Month: September 2015

Open Borders and the Welfare State

Milton Friedman famously said that you can’t have a welfare state and open borders. I disagree. In many respects (not all), you can have open borders and a welfare state.

What we think of as the welfare state encompasses many different programs, many of which are not handouts. Social Security for example is mostly a forced savings program. For these types of insurance programs there is no problem at all as, for the most part, a person has to work and pay into the program to get money out of the program. For programs like schooling there is also no problem–even if the schooling is provided free to immigrant children–because the schooling leads to higher wages later in life which are taxed. In these cases, the immigrant children are really just receiving a loan which they will have to pay back from their own earnings later in life. The story for basic health is similar. Thus, the only cases where there is a worry about excessive transfers from citizens to immigrants is in pure handouts or health benefits to say the elderly. In these cases, I would simply say that such benefits are not available to immigrants or only available after five years or some such time period.

Addendum: I gave this answer in an interview for a Brazilian newspaper. You can read the full interview here although it is in Portuguese.

Tuesday assorted links

1. Barter continues to grow in Greece.  And the FT on Sardex in Sardinia.

2. What happens when Australians allow markets in everything.

3. Does social responsibility lower risk-taking behavior?  Paper is here.

4. In most plausible models, is Volkswagen the only car-maker to have rigged emissions data?

5. At top schools, more than one in five female undergraduates suffers one or more sexual attacks, and no this is not mainly trivial attacks.  It is odd how many people who otherwise insist on the relevance of Darwin to human affairs find this conclusion difficult to accept.  There is more information here.

Is there a Russia-America-China “grand bargain” on the way?

Imagine a deal where America and Russia agree on combating ISIS in Syria, admittedly through the sad means of supporting or at least tolerating Assad.  After all, we were all able to agree on Iran, right?

Russia also will agree to keep Snowden away from the embarrassment of a trial and conviction in the United States.  Easier for Obama to let sleeping dogs lie.

America and China could agree on how close American planes and ships could come to the artificial islands.  The Philippines could be part of that deal.

We know which two nations need to lead a climate change agreement.

Toss in a U.S.-China bilateral investment treaty.

Then there’s the arms control agreement for cyberspace, for all three nations, maybe someday Iran too.

Up to forty different U.S.-Chinese agreements have been predicted — after all, Uncle Xi has to come home with something.

It all seems so easy, and logical too.  But, unfortunately, international politics is rarely so straightforwardly Coasian.  Maybe the bilateral investment treaty will come to pass!

For a useful conversation I thank J.

How big is Busan really?

Giacomo Ponzetto emails me:

I’m glad you found our recent working paper on urban networks interesting and cited it on Marginal Revolution. I’m also glad that your readers pointed out our lack of clarity concerning Busan.

As they have already noted, what we meant is that the metropolitan city of Busan would be the second largest city in the European Union by population within administrative city limits, after Greater London (8.5 million) and pretty much tied with the city-state of Berlin at 3.5 million (the latest official figures we could find are 3,563,578 for Busan in 2013 and 3,562,166 for Berlin on 31 December 2014). We find this an interesting fact. It reflects political and administrative decisions to facilitate urban integration in Asia and conversely to preserve local identities in Europe. On the other hand, we agree that administrative boundaries often don’t provide the most useful definition of a city. The problem is that no other definition is unambiguous and plainly comparable across countries.

In its 2006 Territorial Review Competitive Cities in the Global Economy, the OECD defined the Busan metro area to include the administrative units of Busan, Ulsan, and Gyeonsangnam-do. By this definition, greater Busan has around 8 million residents, which is also the figure reported by Wikipedia, without defining the metro area. As the OECD noted, this is probably an overstatement because Gyeongsangnam-do is a large province including non-urban districts. Yet, a much smaller Busan-Ulsan-Changwon metro area (including Gimhae, Yangsan, Miryang and Geoje) has around 7 million residents. It would be the third largest in the European Union, behind London and Paris (12 million residents in the functional urban area as defined by Eurostat) but ahead of Madrid (6.5 million).

