Should we worry about Mexican remittances?
Our trade deficit has reached a record high, and Mexicans are sending billions of dollars home to their poorer relatives. Is this a problem?
Most importantly, poverty in Mexico declines. Many recipients earn no more than a dollar or two a day. As for America, sending the funds does not damage the U.S. economy. For purposes of comparison, let’s say that Mexicans came to this country, worked to earn money, and then burned the dollar bills. Would this “trade deficit” hurt us? No. Wiring funds to Mexico has similar effects. If the dollars don’t come back, it is as if they have been burned. We have earned seigniorage by trading paper for goods. If the dollars do come back, someone is investing in the U.S. or buying exports.
The level of remittances does mean that we should be less worried about the trade deficit. Think of the remittance as redistributing wealth within Mexico, but without costing the United States real resources.
To some extent our trade deficit may reflect an inadequately low rate of saving. But wiring money abroad is not the central cause of low savings. First, migrant workers often contribute to our capital stock. Second, sending the money to Mexico is probably a substitute for spending it (most senders of remittances are themselves relatively poor, and thus have lower savings rates). So when these people “burn” their money by sending it abroad, they are lowering the real quantity of American resources devoted to consumption. Let’s not confuse sending money with sending real resources.
Read Econopundit for a more negative spin. Randall Parker inclines negatively on remittances as well. I often agree with Randall, but on this issue I am ready to send away…
How to read difficult books
Yes, today is the hundredth anniversary of “Bloomsday,” June 16, 1904, the day on which the adventures of Leopold Bloom (Ulysses) start. The book, long a favorite of mine, is not nearly as difficult as it is sometimes thought to be.
Here are a few tips for reading otherwise difficult works of fiction:
1. Try reading the last chapter first. Don’t obsess over the sequential.
2. Read through the first time, following each voice or character, skipping passages as you need to. Then reread the book as a whole in order. This works especially well for Faulkner.
3. Try reading the first fifty pages three times in a row before proceeding.
4. Don’t be afraid to skip over material and return to it later. This is necessary for the first fifty pages of Nostromo.
5. Read through without stopping, and then try the book again, but with some idea of where things are headed.
6. Read some of the secondary literature first. I don’t like CliffNotes, but in general don’t be afraid to go low when looking for help.
7. Read the book out loud to yourself or to others.
8. Simply give up.
I’ve found that some combination of these tricks almost always works.
By the way, here are some recent writings on Ulysses and the centenary.
New economics blog
It is called CornerSolution.com, and it is written by graduate students from my own GMU. Alex and I have even taught a few of these people, maybe you can guess which ones…
The Poles praise Ronald Reagan
The passing of Ronald Reagan was a major event in Poland. It was prominent in the newspapers and in conversation. Lech Walesa recently wrote:
I often wondered why Ronald Reagan did this, taking the risks he did, in supporting us at Solidarity, as well as dissident movements in other countries behind the Iron Curtain, while pushing a defense buildup that pushed the Soviet economy over the brink. Let’s remember that it was a time of recession in the U.S. and a time when the American public was more interested in their own domestic affairs. It took a leader with a vision to convince them that there are greater things worth fighting for. Did he seek any profit in such a policy? Though our freedom movements were in line with the foreign policy of the United States, I doubt it.
Noble sentiments, and I agree. Note that Reagan was far more popular in Poland than here in the United States. Read some horrific criticisms of Reagan.
The irony is that Lech Walesa, author of these words, remains far more popular in the United States than in his native Poland. Taxi drivers told us that the Poles “hated” Walesa, even though we regard him as a hero for world freedom.
Walesa ran for office, and was elected President of Poland in 1990 with 74 percent of the vote. He lost narrowly when he ran again in 1995 (Reagan at least beat Mondale!). When Walesa ran for President in 2000, he received less than one percent of the vote. (Reagan, in contrast, if he could run again today, would win in a landslide.)
Walesa spoke too plainly, promised too much, and maintained unpopular prohibitions against abortion. But when the sad day comes that Walesa passes away, we Americans will stand ready with our unstinting praise.
Thanks to co-blogger Alex for the pointer.
Weak arguments against privatization
Italy is planning to privatize many of its historic museums and buildings:
A portmanteau law affecting all aspects of the Italian artistic, built and environmental heritage was enacted last month. It is the product of three political tendencies. The first dates back to the late 1990s, when a Socialist government wanted to allow the private sector to become involved in a part of Italian life that for 50 years had been dominated by the State, in order to bring greater efficiency and better services to it. The second is the partial devolution of power to regional and local government as result of the electoral reforms of the 1990s, and the third proceeds from a 2001 Finance Act of the current, right wing government that aimed to raise money by the sale of public assets, including historic buildings and State-owned land.
