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Conservative Pigs and Liberal Bonobos
Herb Gintis reviews Krugman on Amazon:
Krugman's vision for the future has three key premises, all wrong. First, he believes progressives can win on a platform of redistributing from the rich. However, no one cares about inequality. People care about injustice, unfairness, poverty, sexual predators, family values, gay marriage, terrorism, and many other problems of everyday life. People don't care about Gini distributions and other abstractions. Moreover, Krugman should know that if the wealth were redistributed to the middle class, the US investment rate would fall, since the rich save their money and it is translated into investment, whereas the middle classes would spend their gains on consumption, thus driving out investment. A "soak the rich" policy simply cannot work to the advantage of the middle classes.
Second, Krugman would strengthen the labor unions, which he credits for their egalitarian effects. However, unions were strong only when industry was highly non-competitive in such areas as automobiles and steel. The oligopolistic character of mid-twentieth century industry, with a few countries in the lead, made fighting over the excess profits highly rewarding. With globalization, there are no excess profits to be fought over. Thus, it is not surprising that most successful unions in the USA are public service, not private (e.g., teachers, government employees). There is no future in unionism, period.
Third, Krugman believes that liberalism can be restored to its 1950's health without the need for any new policies. However, 1950's liberalism was based on southern white racism and solid support from the unions, neither of which exists any more. There is no future in pure redistributional policies in the USA for this reason. Indeed, if one looks at other social democratic countries, almost all are moving from corporate liberalism to embrace new options, such as Sarkozy in France (French socialists have the same pathetic political sense as American liberals, and will share the same fate).
I am sorry that we can't do better than Krugman. There are very serious social problems to be addressed, but the poor, pathetic, liberals simply haven't a clue. Conservatives, on the other, are political sophisticated and hold clear visions of what they want. It is too bad that what they want does not include caring about the poor and the otherwise afflicted, or dealing with our natural environment. Politics in the USA is no longer Elephants and Donkeys; it is now conservative Pigs and liberal Bonobos. The pigs are smart but only care about what's in their trough. The Bonobos are polymorphous perverse and great lovers, but will be extinct in short order.
Hat tip to PrestoPundit.
Posted by Alex Tabarrok on November 27, 2007 at 08:21 AM in Economics | Permalink
Comments
"Conservatives, on the other, are political sophisticated and hold clear visions of what they want"
If we are talking about politicians only, then I can at least see some justification. If we are talking about the general populace on average that holds conservative values, the statement is, at best, the opposite of true.
Posted by: Aaron Fix at Nov 27, 2007 8:57:34 AM
The review would have been a lot stronger if Gintis had omitted that last paragraph.
Posted by: Missy at Nov 27, 2007 8:58:53 AM
I don't understand the premise (also promoted by Reich) that profits are
low because of competition. Profits are at a record high! He means
manufacturing profits. Basically the world decided in the 1980s that it
needed more competition and so moved to reduce trade barriers. It worked
for a while, but increasing returns to scale are increasing returns to
scale and oligopoly is returning.
Posted by: reason at Nov 27, 2007 9:25:53 AM
Bonobos are clearly smarter than pigs also not particularly perverse sompared to other animals. Southern white racism still exists even if it doesn't favor liberals (exactly the opposite.
Posted by: Michael Foody at Nov 27, 2007 9:29:46 AM
Herb Gintis: "It is too bad that what they want does not include caring about the poor and the otherwise afflicted"
Do liberals believe this about conservatives or is it just politics? Certainly the right has its share of kooks and bigots. I've been working with conservatives for 27 years, and I am certain that the kooks and bigots are a small minority.
Most conservatives believe - and this is opposite of what most liberals believe - that assisting "the poor and otherwise afflicted" just makes them dependent on that assistance.
Most conservatives believe that the near-monopoly the state has on childhood education - and the resulting failure of that monopoly - prevents some children of "the poor and otherwise afflicted" from rising out of their economic class.
Most conservatives believe that "the poor and the otherwise afflicted" have the ability to improve their situation in life without assistance.
Most conservatives believe that affirmative action has harmed far more of "the poor and otherwise afflicted" than it could possibly have helped.
