The best defense is sometimes…a good defense:

When Tyler Allen agreed to fork over $3 million in cash for a luxury condominium near Concordia, Kan., he wasn’t attracted by the indoor swimming pool, 17-seat movie theater, or hydroponic vegetable garden.

The real selling point of the 1,820-square-foot apartment: It will be buried 174 feet underground in a decommissioned missile silo sturdy enough to withstand a nuclear attack.

…The so-called Survival Condo complex boasts full and half-floor units that cost $1.5 million to $3 million each. The building can accommodate up to 75 people, and buyers include doctors, scientists and entrepreneurs, says developer Larry Hall.

The development is sold out.  I found this bit interesting:

…the complex has enough emergency food on hand to last for up to five years. There’s also a holding cell for unruly occupants.

The full story is here.

I just clicked on pre-order

by on November 11, 2014 at 11:58 am in Books, History, The Arts | Permalink

Michael Hofmann, Where Have You Been?: Selected Essays.  Hofmann is a poet, translator, and essayist and in my view he is one of the finest (and most underrated) thinkers and writers of our day.  The book is due out December 2.  Here are previous MR mentions of Michael Hofmann.

How love conquered (arranged) marriage

by on November 10, 2014 at 2:06 pm in Economics, History, Law | Permalink

Gabriela Rubio of UC Merced has a very interesting paper (pdf) on this topic:

Using a large number of sources, this paper documents the sharp and continuous decline of arranged marriages (AM) around the world during the past century, and describes the factors associated with this transition. To understand these patterns, I construct and empirically test a model of marital choices that assumes that AM serve as a form of informal insurance for parents and children, whereas other forms of marriage do not. In this model, children accepting the AM will have access to insurance but might give up higher family income by constraining their geographic and social mobility. Children in love marriages (LM) are not geographically/socially constrained, so they can look for the partner with higher labor market returns, and they can have access to better remunerated occupations. The model predicts that arranged marriages disappear when the net benefits of the insurance arrangement decrease relative to the (unconstrained) returns outside of the social network. Using consumption and income panel data from the Indonesia Family Life Survey (IFLS), I show that consumption of AM households does not vary with household income (while consumption of LM households does), consistent with the model’s assumption that AM provides insurance. I then empirically test the main predictions of the model. I use the introduction of the Green Revolution (GR) in Indonesia as a quasi-experiment. First, I show that the GR increased the returns to schooling and lowered the variance of agricultural income. Then, I use a difference-in-difference identification strategy to show that cohorts exposed to the GR experienced a faster decline in AM as predicted by the theoretical framework. Second, I show the existence of increasing divorce rates among couples with AM as their insurance gains vanish. Finally, using the exogenous variation of the GR, I find that couples having an AM and exposed to the program were more likely to divorce, consistent with the hypothesis of declining relative gains of AM.

MR referenced this paper in an addendum some while ago, Michael Clemens on Twitter recently reminded me of its existence.  One question of course is to what extent the arranged marriage is the only marriage form which provides these insurance benefits.  In other words, the arranged marriage might go away, but without the love marriage triumphing.  Perhaps one key change is that the parents are no longer the best producers of those financial insurance benefits, but that is distinct from the triumph of love.

That is the topic of my latest column for The Upshot at The New York Times, here is an excerpt:

Unfortunately, regions with rapidly growing populations, like Africa and South Asia, often have lower living standards. In our likely global future, these regions will have more people than they can comfortably support, while many countries in the West and in East Asia will have too few young people for prosperous economies.

As an economist, I see an obvious solution: Relatively underpopulated and highly developed countries could profitably take in young Africans and South Asians — and both sides would gain. Yet it’s far from clear that all nations that could benefit from this policy would entertain it, partly because of persistent racial and cultural bias. There is also the legitimate question of how quickly immigrants can adjust to new environments, especially if they are arriving with weak educational backgrounds as the job market demands ever-stronger skills.

…If you’re not convinced that a declining population is a problem, consider Japan. In terms of real gross domestic product per hour worked, Japan has continued to have good performance, but it has a fundamental problem: The working-age population has been declining since about 1997. And Japan’s overall population has been growing older, so with fewer workers supporting so many retirees, national savings will dwindle and resources will be diverted from urgent tasks like revitalizing companies and otherwise invigorating the economy. Japan has already gone from being a miracle exporter to a country that runs steady trade deficits. Perhaps there is simply no narrowly economic recipe to keep its economy growing; Edward Hugh made this argument in his recent ebook, “The A B E of Economics.”

I am extremely pessimistic that we will manage to achieve any more than a small amount of workable population transfers.  Furthermore potential underpopulation is one of the most serious and underrated problems today, as Robin Hanson argued a few years ago.

