Economics – Page 246 – artdiamondblog.com

Sweden’s Welfare State Destroys Work Ethic

Source of graphic: online version of the WSJ article cited below.

(p. A1) LULEA, Sweden — Lotta Landström is allergic to electricity — so says her doctor. Along with hundreds of other Swedes diagnosed with the condition in recent years, she came to rely on state-funded sick pay.

But last year, Sweden’s famously generous welfare system cut off Ms. Landström, a 35-year-old former teacher. Electro-hypersensitivity isn’t widely recognized elsewhere in the world as a medical diagnosis. The decision to end her two years of benefits was part of a broad effort to crack down on sickness and disability benefits, according to Swedish welfare officials.

Swedes are among the healthiest people in the world according to the World Health Organization. And yet 13% of working-age Swedes live on some type of disability benefit — the highest proportion on the globe. To explain this, many Swedish policy makers, doctors and economists blame a welfare system that is too lax and does little to verify individual claims.

At a time when low-cost competition from Asia is clobbering Europe’s markets and straining its generous welfare states, governments from Finland to Portugal are trying to cut back and get more people to work. Sweden’s bloated sick bay, which includes (p. A15) roughly 744,000 people on extended leave, has caused soul-searching about whether the system coddles Swedes and encourages them to feel sick.

"If we don’t look out, we will end up with only two-thirds [of the labor force] in work, and one-third out, living on different kinds of subsidies," said Sweden’s new prime minister, Fredrik Reinfeldt, in an interview earlier this year.

At a time when low-cost competition from Asia is clobbering Europe’s markets and straining its generous welfare states, governments from Finland to Portugal are trying to cut back and get more people to work. Sweden’s bloated sick bay, which includes roughly 744,000 people on extended leave, has caused soul-searching about whether the system coddles Swedes and encourages them to feel sick.

"If we don’t look out, we will end up with only two-thirds [of the labor force] in work, and one-third out, living on different kinds of subsidies," said Sweden’s new prime minister, Fredrik Reinfeldt, in an interview earlier this year.

. . .

Most of Sweden’s boom in sickness absenteeism since the late 1990s is about more than simple fraud. Sick leave for psychological conditions such as depression, burnout or panic attacks has rocketed. Over 20% of the population complain of anxiety syndromes. "We are actually the safest country in the world," says David Eberhard, chief psychiatrist at St. Göran’s hospital in Stockholm. But "people are feeling psychologically worse and worse."

Assar Lindbeck, one of Sweden’s best-known economists, says the lenient welfare state has changed the country over the past generation. In place of the old Protestant work ethic, it has become acceptable to feel unable to work and to live on benefits, he says. "I would not call it cheating," Prof. Lindbeck says. "I would call it a drift in attitudes and social norms."

By being so accommodating, the Swedish system has encouraged Swedes to treat life’s tribulations as clinical issues requiring sick leave, posits Anna Hedborg, a former Social Democrat cabinet minister: "As time has passed, we have medicalized all sorts of problems."

For the full story, see:

MARCUS WALKER. "Rx FOR CHANGE; Sweden Clamps Down On Sick and Disability Pay; Once Freely Dispensed, Benefits Face Scrutiny; Ms. Lanström Is Cut Off." The Wall Street Journal (Weds., May 9, 2007): A1 & A15.

(Note: ellipsis added.)

A former Swedish teacher who had been receiving government disability payments for being allergic to electricity. Source of photo: online version of the WSJ article cited above.

Kirkcaldy’s Current Native-Son Would Do Well to Remember Kirkcaldy’s 18th Century Native Son

In Kirckcaldy, Gordon Brown, the man on the right, tries to persuade the natives to vote for the Labor Party. Source of the photo: online version of the NYT article cited below.

Many years ago, we took the train from Edinburgh to spend a few hours in Kirkcaldy, the birthplace of Adam Smith. I was surprised at how little there was to honor Smith in the town where he was born and raised. There was a small cafe/theatre named after Smith. A small crystal shop sold some shot glasses with Smith’s image engraved on them. And there was a small plaque, above a no-parking sign, on the main street, at the spot where Smith’s family home had been.

