Category: Current Affairs

The continuing earthquake in Germany?

There is an old and not quite historically accurate joke:

Question: Why don’t they have a revolution in Germany?

Answer: Someone would have to step on the grass.

Well, the Germans are continuing to reform their welfare state, albeit in baby steps. The latest step is to cut jobless benefits. Under the old regime, a German who hadn’t worked for a year would receive 53 percent of his or her old salary, forever. Oh, plus supplements as well. Under the new law they will get $426 per month plus supplements, basically the same as the minimum relief offered to the poor. And the forever word will no longer hold. Recipients can lose some of their benefits if they turn down possible jobs. And they also can take low-paying jobs without losing the benefits. This is a better policy all around.

Here is another recent MR post on German reforms. And did you know that they are cutting taxes by 6.5 billion Euros next year? That paltry sum is hardly Arthur Laffer’s dream, but any movements out of Germany’s previous policy gridlock are welcome. By the way, are you surprised to learn that most German trade unions oppose the change in benefits policy?

Some of the information in the post is taken from The Wall Street Journal, 8 July, p.12.

Addendum: Here is a New York Times article about how Europeans are moving away from their ideal of a leisure society.

John Edwards it is

Here’s Alex’s old post on John Edward’s career as a trial attorney, read Alex here too. Here is Professor Bainbridge on Edwards on tort reform. Here is National Review discussing John Edwards on trade.

My take: None of these links warms my heart, but at this point we don’t have much real information. I suspect that Edwards, if President, would rather be perceived as successful than pursue a particular ideology. And he almost certainly is better on the issues than Gephardt.

A comment I would never make on MarginalRevolution

Read Matthew Yglesias on the Endangered Species Act:

Did the president really gut the Endangered Species Act yesterday while no one was paying attention? So I’ve heard, at any rate. If so, good riddance. You’ll all yell at me, I suppose, but really: Who cares? Species die, shit happens, get over it. Clean air, clean water, and lower carbon emissions I’ll get behind that stuff impacts, you know, people.

Here are my more moderate comments from some time ago.

I should link to Matt more often, we share a Best Buy, plus he doesn’t want to worry about Iranian nukes. But when it comes to Dick Gephardt, however…read this.

Independence Day

A sign on the highway on the road to Toronto speaks volumes.

Remember, driving is a privilege not a right.

Despite the fact that I am Canadian, everytime I see this sign my stomach churns with anger and I must suppress a desire to turn back to the U.S. The sign is a reprimand from the rulers to the ruled reminding them of their place. I want to tear it from the ground but my fellow Canadians think my reaction odd. More Americans, I think, would understand and that I suppose is why I call America home.

Happy Independence Day.

Earthquake in Germany?

This week the German government is expected to pass a landmark immigration reform. The measure would allow migrants to work in Germany if they have skills if specified fields, such as engineering, information technology, or the sciences.

To be sure, the qualifications are many. It must be shown that no German can do the job. National security factors can be invoked to limit and restrict migrants. An earlier version of the bill would have let in lower and medium-skill migrants. Still, this is a long way from Helmut Kohl’s famous remark: “Germany is not a country of immigration.” Furthermore there would be no quotas under the proposed legislation.

For one summary of what is afoot, see the WSJ, 2 July, p.A9. Here is another summary of the proposed reforms. Here is some background context on the policy change. Note that the reforms attempt to manage immigration before EU constraints take over; in this regard also they fall short of a true liberalization.

So will this prove an earthquake in German politics? It depends how rigidly the entry standards are enforced. In any case the West European countries are badly in need of a basic model for greater immigration. Germany currently has many migrants but most are ethnic Germans and their flow has dried up. After all, there are only so many Volga Germans. This reform, however imperfect, should prove at least one step in the right direction.

Nigerian politics is not efficient

An outbreak of polio has hit children in the Nigerian state of Kano. Kano is one of the muslim states that had boycotted the use of the polio vaccine. Many muslim states in Nigeria banned the polio vaccine because those in charge said the Americans were using the vaccines to make their population infertile. Many of them said the vaccine would also be used to spread AIDS in the region. Despite appeals from neighbouring countries to vaccinate its population, the conspiracy theorists in Nigeria got their way.

Now, as expected, polio is beginning to spread among children in the region. Now the local authorities are appealing for urgent assistance.

The World Health Organisation has sent a team to the area. The team has confirmed that the outbreak is polio.

It turns out that the Nigerians are willing to accept vaccines from Indonesia, a Muslim country. But this has led to lengthy delays and shortages.

Here is the full and sad story.

The most international city in the world?

Arguably it is London:

…nearly one-third of the FT100 top companies has a non-national as chairman or chief executive. No other country has anything like that proportion.

Britain now publishes more book titles than any other country. Further example: there are more Chinese students in the UK than in any other country, again more than the US.

I can remember when the problem was keeping the Brits in, not keeping the foreigners out. But the UK had the good sense to embrace globalization rather than fighting it. Is there a lesson in this for you-know-who?

