Current Affairs

This is Africa’s third biggest city. At 12 million, its population is bigger than London’s. Yet it has almost no connections to the outside world. On normal days, there are only 11 international flights out of Kinshasa per day. At Heathrow, the figure is around 1,400. Apart from the airport, the only other way into this vast megacity is the rickety ferry from neighbouring Congo-Brazzaville. If you were extremely brave, you could try the road to the Atlantic Ocean. But that’s about it. Kinshasa can burn and most of the world doesn’t notice, because Kinshasa is only slightly better connected to the global economy than the North Pole.

And yet somehow it is one of the world’s fastest growing cities. Kinshasa is a particularly extreme example of how Africa is urbanising without globalising. Sixty years ago the whole of sub-Saharan Africa had no cities with a population of more than a million people. Now it has dozens.

But unlike the English peasants who moved to factory cities in the 19th century, or Chinese ones in the 20th, the people moving to African cities are not moving to new global metropolises. Africa’s urbanisation is not driven by economic growth. Instead, people are moving to miserable mega-cities, with crumbling infrastructure and corrupt political systems, and which export almost nothing. Two thirds of Africa’s urban population growth is accounted for by slums.

That is from Daniel Knowles, via Tom Murphy.

It still was a mistake, most of all for Greece and Cyprus.  Yet overall its prospects are looking up, as I argue in my most recent Bloomberg column.  Here is the most revisionist passage:

I now think of the 2008-2012 period as unwinding a long-term bubble of overinvestment in the EU periphery, and thus those were special circumstances when virtually all economic policies were radically underperforming. Given that a recurrence of such conditions is unlikely, the euro will do much better in the future.

Along related lines, compare the performance of fiscal austerity now with that earlier period. Greece has been going through an unprecedented fiscal adjustment, with a primary surplus running at 3.9 percent of gross domestic product; yet Greek output, while ailing, has remained roughly stable. Portugal has been cutting back drastically on public sector investment, dropping its public sector deficit from 4.4 percent of GDP to 2.1 percent. Rather than imploding, the economy grew by 1.4 percent.

Of course, fiscal austerity didn’t perform nearly as well in the earlier part of this decade, and neither did the euro. The economic implosion from the unwinding of the bubble was simply too strong, so we should not overgeneralize from the very negative performance during those years.

Here is the most important passage:

One of the original goals of the euro was to tie countries to the European Union and its rules for free trade and free migration. The major EU country that eschewed euro adoption, the U.K., has now voted itself out the union altogether, to its detriment. Estonia and Latvia, which adopted the euro in part for political reasons to tighten their bonds with the EU, still seem secure against potential Russian aggression. The biggest political trouble spots seem to be Hungary and Poland, neither of which are euro members. That may be a coincidence, but it may also reflect a very real psychological tie resulting from the currency adoption.

Do read the whole thing, there are several other arguments at the link.

Here is a link to the download and partial transcript, Russ is one of the very best interviewers and of course he is a pioneer in the podcast genre.  Here is one excerpt:

Tyler Cowen: And I think overall academics are among the most complacent of the complacent groups in American society.

Russ Roberts: Fair enough.

There is more…

…the most egalitarian places, like Utah, tend to be largely Trump-friendly. Among the 10 states (and D.C.) with the most income inequality, seven supported Clinton in 2016, while seven of the 10 most equal states supported Trump.

That is from Joel Kotkin, acerbic throughout.

In my view, the Republicans have had a very weak hand to play on health care (not enough good ideas!), but over the last week they have played it brilliantly (which is not the same thing as having good policies).  Those House members who need to say “I voted to repeal Obamacare” can now do so.  The Republicans also have an option on proceeding further with reform, with everyone knowing the Senate will write its own bill.  The defects of what they voted for are not so significant for this reason, and the cavalier attitude of many House Republicans toward the contents of the bill makes perfect sense.

At the same time, the Republicans have the option of letting the bill die in the Senate, where it is far easier to blame the Democrats for inaction — how many American swing voters understand the fine points of the Byrd rule and filibuster anyway?  If you are what I call a “fulminating Democrat,” you are actually playing into Republican hands on this one (it would have been better to have spent the week saying abortion should be legal but rare, and talking about white people).

