China Envy

January 12, 2011

We are beginning to be envious of all things Chinese.  For some indication of this trend see the book on the superiority of Chinese mothers described (and mocked) in yesterday’s post.

I’ve seen this movie before when it was called Gung Ho.  And that movie sucked.  Is anybody else old enough to remember the late 1980s and early 1990s when media and policy elites were convinced that the Japanese had figured out better ways of doing everything and we needed to imitate them before we were crushed?  I specifically remember a bunch of education experts (and you know who you are) telling us that we had to imitate Japanese schools.  How did all of that work out?

I expect we are about to hear all of the same stuff, but this time it will be about the Chinese.  We need to parent like they do, eat like they do, run the economy like they do, etc… to imitate their success and prevent from being crushed by their superiority.

I don’t even believe the accuracy of the stereotypes we are supposed to emulate.  The Japanese were not all working together as if they were the same team.  Chinese parents do not all raise their children in the same way (nor do “Western” parents all do something different).  This is the worst kind of “pop” social science — incorrectly attributing the success or failure of a society to inaccurate stereotypes.

If you want a more accurate picture of China, see the photo at the top of this post.  And over the long run I cannot imagine that a centrally planned economy, like China’s, will be the one we need to emulate to prosper.  We have plenty of good social science to tell us that liberty, relatively free markets, and the fair rule of law are much better predictors of economic success.

Yes, China is gaining rapidly, but so did the Soviet Union when it fully mobilized its agrarian workforce into the industrial sector.  That type of growth levels off without markets to properly allocate capital, property rights to ensure that entrepreneurs can keep the fruits of their innovation, and liberty to critique the favoritism and corruption that undermine the fair rule of law.  China has been making some strides toward market allocations of capital, but remember that most of the banks are government controlled.  And property rights in China remain murky, which will hinder innovation.  And there isn’t much freedom to critique the government.  Without much more progress on these fronts I see little prospect of the Chinese overtaking us economically.

If you want to keep an eye on a rapidly growing developing country, I would look at India.  Yes, India is messy, complicated, and often inefficient, but that’s how freedom looks.  If they keep liberalizing their economy and politics, I see India growing much more rapidly over the long run.


Government Takeover of STEM

January 4, 2011

(Guest post by Greg Forster)

In his Sunday column, George Will advocated a government takeover of the economy. Well, not quite – but close.

Will points out, correctly, that the economy is really, ultimately driven by the discovery of new ways of serving human needs. From this, he concludes that the enormous government regime of subsidies (and consequent control) of “basic science” and other STEM (science, technology, engineering and math) research in universities must not only continue, but be dramatically expanded.

He makes the by-now standard argument for government control of STEM:

  1. STEM contributes to the economy through “basic science.”
  2. “Basic science” doesn’t yield useable results rapidly enough to show up on quarterly earnings reports.
  3. Businesses are incapable of seeing past quarterly earnings reports when making decisions.
  4. Therefore, only government (through its hired retainers in the universities) has a long enough time horizon to be entrusted with control of basic science, and hence STEM.

How is this wrong? Let me count the ways.

The error starts right at the beginning. “Basic science” is not what drives entrepreneurial innovation and economic flourishing. “Basic science” is part of the liberal arts and is not all that much different from the study of poetry. It’s about investigating the fundamental structure of the universe simply for the sake of understanding it – just like poetry, in a different way, investigates the fundamental structure of the universe simply for the sake of understanding it. Basic science not only doesn’t produce economic benefits on a quarterly basis, it doesn’t produce economic benefits at all (except insofar as it contributes generally to the maintenance of a humane culture). 

This matters because it is universities who fundamentally drive “basic science,” but not entrepreneurial innovation. There’s a reason Bill Gates had to leave Harvard to found Microsoft.

It’s entrepreneurially minded businesses that drive entrepreneurial innovation and economic flourishing. The assertion that businesses don’t support long-term innovation is false. Some do, some don’t. The ones that do are where the dynamism of the economy comes from. Google encourages employees to spend a set portion of their time working on side projects over which they have total control, and which are not expected to produce defined results; the Google News service was created as one such project. Yes, there are many businesses that can’t see past their quarterly earnings reports. But the solution to that is for a partnership of philanthropy and educational institutions to raise up a new generation of entrepreneurial leaders who can see past their quarterly earnings reports.

If business as a sector is congenitally and permanently incapable of long-term thinking, the United States is scrod, and we should all quit trying to save it.

The worst error is to think that government and universities are capable of better long-term strategic thinking than business. The opposite is the case. Just look at the outstanding examples of long-term strategic thinking we have before us in those sectors today – in government, $14 trillion debt with bailouts, nationalizations and endless Keynesianism (on the right and left) at home, and fecklessness and appeasement abroad; in the universities, a ridiculously unsustainable business model, the most dysfunctional labor policy (tenure) of any sector of society, and a total abandonment of the sector’s core function (education for human life) in favor of hyperspecialization of technical competencies.

The main difference between business and the government/university axis is that business occasionally does really take care for the long term.


