Too little, too late on the excess burdens of taxation: Cecil Bohanon, John Horowitz, and James McClure show that public finance textbooks do a very poor job of illuminating the excess burdens of taxation and incorporating such burdens into the analysis of the costs of government spending.
Does occupational licensing deserve our seal of approval? Uwe Reinhardt reviews Morris Kleiner’s work on occupational regulation.
Clashing Northmen: In a previous issue, Arild Sæther and Ib Eriksen interpreted the postwar economic performance of Norway and the role of economists there. Here Olav Bjerkholt strongly objects to their interpretation, and Sæther and Eriksen reply.
Pull over for inspection: Dragan Ilić explores replicability and interpretation problems of a recent American Economic Review article by Shamena Anwar and Hanming Fang on racial prejudice and motor vehicle searches.
Capitalism and the Rule of Love: We reproduce a profound and rich—yet utterly neglected—essay by Clarence Philbrook, first published in 1953.
The link to the issue is here.
Dylan Matthews summarizes the The Case for Open Borders drawing on an excellent interview with Bryan Caplan. Here is one bit from the interview:
Letting someone get a job is not a kind of charity. It’s not a welfare program. It’s just the government leaving people alone to go and make something out of their lives. When most people are on earth are dealt such a bad hand, to try to stop them from bettering their condition seems a very cruel thing to do to someone.
My elevator pitch has no economics in it, because the economics is actually too subtle to really explain in an elevator pitch. If I had a little bit more time, I would say, “What do you think the effects for men have been of more women in the workforce?”
Are there some men who are worse off? Sure. But would we really be a richer society if we kept half the population stuck at home? Isn’t it better to take people who have useful skills and let them do something with it, than to just keep them locked up someplace where their skills go to waste?
Isn’t that not just better for them, but better for people in general, if we allow people to use their skills to contribute to the world instead of keeping them shut up someplace where they just twiddle their thumbs or do subsistence agriculture or whatever?
On the economics, David Roodman has a characteristically careful and comprehensive review written for Givewell of the evidence on the effect of immigration on native wages. He writes, “the available evidence paints a fairly consistent and plausible picture”:
- There is almost no evidence of anything close to one-to-one crowding out by new immigrant arrivals to the job market in industrial countries. Most studies find that 10% growth in the immigrant “stock” changes natives’ earnings by between –2% and +2% (@Longhi, Nijkamp, and Poot 2005@, Fig 1; @Peri 2014@, Pg 1). Although serious questions can be raised about the reliability of most studies, the scarcity of evidence for great pessimism stands as a fact (emphasis added, AT)….
- One factor dampening the economic side effects of immigration is that immigrants are consumers as well as producers. They increase domestic demand for goods and services, perhaps even more quickly than they increase domestic production (@Hercowitz and Yashiv 2002@), since they must consume as soon as they arrive. They expand the economic pie even as they compete for a slice. This is not to suggest that the market mechanism is perfect—adjustment to new arrivals is not instantaneous and may be incomplete—but the mechanism does operate.
- A second dampener is that in industrial economies, the capital supply tends to expand along with the workforce. More workers leads to more offices and more factories. Were receiving economies not flexible in this way, they would not be rich. This mechanism too may not be complete or immediate, but it is substantial in the long run: since the industrial revolution, population has doubled many times in the US and other now-wealthy nations, and the capital stock has kept pace, so that today there is more capital per worker than 200 years ago.
- A third dampener is that while workers who are similar compete, ones who are different complement. An expansion in the diligent manual labor available to the home renovation business can spur that industry to grow, which will increase its demand for other kinds of workers, from skilled general contractors who can manage complex projects for English-speaking clients to scientists who develop new materials for home building. Symmetrically, an influx of high-skill workers can increase demand for low-skill ones. More computer programmers means more tech businesses, which means more need for janitors and security guards. Again, the effect is certain, though its speed and size are not.
- …one way to cushion the impact of low-skill migration on low-skill workers already present is to increase skilled immigration in tandem.
Plaudits are due to Givewell. While others are focused on giving cows, Givewell is going after the really big gains.
I had not known of these:
The Indo-Bangladesh enclaves, also known as the chitmahals (Bengali: ছিটমহল chitmôhol), sometimes called pasha enclaves, are the enclaves along the Bangladesh–India border, in Bangladesh and the Indian state of West Bengal.
