Subscribe: EconLog
http://econlog.econlib.org//index.xml
Added By: Feedage Forager Feedage Grade B rated
Language: English
Tags:
companies  compensation  consumers  drug  education  government  health insurance  labor market  make  market  people  tax bill  tax 
Rate this Feed
Rate this feedRate this feedRate this feedRate this feedRate this feed
Rate this feed 1 starRate this feed 2 starRate this feed 3 starRate this feed 4 starRate this feed 5 star

Comments (0)

Feed Details and Statistics Feed Statistics
Preview: EconLog

EconLog





Last Build Date: Sat, 20 Jan 2018 15:57:25 -0500

Copyright: Copyright 2018
 



Just who are those "consumers"?, by Scott Sumner

Sat, 20 Jan 2018 15:57:25 -0500

While working on a principles of economics textbook, I began wondering how students evaluate terms like "consumer welfare". Who are these consumers?

There's a term for people who are not consumers, they are called "corpses". All living people are consumers. So any policy that benefits consumers as a group also must, ipso facto, benefit society as a whole. Right?

Not quite, as that's not what economists mean by 'consumers'. We are not talking about a distinct set of people (all people are consumers); we are talking about one aspect of our lives. Thus a policy like price controls affects both consumers and producers, and hence everybody, both in our role as consumers and in our role as producers.

[You may object that we are not all producers. But those who are not, such as children and people on welfare, base their consumption on the monetary contributions of people who are producers. So in a deeper sense we all have a stake in both the consumption and production side of the economy.]

I'm probably too close to all of this to know whether these points are obvious, so I'd be interested in your take.

Let's consider a specific example. Suppose we adopt across-the-board price controls, as in 1971. You can show the impact on "consumers" and "producers" with a supply and demand diagram:

(image)
In this graph, it looks like "consumers" might gain from price controls. But this doesn't mean that there is some segment of society that actually gains from price controls, rather that people might gain in their role as consumers, lose in the role as producers, and lose overall due to the decline in "total surplus" (due to the deadweight loss.)

[As an aside, even consumers qua consumers might not be better off due to queuing costs.]

I wonder if students reading these textbooks think "Gee, I'm a consumer, so I better pay close attention to the effects of government policies on consumers." If so, they are missing the bigger picture. Students should be focused on the effects of government policies on total surplus, as consumer and producer surplus are just a subset of each and every person's interest is in both sides of a market.

I'd even apply this to individual product markets. It's true that consumers and producers of automobiles might be very different people, but many of the policies that affect individual markets are widely applied. If you are considering the wisdom of trade barriers, it probably makes more sense to think of barriers affecting a wide range of products, as they are unlikely to only be imposed on a single good. Thus if you think to yourself, "I'm a car producer, thus I like tariffs", beware that the tariffs don't end up being imposed on steel and aluminum, for which you are a consumer. Indeed there's a good chance that this is exactly what will happen in the near future, hurting the auto industry, and indeed hurting most of American manufacturing.

(0 COMMENTS)