This is a difficult policy issue, as national heritage can be a genuine public good. But the major argument being used against these privatizations is hardly convincing:
The proposal to sell State-owned buildings has been contentious, largely because the State does not know in detail what it owns [emphasis added], and the architectural protection lobbies are afraid that masterpieces may be sold to unsuitable owners.
Here is the full story.
Rebellion against newspaper registration?
If you read blogs, you sometimes get frustrated when the links lead you to newspaper registration. Even if you don’t have to subscribe or pay money, you are asked to provide personal information, such as age, gender, zip code, and perhaps even hobbies. Newspapers have moved increasingly to registration over the last year, read more here.
Not surprisingly, consumers are striking back. Many write in false names, ages, and email addresses. BugMeNot.com allows readers to bypass registration procedures for most of the major paper sites. In essence they have already registered for you. Just insert the web address you want and you arrive there immediately.
I’m not endorsing this practice, and I haven’t a clue about its legal status. The economics are easier to predict. To the extent that people can bypass registration, newspapers will cut back on their free web offerings. So, whether you like it or not, you are contributing to a public good when you register dutifully.
We bloggers stand on the other side of this equation. I subscribe to USA Today, and link to it frequently, in part because of its on-line archive. It requires no registration and the archives remain available, free of charge. Unfortunately I am not the marginal consumer in this market.
I’ve wondered why hackers don’t reproduce the major newspaper sites, such as New York Times, or The Wall Street Journal, and offer them to the public free of charge. Why can’t you use Kazaa to read these papers, whether or not you have paid for a subscription?
Markets in everything: outsourcing prayer
With Roman Catholic clergy in short supply in the United States, Indian priests are picking up some of their work, saying Mass for special intentions, in a sacred if unusual version of outsourcing.
American, as well as Canadian and European churches, are sending Mass intentions, or requests for services like those to remember deceased relatives and thanksgiving prayers, to clergy in India.
Here is some more detail:
In Kerala, a state on the southwestern coast with one of the largest concentrations of Christians in India, churches often receive intentions from overseas. The Masses are conducted in Malayalam, the native language. The intention – often a prayer for the repose of the soul of a deceased relative, or for a sick family member, thanksgiving for a favor received, or a prayer offering for a newborn – is announced at Mass.
The requests are mostly routed to Kerala’s churches through the Vatican, the bishops or through religious bodies. Rarely, prayer requests come directly to individual priests.
While most requests are made via mail or personally through traveling clergymen, a significant number arrive via e-mail, a sign that technology is expediting this practice.
In Kerala’s churches, memorial and thanksgiving prayers conducted for local residents are said for a donation of 40 rupees (90 cents), whereas a prayer request from the United States typically comes with $5, the Indian priests say.
Bishop Sebastian Adayanthrath, the auxiliary bishop of the Ernakulam-Angamaly diocese in Cochin, a port town in Kerala, said his diocese received an average of 350 Mass intentions a month from overseas. Most were passed to needy priests.
In Kerala, where priests earn $45 a month, the money is a welcome supplement, Bishop Adayanthrath said.
Here is the full story, from The New York Times.
Thanks to the ever-wise David Nishimura for the pointer.
Addendum: We are also told that “unit of account equivalence” holds:
The Rev. Paul Thelakkat, a Cochin-based spokesman for the Synod of Bishops of the Syro-Malabar Church, said, “The prayer is heartfelt, and every prayer is treated as the same whether it is paid for in dollars, euros or in rupees.”
Does marriage raise male income?
It has long been common wisdom that men who marry will work harder, save more, and accumulate more wealth. This has been called the “marriage premium.” However recent research suggests that this picture is incomplete.
Married men do earn more, but often their wives proceed to take lower-paying jobs. Aggregate family income is much less likely to go up:
[Audrey] Light analyzed data collected from 12,686 men and women born between 1957 and 1964 and interviewed more or less annually between 1979 and 2000. By tracking changes in their marital status and living arrangements and matching those to changes in earnings, she was able to examine the effect of marriage and cohabitation on the overall financial status of a household, and not merely on men’s earnings.
When she did that and factored in family size, Light found that the bump up in men’s pay due to the marriage premium was easily matched by increased family spending and a drop in their wives’ earnings. The more modest financial advantage of cohabitation also disappeared. “Single men have the same total family income [per family member], regardless of whether they are single, cohabiting or married,” she wrote, adding that “marriage and cohabitation confer sizable — and identical — financial benefits on women while men break even upon entering either type of union.”
Here is a short home page for the researcher. Here is the original research.
