Public choice theory and Haiti

Why is Haiti such a mess? How might a public choice economist think about the Haitian system of government?

Before Papa Doc Duvalier, Haitian leaders were lucky to last a few years. Look at this list of constitutions. Hegel suggested that voodoo religion would not lead to political liberty; so far Haiti has not disproved this thesis. Here is a comprehensive page on Haitian history, replete with useful links.

Haitian government appears to have no “core,” to use the economist’s term for instability. Most of the population is illiterate but extremely smart and distrusting of their governments. The distrust is so strong as to become a self-fulfilling prophecy. No leader can command lasting popular support or form a stable political coalition. One alternative is to rule with complete tyranny; alternatively, you can be more moderate and govern with a shorter-term perspective. In other words, you loot the country, while telling yourself, correctly, that the people who will follow your reign will be even worse.

The Haitian voodoo gods are intransitive in their power relations, and so has been the Haitian government, at least in the absence of massive oppression or outside interference.

The Duvalier years represented a watershed in the ongoing 150-year collapse that we call Haitian politics. At first it seemed like an acceptable bargain for the elites. Accept a charismatic dictator in return for public order and protection of investments. But it turned out that Papa Doc was crazy and he waged an ongoing campaign to destroy Haitian intermediary institutions. Soon there were more Haitian nurses in Montreal than in Haiti. By the time the reign of his son Baby Doc ended in the mid-1980s, the country was in tatters.

According to one account, Haitian politics is run by about ten families, many of them of Lebanese descent. In this view no leader can challenge their commercial interests. The only question is how oppressive that leader must be to rule the country and constrain a potential coup d’etat. But I view this account as too simplistic. Haiti is not a story of “the poor get poorer, the rich get richer.” The rich get poorer too. Perhaps Haitian “social capital” is a wasting asset, and we are in an equilibrium where everyone is willing to erode it further, knowing that a downward spiral cannot be prevented. The collective result of this behavior is to hasten the corrosion of order.

Drug money has been the big story for the last fifteen to twenty years. The poverty, corruption, and coastline of Haiti make it easy prey for drug smugglers. And of course it is close to the United States. As the older wealthy families lose ground, drug money has become the dominant political force. It can be argued how directly Aristide has been linked to the drug trade. But ultimately a Haitian politician must at least acquiesce in massive drug smuggling. A leading Haitian politician with no links to the drug trade would be like a Saudi prince with no connection to oil money — in other words, don’t believe it.

The other key player, of course, is the United States government. Aristide returned because Clinton reinstalled him. Aristide left when Bush told him to get lost. The U.S. can use force, withhold foreign aid, or use proclamations to make a leader focal or not. You might recall that Aristide did not allow legitimate elections to occur, which led to a crippling freeze on foreign aid. Aristide also proved no friend of democracy. In his “defense,” probably no Haitian incumbent could have survived fair elections, which brings us back to either tyranny or ever-circulating regime, short-time horizons, and political looting. Aristide chose a mix of these options.

So let’s say I was the president of Haiti. I have to keep the leading families happy or at least on board. I have to stop the drug smugglers from killing me or mobilizing opposition. I have to acquiesce in the drug trade, recognizing that most of those around me are on the take. I have to deal with the warlords who rule the local neighborhoods. I have to keep the U.S. President happy or at least neutralize him. I have to keep the population from starving. I have no resources and no tax base. Most of my public servants live from corruption. My country has virtually no foreign investment or infrastructure. I don’t even rule or physically control most of the country. In case of a revolt, I have only a few thousand policeman to draw upon.

Get the picture?

The bottom line: Don’t expect things to get better.

A recipe for stopping crime?

The researchers expected that the number of crimes committed per person would fit a statistical distribution shaped like a bell if the criminal acts were being committed by random people in the selection: only a tiny fraction of boys would commit no crimes or lots of crimes, and most boys would fall into the average slot of committing a medium number of criminal acts.

Instead they found that that crime rates fell into a mathematical pattern called a power law, in which large deviations from average behaviour are more common. In both studies, most of the boys committed no crimes at all. In the Pittsburgh study, quite a few boys reported over 1,000 criminal acts during the study period, while the average number was just 90.

Physicists often find power-law statistics in systems with many interacting parts. This suggests that the young boys in the study are not responding randomly and independently to criminal opportunities that come their way. Instead they are probably influencing one another, presumably through strong peer pressure.

When the researchers subtracted results from the boys who had committed no crimes, they found a slightly different, better fit to a power law for the remaining subjects. This seems to indicate that people who commit no crimes are living in a different world from those who do – mathematically speaking.

