Vernon Smith on Iraq
Our colleague, Vernon Smith writes in today’s Wall Street Journal about privatizing the Iraqi economy, based in part on an idea pioneered in Alaska. See also my earlier post on why oil has been a curse to the discovering countries. Here are some key quotes:
For long-term success, the enormous task of nation rebuilding in Iraq requires attention to more than the creation of a political democracy. No matter how well-intentioned and democratic it might be, the next government will be tempted to corruption, violation of rights and expanded political power if it owns and controls the great economic wealth potential of Iraq. This is the time, and Iraq is the place, to create an economic system embracing the revolutionary principle that public assets belong directly to the public …
In Iraq, the rights in question are to the former government’s producing properties, transportation, terminal facilities, waterways, land and subsurface rights. These assets should first be declared transferred to the account of the citizens, recognizing the birthright of each citizen to a personal, empowering property right in the land and assets of the country of their birth. All citizens should have an equal share in this fund and be issued the same number of share claims to the fund.
Over a period of several decades, all Iraqi assets should be auctioned to the highest bidders in an individual, national and international business competition so that each asset or bundle of complimentary assets is transferred to the bidders who value them most for production, development or exploration. The auction could begin by selling existing producing oil properties, refineries, pipelines, and gathering, separating and terminal facilities over the next several years, then move to mineral, oil and gas exploration leases, and to land surface rights.
The proceeds would be deposited in a giant mutual fund for investment in index securities of the world’s stock markets and monitored — but not managed — by the U.N. Investing in stock indexes would minimize the need for discretionary financial management, and the prospect of the next government exercising or re-establishing any central control over Iraqi assets. The Iraqi Fund should be a closed-end fund whose shares are tradable and listed on world stock exchanges. The proceeds of each new property auction would be deposited to the account for investment in index funds. Redemptions at market value would go to any Iraqi citizen who elects at any time to cash out any portion of his shares.
There is a very important precedent, in part, for this action — the Alaska Permanent Fund. The state of Alaska elected to put a portion of its vast Prudhoe Bay annual royalty revenue into a citizens’ Permanent Fund for investment in securities. Each year a dividend from this fund is paid to every Alaskan citizen. This Fund was the first to recognize the full rights of citizens to share directly in the income from public assets.
This Fund, however, had three important shortcomings that should not be repeated in the proposed Iraqi Fund.
†¢ First, Alaska did not put all of Prudhoe Bay state revenue into the people’s account. A portion of it went to the state government. When oil prices went up, the state succumbed to the temptation to repeal its income tax and spend its oil income like there was no tomorrow. Consequently, today the Alaskan state government has a budget crisis and a deficit gap, but the 600,000 Alaskan citizens still share equally in the dividends from their Fund, now worth $27 billion….
†¢ Second, the Alaska Fund is not a ready source of private investment and venture capital for its individual owners. This is because there are no tradable certificate shares in their mutual fund. This lack of liquidity denies citizens’ access to capital markets: An individual citizen cannot sell some portion of his shares for investment in a private start-up business, or borrow against the shares for such investment. …
The Iraqi People’s Fund would consist of tradable shares; all public property would be held, then sold, for the account of the fund; and the new government would be required to obtain its revenue from taxes levied on the citizens who are willing to elect them and finance their spending programs. The government could not raid the fund to finance its operations. All this could be made explicit in the Iraqi constitution.
There should be room in the proposal for a temporary transition mechanism. For example, sales of citizen shares in the fund might be limited at first, but gradually lifted as citizen registrations and claims were settled, and the auction/sales mechanisms became established. Also, an initial budget set-aside for financing the new government might be in order, but this budget should decline on a fixed planning schedule at 15%-20% per year as the new government gets its tax and spending program together.
This action would launch the new Iraqi state as one based on individual human rights, and the rule of law, and anoint it with rock-hard credibility by giving every citizen a stake in that new regime of political and economic freedom. The objective is to undermine any citizen sense of disenfranchisement in the country’s wealth, economic and political future, and to galvanize citizen support for a democratic regime. Now is the time to act, before post-war business-as-usual creates de facto foreign and domestic spoils-of-war property right claims, leaving out a citizenry brutalized enough by a totalitarian regime, and in sore need of empowerment in their own future.
