Month: September 2005

Growth fact of the day

…out of nineteen non-Western countries that belonged to the rich club in 1960, only four remained there (the Bahamas, Japan, Mauritius, and Slovenia) [in 2000].

Or perhaps you are wondering which countries, according to available statistics, appeared on the verge of crossing over into the "rich" category in 1960?  Here is the list:

Lithuania, Serbia and Montenegro, Hungary, Kazakhstan, Poland, Russia (addendum: no, I don’t believe the data), Ukraine, Croatia, Haiti (!), Guyana, Jamaica, Colombia, Panama, Nicaragua, the Congo (!), Senegal, Gabon, Ghana, Singapore, Iran, and Hong Kong.  At the time many of these countries lagged only slightly behind Portugal.

The lesson?  Don’t take your future prosperity for granted.

That is all from the very interesting Worlds Apart: Measuring International and Global Inequality, by Branko Milanovic.  Here is more information on the book.  Here are the author’s working papersThis paper argues for allowing the free movement of soccer players onto teams outside their nationality.

My view of the Chinese central bank

Brad DeLong has another useful post on whether we should be optimists or pessimists about the U.S. dollar.  Much hinges on whether we expect the Chinese central bank to continue buying U.S. Treasury securities.  As many MR readers will know, I am a cautious optimist.  I have never been to the Chinese central bank, or spoken with a Chinese central banker, but here is my implicit mental model of how they operate:

1. Intelligence and financial prowess aside, they grew up in an age of Communist terror, or if they are young they heard narrations of such from their parents.

2. They are deathly afraid of making mistakes and causing China to lose face on the global scene.

3. They know full well that the Chinese economy — especially the financial system — is a rickety house of cards.  If capital flows out of China were unrestricted, and the yuan allowed to float freely, a financial collapse would come within five years.  They see us as propping up their currency, rather than vice versa.  Most of all, they want to be holding safe assets, in case the worst should happen.  They are risk-averse bureaucrats.

4. They behave like many other non-profit institutions (e.g., Harvard) in accumulating an endowment of high-prestige, high-quality assets.  U.S. government securities are tops on this list.  Yes, it is a puzzle why Harvard accumulates such a considerable endowment, but no one expects them to stop anytime soon.

5. They don’t much care if they suffer capital losses on their dollar-based endowment, evaluated in terms of the relative exchange rate with the yuan.

6. Many Chinese have a highly conspiratorial view of the world.  They would expect — indeed "overexpect" U.S. "retaliation" if they suddenly stopped buying Treasury securities.

7. They are familiar with the old chess saying: "The threat is stronger than the execution."

The bottom line: We require a better theory of endowments to predict the future behavior of the Chinese central bank.  But what I do know — or at least imagine I know — does not give me cause to believe the U.S. dollar will soon plunge in value.

The cynic’s conundrum

The cynic’s conundrum is that while a cynic might prefer that others believe an idealistic theory of his cynical mood, his own cynical beliefs should lead him to believe a cynical theory of his own cynical mood. That is, a cynic should believe that complainers tends to be losers, rather than altruists.

Furthermore, the meta-cynical theory, that cynics tend to be losers, seems to better explain the patterns that people don’t like to be around cynics, and don’t want to their children trained in cynicism. If idealism indicates more attractive features, people and institutions would try to present themselves as idealistically as possible.

Of course both the idealistic and the cynical theory of cynicism seem to accept the claim that cynical beliefs tend to contain a lot of truth. And this fact in turn favors the cynical theory of cynicism. Thus while hypocrisy and low motives probably are in fact much more widespread than most people acknowledge, most people are well-advised to pretend that they believe otherwise.

That of course is Robin Hanson, here is the whole (short) essay.

A “Grand Coalition” in Germany?

The electoral deadlock in Germany may mean a "Grand Coalition" with its two major parties, the Social Democrats and the Christian Democrats.  This is the likely outcome if neither of the major parties can assemble a coalition with the minor parties; some minor/major alliances simply are not possible, for either political or ideological reasons.

Looking to public choice theory, how will a Grand Coalition operate?

Models of proportional representation typically allow for multiple equilibria, but a plausible outcome involves a trade between a major party and an allied minor party.  The minor party will promise to support the major party in forming a coalition, if the major party makes one or two key policy concessions.  The distribution of gains will depend on bargaining power.  Will the major party have other possible coalition allies?  Does the minor party crave power, or would it rather stake out a purist stance on policy, and risk being left outside the coalition?  Note that once the coalition is in place the minor party often has a difficult time defecting.  Minor party officials come to enjoy the perks of power.  Their threats to bring down the coalition often are not credible.  So the resulting government often holds power snugly and governs sluggishly.

When no minor party is available for the coalition, the terms of the bargain shift.

First, a Grand Coalition usually means that the two major parties have roughly equal electoral strength.  If the coalition collapses, and a government must re-form, and either party could come out on top in the new bargain.  Therefore the (slightly) weaker coalition member does not have a very strong incentive to hold the coalition together.

