Mexico facts of the day

by on December 8, 2016 at 1:03 pm in Data Source, Economics | Permalink

About 40 percent of the value of U.S. goods imports from Mexico was made up of goods originally exported from the U.S. to Mexico, four economists (three of them then employed at the U.S. International Trade Commission) found in 2010. The equivalent figure for imports from China was just 4.2 percent. In a 2014 report for the Peterson Institute for International Economics, Georgetown University’s Theodore Moran and Lindsay Oldenski found that a 10 percent increase in employment at the Mexican subsidiaries of U.S. corporations led to a 1.3 percent increase in employment and 4.1 percent increase in research and development spending back home.

That is from Justin Fox, I still think the peso is slightly undervalued due to excess fear of Trump on this issue.

Thursday assorted links

by on December 8, 2016 at 11:57 am in Uncategorized | Permalink

1. Is there a chance Scotland could have the power to veto or forestall Brexit?

2. The demography of Appalachia, recommended.  And does higher education propel regional population growth?

3. “The empirical findings are consistent with a model of statistical discrimination where female executives are better equipped at interpreting signals of productivity from female workers. The evidence suggests substantial costs of under-representation of women at the top of the corporate hierarchy.”  Link here.

4. Lunch with the FT is now on Medium, here is Marc Andreessen.

5. NYT picks best TV shows of 2016.

In When Economics was Radical Marshall Steinbaum and Bernard Weisberger lament that the American Economic Association is no longer a radical, progressive force.

The AEA had been conceived as an upstart challenge to classical economic orthodoxy. Its founding platform stated, “We regard the state as an educational and ethical agency whose positive aid is an indispensable condition of human progress”

..But the AEA’s radicalism would be smothered soon after its birth…[and it] retreated to the safer ground of nonpartisan neutrality as the hallmark of professionalism. That move away from radicalism ensured that some of the most controversial questions in the field would never be answered convincingly, at least not by economists.

Steinbaum and Weisberger are correct about the AEA’s founding but they do the readers of the Chronicle of Higher Education a disservice by not revealing that Ely’s “radicalism” consisted of socialism with a capitalist veneer, racism, and eugenics. Ely, of course, wanted more government ownership of the commanding heights, more regulation of economic life and more militarism and service to the state. Ely didn’t just reject laissez-faire in economics he rejected laissez-faire in all areas of social life.

For example, after explaining why the benevolence of modern society might lead to a decline in the fitness of the race, he argued, don’t worry, we have a solution:

….the regulation of marriage, which is proposed, and which is being pushed forward by physicians and thoughtful people, — by people who are the farthest removed from any possible designation as cranks, — looks beyond the prevention of the marriage of paupers and feeble-minded.

He then approvingly quotes an Indiana state Senator describing proposed eugenics legislation:

“The Commission should provide for physical examination of all desiring to marry. This would include their racial tendencies, moral, mental, and physical condition, whether they are of sound mind, free from chronic deadly diseases, and not moral degenerates. If the several governments would devote a little attention to this subject for a few years, two generations would see a different people on this earth. It is a radical but sound idea.”

Radical indeed.

Summarizing Ely says:

The problem is to keep the most unfit from reproduction, and to encourage the reproduction of those who are really the superior members of society.

You won’t be surprised to learn that Ely had clear ideas of who was fit and who unfit:

…there are classes in every modern community composed of those who are virtually children, and who require paternal and fostering care, the aim of which should be the highest development of which they are capable. We may instance the negroes, who are for the most part grownup children, and should be treated as such.

racetraitsMoreover, this was not a side issue to the founding of the AEA; this was exactly the radicalism that Ely’s AEA promoted. One early and influential publication of the AEA, for example, was Frederick Hoffman’s Race Traits of the American Negro which after presenting reams of statistics (Hoffman was later a president of the American Statistical Society) concluded with these recommendations:

…Intercourse with the white race must absolutely cease and race purity must be insisted upon in marriage as well as outside of it. Together with a higher morality will come a greater degree of economic efficiency, and the predominating trait of the white race, the virtue of thrift, will follow as a natural consequence of the mastery by the colored race of its own conditions of life.

