Diversifying the Workforce, Then and Now

Do you remember what you were doing ten years ago today? Larry Summers was at the NBER, making some remarks as president of Harvard University at a conference on "Diversifying the Science and Engineering Workforce." Those remarks, widely misunderstood in real time and even today, are posted here. Larry lays out his thesis in the second paragraph:

There are three broad hypotheses about the sources of the very substantial disparities that this conference's papers document and have been documented before with respect to the presence of women in high-end scientific professions. One is what I would call the-I'll explain each of these in a few moments and comment on how important I think they are-the first is what I call the high-powered job hypothesis. The second is what I would call different availability of aptitude at the high end, and the third is what I would call different socialization and patterns of discrimination in a search. And in my own view, their importance probably ranks in exactly the order that I just described.

It was the second hypothesis that got Larry into so much trouble. Later in his remarks, he was making a point that is illustrated by the following picture:

The point he made was that if you have two distributions of ability with the same mean but with different variances, then if you look at the extreme tails of the distribution -- here, the ability required to compete for a position in the most selective academic departments -- even a slight decrease in variance will result in a vast under representation of the less variable group. (In the picture above, imagine drawing a vertical line right where the arrow from s2 is placed -- no members from the first group are above that ability level.) Larry's second hypothesis was that the variance of the distribution of female ability was less than that of males. Suggesting in the paragraph quoted above that this had more to do with observed under representation of women in academia than his third hypothesis -- more conventional discriminatory behavior within the professions -- is likely what started the trouble stemming from the remarks. (I blogged about them ten years ago here.)

The broader issues to which Larry was speaking have not gone away.  Ignoring the statistical point in Larry's second hypothesis, his first hypothesis focused on factors that don't favor women that exist across society -- that within households, given current laws and regulations, women tend not to get the same support as men to pursue high-powered careers. The third hypothesis focused on factors that don't favor women that exist within a given profession. On this third hypothesis, my own field of economics is in the midst of some constructive reflection. Some good examples are pieces by Noah Smith in Bloomberg View in November, "Economics Is a Dismal Science for Women," and by Miles Kimball and an anonymous female co-author in Quartz earlier this month, "How Big is the Sexism Problem in Economics?"

Noah, who blogs at Noahpinion, refers to a recent article in Psychological Science in the Public Interest that draws the following conclusions about most math-intensive fields:

We conclude by suggesting that although in the past, gender discrimination was an important cause of women’s underrepresentation in scientific academic careers, this claim has continued to be invoked after it has ceased being a valid cause of women’s underrepresentation in math-intensive fields. Consequently, current barriers to women’s full participation in mathematically intensive academic science fields are rooted in pre-college factors and the subsequent likelihood of majoring in these fields, and future research should focus on these barriers rather than misdirecting attention toward historical barriers that no longer account for women’s underrepresentation in academic science.

However, the paper notes that Economics remains an outlier in a few respects, including promotion and compensation.

Miles, who blogs at Confessions of a Supply Side Liberal, goes on to provide a list of the various, sometimes subtle ways, the path to the top of the profession in economics is still steeper and rockier for women compared to men. I don't think there is a mindset within economics that is unfavorable to women. But a neutral mindset does not always lead to neutral behavior, and as a profession, this is an issue that we should all take seriously.

Insurance for the Nation's Health

Mark McClellan will be on campus tomorrow to deliver the Rockefeller Center's first lecture in a series commemorating the 100th birthday of Nelson Rockefeller. (Read more here.) Mark's will lecture on "Universal Health Care," a topic that Governor Rockefeller championed more than four decades ago and that remains a leading policy issue today.

In doing some research for the event, I came across this Nixon-era article in Time magazine from May 11, 1970. Here's the big finish:

While every American may be entitled to at least adequate health care, he is not getting it, and will not, until a momentous national debate reaches election-year levels of acrimony and is somehow resolved.

The issue has already been injected into this year's elections by Democrat Theodore C. Sorensen, campaigning for the U.S. Senate from New York, who last week announced his own plan for "universal health insurance." Apart from such standpatters as the A.M.A. and its arch-conservative Republican allies, there is a growing consensus that some national insurance blanket must be thrown over the ailing body of health care.

It may prove to be more of a patchwork quilt, with multicolored squares for sections covered by contracts with a variety of private insurers. If administration is not made too cumbersome, that would be far better than the present non-system with its huge gaps. Walter McNerney, president of the Blue Cross Association and head of a task force soon to report to the President on the nation's health needs, believes that a monolithic system operated by HEW would be wildly inflationary—and not sufficiently innovative. He wants a flexible, pluralistic plan.

But when? The principal difference between proponents of progress is over whether to put the cart of medical-care delivery before the horse of manpower resources, and let the resources catch up with the overburdened cart—or to take the time to breed more medical horses. That means waiting years for the country's health education system to produce many thousands more doctors and tens of thousands more paramedical personnel. Secretary [of Health, Education, and Welfare Robert H.] Finch sincerely believes that the modest expansions of federal health programs that he has submitted to Congress are important steps in the right direction, but will not commit himself to true national insurance. His chief assistant for health affairs, Under Secretary Roger O. Egeberg, thinks that some such plan may very well evolve in "six to seven years." His prognosis is as good as any.

