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The economics of ancient Tibetan monasteries

by on January 26, 2015 at 1:42 am in Books, Economics, History, Law, Religion | Permalink

Each monastery had its own estates, and all the people farming on these estates paid taxes in money and goods.  One of the main tasks of the stewards was to increase this income; for instance, by lending grain back to the peasants at high interest rates, or selling goods at market.  Before the destruction of the monasteries in the 1960s, they owned as much as half of Tibet’s farmland.

The description however is referring to the 15th century.  Another interesting part of the book concerns how, during Tibet’s “Golden Age,” the Tibetans tried to impose their language and culture on the neighboring regions of China, and with some success.

That is all from Sam Van Schaik, Tibet: A History.

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Does economic freedom lead to greater tolerance?

by on January 25, 2015 at 2:10 am in Data Source, Economics, Education, Law, Philosophy, Political Science | Permalink

Mostly, yes, although with some caveats (the headline of the piece doesn’t exactly capture this).  That is the topic of my latest column for The Upshot.  Here is one excerpt:

Niclas Berggren…and Therese Nilsson…have produced a fascinating series of papers on these questions, sometimes writing singly, sometimes together or with the collaboration of a variety of co-authors. Their most notable study is perhaps a paper they wrote together, “Does Economic Freedom Foster Tolerance?”

…One of their most striking findings is that societies characterized by greater economic freedom and greater wealth do indeed exhibit greater tolerance toward gay people, a tendency suggesting that gay rights, including gay marriage, will spread globally as national economies liberalize and develop.

Some metrics of economic freedom count more than others:

This greater tolerance is strongly associated only with certain features of what has often been defined as economic freedom. For example, a smaller government, measured as a share of gross domestic product, is often included in so-called economic freedom indexes as an objective measure of freedom. But the data show that smaller government has a slight negative correlation with tolerance of gay people by heterosexuals. One implication is that many conservatives may be overly preoccupied with the size of government as a measure of how free societies actually are.

On the other hand, the data shows that when a society has impressive scores on property rights security and low inflation — two other components of economic freedom indexes — these characteristics are strongly and positively correlated with tolerance of gays. It’s possible that low inflation, and the behavior of a central bank, are stand-ins for the general trustworthiness of a nation’s government and broader institutions, and such trustworthiness helps foster tolerance.

The results for race are not nearly as strong, namely both freedom and prosperity are less clearly associated with higher levels of racial tolerance, although the correlation is still a positive one.

And there is this:

We are often told that education is an important remedy, yet it does not register as a meaningful factor in the cross-country data in this paper. Higher levels of education simply have not correlated significantly with higher levels of tolerance across countries.

Do read the whole thing.

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Is Greece already seeing some fiscal collapse?

by on January 25, 2015 at 1:26 am in Current Affairs, Law, Political Science | Permalink

Kerin Hope from the FT reports:

A reluctance to pay taxes was much criticised by Greece’s creditors as one reason why the country needed a big international bailout. Now many Greeks are again avoiding the taxman as they bet the radical left Syriza party will quickly loosen fiscal policy if it comes to power in Sunday’s general election.

A finance ministry official confirmed on Friday that state revenues had collapsed this month. “It’s normal for the tax take to decline during an election campaign but this time it’s more noticeable,” the official said, avoiding any specific figures on the projected shortfall.

However, two private sector economists forecast the shortfall could exceed €1.5bn, or more than 40 per cent of projected revenues for January.

File under “In case you had not been paying attention…”  And here is Antonio Fatás with a Grexit scenario.  That is still not what most people expect, however.

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Is the “split benefit” a feasible way to reduce health care costs?

by on January 21, 2015 at 10:23 am in Economics, Law, Medicine | Permalink

The excellent Kevin Lewis has pointed my attention to this paper by Robertson, Yokum, Sheth, and Joiner:.  The idea will sound like common sense to an economist, namely give people some cash if they turn down special treatments of uncertain value.  The funnier thing is, there is now some evidence it might actually work:

Traditional cost sharing for health care is stymied by limited patient wealth. The “split benefit” is a new way to reduce consumption of high-cost, low-value treatments for which the risk/benefit ratio is uncertain. When a physician prescribes a costly unproven procedure, the insurer could pay a portion of the benefit directly to the patient, creating a decision opportunity for the patient. The insurer saves the remainder, unless the patient consumes. In this paper, a vignette-based randomized controlled experiment with 1,800 respondents sought to test the potential efficacy of the split benefit. The intervention reduced the odds of consumption by about half. It did so regardless of scenario (cancer or cardiac stent), type of split (rebate, prepay, or health savings account), or amount of split (US$5,000 or US$15,000). Respondents viewed the insurer that paid a split as behaving fairly, as it preserved access and choice. Three-quarters of respondents supported such use in Medicare, which did not depend on political party affiliation. The reform is promising for further testing since it has the potential to decrease spending on low-value interventions, and thereby increase the value of the health care dollar.