Are the Tax Cuts and Increased Wages and Bonuses Connected?, by David Henderson

Fri, 19 Jan 2018 16:04:51 -0500

They might be. Veronique de Rugy of the Mercatus Center has an excellent piece at Reason on the connection, if any, between the recent cut in the corporate income tax rates and the spate of bonuses, pay increases, and increases in employer contributions to employee 401(k)s. Her article is titled "Is Tax Reform Already Working?" First, she lays out some basic facts: The legislation, which permanently slashed corporate tax rates from 35 percent down to 21 percent, was only signed into law last month. But more than 100 companies have already indicated that they will make big moves to benefit workers and the economy--including raising wages, handing out bonuses, granting 401(k) increases, and committing to increased capital investment--while citing the law's reduction in the corporate income tax rate as at least part of the reason. Here's a list of over 200 companies that have made these pro-employee moves; the list is compiled by Americans for Tax Reform, an organization that strongly favors the tax cut. The puzzle for an economist is not that we thought these things wouldn't have happened as a result of the tax cut. Instead, I would bet that most of us, certainly I, would not have expected them so soon. Normally, I get directions of effects of policy correct but err on the side of predicting them to happen sooner than they typically do. This time, it's the opposite. Here's why I would have expected a slower effect, in Veronique's words: The recent burst of activity isn't at all in line with the standard economic theory of how reductions in marginal federal business tax rates affect workers' compensation. Economists usually argue that lowering marginal tax rates on investment gives companies an incentive to earn more taxable income leading them to invest in other businesses and the expansion of their factories. This in turn raises workers' productivity, and ultimately leads to higher wages. In other words, it takes time for companies to invest new capital, and reap the benefits of their investment. Exactly. So why did it happen so quickly? Veronique writes: [Scott] Greenberg [of the Tax Foundation] also offered another, more cynical theory. "Companies may have been planning on raising labor compensation anyway, due to increasingly tight labor market[s], and chose to attribute bonuses and wage increases to the tax bill, as part of an effort to build public goodwill for the legislation." With Moody's estimating that the unemployment rate will drop to 3.5 percent by the end of the year, the raises probably indicate a tighter labor market, and employers taking steps to retain their employees. That's plausible. I'm not sure how cynical it is. Economic theory predicts that with new investment, there will be more capital per laborer and, therefore, an increased demand for labor. That would lead to a tightening labor market. So maybe some employers are trying to stay ahead of the market by raising employee compensation now. If the employers attribute that to the tax bill, and it can reasonably be attributable to the tax bill, is that cynical? Of course, if the labor market were going to tighten anyway so that the employers would have seen the need to increase employee compensation even absent the tax bill, then yes, it would be cynical. I don't know enough at this point to distinguish between the two explanations. Veronique writes that "many of the bonuses were announced after the House and the Senate passed the tax bill but before the president even signed it." She uses this fact to cast doubt on using standard economic theory to explain the increases. But virtually everyone was sure, despite Trump's often being a loose cannon on policy issues, that he would sign the tax bill. So once Congress had passed it, it was as good as done. So, again, with employers anticipating a tightening labor market tightening even more with passage of the tax bill, it's reasonable to attribute some of the increase to forward-looking employers trying to get ahead of the labor market. The above is a little too st[...]



A Golden Journey, by Bryan Caplan

Fri, 19 Jan 2018 09:25:05 -0500

Here's the speech I delivered at my in-laws 50th anniversary party a couple of weeks ago.  It's anecdotal, but I think social science fans will enjoy it. On New Year's Day, 1968, a young couple married in Bucharest, Romania.  Their names were Corneliu Dumitru Mateescu and Maria Teodora Ghitza.  I wasn't there, but I hear it was a three-day Old World extravaganza of feasting and dancing.  Despite disapproval from the Romanian Communist Party, Cornel and Maria celebrated an old-fashioned church wedding.  At the time, I suspect that loyal Communists were saying, "Well, it's only a wedding.  It's not like they're going to reject everything we stand for." But let's back up.  Corneliu, the groom, was born in the mid-1930s.  He was the cherished only child of two loving parents who worked hard to give him an idyllic childhood.  But then the war came.  Daily life was a struggle.  By the war's end, young Corneliu was a refugee - fleeing the city to escape the bombing.  When peace finally came, it was the peace of the Red Army.  The Communists soon closed Corneliu's school, where he had been educated by German monks - "the Brüder."  When he reached adulthood, Corneliu was drafted and sent away from home.  But he persevered, eventually earning a top job with the electric authority - about as high as anyone in Romania could rise without joining the Communist Party. Maria, the bride, was born in 1948.  She missed the war - and had no memories of pre-Communist Romania.  She grew up with her mom, a schoolteacher, and her little brother Alecu.  They didn't have their own television set, but a relative did.  When Maria was in her late teens, that t.v. malfunctioned.  Now, you may ask, where in Communist Romania do you go to get your t.v. repaired?  Well, it turns out that a charming young man with the electric authority repaired t.v. sets after hours.  He showed up and went to work.  And who happened to be visiting her relatives that day?  Young Maria Ghitza!  Cornel's electrical skills must have been awesome, because they were soon the stars of a three-day wedding.  Three years later, they were parents of a lively, adventuresome, determined, adorable little girl, Corina Ruxandra.  Cornel's parents were on site to help raise her in the family home.  Cornel, Maria, and Corina hiked together through the beautiful Carpathian Mountains.  But as their daughter enjoyed the great outdoors, her parents couldn't help but realize that as long as they remained in Communist Romania, most of the world's beauty and opportunity would remain beyond her reach. So in 1974, Maria made one of the hardest sacrifices a mother can make.  When she received permission from the Communist government to visit the West, she saw a once-in-a-lifetime opportunity to give her daughter a better life.  The Communists assumed that a mother of a young girl would return.  Instead, Maria reached America - and Cornel began stubbornly asking permission to follow her. It was a sad time for the Mateescu family.  Maria had to make her solitary way in the United States by the sweat of her brow.  While learning English, she worked as a nanny.  She worked on a lunch truck.  And she kept sending money and gifts home to her family.  Cornel and his parents had to raise Corina alone.  Corina spent years without her mother to guide and comfort her.  She was even sent home from school for wearing one of Maria's gifts - a lovely but forbidden "capitalist dress." Communist officials felt sure that Cornel would eventually stop asking to reunite his family.  But there was one thing they didn't count on: the stubbornness of a Mateescu.  Despite years of bureaucratic abuse, Cornel kept asking to leave. He refused to give up.  He wouldn't take no for an answer.  In 1978, he won.  Cornel left Communist Romania with his[...]



