Price gouging interview on the radio

Michael Giberson of the Knowledge Problem blog was interviewed April 15, 2011, by Mark Edge, of the Free Talk Live radio show. They talked about price gouging.

Be warned he interview starts at about the 2:05:00 mark in the program.

Estimating the return to college selectivity over the career using administrative earning data

This is the title of a new working paper by Stacy Dale and Alan B. Krueger.

The abstract reads:

We estimate the monetary return to attending a highly selective college using the College and Beyond (C&B) Survey linked to Detailed Earnings Records from the Social Security Administration (SSA). This paper extends earlier work by Dale and Krueger (2002) that examined the relationship between the college that students attended in 1976 and the earnings they self-reported reported in 1995 on the C&B follow-up survey. In this analysis, we use administrative earnings data to estimate the return to various measures of college selectivity for a more recent cohort of students: those who entered college in 1989. We also estimate the return to college selectivity for the 1976 cohort of students, but over a longer time horizon (from 1983 through 2007) using administrative data.

We find that the return to college selectivity is sizeable for both cohorts in regression models that control for variables commonly observed by researchers, such as student high school GPA and SAT scores. However, when we adjust for unobserved student ability by controlling for the average SAT score of the colleges that students applied to, our estimates of the return to college selectivity fall substantially and are generally indistinguishable from zero. There were notable exceptions for certain subgroups. For black and Hispanic students and for students who come from less-educated families (in terms of their parents’ education), the estimates of the return to college selectivity remain large, even in models that adjust for unobserved student characteristics. (emphasis added)

So being smart is what its all about. The university you go to may not add much.

EconTalk this week

Mike Munger of Duke University talks with EconTalk host Russ Roberts about microfinance. Munger argues that cultural forces make it difficult for some families to save, and the main value of microfinance is to allow a higher level of savings. Families are willing to save via microfinance even though returns can be negative. Munger argues that this counterintuitive result is possible when other means of savings are unavailable. Munger also discusses microfinance that is used for entrepreneurship and the potential role for microfinance in development.

Do cellphones cause brain damage?

From Alex Tabarrok at Marginal Revolution.

Siddhartha Mukherjee, author of the acclaimed The Emperor of All Maladies: A Biography of Cancer, asks do cellphones cause brain cancer? Mukherjee does a good job laying out different research designs–experimental, epidemiological, retrospective and prospective case-control studies–and their potential confounds. The best extant studies find little, no, or even a small beneficial effect, and thus Mukherjee concludes that as of now the evidence remains “far from convincing.”

One less thing to worry about. So don't worry, be happy!

Milk price regulation would be 'collective suicide'

Well 'collective suicide' may be going too far, but this article from stuff.co.nz does make some good points. It is not yet clear that milk price regulation is a good idea.

The article states,

New Zealand would be committing 'collective suicide' if the government agreed to demands for an independent commission to set the domestic milk price, claims Fonterra chief executive Andrew Ferrier.

"It would be an astonishing backward step for New Zealand – every aspect of our international trade policies is around free markets," Ferrier said in response to industry campaigners taking their call for a milk price regulator to Minister of Finance Bill English. "It would be a massive step back to the dark ages. There are internally established milk prices in the US and Europe and it is commonly known to be their failure. It is everything we have been lobbying against for 30 years [in overseas markets]."

Apart from getting the government some brownie points with voters it's not clear what problem regulation of milk prices is going to fix.

The stuff article continues,

A complaint to the Commerce Commission alleging Fonterra is artificially inflating the milk price, thereby distorting wholesale and retail prices, proved the tipping point for the competition watchdog, which has announced a preliminary investigation of the domestic market.

As I have said before I'm not sure how "artificially inflating the milk price" is anti-competitive. The higher the price, the more competition is attracted.

"When governments intervene in industries they cause enormous secondary problems that are not easy to foresee."

He cited the example of Argentina, about four years ago. When world prices were too high for the domestic market's liking, the government set a domestic market price.

"Literally within weeks, all the major dairy companies figured 'we can't afford to sell at that price' so they started exporting more. Why wouldn't they? To stop the exporting [increase] the government put on an export tax ... it actually bankrupted some companies. The legal implications are mind-boggling."

If you can sell in two markets, one of which pays you more than the other, it seems obvious which one you will sell in.

"The question is, what problem are they trying to solve? The Fonterra milk price is really very simple. It is the returns [to Fonterra] of the world market, minus the costs of making the powder to sell in world markets."

