The new hole in Guatemala
One story is here. Hat tip goes to Chris Masse.
When does large-scale public ownership work?
Matt and Ezra both comment on my post that most of the largest Chinese firms are state-owned or controlled by state-owned banks. (Both blogs, by the way, have interesting running coverage of the same China trip.) How can this be the case in the world's greatest economic growth miracle? How come it works (sort of, there were lots of privatizations, starting in the 1980s) in France too?
Yet state-owned industries do not have a fantastic record overall; ask England.
In part this is a puzzle but in part France and China have one important feature in common: it's high status to be a ruler. Very smart Frenchmen often grow up wanting to work for the government. Hardly anyone in France thinks that is weird and so the French bureaucracy has some of the best talent in the country.
There is also a long-standing tradition of the prestige of the Chinese mandarin. Furthermore, and perhaps more importantly, the Chinese Communist Party is the ultimate source of control and prestige for the entire society and it too attracts many talented people.
It's not enough to attract talented people, however. Unlike in the former communist Soviet Union, the Chinese government is (somewhat) dedicated to improving the nation. At least at a ten percent rate of growth, this political equilibrium works. And the state-controlled enterprises have to compete in a commercial environment, again unlike many former socialist experiments with state ownership. Most of all, China is grabbing the low-hanging fruit by moving smart, hard-working individuals from rural jobs to highly productive jobs and when you are grabbing the low-hanging fruit many things are possible. A lot of systems work OK until you get near the "you ought to shut down" constraint.
It's also possible that the successes of state ownership "decay" with time, as was arguably the case with the French model before the privatizations and has been the case with NASA in the United States.
The United States is far from having the right pieces to make public ownership work on a widespread basis and of all the major capitalist economies we have experimented with it about the least. Federalism, a regionalist Congress, separation of powers, and a high proportion of political appointees all militate against successful government ownership. Plus we are a large economy with relatively little external discipline in the form of international trade.
We could "respect" our bureaucrats much more than we do, yet they still would not have the real status they enjoy in France. It's simply not built into our culture, which worships wealthy businessmen and also the so-called "common man."
Imagine if everyone wrote a tweet: "Hey guys, over at the Department of Education. You're awesome. Luv ya!" It wouldn't much matter because still not many people deeply and sincerely wish to emulate them.
I also prefer to live in a society where the public sector does not have so much prestige. Very often governmental prestige stifles innovation and implies a series of more general insider, elitist, and sometimes authoritarian attitudes. It's also worth a quick look at the histories of what France and China had to do to build up so much governmental prestige; not pretty.
We should recognize that the public ownership model has worked for China, but I don't want to see it widely copied. I don't want to see it in Venezuela, Argentina, Turkey, Pakistan, Sri Lanka, Cuba, India, the Philippines, Nigeria, Central African Republic, or anywhere in Eastern Europe, to name a few other candidate countries. Do you?
Back in Berlin
The President of Germany had to resign over this? On the bright side, it doesn't seem as important as Lena winning the Eurovision contest.
And so I am back in Berlin and for a good bit of time. I've already blogged my 1985 visit to East Berlin with Kroszner, which remains one of my strongest and most influential memories. I also returned the summer after the Wall fell, and spent about two days walking and driving around the Eastern part, more or less pinching myself to see if it was real. The same people who had been afraid to talk to me five years before suddenly were friendly and open. It felt remarkably like West Germany…and yet not. I don't expect to personally witness a comparable liberation in my lifetime and those days too have stuck with me deeply. For a number of reasons, just stepping foot in Germany is for me an emotional experience.
Twenty years later, I experience Berlin as a normal city for the first time. But I just arrived, so we'll have to see.
It is striking how cheap rents are. I have a two-bedroom apartment, fully furnished, short-term, in a neighborhood comparable in quality to Manhattan's Upper East Side and yet it costs less than many a mediocre place in Fairfax.
Assorted links
1. Rwanda opens first-ever ice cream parlor.
2. One estimate of implicit marginal tax rates in Obamacare.
3. Dani Rodrik on Turkish politics and the troubles of his father-in-law.
4. Media portraits of bigots can in fact, encourage the bigoted through a contrast effect ("I'm not like Archie Bunker!").
*Wolf Among Wolves*, by Hans Fallada
Originally published in 1938, it just came out in English for the first time in complete form. I'm only on p.200 (of about 800), but so far it is a gripping albeit slightly schlocky Continental novel of ideas, set in 1923 Berlin, and pitched roughly at the level of a John Forsythe novel. It's also notable for its incorporation of monetary theory throughout the narrative. Fallada had a good grasp of the costs of hyperinflation, the associated accounting problems, the difficulty of personal economic calculation, how inflation destroys savings, and the evolution of parallel currencies; Thomas Mann also explored these themes.
