Friday, July 31, 2009

This Is How I Feel About Comprehensive Exams

. Friday, July 31, 2009
0 comments

Ilya Somin at Volokh:

This week, many of my former students will be undergoing the painful experience of taking the Virginia bar exam. My general view on bar exams is that they should be abolished, or at least that you should not be required to pass one in order to practice law. If passing the exam really is an indication of superior or at least adequate legal skills, then clients will choose to hire lawyers who have passed the exam even if passage isn't required to be a member of the bar. Even if a mandatory bar exam really is necessary, it certainly should not be administered by state bar associations, which have an obvious interest in reducing the number of people who are allowed to join the profession, so as to minimize competition for their existing members.


Somin also issues a challenge to those administering the bar: take it yourself, every year, or lose your positions. If the knowledge required on the bar is really necessary for practicing lawyers, then everybody should have to demonstrate proficiency and not just the new entrants. Via Jeff Ely at Cheap Talk, who chews on the possibility:

My bottom line is that banning the bar increases welfare but perhaps for different reasons than Somin has in mind. Routine services will become more competitive and this is good. Increased concentration at the high end is probably also good because market power means less output and for the kinds of lawyering they do, reduced output is welfare-improving.


This time next year I will be spending massive amounts of time preparing for comprehensive exams. I'll be reviewing my notes, reviewing other peoples' notes, memorizing citations, re-reading "foundational" papers, trying to fill in gaps in my knowledge of the literature, and generally freaking out over this massive exam that will determine whether I have just wasted several years of my life. All of this crammed knowledge will (hopefully) be forgotten the second the exam is over as I embark on a several-months-long drinking binge. Whatever remains will surely dissipate within months after. All for what? So I can spew several thousand words in a short amount of time displaying general and specific knowledge of my sub-discipline, including a lot of knowledge with no bearing on my research interests. Even worse: I have to do this twice in two different sub-disciplines within a 6 month period.

But all of that effort comes at a price: namely, my productivity during several major chunks of time during my third year in graduate school. I could spend that time working on conference papers, or refining my M.A. thesis in hopes of publication, or preparing a dissertation proposal, or collecting data, or doing any number of other things that could have a positive impact on my intellectual development and career prospects. Like blogging.

Instead I'm forced to spend my time on a largely fruitless pursuit. Twice. I have had tenured professors acknowledge to me that comprehensive exams are essentially worthless, but since they had to run through the gauntlet they're going to make damn sure that everybody else has to do it as well. Fair enough, I suppose, but surely there are Pareto-improving coordination possibilities that could make everyone better off? For example, instead of spending all that time preparing for and taking my comps, I could spend several months in my third year as an unpaid research assistant for a professor. I could gain hands-on experience in how to conduct research in a refined way and (possibly) an acknowledgement in a publication or even co-authorship credit to enhance my CV, the professor gets help for a project without sacrificing grant money, and both of us get experience working with the other, which could come in handy when determining who should be included on a dissertation committee. Everybody wins! Even the department looks better, if only slightly, since there is more research output than before.

And there are first-mover advantages for departments who adopt this new policy earliest: their grad students will have better CVs and more research experience (and so will perform better on the job market ceteris paribus), and their faculty will have more forth-coming publications. Departmental prestige does not come from grad students passing comps; it comes from published research and job placement. This system could improve both, if only marginally.

What is lost? The stamp of approval that comes from passing a comprehensive exam. But everyone seems to acknowledge that mastery of a subject is better determined by semester-long evaluations in substantive courses than in typo-ridden, caffeine-fueled mental diarrhea spewed out on one exam day. If a student does well in a course, as judged by semester-long interactions with the professor as well as written and oral assignments, then they know the material. If a student under-performs in a substantive course, then the course evaluator can require that (s)he make up the difference by writing a literature review or research design before receiving a full passing grade for the course (which is basically what happens anyway).

How would this not be a better system?

Was I Wrong to Be Worried About Deflation?

.
1 comments

Last fall Dr. Oatley told me not to freak out about deflation as price indices fell despite the fact the Fed had dropped interest rates practically to zero. Since that time the Fed has engaged in unprecedented "quantitative easing" policies while keeping interest rates near the zero bound. Thankfully these actions, along with the bailouts and stimulus policies of the Bush and Obama Treasury Departments, have kept the American economy out of a deflationary spiral. The most recent data show a core CPI inflation rate (excluding energy and food prices) in the black.

So was I overreacting? I don't think so. For one thing it was not clear back in November that the Fed would engage in quantitative easing, or that those actions would have much traction. It also was not yet clear how long the credit crisis would persist, what actions the Treasury Department would take, or what effect a stimulus bill that was still months away would have. In fact, some of those questions are still unanswered.

But one thing is clear. The ECB and Bank of Japan adopted less drastic monetary and fiscal policies than the U.S., and the result has been record-setting falls in their price levels. They are still not in end-of-the-world territory yet (especially in Europe), but they are firmly in the danger zone. As Dr. Oatley wrote back in November, this is cause for concern for following reasons:

1. Debtors suffer as the real value of their debt rises. Hence, more difficulties to service loans (think about housing price collapses and mortgage foreclosures). Rising debt service problems can harm financial institutions (that's an ironic understatement).
2. Creditors benefit as the real value of their assets rises. Of course, this assumes that debtors continue to pay.
3. Consumers benefit, because things get cheaper every day.
4. Not so good at the aggregate level. If we expect everything to be cheaper next month, we won't buy it this month. If we all defer our purchases in expectation of lower prices in the future, our aggregate demand falls and we produce less--which means we employ fewer people. With less income from lower production, prices fall further, so we push our big purchases off to the future again. And so on and so on. Deflationary spiral, I believe it is called. This is pretty much what happened in 1929-1933.


And while arguing by anecdotes is logically fallacious, acknowledging them can be fun. So I observed with bemusement Emmanuel's suit-shopping adventure, in which he bought a Hugo Boss suit at a low rate. Looking sharp, Emmanuel, but couldn't you have gotten them to toss in a better tie?

Obama's Realism

.
0 comments

Kenneth Waltz famously claimed that states are "functionally undifferentiated" and that the internal characteristics of states (e.g. the type of regime) are irrelevant for understanding state behaviors. In other words, states act according to capabilities rather than characteristics, and so all states may be viewed as unified entities seeking roughly the same goals.

This realist view of the states as undifferentiated unitary actors has come under fire from many quarters, and with good reason. Empirical evidence shows that internal characteristics of states can have large effects on their foreign relations. For example, democratic states do not fight each other (but fight non-democratic states with gusto). Internal characteristics of states can make signals more or less credible, can give national leaders more or fewer tools for statecraft, can limit or expand the range of foreign policies from which leaders may choose, and otherwise differentiate the behavior of states in a number of ways. Still, Waltz's idea travels far enough to be helpful for understanding many international interactions.

Take the formation of Obama's policy towards Iran, for example, as Roger Cohen does in an extensive article in the NY Times Magazine:

“Who [Iranians] select as leader is their prerogative, and there’s nothing we can do to control that,” Ray Takeyh, an Iranian-born adviser to Dennis Ross, the veteran Mideast negotiator who has been working on Iran for the Obama administration, told me before the election. “We’re trying to deal with Iran as an entity, a state, rather than privileging one faction or another. We want to inject a degree of rationality into this relationship, reduce it to two nations with some differences and some common interests — get beyond the incendiary rhetoric.” Takeyh’s words reminded me of Ross, who in his book “Statecraft” defined the term’s first principles as, “Have clear objectives, tailor them to fit reality.”


