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India: Asia's Next Tiger?

via Analysis
Sunday, February 1, 1998

India, a rare democracy in the third world, is widely perceived to be a political success, despite its economic failures. India's poor choice of economic policies, however, has a political motivation. Getting elected has required targeting tangible spoils to an increasingly well-organized, but fractured, electorate. Political patronage was the stimulus for interventionist economic management, eventually producing massive fiscal deficits. When the danger of defaulting on foreign debt became a reality in 1991, the country's leadership began to reevaluate the flawed economic policies without considering the flawed system of governance that accompanied and sustained the policy matrix. Patronage politics spawned corruption; money, muscle, or influence propelled public services and government, making the system of public administration as incompatible with liberalism as the system of economic regulation. Political and administrative imperatives impelled the country to economic policies that failed. Economic reform will not be complete until the underlying administrative imperatives are transformed by accountable governance.

Some Thoughts on Improving Economic Statistics

by Michael J. Boskinvia Analysis
Thursday, January 1, 1998

The rapid pace of change in the American economy is straining the ability of the statistical system to measure economic performance accurately. Millions of daily private economic decisions rely on government economic statistics. Economic statistics also drive public policy. The Federal Reserve relies on economic statistics to formulate monetary policy. The formulation of the budget outlook and tax and budget policy responses to it are affected by economic statistics. Many programs and tax code features are tied explicitly to economic statistics, for example, the cost-of-living allowance (COLA) tied to the consumer price index (CPI) for Social Security, tax brackets, and so on.

Among the areas where economic statistics can and should be improved are the following: (1) the growth of hard-to-measure services; (2) the timely introduction and valuation of new products; (3) quality change in goods and services (e.g., health care); (4) technology, human capital, research and development, innovation and ideas whose measurements are incomplete, at times primitive, at best piecemeal; (5) workers and households' use of time and health status; (6) international trade and finance; (7) the formation, growth, and failure of new firms; (8) financial innovation and changing payment methods; (9) changes in the organization of production and distribution.

The essay makes eleven recommendations for improving the quality of the economic statistics, ranging from methods to deal with new products and quality change to dealing with the trade-off between timeliness and accuracy to consistency across statistics, agencies, and the private sector to organizational issues including the appropriate division between private and public collection and dissemination of data. Such changes would improve the measurement of economic statistics from national income to inflation to measures of household well-being. The returns from such improvements are likely to be substantial, ranging from better early signals for monetary policy to more accurate COLAs to more accurate economic information on which citizens depend not only for their own private decisions but for understanding and evaluating the nation's economic progress.

Inflation and Its Discontents

by Michael J. Boskinvia Analysis
Saturday, November 1, 1997

This essay discusses the inflation of the 1970s and the disinflations of the 1980s and 1990s. It provides historical and intellectual history perspectives on these events. It argues that the consensus view of economists on inflation and its costs has changed more than on any other subject in the past thirty years. As late as 1980, many economists argued that the cost of inflation was low and that the cost of disinflation so great that it was better to live with 10 or 12 percent inflation than bear the temporarily higher unemployment and lost output that would accompany a disinflation.

Fortunately, Federal Reserve Board chairmen Paul Volcker and Alan Greenspan engineered two rounds of disinflation, first from 12.0 percent to 4.5 percent and then to 2.5 percent. Although there were costs--a severe recession in 1981–82 and a not-so-soft landing in 1990–91--the low and relatively stable inflation of the 1980s and 1990s has been a major factor in a long boom in the United States, two long expansions interrupted by a short, mild recession. And economists' thinking about the costs and consequences of high inflation has shifted to the view that stable low inflation, like the lowest possible tax rates and minimum necessary regulation, is a fundamental pillar of maximizing sustained long-run growth.

Why Freedom Must Be First

by Tibor R. Machanvia Analysis
Tuesday, October 14, 1997

Despite repeated criticisms, the political ideal of individual rights--to life, liberty, and property--is very relevant in our time. Although officially affirmed only a couple of centuries ago, the idea has ancient roots and continues to deserve support. It is morally sound and makes possible the most peaceful and prosperous community life for human beings anywhere.

