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Tuesday, November 22, 2005

Comments

Philip Lane

your posting
Is the world flat?
has an error

- the comment is from Steven Dubner, not Steve Levitt

Erwan Begoc

the Economist had an article about Friedman's book:
http://economist.com/displaystory.cfm?story_id=3809512

Matt

Roach's article is awful, frankly. His argument is non-sequitur: there are things wrong in the world; globalization is occurring; therefore globalization is at fault. His main complaint is that there is imbalance in wealth between countries, but this is precisely what trade is helping to remedy, not cause (it is poor countries that do not trade). Roach has mis-construed Friendman's use of the term "flat" to mean "equal" or "just" rather than "connected". A good deal of his article has nothing to do with globalization. What, for example, has China's lack of services culture or India's lack of FDI or the capacity of the Middle East to absorb oil windfalls have to do with globalization?

Mr Roach demonstrates that if you have enough numbers available then you can tell any story you want. Even here he fails: the "two numbers [that] say it all" are hardly self-evidently problematic. Did other developing countries not go through similar, temporary declines in consumption/GDP? Other facts he cites, such as jobless and wageless recoveries, could be due to anything. There are currently widespread skilled labor shortages in the US so it is far from clear that foreign jobs competition is to blame for depressed wages. Indeed, if such shortages persist then wage hikes will occur as competition for labor heats up.

The article is standard anti-trade grumbling, a collection of illogic, rhetorical devices and off-topic fluff. In view of Mr. Roach's qualifications this might be a symptom of brevity. But the article's means of argument is very much the stuff of Naomi Klein and her anti-trade ilk. This, apparently, is the best anti-globalizers can do. It's not nearly good enough.

Steve Sailer

It would have been pretty funny if they'd given the award to "Freakonomics" just as its most celebrated theory was going down in flames:

'Freakonomics' Abortion Research Is Faulted by a Pair of Economists
By JON E. HILSENRATH
Staff Reporter of THE WALL STREET JOURNAL
November 28, 2005; Page A2

"Prepare to be second-guessed.

"That would have been useful advice for Steven Levitt, the University of Chicago economist and author of the smash-hit book "Freakonomics," which uses statistics to explore the hidden truths of everything from corruption in sumo wrestling to the dangers of owning a swimming pool.

"The book's neon-orange cover title advises readers to "prepare to be dazzled," and its sales have lived up to the hype. A million copies of the book are in print. The book, which was written with New York Times writer Stephen Dubner, has been on the New York Times best-seller list for 31 weeks and is atop The Wall Street Journal's list of bestsellers in the business category.

"But now economists at the Federal Reserve Bank of Boston are taking aim at the statistics behind one of Mr. Levitt's most controversial chapters. Mr. Levitt asserts there is a link between the legalization of abortion in the early 1970s and the drop in crime rates in the 1990s. Christopher Foote, a senior economist at the Boston Fed, and Christopher Goetz, a research assistant, say the research behind that conclusion is faulty.

"Long before he became a best-selling author, Mr. Levitt, 38 years old, had established a reputation among economists as a careful researcher who produced first-rate statistical studies on surprising subjects. In 2003, the American Economic Association named him the nation's best economist under 40, one of the most prestigious distinctions in the field. His abortion research was published in 2001 in the Quarterly Journal of Economics, an academic journal. (He was the subject of a page-one Wall Street Journal story1 in the same year.)

"The "Freakonomics" chapter on abortion grew out of statistical studies Mr. Levitt and a co-author, Yale Law School Prof. John Donohue, conducted on the subject. The theory: Unwanted children are more likely to become troubled adolescents, prone to crime and drug use, than are wanted children. When abortion was legalized in the 1970s, a whole generation of unwanted births were averted, leading to a drop in crime nearly two decades later when this phantom generation would have come of age.

"The Boston Fed's Mr. Foote says he spotted a missing formula in the programming of Mr. Levitt's original research. He argues the programming oversight made it difficult to pick up other factors that might have influenced crime rates during the 1980s and 1990s, like the crack wave that waxed and waned during that period. He also argues that in producing the research, Mr. Levitt should have counted arrests on a per-capita basis. Instead, he counted overall arrests. After he adjusted for both factors, Mr. Foote says, the abortion effect disappeared. [Emphasis mine.]

