How to leave the Uros zone (no typo, if only it were so easy)

by  Tyler Cowen in

…the Uros have managed to retain their independence and lifestyle by living on 93 floating islands, which they build and maintain from totora reeds, some five kilometres off the coast and accessible only by a 20-minute boat ride from Puno.

…Should there be disputes between families living on the same island it is easy to cut a single home off and float it to another island.

The full story is here, much more information here.

*The Origins of AIDS*

by  Tyler Cowen in

The author is Jacques Pepin and this is a splendid book.  It is a remarkably thorough epidemiological detective story, which breaks new ground, and on top of that it serves up an excellent (partial) history of Zaire, history of the African sex trade, and history of Haiti.  Excerpt:

In tropical Africa, the median number of infective [mosquito] bites is 77 per year, but in the rural and rainy areas of central Africa this number is generally >>200.  The record belongs to a village of Equatorial Guinea, where humans sustain 1,030 infective bites per year, three per day!

It is the most impressively researched book I’ve read all year, as suspenseful as a thriller, and tragic in mood.  It’s amazing how far back Pepin can trace back the history of AIDS and the diversity of sources and records he draws upon.  Here is one overview of the book.  Definitely recommended, one of the best books of the year.

Capitol Gains

by  Alex Tabarrok in

I have written several times before (e.g. here and here) about how Washington insiders, politicians and staff, use their knowledge of behind the scene deals to profit in the stock market (see also Megan McArdle’s recent piece from which I stole the headline). Last night 60 Minutes reported on the story based on new research in Throw Them All Out a forthcoming book by Peter Schweizer.

Here is one bit from the transcript:

In mid September 2008 with the Dow Jones Industrial average still above ten thousand, Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke were holding closed door briefings with congressional leaders, and privately warning them that a global financial meltdown could occur within a few days. One of those attending was Alabama Representative Spencer Bachus, then the ranking Republican member on the House Financial Services Committee and now its chairman.

Schweizer: These meetings were so sensitive– that they would actually confiscate cell phones and Blackberries going into those meetings. What we know is that those meetings were held one day and literally the next day Congressman Bachus would engage in buying stock options based on apocalyptic briefings he had the day before from the Fed chairman and treasury secretary. I mean, talk about a stock tip.

While Congressman Bachus was publicly trying to keep the economy from cratering, he was privately betting that it would, buying option funds that would go up in value if the market went down. He would make a variety of trades and profited at a time when most Americans were losing their shirts.

Even though the Congress is exempt from insider trading law, many of 60 Minutes’s findings are hugely damning, which you can tell just by looking at the stunned faces of John Boehner and Nancy Pelosi when Steve Kroft questions them about their special dealings. The video is here.

I never understood gambling in the first place (model this)

by  Tyler Cowen

Why hire someone to do your gambling for you?  This report is from Singapore:

A hard day’s work for Bangladeshi construction worker Salim used to mean toiling under the burning sun. But nowadays, at least once a week, he finds himself assigned to a very different kind of ‘job’ – playing the jackpot machines in the cool air-conditioned comfort of Resorts World Sentosa.

The 29-year-old is one of a number of foreign employees being sent to the casino to gamble on behalf of their employers to feed their own habit, a Straits Times investigation has found.

Five bosses – some with exclusion orders against them – told The Straits Times that they have been handing workers cash, notebooks and mobile phones, then dispatching them to the casino. They claimed to know several other employers doing the same thing.

The ‘proxy gamblers’, dressed mostly in company polo T-shirts and jeans, get a cut of the winnings, but if they lose too much, their pay is docked.

The link is here (part of the article is gated), and for the pointer I thank Daniel Riveong.

How Mario Monti can solve Italy’s immediate fiscal problems

by  Tyler Cowen in

Italy has a lot of debt, but also lots of wealth.   There is, however, no need to sell off the Pieta.  More than half of Italian government bonds are held domestically.  Apply a wealth tax and use it to pay off all of the domestically held bonds; in essence the government takes the wealth with one hand and mails it back with the other.  The debt/gdp ratio is more than cut in half and the announcement to do so comes immediately.  The Italian citizenry is not poorer, although they are required to recognize losses which already have been incurred.  The Italian government also can do some fraction of this, and retire part of the domestically held debt, rather than all of it.

NB: I am not predicting this will happen!  And while it would not cure Italy’s underlying growth problems, and could make some of those problems worse, it would buy them time.

What’s scarce in this situation is trust.  Why should Italian taxpayers think they will get the money back?  And the intra-Italian redistributions of wealth — from homeowners to bondholders most likely — won’t be popular.

A riskier version of the same idea — not recommended but an instructive point of comparison — is to simply default on all domestic debt and be credible on foreign-held debt to the hilt, maybe sending the foreign debt holders Perugia chocolates in the mail.

