Correlation and causality

“There are many stories about going astray mistaking correlation for causation.

The most common story involves nineteenth-century Russian peasants. Supposedly the peasants noticed that villages with a lot of smallpox also had more doctors' visits than villages without smallpox.

They drew the natural conclusion and started shooting the doctors.”

William Easterly, The Elusive Quest for Growth (MIT Press, 2002), p. 235.

William Easterly is Professor of Economics at New York University, joint with Africa House, and Co-Director of NYU’s Development Research Institute.

A nice reminder that all that seems related, isn't.

Correlation and causality

“There are many stories about going astray mistaking correlation for causation.

The most common story involves nineteenth-century Russian peasants. Supposedly the peasants noticed that villages with a lot of smallpox also had more doctors' visits than villages without smallpox.

They drew the natural conclusion and started shooting the doctors.”

William Easterly, The Elusive Quest for Growth (MIT Press, 2002), p. 235.

William Easterly is Professor of Economics at New York University, joint with Africa House, and Co-Director of NYU’s Development Research Institute.

A nice reminder that all that seems related, isn't.

A new poverty line

“Seebohm Rowntree was the son of wealthy Quaker businessman Joseph Rowntree but was acutely aware of the poverty that surrounded him in late-Victorian York, England. In 1899 he set himself the task of defining a "poverty line" by working out how much it would cost to supply basic food, housing, and clothes. Anyone who couldn't afford to buy those basics -- including a helping of pease pudding with bacon on Sunday -- was below the poverty line. ....

[T]he U.S. definition of poverty is stuck in the 1960s. Had Seebohm Rowntree been working for the U.S. government, perhaps it would now have a poverty standard that was based on the price of pease pudding and that assumed that electricity and indoor plumbing were luxuries. This cannot be right.

Adam Smith put his finger on the problem back in 1776. In The Wealth of Nations, he wrote: "A linen shirt, for example, is, strictly speaking, not a necessity of life. The Greeks and Romans lived, I suppose, very comfortably though they had no linen. But in the present times, through the greater part of Europe, a creditable day-labourer would be ashamed to appear in public without a linen shirt. ..."

Smith's point is not that poverty is relative but that it is a social construction. ....

That is why a new unofficial poverty threshold, published this month by – appropriately -- the Joseph Rowntree Foundation, makes more sense than it at first appears. The standard was set by focus groups working out what was and was not necessary "to participate in society." The results are frugal--there is a budget of £40 ($80) every two years to buy a suit, for instance--but they were always bound to be controversial. The list of essentials includes a self-catering vacation, a cell phone, and enough booze to get drunk twice a month.”

Tim Harford, "Finally, a sensible way to measure poverty", Slate Magazine (26 July 2008).

http://www.slate.com/id/2195897/


Tim Harford is a columnist for the Financial Times and sits on its editorial board. He writes the column that appear in the Financial Times and Slate.

Two approaches are used to define poverty in policy discussions.

In the first approach, most governments and international agencies use an absolute poverty line, that is, what is regarded as the minimum level of income necessary to achieve an adequate standard of living.

In the case of the U.S., it has several poverty lines, depending on the size of the family. For a single adult under the age of 65 the poverty line is now about $30 a day; for a family of four, including two children, it is about $58 a day. About 10 per cent of all U.S. families, numbering somewhat less than 8 million in total, are now classified as living in poverty . There is a long-term downward drift in the percentage of American families and people living in poverty. The percentage of the poor rises during a recession and declines during an expansion. For example, the poverty rate rose the early years of this decade and then declined in recent years, but now may be rising again.

In the case of international agencies two much stricter poverty standards are set, one at a I$ 1 a day and another at I$ 2 a day, both measured in 1985 international dollars, where an “international dollar” is a U.S. dollar adjusted for its purchasing power in different countries. By these criteria, about 1 billion of the earth’s people live below the I$ 1 poverty line and 2.7 billion people live below the I$ 2 poverty line. These are people who live in abject poverty (I$ 1 a day or less) or deep poverty (I$ 2 a day), where few if any of the benefits of modern economic growth have yet to realized and where each day brings the possibility of going without a meal or worse. Although the number of people in abject poverty has been reduced somewhat over the past two decades, the number of people living in deep poverty has increased.

Poverty lines measure poverty in a way that economic growth will reduce measured poverty as the income of people rise.

In a second approach, the European Union and the OECD use relative incomes to measure poverty. Here anyone below a certain percentage of the median income are classified as living in poverty. When poverty is measured in relative terms, income growth will not reduce poverty, for if all incomes were doubled, the poverty rate would remain the same.

Measures of relative poverty are better at measuring inequality than absolute poverty.

To my mind, this poverty line is too generous. Given the high level of incomes in the U.S. it is true to say that already many of the poor today eat better than Henry VIII, are sheltered better than Henry VIII, and can expect to live longer than Henry VIII. I will admit the second monarch of the House of Tudor received a better education than most of the poor do today. Then again, he did not have to contend with the challenge of a public school education, and maybe that's why he received a better education. But just because today's poor have to suffer through a public education, it doesn’t entitle them to get drunk twice a month.

A new poverty line

“Seebohm Rowntree was the son of wealthy Quaker businessman Joseph Rowntree but was acutely aware of the poverty that surrounded him in late-Victorian York, England. In 1899 he set himself the task of defining a "poverty line" by working out how much it would cost to supply basic food, housing, and clothes. Anyone who couldn't afford to buy those basics -- including a helping of pease pudding with bacon on Sunday -- was below the poverty line. ....

[T]he U.S. definition of poverty is stuck in the 1960s. Had Seebohm Rowntree been working for the U.S. government, perhaps it would now have a poverty standard that was based on the price of pease pudding and that assumed that electricity and indoor plumbing were luxuries. This cannot be right.

Adam Smith put his finger on the problem back in 1776. In The Wealth of Nations, he wrote: "A linen shirt, for example, is, strictly speaking, not a necessity of life. The Greeks and Romans lived, I suppose, very comfortably though they had no linen. But in the present times, through the greater part of Europe, a creditable day-labourer would be ashamed to appear in public without a linen shirt. ..."

Smith's point is not that poverty is relative but that it is a social construction. ....

That is why a new unofficial poverty threshold, published this month by – appropriately -- the Joseph Rowntree Foundation, makes more sense than it at first appears. The standard was set by focus groups working out what was and was not necessary "to participate in society." The results are frugal--there is a budget of £40 ($80) every two years to buy a suit, for instance--but they were always bound to be controversial. The list of essentials includes a self-catering vacation, a cell phone, and enough booze to get drunk twice a month.”

Tim Harford, "Finally, a sensible way to measure poverty", Slate Magazine (26 July 2008).

http://www.slate.com/id/2195897/


Tim Harford is a columnist for the Financial Times and sits on its editorial board. He writes the column that appear in the Financial Times and Slate.

Two approaches are used to define poverty in policy discussions.

In the first approach, most governments and international agencies use an absolute poverty line, that is, what is regarded as the minimum level of income necessary to achieve an adequate standard of living.

In the case of the U.S., it has several poverty lines, depending on the size of the family. For a single adult under the age of 65 the poverty line is now about $30 a day; for a family of four, including two children, it is about $58 a day. About 10 per cent of all U.S. families, numbering somewhat less than 8 million in total, are now classified as living in poverty . There is a long-term downward drift in the percentage of American families and people living in poverty. The percentage of the poor rises during a recession and declines during an expansion. For example, the poverty rate rose the early years of this decade and then declined in recent years, but now may be rising again.

In the case of international agencies two much stricter poverty standards are set, one at a I$ 1 a day and another at I$ 2 a day, both measured in 1985 international dollars, where an “international dollar” is a U.S. dollar adjusted for its purchasing power in different countries. By these criteria, about 1 billion of the earth’s people live below the I$ 1 poverty line and 2.7 billion people live below the I$ 2 poverty line. These are people who live in abject poverty (I$ 1 a day or less) or deep poverty (I$ 2 a day), where few if any of the benefits of modern economic growth have yet to realized and where each day brings the possibility of going without a meal or worse. Although the number of people in abject poverty has been reduced somewhat over the past two decades, the number of people living in deep poverty has increased.

Poverty lines measure poverty in a way that economic growth will reduce measured poverty as the income of people rise.

In a second approach, the European Union and the OECD use relative incomes to measure poverty. Here anyone below a certain percentage of the median income are classified as living in poverty. When poverty is measured in relative terms, income growth will not reduce poverty, for if all incomes were doubled, the poverty rate would remain the same.

Measures of relative poverty are better at measuring inequality than absolute poverty.

To my mind, this poverty line is too generous. Given the high level of incomes in the U.S. it is true to say that already many of the poor today eat better than Henry VIII, are sheltered better than Henry VIII, and can expect to live longer than Henry VIII. I will admit the second monarch of the House of Tudor received a better education than most of the poor do today. Then again, he did not have to contend with the challenge of a public school education, and maybe that's why he received a better education. But just because today's poor have to suffer through a public education, it doesn’t entitle them to get drunk twice a month.

“Cash for Clunkers”

“Economists and members of Congress are now on the prowl for new ways to stimulate spending in our dreary economy. Here’s my humble suggestion: “Cash for Clunkers,” the best stimulus idea you’ve never heard of.

Cash for Clunkers is a generic name for a variety of programs under which the government buys up some of the oldest, most polluting vehicles and scraps them. If done successfully, it holds the promise of performing a remarkable public policy trifecta — stimulating the economy, improving the environment and reducing income inequality all at the same time. Here’s how.

