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March 2017 posts

NAFTA and China

By Jonathan B. Wight

The raging bull in a china shop (sorry for the cheap pun) doesn’t stop to take account of the random destruction.  But those of us who profess economics can and should reflect on the unintended consequences of our actions. 

Larry Summers did this recently in analyzing Trump’s desire to weaken Mexico’s link to the U.S. market by renegotiating NAFTA. 

Summers raises an important political point—the potential rise of a left-wing government in Mexico:

“As illustrated by the more than $60 billion China has poured into Hugo Chávez’s Venezuela, China would regard opportunities to ally with a hard-left anti-American government as strategic windfalls. What better than a country of 130 million people with a 2,000 mile border with the United States? Every Mexican with whom I spoke said that the risk of Mexico electing a Chávezlike government had gone way up in recent months on account of American disrespect and truculence.”

When I teach about NAFTA it is always in a political context.  We did not engage with Mexico in a free trade zone for the economic reasons, since Mexico represents such a small and declining market for the U.S. (see below): Mexico

[Image: http://www.businessinsider.com/heres-a-look-at-us-trade-with-mexico-2017-2]

We engaged in Mexico for political reasons, because we have such a long border and so many immigrants. It is in the U.S.’s interest to have a prosperous Mexico, because that provides (we think) for the best chance to stem the flow of illegal immigrants, and also the best chance to prevent the rise of communist or left leaning dictators (as arose in other parts of Latin America). 

Summers rightly reminds us that politics, not economics, should dominate our trade negotiations in some contexts. 

What in the World Is Going on Here?

By John Morton

It’s difficult to blog about the revolting international and national news these days.  It’s easy to conclude that we’re all going to hell in a handbasket.  History may never repeat itself, but in the political world, politicians rarely change.  I decided that what is most needed in any blog these days is a dash of whimsy. 

What follows is an analysis of current issues by mostly historic people.

  1. On the failure of Republicans to agree on how to repeal and replace Obamacare: Bismark

“Laws are like sausages.  It’s better not to see them being made.”  Otto von Bismarck (image right)

“Get your facts first, then you can distort them as you please.”  Mark Twain

  1. On a Congress that is full of rage and doesn’t propose solutions to problems faced by the nation:

“I have come to the conclusion that one useless man is called a disgrace, two are called a law firm, and three become a Congress.”  John Adams

“The reputation of Congress is lower than quail crap.”  Alan Simpson

“Suppose you were an idiot and suppose you were a member of Congress.  But I repeat myself.”  Mark Twain

  1. On the media’s obsession with how unthinkable it is that the electorate voted for Donald Trump:

“In America anyone can become President.  That’s one of the risks you take.”  Adlai Stevenson

  1. On the liberals’ assertion that President Obama cared only about the people and was above politics:

“When I die, I want to be buried in Chicago.  I want to stay active in politics.”  Mo Udall

  1. Finally, I want to give a shout out to Winston Churchill, who said:

“Democracy is the worst form of government except for all the others.” 

Contrast the Western values of democracy with the values of totalitarian ideologues who kill innocent people on bridges.  I agree with the British citizens who say, “We are not afraid.”

[Image: https://commons.wikimedia.org/wiki/File:OttovanBismarck1.jpg]

Celebrating Trees

By Jonathan B. Wight

Trees are one of humanity’s saviors—producing oxygen, shade, habitat, raw materials, and beauty for the soul.

They are great living things, and should enjoy basic protection from random violence.  (Yes, that does mean limiting human property rights, in some cases.)

Spring is nosing its way out of the warm winter.  Let’s celebrate and cherish trees.

Tree widewater [Photos: Sanibel, Florida; Potomac River, Widewater, Virginia.--JBW]

Ripped Knees

By Jonathan B. Wight

One fashion item that has caught my eye recently is the ripped knee jean.  This has been around for some time, but it seems particularly overt these days.  No self-respecting student can be without a pair.

But why the ripped knees? Knees

This seems like a new twist on the old practice of buying pre-faded and pre-distressed clothing.

