Category: Current Affairs

Are the naughties the best decade ever?

by  Tyler Cowen in

Some people are saying they're the worst decade ever, but that's more true for the global relations of the United States than for the level of human well-being in the world as a whole.  Even in the U.S., a lot of social indicators improved.  Elsewhere Chinese growth continued, Indian growth moved into the big time (in the gross reckoning we're already at well over two billion people), a lot of Eastern Europe was successfully absorbed into the EU,  Indonesia made slow but steady progress.  Brazil may have turned a corner, and Africa had a better-than-lately decade in terms of economic growth.  Communism didn't really come back.  Admittedly the Middle East is a tougher call.  Canada did strikingly well, as did Australia.  There was lots of progress on public health, including in the war against AIDS.  The internet truly blossomed and human creativity continued.

For a lot of you it feels bad, but it's not obvious that the naughties have been such a terrible decade overall.  By the way, that home prices fell was overall a good thing; the roofs on those homes still keep out the rain.

I thank Bryan Caplan for a discussion related to this post.

Pirate credit, pirate collateral, and pirate price discrimination, in Somalia

by  Tyler Cowen in

Pirates don't even have to pay upfront. Those holding ships hostage that haven't yet received ransom can buy goods on credit — at elevated prices — and settle up their debts when the ransom money comes in, villagers say.

Here is evidence of price discrimination:

When villagers think the price of a cosmetic is too high, their reply is "we are not pirates," said Abdullahi.

The closer to the pirate dens one gets, the higher the prices go. In the nearby town of Eyl, a cup of tea costs three times as much as in Bossaso. In Eyl, pirates pay $5 for a shoeshine, compared with 50 cents in Bossaso, said Hashim Salad, a store owner.

The article is interesting through and I thank Cyril Morong for the pointer.

Will you bail out Dubai?

by  Alex Tabarrok in

Would you like to buy an indoor ski resort in Dubai? Maybe you already have.

Andrew Sorkin makes a good point in today's column. The problem of moral hazard is often written off as a problem for "the future," less important than dealing with a present crisis. Not so.  The bailouts may have encouraged more lending to other places that were perceived as good bailout prospects.

That had to be what Citigroup, with its firsthand expertise with bailouts, must have been thinking when it lent $8 billion to Dubai last year. Oh, and here’s an interesting fact: Citigroup made the loan to Dubai on Dec. 14, 2008. Take a look at the calendar – that’s after it received tens of billions in TARP funds. Citigroup’s chairman, Win Bischoff, said at the time, “This is in line with our commitment to the U.A.E. market in general, and reflects our positive outlook on Dubai in particular.” Good call.

Irving Fisher: Underappreciated economist

by  Alex Tabarrok in

Tyler points to Malthus as a much underappreciated economist. John Cassidy points to Pigou.  For my money, Irving Fisher dominates.  Other people (e.g. London Banker and Yves Smith)
have also extolled Irving Fisher, but I would still rank
Fisher as highly underappreciated relative to insight and clarity of thought.

Here from his classic, The Debt-Deflation Theory of Great Depressions, are some choice insights. 

Then we may deduce the following chain of consequences in nine links: (1) Debt liquidation leads to distress selling and to (2) Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes (3) A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be (4) A still greater fall in the net worths of business, precipitating bankruptcies and (5) A like fall in profits, which in a "capitalistic," that is, a private-profit society, leads the concerns which are running at a loss to make (6) A reduction in output, in trade and in employment of labor. These losses, bankruptcies and unemployment, lead to (7) Hoarding and slowing down still more the velocity of circulation.

The above eight changes cause (9) Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest.

Evidently debt and deflation go far toward explaining a great mass of phenomena in a very simple logical way.

With perhaps the qualification that even real rates of interest may fall is this not a brilliant summary of current events?  And on the solution to the crisis:

On the other hand, if the foregoing analysis is correct, it is always economically possible to stop or prevent such a depression simply by reflating the price level up to the average level at which outstanding debts were contracted by existing debtors and assumed by existing creditors, and then maintaining that level unchanged.

With a few changes to growth rates rather than levels is this not fully modern?  And the following, with its hint of the importance of expectations, strikes a very Sumnerian tone (or rather, of course, Sumner's analysis strikes a very Fisherian tone).

