Wednesday, August 31, 2005

Lest you be concerned about colleges coddling students

Daniel Drezner expresses concern over "copter parents," which leads into laments in comments about coddled students. Swarthmore, however, seems to have different priorities: the dorm I'm living in (Parrish) is under renovation and is adjacent to academic buildings. The loud noises start at about 7 in the morning and end at 9 in the morning. Apparently, being able to sit peacefully in class (and the professor's being able to do their work peacefully) is more important than the students getting a full night's sleep.

Empirical Questions

What is the relationship between media coverage of a disaster and private relief aid? Is it a linear relationship? Or are there major non-linearities?

What percentage of their funds do charities like the Red Cross collect in these major disasters? Do they collect "too much"? Do they end up redistributing any excess to either other charities or to other parts of their operations?

How does private spending in the case of disasters like these compare to government spending? Is this consistent with smaller-scale disasters?

Katrina on Aid

One more comment. Hayek views natural events as morally equivalent to market events. He argues that neither natural events (like Katrina) nor market events (like oil prices rising) are the result of human intention, though the latter are the result of human action. Yet by revealed preference, most people don't see the two as morally equivalent. For example, everyone* agrees that we should give aid to people made homeless by Katrina. But consider a company that moves a factory from a small town in Ohio to China. Then in practice, there is little government assistance to those left jobless even though the effects are similar to a natural disaster.

If, as Hayek argues, the two are morally equivalent, then why don't we have significant (lump-sum) adjustment assistance for those negatively affected by free trade and technological progress?

*Except for a few who blame those who decided to live below sea level.

Katrina on Looting

It's odd that the major news networks are so concerned with looting in New Orleans. If you are stuck in New Orleans with no food or dry clothing, it seems like a real Pareto improvement to go ahead and loot food and clothing stores. Appliances are another story, but why would you steal a plasma TV anyway if you can't use it? Perhaps for the thrill...but with regards to necessities it's not so bad. Most of the food and clothing will be ruined before business can resume anyway. In situations like this it's probably better to break some eggs now and clean up the mess later.

Also weird was that in the initial evacuation of New Orleans, police were actually dispatched to ensure that no one pumped gas from closed gas stations. But why? The station is probably now flattened and the gas is probably either trapped underground or mixing with floodwaters to create a toxic soup.

It's not often that there are definite real Pareto improvements (not potential Pareto improvements, like free trade).

Katrina on GDP

What does a natural disaster like Katrina do to GDP? If GDP is supposed to be a measure of national income, it should go down. Income is the change in wealth, and Katrina has destroyed quite a bit of wealth. But I'm not sure if they calculate these kinds of losses into GDP. If they don't, GDP could increase, because of the "broken window" effect, or decrease, since incomes on the Gulf Coast have been severely curtailed. (As well as oil price effects.)

UPDATE: Also see this Crooked Timber post.

Tuesday, August 30, 2005

Madison Real Estate

Terry Teachout writes:
• Total cost in 1937 of the 1,340-square-foot Herbert and Katherine Jacobs House in Madison, Wisconsin, including Frank Lloyd Wright's architect's fee of $450: $5,500

• The same amount in today's dollars, courtesy of Inflation Calculator: $73,341.81

(Source: Doreen Ehrlich, Usonian Houses)

Happens to be a house I've actually been in (a family acquaintance from not-Madison rented it for a semester). Anyway. I'd guess it's worth easily far in excess in $300,000, probably more like...$400,000 or $500,000? There you go: a house once in a far suburb that's now in a (relatively) close in suburb is an okay investment (at least quadrupled or quintupled in value in 68 years, so at least a 4 percent annualized return).

Exploitation

John Roemer argues that exploitation as an analytic category is always dependent on a counterfactual: what would happen to their well-being if a group of people were to withdraw from a given social situation with ---?

So in feudalism you have exploitation when it is the case that giving the peasants the land that they work and giving them their labor and not forcing them to work for the manor would improve their well-being (when they are given their private alienable goods, what happens to their well-being?).

In capitalism, the relevant standard is what happens when people are given their share of all alienable goods. If a group of people were given their share of per capita wealth, would they be better off? (And they have to be better off in a dynamic sense: their material improvement has to be reproducible).

In socialism, you have exploitation if people would be better off (in the dynamic sense) with their fair share of the country's per capita talent (human capital), because alienable goods are already evenly divided.

As you can see, you get more stringent moral standards as you move through history (in the Marxist sense).

The counterfactual for capitalist exploitation is actually rather stringent. A great many people would maintain that the capitalist system is sufficiently dynamic that even if a group of people could maintain their 2005 level of wealth in a different social arrangement (a doubtful proposition), they probably couldn't grow as fast because of decreased incentives for work and innovation. This is the economic libertarian defense of capitalism (shared by all bourgeois thinkers), which has bite. Maybe presently existing capitalism isn't exploitive?

Ironically, it may turn out that less dynamic advanced capitalisms with more cumbersome welfare systems that impede dynamism could be considered exploitive under this definition because you wouldn't be giving up that much dynamism by exiting; whereas the U.S. because of the dynamism which makes it more stratified (some would argue) would not be exploitive because in the counterfactual you'd be giving up too much growth? (Though I think Europe's average GDP growth is pretty close to the U.S., so this probably isn't true).

What the counterfactual leaves unclear is the relevant time horizon in which to compare well-being. For if you have growth, a group of people might leave in 2005 and be better off, but then in 2015 they'd be better off back in the capitalist system. How do you judge that?

What's also interesting -- though not surprising -- is the moral imperative that the counterfactual invokes. For it turns out to be a systematic over-haul, rather than the more local notions of exploitation that other definitions of exploitation generate.

A neo-liberal (me, I think) invokes the absence of explicit coercion as the relevant standard for exploitation* : if the trade was entered into freely and both parties agreed to terms, then both parties are better off from the trade, so no exploitation. Then the imperative is only to change those individual situations where you see coercion.

A neo-liberal economist would say exploitation is not being paid your marginal product. It turns out that a form of coercion is necessary for you to be not paid your marginal product (except in the case of monopsony), because in a functioning labor market wages are approximately marginal product. Exploitation is when you are deprived of the market, so to speak.

Liberals modify on the level of "coercion." Norman Danielsdefends a notion of "quasi-coercion" wherein if one of the parties to the trade was coerced by life circumstances into the trade, then you might think of it as exploitation (for example, if you grow up in a one company mining town and go to work in the mines, then you are not reponsible for having born the risk of working in the mines in the same way as you would if you had moved there on your own free choice). In this case, the drive for change is slightly broader, but it is still particular.

Yet under the neo-Marxist counterfactual, eliminating exploitation requires a total systematic over-haul. Shocking, eh? Well, this is Marxism.

More interesting is what the moral imperative these definitions invoke when you go about hiring labor. Under the straight definition of coercion (trade), so long as you enter into the contract freely you would not be considered exploitive.

If being paid the marginal product is the relevant criteria and you are hiring service labor, then the market price may not be the correct price. For the marginal product is defined as the satisfaction you derive from having the service performed, and perhaps you really love getting your lawn mowed far more than the $10 that you pay the person. So long as you pay them only $10, then they are not being paid their marginal product (because the marginal product is subjective to how you feel about it).

Under the counterfactual definition, you would be required to pay the person what you would demand if you made the average income and possessed the average amount of wealth in the country where you live.

Monday, August 29, 2005

Finding the right address

When you screw up the address, gettting a package can be hard. But also kind of impressive. I accidently entered a melange of my school and home address (street address at home, city at school) when I bought a coffee grinder on-line. But UPS figured out the correct city that went along with the street address -- despite there being no clues whatsoever. Very impressive.

This turns out to be deeply annoying for I want the thing delivered to Swarthmore and not Madison, necessitating calling UPS tomorrow morning: for some obscure reason, the UPS call center person couldn't enter the new address until it was off the truck tomorrow morning. Still, the logistics of it all are rather impressive.

Oh the joys of analysis

"On Wednesday, we'll be talking about sizes of infinity."

