by Tyler Cowen
on February 5, 2012 at 7:24 am
1. Is manufacturing special?, by Christina D. Romer.
2. The gains from trade model, slide show, recommended for all.
3. Andrei Shleifer, lessons from communist transitions.
4. The culture that is Rostock.
5. Is scalable quantum computing possible?
Rostock lard: slightly misleading / tabloid article. The old man did not eat the lard, and the reason he had it inspected was to promote awareness about longevity / shelf life of food – not because he is so stingy:
(Lots of discussion in Germany about food wasting, especially about food labels etc. causing misconceptions about shelf life). I remember a yoghurt producer telling a friend of mine in confidence that yoghurt stays edible for months but you couldn’t publicly admit it. Someone else said about a typical item of modern food: “Of course it can’t spoil – there’s enough preservatives in there to embalm an elephant.”
Not meaning to diss preservatives – actually they were responsible for keeping the lard in (reasonably) good shape…
If you don’t know these things, how do you know you aren’t getting screwed? Waiting for friends and neighbors to keel over isn’t the best plan.
Well apart from fish poisoning or some exotic contamination, I generally can’t remember anyone ever having suffered harm from food. I’m a pussy on this issue myself, but my parents for instance who saw WWII basically cannot throw food away even today. It physically upsets them. There are even legendary expressions from people of this generation that you learned to hate if you were their children: “Oh well – but we can still fry that (…and it’ll be just fine).”
Yes, and I’m pretty far down that road too, except I freeze it for the slow cooker rather than frying. On the one side, expiration dates have little basis in reality, but on the other side some things do cause problems after going rancid or preservatives and hydrogenated oils cause health problems.
Transitions from Communism:
Having spent much of the transition in Hungary, I have long felt that economists, by and large, failed to capture the implications of such a change, most particularly, as society moved from one organizing principle (ideology) to another. Here’s some of my personal top ten list regarding the transition from communism:
1. Competition Creates Politeness and Other-Centeredness
In Hungarian restaurants and shops, the key phrase before the fall of communism was a grouchy “Nincs!” (“There isn’t any!”). In world of goods shortages, the customer is a burden, not an opportunity. But allow a free market–the business to make a profit on the customer–and you’ll have world class service in just a few years. Hungarian restaurants today have both fantastic food and great service. The swing between burden and prized customer is small–often 10% of revenues or less. But the opportunity for profit is key. And this is not only a key to the economy, but the very underlying fabric of society. Incentives over time become culture.
2. Institutions will take on the objective functions of their owners
Politicians and bureaucrats optimize political acceptability subject to budget constraints. Malev Hungarian Airlines–which ceased service last week–was never a profit-maximizer under state ownership, because its owner–the state and its politicians–were not profit maximizers. It took me three long years to get this. If you don’t understand what this means, don’t consult for the public sector in weak countries.
3. Ethnic Cleansing is Part of Self-Determination
When sovereignty is passed to the people from a dictator, people will choose to live with those they perceive to have shared values. This is the story of Yugoslavia, Czechoslovakia and Iraq. Note that ethnic cleansing was violent in some areas, peaceful in others.
4. With the fall of communism, the Libertarians are structurally on the left
In Hungary, the anti-communist coalition of social and fiscal conservatives quickly parted ways, with the free market SZDSZ party aligning itself with its former tormentors, the socialists. To this day, the conservatives consider the free market party to be traitors as a result. But with the fall of communism, support for egalitarianism fell, with many egalitarians moving to the socially conservative camp. The social conservatives in most places, as a result, are on the median voter boundary on the right. The fiscal conservatives have been pushed to the left. And that’s true in the US as well, structurally. What’s the color of the Democratic party? Blue. What’s the color of socialism and communism? Red. What was the color of the Democratic Party before 1990? Red. Clinton got this, and was successful, Obama doesn’t.
5. Align the incentives
Free markets create Pareto optimality in employment. Pareto optimality creates a culture of honesty and responsibility, because both the employer and employee are happy working together (more precisely, happier than working with anyone else). The employer has an incentive to delegate more, to increase the value of the employee. The employee has an incentive to take on more, to increase his wages. Thus, free markets tend to create agency–the very essence of trust. But agency, as I have argued elsewhere, is a conservative value. Jeffrey Sachs has argued that agency–social responsibility and a sense of duty–is critical to political governance. And yet communism, by its very nature, will have destroyed this notion of agency. Communism makes everyone corrupt and untrustworthy. Agency can be restored indirectly, by allowing generations of people to grow up in a market economy, with some of those ending up in politics (ie, the US system). Or agency can be applied directly to the political class by creating explicit incentives aligning the interests of the individual politician with the broader society. It is utterly obvious from the analytical perspective this is the more efficient path. But only Singapore has such a system in place. (And did I note that Singpore’s GDP per cap at PPP is 158% that of Germany?)