Read the whole thing, to get an idea of what has changed and what has remained the same in this debate, and be sure to stop by Mark's talk tomorrow evening if you are on or near campus.

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2007

Shorter version: Leo Hurwicz, Eric Maskin, and Roger Myerson share the Nobel Prize in Economics this year for "having laid the foundations of mechanism design." Here's more:

Adam Smith's classical metaphor of the invisible hand refers to how the market, under ideal conditions, ensures an efficient allocation of scarce resources. But in practice conditions are usually not ideal; for example, competition is not completely free, consumers are not perfectly informed and privately desirable production and consumption may generate social costs and benefits. Furthermore, many transactions do not take place in open markets but within firms, in bargaining between individuals or interest groups and under a host of other institutional arrangements. How well do different such institutions, or allocation mechanisms, perform? What is the optimal mechanism to reach a certain goal, such as social welfare or private profit? Is government regulation called for, and if so, how is it best designed?

These questions are difficult, particularly since information about individual preferences and available production technologies is usually dispersed among many actors who may use their private information to further their own interests. Mechanism design theory, initiated by Leonid Hurwicz and further developed by Eric Maskin and Roger Myerson, has greatly enhanced our understanding of the properties of optimal allocation mechanisms in such situations, accounting for individuals' incentives and private information. The theory allows us to distinguish situations in which markets work well from those in which they do not. It has helped economists identify efficient trading mechanisms, regulation schemes and voting procedures. Today, mechanism design theory plays a central role in many areas of economics and parts of political science.

Congratulations to all three. Here's the official word.

Conservatives in Academia

Some recent remarks by Larry Summers (reported here) about the dearth of ideological diversity on university campuses have prompted a number of posts at my usual blog reads, George Borjas and Greg Mankiw among them.

Here's what was reported about Summers:

Noting that he had served in the Clinton administration, Summers said he identified strongly as a liberal and a Democrat, but that while in Washington he viewed himself as being on “the right half of the left,” in Cambridge, he landed “on the right half of the right.”

In advance of the symposium, Summers ran some numbers from the study. He focused on elite graduate universities and on what he defined as core disciplines for undergraduate education (excluding health professions, for example). When conducting such an analysis, Summers said, he found “even less ideological diversity” than he thought he would, and that in the humanities and social sciences, Republicans are “the third group,” after Democrats and Nader and other left-wing third parties.

Considering his own treatment by the ideological Left at Harvard, "even less ideological diversity" than he was expecting must be pretty low.

In a post written 30 months ago, which began, "I should have my head examined for getting into this discussion," I wrote, in response to an op-ed by Paul Krugman:

I agree with the general terms that Krugman uses to frame his explanation:

The sort of person who prefers an academic career to the private sector is likely to be somewhat more liberal than average, even in engineering.

But I do not buy into the remainder of his argument, which can be loosely paraphrased as not enough conservatives believe in the virtue of scholarship to get enough of them to be interested in the academy. Rather, I think the explanation for why liberals outnumber conservatives is that they actively like the way the academy is organized.

I then went on to liken an elite university to a "kibbutz hooked up to an ATM." I commend the whole post to your attention, so that you can see my explanation for the simile.

Taking all of that as background, I would add now that, at present, we are in a low point for conservatives or Republicans self-identifying as such among academics. The reason, I believe, is that my paraphrase of Krugman's argument regarding the virtue of scholarship--while it is not true for most of the conservative- or Republican-leaning people whom I know--seems to be a pretty good characterization of the top Republican in the White House. (And this is coming from someone who spent a year working at the CEA for this Administration and, despite the ample misgivings I have aired on this blog, would do so again.)

Here's a small prediction. When there is a new person in the White House, particularly if it is a Democrat who now has to take on the responsibilities and potential failures of governing rather than merely criticizing the job that others are doing, we will see a bit less self-identification as Democrats or liberals and a bit more as Republicans or conservatives. It won't be anything close to parity in the academy, by virtue of the organization of the academy that I discussed in the earlier post, but it won't be quite so shocking to observers and analysts.

Alan Greenspan, Meet Irony

There have been a number of posts about the morsels of revisionist history in Alan Greenspan's new memoir, The Age of Turbulence. I think Brad DeLong gets the indictment exactly right toward the end of his book review:

One piece of this third book is worth noting: Greenspan's defense of his tenure as Fed chief. Why does he need a defense? Thirty-five out of 36 decisions is a very good batting average. But one could indict him on four counts: that he should not have, but did, support the Bush tax cut of 2001; that he should not have, but did, encourage new U.S. homeowners to get adjustable-rate mortgages -- ARMs -- in the early 2000s; that he should have done something to abort the dot-com bubble of the late 1990s; and that he should have done something to prevent the real estate bubble of the 2000s.

