Sunday, June 27, 2010

North Korean economic history

There is a new book (in Swedish) about North Korea. It is written by Villy Bergström, a respected Swedish Social Democratic economist, and Benjamin Silberstein. Silberstein is a young guy who is obsessed with North Korea, has read everything about the country, and probably known as much about the hermit Kingdom than anyone in Sweden.

The book is largely based on two trips Bergström took to North Korea, one in 1971 (at the height of North Koreas success), and one in 2002 (when the country was near starvation). The diaries from the trips are quite fascinating; I could not put the book down once I started reading it. The cult around Kil Il Sung is unbelievable.

Some random observations on the book:

• Apparently North Korea in 1971 had a reasonable standard of living. In particular we can believe this observation through the fog of propaganda as Bergström compares his visit in 1971 with his visit in 2002. One reason was massive aid from the Soviet Union. Villy Bergström is a skilled economists, and tries to estimate the standard of living indirectly (the official figures are of course pure lies), for example through observing electricity production, how healthy the population looks and how they live and are dressed. In 1971 people seem well fed, but in 2002 some beg for food.

According to Maddison (who sadly passed away recently), Bergström is right. In the early 1970s North Korea was about as rich as South Korea, (about 2500$ per capita in 1990 dollars). The subsequent development is known to everyone.

Here is per capita income (as best estimated) in North and South Korea, between 1950-2008.

• We can also speculate that centrally planned economies do better the first few decades. When the revolutionary fervor is still high the incentive problems are mitigated. During the initial phase the country can grow through brute capital accumulation (forced savings) and by pushing everyone into the labor force. When they target a few heavy industries, such as steel production and military hardware, the information problem is less severe. But after a while the socialist economy inevitably runs out of steam, and starts to stagnate. They have never been able to solve the information problem to produce decent consumer goods.

• Even though Villy Bergström was a leftist, he showed a lot of integrity in his 1971 diaries, as he questioned the cult around Kim Il Sung and the lack of democracy. Apparently the Swedish left was very upset with him when he originally published the diaries.

• Bergström in 1971 gets to meet some North Korean economists. He asks if they study Keynes. “Of course” They reply. “The Kim Il Sung version!” The Korean economist also study Adam Smith and Ricardo, combined with critique of these classical economists written by Kim Il Sung…

• Villy Bergström writes beautifully. The skill to write well in Swedish is lost in my generation of economist, who only work in English. Since English is our second or third (in my case fourth) language, there is a natural limit for our ability to express ourselves. This makes it less likely for a broader audience of Swedes to read work done by Swedish economists. Quite sad really.

• The book is weakest in its analysis of foreign policy. While Villy Bergström is immune to North Korean economic propaganda, he completely accepts their lies about foreign affairs and the war (perhaps because of the Vietnam War atmosphere). He thus accepts the premise that the Korean War was a war of aggression by the U.S, “American imperialism” against “little North Korea”.

First of all, there is no serious historical dispute that North Korea attacked South Korea (supported by Stalin and Mao), not vice versa. The U.S would never have allowed South Korea to attack North Korea (and South Korea at any case had a very weak military). Second, the Korean War was largely between the U.S and allies and China, not betweeen the U.S and "little North Korea".

Bergström even believes absurd stories the North Koreans tell him about how Americans G.Is would come to North Korean villages, systematically round up hundreds of men, women and children, put them in a basement, pour gasoline on them and lit them on fire to burn to death. Sure, if North Korea propaganda say so, it must be true, who cares about historical evidence? Also, not a word is mentioned about the people who actually committed atrocities, the North Koreans (who murdered tens of thousands of civilians) and the South Koreans. Only America, the generally innocent party, is hated and lied about.

I like Swedes, but I will never accept their rancorous anti-Americanism.

• The chapters written contemporaneously are much more balanced in the historical foreign policy describtion.

• In 2002 about 20% of the North Korean population was members of the communist party. In George Orwell’s “1984”, 15% of the population is members of The Party (of which 2% are members of The Inner Party). Orwell was nothing if not insightful.