I’ve had enough

Here is our latest foreign policy initiative:

New US curbs on travel to communist-ruled Cuba went into effect on Wednesday, with opponents decrying them as an attack on family and the Bush administration arguing they will hasten the fall of Cuban President Fidel Castro.

Cuban Americans may now visit relatives on the island once every three years instead of annually and they may go only to see close family members rather than more distant relatives, among other restrictions aimed at toughening the four-decade-old US economic embargo on Cuba.

“It’s unimaginable, abusive,” said Raquel Chaviano, one of hundreds waiting at Havana airport on Tuesday for one of the last flights back to Miami before the rules went into force.

“The family is the main thing in life, and it has nothing to do with politics,” said Chaviano, who left the Caribbean island in 1980, leaving behind her daughter and siblings.

Here is the full, sad story. Here are more details about the human costs of the policy. Here is some material on America’s failed use of sanctions against Cuba.

What do you have to do to join The Ranks of the Shrill? Does someone have to send you an E-Invite?

John Kerry’s hi-tech plan

Here is one summary of his latest proposals, the bracketed text is my comments:

Sen. John Kerry called Thursday for increased investment and support for America’s high-tech industry. His proposals include:

— Encouraging technological innovation by cutting some capital gains taxes and revising or eliminating regulations that affect competitiveness. [Good news]

— Using tax incentives to expand universal broadband access, which he believes will add $500 billion and 1.2 million new jobs to the economy. [ I don’t see the social benefit here, the private benefits of broadband are largely internalized; it sounds like this is based on a bad economic impact study.]

— Increasing government research funding in science and technology, including money for “pure” science research. [Government subsidies for science should be oriented toward the “pure” side of the spectrum. We need to lengthen our time horizon here, and let’s focus on infectious diseases and non-polluting energy sources. I am much more skeptical about the government’s ability to guide applied technology. Remember Synfuels? But if we are going to do this, we must make real spending cuts elsewhere, most of all in Medicare]

— Improving math and science education at the K-12 level and rewarding colleges for increasing the number of science and engineering degrees they award. [Sounds good, but I don’t expect federal involvement to bring a real improvement. Nor do I think the a marginal increase in science degrees will mean more scientific progress. How good is the marginal science student, and how much does he or she love science?]

The plan also involves spectrum auctions [good] and stem cell research [good].

The bottom line: This is better than I had expected. I do worry that only the worst and porkiest elements will survive the political process.

Popular culture update

Dodgeball is a genuinely funny movie, if not always in the best of taste. Ben Stiller shows once again that he is best when playing the villain.

Lakers center Shaquille O’Neal has asked to be traded. He is upset that the Lakers appear to be making Kobe Bryant the center of their team.

Oprah has selected Anna Karenina for her book club; apparently has retitled the book Anna Karenina (Oprah’s Book Club).

After a five-year trial period, the Himalayan fiefdom of Bhutan may ban TV once again. Wrestling programs and pornography have come under particular criticism.

The rise of the Chinese consumer

The Chinese are rapidly becoming world-class shoppers:

Luxury-goods firms are thus becoming wildly excited about the possibilities–in China and beyond. Armani plans to open 20-30 new stores on the mainland by 2008. Prada will invest $40m in China in the next two years, and almost double the number of stores there this year to 15. Louis Vuitton will open its first full-range shop on the mainland in Shanghai in September, and will have 13 stores by year end.

As the Chinese travel more, they are broadening not only their minds but also the range of luxury goods they come into contact with. Once abroad, their favourite activity seems to be shopping. During last month’s Golden Week holiday, around 380,000 mainland tourists visited Hong Kong in just ten days, almost 80% up on 2002. (Last year, SARS kept numbers down.) Mainlanders spend more per person in Hong Kong than any other tourists. From this summer they can travel as individuals to 12 of 15 EU countries (but not Britain, Ireland or Denmark).

“The Chinese go to Paris, stay at two- star hotels, eat cheap Chinese food and spend all their time shopping,” says a luxury-firm executive with glee. Christopher Zanardi-Landi, general manager in China for Louis Vuitton, says that the industry is preparing for “a huge wave” of Chinese shoppers. While they have hitherto catered mainly to Japanese tourists, “luxury stores in Paris are starting to employ Mandarin-speaking assistants,” he says.

But for now, Hong Kong remains the favoured destination for mainlanders. That is why so many luxury stores are opening in Hong Kong. In the past three months, Zegna, Ferragamo, Louis Vuitton, Prada and Dior (among others)ve opened in bigger and better-designed spaces. Hong Kong’s property developers are delighted.

Here is the full story. Here is the previous installment of “China Facts.”

Why do Asian central banks buy so many dollars?

Why exactly are the Japanese and Chinese foreign banks buying so many U.S. dollar-denominated securities? And if such purchases are so important in keeping our economy afloat, ought we not try to figure out whether they are likely to stop?