The first two counts are misdemeanors, and Greenspan pleads guilty. He says that he was warned that his testimony on the proposed 2001 tax cut would send a different message than he intended and that he ignored those warnings, which proved correct. Greenspan says his support for a tax cut was nuanced and partial, provided there were triggers to prevent budget deficits but that his statements were interpreted by the news media and politicians as a blanket endorsement. He adds that he did not understand how institutionally corrupt and thus unconcerned about good budget policy his Republican Party had become by early 2001. He says he did not properly understand in the early 2000s the large effect low teaser interest rates and prepayment penalties would have in leading new and financially strapped homeowners into deals that were not in their best interest.

The other two counts could be considered economic felonies, and here Greenspan stands his ground. Given the state of investor psychology, he says, he could have aborted the stock market and housing bubbles of the late 1990s and the early 2000s but only by paying an unacceptable price in idled factories and unemployed workers. He may be right and he may be wrong in this judgment -- I don't know. I do know that this is a judgment call, a difficult aspect of monetary policy.

I find it fascinating that someone whose tenure as Fed Chair was aptly characterized by the paraphrase, "If you understood what I said, then I must have misspoken," would now be complaining that his statements in support of the President's tax cuts in 2001 were misconstrued.

Global Climate Change

Catching up on my reading after some recent travels, I notice an excellent symposium on "Global Climate Change" in the latest Economists' Voice, with contributions from Joseph Stiglitz, Sheila Olmstead and Robert Stavins, Kenneth Arrow, and Thomas Schelling. The first and the last were particularly interesting.

From Stiglitz, arguing for a global environmental tax on emissions:

The big advantage of taxation over the Kyoto approach is that it avoids most of the distributional debate. Under Kyoto, getting the right to pollute more is, in effect, receiving an enormous gift. (Now that pollution rights are tradeable, we can even put a market value on them.) The United States might claim that because it is a larger country, it "needs" more pollution rights. Norway might claim that because it uses hydroelectric power, the scope for reducing emissions is lower. France might claim that because it has already made the effort to go into nuclear energy, it should not be forced to reduce more. Under the common tax approach, these debates are sidestepped. All that is asked is that everyone pay the social cost of their emissions, and that the tax be set high enough that the reductions in emissions is large enough to meet the required targets.

Greg Mankiw has previously confirmed Stiglitz' entry into his Pigou Club. From Schelling, a good discussion of how to appreciate the uncertainty of projections of climate change:

In some public discourse, and in sentiments emanating from the Bush Administration, it appears to be accepted that uncertainty regarding global warming is a legitimate basis for postponement of any action until more is known. The action to be postponed is usually identified as “costly.” (Little attention is paid to actions that have been identified as of little or no serious cost.) It is interesting that this idea that costly actions are unwarranted if the dangers are uncertain is almost unique to climate. In other areas of policy, such as terrorism, nuclear proliferation, inflation, or vaccination, some “insurance” principle seems to prevail: if there is a sufficient likelihood of sufficient damage we take some measured anticipatory action.

At the opposite extreme is the notion, often called the “precautionary principle” now popular in the European Union, that until something is guaranteed safe it must be indefinitely postponed despite substantial expected benefits. Genetically modified foods and feedstuffs are current targets. (One critic has expressed it as, “never do anything for the first time.”) In this country the principle says that until a drug has proven absolutely safe it must be deferred indefinitely.

Neither of the two extreme principles—do nothing until we are absolutely sure it’s safe; do nothing until we are absolutely sure the alternative is dangerous—makes economic sense, or any other kind. Weigh the costs, the benefits, and the probabilities as best all three are known, and don’t be obsessed with either extreme tail of the distribution.

Kudos to Lawrence Goulder for putting this together as special editor.

Where's Your Brain?

If you ever wondered whether there was a place in the online world where the use of Google was prohibited, I have a candidate for you. How else would we politely explain Matt Stoller's post at MyDD, "Where's Your Core?" in which he refers to Jeff Liebman as a "Cato-infused nut?"

At issue is Jeff's position as one of Barack Obama's top economic advisors and his status as a co-author of the LMS plan to reform Social Security. Stoller quotes a Bloomberg article as follows:

Liebman, an expert on Social Security, isn't easily pigeon- holed either. He has supported partial privatization of the government-run retirement system, an idea that's anathema to many Democrats and bears a similarity to a proposal for personal investment accounts that Bush promoted, then dropped in 2005.

``Liebman has been to open to private accounts and most people in town would say he's a moderate supporter of them,'' said Michael Tanner, a Social Security expert at the Cato Institute in Washington, a research organization in Washington that advocates free markets and often backs Republicans.

In a 2005 policy paper Liebman, along with Andrew Samwick of Dartmouth College in Hanover, New Hampshire, and Maya MacGuineas, a former aide to Senator John McCain, advocated a mix of benefit cuts, tax increases and mandatory personal accounts to shore up the system, which will begin paying more in benefits than it takes in through taxes by 2017 under current actuarial estimates.

Obama has called Social Security's problems ``real but manageable'' and has pledged to preserve what he's called the ``essential character'' of the pension program.