Yet the view that government ought first and foremost protect our right to freedom is under constant attack, belittlement, and ridicule among many intellectuals, politicians, and the even members of the general population. Despite the miserable failure of collectivist alternatives, many still cling to the vain hope that some version of collectivism--communitarianism, market socialism, economic democracy, and so on--will solve all our problems.

This essay argues against this misplaced hope and suggests that it is more promising for us to work out the implications of the individualist alternative than to stick to utopian collectivist dreams. Indeed, this is borne out by the fact that many who attack individualism seem to need to distort it first to make their attack carry some measure of plausibility. But such a tactic is duplicitous and should be resisted.

The Ten Causes of the Reagan Boom: 1982-1997

by Martin Andersonvia Analysis
Wednesday, October 1, 1997

In the United States the fifteen-year economic expansion that began in 1982, now called "the long boom" by economists, is the greatest economic boom in history--and it is still going.

Ten major factors that caused that boom are

  1. The vanished threat of nuclear war
  2. The spread of capitalism
  3. Easy taxes
  4. The computer revolution
  5. Control of government spending
  6. Deregulation
  7. Stable monetary policy
  8. Steady economic policy
  9. The U.S. capital base
  10. The superiority of the U.S. economy

Political Money: The New Prohibition

by Annelise Andersonvia Analysis
Wednesday, October 1, 1997

Our system of campaign financing fosters subterfuge and corruption, favors wealthy candidates over those not so blessed, puts candidates on a perpetual fund-raising treadmill, and is slanted in favor of incumbents over challengers.

These problems are the direct result of the 1974 Federal Election Campaign Act. Although the Supreme Court has struck down significant portions of this legislation as a violation of freedom of speech, what survives has done significant damage.

The usual prescription is to limit contributions even more than we now do and to put expenditure controls on congressional as well as presidential campaigns.

Such an approach would only make things worse. In 1996 the presidential candidates of the two major parties, both of whom accepted federal funds in return for agreeing to limit direct spending, had $62 million each to spend in the general election, or 31.5 cents per person in the 1996 voting-age population--less than the price of a first-class postage stamp.

The only spending candidates control is that of their own campaigns. When that spending is limited, the spending of other groups who communicate with voters--the media and special interest groups--becomes more important. Funds that cannot be given directly to a candidate are diverted to organizations that can accept them legally and spent indirectly on behalf of the candidate.

Campaign spending in the primaries and the general election in 1995–96 for all federal offices--435 members of the House of Representatives, 33 senators, and the presidency--was about $2 billion. That's only $10 over a two-year period for each person of voting age in the United States in 1966. At the same time, the Federal Election Commission spent less than 5 percent of its funds for public disclosure of campaign contributions.

Instead of further restricting and regulating campaign financing, we should

  • Abolish campaign spending limits, so that candidates themselves can communicate effectively with voters
  • Abolish campaign contribution limits, so that candidates can raise more money with less time and effort, give challengers the possibility of raising the money they need to compete against incumbents, and reduce the advantage of personally wealthy candidates
  • Establish real-time campaign finance reporting requirements, so that we know quickly and effectively--on the Internet in twenty-four hours--who gave what to whom

