Month: June 2005

Will the Middle East run out of water?

Farmers, who account for 70 percent of the world’s water consumption, are often hugely uneconomical about it.  For example, in growing water-intensive crops they derive a less-than-optimal nutrition content from a given quantity of water.  Agriculture, in fact, is one of the real villains in the global water drama…Half the water used by the world’s farmers generates no food…A 10 percent improvement in the distribution of water to agriculture would double the world’s potable water supply.

Middle Eastern countries could solve many of their water problems with free trade, economic diversification, and better agricultural incentives, and yes that means don’t grow bananas in the desert.  Yemen needs to stop growing qat; this addictive drug accounts for over seventy percent of their water use.

Ideally the relatively water-rich Syria, Lebanon, and Turkey could be selling water to the rest of the region but for political reasons don’t expect much of that anytime soon.  Sometimes the easiest way to trade water is inside a tomato.

As for desalination, the costs have fallen dramatically over the last decade, and may continue to fall.  The real problem is not producing the water but rather transporting it uphill.  Desalination won’t solve your problems if you live in the mountains.

The above passage is from Fredrik Segerfeldt’s excellent Water for Sale: How Business and the Market Can Resolve the World’s Water Crisis, published by Cato, and thanks to Alex for the pointer.

Will the Chinese keep on propping up the dollar?

Niall Ferguson says probably yes:

Even the gloomiest pessimists accept that a steep dollar depreciation would inflict more suffering on China and other Asian economies than on the United States. John Snow’s predecessor in the Nixon administration once told his European counterparts that “the dollar is our currency, but your problem.” Snow could say the same to Asians today. If the dollar fell by a third against the renminbi, according to Nouriel Roubini, an economist at New York University, the People’s Bank of China could suffer a capital loss equivalent to 10 percent of China’s gross domestic product. For that reason alone, the PBOC has every reason to carry on printing renminbi in order to buy dollars.

Although neither side wants to admit it, today’s Sino-American economic relationship has an imperial character. Empires, remember, traditionally collect “tributes” from subject peoples. That is how their costs–in terms of blood and treasure–can best be justified to the populace back in the imperial capital. Today’s “tribute” is effectively paid to the American empire by China and other East Asian economies in the form of underpriced exports and low-interest, high-risk loans.

Read the whole thing.  For the pointer I thank the now-once-again-as- good-as-ever (we need him — the guy has no right to actually finish his dissertation, does he?)

Voltaire: Game Theorist

Voltaire didn’t just champion markets he used them to his advantage.  In one scheme he successfully cornered the market on a poorly-designed government lottery buying all the tickets to score a sure profit.  Jerry Muller writing in his excellent The Mind and the Market: Capitalism in Western Thought speculates that Voltaire’s legendary hypochondria also had an economic basis.

Voltaire loaned large sums of money to members of the royalty, in return for a lifelong annual payment…He lived for eight-four years, and throughout the last four decades of his life, he spoke of illness and his imminent demise.  Since his debtors had to make the full annual payments only as long as the original lender was alive, those to whom Voltaire loaned funds were more likely to agree to a higher annual rate if they had reason to think that his life would be short.

Intelligence predicts health and longevity

Large epidemiological studies of almost an entire population in Scotland have found that intelligence (as measured by an IQ-type test) in childhood predicts substantial differences in adult morbidity and mortality, including deaths from cancers and cardiovascular diseases.  These differences remain significant after controlling for socioeconomic variables.

Here is the full article, courtesy of Randall Parker.  It suggests another perspective on why health care appears not to contribute to health.  Gross health care expenditures — an input — are not always the best way to measure real health care outputs.  (Similarly, gross educational expenditures do not much predict learning, once we adjust for other factors.)  High IQ is correlated with compliance with doctors’ instructions, good choice of doctor, adequate medical attention, and so on.  High IQ thus appears to be doing some of the work that should be credited to health care, as properly defined and measured.

Policy implications: Targeting gross expenditures on health is not the best approach to making people healthy.  But this does not mean that health is neutral with respect to health care policies.  A smart policy can make people much better off, just as smart patients live longer.

My next question: Do veterinarians extend the lives of the animals they care for?

How much did Judas earn?

$12,254, according to one source.  The calculation is "seat of the pants," at the very least, but it makes for an amusing exercise:

The answer (with some help from ebible’s weights and measurements section).

  • 1 Roman denarius is equal to one’s day wage for an agricultural worker. As most people in the ancient world were farmers, we can make some basic judgement about the standard of living a denarius could provide.
  • 1 denarius = 1/4 Hebrew shekel. Thus, 1/4 Hebrew shekel was probably the going rate for your basic Jewish [?] in Roman times (give or take).
  • Judas was given 30 silver shekels to betray Jesus (Matt 26:15)
  • 30 x 1/4 = 120. Thus, Judas was paid 120 days of an annual laborer’s wage.
  • 120 days is approximately 1/3 of a year
  • The average annual income for the American worker is $36,764 (according to a 2002 report by the U.S. Bureau of Labor Statistics)
  • 36764 * 0.333 (i.e. one third of 36764) = 12254.66.
  • Therefore, Judas betrayed Jesus in exchange for what is approximately $12,254 in today’s currency.

A purchasing power parity calculation should be much lower; one-third of an annual income back then simply didn’t buy much.  Or for a classroom exercise, imagine a strangely long-lived forward market in ancient shekels and dollars.  Thanks to Claudio Shikida for the pointer.

Is RSS Google’s main competitor?

