Thursday, October 9, 2008
Capital gains tax
I absolutely love Obama. I think he is a great public speaker, a great leader, and I agree with him 100% on social issues. I am from Oakland and went to high school in Berkeley, so based on my background I lean far to the left. Claremont did a good job at making me more open minded and more towards the middle, but I am still extremely liberal. However, while I am liberal I am also a realist and I agree with Barro's idea of presidential economic report cards, and I grade Obama's proposed economic policy an F+. I threw in the plus because I like him, but I believe that raising the capital gains tax is about the worst thing he could do in our current economy. For that reason alone I am on the fence as to who I will vote for in this upcoming election. It scares me that I might vote for a 72 year old who undoubtedly has to have some SERIOUS psychological issues, due to being tortured for five years in a Vietnamese prison camp. Not to mention voting for someone who has to have some health problems, due to the fact he is pushing 73 and the presidency isn't a stress free job and it's not like you can take month long vacations… whoops, I guess now that's ok, Bush did it… Speaking of health problems, what is even more terrifying is that if he gets elected and he kicks the bucket, then SARAH PALIN will be the president of the United States. I mean people think Bush is stupid… I can't think of anything more terrifying than a person who believes every single word in the bible is true and that living in Alaska counts as a foreign experience because it's so close to Russia. What is more terrifying than that woman becoming president? Perhaps raising the capital gains tax…
The capital gains tax is currently at 15%. Obama is planning on nearly doubling this tax. As the capital gains tax taxes peoples gains in an investment it could single handedly edge out many venture capitalist funds as the cost of doing business would be so high. Just say for example that a VC fund invests 100 million dollars in a company with a deal that the company must return the 100 million over 5 years, with an extra 50 million total, so about 10% a year. If everything goes according to plan this VC firm under Obama's rule would lose an extra 6 million dollars of profit. While that might not seem like much, it is a lot. As it is VC firms take on lots of risk and cutting into their profits by 10% would mean that the firm would have to take less risk and therefore due deals that would have less potential reward. If VC firms are crippled that hurts the country a great deal because private investment is how entrepreneurial ventures are started and without startups coming to life, our economy would suffer from not having the fresh blood. Lastly, if Obama is elected, that might spark a fire sale in the stock market. People who have positions that have a significant gain at the moment, would likely sell their position. If they wait until January they will have to pay back an additional 10%-15% of their profits. I completely agree with everything Obama wants to do except for raising he capital gains tax, yet that might be enough for me not to vote for him come November.
The capital gains tax is currently at 15%. Obama is planning on nearly doubling this tax. As the capital gains tax taxes peoples gains in an investment it could single handedly edge out many venture capitalist funds as the cost of doing business would be so high. Just say for example that a VC fund invests 100 million dollars in a company with a deal that the company must return the 100 million over 5 years, with an extra 50 million total, so about 10% a year. If everything goes according to plan this VC firm under Obama's rule would lose an extra 6 million dollars of profit. While that might not seem like much, it is a lot. As it is VC firms take on lots of risk and cutting into their profits by 10% would mean that the firm would have to take less risk and therefore due deals that would have less potential reward. If VC firms are crippled that hurts the country a great deal because private investment is how entrepreneurial ventures are started and without startups coming to life, our economy would suffer from not having the fresh blood. Lastly, if Obama is elected, that might spark a fire sale in the stock market. People who have positions that have a significant gain at the moment, would likely sell their position. If they wait until January they will have to pay back an additional 10%-15% of their profits. I completely agree with everything Obama wants to do except for raising he capital gains tax, yet that might be enough for me not to vote for him come November.
Getting it Right?
Let me start this off with one word: wow. As one of those modern liberals whose thoughts mimic Barro's view of the world as a teen, I must remind myself reading books like this is why I came to CMC.
As my last paper discussed the Russian/Georgian conflict the section most interesting to me at the moment dealt with the optimal size of a nation. His argument for smaller fragmenting of states is one that while some of the underlying notions (i.e. we only function well around people who look like us; less interest group activity is better) might cause my liberal self to balk, I find I actually agree and understand many of his points. I regrettably concede that from a cold hearted economic point of view, the resources wasted on lobbying hurt the economy. But more notably his basic discussion about the economic difficulties of policy designed to facilitate economic exchange between two opposing cultures existing as a greater cost to the community than the cost of shifting borders is one I can agree on. In addition to the economic difficulties and inefficiencies associated with the current arbitrary borders in much of the developing world, the costs associated with continued conflict is almost assuredly more expensive for both parties. I will definitely be using some of Barro's arguments in future Sudan related debates supporting my belief that the various ethnic regions of Sudan should split and redraw borders. Thus turning two non homogenous hostile factions into two wary trading partners.
