Month: August 2015
People who deserve to be raised in status
Let’s stick with the living, here are a few who come to mind:
Adam Minter
Charles C. Mann
Laura Miller (formerly of Salon.com, now of Slate)
Ted and Dana Gioia
Christopher Balding
Fuchsia Dunlop
Stephen King
Arnold Kling
Kendrick Lamar
Viktor Zhadanov
Chow Yun Fat
To be clear, I am not suggesting these people are deficient or lacking in status, rather that it should be higher yet. Or maybe it is the list of people who should decline in status which interests you more…
Singapore as financial corporation
Over the last quarter Singapore’s gdp fell at an annualized rate of 4.6%, in large part because of China problems (that’s your “China fact of the day”). And household debt is about 75% of gdp. Yet the nation’s finances are much sounder than that may sound, and it is worth thinking through why.
I think of the government of Singapore as having three main fiscal arms. One is a tax collection authority, one is like a life insurance company, and the other is like a hedge fund. In fact it is a hedge fund.
The tax collection angle is pretty straightforward. Singapore does an excellent job of both collecting taxes and keeping the overall (direct) tax burden low. As the population ages, however, we can expect these taxes to rise somewhat, but in a predictable and manageable way.
Now consider the financial side, in particular the question of what the government earns on the investment of people’s retirement funds. Here it gets more interesting.
Singapore’s social security and welfare system relies on forced saving. Overall this policy has served Singapore well, and has kept down government as a share of gdp, but in an era of low rates of return it may stumble. Imagine for instance that the retirement fund were to earn zero percent or so (real) over a period of ten years.
There is already a perception that people put in a lot of forced savings for what they get back for retirement. I’ve heard Singaporeans claim that they “save for forty years and get paid for twenty,” and similar such assessments. By no means is everyone happy with the system.
Here is a good survey of criticisms (pdf), including this one:
Those dissatisfied with CPF [Central Provident Fund, the forced savings body] interest rates argued that, given the comparatively higher returns from investment bodies like the GIC and Temasek Holdings who invested government funds, the government should rightfully offer a higher rate of return to CPF holders. The failure to do so was thus perceived as proof that the current government was miserly and profit-seeking at the expense of CPF holders’ welfare. Some also highlighted that annual dividends provided under Malaysia’s Employment Provident Fund (EPF) 83 were higher than the 2.5-3.5% annual interest provided on the OA and the 4-5% on the Special, Medisave, Retirement Accounts (SMRA), as proof that CPF rates could be higher.
Here is a useful ADB history of the Central Provident Fund (pdf, and I’ll use the shorter CPF). In its early years the fund did well by investing in the low-hanging fruit of Singapore’s housing stock. That option will not be as socially or financially potent looking forward. Here are concerns about the sustainability of CPF investment plans (pdf).
The CPF balance sheet states that funds are invested in high-quality government securities, but in fact there is a sizable surplus and a lot of the money is invested abroad, basically as part of sovereign wealth fund activities (see pp.13-15 in this pdf, the link is interesting more generally too).
In essence, one part of this system has the financial structure of a life insurance company, and another part has the financial structure of a hedge fund.
Singapore as a financial corporation has amassed an enormous amount of wealth, due to the earth-shattering performance of its fund managers. You can think of modern Singapore as in part built on the phenomenal “hedge fund” returns of the 1990s.
I read in the Business Times that Temasek, one of the two major Singaporean funds, has averaged a 16 percent rate of return since its inception in 1974. That is impressive, and even if you think that exact number is somehow cherry-picking, everyone agrees the returns have been high. The problem of course is that we do not expect the next few decades to be anywhere near that performance, especially as Asian growth has been slowing down and China is no longer an easy path to riches. Singapore runs the risk of being the next Warren Buffett, so to speak. That said, Buffett is still a pretty rich guy, as is Singapore; imagine shouting to a bum on the street “Hey, buddy — you’re going to be the next Warren Buffett!” He wouldn’t feel so distressed.
For all the talk of forced savings, you can understand the current CPF as (partially) a pay-as-you-go system, where some of the CPF funds are transferred to government holding companies and then the higher returns are kept within the state. I cannot ascertain the size of that transfer, but I believe it to be large. As a public choice issue, the market-oriented defenders of forced savings programs need to come to terms with the fact that there is far less than full pass-through. That said, the private savers mostly would not have earned those high rates of return on their own.