My concern of course is that on a larger scale eventually this would be gamed, and faux treatment offers will be generated for the purpose of transferring wealth to patients, with doctors and hospitals, one way or the other, in on the act.

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The commodification and litigation of niños

by on January 20, 2015 at 2:43 pm in Economics, Education, Food and Drink, Games, Law | Permalink

Here is the latest:

It was not what Derek Nash expected to find in his 5-year-old’s school bag: A bill demanding a “no-show fee” for another child’s birthday party.

Nash said the bill from another parent sought 15.95 pounds ($24.00) because his son Alex had not attended the party at a ski center in Plymouth, southwest England.

Nash told the BBC on Monday he had initially accepted the party invitation, but later realized Alex was supposed to visit his grandparents that day. He said he did not have contact details to let the other family know.

The birthday boy’s mother, Julie Lawrence, told the BBC that her contact details were on the party invitation.

Nash says Lawrence has threatened him with small claims court but he has no plans so far to pay.

The link is here.  And here is yet another account.  I thank Drew for the pointer.

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Claims about farm animals

by on January 20, 2015 at 2:58 am in Economics, Food and Drink, Law, Philosophy | Permalink

From a 2007 piece by Matheny and Leahy:

Campaigns directed toward pigs and cattle, however, could have a negative welfare effect by shifting consumption to poultry and fish products, which provide significantly less food per animal life-year. In fact, removing only poultry, eggs, and farmed fish from the diets of one hundred people would affect more animals than turning ninety-nine people vegan. If it is easier for consumers to shift consumption among animal products than to eschew all animal products, then this arithmetic has implications for both welfarist and abolitionist strategies.

That is from Natalie Cargill.  And the article is informative throughout.  You will note however that when it comes to environmental impact, red meat from the larger animals is typically the much larger problem.  So which do you care about more, animal welfare or the environment?  Or are you only willing to talk about margins where both improve?  By the way:

In the United States, there are only 220 veterinarians responsible for the care of more than nine billion farm animals.

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Has U.S. procurement gone wrong?

by on January 18, 2015 at 1:03 am in Economics, Law, Political Science, Uncategorized | Permalink

In Foreign Affairs, James Bessen writes:

U.S. procurement programs worked so well in part because the Pentagon gave its business to a diverse group of private firms, including start-ups and university spinoffs such as Bolt, Beranek and Newman (now BBN Technologies), one of the companies that helped develop the Internet. It also required contractors to share their technologies with universities and other private firms, encouraging further innovation outside the government. By contrast, France and the United Kingdom often used government contracts to promote national telephone and computer companies, and the United Kingdom and the Soviet Union limited the interaction between government researchers and their civilian counterparts, cutting off the private sector from high-tech advancements. The Pentagon also encouraged contractors to adopt open technical standards—such as the set of protocols, established in 1982, that specified how data should be packaged and transmitted on the Internet—which allowed knowledge to spread quickly and easily.

In the past few decades, however, procurement has strayed from this successful formula. Instead of awarding contracts to start-ups and spinoffs, the Pentagon has favored traditional defense contractors. The Defense Department tasks these contractors with meeting the military’s narrow needs and too often prohibits them from sharing their work with universities or other companies. An example from the past reveals how problematic such policies can be. In 1977, when the Pentagon sought to create high-speed semiconductor chips, Congress prohibited the contractors hired from sharing their research. University researchers were effectively excluded from the program, and chipmakers were forced to separate their defense work from their commercial operations. Unlike the government procurement programs in the 1950s and 1960s, which spawned many start-ups, this billion-dollar program did little to commercialize new technology.

The article offers other points of interest, mostly about how special interests have undermined entrepreneurship.  I have recently pre-ordered Bessen’s forthcoming book on this theme.

For the pointer I thank Spencer England.

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Do central banks need capital?

by on January 18, 2015 at 12:50 am in Current Affairs, Economics, Law, Political Science | Permalink

Here is the abstract of a 1997 Peter Stella paper:

Central banks may operate perfectly well without capital as conventionally defined. A large negative net worth, however, is likely to compromise central bank independence and interfere with its ability to attain policy objectives. If society values an independent central bank capable of effectively implementing monetary policy, recapitalization may become essential. Proper accounting practice in determining central bank profit or loss and rules governing the transfer of the central bank`s operating result to the treasury are also important. A variety of country-specific central bank practices are reviewed to support the argument.

More concretely, I am not persuaded by the view that a kind of sheer internal commitment to good outcomes, however sincere, can sustain a peg or nominal target.  The outside world always impinges on the logic of commitment, and thus capital is required.  This is also why I do not agree with Scott Sumner’s claim that a truly credible Swiss target, eliminating the need to expand the SNB balance sheet to make it stick, is possible circa January 2015 or for that matter anytime soon.

