Monday, April 11, 2011

Consumer-Based Economy

. . The Internet is awash with complaints and vague suggestions on how we can improve our lives, yet none suggest that we must first create the social mechanisms we need to be able to attain those objectives.
. . This missing social mechanism is a Consumer-Based Economy that will enable working consumers to place with industry long-term consumer orders for everything they desire and to pay for everything with their labor.
. . Without such an economic system, not even the rich can order anything they really want - certainly nothing as grand as an ideal city populated with select neighbors.
. . This is regrettable since all we need are special bank accounts which balance the monetary value of each depositor's long-term industrial orders with the monetary value of their weekly paychecks which they earn working on the long-term contracts awarded to them by those industries in which their consumer orders have created jobs.
. . Placing and managing the details of these long-term orders, and the subsequent distribution of the resulting labor contracts, would be the job of professional Family Agents operating in a hierarchy of local and regional Consumer Congresses.
. . Working consumers would start this process by sending select Family Agents to Neighborhood Congresses with general instructions on what they want from local and regional industries.
. . These professional Family Agents would meet to combine their anonymous family consumer orders and to place as many as possible with local industries, retailers, and service businesses, some of which may need to be newly created.
. . Those orders that could not be fulfilled locally would be sent with select Neighborhood Agents to a Consumer Congress at the city level.
. . At these City Congresses, Neighborhood Agents would combine their consumer orders to see what could be placed with existing or newly sponsored city businesses. Those orders that could not be fulfilled here would be sent with City Agents to State and Regional Consumer Congresses to repeat this process at these and higher national and international levels.
. . All Consumer orders would all be placed with maximum acceptable prices as specified by the ordering consumers. Those orders that could not be produced within these maximum levels would be cancelled.
. . The jobs created would be distributed among represented workers according to their stated preferences for various types of labor. Since their consumer orders will create many different types of jobs, few of which they would like to perform except under attractive circumstances, exchanges of these jobs will be distributed in amounts dictated by The Principle of Fair Labor Exchange.
. . Thus a rational consumer-based economy will provide consumers not only with everything they desire, it will also provide them with Guaranteed Lifetime Self-Employment in their preferred occupations, at maximum fair wages, working on approved projects ordered by themselves, their families and neighbors, most of whom will be their women, rather than strange male employers.
. . Since Defense and Government are consumer services just like any other, these Consumer Congresses will act as official Civilian Authorities that will direct, supervise, and control all legitimate state, national, and local governments, their soldiers and police, in partnership with whatever self-proclaimed military congresses exist at that time.

. . Among the many items that organized consumers will be able to order in a Consumer-Based Economy is a Defined Language administered by a Language Academy. The Definary that this Academy will produce will enable people to comprehend fully the meaning of the many abstract words they use daily, and to quickly recognize those false applications proffered by perverts and landlords.
. . These abstract concepts will never be defined in any banker-based economy. Evidence is the official Oxford and Cambridge University dictionaries. After four centuries of operation under dozens of editors, publishers, and supporting landlord governments, these books still contain not one definition for any of the abstract concepts they list. In fact, these silly university books cannot define even the word "Definition"! To this day, these university professors staunchly refuse to define any abstract word even when offered this opportunity by language experts. Instead they prefer that their dictionaries remain mere references books for correct spelling and pronunciation, while serving their primary function as landlord propaganda media for the dissemination of false ideas under the guise of surveying "common word usage", a survey that strangely never includes true meanings.

. . Among the most important of these defined concepts will be the words Economy, City, and Religion.
. . The instinctive abstract word "Economy" will be noted as a "Scientific System of Exchange of the Future Labor Created by Advance Consumer Orders". This definition excludes Bartering of Existing Items, such as previously manufactured products for standard mediums of exchange, such as gold, silver, paper currencies, and wampum. This definition would deny the claim that the primitive Market Bartering practices of Capitalism qualifies as an economic system. It would also deny the claim of Socialists, Communists, Fascists, and New Dealers that Slavery qualifies an economic system. This clarification would encourage civilized people to form Consumer-Based economies as a matter of principle.
. . The abstract word "City" would be defined as a "Whole, Resident Owned, Sovereign Organic Civic Entity". This definition would deny the claim of landlords that their sprawling, fragmented, urban slave-labor concentration camps qualify as Cities. This definition would result in educated people deleting the word "City" from misnamed landlord urbs such as the New York Urb on Manhattan Island.
. . The definition of another instinctive concept would define Religion as a "Collection of God's Laws", with "God" defined as the "Creator of Man", not any "Materializer of the Universe", or some individual, or comic book character, or fanciful Lord of this planet, or that certain landlord novels or history books are "the Word of God". This clarification would lead good people to establish true religions with true moral codes and real moral agendas that would eventually create the suprahuman civilizations that would create a Heaven on Earth as divinely intended.
. . Other important definitions would include Morality, Republic, and Justice, and the contrary concepts of Crime, Dictatorship, and Tyranny. These definitions would lead to the disbanding of elective dictatorships that pose as republics, and the formation of mutually defensive leagues of sovereign Cities.
. . Civilized folk interested in forming local Consumer-Based Economies are advised to begin discussing the prospect with family, friends, colleagues, and neighbors. When enough interest is evidenced, groups should seek assistance and leadership from sympathetic local mayors and city councilmen, then register their ideas and contact data in a Blogger.com Blog with a name that begins with "Consumer-Agency-" followed by a dash and the postal code or name of the area that they wish to serve or be served by. Then other local groups with Blogs beginning with "Consumer-" should be contacted to discuss their common interests in forming local Consumer Congresses that will promote and create consumer-based economies. Compatible groups located should be listed in individual blogs. Further advertising can be inserted free in regional Usenet articles and in local newspapers, telephone books, Internet chat groups, and in flyers distributed door-to-door and car-to-car under the windshield wipers of cars parked at shopping malls, apartments, offices, colleges, medical buildings, streets, and other public and private parking lots, or person-to-person in clubs and churches.
. . Practical tasks can then be performed by committees to produce educational brochures and convenient consumer and worker questionnaires.
. . Ideas on what consumers should order and why can be found at sites with architectural renderings of futuristic cities such as www.TheVenusProject.com and in the Book, "The Octahedron, The Symbol of Man, Blueprint For Civilization", available from Amazon.com in electronic format readable on computers and on Kindle Book readers.

. . The most important section of this revolutionary new book, the part that describes a Consumer-Based Economy and its advantages over primitive banker-based Capitalism and Socialism, has already been published in the United States Congressional Record and in the prestigious and influential national monthly magazine of the Illinois Bankers Association.
. . This, the first new economic concept ever proposed, was submitted to the United States House of Representatives by Congressman Carlos Morehead as a sure way to end ALL of America's chronic age-old economic problems, from inflation and unemployment, economic depressions and business recessions, stock-market crashes and business failures, to home foreclosures and larcenous crimes such as robbery, theft, embezzlement, graft, bribery, debt evasion, fraud, and counterfeiting.
. . This is the most important book ever written. It is the first book that clearly defines all crucial abstract human concepts available nowhere else. It shows how easily an advanced global civilization can be created through a scientific, moneyless, full-employment, direct-labor-exchange economy that will fulfill all consumer desires, beginning with the design and construction of a global league of ideal, self-sufficient, energy-efficient, resident-owned, sovereign corporate garden cities.
. . This is also the world's first GOOD book since it deals only with life as it SHOULD be, not as it IS, as do all traditional publisher-approved books.
. . Although its unpadded pages are few, this book contains more definitions than the Oxford and Cambridge Dictionaries, more morals than the Koran, more religion than the Bible, more utopian Ideals than Thomas Moore's "Utopia", more Economic Theory than the combined works of Karl Marx, Adam Smith, Milton Friedman, John Maynard Keynes, the Federal Reserve Banks, and the London School of Economics. It contains more Laws than the Library of Congress, more Psychology and Philosophy than college texts, more Esoteric Revelations than Theosophy, and more Libertarian ideals than the Libertarian Election Parties. It offers more sound investment advice than the New York Stock Exchange, more practical Green Advice than the Sierra Club, and more true reforms than the Zeitgeist Movement. Its Calendar traces the Sun's position more accurately than the calendars contrived by Christians, Muslims, Jews, Hindus, Sikhs, Bahai, Iranians, and Chinese. It corrects the errors of traditional Astrology. And its explanations of the religious symbolism of the Sphinx and the Nordic Seven Day Week have no parallel.
. . This is indeed a modern classic whose publication will mark the end of the Age of Barbarism and Superstition and the beginning of the Age of Civilization at Year One on the Calendar of Civilization.
. . This book is obviously in a class of its own, since Amazon.com lists no Book Category on the topic of "Civilization".
. . This and all the other revolutionary new proposals must now be presented to those hundreds of millions of citizens who must now implement these reforms if they are ever to avoid suffering and their eventual rapidly approaching self-extinction and instead thrive and enjoy the extraordinary benefits of the new advanced suprahuman world civilization that they will personally create for themselves.

