Friday, November 30, 2007
Thursday, November 29, 2007
Wednesday, November 28, 2007
NYTimes.com: Recipe: Spiced Nuts With Sugared Bacon
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Tuesday, November 27, 2007
Monday, November 26, 2007
Sunday, November 25, 2007
Saturday, November 24, 2007
Friday, November 23, 2007
Thursday, November 22, 2007
Wednesday, November 21, 2007
NYTimes.com: Recipe: Simple Crusty Bread
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Tuesday, November 20, 2007
Tuesday, November 13, 2007
All They Are Saying Is Give Happiness a Chance - New York Times
The framers of the Declaration of Independence evidently believed that happiness could be achieved, putting its pursuit up there alongside the unalienable rights to life and liberty. Though governments since then have seen life and liberty as deserving of vigorous protection, for all the public policies aimed at increasing economic growth, people have been left to sort out their happiness.
This is an unfortunate omission. Despite all the wealth we have accumulated — increased life expectancy, central heating, plasma TVs and venti-white-chocolate-mocha Frappuccinos — true happiness has lagged our prosperity. As Bobby Kennedy said in a speech at the University of Kansas in March 1968, the nation's gross national product measures everything "except that which makes life worthwhile."
The era of laissez-faire happiness might be coming to an end. Some prominent economists and psychologists are looking into ways to measure happiness to draw it into the public policy realm. Thirty years from now, reducing unhappiness could become another target of policy, like cutting poverty.
"This is another outcome that we should be concerned about," said Alan Krueger, a professor of economics at Princeton who is working to develop a measure of happiness that could be used with other economic indicators. "Just like G.D.P."
It might be a bit of a political challenge to define happiness as a legitimate policy objective. Imagine the Republican outrage when the umpteenth tax cut didn't do the trick. Democrats would likely slam the effort as regressive, distracting from efforts to improve the lot of the less fortunate by more conventional measures — like income.
Happiness is clearly real, related to objective measures of well-being. Happier people have lower blood pressure and get fewer colds. But using it to guide policy could be tricky. Not least because we don't quite understand why it behaves the way it does. Men are unhappiest at almost 50, and women at just after 45. Paraplegics are not unhappier than healthy people. People who live with teenagers are the unhappiest of all.
Happiness seems fairly cheap to manipulate. In one experiment, subjects were asked to answer a questionnaire about personal satisfaction after Xeroxing a sheet of paper. Those who found a dime lying on the Xerox machine reported substantially higher satisfaction with their lives.
Most disconcerting, happiness seems to have little relation to economic achievement, which we have historically understood as the driver of well-being. A notorious study in 1974 found that despite some 30 years worth of stellar economic growth, Americans were no happier than they were at the end of World War II. A more recent study found that life satisfaction in China declined between 1994 and 2007, a period in which average real incomes grew by 250 percent.
Monday, November 12, 2007
Free Econometric Softward: Gretl = Gnu Regression, Econometrics and Time-series Library
Is a cross-platform software package for econometric analysis, written in the C programming language. It is is free, open-source software. You may redistribute it and/or modify it under the terms of the GNU General Public License (GPL) as published by the Free Software Foundation.
Features
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Easy intuitive interface (now in French, Italian, Spanish, Polish, German and Portuguese as well as English)
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A wide variety of estimators: least squares, maximum likelihood, GMM; single-equation and system methods
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Time series methods: ARMA, GARCH, VARs and VECMs, unit-root and cointegration tests, etc.
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Output models as LaTeX files, in tabular or equation format
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Integrated scripting language: enter commands either via the gui or via script
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Command loop structure for Monte Carlo simulations and iterative estimation procedures
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GUI controller for fine-tuning Gnuplot graphs
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Link to GNU R for further data analysis
Data formats
Reads own format XML data files, Comma Separated Values files, Excel and Gnumeric worksheets, Stata .dta files, Eviews workfiles, JMulTi data files, own format binary databases (allowing mixed data frequencies and series lengths) RATS 4 databases and PC-Give databases. Includes a sample US macro database. See also the gretl data page.
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Gretl for MS Windows can be found here, and gretl for Mac OS X here.
Sunday, November 11, 2007
Musings on Edward Said
Bruce S. Thornton's review of Warraq's book at City Journal is especially insightful in regards to overturning Said's prejudicial attitude towards the West. As he puts it:Warraq then turns to Said's misrepresentation of the West as a xenophobic culture, fearful of the "Other" and cultural difference. Warraq explodes this canard by identifying what he calls the "three golden threads" woven through Western culture since the time of the Greeks: rationalism, universalism, and self-criticism. As Warraq argues, Western intellectual curiosity has driven an interest in other cultures and peoples and created a magnificent edifice of scholarship formalizing that interest. The Western notion of a universal human nature reinforced this intellectual openness to other cultures. And self-criticism has been the engine of the West's improvement, leading to the rejection of traditional practices that were unjust or inefficient, as Warraq shows with his discussion of the British Empire's war on slavery. In fact, the West's most trenchant critics, Said included, have always been Westerners.
Grasping Reality with Both Hands: Brad DeLong's Semi-Daily Journal
Brad DeLong writes:
I think that Rubin is implicitly working in a different model than the NIPA-based monetarist workhorse that Krugman (and I!) instinctively reach for first. I think that in Rubin's mind the chain of causation looks something like this:
- A government establishes a sane, balanced long-run fiscal policy.