(bold added)

This comes as something of a departure from previous administrations, and other factions within the American government and even Obama's own State Department. President Bush preferred to see things in more moralistic terms (democracy = good; authoritarianism = Axis of Evil), while Senator McCain -- Obama's rival for the presidency -- famously proposed a "League of Democracies" to police the globe. Secretary of State Clinton -- perhaps inspired by her husband's belief in the necessity of humanitarian interventions -- preferred taking a stronger line against Tehran after the crackdown on protestors following the recent disputed Iranian election, and Vice President Biden agreed with her. But Obama, taking a page from Kissinger's realpolitick, clearly prefers rapprochement to rhetoric.

Still, the rest of Cohen's article is thick with individual personalities, philosophies, and strategies that are vying for influence in the American, Israeli, Russian, Chinese, Saudi Arabian, and Iranian administrations. As some approaches win out over others, the foreign policies of states shift; and as policies shift, so do outcomes. So perhaps we can score one for the argument that just as capabilities matter, so do interests, identities, and institutions at the national level.

Finally, as an aside, what in the hell does this mean?

Indeed, what looms for the Obama administration is a core test, over Iran, of its new foreign-policy doctrine. This was defined by Hillary Clinton as follows: “We will lead by inducing greater cooperation among a greater number of actors and reducing competition, tilting the balance away from a multipolar world and toward a multipartner world."


Whatever that is, it isn't realist.

ADDENDUM: Drezner sees less realism in Obama's foreign policy, or at least fewer realistic hopes for that approach. But when I read the passages he cites (about Ross' humiliating meeting with King Abdullah), I got the impression that Ross was simply unprepared for the questions Abdullah asked. This may be more a function of the fact that the administration had been in office for a mere 99 days when Ross took that meeting (apparently the Saudi King doesn't believe in 100 Day honeymoon periods for new presidents); Obama's positions on every possible contingency may not have been fully-formed yet, or they might not have been known to Ross (who was himself in a state of flux in late-April: unwanted by Clinton at State, but not transferred to NSC until June). Ross could simply have been out of the loop. Perhaps that's a lame excuse, but whatever the reason I don't think it alters Obama's fundamentally realist orientation towards Iran. Whether or not it works is another matter...

When Walloons and Flemings Collide

.
0 comments

I know very little about Belgium, other than the fact that every time I learn something new about the place it blows my mind. For example, its government is described by Wikipedia as a "federal parliamentary representative democratic constitutional monarchy" (whew!). The largest political issue is the festering fight for linguistic supremacy between the French-speaking Walloons and Dutch-speaking Flemings that has led to large and growing sentiment that the country should just split in two. This, of course, would be a black eye for the E.U. (whose headquarters is of course in Brussels) but is mostly just weird: it's got to be the quaintest civil "war" in world history.

Speaking of quaint, Belgium also hosts one of the world's most idyllic cities: Bruges, the capital of Flanders. About which Wikipedia notes that "Bruges is known for its lace" and "several beers are named after Bruges". But I know Bruges best as the setting for the 2008 film In Bruges, which contains one of the best acting performances of the past five years (Ralph Fiennes as Harry Waters).

What does this have to do with anything? Nothing much, except as an excuse to link to this report from Ingrid Robeyns at Crooked Timber:

According to the Dutch-language Belgian newspaper De Standaard, Belgian politicians have decided that the best qualified candidate for the position to lead the Belgian National Office for Pensions will not be appointed. The reason? He is Dutch-speaking, and it was decided that appointing him would bring the balance of francophone versus Dutch speaking high office public servants in danger.

Strictly speaking this is not the case, since the official parity rule (that the positions of General Director are 50/50 split between the Flemish and francophone language groups) is respected. But apparently if one takes the Adjunct-General Directors of all Belgian Departments and Offices into account, a francophone needs to be appointed in order to have a 50/50 balance at these two levels taken together.

The obvious solution would be to require all top-level public officials to be bilingual, as private firms in Belgium tend to do too; but apparently a proposal to that effect in a major set of federal reforms in 2000 didn’t pass.


But the best part is this:

No francophone candidate passed the selection procedures, so the solution one has chosen for is to start searching again, and only francophone candidates can apply.


Again: quaintest civil controversy ever.

A few years back, Robeyns had a long (but instructive) background post on the Belgian political crisis here. Well worth reading.

Thursday, July 30, 2009

Neda Agha-Soltan

. Thursday, July 30, 2009
0 comments



40 days ago this woman was shot by government-backed militiamen while standing on a Tehran street. The shooting was captured on video, and the woman became the symbol of a movement.

The protests continue. You can (still) follow developments through The Lede, Tehran Bureau, and Sullivan, and niacINsight. Nico has been silent for a few days, but I assume he'll reemerge at some point.

The most interesting recent development is the growing rift between Ahmadinejad and Khamenei. Mahmoud's support from the religious right is slipping, although his support among the Revolutionary Guard and Basij still appears to be strong.

This isn't over yet.

If the Chinese Pop a Bubble, Does It Make a Sound?

.
0 comments

James Fallows ruminates on China's options:

Obviously the Chinese government had to do something to offset the tens of millions of layoffs happening all at once. Its predicament was in a way like America's at the start of the Great Depression: having had an abnormally large share of the world's manufacturing jobs and export earnings when times were good, it had more of them to lose when demand crashed. But China's situation was worse, because it is so much poorer than America was, and because exports represented a bigger share of its employment base.

So China had to do something. The danger, as with the US recovery measures now, came from the long-term implications of the necessary short-term damage-staunching measures. And here the main fears were: (a) that the government would try to maintain its huge trade surplus (through subsidies, Smoot-Hawleyesque trade barriers, "buy Chinese" rules, etc) even as foreigners were forced to cut back on their buying, thereby triggering understandable resentment and retaliation; (b) that its stimulus efforts would aggravate trade-imbalance problems in the future, since so much was devoted to new productive capacity which could further glut world markets; and (c) that the stimulus would lead to a big destabilizing bubble, since a lot of it was propelled by China's version of sub-prime loans. (Ie, shaky, under-collateralized, dubiously repayable loans to sweetheart or shady companies).


Meanwhile, John Makin considers the possibility that China is bubbling (I'm trademarking "bubbling" by the way):

The worst outcome for China would be one that includes ever-rising inflation pressures, as money and credit flows augmented by "hot money" capital inflows push the inflation rate up to a level that threatens China's stability. Since that would be most likely under a scenario in which industrial economies are not recovering in the second half of the year, we could see a situation in which disappointment over the recovery in the big three economies coincides with disappointment about the sustainability of China's planned 8 percent growth path. That outcome would coincide with a likely bursting of the stock and property market bubbles that are inflating in China now on the hopes that a second-half recovery will validate China's goal of sustained 8 percent growth in 2009.


Yesterday I briefly discussed whether it would be possible for regulators to effectively deflate bubbles before they crash, but I didn't discuss whether governments would take such actions even if they could. Surely this is just as great of a concern. The Chinese Communist Party is not responsible to its citizens in the same way that, say, President Obama and Democrats in Congress are, but that doesn't mean that Hu Jintao doesn't face domestic political pressures. Since 1973, the Chinese Communist Party has staked its political future on continued economic progress, and has been willing to make many compromises to that end. So if faced with a choice between putting the brakes on the domestic economy -- and facing the political backlash that will surely come -- and continuing to gamble greater and greater sums on a growth model that may not be sustainable, the Chinese may have little choice but to take the bet. If they pop the bubble they risk their political survival.

