Prosperity in Mexico, the gun debate, and pricing morality
An urban favela in Guanajuato, Mexico.
An OECD publication, The Role and Design of Net Wealth Taxes in the OECD, reports:
Net wealth taxes are far less widespread than they used to be in the OECD. . . . While 12 countries had net wealth taxes in 1990, there were only four OECD countries that still levied recurrent taxes on individuals’ net wealth in 2017. Decisions to repeal net wealth taxes have often been justified by efficiency and administrative concerns and by the observation that net wealth taxes have frequently failed to meet their redistributive goals. The revenues collected from net wealth taxes have also, with a few exceptions, been very low. More recently, however, some countries have shown a renewed interest in net wealth taxes as a way to raise revenues and address wealth inequality.
While the tax system should help address wealth inequality, the question is whether a wealth tax is the most effective way to do so. The report assesses the case for and against net wealth taxes, looking at efficiency, equity and administrative arguments. . . . Overall, the report concludes that from both an efficiency and equity perspective, there are limited arguments for having a net wealth tax in addition to broad-based personal capital income taxes and well-designed inheritance and gift taxes.
Eric A. Posner, Glen Weyl, and Suresh Naidu open a discussion of “Antitrust Remedies for Labor Market Power.”
Although the antitrust laws prohibit firms from restricting competition in labor markets as in product markets, the government does little to address the labor market problem, and private litigation has been rare and mostly unsuccessful. One reason is that the analytic methods for evaluating labor market power in antitrust contexts are far less sophisticated than the legal rules used to judge product market power. To remedy this asymmetry, we propose methods for judging the effects of mergers on labor markets. We also extend our approach to other forms of anticompetitive practices undertaken by employers against workers. We highlight some arguments and evidence indicating that market power may be even more important in labor markets than in product markets.
Posner, et al. (2018)
Santiago Levy discusses Under-Rewarded Efforts: The Elusive Quest for Prosperity in Mexico.
From 1996 to 2015, the country’s per capita GDP growth averaged only 1.2 percent per year. Moreover, this unimpressive figure arguably overestimates Mexico’s performance, as it reflects the fact that because of the country’s demographic transition, its labor force grew more rapidly than its population during these years (2.2 versus 1.4 percent).
Over the medium term, growth occurs because the labor force increases (in quantity and quality), because there is more investment in physical capital, and because the productivity of labor and capital (total factor productivity—TFP) increases. Decomposing Mexico’s growth over this period into these three components, one finds that TFP growth averaged only 0.14 percent annually, without any corrections for the quality of the labor force. Considering increases in schooling (that is, taking into account that workers with more years of schooling can potentially contribute more to output than those with fewer years), yields a negative TFP growth rate of 0.53 percent.
The book points out that the main policies and institutions impeding growth are those related to taxation, labor and social insurance regulations, and enforcement of contracts. By documenting the central relevance of these issues to growth in Mexico, the book is an implicit criticism of the view that good macro, trade, and competition policies, accompanied by investments in education, are by themselves sufficient to bring prosperity to the country.
The Society of Actuaries and the Henry J. Kaiser Family Foundation have created Initiative 18|11 to consider ways of holding down US health care spending. Their first report is “What Can We Do about the Cost of Health Care?”
[H]ealth care in the United States represents 18 percent of the gross domestic product compared with 11 percent in comparable countries, such as the United Kingdom. In dollar terms, the cost of health care here is roughly double that of similar countries. . . . At the conference, we focused on two key drivers: the price of goods and services and the chronic disease burden. . . . There was a consensus among the participants that one of the primary reasons for the 18|11 problem is the difference in prices.
[A]pproximately 50 percent of the increase in U.S. expenditures from 1996 to 2013 was due to increases in price and intensity. . . . Remarkably, 86 percent of health care spending is for patients with one or more chronic conditions. . . . The cost of chronic diseases goes far beyond the direct amounts spent on these diseases. In the United States, seven out of every 10 deaths are caused by chronic diseases each year. There are indirect costs through lost productivity and an unmeasurable loss in the quality of life and the loss of ability to perform activities of daily living, such as bathing and eating.
