1. Bolivia became a semi-stable democracy in the early 1980s and it has stayed that way.

2. For all the rhetoric to the contrary, the current regime is a mix of 1990s-era market-oriented reforms and Evo Morales.  Probably you like one of these, though perhaps not both.

3. Many more Bolivian children go to school than before, and the incidence of malnutrition has been plummeting, with longer-run benefits for IQ.  You will read many fabricated or non-causally-backed claims about the connection between inequality and growth, but for Bolivia I believe these arguments.

4. Bolivia has done so many things wrong in the past, there is a lot of low-hanging fruit through purely internal improvements.  For instance the country is a fantastic tourist destination, but would not at this moment be experienced that way by mainstream American tourists, due to language, hotel, and infrastructure shortcomings.  Eventually those problems can be and will be solved.  Eventually.

5. Bolivia does not have much export exposure to China, and does not face much geopolitical risk.

6. Of all commodities, hydrocarbons may be relatively protected in price through the forthcoming global turmoil, because the Middle East implosion will make Bolivia’s current main resource more valuable.

7. Bolivia’s fiscal situation is surprisingly sound.

The three main reasons to be pessimistic about Bolivia are:

1. Most of their economic policy is quite bad, especially when it concerns the nationalization of foreign direct investment.  The FDI future of Bolivia will be extremely unfavorable.  The rhetoric and indeed the behavior of the government sometimes is like a villain from an Ayn Rand novel.

2. Their main trading partner is Brazil, a country which will have gone from eight percent growth to near-zero growth in but a few years time.  Argentina is either the number two or number three trade partner, along with the U.S., depending on the year in question.

3. Bolivia hasn’t done that well in the past.

Of those three reasons, #1 probably matters a bit less than you might think, and #3 a bit more.

It is much debated in Bolivia whether corruption is going up or down.  I believe it is going up, but partially for good reasons.  For instance the construction sector is doing well, and construction tends to be corrupt in many countries, for reasons intrinsic to the activity itself (e.g., lots of big contracts, easy to claim invisible expenses, etc.).  That means higher corruption but also a better corruption than the penny ante bribes of a shrinking economy.

Right now Bolivia is growing at a rate of above six percent.

It is potent:

If people married each other more randomly, poverty levels would be considerably lower than they are now.  If we abandoned all current family arrangements and randomly grouped all Bolivians into new families of 5 persons, poverty levels would fall by about 15 percentage points (from the current level of 55% of all households to about 40% of all households).  The Gini coefficient measuring inequality would also fall from about 0.70 to 0.55.

But Bolivians do not mix much in marriage.  The correlation between partners’ education levels is extremely high at about 0.77, with no signs of falling.  For comparison, the corresponding number for Germany is 0.52 and for Britain it is 0.41.

But not all Bolivians are equally restricted in their marriage choices.  In the department of Santa Cruz the correlation is only 0.69 while in Potosi it is 0.82, with a corresponding difference in poverty rates.

That is from Lykke E. Andersen, Development from Within, an interesting and well-written collection of essays on Bolivian development, and sometimes on development policy more generally.  The cited piece was written in 2008.

Here is a good sentence from that book:

Just one little road block can disrupt an entire vacation.

Here is the author on Twitter.  Here is her blog.

Sunday assorted links

by on August 31, 2014 at 12:18 pm in Uncategorized | Permalink

1. David Rosand has passed away.

2. Which state has the worst drivers?

3. Interview with Robert Aumann.

4. Summer books from Politico, many are the sorts of titles you don’t usually run across at MR.

5. Does the language of deceit betray scientific fraud?

Hannes Schwandt of Princeton has a new paper (pdf) on this topic:

Do wealth shocks affect the health of the elderly in developed countries? The economic literature is sceptical about such effects which have so far only been found for poor retirees in poor countries. In this paper I show that wealth shocks also matter for the health of wealthy retirees in the US. I exploit the booms and busts in the US stock market as a natural experiment that generated considerable gains and losses in the wealth of stockholding retirees. Using data from the Health and Retirement Study I construct wealth shocks as the interaction of stock holdings with stock market changes. These constructed wealth shocks are highly predictive of changes in reported wealth. And they strongly affect health outcomes. A 10% wealth shock leads to an improvement of 2-3% of a standard deviation in physical health, mental health and survival rates. Effects are heterogeneous across physical health conditions, with most pronounced effects for the incidence of high blood pressure, smaller effects for heart problems and no effects for arthritis, diabetes, lung diseases and cancer. The comparison with the cross sectional relationship of wealth and health suggests that the estimated effects of wealth shocks are larger than the long-run wealth elasticity of health.

You can read more by Hannes Schwandt here.

