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Why Women Should Be Happy We Can’t Have It All

July 15th, 2012 . by economistmom

I recorded my had-to-be-quick take on the Anne-Marie Slaughter article this week for Marketplace radio (and the Marketplace Money weekend show); it is airing this weekend on various NPR stations at various times.

You should listen to it to see how I managed to get in a dig at the Bush tax cuts (I know it seems to come up in my mind in any context)…

But my main points (from my economist-mom perspective):

The mom in me may still feel pressure from society to have it all, to take care of everything. But the economist in me remembers the law of diminishing marginal utility, that if we could really have it all, whatever we had last obtained wouldn’t be worth anything to us.

Constraints that prevent us from having it all also force us to prioritize, to choose whatever gives us the greatest value, first. Individuals can’t do everything we are good at or even best at. A concept economists call “comparative advantage” applies here. I might have inherent absolute advantage in terms of my skills as an economist over some men and women who have more successful careers as economists than I. But my greatest comparative advantage — absolutely! — is as mom to my own kids…

So women — and anyone — shouldn’t be sad about not being able to “have it all.” It only means we have to “settle for” having what makes us happiest.

One of these days I might find the time in my (happily)-falling-short-of-having-it-all life to elaborate more on my thoughts about the Slaughter piece and how in my life I’ve chosen a much different path–and how any of us who can say we have “chosen” a particular and generally happy and satisfying path are very, very lucky.  (In general I thought the article was very insightful and that women were probably over-horrified in their reactions to the negative tone of the title of her piece.  I’m sure that like me, many women trying to have it all didn’t have enough time to read the article before reacting to it!)

Let’s Hit the “Reset” Button on the Bush Tax Cuts

July 12th, 2012 . by economistmom

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Bill Gale is very wise in this CNN opinion piece.  He reminds us that policymakers continue to treat the Bush tax cuts with far more love than they deserve:

Earlier this week, President Barack Obama proposed to extend the Bush-era income tax cuts, which expire at the end of this year, for one year for people with income below $250,000. People with higher income would continue to receive all of the benefits of lower taxes on their first $250,000 of income, but the tax rate they face on income above that amount would rise.

One might wonder why we need more tax cuts, given that the Congressional Budget Office just released a study showing that tax burdens as a share of income for almost all households were the lowest in 2009 that they have been in decades and given that we face a long-term deficit problem that will require more revenues over time.

Given that the Bush tax cuts (whether all of them or even just most of them that President Obama has always wanted to continue and deficit finance) have proven unimpressive in terms of either short-term stimulus (they aren’t steered enough toward cash-constrained households) or longer-term, supply-side growth (the large deficits they cause mean national saving falls), Bill recommends this strategy (emphasis added):

A better way to stimulate the economy and move the broader debate forward would be to let all of the Bush tax cuts expire as scheduled and be considered as part of a broader tax reform and medium-term deficit reduction effort, and institute instead an explicitly temporary cut, again a payroll tax cut comes to mind.

This “reset” option strikes me as a good idea.  It would finally align the current-law and policy-extended revenue baselines, and force policymakers who really want to continue these costly tax cuts to either offset their cost (such as by broadening the tax base by reducing tax expenditures) or defend their deficit financing (harder once they’re no longer status quo).  Also, hitting the “reset” button makes getting rid of the Bush tax cuts perfectly consistent with Grover Norquist’s “No New Taxes” pledge (yes, really!), because: (i) letting current-law play out and the Bush tax cuts expire is not legislating a tax increase; and (ii) if policymakers then choose (even if fairly immediately and retroactively) to reenact the Bush tax cuts and offset their cost with base-broadening or other revenue increases (avoiding the status quo deficit financing), this would just be a revenue-neutral legislative action–also not a violation of the Grover pledge.

Sounds like a good plan to me!

The UN Reports on the “Real Wealth of Nations”

July 2nd, 2012 . by economistmom

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This week’s Economist magazine calls our attention to a United Nations report (the “Inclusive Wealth Report”) that compares the wealth of nations, looking beyond GDP:

“WEALTH is not without its advantages,” John Kenneth Galbraith once wrote, “and the case to the contrary, although it has often been made, has never proved widely persuasive.” Despite the obvious advantages of wealth, nations do a poor job of keeping count of their own. They may boast about their abundant natural resources, their skilled workforce and their world-class infrastructure. But there is no widely recognised, monetary measure that sums up this stock of natural, human and physical assets.

Economists usually settle instead for GDP. But that is a measure of income, not wealth. It values a flow of goods and services, not a stock of assets. Gauging an economy by its GDP is like judging a company by its quarterly profits, without ever peeking at its balance-sheet. Happily, the United Nations this month published balance-sheets for 20 nations in a report overseen by Sir Partha Dasgupta of Cambridge University. They included three kinds of asset: “manufactured”, or physical, capital (machinery, buildings, infrastructure and so on); human capital (the population’s education and skills); and natural capital (including land, forests, fossil fuels and minerals).

The highlights of the report are summarized in the graphic above, from the Economist story.  Note that even on this “beyond GDP” measure of wealth, the U.S. is still an economic leader–and China seems less of a challenger:

By this gauge, America’s wealth amounted to almost $118 trillion in 2008, over ten times its GDP that year. (These amounts are calculated at the prices prevailing in 2000.) Its wealth per person was, however, lower than Japan’s, which tops the league on this measure. Judged by GDP, Japan’s economy is now smaller than China’s. But according to the UN, Japan was almost 2.8 times wealthier than China in 2008 (see charts).

And given that human capital is by far our greatest asset…

Officials often say that their country’s biggest asset is their people. For all of the countries in the report except Nigeria, Russia and Saudi Arabia, this turns out to be true. The UN calculates a population’s human capital based on its average years of schooling, the wage its workers can command and the number of years they can expect to work before they retire (or die).

…the question that policymakers concerned about economic growth need to focus on, is, not just do we have a lot of human capital now, but are we continuing to make the most of our greatest asset, to assure continued strong growth in the future?  For all the measured human capital we have ready and willing to work, the fact that the U.S. unemployment rate is still high means that a lot of our human capital is currently “idle” and not translating into GDP.  Additionally, if our society fails to adequately support higher education, we could easily begin to fall behind in the human capital department over time.

In terms of  fiscal policy and what qualifies as “pro-growth” policy here in the U.S. (typically tax breaks for wealthy investors in physical capital), I think we need to better scrutinize our tax (cut) and spending programs to better direct our resources toward the investments most likely to pay off over time.  Economists’ preoccupation with current and aggregate GDP as a measure of economic well being may ironically be keeping us from being as truly “wealthy” as we could be.