Quotulatiousness

December 28, 2012

The Military-Industrial Complex leads to “a bloated corporate state and a less dynamic private economy”

Filed under: Bureaucracy, Economics, Government, Military, USA — Tags: , , , , , — Nicholas @ 09:59

An older article from Christopher A. Preble, reposted at the Cato Institute website:

The true costs of the military-industrial complex, they explain, “have so far been understated, as they do not take into account the full forgone opportunities of the resources drawn into the war economy.” A dollar spent on planes and ships cannot also be spent on roads and bridges. What’s more, the existence of a permanent war economy, the specific condition which President Dwight Eisenhower warned of in his famous farewell address, has shifted some entrepreneurial behavior away from private enterprise, and toward the necessarily less efficient public sector. “The result,” Coyne and Duncan declaim, “is a bloated corporate state and a less dynamic private economy, the vibrancy of which is at the heart of increased standards of living.”

The process perpetuates itself. As more and more resources are diverted into the war economy, that may stifle — or at least impede — a healthy political debate over the proper size and scope of the entire national security infrastructure, another fact that Eisenhower anticipated. Simply put, people don’t like to bite the hand that feeds them.

And that hand feeds a lot of people. The Department of Defense is the single largest employer in the United States, with 1.4 million uniformed personnel on active duty, and more than 700,000 full-time civilians. The defense industry, meanwhile, is believed to employ another 3 million people, either directly or indirectly.

What’s more, these are high paying jobs. In 2010, when the average worker in the United States earned $44,400 in wages and benefits, the average within the aerospace and defense industry was $80,100, according to a study by the consulting firm Deloitte. And 80 percent of that industry’s revenue comes from the government.

December 20, 2012

“Japanese are smart. Chinese are smart. Americans are smart. Even Finns are smart. But Canadians? We tend to be plodders.”

Filed under: Cancon, Economics, USA — Tags: , , — Nicholas @ 12:38

William Watson on a terrible psychological burden Canada has been labouring under for generations — the productivity gap — which does not actually appear to exist.

The good news just keeps pouring in. Last week we learned courtesy of a special report from TD Economics that median income in Canada had caught up with median income in the U.S. Never mind that the measure of income used was a little screwy: market income plus cash received from the government — basically all the goodies — with no accounting for taxes paid to the government. Most Canadians seemed tickled by the result anyway, as we always are when outperforming the Americans.

Now this week, just in time for Christmas, comes news that Canada’s productivity, far from having flatlined over the last 30 years, has actually been growing at a perfectly respectable pace that’s even comparable to American rates. It turns out we’re not nearly as incompetent as our official productivity numbers have been suggesting we are. We’ve just been calculating them wrong. In fact, it’s tempting to say our incompetence is mainly in the productivity section of Statistics Canada. Tempting maybe, but not fair. It’s Christmas, after all, and, besides, calculating productivity is like doing Sudoku for a living and there’s plenty of room for disagreement over what the data are saying.

[. . .]

StatCan’s estimates of our MFP have consistently suggested that as a people we aren’t at all clever. We may be lumberjacks. We may be OK. But doing more with less — or even more with the same — just hasn’t been our game. Japanese are smart. Chinese are smart. Americans are smart. Even Finns are smart. But Canadians? We tend to be plodders. Thus over the last half-century our business-sector MFP growth has averaged just 0.28% per year. By contrast, the Americans are used to rates a full percentage point higher. In 2010, they hit 3.4%! But now Diewert and Yu estimate that in fact over the last 50 years our MFP growth has averaged a perfectly respectable 1.03% per year. If you can add 1% a year to overall output without adding more and smarter people and machines to the mix — which of course you’re also allowed to do and we have been doing — your living standards will rise very nicely over time.

How can StatCan’s estimates have been so wrong? Diewert and Yu use quite different techniques at different stages of the calculation, but the main problem surrounds capital services. StatCan’s estimates of how much capital we use in production typically are much higher than Diewert and Yu’s. Partly the difference revolves around abstruse discussions about what internal rates of return to assume when trying to measure capital.

