June 2005 Archives

Today I wanted to write about how immigration has effected the welfare state, but the discussion of �The Economics of Woody Allen� is so interesting I leave immigration for another day. Bryan Caplan wonders why people enjoy each life year less if it is finite. Suggestions:

1. Nonseparabality in preferences

For the same reason the victim on death row will not enjoy his lobster dinner it is harder to enjoy life since we are also forced to consume death and meaninglessness (unless we apply self-denial)

That we have strong disutility for death is without a doubt biological. I am not sure if the preferences for �meaning� also are, but the universality seems to suggest it. Most would rather have a true purpose with life than not. Just like computer games are more fun if you get to save the princess rather than wander around aimlessly. Sure we can �create our own meaning�, but knowing it is fake makes it worth less.

2. Longer time horizons impacts effort and accumulation.

Economics suggests that religious people with the idea of an afterlife are more successful, working harder and saving more. I think this not only applies to financial and human capital, but also to social capital. This accumulation is rational when you fool yourself into having longer time horizons, infinity with some probability.

Now you might argue that this raises wealth, but lowers their utility. If they knew they would die they would allocate leisure and consumption more effectively. But somehow this doesn�t convince me: it seems that the problem of self-command is so important it outweighs it. Most people work less hard than they would like to (can I say �should�?), religion helps them counteract this.

Not surprisingly, religious people are happier. 64% of weekly churchgoers are very happy, vs. 38% of those who rarely or never attend church). So unlike what Dawkins says religion may not be best viewed as a brain virus but an acquired antibody.

3. Collective-action problems and morality

At a social level: If life is truly meaningless the case for morality is instantly reduced. Since the software of morality is programmed into most of the population, is easy to hardwire the content at childhood. We don�t only rely on outside punishment to deter undesired behaviour, but also internal costs of breaking the rules (conscience).

But abstractly realizing morality is simply a mental program can be dangerous, because identifying it we might decide to override it. This is roughly what Nietzsche was trying to say when he warned that god was dead. His correctly predicted that the belief in god would be replaced with the �barbaric brotherhood of men�, with catastrophic results. The R-square of his parsimonious theory would make any economist jealous, fitting the nihilist Nazis and atheists communists and their uninhibited deeds 50 years later.

Atheist�s societies have since done a better job of maintaining morality, replacing religion with humanism. Nevertheless we would have many fewer sociopath, genocidal dictators and common criminals if the belief in the meaning of life were stronger. I suspect this is part of the explanation why Saddam had no problem murdering 1 million civilians whereas the mullahs in Iran didn�t go beyond some 10 000 (most ordered dead by one mediumranked mullah).

Personal note

I used to be crazy about accumulating knowledge, reading thousands of pages each month in various subjects in addition to my own field. This completely stopped when the unavoidability of oblivion fully hit me. What was the point of learning or achieving success? The paths of Glory leave but to the Grave, all the knowledge would be lost. For the next year or two my productivity plummeted, I was also quite miserable.

The only reason I eventually recuperated was realizing that some true ideas should be suppressed (I also tried to make myself religious, with no luck). I never reached the same level, and have become permanently lazyer, dumber and less succesfull. Can't imagine any area where rational self-denial is more important than death, for both achivement and happiness.

Same Old Playbook

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To say that equity markets were disappointed with the Fed today is an understatement. You can include me the camp that was looking for some sort of softer approach towards interest rates. I had been saying since nearly the beginning of the year that I don't think the Fed would push the Fed Funds rate much above 3.5%. This had been based on the rather anemic money supply growth rates. It was partially based on hope that "this time its different" but, in reality, this looks a lot like a decade ago. The Fed seems to be using the old playbook.

What we're seeing now looks similar with housing replacing the equity markets experiencing some sort of seemingly irrationality. There are some signs of inflation perculating up with oil near 60 just like we saw prices for intermediate goods back in 1994 up sharply. The Fed back then, of course, raised interest rates to counter this trend, but deeds speak louder than words. M3 is grew rather anemicly while M1 was grwoing modestly. 1995 saw these money supply numbers switch with M3 grwoing nicely while M1 wasn't and didn't from June of 1995 till Feb 1998. The Fed was removing liquidity from the system. You can see that the pattern is seemingly repeating itself today with M1 marginally growing. The Fed seems to be repeating the pattern of adding liquidity to the system only to remove it when the economy picked up.

My thought that we were nearer to the end of the rate hike cycle was premised on the fact we seem to be further along in the playbook. M1 right now is hardly growing while M3 is increasing at a pace just below 5%. These numbers are remarkedly similar to those of a decade ago. The market is weary of an inverted yield curve. As you shouldn't try and out think markets, this is justified. With few developed countries growing right now, it seems irrational to kill off the one that is.

What is our government reading?

The products of the Congressional Research Service are being made public through the efforts of the Center for Democracy & Technology. They can be found at OpenCRS. Note that some reports can also be found at the site for the National Council for Science and the Environment (I don't know if the two are collaborating on concatenating the collections in any way or not).

Always interesting to see what kinds of information is being sent to our legislators...

George Masons Bryan Caplan is probably my favorite economist outside of Chicago, mainly because of his fantastic theories on �rational irrationality�. He and Alex Tabarrok are interviewed today by the WSJ-blog. A few remarks:

1. Tabarrok jokingly suggest the 1995 "War Politics" paper (presidents with bad economy go to war in order to win elections) predicts the Iraq war. The theory has discretionary war as a way to signal skill to voters. But Bush had already demonstrated his skill as a wartime president with great success against the Taliban.

2. In my view Caplan is exaggerating irrationality by defining it overly narrow (a little odd, since he gets it right in his papers). First of all he argues that the jump in trust in government post 9/11 is a sign of irrational voters. When asked before 9/11 �do you trust government� people associate government with the prioritized activities at the time, health care, taxes etc. So only 22% of Conservative Republican answer they trust the government. After 9/11 if you ask someone the same question of course they will give an answer given the most important current priority, killing terrorist.

So it seems natural that +53% of Conservative Republicans now say yes. For Liberal Democrats, who presumably had less preference for bombing Al-Quaida, the jump was only +11%. If you had asked Republicans the same week �do you support socialized health care� I bet support had not gone up, if anything it has gone down by more focuse on the core duties of the State.

3. Caplan is completely right when he questions the ration choice models of politics. His irrational belief story is much more likely to explain public support for protectionism than say special interests. But he is barking up the wrong tree when he goes after Gary Becker.

The reason Becker applies rationality to so many areas with such great success is that he has a broad definition of rationality (maximizing given preferences). For example Becker has very elegant models of �self deception�. Now according to the narrow definition this is irrational, but is consistent with broad rationality, do it if it can make you happier.

This is similar to how I interpret Caplans �rational irrationality�: choicing to believe in something that is not necessarily true as a form of consumption. Since the cost of having crazy ideas is very low to each individual in the political system in the this may well be individually rational.

