Month: July 2005

What is government anyway? A parable from Singapore

Yes Singapore has developed rapidly through the use of market incentives, but there is much government planning here as well.  Every food stall gets a letter grade for its cleanliness, which must be displayed prominently.  More significantly, land planning has been extensive, and yes the government decides where the food stalls (and just about everything else) will go.

But why do we call this government?  Let us say that way back when, former Prime Minister Lee Kuan Yew had homesteaded the territory of Singapore in proper Lockean fashion.  He then wrote a contract welcoming people (all subsequent migrants, but not everyone) to live there, provided they agree to various rules and regulations, including of course Singaporean land planning, not to mention the ban on oral sex.  This would then count as "the market," presumably.

Should we then think that such planning is more (or perhaps less) efficient, because it is now "the market" instead of "government"?  But why should our evaluation depend on the murky details of past history?  What is really the difference between market and government anyway?  Can we in any case think of Singapore as a very well planned corporation, albeit with some uptight morals at times?

When we do public choice theory, is it really the government we are criticizing?  Or is our true target something like "excessively large land parcels," regardless of their historical origin?

Using cartoons to promote reform

From my inventive colleagues at the World Bank: using cartoons to promote economic reform. Follow the stories of people such as Bosnian entrepreneur Max as they struggle through red tape (my favorite example: an ‘atomic shelter fee’).

Comics can be so effective in spreading information because they use drama and
humor to educate without being overly didactic or preachy.  Unlike brochures,
they have a long shelf-life.  People rarely throw out comics – they either save
them or give them to a friend.

Comics are also cheap to produce and can be placed as advertisements in newspapers. The disadvantages? They’re very hard to edit by committee, which may explain why the big institutions have been slow to pick them up. That said, you can order your Federal Reserve comics here.

Peruvian Food

You can eat pizza in Cusco but why would you?  Neverthless, many people must since the places are everywhere – lcd dining.  The local speciality is cuy (click on the link if you do not know what it is.  But do not tell my children what Daddy has been eating!)  Roasted cuy is an old tradition – recall the discussion of syncretism and subterfuge and check out this Cusconian painting of the last supper (scroll down to the third picture for a good view.)

You can get western cuy in town but I wanted the real thing so I asked the hotel guide where the locals go.  After some argument (si, si, yo no quiero cuy touristico, yo quiero muy bien cuy tipico) she relented and got me a taxi for the next day.

We traveled well out of Cusco, past the shanty towns and out into the countryside where cows roam next to the highway and the occasional llama can be seen on the mountains.  After about 40 minutes we arrived at a downtrodden pueblo.  I thought this was it but we then headed out on a dirt road finally pulling into an alley/driveway behind a house.  Just like in the movies a fat goose and a skinny dog (you work it out!) moved slowly out of the way as we pulled up to a terrace behind the house. The restaurant, if you can call it that, wasn’t much to look at but opposite were the mountains.

Two Andean mamas right out of the tourist book seated us and began to stoke a large earthenware stove with wood.  The cuy was roasted and served with excellent Andean potatoes as well as macaroni and cheese (!).   

The cuy: good.  The view: great.  The experience: priceless.

What’s on my MP3 Player?

If all goes well today I shall climb Putucusi, the mountain next to Machu Picchu.  I intend to time the ascent in order to summit with the climax of Dvorak’s New World Symphony.  Those of you who know the piece will recognize the megalomania, oh well at least I can’t be accused of lacking self-awareness.

Also on my IRiver MP3 Player:

Rush: Moving Pictures.
Fleming and John: Way We Are.
Miles Davis: Birth of the Cool.
Van Morrision: Inarticulate Speech of the Heart.

Thomas Friedman has a really, really bad idea

Wouldn’t you think that if you were president, after you had read the umpteenth story about premier U.S. companies, such as Intel and Apple, building their newest factories, and even research facilities, in China, India, or Ireland, that you would summon the country’s top business leaders to Washington [and] ask them just one question: "What do we have to go so you will keep your best jobs here?  Make me a list and I will not rest until I get it enacted."

That is from his Op-Ed "Learning from Lance," here is the link.  Wasn’t something like this tried in the 1930s?  For purposes of contrast, read the ever-sensible Daniel Drezner on the same topic.

Rankings of economics blogs

All these measures are a bit mind-boggling, but Craig Newmark considers the relevant data in detail.  I don’t mind how BlogPulse measures popularity, but I’ve long believed that blog writers should not spend much (if any) time checking their stats.  Of course I didn’t go looking for these rankings, I just happened to see them on Craig’s blog…although I did read the post in full…

Mispriced Bandwidth

A correspondent writes:

The Moche site is down again. In situations like these, it’s always struck me that the business model of the host–in this case Yahoo! GeoCities–is insane. If the demand exceeds the bandwidth that their customer has paid for, they should provide an option for visitors to make a donation via PayPal or some such that will restore access to the site. They might make a lot of money doing this–they might even split it with their customers whose sites attract the traffice. If the fee is priced correctly, visitors wouldn’t think twice about paying–obviously we want to see the site or we wouldn’t have followed the link in the first place.

