Category: Business and Society

Blog author: jballor
Friday, April 11, 2008

Late last month I argued that recipients of the federal government’s stimulus package “should use this rebate money as they see fit, since they are the ones most familiar with their own situations and their own needs. Consider giving part of the money to charity or saving, paying off debt or investing.” Now other voices are giving similar advice, recommending saving rather than spending.

Rick Haglund, a Michigan business columnist for the Grand Rapids Press, notes that “Some saving measures can go a little too far, though. I recently heard a personal financial consultant say people can save by no longer buying that cup of coffee and newspaper on the way to work.”

“Give up the coffee, but please, please keep buying the paper. The newspaper business is in a terrible financial state,” he writes. Haglund thinks that newspapers are more important to the country than coffee…a debatable proposition. Coffee, not oil, might well be the lifeblood of American enterprise.

But the economic status of newspaper publishing is in a strange place. I’ve been getting the weekend paper for a year or so, and when I renewed I received a call from the paper just to tell me that I’d be getting the rest of the week for free (a good thing too, or I would have missed Haglund’s column).

It reminded me of getting a postcard in the mail from the government telling me to expect a rebate…no notice necessary, just send the free stuff and the money. I don’t think it cost the Grand Rapids Press millions of dollars to make the phone calls, though (it cost the feds $42 million to mail out those inane little rebate notices).

In any case, it makes more sense for many newspapers to give their issues away to get a boost in circulation numbers than it does to count on the income from subscriptions. I also recently saw one of the narrowest daily newspapers I had ever seen last weekend, part of the trend to cut printing costs. (I can’t complain too much, though, since the Port Huron Times Herald has published more than one of my commentaries. Keep up the good work!)

Of course, some folks, like Betty J. Mazur, are going to do just what the government wants them to do with the money. “I’m going to buy new clothing with my check,” she said. (The piece linked above is in part about how it is necessary to file federal taxes for 2007 in order to get the 2008 rebate. Marketplace discusses that, and also debunks some myths about the rebate, here.)

Oh, and don’t forget to blame conservative theology for the credit crisis. After all, it seems as if adherents to so-called “conservative” theology don’t save as much as they ought.

How any decent sociologist could have this reaction is beyond me: “Keister was surprised that when demographic factors — such as education, age and race — were held as constant, religion still proved to be an influential factor in wealth accumulation” (emphasis added).

Amazing, just amazing. Can you dare admit that religious beliefs really do influence behavior?

Keister says a typical “conservative Protestant” might be a member of the Assemblies of God, Churches of Christ, Nazarene and Pentecostal churches. I guess they’ve forgotten what John Wesley said.

Blog author: eschansberg
Tuesday, April 1, 2008

Last month marked the 75th anniversary of the beginning of FDR’s “New Deal”.

The Great Depression is the most famous event in U.S. macro-economic history. Most or all of my students know that it happened in the first half of the 20th century. They have no sense of what caused it– except perhaps to lay blame on the 1929 stock market crash. And they have a vague sense that the New Deal policies of FDR were helpful in ending it.

Because their impressions of the New Deal are limited, it is relatively easy to communicate what economists know about the Great Depression and the New Deal.

The Great Depression was noteworthy for its length and depth. A typical recession– probably what we’re dealing with now– is relatively short (e.g., 6-9 months in length) and features a slowdown in economic activity (negative output growth with reduced income and production). The most notable feature, politically, is a modest increase in unemployment. Even unemployment of 6-7% is enough to induce howls of pain from the unemployed and unlikely promises to make things better by a range of politicians (e.g., the recent macro “stimulus package”).

That said, some recessions are (much) more severe than others. For example, in fighting the inflation of the mid-late 1970s, we ended up with double-digit unemployment in the early 1980s. In further contrast, the Great Depression lasted for more than a decade and featured unemployment as high as 25%.

One quick way to note the limits of the New Deal: unemployment was 19% in its 6th year.

Markets may have trouble “adjusting”, but they don’t have that much trouble. So, it is wise to look at government policy during the 1930s to fill out one’s hypothesis of cause/effect about the Great Depression. Economists point to four major policy blunders:

1.) four tax increases, including the initiation of Social Security’s payroll tax on income– a tax on labor, thus making it more painful to hire workers

2.) a shrinking money supply– not from the Fed actively reducing it, but from passively sitting by while confidence decreased, lending activity dropped, and the amount of money in the system fell (in contrast, note the Fed’s activity– or even hyper-activity in recent days)

3.) the Smoot-Hawley Tariff Protection Act of 1930 is generally considered the primary catalyst for the stock market crash of 1929– as investors looked forward to the devastating impact this would have on international trade and the significant impact it would have on our economy

4.) the imposition of laws that would prevent wages and prices from adjusting downward (as they need to do in a recession): most notably, price floors (e.g., in farming), wage floors (the minimum wage), and a spate of pro-union legislation.

Bad policy was responsible for the bulk of the Great Depression– and perhaps is entirely responsible for its length and continued depth.

