May Pictures 3-1

I'll give you fair warning: I'm in a very economist mood tonight as I write.

Finland



Scenes that caught my eye in Helsinki.















New York City
There are a bunch of vendors in the park line that winds its way to the boats that take you to the Lady. They all sell the exact same pictures. I confess I spent some time during this anniversary pondering their business model. Are they atomistically independent sellers all crowding into the same area or are they all part of the same franchise? What keeps them from differentiating their products even slightly? I didn't see them in other parts of New York where we went. While I'm familiar with Hotelling's theories about why similar businesses cluster, there are other clusters, other "beaches" in New York City. Whether they are multiple businesses or one, I'd have to think one of them could earn higher profits moving to Chinatown

My brother and I also enjoyed discussing the photoshopping in the pics. The Twin Towers are in the first picture, disappear by magic in the second picture, and return in the third; oversized boats appear and disappear; the island to Miss Liberty's right (our left) disappears and reappears at random... all the same angle, variations on coloring to let you know the sunset is Totally fake.... Strange business model.

Okay, enough economics.

We spent a good deal of time in Chinatown after visiting the Lady.


Our ladies were fascinated by the street vendors and the restaurants that wanted to display their meats. We tried to identify them, but with little enough success (another strange business model?). I bought a pound of grapes for a dollar that were delicious, shared them around our party and gave a bunch to a fellow who was hungry.

We wandered the stores, bought very little, and grabbed some dinner from a sit-down restaurant that only took cash. Another strange business model?



One of the billboards in Times Square featured the leader of Iran. I was mildly interested, so took a picture. Those billboard spaces have got to be EXPENSIVE. Does the UANI really believe this is the most cost-effective way and place to advertise? It certainly has the potential to be seen by millions every day - not bad - but it's one of hundreds of flashing, changing signs in a teeming mass.

The real reason this got posted is that when Hyrum saw it, he pointed and said, "Daddy!" I decided that the best way to respond to that would be to revise upward my opinion of his looks and take it as a compliment.



The New Amsterdam Theater where we saw Mary Poppins has some amazing well decorations. No one complained as I filmed them before the show started. Here is Progress.



Corning Glass Museum


Blocks upon blocks of glass, all of them with interesting shapes, bubbles, trees, designs, and patterns.

Socioeconomic Status in the Early Church

The .Plan brings you Rodney Stark in the journal Faith and Economics, with an interesting hypothesis:

Tradition has it that early Christianity recruited most of its initial supporters from among the very poorest and most miserable groups in the ancient world. ...

All discussions of the social standing of the first Christians would seem to have been settled by Paul's "irrefutable" proof text, when he noted of his followers that "not many of you were wise according to worldly standards, not many were powerful, not many were of noble birth." (1 Cor. 1:26)

It is amazing how many generations of sophisticated people failed to see a very obvious implication of this verse. Finally, in 1960, the Australian scholar E.A. Judge began an illustrious career by pointing out that Paul did not say "none of you were powerful, none of you were of noble birth" (Judge, 1960a, 1960b). Instead, Paul said "not many" were powerful or of noble birth, which means that some were! Given what a minuscule fraction of persons in the Roman Empire were of noble birth, it is quite remarkable that any of the tiny group of early Christians were of nobility. This raises the possibility that like the many other religious movements, Christianity also began as a movement of the privileged. ...

Consider the twelve apostles or disciples. It is widely assumed that they were all men of very humble origins and accomplishments. But is it true? ... When James and John abandoned their fishing boat to follow Jesus, "they left their father Zebedee in the boat with the hired servants" (Mk. 1:20). ... Since, according [to] Lk. 5:10, Peter (Simon) and Andrew were partners of James and John, it can be assumed they too were somewhat affluent. In fact, it is quite possible that Peter owned two houses, one in Bethsaida and another in Capernaum. Mark's mother owned a house in Jerusalem that was sufficiently large to serve as a house church (Acts 12:12). Moreover, Andrew had previously had the leisure to be a disciple of John the Baptist. And then there was Matthew (or Levi) the tax collector. Tax collectors were hated, but they were powerful and affluent. ...