…All the facts brought together in this work prove that the colored population is gradually parting with the virtues and the moderate degree of economic efficiency developed under the regime of slavery. All the facts prove that a low standard of sexual morality is the main and underlying cause of the low and anti-social condition of the race at the present time. All the facts prove that education, philanthropy and religion have failed to develop a higher appreciation of the stern and uncompromising virtues of the Aryan race. The conclusion is warranted that it is merely a question of time when the actual downward course, that is, a decrease in the population, will take place. In the meantime, however, the presence of the colored population is a serious hindrance to the economic progress of the white race.

It wasn’t just blacks, of course, who were hindering the white race but also immigrants. Here, quoting Thomas Leonard’s excellent book Illiberal Reformers:

The fullest unfolding of our national faculties, Ely asserted, required “the exclusion of discordant elements–like, for example, the Chinese.” Ely assumed that a unified American nation required racial homogeneity. As for South Asians, Ely proposed that famine-relief efforts in India should be suspended. Why not, Ely ventured, “let the famine continue for the sake of race improvement?”

(You can find more quotes of this kind in a paper by Thies and Daza in Econ Journal Watch and here is Russ Roberts interviewing Thomas Leonard about Illiberal Reformers and here is Tyler on Illiberal Reformers.)

If Ely was a progressive fascist and I said “but he beat his wife” that would not discredit progressive fascism. The point, however, is that the very factors that Steinbaum and Weisberger praise, the radicalism of the early AEA and Ely’s reject of laissez-faire, are precisely the factors that led Ely to support industrial policy, racism and eugenics. To Ely property was a bundle of rights and no stick in that bundle was inherently more valuable than the others. If it’s ok to take a person’s property then it’s ok to take a person’s property full stop whether that be physical goods, the right to procreate, the right to associate, the right to speak and so forth.

Ely was clear that industrial policy is human capital policy (perhaps even truer today than in Ely’s time) and he stated the connection between the two types of regulation, writing:

We have our census of farm animals, we have our soils surveys. Is it not of the highest importance that we should have constantly going on a survey of our human resources ? We then shall learn to know what kind of human beings we have as citizens and potential citizens. We shall then know where defects exist and we shall learn how to apply suitable remedies.

…heredity is a force which sets limits to all our activities, and which, if entirely neglected, leads to decay and ruin in the nation. We have got far enough to recognize that there are certain human beings who are absolutely unfit and who should be prevented from a continuation of their kind. We do know it is important that a superior stock should not be swallowed up and lost by a more rapid increase of the inferior stock.

Ely’s views are perhaps most closely aligned today with the so-called alt-right. It’s not a connection that the AEA should be pleased to acknowledge, let alone repeat.

Land speculation was a natural and common preoccupation among the Founders. For some it became an economic affliction. “Hardly a prominent man of the period failed to secure large tracts of real estate, which could be had at absurdly low prices, and to hold the lands for the natural advance which increased population would bring,” wrote Albert J. Beveridge.27 For many, such speculation would prove a hazardous preoccupation. Virginia’s Henry Lee and Pennsylvania’s Robert Morris and James Wilson ended up in jail because of their debts from speculation. Washington biographer James Thomas Flexner noted that land speculation was “a fundamental aspect of American economic life, but it had become in the last few years an extremely tricky one. General [Henry] Knox was above the knees in financial trouble because of the new settlements he had started in Maine.”28 Speculation in land became particularly rampant in the early 1790s when the stability of the new republic seemed assured. Describing the process of speculation, historian Forrest McDonald wrote: “One worked or connived to obtain a stake, then worked or connived to obtain legal title to a tract of wilderness, then sold the wilderness by the acre to the hordes of immigrants, and thereby lived and died a wealthy man. Appropriately, the most successful practitioner of this craft was George Washington, who had acquired several hundred thousand acres and was reckoned by many as the wealthiest man in America.”