This political calculus is not unique to the Chinese leadership of course. In fact, their institutional advantages make them more insulated from domestic pressures than the governments of most other large economies. Still, even Chinese policy is (likely) influenced by these pressures. The lesson is that in many instances the political incentives will point towards bubble-inflating policies rather than away from them, so gearing a regulatory structure towards bubbling-popping is self-defeating.

Wednesday, July 29, 2009

More on Pirates!

. Wednesday, July 29, 2009
1 comments

This post continues my obsession with the economics of piracy and the lifestyles of modern day pirates. I woke up this morning to a post over at The Economist's Free Exchange blog that linked over to an interview that Scott Carney did with a Somali pirate. The interview is really interesting. Here are some interesting excerpts (click the link above to read the entire conversation):

From what I’ve seen, initial demands tend to be about 10 times the previous publicized ransom, is this a rule of thumb?

We know that we won’t get our initial demands, but we use it as a starting point and negotiate downwards to our eventual target. But as a rule, yes, that’s about right.

Does the length of a hijacking change the ransom that pirates are willing to accept?

Yes. Armed men are expensive as are the laborers, accountants, cooks and khat suppliers on land. During long negotiations our men get tired and we need to rotate them out three times a week. Add to that the risk from navies attacking us and we can be convinced to lower our demands.

How much does it cost to outfit a pirate mission?

A single mission with 12 armed men and boats costs a little over $30,000. But a successful investor has to dispatch at least three or four missions to get lucky once.

How are the pirates organized? (Are there pirate leaders, financiers, and specialists?)

The financiers are the most important since they organize and plan the big shot operations and are able to pay running cost[s]. Financiers always need to forge deals with traders, land cruiser owners, translators, business people to keep the supplies flowing during operations and manage the logistics. There is a long supply chain involved in every hijacking.

Religiosity and College Majors

.
0 comments

From Inside Higher Ed: The NBER and four scholars at the University of Michigan, Miles S. Kimball, Colter M. Mitchell, Arland D. Thornton and Linda C. Young-Demarco, released a study yesterday detailing the impact of religion on the selection of college majors by students as well as the impact of religiosity on the decision to go to college.

Among the findings:

The odds of going to college increase for high school students who attend religious services more frequently or who view religion as more important in their lives. The researchers speculate that there may be a "nagging theory" in which fellow churchgoers encourage the students to attend college.
Being a humanities or a social science major has a statistically significant negative effect on religiosity -- measured by either religious attendance and how important students consider the importance of religion in their lives. The impact appears to be strongest in the social sciences.
Students in education and business show an increase in religiosity over their time at college.
Majoring in the biological or physical sciences does not affect religious attendance of students, but majoring in the physical sciences does negatively relate to the way students view the importance of religion in their lives.
Religious attendance is positively associated with staying in majors in the social sciences, biological sciences and business majors. For most vocational majors, the researchers found a negative relationship between religious attendance and staying in the same major. The researchers compare this finding to their data about how students who attend services are more likely to enroll in college in the first place: "In both cases, religious attendance encourages a shift toward a higher status path."

Blowing Bubbles

.
0 comments

Alex Tabarrok has a very good post on "bubbles", or investment markets that get over-blown and then collapse. He discusses all the major points, namely the difficulty in identifying bubbles, the difficulty in diffusing them, and the resilience of bubbles against education (but not wisdom gained through experience!). There are repercussions for monetary policy, rational choice theory, regulatory policy, and portfolio theory.

Most of the post simply summarizes the high points in the academic literature on bubbles and investor sentiment, but these arguments are worth reiterating (and note that Daniel Gross has argued that bubbles are a net positive force, although I don't see anyone mentioning his argument these days). Please read the whole post, and if you're feeling ambitious read the cited articles as well (esp. the Vernon Smith). I have criticized Tabarrok before, but I can't see a flaw in this post.

Some smart people have argued that the Fed, or another national regulator, should be in the business of identifying and deflating bubbles in an attempt to prevent the shocks that occur when a bubble pops. Other smart people have argued that this is impossible. Still other smart people have argued that even if it is possible for investors to identify bubbles and bet against them, "the market can stay irrational longer than you can stay solvent".

So this leads me to a challenge: Predict the next investment bubble to catastrophically explode. I'm not asking for any money to be put on the line; just a wild-haired guess. There's nothing on the line, because by the time it happens this post will be long forgotten. This is only in fun. I insist that all of my fellow IPE@UNC authors participate in the comments or their own posts (and yes, that includes SBD), but I'd also love to see some predictions from readers and other bloggers.

Here's mine: The easy bet is on Eastern Europe, but I think that's for suckers. Those markets have already inflated and deflated several times in the past two decades, and I think investors will have learned some lessons. So my bet is on China. So far, the PRC has been careful to monitor and regulate portfolio investment inflows, but if China is going to fully integrate into the global economy that will have to change. There are already signals that China has over-reported its growth rates and may be not be quite as prepared to emerge as a global economic power as commonly believed. Add to the mix a reliance on exchange-rate stability and a strongly export-biased growth model and China seems ripe for some over-reach in the coming decade. I still remember the 1990s, and as strong as China looks now, Japan looked even stronger in 1994.

I don't actually expect to be right about this, and I'm certainly not prepared to wage real money on it, but that's the fun. So let's hear it.

Tuesday, July 28, 2009

Kenneth Arrow on Macroeconomics, Health Care, and Climate Change

. Tuesday, July 28, 2009
0 comments

Part one (about macroeconomics) is here, and part two (health care) is here. Part three (climate change) gets posted tomorrow. I liked this:

Oh, why health costs increase? The basic reason why health costs increased is that health care is a good thing! Because today there is a lot more you can do! Consider all these expenses that are diagnostic. Cat scans, X-rays, MRIs and now the proton-powered whatever-it-is. Something that is the size of a football field, cost $50 million, and has all sorts of diagnostic powers. A lot of these technologies clearly reveal things that would not be revealed otherwise. There's no question about it. Diagnostics have improved. Technology has improved. You know, sending things through your blood stream to help in operations, instead of cutting you open. It's incredible. But these things are costly. But for older people longevity is increasing by a month each year. Now, whether that creates other problems with retirement and social security is another question. But, nevertheless, preserving life is a good thing.


Arrow also argues that the erosion of "professional standards" has been a driving force in the rapid inflation of health care costs. I have not seen any evidence of this other than the observational fact that different states have different standards, and different states have different per capita health care costs. But the one does not necessarily point to the other. Do readers know of any rigorous treatments of the question?

Sentences I Liked

.
0 comments

The way I look at it, one hundred percent of the population is going to die of something that we can't currently cure, but might in the future . . . plus the population of the rest of the world, plus every future generation. If you worry about global warming, you should worry at least as hard about medical innovation
.

Of course the reverse is also true. Much more here, though I don't agree with all of the rest.

Sunday, July 26, 2009

Miss Teen South Carolina on Economics

. Sunday, July 26, 2009
0 comments

From Marginal Revolution. I'm really surprised she was allowed to go on for so long. This is amazing.



And because we love this video so much:

What I've been reading (July Edition)

.
0 comments

Since all of the cool kids (Charli Carpenter, Tyler Cowen, Angus, Stephen Walt) are doing it, I might as well throw mine up there in the hopes of looking a bit cooler (and dorkier).






