Wednesday 27 May 2009

Economics of the End Times

The excellent William Watson, in a post entitled "Why I love economics", today points us to an interesting sounding IMF working paper.
"Irrational Exuberance in the U.S. Housing Market: Were Evangelicals Left Behind?"

IMF Working Paper No. 09/57

CHRISTOPHER CROWE, International Monetary Fund (IMF)

Abstract: The recent housing bust has reignited interest in psychological theories of speculative excess (Shiller, 2007). I investigate this issue by identifying a segment of the U.S. population—evangelical protestants—that may be less prone to speculative motives, and uncover a significant negative relationship between their population share and house price volatility. Evangelicals' focus on Biblical prophecy could account for this difference, since it may enable them to interpret otherwise negative events as containing positive news, dampening the response of house prices to shocks. I provide evidence for this channel using a popular internet measure of "prophetic activity" and a 9/11 event study. I also analyze survey data covering religious beliefs and asset holding, and find that 'end times' beliefs are associated with a one-third decline in net worth, consistent with these beliefs providing a form of psychic insurance (Scheve and Stasavage, 2006a and 2006b) that reduces asset demand.

I love the irreverence, but I remain confused. If I believed that the end-times were at hand, shouldn't I shift from investment goods like houses to consumption? What's end-game if you think the rapture closer at hand and you have an evangelical's utility function? I'd guess selling capital stock and using the cash to make a last ditch effort to save heathens, but it's hard for me to tell. It would just seem odd that the proposed response is to spend more on housing. He finds that areas with more evangelicals see an upward trend in housing prices in the wake of 9/11 while the heathen areas see a downturn. Is it possible that the cross-sectional effects are instead picking up the region's likelihood of being the next terrorist target? Or, perhaps, outmigration of those proportionately-few evangelicals in the big cities back to the Bible Belt as the rapture seems closer, bidding up the price of housing in those places?

I keep thinking about the old Heckman paper on the effects of prayer on God's attitude to mankind and Jack Van Impe's prognostications of the end times. Should the latter count any the less as satire just because they don't mean it to be so?

Tuesday 26 May 2009

Sachs smackdown

Jeff Sachs last week delivered an ugly attack on Bill Easterly on The Huffington Post in which he accused Easterly of seeking to pull the ladder up behind him and deny aid to folks in Africa. A nasty cheap shot, and without foundation.

Easterly replies today, rebutting Sachs' accusations using bits of Easterly's own work previously cited by Sachs.
Sachs accuses me of such a hard heart as to deny "$10 in aid to an African child for an anti-malaria bed net." Sachs offers: "Here are some of the most effective kinds of aid efforts: support for peasant farmers to help them grow more food, childhood vaccines... roads, .. safe drinking water...."

Sachs likes a lot more another writer whom he quoted in his book Common Wealth:
"Put the focus back where it belongs: get the poorest people in the world such obvious goods as the vaccines,... the improved seeds, the fertilizer, the roads, the boreholes, the water pipes...." Wait, that was me!

Sachs was earlier quoting from my book, The White Man's Burden, which far from wanting to deny an African child bed nets, denounces the tragedy of aid impunity, in which "The West spent $2.3 trillion and still had not managed to get four-dollar bed nets to poor families."

Sachs complained that "most Americans know little about the many crucially successful aid efforts, because Moyo, Easterly, and others lump all kinds of programs -- the good and the bad -- into one big undifferentiated mass." Sachs again prefers another writer whom he quoted in Common Wealth: "Foreign aid likely contributed to some notable successes on a global scale, such as dramatic improvement in health and education indicators in poor countries."

You guessed it -- that was me again, illustrating how aid COULD work if only aid agencies were accountable for their actions.
Easterly then goes on to highlight some of the cases of "aid impunity" against which he's been fighting.

Easterly's Aid Watch is on my RSS reader; add it to yours if you haven't.

Sunday 24 May 2009

American disappointments

I drove from Winnipeg, Manitoba to Fairfax, Virginia late in the summer of 1998 to start grad school at George Mason. I remember stopping in Pennsylvania (80% sure it was was a long drive) at a Sheetz gas station to fill up and finding a petition next to the gas bowser. Customers were invited to take away a form to mail to their Congressman protesting Pennsylvania's proposed move to mandate minimum gas prices, which Sheetz (a discount brand) rightly recognized as an attempt by the big guys to squeeze out the discounters. I was crushed. The Canadian press likes to paint the US as some horrible jungle of rampant individualism where government stays out of folks' way; I hadn't fully believed it, but I'd hoped for it.

Kiwis are experiencing similar disappointment currently. New Zealand had started talking about a free trade agreement with the US under each country's prior administration; things seemed to be moving forward with the change in administrations. And then the US pushes through massive dairy export subsidies. Says prominent Kiwi economics commentator Bernard Hickey:
I have previously argued in this piece “Why an American Free Trade is a ludicrous and dangerous idea” that it would be a mistake for New Zealand to negotiate a Free Trade Agreement with America. It would open the door for the lobby groups for US agriculture, pharmaceutical and movie/music interests to gut any deal so it was worthless, or even worse, force us to change our copyright laws and shut down Pharmac.

I said Americans lie and cheat on trade policy. They protest they want free trade, but regularly act to restrict trade and subsidise their exporters. Lobbyists dominate the trade agenda in America. Here is more proof of that.

Things I'd never considered: Talmudic law edition

The National Post hosts a podcast today, and accompanying print edition, highlighting the procedures necessary for Orthodox Jews contemplating in vitro fertilization. Unsurprisingly, it's pretty complicated. The prohibition on masturbation, combined with the prohibition on condom use, make semen collection difficult. The solution?
"According to Jewish law, a man cannot ejaculate and spill his seed, he cannot waste his seed," Rabbi Jacobson explained. "To accommodate this, the couple can engage in intercourse using a special pierced condom," he said. The special condom captures the sample, while also leaving room for the possibility of conception.

Tyler likely would have tagged this "Markets in everything: Kosher pierced condoms".

The podcast has details not covered in the print story, for those who need all the details.

Update: the more I think about this, the more I think about cheating at solitaire....

On the other side, the article notes a low low price of about $100-$500 for a service that watches your gametes like a hawk and makes extra sure of no mixups. Seems like a bargain that anyone in that market would grab. If the notional cost of a mixup is say $7 million (pulled out of the air based just on VSL measures; I have a hard time imagining the compensating differential that would make me equally happy across world-states), seems pretty cheap even if the baseline probability of mixup is pretty low.

Saturday 23 May 2009

Afternoon roundup

Thursday 21 May 2009

Welfare and animal welfare: NZ pork edition

The Kiwi econ blogosphere, namely Paul, Matt and Brad, has been abuzz with discussion of pigs. As background, some animal rights activists broke into a pig barn in the middle of the night, frightened the animals, took a video of the frightened animals, and aired it on the news. The video ignited discussion of the desirability of farrowing crates as compared to free-range options among those who've never been in a pig barn. [Update: Of course, I'm here referring to the popular outrage expressed in the press; the econ discussion subsequent to the popular outrage has been rather good, as noted below.]

Brad Taylor
points out that domestic pig farmers are making the best of some bad press by using the video in a bootleggers-and-baptists move: they argue that they're forced to use crates despite their better wishes because of the existence of foreign competition; if only tariffs protected them, they could change their methods. Paul Walker argues that the foreign competition angle is a red herring so long as barn raised pork is the cheaper production method; even with an import ban, producers would have a strong incentive to choose the cheaper option. Matt Nolan suggests that separate markets in free-range and barn raised pork solves most issues insofar as we only count animals' utility as it enters into human utility functions; if animals have intrinsic rights then a Pigovean tax (he calls it an externality tax, but Pigovean seems uniquely appropriate) on animal suffering solves things in the absence of Coasean bargaining.

