Month: January 2013

Points I made about charter cities and free cities

I do favor experimentation in these directions, but often at Liberty Fund conferences, and indeed more generally, I play the role of contrarian.  I am not supposed to report the comments of others, but here are a few of the points I made in the discussions over the weekend:

1. It is striking that charter cities — a partial unpacking of nation-states — are proposed for a region, namely Central America, where Central American unification has been an ongoing proposal for hundreds of years.  Could it be that Central American nation-states were not optimally carved up in the first place?  Are cross-national unification and charter “unpacking” really polar opposites as proposals, or do they have more in common than it might at first appear?

2. Under what conditions would, in equilibrium, landowners capture most of the value created by a charter or free city?  Well-governed land would seem to be very scarce.

3. To what extent do charter cities require the active support or at least implicit support of a major hegemon?  Great Britain and then the U.S. backed Hong Kong and Singapore.  The U.S. took over Puerto Rico.  Yet Portuguese Goa and French Pondicherry are no longer real entities in part because no powerful government stood behind them.

4. To what extent are landlocked charter cities viable, or will their rents get swallowed up by larger and adjacent neighbors, much as India gives Nepal somewhat of a raw deal on transport?  Are successful charter and free cities more likely to be on the water?

5. Are the most likely countries to approve charter cities those which plan to use them as “special purpose vehicles” to keep offshore oil and gas revenues out of the hands of the legislature or other domestic “interest groups”?

6. More generally, what kind of selection process will rule which charter cities are approved and which wither on the vine?  How much will this selection process make the original idea worse (or better)?

7. When it comes to local land rights and the like, to what extent can the new legal authority of a charter or free city operate independently of the original legal system?  Or must the new legal authority defer to the documents, maps, and other decisions of the previous authority?  How many of the new legal decisions can in fact be disembedded from the previous legal authority?

8. Are charter and free cities likely to work better or worse with free or restricted immigration?  Which are they likely to evolve?

*Catastrophic Care*

That is the new book by David Goldhill and the subtitle is How American Health Care Killed My Father — and How We Can Fix It.  I don’t actually like that subtitle, but still this is the best popular health care book from recent times.  It has a crystal clear account of what has gone wrong and how to fix it, with the author settling upon a version of the Singaporean system.  I would describe Goldhill as a market-friendly Democrat who is skeptical about ACA and for the right reasons.

Recommended.

What made Buchanan special as an economist?

Matt asks this question.  I am a bit on the run, so I will do this in link-less form, but all the sources should be easily googled.  Here goes:

1. He developed the “theory of clubs,” which sets out the conditions under which private associations supply excludable public goods at optimum levels.

2. For his time he had the best and most rigorous analysis of the incidence of public debt.

3. With Gordon Tullock he pioneered the economic analysis of voting rules in terms of transactions costs and external costs imposed on others.  Any current blogosphere discussion of say the filibuster will rely on this approach, though we now take it so for granted we don’t realize how impressive it was at the time.

4. He had pioneering economic analyses of bicameralism, logrolling, and other aspects of legislatures, again with Tullock.

5. Along with Harsanyi, he formulated aspects of the “original position” before Rawls did and he was a major influence on Rawls.  By the way, I have seen Buchanan numerous times with top professional philosophers, and he has no problem holding his own or better.

6. He helped pin down, including on the technical side, the economic concept of externality.

7. He provided the most important revision to optimal tax theory since Ramsey, namely the point that supposedly efficient methods of taxation can be too easy to use.  That was in The Power to Tax, with Brennan.  His piece on static vs. dynamic versions of the Laffer curve, with Dwight Lee, is also significant.

8. He provided a public choice analysis of why Keynesian economics would not lead to the appropriate budget surpluses during good times and thus would contain dangerous ratchet effects toward excess deficits.

