Measure of America

Hmm, I wonder:

Despite spending $230m (£115m) an hour on healthcare, Americans live shorter lives than citizens of almost every other developed country. And while it has the second-highest income per head in the world, the United States ranks 42nd in terms of life expectancy.

These are some of the startling conclusions from a major new report which attempts to explain why the world\’s number-one economy has slipped to 12th place – from 2nd in 1990- in terms of human development.

The American Human Development Report, which applies rankings of health, education and income to the US, paints a surprising picture of a country that spends well over $5bn each day on healthcare – more per person than any other country.

The report, Measure of America, was funded by Oxfam America, the Conrad Hilton Foundation and the Rockefeller Foundation. It shows each of the 11 countries that rank higher than the US in human development has a lower per-capita income.

I can\’t see a download site for the report which is a little unusual for this sort of thing. If anyone finds one, let me know would you?

There\’s two things I\’d really rather like to find out.

Those countries score better on the health and knowledge indices that make up the overall human development index (HDI), which is calculated each year by the United Nations Development Programme.

The health scores used in that HDI weight equality of access to health care very highly. Glenn Whitman is the go to guy here. American health care is indeed highly unequal but that tells us nothing about the actual quality of it.

In fact, the report shows that 15% of American children – 10.7 million – live in families with incomes of less than $1,500 per month.

That doesn\’t ring true at all. That\’s $18,000 a year, which is about (around and about) the Federal Poverty line for a family of four. But there\’s one howling error in the way that US poverty statistics are calculated. They measure market income plus direct cash transfers. They do not include transfers in kind (food stamps, Medicaid, housing vouchers and the like) not do they include anything operating through the tax system. So they deliberately exclude the largest US anti-poverty program, the EITC.

So if they are using the Federal Poverty Line as their measure (something I don\’t know and one of the reasons I\’d like to be able to skim the report) then they\’re actually measuring the number of people who would be in poverty before they were helped (and that 15% number looks about right for the Fed Pov Line), rather than the number of people who still need help after they have been helped.

Hmm, interesting, eh?

Especially when we have figures that show that after the interactions of the tax and benefit systems that the bottom 10% of the US population enjoy lifestyles almost exactly the same as the bottom 10% of the Finnish or Swedish populations.

You mean you\’ve only just noticed?

Sir Simon Jenkins:

But converting micro-economics into macro has always been a dangerous game.

Quite. Y\’all will have noted that while I write quite a lot about economics around here I do very little macro stufff. Interest rates, currencies, growth forecasts: it\’s not just that I don\’t know much about these things (which I don\’t, not having the math to follow most of the arguments) it\’s that I\’m profoundly unpersuaded of the value of them all, the accuracy of any of the models or forecasts.

Micro, yes, I\’m interested in: as the man said, the proper study of man is mankind, and micro is an attempt (however incomplete) to work out what it is that people do given the constraints and incentives they face. We do indeed find out useful things this way.

The scaling of that up to say that if we just increase interest rates by 0.25% then we\’ll get the economy to steer this way: well, I\’ve always rather thought that this is more in hope than upon any really convincing evidence. It works a lot of the time but not all the time.

Guardian Logic

From a leader:

Besides, there are things hauliers and their clients can do to help themselves. A couple of weeks ago, it emerged that big supermarkets and food and drinks firms – from Asda to Unilever – planned to share some lorries. Before this initiative, giants such as Nestlé and United Biscuits were running empty trucks. Why did it take record fuel prices to end that waste of planetary resources?

Erm, that would be because incentives matter, wouldn\’t it?

One For the Anthropologists

Or perhaps the Veblenites.

Bryan Appleyard finds some Iranian special type peaches. They\’re great.

His enjoyment of them is reduced when he finds out that they are also sold in M&S.

Positional goods? Conspicuous consumption? Not quite the right descriptions, are they. Anyone got the right phrase to describe this?

Against Doha

The usual suspects are arguing that the Doha Round of WTO talks should be abandoned, given the likely effe4cts of the deal that\’s on hte table. The basic thought revolves around our old friend, the infant industry argument.

Further cuts in manufacturing tariffs and services regulation in developing countries, which are under consideration in the current Doha proposals, will make it more difficult for developing countries to replicate these efforts. This loss of so-called "policy space" is why many developing countries see current rich-country proposals as tantamount to saying: "do as we say, not as we do."