As my last paper discussed the Russian/Georgian conflict the section most interesting to me at the moment dealt with the optimal size of a nation. His argument for smaller fragmenting of states is one that while some of the underlying notions (i.e. we only function well around people who look like us; less interest group activity is better) might cause my liberal self to balk, I find I actually agree and understand many of his points. I regrettably concede that from a cold hearted economic point of view, the resources wasted on lobbying hurt the economy. But more notably his basic discussion about the economic difficulties of policy designed to facilitate economic exchange between two opposing cultures existing as a greater cost to the community than the cost of shifting borders is one I can agree on. In addition to the economic difficulties and inefficiencies associated with the current arbitrary borders in much of the developing world, the costs associated with continued conflict is almost assuredly more expensive for both parties. I will definitely be using some of Barro's arguments in future Sudan related debates supporting my belief that the various ethnic regions of Sudan should split and redraw borders. Thus turning two non homogenous hostile factions into two wary trading partners.
Barro Has Solved the Financial Bail Out Problem!!
Barro was definitely a little bit conservative for me, but I have to admit, his last chapter was entertaining and hillarious.
I realized reading his analaysis of tax amnesty measures that Barro effectively solved the financial market bailouts that have been happening. I know that as a liberal I am just supposed to love government intervention to death, but nevertheless, I see a slight problem with the financial market bailout by the government. If the government bails out all these companies now, because they made risky investments and went bankrupt, then in the future they will only continue to make risky investments under the assumption that the government will be there to save them if it all goes bad. As someone said, the government is privatizing the profit and making the losses public. Which might not be all bad, except that it sets a precedent for doing it again in the future.
Barro has our solution. As he points out, this works as a solution to all time consistency issues with government policy. Barro suggests that when tax amnesties are offered, it is only really bad, because in the future people will expect more amnesties so they will not pay their taxes in the interrim periods. His suggestion is that we should declare a year long tax amnesty, get all the people that are avoiding their taxes to pay up, then after the year, we should say, "just kidding" and then punish them all for not paying taxes.
We could do this with the financial bailout. We can tell all the companies we are going to buy these loans off them and everything is going to be alright. Then when the companies are back on their feet again, we can fine them heavily and effectively force them to pay back the money they received as payment for the bad loans. This would mean that in the future, there would be no false incentive to go for risky investments with the promise of a government bailout--because the government renegged. It "avoids the moral dilemma of allowing [the companies] to escape [the profit loss they should have experienced]". Finally, it would of course avert economic disaster in the short run with no expense to taxpayers in the long run.
Perfect plan Barro! I like it!
I realized reading his analaysis of tax amnesty measures that Barro effectively solved the financial market bailouts that have been happening. I know that as a liberal I am just supposed to love government intervention to death, but nevertheless, I see a slight problem with the financial market bailout by the government. If the government bails out all these companies now, because they made risky investments and went bankrupt, then in the future they will only continue to make risky investments under the assumption that the government will be there to save them if it all goes bad. As someone said, the government is privatizing the profit and making the losses public. Which might not be all bad, except that it sets a precedent for doing it again in the future.
Barro has our solution. As he points out, this works as a solution to all time consistency issues with government policy. Barro suggests that when tax amnesties are offered, it is only really bad, because in the future people will expect more amnesties so they will not pay their taxes in the interrim periods. His suggestion is that we should declare a year long tax amnesty, get all the people that are avoiding their taxes to pay up, then after the year, we should say, "just kidding" and then punish them all for not paying taxes.
We could do this with the financial bailout. We can tell all the companies we are going to buy these loans off them and everything is going to be alright. Then when the companies are back on their feet again, we can fine them heavily and effectively force them to pay back the money they received as payment for the bad loans. This would mean that in the future, there would be no false incentive to go for risky investments with the promise of a government bailout--because the government renegged. It "avoids the moral dilemma of allowing [the companies] to escape [the profit loss they should have experienced]". Finally, it would of course avert economic disaster in the short run with no expense to taxpayers in the long run.
Perfect plan Barro! I like it!
Hidden Morality
Barro argues many things, but in his attempts to argue for so many points, he often leaves substance behind. His chapter about countries, while morally questionable, is well supported, but the chapter about monopolies is especially weak in evidence.
Sometimes when it is difficult to tell when Barro is laying out moral judgements and when he is talking about causative relationships. The democracy and growth chapter is incredibly well supported, but he makes suggestions without worrying about what goal the United States should have in dealing with the developing world, let alone the opinions of the developing world, whose lives have been reduced to “GDP per capita.” That being said, I think his data is excellent, probably better than anything we saw in Elliott’s class.
