Some links for you

by  Ed Lopez

I will spend big chunks of Tuesday and Wednesday driving with my family across the highways of Appalachia and the Great Lakes. So here are some quick links (some of which belong in the category, “in case you missed it”).

1. How can one be British without speaking English?

2. CQ Weekly sizes up the CBO in this even-handed, conventional review.

3. Reducing transactions costs in New York’s taxi market.

4. Keeping transactions costs high in San Francisco’s taxi market.

5. Bruce Schneier reviews Harvey Molotch’s new book, Against Security: How We Go Wrong at Airports, Subways, and Other Sites of Ambiguous Danger.

MRU videos on poverty and health

by  Tyler Cowen in

A new set of MRU videos is up.  In these videos, we cover:

·      How the poor spend their money

·      How stress can create a “tax” on the poor’s decision-making, focus, and cognitive abilities

·      Causes of “missing women” in developing countries and what is really the bottom line on this claim

·      The economics of child labor, and what is the nature of the potential market failure when sending children to work

·      How a test involving a pregnant mare’s urine illustrates the value of randomized controlled trials

·      Why private health insurance is relatively rare in poorer developing countries (hint: it’s not adverse selection)

·      Can cash transfers help with low birth weight?

·      How community participation can affect the success of health care programs

·      And finally, the ugly effects of cholera, diarrhea, worms, and HIV/AIDS in developing countries

Click here to get started on these videos, with an introduction to randomized control trials.  Or browse the whole list at MRUniversity.com, click on the Course section on the right to see the menu.

Elephants engage in Mengerian indirect exchange

by  Tyler Cowen in

At the main Pondicherry temple, an elephant will bless you — by tapping its trunk on your head — if you hand it some money.  Of course this is a temple elephant and it is also a Mengerian elephant.  The elephant has no use for money but understands that it is a general medium of exchange.  The elephant hands the money over to the temple authority and is later rewarded with food.

The elephant is not merely trading, but it is engaged in indirect exchange and thus in monetary economics.

There is in fact a sign up forbidding such Mengerian transactions, but the elephant seems not to notice it.

And yet this is not the end of the story.  In many parts of Tamil Nadu, temple elephants have attained so much prosperity through Mengerian indirect exchange, and been able to consume so much leisure, that now elephant obesity is a more serious problem than elephant malnutrition.

“The state of intoxication is a house with many mansions.”

by  Ed Lopez in

So reads the preamble to the Winter 2013 issue of Lapham’s Quarterly, titled merely “Intoxication.” A tribute to tanking oneself, the anthology collects some 60 essays, poems, and stories from across the ages. As though anticipating Alex and Tyler’s trip to the Subcontinent, Lapham’s preamble traces the dignified heritage of the drink to those sacred Hindu texts (page references omitted):

Fourteen centuries before the birth of Christ, the Rigveda … finds Hindu priests chanting hymns to a “drop of soma,” the wise and wisdom-loving plant from which was drawn juices distilled in sheep’s wool that “make us see far; make us richer, better.” Philosophers in ancient Greece … rejoiced in the literal meaning of the word symposium, a “drinking together.” The Roman Stoic Seneca … recommends the judicious embrace of Bacchus as a liberation of the mind “from its slavery to cares, emancipates it, invigorates it, and emboldens it for all its undertakings.”

The litany continues through the Persians, Martin Luther, Samuel Johnson, and Baudelaire. Next to Plymouth and the American experiment.

The spirit of liberty is never far from the hope of metamorphosis or transformation, and the Americans from the beginning were drawn to the possibilities in the having of one more for the road. … The founders of the republic in Philadelphia in 1787 were in the habit of consuming prodigious quantities of liquor as an expression of their faith in their fellow men—pots of ale or cider at midday, two or more bottles of claret at dinner followed by an amiable passing around the table of the Madeira. Among the tobacco planters in Virginia, the money changers in New York, the stalwart yeomen in western Pennsylvania busy at the task of making whiskey, the maintaining of a high blood-alcohol level was the mark of civilized behavior. The lyrics of the Star-Spangled Banner were fitted to the melody of an eighteenth-century British tavern song. The excise taxes collected from the sale of liquor paid for the War of 1812, and by 1830 the tolling of the town bell (at 11 A.M., and again at 4 P.M.) announced the daily pauses for spirited refreshment.

