The American Dream versus the Danish Dream
Bob Jensen at Trinity University

American Dream, Denmark Dream, China Dream, and Nations Ranked on Happiness 

Does acceptance of racial cultural and religious diversity correlate with national "happiness?
How about gender diversity?

Why don't people like markets or professors?

End of the Cuban Dream

Global Poverty 

A Carnegie-Mellon Professor says the widening gap between the top 1% and the remaining 99% is no proof that capitalism is unjust

Myths About Wealth Inequality

Find the Picture of a Celebrity's Home

U.S. National Debt Clock --- http://www.usdebtclock.org/
Also see http://www.brillig.com/debt_clock/

Question
Should we keep increasing the government spending deficit and the national debt every year ad infinitum?

Answers
Although in these down economic times, the liberal's Keynesian hero and Nobel Prize economist, Paul Krugman, thinks recovery is stalled because the government is not massively increasing spending deficits. But he's not willing to commit himself to never reducing deficits or never paying down some of the national debt. Hence, he really does not answer the above question ---
http://www.nytimes.com/2012/01/02/opinion/krugman-nobody-understands-debt.html

So let's turn to a respected law professor who advocates increasing the government spending deficit and the national debt every year ad infinitum?

"Why We Should Never Pay Down the National Debt (even partly)," by Neil H. Buchanan George Washington University Law School), SSRN, 2012 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2101811

Abstract:
Calls either to balance the federal budget on an annual basis, or to pay down all or part of the national debt, are based on little more than uninformed intuitions that there is something inherently bad about borrowing money. We should not only ignore calls to balance the budget or to pay down the national debt, but we should engage in a responsible plan to increase the national debt each year. Only by issuing debt to lubricate the financial system, and to support the economy’s healthy growth, can we guarantee a prosperous future for current and future citizens of the United States.

Student Assignment

Since many of the most liberal economists are not quite willing to assert that "we should never pay down the national debt," what questionable and unmentioned assumptions have been made by Neil H. Buchanan that need to be addressed?

Are some of these assumptions unrealistic in any world other than a utopian world?

Bob Jensen's Answers ---
http://www.cs.trinity.edu/~rjensen/temp/NationalDeficit-Debt.htm

Could it be that tax revisionists in Denmark are beginning to anticipate (by reducing tax rates)
value added from something like an American Dream being introduced in Denmark?

Does the American Dream add more good than harm?

The current Sunset Hill House Hotel just down the road from our cottage in the White Mountains of New Hampshire
The closest mountain range is the Kinsman Range about 10 miles east of our cottage

American Dream --- http://en.wikipedia.org/wiki/American_Dream
Often the goal of an American Dream is not so much betterment of your own life as it is betterment of the lives of your children and grandchildren.
The Hendersons featured in this article have two of their own girls plus a girl and boy that they adopted in China.

A Message from Jim Peters on the AECM

A couple of years ago, 60 minutes interview a bunch of Danish citizens because the Danes had once again topped the international surveys as the happiest people on earth. Americans, as with most international measures, were somewhere in the middle of the pack. The Dane's advice to Americans was to dump the American Dream because it caused more harm than good. The core of the American Dream seems to be equating wealth to happiness and setting off on a constant quest for more wealth. The Danes advice was to focus more on non-economic sources of happiness and learn to appreciate what you have.

Obviously, all this is an anathema to Americans and some of the reaction to the Dane's comments included epithets like "losers" and "hippies." But, the fact is that they are happier than Americans.

Jim

A Reply from Bob Jensen

Oddly, much of what you say about Denmark applies even more so to the higher welfare state of Norway which has much more state-owned oil revenues as an OPEC power player and a much higher ranking education and health care than Denmark.

It seems to me that the variables you praise that supposedly lead to happiness do not ipso facto do so in other welfare nations like Norway. My guess is that the concept of "happiness" is just too complicated to be meaningfully ranked. The poor Australians don't even get ranked --- must be miserable Down Under.

Norway only comes in at Rank 19 on happiness. The United States comes in at Rank 23 ---
http://www.jiangsu.net/forum/viewtopic.php?f=2&t=2256


1st - Denmark
2nd - Switzerland
3rd - Austria
4th - Iceland
5th - The Bahamas
6th - Finland
7th - Sweden
8th - Bhutan
9th- Brunei Darussalam
10th - Canada
11th - Ireland
12th - Luxembourg
13th - Costa Rica
14th - Malta
15th - The Netherlands
16th - Antigua and Barduba
17th - Malaysia
18th - New Zealand
19th - Norway
20th - the Seychelles
23rd - USA
35th - Germany
41st - UK
62nd - France
82nd - China
90th - Japan
125th - India
167th - Russia
177th - Zimbabwe
178th - Burundi

Jensen Comment
I take issue with Jim's quoted phrase that the American Dream in America "caused more harm than good." In my opinion, most of what we have that is good in America was built in one way or another on somebody's American Dream, a somebody willing to take financial and even physical risks, work tirelessly to build or rebuild something (possibly making creative innovations along the way), and pass the fruits of entrepreneurial labor on so that other Americans can find jobs and other Americans can enjoy the goods and services provided by the American Dreams of others.

An Illustration of the American Dream
In this essay, I will provide one case illustration regarding what is now the Sunset Hill House Hotel in Sugar Hill, New Hampshire. The present-day Sunset Hill House Hotel is a restoration of a former resort's old Annex --- http://www.sunsethillhouse.com/ 
Also see http://www.trinity.edu/rjensen/tidbits/2008/tidbits080824.htm

Lon and Nancy Henderson were two U.S. Army Officers who met for the first time in Somalia and were later married. After retiring from the U.S. Army they pooled their savings and borrowed millions of dollars to save a dilapidated building called The Annex that was one of many buildings standing after the historic Sunset Hill House Resort was torn down in 1973 ---
http://www.trinity.edu/rjensen/tidbits/CottageHistory/Hotel/Brochure/Brochure1900.htm   

In the supposedly happiest nation on earth where education, health care, and many other goods and services are free due to equalization of income and wealth based on tax laws (that confiscate 77% of high incomes), I was wondering if any Danish couple would've borrowed millions of dollars to save a dilapidated building and commenced to each work tirelessly for 70 or more hours per week to run a hotel seven days a week for 52 weeks each year.

Would a Lon and Nancy Henderson in Denmark cheerfully awake at 4:00 a.m. every morning of every week to cook a full breakfast for each of the hotel guests intending to hike or ski or golf  in the White Mountains?

Would a Lon and Nancy Henderson in Denmark spend the better part of every winter season day and evening, including week end days and evenings, painting and wall papering rooms of the hotel?

Would Lon Henderson in Denmark crawl on his belly at considerable physical risk crawl on his belly day-after-day to jack up the sagging floor of the golf club house?

Would Lon Henderson, with the help of his greens keeper Sam Kerr, daily mow over 70 acres of grass on the golf course and hotel grounds?

Would Lon Henderson maintain 40 motorized golf carts in mint condition for golfers?

Would Lon and Nancy Henderson in Denmark willingly go deeper into debt after two major fires in this hotel, each of which caused over $100,000 in damage?

Without an American Dream would Lon and Nancy Henderson be happy working and sacrificing like this for perhaps 20 more years of their lives?

This is our Subaru parked in front of the main hotel
There's another three-story building called The Hill House that houses guests as well

This is the golf club house that Lon crawled under for several weeks in a row
This is the view to the west toward the Green Mountains of Vermont

The Hendersons work hard seven days a week for 52 weeks a year. I'm not so certain that they have a better life, but when they retire with the Sunset Hill House Hotel's mortgages fully paid off, their children and grandchildren will have much better shots at better lives.

Marginal Tax Cuts in Denmark --- http://www.asb.dk/en/aboutus/newsfromasb/newsarchive/article/artikel/feature_article_what_can_we_expect_from_the_spring_tax_reform-1/

The media regularly feature stories about how Danes are unwilling to work extra hours, even if taxes are lowered. The Danish Economic Council and the Danish Ministry of Finance say the opposite is true, while the public debate swings in both directions.

