I answered this question on Quora. My answer was “No.” But it was a very detailed no. Here’s an excerpt:
Chavez was a true, dyed-in-the-wool socialist. He passed many reforms that would have crippled another nation. For instance, he made it illegal for private employers to fire anyone. Hiring an employee in Venezuela means paying that person a living wage until he quits or retires, regardless of whether he does any work or not. Imagine trying to run a business under that constraint! Chavez expanded state control of the economy in the name of socialism, but the country didn’t fall into chaos. As late as 2013, David Sirota was declaring it an “economic miracle.” This might seem like a win for socialist economics, but the truth is more dull than that.
Garett Jones returns to the podcast to discuss the issue of ethnic diversity. There is a wide body of research showing that ethnic diversity can reduce the productivity of teams, firms, and even whole countries.
Classical liberals like Milton Friedman and Friedrich Hayek have supported the idea of a basic income guarantee as an improvement on the current patchwork of welfare programs. The welfare systems in most countries are the product of a century of piecemeal reforms, where politicians have created many overlapping programs targeting different problems and interest groups. This makes perfect sense from the politicians’ perspective; creating a new program allows one to attach one’s name to a high-profile bill, thus winning favorable media attention and votes. It’s the same reason governments often create shiny new highways rather than filling in the potholes on old ones. Where’s the glory in marginally improving something with someone else’s name on it?
As a result of this political process, welfare systems have dramatically higher administrative costs than they need to have. Rather than having separate (and often multiple!) bureaucracies to administer welfare programs for the homeless, the temporarily unemployed, seniors, disabled workers, single mothers, etc., why not fold them all into one? In fact, Milton Friedman’s negative income tax would fold them all into the agency responsible for administering taxes. Replacing a hundred parallel agencies with one agency tasked with administering a simpler system would clearly reduce overhead costs.
The other consequence of the patchwork welfare system is that it creates more severe unintended consequences than it needs to. All redistribution schemes affect incentives, but a basic income guarantee paired with a reasonable tax scheme (maybe a flat tax or a progressive consumption tax) would avoid the worst of the perverse incentives. Current welfare systems feature “welfare cliffs,” where many programs abruptly cut off at the same income level, leading to absurdly high implicit marginal tax rates. The examples I’ve seen have situations where earning $1,000 more income can make one ineligible for $10,000 in benefits from various programs. That’s an implicit marginal tax rate of 1000%, far higher than the tax rate paid by the highest of high earners! Continue reading A Basic Income Guarantee Can Work if it Replaces State Education and Medicine→
This year I will be making a series of predictions about the future, and assigning each of them a probability. I was inspired to do so by Scott Alexander and Phillip Tetlock. Too many commentators make vague predictions about future events and then declare victory however things turn out. So, in the interest of holding myself to a higher standard than a fortune cookie or horoscope, here are my predictions for 2016:
Canadian year-over-year CPI growth will be higher than it was in December 2015: 90%
Canadian year-over-year CPI growth will be at least 2.0%: 60%
American year-over-year CPI growth will stay below 1.0%: 60%
American year-over-year CPI growth will stay below 2.0%: 80%
Unemployment in the US will be lower than it was in December 2015: 60%
Unemployment in Canada will be lower than it was in December 2015: 60%
Canadian year-over-year real GDP growth will be lower in 2016 than in 2015: 70%
American year-over-year real GDP growth will be lower in 2016 than in 2015: 60%
Iranian year-over-year real GDP growth will be higher in 2016 than it was in 2015: 80%
The S&P 500 will end 2016 lower than it started: 60% (note that I am making this prediction on January 26th, and it has already fallen since January 1st)
The price of crude oil will be above $35 USD at the end of 2016: 70%
The price of crude oil will be above $30 USD at the end of 2016: 90%
The price of Bitcoin will be above $400 USD at the end of 2016: 70%
The Canadian Federal Government will not decriminalize marijuana: 90%
The US Federal Government will not decriminalize marijuana: 99%
At least one more US State will decriminalize adult use and cultivation of marijuana: 60%
Donald Trump will not win the Republican nomination: 60%
Conditional on Trump winning the nomination, voter turnout as a percentage of the voting age population will be higher than it was in the 2012 presidential election: 90%
Conditional on Trump losing the nomination, voter turnout as a percentage of the voting age population will be lower than it was in the 2012 presidential election: 60%
Hillary Clinton will be the Democratic nominee: 80%
Hillary Clinton will be elected President: 60%
ISIS will hold less territory than it did at the beginning of 2016: 90%
ISIS will lose Raqqa: 60%
The Force Awakens’ worldwide gross will exceed that of Titanic: 80%
The Force Awakens’ worldwide gross will not exceed that of Avatar: 80%
No 2016 movie will gross more than The Force Awakens: 90%
While it may sound counterintuitive, the basic income is intended to encourage more people back to work in Finland, where unemployment is at record levels. At present, many unemployed people would be worse off if they took on low-paid temporary jobs due to loss of welfare payments.
