The Wealth of Nations and Economic Growth

This is the name of one of the chapters of Tyler Cowen and Alex Tabarrok's new textbook, Modern Principles: Macroeconomics. It is an interesting read and a very clear, intuitive primer into the basics of economic growth, the factors that affect economic growth, the relationship between economic growth and the wealth of nations, and the various differences between richer and poorer nations. The chapter is available (temporarily I believe) online here.

Also, here is a post explaining the differences between this textbook and other Macroeconomics texts.

Staying Home From Work Easier Said Than Done

To combat the spread of the swine flu, Obama had advised workers to stay home if they were feeling ill. Seems simple and logical enough. Thing is: for many workers in this economic climate, missing a day of work is easier said than done. Here is the Economic Policy Institute in an article called "Sensible Approach to Flu Scare Makes No Sense for Many Working Americans."

Problem is, millions of Americans can’t just stay home because they’re under the weather. When EPI looked at corporate sick leave policies in 2007 it found that some 43% of all private-industry workers have no paid sick days. Rather than the common sense precaution the President advices, these workers have a more difficult choice of going to work sick or staying home without pay and risk losing their jobs. In this current climate of high unemployment and even higher job insecurity, workers without any formal sick leave are even less likely to risk taking a day off.

Even more problematic, access to time off for health reasons is especially rare in low-paying jobs. In a 2006 compensation survey, the Bureau of Labor Statistics found that 79% of those earning more than $29.47 per hour had sick time, but only 16% of those earning less than $7.38 an hour had the same benefit.

Universal Coverage, Public Health and Pandemics

Tyler Cowen has a post on how much we should worry about pandemics. In it, he writes:

I say think probabilistically, a concept not prominent in his piece. A one percent chance of one hundred million deaths is, in expected value terms, one million deaths and that is a big deal. Probably the United States is less vulnerable than it was in 1918, but how many people would die in China, India and many other locales? How much disruption to trade, travel, and the world economy would take place? Even in the United States, our public health systems would break down quickly and render many modern medical advances useless (e.g., when would the Tamiflu run out?). Having lots of living space is wonderful, but it pays off only if people stay home from work and that means dealing with massive absenteeism. Not pretty. Better safe than sorry.

I agree with this. Despite the fact that globalization has improved the flow of new medicines between countries and that medical technology is much more sophisticated (especially in wealthy countries) than it has been in decades (this, by the way, accounts for the majority of increases in annual health care expenditures), I do happen to think that investment in public health is a consistently important endeavor and, as Cowen writes, it is better to be safe than sorry.

However, then Tyler uses this point as a jumping off point for attacking universal health care:

The main thing we should do -- invest in public health infrastructure -- is in any case a good idea with many possible payoffs, whether a pandemic comes or not. It is a better investment of money than pursuing the ideal of universal health insurance coverage. I might add that one of the better arguments for universal coverage is simply that it could lead to better monitoring of some public health issues.

And there's where I disagree. As I said, public health is always a good investment. One of the most important investments for sure. Yet, we are not going to prevent the outbreak of new pandemics. Diseases mutate. There's a new strain of the flu every year. Having efficient awareness and technology to combat these manifestations is a big help, but so is having insurance to actually obtain treatment. Is it any surprise that there is a strong correlation between the sick and the uninsured? This is where universal coverage comes in and this is one of its better arguments -- not just to improve public health.

Is Rainwater a Public Good?

Maybe not in Colorado.

While laws about rainwater collection are often murky, Colorado's are quite clear: Homeowners do not own the rain that falls on their property. The Rocky Mountain state uses a convoluted mix of first-come, first-serve water rights, some of which date back to the 1850s, and riparian rights that belong to the owners of land lying adjacent to water. A single person catching rain wouldn't make a difference to water rights holders, according to Brian Werner of the Northern Colorado Water Conservancy District. But if everyone in Denver captured rain, he says, that would upset the state's 150-year-old water-allocation system. The Colorado Department of Natural Resources estimates that 86 percent of water deliveries go to agriculture, which is already stressed by dwindling supplies. And because 19 states and Mexico draw water from rivers that originate in the Colorado Rockies, backyard water harvesting can have widespread implications (of course, the same goes for water that comes from the tap in these regions).

Although it is explicitly stated that one person collecting rainwater probably would not make much of a difference, the implication here is that it is not technically a fully non-excludable, non-rival good.

Brad Delong on the Stimulus

A good read, I tell you.