A few years back, Tyler Cowen wrote an interesting piece on animal welfare. Relevant points:
  • If animals can be shifted among sectors of varying welfare, then a tax on meat-eating is of ambiguous consequence: there's no apriori reason to expect more to shift to the higher welfare sector than to the lower.
  • If regulation specifies a minimum standard of animal welfare such that we'd all view those animals as being happier having lived and been eaten than never having lived at all, vegetarianism is strictly harmful: fewer animals get to be born (and later eaten) when the demand curve is closer to the origin than it could be if vegetarians did their part in helping to defray these animals' costs of existence.
    "Some animal advocates argue for both mandatory care standards and for taxes or restrictions on meat consumption. But in fact, if we are at a care standard where animal lives are worth living, mandatory care standards should be combined with subsidies to animal breeding, not taxes on animal breeding."
  • If regulation specifies a minimum standard of animal welfare much higher than the animal enjoying epsilon utility, there's a tradeoff between number of animals and happiness of animals (imagine Parfit's repugnant conclusion, but with the conclusion as starting point and working backwards).

I'd follow up on Matt's argument by suggesting that the two-sector model (people who care about animal welfare buy free-range; others buy barn-raised) isn't sufficient to induce efficiency where folks who care about animal welfare care not only about the animals they themselves eat (or abstain from eating if vegetarian) but also have Pareto-relevant preferences concerning the animals eaten by others. In that case, they'd be willing to pay some money to subsidize barn-pork consumers to switch to free-range. Presumably a charitable organization could achieve that end. However, if there are some people who now don't eat meat because they can't afford the free-range variety and are unwilling to eat barn-raised for ethical reasons, and if vegetarians with Pareto-relevant preferences concerning animal welfare would prefer that nobody eat meat but that any meat eaten be free-range, then the charity doesn't unambiguously solve the problem for them: the negative effects on the extensive margin, as they see it, may outweigh the positive effects on the intensive margin. Unclear that there are enough vegetarians with Pareto-relevant preferences (ie willing to put their money where there mouths aren't) for the latter bit to be a major issue, in which case the charitable organization would be sufficient, but fun to ponder.

Gender gaps

Studies of male-female wage differentials tend to find that differences disappear once you control for standard things job type, experience, and time out of the workforce. To the extent that residual differences remain, they seem reasonably well explained by maternity risk among women of childbearing age: so long as firms bear some of the costs of an employee taking maternity leave, wages for those at higher risk of taking such leave will be lower. After controlling for everything for which we have data, some folks then interpret the gender coefficient as an upper bound measure of discrimination.

The National Post reports on a new study of the Canadian medical field finds that female physicians provide about 14% fewer hours of direct patient care as compared to their male colleagues: an average of 30 hours per week to mens' 35 hours. The report warns that increased proportions of female physicians at lower average work hours requires the hiring of greater numbers of physicians to cover the same number of patient care hours. Of course, the study's authors are now on the defensive:
Dr. Mark Baerlocher, the study's lead author, acknowledged he is tackling a thorny issue, but stressed he does not favour curbing the number of female physicians. Instead, the study calls for greater increases in medical-school enrolment to offset the phenomenon.

"It's not meant to be a negative paper in any way," he said in an interview. "It's meant to take an objective, hard look at the work-hour differences that most people would agree are very real.... You can't simply ignore it because it's a sensitive issue."
Dr. Baerlocher, a radiology resident at the University of Toronto, said he agrees women should not be blamed, lamented a general reluctance in the medical profession to examine controversial issues, such as gender differences and abortion.

"There are a lot of topics that aren't adequately studied, because it's deemed a socially sensitive topic."
It seems pretty important if you're trying to plan out future staffing requirements to know things like this.

From a broader perspective, here we have another source of unobserved heterogeneity that can give rise to average salary differentials: hours worked by salaried staff. In salaried professions where you don't punch a clock, hours worked can vary a fair bit across individuals; the harder workers are more likely to be promoted or given a raise. If hours worked vary by gender, then we expect average salary differences across genders. If we don't have observations on hours worked, average differences then show up in the coefficient on gender in a wage regression. One more reason that the gender coefficient is only an upper bound measure of discrimination rather than a good measure of overall discrimination.

Tuesday 19 May 2009

Positional goods: remove all the vices

One argument for income redistribution is that income is largely a positional good; folks then spend more time on work and less time on leisure than would be optimal. Curtis Eaton presented a paper in our Department a couple of years back showing that the addition of a Veblen good (ie a positional good) crowds out civic engagement and other kinds of public good production. I was rather critical in the seminar, first because the addition of any private good to that kind of optimization problem has the effect of reducing time allotted to any other particular element of the utility function, but more importantly because if humans are status-seeking, closing off status-seeking on any one dimension (by heavy income taxation, for example) may force it over to less productive dimensions: at least the pursuit of income generates real wealth; the pursuit of other status markers may be relatively inefficient. But I didn't have data on the relative positionality of different activities.

Robin Hanson yesterday provided a listing of the relative positionality of different types of activities. Veblen goods are everywhere it seems. While 48% of survey respondents listed an income increase from $200K to $400K as being positional, lots of other things also rated as being at least as positional, including hours studying for a test (57%) and hours training for athletic competition (48%). Another survey found gains in your child's education to be as positional as gains in your income, with gains in either your own or your child's attractiveness being more positional than income.

Today, Hanson calls for those advocating heavy income taxation based on the negative externalities of status-seeking to be consistent:
Some policy implications of this data on positional effects seem easy for folks like Frank to swallow. While our evidence so far is tentative, it does seem to support subsidizing health, including air quality and device safety (though not necessarily medicine if it has little relation to health). It also supports subsidizing insurance more generally; bads being less positional than goods gives a new reason to avoid inequality from bad outcomes, such as crime. Our evidence also supports taxing work relative to leisure, though since we already have large taxes just like this, this evidence does not obviously support larger work taxes.

Many other policy implications, however, seem much harder for Frank to swallow. Since sport effort seems especially positional, should we tax sports, instead of subsidizing them as we often do now? Since education seems to be at least as positional as income, should we drastically reduce educational subsidies, or even tax it? And since government spending seems far more positional than income, shall we greatly reduce our unprecedented levels of such spending?

Perhaps Frank would suggest that other compensating side effects justify vast government spending as well as sport and education subsidies. But what about personal beauty, which our evidence suggests is one of our most positional goods? Yes, exercise also improves health, but it is very hard to see any large compensating side effects justifying makeup, hairdressing, and nice clothes. Will folks like Frank at least agree that severely taxing beauty aids is one of the clearest policy implication of our evidence on positional effects?

Also, we observe huge amount of variation in who sees what to be how positional. This suggests that perhaps policy can influence this distribution of envy. Shouldn't it be a top priority to find ways to influence folk's attitudes toward the gains of others, so that they don't feel as envious of such gains?
If student grades are positional and we tax them accordingly, what's the equilibrium of the game? Commenter Nazgulnarsil there sums up my general view, calling for the appointment of Robert Frank as Handicapper General.

If humans are status-seekers, which seems highly likely given how sexual selection works, then high marginal tax rates just push status-seeking onto the other dimensions identified by Hanson. Which then gives us some testable hypotheses: do countries with heavy income redistribution see greater spending on education, more time investment in sport, more money and time spent on personal beauty and exercise (all normalized for income, of course)? I wouldn't know where to start looking for the data, but I'd be keen to see the results.

Monday 18 May 2009

Utilitarianism and meddlesome preferences

Brad suggests that utilitarianism has no way of sorting out how to deal with meddlesome preferences:
Liberals and libertarians need to think very carefully about the kinds of preferences/harms should be considered valid policy concerns. The are obvious cases: I wrong you when kick you in the shin, but not when I wear clothes you find distasteful. It seems that this is so even when you have a very high tolerance for shin pain and a low tolerance for fashion crimes, and the harm/disutility is equal in each case. Most people find it reasonable that people have a presumptive right not to be physically attacked, but no such right not to be visually offended by poor taste. There is a large grey area in between these two cases. Utilitarianism as a moral theory is incapable of considering this question, or even admitting that it is a problem. This, more than anything else, is why I am not a utilitarian. The Mill of On Liberty was not a utilitarian in this respect either. On some readings, not even the Mill of Utilitarianism was really a utilitarian.