December 18, 2012

The real reason it’s so hard to cut military spending

Filed under: Bureaucracy, Government, Military, USA — Tags: , , , — Nicholas @ 11:00

From the January issue of Reason, Veronique de Rugy explains how the system is set up to protect military spending from even the most determined spending cuts:

The Department of Defense, with its 2.3 million workers, is the single largest employer in the United States. The defense industry, which is the main private-sector recipient of defense dollars, directly or indirectly employs another 3 million people. This, in a nutshell, is why it’s so hard to cut government spending in general and military spending in particular.

The scope and reach of the government are far bigger than we think, explains John J. Dilulio of the National Academy of Public Administration in the Spring 2012 issue of National Affairs. It’s more than just the money Washington spends or the people it employs. It’s also the people in the private sector who live off that spending. It’s the nonprofit organizations paid to help administer government programs. It’s the contractors who run the programs, the contractors’ sub-contractors, and so on.

[. . .]

Even when military contractors’ profits have reached an all-time high, Congress seems committed to sheltering the companies from any budget cuts. Industry lobbying probably plays a role here. According to the Center for Responsive Politics, the U.S. defense and aerospace lobby doled out $24 million to political campaigns and committees during the 2008 campaign cycle and spent nearly $60 million on lobbying in 2011. Lockheed Martin alone spent $15 million in 2011 on its lobbying efforts, plus $2 million in political contributions. Boeing spent $16 million on lobbying the same year.

In his seminal 1971 article “The Theory of Economic Regulation,” the Nobel-winning economist George Stigler noted that agencies eventually become captive of the very interest groups they were ostensibly designed to police. Writing regulation or even spending legislation requires in-depth industry knowledge, so federal agencies and lawmakers tend to hire directly from the very companies they must oversee or spend money on.

The reverse is true too. In order to gain better access to their regulators and government funds, companies hire lobbyists who used to work for Congress or government agencies. Of the 408 lobbyists employed by the military industry to apply pressure on Congress, 70 percent used to work on Capitol Hill.

The real barrier to self-improvement is always you

Filed under: Education, Humour, Randomness — Tags: , , — Nicholas @ 10:08

Just when did we take the portal to this alternate universe where Cracked is good? For example, this article:

If you want to know why society seems to shun you, or why you seem to get no respect, it’s because society is full of people who need things. They need houses built, they need food to eat, they need entertainment, they need fulfilling sexual relationships. You arrived at the scene of that emergency, holding your pocket knife, by virtue of your birth — the moment you came into the world, you became part of a system designed purely to see to people’s needs.

Either you will go about the task of seeing to those needs by learning a unique set of skills, or the world will reject you, no matter how kind, giving and polite you are. You will be poor, you will be alone, you will be left out in the cold.

Does that seem mean, or crass, or materialistic? What about love and kindness — don’t those things matter? Of course. As long as they result in you doing things for people that they can’t get elsewhere.

[. . .]

The human mind is a miracle, and you will never see it spring more beautifully into action than when it is fighting against evidence that it needs to change. Your psyche is equipped with layer after layer of defense mechanisms designed to shoot down anything that might keep things from staying exactly where they are — ask any addict.

So even now, some of you reading this are feeling your brain bombard you with knee-jerk reasons to reject it.

H/T to ESR for the link.

December 13, 2012

Sweden’s other export: migrant workers

Filed under: Economics, Europe — Tags: , , , — Nicholas @ 10:25

A fascinating story of a small-but-rich country importing workers from Sweden:

As an American, it is bizarre to think of modern Sweden, so often lauded as a paragon of social and economic stability, as coughing up migrant workers. Stranger still is that the Swedes migrate to Norway, which has always been regarded as Sweden’s little brother. Often at war, Sweden forced Norway into an uneven union for most of the 19th century. Though politically independent of Sweden for over one hundred years, Norway has remained culturally subordinate to its larger, more-established neighbor. Norwegians watch Swedish television, listen to Swedish music, and read Swedish books. Before the Norwegian translation of Stieg Larsson’s The Girl Who Kicked the Hornet’s Nest was released, the original Swedish version was the best-selling book in Norway. But in the last 25 years, Norway has added workers to the list of things it imports from Sweden.

