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The best sentence I read before 8 a.m. this morning
Since World War II, our economy has evolved in ways that reinforce the financial differences between strong families and weak families.
There are more good sentences here. You'll find some bad sentences here, which summarizes the economic plans of the Democrats to address inequality.
Posted by Tyler Cowen on November 29, 2006 at 08:07 AM in Economics | Permalink
Comments
What about social policies??????
Destruction of the black nuclear family?
Can we define what are strong and weak families?
Posted by: Sandy P at Nov 29, 2006 9:46:39 AM
How much of the rise of inequality between housholds is due to 1. the
increase of single parents and 2. the fact that most middle-class
educated women now work outside the home?
Posted by: fs at Nov 29, 2006 10:39:26 AM
One of the programs mentioned is the EITC and from your past statements I thought you would highlight this as a very good sentence. If you feel that so many of the programs are so bad why don't you fight harder for the program that is so good?
Posted by: eriks at Nov 29, 2006 11:01:16 AM
A strong family is one that makes a lot of money. A weak family is one that doesn't.
Thus, any increase in inequality by definition reinforces that difference.
But of course, this isn't Kling's point. Kling always makes the same point: government cannot do anything. He makes this point because being excessively ideological has rendered him less intelligent than he would otherwise be. As if all government actions are equivalent. As if it is impossible to structure government such that government employees have similar incentives to private sector employees, when providing such incentives is important.
Does anyone have any thoughts on how otherwise intelligent people are rendered so ridiculously unintelligent when it comes to government? All they can say is that we should always have less government instead of focusing on how we can have better government.
Posted by: Ragerz at Nov 29, 2006 11:11:24 AM
Ragerz: what if the indispensable route to better government is less government?
Posted by: dearieme at Nov 29, 2006 11:35:40 AM
dearieme,
That is the ideology talking. Sorry, I am a pragmatist, not an ideologue.
The optimal approach to a problem varies on domain.
The dogma that less government is always the answer is foolish, because government can be structured in many different ways. I am not against the idea of less government in certain domains, or more government in others. Overall, the level of government itself should not really be the decisive factor driving our analysis; that is but one variable.
What should be driving our analysis? The specific features of the problem and the specific features of the proposed solutions should, keeping in mind that government can be structured in many different ways, so that the elimination of one solution is not quickly thought of as the elimination of all solutions.
I am sorry, but anyone who says the solution to heterogeneous problems is ALWAYS x is not being intelligent with respect to those problems. Overall, I think that those who are more intelligent have pragmatic tendencies, in contrast to ideological tendencies.
Pragmatists don't try to use the same tool for every problem, no matter how inappropriate. Rather, they think about the many tools in their toolbox and contemplate which one might be best. They also think of ways to invent new tools.
Posted by: Ragerz at Nov 29, 2006 12:12:41 PM
I certainly consider myself libertarian for pragmatic reasons, Ragerz.
Posted by: josh at Nov 29, 2006 12:22:52 PM
The trend away from marriage accounted for almost half the increase in child income inequality and more than the entire rise in child poverty rates, measured from 1971 to 1989:
Robert I. Lerman, "The Impact of the Changing US Family Structure on Child Poverty and Income Inequality," Economica, May 1996, pp. S119-S139.
http://ideas.repec.org/a/bla/econom/v63y1996i250ps119-39.html
Posted by: Mr. Econotarian at Nov 29, 2006 12:36:31 PM
Wasn't there a study 30 years ago, which was reaffirmed either earlier this year or last that there are 3 simple steps to stay out of poverty - and this is where the gov't can get involved, it's a no-brainer - it's cheap, just keep repeating it, it'll sink in in a couple of generations:
1. Finish high school - get the diploma
2. Do NOT get married until after the age of 20
3. Do NOT have kids until after you are married (insert personal here - at least 9 months after!).
Posted by: Sandy P at Nov 29, 2006 12:46:46 PM
"We conclude that wives' earnings reduced inequality in that the income distribution would have been less equal in their absence." [from 1979-1989 US data]
http://www.mitpressjournals.org/doi/abs/10.1162/003465398557348
Also, we have to keep in mind that "Gini coefficients" are generally computed statically, rather than looking at lifetime family earnings, so we may be missing something:
"The earnings of married women have a more equalizing effect on the distribution of lifetime family earnings (or the expected present value of earnings) than on the distribution of annual family earnings, using PSID longitudinal data. The intertemporal variability of wives' labor supply causes the correlation between the lifetime earnings of husbands and wives to weaken relative to the correlation between their annual incomes, resulting in lower lifetime inequality. The inequality of potential income (full employment earnings) is found to be much greater for lifetime earnings than average annual earnings, based on alternative endogenous wage-hours models."
http://links.jstor.org/sici?sici=0034-6535(198905)71%3A2%3C196%3AILSATD%3E2.0.CO%3B2-4#abstract
Posted by: Mr. Econotarian at Nov 29, 2006 12:47:52 PM
ragerz: "A strong family is one that makes a lot of money. A weak family is one that doesn't."