Saturday, August 27, 2005

How Heaven really works...

Everyone goes to Purgatory. Then everyone plays The Game. If you lose, you get sent to Hell. This ensures that only the truly virtuous go through the Pearly Gates...

Hungary's Economy

Since I'll be in Hungary for the next three and a half months, here are some facts about its economy:
  • Hungary has a GDP per capita of $14,900 (PPP), about 37% that of the United States.
  • Hungary has much less income inequality that then United States. Its lowest 10% receive 4.1% of GDP and its highest 10% receive 20.5%, compared to 1.8% and 30.5% in the US.
  • 8.6% of Hungarians are below the poverty line, whereas 12% of Americans are.
  • If I had gone to Hungary four years ago, I could have gotten 286 forints (ft) for my dollar, now it's about 200 ft. The forint is currently pegged to the Euro in a +/- 15% band.
  • Hungary underwent shock therapy from 1990-1994, resulting in a loss of 18% of GDP. Since 1997 GDP has been growing at between 3%-5% per year. Growth has been driven largely by machinery exports.
  • Inflation has been steadily decreasing from around 14% in 1997. CPI inflation is forecast to be 4% in 2005.
  • Hungary has large deficits, forecast to be around 4.7% of GDP in 2005 (down from 9.4% in 2002.)

Seen in Harvard Square

The battle has been joined! A short way from the "socialism is much better than capitalism, and communism will lead to a far better society" guy is now a large display entitled "The Horrors of Chinese Communism." Unfortunately, I won't get to see how things develop.

Exchanging Dreams

Last night I dreamt that I was presented with a bill for 600,000. I was hoping that this was CFA (the currency in Senegal), not dollars. Sadly, this was never resolved. Though I realize now that I had the approximate exchange rate wrong: in my dream I though 600,000 cfa was equivalent to about $300 ($1=2000 CFA); it is actually equivalent to about $1200 ($1=500 CFA).

One effect of health care prices

Mark Pauly points out (pg. 3-4) that if market structure is the determining factor, then you either have monopoly in the U.S. or monopsony in Europe as the explanation. In both these cases, prices differ from their "true" costs. Under monopoly, prices are higher than their true costs; under monopsony, the opposite. Under monopoly, then, people consume "too little" health care: if prices reflected costs, then they would have consumed more. Under monopsony people consume "too much" health care.

This explains a slight puzzle you can create if you work hard enough. Health care is a "normal" good: more income means you consume more (which is true: Americans spends a greater percentage of income on health care) . Prices are higher in the United States than in Europe. People consume approximately equivalent amounts of health care (despite spending more money on it in the U.S.). This poses a question: why, if America is richer, does it consume equivalent amounts of health care care? But because of market structure, America is consuming "less" than it should and Europe is consuming "more" than it should. Thus, we end up at approximately the same level of consumption, despite income differences.

Next question: once you decide that the health care sectors are producing approximately the same amount of "real" product and adjust GDP accordingly, what happens to the idea that America is far richer than everyone else?

Health care productivity

What would it mean for a country to have greater productivity in the health care sector than another country? A given amount of input would produce more output. Henry wants productivity to be the main explanation for difference in health care costs (rather than just prices). In the case of physicians, this would require that if we observe differences in the cost of physician services the explanation is that one set of physicians is more productive than another (the alternative hypothesis is that the differing structures of the health care sector lead to different prices). I present to you France.
Since May 1992 [article from 1993], for example, the average charges for an office visit to a French GP and a specialist are $18 and $25, respectively, in contrast to the average price of $42 for an office visit to an American GP.
Given that this is just for the General Practitioner's time, you have prices in America 2.3 times higher than in France. Explaining this solely in terms of productivity requires, well, a stretch. Because no one would claim that the average French medical education is worse than the average American medical education. Rather, they are about equivalent, which means that the physicians are of equal skill, and so should receive the same wage. Thus, market structure (power of the participants) has to matter.

Historically this makes sense. As Paul Starr has argued (shown?), physicians in America have effectively wielded force to hinder changes to the medical system that would hurt either their autonomy or their monetary interests (though they've been unable to resist HMOs...). This, I think, is not the case in France where you have strong ideals of liberty, equality and brotherhood which give credence to a more egalitarian system. Comparisons of pay show this: in 1990, the average salaries of French and American physicians in private practice were $69,300 and $164,300 respectively.

In a broader context, positing productivity as the reason doesn't make sense because the average French worker is just as productive as the average American worker (in fact, slightly more productive), so to argue that in the health care sector productivity levels are dramatically different strains credulity.

Matt Yglesias: Not a Bayesian

In the course of Matt's discussion of The Bell Curve, he mentions this:
"Everyone knows" that women are less competitive than men, so mere scraps of evidence can convince people that evolutionary psychology explains this fact, while a tenuous ev-psych account of why women are genetically more competitive than men would face a lot of skepticism since "everyone knows" the conclusion is wrong. ... But just as real science produces results and not just carping, one should expect a serious research program into the genetic bases of human behavior to produce some surprising conclusions along with some banal ones.
Perhaps, but this is simply looking at scientific evidence in a Bayesian manner. If your prior is that women are less competitive, you're going to need a lot of evidence to the contrary to change your posterior. This explains what Bayesian statistics is and why it is useful.

The Sophisticate's Tradesports

Via Steven Levitt comes Long Bets, a site where intellectuals and well-to-dos (or anyone) can wager on matters of great import, just like when Stephen Hawking and Kip Thorne bet John Preskill about the nature of black holes. I like their philosophy:
Long Bets is about taking personal responsibility for ideas and opinions.
You can post a prediction to later be taken up as a bet. The winnings go to charity (because betting is illegal and you may be long dead by the time some of these are resolved.) The best prediction is Brendan McAuliffe's:
The 'many worlds' hypothesis of quantum mechanics is correct and 'quantum immortality' obtains. If that's the case, you will live, no matter how unlikely that is, essentially forever.
Perhaps not the most important, but the most fun to think about. Some are just silly:
As of August 2005 a Democrat is President of the US.
It was made in 2003 between Stewart Brand and Brian Eno. Admittedly, it did sound like a sure thing at the time. Unfortunately very few bets have been made in a while.

Thursday, August 25, 2005

Not convinced

Isaac answers my question, but I'm not yet convinced.

The facts are clear.
The data show that the United States spends more on health care than any other country. However, on most measures of health services use, the United States is below the OECD median.
And that would imply that higher prices are being paid in the United States. Isaac argues that this is due to the market power of socialized health care systems. I agree that monopsony may play a large role, but it also seems possible that our health care system is more productive, which would also lead to higher prices.

For example, consider these observations:
Surprisingly, Americans have access to fewer health care resources than people in most other OECD countries, measured in three major categories: hospital beds per capita, physicians and nurses per capita, and magnetic resonance imaging (MRI) and computed tomography (CT) scanners per capita.
These facts fit the productivity story. We need fewer beds since patients recover more quickly in the United States, each individual physician and nurse can help more people so there are fewer of them, etc. Since these factors are more productive they cost more.

As the article mentions, per capita spending on prescription drugs is one of the statistics where the US is closest to Europe. The differences that do exist seem attributable to income. My guess is that socialized systems also do a better job at limiting access to newer and costlier medicines than do US insurance companies. But that's not necessarily good.

So is it not possible that productivity differences account for price differences? But why do Europeans have better longevity? Well, as Isaac mentions in another post that can be explained by looking at non-health-care factors. But monopsony surely is an element.

Wednesday, August 24, 2005

Understanding culture

I've never quite understood why Woody Allen is, well, Woody Allen. I tried to watch "Melinda and Melinda on the plane from Dakar to Paris and found it unbearable. Such pretention and seriousness, all in a boring package. Nothing recent of his ever quite made sense. And then I saw Bananas. Ah, apparently he once was funny. Not funny -- hilarious. With the physicality of Harpo Marx and the wit of Groucho in a plot vaguely reminiscent of Duck Soup. Slapstick comedy is fun.

