Is there a flypaper effect for public health-based foreign aid?
If you give people, or a government, money to do one thing, they might reallocate some of those funds to their preferred marginal expenditures. A recent study published in Lancet, co-authored by Christopher Murray and Chunling Lu, suggests this is what happens with many instances of foreign aid:
"For every $1 of DAH [development assistance for health] given to government, the ministry of finance reduces the amount of government expenditures allocated to the ministry of health and other government agencies that engage in health spending by about $0.43 to $1.14," they write. "From the global health community's perspective, this means that to increase government health spending by $1, global health funders need to provide at least $1.75 of DAH."
Furthermore debt relief does not increase domestic government health care spending but grants to NGOs, unlike direct foreign aid to governments, do increase such spending. A summary of the study is here. Here is an abstract and a gated link.
Assorted links
Austro-Greek business cycle theory
Peter Boone and Simon Johnson explain:
This may not be obvious, but, creating money in a currency union is no simple task. In any single country, central banks usually restrict themselves to buying government bonds, and making loans to regulated commercial banks. Net purchases of these securities by central banks creates what is called “high-powered money”; this feeds into the financial system and results in the creation of what we all use to make payments and store value, i.e., money, plain and simple.
However in the European Monetary Union there are now 17 nations and a plethora of banks. So, to put it crudely, there is sure to be a fight to decide who gets the newly printed funds. The ECB resolved this by what seemed like a fair rule: All commercial banks can borrow from the ECB if they provide collateral, in the form of highly rated government and other securities, to the ECB. So, for example, a Greek bank can gain liquidity by depositing Greek government bonds with the ECB – as long as those bonds are “investment grade”, i.e., highly rated.
This simple and seemingly reasonable rule created great dangers for the eurozone, which have come back to haunt Mr. Trichet. The commercial banks in the zone are able to buy government bonds, which “paid” 3-6% long term interest rates (for all the sovereign bonds of members) over the last decade, and then deposit them at the ECB. They could then borrow from the ECB at the ECB financing rate, which today is 1%, against this collateral so pocketing a profit – and then buy more sovereign bonds with the funds. Mr. Trichet recognized this system had inherent dangers of turning into a new Ponzi game: if nations spent too much, and built up too much debt, eventually the system would collapse. So at the foundation of the eurozone, Mr. Trichet led a contingent within the EU that demanded all nations live by a “Growth and Stability Pact”, whereby each nation could only run deficits of 3% of GDP, and they had to keep their debt/GDP ratio below 60% of GDP.
Of course, politics trumped Mr. Trichet – as it always must – and the Greeks, along with the Portuguese, used their new found cheap lending system to run large deficits and build up debt. The cheap access to money also helped feed the real estate booms in Ireland and Spain.
There is much more of interest in their post, none of it good news for Greece or the ECB.
Is the conservative mind more closed?
Julian Sanchez writes:
I’ve written a bit lately about what I see as a systematic trend toward “epistemic closure” in the modern conservative movement. As commenters have been quick to point out, of course, groupthink and confirmation bias are cognitive failings that we’re all susceptible to as human beings, and scarcely the exclusive province of the right …Yet I can’t pretend that, on net, I really see an equivalence at present: As of 2010, the right really does seem to be substantially further down the rabbit hole.
Andrew Sullivan offers up some related links and commentary. I tend to agree with Sanchez and Sullivan, but I thought you all would be a good group to poll. Please offer up your opinion in the comments.
The gender gap in math is weak in Muslim countries
Moving to cross-country comparisons, we find earlier results linking the gender gap in math to measures of gender equality are sensitive to the inclusion of Muslim countries, where, in spite of women’s low status, there is little or no gender gap in math.
That is for students, not mathematicians, and it is from a new paper by Roland Fryer and Steve Levitt, hat tip goes to Chris Blattman. Overall they conclude that the standard variables do not very well explain changes in the gender gap in math over time.
A non-gated version of the paper is here and it seems to be different. Here is another version.
Is the VAT a money machine?