I'll disagree. Buchanan and Stubblebine provide a very nice framework for thinking about the problem. Sure, the offense I feel when I see someone in a Che Guevara t-shirt is real. And it can be viewed as an external harm imposed upon me just as my wearing my Hayek t-shirt may impose similar harms on others. But the fact of an external effect isn't sufficient to make it policy relevant. Rather, the externality has to be Pareto-relevant: my willingness to pay to avoid seeing Che t-shirts has to be higher than the other guy's willingness to pay to wear the shirt. If the aggregate sum of all willingness-to-pay-weighted distaste caused by Che shirts is higher than the aggregate sum of all willingness-to-pay-weighted pleasure caused by the wearing of such shirts, then a ban could be efficient. Of course, we have no way of extracting that kind of information about preferences outside of market transactions. But in principle there's no conflict with utilitarianism: it's just the generalized problem of the absence of reliable hedonometers.

In some cases we can draw reasonable conclusions though. In the absence of regulations forbidding or mandating the practice, we'd expect that evidence that a bus company allows smelly people on the bus to be evidence that the money-weighted preferences of those imposed-upon aren't high enough to overcome the transactions costs of enforcing a "no smelly people" rule and the losses to the smelly people. Otherwise, the bus company could earn higher profits by banning smelly folks from the bus and charging a higher ticket price for the better service. Similarly, if a grocery store bans entry of customers wearing neo-nazi t-shirts, they must reckon such bans are worth the effort of enforcement and the lost custom from skinheads. In both cases, the common third party (bus service, grocery store) transforms all into internalities.

In general, for externalities the magnitude of which or the enforcement costs of which are very difficult to ascertain apriori, a rule allowing property owners to make the call is most efficient: Coase operates. Where it's pretty likely to weigh one way or the other and transactions costs among all affected parties are likely to be very high, blanket bans or blanket allowances may be more efficient. I'm certainly not saying that such an approach positively explains the pattern of regulation anywhere in the world; rather that such an approach is consistent with utilitarianism.

Sunday 17 May 2009

Wolfram Alpha passes my test

Wolfram Alpha, what is the meaning of life?

Update: Wolfram Alpha, what is the velocity of an unladen swallow?

Update 2: it gets even better. Click on velocity of a European swallow, above, and you get the actual speed. More easter eggs below:

How many roads must a man walk down?
How much wood could a woodchuck chuck?
Why did the chicken cross the road?

Please add any other found easter eggs in the comments!

Update3: Josh Gans seems to be tweeting Alpha eggs! He found this one.

Update4: Technewsreport finds a few more.

Friday 15 May 2009


EconSoc held a debate between a couple of economists and a couple of philosophers on the merits of sweatshops. My opening salvo is copied below, though the actual delivery truncated things somewhat. Enjoy!

Sweatshops and the Nirvana Fallacy.

I’m a big Simpsons fan. A few seasons ago, Lisa complained about how mean Bart was to her and wished he could be nicer and not wreck her stuff and stick up for her at school. She then shook her head and sighed that she might as well wish for a pony while she’s at it. In other words, wishing her brother to be nicer can’t make it so.

I think everyone here would prefer a world in which everyone is richer, where all kids have opportunities at least as good as those that kids here in New Zealand have, where nobody has to work more than an 8 hour day to make a living. So when we look out into the world and see places where folks no less morally worthy than ourselves work under worse conditions than us for less rewards, we recoil. And we want to make things better. It’s laudable that we care about others: Adam Smith, as much moral philosopher as economist, called it the sympathetic principle. We imagine ourselves in the position of the other and we make assessments on that basis. But we make a mistake when we imagine ourselves in the place of a sweatshop worker in Southeast Asia or Central America and imagine that, but for the existence of oppressive sweatshops, these folks could enjoy a standard of living like ours. We’re comparing their conditions with our relevant alternatives, and reasonably finding them wanting from that standard, when we ought instead to be comparing their conditions to their relevant alternatives. Comparing their conditions with our relevant alternatives, well, we might as well be wishing for ponies. Or, as economist Harold Demsetz put it, we’re committing the Nirvana Fallacy.

Harold Demsetz warned in a beautiful piece of economic writing back in 1969 against what he called Nirvana Theorizing. He said there that we can’t say markets fail just because they deliver outcomes that we don’t like; rather, we have to compare the outcomes of markets to real-world achievable alternatives. We can’t just assume Nirvana on the other side of the scale. And, most of the arguments against sweatshops effectively assume Nirvana on the other side: if only we were to ban sweatshops or, more realistically, impose bans on the import of products produced by sweatshop labour, the employees would suddenly be freed to pursue fulfilling careers or to go and get that Bachelor’s in Cultural Studies that they’ve always wanted. Their kids would be in great schools provided by their governments instead of working in the factory with their parents. And they’d all have ponies. It’s only the evil sweatshops that are keeping them from achieving their dreams. If only it were that easy. For proper comparative institutional analysis, we really have to look at how working in a sweatshop compares with what else these workers could be doing.

Now, we could take a strong aprioristic argument and say that the very fact that workers in these countries choose working in the factories means that factory work has to be better than their next best alternative as they judge it. And, barring cases of prison-labour in China, we’d be right in doing so. Some folks could raise arguments about parents forcing their kids into that kind of work, but they’d have to be making the assumption that parents in these countries don’t care much about their kids and are choosing options that make the parents better off and the kids worse off: it’s more than a little paternalistic of us to think that we care more about other peoples’ kids than those people do themselves. But some folks could make that argument about child labour in sweatshops.

Instead of relying on the aprioristic argument, let’s look at some actual evidence. What are the relevant alternatives for folks choosing to work in sweatshops? Well, some economists have actually done that. Steve Hickson will be talking about a few such studies in a few minutes; I’ll highlight a few others. Benjamin Powell was a classmate of mine in grad school. He’s recently finished some research looking at standards of living associated with sweatshop work. Powell looked through the US media for reporting on exploitative sweatshop labour. He found 43 cases mentioned. He took the wage rates reported in those very articles and compared them to the average national income per worker in the countries where the factories are located: In 9 of the 11 countries, average reported sweatshop wages – the wages reported in the stories complaining about the sweatshops -- matched or bettered national average wages for a 70 hour work week. In countries like Cambodia, Haiti, Nicaragua and Honduras, “sweatshop” wages were more than double the country’s average income. Powell then compared average wages in the apparel industry with average national wages and again found that workers earning the average wage earn more than the average national income at even a 40 hour work week for 8 of 10 countries where he could find data: 9 of 10 on a 50 hour week and 10 on 10 for a 70 hour week. Recall that in countries like Bangladesh, about 80% of the population lives on less than $2 per day.

So, while the wages paid in sweatshops are pretty poor by our standards, they’re very good by comparison to other alternative employment that folks in those countries could get. But what about other working conditions? 70 hours a week sounds like a lot: surely the workers would be happier working only 40 hours per week. Nicolas Kristof and Sheryl WuDunn received a Pulitzer Prize for their reporting on China. They report in the New York Times Magazine on sweatshops in China. They there find folks very happy to be working 10 hour days, and finding it a plus that the factory that they work at allows them to work seven days.
“The others we talked to all seemed to regard it as a plus that the factory allowed them to work long hours. Indeed, some had sought out this factory precisely because it offered them the chance to work more.”
In one case, western pressure to reduce work hours resulted in riots and protest at the company: people wanted to earn more money to improve their kids’ lives and were furious at being denied the opportunity. Many of the kids currently employed in sweatshops would otherwise be employed in agriculture, working on small farms with high risk of malarial exposure and even worse working conditions than those found in the factories. For others, the relevant alternative is even worse than the farm: I’ll come to that shortly.

Some folks argue that they don’t want to ban sweatshop imports, they just want to mandate that imported products be allowed only if the sweatshops live up to certain labour conditions. But requiring higher standards raises the total costs of labour in third world countries: some factories will employ fewer people, and others will shut down. It’s no surprise that the most vocal advocates of high labour standard imposition are western labour unions who don’t really care about poor people abroad but instead just want to price the competition out of business. A few workers who get to keep their jobs will be made better off by these regulations, but the folks who are currently working in the sweatshops are already the winners. The losers are the folks who never get a chance to work in a sweatshop.