If they allowed the use of Google at MyDD, then Stoller might have typed in "jeffrey liebman" "social security" and hit return. The first link would be to this description of the LMS plan, the first paragraph of which is:

The three of us – former aides to President Clinton, Senator McCain, and President Bush – did an experiment to see if we could develop a reform plan that we could all support. The Liebman-MacGuineas-Samwick (LMS) plan demonstrates the types of compromises that can help policy makers from across the political spectrum agree on a Social Security reform plan. The plan achieves sustainable solvency through progressive changes to taxes and benefits, introduces mandatory personal accounts, and specifies important details that are often left unaddressed in other reform plans. The plan also illustrates that a compromise plan can contain sensible but politically unpopular options (such as raising retirement ages or mandating that account balances be converted to annuities upon retirement) -- options that could realistically emerge from a bipartisan negotiating process, but which are rarely contained in reform proposals put out by Democrats or Republicans alone because of the political risk they present.

It's hard to see what's so inflammatory about that. If I had to guess, it's either "bipartisan negotiating," "compromise plan," or "personal accounts." Let's give Mr. Stoller the benefit of the doubt and assume he understands that the first two are essential to getting any substantive public policy implemented. So it must be those "personal accounts."

Where oh where could Mr. Stoller find the answer to his conundrum of how a top advisor to Senator Obama could support such things? This is where that Google thing helps again. Mr. Stoller could click on the second link in the search, in which he would find the following excerpt from an interview with Jeff:

Q: Why are personal retirement accounts such an important element to the Social Security system as we move forward?

Liebman: The benefit of having personal retirement accounts in the plan is that if we’re going to spread the burden across generations and start putting some extra revenue into the system now, we need to have a way to save that money so that it doesn’t get diverted to other purposes, as the current Social Security surplus often does. If you bring in new revenue but put all of the net new revenue into personal retirement accounts, then you have a way to spread the burden across even current workers in terms of making extra contributions today, but to do so in a way that you can really be sure is going to be contributing to people’s retirement incomes in the future.

Yes, that's a very sinister explanation--you cannot reliably prefund without personal accounts. If Mr. Stoller would like to take the opposite position--that, for example, President Bush's budget policies have not spent the Social Security surpluses during his time in office--he's welcome to do so.

I don't know how Senator Obama would fare as President, but it seems pretty clear that he's better off with Liebman as an advisor than Stoller as a supporter. As I wrote regarding some earlier criticism of the LMS plan, "If you fancy yourself a liberal, and if your coalition doesn't extend far enough to the right to include Jeff Liebman, then you have relegated yourself to political irrelevance."

Normally, this is the part of the post where I would suggest that we raise some money to help Mr. Stoller afford a decent search engine. But search engines are free and improving the quality of the posts at MyDD may be impossible. Making progress against Cystic Fibrosis is neither. The pledge drive is still on. You can support our team at Great Strides or make donations directly to the Cystic Fibrosis Foundation in honor of Mother's Day.

Race and Performance in the NBA

The New York Times article this week about the study of racial bias in NBA officiating by Joseph Price and Justin Wolfers generated quite a bit of commentary. What is amazing is how little people understand, or are willing to understand, about statistics. Here's what the authors claim in the abstract of the study:

We find that--even conditioning on player and referee fixed effects (and specific game fixed effects)--that more personal fouls are awarded against players when they are officiated by an opposite-race officiating crew than when officiated by an own-race refereeing crew.

Much of the reaction among sportswriters has been to take the authors to task for calling the refs racist. (See Mike Wise in his column in Thursday's Washington Post and Kevin Hench at FoxSports.) Having taken a look at the study myself, I am surprised that those who make a living based on the sport would be so dismissive of the result. The main result of the paper is that the foul rate (fouls called per 48 minutes played) increases for black players when the racial composition of the three-person crew of referees goes from black to white. (See Table 4 and the discussion on page 8.) Any honest sportswriter should hold the NBA accountable for the result--why are the outcomes for fouls different across different racial configurations of refs and players?

It is very difficult to posit an explanation for these results that would attribute them to something other than race. First, no one disputes the NBA's claim that it does not assign referees to games based on their race or the racial composition of the two teams. (See page 4 and Table 1 of the study for discussion and evidence.) With (conditionally) random assignment, and the fact that the explanatory variables are fixed characteristics of people (i.e., race), we have the conditions for a clinical trial here, where "controlling" for possibly confounding factors is not likely to be important. Second, the authors do in fact control for a number of "fixed effects," exploiting the fact that their dataset is a panel consisting of a limited number of individuals observed in numerous interactions. This includes characteristics of the player and the refs that don't change over time. As the authors note, the most comprehensive results "are identified only off the differential propensity of teammates to earn extra fouls when the refereeing crew is of the opposite race."

Having said that, I think the authors soft-pedal one possible explanation of the results that would exonerate the refs. The following passage appears on pages 12-13:

The fourth point speaks to a relatively subtle interpretation issue: while we document a correlation between a player’s foul rate and the race of the referee, this may reflect the players responding to the race of the referees, rather than the referees policing opposite-race players more aggressively. Strategic responses by players would lead to an attenuation bias: expecting to receive more fouls for a given style of play, the players may play less aggressively, minimizing the impact of referee discrimination on realized fouls. This suggests that our results understate the amount of discrimination. Alternatively, if players exhibit oppositional responses, they may play more aggressively when policed by the opposite race. Importantly, such oppositional responses suggest that our findings are driven by changes in player behavior, rather than referee behavior. Yet if this were driving our results, one might expect to see effects not just on the number of fouls earned, but on the likelihood of fouling out, as well as other indicators of aggression, including blocks and steals. Instead, we find that blocks and steals actually decline under opposite-race referees.