Ambiguous business cycles

by on August 31, 2014 at 2:07 am in Economics | Permalink

Here is a new paper by Cosmin L. Ilut and Martin Schneider on how ambiguity aversion can give rise to a kind of real business cycle, augmented by nominal rigidities:

This paper studies a New Keynesian business cycle model with agents who are averse to ambiguity (Knightian uncertainty). Shocks to confidence about future TFP are modeled as changes in ambiguity. To assess the size of those shocks, our estimation uses not only data on standard macro variables, but also incorporates the dispersion of survey forecasts about growth as a measure of confidence. Our main result is that TFP and confidence shocks together can explain roughly two thirds of business cycle frequency movements in the major macro aggregates. Confidence shocks account for about 70% of this variation.

The AER version is here, there are various versions here.

By Kristoffer P. Nimark, here is a paper on “Man bites Dog” business cycles.

By Lilia Shevtsova, this is the best essay I have read on Russia, Ukraine, and Putin.  It is difficult to excerpt, but here is one short bit:

Having flipped the global chessboard with his annexation of the Crimea and an undeclared war against Ukraine, Putin effectively ended the most recent period of interregnum and inaugurated a new era in global politics. However, no one yet knows what this era will bring. The global community is still reeling in shock, when it isn’t trying to pretend that nothing extraordinary has in fact occurred. This denial of the fact that the Kremlin has dealt a blow to conventional ideas, stable geopolitical constructs, and (supposedly) successful policies proceeds from the natural instinct for self-preservation. It is also quite natural that the political forces that have grown accustomed to the status quo will try to look to the past for answers to new challenges—this is precisely what those who were unprepared for a challenge always do. It was easy enough to predict that many politicians and political analysts would explain what Putin has done to the global order by using Cold War analogies. Drawing these historical parallels is potentially useful in only one respect: if they help us to see what is truly new about the current situation, and the scale of the risks involved.

Read the whole thing.

Saturday assorted links

by on August 30, 2014 at 12:05 pm in Uncategorized | Permalink

1. Obstacles to self-driving cars.

2. Paul Bloom is against empathy.

3. Why your flight was cancelled.

4. The Google drone program.

5. Is IT spending going down in real terms?

6. Publication bias in the social sciences.

7. Are these the most boring or the most interesting people in the UK?  “But these things become detached from what it’s OK to have curiosity about.”  I thought this was a truly excellent piece.  And here is the SneezeCount website.  Read this too, and this.  After those, you don’t need to look at anything else on the internet today.

A very nice talk by Robert Litan on the contributions of economists and economic ideas to the internet economy:

Love in the old East Germany

by on August 30, 2014 at 2:14 am in Books, Economics, History | Permalink

The East German woman had a job, was economically independent, self-confident, and divorce-happy; at a time when only 50 percent of West German women made their own money, 90 percent of women in East Germany were employed.

…the East German woman didn’t consider her male partner an enemy but rather a partner who, economically speaking, had little or nothig on her.  Indeed, the average East German man, unless he had managed to gin a foothold in the regime’s upper echelons — but what woman would want a man like that? — wasn’t in a position to boast any typically macho privileges.  He couldn’t show off with money, fast cars, or a house on Ibiza.  he had to rely on his potential talent as a lover and his qualities as a father and partner.  As a result, he tended to cultivate a rather “soft” masculine image.

…And, on top of all this: the suppression of free movement in public in East Germany had led both sexes to develop a relatively uninhibited attitude toward sex.  What other unregulatable pastime did East Germany have to offer its citizens?

That is from the newly translated book by Peter Schneider, Berlin Now: The City After the Wall.  Much of that passage makes sense, but one part confuses me:  does “rely on his potential talent as a lover” support or contradict “cultivate a “soft” masculine image”?

Ing-Haw Cheng, Sahil Raina and Wei Xiong have a new paper in the AER, here is the abstract:

We analyze whether mid-level managers in securitized finance were aware of a large-scale housing bubble and a looming crisis in 2004-2006 using their personal home transaction data. We find that the average person in our sample neither timed the market nor were cautious in their home transactions, and did not exhibit awareness of problems in overall housing markets. Certain groups of securitization agents were particularly aggressive in increasing their exposure to housing during this period, suggesting the need to expand the incentives-based view of the crisis to incorporate a role for beliefs.

There are other versions of the paper here.

Friday assorted links

by on August 29, 2014 at 11:34 am in Uncategorized | Permalink

1. I refuse to visit this road.

2. Daniel Davies on Switzerland (very good post).

3. Photos of a Chinese Bitcoin mine.

4. Bonuses are the new raises.

5. Supercomputers make discoveries that scientists can’t.

6. Martin Wolf has a forthcoming book on the financial crisis.

Cochabamba notes

by on August 29, 2014 at 8:09 am in Food and Drink, Travels | Permalink

It is very charming here, but no one can tell me exactly what they export.  Grain is a thing of the past.  There are many universities in town.  Trees, birds, and flowers are all first-rate.