Second, the two major parties often have opposing platforms.  So the initial policy compromise might stop either party from doing much of anything.  That is one reason to expect stalemate.  It also means that the (slightly) stronger party doesn’t gain much from the coalition; it cannot promote its agenda.  There is also the danger of many minor parties proliferating at the fringes, given the centrism of the joint coalition.  This lowers the returns to holding power at the center, as these minor parties will cut into your future electoral support.

The bottom line: Two parties in a Grand Coalition will reap low gains from trade.  Neither party will much mind if the Grand Coalition collapses.  Stability is "knife-edge."  But the parties therefore might be willing to take more chances.  What do they have to lose?  A Grand Coalition does not mean certain policy gridlock (in contrast to this pessimistic view). 

And let us say that both parties recognize the need for reforms, but are held back by voters.  An arrangement where accountability is low and "each party can blame the other" might be exactly what is needed.

To cite reality for just a moment, Germany had a "Grand Coalition" from 1966 to 1969, and this was no obvious disaster.  Student revolts aside, many Germans consider these years a golden age. The earlier Grand Coalition passed important economic legislation in 1967 and restricted civil liberties in a controversial manner.  Modern German politics is often slow, but in relative terms this period was not a time of gridlock.

Addendum: Here is a longish piece I once wrote on proportional representation; note Alex’s contribution on referenda as well.

Rotting in FEMA City

The Bush administration and FEMA are planning to house Hurricane Katrina evacuees in some 300,000 trailers and "mobile" homes.  What an awful idea.  Mobile home cities are nothing but public housing built on the cheap – why must we revisit that disaster?

In Florida some 1,500 people left homeless by Hurricane Charley are still living in "FEMA City," a desolate subdivision of trailers and mobile homes built on 64 acres between a county jail and Interstate 75.  Located far from jobs, real schools and ordinary amenities like restaurants and grocery stores, FEMA City has become another public housing failure.

There are no trees, no shrubs, and only two small playgrounds for several hundred children.

Teenagers have been especially hard-hit – drug use, vandalism,
break-ins and fights are widespread. Young people regularly call FEMA
City a prison.

The troubles got so bad in the spring that the entire camp was
fenced in, a county police substation was set up, and armed security
guards were stationed at the one point where residents were allowed to
enter and exit. Even with that, the number of calls to the county
sheriff’s office was at an all-time high last month – 257 calls that
resulted in 78 police reports, many of them involving domestic
violence, fights, juvenile delinquency and vandalism. In January, there
were just 154 calls and 40 official actions.

FEMA City has only 1,500 residents.  Can you imagine how bad things will get if "vast towns of 25,000 or more mobile homes" are built, as is being planned?

Why are we interring people in government camps?  Housing vouchers are a much better policy.  Let evacuees use their vouchers in any city in the United States.  Let them begin to rebuild their lives with decent housing in places where they can find jobs, schools and community.

Movie preview fatigue

I used to feel that seeing the previews was better, on the average night, than seeing the movie to follow.  I would have paid the $6.00, or whatever, just to watch twenty minutes of previews.  Today I am considering forsaking previews altogether.  The economist in me wonders why:

1. Internet reviews make previews less important for judging whether I want to see a movie at all.

2. Current previews are more likely to spoil the money and give away the good bits in advance.  The goal of a preview today is to get you to go at all.  It doesn’t matter if the preview ends up spoiling the movie for you, since word of mouth is today worth less.  Movies make more of their money in the first week than in previous times.  Earlier previews took greater care to preserve the quality of your moviegoing experience.

3. The pre-movie warm-ups, including commercials, have become longer.  Filmgoers are treated as a captive audience.  At my local theater I can show up seventeen minutes late and miss nothing.

4. I am older and presumably harder to satisfy in most regards, although the value of good chocolate ice cream has not declined.

The earthquake that is Germany, a continuing series

Here is one good take on today’s election.  My view of the bottom line?  Most Germans are sick of Schroeder, and ready to vote for someone else, but they run to third parties.  Wessis still have cultural inhibitions about voting for Ossis, even though they won’t admit to it in public.  We don’t yet know which coalition is most likely, but go to the excellent Medienkritik site for updates.  Here is another good source.

Combine this with the electoral results from New Zealand and you get a simple hypothesis: we don’t have better economic policies because voters don’t want them.

Sales of new novels and romances during the Romantic period

Yes, it is Sir Walter ScottWaverely, from 1814, sold about 40,000 copies; Guy Mannering sold about 50,000.  His twenty-third bestselling novel (unidentified) sold about ten thousand copies.  The twenty-fourth bestselling novel from this period — Fanny Burney’s Camilla — sold only four thousand.  Scott was first also in the poetry market, with Byron a close second.  Moore, Campbell, Rogers, and Southey dominate Coleridge and Wordsworth. 

Keep all that in mind next time you despair about Dan Brown on the bestseller lists.  More generally, we are leaving "winner-take-all" markets behind, not moving toward them.