And this is the real question: are we paying the world price? If so, what is the problem?

The folly of the Economics of Happiness

Over at the IEA blog Paul Ormerod makes a simple point about the folly of the economics of happiness.

The fact is that the measured happiness data over time does not tell us very much at all. People have to fill in a survey on a scale of 1 to 3, 1 to 4 or even 1 to 10, of how happy they are. In prosperous Western societies, most people are fairly content most of the time. And this is reflected in the answers. But the key thing here is that almost by definition, the average happiness across a sample of such people cannot go up very much. This simply reflects the way it is measured. No-one can be more happy than the top number on the scale, so once you have answered ‘3’ or ‘10’ or whatever, there is nowhere for you to go but down!

So if we are happy now it's not clear that we can ever be more happy in the future,simply because of the way we measure these things.

Lies, damn lies and politicians

From Russ Roberts over at the Cafe Hayek blog:

A Congressional Budget Office analysis of the fiscal 2011 spending deal that Congress will vote on Thursday concludes that it would cut spending this year by less than one-one hundredth of what both Republicans or Democrats have claimed.

A comparison prepared by the CBO shows that the omnibus spending bill, advertised as containing some $38.5 billion in cuts, will only reduce federal outlays by $352 million below 2010 spending rates. The nonpartisan budget agency also projects that total outlays are actually some $3.3 billion more than in 2010, if emergency spending is included in the total.

And so says you can't believe what politicians tell you?!!

Is economic theory inherently pro-market?

An interesting question asked by rauparaha over at TVHE. The answer is, unfortunately, no. To put it simply, as was pointed out in the socialist calculation debate, if you accept the basic general equilibrium model and replace the auctioneer with a central planner, socialism works very nicely thank you.

Rauparaha goes on to say,

So when I was reading an article in the JPE today it was refreshing to come across this:

The question whether – and why – markets may perform better than governments has fascinated economists for a long time, at least since the work of Hayek (1945). However, despite the importance of this question for economics and beyond, it is still hard to find formal arguments for why markets may be able to outperform a benevolent government. Instead, the benchmark result is still provided by standard welfare theorems according to which a benevolent government can always replicate the market outcome, or even improve upon it if the market is affected by failures such as adverse selection or externalities.

A point worth making here is that the "standard welfare theorems" assume complete contracts. But as Oliver Hart has noted,

[...] if the only imperfections are those arising from moral hazard or asymmetric information, organisational form – including ownership and firm boundaries – does not matter: an owner has no special power or rights since everything is specified in an initial contract (at least among the things that can ever be specified). In contrast, ownership does matter when contracts are incomplete: the owner of an asset or firm can then make all decisions concerning the asset or firm that are not included in an initial contract (the owner has ‘residual control rights’).

So under complete contracts any organisational form can mimic any other organisational form so that the fact that the government can do as well as the private sector under these conditions is no great surprise. To show that private and government ownership differ in their outcomes requires an incomplete contracts framework. This is, of course, why the formal theory of things like privatisation and the theory of PPPs now works from within an incomplete contracts model.

Thus for rauparaha to get "formal arguments for why markets may be able to outperform a benevolent government" it will be necessary to think about the welfare theorems under incomplete contracts, and I don't know if anyone as moved GE in this direction yet.

CFP: Economics and Strategy of Entrepreneurship and Innovation

Picked up from the Organizations and Markets blog:

CALL FOR PAPERS

Journal of Economics & Management Strategy (JEMS)
Economics and Strategy of Entrepreneurship and Innovation III

JEMS is planning a third special issue on the economics and strategy of entrepreneurship and innovation. JEMS welcomes both empirical and theoretical contributions.
Possible topics include:

• Economics of entrepreneurship
• Innovation and entrepreneurship
• R&D and the entrepreneur
• Intellectual property rights and the entrepreneur
• Entrepreneurship and the theory of the firm
• Entrepreneurship and finance
• Entrepreneurship and industrial organization
• Entrepreneurship and economic growth

Submissions to JEMS will be subject to the standard peer-review process. The submission deadline is July 1, 2011.
To submit a manuscript to JEMS, visit ScholarOne at http://mc.manuscriptcentral.com/jems
If you have any questions about JEMS, please contact Susie Caruso at editjems@kellogg.northwestern.edu.

