Starve the beast?

The Republican strategy in the US has been since Reagan to starve the government to prevent it from growing. The master at this has been Bush Jr., who to significantly increase expenses while cutting taxes. And the new crop of parliamentarians has vowed to make these tax cuts permanent, thus forcing even further government expense cuts in the near future. While there can be much disagreement about where to cut, one could first ask whether it is a good strategy in the first place to starve the beast like this.

Michael Kumhof, Douglas Laxton and Daniel Leigh use an elaborate model to come to the conclusion that this is a good strategy if government expenses are useless. But if they provide a public good, then it is not. That seems like a very trivial result, and one that can explain the disagreement between the left and the right in the United States. But there is more to the paper. It shows that for this strategy to be welfare enhancing, cuts need to be done very quickly, and cut services must have little impact, and the taxes that are reduced must be very distortionary. It is very unlikely that all three conditions can be satisfied.

In the pretense of protecting me, Emerald stiffles my research

I received a rather unsettling message from Emerald Publishers the other day:

As an Emerald author, you will know that Emerald is dedicated to protecting the copyright of your work. For this reason, we use the Attributor service. Attributor automatically searches cyberlockers for unauthorized copies of works or illegal hosting and then issues legally-binding takedown notices. We are increasing Attributor's searches to the full breadth of the internet, to ensure maximum copyright protection.

For this to run as smoothly and efficiently, we are asking that you provide us with (if applicable):

1. your personal website address
2. your institutional website address
3. the website address of your company

This is so we can exclude these sites from the Attributor searches, whilst protecting your copyright. Upon provision of this information, we will of course ensure full data protection.

We look forwards to hearing from you.

I find this very disturbing. This message is telling me that this publisher is trying to enforce my copyright while in truth it is the publisher's copyright. And it tells me that I better preemptively alert the publisher where I apply the fair-use provisions of copyright before I get automatically accused of violating copyrights on my own work.

Now looking at Emerald's Author Charter, I find another few gems:

Assigning copyright of your work to Emerald allows us to act on your behalf to:

* promote your rights
* facilitate dissemination of your work by granting permissions for educational use or republication
* target other Emerald journals whose readership would benefit from access to your work
* endeavour to protect your work from any infringement of your rights which are brought to our attention.

It does NOT, in any way, restrict your right or academic freedom to contribute to the wider distribution and readership of your work. This includes the right to:

1. Distribute photocopies of your own version of your article to students and colleagues for teaching/educational purposes within your university or externally. Please note, this does not refer to the Emerald branded, published version.
2. Reproduce your own version of your article, including peer review/editorial changes, in another journal, as content in a book of which you are the author, in a thesis, dissertation or in any other record of study, in print or electronic format as required by your university or for your own career development.
3. Deposit an electronic copy of your own final version of your article, pre- or post-print, on your own or institutional website. The electronic copy cannot be deposited at the stage of acceptance by the Editor.

Note that Emerald may publish your article in another journal, if it thinks it increases its dissemination (or increases the impact factor). Nothing is said about the author agreeing to it. But Emerald is also fine if you try to publish your article elsewhere, although the condition of "for your own career development" is open to interpretation.

That said, all this business with copyright on academic research is really sad. These commercial publishers try to tell us that they do their possible to disseminate research while all they is the exact opposite: they gate the research and chase down ungated versions. Let's all move to open access. Much simpler, much less costly, and much better dissemination!

Public pensions should not be fully funded

Many governments are currently struggling to fund the future liabilities stemming from the retirement benefits of their civil servants. For many of those, the fact that they are significantly falling behind, especially as those funds lost value during the crisis, is seen as a very serious problem that could jeopardize those commitments and/or lead to significant tax hikes. But is this really a problem?

Henning Bohn claims that it is not necessarily so. First, most taxpayers are debtors, thus they would prefer not paying taxes now for future pension payments, as they discount at their borrowing rate, which is higher than the return of the pension funds. The violation of the Ricardian Equivalence thus stems from the intermediation costs. This means that governments should actually not fund at all their future pension liabilities. The only exception may be if they need those funds for collateral, which may be quite important in the case of sovereign debt, as I reported recently.