A CLEANER ENVIRONMENT The oldest cars, especially those in poor condition, pollute far more per mile driven than newer cars with better emission controls. … So we can reduce pollution by pulling some of these wrecks off the road. Several pilot programs have found that doing so is a cost-effective way to reduce emissions.

MORE EQUAL INCOME DISTRIBUTION It won’t surprise you to learn that the well-to-do own relatively few clunkers. Most are owned, instead, by low-income people. So if the government bought some of these vehicles at above-market prices, it would transfer a little purchasing power to the poor.

AN EFFECTIVE ECONOMIC STIMULUS With almost all the income tax rebates paid out, and the economy weakening, Cash for Clunkers would be a timely stimulus in 2009. …. And the quickest, surest way to get more consumer spending is to put more cash into the hands of people who live hand-to-mouth.
…
Cash for Clunkers is not the pipe dream of some academic scribblers. Local variants are either now in operation or have been tested in California, Colorado, Delaware, Illinois, Texas, Virginia and several Canadian provinces. …
…
And what would all this money buy? First, less pollution. … Second, the subsidy value [a 20 percent proposed premium over current value] is a direct income transfer to the owners of clunkers, who are mostly low-income people. Third, these folks would almost certainly spend the cash they receive — not just the subsidy, but the entire payment, giving the economy a much-needed boost.

Oh, and I left out a fourth possible goal. By pulling millions of old cars off the road, Cash for Clunkers would stimulate the demand for new cars as people trade up. It need hardly be pointed out that our ailing auto industry, like our ailing economy, could use a shot in the arm right now. Scrapping two million or more clunkers a year should help.

With today’s concerns over stimulus, inequality and greenhouse gases, as well as an aging vehicle fleet, Cash for Clunkers is an idea whose time may finally have come. Write your congressman.”

Alan S. Blinder, “A Modest Proposal: Eco-Friendly Stimulus”, The New York Times (27 July 2008).

http://www.nytimes.com/2008/07/27/business/27view.html?ex=1374811200&en=a19470300b516a2f&ei=5124&partner=permalink&exprod=permalink


Alan S. Blinder is a professor of economics and public affairs at Princeton and former vice chairman of the Federal Reserve. He has advised many Democratic politicians.

I enjoyed reading this proposal, as I thought it is a good idea. The problem is there are thousands of good ideas like this that one could dream up, each with merit and each with its own targeted beneficiaries. Why not do them all?

Because it would be better not to do any of them. Why? For two reasons: First, the government is broke, and it should not be thinking about increasing its spending but rather making every effort to slowly ramp down its now out of control expenditures. Moreover, because of the ageing of the U.S. population, existing budgetary pressures are about to rise substantially, and any new program will only add to the difficulties of the adjustment already before us.

Second, when an idea like this, even a good idea like this, is taken seriously it opens the door for all the inevitable copy-cat proposals that others can think up. There are plenty of other deserving groups in need of an income stimulus and plenty of other lagging industries that could use a boost. A proposal like this, good as it might be when seen by itself, is an invitation to every special interest in the country to cook up a similar proposal and insist that it, too, have its day at the government trough.

My thought is, “Nice idea. I like it. But enough with the jokes. Can we now get serious about putting government expenditures on a sustainable path and can we begin to talk about the sacrifices that will have to be made to eliminate our outsized trade and budget deficits?”

“Cash for Clunkers”

“Economists and members of Congress are now on the prowl for new ways to stimulate spending in our dreary economy. Here’s my humble suggestion: “Cash for Clunkers,” the best stimulus idea you’ve never heard of.

Cash for Clunkers is a generic name for a variety of programs under which the government buys up some of the oldest, most polluting vehicles and scraps them. If done successfully, it holds the promise of performing a remarkable public policy trifecta — stimulating the economy, improving the environment and reducing income inequality all at the same time. Here’s how.

A CLEANER ENVIRONMENT The oldest cars, especially those in poor condition, pollute far more per mile driven than newer cars with better emission controls. … So we can reduce pollution by pulling some of these wrecks off the road. Several pilot programs have found that doing so is a cost-effective way to reduce emissions.

MORE EQUAL INCOME DISTRIBUTION It won’t surprise you to learn that the well-to-do own relatively few clunkers. Most are owned, instead, by low-income people. So if the government bought some of these vehicles at above-market prices, it would transfer a little purchasing power to the poor.

AN EFFECTIVE ECONOMIC STIMULUS With almost all the income tax rebates paid out, and the economy weakening, Cash for Clunkers would be a timely stimulus in 2009. …. And the quickest, surest way to get more consumer spending is to put more cash into the hands of people who live hand-to-mouth.
…
Cash for Clunkers is not the pipe dream of some academic scribblers. Local variants are either now in operation or have been tested in California, Colorado, Delaware, Illinois, Texas, Virginia and several Canadian provinces. …
…
And what would all this money buy? First, less pollution. … Second, the subsidy value [a 20 percent proposed premium over current value] is a direct income transfer to the owners of clunkers, who are mostly low-income people. Third, these folks would almost certainly spend the cash they receive — not just the subsidy, but the entire payment, giving the economy a much-needed boost.

Oh, and I left out a fourth possible goal. By pulling millions of old cars off the road, Cash for Clunkers would stimulate the demand for new cars as people trade up. It need hardly be pointed out that our ailing auto industry, like our ailing economy, could use a shot in the arm right now. Scrapping two million or more clunkers a year should help.

With today’s concerns over stimulus, inequality and greenhouse gases, as well as an aging vehicle fleet, Cash for Clunkers is an idea whose time may finally have come. Write your congressman.”

Alan S. Blinder, “A Modest Proposal: Eco-Friendly Stimulus”, The New York Times (27 July 2008).

http://www.nytimes.com/2008/07/27/business/27view.html?ex=1374811200&en=a19470300b516a2f&ei=5124&partner=permalink&exprod=permalink


Alan S. Blinder is a professor of economics and public affairs at Princeton and former vice chairman of the Federal Reserve. He has advised many Democratic politicians.

I enjoyed reading this proposal, as I thought it is a good idea. The problem is there are thousands of good ideas like this that one could dream up, each with merit and each with its own targeted beneficiaries. Why not do them all?

Because it would be better not to do any of them. Why? For two reasons: First, the government is broke, and it should not be thinking about increasing its spending but rather making every effort to slowly ramp down its now out of control expenditures. Moreover, because of the ageing of the U.S. population, existing budgetary pressures are about to rise substantially, and any new program will only add to the difficulties of the adjustment already before us.

Second, when an idea like this, even a good idea like this, is taken seriously it opens the door for all the inevitable copy-cat proposals that others can think up. There are plenty of other deserving groups in need of an income stimulus and plenty of other lagging industries that could use a boost. A proposal like this, good as it might be when seen by itself, is an invitation to every special interest in the country to cook up a similar proposal and insist that it, too, have its day at the government trough.

My thought is, “Nice idea. I like it. But enough with the jokes. Can we now get serious about putting government expenditures on a sustainable path and can we begin to talk about the sacrifices that will have to be made to eliminate our outsized trade and budget deficits?”

Martin Feldstein on the dollar

“For travelers to America from Europe or Asia, American prices are dramatically lower than at home. A hotel room or dinner in New York is a bargain when compared to prices in London, Paris, or Tokyo. And shoppers from abroad are loading up on a wide range of products before heading home.

But, despite this very tangible evidence, it would be wrong to conclude that American goods are now so cheap at the existing exchange rate that the dollar must rise from its current level. Although the goods and services that travelers buy may cost less in America than abroad, the overall price of American products is still too high to erase the enormous trade imbalance between America and the rest of the world.

To be sure, the falling dollar over the past few years has made American products more competitive and has caused the real value of American exports to rise sharply — by more than 25% during the past three years. But the trade deficit in 2007 nevertheless remained at more than $700 billion, or 5% of GDP.

The large trade deficit and equally large current account deficit, which includes net investment income, implies that foreign investors must add $700 billion of American securities to their portfolios. It is their unwillingness to do so at the existing exchange rate that causes the dollar to fall relative to other currencies. In falling, the dollar lowers the value of the dollar securities in foreign portfolios when valued in euros or other home currencies, shrinking the share of dollars in investors' portfolios. The weaker dollar also reduces the risk of future dollar decline, because it means that the dollar has to fall less in the future to shift the trade balance to a sustainable level.

But what is that sustainable level of the trade balance and of the dollar? While experts try to work this out in terms of portfolio balances, a more fundamental starting point is the fact that an American trade deficit means that Americans receive more goods and services from the rest of the world than they send back — $700 billion more last year. The difference was financed by transferring stocks and bonds worth $700 billion. The interest and dividends on those securities will be paid by sending more "pieces of paper." And when those securities mature, they will be refinanced with new stocks and bonds.

It is unthinkable that the global economic system will continue indefinitely to allow America to import more goods and services than it exports. At some point, America will need to start repaying the enormous amount that it has received from the rest of the world. To do so, America will need a trade surplus.

So the key determinant of the dollar's long-term value is that it must decline enough to shift America's trade balance from today's deficit to a surplus. That won't happen anytime soon, but it is the direction in which the trade balance must continue to move. And that means further depreciation of the dollar.”