Quality Moonshine
Madsen Pirie at the Adam Smith Blog reports on another example of market provided quality in the absence of government law:
A new study from the International Centre for Alcohol Policies (ICAP) estimates that at least half of the alcohol consumed in the world is non-branded, locally produced. The generic term ‘moonshine’ covers everything from Irish poteen to Russian samogon to Mexican pulque, plus a local equivalent just about everywhere.
Moonshine has a ‘buyer beware’ reputation, and is often associated with toxins ranging from methanol to paint thinner, not to mention rat faeces and battery acid for extra flavour. Cases of blindness, paralysis and death are sometimes reported.
According to the new study, these are very rare exceptions. Chemical testing of samples world-wide reveals that “most of the moonshine produced is of reasonably high quality.” Marcus Grant, President of ICAP, suggests that reputable moonshine producers take care to do nothing to harm repeat customers. In contrast to moonshine’s ‘raw’ image, a taste testing saw some Russian Samogen actually beat Cutty Sark.
What are the best Christmas gifts?
Experiences, not possessions. Concerts and travel are remembered for longer than clothes and jewelry. The result is robust to different ages and groups, but tends to be strongest for high-income individuals. Here is the full story, here is another summary. Here is the original paper. The home page of Van Boven, one of the researchers, offers many interesting papers on human psychology.
The economics of capturing Saddam
Eugene Volokh draws our attention to the following article about Iraq. Here is a snippet from the abstract:
The capture of Saddam Hussein…demonstrates that poor intelligence is not inherent in U.S. guerrilla war-fighting; the United States overcame it by identifying the central weaknesses of its opponents. In this case, the central weakness was money — and this was not only a financial weakness, but also a cultural one.
Here is some more of the substance:
The guerrillas did have one major vulnerability: money. The Baathist regime long ago lost its ideological — and idealistic — foundations. It was an institution of self-interest in which the leadership systematically enriched itself. It was a culture of money and power, and that culture permeated the entire structure of the Iraqi military, including the guerrilla forces that continued to operate after the conventional force was defeated. Indeed, the guerrillas substituted money for recruitment. In many cases, they would pay people outside their ranks to carry out attacks on U.S. troops as a supplement to attacks by the main guerrilla force.
The culture of money made the guerrillas vulnerable in two ways. First, they relied on support from an infrastructure fueled by money. Whatever their ideology, they purchased cooperation with money and intimidation. Second, much of the money the guerrillas had was currency taken from Iraqi banks prior to the fall of Baghdad. A great deal of it was in U.S. dollars, which continued to have value, but most of it was in the currency of the old regime. One of the earliest actions of the U.S. occupation forces was to replace that currency. Over time, therefore, the resources available to the guerrillas contracted.
The United States brought its financial resources into play, purchasing information. As U.S. money surged into the system and guerrilla money began to recede, the flow of information to the United States increased dramatically. Obviously, much of the information was useless or false, and it took U.S. intelligence several months to tune the system sufficiently that operatives could evaluate and act upon the intelligence. Over time, the very corruption of the Baathist system was turned against it.
Mistaken predictions about this war have not been in short supply. But let’s hope they are right.
Why not more price discrimination for medicine?
Physicians and hospitals can not waive or significantly reduce their fees they charge to uninsured patients even if they want to because they would technically be committing Medicare fraud! Ant’ mindless and impersonal government bureaucracy great?!
Read more from Dr. Rangel. And don’t neglect to peruse his further comments on national health insurance, and yet more is here. These are some of the most accurate and pungent observations on the topic I have seen.
Letters of recommendation
Students ask professors to write letters of recommendation for them. Today’s professors frequently respond by asking the student to write a first draft of the letter. Henry Farrell at CrookedTimber comments on this practice. Obviously the ethics of such a request are questionable. Furthermore it puts the student in a very difficult position. How great can you claim to be and keep a straight face, not to mention a reputation for probity?
That being said, I am not very worried about the practical repercussions. Most people, especially undergraduates, do not know how to write a very good recommendation letter. They fail to realize that such letters, to be effective, should offer very specific and pointed comparisons. Those few students who understand this fact are probably too shy to call themselves “comparable to Greg Mankiw as an undergraduate.” Nor will they write “comparable to your Professor Mediocre [fill in the name yourself!] as an undergraduate.” So if a professor asks the student to write the letter, the professor does not care about the letter or student very much. The resulting letter is likely to be very generic and thus not very effective. In addition, the professor probably has a hard time saying much about the student. This again suggests the letter will be less than overwhelming, no matter who writes it.