Doubly Colonized

I had had a vague sense that South Africa and areas north had been British colonies, but then I also knew that Afrikaaners were of Dutch origin -- and I had never quite reconciled these facts. And then reading Mortals (not as good as Mating, but still an enjoyable 700 pages of my reading life) where the Boers show up all over the place my curiosity was piqued.

So...according to the 1960 Enyclopedia Britannica the Afrikaaners are descedendants of workers (servants) for the Dutch East India Company who were left at Cape Town starting in 1652. By 1707, there were about 1800 people of Dutch and German descent in the territory we now call South Africa. All Afrikaaners are descendants of these 1800 people (!). At one point about 200 French Hugenots came, but they were assimilated into the Afrikaaner culture, language and even pronounciation of names.

In 1795 England conquered South Africa (by this point Afrikaans had noticably deviated from Dutch). Things flip-flopped. In 1820 England had control and landed 5,000 settlers. The Afrikaaners were largely rural farmers, having stretched into Africa (up to Zimbabwe?). The English settlers lived in towns and had the backing of the Crown. The Afrikaaners rather objected to authority being wielded by the English. Starting in about 1880 there were successful movements for Afrikaaner autonomy...And here it becomes ridiculously complicated and I can't keep it straight.

You have this odd dynamic where the Afrikaneers colonize the indigenous African population and then they are all colonized by the British. In the same way, de-colonization takes place in two stages: first the British cede control, and then the Afrikaneers cede control. Are there other examples of "doubly colonized" countries? In particular, where the first colonizer remains a distinct group from the second colonizer with a separate national identity and (even) language?

Does health care do anything?

Ultimately people aren't buying a doctor's time (or a drug), they are trying to buy good health (a point due to Michael Grossman). Health care is one of many inputs into good health, see also nutrition, lifestyle, access to clean drinking water...This means that you can't look at health care outcomes solely as a function of the health care system, you also have to factor in the broader environment and lifestyle (Victor Fuchs).

Only after maybe 1910 (Victor Fuchs quoting someone else) did a visit to a doctor have a greater than 50 percent chance of helping you (with the rest of the visits perhaps actually harming you, such was the state of medical knowledge). To go along with that, the dramatic increase in life expectancy at the turn of the century was as much do to with increased income and clean drinking water, as to what we think of as the "health care system." I've been meaning to read Death and the City: Chicago's Mortality Transition, 1850-1925 which seems to address these questions in interesting ways.

It's the prices, stupid

In answer to Henry's question, I point you to an article of the same name in Health Affairs(institutional subscription required).
The data show that the United States spends more on health care than any other country. However, on most measures of health services use, the United States is below the OECD median. These facts suggest that the difference in spending is caused mostly by higher prices for health care goods and services in the United States.
In answer to specific questions. Prescription drugs?
Spending per capita on pharmaceuticals—a subject of interest to policymakers throughout the OECD countries—varied from $93 in Mexico to $556 in the United States in 2000 (Exhibit 3). In spite of having the highest per capita spending, the United States is closer to other countries on pharmaceutical spending than spending for other health services and goods.
The review article on health care spending in 2005 looks at other possible causes. Do Americans consume more health care?
Surprisingly, Americans have access to fewer health care resources than people in most other OECD countries, measured in three major categories: hospital beds per capita, physicians and nurses per capita, and magnetic resonance imaging (MRI) and computed tomography (CT) scanners per capita.

The number of hospital beds per capita in the United States was in the bottom quartile of OECD countries in 2002 . Also, the number of U.S. physicians per capita (2.4) was below the OECD median of 3.1 in 2002. However, the growth rate in the number of U.S. physicians per capita between 1992 and 2002 exceeded the growth rate of the OECD median. Despite this growth, the United States still had fewer physicians per capita than the OECD median in 2002.
Does America have more technology?
High-technology medical equipment is frequently cited as the main driver of escalating health spending. Although the United States tends to be an early adopter of medical technologies, it does not acquire medical technology at high levels once the technology has diffused widely.

Although the United States has a relatively low supply of these health care resources, they may be used more efficiently than in other countries. For example, lengths of hospital stay are generally shorter and more intensive, and CT and MRI scanners may be used more frequently than in other countries. The greater intensity of care could explain why the United States has fewer health care resources and pays higher prices for their use.
Do rationing and wait times (as in Canada) account for any difference in health care spending?
Waiting lists could explain part of the difference in health spending between the United States and other OECD countries. However, there are several reasons to believe that they explain little of the difference. First, not every OECD country experiences waiting lists, although every country spends much less than the United States on health care. The OECD Waiting Times project identified twelve OECD countries that considered waiting times for elective surgery to be a high priority but also identified seven countries besides the United States that did not perceive that they had a problem with waiting times.15 Health spending in the twelve countries with waiting lists averaged $2,366 per capita, while in the seven countries without waiting lists, it averaged $2,696—both much less than U.S. spending of $5,267 per capita.

A second reason is that the procedures for which waiting lists exist in some countries represent a small part of total health spending. Using U.S. survey data, we calculated the amount of U.S. health spending accounted for by the fifteen procedures that account for most of the waiting lists in Australia, Canada, and the United Kingdom.16 Total spending for these procedures in 2001 was $21.9 billion, or only 3 percent of U.S. health spending in that year.
Malpractice: are more malpractice claims filed? Yes:
The United States had 50 percent more malpractice claims filed per 1,000 population filed than the United Kingdom and Australia, and 350 percent more than Canada. Two-thirds of the U.S. claims were dropped, dismissed, or found in favor of the defendant; in one-third, plaintiffs received compensation after a settlement or judgment. The same distribution of claim results occurred in Canada.20 In the United Kingdom, fewer claims are dropped and dismissed and more are settled; during 1995–2002, 36 percent of claims were dropped, 60 percent were settled, 1 percent were found for the defendant, and 2 percent were found for the plaintiff.21 No data on the distribution of claim results were available for Australia.
(Comparison countries chosen because they all share Anglo-Saxon legal institutions). But is more paid out in malpractice claims? No:
Surprisingly, U.S. malpractice payments (including both cases that resulted in a judgment for the plaintiff and cases resulting in a settlement) were lower, on average, than those in Canada and the United Kingdom. In 2001 the average payment in the United States was $265,103, which was higher than in Australia but 14 percent below Canada and 36 percent below the United Kingdom.22 While U.S. media and public attention have focused on multimillion-dollar awards at the upper end of the range, the average was actually smaller than in Canada and the United Kingdom in 2001.

Possibly the most important and best summary measure of the magnitude of malpractice awards is total payments divided by total population. On this measure, the United States is only slightly higher than the other three countries: $16 per capita in 2001, compared with $12 in the United Kingdom, $10 in Australia, and $4 in Canada. In all four countries, however, malpractice payments represent less than 0.5 percent of health spending.
So it is largely a question of price levels for medical services and goods. You better believe that (most) people in France and Canada are getting better care for half the price. In national health care systems you have monopsony (a buyer has power) which keeps prices lower; whereas in the United States this is not the case, so you have no entity which can exert downward pressure on prices and wages. In the absence of a national health care regime you have no one entity responsible for the global costs, thus no one entity which wants to control costs.

Curse of the Dollar Store

I saw an interesting tidbit on CNN. Rising gas prices mean that dollar stores (and everyone) has to pay more to ship supplies around. But while their costs are rising, they can't raise prices. Because they are dollar stores. So what can they do to survive? They probably can't lower wages much without hitting $5.15 and they probably can't cut down on quality too much.

Tuesday, August 23, 2005

Health Care

Via Tyler Cowen comes this Malcolm Gladwell piece on health care in the New Yorker. The only "new" argument he really makes is that there really isn't moral hazard in health insurance since people don't like being around hospital. As Tyler correctly points out, "the real problem comes from the other side: doctors overbill or perform unnecessary procedures." I don't know much about health care, but I do know what I don't know. I have seen the facts, as everyone has, that countries with universal health care spend far less per capita on health care that do we in the United States. But I haven't seen a good reason *why* this might be. Taking a very short look at universal health care might lead you to believe the opposite because of the moral hazard problems that Tyler mentions. Universal health care does avoid adverse selection, but health insurance markets do exist, so I don't know how much of an effect adverse selection has anyway. I would be very appreciative if someone (Isaac?) would explain the logic behind these facts. Until then I can't quite buy that France and Canada really do get the same quality of health care for half the cost.

