Mike Munger paraphrases Hayek’s fatal conceit

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Milton Friedman on poverty alleviation

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How to beat the share market

Become a United States senator. Their share portfolios out-perform the best of the best hedge fund managers, and the best hedge fund manager was paid 3 1/2 billion dollars last year; to get on the list for the top hedge fund manager, you make at least $300 million a year. Good things that politicians know how to outperform them on their modest salaries and busy schedules of public engagements and parliamentary sittings.

 

Using the financial disclosures of politicians, "Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives," built model portfolios and charted their performance. They found that House members outperform the market by 6 percentage points. Senators do even better, the authors say, citing their own earlier research from 2004.

Senate portfolios "show some of the highest excess returns ever recorded over a long period of time, significantly outperforming even hedge fund managers," with gains that are "both economically large and statistically significant."

These results suggest that congressmen and senators have access to non-public information on  particular businesses, industries or the economy as a whole and invest on  the basis that information. The good returns of Senators  and Congressmen last far too long to be no more than luck.


What should governments do?

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Which is more important: poverty or inequality?

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The Munger test is far better than cost benefit analysis

HT: Mike Munger (2014) Unicorn Governance

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Adam Smith on how institutional backgrounds shape public choice

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Richard Epstein on how to respond to good fortune and bad luck

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The fire of truth: multiculturalism

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Judge regulations by their results, not their good intentions

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Unfettered power loses its shine when it must be shared with your opponents for more than a brief time

The rotation of power is common in democracies, and the worst rise to the top, so it is wise to design constitutional safeguards to minimise the damage done when those crazies to the right or left of you get their chance in office, as they will.

Too many policies and ideas of the Left assume that they are the face of the future, rather than just another political party that will hold power as often as not.

Privatisation and deregulation is a lot slower in a federal system with an effective upper house elected by proportional representation. Regulatory powers and public asset ownership is spread over different levels of federations, with different parties always in power at various levels at the same time, all worried about losing office by going to far away from what the majority wants.

The will of the people is constantly tested and measured in a federal system with elections at one level or another every year or so contested on a mix of local and national issues. Any failings of privatisation or deregulation in pioneering jurisdictions would quickly become apparent and would not be copied by the rest of the country. These errors could be undone where they originated by incoming progressive governments.

The Left may want to protect the rights of the unpopular and the unpleasant, and to want constitutional safeguards to slow an impassioned majority down is, in part, because they could be next if they lose the next election to the latest right-wing populist.

In a unitary unicameral parliament, those crazies to the right or left of you are tempered by an occasional general election only every 3 to 5 years. Little wonder that UK Labor reconsidered devolution, an assembly for London, and regional government after 15 years of Maggie Thatcher, good and hard, with her unfettered right to ask the house of commons to make or unmake any law whatsoever.

Developing positive alternatives on the Left includes what to do about the rotation of power and fettered versus unfettered parliamentary and executive power. The failure of the Left to develop its own constitutional political economy is a major strategic shortcoming. Frequenting wine bars, cafes and blogs muttering to each other ‘our day will come, our day will come’ is not enough.

State power was something that the classical liberals feared, and the problem of constitutional design is insuring that such power would be effectively limited.

Sovereignty must be split among several levels of collective authority; federalism was designed to allow for a decentralization of coercive state power.

At each level of authority, separate functional branches of government were deliberately placed in continued tension, one with the other. The legislative branch is further restricted by the establishment of two strong houses, each of which organised on a separate principle of representation

Fire of truth: subsidies and rent seeking

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Why Capitalism is Better than Socialism even under ideal conditions

HT: Anti-Dismal.

Stephen Williamson on Marginal Taxation

Karl Smith's avatarModeled Behavior

He says a lot. I’ll try to address piece by piece.

Next, some people have shown interest in this paper by Diamond and Saez. A key result that seemed to get these people excited is the calculation of a top optimal marginal tax rate (including all taxes) of 73%, relative to the current rate of 42.5%. There are two key assumptions that Diamond and Saez make to come up with the 73% optimal rate. First, we should not care about the welfare (at the margin) of the rich people. This argument is based solely on the notion that marginal utility of income is low for the top income-earners. Second, Diamond and Saez use a “behavioral elasticity” of tax revenue with respect to the tax rate of 0.25. To see how this matters, if you use their formula and an elasticity of one, you get an optimal top tax rate…

View original post 1,215 more words

The politics of ethnicity-based research in New Zealand

When Simon Chapple in 2000 wrote “Māori Socio-Economic Disparity”, which showed that disadvantage in New Zealand is more closely tied to age, marital status, education, skills, and geographic location than it is to ethnicity, broadly conceived, such as Māori ethnicity:

  • He was summoned before the Māori Affairs Committee of parliament to defend his paper! His chief executive at the Ministry of Social Policy went along with him to defend what he wrote while employed as a senior analyst at the Department of Labour. Staff at his new ministry launched a petition to have Simon fired.
  • The head of the Māori Affairs Ministry accused Simon of breaching the public service code of conduct.