I remember asking a very polite young father with two or three small children in tow, why there was so little of Smith in Kirckaldy? With a twinge of something like regret, he said that everyone in that part of Scotland supported Labor, and they saw Smith as supporting capitalism, and so did not like him much.

It was a crowded Saturday shopping day when Jeanette took my picture in front of the small plaque. Incredulous passers-by turned and glanced in my direction, probably wondering why the crazy American wanted his picture taken next to a no-parking sign.

For the sake of Kirkcaldy, and Britain, let us hope that Gordon Brown has read a bit of the work of his fellow Kirkcaldy native son:

(p. A10) KIRKCALDY, Scotland, April 30 — Gordon Brown, Britain’s presumed prime minister-to-be, is usually associated with a somewhat dour manner and a mastery of statistics. But here, he displays other skills — a bolt-on smile and a ready handshake to work sparse crowds between the discount stores on the High Street, asking parents with strollers whether their new babies are keeping them awake at night, and inquiring whether the men support the local Raith Rovers soccer team.

. . .

“This is a big choice on Thursday, between those who want to break up Britain and those who want to build up Scotland,” Mr. Brown, currently Britain’s chancellor of the exchequer, told students at Adam Smith College, named for the 18th-century economist who was born here.

. . .

Mr. Brown, who is not standing in these elections, came to town, alongside the choppy waters of the Firth of Forth, to support the Scottish Labor campaign and resist the nationalists.

“I do not think the Scottish people want to see the breakup of the union” that makes up Britain, he said here in Kirkcaldy (pronounced kerr-CUDDY).

But advocates of independence say it would propel Scotland to a bright future, as viable as any other small European state.

For the full story, see:

ALAN COWELL. "Elections in Britain Reveal a Scottish Line in the Sand." The New York Times (Weds., May 2, 2007): A10.

(Note: ellipses added.)

Source of the map: online version of the NYT article cited above.

Art Diamond in Kirkcaldy in 1994 at location (I think on High Street) where Adam Smith’s boyhood home used to be. (Photo by Jeanette Diamond.)

Mugabe Prints More Money and Beats Up Shopkeepers, as Inflation Soars: More on Why Africa is Poor

"Inflation made food cost a fortune in Harare this week. The government imposed controls that required vendors to sell some items below cost." Source of caption and photo: online version of the NYT article cited below.

JOHANNESBURG, July 3 — Zimbabwe’s week-old campaign to quell its rampant inflation by forcing merchants to lower prices is edging the nation close to chaos, some economists and merchants say.

As the police and a pro-government youth militia swept into shops and factories, threatening arrest and worse unless prices were rolled back, staple foods vanished from store shelves and some merchants reported huge losses. News reports said that some shopkeepers who had refused to lower prices had been beaten by the youth militia, known as the Green Bombers for the color of their fatigues.

In interviews, merchants said that crowds of people were following the police and militia from shop to shop to buy goods at the government-ordered prices.

“People are losing millions and millions and millions of dollars,” said one merchant in Bulawayo, referring to the Zimbabwean currency, which is becoming worthless given the nation’s inflation, the world’s highest. “Everyone is now running out of stock, and not being able to replace it.”

. . .

Gasoline was reported to be vanishing from stations as the going price, about 180,000 dollars per liter, was slashed by the government to something closer to the officially approved price of 450 dollars per liter. Mr. Mugabe’s government intends to cope with the shortages by subsidizing producers of basic goods. One of the few newspapers not under government control, The Zimbabwe Independent, reported last week that flour, which is controlled entirely by the state, will be sold to bakers for 10 million dollars a ton, half the market price. Similarly, many suppliers of basic goods have been told by the government that they will be allowed to buy gasoline at one tenth the going price, the newspaper reported. The government apparently plans to make up those losses by printing more money. Zimbabwe’s dollar has lost more than half its value in recent weeks because the government has constantly issued new bills to pay its mounting debts.

