Adoption and acceptance in Korea

Today's Times has an article about adoption in South Korea that discusses issues of child and family preferences. The article suggests that adoption has traditionally been stigmatized, resulting in many emigrant adoptees. Interestingly, the article almost in passing mentions an increasing premium placed on girls, a stark turnaround relative to other Confucian societies where male children are typically valued as caregivers.

As a share of population growth, adoption is currently quite small. Still, it will be interesting to see whether changing norms about adoption might significantly alter fertility.

Back-of-the-envelope effect of capital taxes

Lee Ohanian provides a look at the possible effects of an increase in the tax on capital proposed by the Obama economic team.

Moving from a 50% marginal tax rate (the sum of a 35% marginal corporate income tax plus the 15% personal income tax rate on capital gains and dividends) to a 55% rate by increasing the overt tax on capital from 15% to 20% is still an increase of 5 percentage points. But relative to the total tax rate, that's an increase of 10%.

The Ramsey model with Cobb-Douglas production and a capital share of 1/3 suggests this would ultimately reduce the level of capital and output along a balanced growth path by 5%, which is nothing to sneeze at.

Unexpected aspects of recessions

Today's Times has an article about how health might improve during economic bad times, something that Chris Ruhm at UNC-Greensboro has been writing about for about a decade. It sounds like an odd finding, but the idea is that unhealthy behavior like smoking and not exercising is associated with being very busy at work.

Some of my own recent work shows that patterns of time use in the U.S. since 2003 suggest that higher unemployment is associated with more and better-quality sleep, and with spending time taking care of adults.

See? The looming recession ain't all bad!

Keepin' it real

Today David Leonhardt at the Times has written a very nice piece on the credit crunch that makes things a little more real. The article leads off with a story passed down to a current professor of economics from his grandfather, who lived through the Great Depression, and who felt similarly about the scoundrels on Wall Street. Before the credit crunch led to the demise of his business.

Tom Friedman offers a similarly clear view. I think we need more journalists teaching economics to high school and college students!

The bailout and perspectives toward risk

When writing about who will pay for the bailout package, Paul Krugman wrote something about something subtle. Not the canard of Chinese financing, which I think people asked him about. Yes, China has financed our twin deficits in the current account and on government balance sheets, but the bailout represents something different than more government spending unfunded by tax increases.

It's risk sharing. When the government buys troubled assets or businesses, it is implicitly making the American public hold risk that previously was privately held. There may also be a subsidy involved, but to the extent the assets retain an uncertain value, we're talking about the assumption of risk.

On its own, this creates bad incentives for those private firms and individuals who originally took on the risk and got bailed out. But when all private savers become scared and uniformly decrease their risk exposure, as is currently happening, every business and individual with "risky" debt --- even credit card balances, basically anything that isn't a U.S. government security --- suffers. Then businesses' employees suffer when they get laid off. Then we all suffer.

One could argue that an (i.e., not the only) appropriate action of government in such times is exactly to take on more risk publicly, when it is newly being avoided by private agents, if we view the latter as suboptimal risk holding engendered by irrational fear. (If we think it's rational, that's another story. But do we think recessions are rational? That's a huge can of worms.)

Still, to many it's the rewarding of negligent risk-taking to which people object. Folks on the left and the right in the House despised the idea of bailing out people who "should have known better."

Stepping away from the financial crisis, does this sound at all familiar? In fact, we have a long history of disagreeing about public assumption of private risk in the U.S.

In another form, it is the debate over public health insurance.

Many of the same people who are upset about publicly assuming risk in the bailout are the same folks who are upset about publicly insuring citizens against risks to health. Not everyone, mind you; the left typically favors such moves, while they do not like the bailout.

And it would be wrong to suggest the two types of risk are more than just a little similar. But some of our nation's core beliefs, about individual responsibility and the scope of government, clearly affect perceptions toward both issues.

Best title ever

Perspectives offered by Robert Shiller are titled most appropriately. Shiller provides a long-term perspective on the lessons of the current financial crisis.

You know you're in trouble when

the far right and the far left work to defeat something the center supports. Although the roll call on the 228-205 House vote that set back the bailout is still unavailable, one suspects it's the forces of the free-marketers on the right and the populists on the left (and the right) joining together to bring it down. Score one for the wings!