Random Things

  • New York Times columnist John Tierney has bet oil doomsayer Matthew Simmons $5,000 that the price of oil will not reach $200 by 2010. I have to agree with Tierney's analysis and I would add that, in addition to "new discoveries and technologies," it's very likely that demand for oil will fall significantly. Steven Levitt has written a good debunking of the recent oil worries.li
  • Not only are there monkey prostitutes, but they like to gamble! I wonder, though, how the experiment actually worked. Did monkeys try to gamble once and get a good result? It seems like whether they gambled again would be highly sensitive to the first outcome of gambling. After all, you can't tell them that it's a gamble, they have to be shown. But how?
  • There's an excellent editorial by Verlyn Klinkenborg in the Times that explains the vastness of biological time. In another section of the Times is this:
    Although they embrace religious faith, these scientists also embrace science as it has been defined for centuries. That is, they look to the natural world for explanations of what happens in the natural world and they recognize that scientific ideas must be provisional - capable of being overturned by evidence from experimentation and observation.
    Like Brad DeLong, my mind explodes when I consider that there might be people who don't look to the *natural world* for explanations of what happens in the *natural world*.

Monday, August 22, 2005

More on Immigration

Inconsistent positions abound:
  • Matt Yglesias thinks we should have controlled levels of immigration, but that free trade should be relatively uncontrolled. He also thinks that these controlled levels should be high, but with a large welfare state. This may not be as teneble as Matt expects.
  • Meanwhile, Nathan Newman, of TPMCafe's House of Labor, thinks that we should have *uncontolled* immigration, but *controlled* trade in goods. This is the exact opposite of what Matt is saying and is inconsistent for the same reasons. Why should we treat flows of people differently from flows of goods?
  • Via Tyler Cowen comes this new David Card paper, which says that Mexican immigration has had relatively small wage effects. But, using a very simple supply and demand model, it seems that this may contradict his previous much-popularized result that a higher minimum wage has little effect on unemployment. It's because the former implies a high elasticity of labor demand and the latter implies a low elasticity of labor demand. There may be something else going on that would explain this, I haven't read the paper.

Real estate scam?

A billboard in Madison (on Regent St.) for a real estate agency promises something along the lines of "we'll buy your home if we don't sell it, guaranteed."* To which I can say, yes, I'll buy your home too: for $1. The website offers more details, revealing it to be slightly less of a scam than I had thought: they give you an offer, and if, within 120 days they haven't sold it for (presumably) more than the offer, they buy it.

In some respects this is a totally meaningless guarantee. Think about it from their perspective. If they are totally honest and work as hard to sell the house when you own it as when they own it, then what happens if they can't sell it above the guaranteed price when you own it? Well, they are buying it at above market rate. Either they sell it at the market rate and eat the loss, or they hold onto it until the market price has gone up. This would require lots of capital they probably don't have. They'll have to give you an offer below market rate to avoid being stuck with having to buy housing. Thus, meaningless. (Also, 120 days is really a tremendously long time to have your house on the market: very few people have that kind of patience).

But it may well be rather sketchy. For this buying option totally screws up their incentives to work hard to sell your house. They can give you an offer a little bit below market rate, and then not work at all hard to sell the house, in fact, they could actively work to prevent it. Then they buy your house at that below market rate and quickly flip it at the market rate -- turning a pretty profit.

Two things may mitigate against this being a scam: first, if the rental market is really strong this could make holding onto lots of housing and renting it make sense (reducing the capital intensity of the guarantee); second, if being a realtor sufficiently reduces transaction costs so that they can buy a bit above the market rate and sell at the market rate and still make money because they don't have to pay realtor's fees and, in fact, get payed realtor's fees when they buy the house first time. A numerical example would make this clearer, but I'm too lazy.

But I think what the existence of this guarantee indicates, really, is a certain softness in the real estate market: people are sufficiently concerned about getting a decent offer that a guarantee is appealing, because, well, a guarentee removes that uncertainty. That is, if the existence of the guarantee actually implies that people are taking them up on the offer....

*Perhaps I'll check exact wording tomorrow...[Update:"I'll sell your home, or I'll buy it, guaranteed!" is closer].

Why Reserve Requirements Solve a Market Failure

I tried debating some libertarians in the comments section of this Catallarchy post. For some reason, many libertarians see a gold standard and the end of "fractional reserve banking"* as an integral part of their agenda. But these are some of the most misled policies ever.

"Fractional reserve banking" is in quotes because I don't like the term: it implies that there's some good alternative. Nearly all banks make a profit by lending out the currency that people have deposited. That means that there's much less currency in the bank than there are total deposits. If everyone demands their money at once, the bank's not going to be able to let them all withdraw it. But what's the alternative? If you force banks to keep every dollar that everyone deposits in a safe, they have no way of making loans and earning money. They'll have to charge for deposits instead of paying interest on them. Moreover, where will capital for loans come from? So I don't like calling it "fractional reserve banking."

In any case, it's not necessarily good to have "fractional reserve banking" if there's no regulation of it, somehow. Unconstrained, the incentives are such that banks would like to loan out as much money as possible, keeping the absolute minimum on hand to pay everday withdrawals. That's because they don't really take bank runs into account. After all, a bank run means the bank is probably finished anyway since they will rarely be able to pay all the bank-runners. So why keep a reserve of 10% of deposits when 2% works just as well (except during that bank run)? The problem is that this sort of thing causes Great Depressions. Thus, the Fed has the ability to set a minimum reserve requirement because the efficient expected welfare maximizing reserve ratio is not the one achieved by the free market.

Sunday, August 21, 2005

Finally, a (good) book about globalization

Or so my hopes are raised by Roger Lowenstein in The New York Times:
THE really good writers do not write "about" their subjects so much as use them to tell a story. The topic of free trade would not seem to offer much in the way of storytelling material, but Pietra Rivoli has proved otherwise. In "The Travels of a T-Shirt in the Global Economy" (John Wiley & Sons, $29.95), Ms. Rivoli, an economist at Georgetown University, has mined a subject known for dry polemics and created an engaging and illuminating saga of the international textile trade.

Yglesias on Immigration

Matt thinks about immigration:
I think it's pretty clear that the aims of our policy should be this: Figure out roughly how many immigrants we want, let that number of people in legally, and make it exceedingly hard for additional people to come here.
Flows of people are just like flows of capital. People will want to come to the United States until it isn't worth it to do so anymore. That's because labor is more productive in the US (because there's more capital) and consequently real wages are higher. Clearly we aren't in equilibrium right now since many more people want to immigrate than are being allowed in. Capital controls are usually undesirable (though their absence can allow havoc to be wreaked in smaller economies like Southeast Asia in 1998) and people controls aren't much different. Are there good arguments against letting the economy equilibrate?
There's a basic rule of law issue here, a serious crime control problem in the border states, a certain level of terrorism risk, etc. What's more, the presence of a large illicit workforce in the country makes it impossible to properly enforce labor laws and so forth.
Excluding some risk of terrorism, what exactly is the crime control problem? It seems to me that the only crime being committed is that immigrants are entering the country illegally. Make immigration legal, and presto!, no more crime problem.

I'd like to know more about how hard it is to immigrate legally and why. Television commentators always say that we should favor those who "earned" their way into the country over those who come here illegally. But what does it mean to have "earned your way in?" Does it mean that you had connections and got a special entry visa? Does it mean that you married an America? Does it mean that you could pay the immigration fees? Why can't the average Mexican cross over the border just like the average Californian can go to Tijuana? Do they check some sort of ID coming the other way? Do they just turn back any poor-looking Mexicans? A rudimentary Google search doesn't turn up any answers.