The big victory celebration pleased Trump, but more importantly all Republicans involved learned there is a way forward on many other issues: let Congress lead the way and pull Trump out of the bully role.  That lesson won’t soon be forgotten.  And from Trump’s point of view, he hasn’t given up the option of later working with the Democrats to pass a more centrist version of health care reform.

I don’t see the broader American public as so impressed with the Democrats’ arguments against the bill, mostly because they are not paying attention.  It doesn’t feel like it has the urgency of when Obamacare was passed, and in fact it doesn’t.  No one succeeded in showing it did, because it didn’t.

I still see the Republican House majority as extremely fragile, but on this one I believe the Democrats got pwned.

There is a new and very good paper on that question by Amy Finkelstein, Nathaniel Hendren, and Mark Shepard (pdf).  In reality, the price elasticity of demand for health insurance is quite high, at least among lower-income groups:

How much are low-income individuals willing to pay for health insurance, and what are the implications for insurance markets? Using administrative data from Massachusetts’ subsidized insurance exchange, we exploit discontinuities in the subsidy schedule to estimate willingness to pay and costs of insurance among low-income adults…For at least 70 percent of the low-income eligible population, we find that willingness to pay for insurance is far below the average cost curve – what it would cost insurers to provide coverage to all who would enroll if the premium were set equal to that WTP. Adverse selection exists, despite the presence of the coverage mandate, but is not the driving force behind low take up. We estimate that willingness to pay is only about one-third of own costs; thus even if insurers could offer actuarially fair, type-specific prices, at least 70 percent of the market would be uncovered.

That is from both the abstract and conclusion.  I do understand the ideal of universal coverage, but note this:

For example, we estimate that subsidizing insurer prices by 90% would lead only about three-quarters of potential enrollees to buy insurance.

The somewhat depressing and underexplored implication is that the beneficiaries do not love Obamacare as much as some of you do.  In fact you may remember a result from last year, from the research of Mark Pauly, indicating that “close to half” of households covered by the unsubsidized mandate, by the standards of their own preferences, would prefer not to purchase health insurance.  And that was before some of the recent rounds of premium increases, and overall these new results seem to imply even lower demands for health insurance relative to cash.

Now, I think it is an open question how much “non-paternalism” is the correct moral stance here.  Maybe we should force upon people more health insurance than they would purchase in an adverse selection-free market, because a) they are ill-informed, b) they have children, or c) ex post we still need to take care of them in some way, if indeed their gamble to not purchase insurance turns out badly.

Do, however, note the words of the authors: “We conclude that the size of uncompensated care for low-income populations provides a plausible explanation for their low WTP.”  In other words, many of the poor do not value health insurance nearly as much as many planners feel they ought to, in large part because they are already getting some health care.

In any case, consider a political economy point if nothing else.  If you institute a policy that forces on people more health insurance than they think they wish to buy, do not be shocked if a huckster comes along offering them a supposedly better deal, and gets away with it.

Along related lines, consider also this result:

From the perspective of social welfare, to justify connecting the 5% least dense areas of North Carolina would require each adopting household value high speed wired broadband access at more than $1519 per month.

For the pointers I thank Peter Metrinko and Kevin Lewis.

I will be doing a Conversations with Tyler with him, though podcast only, not a public event.  What should I ask him?

I thank you in advance for your suggestions.

That is one of the debates swirling around the resuscitated Republican health care plan (NYT summary), which now seems to have some chance of passing.  Sarah Kliff writes:

The Republican solution to sick people who need health insurance in a post-Obamacare world is increasingly coming to center on three words: high-risk pools.

The White House has reportedly secured the support of Rep. Fred Upton (R-MI), a longtime legislator, by promising an additional $8 billion to fund these programs. That would mean the Republican plan has nearly $115 billion that states could use, if they wanted to, for high-risk pools.

…There were 35 state high-risk pools before the Affordable Care Act passed. To control costs, they would often do things like charge higher premiums than the individual market. Most had waiting periods before they would pay claims on members’ preexisting conditions, meaning a cancer patient would need to pay premiums for six months or a year before the high-risk pool would cover her chemotherapy treatments.

Kliff then notes those pools have proved quite expensive.  And:

The Republican bill doesn’t require states to build high-risk pools — it just gives them the option. And it has little to say about how states should build them if they decide to do so. It is possible they would also have lifetime limits and preexisting condition waiting periods. Those details are hugely important, but are unlikely to get sorted out until after the bill passes and the Trump administration begins to write regulations.

