Month: June 2011

The Global War on Drugs has Failed

by  Alex Tabarrok in

The global war on drugs has failed, with devastating consequences for individuals and societies around the world.

…End the criminalization, marginalization and stigmatization of people who use drugs but who do no harm to others. Challenge rather than reinforce common misconceptions about drug markets, drug use and drug dependence.

…This recommendation applies especially to cannabis, but we also encourage other experiments in decriminalization and legal regulation that can accomplish these objectives and provide models for others.

…Break the taboo on debate and reform. The time for action is now.

  • Asma Jahangir, human rights activist, former UN Special Rapporteur on Arbitrary, Extrajudicial and Summary Executions, Pakistan
  • Carlos Fuentes, writer and public intellectual, Mexico
  • César Gaviria, former President of Colombia
  • Ernesto Zedillo, former President of Mexico
  • Fernando Henrique Cardoso, former President of Brazil (chair)
  • George Papandreou, Prime Minister of Greece
  • George P. Shultz, former Secretary of State, United States (honorary chair)
  • Javier Solana, former European Union High Representative for the Common Foreign and Security Policy, Spain
  • John Whitehead, banker and civil servant, chair of the World Trade Center Memorial Foundation, United States
  • Kofi Annan, former Secretary General of the United Nations, Ghana
  • Louise Arbour, former UN High Commissioner for Human Rights, President of the International Crisis Group, Canada
  • Maria Cattaui, Petroplus Holdings Board member, former Secretary-General of the International Chamber of Commerce, Switzerland
  • Mario Vargas Llosa, writer and public intellectual, Peru
  • Marion Caspers-Merk, former State Secretary at the German Federal Ministry of Health
  • Michel Kazatchkine, executive director of the Global Fund to Fight AIDS, Tuberculosis and Malaria, France
  • Paul Volcker, former Chairman of the United States Federal Reserve and of the Economic Recovery Board
  • Richard Branson, entrepreneur, advocate for social causes, founder of the Virgin Group, co-founder of The Elders, United Kingdom
  • Ruth Dreifuss, former President of Switzerland and Minister of Home Affairs
  • Thorvald Stoltenberg, former Minister of Foreign Affairs and UN High Commissioner for Refugees, Norway

The report of The Global Commission on Drug Policy is very strongly worded and the commissioners are so stellar it will be difficult to ignore.

*Claude Lévi-Strauss: The Poet in the Laboratory*

by  Tyler Cowen in

Patrick Wilcken is the author of this excellent book, excerpt:

Lévi-Strauss began work in the autumn at the New School for Social Research, his name chopped down to Claude L. Strauss, to distinguish himself from the jeans.  “The students would find it funny,” he was told by way of explanation.  The confusion would plague him throughout his life. “Hardly a year goes by without my receiving, usually from Africa, an order for a pair of jeans,” he told Didier Eribon in the 1980s — though, with fame, Lévi-Strauss found he could almost hold his own.  When he gave his name while queuing for a restaurant in San Francisco in the 1980s, the waiter shot back, “The pants or the books?”

Definitely recommended, read the Amazon reviews at the link.

*Pox: An American History*, by Michael Willrich

by  Tyler Cowen in

The Medical Department’s vaccination program had carried vaccination to the people on an unprecedented scale.  According to Hoff, the vaccinators had performed nearly 860,000 operations (742,062 vaccinations and 116,955 revaccinations) in a period of five months.  And the vaccine produced at Coamo Springs was, by contemporary standards, good, with a reported success rate of 87.5 percent.  Colonial administrators always kept the bottom line in view.  Hoff noted with satisfaction that the entire vaccination campaign had cost only $43,000.

By the end of June, the “head-fire of vaccination” had stopped variola [smallpox] in its tracks.  In the decade before the arrival of the U.S. Army, the annual death rate from the disease had averaged 620 people.  From January 1 to April 30, 1900, not a single death from smallpox was reported.

This was done under a form of martial law.  The Philippines, under colonial control, was another early example of a largely successful public health program: “Americanized Manila stood as a model of the healthful city.”  Who would have thought?

It’s an interesting book.

