A friend sent me this blog entry from Createquity, a blog about arts in society that occasionally dabbles in critiquing the field of economics.   The entry makes the case that economics is flawed in how it values welfare, and that economists don’t care about poor people.  

I generally agree that economics does not value welfare perfectly—as, I would guess, many economists would as well.  A basic tenant of economics is that we can’t directly measure utility (I covered this in my intro to econ class, anyway).  We know there are some rules that define the relationship between utility and the price we are willing to pay for things.  For example, if a person is willing to pay more for an apple than an orange, we assume the apple had greater utility to that person than the orange.  So we use the amount that people are willing to pay for things as an imperfect proxy for utility.

As this relates to poverty,  economists do know there are declining returns to income/consumption.  Imagine you give a child $1, and she buys a doll.  You give her another $1, and she buys candy.  Since she chose to buy the doll first, she must value the doll more than the candy, so the first $1 was of greater value to her than the second $1.  The difference in those values will be starker when comparing the first $1 of income that a person spends on food or shelter to the millionth $1 of income that the person spends on a designer purse.

While we can recognize these things in individual situations, it is very hard to account for them more broadly.  The author compares a poor consumer to a rich consumer who are both competing for an auction item.   While the author’s example contains some problematic details (for example, the rich consumer thinks the item is something else, which is an example of a widely recognized market failure: imperfect information), the main problem with the example is that while the author can assert the poor consumer values the item more, in real life, this can be difficult to ascertain.   In some cases it is clear—a starving poor person must value a sandwich more than a person who just ate a seven course meal.  But how do you know who values a flat screen TV more?  Just because that guy who lives in his parents’ basement says there is no way a millionaire could value a TV more than he does doesn’t mean it’s true. 

Attempting to assign more utility to the same dollar value creates problems.  Measuring welfare differently for each consumer ignores the supplier.  While selling a flat screen TV to the basement boy for $50 instead of to the millionaire for $5000 might result in more welfare for the consumer, what about the supplier who just lost $4950?  To the supplier, $1 is $1, whether it comes from basement boy or the millionaire.  Even if the welfare gain to the consumer is enough to outweigh what the supplier lost, there are also incentives to consider.   Economics often has to make trade-offs between what is immediately welfare maximizing and incentives.  Using dollars to measure welfare gives people incentive to produce things that are valuable to other members of society.  Society doesn’t value basement boy’s couch-warming service.  It does value whatever good or service the millionaire (or his grandfather) provided.   When we use dollars to measure values, we are measuring in units of value to society as a whole, not to individuals.

In some cases, trying to take some of these effects into account may make sense.  Imagine trying to measure GDP, taking declining returns to income.  One could argue that that would be a useful measurement, as it might capture welfare gains from using what we produce more equitably.  Instead of just estimating the market price of every good and service produced in the economy (quite a task in itself), we’d have to track who consumed each good and service, then try to figure out where that spending ranked on that consumer’s priority list.  Have fun doing this for exports!!

None of these points are intended to refute the argument that welfare is imperfectly accounted for in economics.  They are merely intended to explain why economics measures welfare in a way that can seem callous: it’s the best we’ve come up with so far.

In addition to the fact that economics cannot perfectly capture welfare, there are things that economics cannot capture at all: morals.  Economists can tell us the cost of providing food stamps, subsidized housing, or free education; we as a society must decide if we think that cost is enough to justify allowing some of our population to have inadequate food, shelter,  or education.  Economists can tell us the costs of measures to protect endangered species; we must decide if those costs outweigh the costs of losing one of earth’s creations forever.  Economists can tell you the economic benefits of legal abortion; we must decide if aborting an embryo is wrong.  Economists believe that we should make informed decisions, and try to provide as much information as possible about the economic costs and benefits of each alternative.   It may or may not be true that economists value helping poor people less than the average citizen (however, I would note that economists who vote Democratic outnumber those who vote Republican by 2.5 to 1, suggesting that economists support social safety net programs as a rate higher than the general population).  But if society decides that helping poor people is not worth the costs estimated by economists, then perhaps society needs to look critically not only at economics, but its own values. 

The New York Times reports that playing sports as a child has a positive impact on women's income when they are adults.  More boys than girls play sports in high school; about one in three high school girls plays sports compared with half of high school boys.  In an era when the majority of the population is overweight, this is one more reason why both girls and boys should be given opportunities and encouraged to participate in sports. 