Texas lends knife to suicidal California

November 24, 2010

(Guest Post by Matthew Ladner)

More great Kotkin on what is quickly turning into my favorite subgenre of economic discussion: Texas rules and Cali drools.


Lawyers, lawyers everywhere

October 27, 2010

(Guest Post by Matthew Ladner)

Four years ago or so I attended the graduation ceremony of Arizona State University’s law school. I remember thinking to myself that there were a rather large number of new attorneys walking across the stage. Later I was told that ASU is not considered a large law school,  and this was during the bubble years.

Now law students who went in hoping to wait the recession out are graduating heavily in debt and underemployed.

From the Slate article:

One Boston College Law School third-year—miraculously, still anonymous—begged for his tuition back in exchange for a promise to drop out without a degree, in an open letter to his dean published earlier this month. “This will benefit both of us,” he argues. “On the one hand, I will be free to return to the teaching career I left to come here. I’ll be able to provide for my family without the crushing weight of my law school loans. On the other hand, this will help BC Law go up in the rankings, since you will not have to report my unemployment at graduation to US News. This will present no loss to me, only gain: in today’s job market, a J.D. seems to be more of a liability than an asset.”

Hooo boy.


They Can’t Help It

October 13, 2010

Politicians lie.  Bless their hearts, they just can’t help it.  There are things that they want and they’ve discovered that it is much easier to get those things if they don’t tell us the whole truth.  And on some level we don’t really mind their lies.  We want them to get things done and we’ve just grown accustomed to it.  Besides, we all lie — at least about small things to facilitate daily living.  So who are we to expect better from our politicians?

But maybe we should hold our politicians to a higher standard of truthfulness.  After all, they do have a legal and moral responsibility to us.  And their fibs have a much broader impact on other people than the lies of us regular people because they have power over the rest of us.

I’ve been thinking about all of this as I’ve been watching the machinations of local politics in Fayetteville.  If the politicians were honest they would just announce that they want to raise our taxes, reduce spending on the popular trail system, and don’t really advocate for the interests of most businesses.  But politicians can’t just tell us what they want.  They have to lie.

Earlier this year city officials asked us to approve a referendum allowing the portion of the HMR tax that was dedicated to the development of parks to no longer have that restriction.  They assured us that our parks won’t get cut.  They just wanted more “flexibility.”

At the time I predicted that the “flexibility” they were seeking was to cut park development spending, including for further construction of our wonderful trail system.  Sure enough, that is exactly what Alderman Bobby Ferrell proposed yesterday.  According to the Northwest Arkansas Times, “Ferrell suggested cutting money budgeted for trail improvements…”  I could have told you that they were lying when they said they only wanted “flexibility” over HMR tax proceeds, but then again I actually did tell you.

And no one should be fooled by the falsehood that Steve Clark, the head of the local Chamber of Commerce, advocates for the interests of businesses.  He doesn’t.  First, the Chamber only represents existing businesses, not future businesses.  Unfortunately, existing businesses often favor regulations and other barriers to entry that would protect them from competition from yet-to-be-created businesses.  There is no greater supporter of government-enforced monopolies than businesspeople.  So, no one should confuse the Chamber of Commerce for an organization that advocates free-market policies that facilitate business formation and growth.

Second, Steve Clark doesn’t even appear to represent the existing businesses in Fayetteville.  He and the Chamber clearly didn’t do a good enough job of advocating for local businesses to convince enough of them to pay the voluntary dues to keep him and the Chamber in the lifestyle to which they are accustomed.  So, they convinced the city to tax businesses to pay the Chamber. Yes, they called the tax a “business license fee,” but that is just part of the honesty-challenged pattern. Steve Clark doesn’t really work for local businesses.  He works for the city since a large chunk of his salary is paid by the city and not by voluntary dues to the Chamber.

If you don’t believe me that Steve Clark really represents the interests of city government and not business interests, just listen to what he said in support of the latest proposal to increase the city’s property tax. According to the Northwest Arkansas Times: “Steve Clark, president of the Fayetteville Chamber of Commerce, said avoiding major cuts in city services, such as fire, police and sanitation, are his main priorities when it comes to finding ways to balance the budget.” (emphasis added)

I thought that protecting city worker jobs was the main priority of their unions or the politicians beholden to those workers.  Advancing the interests of business is normally the main priority of the Chamber of Commerce, but I guess that changes when the Chamber staff effectively become city employees along with the police, firefighters, etc…

“Lie” is such a strong word that we have developed more polite terms for this regular behavior by politicians.  We call it “spinning” or “packaging.”  We have these more polite terms because it is probably unfair to expect politicians to avoid distorting or shading the truth altogether.  They have to do it to get what they want done.

The problem is when we no longer recognize what is spin and what is truth.  If we get fooled into believing that “flexibility” means something other than “cutting” and that the “Chamber of Commerce” necessarily means “business interests” we are the ones to blame, not the politicians.  It’s part of their job to lie (or spin) and it is our job to be suspicious.  Unfortunately, our local media and elites are overly credulous.


