From the comments

by  Tyler Cowen in

Steve S writes:

Steve Entin at the National Center for Policy Analysis has written on the very issue of the subsidies vs the tax exclusion. His conclusion:

Adding the subsidies for premiums and cost sharing, the family getting the health exchange policy would receive a total subsidy of $17,400, while the family receiving employer-based insurance would receive a total subsidy of $4,143.

That is a huge differential. The whole piece is here: http://www.ncpa.org/pdfs/Health-Insurance-Exchange-Subsidies-Create-Inequities.pdf

File under "Not a political equilibrium."

FCPA as embargo

by  Tyler Cowen in

It turns out Andrew Spalding has a paper on the topic.  Here is the abstract:

Although the purpose of international anti-bribery legislation, particularly the U.S. Foreign Corrupt Practices Act, is to deter bribery, empirical evidence demonstrates a more problematic effect: in countries where bribery is perceived to be relatively common, the present enforcement regime goes beyond deterring bribery and actually deters investment. Drawing on literature from political science and economics, this article argues that anti-bribery legislation, as presently enforced, functions as de facto economic sanctions. A detailed analysis of the history of FCPA enforcement shows that these sanctions have most often occurred in emerging markets, where historic opportunities for economic and social development otherwise exist and where public policy should encourage investment. This effect is contrary to the purpose of the FCPA which, as the legislative history shows, is to build economic and political alliances by promoting ethical overseas investment.

These perverse and unanticipated consequences create two policy problems. First, the sanctions literature suggests that the resulting foreign direct investment void may be filled by capital-rich countries that are not committed to effectively enforcing anti-bribery measures. This dynamic can be observed, for example, in China's aggressive investment in Africa, Latin America, and Central Asia, and creates myriad ethical, economic, and foreign policy problems. Second, by enforcing these laws without regard to their sanctioning effects, developed nations are unwittingly sacrificing poverty reduction opportunities to combat bribery. The paper concludes with various proposed reforms to the text and enforcement of international anti-bribery legislation that would further the goal of deterring bribery without deterring investment.

Here is my previous post on the FCPA and Haiti.

*The Future History of the Arctic*

by  Tyler Cowen in

I loved this book, which is written by Charles Emmerson.  Here is one short bit:

Despite the prominence of the colors of Norway on Svalbard — and the firm insistence from any government representative that Svalbard is an integral part of the kingdom of Norway — there are reminders that the archipelago is both something more and something less than that.  Russians and Ukrainians live here, some in Longyearbyen, though most are at the Russian settlement at Barentsburg.  The girls at the supermarket checkout counter speak Thai.  Somewhere in town is an Iranian who came here six years ago and, under the terms of the Spitsbergen Treaty, was able to settle here.  If he were to return south to the Norwegian mainland, he would almost definitely be forced to leave the country, his asylum claims having been refused.  Import duties are nonexistent on Svalbard: Cuban cigars cost less in Longyearbyen, at 78 degrees North, than they do in Oslo, three hours' flight to the south.

Here is Wikipedia on Svalbard. 

This book covers why and how Greenland might become independent, what kind of presence in the Arctic Canada can realistically expect to have, the changing historical fortunes of Vladivostock, what the Law of the Sea really means, and why Norway manages its fossil fuel revenues so well, among other matters.  The Future History of the Arctic has fun and useful information on just about every page.

Norway

Views I toy with but do not (yet?) hold

by  Tyler Cowen in

Financial panics and economic crises are nearly inevitable, for at least two reasons.  The first is that policymakers are ill-informed and have poor incentives.  The second is that bank managers, periodically, like to take risk and we are unwilling to shoot or otherwise severely punish the failed ones.  Instituitions which transform liquidity can, sooner or later, find a way to take such precarious risks, no matter what the regulators do (it still may be worth trying regulatory restraint, however).  There's simply not enough downside risk in a wealthy, humane society.

The nineteenth century financial panic will prove the "norm" for human history.  The research question is how we avoided such panics for 1950-S&L crisis, or whatever you take the cut-off points to be.  The capital controls of Bretton Woods may be part of the answer (plus that is a strange economic period in a number of ways), although it is not obvious such controls could be made to work today.

More and more, people will turn to the wisdom of the great 19th century economists on financial panics, bank runs, and the like.  It was an intellectual mistake to think we had ever left that world for good.