Monday, April 4, 2011

Indonesian Economic

The Indonesian Economy and the Role of Forestry

Indonesian forestry plays an important role in increasing economic development partly through foreign exchange earnings, job and business opportunities, as well as acceleration of development for remote regions. In the 1980's decade, forest-related employment accounted for about 5.4% of the total labour force (MoF, 1991). In this period, the forestry sector contributed an average 16% of total foreign exchange earnings annually and 27% of non-oil export earnings. These figures were relatively sustained at least until 1994, when foreign exchange from forestry sector was about US$4.2 billion.
During the last two years (1995-1996) the forestry sector contributed an average 3.85% of total gross domestic product (GDP) which in 1995 was about Rp. 454,514.1 billion, and in 1996 had increased to Rp, 532,630.8 billion. Both these GDP figures decrease slightly when calculated on non-oil basis, namely Rp. 417,705.8 billion (1995) and Rp. 490,316.6 billion (1996). In this two-year period, the growth rate of the total GDP is about 18.91% (1995) and 17.19% (1996), while for non-oil-based, the GDP growth rate is respectively 19.79% and 17.38%1. In the same period, the corresponding GDP growth rate for the forestry sector was about 7.15% (1995) and 6.67% (1996).2
1 The basis for GDP growth estimation reported here appears to differ from that generally used by the Asian Development Bank, the estimates of which suggest GDP growth at 8.1 % in 1995 and 7.9% in 1996. 2 1996 Statistical Year Book of Indonesia. Central Bureau of Statistic (data was recalculated).
Indonesia's population growth rate is decreasing; in 1992 the population was about 184.49 million and it just reached 196.81 million in 1996. A study by Capricorn Consult Inc. projected that the population will become 211.20 million by the year 2000. The average annual growth rate of population during this period (1992-1996) is around 1.6% (Table 1). Compared to the 1980's decade rate of around 2.12%, this reduced figure shows a good achievement by Indonesia in managing her population, mainly through success of family planning programmes. Average per capita income of Indonesian has grown from US$80 in 1967 to US$650 in 1990 and to US$1,155 in 19963 although following recent turmoil, the latest data (1998) indicate that average per capita income has decreased to US$6104 based on assumptions that economic growth is zero, inflation rate is 20%, population growth rate is 1.6%, while exchange rate is US$1.00 to Rp. 5000.
3 Calculated on the basis of 1 US$=Rp. 2400, before monetary crisis of 1997-98.
4 KOMPAS Daily, Tuesday February 17, 1998 p. 2.
Table 1 - Indonesian Population 1992-1996 (million)
Year
1992
1993
1994
1995
1996
2000*
Population184.49187.60190.68193.75196.81211.20
Source: Central Bureau of Statistic, 1996 except for the year 2000 cited from Capricorn Indonesia Consult Inc.
MoF believes that sustainable development of wood and non-wood forest products can provide 6 millions to 8 millions job opportunities by the year 2000. Should industrial growth be uncontrolled, however, resource sustainability would be seriously affected in the longer-term. Hence, it is also realised to be extremely important to Indonesia to manage its forest resource in such way as to ensure resource sustainability over time. To accommodate this idea, MoF has also committed itself to implementing sustainable forest management (SFM) scheme encouraged by International Tropical Timber Organisation (ITTO), under which Indonesia intends to attain sustainability in terms of economic, ecological and social functions of forests. The recent economic turmoil, however, will result in more and more uncertainty in predicting the achievement of all goals and commitments in the future. The turmoil also requires that Indonesians work harder and harder for a better future.

Global Manufacturing Slips Back Slightly In March

Evidence which would enable us to assess the full economic impact of the Japanese earthquake and tsunami is still hard to come by. There is a lot of talk of supply chain disruptions, but little in the way of detailed evidence to back up assertions of the more anecdotal kind. Even the latest set of manufacturing PMI data has decidedly left the jury out on the topic.Evidently in Japan there was a

Saturday, April 2, 2011

Good Morning,

Headline Employment numbers are 216,000 supposed jobs added in March, and the rate fell to 8.8 laughable percent. Equities are higher, the dollar is spiking higher, the Yen is making a large move lower, oil has jumped to a new high above $107 a barrel, gold and silver are lower, while most food commodities are higher after large gains yesterday (corn and oats are up considerably).

There was a small movement in the McClelland Oscillator yesterday meaning that today’s move can be expected to be large.

Ever since the G7 intervened in the currency markets to keep a lid on the Yen, the Yen has been falling and overnight into this morning has fallen considerably. The markets have correlated to this action, with markets rising as the Yen falls, and visa versa. The amount of money added by the Japanese and other nations was huge – amounting to more hot money with nothing better to do than to jack up the cost of living for humans on the planet. The response has been for the moronic central bankers to meet any and all hiccups with massive money printing. Thus everything “grows” in terms of dollars… except your wages, of course. The hot money accumulates around the globe just like cesium 137, only with a much shorter half-life requiring never ending and larger infusions to keep the appearance of “growth” continuing.

As if sky high oil prices in the face of falling demand and record inventories wasn’t enough, Hershey’s just announced that they are raising their candy prices 9.7% across the board! Oh the humanity! That’s it, I’m taking to the streets! In all seriousness, think about that – it is a huge jump and is absolutely reflective of the central banker’s policies.

More and more people are waking up to the horrid reality in Japan. Articles suggesting that the world’s largest concrete pumpers are enroute to Japan from Germany and the U.S. have led people to believe that they may be finally planning on building a sarcophagus. Yet, on the other hand, other experts believe that it won’t be possible to build one until the fuel is cooled and that may take years if not decades! While we don’t have enough information to know for sure, it is my belief that some type of containment MUST be accomplished soon. The situation is DIRE and very difficult – here’s another update from Arnie Gunderson that you must see regarding the fuel pool of reactor 4:
Oil and Gas are finite fossil fuels from the geological past that are inevitably subject to depletion. Eventually we must run out, but what matters more is the inevitable peak of production when growth gives way to decline. The wider implications of this historic discontinuity are colossal.

Colin Campbell, author of the highly acclaimed 'The Coming Oil Crisis', is a leading member of the growing number of experts whose models of depletion show that the world will reach peak within about ten years. After peak comes increasing scarcity, as production can no longer meet demand. The implications for Mankind are huge, opening an entirely new world.
Understanding depletion is not difficult, but public data on production and reserves are very unreliable. Perhaps the greatest contribution of the book is to present more realistic estimates and definitions than are available elsewhere.

Friday, April 1, 2011

David Brooks and Malcolm Gadwall wrong about I.Q, Income and Wealth

In his book "The Social Animal", reviewed here, David brooks writes:

"Once you get past some pretty obvious correlations (smart people make better mathematicians), there is a very loose relationship between IQ and life outcomes."


Brooks further cites a study claiming that there is "no correlation between accumulating large wealth and high IQ."

Both claims are wrong. The result Brooks cites is after "controlling" for education and income. But education and income are themselves functions of I.Q, so you shouldn't control for them if the question you want to answer is how I.Q effects life outcomes.

I have not seen this graphed online, so let's visualize the relationship between an estimate of I.Q and income and wealth so you can see for yourself. The source is NLYS79, a dataset which tracks a representative sample of the U.S population. Intelligence is approximated by the military when the individuals in the sample were mostly teenagers, while income and wealth data is for the same guys in their 40s. The sample is restricted to non-Hispanic white men.

For this group the lowest decile is people with I.Q below 84, and the highest decile above 116, which is not a very high cutoff. So keep in mind that we are not talking about only super-geniuses, in which case the results would be even stronger. Also remember that the middle of the distribution have very similar I.Q scores, the 5th decile is around 101-104, and the 6th decile around 104-108.

As you can see Americans men lucky enough to be born either with genes or a home environment that facilitates high I.Q earn more and accumulate more wealth.




The strong link between I.Q and earnings is well known by labor economists, but perhaps not by the affluent and high-I.Q readers of the New York Times. Obviously most of it goes through education. As technological development makes I.Q more valuable and unskilled labor less valuable, this disparity is increasing.

Another common claim of Brooks and of Malcolm Gladwell is that I.Q may matter, but only until around 130, after which it becomes meaningless. This is also wrong. Many previous samples have had too few observations to make reliable inference about the effect of I.Q above 130. Of course not having sufficient data hardly justifies Gladwell confidently claiming that I.Q above 130 is irrelevant even for scientists in technical fields (which I and others who are not smart enough to handle advanced mathematics could have told you from personal experience was a bizarre theory). After all, 130 is not that high, around the mean for a Harvard or SSE student.

