China’s Continued Growth Requires Reliance on Private Enterprise

(p. A21) No country in the modern world has managed persistent economic growth without considerable reliance on private enterprise and decentralized private markets. All centrally planned economies failed to achieve sustained development, including the Soviet Union before its collapse, China before market reforms began in the late 1970s, and Cuba since Castro’s revolution in the late 1950s.

China’s private sector has led its dominance in textiles, electronics, and other consumer and producer goods. It’s followed the model of the “Asian Tigers”–Hong Kong, Singapore, South Korea and Taiwan–and relied heavily on exports produced with cheap labor. In the process, China has accumulated enormous reserves, as Taiwan, Japan and other rapidly growing Asian economies did in past decades.
Poorer countries like China need not get everything “right” to grow rapidly through exports to richer countries. They need only have some strong sectors that use world markets to fuel overall growth. Japan’s rapid growth from the 1960s-1980s was led by a highly efficient manufacturing sector. Yet at the same time Japan also had a large and inefficient service sector, and an agricultural sector that was riddled with subsidies and inefficient incentives.
Similarly, China’s economy still has a glut of state-owned enterprises (SOEs) with excessive employment and low productivity. Their importance has fallen over time, but Chinese economists estimate that they still control about half of nonagricultural GDP. One crucial example is the state-controlled financial sector that makes cheap loans to other large, inefficient and unprofitable state enterprises. China’s economy also suffers from extensive price controls, restrictions on migration, and many other structural barriers to efficient growth.

For the full commentary, see:

GARY S. BECKER. “China’s Next Leap Forward; The jump from middle-income to rich status is much harder to achieve than the ascent from poverty. But there are plenty of reasons to believe China’s growth prospects remain strong.” The Wall Street Journal (Weds., SEPTEMBER 29, 2010): A21.

Becker Believes the Fight for Liberty Can Be Won

(p. A13) My last question involves a little story. Not long before Milton Friedman’s death in 2006, I tell Mr. Becker, I had a conversation with Friedman. He had just reviewed the growth of spending that was then taking place under the Bush administration, and he was not happy. After a pause during the Reagan years, Friedman had explained, government spending had once again begun to rise. “The challenge for my generation,” Friedman had told me, “was to provide an intellectual defense of liberty.” Then Friedman had looked at me. “The challenge for your generation is to keep it.”

What was the prospect, I asked Mr. Becker, that this generation would indeed keep its liberty? “It could go either way,” he replies. “Milton was right about that.”
Mr. Becker recites some figures. For years, federal spending remained level at about 20% of GDP. Now federal spending has risen to 25% of GDP. On current projections, federal spending would soon rise to 28%. “That concerns me,” Mr. Becker says. “It concerns me a great deal.
“But when Milton was starting out,” he continues, “people really believed a state-run economy was the most efficient way of promoting growth. Today nobody believes that, except maybe in North Korea. You go to China, India, Brazil, Argentina, Mexico, even Western Europe. Most of the economists under 50 have a free-market orientation. Now, there are differences of emphasis and opinion among them. But they’re oriented toward the markets. That’s a very, very important intellectual victory. Will this victory have an effect on policy? Yes. It already has. And in years to come, I believe it will have an even greater impact.”
The sky outside his window has begun to darken. Mr. Becker stands, places some papers into his briefcase, then puts on a tweed jacket and cap. “When I think of my children and grandchildren,” he says, “yes, they’ll have to fight. Liberty can’t be had on the cheap. But it’s not a hopeless fight. It’s not a hopeless fight by any means. I remain basically an optimist.”

For the full interview, see:
PETER ROBINSON. “‘Basically an Optimist’–Still; The Nobel economist says the health-care bill will cause serious damage, but that the American people can be trusted to vote for limited government in November.” The Wall Street Journal (Sat., March 27, 2010): A13.
(Note: the online version of the interview is dated March 26, 2010.)

Recession Is Prolonged By Doubts on Obama Policies

(p. A17) Several pieces of evidence point to extreme caution by businesses and households. A regular survey by the National Federation of Independent Businesses (NFIB) shows that recent capital expenditures and near-term plans for new capital investments remain stuck at 35-year lows. The same survey reveals that only 7% of small businesses see the next few months as a good time to expand. Only 8% of small businesses report job openings, as compared to 14%-24% in 2008, depending on month, and 19%-26% in 2007.