I do not, however, see time inconsistency as the central problem.  More likely the government either just doesn’t want to take the specified action (e.g., Germany with higher inflation), or part of the government would like to do something but it doesn’t have enough political capital (Draghi at the ECB).  Time consistency models have some neat analytic properties but often they distract our attention from these more fundamental constraints.

The pointer is from Alen Mattich, a financial journalist who by the way has just published another detective novel, Heart of Hell.

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Henry Manne has passed away at age 86

by on January 17, 2015 at 5:19 pm in Current Affairs, Economics, Education, Law | Permalink

He was one of the original builders of the GMU Law School, and an important founding scholar of law and economics, very sad news of course.

Addendum: David Henderson comments.

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What will European QE look like? And will it work?

by on January 17, 2015 at 12:52 am in Current Affairs, Economics, Law, Medicine | Permalink

Claire Jones at the FT reports:

The European Central Bank is set to unveil a programme of mass bond buying next week to save the eurozone from deflation, but has bowed to German pressure to ensure that its taxpayers are not liable for any losses incurred on other countries’ debt.

This is not a surprise.  Alen Mattich had a good Twitter comment:

How could you trust ECB promise to “do whatever it takes” if it doesn’t accept the risk of holding national sov debt on its books?

Guntram B. Wolff has an excellent, detailed analysis, worth reading in full, here is one bit:

So the purely national purchase of national sovereign debt would either leave the private creditors as junior creditors, or the national central bank has to accept negative equity. What would negative equity mean for a central bank? De facto it would mean that the national central bank, that has created euros to buy government debt, would have lost the claim on the government. It would still owe the euros it has created to the rest of the Eurosystem.(4) The Eurosystem could now either ask the national central bank to return that liability, which it is unable to do without a recapitalisation of its government. Or, the Eurosystem could decide to leave the claim standing relative to the national central bank. In that case, the loss made on the sovereign debt would de facto have been transferred to the Eurosystem. In other words, the attempt to leave default risk with the national central bank will have failed.

…Overall, this discussion shows that monetary policy in the monetary union reaches the limits of feasibility if the principle of joint and several liability at the level of the Eurosystem is given up.

An important open issue is whether the ECB could buy Greek bonds, given that they are up for restructuring and (presumably) the Bank cannot voluntarily relieve Greece of any debt (see Wolff’s discussion).  There are plenty of rumors that Greece will indeed be excluded from any QE program, unless you imagine they settle things with the Troika rather more quickly than they are likely to.  Yet a bond-buying program without Hellenic participation doesn’t seem so far from hurling an “eurozone heraus!” painted brick through their front window in the middle of the night.

Overall, shuffling assets and risk profiles between national monetary authorities and national fiscal authorities would seem to accomplish…nothing.  Not buying up the debt of your biggest problem country also seems to accomplish nothing, in fact it is worth than doing nothing.

Here is my 2012 column on how the eurozone needs to agree on who is picking up the check.  They still haven’t agreed!  In the meantime, Grexit is a very real possibility, through deposit flight, no matter how badly Greek citizens may wish their country to stay in.

So, so far I am not so optimistic about this whole eurozone QE business, even though in principle I very much favor the idea.  It is again a case of politics getting in the way of a problem which does indeed have a (partial) economic solution.  The only way it (partially) works is if it (implicitly) bundles debt relief with higher rates of price inflation.  Have a nice day.

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Why the Republicans are finding it hard to reform Obamacare

by on January 16, 2015 at 1:18 pm in Books, Law, Medicine, Uncategorized | Permalink

Ezra Klein has an excellent essay on this topic, reviewing the (very good) Philip Klein book.  Here is one bit:

Klein’s book is a service: it’s far and away the clearest, most detailed look at conservative health-policy thinking in the post-Obamacare world. But it can leave a reader with the impression that the important cleavages in conservative health-policy thinking are between the Replacers, the Reformists, and the Restarters.

It’s not. It’s between those in the party who want to prioritize health reform and those who don’t. And it’s worth being clear: those who don’t have a case. Health reform is an incredibly tough, painful project. Everything you do has tradeoffs, some of them awful.

And to sum up, the Democrats really cared about health care reform (for better or worse), but:

…that’s really the problem for conservative health reformers. For all the plans floating around, there’s little evidence Republicans care enough about health reform to pay its cost.

I am less positive on Obamacare than is Ezra, but still the piece is interesting throughout and a good challenge to would-be reformers.

