Month: July 2010

From the Korean taco story

by  Tyler Cowen in

“The meat makes it Korean,” said Mr. Ban, who marinates chuck roll in a soy and garlic sauce that is traditionally used with Korean barbecue dishes. “The tortilla and the toppings are a way to tell our customers that this food is O.K., that this food is American.”

The link is here and I thank Roland Stephen for the pointer.  I had read right over that passage and didn't even notice anything funny.

The economics of morale — can you name the context?

by  Tyler Cowen in

Also included were university textbooks for his daughter, pornographic videos for his son, plastic surgery for his wife, a burial plot for his mother, prostitutes for his employees, and, for him, a $100,000 American-flag belt buckle encrusted with rubies, sapphires and diamonds.

…His lawyers also defended the hiring of prostitutes for employees and board members, arguing in court papers that it represented a legitimate business expense “if Mr. Brooks thought such services could motivate his employees and make them more productive.”

You'll find the setting explained here.  I thank the keen-eyed Daniel Lippman for the pointer.

China pleasant surprise of the day

by  Tyler Cowen in

In most countries, the revelation that local governments would default on a fifth of their bank loans would be greeted with alarm. In China, however, the news came as a pleasant surprise.

“The fact that nearly 80 per cent of those projects have at least some capacity to service their debt is quite amazing,” said Qu Hongbin, chief China economist at HSBC.

There is more here.  This is in large part an aftermath of the Chinese plan for economic stimulus and some comentators have suggested that more of the stimulus should have been run through the national government.

*Ernest Gellner: An Intellectual Biography*

by  Tyler Cowen in

Gellner's general view of the world of advanced liberal capitalism is by now familiar: it is a relatively open world in which science prospers, bringing both affluence and diminished moral certainty — with Danegeld doing a good deal to secure social cohesion.

This splendid intellectual biography, by John A. Hall, should be read by all those interested in Hayek, Popper, Berlin, Oakeshott, and the foundations of a free society.  You can order it here.  I spent $33 on the book and it paid back every penny and then some.  Here is Henry on the book.

Ross Douthat’s case against cap-and-trade

by  Tyler Cowen in

I prefer to call it a carbon tax, while admitting the two are sometimes equivalent.  Here is Ross's key passage:

Spending 1 percent of our G.D.P. as a hedge against catastrophe might make sense; spending the same amount without any prospect of actually getting that insurance policy seems like idealistic folly. And so far, when it comes to actual mechanisms whereby Waxman-Markey becomes a model for the developing world, all I’ve heard from the left are neoconservative-style arguments about how “if the world’s leading power leads, everyone else will follow,” and visions of a carbon trade war between the West and China. Neither seems persuasive.

That's a strong argument, but the case for a carbon tax remains threefold:

1. Even if we cut government spending a lot, some taxes will have to go up.  This seems like the least bad tax to raise or create, since it has some chance of producing a better outcome.  It's hard to say that about most of the other potential tax boosts.  I'd also cut the tax deduction for mortgage interest, of course.  That too could improve the quality of outcomes.

2. Given that American policies are contributing to a (probabilistic) climate-based "attack" on Bangladesh and numerous other countries, there is a deontological case for trying to stop that attack.  It is a libertarian rights violation issue, driven by all of us in our role as consumers.   

It is a practical response — but to me a morally weak one — to argue "We Americans are the wealthiest country in the world but we're not competent enough to stop our contribution to the problem, so we're not going to try."  I get the logic, and I even agree with the predictive pessimism, but I'm not comfortable staying put with that as my final position.

3. A carbon tax might lead to a new green technology, with high upfront costs and low marginal costs.  Some of the rest of the world might then adopt the technology, even if those countries don't ever adopt a carbon tax.  In the short run this seems a little pie-in-the-sky, but in the longer run is it so crazy?  Haven't the Chinese adopted most of our other technological innovations?

That all said, I still don't like Waxman-Markey and in that regard I agree with Ross.  The bill seems to bureaucratize the energy sector, forgo most of the revenue opportunities, produce massive time consistency problems (postpone real adjustment and then give out more permits over time), and all without getting public buy-in to the idea of higher carbon prices. 

I'll also stress — again — that a carbon tax needs to be combined with the strong deregulation of the energy sector, and the weakening of NIMBY, in particular for wind power.

p.s. I hear less often these days about the "global cooling trend."

Why I’ve been wrong about Europe

by  Tyler Cowen in

If only mentally, I predicted a worse summer for the European economies than they seem to be experiencing; furthermore the euro is back up in the 1.30 range.  Why was I wrong?  I was believing those economies have more wage stickiness than they actually do.  In this regard a lot of Keynesians and market-oriented economists have been making similar mistakes, albeit for different reasons.  Sticky wages are a core part of the Keynesian worldview, whereas many non-Keynesian economists are quite skeptical of European labor markets and their inflexibilities.

These days I browse British, Irish, Spanish and German newspapers with reasonable frequency.  I am struck by how many accounts of falling nominal and real wages I see.  Outside of Germany, the proverbial cat hasn't quite bounced, but it seems to have hit the pavement.