This is a very useful paper, full of facts and figures on VATs around the world. Here is one bit:
As shown in the first column, all OECD members other than the U.S. have adopted the VAT over the last 30 years or so, beginning with France continuing through adoption by Australia in 2000. The (unweighted) average standard rate of VAT is about 17 percent, but with considerable variation. Within the EU, it varies between 15 percent (the minimum permissible under the union’s rules) in Luxembourg, and 25 percent (the maximum) in Denmark and Hungary. And several non–EU countries apply far lower standard rates than this, the most striking being the fi ve–percent rate in Japan. Most also apply a reduced rate to some commodities, with domestic zero–rating being quite widespread. The fourth column shows that revenue from the VAT is also typically substantial– averaging a little over seven percent of GDP–but again with considerable variation, from a high of over 12 percent of GDP in Iceland to a low of around 2.5 percent in Japan.
The authors — Michael Keen and Ben Lockwood — conclude that a VAT is a "weak" money machine in the sense that increases in a VAT are partially offset by declines in other tax rates. They also note:
In a purely statistical sense, there is, thus, no strong evidence that the VAT has in itself caused the growth of government.
I saw this on Twitter somewhere, though now I forget whom to thank; sorry! [Update: It is probably "the wisdom of Garett Jones"]
Assorted links
1. The words that NYT readers look up most often.
2. Robin Hanson's earlier post on movie manipulation.
3. Bob Litan on derivatives reform; one idea in this piece is that clearing works easiest under highly capitalized monopoly yet monopoly brings other problems, such as stifled innovation and less favorable terms of trade.
5. The size of the called strike zone varies with the count.
6. Races.
Sentence to ponder
Of all the people in human history who ever reached the age of 65, half are alive now.
There are more age-related facts here.
Assorted links
1. Is Kim Jong-Il now a fashion leader? Buy the stuff here.
2. Very good David Boaz article on mistaken nostalgia.
3. Best-selling books of 2009.
4. Soft paternalism: the bottom line and here.
Sentences to ponder
Six years ago, there were almost three times as many students enrolled in private nonprofit colleges as there were at for-profit institutions. By 2008-9, that ratio had slipped to about 2 to 1.
Here is much more.
Hollywood opposes betting markets on film revenue
While the industry’s opposing comments were not yet final on Wednesday afternoon, Mr. Pisano and others said they were expected to cite a host of potential problems. Those include the risk of market manipulation in the rumor-fueled film world, conflicts of interest among studio employees and myriad contractors who might bet with or against their own films, the possibility that box-office performance would be hurt by short-sellers, difficulty in getting or holding screens for films if trading activity indicated weakness and the need for costly internal monitoring to block insider trades.
Among the potential abuses, the studios contend, is that a speculator might leak an early version of a film to the Internet and then profit from its subsequent poor performance at the box office.
The full story is here. I suspect that once you cut past the rhetoric the most important factor on that list is: "difficulty in getting or holding screens for films if trading activity indicated weakness…"
The recorded music industry has collapsed for a number of reasons, but one is that pre-purchase web listening helps consumers avoid songs and albums they don't really want to buy. There are fewer mistaken music purchases today than in say 1986 but of course that also means fewer music purchases. That's good for consumer welfare, even if it's not always good for the music corporations and artists. If the same trend came to the movie sector, many current business models would prove unsustainable. As it currently stands, previews often try to trick audiences rather than enlighten them; sampling a pre-purchase MP3 file in contrast can only enlighten you.
Counterintuitively, introduction of the betting markets could make movies worse in quality (relative to my tastes at least), by inducing producers to focus on making "the sure thing," especially if betting on the movie starts very early. (Keep in mind that the fixed costs of using theaters may require a minimum level of market interest above some threshold.) I don't so much mind bad movies because I simply walk out of them, so I prefer a higher variance in quality than may be socially optimal.
So much of our cultural industries have been built on consumer mistakes and those days are coming to an end, rapidly.