Becker and Mulligan also solve the (narrow) rational choice voting paradox with (broad) rational choice. People vote because they get utility from voting, not because they think their vote matters.

The same for rallying around the flag. People have some altruism towards their extended tribe - the nation state - hardwired into their preferences. Such norms may not be narrowly rational (robots might not have patriotic feelings) but they are very efficient way to solve collection action problems, s.a national unity in times of war.

4. I am not convinced of intelligent people being more rational in politics. At least the variability seems to go up a lot with IQ. There are far more convinced Marxists and Deconstructionists with high IQ than low ones. America�s universities are their strongest bastion of the same socialist fallacies Caplan defines as rational irrationality. There have been many attempts to explain this. Hayek and Nozick both have good theories.

I personally also think smart people gravitate towards leftist ideas for the same reasons cultured people like old French movies or Finnegans Wake: consuming the inaccessible is a form of social signaling. Market liberalism is just too simple, even Joe Twelve pack could read and understand Free to Choice, just like anyone can like The Godfather. But it takes a high level of abstraction to (bear to) read Marx or Foucault.

In reality Marx is inaccessible because it is illogical and incoherent, but that will not matter as the costs of inaccurate ideas is near zero to any one individual. Signaling sophistication thus leads to costly behavior.

Krugman is not the only left wing economist who is loosing his analytical edge from an overdose of partisanship. Brad Delong of http://www.j-bradford-delong.net/movable_type/ may be level headed compared to Krugman, at least in the economic material. But his political writing is very uneven, and when it comes to Bush or Republicans it is becoming more and more unhinged.

It�s hard to take someone seriously who writes that he is a Democrat because the Republicans were turned into �The Party for People Who Don't Like Black People� http://delong.typepad.com/sdj/2005/06/thoughts_trigge.html

On what basis might one ask? Delong doesn�t offering any evidence or reasoning to support his case, the mark of the true scholar. What was the last racist law Bush or the Republican Congress enacted? He doesn�t say. Historically we all know that the Southern Democrats were the party that officially supported segregation. Wallace, Byrd, Gore Sr and W. Fulbright were Democrats. Twice as many Democrat�s as Republicans voted against the civil right act, etc.

Name-calling 210b

OK, maybe we can ignore his political writings and only look at economics. Even there he is slipping. Delong, under the tasteful heading �Intellectual Garbage Pickup� yesterday called Donald Luskin �Stupidest man alive�. Why? Because Luskin wrote that

http://poorandstupid.com/ �Times of great prosperity have been associated with greater income inequality (for example, the 1920s), and conversely times of economic decline have been associated with greater equality (the 1930s).�

If choice to you call an opponent writing garbage and call them stupid you should have a pretty strong case. As it happens Luskins quote above it perfectly true.

In 1920 the richest 1%s share of national income (including capital gains) was 14.9% By 1929 it had risen to 22.5%, the highest in the 1913-1998 dataset. By 1939 it had again gone back to 16.2%. This exaggerates the change, as the figures fluctuate. However if we look at the average under the 1920-29 period the figure is 17.9%, compared to 16.6% in the 1930-1939 period. Excluding capital gains the pattern is very similar. Just as Luskin wrote, the 20s had more income inequality and the 30s less.

I also know there is a debate between Harvard�s Gregory Mankiw and Delong about this subject http://www.econopundit.com/archive/2005_06_01_econopundit_archive.html#111920937690172116 , (Mankiw argues that the rich are disproportionably effected both in boom and busts). I don�t care about the debte itself. Maybe there is a statistical relation, maybe there isn�t. I would only note that income for all categories of Americans has gone up.

But what matter is that Delong, a professor at one of the world�s most prestigious Economics Departments is calling someone who is factually correct �Stupidest man alive�.

Delong also claims that �Luskin denies the existence of the entire discipline of statistics�. The reason is that Luskin considers the sample size for the US income study to be too small, 8000 individuals of 295 million. Now should know that sample size does matter if you want to use income data in policy. While 8000 is a large sample overall, for many detailed questions it may well be too small.

As there are so many different categories of people in society Individual sub samples may become too small statistically (the sample would only contain 13-14 people from Wyoming!). That is one reason Sweden�s LINDA database includes fully 3% of our population, compared to 0.003% for PSID.

We on the right need opponents we can respect

Luskin is a grownup and has his own history of names-calling, so that�s not really the issue. But Delongs tone and more importantly nonexistent basis for calling Luskin an idiot still worries me. As Arnold Kling points out http://www.techcentralstation.com/100703B.html these people are the role models for less accomplished leftwingers, and they are setting the bar pretty low.

And we on the right need strong leftwing economists to challenge our ideas, not just the same bitter �Bush Lied� and �Republicans are Idiots� drivel reposted five times a day.

DeLong and Krugman could learn something on manners from their free-market peers. Look http://www.becker-posner-blog.com at or http://www.marginalrevolution.com Both are simply class acts, always keeping a civil tone and focus on discussing ideas, not demonizing their opponents. Can you imagine Tyler Cowen calling writing �Stupidest man alive�?

And the comment pages reflect this. On Becker-Posner-blog you can often read intellectually stimulating discussions by the readers. Delongs comments section is just an echo-chamber since he seems to delete dissenting opinions, the entries looking cut and pasted from Democratic Underground. It would seem even in econo-blogging you reap what you sow.

Labor Market Reforms


John Howard in Australia is, according to this article from Bloomberg, set to use his electoral victory to push through some labor market reforms:

The government has tried to make it easier for small businesses to fire workers and simplify working condition agreements since it was elected in 1996. Attempts have been rejected seven times, according to the main opposition Labor party's workplace spokeswoman Penny Wong in Canberra.

The changes will ``make it easier for firms to negotiate with workers than it ever has been,'' said Mark Wooden, deputy director of the Melbourne Institute of Applied Economic and Social Research, founded in 1962 and funded by the University of Melbourne. Wooden calls the planned law changes the ``most significant'' since the Industrial Relations Commission was established in 1905.

The changes will make it easier for employers to arrange individual agreements with workers, allowing them to tune work arrangements to circumstances and avoid industrywide regulation.

Businesses with fewer than 100 staffers will also be able to dismiss workers without challenges from unions and tribunals. For businesses employing more than 100, the probation period during which new employees can be fired without explanation would be doubled to six from three months.

The response from a union representative isn't surprising:
``The government has declared war on workers,'' said Doug Cameron, secretary of the 137,000-member Australian Manufacturing Workers Union in an interview from Melbourne.
As this type of deregulation is very difficult to pass, Howard should be appluaded for pushing this agenda. The article also talks about productivity which such measures are also likely to boost.

Naturally, most of you are saying to yourself that Europe, specifically France and Germany, should follow suit. IMO, such deregulation will never pass until blood is in the streets and I don't think they are there yet.