Martin Feldstein, “Thinking About the Dollar”, The New York Sun (28 July 2008).

http://www.nysun.com/opinion/thinking-about-the-dollar/82714/


Mr. Feldstein is a professor of economics at Harvard. He was formerly chairman of President Reagan's Council of Economic Advisors and president of the National Bureau for Economic Research.

Professor Feldstein is right when he says the dollar must fall more and must remain low for a considerable time, many years in fact, before the trade deficit disappears. And it must be understood that the adjustment involved is much more than simply having the value of American exports match the value of American imports. We have, after all, been transferring all those “pieces of paper” abroad and each one of them requires that we continue to send a stream of even more “pieces of paper” in the form of interest and dividends, money, I might add, that could have gone into our pocket but will now fatten the wallet of foreigners. The bill for three decades of unrestrained overspending is not going to be cheap and it is going to involve more than money.

Many people are of the opinion that the U.S. is going through a transitory period of difficulty linked to financial excesses, oil prices that are temporarily high, and a weak and undervalued dollar. In their view, once financial stability is regained, oil prices ease, and the dollar strengthens the economy will resume its previous pace of expansion, and output and incomes will increase as they have in the past.

But the adjustment to huge external imbalances such as those that now describe the economy -- over 5 per cent of our GDP -- are a heavy tax on its future and will lower its possibilities for rapid growth. To eliminate the trade deficit, for example, domestic production must exceed domestic absorption, that is, we must produce more than we use at home. As we do so we will have fewer goods and services at home to support our own consumption and capital formation.

Moreover, the needed adjustment extends far beyond the external sector. Foreigners have been financing much of our domestic investment for many years, and, as Professor Feldstein notes, they are increasingly unwilling to do so in present circumstances. Consequently, we must now finance more of our investment ourselves. This means channeling resources from domestic consumption to domestic capital formation at the same time we must send additional output abroad to eliminate our trade deficit. Thus, not only must our pattern of trade change, our pattern of domestic expenditures must change. One may add to these budgetary pressures that are building at all levels of government.

Finally, we are also at the point where baby boomers are about to retire, and this, too, although separate from trade problems, necessitates a reallocation of our domestic production to support a more elderly population, with their very different consumption patterns. One might also add to this the need to address problems of an ageing infrastructure and the incessant need to adapt to technological advance in an increasingly competitive world economy.

All these changes must be made. We have no choice but to make the adjustments necessary to avoid a collapse of the dollar, finance our capital formation domestically, care for an increasing number of elderly, and upgrade our public infrastructure.

Every period of intense adjustment involves some slowdown in the pace of economic growth as the economy faces new challenges and adapts to new circumstances. We are about to experience a period of deep and intense adjustment to problems that have been allowed to accumulate for decades. It will not be easy. Once the adjustments have been made, however, the potential for growth can be re-established, and the performance of the U.S. economy could once again be the wonder of the economic world.

Martin Feldstein on the dollar

“For travelers to America from Europe or Asia, American prices are dramatically lower than at home. A hotel room or dinner in New York is a bargain when compared to prices in London, Paris, or Tokyo. And shoppers from abroad are loading up on a wide range of products before heading home.

But, despite this very tangible evidence, it would be wrong to conclude that American goods are now so cheap at the existing exchange rate that the dollar must rise from its current level. Although the goods and services that travelers buy may cost less in America than abroad, the overall price of American products is still too high to erase the enormous trade imbalance between America and the rest of the world.

To be sure, the falling dollar over the past few years has made American products more competitive and has caused the real value of American exports to rise sharply — by more than 25% during the past three years. But the trade deficit in 2007 nevertheless remained at more than $700 billion, or 5% of GDP.

The large trade deficit and equally large current account deficit, which includes net investment income, implies that foreign investors must add $700 billion of American securities to their portfolios. It is their unwillingness to do so at the existing exchange rate that causes the dollar to fall relative to other currencies. In falling, the dollar lowers the value of the dollar securities in foreign portfolios when valued in euros or other home currencies, shrinking the share of dollars in investors' portfolios. The weaker dollar also reduces the risk of future dollar decline, because it means that the dollar has to fall less in the future to shift the trade balance to a sustainable level.

But what is that sustainable level of the trade balance and of the dollar? While experts try to work this out in terms of portfolio balances, a more fundamental starting point is the fact that an American trade deficit means that Americans receive more goods and services from the rest of the world than they send back — $700 billion more last year. The difference was financed by transferring stocks and bonds worth $700 billion. The interest and dividends on those securities will be paid by sending more "pieces of paper." And when those securities mature, they will be refinanced with new stocks and bonds.

It is unthinkable that the global economic system will continue indefinitely to allow America to import more goods and services than it exports. At some point, America will need to start repaying the enormous amount that it has received from the rest of the world. To do so, America will need a trade surplus.

So the key determinant of the dollar's long-term value is that it must decline enough to shift America's trade balance from today's deficit to a surplus. That won't happen anytime soon, but it is the direction in which the trade balance must continue to move. And that means further depreciation of the dollar.”

Martin Feldstein, “Thinking About the Dollar”, The New York Sun (28 July 2008).

http://www.nysun.com/opinion/thinking-about-the-dollar/82714/


Mr. Feldstein is a professor of economics at Harvard. He was formerly chairman of President Reagan's Council of Economic Advisors and president of the National Bureau for Economic Research.

Professor Feldstein is right when he says the dollar must fall more and must remain low for a considerable time, many years in fact, before the trade deficit disappears. And it must be understood that the adjustment involved is much more than simply having the value of American exports match the value of American imports. We have, after all, been transferring all those “pieces of paper” abroad and each one of them requires that we continue to send a stream of even more “pieces of paper” in the form of interest and dividends, money, I might add, that could have gone into our pocket but will now fatten the wallet of foreigners. The bill for three decades of unrestrained overspending is not going to be cheap and it is going to involve more than money.

Many people are of the opinion that the U.S. is going through a transitory period of difficulty linked to financial excesses, oil prices that are temporarily high, and a weak and undervalued dollar. In their view, once financial stability is regained, oil prices ease, and the dollar strengthens the economy will resume its previous pace of expansion, and output and incomes will increase as they have in the past.

But the adjustment to huge external imbalances such as those that now describe the economy -- over 5 per cent of our GDP -- are a heavy tax on its future and will lower its possibilities for rapid growth. To eliminate the trade deficit, for example, domestic production must exceed domestic absorption, that is, we must produce more than we use at home. As we do so we will have fewer goods and services at home to support our own consumption and capital formation.

Moreover, the needed adjustment extends far beyond the external sector. Foreigners have been financing much of our domestic investment for many years, and, as Professor Feldstein notes, they are increasingly unwilling to do so in present circumstances. Consequently, we must now finance more of our investment ourselves. This means channeling resources from domestic consumption to domestic capital formation at the same time we must send additional output abroad to eliminate our trade deficit. Thus, not only must our pattern of trade change, our pattern of domestic expenditures must change. One may add to these budgetary pressures that are building at all levels of government.

Finally, we are also at the point where baby boomers are about to retire, and this, too, although separate from trade problems, necessitates a reallocation of our domestic production to support a more elderly population, with their very different consumption patterns. One might also add to this the need to address problems of an ageing infrastructure and the incessant need to adapt to technological advance in an increasingly competitive world economy.

All these changes must be made. We have no choice but to make the adjustments necessary to avoid a collapse of the dollar, finance our capital formation domestically, care for an increasing number of elderly, and upgrade our public infrastructure.

Every period of intense adjustment involves some slowdown in the pace of economic growth as the economy faces new challenges and adapts to new circumstances. We are about to experience a period of deep and intense adjustment to problems that have been allowed to accumulate for decades. It will not be easy. Once the adjustments have been made, however, the potential for growth can be re-established, and the performance of the U.S. economy could once again be the wonder of the economic world.

James Madison on Property and Rights

“This term in its particular application means "that dominion which one man claims and exercises over the external things of the world, in exclusion of every other individual."

In its larger and juster meaning, it embraces every thing to which a man may attach a value and have a right; and which leaves to every one else the like advantage.

In the former sense, a man's land, or merchandize, or money is called his property.

In the latter sense, a man has a property in his opinions and the free communication of them.

He has a property of peculiar value in his religious opinions, and in the profession and practice dictated by them.

He has a property very dear to him in the safety and liberty of his person.

He has an equal property in the free use of his faculties and free choice of the objects on which to employ them.

In a word, as a man is said to have a right to his property, he may be equally said to have a property in his rights.”

The Papers of James Madison. Edited by William T. Hutchinson et al. Chicago and London: University of Chicago Press, 1962), Volume 1, Chapter 16, Document 23

http://press-pubs.uchicago.edu/founders/documents/v1ch16s23.html.


In this short and powerful essay, Madison says that a person’s opinions, thoughts and religion are one’s property, to be valued and respected in the same way as the physical things to which one may make claim. Madison also points out:

“Where an excess of power prevails, property of no sort is duly respected. No man is safe in his opinions, his person, his faculties, or his possessions.

Where there is an excess of liberty, the effect is the same, tho’ from an opposite cause.”

Government, in the mind of Madison, has the responsibility to protect the property of each of us from the powerful. But once government is established we must be on our guard, for:

“If there be a government then which prides itself in maintaining the inviolability of property; which provides that none shall be taken directly even for public use without indemnification to the owner, and yet directly violates the property which individuals have in their opinions, their religion, their persons, and their faculties; nay more, which indirectly violates their property, in their actual possessions, in the labor that acquires their daily subsistence, and in the hallowed remnant of time which ought to relieve their fatigues and soothe their cares, the influence will have been anticipated, that such a government is not a pattern for the United States.