Singapore built up a strong state rather rapidly, but partially at the expense of retirees, and those who must save along the way for retirement, and you can think of that as Singapore’s major hidden tax. “State capacity,” when turned to beneficial ends such as infrastructure and wise decision-making, benefits the young most of all. In my view it is good policy to be investing so much in the more distant future, rather than in the elderly, but of course opinions here will differ.
One implication, by the way, is that if you measure wealth rather than income, Singapore’s government is much larger than it may at first appear. On the flow side, Singapore is small government — about eighteen percent of gdp by many measures — but on the stock or wealth side it is big government. That is one reason why the country has fans on both sides of the political spectrum.
Of course as retirees ask for more, as is the political trend, Singapore will have to increase payments. That will be a massive de facto privatization of the wealth held within the Singaporean state apparatus. But of course the privatized flows will, to a large extent, be soaked up by household debt and recycled to the financial sector.
It will be tricky to maintain the balance between having a strong state and meeting voter demands. Such is the tension of living at r> g, and in a funny way the Singapore scenario has, at least until now, fit Piketty’s model fairly well, albeit with a much larger role for the state. The problems will come when those rates of return on capital start to fall as indeed I believe they are about to.
But don’t worry just yet — Temasek a few weeks ago announced that they pulled in a return of over nineteen percent during this last year.
I continue in my belief that Singapore is one of the most fascinating places in the entire world. If you have not yet been, I envy you for the experience of visiting the first time.
Tuesday assorted links
Can Tabarrok Bridge the Wonks and Burning Man?
It’s a TED-style talk, and Alex Tabarrok is just getting going, dressed in D.C.-friendly attire (dark gray suit) in front of the usual casual-hip crowd at the Voice & Exit conference in Austin, Texas. Pacing behind the podium, he flashes images of workers, of wastrel, skeleton-thin immigrants seeking labor. Your heart bleeds as he sings his songs of morality and justice and the need for immigrants in any good society and etc., etc., etc.
His pitch to solve this messy hot topic of the day? Two words: open borders.
That’s from an amusing profile of me in OZY, Can Philosopher Alex Tabarrok Bridge the Wonks and Burning Man?
Addendum 1: Tyler’s office is even messier than mine.
Addendum 2: Tyler, of course, blogged this 3 minutes earlier from somewhere in Serbia. How does he bend the laws of space and time?
Profile of Alex Tabarrok
…Even Cowen tells OZY that even he doesn’t want Tabarrok to “entirely get his way” on all things…
Otherwise it is all about Alex, but that is my cameo. It is a good and fun profile, though I think it understates Alex’s pragmatic side somewhat. The author is Sanjena Sathian.
A few of my thoughts on teaching
What concrete changes would I make in schools? The idea that you need to take a whole class to learn some topic is absurd. Whatever you’ve learned is probably going to be obsolete. A class is to spur your interest, to expose you to a new role model, a new professor, to a new set of students. We should have way more classes which are way shorter. It should be much more about learning, more about variety, give up the myth that you’re teaching people how to master some topic; you’re not! You want to inspire them; it’s much more about persuasion, soft skills.
That is from a longer OECD interview with Marilyn Achiron. By the way, here is a new and interesting Alana Semuels article on competency-based approaches.
My favorite things Serbian
1. Painter: Marko Čelebonović. Plus lots of the art in the monasteries.
2. Performance art: Marina Abramović. I still love this video of the staring game.
3. Author: Danilo Kiš, the Serbian Borges. Or how about Milorad Pavic, Dictionary of the Khazars, which somehow seems to have fallen through the cracks since the time of its publication. Ivan “Ivo” Andrić is the Serbian Nobel Laureate, sort of, he espoused a Serbian identity but actually was Bosnian.
4. Actor and director: Emir Kusturica. Recently he has disappointed, and taken flak, for having supported Putin’s invasion of Ukraine. He is still an impressive creator, however, and is also an accomplished musician and author. Did I mention that he espouses a Serbian national identity, and has converted to Orthodox Christianity, but originally was a Bosnian Muslim?
5. Actress: Milla Jovovich, most of all in Fifth Element and also Resident Evil, she is part Serbian.
6. Economist and blogger: Branko Milanović.
7. Sports: Lots of tennis players, plus Pete Maravich was of Serbian descent.
Other: Tesla was ethnic Serbian though born in Croatia. American poet Charles Simic was born in Serbia, though he moved to the United States at a young age.
