Month: August 2012
Short videos on business cycle theory
By me, here, with a mention of Scott Sumner in the Keynesian video, plus one on Austrian theory and one on real business cycle theory.
Goldman Sachs Invests in POP Bonds
Goldman Sachs is investing in a New York City pay on performance bond (POP bond also called a social improvement bond). The Pop bond is based on recidivism rates for adolescents, as described by the NYTimes:
The Goldman money will finance a program called Adolescent Behavioral Learning Experience…which seeks to improve prospects for black and Latino adolescents. The jail program, which will offer counseling and education for an estimated 3,400 incarcerated adolescent men each year, will be run by two nonprofit organizations, Osborne Association and Friends of Island Academy, and overseen by MDRC.
…If the program reduces recidivism by 10 percent, Goldman would be repaid the full $9.6 million; if recidivism drops more, Goldman could make as much as $2.1 million in profit; if recidivism does not drop by at least 10 percent, Goldman would lose as much as $2.4 million.
…Currently, nearly 50 percent of young men released from Rikers reoffend within a year.
As I wrote earlier:
For Pop bonds to work it is critical that outcomes be measured and marked to an appropriate, randomized, control group. If not carefully monitored, the private sector will also excel at innovative and creative gaming at the public expense.
The involvement of Goldman Sachs makes me fear that my last sentence will prove prophetic.
Very good quotations
“It’s not as if 50 people woke up one morning and said, ‘Today, instead of getting a real job, I’m going to go steal cardboard.’
And here is a bit on why cardboard theft has evolved into an organized business:
The city’s impound managers might want to phone China. That country, along with other developing nations like India, is driving the market by paying top dollar for used cardboard. The foreign recyclers then blend it down to remold into new products, such as containers for exports eventually shipped back to the United States.
Again, though the business may sound humdrum, it can be extremely profitable. In 2010, China’s richest woman was “cardboard queen” Zhang Yin, whose $5.6 billion recycling empire made her wealthier than Oprah.
The article is here, and for the pointer I thank Daniel Lippman.
The economics of Olympic success
Here is my new Grantland piece with Kevin Grier. Excerpt:
Predictions
1. Medal totals will become more diversified over time. The market share of the “top 10” countries will continue to fall (it was 81 percent in 1988) as economic and population growth slows in the rich world. The developing world has greater room for rapid economic growth, and most parts of the developing world also have higher population growth. The Olympic playing field will get more and more level.
2. Japan will continue to fade, mostly because of aging and population shrinkage.
3. Italy will follow Japan for similar demographic reasons, as well as because the Eurozone crisis will continue to cut into budgets, training and otherwise.
4. Since Rio is host to the next Olympics, Brazil should do better than expected due to the “pre-host” bump.
5. Many African nations will rise. Currently about half of the approximately 1 billion people in Africa have a cell phone, and the middle class is growing. The chance that an African star will be spotted and trained at the appropriate age is much higher than before. Africa also continues to grow in population, and that means lots of young people. Most of us still think of African nations as very poor, but infant mortality has been falling and per-capita income rising across Africa for the better part of a decade now.
6. China will level off and then decline as a medal powerhouse. In less than 15 years, the typical person living in China is likely to be older on average than the typical person living in the United States, in part due to the country’s one-child policy. As of 2009 the number of over-60s was 167 million, about an eighth of the population, but by 2050 it is expected to reach 480 million people older than 60, with the number of young Chinese falling. The country will become old before it is truly wealthy.
7. Bob Costas will make you cry.
Beijing notes
It is a gargantuan, imperial city, and while there is always a walking path the point of walking is not always clear. “The Middle Kingdom does Dubai.” There is no need to tell me about all the parts of the city which do not look like Dubai, I have seen many of them, and furthermore Dubai has such parts as well.
An iPad, plus Baidu access to Chinese characters, makes it easy to ask questions of strangers. Hardly anyone speaks even minimal English. It is less harried than I had expected. The sky rarely appears, at least in late July. The contemporary art district, 798, is worth more than one visit. I am not interested in seeing the Great Wall. My hotel, rather than having a “Medical Devices” conference, has a meeting on “Australian Property Holdings.”
The main problems here are the air pollution, and that no one, including taxi drivers, seems to know how to get anywhere. The rate of change is high and many people are from the provinces, so there is a real information gap.
The main upsides stem from what scale enables. Even if you have been to many places, Beijing will manage to astonish you.
Most of all, I am struck by how Taiwan is more Chinese than is China.
Assorted links
1. Ash and lightning above and Icelandic volcano, hat tip to Gordon.
2. More on the signaling of Iranian girls (good link).
3. Why are theater reviews embargoed?
4. Does cultural diversity limit trade?
5. Free new chapter from Tim Harford’s The Undercover Economist, the full book is here.
Non-Markets in Some Things: Olympic Tickets and Dickish Tweeting
TVNZ: London’s Metropolitan police said they had arrested 16 people since Friday for illegal reselling of Olympics tickets, as Games organisers said they were investigating why scores of seats were empty at some events yesterday.