…The fact that immediate reversal of deflation is easily achieved by the use, or even the prospect of use, of appropriate instrumentalities has just been demonstrated by President Roosevelt. Note Charts VII and VIII.

And behavioral economics was nothing new to Irving Fisher:

The public psychology of going into debt for gain passes through several more or less distinct phases: (a) the lure of big prospective dividends or gains in income in the remote future; (b) the hope of selling at a profit, and realising a capital gain in the immediate future; (c) the vogue of reckless promotions, taking advantage of the habituation of the public to great expectations; (d) the development of downright fraud, imposing on a public which had grown credulous and gullible.

When it is too late the dupes discover scandals like the Hatry, Krueger, and Insull scandals. At least one book has been written to prove that crises are due to frauds of clever promoters. But probably these frauds could never have become so great without the original starters of real opportunities to invest lucratively. There is probably always a very real basis for the "new era" psychology before it runs away with its victims.

Debtors’ prison

by  Tyler Cowen in

Ahem:

“I’m really scared of what could happen, because I bought property here,” said Sofia, who asked that her last name be withheld because she is still hunting for a new job. “If I can’t pay it off, I was told I could end up in debtors’ prison.”

With Dubai’s economy in free fall, newspapers have reported that more than 3,000 cars sit abandoned in the parking lot at the Dubai Airport, left by fleeing, debt-ridden foreigners (who could in fact be imprisoned if they failed to pay their bills). Some are said to have maxed-out credit cards inside and notes of apology taped to the windshield.

I guess you can't say you were simply late in assembling the funds.  Debtors account for about forty percent of the Dubai prison population.  Here is much more information.  For the pointer I thank Chris.

We interrupt your regularly scheduled Thanksgiving

by  Tyler Cowen in

Dubai World won't repay its debt on time and the government of Dubai won't pick up the bag, raising doubts about its credibility.  Who would bail out Dubai itself?  Maybe it will be an "interesting" weekend:

Banking stocks tumbled on concern about their potential exposure to
Dubai. Indeed, the cost of insuring against default by the emirate
jumped, with Reuters reporting the Dubai five-year credit default swap
being quoted as high as 500-550 basis points. This means it would cost
about $500,000 a year to insure $10m of Dubai’s debt. On Tuesday it
would have cost about $360,000.

Funds are surging into Germany and Japan, etc.  For purposes of comparison, Dubai CDS contracts now cost more than for Iceland.

If you're feeling a little down today, and looking for something to be thankful for, be thankful you have not lent money to Dubai.  Unless, of course, you have lent money to Dubai.

Who buys cosmetic surgery?

by  Tyler Cowen in

Not just the rich:

…cosmetic surgery is now primarily consumed not by the rich, but by the
working and lower-middle classes, sometimes even by the poor. 
According to the American Society for Aesthetic Plastic Surgery (ASAPS),
about 1/3 of cosmetic surgery is consumed by people who make less than
$30,000 a year.  About 70% of it is consumed by people who make less
than $60,000 a year. It is mostly women (90%) and mostly white,
middle-aged women (80% and between 35-55 years old).

Here is a more complete account.  In the Reid bill there is a tax on cosmetic surgery.  In my view cosmetic surgery is not just a zero-sum game but rather it leads to better matches, more matches, and more people who are happy with their looks or with the looks of their partner(s).  It also leads to higher levels of trust. And it's a sector that has, overall, lowered costs over time.

For the pointer I thank Coates Bateman.

Is the Senate bill fiscally responsible?

by  Tyler Cowen in

Matt Yglesias writes:

The bill contains provisions that have front-loaded positive impacts on the deficit and also have provisions that have back-loaded positive impacts on the deficit. The bill, rather intelligently, seems to balance this out well leading to net deficit reductions in the short-, medium-, and long-terms. The bill by no means solves the considerable long-term fiscal challenges to the United States, but it does improve the situation. If people want to say that on balance they think the bill is a bad idea, that’s fine, but to do so is to oppose what’s far-and-away the most politically realistic way to enact non-trivial long- and medium-term deficit reduction in the 111th Congress.