If the United States mean to obtain or deserve the full praise due to wise and just governments, they will equally respect the rights of property, and the property in rights: they will rival the government that most sacredly guards the former; and by repelling its example in violating the latter, will make themselves a pattern to that and all other governments.”

To the Founding Fathers, there was both a respect for and a fear of government, for they realized a free people must have a government that respects their property as well as their rights. This means a government that is limited in its scope and restricted in its power, nowhere more than as it relates to their property, in both the form of their opinions as well as their wallet.

As the American people enter the Presidential campaign season, they should keep in mind Madison’s words. We live at a time of ever growing taxation focused on an ever shrinking proportion of the population. Once government becomes used to taking away one man’s possessions to give it to another, especially when it has the encouragement of the majority, it is not far from restricting one man’s opinion or religion in favor of another’s. For Madison is right: There is no difference between property and rights.

James Madison on Property and Rights

“This term in its particular application means "that dominion which one man claims and exercises over the external things of the world, in exclusion of every other individual."

In its larger and juster meaning, it embraces every thing to which a man may attach a value and have a right; and which leaves to every one else the like advantage.

In the former sense, a man's land, or merchandize, or money is called his property.

In the latter sense, a man has a property in his opinions and the free communication of them.

He has a property of peculiar value in his religious opinions, and in the profession and practice dictated by them.

He has a property very dear to him in the safety and liberty of his person.

He has an equal property in the free use of his faculties and free choice of the objects on which to employ them.

In a word, as a man is said to have a right to his property, he may be equally said to have a property in his rights.”

The Papers of James Madison. Edited by William T. Hutchinson et al. Chicago and London: University of Chicago Press, 1962), Volume 1, Chapter 16, Document 23

http://press-pubs.uchicago.edu/founders/documents/v1ch16s23.html.


In this short and powerful essay, Madison says that a person’s opinions, thoughts and religion are one’s property, to be valued and respected in the same way as the physical things to which one may make claim. Madison also points out:

“Where an excess of power prevails, property of no sort is duly respected. No man is safe in his opinions, his person, his faculties, or his possessions.

Where there is an excess of liberty, the effect is the same, tho’ from an opposite cause.”

Government, in the mind of Madison, has the responsibility to protect the property of each of us from the powerful. But once government is established we must be on our guard, for:

“If there be a government then which prides itself in maintaining the inviolability of property; which provides that none shall be taken directly even for public use without indemnification to the owner, and yet directly violates the property which individuals have in their opinions, their religion, their persons, and their faculties; nay more, which indirectly violates their property, in their actual possessions, in the labor that acquires their daily subsistence, and in the hallowed remnant of time which ought to relieve their fatigues and soothe their cares, the influence will have been anticipated, that such a government is not a pattern for the United States.

If the United States mean to obtain or deserve the full praise due to wise and just governments, they will equally respect the rights of property, and the property in rights: they will rival the government that most sacredly guards the former; and by repelling its example in violating the latter, will make themselves a pattern to that and all other governments.”

To the Founding Fathers, there was both a respect for and a fear of government, for they realized a free people must have a government that respects their property as well as their rights. This means a government that is limited in its scope and restricted in its power, nowhere more than as it relates to their property, in both the form of their opinions as well as their wallet.

As the American people enter the Presidential campaign season, they should keep in mind Madison’s words. We live at a time of ever growing taxation focused on an ever shrinking proportion of the population. Once government becomes used to taking away one man’s possessions to give it to another, especially when it has the encouragement of the majority, it is not far from restricting one man’s opinion or religion in favor of another’s. For Madison is right: There is no difference between property and rights.

Post-WWI inflation in Austria

"An economist who knew how to describe graphically all the phases of the inflation which spread from Austria to Germany, would find unsurpassed material for an exciting novel, for the chaos took on ever more fantastic forms. Soon nobody knew what any article was worth. ...

The most grotesque discrepancy developed with respect to rents, the government having forbidden any rise; thus tenants, the great majority, were protected but property owners were the losers. Before long, a medium-size apartment in Austria cost its tenant less for the whole year than a single dinner; .... A man who had been saving for forty years and who, furthermore, had patriotically invested his all in war bonds, became a beggar. A man who had debts became free of them. A man who respected the food rationing system starved; only one who disregarded it brazenly could eat his fill. ....

Austria was "discovered" and suffered a calamitous "tourist season".

Every hotel in Vienna was filled with these vultures; they bought everything from toothbrushes to landed estates, they mopped up private collections and antique stocks before their owners, in their distress, woke to how they had been plundered. ... The tidings of cheap living and cheap goods in Austria spread far and wide; greedy visitors came from Sweden, from France; more Italian, French, Turkish and Rumanian was spoken than German in Vienna's business district. Even Germany, where the inflation started at a much slower pace even if it eventually became a hundred thousand times greater than Austria's, exploited our shrinking krone to the advantage of her mark."

Stefan Zweig, The World of Yesterday (Die Welt von Gestern, Viking Press, 1943, reproduced by University of Nebraska Press, 1964), pp. 291-293.

Thanks to Larry Willmore for this Tdj. Larry comments on the writer as follows: “Austrian writer Stefan Zweig (1881-1942) emigrated in 1934, settling briefly in London, then in New York State before moving to Brazil where he and his wife died by their own hands on 23 February 1942, convinced that Hitler and the Nazis would win the war. This fascinating book is his autobiography. Zweig is best-known for his short stories and biographies, all of which have been translated into English and other languages.”

Today we face the specter of rising inflation but hopefully nothing like that of Austria and Germany in the 1920s. Nevertheless, oil and food prices are up, and up substantially, as are those for other commodities, and the dollar is weak making imports more expensive. This puts upward pressures on prices at a time when the Fed is also pouring money into the financial system in order to avoid a collapse of many banks. All this generates expectations of a steep rise in inflation, and leads many to feel it is likely that hikes in interest rates will not be far behind, despite the fact that the economy appears to be slowing and could use a boost from cheap money. Times are confusing for the economy and economists, and we shall simply have to wait and see if the incipient inflation and looming downturn that seems to be on its way really makes an appearance

Post-WWI inflation in Austria

"An economist who knew how to describe graphically all the phases of the inflation which spread from Austria to Germany, would find unsurpassed material for an exciting novel, for the chaos took on ever more fantastic forms. Soon nobody knew what any article was worth. ...

The most grotesque discrepancy developed with respect to rents, the government having forbidden any rise; thus tenants, the great majority, were protected but property owners were the losers. Before long, a medium-size apartment in Austria cost its tenant less for the whole year than a single dinner; .... A man who had been saving for forty years and who, furthermore, had patriotically invested his all in war bonds, became a beggar. A man who had debts became free of them. A man who respected the food rationing system starved; only one who disregarded it brazenly could eat his fill. ....

Austria was "discovered" and suffered a calamitous "tourist season".

Every hotel in Vienna was filled with these vultures; they bought everything from toothbrushes to landed estates, they mopped up private collections and antique stocks before their owners, in their distress, woke to how they had been plundered. ... The tidings of cheap living and cheap goods in Austria spread far and wide; greedy visitors came from Sweden, from France; more Italian, French, Turkish and Rumanian was spoken than German in Vienna's business district. Even Germany, where the inflation started at a much slower pace even if it eventually became a hundred thousand times greater than Austria's, exploited our shrinking krone to the advantage of her mark."

Stefan Zweig, The World of Yesterday (Die Welt von Gestern, Viking Press, 1943, reproduced by University of Nebraska Press, 1964), pp. 291-293.

Thanks to Larry Willmore for this Tdj. Larry comments on the writer as follows: “Austrian writer Stefan Zweig (1881-1942) emigrated in 1934, settling briefly in London, then in New York State before moving to Brazil where he and his wife died by their own hands on 23 February 1942, convinced that Hitler and the Nazis would win the war. This fascinating book is his autobiography. Zweig is best-known for his short stories and biographies, all of which have been translated into English and other languages.”

Today we face the specter of rising inflation but hopefully nothing like that of Austria and Germany in the 1920s. Nevertheless, oil and food prices are up, and up substantially, as are those for other commodities, and the dollar is weak making imports more expensive. This puts upward pressures on prices at a time when the Fed is also pouring money into the financial system in order to avoid a collapse of many banks. All this generates expectations of a steep rise in inflation, and leads many to feel it is likely that hikes in interest rates will not be far behind, despite the fact that the economy appears to be slowing and could use a boost from cheap money. Times are confusing for the economy and economists, and we shall simply have to wait and see if the incipient inflation and looming downturn that seems to be on its way really makes an appearance

Milton Friedman on the social responsibility of business

“When I hear businessmen speak eloquently about the "social responsibilities of business in a free-enterprise system," I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free enterprise when they declaim that business is not concerned "merely" with profit but also with promoting desirable "social" ends; that business has a "social conscience" and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers. In fact they are – or would be if they or anyone else took them seriously – preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.