As far as the NCAA monopoly, I agree with Hillary. It is a bold move by Barro to insult the basketball player that comes from poverty and goes to a university for 4 years without any data. When discussing the Ivy League monopoly, Barro falls back upon an argument he has already labeled as inefficient (and therefore implicitly immoral). Barro claims the monopoly power of the universities subsidizing education for the poor is a bad idea, but supports this by saying that if anything, the government should make the transfer! I don’t know if Barro is implying that the transfer should not happen in general, or simply leaving the difficult questions of morality out of the discussion because it is easier to make a straw man out of the Ivy League’s bold moral action. Barro seems to forget that as a non-profit, the position of an Ivy League school need not reflect the goal of maximizing profits, but rather of gathering the best students, which both affirmative action and price discrimination work toward. His peak cockiness is shown at the end of the monopoly chapter, when discussing how ridiculous it is that anyone can claim the title economist. I enjoy reading rants like this, but it takes away from the academic nature of the rest of the text. Barro reminds me a little of Matt Drudge, but obviously more intelligent.
Democracy as luxury, diversity as detrimental...
Like many of you, Robert J. Barro’s Getting It Right brought back fond memories of Elliott and Hurley’s reading. Particularly, Barro’s book reiterated the lessons on development we learned from Sen, Pritchett, Yen, and other- that governments need to couple increased political freedoms with freer markets, rule of law (which itself helps facilitate free markets; ex: property rights), and increased health, education, and fertility control initiatives. He makes the argument that increased political freedoms, brought about without these other project in place, is actually detrimental to democracy: “Once these kinds of variables are held constant, an increase in political freedom has an overall negative (but small) impact on growth”. He goes on to label political freedoms a luxury good sustainable only in developed countries". I believe that democracy is important and intrinsically good, but you wont vote if you're too malnourished to leave your house and you can't vote if there are no laws ensuring your right to do so.
Barro’s section on The Optimal Size of a Nation, or the Attractions of Succession gave me added perspective on the Georgia/South Ossetia conflict on which I wrote my last PPE paper. Given the historical precedent of the U.S.’s civil war, he writes, the U.S. has more often than not, opposed the succession of countries with knee jerk reaction. He argues that the U.S. should support separatist movements lead by suppressed minorities, despite the smallness of the territory they hope to claim, and despite the availability of natural resources in the territory (trade can bring what is needed), so long as they have the will to bring about a solid government with guarantees on property rights and allow for free trade. While I agreed with these end claims, I was a little turned off by the process he used to get to it. Specifically, in arguing for the benefits of a homogeneous population, he reduces diversity to mean “inequality in potential earnings”(30). That is, diversity is reduced to the presence of different classes. He goes on to argue that diversity “ leads to the creation of interest groups that spend their time lobbying the central government to redistribute resources in their favor… encouraging people to expend resources in unproductive ways.” (30). Isn’t it a little cynical to believe diversity, even if it’s just in terms of income levels, solely leads to inefficiency? Further, how can inequality in potential earnings within a country’s borders be entirely eliminating without creating a socialist state, or confining all the doctors in the world to one country and all janitors to another? Back to Georgia, he would argue for South Ossetia’s right to separate from Georgia.
Although Barro makes a case against any government regulations on ETS and really casts doubts on the causality of ETS and lung cancer, I still believe we’re better off prohibiting smoking in certain closed-air public places. While the libertarian will argue against us infringing on a smoker’s right, I think these increased regulations are a result of the greater non-smoking population demanding cleaner air.
Barro’s section on The Optimal Size of a Nation, or the Attractions of Succession gave me added perspective on the Georgia/South Ossetia conflict on which I wrote my last PPE paper. Given the historical precedent of the U.S.’s civil war, he writes, the U.S. has more often than not, opposed the succession of countries with knee jerk reaction. He argues that the U.S. should support separatist movements lead by suppressed minorities, despite the smallness of the territory they hope to claim, and despite the availability of natural resources in the territory (trade can bring what is needed), so long as they have the will to bring about a solid government with guarantees on property rights and allow for free trade. While I agreed with these end claims, I was a little turned off by the process he used to get to it. Specifically, in arguing for the benefits of a homogeneous population, he reduces diversity to mean “inequality in potential earnings”(30). That is, diversity is reduced to the presence of different classes. He goes on to argue that diversity “ leads to the creation of interest groups that spend their time lobbying the central government to redistribute resources in their favor… encouraging people to expend resources in unproductive ways.” (30). Isn’t it a little cynical to believe diversity, even if it’s just in terms of income levels, solely leads to inefficiency? Further, how can inequality in potential earnings within a country’s borders be entirely eliminating without creating a socialist state, or confining all the doctors in the world to one country and all janitors to another? Back to Georgia, he would argue for South Ossetia’s right to separate from Georgia.