The bottom line?

The best way to combat casual crime is not to search for persistent offenders but to deter people from committing their first crime…”Crime is never going to go away,” says Ormerod. But, he says, the best way to reduce it is to stem the flow of individuals into the criminal population.

Here is one summary. Here is the original research.

Punctuality

In the U.S. being on time is the rule. In other places, such as Latin America punctuality is rare. Why? Social psychologists have ascribed the differences to deep cultural facts, religion, and “national personalities.” One theory, for example, has it that the changing of the seasons in more northern latitudes induces a greater respect for time – plant a little late or early and frost will wipe out your crop.

In Punctuality: A Cultural Trait as Equilibrium game theorists Kaushik Basu and Jorgen Weibull make a simple but important point. If I think you are going to be late then it’s costly for me to be on time so I will choose to be late. But if I choose to be late then it makes sense for you to choose to be late also. Indeed, if I think that you think that I might be late then I will be late! In other words, lateness is a Nash equilibrium of a game. Punctuality is also an equilibrium. If you are going to be on time it make sense for me to be on time also (especially if you can punish me for not being on time.) Which equilibrium is played can be as arbitrary as the forces that determine which side of the road we drive on. Basu and Weibull write:

A social scientist who neglects the strategic aspect may be tempted to believe that if two societies exhibit sharply different behaviors, then they must have innate differences, such as different preferences or different religious outlooks on life or different genes. What we have just seen is that none of this is necessary. Some of the ‘cultural’ differences that we observe across societies could simply be manifestations of different equilibria in otherwise identical societies.

If the theory is correct then it should be possible, with a one-time push, to change an entire people from tardy to punctual virtually overnight in much the same way that Sweden switched to driving on the right-hand side of the road (precisely at 5am, by the way, on Sunday morning, September 3, 1967).

The theory is currently being tested in Ecuador, a country where, according to some estimates, habitual lateness costs 4.3 percent of GDP! Thus a national campaign is aiming to change the equilibrium.

Hundreds of institutions ranging from local councils to airlines have signed up to a promise to keep to time. Stragglers are barred from entering meetings. Hotel-style door signs have appeared in offices and schools. On one side, they say “Come in: You’re on time” and on the other “Do not enter: the meeting began on time.” A local newspaper is publishing a daily list of public officials who turn up late to events.

In related news, physicists are now measuring time in attoseconds, one quintillionth (10E-18) of a second.

Measuring globalization

Foreign Policy magazine has just published its globalization index. The top five?

1. Ireland
2. Switzerland
3. Netherlands
4. Finland
5. Canada

The losers include Indonesia, Egypt, India (outsourcing has not taken over the country), and Iran. The index includes factors of economic integration, personal contact, technology, and political engagement. The link includes the full data plus a detailed discussion of how the index was constructed.

Check out this graph, levels of globalization vs. life expectancy. Globalization vs. religious participation is harder to read but interesting nonetheless.

My favorite is levels of globalization vs. women’s well-being, take a guess which way it goes. This graph should be enshrined in the undergraduate curriculum of every major university.

Let’s spend more on health care?

That’s what David Cutler argues in his recent book Your Money or Your Life.

Cutler believes that our expenditures on health care have more than justified their cost. He therefore opposes the traditional recipe of “cut costs and use the savings to finance greater access.” His attitude is closer to “expand care now and improve the quality of outcomes.” If you think that more discretionary spending doesn’t make many people much happier, why not make them healthier and longer-lived instead?

As I read the book, Cutler is pushing two major ideas:

1. Subsidize insurance to ease the problems of the forty million uninsured. But he repeats the usual numbers, without convincing me that the problem is as bad as it sounds.

2. Pay for health care results, rather than rewarding expenditures per se. In other words, give doctors and hospitals bonuses for actually making patients better.

A loyal reader of MR should not be surprised to read that Robin Hanson had the idea first. Read his intriguing essay at the link. In Robin’s vision you buy your medical care from an institution that contracts with a third party to pay penalties, or receive bonuses, depending on your longevity, disability, et.c — whatever can be measured. I can imagine such incentive schemes working in the decentralized private sector, especially after much trial and error experimentation. (Note the potential adverse selection problem: you don’t want providers to have an incentive to shun hard-to-improve cases.) It is much harder to see federal or even state governments getting the incentives right, and having the political capital to see the correct decisions through.

The bottom line? Cutler is obviously a smart guy but overall I found the book underargued. I like his optimistic, can-do attitude, but I don’t trust it in the hands of politicians.