- Businesses conclude that the country is a safe one in which to invest to build export capacity: since they do not fear future random and confiscatory taxation or inflation, factories making internationally-traded goods that would have been built abroad are built here at home instead.
- With more export capacity at home and less abroad, exports rise and imports shrink at the current exchange rate.
- Supply and demand leads the domestic currency to appreciate in order to balance trade.
Rubin's channel is: good fiscal policy --> expanded export supply --> export surplus --> higher currency value.
By contrast, Krugman's channel is: good fiscal policy --> lower domestic interest rates --> reduced currency value --> export surplus.
Which side am I on? I tell my undergraduates:
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At a time horizon of 0-3 years, be a Keynesian: the most important things are the fluctuations in unemployment, in real demand, and in capacity utilization.
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At a time horizon of 3-8 years, be a demand-side monetarist: you can assume (provisionally) that fluctuations in employment, real demand, and capacity utilization die out; the most important things are the fluctuations in the composition of real demand (investment vs. consumption vs. government vs. net exports) and in inflation- and deflation-causing nominal demand assuming (provisionally) stable growth of the economy's productive capacity.
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At a time horizon of 8 years or greater, be a sane supply-sider: the most important things are the processes of investment in physical, human, and organizational capital that raise the economy's productive capacity.
Thus I was happy telling my undergraduates in 1985 that the reason the dollar was strong was because of the five years of Reagan deficits--high domestic interest rates, you see, pushing up the value of the dollar (and raising the trade deficit). And I was happy in 1992 telling my undergraduates that the reason the dollar was weak was because of the twelve years of Reagan-Bush deficits--large budget deficits starving the economy of capital that made us less productive than in some counterfactual in which we had elected some Eisenhower Republican in 1981.
Saturday, November 10, 2007
How large are the distributional Effects of Increased Trade?
November 09, 2007
Brad DeLong writes:
How Large Are the Distributional Effects of Increased Trade?
Dani Rodrik suspects that they are small than Josh Bivens thinks they are:
Dani Rodrik's weblog: The pains from trade: The workhorse model of international trade (the 2x2 Heckscher-Ohlin model) has very stark implications for the effect of trade with poor, labor-abundant countries. Low-skilled workers in rich countries (read the U.S.) must end up as losers--not in relative terms, but in absolute terms. Moreover, the larger the overall gains from trade, the bigger must this adverse distributional effect be. In that world, it is inconsistent to claim there are large gains from globalization while downplaying the distributional impacts. Which is why many economists teach the model in their classrooms, but shift to other, more complicated models when they engage in the public debate about the effect of trade on wages.
A recent paper by Josh Bivens carries out a quantitative simulation of the basic 2x2 model which suggests that the increase in U.S. trade with the developing countries between 1995 and 2006 would have reduced labor earnings by 4 percent while increasing the payment for skills by 3 percent, for a 7% increase in the differential altogether. This is an interesting exercise, to be compared to that undertaken by my colleague Robert Lawrence. The latter gives much less of a role to trade, in large part because it finds there is little reduction in real earnings once adjustments for productivity, prices and benefits are made.
One clear difference between the two perspectives is the extent to which one thinks of trade with developing countries as competing directly with U.S. production. Lawrence says that developing country exports hardly displace any domestic production anymore because much of that activity has already shut down. So whatever adverse impact may have existed in the 1980s, the current situation is much more benign. (But of course, less impact on productive re-allocation means fewer overall gains from trade too!). In Bivens' world (and that of the standard 2x2 model), by contrast, head-to-head competition is critical in driving the distributional effects.
I am on Dani's side, only more so. Two additional points are important, I think:
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For competition to be head-to-head, the two countries have to be making very similar goods with similar production processes. Hand-spinners in Pakistan don't compete with labor here in the United States but with the capital embodied in our large automated spinning mills.
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What trade does to our distribution of income can be undone by normal domestic redistributionist policies. The right way to deal with the issue is to (a) maximize the third world's ability to take advantage of our demand to spur its own growth, and (b) use domestic redistribution here to compensate for any adverse distributional
Marginal Revolution: The economic consequences of Mr. Bush? or When Economicst Forget their Economics
Tyler Cowen writes:
Joseph Stiglitz writes:
You'll still hear some -- and, loudly, the president himself -- argue that the administration's tax cuts were meant to stimulate the economy, but this was never true. The bang for the buck -- the amount of stimulus per dollar of deficit -- was astonishingly low. Therefore, the job of economic stimulation fell to the Federal Reserve Board, which stepped on the accelerator in a historically unprecedented way, driving interest rates down to 1 percent. In real terms, taking inflation into account, interest rates actually dropped to negative 2 percent. The predictable result was a consumer spending spree. Looked at another way, Bush's own fiscal irresponsibility fostered irresponsibility in everyone else.
Stiglitz seems to claim that Bush will go down with a lower reputation, in economic terms, than Herbert Hoover. I have not been a huge fan of Bush's fiscal policy, but I can add: a) Bush is not to blame for loose Fed policy, b) it remains debatable among honest Democratic economists whether loose Fed policy was bad, c) U.S. consumption has been robust for a long time, and d) changes in real interest rates do not explain much of the variation in private consumption, and that's even assuming you manipulate the ex ante vs. ex post distinction to suit your convenience. The first two sentences of this paragraph are plausibly true but then the text deteriorates rapidly and is determined to blame as many things on Bush as possible. The paragraph ends up attacking Bush for promoting a "consumer spending spree" when Stiglitz had started by arguing for traditional Keynesian fiscal stimulus, the purpose of which is to promote...a consumer spending spree.