Unfortunately, Herb Gintis has no friggin' clue what most conservatives want or believe.
Posted by: John Dewey at Nov 27, 2007 9:38:14 AM
Right, Foody. Contemporary conservatism is based on southern white racism, and will doubtless seem no less incoherent than 1950s liberalism in the decades after its collapse.
Posted by: Anderson at Nov 27, 2007 9:39:17 AM
Are you sure that this is the real Gintis?
Anyone who can write: "But, these countries [France, Germany] are plagued by bureaucratic inefficiency and deeply threatened by the "lean and mean" up-and-coming countries like Poland, the Baltic States, Romania, India, et al.", clearly knows nothing about Poland, Romania or India.
Posted by: disinterestedobserver at Nov 27, 2007 9:49:02 AM
This blog seems to particularly favor a specific annoying style of posts that consist of two elements:
1) substantive dismantling of liberal arguments
2) unsubstantiated smears against conservatives
I think I'd prefer honest bias to this sort of balance.
Posted by: Chris at Nov 27, 2007 9:53:49 AM
Reason: " increasing returns to scale are increasing returns to
scale and oligopoly is returning."
Where is oligopoly returning, sir? Here's what I see in the U.S.:
- the share of the top three vehicle manufacturers is much lower than it was 30 years ago;
- the airline industry is deregulated, and route oligopolies no longer exist;
- telecommunications in the U.S. is no longer limited to AT&T and GTE, as it was 30 years ago;
- tiny oil refiners have gone out of business, but there are still over twenty operating in the U.S..
How many industries that were not oligopolies the past 20 years have become oligopolies today?
Posted by: John Dewey at Nov 27, 2007 9:54:54 AM
"Conservatives, on the other, are political sophisticated and hold clear visions of what they want."
He was almost sounding reasonable up to that point.
Posted by: M. Hodak at Nov 27, 2007 9:57:45 AM
Moreover, Krugman should know that if the wealth were redistributed to the middle class, the US investment rate would fall, since the rich save their money and it is translated into investment, whereas the middle classes would spend their gains on consumption, thus driving out investment. A "soak the rich" policy simply cannot work to the advantage of the middle classes.
Is the above true? I had always believed that it was true but then I read something by Julian Simon that said that said something like the middle class save as much as the rich. Did I miss read Julian Simon?
If it is true why are conservatives and libertarians not shouting it from the house tops? Even if it is true does that Federal Reserve provide a substitute for saving though money creation?
Does anybody know?
Posted by: Floccina at Nov 27, 2007 10:12:45 AM
All a liberal ever wants to do is level level level.
Posted by: ricpic at Nov 27, 2007 10:28:13 AM
Why, why, why is so much attention directed to Krugman's stuff?
Ignore him. He will wither.
Posted by: R. Richard Schweitzer at Nov 27, 2007 10:42:56 AM
I think I'm going to read 'Conscience of a Liberal' over the holiday, but I'd like to pair it with a conservative equivalent. Any suggestions on a counterpoint work?
Posted by: Neil at Nov 27, 2007 10:45:38 AM
An exercise;
Which is worse, the article in question or the comments section on this blog entry? They're neck in neck in the screaming downward race to Information Hell.
Posted by: perianwyr at Nov 27, 2007 11:01:36 AM
Can I ask a question about his view on unions? Checking in Mankiw, he says "In the end there is no consensus among economists about whether unions are good or bad for the economy. Like many institutions, their influence is probably beneficial in some circumstances and adverse in others." Way to sit on the fence...
But how many economists think, like Krugman, that unions are a great thing? Is this a fringe view or are a lot of people behind him on this?
Posted by: Simon at Nov 27, 2007 11:37:44 AM
Is this worthy of a MR entry? There's more informative reviews out there, and I realize that liberal-bashing hyperboles Gintis satisfies AT's need for a PK slam but comon.
Posted by: Mark at Nov 27, 2007 12:23:15 PM
> But how many economists think, like Krugman, that unions are a great thing? Is
> this a fringe view or are a lot of people behind him on this?
They like them, they just won't buy a car made by people who work for an American one that's all.
Posted by: Walter at Nov 27, 2007 12:29:27 PM
"But how many economists think, like Krugman, that unions are a great thing? Is this a fringe view or are a lot of people behind him on this?"