In any event, for those looking to post-communist Cuba, the matter of incentives is the only policy which will really matter in restoring the ties of the exiled Cubans to their homeland. That’s a lesson from Hungary.
Interesting points, thanks for sharing.
“What’s the color of the Democratic party? Blue. What’s the color of socialism and communism? Red. What was the color of the Democratic Party before 1990? Red. Clinton got this, and was successful, Obama doesn’t.”
Huh? I don’t know economics or Central Europe as well as I know American politics, but I know that the two American parties, being essentially non-ideological, didn’t have colors until the 2000. Networks switched the colors around from election to election based on some arcane formula, and then they got stuck on where they happened to be in one particularly dramatic election.
That said, to the limited extent you can assign ideologies to these organizations, the Democrats are closer to a European style center-right party and the Republicans are more of a radical-populist parties, so the colors they got stuck are kind of, sort of, appropriate. But I don’t think this is what that particular part of the comment, which I don’t understand at all, is getting at.
The error is serious enough to make me doubt the rest of the points, which seem based on heapings of anecdotes.
Shleifer’s sixth might make an interesting lesson to current Euro economists:
>>>.Debt restructurings do not necessarily make permanent scars. This experience bears a profound lesson for reformers, who are always intimidated by the international financial community: do not panic about crises; they blow over fast.<<>>Indeed, people in all transition countries were unhappy with transition: they were unhappy even in countries with rapidly improving quality of life <<<
On the contrary, Shleifer points out in the sentence just before the one you quoted above, “Ironically, in some countries in Eastern Europe populism appeared 20 years after transition started, after huge improvements in living standards were absolutely obvious.” Populism didn’t break out in the newly liberated Communist countries but it can and does break out in middle income countries when ordinary people feel their interests are not being looked after in the government.
Shleifer’s point about default is a good one and also applies to Latin America. However, there is a gain a crucial difference between Russia in 1997 and the PIIGS today: Russia had the option of devaluing the Ruble (Wikipedia says it depreciated by over two-thirds in one month) but Portugal, Spain and Greece have no currency to devalue.
5. I’m not sure I’d want to be offering a prize like that, you might get a lot of convincing arguments that eventually turn out to be wrong but still discourage the technology. About 15 years ago, there was an influential paper on IEC fusion that purported to prove it could never achieve net power. Many people found it convincing, and IEC fusion got very little funding/interest even as tokamaks got tens of billions and many people made them a career. But more recently, some of the assumptions in the paper have been demonstrated to be flawed, and now there’s both experimental and theoretical reasons to think IEC fusion might achieve net fusion much more cheaply than tokamaks.
That’s the same Andrei Shleifer who, together with his Harvard buddies, was instrumental in economic rape of Russia and who made himself rich while doing it (at the expense of the millions of dead Russians, it has to be remembered):
We should ask him to fix US economy next.
Tyler has no shame. What a fucking tool.
“Andrei Shleifer, lessons from communist transitions.”
Lesson #1: You, personally, gotta get while the getting is good.
Do economists have shame? What have they done to sanction Shleifer for his corrupt actions in Russia during the Yeltsin era?
Sadly, not a goddmamned thing. They just act like it didn’t happen. For a prime example of breath-taking stupidity and dishonesty, see here:
You’d figure with an ass that big, Boettke would have half a clue stashed somewhere there. Evidently not.
From Russia with love!
For those who don’t appreciate what privatization in Russia was, an example: “Uralmash”, the biggest heavy machinery plant in the whole USSR (think T-34 tanks made during WWII) with a total of around 100,000 employees, was acquired in 1993 for an estimated $2,000,000 (that’s $2M, not 2B).
“For those who don’t appreciate what privatization in Russia was, an example: “Uralmash”,… with a total of around 100,000 employees, was acquired in 1993 for an estimated $2,000,000 (that’s $2M, not 2B).”
Without any context that statement is meaningless. For comparison ‘Newsweek”magazine has a circulation in the millions, but was sold for $1 in 2010. Yes, that’s $1. For comparison, actually buying a single copy of the magazine at the supermarket would have cost you about $3.
