Month: July 2014

How The Public Funding Of Elections Increases Candidate Polarization

Yet another shibboleth of campaign finance reform appears to be in weak shape, here is a new paper (pdf):

I show that the public funding of elections produces a large decrease in the financial and electoral advantage of incumbents. Despite these eff ects on electoral competition, I demonstrate that public funding produces more polarization and candidate divergence|not less. Finally, I establish that this eff ect is at least in part due to the fact that public funding disproportionately aff ects the contribution behavior of access-oriented interest groups, groups who, I show, systematically support moderate incumbents. Access-oriented interest groups therefore help generate the incumbency advantage and mitigate polarization by supporting moderate legislators.

That is from Andrew B. Hall at the Department of Government at Harvard.

Global inequality is down all the more if we count lifespan

From Becker, Philipson, and Soares (pdf):

GDP per capita is usually used to proxy for the quality of life of individuals living in different countries. Welfare is also affected by quantity of life, however, as represented by longevity. This paper incorporates longevity into an overall assessment of the evolution of cross-country inequality and shows that it is quantitatively important. The absence of reduction in cross-country inequality up to the 1990s documented in previous work is in stark contrast to the reduction in inequality after incorporating gains in longevity. Throughout the post–World War II period, health contributed to reduce significantly welfare inequality across countries. This paper derives valuation formulas for infra-marginal changes in longevity and computes a “full” growth rate that incorporates the gains in health experienced by 96 countries for the period between 1960 and 2000. Incorporating longevity gains changes traditional results; countries starting with lower income tended to grow faster than countries starting with higher income. We estimate an average yearly growth in “full income” of 4.1 percent for the poorest 50 percent of countries in 1960, of which 1.7 percentage points are due to health, as opposed to a growth of 2.6 percent for the richest 50 percent of countries, of which only 0.4 percentage points are due to health. Additionally, we decompose changes in life expectancy into changes attributable to 13 broad groups of causes of death and three age groups. We show that mortality from infectious, respiratory, and digestive diseases, congenital, perinatal, and “ill-defined” conditions, mostly concentrated before age 20 and between ages 20 and 50, is responsible for most of the reduction in life expectancy inequality. At the same time, the recent effect of AIDS, together with reductions in mortality after age 50—due to nervous system, senses organs, heart and circulatory diseases—contributed to increase health inequality across countries.

That reminder is from Aaron Schwartz.  And of course that is the Becker, yet another contribution from Gary Becker.

Do note, by the way, that medical progress is usually egalitarian per se.  A common metric is something like “health outcomes of the poor” vs. “health outcomes of the rich,” and that may or may not be moving in an egalitarian direction.  But very often the more incisive metric is “health outcomes of the sick” vs. “health outcomes of the healthy,” and of course most medical treatments are going to the sick.  The more desperate is the lot of the sick, the more likely that medical progress is egalitarian per se.

Bolivia fact of the day

One of the most surprising developments is the way that Bolivia has amassed foreign currency, salting away a rainy-day fund of about $14 billion, equal to more than half of its gross domestic product, or 17 months of imports, that can help it get through economic hard times.

According to the monetary fund, Bolivia has the highest ratio in the world of international reserves to the size of its economy, having recently surpassed China in that regard.

There is more here.  What do you recommend as good to read on the economy of Bolivia?  Please let me know in the comments.  I am going there in late August.

Would campaign finance reform limit political polarization?

Mann and Corrado have new work on this topic, here is a brief excerpt from the Brookings summary:

The evidence suggests that increasing the role of small donors would have little effect on partisan polarization in either direction because small donors tend to be highly polarized. Although Mann and Corrado note that a healthier mix would champion democratic ideals like civic participation and equality of voice.

Taking both points together, Mann and Corrado find that campaign finance reform is insufficient for depolarizing the parties and improving governing capacity. They argue forcefully that polarization emerges from a broader political and partisan problem. Ultimately, they assert that, “some break in the party wars is probably a prerequisite to any serious pushback to the broader deregulation of campaign finance now underway.”

I view campaign finance reform as in general an overrated idea on the Left.

