist that progressives should be required to read to see that rational critiques actually exist of their fiscal policies. Sadly, the mainstream conservative movement gave up on dispassionate evaluation of public policy.
Sumner’s “progressive wishful thinking” criticism defends Greg Mankiw’s posts that upset the standard liberal story on the progressiveness of the US tax regime and on fiscal stimulus. The defense credibly knocks down some of the more fragile volleys from the Left flank.
Lindert showed that Europeans were able to raise more tax revenue only by having more regressive tax systems than the US, i.e. tax systems that relied more heavily on consumption taxes. This is now pretty much common knowledge in the public finance area.
That is an important point to disrupt some common progressive assumptions, but I don’t think it directly counters Ygelsias’s and others’ point that the wealthiest “pay a huge share of the total taxes in the United States because they have a huge share of the money.” But it seems to me that Sumner is largely right that the US tax code has a progressive rate structure even compared to Europeans.
Sumner also weighs in on where the US sits on the Laffer curve:
I’d argue that this data is strongly supportive of the view that both the US and Europe are near to tops of the Laffer Curve for total taxation. I did not say then, nor do I claim now, that we are precisely at the top. But I also don’t see any reason to believe that if we raised taxes from 28% to 40% of GDP, that revenue would rise anywhere near proportionately, with no change in GDP per capita.
I do think the Laffer curve is “far-fetched” but I don’t deny that revenues always rise “proportionately, with no change in GDP per capita.” It is illustrative that Sumner doesn’t quote anyone making that claim he’s rebutting. Most popular proponents of the Laffer curve like to claim that tax cuts actually raise revenue not just that tax increases dampen receipts a bit. But the Left should think harder about challenging their assumptions with reference to European models if they’re going to argue for a much more progressive tax code. I’m with him on a progressive consumption tax.
Most interesting, and surprising, to me was Sumner’s claim that “for decades our best macroeconomists have been saying that that fiscal stimulus is a bad idea.” I really wish he cited something here because if true I’m embarrassed that I wasn’t aware of this. I always assumed economists like Christina Romer were true authorities on this, but I willing to confront a counter consensus of experts if it exists. Not that a consensus of experts is always correct but we should be giving more deference to it, as Bertrand Russell makes clear in Let People Think:
(1) that when the experts are agreed, the opposite opinion cannot be held to be certain; (2) thet when they are not agreed, no opinion can be regarded as certain by a non-expert; and (3) that when they all hold that no sufficient grounds for a positive opinion exist, the ordinary man would do well to suspend his judgment.
Sumner correctly emphasizes the need for more monetary action, which could be even more important than fiscal stimulus to help our economy. I haven’t neglected monetary policy but have focused mainly on the fiscal side because (1) it’s easier to convey (2) it’s more direct (3) it’s something that politicians (and, therefore, the public) have more influence over. Matt Yglesias is certainly right that progressives need to grapple more with Fed policy (must read) and that Obama’s biggest mistake might be his lack of focus staffing the Fed.
I’m extremely disappointed Sumner is taking a break from blogging. I hope he returns soon and continues to offer insightful and challenging commentary. I’ll be sure to rummage through his archives – others should too.
I’d like to wish a happy birthday to Dan Dennett. What a spectacular day to be born! A while back Professor Dennett and I were in the same room and I’m pretty sure there were at least 23 other people there.
One could devote an entire blog and more to cultural differences, but I’d be content for Americans to recognize and adopt this one simple behavior. In the US (at least everywhere I’ve been) people lazily obstruct the escalator lanes.
My time living in London was a revelation.
You’d think the nation that birthed the phrase “time is money” would already appreciate the benefits of escalator etiquette. Slide over.
Markets provide the best way to simultaneously use and conserve scarce resources. Once the right can accept that corporatists and anti-government extremists aren’t really free market advocates they’ll learn that government is needed to allow markets to function.
Last week’s New York Times Magazine carried an engrossing story about Yasir Qadhi, a controversial and conservative Islamic cleric in America.
In the West, jihad is often depicted as a self-contained, violent cause. But in Qadhi’s world, it exists within a panoply of complex and overlapping issues. The most immediate question is not whether to fight overseas but how to make peace living in the pluralistic West.
Debates pivot on arcane theological points from the ninth century, a time when religious empires reigned, not secular nations. Classical scholars reference a world divided between dar al-Islam, the land of Islam, and dar al-harb, the land of war. But which land is America?
“It is an awkward position to be in,” he wrote of his situation. “How can one simultaneously fight against a powerful government, a pervasive and sensationalist-prone media and a group of overzealous, rash youth who are already predisposed to reject your message, because they view you as being a part of the establishment (while, ironically, the ‘establishment’ never ceases to view you as part of the radicals)?”
His position might not only be awkward – it could be futile. Is Salafiya Islam compatible with America? Can Qadhi and others like him be persuasive to young Muslims that are disposed to radicalization? I’m not hopeful if the solution is to win a 9th century theology debate.
(photo: Andrea Elliott, Eric Owles, Josh Williams/The New York Times)
I’ve been known to hurl the Luddite insult every now and again (pretty boorish, I know) so this piece by Richard Conniff at the Smithsonian caught my eye. In it he explains some of the real history of the protests:
As the Industrial Revolution began, workers naturally worried about being displaced by increasingly efficient machines. But the Luddites themselves “were totally fine with machines,” says Kevin Binfield, editor of the 2004 collection Writings of the Luddites. They confined their attacks to manufacturers who used machines in what they called “a fraudulent and deceitful manner” to get around standard labor practices. “They just wanted machines that made high-quality goods,” says Binfield, “and they wanted these machines to be run by workers who had gone through an apprenticeship and got paid decent wages. Those were their only concerns.”
