Month: November 2003

France and Germany break the rules

The EU fiscal rules, that is. Each country using the euro is supposed to maintain a budget deficit of less than three percent of gdp. Earlier this week France and Germany announced that they had no real intention of meeting the target, here is the full story. What are the implications of this?

1. The euro hit an all-time high against the dollar, clearly the markets were not rattled and largely expected this outcome or some version thereof.

2. Many of the smaller countries in the EU are upset, most of all Netherlands, Austria, Finland and Spain, all of which went through painful fiscal restructuring themselves. It appears there are two sets of EU rules, one for France and Germany, one for everyone else.

3. France in essence has given up on its dream to provide significant leadership for the other EU countries, and can no longer expect to lead by example. Otherwise France and Germany will suffer no real penalties from this.

4. France and Germany have shown that they simply will not make significant spending cuts, no matter what.

5. France and Germany were right not to raise taxes to meet the targets.

6. The three percent rule is effectively dead. The rule was a bad idea in the first place. Rules based on strict targets, with trigger penalties kicking in at a predetermined level, are likely to fail in democracies (remember the Gramm-Rudman Act, first it was to control deficits, then spending, ha-ha?). The boundary lines are arbitrary, and if they start to matter the penalties are seen as arbitrary and unfair by voters. So no penalty is accepted and then the targets fall apart.

7. The old written rule mandating three percent will not be revised. The new system in practice will likely take the form of loose ranges, with penalties of moral suasion applied by other EU members.

8. The real question is what will happen when one of the smaller nations thumbs its nose at France and Germany someday, over some EU agreement, and then claims exemption from the relevant penalties. Until then, stay tuned…

Dreaming of a White Christmas?

It is less likely than ever in many parts of the country, read here for some exact figures, based on data since 1948. Here is the geographic distribution of the changes, snow is less likely in the east but more likely in some mountain states:

The decrease in the number of snow days has been especially pronounced east of the Mississippi River, where 117 of 125 stations reported an average of five fewer days with snowfall.

“Five fewer days of snowfall over a 30-day period may not seem all that significant until you consider that, in many regions, snow days occur relatively infrequently,” Kaiser said.

One region that is more wintry between the holidays, however, extends from the Central Rocky Mountain states (Utah, Colorado and Wyoming) eastward into the Central Plains (mainly Nebraska), where the number of days with snow has increased significantly.

“The area across the Central Rockies and Central Plains is the one part of the country that is bucking the trend, with a few stations in Utah and Colorado seeing nearly 10 more days with snowfall,” Kaiser said.

The researchers caution against thinking that this is a tale of global warming, one way or the other.

Progress against AIDS?

Haiti is renowned for its weak or non-existent institutions. Therefore it is both surprising and heartening to see the country making some progress against AIDS. In fact some of Haiti’s problems are being turned to its advantage, namely its large number of underemployed laborers, who are now being used to carry retrovirals to the desperately poor:

No program to treat people in the poorest countries has more intrigued experts than the one started in Haiti by Partners in Health – which has succeeded by enlisting help from hundreds among Haiti’s vast pool of unemployed and underemployed workers.

It is the rainy season now. So each morning and evening, 700 villagers strike out across dirt roads turned into a morass of mud and dung to deliver medicines to people with AIDS and tuberculosis. They tramp through muck and wade through streams on foot; a lucky few sit atop mules or donkeys.

Here is the full story. One leading participant noted:

“We didn’t do it to be a model program,” said Dr. Farmer, 44, a Harvard medical professor and anthropologist, who is also the subject of a recent book, “Mountains Beyond Mountains,” by Tracy Kidder. “We did it because people were croaking.”

Good news from Haiti is hard to come by, but here is another bit: Haitian artisans will have greater access to the web to sell their wares, visit this site, in addition to the brokers who sell through ebay. Haitian artisans, craftspersons, and artists are remarkably talented and hardworking, this is one of the few areas where Haitians can compete in world markets, this link shows one of my favorite Haitian voodoo flags, click on the hearts to see the larger image.

Does evolutionary biology weaken left-liberal views?

An interesting review of Steven Pinker’s The Blank Slate suggests that a better understanding of biology does not damage the prospects for social engineering, “The more we understand our nature, the better we’ll be at nurturing.” Here is one lengthier bit:

Contrary to what its critics say, evolutionary psychology does not threaten our ability to assess and transform our social and cultural landscapes. Quite the opposite–understanding the particular channels that we’re prepared to learn can throw into sharper relief the achievements of culture. Knowing something about our reproductive drives and our tendencies toward violence makes the extraordinary drop in murder and birthrates experienced by many Western countries over the past few centuries all the more impressive. And just because our mental modules are implicated in political issues, that’s no reason to hand over our societal reins to the evolutionary psychologists. To include biological explanations in a discussion of human society by no means eliminates the validity of other kinds of explanations. What Pinker and E.O. Wilson are proposing is not biological determinism but rather biological consilience…

