Month: November 2004

Zimbabwe fact of the day

"An estimated 25 to 30 per cent of the entire Zimbabwean population has left the nation," the Peace Trust reported.

"Out of five million potentially productive adults, 3.4 million are outside Zimbabwe. This is a staggering 60 to 70 per cent of productive adults."

Read the whole post, and note the insightful words of Randall Parker:

Someone who flees to Botswana or Mozambique isn’t exactly headed for streets that are paved with gold.

Add that to your list of things to be thankful for, unless of course you remain in Zimbabwe. 

By the way, here is a new and useful economic development blog.

New Zealand, part II…

"There are a few other factors that might contribute to NZ not being as successful as we should be:

1. Monetary policy. We do have low inflation but the Reserve Bank’s official cash rate is 6.5%, not exactly Greenspanesque. Borrowing money is expensive.

2. Labour markets are only free in the sense that union membership is not compulsory. Instead, pay and conditions are extremely heavily regulated and our Employment Court is weighted heavily against employers. Employers may appear to be acting voluntarily, but actually they are being coerced in all kinds of subtle ways. Our minimum wage is $9 per hour and this also makes entire areas of economic activity unviable.

3.  Welfare benefits are much too generous and little or not effort is made to ensure that the unemployed attempt to find work. Refusing to take a job that is offered is rarely penalized. Every year fruit growers watch some of their product die because they can’t get enough pickers, even though there are people just down the road collecting welfare benefits.

4. There is a serious underinvestment in infrastructure, since the consent procedures allow green and Maori groups to bring about enormous costs and delays in gaining approval. We have had power shortages on several occasions, while at the same time no new dams have been approved and burning coal (or even digging up our massive
stockpiles of it) is out of the question. We even had an extension to a state highway held up because a taniwha (a mythical river-dwelling creature) was angered and had to be appeased (i.e. paid) before contruction could continue.

5. Some of the privatization efforts have since been rolled back. In the last 5 years, the Labour government has nationalized our airline, the railways and accident compensation insurance and established a massive state superannuation fund. They are well on the way to nationalizing kindergartens and have just started on primary healthcare. Where they don’t own businesses they still regulate heavily, e.g. telecommunications.

6. Taxes are not as low as it might appear. The top rate of personal tax is 39% but there is also a 12.5% universal sales tax, property taxes and many others. Recent figures show that over the last four years, average household income has increased by $7700 while average household taxation has increased by $5200. Once you take into account price increases, our purchasing power has dropped. Since education and hospitals are fully state-funded with no voucher scheme, if you want private provision of those you have to pay twice.

7. There is a widespread and irrational dislike of foreign investment. We have always been a country that had land, labour and far too little capital. That is unlikely to change because the public, fuelled by politicians and the media, go on the attack any time an overseas business or individual tries to invest here. At the moment Shania Twain is trying to spend $14 million to buy a farm in a remote area of the South Island. You wouldn’t believe the outrage: it’s front page news and questions have been asked in Parliament.

You might wish to start reading Rodney Hide’ s blog here:  Rodney is the leader of ACT, which is New Zealand’s (maybe the world’s) only classic liberal political party. He was an economics professor before being elected to Parliament."

A Thanksgiving Lesson

It’s one of the ironies of American history that when the Pilgrims first arrived at Plymouth rock they promptly set about creating a communist society.  Of course, they were soon starving to death.

Fortunately, "after much debate of things," Governor William Bradford ended corn collectivism, decreeing that each family should keep the corn that it produced.  In one of the most insightful statements of political economy ever penned, Bradford described the results of the new and old systems.

[Ending corn collectivism] had very good success, for it made all hands very industrious,
so as much more corn was planted than otherwise
would have been by any means the Governor or any other
could use, and saved him a great deal of trouble, and gave
far better content. The women now went willingly into the
field, and took their little ones with them to set corn;
which before would allege weakness and inability; whom
to have compelled would have been thought great tyranny
and oppression.