The Germans of course understand this logic, which is one reason why they are not going to set up a Eurobond or sign off on ten percent inflation.  Rightly or not, they actually have the gall to expect Italy to pay for the money it has borrowed. (Like so many bloggers, they tend to frame the issue very much in moral terms, though from a Germanic point of view, instead of fully blaming the ECB.)  Italy can indeed do it.

Can.

Will?  I don’t know.  I’m not counting on it.

Cosmopolitan Rangoon

by  Tyler Cowen in

A largely English administrative class presided over the colonial apparatus; Scots dominated trade.  The big companies of the day…were all in Glaswegian hands.

…In the early twentieth century, Burma enjoyed a higher standard of living than India and was far less densely populated.  And as the economy grew, there was a need for cheap labour as well as entrepreneurial and professional skills.  all this came from India, with movement into Burma unchecked and for a long time positively encouraged.  By the late 1920s Rangoon even exceeded new York as the greatest immigrant port in the world and this influx turned Rangoon into an Indian City, with the Burmese reduced to a minority.  There was a mingling of peoples from every part of the subcontinent, from Bengali schoolteachers and Gujarati bankers, to Sikh policemen and Tamil merchants.  There were Chinese too, and smaller communities of Europeans, Americans and even Latin Americans (the Chilean poet Pablo Neruda lived in Rangoon briefly in the 1920s).  The Cambridge political economist and long-time Burma civil servant J.S. Furnivali invented the term “plural society” to describe Rangoon’s mix of nationalities.  Steamships fastened Rangoon to Calcutta and then, with the start of air travel, Rangoon became a hub for all of Asia…World-class schools and a top-notch university helped create a cosmopolitan and politically active middle class.

That is from the new and interesting book Where China Meets India: Burma and the New Crossroads of Asia, by Thant Myint-U.

Turning the dialogue from wealth to values

by  Tyler Cowen in

My latest column is about the top one percent, and OWS, here are some paragraphs, including the last three:

The United States has always had a culture with a high regard for those able to rise from poverty to riches. It has had a strong work ethic and entrepreneurial spirit and has attracted ambitious immigrants, many of whom were drawn here by the possibility of acquiring wealth. Furthermore, the best approach for fighting poverty is often precisely not to make fighting poverty the highest priority. Instead, it’s better to stress achievement and the pursuit of excellence, like a hero from an Ayn Rand novel…

But how is that playing out in practice?

For one thing, today’s elites are so wedded to permissive values — in part for their own pleasure and convenience — that a new conservative cultural revolution may have little chance of succeeding. Lax child-rearing and relatively easy divorce may be preferred by some high earners, but would conservatives wish them on society at large, including the poor and new immigrants? Probably not, but that’s often what we are getting.

In the future, complaints about income inequality are likely to grow and conservatives and libertarians won’t have all the answers. Nonetheless, higher income inequality will increase the appeal of traditional mores — of discipline and hard work — because they bolster one’s chances of advancing economically. That means more people and especially more parents will yearn for a tough, pro-discipline and pro-wealth cultural revolution. And so they should.

It remains to be seen how many of us are up to its demands.

It will be very interesting to see, if labor market polarization continues, what kind of disciplinary alternatives will be offered.  How about a boot camp, or a neo-Victorian boarding school, to turn your kid into a successful engineer?  My admittedly counterintuitive view is that growing income inequality will provide a big boost to cultural conservatism, and perhaps political conservatism too, albeit at levels which are often rhetorical rather than real.

There is much more in the column itself, including a discussion of what Stiglitz, Sachs, Ayn Rand and modern American conservatives get right and wrong.  I’m a big fan of the pro-wealth, pro-discipline ethic, although I don’t think that current intellectual discourse is serving up an especially palatable version of it.

I should add that for this column I am grateful for a conversation with John Nye.

Addendum: Mark Thoma comments, as do his commenters, always worth reading.

Labor markets in everything

by  Tyler Cowen

What does it take to be a Victoria’s Angel?:

She sees a nutritionist, who has measured her body’s muscle mass, fat ratio and levels of water retention. He prescribes protein shakes, vitamins and supplements to keep Lima’s energy levels up during this training period. Lima drinks a gallon of water a day. For nine days before the show, she will drink only protein shakes – “no solids”. The concoctions include powdered egg. Two days before the show, she will abstain from the daily gallon of water, and “just drink normally”. Then, 12 hours before the show, she will stop drinking entirely.

“No liquids at all so you dry out, sometimes you can lose up to eight pounds just from that,” she says.

The pointer is from Mocost on Twitter.

Shining a light on solar subsidies

by  Alex Tabarrok in

In Why they call it Green Energy: The Summers/Klain/Browner Memo I discussed the Shepherds Flat wind project, a $1.9 billion dollar project subsidized to the tune of $1.2 billion. Today, the NYTimes has a good piece on an even bigger subsidy sucker, a $1.6 billion CA solar project that is nearly 90% subsidized by taxpayers and ratepayers leaving a nice profit but virtually no risk for its corporate backers. The grateful but perhaps overly voluble CEO of the corporation building the project had this to say:

As NRG’s chief executive, David W. Crane, put it to Wall Street analysts early this year, the government’s largess was a once-in-a-generation opportunity…

“I have never seen anything that I have had to do in my 20 years in the power industry that involved less risk than these projects,” he said in a recent interview. “It is just filling the desert with panels.”