A tax by any other name . . . , by Scott Sumner

Thu, 18 Jan 2018 15:18:41 -0500

When the Supreme Court narrowly upheld the health insurance mandate part of Obamacare, John Roberts suggested that the penalty for not buying health insurance could be viewed as a tax.

I'm not qualified to offer an opinion as to whether that decision was correct from a legal perspective, but economists don't see much difference between regulations and taxes. A fine for speeding, or for double parking your car, looks pretty similar to a $4/pack tax on cigarettes, which might be viewed as a "fine" for smoking.

Suppose the Supreme Court had said that a health insurance mandate was unconstitutional. The government could achieve the same effect with a combination of taxes and subsidies. If the penalty for not buying health insurance had been $2500 per household, then the government could impose a lump sum tax of $2500 on all households in America. Then they could offer a $2500 subsidy to all households that purchased health insurance. For those with health insurance, the tax and subsidy would exactly offset--the government could inform those households to not even bother paying the tax and collecting the subsidy. Those without health insurance would be paying a $2500 tax to the government--exactly equivalent to the health insurance penalty under the mandate.

Today, many states are contemplating using a similar subterfuge to undo one of the most important parts of the recent tax bill, the $10,000 limit on the deductibility of state and local taxes. One idea is to have higher income people donate $X to various state health and education programs, and then receive an equivalent tax credit. The donation would effectively serve as a tax payment, and yet it could be deducted from federal income taxes (unlike with SALT payments). And these "donations" wouldn't really be charity in any meaningful sense. People donating the money are no worse off than if they did not donate the money. The alternative was paying the same amount in taxes.

Because legal definitions often don't coincide with economic definitions, there is plenty of room for gaming the system. If states find a way around the $10,000 cap in SALT deductions, it would be a major setback for tax reform, and also further balloon an already excessive budget deficit. This is an issue to watch.