""There are no statistical grounds for believing that the hypothetical youths who were aborted as fetuses would have been more likely to commit crimes had they reached maturity than the actual youths who developed from fetuses and carried to term," the authors assert in the report. Their work doesn't represent an official view of the Fed.

"Mr. Foote, 40, taught in Harvard's economics department between 1996 and 2002; served stints as an economist on the Council of Economic Advisers in 1994, 1995, 2002 and 2003; and served as an economic adviser to the Coalition Provisional Authority in Baghdad, Iraq, in 2003 and 2004.

"Mr. Levitt counters that Mr. Foote is looking only at a narrow subset of his overall work on abortion and crime, so his results are of limited value, and not grounds for dismissing the whole theory. He acknowledges the programming error, but says taken by itself, that error doesn't put much of a dent in his work. (Mr. Foote's result depends on changing that formula and on the adjustment for per-capita arrests.) Moreover, Mr. Levitt says the abortion theory has held up when examined in other countries, like Canada and Australia, and when applied to other subjects, like drug use.

""Does this change my mind on the issue? Absolutely not," Mr. Levitt says. "

Ever since my 1999 debate with Levitt in Slate.com, Levitt's fans have been telling me that my simpleminded little graphs and ratios of national-level crime trends showing, for example, that the teen homicide rate tripled in the first cohort born after Roe v. Wade couldn't possibly be right because Levitt's state-level analysis was so much more gloriously, glamorously, incomprehensibly complicated than mine, and Occam's Butterknife says that the guy with the most convoluted argument wins.

You can see what Levitt doesn't want you to know about what actually happened with abortion and crime at http://www.isteve.com/abortion.htm

dsquared

[Roach has mis-construed Friendman's use of the term "flat" to mean "equal" or "just" rather than "connected".]

In fairness, Friedman's book positively invites this kind of mistake because his use of the term "flat" to mean "connected" is stupid. As Matt Taibbi pointed out in his review, a sphere is quite obviously and visibly more "connected" than a plane.

Tapsearch Tapart News Editor

Ray Tapajna, Editor and Artist for Tapart News and Art that Talks explores the upside down flat world of Thomas Friedman at http://tapsearch.com/flatworld
http://tapsearch.com/tapartnews about the Lost World due to Free Trade and Globalization relating to workers dignity.
http://tapsearch.com/globalization The brutal flexibilization of labor
Friedman ignores the essential factor in his upside down Flat World. Workers have no voice in the process of Globalization and international entities like the WTO that controls trade is outside any real democratic process.
See "Communications by Rank" at http://www.experiencedesignernetwork.com/archives/000636.html
Read about - if you do not belong to any network, you do not exist.
The aftermath of Hurrican Katrina in New Orleans exposed an underclass that does not exist in the statistics or even in the media. It also exposed a silent depression residing in our land. There are other things under the Flat World of Friedman like underemployment, underground economies, under the table transactions and undercover elite groupings who are obviously behind a forced march to Globalization. Nothing is flat or even in the process. In centralizing anything both good and bad surface to the top. The bad that was once divided now empower things like the worldwide web for instant viewing. eg. Barbarianism is spotlighted across the world in instant fashion.
There was a real "flattener" in the high tech world that goes unnoticed. The first to use an internet process was the French. They had a terminal called the Minitel in almost every French home. They still may have them. The French government sponsored the devices in the home. Later however they had to depend on the porno trade to support the systems and the French use of the devices faded away. This experience could have told the world alot but few would listen. And the only saying still applys when it comes to computerization - Garbage in and Garbage out - It all depends on human dynamics and their good will to insure good data and information. Friedman seems to like the old saying and makes history an art form all of his own and ignores history as a science in fantasy intellectualism.