Stiglitz also argues that Bush is in large part (he won't say how large) to blame for high oil prices. In his view the war in Iraq led to political instability and stifled investment in the region, I say that Saudi oil wells are running dry anyway and increased demand -- most of all from China -- is the fundamental issue. Note also that for many plausible parameter values, political instability leads to more pumping today and thus lower prices; the counterweighing cycle of less exploration and exploitation can take a long time to kick in.
It's also worth noting how much the arguments run counter to Stiglitz's own (earlier) writings on macroeconomics. He used to preach that a) banks are excessively reluctant to lend to risky borrowers (compare to his discussion of the subprime crisis), b) changes in real interest rates generally don't matter much, c) adverse selection makes it hard to sell non-transparent assets for a reasonable price (compare to his discussion of securitization), and d) we cannot expect monetary policy to be especially effective but rather we must focus on the extent of credit rationing. Stiglitz of course has the right to change his mind, but if the shift is so big surely this is news.
There are many good arguments against many of Bush's economic policies, and many other arguments which are maybe wrong but at least plausible or possibly true. But essays such as this are not promoting the public's understanding of economics.
The pointer is from Mark Thoma.
Friday, November 09, 2007
Topics for Economic Naturalist
Topics for Economic Naturalist
- People face tradeoffs
- People respond to incentives
- Assortative matching
- Moral hazard
- Adverse selection
- Free rider problem
- Externalities
- Time inconsistency of policy
- Strategic interaction
- Tragedy of the commons
- Comparative advantage
- Signaling and screening
- Reasoning on the margin
- Fixed cost barriers
- Social or deadweight loss
- Principle – agent problem
- Arrow's impossibility theorem
- Coase theorem
- Compensating differentials
- Cost-benefit analysis
- Crowding out (or in)
- Fallacy of composition
- Correlation is not causation
- Economies of scale
- Market efficiency hypothesis
- Public goods
- Information efficiency
- Search and matching
- Lump sum vs. distortionary
- Median voter (buyer) theorem
- Menu costs (or small costs) preventing large gains
- Dutch disease
- Prisoners' dilemma
- Random walk
- Rational expectations
- Risk aversion
- Prospect theory
- Endowment effect
- Stock vs. flow reasoning
- Sunk costs
- Tax incidence or (cost shifting)
- Transaction costs
- Equity: vertical vs. horizontal
- Willingness to pay
Thursday, November 08, 2007
Cafe Hayek: Trade Promotes Prosperity
Don Boudreaux
In this op-ed, the Cato Institute's Dan Griswold explains -- contra, for example, the mistaken fears of Harold Meyerson -- that freer trade is helping to make an ever-greater percentage of Americans richer than ever before. Here are some key paragraphs from Dan's fine essay:
Like so many assumptions about trade, the belief that more global competition has somehow lowered the living standards of the average American worker and family is just a myth.
The critics have it all wrong: The middle class isn't disappearing - it's moving up.
The Census reports that the share of U.S. households earning $35,000 to $75,000 a year (in '06 dollars) - roughly, the middle class - has indeed shrunk slightly over the last decade, from 34 percent to 33 percent. But so, too, has the share earning less than $35,000 - from 40 percent to 37 percent.
It's the share of households earning more than $75,000 that's jumped - from 26 percent to 30 percent.
Trade has helped America transform itself into a middle-class service economy. Yes, the country's lost a net 3.3 million manufacturing jobs in the past decade - but it's added a net 11.6 million jobs in service and other sectors where average wages are higher than in manufacturing. Most of these new jobs are in better-paying categories, like professional and business services, finance and education and health services.
Trade and globalization have also helped bolster the balance sheets of American households by delivering higher incomes, lower interest rates and wider investment opportunities. From 1995 to 2004, the real median net worth of U.S. households jumped by 31 percent, boosted by rising home values and stock prices. (Even with the recent housing slump, average home values remain more than 2.5 times what they were a decade ago, according to the S&P/Case-Shiller index.)
Cafe Hayek: Made in ? iPod Example at Link
Russell Roberts writes,
Where a product is made has no informational content. It is simply a way for some people to pretend that their well-being and yours is the same thing. Kristyn Birrell of the Foundation for Research on Economics and the Environment has a very nice essay on labels in the Bozeman Daily Chronicle. It opens this way:
If you had a label, where would you be made? I would be "Made in Valencia" or "Made in California," or, if we took a broader perspective, I could have one of those little flag logos on my sticker and it would say "Made in the USA." But would either of these identifiers tell the whole story? Yes, I was born in the U.S., as were my parents and grandparents, but what about more distant ancestors? My father's grandparents were born in Scotland, Italy, England, and Germany, while my mother's were born in Denmark and the United States. Look back only three generations, and already my label has gotten quite complicated—"Made in Scotland (1/8), Italy (1/8), England (1/8), Germany (1/8), Denmark (1/4), AND the USA (1/4)." My label is not an anomaly; most Americans have similarly complex histories. Given this mosaic of hominal origins, what should we make of products whose label proclaims simply "Made in Mexico" or "Made in China?"