You can certainly make a case for unions as a cartel that counterbalances the monospony power of employers. But then you could defend a lot of cartels on that basis. And it doesn't look like there's a whole lot of monopsony power in most labor markets. And I don't see pro-union economists defending a lot of other cartels on this monopsony basis, even where it might make more sense than in the labor context.
I think this is one of those cases where some economists do some wishful thinking and suffer some confirmation bias and attach themselves to a pro-union theory based on monopsony power, mainly to stay in the good graces of their political allies. (I mostly think that self-deception, rather than explicit cynical selling out, plays the dominant role in this process.)
I'd say that economists, perhaps like most people, systemically underestimate their own capcity for and tendency towards self-deception. This reduces their usefulness in informing policymaking.
Posted by: Keith at Nov 27, 2007 1:10:21 PM
Why would unions be bad for the economy? I can understand how bad labor laws might be bad for the economy. But it is bad legislators who write and pass bad labor laws.
Unions do not necessarily make companies uncompetitive. Southwest Airlines is the heaviest unionized of U.S. airlines. Yet they are also the most profitable, and the fastest rgowing over the past two decades.
Posted by: John Dewey at Nov 27, 2007 1:16:15 PM
Gintis also says;
I suspect Krugman is correct in saying that the degree of inequality in the USA today is the product of politics, not economic necessity.
That's quite a concession.
Then he writes:
Moreover, Krugman should know that if the wealth were redistributed to the middle class, the US investment rate would fall, since the rich save their money and it is translated into investment, whereas the middle classes would spend their gains on consumption, thus driving out investment. A "soak the rich" policy simply cannot work to the advantage of the middle classes.
So the stupid middle class doesn't know what's good for it, and would just waste the money, while the Paris Hilton's of the world build factories that benefit everyone. Hardly in keeping with the idea that people should be trusted to act rationally in their own interest.
In any case, the combination of the two suggests that Gintis approves of redistribution of wealth upward, but not downward, so that our betters can protect us from our own misjudgments. Somehow I wouldn't think a libertarian like Alex would find these views to his liking. But maybe any Krugman-bashing at all appeals to him, as it does to so many.
Posted by: Bernard Yomtov at Nov 27, 2007 1:30:51 PM
There are two important points that this critique misses:
1) Unions impact on the political process should not be neglected. A big part of the value in unions is aggregating financial resources to counter the influence of corporations in the political process. I know libertarians don't like to think this way, but labor and trade laws have a pretty big impact on the circumstances of labor and those laws are being contested politically.
2) Redistributing resources downward may be bad for medium term investments, but it is a very important long term investment. We know that educational attainment and success are closely tied to things like income level. Taxing the rich to provide for better prenatal care, early child development and improved education of the poor and middle classes will lead to a more productive work force in the long run. This is the long run conservatives typically fail to see. In the United States, currently, there is not a lot of concern for gini indexes. But there is in Europe. I don't think its reasonable to assume that the political views of Americans can never shift in this direction. And their is a sound basis for arguing that the redistribution of wealth will be better for everyone in the long run. Plus, its nice to turn that argument around on conservatives. They're always willing to tell the poor that they need to sacrifice now to benefit more in the long term. But with the current state of social support for the poor, I think you can make a strong argument that the rich need to sacrifice a little now to benefit in the long run by having more productive employees to hire and invest in.
Posted by: mpowell at Nov 27, 2007 1:43:08 PM
I agree, John. In the right legal context, i.e. one where the employer is not legally obligated to negotiate with unions, unions can be very useful.
I think unions could definitely have a future in corporate settings by acting as a direct conduit from workers to the board of directors, enabling workers to report managerial misconduct and waste directly to the board. This would protect shareholders, and it would be helpful to many corporate cultures.
Maybe the future of unions is to be found in the financial sector!
Posted by: Keith at Nov 27, 2007 1:44:26 PM
Keith,
Southwest Airlines employees tell me their management views union leaders as the legitimate spokesmen for their employees. As such, they are treated with great respect by Southwest.
