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Lecture 4 within “Modern Economic Issues”, by Robert Whaples, is about productivity, increases in which are what drive improved per-capita living conditions. One of the big questions that occupied economists is why Europe has lagged in labor productivity (output per worker-hour) compared to the U.S. The consensus seems to be that formation of new companies is important but that the destruction of big inefficient companies is equally important. The Europeans have been comparatively reluctant to let their dinosaurs go extinct, which means that a lot of resources (capable people, production facilities, capital) are tied up by inefficient management and structures. Aside from direct subsidies to the big and struggling, the Europeans have kept dinosaurs alive by making regulations so complex that small companies can’t afford the time and effort to get required permits, etc.

The lecture made me wonder if the sluggish U.S. recovery since the 2008 collapse might be partly due to the fact that the American government has done so much to favor the big. The biggest banks got the most cash. Chrysler and GM were preserved in the form that had led them to insolvency, rather than being allowed to have their parts folded into new enterprises. States handed out all kinds of subsidies for establishing or maintaining facilities but these subsidies were available only to big and established companies. Regulations have become more complex to the point that competition from small or new companies is further discouraged.

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Lecture 3 within “Modern Economic Issues”, by Robert Whaples, is titled “Economists’ View of the Future”. The course seems to have been published early in 2008 and perhaps recorded in 2007, since many statistics from 2006 are cited. One of the lecturer’s aims seems to have been to present listeners with a comprehensive view of thought by economists around the U.S. Nearly every lecture presents at least two sides of every issue and oftentimes refers to surveys of American economists. Whaples himself conducted a survey of economists and their predictions about the years 2008 through 2018 right before giving these talks.

Whaples starts by pointing out that for most of the field’s existence economists have erroneously been predicting a flat standard of living, thus entirely missing the growth in real personal income that has been the main story since the Industrial Revolution. Classical economics predicts that new ideas or methods may lead to a temporary improvement in per-capita wealth but that the result of this new wealth will be larger families and more children surviving to adulthood. These new workers will compete with each other and the result will be a market wage that is near the subsistence level. Worldwide GDP may grow but population will expand so that the average person is living with only the bare necessities of life.

This prediction has failed to come true, according to Whaples, primarily because (1) the pace of technological change for the last 200 years or so has been so rapid that humans have not had a chance to have enough kids to soak up all of the benefits, (2) the rising wages of women have discouraged many from spending a lot of time out of the workforce and therefore fertility has been lower. Other economists have gone farther, claiming that the larger the population the more opportunities there are for new ideas to be developed, which will make everyone richer per capita, not poorer.

Given this backdrop of pessimism and continually being proved wrong by events, what did the economists surveyed circa 2007 predict about 2008 through 2018 in the United States? Nearly all predicted the strong growth that had prevailed in the 1990s and through 2006 to continue virtually unabated. The only real debate was among those who through the strong growth was permanent and those who thought there would be reversion towards a less spectacular level of growth. Of those interviewed by Whaples, not a single economist, apparently, predicted the Collapse of 2008 and subsequent stagnation!

So next time that an economist shows up in an Op-Ed column or on TV to explain why lackluster growth is the new normal for the U.S. remember that, not too long ago, probably the same person was predicting a very bullish 2008 through 2018 and that the growth of 1991-2006 was the “new normal”.

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I’m still working my way through some of lectures within “Modern Economic Issues”, by Robert Whaples. If economics is the dismal science then nothing could be more dismal than an economics lecture on the U.S. postal service. It turns out that postal workers made about $60,000 per year (back in 2006 when the lectures were recorded) either to sit at a desk at a post office or to walk/drive around and deliver the mail. At the time this was about 30 percent more than private-industry counterparts and their pensions and other benefits further elevate the 574,000 workers (wikipedia) above what they might make absent the unionization and monopoly of the post office.

One thing that was interesting about the talk was the discussion about what has happened in countries where the postal service was privatized and/or subjected to competition. The fact that productivity in the privatized postal services went up 30-40 percent was not surprising to me. What surprised me was the countries that had privatized. Americans like to think of ourselves as a relatively free market society whereas Europe, especially Scandinavia, is the land of socialism. Yet countries such as Sweden,Denmark, Finland, Germany, Holland, and the UK have privatized or opened up to competition and the EU is somehow going to push the rest of the countries along (assuming they have money/energy left over from all of their bailouts!).

It is fascinating to me how, despite the large role that government plays in American life, Americans (including myself) still have a huge mental bias toward thinking of this country as somehow an example of the free enterprise system. I recently went to a party and talked to an MIT PhD in engineering who thought that government in the U.S. collected only about 20 percent of the nation’s total income in taxes and that this was a vastly smaller percentage than Europeans paid. The number that he had was about right, when restricted to federal income taxes, but it ignored taxation by state and local governments. A guy who writes a property tax check twice a year to the City of Cambridge had simply forgotten to add that in. A guy whose pay check every month indicates money withheld for the Commonwealth of Massachusetts had forgotten about state spending.