This is half correct. Future social engineering, if done with noble motives and an informed basis, will have a better chance of succeeding a century from now. But I have long felt that the “public choice” critique of social engineering — you can’t trust people, especially not politicians — carries more weight than the informational critique. Scroll down one post and read my remarks on the all-too-frequent lack of meta-rationality as well, or scroll up one post and read about the prosperous marvel that is North Korea. And evoloutionary psychology suggests that, short of genetic engineering (not the topic at hand, and besides, who do you trust to do that?), human nature is not about to change anytime soon. So score at least half a point against social engineering, which should make Michael happy at

Meta-rational animals

Monkeys and dolphins are capable of recognizing when they do not know the answer to a question. Here is a brief summary of the experiments:

In the first one, trained monkeys sat at a computer joystick and watched the density of colored dots in a square on the screen. When there were many dots, the monkey moved the joystick to the square itself, choosing “dense.” When there were few dots, the monkey put the cursor on an “S,” superimposed on the screen, indicating “sparse.”

Gradually, examiners added more dots to the “sparse” test until the monkey reached a threshold where it could not easily discern whether the panel was “dense” or not. At that point, the monkey chose to put the cursor on a star, indicating uncertainty.

Smith said the two monkeys displayed uncertainty at almost the same threshold as seven humans who also took the test. This result, Smith and his co-authors said, “presents one of the strongest existing matches between human and animal performance in the comparative literature.”

In the second test, a bottlenose dolphin was trained to press a lever when it heard a “low” tone, and another lever when it heard a “high” tone. At first, the dolphin was so enthusiastic that it kicked up swirls of water as it raced to the levers.

But when researchers raised the low tone until it approached the high tone, “he would creep in because he didn’t know what to do,” Smith said. “It was the dolphin equivalent of scratching its head.” The dolphin would then resort to a third lever, indicating uncertainty.

In other words, very intelligent animals are aware of their own cognitive limitations, here is the full story. So far it has not been possible to induce comparable behavior in rats, nor in many political commentators.

The bottom line: Of all kinds of rationality, meta-rationality is perhaps the hardest to come by. It is most rare when more than one person, or questions of status, are involved. For whatever reasons, a kind of false certainty must have yielded evolutionary advantages in earlier times, and perhaps still does today. Those animals would really impress me if they dropped their admissions of uncertainty when a member of the opposite sex was watching.

Update on Medicare reform

Several days ago I predicted that the recent Medicare bill would turn out to be largely the prescription drug benefit, with little real institutional reform in the direction of privatization, for better or worse. An article in today’s New York Times provides a closely related argument.

Here is a summary:

The most politically charged feature of the Medicare legislation passed by Congress – its attempt to make the federal Medicare program compete with private managed-care plans – is also the least likely to come to fruition on the seven-year schedule set in the bill, according to health policy experts…Similar plans, the experts say, have failed to find support among patients, doctors and hospitals, or even some insurers. Even people who favor the idea say the potential for trouble this time is formidable…Many people enrolled in Medicare fear that they will end up with less generous benefits in a privately run program…Nor do hospitals and doctors like the idea of health insurers pushing down fees to make a profit for themselves, and health plans have balked at previous projects that threatened to squeeze their profit margins…In addition, many privately run Medicare plans, known as Medicare H.M.O.’s, withdrew from many areas of the country when government payments lagged, forcing millions of patients to scramble to obtain new coverage.

The bill passed by the House and Senate in the last few days calls for six-year demonstration projects in four to six cities, where private health plans would compete with the traditional Medicare program to enroll subscribers by offering a variety of new services with the goal of possibly reducing costs…But four previous attempts at experimenting with competition among Medicare H.M.O.’s were aborted before they began – blocked in Congress after members heard objections from health care providers and elderly voters.

Arguably this kind of “mixed privatization,” with strong public elements, and few real incentives for cost control, was not a good idea in the first place. But in any case it is unlikely to ever see the true light of day.

Why is housing so expensive in Manhattan?

Regulation appears to be part of the answer, as suggested by Arnold Kling, drawing upon research by Edward L. Glaeser, Joseph Gyourko, and Raven Saks, here is the original paper. The authors estimate that one-half the cost of constructing a Manhattan apartment is due to regulatory barriers and related inefficiencies.

And how much does a Manhattan apartment cost? Well, one estimate says the mean value is now $916,959, and the median value is $575,000, caveat emptor on these numbers but we all know it isn’t cheap.

As an aside, both the authors of the study and Steven Landsburg pose an interesting question. Why are not all buildings in a city block of the same height, given that their owners presumably face common costs and returns? The study authors cite regulatory factors, Landsburg cites non-convex building costs and diversity of demand.

