Tuesday, November 22, 2016

Colonial Drinking and Does the US Have a Free Economy?

I sent my classes this email in response to a class discussion
Colonial Drinking
In class I may have mentioned that the colonial Americans, including the Pilgrims, drank more than we do today. The reason was that the water in England was unhealthy. Although the Pilgrims on the Mayflower had mostly beer, the colonials drank hard cider more frequently; rum was also a favorite.  If you don't drink for religious reasons, please forgive me, but I looked up popular drinks of the colonial period, and this site lists several:
http://drinks.seriouseats.com/2014/04/colonial-era-drinks-cocktails-rum-flip-stonefence-syllabub-rattleskull.html

It describes flip as follows:  
Once flip appeared in taverns in the 1690s, it would capture the colonial hearts and livers for a century to come. A blend of beer, rum, molasses (or dried pumpkin), and eggs or cream, flip was usually mixed in a pitcher and then whipped into a froth by plunging a hot fire poker (called a flip-dog) into its midst. The tavern keeper would then decant the singed creation into ceramic mugs or featherlight flip glasses.
Does the US Have a Free Market Economy, and What Are the Effects?
Someone in my Sunday evening class raised the question of whether the US has a free market economy.  I don't believe that it does. As I've mentioned, the Heritage Foundation ranks the US number 11 in terms of economic freedom, but that doesn't mean the US has a free economy.  Free market economies no longer exist anywhere, with steep costs to the public.

In the 1800s the federal government's spending was about 5% of the total economy. Today it is about about 22% (see this site http://www.usgovernmentspending.com/total ).  If you add state and local spending, then government spending is about one-third ($6.89 trillion over $17.947 billion) of the total national economy. 

However, that does not count (1) the government-driven health industry, which is 12% of the economy; (2) the government-driven defense industry, which is about 3%; (3) the government-driven banking and insurance systems, which are about 4%. 

Insurance is regulated by the states while banking is regulated by the Federal Reserve Bank--a cartel of the large private banks--the Federal Deposit and Insurance Company, the Securities and Exchange Commission, FNMA (Fannie Mae), FHLC (Freddie Mac) and Ginnie Mae (GNMA).

If you add these three industries, health, defense, and banking and insurance, to the share of the economy that is government controlled, the total goes up to the following:33% (direct government) + 12% (health care) + 4% (banking and insurance) + 3% (defense) = 52%.(total)
 However, that's far from all that's controlled by government. All private industry is regulated by a wide array of agencies.  These include agencies that regulate human resources (the Department of Labor), the environment (EPA), energy (the Energy Department), and education (the Department of Education). 

Because of mismanagement and lack of control, no one knows how many agencies the federal government has. According to this website, there are approximately 115 federal agencies, but each state also has many agencies, so the number of regulatory agencies for state and federal combined is in the thousands.   https://cei.org/blog/nobody-knows-how-many-federal-agencies-exist 

It is also difficult to estimate the extent of federal and state regulation of business.  When I did my study of the pension law, ERISA, 20 years ago, the benefit managers estimated that about 40% of their time was spent on government regulation. 

Let's say for the sake of argument, that 15%, probably an overly low number, of the private sector is devoted to compliance with government mandates. That brings the total share of government in the economy to about 67% or two-thirds. 

But that understates my case. All of the private sector is driven by interest rates and Federal Reserve policy. As I have mentioned in my Sunday classes, low interest rates cause the stock market to rise, increasing the incomes of the rich.  However, to reduce interest rates money is created; the increased money causes rising prices, reducing the inflation-adjusted incomes of the poor.  Increasing income inequality is only one effect of the Fed's lopsided management of US monetary policy.  Others include overinvestment in subprime housing and overinvestment in defense.  

Government in the US dominates 80% or more of the economy.

The cost of government control is heavy.  When the economy was freer, back in the 1950s, there was less income inequality and rising real hourly wages. Since 1960, when the scope of government spending expanded under President Johnson's guns and butter philosophy, real hourly wages stopped growing. 

Several economists have quantified the effect of government regulation,and their studies are reported in these Reason and US News and World Report articles:

http://reason.com/archives/2013/06/21/federal-regulations-have-made-you-75-per

http://www.usnews.com/opinion/blogs/economic-intelligence/2013/08/27/regulations-cost-the-us-economy-trillions-of-dollars

I would have estimated that in the absence of regulation, you would have earned twice what you earn today, but the economists described in the above-two articles found that the number is six fold. Instead of earning $53,000, the average American household would be earning $330,000 if the level of regulation that existed early in the twentieth century had continued. 


Monday, October 31, 2016

Socialism Makes You Poor--Here's How

The following is a summary of a class discussion. 

In 2013 The Economist, a British magazine, reported on an Organization of Economic Cooperation and Development (OECD) study of how measures of GDP per capita or wealth per person by country compare to measures of the welfare of each country’s bottom ten percent. The study found that there is a close correlation between GDP per capita and how well-off the bottom ten percent is. See  http://www.economist.com/blogs/graphicdetail/2013/05/daily-chart-17?Fsrc=scn%2Fgp%2Fwl%2Fdc%2Fbetterlifeindex .