Add in all other intoxicants, and we have some dark comparisons within a realm of human experience that’s about worth Spain’s economy:

If what was at issue was a concern for people trapped in the jail cells of addiction, the keepers of the nation’s conscience would be better advised to address the conditions—poverty, lack of opportunity and education, racial discrimination—from which drugs provide an illusory means of escape. That they are not so advised stands as proven by their fond endorsement of the more expensive ventures into the realms of virtual reality. Our pharmaceutical industries produce a cornucopia of prescription drugs—eye opening, stupefying, mood swinging, game changing, anxiety alleviating, performance enhancing—currently at a global market-value of more than $300 billion. Add the time-honored demand for alcohol, the modernist taste for cocaine, and the uses, as both stimulant and narcotic, of tobacco, coffee, sugar, and pornography, and the annual mustering of consummations devoutly to be wished comes to the cost of more than $1.5 trillion. The taking arms against a sea of troubles is an expenditure that dwarfs the appropriation for the military defense budget.

Words to ponder this holiday season, when more bottoms are up than usual, and as the complex world of 2013 awaits. Cheers, Sarah Skwire, for the pointer.

Do cash transfers reduce domestic violence?

by  Tyler Cowen in

Here is one set of new results from Ecuador, by Hidrobo M and Fernald L.

Violence against women is a major health and human rights problem yet there is little rigorous evidence as to how to reduce it. We take advantage of the randomized roll-out of Ecuador’s cash transfer program to mothers to investigate how an exogenous increase in a woman’s income affects domestic violence. We find that the effect of a cash transfer depends on a woman’s education and on her education relative to her partner’s. Our results show that for women with greater than primary school education a cash transfer significantly decreases psychological violence from her partner. For women with primary school education or less, however, the effect of a cash transfer depends on her education relative to her partner’s. Specifically, the cash transfer significantly increases emotional violence in households where the woman’s education is equal to or more than her partner’s.

Hat tip goes to @vaughnbell, who is excellent to follow on Twitter.

Why Does Government Spending Increase Under Term Limits?

by  Ed Lopez in

Many thanks to Alex for introducing me yesterday. Having written several papers on term limits, I will use my first post of the week to raise a new question that has emerged from this aging policy intervention: Why does government spending increase under term limits?

Back in the 1990s, when about half the states’ voters slapped term limits on their state legislators, the idea was to rein in government spending and decrease the growth of government. Instead, spending per capita increased in those states relative to states without term limits. See this empirical paper, this survey article, or this book this book for details.

These results are counterintuitive insofar as we put stock in the intended mechanism, which was simple: As legislators spend more time in office, they tend to vote for more government spending – so if legislators are required by law to spend less time in office, they’ll spend less money.

There are two problems with this. First, the premise that tenure and spending positively correlate has not held up to empirical scrutiny. Most papers found no positive link between tenure and spending, although a few reported small effects.

Besides, even if there were a strong tenure-spending correlation without term limits, that correlation is not likely to hold up once term limits are imposed. This is due to a version of the Lucas Critique (or Goodhart’s Law), which in general argues that observed behavioral patterns are not invariant to policy interventions. In this case, term limits will change the dynamics between voters and politicians in ways that lead to greater spending. More specifically, three explanations seem plausible.

  1. Term limitation exacerbates fiscal commons problems within the legislature. Because term limits decrease the variance of tenure within a legislature, the relative power of party leaders and ranking committee members will decrease. As the distribution of power flattens, this increases the proportion of legislators who possess access rights to budget items, thus decreasing the control rights that a relatively few leaders and committee chairs would otherwise have. When everyone can get their pet project through, more projects get through.
  2. Term limits shorten legislators’ time horizons. If legislators use their time in office to advance their careers, and if the career-value of being in the statehouse increases with the support of more spending, then term limits can impart an incentive to spend more and sooner. For example, rank-and-file legislators support more spending to secure leadership positions, and leaders let more projects through in order to quickly build durable coalitions.
  3. Term limits might lure legislators into very wasteful forms of pork spending, according to this paper by Michael Herron and Kenneth Shotts:

Term limits can, in some cases, inhibit voters from selecting representatives who deliver particularistic benefits, and, in these cases, term limits reduce pork spending. On the other hand, when pork is extremely socially inefficient, representatives who want to deliver pork to their districts have incentives to refrain from doing so to reduce future pork in other districts. In this scenario, term limits actually prevent legislators from promoting future spending moderation and thus paradoxically increase pork spending.