Finally, the most famous part of the New Deal could not have been all that effective. The government worked hard to create jobs– most famously, through the Works Progress Administration (WPA). And it was successful in part. But in doing so, it must have destroyed at least as many jobs. To note, where did the money come from to create the jobs? From the private sector– where economic activity was squashed and jobs were destroyed as a result. Government spending is typically a shell game– moving resources from one area to another, creating some and destroying other. Moreover, government rarely does things in an efficient manner, so one would expect the net effect to be negative. And again, if one looks at the results, it is clear that government policy was not a cure for a struggling economy.

With Amity Shlaes’ recent book, The Forgotten Man: A New History of the Great Depression, I’ve seen two interviews (with her) and an op-ed (by her) on the topic.

As Christians, we believe that history matters. As an economist, I know that economic history matters. May we study both– to learn both the good and the bad from our past.

In yesterday’s Wall Street Journal Europe, Alberto Mingardi of Istituto Bruno Leoni (and long-time Acton friend) lists some of the reforms Italy needs to boost economic growth, which is forecast at a measly 0.6 – 0.8 percent for 2008.

Mingardi advocates a number of tax cuts and a more determined privatization of state assets. Some of these issues are being discussed – timidly – in the current election campaign; Mingardi also focuses on de-regulation and de-bureaucratization, issues heretofore neglected by Italian politicians.

Current labor regulations are “so numerous that no one can even give their precise number. No one can comply with rules they don’t even know about.” Mingardi adds that “it’s safe to say at least half the statutes currently in force should be repealed, as their only effect is to create confusion.”

A recent study shows that it takes on average 696 days to dismiss a worker in Italy compared to only 19 in the Netherlands. Critics of de-regulation would argue that Italian workers are therefore better protected. Wrong. Unemployment is 5 per cent in Holland compared to 6 per cent in Italy.

This may seem counter-intuitive but makes economic sense. If I know it will be impossible to fire an unproductive worker, I will be much less likely to take a chance on hiring any worker I don’t personally know. Hence, the Italian model of “family capitalism” and higher levels of unemployment.

Italian bureaucracy also exacts high costs on business creation. According to the World Bank, the cost of opening a business is 18.7 per cent of per capita income compared to only 0.8 per cent in the United Kingdom and 0.3 per cent in the Republic of Ireland. Moreover, an Italian business spends an average of 360 hours per year filing taxes whereas in neighboring Switzerland 63 hours suffice. (Not surprisingly, Switzerland is the economic envy of Europe.)

Workers also pay for onerous regulations. Everyone in Italy nowadays complains about stagnant wages, these are clearly the result of decreasing productivity caused by bureaucratic disincentives for businesses to invest and grow.

An overwhelming bureaucracy undermines both individual liberty and the public interest. It punishes the creative spirit of the entrepreneur by obstructing investment and innovation, and harms society by killing the potential for growth and employment. The irony is that regulation and bureaucracy are often enacted in the name of social values.

Blog author: jballor
Tuesday, April 1, 2008

Last week the Providence Journal ran a piece by me on the forthcoming “rebate” checks from the government intended to be an economic stimulus, “The mandate is to ‘spend all you can’.” I take issue with the idea that the government gives us money that is our own in the first place, and then tells us how we ought to spend it: on consumables and retail goods to spur growth in the economy.

Instead, I propose that people “should use this rebate money as they see fit, since they are the ones most familiar with their own situations and their own needs. Consider giving part of the money to charity or saving, paying off debt or investing. And if it makes sense for you and your situation, you should feel free to buy that hi-def TV if you so desire.”

“But you certainly should not feel obligated to do so as if mere consumption is a civic responsibility,” I add.

The real problem with the package is that it perpetuates a view of the government’s role in the economy as the final arbiter of how markets ought to work and what people should be doing with their money. No doubt this is in part a response to the idea that the federal government in general, and the president in particular, has a primary formative influence on the shape and health of the nation’s economy.

Alasdair MacIntyre puts it this way,

Government insists more and more that its civil servants themselves have the kind of education that will qualify them as experts. It more and more recruits those who claim to be experts into its civil service…. Government itself becomes a hierarchy of bureaucratic managers, and the major justification advanced for the intervention of government in society is the contention that government has resources of competence which most citizens do not possess.

Thus comes the idea that the president is a kind of “economist in chief,” who directs the nation’s and the world’s markets by executive decree (compare that idea with the presidential job description given by the Concerned Women for America here).

Update: It’s 3 am…and this time the crisis is economic…

Of course, if we’re really concerned about someone answering a phone in a crisis, maybe we should elect a Wonder Pet:

Blog author: kschmiesing
Thursday, March 27, 2008

In my commentary on Social Security yesterday, I referred to the latest trustees’ report as evidence of the continuing need for reform. Anyone who happened to see New York Times columnist Paul Krugman’s blog a day earlier might understandably wonder whether we were looking at the same report. Krugman highlights a modestly improving actuarial balance as justification to conclude, “Social Security’s financial problem is relatively minor. It doesn’t deserve the emphasis it receives from most pundits.”