Read the whole thing. It's excellent.
Hal Varian made a similar point citing a study by Greg Linden, Kenneth L. Kraemer and Jason Dedrick. The iPod is "made in China." But what does that really mean? It's assembled in China. But the value comes from all over the world:
...let us look at the production process as a sequence of steps, each possibly performed by a different company operating in a different country. At each step, inputs like computer chips and a bare circuit board are converted into outputs like an assembled circuit board. The difference between the cost of the inputs and the value of the outputs is the "value added" at that step, which can then be attributed to the country where that value was added.
The profit margin on generic parts like nuts and bolts is very low, since these items are produced in intensely competitive industries and can be manufactured anywhere. Hence, they add little to the final value of the iPod. More specialized parts, like the hard drives and controller chips, have much higher value added.
According to the authors' estimates, the $73 Toshiba hard drive in the iPod contains about $54 in parts and labor. So the value that Toshiba added to the hard drive was $19 plus its own direct labor costs. This $19 is attributed to Japan since Toshiba is a Japanese company.
Continuing in this way, the researchers examined the major components of the iPod and tried to calculate the value added at different stages of the production process and then assigned that value added to the country where the value was created. This isn't an easy task, but even based on their initial examination, it is quite clear that the largest share of the value added in the iPod goes to enterprises in the United States, particularly for units sold here.
The researchers estimated that $163 of the iPod's $299 retail value in the United States was captured by American companies and workers, breaking it down to $75 for distribution and retail costs, $80 to Apple, and $8 to various domestic component makers. Japan contributed about $26 to the value added (mostly via the Toshiba disk drive), while Korea contributed less than $1.
The unaccounted-for parts and labor costs involved in making the iPod came to about $110. The authors hope to assign those labor costs to the appropriate countries, but as the hard drive example illustrates, that's not so easy to do.
This value added calculation illustrates the futility of summarizing such a complex manufacturing process by using conventional trade statistics. Even though Chinese workers contribute only about 1 percent of the value of the iPod, the export of a finished iPod to the United States directly contributes about $150 to our bilateral trade deficit with the Chinese.
I love that last line. As loyal readers know, Don and I don't put much stock in the trade deficit as an economic indicator. That last sentence from the Varian excerpt is one more reason to ignore the trade deficit.
Cafe Hayek:
Don Boudreaux
"Hey Mr. Free Trader, do you at least agree that companies should be required to tell customers if the people they're dealing with on the phone live in America or not?"
That's the opening line of an e-mail that arrived today in response to my most recent post on Paul Craig Roberts's incoherent fears about outsourcing.
I knew immediately the sort of proposal that my correspondent has in mind. Many times during the past year I've heard it proposed that Uncle Sam require American companies with call centers in Bangalore, India, and other foreign lands to have their employees in these centers begin each conversation by informing each American who calls into these centers that he or she (the employee) is not American and is not located in America.
John Kerry even made such a proposal part of his presidential campaign, and introduced a bill in to the Senate hopper called the Call Center Consumer's Right to Know Act.
Sen. Kerry's bill, if passed, would have required any
United States corporation or its subsidiaries that utilizes a call center to initiate telephone calls to, or receive telephone calls from, individuals located in the United States, shall require each employee in the call center to disclose the physical location of such employee at the beginning of each telephone call so initiated or received.
Those who argue in favor of such a requirement allege that it's not coercive (at least not to consumers). It merely requires companies with off-shore operations to disclose this fact clearly to consumers. Consumers are then free to patronize or not the firms that have some of their operations in foreign lands. Many consumers, after all, do indeed care about whether or not the company they're patronizing has off-shore operations. And some of these consumers would no doubt stop patronizing the company upon learning that it hires foreign workers.
"So what can be wrong with full disclosure?" – so concludes the e-mail from my correspondent.
I answered by pointing out that requiring firms to reveal the physical location of their employees isn't really full disclosure. It's fuller disclosure, but it's far from full disclosure. And this distinction is relevant. Oodles of information remain about each company and its employees that is not explicitly revealed in the absence of legislation but which might well be relevant to some callers.
Here are some other things that many American consumers no doubt care about and that firms probably would not reveal unless forced by government to do so:
- an employee's sexual orientation
- an employee's religious beliefs
- an employee's political beliefs
- an employee's attitudes toward controversial matters such as abortion, euthanasia, and the death penalty
So why stop with requiring firms to reveal their employees' physical whereabouts? Why not also require firms explicitly to reveal to customers information on all of the above matters?
When Joe from Atlanta calls the Dell help center, he might then be treated to the following greeting: "Hello. Thanks for calling Dell. I'm Anokhi. I'm answering your call in Bangalore, India. I'm an atheist lesbian who always votes for the socialist party. I see nothing wrong with abortion, although I've never had one myself. I also believe in euthanasia, although I oppose the death penalty. I also feel strongly that the U.S.-led war in Iraq is immoral. How can I help you today?"
This greeting sounds silly. This greeting is silly. But each piece of information offered is plausibly important to some small handful of Americans. Therefore, I see no reason to single out for enforced disclosure information on companies' extent of off-shoring. Declaring truthfully that some customers might find this information useful is insufficient to justify such enforced declarations.
