Gallup Finds Highest Doubts of Government in Decades

(p. A23) If you want to know why Americans are so fearful of a government takeover of the health-care system, take a look at the results of a new Gallup poll on government waste released Sept. 15. One question posed was: “Of every tax dollar that goes to Washington, D.C., how many cents of each dollar would you say is wasted?” Gallup found that the mean response was 50 cents. With Uncle Sam spending just shy of $4 trillion this year, that means the public believes that $2 trillion is wasted.

In a separate poll released on Monday, Gallup found that nearly twice as many Americans believe that there is “too much government regulation of business and industry” as believe there is “too little” (45% to 24%).
Perhaps most significantly, in both of these polls Gallup found that skepticism about government’s effectiveness is the highest it’s been in decades. “Perceptions of federal waste were significantly lower 30 years ago than today,” say the Gallup researchers. Even when Ronald Reagan was elected president in 1980 with the help of the antigovernment revolt of that era, Americans believed only 40 cents of every dollar was wasted, according to Gallup.
. . .
Over the last decade, the federal government has become bloated and inefficient. Voters are on to the scam. Mr. Obama keeps calling federal spending an “investment,” but Americans apparently feel this is the worst investment they’ve ever made. They’ve come to regard Washington as a $2 trillion Bridge to Nowhere. They are right.

For the full commentary, see:
STEPHEN MOORE. “Our $2 Trillion Bridge to Nowhere; Americans believe Washington squanders half of every tax dollar.” The Wall Street Journal (Weds., SEPTEMBER 23, 2009): A23.
(Note: ellipsis added.)

Government Actions Helped Spread 1918 Influenza

GreatInfluenzaBK.jpg

Source of book image: http://www.virology.ws/wp-content/uploads/2009/08/great-influenza.jpg

I like John Barry’s The Great Influenza very much, although not entirely for the reasons that I had expected to like it. I wanted to learn more of the details of the worst flu pandemic in history, and the book delivers those details.
But I had not expected that there would be substantial discussion of the epistemology of science and medicine, and of the political and global context that preceded and affected the 1918 H1N1 influenza pandemic.
As an added bonus, the book gives substantial coverage to the life and work of one of my heroes, Oswald Avery. As a result of his research related to the pandemic, he discovered that DNA was the genetic material—a huge milestone in the history of medicine. But he never received the Nobel Prize because the Nobel Committee didn’t want to be seen endorsing controversial work that had not stood the test of time.
On the other hand, the Nobel Committee had no such compunctions about giving the Nobel Peace Prize to President Woodrow Wilson. Barry’s book indicts Wilson for having major responsibility for the severity of the pandemic. His administration drafted huge numbers of young men to fight in WWI, bringing them into close contact in shoddy, incomplete training camps. Some of these young men already had the flu, and they quickly spread it to many of their fellow soldiers. The Wilson administration continued to move these soldiers around the country and to Europe, vastly speeding the spread of the disease.
Barry also documents that the Wilson administration, in the name of patriotism and morale, punished those who told the truth about the severity of the pandemic. The results extended far beyond the trampling of civil liberties. For example, there was a huge parade in Philadelphia to sell war bonds, a parade that could easily have been canceled, but was not—igniting the rapid spread of the disease in that hard-hit city. If the newspapers had been allowed to print the truth about the pandemic, then there probably would have been sufficient outcry to cancel the parade; or at the very least, many better-informed citizens would have avoided the parade, and saved their lives, and the lives of their family members.
There is also a lot in book about the biology of the disease that is of interest, and about the suffering of those who experienced it.
But what I found eye-opening was the extent to which the severity of the disease was due to avoidable actions by Woodrow Wilson and his administration.

Source of book discussed above:
Barry, John M. The Great Influenza: The Story of the Deadliest Pandemic in History. Revised ed: New York: Penguin Books, 2005.

For another eye-opening account about Woodrow Wilson and WWI, see:
Raico, Ralph. The Spanish-American War and World War I, Parts 1 & 2: Knowledge Products, 2006.

For a neat little paper on Oswald Avery, see:
Diamond, Arthur M., Jr. “Avery’s ‘Neurotic Reluctance’.” Perspectives in Biology and Medicine 26, no. 1 (Autumn 1982): 132-36.

