Month: September 2012

The Flynn Effect in East Germany

Economic, Educational, and IQ Gains in Eastern Germany 1990-2006 (gated), Eka Roivainen, Intelligence, Nov/Dec 2012

Abstract: Lynn and Vanhanen (2012) have convincingly established that national IQs correlate positively with GDP, education, and many other social and economic factors. The direction of causality remains debatable. The present study re-examines data from military psychological assessments of the German federal army that show strong IQ gains of 0.5 IQ point per annum for East German conscripts in the 1990s, after the reunification of the country. An analysis of IQ, GDP, and educational gains in 16 German federal states between 1990 and 1998 shows that IQ gains had a .89 correlation with GDP gains and a .78 correlation with educational gains. The short time frame excludes significant effects of biological or genetic factors on IQ gains. These observations suggest a causal direction from GDP and education to IQ.

For the pointers I thank Michelle Dawson and Ron Unz.

Is the urbanization of China inevitable?

From a loyal MR reader:

Now my economics question…

It’s often taken for granted in popular economics that China has an unalterable rate of urbanization. A good example would be this article by Stephen Roach (–roach). In it he is arguing China’s growth worries are overstated because, essentially, its “urban population should expand by more than 300 million by 2030”. I don’t mean to reduce his argument to simply that statement, nor do I want to concentrate on this article in particular. I merely mention it because I’ve heard it (or something similar) many times before.

But it seems baked into this assumption that “China will add X more urban residents by date T” is some implicit growth factor. (Maybe the 8% growth target?) After all, why move to the city if it doesn’t have good, high paying jobs that can support an urban lifestyle? I mean, 300 million new urban residents at roughly 3 people per household is roughly 100 million new urban jobs! And perhaps the manufacturing/export sector can accommodate them, but since investment is 50% of the Chinese economy and simply by continuity arguments will have to remain a big piece of it for years to come, it seems unlikely that 100 million jobs can be created with the currently composition of economic activity, or anything similar. Also, the current mix of urban jobs has still left roughly half of the urban residents unable to afford high-rise apartment living, so those 100 million or so jobs will have to in essence be even better (higher paying, more stable) than what’s already available.

I find the “urbanization argument” perplexing and seemingly circular, especially when it is used to justify that it shall be the basis of growth. I know it’s not this simple, but am I missing something fundamental here? Stephen Roach is a pretty big name from what I can tell.

Scott Sumner comments on related issues.  Here is an update on recent problems in Chinese real estate.

The new Oded Galor and Quamrul Ashraf paper

Here is from an editorial summary published in Science (gated):

…Ashraf and and Galor present the hypothesis that genetic diversity has exerted a long-lasting effect on economic development—which is quantified as population density in the precolonial era and as per-capita income for contemporary nations—beyond the influences of geography, institutions, and culture. They posit that intermediate levels of heterozygosity allow for a productive balance between the social costs of high diversity and the creative benefits of higher variance in cognitive skills. They show that the optimal level of diversity was approximately 0.68 in 1500 CE, and that this increased to 0.72 (which is pretty much where the United States sits) in the year 2000, with the most homogeneous country, Bolivia, placed at 0.63 and the most diverse country, Ethiopia, at 0.77. Just how large an effect are we talking about? They estimate that genetic diversity accounts of 16% of the cross-country dispersion in per-capita income; put in another way, shifting the diversity of the United States higher or lower by one percentage point would decrease per-capita income by 1.9%.

One version of the paper is here, and it will be coming out in the American Economic Review.  Being on the road, I have yet to read this work.

MRUniversity will have a course unit especially on India

This will be a special part of our opening course on Development Economics.  The topics we will cover will include:

History of the East India Company

The economics of Gandhi’s attack on the salt monopoly

Was British rule good for India?

Private education in India

Economic research on the caste system in India

The timing of Indian economic reforms and the boost in Indian economic growth, as discussed by Rodrik, DeLong, and others.

The contributions of the most famous and most important Indian economists.

Why does Kerala have such a good record when it comes to public health?

RCTs in India by Poverty Action Lab.

And much more.

Today I have a request for you.  If you have any connection with India, please spread the word of this material to other people you may know who have a connection to India.

The motto of MRU is “Learn, Teach, and Share.”  You can register for the course to come here.  Background on MRU is here.  Background on the development economics class is here.

The economic equivalent of a tongue twister, on interest on reserves

From Cardiff Garcia, it starts with something like this:

I first argued that there are risks to lowering IOER that weren’t being considered by some economists who were recommending it. Specifically, such a move could create havoc in money markets that aren’t built to handle negative nominal rates, which would be a possible if not likely consequence. An unlinking of policy from effective rates, a run on money market funds, or chaos in Treasury auctions are some of the possibilities I mentioned – potential consequences of removing what is essentially a safe asset substitute from heavily collateralised short-term lending markets.

Enjoy the rest, including numerous cameo appearances.

Have job openings become less potent?

In the post-recession environment, the employment-population ratio is no longer responsive to increases in job openings. This is a severe structural shift driven by a spike in the length of unemployment (see further discussion). People don’t have the skills, the mobility, or the will to fill those job openings. The problem is significantly worse than what economists have been estimating by using the official unemployment rate.

That is from Sober Look.

Charter cities and extraterritoriality

In part I am writing this post because Google yields so little on that combination of words.

