The future of Africa?

by  Tyler Cowen in

I'm still thinking about this fascinating article from the NYT magazine last week, titled "Is There Such a Thing as Agro-Imperialism?".  Here are two excerpts:

…one of the earth’s last large reserves of underused land is the billion-acre Guinea Savannah zone, a crescent-shaped swath that runs east across Africa all the way to Ethiopia, and southward to Congo and Angola.

And:

…as of earlier this year, the Ethiopian government had approved deals totaling around 1.5 million acres, while the country’s investment agency reports that it has approved 815 foreign-financed agricultural projects since 2007, nearly doubling the number registered in the entire previous decade. But that’s far from a complete picture. While the details of a few arrangements have leaked out, like one Saudi consortium’s plans to spend $100 million to grow wheat, barley and rice, many others remain undisclosed, and Addis Ababa has been awash in rumors of Arab moneymen who supposedly rent planes, pick out fertile tracts and cut deals.

Foreign investment can do wonders but the interaction between such investment and corrupt foreign governments can also be negative if workers and citizens are not granted adequate rights.  This article caused me to revaluate possible paths for some African futures.  The Coase theorem is finally kicking in.  I see corrupt politicians deciding it is more profitable, and also more secure, to "sell off" their countries than to oppress them in the traditional manner.  I see a new kind of tax farming, based on the extraction and exploitation of resources and raw materials, with African labor along for the ride.  It will mean higher living standards and better infrastructure, but probably not along a path that will look very appealing to most Western observers.

Contra Max Weber

by  Tyler Cowen in

Davide Cantoni (who by the way is on the job market, from Harvard) reports:

Many theories, most famously Max Weber's essay on the 'Protestant ethic,' have hypothesized that Protestantism should have favored economic development. With their considerable religious heterogeneity and stability of denominational affiliations until the 19th century, the German Lands of the Holy Roman Empire present an ideal testing ground for this hypothesis. Using population figures in a dataset comprising 276 cities in the years 1300-1900, I find no effects of Protestantism on economic growth. The finding is robust to the inclusion of a variety of controls, and does not appear to depend on data selection or small sample size. In addition, Protestantism has no effect when interacted with other likely determinants of economic development. I also analyze the endogeneity of religious choice; instrumental variables estimates of the effects of Protestantism are similar to the OLS results.

The full paper, and other work by Cantoni, is here.  I believe this is the most thorough statistical test of the Weberian hypothesis to date.

From the comments

by  Tyler Cowen in

People are not always eager to lay down good vs. evil thinking.  I don't mean to pick on any single commentator but here is one example:

…E T Jaynes is spinning in his grave that you used Bayes to justify an increase[d] belief in AGW based on scientist's personal beliefs when they lacked the to support their own conclusion.

They believed something so strongly they faked data? A scientist should only believe something so strongly because they have the data to support their belief!

This was perhaps the most misunderstood blog post (including by other bloggers) I've written, yet the original text is quite literally clear, though perhaps it confuses people by not offering up the emotional valence they are expecting.  I did not try to justify any absolute level of belief in AGW, or government spending for that matter.  I'll repeat my main point about our broader Bayesian calculations:

I am only saying that #2 [scientists behaving badly because they think the future of the world is at stake] deserves more than p = 0.

Nor is my point that p is large, but rather if you don't consider this p at all your reasoning is incomplete.  People simply do not wish to hear that sometimes they should pay heed — incomplete heed at that — to the opinions of evil others.  It's remarkable how many people responded to this blog post by attacking either the scientists or, in some cases, me.  

Who says there’s a credit crunch?

by  Tyler Cowen in

Somali pirates are raising money through a local equity offering:

In Somalia's main pirate lair of Haradheere, the sea gangs have set up a cooperative to fund their hijackings offshore, a sort of stock exchange meets criminal syndicate.

Here is one internal account:

"Four months ago, during the monsoon rains, we decided to set up this stock exchange. We started with 15 'maritime companies' and now we are hosting 72. Ten of them have so far been successful at hijacking," Mohammed said.

"The shares are open to all and everybody can take part, whether personally at sea or on land by providing cash, weapons or useful materials … we've made piracy a community activity."

For the pointers I thank Pin-Quan Ng and Eric Crampton.

*Unchecked and Unbalanced*

by  Tyler Cowen in

This book represents an attempt to explore the problem of the discrepancy between the trends in two phenomena: knowledge is becoming more diffuse, while political power is becoming more concentrated.

That's the first sentence of Arnold Kling's second new book; in another context I might have called it "Words of Wisdom."  My blurb on the back was:

This is essential reading on the political dangers facing us today and the risk of excess centralization.  Arnold Kling is one of my favorite commentators.

Here Arnold explains his two books.

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.

The limits of good vs. evil thinking

by  Tyler Cowen in

Good vs. evil thinking causes us to lower our value of a person's opinion, or dismiss it altogether, if we find out that person has behaved badly.  We no longer wish to affiliate with those people and furthermore we feel epistemically justified in dismissing them.