Matt concludes:
So that's where I stand. A combinaton of more legal immigration, more border control, and more social insurance should meet almost all of the legitimate concerns about the current situation.
As I wrote about earlier, more social insurance and more legal immigration is not necessarily a good thing. If we have substantial income redistribution programs there's going to be inefficient immigration. There will be a lot of people who are not going to be productive coming just to take advantage of social programs. Yet my proposal that we just allow illegal immigration to continue doesn't quite seem right either.

In any case, I subscribe to the "American myth" illustrated by the life of my grandfather. He came to New York City from Greece when he was 9. Knowing no English, he was thrown into a 4th grade class in Brooklyn and stayed in school through 8th grade. Those five years of American education were enough that he became a successful restauranteur on Long Island. If the incentives are right, immigration can be an incredibly productive force. But I think that means returning to a "give us your tied, your poor / your huddled masses yearning to breathe free" immigration policy. But then there are hard problems after we say that...how do we keep social programs from creating the wrong incentives while not creating some sort of second-class citizenship?

Saturday, August 20, 2005

Debt and Sex

Debt is just like sex. There are benefits - you can consume a lot more - but also risks - you might get pregnant as a result. If you do, you can either have the baby or go bankrupt. You can go bankrupt as long as Roe v. Wade isn't repealed, that is. (I wonder if John Roberts is anti-bankruptcy?) And you can't put your debt up for adoption. Of course, the best way to avoid debt is abstinence: just don't get a credit card. But this isn't a very realistic policy approach. Rather, we should make condoms and other forms of birth control widely available. The only problem is that there is no condom for debt. Maybe this is where a practical policy approach to debt should start.

ADDENDUM: The key similarity is really about risk. Republicans believe in consequences for both debt and sex. This stems from the view that both bankruptcy (see the new bankruptcy bill) and abortion are bad (and perhaps a deeper view that debt and sex are bad.) From an economic point of view, bankruptcy *is* bad to the extent that it causes moral hazard; abortion you can decide for yourself. Yet a fuzzy Democrat ethics might cause us to want both to be available, out of compassion and a willingness to give people a second chance, despite the efficiency loss. It's just about selecting the level of risk that people should bear for their actions. Republicans want people to bear a lot of risk since that will result in less risky actions being taken. Democrats want to minimize risk, since it's bad in and of itself.

Under New Management

Why would a store post a sign saying "under new management"? If the store had previously been unpleasant or badly run (had a bad reputation), then the sign is a signal that things are changing. Please try us again.

Yet if the store already has a good reputation, then there would be no reason to post such a sign because, perhaps, the new management might not be as good as the old, but you wouldn't want to tell customers that. Only if the new management is dramatically changing the direction of the store -- making it more up to date, perhaps -- would you post a sign saying "under new management" in a store with a good reputation.

Friday, August 19, 2005

Friday Night Swarthmore Blogging

Randy Goldstein '05 has an argument with Yale economist and tea hawker Barry Nalebuff published by Tyler Cowen. Randy's opening salvo is here, and Nalebuff's response is here.

Matt Yglesias Makes My Point

He writes:
It's a distinctively liberal error to think "massive, flawlessly executed government-sponsored venture" is a real option to be put aside "don't do it" and "do it but make some mistakes." Mistakes, when made, should of course be criticized, but on side level some mistakes are inevitable. If your plan depends on the absence of errors, then you've got a bad plan.
And I wrote:
Yet ideal policies rarely, if ever, get carried out (even with Democrats in power.) This is true to a much greater degree in poor countries. Moreover, bungled policy implementation leads to increased opposition to similar, but much better policies, as in the free trade example. Perhaps we should focus more on developing policies that don't turn on a few key parameters and instead will be robust to many different political climates.


ADDENDUM: The parallel conclusion is that there is a distinctively conservative error: that markets always function perfectly. If your plan depends on the absence of market failures, then you've got a bad plan.

Demand Elasticity

It's interesting how many liberal ideas about helping labor rely on the inelasticity of the labor demand curve for low-wage workers. (Large percentage increases in wages lead to small percentage decreases in demand for labor.)
  • Minimum wage increases don't much affect unemployment. This idea clearly relies on the labor demand curve being very inelastic (and the labor supply curve being relatively inelastic.) If it weren't, firms would end up firing a lot of low-wage workers after each minimum wage increase, which is counter to the intent of the increase.
  • Low-skilled immigration drives down wages for low-skilled workers. Perhaps not a uniquely liberal notion, but it also relies on demand inelasticity. An inelastic demand curve implies that increases in labor supply (immigration) translate into large wage decreases and small employment increases. Firms want to hire about the same amount of labor no matter what the wage, so more labor just pushes the wage down.
  • Pushing for higher wages in third world countries won't result in fewer third world jobs. If demand is inelastic, higher wages don't mean much less labor demand. So it's OK to push Nike for better labor conditions in sweatshops because no one will be fired.
I'm not really familiar with the labor demand scholarship (perhaps I should be) but it's interesting to note how many partisan disputes are really just arguments over labor demand that could be resolved with some rigorous study of elasticities.

Oil in Mauritania

A nice and comprehensive article(note the date):
The Promises of the Underground

Samir Gharbi June 12, 2005

In 2006 Mauritania will, barring a grave political destabilisation, be among the top 10 African producers of black gold (oil). Production may even pass Cameroon (100,000 barrels a day). This is close to the output which brought Tunisia prosperity in the 1980s and 1990s...At $50 a barrel, on average, the majority of which will go into the State coffers, oil will be as large a sector as fish or iron. The hope is that this resource (the first well was discovered May 13, 2001 at Chinguetti) will be effectively used to help a population which has long suffered misery and the desert.

Starting from almost nothing in 1960, the year of independence, Mauritania is a country of fishers and herders (nomads), and lots of business. Until 1974, mining was controlled by a French firm. Its economic and social base --Saharan tourism and other service activities -- has taken time to develop. Average income in Mauritania is about $450 or $500 per year, which makes it a "low-income" country. But this is the average. One in two Mauritanians (46 percent according to the World Bank), live below the poverty line. And one in four (26 percent), do not have sufficient means to live a "decent" life, that is, to house, eat, and care for themselves at a basic level. Add to that an illiteracy rate of almost 60 percent for those 15 years and older and an elevated rate of maternal and infant mortality.

That is to say, petro-dollars will have much to do. Without waiting, as was the case with iron, the government must not let the oil fields be entirely controlled by foreign companies, however well-intentioned they may be. The government has created a Ministry of Petrol which must create a real national company. Not an oversized bureaucratic institution, but a group of men and women motivated to serve their nation: competent and transparent in managing production (quality and volume), able to sell at the best price, and to form teams of Mauritanian economists, geologists and researchers...To the State there remains several missions with one objective: To use petro-dollars to eradicate poverty in the near future, not through hand-outs, but in creating small and medium sized businesses. To accelerate and enlarge programs already in place to provide real universal access to primary education, potable running water, electricity and health. And to prevent a small group from enriching themselves to the detriment of the majority.

Poorly translated by me.

Thursday, August 18, 2005

Mauritania

Via Instapundit(!), a whole series of posts on the coup in Mauritania (the last is especially interesting). What they all leave out is the recent discovery of oil, and what that means for the country.

The sense among Mauritanians I knew in Dakar was that the presence of oil (it comes on-line in 2006) accounted for the U.S. sidling up to the president, and, also, for the president's willingness to cooperate in the war on terror. That is, suddenly the west was friendly (stopped condemning human rights abuses, according to the Mauritanians, though see the 2003 State Department Human Rights Report) and so the president reciprocated. So the coup in this case could represent a backlash against this sidling up. Though I'm no expert.

It's not entirely surprised that a more fundamentalist regime would be popular: I had a very surprising conversation with Mohammed Abdul Aziz, age about 20:
"Mauritania isn't a real Islamic republic."
"But it is the Islamic Republic of Mauritania, right?"
"Yeah, but the government doesn't do anything about it."
"So they ought to enforce shari'ah?"
"Exactly."