In the eighties, Norway became rich off of oil. Its sovereign wealth fund is currently valued at about 600 billion dollars. From 1999-2009, average Norwegian family saw an increase of almost 100,000 NOK, or about $17,000. With its population of only five million, Norway needed to import laborers and service workers for its exploding economy. I once hitched a ride from a retired sailor, and after running out of ways to compliment his RV, I asked him how Norway had changed over the years. He thought Norway had it too good now. As a young man, he’d been at sea for over a year at a time, whereas “the young people today don’t want to work at all. It’s good that we have the Swedes.”

Current estimates of the number of Swedes living and working in Norway hover between 80,000 and 100,000. In Oslo alone, it’s thought that there are 50,000 Swedes, which is about 10 percent of the city’s population. Most of these are service workers. Indeed, the Swede-as-service worker has become something of a stereotype in Norway. The 2010 rap hit “Partysvenske” is an extended mockery of male Swedish migrant workers, who are portrayed as effete drunks who invade Oslo’s nightlife. At one point, the rappers — Jaa9 & Onklp — chide, “Make a mojito, do what you do well.” The condescension towards Swedish migrant workers was prevalent enough for Norwegian television to produce a mocumentary series titled Swedes Are People. There’s a weird power dynamic at play, with both groups exhibiting a sort of passive aggressive bitterness towards the other. For their part, Norwegians seem eager to buck Swedish cultural influence and assert their economic dominance. Speaking to the New York Times in 2007, a professor of social anthropology at the University of Oslo put it rather well:

“When I was young, Swedes had whiter teeth, clearer skin, Abba, and Bjorn Borg. We had lots of fish, and not much more. Today, Swedes have been cut down to size. And I would say that many Norwegians enjoy the fact that so many Swedes are here doing menial jobs.”

When the Norwegian cross-country skier Petter Northug beat his Swedish rival across the line at the 2011 World Championships, he used opportunity to taunt Sweden about the low value of the Swedish currency. The Swedish media, on the other hand, laments the fact that Swedes are reduced to literally peeling bananas in Norway — albeit for about $23 an hour.

H/T to Tim Harford for the link.

December 12, 2012

What is driving the increasing price of higher education?

Filed under: Bureaucracy, Economics, Education, USA — Tags: , , — Nicholas @ 12:03

H/T to Daniel J. Mitchell, who adds:

The first part of the video shows that a college degree has become more valuable, so it’s understandable that the relative price of higher education has risen.

But then, beginning at about 1:55, the video discusses the role of subsidies. Echoing points I’ve made in the past, the professor explains how subsidies have simply generated higher prices. In other words, colleges have captured all the benefits, not students.

Business Week recently published a story that provides some glaring example of how universities have wasted all the additional money. Here are some remarkable excerpts.

    “I have no idea what these people do,” says the biomedical engineering professor. Purdue has a $313,000-a-year acting provost and six vice and associate vice provosts, including a $198,000-a-year chief diversity officer. Among its 16 deans and 11 vice presidents are a $253,000 marketing officer and a $433,000 business school chief. The average full professor at the public university in West Lafayette, Ind., makes $125,000. The number of Purdue administrators has jumped 54 percent in the past decade—almost eight times the growth rate of tenured and tenure-track faculty. “We’re here to deliver a high-quality education at as low a price as possible,” says Robinson. “Why is it that we can’t find any money for more faculty, but there seems to be an almost unlimited budget for administrators?” …Purdue is typical: At universities nationwide, employment of administrators jumped 60 percent from 1993 to 2009, 10 times the growth rate for tenured faculty. “Administrative bloat is clearly contributing to the overall cost of higher education,” says Jay Greene, an education professor at the University of Arkansas. In a 2010 study, Greene found that from 1993 to 2007, spending on administration rose almost twice as fast as funding for research and teaching at 198 leading U.S. universities.

December 4, 2012

An American view of Canada’s immigration policies

Filed under: Cancon, Economics, Government, USA — Tags: , , , — Nicholas @ 13:11

Shikha Dalmia says that the US could learn useful lessons on immigration policy from Canada:

… Canada’s provincial-nominee program is a model of economic enlightenment. Under this system, 13 provincial entities sponsor a total of 75,000 worker-based permanent residencies a year, and the federal government in Ottawa offers 55,000. Each province can pick whomever it wants for whatever reason—in effect, to use its quota, which is based on population, to write its own immigration policy.