Why Singapore is special
Singapore as an independent nation will be fifty years old this August 9. In the comments, a number of you have asked me why I find Singapore so special.
I would cite three features of the country above all else:
1. It is a place where large numbers of people are obsessed with both food and economics.
2. The citizens and leadership of Singapore have an unparalleled knowledge and understanding of economics, engineering, and public policy. In this regard the polity is distinguished in world-historic terms, and anyone who visits is enjoying a remarkable privilege to see this in action. In my admittedly idiosyncratic view, this is one of the best and most important sights of the contemporary world, more interesting than most natural wonders.
3. Singapore has created what is possibly the highest quality bureaucracy the world has seen, ever. Imagine a country where you can have a serious debate as to whether there is a brain drain into the government rather than out of it!
Singapore of course, like all places, has various problems and imperfections, but I believe its significance does not receive enough recognition from outside commentators.
Here is a good article about how Singapore is seeking to export its own expertise.
Monday assorted links
1. Krugman reviews the “new” Piketty book.
2. The economics of microbial trade (speculative).
3. When a company experiments with a yearly minimum wage of 70k.
4. Will self-driving cars benefit Los Angeles the most? And an architectural review of the new 405 freeway improvements.
5. The great sushi craze of 1905.
6. Perry Anderson on Russia, lots of stuff. And Hernando de Soto on Piketty’s political economy.
7. Chinese textile production is returning to the United States, but please be careful not to overinterpret this story.
Low Cost Private Schools in the Developing World
Private schools for the poor are growing rapidly throughout the developing world. The Economist has a review:
Private schools enroll a much bigger share of primary-school pupils in poor countries than in rich ones: a fifth, according to data compiled from official sources, up from a tenth two decades ago (see chart 1). Since they are often unregistered, this is sure to be an underestimate. A school census in Lagos in 2010-11, for example, found four times as many private schools as in government records. UNESCO, the UN agency responsible for education, estimates that half of all spending on education in poor countries comes out of parents’ pockets (see chart 2). In rich countries the share is much lower.
Overall, there is good evidence that private school systems tend to create small but meaningful increases in achievement (e.g. here, here, here, here) and especially good evidence that they do so with large costs savings. The large costs savings suggest that with the right institutional structure, which might involve vouchers and nationally comparable testing, an entrepreneurial private sector could create very large gains. Karthik Muralidharan who has done key work on private schools and performance pay in India puts it this way:
Since private schools achieved equal or better outcomes at one-third the cost, the fundamental question that needs to be asked is “How much better could private management do if they had three times their current level of per-child spending?”
The Economist notes that another promising development is national chains which can scale and more quickly adopt best practices:
…Bridge International Academies, which runs around 400 primary schools in Kenya and Uganda, and plans to open more in Nigeria and India, is the biggest, with backers including Facebook’s chief executive, Mark Zuckerberg, and Bill Gates. Omega Schools has 38 institutions in Ghana. (Pearson, which owns 50% of The Economist, has stakes in both Bridge and Omega.) Low-cost chains with a dozen schools or fewer have recently been established in India, Nigeria, the Philippines and South Africa.
Bridge’s cost-cutting strategies include using standardised buildings made of unfinished wooden beams, corrugated steel and iron mesh, and scripted lessons that teachers recite from hand-held computers linked to a central system. That saves on teacher training and monitoring.
The Economist is somewhat skeptical of scripted lessons, known as Direct Instruction in the education world, but in fact no other teaching method has as strong a record of proven success in randomized experiments (see also here and here).
Need I also point out that online education can bring some of the best teachers in the world to everyone, everywhere at low cost? An article in Technology Review titled India loves MOOCs points out that students from India are a large fraction of online students (fyi, we are also finding many Indian students at Marginal Revolution University)
Throughout India, online education is gaining favor as a career accelerator, particularly in technical fields. Indian enrollments account for about 8 percent of worldwide activity in Coursera and 12 percent in edX, the two leading providers of massive open online courses, or MOOCs. Only the United States’ share is clearly higher; China’s is roughly comparable.
Education is changing very rapidly and its the developing world which is leading the way.
What kind of blog post produces the most comments?