The economics of low-cost carriers

The nation’s low-cost carriers are profitable even as the venerable “legacy” airlines barely tread water. How can they make money while offering fares that are 40 to 70 percent lower? The reasons are many — cost of labor is a big one — but here are 10 major differences between the cheeky upstarts and the big boys.

The list runs as follows:

1. Low cost carriers generally serve cities of 1.3 million or greater.

2. Southwest has 84.6 employees per aircraft, United has 116.

3. JetBlue sells 2 percent of its tickets through travel agents, US Airways sells 61 percent through agents.

4. The low-cost carriers have more point-to-point flights. 40 percent of American passengers have connecting flights, it is only 10 percent for Southwest. Connecting passengers cost more money to serve.

5. Low-cost carriers generally avoid costly foreign flights.

6. A Delta captain earns $215,000 a year, an AirTran captain earns $135,000.

7. The low-cost airlines have cheaper pension plans.

8. Southwest, JetBlue, and AirTran have no downtown ticket offices. US Airways has 13.

9. US Airways pays its telephone reservation agents $21 an hour. JetBlue pays them $8.25 an hour and has them work from home, saving on office costs.

10. JetBlue flies one kind of plane, Delta flies 16 different kinds of aircraft.

Here is the full story. Obviously many of these cost savings can cut into long-run profitability, but that is how the low-cost airlines have penetrated the market.

If air genius Gary Leff offers commentary, I’ll write an addendum.

Addendum: Here’s Gary, he says “It’s the labor costs, stupid”.

Irrational gloom, or Alex cheers me up

Alex remains worried about our future, but let us look more closely at his concerns. His biggest fear is our future demographic structure:

…the Bush policies are not the major problem. The major problem is that we are about to be hit by a tidal wave of old people (contra Tyler demographics are the problem not the solution).

Hey, I hope to be part of that wave, the problem will be if I am not!

Let’s redo Alex’s doctor example. In my version, the doctor suddenly tells Alex that he will live to the ripe old age of two hundred, most of those years in reasonable health. This is reason to celebrate, even though Alex would have to restructure his retirement plans. Something like this, albeit in less extreme form, is going on in America: a large baby boom cohort can be expected to live to older ages. Bravo, I say. Count up those extra years, including the implicit value of leisure, at their full economic value, and our “intergenerational accounts” will look much better. Note also that the elderly have a higher quality of life than ever before, for reasons ranging from cheap eye surgery to bypass operations to new drugs.

Two other issues:

First, contrary to what Alex suggests, “g>r” would solve the problem. Growing debt, which is a transfer, doesn’t change the fact that the intertemporal budget constraint has melted away, provided we can shift real resources into the present (if you’re not an economics nerd, the point would take too long to explain in non-technical language, read the link if you must).

Second, I am not convinced that Alex has put his money where his mouth is. He is conspicuously silent about whether he has gone short in bonds. Plus I bet he would have taken a tenured professorship, bought a house, and bought an internationally diversified portfolio anyway, I certainly did all of these and I am an optimist.

The bottom line? A growing population, combined with a bulge of old people, requires planning wisdom and creates some costly expenditure pressures. But overall longer lives are cause for rejoicing, not our economic doom. Love and time are what we are ultimately seeking to economize, and longer lives contribute toward both ends.

My Haitian fears confirmed

While many in the crowds greeting the rebels appeared joyous, they were also raucous. Early in the afternoon, Mr. Philippe appeared on the balcony of the former headquarters of the Haitian Army, which sits adjacent to the palace and was renovated into a museum in honor of Haiti’s 2004 bicentennial. He flashed victory signs to the crowd.

A moment after he stepped away, a soldier began tossing art from the museum into the street, beginning with a sculpture of a casket with a figurine inside. It shattered as it hit the ground and the crowd roared. More paintings followed, and someone set the pile of art aflame.

Inorel Delbrun, an art collector who had come hoping to catch a glimpse of the rebel leader, was horrified.

“This is Haitian art,” Mr. Delbrun said. “It hurts to see it destroyed. This is our culture.”

Here is the New York Times story, with a few photos. Here is my previous worry.

Now here’s rational gloom.

Rational gloom

Tyler is not as pessimistic as I am (see my earlier posts here and here) regarding our long-term budget problems. Unfortunately, he should be. Consider Tyler’s most gut-level response:

The United States remains a strong and prosperous country. Our infrastructure, national culture of innovation, human capital, and economic dynamism are unparalleled in world history.