The Council of Economic Advisers has released the 2010 Economic Report of the President.  You can find a link to the full report, as well as a summary of the highlights, here. 


Quick summary: The economy was a mess when President Obama came into office, because of problems that were a long time in the making, including stagnating middle class incomes, rising health care costs, and flawed and under-regulated financial markets.  The economy is still not great, with a slow recovery and lagging job formation expected, but it is in better shape than it would have been if the stimulus bills had not been implemented.  We should still do more.  Pass jobs support and health care reform now!

Just for fun: prepare for the Winter Olympics by brushing up on your national anthems here. 

This paper isn't new, but I recently saw Ricardo Hausman give a presentation on it, and it is quite interesting. 


The basic premise is that the products that countries produce can be grouped according to the inputs required to produce those products.  Knowing how products related to each other could help developing economies figure out what industries to focus on. It is easier to develop industries that share production inputs with products you are already making than it is to develop industries that require a completely new set of production inputs: it is easier for monkeys to swing to a nearby tree than it is for them to swing to a farther tree.   

The researchers used product categories and job categories to figure out how closely different products were related to each other in terms of inputs.  They then looked at several sets of countries, and mapped which products they were producing.  The diagrams above show the result of this exercise: the colored dots are products, the lines connect those products that share inputs, and the black squares show what each group of countries is producing.  Developed economies produce goods near the center of the cluster.  The goods on that part of the map are things like electronics, that require a lot of inputs, but share inputs with a lot of other products.  Developing economies are at the periphery of the map, making goods with fewer inputs, and that don't share inputs with many other goods.  The point: developing economies are less diversified (no surprise) and less flexible if their main product goes bust. 

I've added labels describing important product clusters for each group of countries.  Developed economies are clustered around high-value, complex product manufacturing.  Latin America and Sub-Saharan Africa both have oil as an important product.  Asia has clusters in the areas garments, textiles, and electronics.  This point about garments and textiles is interesting.  Although it might seem obvious these should go together, they actually don't share many inputs.  It's possible that the inputs, though not shared, have similar attributes.  Perhaps they require workers with similar levels of education, even if the jobs those workers do are quite different.  Or perhaps proximity matters: maybe it is cheaper to make fabric closer to where you sew it.  Either way, it suggests targeting industries for development is even more complicated that the charts above suggest.  

According to NPR, this is the brainchild of Spike TV producer John Papola and libertarian economist Russel Roberts, together with rap duo Billy and Adam. 

The earthquake in Haiti has put a spotlight on international and interracial adoption, especially in light of the bizarre attempt by a church group to illegally transport children out of Haiti.  In this article in Newsweek, the author airs a number of concerns she has about white families adopting children of other ethnicities from abroad.

Adopting a child, no matter where that child is from, presents unique challenges.  The same is true for having a mixed-race family, whether that family is the result of adoption or of interracial marriage.  The author is right in suggesting that people considering adoption should not take these issues lightly—and most don’t. 

However, I do take issue with the author’s concerns that white families who adopt children of other ethnicities are less able to celebrate that child’s culture, or that families looking to adopt would do better to adopt American children first.  With regards to interracial adoption, it is again certainly true that interracial families face challenges that other families don’t.  However, skin color is not necessarily the same as culture.  A white child from Berlin does not have the same culture as a white ranch family in Montana; a Black Christian family in Virginia does not have the same culture as a Black Muslim child from West Africa.  Both of these families would face the same challenge (or opportunity!) as a white family adopting a Haitian child in terms of learning about and celebrating their child’s culture. 

As to whether it is better to adopt at home or internationally, I can only say that all children need and deserve to have loving families and sufficient resources.  It is a tragedy that not all children do have these things, regardless of where they are.   When the author suggests that it would be better to adopt at home than from abroad, she falls into the exact mindset that she is critiquing—that adopting children are status symbols, signs of a parent’s virtue, and adopting children from the U.S. is of higher virtue than adopting from abroad.  The fact is, for most parents, adoption is not about doing the most good.  It is about growing a loving family, in a way that works for them. 

