Month: October 2011
Very sad news of course, it is all over Twitter from reliable sources. I must run and do not at the moment have time to blog a tribute, here is a Cato notice.
…We present the first investigation of the architecture of the international ownership network, along with the computation of the control held by each global player. We find that transnational corporations form a giant bow-tie structure and that a large portion of control flows to a small tightly-knit core of financial institutions. This core can be seen as an economic “super-entity” that raises new important issues both for researchers and policy makers.
I did not find this paper easy to follow, but I can show you the top few control holders, with Wikipedia links supplied by me:
The rest of the list, especially the top 25, is heavily financial, see a reproduction of it here. What does Barclays own on the commercial side? The paper is silent on this. CGC is a batch of mutual funds, far more decentralized than the aggregate measure from this paper would suggest; lately it’s been doing major layoffs. Fidelity is also a batch of investment funds and it is misleading to think of Fidelity shareholders as exercising control over what is held through the various funds, even though they are appointing managers to run the funds. AXA is a French insurance company and financial conglomerate. State Street is another umbrella of funds and investment companies, again proxying for a wide degree of dispersed investment. JP Morgan Co., chartered as a bank in the United States, faces serious limits on what it can own commercially, although it does run private equity services for clients.
Think about it: Fidelity proxies for millions of individual (and institutional) investors, and so it is not a corporate Blofeld in disguise. That it “owns itself” does not change this basic fact. Here is an interesting new paper on the role of mutual funds in current corporate governance; here is a somewhat older paper.
Mathematically derived linkages do not equal control or necessarily point in that direction. This paper needed a big dose of verstehen, it is more misleading than illuminating. Start again, distinguishing between ownership/control and financial intermediation and see what comes out of the mix. Comcast does own and control NBC and that relationship is different from the large network of assets held through Fidelity mutual funds. The real lesson of this paper is simply that a large chunk of financial intermediation is run through a few dozen firms, hardly a revelation.
I thank a loyal MR reader for the initial pointer. Addendum: Tim Worstall also nails it.
5. Walking robot requires no power sources, just give it a push (video).
The Israeli kibbutzim are surprisingly successful examples of voluntary socialism. Even today about 2% of the Israeli population lives on a kibbutz and they account for a significant share of output; about 4% overall (using data from 2004 from here and here) and much higher in some industries such as agriculture where the kibbutzim account for some 40% of Israeli output.
Nevertheless, the kibbutzim aren’t growing and, under economic and social pressure, many are privatizing in various ways. Most notably, beginning in 1998 many kibbutzim lowered the marginal tax rate from 100% (!) to about the same level as in the rest of Israel, 20-50%. The reduction in taxes meant that for the first time there were large wage differences for members of a kibbutz and, most importantly, there were large potential wage differences for those who increased their productivity.
In How Responsive is Investment in Schooling to Changes in Redistribution Policies and in Returns (free here) Ran Abramitzky and Victor Lavy look at the acquisition of human capital for high school students living on kibbutzim before and after the reduction in taxes (using a dif and dif strategy on early and late adopters). The authors find (from an NBER summary):
…The effects of the reforms were relatively small for students from highly educated families, in contrast to relatively large effects for students from families with lower parental education who had been covered by the pay reform for all of their years in high school. This group’s high school completion rates increased by 4.4 percent, their mean exam score went up by 8.3 points, their qualification rate for the Bagrut diploma increased by 19.6 percent, and the fraction of students with university qualifying scores increased by 16.8 percent….boys were most strongly influenced by the change.
The pay reform produced larger increases in educational outcomes than monetary bonuses for Bagrut diploma qualifying scores, a school choice program that allowed students to choose their high school in seventh grade, or a teacher bonus program that paid teachers of math, English, and Hebrew bonuses when their students did well on the Bagrut.
The authors argue that there are general lessons to be learnt:
Our findings have important implications beyond the Israeli context. First, they shed light on the educational responses that could result from a decrease in the income tax rate, thus are informative on the long-run labor supply responses to tax changes. Second, they shed light on the educational responses expected when the return to education increases. For example, such changes might be occurring in many countries as technology-oriented growth increases the return to skills.
I am less confident that the numerical results can be generalized, although of course the general point that incentives matter is well-taken.
The results, however, raise another issue. The original kibbutz were inspired by a combination of Marxism, socialism and Zionism. In the capitalist kibbutz, there is an opportunity for a new principle. Taxes can be set not according to Marx but according to Rawls and his second principle of justice: inequalities are to be allowed so long as they benefit the least-advantaged members of the society/kibbutz.
Thus, it would be interesting to know if any of the kibbutz have tried to adjust taxes so as to implement a Rawlsian approach to inequality (if not, perhaps Israeli taxes are already above Rawlsian levels.)
It does not mention the ZMP idea, so perhaps Mark Thoma’s blog has had more influence at Hallmark: the cover states “Life Isn’t Fair” and the inside reads:
You didn’t cause this.
You don’t deserve this.
You simply have to get through it.
And I know you will,
Because I know you!
For the pointer I thank Jerry Brito.
Last week, restaurant in Edinburgh, Scotland, held a competition to eat the extra-hot Kismot Killer curry. Some of the competitive eaters were left writhing on the floor in agony, vomiting and fainting.
According to reports, two British Red Cross workers overseeing the event at the Kismot Indian restaurant in Edinburgh but became overwhelmed by the number of casualties and ambulances were called. Half of the 20 people who took part in the challenge dropped out after witnessing the first diners vomiting, collapsing, sweating and panting.