Krugmans juvenile Sinophobia


The text is almost completely devoid of any economic analyses, and could as well have been written by some college freshman student playing too much �Civilization III�. Once he educated the public, now he is now adding to misconceptions by repeating to the 'blood for oil' myth and playing on the public�s unenlightened (but in their case understandable) fear of outsiders.


1. Oil conspiracies

First of all, there is no such thing as a great game �in which major economic powers scramble for access to far-flung oil and natural gas reserves.� This is just a childish fantasy among those who still have a feudal view of the world.

Oil is traded in a single global market, with in practice a single world price. Control of oil may have been important in WWII, but it simply means nothing today. To suggest that Iraq was invaded in order to gain �control� of oil is just nonsensical.

As there is an integrated work market in oil there are really only two things you can do with it: sell it or don�t sell it. And if you want to obtain oil you do not need �control�, you only need cash. America uses some 1-1.5% of it GDP annually to import all the oil she needs without needing to control any of it.

As I doubt even Krugmans thinks the US is planning to steal Iraqs oil the occupation has absolutely no bearing on American access to Iraqi oil, which is sold on the world market to anyone and everyone.

Control of oil would only be relevant in the extremely unlikely situation of a prolonged global war. But in that case a Chinese company having legal ownership of an American oil company is completely meaningless!!! The beauty of knowing economics is that you will not make these kind of simple logical errors.

Krugman seems to have been influenced by fellow economist moonbat Lyndon Larouche on the impending collapse of the US economy, so maybe he really fears War is coming. In that case he should instead be advocating the US develop strategic oil reserves in Alaska and elsewhere instead of preaching protectionism.

2. The Manchurian candidate (Sinatra version)

Throughout the article he is exploiting the fear of China, suggesting that FDI by Chinese is somehow menacing, and that the purpose of their investments it to take control of America �After all, there's no natural law that says Americans will always be in charge�.

This is again complete nonsense, and almost has a racist feel to it. I do not remember Krugman protesting Brittish or Canadians investments, which are tens of times the size of Chinese investments. BP paid some 90 billion $ for American firms AMCO and ARCO without Krugman whining about it. Why write in such dark tone about China, even calling to block one of the deals?

The evidence is annecdotal, and the sums are un-impressing (and never mentioned!) The Maytag bid is 1.3 billion dollars. Is slightly more for Unocal, 19 billion $.

In comparison the value of the US capital Stock is worth 45 Trillion dollars. Foreigners (mostly white people, so I guess it is OK) already own some 10-11 trillion of US assets, while Americans own 7-8 trillion of foreign assets.

According to the OECD In 2004 Americans outflow of foreign investments was 252 billion $, whereas inflow was 107 billion $. Since this week it is bad in Krugmans book that foreigners invest in your economy, should the rest of the world complain that the US is �taking charge� of their countries?

With Maytag he seems to acknowledge that the deal is beneficial for both sides, but cannot help himself by ending on a ominous note. �Still, the deal won't be as one-sided as the deals with the Japanese often were.� Que? He said himself the deal will help America, why would we want it to be �one-sided�? Trade is not war or conflict, it is meant to help both sides. One of the biggest misconceptions among the public is that exchange is a zero sum game. From once brilliantly debunking such myths Krugman is now ready to promoting them to suit his short term political agenda. Principled guy.

It is never explained why he would block the sale of Uncial. He seems to hint it is because the price of oil is high right now. But any moron understands that the high price is already reflected in the price the one has to pay for Uncials. We should just take his word for it I guess.

3. Michel Moore with a college degree?

The most amusing side of it is the game Krugman has to play, dealing with two audiences. One is the non-economists readers, to that crowd it is just partisan politics, playing on their worst fears and using emotional arguments. But he probably also wants to be able to look his fellow Princeton Economics professors in the eyes next day.

He didn�t solve the dilemma by intellectual honesty or logical coherence. Instead he uses the Michel Moore technique; when you are playing to emotional side don�t use actual arguments, instead rely on a vague language and innuendo. So he never actually said we invaded Iraq for oil, only implied it. Never repeated the Unocal-Taliban-9/11 conspiracy theories that are so popular among the hard core left, just hinted at it.

In my personal experience he still has a lot of respect among people outside the US, i.e. those who haven�t read his NYT columns. But a common reaction among American economist upon mentioning Krugman is them smiling slightly, shaking hteir heads or rolling their eyes. The price he had to pay to become the darling of Howard Dean and the like was loosing the respect of most his peers. Hope it was worth it.

K. Brancato adds: See also Alex Tabarrok on Krugman's illiberalism.

Extreme Savers (Updated)

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CNN/Money has an amusing ongoing series about the lives and habits of "Extreme Savers" -- people who invest wisely, spend frugally, and live like there's no today. These homo-economicae are so good at the penny-pinching lifestyle that they sound like caricatures of real people from The Onion.


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By all relevant measures the Western European economies are not doing well compared to America. GDP per capita is some 40% higher in the US than among the EU 15. Unemployment for many of the welfare states is stuck in double digits, and even higher using comprehensive measures.

The relative poverty is reflected in many areas, such as lower private consumption, and lower quality of public services despite higher taxes. One would expect a vivid debate in Europe of their economic problems, especially given how resentful many Europeans are of America�s superior wealth and power. But Europe has chosen a much more painless approach: Denial.

�Who says the Europeans economy is doing badly? Our enlightened system is burying the McAmericans! Haven�t you heard of �Balanced Growth�?

There seems to be an entire industry devoted to making up more or less fanciful arguments why Europe is really doing better than the US. I want to exemplify and debunk some of those myths. In the process I also hope to convince you that Americans work less and have more free time than Swedes.

1. The Productivity per worker trick

I am sure many of you have heard it. �Sure, Europe may be doing slightly worse in GDP, but in productivity per worker or per hour worked we are keeping up with the US�

The problem with the argument is simple. The European Welfare systems have artificially changes the incentives to work though high minimum wages and high taxes.

These distortions have pushed a large part of their adult population out of the labor force. I showed last post that 30% of Sweden�s adult population neither works nor studies. Clearly this group is likely to be the least productive. But when they do not work their labor productivity goes down to zero, the increase only comes from taking them out of the data. Calculating productivity �per worker� is thus likely to be very misleading.

Another �productivity miracle� comes from the policies that make sure it doesn�t pay to work too many hours per day. In France and other nations they have even passed laws making sure people don�t work �too much�. The last hour worked in a day is likely to be less productive than the first one, so your productivity per hour might look better, but you would still have done much less work and earned less.

If people could actually choice without high taxes or strict regulations they would probably make a reasonable tradeoff between work and income themselves. The state forcing them to make another choice is not �welfare�. And since we don�t consume per hour or per worker only total productivity matter. So beware of Frenchmen bearing productivity per hour figures.

2. GDP Data mining

This was exemplified quite nicely by Sweden�s Government, who claimed Sweden had the same per capita growth rate as the US.