Provinces may pick applicants left over from the federal program. They can also solicit their own applicants from anywhere in the world. In a direct attempt to poach talent from the U.S., some provinces are sponsoring H1-B holders stuck in the American labyrinth.

The government in Ottawa can’t question either the provinces’ criteria or their methods of recruitment. Its role is limited to conducting a security, criminal and health check on foreigners picked by the provinces, which has cut processing time for permanent residency to one or two years—compared with a decade or more in the U.S.

Richard Kurland, a lawyer who is considered Canada’s top immigration expert, notes that provinces use the program for diverse goals such as enhancing existing cultural or ethnic ties with other countries. Not surprisingly, the most popular reason is economic: to augment the local labor market.

The program gives British Columbia the same flexibility to sponsor, say, bricklayers as it gives Ontario to sponsor computer programmers. It doesn’t treat the entire Canadian economy as monolithic and pretend that distant federal bureaucrats can effectively cater to local job markets. (Canada’s federal program is a different story altogether.)

November 28, 2012

70 years later, “don’t wish Beveridge a happy birthday”

Filed under: Britain, Government, History, WW2 — Tags: , , , — Nicholas @ 10:06

In sp!ked, Rob Lyons looks back at the 1942 Beveridge Report and what it led to:

On 2 December 1942, the UK government published the Report of the Inter-Departmental Committee on Social Insurance and Allied Services, usually referred to as the Beveridge Report after its chair, the social reformer (and eugenicist) William Beveridge. The report is commonly regarded as a watershed in the development of the welfare state in Britain, a sign that we were becoming a more civilised and humane society. But the seventieth anniversary of the report on Saturday will no doubt prompt much handwringing about the system that the report helped to create.

[. . .]

The fact that the report’s recommendations were largely implemented by a Labour government, elected after the Second World War ended in 1945, has led to the creation of a myth that these were somehow ‘radical’ or ‘socialist’ policies. In fact, the general assumption that the state had to step in to reorganise and manage large swathes of society had been broadly accepted both before and particularly during the war. Compulsory national insurance had been introduced in a limited way in 1911 and state pensions had been enacted, for the very few people who lived past the age of 70, in 1908. The first call for a national health service came from the distinctly un-radical think tank, Political and Economic Planning, in 1937 — a call which was backed by the British Medical Association a year later.

[. . .]

Beveridge also built his belief in social insurance on another idea: that it was the function of the state to ensure full employment. Beveridge was inspired by the establishment’s new ideologue-in-chief, John Maynard Keynes; ideas about planning and state management of the economy started to become all the rage. The welfare bill would never become too large, Beveridge assumed, because the government would never let unemployment get out of hand. Individuals suffering temporary unemployment would be covered by their insurance contributions. In any event, it was widely assumed that people would, by and large, be too proud and independent to abuse the system and would choose work over welfare.

Yet as the decades passed, the welfare state expanded. The notion of a connection between national-insurance contributions and entitlements has pretty much disappeared. Now there is an amorphous sense of entitlement to welfare, regardless of one’s contributions. The state has positively encouraged this sentiment even as politicians have attacked ‘scroungers’ rhetorically.

For example, incapacity benefit has been expanded, so that millions of people who could work but are not currently employed are effectively told not to bother looking for jobs. This suited politicians when it became abundantly clear that full employment was gone, never to return. Taking those who might struggle to find work off the dole figures, and putting them on benefits that are not reliant upon them looking for work, might seem like a humane or generous thing to do. But in truth, the incapacity system effectively disabled them, by officially branding them ‘incapable’ — a label which many of these people have now internalised.

November 27, 2012

Comparing Walmart to Costco

Filed under: Business, USA — Tags: , , — Nicholas @ 10:16

Megan McArdle explains why the facile comparison of the two big US retail firms does not make as much sense as people think:

One simply cannot have a discussion about Walmart’s wages without someone bringing up Costco. It seems to be de rigeur, like tipping your waiter, calling your mother on her birthday, and never starting your thank you notes with the words “Thank you”. So lets get it out of the way before the supper gong goes.

[. . .]

