BETTER LIVING THROUGH ECONOMICS

BETTER LIVING THROUGH ECONOMICS

Edited by John J. Siegfried
Copyright Date: 2010
Published by: Harvard University Press
Pages: 324
https://www.jstor.org/stable/j.ctt13x0jh2
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  • Book Info
    BETTER LIVING THROUGH ECONOMICS
    Book Description:

    From the late fifteenth to the eighteenth centuries, the imagination came to be recognized in South Indian culture as the defining feature of human beings. Shulman elucidates the distinctiveness of South Indian theories of the imagination and shows how they differ radically from Western notions of reality and models of the mind.

    eISBN: 978-0-674-05462-2
    Subjects: Economics, Business, Political Science

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-viii)
  3. Introduction
    (pp. 1-5)
    John J. Siegfried

    This book illustrates the fundamental contributions of economic research to important public policy decisions. The examples are from the past half century. It may surprise many people to learn that it was economics research that built the foundation for eliminating the military draft in favor of an all-volunteer army in 1973, for passing the Earned Income Tax Credit in 1975, for deregulating airlines in 1978, and for adopting the Pension Protection Act of 2006 that switched the default option to participate in 401(k) retirement plans. Other important but less discrete changes in policy have also resulted from economic research, including...

  4. Overview: Highlights of the Benefits of Basic Science in Economics
    (pp. 6-35)
    Charles R. Plott

    This chapter rests on two theses. The first is that basic research in economics has had a profound effect on our way of life. Implicit in this thesis is the suggestion that the social value of the contributions of economics compares well with the contributions of basic research in any field of science. Remarkably, the contributions in economics have been accomplished with only a tiny fraction of the levels of research support given other sciences.¹

    The second is that the first thesis is not widely accepted. Few members of the scientific community and an even smaller proportion of the general...

  5. COMMENT
    (pp. 36-39)
    Daniel S. Hamermesh

    Charles Plott’s synthesis is an insightful, useful summary of the general issues and specific chapters included in this volume. There is little to criticize in it—indeed, its magisterial expanse makes it nearly impervious to specific criticism. Instead, herein I discuss conditions under which economic ideas can affect policy and demonstrate the breadth of these applications in terms of the locus rather than the types of policies.

    I should first note that the relationship between economic thought and policy is inherently different from that between the “hard” sciences and invention. For example, John Bardeen, Walter Brattain, and William Shockley were...

  6. COMMENT
    (pp. 40-41)
    Daniel Newlon

    I would like to congratulate Charles Plott on making a persuasive case for the benefits of economics research and the need for increased funding of basic economics research. His chapter and the other chapters in this volume on better living through economics provide a ser vice to the economics profession. But this case could be more persuasive if his chapter downplayed invidious comparisons with other sciences and placed more emphasis on advances in basic science in economics that took place after the National Science Foundation started supporting basic economics in 1960.

    The claim that “no other science aspires to such...

  7. CHAPTER ONE The Evolution of Emissions Trading
    (pp. 42-58)
    Thomas H. Tietenberg

    Over the past thirty-plus years the use of transferable permits to control pollution has evolved from little more than an academic curiosity to the centerpiece of the U.S. program to control acid rain and international programs to control green house gases. What explains this remarkable transition? How was the approach shaped by economic theory and empirical research?

    By the late 1950s both economists and policy makers had formed quite well-developed and deeply entrenched visions of how pollution-control policy should be conducted. Unfortunately, these two visions were worlds apart.

    Economists viewed the world through the eyes of Pigou (1920). Professor A....

  8. COMMENT
    (pp. 59-62)
    Wallace E. Oates

    Tietenberg’s chapter tells the fascinating story of the evolution of emissions trading as a new and highly innovative policy instrument and provides a careful, insightful assessment of its strengths and limitations. There is no one better positioned than Tietenberg to tell this story. He was a very early proponent and careful analyst of emissions trading. He wrote the first book (1985) on this new approach to environmental regulation, which is now available in a valuable second edition (2006).

    This is an important juncture at which to review our experience with emissions trading in view of its current ubiquitous appeal. Emissions-trading...

