Can the Economics Nobel Laureates Improve Our World?

Even after winning the Nobel Prize, the elite economists continue to compete.  In this piece,   Joe Stiglitz makes his case for why he is our best liberal scholar.   We will see if Paul Krugman can match this by publishing a better piece in Vogue or perhaps Elle.   I have published in Reader’s Digest but that’s a story for another day. 

If you click on the Stiglitz piece, you will learn that Rob Lowe has an old tattoo and you will learn the troubling fact (unless you are one of them) that the top 1% of the U.S own 40% of the nation’s wealth.    So Dr. Stiglitz’s point is that the remaining 99% should be grateful for their 60% share.   (I’m kidding).

There is only one viable strategy for reducing income inequality and this is investing in children’s skill formation.  I would favor financing such investments through taxes on the top 5% of the income distribution (and I believe that would include my two worker household).  What would these “investments” be?  Another Nobel Laureate named  James Heckman offers a promising vision via his Heckman Equation.

Author: Matthew E. Kahn

Professor of Economics at UCLA.

21 thoughts on “Can the Economics Nobel Laureates Improve Our World?”

  1. Will Matthew Kahn please explain how increased skills lead to higher returns in a winner-take-all economy? More skilled undercompensated losers will only mean more for the overcompensated winners.

  2. “There is only one viable strategy for reducing income inequality and this is investing in children’s skill formation.”

    Terrific. The whole progressive movement has been reduced to preschools.

  3. Skill formation is a really vague idea. What do you mean? What sort of skills? Carpentry is a skill but it doesn’t pay well anymore.

  4. “There is only one viable strategy for reducing income inequality and this is investing in children’s skill formation.”

    Wow. There really should be a prize for that.

  5. 1. Not (wealth = income).
    2. The wealth on which the usual wealth distribution profile is based contains dollar-denominated wealth only.
    3. “Investing in children’s skill formation” does NOT imply tax-support of schools, compulsory attendance statutes, operation of schools by State (government, generally) employees, or a policy which restricts parents’ options for the use of the taxpayers’ sub-adult schooling subsidy to schools operated by dues-paying members of the NEA/AFT/AFSCME cartel.

  6. 1. Not (wealth = income).
    2. The wealth which determines the usual wealth distribution population profile contains dollar-denominated wealth only.
    3. “Investing in children’s skill formation” does not logically imply compulsory attendance statutes, tax support of schools, State (government, generally) operation of schools, or policies which restrict parents’ options for the use of the taxpayers’ sub-adult schooling subsidy to schools operated by dues-paying members of the NEA/AFT/AFSCME cartel.

  7. @Malcolm:
    1. Agreed; wealth distributions are inherently more skewed than income distributions. Are you arguing that the recent increase in wealth inequality has not been accompanied by an increase in income inequality?
    2. ????
    3. Agreed, as a matter of logic. But what alternatives do you suggest?

  8. Scrooge,
    We have to stop meeting like this. It seems we meet when we face in opposite directions. Education is like health care, which to me means “none of the State’s business”. Information assymetries argue against State operation of an enterprise (but not against regulation), seems to me.

    Without dollar denominations, we all get 24 hours of use out of the universe every day. My starlight and sunlight budgets are the same as yours (considerations of latitude and smog excluded). I make as much use of the Earth’s gravitational field as does Bill Gates. I get my daily ration of O2 for free, like everyone but divers and astronauts. I used to catch a bus from my $100/month room in Manoa (back in the 70’s) to the North Shore and body surf Log Cabins, Ke Waena (Rockpile), Off-The-Wall, and Pipeline, and smile to see the mainland tourists standing on the beach taking pictures. They would have died in the water (I hear Meg, a Makapu’u lifeguard, once rescued Mark Spitz). Then they got on their tour busses and went back to their $200/night hotels. They paid $ thousands more than I paid for less use of this place. Who’s wealthy?

    What’s the alternative to tax-supported, compulsory, State-operated schools? First, do no harm. Why suppose that organized violence (the State) can make a positive contribution to the education industry? Every law on the books is a threat by a government to kidnap (arrest), assault (subdue), and to forcibly infect with HIV (imprison) someone. My ideal policy would give to individual parents the power to determine for their own children the course study and the pace and method of instruction. This means: repeal compulsory attendance statutes and repeal tax support of schools. Repeal barriers to on-the-job training: child labor and minimum wage laws.

    I could be wrong. There are too many “r”s in “revolution. I’ll happily compromise and accept Parent Performance Contracting.

  9. Sure, if by “viable strategy,” you mean only actions acceptable to the GOP. What a predictable view for an academic economist.

  10. I put my stripped-down view front and center so people can know where I start my analysis. I figure it’s courtesy to make it easy for people to follow or criticize my argument. It may look like I’m staking an extreme position as a negotiating tactic, but that’s not what I’m doing. I’m in no position to negotiate anything, anyway. If “investing in education” is really about helping kids or reducing human misery, why the reflexive resort to threats of violence? “Tax the wealthy to support schools” is an illusion. Corvee labor is a tax. The largest tax burden of compulsory schooling is the opportunity cost to poor kids of the time that they spend in the NEA/AFT/AFSCME cartel’s wretched schools. Another large cost of the current State-monopoly system which tax-funded “investment” maintains is the opportunity cost to society of the lost innovation which a competitive market in education services would generate. A State-monopoly enterprise is like an experiment with one treatment and no controls: a retarded experimental design.

  11. Matthew: “There is only one viable strategy for reducing income inequality and this is investing in children’s skill formation. ”

    Bull f-ing sh*t.

    Listening to people like you is how we *got* here.

    I don’t know WTF Mark invited you here, except for the fact that he has a weakness for hippie-bashing.

    Go back to your tenure-protected job, and leaving fixing the country to people who actually want to.

  12. Yes, that is the only possible viable strategy. Which is why inequality has been getting worse at the same time investment in education has been rising. That liquid squelching sound? That’s my eyes rolling.

  13. (Barry): “Listening to people like you is how we *got* here.
    What aspects of the current political/economic situation do you attribute to economists? Seems to me governments at all levels have made more promises than they can keep. If “here” means unsustainable entitlement commitments and political corruption, it describes Greece, Ireland, Portugal, Great Britain, Iceland, Russia, China, and just about everywhere. People ascend the political hierarchy in democratic polities by making promises to everyone and subsidizing influential constituent groups. In one-party bureaucratic dictatorships, they ascend the hierarchy by promising support to superiors and favors to subordinates. Wnen the wealth of the entire society is at their disposal, the result is a classic tragedy of the commons.

  14. Malcolm: My starlight and sunlight budgets are the same as yours

    Yes but that’s because we are both poor slobs relatively speaking. Now Goldman Sachs, their sunlight budget looks a little different:

    A subsidiary of Goldman Sachs & Co. (NYSE: GS) is sitting on claims for nearly half of the U.S. lands offered for solar development in Nevada by the Bureau of Land Management, according to an Associated Press story. Cogentrix, which has yet to develop a solar plant anywhere in the U.S. or abroad, reportedly has no firm plans for developing the sites. BLM issued land leases in a first-come-first-serve manner five years ago. It was the first time the agency had ventured into leasing for solar, and that inexperience is part of the reason why those lands do not host even a single solar installation yet. The agency apparently wasn’t equipped to determine which application proposals were serious. “Goldman Sachs was one of the first applicants to dot the map with potential projects, and since then they haven’t moved on any of them,” Gregory Helseth, the BLM’s new renewable energy project manager in southern Nevada, told AP. “You can’t hold the land forever. You can’t be a prospector and hope somebody down the road wants to buy.”Read the full story at the link below.

    Malcolm: I get my daily ration of O2 for free and body surf and smile to see the mainland tourists standing on the beach taking pictures.

    Isn’t it wonderful that we can be so glib about the air and the water? That our ancestors cared enough to preserve them? And provided us with an education to appreciate them?

    Water containing high amounts of radioactive iodine has been spewing directly into the Pacific Ocean from a large crack discovered Saturday in a 6-foot-deep pit at the coastal Fukushima Daiichi Nuclear Power Plant. After an unsuccessful attempt to flood the pit with concrete to stop the leak, workers on Sunday turned to trying to plug the apparent source of the water — an underground shaft thought to lead to the damaged reactor building — by plugging the shaft with a makeshift putty: more than 120 pounds of sawdust, three garbage bags full of shredded newspaper and about 9 pounds of a polymeric powder that officials said absorbs 50 times its volume of water. Experts estimate that about 7 tons an hour of radioactive water is escaping the pit. Safety officials have said that the water, which appears to be coming from the damaged No. 2 reactor at Fukushima Daiichi, contains one million Becquerels per liter of iodine 131, or about 10,000 times levels normally found in water at a nuclear facility.

  15. Tax The Rich,

    Citing BLM favors to Goldman Sachs does not make the case for a free market, seems to me. To my ears, half the arguments for socialism sound like “powerful people get access in any system, so (!!) let’s just go to the endgame straight away”. We’ll die eventually. Why not kill ourselves today? That argument does not work for me.

    “Our ancestors cared to preserve them”? Maybe. Privatization limited damage to the commons.

    I’ll try again to express my point about non-dollar-denominated wealth. Humans have available the mass of the Earth, a steady rain of meteor dust, and a solar energy budget. That’s pretty much all. They apply their attention and skill to these resources. The sun shines, rain falls, and the Earth sustains plants. Sporadic vulcanism and variations in solar output excepted, most of the geographic variation and inter-temporal fluctuations in the variables we call “economic” are induced by people. Humans are the cause of most preventable human misery. While I’m not philosophically opposed to all violence, the burden of proof falls on the advocate for violence, not on the advocate for free exchange, seems to me.

  16. “There is only one viable strategy for reducing income inequality and this is investing in children’s skill formation”

    So an inheritance tax (which has existed before, and which HAS worked) is NOT viable, but magic pre-school pixie dust that will overcome the myriad obstacles to both better education and better outcomes in the US IS viable?

  17. Malcolm: Privatization limited damage to the commons.

    Yes. And no. Or better: A half truth is never a full truth. Unless of course you are an ideologue. Then treating half truths as full truths becomes par for the course. And plugging your ears to counter-evidence becomes a way of life:

    Tokyo Electric has come under growing scrutiny for its handling of the nuclear crisis, triggered by the March 11 quake and tsunami. In recent days, reports surfaced that the company, once the largest utility in the world, would be taken over by the government. Tokyo Electric reported that a protesters’ sound truck, presumably sent to heckle the company was blocked from entering the Daiichi plant on March 31. There are also frequent protests at the company’s headquarters in the Uchisaiwai-cho neighborhood of central Tokyo. On Sunday, several hundred anti-nuclear protestors assembled in front of Tokyo Electric’s offices and then marched to Kasumigaseki to protest in front of the offices of Japan’s nuclear regulators. The protesters yelled slogans like, “Tokyo Electric, get out of nuclear energy,” and “Compensate the victims.” Others called for the company and government to apologize.

    You need to up the amperage to your bullshit-detector Malcolm. Then when you read Ayn Rand you’ll laugh at the half truths being passed off as full ones. And you’ll become more adept at winnowing out noise and hearsay: I hear Meg, a Makapu’u lifeguard, once rescued Mark Spitz…

  18. Tax the Rich,
    The full truth would take the age of the universe to relate. “Ideological” is an uncomplimentary way to say “systematic”, and I regard it as courtesy to be systematic. Antonyms include “scatterbrained” and “unscrupulous”. I did not witness it but Meg, whome we called “Rope-hair” because her blonde curls looked like unlaid hemp whe wet. used to hang with my surfing buddies. She was cute, so maybe Spitz just faked an emergency.

  19. Who knew that the depression and ww2 were the heyday of investment in the skills of children. Learn something new every day.

    Of course, this really depends on which skills you’re talking about. There are some skills you could teach kids — given a free hand — that would flatten the wealth distribution dramatically.

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