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K Sralla
London
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The economy of China is in essence a massive underground economy. While there is huge Chinese wealth inequality (just as there was in 18th and 19th century Britain, and also in 20th century America), there is also currently dynamic productivity growth in China, whereas the US and UK are largely stagnant. In Britain and W. Europe, large wealth-leveling has already occurred in an above-ground economy, but at what cost to societal progress? A Hayekian argument might be that wealth inequality and dynamic progress of a society to some extent go hand-in-hand, and that deliberate results to redress wealth inequality through excessive welfare-state redistribution will inevitably stagnate progress. Hayek also discusses the confusion of merit and results. In a free society, people must be rewarded by results, not merit. A political comment Classical liberalism has always been more concerned with equality under the law than with equality of results or with individual financial firepower. Although there may indeed be a popular worldwide myth called the "American Dream", equality of results can never be promised no matter how talented, smart, and hard-working an individual may be. Indeed it should be stressed that one's chances of accumulating wealth go up if there is persistent practice of *intelligent* hard work, prudence, and a moral and law-abiding personal lifestyle, but again there can never be a guarantee. Perhaps a wealthy nation can indeed provide some minimum floor below which nobody falls, but if all inequality is redressed, progress comes to a halt, and we are no longer living in a "progressive" society.-I realize the post concentrated on the economics and not the politics, yet equality vs inequality and individual liberty are each connected with the working of the unseen hand.
In the linked interview, Coase stated that he was in disagreement with some of the work of Buchanan and Tullock in Public Choice. What aspects of New Institutional economics might be in tension with Buchanan-style public choice? I would be interested in some explanation about the points of possible disagreement.
If I read the author correctly, what he is suggesting *between the lines* is really a much less romantic role for the economist. Not so much as an engineer of optimal policy, but mainly limited to that of the political gadfly, constantly whispering in the ear of policy makers (and political theorists of all stripes) that the laws of economics applied to real, fallible human beings renders certain imagined policy projects impotent or counterproductive in achieving their stated objectives. Only afterwards might the humble economist suggest that policy makers might consider a limited set of specified alternatives which may be better second-best options. I think the author gently asks whether many economists still see their role primarily as "architects of a better world".
I am not necessarily defending Reinhardt and Rogoff, but I do not recall that they presented the 90% debt/GDP rule in the way Barkley and Daniel claim. In my reading, they are simply making the point that countries with a long history of multiple defaults have a lower credit worthiness than developed countries with a better historical track record of public finance. For example, the United States gets to carry a bigger debt load than Greece before the bond markets say the game is up. Japan probably is able to sustain a much larger debt load for much longer than Brazil, and so on. However, big country or small, when debt/GDP begins passing 90%, certain events *have the potential* to trigger a sovereign debt crisis. That is how I read their point. As a final editorial rant, may I point out that some in your camp (ie Daniel) seem to hold that since the term "juggling trick" conveys no quantitative meaning, they therefore will not even stoop so low as to engage in a discussion about public finance or political economy with anyone who uses the term qualitatively. Who are you guys trying to convince with this type of "gottcha" lawyer technicality? All of us know exactly the "concept" conveyed by this term, and the fact that you fail to subtanitively engage the point is telling. Why don't you just come out put all us simpletons right? Just remind us that based on the "mainstream" model of public finance, a nation can perpetually accumulate an ever expanding public debt, then continue to roll it over indefinately by taxing more, borrowing more, and printing more (robbing Peter to pay Paul), and all this with very little if any risk of *ever* experiencing a sovereign debt crisis if only some rational political discourse prevails. The bill simply never ever comes due in the future, and the burden of public debt is never passed on to folks living in the future. Likewise, please impress us simpletons out here by stating the mainstream public finance theorems straight up using numbers and a formal mathematical model. Wow us with some nice partial differential equations (some real hum dingers), and teach us what proper modern scholarly discourse looks like. Thanks for taking the time to educate us!
A priviatized healthcare system with real functioning prices is infinitely more economic and humane in rationing medicine to those who need it than the most enlightened and caring board of government bureaucrats. Almost anyone of average intelligence over a dinner conversation can understand this if the basic economics are clearly explained. Nevertheless, once several generations grow up under a welfare program, it becomes almost impossible to root it out, no matter how bad the system. Remember that most folks seem to understand that social security is in essence a legalized government-sponsored ponzy scheme, but despite the clarity of the accounting, it remains the third rail of American politics. In the end, the argument of a just and elightened "society" seems to trump all positive economic arguments. Many in Britain seem to view it as their proper duty to suffer bad healthcare so that others, poorer than themselves, may likewise freely experience equally bad healthcare. Once this kind of psychosis sets in, there is really little which can be done to combat it.
Toggle Commented Feb 18, 2013 on Hayek and the Welfare State at Coordination Problem
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Feb 18, 2013