(image)

(28 COMMENTS)



The Big Victims of Drug Prohibition, by David Henderson

Thu, 18 Jan 2018 14:18:30 -0500

Never forget consumer surplus. Steven Landsburg is critical of co-blogger Scott Sumner's proposal to give preference in licensing legal marijuana sellers to those who were previously convicted of marijuana offenses. Scott calls this "affirmative action for drug pushers." Actually, though, his quote about the policy he favors does not mention drug dealers. (The word "pushers" is a misnomer; almost no one who sells drugs "pushes" them.) Here's the relevant passage that Scott quoted: In Los Angeles, residents with past marijuana convictions will not only be allowed to buy licences to sell the drug, but will be given priority. Under the city's "social-equity programme", low-income Angelenos who have previous marijuana convictions or who have lived in areas with disproportionately high rates of arrest for marijuana offences will be given preference when licences to open marijuana retail businesses are granted. Oakland, San Francisco and Sacramento have introduced similar initiatives. We can be sure that many of these convictions, possibly most, were for dealing or producing illegal marijuana. But I would bet that some of them were for simply using marijuana. And even some of the convictions for dealing might have been against users who were heavy users. The police and prosecutors tend to regard being caught with large amounts of marijuana as prima facie evidence that one is a dealer; sometimes, though, some of these people might simply have been stocking up. All this is relevant for understanding where I'm going to go in responding to Steve. Here's Steve's criticism: First, if you want to compensate people for past persecution, the right way to do it is with cash, not by misallocating productive resources. If there must be licenses, they should be allocated to those who can use them most efficiently, regardless of any past history. Second, drug dealers have never been the primary victims of anti-drug laws. They can't be, because there is free entry and exit from that industry. Anti-drug enforcement leads to exit, which in turn leads to higher profits for those who remain -- and the exit continues until the profits are high enough to compensate for the risks. One way to think about this: All those "persecuted" drug dealers were, in effect, employing the government to stifle their competition, and paying a fair price for that privilege in the form of occasionally being convicted and punished themselves. That's an excellent critique. Here's where Steve goes off-track though. He continues: The primary victims of anti-drug legislation are potential consumers who were deterred by artificially high prices. How do you compensate those victims? You can't. In a population of 1000 people who have never used drugs, it's quite impossible to identify the 200 or 300 or 400 who would have happily indulged if only the price had been lower. No. No. No. Steve has put in finger on the category that contains the primary victims but has totally missed the primary victims within that category. The primary victims are consumers. But they are not potential consumers; they are actual consumers. Think about a downward-sloping demand curve. Where are the potential consumers "who were deterred by artificially high prices?" They are further down the demand curve than the actual consumers who were not deterred. The loss in consumer surplus to the actual consumers is much higher than the loss in consumer surplus to those who were deterred. And the loss is even greater to those actual consumers who were caught and fined or imprisoned. That's where my earlier point comes in. Some of those people who Scott wants to give preference in licenses were consumers and so Steve's second argument doesn't apply to them. Overall, though, they are likely to be a small percent of those who were convicted, so Steve's second argument applies to most of the people who, with Scott's proposal, would get preference. Bottom line: I agree broadly with Steve's arg[...]