  9. CHAPTER TWO Better Living through Improved Price Indexes
    (pp. 63-83)
    Michael J. Boskin

    Few areas of economics research have produced societal benefits as consequential in recent decades as price-index research. This research has changed how inflation, real gross domestic product (GDP), and productivity are measured, thus providing more accurate information on these key economic indicators for private investors, workers, managers, and public policy makers. These improvements have led to more accurate indexing of government benefit programs and taxes and thus to a lower national debt. And they literally change history, or at least the interpretation of some of it, for example, by revealing that real wages and median income in recent decades have...

  10. COMMENT
    (pp. 84-87)
    Jerry Hausman

    The Consumer Price Index (CPI) is arguably among the four most important aggregate indexes estimated by the U.S. government each month: real gross domestic product (GDP) growth, the CPI, productivity change, and the unemployment rate. However, real GDP growth and productivity change both depend on the CPI (and the Producer Price Index [PPI]), so three of the four indexes depend on accurate estimation or price indexes, and in an important way because about 67% of GDP is personal consumption expenditure. Thus to answer the question, “How much better off is the average citizen in January 2008 compared with an earlier...

  11. CHAPTER THREE Economics and the Earned Income Tax Credit
    (pp. 88-105)
    Robert A. Moffitt

    The EITC is generally regarded as one of the most successful social policy innovations for low-income families of the past fifty years. It transfers billions of dollars to a needy group regarded as deserving by most people—the working poor—while simultaneously providing significant, nontrivial incentives to work for those at the bottom of the income distribution. It is in the latter characteristic of the program—its work incentives—that the ideas of economists have been most influential. The idea of incentives in general, and work incentives in particular, has long been of particular interest to economists, who have been...

  12. COMMENT
    (pp. 106-109)
    V. Joseph Hotz

    Robert Moffitt has provided an excellent, concise discussion of the economics of the Earned Income Tax Credit (EITC) and the contributions that economists have made to both conceptualizing and analyzing the effects of this important social program for the working poor. As Moffitt notes, the apparent support for the EITC among policy makers, from the political Left and the Right, may reflect a desire by policy makers out of a sense of fairness to do something for a disadvantaged group thought to be largely neglected during the 1960s and 1970s, namely, the working poor. But, as Moffitt makes clear by...

  13. CHAPTER FOUR Trade Liberalization and Growth in Developing Countries
    (pp. 110-125)
    Anne O. Krueger

    A half century ago the non-Communist world was regarded as consisting of two blocs: the industrial countries and the “underdeveloped” countries, as they were then called. The economies of the industrial part of the world were growing at an unprecedented pace. In developing countries (as I shall call them), by contrast, growth was generally at lower rates than in the rich countries. In addition, most developing countries were experiencing rates of population growth that were very high and often rising.

    Most assessments of the prospects of the developing countries were therefore pessimistic: with rates of growth of per capita income...

  14. COMMENT
    (pp. 126-129)
    Douglas A. Irwin

    In her presidential address before the American Economic Association, Anne Krueger (1997) gave a tour de force review of how the economics profession’s views on trade and development have changed over the decades. In the 1950s and 1960s, as she pointed out, there were great doubts about the benefits of open trade for developing countries. Instead, importsubstitution industrialization involving high levels of protection was commonly viewed as the more effective way of promoting development. However, partly as a result of economic studies and partly as a result of the success of several East Asian countries in export-led growth, more and...

  15. CHAPTER FIVE The Role of Economics in the Welfare-to-Work Reforms of the 1990s
    (pp. 130-142)
    Rebecca M. Blank

    In August 1996 Congress passed one of the most comprehensive reforms of public assistance programs in U.S. history. At the core of these reforms was an effort to reduce reliance on cash assistance for nonworkers and to provide greater incentives for welfare recipients to move into work. In the years since then, the share of families collecting cash welfare and not working has plummeted, while there has been a steep increase in those who work and simultaneously receive subsidies. Although many factors led to these changes, what I will call the economists’ “efficiency critique” of traditional cash welfare programs was...

  16. COMMENT
    (pp. 143-145)
    Nancy Folbre

    I agree with much of what Rebecca Blank argues in her chapter. I agree that Aid to Families with Dependent Children was a flawed program. I agree that it provides a great opportunity to teach undergraduates how to illustrate graphically disincentives to paid employment. I agree that it was a good idea to encourage single parents living in poverty to increase their labor-force participation. I also agree with what seems to be the premise behind Better Living through Economics: economists are smart and well-intentioned people who could make the world a better place. I believe that Rebecca Blank is an...