An unexpected consequence of crises: birth weight loss

Periods of crisis generate hardship, in particular if people do not have good ways to insure against these kind of shocks. In theory, temporary losses in income should not have much of a permanent impact, but in practices they may. For example, losing a job entails a wage loss in the next job, because one may have lost human capital, firm specific skills or good outside options. And those wage losses are quite persistent.

Carlos Bozzoli and Climent Quintana-Domeque identify a different persistent effect of a crisis by looking at Argentina. They notice that babies born around 2002 have had a birth weight 30 grams lower than usual, a non-trivial difference that corresponds to a difference between the US and Pakistan. Now, birth weight has been identified to be a remarkably good predictor of future outcomes for a population in terms of health, education and income. Thus, the effects of the 2002 crisis could linger in Argentina for decades.

Pre-industrial revolution England did not grow, but was rich

Some people have an idealized image of the centuries before the Industrial Revolution, an image fed by pictures of elegant aristocracy and chivalrous knights. Others are more realist and see these times as a period of utter misery, filth and stagnation. Research on the standard of living in this period does not have conclusive answers because the evidence is sketchy and ranges from complete stagnation and misery à la Malthus to sustained growth. Gregory Clark has recently issued a pair of exciting papers that should set a few records straight, at least for England.

In the first, with Joseph Cummins and Brock Smith, he shows that England was surprisingly rich before the Industrial Revolution. This assertion is based on the fact the a small share of the population was engaged in farming. The primary sector accounted for 52% in 1817, and even 60% in 1560. These measurements are based on the occupations listed in men's wills and indicate that a substantial fraction of people living in rural areas were in fact not engaged in farming. Thus measuring the urban population share can be misleading in this respect.

In the second, Gregory Clark shows that there has been relatively little growth over these centuries, which means that way back in 1381, England was much richer than we thought. At that date, only 55% of the population was engaged in farming, based on records of the Poll Tax. This is very close to the number quoted above for 1817. Thus standards of living were not that different four and a half centuries apart.

Employer-based health insurance and growth

The United States, so far, is rather unique in that health insurance is typically provided through employers, and not all do. But whether an employer does provide insurance is an important consideration in the job decisions of employees. So this hurts labor mobility and the efficient allocation of labor. But what about entrepreneurship? This cannot be bad, seeing that the US is a global leader in this regard. Not quite.

Robert Fairlie, Kanika Kapur and Susan Gates use the Current Population Survey and find that people that do not benefit from health insurance through a spouse's employer are less likely to start a business. Also, those who are just a little older than 65, when coverage through the government sponsored Medicare program starts, are more likely to start a business than those a little younger than 65. Such an effect is not detectable for any other age.

I find it really strange that those who were most opposed the new health insurance regime were those favoring business interests. They should be happy that employer sponsored health insurance will not stand in the way of entrepreneurship anymore.

About envy

Homo œconomicus is greedy, but why? One explanation is that he is envious, and this makes him competitive, leading to the positive outcomes of market economies that we often tout.

Not so fast, says Boris Gershman. Envy can lead to alternative equilibria, some virtuous, some vicious. We are familiar with the virtuous ones, where people "keep up with the Joneses", and thus exert effort towards getting better. Too much effort in fact. But things can also go dramatically the other way, where the best endowed people restrain their efforts to prevent the destructive envy of the poor. This suboptimal effort is likely to occur when there is large inequality and poor property rights.

This last point is important. For example, Russia right after the fall of communism came almost to a standstill because many were envious of successful people in a very negative way. The successful ones later overcame this by hiring their own security forces, a very inefficient use of resources. And this gave the opportunity to organized crime to take hold. Another example can be found in many developing economies where successful members of a family are expected to contribute significantly to the family. This lowers incentives for effort considerably.

There is now a lot of talk of how the increasing inequality in incomes and wealth could have negative consequences. While this paper shows that inequality will get reduced, it comes at the cost of having the most efficient in the society providing less effort than they would be willing to provide otherwise. Gershman suggests this can be avoided by protecting this elite more.