Naked Economics (42 page)
Authors: Charles Wheelan
Can America get its fiscal house back in order?
The United States is the world’s largest debtor. We owe Chinese bondholders more than a trillion dollars. We’ve had to borrow heavily to pay our bills for the past decade. The sobering part is that some of our most significant government expenses lie ahead as the Baby Boomers retire and begin to claim Social Security and Medicare. The “peace dividend” at the end of the Cold War lasted about 45 minutes, so we seem stuck with large defense budgets for the foreseeable future. Math is math; every reasonable calculation I’ve seen shows that our fiscal trajectory is unsustainable.
So what will we do about it? U.S. society has developed not merely an aversion to higher taxes, but a palpable hostility. That would be fine if we were willing to trim government to a size that we could fund. But we haven’t done that either.
Think about what that means. Going forward, somehow we have to raise enough revenue to (1) pay for whatever government we choose to have, which we aren’t doing fully now; (2) pay the interest we’ve accumulated on past bills; and (3) pay for the new expenses associated with an aging population and expensive entitlement promises.
That’s going to require serious political leadership and recognition by Americans that the status quo is not an option. Simon Johnson, who had plenty of experience with financial crises as the former chief economist for the International Monetary Fund, has noted, “Overborrowing always ends badly, whether for an individual, a company, or a country.”
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During the first decade of the new millennium, three parties borrowed heavily: consumers, financial firms, and the U.S. government. So far, two have paid a huge price for that leverage. Is there another shoe to drop?
Those are just my questions. My hope is that by now you have more of your own. The remarkable thing about economics is that once you’ve been exposed to the big ideas, they begin to show up everywhere. The sad irony of Econ 101 is that students too often suffer through dull, esoteric lectures while economics is going on all around them. Economics offers insight into wealth, poverty, gender relations, the environment, discrimination, politics—just to name a few of the things we’ve touched upon. How could that possibly not be interesting?
Introduction
1.
Thomas Friedman, “Senseless in Seattle,”
New York Times,
December 1, 1999.
2.
Claudia Goldin and Cecilia Rouse, “Orchestrating Impartiality: The Impact of ‘Blind’ Auditions on Female Musicians,”
American Economic Review,
September 2000.
3.
Charles Himmelberg, Christopher Mayer, and Todd Sinai, “Assessing High House Prices: Bubbles, Fundamentals and Misperceptions,”
Journal of Economic Perspectives,
vol. 19, no. 4 (Fall 2005).
4.
David Brooks, “An Economy of Faith and Trust,”
New York Times,
January 16, 2009.
CHAPTER 1. THE POWER OF MARKETS
1.
M. Douglas Ivester, Remarks to the Economic Club of Chicago, February 25, 1999.
2.
Stephen Moore and Julian Simon,
The Greatest Century That Ever Was: 25 Miraculous Trends of the Past 100 Years,
Cato Institute Policy Analysis, No. 364 (Washington, D.C.: Cato Institute, December 15, 1999).
3.
Cara Buckley, “A Man Down, a Train Arriving, and a Stranger Makes a Choice,”
New York Times,
January 3, 2007.
4.
Michael Grossman, “Health Economics,”
NBER Reporter,
Winter 1998/99.
5.
“America Then and Now: It’s All in the Numbers,”
New York Times,
December 31, 2000.
6.
“Relieving O’Hare,”
The Economist,
January 10, 1998.
7.
June 21, 2001, p. A1.
8.
David Kushner, “The Latest Way to Get Cocaine Out of Colombia? Underwater,”
New York Times Sunday Magazine,
April 26, 2009.
9.
Michael Cooper, “Transit Use Hit Five-Decade High in 2008 as Gas Prices Rose,”
New York Times,
March 9, 2009.
10.
Fernando A. Wilson, Jim Stimpson, and Peter E. Hilsenrath, “Gasoline Prices and Their Relationship to Rising Motorcycle Fatalities, 1990–2007,”
American Journal of Public Health,
vol. 99, no. 10 (October 2009).
11.
Jaime Sneider, “Good Propaganda, Bad Economics,”
New York Times,
May 16, 2000, p. A31.
12.
Richard H. Thaler and Cass R. Sunstein,
Nudge: Improving Decisions about Health, Wealth, and Happiness
(New Haven, Conn.: Yale University Press, 2008).
13.
Press release from The Royal Swedish Academy of Sciences, October 9, 2002.
14.
Jonathan Gruber, “Smoking’s ‘Internalities,’”
Regulation,
vol. 25, no. 4 (Winter 2002/2003).
15.
Annamaria Lusardi, “The Importance of Financial Literacy,”
NBER Reporter: Research Summary,
no. 2 (2009).
16.
Thomas Gilovich, Robert Vallone, and Amos Tversky, “The Hot Hand in Basketball: On the Misperception of Random Sequences,”
Cognitive Psychology
17 (1985).
CHAPTER 2. INCENTIVES MATTER
1.
Costa Rican Embassy, Washington, D.C.
2.
Ian Fisher, “Victims of War: The Jungle Gorillas, and Tourism,”
New York Times,
March 31, 1999.
3.
Daniel Yergin and Joseph Stanislaw,
The Commanding Heights
(New York: Simon & Schuster, 1998), pp. 216–17.
4.
“Paying Teachers More,”
The Economist,
August 24, 2000.
5.
David Stout, “Child Safety Seats to Be Required for Commercial Planes,”
New York Times,
December 16, 1999, p. A20.
6.
Julia Preston, “Mexico’s Political Inversion: The City That Can’t Fix the Air,”
New York Times,
February 4, 1996, Sect. 4, p. 4.
7.
Ibid.; Lucas W. Davis, “The Effect of Driving Restrictions on Air Quality in Mexico City,”
Journal of Political Economy,
vol. 116, no. 1 (February 2008).
8.
“Avoiding Gridlock,”
The Economist,
February 17, 2003.
9.
“Ken’s Coup,”
The Economist,
March 20, 2003.
10.
“How to Pay Bosses,”
The Economist,
November 16, 2002.
11.
Floyd Norris, “Stock Options: Do They Make Bosses Cheat?”
New York Times,
August 5, 2005.
12.
Simon Johnson, “The Quiet Coup,”
The Atlantic,
May 2009.
13.
John Tierney, “A Tale of Two Fisheries,”
New York Times Magazine,
August 27, 2000, p. 38.
14.
“A Rising Tide,”
The Economist,
September 20, 2008.
15.
Dirk Johnson, “Leaving the Farm for the Other Real World,”
New York Times,
November 7, 1999, p. 3.
16.
Virginia Postrel, “The U.S. Tax System Is Discouraging Married Women from Working,”
New York Times,
November 2, 2000, p. C2.
17.
Friedrich Schneider and Dominik H. Enste, “Shadow Economies: Size, Causes, and Consequences,”
Journal of Economic Literature,
March 2000.
CHAPTER 3. GOVERNMENT AND THE ECONOMY
1.
Donald G. McNeil, Jr., “A Fouled City Puts Its Foot Down, but Carefully,”
New York Times,
November 9, 1999.
2.
“Mum’s the Word,”
The Economist,
December 5, 1998.
3.
“Czechs Puff Away to the Benefit of State Coffers,” United Press International, July 17, 2001.
4.
Robert Frank, “Feeling Crash-Resistant in an SUV,”
New York Times,
May 16, 2000.
5.
Katharine Q. Seelye, “Utility Buys Town It Choked, Lock, Stock and Blue Plume,”
New York Times,
May 13, 2002.
6.
“Here’s Hoping: A Survey of Nigeria,”
The Economist,
January 15, 2000.
7.
Blaine Harden, “Angolan Paradox: Oil Wealth Only Adds to Misery,”
New York Times,
April 9, 2000.
8.
Barbara Crossette, “U.N. Says Bad Government Is Often the Cause of Poverty,”
New York Times,
April 5, 2000, p. A11.
9.
John G. Fernald, “Roads to Prosperity? Assessing the Link Between Public Capital and Productivity,”
American Economics Review,
vol. 89, no. 3 (June 1999), pp. 619–38.
10.
Jerry L. Jordan, “How to Keep Growing ‘New Economies,’”
Economic Commentary,
Federal Reserve Bank of Cleveland, August 15, 2000.
11.
Barry Bearak, “In India, the Wheels of Justice Hardly Move,”
New York Times,
June 1, 2000.
12.
Thomas L. Friedman, “I Love D.C.,”
New York Times,
November 7, 2000, p. A29.
13.
Amartya Sen,
Development as Freedom
(New York: Alfred A. Knopf, 1999).
14.
Giacomo Balbinotto Neto, Ana Katarina Campelo, and Everton Nunes da Silva, “The Impact of Presumed Consent Law on Organ Donation: An Empirical Analysis from Quantile Regression for Longitudinal Data,” Berkeley Program in Law & Economics, Paper 050107–2 (2007).
CHAPTER 4. GOVERNMENT AND THE ECONOMY II
1.
John Markoff, “CIA Tries Foray into Capitalism,”
New York Times,
September 29, 1999.
2.
March 6, 2001.
3.
Jackie Calmes and Louise Story, “In Washington, One Bank Chief Still Holds Sway,”
New York Times,
January 19, 2009.
4.
Milton Friedman,
Capitalism and Freedom
(Chicago: University of Chicago Press, 1982).
5.
Celia W. Dugger, “A Cruel Choice in New Delhi: Jobs vs. a Safer Environment,”
New York Times,
November 24, 2000.
6.
“A Useful Poison,”
The Economist,
December 14, 2000.
7.
“Fighting Malaria,”
The Economist,
May 1, 2003.
8.
“A Useful Poison,”
The Economist,
December 14, 2000.
9.
Gary Becker and Guity Nashat Becker,
The Economics of Life
(New York: McGraw-Hill, 1996).
10.
Simeon Djankov, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer,
The Regulation of Entry,
NBER Working Paper No. W7892 (National Bureau of Economic Research, September 2000).
11.
Geeta Anand, “India’s Colleges Battle a Thicket of Red Tape,”
Wall Street Journal,
November 13, 2008.
12.
Stephen Castle, “Europe Relaxes Rules on Sale of Ugly Fruits and Vegetables,”
New York Times,
November 13, 2008.
13.
Nicholas Lemann, “The Quiet Man: How Dick Cheney Rose to Power,”
The New Yorker,
May 7, 2001.
14.
Bruce Bartlett, “How Supply-Side Economics Trickled Down,”
New York Times,
April 6, 2007.
15.
Greg Mankiw’s blog, March 11, 2007.
16.
Rebecca M. Blank, “Fighting Poverty: Lessons from Recent U.S. History,”
Journal of Economic Perspectives,
vol. 14, no. 2 (Spring 2000).