I suspect that he might have continued, “it was like taking candy from a baby,” but that is just a suspicion.

There are good reasons for taxing all sources of carbon and subsidizing cleaner energy sources (especially R&D) but huge subsidies targeted on a handful of corporations without “skin in the game” are a recipe for waste, corruption and abuse. We can only hope that this was just a once in a generation opportunity.

Addendum: The NYTimes usually has great info-graphics but today’s experiment made it more difficult not easier to get to the key information.

Hat tip: Daniel S.

Addendum 2: It’s telling that so many people want to shift the debate away from the advisability of particular solar and wind subsidies to whether I or others have been consistent about coal, oil and nuclear subsidies.

For the record, in this very post I discuss taxing carbon, obviously including oil and coal, so it is clear that I do not favor subsidizing those energy sources. Also, careful readers (most MR readers!), will see that I am especially worried about “huge subsidies targeted on a handful of corporations,” both of those clauses are important. In this case, for example, we are talking about nearly 90% subsidies and they are targeted on a case by case basis; put these two things together and you get waste, corruption and abuse. For these reasons, I am less worried about subsidies to green energy that leave private firms with lots of skin in the game and that are open to any firm.

Sign of the times

by  Tyler Cowen in

A major credit agency warns that Penn State University’s bond rating could be downgraded because of risks to its reputation and finances from a child sex abuse scandal.

Moody’s Investors Service said Friday it has put the university’s Aa1 bond rating under review for a possible downgrade after ex-coach Jerry Sandusky was charged with molesting eight children over a 15-year period.

Moody’s will assess the potential impact on Penn State of risks from possible lawsuits, a decline in students applying to attend the school, loss of donations from philanthropies and changes in its relationship with the state.

Here is the link, hat tip to Michael Rosenwald.

What we’ve learned from the euro crisis, part I

by  Tyler Cowen in

Matt Yglesias serves up a short and partial list, here are some of mine:

1. When the Germans say “no LOLR” they mean “no LOLR”!  Especially when they put it into print.  I already knew that, actually.

2. It is a disaster and a dead-end situation when a country uses its automatic stabilizers in a manner which supports rent-seeking and harms growth.  There is, in a time of crisis, no way out of the resulting trap.

3. The “regulation and labor law will come down really hard on larger firms” approach of Mediterranean Europe is far worse than we had thought, and we thought it was bad in the first place.  I can’t stress this point enough.  It’s cut those countries off from some major sources of growth and technical advance.

4. Don’t borrow in someone else’s currency.

5. Don’t think that “don’t borrow in someone else’s currency” is the only lesson.  Last I checked the Netherlands was doing OK.

6. International coordination doesn’t work very well unless the interests of the various countries are aligned in the first place.  If this is what becomes of the EU, what is our chance to save the world’s fish stocks?  Protect against global environmental problems?  etc.  The EU, and the eurozone, is designed for vague statements of consensus that, when faced with real problems, don’t get the job done.

7. We can suddenly imagine the so-called “first world” splitting into two parts, distinguished by the degree of conscientiousness applied to human capital formation.

8. The French-German marriage was never going to last that long anyway.  Yet without it, how do things get done in Europe?

9. The Mediterranean social welfare state model, based on lots of inefficient regulation, rent-seeking, reckless borrowing, and privilege within the local professions, is neither resilient nor robust.  It is wrong to blame “welfare states,” but it is also wrong to let “welfare states” off the hook altogether.  We’re learning a lot about how not all welfare states are created equal.

10. Don’t have government regulators let the banking system treat all government securities as riskless assets.

11. Hayek really was right about French rationalist constructivism (see chapter one).  I’m not sure there has been a better example in all of human history.

12. I’ll write more on Italy soon and what we can learn from the country in particular.  And I’ve left off some of the now-obvious, such as “no monetary union with a common fiscal authority and bank resolution mechanism,” etc.

Higher taxes fewer witches

by  Tyler Cowen

We find that regions with higher taxes were less likely to try witches and that the rise of the fiscal state across much of France during the mid-seventeenth century can account for much of the subsequent decline in witch-trials. These results are robust across a range of different econometric specifications and our findings are supported by additional historical and qualitative evidence.

That is from my colleagues Noel Johnson and Mark Koyama, paper here, Suzy Khimm summary here.  And how so?:

Johnson and Koyama argue that regions with lower taxes had less resources to strictly administer legal codes, allowing the trying of witches to flourish. They further note that as France became more unified and its fiscal functions centralized, witch hunts declined just about everywhere. That, however, was not a product of higher taxes but rather of standardization.