Among the countries studied, the US performed fourth best, after Canada, Sweden, and Australia.  According to the Heritage Foundation’s ranking of economic freedom--or absence of socialism and regulation--Canada ranks six, Sweden ranks 26, and Australia ranks five in terms of economic freedom.  In contrast, the US ranks 11 in terms of economic freedom.   In other words, two of the three countries studied in which the bottom ten percent are best off have LESS SOCIALISM and regulation than the United States does.

At the bottom of this email, I list the 25 most-free countries and their wealth ranks (average wealth rank= 38) and of the 25 most-socialist countries and their wealth ranks (average wealth rank=154). 

After that I list the 13 countries with populations of 100 million or more.  The wealthiest of the countries with 100 million or more population is the US, with an economic freedom ranking of 11 and a wealth rank of 19, and Japan, with an economic freedom ranking of 22 and a wealth rank of 43.  The other 11 countries with over 100 million population have a mean economic freedom ranking of 109 and a mean wealth ranking of 129.  Large countries tend to adopt socialism, and as a result they tend to be poor.

The Scandinavian countries are in flux, and have a split personality.  Student K-S is right that Denmark, Sweden, Norway, and the other Scandinavian countries still have high welfare benefits.  However, in many ways they have become or are becoming less regulated than the US, which has caused sharp increases in their wealth or GDP per capita. This article by the Foundation for Economic Education gives an overview:

The author writes:

Scandinavia is in the midst of an economic transformation. Thanks to tax reform, openness to investment/trade, sound property rights, little corruption, and continuing efforts to privatize, economies there have made great strides toward liberalization. Denmark, Finland, Iceland, and Sweden have been rated “free” economies by the Heritage Foundation’s 2006 Index of Economic Freedom (online at www.heritage.org/research/features/index/countries.cfm). Norway lags behind with a “mostly free” rating.  Norway has had fewer incentives to liberalize because of its large oil endowment.

 I looked up the current rankings of GDP per capita by the CIA, which is available at
As well, I looked up the economic freedom (lack of socialism and lack of regulation) rankings by the Heritage Foundation for the 25-freest countries and the 25 least-free countries.
The five economically freest, least socialist countries--Hong Kong, Singapore, New Zealand, Switzerland, and Australia--have an average wealth ranking of 23.4, which puts them in the top 10% in terms of wealth.  The five most socialist or least economically free countries—Turkmenistan, Zimbabwe, Venezuela, Cuba, and North Korea---have an average wealth ranking of 149.2, which puts them in the bottom 20% in terms of wealth.  Socialism causes suffering of the poorest people in those countries.

I have tabulated the list of the 25 -freest (least socialist) countries and the 25 least-free countries as compiled by the Heritage Foundation (see http://www.heritage.org/index/ranking ) along with GDP per capita as compiled by the CIA.  The list is. The mean wealth rank for the 25-freest countries is 38.  The mean wealth rank for the 25 least-free countries, the most socialist, is 154.

If one looks at the CIA rankings of the richest countries, one sees that special considerations characterize most of the 20 richest.  These include oil exporters--Qatar, Kuwait, Norway, Brunei, and UAE; small countries with wealthy part-time residents, banking, or gambling—Macau, Luxembourg, Lichtenstein, Monaco, Bermuda, and Sint Maarten; and small countries that are dependent on larger ones—Isle of Man, San Marino, Jersey, and the Falkland Islands.  If one removes those, the remaining top-20 wealthiest countries are Singapore, Ireland, Switzerland, Hong Kong, and the United States.  These are among the freest countries, with a mean freedom rank of 5.2.  The mean for the five is raised somewhat by the US, which had the freest economy until the 1960s or so, and has been in decline since it increased the degree of socialism under Lyndon Johnson and Richard Nixon; more recently, George W. Bush and Barack H. Obama have also increased the degree of socialism, so one can expect further decline in the US.

Here are lists of the 25 most-free countries and their wealth ranks (average wealth rank= 38) and of the 25 most-socialist countries and their wealth ranks (average wealth rank=154). 
After that I list the 13 countries with populations of 100 million or more. 


25 Most-free countries: Mean wealth rank 38
1. Hong Kong                     Wealth rank 18
2. Singapore                        Wealth rank 6
3. New Zealand                   Wealth rank 51
4. Switzerland                      Wealth rank 16
5. Australia                           Wealth rank 26
6. Canada                             Wealth rank 31
7. Chile                                 Wealth rank 80
8. Ireland                              Wealth rank 14
9. Estonia                             Wealth rank 64
10. United Kingdom            Wealth rank 40
11. United States                  Wealth rank 19
12. Denmark                        Wealth rank 30
13. Lithuania                        Wealth rank 65
14. Taiwan                            Wealth rank 29
15. Mauritius                        Wealth rank 87
16.  The Netherlands            Wealth rank 23
17. Germany                         Wealth rank 28
18. Bahrain                           Wealth rank 23
19. Luxembourg                   Wealth rank 3
20. Iceland                            Wealth rank 32
21. Czech Republic               Wealth rank 59
22. Japan                               Wealth rank 43
23. Georgia                            Wealth rank 139                               
24. Finland                            Wealth rank 41
25.  United Arab Emirates    Wealth rank 12