By Associate Professor Anders Frederiksen, Department of Marketing and Statistics, Aarhus School of Business, University of Aarhus

(This article was published in the Danish daily Berlingske Tidende on Monday 16 November 2009.)

This spring will see the implementation of a comprehensive tax reform that will reduce the marginal tax rate for most people in Denmark. We are becoming quite well versed in concepts such as financial 'carrots' and 'hammocks', and we have been inundated with all manner of studies of the willingness of the Danish people to work more if taxes are cut. Most of these studies find that the Danes are willing to work more, but there are always some that present the opposite conclusion; and the media has a tendency to call more attention to the latter. Perhaps it makes for a better story when people contradict the Economic Council and the Ministry of Finance.

Longer workdays
Let's nail the point home once and for all: the supply of labour in society will increase if the marginal tax rate (the tax on the last krone earned) is cut. This outcome is so certain that not a single economist contradicts it. But that is where the consensus ends, and opinions on the scope of this effect differ greatly, because the change in the supply of labour that will follow a cut in the marginal tax rate is generally considered relatively small – a conclusion that has also been confirmed by Danish research. This means that if the marginal tax rate is lowered by, e.g. 1 per cent, a good estimate is that the supply of labour will increase by 0.05 per cent for men and 0.15 per cent for women. In other words, after a marginal tax rate cut of 10 per cent, an average woman working full time will be willing to work approx. 30 minutes more a week.

Uneven effect
But exactly who can we expect to work longer hours? The spring tax reform will abolish the middle-bracket tax, shift the tax basis for the top-bracket tax and reduce the bottom-bracket tax rate. This will increase the incentive for nearly every worker in Denmark to work more, although the consequences for the supply of labour depend on the level of income. Workers with a bottom-bracket tax as their marginal tax will experience a moderate reduction in taxes, and thus we can only expect a moderate increase in the supply of labour within this group. In contrast, people who are no longer charged top-bracket tax and who also experience the reduction in the bottom-bracket tax as well as the abolishment of the middle-bracket tax will have a significantly reduced marginal tax rate, and this will have a major impact on their willingness to work more. Thus, one of the consequences of the tax reform is an increase in the supply of labour among those workers earning around DKK 400,000.

New study
But what do the Danish people say when asked whether they would work more if taxes were cut? To obtain a better understanding of this key question, we asked the members of the unemployment insurance fund FTF-A what they would be willing to do if the top-bracket tax were abolished? Their response was clear – they would work more. More precisely, 17 per cent responded that they would work more, while 77 per cent responded that they would not change their working hours and only 6 percent believed that they would reduce their working hours. Thus, these responses confirm the findings found in the specialist literature.

Overtime or another job?
The spring tax reform will increase the supply of labour, but how is that possible when everyone works 37-hour-a-week jobs? The idea of inflexible working hours is actually a misconception. According to our study, the majority of the unemployment insurance fund members who responded that they would work more would do more overtime, while nearly a third would increase the supply of labour by taking an additional job. A small share would exchange their part-time job for a full-time job. And those who are not in employment would spend more time looking for work. In other words, you and I may not see any possibilities for earning extra money, but there is a large group of people who would see these possibilities and would be willing to make an extra effort if the incentive were greater.

Less attractive to moonlight
One thing is the supply of labour, but what other consequences will the tax reform have? Unintended consequences of taxation, such as the existence of a black labour market, will also be affected by the reform. The specialist literature documents that the supply of labour in the informal labour market (especially for men) will be significantly affected by the pay that can be brought home from the regular labour market. We also know from previous studies that a large share of the population moonlights – a finding that is also confirmed by FTF-A's members, where approximately 10 per cent say they moonlight. If the top-bracket tax were abolished, 18 per cent of those who moonlight would reduce the amount of work they do on the black labour market, while only 1 per cent would go against that trend and moonlight more. In short, lower taxes also contribute to a more honest labour market.

Pamper pension savings
The tax reform will also have interesting consequences for the financial sector, the retail sector and other areas of society with an interest in the economic priorities of Danes who have more money in their pockets. We know that the retail sector will experience a boost resulting from the increase in disposable income, but not all the money will go towards extra consumption. Some of it will also be put into savings, but what kind? The high marginal tax rate in Denmark has turned increasing pension payments into something of a national pastime in an effort to avoid and postpone paying taxes. If the top-bracket tax were abolished, this hobby would become less interesting, even though the higher disposable income would make it possible to increase savings. The responses from FTF-A's members show that 20 per cent of people with pension savings would increase their payments if the top-bracket tax were abolished, while only 8 per cent would decrease payments to their pension savings. This illustrates that the tax reform will not only have consequences for the labour market, but for many other sectors as well. For instance, people will spend more money in shops, and the financial sector can expect to experience an increase in demand for pension-related products.

 

Expensive in the beginning
Naturally, the many positive effects of the tax reform described here do not stand alone, and the observant reader is probably wondering whether there are any negative consequences of the tax reform. One problem is that the reform will not be self-financing in the short term. Consequently, the state will have less money in its coffers as a result of lower taxes next year, even taking into account the fact that a number of people will work more. However, this does not mean that the tax reform cannot be self-financing in the medium or long term. The changed behaviour patterns that we will see in the Danish people as a result of the lower tax on work will contribute to this. For example, higher pay after taxes will encourage young people to exploit their potential better, e.g. by obtaining a higher education, which will contribute in the long term to better pay conditions and growth in the economy.

 

How skewed can Denmark be?
One of the more negative consequences of the tax reform stems from the fact that the tax cut primarily affects the upper levels of the income distribution, leading to greater inequality in society. While the question of how much inequality can be tolerated is a political issue, it is naturally an important aspect that should be considered. But with that said, Danish society generally has a very high level of equality compared to other countries.

Jensen Comment
Could it be that tax revisionists in Denmark are beginning to anticipate value added from something like an American Dream being introduced in Denmark?

Hi Ramesh,

If income and wealth equality is such a stimulant  to economic growth and prosperity why haven't nations other than Cuba and North Korea seriously experimented with making everybody equal in income and wealth?


Why, for example, haven't Japan, South Korea, Norway, Finland, India, and now China seen the egalitarian light?


Seems like an economic prosperity solution that Marx, Engels, and Mao brilliantly advocated in previous centuries.


More importantly, Ramesh, can you offer us a clue as to why the following countries, in an effort to stimulate economic growth, decreased rather than increased the taxes paid by their most wealthy citizens? Why on earth would Finland, Norway, Denmark, India, Iran, and the others do such a thing that is counter to the expert that you linked us to in this thread?


Isn't this an effort to increase the economy with less equality?
Liberals/progressives just will not provide me with an answer to this question.


I imagine you will also not answer this question about the economic stupidity versus brilliance of so many nations when they decrease taxes to their most wealthy citizens?


Repectfully,
Bob Jensen

TED Video by Richard Wilkinson:  The Situation of Inequality
Jensen Preliminary Comment
I'm always in favor in academic settings in trying to show all sides of an issue, the issue in this case being equality of income, opportunity, health care, diet, etc.

Firstly, I should state my biases. I'm rooted in The American Dream that people of all ages should have all-important opportunities for training and education, which is why I strongly favor tax supported schools, colleges, and free open sharing of knowledge. In the U.S. we've seen a decline in opportunity with great variations safety and education in schools say in South Chicago versus those in South Dakota. Inequality in opportunity in education is appalling to me.

Secondly, I'm in favor of universal health care (much like the Canadian Model and not at all like the Obamacare Model) ---
http://www.trinity.edu/rjensen/Health.htm
I note, however, that America's vast investments in health have not all been wasted. The entire world has benefited from the U.S. advances in pharmacology, medical technology, and other discoveries. More people come to the U.S. for complicated medical treatments than vice versa. But there are gaps in terms of access where the poorest and the richest people have better access than some of the people caught in the middle who cannot afford good health insurance.

I could go on about my liberal (progressive) biases in many areas, but it may be better for you to watch the following very moving video about inequality around the world.

