Blackboard Economics e.g.

In this post on his blog, Arnold Kling links to a post from Daniel Little that says:

the idea that a properly functioning market economy will tend to reduce poverty and narrow the extremes of income inequality has been historically refuted — at least in the case of American capitalism.

Little provides supports this claim with two charts.

I think this is a good example of what Ronald Coase refers to as Blackboard Economics. That is, on paper, Little may be making a good point, but reality doesn’t support. Look out the window of real life and things are different.

Markets-in-everything: Morons

I was in the process of writing a response to Alison Benedikt’s Slate piece, If You Send Your Kid to Private School, You Are a Bad Person, but David Henderson of EconLog makes the same point that I was going to make, and does it better:

 In short, Ms. Benedikt admits that she didn’t learn much [from her bad education]. And in her piece, she illustrates that fact beautifully.

Though, I can well imagine that Ms. Benedikt would respond, but I’m doing fine. Great. She has discovered that there is a market for morons. That is too bad.

Why didn’t I think of that?

Immerse yourself in a game as you run with the Zombies, Run! app. On your run, you’ll get to pick up munitions for your base and outrun heavy breathing zombie herds.

What a fantastically creative way to shake up those boring trods and add some sprints and interval workouts.

Sometimes innovations seem so obvious. I’m amazed it took so long for something like this to emerge. Can’t wait to see what follows.



“…by the content of their character”

I think it is important to remember this part of MLK’s speech:

I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character.

Unfortunately, there is a tendency to confuse judging the content of character with the judging of other things like skin color.

This is a feedback problem. The reactions we get from how we behave are feedback that signal when our behavior is acceptable and unacceptable to others.

If it is made easy to believe that changing our behavior will not change the reactions we produce in others when we behave unacceptably, because we attribute their reaction to something else (like skin color), then we are less likely to change our behavior.

In his book, Black Rednecks and White Liberals, Thomas Sowell traces the origin of the collection of behaviors that we recognize today as the ‘thug’ and ‘redneck’ cultures. He hypothesizes that these are evolved versions of the same culture with the same origin.

He also shows that both of these cultures were waning in American society through the first half of the 20th century, due to normal societal feedbacks that encouraged politeness, productivity, self-reliance and cooperation. However, the introduction of the welfare state reversed this course among both blacks and whites, because it enabled folks to get by without adopting these virtues.

Sowell also shows, remarkably, that the behaviors commonly associated with these cultures tend to produce the same reactions in others no matter the skin color of the person practicing them.

I recommend reading it.

How about some critical thinking and a better understanding of economics?

It’s been 50 years since Martin Luther King Jr.’s I Have a Dream speech. According to some influential folks in my local paper there is still much to achieve.

Here are some of the things they graded poorly:

  • Education — Schools aren’t desegregated enough and bad in areas where blacks live.
  • Voting — Even though black voter turnout exceed white turnout in the 2008 and 2012 presidential elections (as reported by the article), the expert gives voting a “D” because the Supreme Court overturned a 1965 law requiring some states to seek Federal approval in changing voter laws.
  • Wages & jobs — The inflation-adjusted minimum wage is lower and black unemployment is higher than 1963, so that’s bad.
  • Poverty — The poverty rate among blacks dropped from 55 percent four years before 1963, but bounces around in the 20s. The expert gave this an “F”.

The solutions these folks proposed? More government action. I recommend these influential folks, and anybody who agrees with their solution, read the following:

1. Race and Economics: How Much Can Be Blamed on Discrimination? by Walter Williams.

2. Thomas Sowell’s Basic Economics, now in its 4th edition.

Ben Carson had some good things to say on the subject. I thought this one about education is especially poignant:

King was a huge advocate of education and would be horrified by the high dropout rates in many inner-city high schools. He, like many others, was vilified, beaten and jailed for trying to open the doors of education to everyone, regardless of their race.

If he were alive today, he would have to witness people turning their backs on those open doors and choosing to pursue lives of crime or dependency.

Innovation Clinic

In a recent issue, Forbes held a valuable camp on innovation.

First, I agree with what Leonard Schleifer, CEO of Regeneron (a drug research company), had to say about innovation in his Entreprenuer Clinic in Forbes.

I believe that companies rot, and they rot from the top down. Too often the keys to the kingdom are given to commercial folks who don’t value long-term research. When you don’t value something, you don’t get good results from it, and the bottom line is that then, all of a sudden, the long term becomes the short term, and you don’t have anything.

“Focus” is a dirty word for us, okay? It’s a big mistake to think that you can pick the very best thing that you should focus on and then ignore all the other things. Wouldn’t it be wonderful if we could pick only the things that work in our business? Amgen’s new CEO, I heard, said they only were going to work on the things that work. Good luck to him. We are just not that smart.

Second, the short description of the article, The Secret to Unleashing Genius, says a lot:

Companies suffer when the boss comes up with all the new ideas. Shrewd leaders build organizations that think for themselves.