Here’s what else Boettke has ruminated on lately (more or less correctly, in this case):
Yet he kisses Schleifer’s ass. What a damned fraud.
For an absolutely pathetic display by Boettke, see his comment here:
Curious that, until the link was posted to the InvesterMag article, only Barkley Rosser would even allude to the “issues” Schleifer has on transition. I am baffled, like Steve Sailer, that economists seem so unable and/or unwilling to condemn a fucking crook in their midst. Makes you wonder, doesn’t it?
For Boettke (who has the gall to suggest that the charges against Schleifer might be unsubstantiated) the fact that Schleifer is a really smart guy is all that matters, as evidenced by his publication list. (Boettke’s big on publication lists, as anyone who’s ever seen him rationalize his meager academic status can attest.) Apart from basic questions of honor, that ignores the fact that Schleifer is not being asked about limits to arbitrage or history of thought or whatever. He’s talking about an event in which massive corruption played a major role in frustrating whatever legitimate objectives Russian reformers may have had, and Schleifer participated in that very corruption! Why he should be taken seriously on this is one thing, how people like Boettke (and Cowen) can effortlessly sing Schleifer’s praises is something else.
The economic profession has been righly ridiculed for failing to explain, much less anticipate the crisis. But their continued support of Schleifer is a far bigger scandal.
Here’s Boettke being ironic:
“At Barkley — Shleifer did fundamental work on corruption and rent-seeking both at the start state and during the process of reform, so I think it is inaccurate to say that he ignored the points you are making. ”
Boy, did he ever!
Several good points in Schleifer’s piece … don’t overestimate control or underestimate human capital. Here’s a particular good quote: “Transition to markets is accomplished by new people, not by old people with better incentives. … both in firms and in politics in profound: you cannot teach an old dog new tricks, even with incentives.” I would quibble with the absolutism in his statement, but on average I think he’s correct. I’ve had various ties (academic and personal) to Eastern Germany and I agree that progress toward a (social) market mentality takes generations, not years.
Birds of a feather, I guess.
This will help Shleifer, to whom the rise of the oligarchs was “a huge surprise”.
Harvard remains committed to Russia’s reforms: Maria Gaidar, daughter of world’s most famous privatizer Egor Gaidar and founder of youth opposition movement “Da!”, is doing her M.A. in Public Administration at Harvard Kennedy School.
I guess I’m not surprised, though I am a bit saddened, that one of the lessons that Andrei Shleifer didn’t learn was that he shouldn’t use USAID funds for his own purposes, or engage in large-scale insider trading in markets he’s supposed to be developing, or otherwise act like a criminal.
Matt, sadly Schleifer is not the only economist who has been accused of an ethics lapse in policy work. The new ethics rules by the American Economics Association take a step in the right direction but more awareness is needed. But the point of my comment is not to defend Schliefer’s actions. I still think his look back on the transition as an economist is worth considering. I wouldn’t take his economic views as the final word, but I wouldn’t discard them just on his person.
Christina Romer says: “Construction also pays good wages, but with lower educational requirements.”
I say: “Mythology and bullshit. She probably can’t read blueprints, wouldn’t know how to figure grade, doesn’t understand motor winding resistance, can’t use a pressure/enthalpy chart and couldn’t perform a hydrostatic test. The idea that manual trades can be successfully embraced by uneducated, unskilled workers is a fairy tale that the pseudo-educated elite use to make themselves feel good. When a pipefitter puts together a system it has to work and it can’t leak. It’s real easy to measure whether the operation has been a success or not. Nobody will ever know for sure if Romer is right or wrong, now or later.”
“Nobody will ever know for sure if Romer is right or wrong, now or later.”
I’ve got an inkling, however.
A key argument for encouraging manufacturing is to create jobs and reduce unemployment. Unfortunately, those effects are probably small.
She addresses this a little under income distribution, isn’t the argument more like:
A key argument for encouraging manufacturing is to create jobs for very low skill difficult to employee people. I disagree with this argument because I think that today manufacturing workers need to be pretty high skill but it seems to me that is case advocates for manufacturing are really making.
When do we get to see Bernie Madoff’s, “Lessons from SEC’s Compliance Strategies” or Alaric the Visigoth’s “Ruminations on Transitions in the Early 5th Century Western Roman Empire”?
ROFL! An early candidate for the comment of the year.
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