Tax Cuts Better Than Stimulus Spending for Raising GDP

(p. A23) The global recession and financial crisis have refocused attention on government stimulus packages. These packages typically emphasize spending, predicated on the view that the expenditure “multipliers” are greater than one–so that gross domestic product expands by more than government spending itself. Stimulus packages typically also feature tax reductions, designed partly to boost consumer demand (by raising disposable income) and partly to stimulate work effort, production and investment (by lowering rates).

The existing empirical evidence on the response of real gross domestic product to added government spending and tax changes is thin. In ongoing research, we use long-term U.S. macroeconomic data to contribute to the evidence. The results mostly favor tax rate reductions over increases in government spending as a means to increase GDP.
. . .
The bottom line is this: The available empirical evidence does not support the idea that spending multipliers typically exceed one, and thus spending stimulus programs will likely raise GDP by less than the increase in government spending. Defense-spending multipliers exceeding one likely apply only at very high unemployment rates, and nondefense multipliers are probably smaller. However, there is empirical support for the proposition that tax rate reductions will increase real GDP.

For the full commentary, see:
ROBERT J. BARRO AND CHARLES J. REDLICK. “Stimulus Spending Doesn’t Work; Our new research shows no evidence of a Keynesian ‘multiplier’ effect. There is evidence that tax cuts boost growth.” The Wall Street Journal (Thurs., OCTOBER 1, 2009): A23.
(Note: ellipsis added.)

A longer and much more detailed account of Barro and Redlick’s recent research on this topic can be found in:
Barro, Robert J., and Charles J. Redlick. “Macroeconomic Effects from Government Purchases and Taxes.” NBER Working Paper # w15369, Sept. 2009.

Dutch Were Too Busy Trading to Build a Church

NewAmsterdamPrint2009-09-26.jpg “Print of New Amsterdam by Joost Hartgers, 1626.” Source of caption and image: online version of the WSJ article quoted and cited below.

(p. A15) The financial collapse of 2008 and the Great Recession have had, not surprisingly, a major adverse impact on the economy of the country’s financial center, New York City. There have been over 40,000 job losses in the financial community alone and both city and state budgets are deeply dependent on tax revenues from this one industry. There has been much talk that New York might take years to recover–if, indeed, it ever can.

But if one looks at the history of New York there is reason for much optimism. The city’s whole raison d’être since its earliest days explains why.
The Puritans in New England, the Quakers in Pennsylvania, and the Catholics in Maryland first and foremost came to what would be the United States to find the freedom to worship God as they saw fit. The Dutch–who invented many aspects of modern capitalism and became immensely rich in the process–came to Manhattan to make money. And they didn’t much care who else came to do the same. Indeed, they were so busy trading beaver pelts they didn’t even get around to building a church for 17 years.
Twenty years after the Dutch arrived, the settlement at the end of Manhattan had only about a thousand inhabitants. But it was already so cosmopolitan that a French priest heard no fewer than 18 languages being spoken on its streets.
. . .
Deep within the heart of this vast metropolis–like the child within the adult–there is still to be found that little hustly-bustly, live-and-let-live, let’s-make-a-deal Dutch village. And the creation of wealth is still the city’s dearest love.

For the full commentary, see:
JOHN STEELE GORDON. “Opinion; Don’t Bet Against New York; The financial crisis has been devastating, but the city has reinvented itself many times before..” The Wall Street Journal (Sat., Sept. 19, 2009): A15.
(Note: ellipsis added.)

Doctors Seek to Regulate Retail Health Clinic Competitors

NursePractitioner2009-09-26.jpg“A nurse practitioner with a patient at a retail clinic in Wilmington, Del.” Source of caption and photo: online version of the WSJ article quoted and cited below.

Clayton Christensen, in a chapter of Seeing What’s Next, and at greater length in The Innovator’s Prescription, has persuasively advocated the evolution of nurse practitioners and retail health clinics as disruptive innovations that have the potential to improve the quality and reduce the costs of health care.
An obstacle to the realization of Christensen’s vision would be government regulation demanded by health care incumbents who would rather not have to compete with nurse practitioners and retail health clinics. See below for more:

(p. B1) Retail health clinics are adding treatments for chronic diseases such as asthma to their repertoire, hoping to find steadier revenue, but putting the clinics into greater competition with doctors’ groups and hospitals.

