CIAO DATE: 08/2008
Volume: 28, Issue: 1
Winter 2008
Friedman and Russia (PDF)
Andrei Illarionov
One day I asked Milton Friedman a question. That question was in my mind every time we met: "Could he have achieved the same status he did in America if he had lived in Russia-not only in terms of his research, but in shaping his outlook on life and in his understanding of freedom?" Having kept silent for a moment, he answered: "no."
Every time I think about his answer, two different voices start to argue inside my head. One of them is emotional and selfish and is hopeful that Friedman was wrong. And if fate was to place him in Russia, he could have achieved what he had achieved in America. He could have then made the same difference or even more. In this case I, as a Russian citizen, would have by far more chances to communicate with such a marvelous person. And my country would have a unique opportunity to grow through his knowledge. Probably in such a case my country would have been a bit different.
Another voice inside my head is rational and dispassionate and it frigidly acknowledges that Friedman was right. And that if he found himself in Russia, he would be lost to the country and the world and probably to himself as well.
An Indian Economic Miracle? (PDF)
Deepak Lal
In explaining the acceleration in Indian growth, and to judge if an Indian economic miracle is on its way, it is first necessary to establish when this acceleration began, as this is still subject to controversy. Second it is necessary to identify the sources of this acceleration and to see to what extent these are the results of policy. Third, to provide some reading of the tea leaves until 2030, it is necessary to outline the current constraints on growth. But before that, the current change in Indian economic fortunes needs to be put into historical perspective. This is done in the first part of this article, followed by the next three parts, which deal with the other three broad themes outlined above. As this article is in honor of Angus Maddison, I rely wherever possible on the growth accounting method that he has made so much his own.
Human Rights, Limited Government, and Capitalism (PDF)
Erich Weede
By and large, there are two distinct intellectual traditions in social theorizing. One is normative. It addresses how people should live or how the social order should be arranged. Much of the human rights discourse belongs to this tradition. The other tradition attempts to analyze the world as it is. Within this second tradition theories are evaluated according to criteria such as falsifiability, compatibility with known facts, explanatory power, or predictive value. If one is interested in feasibility, and if one links rights with corresponding obligations, then the separation between these intellectual traditions is regrettable. Then it makes little sense to generate long lists of human rights without knowing whether or not they ever can be implemented.
In this article, I argue that a short list of merely “negative” or protective human rights, which can be implemented, is preferable to a long list of “negative” and “positive” or entitlement rights, because the fulfillment of the latter requires an infringement of the former. Indeed, only a narrow focus on negative rights is compatible with a free economy, which alone provides the means to fund the material well-being of the masses—the objective of positive rights. Funding entitlements, however, undermines the viability of a free economy and thus appears self-destructive.
State Income Taxes and Economic Growth (PDF)
Barry W. Poulson, Jules Gordon Kaplan
This article explores the impact of tax policy on economic growth in the states within the framework of an endogenous growth model. Regression analysis is used to estimate the impact of taxes on economic growth in the states from 1964 to 2004. The analysis reveals a significant negative impact of higher marginal tax rates on economic growth. The analysis underscores the importance of controlling for regressivity, convergence, and regional influences in isolating the effect of taxes on economic growth in the states.
Occupational Licensing and Asymmetric Information: Post-Hurricane Evidence from Florida (PDF)
David Skarbek
Federal, state, and county governments accept the argument that occupational licensing protects consumers and improves their welfare. This argument stands in stark contrast to the apparent rent seeking that occurs with licensing. In return for gains from state-created barriers to entry, coalitions built along occupational lines support politicians (Stigler 1971: 3–21).
This article will show that government action in times of crisis is often inconsistent with its rhetoric. Licensing is typically justified on the grounds that market mechanisms will not mitigate the problems associated with asymmetric information. In the wake of Hurricanes Frances and Katrina, Florida reduced restrictions on construction contractors, yet in times of crises informational asymmetries are more likely to be problematic. By examining the volume of work completed, I find little evidence of significant detrimental effects from the policy change. Given the relative success of reducing restrictions and the government’s explicit recognition of licensing’s limiting effect on the availability of roofers, reform of licensing, at least to the extent done in crisis, should be adopted permanently.
The Collateral Source Rule: Statutory Reform and Special Interests (PDF)
David Schap, Andrew Feeley
Paul Rubin (2005) has addressed the evolution of American tort law from a public choice perspective. In contrast to earlier work in law and economics, which generally regarded tort law norms as efficient (Landes and Posner 1987), Rubin relied on more recent work in the field (Epstein 1988, Rubin and Bailey 1994) that regards tort law as being shaped by the special interests of plaintiff and (perhaps to a somewhat lesser extent) defense attorneys. In addition, Rubin envisioned business interests’ influence toward tort reform as enhancing efficiency. He ended his article with a call for additional empirical research on modern American tort law from the public choice perspective and indeed suggested a number of specific items and areas of possible fruitful research. The spirit of Rubin’s anticipated research program, as well as many of his specific suggestions, can be applied to our survey research findings concerning statutory reform of the collateral source rule.
Currency Boards vs. Dollarization: Lessons from the Cook Islands (PDF)
Richard C. K. Burdekin
Modern currency boards are not necessarily precluded from financing government spending and may feature only partial foreign reserve backing. The potential dangers are highlighted by the Cook Islands case, where accelerating rates of currency issuance, combined with rising government budget deficits, led to a crisis of confidence in 1994. It is unlikely that the seigniorage gained from the short-lived currency board experiment outweighed the costs associated with the swings in policy. In the end, delayed fiscal retrenchment was accompanied by an abrupt contraction in the money supply as the local currency was withdrawn in 1995 and full dollarization re-established.
Macroeconomic Effects of Central Bank Transparency: The Case of Brazil (PDF)
Helder Ferreira de Mendonça, José Simão Filho
Nowadays there is a tendency for central banks to increase transparency in the conduct of monetary policy. Central bank transparency could be defined as the existence of symmetric information between monetary policymakers and other economic agents. High degrees of transparency reduce uncertainty, improve the private-sector inference about central bank goals, and increase the effectiveness of monetary policy. There is now an increasing literature that measures the effects of transparency on average inflation, output volatility (Chortareas, Stasavage, and Sterne 2002), the efficiency of monetary policy (Cecchetti and Krause 2002), and the volatility of financial markets (Ehrmann and Fratzscher 2005).
On the Death of the Resurrected Short-Run Phillips Curve: A Further Investigation (PDF)
Masoud Moghaddam, James E. Jenson
In a recent issue of this journal, Richard Reichel (2004) takes issue with the resurrected Phillips curve (PC) in William Niskanen’s (2002) article. Accordingly, Niskanen’s reformulation of the PC provides empirical evidence for a weak, but statistically significant, short-run (in the same year) tradeoff between inflation and unemployment rates in the United States. Furthermore, the unemployment rate is directly and significantly determined by the one-period lagged value of the inflation rate, which implies an upward sloping PC, consistent with the type of PC explicated by Milton Friedman (1987). Reichel’s main point of contention is that the variables in the reformulated version of PC are nonstationary, meaning that statistical properties (such as conditional mean and variance) vary with time. Thus, Niskanen’s findings are spurious.
However, variables with the same order of integration, though nonstationary in level, can share a linear trend in the long run—that is, they are cointegrated. If cointegration is confirmed, then the implied error correction model (ECM) is capable of depicting longrun equilibrium along with short-term dynamic adjustments. In that spirit, Reichel examines inflation and unemployment data for the 1960–2001 period in the United States as well as in 15 industrialized nations for integration, cointegration, and error corrections. His overall findings suggest that there appears to be no evidence of cointegration between inflation and unemployment rates, although the short-term PC is observed in Italy and the United States. Most notably, the United States is the only nation in which the short-run PC has also been confirmed in the context of the implied ECM utilized by Reichel. Consequently, he concludes that the U.S. case is an exception to the rule, and that for all practical purposes the PC phenomenon appears to have been dead in the rest of the world.
Parrot Talk: The Repetition of Common Fallacies (PDF)
Anthony de Jasay
Many social scientists and political journalists keep parrots as useful labor-saving pets. These parrots are hidden in their masters’ bosoms and are so well trained that when they start talking, we believe we hear their masters’ voices. One can nevertheless recognize that it is the parrot holding forth, by the fact that it is always the same few texts that are repeated. Most of the parrots like one or other of the brief texts that are reproduced here in italics.
Book Reviews: The Healthcare Fix: Universal Insurance for All Americans by Laurence J. Kotlikoff (PDF)
Jagadeesh Gokhale
This book is about how and why a severe economic and financial crisis may well unfold in the United States within the next few years. The main reason: politicians have been increasingly profligate with the public purse—expanding government entitlement and nonentitlement spending, seemingly without regard for future economic consequences.
Book Reviews: See Government Grow: Education Politics from Johnson to Reagan by Gareth Davies (PDF)
Neal McCluskey
Only a dozen years ago, the Republican Party platform called for abolition of the U.S. Department of Education. Perhaps a holdover from what many thought would be a government-leveling tidal wave when the GOP won control of both the U.S. House of Representatives and Senate in 1994, the 1996 platform declared that “the federal government has no constitutional authority to be involved in school curricula. . . . That is why we will abolish the Department of Education, end federal meddling in our schools, and promote family choice at all levels of learning.”
Peter Van Doren
In theory, scientific (positive) and philosophical (normative) inquiry are quite distinct. The former involves the testing of hypotheses through the use of experiments or the estimation of statistical models using data, while the latter utilizes theological or philosophical analysis to conclude how people and institutions should behave...