The numbers are from William St. Clair’s excellent The Reading Nation in the Romantic Period.  Here is my previous post on the book.

Sexual Healing

The Danish government pays for the disabled and elderly to watch porn and have sex with prostitutes.

Caregivers in Copenhagen have found that pornography and prostitutes
have a greater calming effect on their elderly patients than
traditional medical treatment such as drug therapy.

Staff at the Thorupgaarden nursing home in the Danish capital have
been broadcasting pornography on the building’s internal videochannel
every Saturday night for several years. And if videos and dirty
magazines don’t relieve the tension, residents can ask the staff to
order a prostitute for them.

The caregivers have told Danish media that pornography is healthier,
cheaper and easier to use than medicine, Lars Elmsted Petersen, a
spokesman for the Danish seniors’ lobby group Aeldresagen, said.

Earlier this year, the Danish government released a report stating
that sexuality is an integral part of life for the elderly and the
disabled. It recommended that caregivers help elderly residents satisfy
their sexual needs.

All this sounds very reasonable to me.  My only objection?  Government intervention could lead to shortages.

To Serve and Protect Whom?

Last week I wrote:

According to this stunning account
local law enforcement officials prevented refugees, at gun point, from
leaving New Orleans and then stole their food and water to boot.

The story seemed so incredible that I cautioned readers but the Washington Post is now verifying the main account:

A suburban police chief is defending himself against
accusations of racism for ordering the blockade of a bridge and turning
back desperate hurricane victims… Police Chief Arthur Lawson Jr. ordered officers to block a bridge
leading into the community [of Gretna], which is almost two-thirds white. New
Orleans is two-thirds black.

Thanks to Robin Hanson for the pointer.

The changing value of Shakespeare

Auction values for the publishing rights to Collected Works of William Shakespeare:

1709: "a small fraction of" 200 pounds

1734: "less than" 675 pounds

1741: 1,630 pounds

1765: 3,462 pounds

1774, End of perpetual monopoly copyright: Nil

That is from William St. Clair’s recent The Reading Nation in the Romantic Period.  Many books deal with the rise of print culture and the commercial revolution, but in terms of thoroughness and data work, this marvelous work is a clear number one.  Here is more on the book.  I am learning just how much early British copyright law kept the price of literature high, and kept books out of public hands.

The New Zealand election

It is going on now, many say "too close to call," here is The New Zealand Herald (with updates on their home page), and yes comments are open, add what you know, and I will update this post in the morning.  National Party candidate Don Brash is, to the best of my knowledge, the best candidate running for a leadership position in any major country in some time.  And of course Sunday is the election in Germany…

Addendum: The vote is very close.  This is mixed member proportional representation, so the final outcome will depend on negotiating a coalition with the minor parties.  This could take weeks, with (boo-hoo) Winston Peters as the likely kingmaker.  Here is the voting; note that ACT is the libertarian party but they have only 1.5 percent.

The debate over think tanks

Read these three posts by Virginia Postrel (as this link ages, you may need to scroll down or use Google).  This is a difficult topic for me, since I have had dealings with numerous think tanks and think tank-related entities for almost thirty years.  I sympathize with much of what Virginia has to say, but here are a few points in the other direction:

1. The existence of think tanks, and related entities, makes being an academic more attractive.  I mean the fun and exposure, not the money (think tanks don’t pay so well, relative to consulting).  Think tanks can make academics more productive, and can make academics more interested in addressing real world concerns.  Such factors have played a considerable role in my life.

2. I am interested in what economists call "rent exhaustion."  Why isn’t the entire budget of a think tank taken up by attempts to raise money?  Well, the entire budget of a for-profit usually is — or at least should be — taken up by attempts to make money; we call those profits.  The true goals of non-profits are more diverse, even when they face budgetary pressures.  Even corrupt non-profits do not spend 100 percent of their budget on raising funds.  Non-profits of all kinds — including think tanks — introduce a degree of mission freedom that is otherwise not there. 

The question depends on what we are comparing think tanks to.  The for-profit sector?  The NSF?  Blogging?  Free-lance writing?  Direct grants from foundations?  They all have their pluses and minuses.  The key question is whether the different pieces fit together in a useful way.

3. Some think tanks simply are markers or beacons for the ideologically faithful.  I do object to the hypocrisy involved, and to the quality of their policy outputs.  That being said, they are providing real services, just as churches do. 

4. I view the interaction between blogs (and other decentralized information and opinion sources) and think tanks as a key question for the future.  Will blogs "smack down" the rot of lower-quality think tank outputs, thereby leading to intellectual improvements?  Or will blogs push think tanks out of serious policy discourse altogether, making them more like churches?  Will blogs amplify the influence of some kinds of think tanks, at the expense of others?  On these questions, all bets are off. 

Note that scholars no longer need think tanks to take their ideas to larger  audiences.  The think tank sector has yet to absorb the import of this fact.  Could Google — and not universities — be the real competitor to policy think tanks?