ProfessorBainbridge.com

Diversity in the workplace

Rob raises the issue of whether diversity adds to productivity over at his Business Pundit blog. I did some research on this issue for my work on participatory management. It turns out that there is considerable evidence that homogeneous work teams tend to be more productive. I cite some of the relevant literature in footnote 80 of my paper article Privately Ordered Participatory Management: An Organizational Failures Analysis. A more detailed treatment can be found at pages 45-46 of my paper Corporate Decisionmaking and the Moral Rights of Employees: Participatory Management and Natural Law (the broader discussion of trust in the workplace at pp. 34-49 provides relevant background):

I note that the importance of ethnic and similar ties to the development of trust within a group has demonstrable consequences for the viability of participatory management in a diverse workplace. Even within communitarian societies, egalitarian relationships are often limited to homogeneous cultural groups. [Citing Francis Fukuyama, The End of History and the Last Man at 252] In heterogeneous groups, mandated due process rights tend to substitute for spontaneous and genuine trust. This conclusion is supported by empirical evidence that worker participation in corporate decisionmaking is most effective in homogeneous work forces. [Citing Robert Drago, Share Schemes, Participatory Management and Work Norms, 23 Rev. Radical Pol. Econ. 55, 59 (1991) (study of participation schemes in Australia finding that such programs are more effective when the work force is homogeneous).] The success of the well-known worker cooperatives at Mondragon in Spain, for example, is attributed to the ethnic and cultural homogeneity of the Basque workforce. [Citing Jacqueline Bhabha, The Right to Community, 64 U. CHI. L. REV. 1117, 1126.] Consider also the observation that many Japanese-owned U.S. manufacturing firms, "particularly in electronics, have adopted very few Japanese production methods. Rather, they utilize paternalistic and low-wage employment strategies with little evidence if any sophisticated work practices." [Citing Thomas A. Kochan et al., The Transformation of American Industrial Relations at xvii.] Practices found in the homogenous Japanese society apparently have not been transplanted to the more diverse U.S. workplace.

A very interesting recent paper, Diversity and Productivity in Production Teams, similarly found support for this line of argument, albeit not at a statistically significant level:

Diversity in ability enhances the team productivity if there is significant mutual learning and collaboration within the team, while demographic diversity is likely to harm productivity by making learning and peer pressure less effective and increasing team-member turnover. ... Our results indicate that teams with more heterogeneous worker abilities are more productive. Holding the distribution of team ability constant, teams with greater diversity in age are less productive, and those composed only of one ethnicity (Hispanic workers in our case) are more productive, but the findings for team demographics are not robust to alternative model specifications.

Another study, Diversity, Discrimination, and Performance finds that: "We find little payoff to matching employee demographics to those of potential customers except when the customers do not speak English. Diversity of race or gender within the workplace does not predict sales or sales growth, although age diversity predicts low sales." In other words, they conclude that there is no consistent empirical support for the proposition that "employers must hire a diverse workforce to attract diverse customers." (P.7) Second, they find no correlation between diversity and sales in a retail environment, which again suggests that policies mandating workplace diversity cannot be justified on grounds that such diversity increases productivity or profitability. (Of course, this study also would not support an argument for dismantling such policies on grounds that they reduce productivity or profitability.)

Granted, there are contrary findings, such as Corporate Governance, Board Diversity, and Firm Performance, which finds "significant positive relationships between the fraction of women or minorities on the board and firm value." On balance, however, it seems unlikely that workplace diversity can be justified on grounds that it increases firm productivity or profitability. Instead, proponents of diversity requirements ought to rely on other justifications.