I don’t favor ACHA, which I see as bringing no benefit and also as involving a cynical desire to repeal Obamacare simply to fulfill a campaign promise (and it needs a CBO score).  Still, I see many people fulminating about this change toward high risk pools, yet without defending their position much beyond a hand wave.  Should all requests for emergency medical care receive additional government funding?  Obamacare itself does not embody anything remotely like that principle, for instance consider all the medical conditions not covered under the mandate, or covered only imperfectly.  Not to mention the rare diseases that receive only limited R&D dollars.  And we’re about to run out of yellow fever vaccine — nasty!  The list goes on and on.  How are those pandemic preparations coming?

If the federal government is asked to pick up the tab for high-risk pools or some rough equivalent, it probably visualizes the cost in terms of either additional borrowing or as a common pool problem.  It is close to a free lunch in political terms, arguably even a political benefit, now that Obamacare is more popular.

If balanced-budget state governments are asked to pick up the tab, they will wonder whether that money should better be spent on schools, roads, and prisons.  Many of them will be reluctant.  Maybe that is right or wrong, but is “let’s have a democratically elected state government decide how much to subsidize medical care for those with preexisting conditions” such a morally outrageous view?  I guess it is these days.  The simple but underemphasized truth is that under the new bill state governments can spend as much as they want on high-risk pools.

(Is it not sobering to think that if the high-risk patients are put into a separate pool, and have to ask for state-level but taxpayer-sourced money in a direct and transparent manner, the political support for that funding is not so strong?  That is perhaps the real lesson here.  In this debate, both sides are the enemies of transparency.)

Which is the better perspective?  Federal or local?  The answer is obvious if you believe all requests for emergency medical care should receive additional government funding.  But, as I’ve mentioned, no one believes that.  I do see people who cite that principle when it is convenient in one part of a debate, and who forget about the same principle for other policy choices.

And please, don’t compare these marginal health care expenditures to “tax cuts for the rich” — instead advocate for where you most want to see the money spent!  Don’t let the silly Republicans bail out your analytical apparatus once again; any program is easy to justify in your own mind if you put it up against what you consider to be a very weak alternative use of the funds.  It is fine to say “bigger subsidies for high-risk pools are better than tax cuts for the rich, but they are still only my 17th most preferred use for the funds.”

Along related lines, while I favor taking in many more refugees, I also understand that any feasible migration policy involves leaving many refugees and potential migrants to their possible deaths, and with a relatively high probability in some cases.  So if your moral argument is “we should let in person x, or person x will die,” you need to provide a limiting principle once again.

Most generally, beware of moral arguments that a) lower the status of some other group of people, and b) do not state and justify their limiting principles.  They are ways of substituting in pleasurable moralizing in lieu of dealing with the really tough questions.

Addendum: Here are some new and relevant results cited by David Leonhardt, I haven’t had time yet to read through them.

That is a new project by Jonathan Haidt and the Heterodox Academy, here is a partial summary:

Heterodox Academy announces a simpler, easier, and cheaper alternative: The Viewpoint Diversity Experience. It is a resource created by the members of Heterodox Academy that takes students on a six-step journey, at the end of which they will be better able to live alongside—and learn from—fellow students who do not share their politics.

It’s a very flexible resource that can be completed by individuals before they arrive on campus, presented in an orientation-week workshop, or expanded into a full semester course that students can take during their first year. (It could also be helpful in high schools, companies, religious congregations, and any other organizations that are experiencing sharp political divisions and conflicts.)

…The site is still under development: we welcome feedback and criticism. We particularly seek out professors, high school teachers, and diversity trainers who will partner with us to develop detailed teaching plans and activities. We will have a larger public launch of the project in August, complete with assessment materials that will allow you to measure whether the curriculum actually increased political knowledge and cross-partisan understanding.

Do click on the site itself for a fuller explanation, and please help out if you can.

I few of you asked me about the Bret Stephens column.  I would have preferred something more specific and detailed on climate change uncertainty, but my main reaction was encapsulated by Chris Blattman on Twitter:

Bad sign for science if my impulsive thought is “so glad I don’t work in this area”

And yes, I blame both sides for that.