Detractors caution that a basic income would remove people’s incentive to work and lead to higher unemployment.
The article doesn’t say who those detractors are, but they are wrong. When economists claim that welfare removes people’s incentive to work, it’s not because receiving cheques from the government automatically makes one lazy. It’s because they take those benefits away when you earn more. Continue reading Finland to Introduce a Basic Income→
Don’t get me wrong, this technological advance will make people’s lives better. But the incentives to create artificial kidneys should never have existed.
Before I tell you why, I need to lay out some terminology. In undergraduate microeconomics classes, we distinguish between the short run and the long run. The short run represents time periods during which some factors of production (usually capital) are considered fixed, while others may vary. In the long run, all factors can vary. But both the short run and the long run presume a fixed, exogenous production technology. How do we study situations where the technology itself can change? Continue reading Artificial Kidneys Would Not Have Been Created in a Free Market→
Alex Tabarrok has fascinating post about Feeding America, a large non-profit that distributes food to food banks. Feeding America used an inefficient, centrally planned system to distribute foods, which led to a lot of waste.
In 2005, however, a group of Chicago academics, including economists, worked with Feeding America to redesign the system using market principles. Today Feeding America no longer sends trucks of potatoes to food banks in Idaho and a pound of chicken is no longer treated the same as a pound of french fries. Instead food banks bid on food deliveries and the market discovers the internal market-prices that clear the system. The auction system even allows negative prices so that food banks can be “paid” to pick up food that is not highly desired–this helps Feeding America keep both its donors and donees happy.
Food banks are not bidding in dollars, however, but in a new, internal currency called shares.
…or How I Learned to Stop Worrying and Love Inequality.
David R. Henderson is a research fellow at Stanford University’s Hoover Institution, and a professor of economics at the Graduate School of Business and Public Policy, Naval Postgraduate School, in Monterey, California.
What sounds more difficult to you, figuring out supply and demand, or accurately measuring the Earth’s circumference? It must be supply and demand, because Eratosthenes figured out the other one two thousand years before anyone really managed any progress on that supply-and-demand stuff.
So now that we’ve established that supply and demand is much harder than accurately measuring the Earth’s circumference, we should ask ourselves why it is so. If you don’t know how Eratosthenes managed it, try thinking for a moment about how you might go about accurately measuring the Earth’s circumference with only the tools available in Ancient Egypt. Hint: you can compute the circumference of a sphere with the arc length and angle between two points. Continue reading Economics and the Cognitive Minefield→
The arguments largely focus around the usefulness of mathematics for various applications. These are the technical arguments of practitioners. I’d like to abstract from these arguments and look at the issue as an economist.
The economics labour market is very competitive. Researchers need to demonstrate their quality to compete for the top academic jobs. Now, why should we expect this competition to produce anything besides the optimal research methods? Let’s apply some economics to this problem. Continue reading The Meta-Economics of Mathiness→
Garrett M. Petersen's blog about markets, institutions, and ideas.