Month: April 2011

Religious conversion as an anti-poverty strategy

Adam writes to me:

Hypothetical for you: would a massive conversion of low-income people to Mormonism reduce poverty? Utah looks to have some good demographics, which must be somewhat due to to the fact that 60% belong to the LDS church:

They have the lowest child poverty rate in the country, the highest birth rate but the lowest out-of-wedlock birthrate.

Is Mormon conversion a viable development policy?

A viable *policy*, no, but a viable solution *yes*.  Many of the costs of poverty are sociological rather than narrowly economic per se.  In other words, many of the poor do not have what could be called Mormon lifestyles.  This point holds all the more strongly in Latin America, where alcoholism is arguably a larger economic problem than in the United States.  It is not uncommon for a rural village to have a male alcoholism rate of up to fifty percent.

A political conservative is more likely to make this point than to simply focus on the lack of money earned by the poor.  A political liberal is more likely to assume that the rate of strict religiosity can rise only so high, and take that as a background constraint.  Furthermore, under the exogenous thought experiment of many more poor people converting to Mormonism, positive selection bias diminishes and perhaps the religion as a whole becomes less strict.

The truth of the Mormonism insight doesn’t necessarily have strong implications for cash-based social aid policies in the meantime.  Mormonism, as a variable, is difficult for political agents to manipulate, although they (possibly) can squash it.  Raising this point, however, makes the poor look less like victims and more like a group partially complicit in their own fate.  That framing does have “marketing” implications for the politics of how many resources the poor will receive.  For this reason, liberals sometimes underrate the conservative point, because they do not like its political implications, and this leads liberals to misunderstand poverty.  The conservatives end up misunderstanding poverty policy.  Almost everyone ends up a little screwy and off-base on this issue, victims of the fallacy of mood affiliation.

Here is an article about the poorest community in the United States, in terms of measured income, it is mostly Hasidic Jews (1/20).  It doesn’t have most of the problems which we usually associate with poor communities.

Dead Man Taxing for the Last Time

Greg Mankiw writes:

I am regularly struck by how bloggers so often want to pick fights with other bloggers.  Rather than giving others the benefit of the doubt, they often seem to interpret the writing of others in the worst possible light so they can then point out how foolish it is.  As an example, see

  1. This Steve Landsburg post
  2. Followed by this Brad DeLong critique
  3. And this Paul Krugman critique
  4. And Steve’s two replies.

As far as I can tell, all Steve is saying is that the true incidence of a tax is not necessarily on the person who writes the check to pay the tax bill.  He just made the point in a particularly dramatic way.  At its heart, however, his point is pretty standard and hard to argue with.

I agree completely. I take some of the blame; I should have seen that at this point in time when discussions of inequality, taxing the rich, deficits, unemployment and Keynesian economics are so prominent that any post about taxes would be perceived and interpreted in that light. In fact, Steve’s argument had nothing to do with any of these things (Stephen Williamson has a good post explaining the argument in a different way that makes this clear), instead it’s a puzzle, a thought-experiment if you will, to illustrate tax incidence theory.

The standard argument is that the legal incidence of a tax is not the same as the economic incidence. It is unfortunate to see accusations of “stupid” and “bizarre” be thrown around for what is, as Greg points out, the standard argument because it makes teaching economic arguments to the public more difficult. If Landsburg’s highly-stylized argument is bizarre, for example, then isn’t it even more bizarre to argue that in the real world the FICA tax on employers isn’t really paid by employers?

*Levant* (Smyrna, Alexandria, and Beirut)

That is the new and excellent book by Philip Mansel and the subtitle is Splendour and Catastrophe on the Mediterranean, excerpt:

The Beirut dilemma goes to the heart of the Levant.  At certain times — Smyrna in the nineteenth century, Alexandria and Beirut for periods of the twentieth — Levantine cities could find the elixir of coexistence, putting deals before ideals, the needs of the city before the demands of nationalism.  Like all cities, however, Levantine cities needed an armed force for protection.  This could be provided by the Ottoman, British or French armies, but not by the cities’ own citizens, since they were unwilling to shoot co-religionists.  No Levantine city produced an effective police force or national guard of its own.  The very qualities that gave these cities their energy — freedom and diversity — also threatened their existence.  No army, no city.

Game theory and the budget

Matt Yglesias writes:

…the right is big government’s best friend…You have a government set to steadily increase spending on autopilot as a result of demographic change and rising health care costs. And you have a Democratic President urging congress to enact spending cuts. But you have conservative politicians refusing to make a serious effort to reach an agreement out of some blend of taxophobia and fear of giving the President a win. The result, again, whether the right realizes it or not, is a gift to the wing of the Democratic Party that disagrees with Obama about the desirability of enacting spending cuts.

I tend to agree with this, but it’s always worth trying to solve for the case where one is wrong.  The strategy of “no trade” with Obama could be rational for the Republicans if:

1. Not much will happen this time around anyway, so the Republicans are investing in credibility for a future bargain, perhaps post-2012.