Now leave aside ffor a moment whether the infant industry argument is valid in itself (I think not but….) and think for a moment about what would be necessary if it indeed were valid. "Policy space" is code for governments picking winners, deciding which sectors get the protection. That, in turn, requires (to be effective at least it requires) both visionary and honest government.

And we observe a real surplus of that in the currently poor countries, don\’t we?

Even if the infant industry argument is correct, that wise and impartial government can do better in growing an economy than a more laissez faire approach would by picking winners, there\’s little doubt in my mind that a corrupt and partial government will do worse in its attempts to pick winners. And given the quality of government we see before us, it\’s the latter case which will predominate.

In effect, we want to indeed take away this "policy space" precisely because the exercise of such power will make things worse. Comrade Bob, the Burmese Junta, North Korea, pick your hell hole and apply the same thought: these aren\’t the people we want to have more power over their economies, are they?

 

 

The Dean Baker Solution

Hmmm.

In the absence of a major regulator overhaul, there is one simple measure that would at least ensure that the public gets a cut of the action. A modest financial transactions tax could easily raise an amount equal to 1% of GDP, or $150bn a year at present. This is real money – enough to finance a 10% across-the-board reduction in the income tax.

A tax of 0.25% on a stock trade or 0.02% on the purchase of credit default swap will have no measurable impact on productive financial transactions, but will likely put a serious dent in speculative activity. For this reason, it is a win-win-win proposition. It reduces speculation, it takes a big bite out of Wall Street revenue and profits and it raises a bucket of money. If anyone has any better ideas, they are keeping them to themselves.

What Dean is suggesting is essentially that New York should impose a wider version of the Stamp Duty which London has on share sales. Which has two interesting corollaries. The first is that we\’ll of course see leakage of the market away from places which impose such a tax: just as the original Eurobond market grew in London after New York imposed a witholding tax, or the boom in contracts for difference in more recent years in London. The second is that there\’s a large movement in London to scrap stamp duty itself, as it makes the markets themselves less efficient….and the major losers over the years are those investors saving for their own pensions.

But hey, why not do it anyway? Drive more of the US markets to London to the enrichment of the UK, wouldn\’t it?

Oh, by the way, is there actually any reason why we would want to curb speculation? Isn\’t it in fact a rather useful thing, moving, as it does, risk around and prices inter-temporally?

There\’s a Problem Here

Well, at least George is right about this:

Of course, it\’s not a crime, and it\’s hard to see how, in a free society, it could or should become one.

If we are indeed to have free speech then that includes the right to say things which are wrong: yes, it also includes the right to lie. So there\’s no grounds whatsoever for arguing that those who argue against the existence of climate change (whether directly by fossil fuel companies, funded by them or from any other source) should be charged with a crime.*

However, there is a different problem:

The energy companies\’ propaganda campaign is amplified by scientific illiterates in the media, such as Melanie Phillips, Christopher Booker, Nigel Lawson, Alexander Cockburn and the television producer (who made Channel 4\’s documentary The Great Global Warming Swindle) Martin Durkin.

Take that accusation as you wish….but now think a little further about the matter.

Assume that the IPCC is correct. (No, really, start with that assumption.) So, what should we do next? Cut emissions immediately, clearly…..well, actually, maybe not.

For now we step away from matters of climate science and into the realm of economics. In two ways, the first being that as everyone insists, we want to change people\’s behaviour. Given that economics is, in part, the study of what people actually do given the constraints and incentives they face, if we want to change their behaviour, we\’d be well advised to pay attention to, to study, the way in which by changing the constraints and incentives they face their behaviour will change.

Yes?

And in studying such we\’d be well advised to ignore the opinions of economic illiterates like George Monbiot or perhaps James Hansen. Certainly, the latter as a climate scientist has no particular insight and the former has yet to meet an economic idea he does not misunderstand.

The second is that how much we do is also an economic question. There\’s absolutely no one out there insisting that we "stop" climate change. Everyone agrees that it\’s all already gone too far for that: what we\’re actually trying to do is prevent disaster. In either direction in fact: either disaster from a high level of warming or disaster from attempting to stop a low level of it. (Disaster in that latter sense might include limiting the growth of the economy *too much* leading to yet more generations of billions of people living in absolute poverty.)