Sorry, but I cannot agree. I've known too many poor but strong families. I was raised in one.
ragerz: "As if it is impossible to structure government such that government employees have similar incentives to private sector employees"
I think it is near-impossible.
I have met exceptional and motivated government employees. But even the best employees cannot usually overcome the ineffectiveness of government bureaucracy. Companies subject to free market pressures must satisfy customers or they'll cease to exist. Government monopolies can provide poor service for decades and still survive.
Posted by: JohnDewey at Nov 29, 2006 1:08:17 PM
josh,
No libertarian is a pragmatist. Sorry. But faith in an ideology is incompatible with pragmatism, which, first and foremost, leads us to recognize the limits of our own knowledge and be skeptical of the sorts of religious generalizations that libertarians and other ideologues embrace.
You may have pragmatic tendencies in certain areas of your life where ideology has not caused brain death, but to the extent that you have a libertarian faith, you are not a pragmatist.
Pragmatism is not incompatible with an acknowledgment of the benefits of markets in many situations, or skepticism of government action in others. For an example of a pragmatist with free market tendencies, check out Judge Posner's blog or any of his books.
The bottom line. Saying, that you are a libertarian for pragmatic reasons is like saying that the only tool you have in your toolbox is a hammer for pragmatic reasons.
To say, "I fail to see any situation in which a screwdriver is more appropriate than a hammer!" is not pragmatic.
Posted by: Ragerz at Nov 29, 2006 1:09:58 PM
josh,
No libertarian is a pragmatist. Sorry. But faith in an ideology is incompatible with pragmatism, which, first and foremost, leads us to recognize the limits of our own knowledge and be skeptical of the sorts of religious generalizations that libertarians and other ideologues embrace.
You may have pragmatic tendencies in certain areas of your life where ideology has not caused brain death, but to the extent that you have a libertarian faith, you are not a pragmatist.
Pragmatism is not incompatible with an acknowledgment of the benefits of markets in many situations, or skepticism of government action in others. For an example of a pragmatist with free market tendencies, check out Judge Posner's blog or any of his books.
The bottom line. Saying, that you are a libertarian for pragmatic reasons is like saying that the only tool you have in your toolbox is a hammer for pragmatic reasons.
To say, "I fail to see any situation in which a screwdriver is more appropriate than a hammer!" is not pragmatic.
Posted by: Ragerz at Nov 29, 2006 1:10:58 PM
John,
I agree with you that a strong family can have lower income.
To address the rest of what you said.
"But even the best employees cannot usually overcome the ineffectiveness of government bureaucracy."
This is EXACTLY what I mean. You seem to think, no, I would say religiously believe, that because something is called government, it must be characterized by a certain type of bureaucracy. (I would characterize it as religion because you said, "I think it is near-impossible" to give government employees appropriate incentives.) But of course, not all bureaucracies are created equal. As someone who has worked in the private sector, I have seen idiotic corporate bureaucracies in person. But we know that different forms of internal corporate organization exist, and they are not all created equal.
"Companies subject to free market pressures must satisfy customers or they'll cease to exist."
Yeah, I will remember that next time I am on hold or encounter rude customer service. Should I switch to Verizon from Cingular, because Cingular provides no indication on your cell phone that you are over your minutes? Oh wait, my friend who switched from Verizon to Cingular says that Verizon is even worse when it comes to customer service. And then there are the switching costs associated with long-term contracts... Or information costs. What about that pushy sales guy. I don't remember WANTING to deal with him. Why don't corporations the employee annoying sales people go out of business??
None of this is to say that markets fail to provide any discipline. They do provide some. But nonetheless, companies still manage to survive despite ridiculous policies and procedures. What the market does is limit, rather than eliminate these problems. (But in some cases, increases them, as when the externalities from the annoying salesperson exceeds the benefits from the transactions that are consumated.)