The discussions of the "social responsibilities of business" are notable for their analytical looseness and lack of rigor. What does it mean to say that "business" has responsibilities? Only people can have responsibilities. A corporation is an artificial person and in this sense may have artificial responsibilities, but "business" as a whole cannot be said to have responsibilities, even in this vague sense. The first step toward clarity in examining the doctrine of the social responsibility of business is to ask precisely what it implies for whom.
...
What does it mean to say that the corpo¬rate executive has a "social responsibility" in his capacity as businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers. For example, that he is to refrain from increasing the price of the product in order to contribute to the social objective of preventing inflation, even though a price increase would be in the best interests of the corporation. Or that he is to make expenditures on reducing pollution beyond the amount that is in the best interests of the corporation or that is required by law in order to contribute to the social objective of improving the environment. Or that, at the expense of corporate profits, he is to hire "hardcore" unemployed instead of better qualified available workmen to contribute to the social objective of reducing poverty.

In each of these cases, the corporate executive would be spending someone else's money for a general social interest. Insofar as his actions in accord with his "social responsibility" reduce returns to stockholders, he is spending their money. Insofar as his actions raise the price to customers, he is spending the customers' money. Insofar as his actions lower the wages of some employees, he is spending their money.

The stockholders or the customers or the employees could separately spend their own money on the particular action if they wished to do so. The executive is exercising a distinct "social responsibility," rather than serving as an agent of the stockholders or the customers or the employees, only if he spends the money in a different way than they would have spent it.

But if he does this, he is in effect imposing taxes, on the one hand, and deciding how the tax proceeds shall be spent, on the other.”

Milton Friedman, “The Social Responsibility of Business is to Increase its Profits”, The New York Times Magazine (13 September 1970).

http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html


Milton Friedman (1912–2006) was for many years professor of economics at the University of Chicago. He received the Nobel Prize in Economics in 1976 for his "for his achievements in the fields of consumption analysis, monetary history and theory and for his demonstration of the complexity of stabilisation policy." Milton Friedman was an advocate of economic liberalism.

In this classic essay, Friedman makes the case that it is the responsibility of corporate executives to maximize profits rather than promote a social agenda focusing on solving poverty or saving the environment. Friedman’s argument as two main points. First, economic efficiency is enhanced when the firm pursues profits as this minimizes costs, directs resources to their most productive use, and raises the average level of real income in society. This is Adam Smith’s argument for the benefits of competition in a stable economy of relatively small firms interacting with large numbers of households in a free market that quickly drives down any extraordinary profits. His second point is political. The firm belongs to its stockholders, not some nebulous concept of “society” and certainly not the government. As such, the corporation’s executives must run the corporation in the stockholder’s interest, not with the vague and ever changing objectives of the political class in mind. This is in fact a political argument because, in Friedman’s mind, a corporate executive who makes decisions consistent with the priorities of politicians is pursuing a political agenda, not only at the expense of the firms shareholders but the general public, for the firm will not be producing at least cost.

Needless to say, Friedman’s position is not shared by everyone. Many point out the economy is hardly characterized by pure competition where each firm is struggling to make any profit at all. And firms that engage in “social responsibility” may even be seen by consumers as preferable to those that merely focus on profit and hence have higher sales and higher profits as a result. One can even argue that firms that simply chase profits at the expense of the environment or their employees welfare will find themselves facing boycotts and pickets. Finally, let me note that creating a positive image of the firm enhances the workplace and can improve employee retention, improving productivity. It is by no means clear that the raw pursuit of profit is necessarily the best strategy for the firm.

Friedman may be on firmer ground that the social responsibility of business flirts with a soft kind of socialism. Certainly corporate executives enjoy the attention that comes from their philanthropic activities and the power that comes from making decisions that yield complimentary write-ups in the newspapers. And they get to do it with other people’s money, just like a real politician. On this, Friedman may have a point.

Milton Friedman on the social responsibility of business

“When I hear businessmen speak eloquently about the "social responsibilities of business in a free-enterprise system," I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free enterprise when they declaim that business is not concerned "merely" with profit but also with promoting desirable "social" ends; that business has a "social conscience" and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers. In fact they are – or would be if they or anyone else took them seriously – preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.

The discussions of the "social responsibilities of business" are notable for their analytical looseness and lack of rigor. What does it mean to say that "business" has responsibilities? Only people can have responsibilities. A corporation is an artificial person and in this sense may have artificial responsibilities, but "business" as a whole cannot be said to have responsibilities, even in this vague sense. The first step toward clarity in examining the doctrine of the social responsibility of business is to ask precisely what it implies for whom.
...
What does it mean to say that the corpo¬rate executive has a "social responsibility" in his capacity as businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers. For example, that he is to refrain from increasing the price of the product in order to contribute to the social objective of preventing inflation, even though a price increase would be in the best interests of the corporation. Or that he is to make expenditures on reducing pollution beyond the amount that is in the best interests of the corporation or that is required by law in order to contribute to the social objective of improving the environment. Or that, at the expense of corporate profits, he is to hire "hardcore" unemployed instead of better qualified available workmen to contribute to the social objective of reducing poverty.

In each of these cases, the corporate executive would be spending someone else's money for a general social interest. Insofar as his actions in accord with his "social responsibility" reduce returns to stockholders, he is spending their money. Insofar as his actions raise the price to customers, he is spending the customers' money. Insofar as his actions lower the wages of some employees, he is spending their money.

The stockholders or the customers or the employees could separately spend their own money on the particular action if they wished to do so. The executive is exercising a distinct "social responsibility," rather than serving as an agent of the stockholders or the customers or the employees, only if he spends the money in a different way than they would have spent it.

But if he does this, he is in effect imposing taxes, on the one hand, and deciding how the tax proceeds shall be spent, on the other.”

Milton Friedman, “The Social Responsibility of Business is to Increase its Profits”, The New York Times Magazine (13 September 1970).

http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html


Milton Friedman (1912–2006) was for many years professor of economics at the University of Chicago. He received the Nobel Prize in Economics in 1976 for his "for his achievements in the fields of consumption analysis, monetary history and theory and for his demonstration of the complexity of stabilisation policy." Milton Friedman was an advocate of economic liberalism.

In this classic essay, Friedman makes the case that it is the responsibility of corporate executives to maximize profits rather than promote a social agenda focusing on solving poverty or saving the environment. Friedman’s argument as two main points. First, economic efficiency is enhanced when the firm pursues profits as this minimizes costs, directs resources to their most productive use, and raises the average level of real income in society. This is Adam Smith’s argument for the benefits of competition in a stable economy of relatively small firms interacting with large numbers of households in a free market that quickly drives down any extraordinary profits. His second point is political. The firm belongs to its stockholders, not some nebulous concept of “society” and certainly not the government. As such, the corporation’s executives must run the corporation in the stockholder’s interest, not with the vague and ever changing objectives of the political class in mind. This is in fact a political argument because, in Friedman’s mind, a corporate executive who makes decisions consistent with the priorities of politicians is pursuing a political agenda, not only at the expense of the firms shareholders but the general public, for the firm will not be producing at least cost.

Needless to say, Friedman’s position is not shared by everyone. Many point out the economy is hardly characterized by pure competition where each firm is struggling to make any profit at all. And firms that engage in “social responsibility” may even be seen by consumers as preferable to those that merely focus on profit and hence have higher sales and higher profits as a result. One can even argue that firms that simply chase profits at the expense of the environment or their employees welfare will find themselves facing boycotts and pickets. Finally, let me note that creating a positive image of the firm enhances the workplace and can improve employee retention, improving productivity. It is by no means clear that the raw pursuit of profit is necessarily the best strategy for the firm.

Friedman may be on firmer ground that the social responsibility of business flirts with a soft kind of socialism. Certainly corporate executives enjoy the attention that comes from their philanthropic activities and the power that comes from making decisions that yield complimentary write-ups in the newspapers. And they get to do it with other people’s money, just like a real politician. On this, Friedman may have a point.

Professor Bhagwati warns against preferential “free trade” agreements

“Jagdish Bhagwati is one of the world's most distinguished economists. Currently a university professor at Columbia, Mr. Bhagwati is a rare academic who has the great ability to communicate his ideas to a more general audience. In works such as his recent book, "In Defense of Globalization," Mr. Bhagwati has become famous as a persuasive and articulate proponent of expanding world trade to help improve the lot of the poor. In "Termites in the Trading System," Mr. Bhagwati argues that not all trade deserves our equal support, however, and mounts a brisk and spirited attack on preferential, so-called "free trade" agreements that are, in his view, leading the world trading system astray.

Wait a minute: Aren't these agreements — such as NAFTA — almost invariably opposed by anti-trade groups precisely because they open up markets? Why is one of the world's staunchest supporters of free trade protesting so passionately against this method of reducing trade barriers?

The problem, Mr. Bhagwati shows, is that not all trade agreements are created equal. The right way to reduce trade barriers, he explains, is on a multilateral basis and in a nondiscriminatory way. After World War II, America led the world in creating the General Agreement on Tariffs and Trade (GATT), which did just that, by encouraging the reduction of tariffs and liberalization of other import restrictions. In recent years, however, countries have increasingly bypassed this system. Now, it is common for two or more countries to agree to eliminate tariffs and reduce other trade barriers for each other, but not for others, as is the case with NAFTA. Such agreements have been in vogue around the world, particularly with the current Bush administration: Under Bush, America has concluded a major trade agreement with Central American countries (CAFTA) and a series of bilateral agreements with countries ranging from Oman to Australia, and — most recently and controversially — Colombia.

The main problem with these bilateral and regional agreements is that they exclude other countries. In Mr. Bhagwati's view, they are more accurately called "preferential" trade agreements because they discriminate against non-participating countries. This is a violation, Mr. Bhagwati suggests, of the principle of nondiscriminatory trade liberalization that served as the cornerstone of the tremendously successful post-World War II trading system under the GATT (and now the WTO).”

