Thursday's interesting reads - 6/5/08

I'll go ahead and get the bragging out of the way. I had another letter published in the WSJ this morning. I was the one in response to the op-ed about lobbyists.

"Worried About a Recession? Don't Blame Free Trade" by Dan Griswold with Cato (HT: Club for Growth):

"Combined with those other factors, expanding trade and globalization have helped to moderate swings in national output by blessing us with a more diversified and flexible economy. Exports can take up slack when domestic demand sags, and imports can satisfy demand when domestic productive capacity is reaching its short-term limits. Access to foreign capital markets can allow domestic producers and consumers alike to more easily borrow to tide themselves over during difficult times.

If the U.S. economy does tip into recession this year, free trade and globalization will be among the likely scapegoats. The pain of recession will be real for millions of American households, but raising barriers to foreign trade and investment will provide no relief for most affected workers. In fact, reverting to protectionism would only reduce the capacity of our economy to regain its footing and resume its long-term pattern of growth."

"Billers, Players, and Income Inequality" by Arnold Kling:

"As Taleb points out, there are safe professions where you charge by the hour, so I might call them Billers. As a Biller, your earnings tend to have a high floor but a low ceiling. Think of an accountant.

What Taleb calls scalable professions are ones where you are not limited by what you can charge for an hour. Recording artists, professional baseball players, entrepreneurs, corporate CEO's, and financial speculators enjoy scalability. But, as Taleb points out, they have to compete in tournaments where there are a few winners and many losers. So we can call these sorts of people Players...

So one story for rising income inequality is that a larger share of income is going to occupations that involve tournaments, and more people are becoming Players. More Players and fewer Billers means greater inequality.

To me, this raises the public policy question of what should be done about the inequality it creates, if anything. There are some who believe that income inequality has an extreme social cost. To me, anything that limits (to a substantial degree) the upside of this kind of activity just to keep them from becoming relatively more wealthy would be a mistake.

"Why Cap-and-Trade Beats a Carbon Tax" by Felix Salmon on Seeking Alpha:

"In other words, as I've said many times in the past, cap-and-trade is flexible. Once you've installed the mechanism, it can and will be tweaked over time. Changing tax rates, by contrast, is much harder. Which is why cap-and-trade is superior to a carbon tax."

I left the following comment:

"But isn't it only harder from a political standpoint? If senators and representatives want to go on record to help the environment and force Americans to pay the full price of the energy they consume, wouldn't we want that to be as transparent as possible? How much harder is it mechanically to raise (or lower) the tax rate than to raise (or lower) the cap? Depending on how the thing would be administered (and admittedly I don't know that), I assume, or hope, changes would go through the same process. (Surely the tax increase wouldn't go to the floor for a vote while cap-and-trade "tweak" would simply be delegated to the bureaucracy.) Part of my problem with cap-and-trade is that it would allow so much be done at a level unaccountable to voters. "