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Brigitte Granville discusses how a large public sector in France creates political and economic tensions.

"Private France" - despite its dynamism - cannot continue to compete and innovate while carrying the dead weight of "Public France" on its shoulders. Many ill-managed public or semi-public enterprises only survive because they are saturated by state subsidies. The private sector's burden is not limited to state enterprises, but stems more generally from the vast share of national income (51%) that the state taxes and spends, with a large part of taxation falling on employment.

Discussion Question. Politically, how can a country escape from an equilibrium in which a large share of the population is employed by the government?

Ethan Nadelmann questions the benefit-cost ratio of the war on drugs.

The real problem is that today's drug control policies foster more harm than good; indeed, they probably cause more overall harm than drug abuse itself.

Discussion Question. If drugs were legal and subject to tax, we could refer to the tax as a tariff. When drugs are illegal, the model is closer to that of a quota. How can you compare these two regimes by using the economics of tariffs vs. quotas?

I argue against the view that a more competitive economy is causing profits to fall.

In 1998, when many people were thinking that profits could continue to grow indefinitely at 15 percent per year, I was arguing for 6 percent. Now, when some people think that profits are never going to increase again, I am arguing for 6 percent.

Discussion Question. How can economists tell whether low profits are a short-term phenomenon or part of a long-term trend?

Peter Scheer argues in Slate that high college tuition is used to carry out socialism.

The elite private colleges use gargantuan tuition to do what is usually thought to be the province of governments: redistribute wealth by "taxing" the families of rich students in order to subsidize the less rich and the not rich.

Martin Feldstein argued that this collegiate socialism provides a huge disincentive for families to save. I cannot find Feldstein's paper on line, but it is referred to here.

Martin Feldstein (1995) explains how need-based financial-aid formulas act like a tax on the savings of middle-income families. Using data from the 1986 Survey of Consumer Finances, Feldstein estimates that this implicit tax annually causes the typical middle-income family with two precollege children to reduce the amount it saves by about 50 percent. According to this analysis, it is not surprising that the savings of most middle-income families are now inadequate for them to pay to send their children to the Ivy colleges and MIT and that applicants from middle-income families need more and more financial aid.

Discussion Question. What keeps other sellers of big-ticket items, such as automobiles, from engaging in redistribution? Why is it not possible for an auto dealer to make rich people pay list price while giving poor people a discount on cars?

In Keeping Up with the Cloneses, I suggest that competition is not always good.

The same competitive dynamic that drives the use of steroids and SAT prep courses is going to be at work with genetic engineering. At least, that is one of the main ideas I took away from reading Gregory Stock's book, Redesigning Humans. Parents are going to have the opportunity to give their children genetic traits that will make them better baseball players, better test-takers, or what have you. If humanity is going to be divided between "the enhanced and the unenhanced" (the title of one of the book's most important chapters), how could parents choose to leave their children unenhanced?

Discussion Question. Given that we value progress in general, why should we not be comfortable with genetic enhancement as a means to promote progress?

Mark Steyn says that environmentalism is a religion, and he cannot join the believers.

...the first condition for a healthy environment is a strong economy. President Carter and the other apocalyptic prognosticators of the Seventies made a simple mistake: In their predictions about natural resources, they failed to take into account the natural resourcefulness of the market. The government regulates problems, but the market solves them. So if, as Kyoto does, you seek to punish capitalism in the West and restrict it in the developing world, you'll pretty much guarantee a poorer, dirtier, unhealthier planet.

Discussion Question. For environmentalists, is environmental improvement the goal and attacking capitalism the means, or is it the other way around?

John Perry Barlow continues to believe that the Internet fosters decentralization.

We’re in the middle of a thorough renegotiation of every power relationship on the planet. Those who have had power are going to have to earn it all over again. That includes schools, parents, employers, Wall Street, the recording industry, the people who do television news. And governments. The nation state is the most exposed, because it’s the most removed from most people’s actual lives....

Markets and multinational corporations are likely to take up many of the functions of government–setting standards, determining the value of currencies, taking care of the workforce.

To the extent that there will be political entities, we’ll see the ascendance of city states like Singapore. New York and London are actually far more important than most countries. Remember, in cyberspace, a city state is a global entity.

Barlow argues that people feel connected to their local government. However, their broader connections are with the Internet, which means that national government falls into a sort of no-man's land. A national government is too remote to be relevant to immediate problems, and it is too geographically confined to be relevant to the global world of the Internet.

Discussion Question. Are the nongovernmental entities--corporations and standards-setting bodies--sufficiently powerful to replace national governments in creating international institutions?

How can American policy better serve the needs of the developing countries of Africa? This New York Times article has an interesting perspective.

African leaders, along with some of the poverty-fighting advocacy groups that for years have viewed globalization with suspicion if not downright hostility, are increasingly embracing international trade as the most powerful tool available for creating jobs, steady incomes, hope and political stability. After concentrating for years on winning relief from crippling debt burdens and lobbying for increases in foreign aid payments, African governments are instead starting to demand reduced tariffs and other changes in trade policies from the United States and the other rich nations to increase sales of local products.

The recently-passed farm bill, criticized in the United States for its pork-barrel politics and subsidies to rich farmers, is also bad when viewed from a trade perspective. African countries and other potential exporters are kept from expanding their market share because American producers use government subsidies to compete unfairly.

Discussion Question. Will the more sophisticated view of trade and globalization have any political impact?

Another interesting article in the Economist survey concerns corporate governance.

So far, institutional investors in America, who own so many shares that nobody could argue with them, have been shockingly indifferent to bad management...

Why is everybody being so discreet? Many of the biggest fund-management companies are hoping to win investment mandates from corporate pension funds and 401(k) plans, so they do not want a reputation for being troublemakers.

A perennial issue in the corporate sector is how to align the incentives of management with those of shareholders. Until recently, many economists argued that stock options helped to achieve alignment. However, questions now are being raised about whether stock options allow management to ride along with a strong stock market.

Discussion Question. Any individual investor in a corporation benefits from the actions of other investors who seek to improve corporate governance. What does this "free rider" situation suggest about whether management will receive enough supervision from investors?

The Economist recently ran a lengthy, ominous survey of the state of the U.S. economy and its financial markets. One of the more interesting articles was on the stock market, where they cite Andrew Smithers and Stephen Wright, two British economists who argue that the U.S. remains under the spell of a dangerous bubble. They argue that the Federal Reserve should be willing to try to pop the bubble--but that position is quite problematic, as the article points out.

Looking back, both the aftermath of the 1929 stockmarket crash and the bursting of the Japanese bubble were bad enough to justify paying a high price to avoid a repeat. But in both instances the authorities made glaring policy errors, including keeping interest rates high for far too long and, in Japan, refusing to acknowledge the extent of losses caused by the bubble bursting, let alone cleaning them up. There is no obvious reason why other central banks should repeat these mistakes. Alan Blinder, a former vice-chairman of the Fed, observed a little while ago, when the economy was still looking much bubblier than now: “For the US economy to go into a significant recession, never mind a depression, important policymakers would have to take leave of their senses.”

Discussion Question. If productivity in the United States grows at an annual rate of less than 1.25 percent for the next ten years, are stock prices now a bubble? What if productivity grows at an annual rate of more than 2.25 percent?