Although Barro makes a case against any government regulations on ETS and really casts doubts on the causality of ETS and lung cancer, I still believe we’re better off prohibiting smoking in certain closed-air public places. While the libertarian will argue against us infringing on a smoker’s right, I think these increased regulations are a result of the greater non-smoking population demanding cleaner air.
Wednesday, October 8, 2008
Getting What Right?
First off, nice pun Barro. My dad would approve. What is “it” exactly? The market, everything, government, what?! Is “it” our understanding of how our choices determine our interactions in society? Does “it” include conceptions of morality and culture, two concepts that might shape our economic decisions? Good question, Sarah.
On The Role of Political Institutions
Barro presents evidence that movements toward democracy promote growth when political freedoms are weak but inhibit growth when a moderate amount of freedom has already been attained. Basically, as democracies become older, the tendency to redistribute income and other resources becomes an impediment to growth. The resources are moved away from their most productive (read: “efficient”) uses. Barro doesn’t say that governments cannot affect long-term growth, they merely tend to go awry when trying to implement policies that have important effects in the long-term. Sure, any purposeful action has unintended side-effects but I still take ibuprofen even though it gives me a stomach ache. Corey Brettschneider would have a field day with Barro. The procedural and substantive implications of political autonomy, equality of interests, and reciprocity are what gives democracy its substance; they aren’t constraints.
Barro’s use of a country’s standard of living to forecast the growth and decline of democracy is interesting. My statistical experience may be limited, but are standard of living and democracy unrelated? Using this data, Barro shows that improvements in the standard of living increase the probability that political institutions will become more democratic. In contrast, an increase in political freedom has an overall negative (but small) impact on growth (11). To Barro, democracy isn’t a magic bullet, nor should it be considered as such. This seems to imply that he doesn’t seem to value democratization as a process.
On The Role of Political Institutions
Barro presents evidence that movements toward democracy promote growth when political freedoms are weak but inhibit growth when a moderate amount of freedom has already been attained. Basically, as democracies become older, the tendency to redistribute income and other resources becomes an impediment to growth. The resources are moved away from their most productive (read: “efficient”) uses. Barro doesn’t say that governments cannot affect long-term growth, they merely tend to go awry when trying to implement policies that have important effects in the long-term. Sure, any purposeful action has unintended side-effects but I still take ibuprofen even though it gives me a stomach ache. Corey Brettschneider would have a field day with Barro. The procedural and substantive implications of political autonomy, equality of interests, and reciprocity are what gives democracy its substance; they aren’t constraints.
Barro’s use of a country’s standard of living to forecast the growth and decline of democracy is interesting. My statistical experience may be limited, but are standard of living and democracy unrelated? Using this data, Barro shows that improvements in the standard of living increase the probability that political institutions will become more democratic. In contrast, an increase in political freedom has an overall negative (but small) impact on growth (11). To Barro, democracy isn’t a magic bullet, nor should it be considered as such. This seems to imply that he doesn’t seem to value democratization as a process.
Getting It Write
Reading Barro is refreshing in the sense that he lays out in each essay specific points and reasonable argumentation to bolster them. For example, in his discussion of "Economic Advisers and Economic Outcomes" he some seemingly unrelated information, and creates a bridge which brings light to a more expansive idea which is both provocative and fresh. He uses an evaluation of economic policy which contributes to the "misery index" which includes unemployment rate change, inflation change, long-term interest rate change, and GDP growth rate change along with the amount of scholarly articles citing the US Council of Economic Advisers to estimate whether there is any correlation in expertise to effectiveness in promoting change. in crisis alone are economic advisers of any real importance in Barro's view.
Sensible in his approach, Barro does not fail to include a counter-argument--one which he is lucky enough to have authored (South America countries reform and influence of economic counsel in those cases).
Barro also provides exaggeration to emphasize his points cleanly. For example he reacts--seemingly disgusted--to extreme versions of government public spending by stating that one might conclude that natural disasters such as hurricanes and earthquakes were fortunate in some sense because they create more jobs in construction. In this same section I enjoyed his ability to cleverly summarize conclusions by making a statement about public goods: "fixing potholes is a good idea but bullet trains and star wars communications networks are less obvious" (113). These sorts of manipulatively smart argumentative techniques will get him far with crowds that are pleased by such suave writing--however I am not quite sure whether the class will take his side.
Sensible in his approach, Barro does not fail to include a counter-argument--one which he is lucky enough to have authored (South America countries reform and influence of economic counsel in those cases).
