artdiamondblog.com – Page 484 – Art Diamond's web log

Harvard Economists Find that Spending Cuts Lead to Expansions and Tax Increases Lead to Recessions

(p. A19) Economic history shows that even large adjustments in fiscal policy, if based on well-targeted spending cuts, have often led to expansions, not recessions. Fiscal adjustments based on higher taxes, on the other hand, have generally been recessionary.

My colleague Silvia Ardagna and I recently co-authored a paper examining this pattern, as have many studies over the past 20 years. Our paper looks at the 107 large fiscal adjustments–defined as a cyclically adjusted deficit reduction of at least 1.5% in one year–that took place in 21 Organization for Economic Cooperation and Development (OECD) countries between 1970 and 2007.
. . .
Our results were striking: Over nearly 40 years, expansionary adjustments were based mostly on spending cuts, while recessionary adjustments were based mostly on tax increases. And these results would have been even stronger had our definition of an expansionary period been more lenient (extending, for example, to the top 50% of the OECD). In addition, adjustments based on spending cuts were accompanied by longer-lasting reductions in ratios of debt to GDP.
. . .
The evidence from the last 40 years suggests that spending increases meant to stimulate the economy and tax increases meant to reduce deficits are unlikely to achieve their goals. The opposite combination might.

For the full commentary, see:
ALBERTO ALESINA. “Tax Cuts vs. ‘Stimulus’: The Evidence Is In; A review of over 200 fiscal adjustments in 21 countries shows that spending discipline and tax cuts are the best ways to spur economic growth.” The Wall Street Journal (Weds., November 23, 2010): A19.
(Note: ellipses added.)

A version of the Alesina and Ardagna paper that is downloadable online is:

Alesina, Alberto, and Silvia Ardagna. “Large Changes in Fiscal Policy: Taxes Versus Spending.” 2009.

The published version of the Alesina and Ardagna paper is:
Alesina, Alberto, and Silvia Ardagna. “Large Changes in Fiscal Policy: Taxes Versus Spending.” In Tax Policy and the Economy, edited by Jeffrey R. Brown. Chicago: The University of Chicago Press, 2010, pp. 35-68.

Telomerase Can Reverse Aging Ills in Mice

“Two mice involved in an experiment on age-related degeneration. Mice whose telomerase gene was activated, left, showed notable improvements.” Source of caption: print version of the WSJ article quoted and cited below. Source of photo: online version of the WSJ article quoted and cited below.

(p. A3) Scientists have partially reversed age-related degeneration in mice, an achievement that suggests a new approach for tackling similar disorders in people.

By tweaking a gene, the researchers reversed brain disease and restored the sense of smell and fertility in prematurely aged mice. Previous experiments with calorie restriction and other methods have shown that aspects of aging can be slowed. This appears to be the first time that some age-related problems in animals have actually been reversed.
The study was published online Sunday in the peer-reviewed journal Nature.
“These mice were equivalent to 80-year-old humans and were about to pass away,” says Ronald DePinho, co-author of the paper and a scientist at Dana-Farber Cancer Institute in Boston. After the experiment, “they were the physiological equivalent of young adults.”

For the full story, see:
GAUTAM NAIK. “Aging Ills Reversed in Mice; Scientists Tweak a Gene and Rejuvenate Cells, Raising Hopes for Uses in Humans.” The Wall Street Journal (Mon., NOVEMBER 29, 2010): A3.
(Note: online version of the article is dated NOVEMBER 28, 2010.)

Source of graphic: online version of the WSJ article quoted and cited above.

A Key to Scientific Truth: Nullius in Verba (“On No One’s Word”)

(p. 68) . . . scientific understanding didn’t progress by looking for truth; it did so by looking for mistakes.