Krugman on Austrian business cycle theory
Basically he's right, as I've argued in my book Risk and Business Cycles. Here's a bit of what he is serving up:
What happens, instead – or at least that’s how I read it – is that Austrians slip Keynesianism in through the back door. Implicitly, they associate booms and slumps with rising or falling aggregate demand – utterly unaware that their own theory doesn’t actually make room for such a thing as aggregate demand to exist, or at least to affect overall employment. So Austrians are basically Keynesians in denial – self-hating Keynesians? – pretending to themselves that they’re not using ideas that are in fact essential to their story.
Sraffa first made a related point in 1932, though without reference to Keynesianism of course. The strongest defense of the Austrians is something like the following. The simplest IS/LM or AD models are models of flows, not stocks. Arguably the Austrians could be pointing to a longer-run stock condition — concerning capital, savings, and the like — which means that the flows of the boom eventually must be reversed into a bust. The Austrians could (though many don't) buy into Keynes as a good short-run theory while addending these longer-run considerations of sustainability.
Krugman's point is harder to rebut if you ask the simple questions of why Austrians a) start from an assumption of full employment, b) postulate that in a boom capital goods production rises at the expense of consumer goods production, and c) argue that real wages rise during the boom. Those can't all happen together.
A separate question is why investors don't see inflation, get scared, and contract the structure of production immediately, rather than first expanding it. Or why unforeseen inflation (if indeed it is unforeseen) does not significantly lower the real interest rate that is paid ex post on borrowed funds (no Fisher effect!), thus supporting long-term investments. Or why investors so respond to the short-term interest rate but are so oblivious to the information contained in the broader term structure. Or just ask how much investors estimate future consumer demand by looking at interest rates — usually not much at all and so they are not so strongly tricked by monetary influences on intereest rates.
The point is not to throw out the Austrian scenario altogether, but rather to rebuild it with foundations from bubble theories and Keynesian economics, plus modern finance and real business cycle theory.
Addendum: Arnold Kling comments.
Assorted links
1. Links to rumors of Larry Summers leaving the Obama administration.
2. Bill Simmons endorses sabermetrics.
3. Doctors with ownership of surgery center operate more often.
4. Albert Hirschmann is 95 years old today.
5. Markets in everything, end grade inflation: outsource grading to Bangalore.
6. Strip mall vacancy rate hits 10.8% — good for ethnic food?
7. Dick Thaler replies to libertarian critiques from Glen Whitman and the gentlemanly Mario Rizzo.
Do black mayors improve black employment outcomes?
My colleagues John Nye, Ilia Rainer, and Thomas Stratmann say maybe so:
To what extent do politicians reward voters who are members of their own ethnic or racial group? Using data from large cities in the United States, we study how black employment outcomes are affected by changes in the race of the cities’ mayors between 1971 and 2003. We find that black employment and labor force participation rise, and the black unemployment rate falls, during the tenure of black mayors both in absolute terms and relative to whites. Black employment gains in municipal government jobs are particular large, which suggests that our results capture the causal effects of black mayors. We also find that the effect of black mayors on black employment outcomes is stronger in cities that have a large black community. This suggests that electoral incentives may be an important determinant of racial favoritism. Finally, we also find that, corresponding to increases in employment, black income is higher after black mayors take office. Again, this effect is pronounced in cities with a large black population.
Politics isn’t about policy, installment #734
Matt Yglesias writes:
To borrow an idea from Robin Hanson, I think it’s useful to think about political conflict in terms of valorized figures. On the right, you see a lot of valorization of businessmen. On the left, you see a lot of valorization of pushy activists who want to do something businessmen don’t like. Formally, the right is committed to ideas about free markets and the left is committed to ideas about economic equality. But in practice, political conflict much more commonly breaks down around “some stuff some businessmen want to do” vs “some stuff businessmen hate” rather than anything about markets or property rights per se. Consequently, on the left people sometimes fall into the trap of being patsies for rent-seeking mom & pop operators when poor people would benefit more from competition from a corporate bohemoth.