Show Some Love, Harvard Law School!

.
0 comments

Despite Greg Mankiw's sure influence, Harvard University clearly hasn't learned proper blog etiquette. They copy-and-pasted one of our posts in its entirety (via Seeking Alpha), but the link they provide points to a separate page on their web site rather than our Seeking Alpha page, much less our blog itself. Apparently the Harvard Law School is in such dire straits that it can't afford to detract attention from itself by linking to original sources*.

Seriously. Here's their site (look for the "Altering Incentives in the Financial Industry" entry), and here's what they link to. It isn't us. And even worse, the blockquotes from our post are lost in transcription, so it looks like we wrote things that we did not write. Scandalous!

Some sort of retribution is surely in order, but all of their working papers are too long for this blog. Besides that, despite losing some 30% of its endowment in the past year, Harvard can surely afford better lawyers than I.

So consider this post my spit in your eye, Harvard Law School. Just because you're richer and smarter and more powerful than the rest of us doesn't mean you have to be jerks about it.

*We're not the only ones; that page is littered with non-links to blogs, magazines, and newspapers all over the internet. And while it's true that our post discussed an article that cited a study by a Harvard Law School Professor, we had the freaking courtesy to link to it rather than reproducing the whole damn thing on our site!

Merda!

.
0 comments

Mario Draghi, governor of the Bank of Italy:

We will emerge from the economic crisis with more debt and higher unemployment. In order to reduce them, we should be able to grow at a faster pace than over the last 10 years.


Edward Hugh at A Fistful of Euros:

Well, growing more rapidly than over the last ten years should not, in theory be difficult, since according to my calculations, and using the forecast of the IMF, the average rate over the last decade will be more or less zero by the end of next year. That is to say, GDP by the end of 2010 should not be much above GDP in 2001.


Snark aside, there are no reasons for optimism in Italy. Hugh, again:

Indeed, I reckon the Italian economy is just as likely to contract over the next decade as it is to grow.


If you're feeling masochistic there is a chart at the link.

Saturday, July 25, 2009

Weekend Links

. Saturday, July 25, 2009
0 comments

-- Al Gore vs. Bjorn Lomborg, or What should we do about climate change?

-- A symposium on Obama's plan for regulatory reform, featuring Kling, Posner, White, Litan, and Evans.

-- Towards a new definition of rationality.

-- A forum on global poverty and intervention, featuring Collier, Krasner, Easterly, and others.

-- Is Barry Eichengreen an economist or political scientist? Which should he be?

-- An oldie but a goodie: Hitchens grapples with Churchill's legacy and persona.

Friday, July 24, 2009

What the U.S., China, Russia, and Turkmenistan Have in Common

. Friday, July 24, 2009
0 comments

They all made this silly list of the "world's worst health care systems", passed along by Ezra Klein.

Let me just point out that the U.S.'s health care system was ranked 37th in the last World Health Organization survey. For what it's worth, Russia was 130th, China was 144th, and Turkmenistan was 153rd. Putting the U.S. in the same category as these other nations as "one of the worst" is deceitful. The U.S. is in the top quintile, meaning that the U.S. has one of the best health care systems in the world. Perhaps not as good as France or Germany, but still better than the great majority of countries.

Even more, the W.H.O. rankings are biased against pay-for-care systems:

The WHO rankings are based on a constructed index of five factors. One factor is "health level," defined as a country's disability-adjusted life expectancy. Another is "health responsiveness," which includes desirable characteristics of healthcare like speed of service, protection of privacy, and quality of amenities.

Both of these are sensible indicators of health quality, but they constitute only 37.5 percent of each country's score. The other 62.5 percent encompasses factors only tenuously connected to the quality of care -- and that can actually punish a country's ranking for superior performance.

Take "Financial Fairness" (FF), worth 25 percent of the total. This factor measures inequality in how much households spend on healthcare as a percentage of their income. The greater the inequality, the worse the country's performance.

Notice that FF necessarily improves when the government shoulders more of the health spending burden, rather than relying on the private sector. To use the existing WHO rankings to justify more government involvement in healthcare is therefore to engage in circular reasoning, because the rankings are designed to favor greater government involvement. (Clinton's plan would attempt to improve the American FF score by capping insurance premiums.) ...

The other two factors, "health distribution" and "responsiveness distribution," are no better. Together worth 37.5 percent of a country's score, these factors measure inequality in health level and responsiveness. Strictly speaking, neither measures healthcare performance, because inequality is distinct from quality of care. It's entirely possible to have a healthcare system characterized by both extensive inequality and good care for everyone.


(bold added)

In other words, the W.H.O. rankings are often understood to be positive rankings based on objective criteria. In truth, they reflect strong normative preferences for egalitarian systems. These may be the right normative preferences to have, but they do not actually measure the quality of care in any absolute terms. This is why the U.S. and Cuba can be essentially tied in these rankings, despite the astounding divergences in actual quality of care.

None of this is to say that U.S. system is an especially good one, or that it cannot be improved. It should be obvious to everyone that some other countries have better systems than the U.S., and that there are lessons to be learned from those countries. But the sort of "worst system in the world" hyperbole that often emerges from progressives is counter-productive, mis-leading, and intellectually dishonest. There are some things that the U.S. does well and some things it does poorly. To create a new, improved system the U.S. must recognize the good while bettering the bad.

Thursday, July 23, 2009

More Evidence on the Effectiveness of Microfinance

. Thursday, July 23, 2009
0 comments

The results from the 2nd randomized study on the effectiveness of microfinance are in:

So…did microcredit “work” in Manila? Mostly not, as far as the evidence goes. Rossi’s Stainless Steel Law has held: the better the study, the weaker the effect found.


The results from the first randomized study weren't much better.

Via Blattman, who adds: "Aside: What is wrong with the aid industry that the evidence on microcredit – started in 1974 – is still uncertain and early?"

Is China Really Pulling Away from American Debt?

.
0 comments

The Chinese say that they will be diversifying away from T-Bills:

“This is reserve diversification in a broader sense. Instead of accumulating foreign exchange reserves and short-term financial assets, the government wants the nation to accumulate more long-term corporate real assets.”

State-owned groups, particularly in the oil and natural resources sectors, have stepped up their hunt for overseas companies and assets on sale because of the global crisis.


Of course if China stops buying T-bills it will put downward pressure on the dollar, make the servicing of our deficits more costly, and making our imports more expensive (thus making us poorer). So if the Chinese are truly diversifying away from the dollar, or away from government debt, then it could spell trouble. This is the "Great Adjustment" that economists like Nouriel Roubini have been warning about for years. This was how Chimerica was supposed to fall apart.

But the Chinese have been making these sorts of threats for years without following through, and I've learned over the years to never form an opinion on Chinese sturm und drang without consulting Brad Setser first. He says:

For a while in 2007 and 2008 the growth in China’s US holdings lagged its reserves. Chalk that up to diversification. The gap between China’s known US assets and its reserve growth came at a time when China was buying more “risky” US assets, like equities — and likely increasing its exposure to a host of potentially “risky” emerging economies. Or chalk it up to increased use of private fund managers, including the money market funds used by the CIC. China’s dollar holdings likely increased a bit more rapidly than the US data implies.

Then for a brief period last fall China’s “safe” US holdings rose far faster than its reserves. That likely reflects a shift out of riskier assets – and a shift away from privately managed funds — back towards classic reserve assets. I don’t know precisely what drove the surge in recorded inflows to the US. But something changed. After a period when inflows to the US lagged, they suddenly surged — with almost all the inflow going toward short-term bills

And now China’s US holdings – particularly its Treasury holdings – seem to be rising in line with China’s reserves.