• Typical of Social Democratic ideology, Villy Bergström attributes everything to policy. He for example favorably notes that the North Korean school children have more advanced mathematic training than Swedes. Sure, there is absolutely no other explanation other than education policy why east Asians would be better at math than Swedes. Never mind that we notice the exact pattern in Japan, South Korea, China, Taiwan, Singapore, Hong Kong and among South Asian immigrants in the U.S (and Sweden...), despite different policies.

A richer theory of the world would account for, say, culture, and not automatically assume every social pattern is due to political decisions.

• The book is hints at how crazy the ideological atmosphere was in 1971. As I wrote, Villy Bergström was a brilliant economist, and considered a centrist Social Democrat. Yet he writes in one point, favorably comparing North Korea with other nations:

“[Classical] liberalism and capitalism in South Korea has led to fascism and an upper class in ruthless luxury, with a destitute, hopelessly stagnant proletariat. This has happened in South Korea, Taiwan, South Vietnam, Pakistan, South America and southern Italy”.

Pakistan and South America in the 1970s were hardly free market systems. And are South Korea, Taiwan (and more recently Vietnam) really examples of economic ‘stagnation’?!?

And why focus only on one region in southern Italy, when we want to judge policy? Doesn’t all Italy have roughly the same policy? If we observe that most of Italy does well, and a couple of corrupt, low trust, low cooperation regions in the south do poorly, is the most reasonable explanation to blame capitalism?

According to Maddison, between 1946 and 1971 Italy had an average per capita growth of 5.6%. Would you call that stagnation? Bergström thinks the standard of living in southern Italy was the same or lower than North Korea, even though according to Maddison Italy at the time had 4 times higher per capita GDP (of course the south is poorer, but it is not really enlightening to compare the richest part of North Korea with the poorest part of Italy, and even there Italy wins with a big margin).

• The authors are impressed that North Korea recovered from the war by 1971. But it seems to me countries recover from war faster than people think. Conditional on institutions and human capital, physical capital is easily rebuilt.

• In 1971 the Swedish Social Democrats had brilliant economists like Villy Bergström, ideologically committed to their cause. Today people as smart and rational as Bergström rarely become Social Democrats. Much of the he talent in the working class has already moved upwards to becoming middle class, and no longer identifies with the workers movement. The academics they have are not top-economists, but cultural Marxists (feminists, multi-culturalism cooks, postmodernism etc). The decline in talent is perhaps the biggest problem facing the Social Democratic party.

• The anecdotes about Kim Il Sung worship are worth buying the book alone. It makes a great companion to “1984”, comparing Orwell’s fiction/fact with North Koreas bizarre mix of fiction/fact.

Thursday, June 24, 2010

A guide to the 2010 Swedish Election

On the 19th on September Sweden will have elections. Historically, since the 1930s the Social Democrats and their allies usually win a majority of seats, although sometimes with small margins, and three times gaining power even when losing the popular vote. The last election in 2006 however was won by the center-right coalition referred to as “Alliansen” (The Alliance).

Ignoring an unusual exception, you need 4% of the vote to be represented in the Swedish parliament. Above this the votes are allocated proportionally. Compared to the U.S parties are strong, it is extraordinarily rare for Swedish members of parliament to vote against their party.

There are 8 viable parties. 3 on the left, 4 on the right, and one anti-immigration party outside the left-right division.

Here is the average vote of the Left the last few decades:

Next, let's provide some historical background:

1. The Social Democratic worker’s Party.

The historically dominant party in the country, called by some the most successful party in the democratic world. One nuance that foreigners sometimes miss is that part of the reason the Social Democrats win so often is that they positioning themselves in Sweden as a center-left, pro-growth, even pro-business party. This strategy often work.

Here is their historical vote share:

As they radicalized since 1968, they have lost votes. Note also that the variability in Swedish elections and opinion polls has increased dramatically. A generation or so ago, block-voting was the norm, sticking to “your” party depending on what class or social segment you belong to, and largely diregarding the political winds.

The Social Democrats have lost working class votes. Part of the reason is the shrinking working class, another part is weaker class identification among voters. To some extent the Social Democrats have compensated this by getting new voters, especially non-European immigrants. Furthermore, while the working party have been getting weaker, some of the support is lost to the former communists and to the new Green Party, that generally votes with the Social Democrats.

They lost the 2006 election because of high hidden unemployment in Sweden. Most Swedish voters have a strong Lutheran work ethic, and dislike the idea that a large part of the population are “outsiders” in terms of labor market participation.