Society of Actuaries/Henry J Kaiser Family Foundation (2019)
The Aspen Institute Economic Study Group has published a collection of 12 papers on the theme Expanding Economic Opportunity for More Americans: Bipartisan Policies to Increase Work, Wages, and Skills, edited by Melissa S. Kearney and Amy Ganz. From “A Policy Agenda to Develop Human Capital for the Modern Economy,” by Austan Goolsbee, Glenn Hubbard, and Amy Ganz:
We propose a federal grant program to provide new funding to community colleges, contingent on institutional outcomes in degree completion rates and labor market outcomes. We believe a program of a similar scale to the 19th century Morrill Land Grant Program, which dramatically expanded access to higher education for working-class Americans, is needed to ensure our workforce meets the demands of the modern economy. . . . In 1910, fewer than 10% of Americans had a high school degree. By 1935, nearly 40% of the population had earned their degrees. This inflection point came from substantial new investments in the nation’s education resources.
From “Scaling Apprenticeship to Increase Human Capital,” by Robert I. Lerman:
[T]he United States has lagged far behind other developed countries—countries like Germany and Switzerland, but also Australia, Canada, and England—in creating apprenticeships. In these countries, apprentices constitute about 2.5–3.0% of the labor force, or about 10 times the U.S. rate. Increasing the availability of apprenticeships would increase youth employment and wages, improve workers’ transitions from school to careers, upgrade those skills that employers most value, broaden access to rewarding careers, increase economic productivity, and contribute to positive returns for employers and workers.
The experiences of Australia, Canada, and England demonstrate that scaling apprenticeship is quite possible, even outside countries with a strong tradition of apprenticeship. … Overall, the federal government has devoted less than $30 million (per year) to the Office of Apprenticeship (OA) to supervise, market, regulate, and publicize the system. . . . Were the United States to spend what Britain spends annually on apprenticeship, adjusting for differences in the size and composition of the labor force, it would provide at least $9 billion per year for apprenticeship. In fact, the British government spends as much on advertising its apprenticeship programs as the entire U.S. budget for apprenticeship.
The Aspen Institute (2019)
The Regulatory Review, from the Penn Program on Regulation, offers a series of nine short essays on “Bringing Expertise to the Gun Debate.” From “Gun Regulation Is Costly—and Not the Only Option,” by Jennifer Doleac:
But, in general, the effect of gun regulations on public safety is less clear than many advocates on either side think . . . It is difficult to disentangle the effects of gun laws from the effects of a community’s feelings about guns, from a community’s motivation to reduce gun violence, or from an increase in gun purchases that often comes before the laws take effect. . . . Are there other life-saving programs more deserving of these resources? . . . Summer jobs programs for teens reduce mortality by 18 to 20 percent among participants. This effect is driven by a reduction in young men killed by homicide or suicide. Cognitive behavioral therapy for at-risk young men lowers violent crime arrests by 45 to 50 percent for participants. Access to Medicaid in early childhood decreases suicide by 10 to 15 percent later in life. Mandating that health insurance cover mental health benefits at parity reduces the suicide rate by 5 percent. Access to antidepressants also reduces suicide rates: An increase in antidepressant sales equivalent to one pill per capita reduced suicide by 5 percent. In addition, repealing duty-to-warn laws for mental health providers—which require that they report a patient’s violent threats, perhaps causing patients to be less honest—could reduce teen suicides by 8 percent and decrease homicides by 5 percent.
In the war over gun deaths, vast armies have gathered to contest gun regulations, a territory of uncertain value. Meanwhile, other zones of clear value are available and virtually unguarded.
From “Reducing Information Asymmetry in the American Gun Market,” by Amanda LeSavage:
Suicides constitute two-thirds of annual gun deaths in the United States. Individuals who live in homes with guns are approximately five times more likely to commit suicide by any means and approximately 17 times more likely to commit suicide with a gun than individuals who do not have guns in their homes. . . . Suicide usually results from an impulsive decision that can come as a surprise even to the victim. If an individual has access to a gun in a moment of such crisis and attempts suicide with that gun, there is an 85 percent chance of death. But less than 10 percent of people who attempt suicide by any other means actually die. That statistic is why the United States, which possesses almost half of the civilian-owned guns that exist worldwide, suffers from an alarmingly high suicide rate.
The Regulatory Review (2018)
The Brookings Institution and the Kellogg School of Business hosted a three-paper conference on “Retirement, Pensions, and Social Security.” In their contribution, Robert L. Clark and John B. Shoven write:
The retirement crisis is in no small measure caused by trying to do the impossible. What we mean by this is that it is nearly impossible to finance 30-year retirements with 40-year careers. Yet with today’s average retirement ages (62 for women and 64 for men), we are trying to do just that. If a 64-/62-year-old couple retired today, the survivor of the couple would have about a 40 percent chance of living an additional 30 years. This division of adult life between work and retirement is at the heart of the financial problems of Social Security and state and local pension plans, and it threatens the adequacy of retirement resources for millions of Americans.