There is also this bit, the first sentence of which may remind you of Steve Sailer:

France, Israel and Singapore are three countries where population issues are being discussed quite frankly; all have explicit public policies to encourage more births. And more countries will probably go down this route. Encouraging people to have more children, and generally bidding for human talent, may characterize the economic policies of the future, just as cities and states today bid for football stadiums and factories.

By the way, recent reports indicate that the relaxation of China’s one-child policy have led to many fewer births than were expected.  And this new paper (pdf) indicate that immigrant inflows raise the birth rates of native women by making child care more affordable.

The excellent Akos Lada, a graduate student at Harvard, has a new paper on why countries sometimes invade their neighbors, it is called “The Dark Side of Attraction,” the abstract is here:

I argue that the diffusion of domestic political institutions is a source of wars. In the presence of an inspiring foreign regime, repressive elites fear that their citizens emulate the foreign example and revolt. As a result, a dictator starts a war against an attractive foreign regime, seeking to destroy this alternative model. Such wars are particularly likely when there are strong religious, ethnic or cultural ties between the dictator’s opposition and the inspiring country – connections that allow citizens to draw easy comparisons. My posited mechanism explains three case studies. The first describes the Russian invasion of Hungary in 1849. The second case study analyzes the origins of the First World War (1914-8), where Austria-Hungary invaded Serbia. The final case study discusses the Iran-Iraq War (1980-8). In all three cases, a dictator started a war in order to extinguish the foreign flame that fueled his domestic opposition.

Akos occasionally writes blog posts here.  Here is our previous coverage of Akos Lada — he stands a good chance of being one of the significant new “big picture” thinkers in economics.

Andrea Matranga has a job market paper (pdf) which is speculative but interesting:

During the Neolithic Revolution, seven populations independently invented agriculture. In this paper, I argue that this innovation was a response to a large increase in climactic seasonality. Hunter-gathers in the most affected regions became sedentary in order to store food and smooth their consumption. I present a model capturing the key incentives for adopting agriculture, and I test the resulting predictions against a global panel dataset of climate conditions and Neolithic adoption dates. I find that invention and adoption were both systematically more likely in places with higher seasonality. The findings of this paper imply that seasonality patterns 10,000 years ago were amongst the major determinants of the present day global distribution of crop productivities, ethnic groups, cultural traditions, and political institutions.

Here is his home page.

According to David Schneider and Adam Reich it does, their paper is called Marrying Ain’t Hard When You Got A Union Card? Labor Union Membership and First Marriage.   The abstract is this:

Over the past five decades, marriage has changed dramatically, as young people began marrying later or never getting married at all. Scholars have shown how this decline is less a result of changing cultural definitions of marriage, and more a result of men’s changing access to social and economic prerequisites for marriage. Specifically, men’s current economic standing and men’s future economic security have been shown to affect their marriageability. Traditionally, labor unions provided economic standing and security to male workers. Yet during the same period that marriage has declined among young people, membership in labor unions has declined precipitously, particularly for men. In this article, we examine the relationship between union membership and first marriage and discuss the possible mechanisms by which union membership might lead to first marriage. We draw on longitudinal data from the National Longitudinal Survey of Youth-79 to estimate discrete time event-history models of first marriage entry and find that, controlling for many factors, union membership is positively and significantly associated with marriage. We show then that this relationship is largely explained by the increased income, regularity and stability of employment, and fringe benefits that come with union membership.

That is via the excellent Kevin Lewis, who cites some other interesting papers at the link.

The world’s urban population is growing very rapidly, especially in the developing world. The McKinsey Global Institute estimates that in India alone such an expansion will require the building of, in essence, a new Chicago every year for the next several decades. The problem with these numbers is not the expense. The problem is political and organizational. Many currently less-developed countries, including India, remain high in corruption and low in efficiency, especially in the administration of their towns and cities. It would be wonderful if foresighted and public-spirited government planners would provide India and other developing nations with wise urban planning but it seems unwise to rely on what has historically been rare for this massive transformation. Is there an alternative?

In Lessons from Gurgaon, India’s private city (working paper) found in a new book Cities and Private Planning  Shruti Rajagopolan and I explore this question. Gurgaon, which I have written about before, shows both the successes and failures of private development. On the surface, Gurgaon is a gleaming, modern city built nearly overnight on wasteland. Gurgaon was built, however, without benefit of planning and its failures–most notably poor and inefficient provision of  water, sewage, and electricity–are a warning. The failures all stem from high transaction costs, Gurgaon’s private developers have simply not managed to Coasean bargain and internalize externalities. It’s clear from Gurgaon that cities need advance planning–a reservation of rights of way for water, sewage and electricity at the very minimum–but does the planning have to be provided by government which is often incapable of such foresight?