This was new. In the cartoon version of the Scientific Revolution, science made its great advances in opposition to a heavy-handed Roman Catholic Church; but an even larger obstacle to progress in the understanding and manipulation of nature was the belief that Aristotle had already figured out all of physics and had observed all that biology had to offer, or that Galen was the last word in medicine. By this standard, the real revolutionary manifesto of the day was written not by Descartes, or Galileo, but by the seventeenth-century Italian poet and physician Francesco Redi, in his Experiments on the Generation of Insects, who wrote (as one of a hundred examples), “Aristotle asserts that cabbages produce caterpillars daily, but I have not been able to witness this remarkable reproduction, though I have seen many eggs laid by butterflies on the cabbage-stalks. . . .” Not for nothing was the motto of the Royal Society nullius in verba: “on no one’s word.”

Source:
Rosen, William. The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention. New York: Random House, 2010.
(Note: first ellipsis added; italics and second ellipsis, in original.)

“A Really Nice Story about Adaptability of Our Life Form”

“Felisa Wolfe-Simon takes samples from a sediment core she pulled up from the remote shores of 10 Mile Beach at Mono Lake in California.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A1) Scientists said Thursday that they had trained a bacterium to eat and grow on a diet of arsenic, in place of phosphorus — one of six elements considered essential for life — opening up the possibility that organisms could exist elsewhere in the universe or even here on Earth using biochemical powers we have not yet dared to dream about.

The bacterium, scraped from the bottom of Mono Lake in California and grown for months in a lab mixture containing arsenic, gradually swapped out atoms of phosphorus in its little body for atoms of arsenic.
Scientists said the results, if confirmed, would expand the notion of what life could be and where it could be. “There is basic mystery, when you look at life,” said Dimitar Sasselov, an astronomer at the Harvard-Smithsonian Center for Astrophysics and director of an institute on the origins of life there, who was not involved in the work. “Nature only uses a restrictive set of molecules and chemical reactions out of many thousands available. This is our first glimmer that maybe there are other options.”
Felisa Wolfe-Simon, a NASA astrobiology fellow at the United States Geological Survey in Menlo Park, Calif., who led the experiment, said, “This is a microbe that has solved the problem of how to live in a different way.”
This story is not about Mono Lake or arsenic, she said, but about “cracking open the door and finding that what we think are fixed constants of life are not.”
. . .
(p. A4) Caleb Scharf, an astrobiologist at Columbia University who was not part of the research, said he was amazed. “It’s like if you or I morphed into fully functioning cyborgs after being thrown into a room of electronic scrap with nothing to eat,” he said.
Gerald Joyce, a chemist and molecular biologist at the Scripps Research Institute in La Jolla, Calif., said the work “shows in principle that you could have a different form of life,” but noted that even these bacteria are affixed to the same tree of life as the rest of us, like the extremophiles that exist in ocean vents.
“It’s a really nice story about adaptability of our life form,” he said. “It gives food for thought about what might be possible in another world.”

For the full story, see:

DENNIS OVERBYE. “Microbe Finds Arsenic Tasty; Redefines Life.” The New York Times (Fri., December 3, 2010): A1 & A4.
(Note: ellipsis added.)
(Note: the online version of the article is dated December 2, 2010.)

If the Feds Want an Effective Stimulus, They Should Spend to Reduce the Patent Backlog

In my seminar on the Economics of Technology on Tuesday night (11/30/10), Gauri presented some interesting information on intellectual property. At one point she summarized that the lag in processing patents is about three years, but it takes, on average, only about 18 hours to process a patent once the processing has begun.
Later in the seminar, we talked about a brief article by Amar Bhidé on whether large economic stimulus programs have worked in the past, and will work in the present. Bhidé was skeptical, and I am too.
But it occurred to me that one modest economic stimulus expenditure might help. Why not make the highest stimulus spending priority to hire and train enough patent examiners to reduce the patent lag from three years to, say, three weeks?

The Bhidé article mentioned above is:
Bhidé, Amar. “Don’t Believe the Stimulus Scaremongers.” Wall Street Journal, (Tues., February 17, 2009): A15.