This result finds support in a somewhat surprising place; namely, a survey of the relevant literature by two critical race theory scholars, Mitu Gulati and Devon Carbado. In their paper, The Law and Economics of Critical Race Theory, at 132-46, they critically canvass the relevant literature. (By my rough eyeball count, they refer to at least 30+ separate works of theoretical and/or empirical research.) At 145, they conclude:

There is theoretical and empirical evidence suggesting that employers are motivated to pursue homogeneity: Put simply, homogeneous workplaces facilitate trust, loyalty, and cooperative behavior. The story with respect to heterogeneous work teams is different. First, at an institutional level, heterogeneity is difficult and costly to manage. Second, the most cost-effective way for individual supervisors to manage heterogeneity is to "socialize away" outsider difference. Thus, it is more accurate to characterize this strategy as eliminating, rather than managing, heterogeneity. Third, even assuming that heterogeneity can be effectively managed, the benefits of a heterogeneous workplace are speculative, and they are realized primarily over the long term.

There results are consistent with my interpretation of the literature; namely, that there are findings on both sides but that on balance the economic incentive of employers is to pursue workplace homogeneity. Indeed, they acknowledge that such incentives mean that "an employer's preference for racial sameness won't always be motivated by racial animus." They then proceed to advance alternative justifications for promoting racially diverse workplaces, just as I suggest above. This is, I think, a useful contribution to the discussion. There are distributional and other justice grounds for policies that promote or mandate workplace diversity. The proponents of such policies, however, appear to overstate their case when they claim that there also are strong efficiency rationales for such policies.

My thanks to Von at Obsidan Wings, whose post prompted me to flesh out the argument in more detail. (I would still disagree, however, with Von's suggestion that these studies do not support the argument that workplace homogeneity is in the shareholders' interest. It depends on how we define the interests of shareholders. If shareholders are concerned with profitability or productivity, it appears that workplace homogeneity is the preferred policy. Carbado and Gulati's argument, for example, is predicated on the claim that managerial employment decisions are motivated by concern with short-term returns to the firm.)

The Estate tax: An Interest Group Analysis

In a post on Marxism, Brian Leiter opines:

In the United States, ... a majority of the population favors abolition of the estate tax—what the ideologues of the ruling class now call a “death tax”—believing that it affects them, and that it results in the loss of family businesses and farms. In fact, only 2% of the population pays the estate tax, and there is no documented case of families losing their farms or businesses as a result of the tax’s operation. ...

Leiter cites this as one example of how "the ruling ideas in any well-functioning society will be ideas that promote the interests of the ruling class in that society, i.e., the class that is economically dominant."

I was interested by this, as it seems to convert Marxism into a form of interest group analysis. If so, however, the estate tax seems a puzzling example. After all, repeal of the estate tax was widely opposed by Congressional millionaires like Ted Kennedy and left-liberal billionaires like Warren Buffett, Bill Gates, and George Soros. So what's going on here? In fact, I think Leiter is wrong in his analysis of the estate tax. Compare his interpretation with the following views advanced by Bruce Bartlett:

A man-bites-dog story occurred on February 18, when a group of rich people signed an ad in the New York Times opposing elimination of the estate tax. Since the estate tax only affects those with net assets greater than $675,000, it is per se a tax only on the "rich." Thus, when those upon whom the tax is levied protest its abolition, it is news. But in reality, it is not at all surprising that some rich people support the estate tax, because they benefit from it in many ways.

The truth of the matter is that those with great wealth pay little in estate taxes now. The bulk of the tax is paid by the modestly wealthy--small businessmen, farmers and long-term investors--who may never have had much income. They often die not even realizing that they were wealthy, but without the elaborate tax shelters of the very rich. Their assets frequently have to be sold to pay the tax collector, making it impossible to keep them in the family.

Thus one consequence of the estate tax is that it makes it very hard for small businesses to become big businesses, and for modest wealth to become great wealth. It is no coincidence that many of the richest families in the U.S.--such as the Du Ponts, Mellons and Rockefellers--are heirs to wealth first created during the 19th century, when there was no federal income or estate tax. Those with such "old money" have always disdained the "nouveau riche" and done what they could to protect their social position against upstarts. The estate tax serves this purpose extremely well. ...

Setting up tax-exempt foundations is just one of a myriad of ways the wealthy have of avoiding the estate tax. ... However, foundations are particularly useful as tax avoidance devices because they help ensure that family fortunes stay in the family. ...