IMO, it is more efficient for management to negotiate workplace practices with the leaders of a large group than to settle employee disputes on a case by case basis. Unions generally filter out frivolous employee complaints. In some companies, they also approve specific disciplinary actions, which eliminates arguments of injustice. Labor and management can work together in functional businesses.
I worked for FedEx for 13 years. Fred Smith and his management team went to extraordinary lengths to keep employees happy and reduce the chance of unionization. One of Fred's closest lieutenants confided to me that some of his peers questioned that strategy. They claimed it would be easier to deal with two or three unions than with the individual grievance system FedEx has installed.
Posted by: John Dewey at Nov 27, 2007 2:05:47 PM
Right, John, and I believe it certainly helps the relationship in that Southwest is not legally obligated to deal with the unions.
Let's distinguish between the desirability of negotiating with unions under certain circumstances and the desirability of legally mandating such negotiations. I have no problem with the former.
Marriage may be good, but it may not be desirable to legally obligate people to get married.
Posted by: Keith at Nov 27, 2007 2:28:00 PM
John Dewey and mpowel have defended unions as organizations and as vehicles of communication. As far as they go, these are good arguments.
However, most people who are "pro union" are thinking of going much further, and doing things like forcing all employees in an industry to join the associated union, or forcing employers to make concessions to unions of various kinds. If you subtract such things, then you have something many people would not call a union at all. If you add them, then it is much less obvious that unions are a net positive.
Posted by: Daublin at Nov 27, 2007 2:48:52 PM
Daublin,
I don't fault union leaders for trying to gain an advantage. That's what they are hired to do. IMO, the problem is with the lawmakers who favor special interests over the welfare of the entire electorate.
Now, I'm not condoning illegal bribery. I'm also not excusing labor unions that unyieldingly drive companies into bankruptcy. But, IMO, labor troubles are more the fault of: a) politicians who write the rules to fatten their wallets; and b) corporate leaders who sacrifice long term survival for short term peace (and bonuses).
Posted by: John Dewey at Nov 27, 2007 3:56:43 PM
John Dewey,
I can't speak for the US (but is it really one market?) as I live in Germany and last visited the US 20 years ago. But in Europe, the amount of competition in many markets is heading down (autos, energy, banking etc). What is Walmart's market share?
Posted by: reason at Nov 27, 2007 4:23:05 PM
pharmaceuticals, electronics, telecoms, retail ...
Give me a few minutes I'll think of some more.
Posted by: reason at Nov 27, 2007 4:27:47 PM
If competition is so fierce, why are profits so high?
Posted by: reason at Nov 27, 2007 4:29:21 PM
If competition is so fierce, why are profits so high?
Posted by: reason at Nov 27, 2007 4:30:41 PM
If competition is so fierce, why are profits so high?
Posted by: reason at Nov 27, 2007 4:31:09 PM
If competition is so fierce, why are profits so high?
Posted by: reason at Nov 27, 2007 4:31:26 PM
Reason,
Competition is very much alive and well in the U.S. Here's my take on three of the four industries you mentioned:
Telecom
Wireless seems awfully competitive these days - acting nothing like an oligopoly even though it has only four major players. One could argue that broadband is not competitive because of legal monopolies on some services. But I've got three choices in my neighborhood - about two more than I had a decade ago.
Retail
Certainly Walmart is big, but it competes with so many players in so many product lines. One only has to look at the four inch thickness of inserts delivered in urban U.S. newspapers last week to know that there is no oligopoly in retail. At least 20 retail chains sell big-screen TV's in large U.S. cities. At least twice that many retail chains sell women's clothes in large U.S. cities. There are six large furniture retailers within four miles of my house, and probably a dozen within ten miles.
Electronics
How many firms offer plasma TV's in the U.S.? I can name these: Pioneer, Panasonic, Toshiba, Sony, Vizio, Samsung, Fujitsu, Akai, JVC, NEC. There's probably more.
As you said, you haven't lived in the U.S. in 20 years. The consumer now rules here in the states.
Posted by: John Dewey at Nov 27, 2007 5:22:25 PM
reason: "If competition is so fierce, why are profits so high?"
Why did you post this four times?