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Why did the Swiss break the peg of the franc?

by on January 16, 2015 at 8:21 am in Current Affairs, Economics, Law, Political Science | Permalink

Paul Krugman writes:

Two things to bear in mind. First, having in effect thrown away its credibility – in today’s world, the crucial credibility central banks need involves, not willingness to take away the punch bowl, but willingness to keep pushing liquor on an abstemious crowd – it’s hard to see how the SNB can get it back. Second, there will be spillovers: the SNB’s wimp-out will make life harder for monetary policy in other countries, because it will leave markets skeptical about whether other supposed commitments to keep up unconventional policy will similarly prove time-limited.

Brad DeLong and Scott Sumner agree the Swiss move was a bad idea.  We’re all in accord on the economics (more or less), but I am more interested in a different question.  The Swiss central bank, had it continued the peg, probably would have had a balance sheet larger than Swiss gdp.  But does this matter?  Should anyone care?  Or does that make them “too big a guy on the block”?

I see two views of the world running around in these discussions, but not always articulated as such:

1. Bureaucrats, which includes central bankers, are not so much budget maximizers as hoarders of institutional capital.  They hoard institutional capital when they should be spending it down, in the interests of the broader polity.  So this is a public choice problem, rather than a matter of macroeconomic ignorance.  When it comes to macroeconomics, we need institutional reforms which induce them or maybe even require them to spend down this capital, come what may for their personal levels of political influence.

2. Bureaucrats hoard and indeed extend institutional capital because they know how important it is to maintain the quality of significant institutions, such as central banks.  Without such capital , semi-independent central banks would soon cease to exist, to the detriment of us all.  Outside academics, however, rarely can see the importance of this factor, because they have less experience running political institutions.  When smart central bankers — which yes includes the Swiss — are apparently doing the wrong thing, it is because they are seeing more variables of the problem than we are.  They either cannot do “the right thing,” or doing that would be too costly in terms of the country’s longer-term institutional prospects.

By the way, there is also #3, which I do not find credible:

3. The Swiss central bankers suddenly became stupid and forgot their macroeconomics.

I agree there is plenty of #1 out there, maybe for Switzerland too.  But I’d like to see more debate of #1 vs. #2, because I don’t think the Swiss central bankers — praised extravagantly by many of us not too long ago — simply would tank their economy for no good reason at all.

Addendum: Here is Dean Baker’s dissent, although I think the stock market does not agree.  And Scott Sumner comments, he seems to opt for #3.  Here are useful comments from the FT.

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Most water problems can be solved by better property rights and higher prices

by on January 16, 2015 at 3:42 am in Books, Economics, Law | Permalink

In his 2011 book Brahma Chellany reports:

…Singapore has pursued demand management through greater water productivity and efficiency.  By plugging system leaks and inefficiencies and raising the price of domestic water, with the tariff and tax rising steeply after the first 40 m3 a month, it managed to reduce household water use by about 10 percent since the mid-1990s to about 155 liters per person per day in 2011.  That consumption level is nearly four times lower than that of an average American.

That is from Water: Asia’s New Battleground, which is actually one of the most interesting political economy books published in the last few years.

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Bad optics, bad PR, the culture that is Germany

by on January 14, 2015 at 3:30 pm in Current Affairs, Economics, History, Law, Political Science | Permalink

…a public outcry has arisen over a town council plan to house refugees in a building that once served as a Nazi command post at the Buchenwald concentration camp.

Schwerte, a community of 50,000 south of Dortmund, has decided to move 21 refugees into the camp’s only remaining building on the outskirts of the town.

The move comes, town officials say, because all the refugee housing in the town’s jurisdiction is already filled with 200 asylum seekers, and the town doesn’t have the money to purchase temporary structures. According to the town council’s spokeswoman, “The solution is a practical one.”

The full story is here, via the excellent Mark Thorson.

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*Japan and the Shackles of the Past*

by on January 14, 2015 at 2:42 am in Books, Economics, History, Law, Political Science, Uncategorized | Permalink

What a strange pattern to find in a book.  The first 264 pp. are good enough but not exceptional and at times boring through being overly familiar.  The last two chapters I found to be a brilliant treatment of recent Japanese politics through the lens of public choice models, probably the best since Karel von Wolferen’s The Enigma of Japanese Power.

Have you wondered what distinguishes the regime of one Japanese prime minister from another?  Which are the different interest groups for and against the consumption tax hike and why?  What accounts for the initial failure and then later resurgence of Abe?  What role does Okinawa play in broader Japanese politics?  Which kinds of regular struggles are played out between the elected officials and the bureaucrats?  What does a sentence like this mean?: “The people around Abe wanted, finally, to stamp out forever the ghost of Tanaka Kakuei.”

How many other books rise to “superb” status but only through their last two chapters?

Here is a review of the book from The Economist, positive but not along the lines I offer above.  Here is a Literary Saloon review.  Here is an FT review by the excellent David Piling.

You can order the book here.  It came out in December 2014 but will make my best books of 2015 list for sure.  For the initial pointer to this book I wish to thank Jim Olds.

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