Month: November 2012

Does corruption harm economic growth?

by  Tyler Cowen in

Chris Blattman says maybe not.  Excerpt:

The reasons that corruption should hurt growth are so persuasive that economists have been pretty surprised not to find much evidence.  One team reviewed 41 different cross-country studies of corruption and development. Two-thirds of the studies don’t even find a negative correlation. Cross-country studies have mostly bad data and empirics, so we should not rest here. But Jacob Svensson has a nice overview of the broader evidence and draws the same conclusion: there’s not much to show that corruption reduces growth on net.

I worry more about corruption than those remarks would indicate, though I agree with Chris that the issue isn’t nearly as important as stopping a civil war.

First, I see a strong correlation between high levels of per capita income and low corruption.  (I don’t worry about the lack of correlation with growth rates because, for one thing, poor countries, even many corrupt ones, may grow more rapidly for reasons related to the Solow model.)  The causality here is hard to sort out, but there is plenty of micro evidence that corruption harms prosperity; it’s not just an aesthetic taste of wealthy people to limit corruption, the way they might buy nice interior drapes.

Furthermore, the correct corruption/poverty model may have multiple equilibria, depending on expectations.  In that setting, making your country “look clean” may improve outcomes by shifting the economy up to better equilibria, even if lower corruption isn’t a direct cause of greater prosperity.  There is worse advice than “Act like a rich country, and in the meantime you may become one,” at least provided you do not take this as liberty to spend above your means or to slack off with the work hours.

Second, even high levels of wealth will in some regards bring more corruption, especially as a country moves out of “fourth world” status or other forms of extreme poverty.  Corruption very often rises with complexity and so along some margins it is correlated with wealth levels too.  Similarly, we find that economic growth tends to bring more sexual harassment in the workplace, if only because more women are working outside the home.  Yet it is still correct to think of the harassment as a very real negative, as is corruption.

In any case, this week’s new videos are up at MRU and they cover the topic of corruption, go over and take a look.  Here is one video on the causal question about corruption and growth.  Here is our video on the causes and predictors of corruption, historically speaking.  Here is our video on how corruption can trap economies.

Why rebuild? (simple points, but worth a mention)

by  Tyler Cowen in

Across the nation, tens of billions of tax dollars have been spent on subsidizing coastal reconstruction in the aftermath of storms, usually with little consideration of whether it actually makes sense to keep rebuilding in disaster-prone areas. If history is any guide, a large fraction of the federal money allotted to New York, New Jersey and other states recovering from Hurricane Sandy — an amount that could exceed $30 billion — will be used the same way.

Tax money will go toward putting things back as they were, essentially duplicating the vulnerability that existed before the hurricane.

The full story is here.

Why so many men’s suits for the communists?

by  Tyler Cowen

David Stearns asks:

I was looking at Kim Jonh-Il looking at things, and it struck me how many of his hangers on were wearing suits.  It seems odd given that this is probably the most anti-western country around.  Do you have any ideas on why this style of formalwear basically became the world standard?

Of course the Chinese communists experimented with other styles. Yet pushback came; in 2008, one part of the Chinese Communist Party began an anti-pajamas campaign, on the grounds they looked “uncivilized.”

Here is a rather frank web site on etiquette campaigns in China.  Recently, Chinese leaders seem to prefer red ties.

I would stress that non-free states tend to encourage conformity along many dimensions, and what better code of dress to match conformity into than men’s suits?

Don’t Mess with the Mouse

by  Alex Tabarrok in

On Saturday the House Republican Study Committee released a radical but sensible position paper on copyright that called for limiting statutory damages (which are typically far higher than actual damages), expanding fair use exceptions, punishing false copyright claims and limiting terms. The position paper included good material on how to interpret copyright law such as:


Myth: The purpose of copyright is to compensate the creator of the content:

…according to the Constitution, the overriding purpose of the copyright system is to “promote the progress of science and useful arts.” In today’s terminology we may say that the purpose is to lead to maximum productivity and innovation.

This is a major distinction, because most legislative discussions on this topic, particularly during the extension of the copyright term, are not premised upon what is in the public good or what will promote the most productivity and innovation, but rather what the content creators “deserve” or are “entitled to” by virtue of their creation. This lexicon is appropriate in the realm of taxation and sometimes in the realm of trade protection, but it is inappropriate in the realm of patents and copyrights.

The paper also made a number of excellent points about how too much copyright can impede innovation and how rent seekers may come to dominate the process.

Mike Masnick and Cory Doctorow called the report “a watershed moment,” and there was lots of discussion on twitter and elsewhere about how this represented a Republican move towards recapturing youth and reasserting support for markets and innovation over business interests.

Alas, it was not to be. Within 24 hours the report was yanked. It doesn’t take much inside knowledge to guess what happened  It does give me some pleasure, however, to say that you can still read the report courtesy of the Maryland Pirates.

The Incidence of Mandated Maternity Benefits

by  Tyler Cowen in

I know that is from 1994, but it is by Jonathan Gruber (pdf) and the point is an important one:

I consider the labor-market effects of mandates which raise the costs of employing a demographically identifiable group. The efficiency of these policies will be largely dependent on the extent to which their costs are shifted to group-specific wages. I study several state and federal mandates which stipulated that childbirth be covered comprehensively in health insurance plans, raising the relative cost of insuring women of childbearing age. I find substantial shifting of the costs of these mandates to the wages of the targeted group. Correspondingly, I find little effect on total labor input for that group.