Their post war (1948-2006) mean vote share is 43.7%.
Their latest election result (2006) was 35.0%.
Current poll average 30.4%

The most important historical development in Swedish politics is that The Social Democratic workers party has gradually lost power and prestige, and for the first time they have promised that if their block wins they are going to form a coalition government with the two smaller leftist parties.

The Social Democrats have an unpopular leader, called Mona Sahlin, who is widely considered to be less than competent. This and their recent move to the left helps explain their poor polls. However, they are the default choice of many Swedes, and are helped by the fact that many voters dislike the type of cutbacks in social welfare programs the center-right has carried out.

2. The Left Party.

Former communists, for many years financed by Moscow. After the fall of the Soviet Union they became more of a normal party. However the hard left in this party recently cleansed many of the reformers who wanted to modernize, pull down pictures of Lenin from the walls of their headquarters and move more towards the center. A drag on the Social Democrats, although they have a loyal core of supporters and a pretty sharp debater as their leader.

The party in addition to communists gets many votes from immigrants, feminists and anti-American activists.

Their (1948-2006) mean vote share is 5.6%.
Their latest election result (2006) was 5.8%.
Current poll average 5.6%.

If the combined left wins, it will be the first time in history this party is allowed to be a part of the government. Before, if the combined left had a majority the Social Democrats tended to form a one-party government, while relying on the votes of the smaller left parties to form a parliamentary majority.

3. The Green Party.

Founded in 1981 as part of the environmentalist movement. Basically Swedish hippies.

Has done very well in Sweden, where voters are extremely environmentally friendly. Votes with the left, but is considered much more centrists on economic issues than the Left Party.

They currently have a competent and popular leader, Maria Wetterstrand, and are doing well in the polls. Especially strong support among young people in large cities and among the highly educated. The Green party social-liberalism is quite hip right now, so they are getting a lot of people who support them for identity reasons. They and the Liberal People’s Party are the "Stuff White People Like" parties.

Their (1982-2006) mean vote share is 3.9%.
Their latest election result (2006) was 5.2%.
Current poll average 9.8%

The Green and the Left party support completely open borders, free immigration for anyone who wants to live in Sweden, combined with keeping the welfare state.

4. The Moderate Party.

Full disclosure: I vote for this party.

Conservative/classical liberal party. Was quite neo-liberal from the late 1980s until early 2000s. After Fredrik Reinfeld and Anders Borg took over the party moved to the center with resulting electoral success.

The policy shift can be summarized as taking their previous top 10 agenda, dropping points 3-10, but keeping the first two, which were lower taxes and reform of the education system. Another part of the re-branding was a change in attitudes, not to be seen as the “upper class” party (remember that Sweden unlike the U.S has a historical aristocracy, disliked by ordinary Swedes).

Their (1948-2006) mean vote share is 17.9%.
Their latest election result (2006) was 26.2%.
Current poll average 32.1%

It is quite rare for the Conservative Party to be larger than the Social Democrats. If this holds true on election day it will mark a teutonic shift in Swedish politics. The strength of the Moderate Party is it’s extremely competent leadership, including Prime minister Fredrik Reinfeld, finance minister Anders Borg and foreign minister Carl Bildt.

5. Liberal People’s Party:

Social-Liberals who sort of like the market economy. Our version of centrist Democrats.

This party is strong in large cities, amongst teachers and among academics (the "enlightened" classes).

Has a decently popular party leader far to the ideological right of his party, a former military guy.

Their historic (1948-2006) mean vote share is 13.7%.
Their latest election result (2006) was 7.5%
Current poll average 6.3%

6. The Center party.

The party for agrarians and small town folks. Is shrinking, because they moved sharply to the right in a failed attempt to get voters from the Moderate party. This party is the most pro-small business in Sweden, and the only one pushing to de-regulate the labor market.

They also attempted to modernize their image as a modern, cosmopolitan party. What instead happened was that some of their rural base, who are hardly Laissez-faire fanatics, felt alien in this new party and stopped voting for them. The Stockholm voters in turn patted the Center Party on the heads, and countinued to support parties with less dirth under their historic fingernails.

