Research Reports: April 4, 2011
Markets Can Ease the Food Crisis
With proper incentives, developing nations can profit from higher prices.
by Craig J. Richardson, PhD, Visiting Research Fellow
Higher Tax Rates Won’t Fix Deficits
History has shown that increasing the tax burden of the rich would have little impact on cutting the deficit. Instead, it slows growth.
by Julie Ni Zhu, Research Intern
Ask the Expert: Health Savings Accounts
by Kevin T. McGrath, CPA, a tax partner with BST Advisors, LLC.
Business-Cycle Conditions, April 2011
The Consumer Returns, But Timidly
People are spending more and cautiously borrowing. But no clear engine of growth has emerged to drive the still-modest recovery.
by Polina Vlasenko, PhD, Research Fellow
RR20110404
History has shown that increasing the tax burden of the rich would have little impact on cutting the deficit. Instead, it slows growth.
by Julie Ni Zhu, Research Intern
Ask the Expert: Health Savings Accounts
by Kevin T. McGrath, CPA, a tax partner with BST Advisors, LLC.
Business-Cycle Conditions, April 2011
The Consumer Returns, But Timidly
People are spending more and cautiously borrowing. But no clear engine of growth has emerged to drive the still-modest recovery.
by Polina Vlasenko, PhD, Research Fellow
RR20110404
People are spending more and cautiously borrowing. But no clear engine of growth has emerged to drive the still-modest recovery.
by Polina Vlasenko, PhD, Research Fellow RR20110404
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Is it Proper for Men to Be Creative with Formal Wear?
There seems to be a fashion this season for new approaches to men’s formalwear, and I’ve been getting questions about it.
Is this proper or tacky? Exactly what are the limits here? Here is my answer.
This is probably the third round of such experimentation in my adult life. It’s as if people suddenly get bored with the traditional black tie, studded white shirt, black dinner jacket, and black trousers with a satin stripe. Hey, how come all the women at this party look amazing while every man looks the same and together the men look like they should be standing on an iceberg at the North Pole and have tiny unusable wings on their sides?
It’s a good question. The answer is as follows: the men all look the same precisely so that the women can stand out, dress up, be fancy, and display themselves in all glory. This is precisely how it is supposed to be. It’s the reverse of the animal kingdom where the male cardinal is fancy and the female is plain.
The evolutionary reason has to do with gender balance (and you are free to reject the following; don’t shoot the messenger). The explanation is that in general men have superior body strength and are hence more physically threatening by their nature and thus must affect a variety of displays of deliberate disempowerment to even out the balance in the interests of gender tranquility. This is why men open and hold doors, bow and defer, pay for meals, light cigarettes, and affect other forms of obsequious service as part of the rubric of social life. Deliberately declining to don fancy, glittery, overtly individualistic clothing at high-end socials is part of that protocol.
As with any of these rules, they only matter if they are operational in a world of prosperity and choice. If everyone is scratching around in dirt and living hand to mouth just to survive, high-end manners never become a reality to which anyone but the lord of the manner and his family must comply. The world in which manners and dressing protocols begin to matter is the second half of the 19th century.
This tradition in the modern world began in the aftermath of the Civil War at the dawn of the great enrichment in America, when the possibility of exercising clothing choice spread from the aristocratic upper classes to the newly capitalistic well-to-do. The question for men in this age in America was: how can we look amazing and keep to the protocols of what is right and not right?
In 1865, the Prince of Wales (later King Edward VII) wore the black tie and dinner jacket (instead of the more formal cutaway coat) and this was borrowed for social occasions in Tuxedo Park, New York, which had become a fashionable area for hunting and fishing clubs for the newly rich. This is why the black tie and dinner jacket in America, and only in America, is called a Tuxedo.
According to the Wall Street Journal:
The story of how the tuxedo made its initial debut in American society dates back to the Gilded Age, when the founders of the posh Tuxedo Park resort in Orange County, N.Y., are thought to have introduced the coat at their exclusive sporting club. This fall (2011), current residents of the Park, along with the local historical society and the distinguished Savile Row clothier Henry Poole & Co. plan to celebrate the legacy of the tuxedo in a manner befitting its eminent birth.
The word has always been and remains a colloquialism. The proper term is black tie. Predictably, the tux disappeared mostly during world wars one and two – no one cares about such finery when the nation is involved in a seemingly existential struggle – but returns in times of peace and prosperity.
Now to the subject at hand. To what extent can traditional wear be adjusted and remain in the realm of propriety? In the 1960s, you began to see the jackets change with new seasonal plaids. In the 1980s, red ties became popular. And now we see the sudden emergence of what was considered tacky in the 1970s reinvented into a high-end product: the velvet dinner jacket.
The look is still formal but it steps out of the bounds of what is supposed to be the canonical social requirement that men dress more or less identically in order to make room for the women to shine.