More recently, Kristof’s been reporting on the conditions in a garbage dump in Phnom Penh. What’s that got to do with sweatshops? Well, you probably didn’t know it, but lots of people live and work in garbage dumps in third world countries, scavenging through the trash looking for scraps of metal or old plastic cups that they can sell to recyclers. It’s terrible work. Writes Kristof this January in the New York Times:
“Another woman, Vath Sam Oeun, hopes her 10-year-old boy, scavenging beside her, grows up to get a factory job, partly because she has seen other children run over by garbage trucks. Her boy has never been to a doctor or a dentist, and last bathed when he was 2, so a sweatshop job by comparison would be far more pleasant and less dangerous.

I’m glad that many Americans are repulsed by the idea of importing products made by barely paid, barely legal workers in dangerous factories. Yet sweatshops are only a symptom of poverty, not a cause, and banning them closes off one route out of poverty. At a time of tremendous economic distress and protectionist pressures, there’s a special danger that tighter labor standards will be used as an excuse to curb trade.

When I defend sweatshops, people always ask me: But would you want to work in a sweatshop? No, of course not. But I would want even less to pull a rickshaw. In the hierarchy of jobs in poor countries, sweltering at a sewing machine isn’t the bottom.”
Kids are born, live, and die in the garbage dumps, and know no life except walking barefoot through rubbish looking for scraps. For these folks, work in a sweatshop is a dream. However bad conditions in the factories sound to us, when we compare them to our comfy offices, they’re almost infinitely better than self-employment in the garbage dumps. And, the garbage dump is the relevant alternative for a lot of folks. For others, it’s worse. Radley Balko reports on some of the costs of anti-sweatshop protests. One German company bowed to popular pressure and laid off 50,000 child garment workers in Bangladesh. Some of you would have cheered on hearing it. But when Oxfam followed up, they found that thousands had turned to prostitution, crime, or starved to death. In 1995, anti-sweatshop protesters led Nike, Reebok and others to close down soccer-ball and other garment manufacturing plants in Pakistan; mean family income dropped considerably; University of Colorado economist Keith Maskus found that many of the child labourers were later found begging or getting bought and sold in international prostitution rings. What happens when we talk about legislation banning the import of goods produced using child labour? Let’s look at the 1997 UNICEF report that details the effects of the Harkin Bill.
“The Harkin Bill, which was introduced into the US Congress in 1992 with the laudable aim of prohibiting the import of products made by children under 15, is a case in point. As of September 1996, the Bill had yet to find its way onto the statute books. But the mere threat of such a measure panicked the garment industry of Bangladesh, 60 per cent of whose products — some $900 million in value — were exported to the US in 1994.8 Child workers, most of them girls, were summarily dismissed from the garment factories. A study sponsored by international organizations took the unusual step of tracing some of these children to see what happened to them after their dismissal. Some were found working in more hazardous situations, in unsafe workshops where they were paid less, or in prostitution.”
We imagine that if we could only ban sweatshops, we’d be putting kids into school. We’re deluding ourselves. Every little bit of smug satisfaction you get by working to ban sweatshop imports, or by turning your nose up at products produced in those factories, comes at a cost: the marginal employee in a sweatshop is sent back to his next best alternative. UNICEF reports that only a tiny minority of child labourers work in the export sector: most hawk goods on the streets, engage in local production, or work at rag picking. Conditions in the export factories are better. If you’ve been working to ban imported products produced by child labour or in sweatshops, you are buying warm fuzzy feelings at the cost of pushing some of the world’s most vulnerable children into even worse conditions: the garbage dump, begging, child prostitution and starvation. It’s no good to complain that that isn’t what you wanted: you’re just wishing for ponies. It’s no good to complain that foreign governments should be ensuring that every child is in school: they can’t afford it, and the most we can do is contribute to charities that subsidize local education in third world countries. It’s no good to complain that foreign countries should crack down on child prostitution: of course they should, but they haven’t the resources. The best we can do is assist charities that work to get kids off the streets. If you care about poor children in the poorest part of the world, don’t work to make their lives worse. Work for the charities that are out there trying to help these kids, like Canodia – they’re an organization that runs orphanages for kids rescued from the garbage dumps. If you’re working in the anti-sweatshop movement, consider such donations as an offset for the likely effects of your activism, because the likely effects of your efforts is to push kids into the garbage dumps, or worse.

It’s easy to imagine perfect worlds where there aren’t any sweatshops. But getting rid of sweatshops in the world we have makes the families that work there worse off. At minimum, we should do no harm. Working to ban sweatshops does harm. Stop it.

Death by superstition

Different superstitions, same effect. First from the US:
A two-year old baby girl, dies of a treatable lung infection, as her mother "...follows church guidelines..." (Insight, June 20, 1988, p. 57). In Florida, a family withheld "insulin" from their "diabetic daughter" which resulted in her death (El Paso Times, December 6, 1988, p. 6-A). In 1984, Natalie, an 8-month-old child died "...of complications from a virulent flu-like illness..." and in March of the same year a 4-year-old girl "...died of meningitis..." (The Press Democrat, Santa Rosa, CA April 12, 1989, p. B-3). These are but a few of the countless cases, in which members of this nationally recognized Church, have died as a result of refusing to seek medical treatment.

In the 20th Century, an age when science is making such strides in medical technology, why would people refuse medical treatment for their own children? Because the Church of Christ, Scientist, better known as Christian Science, denies the reality of sickness.

And now in New Zealand:
A teenager has told how she was pinned down, and water poured in her eyes and mouth to free her of the demon insider her.

She remembered saying, "I'm gonna die," before blanking out in a ceremony in which another person is alleged to have drowned.

One of the 14-year-old's eyes was still bandaged when she was recorded talking to police about events two days earlier on October 12, 2007, at Wainuiomata.

The recording was played in the High Court at Wellington yesterday where nine people are charged with the manslaughter of mother-of-two Janet Moses, 22, who the Crown says drowned during the same water-based exorcism ritual.

Although the girl spent five days in hospital with eye injuries and a possible lung infection she told police the people involved had not meant to harm her.

"The cold water in my eyes ... I think my, I got my injuries because it took them longer to get the demon out of me," she said.

The 14 year old who survived believes the procedure got a demon out of her.

It's 2009.


Would it be culturally or religiously insensitive for schools to, umm, teach kids that superstition is at best silly and at worst deadly?

Thursday 14 May 2009

Sweatshops debate

Together with Stephen Hickson, I'm tomorrow debating a couple of folks from the philosophy department on the merits of sweatshops. I'm of course defending the argument that sweatshops are far better than the real world relevant alternatives that sweatshop workers face. If interested and in Christchurch, it's on at 1:00 in Commerce Room 002.UPDATE: C-block lawn!

The debate is hosted by EconSoc. I'll post my opening comments post the debate.

Update: Full text of my opening remarks now available here.

Quote of the day: Krugman edition

Over the last few months I have had a chance to closely examine many of Krugman’s recent and past writings on fiscal and monetary policy. One thing that I notice is that Krugman is very skilled at making an argument. He can use the same basic model to make either monetary or fiscal policy seem like the only reasonable option. All that is required is that one tweak the assumptions in such a way that the less favored policy seems either undesirable or infeasible. So my message is this—don’t let anyone (including me) bully you into thinking that your policy instincts are wrong, until you have closely examined the assumptions that underlie each side of the debate. All this drivel in the blogoshere about velocity, multipliers, liquidity traps, Ricardian equivilence, budget constraints, etc, etc, are merely verbal tools that can be wielded to achieve any desired outcome. It’s an insiders game. The real battle is elsewhere.