However, if instead one takes the view that Busan, Ulsan and Changwon are three continguous metro areas instead of a single one, then Busan-Gimhae-Yangan would have only around 4.5 million residents. It would be smaller than Madrid, the Ruhr, Berlin and Barcelona, but at the top of the pack that includes Rome, Milan and Athens. We chose to rely on the administrative-city figures to avoid having to adjudicate which is the most accurate functional definition of Busan’s metro area. Either way, you’re right it’s all too easy to underestimate Busan.

Intertemporal substitution in Iran, sanctions edition

A good rule of thumb is that if a policy is going to happen, it is better to have that policy sooner rather than later.  Here is the latest from the land of fesenjan:

With hopes high that Tehran’s nuclear accord with world powers could lead to the lifting of international sanctions, consumers are holding back on spending in the expectation of price drops and the arrival of better quality imported goods. The motor industry has been badly hit, with sales of domestically produced cars dropping by 15 per cent over the past five months, according to official figures.

Officials warn the carmakers’ crisis is having knock-on effects across the economy, hitting sectors from parts-makers to the critical steel industry, the second-biggest non-oil sector, which is already struggling amid a housing slowdown.


The centrist government of President Hassan Rouhani has managed to cut inflation from about 40 per cent to 12.6 per cent over the past two years and end three successive years of economic contraction, with growth of 3 per cent in the year to March. But economists believe the economy has now stopped growing and may even be contracting.

Of course some of that is an oil price effect.  The full FT story by Najmeh Bozorgmehr is here.

Monday assorted links

1. Don Boudreaux responds to Dani Rodrik on free trade.  And Arnold Kling responds.  And Dan Klein reviews Charles C.W. Cooke’s The Conservatarian Manifesto.

2. A quick way to access what betting markets are telling us about the candidates.

3. The NBA is moving toward wearable tech — are you next?

4. More data on Chinese services, including telecom.

5. Should we adjust for this data, or learn from it?  The temporal evolution of citation counts, across fields.

6. Generalized results about interest rates and banks profits, check out the Chicago Fed link here, Genay and Podjasek, it is #2 in the order which comes up for me, or try this link.  Overall banks are more profitable when interest rates are low, contra some recent blog posts by Krugman.   This effect is especially strong for small banks, which have a good deal of political power.  In any case “Interest rate changes generally have small effects on bank profits…” and that effect is dominated by the effect from macroeconomic conditions, including employment and also home prices.  Here are useful comments from Brad DeLong.

A Phool and His Money

I was disappointed with Akelof and Shiller’s Phishing for Phools.

Cinnabon pastries are hard to resist. Advertising can be deceptive. Humans sometimes act in foolish ways. If these statements strike you as anodyne then there is no need to read George Akerlof and Robert Shiller’s new book Phishing for Phools, a disappointing foray into behavioral economics from two recent Nobel Prize winners. If these statements strike you as novel then I recommend instead Ariely’s Predictably Irrational, Sunstein and Thaler’s Nudge, Kahneman’s Thinking, Fast and Slow or Daniel Gilbert’s Stumbling on Happiness, to name just a few classics in the field

You can read my full review at The New Rambler.

The eternal quest for a free lunch, in this case Escudella

Mas-Colell recuerda que España está obligada a pagar a los pensionistas aunque Catalunya se independice

There is eventually a noisy video at the link, my apologies.  I am not sure what is exactly the best translation of “recuerda” in this context, but the article involves Andreu Mas-Colell asserting that even after Catalonian independence the government in Madrid is obligated to pay for pensions in Catalonia.  That obligation is a legal one which (supposedly) international tribunals will enforce.

The fine points of the conditional and the subjunctive are important for interpreting that article, and perhaps some of those are escaping me.  But I don’t take the journalist to be reporting a prediction that Madrid actually will pay for those pensions, only that they have such a legal obligation, combined with the assumption that this law will reign supreme and the issue therefore won’t be a problem for Catalonia.  There is no mention of the current Spanish law essentially forbidding Catalonian secession or even direct consideration of such.