Interesting blog bits

1. Tim Worstall On George Soros and Keynes
   

   This is going to sound very conspiratorial so it’s an observation, not an insistence that this is some new found truth.

2. Tim Harford on Why banks are going to auction
   

   In 1873, Walter Bagehot famously argued that in a banking crisis, the Bank of England should be willing to lend “freely and readily” in exchange for good collateral. This view seemed quaint five years ago, when international capital markets were willing to pay cash for the most illiquid-seeming assets, but it quickly became relevant during the credit crunch.

3. Matt Nolan In defence of the “low wage advantage call”

   I can’t say I agree with the attacks on Bill English’s comment that NZ has a comparative advantage over Australia because labour is cheaper.

4. Robert Higgs on why Mexicans Are Fed Up with the War on Drugs

   A few days ago, tens of thousands of Mexicans in scores of Mexican cities participated in public protests against the War on Drugs and the use of the Mexican army as anti-drug warriors. The violence that has accompanied the Mexican government’s attempts to defeat the drug dealers during the past several years has claimed perhaps as many as 40,000 lives. Some cities, especially Ciudad Juarez, across the river from El Paso, Texas, have become virtual battlefields.

5. Not PC on Swimming in the path of progress

   So a ragtag bunch of anti-industrialists has headed out to sea in boats made with petro-chemicals and powered by fuel oil to protest about oil exploration and the prospective production of petro-chemicals 30km off the coast of New Zealand.

6. Yuqing Xing on How the iPhone widens the US trade deficit with China

   What can the iPhone tell us about the trade imbalance between China and the US? This column argues that current trade statistics greatly inflate the value of China’s iPhone exports to the US, since China's value added accounts for only a very small portion of the Apple product's price. Given this, the renminbi’s appreciation would have little impact on the global demand for products assembled in China.

7. Nicholas Bloom, Aprajit Mahajan, David McKenzie and John Roberts on “The Office” goes to India: Why bad management is keeping India poor

   “The Office”, a popular British television programme, has been shown in more than 50 countries. Its international appeal likely stems from its universal theme: managerial incompetence. This column looks at the case of India and shows how the poor management of its companies is holding the country back.

8. Not PC on a Snail’s pace

   When will temporary housing be built in Christchurch?

9. Roger Kerr on The truth about privatisation: blog #9

   Last week’s National Business Review (April 8) carried an excellent article by Duncan Bridgeman based on an interview with Professor William Megginson of the University of Oklahoma who was attending a conference in Queenstown.

10. Gavin Kennedy On Adam Smith’s Alleged theism

    Was he or wasn't he religious?

The role of independent fiscal policy institutions

Economist Lars Calmfors, of the Institute for International Economic Studies, at Stockholm University, has been look at this issue. He has a new paper out on The Role of Independent Fiscal Policy Institutions

The abstract reads:

The paper analyses how independent fiscal watchdogs (fiscal policy councils) can strengthen the incentives for fiscal discipline. Several countries have recently established such institutions. By increasing fiscal transparency they can raise the awareness of the long-run costs of current deficits and increase the reputational costs for governments of violating their fiscal rules. Councils that make also normative judgements, where fiscal policy is evaluated against the government's own pre-set objectives, are likely to be more influential than councils that do only positive analysis. To fulfil their role adequately, fiscal watchdogs should be granted independence in much the same way as central banks. There are arguments both in favour and against extending the remit of a fiscal policy council to include also tax, employment and structural policies. Whether or not this should be done depends on the existence of other institutions making macroeconomic forecasts and analysing fiscal policy, the existence of institutions providing independent analysis in other economic policy areas, and the severity of fiscal problems.

An independent fiscal watchdog is another idea the New Zealand government could consider if it really does want to improve the country's economic outlook.

Lessons for New Zealand

Brink Lindsey has a new study out: Frontier Economics: Why Entrepreneurial Capitalism Is Needed Now More Than Ever.

According to the Kauffman Foundation,

Lindsey's analysis focuses on the evolving requirements of economic growth as countries grow richer. "Imitative growth," which comes from applying existing knowledge, becomes less important; "innovative growth," which comes from new ideas, becomes more important. The world economy has entered an era of "frontier economics," Lindsey says in the report, as growth is increasingly something that takes place at the technological frontier.