Their (1948-2006) mean vote share is 13.1%
Their latest election result (2006) was 7.9%
Current polls average 5.0%

7. The Christian Democrats.

Swedish Christians, and mild social conservatives. Often dangerously close to the 4% threshold. They are looked down by the media and the by the chattering classes, but actually have lots of smart people and are slowly moving toward intellectually founded conservatism (as opposed to instinctual conservatism that Swedes do not respect).

Their historic (1964-2006) average vote share is 4.1%
Their latest election result (2006) was 6.6%
Current poll average 4.5%

8. The Sweden Democrats:

Anti-immigration party, who are outside of parliament, and slowly growing. Has historical ties to the neo-nazi movement. The 2.9% they got in 2006 was surprisingly high. Strong among first time voters and in conservative Scania. Very active online. They are in the middle on economic issues, proposing to cut immigration and foreign aid and use to money for tax cuts and to improve the living standard of nursing homes for the elderly. Interestingly the only party in Sweden that could be described as fully socially conservative.

Since this party is despised by the establishment, it is hard to poll them, because people do not admit they belong to it. They will most likely not be allowed on many TV debates, despite the fact that they have as much support as several other small parties.

Their current standing in the average of the polls as of writing is 4.6%.

Going by the two last elections they will get 20-30% more votes than the polls indicate, perhaps more.

A very important question is what happens if the Sweden Democrats become the swing vote, something which is very likely.

So will The Sweden Democrats (Sverigedemokraterna) get into parliament? I am certain they will.

Average poll result for the Sweden Democrats since 2006:

As the election approaches, I expect the small parties to do better. What the election will hinge on is the verdict of the voters on the ability of the Alliance to “create” jobs during a crisis (and, as the right hopes, on the leadership qualities of Reinfeldt vs. Sahlin).

Right now the center-right (blue) is ahead, really for the first time since they took power almost 4 years ago.

Currently the odds markets are indicating a 53% chance for the center-right to win. This promises to become a closely contested election. Almost as exciting as the World Cup if you ask me...


Go to this page for live results of the vote.

Go to for live update.

Monday, June 21, 2010

How much is military spending?

The Wars in Afghanistan and Iraq are costly, especially in terms of lost lives. However, they are probably not as expensive in financial terms as people think.

In 2010 national defense costs about 680 billion dollars, which translates to approximately 4.5% of GDP. The 2 wars are about 1-2% of GDP. During the cold war (1946-1989) defense spending as a share of GDP averaged 7.7%.

Overall, the share of national income that goes to defense has been declining, with the expectation of two minor bumps associated with the Iraq war and now the escalation in Afghanistan.

There are those in Europe who claim that the U.S is engaged in an arms race. However all of the increase in military spending is due to the operations in Afghanistan and Iraq, in fact in terms of procuring weapons excluding Iraq and Afghanistan U.S military spending as a share of GDP has declined.

This is from the Congressional Budget Office.

And this longer series from the White House:

Having undertaken the responsibility of two invasions, the U.S should try to win the wars in Afghanistan and Iraq, both for moral reasons and not to lose military prestige. After that however I hope America stays out of foreign wars for a while and cuts defense spending a few hundred billion, in light of the looming deficit problem.

Wednesday, June 16, 2010

Entrepreneurship and self-employment

Göran Greider is the most important intellectual for the old Social Democratic movement in Sweden. He writes an article (in Swedish) claiming that Sweden's problem is that it has "too many" entrepreneurs.

His example (which is true) is that Greece has one of the highest self-employment shares in the OECD.

The first problem with the article is that Göran Greider does not understand the difference between self-employment and entrepreneurship.

Entrepreneurship is, according to the dominant Schumpeterian delineation, defined by innovation and growth by individuals who create new organizations. Entrepreneurship is an economic function, and an important one.

Self-employment on the other hand is simply an contractual form, you work for yourself.

Most self-employment is non-entrepreneurial.

You get lots of self-employment when transaction costs are too high and the institutional quality low, such as in Greece. However, you have to be pretty ideologically blind to claim that Greece has many entrepreneurial firms.

Indeed, self-employment varies negatively with per capita income. But does entrepreneurship? This graph tells us nothing about those, much fewer individuals.