And:

Washington’s land holdings clearly affected his political outlook – first regarding England, and later regarding the United States. Washington thought big and thought about the implications of thinking big. Glenn A. Phelps wrote that Washington’s “extensive land-holdings in the West, as well as his frequent surveying expeditions to the frontier, had placed him within a circle of Virginia politicians with somewhat more enterprising, expansionist, westward-looking interests than their tidewater brethren.”59 Increasingly after the Revolutionary War, Washington’s land-holdings affected his preoccupation with the development of the Potomac River and a canal through the area where it was not navigable. Washington wrote a friend in 1785 that “unless we can connect the new States which are rising to our view in those regions, with those on the Atlantic by interest (the only binding cement, and not otherwise to be effected by opening such communications as will make it easier and cheaper for them to bring the product of their labour our markets, instead of going to the Spaniards southerly, or the British northerly), they will be quite a distinct people; and ultimately may be very troublesome neighbors to us.”

And:

Washington foresaw America’s great westward migration and he foresaw potential wealth for himself. Historian Edmund S. Morgan wrote: “Washington believed that as a private citizen pursuing his own interests he could still be working for the good of the nation. He engaged without a qualm in a scheme that would benefit him financially, while it bolstered American independence in a way that he thought was crucial…

Washington also supported infrastructure projects that would increase the value of his landholdings.  Here is the source, with the tip via MR commentator g. ruqt.

Here is my earlier post on Inconvenient Questions.

Wednesday assorted links

by on December 7, 2016 at 1:17 pm in Uncategorized | Permalink

I was pleased to see their title for the column: “Go Wet, Young Man.”  Here is one of the claims:

Counterintuitively, I see the greatest promise for seasteading as a path toward more rather than less human companionship.

…some of the elderly have started living on cruise ships full-time. A good assisted-living facility might cost $80,000 a year in the U.S., more than many year-long cruises. (Cruising could also be cheaper than living in an expensive neighborhood.) Furthermore, the cruise offers regular contact with other passengers and also the crew, and the lower average age means that fewer of one’s friends and acquaintances are passing away. The weather may be better, and there is the option of going onshore to visit relatives and go shopping.

The cruise ship removes the elderly from full-service hospitals, but on the plus side, regular social contact is good for health, passengers are watched much of the time and there is a doctor minutes away. Better health and human companionship could be major motives for this form of seasteading. I could imagine many more of the elderly going this route in the future, and some cruise lines already are offering regular residences on board.

The goal of this seasteading enterprise is to pack people more tightly together rather than to open up broad new vistas for a Wild West kind of settlement. The proprietors make physical space more scarce, not less, to induce better clustering. So seasteading does have a future, but it is to join and build a new and crowded communitarian project, not to get away from one.

Do read the whole thing.

The gambling market is somewhat saturated, so how can new customers be found?

One idea: skills-based games.

In Atlantic City, the Borgata added a basketball free-throw shooting contest. Other casinos are adding skill-based games to electronic slot machines — shooting, puzzles, less slot machine ding ding ding and more Angry Birds-style competition.

Maryland does not allow such games yet, but the state’s gaming agency says it is working on the issue.

That is from Michael Rosenwald, with most of the article covering D.C.’s foray into the casino genre.

Ever since busloads of Chinese tourists began arriving in this sleepy, nondescript English village this summer, the 13,723 residents of Kidlington, about five miles north of Oxford, have been variously baffled, annoyed and delighted.

The sudden influx of Chinese has also grabbed headlines and spawned a national mystery.

Why, for example, do the Chinese tourists ignore the village’s handsome 13th-century church and its thatched-roof cottages, preferring instead to peer through windows, film parked cars and traipse on the lawns of Benmead Road, a humdrum and modern residential street? One tourist asked a stunned resident if he could help mow her lawn. (She politely declined.) Another jumped joyously on a child’s trampoline in the front yard.

No one seems to know why, read more by Dan Bilefsky at the NYT.

Addendum: See this possible “limits to arbitrage” explanation.