In the olden days, poor people saved to buy up nice, clean, and pressed clothes that could be worn in public.  Worn or ripped clothing would be a huge embarrassment. Jeans were reserved for heavy manual labor, and they became faded and ripped through hard work and unavoidable abuse.  In other words, the wearer of faded and ripped jeans had to pay a personal price to get them in that condition, and the jeans were evidence of pain, sweat, and endurance that reflected the character of the wearer. 

Most young people today don’t do manual labor and they have few ways of experiencing or demonstrating their personal growth and virtuous overcoming of obstacles. Perhaps some young people wear pre-faded and ripped jeans to connect with a (misguided?) ethic of solidarity:  “I may be rich and educated, but I am no better than the day laborer who wore a similar pair of pants in the past.” 

Or, maybe it's to signal that "I don't care about clothes!--that's so superficial..." (The photo here shows a concern for style, regardless of ripped clothing.)

I wrote about “authenticity” recently, and there seems to be a yearning for a connection to it, or at least the appearance of it (yes, that’s a contradiction).

Of course, many people adopt the style of ripped knees simply to fit in, and not for any symbolic or stylistic message.

What’s next—pre-dented cars?  

[Image: https://www.flickr.com/photos/66755335@N05/15885417274]

Referee Reports

By Jonathan B. Wight

The latest Journal of Economic Perspectives (Winter 2017) has an important paper by Jonathan B. Berk, Campbell R. Harvey, and David Hirshleifer, “How to Write an Effective Referee Report and Improve the Scientific Review Process.”

The authors explore some of the many failings in the review process, including ethical lapses. These fall into two categories:  

a) blatent conflicts of interest (like holding up the review of a competing paper while you rush your own paper into the pipeline!); and

 b) subtle and sometimes unconscious personal biases and failings.

One such latter lapse is the introduction of the reviewer’s ego into the review:

“Some younger referees feel that they need to be overwhelmingly negative about everything in a paper in the report to the author to prove their own mettle and critical insights.”

I’m not sure why the authors call out “younger” referees, because hubris can strike at any age.  As a referee, I find myself often referring back to what I know, which is inevitably my own writing on a subject, and that is embarrassing and often inappropriate.  I now confess and will try to do better!  

The article makes other useful points, such as to focus in on the innovative contribution of a paper and to downplay the need for technical perfection.  One could (or should) make the same point about grading student papers, but being a stickler for technical perfection is a hard habit to break.

[Thanks to Rob Dolan for the link.]

How Mad Is March Madness?

[John Morton is author of Teaching the Ethical Foundations of Economics and many other works. He has a long career teaching economics and training teachers how to teach economics.  In the post below, he essentially asks us why we continue to treat athletes as unpaid workers.--JBW]

By John Morton

The NCAA men’s basketball tournament is the biggest amateur sports event of the year.  It’s amateur because the teams represent universities although everyone makes money except the players.

Rob_Jones_dunk_02I confess to being excited about March madness.  Nevertheless, I ponder some questions about the event.  How did big-time sports become an important mission of universities?  What are the benefits and costs of these programs?  What are the ethical and economic lessons to be learned from making collegiate athletics such a visible face of the higher-education landscape?  March madness qualifies as a teachable moment.

High school and college athletics developed as an unintended consequence of the American emphasis on sports.  In his 1997 book Windy City Wars, Gerald Gems researched athletics in Chicago as an example of the development of sports.  In the late 1800s, Chicago was a diverse city of first- and second-generation immigrants, and many of them held on to their ethnic and national values and traditions.  A goal of the early 20th century progressives was to forge these diverse values and traditions into a more homogeneous society.  Sports was a vehicle to accomplish this.  During this time, Chicago had thousands of sports clubs in multiple leagues with changing regulations.  An unintended consequence of this system was corruption.  Amateur teams played with professional players called “ringers.”  There was illegal betting, and many games were “fixed.”  The progressives decided that moving athletics to the schools would clean up this mess.  Interscholastic athletic programs were born, and they would also become corrupt.  Over the years there have been successful and unsuccessful attempts to improve the integrity of high school and collegiate sports through state athletic associations and national associations such as the NCAA.