These explanations can, of course, be mutually inclusive. I suspect there is more to #1 and #2, if only because they are more salient.

In general, term limits increase spending because voters and legislators rationally respond to changes in their institutional environment. As this question invites further study, good papers will unpack the specific mechanisms that drive those responses.

— Notes: Since most people seem surprised by the actual effects of term limits, here are pointers to similar findings: Gubernatorial term limits worsen fiscal volatility — this paper (co-authored by my co-author Pete Calcagno) and this paper (by my dissertation advisor Bob Tollison) — because governors invest less in reputation (this paper). States with legislative term limits might also have worse bond ratings (here). Here on MR, neither Alex nor Tyler have put much stock in term limits, though Alex is less skeptical.

Bits of wisdom from the FT

by  Tyler Cowen in

On the new EU banking arrangement, here is Wolfgang Münchau:

If you study the details of what was agreed last week, the substance evaporates. The common supervisory structure will affect only about 100 to 150 banks out of a total of 6,000 – those with assets of more than €30bn. The ECB can usurp supervisory powers from national regulators but the rules of engagement are not clear. Wolfgang Schäuble, the German finance minister, said when he left the meeting that the ECB would need to make a well-argued case. But it is not clear how this would work in practice.

If you can get through the link there is much more, all devastating.  There is of course no banking union whatsoever and no set of mutual guarantees.  And this:

What happened was that the OMT has killed any appetite for a fiscal union, and has turned the banking union into a phantom.

The effect of the OMT will be negative in the long run because it has provided policy makers with a false sense of security. That was not the intention but the effect.

Let’s not leave Larry Summers out of the mix:

…the richest taxpayers actually make relatively little use of deductions and credits.

It is an excellent piece on tax reform.

On the implied theology of Indian hotel butlers

by  Tyler Cowen in

As the eldest of the three-man team, Mr. Guha. 29, said, he is fluent in 22 subjects related to five-star doting, which include in-room dining, knowledge of international customs and, of course, complaint handling. His skills also extend to fixing the remote, getting spots off the carpet and something called “power dressing.” Mr. Guha says that his primary role, however, is to act as a super-efficient liaison between the guest and the hotel staff — part fixer, part personal assistant, and all yes-man.

“I would never consider a request to be bizarre; we always say it’s challenging,” Mr. Guha said. “I have always been taught that guest is god, and god cannot have a bizarre request.”

Of course I interpret this last quotation in entirely Straussian fashion (furthermore he doesn’t say it’s true, only that he has been taught as such, a classic Straussian move).  Here is more, interesting throughout, and for the pointer I thank Apoorv Trivedi.

From the comments, on UID

by  Tyler Cowen in

This is concerning the forthcoming Indian attempt to register individuals through unique eye scans and implement more cash transfers:

The domestic debate in India has largely been around :

1) This is just a sop before elections, a kind of brazen legitimised bribery. 2) The welfare architecture will not simply be migrated, it will be expanded. 3) Is conditionality critical to success? There remains no clear method to establish conditionality. 4) Identification of deserving families remains the problem. Until that is solved, nothing changes. 5) This is basically a turf war between ministeries and the previous operational/financial failures of the UID program are being hidden through the hasty implementation being planned now. 6) Getting in-kind subsidised goods through regular intervals during a month is superior cash flow management for a poor family than a lump-sum cash transfer at the end of the month

All the criticisms could be partially true. But the operational costs of the welfare delivery infrastructure will surely go down. Food and fertilizer have not yet been shifted – too politically sensitive – but amazingly, fuel has been. The biggest no-distortion gain is likely to come from there – the consumption of kerosene will most likely take a massive beating. It reduced by about 90% in a pilot.

The other corollary benefit – of using an Aadhar card as a means of establishing identity and for KYC norms in banks – is also absolutely tremendous.

It is indeed a top 5 most important economic policy issue in the world. But India is generally a low-trust society and in particular this gov’t is distrusted in most policy circles. Hence the rabid skepticism all around. I tend to be a lot more optimistic than that.