Weekend moviegoing
I saw Hitchcock’s Vertigo yesterday, for about the sixth time in my life. I had forgotten how perverse it is, how much the theme of male impotence and voyeurism runs throughout the movie, how deeply sadistic Jimmy Stewart becomes, and how much the movie flirts with the theme of doubles (compare Scotty and Kirby, for instance, or think about Scotty’s ex-beau). I’ve been watching “Japanese extreme” cinema lately, films such as Audition, which have to be seen to be believed. Vertigo is at least as sick as any of those. Vertigo also has the most successful integration of cinematography and musical score that I’ve seen. Watch it again if you can, especially if it is shown on a big screen.
Facts about pets
1. There are 65 million dogs in the US and 77 million cats.
2. Seventy-six million households own a pet (roughly 3 in 4).
3. We will spend $34 billion on pets in 2004 (up from $17 billion in 1994): $1.6 b. on the pets themselves, $14 b. for food, and $8 b. for veterinarian care.
4. There are slightly more male dogs than female dogs and slightly more female cats than male cats. This suggests that we honor the cultural notion that dogs are “male” and cats as “female.” What happens to the animals that do not fit this gender profiling? You don’t want to know.
5. Some owners of Vietnamese Pot-bellied pigs found their new pets too aggressive, and they did something surprising. They took them to a slaughter house. Then they did something really surprising. “In some cases, the owners took the meat from their pigs home, which certainly goes against our traditional thinking about what we do with our pets.”
6. …more than 60 percent of cat and dog owners include news about their pets in their holiday greetings, 27 percent take their pets along for family photographs and pictures with Santa, and 79 percent give their pets holiday or birthday presents.
7. “89 percent of pet owners believe that their pet understands all or some of what they say.” [Read here for more.]
These are all quotations from the ever-excellent Grant McCracken. Grant concludes:
We have taken our peculiar idea of the person and conferred it on our pets. This is an exceedingly odd and interesting transformational exercise. After all, these animals are by human standards deeply stupid. When we treat them as persons, we engage in an astonishing act of metamorphsis. But implausibility does not discourage us. We are a nation of individuals and we have decided that our pets are going to be individuals, too.
Grant is an anthropologist who writes about the boundaries of anthropology, culture and economics. For something slightly more prurient by him, (but still PG-13), read his post on the economics of the bare mid-riff.
Has Bush cut back government bureaucracy?
The following table lists how many of the major agencies or departments had their budgets cut in a given Presidential term:
President and Term, Number of Budget Cuts [see the last link in this post for further explanation of the data. I’ve done minor editing and added the boldface]
Johnson, 4 out 15
Nixon, 3 out 15
Carter, 5 out 15
Reagan 1, 8 out 15
Reagan 2, 10 out 15
Bush, George H., 2 out 15
Clinton 1, 9 out 15
Clinton 2, 0 out 15
Bush, George W., 0 out 15
Obviously Reagan II made real efforts in this direction. George W. comes in tied for last with Clinton II. This is a highly imperfect proxy, but when you are 0 for 15 it is hard to blame measurement error alone.
Here is one unnoticed achievement of Ronald Reagan:
President Reagan is the only president to have cut the budget of the Department of Housing and Urban Development in one of his terms (a total of 40.1 percent during his second term).
Here is the full and sad story on Bush’s fiscal policy for the agencies and departments. Here are the underlying data.
Department of Uh-Oh
Has the Riemann hypothesis in fact been solved?
A French mathematician is claiming to have solved a fiendishly difficult problem, upon which rides a million dollars of prize money. But other mathematicians are sceptical that he has really done it.
On Tuesday, Louis de Branges de Bourcia, a professor of mathematics at Purdue University in Indiana, issued a press release claiming that he has proved the Riemann hypothesis is true.
This proof is perhaps the most tantalising goal in mathematics today. If true, it tells us that prime numbers, which are those exactly divisible only by one and themselves, are scattered utterly randomly along the number line. If not, then mathematicians may be able to predict where the prime numbers fall.
For almost 150 years, mathematicians have been struggling to establish whether or not the Riemann hypothesis holds. And de Branges has claimed to have solved the problem before, only for others to later find flaws in his work.
“For the past 15 years he has been periodically announcing a proof and posting preprints” says Jeffrey Lagarias, a mathematician at AT&T Labs in New Jersey, who has followed de Branges’ work.
Here is the full story.
Gas prices and the demand for new cars
Yesterday, I test drove a Toyota Prius, the high-tech gas-electric vehicle that gets up to 60 mpg. After the test drive, the salesperson told me that demand was so high there was a 6 month wait.
Can art trusts work?
One reader wrote me the following:
…artists who put works into the pool are depositing them at full value, tax free, right? If they instead sold these works, they’d lose 50% to a gallery and then another 50% (the marginal tax rate of any minimally successful self-employed person, even me) to Uncle Sam etc. In other words, if they sold art and invested the cash they’d only have 25 cents on the dollar to put into stocks and bonds. The question is whether any money manager could overcome this enormous handicap.