Quotation of the day

…the GM [genetically modified] food controversy is a feature of societies for which food is not a life-and-death issue. In India, where people literally starve to death…up to 60 percent of fruit grown in hill regions rots before it reaches market. Just imagine the potential good of a technology that delays ripening, like the one used to create the Flavr-Savr tomato. The most important role of GM foods may lie in the salvation they offer developing regions, where surging birthrates and the pressure to produce on the limited available arable land lead to an overuse of pesticides and herbicides with devastating effects upon both the environment and the farmers applying them; where nutritional deficiencies are a way of life and, too often, of death; and where the destruction of one crop by a pest can be a literal death sentence for farmers and their families…The opposition to GM foods is largley a sociopolitical movement whose arguments, though couched in the language of science, are typically unscientific.

From James Watson’s recent DNA The Secret of Life, p.160, the book is also a good introductory read on DNA issues more generally.

By the way, here is a picture of aquarium fish, they are genetically modified to glow in the dark, thanks to Chris Mooney for the link and commentary.

Corporations and cheeses

Have you ever wondered why they call it Maytag cheese? As in the people who make the dishwashers and washing machines? There is in fact a close connection:

Maytag Blue
Nestled in among the rolling hills of central Iowa is the Maytag appliance factory. Down the road and around the corner is the Maytag Dairy, which produces Maytag Blue cheese, among other, lesser-known cheeses. Yes, the two are related. Fritz Maytag, son of the founder of the Maytag washing machine company, decided he wanted to make his own entrepreneurial mark on the world. Shortly before World War II, he began working with scientists at Iowa State University to begin making a great American blue cheese, modeled after those of Europe. The result was one of the first American farmstead cheeses of superior quality. The dairy is now independent of the appliance company and collects milk from a local dairy cooperative, rather than raising its own cows. Maytag cheese makers, however, are still hand making the same cheese that they created in the 1930’s. Maytag Blue’s popularity has taken off with the growing interest in American farmstead cheeses, and this wonderful, tangy blue cheese is now featured on menus across the country. Its wonderful flavor, moist yet crumbly texture, and lemony finish make Maytag one of the world’s great blue cheeses.

By the way, here is a good recipe for Maytag Blue, or just spread it on apples.

A neat story, no? Sadly, it all ends in subsidy. Here is a libertarian critique of government price support programs for dairy products:

In 1995 alone, wrote Kevin McNew in a Policy Analysis for the Cato Institute (December 1, 1999), taxpayers shelled out $8 billion to dairy farmers through various federal price-support programs…[According to James Bovard] “For the cost of the dairy program, each American family could have bought its own dairy cow.”

Little did I know that some of these subsidies go to the same people who make household appliances, I can’t possibly imagine any good reason for this.

Thanksgiving thoughts

It is a central point of economics to suggest that people are rewarded for their marginal product, and not for their infra-marginal contributions. Similarly, people have no guarantee of compensation for the external social benefits they produce. In other words, expect less gratitude than you probably deserve.

People who offer gratitude to others, however, tend to be much happier and more productive. This is a recurring theme throughout Gregg Easterbrook’s just published The Progress Paradox: How Life Gets Better While People Feel Worse. So on this Thanksgiving let us put aside the marginal product theory for a day, and feel gratitude for all that we have, which is indeed so very much. Without everyone else’s infra-marginal contributions, our lives would be sorry, short, and sad indeed. Perhaps, if only for a day, we should retitle this blog InfraMarginal Revolution.

Caviar facts

1. Venetian trading ships first brought caviar to Europe from the Black Sea in the fourteenth century.

2. Caviar remained obscure for another three hundred years. Shakespeare, in his Hamlet, even used the word caviar to refer to something unknown and obscure, Hamlet complains that this play was “caviare to the general.”

3. Galileo was an early fan of caviar.

4. Rabelais, in his tale of Pantegruel, refers to caviar as something ridiculous.

5. Many stocks of sturgeon around the world were exhausted through overfishing and “tragedy of the commons.” Russia has remained the world’s major source of caviar in part through accident. The chaos of WWI, the Bolshevik revolution, and the monopolies and inefficiencies of communism all helped prevent overfishing and preserve sturgeon stocks at critical points in time. This must be counted as one of the economic successes of the Soviet regime.

6. The sturgeon is now an endangered species and caviar movements are tightly regulated. A caviar smuggler can receive up to $20,000 for the contents of a single suitcase, those contents will sell “on the street” for as much as $100,000.

7. The future of caviar lies in fish farming and privately owned sturgeons.

These facts are all from Caviar: The Strange History and Uncertain Future of the World’s Most Coveted Delicacy, by Inga Saffron, an excellent book, or you can download it for $10.

The benefits of free trade

Read Brad DeLong’s excellent post on how we should think about the benefits of free trade, and how large those benefits might be. The basic problem is that when you measure the costs of protection, they don’t seem so enormous in many standard models. So why are economists so solidly behind free trade? Most of all, I’ll opt for his number three, the “missing link” move:

The missing link move: assert that domestic technological and organizational progress is closely and tightly tied to the volume of trade, considered as a proxy for social and technical contact and for the extent to which the government takes down the umbrella protecting inefficient national champions from the rains of competition.