Douglas A. Irwin, “How Free Is Free Trade?: Bhagwati's 'Termites in the Trading System'”, The New York Sun (21 July 2008).

http://www.nysun.com/arts/how-free-is-free-trade-bhagwatis-termites-in/82251/?print=8831966121


Douglas A. Irwin is professor of economics at Dartmouth College and author of Free Trade Under Fire.

In certain respects, the world trading system is in great shape. In recent years, for example, world trade has been rising at a rates of 7 to 10 per cent a year in volume terms. In the case of the developing countries, including Africa, exports have been rising at rates above 10 per cent a year and China has registered increases of 20 to 30 per cent a year. U.S. exports, in quantity terms, have been rising at a pace of more than 6½ per cent a year, and this year, due to the decline in the dollar, U.S. exports are booming. Looking to the longer-term, over the past half century, the rise in world trade has been unprecedented, and the open and multilateral trading system created in the wake of the Great Depression and a truly devastating worldwide war has spread prosperity across the face of the globe.

But in other respects, the world trading system is in terrible shape. It is not just the great imbalances that describe the balance of payments of the world’s major trading countries, not least of which is the huge trade deficit of the United States. Nor is it the wide swings in currency values on foreign exchange markets, with the price of the dollar in terms of key currencies doubling and halving in a matter of years. It is not even the introduction of petty tariffs and quotas here and there on a whim and with no real purpose or the opposition of the groups that openly oppose trade and deny its benefits. Given the excellent trade performance of the system in terms of results, and the ineffectiveness of the anti-trade opponents in actually affecting policy, all these could be forgotten or forgiven.

What can not be forgotten or forgiven are the constant attacks on the trading system by those that say they support free and open trade. As they well know, the creation and management of the postwar trading system was centered on a multilateral – indeed, a worldwide – approach to gaining the benefits from freer and fairer international trade. Multilateral negotiations involving an increasing number of the world’s countries were periodically conducted with the objective of reducing barriers to trade and eliminating discriminatory treatment of foreign goods and services so as to gain the production efficiencies and consumption diversities inherent in the widest possible market. The latest of these negotiations, called the Doha Development Round, focuses on opening agricultural and service markets, with an emphasis on trade expansion by developing countries and expanded intellectual property regulation to the benefit of the more economically advanced countries. However, progress on the various GATT and WTO trading rounds has become increasing difficult, and the Doha Round has stalled.

The reason progress is slower is that the commitment to a free and open trading system has become weaker and weaker. The GATT/WTO negotiating approach, and the world trading system itself, is based on four guiding principles, called “the four pillars of GATT: Nondiscrimination and multilateralism among all signatories; Expansion of trade through a reduction in trade barriers; reciprocity as the basis for trade negotiations; and the Establishment of known and enforced rules governing the conduct of international trade. The very purpose of these rules is to promote a universal system of benefit to each and every country and to avoid the fragmentation of the world trading system into different blocs, each narrow and focused unto itself. It is these principles that are being challenged.

What we have seen in recent decades is the step-by-step abandonment of principles of the monetary and trading systems established at Bretton Woods and the early postwar years. Professor Bhagwati is right. In our pursuit of narrow bilateral and regional trade agreements we have abandoned the worldwide focus that has served us so well in the past. The friends of free trade, in their pursuit of free trade, are instead establishing a system of preferential trade, one that may well subvert the very goals they say they want to achieve.

Professor Bhagwati warns against preferential “free trade” agreements

“Jagdish Bhagwati is one of the world's most distinguished economists. Currently a university professor at Columbia, Mr. Bhagwati is a rare academic who has the great ability to communicate his ideas to a more general audience. In works such as his recent book, "In Defense of Globalization," Mr. Bhagwati has become famous as a persuasive and articulate proponent of expanding world trade to help improve the lot of the poor. In "Termites in the Trading System," Mr. Bhagwati argues that not all trade deserves our equal support, however, and mounts a brisk and spirited attack on preferential, so-called "free trade" agreements that are, in his view, leading the world trading system astray.

Wait a minute: Aren't these agreements — such as NAFTA — almost invariably opposed by anti-trade groups precisely because they open up markets? Why is one of the world's staunchest supporters of free trade protesting so passionately against this method of reducing trade barriers?

The problem, Mr. Bhagwati shows, is that not all trade agreements are created equal. The right way to reduce trade barriers, he explains, is on a multilateral basis and in a nondiscriminatory way. After World War II, America led the world in creating the General Agreement on Tariffs and Trade (GATT), which did just that, by encouraging the reduction of tariffs and liberalization of other import restrictions. In recent years, however, countries have increasingly bypassed this system. Now, it is common for two or more countries to agree to eliminate tariffs and reduce other trade barriers for each other, but not for others, as is the case with NAFTA. Such agreements have been in vogue around the world, particularly with the current Bush administration: Under Bush, America has concluded a major trade agreement with Central American countries (CAFTA) and a series of bilateral agreements with countries ranging from Oman to Australia, and — most recently and controversially — Colombia.

The main problem with these bilateral and regional agreements is that they exclude other countries. In Mr. Bhagwati's view, they are more accurately called "preferential" trade agreements because they discriminate against non-participating countries. This is a violation, Mr. Bhagwati suggests, of the principle of nondiscriminatory trade liberalization that served as the cornerstone of the tremendously successful post-World War II trading system under the GATT (and now the WTO).”

Douglas A. Irwin, “How Free Is Free Trade?: Bhagwati's 'Termites in the Trading System'”, The New York Sun (21 July 2008).

http://www.nysun.com/arts/how-free-is-free-trade-bhagwatis-termites-in/82251/?print=8831966121


Douglas A. Irwin is professor of economics at Dartmouth College and author of Free Trade Under Fire.

In certain respects, the world trading system is in great shape. In recent years, for example, world trade has been rising at a rates of 7 to 10 per cent a year in volume terms. In the case of the developing countries, including Africa, exports have been rising at rates above 10 per cent a year and China has registered increases of 20 to 30 per cent a year. U.S. exports, in quantity terms, have been rising at a pace of more than 6½ per cent a year, and this year, due to the decline in the dollar, U.S. exports are booming. Looking to the longer-term, over the past half century, the rise in world trade has been unprecedented, and the open and multilateral trading system created in the wake of the Great Depression and a truly devastating worldwide war has spread prosperity across the face of the globe.

But in other respects, the world trading system is in terrible shape. It is not just the great imbalances that describe the balance of payments of the world’s major trading countries, not least of which is the huge trade deficit of the United States. Nor is it the wide swings in currency values on foreign exchange markets, with the price of the dollar in terms of key currencies doubling and halving in a matter of years. It is not even the introduction of petty tariffs and quotas here and there on a whim and with no real purpose or the opposition of the groups that openly oppose trade and deny its benefits. Given the excellent trade performance of the system in terms of results, and the ineffectiveness of the anti-trade opponents in actually affecting policy, all these could be forgotten or forgiven.

What can not be forgotten or forgiven are the constant attacks on the trading system by those that say they support free and open trade. As they well know, the creation and management of the postwar trading system was centered on a multilateral – indeed, a worldwide – approach to gaining the benefits from freer and fairer international trade. Multilateral negotiations involving an increasing number of the world’s countries were periodically conducted with the objective of reducing barriers to trade and eliminating discriminatory treatment of foreign goods and services so as to gain the production efficiencies and consumption diversities inherent in the widest possible market. The latest of these negotiations, called the Doha Development Round, focuses on opening agricultural and service markets, with an emphasis on trade expansion by developing countries and expanded intellectual property regulation to the benefit of the more economically advanced countries. However, progress on the various GATT and WTO trading rounds has become increasing difficult, and the Doha Round has stalled.

The reason progress is slower is that the commitment to a free and open trading system has become weaker and weaker. The GATT/WTO negotiating approach, and the world trading system itself, is based on four guiding principles, called “the four pillars of GATT: Nondiscrimination and multilateralism among all signatories; Expansion of trade through a reduction in trade barriers; reciprocity as the basis for trade negotiations; and the Establishment of known and enforced rules governing the conduct of international trade. The very purpose of these rules is to promote a universal system of benefit to each and every country and to avoid the fragmentation of the world trading system into different blocs, each narrow and focused unto itself. It is these principles that are being challenged.

What we have seen in recent decades is the step-by-step abandonment of principles of the monetary and trading systems established at Bretton Woods and the early postwar years. Professor Bhagwati is right. In our pursuit of narrow bilateral and regional trade agreements we have abandoned the worldwide focus that has served us so well in the past. The friends of free trade, in their pursuit of free trade, are instead establishing a system of preferential trade, one that may well subvert the very goals they say they want to achieve.

Bagehot on what the central bank should do in a financial panic

“And though the Bank of England certainly do make great advances in time of panic, yet as they do not do so on any distinct principle, they naturally do it hesitatingly, reluctantly, and with misgiving. In 1847, even in 1866—the latest panic, and the one in which on the whole the Bank acted the best—there was nevertheless an instant when it was believed the Bank would not advance on Consols, or at least hesitated to advance on them. The moment this was reported in the City and telegraphed to the country, it made the panic indefinitely worse. In fact, to make large advances in this faltering way is to incur the evil of making them without obtaining the advantage. What is wanted and what is necessary to stop a panic is to diffuse the impression, that though money may be dear, still money is to be had. If people could be really convinced that they could have money if they wait a day or two, and that utter ruin is not coming, most likely they would cease to run in such a mad way for money. Either shut the Bank at once, and say it will not lend more than it commonly lends, or lend freely, boldly, and so that the public may feel you mean to go on lending. To lend a great deal, and yet not give the public confidence that you will lend sufficiently and effectually, is the worst of all policies; but it is the policy now pursued.