Besides, most artists tend to have more works than they can sell into such an inefficient market. For this and the reasons above, the cost of contributing to this fund may be close to zero for all but the most wildly successful participants.
What does it cost to set an art work aside?
Let’s say that the art trust can store the work at the same cost as a gallery. Then the artist already has done all the storing that he or she wants to do. Storing more works, all other things equal, is a cost rather than a benefit. And tax must be paid once the works are sold, in any case. Furthermore, when it comes time to sell the works and get the best price possible, the trust is no more effective than a gallery, and arguably less so. In fact the trust might resort to a gallery or auction house in any case, simply postponing the selling costs.
Perhaps the artist has pictures that he cannot sell at all. Why not put them into the trust? Fair enough, but if no gallery will take these pictures, how can the trust make them profitable?
The deal makes the most sense when an artist currently has an exclusive dealing agreement with a gallery. Such an artist might prefer to siphon off works to other channels, as a form of price discrimination, but is not allowed to. The sponsoring gallery does not want its market to be ruined. The trust might allow the artist to achieve market segmentation without it being labeled as such.
Nonetheless the artist pays a price for this new outlet. You have to accept a risk position in the pictures of others. Furthermore this price discrimination motive suggests that each artist will be putting his lesser pictures into the trust. You don’t want to “shade price” on your very finest pictures.
Another reader wrote:
I’m not persuaded that the art trust wouldn’t be an effective model. It doesn’t seem a lot different than the risk dilution idea of a blackjack team or the cross-trading that goes on between friends in a large poker tournament.
Again, a very good point. But you wish to share risk in this fashion when you know that you (and your team) can beat the market. In this case you are confident but want protection against bad luck. If you felt that the artists in the pool were all above-average, relative to their current prices, you might find the trust attractive. This would require each artist to judge the other artworks in the pool, which involves high information costs.
Perhaps the trust helps solve a “durable goods monopolist game.” That is, the artist wishes to precommit not to sell works in the near future. Buyers may be afraid that if they buy today, the price will be lower tomorrow. Perhaps the trust can take works off the market more effectively than a gallery can. This would provide some argument for the trust. But of course the artist must also prove to buyers that he has locked up his future output to the requisite degree; this may prove difficult.
A final issue is one of trust in the intermediary. Life insurance, or savings banks (pre-deposit insurance), promise to pay you back in a distant future. Virtually all depositors or policyholders have preferred large, solid institutions with high levels of capitalization. Older banks had fancy columns to signal they will be around for the long run. Otherwise there is simply too much risk that a small intermediary will go under. If you are “lending” a painting to an artistic venture, why not look for the most conservative and thickly capitalized institution possible?
In closing, I will repeat my bottom line from my previous post on the topic:
…decompose the transaction. Half of your income stream remains tied up in your own art and thus risky, minus the twenty percent of course. With the other half of your pension you decide to invest in not-yet-totally-famous artists. Would anyone recommend such purchases on their own merits? Is that your idea of insurance?
That being said, it is the market, not I, who will have the final word in this matter.
The future of Europe?
Every time I go to Europe I wonder what kind of future the place has:
1. The average American consumes 77 percent more than the average citizen of EU-15, read here.
2. Germany has recently failed in its attempt to reform the country’s antiquated store closing laws. German shops, with some exceptions, cannot stay open later than eight at night or on Sundays or major holidays. The German public strongly opposes these laws, but the small shop lobby dominates.
3. A recent survey in France suggests that 70 percent of French schoolchildren aspire to become bureaucrats rather than captains of industry. (See the IHT, June 9, “Divided We Graumble,” by Roger Cohen, p.2.)
4. The beauty of European cities typically stems from 1920 or earlier, when much of Europe was economically freer than the United States. How would U.S./Europe comparisons feel to us if all of Europe had been built after the second World War? How many people would then think that the “European way of life” is superior.
5. Guido Tabellini (FT, June 3) tells us that Europeans consume more leisure because they find it harder to get good jobs, not because of a cultural preference for the finer things in life.
6. The major European economies face serious demographic problems and have a hard time pushing much above a one percent growth rate. Americans call it a recession when our rate of growth falls to a mere two percent.
Hey, wait a minute:
American investment in the European Union is at an all-time high. So how bad can things be?
This is what makes economics an interesting science. My best guess is that it is easier than ever before to free-ride on the productivity and ingenuity of your neighbors. This is a great benefit of globalization, but it also makes it too easy for economies to postpone needed reforms.
That being said, here are further grounds for hope.