July 31, 2011


Overseas Solutions To Washington's Budget Deadlock (Reuven Brenner, Jul. 28 2011, Forbes)

[D]ebates fail also to distinquish between two issues:

What spending is expected to build up assets?
What spending is done to help out either permanently unfortunate people or those who fell on hard times?

Here are two examples of the type of simple numbers that could illuminate the debate and make clearer what is the type of information that would be needed to make decisions that macroeconomic aggregates simply cannot provide. It would not take too much time to get such data and transform the Washington debate to down-to-earth matters that U.S. voters could relate to.

Eric Hanushek, of Stanford University, was kind enough to send me such information, the type of which I found in Canada. He sent me a file where he put together the K-12 public school enrollment, teachers, and total staff between 1980 and 2008 in the U.S.

It turns out that staff and teachers grow roughly twice as fast as students over this period (all his data coming from the Digest of Education Statistics 2010.). He also sent me the data on the students' achievement over time. It turns out that while schools' staff increased at 52%, and students' enrollment by 21%, they did not learn one bit more according to the 'achievement' measures. So can the education budget be drastically cut while slashing much of the education bureaucracy? It would seem so.

An old Canadian study caught my eye that I thought would illustrate the points made above. That study showed that Canada had some 6,000 bureaucrats overseeing 60,000 fishermen. Iceland, considered at the time the most successful fishing nation, had 6,000 fishermen, but only 200 bureaucrats. Yet, Canada and Iceland were catching the same amount of fish. Moreover, when Canada needed advice about how to improve its fisheries, it turned to Iceland rather than any of its 6,000 bureaucrats!

And, one final story about Newfoundland's fishermen who were once like Iceland's. They were working as fishermen for part of the year, and when there were no fish, they moved to other parts of Canada and
worked in a range of occupations.

This came to an end when, a generation ago, the federal government made the mistake to extend unemployment benefits to those engaged in seasonal work. Whereas before the fishermen found employment during the off-season in logging, farming, weaving nets, the new government benefits gave them incentives to stay put.

A generation after the introduction of these benefits, Newfoundland found itself with 60,000 fishermen, who were unemployed for most of the year, having forgotten all the other skills they once had. Gradually, the older generation of fishermen, accustomed to getting half of their incomes from handouts, did not pass to the next generation the knowledge of people, activities and places they once possessed. Their children followed suit. Subsequent studies showed that the province scored low in literacy tests and showed no progress for a decade. (Fortunate for Newfoundland, oil was discovered in the late 1990′s and they are now rich by accident!)

Unfortunately for Mr. Brenner, while slashing the federal bureaucracy may not be ideological it is partisan.

Posted by at July 31, 2011 10:08 AM

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