Something similar happens with government. Only instead of being disciplined by the market, government is disciplined by the political process. Similary, just as the market fails to provide perfect discipline, so does the political process. However, it should be noted that internal to the government, it is possible to structure organizations in various ways to provide different incentive structures to employees depending on what is appropriate.
A pragmatist would assert that the difference in discipline between the market and the government is a significant factor one should take into consideration, while recognizing that it but one factor.
Posted by: Ragerz at Nov 29, 2006 1:39:51 PM
Sandy P -
So, none of those people working of mcdonald's or walmart finished high school?
Posted by: bhauth at Nov 29, 2006 1:43:38 PM
Ragerz,
"Saying, that you are a libertarian for pragmatic reasons is like saying that the only tool you have in your toolbox is a hammer for pragmatic reasons?."
Nope. It's like saying I don't carry a giant riveting gun in my toolbox, because, on the rare occasion it might be the best tool for the job, its pretty unlikely I'll be able to work it well enough.
If you'd like, you can think of a libertarian as somebody who has a riveting gun, but knows better than to try to use it. In any case, theseare all just analogies and don't really mean much of anything. I'm a libertarian because I think that libertarian policies are almost always the ones that make people the best-off (the libertarian pollicies that I don't think make people best-off, I don't support); if that's not pragmatism, what is.
Posted by: josh at Nov 29, 2006 1:50:57 PM
Ragerz,
If you think government is efficient as a rule, you have seen a different government than I have. Where do you live?
On some blogs you can get away with your blind faith in government efficiency. On this site it is incumbent on you to show why your faith in the unseeable (I haven't seen it anyway) is warranted.
As a general rule, a minimal government structure that allows people the freedom to pursue wealth creation is radically better than the opposite. This isn't mere libertarian faith, it is empirical evidence.
Also, I'd put government programs into two categories: 1) Those designed to give a handout. 2) Those designed to give a hand up.
The ones designed to give a handout I blame for taking the black marriage rate of 50% before "The Great Society" to about 1% today. How is that efficient or helpful?
The ones designed to give a hand up I could support if government managed to seperate the financing and the managing, since despite your faith in government competence, I believe that only an organization that ceases to exist upon failure can be counted upon to be at least somewhat effective in the long run. If it isn't effective, it will be replaced by an organization that is more efficient. One such example is government financing of K-12 education, on the condition that the money be attached to students while the actually businesses that run the school are non-government run and allowed to be replaced when they fail.
Posted by: happyjuggler0 at Nov 29, 2006 2:31:15 PM
happyjuggler) --Ragerz did not say that governments are efficient.
What he said is that private companies are also inefficient and that they
can survive despite this inefficiency.
If you are going to disagree with someone, at least disagree with what they said.
As far as your critisms of government the results are roughly what the
customers of government have indicated at the polls that they want.
You may believe that this is an undesirable results, but it does not mean that the government is any more inefficient then GM or Ford.
Posted by: spencer at Nov 29, 2006 2:42:39 PM
happyjuggler0 -- the empirical evidence you presented actually makes the exact opposite conclusion then you apparently believe.
If you did a regression of the standard of living vs governemnt it would demonstate strongly that high income is associated with large govenment not withstanding the two extreme examples or outliers of Hong Kong and North Korea.
Posted by: spencer at Nov 29, 2006 2:49:06 PM
Spencer,
His first post was clearly an homage to the ability of government to succeed and do better than the private sector. I challenged him to provide examples where this faith (his word of choice for derogatory purposes) is justified.
GM and Ford are dying, they have certainly lost gobs of market share to more efficient competition. More importantly, this competition is private, and I am hopeful, perhaps naively so, that GM and Ford will be allowed to completely fail if they don't get their act together.
This doesn't mean that companies like Toyota and Honda (both private organizations once again for emphasis) are perfect. Nowhere am I saying that private organizations are perfect or not less than 100% efficient. I am saying that the best system is to allow a competition of private organaiztions and allow them to fail when they aren't good enough.
GM and Ford do some things better, or at least have done until recently, than Toyota and Honda, mostly in terms of trucks, SUV's, and better looks. The Japanese cars have almost universally been ugly since they started appearing on the US market decades ago. If not for this GM and Ford would have gone out of business long ago, and this would not have been a bad thing since it would be the result of more efficient resource allocation.
The key here is ability to go out of business is basically essential, or we wind up with universally acknowledgement of truly horrible government run urban K-12 schools. The issue is not lack of money, the issue is inability to go out of business, and inabilility to restructure in such a manner as to hire more efficient teachers to replace the crap that currently goes by that name (i.e. teachers).