College and high school sports programs have positive virtues such as teaching teamwork, improving physical development, and building school spirit.  Sports provide a sense of equality and a lack of class consciousness.  Advocates of Division I basketball and football claim success in college athletics increases institutions’ name recognition, number of applications, and donations.

The critics’ answer is “at what cost?”  For example, in 2014 only 24 of 231 Division I football programs had a profit.  Sports programs are subsidized by student fees, public funds, and donations that specifically target athletics.  Increased funding for athletics decreases funding for academics.  An emphasis on athletics interferes with the core values of a university such as academic teaching and research.  Finally, the entire big-time sports programs are built on the exploitation of the athletes, who are not paid.

In an open letter to his alma mater, Rutgers, published in the New York Times on April 12, 1998, Milton Friedman urged the school to drop big-time sports.  He wrote, “It is not the purpose of a university to generate publicity or stimulate sports.  As you no doubt recall, Chicago was a football powerhouse before Robert Maynard Hutchens dropped the sport.  As you know, it hardly harmed the university’s academic standards.

There’s more to say on this issue, but now I must get back to filling out my brackets.

[Image: https://commons.wikimedia.org/wiki/File:Rob_Jones_dunk_02.jpg]

Values of Liberal Education

By Jonathan B. Wight

After the recent fiasco at Middlebury, many faculty there came together to articulate a set of values for academic discussion in a liberal arts setting.  Here’s the list:

Genuine higher learning is possible only where free, reasoned, and civil speech and discussion are respected.

Only through the contest of clashing viewpoints do we have any hope of replacing mere opinion with knowledge.

The incivility and coarseness that characterize so much of American politics and culture cannot justify a response of incivility and coarseness on the college campus.

The impossibility of attaining a perfectly egalitarian sphere of free discourse can never justify efforts to silence speech and debate.

Exposure to controversial points of view does not constitute violence.

Students have the right to challenge and even to protest non-disruptively the views of their professors and guest speakers.

A protest that prevents campus speakers from communicating with their audience is a coercive act.

No group of professors or students has the right to act as final arbiter of the opinions that students may entertain.

No group of professors or students has the right to determine for the entire community that a question is closed for discussion.

The purpose of college is not to make faculty or students comfortable in their opinions and prejudices.

The purpose of education is not the promotion of any particular political or social agenda.

The primary purpose of higher education is the cultivation of the mind, thus allowing for intelligence to do the hard work of assimilating and sorting information and drawing rational conclusions.

A good education produces modesty with respect to our own intellectual powers and opinions as well as openness to considering contrary views.

All our students possess the strength, in head and in heart, to consider and evaluate challenging opinions from every quarter.

We are steadfast in our purpose to provide all current and future students an education on this model, and we encourage our colleagues at colleges across the country to do the same.

Liberal Intolerance

By Jonathan B. Wight

The disturbing stories of intolerance that plague our nation and world’s history should not be forgotten when sometimes the tables are turned.

Some liberals, once advocating openness, toleration, and respect for all, have been behaving as brownshirts on some campuses.

Tom Ciccotta, a libertarian and senior economics major at Bucknell, relates his story of being branded a fascist by an unthinking and reactionary left in “The Isolation of College Libertarians.”

Allison Stanger, a Professor of International Politics and Economics at Middlebury College, was actually assaulted by a mob on campus when she tried to moderate a presentation by Charles Murray.  That harrowing story is in today’s New York Times.

Many professors seem to be joining in to the practice of un-think and stereotyping.  According to Stanger, the professors inciting the students at Middlebury had never actually read any of Murray’s books, and were responding to character assassinations from a web site.  So much for critical thinking!

Protesting is good, but physical and emotional coercion of those with whom you disagree is unacceptable. Stanger concludes:

"…our constitutional democracy will depend on whether Americans can relearn how to engage civilly with one another, something that is admittedly hard to do with a bullying president as a role model. But any other way forward would be antithetical to the very ideals of the university and of liberal democracy."