Barro also provides exaggeration to emphasize his points cleanly. For example he reacts--seemingly disgusted--to extreme versions of government public spending by stating that one might conclude that natural disasters such as hurricanes and earthquakes were fortunate in some sense because they create more jobs in construction. In this same section I enjoyed his ability to cleverly summarize conclusions by making a statement about public goods: "fixing potholes is a good idea but bullet trains and star wars communications networks are less obvious" (113). These sorts of manipulatively smart argumentative techniques will get him far with crowds that are pleased by such suave writing--however I am not quite sure whether the class will take his side.
Barro Got it Right...
Perhaps the most entertaining section of Barro's Getting it Right was his "The Power of Economic Reasoning." Whether he was discussing school choice, second-hand smoke, or baseball salaries, his insight as an economist on those subjects certainly put each topic in a new light. Who ever thought about term limits from an economist's point of view?
But my personal favorite - and one that I'm sure will cause controversy with Hillary - was his section on the "Best Monopolies in America." I don't think the NCAA really should win the "contest" though I do think that Barro's argument is spot on.
The NCAA is a monopoly. Period. It restricts the quantity and quality (defined as money given to a student-athlete) of athletic scholarships in our colleges and universities. In other words, it is a price setter. What more do we need for it to be considered a monopoly? Barro is right.
He's also right that the NCAA's "moral high ground" is false. Yes, student-athletes should put academics before athletics - but why restrict the amount of money they make? The idea that the NCAA is there to remind the athletes that they are not professionals is paternalistic. Why not let them make their own decisions, and reap the benefits of their own talents? What about the student-athlete that has to quit his (or her) sport so that he (or she) will have the time to make some money? How does the NCAA help this guy?
Barro's language may have been off, but his argument right. Unfortunately, it's the poor who are going to have to suffer from another government supported monopoly.
Spread Economic Welfare not Democracy
I particularly liked Getting It Right by Robert Barro and his libertarian views. I throughly enjoyed the topics he addressed in his "Power of Economic" reasoning section. The belief in the importance of property rights, a free market economy and little government intervention drove all of these libertarian stances in his last section. In particular, I liked his discussion on Second-Hand Smoke and whether or not the government should intervene and restrict the use of cigarettes. Although he doesn't appreciate second-hand smoke, he still does not see good results coming out of restrictions on smoking. I think this is interesting given that he wrote this well before many states went smoke-free in public places. It hasn't proven to be too much of a problem and has probably made the majority of people better off.
His discussion of property rights, however, brings us back full circle to Professor Hurley's class when we first discussed Locke and Rousseau. Locke and Rousseau had strong arguments for property rights and how they were to be determined in the state of nature. They argued that man obtains property rights through the labor done onto the property with the reasoning that if a man owns himself, he then also ons his labor, therefore he owns the property upon which he exerts this labor. As a result of these arguments, property rights have become an important part of political and economic thought which drives peoples' views and policies. Property rights are important in Barro's view because it gives people something they can claim to be theirs and not have taken advantage of by others (or a government). That being said, he strongly encourages developing nations to not adopt democracy, but rather, adopt economic ideas based on property rights a free market in order for it to shape into a democracy. I thought this was particularly interesting due to the fact that the U.S. likes to "spread democracy to the world." Instead, we should spread our economic principles and contribute to the economic welfare of these countries to help them grow first. This, then, will then help the countries develop into a democracy. I thought this view was discussed very well by Barro.
Lastly, I liked Hillary's post on the NCAA being a monopoly...I could tell she was a bit heated. I thought this part of his book was a bit much too.
His discussion of property rights, however, brings us back full circle to Professor Hurley's class when we first discussed Locke and Rousseau. Locke and Rousseau had strong arguments for property rights and how they were to be determined in the state of nature. They argued that man obtains property rights through the labor done onto the property with the reasoning that if a man owns himself, he then also ons his labor, therefore he owns the property upon which he exerts this labor. As a result of these arguments, property rights have become an important part of political and economic thought which drives peoples' views and policies. Property rights are important in Barro's view because it gives people something they can claim to be theirs and not have taken advantage of by others (or a government). That being said, he strongly encourages developing nations to not adopt democracy, but rather, adopt economic ideas based on property rights a free market in order for it to shape into a democracy. I thought this was particularly interesting due to the fact that the U.S. likes to "spread democracy to the world." Instead, we should spread our economic principles and contribute to the economic welfare of these countries to help them grow first. This, then, will then help the countries develop into a democracy. I thought this view was discussed very well by Barro.
Lastly, I liked Hillary's post on the NCAA being a monopoly...I could tell she was a bit heated. I thought this part of his book was a bit much too.
Moral High Ground
Barro has some okay arguments in this book but the one that really ticked me off was the one pertaining to the monopoly of the NCAA. He comes across as arrogant in this section and if you don't believe me, re-read pages 130-131 and tell me he's not classist at the least, racist more likely, or just bitter he was never good at sports, cause he truly wants to screw these athletes over. Okay enough of the gut reaction, on to the point...