Greece has some shipping (Panayotides, Economou) and Intracom. That's basically it. Of the largest public Greek firms in my data, 0% were founded before 1945 by an entrepreneur. In contrast about 31% of the 100 largest American firms are founded by entrepreneurs (due to data constrains I can only value publicly noted firms, but of course most important firms in developed economies are public).

Aside from his bewilderment about what entrepreneurship is, Greider constantly and quite painfully confuses causality with correlation. He thinks that because countries have high self-employment are poor, self-employment causes poverty. This lack of training in stringent logic is typical of the Swedish left (and, to be frank, of Swedish social-liberals).

A contractual form can be motivated for different reasons in different contexts. Iran has a almost 40% self-employment rate (according to the ILO) because its economy works bad. Sillicon Valley has high self-employment rates because they engage in activities where controlling your firms directly is an advantage.

I don't feel like expanding this point: everyone should understand that the motivation for self-employment and the alternative matters for the policy evaluation. Sillicon Valley would be harmed by forcing the tech-people to all work for large firms. Iran would be even poorer if the self-employed were forced out by Greider-style policies: the reduction in the self-employment rate as a nation develops has to come about organically as the economy reorganizes, not ordered above by a leftist journalist who knows almost nothing about the subject. Even in highly developed countries important roles for self-employment as a contractual solution remains, otherwise so many would not engage in it rather than taking secure jobs in large organizations.

Greider claims that most of innovation takes place in non-entrepreneurial firms. He should start by reading William Baumol, who explains the division of labor in terms of radical innovations (entrepreneurial firms) and incremental improvements (large public firms).

Moreover, we simply have no idea to compare innovation in non-entrepreneurial firms with entrepreneurial ones because it is currently impossible to measure innovation. A commonly used measure, patents, is not the same as entrepreneurial innovation for at least two reasons: first because most patents are granted for small, incremental improvements and second because dramatic new ideas are rarely patented.

Nor is all innovation purely technological. Wall-Mart, Starbucks, Trader-Joes, H&M and IKEA are examples of market entrepreneurship, rather than technological entrepreneurship. All of them greatly added to the standard of living but how many patents did they produce?

Furthermore, while innovation does not take place in small self-employed firms, much of the most important innovation the last few years has taken place in large entrepreneurial firms, such as Intel, Apple and Google.

Those firms are large. Why? Because if you make a important innovation, in a functioning economy, you tend to grow.

Does Greiders and his Social-Democratic fans want to deny that these firms are innovative? Or that they are entrepreneurial?

In this mess of an article, Greider has exactly one important point. The prestige and gratitude that we grant entrepreneurship when they create well paying jobs and improve the standard of living should not be automatically bestowed upon non-entrepreneurial self-employed firms.

However, the non-entrepreneurial self-employed have other extremely important and different role in the economy. They reduce the cost of services. They provide jobs for groups who large established organizations discriminate against, such as immigrants in Sweden. They give people who don't like to work for a boss personal freedom (the self-employed often have higher self-reported happiness than workers). Marx was concerned with the alienation that large organizations causes, has Greider forgotten that?

And most importantly, self-employment mitigates transaction costs, because of tight personal control (which Alfred Marshal already noted). It is silly to evaluate taxi-drivers and pizza-bakers by how innovative they are. That is not their economic function.

Attacking self-employment because it is associated with a problem (high transaction costs and under-development) is like attacking head-ache pills because taking pills is correlated with having headaches. It is quite a primitive analysis Greider is engaging in.

I will also do Greider a favor and link to a better critique of self-employment promoting policies by David Blanchflower.

Sunday, June 13, 2010

Do the super-rich live longer?

Yes, billionaires seem to live 3.5 years longer than other American men. You are better off being a Mormon than Bill Gates in life expectancy terms.

Of course there is a huge selection problem here. For example these guys may be more stressed than average.

Wednesday, June 9, 2010

Fredrik Reinfeldt and Anders Borg prove Milton Friedman right

The Swedish working class has very strong historical ties to the Social Democrats. But they also have very strong work ethics, and don’t like the fact that so many people are not working and living more or less permanently of the state. This insight formed the ingenious political strategy of Fredrik Reinfeldt and Anders Borg, who made the lack of jobs and high welfare dependency (rather than per capita income) the central argument in the political debate.