TED Video by Richard Wilkinson:  The Situation of Inequality ---
http://thesituationist.wordpress.com/2012/06/09/the-situation-of-inequality-2/

Jensen Comment
Some might conclude that this video is just the opposite of what I've been urging about The American Dream ---
http://www.cs.trinity.edu/~rjensen/temp/SunsetHillHouse/SunsetHillHouse.htm
I agree with much (actually most) of this video.

There are some comments in the video that I most certainly must register disagreement.
For example, Wilkinson at one point asserts:  "If you want The American Dream go to Denmark."
In the context of universal educational opportunity in the 21st Century this sadly correct.
However, in other contexts this is not correct. The Denmark Dream of free education, health care, retirement pensions, etc. has in retrospect had impacts that run counter to the American Dream. The American Dream inspires ambition, whereas the Denmark Dream destroys ambition --- Danes are provided for cradle-to-grave with equality no matter how hard you work. Studies show that Danes usually aren't interested in overtime work opportunities. They don't have to save for their children or their old age.

Danes have less incentive to invent and innovate since the tax structure takes most of the rewards for success to the government. They are less likely to do such things as go heavily into mortgage debt and invest their savings in a risky investment that takes 16 or more hours a day of hard labor to bring to long-term fruition when the mortgages are paid off ---
http://www.cs.trinity.edu/~rjensen/temp/SunsetHillHouse/SunsetHillHouse.htm

What is the most misleading to me in Wilconsin's video is that simply redistributing the wealth in America to make us more like Denmark would bring about dramatic improvements in all the problems of inequality that he addresses. However, he simply avoids more complicated questions. For example, Denmark does not have millions of very poor and uneducated people from other parts of the world sneaking into and squatting for the long-term in Denmark. Denmark does not have anywhere near the crime issues with drugs and gangs that are raising havoc in U.S. schools, medical clinics, families, neighborhoods, and prisons. For example, putting the highest paid and best teachers in urban schools in our largest schools is not going to solve the problem of neighborhood gangs, fear, intimidation, extortion, rape, prostitution, and murder that interferes with equal opportunity education in America. I think Wilkinson knows all these problems but selectively does not want to poison his conclusion that redistribution of wealth is the magic bullet of society.

The Scandinavian countries, Japan, and South Korea all are countries of low diversity and minimal immigration. They do not experience many of the problems (as well as benefits) that comes from diversity. Where they've experimented with slight amounts of immigration they've encountered huge problems such as a spike in rapes in Norway attributed to immigration. The "happiest nations" if the world have the least legal and illegal immigration ---
http://www.cs.trinity.edu/~rjensen/temp/SunsetHillHouse/SunsetHillHouse.htm
 

The underlying theme of the Wilconson video is that increasing the top marginal tax rates to achieve inequality will have nothing but good outcomes for developed countries (he makes an exception for undeveloped countries). But this does not explain why even his most favored equality-bent countries like Scandinavia and Japan discovered that very high marginal tax rates were dysfunctional to their economies:

Data that Wilconson does not show is that nations benefitting (in his eyes) from high top marginal tax rates have actually been lowering this rates and creating greater inequality in their nations. Wilconson makes no attempt to explain why all these nations are lowering their top marginal tax rates ---
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm

Marginal Tax Rate Declines in the Rest of the World ---
http://www.econlib.org/library/Enc/MarginalTaxRates.html

My conclusion is that Wilconson's TED video is very thought provoking and has changed my thinking on a lot of things. But as a magic bullet for issues threatening sustainability of the United States his implied solutions are superficial and misleading. The U.S. is an immensely more complicated than Denmark. Denmark solutions in the U.S. might very well indeed spell complete disaster by destroying ambition, savings, risk taking (business loans), and innovations.

All the sophomores of the world will buy into Wilconson's TED video hook, line, and sinker. Hopefully, their teachers and professors have more good sense. We need more ambition and innovation in the world rather than the complacency of the Denmark Dream not suited for mass immigrations and cultural diversity conflicts. We need to face the reality that most of the people of the world are still greedy and tribal and conflicted with differing religions. For them the answers are so simple.

Could it be that the rest of the world finds value added something like America's Dream?

Happy or not, the Danes have some of the same unhappiness (on a smaller scale) as we have in the United States.


Danes must be a bit unhappy about being ranked the lowest of the Scandinavian countries in terms of education. Denmark also ranks lower in education than the United States, Poland, Estonia, France, Ireland, South Korea, and some other nations ---
http://www.guardian.co.uk/news/datablog/2010/dec/07/world-education-rankings-maths-science-reading


Denmark comes in at Rank 34 in health care behind Italy, Greece, Morocco, Chile, Canada, and its Scandinavian neighbors. The United States is at Rank 37 ---
http://www.photius.com/rankings/healthranks.html


Perhaps Denmark is "happy" because it turns a blind eye to many of its serious troubles. Or perhaps Danes just try harder at keeping up happiness appearances.


Nurses strike over wages in Denmark, the divorce rate is somewhat high, crime is on the rise, and immigrants in Denmark find barriers to social integration.
http://www.ms.dk/sw116735.asp


The bliss in Denmark (even more so in Norway)  has been greatly upset by recent multiculturalism ---
http://www.danielpipes.org/450/something-rotten-in-denmark
This article and its controversial author, however, are probably too off topic to pursue in a thread on the AECM. The point is, however, that happiness and multiculturalism do not always go hand in hand. Denmark and Norway may have been more "happy" in the past when they were less multicultural. There are reports that many blond women are dying their hair to make them less vulnerable to rapes.


Perhaps Denmark is "happy" because it turns a blind eye to many of its serious troubles. Or perhaps Danes just try harder at keeping up happiness appearances.


Respectfully,
Bob Jensen

None of the Scandinavian countries did well in the hard work rankings, nor did high GDP per capita nations that are OPEC nations. This does not surprise me. However, Iceland made it in the Top 10. This is somewhat a surprise.  South Korea tops the list --- which hardly comes as a surprise to me.

What's most surprising, however, is how many of the so-called "failing" European nations are considered to be the "hardest working" versus how many of the most successful European nations are not found to be the "hardest working" nations. For example, in the Top 10 hardest working nations are Greece, Spain, and Italy. Not in the Top 10 are Germany, France, or any of the Scandinavian countries.

I don't want to imply that egalitarianism destroys the work ethic, or that the work ethic is always the road to happiness and feelings of accomplishment. The results for Greece, Spain, Italy, Mexico, and some of the other "hardest working" countries are somewhat confusing to me. If I were to investigate, I would try to dig deeper into whether an "hour of work" can really be compared between some countries. For example, in the U.S. there's a difference between the 10 guys leaning on shovels above a trench and the two guys down below with the perspiration-soaked shirts.

The China Dream

Ronald Coase (Nobel Laureate)  --- http://en.wikipedia.org/wiki/Ronald_Coase

"How China Made Its Great Leap Forward:  Some observers praise its 'state-led capitalism.' But the truth is that leaders, starting with Deng Xiaoping, loosened Beijing's control," by Ronald Coase and Ning Wang, The Wall Street Journal, April 6, 2012 ---
http://online.wsj.com/article/SB10001424052702303302504577326132059836456.html#mod=djemEditorialPage_t

China's post-Mao market transformation is one of the most dramatic and momentous events of our time. It has lifted hundreds of millions out of extreme poverty, freed one fifth of humanity from ideological radicalism, revived one of the oldest civilizations, and inspired all of us to explore the benevolence of the market.

Yet capitalism as currently practiced in China suffers a severe failing: the lack of a marketplace for ideas. China's market transformation flourished at the ground level without much help from Beijing—contrary to its leadership's claims. But the free flow of ideas has faltered. Until that changes, China will never reach its full potential.

At Mao Zedong's death in 1976, few, if any, could have foreseen that China, then one of the poorest and most isolated countries in the world, would become a dynamic market economy in just three decades. An added surprise is that all this happened under the auspices of the Chinese Communist Party, which was committed along the way to modernizing socialism.