This recent paper by Heckman, Gensowski and Savelyev studies the life outcomes of the Terman sample, which entirely consists of American men with I.Q above 135 (in some cases far above 135). They find that I.Q has a significant effects on earnings and educational outcomes, also for those above the 135 I.Q threshold. Another Malcolm Gladwell myth busted.


There are some policy implications from this realization. One is that smart and successful people shouldn't congratulate themselves so much. They didn't so much "earn" their talent than were lucky in the gene/environment lottery. If you are born healthy, with high I.Q genes and with educated parents and a good home environment you are expected to earn more than a more disadvantaged child who exerts the exact amount of effort through life.

Unlike libertarians, Conservatives believe that those who were the recipients of good fortunate have a moral obligations towards the rest of society, in particular to the people who do their best but just have less marketable skills.

Another is that the left is wrong about the market allocating income mainly based on chance, connections or "power". In fact, earnings are strongly linked to intelligence, which indicates that they are linked to productivity, just as economic theory predicts. Poor people are on average less productive than rich people, a claim which may sound obvious (almost tautological) to an economist but which outrages a lot of people on the left.

Denying the link between productivity and earnings is very important for the modern left, as their entire source of outrage is based on the view that the capitalist system "exploits" the poor. More likely, because of the modern welfare state and because of the growing importance of human capital, more resources are transferred from the productive rich to the poor than vice-versa. There is so little demand in the labor market for unskilled people that the poor in industrialized countries increasingly don't even work full time.

The fact that the rich don't exploit the poor doesn't mean the rich shouldn't help the poor. But it's one thing to claim you are rich because you are stealing from poor people, and another to believe you have an obligation to help all members of society due to randomly having being granted more valued skills. Fairness perceptions are not only a function of the type of distribution we desire, but to an even greater extent a function of the process we believe creates inequality.

I suppose David Brooks and Gladwell give an inaccurate impression about I.Q and income/wealth in order to make their readers feel warm and fuzzy. But that is not an accurate depiction of the world we live in, we live in a much harsher and more unfair reality.

Sunday, March 27, 2011

The "Mystery" of Child Poverty in Sweden.

Yesterday HĂĄkan Juholt, the new leaders of the Social Democratic party, gave his opening speech to the party congress where he outlined the future direction of policies.

Juholts chief identified social problem and number one priority was child poverty. He stated:

"We will not be a country where several hundred thousand children live in child-poverty. It is a shame for Sweden...It only belongs in [conservative leader] Reinfeldt's Sweden, not in Social Democratic Sweden".

Child poverty is measured by non-profit group "Rädda Barnen", and is defined as either children in families who receive welfare ("socialbidrag") because they are below the poverty norm defined by the state, or children in families who live below the poverty norm but for various reasons do not receive welfare. I would therefore have been counted among the sample of poor children between 1989-1999 when we lived on welfare.

It is therefore a reasonable measure that approximates absolute child poverty (although welfare payments and these minimum norms increase slightly over time in real terms).

The standard critique of the right is that these measures are relative poverty which can give misleading results. For example with relative poverty the poverty rate could bizarrely rise even if when the real income of the poor increases, just as long as the real income of the rich increases even faster. However this critique is not valid here, since the measure is closer to absolute poverty. This is incidentally also true of the American poverty rate, which contrary to perception among many libertarians measures absolute poverty, not relative poverty.

First, let's note that child poverty has declined. In 1997 there were 432.000 poor children in Sweden, and in 2008 the number was 220.000 (so Juholt was technically wrong when he said "several" hundred thousand, but let's not be picky). In percentage terms child poverty went from 22.3% to 11.5%.

But Sweden has experienced rapid income growth in the last decade and a half. So why isn't child poverty declining more? Surely it must be due to the heartless neo-liberal policies of the right!

I think this graph can give us some a hint of what's going on.


In 2008 the child poverty rate of Native Swedish children was only one third of what is was in 1997, a massive reduction from 243.000 to 78.000. The only reason Sweden's' total child poverty rate has not declined more is that during these years politicians to the right and the left brought several hundred thousand poor immigrants to Sweden to swell the ranks of the impoverished. While first and second generation immigrants constituted 44% of the poor children in 1997, they were 65% of all poor children in Sweden in 2008.

Only 5% of native Swedish children live in poverty. For immigrant children with both parents born outside of the Sweden, the child poverty rate is 39%, a miserable number which may shock and should dishearten liberal Americans. The Swedish model appeared to produce amazing results as long as the country was completely homogeneous and full of Swedes. But the much admired welfare state was unable to deal with even moderate levels of ethic diversity (still far below the levels of the United States) without a collapse in social outcomes.

Demographic change, not economic policy, is what is preventing child poverty from declining (if it were the fault of economic policy the child poverty rate of ordinary Swedes would not have declined so much).

The leader of the Social Democrats said "Child poverty shall be combated every day and with all available means!"

One fool-proof method would be slowing the importation of tens of thousands of more poor people every year until he has solved child poverty among Swedes and immigrants already here. I am guessing however that this is not among theoretically possible "available means" in Mr. Juholt's universe.

Friday, March 25, 2011

On the Swedish voucher system

Swedish test-scores are deteriorating, both among native Swedes and immigrants.

The left is blaming this on Sweden's popular system of vouchers. The Swedish private schools ("friskolor") are funded by public vouchers but privately owned and managed, which the left dislikes. In this article for example "ideological...market-experiments" are accused of having caused a decline in the "level of knowledge in schools".

However if we look at PISA-test-scores 2000-2009, it is apparent that 8th-grade test scores are dropping like a rock in public schools, but actually increasing in private schools.


Between 2006-2009 the results fall declined in private schools, but even during this period they fell more in public schools. It is sometimes argued that the higher test-scores of private schools in Sweden is due to grade inflation. However the PISA scores are internationally standardized, so they are a fair metric.

Keep in mind that there may be composition changes going on here, which the averages don't tell us about. It is also theoretically possible that the decline in public schools is caused by private schools. One claim of the left is that if the smart and motivated kids leave, the other children become worse students. The Swedish left also accuses private schools of draining public schools from resources, which go towards detested profits. However it is unlikely for several reasons that pubic school failure is the fault of private schools.

First, the private school sector remains small, with less than 10% of 8th graders tested by PISA in 2009.

Second, in Sweden private schools cost taxpayers 8 percent less per public on average than public schools, so they are not draining financial resources. The average profit margin of all Swedish private schools is only 5% (and much of this is the return of injections of capital into the schools).

Third, studies seem to indicate that there is little sorting in Swedish private schools, that is to say it is not mainly the richest or brightest kids who go to private schools. (e.g Böhlmark and Lindahl, 2007, 2009).

Lastly international research has generally failed to detect a negative effect of school choice on those who stay behind. (having more girls in your class may help, but that's another issue).

Studies of school choice suffer from methodological problems, because children who choice private schools may be different in ways we cannot control for. Therefore probably the best study are those like this one, which uses lotteries. There is no comparable study for Sweden. They generally find that school choice does not lower outcomes, contrary to the claims of the Swedish left. While they also don't detect major increases in test scores, they detect improvement in outcome variables such as arrest rates.

Voucher funded schools have more satisfied teachers and parents and students. They cost less for taxpayers. They don't appear to hurt public schools. In addition, they have been improving their test-scores in a period where public schools scores are declining.

Despite all of this, the Social Democrats blame the crisis of Swedish education on private schools, even though it is the 90% or so of children in public schools who are doing particularly poorly, and even though they present no evidence whatsoever that this long term decline is caused by private schools. If anyone is being blindly "ideological" on this issue, it is the left. This is especially clear with regards to their emotional aversion to and overestimation of profits.

Having written all this, let me criticize the right.

This will pain them to learn, but they are putting too much faith in private schools, and too much weight on test scores in evaluating private schools. The sad truth is that test-scores are mostly determined by I.Q and home environment, not by which school you attend.

Let me show you this depressing graph from a recent paper by James Heckman for white children in the U.S:


You will notice that gaps in child test scores emerge early (age 3) and persist through age 18. Schools contribute little to closing these gaps.

The Swedish right has accepted the quasi-Marxist view of the left and liberals, which is that people are blank slates, that ability is equally distributed and that schools consequently can easily raise cognitive skills.

The left deludes itself into believing society can do this just as soon as we give schools a little more money (meanwhile real spending per pupil has more than doubled in a period where test-scores have declined). The right instead deludes itself into believing in this Utopian vision just as soon as we make schools capitalist (meanwhile decades of private choice in Sweden and Chile have only moderate improvements in outcomes).

It would be one thing if private schools were able to dramatically change the curriculum and drill students like military schools or (horror horror) Swedish schools in 1965. American catholic schools successfully improve the life outcomes of minority students where public schools fail.

While raising everyone's I.Q dramatically through capitalist schools is a fantasy, there is in principle no reason Sweden cannot return to historical test score levels.

