L’allocation universelle (Van Parijs & Vanderborght)

L’allocation universelle (with Yannick Vanderborght)_livre

Goodbye, Paul

Mafe anticipated my intentions for my weekly post. Paul Samuelson passed away yesterday. I confess that I am one of these young students in Economics that never used his Fondaments of Economics Analysis but there was something enthralling in Paul Samuelson’s figure for me: he was one of the great figures of the “old school”.

What do I mean by “old school”? Well. I have been always fascinated by those men who seem to know the origins and roots of the topic they are dealing with, who are aware of the context and particularity of the issue under study. Furthermore, I admit my unconditional admiration for those persons who are able to cover a broad and varied range of problems and topics because their immense culture and intelligence allows them to avoid the extreme specialization in more and more reduced fields of study. Samuelson was this and much more. He was one of the fathers of the neoclassical analysis in Economics, but he also knew and debate with distinguished methodological and intellectual “rivals” like Friedman or Hayek. Their first years in MIT almost obliged him to be aware of the importance of interdisciplinarity because, as he himself explained, “When I joined the [MIT] (…) in 1940, we were officially the Department of Economics and Social Sciences. Evidently, economics was not itself a social science! Some of my colleagues were psychologists, political scientists, anthropologists and personnel experts. Also statisticians”. What a weird age (at least for today’s perspective) in which Economics was almost subjugated by the other social sciences! Samuelson’s research focused on topics like Public Finance, Welfare Economics, International Economics, Macroeconomics or Consumer Theory, but, besides having been president of the American Economic Association or the Econometric Society, Samuelson was also fellow of the American Philosophical Society or the British Academy. What an eclectic figure!

I will never be a Paul Samuelson but,I admit that, often, when looking at myself as a future economist, I wonder if I will able to be a decent heir of such an admirable and amazing “old school”. I am sorry, Samuelson, Galbraith, Hayek or Friedman if I will not… I am doing my best…

On Paul Samuelson

“The work he did, with no hyperbole, revolutionized numerous fields, including public finance, international trade, and macroeconomics,” Alan Blinder

“Above all else, Paul Samuelson was a scholar,…He used to proudly remark that he had never spent a full week in Washington. But through his research, teaching, and writing he had more impact on the economic life of this country and the world than any government economic official and many presidents. We will not see his likes again.” Lawrence Summers

An excuse to read on his life and career. May he rest in peace

Towards a new man?

“Man is wolf to man“

Plautus

“‘Give me a child until he’s seven, and I’ll give you the man“

Jesuit proverb

How can economic regulation be more effective? According to a John Roemer’s recent article the (obvious?) answer is by promoting  more solidaristic preferences.

Given the unrealistic assumptions of the perfect competition market models (complete markets, perfect information…), the well-known result of Pareto-optimality in market outcomes losses strength and credibility for the professor in Yale. The situation becomes even worse when we are dealing with greedy agents who -following the behavior assumed in the models!- take advantage of opportunities or flaws in regulation to act in a selfish way. The problem situation is specially worrying when such attitudes result in bad social outcomes. An example? The current financial crises…

All right. Everything would be easier if people is less greedy. Probably economic regulation could be driven by simpler rules leading to better outcomes… but is it possible?! how can we reach such a potential “paradise on Earth”? I think Roemer’s answer is twofold praiseworthy. First, Roemer has a positive answer to the first question by avoiding a purely deterministic view of human nature (“man is wolf to man”) and by recognizing that “preferences of individuals are in large part determined by their social conditions”. Secondly, the mechanism that Roemer develops to explain changes in preferences avoids any naif believe in a miraculous change of human nature or in a spontaneous “conversion of  souls”. Instead, the point of departure is the following: during a crises (and if the exposure to risks is sufficiently generalized) self-interest will lead to demand a greater amount of public insurance (against health, unemployment…). Once these insurance innovations are implemented, there’s no way back: people discover the beneficial effects of such policies and demand more and more changes in this direction. The result is a more solidaristic and equal society. The author uses the example of potential positive effects of a policy that we extensively commented in the past (here or here, for example): universal health insurance:

“[When implementing a universal health coverage] A more pleasant society will then evolve: people will be under less stress from the fear of losing their health insurance when unemployed, or because they contract a major disease; emergency rooms will be less clogged with poor, uninsured persons; insurers will have incentives to urge people to undertake more healthy life styles (to keep costs down), and so on. There is a good chance that citizens generally will like these changes—not only because of their own increased financial security, but because civility will increase, and poverty will be, at least along one dimension, less glaring”.

The argument seems to me persuasive, provocative and stimulating enough. True, some empirical evidence will be needed in order to check the validity of this theory, but for the moment maybe even during this harsh financial crises we can argue that every cloud has a silver lining.

PS: If the first link gives you problems to download the paper, I think that a free-access version is available here.

Reputation and economist’s salaries

Daniel Hamermesh has a new paper on the impact of reputation in salaries. This is part of his “crusade” to understand the dynamics of the profession (Hamermesh et al, 1982; Hamermesh 1992;  Hamermesh and Schmidt, 2003; among others).

 The study finds that, as expected, having more scholars interested in the research of the economist increases both the reputation and the salary. But, contrary to what we might have expected and controlling for attention, writing more papers increases salaries BUT reduces reputation.

This may suggest that if reputation is what you want, writing a lot of papers is not going to help. Instead, it will help you to change jobs and increase your salary.  It is easy to understand why reputation increases with quality and not with quantity but why the market (or the economic departments) is rewarding just quantity instead of relying in a variable that is very easy to observe like reputation???

Given that citation is great predictor of reputation here is the citation ranking. Once again Shleifer is unbelievable and top 10 with the exceptions of Shleifer and Heckman are very macro-oriented.

End of the story

How long can a love story last in Economics? Apparently barely three years:

– The Economist, July 27th 2006: Viva Zapatero! Reassessing the Spanish prime minister

– The Economist, November 26th 2009: Unsustainable. Spanish Economic Problems.

The reasons of the break-up are, by the way, pretty conclusive: 19% unemployment, low productivity due, in part, to inefficiencies in the job market and a low investment in R&D…

Final advice for future couples: don’t base your relationship in bricks and mortar…

Why is Colombia the most unequal country in Latin America

It is well know that inequality in Colombia has been really high for several years, but when we wanted to compare ourselves with the rest of Latin America, Brazil was always there to make Colombians feel “better”. The most recent Statistical yearbook published by ECLAC shows that Colombia is now the country in Latin America with highest level of income  inequality, measured using Gini coefficient.  Brazil has been implementing several policies to fight succesfully against inequality. Some of the policies are very similar to those already being implemented in Colombia, such as the programs to increase acces toi education, reductions in household size and conditional cash transfers. So, if we are implementing similar policies why are we getting so different results?

There are some studies pointing out that programs aimed to increase access to secondary education are very successful in decreasing inequality. Meanwhile, increasing access to tertiary school works in the opposite direction.  The past few days I have been analyzing a program of couchers to increase coverage of secondary education and I had the impression that we were going in the right direction, but apparently it is not enough. There are other studies that explain the importance of early childhood development. In that regard I think Familias en Accion is doing a good job.

So maybe what is underlying the high inequality in Colombia is that social prefereces and policies are tolerant with increasing efficiency at the expense of inequality. In the most recent political debate the former minister of agriculture explained to the country why giving subsidies to the rich instead of giving them to the farmers helps to reduce inequality. Also various experimental exercises showed that people prefer  efficiency over equality even if the efficiency gains are small. So at the end, what is very important is not anly to copy some isolated programs but to teach people the importance and the value of a more equal society.

Watching The Decline

The Geographic Spread of Unemployment

Does the Government Discourage Poor People From Working?