The experience that was had in this common course and
condition, tried sundry years and that amongst godly and
sober men, may well evince the vanity of that conceit of
Plato’s and other ancients applauded by some of later
times; that the taking away of property and bringing in
community into a commonwealth would make them happy
and flourishing; as if they were wiser than God. For this
community (so far as it was) was found to breed much confusion
and discontent and retard much employment that
would have been to their benefit and comfort. For the
young men, that were most able and fit for labour and
service, did repine that they should spend their time and
strength to work for other men’s wives and children without
any recompense. The strong, or man of parts, had no
more in division of victuals and clothes than he that was
weak and not able to do a quarter the other could; this
was thought injustice. The aged and graver men to be
ranked and equalized in labours and victuals, clothes, etc.,
with the meaner and younger sort, thought it some indignity
and disrespect unto them. And for men’s wives to be
commanded to do service for other men, as dressing their
meat, washing their clothes, etc., they deemed it a kind of
slavery, neither could many husbands well brook it. Upon
the point all being to have alike, and all to do alike, they
thought themselves in the like condition, and one as good
as another; and so, if it did not cut off those relations that
God hath set amongst men, yet it did at least much diminish
and take off the mutual respects that should be preserved
amongst them. And would have been worse if they
had been men of another condition. Let none object this
is men’s corruption, and nothing to the course itself. I answer,
seeing all men have this corruption in them, God in
His wisdom saw another course fitter for them.

Among Bradford’s many insights it’s amazing that he saw so clearly how collectivism failed not only as an economic system but that even among godly men "it did at least much diminish and take off the mutual respects that should be preserved amongst them."  And it shocks me to my core when he writes that to make the collectivist system work would have required "great tyranny
and oppression."  Can you imagine how much pain the twentieth century could have avoided if Bradford’s insights been more widely recognized?

Race to the bottom?

There is no evidence that corporations direct their investment to countries that have lower labor or environmental standards.  The bivariate relationship between foreign direct investment and labor standards is strongly positive, given that in the past decades more than 90% of FDI occurs in OECD countries, which have the highest labor standards.  Multivariate tests show no correlation between foreign direct investment and labor standards.  An International Labor Organization report reveals no evidence that countries with strong trade union presence have suffered any loss of investment in their EPZs [export processing zones].  A World Bank survey notes a strong positive correlation between higher occupational safety and health conditions and foreign investment in EPZs.  In-depth reviews of EPZs where labor standards are abused reveal that the problem is insufficient access to the global economy.  AS EPZs attract a greater number of foreign investors, labor conditions improve across the entire zone.

That’s from Daniel Drezner’s recently submitted book-in-progress, on globalization and governance, which of course I devoured immediately.  By the way, here is Dan’s first post ever, on the relationship between books and blogs.

Seeing is believing (in the free market)

Everywhere we look it seems that health care is more expensive: prescription drug prices are increasing, costs to visit the doctor are up, the price of health insurance is rising.  But look closer, even closer, closer still.  Don’t see it yet?  Perhaps you should have your eyes corrected at a Lasik vision center.

Laser eye surgery has the highest patient satisfaction ratings of any surgery, it has been performed more than 3 million times in the past decade, it is new, it is high-tech, it has gotten better over time and… laser eye surgery has fallen in price.  In 1998 the average price of laser eye surgery was about $2200 per eye.  Today the average price is $1350, that’s a decline of 38 percent in nominal terms and slightly more than that after taking into account inflation.

Why the price decline in this market and not others?  Could it have something to do with the fact that laser eye surgery is not covered by insurance, not covered by Medicaid or Medicare, and not heavily regulated?  Laser eye surgery is one of the few health procedures sold in a free market with price advertising, competition and consumer driven purchases.  I’m seeing things more clearly already.

Thanks to Jonathan Van Loo for research assistance on this post.