When China started reforming and opening up, it had little knowledge of the market economy. Mao's grandiose but disastrous policies had gravely impoverished the country materially and intellectually. China had been isolated from the West and cut off from its own traditions. With no blueprint, it had no choice but to work within the ruins of socialism, through tinkering and improvisation. This experimental approach was helped along the way by the resuscitation of the Confucian tradition of "seeking truth from facts."

China's road to capitalism was forged by two movements. One was orchestrated by Beijing; its self-proclaimed goal being to turn China into a "modern, powerful socialist country." The other, more important, one was the gross product of what we like to call "marginal revolutions." It involved a concatenation of grass-roots movements and local initiatives.

While the state-led reform focused on enhancing the incentives of state-owned enterprises, the marginal revolutions brought private entrepreneurship and market forces back to China. Private farming, for example, was secretly engaged in by starving peasants when it was still banned by Beijing. Rural industrialization was spearheaded by township and village enterprises that operated outside state control. Private sectors emerged in cities when self-employment was allowed to cope with rising unemployment. Foreign direct investment and labor markets were first confined to Special Economic Zones.

All these marginal forces had been either harshly oppressed or heavily regulated during Mao's era. Fortunately, post-Mao Chinese leaders—most notably Deng Xiaoping—embraced change. Mao's failure taught them to stay away from ideological hubris and re-embrace pragmatism. Under their leadership, Beijing admitted its lack of experience in reform. Local initiatives were first allowed, and later encouraged, to play a leading role in market-oriented experiments.

Inadvertently, this process led to the relatively thriving market we see in China today. When Beijing still preached socialism, local authorities explored new, market-oriented approaches to revive local economies. While Beijing held tight to political power, it was no longer a central planner. As provinces, cities and counties all competed for economic development, China became a giant laboratory of regional competition.

China's leaders have never given up on socialism, which in their minds calls for public ownership to ensure shared prosperity (even though state-owned enterprises have exacerbated inequality and corrupted politics). They insist on keeping key sectors—including banking, energy, communication and education—under state monopoly. As a result, many characterize the Chinese economy as "state-led capitalism." But it was really the marginal revolutions and regional competition that ushered in China's economic rise.

In the years to come, China will continue to forge its own path, but it needs to address its lack of a marketplace for ideas if it hopes to continue to prosper. An unrestricted flow of ideas is a precondition for the growth of knowledge, the most critical factor in any innovative and sustainable economy. "Made in China" is now found everywhere in the world. But few Western consumers remember any Chinese brand names. The British Industrial Revolution two centuries ago introduced many new products and created new industries. China's industrial revolution is far less innovative.

The active exchange of thoughts and information also offers an indispensable foundation for social harmony. It is not a panacea; nothing can free us once and for all from ignorance and falsehood. But the free flow of ideas engenders repeated criticism and continuous improvement. It also cultivates respect and tolerance, which are effective antidotes to the bigotry and false doctrines that can threaten the foundation of any society.

Continued in article

The China Dream:  Rise of the Billionaire Tiger Women from Poverty
"Tigress Tycoons," by Amy Chua, Newsweek Magazine Cover Story, March 12, 2012, pp. 30-39 ---
http://www.thedailybeast.com/newsweek/2012/03/04/amy-chua-profiles-four-female-tycoons-in-china.html

Like a relentless overachiever, China is eagerly collecting superlatives. It�s the world�s fastest-growing major economy. It boasts the world�s biggest hydropower plant, shopping mall, and crocodile farm (home to 100,000 snapping beasts). It�s building the world�s largest airport (the size of Bermuda). And it now has more self-made female billionaires than any other country in the world.

This is not only because China has more females than any other nation. Many of these extraordinary women rose from nothing, despite living in a traditionally patriarchal society. They are a beguiling advertisement for the New China�bold, entrepreneurial, and tradition-breaking.

Four standouts among China�s intriguing new superwomen are Zhang Xin, the factory worker turned glamorous real-estate billionaire, with 3 million followers on Weibo (China�s Twitter); talk-show mogul Yang Lan, a blend of Audrey Hepburn and Oprah Winfrey; restaurant tycoon Zhang Lan, who as a girl slept between a pigsty and a chicken coop; and Peggy Yu Yu, cofounder and CEO of one of China�s biggest online retailers. None of these women inherited her money, and unlike many of the richest Chinese who are reluctant to draw public scrutiny to their path to wealth, they are proud to tell their stories.

How did these women make it to the top in the wild, wild East? Did they pay a price, either in their family or their professional lives? What was it that distinguished them from their famously hardworking compatriots? As I set out to explore these questions, my interest was partly personal. All four of my subjects lived for extended periods in the West. As a Chinese-American, and now the infamous Tiger Mom, I was curious: how �Chinese� were these new Chinese tigresses?

It turns out that each of these women, in her own way, is a dynamic combination of East and West. Perhaps this is one secret to their breathtaking success.

Zhang Xin is a rags-to-riches tale right out of Dickens. She was born in Beijing in 1965. The next year Mao launched the Cultural Revolution, and millions, including intellectuals and party dissidents, were purged or forcibly relocated to primitive rural areas. Children were encouraged to turn in their parents and teachers as counterrevolutionaries. Returning to Beijing in 1972, Zhang remembers sleeping on office desks, using books for pillows. At 14 she left for Hong Kong with her mother, and for five years she worked in a factory by day, attending school at night.

�I was a miserable kid,� she told me. With her chic cropped leather jacket and infectious laughter, the cofounder of the $4.6 billion Soho China real-estate empire is today an odd combination of measured calculation and warm spontaneity. �My mother drove me in school so hard. That generation didn�t know how to express love.

�But it wasn�t just me. It was all of China. I don�t think anybody was happy. If you look at photos from those days, no one is smiling.� She mentioned the contemporary artist Zhang Xiaogang, who paints �cold, emotionless� faces. �That�s exactly how we all grew up.�

. . .

But the four women I interviewed are a new breed. Progressive, worldly, and open to the media, they are in many ways not representative of China, past or present. Perhaps they are merely the lucky winners of the 1990s free-for-all in China, a window that may already be closing. Or perhaps they are the forerunners of a China still to come, in which paths to success are far more open. Each has found a way to dynamically fuse East and West, to staggering commercial success. It may still be a long way off, but if China can achieve a similar alchemy�melding its tremendous economic potential and traditional values with Western innovation, the rule of law, and individual liberties�it would be a land of opportunity tough to beat.

Jensen Comment
Many of us were weaned on the famous Coase Theorem on economic efficiency with externality constraints ---
http://en.wikipedia.org/wiki/Coase_theorem

We should wait for a safer way to get at this gas --- this is not a long term efficient solution
Hydraulic Fracturing Concerns --- http://en.wikipedia.org/wiki/Fracking
Gasland - OTRAVIREA VOITA A APEI. METODA FRACTIONARII HIDRAULICE
http://www.youtube.com/watch?feature=player_detailpage&v=iLal7aUqZRM 
Thank you Dan Gheorghe Somnea for the heads up.

Bob Jensen on the American Dream versus the China Dream ---
http://www.cs.trinity.edu/~rjensen/temp/SunsetHillHouse/SunsetHillHouse.htm

April 6, 2012 message from Roger Collins

Guardian (UK paper) journalist reviews children's movie, with a dose of Political Economy thrown in...

A sample paragraph..

Unfortunately, capitalism's boast – that it accords with human nature – is actually capitalism's problem: that it rewards the most rapacious aspects of human nature, at the expense of the natural world more generally. Most of capitalism's critics understand this, and find it mightily frustrating that the right carries on regardless with the pillaging.