Thus we see that for those who are already wealthy, the estate tax is no barrier to the maintenance of family wealth and may even serve a useful purpose in limiting competition.

Personally, I find Bartlett's interest group analysis far more plausible than that offered up by Leiter. For a defense of the proposition that the estate tax is essentially a "voluntary tax," which the wealthy can evade or avoid, by a quite liberal law professor, see Edward J. McCaffery, A Voluntary Tax? Revisited.

Carification: I want to be clear that I am not taking issue with Leiter's suggestion that we look at who benefits from an estate tax and who does not. Such an inquiry is basic to the interest group analysis strain of public choice economics and, or so I gather from Brian's post, also Marxist analysis. I think Brian needed, however, to expand his analysis by decomposing the "ruling class" into multiple interest groups. Those at the very tip-top of the wealth spectrum appear to have rather different interests from those who, while still quite wealthy, are of comparatively more modest means. This is important because Brian's post claims, as I understand it, that Marxism remains useful as a tool of inquiry precisely because it allows one to make qualitative predictions. A model that has but one dominant interest group, however, seems far less useful than a model in which many interest groups compete.

More clear thinking on the mutual fund reforms

From James Miller in the WSJ ($):

As an economist, I'm painfully aware that Adam Smith is one of the most over-quoted and least-understood figures in the history of Western civilization. So I hate to drag his name into a major dispute over how mutual funds should be regulated. But as an independent director on the boards of four mutual funds, I can't help wishing the politicians and regulators so bent on "reforming" the industry would take a closer look at Smith's concept that rational self-interest in a free-market economy leads to economic well- being.

If they did, they wouldn't have pushed for a rules change that sharply limits the freedom of mutual- fund boards to elect a chairman they feel is most qualified for the job. Specifically, the self-styled reformers, led by SEC Chairman William Donaldson, wouldn't have adopted a new rule -- part of a new layer of regulations approved by the commission last week -- that forbids boards from electing anyone employed by the company that manages the fund. ...

Funds chaired by interested directors account for the overwhelming majority of industry assets and generally outperform those headed by independent chairmen. So it's neither surprising nor scandalous that a majority of boards elect chairmen who work for the sponsoring company. Forcing the boards of these firms to elect less qualified chairmen will lower the returns of these firms, lower returns in the industry as a whole, make mutual funds a less attractive investment choice, and penalize investors whose savings are in these institutions and who find mutual funds the preferred choice for their 401(k)s.

As I've noted before, this "reform" will end up being a new tax on investors.

SEC Adopts Mutual Fund Board Chairman Independence Rule

The SEC voted today (3-2) to require that mutual funds' chairmen must be independent of the fund advisor. One of the dissenting members, Commissioner Cynthia Glassman, appropriately blasted the SEC for acting without evidence justifying this requirement:

When we voted to propose the fund governance package, I challenged the proponents of this rule to come up with empirical data that would support the rule. I wanted to know whether there was any significant positive correlation between funds with high performance and/or low costs and having an independent chair. No one met that challenge. The Commission itself didn't commit resources to study this question, and the proponents have not provided any compelling quantitative or qualitative support. As the adopting release acknowledges, the Commission is "not aware of any conclusive research that demonstrates that the hiring of an independent chairman will improve fund performance and reduce expenses, or the reverse."

I find it absolutely outrageous that the SEC would adopt such a major change without having done - or at least collected - a cost-benefit analysis. But it becomes even more outrageous when one considers Glassman's further complaints:

It is a fact that many of the top-rated funds today based on high performance and low fees have inside chairs. Why should we tell shareholders they can no longer have the form of governance that produced this high level of performance? And further, why should we require them to pay for it? There can be no doubt that this requirement will add to fund expenses. An independent chair cannot be expected to have ? and in most cases, will not have ? hands-on knowledge about fund operations. Therefore, to be effective, the chair would have to hire a staff. Shareholders will bear that expense as well as the likely additional cost of the independent chairman. In sum, the benefits are illusory, but the costs are real.

