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Nick Schulz reviews Joel Mokyr's The Gifts of Athena.

knowledge made Malthus irrelevant. Modern agricultural techniques, grounded in science, increased crop yields to feed the growing population spawned by industrial growth. (Malthus had predicted chronic food shortages.) Meanwhile, the science and technology behind the Industrial Revolution transformed old economies into inorganic and mineral-based ones, in which stored-up resources, such as fossil fuels, were unlocked for mankind's benefit. This transformation, in turn, helped make possible the modern factory system, as well as electricity grids and the intricate networks for travel and information that are essential to the functioning of modern economies.

Mokyr's book (which is on my to-read list) evidently talks about the institutional and cultural changes that unleashed knowledge that led to economic growth.

Discussion Question. If growth results from the development, spread, and application of knowledge, then how might the Internet affect growth?

Gregg Easterbrook reviews Keith Bradsher's book on the how the Sport-Utility Vehicle arose in the regulatory environment of the past three decades.

There are lots of self-centered and self-absorbed people with little interest in their neighbors. Somebody finally made a class of vehicles designed to bring out the worst in them.

Discussion Question. Could regulations for fuel economy and emissions be replaced by taxes on fuel and emissions? If so, then why would economists favor such a policy?

Some recent blog activity constitutes distributed analysis of data. One result is Alan K. Henderson's post on the relationship between values and economic freedom.

Almost all of the "free" nations favor self-expression values. ALL of the "repressed" nations favor survival values.

The definitions of these two value poles come from the University of Michigan's "world values survey."

[survival values are that] economic and physical security are more important than self-expression. People who cannot take food or safety for granted tend to dislike foreigners, homosexuals and people with AIDS. They are wary of any form of political activity, even signing a petition. And they think men make better political leaders than women. “Self-expression” values are the opposite.

Discussion Question. How would you sort out causality among the economic freedom index, "self-expression values," and prosperity? Which way do you think that the causality arrows run?

Most taxes are distortionary, causing a loss of economic well-being. But sometimes, a tax can improve welfare by reducing the discrepancy between private and social cost. Brad DeLong points to a classic illustration of such a welfare-improving tax, describes in The Guardian

Next month will see "Big C" day - the introduction of a £5 congestion charge for everyone (almost) who drives into central London. The capital's dwellers will find 700 cameras, computerised fines, hit squads authorised to seize the cars of non-payers and 80 checkpoints round the city centre.

Economists love tolls, and my guess is that many of us are rooting for this London toll to succeed.

Discussion Question. How is technology evolving to make it easier to turn roads into toll roads?

If nothing else, President Bush's economic stimulus plan has shined a spotlight on dividend taxation. It is the topic du jour on economic web sites.

One issue concerns whether or not a dividend tax cut constitutes a stimulus. If you believe that it will raise the wealth of shareholders (which depends on the way that stock prices react), then it would be a stimulus, according to Ryan Lizza.

What worries Hubbard and the White House is that more than $7 trillion in value has been wiped out of the stock market over the last three years. According to the wealth effect, consumption should be plummeting in the wake of the market's decline...wealth effect advocates also attribute the continued spending to the slow pace at which investors fully adjust to their decreased wealth. In other words, the predicted drop in consumption may well kick in this year.

Lizza cites a paper that GQE noted almost a year ago by Maki and Palumbo, which shows that wealthy shareholders do alter their consumption in response to stock price changes.

A second issue concerns the alleged inefficiency of the double taxation of dividends. Zimran Ahmed writes

It is really very simple -- taxing dividend income at a higher rate than capital gains means that companies will substitute from returning money to shareholders through dividends to returning money to shareholders through share buybacks...

Eliminating this difference in taxes eliminates this distortion -- companies will do whatever is best for them and their shareholders. This will marginally improve the efficiency of the economy, which is non-consequential in the short term, but really valuable in the long term. It will provide no real fiscal stimulus, nor will it seriously erode any tax base -- it's kinda like remembering to shut the door to the refirgerator, or squeezing toothpaste from the bottom of the tube -- it's just good sense.

My comment on this is that we should remember the Theory of the Second Best. That is, in an economy with multiple distortions, we cannot say for certain that removing one distortion improves efficiency. The taxation of capital income in this country is so wildly contorted that I would be hestitant to label any incremental change as "just good sense."

