Saturday, March 29, 2008

Ed Glaeser has a nice essay on John Kenneth Galbraith

Reading this is a pleasant way to spend five minutes on an early evening Sunday.

I have three comments. First, I don't think Americans (or others, for that matter) nowadays have much sense of how poor the country was in the 1930s. I was teaching students here in India about the New Deal Institutions that under girded the development of the modern housing finance system. While doing so, I pointed out that many people in the US went hungry in the 1930s, and that little more than half of households had indoor plumbing in 1940, the first year the census kept track. It was not until after WWII that the US did in fact become an affluent society.

Second, on the issue of wealth vs distribution, I can't help but think that the GDP standings focus too much on means and medians, and not enough on quintiles and deciles. Some time I ago, I took the World Bank World Development Report and looked at PPP Incomes by quintile. If I remember correctly The US was the number one country for the top three quintiles, but fell to something like 20 for the bottom quintile (as soon as I get back to Washington I will find the spreadsheet where I did this). Now lots of people in the bottom quintile go to work every day, so it is not as if perverse incentives could somehow explain the US's relatively lackluster performance. It is also possible that many Americans are comfortable with their country's relatively low rank for this group of people. But it is important that we go beyond means and medians when we debate social welfare policy. I know there are also GINI coefficients that say pretty much the same thing, but try explaining a GINI coefficient to a politician.

Finally, Ed says that much of the housing mess has arisen from overregulation. I think he is talking about the regulation of land markets, and with this I agree. But we did not have excess regulation in financial markets, and I would guess that the lack of regulation in the mortgage market was more important for explaining the housing bubble than was overregulation in the land market.

1 comment:

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