I’ve seen my share of executive teams where the long-term turned into the short-term and they didn’t have anything and where they were never willing to admit that they are just not that smart.

I think realizing that, is the key that the “shrewd leaders” understand and why they build organizations that think for themselves.

However, in depressing news, Forbes had this article where Google appears to be headed the other direction in what Larry Page described as “more wood behind fewer arrows”.

Google previously had a rule that you could spend up to 20% of your time on side projects. Now they are pulling that rule back a bit. The author of the piece asks a good question:

Now that Google has put some rules  around “20% time,” the one day a week an employee spends on side projects, people are having a field day forecasting the end of innovation at the company that claims to “use their powers for good, not evil.” To those people, I ask one question: Can a company in today’s highly competitive environment survive if they allow 1/5th of their employees’ time to be devoted to work that has no clear alignment with the company’s strategy?

Her answer: “of course not.”  I think there’s a better answer: Google’s stock price. Apparently it has been working for them, so far. In the words of Leonard Schleifer, ‘good luck to him.’

Update: Brian Carney and Isaac Getz agree with my take on Google’s rule change in the Wall Street Journal.

A message we should hear more about

From this article about some conservatives who were disappointed with the “flavor” of the events commemorating the 50th anniversary of MLK’s famous speech (via Instapundit):

Mia Love, the Republican mayor of Saratoga Springs, Utah, is black and was born in Brooklyn, N.Y.

She contends that modern-day civil rights activists, in league with the Democratic Party, de-incentivize personal responsibility and economic independence.

Bad Teacher

I can’t believe the incredible luck we’ve been having here in discussing a topic and then hearing that topic discussed elsewhere.

I post about Nations Going Into Retirement, then almost immediately hear Jagdish Bhagwati saying something similar on EconTalk about India.

I post about the American Dream, ideals vs. materialism, and then hear a pertinent quote about that on a Harvard Business Review Ideacast.

I posted about how Teachers Matter. This week’s EconTalk has guest, Eric Hanushek, discussing education. In his research, he has convinced himself that teachers matter more than most things in education.

Further, commentator, Wally, brought up the topic of Finland’s successful education in the comments of my Teachers Matter post. Hanushek discusses that very topic in the podcast. I was skeptical that the story Wally linked to provided all the answers. Hanushek is skeptical that Finland’s success can be explained with any small number of factors. But, he does think teachers matter there, too. He said that he’s not sure why, but teaching is a revered profession in Finland so it naturally attracts good teachers. He also believes local choice — among administrators and parents — contributes, but still thinks teachers matter most there.

Hanushek says that a key reason U.S. education lags other countries, as measured by test results, is that we don’t have a good mechanism for eliminating the bad teachers, whereas education systems in other countries are more open to that. He’s not even talking about making every teacher great. Just getting rid of the bad ones will help. Even when it’s obvious, when most parents at the school and most teachers can point to the two or three bad teachers, nothing can be done.

Nations in retirement: reposted

After writing about Peggy Noonan’s observation that the American dream turned from a set of ideals to material things, it got me thinking about how mature, wealthy societies resemble retired people who have left their productive years behind them and are primarily concerned with preserving their living standards through retirement on the wealth they managed to accumulate in those productive years — with a couple critical differences.

One, retired people are aware of their limited nest eggs.

Two, they understand that by preserving their life style they are consuming their wealth, rather than creating more.

Once nations, states, counties or cities get wealthy enough, it seems like a great deal of attention and energy goes into preserving and extending what previous generations would have considered luxuries to everyone as basic rights.

This thought triggered when I recently read something that suggested that the USA was behind the times because it does not yet have government-mandated paid family medical leave.

Sounds good, but that’s a consumption of resource, not a creator of it.

We seem to understand that when we look at it on the individual level. An alternative to paid family medical leave is to expect people who are planning families and want to take time off when their children are born, to arrange their affairs to do so. That might mean saving up so they will have funds to pay bills while they take time off, buying a smaller house, getting by with one less 50″ TV — or whatever.

We know that when new Daddy and Mommy take off 4 weeks and uses their savings to pay bills, that they are consuming resources. However, push that expectation for savings to their employers with paid family leave and — poof — some see that as adding value to society, as if the employers’ pockets are an unlimited magical fountain that can be tapped to provide the acceptable living standard.

But, every time we go to the magical fountains of employer or taxpayer wallets, we put our nation more in retirement and hamper the very processes that created the wealth that made these luxuries possible in the first place.

Whether the ‘right’ is guaranteeing everyone a living wage, making sure everyone has a comfortable retirement, a free education, resources to make it through a period of unemployment, “free” medical care — we very rarely recognize these as consumption of the nest eggs built by productivity of the free market.

We rarely consider that our relatively recent ancestors would have considered such things as kingly luxuries or why it is that we can even afford to be talking about such things.

Reposted:  This is a repost of an earlier post from a few days ago. There were some technical difficulties in readers that I could not figure out how to correct, so I thought it best to delete that post and try again.