For the full story, see:

MICHAEL WINES. "Anti-Inflation Curbs on Prices Create Havoc for Zimbabwe." The New York Times (Weds., July 4, 2007): A8.

(Note: ellipsis added.)

CNN on 7/10/07 broadcast a great clip from ITN, that had been courageously recorded undercover by Martin Geissler. See "Desperation in Zimbabwe":

http://www.cnn.com/video/#/video/offbeat/2007/06/23/vo.mi.ugly.dogs.ap?DPFPR=true

(Note: ITN is sometimes also called ITV. "ITN" stands for the International Television Network.)

Postscript: According to an entry on the ITV web site entitled "Mugabe Battles Economic Crises," Mugabe "has warned he will not be restrained by "bookish economics"." (He makes a great case for cracking open the books, doesn’t he? Or at least for opening the window and looking at what is happening outside?)

For the Mugabe quote on bookish economics, see:

http://itn.co.uk/news/a1d7763de3c4778b619a72cbeab24d6d.html

Neglect of the Important Issues, Is the Opportunity Cost of Pursuing the Cutely Clever

The Wall Street Journal summarizes an April 2, 2007 article by Noam Scheiber in The New Republic:

A new generation of economists has become so addicted to cleverness that dull but genuinely useful research is under threat.

"Freakonomics," the 2005 best seller that sought to explain the mysteries of everyday life through economics, is only partly to blame, writes Noam Scheiber. The deeper roots lie in a 1980s crisis of faith over economists’ ability to reliably crunch numbers. Influential economist H. Gregg Lewis kicked it off by demonstrating that a host of broad, worthwhile empirical surveys of unions’ impact on wages came to opposite conclusions, mostly thanks to the differing original assumptions by the studies’ authors.

As a result, some economists retrenched, opting to focus on finding "solid answers to modest questions."

For the full summary, see:

"Informed Reader; Economics; How ‘Freakonomics’ Quashes Real Debates." The Wall Street Journal (Weds., March 28, 2007): B11.

Obama Advised By Economists Cutler, Liebman, and Goolsbee

Source of graphic: online version of the WSJ article cited below.

In a previous entry, I expressed guarded optimism in response to an article that identified Austan Goolsbee as an advisor to Obama. The article excerpted below, casts Goolsbee in a less central role, thus giving reason to guard the optimism even more.

While Mr. Obama’s economic platform is still in its formative stages, interviews with his aides and a review of his congressional record and speeches suggest that Obamanomics may place him somewhat to the left of New York Sen. Hillary Rodham Clinton, but to the right of former North Carolina Sen. John Edwards, another rival for the 2008 nomination. Mrs. Clinton seems to be cultivating the centrist mantle her husband won during his presidency, while Mr. Edwards is courting the party’s labor and grassroots activist base.

. . .

As Mr. Obama prepares for his first series of domestic-policy speeches in the coming weeks, he appears to be still shopping for a place on the political spectrum.

One top economic adviser is Jeffrey Liebman, a Harvard economist and former adviser to President Clinton who is focused heavily on the earned income tax credit and its role in moving people from welfare to work.

The candidate is also consulting with University of Chicago economics professor Austan Goolsbee, a taxation expert and centrist Democrat who has advised Mr. Obama since his 2004 Senate campaign.

David Cutler, a Harvard economist specializing in health policy who served in the Clinton administration, is also among Mr. Obama’s advisers.

For the full story, see:

DEBORAH SOLOMON. "Seeking Clues to Obamanomics; Democratic Candidate Is Just Beginning To Fill In the Blanks." The Wall Street Journal (Tues., April 24, 2007): A4.

(Note: ellipsis added.)

“Not that Everyone Has Been Intimidated”

It is common to ridicule economists–sometimes with some good reason. But the 50 brave economists in Iran who refused to be intimidated, have made us proud.

(p. 1) Iran is in the throes of one of its most ferocious crackdowns on dissent in years, with the government focusing on labor leaders, universities, the press, women’s rights advocates, a former nuclear negotiator and Iranian-Americans, three of whom have been in prison for more than six weeks.

