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    February 2011

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    Maxine's Essays

    • 21st Century Regress
      Sometimes it seems like the world is going to hell and there's absolutely nothing a girl economist can do about it.
    • What Exactly Are We Crowding Out?
      The current economic downturn isn't a random draw of a black ball from an urn containing white balls and black balls. There's no sampling distribution. Very specific policies and actions landed us here. Now we must decide not only what policies need to be put in place to prevent it happening again, but also what policies would best drive us out of the ditch faster and sustainably.
    • I Wish It Were Only Butter
      We should be giving up some butter if we must. We should not give up education or health investment (or infrastructure or the environment (hello, BP). They may be the only legacies of any value that we pass on to our children and grandchildren.
    • Rational Health Investment?
      The obvious "market solution" is to improve the long run return on investments in health among the disadvantaged through meaningful and effective publicly funded education. The obvious short run "market solution" is to reduce the costs of investment and the shadow price of health for the disadvantaged by providing health insurance cover and reduced out-of-pocket costs.
    • The Socrates Parameter
      To the extent that our limbic systems respond to such engineering by over-riding the judgment of our frontal lobe and to the extent that our frontal lobe is deprived of the information it requires to make a rationally self-interested judgment, we are not only pigs and fools, we are slaves.
    • The Economic Rewards of Virtue
      If individual virtue tempers our "piggy" desires and conditions our choices to something that is both individually and socially better, then the economic rewards of virtue as embodied in and promoted by societal norms and institutions are far greater than we have ever suspected. As economists, we would do well to recognize this when we teach U max.
    • The Market for Morals
      Markets then are places where more is exchanged than goods and services, labor and product, credit, and interest. They are places where we also develop the personal virtues of temperance and prudence and the social virtues of benevolence and justice. When they function well, they produce trust, loyalty, and sympathy among those who trade there.
    • Post-Modern Applied Economics: It’s the Error Term, Stupid
      Maxine believes it’s time to refocus attention and discussion on the error term. It is often where much of the action is in our models. It is where unexpectedly catastrophic events dwell resulting in fat tails. It is where our animal spirits manifest and cause us to do the right thing or the wrong thing or the thing everyone else is doing rather than the self-interested, fully-informed rational thing. It is where God and miracles and chance dwell.
    • Intergenerational Win-Win: Health Insurance, Education, Environment, Infrastructure
      So when we’re talking about fiscal stimulus packages and we’re borrowing from our grandchildren to finance them, we should be thinking about how to use stimulus monies to create value for those grandchildren AND stimulate our economy.
    • Short-term Private Payoffs, Long-term Social Costs
      The real health reform discussion, the one we should be having, is “What must we do to create a health system that is both efficient and fair?” The answer will almost certainly include relegating the private sector to markets where market forces or regulation are effective at aligning short-term private incentives and goals with long-term societal interests. If such markets are scarce or non-existent in health, then the private health sector will be of limited value.
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    I strongly feel that this post is nonsense!!!

    To follow up: Our society already has a forum where intelligent people make big vague guesses about society, history, politics, and economics, and where people try to browbeat others into accepting their personal moral philosophy. It is called the COLLEGE DORM ROOM.

    Also, blogs.

    To replace empirical science with big vague guesses about complex systems, and to replace descriptive economics with opinion-based moral philosophizing, would be to gut academia as a useful institution.

    I do not accept your opinions about what is morally right for an individual or society. They are opinions, and I disagree with your assertion that progression toward your own opinions is what constitutes "progress" for society.

    neither of my updates appears cast in concrete, yet, maxine, they wont vote till next week:

    Four Governors Seek More Federal Aid for States - Yesterday, Governors Jim Doyle (D-WI), Chris Gregoire (D-WA), Mark Parkinson (D-KSA), and Ed Rendell (D-PA) sent a letter urging Congress to reinsert $24 billion in additional Medicaid funds for states, that would free up other money for other projects. Earlier this year, we reported on the trend of states' using the Medicaid matching fund program to paper over state budget shortfalls (and drive Medicaid toward insolvency):

    Those states most likely to adopt this scheme of enacting or expanding hospital taxes as a way of obtaining federal funds are likely to be the states facing serious budget troubles, especially involving Medicaid payments. These conditions are present in many states recently. With the American Recovery and Reinvestment Act of 2009 increasing the federal matching rate by an average of 8.7%, states have even more incentives to take advantage of hospital taxes.

    Interesting post.

    Is there a good condensend source of Adam Smith's philosophy you could recommend? i.e., not Theory of Moral Sentiments (ToMS) and Wealth of Nations (WoN). I think I would find a more detailed discussion of his philosophy very interesting, but I am hoping someone else has already taken ToMS and WoN and condensed them, maybe with a little modern-day commentary, for lazy people like me. (Mainly, I think some of Smith's longer digressions on idiosyncratic topics of the 18th century would put me to sleep.)

    - Jeff V

    Good idea, Jeff! I would recommend Jerry Z. Muller: Adam Smith, In His Time and Ours (Princeton U Press); also Muller has a good chapter on Smith in his book, The Mind and the Market: Capitalism in Modern European Thought (Knopf). I use it in a course on ethics and econ that I teach at a B-school. The whole book is a really worthwhile read.

    I would also recommend Jerry Evensky, Adam Smith's Moral Philosophy: A Historical and Contemporary Perspective on Markets, Law, Ethics, and Culture (Cambridge U Press).

    All the above are highly readable.

    And I would strongly recommend Gavin Kennedy's blog, Adam Smith's Lost Legacy, at as a far more authoritative source than anything I have written about Smith. Kennedy, like Muller and Evensky, is a Smith scholar.

    The comments to this entry are closed.

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