I have a question.  Of all the economists who have endorsed or indeed fought hard for Catalonian independence (Galí, Mas-Colell, Sala-i-Martí, Antràs, Boix, Ventura, etc.), who offers the best and clearest account of what the associated costs would be?  Please leave your answer in the comments, or if you wish email me.

Here are photos of Escudella.


For the pointer I thank Gerardo Gonzalez.

What I’ve been reading

1. Lavinia Greenlaw, A Double Sorrow.  A deeply sad but very affecting poem, based loosely on Chaucer’s Troilus and Cressida.  Here is a useful review of the work, and unlike many poems it is very easy to read.

2. Gillen D’Arcy Wood, Tambora: The Eruption that Changed the World.  This 1815 volcanic eruption in Indonesia had a bigger impact on global history than you might think.  Be afraid, be very afraid.

3. Lillian Faderman, The Gay Revolution: The Story of the Struggle.  A good, readable, even-tempered treatment of what the title promises.  I learned a good deal about the 1940s and 50s most of all, recommended.  It is 816 pp. but never a drag.  I am surprised it is not being reviewed more prominently.

4. Andrew Wender Cohen, Contraband: Smuggling and the Birth of the American Century.  A good look at how America really ran its nineteenth century trade policies, full of good anecdotes and examples.

5. Peter Frankopan, The Silk Roads: A New History of the World, it is out already in the UK, which was my source.  My main objection to this book is the overselling in the subtitle.  It is a nice, readable account of Silk Road history and the importance of Eastern land transport for global economic history.  I liked it, but didn’t feel it revised my worldview in any big way or even tried to.  The material on the twentieth century struck me as too familiar.  Here is one useful review.

I read about thirty pages of the new Salman Rushdie.  While it was better than expected, I didn’t feel compelled to continue; it is odd to tell a rationalist story through magical realist means.  Hanya Yanagihara’s A Little Life is turning out to be one of the year’s sensations.  I’ve read about one hundred pages and seems to be of high quality but its themes don’t grab me (New York City, child abuse), and it is taking too long to become conceptual.  And for another recent novel on child abuse themes, don’t forget the new Rafael Yglesias.

A crack in the higher education model? (hi future…!)

One of the UK’s biggest graduate recruiters is to remove degree classification from the entry criteria for its hiring programmes, having found “no evidence” that success at university was correlated with achievement in professional qualifications.

Accountancy firm Ernst and Young, known as EY, will no longer require students to have a 2:1 degree and the equivalent of three B grades at A level to be considered for its graduate programmes.

Instead, the company will use numerical tests and online “strength” assessments to assess the potential of applicants.

There is more here, via the excellent Jake Seliger.

*Who is Charlie?*. by Emmanuel Todd

I found this a fascinating book, in spite of some over-generalizations.  We all know that something is wrong with Europe, and with France in particular, but what?  The argument starts with this:

We need to take religion seriously, especially when it starts to disappear.

It continues:

…we gave the name ‘zombie Catholicism’ to the anthropological and social force that emerged from the final disintegration of the Church in its traditional bastions…This cultural survival is probably the most important social phenomenon of the years from 1965 to 2015.  It eventually led France into a multifaceted ideological venture, including the rise of a new kind of socialism, decentralization, a surge of pro-European feeling, a masochistic monetary policy, a deformation of the nature of the Republic, and, as we shall later see, a particularly shifty form of Islamophobia and, probably, of anti-Semitism.

It’s hard to unpack this following sentence in a blog post, but it gives you an indication of where the book is heading:

The demonization of Islam is a response to the intrinsic need of a completely de-Christianized society.

Todd notes that the vote share of the National Front is higher in “egalitarian territory” than in inegalitarian territory (pp.125-126).  And yet there is more:

We have been obliged to admit that there is a zombie Catholicism, and a zombie Protestantism too.  We should not shy away from postulating that there is a zombie Islam.

Ross Douthat, telephone!

I ordered my copy from  Here is a useful article on the French controversies surrounding this book.  It’s making my list for one of the most interesting of the year.