The shift is occurring against the backdrop of an economy so stressed that although Iran is the world’s second-largest oil exporter, it is on the verge of rationing gasoline. At the same time, the nuclear standoff with the West threatens to bring new sanctions.

The hard-line administration of President Mahmoud Ahmadinejad, analysts say, faces rising pressure for failing to deliver on promises of greater prosperity from soaring oil revenue. It has been using American support for a change in government as well as a possible military attack as a pretext to hound his opposition and its sympathizers.

. . .

(p. 9) Not that everyone has been intimidated. More than 50 leading economists published a harshly worded, open letter to the president saying his policies were bringing economic ruin. High unemployment persists, there has been little foreign investment and inflation is galloping, with gasoline alone jumping 25 percent this spring.

Gasoline rationing is expected within a month, with consumers so anxious about it, reported the Web site Ruz, financed by the Dutch government, that skirmishes broke out in long lines at some pumps on June 17.

For the full story, see;

NEIL MacFARQUHAR. "Iran Cracks Down on Dissent, Parading Examples in Streets." The New York Times, Section 1 (Sun., June 24, 2007): 1 & 9.

(Note: the online version of the article is entitled "Iran Cracks Down on Dissent," and is accompanied by a disclaimer that the latest evidence is ambiguous on the original claim in the print article that dissenters were being paraded in the streets.)

(Note: ellipsis added.)

Obama Advised by Market-Oriented Chicago Economist Goolsbee

(p. C1) The Democrats, besides talking about a broader range of subjects, also have the freshest face among the top campaign advisers — Barack Obama’s lead economist, Austan Goolsbee, a 37-year-old star professor at the University of Chicago (who writes a monthly column for The New York Times). The two men met when Mr. Obama was teaching at the law school there, and they both seem to favor achieving Democratic goals through market-oriented policies. As Mr. Goolsbee has written: “Moral (p. C9) exhortation doesn’t change people’s behavior. Prices do.” Given their respective professions, the two are also more irreverent than you may expect: Mr. Goolsbee was once a member of an improvisational comedy group.

. . .

Both the Clinton and Obama campaigns are now playing catch-up on policy ideas. John Edwards, who’s running third in fund-raising and the early polls, has tried to grab attention by releasing a series of specific proposals. Rather than bringing economists into his campaign, he is relying on a network of former aides from Capitol Hill to help him sort through ideas. (One Edwards proposal — on tax simplification — was originally Mr. Goolsbee’s, in fact.)

For the full commentary, see:

DAVID LEONHARDT. "ECONOMIX; The Advisers Are Writing Our Future." The New York Times (Weds., April 18, 2007): C1 & C9.

(Note: ellipsis added.)

I have never met Goolsbee, or heard him speak, but I have read a couple of his articles on the economics of the internet, and other subjects, and regularly read his economics articles in the New York Times. He often writes interesting, creative stuff that is fun to read.

I had assumed that Obama was a standard big-government Democrat, although I liked what I read about what he was reported to be saying in Africa. Maybe his economic policies would be more promising than I assumed.

On the other hand, I am convinced that the fight against terrorism is the crucial issue of our time, and I haven’t heard much from Senator Obama on that, besides hopping on the bandwagon of Bush-bashers. What would he constructively do to protect us from the bad guys?

Mexican Federal Taxi “Charters” Increase Taxi Prices

A non-federally-chartered taxi leaves the Cancun Hilton, headed for the Cancun airport, charging $23. An identical, but federally-chartered cab, making the reverse trip, charges $40. (Photo by Art Diamond.)

When we arrived at the Cancun airport we faced a chaotic environment where many Mexicans were yelling at us to buy taxi tickets. After buying a ticket for $40, someone escorted us to a crowded, chaotic place to wait for a cab. We waited and waited in the noise and the heat. At some point, my daughter Jenny commented, "These people need to get organized."

Yes, Jenny they sure do! And you might think that what they need in order to get organized, is for the government to come in to organize them.