Scott Sumner on Krugman

Why we don't let the students write the syllabus

Cory Doctorow at BoingBoing points to some interesting commentary on user-designed gaming levels. Writes the game designer:
  • Players subconsciously calculate the cost-to-benefit ratio of content when deciding if it’s fun. For most MMO players, more reward = more fun. (This is a bitch of a lesson to learn, too. “My custom-scripted quest was so incredibly cool! Why aren’t players doing the quest? Well, yes, the reward was a little sub-par, but so what? You’re telling me they aren’t playing it because of THAT? Players can’t be THAT shallow!” Ha ha, newb.)
  • Players aren’t objective reviewers. If you ask them to grade content, they will grade more rewarding content higher than other content even if it isn’t as good by other metrics (like plot, writing, annoyance factor, or originality).
  • Many players spend incredible amounts of time finding ways to min-max the system so they can get more power for less effort. That’s part of the fun for many players. So there are tens of thousands of people actively looking for mistakes, loopholes, and gray areas in your game. All the time.
“Yes yes,” the other designers would say, “those lessons from the live team are interesting, but that isn’t exactly the same situation as user-created content, is it? Nobody can say for sure if user-created quests are problematic.” Maybe, just maybe, users could be convinced to grade content fairly. Maybe they would discover how fun it is to run really well-plotted quests instead of just trying to level up as fast as possible. Maybe players can change their stripes. Nope. MMORPG players are as predictable as the sunrise.

When City of Heroes released its user-created mission generator, it was mere hours before highly exploitative missions existed. Players quickly found the way to min-max the system, and started making quests that gave huge rewards for little effort. These are by far the most popular missions. Actually, from what I can tell, they are nearly the only missions that get used. Aside from a few “developer’s favorite” quests, it’s very hard to find the “fun but not exploitative” missions, because they get rated poorly by users and disappear into the miasma of mediocrity.

Most folks recoil from Nozick's experience machine, and most folks would reckon a hack allowing a direct XP-reset as cheating, but designing and playing levels that achieve the same thing somehow counts as "earned" and fair XP. A lot of this sounds familiar in academia: just replace XP with grades and "custom-scripted quest" with "great essay topic". Things for us to keep in mind as we redesign our major, endorsement, and honours pathways.

Tuesday 12 May 2009

Evening roundup

Money to burn

Dan Zizzo has found in experimental environments, folks are willing to spend their own money to burn the money-holdings of folks who have more money than they do, especially when they reckon that the folks with more money don't deserve it. I tend to think this sort of behaviour a nasty holdover from the Pleistocene - check Paul Rubin's work on Darwinian Politics for the evolutionary advantages of inequality aversion on the Savanna.

The Pirate Bay is exploiting this rather repugnant aspect of human nature in an interesting "distributed denial of dollars" attack. The Pirate Bay was sentenced to pay a fine for facilitating music piracy; they're now asking supporters to send small amounts to the law firm that represented the other side so that the bank fees will swamp the trivial amounts sent.

Surely this can't work though: can't the law firm direct its bank to reject small transfers? Or choose a different type of banking package with a different fee structure?

File this one under too good to be true methinks.
HT: BoingBoing


Every death-cult has its followers. And so there exists a Pol Pot appreciation society. It's a Geocities site, and Geocities is on its way down, so check it out while it lasts.
This is the webpage for Group for the Study of the Theories of Pol Pot. We work to understand the ideology of Brother Number 1, so that they can be used to achieve Year Zero on world scale.
For the wonders achieved under Pol Pot, consult Bryan Caplan's Museum of Communism and follow the links to the Cambodian Killing Fields archive.

Monday 11 May 2009

Evening Roundup

  • Rex Murphy on a star-crossed eco-voyage to the North Pole
    Unfortunately even the most glassy-eyed idealism can be confronted by reality, and such was the case with Carbon Neutral's expedition. They hit a bad patch of weather. Their poor boat was thrice capsized. And the fickle Gods of Global Warming must have been taking a siesta, for in one of those incidents one of the team "hit his head and the wind generator and solar panels were ripped from the yacht." I can only imagine them at this moment, staring soulfully into the hurricane-whipped sky, and pleadingly imploring: "Al Gore, Al Gore, why has thou forsaken us? "

    They were in a powerless pickle. Solar and sail had failed them and green intentions will not float your boat - they were not so much "carbon neutral" as carbon deprived. Bobbing around the North Atlantic in a gale without motor power of any kind is not the most soothing experience. Fortunately, Providence, in one of its most artful facsimiles, was on hand in the shape of the Overseas Yellowstone - a ship that was, to put it mildly, not relying on solar power or a wind turbine.

    It was a 113,000-ton oil tanker, carrying 680,000 barrels of crude oil. We may reach for many adjectives to describe the Overseas Yellowstone but "carbon neutral" will not be among them. Indeed, the Overseas Yellowstone, looked at from a carbon-neutral perspective, is the Life Raft from Hell. Nonetheless the oil tanker picked up the eco-people.
  • Wind Power's mafia links in Sicily: no-work contracts for windmills
    Multinationals are starting to find out something that is well known to Italian investors: that concealed beneath Europe’s most generous system of incentives – supported by “green credits” that industrial polluters have to purchase – there exists a web of corruption and shady deals.

    Rossana Interlandi, recently appointed head of Sicily’s environment department, explains that project developers – she calls them “speculators” – were also lured by the appeal of a law that obliges Italy’s national grid operator to pay wind farm ownerseven when they are not producing electricity.
  • Can we ever understand another culture? Contrary evidence.
  • I always prefer studies rationalizing my diet: eating fat helps my memory
  • More fake Elsevier journals. The Guardian reports. There's serious room for an event study on pharmaceutical stock prices: do drugs shilled in fake journals take a hit when the journal proves fake?
  • Andrew Leigh points to a David Brooks column on the massive successes of charter schools for disadvantaged children.
    Promise Academy produced gains of 1.3 and 1.4 standard deviations. That’s off the charts. In math, Promise Academy eliminated the achievement gap between its black students and the city average for white students.

    Let me repeat that. It eliminated the black-white achievement gap. “The results changed my life as a researcher because I am no longer interested in marginal changes,” Fryer wrote in a subsequent e-mail. What Geoffrey Canada, Harlem Children’s Zone’s founder and president, has done is “the equivalent of curing cancer for these kids."
  • Dilbert on the importance of trust in contract enforcement

British Columbia decides whether to muck up its electoral system

Andrew Coyne again is stumping for changes in British Columbia's electoral law. BC dodged the bullet in 2005 but is giving the revolver another spin on Tuesday.

The best argument for Canada's shifting to Proportional Representation would be that it might weaken some otherwise pretty persistent regional voting patterns that reward regional bloc parties. BC's adopting the system could help push it to be put in place nationally. But that doesn't outweigh the costs.

Foremost among the costs of PR is that it consistently delivers minority governments. Canada's had a few of these lately, mostly because Duverger's Law doesn't hold well when there are strong regional cleavages: it predicts two-party races at the district level, but when there's strong heterogeneity across the country, you can get Bloc Quebecois/Liberal fights in Quebec, Conservative/Liberal fights in the Prairies, Conservative/NDP fights in BC, Liberal/Conservative fights in some parts of Ontario and NDP/Liberal fights in others leading to a multi-party parliament. This is by no means set in stone: Canada usually produces single party governments. But a move to PR would entrench coalition governments. Torsten Persson and Guido Tabellini have shown that PR tends to lead to increases in government spending because of the payoffs to small parties necessary for forming coalition governments.

Coyne says the STV system will be simple for voters to understand. As he says, voters just need to be able to count to five. Yeah. Here in New Zealand, we have an even simpler form of PR: Mixed Member Proportional. Voters give one tick for a local candidate to be the local MP, the other for the Party they wish to get more seats in Parliament overall. The Party Vote determines the composition of Parliament, with first call on seats going to district-elected MPs. The system's been in place since 1996, but only about half of all voters understand which vote (Party or District) does more to determine the composition of Parliament. So here all they need to do is count to two, and they can't manage it. Counting to five would be right out.