So Put All the Blame on VCR…

October 11, 2010

(Guest Post by Matthew Ladner)

Interesting read from James Surowiecki on how Netflix killed Blockbuster, and how Netflix itself could be next. Blockbuster’s “Clicks and Mortar” strategy turned out to work about as well as “balanced literacy.”

I suspect however that “Clicks and Mortar” has a brighter future in education if we can get the education market to reflect a small fraction of the dynamism of the movie rental market.


Obama Believes in Trickle-Down?

September 7, 2010

I know the Obama Administration is scrambling to do something about lackluster employment and growth figures to lessen gigantic Democratic losses in the mid-term election.  But I am completely puzzled about why their latest stimulus proposal involves granting large corporations tax breaks for new capital investment.  Does the Democratic Party now believe that the best way to stimulate the economy is to give big corporations tax breaks in the hopes that this will trickle-down to help the middle and lower classes?

I know that this is a targeted tax break, but they way in which it is targeted makes it all the less likely to spur job growth.  Most job growth comes come from small businesses.  Small businesses tend not to be capital intensive, so a tax break for capital investments should make little difference for them.  In addition, most of our economy is in the service sector, which also has relatively little capital investment.  A tax break for new capital investment shouldn’t make much of a difference there either.

The main beneficiary of a capital investment tax break would be large corporations in the manufacturing sector.  That’s a relatively small and shrinking sector of our economy, regardless of tax policy.  And fueling capital investment in the manufacturing sector may well reduce the number of jobs — rather than create more jobs — since the trend in that sector has been to substitute capital for labor.  As companies build new and improved manufacturing facilities they tend to need fewer people to operate those machines and build things.

If the Obama Administration thinks tax breaks lead to trickle-down benefits, how about if they focus on reducing capital gains and dividend taxes, which would broadly encourage investment in the service and manufacturing sectors?  This would also benefit small as well as large businesses and would reward the investment in people as much as machines.  Instead the Obama Administration seems determined to raise capital gains and dividend taxes.  Things that make you go hmmmm.


A Canadian Path out of Debt Quagmire

June 27, 2010

 

(Guest Post by Matthew Ladner)

Excellent article in FP making the point that Canada looked into the yawning maw of a Greek style debt crisis 15 years ago and stepped away from it. Now they are doing quite nicely.

UPDATE: Paul Krugman doesn’t get it.


Computers Hurt Children

June 21, 2010

(Guest Post by Stuart Buck)

Helen Ladd and Jacob Vigdor have a new CALDER Center/NBER working paper looking at how home computers and broadband access help students. (Interestingly, an earlier version of the same paper listed Charles Clotfelter as a third author.)

Turns out that home computers harm students:

Do students’ basic academic skills improve when they have access to a computer at home? Has the introduction of high‐speed internet access, which expands the set of productive tasks for which home computers might be used, caused further improvements? This paper addresses these questions by studying administrative data covering the population of North Carolina public school students between 2000 and 2005, a period when home computer access expanded noticeably, and the availability of home high‐speed internet rose dramatically.

. . .

Models with student fixed effects, which restrict identification to within‐student variation, by contrast, show modest but statistically significant negative impacts. In these models, we can trace the impact of home computer introduction for periods of up to three years; there is no indication that the negative effect of access diminishes over this time period. . . .

Similarly, the introduction of high‐speed internet service is associated with significantly lower math and reading test scores in the middle grades. Moreover, student fixed‐effect specifications reveal that increased availability of high speed internet is associated with less frequent self‐reported computer use for homework. On the margin, then, access to broadband internet appears to crowd out studying effort, presumably by introducing new options for recreational use by students and other family members. In addition, we find that the introduction of broadband internet is associated with widening racial and socioeconomic achievement gaps.

Gee, I wonder why giving kids computers would drag down academic achievement. Aren’t they all using computers to do math problems, read classics on the Gutenberg Project, watch science videos, etc.?


Greece Ordered to “Consider” Privatizing Health Care

May 19, 2010

(Guest post by Greg Forster)

Under the latest amazing plan, it’s not just the Germans who will be paying for 45-year-old Greek hairdressers to retire to the beaches of the Agean. You and I have that privilege now, too, via a special deal that funnels US taxpayer dollars to the Greece bailout via the IMF.

But it gets better. Real Clear Markets (with story attribution to Investor’s Business Daily) reports the following jaw-dropper:

Greece was told that if it wanted a bailout, it needed to consider privatizing its government health care system. So tell us again why the U.S. is following Europe’s welfare state model.

The requirement, part of a deal arranged by the IMF, the European Union and the European Central bank, is a tacit admission that national health care programs are unsustainable. Along with transportation and energy, the bailout group, according to the New York Times, wants the Greek government to remove “the state from the marketplace in crucial sectors.”

Let’s save the schadenfreude for another time. (Like maybe a time when we might be more able to rise to the challenge of resisting the temptation to indulge our schadenfreude.) Inquiring minds want to know: who demanded this requirement?

The Obama administration?

The Germans?

The French?

The EU bureaucracy?

Is there anyone who could plausibly be behind this without being an astonishing hypocrite?


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