Wednesday, November 07, 2007
EconLog, Wages and Education, Arnold Kling: Library of Economics and Liberty
Arnold Kling writes
Goldin and Katz say that the U.S. wage structure is "polarizing," meaning that wages at the top are getting higher relative to wages in the middle, although wages in the middle are not getting higher relative to wages at the bottom.
http://econlog.econlib.org/archives/2007/11/wages_and_educa.html
Claudia Goldin and Lawrence Katz write,
Relative demand shifts favoring more-educated workers have not been particularly rapid since 1980. Instead, the growth of the supply of skills slowed considerably after 1980 and the wage structure, in consequence, widened. The deceleration in the relative supply of skills of the working population came about largely from a slowdown in the growth in the educational attainment of U.S. natives for cohorts born since 1950. In contrast, the increase in unskilled immigration accounts for only a small part of the post-1980 slowdown in skill supply growth....Computers strongly complement the non-routine or abstract tasks of high-wage jobs, but they directly substitute for the routine tasks found in many traditional middle-wage jobs. However, computers have little impact on the non-routine manual tasks of many low-wage service jobs.
Goldin and Katz say that the U.S. wage structure is "polarizing," meaning that wages at the top are getting higher relative to wages in the middle, although wages in the middle are not getting higher relative to wages at the bottom.
Suppose that we want to be puckish and suggest that what is going on is a combination of IQ-biased technical change and assortive mating.
With assortive mating, the distribution of skills will become more unequal. Families become more unequal. Also, kids become more unequal across families in terms of their endowments of natural and financial wealth.
What Goldin and Katz call the slowdown in the growth of average educational attainment might be due to more assortive mating. That would lead to a concentration of high ability among a relatively smaller share of children.
Then you layer on computer technology, which is complementary to abstract reasoning skills. The result will be the polarization of wages.
The difference between the Goldin-Katz story and the assortive-mating story is that the former suggests that there are lots of folks who could benefit from more investment in education. The latter suggests that this may not be the case.
Goldin and Katz cite a couple of papers suggesting that expansion in financial aid and college access and expansion in compulsory schooling have significant effects. I am skeptical, but certainly open to persuasion.
Thanks to Andrew Samwick for the pointer.
Dani Rodrik's weblog: Is the U.N. trying to keep Africa poor?
by Ricardo Hausmann, guest blogger
Thanks to Dani's blog, I learned about the website to track progress on the MDG. I was also impressed by the fact that the UN website also flagged a story calling for a 5-year freeze on bio-fuels production by a UN human rights expert worried about hunger in Africa. The argument is pretty straightforward and has already been expressed by Fidel Castro and Hugo Chavez. It is that using food as fuel is a crime because food should be used to feed people, not machines. Making food a substitute for fuel raises its price and excludes the poor from feeding themselves. This obviously assumes that the amount of food is given and does not respond to demand, prices and technology. Whys is it that there is agricultural protectionism in this world? Presumably because if the forces of free trade were unleashed in this world, food prices would fall making (mostly rich-country) farmers poorer. At current technologies, there is an excess of arable land that could be productively used and hence the equilibrium price would be too low to support some sense of desired income for farmers.
If biofuels lead to more demand for agricultural products and land it is interesting to ponder how the markets will respond and how the gains and losses will be distributed. In this respect one wonders what makes a person a human rights expert and how you can go from that expertise to a ban on a technology. What in their training allows human rights experts (and the UN organizations that support them) to work out the impact of an industry on prices, quantities, incomes, investments, growth and inequality. Apparently, this expert concluded that the fact that food prices have gone up is an indication that they did so because of biofuels production, not because of increased food demand in the fast growing developing world which today includes not only East Asia and India, but also much of Africa. More interesting is the question of how human rights can so easily be promoted by limiting the freedom of people to decide what they grow and how they use their land and skills. And if this is the road to prosperity, why stop at 5 years? Lets ban them forever! In a different assessment, I have argued that a biofuels industry would probably have rather good overall effects on the world and especially on those developing countries that have ample good land that is not being cultivated. Much of this land is in Africa, but it is not being used mainly because infrastructure is inadequate and sugar production has been discouraged over the past three decades because of incredibly distortionary policies in the US and the EU.
Here is a graph of the countries with their relative endowment of good land that is not being cultivated. It is based on some calculations done with Rodrigo Wagner, using the Geographic Information System.
Note the share of the Democratic Republic of Congo (ZAR), Sudan, Central African Republic (CAF), Mozambique, Tanzania, Zambia, Angola, Chad and Cameroun. These are countries that have found very few products with which to connect their citizens to the global economy. Prohibiting them from using the biofuels industry as a stepping stone in their development is not something that should be done lightly. How human rights would be affected is a pretty complex issue and it is irresponsible for the UN to come out against it based on the view of a human rights "expert". It may well be the most important thing to happen to Africa in a long time in terms of creating sustainable livelihoods and justifying the expansion of a sorely needed road infrastructure that could crowd in further investment and development.
Tuesday, November 06, 2007
Cafe Hayek: Cleaned by Capitalism
Don Boudreaux
I sent this letter today to the Baltimore Sun:
You again call upon government to force us Americans to reduce our emissions of CO2 ("Green and right," November 2). And like nearly everyone else demanding further regulation of markets in the name of environmental protection, you overlook the fact that the very markets that you want to restrain save millions of lives annually by making people's living environments cleaner.