China is still buying other assets. Chinese state firms have been actively bidding for mineral rights – and companies that have mineral rights. And China has been stockpiling commodities. But over the last few months SAFE has essentially been buying Treasuries at – best I can tell – more or less the rate implied by China’s reserve growth.


Setser has charts and graphs to prove it, if that's your thing. The gist seems to be that China is diversifying, but their reserves are so large (over $2tn, and growing rapidly) that they are still buying T-Bills as well. Remember, the China Investment Corporation got burned badly when the equity markets tanked last fall, and the Chinese government has demonstrated strong risk-aversion time and time again. So while they do continue to diversify, their holdings of T-bills will continue to grow as long as their foreign reserves keep growing.

Emmanuel at IPEzone offers further comment.

American Diplomacy and Public Opinion

.
2 comments

This post over at the Monkey Cage by John Sides speaks a bit to my earlier post on Obama's global poll numbers.

"Have U.S. public diplomacy efforts during the post-9/11 period successfully improved foreign publics’ appraisals of U.S. foreign policy? We examine this question by estimating the effects of U.S. high-level visits to foreign countries on public opinion in those countries…we show that the effects of such visits were initially significantly large and positive, but weakened once the war in Iraq began and international media started reporting negative aspects of the ‘‘war on terror.’’ Most interestingly, we find some evidence that high-level visits eventually exhibited a backlash effect."

That is from this new paper by Benjamin Goldsmith and Yusaku Horiuchi (gated; ungated). The data come from surveys in 61 countries conducted between September 11, 2001 and 2006, each of which asked questions about how respondents viewed the US. Goldsmith and Horiuchi then determine whether respondents surveyed in the wake of a high-level visit from American officials had more positive or negative views of the US.

Right after September 11th, public diplomacy worked. Compared to respondents in countries with no visit, respondents in countries who had just experienced a high-level visit gave 8% more positive responses and 16% fewer negative responses when asked their opinions of the US.

In the period between the beginning of the Iraq War and the Abu Ghraib scandal, high-level visits had no significant effect on positive responses but were associated with 17% more negative responses.

After Abu Ghraib , high-level visits made responses made things even worse, driving down positive responses by 9 points and driving up negative responses by 20 points.

The lesson, say Goldsmith and Horiuchi, is that diplomacy depends on credibility:

"A U.S. leader perceived as credible abroad, even to the somewhat limited extent that this was so for George W. Bush or Colin Powell before March 2003, can have a substantial impact on public opinion about the United States and its foreign policy in the country he or she visits. As that credibility is diminished, however, our findings clearly show a loss of influence and indicate the potential for negative backlash."

Obama's New International Poll Numbers

.
0 comments

During the presidential campaign last fall, many observers as well as candidate Obama himself, predicted that his election would go a long way in repairing America's relations with its major allies in Western Europe, as well as elevate the position of the United States in the minds of people throughout the developing world. The Pew Global Attitudes Project just released its findings on this issue.

Mr. Obama, according to the survey by the Pew Global Attitudes Project, enjoys greater confidence among Germans than does Chancellor Angela Merkel, and among the French than President Nicolas Sarkozy. His election in itself, pollsters found, helped restore the United States’ image abroad to levels unseen since the Clinton years.

Improved attitudes toward the United States were most marked in Western Europe, but also evident in Asia, Africa and Latin America, as well as some predominantly Muslim countries.

In Indonesia, where Mr. Obama spent part of his youth, no fewer than 73 percent of those polled said that his election had directly improved their opinion of the United States.
Europeans, in particular, seemed to be responding positively to Mr. Obama. The number of Britons saying that they trusted the American president to do the “right thing” in world affairs soared to 86 percent this year, under Mr. Obama, compared with just 16 percent last year, under President George W. Bush. The increase was slightly larger in both Germany and France.

For the first time since Pew began making the comparison, people in Turkey, Egypt, Nigeria and Indonesia — all predominantly Muslim nations — expressed greater confidence in the American president than in Osama bin Laden.
This finding is without a doubt a good thing for the United States. I expect these numbers to decrease with time, much like we have seen Obama's poll numbers dip in the United States as the honeymoon has worn off and the battles over health care and the economy continue. But, even if the global numbers do fall off from the current highs, it's clear that the United States has regained a lot of its ethical legitimacy in the eyes of its allies and people in the developing world. This change alone, increases the probability of American success in issue areas pretty dramatically.

I don't know how far back the Pew project data on global presidential approval goes, but if the data is available, it would be interesting to see if higher poll levels abroad correlate with greater success in American diplomatic efforts. Intuition tells me that this should hold, but I've noticed lately that intuition can be pretty damn wrong quite often. It'd be great to see some hard data on this topic.

The Fed's Balance Sheet

.
0 comments

From RTE over at the WSJ, via DeLong.

The Fed’s balance sheet expanded for the first time in three weeks, rising back over $2 trillion. Direct-bank lending rose after posting declines in the four previous weeks, though the increase was relatively small. A bigger contribution came from a more than $5 billion boost in the Term Asset Backed Securities Loan Facility, which is aimed at spurring consumer lending but hasn’t been used nearly as much as originally envisioned. The largest expansion in the balance sheet came through purchases of Treasurys, agency debt and mortgage-backed securities. The Fed started a program in March to ramp up such acquisitions in order to push down long-term interest rates low. Since that time the makeup of the balance sheet has shifted substantially, with less direct emergency lending to banks and more holdings of debt. Central bank liquidity swaps increased for the first time in 14 weeks, but still remain lower than crisis levels reached soon after the collapse of Lehman Brothers.

US Treasury Cashes in

.
0 comments

It was announced today that Goldman Sachs' repayment of the $10 billion in TARP funds last month that the government provided to the bank in the midst of the financial crisis last fall, generated a 23 percent annualized return for American taxpayers.

Goldman Sachs agreed to the Treasury’s request for $1.1 billion to repay warrants the government received when it invested $10 billion in the New York-based firm last October. The payment is in addition to $318 million in preferred dividends.

The company’s warrant transaction “was the best deal for taxpayers yet,” said Linus Wilson, a finance professor at the University of Louisiana at Lafayette.

The firm is paying about 98 percent of the warrants’ value, based on Wilson’s use of the Black-Scholes and Merton option pricing models. By contrast, he estimates that BB&T Corp. and U.S. Bancorp have struck deals with Treasury to pay less than 60 percent of the value of their warrants.

The 23 percent annualized return to taxpayers “is reflective of the government’s assistance, which benefited the financial system, our firm and our shareholders,” Chief Executive Officer Lloyd Blankfein, 54, said in a statement. “We are grateful for the government efforts.”
A warrant is essentially an option that allows holders to buy stock at a previously specified price. The US received these warrants in addition to preferred dividends in the deal to provide the liquidity.

Not too shabby of a return. $1.418 billion, or about 23%, in what is essentially interest payments for that $10b cash infusion. A nice little comparison - in the same 9 month span (from October to July), the S&P 500 is down roughly 20%.

We'll see what the market value at auction on those JP Morgan and Morgan Stanley warrants yield. We'll also wait to see how much the already agreed upon warrant values at a handful of other TARP-taking banks rakes in. From the initial evidence, it looks like the bailout turned out to be a pretty good investment for the US Treasury.

