Current Affairs

When Labor is Cheap

by on April 22, 2017 at 4:24 am in Current Affairs, Economics | Permalink

Labor is cheap in India which leads to some differences from the United States.

The first couple of times I took a taxi to a restaurant I was surprised when the driver asked if I wanted him to wait. A waiting taxi would be an unthinkable expense for me in the United States but in India the drivers are happy to wait for $1.50 an hour. It still feels odd.

The cars, the physical capital, in India and the United States are similar so the low cost of transportation illustrates just how much of the cost of a taxi is the cost of the driver and just how much driverless cars are going to lower the cost of travel.

Everything can be delivered.

Every mall, hotel, apartment and upscale store has security. It’s all security theatre–India is less dangerous than the United States–but when security theatre can be bought for $1-$2 an hour, why not?

Offices are sometimes open 24 hours a day, 7 days a week. Not that anyone is in the office, just that with 24 hour security there is no reason to lock up, so the office physically stays open.

Every store has an abundance of staff. This one is puzzling since it results in worse service. Even in a tiny store, for example, it’s common to have one person tabulate the bill and then hand it to another person to ring you up. My guess is that this is an anti-theft procedure for the owner as it then requires two to collude to rip the owner off.

At offices, cleaning staff are on permanent hire so they come not once or twice a week but once or twice an hour. The excessive (?) cleanliness of the private spaces makes the contrast between private cleanliness and public squalor all the more striking.

Some of Trump’s first actions in office were two executive orders meant to crack down on illegal immigration by implementing tougher enforcement not just at the border but also within the country. This week The Washington Post reported that U.S. Immigration and Customs Enforcement had arrested 21,362 unauthorized immigrants across the country since Trump took office, a 32.6 percent increase from the previous year. (The data runs through mid-March.) At first glance these numbers might seem consistent with Trump’s promise to get “the bad ones” out of the country. But the Post also noted that of those arrested roughly a quarter, or 5,441, had no criminal record. That’s more than double the number of noncriminal arrests of undocumented immigrants during the same period in 2016. (Many of those arrested eventually will be deported, but because that process can be slow, changed enforcement patterns show up more quickly in arrest data.)

Look back a bit further, however, and the recent increase in enforcement looks less dramatic. The pace of arrests is running well behind the 29,238 made during the same period in 2014; that year, there were 7,483 noncriminal arrests through mid-March, which represented a similar share of the total as this year’s numbers.

That is from Ben Casselman, et.al. at 538.

Portugal slashed its public sector deficit by more than half in a single year, when measured as a proportion of GDP, the national statistics bureau has said, taking the shortfall comfortably below euro zone limits.

The deficit dropped to 2.1%  of gross domestic product in 2016, a staggering reduction from its 4.4%  level a year earlier.

This confirms Finance Minister Mario Centeno’s prediction last month that the deficit would be “not more than 2.1%”, its lowest share of GDP since the advent of democracy in 1974.

Euro zone members are required to keep their public deficits to below 3% of GDP, but some are struggling to do so.

Portugal’s public deficit shot up into the double digits during the global economic crisis, and despite an international bailout it had difficulty bringing it back down to 4.4% in 2015.

Portugal’s economy expanded by 1.4% in 2016, the national statistics institute said in February, after growing by 1.6% the previous year on the back of stronger exports and private consumption.

Here is the full piece, here is a useful Bloomberg piece on Portugal.  Furthermore, by one estimate:

Greek gov’t makes a 6.8%/GDP fiscal adjustment in a single year, without any decline in country’s GDP.

You can quibble over those numbers, and yes I do agree this is bad and also not sustainable, but still people this is not exactly the Keynesian model at work.

German police arrested a man on Friday suspected of detonating three bombs that targeted the Borussia Dortmund soccer team bus in the hope of sending the club’s shares plummeting and making a profit on an investment, prosecutors said.

In a statement, the federal chief prosecutor said the 28-year old man, a dual German and Russian national identified as Sergei V., had bought options on Borussia Dortmund’s stock before the attack.

The team bus was heading to the club’s stadium for a Champions League match against AS Monaco on April 11 when the explosions went off, wounding Spanish defender Marc Bartra and delaying the match by a day.

Prosecutors last week expressed doubts about the authenticity of three letters left at the site of the attack that suggested that Islamist militants had carried it out.

The prosecutor’s office said the suspect had bought 15,000 put options, or contracts giving him the right to sell Borussia Dortmund’s shares at a pre-determined price, on the day of the attack, using a consumer loan he had signed a week earlier.