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Here’s a state government-mandated sign from the restaurant at the Getty Museum:

 

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I’m part way through Punished by Rewards, the 1993 classic that will eventually be recommended to any parent who has friends with an interest in experimental psychology. The cornerstone of the book is research that shows that people who are told “If you do X, then you can get Y” will stop liking/valuing X. Thus if the author, Alfie Kohn, is right, many things that parents do and everything that schools do are precisely the wrong things to be doing.

The insights in Punished by Rewards are consistent with a lot of the stuff that I’ve noticed as a teacher. The combined role of teacher and judge (see “stop grading your own students” within my Universities and Economic Growth article) does not make sense for student, teacher, or society (because in the end we are all deprived of honest evaluations). Kohn’s insights are also consistent with what I’ve seen in the aviation industry. Airplane mechanics typically hated school and usually did not attend college, yet these are highly intelligent people who love to learn and excel at learning both from books and from hands-on doing.

There are some harsh criticisms for this book over at Amazon and I’d be interested to hear from readers who are experts as to what Kohn got wrong.

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A lecture within “Modern Economic Issues”, a course by Robert Whaples, concerns the productivity of United States public schools. The overall statistic is fairly familiar. Over the thirty years between 1970 and 1999, spending on public schools roughly doubled in inflation-adjusted dollars. The number of students and their ability, as measured by standardized tests, remain constant. Since productivity is simply output divided by cost, this means that productivity fell by 50 percent. (There are plenty of excuses made by teachers’ unions for this drop, e.g., that immigrants and non-white students are harder to educate, but economists have found that these factors should be canceled out by the fact that today’s parents are better educated than the parents of children in 1970.)

It occurred to me that actually productivity for public employees such as teachers is impossible to measure. Unless we get a letter from God saying how long each teacher will live after retirement, there is no way to know how long retired teachers will live and therefore there is no way to estimate the pension and health care costs. Here in Cambridge, Massachusetts, we know that out of $26,305 spent per student in 2011, $7004 went to pay teachers while $5051 funded “insurance, retirement”. The total budget, however, is understated for the obvious reason that it does not include the capital cost of the schools themselves (“capital expenditures and debt service payments are excluded from this calculation”) and the non-obvious reason that, to the extent that pension costs are included, they are based on the hope that investments in stocks will yield an 8 percent return as well as a prediction on how long today’s 35-year-olds will live.

Then I realized that U.S. productivity statistics are probably inflated artificially over those of countries such as Holland, Singapore, Australia, etc. that have funded pension systems and government-budgeted health care costs. Private sector U.S. workers today participate in Social Security and Medicare, whose future costs are unknown but almost surely vastly higher than the amount being collected in tax from current workers. So the U.S., despite its bountiful resources and fully developed infrastructure, may be a lot less productive than current statistics show.

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I’m listening to some of the lectures within “Modern Economic Issues”, a course by Robert Whaples (to demonstrate my economic skills, I borrowed this from the library rather than paying $270). Lecture 19 talks about poverty statistics and much was new to me. It answers to some extent the question “Why is the poverty rate still so high 50 years after Lyndon Johnson started the War on Poverty?”

It turns out that poverty statistics don’t take into account spending power or consumption. A household is classified as “poor” based on earnings in the labor market. If that household were to receive $10 million in cash from the government every year, e.g., from a turbocharged Earned Income Tax Credit, the millionaires would still be considered “poor”.

How many American households suffer in poverty? It might be twice as many as you think. If a man and a woman live in the same crummy apartment with their two biological children, a layperson would walk by and count one poor household. The expert economists at the Census Bureau, however, upon finding that the man and woman are not married, count two households. The father is one household. The mother and the children are a second household. Both are “living in poverty”. What if the man and woman each had a low-wage job and they were to get married? Now the two “poor” households would become one “not in poverty” household. And although the government would say that these individuals are now much better off, having escaped from official “poverty”, they would in fact have much less spending power because they would suffer at least a 16 percent drop in total income (earned plus government assistance) plus a catastrophic drop in economic welfare if they were to lose eligibility for Medicaid (since private health insurance for a family costs more than an average American’s after-tax wage).

Measured by spending power and consumption, very few of America’s “poor” are poor by European standards. Our poor families enjoy more square feet per person of indoor space than the average for all families in France and Germany. Similarly, car and air conditioner ownership rates among the poor are much higher than among all Americans in the 1970s and oftentimes are above present-day Europeans.

Basically the government agencies responsible for alleviating poverty have set up a statistic that ensures that poverty can never be eliminated.