The 1937-1938 contraction

by  Tyler Cowen in

A few months ago I was surprised to see this paper by Chris Calomiris, Joseph Mason, and David Wheelock:

In 1936-37, the Federal Reserve doubled the reserve requirements imposed on member banks. Ever since, the question of whether the doubling of reserve requirements increased reserve demand and produced a contraction of money and credit, and thereby helped to cause the recession of 1937-1938, has been a matter of controversy. Using microeconomic data to gauge the fundamental reserve demands of Fed member banks, we find that despite being doubled, reserve requirements were not binding on bank reserve demand in 1936 and 1937, and therefore could not have produced a significant contraction in the money multiplier. To the extent that increases in reserve demand occurred from 1935 to 1937, they reflected fundamental changes in the determinants of reserve demand and not changes in reserve requirements.

My view had traditionally been that of Friedman and Schwartz, Eggertsson (and here), and Krugman, but if you wish to read the other side of the story there it is.  In any case I do not see any good argument for monetary contraction today, no matter how one reads the 1937 story.  We await clarification from Scott Sumner.

 

When does greater inequality lead to greater redistribution?

by  Tyler Cowen in

Henry Farrell reports:

Noam Lupu and Jonas Pontussen (PDF) have a piece on the relationship between inequality and distribution in the new American Political Science Review. There is a lot of debate about whether the level of economic inequality in society leads to greater or lesser distribution – what Lupu and Pontussen suggest is that the structure of inequality (that is – the more particular relationships between different segments in the income distribution, rather than some summary index) is more important. More particularly they argue that if one tries to hold racial and ethnic cleavages constant, the key factor determining redistribution is the income gap between middle income voters and lower income voters. Where this gap is low, middle class people feel some degree of solidarity with the poor and exhibit what Lupu and Pontussen describe as “parochial altruism.” That is, they are more likely to support income redistribution because they feel that the poor are in some sense, ‘like them.’ When the gap is high, middle class people will have a much weaker sense of solidarity with the poor, and hence be less supportive of redistribution. Lupu and Pontussen suggest that the US is an outlier, with weaker solidarity than the structure of US inequality would suggest. They argue that the explanation for this is straightforward – “it is clearly attributable to the high-concentration of racial-ethnic minorities in the bottom of the income distribution.” More bluntly put – middle class Americans feel less solidarity with the very poor because the very poor are more likely to be black.

Should it be illegal to park facing the wrong way?

by  Tyler Cowen

Jeff writes:

Economic theory suggests that penalties should be attached to behaviors that are correlated with crime and not necessarily to criminal behavior itself.  For example, price fixing may be impossible to detect, but conspiracy to fix prices may be much easier.  It makes sense to make cheap talk a crime even though the talk itself causes no harm.

When you car is parked facing the wrong way its a sure sign that A) you previously committed the crime of driving the wrong way and B) you will soon do it again.

Is this another of his elaborate jests?  The web suggests that Texas has begun to enforce this law only recently, to shore up Medicaid, but the resulting policy uncertainty adds to our current output gap.  It also violates Keynesian strictures not to raise taxes during a recession.  Up until now, of course, there has been strong net mobility into the state of Texas, so was the previous lack of enforcement so bad?

The practice of parking the wrong [sic] way is at least as safe as turning across lanes of oncoming traffic.

One fear is that traffic will slam into your parked car if your rear reflectors are not facing the proper way.  Yet if everyone parks facing the wrong way, does not this risk diminish and indeed a benefit can be seen?  And is not a car, if parked for long enough, infinitely dangerous in any case?  And are not wrong way parkers the most likely to hurry in and out of a spot quickly, thereby lowering stationary collision probabilities?  Or is the argument that a parked car safer is in any case safer than a moving car, and that wrong way parking allows more cars to park more readily, thereby lowering the average velocity of automobiles?  In any case, the Peltzmann effect suggests that wrong way parking, and the concomitant dangers, will discourage drunk driving, thereby saving lives.  Furthermore the relevant alternative to “wrong way parking” is usually an extremely reckless, immediate, illegal U-turn.