Here is the full story at Reuters.

At the very least we can ask what they say they would do, and it is not entirely encouraging:

Drawing from literature associating superheroes with altruism, this study examined whether ordinary individuals engaged in altruistic or selfish behavior when they were hypothetically given superpowers. Participants were presented with six superpowers—three positive (healing, invulnerability, and flight) and three negative (fear inducement, psychic persuasion, and poison generation). They indicated their desirability for each power, what they would use it for (social benefit, personal gain, social harm), and listed examples of such uses. Quantitative analyses (n = 285) revealed that 94% of participants wished to possess a superpower, and majority indicated using powers for benefitting themselves than for altruistic purposes. Furthermore, while men wanted positive and negative powers more, women were more likely than men to use such powers for personal and social gain. Qualitative analyses of the uses of the powers (n = 524) resulted in 16 themes of altruistic and selfish behavior. Results were analyzed within Pearce and Amato’s model of helping behavior, which was used to classify altruistic behavior, and adapted to classify selfish behavior. In contrast to how superheroes behave, both sets of analyses revealed that participants would hypothetically use superpowers for selfish rather than altruistic purposes. Limitations and suggestions for future research are outlined.

That is from a new paper by Das-Friebel, et.al., and the pointer is from Rolf Degen. Here is an earlier MR post about what an altruistic and incorruptible Superman should do; I found the question wasn’t so easy to answer.

The complacent lass?

by on April 19, 2017 at 4:28 am in Current Affairs | Permalink

The Easter message confirmed something about Mrs May that continues to escape some of the commentary about her. She is a believer in things. She has her own view of the world and it comes, if not from scripture, then at least from the Anglican cast of mind.

She favours a gentle society over a dynamic one, views the market with the suspicion of a mild social democrat and takes nationhood more seriously than the universalist end of Christianity tends to. None of these beliefs are extreme but they are held with enough strength to drive the government.

That is Janan Ganesh on Teresa May (FT).  Here is a good BBC analysis of some of the game-theoretic considerations, and one that makes May look a bit less complacent (and less of a lass, too).

An interesting theory is that a big victory will make a softer Brexit more likely, since May will no longer have to appease her more eurosceptic backbenchers. And so by 2022, in theory, the most turbulent period of Brexit will have passed, and Labour, or the new centrist ‘Democrat’ Party or whoever is in opposition, are hardly likely to stand on a platform of a European remarriage following the complex divorce. In the meantime another good result for the SNP, which seems likely, will surely give Nicola Sturgeon a mandate for a second referendum. And then there’s Northern Ireland…

That is from Ed West, via Mark Koyama.

You heard it right, and that is the topic of my latest column at Bloomberg.  Here is the key idea:

In contrast, per capita income in France or Japan, by purchasing power parity measures, is in the range of $40,000 to $41,000. In other words, if we consider that living in West Virginia is especially cheap, its people may have real incomes roughly equal to the French or Japanese.

I have found that even raising such a comparison provokes outrage. After all, we are told, France and Japan have higher-quality public goods, and West Virginia has an opioid epidemic, one of the lowest rates of labor-force participation in the U.S., and one of the highest rates of uptake on disability insurance.

But that’s exactly what I mean by the West Virginia productivity miracle. The more burdened some of the state’s residents are, the higher productivity must be for those who are hard at work.

And:

Most of the major industries in West Virginia have added workers since 1990, and the state’s population is up by about 50,000 people. Again, that performance is hardly an incredible one, but the state isn’t exactly falling into the dustbin.

And this:

It’s not that economic development for this region is mainly about turning meth-snorting squirrel hunters into steady workers; rather, it’s that West Virginia needs to build upon its existing strengths.

There is much more detail at the link.

I don’t believe in many (any?) conspiracy theories, and if there hasn’t been talk about “the deep state” on MR to date, there is a reason for that.  Still, I have been wondering how one might think about the deep state in public choice terms, even if you have a rather modest view of what it is all about.  Day to day, we mostly get “the shallow state,” so what might the deep state mean?

I can think of a few options:

1. The deep state can selectively blackmail individuals in politics, and for the innocent ones the deep state can fabricate something.  Therefore in equilibrium most politicians shy away from talking about the deep state, even to praise it.  The balance here seems easy enough to understand, but I can’t say I’ve seen evidence for this mechanism.  I suppose if there is any test for it, it is the Trump Administration.