I'm not persuaded by this reasoning. The player response needn't take the form of aggression--it merely needs to be a general decline in player performance in the presence of opposite-race referees. What if, for example, players find it more difficult to concentrate on their tasks when the refs are of opposite race? Elsewhere in the paper, the authors write, "Player-performance appears to deteriorate at every margin when officiated by a larger fraction of opposite-race referees." So why assume that it's the refs not the players? And why make a statement, "Basically, it suggests that if you spray-painted one of your starters white, you’d win a few more games," even under the possible coaxing of a reporter?

The interpretation of the results that it's the players, not the refs, may also reconcile the results of NBA's internal studies that claim that, on a call-by-call basis, there is no evidence of racial bias. (The NBA has not released the results of these studies, much less the data.) If the players are changing their game based on the racial composition of the refereeing crew, then it is possible that every call or non-call is legitimate, and both studies can be accurate.

The Economic Logic of Illegal Immigration

So goes the title of a report to the Council on Foreign Relations by UCSD Professor of Economics Gordon Hanson. From the Introduction, here's a teaser:

This analysis concludes that there is little evidence that legal immigration is economically preferable to illegal immigration. In fact, illegal immigration responds to market forces in ways that legal immigration does not. Illegal immigrants tend to arrive in larger numbers when the U.S. economy is booming (relative to Mexico and the Central American countries that are the source of most illegal immigration to the United States) and move to regions where job growth is strong. Legal immigration, in contrast, is subject to arbitrary selection criteria and bureaucratic delays, which tend to disassociate legal inflows from U.S. labor-market conditions. Over the last half-century, there appears to be little or no response of legal immigration to the U.S. unemployment rate. Two-thirds of legal permanent immigrants are admitted on the basis of having relatives in the United States. Only by chance will the skills of these individuals match those most in demand by U.S. industries. While the majority of temporary legal immigrants come to the country at the invitation of a U.S. employer, the process of obtaining a visa is often arduous and slow. Once here, temporary legal workers cannot easily move between jobs, limiting their benefit to the U.S. economy.

I'll have to add this one to the "good intentions" pile of reading.

Tit for Tat

Continuing on my Richard Dawkins theme, I came across this period piece, in which Dawkins responds to some early misunderstandings about his pathbreaking work in The Selfish Gene, the treatise of which was that it made more sense to think about natural selection as operating on the level of the gene rather than the organism. He was particularly concerned that people understand that if genes are "selfish," then the behavior of the organism would display a high degree of cooperative behavior.

As an example of this, he discusses Robert Axelrod's seminal work in the repeated Prisoner's Dilemma, in which a simple tit for tat strategy turns out to be extremely effective. The reasons for its success, as Dawkins summarizes them, are that:

1. It is nice. It seeks to cooperate initially.
2. It forgives quickly after retaliating.
3. It is not envious. It does not measure its status in relative terms. It cannot win in an individual game against a single opponent, and it cannot do well unless other parties also cooperate.
4. It is simple--easy to read and uncomplicated.

Some days, I wish those characteristics were more pervasive in the population.

Catching Up on the Basics

A reader e-mails with the following question:

I'm not sure I ever realized what interesting things happened at the intersection of economics and politics -- now I'm starting to wish I had taken some econ courses as an undergrad! Could you give me an idea of where I could start reading to play catch-up on some of the terminology and the basic principles of economics?

I think there are two places to start, outside of the textbook market. The classic answer to this question is Economics in One Lesson by Henry Hazlitt. I remembering reading this one as I was taking undergraduate economics courses and feeling like it did a very good job of clarifying what economics was about.

A more recent book that has also been praised for its clarity and accessibility is Naked Economics by Charlie Wheelan. Charlie is an instructor at the Harris School at the University of Chicago and an alumnus and occasional visitor here at Dartmouth. He also writes a column, by the same name as the book, for Yahoo, which I also recommend.

More Perspectives on Friedman

Via Joe Malchow, a priceless video clip of Dartmouth Trustee Peter Robinson doing Q & A on libertarianism with Milton Friedman. Classic.

From our local paper, The Valley News, an article on the time the Friedmans spent near Dartmouth.

Via Greg Mankiw, the WSJ's sampler of Friedman's opinions. On Social Security:

I have long been a critic of Social Security, basically because I believe that it is not the business of government to tell people what fraction of their incomes they should devote to providing for their own or someone else's old age. On a more pragmatic level, Social Security is another example of the generalization that government programs typically have effects that are the opposite of those intended by their well-meaning sponsors (what Rep. Richard Armey calls the "invisible foot of government").

The well-meaning sponsors intended Social Security to ensure a minimum income to the poor in their old age. It has largely done that, but at the cost of what they would have regarded as a perverse redistribution of income from the young to the old, from black to white, from the relatively poor to the relatively well-to-do.