Remarkable evidence of Paul's association with the privileged comes from Judge's calculation that, of ninety-one individuals named in the New Testament in connection with Paul, a third have names indicating Roman citizenship. Judge called this "a startlingly high proportion, ten times higher than in the case of a control group" based on epigraphic documents (Judge, 2008, pp. 142-143). If this were not enough, there is evidence in Paul's letters that there already were significant numbers of Christians serving in the imperial household. Paul concluded his letter to the Philippians: "All the saints greet you, especially those in Caesar's household." Paul sends greetings to "those who belong to the family of Aristobulus" and to "the family of Narcissus." Both Harnack and the equally authoritative J.B. Lightfoot (1828-1889) identified Narcissus as the private secretary of the Emperor Claudius and Aristobulus as an intimate of the emperor...

It is instructive that [1 Timothy] offered so much advice about what to preach to the rich members: "As for the rich in this world, charge them not to be haughty" (1 Tim. 6:17-19). Timothy was not advised to tell his rich members to cease being wealthy, but "to do good, to be rich in good deeds." In addition, 1 Tim. 2:9 advises that "women should adorn themselves modestly and sensibly in seemly apparel, not with braided hair or gold or pearls or costly attire." This advice is silly unless there were significant numbers of rich people in the congregation at Ephesus.

Did early Christianity also attract lower class converts? Of course. ... The point is that early Christianity substantially over-recruited the privileged. ...

In 112 CE, Pliny the Younger wrote to the Emperor Trajan for approval of his policies in persecuting Christians. He informed the emperor that the spread of "this wretched cult" involved "many individuals of every age and class."
--Rodney Stark, "Early Christianity: Opiate of the Privileged?," Faith and Economics, Fall 2009

Economics is ... romantic

I had a professor and mentor at BYU (James McDonald*) who tried to convince us that

Economics is Fun.
Economics is Easy.
Economics is Your Friend.

One of his classes made a bronze plaque out of it for him. He also tried to convince us that Economics is Romantic because this one guy took a girl to his class on a date and she married him anyway. Because he was one of the economists I've tried to model my life after, I've always been on the lookout for ways to convince people that economics is, in fact, fun, friendly, easy, and romantic.

Here is Bill Easterly today [actually, last week - dunno why this post didn't get posted earlier] blogging about how marriage search is like development, and in the process talking about how unromantic economists can be.

I recently helped one of my single male graduate students in his search for a spouse.

First, I suggested he conduct a randomized controlled trial of potential mates to identify the one with the best benefit/cost ratio. Unfortunately, all the women randomly selected for the study refused assignment to either the treatment or control groups, using language that does not usually enter academic discourse.

With the “gold standard” methods unavailable, I next recommended an econometric regression approach. He looked for data on a large sample of married women on various inputs (intelligence, beauty, education, family background, did they take a bath every day), as well as on output: marital happiness. Then he ran an econometric regression of output on inputs. Finally, he gathered data on available single women on all the characteristics in the econometric study. He made an out-of-sample prediction of predicted marital happiness. He visited the lucky woman who had the best predicted value in the entire singles sample, explained to her how he calculated her nuptial fitness, and suggested they get married. She called the police.

He goes on from there to describe how he eventually did find a mate and makes the comparison with development. But this is where my comments pick up as I discussed the problem of ignoring the incentives women have and their corresponding actions:

1 – He ignored the self-selection bias. Regressions only tell us what the 'average' effects are, that is the effect for the 'average' person. It’s only about qualities that make the average guy happy if he is the average guy. Economists being the strange lot we are, it is likely that it takes a special kind of woman to marry one of us. He needed to find a bunch of guys very similar to himself and examine the qualities that made a difference from among (and this is key) the population of women willing to marry guys like him - the women who self-select themselves into our group. If he then approached a women who was not in that group, no wonder he was rejected. Speaking as a Mormon economist-in-embryo who read Shakespeare in the original Klingon as it were, who carried a briefcase in junior high, who preferred slacks to jeans, and who felt the downfall of music began with the electric guitar, I knew I had my work cut out for me when I was only 13. Small sample sizes indeed.