2. The deep state exists to protect the American public (and itself) against very unfavorable policy choices and thus outcomes.  The deep state therefore would move against a very irresponsible president, either by leaks or blackmail or perhaps something more dramatic.  In this model, having a deep state is like buying a put against very unfavorable world-states.  Note that the weaker and harder to coordinate you think is the deep state, the more this is an “out of the money” put, protecting against only the most extreme existential risks.  You might never observe this kind of deep state, though it can be worth a good deal in relatively volatile world states.

Do note that in these games a president will take steps to limit a potential “coup” from the deep state.  One counter-strategy would be to increase the level of background noise, so that the deep state would not be sure whether moving against the president would in fact be justified.

3. The deep state is the Federal Reserve System.  I believe it was Matt Yglesias who first suggested this idea.  And there is indeed a literature on political business cycles.

4. The deep state is active on a day-to-day basis, mostly by manipulating the flow of information to the president and National Security Council and related parties.  Intelligence is more filtered than we outsiders may think.  Presumably the president realizes this sooner or later, and tries to adjust for the filter.  Over time, the filter becomes an increasing distortion, so to keep the chance higher that the president is being fooled by the information flow.

5. The president cultivates the deep state to strengthen his or her bargaining position vis-a-vis Congress or perhaps foreign leaders.  “The deep state won’t let me do that,” or “the deep state will blackmail me,” or…?…cannot be stated outright but perhaps subordinates can hint at such constraints.  Or the president may cultivate the deep state so as to have an option on blackmailing members of Congress, should “the shit hit the fan.”

What else?  And which of those are most plausible?

I thank an MR reader for a useful email on these issues.

Here is a query from a loyal MR reader:

If you had net assets in the six figures, and were very concerned about global warming (some combination of wanting a good life for your children, and believing human civilization is valuable over a time horizon longer than your lifetime), how would you invest those assets?

Some thoughts I’ve had:

Invest in renewable energy companies: Extremely hard industry to figure out where your money would have most value added. Not easy to invest in Tesla.

Invest in water utilities: a lot of the problems with water are regulatory rather than investment.

Buy a house in an urban center: NIMBYism means that this likely just crowds out someone else, with unclear impact on carbon reduction

Housing ETF: Might have more political impact than personal purchase but difficult industry to figure out.

Give money to politicians: Does money actually impact political results?

Buy a house with access to water and a lot of guns: Not an ideal solution

Quit your job and become an activist: seems to have been moderately effective in recent years.

What non-complacent answers am I missing? How would your answer change if someone had 5 figure assets? 7 figures? 8 figures?

My answer is pretty simple: invest in fighting indoor air pollution in developing nations.  (Here are further research sources.)  The burning of wood indoors, for instance, leads to pretty significant carbon emissions, as does the burning of charcoal, dung, and plant residue.  These burnings are also harmful to human health, accounting for perhaps as many as four million (!) deaths last year, maybe more.  Some of the problem is inadequate ventilation, but also safer and cleaner gas stoves, among other technologies, represent a better and environmentally friendlier option for many of these households.  Pilot projects in India, Kenya, and China have shown positive results.

The nice thing about this target is that you can save lives even if global warming can’t really be stopped.  And rather than (implicitly or explicitly) taxing poor people in poor countries, you are helping them out.  The broad steps one wishes to take are consistent with these locales become wealthier rather than poorer regions.  Here is a paper on indoor air pollution and carbon emissions in Nigeria.

That said, I do not know which are the best non-profits or commercial projects in these areas — could any of you help out in the comments?

Another option would be to continue to apply pressure to Indonesia to limit the burning of their forests: “Indonesia’s carbon emissions from the 2015 forest fires were bigger than the daily emissions rate of the whole European Union, a study reveals.”  This would involve working through international organizations and perhaps NGOs in Indonesia itself, again your suggestions are welcome.

Back in Gyeongju, Kim had the spy arrested, tortured, and executed…The rest of Kim’s story, as far as we know it, is true: He conquered Baekje in 660 and Goguryeo in 668 with the help of the Tang armies, then had to give the Tang the Manchurian half of Goguryeo.

Modern nationalist historians have criticized Silla for relying on China’s help in the first place, saying it set a historical pattern whereby Koreans instinctively call on outside powers to help solve internal problems.

That is from the new book by Michael Breen, The New Koreans: The Story of a Nation, a very good introductory treatment to that part of the world.