But it turns out that the government has already come in. Only federally charged taxis are allowed to take passengers from the airport to the hotel zone. The price is fixed at $40. On the other hand, any taxi may take passengers back to the airport, from the hotel zone. The base price for a return trip was $23 . (I added a $2 tip out of sympathy for the cabbie not driving a federally anointed cab.)

So, yes, these people need to get organized, and the best way to do that is to get their government out of their way, so that they can organize themselves through the free market.

Note: relevant guide book passage: "[Returning to the airport] the rate will be much less for the trip from the airport. (Only federally chartered taxis may take fared from the airport, but any taxi may bring passengers to the airport.)" (p. 78)

Note: italics in original; bracketed phrase added.

Source:

Baird, David, and Lynne Bairstow. Frommer’s Cancun, Cozumel & the Yucatan 2007. Hoboken, NJ: Wiley Publishing, Inc., 2006.

Nordhaus Critiques Stern’s Case for Environmental Disaster

My only major disagreement with the commentary below, is that I have much more confidence that, given free market institutions, our descendants will have the incentives, energy, and ingenuity, to solve the problems that they will face.

The Stern Review’s most influential critic has probably been William Nordhaus, a 65-year-old Yale professor who is as mainstream as economists come. Jeffrey D. Sachs, the anti-poverty advocate, calls Mr. Nordhaus “about the most reasonable man I know.”

He was the first speaker after lunch, and, of course, he had some very nice things to say about Sir Nicholas. The report “was presented here very eloquently by a distinguished scholar,” Mr. Nordhaus said. But then came the juicy stuff: the Stern Review “commits cruel and unusual punishment on the English language,” Mr. Nordhaus said, and the British government’s opinion on climate change is no more infallible than was its prewar view about weapons of mass destruction in Iraq.

This was fairly tame compared with the comments of another Yale economist, Robert O. Mendelsohn. “I was awestruck,” he said, comparing Sir Nicholas to “The Wizard of Oz.” But “my job is to be Toto,” he added, in the same good-humored tone Mr. Nordhaus used. “Is it in fact The Wizard of Oz, or is it nothing at all?”

The two professors raised some questions about the science in the Stern Review. Mr. Nordhaus wondered if carbon emissions and temperatures would rise as quickly as the report suggests, and Mr. Mendelsohn predicted that people would learn to adapt to climate change, reducing its ultimate cost.

But their main objection revolved around something called the discount rate. The Stern Review assumed that a dollar of economic damage prevented a century from now (adjusted for inflation) is roughly as valuable as a dollar spent reducing emissions today. In effect, the report argues for spending the money to cut emissions because future generations have as much claim on resources as current generations. “I’ve still not heard a decent ethical argument” for believing otherwise, Sir Nicholas said at the debate.

I’m guessing that your instinct is to agree with him. Mine certainly was. The problem is that none of us actually behave this way. If we really thought that our great-grandchild deserved our money as much as we do, we would never go out to dinner again. Instead, we would invest the $50 we would have spent on dinner, confident that it would grow over time and become perhaps $1,000 for our great-grandchild to put toward health care, education or a supercomputer. Any of that is preferable to our measly dinner.

But a dollar today truly is more valuable than a dollar a century from now. For one thing, your great-grandchild will almost certainly be richer than you are and won’t need your money as much as you do. So spending a dollar on carbon reduction today to avoid a dollar’s worth of economic damage in 2107 doesn’t make sense. We would be better off putting the money toward something likely to have a higher return than alternative energy, like education.

Technically, then, Sir Nicholas’s opponents win the debate. But in practical terms, their argument has a weak link. They are assuming that the economic gains from, say, education will make future generations rich enough to make up for any damage caused by climate change. Sea walls will be able to protect cities; technology can allow crops to grow in new ways; better medicines can stop the spread of disease.

For the full commentary, see:

DAVID LEONHARDT. "Economix; A Battle Over the Costs of Global Warming." The New York Times (Weds., February 21, 2007): C1 & C5.

A Public Choice Theory of the Absence of Evidence of the Exodus of the Israelites

The excavation of a fort from roughly the time and place of the biblical exodus of the Israelites from Egypt. Source of photo: the online version of the NYT article cited below.