Which I thought rather surprising coming from a guy studying computer science, watching american movies, listening to american music and wearing jeans and a t-shirt (all simultaneously!).

Previous posts on Mauritania.

Wednesday, August 17, 2005

Gas Yet Again

Contrary to previous excursions, gas prices today seemed more consistent. $2.70 all down East Washington Avenue (where I bought gas), and $2.80 all down University Avenue (except for one on Old University Avenue, the Freedom station, which was at $2.70 for regular gas).

Things to note: Ten cents a gallon is rather a lot, and you normally expect the higher gas prices in poorer neighborhoods, because there is the greater cost of petty theft, yet East Wash. is much poorer than University Av.

Score one for the law of one price seeming to hold today, but still odd why three of four stations on University Avenue I drove by had gas prices ten cents higher than elsewhere in the city. This in/consistency points to things in the contracts driving the price discrepancies, rather than strategic behavior, or so I think.

Only at Harvard...

...do you walk past a man passing out Revolution newspaper with a sign reading "Socialism is much better than capitalism, and communism will lead to a far better society" (good argument) and then seconds later walk past a girl being picked up from summer school by a uniformed woman driving a stretch limousine.

Tuesday, August 16, 2005

Clintonian Interventionism

Isaac writes about Clinton nostalgia:
I suspect this is simply seeing the past through rose-colored glasses (or else dis-associating the man from the policies). Yet even if there is a bit of that going on, there has to be some truth to it.
During the initial Iraq War debate I compiled some old news stories from the Iraq bombings of Clinton's time and stories from Bush's go at Saddam. The similarities are pretty stunning. For example, was it Clinton or Bush who spoke the following words?


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For-Profit Environmentalism

Via Tyler Cowen we see the Coase Theorem at work in this Slate article:
For a yearly fee of around $80, a company called TerraPass will offset the damage your SUV does to the atmosphere by spending your money to reduce industrial carbon emissions and to promote the spread of clean energy.
Even better is this company:
Another way to reduce carbon consumption is through emissions credits. The nonprofit Carbonfund is one group that buys credits, which represent the right to emit a given quantity of greenhouse gases, on a market called the Chicago Climate Exchange. The companies listed on CCX, all of whom have voluntarily agreed to emissions reductions, buy and sell pollution rights to one another as a cost-effective means of meeting their targets. Carbonfund buys credits from companies with low emissions and then "retires" them. Instead of a company buying credits so they can continue to pollute, Carbonfund tears them up and that much less fuel gets burned.
So if you really want to eliminate all the carbon you are producing, you can have them buy emissions credits for that amount. The only problem is that Carbonfund relies on guilt and good will in order to function. It extends the marketplace of the Chicago Climate Exchange to everyone, but most people don't have to care about it. Why not eliminate the gas tax and instead have people purchase emissions credits just like coal power companies have to? When you filled up your tank you would have to also spend a certain number of credits. You could buy and sell these credits through E*Trade or Merrill Lynch and every month or so the government would auction off a new batch. I'm getting giddy just thinking about it...

Yet More Belated Senegal Blogging

One more thing to pull out from conversations in Senegal is that sovereignty is really a rather wonderful thing. The Arabs -- from Mauritania, Morocco, and Tunisia -- I talked to (and not at all representative: all elite enough to be students, some at private schools) all expressed the sentiment that all they wanted was the U.S. just to "leave us alone."


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Clinton Nostalgia

When I was in Senegal, unanimous opinion was that Bush was bad and Clinton was wonderful (and this was a cross-national sample including people from Togo, Morocco, Tunisia, France, Mauritania, Ivory Coast and, of course, Senegal). This warmed my partisan heart, yet it fails to make sense.

Especially among the arabs from Morocco, Tunisia, and Mauritania, the complaint about the United States was its tendency to intervene in the arab world -- propping up some and bringing down others. And then there was the whole America-in-Saudi Arabia-thing.

While Bush has obviously done, ummm, more, in the Arab world than Clinton, Clinton hardly took a hands-off attitude: sanctions and bombing in Iraq; continued basing in Saudi Arabia; continued support for Israel; bombing in...was it Sudan?; plus all those other slights which we Americans forget.

I suspect this is simply seeing the past through rose-colored glasses (or else dis-associating the man from the policies). Yet even if there is a bit of that going on, there has to be some truth to it.

We can pull out from this both that Bush has really wrecked America's soft power, and that at this point most people perceive -- if incorrectly -- the 1990s to have been a glorious time. Weird to realize that I'll tell my kids what it was like to grow up in the placid 1990s, just like some parents can speak nostalgically about the 1950s.

Odd?

Joshua Micah Marshall blogs about my home Congressional district. Because apparently Rep. Ron Kind (D-WI) used to be in the "Fainthearted Faction."

UPDATE: I'll be going to a Ron Kind corn feed back in Wisconsin. Should be interesting.

Monday, August 15, 2005

Gas Prices

Are the costs of higher gas prices outweighed by the long-run environmental gains of less gas consumption? Probably not as much as one might think because there is already a substantial tax on gasoline (though perhaps there should be more.)

That said, nothing should be done to lower gas prices.

Something has always bothered me...

...about a type of economic argument often used in libertarian circles that goes something like this:
price increases in the wake of natural disasters merely reflect the now-reduced supplies and now-higher demands ... because these price increases reveal correct information about the now-more-unfortunate state of the world, these price increases are beneficial.
And this:
Suppose that a natural disaster hits. It causes demand for staple goods ... to rise appreciably ... Suppose that all merchants who regularly sell staple goods ... refuse to raise their prices above pre-disaster levels. ... what logic – what scale – does each magnanimous merchant use to rank [the people's] different needs?
Let me just say that I basically agree with the argument. In a disaster, or any situation, an efficient allocation of goods is achieved through the price system, which means "gouging" in many cases. Government price controls don't help in such a situation, they only make a bad situation worse by creating shortages, etc.

So what bothers me about the argument? Two things. The first is saying that "these price increases are beneficial." But this certainly needs to be qualified. Price increases are bad, they reduce everyone's real income. As long as your nominal income is the same and the price of anything is going up, you are worse off. To Don Boudreaux's credit, he is better at pointing this out than most libertarians. A more exact statement is that "these price increases allow society to maximize welfare, even though they are bad for consumers." The point is that, while price increases are better for society as a whole than no price increases, they are still bad.

The other thing that bothers me is saying that the result of the price system is *the* best way to satisfy everyone's *needs*. This language is also not nearly careful enough. The result of the price system is highly sensitive to income. It is hard to say that since John makes $100,000 and Jane makes $30,000 that John *needs* more emergency bottled water than does Jane. Who is to know who *needs* more? How would we even construct a rubric to decide? It would be correct to say that John *demands* more water than Jane, noting that demand is partially determined by income. Furthermore, while the price system results in *a* best way to satisfy such demands, it is incorrect to say that it is *the* best way. Depending on how wealth is distributed throughout a society there can be many best ways, some more equitable than others.

Price controls won't get us to those other "bests" but lump-sum transfers will and they are particularly easy to execute in disasters. Just give everyone under a certain income level in a disaster zone a check for some uniform amount. Then let stores gouge away.

Tying Denver to the mast

The Times has a story about Colorado's spending caps:
That constitutional cap on state and local spending, imposed in 1992, has been so effective in curbing government growth that tax opponents are making it the centerpiece of a national campaign. Similar measures are headed for the ballot this fall in California and perhaps Ohio, and parallel efforts are under way in more than a dozen other states.
Tyler Cowen writes:
Stay tuned...I would be surprised if this kind of initiative proved to be a long-run political equilibrium in many states. Voters could simply cut spending by voting for anti-spending politiicians, if they were truly convinced of the merits of that position. In part this is voters wanting to feel they want to cut spending, without actually having the desire to do so, a kind of expressive politics of the right.
Rather, I think it's because each voter wants high spending on programs in her district but low overall spending. In the end this leads to high overall spending since it's very hard for someone's local assemblyperson to achieve higher spending in his own district and low spending in everyone else's. The assemblyperson is helped more in reelection by the former. If voters prefer an equilibrium in which everyone must spend sparingly to one in which everyone's spending is profligate then they can choose the former by agitating for spending caps. But saying that voters would otherwise just vote anti-spending politicians is a bit disingenuous since these politicans often end up spending a lot in their own districts anyway (see the recent transportation bill).