The weak economy is far and away the most prevalent reason given for why the next few months is “not a good time” to expand, but “political climate” is the next most frequently cited reason, well ahead of borrowing costs and financing availability. The authors of the NFIB December 2009 report on Small Business Economic Trends state: “the other major concern is the level of uncertainty being created by government, the usually [sic] source of uncertainty for the economy. The ‘turbulence’ created when Congress is in session is often debilitating, this year being one of the worst. . . . There is not much to look forward to here.”
Government statistics tell a similar story. Business investment in the third quarter of 2009 is down 20% from the low levels a year earlier. Job openings are at the lowest level since the government began measuring the concept in 2000. The pace of new job creation by expanding businesses is slower than at any time in the past two decades and, though older data are not as reliable, likely slower than at any time in the past half-century. While layoffs and new claims for unemployment benefits have declined in recent months, job prospects for unemployed workers have continued to deteriorate. The exit rate from unemployment is lower now than any time on record, dating back to 1967.
According to the Michigan Survey of Consumers, 37% of households plan to postpone purchases because of uncertainty about jobs and income, a figure that has not budged since the second quarter of 2009, and one that remains higher than any previous year back to 1960.
These facts suggest that it was a serious economic mistake to press for a hasty, major transformation of the U.S. economy on the heels of the worst financial crisis in decades. A more effective approach would have been to concentrate first on fighting the recession and laying solid foundations for growth. They should have put plans to re-engineer the economy on the backburner, and kept them there until the economy emerged fully from the recession and returned to robust growth. By failing to adopt a measured approach to economic policy, Congress and the president may be slowing the economic recovery, and thereby prolonging the distress from the recession.

For the full commentary, see:
GARY S. BECKER, STEVEN J. DAVIS AND KEVIN M. MURPHY. “OPINION; Uncertainty and the Slow Recovery; A recession is a terrible time to make major changes in the economic rules of the game.” The Wall Street Journal (Mon., JANUARY 4, 2010): A17.
(Note: ellipsis in original.)

“It Is No Time to Concede”

BeckerGaryCartoon2009_07_10.jpg

Gary Becker. Source of caricature: online version of the WSJ interview quoted and cited below.

(p. A9) “What can we do that would be beneficial? [One thing] is lower corporate taxes and businesses taxes and maybe taxes in general. Particularly, you want to lower the tax on capital so you raise the after-tax return to investing and get more investing going on.”
. . .
What Mr. Becker has seen over a career spanning more than five decades is that free markets are good for human progress. And at a time when increasing government intervention in the economy is all the rage, he insists that economic liberals must not withdraw from the debate simply because their cause, for now, appears quixotic.
As a young academic in 1956, Mr. Becker wrote an important paper against conscription. He was discouraged from publishing it because, at the time, the popular view was that the military draft could never be abolished. Of course it was, and looking back, he says, “that taught me a lesson.” Today as Washington appears unstoppable in its quest for more power and lovers of liberty are accused of tilting at windmills, he says it is no time to concede.

For the full interview, see:
MARY ANASTASIA O’GRADY. “OPINION: THE WEEKEND INTERVIEW; Now Is No Time to Give Up on Markets.” The Wall Street Journal (Sat., MARCH 21, 2009): A9.
(Note: ellipsis added.)

Gary Becker_2009_07_10.jpg Gary Becker. Source of photo: http://larryevansphotography.com/Gary%20Becker_2.jpg

Becker and Farmer on the Economics of Discrimination

FarmerDonnaAndChildren2009-06-09.jpg “ROYAL SUBJECTS; Donna Farmer, with her children, applauds Disney’s efforts.” Source of photo and caption: online version of the NYT article quoted and cited below.

In Gary Becker’s initially controversial doctoral dissertation, he argued that those who discriminate in the labor market pay a price for their prejudice: they end up paying higher wages, than do those employers are not prejudiced.
The bottom line is that the free market provides incentives for the encouragement of diversity and tolerance.
Similarly, Donna Farmer argues, in the passages below, that the marketplace provides the Disney company with incentives to have “The Princess and the Frog” appeal to black audiences.

(p. 1) “THE Princess and the Frog” does not open nationwide until December, but the buzz is already breathless: For the first time in Walt Disney animation history, the fairest of them all is black.
. . .
After viewing some photographs of merchandise tied to the movie, which is still unfinished, Black Voices, a Web site on AOL dedicated to African-American culture, faulted the prince’s relatively light skin color. Prince Naveen hails from the fictional land of Maldonia and is voiced by a Brazilian actor; Disney says that he is not white.
“Disney obviously doesn’t think a black man is worthy of the title of prince,” Angela Bronner Helm wrote March 19 on the site. “His hair and features are decidedly non-black. This has left many in the community shaking (p. 8) their head in befuddlement and even rage.”
Others see insensitivity in the locale.
“Disney should be ashamed,” William Blackburn, a former columnist at The Charlotte Observer, told London’s Daily Telegraph. “This princess story is set in New Orleans, the setting of one of the most devastating tragedies to beset a black community.”
ALSO under scrutiny is Ray the firefly, performed by Jim Cummings (the voice of Winnie the Pooh and Yosemite Sam). Some people think Ray sounds too much like the stereotype of an uneducated Southerner in an early trailer.
Of course, armchair critics have also been complaining about the princess. Disney originally called her Maddy (short for Madeleine). Too much like Mammy and thus racist. A rumor surfaced on the Internet that an early script called for her to be a chambermaid to a white woman, a historically correct profession. Too much like slavery.
And wait: We finally get a black princess and she spends the majority of her time on screen as a frog?
. . .
Donna Farmer, a Los Angeles Web designer who is African-American and has two children, applauded Disney’s efforts to add diversity.
“I don’t know how important having a black princess is to little girls — my daughter loves Ariel and I see nothing wrong with that — but I think it’s important to moms,” she said.
“Who knows if Disney will get it right,” she added. “They haven’t always in the past, but the idea that Disney is not bending over backward to be sensitive is laughable. It wants to sell a whole lot of Tiana dolls and some Tiana paper plates and make people line up to see Tiana at Disney World.”