FuturePundit on Space Tourism

The ever-intelligent Randall Parker – and never so intelligent as when he is agreeing with me! – weighs in on the space tourism debate.  Randall makes two key points in his post:

1938 was 35 years after the first aircraft flight of Orville and
Wilbur Wright on December 17, 1903 at Kitty Hawk North Carolina. Manned
space travel began on April 12, 1961 when a Soviet air force pilot,
Major Yuri A. Gagarin, made an orbit of the Earth. So manned space
travel is over 40 years old. Space travel into Earth’s orbit is orders
of magnitude more dangerous after 40 years than aircraft travel was
when it was only 35 years old….

Newer rockets have been designed in recent years and have unexpectedly
blown up on launch. Rutan’s accomplishment is not as radical as some
media reports present it for a number of reasons. First of all, whether
he has designed a safer spaceship is will not be proven unless and
until it has flown hundreds and even thousands of times without mishap.
Also, and very importantly, SpaceShipOne does not do that much. It can not achieve orbital velocity or decelerate from orbital velocity.
In my view the Scaled Composites SpaceShipOne flight was important
because it demonstrated the potential for prizes to spur innovation. It
also opens up the possibility that that dangerous orbital spacecraft
can be designed and built for much lower costs than NASA and big
aerospace companies typically spend.

Addendum: Randall’s programming work is already in outer-space!

The economics of catastrophe

Here is a critical review of the new Richard Posner book, Catastrophe: Risk and Response.  Money quote:

…differences in risk perception can only be resolved through political negotiation.  But democratic politics is an enterprise for which Posner has contempt. He is addicted to the rule of experts, and he proposes a series of arid and (for a self-styled pragmatist) surprisingly impractical policy solutions for applying cost benefit analysis to risk calculation: a "science court" of experts that would review dangerous government  research projects; the creation of an international environmental protection agency to enforce a modified Kyoto Protocol under the auspices of the United Nations; a federal review board that would forbid any scientific research that poses an "undue risk" to human survival. Few of these proposals have any realistic chance of being adopted in America. And even if they were adopted, public emotionalism would continue to demand irrational (or as the behavioral psychologists say, "quasi-rational") allocations of resources that would thwart the experts’ recommendations. Although Posner promises to monetize the costs of these psychological and political impediments, he fails to do so.

I’m just reading the book now, but in general I am more sympathetic to the view that we underinvest in protection against large catastrophes; read Alex on this one.

Have New Zealand market reforms failed?

New Zealand moved from being perhaps the most socialized OECD economy to the freest.  The country now has free trade, 0-2 percent inflation, no agricultural subsidies, free labor markets, free capital markets, low marginal tax rates, a reasonable fiscal position, and it conducted substantial privatizations, mostly with success.  The reforms started about twenty years ago, but the country is not sweeping the world; here are detailed dataMartin Wolf ($) points out some salient facts:

1. From 1982 to 2002, New Zealand grew at an average rate of about 3.6 percent.  That is not bad, but most of the other figures do not massively impress.

2. In 1970, NZ incomes were about 71 percent of the OECD average; now the figure is about 76 percent; these calculations exclude Turkey and a few other outlier countries in the OECD.  Remember, those OECD averages include the slow-growing European economies. 

3. The rate of productivity growth is now about 2 percent.  Multifactor productivity is growing at about 1.2 percent.

4. Investment remains at a relatively low 10 percent of gdp; in Australia for instance it is 16 percent.  The rate of adoption for information technology is not overwhelming.

What gives?

First, New Zealand without the reforms would have fallen apart and become insolvent; that is the relevant counterfactual.  Second, the country is small.  The population is just a bit over 4 million; for purposes of comparison the Philadelphia metropolitan area is over six million.

Michael Porter nailed it over ten years ago.  New Zealanders have few if any industries where they control market conditions or lead with innovations.  For the most part they are at the mercy of world prices and broader conditions.  The country’s earlier crisis was precipitated in the early 1970s, when the UK ended "imperial preference" for New Zealand agricultural exports.  Another shock will come if Australia passes its free trade agreement with the U.S.; New Zealand exports will face a new and tough competitor. 