But this would require going back to historical curriculum and historical norms. The power vacuum that has emerged in Swedish schools and leads to mini Lord-of-the-flies classrooms has to be filled by adults. Repetition and memorization (both of which do not require the child to have above average I.Q to work) should again become the foundation of learning. The post-modern pedagogic theories taught to teachers in the universities must be discarded into the trashcan of history.

There is a lot of rhetoric from the Swedish right on education reform, but no sign of any of this happening. Making schools private in form without allowing them to depart from the current curriculum is not going to magically fix the problems. This faux-capitalism would not truly utilize the advantages of free-enterprise, and making promises you cannot deliver on will only discredit capitalism among the public.

If the right keeps promising better education outcomes without fixing the core problems voters will sooner or later wise up and punish them. Education minister Jan Björklund should close the rhetoric to reform gap, either by shutting up or by actually doing something about the situation.

Saturday, March 19, 2011

Surely There Is Nothing “Funny” About What Is Going On In Japan?

As Japanese officials continue to toil away in what we all hope will be a successful bid to avert a worst case scenario nuclear meltdown even while thousands of Japanese still remain missing and unaccounted for, financial market participants across the globe have been struggling with themselves to answer one and the same question: just how serious are the economic consequences of all this

Saturday, March 12, 2011

The Economic Performance of Europe and the United States

British Member of the European Parliament Daniel Hannan has a powerful article in the Wall Street Journal about President Obama and the Europeanization of the American economy. He writes:

“My guess is that if anything, Obama would verbalize his ideology using the same vocabulary that Eurocrats do. He would say he wants a fairer America, a more tolerant America, a less arrogant America, a more engaged America. When you prize away the clichĂ©, what these phrases amount to are higher taxes, less patriotism, a bigger role for state bureaucracies and a transfer of sovereignty to global institutions.”

Politicians on the left rarely admit this goal, I guess since it is not popular. There is little doubt however that a large portion of the American left believes that Western Europe has higher quality of life than the United States (probably wrong), and that the higher level of income equality and lower crime is primarily caused by welfare state policies (almost certainly wrong).

Americans two most important liberals outside of elected office are John Stewart and Paul Krugman, and they have both made it clear that they consider Europe a superior society compared to the United States. Most young liberals I have met also believe this, with an almost utopian view of Western Europe.

This despite the fact that Europeans have lower average income, lower median wages and higher unemployment rates. Europeans are more likely to vote with their feet and emigrate to the United States than the opposite. Contrary to popular claims, Europeans have lower self-reported happiness (a measure that I personally don’t believe in) and somewhat higher absolute poverty. Europe has much higher tax rates, but the same tax revenue as the United States.

There is one problem with Hannan’s article, which is using total GDP growth rather than per capita growth of income. This is misleading, since the United States has higher population growth than Europe. But having more people doesn’t mean your people are better off.

The growth of per capita income the last 3-4 decades have been similar in the United States and Europe. Of course this does not imply that the welfare state and high taxes is a free lunch. Economists have longed recognized that the adverse effect of taxes is mainly on levels of GDP, not the growth of GDP. I write about this here and here.

What is remarkable is that Western Europe appears to be “stuck” at a permanent lower level of income than America, even though poorer countries tend to conditionally grow faster than richer countries, due to “low hanging fruits”.

These two graphs illustrate what has been going on. The two most archetypical European welfare states, Sweden and France, were rapidly converging to American output levels for three decades following the war. However this stopped in the late 1970s/early 1980s, and even reversed.




This is a big deal. Richer countries on the technology frontier are not supposed to maintain their advantage for long or even outperform less avancerad nations. However the American economy managed to do exactly this, which is one reason I refer to it as the Super-Economy.

My interpretation is that Europe slowed and America gained ground because of expanded welfare policies in France/Sweden and supply side reforms in the United States.

Sweden (but not France) later implemented its own far reaching supply side reforms as a response to the poor economic performance. Sweden (but not France) is again converting to American levels.

Since we don’t have controlled experiments for entire nations, this historical analysis is speculative, and reflects my ideological biases. But at the very least we can conclude that the growth patterns of Western European welfare states and the United States is consistent with what Chicago style economics would predict.

Thursday, March 3, 2011

The intellectual meltdown of libertarianism in Sweden

Yesterday the right-of-center coalition together with the environmentalists voted to guarantee tax-funded health care and schooling for illegal immigrants (In Swedish media the term used to obfuscate is "papperslösa", "those with no papers"). In addition, illegal immigrants will be allowed to start businesses. This decision is today cheered by Swedish libertarians, who also supported amnesty a couple of years ago.

The most prominent libertarians of intellectuals of the 20th century - Milton Friedman, Friedrich Hayek and Robert Nozick - all opposed open borders for welfare states. But today's libertarians are not as thoughtful. They are motivated by simplistic arguments, such as borders being created by politicians and therefore automatically bad, or that since free trade with China is good, free trade with people must also be good to. But unlike Chinese plastic toys, immigrants collect welfare, impose negative social externalities such as crime on others, and vote themselves even more benefits.

Historically socialists fought to abolish private rights and property, while modern socialists and libertarians fight to abolish our collective rights and properties. The most prominent of these are rights we have granted each other in democracies to vote over common decisions, backed by the threat of coercion.

One Swedish libertarian thus wrote about expanding the welfare state to illegal immigrants: "This is what solidarity is about". (Ayn Rand would surely have been proud to read this).

A blogger at the most important libertarian journal, Neo, fervently defends this latest expansion of the welfare state, with the argument that Sweden is already spending a lot on other stuff. By this logic, the bigger the government already is, the more we should expand it.

Modern libertarianism is a self-destructive ideology. This is because the unskilled immigrant population that open borders invites is an exceptionally infertile ground for libertarian values. Consequently open borders in a democracy will automatically lead to a welfare state as the immigrants sooner or later become the majority of voters.

To no ones surprise, rather than becoming libertarian, immigrants loyally support the Social Democratic welfare state, as their economic self interests and the political culture of their societies would predicts. In the latest Swedish election, only 43% of Swedes but 77% of non-western immigrants voted for the left (this was an unusually bad year for the left, who got 92% of the immigrant vote in 2002!). In the United States, where while only 35% of non-Hispanic whites prefer higher taxes in return for more government services, the figure is 64% for all Hispanics, and 65% for second generation Hispanics.

Benefits to illegal immigrants are unpopular among ordinary swedes, but popular amongst the elites. The elites in Sweden no longer believe or act as if they have been delegated their power and position in life by the public. Instead, they look down at ordinary Swedes as unwashed rubes, identifying instead with elites in other countries. This is the basics of what I call the "The Economist" Class [sic]. This is incidentally the reason why the European Union is ever expanding, elites in Europe identify more with other elites in Europe rather than with non-elites in their respective country.

The ideology of the elites tells them that since all humans are equal, they owe no more to the Swedes than to any random inhabitant of the earth. This despite the fact that it is the Swedes they represent, they are the one who voted for them (if they are politicians), who pay their membership dues (unions), who work for them (industry), who read their texts and trust them to provide the truth (media) or who pay our grants and financed our educations (academia).

Pundits who have only absorbed Adam Smith, Milton Friedman and Hayek on a superficial level (many seem to just have read the abstract) today view the virtue of noblesse oblige as obsolete.

A minority of libertarians in Sweden realize that these laws have negative consequences for our country, but feel compelled to support open borders because of ideology, which tells them that the government has no right to control borders. Those to the left who don't like this law are also stuck in their ideology, since that tells them that because all humans are equal, it must be racist to give free health care to Swedes but not to an Albanian who broke our laws and crossed our border.

Hayek and other idea-historians consider Anglo-Saxon conservatism a sub-category of classical liberalism (what Swedes simply call liberalism). However, unlike libertarianism, intellectual conservative theory does not have any problem reconciling policies that benefit society with policies derived from ideological axioms.

The nation state is a mutual defense and cooperation pact, something we have created through the implicit social compact to improve collective decision making. We therefore have more obligations and responsibilities towards other citizens (needless to say regardless of their race), than we do towards other random people on the planet. This is particularly true for anyone who has been entrust elite status in politics or academia or intellectual life, and particularly true for people like me who have been given the gift of citizenship by Swedes. The responsibility for the welfare of Albanian children meanwhile belongs to Albania.

Any ideology that leads you to a conflict what you believe is good for society and what your ideology compels you to believe is flawed by design. This is why Anglo-Saxon conservatism at its finest is the lack of an ideology.

Tuesday, March 1, 2011

Japan has outsourced engineering along with manufacturing

According to this source, Yoshio Watanabe, a professor of electrical engineering at Kanagawa University states that many Japanese companies have outsourced research, development, and engineering overseas in the last twenty years. The same source states that science, math, and engineering are unpopular fields of study for Japanese students. One theory regarding the decline in interest in

Sunday, February 27, 2011

The New York Times on Sweden's immigration problem

Overall, the article is excellent, you should read it if the subject interests you. Random comments:

* The article exaggerates the problems by focusing on RosengĂĄrd, the worst (major) ghetto in Sweden. Yes, in RosengĂĄrd 80% of adult don't work, but for Sweden as a whole the figure for non-western immigrants is about 50%.