According to the paper, when countries are poor and less advanced, the economic future is relatively predictable. The example of rich countries allows policymakers in less developed countries to peek into the future and see the economic changes that need to be made. Consequently, there is less need for market competition to guide the course of development. But as countries successfully pursue "catch-up growth" and approach the technological frontier, the future grows increasingly uncertain. Now innovation, rather than imitation, is the key to continued progress, and the ceaseless trial-and-error experimentation of competitive markets becomes indispensable.

and

The richer nations get, the more they "rely on innovation to keep growth going – and, therefore, the more we need free-market policies that foster the creation of new businesses and the implementation of new ideas," Lindsey said in the report. "If we are to rise out of the current slump and launch a new, 21st-century boom, it is in the direction of freer, more competitive markets that our policies must turn."

So we need policies supporting innovation, policies that allow markets to work in developing new ideas, business and products. I just hope the new productivity commission is taking note.

Macro is not having a good day

Over at the Stumbling and Mumbling blog Chris Dillow writes,

Paul Walker wonders whether we need macroeconomics at all. He says: “Maybe aggregate economics just doesn't work, we lose too much valuable information in the process.”
I agree. Today’s labour market numbers show the point.
They show that, in the three months ending in February, aggregate hours worked rose by 1.2%, thanks to a 1.1% rise in full-time employees. However, the NIESR estimates (pdf) that in this period, real GDP grew just 0.1%. This means that productivity fell sharply in the quarter, and rose by just 0.2% in the last 12 months.
Conventional macroeconomics says this shouldn’t have happened. Productivity fell in the recession because firms hoarded labour. But they should have unwound this in the upturn with the result that productivity should have risen, with a smaller rise in employment.
So why hasn’t this happened? One possibility is that the aggregate data hides sectoral shifts.

See here for more on Chris's example.

Antitrust as industrial policy: lessons from the Intel case

Alberto Mingardi has been blogging on this subject at the AEI blog. He writes,

Intel has been the last in a series of antitrust cases targeting hi-tech companies: the European Commission found it guilty of abusing its dominant position, for its conduct towards a group of Original Equipment Manufacturers (OEMs) and a German retailer. The ruling is based on the principle according to which a supplier enjoying a dominant position should not bind to itself customers or distributors: its conduct is considered abusive.

Picture yourself entering a shop and being granted a conspicuous discount by the seller. Would you feel abused? The Commission’s allegation is that, since the discount was given to you by the shop which is already the most prominent in town, competition is negatively affected as others won’t be able to compete in a stronger way. And if your demand is met by the dominant seller’s supply, competitors will be slower at getting to the market with their new products.

The microchip market is now dominated by two participants, Intel and AMD. But has consolidation negatively affected competitive development? Looking at prices [...] it doesn’t really seem so, as the trend shows declining prices. Performances increased sharply too: as anybody who had a computer in 1996, and has one now, can easily testify.

Would innovation have been faster under another market structure? The question is interesting, but should we allow political authorities to determine market structures, assuming that they know better?

So the European Commission thinks lowering price is wrong and I'm guessing that they would also consider raising prices wrong as well, so what is left? I'm reminded of the following quote from William Landes on why Coase gave up antitrust,

“Ronald [Coase] said he had gotten tired of antitrust because when the prices went up the judges said it was monopoly, when the prices went down they said it was predatory pricing, and when they stayed the same they said it was tacit collusion.”

–William Landes, “The Fire of Truth: A Remembrance of Law and
Econ at Chicago”, JLE (1981) p. 193.

How can Intel be accused of anti-competitive behaviour when it was giving "hidden discounts" to to computer makers? A real anti-competitive monopolist, with real market power, acting in a truly anti-competitive way, would be in a position to raise prices, not lower them.

The death of macroeconomics

Like me Tim Worstall has been thinking about the death of macroeconomics and makes a good point:

But there’s another reason I’m really not all that fond of macro: the uses to which it is put. Or the use, which is to tell politicians what they should do. And given my entire lack of trust in politicians to do the right thing, I’d rather they didn’t even try. I’d prefer that they concentrate on those micro things, most especially that they concentrate on not screwing up prices, incentives and all the rest, as a result of their grand plans.

It’s all a bit John Cowperthwaite really. He wouldn’t let anyone collect GDP figures for Hong Kong because he was aware that people would only try and do things with them. Given that everything seemed to be going just fine without anyone doing anything with GDP figures, best to not let the fools have any peg to hang their hats for action on.

So it is with macroeconomics in my more cynical moments. We don’t want to study it because politicians will only use it as an excuse to do things.

The last thing we need to do is to encourage politicians to do ... anything.