In effect, the SEC just imposed a new tax on all mutual fund investors and for no good reason. And people wonder why I complain about over- regulation.

See also my earlier post SEC Adopts Mutual Fund Director Independence Requirement.

Clear thinking on student evaluations ...

... is a rare thing, but Eric Rasmusen is an unusually clear thinker:

IU policy is for professors to allocate 10 minutes of a class for students to fill in a rather silly 20-question questionnaire to rate them on a scale from 1 to 7. This is really the only way the University keeps track of teaching quality. And it matters, for salary and for keeping one's job if one does not yet have tenure.

Same at UCLA, except we use a 9 point scale. Eric then observes some serious problems with using student evaluations to "grade" professors.

Why, then do we rely so heavily on student evaluations? It is hard to believe that professors and administrators do not realize how weakly they measure the amount a teacher has taught his students. Even if they did not, if good teaching was the objective, surely we would pay some attention to the syllabi and what kind of tests were given and use objective evaluators -- students or faculty observing single class sessions -- which we do not do in any serious way. Rather, I think that "good teaching" means "contented students" for the people who rely on student evaluations. Student evaluations are indeed a good way to measure this. And it is a reasonable objective. Administrators are trying to sell a product, and if you view the student as a customer rather than as someone to whom you have a moral obligation, you want to design a product that he wants. The student will likely want a course that has a low workload and gives him a pleasant feeling of accomplishment while being described as difficult course on an advanced topic. Professors have incentives similar to administrators-- it is more fun teaching contented students, and while it is quite difficult to know how to make students learn (I know that after 20 years I still don't know when I have succeeed and when I have failed, or even whether I, as opposed to the students' own efforts, make much difference), it is much easier to figure out how to make students pleased.

This is a key problem with higher education. The system creates strong incentives for us to gear our teaching to producing happy rather than well-educated students. Go read the whole thing.

Wodehouse and Hiibel

In Chapter 5 of Jeeves and the Feudal Spirit, we find the following bit of dialogue:

"...You want to marry me yourself, don't you?" I had to take another mouthful of the substance in the bottle before I could speak. One of those difficult questions to answer.

"Oh, rather," I said, for I was anxious to make the evening a success. "Of course. Who wouldn't?"

"And yet you ---"

She did not proceed further than the word "you", for at this juncture, with the abruptness with which these things always happen, the joint was pinched. The band stopped in the middle of a bar. A sudden hush fell upon the room. Square-jawed men shot up through the flooring, and one, who seemed to be skippering the team, stood out in the middle and with a voice like a foghorn told everybody to keep their seats.

The first person to email me with the correct answers to the following questions will receive the praise and adoration of my vast readership when they are named as the ultimate master of both Wodehouse arcana and constitutional law. Update: We have a quiz winner, who goes by the name of Rob. His answers are below the quiz.

1. Name the couple interrupted at this critical moment.
2. Why is it so important for the second speaker "to make the evening a success"?
3. What happens next?
4. My friend and fellow UCLA law professor Eugene Volokh has been blogging up a storm today today (in order: here, here, and here) on the Supreme Court's decision in Hiibel v. Sixth Judicial District Court. Please explain the impact Hiibel would have had on Wodehouse's story if it had been the law of England in Wodehouse's literary version thereof.

Extra credit: Why did the police raid the establishment in question (something I've never quite understood myself).

This quiz adapted from the fabulous repository of Wodehouse trivia quizzes maintained by the Wodehouse society.

Answers:

1. Name the couple interrupted at this critical moment. Bertie and Lady Florence Craye 

2. Why is it so important for the second speaker "to make the evening a success"? Bertie wants to reconcile Florence with her former betrothed, Stilton Cheesewright, so she won't be tempted to marry him.