Sometimes this tendency will lead us to intellectual mistakes.

Take Climategate.  One response is: 1. "These people behaved dishonorably.  I will lower my trust in their opinions."

Another response, not entirely out of the ballpark, is: 2. "These people behaved dishonorably.  They must have thought this issue was really important, worth risking their scientific reputations for.  I will revise upward my estimate of the seriousness of the problem."

I am not saying that #2 is correct, I am only saying that #2 deserves more than p = 0.  Yet I have not seen anyone raise the possibility of #2.  It very much goes against the grain of good vs. evil thinking:  Who thinks in terms of: "They are evil, therefore they are more likely to be right."

(Which views or goals of yours would you behave dishonorably for?  Are they all your least correct views or least important goals?  With what probability?  Might it include the survival of your children?)

I do understand that this line of reasoning can be abused: "The Nazis went to a lot of trouble, etc."  The Bayesian point stands.

Another example of misleading good vs. evil thinking stems from the budget.  Many people believe:

3. "If the Republicans win, they will irresponsibly cut taxes and do nothing real to control spending."  You may have even seen this view in the blogosphere.

One response to this is 4. "We should ensure that the Republicans do not win and criticize them every chance possible."

An alternative response is 5. "Sooner or later the Republicans will in fact win and I cannot prevent that.  Right now the Democrats should spend less money, given the truth of #3.  In this regard the Republicans, although evil, are in fact correct in asking the Democrats to spend less money, if only to counterbalance their own depravity."

I do not see many people entertaining #5.  #5 implies that a group judged as dishonest should be granted some probability of speaking the truth on an important issue.  (Nor will pro-Republicans be attracted to a claim which portrays their group as dishonest.)  Note also that by accepting #5 you are admitting and partially accepting the ability of the Republicans to "out-game" the Democrats.  That makes #5 even harder to accept.

Again, I am not asking you to buy #2 and #5 outright.  I am simply suggesting they have a higher "p" than many people are willing to grant them.  And that is because we are accustomed to judging the truth of a claim by the moral status of the group making the claim.

Facts about Greece

by  Tyler Cowen

This year, the budget deficit will rise to 12.7 per cent of gross domestic product – and this assumes there are no further accounting tricks to be uncovered. Deutsche Bank calculated in a recent research note that the country's public debt-to-GDP ratio is headed for 135 per cent. Gross external debt – private and public sector debt owed to foreign creditors – was 149.2 per cent at the end of last year. The real exchange rate has gone up by 17 per cent since 2006, which means the country is losing competitiveness at an incredible rate. Had Greece not been in the eurozone, it would be heading straight for default.

The government's 2010 draft budget foresees a deficit reduction to about 9.1 per cent of GDP. But the number is misleading. The lion's share of the total deficit reduction effort is earmarked to come from tax measures, and most of those from the fight against tax evasion. Tax evasion is always the item first on the list of desperate governments.

Here is the full article.

What determines a professor’s reputation?

by  Tyler Cowen in

In economics, that is.  A new paper by Daniel Hamermesh and Gerard Pfann tries to answer that question.  Their abstract is worded a little awkwardly, I would summarize their results as follows:

1. Adjusting for citations and other measures, "reputation" (defined both in terms of awards and the quality of the department you inhabit), does not rise with the quantity of articles published by an individual.

2. Adjusting for citations and other variables, having your citations in a single dominant piece, rather than scattered across a greater number of pieces, does not predict reputation.

3. The quantity of articles published does predict mobility and salary (adjusting for quality), even though it does not predict reputation.

I take the lesson to be that lots of schools — non-top departments — want to hire churners with a lot of published output.  I'm a little worried about which quality measures should be predicting which in this paper, but nonetheless the results rang true to my ear.  The paper (NBER) is here.  Angus also comments.

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.

Holding the line on the “public option”?

by  Tyler Cowen in

Perhaps it's just political posturing, but on substantive grounds I don't get it.  The biggest problems with the proposed reforms have to do with the incentives created by the mandates.  That includes the incentives for would-be purchasers (better to just pay the fine and remain outside the pool), the incentives for the subsidized (very high implicit marginal tax rates), the incentives for employers (look for illegal aliens), the incentive for doctors to stop treating Medicare and especially Medicaid patients, and the incentives for the insurance companies (there's probably a way to scare off high-risk customers or otherwise game the customer carry requirements).

There is room for disagreement as to how big these problems are in absolute terms, but still they should be seen as the major problems with the likely bill-to-come, issues of cost aside.

The public option alleviates these problems, albeit in a minor way, by removing some individuals from this circle of possibly unworkable incentives.

I still can see why you might not favor adding a public option to the plan, basically for the usual reasons which plague many government programs.  As for the politicians who are drawing a line in the sand at the public option, to me that's just a sign they don't understand the major potential problems in the plan in the first place.