2. Republicans think that prevailing economic conditions will turn public opinion in their favor, over time, and so a later bargain is preferable.

3. Republicans think that if a fiscal crisis comes, drastic spending cuts are especially easy to enact, relative to tax increases, and they are willing to risk that crisis.  It’s hard to argue that this belief is true (reindexing benefits to a saner level takes a lot of time), although I would not rule out that some Republican Party politicians may hold it.

4. Wait for party leaders to move first, for political cover, and that is a dragons and ballroom dancing game (pdf).

And there is always:

5. Republican politicians are investing in the value of their non-electoral options and that implies group loyalty above other considerations.

None of us know the true model, but we all know the literature on irreversible investment and option value.  If you’re not sure of the true model, wait rather than commit.  Here is Jeff on deadlines.  Another way to put this point is that we can’t, from current Republican inaction, infer much about the likely final outcome.

Gag Orders

How can the abuse of government power be checked when it’s a crime to even talk about the abuse? Important and outrageous story from The Washington Post.

Three years ago, I received a national security letter (NSL) in my capacity as the president of a small Internet access and consulting business. The letter ordered me to provide sensitive information about one of my clients. There was no indication that a judge had reviewed or approved the letter, and it turned out that none had. The letter came with a gag provision that prohibited me from telling anyone, including my client, that the FBI was seeking this information. Based on the context of the demand — a context that the FBI still won’t let me discuss publicly — I suspected that the FBI was abusing its power and that the letter sought information to which the FBI was not entitled.

Rather than turn over the information, I contacted lawyers at the American Civil Liberties Union, and in April 2004 I filed a lawsuit challenging the constitutionality of the NSL power. I never released the information the FBI sought, and last November the FBI decided that it no longer needs the information anyway. But the FBI still hasn’t abandoned the gag order that prevents me from disclosing my experience and concerns with the law or the national security letter that was served on my company. In fact, the government will return to court in the next few weeks to defend the gag orders that are imposed on recipients of these letters.

Living under the gag order has been stressful and surreal. Under the threat of criminal prosecution, I must hide all aspects of my involvement in the case — including the mere fact that I received an NSL — from my colleagues, my family and my friends.

The Post writes “the author — who would have preferred to be named — is legally prohibited from disclosing his or her identity in connection with receipt of a national security letter. The Post confirmed the legitimacy of this submission by verifying it with the author’s attorney and by reviewing publicly available court documents.”

The Great Stagnation, a continuing story

The Education Department did not go nearly as far as college leaders would have liked in backing away from a new rule requiring colleges to get approval from every state in which they operate distance education programs. But in announcing Tuesday that, for the next three years, the agency would not meaningfully punish institutions that have shown “good faith” efforts to get such approval…

Do you need to read further?  Abolish the DOE, I say.  The full, messy, and heartbreaking story is here.

Jerry Brito defends Bitcoin

Read him here for a discussion of the revolutionary P2P properties of the system. 

Here’s a way to restate my worry.  Many people tell me, or write to me, about how great the transactions system is for its anonymity, invulnerability to governmental shutdown, and so on.  Let’s put aside the social desirability of this and just focus on the predictions.  I personally, would much rather have lots of dollars in the Cayman Islands (which is fairly anonymous already) than lots of assets in the Bitcoin system.  I just don’t see why the Bitcoin assets are supposed to be so attractive compared to dollars, euros, Swiss francs, and so on.  I would rather hold diamonds, for that matter, or a Picasso print.  If I suddenly had a large stash of Bitcoin assets, from a heroin sale, I would work very hard to convert them into something else (p.s. I know they don’t call them “Bitcoin assets” but I wish to, to make the point).

Imagine that I can convert Bitcoin assets into other, non-Bitcoin assets quite easily.  Then I will, and many other people will (there is a lot more wealth tied up in the Cayman Islands than in Bitcoin), and the velocity of Bitcoin assets accelerates.  That encourages even more conversion out of Bitcoin assets.  Why hold Bitcoin assets?

Alternatively, imagine that I can’t convert Bitcoin assets into other, non-Bitcoin assets easily.  Then I would say the system fails as an alternative money, virtually by definition.  Arguably Bitcoin is still at this stage right now, and what I am pointing out is that further development, and a move to the former scenario, isn’t going to work either.

To convince me on Bitcoin, you need to discuss the store of value function more explicitly, not just its (possible) efficiency as a transactions medium.  If something is a good transactions medium — let’s grant that for the sake of argument –, but not a good store of value, its velocity will accelerate and sooner or later that spells trouble.  Here are Girton and Roper on currency substitution.

The Rich Man Who Can’t be Taxed

Excellent economics puzzler from Steve Landsburg:

Stevens wants to tax the “idle rich”, her Exhibit A being Robert Kendrick, heir to the $84 million Schlage Lock Company fortune. According to Ms. Stevens, Mr. Kendrick appears to do pretty much nothing but park and re-park his four cars all day long. Taxing people like Mr. Kendrick, she says, has to be part of any solution to America’s fiscal crisis.