For evidence, read Margo Thorning's essay that appears today just inches from your own editorial. In "Ending energy poverty," Ms. Thorning reports that "About 1.3 million people - mostly women and children - die prematurely every year because of exposure to indoor air pollution from burning biomass for fuel." These deaths happen routinely in developing countries because people there have so little access to electrification, internal-combustion engines, and mass-produced consumer goods that they must burn biomass in their homes. So in developed countries – whose denizens enjoy ready access to electric heating, home delivery of fuel oil, and other life-saving wonders - the capitalism that people loudly fear might raise global temperatures a few degrees over the next several decades silently yet effectively saves thousands of lives each and every day.
Sincerely,
Donald J. Boudreaux
Cafe Hayek: We're Richer Today. Period.
Don Boudreaux
Tyler, Arnold, and other bloggers have mentioned this nice study by Terry Fitzgerald that appears in the Minneapolis Fed's September 2007 issue of The Region. (It's the first of three articles; the remaining two articles by Fitzgerald on this topic aren't yet published.) In this opening number, Fitzgerald offers
a glimpse of the key findings from this article on wages. Microeconomic statistics showing stagnation, and macroeconomic statistics exhibiting growth, measure "wages" quite differently. When the data are adjusted so that they more closely measure the same conceptual object, the disparity between the microeconomic and macroeconomic statistics largely evaporates, and I find that labor income per hour for middle America has not stagnated. Rather, the economic compensation for work for middle Americans has risen significantly over the past 30 years.
This conclusion (and Fitzgerald's analysis from which it follows) makes sense to me. While being aware of the dangers lurking in the practice of drawing conclusions about complex reality from one's own personal experiences, I nevertheless am certain that ordinary Americans today are immensely wealthier than they were 30 years ago. I well remember the mid-1970s. All telephones in middle America were attached to walls or desks; the television repairman was still necessary; going on-line was something New Yorkers did whenever they queued -- which, back then, they did often in order to buy gasoline for their automobiles that broke down much more frequently than do today's cars. This was a time before cable t.v. was widespread, and before anyone but the super-rich could watch movies on demand in their own homes. Prepared foods in supermarkets were tasteless and probably toxic. And no one outside of New York City and a handful of other major metropolitan areas had any hope of browsing in a bookstore with a respectable selection of titles.
For further evidence that the 1970s was no golden age of abundance, come shop with me from a 1975 Sears catalog - and then let's see how much these goodies will cost us.
Cafe Hayek: Growth in health care expenditures
Russell Roberts writes:
http://cafehayek.typepad.com/hayek/2007/11/growth-in-healt.html
This week's EconTalk is with Arnold Kling talking about health care. it's a very nice introduction to the incentives affecting our health care decisions both privately and publicly. One issue that came up is the change in the proportion of health care costs paid out of pocket vs. third party payments. Here are some data, taken from an HHS publication, "Health, United States, 2005":
In 1960, 55 cents of every dollar of health care was out-of-pocket. In 2003, it was down to 16 cents.
An Interview with Paul Romer on Economic Growth: Library of Economics and Liberty
Russel Roberts writes:
In the summer of 2007, I interviewed Paul Romer of Stanford University for EconTalk. Paul has been the driving force behind the "new growth theory" writing a series of influential papers that put the role of ideas at the center of growth theory. Our conversation focused on the importance of ideas, the role of institutions and the legal environment for creating incentives for new ideas and how ideas spread beyond national borders helping people around the world. Here are edited excerpts from that conversation.
The podcast can be found at Romer on Growth.
The podcast can be found at Romer on Growth.
...
Russ Roberts: What's the mechanism? Does Nike improve the life of that worker out of kindness or does competition force them to?
Paul Romer: Oh, I think it's overwhelmingly competition. There's sometimes a little bit of pressure which makes them do what is basically charitable giving. But look at China right now or India right now. Why are foreign firms that are operating in China and India or Vietnam—why are they paying workers more than they used to?
What happened was that it wasn't just Nike that came in. The government let in a lot of other firms. All of those firms started to compete for the best talent there in the nation, and that process of competition started to drive up wages. You don't want to use the Indian strategy of saying, "Okay, we'll let in one big firm and then we're pulling up the drawbridges and, you know, you can do whatever you want." What you want to do is open it up and say, "Hey, any firm that wants to come in, go for it. Compete as hard as you can to get our best workers."
And that'll reward the workers who have the best skills. It'll give incentives for those other workers to acquire skills and it'll give them opportunities to do things with their skills that they couldn't have otherwise done.
Russ Roberts: In what sense are those workers using the knowledge that that multinational has? I love that idea. What do you mean exactly?
Paul Romer: Nike's discovered a recipe for taking rubber and cloth and a few other things and then creating something that people value in the United States for a price of, say, $100. They can take raw materials worth probably pennies and create something that I might go to the store and pay $100 for.
To create that additional value, they have to go out and find somebody who does the rearranging according to their recipe. If they could get somebody at an extremely low wage to do that rearranging, then they'd pay that low wage. But over time what they find is they're competing with other employers. They have to pay higher and higher wages to get people to do that rearranging.