The lessons of Jamshedpur, India, suggest another approach. Jamshedpur is a private township, planned from the beginning by visionary businessman Jamshetji Nusserwanji Tata, who, after travelling to the United States to see Pittsburgh, returned to India to found Tata Iron and Steel. Jamshedpur has been run by a single, integrated entity for over 100 years and as it is integrated it has internalized externalities. As a result, Jamshedpur, India’s other private city, has some of the best urban infrastructure in all of India.

Gurgaon shows the benefits of competition. Jamshedpur the benefits of integration. Can we get the best of both worlds?

If the rights to develop Gurgaon had originally been sold in very large packages, some five to seven proprietary but competitive cities could have been created in that region. Within this system the role of the state is to make it possible to auction large parcels of land. Once such parcels and associated rights to develop the land are created, private developers will provision public goods and services up to the edge of their property.

As proprietary communities, the competitive cities would have every incentive to invest in and especially to plan for appropriate infrastructure. Moreover, with five to seven communities in the same region, competitive pressures would keep rents low and at efficient levels for maximizing net benefits (Buchanan and Goetz 1972, Sonstelie and Portney 1978). Within the larger city, subdivisions on the order of neighbourhoods and business districts could be sublet and run by competitive firms with the overarching city establishing rules to internalize externalities. Competitive private governments would also generate experimentation and innovation in new rules that would then spread through intercity learning (Romer 2010).

Thus, Rajagopolan and I conclude:

In the next five decades many entirely new cities with populations in the millions will be built in places where today there is little or no population or infrastructure. Most of the urban development will occur in the developing world where government resources are stretched thin and planning is in short supply. Gurgaon illustrates the scope and the limits of private sector provisioning when the state machinery fails to provide essential public goods. The lesson of Gurgaon, Walt Disney World, and Jamshedpur is that a system of proprietary, competitive cities can combine the initiative and drive of private development with the planning and foresight characteristic of the best urban planning. A proprietary city will build infrastructure to attract residents and revenues. A handful of proprietary cities built within a single region will create a competitive system of proprietary cities that build, compete, innovate, and experiment.

It is hard to know what to say — Gordon was a colleague of ours for many years and we all were very fond of him.  He was one of the most creative thinkers of his time.  His contributions include not just the seminal chapters of Calculus of Consent, but a wide range of ideas ranging from law and economics to monetary theory to the economics of insect societies.  Many of Gordon’s best ideas remain somewhat unmined, such as his analyses of jury trials, or his question why there is so little money in politics, relative to what is at stake.  Almost everything Gordon wrote was worth reading and he was also a wonderful critic of the work of others.  He knew a remarkable amount about history, including Chinese history, and was one of the quickest people I ever have met.  Just about everyone has his or her favorite Gordon Tullock story.  Gordon, by the way, took only one class in economics in his life, from Henry Simons, he was otherwise entirely self-taught.

A Rare (Earth) Case of Wisdom

by on November 4, 2014 at 7:22 am in Economics, History, Science | Permalink

Four years ago we were being warned that China’s monopoly on rare earths was a threat to the United States. Since rare earths are key resources for both national defense and green technology, the crisis united right and left in fear and anger.

Paul Krugman titled his column Rare and Foolish and he was hardly alone when he wrote:

You really have to wonder why nobody raised an alarm while this was happening, if only on national security grounds. But policy makers simply stood by as the U.S. rare earth industry shut down….The result was a monopoly position exceeding the wildest dreams of Middle Eastern oil-fueled tyrants.

…, the affair highlights the fecklessness of U.S. policy makers, who did nothing while an unreliable regime acquired a stranglehold on key materials.

Yet you probably haven’t heard much about this crisis recently. Why not? Ans: The crisis was exaggerated and what wasn’t exaggerated the market alleviated. Eugene Gholz of CFR has a balanced examination of what happened. I summarize:

  • The Chinese government might or might not have wanted to take advantage of their temporary monopoly power (it’s still unclear what the fishing incident was all about) but Chinese producers did a lot to evade export bans both legally and illegally.
  • Firms that had been using rare earths when they were cheap decided they didn’t really need them when they were expensive.
  • New suppliers came on line as prices rose.
  • Innovations created substitutes and ways to get more from using less.

Even the government did some good by funding competitions to support basic and applied research in substitute products and processes. Gholz draws a simple lesson:

…policymakers should not succumb to pressure to act too quickly or too expansively in the face of raw materials threats.

I agree but would add that at the time it was almost surreal how quickly nominal free traders and internationalists merged into war hawks. We did surprisingly well to not overreact politically and instead let market forces solve the problem. A disruption in our trade partnership with China would have been far more dangerous to our national security than a dispute over rare earths. I’d say that’s a rare earth case of wisdom.