Now this attempt to decide upon the Goldilocks amount of warming is also something which will be worked out by the application of the economist\’s toolbox. What is the cost of this course of action? Of that? What\’s the appropriate discount rate? What are the benefits of this course of action?

There are also moral and ethical questions to be answered (that discount rate being one of them) and here economists don\’t particularly have much to add either: they are assumptions with which you start your work with that economist\’s toolbox.

So, even if we acccept Monbiot\’s argument in its entirety, that the IPCC is right, that only climate scientists are capable of speaking on climate science, this still leaves us in this situation. We shouldn\’t be listening to economic illiterates on what we do about it, for this is indeed specifically (ie, how do we arrange the carrots and sticks so as to change peoples\’ behaviour) an economic question and more generally (how much behaviour should we be trying to change) an economic question.

Another way of putting this. Thanks James, George, you\’ve brought a big problem to our attention. Thanks very much for the IPCC report and all. Now, in order to work out what to do we are going to listen to a different group of people: Nicholas Stern, Partha Dasgupta, Richard Tol, William Nordhaus,,,,even Nigel Lawson perhaps, for they are indeed literate in the science we now need, that of economics. And, sadly, you especially George, you ain\’t, so you\’ve nothing to add to the conversation now.

 

*Regular readers will know that I wrote for a couple of years (and was paid by!) TCS Daily, Techcentralstation as was, an organisation that some say was part of that obfuscation attempt. Thus perhaps my views have been bought and paid for: a reasonable enough accusation perhaps, except for the content of the pieces I did write for them. Which was pretty much that climate change (or global warming as we called it back in those dim and distant days) is happening, that humans are the cause of at least some of it and the only interesting question is what are we going to do about it? If I wasw indeed being bribed, rather than simply being paid as a freelancer, it\’s likely that those wouldn\’t be the views I would be bribed to put forward.

Hadn\’t thought of it this way

But there\’s some obvious sense in it.

…the continuing collapse in prices of new flats in those blocks that have sprung like mushrooms across the south-east should surprise no one. Did their buyers never wonder why the sales prices were a third higher than equivalent Victorian and Edwardian properties nearby? Did they never ask who was actually paying for the 30% – 35% of units to be built as \’social housing\’? Now of course private owners of flats in these blocks are waking up to the fact that a third of their monthly mortgage payments are buying the flat for the housing association tenants down the landing.

Shortage Watch

OK, so:

Felipe Calderón, the president, announced that prices for goods such as cooking oil, flour, canned tuna, fruit juices, coffee, ketchup and canned tomatoes would remain fixed until the end of the year.

"This reflects the commitment of Mexican businessmen to the country and to price stability," said Mr Calderón.

We see the price caps now. How long before we see the reports of shortages then?

What an Excellent Point

One other thought, vis a vis climate and economics.  Obama, I suppose, would be one to argue that the science of catastrophic global warming is "settled."  But does he really think it is more settled than, say, the science that free trade leads to general increases in prosperity?  The left is all for the sanctity of science, except in economics.

Joe Stiglitz Today

I\’m not a great fan of this particular Nobel Laureate, it must be said. But I do have to admit that he\’s not normally logically wrong. He starts from a different ethical position perhaps, which is what leads to his different conclusions, but that\’s another matter.

Until I see this paragraph.

The world needs to rethink the sources of growth. If the foundations of economic growth lie in advances in science and technology, not in speculation in real estate or financial markets, then tax systems must be realigned. Why should those who make their income by gambling in Wall Street\’s casinos be taxed at a lower rate than those who earn their money in other ways? Capital gains should be taxed at least at as high a rate as ordinary income. (Such returns will, in any case, get a substantial benefit because the tax is not imposed until the gain is realised.) In addition, there should be a windfall profits tax on oil and gas companies.

Firstly, we need to point out that while science and technology are important for economic growth they are not the (only) foundation of it. The Soviet Union had lots of both but they didn\’t have the other part: voluntary exchange. This matters in two ways, firstly, that it is that movement of a resource, from a lower to a higher valued use which is the creation of wealth: that is, the definition of growth. The second is that only by such voluntary exchange, by trade, can we actually find out what science and which technology is indeed contributing to growth.