I liked this recent Tim Duy post, the one that is everyone is talking about.  Do read the whole thing, but here is the closing bit:

We don’t have answers for these communities. Rural and semi-rural economic development is hard. Those regions have received only negative shocks for decades; the positive shocks have accrued to the urban regions. Of course, Trump doesn’t have any answers either. But he at least pretends to care.

Just pretending to care is important. At a minimum, the electoral map makes it important.

These issues apply to more than rural and semi-rural areas. Trump’s message – that firms need to consider something more than bottom line – resonates in middle and upper-middle class households as well. They know that their grip on their economic life is tenuous, that they are the future “low-skilled” workers. And they know they will be thrown under the bus for the greater good just like “low-skilled” workers before them.

The dry statistics on trade aren’t working to counter Trump. They make for good policy at one level and terrible policy (and politics) at another. The aggregate gains are irrelevant to someone suffering a personal loss. Critics need to find an effective response to Trump. I don’t think we have it yet. And here is the hardest part: My sense is that Democrats will respond by offering a bigger safety net. But people don’t want a welfare check. They want a job. And this is what Trump, wrongly or rightly, offers.

In part this is a question about helping these communities but if you read the whole post it is also about checking or preventing Trump and Trumpism.  My main disagreement is simply with the view that a solution is difficult.  It is not, rather most people are unwilling to accept the solutions on the table.  In fact I have a more or less bulletproof two-part remedy.  I’ll phrase it in backward-looking terms, but it is not hard to divine the forward-looking implications, noting that in the short term we have the president-elect we have no matter what.  Here goes:

1. In 2012, have five percent of Democratic voters switch their support to Mitt Romney, so that Romney is elected.  You don’t have to think Romney would be a better president than Obama has been, but a Romney election almost certainly would have forestalled the rise of Trump.  The worse you think Trump is, the more you should support this kind of “change we can believe in.”

If you don’t favor this retrospective change, you’re not very pragmatic (or you might really like Trump), perhaps preferring to consume your own expressive views than to improve the world.  That’s a common enough preference, and maybe it is even morally OK, but let’s recognize it for what it is: a deliberate lack of interest in solving the major problem before us, instead preferring to focus on your own feelings.  It’s not that different than the wealthy wishing to keep their tax cuts.  And if your response is something like “But the Republicans started this whole mess, why should I reward them?”, well, that is yet another sign you are far from the pragmatic, reality-oriented perspective.  At the very least, you should be regretting that you did not vote for Romney.  Unless of course you did.

A complement to this strategy, looking forward, is to have the Democrats run more conservative candidates, including those with a more conservative cultural garb.  They still can support a social safety net.  And, my friend, if you are tempted to suggest that Hillary Clinton was such a candidate, you need to attend Ross Douthat University for remedial lessons.

Another way to put this point is that Democrats (and some others) need to become more like the more sophisticated libertarians, namely to realize you won’t win but need to settle for what you can get.  At least increase your “p” that is the case, as the European left is finally starting to do.  I know that comes hard, but again our country is at stake.  And there is a lesson for libertarians too, more or less in the same direction, namely that potential backlash to libertarian ideas is stronger than we had thought, even for those with a fairly weak libertarian bent, and thus there is less absolute scope for their realization.  Sad!

Many progressives and libertarians have one thing in common, namely assuming that human affairs can be more governed by reason than ever will be the case.

2. Support a voluntary temperance movement for zero alcohol, zero drugs.  No exceptions.  Make these commodities less socially available, less widely advertised, less diverse in supply, and less glamorized on television and in the movies.  Take away the demand, and along the way praise Islam and Mormonism for their stances on this.

That’s so simple, isn’t it?  No one argues that the Rust Belt communities and the like are unacceptably “income poor” by global standards, rather they have wrenching social problems.  A temperance movement, insofar as it succeeds, would eliminate a significant share of those tragedies.  It would mean less alcoholism, fewer opioid addictions, less crime and spouse beating, and so on.  Consider the impact of this on America’s inner cities as well.  It’s hard to estimate how many of the problem users would stop if say 70 percent of America went “cold turkey,” but surely we should give this a try.  For instance, even less educated Americans smoke at much lower rates than they used to.