* While the first and second generation immigrants are about 25% of the population, many of these are Finns and Scandinavian. The relevant figure - the number of 1st and 2nd generation non-western immigrants - is around 10% based on my calculations from the latest demographic reports.

* The funniest and most revealing part of the article is a Iranian "rapper" quoted as saying "I want to be able to become president [of Sweden]." Sweden is a Monarchy and thus has no President. What this illustrates is that most multiculturalists ideas are directly imported to Sweden from the United States.

Both "rap" and the dream of becoming "President" are from American popular culture. The majority of television programming and movies in Sweden are American. This is not the first time I have heard the "President of Sweden" dream from immigrants.

Immigrant-right activists in Sweden also quote Martin Luther King a lot, which I find quite offensive. You simply *cannot* compare refugees like me who come to Sweden and are granted asylum and receive generous welfare with African Americans who were enslaved, exploited and forced to live in brutal segregation for generations.

The story also shows how isolated some immigrants in the ghettos are from Swedish society. This guy dreams of running for office, and demands that Swedish society elevate him to this position, but doesn't even know the form of government of the country he lives in.

* Because the media seldom reports the numbers and often gives anecdotal evidence to the contrary, most Swedes are not aware that immigration has accelerated the last few years to about 100.000 per year, of which about 2/3 are non-western. We are now taking in as many every year than the record year of 1993 (War in Bosnia), and more as a share of the population as the United States during the 19th century. But if a tree falls in the forest and the Swedish media ignores it, did it really happen? Instead the conventional wisdom claim (lie) is that "it has become much harder to migrate to Sweden".

* Towards the end the article become more misleading, as the New York Times trusts Swedish social scientists. They write "Some experts believe the support for the far right has already reached its limits in Sweden."

First, anyone who believes that the anti-immigrant Swedish Democrats are going to go away either doesn't understand Swedish politics or is engaging in wishful thinking. They are only going to grow, if for no other reason because the immigration problem is not going to go away. While "movement" parties with roots in the early 20th century such as the Social Democrats and Center-party are withering away, energized Sweden Democrats are building a new grass-root movement. Furthermore, now that they are in Parliament, they receive more media attention and are slowly becoming more mainstream.

The "experts" quoted don't seem to realize that the Swedish Democrats have already grown from 5.7% to 8% in some polls since the election no more than six months ago.

Another example is a Swedish political scientists who gives the classic misleading comparison of immigrant sentiment with the 1990s to "prove" Swedes are becoming more pro-immigration. I have written about this method of cheating at lenght here.

The 1990s was a period of severe economic crisis, and also the beginning of the first wave of anti-immigration sentiment (with New Democracy, the first anti-immigration party). As New Democracy imploded due to leadership conflicts and as the economic crisis ended, anti-immigration sentiment declined. It has since gone up again.

The correct comparison would be with 1970 or 1980 or even 2000, not the peak of a frenzy in 1992. That is a little like writing that American anti-Islamists sentiment has been declining, by comparing to September 12th 2001.

And why not just provide the numbers so the NYT readers can make up their own minds? Of those Swedes who offer an opinion, 62% want to reduce immigration. Instead they avoid the subject by writing that most Swedes don't have immigration as their single biggest political concern.

* The immigrants interviewed are indignant and resent Swedish society. They don't accept even the mild criticism of radical Islamism that the Swedish media occasionally lets through. Worse still, they take it personally.

"“It’s hard to watch the news,” he said. “It’s Muslim this, Muslim that. Everything is about how bad we are. The Swedish won’t say anything to your face. But they say things.”"

This guy perceives Swedish television news being anti-Muslim! I worked briefly in Swedish Television when I was in college, the ideological atmosphere was exactly what you would expect. According to a recent survey 87% of journalists in Swedish television are liberal, leftist or socialist. I guess the reason that the guy is upset is that media grudgingly reports terrorist attacks and immigrant riots.

I have long been aware of and concerned by this deep resentment against Swedes and Swedish society among a large number of immigrants. It may be the most under-reported aspect of the problems (no poll has ever been conducted on this). When I was a child, I remember feeling this dark feeling myself. It is a bitter, dangerous sentiment that will never allow you to successfully integrate.

* This article could not possibly be written in a major Swedish Newspaper in the current intellectual atmosphere. The liberal New York Times is way too honest about the problems caused by non-western immigration to Sweden.

You have to admire America as effectively more democratic than conformist Sweden, where a small group of like minded people decide what facts the public can be trusted to handle.

Sunday, February 20, 2011

Islamists caused overwhelming majority of terrorist deaths in Europe during last decade

This is the blog post that has taken me the longest to write. I went through every single terrorist attack in Europe and North America in the comprehensive RAND Database of Worldwide Terrorism Incidents for the last 10 years (close to 4000 incidents). Terrorists were divided between Muslims or non-Muslims. When RAND does not provide information on likely or confirmed perpetrators and we have no strong suspicions, I assume they were non-Muslim, to err on the side of caution.

Most of Islam is of course non-violent. Surveys show that less than 10-30% of Muslims are openly sympathetic to violence in the name of Islam. I am therefore not writing about Islam, I am writing about Islamism, a minority political sect within Islam.

Looking at all people killed by terrorist attacks in Europe and North America during the last 10 years, 97% was committed by Muslim terrorist, or 4703 of 4873 killed. Most of this is September 11 alone.

Still, even if we exclude the September 11 attacks, the share of casualties due to Muslim terror is 91%.

A lot of the remainder are a number of deadly (and under-reported by western media) Muslim terrorist attacks in Russia. If we just look at Western Europe, the share of terrorist deaths caused by Muslim terrorists during the last 10 years is 79%.

The remaining 68 deaths out of 319 were committed by The IRA and other domestic terrorist. By comparison, the Madrid attacks in 2004 alone killed three times as many people than all attacks by ETA, The IRA, Corsican separatists, right-wing terrorists and all other non-Muslim terrorist attacks in Europe during the last ten years combined.

Remember, I do not include any Islamists terrorist attacks in the Middle East or South Asia or Africa or anywhere else other than Europe and North America. Based on State Department Data and to unimaginable horror these attacks appear to have killed in excess of 10,000 people per year during the last decade.


Unlike Neo-cons, I do not believe that radical Islamism is a threat to our civilization the same way Nazism or Communism ever was. The reason is that militant Islamism is too disorganized.

Lack of organization makes it hard to eradicate militant Islamism, as is no center of power you can knock out to end the war. However it also means Islamists are unable to concentrate the force required to really threaten us. At worst, they can kill a few thousand innocent civilians, which is of course horrible, but hardly on the same civilization-threatening level as Nazis exterminating millions or Communists threatening to eradicate Europe with nukes.

Second, unlike Communism and Fascism, militant Islamism has little attraction as an ideology in the West. During the cold war communist sympathizers infiltrated governments and other key institutions in the United States and Western Europe. Communist American scientists stole U.S military technology and helped Stalin build nuclear weapons. The same will not happen with regards to radical Islam. Today there are very few American scientists who are True Believers (Useful Idiots) and likely to steal nuclear secrets and give them to Bin Laden.

However what does annoy me is when the elite uses statistics to manipulate the public.

In Sweden the public is currently worried about Islamic terror, after two recent incidents with Islamist terrorist. Once again the elites, (media, politician and academics) have ganged up against the public and are trying to downplay the terrorist threat from militant Islam.

You see, while ordinary citizens may have gotten the impression from the nightly news that adherents of militant Islamism are statistically overrepresented in terms of international terrorism, the Enlightened Classes know better. The real reason the poor fools in the public believe there is a link between militant Islam and international terrorism is "islamophobia".

There was a debate in the parliament recently. Both the Social Democrats and the other parties in the left claimed that the main terrorist threat to the Swedish public today is not radical Islam, but right wing extremism...

The Green party representative explained that terrorism "is about emotional and social aspects rather than ideological ones".

This is the left, but the right is not much better.

So how in god's name would you convince the public of the preposterous claim that militant Islam is not the main terrorist threat in Europe? Their method is interesting, both in showing ingenuity in finding ways to trick the public, and stupidity in what they are willing to convince themselves of. The solution is namely to rely on the number of terrorist attacks, rather than on casualties from terrorism!

In Spain and Northern Ireland in particular, there are lots of tiny terrorist attacks by domestic terrorists every year. These attacks typically don't kill anyone, and often don't appear aimed at killing anyone. Characteristic examples from the RAND database:

"The headquarters of the Spanish Socialist Workers' Party (PSOE) in Baranain had several windows broken when it was attacked with stones. The damage is estimated at 50,000 pesetas."