It would be a mistake to equate charter cities with extraterritoriality.  For one thing, a charter city has its own laws and governance, possibly enforced by overseas courts, rather than imposing foreign courts upon domestic governance, a’la Shanghai through the early 20th century.  Still, the history of extraterritoriality gives us some sense of what it looks like to have foreign courts operating outside their usual domestic environment.

The problem with extraterritoriality, as I read the literature, is not the Chinese courts had a superior system of commercial or criminal law which was tragically pushed out by inferior Western ideas.  The problem was that the foreign courts were not supported by comparably strong domestic interest groups and there was a clash between the foreign courts, national symbols, fairness perceptions, domestic rents and the like, all in a manner which led to eventual talk of foreign devils and violent overreaction against the influence of outsiders.

The history of extraterritoriality focuses one’s attention on the question of who has an incentive to support the external system of law, when such a system is transplanted abroad.  This question does seem relevant to charter cities and related concepts.

Hong Kong worked because the UK and USA were able to exert enough control at a distance, at least for a long while, and because China was weak.

One vision is that a charter city works because a dominant hegemon — perhaps at a distance — supports the external system of law.

A second vision is that a charter city works because the external system of law serves up some new and especially tasty rents to domestic interest groups.  In the meantime, avoid Tongans.

A related question is what it means for the external legal system to be “invited” in, and how much such an invitation constitutes prima facie evidence of real domestic support.

I would like to see these topics receive more discussion.

Two interesting books are:

1. Wesley R. Fishel, The End of Extraterritoriality in China, and

2. Par Kristoffer Cassel, Grounds of Judgment: Extraterritoriality and Imperial Power in Nineteenth-Century China and Japan.

Addendum: Here is an update about Romer’s group and Honduras.  There is lots going on, and probably even more than is captured in this story.  Here is the account from Romer’s group.

The culture that is Canadian thievery

Someone (possibly wearing super villain gear, although that’s pure speculation on my part until they’re apprehended) broke through security at the Global Strategic Maple Syrup Reserve in Quebec and made off with $30 million worth of Canada’s sweetest export.

…Canada is the global leader in production of this seasonal treat, churning out somewhere in the neighborhood of three quarters of the world’s supply. According to the documentation I was able to dig up, the Global Strategic Maple Syrup Reserve was created in order to establish stockpiles of syrup that would be used to stabilize supply and prevent price fluctuations during poor harvests…

Here is more, and I thank Saliency and several other MR readers for the pointer.

Reading John Goodman’s *Priceless*

Austin Frakt reports:

John Goodman and I have a deal. Beginning in a week or two, I’m going to start reading his book Priceless: Curing the Healthcare Crisis, and I will write my reaction(s) to it on TIE as I do. He, of course,  is free to react to my reactions by contributing to the TIE comments, posting on his blog, hollering out the window, or however he likes.

The crux of the deal is that our writings and window hollering about each other’s thoughts will be respectful, free of snark, or any implied or overt insults. No feigned shock that the other claims to be a health economist. No histrionics over those mixed up liberals or conservatives or libertarians (as applicable). No statements like, “What [Austin/John] fails to understand” or “Do you realize that …” In short, we’re just going to stick to the evidence and the ideas, not attack each other.

I look forward to the exchanges.

I’ve been predicting this

Republican presidential hopeful Mitt Romney, who promised early in his campaign to repeal President Barack Obama’s health care overhaul, says he would keep several important parts of the overhaul.

“Of course there are a number of things that I like in health care reform that I’m going to put in place,” he said in an interview broadcast Sunday on NBC’s “Meet the Press.” ”One is to make sure that those with pre-existing conditions can get coverage.”

…”I say we’re going to replace Obamacare. And I’m replacing it with my own plan,” Romney said. “And even in Massachusetts when I was governor, our plan there deals with pre-existing conditions and with young people.”

I would say he is preparing for a major fold on the issue.  I’ve been predicting a Romney administration would block grant Medicaid, undo some or all of the Medicare savings in ACA, but essentially keep the mandate under a different label and then claim to have “repealed and replaced.”  The story is here.

My all-time favorite things Ontario

1. Short story author: Alice Munro I consider one of the very best writers ever, from anywhere or any period.  Read them all, and there is a new collection coming this November.  Here is one place to start.

2. Movie, set in: Dead Ringers, by David Cronenberg, one of my favorite films period.

3. Director: After Cronenberg there is James Cameron, hate me if you want but I find his movies splendid.  Sarah Polley remains underrated in the United States, start with Away From Her, another of my all-time favorites.

4. Novelist: Margaret Atwood, especially Cat’s Eye.  I used to like Robertson Davies, but somehow his novels have not stuck with me.

5. Pianist: I used to think that only half of Glenn Gould’s recordings were tolerable, but in the last five years I have come to see his Haydn and Brahms recordings as masterpieces.  Now it’s only the Mozart and Beethoven I can’t stand.  Don’t forget the Berg Sonata and of course the Bach and also his writings.

6. Architect: Frank Gehry comes to mind, though I do not like the new rendition of the Art Gallery of Ontario.

7. Alanis Morissette song: “Head Over Feet.”

8. Comedian: I love Mike Myers in “Wayne’s World” and Jim Carrey in “Ace Ventura” and “The Cable Guy.”

9. Favorite Neil Young album: Everybody Knows this is Nowhere.

10. Blogger: AhemCory Doctorow deserves mention too.

We haven’t even touched the painters.

What strikes me is not only how strong this list is, but how little thought was required to compile it.