I've yet to see any major English-language reviews, but it's been selling very well in the UK.
Is there a general glut?
Matt Yglesias writes:
We right now have the capacity to produce more–much more–than has ever been produced before in the history of the planet. There are dozens of supply-side policies that could be improved in every country on earth, but that’s not a new fact about the world. What’s new is the lack of demand, the willingness of the key leaders in Tokyo, Frankfurt, Washington, Berlin, and now it seems London as well to tolerate stagnation and disinflation in the face of some of the most exciting fundamental new opportunities for human economic betterment ever.
You can take that quotation as a stand-in for the more general Keynesian AD views about the current recession.
First, I am fully on board with Scott Sumner-like ideas to boost AD through monetary policy, as is Yglesias and are many other Keynesians. There is no practical disagreement, but it remains an open question how effective such measures (or a bigger stimulus) would be.
Consider a simple model, in which uncertainty goes up, first because of the U.S. financial crisis, now because of Greece and the Euro and the open questions about Spain and how well Europe can cooperate. I'm not saying that's the only or even the prime cause of what's going on, it's simply an illustrative story.
With higher uncertainty, investors pull back, wait, and exercise option value. Aggregate supply declines, as does employment. As a result, aggregate demand declines too, and that includes real aggregate demand, not just nominal aggregate demand. Until the underlying uncertainty is resolved, the economy remains in the doldrums.
Note that there is still a case for fiscal policy, based on the idea of intertemporal substitution. With some labor unemployed, a sufficiently finely targeted fiscal policy can build a new road at lower social cost than before, by drawing upon unemployed resources. But even if that fiscal policy is a good idea, it won't drive recovery, at least not for plausible values of the multiplier.
There is also still a case for countercyclical monetary policy. As real AS and real AD are falling (see above), there is also downward pressure on nominal variables. Aggressive monetary policy, or for that matter the velocity-accelerating aspect of fiscal policy, can limit the negatives of this process and check the second-order fall in employment.
I'm all for countercylical AD management, noting that for other reasons I prefer monetary to fiscal policy in most cases and even if you don't agree with me there it suffices to note that the monetary authority moves last in any case.
That all said, the countercyclical monetary policy won't drive recovery either, or set the world right again, it just limits the damage. We still have to wait for the uncertainty to be cleared up.
Reading the Keynesian bloggers, one gets the feeling that it is only an inexplicable weakness, cowardice, stupidity, whatever, that stops policies to drive a more robust recovery. The Keynesians have no good theory of why their advice isn't being followed, except perhaps that the Democrats are struck with some kind of "Republican stupidity" virus. (This is also an awkward point for Sumner, who seems to suggest that Bernanke has forgotten his earlier writings on monetary economics.) The thing is, that same virus seems to be sweeping the world, including a lot of parties on the Left.
Romer, Geithner, Summers, et.al. know all the same economics that Krugman and DeLong and Thoma do. If a bigger AD stimulus would set so many things right, they'd gladly lay tons of political capital on the line to see it through and proclaim triumph at the end of the road.
Except they expect it would bring only a marginal improvement. And for that marginal improvement they have only a marginal desire to:
1. Raise the long-term national debt (if it's fiscal stimulus)
2. Put their reputations behind policies which might backfire or irritate Congress,
3. Put additional pressure on the independence of the Fed (if it's more aggressive monetary policy)
4. Wreck the current term spread of interest rates, which is a) making the short-term debt easy to finance, and b) restoring major banks to profitability rather quickly.
I still think they should try to do it — through more aggressive monetary policy — but it's a judgment call and that's why they are more or less staying put.
In general you should be suspicious of explanations which take the form of "if only the good people would all band together and get tough."
Assorted links
1. Update on Haiti; mostly bad news.
3. Must-try foods of the world.
4. One hypothesis about why celebrity endorsements work.
Against Dust
In the past few months I have noticed a terrible trend in fancy restaurants, dust. Dust, not on the floor mind you, but on the food especially the desserts. The trend, for example, is to nestle ice cream in a bed of chocolate dust. Not chocolate chunks or even bits but a chocolate grit that ruins the elegant smoothness of the ice cream–like eating ice cream that has been dropped in the sand. Apologies in advance for the name dropping but the guilty include Marcus Samuellson at Aquavit, Wylie Dufresne at WD-50, Martin Rios at Restaurant Martin and Passion Fish in Virginia.