PR is great for folks who like process for the sake of process. The composition of Parliament under PR reflects proportionate support for various parties. But it's a terrible way to form a government and hold it accountable. It yields bad policy outcomes. First Past the Post, on the other hand, is procedurally ugly. The composition of Parliament can be at large variance from aggregated national voter preferences. But at least it gives voters an easy way to throw out an underperforming government: vote for the other guy. Under PR, voters can't tell who to blame for policies they don't like and don't know for whom to vote to punish that party. My bottom line on evaluating electoral systems is to look at the results they've produced elsewhere (see Persson and Tabellini, above) and to think through how easy it is for the median voter to cast a ballot turfing out the incumbent. The latter is, to my mind, the most critical feature of a democratic system. If all else fails due to voter ignorance, we might hope that retrospective voting can form a simple rule to follow: support the incumbent if you're happy, and vote for the Opposition if not. It's tough to do even that under PR.

Friday 8 May 2009

Morning roundup

Thursday 7 May 2009

Alcohol taxes and effects on producers

Small breweries are rather upset about hints that the excise tax on alcohol will see a big increase after the Law Commission releases its report. They're right to be upset: they'll bear some of the excess burden of the tax increase. But are they really right that such tax increases favour big breweries over small ones? I don't think so.

Why not? The excise tax on alcohol makes up a much smaller portion of the overall price of great beers like those made by Three Boys, Emersons, Renaissance, or Epic than it does for the dreck my students drink. Suppose that these student beers sell for $1 per bottle while good beer sells for $5 per bottle. A doubling of the excise tax from about $0.40 to about $0.80 would, in the limiting case of full pass-through (assuming an inelastic demand curve), increase the price of cheap beer from $1 to $1.40, a 40% increase, while good beers would increase from $5 to $5.40, an 8% increase. If anything, good beer becomes relatively cheaper with an increase in the excise tax. It's absolutely more expensive, but the price ratio between the two beers decreases: instead of being 5X more expensive, it's then a bit less than 4X as expensive.

In general, regulations that increase fixed costs regardless of output help big producers and hurt small guys. In general, regulations that increase per-unit costs regardless of output level do more to hurt big producers. That's why small businesses tend lobby for regulations that reduce fixed costs (like Sunday closing laws) while big businesses tend to lobby for regulations that increase fixed costs (like coal scrubbers on power plants).

Over on the Beer Blog, a member of the Society of Beer Advocates (though not speaking for them) argues
In this country you have the big two. We know who they are. Even morons waving around hand-wringing think-of-the-children legislation like yourself know who they are. These big two don't care about alcohol. They don't care about excise tax. They make product, not beer. They have a captive and uneducated market (I mean that literally - they don't know any better, not that they are stupid) who will continue to drink their product no matter what. This is great for them. It's great for you, Geoff. It's murder for the small brewers in this country, and it's murder for what you, in your stupid and misguided way, claim to be trying to achieve.
For an excise tax increase to have this effect, it has to be the case that demand elasticity (the percentage change in quantity demanded given a percentage change in price) at the low end is very very small relative to demand elasticity at the high end of the market. There has to be a smaller response to a 40% price increase at the bottom end of the scale than there is to an 8% increase at the top end. I don't buy it.

Another argument I've heard is that the big guys can absorb the price increase more easily than the niche producers by further denigrating their product quality. But if the big guys can make more money by making the bottles or the beer even thinner, why haven't they done it already? Are they just being generous by not taking on that profit opportunity prior to the tax increase? They may well make some marginal changes to re-optimize on the quality/price front after the imposition of the fixed charge, but it would be pretty surprising if they had much scope for change at the bottom end. The argument from the craft brewers tends to be that these beers are about as bad as they can get already. It may be more expensive for the craft brewers to re-optimize, but they've more scope to do it. I'd still reckon they've less need to though: I have a hard time believing that demand is that responsive to an 8% price increase for the higher quality beers.

I'm not a fan of the proposed increases or of the report forming the basis for arguments favouring the tax increase. There are plenty of good arguments against the tax. I'm not convinced the small brewers have a good one here, but if they've any data on relative demand elasticities, I'm all ears.

In related news, the hubub surrounding the Palmer press conference in which he telegraphed the Law Commission's intentions apparently has led our big supermarket chains to start engaging in price fixing on alcohol. Some folks thought the supermarkets were using alcohol as a loss-leader and wanted regulation to stop such behaviour; I tended to figure that buying in exceptionally large volume explained price differences between supermarkets and some liquor outlets. The Hospitality Association has argued for banning of the use of loss leaders (or just getting alcohol out of supermarkets entirely) - anything to raise your rivals' costs with the patina of social responsibility, eh?

But no matter. The problem, such as it was, is now solved. Matt Nolan, who's sat on his hands about the BERL report, weighs in here and here. Brad Taylor usefully points to Yandle (the young Sith apprentice learns well); Walker (who only supports antitrust legislation when it could have a big effect on his budget set) weighs in as well. I've little further to add.

Costs and Benefits of alcohol: Christchurch Press edition

Update 15 June: Folks interested in the full argument should hit the BERL tag - that will pull up more of the background work. And stay tuned: a far more thorough examination of the BERL report is coming out soon. My opinion of it has not improved.

Below is the op-ed I wrote for today's Christchurch Press. Unfortunately, they don't put their Perspectives pieces online; otherwise, I'd just link through to there. The version I sent is copied below, but I think they changed the headline.

The costs of everything and the value of nothing

We all know somebody who has a pint of beer with lunch, another pint at dinner, and a small tipple before bed. We might think he drinks a bit too much for his health, but would you believe me if I told you that he doesn’t get any enjoyment at all from his beer? I don’t just mean that, after accounting for what he pays for the drink, he really gets little out of it: instead, I’m telling you that he might as well be running his money through the shredder. I hope you’d tell me to blow it out my ear: our hypothetical drinker might not be leaving his liver in the best shape a couple decades down the track, but surely he gets at least some enjoyment from his daily drinks. Well, Geoff Palmer and the Law Commission, relying on a BERL report on the costs of alcohol, are trying to convince you of exactly the story I’m telling. And it’s nonsense.

The Law Commission was asked by the previous government to review our laws around alcohol usage. The terms of reference asked the Law Commission to deal explicitly with the need to ensure the appropriate balance between harm and consumer benefit. But the BERL report much cited by Palmer in his speech last week is the worst place to start if consumer benefits count for anything. Why? Because BERL explicitly assumes that any male drinking the equivalent of 2 pints plus 4 ounces of beer derives zero enjoyment from his tipple. 495,000 New Zealanders aged 15 and up, about 1 in 6, are considered harmful drinkers by BERL’s accounting. That sixth of the population is defined by BERL as receiving zero benefits from alcohol and are deemed to drink half of the liquor consumed in this country. It’s entirely plausible that a bit over two pints is enough for some people to start seeing some negative health effects from their drinking. But is it really plausible that they get zero enjoyment from those drinks? Hardly.

Why does this matter? Palmer cites BERL’s figure of 5.3 billion dollars in social costs of alcohol and says that includes the costs of crimes committed by drunks. He weighs those social costs against the current excise tax take for alcohol of about $800 million and argues for measures to reduce the difference. What he doesn’t say is that those costs also include the costs of producing and distributing half of the alcohol consumed in this country. A funny thing happens when a product is deemed, by assumption, to have zero benefits. Everything associated with that product then becomes a cost. Economists typically distinguish between private and social costs. Private costs are those borne by individuals through their own behaviour. External costs are those borne by others as a result of someone else’s activity. Technically, social costs are the sum of those two, but in policy discussions “social costs” are often used as shorthand for external costs. So you could be forgiven for thinking that the numbers Palmer cites represent some measure of costs imposed on others when it really mostly counts costs that heavy drinkers impose upon themselves.

If we look carefully through BERL’s numbers, about three quarters of their listed costs fall almost entirely on the drinkers themselves. Heavy drinkers are more likely to be absent from work; their forgone labour income (and income tax revenue for the government) then count as costs. However, heavy drinkers will earn less because they’re less productive: they bear those costs themselves. Heavy drinkers may have some associated health problems. To the extent that government pays for health care, taxpayers bear those costs. But, total excise taxes collected outweigh the health costs to “harmful” drinkers: those health costs are already defrayed by excise taxes on alcohol.