The great public choice question is – will they ever manage to bring food under this? For one, the PDS system was showing signs of an organic improvement. Second, the popular imagination has always conceived of the ‘man of the house’ frittering away hard earned money on country liquor if the woman of the house is not given grains directly. Third, giving away PDS distributorships has been an effective method of giving favours to those who the dirty work for national politicans at local levels – it is perhaps the longest running and biggest scam in India.

If they actually conclude that the greater ease for a poor family will convert into more votes than the losses they might take on the previous three fronts, it would be absolutely amazing. My sense is, like most great policy decisions, this will go through simply because it’s an idea whose ‘time has come’, and we will invent post-facto justifications of how it was politically rational to go through with this.

That is from Ritwik, who started off his comment with this sentence:

Privacy is actually a non-issue for most Indians.

Here is a good survey of what we know about cash transfers.

Guest Blogger: Ed Lopez

by  Alex Tabarrok in

Ed Lopez, co-author with Wayne Leighton of Madmen, Intellectuals and Academic Scribblers and president of the Public Choice Society, will be guest blogging at Marginal Revolution this week. Madmen is about the process of political change, where we are, where we should go and how can we get there given the insights of public choice economics. If, to quote Jim Buchanan, public choice is “politics without romance,” then Madmen is about revolution without romance–how political change can occur in a democracy. One of my favorite stories in Madmen is about Coase’s idea to auction spectrum rights.

But to allow the market to determine even the question of assignment meant a significant change in the status quo. When he was called to testify before the agency shortly before his FCC paper was published [in 1959, AT], Coase’s reception was indicative of how political institutions—especially Congress but also the FCC—would view his idea for decades to come. Commissioner Philip Cross began with the question, “Is this all a big joke?”

A decade later one former FCC commissioner wrote:

The Commission has absolutely no intention of considering them now or in the foreseeable future. They are purely the mind-spinning of an academic bureaucrat.

Most interestingly, in 1969 the RAND Corporation commissioned Coase, along with William Meckling and Jora Minasian, to produce a report on “Problems of Radio Frequency Allocation.” The Coase/Meckling/Minasian report was written in 1969 but not released until 1995! The report had been deemed too politically sensitive to publish and had been suppressed.

Eventually, however, first academics then many politicians and then even the FCC became convinced that spectrum auctions were feasible and as it became clear that money was to made that they were also desirable. Even after the idea earned fairly widespread acceptance, however, it took many years to be implemented because the Congressional committees with oversight of the FCC and the industry did not want to give up power. The right to allocate spectrum gave the members of these committees power which they transformed into campaign contributions and political support.Spectrum auctions were not implemented until they were also crafted to give advantages to some groups that these committees wanted supported. The payoffs to the new technologies, however, were so large that even with transaction costs and rent seeking a bargain was possible, a truly Coasian bargain.

Snitching markets in everything

by  Tyler Cowen in

The prisoners in Atlanta’s hulking downtown jail had a problem. They wanted to snitch for federal agents, but they didn’t know anything worth telling.  Fellow prisoner Marcus Watkins, an armed robber, had the answer.

For a fee, Watkins and his associates on the outside sold them information about other criminals that they could turn around and offer up to federal agents in hopes of shaving years off their prison sentences.  They were paying for information, but what they were really trying to buy was freedom.  “I didn’t feel as though any laws were being broken,” Watkins wrote in a 2008 letter to prosecutors.  “I really thought I was helping out law enforcement.”

That pay-to-snitch enterprise — documented in thousands of pages of court records, interviews and a stack of Watkins’ own letters — remains almost entirely unknown outside Atlanta’s towering federal courthouse, where investigators are still trying to determine whether any criminal cases were compromised.  It offers a rare glimpse inside a vast and almost always secret part of the federal criminal justice system in which prosecutors routinely use the promise of reduced prison time to reward prisoners who help federal agents build cases against other criminals.

Snitching has become so commonplace that in the past five years at least 48,895 federal convicts — one of every eight — had their prison sentences reduced in exchange for helping government investigators, a USA TODAY examination of hundreds of thousands of court cases found.  The deals can chop a decade or more off of their sentences.

That is from USA Today, from this source.  Hat tip goes to @matt_levine.