Dust is evil.
End rant.
Istanbul notes
Contra the United States, here it is the leaders who have the moustaches and the voters who do not.
Nowhere have I seen more free toothpicks for offer, yet after days I still have not encountered a single Chinese restaurant. Turkish food dominates the culinary landscape.
The bestsellers are mostly by Turkish authors, yet The Prince of Persia fills many a movie screen.
Orhan Pamuk: "To be traveling through the middle of a city as great, historic and forlorn as Istanbul, and yet to feel the freedom of the open sea — that is the thrill of a trip along the Bosphorus."
Turkey is the world's second leading producer of watermelons and the leading producer of cherries; you can see both in the streets.
Full of small villages, it's one of the best walking cities. People are friendly and helpful to strangers.
According to Forbes, there are 35 billionaires in Istanbul.
The major sights underwhelm me, in part because they are so crowded with tourists and in part because the "real city" feels further removed from them historically and spiritually than say Cairo does from its classic mosques.
Sultanahmet is the worst tourist ghetto I've seen in any major city, ever. It is essential to stay in some other part of the city, any other part. I'm far from the center in Topkapi (not near the palace of the same name) and happy with my choice.
I could imagine living here. It offers many of the benefits of major European cities but at lower expense. It is less exotic than I had expected, and that's taking into account the typical first-order illusion about the exoticism of distant foreign cities.
Turkey is Europe's leading producer of televisions. After the 2001 troubles, both the banks and the government are in good fiscal shape. The Turkish lira has yielded strong returns for years. The economy is well-diversified.
Oddly (or perhaps not), the city reminds me of a larger-scale Marseilles.
Three years ago, here is Alex on Istanbul. I took a cab there, and then the ferry back.
Cigarette black markets in prison
Shades of the classic Radford article, except the time is now and the author is Stephen Lankenau:
Since the mid-1980s, cigarette-smoking policies have become increasingly restrictive in jails and prisons across the United States. Cigarette black markets of various form and scale often emerge in jails and prisons where tobacco is prohibited or banned. Case studies of 16 jails and prisons were undertaken to understand the effects of cigarette bans versus restrictions on inmate culture and prison economies. This study describes how bans can transform largely benign cigarette “gray markets,” where cigarettes are used as a currency, into more problematic black markets, where cigarettes are a highly priced commodity. Analysis points to several structural factors that affected the development of cigarette black markets in the visited facilities: the architectural design, inmate movement inside and outside, officer involvement in smuggling cigarettes to inmates, and officer vigilance in enforcing the smoking policy. Although these factors affect the influx of other types of contraband into correctional facilities, such as illegal drugs, this study argues that the demand and availability of cigarettes creates a unique kind of black market.
Hat tip goes to Vaughn Bell.
The best sentence Chris Masse has sent me about the iPad
Assorted links
1. The largest school in the world? Here is a more skeptical take, from a bitter man. Reihan is balanced.
2. More on why the CRA wasn't at fault.
3. Ed Dolan's economics blog, a resource for teachers.
4. China markets in everything, suicide edition.
6. Blog of economic theorems, explained in common sense language.
How bad is the Greek bureaucracy?
Canadian entrepreneur Steve Earle traveled to Greece with plans for what he hoped would be a flourishing business in a sunny, island-rich nation: a sea-plane airline.
But Mr. Earle's company, AirSea Lines, went bust five years later in 2008–hindered in large part, he says, by government bureaucracy. "They killed it by inertia," he says. "Greece is an unsustainable reality."
AirSea's odyssey illustrates one of the key problems preventing Greece from generating the economic growth it needs to pay off its heavy debts: Critics say a sprawling civil service has tried to secure its own survival through an opaque patchwork of fees, taxes and red tape. The European Commission estimates the administrative burden of Greece's bureaucracy–the value of work devoted to dealing with government-imposed administration–is equivalent to 7% of gross domestic product, twice the EU average.
There is much more here. By the way, here is a new blog on the Greek financial crisis, in both Greek and English.
Sentences to ponder
This table shows that 47% of consumption growth since December comes from spending on import-intensive goods.
That's Michael Mandel and there is much more here.
How to answer questions about your sexual orientation
As an aside, I cannot refrain from relating another anecdote, which is told of Gore Vidal. In a TV interview he was asked: "Was your first sexual experience with a man or with a woman?" To which he replied: "I was too polite to ask."
That is from Žižek citing Dolar, p.121. It's a shame that Kagan does not have the liberty to answer in the same manner.