Foreign central banks are on a spending spree. As recently as 2001, central banks bought just $10.7 billion in Treasury securities on a net basis. But their net purchases have risen dramatically: to $43.1 billion in 2002 and $128.5 billion in 2003.

With each passing quarter, foreigners have become more significant consumers of U.S. government debt. In 2002, non-Americans accounted for about half of net purchases of Treasury securities. But in the first quarter of 2004 they accounted for 150 percent! That is–the rest of the world bought a net $679.8 billion in Treasury securities while U.S. brokers and dealers sold a net $202.7 billion.

I can think of a few theories:

1. They think dollars are a good investment. Well, at one level this must be true tautologically. But why do those two central banks have such a special attachment to this investment vehicle?

2. They think they will receive geopolitical favors in return. I view this as a relatively optimistic scenario. It suggests, among other things, that the game can continue for a long time. Mutual gains from trade have a strong attraction. It also would mean that American “imperialism” has a lower economic cost than is usually believed. It leads countries to want to buy our Treasury securities as a favor to us. On the darker side, it means that our fiscal irresponsibility has a higher cost than is usually believed. It forces us to play numerous games on the international stage.

3. China and Japan want to keep the value of the yuan and yen low, as part of a mercantilist export-promotion strategy. I take this to be the standard wisdom. I”m certainly not dismissing it, but I do have a few questions. Aren’t there easier ways to subsidize exports? Why are exporters the dominant interest group here? Isn’t a country wealthier when its currency is stronger in real terms?

4. They are building up an endowment, for the same mix of self-evident and obscure reasons that universities do. It is a symbol of status, stability, and commitment to the long haul. It helps them be taken seriously as countries.

5. They have a stake in American prosperity. They’re willing to hold an inferior portfolio if it keeps the U.S. — obviously a major market — fat, healthy and addicted to imports.

6. They are incredibly risk-averse. What safer investment could you find?

7. They are just plain, flat-out stupid. I call this the uh-oh scenario. They won’t stay stupid forever.

I suspect there is truth in all seven hypotheses.

This Slate article offers some useful background and the above quotation. And here is some (numerically overstated) good news:

The day may come when the Chinese government stops being the lender of last resort to America, but if it does stop, there are a billion or so Chinese citizens ready to take up the cause. Given the legal right to do so, they would yank deposits out of the Chinese banking system and invest in U.S. securities.

Addendum: If I look at my own portfolio, I am doing much the same thing. I believe that most assets are overpriced and I don’t know where else to put my money.

Shorter patent lives mean shorter lives

People talk about the high price of pharmaceuticals as if high prices lasted forever. In fact, within a year of the expiration of a pharmaceutical’s patents, prices will typically fall by more than 50 percent as generic producers enter the market. Patents nominally last for 20 years but the effective patent life is much lower because patents are typically granted years before a product has cleared FDA review. The effective patent life of the average new pharmaceutical in the 1990s averaged just 12 years (see here for some references). Competition from competing but non-infringing pharmaceuticals makes the de facto patent life even shorter.

Thus, my response to the seniors and others clamoring for lower pharmaceutical prices is to be more patient. Does this sound harsh? Consider this, the people who are demanding price controls are not simply asking for lower drug prices they are asking for lower prices on the newest drugs. Lower prices for drugs introduced 15 years ago are already here. Remember, those drugs were recently considered the very best modern medicine has to offer, so it’s not like I am expecting those who can’t afford the newer medicines to go back to using leeches.

Price controls or other such plans such as reimportation may bring cheaper pharmaceuticals for a short period but we will then have a much smaller supply of new drugs forever. Only the shortsighted would buy that prescription.

Should we worry about Mexican remittances?

Our trade deficit has reached a record high, and Mexicans are sending billions of dollars home to their poorer relatives. Is this a problem?

Most importantly, poverty in Mexico declines. Many recipients earn no more than a dollar or two a day. As for America, sending the funds does not damage the U.S. economy. For purposes of comparison, let’s say that Mexicans came to this country, worked to earn money, and then burned the dollar bills. Would this “trade deficit” hurt us? No. Wiring funds to Mexico has similar effects. If the dollars don’t come back, it is as if they have been burned. We have earned seigniorage by trading paper for goods. If the dollars do come back, someone is investing in the U.S. or buying exports.

The level of remittances does mean that we should be less worried about the trade deficit. Think of the remittance as redistributing wealth within Mexico, but without costing the United States real resources.

To some extent our trade deficit may reflect an inadequately low rate of saving. But wiring money abroad is not the central cause of low savings. First, migrant workers often contribute to our capital stock. Second, sending the money to Mexico is probably a substitute for spending it (most senders of remittances are themselves relatively poor, and thus have lower savings rates). So when these people “burn” their money by sending it abroad, they are lowering the real quantity of American resources devoted to consumption. Let’s not confuse sending money with sending real resources.

Read Econopundit for a more negative spin. Randall Parker inclines negatively on remittances as well. I often agree with Randall, but on this issue I am ready to send away…