9. He thought through the conflict between subjective and objective notions of value in economics, and the importance of methodologically individualist postulates, more deeply than perhaps any other economist.  Most economists hate this work, or refuse to understand it, either because it lowers their status or because it is genuinely difficult to follow or because it requires philosophy.  Yet it stands among Buchanan’s greatest contributions even if a) I do not myself agree with his approach, and b) I do not think it is easily summarized or even well-explained.  Buchanan took Knight and Shackle very seriously and he understood that the typical pragmatic dismissal of their caveats was not in fact  well-founded.

10. His Hayekian work on “order defined only through the process of emergence” and “economics as a science of exchange and catallactics” is a very important take-down of the scientific pretensions of much of economics.  It doubted whether the notion of efficiency could be independently conceptualized at all.  Again, this work is disliked or ignored.  Buchanan may be going too far, but it is a very important and neglected perspective.

11. He thought more consistently in terms of “rules of the games” than perhaps any other economist.  This point remains underappreciated and underapplied.  It makes technocracy out to be a fundamentally different endeavor.

12. He did important work in the history of economic thought, reviving interest in the Italian school of public finance and public choice.

13. His late papers with Yoon on the work ethic, increasing returns, and economic growth remain underappreciated.  I also admire his work with Yoon on the anti-commons.

There is more, but that is a start.  Try his article on why pollution should be taxed for Pigouvian reasons.  I could add that Buchanan understood the importance of monetary rules, and favored a regime where the supply of money would be elastic in response to negative economic circumstances.

The Army of Economists

In a wide-ranging and interesting conversation Daniel Dennett reflects on hypocrisy and whether it may sometimes be optimal:

Suppose that we face some horrific, terrible enemy, another Hitler or something really, really bad, and here’s two different armies that we could use to defend ourselves. I’ll call them the Gold Army and the Silver Army; same numbers, same training, same weaponry. They’re all armored and armed as well as we can do. The difference is that the Gold Army has been convinced that God is on their side and this is the cause of righteousness, and it’s as simple as that. The Silver Army is entirely composed of economists. They’re all making side insurance bets and calculating the odds of everything.

Which army do you want on the front lines? It’s very hard to say you want the economists, but think of what that means. What you’re saying is we’ll just have to hoodwink all these young people into some false beliefs for their own protection and for ours. It’s extremely hypocritical. It is a message that I recoil from, the idea that we should indoctrinate our soldiers. In the same way that we inoculate them against diseases, we should inoculate them against the economists’—or philosophers’—sort of thinking, since it might lead to them to think: am I so sure this cause is just? Am I really prepared to risk my life to protect? Do I have enough faith in my commanders that they’re doing the right thing? What if I’m clever enough and thoughtful enough to figure out a better battle plan, and I realize that this is futile? Am I still going to throw myself into the trenches? It’s a dilemma that I don’t know what to do about, although I think we should confront it at least.

It would be astounding if there were never a situation in which a lie was effective in producing a good result, i.e. a noble lie. But is a rule of noble lies effective? In a long sequence of calls to war, how many have been just and wise and how many have been driven by vainglorious leaders and foolish pride–so which army do you want? I prefer the silver.

Note also that Dennett mixes narrow self interest and rationality in his description of “economists.” But one can be fully rational without being narrowly self-interested. Dennett, for example, cheats a bit with his puzzle. The premise is some “horrific, terrible enemy” but then later the economists ask “am I so sure this cause is just”, to which the answer should be, given the premise, yes. In which case fighting is a rational response.

Hat tip: Brian Donohue.

Hollywood markets in everything

 The Quality Cafe doesn’t even function as a real diner anymore. It stopped serving meals in 2006, but it’s been doing pretty well for itself as a film location over the past few decades … So now you know: If you ever get the feeling that all the diners used in Hollywood movies look the same, that’s because they probably are.

There is more here.  And from elsewhere, here is a market in a feline lap surrogate.  And here is how to keep your kid’s gaming down.

How Japan does gun control

Call this optimistic or pessimistic, either way:

“In Japan, no civilian is allowed to have a gun,” he stated simply. “In order to prevent atrocious crimes using firearms, possession of small arms was banned in 1965, with strict penalties for violations of the law. As time has gone on the penalties have increased and every year we try to drive down the number of people owning guns.”