Tuesday, July 21, 2009

What, Me Worry?

. Tuesday, July 21, 2009
0 comments

Fed Chairman Ben Bernanke published an op-ed in today's WSJ. His message: don't worry, we've got a plan. Daniel McIntosh at DoM is unimpressed:

Gee--is everybody confident now? He goes on to tell how it will be done. A few observations:

1) The chairman of the Federal Reserve Board is worried enough about confidence that he chooses to make this statement.

2) He does so in a form that allows no questioning or rebuttal.

3) To the extent that he discusses the tools to contract the money supply, it's all pretty much the same as before. They aren't nearly as all-powerful as he wants us to believe.

4) Bernanke says almost nothing about the international dimension--including foreign exchange and the impact on what has been the world's reserve currency.

5) All his promises miss the political dimension altogether. Are we really to believe that those who have been personally helped by recent policies--bailed out banks, investment houses, Fannie Mae, Freddie Mac, etc.--are going to sit by and watch the Fed crank up the pain? The relation of Congress and State governments to the stimulus package is similar to that of an addict to cocaine. The American people will want their freebies, and they won't want to pay for them.

I'm supposed to feel more confident after reading this?


I'm not sure how he should feel, but I think McIntosh may be reading this too cynically, and that he is missing some context and subtext. I'll take his points in order:

1. It is possible that Bernanke is "worried enough about confidence" that he published this op-ed at this time. More likely, he published it today to coincide with his semiannual testimony before Congress, which began today (his prepared opening remarks are here). Congress has been talking about "auditing" the Fed, or otherwise demanding a more active role in managing the Fed, largely because of concerns that the Fed has over-extended itself in a way that will prove damaging to taxpayers. Bernanke is defending his actions in advance while attempting to frame the discussion in Congress.

2. See #1. The questions and rebuttals came from Congress today. Further discussion will occur on op-ed pages and blogs.

3. The reason why traditional tools of monetary policy lost traction during the crisis is because the Fed funds rate bumped up against its lower bound (i.e. interest rates cannot go negative). In an inflationary environment this will not be the case, so we have no reason to think that traditional monetary policies will not be effective in reigning in inflation. The question is not whether the Fed can hold inflation down; it's whether the Fed will recognize inflationary pressures early enough to nip inflation in the bud.

4. Bernanke's audience this week is primarily domestic, but that doesn't mean that his op-ed and testimony don't have international implications. Indeed, what would foreign holders of dollar-denominated assets most want to hear? A strong commitment from the Fed to maintain the value of their assets by maintaining the value of the dollar. This is done in part by keeping inflation low. In a sense, then, Bernanke's op-ed offers the most reassurance that he can provide -- in the broadest possible medium -- to international holders of dollars.

5. I find Bernanke's op-ed to be incredibly political. Bernanke is essentially arguing that the Fed can do its job without Congressional interference. This is made more explicit in his opening statement from today:

The Congress, however, purposefully--and for good reason--excluded from the scope of potential GAO reviews some highly sensitive areas, notably monetary policy deliberations and operations, including open market and discount window operations. In doing so, the Congress carefully balanced the need for public accountability with the strong public policy benefits that flow from maintaining an appropriate degree of independence for the central bank in the making and execution of monetary policy. Financial markets, in particular, likely would see a grant of review authority in these areas to the GAO as a serious weakening of monetary policy independence. Because GAO reviews may be initiated at the request of members of Congress, reviews or the threat of reviews in these areas could be seen as efforts to try to influence monetary policy decisions. A perceived loss of monetary policy independence could raise fears about future inflation, leading to higher long-term interest rates and reduced economic and financial stability.


Finally, it should be recognized that this is an op-ed in the WSJ, not a policy paper or beige book. The medium is general, so the language is general.

Morning Links

.
0 comments

-- Should the Canadian health care system become more like the U.S.'s? Probably not.

-- Are bank robberies a counter-cyclical activity? Probably (at least in Spain).

-- Does Condorcet's Theorem support mass democracy? Probably not.

-- Has increased income inequality resulted in increased social inequality? It depends.

-- Has the U.S./Japan alliance benefitted the world? Joseph Nye says "definitely", and that the alliance should continue:

In the early 1990's, many Americans regarded Japan as an economic threat. Some people - in both countries - viewed the security alliance as a Cold War relic to be discarded.

These trends were reversed by the Clinton administration's 1995 "East Asia Strategy Report." In 1996, the Clinton-Hashimoto Declaration stated that the US-Japan security alliance was the foundation for stability that would allow growing prosperity in post-Cold War East Asia. That approach has continued on a bipartisan basis in the US, and polls show that it retains broad acceptance in Japan. Most close observers of the relationship agree that the US-Japan alliance is in much better shape today than 15 years ago. ...

Given today's agenda, there is enormous potential for an equal partnership, working with others, in the provision of global public goods that will benefit the US, Japan, and the rest of the world. That is why I remain optimistic about the future of the US-Japan alliance.


ht to Attackerman for the Nye article.

Monday, July 20, 2009

Politics =/= Magic

. Monday, July 20, 2009
0 comments

Alex Tabarrok muses on the "political" part of "political economy":

Furthermore, the petition says that central bank decisions should not be "politicized." Again, this is disingenuous. Why are more independent central banks better at fighting inflation than less independent central banks? There is nothing magical about independence that makes for low-inflation. Suppose we pick someone at random and give them complete power over monetary policy. Such a central banker would be very independent but I wouldn't count on this policy resulting in much in the way of systematically lower inflation.

The primary reason that independent central banks are better at controlling inflation is that absent direct political control the default selection mechanism favors bankers, i.e. lenders, people whose interests make them more favorable towards lower inflation.

Thus, independence is a political decision that favors lenders in the decisions of monetary policy. Now, depending on the alternatives, there may be good reasons for making this choice but we should not fool ourselves into thinking that we have depoliticized money. We should not be surprised, for example, that "independent" central banks tend to make lender of last resort decisions that protect banks and bankers.


[bold added]

This isn't the first time I have been disappointed in Tabarrok's (lack of a) grasp of simple political economic theory. Fortunately for the world, there are a few people who think about the "political" part of "political economy", and they might even have something to say on the topic. For instance, Rosenbluth and Schaap found that electoral rules (i.e. single-member districts vs. proportional representation) play a major role in what types of banking regulations are chosen by governments. In proportional systems governments tend to choose "profit-padding" regulations that are intended to reduce risk-taking by limiting competition, thus guaranteeing higher profits for domestic banks. In other words, political variables can have major effects on banking policy.

Nor is it clear that bankers prefer lower inflation. If the higher inflation comes from lax monetary policy, then banks may prefer easy access to cheap credit over a lower price level*. In fact, Copelovitch and Singer found [pdf] that central banks that have multiple mandates -- i.e. to regulate banks and fight inflation -- choose different policies than those have a single mandate to fight inflation. Interestingly (and contra Tabarrok), Copelovitch and Singer found that central banks that regulate domestic banking sectors have higher inflation rates than those with a single mandate, but that central bank independence has no statistically significant effect on inflation rates. If bankers prefer low inflation, as Tabarrok states, then independent central banks are not acting in the interests of bankers**.

All to say that central banks may be "politicized" in many different ways, and the potential outcomes of that politicization is not predetermined or unidirectional. If these studies are to be believed, a less-independent Fed should lead to higher inflation and more prudential regulation of banks.