The real problem, however, is that as an alternative to capitalism, socialism is a turkey, far more concerned with equality of distribution of the spoils (or, at the very least, equality of opportunity to have a go at grabbing some) than it is with tackling human dependence on wealth. One could even argue that socialism is even more perverse than capitalism, nothing more or less than its dark and negative mirror. After all, it focuses as obsessively on lack of money, and denial of access to resources, as the system it opposes does on accumulation of money, and access to resources. Capitalism accentuates the positive – wealth. Socialism accentuates the negative – poverty. The supposedly opposing ideologies are merely opposite sides of the same coin. It's because wealth itself confers power that Marxism's logical, unpalatable, unworkable "solution" is redistribution by force – revolution.

More at ..

http://www.guardian.co.uk/commentisfree/2012/apr/06/deborah-orr-aardman-pirates-capitalism 

and

http://www.guardian.co.uk/film/2012/mar/29/the-pirates-adventure-scientists-review 

Roger

Politically correct note.. "Leprosy support groups have successfully campaigned for the removal of a gag in upcoming Aardman Animations film The Pirates! in which a victim of the disease loses a limb as a result of his condition......The scene depicts the Hugh Grant-voiced Pirate Captain storming a ship in search of booty, only to be informed by one of its occupants: "Afraid we don't have any gold, old man, this is a leper boat. See …" The speaker's arm then drops off."

Roger Collins
TRU School of Business & Economics

 

Question
Does acceptance of racial cultural and religious diversity correlate with national "happiness?
How about gender diversity?
 

Acceptance of racial, cultural, and religious diversity ---
http://www.conferenceboard.ca/hcp/details/society/acceptance-of-diversity.aspx

Top 10 nations self-reporting to be the most happy nations (no ranking was given to Australia)
http://www.jiangsu.net/forum/viewtopic.php?f=2&t=2256


1st - Denmark (shows acceptance of diversity declined)
2nd - Switzerland (shows acceptance of diversity declined)
3rd - Austria (shows acceptance of diversity declined)
4th - Iceland (not evaluated, possibly because there is so little such diversity in Iceland)
5th - The Bahamas (not mentioned in terms of diversity)
6th - Finland (Finland has never accepted diversity very well)
7th - Sweden (Sweden's acceptance of diversity has increased)
8th - Bhutan (not mentioned in terms of diversity)
9th- Brunei Darussalam (not mentioned in terms of difersity)
10th - Canada (Canada has always accepted diversity better than most other nations)

It would appear the acceptance of racial, cultural, and religious diversity is not positively correlated highly with happiness, although there are exceptions such as in Canada (highly multicultural) and Sweden (not very multicultural).

March 10, 2012 message from Jagdish Gangolly

Bob,

I would not place too much credence on the Canadian outfit that produced the report giving Canada triple-A rating. One of the reasons (not the main reason, of course) I decided to stay in the US rather than Canada (my parents wanted me to stay in the Commonwealth) way back in 1975 eventhough I had attractive offers from three good universities there was the race riots in Canada (in Toronto and Vancouver).

The civil rights struggles in the US were effective in changing the laws in the US around 1964 when Australia still had its "White Australia" policy. (The 'whites only' came to an end only around 1973; I was ineligible for Australian citizenship because of my ethnicity, when I came to the US). But by this Canadian study, by 1980s, miraculously, Australia got higher ratings in this report than the USA.

Diversity in Brunei and Bhutan is probably irrelevant for it is probably non-existent.

Castles, in ") Ethnicity and Globalization" has pointed out, “Failure to make immigrants into citizens undermines a basic principle of parliamentary democracy - that all members of civil society should have rights of political participation - but making them into citizens questions concepts of the nation based on ethnic belonging or cultural homogeneity” Most European countries, and recently Britain too, have put barricades on ehnic minorities gaining citizenship.

In this respect, USA has been a shining example of democracy.

Regards,

Jagdish

March 10, 2012 reply from Bob Jensen

Thank you Jagdish,

The diversity study conforms to my priors on these issues such that I don't suspect it to be a deliberately biased study in terms of acceptance of racial, cultural, and religious differences in these nations since the 1990s.

There is a huge distinction on what is the correct thing to do versus what leads a nation's people to the highest levels of "happiness." In the USA, much of the immigration arises from human rights sympathies such as allowing a large influx of immigrants from Somalia. This is politically correct but has not tended to make some cities "happy" such as Lewiston, Maine that has had tremendous problems absorbing huge numbers of these impoverished  immigrants into financially strained schools and hospitals. My son, Marshall, works in the  Lewiston hospital that had to treat tenfold more charity cases as more and more immigrants from Somalia located in Lewiston. Increases in crime in Lewiston have not been hugely problematic relative to issues of providing basic services to a greatly increased proportion of new citizens from Somalia who are very, very poor.

My subjective opinion is that one reason Austria soars so high on the happiness scale (at Rank 3) relative to Germany (Rank 35) is that Germany has a much higher proportion of immigrants (especially from Turkey). This has not been a bad thing for the German economy and is the correct thing to do from a human rights standpoint, but it does not lead to greater short-term happiness relative to nations like Denmark, Switzerland, and Austria that have very low immigration rates compared to Germany.

When the Scandinavian countries (except for Finland) opened the door slightly to immigration, there have been serious increases in crime. For example, I read where all the rape convictions in Oslo in 2010 were perpetrated by immigrants. This may account for the study's findings Norway and Denmark now have a declined "acceptance" of race, cultural, and religious diversity.

I don't think a nation's main goal should be happiness per se without looking at subtle things that make us willing to take on more unhappiness. Parents chasing the American Dream to make a better life for their children are not necessarily happy taking on heavy debt and working 70 hours a week in their small businesses. My son is not necessarily happy about being called in frequently at midnight to help with charity cases in the emergency room.

But these workers willingly accept the added burdens on their own lives because they think accepting such burdens is the "right thing" to do. Bless them!

Respectfully,
Bob Jensen

Diversity rankings in terms of gender.

Global Diversity Rankings by Country, Sector and Occupation, Forbes, 2012 ---
http://images.forbes.com/forbesinsights/StudyPDFs/global_diversity_rankings_2012.pdf

Top 10 nations self-reporting to be the most happy nations (no ranking was given to Australia)
http://www.jiangsu.net/forum/viewtopic.php?f=2&t=2256


1st - Denmark (Rank 5 in terms of gender diversity)
2nd - Switzerland (Rank 10 in terms of gender diversity)
3rd - Austria (Rank 16  in terms of gender diversity)
4th - Iceland (Rank 3 in terms of gender diversity)
5th - The Bahamas (not ranked as to gender diversity)
6th - Finland (Rank 4 in terms of gender diversity)
7th - Sweden (Rank 2 in terms of gender diversity)
8th - Bhutan (Not ranked in terms of gender diversity)
9th- Brunei Darussalam (Not ranked in terms of gender diversity)
10th - Canada (Rank 9 in terms of gender diversity)

It would appear the acceptance of gender diversity is highly correlated with self-reported happiness. Note that the United States came in at Rank 15 in the middle of the 30 nations ranked as to gender diversity. Gender diversity may well be a necessary but not a sufficient condition for happiness as suggested by the very high rankings of Switzerland and Austria on happiness vis-a-vis its somewhat lesser rankings on gender diversity.

Surprisingly, France came in at the very bottom of the ranking of 30 nations in terms of gender diversity.

Why don't people like markets or professors?

"Why don’t people like markets?" by Pascal Boyer, Cognition and Culture, June 18, 2012 ---
http://www.cognitionandculture.net/home/blog/35-pascals-blog/2423-why-dont-people-like-markets-the-largely-missing-cognition-and-culture-perspective

People do not love markets – there is a lot of evidence for that. Is it relevant that, well, to put it bluntly, people do not seem to understand much about market economics?

That is a common enough message from professional economists. It is put into sharper focus by Bryan Caplan in his book The myth of the rational voter. Caplan (among other important and interesting things) reports on systematic studies of voters’ knowledge of policies and their effects on economic processes. The take-home message is that people just don’t get it, and that their voting preferences are largely irrational.

Now, voter ignorance or irrationality would not be very bad, if it was completely random. If most voters chose policies randomly, the net result would be no strong aggregate preference for any policy. But Caplan shows that people’s irrationality about economic issues is not random at all. There is method in their madness. It consists in a series of “biases”, like the anti-foreign and anti-trade bias (i.e., “when foreign countries prosper we suffer”). If this is true, many “rational voter” models in political science are in serious trouble.