I should coin a new MR term: the retreat into the relative.  As I understand it, the apparently fiscally responsible portions of the bill come from a) eventual cuts in Medicare spending, and b) rising taxes on some health insurance plans and they come later of course.  Few Congressional representatives are willing to do these things today, so should we predict they will be done in the future?  (The same problem plagues Waxman-Markey, by the way, so these back and forth rhetorical debates are becoming quite common.)  In my view, policies structured in this manner are simply another way of doing deficit spending.

To quote Matt, he writes of: "the most politically realistic way…to enact…deficit reduction."  That sounds powerful.  and in fact I agree with his claim as it is worded.  But if all the politically realistic options make our fiscal position worse rather than better (Congress likes to spend money more than it likes to inflict pain on voters)…well, this bill still makes the deficit problem worse.  Even it is the best of the realistic worsening options.  We should be wary of the retreat into the relative because all the options may be bad.  Nor should the phrase "building a framework" be translated into anything but "we are unwilling to do this now or anytime soon and thus we are engaging in more de facto deficit spending."

The fact that Republicans can (correctly) be blamed for making the bill worse does not constitute an argument that the current bill will make things, in fiscal terms, better. 

Citing inconsistencies of bill opponents ("but he didn't scream loud enough about [fill in the blank] way back when") does not help on this score either.

Another argument I have seen in MR comments is: if we can't solve this health care costs problem it won't matter, therefore we can spend more without making the problem in net terms worse.  That's a fallacy and you would never apply such reasoning while driving over the speed limit ("I'll accelerate right now, after all at some point I've got to slow down anyway.")  Think of it as a kind of Zen-like, reverse Sorites ploy: "It is adding stones which takes a pile away."  Or "Let us add stones.  The pile must disappear in any case."

Here is a numerical style guide (SG) for identifying future arguments in these veins, because they will recur when you have an activist government which wants to be very popular, combined with an under-educated, short-term oriented citizenry:

SG1. The retreat into the relative: "All the other options are even worse."

SG2. Blame the Republicans: "They made the bill bad, not us."

SG3. The critic is evil or inconsistent: "Your views are inconsistent, or you are morally questionable, so I can dismiss your worries."

From now on in the MR comments section you can just cite the appropriate number and spare yourself carpal tunnel syndrome. 

Addendum: Megan McArdle adds relevant comments and also here.

Badges? We don’t need no stinkin badges.

by  Alex Tabarrok in

In pursuit of an Eagle Scout badge, Kevin Anderson, 17, has toiled for more than 200 hours hours over several weeks to clear a walking path in an east Allentown park.

Little did the do-gooder know that his altruistic act would put him in the cross hairs of the city's largest municipal union.

Nick Balzano, president of the local Service Employees International Union, told Allentown City Council Tuesday that the union is considering filing a grievance against the city for allowing Anderson to clear a 1,000-foot walking and biking path at Kimmets Lock Park.

"We'll be looking into the Cub Scout or Boy Scout who did the trails," Balzano told the council.

Story here. Hat tip to Modeled Behavior.

Innumeracy can get you killed

by  Alex Tabarrok in

"Statistically, it is very dangerous, but I have lived here a long time and I don't feel like I'm in any danger."

That is Justin Fenton, the Baltimore Sun's crime correspondent.

The quote comes from a longer article by a British reporter who switched places with his Baltimore counterpart because he wanted to see whether The Wire was accurate.  It is. 

Give them your tired, your poor, your huddled masses

by  Alex Tabarrok in

Three countries that relied on low-skilled immigrant workers during good times – Japan, Spain, and the Czech Republic – have recently introduced voluntary return programs programs, popularly known as "pay-to-go" programs, in an effort to reduce the number of unemployed immigrants.

The programs established in 2008-2009 generally provide unemployed legal migrants with stipends that cover the cost of a one-way plane ticket "home." Some programs also offer migrants a lump-sum payment.

More here.

Ayn Rand

by  Alex Tabarrok in

With two new biographies being covered in all the major newspapers, The Daily Show, and elsewhere, Ayn Rand is in the news.  Yet all of the reviews that I have seen have focused on her personal life rather than her ideas.  Nearly five years ago Tyler and I both wrote on Rand’s ideas on the occasion of the 100th anniversary of her birth.  It seems like a good time to reprise.  Here is my post with links.

—

Here, on the 100th anniversary of her birth, are some thoughts on Ayn Rand.  See also Tyler’s post and Bryan Caplan’s excellent series (links.)