2 – He ignored endogeneity. Instead of trying to convince her that research showed she would make him happy, he needed to present research that demonstrated he would make her happy, and that’s the other half of the regression: male qualities on marital happiness. No wonder she rejected him: his regressions didn’t answer her question!

Personally, I took more of a Bayesian approach. Bayesians believe that a lot of things in life [like regression coefficients] are random and over time we get better and better signals about where the truth is, but we only ever approach it by degrees. First, by trying to become a friend, I identified if she was in the group of people who might marry someone like me. Each interaction gave me more information about the error term and the regression coefficients about fostering a happy, loving friendship that could endure. After any failed relationship, I had a new variable or two to add to my equations and I understood the ‘relationships’ between relationship variables better. That might be about finding out more or different things I needed [hunh, so her political affiliation isn't as important as I thought and her willingness to smile at me is vital] or about learning more and better policies over time that I could enact to make her happier [tips for being a better listener or learn to identify her love languages and feed them to her, instead of your own, regularly].

In the end, I’ve married someone who has all the good qualities in the best people I dated and avoids all of the relationship-ending problems, and I’ve learned how to promote her happiness so I can keep her. It's so wonderful. Thank you, Joy, for saying yes.

* - Actually, the quote is about Econometrics, his specialty within economics, but I trust he wouldn't object to my making the model more general.

A little philosophy: what is truth?

1 - Frederick Hayek's 1974 Nobel Prize (Econ) lecture: "I prefer true but imperfect knowledge, even if it leaves much indetermined and unpredictable, to a pretence of exact knowledge that is likely to be false." Hayek was speaking about the great unknowns in economics and political science, pointing out the hubris in assuming away the things we cannot measure in order to come up with estimates to the third decimal point of the effects of, say, government spending on unemployment. It works equally well in discussing spiritual truth. It is the humility to say, "I know that [God] loveth his children; nevertheless, I do not know the meaning of all things" and avoiding the pride that says my model proves there is no God because He does not show up in my experiments.

2 - An economist who writes philosophy (Steve Landsburg) just started blogging, and he argued that 1) the evolutionist who says "Evolution proves there is no God" is missing the point. It's not explaining life that's challenging, but why is there anything? and that 2) since mathematics and other extremely complex things are eternal and self-existent, there is no need for a Creator to create them. I responded thusly:

Y'see, part of the problem both you and he are bringing up is what we mean by "create." There is stuck in Western thought since the councils that create must mean "ex nihilo." But there is no Biblical support for that. The better term for what Gensis speaks of is "organize" rather than "produce from nothing." That is, in fact, the sense we usually mean when we talk of creating anything: we take the parts that are already there, physical and mental, and combine them to form a new thing. "In the beginning ... the earth was without form" not "In the beginning there was no matter."

Joseph Smith, some one hundred years before Einstein said the same thing, claimed that matter "was not created or made, neither indeed can be" (Doctrine and Covenants 93:29). Mormon/LDS theology has long accepted the eternal, 'independent existence' of God, the universe with all its matter, mathematics, and all of us. It's still not proof there is no God. Its eternal, self-existent nature is in fact one more type and shadow of Him.

There is much of that I do not understand. ... That may be a good thing.

3 - On the lighter side, Chris Blattman links us to three questions: Truth is a number? Truth is art? Art is numbers? A Chinese firm that sells art around the world produces composite pictures of the most and least desired art in various countries to show us what we want. For Americans, it appears to be George Washington by a lake. Kenya has remarkably similar taste. One of the artists explained:

"In a way it was a traditional idea, because a faith in numbers is fundamental to people, starting with Plato’s idea of a world which is based on numbers. ... we believe in numbers, and numbers never lie. Numbers are innocent. It’s absolutely true data. ... That’s really the truth, as much as we can get to the truth. Truth is a number."

Oy, my head!