What are we left with after netting out all of the costs that drinkers bear themselves, either directly or via excise taxes on alcohol? Costs on victims of drunk drivers and costs of alcohol-related crime. Those are real external costs of alcohol abuse. It’s important that the Law Commission come up with some real proposals to alleviate these problems. But it’s also important that they weigh up the costs of their proposed solutions on the millions of New Zealanders who reasonably enjoy the moderate consumption of alcohol. Any per unit tax on alcohol aimed at recouping costs generated by a few hoons will always overcharge moderate drinkers while undercharging the folks who generate most of the problems. Geoff Palmer recommends increasing the current tax, but that will only further punish moderate users. Alcohol taxes, as noted in a rather nice 2002 Treasury study by Felicity Barker, approximately cover the external costs generated by heavy drinkers. External costs seem to have increased somewhat since that report. But as it isn’t feasible to implement a nonlinear tax structure (ie charging the hoons more for their drink but not so-punishing the rest of us), an optimal regime will likely combine a linear tax with penalties for the kinds of behaviours that cause harm to others. There’s little point in reducing the drink driving limit if few drivers in the 0.05 to 0.08 range cause problems and if few real penalties are imposed on those currently caught driving over the limit. The Press reported about a month ago on a seven-month pregnant woman caught drink driving at twice the legal limit with seven prior drink-driving convictions and fifteen convictions for driving while disqualified. It seems unlikely that having her license revoked serves as sufficient deterrent; lowering the threshold would similarly have no effect; and, raising the price of alcohol sufficiently to induce her and others like her to forbear would impose massive costs on the rest of us.

The Law Commission’s remit demands that it appropriately balance harms caused by problem drinkers against consumer benefits. It’s not encouraging that Palmer has begun by citing a study that derives inflated cost estimates by assuming that our hypothetical just-over-two-pint-a-day friend derives zero enjoyment from his drink. The BERL report cannot form the basis for any reasonable consideration of the welfare effects of alcohol policy. We cannot derive sensible welfare or policy conclusions from studies that consider the costs of everything but the value of nothing.

Dr. Eric Crampton is Senior Lecturer in Economics at Canterbury. He blogs at

Costs of Everything and Value of Nothing: a summary of the critique so far

I've spent a bit of time critiquing Berl's report on the costs of alcohol abuse in New Zealand. Here's a helpful guide for new readers.

The piece in the Press didn't have footnotes; hopefully this posting will serve for showing my work for that article's readers.

Zealand and league tables

A new league table is out placing New Zealand as tied for 9th overall in terms of comparative liveability. The report seems a bit odd though.
  • We rank poorly on the competitiveness of our markets, based on a measure of comovement of domestic and international prices. Is that the best measure for small open economies with inflation-targeting banks?
  • I have no clue how we score only on par with the US on a measure of economic openness. Check any of the economic freedom indices.
  • Our climate is ranked as worse than that of Finland. The measure is meant to be based on population-weighted average maximum and minimum temperatures. For NZ, that means Auckland's subtropical climate is ranked worse than Helsinki. This makes no sense at all, unless the index assumes folks really like cold dark winters.
  • Our unemployment rate is always below the US rate, but we fare worse on that measure
  • Fraction of survey respondents rating highly "Importance of God in one's life" counts positively in the rankings. Reasonable people could argue that "avoidance of superstition" is a good: atheists don't drown family members in attempted exorcisms. Fun fact: take the countries in the table with scores on both religious freedom and religious belief and run a simple correlation: -0.41. More religious freedom yields less religious belief. Most work I've seen on the topic suggests the opposite: that state monopoly churches discourage belief while competition invigorates it. Checking further, the correlation among Christian countries is 0.01 and that among Islamic countries is -0.57. Hmm.


Canada-Czech disputes: Throw Eric from the train edition

Canada and the Czech Republic are again ramping up disputes about the number of Roma fleeing the Czech Republic and claiming refugee status in Canada.

The last time this happened was about 10 years ago. Canada and the Czech Republic had a visa waiver agreement. So, all the tour guide books said that Canadians didn't need visas to visit. In the late 1990s, a documentary aired in the Czech Republic encouraging Roma to become refugees in Canada.
A 15-minute television report spurred the exodus of Czech Roma to Canada in 1996, according a report from Radio Prague in 1997. On Aug. 5, 1996, a documentary entitled “Na vlastní oči” (With Your Own Eyes) aired on Czech commercial broadcaster TV Nova that depicted a Czech Romany who had immigrated to Canada and was living a very comfortable life. It portrayed Roma families living well with state support while they waited to be granted asylum.

The days following the broadcast were full of reports from local officials of Roma selling their possessions and property in preparation to leave. One week later, the Canadian Embassy in Prague was receiving hundreds of calls a day—reportedly 90 percent were from Roma. Various reports and experts, including the report from Radio Prague, stated that mayors in some localities were exacerbating the situation by offering to provide funding for Roma who were seeking airline tickets to leave.
Canada then started demanding visas for Czech citizens visiting Canada. The Czech Republic later retaliated by demanding Canadians also get visas to visit there.

The new visa requirements came in after the publication of the guide book on which Sue was relying when she made our travel plans while I was on a post-doc at ZEI in Bonn in the fall of 2003. And so, a bit after 3 in the morning we were woken in our sleeper car on the train heading to Prague. Sue, an American, had no trouble: the visa waiver still applied. But not so much for me. And so I was thrown off the train at 4 in the morning at an empty and closed train station near the Czech Border: Marktredwitz. Sue decided to stick with me rather than continuing on to Prague. And so our planned tour of Prague became a tour of Bavaria once the train station opened two hours later.

My Czech colleague Andrea Menclova had a similar experience in traveling to Canada while in grad school at New Hampshire.

In Canadian-Czech disputes over Roma, it's always the innocent academics who get hurt.

Tuesday 5 May 2009

Evening roundup

Naming names

Wired recommends the Baby Name Wizard for tracking the faddishness of names. Names showing a sharp spike upwards in popularity disappear similarly quickly; those instead building slowly maintain popularity over a longer period.

I can also recommend the Wizard and the back end from which it presumably draws, the Social Security Administration's baby name wizard. We, or rather I, made extensive use of both about fifteen months ago. I compiled the set of names that made it into the top 1000 from 1880-1930, deleted any name showing up in the top 100 in any year from 1970 onwards, deleted any names now with reversed gender connotations (Marion, for example), deleted any that were just too anachronistic, added in a few that seemed fun, then picked my top 100. We iterated down to a top twenty by sequential vetoes (Sue vetoed 10, I vetoed another 10, and so on). After our little guy arrived, we ran a Borda count on the 20 to narrow down to a top five, then just matched up by consensus the name that seemed the best fit for the little guy featured in the picture top right. I was mildly surprised to find out that most folks don't use this method for choosing names: the rest of you seem to be choosing sub-optimal algorithms for baby name selection. Now that you know of the optimal algorithm, ignorance can't serve as excuse. It certainly helps in avoiding choosing faddish names.

And the offsetting effect will be...

Drivers will pay less heed to pedestrians, with an end-result of a small increase in the number of pedestrian-car collisions, but with a lower death rate per collision. Effect on pedestrian deaths overall then is ambiguous. That's my prediction for cars equipped with this new safety feature.
Researchers at Cranfield University in England have developed an external airbag they say will significantly reduce pedestrian fatalities and injuries in the event of a crash.

The system deploys a hood - or bonnet, as the British call it - airbag at the base of the windshield, which research shows is where a pedestrian’s head is most likely to hit. The system uses radar and infrared technology to “pre-detect” a collision and inflates quickly enough to cushion the impact, said Roger Hardy of the university’s Cranfield Impact Centre.
We do have evidence that drivers pay less heed of cyclists wearing more protective equipment; in this case, it's the car that's wearing the equipment.


