Malcolm in a Muddle

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Jane Galt weighs in on the latest from Malcolm Gladwell:

…Mr Gladwell's article is flawed in a number of ways, some of which my co-blogger touched on. For starters, he attributes Ireland's success as the "Celtic Tiger" to falling birthrates, which (temporarily) reduced the dependancy ratio. He utterly ignores a more parsimonious explanation, which is that Ireland slashed its marginal tax rates in 1987, including a cut in the corporate income tax to 10%, which turned it into Europe's first outsourcing destination. If you look at the handy spreadsheet
I have uploaded, containing data on Irish growth from 1980-2005 obtained from the invaluable Economist Intelligence Unit, you will see that this fits the Celtic Tiger period much better than a 1979 relaxation of birth control restrictions. Moreover, since there is much evidence that economic growth causes falling birthrates by raising the opportunity cost of childrearing, even if there were a correlation it would be hard to say which way it ran. This also applies to his arguments about Asia and Africa.
Second of all, he attributes pension problems to higher productivity, which allows manufacturers to make more stuff with fewer people, and thereby increases their dependency ratio. This is daft. Increasing productivity also increases profits, allowing companies to pay more benefits using fewer workers; in fact, by decreasing fixed costs such as health care, it should make it easier to support retirees. GM's problem isn't that it's just too darn productive; it's that it's too darn unprofitable, thanks to foreign competition.

Two words: Ka-pow!

Pension problems
[Jane Galt]

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