It's all supply and demand. High profit margins do not indicate oligopolies. Agriculture profit margins soared after our silly Congress mandated ethanol in our gasoline tanks. That's because the supply couldn't keep up with the demand, and prices increases were the only way to ration. But those prices are still determined in the free market.
In some indutries, production costs dropped faster than prices, but prices still dropped. In others, such as airline travel, profit margins are not high at all, but have improved as capacity has dropped. Still, improving profit margins do not prove oligopolies exist.
Posted by: John Dewey at Nov 27, 2007 5:57:19 PM
It is too bad that what they want does not include caring about the poor and the otherwise afflicted, or dealing with our natural environment.\
That might pass for sophistication @ moveon.org, but this is just idiotic. In fact, if one's compassion for the poor can be measured by one's charitable donations- well, its already been established conservatives drop more coin in the pot.
Posted by: Superheater at Nov 27, 2007 6:05:45 PM
Why should anyone take this seriously when the basic premise he starts out with is completely in error. He makes the theoretical claim that increased inequality leads to greater savings and investment. It is great economic theory. But the data shows that exactly the opposite has happened in the US over the last quarter century. Income inequality has risen sharply but the savings rate has plunged to essentially zero and investment has fallen from a peak of 14% of GDP in 1981 to its current level of 10.7% of gdp. Moreover, the share of nonresidential fixed investment done by individuals, partnerships, s-corps and other entities subject to the individual income tax has fallen to only 11% of total nonresidential investment. At the rate we are going it will soon be less than the share done by the nonprofits sector.
Alex, I repeatedly report these facts on your blog and you always ignore them.
I guess you had rather continue living in you fantasy world of the 1800s when corporations did not exist and your theories actually had some reverences to the real world.
I challenge you to explain why rising inequality in the US has been accompanied by falling personal savings and investment as a share of GDP. I am still waiting for you to explain why your theories have been 100% wrong over the last quarter century.
Posted by: spencer at Nov 27, 2007 6:25:45 PM
In 1981, US interest rates were flirting with, and sometimes exceeding, 20%. If that's not an incentive towards investment, I don't know what is. Trying to make a historical argument based on only half of the Marshallian scissors is silly.
Posted by: Cyrus at Nov 27, 2007 7:34:16 PM
As a Marginal Revolution fan, I'm disappointed with this post.
The review starts with a claim so strongly worded as to sound ridiculous. If it's really true that _no_ redistribution policy can have any positive impact, it would be interesting but you really ought to provide some evidence.
I lack the knowledge to judge the comments about unions but the high emotion / low data quality of the piece is not encouraging.
The final paragraph should be offensive to everyone with it's extravagant, unsupported claims.
Perhaps I being too harsh on an off-the-cuff opinion piece, but I can not see why Alex would want to highlight this light-weight work. Surely he can find higher quality put-downs of his opponents.
Tom
Posted by: Tom G. at Nov 27, 2007 7:36:50 PM
Please do remember the cardinal rule that posting/linking does not imply agreement.
Posted by: Alex Tabarrok at Nov 27, 2007 10:02:42 PM
But surely posting/linking does imply a view that the material is worth reading.
Perhaps I have become spoiled by the usual high quality of Marginal Revolution posts.
Tom
Posted by: Tom G. at Nov 27, 2007 10:27:21 PM
It may help to know that Herb Gintis is an important, highly-regarded economist with strong left wing credentials. Thus, his review is worth reading for sociological reasons even or perhaps especially if you think every point is sophomoric. I also post items simply because I think they will interest readers.
Posted by: Alex Tabarrok at Nov 27, 2007 11:12:36 PM
It is interesting. The most interesting thing is the first criticism. Inequality isn't a bad thing all on its own, and if you take care of the bad things that the left has traditionally been concerned with, then no one is going to care if society is unequal or not. It is a good point, and, I think, a nigh unanswerable one.
Posted by: green apron monkey at Nov 28, 2007 1:21:50 AM
Why would unions be bad for the economy?
