Naked Economics by Wheelan, Charles (spanish books to read .txt) 📕

Prize winner who figured so prominently in our thinking about human capital, wrote a seminal paper in the early 1980s that nicely encapsulated what had become known as the economics of regulation. Building on work that went all the way back to Milton Friedman’s doctoral dissertation, Becker theorized that, all else equal, small, well-organized groups are most successful in the political process. Why? Because the costs of whatever favors they wrangle out of the system are spread over a large, unorganized segment of the population.

Think about ethanol again. The benefits of that $7 billion tax subsidy are bestowed on a small group of farmers, making it quite lucrative for each one of them. Meanwhile, the costs are spread over the remaining 98 percent of us, putting ethanol somewhere below good oral hygiene on our list of everyday concerns. The opposite would be true with my plan to have left-handed voters pay subsidies to right-handed voters. There are roughly nine right-handed Americans for every lefty, so if every right-handed voter were to get some government benefit worth $100, then every left-handed voter would have to pay $900 to finance it. The lefties would be hopping mad about their $900 tax bills, probably to the point that it became their preeminent political concern, while the righties would be only modestly excited about their $100 subsidy. An adept politician would probably improve her career prospects by voting with the lefties.

Here is a curious finding that makes more sense in light of what we’ve just discussed. In countries where farmers make up a small fraction of the population, such as America and Europe, the government provides large subsidies for agriculture. But in countries where the farming population is relatively large, such as China and India, the subsidies go the other way. Farmers are forced to sell their crops at below-market prices so that urban dwellers can get basic food items cheaply. In the one case, farmers get political favors; in the other, they must pay for them. What makes these examples logically consistent is that in both cases the large group subsidizes the smaller group.

In politics, the tail can wag the dog. This can have profound effects on the economy.

Death by a thousand subsidies. The cost of Dan Rostenkowski’s underground parking garage at the Museum of Science and Industry is insignificant in the face of our $14 trillion economy. So is the ethanol subsidy. So is the trade protection for sugar producers, and the tax break for pharmaceutical companies with operations in Puerto Rico, and the price supports for dairy farmers. But in total, these things—and the tens of thousands of others like them—are significant. Little inefficiencies begin to disrupt the most basic function of a market economy: taking inputs and producing goods and services as efficiently as possible. If the government has to support the price of milk, the real problem is that there are too many dairy farmers. The best definition I’ve ever heard of a tax shelter is some kind of investment or behavior that would not make sense in the absence of tax considerations. And that is exactly the problem here: Governments should not be in the business of providing incentives for people to do things that would not otherwise make sense.

Chapter 3 outlined all the reasons why good government is not just important, but essential. Yet it is also true that when Congress turns its attention to a problem, a lot of ornaments end up on the Christmas tree. The late George Stigler, a University of Chicago economist who won the Nobel Prize in 1982, proposed and defended a counterintuitive notion: Firms and industries often benefit from regulation. In fact, they can use the political process to generate regulation that either helps them or hobbles their competitors.

Does that sound unlikely? Consider the case of teacher certification. Every state requires public school teachers to do or achieve certain things before becoming licensed. Most people consider that to be quite reasonable. In Illinois, the requirements for certification have risen steadily over time. Again, that seems reasonable given our strong emphasis on public school reform. But when one begins to scrutinize the politics of certification, things become murkier. The teachers’ unions, one of the most potent political forces in America, always support reforms that require more rigorous training and testing for teachers. Read the fine print, though. Almost without exception, these laws exempt current teachers from whatever new requirement is being imposed. In other words, individuals who would like to become teachers have to take additional classes or pass new exams; existing teachers do not. That doesn’t make much sense if certification laws are written for the benefit of students. If doing certain things is necessary in order to teach, then presumably anyone standing at the front of a classroom should have to do them.

Other aspects of certification law don’t make much sense either. Private school teachers, many of whom have decades of experience, cannot teach in public schools without jumping through assorted hoops (including student teaching) that are almost certainly unnecessary. Nor can university professors. When Albert Einstein arrived in Princeton, New Jersey, he was not legally qualified to teach high school physics.

The most striking (and frustrating) thing about all of this is that researchers have found that certification requirements have virtually no correlation with performance in the classroom whatsoever. The best evidence on this point (which is consistent with all other evidence that I’ve seen) comes from Los Angeles. When California passed a law in the late 1990s to reduce class size across the state, Los Angeles had to hire a huge number of new teachers, many of whom were uncertified. Los Angeles also collected classroom-level data on the performance of students assigned to any given teacher. A study done for the Hamilton Project, a public policy think tank, looked at the performance of 150,000 students over three years and came to two conclusions: (1) Good teachers matter. Students assigned to the best quarter of teachers ended up 10 percentile