All Oil to the People!

In an economy based on labor, leviathan government faces an inherent, albeit weak, constraint – tax and regulate too much and you will kill the goose that lays the golden eggs (or the goose will run away). But in an economy based on oil the goose can’t run away and is almost impossible to kill. As a result, natural resource based economies tend to be corrupt, war-stricken, and slow growing. After 35 years and some 350 billion dollars in oil revenues the people of Nigeria, for example, have had no increase in per-capita GNP.

Iraq is another case in point, which is why it’s crucial that we not squander the opportunity to create new institutions for getting oil wealth away from governments and into the hands of the people. Norway and Alaska distribute revenue from “stabilization funds” but these appear not to be very effective, especially in countries that begin with weak institutions. Economists Xavier Sala-i-Martin and Arvind Subramanian argue in favor of direct payments of revenues to citizens but I think Vernon Smith, our colleague and recent Nobel prize winner, offers the best approach – distribute shares, real ownership, in the oil producing lands to every citizen.

Aside from the benefits to the Iraqi’s can you imagine what a great public relations boost this would be to the United States? In one swoop, we would credibly demonstrate to the Muslim world that the war was not about our rapacity, provide for a thriving domestic economy in Iraq, and lay the foundations for a stable democracy.

How well can we measure performance?

Imagine Cass Sunstein and Richard Thaler writing a co-authored book review for The New Republic. The book is Michael Lewis’s Moneyball, which pretends to be about baseball but is in fact a profound meditation on behavioral economics, management science, and how hard it is to measure value. An obvious question: if it is so hard to measure the performance of first basemen, when there is a slew of publicly available statistics, how about the rest of the economy?

Thanks to Will Baude for the pointer.

The Dumbing Down of Safety

Under the federal No Child Left Behind Act, parents are supposed to be allowed to transfer their children from “persisently dangerous” to safer schools. But, according to this article in the NYTimes, “44 states have set the legal threshold for persistently dangerous schools so high that no schools in those states fit the definition.” Consider Locke High School in Los Angeles which in the last three years has had “33 assaults with a deadly weapon, 116 beatings, 66 robberies and 17 sex offenses.” But these crimes resulted in only 11 (!) expulsions and CA requires a school like Locke to have 30 explusions before allowing parents to transfer their kids to a safer school.

The fact that the standards qualify virtually no schools is accidental, say state officials in CA and elsewhere. Nonsense. It would be easy enough to write the standards in terms of percentages. Define any school in the top x% of schools for violence as qualifying. (We can then argue whether, for example, x should be 5, 10, or 25 percent.) A percentage standard would always qualify the worst schools even if they were pretty safe but remember that all we are talking about is giving parents the option of moving their children. Is it too much to ask that we err on the side of child safety?

Brazil accepts genetically modified foods

The decision was made by a left-wing government, read Chris Mooney for some astute commentary. I have read a few books lately on genetically modified foodstuffs, Peter Pringle’s Food, Inc. was the most balanced. I’ve yet to see a case that the potential risks come close to outweighing the potential benefits. Remember the Green Revolution in agriculture? It saved millions of lives and elevated living standards around the world.

Does Milton Friedman believe in free will?

“In a sense we are determinists and in another sense we can’t let ourselves be. But you can’t really justify free will.”

So spoke Milton Friedman in a recent interview. Read here for the full account.

I have long felt that this whole issue poses great difficulties for the merit-based argument for the market. If people don’t “deserve” the value they create, the moral case against redistribution becomes weaker.

The usually crystal-clear Friedman also says the following about luck:

“My wife and I entitled our memoirs, ‘Two Lucky People.’ Society may want to do something about luck. Indeed the whole argument for egalitarianism is to do something about luck. About saying, `Well, it’s not people’s fault that a person is born blind, it’s pure chance. Why should he suffer?’ That’s a valid sentiment.”

So what are the implications of luck for public policy?

“You’ve asked a very hard question,” he said. In part, he added, because it’s not clear that what we think of as luck really isn’t something else. “I feel,” he said, “and you do, too, I’m sure, that what some people attribute to luck is not really luck. That people are envious of others, you know, `that lucky bastard,’ when the truth of the matter is that that fellow had more ability or he worked harder. So that not all differences are attributable to luck.”

How to improve our schools

William Ouchi, the well-known management theorist and consultant, just put out Making Schools Work. His more substantive recommendations include the following:

1. The school principal is an entrepreneur and fully in charge.

2. The school, not a central office, controls its own budget.

3. Everyone is accountable for student performance and for budgets.

4. Families have school choice.

Plus all the usual rhetoric of caring about learning.

Ouchi and co-author Lydia Segal claims that these principle are found in the (successful) public school districts of Edmonton, Seattle, and Houston, plus they are used by Catholic schools in Chicago, New York, and Los Angeles, again successfully. There is some fluff in this book, but it also offers a no-nonsense account of some practical value.

Facts about Prohibition

When browsing Nathan Miller’s recent New World Coming: The 1920s and the Making of Modern America, I came across the following nuggets:

1. Prohibition was originally a popular policy.

See this link for more background:

Temperance was not, as is sometimes thought, the campaign of rural backwaters; rather, temperance was on the cutting edge of social reform and was closely allied with the antislavery and women’s rights movements. Always very popular, temperance remained the largest enduring middle-class movement of the nineteenth century (‘Leaven 1978, 1984; Tyrell 1979; Gusfield 1986; Rumbarger 1989; Blocker 1989).

2. At first Prohibition advocates did not think enforcement would be very costly. The Anti-Saloon League estimated a sum of $5 million a year, Congress provided slightly more than this to hire 1500 agents.