A different reason caps may not be part of a long-run political equilibrium is that it prevents politicians from bringing home the pork. Economic rents for constituents mean political rents for the representative. Whether caps are actually good is debatable. Depressed states should be running larger deficits, but it is rare that these deficits are reversed in good times (see America 2005).

Sunday, August 14, 2005

Evolution and ID

I went to school in the liberal Madison school district at the very liberal West High, yet I was never taught evolution. I took the required freshman year biology class (I was even in the "accelerated" version) and yet, no evolution. This despite the fact that in the "Wisconsin Model Academic Standards" it says that "By the end of grade 12, students will:
BIOLOGICAL EVOLUTION*

F.12.5 Understand* the theory of evolution*, natural selection, and biological classification

F.12.6. Using concepts of evolution* and heredity, account for changes* in species and the diversity of species, include the influence of these changes on science, e.g. breeding of plants or animals
Maybe it's taught in the semester-long senior year biology elective? It's just striking that even in Madison, Wisconsin, evolution is too much to teach to everyone (or maybe it's just that science at West really sucks, which is true as well).

Happily, I did sort of learn evolution when I spent a semester at the Lycee Jean Mermoz in Montpellier, France. All I remember is the professeur stressing the random (aleatoire) nature of changes brought by evolution, rather than there being some telos to which the organism aims, or volition on the part of the organism facing a different environment, which seems important to understand.

Were you taught evolution in high school?

Economics Videos

I just discovered this archive of public lectures given at MIT by faculty and others. The one that is necessary to watch is this panel from 2000 with Paul Samuelson, Bob Solow and Franco Modigliani entitled "The U.S. Economy: The Last 50 Years and the Next 50 Years". It's five years old, but what they talk about is surprisingly relevant and timely. If anything it's worth watching to see three of the most important economists ever, in one place, speculating about the future.

I also watched this 2002 panel with Olivier Blanchard, Ricardo Cabellero and Roberto Rigobon.

Incentives Matter

Describing late 19th/early 20th century Alabama:
Instead of receiving salaries, sheriffs and court officers were paid on piecework, by warrant served or arrest made. This created such an incentive to perform their duties that every year 30 percent of Birmingham's population was arrested. The fee system fed off Christian piety, which made not just drinking and gambling but "the playing of any baseball, or football, or tennis, or golf on Sunday in any public place" a misdemeanor in Alabama, subject to a $50 fine -- or, if the golfer couldn't pay up, work in the mines. On Sundays, the Jefferson County sheriff sent provocateurs into the mining camps to entice workers (mostly black) into gambling on cards or dice. In the midlle of the game, sheriff's deputies appeared out of nowhere and placed the miners under arrest. The sheriff pocketed his fee, the state collected its lease money [on convict labor], and Tennessee Coal and Iron or Pratt Consolidated put another batch of convicts to work, at a third the cost of what they'd been paid as "free" workers a day before they were foolish enough to roll dice with a stranger.
--George Packer, "Blood of the Liberals," page 37

Saturday, August 13, 2005

Book: "Mating" by Norman Rush

I have definite taste in novels, but I don't know what it is about a novel that makes me like it. I'm a passive novel reader, letting the prose and the story flow, never wondering what makes it flow well, or not. I like novels that seem to engage big ideas, but never have the patience to figure out exactly on which side the novel comes down; if I have to think, I want it to be explicit, not metaphorical or based in the narrative shadings. Which is to say, I loved "Mating," but couldn't really tell you why.

There are the obvious things a) the author is a Swarthmore alum (class of 1955) b) the novel is set in Africa (Botswana) c) the novel is glancingly about development (a village project based on women called Tsau in the middle of the Kalahari) d) the characters take themselves very seriously as intellectual beings, and their conversations reflect that e) because of those intellectual pre-occupations, the prose is dense in a witty way and f) it doesn't hurt that it's about how a quite charming woman falls for an accomplished older man (I've always thought I was born to be middle-aged).

I have the suspicion that there was something troubling from a feminist perspective of having a female narrator whose animating idea in the novel is first getting sex, then seducing the accomplished older man. Sure she's intellectually alive and all, but to have her self-definition be so explicit in terms of a man is...well, a bit retro-grade. Perhaps it's some sort of post-feminist whatever. But I doubt it.

In terms of development, the novel plops you down in Tsau which is lovingly detailed in it's administrative structure (including how the pay rates for different jobs are adjusted day to day to reflect need), all the structural inventions (drainage systems, heating systems...), and how it is based on women (only women can inherit, only women are full members in the community...). As the novel goes along, you get a sense that the glory years of the village (the project has been ongoing for 8 years) are starting to pass, as it matures beyond the perfection of the original vision into something more, well, normal, with all those attendant foibles. There is no argument, necessarily, of development failing per se, but more that the original vision can't be perfectly realized, that the residents of the village have agency to reject what the developer wishes.

"Mating" was damn good. It has the rich prose of, say, "Infinite Jest," where it gets in your head. That richness meant that I could put it down because it was always a bit overwhelming, but in a good way. So, yeah, highly recommended.

Friday, August 12, 2005

Small Chat With Service Personnel

Normally I abstain from trying to chat with store clerks and etc. I've read my Arlie Russell Hochschild and so know that it places an additional emotional burden on clerks to try to say more than the absolute minimum to me, and, well, it places an additional emotional burden on me to try to be polite and engage in small talk. Part of me feels good and moral about being efficient and silent -- but not rude -- with store clerks; I'm not making them also do this emotional work! Yet when I'm with people who are genuinely engaged in the small talk (my grandfather) all those small transactions seem so much more pleasant, and the clerks seem so grateful. So is the lesson here that only someone who can pull off that small chat with enthusiasm ought to engage in it, or that we all ought to try?

If I had ever worked in the service industry I'm sure I'd have a strong opinion. But to date I've only done warehouse or (back) office type work.

The Economist's Fallacy

Or why economists don't start businesses (and really shouldn't write papers).

We could make lots of money doing x. What do you think?

Well, if it was possible to make money doing x then someone else would already be doing it, for who are we to claim to be so much more intelligent than everyone. Because no one is doing it, it can't be a good idea. So let us not do it.

Okay.

Chinese Economy

I'm normally not patient enough to think my way through a whole Brad Setser post. He has a very interesting post on imbalances in the Chinese economy. Two interesting paragraphs:
I increasingly think China's dependence on exports is a sign of weakness, not of a sign of strength. Chinese domestic demand is not growing fast enough to match the increase in China's production capacity. Politically, it is unrealistic for China to expect to rely on exports to solve its domestic problems - whether deflation or a lack of domestic demand. And as exports rise toward unheard of levels for a major, continental scaled economy, China increasingly is exposed to the global business cycle. And its dependence on the US - a country that cannot afford to buy all the products it currently buys from China without a huge, subsidized credit line from the Chinese government - is equally unhealthy, and is a major risk to China.
And:
I do not believe Chinese-US economic strains can be solved with better public diplomacy, so to speak. Putting US-Chinese economic (and ultimately political) relations on a firmer footing requires taking real action to address the very real underlying imbalances. It is not healthy for the "America's financial stability" to rest "on the continued Chinese purchase of [US] government's debt." It is not heathly China's financial stability to rest on continued 30% year over year export growth. The US will have to accept the reality of China's economic power, something that it has yet to do. But China also will have to recognize that its economy is now too large for it to rely on exports to solve its domestic economic problems.

Villages and Development

When I think about development I think about "village projects." This is weird, for a rather significant percent of poor people live in urban areas (Senegal is about a third urban), and I have no conception of what "development" means in urban areas, besides providing infrastructure and basic services (that is, making sure public goods are provided). Just one more example of how odd is our -- my -- conception of Africa.