Finally, the brain drain has not gone away, here are some ruminations on the topic from Nick Gillespie.

Freedom and good policy are no doubt beneficial, but there are fewer guarantees in this world than we might like to think.

What’s hot and what’s not

Try Google Zeitgeist, which lists the most rapidly growing and most rapidly declining searches over a week’s period.

Country-by-country favorite searches (not rates of change) are given as well.  In Russia the most popular query in October was "pet therapy."  In the Netherlands it was "Britney Spears."  In Germany it was "telefonbuch".  In France it was…er…"France".

Here are some fun graphs of search patterns, along with year-end results from 2003.

Thanks to Kyle Cooney for the pointer.

When to reveal, when to hide

Why are people more outgoing when they are young than old?  Robin Hanson attempts an answer:

As you reveal more to strangers, the distribution of their evaluations spreads out, some moving up toward friends, others down toward enemies. You want to reveal more to potential friends in the hope that some of them will rise above the friend threshold, but you do not want to reveal to potential enemies, for fear they will fall below the enemy threshold. Once people do cross these thresholds, however, your preferences about revelation switch. You want to stop revealing things to confirmed friends, for fear of losing them, and you want to reveal more to confirmed enemies, in the hope of winning them over.

So when looking for someone to marry, you’ll want to open yourself to people. And to help this process, you’ll want to learn about yourself. Once you are married with children, however, you will not want to learn or reveal more about yourself. Similarly, when searching for a new career or entry level job, you’ll want to reveal yourself, but once tied to a career or workplace, you will not want to learn or reveal more. When moving to a new neighborhood you’ll ponder what you really want, but once you live there you will not want reveal too much to neighbors, or think too carefully about how much you like them.

This may go a long way toward explaining standard life cycles in openness and conformity. The young discover and celebrate their passions and uniqueness, except not always with their old friends. The old prefer stability and conformity to community, and reveal and discover the most (in private) with their deepest adversaries. To the young the old will seem boring and conformist, while to the old the young will seem lonely and flighty. The young and the old can really be the same sort of people, but in different circumstances.

Markets in everything?

Croatia may reopen its most notorious communist-era prison for tourists willing to part with their money to re-enact the life of a political prisoner – including hard labor, stale food and nights in solitary confinement.

The plan has the support of some local officials and even former inmates, who have offered to work as tour guides, though the city council has yet to make a final decision.

"If you want to experience some of the torture that political prisoners underwent … just come along," said Josip Modric, an architect who is promoting the project.

Modric envisions tourists being issued convict uniforms, pounding large stones with a sledgehammer and hauling the pieces on their backs to quarries around the prison on Goli Otok, a barren island in the northern Adriatic Sea.

Those who sign up would be given written awards after completing their "prison sentence."

Here is the full story, which notes that real torture will not be allowed.  Thanks to Jonathan Dingel (read his blog) for the pointer.

Along related lines, The Wall Street Journal (November 19, p.A12) reports that communist-era "nostalgia brands" are sweeping Eastern Europe.

My favorite philosophy blog

Law does especially well in the blog medium, philosophy usually does poorly.  You can cite a legal case or precedent more easily than you can summarize Also Sprach Zarathustra.  But Will Wilkinson’s The Fly Bottle is snappy, smart, and to the point. 

I liked this bit:

My philosophical heroes are Aristotle, Hobbes, Hume, Darwin, Hayek, and Quine [TC: very close to my list, sub in Plato for Aristotle]. You know, the founding fathers of the reality-based community.

Apparently I’m so empiricist that some folks get confused when I look out the window and report that politics is not primarily a matter of arguments, but more a matter of coalitional identity and the stories that bind these identities together. My practical point, which I also believe to be empirically sound, is that if we hope to get anywhere, we’d better face up to the facts about the way people make political choices, and that simply lashing out at others’ deeply-held identities with the disdainful counter-assertion of our identities is rather likely to be counterproductive.

And here is Will interpreting Tyler on social security.  Here is Will on why Bush won.