Because of its inability to fix this problem, in 2006 the Social Democrats were voted out of power in Sweden. The new center-right government undertook a quite dramatic range of supply side policies, including large tax cuts, reduced unemployment insurance and tighter rules for sickness insurance. People going on early retirement and sick-leave are particularly big problems in Sweden, despite the fact that Swedes are very healthy.

The goal, and the promise to voters, was to increase labor supply.

But as we all know the crisis hit Sweden in 2008, making unemployment increase dramatically due to reduce demand (both for our exports and internally). Keynesians tell us that when there are demand problems, supply side reforms have no effect.
Once again Sweden is proving this wrong.

According to new data from Statistics Sweden dependency on government welfare program was sizably lower in the first quarter of 2010 than 4 year ago.

In the first quarter of 2006, 11.7% of the Swedish population lived of government transfers in full year equivalence terms. (in this measure if you live of the taxpayers for 6 months you are counted as only 0.5 people).

In the first quarter of 2010 this number was reduced to 9.6%.

In fairness to the Social Democrats, some of this change took place before the new center-right policies had any effect. Nevertheless managing to reduce the dependency rate by one fifth while the world economy was crashing shows us the power of economic incentives, even in the archetypical welfare state.

Sunday, June 6, 2010

Some lazy, self-centered blogging

I will be traveling the coming weeks. So instead of doing the analysis needed for a real post, let me write a little about myself, and put up articles I have already written.

I was born in Tehran in 1980. My parents are from the Kurdish town of Sanandaj. At age 9 my younger brother, my mother and I moved to Sweden. Since my mother was ill, after a few years of living in camp we received asylum for humanitarian reasons (about 30% of asylums are given for humanitarian reasons in Sweden, which means the person did not have a real case for asylum, but gets to stay in Sweden anyway because the Swedes feel sorry for them).

From the time we moved to Sweden until I started college and started getting student loans, we lived on welfare. While very grateful to the Swedish people, this experience convinced me that the their system was way too generous and not properly designed to give immigrants incentive to work, integrate and acquire the Sweden-specific human capital that is needed to succeed.

I attended to the Stockholm School of Economics, followed by the University of Chicago. I am currently a third year student at the Harris School of Public Policy. I expect to be done next year, and hope for a job in academia or in a think tank, preferably in California, D.C, or somewhere warm in the South. I will be happy with any job where I get to do research.

I am affiliated with IFN, a Swedish research institute, and with Captus, a small think tank my brother started.

Politically I am fiscally conservative, but socially libertarian. I thus agree with the Democrats on issues such as gay marriage and teaching evolution in schools, and with conservative Republicans on economic policy. Since the modern western democracies have few infringements on private liberty but lots of infringements on economic liberty, I weight the second more heavily.

In Sweden I vote for the Center-right Moderate party, especially under Fredrik Reinfeldt and finance minister and capable economist Anders Borg. My philosophy is that political ideology has to be adapted to the culture and institutions of the particular country. In other words, it has to be compatible with their national ethos.

Anglo-Saxon classical liberalism, which I personally enjoy, is not suited to the Swedish ethos. Unlike Americans, Swedes are not very independence minded, but instead are very inequality averse. A center-right program for Sweden has to be based on Scandinavian values and preferences.

Furthermore, because they still have stronger work ethics and a very homogeneous and productive population, policies such as generous replacement rates in unemployment insurance and high effective minimum wages are less destructive in Sweden than they would be in the U.S. (Needless to say as norms are eroded and as more of the population are non-Scandinavians, the associated problems are likely to increase.)

I thus oppose American economic policies in Sweden as much as I oppose Swedish policies in the U.S (and for many of the same reasons). Sweden should focus on cutting taxes to average European - not American - levels and fixing immigration.

The thinker who have made the strongest impression on me is Milton Friedman (not hard to guess...). Second is Samuel Huntington.

My favorite non-Chicago Economist is currently Raj Chetty, who is transforming public finance. Bryan Caplan has done the most interesting novel work in political science. My favorite Swedish economist is of course Magnus Henrekson.

Here are the list of the papers I have written, often with others, ordered by self-perceived quality. Notice that they can be read in place of blog posts!