As to capital gains, there\’s two points here. The first is that those who are investing in companies see the profits from such taxed at the company level first, only then do they receive their share. We could argue all day about whether this means that captial gains are already taxed as the same rate as income or not, but we do need to remember that point: the capital gains tax rate is not the only tax being paid upon those investments.

The second is that in fact our tax system does in fact recognise that science and technology\’s the (part) foundation of growth. That\’s the very justification for capital gains tax rates being different from income tax ones. We\’ll tax you less if you attempt to create the better mousetrap, cure cancer or reduce the price of solar cells: precisely and exactly because we recognise that such are good things for you to be doing so we\’ll encourage you to do so.

Finally, what is it with these windfall taxes? Are we trying to say that profit margins in those industries are "too high"? Leave aside the appalling thought that bureaucrats and politicians will determine what is the "appropriate" level of profit and look at this list.

Profit rates (depending upon how you measure them) are higher at Apple, Accenture, 3M and Coca Cola than they are at Chevron. So the justification for taxing Chevron more heavily than the others is what?

Perhaps I\’m naive or something, but I do expect better from a Laureate.

No, Polly Doesn\’t Do Irony

She says:

(Ironically a deep recession would improve relative poverty figures, though absolute poverty would rise.)

Indeed, that is true, but that simply shows the horrible flaw in the measure she continually uses herself: that relative poverty measure.

A booming economy might increase relative poverty but it also reduces absolute poverty. And that is what we all want, isn\’t it? That the poor become rich?

Sex and Economics

Via The Lady R we get the latest installment of the Zoe Margolis story.

Essentially, writing enthusiastically about her highly enthusiastic sex life has left her bereft of what she actually wants now, an enthusiastic but rather more emotionally connected sex life:

However, I\’m at a point where I now accept I have a need to be fulfilled emotionally as well as physically with someone; I feel ready to be with someone special for the long-term. I\’m just not confident that is possible for me to achieve in the UK now; too much of my personal life has been on display and the English attitude towards sex is reflected in how men view and relate to me: awkwardly.

OK, great, good luck to her, but what the hell\’s this got to do with economics?

Well, Gary Becker said something decades ago about prostitution (no, I am most emphatically not comparing Zoe to a prostitute). That the biggest cost in the long run was that a woman who worked as a prostitute almost inevitably cremated her chances of marrying in the community where she had worked as one. Thus the observation that women who do work as such tend to work as such outside of the community they come from. This helps to explain quite a lot of the way in which tarts tend not to come from the areas they service….yes, there\’s some economic migration due to poverty and yes, there is also a small amount of slavery and imposed trafficking, but one major driver (which part is the most important is up to you) is that is is indeed possible to go somewhere else, be a prostitute, and then come back home with the money but without that destruction of reputation and life choices.

And this is the only way in which there is a connection with Zoe:

Refreshingly, most of the men I\’ve met there have never heard of my blog or book, so getting to know one of them on a more personal level offers up an equal starting point from which to learn about the other person – which makes for far more romantic possibilities down the line.

Quite, which was rather Becker\’s point.

Now whether Zoe\’s enjoyment of and retelling of her enthusiastic sex life ought to make men react that way, a way in which they don\’t when they haven\’t heard the stories, is another matter, entirely so, but that they do seems obvious….and sadly, the universe isn\’t quite constructed the way we\’d like it to be on all and every matter.

Amazing what economists can tell you about, isn\’t it? Why a writer might move continents to revitalise their love life?

 

Abolish Corporation Tax

Greg Mankiw explains why.

This is of course the real point that underlies my problems with Richard Murphy\’s view of corporate taxation. He refuses to accept even the concept of tax incidence.

Here.

It is myth that works on the blackborad (sic) and not in practice.

And his buddy, the "economist" at Tax Justice:

The idea that the tax incidence might be shifted, in some circumstances, from shareholders to workers or consumers, is based on very specific assumptions relating to the nature of the economy in question (i.e. it is a closed economy),

Umm, from Greg Mankiw:

Mr. Randolph’s analysis stresses the role of international capital mobility.

Far from it depending upon a closed economy, the analysis depends upon it being an open one for capital.

The ultimate payers of the corporate tax are those individuals who have some stake in the company on which the tax is levied. If you own corporate equities, if you work for a corporation or if you buy goods and services from a corporation, you pay part of the corporate income tax. The corporate tax leads to lower returns on capital, lower wages or higher prices — and, most likely, a combination of all three.