The only problem is the base year they just �happened� to choice: 1994. Sweden�s was in it�s the worst economic depression since the 1930s. Better yet, this was the last year of the depression, just before the recovery. We also managed to finish the comparison when the US still hadn�t recovered from the 9/11 depression.

Between the selective chosen years 1994-2001 Sweden had the same Growth rate as the US. But what happens if we take more representative years? Indeed, between 1990-2002 the US has some 12% faster growths per capita than Sweden. For every year since the US outperformed Sweden.

Year - - - - US- - - Sweden

2003 - - - 3.0% - - - -1.5%
2004 - - - 4.4% - - - -3.5%
2005(e) - 3.5% - - - - 2.1%

3. Confusing more specialization with working more

It may surprise you to hear, but Americans actually work less than Swedes and earn more.

To be sure, Americans spend more time working in the market. But only part of the work we do is in the marketplace. Much of it is unpaid labor in the household, especially but not exclusively for women. Cleaning, washing dishes, cutting the grass etc take time. In the US this represents some 39% of the hours worked. [Update: I have looked at new figures, more comparable than last time agewise, and also fixed a calculation error. The results are quite similar]

In Sweden instead 47% of hours spend working is toil within in the household. One important reason is tax wedges on work. With very high taxes on labor it does not pay to hire services in the market to help you paint the house, rebuild the ceiling, clean, or even cut your kids hair. Even though many unskilled workers are unemployed, it would still be too expensive to hire them due to taxes.

Both the Swedish statistical agency and the US department of Labor gather detailed information how people spend their time (While both dataset are excellent in themselves, the comparison is not perfect - in part due to certain classification differences). The average adult Americans man reports 35.1 hour working per week, compared to 32.8 hours for the adult Swedish man.

As suspected, Americans men spend 2.3 hours per week more on productive market activity - including work, studies and travels to work and studies - than the Sweden. But Swedish men spend 6.9 hours more per week working in the household. 4.4 hours of which are maintenance. The same relative patterns hold for American and Swedish women.

In total, Americans spend 4 and a half hours less per week working than their Swedish counterpart. They work less, and also spend more time on Leisure and Personal Care.

Maintenance is classic category where taxes wedges of 600-900% force people away from the marketplace. A simple real life is my business professor who painted his own apartment. He didn�t enjoy it, wasn�t very good at it and would have been more productive giving lecture.

Lets say the Painter waned to get 10 $ after tax to make it worth his wile. He pays 50% taxes, so he would need to bill for 20$. The sales tax is 25%, so the professor had to pay 25$ per hour. Now the professor pays 68% marginal taxes, so due to taxes would have to earn 78$ so that the painter could consume for 10$

People thus substitute hours worked in the market to unproductive (but untaxed) work in the household, not because they want to but because the system forces them to. This is not seen when you look only at hours worked per year.

4. Making up new categories

Some organization or magazine gets attention by make up arbitrary categories with fluffy criteria. When Sweden ranks high our media and the Government use it as an argument than things are great, no reform needed. The �Most competitive economy� is the most oft repeated ranking.

I will keep it simple: No consultant can determine what creates economic success. Only the test of reality can. If you have a survey where Germany is more competitive than Luxembourg they should outperform Luxembourg.


Just imagine half the creativity and energy is put into pretending we don�t have economic problems was used for actual reform.

This might not seem like a difficult question. After all, the unemployment number is readily available. It takes a few seconds to check up the American unemployment number, 5.1% in May. Sure there are speculations about discouraged workers leaving the workforce, but overall this is a reliable figure, useful for international and cross time comparison.

Not so with Sweden. Yes, there is an official number, 5.2% in May 2005. But this figure is almost compleatly worthless. The true unemployment number is in fact closer to 20%, as shown below.

Sweden has several massive government programs that contain must of the unemployed, chiefly Early Retirement, Sick Leave, Labor Market Programs and Welfare. In addition, since students get a monthly stipend and loan, many unemployed continue to study when they can�t find work.


The right in Sweden has for some time complained about the government hiding the unemployment in �programs�. But the question only came to the public knowledge when LO, the immensely powerful blue-collar union had one of it�s own turn against them. Hans Karlsson, a leftwing heavyweight, concluded that true unemployment was more in the ballpark of 20-25%, not 5% as the government was claiming. To make things even worse this guy happened to have the name as the Minister for Labor!

A few weeks later another labor movement veteran actually become a whistle blower, resigning and exposing that LOs left wing research institute had pressured him not to include the estimated true unemployment figure in a study. Embarrassing stuff indeed.

For a century the Social Democratic Labor Party parties and their allies in the Unions had Full Employment as one of their two ideological pillars (the other being an equal distribution of income). To now admit they have failed in this would be a huge defeat.

Furthermore, the party won the last two elections on the platform that cutting taxes would jeopardize underfunded Social Services. If Swedes were to conclude much of their taxes doesn�t go to welfare, but to support working age adults, their willingness to continue paying them might be reduced.

One key to understand this figure is that we have seen in the past few years is that the already high rate of sick leave has exploded. Yes, you wouldn�t guess it if you saw us, but Sweden has the sickest population in the world. Some 14% of the adult Swedish population does not work due to reported sickens. 540 000 were early retired (officially for health reasons) December 2004, fully 10% of the adult population. In addition more than 5% of the working population is on sick leave any given day.

Estimating the true unemployment rate

I will try to calculate the figure using data from the Swedish Statistical Agency (SCB) Labor survey, first quarter 2005. The calculations and adjustments are too messy to show here, but will be given by request.

Two notes. I have adjusted their Sick Leave number. Also all figures are from SCB, except the number only on welfare which I got from Tax researcher Dane Nordlings homepage. http://danne-nordling.blogspot.com/2005/05/hur-mnga-r-egentligen-arbetslsa.html

Table 1. First quarter of 2005, adjusted.

Population 16-64 - -- - - 5755.000

Not in laborforce - - - - - - 1.365.000
Early retired - - - - - - - - - (494.000)
Seek work - - - - - - - - - - - (150.000)
Get Welfare - - - - - - - - - - (84.000)

Labor Force - - - - - - - - - 4.391.000
Unemployed(5.6%) - - - - - (245.000)
unemply programs - - - - - (130.000)

Employed in Real job - - - - 4.016.000
Absent from work - - - - - - (554.000)
Of which on Sick leave- - - (216.000)

Actually work - - - - - - - 3.469.000

4.0 million (70% of adult population) in productive activity rate, 1.2 million (20%) living of welfare and Health or unemployment insurance alone.

Range of estimate: 8.5%-26%

So what is Swedish unemployment? The question hinges on who we include, and especially Sweden�s case especially on how much of early retirement and sick leave is hidden unemployment.

Even the Swedish governments acknowledges that the 130.000 in �Labor market political programs� simply unemployed, so we start from 8.5%.

For international comparisons we probably should not include the students and other�s who want work but can�t get it, since all countries have this category. But for policy matter in Sweden we should. Also including welfare recipients we get 13.2%.