More distressing than Tabarrok's specific empirical claims is his attitude. Perhaps there is nothing "magical about independence that makes for low-inflation," but there could be something political about independence that makes for low inflation. In fact, there is a broad and deep literature in both the economic and political science disciplines showing that central bank independence is positively associated with lower rates of inflation. This is unsurprising for students of political economy, since we understand that short-run political incentives often diverge from longer-run economic incentives. "De-politicizing" monetary policy prevents politicians from damaging the macroeconomy in the longer-run in exchange for short-run political gains (at least, it prevents them from using monetary policy as such a tool; fiscal policy is another matter).

In short, there is nothing "magic" about politics, and we don't need "magical" reasons for expecting a link between central bank independence and lower rates of inflation: we have political explanations for these phenomena.

[UPDATE]: McMegan adds comment, and basically gets it right (she's got the story right but loses a few points for saying "magic" rather than "politics"):

Central bank independence works, not because the bankers aren't accountable to Congress (they are, after all, reappointed every so often), but because Congress is only weakly accountable for the actions of the central bank. If Congress were held to account for the actions of the central bank, Congress would appoint bankers who would do populist things that would make us all worse off. Most of the financial policy journalists I know have the sense that Congress actually supported most of what Paulson/Bernanke/Geithner did, but knew they did not dare enact it. They don't want a more accountable central bank.


*In a rational expectations framework lenders shouldn't much care about levels of inflation since they can adjust the interest rates they charge to compensate. In the long-run equilibrium, real profits should be the same no matter what the inflation rate is, so long as the inflation level is mostly stable.

**Or the Copelovitch/Singer results are spurious. For example, they did not test potential interactions between central bank independence and a central bank's mandate, or indeed any interactions including central bank independence. I have a lot of problems with their article, but so far it has not been challenged empirically.

Perception and Misperception in Trade Politics

.
0 comments

From a new article by Mansfield and Mutz in International Organization:

At one level, these results might seem curious. For example, why does a belief that the US should play the role of “world policeman” in preventing human rights abuses in other countries have anything to do with trade preferences? And why should how blacks feel about whites and Hispanics (or vice-versa) have anything to do with trade liberalization? Activist foreign policy attitudes, a positive attitude toward out-groups, and a preference for open trade, however, all reflect a sense of cosmopolitanism and inclusion. Isolationism, a negative attitude toward out-groups, and antipathy toward open trade all reflect a sense of insularity and separatism. In short, trade preferences are driven less by economic considerations and more by an individual’s psychological world view.


This article argues that the two dominant models of trade politics -- the Heckscher-Olin "factor endowments" model and the Ricardo-Viner "specific factors" model -- are both wrong because they both model individuals as motivated by their own individual self-interest. Instead, Mansfield and Mutz find that support for trade is more closely related to beliefs about how trade will affect one's group (and how people perceive which "group" they belong to).

This is the most interesting article on trade I've read in quite some time, and I suspect that it will find its way onto many IPE syllabi in the near future. I am very interested to see if the result holds up across issue areas and if these public attitudes have a direct effect on policy.

An ungated version is here (pdf). Ht to John Sides at The Monkey Cage.

Who Gets E.U. Farm Subsidies (redux)?

.
0 comments

In a previous post, I noted that many E.U. agriculture subsidies went to huge corporate conglomerates rather than the noble family farmer that has captured the imagination of Europeans. But that was only the tip of the iceberg. Others receiving E.U. agriculture subsidies include a Spanish construction company, German gummy bear manufacturers, cruise ship caterers, the Roman Catholic Church, and Her Majesty the Queen of England. The NY Times:

This year for the first time, all of the 27 nations in the European Union were forced to disclose how they distribute the money from farm subsidies, with Germany the only nation failing to comply in full. A computer analysis by The New York Times and the International Herald Tribune of recipients in major countries has provided the first detailed look at who receives the money.

The data underscore the extent to which the subsidy program has evolved beyond its original goals of increasing food production and supporting traditional farmers as they dealt with market fluctuations. It also illustrates how the European Union has moved to emphasize rural development instead of price support and production incentives, and in the process has decentralized the system, giving countries more discretion over the dispersal of subsidies.


Agricultural subsidies have been a frequent topic at IPE@UNC, and we are always quick to point out that the U.S. is guilty of similar distorting subsidies. But the E.U. is the worst offender. They spend roughly four times as much as the U.S. does, and the beneficiaries are even more ludicrous: there are no gravel manufacturers or electrical companies receiving U.S. agricultural aid.

Why does this matter? Besides the fact that it is absurd for E.U. taxpayers to be subsidizing vacation estates for the Queen of England (that isn't even used for farming), these subsidies have a severely negative impact on LDC development. As the Times article says, "European officials and some economists believe that much of the cash from those subsidies ultimately trickles down to local farmers, since without them companies might buy cheaper food elsewhere." The "elsewhere" in that sentence refers to some of the poorest areas in the world, e.g. Africa and (non-E.U.) E. Europe. U.S. price supports undercut agriculture in S. America and Africa. Japanese subsidies have an adverse effect on growers in S.E. Asia. In other words, the burden of the subsidies is not only being borne by the wealthy taxpayers in the developed world; they are quite literally removing one of the few possible sources of income for many of the poorest people in the world.

When we talk about LDC development, we often talk about the effectiveness of aid programs, or the necessity of institution-building, or the economic consequences of war. But one of the biggest steps we could take to encourage economic development in the poorest parts of the world is to simply allow access to our markets. This would benefit consumers in the MDCs by lowering both taxes and the prices of goods. Of course, some major corporations and titled landowners might pitch a fit, but I think it's reasonable to say that we don't owe them anything.

There would be some small-time farmers that would be adversely affected, and I'm sure that Willie Nelson would write a teary song for them, but if we want to provide welfare for the least-fortunate among us, surely a Moroccan cotton farmer or Brazilian sugar grower is more deserving of our sympathy than an Italian multinational corporation or an Iowan corn grower that has been receiving handouts for decades.

Quote of the Day

.
0 comments

This from a report [large pdf] published in 1990 by Larry Summers, David Cutler, James Poterba, and Loise Sheiner:

“For about 15 years, the United States runs current account deficits, so that more than 6 percent of U.S. assets are owned by foreigners in 2010. High saving for the subsequent 15 years results in current account surpluses and reduces foreign capital ownership to 3.5 percent. Past 2020, however, with the rapid increase in the number of elderly, the United States again runs current account deficits, so that in the steady state almost 9 percent of U.S. assets are owned by foreigners.”


Well that explains much of the past 20 years, doesn't it? Via A Fistful of Euros, who adds:

So, if we don’t do something, and do something now, to stop median ages rising too rapidly, then more crises are guaranteed, and the next round will make this crisis will seem like, now how do they put it, oh yes, a picnic.

Saturday, July 18, 2009

Political Science and Economics Professors

. Saturday, July 18, 2009
1 comments

Via Blattman. Really interesting post on political science and economic majors and the (I guess) demand for more (at least that's what the three grad students who write on this blog hope!)
This is the ratio of BA majors to faculty in private universities with ranked programs:


The graph comes from a new article in the JEP by William Johnson and Sarah Turner. Political Science seems to be the big outlier, with economics and psych not far behind.

The meshes with my experience: poli sci has become the largest major at Yale (even more so since the crisis) and we cannot hire fast enough--almost 8 junior faculty offers per year for at least three years.

Part of the explanation could be that econ, psych and poli sci are more easily taught to large groups (i.e. a more efficient technology) but I find that hard to believe.