3. What happens next? Bertie trips the policeman trying to nab Florence and goes to jail for the night.

4. Please explain the impact Hiibel would have had on Wodehouse's story if it had been the law of England in Wodehouse's literary version thereof. Easy: Bertie liked to use the alias Ephraim Gadsby when he was pinched during nightclub raids. [Ed.: Also when pinched for stealing policemen’s helmets on Boat Race Night.] The police would take everyone's information and let them go, presumably to call them as witnesses later in a case against the proprietor of the nightclub. If Hiibel had been the law of the land, the use of the alias would have been itself a criminal act.

Extra credit: Why did the police raid the establishment in question (something I've never quite understood myself). I'm not sure, but I think those shady nightclubs described in the story didn't operate according to England's rather bizarre pub laws. They were open at times that weren't allowed.

Air America: The Corporate Law Aspects

My friend Thomas Lifson of the American Thinker invites me to comment on the recent organizational shake-up at left-liberal radio talk show network Air America. As reported in today's WSJ (available free here), Air America is in deep financial trouble:

Many of Air America's investors and executives say they thought the network had raised more than $30 million, based on assurances from its owners, Guam-based entrepreneurs Evan M. Cohen and Rex Sorensen. In fact, Air America had raised only $6 million, Mr. Cohen concedes. Within six weeks of the launch, those funds had been spent and the company owed creditors more than $2 million.

When the problems came to light, "we realized that we had all been duped," says David Goodfriend, the company's acting chief operating officer.

Indeed, if the facts turn out to be as the article reports, there is a very high probability that investors will be able to sue Cohen and Sorensen for securities fraud. But let's set that issue aside.

Instead, Thomas asks me to focus on the creditors. As Thomas points out:

The assets of Air America are reported to be sold to a new corporate entity, leaving creditors of its existing corporate parents, Progress Media and Radio Free America, high and dry. According to the Chicago Tribune article, the new owner will be an outfit called Piquant, LLC, controlled by the original founders of the mini-net, Sheldon and Anita Drobney. Supposedly, millions are owed by the current corporate parents.

The planners of this transaction had a number of options for how they could have structured the deal; they could, for example, have merged the old entities into the new one. In choosing the form by which to effect a reorganization of a business, the planner takes into account a host of considerations. As I point out in my book Mergers & Acquisitions, successor liability can be a critical factor in the choice between a merger and a sale of assets:

In a merger, the surviving company succeeds to all liabilities of each constituent corporation. In an asset sale, subject to some emerging exceptions in tort law, the purchaser does not take the liabilities of the selling company unless there has been a written assumption of liabilities.

This result follows because corporate law typically elevates form over substance, which is generally a good thing because it thereby provides necessary predictability and certainty for transaction planners. (I offer some further observations on this point in my post Some Thoughts on how Lawyers Add Value to Transactions.)

In an asset sale, as a matter of form, the selling corporations remain in existence and, as such, remain liable for the debts they have incurred (the debts are obligations of the entity). The creditors could have taken this risk into account ex ante either by tying their loan to particular assets (in other words, by taking a security interest in specific assets) or through appropriate provisions in the loan documents requiring an assignment of the debt to the purchaser of the assets.

There is an old saying: "God helps those who help themselves." Corporate law similarly takes a "you made your bed, now you must lie in it" attitude in many cases. If the creditors failed to protect themselves ex ante, they may well be SOL.

Yet, on facts like this, the creditors do have a couple of cards to play. They can attack the transaction as a fraudulent transfer.

Basically, a Fraudulent Transfer (a/k/a "Fraudulent Conveyance") is a transfer which a debtor makes for the purpose of defeating a creditor's collection efforts against the debtor. This typically happens when, say, a debtor attempts to "sell" everything to his wife, cousin or business partner for $5 to keep his stuff out of the hands of his creditors. If the court figures out that the transaction is a sham to defeat the creditor, the court will set aside the transaction and make the person holding the assets give them to the creditor.

As Thomas notes, this transaction smacks of an effort to hinder Air America's creditors, which is decidedly not a good thing. Since it appears likely, based on the WSJ article, moreover, that the selling entities were de facto insolvent at the time of the transfer, the probability that a court would find a fraudulent transfer goes up significantly. The sellers will have to show that the selling entities received fair value and that the transaction had economic substance above and beyond merely stiffing their creditors.