3. A major setback came when a federal judge rule that physicians could prescribe whiskey for medicinal purposes. By the end of Prohibition, there were 10 million such prescriptions each year.

Vernon Smith

Newsweek magazine is running a feature article on last year’s Nobel Laureate and father of experimental economics (and our colleague) Vernon Smith. The most interesting part is toward the end, when the article discusses how experimental economics is improving real world business practices, such as allowing people within a firm to bet on which ideas will prove successful.

Kissing Cousins (More)

A John Tierney article in today’s NYTimes argues that the Iraqi tradition of cousin marriage and consequent clan loyalties make it difficult to establish democracy. (See Tyler’s earlier post for a map and some other links.) Most interesting claim is that the Western taboo against cousin marriage was promoted by the church explicitly in order to reduce loyalty to the clan and promote universal love. Key quote:

Cousin marriage was once the norm throughout the world, but it became taboo in Europe after a long campaign by the Roman Catholic Church. Theologians like St. Augustine and St. Thomas argued that the practice promoted family loyalties at the expense of universal love and social harmony. Eliminating it was seen as a way to reduce clan warfare and promote loyalty to larger social institutions – like the church.

By the way, recent genetic research indicates that cousin marriage does not lead to dramatically higher abnormalities in children.

Wal-Mart Facts

Wal-Mart is the largest company in the world, measured by sales, $245 billion last year.

McKinsey estimates that one-eighth of the productivity gains of the late 1990s came from Wal-Mart.

Its $12 billion of imports from China account for a tenth of total U.S. imports from China.

It is estimated that Wal-Mart saved U.S. customers $20 billion last year.

82% percent of American households made a purchase at a Wal-Mart last year.

On the darker side, it pays lower wages and “censors” music and magazines.

And do you worry about monopoly or monopsony power? In this context I don’t, frankly, except for the cultural/censoring issue, but still it is worth noting that Wal-Mart’s U.S. market share of consumer staples could hit 50% by the end of the decade.

From Business Week , which has a long cover article, “Is Wal-Mart Too Powerful?”

Here are two more facts:

1. It is the biggest employer in 21 states, with more people in uniform than the U.S. Army

2. Every year the company loses $2 billion in theft, this “enterprise” alone would rank #694 on the Fortune 1000.

From Straybulletins.com.

Tomorrow’s bathroom?

Trying to predict future technologies is as futile as it is fascinating. I was struck by the following bit from Bruce Sterling’s Tomorrow Now: Envisioning the Next Fifty Years:

You’re not made out of digital bits – like all living things, you are made mostly out of water. So that’s where you sensibly place your high-tech investments.
You don’t have a “shower stall.” You have a standard, everyday body-imaging system that gives you complete interior and exterior health scans every morning as it washes you. Your toothbrush scans the contents of your moth and catalogs its microorganisms. Your toilet is the most sophisticated network peripheral in the home. It provides you with vital metabolic information about your body – the substances that enter and leave it and the vital processes within it. Only fools are squeamish about this.

Here is an interview with Sterling about the book, he says: “I think the scenario is 70% muddle along, 15% do really great, 15% hit the skids big time.”

Capital stock depreciation

Giorgione, one of the most significant painters of the Venetian Renaissance, is represented today by only four works we can be entirely confident are wholly his. Only ten authenticated paintings by Leonardo da Vinci are now in existence. A small fraction of Mantegna’s majestic output survives in reasonable condition. We have forty-eight paintings by Hieronymus Bosch; literary sources indicate there were once at least twice as many. Only a third of the works lovingly described by Vasari in his Lives of the Painters are now known. We have thirty-six Vermeers. He was a slow worker, to be sure, but he made his living as a painter for nearly a quarter of a century and is believed to have finished nearly a hundred.

Of course all capital depreciates. The mean service life of an office building is thirty-six years, and most components of the capital stock are not close to being this durable.

The quotation is from Art: A New History, the very latest book by public intellectual Paul Johnson.

Who is stingy?

I found this list of charitable donations per capita for a handful of countries, of course beware of cross-country measurement problems. The amounts are in Euros-per-capita.

COUNTRY…………….GIVING

Spain……………………..122
Belgium…………………..120
U.K………………………..117
Netherlands……………..110
Ireland……………………100
France……………………..74
Finland……………………..70
Austria……………………..50
Germany…………………..39
Hungary……………………32
Slovakia……………………25
Czech Republic……………25
Romania…………………….5
U.S…………………………278

My source is the excellent blog www.2blowhards.com, the post also offers some good observations on inequality, this is what a cultural critic sounds like when he is properly skeptical and appreciative of the rich at the same time.

Gamblers are financially conservative

Well, sort of. Read this:

The Roper ASW survey of 2,000 Americans finds that despite a penchant for taking risks, wagerers are relatively conservative with money at home: 61% say they always or almost always pay off their credit cards every month, compared with 52% of the general population. Saving money in a retirement plan was cited by 50% vs. 40% of the general public.

Financial conservatism also marks gamblers’ shopping habits. The typical player is a coupon clipper (56%, compared with 51% of the general population) and buys in bulk to save (47% vs. 35%). The survey’s margin of error is plus or minus 3 percentage points.

N.B.: This is a survey, not a regression controlling for the relevant variables.

And who gambles?:

The survey pegged median household income for casino gamblers at $50,716 vs. $42,228 for the population as a whole…The typical bettor? A woman. The survey finds 54% of gamblers are female. The typical gambler also is aging: 57% are older than 50. And gamblers are not the flashy card sharks portrayed on TV. Most like pulling the slots; 74% say it’s their casino favorite. Just 14% say they prefer table games like blackjack.

Here is the study of gamblers, and here is the Roper home page. The study description and quotations are from USA Today.