BERKELEY - Of all the strange things that have happened this winter, perhaps the strangest has been the emergence of large-scale Republican Party opposition to the Obama administration's effort to keep American unemployment from jumping to 10% or higher. There is no doubt that had John McCain won the presidential election last November, a very similar deficit-spending stimulus package to the Obama plan - perhaps with more tax cuts and fewer spending increases would have moved through Congress with unanimous Republican support.

As N. Gregory Mankiw said of a stimulus package back in 2003, when he was President George W. Bush's chief economic advisor, this is not rocket science. Deficit spending in a recession, he said, "help[s] maintain the aggregate demand for goods and services. There is nothing novel about this. It is very conventional short-run stabilization policy: you can find it in all of the leading textbooks..."

I can understand (though I disagree with) opponents of the stimulus plan who believe that the situation is not that dire; that the government spending will be slow and wasteful (whereas properly targeted tax cuts would provide a more effective stimulus); and thus that it would have been better to defeat Obama's stimulus bill and try again in a couple of months.

I can also understand (though I disagree with) opponents who believe that the short-run stimulus effect of the plan will be small, while America's weak fiscal position implies a large long-run drag on the economy from the costs of servicing the resulting debt.

What I do not understand is opposition based on the claim that the stimulus package simply will not work: the government will spend its money, households will receive their tax rebates, and nothing will happen afterwards to boost employment and production. In fact, there is a surprisingly large current of thought that maintains that stimulus packages simply do not work, ever.

This opposition is not coming only from politicians who are calculating that opposition to whatever is proposed may yield electoral benefits; indeed, it does not even reflect any coherent right-wing or indeed left-wing political position. Root-and-branch stimulus opponents whose work has crossed my desk recently include efficient-markets fundamentalists like the University of Chicago's Eugene Fama, Marxists like CUNY's David Harvey, classical economists like Harvard's Robert Barro, gold bugs like the Council on Foreign Relation's Benn Steil, and a host of others.

I simply do not understand their arguments that government spending cannot boost the economy. As far as I can tell, they are simply burying their heads in the sand.

At the start of 1996, the US unemployment rate was 5.6%. Then America's businesses and investors discovered the Internet. Over the next four years, annual US spending on information technology equipment and software roared upward, from $281 billion to $446 billion, the US unemployment rate dropped from 5.6% to 4%, and the economy grew at a 4.3% real annual rate as the high-tech spending boom pulled extra workers out of unemployment and into jobs.

Back at the start of 2004, America's banks discovered that they could borrow money cheaply from Asia and lend it out in higher-yielding domestic mortgages while using sophisticated financial engineering to wall off and strictly control their risks - or so they thought. Over the next two years, annual US spending on residential construction roared upward, from $624 billion to $798 billion, the US unemployment rate dropped from 5.7% to 4.6%, and the economy grew at a 3.1% real annual rate.

In both of these cases, large groups of people in America decided to increase their spending. You can argue that neither group should have boosted its spending to such a degree that both were subject to "irrational exuberance" - and that someone should have taken away the punchbowl earlier. But you cannot argue that these groups did not increase their spending, and that their increased spending did not pull large numbers of Americans - roughly two million in each case - into productive and valued employment.

The government's money is as good as anybody else's. If businesses' enthusiasm for spending on high-tech gadgetry and new homeowners' enthusiasm for spending on three-bedroom houses can boost employment and production, then what argument can Harvey, Fama, Barro, Steil, and company make that government spending will not? I simply do not see it.

Font-tastic Inspiration

The battle for Comic Sans rages on and it is interesting to see where the inspiration for the font came from:

Mr. Connare says he pulled out the two comic books he had in his office, "The Dark Knight Returns" and "Watchmen," and got to work, inspired by the lettering and using his mouse to draw on a computer screen. Within a week, he had designed his legacy.

How sweet!

Rumors

Economics bloggers beware!  It seems that if you are  blogging out of South Korea your stinging criticism of national monetary policy or bailout plans can bring you to court!  In general though:

The government has denied wanting to suppress online freedom of expression, but it has long voiced concern about the influence of Internet rumors. Officials blamed online demagogues in part for huge protests last summer against U.S. beef imports that paralyzed the government for weeks.

I have no doubt that with the growing popularity of economics blogs and alternative opinion sources that some bloggers could become active forces in swaying public opinion, but is that a bad thing and should it be against the law to spread 'rumors' about the government? Luckily the court found the latter question's answer to be "no".