This has become more relevant in light of a recent story out of California, excerpt:

The ability of the exchange to lower healthcare costs remains unclear. Experts said average premiums could rise in the exchange because the Affordable Care Act requires improved benefits, but consumers’ out-of-pocket medical costs could decrease under those same changes.

California insurance officials have expressed concern about substantial rate hikes for some existing policyholders going into the exchange.

Under a new rating map approved by state lawmakers, the Department of lnsurance estimated that premiums for similar coverage could increase as much as 25% in West Los Angeles, 22% in the Sacramento area and nearly 13% in Orange County.

I believe some of that is from a pooling effect and some from a greater coverage effect.  I do not, by the way, find this reassuring:

Janice Rocco, the state’s deputy insurance commissioner for health policy, said her agency is pushing a new rating map that would cap increases at 8%. That proposal could be considered during a special legislative session in the coming months.

“We want to minimize the rate spikes,” she said.

I’ve said it before and I’ll say it again: the mandate as currently constituted probably won’t work.  The Medicaid extension can, in principle, work, and yet the state-level rebellion against it does not seem to be fading away.

Indian economists want the Food Security Bill modified

by  Tyler Cowen in

You will find their petition here, signed by many notables including from MIT and Princeton.  They want to “abolish the distinction between general and priority households, and give the same PDS entitlements to all households outside the excluded category.”  Furthermore cash transfers are raised as an alternative possibility, a good idea in my view.

Vipin Veetil and Atanu Dey raise some issues which these economists neglected, for instance:

On the production side, laws restricting for-profit corporate investments in agriculture (like those forbidding corporate ownership of agricultural land) starve the rural economy of capital investment and technology transfers. Such laws have two effects. First, they impoverish farmers by reducing demand for their primary asset – agricultural land. Second, corporations bring efficiency gains through large-scale knowledge-intensive farming. This is equally damaging but more difficult to detect. In addition they furnish a steady wage income to workers; this is desirable for low-income households. In the absence of corporations (and markets for insurance) farmers have no way of transferring the risk of production, i.e. they borrow money on fixed rates but face an uncertain return on investment. A crop failure then has the potential to begin a debt-cycle.

All those smart economists on the first petition, and not nearly enough talk of markets.

The MR Fanfare aggregator

by  Tyler Cowen

Fanfare is an excellent periodical of classical music reviews, and every year I aggregate the results from the “Critics’ Want Lists.”  This year, these were the works that made the Want Lists of more than one critic:

Havergal Brian, The Gothic Symphony, conducted by Martyn Brabbins.

Hector Berlioz, Requiem, conducted by Paul McCreesh.

John Adams, Harmonielehre, Short Ride in a Fast Machine.

Busoni’s Doktor Faust, conducted by Adrian Boult.

That’s three out of four in the “large and unmanageable” category.  Perhaps they have been made manageable, or perhaps we are deciding to live with unmanageability these days.

The Gramophone best classical CD of the year was Heinrich Schütz’s Musicalische Exequien, conducted by Lionel Meunier, which I enjoy very much.

Above and beyond the usual retreads, I was impressed by the vitality of:

Bach, St. John’s Passion, conducted by Monica Huggett, with a stripped-down orchestra, not just a stripped-down choir.  Here is one good review, here is another.

There is more taste aggregation on the way.

The culture that is Japan

by  Tyler Cowen in

The number of elderly criminals being caught by Japanese police has rocketed, the Japanese Justice Ministry said yesterday, with pensioners committing almost 50 times more assaults than two decades ago.

The number of criminals aged 65 or older booked by police last year increased by 475 from the previous year to 48,637, more than six times as many as 20 years ago, the ministry said in its latest white paper on crime.

Here is more, courtesy of Mark Thorson.

Florida markets in everything

by  Tyler Cowen in

The airsoft don’t inflict serious damage but they do hurt. An explainer on the Combat City website explains, “There is a degree of pain associated with airsoft just like paintball.  It is significantly less than paintball and without the swelling.”

A trip to Combat City costs about $150, which includes the cost of the gun modification.

And for added safety, participants are outfitted in a set of protective gear including helmets and padding over sensitive areas.

“There is supposed to be a degree of pain so that you do learn from it,” Kaplan said. “Someone’s trying to hurt you.  You learn how to be as tactical as a civilian can be.”

All of the action takes place inside a former grocery store that has been modified into an indoor combat setting.

From there, customers are broken up into teams and take part in various games ranging from capture the flag to hostage simulations.

And in a move that may shock some, children are allowed to participate as well.

“We get ’em at all ages,” Kaplan said in a separate interview with Fox35, noting that one of the participants on the video was 8-years-old.

A disclaimer on the Combat City site says “all ages are welcome,” adding, ” We can not tell you what you or your child can handle.  There are young kids playing at Combat City on a daily basis, only you can decide.”

Here is more, and for the pointer I thank Daniel Lippman.

Eurozone fact of the day

by  Tyler Cowen in

The number of Greeks moving to Germany jumped 78% in the first half of 2012 from a year earlier, Germany’s statistics office said.

In all, more than 16,000 people moved to Germany from Greece between January and June, an acceleration of a trend that began in 2010 after the Greek crisis began. The number of immigrants to Germany from Spain and Portugal was up by 53% for each country.

Here is more.

Assorted links

by  Tyler Cowen

1. Western Oklahoma markets in everything; “In other classes, students who don’t pass an exam the first time are allowed to try again. And none of the exams in the two-week format are monitored.”

2. The book marketing campaign of Tim Ferriss.

3. Twitter as weapon.

4. More on the Medicaid wars, a high stakes game of chicken.

5. The culture that is living in guilt in Paraguay.

6. The Manzi list.