Month: March 2010

See the Tragedy of the Commons

by  Alex Tabarrok in

Warning: Stefan Geens, an expert in the use of Google Earth, has taken a close look at the Zimbabwe photos and he argues that they are the unfortunate result of misinterpreting Google post-processing and updating.  I am not an expert but at the present moment I find his analysis compelling and I have taken down the powerpoints in which I incorporated the flash animation produced by the Center for Global Development.  

A few points of importance.  First, the sharply delineated lines in the photos dividing communal and privately owned land is real and is evidence consistent with the tragedy of the commons.  Geens writes to me:

The observation that the communal farmland seems worse off than the private farmland is a plausible one. And since the Landsat imagery could well have been taken around the year 2000 (or even earlier), Richardson's image can reasonably be used to support the thesis that communal farmland is not as well managed as private land.

What cannot be supported is the "animation" aspect which appears to show but in fact does not show a change over time.  

I should note that I have no reason to think that there was any malfeasance on the part of the Center for Global Development, a great organization, or Craig Richardson who originally brought attention to the photos.  Indeed, my reading of Geens is that without some expert help it would be hard not to make some errors in interpreting Google images, which have a more complicated provenance than one would imagine.  In addition, Richardson emailed me that he showed the images to farmers and government agriculture officials in Zimbabwe who agreed that they were representative of what was going on on the ground.  (See also Geens on this point noting burning.)  Nevertheless, although the redistribution of land in Zimbabwe clearly led to a drop in productivity and output, the animation is not evidence on this point.

One interesting point about this episode is that the story and the flash animation have been on the CGD website for several years but the huge exposure of MR means that we can draw on the expertise of many people around the world. Although I put some work into putting the powerpoints together I am pleased that we were able to correct this so quickly.

Original post follows but with PPs deleted.

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In 2000 Zimbabwe began to forcibly redistribute land from private but predominantly white-owned commercial farms to much poorer black farmers who toiled on communal lands.  Stunning pictures from Google Earth collected by Craig Richardson show the result.   

Take a look at the Before picture.  The communal land on the left is dry, dusty and unproductive compared to the private farmland on the right which is green and dotted with blue ponds and lakes.  Why?  There were two theories to explain this difference. 

  • The Tragedy of the Commons – the farmers on the communal lands did not have the incentives to invest in the land and thus the land eroded and turned to desert.
  • The land on the right (which was owned mostly by whites) was better quality land.

Both theories could be true.  Regarding the latter explanation, however, notice that the dry communal lands on the left are sharply delineated from the green private farms on the right–so sharply that soil quality and rainfall alone are unlikely to explain the difference.

So what happened after the land was redistributed beginning in 2000 and all of it made communal?

Click on the arrow to progress between before and after photos

After reform the land quality worsened everywhere. In particular, note that the blue lakes and ponds on the right became dry and empty as farmers no longer had an incentive to invest in maintaining these resources. The tragedy of the commons.

This excellent visual look at the tragedy of the commons was produced by
Todd Moss at The Center for Global Development based on pictures and
ideas from Craig Richardson.  Of course Zimbabwe had many problems before and after this forcible land redistribution.  You can find more pictures, background information and a lengthier discussion of this episode here.

How much of the world is in a liquidity trap?

by  Tyler Cowen in

Presumably in response to Scott Sumner, Paul Krugman writes:

And by that criterion, how much of the world is currently in a liquidity trap? Almost all advanced countries. The US, obviously; Japan, even more obviously; the eurozone, because the ECB probably couldn’t engage in Fed-style quantitative easing even if it wanted to, given the lack of a single backing government; Britain.

Krugman concludes that seventy percent of the world's gdp is in a liquidity trap.  Krugman also defines a liquidity trap:

In my analysis, you’re in a liquidity trap when conventional open-market operations – purchases of short-term government debt by the central bank – have lost traction, because short-term rates are close to zero.

Krugman I am sure is aware that European short-term rates have not been always close to zero since the crisis started; as I read his post as a whole, he is simply noting that Europe refuses to use sufficiently expansive monetary policy.  In essence "a shortfall in aggregate demand" is now defined as a liquidity trap.