From its inception, Social Security has been an unholy combination of two items: a flat-rate tax on earnings up to a maximum with no exemption and a benefit program that awards subsidies that have essentially no relation to need but are based on such criteria as marital status, longevity and recent earnings. As I wrote many years ago, "hardly anyone approves of either part separately. Yet the two combined have become a sacred cow. What a triumph of imaginative packaging and Madison Avenue advertising!"
--from "Social Security: The General And the Personal," March 15, 1988

Enjoy!

In Praise of Milton Friedman

The Wall Street Journal reported today that Milton Friedman passed away at age 94. He was without question the leading conservative economist of the 20th century. I had the pleasure of meeting him a few years ago while he was visiting a Dartmouth colleague of mine who was a former student of his at the University of Chicago. He was kind and gracious--and not the least bit hesitant to tell me that my various conceptions of Social Security reform didn't go nearly far enough.

Quoting the WSJ article:

Among his most famous books were: "Price Theory," 1962 (with Rose Friedman); "Capitalism and Freedom," 1962; "An Economist's Protest," 1972; "There Is No Such Thing As a Free Lunch," 1975; and "Free to Choose," 1979, co-authored with his wife. "Free to Choose" also was a series on the Public Broadcasting Service.

The producer of that series, Bob Chitester, told the University of Chicago that Mr. Friedman's "insatiable curiosity" made him a different kind of thinker. "He set forth ideas without regard to their popularity or acceptability. He has been equally tough on himself and others in his search for tools of analysis that consistently and accurately predict outcomes in both micro and macro economics. And he has never compromised the resulting analysis to please those in power. Such courage is essential to the survival of a free society," Mr. Chitester said.

I think that quote sums him up pretty well. As I've mentioned before, I think that Capitalism and Freedom or Free to Choose should be read by anyone interested in economics.

Mankiw's Resolutions

Greg Mankiw provides a list of new year's resolutions for economic policy makers in yesterday's Wall Street Journal in "Repeat After Me." The one-liners are:

1. This year I will be straight about the budget mess.
2. This year I will be unequivocal in my support of free trade.
3. This year I will ask farmers to accept the free market.
4. This year I will admit that there are some good taxes.
5. This year I will not be tempted to bash the Fed.
6. This year I will vote to eliminate the penny.
7. This year I will be modest about what government can do.

Read the whole thing--witty, straightforward, informative--just the reasons why Greg's textbooks were a hit and working for him was a pleasure. Resolution #1 bears more scrutiny. Greg specifies the full resolution as:

I know that the federal budget is on an unsustainable path. I know that when the baby-boom generation retires and becomes eligible for Social Security and Medicare, all hell is going to break loose. I know that the choices aren't pretty -- either large cuts in promised benefits or taxes vastly higher than anything ever experienced in U.S. history. I am going to admit these facts to the American people, and I am going to say which choice I favor.

There needs to be a pause between the first two sentences here. The federal budget is on an unsustainable path, but not only because of the looming demographic shift. That problem needs to be addressed, regardless of what is done about entitlements. The on-budget and off-budget imbalances are two problems that have a common cause--no one seems interested in "Repeating After Greg."

To see what the prospects are for anyone adopting Greg's resolution #1, we turn to Stan Collender's most recent "Budget Battles" column. It's not a pretty picture:

It's hard to see how anything positive will happen this year on the federal budget. Here are the reasons why.

It's An Election Year. The president's budget has not been a real fiscal blueprint for some time, but there are two reasons why President Bush's fiscal 2007 budget is very likely to be more of a pure political statement tha[n] any submitted by this president.

First, the White House is going to want to release the equivalent of a campaign platform for Republicans running for election in November rather than a serious budget that attempts to get anything done. This will eliminate most, if not all, of the incentives for bipartisan compromise and will doom most of what the president proposes to the budget graveyard as soon as his plan is received on Capitol Hill. This will be what congressional Republicans will run on regardless of whether anything is actually enacted.

Second, at this point in his presidency, Bush will have very little opportunity to propose legislative changes that will have a substantial positive impact on the deficit before Inauguration Day in 2009. The better strategy for the White House will be to again underestimate revenues and economic growth and then take credit later in the year for what appears to be an improved budget outlook. When it comes to federal finances, this is an administration that has repeatedly demonstrated that it will not make hard choices if the impact will be felt after it is no longer in power. There is no reason to believe the administration will do anything differently now.

Read the whole thing. I don't think Greg will have many takers. Maybe they'll eliminate the penny.

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Holtz-Eakin to the CFR

From David Rosenbaum of the New York Times, (by way of Brad DeLong), we learn that Douglas Holtz-Eakin will leave his position as Director of the CBO to join the Council on Foreign Relations. From the CFR's press release:

November 14, 2005—Council President Richard N. Haass has named Douglas Holtz-Eakin, current director of the Congressional Budget Office (CBO), the new director of the Council’s Maurice R. Greenberg Center for Geoeconomic Studies (GEC), and the Paul A. Volcker Chair in International Economics. Founded in 2000, the GEC works to promote a better understanding among policymakers, academic specialists, and the interested public of how economic and political forces interact to influence world affairs.