Arnold Kling has been working out a statement of the central tenets of Masonomics.
1. Incentives matter. That is central to economics. It also is important for political economy--Masonomics uses public choice, which says that government officials, rather than acting as benevolent omniscient stewards, respond to incentives.

2. Signaling matters. It matters in education, health care, finance, politics, marketing, and personal relationships. I would suggest that if there is to be a Masonomics perspective on macro, then signaling should be central.

3. Institutions matter. Formal and informal rules shape economic behavior, for better or worse. For example, differences across countries in the standard of living are determined largely by institutions.

4. Evolution matters. When others see a lack of planning or central direction as chaos, Masonomists see Hayek's spontaneous order. A system of decentralized trial-and-error decisions works better than many people realize. Central regulation works less well than many people expect.
Previous iterations of the central tenets included the call to "lose the we"; he's also pondered writing a book on the topic.

I'm pretty happy to call myself a Masonomist under those definitions, especially since I'm a George Mason guy, but why limit ourselves with labels? There's good economics and bad economics, and we're more likely to see good economics where the work's been informed by due consideration of the points listed above.

Monday 4 May 2009

Evening roundup

Today's interesting journal articles:
Lots of goodness in the latest Economic Inquiry (many of the articles linked to above). Their new editorial policy is working.

The costs of teacher unions

The LA Times documents just how hard it is to fire incompetent teachers in California's unionized public school system.
The Times reviewed every case on record in the last 15 years in which a tenured employee was fired by a California school district and formally contested the decision before a review commission: 159 in all (not including about two dozen in which the records were destroyed). The newspaper also examined court and school district records and interviewed scores of people, including principals, teachers, union officials, district administrators, parents and students.

Among the findings:

* Building a case for dismissal is so time-consuming, costly and draining for principals and administrators that many say they don't make the effort except in the most egregious cases. The vast majority of firings stem from blatant misconduct, including sexual abuse, other immoral or illegal behavior, insubordination or repeated violation of rules such as showing up on time.

* Although districts generally press ahead with only the strongest cases, even these get knocked down more than a third of the time by the specially convened review panels, which have the discretion to restore teachers' jobs even when grounds for dismissal are proved.

* Jettisoning a teacher solely because he or she can't teach is rare. In 80% of the dismissals that were upheld, classroom performance was not even a factor.
The article provides lots of horror stories, including one teacher who couldn't be fired even after encouraging a student to try harder next time after an unsuccessful suicide attempt.

I can understand the case for tenure in Universities. I'm of mixed view of whether the costs outweigh the benefits, but at least the benefits make sense: freedom to conduct research the implications of which may be politically sensitive. And, the costs of failing to dismiss underperformers aren't all that high: they usually aren't assigned to teach critical courses; students can select courses based on word of mouth; funding follows students so Departments have an incentive to keep things from getting too bad. In high schools, the benefits are a lot less clear. I'm sure it protects some teachers against unfounded accusations from vindictive students, but so too would any reasonable dismissals process. The costs are a lot higher though: local public schools are local monopolies and students have few options.

Yet another argument for school choice and vouchers....

Morning roundup

  • Denis will be all over this one: Birds Raised In Complete Isolation Evolve 'Normal' Species Song Over Generations.

  • Elsevier erodes its reputational capital HT: Slashdot

  • Patri Friedman points us to Stringham and Hummel on the importance of libertarian evangelicalism. Of course, if preferences can change for the better, they can also change for the worse; neither democracy nor libertarian anarchy are robust to meddlesome preferences.

  • I wasn't terribly excited about the prospects for National's budget cutting consultants. Until I saw who they were: Murray Horn and Graham Scott. They're exactly the right people for the job. Excellent.

  • Phil Ascroft points me to a wonderful take-down in the New Zealand Law Journal of New Zealand's move to prohibit the party pill BZP: Kevin Dawkins (2008) The Great BZP Hoax, New Zealand Law J., 6(July). Available via Lexis-Nexis. Peer review of the studies on which the ban was based found them wholly insufficient, but prohibition was what the Minister wanted, and so prohibition was what the Minister got.

  • New Yorker on Orszag
    He [Jon Stewart] asked Orszag why the government didn’t just bail out borrowers who have defaulted. “The problem is, if you just focussed on the people who defaulted you create this huge incentive to default,” Orszag replied. Stewart looked at Orszag with an astonished grin. Before Stewart could finish pointing out that the government is creating an equally huge incentive by bailing out the financial firms Orszag realized that he had been backed into a corner: “Yeah, none of this is perfect!”
    Stewart responded with high-pitched laughter, seeming to suggest that if Obama’s budget director doesn’t know the answer to these questions we are all doomed.

Sunday 3 May 2009

Smoking, fiscal externalities, and harm minimization

Colby Cosh points me to still more examples of very bad analysis of the costs of drugs: in this case, smoking. The Canadian study seems to have tried to tally up the costs to government of tobacco, but didn't note that smokers' deaths reduce government pension costs and avoid the health system having to deal with the other ways they would otherwise have died (as we all do, eventually).

Two things worth noting.

First, Kip Viscusi and others have found that when the costs are tallied correctly, smokers save the government money: they die earlier of cheaper diseases.
Based on surveys of smokers in the United States and Spain, for instance, he demonstrates that smokers actually overestimate the dangers of smoking, indicating that they are well aware of the risks involved in their choice to smoke. And while smoking does increase medical costs to the states, Viscusi finds that these costs are more than financially balanced by the premature mortality of smokers, which reduces their demands on state pension and health programs, so that, on average, smoking either pays for itself or generates revenues for the states.

Second, it's unclear whether these "cost the health system money" effects really are inefficiencies. They're called fiscal externalities, and are of pretty dubious status regardless of the direction of the sign. If we take Buchanan and Stubblebine's (1962) categorization of pecuniary and technological externalities, fiscal externalities don't get to count as the kind that cause inefficiencies. In the Buchanan-Stubblebine framework, pecuniary externalities affect others via the budget constraint while technological externalities enter directly via the utility function: only the latter has efficiency consequences. In short, under that view, we should be no more worried about inefficiency caused by somebody smoking more and costing the health system money than we should be worried about inefficiency caused by somebody bidding against you at a house auction.

Even if you want to count fiscal externalities as technological, it's well-neigh impossible to tell where to stop. If the existence of a public health system induces me to smoke more than I otherwise would, imposing costs on you, the taxpayer, it will also have effects on all kinds of other things I might choose to do. Folks will take on more risks on many margins and will invest less in avoiding health costs. At what point does the State get to tell us we're forbidden from risky sexual practices because of the costs of STDs on the health care system? As Edgar Browning so nicely showed us, the full set of taxes and subsidies that would eliminate all of the incentive effects inherent in the public health system would have an incidence similar to an actuarily-fair private health insurance premium, but with massive transactions costs.

Finally, Reason points me to an FDA campaign against electric cigarettes, which deliver nicotine vapor to smokers. While these electronic delivery mechanisms are far safer than regular cigarettes, the anti-tobbac folks worry that they'll prove the gateway into regular tobacco for non-smokers. Or, at least that would be the rational version of the argument. Arguments against harm-minimization devices of this sort often seem more akin to the Pope's reaction to a campaign promoting masturbation over pre-marital sex. Consider the position of the anti-tobbac lobby here in New Zealand with respect to chewing tobacco, or snus, which here is banned.
Snus is an addictive tobacco product that contains nicotine. The risk of developing cancer is far less among snus users than it is among smokers. However, it cannot be said that snus is an entirely safe product nor can it be claimed that it has been proven to be an effective cessation aid for smokers who want to quit. ...Rather than deregulating the use of oral tobacco in New Zealand more substantial health gains are to be had from the regulation of all tobacco products.
In other words, even though it could well improve health outcomes for smokers, it's still tobacco, and tobacco is evil, and suffer not tobacco to live among you.

It's an empirical question around elasticities on the extensive and intensive margins, but I'd be extremely surprised if either electronic cigarettes or chewing tobacco proved net harm increasing. It's a shame that the onus isn't on the pro-ban folks to prove harm.