I thank Benjamin Chabot and Mario Rizzo for useful conversations on this topic.  Bill Easterly offers related remarks, as does Paul Krugman.

The Slartibartfast Principle

by  Alex Tabarrok in

From Wired:

Canadian poet Christian Bök wants his work to live on after he’s gone. Like, billions of years after. He’s going to encode it directly into the DNA of the hardy bacteria Deinococcus radiodurans. If it works, his poem could outlast the human race.

If it is conceivable, just 57 years after the identification of DNA's structure, for a Canadian poet to imprint his poetry into the DNA of a living organism then isn't it probable that an intelligent designer in the past would have had similar desires and perforce much greater abilities to accomplish the task?

Thus the evidence for intelligent design ought to be readily available in the graffiti of DNA. "Slartibartfast was here," or perhaps "3.14159265," or given what we know of economics, "All rights reserved, MegaCorp. Call for a free estimate."

The fact that we have not found such evidence reduces my belief in intelligent design, although I am not against more investigation.  Indeed, one of the few arguments for god that I have ever given much credence to was the putative discovery of codes predicting future events in the Bible.  A serious paper on this topic was published in Statistical Science in 1994.  The paper was later convincingly rebutted but I still think it was the best evidence ever presented for an intelligent designer. 

Addendum One: Interestingly one of the few people who thought as I did, although coming from a quite different direction, was Nobel prize winner Robert Aumann who early on supported the Bible codes research.  However, after further research, supervised by Aumann, concluded that the paper could not be replicated Aumann returned to his prior view that the codes were improbable.  It's unclear what, if anything, would further shift his prior.

Addendum Two: Steven Landsburg was here yesterday and at lunch suggested that perhaps the great designer's name was in fact 3.14159265…

Gender risk-aversion, using data from chess

by  Tyler Cowen in

Dan Houser sends me a link to this paper, by Christer Gerdes and Patrik Gränsmark:

This paper aims to measure differences in risk behavior among expert chess players. The study employs a panel data set on international chess with 1.4 million games recorded over a period of 11 years. The structure of the data set allows us to use individual fixed-effect estimations to control for aspects such as innate ability as well as other characteristics of the players. Most notably, the data contains an objective measure of individual playing strength, the so-called Elo rating. In line with previous research, we find that women are more risk-averse than men. A novel finding is that males choose more aggressive strategies when playing against female opponents even though such strategies reduce their winning probability.

I am pleased to see that studying chess data is suddenly a "trendy" way to do behavioral economics.  Admittedly one is dealing with an unusual group of subjects.  Yet the quality of the data is high and the stakes are usually high too.  Computers can be used to judge the quality of moves.

Law and order in the world’s newest city

by  Tyler Cowen in

Remember that tent city on the former Petitionville golf course?  Here is the latest:

…an unarmed Haitian security force, composed of about 200 volunteers wearing neon yellow vests, patrols the golf course, trying to mediate disputes.

“We get a lot of cases: men beating up women, women beating up other women, people biting off other peoples’ ears,” said Romulus Renald Black, one of the volunteers. “We bring them into our security tent, judge them, and, if it’s a big case, we call in the police.”

Another patrolman said that there had been several rapes and assaults but only one killing. As to the number of ear bitings, Mr. Black said, “You’d be surprised.”

“Given the conditions, it has been remarkably calm and brotherly here,” said Clerveau Rodrigue, who has emerged as one of the camp’s leaders.

How the bill will evolve

by  Tyler Cowen in

Many Americans will receive subsidies for insurance, from what I understand roughly in the range of 6k to 12k.  Many other Americans — namely those who already have health insurance — will not receive direct subsidies of this nature.  Yet the subsidy-receiving and non-subsidy-receiving Americans will very often belong to the same income classes.

This disparity does not bother me personally (I have other worries about the subsidies), but I believe it will be very unpopular once it is publicly understood.  One way or another, the "firewall" between the exchanges and the employer-supplied system will break down.  Some people will want to spread the subsidies, others will want to limit them.  Yet the former is budgetarily problematic and the latter will be politically difficult.

A second and related issue is that the differences in reimbursement rates — across private insurance, Medicare and Medicaid (highest to lowest) — will become a more pressing issue.  For one thing, Medicaid patients will be crowded out by those buying private insurance on the exchanges, plus they will be crowded out by the growing number of Medicaid (and Medicare) patients.  There will be pressure to fix this problem and the difference in rates will lead to growing supplier gaming, queues, quality differentials, and so on.