There are 106 Indian enclaves and 92 Bangladeshi enclaves. Inside the main part of Bangladesh, 102 of these are first-order Indian enclaves, while inside the main part of India, 71 of these are Bangladeshi first-order enclaves. Further inside these enclaves are an additional 24 second order- or counter-enclaves (21 Bangladeshi, 3 Indian) and one Indian counter-counter-enclave, called Dahala Khagrabari #51. They have an estimated combined population between 50,000 and 100,000.
In September 2011, the Prime Ministers of the two countries (Manmohan Singh of India and Sheikh Hasina of Bangladesh) signed an accord on border demarcation and exchange of adversely held enclaves; however, the Indian parliament has yet to ratify it. Under this intended agreement, the enclave residents could continue to reside at their present location or move to the country of their choice.
Here is the Wikipedia entry. It now seems the ruling BJP party seems to want to take that 2011 agreement back.
Alastair Bonnett, in his new and excellent Unruly Places: Lost Spaces, Secret Cities, and other Inscrutable Geographies, notes that these enclaves are usually not supplied with public goods. Furthermore:
In order to leave these tiny enclaves, the inhabitants have to obtain a visa to travel through the foreign territory that surrounds them. But in order to obtain a visa they have to leave their enclave, since visas can only be obtained in cities many miles away.
The Indian Enclave Refugees’ Association has been formed to lobby for the right to “return” to India.
Many of them are denied the right to settle in what is ostensibly their home country, namely India.
The author is Joe Zhang and the subtitle is Is China’s State Capitalism Doomed? Here is the summary of his conclusions:
1. The state sector remains the dominant part of the Chinese economy.
2. In the past decade, China has erased most (if not all) of the liberalization of the previous two decades. As a result, the state sector has become more dominant than it was a decade ago.
3. The state sector enjoys widespread public support in China, contrary to perceptions in the West. there are political, social and cultural reasons for this “strange” situation.
4. The state sector and SOEs are constantly adapting to the public demand for transparency and efficiency. As a whole, they do not necessarily underperform the private sector. Indeed, due to systematic discrimination against the private sector, there is evidence to the contrary: the state sector has had a better financial track record in the past three decades. Indeed, it is not fair to make comparisons given the unleveled playing field.
5. The many challenges China faces today need a robust and well-funded state sector. At least that is, in my judgment, what the Chinese government and most members of the public think. These challenges include social inequality, overpopulation, environmental damage, and the depletion of global resources.
I do not agree with every claim in this book, especially the normative ones, but this is one of the better places to go for a look at how the Chinese economy actually works. Or doesn’t, as the case may be.
Regulations often increase monopoly power. Indeed, increasing monopoly power is often why regulations are enacted. In other cases, however, ostensibly neutral regulations are co-opted by entrepreneurs who spot an opportunity to leverage the regulation for profit. Derek Lowe points us to an interesting case of the latter involving drug pricing and the FDA.
Retrophin recently purchased the marketing rights to the drug Thiola and they are increasing the price from $1.50 per pill to over $30 per pill. Surprisingly, Thiola is off-patent. Ordinarily, we would expect such a large price increase to be met with entry and price pushed to marginal cost. To enter into the market, however, a generic producer must prove bio-equivalence which requires that the generic producer obtain a small quantity of the branded drug. Branded drug firms don’t like competition from generics and they try to impede the process but it’s typically not a big deal for a generic producer to obtain some of the branded drug for their bio-equivalence trials.
In 2007, however, the FDA was officially authorized to approve drugs conditional on the firm implementing a Risk Evaluation and Mitigation Strategy (REMS). The FDA approved thalidomide, for example, only if physicians signed a patient-physician agreement and enrolled each of their patient’s directly with the producer. Indeed, a unique prescription authorization number was required for each prescription which could be filled only at specially authorized pharmacies. The idea, of course, was to prevent anyone from taking thalidomide during pregnancy. The purpose of the regulation was probably not to create monopoly power but it didn’t take firms long to realize that REMS regulations could be co-opted. Simply put, a REMS agreement can make it illegal for generic firms to obtain a sample of the branded drug through ordinary channels. In the thalidomide agreement, for example, it’s even the case that all unused thalidomide must be returned to the producer! Retrophin is hoping to use a similar REMS strategy to keep generic competitors out of the market for Thiola.
Addendum: Derek’s post aroused the ire of the CEO of Retrophin and may have gotten him banned from reddit.