But they're not the same thing, either definitionally, or more importantly in terms of their economic effects.  In a true liquidity trap, money demand is a black hole which soaks up or shuts down all kinds of potentially expansive processes.  Fundamental portfolio decisions stand at microeconomic "corners," as Keynes understood.  Simply experiencing a "shortfall in aggregate demand" does not generate the same stultifying results.  In the latter case there is still plenty of spending and investing on the "second round effects" of a policy change.  For instance today investment is not shutting down as it would in a traditional liquidity trap; even gross investment should be drying up.  It seems that investment (and intermediation) responds to plenty of incentives, positive and negative.  There's simply not an infinite demand at the margin to hold non-interest-bearing assets.  

A separate point is that overall aggregate demand can be too low, but some sectors, indeed many sectors, can be at margins which respond quite normally to supply-side incentives.  Those sectors may rule the net comparative statics, even if we, at the same time, wish aggregate demand to be higher.  A big tax on wages right now, for instance, would almost certainly do more harm than good, as would a big increase in the minimum wage.  At the very least, both blades of the scissors matter, unless of course you think the demand curve for money is literally horizontal, which it does not seem to be.

In my view zero percent of the world is in a liquidity trap.  Or you can redefine liquidity trap to mean "ongoing shortfall in aggregate demand," but then our new "liquidity trap" doesn't have the extreme counterintuitive properties which Keynes found so intriguing.

China fact of the day

by  Tyler Cowen in

This is from Scott Sumner:

I’d like to point out that there are many commonalities between China and 5 other East Asian economies; Japan, Taiwan, HK, Singapore and South Korea.  One of those similarities is that they all have huge stocks of foreign reserves.  In per capita terms China’s CA surplus is by far the smallest of any of the six East Asian powerhouse exporters.  The most recent data I could find in The Economist shows China’s CA surplus as $284.4 billion whereas the other five economies combine for a $286.7 billion surplus.  So if Krugman is right, those five economies actually are doing more damage to the world economy than China, which has 7 times the population and a modestly larger (PPP) GDP than other other five economies.

The entire post is worth reading.  By the way, Matt Yglesias also offers comment.  

Temporary Marriage in Shiite Islam

by  Alex Tabarrok in

ON A DUSTY MORNING in the holy city of Qom, I went looking for a shrine in a walled cemetery of martyrs known as Sheikhan. The graveyard's walls are lined with glass cases containing the framed photos of soldiers felled by the Iran-Iraq war. The shrine, I'd been told, is a hangout for women seeking temporary marriage, an intriguing mechanism in Shiite Islam for relieving sexual frustration. In the Islamic Republic of Iran, sex outside of marriage is a crime, punishable by up to 100 lashes or, in the case of adultery, death by stoning. Yet the purpose of a temporary marriage is clear from its name in Arabic–mut'a, pleasure. A man and a woman may contract a mut'a for a finite period of time–from minutes to 99 years or more–and for a specific amount, mehr in Farsi, which the man owes the woman.

Interesting throughout, from Mother Jones.

Sentences to ponder

by  Tyler Cowen in

On the new Dodd proposal, Steven Pearlstein writes:

There are so many political accommodations involving carve-outs and size limits and overlapping responsibilities that it creates exactly the kind of complexity, the opportunities for regulatory arbitrage and the lack of accountability that got us into this mess in the first place. It's worth remembering that many of the credit-default swaps that contributed to the recent crisis were originally devised by banks as a way around the old Depression-era law meant to keep banks out of the securities business, and by insurance companies looking to avoid insurance regulation.

Read the whole thing.

*The Big Short*, by Michael Lewis

by  Tyler Cowen in

The big fear of the 1980s mortgage bond investor was that he would be repaid too quickly, not that he would fail to be repaid at all.

That's one good sentence from the book, which you can order here.  There is an excerpt from the book, on Michael Burry, here.  Here is a Felix Salmon review of the book.  In terms of policy, Lewis attaches great weight to the fact that the major investment banks became publicly-traded companies rather than partnerships.  I liked the stories and much of the inside scoop, but it didn't have the giddy fun of Liar's Poker or Moneyball nor did it have the analysis of some other books.