Walgreen Co.’s Take Care retail clinic recently started a pilot program in Tampa and Orlando offering injected and infused drugs for asthma and osteoporosis to Medicare patients. At some MinuteClinics run by CVS Caremark Corp., nurse practitioners now counsel teenagers about acne, recommend over-the-counter products and sometimes prescribe antibiotics.
. . .
As part of their efforts to halt losses at the clinics, the chains are lobbying for more insurance coverage, and angling for a place in pending health-care reform legislation, while trying to temper calls for regulations.
. . .
(p. B2) But such moves are raising the ire of physicians’ groups that see the in-store clinics as inappropriate venues for treating complex illnesses. In May, the Massachusetts Medical Society urged its members to press insurance companies on co-payments to eliminate any financial incentive to use retail clinics.
. . .
The clinics are helping alter the practice of medicine. Doctors are expanding office hours to evenings and weekends. Hospitals are opening more urgent-care centers to treat relatively minor health problems.

For the full story, see:
AMY MERRICK. “Retail Health Clinics Move to Treat Complex Illnesses, Rankling Doctors.” The Wall Street Journal (Thurs., SEPTEMBER 10, 2009): B1-B2.
(Note: ellipses added.)

A brief commentary by Christensen (and Hwang) on these issues, can be found at:

CLAYTON CHRISTENSEN and JASON HWANG. “How CEOs Can Help Fix Health Care.” The Wall Street Journal (Tues., July 28, 2009).

For the full account, see:
Christensen, Clayton M., Jerome H. Grossman, and Jason Hwang. The Innovator’s Prescription: A Disruptive Solution for Health Care. New York: NY: McGraw-Hill, 2008.

RetailHealthClinicGraph2009-09-26.gif

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

Adaptation Greatly Reduces Negative Effects from Global Warming

One of the advantages of flexible economic systems, such as capitalism, is that they can adapt to unexpected or exogenous changes in the environment (e.g., changes in the weather). In the empirical analysis quoted from below, the primary finding is that roughly half of the short-term negative effects on income from rising temperatures, “are offset in the long run through adaptation.”
Almost all of the countries in the sample of 12 deviate substantially from the ideal of entrepreneurial capitalism. So the reduction by half is probably a much smaller amount of adaptation than would occur in a sample of countries that had adopted policies that allowed a flourishing of entrepreneurship.

(p. 203) Using subnational data from 12 countries in the Americas, we show that the negative crosssectional relationship between temperature and income exists within countries, as well as across countries. We then provide a theoretical framework for reconciling the substantial, negative association between temperature and income in cross section with the even stronger short-run effects of temperature shown in panel models. The theoretical framework suggests that half of the negative short-term effects of temperature are offset in the long run through adaptation.

Source:
Dell, Melissa, Benjamin F. Jones, and Benjamin A. Olken. “Temperature and Income: Reconciling New Cross-Sectional and Panel Estimates.” American Economic Review 99, no. 2 (May 2009): 198-204.

Global Warming Creates Benefit of Arctic Shipping Shortcut

GermanShipArtcticPassage.jpg “A German ship, following a Russian icebreaker, is about to complete a shipment from Asia to Europe via Arctic waters.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A1) MOSCOW — For hundreds of years, mariners have dreamed of an Arctic shortcut that would allow them to speed trade between Asia and the West. Two German ships are poised to complete that transit for the first time, aided by the retreat of Arctic ice that scientists have linked to global warming.

The ships started their voyage in South Korea in late July and will begin the last leg of the trip this week, leaving a Siberian port for Rotterdam in the Netherlands carrying 3,500 tons of construction materials.
Russian ships have long moved goods along the country’s sprawling Arctic coastline. And two tankers, one Finnish and the other Latvian, hauled fuel between Russian ports using the route, which is variously called the Northern Sea Route or the Northeast Passage.
But the Russians hope that the transit of the German ships will inaugurate the passage as a reliable shipping route, and that the combination of the melting ice and the economic benefits of the shortcut — it is thousands of miles shorter than various southerly routes — will eventually make the Arctic passage a summer competitor with the Suez Canal.
“It is global warming that enables us to think about using that route,” Verena Beckhusen, a spokeswoman for the shipping company, the Beluga Group of Bremen, Germany, said in a telephone interview.

For the full story, see:

ANDREW E. KRAMER and ANDREW C. REVKIN. “Arctic Shortcut Beckons Shippers as Ice Thaws.” The New York Times (Fri., September 10, 2009): A1 & A3.