We shouldn\’t be taxing corporate profits at all, which is what makes his points about the details of how we do so irrelevant.

 

Yes, it\’s Tony Juniper Again.

This man is at the least economically illiterate and probably innumerate as well:

Going down the renewables and efficiency route will give us more jobs, more power and more security and, in the long term, for less money.

Creating jobs is a cost of such schemes, not a benefit. I think you\’ll find that when people turn up to work to polish the mirrors of your solar power system, they\’ll expect to get paid for doing so. If you\’re going to use any form of accountancy from the realistic side of this universe that cash flowing out to pay them is a cost, no?

So if we employ more people in this scheme, by creating more jobs, then it\’s very difficult to see how this is going to (other things being equal*) cost us less money.

 

* Yes, of course, there\’s the difference in capital costs, in fuel and so on, but that\’s why we build spreadsheets so that we can test the effects of substituting one for another. And no, as yet we don\’t see that solar is cheaper….something we can prove by simply pointing to the subsidies required to fund solar systems. And please don\’t start on CO2 emissions….solar PV releases some three times nuclear. The "creation" of jobs is to be analysed as a cost of such sschemes, not a benefit.

Eh?

The problem with capitalism, as any fool know, is that it is an insatiable system that relies on satiable institutions and individuals.

Umm, the usual assumption is that while individual individual desires are indeed satiable (it is, much to the surprise of many, entirely possible to eat too much chocolate) the sum of individual desires is not. Even if we had sufficient chocolate, world peace, an end to poverty and a pony each there\’d still be some bastards complaining about not living forever….and if that complaint were fixed then it would be an insufficiency of orgasms, or of really good ones, or the lack of time when one is not being pressured to provide such or damnnit, that kitten is insufficiently cute.

So, if you\’re going to start your analysis of capitalism or any other human societal form of organisation from that completely batshit starting point, well, you\’re going to become something of a cropper with your conclusions, aren\’t you?

In Defence of Speculators

Looking at those funds which are speculating in the oil futures, Ambrose E-P has this to say:

It is unclear whether the US Commodity Futures and Trading Commission would resort to such methods if oil keeps rising. The key players these days are pension funds and investors building up positions in long-term futures contracts through commodity index funds, now worth some $250bn.

They are encouraging oil companies to invest in exploration by guaranteeing high prices five or 10 years ahead. Arguably, they are performing a public service.

There\’s no arguably about this point, nor his first one, that price controls in many countries, allied with subsidies for oil consumption, are driving up prices.

It\’s a point that Adam Smith made all those years ago: that speculators do indeed perform a valuable service by pursuing their own enlightened self interest. Sure, they\’re just trying to make a profit, but what is the effect of their doing so?

Think through it this way: there\’s going to be a shortage in the future (or at least, we think there is going to be). So, do we want to carry on with prices (and thus consumption) just as they are until that shortage arrives? Adam was talking about corn, but the logic works just as well for oil here. Do we want to carry on gaily eating lots of bread until we go to the granary and find it empty, with three months still to go to the next harvest? Do we want to carry on gas guzzling at $40 a barrel and then, in a year or two\’s time, find that the petrol stations are empty?

No, clearly not, we\’d rather start to moderate our consumption now, wouldn\’t we? For by doing so we\’ll use less now and that hole in the granary will be smaller, fewer petrol stations will be empty, because we\’ll not use so much in the immediate future, before that paucity of supply finally makes itself apparent in the physical supply.

And of course higher prices are both the signal for us to do this, to economise upon consumption, and also the cosh which forces us to economise on said consumption.

Pretty good system? Eh?

Further, such higher prices encourage farmers, in the case of corn, to plant more for next season, with oil, they encourage more exploration….and we do need to note that exploration isn\’t just a matter of trying to find more pools of oil, it\’s also a matter of technology, or working out how to get more out of the pools we know about. I\’m a little behind on this point but I think it\’s true to say that we currently only get some 25-30% of the extant oil out of each reservoir that we do find. That\’s a number that has doubled in the past few decades and there\’s no particular reasono to think that it can\’t be raised again.

So a very good system, eh?

And it all depends upon those speculators. They move prices around in time for us and a damn good thing they do as well.