It turns out that eating a few pounds of the stuff probably can kill you; hat tip goes to Steve Silberman.
1. Friggitoria-Pizzeria Giuliano, Calata Trinia Maggiore 33, open at 7 a.m. or so, one of the best pizzas I’ve had, and for only four euros.
2. Mandara, Via Ponte di Tappia 90-92, doesn’t look like much, more of a deli than restaurant, order at the counter and mimic the choices of others. Go before the line heads out the door.
3. Il Piccolo Ristoro, Calata Porto di Massa, inside the port, not really on a street, the cabbies seem to know where it is, only a few tables, one of the best seafood meals I’ve had. Not outrageously expensive.
Recently I had two and a half days in Naples, following a meeting in Rome, and it is one of my favorite cities. To live in, it combines the worst of Europe and the developing world…to visit, it combines the best of Europe and the developing world.
Here is the graph from yesterday. So why has Italy done so much worse? During 1950-1990 or so it was a stellar growth performer, though some of this was catch-up growth from wartime destruction. It does not satisfy me to cite Italy’s corrupt and dysfunctional political culture, since that has been the case for a long time, maybe forever.
A good introduction to the bright side of Italy’s economy is Michael Porter’s 1998 The Competitive Advantage of Nations; Porter portrays Italy as having some vital clusters of family-owned businesses, largely in the North. Do you want your kitchen redone with some nice marble tile? Italy can supply just the right stuff. This neat graph shows just how much Italy has specialized in small business.
Perhaps therein lies the problem. With the advent of modern communications and information technologies, arguably the return to “small family firms” has fallen. The return to “largish projects consummated over large distances” has gone up. For Europe, the big winners here are the Nordic countries, which have worked very effectively with information technology and which do not rely so much on family ties to get efficient, non-corrupt management. The losers are Italy and Greece and Portugal too; read this superb paper on how Portugal is cursed by being stuck with all these small firms, inefficiently small for legal and regulatory reasons. These countries seem to be locked out from some of the major sources of contemporary economic growth.
Here is a very important and insufficiently appreciated sentence from the Portugal paper: “…the largest part of the productivity gap between developed and developing countries can be attributed to the inefficient allocation of resources across firms in the latter countries.” And alas Italy stands with one foot in the underdeveloped world; I am reminded of Yana’s excellent sentence, voiced upon visiting Sicily for the first time: “This reminds me of Mexico (pause) — except it’s not as nice!” (Fear not people, she loved Sicily, as do I.)
And those are the countries with the biggest problems in the eurozone. Ireland is closer to the Nordic model, as they do lots of software and hardware with MNCs, and you can see them recovering from this mess more quickly. AD matters, but real shocks and competitiveness matter too. Negative real shocks don’t have to involve “forgetting how make ice cubes.” Ex ante, countries specialize in production methods and networks, and the subsequent evolution of technology does not always bear out their choices as wise.
Viewed in these terms, it is hard to see policy changes bringing a quick Italian recovery. Italy remains good at what it long has been good at, and you can think of their superb restaurants as further and highly visible examples of small, family-run firms. Sadly for them, those efficiencies are not worth quite as much these days.
Addendum: Here is one extensive look at Italy’s growth slowdown in the 1990s.
1. Eyes of God, a novel by Philip Babcock, economist at UC Santa Barbara. It is about intrigue and Indonesia.
2. By page 200 I got bored of the new Eugenides novel. The Barbarian Nurseries reaps high praise and is well-written but it feels too ordinary for me.
3. Ladies of Liberty: Women Who Made a Difference in American History, by John Blundell. Biographical sketches of libertarian and libertarian-themed women in U.S. history. Includes Rose Wilder Lane, Isabel Patterson, Rose Friedman, Jane Jacobs, others.
4. Michael Nielsen, Reinventing Discovery: The New Era of Networked Science. The best book on the potential for open, networked science, looking forward. Joshua Gans on the book here and here, the latter having a link to Michael’s TEDx talk.
5. Robert Trivers, The Folly of Fools: The Logic of Self-Deceit and Self-Deception in Human Life. Brilliant, insightful, with occasional lapses of taste, quintessential Trivers, now the go-to book on its topic, recommended.
There is now a real Hunan restaurant in Fairfax, near Fair Oaks Mall, menu here, their web site is here, 3903 Fair Ridge Drive, Unit H, in the mall with the Harris Teeter. It attracts an almost exclusively Chinese clientele and, to my untrained eye, some of them seem to be the Uighur group which hangs out in Fairfax but does not (yet?) have a restaurant of its own.
This place is not cooking at the exalted level of Sichuan Pavilion in Rockville, but it is competitive with the other semi-authentic Chinese places in this region. I sampled five dishes and all were very good. I have yet to figure out the optimal dishes to order but I may post more when I do so. Recommended to anyone with an interest in real Chinese food.
Hat tip goes to Matt Yglesias. At the risk of sounding like a broken record player, we are not sufficiently thinking through what it means for an advanced society to have basically zero net economic growth for a ten to twenty year period. It’s very possible, and this is (more or less) the same Italy that was praised in the 1980s for its dynamism and which overtook the UK in terms of per capita income, at least for a while.
In Britain, taxes on all types of alcohol contributed 36 percent of national revenue in 1898-99, but they were also 19 percent in France (1898), 18 percent in Germany (1897-98), and 28 percent in the United States (1897-98).
Anyone interested in the economic history of wine and drink should read this book; you may already know John Nye’s War, Wine, and Taxes.
1. Dinosaur origami.
4. Disaggregating the PIIGS, it’s about competitiveness.
6. Elyn Saks update.