Why did it take so long for humans to have the Industrial Revolution?

by  Tyler Cowen in

That's a reader request from the especially loyal Harrison Brookie.  First, you might wish to go back and read the MR reviews and debates of Greg Clark's Farewell to Alms,

More generally, extended periods of economic growth require that technologies of defense outweigh technologies of predation.  They may also require that the successful defender, at the same time, has good enough technology to predate someone else and accumulate a sizable surplus.  Parts of Europe took a good deal from the New World and this may have mattered a good deal.

Building a strong enough state to protect markets from other states is very hard to do; at the same time the built state has to avoid crushing those markets itself.  That's a very delicate balance.  China had wonderful technology for its time and was the richest part of the world for centuries but never succeeded in this endeavor, not for long at least.

England was fortunate to be an island.  Starting in the early seventeenth century, England had many decades of ongoing, steady growth.  Later, coal and the steam engine kicked in at just the right time.  English political institutions were "good enough" as well and steadily improving, for the most part.

Christianity was important for transmitting an ideology of individual rights and natural law.  As McCloskey and Mokyr stress, the Industrial Revolution was in part about ideas.

There are numerous other factors, but putting those ones together — and no others — already makes an Industrial Revolution very difficult to achieve.  It did happen, it probably would have happened somewhere, sooner or later, but its occurrence was by no means easy to achieve.  The Greeks had steam engines, proto-computers, and brilliant philosophers and writers, but still they did not come close to a breakthrough.

One question is how long the Roman Empire would have had to last to generate an Industrial Revolution and don't mention the Eastern Empire smartypants.

If you are asking why the Industrial Revolution did not occur in the Mesozoic age, or other earlier times, genetic factors play a role as well.

Measuring Hayek’s citation count

by  Tyler Cowen in

Jacob Levy has an update:

Proceeding from the other direction: a search just on Hayek restricted to business, economics, finance, law, linguistics, philosophy, political science, psychology, public policy, and sociology eliminated all the false positives I could find. 9385 . Searching for "milton friedman" in those same disciplines (and as far as I know there's no ambiguity in how to refer to him): 8088.

Now, I don't really think that citation counts are going to do the work Wolfers wants them to do here. But on his terms, Hayek is now out of Larry Summers' company, and into Friedman's.

He also shows that searching for further permutations on Hayek's name, such as adding a space where needed, ups the total number of cites a considerable amount.

Small steps toward a better world

by  Tyler Cowen in

In Hawaii, Kaiser Permanente has started a pilot project that churn through its database of patient data to predict which patients might need which tests – and then sends individuals email alerts suggesting they come in for a test or checkup. It's the same sort of technology that Netflix uses to recommend movies. And the Cleveland Clinic has teamed up with Microsoft to bring self-monitoring tools to patients managing chronic diseases, successfully engaging them in better health behaviors without expensive visits to the hospital.

Here is more, via Steve Silberman.  How much of the health care cost-saving revolution will occur in the hands of the individual patient?

Markets in everything: opera for babies

by  Tyler Cowen in

Yup, real baby babies, not non-real grown-up babies:

Scottish Opera is attempting to reach beyond its normal audiences of middle-aged music buffs by launching a series of concerts aimed at infants, aged between six and 18 months.

The experimental performances, to be staged at venues across the country, will feature no lyrics, narrative or plot. Instead, classically trained singers will create baby-friendly noises, such as Wellington boots splashing in puddles, buzzing bees, quacking ducks and the fluttering of feathers.

The audience will also be encouraged to gurgle along to the score and to crawl over a furry garden set, featuring hand puppets and a range of themed props.

There are many quote-worthy paragraphs in the article.  Like this:

“We were advised that when you are seven months old you are still not focusing very well [TC: I doubt this] so we have created a tactile garden set.”

Davidson said test performances had confounded expectations. “We expected it to be quite noisy, but we were delighted when we saw the happy expressions on their wee faces,” she said.

Or this:

“When I first mentioned the idea of opera for babies, some people looked at me as though I was demented. People would roll their eyes and say, ‘You can’t expect a six-month-old child to sit through a performance of Wagner,’ ” said Davidson.

“Of course, that was never going to happen, but some people still have fixed opinions of what they perceive opera to be. We believe this project will show just how robust and flexible an art form it is.”