Clark and Shoven (2019)
Realizing Indonesia’s Economic Potential is a 13-chapter book edited by Luis E. Breuer, Jaime Guajardo, and Tidiane Kinda. From “Twenty Years after the Asian Financial Crisis,” by M. Chatib Basri:
Before the AFC [Asian financial crisis], Indonesia’s economy was lauded as a success story of structural transformation in East Asia. Its economy grew by an average of 7.6 percent per year from 1967 to 1996. . . . The World Bank (1993) cited Indonesia as a member of the newly industrialized economies, together with Malaysia and Thailand. However, the AFC reversed the picture completely, hitting the Indonesian economy hard . . . Hill (1999) referred to this as the strange and sudden death of a tiger economy.
From “Realizing Indonesia’s Economic Potential: An Overview,” by Luis E. Breuer and Tidiane Kinda:
Home to more than 260 million people, Indonesia is the fourth most populous country in the world and the largest economy in Southeast Asia. With GDP of about US $1 trillion, the country is the world’s sixteenth largest economy and the seventh largest in purchasing-power-parity terms. . . . Following two decades of socioeconomic progress, Indonesia is well positioned to continue its remarkable transformation. However, important reforms remain needed . . . These reforms, discussed at length in the book, include raising tax revenues to enhance infrastructure and human capital, streamlining complex regulations, opening up to FDI, and deepening the financial sector while preserving stability.
International Monetary Fund (2018)
Tyler Cowen interviews “Daniel Kahneman on Cutting Through the Noise.”
[L]et me explain what I mean by noise. I mean, just randomness. . . . I’ll tell you where the experiment from which my current fascination with noise arose. I was working with an insurance company, and we did a very standard experiment. They constructed cases, very routine, standard cases. Expensive cases—we’re not talking of insuring cars. We’re talking of insuring financial firms for risk of fraud. So you have people who are specialists in this. This is what they do. Cases were constructed completely realistically, the kind of thing that people encounter every day. You have 50 people reading a case and putting a dollar value on it.
Suppose you take two people at random, two underwriters at random. You average the premium they set, you take the difference between them, and you divide the difference by the average. By what percentage do people differ? . . . And there is a common answer that you find, when I just talk to people and ask them, or the executives had the same answer. It’s somewhere around 10 percent. That’s what people expect to see in a well-run firm. Now, what we found was 50 percent, 5–0, which, by the way, means that those underwriters were absolutely wasting their time, in the sense of assessing risk. . . . And you find variability within individuals, depending morning, afternoon, hot, cold. A lot of things influence the way that people make judgments: whether they are full, or whether they’ve had lunch or haven’t had lunch affects the judges, and things like that. Now, it’s hard to say what there is more of, noise or bias. But one thing is very certain—that bias has been overestimated at the expense of noise. Virtually all the literature and a lot of public conversation is about biases. But in fact, noise is, I think, extremely important, very prevalent. There is an interesting fact—that noise and bias are independent sources of error, so that reducing either of them improves overall accuracy. There is room for . . . and the procedures by which you would reduce bias and reduce noise are not the same. So that’s what I’m fascinated by these days.
The central misconception is to think that one can claim the honorable title of ‘liberal’ if one approves of one form of liberty, such as mutual consent in sexual partners or the ability to drill for oil where you wish, but excludes the other form. Liberty is liberty, and is meaningless by parts. You are still a slave if only on odd days of the month. In Latin America, for example, the word ‘liberal,’ once meaningful there, has long been appropriated by conservatives who like to drill for oil where they wish, but hate gays. In the United States, it has been appropriated by sweet, or not so sweet, slow socialists, who celebrate diversity, but regard economic liberty as not worthy of much consideration.
I used to think freedom was freedom of speech, freedom of the press, freedom of conscience. Here is what it amounts to: you have to have the right to sow what you wish to, to make shoes or coats, to bake into bread the flour ground from the grain you have sown, and to sell it or not sell it as you wish; for the lathe-operator, the steelworker, and the artist it’s a matter of being able to live as you wish and work as you wish and not as they order you.