The hard question is what to do with all the absentees. If we include all of them we end up with 26%. Note that we are not including absentees for any other reasons than Sick Leave and also excluding the underemployed.

Now this last figure is clearly too high. Many people who report sick are of course really too sick to work. It does show us the range, and is probably closer to the actual number than 8.5%.

It is anybodies guess how many who could go back to work if it paid to work. There is plenty of evidence that strong economic incentives to report sick matters. (I full account on this research another day).

Sweden had some 26 days lost per worker in 2002. In Canada, hardly a much sicker or slave driving nation, the corresponding figure (2004) were 7.5 days per full time worker lost every year due to sick leave (Statcan.ca). Britain had a similar figure, 7.2 days lost per worker and year in 2003 (CBI annual absence survey)

My Best Guess

As plausible comparisons I use the rates of early retirement in 1960 and the sick leave of slightly above Canada�s. Both would seem to exaggerate the number, we are for example much healthier now than in 1960.

Not counting the forced student, the underemployed or all other absentees the Swedish unemployment rate would be 19.8% fully 962.000 out of work of a workforce of 4.848.000 (add the latent jobless to get 22.5%).

Unemployed (245.) + Programs (130.) + Welfare (84.) = 459.000

Unemployment hidden in Early retirement (373.000) and Sick Leave (131.000) = 504.000

Total 962.000 out of work, Labor force 4.848.000.

In practice I think this 19.8% figure is somwehat comparable to rates for the US and other market economies. I am not sure however we should compare it to the �raw� figures of Germany or France, since they too hide unemployment in other welfare systems (though probably no country does as much as Sweden).

Next time I hope to write more detailed on how this high unemployment and welfare dependency figure has lead to chronically underfunded Social services.

By tino.sanadaji@gmail.com

New Bloger


Hello to all Truck and Barter reader. My name is Tino Sanandaji, a Kurdish-Swedish guy struggling in my first year at University of Chicago�s graduate program in Economics. I would like to thank Kevin to offer me the opportunity to post here at this excellent site. I intend to mix writing on Swedish economics with more general comments.

Why should you care about Sweden? One reasons is that our small nations has often been the ideal natural experiment (well, at least experiment) in many economic policies. We have the most extensive welfare state in the free world, the highest taxes, the strongest unions and the longest period of one party rule.

In the past century the main political struggle in the western world has been between free markets and welfare state. This has been and will long be the main ideological line for both voters and politicians. Here Sweden and the United States make up two opposite poles. America has probably the freest economy of any national state, individuals retaining most decision right on their income and making you the most rightwing economy. Sweden is the opposite, the most leftwing system.

Health care, childcare, elderly care, higher education and most insurance are tax financed and controlled by politicians. To finance this and more the state takes in some 55% of GDP. The corresponding figure for the US was some 31% of GDP (both 2004).

Not surprisingly Sweden is constantly used as a political stick in other countries. By the left as an example to be followed as the most humane, livable and fair system, by the right as a warning of economic stagnation, restricted freedom and government waste.

Despite of the great outside interest (or perhaps precisely because of this) there are many misperceptions about the Swedish economy. The left seems to have a romanticized and outdated image, not surprisingly projecting their visions of the ideal society on our imperfect reality (a Canadian neighbor told me Sweden is a great country because all old people get their own private maids!). Many right-wingers also make overly dramatic claims, such as Sweden going bankrupt or slowly becoming a Muslim nation.

As an examples of projection, many Americans and Europeans alike seem to see our system as a proof that you can achieve full employment despite rigid labor markets, and very high labor discouraging taxes and benefits.

The European Union in their annual report credited us with as much. After all, unemployment is only 5.2%.

Or is it?

Let�s see in my first real entry.

But when the introductory material is so poor, I find it hard not to do so.

From the Phantom Prof's site I read this synopsis of a PBS special currently airing.

The upshot of the show, from what I can tell, is not only to point out that college is not perfect at preparing kids for a professional life, but also to suggest that part of the problem is that a lack of state and federal funding is largely to blame, since the kids are showing up at college unprepared.

"Declining by Degrees" also highlights the impact of market forces in higher education today. The reality of the college experience today often depends on the bottom line: money. As one university president described it, "The state taxpayer support for public universities is eroding. That creates financial stress that we all understand and we just manage it. We just deal with it the best we can."

The two-hour documentary examines the public and government's decreasing financial commitment to higher education. Sixty years ago our country entered into what amounted to a social contract to ensure access to college for all despite family income. States supported public colleges and the federal government helped with money for the poor. Today, the funds and the support for the social contract are diminishing.

As Pat Callan, President of the National Center for Public Policy and Higher Education, explains, "The federal Pell Grant program is the nation's largest program that focuses on the lowest income students who actually get to go to college. In the early 80's, that program had about 3 or 4 billion dollars in it, and it covered over 95 percent of the average tuition at a 4-year public college or university." Today it's about 57%.

I'm not sure who they've got looking into that "impact of market forces", but it doesn't seem, from the synopsis, that they bothered to talk with too many people who might be able to expound on the full range of those forces. One need only open the pages of Forbes to find a good discussion of the correlation between funding and educational attainment (measured in part by the number of people going on to college).

There are additional issues, however, that arise when we consider high levels of public funding: there will be more people going to college that shouldn't be. For a good number of people the traditional cobblestone-lined walkways of a four-year college is simply not necessary. Some because their talents lie elsewhere, some because the time isn't right, and some just because they could make more money than by being in school. With increases in public funding for any host of characteristics, it becomes more likely that schools will let in people who do not meet the minimum standards for doing well at college, simply because the financial burden of carrying them is reduced (or, in terms of grants to schools with a student body composition that meets certain criteria, it could be a net gain). College is certainly getting more expensive, but that's simply compared to what it used to cost, and doesn't approach anything like what it "ought" to cost -- not that such a thing is easily definable. But those students who are prepared, or for whom academic pursuits come most easily (as in the kid from the synopsis who does little work in college but still does well) could and would still attend even if college were more expensive, since there are extensive merit-based scholarships, and I daresay schools might be more willing to funnel money back into things like undergraduate teaching if the level of work coming from students improved. Bringing in people less prepared simply increases the variance in abilities that a professor faces when staring at a class; a fact that I'm certain results in massive headaches when the poor students complain that things are too hard and show up for office hours two days before a test to ask remedial questions, or when the kids who get it are less than engaged, don't attend to avoid the others, and barely particpate only to float through.

While I have some symptathy for the notion that high expectations result in better performance, I still view with mild skepticism programs that have only college as the ultimate goal. (In the case mentioned on Newmark the Younger's site, I appreciate that it's a goal parents are keen enough on that they work with their kids to make happen. The attitude that numbers of people making it into college marks some important degree of success for a school, on the other hand, bothers me more generally.)