Castro’s Reform: Private Restaurants May Now Have Up to 20 Seats

“Restaurants, . . . , offer limited menus.” Source of caption: print version of the WSJ article quoted and cited below. Source of photo: online version of the WSJ article quoted and cited below.

(p. A18) HAVANA–A package of capitalist reforms from President Raúl Castro is creating something new for many Cubans: uncertainty.

Since 1959, when Fidel Castro rode into Havana atop a tank, the Cuban state has promised its people the certainty of a job, food, education and health care. No one expected to get rich under the arrangement; the old joke here is that people pretend to work, and the government pretends to pay them.
. . .
On the island, where many Cubans have taken to using the word “changes,” rather than “reforms,” to refer to the restructuring, people remain cautious. Some suspect that once the economy recovers and small businesses begin to grow, the Cuban government will tighten the noose on entrepreneurs with stricter regulation and steep taxes.
A restaurant on Calle Animas offers an example of such frustrations. Opened in 1996 after an effort by Fidel Castro to jump-start the domestic economy after the collapse of the Soviet Union, it has never expanded, because of a law that limits privately owned restaurants to only 12 seats. “It’s the rules, you live by them,” the owner says.
Prices are high–about $20 for a lunch with fish from the fixed menu–largely, the owner says, because she can’t find ingredients anywhere except in underground markets, where prices are steep. Under the new rules, private restaurants will be permitted to have up to 20 seats. Still, the owner complains that state-run restaurants in the tourist district, which don’t face such restrictions, have many more than 20 seats.

For the full story, see:
A WSJ Staff Reporter. “Cubans Dip a Toe in Capitalist Waters; As State Cuts Half a Million Jobs, Future Looks Murky to Some; ‘We’re Being Left to Fend for Ourselves’.” The Wall Street Journal (Weds., October 6, 2010): A18.
(Note: ellipses added.)

“The Steam Engine Has Done Much More for Science than Science Has Done for the Steam Engine”

(p. 67) The great scientist and engineer William Thomson, Lord Kelvin, made his reputation on discoveries in basic physics. electricity, and thermodynamics, but he may be remembered just as well for his talent for aphorism. Among the best known of Kelvin’s quotations is the assertion that “all science is either physics or stamp collecting (while one probably best forgotten is the confident “heavier-than-air flying machines are impossible”). But the most relevant for a history of the Industrial Revolution is this: “the steam engine has done much more for science than science has done for the steam engine.”

Source:
Rosen, William. The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention. New York: Random House, 2010.

Syrian Government Wastes Water in Drought: “No Money, No Job, No Hope”

“Refugees have left their farmlands and are living in tents in Ar Raqqah, Syria, because of a drought.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A1) AR RAQQAH, Syria — The farmlands spreading north and east of this Euphrates River town were once the breadbasket of the region, a vast expanse of golden wheat fields and bucolic sheep herds.

Now, after four consecutive years of drought, this heartland of the Fertile Crescent — including much of neighboring Iraq — appears to be turning barren, climate scientists say. Ancient irrigation systems have collapsed, underground water sources have run dry and hundreds of villages have been abandoned as farmlands turn to cracked desert and grazing animals die off. Sandstorms have become far more common, and vast tent cities of dispossessed farmers and their families have risen up around the larger towns and cities of Syria and Iraq.
“I had 400 acres of wheat, and now it’s all desert,” said Ahmed Abdullah, 48, a farmer who is living in a ragged burlap and plastic tent here with his wife and 12 children alongside many other migrants. “We were forced to flee. Now we are at less than zero — no money, no job, no hope.”
. . .
(p. A17) The drought has become a delicate subject for the Syrian government, which does not give foreign journalists official permission to write about it or grant access to officials in the Agriculture Ministry. On the road running south from Damascus, displaced farmers and herders can be seen living in tents, but the entrances are closely watched by Syrian security agents, who do not allow journalists in.
Droughts have always taken place here, but “the regional climate is changing in ways that are clearly observable,” said Jeannie Sowers, a professor at the University of New Hampshire who has written on Middle East climate issues. “Whether you call it human-induced climate change or not, much of the region is getting hotter and dryer, combined with more intense, erratic rainfall and flooding in some areas. You will have people migrating as a result, and governments are ill prepared.”
The Syrian government has begun to acknowledge the scale of the problem and has developed a national drought plan, though it has not yet been put in place, analysts say. Poor planning helped create the problem in the first place: Syria spent $15 billion on misguided irrigation projects between 1988 and 2000 with little result, said Elie Elhadj, a Syrian-born author who wrote his Ph.D. dissertation on the topic. Syria continues to grow cotton and wheat in areas that lack sufficient water — making them more vulnerable to drought — because the government views the ability to produce those crops as part of its identity and a bulwark against foreign dependence, analysts say.