Chapple also found that there are important differences in socio economic development by Māori self-identity. Those who identified only as Māori did worse than those that are identified as Māori and another ethnicity. Identifying only as Māori also correlated with living in rural New Zealand.

In terms of employment discrimination, employers would not know whether a Māori job applicant identified as only as Māori or also with another ethnicity, so discrimination is not a good explanation of Māori disadvantage because of this counterfactual. A major driver of Māori disadvantage, which is identifying on the Census form solely as Maori, is simply unknown to discriminating employers as a basis for discrimination in hiring and promotion.

There were editorials in the Dominion Post, which I cannot find online,  and in the New Zealand Herald. The latter said:

The Government is being prodded to recognise that Maori deprivation has more to do with socio-economic factors than ethnicity.

This was the conclusion of a report by the Labour Department’s senior research analyst, Simon Chapple. Helen Clark might well have had that finding partly in mind when she referred to a lot of water having gone under the bridge since the Government first formulated legislation.

Mr Chapple said, in essence, that place of residence, age, education and skills had more to do with poverty than race. In areas such as South Auckland, Northland and the central North Island, there were poor Maori, but there were also poor Pākehā and poor Pasifika.

The Minister attacked him and the paper as well for contradicting the Minister’s claim during the election campaign that everything got worse for Maori in the 1990s.

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Real equivalised median household income rose 47% from 1994 to 2010; for Māori, this rise was 68%; for Pasifika, 77% (Perry July 2014)

See Karen Baehler’s Ethnicity-based research and politics: snapshots from the United States and New Zealand for more information and a comparison with the similar response to Daniel Patrick Moynihan’s The Negro Family: A Case for National Action in 1965.

About a quarter of Negro families are headed by women. The divorce rate is about 2 1/2 times what it is [compared with whites],” Moynihan said. “The number of fatherless children keeps growing. And all these things keep getting worse, not better, over recent years.”

Moynihan, now retired from the United States Senate, was a senior official in LBJ’s Labor Department in 1965. He wrote his report on a typewriter over a few weeks and had the publications office in the basement of the Labor Department print 100 of them, marked “For Official Use Only.”

  • He warned about the breakdown of the African-American family where deprivation and disorganisation had formed their own vicious circle.
  • Many civil rights leaders had labelled Moynihan’s report a subtle form of racism because of its unflattering portrayal of the black family (Wilson 1987).
  • These accusations of racism helped make the breakdown of the family a taboo subject in social policy in the USA

see The Moynihan Report Revisited: Lessons and Reflections after Four Decades for a review by the best and the brightest in American economics and sociology on Daniel Patrick Moynihan’s prophetic warnings. Holzer says, for  example:

Moynihan was extremely insightful and even prescient in arguing that the employment situation of young black men was a “crisis . . . that would only grow worse.”

He understood that these trends involve both limits on labour market opportunities that these young men face as well as skill deficits of and behavioural responses by the young men themselves.

More children are growing-up without a working father living in the home and glean the awareness that work is a central expectation of adult life (Wilson 1987, 1996).

Single-parent households increased from 13 per cent of all Māori households in 1981 to 24.4 per cent in the 2006 Census. In the 2006 Census, 70 per cent of Māori single parent households were on a low income compared to 15 per cent of other Māori one family households (Kiro, Randow and Sporle 2010).

Most of the skill gaps that are present at the age of 18 – skill gaps which substantially explain gaps in adult earnings and employment in all groups – are also present at the age of five (Cunha and Heckman 2007). There is much evidence to show that disadvantaged children have lower levels of soft skills (non-cognitive skills): motivation, persistence, self-discipline, the ability to work with others, the ability to defer gratification and plan ahead, etc. (Heckman 2008). Most of the skills that are acquired at school build on these soft skills that are moulded and reinforced within whānau.

When I started working on labour economics in 2007 I found that the labour economics of Māori was very narrowly written and stayed well clear of the minefield that Simon braved about how ethnicity does not matter that much to Māori social disadvantage.

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