In truth, the Bank do not lend from the motives which should make a bank lend. The holders of the Bank reserve ought to lend at once and most freely in an incipient panic, because they fear destruction in the panic. They ought not to do it to serve others; they ought to do it to serve themselves. They ought to know that this bold policy is the only safe one, and for that reason they ought to choose it. But the Bank directors are not afraid. Even at the last moment they say that 'whatever happens to the community, they can preserve themselves.' Both in 1847 and 1857 (I believe also in 1866, though there is no printed evidence of it) the Bank directors contended that the Banking Department was quite safe though its reserve was nearly all gone, and that it could strengthen itself by selling securities and by refusing to discount. But this is a complete dream. The Bank of England could not sell 'securities,' for in an extreme panic there is no one else to buy securities. The Bank cannot stay still and wait till its bills are paid, and so fill its coffers, for unless it discounts equivalent bills, the bills which it has already discounted will not be paid. ...

I shall have failed in my purpose if I have not proved that the system of entrusting all our reserve to a single board, like that of the Bank directors, is very anomalous; that it is very dangerous; that its bad consequences, though much felt, have not been fully seen; that they have been obscured by traditional arguments and hidden in the dust of ancient controversies.”

Walter Bagehot, Lombard Street: A Description of the Money Market (London: Henry S. King and Co., 1873), Chapter II, paras 59-61.

Walter Bagehot (1826-1877), the great editor of the Economist magazine, wrote extensively about government and economic affairs. Lombard Street is considered a classic work on economics, finance and banking, and focuses on the management of financial crises.

A financial panic stemming the bursting of an asset bubble such as the one which we recently experienced causes the net worth of affected banks to shrink as their assets fall in value and their borrowers fail to pay on their loans. As its net worth fall, the bank’s ability to make loans is restricted and it may have to call in loans, as some banks have done in the current situation. Initially, the restrictions on credit creation reduce aggregate spending and consumption and investment expenditure falls, slowing growth in the economy, even turning it negative. As the economy deteriorates and word of the financial difficulties of some banks spreads, in a second effect, the public seeks to withdraw its funds from the banks, further reducing the liquidity of the banking system, and a full-scale financial panic ensues.

In the excerpt above, Bagehot explains what the central bank must do to prevent a panic as financial turmoil builds: “Lend freely”, as he put it, and by doing so convince the public that their funds are safe so they won’t withdraw them. But for the banks to do that, they must have the support of the central bank in providing the liquidity they need to both extend loans and meet their obligations to their depositors. Bagehot also stresses that if the monetary and budget authorities do not act boldly they will not be able to sell the bills they already own or issue new bonds. The economy will collapse.

Following Bagehot’s advice is what the Federal Reserve has been doing this past year. It has reduced interest rates, opened its discount window to investment banks, created various lending facilities, and done everything it can to expand its lending activities to the financial sector. In addition to providing liquidity, the Fed has also been very aggressive in areas beyond bank lending, arranging for support for Bear Stearns and Freddie Mac and Fannie Mae. And it can be said that, to date, the Fed has more or less succeeded, with only a few runs on banks and a financial system that seems to be wobbly but not about to fail. Most importantly, the economy has slowed but the widely expected recession as yet to make an appearance.

Economics teaches there are always tradeoffs. Yes, a full-scale financial panic has been avoided, and that was and remains the key concern of the Fed. But the very actions it has taken in response to the financial turmoil has spurred inflation, promoted moral hazard, worsened the budget deficit and deepened the national debt, and increased the trade deficit. The Fed has also increased its supervision of the financial system and significantly widened the role of the government in the economy.

As Bagehot says, “entrusting all our reserve to a single board, like that of the Bank directors, is very anomalous; that it is very dangerous; that its bad consequences, though much felt, have not been fully seen; that they have been obscured by traditional arguments and hidden in the dust of ancient controversies.” For better or worse, we have entrusted much to the Board of Governors of the Federal Reserve System. I pray our trust is not misplaced and the problems aggravated by the strong measures taken to deal with the current financial mess do not become worse than the problem that now monopolizes our policy attention.

Bagehot on what the central bank should do in a financial panic

“And though the Bank of England certainly do make great advances in time of panic, yet as they do not do so on any distinct principle, they naturally do it hesitatingly, reluctantly, and with misgiving. In 1847, even in 1866—the latest panic, and the one in which on the whole the Bank acted the best—there was nevertheless an instant when it was believed the Bank would not advance on Consols, or at least hesitated to advance on them. The moment this was reported in the City and telegraphed to the country, it made the panic indefinitely worse. In fact, to make large advances in this faltering way is to incur the evil of making them without obtaining the advantage. What is wanted and what is necessary to stop a panic is to diffuse the impression, that though money may be dear, still money is to be had. If people could be really convinced that they could have money if they wait a day or two, and that utter ruin is not coming, most likely they would cease to run in such a mad way for money. Either shut the Bank at once, and say it will not lend more than it commonly lends, or lend freely, boldly, and so that the public may feel you mean to go on lending. To lend a great deal, and yet not give the public confidence that you will lend sufficiently and effectually, is the worst of all policies; but it is the policy now pursued.

In truth, the Bank do not lend from the motives which should make a bank lend. The holders of the Bank reserve ought to lend at once and most freely in an incipient panic, because they fear destruction in the panic. They ought not to do it to serve others; they ought to do it to serve themselves. They ought to know that this bold policy is the only safe one, and for that reason they ought to choose it. But the Bank directors are not afraid. Even at the last moment they say that 'whatever happens to the community, they can preserve themselves.' Both in 1847 and 1857 (I believe also in 1866, though there is no printed evidence of it) the Bank directors contended that the Banking Department was quite safe though its reserve was nearly all gone, and that it could strengthen itself by selling securities and by refusing to discount. But this is a complete dream. The Bank of England could not sell 'securities,' for in an extreme panic there is no one else to buy securities. The Bank cannot stay still and wait till its bills are paid, and so fill its coffers, for unless it discounts equivalent bills, the bills which it has already discounted will not be paid. ...

I shall have failed in my purpose if I have not proved that the system of entrusting all our reserve to a single board, like that of the Bank directors, is very anomalous; that it is very dangerous; that its bad consequences, though much felt, have not been fully seen; that they have been obscured by traditional arguments and hidden in the dust of ancient controversies.”

Walter Bagehot, Lombard Street: A Description of the Money Market (London: Henry S. King and Co., 1873), Chapter II, paras 59-61.

Walter Bagehot (1826-1877), the great editor of the Economist magazine, wrote extensively about government and economic affairs. Lombard Street is considered a classic work on economics, finance and banking, and focuses on the management of financial crises.

A financial panic stemming the bursting of an asset bubble such as the one which we recently experienced causes the net worth of affected banks to shrink as their assets fall in value and their borrowers fail to pay on their loans. As its net worth fall, the bank’s ability to make loans is restricted and it may have to call in loans, as some banks have done in the current situation. Initially, the restrictions on credit creation reduce aggregate spending and consumption and investment expenditure falls, slowing growth in the economy, even turning it negative. As the economy deteriorates and word of the financial difficulties of some banks spreads, in a second effect, the public seeks to withdraw its funds from the banks, further reducing the liquidity of the banking system, and a full-scale financial panic ensues.

In the excerpt above, Bagehot explains what the central bank must do to prevent a panic as financial turmoil builds: “Lend freely”, as he put it, and by doing so convince the public that their funds are safe so they won’t withdraw them. But for the banks to do that, they must have the support of the central bank in providing the liquidity they need to both extend loans and meet their obligations to their depositors. Bagehot also stresses that if the monetary and budget authorities do not act boldly they will not be able to sell the bills they already own or issue new bonds. The economy will collapse.

Following Bagehot’s advice is what the Federal Reserve has been doing this past year. It has reduced interest rates, opened its discount window to investment banks, created various lending facilities, and done everything it can to expand its lending activities to the financial sector. In addition to providing liquidity, the Fed has also been very aggressive in areas beyond bank lending, arranging for support for Bear Stearns and Freddie Mac and Fannie Mae. And it can be said that, to date, the Fed has more or less succeeded, with only a few runs on banks and a financial system that seems to be wobbly but not about to fail. Most importantly, the economy has slowed but the widely expected recession as yet to make an appearance.

Economics teaches there are always tradeoffs. Yes, a full-scale financial panic has been avoided, and that was and remains the key concern of the Fed. But the very actions it has taken in response to the financial turmoil has spurred inflation, promoted moral hazard, worsened the budget deficit and deepened the national debt, and increased the trade deficit. The Fed has also increased its supervision of the financial system and significantly widened the role of the government in the economy.

As Bagehot says, “entrusting all our reserve to a single board, like that of the Bank directors, is very anomalous; that it is very dangerous; that its bad consequences, though much felt, have not been fully seen; that they have been obscured by traditional arguments and hidden in the dust of ancient controversies.” For better or worse, we have entrusted much to the Board of Governors of the Federal Reserve System. I pray our trust is not misplaced and the problems aggravated by the strong measures taken to deal with the current financial mess do not become worse than the problem that now monopolizes our policy attention.