One of Krugman’s commenters corroborates what was my hunch, which is that worsening economic conditions (or other reasons) have led more seniors to put off retirement, or at least full retirement. This has made the actuarial balance number slightly better.

But the dominant theme of the report, as I accurately stated in my commentary, was that Social Security remains in financial trouble, is not sustainable, and should be reformed sooner rather than later. An analogy: Five armed hoodlums confront you and a friend in a dark alley. You say to your companion, “We’re in trouble.” He says, “I don’t know, one of those guys’ guns appears to be an older model. It may not shoot perfectly straight.”

It’s true, but not very comforting in view of the situation as a whole.

Krugman linked it as well, but I’ll do so again here, so that any fairminded reader can judge for himself which of us portrayed the report’s findings more forthrightly. (See the “Overview” for a summary.)

Blog author: jballor
Wednesday, March 26, 2008

Tonight FOX’s new hit gameshow “Moment of Truth” will air its latest installment. For those not familiar with the show’s premise, the contestant submits to a lie detector test before the show is taped. A series of questions are asked which form the basis for the pool of questions that will be asked again during the taping. If the answers given during the taping match the results of the previous interview, the contestant stands to win a great deal of money (up to $500,000).

The appeal of the show has to do with the content of the questions. They deal with intimate personal details regarding romantic relationships, professional behavior at work, familial rivalries and strife, and so on. As has been observed by many, the consequences that go along with telling the truth under these circumstances have the potential to be extremely damaging, both professionally and personally.

Here, for instance, is a woman who “lost it all,” the money and her marriage:

What should we think about the show’s popularity? Part of it has to do with the “car-wreck” phenomenon. People can’t help but watch in macabre fascination when disaster strikes someone else. So-called “reality TV” illustrates the voyeuristic impulses of American pop culture. There’s plenty to rail against in such base impulse: salaciousness, impropriety, disrespect of marriage and family, materialism, and so on.

But I want to pay special attention to the contestants’ motivations. They are essentially willing to air any and all secrets (what used to be called “dirty laundry”) to the public in exchange for money (or merely the chance to win money, depending on their success). That people are actually eager to get on the show as a contestant speaks to how little they truly value and are willing to “monetize” their personal relationships.

The Bible’s warnings about the swearing of oaths, and the commandment against telling falsehood, don’t give positive sanction to a show like this. The commandment against false witness, for instance, is really about the proper use of communication and speech in human relationships. We are to build others up with our speech, reigning in our tongues, and forsaking the urge to engage in gossip and slander others. This show financially rewards what the commandment prohibits.

Moreover, we cannot simply hide behind the claim that it’s the “truth” for a modicum of moral permissibility. There’s a proper time and a proper place to speak the truth, and the truth about personal relationships isn’t willy-nilly owed or due to anyone who happens to own a TV. The truth can actually be subverted and undermined depending on the manner and the context within which it is told. That’s why the Christian practice of confession, whether understood as a sacrament or as an option for personal sanctification and accountability, has always been understood to necessarily be “private.”

“Moment of Truth” is about the commodification of “truth” in pursuit purely of material gain. And as such, not only has the “truth” been corrupted, but so have the “truth” tellers and those who patronize such horrid displays.

Blog author: mvandermaas
Friday, March 7, 2008

Surely these are the words of a disciple of Hayek or Friedman, right?

Under the guise of protecting us from ourselves, the right and the left are becoming ever more aggressive in regulating behavior…

…The real question for policy makers is how to protect those worthy borrowers who are struggling, without throwing out a system that works fine for the majority of its users (all of whom have freely chosen to use it). If the tub is more baby than bathwater, we should think twice about dumping everything out…

…Anguished at the fact that payday lending isn’t perfect, some people would outlaw the service entirely, or cap fees at such low levels that no lender will provide the service. Anyone who’s familiar with the law of unintended consequences should be able to guess what happens next…

… I’ve come to realize that protecting freedom of choice in our everyday lives is essential to maintaining a healthy civil society.

Why do we think we are helping adult consumers by taking away their options? We don’t take away cars because we don’t like some people speeding. We allow state lotteries despite knowing some people are betting their grocery money. Everyone is exposed to economic risks of some kind. But we don’t operate mindlessly in trying to smooth out every theoretical wrinkle in life.

The nature of freedom of choice is that some people will misuse their responsibility and hurt themselves in the process. We should do our best to educate them, but without diminishing choice for everyone else.

Give up? How about George McGovern?

Ed Morrisey, writing at Hot Air, notes:

I find it fascinating that McGovern has transformed himself from a statist to a free-enterpriser simply because he left office. That isn’t a coincidence, and it explains why politicians tend to “grow in office” towards state-based solutions. After McGovern had to stop justifying his existence as a legislator, he discovered that legislators don’t need to intervene in the markets anywhere near as much as he presumed while in office.