The Spirit of the Law

by on April 16, 2017 at 12:50 am in Current Affairs, Economics, Law | Permalink

To get around the Indian Supreme Court’s ban on selling alcohol within 500 meters of a highway, a bar in Kerala added some distance. Here is one case where obeying the letter of the law is producing the spirit of the law. As an added bonus it will be easier to enter the bar than to exit.

bar

Hat tip: Anjan Rao.

France is careening toward a nail-biter presidential election this month that pits a crowded field against anti-E.U. titan Marine Le Pen. But E.U. funds pay her salary, support her assistants, and underwrite the conferences and books she churns out to attack the 28-nation bloc. Key British leaders of the successful Brexit campaign got their financial lifeline from Brussels euros. Elsewhere in Europe, self-identified fascists are paying for rallies to further the future of the “white race” by breaking up the E.U. — all thanks to E.U. money.

…[these parties] get millions because of their heft in elections for the European Parliament, an institution that is short on power but flush with cash.

Here is the Washington Post story by Michael Birnbaum.  I say that Hegel, and works of Continental philosophy that use the word “totalizing,” should be raised in status!

Addendum: Here is more from Farrell and Newman.

Here is one bit:

I am reminded of a study of college friendships conducted by psychologists Angela Bahns, Kate Pickett and Christian Crandall. They found that students in a large, diverse campus sought out and befriended other students very much like themselves. In smaller universities with fewer friendship options, young people had more varied groups of friends because the alternative was to have no friends at all.

Our bias towards the status quo is not new — but perhaps we are taking advantage of new opportunities to indulge it.

Here is the full FT piece.

Outside my apartment a cobbler has a sidewalk shop where he sits and fixes shoes. One of the things that interests me in this photo is the picture the cobbler hangs behind him, that’s BR Ambedkar. In the Cobblerindependence movement BR Ambedkar was the leader of the Dalit (untouchable) class and the guiding force in writing the Indian constitution, which in India makes him a combination of Martin Luther King and James Madison.

Ambedkar died in 1956 but he continues to be highly regarded, especially, but by no means solely, among the Dalits. Indeed, of the great triumvirate, Gandhi, Nehru, and Ambedkar, only Ambedkar seems to have grown in stature since his death. Gandhi is given lip service but his image no longer carries meaning. As Arundhati Roy put it, “Gandhi has become all things to all people…he is the Saint of the Status Quo.” The image of Ambedkar, however, still signals a demand for justice and an insistent claim that not all is yet right.

Today is Ambedkar’s birthday and at the stroke of midnight my neighborhood, which happens to be on Ambedkar Road, erupted in a party and parade that lasted until two in the morning.

Of the great triumvirate, I’ve always been partial to Ambedkar. He had a PhD in economics from Columbia where he worked under Edwin Seligman and later also graduated from the London School of Economics writing another dissertation under Edwin Cannan. Ambedkar was not a free market advocate and he didn’t write much in pure economics after the 1920s but he was an early supporter of monetary rules because he had a sophisticated understanding of the distributional consequences of monetary interventions and feared government manipulation.

A managed currency is to be altogether avoided when the management is in the hands of the government.

Ambedkar also wrote insightfully on the problem of India’s small farms, a problem that continues to plague India (although some of his solutions such as government ownership of land actually don’t fit the problem, lack of capital, that he emphasized).

So why does Ambedkar continue to resonate in modern India? Ambedkar never had Gandhi’s worship of the village and tradition. He understood that progress would come with cities, industrialization and education. Exactly the forces that are transforming India today. Ambedkar did not mince words:

The love of the intellectual Indian for the village community is pathetic. What is the village but a sink of localism, a den of ignorance, narrow mindedness, and communalism?

Most importantly, quoting Luce’s excellent In Spite of the Gods (still the best introduction to modern India):

Ambedkar gave India’s most marginalised human beings their first real hope of transcending their hereditary social condition. He saw the caste system as India’ greatest social evil, since it treated millions of people as sub-humans by the simple fact of their birth.

But even as the caste system declines in importance (in some ways), there remain those who are marginalized and downtrodden. Ambedkar, for example, resigned as law minister in post independence India when his bill to bring greater equality and property rights to women was rejected. Even today, Ambedkar’s vision is not complete. Ambedkar was a modernist, a rationalist, a believer in the principles of liberty, equality, and the rule of law for all, and for these reasons he remains relevant in modern India.