Friday, November 12, 2004

What I'm Reading 

The Secret Sins of Economics
This is a really fun piece, although much longer than your average article on the web. Although it's against the grain that characterizes this article, I have to quote my favorite bit:

I have not, I realize, painted a very attractive picture of economics. But these sins are widespread, I repeat, among non-economists, too—even that odd one, candid selfishness, which you can find Nature’s Economists articulating even when they aren’t trained in it. But I earnestly invite you to learn by further reading in the literature the offsetting merits of economists:

Economists are for one thing serious about the public interest, and are often the only people defending it with any sort of lucidity and persuasiveness against the special interests. The model of worldly philosophy was originated in crude form by the early pamphleteers and political arithmeticians (among them Daniel Defoe). Adam Smith a half century and more later brought it to perfection.

And if you like engineers you will like many economists. Engineers are attractive people, hard working (you have to be hard working to absorb all that engineering math), earnest and practical, bent always on Solving the Problem. True, they are often simpleminded. But simplicity gets the job done. Lots of economists are engineering types.

Or lawyer types. Like lawyers the economists are good arguers, which is good when you need a good argument ("How do you want it to come out?"). Economists can debate each other and yet not lose their tempers and not make irrelevant appeals to rank. Economists like lawyers are clear-minded, professionally. They are used to
getting to the point and staying there. The humor of economists, unhappily, is often cynical, as it is also among lawyers, seldom generous, but that’s true in many fields of the intellect.

But, above all, economics is about important matters. It would be remarkable if the economics-since-Marx that most non-economists would rather not read had nothing worthwhile in it. After all, thousands of apparently intelligent (they certainly think so) economists have labored away at it now for a century and a half.

I beseech you, dear reader, think it possible that economists, even Chicago-School economists, even Samuelsonian economists, have some important things to say about the economy.

As always, I don't fully agree with the criticisms (by her construction, it's because I'm too "in the system," but whatever), but it's amusing. Did she really just call engineers "attractive?"

Why Does the Government Patronize Us?
Recently crowned Nobel laureate Ed Prescott argues persuasively for mandatory private individual accounts for social security, with a minimal "free money" system for those who for one reason or another weren't able to save enough for their old age. My favorite bits:

It would be one thing if the government's Social Security system paid a decent return, but as the President's Commission reported, for a single male worker born in 2000 with average earnings, the real annual return on his currently-scheduled contributions to Social Security will be just 0.86%. And for a worker who earns the maximum amount taxed (then $80,400), the real annual return is a negative 0.72%. A bank would have to offer a pretty fancy toaster to get depositors at those rates of return.
Further, about two dozen countries have reformed their state-run retirement programs, including Chile, Sweden, Australia, Peru, the U.K., Kazakhstan, China, Croatia and Poland. If citizens in these countries can handle individual savings accounts, especially citizens in countries without a history of financial freedom, then U.S. citizens should be equally adept. At a time when the rest of the world is dropping the vestiges of state control, the United States should be leading the way and not lagging behind.
Under a reformed system there will always be some individuals who, owing to disabilities or other reasons that prevent them from working, will not have sufficient savings in their old age. The solution is to include a means-tested supplement to ensure that those citizens receive a required payment -- just like they receive today. Nobody gets left behind under this new system, and most will move ahead. U.S. citizens deserve more than a minimum payment, and the U.S. economy deserves more than to have its savings, capital and labor weighed down by an increasingly costly tax-and-transfer system.

Jeers and Cheers for Sears
A creative approach to making money from troubled retail companies.

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