Over time, reimbursement rates across programs (insurance subsidies, Medicare, Medicaid) will converge to an increasing degree.  Subsidies will be increasingly determined by income class rather than previous insurance history. 

In the limiting case (I'm not suggesting we will get there), everyone will receive means-tested subsidized vouchers for regulated private insurance.  In this strange way, Medicare and Medicaid could end up partially privatized and Ezekiel Emanuel — a voucher advocate — will end up being more influential than his brother Rahm.  We will have to live with the problems of means-testing to a higher degree than today, but we will have something closer to a unified system, as do most other countries with universal coverage.  There will be political pressure for compulsory health care savings, as they have in Singapore, to lower costs of finance.

It would be good if such vouchers could evolve in the direction of emphasizing catastrophic care and eventually they will have to.

Massive pressure will be put on such vouchers if either health care consumes 30-40 percent of gdp or income inequality continues to rise.  In the former case, subsidies become increasingly expensive and involve extraordinarily high implicit marginal tax rates (earn more, your subsidy declines in value).  In the latter case, it becomes increasingly difficult to ensure "near-equal" levels of health care access at feasible subsidy levels.  Those pressure points are not unique to the Obama bill, but they become especially critical under the evolutionary scenario I am outlining.  Perhaps we would give up the ideal of near-equal access, but that day is a few decades away.

Addendum: Here is Bryan Caplan's scenario, which means the bill will not work; my above post is assuming that problem is solved by raising the penalty.  I am reading long lists of why the bill is so good but few proponents are analyzing that problem. 

The Seen and the Unseen in Movies

by  Alex Tabarrok in

Loyal reader Lewis Lehe writes to ask about how economics is explained in popular media. 

Are there any films/videos/pieces of visual media that show "the unseen" well?  Films can only depict a few characters or places, so they tend to underweight benefits that are spread across large groups. Roger and Me is a fine example: we can see the devastation of Flint, but it would be difficult to see the gains from comparative advantage–i.e. returns to shareholders, slightly cheaper cars for consumers and so forth…

If there are no films that do this well, what ways could a filmmaker remedy these imbalances?

Larry Ribstein who has written extensively on economics in the movies notes:

The closest to what you're looking for in a movie speech is Larry the
Liquidator's speech (Danny De Vito) to the shareholders in Other
People's Money, in which he explains why their "dead" company should be
liquidated, despite the immediate loss of jobs, and the money put to
work creating more viable jobs.

There are films and television shows which convey the idea of the invisible hand but unfortunately they are not much about benefits.  I am thinking, for example, of The Wire, which uses character but in the final analysis is about how character is dominated by the larger forces of supply, demand, and money.  In The Wire drug dealers come and go but the drug market is forever.  The Wire also shows how money and markets connect and intertwine white and black, rich and poor, criminal and police in a grand web that none of them truly comprehends–a product of human action but not of human design. (Traffic, the movie and miniseries, shows in a similar way how drug markets connect the high and the low in both the United States and Mexico.)

It's not comforting that in some ways the best vision of how markets work comes from portrayals of the drug market but The Wire does show how a filmmaker could tell the story of the seen and the unseen and still make a successful work of art.

Rising economics departments and skills

by  Tyler Cowen in

Eric, a loyal MR reader, puts forward a request:

1) Your assessment of rising and falling economics departments (in terms of research productivity, prestige, etc)

2) Your assessment of skills/focus areas associated with success in the academic economists job market.

The big change in the former has been the rise of economics departments around the world in virtually all developed countries (though not Italy).  It's now quite easy to encounter a place you have heard of — yet never really thought of — and find they have a bunch of young faculty with articles in tier one journals.  In essence the standards are now so high in terms of skills and data sets and thoroughness that it is mainly the young and ambitious who publish in tier one journals.  Those people are found around the world.

The 44-year-old tenured Princeton economist isn't so much in the AER as in times past.  The incentive, relative to the required work, has changed dramatically.  Note also that consulting returns, or public intellectual returns, are more lucrative today than they were twenty or thirty years ago.

Empirical work usually has a shorter shelf life and top producers cash in earlier than before.  So the top six schools have a smaller intellectual edge than was once the case.  Many mid-tier U.S. schools are lower on the totem pole, or simply stuck in a thick mix of numerous global competitors, without in any way being noticeably worse but no longer having privileged third-tier positions either.

That's the big recent change as I see it.