“We are thrilled to have an individual of Douglas Holtz-Eakin’s stature and experience join the Council,” said Haass. “He is the ultimate scholar-practitioner, someone able to advance thinking about the connections between economic and strategic developments and to make sure that the fruits of such thinking reach policymakers, business leaders, and others with a need to understand how the world really works.”

Holtz-Eakin is known for his longstanding and broad interest in the economics of public policy. He previously served as chief economist for the president’s Council of Economic Advisers, where he also served as senior staff economist in 1989 and 1990. He was trustee professor of economics at the Maxwell School, Syracuse University, where he has served as chairman of the Department of Economics and associate director of the Center for Policy Research. “This is a once in a lifetime opportunity,” said Holtz-Eakin. “I look forward to the chance to continue my nonpartisan, high-caliber work in an organization that is not only national but has a global reach.”

Congratulations to Doug. I had been hoping that he would be offered the position of CEA Chairman, to succeed Ben Bernanke when Ben takes over at the Fed. Doug would have brought some outside credibility on budget policy along with a familiar face from the early part of the Administration to a White House that is very much in need of both.

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Bernanke for Fed Chair

I'm having a hard time figuring out why this (of all things) would leak from the White House prior to the President's announcement, but the AP Wire reports that Ben Bernanke is expected to be nominated to replace Alan Greenspan:

WASHINGTON - President Bush on Monday selected Ben Bernanke, chairman of the president's Council of Economic Advisers, to replace Alan Greenspan as Fed chairman, according to an administration official.

The official spoke on condition of anonymity because the nomination had not yet been announced. Bush was to announce his choice at 1 p.m. EDT, said White House spokesman Scott McClellan.

Bernanke is an excellent choice. It will be interesting to see how the Fed now implements his ideas about more transparency in the Fed's communications with financial markets. I am particularly pleased that someone with such a talent and insight for research will be at the head of the Fed's staff of professional economists. I suspect that plenty of his former students are already there.

As usual, Grep Ip provides useful commentary in the Wall Street Journal.

UPDATE: See a sampling of blogger reactions at the WSJ's Econoblog site.

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Bruce Bartlett--Liberated

Via Dan Drezner, I learn that the New York Times has written about Bruce Bartlett's dismissal from the National Center for Policy Analysis. Last December, I wrote of my admiration for Bruce's writing:

In truth, he's more like a blogger than he is a reporter, but perhaps more accurately he is the rare columnist who is the best of both worlds rather than the worst.

[...]

But note that he's an independent thinker--he would very likely offend people across the political spectrum with that one.

I started reading Bruce's columns when I worked at the CEA last year. He's been out in front of the MSM on so many issues--the Medicare bill, outsourcing, tax policy, and others. I wish I had been reading him earlier. His online archive stretches back to 2000. For those of you who arrived here by some way other than Bruce, bookmark the page. Skim it, read it, and enjoy it.

I think that's still good advice and that we should view what has transpired as Bruce being liberated. I hope his newfound freedom from the NCPA will lead to a better placement. I would suggest the New America Foundation, which I think is the most interesting policy think tank in Washington for people with interesting ideas and an ability to write an op-ed. If I had the right zip code and the requisite talent, that's where I would want to be.

Many commentators have picked up on the fissures appearing in the conservative coalition that had come together to put the President in office but now seems unwilling to support the administration going forward. Bruce's need to find a new home is a symptom of that coalition pulling apart. I think we will look back at the summer and early fall and see that the nomination of John Roberts for Chief Justice was the last piece of shared good news for that coalition.

After that, the (collective) ineffectiveness of the government's Katrina relief on the ground, the immediate federal response to throw money at the New Orleans rebuilding, the pressure of the investigations into the conduct of Rove's and Cheney's offices in the Plame affair, and the nomination of Miers to the Supreme Court seem to have buried the White House in the last seven weeks. And it is not clear that anyone's got a shovel to dig them out of the avalanche. Certainly, we cannot hear them digging from the inside.

This is not to say that there were no problems before, but this confluence of bad governance may be a fatal blow to the coalition. And on each of these issues, it has been the White House rather than the Congress calling the shots, and so it is hitting the President particularly hard. As I noted in the spring, in "The Conservative Movement at the Crossroads:"

I'm inclined to support the Republican Party, but the question becomes, how much other stuff do I have to put up with to maintain that identification?

Eventually, it can become too much. And I think I become the object of this parlor game by Brad DeLong, because the most bothersome issues for me are the expansions of federal spending (first) and the lack of a willingness to raise current revenues to pay for it (second).

None of this should be construed to mean that I am a Democrat. I am, in the proud tradition of my home state of New Hampshire, undeclared in matters of national politics.

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Congestion Pricing by a Naked Economist

Charlie Wheelan, one of ten new columnists at Yahoo Finance, turns his attention in his second column to "congestion pricing" on highways. He argues that we should "raise the price of traffic jams" and offers San Diego as a prototype:

The future of transportation will look a lot like the I-15 FastTrak in San Diego. This expressway has free lanes and HOT (High-Occupancy/Toll) lanes that run parallel. Here's the twist: The price of the HOT lanes fluctuates between $.50 and $4.00 depending on traffic conditions. Carpools use the HOT lanes free at all times.