Another option for the creditors would be to seek to pierce the corporate veil of the selling entities to hold their owners liable. Since the purchasing entity was owned by most of the same investors as the selling entities (another factor that will weigh in favor of finding a fraudulent transfer, by the way), the creditors may be able to recover from the individual investors. As I explain in Chapter 4 of my book Corporation Law and Economics, the precise phrasing of the test for veil piercing varies from jurisdiction to jurisdiction. Under a common phrasing, the creditors would have to show that:

(1) the corporation was the controlling shareholder's alter ego; and (2) adherence to the limited liability rule would "sanction a fraud or promote injustice." Under this standard, the prospect of an unsatisfied claim is not enough to meet the latter prong of the test. After all, why would a plaintiff invoke the doctrine if the corporation had enough assets to satisfy the claim? If an unsatisfied claim sufficed, the veil would be pierced in every case. ... Instead, there must be some element of unjust enrichment.

If they could show that the investors allowed the selling entities to continue borrowing even while the investors were planning the reorganization, for example, the requisite fraud or injustice could be found.

Note that I am discussing here the prospect of civil liabilities, rather than criminal charges. The securities fraud claims by investors in Air America could lead to criminal charges by the Justice Department if Cohen and/or Sorensen willfully misrepresented material facts or omitted material facts they had a duty to disclose. The creditor claims of fraudulent transfer and/or veil piercing, however, would be purely a question of civil liability by which the creditors would be able to recover their losses either from the purchasing entity or the owners of the selling entities. Note also that I assuming that there are in fact unsecured creditors of the selling entities whose claims have not been assigned to the purchasing entity.

Wodehouse and Hiibel

In Chapter 5 of Jeeves and the Feudal Spirit, we find the following bit of dialogue:

"...You want to marry me yourself, don't you?" I had to take another mouthful of the substance in the bottle before I could speak. One of those difficult questions to answer.

"Oh, rather," I said, for I was anxious to make the evening a success. "Of course. Who wouldn't?"

"And yet you --- "

She did not proceed further than the word "you", for at this juncture, with the abruptness with which these things always happen, the joint was pinched. The band stopped in the middle of a bar. A sudden hush fell upon the room. Square-jawed men shot up through the flooring, and one, who seemed to be skippering the team, stood out in the middle and with a voice like a foghorn told everybody to keep their seats.

The first person to email me with the correct answers to the following questions will receive the praise and adoration of my vast readership when they are named as the ultimate master of both Wodehouse arcana and constitutional law. Update: We have a quiz winner, who goes by the name of Rob. His answers are below the quiz.

1. Name the couple interrupted at this critical moment.
2. Why is it so important for the second speaker "to make the evening a success"?
3. What happens next?
4. My friend and fellow UCLA law professor Eugene Volokh has been blogging up a storm today today (in order: h ere, h ere, and h ere) on the Supreme Court's decision in Hiibel v. Sixth Judicial District Court. Please explain the impact Hiibel would have had on Wodehouse's story if it had been the law of England in Wodehouse's literary version thereof.

Extra credit: Why did the police raid the establishment in question (something I've never quite understood myself).

This quiz adapted from the fabulous repository of Wodehouse trivia quizzes maintained by the Wodehouse society. 1. Name the couple interrupted at this critical moment. Bertie and Lady Florence Craye 2. Why is it so important for the second speaker "to make the evening a success"? Bertie wants to reconcile Florence with her former betrothed, Stilton Cheesewright, so she won't be tempted to marry him. 3. What happens next? Bertie trips the policeman trying to nab Florence and goes to jail for the night. 4. Please explain the impact Hiibel would have had on Wodehouse's story if it had been the law of England in Wodehouse's literary version thereof. Easy: Bertie liked to use the alias Ephraim Gadsby when he was pinched during nightclub raids. [Ed.: Also when pinched for stealing policemen?s helmets on Boat Race Night.] The police would take everyone's information and let them go, presumably to call them as witnesses later in a case against the proprietor of the nightclub. If Hiibel had been the law of the land, the use of the alias would have been itself a criminal act. Extra credit: Why did the police raid the establishment in question (something I've never quite understood myself). I'm not sure, but I think those shady nightclubs described in the story didn't operate according to England's rather bizarre pub laws. They were open at times that weren't allowed. Geoffrey Barto of turkeyblog.com was a very close second.