Let's not go there: avoiding markets in everything

Tyler Cowan, over at Marginal Revolution, was asked for some examples of successful government bureaucracies. He provided some thoughtful examples: "the NIH, the Manhattan Project, U.C. Berkeley, the University of Michigan, Fairfax County, the World Trade Organization, the urban planners of postwar Germany, some of the Victorian public works and public health commissions, most of what goes on in Singapore, anywhere that J.S. Bach worked."

One of the regular commentators objected to the Manhattan Project in this way: "Another thing, how is the Manhattan Project an example? Yes, they ended up creating an atomic weapon. But did they do it for less money than it would have taken a private company to do, if that had been legal and the company could reap the profits from selling A-bombs?"

EEEEEEEEEEEK!

Okay, now that my hair is back in a flat position, is there any way this could work?

a) Contract to the low bidder. At best, we have an airline result with our nuclear deterrent built with the cheapest materials possible. I'm rather worried about safety. In the mediocre case we get $10k hammers. Worse case (not worst, but worse) - Haliburton with H-bombs. We could name it the HALiburton-9000.

b) X-prize style. Get the best and brightest at dozens of private and public institutions working on it. It worked for space flight. Okay.... Security leaks are going to be killer... Undergrads at MIT working on nuclear warheads... Be afraid.

Just as an aside, I was watching Spiderman 2 for the first time last night while cleaning, so add to my list of fears Doc Ock with Einstein's head. Jurassic Park comes to mind as another example. Compared to the list of ways the entire project could have gone wrong, no matter who did it, I think it comes down as a success.

It might be instructive, though, to compare the Manhattan Project to other countries' efforts that also produced bombs: security, cost, time taken, etc.

A good start on: child and slave labor

The US Department of Labor just finished a major piece of work identifying 122 products in 58 countries made with child and/or forced (=slave) labor. This is a good start, but far from done:
1) At 194 pages, it's more than the casual reader wants to go through.
2) Though they can give a list of suspect products, there is no 'guarantee' that the specific Christmas decoration you see on the shelf labeled Made in China was actually made with slave labor.
3) This doesn't identify the conditions under which children worked if in fact children were used as laborers in the process, which is salient to me if not to everyone. (I'm more concerned about hard labor and harsh conditions than about after school jobs or some menial housework that keeps the family from starving.)

Change.org has kindly created a convenient list of "some of the worst offenders for forced labor or slavery specifically:

* Bolivia: nuts, cattle, corn, and sugar

* Burma: bamboo, beans, bricks, jade, nuts, rice rubber, rubies, sesame, shrimp, sugarcane, sunflowers, and teak

* China: artificial flowers, bricks, Christmas decorations, coal, cotton, electronics, garments, footwear, fireworks, nails, and toys

* India: bricks, carpets, cottonseed, textiles, and garments

* Nepal: bricks, carpets, textiles, and stones

* North Korea: bricks, cement, coal, gold, iron, and textiles

* Pakistan: bricks, carpet, coal, cotton, sugar, and wheat"

Hopefully next steps will identify specific companies who are involved in this and shipping to a store near you so that people can, if you choose, vote with your dollars to not support slave-produced goods. Hat tip to Texas in Africa.

Economics Nobel Prize

From Greg Mankiw's blog, link on right
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First-Year Grad Student Wins Nobel Prize in Economics! From the Associated Press (with some light editing):

Pfuffnick's Nobel Economics Prize triumph hailed by many

LONDON — The surprise choice of first-year graduate student Quintus Pfuffnick for the Nobel Prize in Economics drew praise from much of the world Friday even as many pointed out the youthful economist has not yet published anything in scholarly journals.

The new PhD candidate was hailed for his willingness to tackle difficult problems, his commitment to improving the economic system, and his goal of bringing efficiency and equality into harmony.

Professor Paul Krugman of Princeton, who won the prize in 2008, said Pfuffnick's award shows great things are expected from him in the coming years.

"In a way, it's an award coming near the beginning of the first year in grad school of a relatively young economist that anticipates an even greater contribution towards making our economy a better place for all," he said. "It is an award that speaks to the promise of Mr Pfuffnick's message of hope."