Is an independent Catalonia an issue again?

Here is Bloomberg on next week’s election:

If separatist parties secure a majority and Madrid refuses to negotiate, Mas says he’ll declare independence unilaterally within 18 months.

I read this earlier in the week:

The gap between Spanish 10-year bond yields and Italian yields has widened to a two-year high as political uncertainty escalates ahead of an election in Catalonia this month and a general election in December.

Spanish 10-year bonds now yield 0.27 percentage points more than Italian bonds. In October 2014 they yielded 0.4 percentage points less. The spread has widened by 0.15 percentage points in the last week alone, indicating a rising risk premium, with the timing of the sell-off coinciding with a major demonstration by Catalonian separatists on Friday.

The EU warns that independence would mean automatic expulsion from the EU.  Various leading banks have warned they would leave an independent Catalonia.  The odds are still against this actually happening, but it’s climbed on the radar screen again.

My position remains that this would be a big mistake.  It would bring significant economic harms.  Furthermore the current notion of “what it means to be Catalan” seems to be as much defined by the union with Spain as it would be realized without such a union.  Voting to leave is like voting to become a very new people, although it is rarely framed that way and more commonly framed as a kind of self-preservation or cultural preservation.  There’s nothing wrong with deciding to become a new people, but that can be done within larger political units as well.

What about the evidence on the economics?:

First, no historical evidence supports this claim [that an independent Catalonia would grow more rapidly]. Andres Rodriguez-Pose from the London School of Economics has studied the economic record of independence, mostly in Eastern Europe and the former Yugoslavia, and finds that countries at best maintain their previous growth paths.

Second, no evidence suggests that institutions in Catalonia perform better than the Spanish average. Anecdotal evidence suggests that corruption is as pervasive in Catalonia as in the rest of Spain. On a more scientific basis, the 2012 European Commission report [pdf] measuring the quality of government in European countries and regions shows Spain ranked 13 out of 27 EU countries, while Catalonia ranked 130 out of 199 EU regions, thus in the bottom third of EU regions. Catalonia also ranked last among Spanish regions.

Third, Catalonia’s potential growth benefited massively from the 1992 Olympic Games, which were financed mostly by the Spanish State and the City of Barcelona, with a minor contribution by the Catalan government, and which opened up new parts of the city with civil infrastructure investments. Research conducted by the University of Barcelona and the City of Barcelona shows that this spending not only boosted the economy before the games but also provided long-lasting benefits. For example, Barcelona moved higher in the “best city to conduct business” ranking.

That all said, Spain and the eurozone are now outside their immediate and dire fiscal and financial crisis, at least compared to say 2011.  So I now think that if a clear majority in Catalonia wants to leave Spain, Spain should let them go.  I wrote a few years ago that would be my stance once the most pressing parts of the financial crisis are past, and it seems to me that is now the case.  Catalonian separatism, while I still think it is imprudent, is no longer morally irresponsible from a broader European point of view.

Good luck, I’ll be watching either way.

Backlash and secondary consequences

Hispanic activists have two words for Donald Trump — thank you.

“I think the greatest thing to ever happen to the Hispanic electorate is a gentleman named Donald Trump, he has crystalized the angst and anger of the Hispanic community,” U.S. Hispanic Chamber of Commerce President & CEO Javier Palomarez told POLITICO in an interview. “I think that we can all rest assured that Hispanics can turn out in record numbers.”

Saturday assorted links

1. Questions that are rarely asked: “How many who think we shouldn’t judge schools by how well students do also think we should judge companies by wages?”

2. An economist gets dessert, sort of (apologies for the video when you click on the link).

3. University of Maryland to spin off its data analytics division into a new company.  Solve for the equilibrium.

4. The grey market foods of New York City.  And Arnold Kling on Fiorina and Trump.

5. Data on Uber’s surge pricing, it keeps the expected wait time within a remarkably consistent range.

6. UK scientists apply for license to edit genes in human embryo.

7. The smart basketball.  Nein, danke, I prefer self-deception to keep me on the exercise track.