The really good candidates still will be able to produce credible signals of quality. They will find some professors able to make coherent and specific claims on their behalf. In fact, if professors ask the lesser students to write their own letters, the relative advantage of the very best students may rise.
A Reader’s Dilemma
A reader, who wishes to remain anonymous and whom I shall refer to only as Jedi Knight, writes with a difficult problem:
I love your Marginal Revolution blog enough to read it every day. In fact, I check back several times a day and I’m disappointed when I find no new entries.
However, I have told no one about it. Your blog makes me appear smart and full of interesting takes on the topics of the day. If I shared with people where I get my information, people would not be anywhere near as impressed with me.
So, I have a dilemma. I should hope that your blog stays popular enough to encourage you to keep up your publishing efforts, but I don’t want to be the one who spreads the word. I can only imagine that there are many others out there like me…
Dear Jedi Knight,
First, you imagine correctly. Many readers have come to us with exactly this dilemma. How can one keep a public good private? We at MR have puzzled over this and have several suggestions. Instead of telling your friends about MR try telling strangers. Sidle up to someone on the street and whisper “Pssst, want some good econ blog? Marginal Revolution is phat.” We have found that this works well. Also, as Cowen and Tabarrok (2000) discuss, there are two strategies in the arts. Sell to a lot of people at a low price or sell to a few cognoscenti at a high price. You, Jedi Knight, are among the cognoscenti! Send cash. Or at least shop at Amazon with the MR link /marginalrevol-20.
The commissar vanishes, Beatles style
[Yoko] Ono’s weirdest piece of video trickery comes on the recently released DVD “Lennon Legend: The Very Best of John Lennon.” On one film, for the classic song “#9 Dream,” Ono has edited herself into the original video. There you will find her mouthing the backup vocals that were sung on the original hit recording by Lennon’s girlfriend at that time, May Pang.
In addition:
Ono has dropped [Paul McCartney’s] name from the songwriting credit on “Give Peace a Chance.” The song was written by Lennon only, but at the time the songwriting duo was still putting their two names on everything.
Here is the full story. McCartney, on his side, removed Lennon’s songs “Maggie Mae” and “Dig It” from the re-release of the Beatles’s Let It Be album. He never thought much of these songs, so he added another Lennon composition, “Don’t Let Me Down,” in their place. He also has sought to have many of the Beatles songs switched from the universal “Lennon-McCartney” tag to “McCartney-Lennon.”
Adam Smith suggested that people become more insecure about reputation, the more reputation they have. The theme of vanity as an addiction dates back to the early Christian writers, such as Boethius. But my query is simpler: don’t these people have anything better to do? Oh yes, if the title of the post interests you see here.
New numismatics blog
There is a new blog on numismatics, blogspot.shekel.com. Here is a sample post defending the private trade in antiquities. Blogger Aaron Kendal also offers commentary on Middle Eastern politics and current events.
The Return of the King, French style
I just saw the third installment of Lord of the Rings in a French cinema, on the Left Bank. The crowd loved it, although they kept on laughing at all the faux endings. (I’m not giving anything away by noting that the movie is longer than it needs to be. In the last fifteen minutes it repeatedly feels as if it is just about to end.) Interestingly, “Frodo,” in the subtitles, is presented as Frodon. You know, like “Napoleon” and “Michelin.” That is just in case you might have thought that Frodon wasn’t French. Yes I know about the silent n, still I thought this was ridiculous.
Evolution
Often I love the idea of science fiction more than science fiction itself. I’ve read most of the classics, and I am left with junk at the relevant margin. But lately I’ve been wrapped up in Stephen Baxter’s Evolution, published earlier this year. The book, spanning almost six hundred pages, tells the story of evolution from the point of view of our genes. To be sure, the book would be easy to satirize. It has no central characters, covers 65 million years of history, and frequently presents how different animals think [sic] about copulation. OK, that doesn’t sound like an obvious recipe for success but Baxter pulls it off to a surprising degree. The treatment is reminiscent of H.G. Wells or Olaf Stapledon, a particular favorite of mine. If you, like me, are desperate for science fiction that is actually intellectually stimulating, give this book a try. We are told, by the way, that the capacity to believe contradictory ideas is what makes human beings special.