He said the prize is a "wonderful recognition of Pfuffnick's essay in his grad school application."
---------------
I thought that was too appropriate and funny to pass up on in light of certain other committee choices. The actual Nobel in economics goes to two pioneers in the field of economic governance. Their problems and answers are related to political governance, but in a way show how to govern society when markets fail without resorting to government.

The first woman to win the Economics Nobel, Elinor Ostrom (Indiana University, Bloomington) found a solution to an old problem, the "Problem of the Commons." The problem is that when no one owns a thing (ie: common property), no one has the responsibility for its upkeep and proper management. This means common property natural resources tend to be overused to the detriment of all. It's not in anyone's individual interest to reduce their use, even though everyone would be better off if they could all agree to do so. The top two answers to that problem are privatization and nationalization (for two points, guess which political parties favor which policies). Ostram demonstrates, however, that real people often recognize and resolve the problem of the commons while develop social organizations that preserve the communal nature of the resources. "She observes that resource users frequently develop sophisticated mechanisms for decision-making and rule enforcement to handle conflicts of interest, and she characterizes the rules that promote successful outcomes." I have written about this in Per's and my food policy book.

Update: One example of this mentioned by Nobel laureate Vernon Smith, as posted on Marginal Revolution, from Switzerland: "One rule, still enforced, dating back to 1517 states that "no citizen could send more cows to the [common property] alp than he could feed during the winter." Wintering a cow is costly, and this rule rations access to the commons by tying it to private property rights."

Oliver Williamson (UC Berkley) asked which problems are better solved by market settings and which are best solved within a firm. "Competitive markets work relatively well because buyers and sellers can turn to other trading partners in case of dissent. But when market competition is limited, firms are better suited for conflict resolution than markets." Within-firm dispute resolution is also more likely to be chosen the more important establishing relationships of trust is.

What I'm Reading

It took me a year and a half, but I finally finished Fire in the Bones, the biography of William Tyndale, the fellow who translated 90% or so of the King James Bible. It's written by an LDS author, so there are numerous comparisons to the language of the Book of Mormon and how Joseph Smith was influenced by Tyndale's work and life. One quote from Tyndale rings out particularly strongly in that regard as he complained to the clergy:

Morover, seeing that one of you ever preacheth contrary to another; and when two of you meet, the one disputeth and brawleth with the other, as it were two scolds; and forasmuch as one holdeth this doctor, and another that ... so that if thou hadst but of every author one book, thou couldst not pile them up in any warehouse in London, and every author is contrary unto another. In this great diversity of spirits, how shall I know who lieth, and who sayeth truth? Whereby shall I try and judge them? Verily by God's word, which only is true. But how shall I that do, when thou wilt not let me see scripture?

Joseph writes similarly about the contentions in his day even with the scripture in the common tongue, learning from James 1:5 that the one place we can find such answers is from God Himself in prayer. Fire in the Bones is really an outstanding work and strengthened my testimony of the Bible.

Now I'm seeing about getting through Neal A. Maxwell's last book, enjoying some religious poetry, maybe renew my Nibley studies. Without Friday Forum to prepare for, I may have a bit more latitude to play around.

--- ECONOMICS ---

For my birthday, my parents got me Paul Collier's The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About it? (2007) I've read the first 50 pages or so [a quick read] and am impressed by one of the viewpoints he tries to establish. Rather than seeing the world as 1 billion rich and 5 billion poor, he divides the world as 1 billion rich, 4 billion getting there, and 1 billion stuck in poverty. He then describes four of the reasons a country might get its people stuck there (conflict, natural resource curse, landlocked, and I haven't gotten to #4 yet) and promises to cover a bit on how to get out. He does a good job of not sticking too firmly to his one hobby horse thesis, puts in a lot of good caveats, and has surprisingly nice things to say about different factions in the development industry. It's backed by a long list of impressive research (cogent caveats by Easterly here and here.)