Abortion is different

Even Time Magazine gets it (well, sort of):

Does the church see the right to life as trumping all its other concerns? Technically speaking, yes. The most useful comparison may be with the church's anti-capital-punishment stance. The Pope has explicitly connected executions with abortion as part of the "culture of death."

But church teaching on abortion is "definitive": Catholics must obey it as an act of faith. Teaching on capital punishment is merely "authentic," meaning believers may bring reason to bear on the issue. The church's catechism calls abortion an absolute evil but hedges on the death penalty, quoting the Pope as saying cases necessitating it "are very rare, if not practically nonexistent." And canon law includes a penalty of excommunication for abortion but none for aiding state-sanctioned executions.

Unfortunately, John Kerry does not get it, as Time acknowledges by quoting a Vatican scholar who "senses 'an emerging impatience' among church leaders around the globe at U.S. Catholic politicians who cast their pro-choice votes without even the appearance of pain."

"You can tell when a politician is really wrestling with the issue," he says, citing Senate minority leader Tom Daschle, who voted first against and later for a ban on so-called partial-birth abortions. "With Kerry," he comments, "you just don't see that struggle."

The Consequences of Social Democracy

There are some who would like the US to adopt the social democratic/economic policies pursued in so much of Western Europe. Their burden of persuasion just got tougher. The WSJ ($) reports on a Swedish study that calls into serious question the quality of life consequences of social democracy:

It found that if Europe were part of the U.S., only tiny Luxembourg could rival the richest of the 50 American states in gross domestic product per capita. Most European countries would rank below the U.S. average....

Higher GDP per capita allows the average American to spend about $9,700 more on consumption every year than the average European. So Yanks have by far more cars, TVs, computers and other modern goods. "Most Americans have a standard of living which the majority of Europeans will never come anywhere near," the Swedish study says.

But what about equality? Well, the percentage of Americans living below the poverty line has dropped to 12% from 22% since 1959. In 1999, 25% of American households were considered "low income," meaning they had an annual income of less than $25,000. If Sweden -- the very model of a modern welfare state -- were judged by the same standard, about 40% of its households would be considered low income.

In other words poverty is relative, and in the U.S. a large 45.9% of the "poor" own their homes, 72.8% have a car and almost 77% have air conditioning, which remains a luxury in most of Western Europe. The average living space for poor American households is 1,200 square feet. In Europe, the average space for all households, not just the poor, is 1,000 square feet.

Here's a thought. The next time somebody tells you the US should be more like European social democracies, ask them how many square feet their household occupies. Update: This post triggered some blogosphere discussion of whether pecuniary measures are the appropriate metric for assessing social policy and welfare. (None of the disputants, by the way, disclosed the square footage of their homes.) Admittedly, this is a controversial issue, but there's a very accessible and balanced treatment of the debate between utility and wealth maximization at pages 386-390 of Heico Kerkmeester's essay on the methodology of law and economics. As you'll see, there is a well-established school of thought that argues that: "The most obvious alternative for the use of utility is money, as is preferred by both Coase and Posner, and this use has clearly some advantages."

The Original Purpose of the Establishment Clause

My semi-layman's understanding of the Establishment Clause of the US Constitution is that it was intended not to create the Jeffersonian wall of separation between church and state, but rather as a states' rights provision intended to prevent the federal government from disestablishing official, state-supported, established churches. In the recent pledge case, Justice Thomas endorsed this view, calling on the Supreme Court to reconsider whether the Establishment Clause should be incorporated into the 14th amendment. This understanding of the Clause has been mocked in cert ain quarters. Stuart Buck has done yeoman service in pulling together a comprehensive list of mainstream legal scholars who also believe, as Yale law professor Stephen Carter puts it, that "we should therefore read the "Establishment Clause" as a states'- rights provision, as an allocation between the national and local sovereignties of the authority to create or to endorse an official church." Kudos.