For the full story, see:
ROBERT F. WORTH. “Parched Earth Where Syrian Farms Thrived.” The New York Times (Thurs., October 14, 2010): A1 & A17.
(Note: ellipsis added.)
(Note: the online version of the article is dated October 13, 2010 and has the title “Earth Is Parched Where Syrian Farms Thrived.”)

Source of maps: online version of the NYT article quoted and cited above.

School Choice “Makes Parents and Students Happier with Their Schools”

Davis Guggenheim’s “Waiting for ‘Superman'” movie has brought renewed attention to the case for school choice. New York Times commentator Ross Douthat reasonably discusses that case:

(p. A21) Guggenheim’s movie, which follows five families through the brutal charter school lotteries that determine whether their kids will escape from public “dropout factories,” stirs an entirely justified outrage at the system’s unfairnesses and cruelties. This outrage needs to be supplemented, though, with a dose of realism about what education reformers can reasonably hope to accomplish, and what real choice and competition would ultimately involve.

With that in mind, I have a modest proposal: Copies of Frederick Hess’s recent National Affairs essay, “Does School Choice ‘Work’?” should be handed out at every “Waiting for ‘Superman’ ” showing, as a sober-minded complement to Guggenheim’s cinematic call to arms.
. . .
A real marketplace in education, he suggests, probably wouldn’t fund schools directly at all. It would only fund students, tying a school’s budget to the number of children seeking to enroll. If there are 150 applicants for a charter school, they should all bring their funding with them — and take it away from the failing schools they’re trying to escape.
This is a radical idea, guaranteed to meet intense resistance from just about every educational interest group. But Hess makes a compelling case that it needs to be the school choice movement’s long-term goal, if reformers hope to do more than just tinker around the edges of the system.
In the shorter term, meanwhile, he suggests that school choice advocates need to make a case for greater competition that doesn’t depend on test scores alone. Maybe charter schools, merit pay and vouchers won’t instantly turn every American child into a test-acing dynamo. But if they “only” create a more cost-effective system that makes parents and students happier with their schools — well, that would be no small feat, and well worth fighting for.

For the full commentary, see:
ROSS DOUTHAT. “Grading School Choice.” The New York Times (Mon., October 11, 2010): A21.
(Note: ellipsis added.)
(Note: the online version of the commentary is dated October 10, 2010.)

The Hess article is:
Hess, Frederick M. “Does School Choice “Work”?” National Affairs, Issue 5, FALL 2010.

Whittle “Struggled for Years to Get Funding and Time to Pursue His Idea”

“When Britain Ruled The Skies: A De Havilland Comet under construction in Belfast in 1954.” Source of caption and photo: online version of the WSJ review quoted and cited below.

(p. C8) Frank Whittle, the brilliant British military pilot and engineer who began patenting jet designs in 1930, struggled for years to get funding and time to pursue his idea. Even after World War II, when a competing Nazi design showed what fighter jets could achieve in battle, U.S. airlines were slow to see jets’ potential for passenger travel.