In a position I would ascribe to the likes of Matt Yglesias, I think some people simply want more kids to attend college because it makes them feel better about...well, themselves, society at large, the future of humanity, who knows. This is akin, in my mind, to those people who talk more about covering people with insurance than worrying about better health outcomes. Sending people to college, or giving them health insurance, isn't going to make the end result -- a roomful of people Yglesias would be happier talking to or lean, healthy people getting a full ration of fruit a day -- a certainty.

UPDATE: Unfortunately, it was as poor as I expected. The two hours were spent, essentially, lambasting the "general public" for not understanding how important it is to have massive taxpayer-supported funding for higher education. Continued reference was made to a "social contract" being broken -- as far as I could grasp, this contract includes some sort of declaration that higher education should be as close to free as possible for everyone. The evidence for this? The GI Bill which, oddly, the documentary supports with the (in my opinion correct) commentary that this was little more than a pleasantly-wrapped but crass way to deal with the influx of millions of able-bodied men back into the workforce, that is, by keeping them out of it and training for a wider range of jobs. While talking repeatedly about the "benefits" (read: spillovers) of higher education, the commentaries in the doc repeatedly admit that not only are people unsure of what "happens" at college (calling it -- no joke -- "magic", at one point) to make people more productive or better equipped for the work world, but there are also no good measures of how much it makes a difference (no level to judge how much "magic" happened). No one talks about the maturation that occurs naturally between the ages of roughly 17 and 22. Additionally, though I've not got time to find the data, there was much talk about the nature of the US middle class, and college being the only way to reach it and thus be able to support a decent lifestyle and family. That would be surprising, I think, to the numerous plumbers, electricians, contractors, mechanics, and plethora of small business owners I know who make a good deal more than I do (not that I'm wealthy, but do fall squarely into the "middle class" range), all without having attended "college" (though plenty of them took technical training outside the academy).

Possibly the most objectionable part of the document was the twin condescenion and paternalism expressed towards community colleges. They were depicted as "last resorts" for some, while the narrator/interviewer highlighted financial pressures that meant some community colleges had to turn some people away. Could greater demand from, say, immigrants be putting pressure on these schools? Would greater demand for qualified professors at these colleges that are turning students away mean that the teacher profiled in the doc was in a position of strength for bargaining on his salary? (And, frankly, after 30 years of teaching in multiple places and never getting a permanent position, shouldn't the teacher from the movie have either reconsidered his choices or couldn't we assume he is at least decently satisfied with the non-monetary reward of teaching and discussing his favorite subjects?) The entire tone when discussing the community colleges was "look what some people have to resort to" and "gee, shouldn't we all pitch in so something like this doesn't have to keep happening to good people?"

I've always viewed the profusion of small and technical schools as a good thing, as the spread of specialization in education. People can head towards training that would be more useful to them in the long run. Not everyone needs to sit through college lectures to end up a productive member of society.

MIT Blog Survey

Go take the MIT Blog Survey. I did, and found out that I post much more frequently than many others.

Take the MIT Weblog Survey

Note that I did have to tinker with the banner so that it would fit my statistical philosophy.

Book Tag

John Palmer book-tagged me, so here it goes:

Number of Books I Own: The most important empirical questions call for rigorous data gathering. I shall use the imprecise (but ever popular and pretty cool) estimation method of counting linear feet of filled bookshelf space. Eyeballing my trusty tape measure, I found that I have 16.5 shelves 32 inches wide, 11 shelves 28 inches wide, 17 shelves 28 inches wide full of books. This yields 1295 inches of linear shelving. Assuming the average width of my books is 1-1.3 inches, I have 1000-1300 books.

Greenspan on China and Protectionism

Alan Greenspan's testimony to the Senate finance committee is superb. Excerpts:

Some observers mistakenly believe that a marked increase in the exchange value of the Chinese renminbi (RMB) relative to the U.S. dollar would significantly increase manufacturing activity and jobs in the United States. I am aware of no credible evidence that supports such a conclusion....

[A]ny significant elevation of tariffs that substantially reduces our overall imports, by keeping out competitively priced goods, would materially lower our standard of living....

New hires in the United States currently average more than a million per week, half resulting from voluntary job change.

Wow, ~100,000 Americans will quit their jobs today (if quitting is uniform M-F). He closes:
In the decades ahead, it is in our interest and that of the global economy that China continue to progress toward becoming a more market-based, productive, and dynamic economy in which individual initiative, not government decisionmaking, is the fundamental strength behind economic activity. For our part, it is essential that we not put that outcome, or our future, at risk with a step back into protectionism.

Another Idea, Free For the Taking

(Whoa. Been a while. But then, traffic's been up since I've been gone. Maybe I should take that as a sign...just not now...)

Via Division of Labour I saw this odd article at FindLaw.

According to a recent study, many consumers are unaware that price discrimination occurs over the Internet. But apparently, it does.

The Internet allows shoppers to easily compare prices across thousands of stores. But it also enables businesses to collect detailed information about a customer's purchasing history, preferences, and financial resources -- and to set prices accordingly.

So when you buy an airplane ticket or a DVD online, you may pay a higher - or lower - price than another customer buying the very same item from the very same site.

I can't claim to be someone who is shocked at the notion of price discrimination. In fact, I tend to think a free-wheeling allowance for such things would do a world of good in a lot of cases. (To wit: weight is the single biggest factor in determining how much fuel an airplane uses, which in turn is one of -- along with wages -- the biggest determinants of the cost of operation. Imagine how much better off we'd all be if airlines charged tickets according to combined passenger weight. Not just you, but the luggage you bring as well. Lighter loads, less fuel use, lower ticket prices. The marginal person isn't decisive between one flight being profitable and one not, but the aggregate benefits could be considerable, and worth spreading out over all the passengers.)

The article at FindLaw strikes me as yet another example of knee-jerk "My God, there ougtta be a law!" reactions so popular when someone encounters something that doesn't satisfy their desire for everything everywhere to be totally blind to the existence of differences between people. But it is decently written.

Even if you find such things distasteful, there really is no need for regulation. In fact, this would seem to be a great new opportunity for people with dramatically better programming skills than I. Why not simply start writing programs that alter the contents of Cookies to match whatever characteristics go along with the lowest possible prices? I can imagine small programs that scour databases (wiki?) of data on commerce sites and take whatever people report as displaying lower prices during shopping. Places like MajorGeeks and SnapFiles have gigs of programs designed to wipe out cookies from your machine. Why not put them to a little more work?

Fuel Economy by Speed

A while back I wrote Does Driving Slower Save Gas?. My dissertation prevented a more complete analysis, which is presented here. The main result of the previous post was that according to the Federal Government, driving at a steady speed of 55 mph maximizes fuel economy. I and my readers found this rather hard to believe, so I emailed the relevant authorities, who quickly responded that the basic chart is a distillation of data presented in tables 4.24-7, in Chapter 4 of the Transporation Energy Data Book. From there, we find that three studies were performed measuring fuel economy at steady speeds-- in 1973, 1984, and 1997. Each of these came back with different results, basically because they were using wildly different automobiles.