Frederic Bastiat's Economic Sophisms (1845) isn't about putting forward new economic ideas, but playing economic journalist to some that were old back in the 1800's when he wrote. He casts trade protectionism as pursuing the theory that scarcity is wealth. And it is - for sellers. As buyers, we want everything to be plentiful, easy to find and purchase, and cheap. As producers, we want all our inputs to be plentiful, easy to find and purchase, and cheap. As sellers, we want the thing we sell to be scarce and as expensive as possible. Any trade protectionist argument is based on one form or another of the notion that restricting production and purchasing is good: fostering us vs. them mentalities, protecting the environment by scarcity, preventing a very poor person (or multiple of the same) from having a job in order to preserve a middle-class job of "ours"... .

Frederich von Hayek's The Road to Serfdom (1944) was written from a unique perspective: someone who lived through the Nazification of Germany saw the same signs in England and wrote to warn that the growing tendency toward central planning was the start of the road to totalitarianism, whether fascist or Marxist. I'm planning a future summary of his better points in another post ... once I've finished it. It seems highly topical given renewed efforts to put our financial, auto, and health industries under government control. Speaking of which, I finished Milton Friedman's Free to Choose and have been meaning to get some of his points out here also. Have to get to that.

I've also been poking around in Joseph Schumpeter's Capitalism, Democracy, and Socialism (1942), which is interesting in that it is written to socialists, starting with a quite flattering discussion of Marx (that's as far as I've read). To borrow the summation from Wiki: "Schumpeter's theory is that the success of capitalism will lead to a form of corporatism and a fostering of values hostile to capitalism, especially among intellectuals. The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism; it will be replaced by socialism in some form. There will not be a revolution, but merely a trend in parliaments to elect social democratic parties of one stripe or another. He argued that capitalism's collapse from within will come about as democratic majorities vote for the creation of a welfare state and place restrictions upon entrepreneurship that will burden and eventually destroy the capitalist structure. Schumpeter emphasizes throughout this book that he is analyzing trends, not engaging in political advocacy. “If a doctor predicts that his patient will die presently,” he wrote, “this does not mean that he desires it."" Sound about right so far, anyone?

--- FUN ---
The family book these days is Harry Potter 5. It's fun introducing these to Joy. As we drove to Connecticut and back, we made it through 150 pages or so. Reading it immediately after #4 helped me see Harry in a much more sympathetic light. The first time through, Harry's perpetual outbursts of anger bothered me and made it my least favorite of the 7. Now it makes perfect sense: the boy needs a therapist, bad. Not because he's crazy, but a lot has happened and he needs a place to talk it out with someone who isn't about to start yelling "Heir of Slytherin!" "Half-blood!" "Kill him!" Poor kid.

After the disappointing movie of Mansfield Park, I picked up the book to rejoice in Ms. Austen's writing. Every night for a while I would regale Joy with another superbly crafted paragraph the movie had butchered. But then I started in on White Banner by Lloyd C. Douglas, the fellow who brought me such joy (and a talent show act) with his autobiography, Time to Remember. I haven't gotten very far, but it's very thought-provoking.

Oh yeah, and I'm reading cookbooks to find some more recipes we can make on the South Beach Diet. So far, we've added succulent fried eggplant (Emeril) and fried zucchini (Low-carb cookbook Joy got me for my birthday), ginger chicken (SBD book), and New New Orleans pasta (Emeril). You really need a bunch of cookbooks. The SBD cookbook is mostly about salads: make this chicken, serve in a bed of lettuce; fry the eggplant, serve on another lettuce.... The low-carb cookbook is all about eggs and frittatas (never tried those before - Joy loves em, and they're simple and flavorful). Emeril uses more seafood than we do, but if we cut the BAM down by half, the creole seasoning is magnificent for cooking anything....

Next up: The Candy Shop War by ... that guy who does Fablehaven. [google google] That's it, Brandon Mull. Eat a sweet, get a superpower. Sounds like fun.

