Month: July 2007

Boudreaux v. Rodrik is a knockout for GMU chair Don Boudreaux.  I’m biased?  Of course, but the call is made by Brad DeLong.

Millions of Indian coins are being smuggled into neighbouring Bangladesh and turned into razor blades.  And that’s creating an acute shortage of coins in many parts of India, officials say.

Police in Calcutta say that the recent arrest of a grocer highlights the extent of the problem.  They seized what they said was a huge coin-melting unit which he was operating in a run-down shack…

"Our one rupee coin is in fact worth 35 rupees, because we make five to seven blades out of them," the grocer allegedly told the police.

In some cases the temporary solution is a private money:

To deal with the coin shortage, some tea gardens in the north-eastern state of Assam have resorted to issuing cardboard coin-slips to their workers.

The denomination is marked on these slips and they are used for buying and selling within the gardens.

Here is the story.  The pointer is from www.geekpress.com.

I wrote this paragraph two days ago:

Employers also may give workers raises at a slower rate; this is called “wage compression.”  If it is hard to cut wages, wait and make sure the worker really deserves a pay increase. Wages will lag productivity, but the net result is fewer situations where a direct wage cut is necessary.

The implication of course is that low unemployment, and a stable macroeconomy, will mean that wages lag behind productivity.  Here is my earlier post on wage compression.

The Bank of America’s Keep the Change program freaks me out.   Every time you make a charge with your B of A debit card it rounds the figure up to the nearest whole amount and transfers the change to your checking account.*  Commercials for this service are all over the television and radio – tagline: “you don’t even have to think about saving” – and every time I see one I feel the gulf between me and the rest of humanity widening (MR readers excepted of course).

Look, I can understand Ulysses tying himself to the mast, I can understand locking the refrigerator and I can understand Christmas accounts but I will never understand how anyone can increase their savings by taking money from one account and putting it into another.  I think I will write a book, I will call it Mental Accounting for Dummies:

The secret to saving more money is simple.  In your right hand is money for spending.  In your left hand is money for savings.  Now take some money from your right hand and put it into your left hand.  Tada!  Wasn’t that easy?

Millions have signed up for Keep the Change and the program has been written up by Business Week as "a radically different product that broke the paradigm."  Sigh.

* n.b. It is true that B of A tops up the amount transferred but this part of the program, the only part that makes any sense, is hardly advertised at all.

Many people have been clamoring for this topic over at the secret blog.

My views are simple: we have too few cats in the world, relative to dogs.  Dogs, for reasons of temperament, can in essence precommit to being our slaves.  (As long as they are not Irish Setters.)  That makes us more willing to create or support an additional dog.  The quantity of dogs is nearly Pareto optimal, although their emotional slavery to us raises ethical questions about the distribution of power in the relationship.

A cat cannot "promise," genetically or otherwise, that her kittens will become your (or anyone’s) slaves, if only you don’t neuter her.  The kittens never come about, or they meet a cruel fate rather quickly.

If you must support the life of either a cat or a dog, choose the undervalued cat.  This argument requires only that the cat gets some value out of being
alive, and that value should carry some weight in our
all-things-considered moral calculations.

More generally, you should go around helping the (undervalued) people who insult you, or the people who otherwise signal their independence from you.  The craven are already being served quite a bit.

Tim Harford’s first radio documentary "Analysis: Repugnant Markets", will air on BBC at 8.30pm UK time (3.30pm EST) today – featuring Al Roth, Virginia Postrel, and Robin Hanson, among others.  The show will go on-line here, with a transcript, sometime later today.

When my editor and I were exchanging drafts of this piece, my spam blocker wouldn’t let them through.  There is too much talk of Nigeria and diamonds!  Here is one excerpt:

Paul Collier, an economics professor at Oxford University,
has a new and potentially powerful idea.  In his recently published
book, “The Bottom Billion: Why the Poorest Countries Are Failing and
What Can Be Done About It” (Oxford University Press), Professor Collier
favors an international charter – some widely publicized guidelines
that countries can voluntarily adopt – to give transparency in spending
wealth from natural resources.  A country would pledge to have formal
audits of its revenues and their disposition.  Imagine
PricewaterhouseCoopers auditing the copper revenues of Zambia and
issuing a public report.

It’s not as futile as it might sound:

Professor Collier’s proposal at first glance seems toothless; a
truly corrupt country probably wouldn’t follow the provisions of the
charter, which, after all, is voluntary.  Yet citizens could pressure
their government to follow such a charter, and the idea of the charter
would create a focus for political opposition and signify international
support for concrete reform.

Foreign corporations would bring
further pressures to heed the charter.  Multinational companies that are
active in corrupt countries might receive bad domestic publicity.
Eventually the companies might push for adherence to the charter, even
if the charter limited their ability to bribe.  In another context, De
Beers has been stung by bad publicity about “blood diamonds,” and the
company is now a force for positive change where it operates.

In
the optimistic case, a few poor countries start abiding by the charter.
Those countries prosper and attract more investment and status in the
international community.  The pressure to adopt the charter would then
spread.  Of course, promoting the charter costs relatively little and
the potential benefits are significant.  International pressures did
eventually force a change in South African apartheid.  So maybe they can
improve other countries as well.

Did you know that Tony Blair was already promoting such a charter?  And the Nigerian government (really) already commissioned a private sector audit and now has enacted a version of this idea into law?  We’ll see how that goes, but Nigerian flirtation with rule of law ideas is one of the underreported stories of this year.

Paul Collier’s The Bottom Billion is a very exciting and important book.  It is rare to read something on economic development that is true, non-trivial, and potentially useful.  I recommend this book highly, it is also short and easy to read.  Here is a good review of the book by Niall Ferguson.

Here is the whole column.

It beggars belief when economists at Princeton, Harvard and Berkeley claim that they are lone voices in the wilderness boldly striking heterodox positions against the hegemony of “free market economics.”

David Card, for example, says “You lose your ticket as a certified economist if you don’t say any kind of price regulation is bad and free trade is good.”  Really?  Card and Krueger’s famous paper on the minimum wage was a 1993 NBER working paper published in the AER in 1994.  What happened then in 1995?  Was Card decertified, drummed out of the profession, vilified by his peers?  Hardly, in 1995 David Card was honored (deservedly imho) by the American Economic Association with the John Bates Clark medal.

Dani Rodrik says “I fall into the methods of the mainstream, but not the faith,” which he defines as the belief that more markets and free trade are always good and government regulation is  always bad.  Give me a break.  Let’s go to the data.

Klein and Stern surveyed members of the AEA on a host of policy questions bearing on markets and government regulation.  The result, “Only a small percentage of AEA members ought to be called supporters of free-market principles.”

Even on the minimum wage, support for which Card says gets you decertified, the mean economist position is in between “support mildly” and “have mixed feelings.”  Indeed, even Card has mixed feelings about the minimum wage!   (See his book with Krueger in which he points out that the minimum wage is not a very effective way to help the poor).  On a host of other issues concerning government regulation, like support for OSHA, the FDA, and the EPA, the mean economist is somewhere between strongly and mildly support.

Only on free trade is there strong opposition to government regulation in the form of tariffs.  Thank goodness for small mercies.