Posted by: happyjuggler0 at Nov 29, 2006 3:02:43 PM
Spencer,
I guess we read the data differently. I believe the link I provided does indeed show a link between the economic freedom I advocate with higher per capita GDP (PPP adjusted, unlike the site's numbers which inexplicably don't adjust).
The irony though is that this wealth created by private actors in a relatively free system also supports the ability to have bigger government, and thus allow what some people call "government compassion", although you can't prove that compassion by me, looking at what it has done to black people in the US and France for example. My own theory is that the smaller a population is in absolute terms (i.e. not population density), the more they have to trade internationally, and thus the more they have to work to make their govermnent programs a success or the alternative is falling standards of living. Big countries like the US, France, Germany, Italy have the illusion that they can handicap the local businesses and still succeed due to the size of their market.
China is universally acknowledged to becomig more and more economically free since 1978, and the result is a boom. Viet Nam is becoming more economically free starting about 20 years ago, and increasingly so, with similar results, especially recently. If you click on the India link, you'll see their "sudden, inexplicable" boom coincides with a large increase in economic freedom at the turn of the century. If they became more free, they could deepen and widen the boom. If not, they may face their own version of last year's French rioting due to unequal opportunity to advance. Ireland and Portugal both had simliarper capita GDP'sw not too long ago and both received large transfers from the EU. Ireland became more economically free and boomed. portugal retained the statist status quo for the most part, and has gone relatively sideways.
It is universally acknowledged by those who haven't been paying close attention that Africa is a basket case, excepting the country of South Africa. But Botswana bucked the universal trend of its peers upon independence. They instead chose to be more economically free, and have radically boomed in the past 40 years. I'm not sure what their per capita GDP was back then in inflation adjusted dollars, but it was astonishingly low. Today only two countries in Latin America have higher per capita GDP's, and not by all that much either.
It is universally acknowledged that besides whatever horrible things Chile's government has done since the socialists got booted in the 70's, Chile radically moved towards more economic freedom, again totally bucking the trend in Latin America. Today only Argentina has a higher per capita GDP.
Take a look at which Eastern European governments were the most libertarian at various stages since 1991. The Czechs were tops for a while, now Estonia is. The results? You guessed it, they boomed more than virtually everyone else, excepting Slovenia. I am not sure what is up with Slovenia, I guess exceptions to the rule exist everywhere. But they do have an enviable geographic location, and I believe they historically had high human capital values. There is a clear strong connection as well amongst the rest of eastern Europe as well with regards to economic freedom over the past 15 years and their per capita GDP's.
Personally I find the conclusion inescapable as well a eminently logical. Only people can create wealth, and by allowing people to create wealth they actually create more wealth than when government stands in their way. As far as taxation and overall government spending is concerned, I'd say investment taxes are the least efficient, followed distantly by income taxes, with consumption taxes being the most efficient. Following that logic, I have no trouble seeing how a country like Sweden or Denmark, have managed to do as well as they have. Not all government spending is created equal, despite some rhetoric that makes it seem that way. For example, education spending that is efficient does wonders when leveraged by private sector wealth creation mechanisms. Paying people on the condition that they do nothing on the other hand has obvious problems and is a dubious method of helping someone.
Posted by: happyjuggler0 at Nov 29, 2006 3:40:47 PM
If you look at the graph at http://www.visualizingeconomics.com/2006/10/29/income-by-number-of-earners/ You can see that single earner households have made no income gains. The fact that second earners now work more and add more to household income accounts for very little of the growing inequality. The bottem 99% of housholds share of GDP is about 20% less than in the 50' and 60's, even with the extra earnings of second workers.
Posted by: joan at Nov 29, 2006 4:01:00 PM
Joan,
You might have a point if the sample of single earners then and now are both random. I think what is probably the case is that more of those single earners come from the lower end of the job spectrum than they used to. And by the way, they still mae twice as much as the single income earners two generations ago!
Posted by: josh at Nov 29, 2006 4:13:46 PM
If you look at the graph at http://www.visualizingeconomics.com/2006/10/29/income-by-number-of-earners/ You can see that single earner households have made no income gains. The fact that second earners now work more and add more to household income accounts for very little of the growing inequality. The bottem 99% of housholds share of GDP is about 20% less than in the 50' and 60's, even with the extra earnings of second workers.
Posted by: joan at Nov 29, 2006 4:15:30 PM
Why use Heritage numbers when Fraser's are much better?
http://freetheworld.org/
Posted by: TGGP at Nov 29, 2006 5:52:15 PM