More on John Yoo

Pejman Yousefzadeh offers a powerful defense of Berkeley law professor John Yoo in a recent TCS column. I want to particularly endorse Yousefzadeh's argument that the Berkeley students trying to get Yoo fired pose a direct threat to academic freedom:

The signatories believe there is only one right answer to knotty legal problems such as the ones Yoo addressed, and that anyone who takes up a contrary position in good faith should not only be disagreed with, but should have his/her career threatened. A healthy academic environment depends on the ability to engage in robust debate regarding the issues of the day. To demand that Yoo either renounce research findings that he uncovered in fulfilling his professional obligations or face dismissal from the faculty at the Boalt Hall School of Law is to dramatically undercut academic freedom.

The attack on Yoo is a blatant attempt at intimidation, with threatening implications for any professor whose views depart from those deemed politically correct by his/her students. If Berkeley does not support Professor Yoo, it will send a message throughout the legal academy that faculty can be bullied and intimidated into silence.

Capitalism Soars

In Star Trek: First Contact, when Lily Sloane asks how much the Enterprise cost, Captain says: "The economics of the future is somewhat different. You see, money doesn't exist in the 24th century... The acquisition of wealth is no longer the driving force in our lives. We work to better ourselves and the rest of humanity." I always found this bit of anti-capitalist rhetoric a bit silly; how could an advanced society function without some medium of exchange, even if most everything comes out of replicators? Anyway, it is with that background in mind that I, unabashed capitalist that I am, have watched with growing amusement the increasingly successful private sector efforts at space travel:

One week from today, from a runway in a barren reach of the Mojave Desert 100 miles northeast of Los Angeles, Burt Rutan will try sending a pilot higher than anyone has ever flown in a private plane. A longtime designer of innovative aircraft, he plans to shoot his creation, a rocket called SpaceShipOne, 62 miles above the earth. If the flight is successful, Mr. Rutan and his sponsor, Paul G. Allen, the billionaire co-founder of Microsoft, say it will usher in an age of privately financed space travel and even spacefaring laboratories and manufacturing plants, at down-to-earth prices.

Wouldn't it be great if the real "Wagon Train to the Stars" consisted of private actors functioning in a market economy?

CST Law Review

The Journal of Catholic Social Thought has just published its first CST and the Law symposium. Check the Journal's website for the table of contents and subscription information. Yours truly has a short essay in this issue, entitled Catholic Social Thought and the Corporation, a working draft of which can be downloaded here.

Capitalism Soars

In Star Trek: First Contact, when Lily Sloane asks how much the Enterprise cost, Captain says: "The economics of the future is somewhat different. You see, money doesn't exist in the 24th century... The acquisition of wealth is no longer the driving force in our lives. We work to better ourselves and the rest of humanity." I always found this bit of anti-capitalist rhetoric a bit silly; how could an advanced society function without some medium of exchange, even if most everything comes out of replicators? Anyway, it is with that background in mind that I, unabashed capitalist that I am, have watched with growing amusement the increasingly successful private sector efforts at space travel:

One week from today, from a runway in a barren reach of the Mojave Desert 100 miles northeast of Los Angeles, Burt Rutan will try sending a pilot higher than anyone has ever flown in a private plane. A longtime designer of innovative aircraft, he plans to shoot his creation, a rocket called SpaceShipOne, 62 miles above the earth. If the flight is successful, Mr. Rutan and his sponsor, Paul G. Allen, the billionaire co-founder of Microsoft, say it will usher in an age of privately financed space travel and even spacefaring laboratories and manufacturing plants, at down-to-earth prices.

Wouldn't it be great if the real "Wagon Train to the Stars" consisted of private actors functioning in a market economy?