I found in The Atlantic  a very interesting article that summarizes the debate on Antipoverty programs and their effect on the incentives (disincentives) to work for poor people.  Maybe the best way to explain the whole topic is by quoting Clifford F. Thies: “To say that antipoverty programs in the United States are perverted may be an understatement.”

He presented two graphs to show that the return to working is essentially zero for those in the lower two quintiles of the income distribution. The first chart, below, shows that the relationship betweeen earned income and after-tax income plus subsidies is flat for low earners ($0 to $40,000) thus for the very poor people as they begin to earn more their actual income stays constant or even drops.

As a consequence government is creating incentives to poor people to stay in their condition.  So for a big part of the working poor the implicit marginal tax rate are greater than 100%. Thies also does another exercise to compute the implicit tax, so the fiollowing chart shows the implicit tax paid on the last $10,000 of earned income. We can see how in this hypothetical example working poor’s implicit tax is higher than 100%.

Of course this is just an example and there are doubts about the accuracy of his calculations (you can check technical notes here). But also poses a concern : Why the Congressional Budget Office is not publishing charts like this?

In addition to this Mankiw has pointed out that the health reform can make this situation worse and also the health care vouchers.

Arnold Kling says that  “There are two potential solutions. One solution is to base eligibility for means-tested benefits on total income, including other government benefits programs. Another approach would be to abolish a lot of specific programs and replace them with generic cash assistance”.

So, this is a very interesting topic which woul require more time and research. For now I just leave a link to a paper from Kotlikoff and Rapson on effective marginal taxes on Americans’ labor supply and savings and I promise to get back on the topic

 

Kotlikoff

More on Art and Economics

The visitor to the Metropolitan Museum of Art in NYC is usually disconcerted when confronted with one of the most famous artwork of the museum created by Damien Hirst: a 213 inches white shark preserved in formaldehyde in a vitrine. The confusion increases when the visitor sees the title of the artwork: The Physical Impossibility of Death in the Mind of Someone Living. Probably the visitor would fall into a state of shock if he/she learned that the price paid for the shark was… 12 million dollars.

Marketing Professor Donald Thompson has recently published a book –The $12 Million Stuffed Shark: The Curious Economics of Contemporary Art– in which he tries to clarify the mechanisms behind supply and demand in the market of Art. It is not an easy question. In a previous post we explained Tom Wolfe‘s theory according to which supply and demand in Art is strongly influenced by an extremely small and elitist group. Contributions from other social sciences also point to other specific characteristics of  art [1]. Eric Hobsbawm, historian, suggests that Art is a very particular field in which manufactured and aristocratic productive structures have been preserved. On the other hand, sociologist Pierre Bourdieu claimed that art is a pre-capitalist field that capitalism tries to “capitalize” through mechanisms as the property rights. Can Economics contribute to shed some light on the debate about the way Art works? Definitely yes, and Thompson’s ideas seem very useful in this sense. The author highlights two basic points: the importance of brand image and the problems of information on the demand side.

First of all, some artists, galleries and art auction houses have built an image of brad that allows them to charge a higher price for their products thanks to the prestige and other benefits derived from the brand.  Therefore, Marketing plays  a very important role.

Second, these prestigious brand institutions also act as a signal of quality for a public that usually does not have the appropriate information or knowledge about art. People tend to think that artworks associated with famous galleries or artists has to be high quality. Obviously, this signaling argument is directly related to the previous point concerning the formation of a brand image.

Given what we have seen so far, a tentative (and certainly risky and hasty) conclusion could try to combine the different visions discussed so far: Art is a field still dominated by a certain aristocracy (le monde described by Tom Wolfe in the previous post) that, using some typical capitalistic tools (property rights, brand image), is characterized by some relevant facts as imperfect information on the demand side or other social influences affecting consumption.

Vast, complex and interesting subject…

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[1] I am grateful to my brother Pablo for his help and stimulating comments in this point.

 

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