This in from ... China: A Tale of Two Provinces

The inimitable Scott Sumner was preparing for a trip to China. In discussing just how big and diverse it is and how we rarely recognize that fact (because we focus on countries instead of on people, as a forthcoming article of mine discusses), he turns to a fascinating retelling of the Chinese miracle that has happened since 1978.

In the standard version, the Chinese government, led by the heroic Deng Xioaping [left], gave farmers some limited property rights and began letting price mechanisms decide some food production choices. The agrarian economy transformed and hundreds of millions of starving people could now be fed. This brought support for further reforms as the coastal (non-ag) areas received the blessings of the market system and grew much faster than the relatively neglected inland regions. Today the primary concern of developmentalists seems to be much more on the inequality between coastal/inland and urban/rural rather than on absolute living standards.

To VERY briefly summarize Prof. Sumner (a less brief version quoting parts of his blog is below), Jiangsu Province was the 3rd richest agrarian province in 1978 and Zhejiang 7th. They are marked in red on the map. Both are next door to Shanghai, China's New York City, both were relatively open to trade, and after 1978 were required to grant foreigners the same levels of property protection for foreigners. Domestic protection levels varied, however, with Zhejiang being more market-friendly to natives.

Today Zhejiang is not only the richest province (Jiangsu still 3rd), despite Jiangsu getting more foreign direct investment (FDI), but the average income of the people there is roughly equivalent to its production while Jiangsu's inhabitants own only a third of their production (the rest goes back to foreigners). Zhejiang also scores very highly in terms of human development (health and education). So the inequality problem may be too little free market rather than the oft-supposed too much (alternatively, too little equality under the law). The rest of the post is worth a read if you have a minute:
------
To give you a sense of how complicated China is, ... [Prof. Huang of MIT] observed that both [provinces] had similar histories of being relatively prosperous and open to trade. ... In the 1980s, however, the provincial leaders in Zhejiang province were much more encouraging of private business. Although we think of the economic reforms starting in 1978, a huge ocean liner turns very slowly. The government of China does not just wave a magic wand and order changes, rather change often bubbles up from the bottom. So the leaders of Zhejiang province, and even more so the early entrepreneurial pioneers in business, were risking their lives. Just imagine if China had decided to abandon the economic reforms and go back to the Cultural Revolution.

BTW, a brief digression that libertarian readers might find inspiring. The rural reforms began in late 1978 in a single village in Anhui province [some members of which are pictured right]. Each family in the commune was assigned their own plot of land. This decision was incredibly risky, so everyone took a blood oath to secrecy. Gradually other villages started to copy them. When the government saw that the reforms were successful, they eventually gave them their blessing. But it was not the sort of top-down change that is often portrayed in the West. It was the Chinese people that took the lead, and the leaders followed. In an earlier post I called this agricultural reform the single best thing that has ever happened in world history. [I'd put it top 10 non-religious.]

Yasheng Huang points out that the 1980s have been widely misunderstood. The industrial revolution occurred mainly in the countryside, where free enterprise was encouraged. ... These reforms actually led to a reduction in income inequality in the 1980s, not the increase many Westerners assume occurred. Why? Because the growth was fastest in rural areas that had been much poorer than the cities. Of course since 1990 the cities have grown faster, and income inequality has indeed worsened. Huang argues that that is because government policy favored the cities after 1990.

Back to Zhejiang [pictured right. Jiangsu is pictured left]. After the party leaders adopted a business-friendly policy, economic development in Zhejiang province took off. Since 1978 Zhejiang has gone from 7th to 1st in per capita provincial GDP, while Jiangsu, which has also grown fast, stayed at 3rd. But the most interesting part of Huang’s argument concerned foreign investment. Which province do you think attracted the most foreign investment? Surprisingly it was Jiangsu, the slower growing province. The reason was that after the economic reforms began the central government provided secure property rights for foreign investors in all of China’s provinces. In contrast, property rights for local business was much more iffy. ... [Huang then uses a clever comparative advantage argument that this really isn't surprising at all: If both provinces are equally accommodating to foreigners, but one does a better job attracting domestic talent, the domestics will tend to work in one province and the foreigners in the other.]