As usual when people describe folk-understandings as “irrational” or “biased”, we cognition and culture and evolution folks get a trifle impatient.

Too often, such descriptions boil down to the observation that human minds do not follow some arbitrarily chosen normative model (see Tversky and Kahneman passim and Gerd Gigerenzer on the alternative perspective). Surely we should not stop at saying that people “don’t attend to base rates” or “have a bias against foreign trade”. The real questions is, why? What psychological processes lead to such biases?

The truth is, no-one knows because no-one bothered to study that. I am surprized, nay flabbergasted that there is no study of folk-economics in the social science literature. No-one (except Caplan and a few others) seems to study what makes people’s economic modules tick. In psychology we have had decades of study of folk-physics, folk-biology, intuitive psychology and the like. Intuitive economics anyone?

Robert Nozick observed that intellectuals dislike markets, probably because intellectuals are used to and thrive in knowledge-rewarding meritocracies, while markets do not really care for your effort, intelligence or just desert, as long as you provide what others want. This may be true. But it is not sufficient, for most people, not just intellectuals, are leery of markets.

Market process are unloved for many reasons.

One of them, obviously, is that market processes are not visible. Going through our everyday tasks, we fail to notice how millions of voluntary transactions resulted in precisely these goods and services being available to us when and where we want them at a price that makes them affordable. That is of course a point that Adam Smith and others made long ago, but could be made more forcefully if we understood the limits and susceptibilities of human imagination. In a powerful essay, 19th century free-trader Frédéric Bastiat noted that the economic process comprises ‘what is seen’ and ‘what is unseen’. For instance, when a government taxes its citizens and offers a subsidy to some producers, what is seen is the money taken and the money received. What is unseen is the amount of production that would occur in the absence of such transfers

Another plausible factor is that markets are intrinsically probabilistic and therefore marked with uncertainty. Even though it is likely that whoever makes something that others want will earn income, it is not clear who these others will be, how much they will need what you make or when you will run into them. Like other living organisms, we are loss-averse and try to minimise uncertainty. (Note, however, that market uncertainty creates a niche for market-uncertainty insurance, which itself is all the more efficient as it is driven by demand).

Continued in article

Why do they hate us (professors)? --- http://www.trinity.edu/rjensen/HigherEdControversies.htm#Hate

Jensen Comment
Professors (and other intellectuals) hate markets, and non-intellectuals hate professors. So we must learn to live with hate. We don't live very well without some things we hate. Students cannot imagine learning without the help of professors, both research professors who discover new knowledge and teachers who provide materials and other aids for learning existing knowledge.

Nationwide experiments with resource allocation based up government planning boards are now mostly rotting hulls on the shores of failed experimental utopias. Where governments stepped in to distribute goods and services with coupon books or highly controlled prices, black markets moved in to make up for the failures of those controlled economies. The biggest failures came with mismatches of supply and demand creating surpluses of things consumers did not much want in great quantities and shortages of things that they desperately wanted. Countries that brutally control the black markets often end up with mass starvation like what has happened in North Korea for decades.

This of course does not mean that government should not regulate prices and resource allocations where there are resources that are externalities incapable of being effectively and efficiently priced on the market such as clean air, pure water, national security, public safety, universal education. I think universal health care (at least at basic levels) should also be considered externalities needing government regulation. There are also huge risks of overgrazing the commons without some government regulations and price controls.

One major problem is where subsets, often very small subsets, of people desperately need some essentials that cannot be produced at prices they can afford to pay. For example, we're currently having this problem with certain life-saving cancer drugs that are enormously expensive to produce in the often small quantities desperately needed by the few patients who will die without them. On occasion very tough choices must be made regarding subsidized pricing. Should we raise taxes by a billion dollars per year to provide 25,000 children with a life saving drug? Should we raise taxes by a billion dollars per year to provide 10 children with a life saving drug? There are obviously tough decisions to be made for some externalities.

End of the Cuban Dream
Trying to Inspire Ambition Among People Used to Free Housing and Medical Care Plus Almost Free Food, Transportation and Everything Else
"On the road towards capitalism: Change is coming to Cuba at last. The United States could do far more to encourage it," The Economist, March 24, 2012 ---
http://www.economist.com/node/21551047

IN 1998 Pope John Paul II visited Cuba, prompting outsiders to await a political opening of the kind that brought down communism in his native Poland. Sadly, even two decades after the fall of the Berlin Wall, Cuba remains one of the handful of countries around the world where communism lives on. Illness forced Fidel Castro to step down in 2006, but his slightly younger brother, Raúl, is in charge, flanked by a cohort of elderly Stalinists. When Pope Benedict XVI visits the island next week, expectations will be more muted.

Yet a momentous change has begun in Cuba in the meantime. The country has started on the road towards capitalism; and that will have big implications for the United States and the rest of Latin America.

The journey, as our special report this week explains, will be painfully slow. No active dissent from one-party rule is allowed: dozens of opponents of the regime have been arrested ahead of the pope’s visit. Sceptics will note that Fidel Castro opened up the island’s economy a little in the early 1990s, after the collapse of the Soviet Union and the withdrawal of its subsidies, only to stop when he found a new benefactor in Venezuela’s Hugo Chávez.

But this time seems different. Raúl Castro, though no democrat, is clearly a more practical man than his brother. He recognises that time is running out for his island. The population is shrinking and ageing, the economy is hopelessly unproductive and the state can no longer pay for the paternalist social services of which Cuba was once proud. Meanwhile, Mr Chávez’s health and his hold on power are uncertain.

The changes Raúl Castro has introduced are almost certainly irreversible. Much of Cuban farming is, in effect, being privatised. In all, around a third of the country’s workforce is due to transfer by 2015 to an incipient private sector. As well as employing others, Cubans can now buy and sell houses and cars, even as the number of mobile phones and computers on the island is rising fast. This looks like a turning point similar to Deng Xiaoping’s revolution in China.

No man is an island

Reform is moving slowly partly because Mr Castro is ambivalent. He insists, as Deng did, that his aim is to sustain, not dismantle, the Communist Party’s control. There are also obstacles to reform. Bureaucrats fear losing power and perks; ordinary people fear rising prices. Popular opposition forced Mr Castro to drop a proposal to scrap the ration books that give all Cubans some subsidised food.

But going too slowly is now as dangerous for the Castros as going too fast. Cubans are unhappy. Their schools and hospitals are not as good as they were. Inequalities of income now exist alongside those of power. There is much resentment of the opportunities afforded to insiders and denied to everyone else. Having raised Cubans’ hopes of change, Raúl Castro urgently needs to create some winners from the reforms—and that means pushing ahead. Small businesses must be allowed to become medium and large ones. Foreign investment should be welcomed. And the ration books should go, with subsidies targeted at the poor.

The other reason for urgency is that the Castros have failed to groom a successor. When Fidel, who is 85, dies, change will doubtless accelerate, but the regime will not fall apart: Raúl is the important one now. Yet whoever takes over from him—and a partial handover may start as soon as 2013—will not have the brothers’ revolutionary credentials. Cubans will judge their next leader strictly on his or her present performance. The longer Raúl tarries over placing the economy on a sustainable footing, the greater the risk that a post-Castro leadership will be swept away on a tide of popular anger.

Time for America to get over its 50-year tantrum

Few will mourn this regime. But there are several reasons for all sides to prefer an orderly transition to capitalism and democracy in Cuba. The sudden collapse of communism risks civil war, or at least the danger that Cuba’s formidable security and intelligence agencies will become hired guns at the service of drug trafficking and organised crime. The presence of 1.2m Cuban-Americans in south Florida makes it likely that the United States would get dragged into any conflict.