"A group of radicals attacked a Renault dealership by setting a fire which damaged three vans belonging to the firm. A container of flammable liquids and firework rockets were used to start the fire."

Al-Qaida on the other hand specialized on a few spectacular attacks aimed at killing as many as possible.

Thus if we ignore the deaths and treat each attack as equal, you can show that Islamists commit a smaller number of terrorist acts than domestic terrorists. This method absurdly assumes that bringing down the Twin Towers on September 11 is equal to ETA vandalizing some property in Spain (each is one attack after all).

This is for instance what Sweden's largest daily DN does, using a report from Interpol about the number of terrorist incidences in Europe, and concluding that "Islamists terror attacks are unusual in Europe".

My calculations show that DN is misleading it's readers. As usual, when it comes to issues shrouded in political correctness, the public is better off relying on their own impression than "scientists" and "experts" in the media.

Thursday, February 17, 2011

The crisis of Social Democracy in Scandinavia

The Swedish Social Democrats are currently in disarray. A party that alone held power virtually uninterrupted for most of the 20th century currently only has support of about 25-28% of voters.

I am not going to offer them advice how to recover, since I am their ideological opponent, and I myself would never trust that advice from my ideological opponents to be in my best interest.

Most of the explanations offered for the meltdown relies on uniquely Swedish events and recent phenomenon. However the exact same thing happened in Denmark and Norway. Moreover, the Swedish Social Democrats have been slowly declining for decades, which was obscured by a couple of odd victories following the 1990s financial crisis. So most likely the explanation for the decline has a systematic component and is common to all three Scandinavian countries.

One explanation is reduced class-consciousness among the working class, who are also becoming a smaller share of the population. There is not much the Labour parties can do about this.

Another explanation is resistance of working class voters to immigration. The Scandinavian working class have been hit hardest by the adverse impact of non-western immigration.

* First, working class neighborhoods have turned into ghettos, forcing them to either move out or live with high crime, troubled schools and other negative social externalities.

* Second, unskilled immigrants put downward pressure on wages and employment.

* Third, immigration costs billions of dollars, which means less money over to welfare state services.

* Lastly, the immigrants don't have Lutheran work ethics and strong social pressure not to abuse the welfare state like the Scandinavians. Many non-western immigrants take full advantage of all the generous benefits, and some cheat if they can. This behavior has forced the Scandinavians to make social insurance payments less generous for everybody, and to introduce harder controls. The unintended consequence is that a 55 year old Swedish working class women with health problems cannot get early retirement as easily as she could in 1985, because the system has become less trusting to everyone due to abuse.

Working class voters are also less likely to benefit from immigration in the form of cheaper services (working class Scandinavians cannot afford maids), and unlike the middle class they don't even pretend to enjoy Iraqi and Albanian cultural expressions.

Instead of reforming policies, the reaction of the Social Democrats to failed integration has been to ratcheted up pro-immigration propaganda. As a consequence, many of the working class feel abandoned by the Social Democrats, and are in turn abandoning them in favor of populist anti-immigration parties.

These graphs illustrate the development since the start of the Era of Social Democratic Dominance in 1936.




In Denmark the Social Democrats are expected to make a come-back in the next election. This lends support to my hypothesis, since the Danish Social Democrats have gone the furthest in giving up on multiculturalism and mass-immigration.

Sunday, February 13, 2011

Are we worse off than in 1973?

Tyler Cowen has a new book out, called The Great Stagnation. It is reviewed by anti-immigration pundit Steve Sailer.

Sailer makes a familiar argument, which is that while the rich are getting richer, ordinary Americans have experienced no improvement in their standard of living since 1973, and perhaps even a detritions (1973 is used because that was the height of the post-war boom).

He argues that while entertainment and plastic toys have become cheaper, the things that provide deep life satisfaction for the middle and working classes have become more expensive. This includes a nice home in a safe neighborhood and college for your children.

It is common for free-market economists to dismiss this line of reasoning. I don't want to do that, so let me note from the beginning that:

* While technological change, unskilled immigration and trade/outsourcing have helped the upper half, they have likely hurt working class Americans.

* The standard of living was improving rapidly for all between 1946-1973, whereas 1973-2008 at best provided slow and uneven improvement.

* When measuring standard of living, it's not enough to look at the price of consumer products such as laptops. The cost of keeping yourself and your children socially in the middle class - for example sending them to college or even having a stay at home mother - should be included.

However, I disagree with the claim that things are worse than 1973. This is based on relying on one data-set, which is the median hourly wage for non-supervisory production workers as measured by BLS, inflation adjusted by the CPI. But these wages for in total account for less than 40% of national income, and CPI-adjustment is not perfect.

Other data-series tell us a less pessimistic story.

Adjusting for inflation, the Census Bureau measure of median household income increased by 10% between 1973-2008. This is a broader and in my view better measure of income than BLS wages.

Contrary to popular perception, aggregate hours worked per adult are no higher than in 1973. Furthermore, this comparison does not take into account changing demographics. Compared to 1973, America has taken in millions of unskilled Hispanic workers, who earn less and depress the median. If we look at non-Hispanic white households, real median income increased by 15%. For African Americans, real median household income increased by 22%.

Sailer, liberals and paleo-conservatives are convinced that the CPI under-estimates inflation (so that using CPI over-estimates growth). However the Boskin Commission which studied the CPI carefully concluded that the CPI massively over-estimates inflation (and thus leads to underestimation of growth). This is because CPI cannot fully measure technology driven quality improvement, the value of completely new products, and cheaper outlets such as Wal-Mart.

Here is one area where I am not willing to back off even one inch from economist-conventional wisdom. On inflation of consumer goods, Boskin is right and Sailer is wrong.

Another data point is the Survey of Consumer Finance, which measures wealth. Real Median household wealth was $40.000 in 1970 and $88.000 in 2009 (after the crash).

You might argue that it is becoming cheaper to buy "stuff", but more expensive to buy truly "important things" like housing, health care, education for your children, and that the latter matters more for your well-being than I-pods. But people still spend a huge share of their income on "stuff", before they spend on "important things". Here I rely on The Consumer Expenditure Survey. Unfortunately it doesn't go back to 1973, so I will use the last available comparable year, 1984.

I will look at the middle 20% of the population. One result that jumps at you is that the middle class now pays much lower taxes, taxes are down by about $2.000 per household.

Let's define "stuff" as food, clothing and services, transportation, utilities, fuels, and public services, household furnishings and equipment, housekeeping supplies, personal care products and services and entertainment.

The price these has decreased, and the quality improved. In 1984 "stuff" was 62% of expenditure, compared to 52% in 2009. In absolute numbers, it declined from $25.000 to $21.000. Of course $21.000 in real dollars today for instance buys you a better car than in 1973.

Expenditure on "important things", which is housing, health care and education, increased from 37% to 45%. In absolute numbers it went from $15.000 to $18.000. This underestimates the increase, because employer provided health care is also paid through forgone wages. Still, since people spend such a large share of income on it, you can't just dismiss "stuff" when discussing the quality of life. Even if you believe that it is unimportant, reduced cost of "stuff" means people can more money over to spend on the things they truly care about.

I have also calculated my preferred comparison of income between 1973 and 2008. This relies on measures of aggregate personal income from National Account, calculated by the Bureau of Economic Analysis. These figures have a broader definition of income (I believe the broadest available), and a different inflation adjustment.

I have used measures of the share of national income that goes to the rich from Saez and Pickety. The ten percent richest were those who, in real dollars, earned more than $86,000 in 1973 and more than $112,000 in 2008. I remove the share of income that goes to the ten percent who make more than this. I call the remaining 90% of the population "Lower and Middle classes".

Per capita national income closely follows the rate of GDP growth. Between 1946-1973, overall per capita income increased by 2.4% annually, and 2.6% for the Lower and Middle classes.

Between 1973-2008 per capita income increased by 1.9% per year. This confirms that Tyler Cowen is right about lower growth rate than the Post-War Golden Age, but also that people who suggest zero growth are wrong. However inequality increased during these years, so the per capita income of the Lower and Middle classes only increased by 1.1% per year. Still, 1.1% is not zero, the per capita personal income of the Lower and Middle classes is now one and a half time higher compared to 1973, adjusted for inflation.



Lastly Sailer anecdotally discusses the cost of going to college and buying a home when he was young.

The Median home in 2010 dollars went from $160.000 in the 1970s to $221.000 in 2010. This does not guarantee that the quality is the same, but overall prices have only increased somewhat.

I looked up the cost of higher education from the College Board.

In 1980, Full Tuition plus Room and Board cost $14,700 in Private College and $6,700 in public college (in 2010 dollars). In 2010, the figures were $37,000 and $16,100. For my non-American readers it could be important to keep in mind that most students don't pay full tuition, that this does not include all the public subsidies for higher education, and that two thirds of Americans go to public universities.