Costco has a more highly paid labor force — but that labor force also brings in a lot more money. Costco’s labor force, paid $19 an hour, brings in three times as much revenue as a Walmart workforce paid somewhere between 50-60% of that. (There’s a bit of messiness to all these calculations, because of course both firms have employees who don’t work in stores — but that’s the majority of their workforce, so I’m going to assume that the differences come out in the wash.)

This is not because Costco treats its workers better, and therefore gets fantastic productivity out of them, though this is what you would think if you listened to very sincere union activists on NPR. Rather, it’s because their business model is inherently higher-productivity. A typical Costco store has around 4,000 SKUs, most of which are stacked on pallets so that you can be your own stockboy. A Walmart has 140,000 SKUs, which have to be tediously sorted, replaced on shelves, reordered, delivered, and so forth. People tend to radically underestimate the costs imposed by complexity, because the management problems do not simply add up; they multiply.

One way to think about this is Thanksgiving dinner: how come you, who are capable of getting a meal on the table 364 nights of the year, suddenly find yourself burning things, forgetting the creamed onions in the microwave, and bringing the mashed potatoes to the table a half an hour late? Because when you’re cooking sixteen things instead of four, it is not the same as cooking four four-item meals. There are all sorts of complex interactions involving things like heating times and oven space, and adding more people to the problem, while probably necessary, itself multiplies the complexities.

November 24, 2012

The disappointment of the WalMart protest

Filed under: Business, Politics, USA — Tags: , , , — Nicholas @ 11:11

Megan McArdle says that the turnout for yesterday’s nation-wide protest outside WalMart stores fell well short of expectations, but that this shouldn’t be surprising:

There’s an irony to labor organizing: the best time to get workers fired up is during economic downturns, but this is probably the worst time to actually organize them. People are most interested in union actions when jobs are scarce and they feel economically insecure, but of course, that’s when they can ill-afford to take economic changes. Unions made big gains during the Great Depression, to be sure, but they had a host of new laws and a labor-activist FDR administration throwing heavy weight behind those efforts. Without that political help, it’s hard to see how unions could have made such big gains — and of course, arguably, the higher wages that FDR’s policies pushed for helped prolong the Great Depression.

Recessions are also a time when employers don’t necessarily have a lot of profits to give up. Walmart’s $446 billion of revenue last year was eye-popping, but its profit margins are far from fat — between 3% to 3.5%. If they cut that down by a percentage point — about what retailers like Costco and Macy’s have been bringing in — that would give each Walmart employee about $2850 a year, which is substantial but far from life-changing. Further wage improvements would have to come out of the pockets of Walmart’s extremely price conscious shoppers. Which might be difficult, given how many product categories Amazon is pushing into.

The other potential strategy is to mobilize those customers — to cost Walmart business unless they up their wage-and-benefit game. But the Black Friday bargain hunters apparently simply pushed past the scattered protests in search of cheap flat-screen televisions — and the progressives who seem most on fire about this campaign are not really very likely to be Walmart shoppers. Which could be a metaphor for the whole US labor movement.

November 16, 2012

Reason.tv: Ladies, We’re Screwed: Why Obama’s Re-election is Bad for Choice

Filed under: Economics, Government, Health, USA — Tags: , , , — Nicholas @ 10:03

Obama’s re-election is great for moms, right? Aren’t we just a bunch of mindless free spenders, so in love with humanity we want to support every cause and child as though they were each our own? Oh, hells no.

From jobs to health care to education, let’s face it ladies, we’re screwed…and not in the much needed 50 Shades of Grey way.

This election all boils down to choice. Because ours are now sadly limited. To make a simplistic sexist argument, how would you like it if you waltzed into the shoe department at Nordstrom’s or Bloomingdale’s and instead of ankle booties and wedges you found one or two styles of sensible, comfortable clogs? To borrow a term from Joe Biden, malarkey!

With the employer mandate, small businesses are now compelled by law to provide health care for their full-time employees. What will this do? Will it bolster families and working moms by offering free medical care to those in need? Hardly!