This was generally my understanding of the movement, but it’s clear they were less hostile to technology generally than I appreciated. So it turns out they weren’t really eccentrically principled anti-techonological utopians, but were pretty much just regular protectionists with a little flair. Fittingly, those Luddite arguments about “standard labor practices” and “high-quality goods” are the same antique arguments workers use today to justify tariffs and other protections. And when used to extremes, they’re also just as obsolete.
One technology the Luddites commonly attacked was the stocking frame, a knitting machine first developed more than 200 years earlier by an Englishman named William Lee. Right from the start, concern that it would displace traditional hand-knitters had led Queen Elizabeth I to deny Lee a patent. Lee’s invention, with gradual improvements, helped the textile industry grow—and created many new jobs.
That’s not to deny that new technology can’t disrupt actual human beings’ livelihoods and the state has an important role to help displaced workers transition more easily, but public policy can’t hem in (ahem…) technological progress that improves efficiency and creates “many new jobs.” Anti-trade arguments are arguably even less compelling given the moral component of directly denying developing world workers the opportunity to escape extreme poverty.
For the record, I’m still using “Luddite” as an anti-techological progress catchall – some things we just shouldn’t move on from.
(via The Daily Dish)
About a week ago Ezra Klein asked, “Why don’t more pop songs include accordions?” He included Edward Maya & Vika Jigulina’s hit song. I’m not sure if this is exactly pop music, but it’s close and I like it. So there.
So lately I’ve been hearing Bastiat’s broken window fallacy repeated in order to retort some liberals’ thoughts that the Japanese crisis may help the economy. It was also a common argument – for some reason – against the stimulus.
In the Daily Caller, Ryan Young explains why [the Keynesian argument] makes no sense. Sure, Japanese workers will have no choice but to rebuild, and people will have to spend their savings to rebuild their houses or replace possessions destroyed in the quake. That spending will be captured in GDP measurements and it will look like Japan’s economy is boosted. However, Ryan notes:
. . . if the tsunami had never happened, people would still have all the buildings and cars that they had in the first place. They would be able to spend their money on other, additional goods that they want.
And those new construction jobs the tsunami will create? Every last one of those workers could be making something else instead. They could be producing computers, televisions, almost anything.
As not to let the great Bastiat be used so crassly, allow me to point out that, yes, fixing a broken window or a destroyed city won’t make more wealth than we originally started with. It will only get us back to where we previously were. Now let me just clear this up to the anti-stimulus crowd: Bastiat wasn’t arguing to stop fixing broken windows. We had a recession – the economy shrunk. Japan is going through a catastrophic disaster. It helps the economy to fix things.
So when de Rugy says the GDP measurements make it “look like” a boosted economy, what she fails to notice is that it looks like GDP is growing because it is growing. Ryan Young stumbles on the whole reason why we need stimulus when he writes, “those workers could be making something else.” The problem during a recession and our currently weak economy is precisely that lots of idle workers are not making anything. De Rugy smugly wonders why stimulus advocates don’t “recommend that we send our military to destroy New York, and some bridges and roads along the way” in order to improve the economy. Well, Veronique, doing that would commit the broken window fallacy. Thinking that we shouldn’t pay jobless construction workers to fix our naturally crumbling infrastructure is the broken window fallacy fallacy.
It’s surprisingly difficult to find dispassionate arguments for reforms that harm teachers’ interests. I imagine this might be due to most academics having a strong pro-teacher bias so the type of people arguing against teachers usually are rabid crazies on the right. But I suspect that I’m susceptible to bias since both my parents, my sister, and my sister-in-law are all teachers and I like teachers. Therefore, I do my best to search out sober arguments to penetrate that potential bias. Megan McArdle does an admirable job at presenting clear arguments for weakening certain teacher benefits without demonizing teachers and while acknowledging reform pitfalls.
Her whole piece is worth reading so I encourage it, but even if we accept her argument that making it easier to fire teachers outweighs its downsides, she rests her argument on the matching reform of being able to compensate teachers much differently.
At a minimum, making teachers easier to fire needs to be paired with extensive reforms: a move towards defined contribution rather than defined benefit plans (which make a mid-career job loss catastrophic); elimination of seniority and useless credentials as the primary criteria for setting pay; broadening the recruiting base by eliminating a requirement for ed degrees; and a shift towards paying teachers more, especially in math and science. I also think it’s absolutely crucial to set up some sort of Federal bonus to recruit high-performing teachers to the lowest-performing districts–a bonus sizeable enough to attract top teachers, and available only on one-year contracts.
Note that she says, “at a minimum”! Does she believe that if these extensive reforms aren’t linked together that we should still dissolve teachers’ benefits in the way she suggests. Despite some of her wording, I actually suspect she would say, “yes,” but I can’t be sure. It seems difficult to believe that we could sustain public support for paying teachers even higher wages in order to maintain administrative flexibility without teacher quality suffering mightily. I’m sure it is exaggerated because of the economic climate, but there is already consistent complaints that teachers get paid too much even though we pay our teachers so little compared to other countries.
Paying teachers high enough wages to entice attractive candidates and keep the best performers is challenging in a institution that isn’t committed to making profits. In business it makes sense to pay competitive wages because if you don’t you lose out on the profits those extra wages pay for. But the bottom line for schools isn’t profits, it’s education. It’s much more difficult to determine what the marginal dollar buys in student learning so it’s easy for political support for higher wages to dry up. Think recessions.
If you agree that the pubic benefit demands a role for state funded education there is a need to maintain a constant level of support for competitive teacher compensation. I’d support testing McArdle’s extensive reforms, but worry that the diffuse benefits bought at the more concentrated cost to the taxpayer might be too difficult to keep those competing interests from pulling apart. I’m pessimistic on the prospect of the culture changing enough to entrench sustained support.