Arthur Eckart

Ray, obviously capital is a scarce resource, while labor is abundant. Without capital, there would be far fewer workers. Also, without freedom, e.g. through globalization (which includes open markets, free trade, and unrestricted capital flows), there would be far fewer workers. I'm sure people prefer more choices to access capital or work for others than fewer choices. Also, I may add, globalization, which contributes value to societies, e.g. through the Law of Comparative Advantage and through greater competition, was not and would not be started and facilitated by the poor.

Tapsearch Com Tapart News advocate

The USA Government as partners with the vast transnational corporations have tried resolving the problems of the work day for a long time under the Free Traders theories and obviously these theories are not working.
The local value added economies from 1940s through to 1980, worked much better than what we have now. It is impossible to chop up good local value added economies that grow through about 5 to 7 levels up to the retail level and then use the money to do it again and again with the values gained at all levels over and over again for everyone to enjoy from top to bottom. Actually, it looks like we may have to restart our economy from the bottom up.
There are miles and miles of retail shopping centers on a main state route near Youngstown Ohio and Pittsburgh Pa. Many of the stores are empty and the rest seems to have produced a retail level working class. This is the end result of Free Trade. Only a large retail working class is left with all the factories moved outside the USA. Many of the retail working class are supported by private and goverment programs in order to survive as noted widely about the WalMart workers.
You have to drive down the side roads to get an idea of how this class is surviving. Many are doing everything they can to live off the land. So in the end we have a split economy.
The bazaars and flea markets are everywhere which indicates the working poor are finding ways to survive.
The worst part of this scenario is the money that is spent at the retail level does not stay in here in the USA to regrown any values locally or in a geopolitical balanced region. The money spent at retail quickly fans out to where the products are made and where the investments reside with most of it outside the USA.
The Free Traders ignore the Trade Deficit and this is a major indicator of how Free Trade is a race to the bottom. There will always be someone willing to do the job for less and the bottom line is wage slave and even child labor. In the end this means more and more borrowing from the top to the bottom to survive.
See Flip the Flat World over and look under it. There is a vast growing underclass growing more angry everyday, a vast underemployed class doing the same, underground economies where dirty money is washed through regular companies and a vast class of the "unnetted"- if you are not part of any network, you do not exist. History tells us what happens when this is the case and it is not pretty. We should be preparing for the post-Globalization era now because any common sense order of things tell us that Free Trade and Globalization have failed and they are breeding wars and terrorism fostering a new kind of cold barbarianism not seen for many years. See "communications by rank" at http://www.experiencedesignernetwork.com/archives/000636.html or just search under Tapart News Experience Designer.

Ray Tapajna Tapart News Editor & Artist

Capitalism and the Free Enterprise system evolved to make things better for given societies in particular geopolitical settings.
Free Enterprise should be a simple process where someone can grow or make something and then make a decent markup to support their efforts and allow decent wages for the workers involved. The endeavor should be a building block in the whole spectrum of business activities with one business boosting another along the way in piggy back fashion.
Free Enterprise must make it easier for all people to be good. It must be able jell a whole community together even though competition leads the game. There needs to be value added stages supporting the endeavor up and down the line from raw product to the retail level and then back down again. If you let Capitalism drift into a survival of the fittest mode on a global basis, everything breaks down. If good businesses which were supporting the pillars for the whole society are removed, degradation of the whole society sets in. If the processes that balanced the culture and filled in the voids is somewhere else in the world left, societies will fragment. Capitalism became the best system because of all the checks and balances in given nations or regions acted as pillars supporting the whole. However, with Globalization and Free Trade, a new raw Capitalism has surfaced. Local value added economies have been chopped up and the pieces have been sent around the world with contradictory geopolitical settings where the least line of resistance regulations cause many imbalances.
In the end, you have workers who can not afford to buy the very things they make, companies that will do anything to control the flow of money and working poor classes in the more prosperous nations soon find out that they can not afford to buy even the cheaper imports due to their wages being radically deflated. The value of work as to be in sync with the value of the products as Henry Ford found out. It boils down to this - you can not do business with people who do not have any money.
For more, Flip the Flat World of the Globalist Free Traders over and see what you get at http://tapsearch.com/flipflatworld/

Mohan

While the debate over whether the "The World is Flat" or not continues... Friedman’s book definitely abstracted the phenomena of globalization and “opening” of economies that is already happening. Now, one could choose the moniker of a “Flat World” to describe it or…use an alternative term.