It took another Brit, airplane designer Geoffrey de Havilland, to awaken postwar America’s aviation behemoths. While Lockheed and Douglas were still churning out rumbling, low-flying propeller planes, De Havilland’s jet-powered Comet began breaking records in 1952. Only after seeing Comets scorch the stratosphere at 500 miles an hour did Howard Hughes want jetliners for TWA and Juan Trippe get interested for Pan Am.
Among American plane makers, it was a military contractor that had struggled in the prewar passenger-plane market–Boeing–that first took up the jetliner challenge. In retrospect, the outcome seems obvious. The Boeing 707 inspired the term “jet set.” Boeing’s iconic 747 “Jumbo Jet” opened jet-setting to the masses.
But in 1952, that outcome was far from obvious. Mr. Verhovek zeroes in on the mid-1950s, when Comets first seemed to own the world and then started plunging from the sky in pieces. The Comet’s fatal design flaw–the result of an insufficient appreciation of the danger of metal fatigue–holds resonance today as both Boeing and Airbus struggle to master the next generation of jetliner materials, composites of carbon fiber and plastic.
. . .
Although “Jet Age” inevitably centers on technology, Mr. Verhovek wisely focuses as well on the outsize personalities behind world-changing innovations. There’s Mr. De Havilland, a manic depressive who was so dedicated to aviation that he kept going after two of his three sons died testing his planes. Mr. Whittle, we learn, sniffed Benzedrine to stay awake, popped tranquilizers to sleep and shriveled to just 127 pounds while developing the jet engine. And Boeing chief executive Bill Allen, a meticulous lawyer, bet the company on passenger jets when not a single U.S. airline wanted one.

For the full review, see:
DANIEL MICHAELS. “Shrinking the World; How jetliners commercialized air travel–stewardesses and all.” The Wall Street Journal (Sat., October 9, 2010): C8.
(Note: ellipsis added.)

The book under review is:
Verhovek, Sam Howe. Jet Age: The Comet, the 707, and the Race to Shrink the World. New York: Avery, 2010.

Coke’s Patent Law Motivated by Belief that Creative Craftsmen Were Source of Britain’s Prosperity

William Rosen discusses the genesis and significance of the world’s first patent law:

(p. 52) The Statute became law in 1624. The immediate impact was barely noticeable, like a pebble rolling down a gradual slope at the top of a snow-covered mountain. For decades, fewer than six patents were awarded annually, though still more in Britain than anywhere else. It was seventy-five years after the Statute was first drafted, on Monday, July 25, 1698, before an anonymous clerk in the employ of the Great Seal Patent Office on Southampton Row, three blocks from the present–day site of the British Museum, granted patent number 356: Thomas Savery’s “new Invention for Raiseing of Water and occasioning Motion to all Sorts of Mill Work by the lmpellent Force of Fire.”

Both the case law and the legislation under which the application was granted had been written by Edward Coke. Both were imperfect, as indeed was Savery’s own engine. The law was vague enough (and Savery’s grant wide-ranging enough; it essentially covered all ways for “Raiseing of Water” by fire) that Thomas Newcomen was compelled to form a partnership with a man whose machine scarcely resembled his own. But it is not too much to claim that Coke’s pen had as decisive an impact on the evolution of steam power as any of Newcomen’s tools. Though he spent most of his life as something of a sycophant to Elizabeth and James, Coke’s philosophical and temperamental affinity for ordinary Englishmen, particularly the nation’s artisans, compelled him to act, time and again, in their interests even when, as with his advocacy of the 1628 Petition of Right (an inspiration for the U.S. Bill of Rights) it landed him in the King’s prisons. He became the greatest advocate for England’s craftsmen, secure in the belief that they, not her landed gentry or her merchants, were the nation’s source of prosperity. By understanding that it was England’s duty, and–perhaps even more important–in England’s interest, to promote the creative labors of her creative laborers, he anticipated an economic philosophy far more modern than he probably understood, and if he grew rich in the service of the nation, he also, with his creation of the world’s first durable patent law, returned the favor.

Source:
Rosen, William. The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention. New York: Random House, 2010.
(Note: italics in original.)