Carillion and the reputation of privatisations, by Alberto Mingardi

Wed, 17 Jan 2018 13:19:59 -0500

"Privatisations" were done to make again room for the private sector, and for government officials to stop managing a particular business. In reality, of course, the boundaries may be blurred... Instances of classical liberal-leaning (critics would say: neo-liberal) government were very few in the 20th century. Margaret Thatcher's one was perhaps the most spectacular, as England really walked a long way in the direction of the command-and-control economy. Thatcher's privatisations were the first and as a political leader she cast a long shadow: so that even today, twenty-eight years after she left office, she is regularly evoked in broader debates over the balance between the public and the private sector. Carillion, a British big construction company that grew enormously in a bunch of different businesses active in public procurement, is now filing for liquidation. In England's cultural climate, which is by no means friendly to conservatives at this moment, this bankruptcy is revitalising those on the left who want to do away with the Iron Lady's legacy. It is probably, by all means, "the end of the love affair between governments and private contractors". Carillion managed facilities for the NHS, planned to build "smart motorways", managed homes for the Ministry of Defence, built schools and universities, managed libraries and maintained almost half of British prisons. It was thus a giant of public-private partnership, whose demise will have an important effect - politically and perhaps culturally too. I would like to point to two articles on Carillion, one by libertarian Tim Worstall, one by ostensibly non-libertarian Simon Jenkins. On CapX, Tim writes: But the point is that critics of outsourcing cannot have it both ways: firms like Carillion cannot be overpaid leeches surviving on the largesse of the state and insolvent basket cases. Carillion is proof that we weren't paying the costs of the services we received. I think Tim alludes to an important point. Enemies of "privatisation" often confuse it with "outsourcing". The two things may coincide (ie, government A privatises its service company B and then buys services from it) but are nonetheless rather different. Privatisation emerged when government was owning companies that produced services and goods for the general public, which were brought back into private ownership. Sometimes companies have been privatised even though the government was basically in a monopsonistic position when it comes to their products. Such a privatisation was often motivated by the fact these companies were utterly inefficient, as well as because they were more or less controlled not by "the State" (an abstract entity) but by "political parties" (i.e., groups of real human beings who used these companies to gain consensus by providing jobs or buying stuff from certain suppliers and not others). In some cases--a story we in Italy know all too well--such "privatisations" were "privatisations in the name only", as the government de facto retained control. What we may say, at a certain level of generality, is that winning a public procurement order is not the same thing as selling goods or services in a market economy. The way in which prices are determined is if not political, bureaucratic: it goes by rules defined ex ante, which can be of course perfectly reasonable, or may be not. By its nature, companies that live off of government procurement have a different "ethos", if I may say so, than that of "privatisations" in a stricter sense. "Privatisations" were done to make room for the private sector, and for government officials to stop managing a particular business. In reality, of course, the boundaries may be blurred (if you privatise the electricity company, the government will have to continue to buy electricity anyhow) but there is a basic difference between businesses who operate in a market and businesses whose only potential buyer is [...]



For a Free Market in Plasma, by David Henderson

Tue, 16 Jan 2018 22:07:56 -0500

Ottawa, Ontario and Washington, D.C. - A group of professional ethicists and economists published an open letter urging provincial governments to reconsider proposals to ban compensation for blood plasma donations. The letter is signed by 26 ethicists and economists, including two Nobel Prize winners (Alvin Roth and Vernon Smith), a recipient of the Order of Canada (Jan Narveson), amongst others.
This is the opening paragraph of today's press release advocating legalizing a market for blood plasma. Georgetown University's Peter Jaworski, one of the signers, asked me to sign because I am both an economist and a Canadian. I did. The actual statement is very well argued.

Some excerpts from the statement:

There is no evidence that compensation for blood plasma donations in, for example, Saskatchewan, the United States, Germany, Austria, Hungary, or the Czech Republic has promoted the view that donors or their blood plasma are regarded as mere commodities. There is as yet no evidence that Saskatchewanians have different attitudes towards their blood plasma than, say, British Columbians currently have.

Everyone involved in blood plasma donation in Canada--the nurses, the doctors, the administrators, the medical scientists, the professors who study the matter, the chief executives of Canadian Blood Services, the manufacturers of plasmapheresis machines, the fractionators, and so on--receives compensation, except the donor. There is no evidence that Canadians regard the services so provided, or the people providing those services, as mere commodities in virtue of the fact that they are financially compensated. For the argument that donor compensation would so promote this view to be compelling, one would need an explanation for why the connection between compensation and commodification applies exclusively to compensating donors, and not to these other forms of compensation. No such explanation has been offered, nor is any apparent or plausible.

All of the signers at the end with little red maple leafs by their name are either Canadian or affiliated with Canadian institutions.