Imagine if I wrote a post that just served up a list like this:
The people who deserve to be raised in status:
Norman Borlaug, Jon Huntsman, female Catholics from Croatia, Scottie Pippen, Yoko Ono, Gordon Tullock, Uber drivers, and Arnold Schoenberg,
And
The people who deserve to be lowered in status:
Donald Trump, Harper Lee, inhabitants of the province Presidente Hayes, in Paraguay, doctors, Jacques Derrida, Indira Gandhi, and Art Garfunkel
You might get a kick out of it the first time, but quickly you would grow tired of the lack of substance and indeed the sheer prejudice of the exercise.
Yet, ultimately, the topic so appeals to you all. So much of debate, including political and economic debate, is about which groups and individuals deserve higher or lower status. It’s pretty easy — too easy in fact — to dissect most Paul Krugman blog posts along these lines. It’s also why a lot of blog posts about foreign countries don’t generate visceral reactions, unless of course it is the Greeks and the Germans, or some other set of stand-ins for disputes closer to home (or maybe that is your home). Chinese goings on are especially tough to parse into comparable American disputes over the status of one group vs. another.
I hypothesize that an MR blog post attracts more comments when it a) has implications for who should be raised and lowered in status, and b) has some framework in place which allows you to make analytical points, but points which ultimately translate into a conclusion about a).
Posts about immigration, the minimum wage, Greece and Germany, the worthiness of entrepreneurs vs. workers, and the rankings of different schools of thought or economists all seem to fit this bill.
Sometimes I am tempted to simply serve up the list and skip the analytics.
Addendum: Arnold Kling comments.
Arrived in my pile
Josiah Ober, The Rise and Fall of Classical Greece. This new history of ancient Greece has an intriguing estimate of living standards during that time, I hope to spend more time with it soon. Ober argues there was plenty of economic growth at the time and that the Greeks lived at well above subsistence; I agree with both of those claims.
Here is the book’s home page. Here is one useful review, though its carps at the books’ economism. Other reviews are here. As a first-order approximation, you can think of this book as how an economist might think about ancient Greece.
Sunday assorted links
1. There is no KFC Bluetooth great stagnation.
2. Breaking Smart, a technology analysis site.
3. Did the 1936-37 boost in reserve requirements actually hurt bank lending?
5. Camille Paglia, part III, with links to the rest. Her best interview in quite a while.
*The Meursault Investigation*
This new book, by Algerian writer Kamel Daoud, starts with Camus’s The Stranger, and then retells the story from the point of view of the brother of the Arab murder victim. It’s both commentary on the original and a compelling narrative in its own right. The Guardian called it “an instant classic and Michiko Kakutani described it as “stunning.” Here is Roger Cohen on the novel. You can buy it on Amazon here. Unless your memory is very good, I recommend a refresher on The Stranger first. Daoud has produced one of this year’s must-reads.
*Hun Sen’s Cambodia*
That is the new and excellent book by Sebastian Strangio, which you can think of as a post-Sihanouk look at the country from a political economy point of view. Here are just a few bits:
The cruelty and callousness that allowed jilted wives to order and commit such brutal attacks on young women also had its echo in history. As the historian Michael Vickery has written, patterns of sudden and extreme violence had deep roots in Cambodia, especially against those groups and individuals defined in some way as enemies. Through cruel violence found its fullest expressions under Pol Pot, it long predated Democratic Kampuchea, stemming from cultural notions of face, honor, and revenge, in which personal grudges (kum) could elicit a disproportionate and overwhelming response.
And:
Hun Sen’s rise over the past two decades has been accompanied by the rise of what might be called HunSenomics — a blend of old-style patronage, elite charity, and predatory market economics. Since the transition to the free market in 1989, Hunsenomics has succeeded in forging a stable pact among Cambodia’s ruling elites, but has otherwise done little to systematically tackle the challenges of poverty and development.
And:
Because Hunsenomics provides few incentives for sustainable agricultural development, Cambodia’s land and water resources remain drastically underutilized. Just a third of Cambodia’s total land area is currently under cultivation — a much lower proportion than in neighboring countries. Only 18 percent of this land was irrigated as of 2005, compared to 33 percent in Thailand and 44 percent in Vietnam, and due to lack of maintenance only a fifth of irrigation systems were fully functional. As a result, rice yields per hectare lag far behind the likes of Vietnam and Thailand.
Definitely recommended, and as Dan Klein and I used to say to each other “You so much learn the whole book.”