Baxter pushes the Stephen Jay Gould line that the results of evolution are highly dependent on small accidents. For a contrasting point of view, from a more scientific front, see Life’s Solution: Inevitable Humans in a Lonely Universe. The author Simon Conway Morris argues that the path of evolution is much less contingent than is commonly believed. He points to numerous biological structures, such as the eye, that have evolved repeatedly under different guises. Here is one brief summary, here is a longer and more critical presentation. Life’s Solution, which occasionally verges on theology, should be read with a critical eye. Nonetheless if you feel you have read all the good popular books on evolutionary biology, here is a text with something new and provocative.
The best argument for spam I have yet heard
Historian and travel writer Jan Morris was interviewed about America in the British Times, December 13. She offered the following remark:
There is grossly too much of almost everything. There is too much money, too much food, too much choice, too much power, too much capitalism, too much spam on the e-mail. Wal-Mart, the ultimate American retailer, employs three million people: on one single day during my visit it opened 39 new stores, and its annual sales last year were bigger than the GNP of Switzerland. Eighty-three TV channels were available in my hotel room last night. Last Sunday’s edition of the Chicago Tribune contained, by my bemused count, 51 editorial and advertising sections. The president of Harvard occupies a house valued at $11.5 million. The supermarket Shaw’s, in Boston, offered last week, 432 different cheeses.
I had at least three reactions. First, you would think that such a famous historian would stay in a hotel with digital cable. Then she would have more than 83 channels, perhaps as many as five hundred. Second, I just had been thinking about writing a blog post complaining about American trade restrictions on French non-pasteurized cheese, the best kind of cheese I might add. Morris may have seen 432 different cheeses but we could do much much better in this area. Let’s have free trade in cheese and real diversity. How many Americans eat cheese wrapped in paper rather than plastic? Finally, spam must have something good to offer if it can be lumped in with all these rosy developments. Morris refers to the current United States as “sclerotic” and “bloated,” can she be serious?
Just the cash please
Florida officials have ditched proposals to offer a trip to space as a lottery prize because players say they just want the money.
Ananova.com offers the full story.
French cheese goes a long way
Contrary to some reports, I remain alive and well.
Is file-sharing dead?
The recent RIAA lawsuits have severely blunted the practice of file-sharing. The music industry has gone after the on-line users who share copyright-protected songs. The movie industry may someday follow suit. Although the number of people prosecuted has been small, the negative publicity has caused many people to shy away from Kazaa, Grokster, and other services.
I don’t know of any good estimates of how much file-sharing has gone down in recent times. All parties to the disputes have incentives to fudge the numbers. But based on conversations and anecdotal observations, combined with written sources, I find it plausible that file-sharing has declined by at least a third.
The days of file-sharing, however, are far from over. First, a judge just ruled that the RIAA cannot petition Verizon for the names of potential file-sharers. CNN.com reported as follows:
…in a strongly worded ruling, the appeals court sided with Verizon, saying a 1998 copyright law does not give copyright holders the ability to subpoena customer names from Internet providers without filing a formal lawsuit.
This ruling should come as no surprise. After all, why should the RIAA have a special right to petition Verizon for the names of potential copyright infringers? I hold some copyrights too. I and many others could petition Verizon for the information concerning various account holders. Without any legal standard of proof privacy is meaningless. More significantly, Verizon would end up swamped under the requests. Imagine various hackers and cyberpunks flooding Verizon with identity requests just to make the reporting system unworkable.
Even if this ruling is reversed, or John Doe suits prove effective in generating the names, file-sharing is likely to return in force. Anonymous networks are becoming more popular rapidly. Read the analysis of Clay Shirky. Right now users are not sure whether these networks are useful or trustworthy. But that information will spread rapidly. Within a year, we will know whether the Palestinian file-sharing network is indeed reliable. If that source of files turns out to be crooked, something else will arise to take its place.
Consider the whole problem in terms of consumer option value. File-sharers have not given up on the idea. They are waiting to see when and how they can start sharing files again. When the proper time comes, they will return in full force.
Addendum: Here is a Washington Post article on the decision. Hit and Run links to the full decision.