Japan does allow the possession of hunting rifles and air guns (for sporting use), but the restrictions and checks are extremely strict.

And there is this:

Under current laws, if a low-level yakuza is caught with a gun and bullets that match, he’ll be charged with aggravated possession of firearms and will then face an average seven-year prison term. Simply firing a gun carries a penalty of three years to life. And for the “accomplice” reasons above, a yakuza boss may decide a death sentence is more appropriate if his thug miraculously gets released on bail before going to jail.

One mid-level yakuza boss told me, “Having a gun now is like having a time bomb. Do you think any sane person wants to keep one around the house?”

The police are not given a free hand in using guns either. Internal controls make it very difficult for a gun or even a single bullet to fall into the hands of criminals.

“When we go to the firing range, we get an allotted number of bullets, Detective X said. “When we’re done firing, we collect the shells and return the gun. If one shell is missing, the police station goes into a panic.”

The full story is here, courtesy of the ever-excellent Wonkbook.

Assorted links

A few James Buchanan reminiscences

Most of all I thought of him as a moralist and one of our best moralists.  I don’t mean an ethical philosopher (though he did that too), but a personal moralist and a judge of all that was around him.  His advocacy of a 100% inheritance tax is essential to understanding the man, as was his dislike of northeastern elites, a category to which he was never quite sure if I belonged.  He was a dedicated romantic who, after an intellectually traumatic encounter with Frank Knight, was looking for new, non-religious foundations for some rather old-fashioned views, often of a regional nature (Buchanan was from Tennessee).  He remains one of the least well understood and least accessible economics Nobel Laureates, and I don’t foresee that changing anytime soon.

Woe to the man caught shirking by Buchanan. He was up every day, working at 6 a.m., and expected not much less from others.

He was not always easy to have as a colleague.  He created a world around himself, intellectually, socially, and otherwise, and he lived in no other world but his own.

Betty Tillman was an essential ingredient behind his success, and over the years I grew to understand her managerial and advisory talent for Jim and for the Public Choice Center more generally.

His Better than Plowing is one of the underrated autobiographies of economics.

He favored titles with alliteration, such as The Calculus of Consent, The Limits of Liberty, and The Reason of Rules, three of his best books.

Jim was a splendid manager of collaborations and brought out in the best in Gordon Tullock, Geoff Brennan, Dick Wagner, Yong Yoon, and others.  Institution-building was another important part of his legacy.  Not just the Center for Study of Public Choice, but also Mont Pelerin, Atlas, Liberty Fund, and the Institute for Humane Studies were all important to him, among other groups.

Some of his key phrases were:

“the relatively absolute absolutes” (don’t ask)

“Don’t get it right, get it written”

and, most of all:

“Onward and upward”

He made us all better and I will always miss him.

New evidence on the middle income trap

From Barry Eichengreen, Donghyun Park, and Kwanho Shin:

We analyze the incidence and correlates of growth slowdowns in fast-growing middle-income countries, extending the analysis of an earlier paper (Eichengreen, Park and Shin 2012). We continue to find dispersion in the per capita income at which slowdowns occur. But in contrast to our earlier analysis which pointed to the existence of a single mode at which slowdowns occur in the neighborhood of $15,000-$16,000 2005 purchasing power parity dollars, new data point to two modes, one in the $10,000-$11,000 range and another at $15,000-$16,0000. A number of countries appear to have experienced two slowdowns, consistent with the existence of multiple modes. We conclude that high growth in middle-income countries may decelerate in steps rather than at a single point in time. This implies that a larger group of countries is at risk of a growth slowdown and that middle-income countries may find themselves slowing down at lower income levels than implied by our earlier estimates. We also find that slowdowns are less likely in countries where the population has a relatively high level of secondary and tertiary education and where high-technology products account for a relatively large share of exports, consistent with our earlier emphasis of the importance of moving up the technology ladder in order to avoid the middle-income trap.

The NBER version is here, does anyone know of an ungated version?