NCPA - National Center for Policy Analysis


June 2, 2005

"The Economic Report of the President," written by former Council of Economic Advisers chairman N. Gregory Mankiw, a Harvard University professor, includes a chapter on Property Rights. Jonathan Gruber, an economist at the Massachusetts Institute of Technology, critiqued it recently in the Journal of Economic Literature. Gruber points out:

  • The report says homeownership shows the benefits of property rights, citing studies that find areas with high rates of home ownership have lower crime rates, more educated residents and other positive social indicators -- but this does not show whether homeownership cause lower crime rates, or people prefer to buy houses where crime rates are lower.
  • On school vouchers, the report cites one study that finds that both students who move and those who do not benefit from vouchers.
  • But other studies find that while voucher students who move to small private schools improve their performance, there is a negative impact on those left behind in public schools, and thus a negative effect overall on student performance.

Less ambiguous is the property rights solution of tradable permits for sulfur dioxide emissions, introduced by the first Bush administration. The program is credited with reducing the costs of meeting 1990 sulfur dioxide targets by at least half.

The chapter tends to extol privatization, but Gruber argues that the guaranteed student loan program, for example, has been a failure. Rather than making loans directly to students, the government offers a subsidy to banks in the form of guaranteed repayment. But banks do not bid for the right to issue these loans; as a result, the program has been inefficient in providing aid, but a windfall for banks.

Source: Hal R. Varian (University of California, Berkeley), "Putting a White House Annual Report to a Test," Economic Scene, New York Times, June 2, 2005.


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