Do you really care about suffering Americans?  The answer is staring you right in the face, but are you brave enough, altruistic enough, and contrary enough to embrace it?  Again, you might like your evening glass of wine, or joint, but that is also like the wealthy seeking to keep their tax cuts.  It really is the same logic, like it or not.

From another direction, here are comments from Paul Krugman.  I agree with most of what he says, though I would stress the points above.

Yes, I absolutely favor enforcing clear commercial conflict of interest regulations on any president, if only for reasons of perception and legitimacy.  But may I quote Alex T. from way back when (2010, the rest of the passage is him note I am not double indenting)?

Bloomberg: Your senator learns that a much- maligned weapons system now has enough votes for funding. Before the news gets to a reporter, he buys shares in the arms manufacturer for a quick, handsome profit.

What’s wrong with this picture? Nothing, according to the law…

U.S. senators, representatives and congressional staffers routinely attend high level, closed briefings or engage in conversations where secrets are disclosed that might send shares climbing or slumping if widely known.

That access lets them buy low and sell high based on material, non-public information, and they can do it without concern that their remarkable prescience will alert federal investigators of possible wrong doing.

Insider trading in Congress is not new.  In 2004, I wrote about a study showing that the portfolios of US Senators “outperformed the market by an average of 12 per cent a year in the five years to 1998.” [TC: this result of superior returns doesn’t seem to have held up.]

Hat tip: The Browser.

TC again: From me, here is a 2013 update:

The Senate has severely scaled back the Stock Act, the law to stop members of Congress and their staff from trading on insider information, in an under-the-radar vote that has been sharply criticised by advocates of political transparency.

The changes, if they become law, will exclude Congressional and White House staff members from having to post details of their shareholdings online. They will also make online filing optional for the president, vice-president, members of Congress and congressional candidates.

The House was expected to pass a similar bill on Friday.

Here is the FT article, here are other sources.  Some officials suggested that transparency “could threaten national security,” more detail on that here.  Here are some further interesting details.

Current TC again: And here is Alex’s update from 2011.  And here is a 2015 update: “Congress tells court that Congress can’t be investigated for insider trading.”  I am not sure where such cases stand as of December 2016, please tell us if you know.

On this whole matter, please don’t accuse me of asserting “false equivalence,” (one of the weakest charges you hear in current debates and usually a sign of sloppy thinking), I am not saying all these practices are equivalent.  But neither a comparison nor an analogy requires equivalence.  I find it striking how many people are discussing this issue, and treating the administration-to-come as the end of democracy and the onset of rampant corruption, without noticing…etc.

File under: Conflicts of interest for me, but not for thee…

Tuesday assorted links

by on December 6, 2016 at 11:14 am in Uncategorized | Permalink

In an important paper in the latest AER, Das, Holla, Mohpal and the excellent Karthik Muralidharan compare private and public health care in India. (I once asked, “Is any economist doing more important work with greater potential for real improvement in the lives of millions than Karthik Muralidharan?” See previous posts on Karthik’s work for the answer.)

The AER paper examines health care in villages in Madhya Pradesh, one of the poorer states in India (GDP per capita of $1,500 PPP). In India, primary health care is ostensibly available for free from public health clinics and hospitals manned by professionally trained nurses and physicians. As with teachers at public schools, however, it’s very common for doctors at public clinics to be absent on any given day (40% were absent on a given day in 2010) and public clinics are not highly regarded. As a result, some 70% percent of primary care visits nationally–and an even higher percentage in Madhya Pradesh–are to private, fee-charging health-care providers. Most of the private providers do not have a license or medical degree although they may have some health-care training.

ruralhealthcareindiaThe authors sent trained actors, “standardized patients” to public and private clinics to evaluate provider effort and accuracy in response to the presentation of textbook symptoms of common illnesses (angina, asthma, and dysentery in a child at home). Standardized patients are used to train medical students in the United States and in India and the Indian SPs were trained by professionals including medical doctors, and a medical anthropologist familiar with local forms of presenting illnesses and symptoms.

