Coordination Problem

More Evidence on Reputation Building Among Economists

|Peter Boettke|

New NBER paper discusses the determinants of an economics professor's reputation.  It appears that quality of work (citation) determines reputation (scientific awards received and prestige of department/university one teachers at), while quantity of work determines movability and salary. 

Russ Roberts Latest Podcast --- Discussing Elinor and Vincent Ostrom

|Peter Boettke|

The latest EconTalk is now available.  It is an hour long conversation with me on my book, Challenging Institutional Analysis and Development: The Bloomington School (Routledge, 2009).  I haven't listened to it yet (always have a hard time listening to myself, though I probably have been accused of the opposite on more than one occasion), but I hope that I did justice to the wonderful contributions of Lin and Vincent to the field of political economy, and in particular to their educational mission of cultivating a self-governing citizenry. 

Thanks Russ for the opportunity.

Is the Debt-Deflation Theory of Depressions as Insightful as Has Been Suggested?

|Peter Boettke|

Steve Horwitz is in town tonight and will guest lecture in my PhD course on Austrian Economics.   We will be discussing the financial crisis and the relevance of Austrian economics for understanding our contemporary policy dilemmas.

Over at Marginal Revolution, Alex Tabarrok makes the case for Irving Fisher as an under-rated economic thinker, and points to his debt-deflation theory of depression.  What is the relationship between the debt-deflation theory of the depression and the cumulative rot theory of depressions associated with monetary disequilibrium theory (Yeager)? What is the strongest case for Alex's assessment? What is the weakest case for Alex's assessment of Fisher?

"Do We Really Need a Central Bank?"

Steven Horwitz

That's the title of a public talk I'll be giving on the GMU campus this Wednesday. It's sponsored by the Future of Freedom Foundation, the Atlas Society Sound Money Project and the GMU Economics Society. More information is here. DC area folks should feel free to attend.

Yet One More on Things Getting Better

Steven Horwitz

Over at his terrific blog Carpe Diem, Mark Perry links to my first post on things getting better (see also here) for the poor and very helpfully adds a table of his own comparing the hours of labor at the average hourly wage it took in 1973 and 2009 to buy the same household basics.  As you'll see below, rising real wages along with dramatic reductions in costs have cut the work time needed to buy these products to a fraction of their 1973 values.  This is how the poor keep getting richer and what explains my data (not two income households or excessive debt or the like).

Two comments on these data:

1. They understate the case because they do not account for increases in the quality of the goods in question.  There is no doubt that all of those household appliances last longer and do more things at better quality than in years past (the toaster and coffee pot and fridge are easy examples). 

The color TV is almost a whole different "thing" than it used to be.  Think of it this way:  the TV that Perry priced was from an Eaton's catalog.  Following his link, you can see that the $399.95 TV was a 17" color portable (the most expensive TV there was a $680 26" color in a wood cabinet).  The 17" had no advanced features other than a handle.  I was just at Wal-Mart looking at LCD TVs.  I'm going to buy an RCA there for about $550 in 2009 wages that is a 40" Hi-def with excellent sound that can be used for a computer, a Gameboy, or whatever else fits in it.   For less than a third (29.4 vs. 97.1) of the hours worked I get a product that is WAY better than its 1973 equivalent. (The same is true of other high-price durables like houses and cars.) For a lower nominal price, I can get the 40" LCD instead of the top of the line from 1973. 

2. These data only confirm what Julian Simon said:  humanity is the ultimate resource.  Another way to say that goods and services are dropping in "real" price is that the real value of human labor continues to climb.  A labor force with more/better human capital using physical capital that is itself more productive will command a higher wage, contributing to the rising standard of living that my first set of data illustrates.

Finally:  THESE are the Smithian and Schumpeterian horses of the gains from exchange and innovation in action.  Following in Simon's footsteps, I am willing to bet they will continue to outrace the horse of political stupidity over the decades to come, even if the political horse gains a little ground.

The Poor-Rich Gap is Shrinking (Follow up on consumption data)

Steven Horwitz

Hi, me again.  In reading through some of the comments on my prior post where it was linked or excerpted on some other blogs, I discovered some folks were reading my post as claiming that the gap between the poor and rich was shrinking.  It wasn't.  My post was only arguing that the poor continue to get richer and richer.  I said nothing about inequality issues. 