Continued in article

The American Dream ---
http://www.cs.trinity.edu/~rjensen/SunsetHillHouse/SunsetHillHouseHotel.htm 

Global Poverty

Mexico and Chile Have the Lowest Poverty Rates South of the Rio Grande
"The Rise of Mexico's Middle Class:  A stable peso and freer trade have allowed the majority of the population to escape poverty," by Mary Anastasia O'Grady, The Wall Street Journal, March 5, 2012 ---
http://online.wsj.com/article/SB10001424052970203986604577257341514055760.html?mod=djemEditorialPage_t
 

Tales of beheadings, bloody shootouts and execution-style murders in this country have overshadowed another story that, in the long view of history, is undoubtedly more significant. It is the rise of a Mexican middle class.

This little-noticed development is thanks not to government welfare or foreign aid but mainly to the opening of markets and to the end of the central bank's practice of financing the government. Growth in the last decade has been nothing to brag about and key reforms are still needed if Mexico is to become a developed country. But as Banco de Mexico Governor Agustin Carstens told me over breakfast at the central bank here last month, institutional changes on the fiscal, financial and monetary fronts since the 1995 peso crisis have all contributed to increased price stability, a key factor in wealth accumulation.

One thing Mr. Carstens did not mention—since he is as diplomatically skillful as he is mindful of the high cost of inflation on Mexican households—is that Mexico has avoided running up huge fiscal deficits in recent years, despite a U.S. Treasury push for stimulus spending by the G-20. Mexico had been there and done that. When government goes hog-wild, markets worry that the debt will be monetized by the central bank. Mexican President Felipe Calderón of the National Action Party (PAN) wisely resisted.

It was as much a political decision as it was economic. In a recently released book "Mexico: A Middle Class Society," Mexican economist Luis de la Calle and Mexican political scientist Luis Rubio describe a nation where many politicians still think of the electorate as rural and poor but where consumption patterns reveal a trend toward urbanization and upward mobility. Judging by family incomes but also by things like housing rental and ownership, appliance purchases, Internet access and trips to the cinema, they argue that today "the middle-class population is the majority in Mexico."

This has occurred, the authors say, "by combining the income of various family members [including remittances from abroad] rather than through the increased income of an individual or couple." In other words, Mexico has not achieved the wage gains generally associated with a rising middle class.

So what's different? For one thing, the North American Free Trade Agreement has meant an opening of the retail sector, giving Mexicans access to quality products at competitive prices. Second, family incomes are no longer being destroyed by successive devaluations and bouts of inflation triggered by fiscal crises.

The gains from this fiscal and monetary restraint are likely to have major implications for North American stability because, as Messrs. de la Calle and Rubio write, "In Mexico, the middle class has felt the consequences of the financial crises more than any other social group. It's no coincidence that their political inclination is to be conservative and to reject any alternative that could destabilize their security."

Mr. Carstens describes the process of "keeping a lid on inflation" as a "balancing act" because rising international commodity costs "generate upward pressure" on prices and so can peso weakness. The bank, he says, has tried "to keep [interest] rates as low as possible given [these constraints] in order to support as much as possible the economy." It hasn't been easy. Federal Reserve Chairman Ben Bernanke's decision to flood the world with dollars has pushed food prices higher while financial scares around the globe—subprime and Europe—invariably send investors rushing out of currencies like the peso and into the dollar.

Continued in article

Jensen Comment
I wish the U.S. had a more positive attitude toward free trade and electoral concern over the inflation cannon called the trillion-dollar deficit boomer financed on a Chinese credit card. In spite of the image of lazy bandidos going back to Hollywood theater 100 years ago, Mexico has a relatively good work force. Mexico is helped by being an oil producing OPEC nation, although the comparative advantage of oil exports is waning.

Chile's economic success, including a quite good health care system, is attributed to various factors, not the least of which is free trade and capitalist work ethic ---
http://en.wikipedia.org/wiki/Chicago_Boys

A Carnegie-Mellon Professor says the widening gap between the top 1% and the remaining 99% is no proof that capitalism is unjust

"A Look at the Global One Percent:  The remarkable similarity in income distribution across countries over the past century means domestic policy has less effect than many believe on who gets what," by Allan Meltzer, The Wall Street Journal, March 9, 2012 ---
http://online.wsj.com/article/SB10001424052970204653604577249852320654024.html?mod=djemEditorialPage_h

While the Occupy Wall Street movement may be waning, the perception of growing income inequality in America is not. For those on the left, the widening gap between the top 1% of earners and the remaining 99% is proof that American capitalism is unjust and should be traded in for an economic model more closely resembling the social democracies of Europe.

But an examination of changes in income distribution over nearly 100 years, not just in the United States but elsewhere in the developed world, does not bear this out. In a 2006 study titled "The Evolution of Top Incomes in an Egalitarian Society," Swedish economists Jesper Roine and Daniel Waldenström compared the income share of the top 1% of earners in seven countries from the early 1900s to 2004. Those countries—the U.S., Sweden, France, Australia, Britain, Canada and the Netherlands—all practice some type of democratic capitalism but also a fair amount of redistribution.

As the nearby chart from the Roine and Waldenström study shows, the share of income for the top 1% in these seven countries generally follows the same trend line. That means domestic policy can't be the principal reason for the current spread between high earners and others. Since the 1980s, that spread has increased in nearly all seven countries. The U.S. and Sweden, countries with very different systems of redistribution, along with the U.K. and Canada show the largest increase in the share of income for the top 1%.

The main reasons for these increases are not hard to find. Adding a few hundred million Chinese and Indians to the world's productive labor force after 1980 slowed the rise in income for workers all over the developed world. That's the most important factor at work. The top 1% gain relatively because they are less affected by the hordes of newly productive workers.

But the top 1% have another advantage. Many of them have unique skills that are difficult to replicate. Our top earners include entrepreneurs, rock stars, professional athletes, surgeons and lawyers. Also included are the managers of large international corporations and, yes, bankers and financiers. (Interestingly, the Occupy movement seldom criticizes athletes or rock stars.)

The most dramatic change shown in the chart is the decline in the top 1% of Swedish earners' share of total income to between 5%-10% in the 1960s from well over 25% in 1903. The Swedish authors explain that drop as mainly due to the decline in real interest rates that lowered incomes of rentiers who depended on interest and dividends. Capitalist development, not income redistribution, brought that change.

Income-redistribution programs that became widespread in the 1960s and 1970s had a much smaller influence than market forces. Between 1960 and 1980, the share going to the top 1% declined, but the decline is modest. The share of the top percentile had been reduced everywhere by 1960. Massive redistributive policies in Sweden did more than elsewhere to lower the top earners' share of total income. Still, the difference in 1980 between Sweden and the U.S. is only about four percentage points. As the chart shows, the top earners in both countries began to increase their share of income in 1980.

The big error made by those on the left is to believe that redistribution permits the 99% or 90% to gain at the expense of top earners. In much current political discussion, this is taken as an unchallenged truth. It should not be. The lasting opportunity for the poor is better jobs produced by investments, many of which are financed by those who earn high incomes. It makes little sense to applaud the contribution to all of us made by the late Steve Jobs while favoring policies that reduce incentives for innovators and investors.

Our system is democratic capitalism. In every national election, the public expresses its preference for taxation and redistribution. It is a democratic choice, not a plot controlled by one's most despised interest group. The much-maligned Congress is unable to pass a budget because it is elected by people who have conflicting ideas about taxes and redistribution. President Obama wants higher tax rates to pay for more redistribution now. The Republicans, recalling Ronald Reagan and Margaret Thatcher and much of the history of democratic capitalist countries, want lower tax rates and less regulation to bring higher growth and to help pay for some of the future health care and pensions promised to an aging population.

Regardless of one's economic philosophy, the public deserves an accurate presentation of the reasons for the change in income distribution. The change is occurring in all the developed countries. The chart shows that policies that redistribute wealth and income have at most a modest effect on income shares. As President John F. Kennedy often said, the better way is "a rising tide that lifts all boats."

Mr. Meltzer, a professor of public policy at the Tepper School, Carnegie Mellon University and a visiting scholar at Stanford University's Hoover Institution, is the author most recently of "Why Capitalism?" just published by Oxford University Press.