Of course. Who would deny this? The problem is that the budget projections of Kotlikoff et al. already take these factors into account. Their projections assume that the economy will continue to grow, they assume that a nuclear weapon will not go off in Washington, they assume that we will not become bogged down at increasing expense in the Middle East for the next 50 years etc.

A doctor tells a man that he has just 6 months to live. The man replies but doctor I’m only 25, I’m in great shape and I’ve never been seriously sick before. Yes, the doctor says that’s why I gave you 6 months.

Tyler’s next comment reveals a misunderstanding. He says, “The Bush fiscal policies, whatever their irresponsibilities, costs, and drawbacks, haven’t changed those core facts.” But the Bush policies are not the major problem. The major problem is that we are about to be hit by a tidal wave of old people (contra Tyler demographics are the problem not the solution). The baby boom generation, born beginning in 1946, will begin to retire in 2008 and as they do so the demands on social security and Medicare are going to explode. By 2030 there will be 18.2 million people in the United States 85 years of age and older! In 2000, the 65 years and older crowd made up 12.4 percent of the population. By 2030 they will be 19.4 percent of the population.

Critically, combine baby boomers with rising life-expectancy and declining fertility and we have that by 2030 there will be only 2 workers per retiree (down from 16.5 workers per retiree in 1950).

Comparing today’s US budget deficit with that of Brazil or any other country misses the point. It’s the present value calculation over the future that is important. Put simply: Kotlikoff is applying Milton Friedman’s permanent income hypothesis to government accounting. (Kotlikoff is to Stone as Friedman is to Keynes).

Tyler’s most technical point, that g may be greater than r, also misses the mark. If g is greater than r then we can continually roll over our debt and eventually grow our way out of it. But this calculation is only relevant for a fixed debt – the problem is that our debt is rising very rapidly. If the debt were to stand still we could pay it but it ain’t standing still.

Tyler challenges me to put my money where my mouth is. In fact, I have. First, I got a job as a tenured professor! Second, I borrowed a lot of money at the lowest interest rate I expect to see in my lifetime and bought housing. The key problem in the future is going to be inflation and rising tax rates so you want to borrow at a fixed rate and put your wealth in hard to tax assets (Tyler, art may be an even better investment! You can always take it with you over the border.) I also own an internationally diversified portfolio (yes, even some in Brazil).

No, I’m not yet stocking up on cans of spam. We could get lucky. Kotlikoff could be wrong. The obvious facts of demography make me think that he is right enough, however, to warrant taking serious actions now rather than later. But like Kotlikoff, I don’t think our political system is ready.

New trends in self-publishing

Why not go with Borders, the people who sell you the books?

“It’s easy to publish your own book!” the “Borders Personal Publishing” leaflets proclaim. Pay $4.99. Take home a kit. Send in your manuscript and $199. A month or so later, presto. Ten paperback copies of your novel, memoir or cookbook arrive.

Fork over $499, and you can get the upscale “Professional Publication” option. Your book gets an International Standard Book Number, publishing’s equivalent of an ID number and is made available on Borders.com, and the Philadelphia store makes space on its shelves for five copies.

Borders is the latest traditional bookseller or publisher to branch into self-publishing using print-on-demand or P.O.D. technology. P.O.D., inheritor of the vanity press and survivor of the dot-com implosion, makes it feasible – technologically and economically – to produce one copy of a book.

Unlike e-books, which also appeared in the late 1990’s, P.O.D. self-publishing has developed into a real business, attracting involvement from the likes of Random House, Barnes & Noble and now Borders.

Forty percent of all self-published books are sold to the authors, and most of the other sixty percent are sold on-line. One company, iUniverse, has 17,000 published titles. 84 have sold more than 500 copies, and a half dozen have made it to Barnes and Noble shelves. But then again, traditional vanity presses charge you at least 8 to 10K to publish a book, with no guarantees.

Here is the full story. As Clay Shirky notes, the world is moving from the paradigm of “first filter, than publish” to “first publish, then filter.”

But does self-publishing have a bright future? Yes and no. Soon self-publishing won’t be worse than going with a mediocre press. The value of the very best certifiers will go up (in the academic market this is Harvard, Princeton, Chicago, and MIT presses, for a start), if only because the proliferation of writing makes their sorting function more important. At the same time the relative value of the middling certifiers will fall. It will become apparent they don’t offer a better product than writers operating on their own. At some point you have to ask whether the press is lending reputation to the author, or vice versa.

By the way, here is one self-published memoir which I love, the author Thelma Klein was the mother of well-known economist Daniel Klein. Yes they still have copies if you want to buy one, and they only cost a few dollars.