The NCAA has the moral high ground in their position. That's the point of the NCAA. College athletes are NOT professional athletes. The cap on the amount of money that the division one football and basketball players receive is intended to remind them that they are not professionals, nor will they likely be after college, if they even finish college.
The idea of paying college athletes is ridiculous. The whole idea behind the NCAA is that it is a non-professional system where school comes first. Though this idea has been distorted in recent decades, good coaches know that their players are very unlikely to ever be a member of, let alone play on, a professional sports team. Caps on the amount of money that players can receive serve to attempt to show that they are not on a college campus to solely make money, for themselves or for their schools, but they are truly there to learn. Barro's example of the kid that is recruited from the ghetto and then paid the typical amount, aka room & board and tuition, and saying that the player will surely "remain poor after these four years (130)" is shortchanging the athlete. Student athletes are just that, students first.
As we talked about in our tutorial on Tuesday and as is common knowledge when talking about the gap in salaries between the rich and the poor and the minorities from the whites the key factor is always education. Saying that we should just pay these kids to play for four years and then let them go back to being poor is pessimistic and discriminatory. These kids are on a college campus for a reason, to get the education they need to make it, and if they learn to take advantage of that education it'll be worth more than you could possibly be paid to play football at a mediocre level for four possibly five years. The point is that it's not about the money, though even if it were the education is way more valuable financially than your salary in those four years. Graduation is the key and the best win for any college athlete.
Fact: Average income for a black male with a high school education: $22,823
Average income for a black male with a four year degree: $42,285
The NCAA has the moral high ground in their position. That's the point of the NCAA. College athletes are NOT professional athletes. The cap on the amount of money that the division one football and basketball players receive is intended to remind them that they are not professionals, nor will they likely be after college, if they even finish college.
The idea of paying college athletes is ridiculous. The whole idea behind the NCAA is that it is a non-professional system where school comes first. Though this idea has been distorted in recent decades, good coaches know that their players are very unlikely to ever be a member of, let alone play on, a professional sports team. Caps on the amount of money that players can receive serve to attempt to show that they are not on a college campus to solely make money, for themselves or for their schools, but they are truly there to learn. Barro's example of the kid that is recruited from the ghetto and then paid the typical amount, aka room & board and tuition, and saying that the player will surely "remain poor after these four years (130)" is shortchanging the athlete. Student athletes are just that, students first.
As we talked about in our tutorial on Tuesday and as is common knowledge when talking about the gap in salaries between the rich and the poor and the minorities from the whites the key factor is always education. Saying that we should just pay these kids to play for four years and then let them go back to being poor is pessimistic and discriminatory. These kids are on a college campus for a reason, to get the education they need to make it, and if they learn to take advantage of that education it'll be worth more than you could possibly be paid to play football at a mediocre level for four possibly five years. The point is that it's not about the money, though even if it were the education is way more valuable financially than your salary in those four years. Graduation is the key and the best win for any college athlete.
Fact: Average income for a black male with a high school education: $22,823
Average income for a black male with a four year degree: $42,285
Shoutouts to Elliott and Hurley
1. On economic convergence:
Can foreign aid assist in ameliorating the diverging effects of the Industrial Revolution? The theory of economic convergence allows for the assessment of the potentiality of the hypothetically ideal foreign aid in order to judge if efforts to counteract the Great Divergence are inevitably fruitless. There are 3 dominant explanations generally offered to account for the absence of convergence among countries: that productive technology somehow allows the rich to have greater returns to scale, that convergence is a fact of life only among countries with an adequate human capital base for implementing modern technology and that currently poor countries simply have low long-term potential for high economic growth. These pessimistic theories suggest that the countries left behind by the Great Divergence two hundred years ago will be unable to achieve the rapid growth necessary to close the gap with the industrialized nations.
As we’ve read, Barro introduced the notion of “conditional convergence,” meaning that a country tends to grow more rapidly the greater the gap between its initial per capita income level and its long-run per capita income level. Thus, a poor country will grow faster than a rich country, but only if the poor country’s human capital exceeds the amount that generally companies the low level of per capita income. However, on a more optimistic note, Jeffrey Sachs and Andrew Warner find based on regression analysis that convergence depends on policy choice rather than on initial levels of capital. Therefore, it can be inferred that convergent growth can be achieved by all countries that have the necessary political and economic policies, including basic adherence to political and civil rights, an open economy and civil peace (Jeffrey and Warner. “Economic Convergence and Economic Policies,” April 1995. http://www.nber.org/papers/w5039).
