Thursday, December 18, 2008 - Barack Obama-san

The latest leak puts the "stimulus" at $1 trillion over a couple of years, and the political class is embracing it as a miracle cure. 

Not to spoil the party, but this is not a new idea. Keynesian "pump-priming" in a recession has often been tried, and as an economic stimulus it is overrated. The money that the government spends has to come from somewhere, which means from the private economy in higher taxes or borrowing. The public works are usually less productive than the foregone private investment.

In the Age of Obama, we seem fated to re-explain these eternal lessons. So for today we thought we'd recount the history of the last major country that tried to spend its way to "stimulus" -- Japan during its "lost decade" of the 1990s. In 1992, Japanese Prime Minister Kiichi Miyazawa faced falling property prices and a stock market that had sunk 60% in three years. Mr. Miyazawa's Liberal Democratic Party won re-election promising that Japan would spend its way to becoming a "lifestyle superpower." The country embarked on a great Keynesian experiment:


Tuesday, December 16, 2008 - Cooling on Global Warming

Germany and the rest of Europe are getting more rational on climate change. 

Participants at last week's United Nations climate conference in Poznan, Poland, were taken aback by a world seemingly turned upside-down. The traditional villains and heroes of the international climate narrative, the wicked U.S. and the noble European Union, had unexpectedly swapped roles. For once, it was the EU that was criticized for backpedalling on its CO2 targets while Europe's climate nemesis, the U.S., found itself commended for electing an environmental champion as president.

The Brussels summit symbolizes a turning point. The watered-down climate deal epitomizes the onset of a cooling period in Europe's hitherto overheated climate debate. It may lead eventually to the complete abandonment of the unilateral climate agenda that has shaped Europe's green philosophy for nearly 20 years. 

Monday, December 15, 2008 - The 'Certified' Teacher Myth

Like all unions, teachers unions have a vested interest in restricting the labor supply to reduce job competition. Traditional state certification rules help to limit the supply of "certified" teachers. But a new study suggests that such requirements also hinder student learning.

Unions claim that traditional certification serves the interests of students. But it's clear that students would be better served if the teaching profession were open to more college graduates. Teachers learn by teaching, not by mastering the required "education" courses associated with state certification.

Far from regulating teacher quality, forcing prospective teachers to take a specific set of education-related courses merely deters college graduates who might otherwise consider teaching. That outcome may serve the goals of labor unions, but it's hard to see how it helps the kids. If we want better teachers and more of them, relaxing certification standards would be a good place to start.

Thursday, December 11, 2008 - Bankruptcy Doesn't Equal Death

This myth begins with the idea that GM, Ford and Chrysler are so huge that if they go belly-up, the livelihoods of a disproportionately large number of workers and suppliers would be affected. At once, the market for their services and products would close. Therefore, the argument concludes, government must prevent any such failures.


Bankruptcy doesn't make assets -- such as factories, machines, contractual options to buy raw materials, workers' skills -- disappear. If markets still exist for products produced by these firms, Chapter 11 is the best way to discover this. Some workers might lose their jobs and some suppliers might lose their markets, but there would be no industry-wide collapse of the sort portrayed by the bailout's cheerleaders. 

A government bailout of the Big Three keeps huge amounts of productive inputs in firms that can't use them efficiently. Forcing taxpayers to subsidize the continued employment of gargantuan quantities of raw materials, labor and capital goods in unproductive pursuits is a recipe for economic stagnation. 

Friday, December 5, 2008 - Some Carbon Candor

A climate guru rebukes his mates on cap and trade. 
...Mr. Hansen also had the honesty to follow his convictions to their logical conclusion, while reproaching his followers -- President-elect Obama among them -- for not doing the same. To wit, Mr. Hansen endorses a straight carbon tax as the only "honest, clear and effective" way to reduce emissions, with the revenues rebated in their entirety to consumers on a per-capita basis. "Not one dime should go to Washington for politicians to pick winners," he writes. 

The risks of fossil fuels remain speculative, but if they really are the apocalypse of Mr. Hansen's prophecies, then the cleanest remedy is a tax. That would raise energy and all other prices as the incentive for new technologies and investments. But a tax would be neutral, eliminating the market distortions caused by subsidies and regulation, and the proceeds could be used to offset other taxes. The transition to a world in which growth is not tied to carbon would still be long and extremely expensive, but a tax would be the least painful way to get there. 

Wednesday, December 3, 2008 - Economists Have Abandoned Principle

Practically every day the government launches a massively expensive new initiative to solve the problems that the last day's initiative did not. It is hard to discern any principles behind these actions. The lack of a coherent strategy has increased uncertainty and undermined the public's perception of the government's competence and trustworthiness.

The Obama administration, with its highly able team of economists, has a golden opportunity to put the country on a better path. We believe that the way forward is for the government to adopt two key principles. The first is that it should intervene only when there is a clearly identified market failure. The second is that government intervention should be carried out at minimum cost to taxpayers.

Monday, December 1, 2008 - Lessons From 40 Years of Education 'Reform'

We must start with the recognition that, despite decade after decade of reform efforts, our public K-12 schools have not improved. We can point to individual schools and some entire districts that have advanced, but the system as a whole is still failing.  
This is a complex problem, but countless experiments and analyses have clearly indicated we need to do four straightforward things to bring fundamental changes to K-12 education:

1) Set high academic standards for all of our kids, supported by a rigorous curriculum.

2) Greatly improve the quality of teaching in our classrooms, supported by substantially higher compensation for our best teachers.

3) Measure student and teacher performance on a systematic basis, supported by tests and assessments.

4) Increase "time on task" for all students; this means more time in school each day, and a longer school year.

Everything else either does not matter (e.g., smaller class sizes) or is supportive of these four steps (e.g., vastly improve schools of education).

[Note: The recommendations in this article are different from the normal call for "school choice" that is often heard these days.  As always, I'd be interested in your opinions; comment on any of my posts at ]