Now if there are lots of people like Nike trying to find workers to do high-value rearranging tasks, they'll be willing to pay quite a bit as they compete with each other. But imagine that Nike only had ideas that could produce things that were worth, say, $10. Nike could never afford to pay—and its competitors could never afford to pay—very high wages to get people to rearrange something to make something worth $10.
But when they're making something that's worth $100, they'll compete and ultimately start to pay higher and higher wages. So the fact that they've got an idea, a recipe, that can create quite a bit of value means that they'll pay quite a bit to have somebody follow that recipe.
There's lots of people out there with good recipes competing for workers. They'll bid up those wages and, in a sense, part of the value that Nike creates will in some sense be taken away by those workers, and taken in a way that we feel is good for the world as a whole. It's good that workers throughout the world will have higher wages in the future than they have now.
Cafe Hayek: Cut those costs!
Russell Roberts writes:
If the government paid for everybody's health care, some argue that we'd save money by cutting out administrative costs. The logic is that we'll save on all those bureaucratic duplications caused by multiple insurance providers. The empirical evidence is that in countries where government pays for health care, they spend less for health care than we do in America.
But as Arnold Kling points out, they spend less not because they're more efficient but because they provide fewer services. Charlie Quidnunc makes an even deeper point in the comments on this earlier post:
If profits and administrative costs are so terrible, why stop at eliminating them in the health industry? Why not get rid of those pesky elements in other industries? How about creating a single provider Information Technology industry? Think about how much better computers would be without all that complex and expensive competition between companies. Or single provider Automobile industry. Or single provider food companies. Why not have the government decide what a wholesome and nutritious meal should look like and eliminate all that expensive experimentation in fancy restaurants?
Here is additional wisdom on the issue from Tyler (HT: Whatever).
Cafe Hayek: The big impact of pharmaceutical industry profits
Russell Roberts writes:
Proponents of a single-payer system in health care argue that it would save costs because of lower industry profits and lower administrative costs. Arnold Kling argues that the impact would be minimal. Is he right?
According to Public Citizen, a source not particularly friendly to corporate interests, pharmaceutical industry profits in 2002 (the year I happened to stumble on) were 36 billion. If all pharmaceutical companies were forced to serve the public at zero profit, that would lower US health care expenditures from 1.3 trillion to 1.3 trillion.
That's a pretty small change
I'll carry it out to a few more decimal places. In 2002, total health care expenditurea in the US were $1.342 trillion. So taking out ALL pharmaceutical profits lowers that number to 1.306 trillion. I don't think there's any way you can argue that the profitability of the pharmaceutical industry is a large factor in the size of US health care costs or that moving to a system where government could exploit its power as a large buyer of drugs would lower total expenditures.
Does anyone have data on administrative costs in the current system?
FT.com / Comment & analysis / Comment - The silver lining in America’s subprime cloud
Turmoil in the US's financial markets got the top billing in news reports about the recent meetings of the world's leading international policymakers in Washington. Virtually everyone expressed concern that the housing slump and the financial crisis triggered by the subprime mortgage market would significantly slow down the US economy, and perhaps the world economy. But there is a surprising silver lining. Signs of it were revealed by the absence of reporting on the big bugaboo of the past few years: the US current account deficit.
The good news is the recent reversal of the steady upward climb in the current account deficit. During the past three quarters for which we have data the deficit has been cut by $119bn, falling from about 6 per cent of gross domestic product to 5 per cent, and the adjustment appears to be continuing.
Why the reversal? One explanation is the implementation of policies that these same international policymakers agreed to at recent past meetings. The basic economic principle that led to these policies is that the US current account deficit is caused by the gap between saving and investment. Accordingly, a three-pronged strategy was called for – reducing the US budget deficit to decrease government dissaving, raising economic growth abroad relative to the US in order to stimulate US exports and increasing the flexibility of exchange rates, especially in China, to facilitate the adjustment.
You can see the strategy being implemented now. The budget deficit has come down sharply to 1.2 per cent of GDP, well below historical averages and less than in most other countries. World economic growth – especially in emerging markets – has been strong, even as US growth has slowed. And China's exchange rate has become more flexible – appreciating by 10 per cent since the peg was abandoned. Forward markets project further appreciation. All these policies are expected to reduce the current account deficit, but they take time – too much time to explain the sharp reduction in the current account in the past year.
So there must be other forces at work too. Because the current account deficit equals saving minus investment, these are logical places to look. Herein lies the silver lining. The housing turmoil has indeed cut a chunk out of investment – residential investment has fallen by $81bn in the three quarters during which the current account deficit declined, and even more compared with the peak of the housing boom earlier last year. Hence a good part of the current account reduction can be directly attributed to the decline in residential investment. Moreover, the decline in housing prices is starting to increase the personal saving rate, as home equity loans are drying up and people are recognising that their housing wealth is not as large as they had expected. When asset prices were rising, households could spend what they earned and still see an increase in their net worth. Sometimes spending even exceeded income. Now, consumption is falling relative to income, so there is more household saving.
Monday, November 05, 2007
What Are Philosophers Experts Bryan Caplan: Library of Economics and Liberty
Bryan Caplan
http://econlog.econlib.org/archives/2007/11/what_are_philos.html
Recently Tyler Cowen publicized one of his periodic challenges to me:
I often joke with Bryan that the time has come for him to accept the consensus of what the experts in moral philosophy (or atonal music) tell us (him) to do.One of the perks of attending the Social Philosophy and Policy conference was that I was able to ask philosophers the critical question: "You philosophers are definitely experts at something. But what is that something?"