So if you have two kids, and send one to public and one to private school, and pay for everything in undergraduate (they will borrow for graduate school themselves), the real cost went from $86.000 in 1980 to $213.000 in 2010. If we add the increase of the cost of a median house, this is close to $200.000 more a middle class family has to pay to stay in the same place they were four decades ago. Or force their children to do what I did, borrow yourself for your own cost of education.

I find a mixed picture, but also pretty strong arguments that "ordinary people are worse off than 1973" is not quite true. In particular, I want to warn people that the BLS median hourly wage figure is not the only measure of income, and likely not the best. It would be more fair to say that ordinary people are worse off compared to what they had a right to expect. They are perhaps also worse off compared to what alternative economic policies would have resulted in, most obvious being a high-wage policy which limits unskilled immigration.

Tuesday, February 8, 2011

America wrong continent for High-Speed Trains

Today the White House released a plan to invest anther $53 billion in High-Speed rail.

The New York Times headlines this "U.S. Plays Catch-Up on High-Speed Rail", admiring High-Speed trains in China and Europe. Basically, the American Left argues that since Western Europe and China have high-speed rail, and since they believe that Western Europe and China have better economic policy than the United States, we should emulate them and build fast trains.

I often argue that European style policies will not work in America because of demographics and cultural differences. I can understand that not all readers are convinced that Americans are that different from Europeans. However, I hope every reader accepts that the U.S is geographically different from Europe and Asia.

High-Speed train countries Spain and France have 3 times higher population density than America. China has 4 times higher, Germany 7 times higher, Japan 10 times higher, South Korea 15 times higher and Taiwan 20 times higher population density than the U.S. Germany is more densely populated than New York state, and China more densely populated than California.

Countries that like America have a lot land compared to people, such as Canada, Scandinavia, Russia and Australia have not made any large scale investments in high-speed trains.

Let me illustrate this graphically. I take the total high-speed miles from The International Union of Railways, and plot the density of the high-speed-rail network with population density.


The United States is not an outlier as the White-House suggests, the U.S is exactly where our population density would predict. Only after President Obama's plan will the U.S become a outlier, a country with more High-Speed Train that population density would predict (the figure after Obama's plan is my estimate based on White House material).

High-Speed trains are not only expensive, they are slow when compared to air-travel. Take one of the least crazy high-speed train projects, connecting Los Angeles and San Francisco. The White House estimates are that this trip will take 2 hours 40 minutes. The same trip by commercial flight takes 1 hours 20 minutes. Even if you add an extra one hour for security check, the trip is faster by air (you also have to drive to the airport, but the same is true for trains).

After the first terrorist attack against high-speed trains, the security advantage would diminish. If we really wanted to and had an extra $53 billion over, we could invest in flying faster, in making the security process more effective, or (most sensibly) improving the high-way system.

Another fact Liberals ignore is that air-travel is cheaper in the U.S, costing about half per mile of what it does in Europe (perhaps due to economies of scale and higher competitiveness).

Investing in High-Speeds trains is likely a "White Elephant", a massive visible project that gets politicians attention, but is a bad deal for tax-payers. I hope we are not building it just to fulfill juvenile fantasies of making the U.S more like Europe.

Sunday, February 6, 2011

Blue State and Red State IQ is identical

The American left often congratulates itself on being smarter than the right. On the surface, this claim sounds plausible, since academics are disproportionally Democrat, and since some of the states most associated with poor educational outcomes (such as Mississippi) are solidly Republican.

The first problem with this line of argumentation is that it is lazy. The assumption is that if smart people vote Democrat, that in out of itself proves Democrats are right, without needing to prove the Republicans wrong in substance. However, like everyone else, the educated vote based on class interests, cultural identification and the ideological atmosphere of college, not just cold rational analysis of policy differences.

Second, there is actually no scientific evidence for the claim that Democrats are smarter, since no American political science database of voting to my knowledge collects IQ-data. Data on education and voting shows that Democrats and Republicans have identical average years of education. Democrats are over-represented among the most educated but also among the least educated, while Republicans have the middle.

Third, these voting patterns are constantly shifting, and differ across countries (and even within U.S states). As late as 1988 the educated voted overwhelmingly Republican. Through friends in Sweden have access to a high-quality dataset of IQ and voting, which confirms that Swedish Social Democrat voters have lower test scores than Swedish conservative voters. The fundamental arguments between pro-market and pro-government are the same in Europe and the United States. But the American left would never accept that the European right has superior arguments just because their voters have higher IQ than the European left (nor should anyone accept this premise). Yet the same liberals try to bully people in the U.S to vote for them based on the claim that Democrats are smarter than Republicans.

To make things worse, unlike Europe the American left have not taken the time to demonstrate their claim using actual test-score data. Democrats instead simple assume that they are smarter than everyone else!

This theory can ultimately only be evaluated using individual level data. The next best thing is analyzing proxies for state I.Q. Let me caution that this is problematic. Regarding income Andrew Gelman and others have shown the paradox that while Democrat States are on average richer than Republican States, Democrat voters are on average poorer than Republican voters.

Part of the explanation is that in Red states the poor vote Democrat and the rich Republican. Uneducated whites in the South, the demographic group the media likes to paint as bigoted Republicans, actually went close to 45% for Obama, perhaps because they earn little and didn't mind a little redistribution. McCain's margin in the South came from educated whites, a detail the media prefers to ignore since it contradicts their stereotypes.

I will use this paper in the prestigious journal Intelligence to get estimates of state I.Q, based on NAEP test scores.

If you just glance at the list, you might get the impression that the Blue states are indeed smarter than the Red states. I define Red states based on the 2004 Bush map, so New Hampshire is defined as blue and New Mexico as Red.

4 out of the top 5 are Democrat:

1. Massachusetts (D)
2. New Hampshire (D)
3. North Dakota (R)
4. Vermont (D)
5. Minnesota (D)

And 3 out of the 5 bottom states are Republican. Although the author doesn't include the District of Columbia, which would have had the bottom slot if included.

46. New Mexico (R)
47. Hawaii (D)
48. California (D)
49. Louisiana (R)
50. Mississippi (R)

However, looking more carefully at the list, the results are not that consistent. Red Midwestern and Mountain states such as the Dakotas, Montana, Kansas, Nebraska, Wyoming and Idaho do quite well. Meanwhile, large blue states such as California, Maryland and Illinois have unimpressive scores. So let's just estimate the average for all the Red states, and all the Blue states, weighted by the population of each state.

The result is not really surprising: The average I.Q level of Blue and Red States is identical: Blue States have an average IQ of 99.5 and Red States have an average I.Q of 99.4.

It would be strange if we found large differences, since we know from exit polls that Republican voters are on average no less educated than Democrat voters, and since I.Q and education are strongly correlated.

If the District of Columbia is included, the Red States would score slightly higher than the Blue states (although with I.Q a 1 point difference is meaningless).

Unless Democrats can produce a micro-study of adult voters that demonstrates that Democrat voters have significantly higher I.Q than Republican voters, they should respect the state of science and stop spreading the myth that they are smarter than everyone else.

P.S.

Here is the full list of states and estimated IQ:

1. Massachusetts 104.3
2. New Hampshire 104.2
3. North Dakota 103.8
4. Vermont 103.8
5. Minnesota 103.7
6. Maine 103.4
7. Montana 103.4
8. Iowa 103.2
9. Connecticut 103.1
10. Wisconsin 102.9
11. Kansas 102.8
12. New Jersey 102.8
13. South Dakota 102.8
14. Wyoming 102.4
15. Nebraska 102.3
16. Virginia 101.9
17. Washington 101.9
18. Ohio 101.8
19. Indiana 101.7
20. Colorado 101.6
21. Pennsylva. 101.5
22. Idaho 101.4
23. Oregon 101.2
24. Utah 101.1
25. Missouri 101
26. New York 100.7
27. Michigan 100.5
28. Delaware 100.4
29. N. Carolina 100.2
30. Texas 100
31. Illinois 99.9
32. Maryland 99.7
33. Rhode Island99.5
34. Kentucky 99.4
35. Oklahoma 99.3
36. Alaska 99
37. W. Virginia 98.7
38. Florida 98.4
39. S. Carolina 98.4
40. Georgia 98
41. Tennessee 97.7
42. Arkansas 97.5
43. Arizona 97.4
44. Nevada 96.5
45. Alabama 95.7
46. New Mexico 95.7
47. Hawaii 95.6
48. California 95.5
49. Louisiana 95.3
50. Mississippi 94.2

Monday, January 24, 2011

Moderate Tax Sweden

The economic success of Sweden has been one of the most powerful arguments of the left. If taxes are bad for the economy, why does the country with the highest tax rates in the world have an widely admired standard of living?