My own view on this is that while duty seems to require that men decline to be fashionable at formal events, there are times when you just have to say: hey, this is boring!
What are those occasions? Every woman knows the difference between a cocktail dress and a formal long dress, and which occasion calls for what.
I would simply suggest that the same is true of men. The traditional garb can be adjusted for cocktail parties asking for black tie. It means you can wear a white, red, pink, or Polkadot tie. You can wear a plaid or velvet dinner jacket (not just any sport coat please).
On the other hand, for a formal ball – say a benefit ball for the opera or a foundation – play it safe with the traditional garb. Thus does it depend on the occasion.
That said, there are ways to distinguish yourself even with the traditional tuxedo. You can wear a single high collar, a pocket square (white only please), double breasted, or a shawl collar. You can choose pearl shirt studs. There is an endless number of formal options for cufflinks and hence no requirement as such to stick to black.
A little bit of signature goes a long way here.
Keep in mind that there is a reason that all of this represents a modern tradition. Only modern capitalistic economies created a glorious opportunity for everyone to dress in the attire reserved for the royalty of old. We democratized formality, and there’s no better time to show precisely how this works than during the holiday season.
Women have long understood this. It’s time for men as well to step up and embrace both the rules and the proper way to break them.
Jeffrey A. Tucker
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The Link Between Prosperity and Freedom Is Even Stronger than You Think
For some decades now, economists have assembled data measuring “economic freedom” in order to create an index that can be tracked over time. The idea of an index of economic freedom is to measure the extent to which individuals are free to pursue their self-interest and how secure are the fruits of this pursuit. Some 400 articles have been written using this index.
A substantial share of those articles deals with the relation between prosperity and economic freedom. Most of these articles conclude that there is a positive relationship between growth and economic freedom: freer countries are richer countries and countries that increase economic freedom speed up growth.
Many scholars have expressed skepticism towards these measures arguing that it was hard to “put a number” on institutional quality. Thus, any empirical finding derived from using this variable are deemed to be suspicious by these skeptics.
However, there is an important point that the skeptics fail to realize that should increase their willingness to accept the results. The claim that growth and economic freedom are positively related is a conservative one as the data is biased against finding a positive relationship. This is because growth is a concern shared by all regimes, free and unfree.
Dictatorships or authoritarian regimes (which also tend to be economically unfree) often put a lot of pressure on their bureaucrats to develop the economy and increase output. More often than not, bureaucrats will be rewarded for achieving the objectives set by the central government. Punishments are also handed out for failing to meet out the objectives. This is a potent incentive to “fudge the data”.
To best consider the role of incentives that may induce biases in the production of data, Cuba’s demographic statistics is a good example. Cuban physicians have to meet targets of infant deaths that are set by the central government. Because the regime uses infant mortality rates to vaunt their regimes, physicians who fail to achieve the centrally-defined targets are punished. This causes them to reclassify certain deaths that occur after births (known as early neonatal deaths) as pre-birth deaths (known as late fetal deaths) which are not included in the infant mortality rate. This artificially deflates the infant mortality rate and improves life expectancy at birth. Because the government cares so much about this particular outcome, there are incentives to make the statistics say what the government wants them to say.
The same happens to estimates of the size of the economy. In numerous countries with authoritarian governments, the central government defines target rates of economic growth. Local bureaucrats who face punishments for not meeting targets (and potential rewards in case of success) thus have an incentive to use methodologies that are bound to overstate the size (and growth) of the economy. This is notably the case in China where regional party leaders exert considerable pressure in the process of data production regarding local economies. When adjustments are made to account for evident manipulation, China’s rate of economic growth between 2010 and 2016 is 1.8 percentage lower than the official numbers.
To measure the extent of the data fudging for all dictatorships, Luiz Martinez of the University of Chicago found an ingenious solution. Thanks to the many satellites orbiting the planet, we can measure artificial lighting at night. This light is strongly correlated with levels of economic development.
However, unlike government produced measures of economic development and activity, that data cannot be manipulated. Martinez assumed that the light data was a true representation of economic activity which could be used to measure the extent of the data trafficking by type of political regime.
Martinez found that the numerous dictatorships of the planet overestimate economic growth by factors of 1.15 to 1.3. As way of example, this means that when Chinese authorities report an economic growth rate of 6.6%, the true growth rate is closer to 5.1%.
Why is all this relevant to the empirical finding regarding the relation between prosperity and economic freedom? Because authoritarian regimes also tend to be less economically free. There is thus a correlation between economically unfree and upwardly biased GDP estimates. This indicates that the data is biased against finding any positive effect of economic freedom on growth.
This is an important bias that makes it all the more surprising that the empirical literature tends to find that economic freedom is associated with development. This bias ought to make all skeptics more marginally inclined to embrace the finding that more economic freedom is linked with increasing prosperity.
Vincent Geloso