The economic theory of public choice is often viewed as having begun with Buchanan and Tullock’s The Calculus of Consent. The theory seeks to explain the behavior of government, and government officials, as arising from the same self-interested motives as are used by economists to explain the behavior of free markets, firms, and consumers.

It didn’t look like much — some ancient buried walls of a military fort and a few pieces of volcanic lava. The archaeologist, Dr. Zahi Hawass, often promotes mummies and tombs and pharaonic antiquities that command international attention and high ticket prices. But this bleak landscape, broken only by electric pylons, excited him because it provided physical evidence of stories told in hieroglyphics. It was proof of accounts from antiquity.

That prompted a reporter to ask about the Exodus, and if the new evidence was linked in any way to the story of Passover. The archaeological discoveries roughly coincided with the timing of the Israelites’ biblical flight from Egypt and the 40 years of wandering the desert in search of the Promised Land.

“Really, it’s a myth,” Dr. Hawass said of the story of the Exodus, as he stood at the foot of a wall built during what is called the New Kingdom.

. . .

Recently, diggers found evidence of lava from a volcano in the Mediterranean Sea that erupted in 1500 B.C. and is believed to have killed 35,000 people and wiped out villages in Egypt, Palestine and the Arabian Peninsula, officials here said. The same diggers found evidence of a military fort with four rectangular towers, now considered the oldest fort on the Horus military road.

But nothing was showing up that might help prove the Old Testament story of Moses and the Israelites fleeing Egypt, or wandering in the desert. Dr. Hawass said he was not surprised, given the lack of archaeological evidence to date. But even scientists can find room to hold on to beliefs.

Dr. Mohamed Abdel-Maqsoud, the head of the excavation, seemed to sense that such a conclusion might disappoint some. People always have doubts until something is discovered to confirm it, he noted.

Then he offered another theory, one that he said he drew from modern Egypt.

“A pharaoh drowned and a whole army was killed,” he said recounting the portion of the story that holds that God parted the Red Sea to allow the Israelites to escape, then closed the waters on the pursuing army.

“This is a crisis for Egypt, and Egyptians do not document their crises.”

For the full story, see:

MICHAEL SLACKMAN. "North Sinai Journal Did the Red Sea Part? No Evidence, Archaeologists Say." The New York Times (Tues., April 3, 2007): A4.

(Note: ellipsis added.)

A female skelaton buried near the fort (above). Source of photo: the online version of the NYT article cited above.

Private Money Can Top Government Money in Space, as in IT

Lots of people are building new IT companies. You can start a company and sell it to Yahoo! or Google in a couple of years. But so can anyone else. Aerospace is different. To paraphrase John F. Kennedy in 1962: We choose to go to the moon not because it’s easy, but because it’s hard.

That’s why, as a long-time investor in IT and Internet start-ups, I’m now spending more and more time on private aviation and commercial space start-ups. I’m trailing an illustrius crew of IT pioneers: Elon Musk (Space-X, rockets, formerly with PayPal), Vern Raburn (Eclipse Aviation, very light jets, formerly at Microsoft, Symantec and Lotus), Jeff Bezos (Blue Origin, rockets, and still at Amazon, too!), Jeff Greason (XCOR, rockets and formerly with Intel) and Ed Iacobucci (DayJet, air taxi operator, and founder of Citrix).

. . .

On the space side, there’s a . . . strong parallel with the world of IT. The establishment in "space" is the government and especially the military, just as it once was (along with academia) for the Internet. I remember the days when commerce on the Internet was considered sleazy—but look at the innovations and productivity it unleashed.

In the same way, the current priests of space are dismayed by the privately funded space start-ups—unsafe, sleazy, frivolous. Imagine: Ads on the side of a rocket ship! Well, why not, if it helps pay for the fuel… and the R&D that designed the thing?

For the full commentary, see:

ESTHER DYSON "New Horizons for the Intrepid VC." The Wall Street Journal (Tues., March 20, 2007): A19.

(Note: ellipses added, except for the ellipsis following the word "fuel" which was in the original.)