Work in English:

1. "A Cross Country Measure of High-Impact Entrepreneurship"

My doctoral thesis. Not online.

2. "Reversion to the Racial Mean and Mortgage Discrimination"

This paper shows that using current year income can lead to somewhat wrong results when trying to capture race and ethnic differences, because of measurement error in income and a process called reversion to the mean. Results of standard discrimination equations can therefore be wrong (although in practice the difference may be only moderately sized).

3. "Taxation and the Quality and Quantity of Entrepreneurial Firms"

This paper shows that marginal taxes can effect entrepreneurship in a unexpected way. By reducing the option value of really good ideas, high taxes can lead to more mediocre quality entrepreneurship, increasing the number but reducing the average quality of entrepreneurs.

4. "Entrepreneurship and the Theory of Taxation"

To analyze taxes we must first understand the process being taxes. Here we argue that Entrepreneurship is different from passive investment in large, public firms and therefore effected differently by taxes. This paper is forthcoming in Small Business Economics.

5. "Fiscal Illusion and Fiscal Obfuscation: An Empirical Study of Tax Perception in Sweden"

We show that the Swedish public systematically underestimates the tax burden, and also is generally misled about the incidence of payroll taxes.

6. "The Interaction of Entrepreneurship and Institutions"

William Baumol showed that institutions can determine the type of entrepreneurship, if it is mostly productive or destructive. We extent the analysis to the opposite relation, the impact institutional/political entrepreneurs have on the rules of society.

7. Book review William Baumol: "The Microtheory of Innovative Entrepreneurship". Forthcoming in the Journal Of Economic Literature.

Work in Swedish. The last 3 are published in Swedish economics journal "Ekonomisk Debatt."

8. "Ägarbeskattningen och företagandet : om skatteteorin och den svenska policydiskussionen"

Book about dividend taxes and taxes on entrepreneurs.

9. "New perspectives on property taxation"

Argue that savings in home equity to a large extent follows behavioral savings models, in which case taxes on home equity may be more distortive than otherwise. Some discussions on the role of social norms for savings and taxation.

10. "Wrong to dissuade private equity buildup in private housing"

Same as above, the tax system should not promote borrowing and low solidity. Equity finance reduces the instability of an economy, whereas large loans and low solidity create volatility. Yet the tax system rewards the later and punished the former.

11. "Flat tax: More efficient taxation could end up costly"

The tax system should be analyzed in a general equilibrium setting, taking into account the effects on the political system. If flat taxes make it easier to expand wasteful spending, we are actually better off with a less efficient tax system (from a pure economic point of view).

Thursday, June 3, 2010

Mormons in America live longer than people in Sweden

As everyone knows, West Europeans live longer than Americans. In 1994-1998, the years for the study I am citing, Swedes lived 79.0 years, compared to 76.8 years for Americans. That is a 2.2 year advantage.

Generally, this difference is attributed to the health care policy. As you know, I believe that the public debate over-attribute effects to policy, and under-estimates other factors, including culture, norms and demography.

What fewer people know is that within the U.S, Mormons live far longer than non-Mormons. In Utah, LDS members live 6.5 years longer than non-members. This is a massive difference, indicating that life style, rather than health care system, is dominating the effect.

Overall, Utah (with low per capita income) has the third highest life expectancy in the U.S, after Hawaii and Minnesota (both incidentally states that are demographically unique).

What is even more impressive is that Mormons in the U.S lived 79.75 years, or 0.7 years longer than people in Sweden. (data again for 1994-1998. Sweden is above average in Europe, so the finding from this comparison applies even stronger to most other Europeans countries).

Do all the people who think the U.S should adopt the Swedish health care system to live longer advocate that Americans and Swedes convert to Mormonism to live longer?

I somehow doubt it.

Terrible American life style, combined with high crime and traffic deaths, are more likely explanations for the gap in life expectancy between the U.S and Europe than health care policy. An especially powerful piece of evidence for this is that rich Americans, who have access to all the health care they want, also live shorter than rich Europeans, who do not have access to better health care than the rest of the population.

Another fact that surprises most people is that the gap between the rich and the poor in the U.S in use of health care is not larger than the average of other OECD countries. Equal health is more a political slogan than reality in Europe, where the poor live much shorter than the rich.
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