(9 COMMENTS)



Whereof One Cannot Speak, Thereof One Must Be Silent, by Scott Sumner

Tue, 16 Jan 2018 18:17:42 -0500

We talk too much. I probably talk way too much. Humans like to explain everything, even things that cannot be explained. Over at TheMoneyIllusion I did a post trying to rebut the bubble view of NASDAQ, circa 1999-2000. Lots of people bought tech stocks, mostly during periods of time when NASDAQ was around 3500 to 4000. (It briefly spiked to just over 5000.) Now it's over 7200. Yes, that's not a good rate of return for a period of 18 years, but it's not obviously horrible (especially if you include reinvested dividends, and especially for those who didn't buy at the absolute peak, which lasted very briefly.) In the comment section, Matthew Waters asked: Saying NASDAQ had an OK value in 2000 brings up the same question as the 1987 crash: how could both the 2000 and 2002 NASDAQ prices be efficient? For that matter, how could both 2002 and 2003 NASDAQ prices be efficient? End of 2002: NASDAQ was at $1,300. End of 2003: NASDAQ was at $2,000. Maybe bona fide news on future cash flows accounted for a 75% drop followed by a 50% increase within three years. I doubt it. For its part, Bitcoin has such swings in WEEKS rather than years. Is there anything that could falsify the EMH? It should be dramatically reformulated from "prices reflect all available information." It would be far stronger and more predictive to say "it's very difficult to beat the market on a 6 month or 1 year timeline." This is a very good question, and one that reaches into the field of epistemology. What can we know about the world? Which I would rephrase as "What information is useful"? To make my views easier to see, let's start with an analogy. Suppose I have been playing a certain roulette wheel in Vegas and believe it is tilted toward the red numbers, with relatively few blacks showing up. So the casino offers a test, 10 spins of the wheel. In this test, the number of reds and blacks is pretty even, but I notice another interesting pattern in the numbers: 15-12-33-17-15-3-24-36-30-9 Notice anything odd? Nine of the ten numbers fall in the right side column of the number grid on a roulette table: How likely is that! I claim the roulette wheel is fixed, biased towards numbers divisible by three. In fact, this pattern is no more unlikely than any other pattern. Weird things happen all the time in casinos. Indeed the first time I ever walked into a casino (Surfer's Paradise, Queensland, 1991) I won my first 12 hands of blackjack, before losing the 13th. How likely is that! I hope you see the problem here. It's not kosher to ex post make up a theory to fit the data. (I'm not accusing Matthew of that---we'll get to his excellent question later.) Yes, much of social science is done exactly this way, but that doesn't make it right. Indeed data mining (aka P-hacking) helps to explain why people don't believe social science research, unless they already found the hypothesis to be plausible before being presented with the regression results. Matthew is right that the EMH doesn't do a good job of explaining the 1987 stock market crash, or the 2000-02 tech stock crash. It's hard to find fundamentals that would justify such a dramatic shift in prices over a short period of time. (Actually much harder for the 1987 crash than the tech stock declines, which took considerably longer.) So how do I defend the EMH? Two points: 1. The EMH is very useful to me in all sorts of ways. It's also consistent with a lot of research on the wisdom of crowds, and basic economic ideas such as competitive rates of return in competitive markets with free entry. It's got a lot going for it. Because of the EMH, I've invested in index funds, and also engaged in buy and hold of stocks (not day trading). I ignored Shiller's 2011 comments on overvalued stocks. My 401k has done very well as a result. It also helped me during my research on the Great Depression, [...]



For Individual Liberty, Size Does Not Matter - or So It Seems, by Contributing Guest