Profs and grad students alike largely seemed to accept the following list of topics where members of their occupation actually have expertise:
- Accurately describing the views of other philosophers, living and dead.
- Checking arguments for logical validity/internal consistency.
Furthermore, no philosopher made an argument analogous to one economists often make: "Outsiders underestimate the degree of consensus because our debates focus on marginal controversies." This would have been an awkward argument to make to my face, since the participants literally spanned the range from radical Kantianism ("Consequences are morally irrelevant") to fanatical Singer-style utilitarianism ("There is no fundamental moral difference between killing and letting die").
The upshot: Deferring to philosophers' consensus is hardly the bitter pill (for me) that Tyler makes it out to be. Many philosophers believe that they personally have virtually all the answers. (Witnessing their disputes was an... experience). But few philosophers believe that their profession has more than a handful of answers.
As for atonal music, I'm still waiting to be invited to a conference for composers!
movieduo.com :: meet at the movies!
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Sunday, November 04, 2007
5 Things to Do After Starting Up Your Mac: My First Mac
From http://www.myfirstmac.com/index.php/mac/articles/5_things
1. Run Software Update There is no telling how long your new Mac was sitting on the shelf before your received it, so you should install the software updates that have been released since your Mac was manufactured. It is very simple, but it will take a while, so you can start it while you continue to use your new Mac. Using Software Update depends on your new Mac already having an Internet connection, so be sure to establish that first. To run Software update, open System Preferences (the light switch plate with gray Apple logo) that is in the Dock, or select it from the Apple menu in the top left. When that opens, click Software Update in the System row. On the next screen, click Check Now. After some time checking, a new panel will pop up listing software updates that apply to your Mac. Go ahead and click Install Items and click through the remaining buttons and passwords. Expect it to take some time to download and install the updates. It is likely that you will need to restart your Mac to use the updates, so don't start a big project on your Mac that you will have to cut out of.
2. Move and resize your Dock
By default, Apple puts the Dock at the bottom of your screen, but it can be located on the left, right or bottom. To make the most of your screen space, move the Dock to the right side of your screen where it won't limit the size of your Application windows. To do this, go to System Preferences again and select Dock from the Personal row. If you don't see all the preference choices, click the Show All button at the top of the window. In this Preference Pane, I suggest you select the Position on Right button and then adjust the Dock Size slider to reduce the width of the Dock until it doesn't cover the icons next to it. I also recommend that you un-check Magnification. This puts a stop to the effect that enlarges the Dock icons when you move your mouse over them. While this effect looks cool, it actually makes it harder to click the icon you want.
3. Add "Right-Clicking" to Your Mouse or Trackpad
Apple has long been criticized for making Macs with only one button mice and trackpads, but did you know you can still use a second button to "right-click"? For your new laptop this secondary click is done by tapping two fingers at once. You can enable this by going to System Preferences > Keyboard and Mouse > Trackpad and checking the box next to "Tap trackpad with two fingers for secondary click." While you are there, check the box for "Use two fingers to scroll" and "Allow horizontal scrolling." For your new iMac or Mac Pro, you go to System Preferences > Keyboard and Mouse > Mouse, and use the drop down menu pointing to the right side of the mouse to select "Seconday Button." If your are left handed, you can reverse the left and right buttons if you choose. Don't forget to take some time to explore all the options on this preference pane. A third and possibly better choice that some people still don't know about is that you can go buy your favorite USB mouse made by any other manufacturer and use it with any Mac, including the MacBook and MacBook Pro. Some come with their own software to install that controls all the options available.
4. Become a Full Citizen on the Internet
Safari will get you to most sites on the Internet, but because Windows computers dominate web usage, you will find some hiccups. The first thing is download the Flip4Mac Windows Media Player plug-in. Install this to view Windows Media files. You should also download the Real Player plug-in for when the only option is to view Real video. A few sites also don't recognize Safari, so download and use the FireFox web browser when you run into a problem.
5. Calibrate your Laptop Battery
Apple advises you to calibrate your new MacBook or MacBook Pro battery in the first week of use and every couple months after that. You can find directions on calibrating here on Apple's Web site. Additionally, Coconut-Flavour makes a great freeware application and widget that keeps track of all your battery stats including maximum capacity and the age of your Mac. Download it here on their web site.
Next Steps If you followed the tips above, you are now set up to use your new Mac a little more efficiently. I suggest that while your are reading this, you bookmark the MyFirstMac site so you can return to find help and learn more about your new Mac. After you are sailing along on the Internet, be sure to check out Apple's Mac 101 web site where you can learn much more about how to operate and get the most out of your new Mac. If you aren't connected to the Internet, you can still find the Mac Help program in the Help Menu of the Finder. In the Help Viewer there is a section called Discovering Your Mac where you can learn the basics of Mac OS X and explore the rest of your Mac.
DIG DEEPER
Helpful Sections of the Apple Web Site
Mac 101
Switch 101
Windows vs. Mac Navigation
Quick Assist Help Page
Mac Application How-to's
Apple's Main Support Site
Calibrate Your Battery
Dramatically Increase Productivity on OS X
DOWNLOADS
Flip4Mac
Windows Media plug-in
FireFox Coconut Battery
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