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Lean In, the bestselling book by Nell Scovell and Facebook’s Sheryl Sandberg, has a chapter advising women on how to pick a husband if they want to succeed in Corporate America. The chapter is titled “Make Your Partner a Real Partner.” It turns out that marriage is correlated with success: “Of the twenty-eight women who have served as CEOs of Fortune 500 companies, twenty-six were married, one was divorced, and only one had never married.”

Sandberg and Scovell decry the findings of surveys that, on average, men don’t do as much in the home as women. The book says “We all need to encourage men to lean in to their families.” I.e., men should be changed. The authors are not wide-eyed optimists when it comes to the prospects of scrubbing up a Neanderthal into a sensitive vegan so they recommend careful selection prior to the marriage: “do not marry [an attractive-to-you man]. The things that make the bad boys sexy do not make them good husbands. When it comes time to settle down, find someone who wants an equal partner.”

How easy is this? “Wonderful, sensitive men of all ages are out there. And the more women value kindness and support in their boyfriends, the more men will demonstrate it.” The chapter concludes “We need more men to sit at the table… the kitchen table.”

[To the woman who hasn’t been successful in finding a plausible mate, Sandberg’s message is basically “Look how incompetent you are compared to me. Not only do you make less than $50 million per year but you didn’t realize that there are millions of single guys out there who would rather change diapers and talk about feelings than watch NASCAR and football.”]

The couples with which Sandberg is familiar seem to be ones in which nannies and cleaners do most of the household and child-related work. Really the marital squabble seems to come down to which parent decides how to spend the near-infinite river of family income on local, organic, vegan, and gluten-free items at Whole Foods. The authors cite a couple in Massachusetts that I actually know. The mom is a bigshot at a non-profit organization. The dad is a child psychiatrist who, according to Sandberg, “leaned in” to do far more than the traditional male share of child rearing. Perhaps he did, but this couple has twins that are about the same age as Greta, my 3.5-year-old, so I see the kids a lot. Of the 50 or so times that I’ve seen the twins, were they with mom or dad? Once they were with mom. Once they were with both parents. 48 times they were with a Brazilian nanny.

What about the woman who does not expect to command Sandberg-style financial resources and the associated team of domestic laborers? Or the woman who is skeptical of her ability to hold a man to promises of extraordinary child-rearing efforts that he made before he had any idea of what marriage and child-rearing entailed? Let me suggest what I think is far more practical advice than Sandberg and Scovell’s: Marry the only child of immigrant parents. The couples that I know of where there is the least amount of conflict regarding household- and child-related tasks are those in which the immigrant grandparents live nearby (or in the same house) and cheerfully and skillfully contribute a huge amount of effort toward making the family successful. With Grandpa and Grandma around nearly 24×7 it is no longer critical whether or not the husband can be persuaded to give up his career ambitions, his television and video game addiction, etc.

 

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I’m taking some recurrent helicopter training in Torrance, California at the Robinson Factory (some photos of the R66 assembly line). I ran into one of my old instructors, who has graduated to flying fancy turbine-powered helicopters in Dubai. How has life worked out for him over there? Despite having grown up in one of the world’s most beautiful countries, at the center of Europe, he doesn’t mind the Dubai climate and sandy landscape. The continuous sunshine makes him happy. He found another expatriate there to marry and they live in a comfortable downtown apartment. Rents are about the same as in the more expensive U.S. cities, i.e., $2000-4000 per month for the nicest 2-3 bedroom places downtown. Incomes for pilots are at least double what American companies pay. “I earn about $180,000 per year,” my friend noted, “but you have to remember that it goes a lot farther than in the U.S. or Europe because there are no taxes.”

Is the party for expatriate pilots going to end once the locals get their ratings? “My operation does not have any Emirati pilots,” he explained, “though various airlines down here have 5-year programs where a local person will get paid a salary while learning to fly from 0 hours through ATP [about 1500 hours]. Somehow they end up not wanting to pursue aviation as a career. So there is always a need for a foreign pilot.”

More: Heritage Foundation’s report on the U.A.E. (a bit surprising because I thought that it was mostly the government spending oil money but these guys claim that government is only about 22 percent of GDP, a much lower percentage than in the U.S.; I wonder if they are accurately accounting for government-affiliated companies)

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A friend of mine who lives across the river recently upgraded his gun permit, notoriously hard to get from the Boston Police Department, to be almost completely unrestricted. He can’t buy and carry a machine gun but otherwise he can walk around with a high-capacity pistol any time and more or less any place except some college campuses that ban guns.

How did he do it? “It turns out the legislators didn’t want their laws against gun ownership to apply to them. Nearly all of them are lawyers so they set it up so that if you have bar association card you can get an unrestricted permit. They thought it would look bad if they exempted only legislators.”

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