Assorted links

Global income inequality is falling

That is the theme of my new New York Times column.  Here is one excerpt:

Income inequality has surged as a political and economic issue, but the numbers don’t show that inequality is rising from a global perspective. Yes, the problem has become more acute within most individual nations, yet income inequality for the world as a whole has been falling for most of the last 20 years. It’s a fact that hasn’t been noted often enough…

The message from groups like Occupy Wall Street has been that inequality is up and that capitalism is failing us. A more correct and nuanced message is this: Although significant economic problems remain, we have been living in equalizing times for the world — a change that has been largely for the good. That may not make for convincing sloganeering, but it’s the truth…

Many egalitarians push for policies to redistribute some income within nations, including the United States. That’s worth considering, but with a cautionary note. Such initiatives will prove more beneficial on the global level if there is more wealth to redistribute. In the United States, greater wealth would maintain the nation’s ability to invest abroad, buy foreign products, absorb immigrants and generate innovation, with significant benefit for global income and equality.

In other words, the true egalitarian should follow the economist’s inclination to seek wealth-maximizing policies, and that means worrying less about inequality within the nation.

Do read the whole thing.

Moral Effects of Socialism

Dan Ariely and co-authors have an interesting new paper looking at moral behavior, specifially cheating, in people who grew up in either East or West Germany.

From 1961 to 1989, the Berlin Wall divided one nation into two distinct political regimes. We
exploited this natural experiment to investigate whether the socio-political context impacts
individual honesty. Using an abstract die-rolling task, we found evidence that East Germans
who were exposed to socialism cheat more than West Germans who were exposed to
capitalism. We also found that cheating was more likely to occur under circumstances of
plausible deniability.

…If socialism indeed promotes individual dishonesty, the specific features of this socio-political
system that lead to this outcome remain to be determined. The East German socialist regime
differed from the West German capitalist regime in several important ways. First, the system
did not reward work based to merit, and made it difficult to accumulate wealth or pass
anything on to one’s family. This may have resulted in a lack of meaning leading to
demoralization (Ariely et al., 2008), and perhaps less concern for upholding standards of
honesty. Furthermore, while the government claimed to exist in service of the people, it failed
to provide functional public systems or economic security. Observing this moral hypocrisy in government may have eroded the value citizens placed on honesty. Finally, and perhaps most
straightforwardly, the political and economic system pressured people to work around official
laws and cheat to game the system. Over time, individuals may come to normalize these types
of behaviors. Given these distinct possible influences, further research will be needed to
understand which aspects of socialism have the strongest or most lasting impacts on morality.

It’s interesting that Ariely et al. try to explain cheating as a result of socialism. My own approach would look more to the virtue ethics of capitalism and Montesquieu who famously noted that

Commerce is a cure for the most destructive prejudices; for it is almost a general rule, that wherever we find agreeable manners, there commerce flourishes; and that wherever there is commerce, there we meet with agreeable manners.

See Al-Ubaydli et al. for a market priming experiment and especially McCloskey on The Bourgeoise Virtues for more work consistent with this theme.

China army markets in everything

To enlist in the People’s Liberation Army (PLA), potential recruits have to take tests. To make sure their sons and daughters pass, families pay up. At one recruitment office in the eastern Chinese province of Jiangxi, this year’s going rate, depending on your guanxi, or connections, is as much as 99,000 yuan ($16,000), says Wang, a recruitment officer in the province who asked that his full name not be used because he isn’t authorized to speak publicly. Limited openings, plus a high failure rate on the fitness exam, push parents to buy spots for their children during the annual enlistment drive that runs through September. Success offers a stable job and, for some, an escape from rural poverty.

The price varies, Wang says. His old army friends “asked me what the current price tag is, and I said ‘around 80,000 to 90,000 yuan for you guys.’ If your guanxi was really strong, it’d cost you around 50,000 to 60,000 yuan; if it was just so-so, you would have to spend 100,000 yuan at least.”

So how formidable a fighting force are they?  There is more here.

Filecoin: A Cryptocurrency-Operated File Storage Network

The working paper (pdf) describes it in this way:

Filecoin is a distributed electronic currency similar to Bitcoin. Unlike Bitcoin’s computation-only proof-of-work, Filecoin’s proof-of-work function includes a proof-of-retrievability component, which requires nodes to prove they store a particular file. The Filecoin network forms an entirely distributed file storage system, whose nodes are incentivized to store as much of the entire network’s data as they can. The currency is awarded for storing files, and is transferred in transactions, as in Bitcoin. Files are added to the network by spending currency. This produces strong monetary incentives for individuals to join and work for the network. In the course of ordinary operation of the Filecoin network, nodes contribute useful work in the form of storage and distribution of valuable data.