Can suicide be rational?

Carolyn G. Heilbrun’s suicide this past October could not have come as a great surprise to her family and friends. After all, the 77-year-old former Columbia University literature professor and mystery author [pen name Amanda Cross] had written for years about her plans to kill herself.

Heilbrun was suffering from none of the conditions commonly associated with suicide when she evidently took an overdose of pills and put a plastic bag over her head. She was neither terminally ill, in severe pain nor, apparently, depressed. Instead, she committed what some have called “rational suicide” — ending one’s life out of a conviction that one has lived long enough, that the likely future holds more pain than joy.

Rational suicide, a coinage dating back nearly a century, has also been called balance-sheet suicide, suggesting that sane individuals can objectively weigh the pros and cons of continued life, and then decide in favor of death.

Read the whole story. (You will note that The Washington Post has new registration procedures, it takes no more than a minute, and we link to them frequently, you are encouraged to register.) Or sometimes you may attempt suicide to get more attention and resources from other people.

I am a skeptic, and unlike many economists I am willing to point The Finger of Irrationality. Consider the following:

Heilbrun’s decision [is] such a disturbing one, says suicide expert John L. McIntosh, chairman of the psychology department at Indiana University South Bend. Even someone making what appears to be a thoroughly rational case for suicide, McIntosh says, can be suffering from depression or cognitive rigidity, an unwillingness to consider other options. Health professionals, he stresses, should be diagnosing and then treating such individuals.

So what happened?

Heilbrun…had been especially open about her plans. In her 1997 book, “The Last Gift of Time,” she described life after age 70 as “dangerous, lest we live past both the right point and our chance to die.”

Two concerns that Heilbrun mentioned were her “inevitable decline” and becoming a burden on others. Her motto, she said, was, “Quit while you’re ahead.” But though she was then 71 years old, Heilbrun chose not to act — not yet. Her sixties, to her surprise, had been a source of astonishing pleasure. She wanted to keep writing, enjoy her family and friends, spend time in a new home and keep certain “promises.”

In the July 2003 issue of the Women’s Review of Books, however, Heilbrun wrote that she feared “living with certainty that there was no further work demanding to be done.” She had consented to life, she stated, “only on the terms of borrowed time.”

On Oct. 9, 2003, Heilbrun was found dead in her New York apartment, having committed suicide. A nearby note read “The journey is over. Love to all.”

My take: I plan on hanging on until the bitter end. Perhaps that is why I cannot so easily imagine a rational suicide, apart from cases of extreme pain and terminal illness.

The baby boomers take over music

For the first time, people in their 40s are buying more albums than teenagers. According to recent figures from the British Phonographic Industry (BPI), the 12-to-19 age group accounted for 16.4% of album sales in 2002, a sharp fall on 2000 (22.1%), while 40- to-49-year-olds went the other way, rising from 16.5% to 19.1%. Buyers in their 50s (14.3%) are not far behind. Soon, half of albums will be bought by people who have passed their 40th birthday.

That’s Britain, of course. Here is the full story. America is not yet at this point, but a mix of demographics and downloading has changed our music market as well. So expect more stars like Norah Jones and more Paul Simon reissues.

And does this line make you feel old?

The term “adult oriented rock”, meaning the Eagles if you were lucky and Boston if you weren’t, was common currency 30 years ago.

In the U.S. last year, the biggest musical earners were The Rolling Stones and the Eagles, largely through touring. Paul McCartney was next in line, I shelled out over $100 to see him lip synch through the high notes of “Maybe I’m Amazed.”

Economic freedom in North America

The Fraser Institute has just put out its Economic Freedom of North America, 2004 report, here is the full and lengthy text, including all the data.

And how do the freedom rankings look? If you look at all sources of government intervention, the winners are:

1. Delaware
2. Colorado
3. Georgia
4. Nevada
5. New Hampshire

Louisiana comes in seventh, Alberta comes in ninth. Here is a short piece on enterprise culture in Alberta, here is a press release on possible declines in economic freedom in Alberta.

The eight biggest losers are all Canadian provinces, with Prince Edward Island as the least free. Here is a bureaucratic report on their current economic situation. Here is a summary of other Canadian results, including a recent upward freedom trend in Canada as a whole.

As for the States, West Virginia comes in last; for the full list go the linked report. If you look only at “sub-national” freedom (state-level regulations but not federal impacts), Colorado moves into first place, most of the other results do not change very much.

Economic freedom and prosperity are strongly correlated (Louisiana is an outlier), although the direction of causality of course can be debated. Here is a link to other Fraser data sources.