Tim Worstall offers wise comment, should the cause and effect not be clear.
Cory Doctorow has other news:
Police in Weymouth, Dorset, England came to the home of a 17-year-old boy and arrested him, because he had retweeted an unpleasant sentiment to an Olympic athlete. The offending tweet? “You let your dad down i hope you know that.” (This was a pretty dickish thing to tweet, as the athlete in question had previously dedicated his performance to his recently deceased father). The charge is “malicious communication.” The law in question is the Communications Act 2003, Section 127(1)(a) (“a message that is grossly offensive or of an indecent, obscene or menacing character”). It’s great to see that the spirit of the Olympics is alive and well: athleticism and international cooperation means that people are only allowed to say nice things or they go to jail. Just about the only thing worse than being a dick on Twitter? Being a loony authoritarian cop who arrests people for being a dick on Twitter. (via /.)
Hat tip: Carl Danner.
Have the French shown that water privatization is dead?
Some time ago, @ModeledBehavior has requested comment on this article. Excerpt:
Across the nation cash-strapped municipalities are considering the sale of their public-utility systems. These moves are intended to raise cash and rid the municipalities of expensive liabilities such as debt service and pension obligations. But officials considering this approach might do well to look to France and other nations that are rapidly moving in the opposite direction with a “remunicipalization” of their utility systems. In 2010, Paris, in the best known case of remunicipalization, ended contracts with the world’s two biggest water service companies, Suez and Veolia, bringing an end to their 100-year private duopoly. The reversal of a century-old practice in Paris was an acceleration of an international movement away from private control.
So what’s up? I see it this way. For advanced water systems, there is no cost advantage to having a privatized system. It is a regulated monopoly and over time it acquires skill in manipulating the political process, most of all its regulators. Why expect lower costs and prices? A wide variety of studies of this topic, including studies by “market-oriented” economists, find no cost advantage for the private sector in this setting.
For very poor countries, very often water privatization would in principle be a good idea, since the public sector is not supplying much piped water at all. Monopoly is better than carrying a bucket on your head, and you still can carry the bucket if you wish. Yet privatization also won’t get very far in many of these cases. One reason is that there is no way to make people — many of whom are non-registered and lacking in assets — pay their water bills, and not enough legal infrastructure to prevent them from cutting into the pipes or otherwise going rogue. You shouldn’t “blame” privatization here, but still it may not be a useful option.
Finally, there is a sweet spot in the middle, often for reforming or middle-income countries. In those cases water privatization can mobilize private capital rapidly and expand water coverage. It often brings higher quality water, higher quality connections, lower rates of unaccounted-for-water, and higher prices. Not all cities desire that trade-off, but it is there for the taking. Some of these privatizations are done fairly well, others are done very poorly, such as in Cochabamba, where the “privatization” gave the company property rights over previously privately held, decentralized water sources of the poor, such as collected rain.
As long as there are countries in this middle income range, water privatization is not dead nor should it be.
Yet again the tragedy of the commons, for Indian power generation
Surendra Rao, who was the chairman of the Central Electricity Regulatory Commission in 2001, when the nation’s last major blackout occurred, said that a fairly sophisticated system of circuit breakers should have prevented the failures on Monday and Tuesday. But, he said, the people manning the circuit breakers are bureaucrats beholden to state government officials, who are loath to have the power in their locality shut off — the usual prescription when power surges threaten the national grid.
Here is more, and for the link I thank Fred Smalkin.
“Trade-offs between inequality, productivity, and employment”
That is a new post from the excellent Interfluidity. I read it as a version of Keynes’s chapter seventeen, where the demand to buy insurance (in various indirect forms) is the bottomless pit preventing full employment, rather than the demand to hold money. One question I have is why the funds spent on insurance are not in some useful manner recycled.
Here is one provocative paragraph:
Why did World War II, one of the most destructive events in the history of world, engender an era of near-full employment and broad-based prosperity, both in the US where capital and infrastructure were mostly preserved, and in Europe where resources were obliterated? People have lots of explanations, and I’m sure there’s truth in many of them. But I think an underrated factor is the degree to which the war “reset” the inequalities that had developed over prior decades. Suddenly nearly everyone was poor in much of Europe. In the US, income inequality declined during the war. Military pay and the GI Bill and rationing and war bonds helped shore up the broad public’s balance sheet, reducing indebtedness and overall wealth dispersion. World War II was so large an event, organized and motivated by concerns so far from economic calculation, that squabbles between rich and poor, creditor and debtor, were put aside. The financial effect of the war, in terms of the distribution of claims in the US, was not very different from what would occur under Keen’s jubilee.
Interesting throughout, as they say.