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The two honorees, who shared the 1997 Nobel in economics, are Myron Scholes and Robert Merton. They, along with the late Fischer Black, invented the Black-Scholes model that describes how to price options. They have been tight-lipped in public ever since the near-debacle -- and had nothing to say for themselves as they were honored, either. Massachusetts Institute of Technology professor Stephen Ross, who spoke in honor of Robert Merton, lauded him as not only a brilliant scholar but also "a very good poker player." He said Long-Term Capital's troubles don't reflect badly on the theories of Merton and Scholes, "any more than the collapse of a bridge spells the end of Newtonian physics." University of Chicago economist Merton Miller, himself a Nobelist, spoke for Scholes. He was equally laudatory, but had some fun with his subject, too. He claimed that ignoring Long-Term Capital's brush with death would be as impossible as ignoring an elephant that dies on the street. He said that Merton and Scholes are only the most recent of a long line of distinguished economists who flopped in the world of business, including the late John Maynard Keynes and Irving Fisher. Said Miller: "Skill in economic theorizing has never been a guarantee of financial success." ---------------------------- Most people think the Social Security system transfers wealth from rich people to poor people. But according to a paper delivered Monday at the American Economic Assn. meeting, Social Security isn't a "progressive" tax system at all. The paper -- prepared by Julia Lynn Coronado of the Federal Reserve in Washington and Don Fullerton and Thomas Glass of the University of Texas at Austin -- came in for some criticism at the conference. And the authors represented their conclusions as personal views, not those of their institutions. Coronado said Social Security seems to be Robin Hood-like at first glance. But it turns out to be less progressive when you factor in various real-world conditions. For instance, if you look at taxes vs. benefits in any particular year, it may seem that money is flowing from rich to poor. But when you look at the taxes and benefits that people face over a lifetime, there's less of a transfer going on. For example, rich people live longer, so even though they pay more Social Security taxes, they also have more years to collect benefits. Concluded Coronado: "Social Security is not in fact progressive as it currently stands." But the story may not end there. Wei-Yin Hu of the University of California at Los Angeles, who was assigned to comment on the paper, said he found it valuable. But he had questions. For instance, he said it makes the false assumption that no one takes early retirement, and it ignores some big winners from Social Security, such as many divorced women. Until those issues are addressed, it won't be clear whether Social Security is progressive or not. ------------- You might think that with the population aging, the number of nursing-home beds would be shooting up. Not so. The reason has to do with the changing ratio of men to women in the elderly population. So said Tomas Philipson of the University of Chicago in a paper presented Monday at the AEA annual meeting. Philipson said that since the early 1980s, the number of nursing-home beds has been growing more slowly than the growth of the population of Americans aged 75 and up. (In Sweden, he says, the number of nursing-home beds has actually been falling even though Swedish society is aging.) Here's Philipson's explanation: In the 1970s, the ratio of elderly women to elderly men went way up because women's longevity was increasing faster than men's. That meant that there were lots of women living alone. With no spouse to help them at home, many went into nursing homes. Since the 1980s, though, men's longevity has been rising faster, so there are fewer widows and more two-person households in which husbands and wives can help each other. Andrew Samwick of Dartmouth College said Philipson's paper raises delicate questions for public policy. For instance, he asked hypothetically, does it mean that society should put more emphasis on curing men's old-age diseases than women's, so that men will continue to catch up to women in longevity and there will be even fewer widows who need nursing-home care? EDITED BY DOUGLAS HARBRECHT |
Copyright 1999, by The McGraw-Hill Companies Inc. All rights reserved.