Saturday, June 12, 2004
Purchasing Power Parity
Over- or under- anything, such as overvalued or undervalued, evoke the old question: compared to what?The Economist of May 29th asks: "How big is the world economy? That sounds like a straightforward question. Simply add up the size of the world's national economies would seem to be the obvious way to answer it. But how that is done yields radically different results, and therein lies a tale. The most commonly used method is to convert national economic outputs to a single measure, namely the American dollar, using the market exchange rates of all national currencies." Use purchasing power parity (PPP) conversions, instead, and the world economy grows from $36 trillion to $50 trillion.
Moreover, the Intergovernmental Panel on Climate change projects implausibly high future carbon emissions based on heroic growth assumptions for the poor countries -- and values their future GDP in U.S. dollars.
What to do? Trust market rates or PPP? No one has gotten rich using PPP as a guide to currency speculation. Do markets include knowledge (beliefs) that PPP misses? Apparently so; otherwise there would be no discussion.
The comparisons are, perhaps, interesting but it is unclear that are clear signals for personal or policy actions.
Friday, June 11, 2004
First Drafts of History
I am listening to Lady Margaret Thatcher's beautiful eulogy to Ronald Reagan as I post this. A claim made for the Reagan legacy in recent weeks has been that he inspired resistors in the East bloc to stand up against Soviet power. This morning's column by Lech Walesa corroborates this important point: "Poles fought for their freedom for so many years that they hold in special esteem those who backed them in their struggle. Support was the test of friendship. President Reagan was such a friend. His policy of aiding democratic movements in Central and Eastern Europe in the dark days meant a lot to us. We knew he believed in a few simple principles such as human rights, democracy and civil society. He was convinced that the citizen is not the state but vice-versa, and that freedom is an innate right." This was supposed to be U.S. message all along but it was, apparently, a much more believable message during the Reagan years.
On the same page of the WSJ, Milton Friedman (who else?) does the obvious, correcting the pundits, who liked to point out that Reagan never did shrink the size of government, as he had promised. Separate defense spending from the rest and the federal government did shrink after 1984. There are two good reasons for making this simple point: i) extra defense spending in those years paid off handsomely; and ii) it is actually mandated by the Constitution, unlike much of the rest.
Thursday, June 10, 2004
Outsourcing Eldercare
The dynamic U.S. economy continues to be a magnet for immigrants. The pluses and minuses of open borders will always be debated but there is no denying that this means that the U.S. labor force will not age as quickly as that of other advanced economies. This is no small advantage in light of all the fretting over how growing cohorts of the elderly will support themselves -- and how they will be supported.Yet, international migration is a two-way street. Many U.S. social security recipients have already discovered the joys of taking their U.S. pensions and savings in some lower cost-of-living place. Calculators are available that give an inkling of the possibilities: move from Boston to Barcelona and cut your cost of living by 25%.
It's not for everyone (and it is not a political platform) but some of the pressures on our system can be alleviated as more people consider the options. Tomorrow's elderly will be more likely to have traveled abroad and many should be less averse to a new chapter of their lives in some semi-exotic place where they can kick up their standard of living.
Not only that but, as with most migrations, there will be economic gains at the origin as well as at the destination.
Wednesday, June 09, 2004
"Money, Sex and Happiness"
A brief discussion of the Blanchflower-Oswald NBER paper on "Money, Sex and Happiness" has been the WSJ's most downloaded for over a day. As far, as I can tell, the NY Times has not given it any coverage -- and if it had, would the sober Times readers have made it the #1 downloaded? (To be fair, last Sunday's NY Times reported on a survey by Men's Car magazine that concluded, "Porsche drivers get less action of a non-automotive kind than the drivers of VWs, BMWs, or even Volvos.")Who says that contemporary economists overlook life's big questions? Blanchflower-Oswald process data from the National Opinion Research Center's General Social Surveys and find that (according to the WSJ piece), "going from having sex once a month to having it at least weekly is roughly equivalent to the amount of happiness an extra $50,000 of income would bring the average American. 'The effect of sex on happiness is statistically well-determined ... and large,' the authors conclude. 'This is true for males and females, and for those under and over the age of 40.'"
All of this goes to researchers' discussions of Revealed Preference vs Stated Preference as a good source of consumer information. The former is the traditional study of actual purchases; the latter is based on interview data -- and has been criticized as being less credible.
Consider that, at the margin, the study's findings imply that an extra episode is worth $1,300 - $1,400.
Tuesday, June 08, 2004
Ronald Reagan
Virginia Postrel's blog at Dynamist.com includes a perceptive memoriam and a few links to reflections on Ronald Reagan. By being able to tap into much that is essentially and uniquely American, Reagan got elected and re-elected(usually by landslides) but also changed the course of history, mostly for the better. He did this in spite of the fact that his thoughts and values had been dismissed and denigrated by elite opinion, here and abroad.
Elite opinion is likely to be the last to get it -- and must now spend some weeks grappling with the Reagan legacy. At the looney left, you get the LA Times' Robert Scheer, describing "A Nice Guy's Nasty Policies". Others, invoke clear-eyed hindsight, and remind us that the USSR was weak, ready to fall, and did not need much of a push.
Yes, and who said so at the time? In those days, the further left on political the spectrum one went, the more likely it was that the view was that both sides are equally corrupt and that the wise policies were neutrality (the European left) or peaceful co-existence along with cultural exchanges (U.S. elite opinion).
It does not take much clear-eyed memory to appreciate the RR legacy.
Monday, June 07, 2004
Vermont
"National Trust Names State of Vermont One of America's 11 Most Endangered Historical Places". Why not? Dynamic Creative Destruction has given us unparalleled material wealth. And one vehicle has been innovative retailing, which includes "big box" stores and Wal-Mart.The hard part is: how would statewide land use planning actually work? All land use decisions can be described as including some "externalities". So, everyone has standing to challenge any and all land use plans? This simply politicizes these plans -- moreso than they already are.
In a world of private communities, the Wal-Marts would deal directly with the neighborhood association. They would arrive at a deal that is acceptable to both sides. Yes, there are still (inevitably) association politics but standing in the dispute would not extend over the whole state.
Sunday, June 06, 2004
Either-Or Choices
Dan Klein asked What Do Economists Contribute? Good question. Can applied economics affect the public policy discussion? Only if economists make it a point to address the "everyman".Bjorn Lomborg (with support from The Economist) has assembled eight economist luminaries together in the Copenhagen Project to rank-order policy initiatives -- if $50 billion were available. The ranking puts disease control (HIV/AIDS), micronutrients (to limit malnutrition) trade liberalization and the control of malaria first. Global warming policies are all last.
Predictably, critics scorn the exercise as getting us involved in "either-or" choices. As they say: "Hello!"