Here’s what Ms. Stevens misses: Assuming the facts are as she states them, it is quite literally impossible to raise revenue by taxing the likes of Mr. Kendrick. We could argue about whether it’s desirable, but because it’s impossible, the discussion is moot.

Here’s why it’s impossible: For the government to consume more goods and services, somebody else must consume fewer. But Mr. Kendrick, by Ms. Stevens’s account, consumes almost no goods or services whatsoever. He just pushes cars around all day. His consumption can’t go much lower.

Steve is quite right. The key is this sentence, “For the government to consume more goods and services, somebody else must consume fewer.” So here is a second question, if Kendrick isn’t taxed because, by assumption, he isn’t consuming any less after the tax than before, then who is being taxed in this scenario?  Steve gives one answer but there are several potentially correct solutions. One might also ask about the initial assumption, is being “idle” rich, in the sense above, such a bad thing?

Addendum: Brad DeLong chimes in. DeLong attempts to refute Landsburg by claiming incredibly (!) that no one, ever, can be taxed because “we are the government.” Try telling that to someone in prison. Lose the we, as Arnold Kling might say.

Some of Brad’s other (contradictory to the above) claims, however, are correct.  One could argue, for example, that Kendrick’s heirs are taxed. Of course, Kendrick may not have any and this in anycase supports Landsburg that Kendrick is not being taxed.

Addendum 2: In the comments I wrote: Suppose Kendrick were dead. In that case, the tax would reduce the consumption of his heirs, if he had heirs. If he had no heirs and the money were in the bank then the tax would increase interest rates and reduce the consumption of some borrowers. If the money were kept at home under his bed then the tax would increase the price level thus reducing everyone’s consumption by just a little bit. There are other possibilities but those are three main cases. Now, the premise of the problem is that Kendrick isn’t consuming anything but as far as this problem is concerned someone who doesn’t consume anything is the same as dead! Thus, exactly the same story occurs.

I see this morning that Landsburg also uses this analogy in a new post on the topic, You can’t tax a dead man. See also here.

Markets in everything the culture that is Denmark

The Spermbike.

It is intended as an environmentally friendly way to carry sperm to fertility clinics scattered around Copenhagen.

But is it actually environmentally friendly or is it, as is so often the case, an advertising gimmick?  The bike has its own cooler and:

Producing the Sperm Bike was no easy task. It was constructed by the Danish company 10 Tons – who specialise in zoological and botanical models as well as paleontologic reconstructions, including full-size whales and dinosaurs.

With the tail, the bike is 2.9 metres long and fully-loaded with… um… sperm… it weighs 50 kg.

For the pointer I thank James Hohman.

Chopin’s Sonata #2

Democrats and Republicans are joining to oppose one of the most important features of President Obama’s new deficit reduction plan, a powerful independent board that could make sweeping cuts in the growth of Medicare spending.

There is a growing move to do away with the board and that move enjoys widespread support:

Representative Paul D. Ryan, Republican of Wisconsin and chairman of the House Budget Committee, called it “a rationing board” and said Congress should not “delegate Medicare decision-making to 15 people appointed by the president.” He said Mr. Obama’s proposal would allow the board to “impose more price controls and more limitations on providers, which will end up cutting services to seniors.”

Here is the article (1/20).   Here is Chopin’s Sonata #2.  On the brighter side, here are outlines of a budget deal under discussion.

*Treasure Islands*

The author is Nicholas Shaxson and the subtitle is Uncovering the Damage of Offshore Banking and Tax Havens, excerpt:

The Cayman Islands is the world’s fifty largest financial center, hosting eighty thousand registered companies, over three quarters of the world’s hedge funds, and $1.9 trillion on deposit — four times as much as in all the banks in New York City.  And it has, at the time of writing, one cinema.

Chris F. Masse draws my attention to this forthcoming documentary on a whistleblower for financial and tax havens.   You will find reviews of the book here.  I found the quality patchy, but nonetheless it was a useful critique.  There is also a direct engagement with the pro-offshore arguments associated with Dan Mitchell (video).  As the fiscal crunch proceeds, these issues will move increasingly into the public eye.

By the way, on Bitcoin I’ve read through all the responses in the comments — some vitriolic against me — and I stand by my original arguments.

Which universities spend the most on athletics?

Number one is UT Austin, at $112.9 million a year, followed by Ohio State, U. Florida, Louisiana State, U. Tennessee, Wisconsin-Madison, Auburn, Alabama, U. OK, and then USC, which is still spending $80 million a year.

That is from Charles’s Clotfelter’s very good new book Big-Time Sports in American Universities.  Clotfelter is relatively sympathetic to sports in universities and considers their fundraising and civic virtue advantages.  Of course those numbers are gross and not net expenditures.