There is a new research paper by David E. Broockman and Daniel M. Butler (pdf), the abstract is this:
Politicians have been depicted as, alternatively, strongly constrained by public opinion, able to shape public opinion if they persuasively appeal to citizens’ values, or relatively unconstrained by public opinion and able to shape it merely by announcing their positions. We conduct unique field experiments in cooperation with legislators to explore how constituents react when legislators take positions they oppose. For the experiments, state legislators sent their constituents official communications with randomly assigned content. In some letters, the representatives took positions on salient issues these constituents opposed, sometimes supported by extensive arguments but sometimes minimally justified. Results from an ostensibly unrelated telephone survey show that citizens often adopted their representatives’ issue positions even when representatives offered little justification. Moreover, citizens did not evaluate their representatives more negatively when representatives took positions citizens opposed. These findings suggest politicians can enjoy broad latitude to shape public opinion.
I suppose Alex Salmond is one current leader who understands this, Putin is another.
For the pointer I thank the excellent Samir Varma, who also cites coverage from Wonkblog.
From The Wall Street Journal:
Over the past decade, China rushed to buy up global commodities as its economy boomed—both to feed its factories and to ensure it wasn’t reliant on Western powers for raw materials. China’s overseas investments in resources soared to $53.3 billion last year, from $8.2 billion in 2005…
China came late to the global resources boom and often overpaid for assets Western companies had passed over or wanted to sell. China typically paid one-fifth more for oil-and-gas assets than the industry average, estimates Scott Darling, Asian regional head of oil-and-gas research at J.P. Morgan Chase & Co.
…Last year, the head of China’s mining association estimated that 80% of all overseas mining deals had failed, though he didn’t elaborate, according to state media.
The full story, by Wayne Arnold, is very interesting and quite thorough, use news.google.com if you have to.
Fake casts for pretending you have an injured arm to evade having to help prepare holiday meals have become brisk sellers in South Korea ahead of the Chuseok festival.
“We have been selling this for 10 years now, but sales increased drastically starting last week,” said a sales manager at an online vendor who declined to be identified.
Both men and women were buying the bogus casts, he said.
During Chuseok, a three-day thanksgiving holiday, women traditionally do most of the work in preparing and cooking elaborate ceremonial dishes while the men of the family chat, drink and watch television.
The holiday gender divide is so entrenched that it has spawned the term “daughter-in-law holiday syndrome”, with many young women suffering post-holiday stress and fatigue.
But getting away with the phoney cast ruse may be difficult this year after several media outlets reported on brisk sales of the devices in the run-up to the holiday starting on Sunday.
Data from the Ministry of Gender, Equality, and Family in 2010 showed only 4.9 percent of people surveyed said both genders shared holiday chores, while the rest said women do most of the work.
There is more here, and for the pointer I thank David Lee.
From a longer post:
A closer look reveals that different stocks responded differently to the poll news. Two transportation companies, FirstGroup and Stagecoach Group, lost virtually nothing, and Aggreko, which rents temperature control systems, lost absolutely nothing. Financial and energy/power companies were pounded. An engineering company closely linked to the oil industry, the Weir Group, took a more modest 1.0% loss.
How to sum up?
So far capital markets seem to be telling us that the economic costs of independence to Scotland would be significant but not catastrophic, and that they would be virtually nil to the rest of Britain. How much of those costs are due to the policies Scotland would implement after independence, rather than secession as such? It is difficult to know, but the differential returns to particular firms give us a clue. Transportation companies have closer links to the state, so a more statist policy regime might not hurt them. Financial companies might lose because of the lender of last resort issue (Scotland might not have a credible one). Energy and engineering companies might lose because nationalists want to tax oil heavily to fund social programs. Also, stricter environmental laws may hurt the electric utility SSE, which lost heavily on Monday.
Speculatively, then, capital markets seem to be telling us that the costs of secession as such are modest, but that the costs of dramatically different economic policies are substantial.
But I find this earlier bit less optimistic:
What would happen to these firms’ value if independence were dead certain? Expected utility analysis helps us here. They lost $800 million in value on an increase in the probability of independence of 5.5+2.7=8.2%. We can infer that an increase from 20% to 100% would wipe out $800 million*8/.6=$7.8 billion. That’s a fair proportion of their existing value: about 16%.
There is more here, and for the pointer I thank Chaim Katz.