The Politic (2019)
Hites Ahir interviews “Paul Cheshire on Urban Economics.” On the gains from cities:
[M]y assessment is that cities are the most welfare enhancing human innovation in history: they empowered the division of labour, the invention of money, trade and technical inventions like the wheel—let alone government, the arts or culture.
On the study of land values:
Classical economists devoted far more effort to trying to understand the returns to land than they did to labour or capital: it was both the most important asset and the most important factor of production. When Adam Smith was writing only about 12 percent of Europe’s population lived in cities and even in the most industrialised country, Britain, the value of agricultural land was about 3 times that of annual GDP. But as the value of other assets increased, interest in land diminished so that by about 1970 really only agricultural economists and a few urban economists were interested in it: and they did not talk to each other. But by 2010 residential property, mostly the land on which houses sat, was worth three times as much as British GDP. By the end of 2013 houses accounted for 61 percent of the UK’s net worth: up from 49 percent 20 years ago. Land, now urban land, is valuable, so there is renewed interest.
Global Housing Watch Newsletter (2019)
Scott Lincicome describes “The ‘Protectionist Moment’ That Wasn’t: American Views on Trade and Globalization.”
In fact, recent public opinion polling uniformly reveals that, first, foreign trade and globalization are generally popular, and in fact more popular today than at any point in recent history; second, a substantial portion of the American electorate has no strong views on U.S. trade policy or trade agreements; third, and likely due to the previous point, polls on trade fluctuate based on partisanship or the state of the U.S. economy; and, fourth, Americans’ views on specific trade policies often shift depending on question wording, especially when the actual costs of protectionism are mentioned. These polling realities puncture the current conventional wisdom on trade and public opinion—in particular, that Americans have turned en masse against trade and globalization.
Michael Beckley considers “The Power of Nations: Measuring What Matters.”
What makes some countries more powerful than others? This is the most important question for the study and practice of international relations. . . . [M]ost scholars measure power in terms of resources, specifically wealth and military assets. The logic of this approach is simple and sound: countries with more wealth and more military assets at their disposal tend to get their way more often than countries with fewer of these resources. Unfortunately, however, most scholars measure resources with gross indicators, such as gross domestic product (GDP); military spending; or the Composite Indicator of National Capability (CINC), which combines data on military spending, troops, population, urban population, iron and steel production, and energy consumption.
Standard gross indicators are not good enough; they are logically unsound and empirically unreliable, severely mischaracterizing the balance of power in numerous cases, including in some of the most consequential geopolitical events in modern history. . . . The hype about China’s rise, however, has been based largely on gross indicators that ignore costs. When costs are accounted for, it becomes clear that the United States’ economic and military lead over China is much larger than typically assumed—and the trends are mostly in America’s favor.
[T]here is a large literature showing that GDP per capita serves as a reliable proxy for economic and military efficiency. . . . Military studies also show that the higher a country’s GDP per capita, the more efficiently its military fights in battle. The reason is that a vibrant civilian economy helps a country produce advanced weapons, train skillful military personnel, and manage complex military systems. … GDP per capita thus provides a rough but reliable measure of economic and military efficiency. . . . Combining GDP with GDP per capita thus yields an indicator that accounts for size and efficiency, the two main dimensions of net resources. . . . Future studies can experiment with ways to improve this measure.
Giana M. Eckhardt and Susan Dobscha consider “The Consumer Experience of Responsibilization: The Case of Panera Cares.”
In this paper, we explore how consumers experience being tasked with solving social issues through their consumption choices. . . . We do this in the context of Panera Cares, a nonprofit division of Panera Bread Company . . . Panera Cares self identifies as a conscious capitalist organization . . . They enact conscious capitalism through a pricing approach which we label conscious pricing. This incorporates elements of pay what you want (PWYW), Pay It Forward (PIF), and traditional charitable donation behavior by asking consumers to pay what they feel is appropriate for their food and drinks based on their support of the social issue of food insecurity.
This pricing strategy allows us to understand how consumers put a price on morality. . . . We demonstrate that consumers feel discomfort with the conscious pricing policy. This discomfort takes three forms: physical, psychological, and philosophical. Consumers have disdain for the embodied experience of dining near the food insecure in the physical space of the café, and they question Panera Cares’ motives for engaging in conscious pricing. The food insecure experience discomfort as well. Rather than being empowered via a dignified dining experience, they feel ashamed or uncomfortable when trying to pay what they can for their food. Our findings suggest a pushback against tasked responsibilization.
Eckhardt and Dobscha (2018)