My argument, that Scandinavians due to their culture (work ethics, cooperativeness, trustworthiness, civic-mindedness etc.) are more productive than other westerners, doesn't work in Sweden. The reason is that Swedes are like fish in the water with regards to their norms and culture. They are generally not aware that they and other Scandinavians are much better behaved than other westerners. Instead the public and the elites naively attribute Sweden's better functioning society to the Social-Democratic welfare state.

This makes it difficult to argue against the welfare state for true believers. As for foreign liberals, the challenge is even harder, since outsiders can only remember a few facts about any small society (Sweden=blondes=well organized=affluent=welfare state).

So how did free-marketers ultimately convince the Swedish public to reform the welfare state? The answer lies in the details of modern Swedish economic history, something which Swedes are aware of but outsiders often are not.

You see, Sweden had very high rates of growth when the welfare state was only slightly larger than other developed countries. The period 1870-1970 is sometimes mentioned, when Sweden had the second highest growth rate in the world, below only Japan.

For simplicity, let's focus on the post-war period. At that time, the Swedish public sector was only slightly bigger than other developed European countries. And for the next two decades, Sweden's Golden Age, the expansion of the welfare state was no faster than average. Around 1960, Sweden was not an outlier in terms of economic policy. The welfare state only exploded in the late 1960s when the left was ideologically radicalized and the right marginalized.

What happened consequently turned out to be the doom of Social Democracy. The rate of growth slowed. This is not only relative to poor European countries that were catching up after the war, but also countries on the technology frontier such as the United States. Sweden lost ground in terms of living standards, while exports slowed and employment stagnated.

The expansion of the welfare state stopped by 1990, and slowly the country began to reform. There was economic and political chaos because of the (largely coincidental) 1991-1993 economic crisis, which makes it hard to tell a consistent story for those years. However it is undeniable that the Swedish state has been in retreat from 2000 onward, not the least thanks to Fredrik Reinfeldt and Ander Borg.



Coincidentally or not, economic performance is back up.


Sweden is becoming a moderate tax country again. This has made my life much easier when debating taxes and economic performance with leftists who refuse to acknowledge the innate superiority of Swedish work ethics. Soon, it will be very hard to paint Sweden as a Socialist Utopia. This is not because it is no longer Utopian, but because the country is no longer that socialist (at least in economic policy). This development also means my personal taxes have gone down a lot, although to be honest as a tax-nerd I care much more about the implications for the policy-debate.

Thursday, January 20, 2011

Breaking Matt Yglesia's Heart

Matt Yglesias is one of the smartest left-of-center pundits. He is rare because he is both knowledgeable about social science and capable of applying it to public policy. Informing policy is the main purpose of social science, so it's good to have a few guys around who can act as links between scientists and pundits.

Yglesias is clearly fascinated by the Nordic countries. He belongs to the majority in the American (and Scandinavian) left who believe that favorable social outcomes in Nordic countries are caused by welfare state policies. If America copied Nordic policies, America would achieve roughly the same outcomes.

I belong to the people who believe that Scandinavia, like Japan, is a cultural outlier. Scandinavians score unbelievably high on things such as work ethic, trustworthiness and cooperation. This interpretation of causality is different: Scandinavians has a large welfare state because they are homogeneous and culturally unique. When other countries (say, southern Europe) copy Nordic policies, the results tend to be worse, because the population is different.

Perhaps the most important social outcome is educational attainment. The fact that the United States has a large achievement gap in education is the root cause of many problems and injustices (the only comparable inequality is crime, but crime is probably to a large extent due to the lack of human capital). In comparison, lack of material wealth is not a major problem in the United States, as African-Americans and Hispanics earn about the same income as the average in Western Europe.

If liberals are right about the fact that America could eradicate the ethnic education gap through copying Scandinavian policies, it would be a disgrace if we didn't do it immediately.

However, empirical evidence suggests that liberals may be wrong about this interpretation of causality. The reason I can claim this with confidence is because I know that the achievement gap in Scandinavia is roughly the same as in the United States. Until recently ethnic minorities were very few in the Nordic countries, so the achievement gap didn't influence the mean score, and was not apparent to outsiders. But not anymore.

During the last 3 decades, the foreign born population in Sweden, Norway and Denmark (but not so in Finland and Iceland) has grown exponentially. First and second generation immigrants from outside of Europe are now over 10% of Sweden's population.

It turns out that the Nordic school system and society at large is no better at closing the achievement gap than America, or at least not yet. One reason may be time. Contrary to conventional wisdom among liberals, the United States has been trying hard to close the achievement gap since at least the 1960s, with a lot of resource and some success. Scandinavia is just starting to become aware of this issue.

Let's also repeat the obvious: The American public school system is simply superior to the Scandinavian system, because America is richer and can afford to spend much more on public education.

Before presenting you with statistical evidence, let me cite Scandinavian sources; if you don't trust me perhaps you will trust them:

DN (largest daily newspaper in Sweden), 2010:
"Only 25 percent of students born in Somalia finish primary education with grades sufficient to qualify them for entering college, compared with 82 percent of students born in Finland. [and 91 percent of native Swedes]"

Swedish National Agency for Higher Education 2009:
"Few students with African origins continue to college"

Skolvärlden (Swedish Teacher Union Journal) 2010:
"Children who have immigrated to Sweden leave the ninth grade with significantly worse scores than children born in Sweden. This is regardless of whether they have received throughout their primary education in Sweden or not."

OECD, The Labour Market Integration of Immigrants in Denmark, 2007:

"the gap in educational attainment between the second generation and persons of Danish origin has grown substantially over the past decade....there is a divergent trend, similar to what has been observed in Germany"

"the second generation in Denmark has an about 20% lower chance of completing a qualifying education than Danes without a migration background."

"about twice as many students from the second generation drop out of upper secondary education as do students of Danish origin"

Statistics Norway, Immigration and immigrants 2008:
"Large differences [between immigrants and natives] in education levels"

"Source Country Differences in Test Score Gaps: Evidence from Denmark"

"even adjusted [for socioeconomic characteristics] gaps [in PISA between native Danes and first and second generation immigrants] remain sizeable and statistically significant. The adjusted gap is largest for students from Lebanon (0.80 SD), somewhat smaller for students from Turkey and former Yugoslavia and Afghanistan (about 0.55 SD), and smallest for Pakistan (about 0.25 SD). Thus, while the results indicate that a major portion of the test score gaps can be attributed to less favorable socioeconomic background factors of immigrant students, educational achievement of young immigrants is poorer than that of native Danish youngsters even after conditioning on the socioeconomic status of their family."

Most of the immigrant population with social problems in Scandinavia is from the Middle East and Southeastern Europe. These groups have few problems in the United States.

However when I pointed this out, many readers remained unconvinced. They want me to look at African-immigrants in Europe, the group considered most comparable to African-Americans. When data is available I will present the figure for all Africa, and when it is not for whatever large group that is available. There are few Mexican immigrants in any Scandinavian country so while a good comparison group for Hispanics is hard to find, I will show you some figures for Chileans.

I will attempt as much as possible to look at children who were born or grew up in Scandinavia, and not recent immigrants. I will look at both Sweden and Norway. From what I understand the situation is even worse in Denmark.

Let's start with the biggest problem in America, the ethnic achievement gap. For High-School, I use Heckman's figures rather than Census data, because there is reason to believe that Census figures under-estimate the gap due to the GED. For college I use Census data.




This we already knew. But how about Scandinavia? Not a pretty picture.








There are some exceptions, such as the high-School enrollment rate of Ethiopians/Eritreans in Norway. However the overall results cannot be denied: There is a massive Majority/Minority achievement gap in Scandinavia, comparable in size with the gap in the United States.

Keep in mind, Scandinavia is doing so poorly despite the fact that the minority population is small, no more than 5-10% of the student population. In the United States, the figure is closer to 40% of pupils.

It would be interesting to see how the left explains this pattern, given that they believe that the Nordic social system (rather than Scandinavian norms and culture) is superior to the American one. If that's the case, why are those without Scandinavian culture doing so poorly under the exact same system? And why are Scandinavians doing so well in the United States, under another system?

My contrarian conclusion is that the Nordic countries should be learning from the American public school system and how it deals with disadvantaged students. In particular, it is important to spend much more, put a lot of emphasis in teacher education, and build external support structures outside the classroom. Another important task is to make sure immigrants children speak the language as well as possible. The politically correct emphases on home-country-language instruction in Swedish schools may be harmful.

One important thing America can learn from Scandinavia is daycare, as James Heckman has argued.

One reason immigrants are doing poorly in Sweden and Denmark is ironically that their parents don't take advantage of day-care, even though it is virtually entirely tax-financed. One reason is that daycare is linked to having a job, which is a terrible idea (children of parents without jobs need daycare most). Another reason is that Muslim immigrants don't want their kids to adapt Swedish values. Perhaps in time we should move to make daycare mandatory in Sweden, with exceptions where it is needed.