Let me say that it appears the tests of these vehicles are impeccable. Great care was taken to standardize the conditions and get real operating data on these models. That being said, it is very hard for me to justify using data from one 1993 Subaru Leagacy and one 1997 Toyota Celica as a basis for a generic 2005-6 model car.

The 73 study used

What if GM Shut Down?

Let's say GM can't get the unions to agree to have workers spend a greater share on the cost of their own medical care. The papers and pundits say GM will, eventually, go into bankruptcy. That's one way out. But that doesn't resolve the big issue: some GM brands are profitable and innovative, while others are still considered stodgy and unreliable.

It all leaves me wondering what is would take for GM to spin off its profitable lines as separate companies or as a new group, close its doors, and go out of business...

Last December, some folks at AutoWeek had a vivid debate on a related subject.

This from Fastlane struck me as something that a serious policy researcher would never, ever admit to, no matter how accurately it portrays how many "academic" researchers approach their subject matter.

Today, we�re operating on a much more emotional, creative level and our designers have been empowered to express themselves. Our winning products will not be determined by careful analysis; they will captivate and enthrall through imaginative design and flawless execution....
I like to think creatively about how I design and execute my research, but my winning products start with a refusal to bring my emotions into the mix, which is a small but critical part of careful analysis. The latter is, of course, what I am paid to do...

Back to Lutz:

What we are re-learning as a company is that we are not simply in the [public policy] business; we�re in the art and entertainment business. So, what we�ve got... now, is a general comprehension that you can�t run this business by the left intellectual, analytical side of your brain alone, you have to have a lot of right side creative input.
[Text modified for amusement purposes only.]
It's a good thing I don't design GM's cars, or you'd have a very small, ugly, and reliable econobox with airbags, A/C and CD Stereo that gets 45 mpg...

Home again.

I'm back at Truck and Barter after a very long time. I have been busy with exam horrors that have kept me awake for many nights on end. Now that I'm done, I thought I'd take some time to write a few entries on my trip back to India, and how things have changed over the last year.

I got into Madras last night after an excruciatingly long stopover at Colombo. Luckily, I managed to avoid a 42.5 degree (Celsius of course) heatwave, and landed up on a nice stuffy "almost about to rain" day. See, after spending a year in London, magical numbers like 42.5 have great significance. If there is one thing that I detest the most about London, its the weather. It's just too damn cold. Madras enjoys a warm stuffy climate with sweat drenching you on your first step outside the house. Man, can that be sweet after one year away!

The city has changed in many subtle ways. One thing I noticed was that the culture of "eating out" has become an obsession. Restaurants are packed with people taking time off after a stressful workday. A major contribution to this whole phenomenon of people stepping out of their houses after 10 PM comes from a new influx of young graduates that have arrived over the last year. The unfortunate dampner to this potentially vibrant nightlife is that everything has to close by 11:30. Bars, clubs, you name it, its out at 11:30. At first glance, time restrictions are not new to the world. In London, licensed bars and pubs shut down at 11:30 PM. However what keeps London alive are the clubs which stay open till early the next morning. The police enforcement, which is infamous for its random policy making (it sets the rules, though largely influenced by pressure from the legislature), is alleged never to have taken the effort to clearly spell out exactly what it's night time policy is.

One year after I left, Madras is still struggling to find it's identity. Will it choose to remain a culturally conservative bastion of "old is gold", or will it choose to embrace a city brimming with new citizens that are yearning to get out at night... keep reading this space to find out more :)

Seriously though, keep checking in for regular updates!

Pontiac Solstice: Dealers vs. GM


Ever so often the "dealer system" is revealed to be a strangely organized, unruly, complicated mess, as when it sets up incentives for dealers (agents) to interfere with the planned maximization of net present value for the whole company:

GM's performance brand already has piled up 9,000 orders for the sporty ragtop, about half the number it had planned to build this year.

But instead of celebrating, Pontiac is quietly -- and delicately -- addressing complaints that its dealers are asking "well above" the $19,995 base sticker price for Solstice, according to a memo sent to Pontiac's 2,700 U.S. dealers....

Pontiac contends that Solstice's $19,995 base price, including destination fees, is a crucial piece of its marketing efforts and that the rebounding brand cannot risk alienating buyers with inflated prices.

But GM already took that risk; I simply cannot believe that they didn't think of this ahead of time.

GMU Commencement

I didn't attend commencement at GMU, but the WaPo profiled Amir Azad, an 18 year old up-and-coming Iranian-Austrian:

In the boisterous sea of green robes at George Mason University yesterday was Amir Azad, 18, who is looking forward to some light, summer reading: "Human Action," by the economist Ludwig von Mises, and "Man, Economy and State," by Murray Rothbard....

Like his father, a professor at Alzahara University in Tehran, he fell in love with economics and now quite earnestly says things such as: "My challenge is to look at the political changes and economic changes of the world from a realistic perspective, rather than an ideological perspective . . . to find the empirical analysis, so I can make my theoretical argument more powerful."

In particular, Azad admires the work of Friedrich Hayek and others who, he says, place the individual above groups, systems and political ideology. He is translating several articles into Persian, so that they may be more widely read in the Middle East, the region Azad hopes to influence some day, he said, along with "the world."

"Individualism," Azad said. "This concept is beyond time and place -- it's beyond history, really . . . the ability to grow and prosper to an extent unimaginable."

This fall, Azad will begin work on his doctorate at George Mason.

Mises blog had this a while ago, but T&B's value added is in noting that Amir's cousin has more detail.

For those relatively new to T&B, you should know that my wife, son, and I live in a large, aging, ethnically diverse condominium building. It's not "luxury", but it's home. Frankly, I would have liked quieter neighbors, cleaner hallways, higher ceilings, thicker walls, and smaller public schools, but the location was excellent, and at $87K for a 1100 sqft. two bedroom with a view, it was all we could afford when I was a lowly research assistant.

Now the same condo sells for $200-$250K, and some of the diversity is moving elsewhere -- but mostly, it's the same people in the building. As I wrote a long time ago, we mostly leave each other alone, except as I have since found out, for the children.

I discovered this out over the past week, as my son and I have been swimming in the condo pool in the early evenings. At that time, you will find a large diversity of ethnicities among the children: Russians, Iranians, Indians, Africans, American blacks and whites, and various Latinos.

Many of these "foreign" children have spent most or all of their lives in the United States; what struck me most about them was the utter lack of cultural diversity among these children. They were all American kids. They've grown up in the same area, with each other, have had the same experiences, mostly.

Not to say there aren't differences. Because language is learned at home, national and regional accents still prevail. Some children are friendly; others are born to hate. The older boys are learning to posture, claim territory, and fight. Many boys and girls group themselves by race and gender.