  17. CHAPTER SIX Better Living through Monetary Economics
    (pp. 146-163)
    John B. Taylor

    In the mid-1990s macroeconomists began noticing and studying a remarkable change in the performance of the U.S. economy. The economy had become much more stable than in the past. The change appeared to have occurred some fifteen years earlier, in the early 1980s. Not only had inflation and interest rates and their volatilities diminished compared with the experience of the 1970s, but the volatility of real gross domestic product (GDP) had reached lows never seen before. Economic expansions had become longer and stronger, while recessions had become rarer and shorter.

    At the time I called this phenomenon the Long Boom...

  18. COMMENT
    (pp. 164-167)
    Laurence H. Meyer

    It is a real pleasure to have the opportunity to comment on John Taylor’s chapter. I will start by summarizing the chapter to set up my comments. Taylor’s basic thesis is that advances in monetary theory were principally responsible for a shift to a more disciplined monetary policy that, in turn, importantly contributed to improved macroeconomic per for mance. Or, in Taylor’s language, the Great Awakening produced the Great Regime Shift, which, in turn, caused the Great Moderation. Perhaps a more precise way of saying this is that as monetary policy makers came to appreciate the Taylor principle embedded in...

  19. CHAPTER SEVEN The Greatest Auction in History
    (pp. 168-184)
    R. Preston McAfee, John McMillan and Simon Wilkie

    In August 1993 President Bill Clinton signed a historic law granting the U.S. Federal Communications Commission (FCC) the authority to auction spectrum licenses.¹ The origin of this law dates back to Ronald Coase’s 1959 proposal to sell the radio spectrum. Congress gave the FCC until August 1994 to begin the first auction. To someone inexperienced in the activities of large bureaucracies, a year sounds adequate to design and operate an auction, but it is remarkable that the FCC was able to meet this requirement and commence its first auction on July 25, 1994. In order to run an auction, the...

  20. COMMENT
    (pp. 185-187)
    Jeremy Bulow

    Why was the simultaneous multiple-round (SMR) auction design so successful in the 1995 FCC AB auction and in many other settings? Ironically, one reason is that its structure almost guaranteed the sequential closure of markets, with the biggest and most valuable markets closing first. Activity rules made it easier to move from larger licenses to smaller ones in the late bidding rather than the other way around. This probably raised revenue and helped with problems of complementarity.

    To see the revenue point, consider Example 1, in which there are two licenses and three bidders with the following valuations.

    Say each...

  21. CHAPTER EIGHT Air-Transportation Deregulation
    (pp. 188-202)
    Elizabeth E. Bailey

    Air-passenger deregulation was driven in no small measure by purveyors of ideas. Academics identified the regulation of the airline industry as a candidate for reform. They were able to show that air-passenger fares were lower by half in states with little regulation. An academic political entrepreneur was influential in designing hearings in 1975 that made the regulation issue visible and opened a policy window for reform. A mediagenic scholar who was both intellectually powerful and charismatic led administrative reform at the Civil Aeronautics Board (CAB) in 1977 and 1978 and provided confidence in airline deregulation, which was signed into law...

  22. COMMENT
    (pp. 203-205)
    Nancy L. Rose

    As Elizabeth Bailey’s chapter aptly describes, it would be difficult to overstate the significance of U.S. air-transportation deregulation in the late 1970s. Air-transportation deregulation was in the vanguard of a revolution that spread deregulation, restructuring, and the adoption of market-based regulatory reforms across broad sectors of the global economy. It was a victory for public policy, yielding substantial direct and indirect benefits that not only transformed U.S. air-passenger and cargo markets but also served as a model for reforms in airline markets around the world and facilitated logistics and other innovations that transformed the way business is organized. And it...

  23. CHAPTER NINE Deferred-Acceptance Algorithms: History, Theory, Practice
    (pp. 206-222)
    Alvin E. Roth

    Both a theoretical and an applied literature grew from the article “College Admissions and the Stability of Marriage” (Gale and Shapley 1962; henceforth GS). Gale and Shapley proposed a simple model of two-sided matching in which men and women (or students and colleges) each had preferences over individuals in the other set to whom they might be matched. They also proposed an algorithm for finding a “stable” matching, in which no man or woman is matched to an unacceptable mate, and no man and woman who are not matched to each other would both prefer to be. GS used this...