The end of macro?

Over at the EconLog blog Arnold Kling writes,

I was born at the wrong time. I attended graduate school near the peak of ultramasculine economics (my term). The math was almost too much for me (in fact, five years later it would have been too much for me). I have always doubted the value of the theorem-proving approach to economics. I note that these days many people are sharing my doubts about the mathematical macro that emerged during what Paul Krugman calls the "Dark Age." However, unlike Krugman, I do not think that we can simply go back to old Keynesianism. I think that there were many problems with Keynesianism circa 1970 that were not solved by coming up with mathematical solutions for the Lucas critique. The Leamer "con" of econometrics problem and the "unit root" problem are what caused me to "lose my religion" regarding macroeconometric models.

Here's a thought. May be the problem is not with the maths or stats of macro but with the actual idea of macro itself. May be aggregate economics just doesn't work, we lose too much valuable information in the process. May be the costs of aggregation are just too high, we need to look at the micro level for solutions to so-called macro problems. For example unlike the macro-level data, micro-level data provides little evidence in support of Solow's productivity paradox to do with the effects of computers in the economy. While the macro level data can tell us that something has changed, as it did mid-90s in the U.S., it can not tell us what changed and why. The productivity data is the aggregated result of changes at the micro level, in this case at the level of the firm. Such changes require a microeconomic explanation. Would it not be better if we were to go back to thinking about issues like unemployment and monetary theory as microeconomic issues. We could see unemployment as a problem to do with labour markets and interest rates as relative prices, monetary policy as having to do with the supply and demand of money etc. Do away with teaching students AD/AS analysis from day one and just teach them about markets and consumers and producers instead.

Jeff Miron on healthcare reform

Relative prices v. inflation

At Offsetting Behaviour Eric Crampton writes,

RBNZ rightly looks through the one-off hike in price levels that came with the GST increase. That's not inflation. But that level shift working its way into wage settlements would be.

From the latest survey of employers:

* Roughly a third say that the GST increase has been or is expected to be a factor in future wage negotiations (see Table 68)
* A majority of large (50+ employee) firms say wages and salaries either take account of past inflation outcomes, take account of expected future inflation, or are contractually linked to inflation (Table 67). Note that headline inflation numbers will include the GST hike.

I don't get it. Why would the RBNZ worry about a change in wages. Such a change is a change in a relative price, not a change in the price level. Or does the RBNZ believe in cost-push inflation. Oh dear!

EconTalk this week (updated)

Dani Rodrik of Harvard University talks with EconTalk host Russ Roberts about trade, the labor market, and trade policy. Drawing on a recent paper with Margaret McMillan on trade and productivity, Rodrik argues that countries have very differing abilities to respond to increases in productivity that allow production to expand using fewer workers in a particular sector. When workers are displaced by productivity increases, what is their next best alternative? Rodrik discusses how this varies across countries and policies that might improve matters. He argues that poor countries should subsidize new products as a way of overcoming uncertainty and externalities from new ventures.

Update: See also Rodrik and externalities.

The bailouts of General Motors and Chrysler

Bad, very bad, for both the economy and the rule of law. Todd Zywicki, who is in the George Mason University School of Law, writes on The Auto Bailout and the Rule of Law in National Affairs.

The bailouts of General Motors and Chrysler have been held up by President Obama and his supporters as a great success story — proof that, by working together, government and business can save jobs and strengthen the economy. But this popular narrative is dangerously misleading. Far from a success story, the events surrounding the bailouts offer a cautionary tale of executive overreach. And their example clarifies the Obama administration's broader approach to economic policy — an approach that is both harmful to economic growth and dangerous to the rule of law.

and

Of course, this "success narrative" is based on a particular reading of the events surrounding the bailout. According to that reading, the nature of the '08 financial crisis — as well as the economic importance of the auto industry — meant that the government simply could not let GM and Chrysler go under. But at least the unprecedented cooperation between the government and the automakers was undertaken in a deliberate, careful way — using the government's special authority to contend with the economic crisis in order to guide the companies through an orderly re-organization (rather than the dreaded chaotic collapse). As a result, the companies were saved, and now they have a chance to thrive again.

Unfortunately, every part of this reading of events is wrong.

Zywicki contiues

Every piece of the "success story" of the auto bailout would thus seem to be in error. The bailout was not absolutely necessary and was pursued by means of dubious legality; the bankruptcies were highly irregular and inefficient; and the companies that have emerged from bankruptcy are far from lean and fit. They are certainly in no position to repay taxpayers for the generous loans they were given.