November 14, 2012

The “manufacturing fetish”

Filed under: Economics, Media, Politics — Tags: , , , , — Nicholas @ 10:54

John Kay talks about the widespread belief that only manufacturing is “real” in terms of what a national economy produces:

Manufacturing fetishism — the idea that manufacturing is the central economic activity and everything else is somehow subordinate — is deeply ingrained in human thinking. The perception that only tangible objects represent real wealth and only physical labour real work was probably formed in the days when economic activity was the constant search for food, fuel and shelter.

A particularly silly expression of manufacturing fetishism can be heard from the many business people who equate wealth creation with private sector production. They applaud the activities of making the pills you pop and processing the popcorn you eat in the interval. The doctors who prescribe the pills, the scientists who establish that the pills work, the actors who draw you to the performance and the writers whose works they bring to life; these are all somehow parasitic on the pill grinders and corn poppers.

When you look at the value chain of manufactured goods we consume today, you quickly appreciate how small a proportion of the value of output is represented by the processes of manufacturing and assembly. Most of what you pay reflects the style of the suit, the design of the iPhone, the precision of the assembly of the aircraft engine, the painstaking pharmaceutical research, the quality assurance that tells you products really are what they claim to be.

Physical labour incorporated in manufactured goods is a cheap commodity in a globalised world. But the skills and capabilities that turn that labour into products of extraordinary complexity and sophistication are not. The iPhone is a manufactured product, but its value to the user is as a crystallisation of services.

[. . .]

Most unskilled jobs in developed countries are necessarily in personal services. Workers in China can assemble your iPhone but they cannot serve you lunch, collect your refuse or bathe your grandmother. Anyone who thinks these are not “real jobs” does not understand the labour they involve. There is a subtle gender issue here: work that has historically mostly been undertaken by women at home — like care and cooking — struggles to be regarded as “real work”.

November 10, 2012

Minimum wage and “living wage”

Filed under: Britain, Business, Economics — Tags: , , , — Nicholas @ 10:47

Tim Harford discusses the image and reality of Britain’s campaign for “living wages”:

Living wage?

The minimum wage, £6.19 an hour for those 21 and over, is a legal obligation. The living wage, £8.55 an hour in London and £7.45 an hour elsewhere, is the result of a very successful publicity campaign and can count Ed Miliband and Boris Johnson among its advocates. There are no legal sanctions for paying less than the living wage, although Mr Miliband did announce plans to “name and shame” those companies who didn’t. Apparently that is helpful, because “name” rhymes with “shame”.

Why do campaigners say that you can’t live on the minimum wage?

Try living on £6.19 an hour and see how you get on.

For an economist you’re getting very high-minded all of a sudden.

I think it’s perfectly reasonable to point out that £6.19 an hour isn’t a lot of money. £8.55 an hour isn’t a lot of money, either, but a lot of people have to get by on less. Unfortunately we economists have to ask awkward questions — for instance, whether these campaigns are likely to help people without much income.

[. . .]

Perhaps we should just raise the legal minimum wage to the same level as the living wage.

Perhaps. Perhaps we should raise the legal minimum wage to a £100m an hour. I think if we did we’d find unemployment might rise. A minimum wage does two things. It will shift money from employers in an imperfectly competitive market to low-paid workers and it will induce some employers to sack workers, even if both employer and employee would prefer a deal struck at an illegally-low wage rate. There’s a case that for the good of low-paid workers, there should be no minimum wage at all. There should be one but it needs to be modest if it isn’t to cause too much unemployment.

Is there any evidence on the right level?

There’s lots, and it is mixed, but on balance it’s in favour of the idea that if you raise the cost of employing people, fewer people will be employed. It is worth bearing in mind that, for a lowly paid worker shifting from job to job, having less work available but at a high hourly rate, isn’t a bad deal. The concern has to be that certain types of people — especially young unskilled workers — will be shut out completely and denied the chance to learn on the job.

October 16, 2012

Early Baby Boomers had it much easier than those who followed

Filed under: Cancon, Economics, USA — Tags: , , , , , — Nicholas @ 10:44

Depending on where you draw the demographic line, I’m either a (very) late Baby Boomer or an early arrival from the next generation. I “get” the anger that some younger folks feel about the BB’s, because I came along too late to benefit in the same way that the early boomers did:

But, have baby-boomers really enjoyed a cozy ride through life? The truly lucky were their parents, who worked in the post-Second World War “Golden Age” of low unemployment, rapidly rising real wages, rising house prices, and expanding public and private pension plans.