Lafayette

Eckart : "Without capital, there would be far fewer workers."

Without workers, there would be NO capital at all.

Get your priorities right.

Lafayette

Mohan: "Capitalism became the best system because of all the checks and balances in given nations or regions acted as pillars supporting the whole."

Quite right.

We are not arguing about Capitalism with a "capital C", but the other kind. The other kind is that which commerce employs since people stopped bartering their goods and started using money (i.e., capital, that is, what is left as profit).

Marx presumed that profit belonged to the state and his disciples equated the gain to a pestilence incarnate. They never understood that personal profit is what motivates individuals, since they were obsessed with the collectivity. This error is fundamental.

Capitalism, with a C, however has come to mean the unbridled kind that allows exaggerated accumulation of personal riches. It is at this point that economics gives up and moralism has its word to say. Is it right or wrong that anyone should be allowed to accumulate billions and billions in wealth?

Is it not a menace to social harmony? Worse, is it not a threat to the state, given the potency of enormous wealth if used unwisely? ("Money can by anyone and anything.")

This moral debate has never been truly conducted. Some countries assume that the accumulation of riches is "OK". The US is just such a country, where the rich are adulated and made celebrities.

Other countries look more darkly upon the matter of too much wealth, especially when held in too few hands. They even decide how much wealth is too much, and start taxing the marginal revenue heavily in order to redistribute it.

Just how many Rolls-Royces in your garage does one need? How many houses across the world? How many women in every city? Is all that what is meant by "Life, liberty and the pursuit of happiness"? I doubt it.

Are we confusing Capitalism and capitalism? That is, the contradiction between the simple accumulation of wealth (Capitalism) and the use of capital to engender further profits by means of competitive economic activity - the consequence of which is employment, which sustains a nation of people?

Just asking ...

Arthur Eckart

Lafayette, it's not wrong to say "without capital, there would be far fewer workers." Capital and labor are complements to some degree. Without capital, e.g. start-up costs, it would be difficult to hire people. Nonetheless, capital really comes from labor. When someone produces value, that people are willing to pay for, that person is paid by society, e.g. through income or arbitrage. When that person saves a proportion of that income, capital is created. So, capital is really created when people produce more than consume. There shouldn't be a limit to how much value people contribute to society. For example, if someone creates $10 billion of value to society for $2 billion in income and saves $1 billion, then society benefits. Conversely, if someone contributes $10,000 of value to society for $20,000 in income and consumes $30,000, then society worsens.

Lafayette

Eckart: "Without capital, e.g. start-up costs, it would be difficult to hire people."

This is not a game of the "chicken or the egg, which came first?" Capital is an instrument of a market need generated by a consuming society. The starting point is the consumer, the individual.

The rush for the accumulation of wealth, the "American Dream" if you like, has given capital a disproportionate role in economic activity.

Marx thought capital was the root of all evil, and he was quite wrong. Western society has come to think that its accumulation is a sort of "score board", where the most zeros indicate the winners. And, the rest are "also rans" in the race.

There must be a central point in between the two notions, Marxism and Capitalism. And, Europe is closer to that median than the US. How did it do that? By higher taxation (and redistribution) of marginal income.

Societies that lose this perspective end up chasing one mirage after another in a mindless pursuit of "happiness", whatever that means.

Still, I would concur ... no human endeavour of an economic nature can be undertaken without capital as a means.

suryaPutra

The world is still not flat and has a lot of way to go. Particularly for movement of capital and Labor.
Capital is obvious, see the mistrust in US for Soverign funds from Middle East and China. But more tragic, movement of labour is very much controlled. See Illegal immigrants comming into US from Mexico, H1 B quota,
The world will be flat when capital can flow freely and movement of labor is not impeded. but before that we have a lot of work to do.

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