Tue, 16 Jan 2018 15:55:44 -0500

by Pierre Lemieux "... let's have a look at the empirical evidence. Do available data show a correlation between individual liberty and the size of a country? A positive or a negative one?" In a recent Econlog post, Alberto Mingardi provided an interesting reflection on the Catalonia secession attempt. Since then, a secessionist government has been reelected in the region, and the future is uncertain. More generally, Alberto suggested that, if states are unavoidable, having more of them is better than fewer. One reason is that individuals will have more choices as to which state to live under according to their preferences. A related reason is that competing states will have an incentive to satisfy the preferences of their clienteles. More numerous and homogeneous states will thus offer public services more in line with what citizens want. Alberto Alesina and Enrico Spolaore make related arguments in their book The Size of Nations. However, there are also good arguments for larger, more cosmopolitan societies. What Friedrich Hayek, in his trilogy Law, Legislation and Liberty, calls the Great Society, i.e. the abstract classical-liberal order, is more likely to flourish in a large, cosmopolitan society than under small-group tyranny. In a large and diversified society, Leviathan may be less effective at oppression. At any rate, smaller, homogeneous nation-states will typically not allow individuals to move freely between themselves. Alesina and Spolaore argue that, ceteris paribus, Leviathan prefers to rule over a large country because he can extract a larger rent. However, he may find it easier to take over a small country and will be able exploit the minorities there more harshly. There is no totally homogeneous country, and Leviathan will always find minorities to exploit in favor of its favored clientele, which is often the dominating cultural group. In this perspective, it is not surprising that most secessionist movements are run by socialists. (In Québec, it started with rightist, nativist organizations, but was taken over by socialists in the 1960s.) Political scientist Karl Deutsch was on to something when, in Nationalism and its Alternatives (as quoted by Alesina and Spolaore), he defined a nation as "a group of people united by a common error about their ancestry and a common dislike of their neighbors." The issue of whether large or small countries offer better chances for individual liberty is not simple, and the two opposite theories seem defendable. So let's have a look at the empirical evidence. Do available data show a correlation between individual liberty and the size of a country? A positive or a negative one? The cloud of data points on my scatter diagram below suggests that there is no correlation between the size of a country, measured by its population, and its degree of liberty, as measured by the Fraser Institute's Economic Freedom of the World index. My data incorporates the 160 countries included in that index. The variation of the scores (where 10 represents the highest level of economic freedom and 0 the lowest) reminds us that some small countries are relatively free (Hong Kong and Switzerland are examples) and that in others, as Émile Faguet would have said, people "are more oppressed than in Turkey" (Venezuela or the Central African Republic, for example). Same for large countries: some (consider the United States) are relatively free, others much less free (India or China). A simple regression analysis confirms the absence of statistical correlation between country size and economic freedom. The R-square--a measure of correlation that indicates the proportion of the variation in freedom explained by population size--is tiny: 0.004. The slope of the regression line, which suggests that the freedom index score decreases by 0.00038 for every increase in 1,000,000 [...]



The Case Against Education vs. Libertarian Education Reform, by Bryan Caplan

Tue, 16 Jan 2018 13:32:25 -0500

Libertarian education reformers have long argued that education is great, but education plus market reforms is even better.  The Case Against Education in contrast, argues that the education industry is more like government-sponsored football stadiums: Government support is good for the industry, but bad for society.  Here's an excerpt from the book's final chapter, "Five Chats on Education and Enlightenment."


Frederick [fictional character who writes for the Wall St. Journal and blogs for the Chronicle of Higher Education]: You make your reforms sound pragmatic, but isn't libertarian ideology right below the surface?

Bryan: It's complicated. My heterodox views on education long precede my interest in political philosophy. I've believed in something like signaling since kindergarten.

Frederick: [ironic] Strangely enough, the facts all fit the theory you cooked up when you were five.

Bryan: I had no "theory" in kindergarten. Just two epiphanies:

First, I had to excel academically in order to get a good job when I grew up.

Second, I would never use most of my book learning on the job.

Though it took me years to see the tension between these two epiphanies, I (crudely) reinvented the signaling wheel sometime in junior high. Armed with my crude signaling theory, I gamed the system, working as little as possible to get A's in all the classes I deemed boring
and useless.

Frederick: So you were a rebel, not a reformer?

Bryan: Right, until my senior year of high school. Once I discovered libertarianism, education reform came naturally. Why on earth should government subsidize socially wasteful education?

Frederick: Then you admit your education reforms are ideologically driven.

Bryan: No. I only admit that my political philosophy--or "ideology" if you prefer--sways
the questions I ask.

Frederick: But surprise surprise, the facts are in perfect harmony with your ideology.

Bryan: Hardly. Libertarians rarely challenge the beloved education sector. Instead, they promise, "Free markets will make education even better."

Frederick: Well, why don't you say that?

Bryan: Because I disbelieve it. It goes against everything I've seen. I've attended both public and private schools. They're cut from the same cloth.

(7 COMMENTS)