Addendum: Bonus points to Tim Worstall, economist blogger and rare earth dealer, who in 2010 at the height of the crisis pointed out that rare earths were neither rare nor earths and China’s monopoly had been won only by low prices that accrued to our benefit. “If Beijing wants to raise its prices and start using supplies as geopolitical bargaining chips,” he wrote, “so what? The rest of the world will simply roll up its sleeves and ramp up production, and the monopoly will be broken.” Nailed it.

Religion in China.  That was the topic of a recent excellent Economist article.  Here is one good excerpt:

It is hard even to guess at the number of Christians in China. Official surveys seek to play down the figures, ignoring the large number who worship in house churches. By contrast, overseas Christian groups often inflate them. There were perhaps 3m Catholics and 1m Protestants when the party came to power in 1949. Officials now say there are between 23m and 40m, all told. In 2010 the Pew Research Centre, an American polling organisation, estimated there were 58m Protestants and 9m Catholics. Many experts, foreign and Chinese, now accept that there are probably more Christians than there are members of the 87m-strong Communist Party. Most are evangelical Protestants.

Predicting Christianity’s growth is even harder. Yang Fenggang of Purdue University, in Indiana, says the Christian church in China has grown by an average of 10% a year since 1980. He reckons that on current trends there will be 250m Christians by around 2030, making China’s Christian population the largest in the world. Mr Yang says this speed of growth is similar to that seen in fourth-century Rome just before the conversion of Constantine, which paved the way for Christianity to become the religion of his empire.

In the 1980s the faith grew most quickly in the countryside, stimulated by the collapse of local health care and a belief that Christianity could heal instead. In recent years it has been burgeoning in cities.

Read the whole thing.  You will note that when individuals engage in a “portfolio” approach to religion, social evolution can occur much more rapidly.  Not everyone has to fully convert to Christianity, or to embrace Confucianism wholeheartedly, for those approaches to suddenly acquire much more influence.

There is a new paper (pdf) by Nicola Gennaioli and Hans-Joachim Voth, forthcoming in The Review of Economic Studies:

Powerful, centralized states controlling a large share of national income only begin to appear in Europe after 1500. We build a model that explains their emergence in response to the increasing importance of money for military success. When fiscal resources are not crucial for winning wars, the threat of external conflict stifles state building. As finance becomes critical, internally cohesive states invest in state capacity while divided states rationally drop out of the competition, causing divergence. We emphasize the role of the “Military Revolution”, a sequence of technological innovations that transformed armed conflict. Using data from 374 battles, we investigate empirically both the importance of money for military success and patterns of state building in early modern Europe. The evidence is consistent with the predictions of our model.

The pointer is from Mark Koyama.

That is the new Foreign Affairs piece by Andrei Shleifer and Daniel Treisman, and they argue that matters have gone strikingly well and are relatively normal.  Here is one excerpt:

Newspapers overflowed with accounts of soaring mortality amid the stress of transition. On average, however, life expectancy rose from 69 years in 1990 to 73 years in 2012. The speed of improvement was two thirds faster than in the communist 1980s. Russia’s life expectancy today, at 70.5, is higher than it has ever been. Infant mortality, already low, fell faster in percentage terms than in any other world region.

Eastern Europe is infamous for unhealthy binge drinking. However, average alcohol consumption fell between 1990 and 2010 from 7.9 to 7.6 liters of pure alcohol a year per resident aged over 14. There were exceptions — drinking rose in Russia and the Baltic states but even in Russia recorded consumption in 2010, 11.1 liters, was lower than that in Germany, France, Ireland, or Austria. (Of course, more drinking might escape the statisticians in the Slavic region.) Smoking among adult males was high – 42 percent on average but about the same as in Asia. In short almost all statistics suggest a dramatic improvement in the quality of life.

In short, almost all statistics suggest a dramatic improvement in the quality of life since 1989 for citizens of the average postcommunist country — an improvement that rivals and often exceeds those in other parts of the world.

You will note that the published version in Foreign Affairs has slightly different wording and organization.

Good sentences

by on October 29, 2014 at 3:25 pm in Economics, History, Science | Permalink

To develop an intuition for our main result, note that the equilibrium private saving behavior must be resistant to rare mutants.

That is from the new Robson and Szentes AER paper, “Biology and Social Discounting,” which argues that the nature of sexual reproduction causes private discount rates to rise above social ones.

The theme of a study by Melanie Manion is that China’s approach to fighting corruption hearkens back to Maoist campaigns of the 1950s, with the same undesirable effects: campaigns are too frequent, do not last long enough to enlist public confidence, and undermine the growth of long-term institutions of surveillance and enforcement…

That is from Alan Heston and Terry Sicular in this very useful 2008 book.  The Melanie Manion book is here.