From Mankiw's Principles of Economics p. 613
"Critics of unions argue that unions are merely a type of cartel. When unions raise wages above the level that would prevail in competitive markets, they reduce the quantity of labor demanded, cause some workers to be unemployed, and reduce the wages in the rest of the economy. The resulting allocation of labor is, critics argue, both inefficient and inequitable. It is inefficient because the high union wages reduce employment in unionized firms below the efficient, competitive level. It is inequitable because some workers benefit at the expense of other workers"
Posted by: Simon at Nov 28, 2007 2:55:10 AM
Anyone who thinks that income inequality is irrelevant to everyday life has really become quite removed from life on the lower end of the distribution.
Posted by: Allison at Nov 28, 2007 3:23:44 AM
American do not resent the rich because they think of them as famous people who they like, but they do care about their own wages. They just do not see the change in the income distribution as responsible for stagnating wages, so they have found another target. I doubt immigration would a leading issue in the presidential campaign if wages were rising as fast as GDP per capita.
Posted by: joan at Nov 28, 2007 3:29:40 AM
Simon, you quoted Mankiw's text: "When unions raise wages above the level that would prevail in competitive markets,"
I guess I do not understand this. What qualifies as a "comptetitive market"?
If a group of small businessmen form a co-op to improve their purchasing power, are they still operating in a "competitive market"?
If a group of craftsmen in an artists' colony agree on minimum price levels for their wares, are they still operating in a "competitive market"?
If a mutual fund combines the assets of a million investors, and thus reduces overall administrative and transaction costs for those investors, are those investors still operating in a "competitive market"?
If AARP negotiates better insurance rates for its members, are those members still operating in a "competitive market"?
I can see where a labor market may not be "competitive" where employees are required by law to join unions. But in right-to-work states, how does group bargaining tactics mean that markets are not working? As I said before, it seems to me that the problem with unions is the bad laws passed by legislators who do not act in the best interest of the entire population.
Even in closed shop states, are those economists Mankiw mentions defining "market" too narrowly when they do not consider the global sourcing options available to businesses? If businesses are allowed to import product from other states or other nations, doesn't a competitive market for labor exist even for those unions in closed shop states?
Posted by: John Dewey at Nov 28, 2007 6:28:23 AM
Hmmm. Herb Gintis for some time has enjoyed being very iconoclastic.
Anyone interested in this aspect of him can read his interview in The
Changing Face of Economics: Conversations with Cutting Edge Economists,
by David Colander, Richard Holt, and me, 2004, University of Michigan Press.
His views have changed considerably over time, and he goes very much against
many grains and on his own singular path.
That said, the point raised by spencer does have some juice to it. Herb
may be right that now we will not get any increase in savings or investment
if we engage in equality increasing redistribution within the US. I do not
know. However, certainly there are a whole lot of countries out there with
substantially greater equality than the US and substantially higher savings
and investment rates, many other high income countries, in fact. It is also
correct that the recent rise in inequality has coincided with a decline in the
US savings rate, although I suspect that these are more independent than linked.
In any case, Herb looks to be a bit out on a limb on this assertion.
Alex,
The post was fine. Lots of interesting commentary.
Posted by: Barkley Rosser at Nov 28, 2007 1:16:53 PM
Barkley Rosser: "the recent rise in inequality has coincided with a decline in the
US savings rate, although I suspect that these are more independent than linked."
I can think of three factors that contributed to the decline in savings rate:
1. Despite my own apprehension about the program, I believe the majority of Boomers expect social security to fund their retirement lifestyles. Many just haven't perceived a need to save. For Boomers grandparents and parents, social security benefit levels had not increased to the real levels Boomers expect. So they needed to save more.
2. Boomers' parents and grandparents suffered the 1930's depression. The ones I know felt less financially secure than did those of us raised in the 50's and 60's boom years. Our elders saved not just for retirement but also for emergencies.
3. Consumer credit was just not as easily available for everyone 30 and 40 years ago. The only option for large purchases was to save.
Posted by: John Dewey at Nov 28, 2007 2:58:57 PM
Maybe the people in the white house are pigs. Who knows we don't know them. But if you want to get technical, liberals don't care about dead babies and don't have an open mind about anything. Conservatives aren't allowed to speak against gay marriage and abortion. But yet liberals are always whining about how conservatives don't have an open mind. How are we supposed to with all these liberals around. You have your point of view now let us have ours.
Posted by: at Nov 28, 2007 4:12:58 PM
John Dewey,
I would agree with your second and third points.