I once “parked the wrong way” in Falls Church City.  The policeman told me he could not give me a ticket, since he had not seen me do it, but that there was no way I could leave the space legally.  (I so enjoy a dare.)  Here in Virginia, or at least in Falls Church City, the rule of law reigns; the policeman recognized the car might have been there forever, or might have been parked by a computer (that’s illegal too, but let him try to prove the computer did it), or might have materialized there through quantum effects.  A game of waiting ensued.

All Watched Over By Machines of Loving Grace

by  Alex Tabarrok in

All Watched Over By Machines of Loving Grace, is a hallucinatory BBC documentary that hyperwarps across continents and through time to draw shadowy connections between Ayn Rand, Silicon Valley, the “rise of the machines”, anarchism, the financial crisis and the Monica Lewinsky scandal. (Need, I add and much more!?) Incongruous images and a surreal soundtrack give it a Lynchian feel. Not your usual documentary. Evaluated as a whole, it’s madness but delicious madness.  Here is the first episode.

http://youtu.be/Uz2j3BhL47c

FYI, especially interesting in the first episode is Loren Carpenter’s Pong experiment.  You can read more about that here.

The “New Monetary Economics” is alive and well

by  Tyler Cowen in

The standard view is that Fischer Black, Bob Hall, Neil Wallace, and Eugene Fama wrote a few creative papers on monetary theory in the 1980s (for Black the 70s), but that the embedded monetary scenarios were “too weird” and the line of research did not prove fruitful.  Even in “free banking” circles the “New Monetary Economics,” as it was called for a while (NME), wasn’t always taken very seriously. If you’re looking for a definition of the NME, I would say it is the study of unusual monetary arrangements involving either explicit prices for monetary media of exchange (i.e., separating money’s medium of exchange function from its medium of account function), and/or paying interest on currency or bank reserves held at the Fed.  Most fundamentally, the NME suggests we can make progress in macroeconomics by deconstructing the concept of money into its constituent parts.

Although the term has fallen out of use, in the last three to four years the NME has made a big comeback, albeit not under that name:

1. It was a core NME point that if the nature or quality of a money is somehow in doubt, it is important to have that money priced.  Yet there is no market price for “a euro in an Irish bank” vs. “a euro in a German bank” and that is a fundamental problem with the euro, namely that the price is fixed at one.  The market is wanting that price to reemerge, namely the market wants some additional monetary separation.  The NME explains pretty clearly why parts of the eurozone are not working and probably cannot work.  Economists interested in the NME were generally skeptical of the eurozone from the beginning, as they saw multiple monies as ways of containing and limiting macroeconomic risk.

2. Scott Sumner has made a big splash with his idea to “target the forecast of nominal gdp.”  You can think of Scott as proposing what is currently a missing prediction market.  The deeper way of understanding Scott’s proposal is to see money as missing a price and wanting to create a new way of pricing money, namely in terms of nominal gdp forecasts.  Until money has the correct price, we won’t know the correct quantity of money or the correct time path for monetary policy.  Scott of course was one of the early contributors to the NME literature and he and I once had a published exchange on related matters, way back when (Garrison and White are here).

3. We are now paying interest on reserves.  Is Fischer Black’s claim true that, under these circumstances, the central bank cannot control the price level and the price level will be whatever people want it to be?  Optimistic expectations will lead to lots of borrowing and rising prices, while pessimistic forecasts will lead to lower levels of borrowing and weaker inflationary pressures.  I’m not so sure of this claim, but at the very least a) it is worth thinking about, b) it now gets debated a lot, and c) it really matters.

4. NME theorists frequently argued that a gold standard provides insufficient hedging opportunities; in an era where gold prices have risen very rapidly and steeply this seems prescient.  A gold standard never was a desirable monetary option, as it would have brought a very radical and very nasty deflation.

The part of the NME which has held up least well in this claim that “mutual fund banking” can limit or prevent bank runs.  The runs on money market funds, during the financial crisis, seemed to show that flex-price “equity banking” is not in fact an underexploited source of macroeconomic and financial stability.  The market resists flex-price for these accounts even when it would appear it should embrace it.  That’s only one data point, but it seems to me a somewhat damning one.

My very first (co-authored) book was on the NME, circa 1994.  The NME is most interesting when monetary institutions are in an abnormal state, but now “abnormal” is “the new normal.”  The NME is less interesting in explaining, say, the macroeconomics of 1963.