NortheastPassageMap2009-09-26.jpg “A Shortcut Across the Top of the World.” Source of caption and map: online version of the NYT article quoted and cited above.

Economic Understanding of the Great Depression is Still “Fragmentary”

In the last few decades the accepted opinion among most economists was that the profession understood what caused the Great Depression sufficiently so that we could be confident that we know how to avoid another Great Depression in the future.
Now the accepted opinion is becoming less accepted. I quote below the last sentence of Harold Cole’s review of a 2007 book that surveys current views of the Great Depression by distinguished economists:

(p. 418) I came away from the book struck by the fragmentary state of the science with respect to the Great Depression and the challenges that we still face in terms of developing a truly satisfactory quantitative theory of what happened.

Source:
Cole, Harold. “Review of Parker’s “the Economics of the Great Depression”.” Journal of Economic Literature 46, no. 2 (June 2008): 415-18.

The book under review is:
Parker, Randall E. The Economics of the Great Depression: A Twenty-First Century Look Back at the Economics of the Interwar Era. Cheltenham, U.K. and Northampton, Mass.: Elgar, 2007.

The Economist Starts a Column Named “Schumpeter”

SchumpeterAirplaneGraphic.jpg

Source of Schumpeter stairway to innovation graphic (my name for it): http://media.economist.com/images/20090919/D3809WB0.jpg

Thanks to Shane Eloe for alerting me that in their Sept. 19th issue, The Economist started a column named “Schumpeter.” Here are a couple of paragraphs from their first installment:

(p. 78) Joseph Schumpeter was one of the few intellectuals who saw business straight. He regarded business people as unsung heroes: men and women who create new enterprises through the sheer force of their wills and imaginations, and, in so doing, are responsible for the most benign development in human history, the spread of mass affluence. “Queen Elizabeth [I] owned silk stockings,” he once observed. “The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort…The capitalist process, not by coincidence but by virtue of its mechanism, progressively raises the standard of life of the masses.” But Schumpeter knew far too much about the history of business to be a cheerleader. He recognised that business people are often ruthless monomaniacs, obsessed by their dreams of building “private kingdoms” and willing to do anything to crush their rivals.

Schumpeter’s ability to see business straight would be reason enough to name our new business column after him. But this ability rested on a broader philosophy of capitalism. He argued that innovation is at the heart of economic progress. It gives new businesses a chance to replace old ones, but it also dooms those new businesses to fail unless they can keep on innovating (or find a powerful government patron). In his most famous phrase he likened capitalism to a “perennial gale of creative destruction”.

For the full commentary, see:
“Schumpeter; Taking flight; This week we launch a new column on business and management. Why call it Schumpeter?” The Economist (Sat., Sept. 19, 2009): 78.
(Note: the online version was dated Thurs., Sept. 17th)
(Note: ellipsis in original.)

55% of Nebraskans Favor School Vouchers

The Friedman Foundation mentioned in the passage below, was founded by Nobel Prize winning economist Milton Friedman who is often credited with creating the idea of education vouchers in his classic book Capitalism and Freedom.
Capitalism and Freedom was based on a series of lectures that Friedman delivered at Wabash College at the invitation of my much-missed mentor Ben Rogge. (Before teaching me economics in Indiana, Rogge was a native Nebraskan who earned his bachelor’s degree from Hastings College.)

(p. 4B) A majority of Nebraskans are open to school-choice reforms such as school vouchers and tax­-credit scholarships, according to a survey made public Thurs­day by a national school-choice group.

“It really appears Nebraska is ready to start talking about school-choice reform options,” said Paul DiPerna, director of partner services for the Fried­man Foundation for Educational Choice, which commissioned the survey.
The group partnered with the Nebraska Catholic Conference and other state and national groups to conduct the telephone survey of 1,200 likely voters.
Fifty-five percent of those sur­veyed said they favored school vouchers and supported a tax­-credit scholarship system, which would give tax credits to indi­viduals and businesses that con­tribute money to nonprofit orga­nizations that distribute private school scholarships.

For the full story, see:
Dejka, Joe. “Support for school choice tax plan seen; An Indianapolis organization says its survey shows Nebraskans would back a pending bill.” Omaha World-Herald (Fri., Sept. 18, 2009): 4B.