This is an excellent idea. With bandwidth so cheap I would add that there ought to be an option to pay for bandwidth for others as well as oneself. I would have paid for our readers to enjoy the sex pots!  I would tell you the correspondent’s name by the way except that this person is at work and doesn’t want it known that s/he uses the boss´s time to peruse "erotic crockery"! 

Choosing whether to binge

A chunk of your brain is responsible for anticipating whether something will be fun or not. Apparently, cocaine and other addictive substances (including spouses, according to Tyler) can fool it – cocaine turns out to be not nearly as much fun as you thought it was going to be.

This is bad news for rats, who can starve to death while binging on coke, but humans realise they have been fooled and in moments of calm reflection can take steps to avoid the ‘hot mode’.

This from Douglas Bernheim and Antonio Rangel’s paper on addiction, which made it to the American Economic Review. A fascinating compromise between a rational addiction model and a neurological approach.

As so often, though, Thomas Schelling was there first.

Syncretism and Subterfuge

Cusco’s Cathedral is built upon an Incan palace and filled with gold and silver, much of it melted down from Incan treasures.  It was built, moreover, using the artistry of the native population – amazing carvings, silver work, masonry and paintings. 

If you look carefully, however, the artists managed to inject some of their own culture.  Most peculiar is a painting of the crucifixion.  At first glance it’s a very good but standard painting but look closer and don’t Jesus’s hips seem rather wide?  And can it be, no surely not, but at a certain angle doesn’t it look like he has, well, breasts?  Heh, in the right light he’s kind of se…no, no, stop.  That’s too much even for me.  Once you see it, however, it’s not hard to believe the local theory that the artist used a female model in order to put some Pactta Mama (the Incan mother earth goddess) into his work.

The Spaniards also changed many of the local festivals.  Where before the locals had paraded their mummified ancestors around the square now they were required to parade figures of Jesus and the Saints.  Once, however, the figure of Saint James was dropped.  A peculiar ash was found inside and later shown to be cremated human flesh.  Apparently, the locals had found a way to continue following their customs while at the same time satisfying the Spaniards.

Markets in everything, Singapore style

Tour an island full of garbage, and yes they supply the guide.  That is right here in Singapore, here is further information.  No thanks, I’ll spend my time at the food stalls and in the public library.  Alternatively, you might prefer to tour Berlin by Trabant.

I’ll add that Singapore – garbage tours or not, and newspaper headlines not withstanding – is way cooler than when I visited eighteen years ago.  There is much more culture, the people are far more stylish, the "Zeitgeist" feels freer, and the number of good eating establishments appears to have risen.

Pondering Chinese revaluation

In the long run nominal exchange rates should not (do not?) affect real exchange rates.  In other words, the yuan may be 2 percent stronger, but Chinese exporters can lower their prices 2 percent, if they so wish.  Now in the short run many prices are sticky, but does this really apply to Chinese exporters?  Haven’t we all had enough time to digest the possibility of yuan revaluation?

Do not neglect the effects on the capital account.  Perhaps the market expects further yuan revaluations; this would mean an increase in the nominal interest rate spread on dollar and yuan assets.  Yes this could bite domestically in the U.S. but so far we haven’t seen significant interest rate pressure.  In fact the day of the revaluation, the market showed an expected six percent gain for the yuan over the next year.  This hasn’t caused anything to come crashing down.

Or you might think the yuan revaluation changes market psychology, or redefines a focal point, and thereby signifies some long-run shift in future currency swings.  But if so, again the marginal trader in the market doesn’t think this is a big problem.

Also keep in mind that true Chinese liberalization would mean that Chinese private investors could buy many more dollar-denominated assets than is currently the case.  Maybe you’re worried about the Chinese central bank ceasing to buy dollars.  I’m more worried about Chinese liberalization leading to a domestic financial collapse, in part driven by capital outflows.  Of course, in any case I do not expect Chinese liberalization anytime soon.

The bottom line: Many approaches to exchange rates focus on various financial flows, and what adjustments must occur to make them balance out in the medium-run.  It then seems the dollar must fall drastically to restore our trade balance.  I’ve never been impressed with the predictive power of these models.  Look at national wealth instead: the U.S. still has by far the healthiest economic situation in the world, so why should the dollar be due for a crash?  I expect China to face a financial crack-up plus their long-run demographic problems are daunting, perhaps the worst in the world.  So the currency market is overlooking one set of "fundamentals arguments" to focus on even longer-run fundamentals.  As is so often the case, it is the noise traders who are enforcing an equilibrium based ultimately upon the very long-run fundamentals.

But if you wish to read the case for worry, check out this WSJ Econo-blog.  Brad Setser adds commentary.