I feel like I had never tasted a green pepper before.  For silpancho, go to Palacio del Silpancho.  The only item on the menu is…silpancho.  I also recommend the street tamales with corn and cheese and the street food more generally, most of all at the comedores at the market 25 de Mayo.  The “nice” restaurants are good and cheap, but not materially better than the Bolivian food you get in Falls Church, Virginia.   Viva Vinto, about forty minutes out of town, served the best meal of my trip, the taxi will wait for very little money.  Cochabamba provides one of the world’s best culinary micro-tours, although it requires a working knowledge of Spanish.

You can buy a quality Andean sweater for $12.  The potatoes are the best I have eaten, ever, both purple and otherwise.

Quechua hats are not like Aymara hats.

People smile much more in Santa Cruz.  The hotel electrical sockets use a different form here, and it would not be hard to convince somebody they were two different countries.

Here is a new paper by Steve Brito, Ana Corbacho, and Rene Osorio Rivas, it seems the answer is yes:

This working paper studies the effect of remittances from the United States on crime rates in Mexico. The topic is examined using municipal-level data on the percent of household receiving remittances and homicides per 100,000 inhabitants. Remittances are found to be associated with a decrease in homicide rates. Every 1 percent increase in the number of households receiving remittances reduces the homicide rate by 0.05 percent. Other types of crimes are analyzed, revealing a reduction in street robbery of 0.19 percent for every 1 percent increase in households receiving remittances. This decrease is also observed using a state-level panel in another specification. The mechanisms of transmission could be related to an income effect or an incapacitation effect of remittances increasing education, opening job opportunities, and/or reducing the amount of time available to engage in criminal activities.

For the pointer I thank Axayacatl Maqueda.  Here is a Spanish-language discussion of the work.

It seems to be economic policy orientation toward Europe or Russia, and not either language or ethnicity.  Here is a new paper by Timothy Frye:

Language, ethnicity, and policy orientation toward Europe are key cleavages in Ukrainian politics, but there is much debate about their relative importance. To isolate the impact of candidate ethnicity, candidate native language, and candidate policy orientation on a hypothetical vote choice, I conducted a survey experiment of 1000 residents of Ukraine in June 2014 that manipulated three features of a fictional candidate running for parliament: 1) ethnicity as revealed by either a Russian or Ukrainian name 2) native language of Russian or Ukrainian and 3) support for closer economic ties with Russia or with Europe. The results reveal little difference in the average response to these 8 fictitious candidates despite the candidate’s different ethnicities, native language, and economic policy orientations. This seeming homogeneity masks vast differences in the responses of self-reported native speakers of Russian and Ukrainian. Analyzing the responses among Ukrainian and among Russian speakers yields considerable differences in the responses to the different candidates. Perhaps most striking is that among both native speakers of Russian and native speakers of Ukrainian a candidate’s economic policy orientation toward Europe or Russia appears to be a more important determinant of vote choice than a candidate’s language or ethnicity. That policy retains its importance for voters despite the intense politicization of both ethnicity and language and ongoing violence in eastern Ukraine suggests that vote choice in Ukraine has not been reduced to an ethnic or linguistic census.

Hat tip goes to www.bookforum.com.

One major advance in knowledge over the last twenty-five years of research in industrial organization is just how important — and how possible — market segmentation agreements and institutions may be.  Is this another example?:

…this summer the service provider T-Mobile began offering its customers an alternative. Under a free feature on some plans, T-Mobile users can now stream music services like Pandora, iTunes Radio, Rhapsody, and Spotify all day long without having to worry about sapping their data caches.

T-Mobile calls it “Music Freedom,” and it’s part of a quiet but powerful global trend.

Apps and Web sites that don’t count against the users’ data plan are popping up both in the United States and abroad, often under names like Wikipedia Zero or Facebook Zero. “[W]e hope that even more people will discover the mobile Internet with Facebook,” the company blogged in announcing Facebook Zero in 2010.  (The names are a riff on “zero-rated,” an economics term for products exempt from taxation.) But set against the ongoing dispute over so-called net neutrality, those apps are beginning to spark a debate about the future of an open, equal, and vibrant Internet in the United States and abroad.

And there is a trade off for consumers. In return for low-cost service, users are, in some cases, being corralled into a limited view of the Internet. Rather than wandering freely from site to site, they have gained gatekeepers who have power over what they see.

That is from Nancy Scola.