The authors find some evidence that it's because econ professors are more expensive:


But here again we see the poli sci outlier.

The whole paper is good. Their conclusion: it's all politics.

All the more reason for so many new political scientists?

Wednesday, July 15, 2009

Video Time!

. Wednesday, July 15, 2009
0 comments

A couple of really interesting bloggingheads exchanges:


Dan Drezner (Tufts University and All Politics is Global) talks with Heather Hurlburt (Executive Director of the National Security Network). Topics include climate change, Obama's trip to the G8, the Doha Round of WTO trade negotiations, and China.




Matthew Yglesias (ThinkProgress.org) talks with Megan McArdle (The Atlantic) talk about health care reform, the future of American conservatism, and the financial crisis.



Finally, James Fallows and Niall Ferguson discuss "Chimerica" and the future of the Sino-American relationship:

How Soccer Illustrates Globalization

.
1 comments

One of William Easterly's students guest-posts on globalization and soccer:

Some “soccer economists” argue that nations that are worse at soccer have benefited from exporting their players to world-class foreign clubs, where they gain valuable skills and experience before returning to play for their home country This is similar to recent literature that questions the traditional Brain Drain fear, with the Brain Circulation alternative – skilled emigrants bring home skills and connections that could be as valuable to their home country as the skills brought back by exported soccer players.

But there is also a homegrown story. As Dani Rodrik points out, the Egyptian team that beat Italy had a majority of players with experience playing in domestic, rather than foreign clubs. The USA team that similarly surpassed expectations has key players from both domestic and foreign clubs. So taking advantage of globalization perhaps requires BOTH strong domestic capabilities and international links.

One nation’s strategy for developing a strong domestic soccer league will be very different from the next. American kids who play under the supervision of soccer moms are different from the street kids in a Brazilian favela. Perhaps the venerable theory of comparative advantage needs to become more complex as each country learns to play to its strengths and use more of whatever are its most abundant resources to compete globally.


If I had known that there was such a job as "soccer economist" I would have stopped worrying about international financial regulatory policies a long time ago. Alas and alack, it's too late for me.

More seriously, the last paragraph is true and under-discussed. In introductory courses and textbooks we often talk about "comparative advantage" as if it were a general, exogenously-given thing. In truth, comparative advantages can be quite specific, change over time, and can sometimes be engineered through public investment. We don't often think about this in terms of sports, but the U.S.S.R. certainly spent a lot of money training Olympic athletes, especially in high-profile sports like gymnastics, basketball, hockey, swimming, and weight-lifting. I recall reading somewhere (can't find the link right now) that China invested a lot of money in "soft" Olympic events in which they were not typically competitive in order to pick up a higher metal count.

But back to soccer and whether it really does explain the world: social scientists don't have only to look at the implications of soccer on trade, brain drain, or immigration; several political scientists recently studied [pdf] national cultures of violence by looking at the behavior of soccer players. And nationalist forces have instituted the new "6+5" rule for UEFA club matches, mandating a certain percentage of "native" players on professional teams. These quotas serve the same political function in soccer as they do in other types of trade: local workers who face new international competition seek some protection from that competition in the form of regulatory rents.

Can the FA take UEFA to the WTO Dispute Settlement Court?

And what are the geopolitical implications of one nation's central bank sponsoring another nation's championship team?

Tuesday, July 14, 2009

It's Earnings Season!

. Tuesday, July 14, 2009
2 comments

Goldman Sachs, the investment bank, today announced that its second quarter earnings rose to $3.44 billion, and that it had put aside $11.4 billion for salaries, bonuses and benefits in the quarter, up by nearly half from a year ago.

At that rate, Goldman employees could, on average, earn roughly $770,000 apiece this year — or nearly what they did at the height of the boom.

Senior Goldman executives and bankers would be paid considerably more. Only three years ago, Goldman paid more than 50 employees more than $20 million apiece. In 2007, its chief executive, Lloyd C. Blankfein, collected one of the biggest bonuses in corporate history -- nearly $70 million. The latest headline results — $3.44 billion in profits — were powered by earnings from the bank’s secretive trading operations and exceeded even the most optimistic predictions.
Many analysts were surprised that Goldman posted such hefty prospects, especially since it was only last month that Goldman repaid the $10 billion that it received from the U.S. Treasury Department in October. Although it is widely believed that Goldman was required to take the funds, even though they probably didn't need the extra capital.

Megan McArdle comments on why these profits shouldn't have come as such a surprise:
This is not actually hugely surprising, given that three of their biggest competitors went out of business or were acquired in the last year; as financial markets unfroze, Goldman, which had one of the cleanest balance sheets, was bound to see a hefty increase in their profits.
Goldman's stock price has also rebounded nicely, up about 77% since the beginning of the year. (Dammit, should've bought it!) It also turns out that by paying back the TARP monies last month, Goldman also freed itself from any government interference into their compensation practices, thus allowing Goldman to freely pay its employees these nice little bonuses.

Many are up in arms about paying these people so much money, even if they did as well as it seems they did this past quarter; McArdle addresses a bit of this in her post. But what are we supposed to do? Have the government intervene again, this time to cap pay inside a private corporation that made record profits, just because they made record profits while the rest of the economy is still tanking and unemployment is about to cross 10%?

I don't think that'd be a good idea; we already set a pretty bad precedent by bailing out the banks in the first place, even though it was probably needed to restore market confidence and recapitalize institutions that were in trouble. Further meddling, especially into the compensation practices of a financial firm not under government ownership, would be setting another bad precedent.

Thomas Schelling on Climate Change

.
0 comments

Conor Clarke interviews the old master of game theory and Nobel Prize winner. Part one here. Part two here. Some excerpts:

I think they ought to drop the idea that there are going to be enforceable commitments. There have never been enforceable commitments on anything of that magnitude. And I think they should try to negotiate not what emissions level they will seek in 20 or 50 years, but what they will actually DO. And when they've arrive at what looks like an understanding they hold a big conference and publicize it. If they can't quite reach an agreement among themselves, then they might see they if they can get the heads of state to come together. But I don't think this kind of work is being done right now. ...

I don't worry much about enforcement. I think that if the major countries reach an agreement they'll do their best to do what they said they would do. But if you say what you're going to do is get emissions down by 15% in 20 years, none of them knows what that means. That's not a commitment to something they're going to do; that's a commitment to some vague aspirational goal or something. ...

So if we can double our GDP in the next 70 or 80 years, even if we lose some of our GDP from climate change -- even if we lose 10% of our GDP from climate change -- we're still ahead so much that the effect of climate change wouldn't be noticed. But it would be pretty disastrous in a lot of the less developed parts of the world. And that's why I think it's crucially important not to demand anything of China, India and so forth that will significantly impede their economic progress. ...

[T]he developed countries -- the OECD or something like that, plus Japan -- if they are really serious, they'll tell India and China and Brazil, "we're going to provide enormous assistance to help reduce your dependence on fossil fuels. And we don't expect you to pay for it yourselves. We will pay for it because we're rich and you're not."


The whole thing is worth reading, of course. At different points Schelling advocates scaring the bejeezus out of citizens of the rich world (using "exaggerations" if necessary), more pollution in the developing world, and considers the irrational morality of helping future generations in China and India at the expense of present generations of Americans.

UPDATE: Wilkinson comments.

International Political Economy at the University of North Carolina: July 2009
 

Share it

PageRank

SiteMeter

Technorati

Add to Technorati Favorites