On the first one, looks like you want to continue our
contretemps from Cafe Hayek on social security over here,
:-). OK.
I am well aware that Martin Feldstein has made a
career out of arguing your first point. But I think there
is a lot of reason to doubt it. Again, I would point to
data on other countries. Just to be boring and tedious,
and recognizing that in a number of areas it does not do
as well as the US economy (while doing better in some others)
I will drag up the example of Germany. It has a much more
generous universal, government-provided old age pension
program than does the US, and has for a long time. Indeed,
it had the first government-provided social security system
in the world, dating back to the era of Chancellor Bismarck,
with the US system being modeled substantially on its system.
The payments in some cases are twice what they are in the US
social security system. Yet, Germany has a substantially
higher savings rate than does the US. Again, there are lots
of other similar examples, countries with generous
government-provided pension programs with respectable levels
of savings, well above those in the US.
Savings is a poorly understood phenomenon. Maybe the
indexation of social security starting in 1971 had an
effect on US savings, but my sense is that other factors
have been much more important.
Posted by: Barkley Rosser at Nov 28, 2007 4:25:00 PM
Im amazed at many of the comments that are obviously from folks that have studied economics extensively but have obviously not spent much time talking to people or just paying attention to attitudes.
In responce to the issue of savings. Deweys point number 3 is the only one that hits home. Trends from the past, make no real difference now. Boomers are like everyone else, age, up bringing, and all that aside. When people can spend money they do in general. The funny thing is that have you ever noticed how the people you know that have lots of money (over 100k in the bank) tend to be more frugal and those that have less (less than 1000 in the bank) spend like mad. Its a strange canundrum isnt it. Funny thing is that people with less money want the lifestyle they see there welthy friends living and so they spend even more than they have which is now of course more easy (credit). Point is back in the day, credit was hard to get, now its not. The majority of people in the US have less than 1000 in the bank and a large debt load because they want more than they have and have been granted the power to have it, at least for a little while. Humans are consistantly short sighted thats all there is to it.
Posted by: stephen at Nov 28, 2007 5:29:30 PM
Barkley Rosser: "Maybe the indexation of social security starting in 1971 had an effect on US savings, but my sense is that other factors have been much more important."
You are probably correct, Professor Rosser. I should have led with points 2 and 3, which I myself felt were much stronger than point 1.
I had to look up "contretemps", Barkley. I'll try to keep up, but I started a little behind. My father was a blue collar union leader, not a world-renowned genius :-). He was still a very good man, of course.
Posted by: John Dewey at Nov 28, 2007 5:32:08 PM
Stephen,
I appreciate that you acknowledged my point number 3.
Is it possible that some of those folks you referred to in the first paragraph may have spent a lot of time talking to people - but people who were somehow different from the people you talked to?
Some I have known who lived in the U.S. in the 1930's had experiences we will never see. I have talked with and observed the attitudes of many depression survivors. In my opinion, and it is just an opinion, they lived in much greater fear of financial calamity than my Boomer generation has. As a result, they were much more concerned about preparing for emergencies.
I think you are absolutely correct that those with wealth, in general, have been frugal. That idea was confirmed by the research of Thomas Stanley and William Danko.
Stephen, i also agree that humans can short-sighted at all stages of life. Most of my many siblings, all approaching retirement, have no financial assets whatsoever. Yet they still borrow tens of thousands for the new SUV they cannot live without.
Posted by: John Dewey at Nov 28, 2007 6:01:37 PM
Dewey,
Agreed, my Dad grew up in the depression era and one would think that he would be a saver. I can tell you he is not. But I honestly think that this is tied to peoples fundamental tendencies to want more than they have. I would argue that people of his generation are as likly to spend more than they have for the same reasons that you argue they would save. Those times are long gone (great depression) time heals many wounds and boy that credit card offer sure looks good and WOW! I had no idea you could get a flat screen TV for under $1000. I need that to forget the old days. Just my opinion.