The mother site is here.  File under…arbitrage.

For the pointer I thank J.

Megan McArdle on the health care cost slowdown

Technological decline seems more plausible [as a cause]; see this Brookings Institution paper for the extended argument. Basically, health-care innovation is expensive, and for roughly the last decade, we’ve been doing less of it. As old innovations come off patent or are refined into cheaper and better versions, costs fall.

If you think health-care innovation is all useless me-too drugs, you should be pleased that we’re getting less of it. As it happens, I don’t think that’s the case, so while I’m pleased about the budget impact, I’m less pleased at the prospect of fewer new medical technologies. The good and the bad news is that the authors of that Brookings paper don’t necessarily expect the experience of the last decade to be continued in the future — good, because “whee, new treatments!” And bad, because, well, money.

The most worrying possibility is that this reflects a broader slowdown in how fast everything can grow. Certainly, it’s clear that the Great Recession caused a major slowdown in health-care costs everywhere; if you graph the data from the Organization for Economic Cooperation and Development, there’s a sharp, across-the-board inflection point in 2009.

There is more here.

Assorted links

How does the Chinese economy keep recovering each time?

It seems to be yet another cycle of China taking a temporary downturn and the economy picking itself up again and resuming its upward course, albeit at lower growth rates.  Why does this pattern keep repeating?  What could be going on?

1. The government keeps spending from its $3 trillion reserves stash and through direct fiscal policy it keeps Chinese workers employed and thus avoids the worst of the business cycle.  (NB: This is in general not a good understanding of what is going on, but it should make the list of possibilities.)

2. Worker productivity is going up ??% each year, through the importation of technical progress and the capture of low-hanging fruit.  So China keeps on hitting negative shocks, sticky nominal wages won’t fall, trouble is about to hit but then higher productivity kicks in quickly to keep unemployment down.  The economy then resumes its upward course, although hitting some bumps and snags along the way.

3. State-owned enterprises are told to keep on producing more and investing more.  This worsens their long-run profitability problems, due to collective excess capacity.  But in the short run (how long is that short run now?) both aggregate demand and aggregate supply stay fairly high.  When the profitability constraint hits, though, it will be a doozy.  Unless of course the government resorts to #1, postponing the problem even further.

4. China already has hit a recession in terms of living standards, we are simply mismeasuring the rate of inflation in the country.  And since real wages are falling (for some workers) and nominal gdp stays on a decent (or maybe even excessive) growth path, the country does not experience a traditional recession.

5. Through the use of monetary/fiscal policy and SOEs, the government keeps on boosting the supply of credit.  Since there has been a significant underemployment of resources in China, higher credit induces a self-sustaining positive response from the supply side.  There are then two options for the future:

a. China is still at a margin where this credit process is largely self-financing, or

b. China is now at a margin where soon enough the bills can no longer be paid.

I am not seeking to persuade you of any of these views, I am simply listing some possibilities.

How and whether contemporary cinema will survive

Liam Boluk has written an excellent four-part series, which should be read by anyone with an interest in movies or cultural economics.  He addresses whether movies are a dying or shrinking business, and the installments are here:

 

Here is one excerpt from number three:

One of the primary barriers to indie success and growth comes from screen distribution. In 2013, 50% of indie films were released on fewer than ten screens – nearly half of which maxed at only two. The reason for this is simple: the audience for the average indie film tends to be small and heavily concentrated in select cities (New York, San Francisco, Portland). As a result, expanding a film’s footprint into additional markets – even cities such as Seattle, Washington DC or Atlanta – can be financially destructive. Yet, even as the theater count is scaled, total performance can remain modest.

And here is Boluk’s blog.

There is no feline great stagnation

Facial recognition is helping improve everything from gaming to fighting crime – and now it could help in the battle against cat obesity.

A new gadget that uses ‘cutting-edge cat facial recognition technology’ promises to monitor our feline friends’ appetites and alert owners to any problems.

The Bistro system, created by Taiwanese company 42Ark, uses a camera at the front of a feeder to identify each of the cats.

There is more here, along with obligatory cat photo, with the cat’s face being scanned by facial recognition technology.  For the pointer I thank Mark Thorson.