One theory is that most wages are actually fairly flexible, but we don't usually like to cut wages or have wages fall.  When needed, many wages can fall quite readily.  In other words, sometimes it is easier to cut wages by a lot than by a little.

I hardly think the European economies, or the Euro, are in the clear.  Differential rates of productivity growth, and the absence and impossibility of a common fiscal sovereign, still will make the arrangement unworkable.  But it's worth explicitly noting that so far my forecast has been off the track.

Privatizing local government

by  Tyler Cowen in

Calling state mandates "entangling intrusions" in an open letter posted on the borough website in December, Mayor Paul Anzano proposed an apparently unprecedented solution: Dissolve the community's municipal charter and establish the borough as a nonprofit entity.

That's from Hopewell, New Jersey, and the odds are against that happening or even receiving serious deliberation.  For the pointer I thank Igor Pleskov.

Credit Scores, Criminal Background Checks and Hiding the Bad Apples

by  Alex Tabarrok in

A number of people (Slacktivist, Kevin Drum, Matt Yglesias, Megan Mcardle) are debating the use of credit scores in employment.  Credit scores are useful at predicting all kinds of things including, for example, car accidents so there is good reason to believe that they are useful in employment. The above commentators tend to focus on the potential for scores to hurt the poor but that is not obvious.  Consider a similar issue: Should employers be allowed to use background criminal checks when hiring?

One argument against is that black men are more likely to have criminal backgrounds and thus these criminal background checks discriminate against black men.  Let's put aside the normative issues. What’s surprising is that under plausible circumstances criminal background checks can lead to an increase in the employment of black men. The reason is that without the background check employers face a risk that their employees are ex-cons. If employers are very averse to hiring ex-cons then they will seek to reduce this risk and one way of doing so is by not hiring any black men. As a result, a background check allows non ex-cons to distinguish themselves from the pack and to be hired. Furthermore, when background checks exist, non ex-cons know that they will not face statistical discrimination and thus have an increased incentive to invest in skills.

Consistent with this reasoning, although not demonstrative of the net effect, Holzer, Raphael and Stoll find that:

…employers who check criminal backgrounds are more likely to hire
African American workers, especially men. This effect is stronger among
those employers who report an aversion to hiring those with criminal
records than among those who do not.

My view is actually that criminals face too many post-crime impediments to reintegrating themselves within the workforce.  Private incentives not to take a risk on an ex-con do not cohere with social incentives to reintegrate workers into society and thus we get too little hiring of ex-cons.  As a result, ex-cons face a low opportunity cost of recidivism.

Nevertheless, banning criminal background checks or credit scores is probably not the best way to combat these types of problem.  Banning criminal background checks increases the incentive to rely on less accurate statistical discrimination which discriminates against the innocent and reduces the incentive to invest in skills.  In short, hiding the bad apples among the good comes at the expense of the good.

Annualized interest rates of two hundred percent a year?

by  Tyler Cowen in

I read someone, somewhere arguing that Elizabeth Warren was the nominee to shut them down.  I am curious about the modern liberal take on autonomy and credit.  Let's say that two gay men, of unknown health status, want to have informed, consensual, unprotected sex.  Should the law prohibit this?  I believe the answer is no.  Furthermore it is not just a matter of enforcement difficulty, it is a question of autonomy.  If you don't think so, modify the example so that two heterosexual people want to have consensual but unprotected sex.  And so on.

The unprotected sex is riskier and less prudent than borrowing money at an annualized rate of two hundred percent.  Why prohibit one and not the other?  Many of the borrowers are being fooled, but others have legitimate reasons to seek the money, such as wanting to buy a birthday present for a visit to one's child, living with a separated spouse.

Is it that sex is sacred but borrowing money is not?  What if you're borrowing money to catch a plane to go have sex?  Isn't sex a big reason why people might borrow money at high annualized rates?  Aren't "sex decisions" some of the least rational we make and the most prone to error?

When I use the ATM, often I am outside the network and thus I am paying annualized interest rates of over two hundred percent a year.  Should someone (other than Natasha) stop me?  Should they only stop me when I am younger and poorer than is the current Tyler?  What about equality before the law?

How many of you would support this same woman — with enthusiasm — if she wanted to ban risky but consensual sex?

Thwarted auction markets in everything

by  Tyler Cowen in

Vienna's archdiocese has ruled that the box-like structure where believers confess their sins cannot be turned into a sauna.

Bidding on a confessional described on eBay as ideal for conversion into a one-person sauna, a small bar or a children's playhouse was ended when the archdiocese stepped in.

Archdiocese spokesman Erich Leitenberger told the daily Salzburger Nachrichten that auctioning "objects that were used for dispensing the sacraments is not acceptable."

Confessionals "should not be converted into saunas or bars," he was quoted Tuesday as saying.

At the time the leading bid was 666.66 euros.  There is more here and I thank John Chilton for the pointer.