The first result is that the provision of health care is uniformly and distressingly poor. Overall, only 2.6% of patients received a correct treatment (and nothing unnecessary or harmful). The private providers, however, exert much more effort than do the public providers. The private providers, for example, perform more items on a standard checklist and they spend more time with patients. But the private providers are no better than the public providers at giving a correct treatment. Why not?

Private providers exert more effort but are less knowledgeable. Loosely we might say that Quality=Effort*Knowledge. Private providers put in more effort but have less knowledge and public providers have more knowledge but put in less effort leading to similar quality levels overall.

There is one big difference, however, between the public and private regimes, the private regime is much less socially costly. Since costs are lower and the quality level is the same, the private system is much more productive. The authors note:

…our estimates suggest that the public health care system in India spends at least four times more per patient interaction but does not deliver better outcomes than the private sector

(FYI, this also holds true for public and private schooling in India and around the world. Private schooling is usually somewhat better or about as good as public schooling but much less costly so the productivity of private schooling is much higher.)

To focus on the issue of market incentives rather than knowledge the authors do a second set of remarkable tests. Indian doctors often work in a public and a private practice. Thus, the authors send standardized patients to the same doctors but in one case the patient is treated under the public regime and in other under the private, market regime. Once knowledge is controlled for the results are very clear, private, markets dominate the public regime.

…treatments provided in the private practice strictly dominate those provided in the public practice of the same doctor. The rate of correct treatment is 42 percent higher (16 percentage points on a base of 37 percent), the rate of providing a clinically non-indicated palliative treatment is 20 percent lower (12.7 percentage points on a base of 64 percent), and the rate of antibiotic provision is 28 percent lower (13.9 percentage points on a base of 49 percent) in the private practice relative to the public practice of the same doctor.

The bottom line is that the private market for health care is much bigger and less expensive than the public health regime in rural India and once we control for knowledge it’s of higher quality. These results have important implications for reform. In particular, much more effort should go into improving the knowledge of the private sector.

….the marginal returns to better training and credentialing may be higher for private health care providers who have stronger incentives for exerting effort. Current policy thinking often points in the opposite direction, with a focus on hiring, training, and capacity building in the public sector on one hand (without much attention to their incentives for effort), and considerable resistance to training and providing legitimacy to unqualified private providers on the other.

That is the subject of my new Bloomberg column, here is one bit:

My second recommendation is to restore fully the ability of the NEA to make grants to individual artists, thereby undoing changes that were made in 1994. That would diminish the role of the middlemen and support artists rather than art museums. This too has the potential to boost creativity, as large institutions with overhead tend to be more artistically conservative than individual artists or arts groups. Such a change would take the NEA back to its earliest and arguably most effective period near its origin in 1965, when it supported creators such as Alvin Ailey, Merce Cunningham, George Segal, Ed Ruscha and William Gaddis (all grant recipients in the first year alone), among other luminaries.

You may recall that there is a reason why the NEA moved away from making grants to individual artists. The agency had supported several artists and art projects that displayed nudity or other images that many people considered pornographic or offensive. At the time, Congress did not wish to be affiliated so directly with such expressions of the human creative impulse. Therefore grants were shifted to higher-level arts institutions, with the understanding that the institutions would not embarrass the federal government in this manner.

Is it possible that, under the forthcoming administration, this embarrassment constraint has eased somewhat?

I also call for stopping the transfers of the National Endowment for the Arts to the state arts agencies, on the grounds that federal arts taste usually is superior.

Do read the whole thing.

Further Monday assorted links

by on December 5, 2016 at 3:11 pm in Uncategorized | Permalink

Happy holidays to all our viewers and readers! Our holiday video covers the economics of gift giving. When is gift giving wasteful? When does gift giving generate value? What are the knowledge problem and the incentive problem and how does this apply to charity? It’s a great conversation starter for economics classes. Enjoy!

P.S. Happy Sinterklaas!