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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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    "Specifically, they will be struck by how that fear gives rise to a near rabid reluctance to tax those same investment bankers. Investment bankers whose speculative activities destroyed working and middle class families' jobs, neighborhoods, and dreams, and saddled them with mortgage debt and bank and credit card fees they can't afford."

    This is something that really amazes and confuses me these days. There are so many people who are quite willing to absolve investment bankers from any sort of responsibility in these matters. One of the dominant themes is that this whole financial crisis/disaster was caused purely by government meddling. For some, the supposed "free market" is pretty much a flawless entity, so fault HAS to be located elsewhere. Amazing. I mean, empirical evidence doesn't matter--it become a pure ideological issue.

    That's why I appreciate your points about the need to limit power in various institutions, state AND private. I agree with you that it's the accumulation (and abuse) of power that's the problem.

    Anyway, great post. I think this kind of econ/sociological work is really fascinating and important, especially considering the ways in which some people understand economics these days.

    By the way Maxine, have you ever read "Liquidated" by Karen Ho? It's an ethnography of Wall Street, and considering this post, I think you might like it. I'd be interested to hear your take on it.

    I have not read the book, Ryan, but will look for it and add it to my growing pile of "must reads." Thanks for your comments. I enjoy visiting your blog, too.

    There are quite a few impulses at work here. Just one is that societies that need to stick together to survive (against external threats, or just the environment) tend to emphasise the role of fate or luck, and downplay individual talent and disapprove of outward display. Washington or Jefferson, with their knowledge of the early Roman Republic, would have approved - "one for all and all for one". See, in US history, the "great compression" that followed World War II: ttp://

    For a really good view of how having a valued role in a group can change the relevant attitudes, check out the black woman welder in the documentary "The Life and Times of Rosie the Riveter".

    Thanks, Peter. I have seen the graph and should have linked to it. Thanks also for the tip on Rosie the Riveter. It doesn't seem to be available for free online. I'll track it down and buy it if I have to.


    The film is available from here:

    Not to be confused with an anodyne documentary just called Rosie the Riveter.

    I first saw it at university, and it made me think about how different kinds of work structure attitudes and social relations - and lead to very different outcomes in terms of pay and conditions.

    Thank you, Peter! :-)

    we still need a higher tax bracket for the casino managers:

    There's rich, and then there's rich -

    Pay dynamics there are usually chalked up to growth in "CEO pay", but as new research out of the Chicago School of Business indicates, CEO salaries are peanuts compared to the change being earned in finance: We also find that hedge fund investors and other “Wall Street” type individuals comprise a larger fraction of the very highest end of the AGI distribution (the top 0.0001%) than CEOs and top executives. In 2004, nine times as many Wall Street investors earned in excess of $100 million as public company CEOs. In fact, the top twenty-five hedge fund managers combined appear to have earned more than all five hundred S&P 500 CEOs combined (both realized and ex ante). This trend accelerated after 2004. In 2007, it is likely that the top five hedge fund managers earned more than all five hundred S&P 500 CEOs combined.

    I never thought of this before but start with USA add 111 gives VTB reverse gives BTV (Blame the Victim).

    By the way regarding your story about needing to believe you are in control, I have a somewhat different story in something completely different. It has to do with cricket and facing fast bowlers (maybe some other reader can follow). I used to think if my technique was correct, I couldn't get hurt. Then I got a ball that kicked from a length and hit me in the ribs. And I felt that I couldn't have done anything about it. It shook me up - not so much at the time (while the adrenalin was flowing, but afterwards).

    After that, I would quickly lose confidence, if I got any sort of erratic bounce. (Knowing what I know now, I would have bought a helmet - strangely even though I got hit in the ribs it was getting hit in the head that worried me.)

    Now that confidence, that I could be in control, was both an illusion, but valuable. Interesting.

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