Tyler Cowen has a proposal for health care

“Right now, the United States is in the midst of a financial crisis, but even more pressing problems may lie ahead — and the presidential candidates aren’t addressing them.

No matter who sits in the Oval Office next year, there won’t be many degrees of freedom in the federal budget. That’s because spending on entitlement programs is largely locked into place, and the situation will become much worse as Americans age and health care costs rise. Even if the government is conservative in its spending, just paying out promised benefits implies that tax rates will rise to a crushing level — a range of 60 to 80 percent of income — well before the end of this century.

The main problem is Medicare, which reimburses the elderly for many of their health care expenses. As Mark V. Pauly, professor of health care systems at the University of Pennsylvania, has said, “Medicare as we know it today cannot be sustained over the next 50 years and probably will run into financial difficulties within the next 15.”

There’s one important idea lurking in the shadows that neither campaign is keen to talk about: paying out government benefits more efficiently. To put it bluntly, it means paying out full benefits only to those who really need them, and cutting back on payments to everybody else. …

“Means testing” — cutting back on payments to the relatively wealthy — is one way to better allocate benefits. For health care costs, this could be done by expanding Medicaid, which is focused on the needs of the poor, and making it an entirely federal program rather than one partly paid for by the states. At the same time, the government would need to limit the growth of Medicare, which is universally applied to all elderly people; as a segment of American society, the elderly are relatively wealthy. With limited resources, it would be better to reallocate health care subsidies toward the poor, whether they are young or old.

Furthermore, inducing the wealthy to pay for their own health coverage would create pressures to lower costs.

An alternative path is to put in place more means testing throughout Medicare. For instance, higher-income older Americans have already been paying larger Medicare premiums and receiving a lower prescription drug benefit; that’s part of what made it possible to expand the prescription benefit within budgetary constraints. …

Don’t expect to hear much about targeted benefits anytime before November. Such proposals would acknowledge the painful but probably realistic notion that we don’t have many good ways to control health care costs.”

Furthermore, balancing the budget is a popular goal, while cutting benefits is not. But if you’re asking which ideas are most likely to transform economic policy over the next 15 to 20 years, here is one place to start looking."

Tyler Cowen, “Means Testing, for Medicare”, The New York Times (20 July 2008).

http://www.nytimes.com/2008/07/20/business/economy/20view.html?ex=1374206400&en=5d103bc8e0f4065a&ei=5124&partner=permalink&exprod=permalink


Tyler Cowen is a professor of economics at George Mason University.

Looking to the longer-term, without question the unsustainability of Medicare and Medicaid are the greatest economic problems now before the country. Professor Cowen is right to say that the Presidential candidates are not addressing the problem even though spending on entitlement programs represents the greatest domestic constraint on government’s ability to provide the entire range of public services modern life requires. This article is useful for it presents some ideas that need to be considered as (I hope) the debate about health care gets underway in the Presidential campaign.

Because as presently designed Medicare and Medicaid are not close to being sustainable, either taxes must be raised or services must be cut, or some combination of the two. Since the projected deficit is so large, and could not conceivably be covered by taxes alone. Cowen offers some ideas on how the limited funds available to these programs might best be allocated.

His focus is on “means testing”, setting some income thresholds or other criteria that would sharply limit government payments or services to the relatively wealthy in order to provide greater support to the less fortunate. He believes the broad-based government transfers that now define the system will become much too expensive, and for that reason it is unwise to continue with the comprehensive programs now in place. Better in his view to introduce health care programs targeted mainly if not exclusively on the poor. This would mean, as he says, having the affluent pay more, perhaps much more, for their health care.

This approach is different from the comprehensive and universal government transfer programs now being advocated by the Democrats. Their argument is that if the programs are not universal or do not cover a large proportion of the population political support will be weak and health care will not be adequately funded. One problem, however, with universal health care is that consumers have little incentive to restrain their demand and control costs. On this, I suspect Cowen is right that a targeted approach to the poor would be supported politically and would be more likely to keep health care costs restrained for everyone.

Whatever decision is made about the extent of coverage of any government health care program, some rationing by the government will have to be undertaken. The question is how this might be done in an efficient manner that is fair. It might be done, for example, by a system of vouchers, which could be more generous to the poor and the elderly to ensure they have access to some minimal level of care. Alternatively, there could be fixed subsidies for different kinds of medical treatments available to everyone, regardless of income level. Or, as some insist, all costs for all people could be covered by the government in some universal health care program, but expensive medical care would nonetheless have to be rationed on some basis.

Those of us who are now in or approaching our “golden years” should give great thought to the question of government-provided universal health care. When rationing medical care, governments give priority to the young over the old and to the productive over the unproductive, and the operating room we old geezers desperately need may already be occupied by that young illegal immigrant who wants a splinter removed from his melon-picking hand.

Tyler Cowen has a proposal for health care

“Right now, the United States is in the midst of a financial crisis, but even more pressing problems may lie ahead — and the presidential candidates aren’t addressing them.

No matter who sits in the Oval Office next year, there won’t be many degrees of freedom in the federal budget. That’s because spending on entitlement programs is largely locked into place, and the situation will become much worse as Americans age and health care costs rise. Even if the government is conservative in its spending, just paying out promised benefits implies that tax rates will rise to a crushing level — a range of 60 to 80 percent of income — well before the end of this century.

The main problem is Medicare, which reimburses the elderly for many of their health care expenses. As Mark V. Pauly, professor of health care systems at the University of Pennsylvania, has said, “Medicare as we know it today cannot be sustained over the next 50 years and probably will run into financial difficulties within the next 15.”

There’s one important idea lurking in the shadows that neither campaign is keen to talk about: paying out government benefits more efficiently. To put it bluntly, it means paying out full benefits only to those who really need them, and cutting back on payments to everybody else. …

“Means testing” — cutting back on payments to the relatively wealthy — is one way to better allocate benefits. For health care costs, this could be done by expanding Medicaid, which is focused on the needs of the poor, and making it an entirely federal program rather than one partly paid for by the states. At the same time, the government would need to limit the growth of Medicare, which is universally applied to all elderly people; as a segment of American society, the elderly are relatively wealthy. With limited resources, it would be better to reallocate health care subsidies toward the poor, whether they are young or old.

Furthermore, inducing the wealthy to pay for their own health coverage would create pressures to lower costs.

An alternative path is to put in place more means testing throughout Medicare. For instance, higher-income older Americans have already been paying larger Medicare premiums and receiving a lower prescription drug benefit; that’s part of what made it possible to expand the prescription benefit within budgetary constraints. …

Don’t expect to hear much about targeted benefits anytime before November. Such proposals would acknowledge the painful but probably realistic notion that we don’t have many good ways to control health care costs.”

Furthermore, balancing the budget is a popular goal, while cutting benefits is not. But if you’re asking which ideas are most likely to transform economic policy over the next 15 to 20 years, here is one place to start looking."

Tyler Cowen, “Means Testing, for Medicare”, The New York Times (20 July 2008).

http://www.nytimes.com/2008/07/20/business/economy/20view.html?ex=1374206400&en=5d103bc8e0f4065a&ei=5124&partner=permalink&exprod=permalink


Tyler Cowen is a professor of economics at George Mason University.

Looking to the longer-term, without question the unsustainability of Medicare and Medicaid are the greatest economic problems now before the country. Professor Cowen is right to say that the Presidential candidates are not addressing the problem even though spending on entitlement programs represents the greatest domestic constraint on government’s ability to provide the entire range of public services modern life requires. This article is useful for it presents some ideas that need to be considered as (I hope) the debate about health care gets underway in the Presidential campaign.

Because as presently designed Medicare and Medicaid are not close to being sustainable, either taxes must be raised or services must be cut, or some combination of the two. Since the projected deficit is so large, and could not conceivably be covered by taxes alone. Cowen offers some ideas on how the limited funds available to these programs might best be allocated.

His focus is on “means testing”, setting some income thresholds or other criteria that would sharply limit government payments or services to the relatively wealthy in order to provide greater support to the less fortunate. He believes the broad-based government transfers that now define the system will become much too expensive, and for that reason it is unwise to continue with the comprehensive programs now in place. Better in his view to introduce health care programs targeted mainly if not exclusively on the poor. This would mean, as he says, having the affluent pay more, perhaps much more, for their health care.

This approach is different from the comprehensive and universal government transfer programs now being advocated by the Democrats. Their argument is that if the programs are not universal or do not cover a large proportion of the population political support will be weak and health care will not be adequately funded. One problem, however, with universal health care is that consumers have little incentive to restrain their demand and control costs. On this, I suspect Cowen is right that a targeted approach to the poor would be supported politically and would be more likely to keep health care costs restrained for everyone.

Whatever decision is made about the extent of coverage of any government health care program, some rationing by the government will have to be undertaken. The question is how this might be done in an efficient manner that is fair. It might be done, for example, by a system of vouchers, which could be more generous to the poor and the elderly to ensure they have access to some minimal level of care. Alternatively, there could be fixed subsidies for different kinds of medical treatments available to everyone, regardless of income level. Or, as some insist, all costs for all people could be covered by the government in some universal health care program, but expensive medical care would nonetheless have to be rationed on some basis.

Those of us who are now in or approaching our “golden years” should give great thought to the question of government-provided universal health care. When rationing medical care, governments give priority to the young over the old and to the productive over the unproductive, and the operating room we old geezers desperately need may already be occupied by that young illegal immigrant who wants a splinter removed from his melon-picking hand.