2. On Amartya Sen & Barro:
Additionally, the cross-country evidence examined in Barro’s study confirms the strong empirical regularity of the Lipset hypothesis. Democracy is found to be predicted by various measures of the standard of living, including real per capita GDP, life expectancy and male and female primary school attainment, thus supporting the comprehensive nature of Sen’s capability approach to development. Barro’s study suggests that countries at low levels of economic development generally do not sustain democracy, exemplified by the short lived political freedoms that were installed in the newly independent African states in the early 1960s, but non-democratic places that experience significant economic development tend to become more democratic, such as Chile, Taiwan, Spain and Portugal. Therefore, improvements in real per capita GDP, life expectancy and male and female primary school attainment increase the probability that political institutions will become more democratic over time, indicating that political freedom is in a sense a luxury good.
While it is important to keep in mind that the correlations that Barro observed are not clear indicators of causation, the results of this study serve to caution proponents of the capability approach, who advocate focusing on augmenting substantive freedoms, that these freedoms may not be able to be augmented until an adequately high income level is attained. Not only does this study indicate that more democracy is not the key to economic growth, which is significant given that economic growth is essential in attaining growth-mediated process of development, it also suggests that political freedoms tend to erode over time if they get out of line with a country’s standard of living. It follows, then, that policymakers with the goal of development should focus on either economic growth or the augmentation of substantive freedoms based on the current status of the country for which they are making policies. If economic freedom can be established in a relatively poor country, then economic growth would be encouraged and the county would tend to become more democratic on its own in the long run. Barro concludes his study by directly supporting the economic approach to development, with development being defined as the process of widening people’s choices and enhancing well-being, by stating that “the propagation of Western-style economic systems would also be the effective way to expand democracy around the world” (p24 of “Determinants of Economic Growth: A Cross-Country Empirical Study,” 1996. http://www.nber.org/papers/w5698). It seems likely (to me, at least) that Sen would hold Barro’s conclusion to be supportive of the capability approach.
Can foreign aid assist in ameliorating the diverging effects of the Industrial Revolution? The theory of economic convergence allows for the assessment of the potentiality of the hypothetically ideal foreign aid in order to judge if efforts to counteract the Great Divergence are inevitably fruitless. There are 3 dominant explanations generally offered to account for the absence of convergence among countries: that productive technology somehow allows the rich to have greater returns to scale, that convergence is a fact of life only among countries with an adequate human capital base for implementing modern technology and that currently poor countries simply have low long-term potential for high economic growth. These pessimistic theories suggest that the countries left behind by the Great Divergence two hundred years ago will be unable to achieve the rapid growth necessary to close the gap with the industrialized nations.
As we’ve read, Barro introduced the notion of “conditional convergence,” meaning that a country tends to grow more rapidly the greater the gap between its initial per capita income level and its long-run per capita income level. Thus, a poor country will grow faster than a rich country, but only if the poor country’s human capital exceeds the amount that generally companies the low level of per capita income. However, on a more optimistic note, Jeffrey Sachs and Andrew Warner find based on regression analysis that convergence depends on policy choice rather than on initial levels of capital. Therefore, it can be inferred that convergent growth can be achieved by all countries that have the necessary political and economic policies, including basic adherence to political and civil rights, an open economy and civil peace (Jeffrey and Warner. “Economic Convergence and Economic Policies,” April 1995. http://www.nber.org/papers/w5039).
2. On Amartya Sen & Barro:
Additionally, the cross-country evidence examined in Barro’s study confirms the strong empirical regularity of the Lipset hypothesis. Democracy is found to be predicted by various measures of the standard of living, including real per capita GDP, life expectancy and male and female primary school attainment, thus supporting the comprehensive nature of Sen’s capability approach to development. Barro’s study suggests that countries at low levels of economic development generally do not sustain democracy, exemplified by the short lived political freedoms that were installed in the newly independent African states in the early 1960s, but non-democratic places that experience significant economic development tend to become more democratic, such as Chile, Taiwan, Spain and Portugal. Therefore, improvements in real per capita GDP, life expectancy and male and female primary school attainment increase the probability that political institutions will become more democratic over time, indicating that political freedom is in a sense a luxury good.
While it is important to keep in mind that the correlations that Barro observed are not clear indicators of causation, the results of this study serve to caution proponents of the capability approach, who advocate focusing on augmenting substantive freedoms, that these freedoms may not be able to be augmented until an adequately high income level is attained. Not only does this study indicate that more democracy is not the key to economic growth, which is significant given that economic growth is essential in attaining growth-mediated process of development, it also suggests that political freedoms tend to erode over time if they get out of line with a country’s standard of living. It follows, then, that policymakers with the goal of development should focus on either economic growth or the augmentation of substantive freedoms based on the current status of the country for which they are making policies. If economic freedom can be established in a relatively poor country, then economic growth would be encouraged and the county would tend to become more democratic on its own in the long run. Barro concludes his study by directly supporting the economic approach to development, with development being defined as the process of widening people’s choices and enhancing well-being, by stating that “the propagation of Western-style economic systems would also be the effective way to expand democracy around the world” (p24 of “Determinants of Economic Growth: A Cross-Country Empirical Study,” 1996. http://www.nber.org/papers/w5698). It seems likely (to me, at least) that Sen would hold Barro’s conclusion to be supportive of the capability approach.