Continuity and Change in Popular Values on the Pacific Rim

by Alex Inkelesvia Analysis
Friday, August 29, 1997

Although the economic transformation of many nations in Asia is widely recognized, equally profound processes of social and cultural change in these same societies have gone largely unnoticed. Yet without knowledge of those changes we cannot fully appreciate the extent of the Asian economic miracle or adequately assess its significance for the future incorporation of the rapidly developing Pacific Rim nations into the emergent world order of the twenty-first century. This essay presents the first results of a continuing program to assess the extent and form of changing popular values and attitudes in a number of the most important of the growth engines in the area such as Taiwan, mainland China, Singapore, Korea, and their forerunner, Japan. The evidence is drawn from public opinion polls and social surveys covering a span of decades. To be sure, the region provides evidence of the persistence of tradition, and even of its actual strengthening, under conditions of modernization. Examples are the sentiment of filial piety and the value of hard work and frugality. Nevertheless, the main fact is that in a large number of domains popular attitudes and values have been changing profoundly and at a surprisingly accelerated rate. Within little more than one generation the approach to selecting a marriage partner, the ways of spending leisure time, and basic values about what one's goals in life should be have all undergone profound and rapid shifts. Communal responsibility has come to be replaced by individual expression; the present is increasingly stressed over the past and the future; consumption more and more displaces saving and accumulation. These are all the hallmarks of modernity. The diffusion of these tendencies in Asian populations increases the facility with which they can be integrated in a new blending of the cultures of East and West. But the same processes present great challenges to the traditional bases of social integration and political cohesiveness of these societies.

Immigration and the Rise and Decline of American Cities

via Analysis
Friday, August 1, 1997

More than half of all immigrants in the United States reside in just seven cities: Los Angeles, New York, Chicago, Miami, San Diego, Houston, and San Francisco. A controversial issue is whether immigrants are a benefit or a burden to these areas. A 1997 National Academy of Sciences study reports that "immigrants add as much as $10 billion to the national economy each year," but "in areas with high concentrations of low-skilled, low-paid immigrants," they impose net costs on U.S.-born workers. This essay questions that finding.

Examining a range of economic variables for the eighty-five largest U.S. cities over the period 1980–1994, this essay finds that those cities with heavy concentrations of immigrants outperformed cities with few immigrants. Compared with low-immigrant cities, high-immigrant cities had double the job creation rate, higher per capita incomes, lower poverty rates, and 20 percent less crime. Unemployment rates, however, were unusually large in high-immigrant cities. These findings do not answer the critical questions of whether the immigrants cause the better urban conditions or whether benign urban conditions attract the immigrants. But the essay does refute the assertion that the economic decline of cities is caused by immigration; that assertion cannot be true because, with few exceptions, the U.S. cities in greatest despair today--Detroit, Saint Louis, Buffalo, Rochester, Gary--have virtually no immigrants.

Freedom's Fall in Hong Kong

by Alvin Rabushkavia Analysis
Thursday, May 1, 1997

On July 1, 1997, the British Crown Colony of Hong Kong becomes the Hong Kong Special Administrative Region of the People's Republic of China. China has signed an international treaty with Britain and issued a Basic Law, or miniconstitution, for Hong Kong; these promise that Hong Kong can remain autonomous for fifty years after 1997, save in matters of security and diplomacy, and ensure that Hong Kong people will continue to enjoy their rights and freedoms under Hong Kong law.

China has made a mockery of these promises and guarantees. China has dissolved Hong Kong's duly elected Legislative Council and replaced it with a handpicked assembly. China has set up a mechanism that will nominate a new chief justice who will do China's bidding. China has scrapped or modified a number of existing laws, thereby rolling back Hong Kong's current civil liberties. China has placed editorial consultants inside leading Hong Kong newspapers. China has announced restrictions on press freedom, freedom of assembly, freedom of political parties to solicit funds, and freedom of demonstration. China has indicated that English education will be downgraded. And, in a marked departure from Hong Kong's level economic playing field, China's state-owned firms have acquired Hong Kong assets at substantial discount to market. These below-market acquisitions presage a new era of graft, cronyism, connections, and bribery for Hong Kong under Chinese rule.

An Assessment of Chinese Thinking on Trade Liberalization

by Jialin Zhangvia Analysis
Friday, April 18, 1997

An examination of recent theoretical and empirical research in China about that country's trade protection policies reveals that an increasing number of leading economists now favor the liberalization of the Chinese market economy and its closer integration with the world economy. Chinese policy toward foreign trade reveals greater domestic market openness. Not only has China deeply cut tariffs in recent years but it is committed to even greater cuts in the next few years to an average rate of 15 percent by the year 2000, a level maintained by most developing countries. Chinese policymakers, recognizing that greater foreign direct investment and imports mean acquiring foreign technology, are now eager to liberalize the regimes trading system and to reduce protection for those high-cost uncompetitive enterprises and industries.