But the younger ones don't care about your race, color, religion, age, or gender. They just want to play. To them, diversity is just plain worthless. How does diversity help you make a bigger splash with a cannonball? How does it make you swim faster? How does being X make you better?

Sometimes children do have much to teach us... or at least much to remind us.

On Development

I did not study "economic development" as a separate field, and know little about it. I've decided to start reading on my own, and you'll be able to follow my progress, or lack thereof, in the Development category.

I'm following the syllabus of Pham Hoang Van of the University of Missouri. For today, here are two papers by Debraj Ray: Readings in the Theory of Economic Development and What's New in Development Economics?, now six and five years old respectively. But you have to start somewhere.

Here's the skinny, in my words:

"Convergence" thinking explains divergent development paths through unequal fundamentals. "Historical accident" thinking insists that equal fundamentals can yield divergent paths given different initial conditions. We must understand Exogenous vs. Endogenous factors. And of course, Theory + Reality Should Yield Policy.

Blah, blah, blah.

It seems that development rhetoric trumps development understanding...

Not Enough Globalization

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A quick link to a paper by Pierre-Richard Ag�nor of the World Bank, "Does Globalization Hurt the Poor?" A partial abstract:

I use both individual indicators of trade and financial openness, and a "globalization index" based on principal components analysis, and test for both linear and nonlinear effects. The results suggest the existence of an inverted U-shape relationship between globalization and poverty. At low levels, globalization appears to hurt the poor; but beyond a certain threshold, it seems to reduce poverty � possibly because it brings with it renewed impetus for reform. Thus, globalization may hurt the poor not because it went too far, but rather because it did not go far enough.
The above link is to a working paper. Here's a copy that was published in the journal International Economics and Economic Policy, Vol 1. No. 1. March 2004.

Quote of the Day

Don't kid yourself into thinking that workers deserve a minimum wage. Nobody deserves to have their job destroyed.
-- Russell Nelson

The CPI does NOT Measure Prices

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Because the cost of housing is imputed through housing rental markets, and because hedonic regression quality-change adjustment, the CPI is now alleged to understate inflation:

Home prices in the Washington area have doubled or tripled in many neighborhoods, and the cost of maintaining, heating, cooling and improving homes also has been soaring....
Yet the department's housing cost index rose only by 2.7 percent in the past year � a discrepancy that has economists scratching their heads.
"The core CPI considerably misrepresents what is happening in the housing market," said John Silvia, chief economist at Wachovia Securities, who added it's "time to can the core."
The problem with the housing index, economists say, is it does not measure the cost of owning a home but rather reflects the cost of renting, which has been rising much more slowly than the cost of home purchases and upkeep.
If you believe that the CPI is supposed to measure such a thing, then this housing argument appears right on target...

Anecdotal Efficiencies


DoD and the military services are trying to implement a "new" program/institutional structure to reduce waste:

Defense Department managers say past Lean Six Sigma projects have revealed that between 57 percent and 90 percent of the time it takes to accomplish a given process is time wasted � that is, time not spent on something a customer is actually waiting on. It is time spent waiting for a problem to be solved, a technical glitch to be fixed, for a tool, parts or information to arrive, or duplicative work to be completed.

India and Krugman

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An amusing contrast at the end of Tom Friedman's latest:

The dirty little secret is that India is taking work from Europe or America not simply because of low wages. It is also because Indians are ready to work harder and can do anything from answering your phone to designing your next airplane or car. They are not racing us to the bottom. They are racing us to the top....

Yes, this is a bad time for France and friends to lose their appetite for hard work - just when India, China and Poland are rediscovering theirs.

Paul Krugman is on vacation.

More Use of Shame

Since it seems that shame works best if you can expand the group of people who repeatedly interact with those who are being "shamed", this strikes me as a particularly cost-effective method:

U.S. city unveils sex solicitor billboards of shame

Naturally, I'll avoid the thornier issue of sex work legalization...for now.

When Statisticians Laugh

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So the CDC is sent into WV to analyze an outbreak of obesity. The author of the story goes through the routine, but then asks two statisticians what they think:

Dr. Daniel McGee, a professor of statistics at Florida State University who has analyzed obesity data, burst out laughing when he heard about it. "My God, what a strange thing to do," he said.

"They'll find out what we all know - that the country is no longer set up for physical exercise," Dr. McGee said. And that schoolchildren "don't get a nutritious diet." And that "there is a lot of high-fat food on the shelves of every supermarket."

But, he said, "that doesn't tell you much."

"I'm sure skinny people go to those same restaurants," Dr. McGee said. "Skinny kids go to those same schools."

Dr. David DeMets, a professor of biostatistics at the University of Wisconsin, was also extremely skeptical.

"We get a lot of false positives from that kind of investigation," Dr. DeMets said. "We get people worried," but there is no way to know whether what is found... has anything to do with the obesity epidemic.

"Perhaps it is true, perhaps it is not," Dr. De Mets said.


The word "distribution" means two things to economists, one active, the other passive.

The active use describes human action: how people are using plans, processes, methods, strategies, and organizations to better their living conditions. Goods and services follow channels of distribution. All along inumerable production networks, rights, materials and ideas are distributed (i.e. both traded and stolen) from person to person, organization to organization, following a path not of least resistance, but of greatest profit. People are distributed among and within organizations, held there by interest and ownership, voluntary consent and weaker alternatives.

The passive use is as a tool of description: a method of counting and grouping people based on some trait, for instance, income. This type of distribution is summarized by a small set of statistics, describing either the exact shape of the distribution, or its important characteristics.

Perhaps surprisingly, the passive definition is considered more sexy and exciting than the active one; newspapers are always writing about it, and debates over it are furious and heated.

But it is the active definition that is the core of an economic system. The active use is what Adam Smith analyzed at work in the pin factory, even if he didn't use the words. And the passive use is what he analyzed to see if economic outcomes fit his moral system.

And as far as the "distribution of income" goes, I think that is an entirely misleading collection of statistics.

The truth is that production is distributed over vast networks -- not income.

Income is usually contracted for between two parties: an agreement to pay for a specific set of services. The transfer of income is one step in the distribution of cash flows -- but it is not the end product of all cash flows. Income is just one node in the cash flow network; it is the mirror image of a retail store receiving goods for sale.

The study of the active distribution of income is fine in itself, but not terribly interesting. And the study of the distribution of income in the aggregate is generally a passive affair. Take a snapshot of incomes and one time, and then another, and compare and contrast. Histograms do not show the flow or pattern of incomes, do not show the causes of variance, and must be taken with great care before being entwined in discussions of morality.

But it is the study of the distribution of production that is really exciting. Production is dynamic; even a snapshot of production reveals its underlying activity, complexity, and most of all, dynamism.

The snapshot of a passive distribution of income tells you no such story by itself. In other words, you must impose the story on the data -- personal, subjective stories related only anecdotally to the data presented.

...but I just discovered that "endogeneity" isn't an acceptable word according to MS Word standards.

Then again, it's not found here, either.


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