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I spent Saturday giving a tour of Washington, D.C. to a woman who retired from a career spent as a Soviet comrade and currently lives in Moscow. She loved the streets-paved-with-gold look of the city and the museums and provided some unique reactions, e.g., after seeing the Lincoln Memorial she noted “This is much larger and more grand than Lenin’s Tomb.” Comrade Tourist was particularly awestruck by the size of the buildings housing federal agencies, especially when I explained to her that all of them had long outgrown their D.C. headquarters and now had much larger facilities in the suburbs or in other cities.

Here are some excerpts from our conversation:

• What’s that huge building?
• The Department of Energy. They have a budget of about $30 billion.
• Energy? They are responsible for generating all of the electric power in the U.S.?
• Uh, no. They don’t run any powerplants. They run a couple of research labs and… well I’m not sure what they do with the rest of the money.
• What’s that huge building?
• The Department of Education. They have a budget of about $90 billion.
• So they run the schools here in America?
• No. They don’t run any schools, develop any textbooks, or teach anyone.
• Wow. What about this building?
• Department of Agriculture. They also have the building across Independence Avenue, connected by the bridge. Their budget is about $150 billion per year.
• Such a big building! They work to make farmers more efficient so that food prices will be lower?
• Actually, no, they pay farmers to leave fields idle, restrict imports, and enforce cartels so that food prices stay higher than they would in a free market.
• How can poorer Americans afford the high food prices then?
• The same agency runs a program to give food stamps to about 50 million Americans.

By the end of the afternoon Comrade Tourist, whose conversational English is not great but who has been reading our news magazines, said “Everyone in this city is a taker. There are no makers.”

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New York’s Museum of Modern Art gives us some insight into the financial health of America’s not-for-profit organizations. The New York Times says that they are buying a 12-year-old building, constructed at a cost of $32 million in 2001 ($42 million in 2013 “mini-dollars”) and demolishing it. Why can’t they reuse the former American Folk Art Museum’s home? Is it that hard to take down a quilt and replace it with a Brice Marden? “MoMA officials said the building’s design did not fit their plans because the opaque facade is not in keeping with the glass aesthetic of the rest of the museum.”

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My first helicopter instructor, who became a friend, died yesterday. Joris Naiman was a gentle soul, aged 61, and succumbed to liver cancer, to which I lost my dog George back in 1991. I went to visit Joris last week at his home on the dammed-up portion of the Charles River known as the “Lakes District” in Waltham. We watched a pair of mute swans taking off and landing. Joris and his wife Lesya explained to me that the swans had reared seven children to adulthood in the previous season. Joris shared all that he knew about their feeding and breeding habits and explained the legal status of these visitors from Russia. Joris and Lesya had converted part of their living room into a greenhouse overlooking the river and thus Joris was able to indulge his love of nature from a recliner chair. We talked about plans for the summer and certainly nobody in the room thought that there would be a chance of Joris being gone this week.

Joris worked hard on behalf of the U.S. Fish and Wildlife Service despite a realistic appreciation for the limits of what government regulation could accomplish. I would often phone him at work at 9:00 pm. He could recognize that the politically connected or simply savvy could work around most regulations while simultaneously not being cynical. Joris enjoyed aviation for most of his adult life. He and his wife would fly a four-seat Piper on sunny days to various corners of New England and then get out to hike in the woods. He was very eloquent on the joys of helicopter flight, explaining that it was only with a helicopter that we could feel as though we’d escaped from the laws of gravity and our Earthbound natures.

Joris and Lesya were great dog-spoilers. My Samoyed Alex would stay with them while I went away for a long weekend and he would come back with a treat-stuffed smile and a new fluency in Lesya’s Ukrainian. Although he did not have children, Joris was a favorite of my daughter Greta.

Joris was a moderating influence in nearly every conversation. If you were talking about how the future was incredibly bright Joris might remind you that things tended not to work out as planned. If you were suffering a misfortune Joris would remind you that things probably wouldn’t be as bad as you feared. He kept an even emotional keel right through my last two visits (in March and April), mentioning the irony of the nurses at the Lahey Clinic waking him up at 4:00 am to ask whether he was sleeping well in his hospital bed.

http://philip.greenspun.com/flying/milestones shows that Joris and I had known each other for 10 years. I will miss him.

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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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