25 Least-free countries.  Mean wealth rank  154

154 Algeria                                   Wealth rank 112
155. Laos                                       Wealth rank 164
156. Angola                                   Wealth rank 156
157. Belarus                                  Wealth rank 94
158. Burma                                   Wealth rank 163
159. Ecuador                                 Wealth rank 128
160. Bolivia                                   Wealth rank 154
161. Solomon Islands                    Wealth rank 204
162. Ukraine                                 Wealth rank 148
163. Democratic Republic of Congo  Wealth rank 226
164 Chad                                       Wealth rank 196
165 Kiribati                                   Wealth rank 209
166 Uzbekistan                             Wealth rank 160
167. Timor-Leste                          Wealth rank 172
168. Central African Republic     Wealth rank 228
169 Argentina                              Wealth rank 85
170 Equatorial Guinea                 Wealth rank 36
171 Iran                                        Wealth rank 95
172 Republic of Congo                Wealth rank 156
173. Eritrea                                  Wealth rank 219
174. Turkmenistan                       Wealth rank 98
175. Zimbabwe                            Wealth rank 205
176. Venezuela                            Wealth rank 96
177. Cuba                                     Wealth rank 137
178. North Korea                         Wealth rank 210

13 Countries with over 100 million Population

Mean freedom excluding US and Japan:  109

Mean wealth rank excluding US and Japan 129

US:  freedom rank 11 and wealth rank of 19

Japan freedom rank of 22 and wealth rank of 43



1. China                                       Freedom ranking   144     wealth ranking  113
2. India                                        Freedom ranking     123   wealth ranking  158
3. United states                            Freedom ranking      11    wealth ranking   19
4. Indonesia                                 Freedom ranking     99      wealth ranking  131
5. Brazil                                       Freedom ranking  122      wealth ranking 103
6. Pakistan                                   Freedom ranking    126     wealth ranking  171
7. Nigeria                                     Freedom ranking   116      wealth ranking  159
8. Bangladesh                              Freedom ranking    137     wealth ranking  179
9. Russia                                      Freedom ranking    153      wealth ranking   73
10.  Mexico                                 Freedom ranking      62       wealth ranking  91
11. Japan                                      Freedom ranking   22          wealth ranking  43
12. Philippines                              Freedom ranking  70         wealth ranking  153

13. Ethiopia                                 Freedom ranking    148       wealth ranking  208

Sunday, October 2, 2016

Faculty Voter Registration in Economics, History, Journalism, Law, and Psychology

Daniel Klein, Anthony Quain, and my paper  "Faculty Voter Registration in Economics, History, Journalism, Law, and Psychology" appears in the recently released issue of Econ Journal Watch , and it can be downloaded at 

               

The executive summary of the paper is as follows:

We investigate the voter registration of faculty at 40 leading U.S. universities in the fields of Economics, History, Journalism/Communications, Law, and Psychology. We looked up 7,243 professors and found 3,623 to be registered Democratic and 314 Republican, for an overall D:R ratio of 11.5:1. The D:R ratios for the five fields were: Economics 4.5:1, History 33.5:1, Journalism/Communications 20.0:1, Law 8.6:1, and Psychology 17.4:1. The results indicate that D:R ratios have increased since 2004, and the age profile suggests that in the future they will be even higher. We provide a breakdown by department at each university. The data support the established finding that D:R ratios are highest at the apex of disciplinary pyramids, that is, at the most prestigious departments. We also examine how D:R ratios vary by gender and by region. People interested in ideological diversity or concerned about the errors of leftist outlooks—including students, parents, donors, and taxpayers—might find our results deeply troubling.

Since the article came out, a number of news sources have covered this article. (We forgot to include Florida, and I am working on correcting that, but that won't change the findings.) Some of the coverage is as follows:

Inside Higher Ed

Fox News

Washington Examiner

Minding the Campus

Washington Times

PamelaGeller.com


Friday, July 1, 2016

LERA Posts My Exchange with Bruce E. Kaufman

The Labor and Employment Relations Association is the world's leading academic learned society that focuses on industrial relations.  Earlier this year Daniel B. Klein's  Econ Journal Watch published my article "The Left Orientation of Industrial Relations," in which I document the field’s left-wing orientation.   The article reviews the political affiliations of the faculty and the ideological orientation of their publications. 

Professor Bruce E. Kaufman, a leading industrial relations scholar, wrote a response to my piece, and Econ Journal Watch published Professor Kaufman's response and my reply.  LERA's website has now republished the exchange.  As Dan Klein just emailed to Heterodox Academy, "LERA is a central player in the very field that Langbert treats. A nice example of a left-oriented outfit opening its attention to our point of view: