Pessimister thinks all times past were better. But in case you haven’t noticed, these are clear long run trends in the U.S. economy–a successful market-oriented economy:

1. Working hours decrease while real salaries rise–the pie gets bigger and people have more time to spare.
2. Women labor force participacion has increased while household work decreases–given the payoffs, women are revealing their preferences towards non-household working hours.
3. The share of expenses in recreation goods increase while its price decreases–people are having fun!

There are no ifs or buts here: these are good news. So… how come? Jeremy Greenwood and Guillaume Vandenbroucke provide and answer in Hours Worked: Long-Run Trends:

For 200 years the average number of hours worked per worker declined, both in
the market place and at home. Technological progress is the engine of such
transformation. Three channels of effect will be stressed here.

First, technological progress increases wages. On the one hand, an increase in real wages should motivate more work e¤ort since the price of consumption goods in terms of forgone leisure has fallen. On the other hand, for a given level of work effort a rise in wages implies that individuals are wealthier. People may desire to use some of this increase in living standards to enjoy more leisure.

Second, the value of not working has also risen due to the advent of many new leisure goods. Leisure goods by their very nature are time using. Think about the impact of the following products: radio, 1919; television, 1947; monopoly, 1934; videocassette recorder, 1979; Nintendo and Trivial Pursuit, 1984.

Third, other types of new household goods have reduced the need for housework. These household goods are time saving. Examples are: electric stove, 1900; iron, 1908; frozen food, 1930; clothes dryer, 1937; Tupperware, 1947; dishwasher, 1959; disposable diaper (Pampers), 1961; microwave oven, 1971; food processor, 1975. Some goods can be both time using or time saving depending on the context: the telephone, 1876; IBM PC, 1984.

India seems to be a good testing ground for all kinds of things–which is a bit surprising since one would expect poor data availability in that country. You can also tell that Indian economists are the ones pushing this agenda (not that there’s anything wrong with that!). Bottomline: We should be able to do similar things based on Mexican data and advertise/sell them as successfully as these Indian studies do (a quick JSTOR search for “India” in title will show what I mean).

“Political Selection and the Quality of Government: Evidence from South India”
TIMOTHY J. BESLEY, London School of Economics & Political Science
ROHINI PANDE, Yale University
VIJAYENDRA RAO, World Bank
http://papers.ssrn.com/paper.taf?abstract_id=777507

ABSTRACT:
This paper uses household data from India to examine the
economic and social status of village politicians, and how individual and
village characteristics affect politician behavior while in office.

Education increases the chances of selection to public office and reduces
the odds that a politician
uses political power opportunistically. In contrast, land ownership and
political connections enable selection but do not affect politician opportunism.

At the village level, changes in the identity of the politically dominant
group alters the group allocation of resources but not politician opportunism.
Improved information flows in the village, however, reduce opportunism and
improve resource
allocation.

JEL Classification: O12, H11, H42, O20

“Dams”
ESTHER DUFLO, Massachusetts Institute of Technology (MIT)
ROHINI PANDE, Yale University
http://papers.ssrn.com/paper.taf?abstract_id=796170

ABSTRACT:
The construction of large dams is one of the most costly and controversial forms of public infrastructure investment in developing countries, but little is known about their impact. This paper studies the productivity and distributional effects of large dams in India. To account for endogenous placement of dams we use GIS data and the fact that river gradient affects a district’s suitability for dams to provide instrumental variable estimates of their impact.

We find that, in a district where a dam is built, agricultural production does not increase but poverty does. In contrast, districts located downstream from the dam benefit from increased irrigation and see agricultural production increase and poverty fall. Overall, our estimates suggest that large dam construction in India is a marginally cost-effective investment with significant distributional implications, and has, in aggregate, increased poverty.

JEL Classification: O21, O12, H43, H23

Robin Hanson, (former professor of mine–always smart, sometimes hard to read, and very hard to please in an exam) wrote an excellent short piece on “cynical beliefs” and “cynical moods”. IMHO, some cynics are very smart and they actually become successful, but it is the extreme cynics–those who deprecate not only everything they see but also everything they do–who end up looking like losers.

The scornful sneering contemptuous cynical mood is not particularly attractive. So why does anyone ever adopt it? And why is such a mood associated with the cynical belief that hypocrisy and low motives are widespread?

Let us first notice some patterns about cynical moods. It seems that the young tend to be more idealistic, while the old are more cynical. People can remain idealistic their entire lives about social institutions that they know little about, but those who know an institution well tend to be more cynical. Leaders and the successful in an area tend to be less cynical than underlings and failures in that area. Things said in public tend to be less cynical than things said in private. People seem to prefer the young to be idealistic, and to discourage the teaching of cynicism. Cynicism is not considered an attractive feature.

Now how can we explain cynical moods? I can see two main explanations, one idealistic and one cynical, varying the motives and abilities they posit for the cynic.

The idealistic explanation of cynical moods is that the cynic has unusually high motives or insight. He was better able to see behind false appearances, and he was more shocked and disapointed to discover the low motives of others. Because he is unwilling to be hypocritical, he is less popular and so he succeeds and leads less. People dislike cynics because cynics expose their hypocrisy.

The cynical explanation of cynical moods is that the cynic has unusually low motives or ability. He can better see low motives because he has them in spades, and the cynic complains to belittle the success of others. That is, if he cannot win in some area then he will complain that the game is unfair, or that those who succeed are not really very praiseworthy. People do not like cynics because cynics are losers.

The Economic Effects of Judicial Accountability. Some Preliminary Insights.
Stefan Voigt

http://d.repec.org/n?u=RePEc:icr:wpicer:19-2005&r=pol

Judicial independence is not only a necessary condition for the impartiality
of judges, it can also endanger it: judges that are independent could have
incentives to remain uninformed, become lazy or even corrupt. It is
therefore often argued that judicial independence and judicial
accountability are competing ends. In this paper, it is, however,
hypothesized that they are not necessarily competing ends but can be
complementary means towards achieving impartiality and, in turn, the rule of
law.

It is further argued that judicial accountability can increase per capita
income through various channels one of which is the reduction of corruption.
First tests concerning the economic effects of JA are carried out drawing on
the absence of corruption within the judiciary as well as data gathered by
the U.S. State Department as proxies. On the basis of 75 countries, these
proxies are highly significant for explaining diffe rences in per capita
income.

Keywords: Judicial Independence; judicial accountability; rule of law;
economic growth; corruption; constitutional political economy.

JEL:H11 K40 O40 P51

…so much for the wishful thinking of Art. 3 of the Mexican constitution…

“A cost-benefit analysis indicates that tuition reduction can be a socially efficient method for increasing college completion. However, even with the offer of free tuition, a large share of students continue to drop out, suggesting that the direct costs of school are not the only impediment to college completion.”

Building the Stock of College-Educated Labor
SUSAN M. DYNARSKI
Harvard University
John F. Kennedy School of Government
http://papers.ssrn.com/paper.taf?abstract_id=800124

ABSTRACT:
Half of college students drop out before completing a degree. These low rates of college completion among young people should be viewed in the context of slow future growth in the educated labor force, as the well-educated baby boomers retire and new workers are drawn from populations with historically low education levels. This paper establishes a causal link between college costs and the share of workers with a college education. I exploit the introduction of two large tuition subsidy programs, finding that they increase the share of the population that completes a college degree by three percentage points. The effects are strongest among women, with white women increasing degree receipt by 3.2 percentage points and the share of nonwhite women attempting or completing any years of college increasing by six and seven percentage points, respectively. A cost-benefit analysis indicates that tuition reduction can be a socially efficient method for increasing college completion. However, even with the offer of free tuition, a large share of students continue to drop out, suggesting that the direct costs of school are not the only impediment to college completion.

Tyler gives reasons why politicians will rebuild New Orleans even if cost-benefit aalysis would indicate otherwise.

This quote is from Ed Glaeser:

“We have an obligation to people, not to places,” says Edward Glaeser, a Harvard professor who specializes in urban economics. “Given just how much, on a per capita basis, it would take to rebuild New Orleans to its former glory, lots of residents would be much [better off] with $10,000 and a bus ticket to Houston.”

Sounds like an un-compassionate statement. What kind of person would desire for a city NOT to be rebuilt? Answer: an economist who values local individuals well being more than that of non-locals (tourists, postcard sellers, public opinion, etc.)–that is a compassionate economist without the sugar coating.

Becker & Posner also opine here.

Hoy divagué contra los poetas en clase. No hay nada malo con ser poeta. El problema es otorgarle (o esperar) razón y verdad de los poetas solamente porque hablan bonito.

Estirando el argumento: desde su tumba, Platón sabe que los filósofos corren regresiones, pero no los poetas. (Nota: Si eres poeta, por favor no te tomes esto en serio :-)


Platón vs. los poetas en tres caídas:
————————————-
(From Plato’s Republic, Book X)
http://classics.mit.edu/Plato/republic.11.x.html


“there is an ancient quarrel between philosophy and poetry; of which there are many proofs, (…) and there are innumerable other signs of ancient enmity between them”


Round 1: El pintor está más interesado en las “apariencias” que en las “realidades”:
(Traducción cuant: El pintor se basa en pocas observaciones que “parecen reales”)

Which is the art of painting designed to be –an imitation of things as they are, or as they appear –of appearance or of reality?

—Of appearance.

Then the imitator, I said, is a long way off the truth, and can do all things because he lightly touches on a small part of them, and that part an image. For example: A painter will paint a cobbler, carpenter, or any other artist, though he knows nothing of their arts; and, if he is a good artist, he may deceive children or simple persons, when he shows them his picture of a carpenter from a distance, and they will fancy that they are looking at a real carpenter.

Round 2: El poeta no es más que un pintor
(Traducción cuant: El poeta sabe poco, pero lo adorna como si supiera mucho)

Then must we not infer that all these poetical individuals, beginning with Homer, are only imitators; they copy images of virtue and the like, but the truth they never reach? The poet is like a painter who, as we have already observed, will make a likeness of a cobbler though he understands nothing of cobbling; and his picture is good enough for those who know no more than he does, and judge only by colours and figures.

—Quite so.

In like manner the poet with his words and phrases may be said to lay on the colours of the several arts, himself understanding their nature only enough to imitate them; and other people, who are as ignorant as he is, and judge only from his words, imagine that if he speaks of cobbling, or of military tactics, or of anything else, in metre and harmony and rhythm, he speaks very well –such is the sweet influence which melody and rhythm by nature have. And I think that you must have observed again and again what a poor appearance the tales of poets make when stripped of the colours which music puts upon them, and recited in simple prose.

Round 3: El poeta apela a las pasiones y no a la razón.
(Traducción cuant: El poeta no tiene una teoría subyacente)

Then the imitative poet who aims at being popular is not by nature made, nor is his art intended, to please or to affect the principle in the soul; but he will prefer the passionate and fitful temper, which is easily imitated?

–Clearly

And now we may fairly take him and place him by the side of the painter, for he is like him in two ways: first, inasmuch as his creations have an inferior degree of truth –in this, I say, he is like him; and he is also like him in being concerned with an inferior part of the soul; and therefore we shall be right in refusing to admit him into a well-ordered State, because he awakens and nourishes and strengthens the feelings and impairs the reason. As in a city when the evil are permitted to have authority and the good are put out of the way, so in the soul of man, as we maintain, the imitative poet implants an evil constitution, for he indulges the irrational nature which has no discernment of greater and less, but thinks the same thing at one time great and at another small-he is a manufacturer of images and is very far removed from the truth.

Rafael DiTella et al. take endogenous beliefs (ideology?) VERY seriously.  Assuming that pro-market beliefs and policies are conducive to growth, their findings are extremely relevant:

First, some micro level evidence:

Property Rights and Beliefs: Evidence from the Allocation of Land Titles to Squatters
Rafael Di Tella, Sebastian Galiani, Ernesto Schargrodsky
http://www.iq.harvard.edu/NewsEvents/Seminars-WShops/PPE/papers/di%20Tella2.pdf

Abstract
The possession of property rights may change the beliefs that people hold. We
study this hypothesis using a natural experiment from a squatter settlement in the
outskirts of Buenos Aires ensuring that the allocation of property rights is
exogenous to the characteristics of the squatters. There are significant differences
in the beliefs that squatters with and without property rights declare to hold.
Property rights make beliefs closer to those that favor the workings of a free
market. Examples include materialist and individualist beliefs (such as the belief
that money is important for happiness or the belief that one can be successful
without the support of a large group). The effects appear large. The value of a
(generated) index of pro market beliefs for squatters without property rights is
78% of that of the general Buenos Aires population. The value for squatters that
receive property rights is 98% of that of the general population. In other words,
giving property rights to squatters causes a change in their beliefs that makes
them indistinguishable from those of the general population, in spite of the
dramatic differences in the lives they lead. Our experiment is less informative as
to the precise way property rights change beliefs, although there is suggestive
evidence of a behavioral channel.

Next, some macro-level evidence:

Quote of the day:

You will observe that I give 0% weight to the hypothesis that it was a shift in culture–a rise in the belief that managers had “primary responsibility to the shareholders”–that was responsible for the very real change that you ask about. This is a professional deformation: for 27 years I have been trained to look first at changes in technologies, resources, institutions, forms of organization, and incentives, and only after all of these have failed to give answers to throw up my hands and disappear in a “blaze of amateur sociology.”

The Collection Efficiency of the Value Added Tax: Theory and
International Evidence
by Joshua Aizenman, Yothin Jinjarak  –  #11539 (ITI PE)

Brad De Long is a super-smart guy, a top economist and top blogger. Unlike
many economists, he takes the time to argue with *non-economists* (that
weird super super majority of humankind).

I agree with him: Every discipline develops a specialized language both as
an analytical tool but also as an entry barrier for “unsophisticated
outsiders”… The real challenge is to read between the lines and beyond
the entry barriers to beat pseudo-arguments with real arguments–this is a
large portion of the “fun” in academia.

http://delong.typepad.com/sdj/2005/08/more_guns_germs.html

“It’s beginning to look as if people calling [Jared Diamond’s] “Guns, Germs,
and Steel” “quasi-racist” and that it “perpetuates racism” may simply be
aping their elders.

It appears to be a thing their sub-group does in order to close the circle
of discourse against outsiders–just as economists close the discourse to
outsiders by saying “they don’t have a mathematical model” and historians
close to discourse to outsiders by saying “they don’t have any new
primary-source evidence.”

If so, Ozma’s and Tak’s claims that Diamond is “quasi-racist,” or
“perpetuates racism” should not be understood as empirical claims about the
world but merely as markers of their own commitment to a group that seeks to
close the discourse to outsiders.”

(…) “And here we have why, in Holberg’s eyes, Diamond is a racist:
Diamond (in Guns, Germs, and Steel) focuses not on how human agency is
culturally-inflected, but on how it is geographically-inflected and
environmentally-inflected. That’s materialism. That’s reductionism. That’s
determinism. That’s not racism.”

Inefficiency in Legislative Policy-Making: A Dynamic Analysis
by Marco Battaglini, Stephen Coate – #11495 (PE)
Abstract:
This paper develops an infinite horizon model of public spending and taxation in which policy decisions are determined by legislative bargaining. The policy space incorporates both productive and distributive public spending and distortionary taxation. The productive spending is investing in a public good that benefits all citizens (e.g., national defense or air quality) and the distributive spending is district-specific transfers (e.g., pork barrel spending). Investment in the public good creates a dynamic linkage across policy-making periods. The analysis explores the dynamics of legislative policy choices, focusing on the efficiency of the steady state level of taxation and allocation of tax revenues. The model sheds new light on the efficiency of legislative policy-making and has a number of novel positive implications.
http://papers.nber.org/papers/W11495

Law, Endowments, and Property Rights
by Ross Levine – #11502 (IFM LE)
Abstract:
While scholars have hypothesized about the sources of variation in property rights for over 2500 years, it is only very recently that researchers have begun to test these theories empirically. This paper reviews both the theory and empirical evidence supporting and refuting the law and endowment views of property rights. The law view holds that historically determined differences in national legal traditions continue to shape cross-country differences in property rights. The endowment view argues that during European colonization, differences in climate, crops, the indigenous population, and the disease environment influenced long-run property rights.
http://papers.nber.org/papers/W11502

Inequality
by Edward L. Glaeser – #11511 (PE)
Abstract:
This paper reviews five striking facts about inequality across countries. As Kuznets (1955) famously first documented, inequality first rises and then falls with income. More unequal societies are much less likely to have democracies or governments that respect property rights. Unequal societies have less redistribution, and we have little idea whether this relationship is caused by redistribution reducing inequality or inequality reducing redistribution. Inequality and ethnic heterogeneity are highly correlated, either because of differences in educational heritages across ethnicities or because ethnic heterogeneity reduces redistribution. Finally, there is much more inequality and less redistribution in the U.S. than in most other developed nations.
http://papers.nber.org/papers/W11511

Behavioral Public Economics: Welfare and Policy Analysis with Non-Standard Decision-Makers
by B. Douglas Bernheim, Antonio Rangel – #11518 (HE PE)
Abstract:
This paper has two goals. First, we discuss several emerging approaches to applied welfare analysis under non-standard
(“behavioral”) assumptions concerning consumer choice. This provides a foundation for Behavioral Public Economics. Second, we illustrate applications of these approaches by surveying behavioral studies of policy problems involving saving, addiction, and public goods. We argue that the literature on behavioral public economics, though in its infancy, has already fundamentally changed our understanding of public policy in each of these domains.
http://papers.nber.org/papers/W11518

Aid and Growth: What Does the Cross-Country Evidence Really Show?
by Raghuram G. Rajan, Arvind Subramanian – #11513 (IFM)
Abstract:
We examine the effects of aid on growth–in cross-sectional and panel data–after correcting for the bias that aid typically goes to poorer countries, or to countries after poor performance. Even after this correction, we find little robust evidence of a positive (or negative) relationship between aid inflows into a country and its economic growth. We also find no evidence that aid works better in better policy or geographical environments, or that certain forms of aid work better than others. Our findings, which relate to the past, do not imply that aid cannot be beneficial in the future. But they do suggest that for aid to be effective in the future, the aid apparatus will have to be rethought. Our findings raise the question: what aspects of aid offset what ought to be the indisputable growth enhancing effects of resource transfers? Thus, our findings support efforts under way at national and international levels to understand and improve aid effectiveness.
http://papers.nber.org/papers/W11513

Mexican Entrepreneurship: A Comparison of Self-Employment in Mexico and the United States
by Robert Fairlie, Christopher Woodruff – #11527 (ITI LS)
Abstract:
Nearly a quarter of Mexico’s workforce is self employed. But in the U.S. rates of self employment among Mexican Americans are only 6 percent, about half the rate among non-Latino whites. Using data from the Mexican and U.S. population census, we show that neither industrial composition nor differences in the age and education of Mexican born populations residing in Mexico and the U.S. accounts for the differences in the self employment rates in the two countries. Within the U.S., however, the data show self employment rates are much higher in ethnic enclaves. In PUMAS with a high percentage of residents of Latino origin, rates of self employment are comparable to rates among non-Latino whites. The data also indicate that the lack of English language ability and the lack of legal status among Mexican American immigrants helps account for their lower rates of self employment.
http://papers.nber.org/papers/W11527