International adoption and interracial adoption are complicated issues, and opinions on them range widely—as do the backgrounds of those who express opinions.  However, among the responses to these articles, I have seen few comments from people who have been in the position of being adopted by a family of another nationality and ethnicity.  Because I believe that this perspective is important to informing how we think about this issue, I have asked Nicole Schultz to contribute a guest post on this issue.  Nicole was born in Port-au-Prince, Haiti, placed in an orphanage by her biological father, and adopted by a white American family.  Her post is below.   If you have any questions about her experience, please post them in the comments and I will relay them to her. 

Who Am I?

I was born Marie-Nicole Clermont. However, after I was adopted from Haiti by white Americans, I was renamed.  Nicole Schultz.  Apparently their oldest daughter's middle name was Marie, therefore they took that away. Am I bitter about that? Hmm, yes a little bit.  I never understood how her middle name had anything to do with my first name.  Yeah, pretty much that whole fiasco never made a whole lot of sense to me.  When I was in second grade, I got everyone including my teachers to call me Marie. Eventually, I just accepted that I was Nicole.  Am I bitter that I probably will never get to see my biological family, or anyone biologically related to me?  Yes, it is an ache that I constantly battle, something that will never go away.  Did I grow up thinking it was strange that they were white and I wasn't?  No.  There never were racial barriers between my family and me. The only barriers were inflicted by the outside world:  people thinking that white parents could never adopt someone from another race.  Well, they're wrong, because I and thousands others are proof.  The only thing that causes barriers with white people adopting children from other races are the people judging them, the ones who have no experience of the matter and insist on making damaging opinions regardless.  In simple terms, they pass judgment on things they know not of.  But if you were to ask me if I ever would take it back, the life I now live, for the life I once I lived in Haiti, the answer would be no.  I wouldn't trade the world, the parents, and the family I have now.  Sure, there are some struggles I face, that I wouldn't have had if I were an American adopted by another American.  However, that is neither here nor there.  I was put up for adoption by my biological father, because he wanted a better life for me. Who is it to deny him the opportunity to give his child a better life, when the opportunity is available?!

My American parents adopted me out of love.  They weren't crazed celebrities trying to add me as a good looking accessory to show off to their aristocratic society.  Nor were they some religious fanatics trying to save my soul for judgment day.  No, they were simple people, who wanted to have another child.  Well, and that child was me.  Nicole Kristine Schultz, born in Haiti, raised in America.  And I am still ever bit 100% Haitian, and no one will ever be able to take that from me.

-Nicole Schultz

Today I attended a World Bank training on survey methods in developing economies.  (I would just like to say, the World Bank has great food, and where do they get their papaya, because when I buy papaya here it always tastes funny.) 

One interesting bit of the training seminar had to do with calibrating surveys to adjust for differences in perceptions or attitudes among respondents.  To get a more concrete idea of the problem, imagine asking two people to rank their health from 1 to 10.  The first person is a young, Olympic athlete with a cold and sprained ankle, who rates her health as 5.  The second is an old, barely mobile man who had a good day and was able to do a lap around his building with his walker. He ranks his health as 8.  Is he really more healthy than the athlete? No, but the respondent's relative baseline matters.  

An example from actual research: Gary King, Christopher Murray, Joshua Salomon, and Ajay Tandon asked survey respondents in China and Mexico to rate their ability to participate in governance. Chinese respondents, on average, ranked their political efficacy higher than Mexican respondents. 

Few people would really believe that citizens have more political efficacy in China than Mexico. More likely, what Chinese citizens considered to be a "high" level of efficacy was different from what Mexican citizens considered to be a "high" level of efficacy. The researchers devised a way to account for differences in the respondents' relative baselines. They used vignettes, or stories illustrating a particular level of political participation, and asked respondents to compare themselves to the hypothetical.  Using this method, Chinese respondents ranked their political efficacy lower than Mexican respondents, on average.

Similar use of hypothetical vignettes can be used in surveys on other topics, including health, access to resources, education, etc., to ensure that respondents interpret questions similarly, and that their responses have the same meaning. 

The Federal Reserve posted profits of $52 billion in 2009.  The abnormally high profits were due to extra interest on assets held by the Federal Reserve; the Fed increased its balance sheet substantially as a result of its efforts to combat the financial crisis.  Some of the extra interest came from increased holdings of Treasuries; some came from loans the Fed gave to bail out financial firms. After paying for its operating expenses, the Fed returned $46 billion of its profits to the U.S. Treasury.


PS. Hope I spelled "seigniorage" right. Microsoft Word, in its great wisdom, keeps suggesting "senior age".