For the full article, see:

BROOKS BARNES. “Her Prince Has Come. Critics, Too.” The New York Times, SundayStyles Section (Sun., May 31, 2009): 1, 8-9.

(Note: ellipses added.)

The published version of Becker’s doctoral dissertation is:
Becker, Gary S. The Economics of Discrimination. 2nd Rev ed, Economic Research Studies. Chicago: University of Chicago Press, 1971.

DisneyPrincessAndFrog2009-06-09.jpg Movie still of Princess Tiana from Disney’s “The Princess and the Frog” to be released in December 2009. Source of movie still: online version of the NYT article quoted and cited above.

Larry Moss Made a Difference

MossLarry2009-03-09.jpg

Laurence S. Moss

Source of photo: http://www3.babson.edu/academics/faculty/lmoss.cfm

On Sunday (3/8/09) I learned that Larry Moss passed away on February 24, 2009.
Larry was full of the joy of life. He was intense. He was an amateur magician, and a wit, and an energetic conversationalist. I used to run into him once a year at the History of Economics Society meetings, and always enjoyed our conversations.
He was a neo-Austrian, though not “pure” enough for some of the ultra-Rothbardians. I first met him at a long-weekend seminar in Austrian economics when I was a graduate student, and he was a presenter.
I remember that he and I thought that the dialogue would be richer, and the neo-Austrian position ultimately strengthened, if its defenders understood better some of the alternative positions. So we announced a kind of rump session during one of the free-time periods. During this session, Larry gave the attendees a brief summary of what Walras had been up to, and I summarized Becker’s paper on the robustness of the law of demand to various forms of irrational and habitual behavior.
If memory serves, we suffered some mild heckling, and Larry was more severely criticized for disloyalty to the cause. (I cannot prove it, but I believe he paid a price for that in terms of invitations to future similar gatherings.)
I did not follow Larry’s research systematically, but know that he wrote the definitive account of Mountifort Longfield’s economics. He also had a nice, early paper in the JEL on the uses of film in teaching economics.
He took Schumpeter seriously, and wrote the script for the wonderful Schumpeter tapes in the Knowledge Products series on great economists that Kirnzer edited.
A couple of year’s ago, I invited Larry to participate in the Schumpeter session that I organized at George Mason’s Summer Institute for the Preservation of the History of Economic Thought. He initially agreed, but then had to withdraw because of his health.
More recently, I submitted one of my more idiosyncratic efforts (on the career consequences of writing on polywater) to the journal that Larry edited. I received excellent comments, and the editorial process was handled with grace and efficiency.
Larry was one of the “good guys” in many different ways, and the world is worse for his passing.

Here are a couple of Larry’s more obscure writings, that I have found useful:
Moss, Laurence S. “Film and the Transmission of Economic Knowledge: A Report.” Journal of Economic Literature 17, no. 3 (1979): 1005-19.
Moss, Laurence S. “Review: Robert Loring Allen’s Biography of Joseph A. Schumpeter.” American Journal of Economics and Sociology 52, no. 1 (1993): 107-18.

The reference to Larry’s Schumpeter tapes is:
Moss, Laurence S. Joseph Schumpeter & Dynamic Economic Change: Capitalism as “Creative Destruction”. Nashville, TN: Knowledge Products, Inc., 1988. audio.

Stimulus Bill Causes “Burden from Higher Taxes Down the Road”

In the op-ed piece quoted below, Nobel-prize winner Gary Becker, along with Kevin Murphy, express reservations about the recently-passed stimulus bill, although they apparently do not go quite as far as Harvard economist Robert Barro, who believes the multiplier may be close to zero (which would imply no stimulus from the stimulus bill).
Although Becker and Murphy believe that there will be some stimulus, they emphasize that the costs will be substantial:

(p. A17) The increased federal debt caused by this stimulus package has to be paid for eventually by higher taxes on households and businesses. Higher income and business taxes generally discourage effort and investments, and result in a larger social burden than the actual level of the tax revenue needed to finance the greater debt. The burden from higher taxes down the road has to be deducted both from any short-term stimulus provided by the spending program, and from its long-run effects on the economy.

For the full commentary, see:
GARY S. BECKER and KEVIN M. MURPHY. “There’s No Stimulus Free Lunch.” Wall Street Journal (Tues., February 10, 2009): A17.