But as bad as the facts of the story are, the implications are much worse. Through their actions, both the Bush and Obama administrations have set dangerous precedents — and made it much more difficult to reverse the trends of executive overreach and excessive government entanglement with private business.

As a matter of policy, the Bush interventions early in the process were more ad hoc affairs, motivated largely by panic in the midst of the economic crisis. This was particularly true of Treasury Secretary Henry Paulson, whose performance in the final months of the Bush administration was disgraceful. But it is hard to avoid the conclusion that, at its core, the Bush approach was also influenced by the imperious view of executive power that had developed in the course of the war on terror and had been supported by some conservative thinkers for much of Bush's presidency. The notion that the president simply must do whatever he judges necessary in an emergency — regardless of whether he has the formal legal authority to do it — is among Bush's foremost legacies. The concluding months of his presidency should offer a cautionary tale to conservatives inclined to adopt that view of executive power.

The Obama administration's role in this story, however, is far more troubling. One cannot explain away Obama's overreach as a panicked response to an emergency; rather, his actions toward GM and Chrysler were part of a considered, coherent approach to the relationship between government and private industry. And this approach — defined by broad government power unchecked by legal constraints and possessing sweeping authority to pick winners and losers — has guided the administration's policies well beyond the auto bailout. The aim of this approach is to rejuvenate the New Deal vision of the regulatory state, in which regulators are seen as disinterested experts with the factual knowledge, practical wisdom, and unwavering integrity to manage the economy. They alone are presumed to be capable of steering the nation toward prosperity.

It was this approach that clearly animated, for instance, the financial-reform legislation enacted by President Obama and the Democratic Congress last year. Just as the government was seen as having the wisdom to micromanage the restructuring of Chrysler and General Motors, so the new financial-reform law creates a vast web of regulatory bodies and presumes that they will have the know-how to successfully reshape America's entire financial system. The same basic pattern can be seen in several of the Obama administration's other legislative achievements — from the massive 2009 stimulus package to the health-care reform bill to a host of environmental regulatory initiatives.

Taken together, these laws have dramatically worsened the entanglement of government and the private sector, and have thereby led to an increase in lobbying activity by special interests seeking government favors or protection. The financial-reform law, for instance, is littered with special-interest provisions intended to entice major corporations into supporting the administration's new approach to economic policy. Auto-finance lenders are inexplicably exempted from the jurisdiction of one of the law's new creations, the Consumer Financial Protection Bureau, thereby sparing them (and the influential auto dealers they work with) from the regulatory costs and hassles caused by the CFPB. The nation's biggest banks, too, ultimately came to support the creation of the CFPB, as they recognized that its heavy regulatory burdens would be borne much more easily by large institutions — which can more readily afford to hire lobbyists and lawyers to help navigate the law's complexities — than by their smaller competitors.

Other examples abound; among them, the most outrageous is probably the sweeping health-care law enacted last year. The legislation had the support of America's major health insurers — likely because the law made them the first suppliers in American history to see the federal government mandate the purchase of their product by every single citizen. The opposition of pharmaceutical manufacturers, too, was significantly dampened; presumably this had something to do with the administration's promises of increased market demand for their products. Even the American Medical Association — which should have been representing the interests of doctors, who will face enormous difficulties under the law — rolled over, partly to obtain a repeal of rules that had limited certain Medicare reimbursements. Again and again, large corporate actors and other organizations have been willing to sell some freedom of action in return for a competitive advantage provided by the government.

Zywicki ends by noting,

The Obama administration's economic policy, therefore, returns us to the thinking of the 1950s and '60s — to an economy in which big business, big labor, and big government are tied together in a relationship of mutual succor and support.

The auto bailouts exemplify this new reality. Sold as a means of revitalizing the economy, they are in fact a means of transforming the relationship between the state and the market in a way that empowers large players at the cost of economic growth. The overall effect of such state capitalism is a kind of controlled stasis, in which the preservation of old jobs takes priority over the creation of new ones. Managed decline, rather than dynamic growth, is the defining feature of the Obama economy.

There are good reasons why you want a separation of Church business and State. Business backed by the power of the state may be good for business, but its hard to believe it will be good for growth, entrepreneurship or the consumer. This is something worth keeping in mind given the way the current New Zealand government seems to want to intervene in business.