However, that same data set does let me compare the percentage of households below the poverty line and the percentage of top quintile households with various consumer goods across years.  Just for simplicity's sake, I have compared 2003 and 2005 along those lines below.  The 2003 and 2005 "gap" is the difference between rich and poor for that year.  The "Gap Change" column on the far right is the key.  That reflects the degree to which the gap between the rich and poor changed over those two years (again this is the most recent data available).  A negative number there means the gap is smaller, and the distance between poor and rich households has narrowed.  Here's the data.

% Households with:	Poor 2003	Rich 2003	2003 gap	Poor 2005	Rich 2005	2005 gap	Gap change
Washing machine	67.0	94.8	27.8	68.7	95.2	26.5	-1.3
Clothes dryer	58.5	93.6	35.1	61.2	94.3	33.1	-2.0
Dishwasher	33.9	86.1	52.2	36.7	88.4	51.7	-0.5
Refrigerator	98.2	99.6	1.4	98.5	99.8	1.3	-0.1
Freezer	25.4	44	18.6	25.1	43.7	18.6	0.0
Stove	97.1	99.6	2.5	97.0	99.7	2.7	0.2
Microwave	88.7	98.6	9.9	91.2	98.8	7.6	-2.3
Color TV	96.8	99.5	2.7	97.4	99.5	2.1	-0.6
VCR	75.4	97.7	22.3	83.6	98.5	14.9	-7.4
Personal computer	36.0	87.9	51.9	42.4	92.7	50.3	-1.6
Telephone	87.3	98.6	11.3	79.8	97.1	17.3	6.0
Air conditioner	77.7	90.3	12.6	78.8	89.1	10.3	-2.3
Cellular Telephone	34.7	88.6	53.9	48.3	92.4	44.1	-9.8

As you can see, the gap has narrowed in 10 of 13 categories.  One category stayed constant (freezers), while stoves widened slightly.  The only gap that widened substantially was the "telephone" category, but that is clearly related to the biggest gap reduction, which was cell phones.  The story here is that innovation and competition has brought the price of cell service so low that it's become significantly relatively cheaper (considering its convenience) for the poor. So that gap increase actually reflects a substitution to cellphones that has made the poor better off compared to the rich.

Some will object that the rich are so close to 100% that there's little room for them to gain while the poor have more space to move up.  True enough.  But isn't that the point?!  What do the rich do?  They end up being first adopters of new technologies, such as color TVs years ago or cellphones today.  The price of those technologies drops and the poor find them progressively more affordable, narrowing a new gap.  The more that the distance between the poor and the rich becomes about who gets the latest technology first and less about who has basic comforts and enough to eat, I'd say inequality is shrinking.  The distance between the rich and poor today is vastly smaller than that between the rich and poor of 100, 200, or 500 years ago.

So although my prior post didn't make the point or present the data, I offer it here.  If we want to use these consumer goods as a proxy for how well off people are, the gap between the poor and rich narrowed between 2003 and 2005.  I see no reason to expect this trend to change in the long run, although there may well be a blip in the data from the current recession.  But even that, I wouldn't bet much on.

The Economic Condition of Poor Americans (and the rest of us) Continues to Improve

Steven Horwitz

As many of you know, this is a set of data I've followed closely over the years (as has Don Boudreaux among others).  The Census Bureau just released the 2005 data on what households have (HT: Ariel Goldring) and it has allowed me to update my data.  In addition, I've also rendered the data more consistent.  Each column on the poor below reflects households below the poverty line.  In previous iterations I had said it was the "lowest quintile."  I've discovered that some of my data was that, but the older stuff was "below the poverty line."  I've now made it all poverty line as the cutoff.  Here's the historical data:

% Households with:	Poor 1984	Poor  1994	Poor 2003	Poor 2005	All 1971	All 2005
Washing machine	58.2	71.7	67.0	68.7	71.3	84.0
Clothes dryer	35.6	50.2	58.5	61.2	44.5	81.2
Dishwasher	13.6	19.6	33.9	36.7	18.8	64.0
Refrigerator	95.8	97.9	98.2	98.5	83.3	99.3
Freezer	29.2	28.6	25.4	25.1	32.2	36.6
Stove	95.2	97.7	97.1	97.0	87.0	98.8
Microwave	12.5	60.0	88.7	91.2	1.0	96.4
Color TV	70.3	92.5	96.8	97.4	43.3	98.9
VCR	3.4	59.7	75.4	83.6	0.0	92.2
Personal computer	2.9	7.4	36.0	42.4	0.0	67.1
Telephone	71.0	76.7	87.3	79.8	93.0	90.6
Air conditioner	42.5	49.6	77.7	78.8	31.8	85.7
Cellular Telephone			34.7	48.3	0.0	71.3
One or more cars	64.1	71.8	72.8 (2001)		79.5
source:  http://www.census.gov/population/www/socdemo/extended-05.html and prior years

I think these data largely speak for themselves.  The only categories where the poor have become "worse off" are in freezers (likely due to more being built into fridges) and now telephones, which is, of course, explained by the gains in cell phones. Stoves are down slightly, but that too could be due to swapping regular stoves for microwaves or even toaster ovens.  In any case, it's a pretty small decline.

The overall lesson is clear:  lives for Americans below the poverty line continue to get better in terms of what they are able to put in their households and have to make use of everyday. And do note that the average American household in 2005 was doing much better than its 1971 counterpart.  MUCH better - and this doesn't even count medical advances and the like.  So whatever one hears about stagnating wages and the like, the bottom line is ultimately what we can afford to buy and have in our households to improve our lives.  By those measures, life for the average American is better today than 35 years ago, life for poor Americans is much better than it was 35 years ago, and poor Americans today largely live better than the average American did 35 years ago.  Hard to square with a narrative of economic stagnation or decline.

What the current policy regime holds for the future remains, of course, to be seen.  But to use Pete's terms:  as long as the Schumpeterian horse of innovation and the Smithian horse of the gains from trade outrun the Government horse of stupidity, the winners will continue to be you, me and our children and grandchildren, even if the stupid horse is running a bit faster than it used to.

The Science President?

Steven Horwitz

That's the title of this week's NBR blog entry.

Here's the opening:

During his campaign for the presidency, Barack Obama promised that, in contrast to his predecessor, his presidency would be a "science presidency." In his first year, Obama may well have taken some science more seriously than his predecessor, but one set of settled scientific research he has chosen to ignore has been the economics of the minimum wage. The result has been a nightmare for young workers, especially young workers of color.

Has the Hyper-Parenting Boom Reached its Turning Point?

Steven Horwitz

The cover story in this week's Time is "The Growing Backlash Against Overparenting" It's really a terrific piece that features some of the bigger names in the backlash movement (including Lenore Skenazy, the woman behind freerangekids.com, which in some ways started it all).  What's particularly nice is that Time takes a page from John Stossel's playbook and gets to the facts on what the REAL dangers to kids are, including a "there are no solutions, only trade-offs" moment from Skenazy:

But too many parents, says Skenazy, have the math all wrong. Refusing to vaccinate your children, as millions now threaten to do in the case of the swine flu, is statistically reckless; on the other hand, there are no reports of a child ever being poisoned by a stranger handing out tainted Halloween candy, and the odds of being kidnapped and killed by a stranger are about 1 in 1.5 million. When parents confront you with "How can you let him go to the store alone?," she suggests countering with "How can you let him visit your relatives?" (Some 80% of kids who are molested are victims of friends or relatives.) Or ride in the car with you? (More than 430,000 kids were injured in motor vehicles last year.) "I'm not saying that there is no danger in the world or that we shouldn't be prepared," she says. "But there is good and bad luck and fate and things beyond our ability to change. The way kids learn to be resourceful is by having to use their resources." Besides, she says with a smile, "a 100%-safe world is not only impossible. It's nowhere you'd want to be." 

This is a heartening development.  I'm not as convinced as the Time writer is that it's somehow related to the recession, but whatever the cause, let's hope this backlash grows.

Richard Ebeling Explains Thanksgiving

|Peter Boettke|

Richard Ebeling discusses the real meaning of Thanksgiving.