It used to be commonly said that “Until Robinson Crusoe is
joined by Friday there is no need for ethics on a desert island.” Rand replied that it was on a desert island
that ethics was most needed because on a desert island you cannot free ride on
the virtues of others; if you are to survive you must yourself exercise the
virtues of rationality, independence, and productiveness. As her reply indicates, Rand was an exponent
of virtue ethics,
the Greek/Aristotelian idea that ethics is about how one should live. Indeed, although she does not get much
credit, Rand is the most prominent and lucid, contemporary exponent of virtue ethics.

I think Rand’s version of virtue ethics is compelling
because it is explicitly modern – where the recent literature still sometimes seems to focus
on the virtues required of a Greek olive grower, Rand’s virtue ethics is post
industrial-revolution, a virtue ethics for the capitalist world.

If ethics is about the virtuous man then politics is about
the social requirements for the virtuous man to exist (the modern literature
lags behind Rand in connecting ethics and politics). One can understand Rand’s novels as an
extended disquisition on virtue ethics and the political and social requirements
necessary to practice such an ethics. In particular, she argued that rights, a legal concept creating a protected sphere for
independent action, were a necessary condition to live a life of virtue.

One need not buy Rand’s deductive argument that laissez-faire
capitalism is the sine-qua-non of ethical action to appreciate her insights
connecting the good man and good woman with the good society. Relatedly, I do think that Rand was absolutely right to say that capitalism requires a moral
defense.  Moreover, the only plausible defense must involve the virtue of
selfishness. It is all too obvious that
capitalism promotes and rewards self-interest and, Mandeville nothwithstanding, no defense which simply
excuses this fact will succeed.

Rand’s language hasn’t done much to advance her case and
indeed it has obscured areas where her insights are now widely accepted. Today, for example, you can find many books
attacking the evil of altruism. Surprised? Of course, the books
don’t use those terms, instead they call it the problem of codependency (or
some other such). Relatedly, it’s no
accident that Hillary Clinton was once an avid Randian (recall her political
career started with Barry Goldwater) because Rand
is an important feminist. Rand’s
portrayal of strong, independent, intelligent women is coming to be recognized
as a landmark in fiction but in addition Rand’s attacks on self-sacrifice have
special meaning in a culture that has long used the “caring ethic” to bind
women to the service of others.

Of weaknesses there are many, most of which flow from the combination of Rand as philosopher, novelist and powerful
personality. John Galt, for example, is
but one instantiation of the Randian/Aristotelian virtue ethic, an
instantiation which was created for a particular aesthetic purpose by a
particular person. Too often both Rand and
her detractors have taken the instantiation for the class thereby limiting
the vision.

I have a bad feeling about this

by  Tyler Cowen in

Here is the latest on Tysons redevelopment:

Remaking Tysons Corner
into the second city of Washington will take a lot more than a new
Metro line and a downtown of tightly clustered buildings designed for
walking. It will take almost $15 billion in new roads and public
transportation.

Even in this age of sticker shock, that's a lot of money for a local project.  You'll recall my earlier prediction that Tysons will get the road widenings but not enough of the other changes needed to make it a walkable downtown; the road widenings will on net make things worse. Call me an apologist for suburbia if you wish, but I sooner view myself as an apologist for public choice theory.  Some parts of the redesign will be more popular than others and we will get a very unbalanced mix of reforms.  This is indeed what I predict:

The numbers also have prompted some proponents of dense development in
Tysons to argue that if the county pushes too many costly road
improvements and makes room for more cars, the vision could unravel. 

To simply insist that it "should be different," or to charge that I do not spend enough time criticizing interstate highway subsidies, is to miss the public choice point.  Now that the stimulus is up and running, you can see road widenings all over NoVa and they will be finished.  Who will put up the money for the rest of Tysons reform?

For funding, Fairfax officials say, they will look to the Obama
administration, which is committed to subsidizing growth projects in
urban areas. They hold out little hope from the Virginia Department of
Transportation, which this year slashed the county allocation for
secondary roads to zero. Given the millions of dollars Northern
Virginia has gotten for big projects such as the HOT lanes and new
Woodrow Wilson Bridge, "More state funding is pretty much politically
doomed," said Kathy Ichter, the county's chief of transportation
planning.

Stay tuned…