Posted by: stephen at Nov 28, 2007 6:34:21 PM
... based on southern white racism ... neither of which exists any more
Possibly the dumbest thing I've read today.
http://www.splcenter.org/intel/hatewatch/fortherecord.jsp
Posted by: sidereal at Nov 28, 2007 7:51:45 PM
"Contemporary conservatism is based on southern white racism"
Could that shot be any cheaper, or more inaccurate? I don't think so.
Posted by: RJ at Nov 28, 2007 11:06:41 PM
John Dewey, I would really recommend taking a look at Mankiw's textbook as the answers to your questions are answered in detail. What qualifies as a "competitive market"? From Principles A competitive market is a market in which there are many buyers and many sellers so that each has limited control over the price because other sellers are offering similar products.
If a group of craftsmen in an artists' colony agree on minimum price levels for their wares, are they still operating in a "competitive market"? If a mutual fund combines the assets of a million investors, and thus reduces overall administrative and transaction costs for those investors, are those investors still operating in a "competitive market"? Yes and yes, there is still plenty of competition for these products. If AARP negotiates better insurance rates for its members, are those members still operating in a "competitive market"? No. The difference is, again from Mankiw :"When a union bargains with a firm, it asks for higher wages, better benefits... If the union and the firm do not reach agreement, the union can organize a withdrawal of labor from the firm, called a strike. Because a strike reduces production, sales and profit, a firm facing a strike is likely to agree to pay higher wages then it otherwise would."
In other words, although other labor may be available, there would be high cost involved in switching over to the cheaper labor force. This cost barrier is exploited by unions to push wages above their equilibrium level.
Posted by: Simon at Nov 29, 2007 2:24:04 AM
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Posted by: 数据恢复 at Nov 30, 2007 2:25:01 AM
If the initial statement was correct, the US economy would be much more productive than the danish. It isn't.
Denmark has the lowest inequality in the western world, a GNP pc 20% higher than the US, higher employment rate, lower unemployment, free education, free medical care, well developed welfare rates, propably the lowest rate of poverty in the world,surplus on both foreign trade and public economy and a booming economy.
No fear of globalization here.
We have shorter working weeks and longer vacations as in the US.
As goes for the savings rate; some years ago the unions ( and about 90% of all employees are union members) wanted higher wages, but because of the overall economic situation the state proposed supplementary pensioning, so now every employee get in addition to their salary 9 to 17% of their salary for pensions.These money are placed in large pension funds. That is a lot of money. By the way the minimum wage in Denmark is 103 DKR/hour. That is at the current exchange rate about 20USD.
Inequality only creates poverty.
I would like to quote the CIA World Fact book:
"Because of high GDP per capita, welfare benefits, a low Gini index, and political stability, the Danish living standards are among the highest in the world."
Posted by: Mogens at Dec 2, 2007 10:29:21 AM
Mogens,
I am in agreement with your general argument, and most of your specific points
are correct. But, a few are not. Thus, the US does have a higher real per capita
GDP on PPP measure than Denmark, although not by very much. Also, Denmark does not
have the lowest rate of inequality in the western world. Finland does, although
Denmark is not far behind. In any case, your general argument is reasonable.
Posted by: Barkley Rosser at Dec 3, 2007 1:07:30 PM
Barkley
The PPP measure is biased, because public enterprise always is lower priced than private enterprises, and sales taxes affect prices more than income taxes. If your sales taxes are high, your purchasing power is seemingly lower, but that ought not to depend on the way you pay taxes.
Example: USA has a private health care system costing about 6.000 USD p.c. It covers only about 85% of the population, so the cost pr covered is about 7.000 USD.
The cost in Denmark is about 24.000 DKR, and all are covered. The quality is about the same.
That gives an exchange rate pr USD at 24.000/7.000 = 3.43.
The PPP-rate is about 7 DKR/1 USD.
The exchange rate is 5.10 DKR/1 USD today.
The GNP pc in USA was in 2006 about 43.300USD
The GNP pc in Denmark was in 2006 305.000DKR
That gives a PPP rate of about 7 DKR to 1 USD.
But if you uses the exchange rate, the GNP pc in Denmark is about 59.800 USD, or 138% of the US GNP pc.
It is a very interesting subject.
You are right about Finland; sorry.
Mogens
Posted by: Mogens at Dec 3, 2007 1:46:32 PM
Hi
Best wishes。
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