Blomberg Signs Anti-Obama Petition
http://moderncommentaries.blogspot.com/2008/10/obamas-economic-policies-disaster.html
Read about it there
Read about it there
Tuesday, October 7, 2008
Theories
Occasionally I am busy. The past month was one of those times. The next few weeks appear not to be. I also occasionally come up with theories, which are often rejected by the first rational thought that comes into my head, but some make it through this first test.
One theory:
Through technology, birth control, planned families, but most of all the transition from a manual labor based system of economics, we have escaped the Malthusian trap of food production. We now find ourselves trapped in a Malthusian trap of happiness. As technology increases, what got us out of the food trap, so does our ability to get stuff, or "cargo" as Jared Diamond used, and as I will for this rant. Our ability to get "cargo" increases linearly. Our ability to want "cargo" increases exponentially. Therefore, our happiness can increase in the short run as we are exposed to new cargo. In the long run, however, we return to our unhappy complacency with only an XBox 360 and seven thousand tamagachis lying around our floors.
Why did this trap just recently occur? There may be a deeper reason, but I dislike advertising, so I will set it up as a strawman, on which I will quickly hate. With the fall of finance, advertising is the new heart of capitalism. An exaggeration, but it gets at the point that money is made through sale, and sale is made through demand. Current demand is already taken up, and as we unlock the clues of the human mind, advertising is the first to abuse such knowledge. Advertising takes advantage of the asymetries in information and our trust in capitalism to coax us to new cargo. Advertising does not capitalize on current demand, because that is already capitalized on. Advertising creates demand! This demand was unecessary, perhaps even inconceivable before it was created, and like Plato's monster of a ruler who was never satisfied with his new destructive ways, we now demand even more, cooler, cargo! We never have enough time to enjoy our current cargo, because the new iPod is slightly smaller, and has a sweet new touchpad feature!
We have indeed fallen into a Malthusian trap of happiness.
One thought:
A former PPEer told me there is a line somewhere in the bible that says the end of days is when all people start speaking the same language. I have never verified that this quote exists, but I like to think that the end of days is equivalent to global warming, and the language phenomenon to globalization.
A closing link:
I couldn't help but notice that so few of us were worried about privacy when it came up in class. Used to liberal support from the rowdy class, this struck me as a surprise. Please read for just one example of why privacy is on the run.
One theory:
Through technology, birth control, planned families, but most of all the transition from a manual labor based system of economics, we have escaped the Malthusian trap of food production. We now find ourselves trapped in a Malthusian trap of happiness. As technology increases, what got us out of the food trap, so does our ability to get stuff, or "cargo" as Jared Diamond used, and as I will for this rant. Our ability to get "cargo" increases linearly. Our ability to want "cargo" increases exponentially. Therefore, our happiness can increase in the short run as we are exposed to new cargo. In the long run, however, we return to our unhappy complacency with only an XBox 360 and seven thousand tamagachis lying around our floors.
Why did this trap just recently occur? There may be a deeper reason, but I dislike advertising, so I will set it up as a strawman, on which I will quickly hate. With the fall of finance, advertising is the new heart of capitalism. An exaggeration, but it gets at the point that money is made through sale, and sale is made through demand. Current demand is already taken up, and as we unlock the clues of the human mind, advertising is the first to abuse such knowledge. Advertising takes advantage of the asymetries in information and our trust in capitalism to coax us to new cargo. Advertising does not capitalize on current demand, because that is already capitalized on. Advertising creates demand! This demand was unecessary, perhaps even inconceivable before it was created, and like Plato's monster of a ruler who was never satisfied with his new destructive ways, we now demand even more, cooler, cargo! We never have enough time to enjoy our current cargo, because the new iPod is slightly smaller, and has a sweet new touchpad feature!
We have indeed fallen into a Malthusian trap of happiness.
One thought:
A former PPEer told me there is a line somewhere in the bible that says the end of days is when all people start speaking the same language. I have never verified that this quote exists, but I like to think that the end of days is equivalent to global warming, and the language phenomenon to globalization.
A closing link:
I couldn't help but notice that so few of us were worried about privacy when it came up in class. Used to liberal support from the rowdy class, this struck me as a surprise. Please read for just one example of why privacy is on the run.
Sunday, October 5, 2008
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