Your toll for the HOT lanes guarantees a "free flowing" speed of travel. If the HOT lanes begin to get congested, the toll will rise immediately, prompting more drivers to choose the free lanes rather than the HOT lanes. (The toll at any given time is advertised on electronic signs on the side of the road.)

There is a drawback to congestion pricing: The HOT lanes are sometimes referred to as "Lexus lanes" because those with deep pockets care less about $4 than those who are counting their pennies. But don't assume automatically that congestion pricing is bad for people lower on the economic ladder. If a plumber's assistant earning $14 an hour shows up for work half an hour late, he gets docked $7. Or, he can get there on time by using the HOT lanes--with a maximum toll of $4.00. Do the math.

And low-level employees get fined for picking up their kids late from daycare or fired for repeatedly being 15 minutes late. CEOs don't.

I think he's right. Eventually, all crowded highways will incorporate some of the elements. I wonder about the privacy aspects of these systems (whether or not they have congestion pricing), because they can record a person's location at a point in time. Some states seem to be better than others, and the issue is moving beyond just cars.

Wheelan's column is called "The Naked Economist," reflecting his recent book of the same name, which looks to be a great non-technical introduction to the field of economics.

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Aumann and Schelling

The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel 2005 was awarded to Robert J. Aumann and Thomas C. Schelling "for having enhanced our understanding of conflict and cooperation through game-theory analysis." The full press release is here.

I am an expert in neither's area of specialty, so I simply recommend to you the fine posts being offered up at Marginal Revolution on Aumann and Schelling, respectively.

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Pass the Spittoon, New York Times Edition

A while ago, I wondered why newspapers bother to have editorial opinions at all. Today's New York Times reminds us why this question is still relevant, with "The Next Alan Greenspan." The relevant paragraphs:

The four names circulating around Washington are Martin Feldstein, a Bush adviser on Social Security and an economics professor at Harvard; Glenn Hubbard, Mr. Bush's former chairman of the Council of Economic Advisers and now dean of Columbia University Business School; Lawrence Lindsey, the former director of the White House National Economic Council; and Ben Bernanke, chairman of the Council of Economic Advisers.

Two of them - Mr. Bernanke and Mr. Feldstein - come with some independent credentials. Mr. Bernanke is deeply conservative, economists say, but respected for independent thinking and not inclined to wear that conservatism on his sleeve. Mr. Feldstein has pushed for Social Security privatization, but in the past criticized deficits run up by Ronald Reagan, for whom he was working at the time, to the everlasting ire of many Republicans. That hardly makes him a shoo-in for the job, but those are exactly the independent traits that Mr. Bush should be looking for if he is indeed serious about appointing a Fed chairman who isn't politically beholden to the White House.

Hopes die hard, so we strongly encourage Mr. Bush to put his money where his mouth is this time around. This job is too important for another taste of cronyism.

An exceptional piece of creative writing, on many levels.

First, I'll take exception to the phrasing of "deeply conservative ... but respected for independent thinking." There is nothing about the words "deeply conservative" that merits the word "but" to connect them to the words "respected for independent thinking."

Second, I'll take exception to the analogous phrasing with regard to Feldstein and Social Security reform. Feldstein has been advocating Social Security reform for over 30 years. (Read this WSJ op-ed from November 1997 to convince yourself that this pre-dates any association of President Bush with the issue.) The Times has confused cause and effect: it would be more accurate to say that the White House is interested in Social Security reform because Feldstein has been advocating for it.

Third, I'll take exception to the insinuation that nominating Glenn Hubbard and Larry Lindsey would be evidence of cronyism. The definition of "cronyism" is:

Favoritism shown to old friends without regard for their qualifications, as in political appointments to office.

Note the phrase "without regard for their qualifications." It's not optional in the definition. So are we to infer that Hubbard and Lindsey have no qualifications, but for the fact that they served as economic principals in the Bush administration? This is easily put to the test. Here is Lindsey's bio. It reports that he was a Governor of the Federal Reserve System for 6 years, after seriving as a Special Assistant to the President in the first Bush White House and a senior staff economist at the CEA. All of this occurred before he served as a principal in the current administration. He seems qualified to me. That doesn't mean I endorse him, or that I think he's the best one for the job. It just means that the Times editorial page is way off base with its insinuation.

Now let's look at Glenn Hubbard's bio and cv. We observe that prior to being CEA chairman in the current administration, he was the author of a leading textbook on financial markets and a deputy assistant secretary at the Treasury. His current position as Dean of Columbia's Business School was foreshadowed by his service as a senior vice dean from 1994-1997. His scholarship is also exceptional, with his 1988 Brookings Paper spawning and entire literature about financial constraints and investment. (I am also a huge fan of his 1999 Journal of Financial Economics article on managerial ownership and firm performance and his 1995 Journal of Political Economy article on precautionary saving and social insurance.) Translation for those at the Times: he's qualified, even if he's not your (or my) first choice.

Perhaps someone should tell the editorial page editors at the Times about Google and what a free and fantastic tool it can be for preventing them from embarrassing themselves with drivel like this. Failing that, perhaps we could ask that they place such exceptional opinion pieces like this behind the Times Select veil of secrecy.

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