Geography

I've been staring at a globe on and off for the last week. Now I could, maybe, fill in a map of Africa. It's odd that American education neglects such a fundamental part of knowing how the world works: being able to see how it all fits together, how far apart countries are and etc. I still have a hard time grasping that the Middle East (Saudi Arabia) is just across the Red Sea from Africa (Sudan and Egypt). I have yet to figure out how Central Asia, or Asia as a whole, really fits into the globe. Like: who knew Iran shares a border with Pakistan and Afghanistan? Or that Afghanistan shares a border with Turkmenistan?

Thursday, August 11, 2005

Gas Stations

In comments on Isaac's post about gas station price variation I discussed one possible explanation:
1. Stations with lower prices serve the people who value their time less, the line length acts as an equilibrating mechanism.
Seems plausible, no? Well it turns out that Matt Yglesias did a little experimental work on this topic about a year ago:
Now I remember that one of the several economists on my mother's side of the family -- my grandfather, I think, but maybe my uncle Paul -- once said that he thought gas stations should try offering different prices. You've got an Exxon station selling gas at $1.50 a pop and I own the Gulf place across the street and set my price at $2.00 -- am I crazy? Maybe not. Sure, "everyone" will go to your station, except that once everyone's there, you're going to have a very long line. People who are willing to spend more in order to save time will go to my station. You'll have higher volume, but I'll have higher profits-per-unit.

At any rate, I always thought that was an interesting idea -- make people pay for the higher prices. So I tried it out on this blog. Ads on the right cost more than ads on the left. Result -- more people buy the ads on the left. But that makes the right less crowded, and hence more desirable as an advertising medium and some people pay for the more expensive ads. Strange but true.
Did he make as much or more money with this odd pricing scheme? We may never know.

UPDATE: I've found a website that lists gas prices in Madison. It's connected to a similar network for every state and major metropolitan area in the United States. Interesting...

Why Illegal Immigration is Good

One of the arguments usually proffered against looser immigration laws is that you can't have immigration and a welfare state. Though perhaps driven by xenophobia, there is some truth to that dilemma. With a broad welfare state immigrants will be attracted to the country, not solely because of job opportunities, but because of welfare benefits as well. This is bad since the proportion of the population who receive more from the government than they contribute in taxes will go up. (It's also presumably why we are fighting Mexican immigrants but asking for more visas for Europeans and Asians)

Illegal, yet tacitly allowed, immigration solves this problem. Immigrants who come illegally from Mexico don't collect from government programs. They come only because there are jobs here that pay more than in Mexico (it goes unsaid that this is a good thing). Since they aren't citizens they can't collect welfare or most other government services. Their children, however, will be American citizens if they are born here, so it's not as if there will be some sort of persisting underclass. So why not have strict, but very laxly enforced, immigration laws?

Wednesday, August 10, 2005

Gas Again

Seeing all those gas stations reminded me that government regulation, by standardizing a product, can be very good at creating price competition. Once you can assume that every seller has basically the same quality product, you really don't care about anything besides price. I ended up buying gas at "U Pump-It," a rather sketchy looking place; in my bourgie way, I would not normally patronize such establishments, but given that I didn't have to wonder about quality...

The problem with this understanding of government regulation (which is consistent with the second view of economic liberty discussed here) is that it greatly dissuades quality improvement or innovation. That is, once a company can meet the baseline standards, and if consumers recognize those standards as good enough, then a company has no reason to improve the product. At the moment the regulations are published, perhaps they represent almost the cutting edge. But by time t+1 or t+2, you may have sacrificed quality improvement over the alternate reality in which you had "Consumer Reports" reading customers varying their buying based on quality.

So government regulation can impose an official floor on quality which implies a de facto ceiling. Without the floor, you may well have incentive to raise the ceiling, but you can also move into the basement (so long as you can still sell to customers). All well and good, if customers stay informed of quality. But it also raises the possibility of much misleading of consumers, which would necessitate far more energy on the part of consumers to ferret out good quality gas at a good price than under the present regulatory regime. It is probable, though, that the costs imposed on consumers of figuring out quality would exceed the benefits of letting them buy the quality they wanted, even with all those quality improvements. Thus, for some products it does make sense for government to standardize the product.

The Law of One Price Does Not Hold

Or so a drive down University Avenue in Madison, Wisconsin would reveal, with gas prices ranging from $2.43 to $2.50, including a variation from $2.45 to $2.48 at Shell stations alone. I defy you to explain this in terms of, well, anything. Real estate prices? Even way out of the city (in cheap territory), gas was $2.45. Quality of the product? Well, all the Shell stations had the same product, the same service, and differing prices had no geographical regularity. Anything else?

I, of course, waited for 10 minutes to pump gas at the $2.43 station. This was totally irrational. I bought 10 gallons so saved $0.70 over going to a more expensive, and deserted station, implying a shadow price of my time of approximately $4.20 an hour. Yet I wasn't even paying for the gas, my parents were...Ah, economics, how useless art thou.

Farm subsidies

Okay...enough political nonsense, back to economics.

2004 Clark medalist Daron Acemoglu and Berkeley political scientist had a paper in the Sept. 2001 edition of the American Political Science Review that asks the question, "Why is income redistribution usually inefficient?"

If we want to reallocate income to some group, it's better to just give them a chunk of money instead of using something like a subsidy, which distorts prices. For example, if we want to give farmers more income we should just give them each a lump-sum transfer conditional on being a farmer before we started talking about the policy (it is important that the transfer be conditional on something that they can't control.) Yet farm subsidies and price controls, inefficient methods of redistributing income, are the only programs we have.

Acemoglu and Robinson argue that it's because farm subsidies help to perpetuate themselves, so rent-seeking farmers press for subsidies instead of efficient transfers. It's driven by the conditional nature of efficient transfers. If income is only distributed to pre-existing farmers it doesn't do anything to attract new farmers. Then the membership of the agricultural lobbying coalition is stagnant or declines. But subsidies apply to every unit of agricultural goods, even if they are sold by new farmers. So subsidies increase the agricultural sector (or staunch the bleeding), giving them more political power and insuring that the subsidies will be around for a while.

Heard in Cambridge

"...five percent unemployment..."

"Hal, you're sounding like a Republican."

Tuesday, August 09, 2005

Political talk

Matt Yglesias brings to our attention a Democracy Corps (Carville's firm) report regarding focus groups they conducted in Wisconsin, Arkansas, Colorado and Kentucky. I strongly suggest you read the report for yourself, but the jist of it is that the voters they talked to are very upset about how Republicans are running the government. They realize that Iraq is going terribly, Tom DeLay is a crook, health care costs are high, the labor market is not tight and so forth. So in some sense, the Democrat's complaint that no one listens isn't really valid.

But this doesn't translate into votes or support for the Democratic party because Democrats are seen as directionless, lacking leadership, weak on defense and more importantly
most referred to Democrats as 'liberal' on issues of morality, but some even go so far as to label them 'immoral', 'morally bankrupt', or even 'anti-religious'.
This we all knew. What we didn't know was how poorly the Republicans were also doing.

Another thing we didn't know is that even Bush voters in these states have fairly "progressive" economic views, particularly on health care. They want price caps on prescription drugs, more preventative health care, etc. Politicians with good ideas on health care won't be ignored.

This all points to a more populist economic and social approach for Democrats. Unfortunately, that doesn't really appeal to my libertarian instincts. But there is another option, one which Matt Welch has pushed in this Salon piece and this Reason piece: the so-called "Western strategy".

Proponents of this view see the Republicans moving to the populist**, economically intrusive, socially conservative spot in the political spectrum and posit that Democrats should move to the opposite corner. Welch writes:
There's a better and arguably more attractive ideological option than being anti–"pro–free market," and it's sitting right in front of the Democrats' noses. When the party you despise controls most of the levers of government, it's an excellent time to run against government.
If Westerners really are the leaner-government folks that they are pushed as, that is. Why does it make sense to have two populist parties?