Meanwhile, as Brad DeLong points out, we probably all had better read the proposal, because it apparently goes beyond dividend exemption.

Discussion Question. If the dividend tax cut proves to be stimulative, what are the factors that would make its effects felt sooner or later than those of another type of tax cut?

A rant by Steven Pinker with which I am inclined to agree:

People outside of the educational establishment are often shocked to learn how little in instructional practice has been evaluated using the standard paraphernalia of social science–control groups, random assignment, data collection, statistics. Instead, classroom practice is set by fads, romantic theories, slick packages, and political crusades.

And of course, as a teacher of economics and statistics in high school, I have to go on to this quote:

no matter how valuable a subject may be, there are only twenty-four hours in a day, and a decision to teach one subject is also a decision not to teach another one. The question is not whether trigonometry is important, but whether it is more important than statistics; not whether an educated person should know the classics, but whether it is more important for an educated person to know the classics than to know elementary economics. In a world whose complexities are constantly challenging our intuitions, these tradeoffs cannot responsibly be avoided.

Discussion Question. Pinker dismisses vouchers as an administrative issue. Can one make the case that vouchers would change the incentive structure in education to be more favorable to scientific evaluation of teaching methods?

Ideological bookends Paul Krugman and Lawrence Kudlow each make valid points about the Bush stimulus package. Krugman writes

The price tag of the overall plan is a whopping $600 billion, yet less than $100 billion will arrive in the first year.

Because the program is focused on tax cuts, and because temporary tax cuts tend to be ineffective, the Bush program is not well front-loaded. A temporary revenue-sharing program with the states would be more front-loaded, although there would be lags in the effect of the revenue sharing on the state budget processes.

Kudlow argues that cutting dividend taxes will increase corporate transparency by encouraging corporations to pay higher dividends.

investors will more often judge corporate creditworthiness on the basis of dividend yields (dividends divided by stock prices) instead of conflicted research reports. In fact, greater dividend payouts and yields will become the key benchmarks in judging the worth of stock investments.

Discussion Question. How can forecasters predict the effect of a shift toward dividend payouts on the risk premium, the level of investment, and economic growth?

There is an interesting dispute going on in the Southwest United States concerning water. The Las Vegas Review-Journal writes

Policy-makers in the seven states had worked out a deal that would allow California 15 years to gradually reduce its overconsumption, locking in predictable water supplies in the remaining states. To make the deal work, though, agricultural areas, including the Imperial Valley, would have to use less water from the river and in fact transfer some of their allocation to Southern California city dwellers. Now, the entire agreement is in flux.

The Imperial Valley...gets its river water for free, paying only a $15.50 per acre-foot delivery charge...officials balked at the opportunity to sell 200,000 acre-feet of water, or about 6.5 percent of the valley's allocation, to San Diego for $258 an acre-foot -- nearly 17 times what the district now pays for the water.

A sizable number of Imperial Valley residents oppose the sale because it would force the region to take some crop land out of production

Discussion Question. If Imperial Valley has an opportunity to sell water for 17 times what it pays for water, then how much should it increase the price of water to its own residents, including farmers?

How much will government spending have to rise due to growth in Medicare? In this essay, I write,

The most critical economic issue for the 21st century is socialized medicine. Largely because of Medicare, the default scenario for the United States in the middle of the century is that government spending on health care will be about 10 percent of GDP.

Discussion Question. The essay does not suggest reducing health care spending as a fraction of GDP. So what difference does it make whether health care is paid for by private insurance or by the government?

Virginia Postrel marveled at being able to purchase a bag of flour for 69 cents. Brad DeLong agreed, pointing out that a bag of flour has about 7500 calories.

Consider the overwhelming bulk of our ancestors half a millennium ago--Eurasian peasants circa 1500. Something like three-quarters of the value of what they and their villages produced was foodstuffs. And close to the Malthusian edge as they were, they were lucky if the foodstuffs they produced got them 1900 calories a day.

In other words, Postrel purchased four days worth of pre-Industrial output for 69 cents.

Discussion Question. What are some of the adverse consequences of the tremendous productivity of modern agriculture?