  24. COMMENT
    (pp. 223-225)
    Peter Cramton

    Economists are increasingly being asked to design markets. Alvin Roth provides a beautiful summary of this activity in matching markets. Here I extend the discussion to auction markets and emphasize connections between auctions and matching.

    Auctions determine who gets the goods and at what prices. The assignment of goods is simply a match. The key difference is that prices—formed from the bids—mediate the match. Auctions are matching with prices.

    Interestingly, the major matching results have close analogs in auctions. In matching, stability is important. We do not want people to object to the match. Fortunately, stability is easily...

  25. CHAPTER TEN Economics, Economists, and Antitrust: A Tale of Growing Influence
    (pp. 226-248)
    Lawrence J. White

    Antitrust policy in the United States is an amalgam. The body of legislated law starts with the Sherman Act of 1890, the Clayton Act of 1914, and the Federal Trade Commission Act of 1914. Because the language in these statutes is extraordinarily broad and terse, court decisions during more than a century have interpreted and given specific meaning to the broad language of the statutes. Decisions by the federal enforcement agencies—the Antitrust Division of the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC)—on whether to pursue cases or to decline their prosecution provide another facet...

  26. COMMENT
    (pp. 249-252)
    Kenneth G. Elzinga

    Professor White is one of the few antitrust economists who could write this chapter. He is the optimal age and he has the optimal experience.

    If White were younger, he probably would not care about how antitrust economics got where it is today. Most young economists cannot distinguish Alfred Marshall from Thomas Malthus. But White’s chapter offers a rich minihistory of antitrust and economists. He is old enough to care about these things.

    If White had remained only in the academy and had not served at the Antitrust Division in a policy role, he might not fully realize how advanced...

  27. CHAPTER ELEVEN Economics and the All-Volunteer Military Force
    (pp. 253-269)
    Beth J. Asch, James C. Miller III and John T. Warner

    An important case in the past half century where the “economic way of thinking” contributed to a major government policy change in the United States was the decision to terminate conscription as the means of staffing the bulk of the U.S. armed forces. After an acrimonious public debate that lasted five years, conscription was ended in 1973. Economists played an important role in the draft debates and in the decision to terminate it. Since then they have been important in the management of the all-volunteer force (AVF). Although their recommendations have not always been heeded, economists and the economic way...

  28. COMMENT
    (pp. 270-273)
    Walter Y. Oi

    “Freedom of action is granted to the individual not because it gives him greater satisfaction but if allowed to go on his own way, he will on the average serve the rest of us better than under any order that we know how to give.”¹ The U.S. Army has historically embraced this autonomy principle except in times of major wars, when Congress turned to coercion.

    “The draft survives principally as a device by which we use compulsion to get young men to serve at less than the market rate of pay.”² The draft places a conscription tax on those who...

  29. CHAPTER TWELVE Public Policy and Saving for Retirement: The Autosave Features of the Pension Protection Act of 2006
    (pp. 274-290)
    John Beshears, James Choi, David Laibson, Brigitte C. Madrian and Brian Weller

    On August 17, 2006, President George W. Bush signed the Pension Protection Act of 2006 (PPA) into law, following its passage by both houses of Congress in a strong showing of bipartisan support.¹ This law, probably the most sweeping piece of pension reform legislation since the Employee Retirement Income and Security Act of 1974 (ERISA), contains many pension reform provisions.² In this chapter we focus on a subset of measures within the PPA adopted specifically to promote better savings outcomes in defined-contribution savings plans.

    The push for these provisions came in response to a growing body of economic research showing,...

  30. COMMENT
    (pp. 291-294)
    Robert J. Shiller

    The new “autosave” features of the U.S. Pension Protection Act of 2006, which the authors and some of their colleagues originally proposed, are a very important, if little-noted, advance that is of the first magnitude for improving national welfare. As has happened throughout history with good ideas, the autosave features have been copied in other countries, for example, New Zealand and the United Kingdom. We might well expect that these autosave plans will become a new worldwide standard. The authors should be congratulated for a change that marks one of the triumphs of economic research for public policy in recent...

  31. Contributors
    (pp. 297-300)
  32. Index
    (pp. 301-315)