The postwar boom was petering out by the late 1970s and early 1980s, just as many baby boomers were entering the job market. The 1980s and 1990s were marked by two severe recessions, and by an increase in jobs which often did not provide steady wages or a decent pension.

The unemployment rate for the baby-boomers, then mainly in their early thirties (age 30-34), was more than 10 per cent from 1983 to 1985, and over 8 per cent for the boomers in their late thirties during the recession years of 1992 to 1994.

Many baby-boomers never managed to find the secure and well-paid jobs characteristic of the 1960s and 1970s that lay the basis for a decent retirement. A recent study by former Statscan assistant chief statistician Michael Wolfson found that one-in-four middle-income baby boomers face at least a 25 per cent fall in their standard of living in retirement. (He looked at persons born between 1945 and 1970, and earning between $35,000 and $80,000 per year.)

The proportion of all persons age 65 to 70 who are still working bottomed out at 11 per cent in 2000 and is now 24 per cent, and about one half of persons aged 60 to 65 are still working today.

In my entire career, I’ve worked for only one company that provided a pension plan — and I was laid off before my contributions vested anyway. I don’t expect to ever voluntarily retire: I won’t be able to afford it. And I’m far from alone in that.

October 2, 2012

Why (some) business experience is valuable for politicians

Filed under: Bureaucracy, Business, Education, Government — Tags: , , , — Nicholas @ 09:34

Megan McArdle writes about the worsening problem of government officials who have never spent any time in the business world, but have huge power over the business environment:

Of course, we’ve had many good presidents with no business experience. But Obama’s whole administration tends to be light on people from outside the academia — NGO — government triangle. It’s something that’s increasingly true of Washington in general — and, I think, increasingly problematic.

[. . .]

The increasingly mandarin elite, hygienically removed from the grubby business of scrounging for customers, frequently seems to have no idea at all what goes on in companies. Stop grinning, Republicans; I mean you too. Yes, too many liberals seem to believe that all infelicitous market outcomes can be cured by appointing a commission composed of really top-notch academics — during the debate over health care reform, the words “peer reviewed study” were invoked by supporters with no less touching a faith than an Italian grandmother performing a rosary for the salvation of the godless Communists. On the other hand, here comes the GOP claiming that entrepreneurship can be started or stopped with small changes in marginal tax rates, as if one were turning on and off a light. This is no less of a technocratic fallacy, even if, as with many technocratic fallacies, there is a grain of sound theory buried somewhere under that towering mountain of unwarranted assumptions.

The result is that companies usually get treated as a rather simple variable in a model rather than the complex organizations they are. For example, you see people reasoning from corporate behavior to efficacy: if fast food companies spend a lot of money on advertising, then said advertising must make kids eat more fast food; if hiring managers demand a college degree for positions that didn’t used to require one, there must be a good business reason. “They wouldn’t do it,” says the argument, “if it didn’t work.”

If you’ve actually worked at a company, this is a ludicrous statement. Companies do stuff that doesn’t work all the time, and it can take decades to unwind even the stupidest expenditures and rules. More importantly, when they do have good reasons, they are often not the reasons that outsiders think. The elite projects their own concerns onto the company, instead of asking the company what it’s worried about.

[. . .]

The flip side of this is the people who think that companies don’t do anything at all that couldn’t be done better by government or academia … except sit back and rake the money in. This is particularly prevalent in discussions of health care, but it frequently pops up elsewhere. My favorite in this genre is Jerry Avorn, the professor of pharmacoeconomics who told Ezra Klein that we didn’t really need drug companies because now academics with good drug prospects could simply go straight to the capital markets and raise money to fund their own projects.

This is simply breathtakingly wrong. For one thing, venture capitalists want an exit strategy before they will put money in, and in biotech, exit is often a sale to a big pharmaceutical firm; no Big Pharma, no VC funds. And second, few newly hatched biotech firms have the complementary capacities to bring a drug to market by themselves. Forget the sales force; I’m talking about the expertise to get the thing through the FDA approval process and produce it in massive quantities. How do they acquire those capacities? They partner with Big Pharma, or license to them.

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