If RSS is getting face-time at the expense of search, Google has something to worry about. And it makes sense. From personal experience, I know my daily routine to keep up with the information overload doesn’t really involve searching anymore, but subscribing. Thanks to services like, Technorati and, people are spending a lot less time actively searching and more time passively reading what’s being updated in their readers.

I think what they’re [Google] afraid of is the rise of applications that seem to be tracking importance and trends better than search. In the race to find what deserves face-time, services like, Technorati and in combination with the rapid adoption of web apps like bloglines, newsgator, feedster and kinja are making Google’s search seem very, very slow. And it’s all being accomplished with RSS technology.

Here is the longer and very interesting discussion.  I have long resisted RSS feeds.  I like the visual feel of a well-designed blog, I like to see how one post follows another, and I also track new blogs by seeing when people add to their blogrolls.  By doing things "by hand," I feel I am in closer touch with the blogosphere, and obtain what Michael Polanyi called greater tacit knowledge.  I will let you know when I switch to RSS, but I predict it won’t be soon.

Thanks to the ever-useful Chris F. Masse for the pointer.

Do pheromones influence consumer behavior?

The best place to sell magazines could be in the gym locker room, according to a study which found that pheromones in male sweat makes men opt for a manly read.

Men under the influence of androstenol – a pheromone found in men’s underarm sweat – find men’s lifestyle magazines to be more attractive and are more likely to purchase them than those not exposed to the pheromone, suggests the research.

Here is the full story.

Glenn Hubbard on the global savings glut

To what extent is weak financial intermediation in Asia part of the problem?

The Japanese case illustrates a general point absent from a discussion of a savings glut. The Keynesian reasoning assumes a simple black box between desired saving and investment–the financial system at home and abroad costlessly transforms lenders’ funds between savers and borrowers. A weak financial system–reflecting an underperforming banking system, poor investor protection and corporate governance, or fragile securities markets–yields a high cost of financial intermediation. For any given return on an investment project, savers’ net return is lowered by the high costs of intermediating funds. More broadly, regulatory restrictions in goods markets and labor markets reduce returns on domestic investment.

In a closed economy, high costs of financial intermediation increase the relative attractiveness of liquid, safe government obligations. (Again, household purchases of JGBs in Japan come to mind.) In an open economy, the international capital market offers the possibility of investing domestically generated savings in countries with a low cost of financial intermediation and/or a safe nominal anchor in government bonds–the U.S., for example.

Here is the full argument.

Subsidy Suckers

Depressing article from the Washington Post on the rise of lobbyists.

The number of registered lobbyists in Washington has more than doubled
since 2000 to more than 34,750 while the amount that lobbyists charge
their new clients has increased by as much as 100 percent…The lobbying boom has been caused by three factors, experts say: rapid
growth in government, Republican control of both the White House and
Congress, and wide acceptance among corporations that they need to hire
professional lobbyists to secure their share of federal benefits…

Lobbying firms can’t hire people fast enough. Starting salaries have
risen to about $300,000 a year for the best-connected aides eager to
"move downtown" from Capitol Hill or the Bush administration. Once
considered a distasteful post-government vocation, big-bucks lobbying
is luring nearly half of all lawmakers who return to the private sector
when they leave Congress, according to a forthcoming study by Public
Citizen’s Congress Watch.

No doubt this will create more calls for reform but the truth is we will never get the money out of politics until we get the politics out of money.

Is CAFTA a good idea?

Here is one lengthy criticism of the treaty.  Look there for the details, but here are my views:

1. The Bush Administration has not negotiated the treay on a bipartisan basis.  In part this is Bush’s core style, in part the Democrats have not offered much useful assistance.  If the treaty passes, the "pork cost" to swing Republicans will be high.

2. The worst parts of the treaty limit anti-AIDS drugs by extending intellectual property rights to Central America too strictly.  Yes drug companies will try to price discriminate, but the Brazilian solution may be better.  What will happen to generic medicines in Costa Rica?  Of course patent-breaking is a bad international precedent, but is Central America the relevant international tipping point for the destruction of intellectual property rights?  The net effect is difficult to estimate, read more here.

3. On the other hand, sooner or later these stronger patent protections might be imposed anyway, as Central American nations develop and join the global mainstream.  The question is how many people will die in the meantime.

4. More generally, the U.S. is setting bad precedent by using free trade treaties as leverage to negotiate other non-trade deals.

5. The treaty remains hostage to the interests of Big Sugar, as the sugar quota is barely weakened.  Nonetheless the sugar lobby still opposes the treaty, fearing a slippery slope of further erosion of privilege.  This is a good sign for the treaty.

6. Don’t worry that the agreement does little for labor rights or environmental protection in Central America.  Imposing such policies, before the recipient countries are wealthy enough to support them, is usually counterproductive.

7. The net move toward free trade is relatively small.

8. The biggest benefit of the treaty may be symbolic, by encouraging the Central American nations to embrace democracy more strongly and also to develop closer trade relations with each other.

9. Failure of the treaty would be a disaster, again for symbolic reasons.  Trade negotiations would slow down significantly, and the age of trade agreements might be over.

The bottom line: This is probably a treaty we should pass, but it is not a treaty we should be proud of.

By the way, Heritage is now running a CAFTA blog.  Russ Roberts has a more positive take on the treaty.  Matt Yglesias says thumbs down.

New book — The Market for Aid

…measures of aid quantity and aid quality seem to be correlated…The United States and Japan not only have the lowest effort among major donors, they also do relatively little targeting of aid to poor countries and to those with good policies…

That is Michael Klein and Tim Harford, two of the smartest people in the International Finance Corporation.  Are you interested in putting aside the polemics, and learning how foreign aid really works, or sometimes doesn’t?  Order the book here.