"Federal Budgets and Class Warfare:  I support letting the Bush tax cuts expire. But the Obama plan isn't a serious strategy," by Michael R. Bloomberg, The Wall Street Journal, March 28, 2012 ---
http://online.wsj.com/article/SB10001424052702303816504577309434216236936.html#mod=djemEditorialPage_t

A cardinal rule of American campaigns is that candidates must appeal to the party base during primary elections and then move to the center to win moderates and independents in November. This year, on the issues of taxes and spending, that shift can't come soon enough—and not just for the Republican nominee.

Over the past year, as the candidates jockeying for the Republican nomination raced to the right, the Obama campaign has sought to re-energize its base by tacking left. The president not only embraced the frustration expressed by Occupy Wall Street protesters—which was real—but he adopted their economic populism.

Central to fixing the country's problems, he has argued, is making the wealthiest Americans pay their "fair share," even though the top 5% already pay 59% of all federal income taxes, while 42% (actually 49.5%) of filers have no federal income tax bill at all (or got a check from the government via the earned-income tax credit). Warren Buffett's secretary became the public symbol of this strategy, even appearing at the president's State of the Union address. (Mr. Buffett, of course, did exactly what lower capital gains taxes are designed to encourage: He invested!)

I don't believe in class warfare, and not because I don't want to pay more in taxes. I think the Bush tax cuts should expire for all Americans—you, me, everyone—as part of a long-term plan to rein in the deficit. We are all in this together. Pitting one group against another not only divides us in counterproductive ways but offers one group the false promise of something for nothing.

That's exactly what got our country into this mess in the first place. Mortgages were approved with no money down for borrowers with no income and no assets. Meanwhile, the federal government was running up huge deficits during a period of economic growth and telling the American people not to worry about the bill. Even today, four years later, none of the major candidates for president has developed a plan for paying the bill. Instead, all are still offering something for nothing.

The president asserts that 98% of Americans do not need to pay more in taxes, that we just need those earning more than $1 million to pay a minimum of 30% in federal income taxes. But according to Congress's Joint Committee on Taxation, this plan would generate only $1.1 billion in revenue for the coming fiscal year. To put that in perspective, the federal government this year is spending $1.2 trillion more than it is taking in.

Whether you support it or not, the president's tax plan is a political strategy, not an economic one. It will have virtually no bearing on the federal deficit or our ability to finance current spending levels.

The Republican presidential candidates have unveiled tax plans that are just as divorced from reality. They say they'll make the Bush tax cuts permanent while also eliminating the deficit. If you believe that, I've got a bridge to sell you. Republicans who emphasize economic freedom would have a lot more credibility if they'd stop promising a free lunch. Any candidate who says we can cut taxes and balance the budget is either delusional or dissembling.

Both parties' candidates are also promising major reductions in spending. But there's one small catch: They don't have the courage to tell the public which programs they'll cut, and how they'll reduce entitlement spending, to balance the budget.

This is a problem not just for voters but for businesses. Nearly every CEO and business leader I speak with says virtually the same thing: They are hesitant to make major investment decisions until they know how Washington intends to grapple with its huge deficits. That uncertainty is a major drag on job creation because the price of uncertainty for business is paralysis. Companies with healthy balance sheets that could be creating jobs are sitting on the sidelines, waiting to see if the federal government will begin increasing market stability by reducing long-term deficits.

If the federal government passed a real deficit-reduction plan, business leaders would respond as they did in the 1990s, when President Clinton and Congress adopted a long-term deficit-reduction plan that gave businesses more certainty about the market. A serious deficit-reduction plan that both increases revenues and reduces expenditures would be the most effective economic stimulus plan Washington could adopt.

As the two parties sketch out their general-election campaign platforms, both should commit to a reasonable and responsible goal—closing the deficit in 10 years. Even given Washington's current dysfunction, this can be achieved through a simple two-step process: The president can declare that he will allow the Bush tax cuts to expire for all income levels, and Congress can take an up-or-down vote on the Simpson-Bowles deficit-reduction plan, as a bipartisan group of House centrists will propose this week. That plan calls for $4 trillion in savings by capping discretionary spending, slowing the growth of entitlement costs including Social Security, and raising revenue through tax reform.

I believe there is enough support in both parties and both houses to pass Simpson-Bowles. And the American people deserve to know, before the November election, where their representatives—and the candidates for president—stand on it.

The era of something for nothing must end if we are to get our country back on track. The nominee who is more willing to tell that truth to the American people will win the election.

Mr. Bloomberg is mayor of New York City.

"Adam Smith vs. Crony Capitalism:  The Scottish philosopher's suspicions about business people were well-founded," by Sheldon Richman, Reason Magazine, March 9, 2012 ---
http://reason.com/archives/2012/03/09/adam-smith-vs-crony-capitalism

I admit it: I like Adam Smith. His perceptiveness never fails to impress. True, he didn’t foresee the marginal revolution that Carl Menger would launch a century later (with, less significantly in my view, Jevons and Walras), but give the guy a break. The Wealth of Nations is a great piece of work.

One thing I find refreshing in Smith is his wariness of business people. This is something we ought to frequently remind market skeptics. Smith knew the difference between being sympathetic to the competitive economy—which he called the “system of natural liberty”—and being sympathetic to owners of capital (who might well have acquired it by less-than-kosher means, that is, through political privilege). He knew something about business lobbies.

This famous passage from book 1, chapter of Wealth is often quoted by opponents of the free market:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

The quote is used to justify antitrust law and other government intervention. But as has often been pointed out in response, Smith had no such policies in mind. We know this because he immediately follows with:

It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.

Prime Beneficiaries

Government should do nothing to encourage or enable attempts to limit competition. But of course government does that all the time at the behest of business and to the detriment of consumers and workers. Hampering competition raises prices for the former and weakens bargaining power—and therefore lowers wages—for the latter. Those groups would be the prime beneficiaries of freed markets.

That’s not the only time Smith expresses his anti-business sentiment. In the next chapter he discusses the division of income among landlords, workers, and owners of capital. Here Smith and the classicals suffered from their lack of marginal analysis, subjectivism, and thoroughgoing methodological individualism. As Professor Joseph Salerno has written,

Regarding the question concerning the determination of the incomes of the factors of production, the Classical analysis was almost completely worthless because, once again, it was conducted in terms of broad and homogeneous classes, such as “labor” “land” and “capital.” This diverted the Classical theorists from the important task of explaining the market value or actual prices of specific kinds of resources, instead favoring a chimerical search for the principles by which the aggregate income shares of the three classes of factor owners—laborers, landlords and capitalists—are governed. The Classical school’s theory of distribution was thus totally disconnected from its quasi-praxeological theory of price, and focused almost exclusively on the differing objective qualities of land, labor, and capital as the explanation for the division of aggregate income among them. Whereas the core of Classical price and production theory included a sophisticated theory of calculable action, Classical distribution theory crudely focused on the technical qualities of goods alone.

“Narrow the Competition”

Nevertheless, Smith’s chapter contains another perceptive skeptical reference to “those who live by profit.” He writes:

Merchants and master manufacturers are . . . the two classes of people who commonly employ the largest capitals, and who by their wealth draw to themselves the greatest share of the public consideration. As during their whole lives they are engaged in plans and projects, they have frequently more acuteness of understanding than the greater part of country gentlemen. As their thoughts, however, are commonly exercised rather about the interest of their own particular branch of business, than about that of the society, their judgment, even when given with the greatest candour (which it has not been upon every occasion) is much more to be depended upon with regard to the former of those two objects, than with regard to the latter. . . . The interest of the dealers . . . in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. [Emphasis added.]

Smith harbored no romanticism about those who have long seen rent-seeking as the path to wealth not available in the freed market. In case we didn’t quite get his point, Smith goes on:

"The proposal of any new law or regulation of commerce which comes from this order [that is, 'those who live by profit'], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it." [Emphasis added.]

Continued in article

Myths About Wealth Inequality