Ahh... the arrogance of youth, thinking that one has all the answers, and the rashness to do stupid things as happened at Middlebury.  I'm reminded of my dear brother, who while a student at Boston University during the late 1960s, railed against the corporate monsters and threatened them harm.  A few years later, armed with his M.A., he was ... a banker working for Citibank.  

Time can heal some wounds.


By Jonathan B. Wight

“How amiable does he appear to be, whose sympathetic heart seems to reecho all the sentiments of those with whom he converses.”

            -- Adam Smith, The Theory of Moral Sentiments

What a sublime quote, but it could be misinterpreted.  What if a salesman-type takes it up as a way to schmooze and bamboozle?

Silhouettes-924565_640No offense to Dale Carnegie, but How to Win Friends and Influence People could be the blueprint for con artists, and so could Smith’s TMS.

When I teach students about Smith, it is essential to convey two other ideas:

  1. That the person of virtue strives to be worthy of the esteem of friends and colleagues;
  1. That the person who is really engaging a sympathetic heart is doing so spontaneously, without considering the personal gain that might arise.

Hence, in contrast to the perception of mainstream economics training as being opportunistic, I implore students to open up to authenticity, not simply be a manipulator of other people’s sentiments.  That means our interactions with others can expose our own fears, hopes, and dreams, and thereby alter us; we are part of the flow. 

This does not mean you always must feel sympathy in your heart; if you’re having a bad day you may not have the capacity to feel it right then.  Nevertheless, you can remember how you would feel it on your better day, and “fake it” to that extent. 

[Image: https://pixabay.com/en/silhouettes-person-mask-924565/]

Notes on Health Care

By Jonathan B. Wight

The carnage to be caused by the Republican health care bill will likely go down as a major American disaster.  Even before dis-enrolling tens of millions, life expectancy has been falling in some sectors of the U.S.

These statements seem incontrovertible:

  1. Prevention is cheaper than cure.
  2. Early treatment is cheaper than later treatment.
  3. Doctor’s office treatment is much cheaper than emergency room treatment.
  4. Contagious diseases cause negative externalities—one potential reason for government involvement.
  5. Health care transactions have many of the characteristics that produce other market failures (see Ken Arrow)—another potential reason for government involvement.
  6. Conservatives such as Mitt Romney and Richard Nixon, and chameleons like Donald Trump, have advocated for something like universal health care.

America is the only developed country without universal health care. Even Hong Kong, often touted as the freest economy in the world, has universal health care operating alongside a private health system.  Many health indicators are better as well, although data comparisons are sometimes misleading.   Health

[Image source: https://commons.wikimedia.org/wiki/File:Life_expectancy_vs_healthcare_spending.jpg]

Virtually all such systems have much lower per patient costs than the hodge podge U.S. system with for-profit insurance and hospitals, because prevention, early treatment, the avoidance of emergency rooms, and other factors actually do matter.

In no way do I endorse the view that universal health care is a right.  Nevertheless, it is a smart policy choice in the modern, high-income era.  This ain’t Victorian England anymore.   

The Republican plan to replace the Affordable Care Act will give large tax cuts to the wealthy and huge premium increases for the elderly.  The proposed plan would make it more likely that healthy young people will bail out of the system, causing premiums in general to soar.  There is a train wreck up the tracks, which may be the true aim of the plan. 

Imagine the hugely popular Social Security Program with these new provisions:  No young person need participate, or save at all, until the year of retirement.  Then there’s a modest penalty to let you into the system!” How great and sustainable does that sound?  (FYI, Social Security can reasonably be fixed with a few minor adjustments.)

Speaking of health care and the defunding of Planned Parenthood, an Instagram photo shows a piqued woman holding a sign: “Viagra is government funded ($41.6 m. per year).  If pregnancy is God’s will, so is limp dick.”*

Good point.  The men in Congress get free unlimited health care and subsidies for their Viagra.  What else is important to the nation? What if a law required members of Congress to enjoy the same health care system they foist on the rest of us?

Mark White has argued eloquently on the other side of mandated health care.  To find his numerous critiques, search this blog for “health care.”

*Thanks to Judy Reynolds for the link.