A related question is: how good is the social science in this area?  I would say “not so great.”  Try looking for good public choice treatments of how climate intentions end up translated into climate policy.  That is a remarkably important question, and yet it is understood poorly.

Or “how many of the people who make proclamations in this area have a decent understanding of Chinese energy and climate policy?”, and the answer is hardly any, even though that may be the most important topic in the area.  And I ask that question not only of the casual tweeters but also of the academics who work on climate change.  Follow Christopher Balding if you don’t believe me, and by the way praise to the highly rated but still underrated Matt Kahn.

In other words, yes we should do something but still yap less, study more.

How about Ross Douthat on Marine Le Pen?

The way I see it, the case for Le Pen is simply that it might force the (supposed) outsiders to “own” the euro and European Union, and that might be better for liberalism in the long run than having a France limp along under the probably not so popular Macron.  In my view, Le Pen has neither the means nor the inclination to actually pull France out of the EU or eurozone, and the whole thing has been a campaign stunt.  Of course I find it hard to estimate the probabilities here, and personally I reserve my political “rooting” for my classical liberal mood affiliations and also the Washington Wizards; I won’t support a candidate for reasons of n-dimensional chess, given that I am never the decisive voice.  So I’m not rooting for Le Pen, but if someone holds that “strategic” point of view I do think it is defensible, though I hope they are holding it with plenty of humility on the epistemic side.

I thought Ross’s column had the desired and necessary caveats, and furthermore he did not tell people to vote for her or root for her.  Rather than try to smear his piece with Nazi associations and the like, it is better to focus on why so many political parties in the West are falling apart.  And as for the unsavory associations, keep in mind that oft-praised American presidents have owned slaves, exterminated native Americans, turned back ships of Holocaust victims, and napalmed Vietnam.  That doesn’t provide an excuse for bad current behavior, but it does provide some context for the “how could you possibly…?” tendencies we all have.

I would not myself have written either column, but overall I say kudos to The New York Times.  It’s their readers I worry about.

That is the topic of my latest Bloomberg column, here is the concluding paragraph:

The general spread of expertise, high housing costs in the most successful cities, and perhaps even a degree of intellectual complacency in Silicon Valley all may, looking forward, favor some of America’s laggard regions. There is no single answer to regional economic development, but finally some factors seem to be pointing in the right direction.

And this:

Mandel also estimates that the e-commerce sector has added 270,000 jobs to the American economy since March 2014, across multiple regions, and, in spite of all the recent problems, retail employment remains above its 2007 peak. Some additional good news is that e-commerce distribution jobs tend to be better paying and less of a dead end than most retail jobs. The warehouse and storage sector is growing dramatically, and those jobs are typically far from the wealthiest parts of the country — they are boosting Kentucky, Ohio and Tennessee.

In the last two years, again according to Mandel, “the regions outside the top 35 metro areas accounted for almost half of net new establishments,” compared with less than one-fifth of net new businesses during the seven preceding years.

And the opening:

Sometimes significant news doesn’t make much of a splash, and that was the case for a major transaction last week. PetSmart Inc. announced the acquisition of LLC for $3.35 billion, the largest e-commerce deal ever. Also notable is that, which sells pet products online, is based near Fort Lauderdale, Florida, rather than San Francisco or Seattle or New York. Might we be at a point where startups and e-commerce drive economic growth and job creation in many regions of the country, not just a few of the more famous (and expensive) areas?

Do read the whole thing.

The central government told the Supreme Court on Monday that it wants an Aadhaar-like unique identification system for cows to track their movement and prevent inter-state and inter-country smuggling. Adducing a report by a committee appointed by the Union Home Ministry, Solicitor General Ranjit Kumar told a bench led by Chief Justice of India J S Khehar that the Centre has approved the recommendations in principle. The bench posted the matter for detailed hearing on Tuesday.

The committee, headed by a Joint Secretary in the MHA, was constituted after the apex court prodded the government to stop smuggling of cattle, especially through the porous borders with Nepal and Bangladesh. “Each animal (should) be tagged with a unique identification number with proper records of identification details such as age, breed, sex, lactation, height, body, colour, horn type, tail switch, special mark etc,” says the report.

Here is further information, via James Crabtree.

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, 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.