... We found that the difference between Jiangsu and Zhejiang was even more dramatic if you looked at personal income, rather than GDP per capita. In relatively market-oriented cities in Zhejiang province, such as Wenzhou [right], the firms are mostly owned by locals, and GDP per person is only slightly higher than the personal income per person. In contrast, in a Jiangsu city like Suzhou, much of the industry is foreign-owned and GDP per person is roughly 3 times higher than personal income per person. The people in Suzhou produce a lot of output, but much of the income flows out of the country to the owners of the foreign enterprises. So even in two seemingly similar coastal provinces, there are vast differences in the economic structure. ...

Professor Huang argues that many of the Chinese problems that are blamed on free market reforms are actually caused by a lack of free markets. ... In my view the social indicators in China would look better, not worse, if market reforms had occurred at a faster pace. And once again I think Zhejiang province is the best example. Not only did their incomes grow much faster than in neighboring Jiangsu, despite all the foreign investment flowing into Jiangsu, but their Human Development Index score is now highest among all non-urban Chinese provinces. If market reforms were really the cause of China’s social problems, you wouldn’t expect the social indicators in Zhejiang to be so good. ... [Zhejiang Normal University pictured right, another Jiangsu shot on the left]

I often think about the little village in poor Anhui that started it all. Wouldn’t the secret pact of Mr. Hongchang and the other 12 families of Xiaogang village make an inspiring Hollywood story? Don’t hold your breath, there’s still more films to be made glorifying Che Guevara. Of course Che would have preferred China’s pre-reform agricultural policy. The one that led to mass famine. The one that the brave peasants of Anhui rebelled against.

D.C. - An Economist Wanders

The Institute of Medicine, the Gates Foundation, the Kaiser Family Foundation, and who knows how many others, brought together a wide array of speakers on the topic of "Mitigating the Nutritional Impacts of the World Food Crisis" last week. Per Pinstrup-Andersen - my boss - was on the planning committee and was the first speaker, and he knew that the conference would be both interesting and relevant for our project next year, so he invited me along. Rather than abandon my family for four days, by dropping them off with the Green M&Ms, we were only separated 2.5 days.

The conference ended each day at 5pm, after most of the interesting sites had closed, so I wasn't really able to go see much. Tuesday was the All-Star game (so close! We almost finally won.). But Wednesday night was open and available, so I went walking. I wandered for 3 hours altogether, from the hotel down to the mall, circling the Presidents in a grand, 10+ mile loop. Rather than try to present all of that at one large post, I'll make a handful of small posts with pictures by topic.

First stop of interest along my route: the US Treasury, with Albert Gallatin (Wiki: a Swiss-American ethnologist, linguist, politician, diplomat, Congressman, and the longest-serving United States Secretary of the Treasury. He was also a founder of New York University). I haven't heard much out of Treasury in the last two years that I could cheer, but their recent announcement that they will be auctioning off the shares they currently own in other banks is a very welcome event (more info: here, courtesy Donald Marron).


Circling the Treasury and White House (forthcoming), you come to a much talked about institution of late: the FDIC. They're the ones who promise that your deposits are safe even if a bank goes under. In that unhappy event, the FDIC takes possession of the bank (aka nationalizes it) to unwind its debts and make sure you get your money back. So we've had a program of bank nationalization for over 70 years, and it's worked pretty well.



I was surprised to look to my side Thursday on my way to work and realize I was passing by the Inter-American Development Bank. The IADB is unique among the development banks because the developing countries are its majority shareholders - that is, they have a big role in calling the shots. This has on average tended to increase accountability and legitimacy, both in the bank and in the countries getting loans.

A word about debt

In 1860, the federal debt was $65 million (in today's money). The Civil War took it to over $2.7 billion, or $2700 million: a forty-fold increase. World War II only brought it up 5x, from $51 billion to $260 billion. Nixon and Carter brought us up to shake hands with a trillion dollar deficit ($900 bill). Reagan&Bush brought us up to a trillion (3 of them actually), Clinton nearly doubled it ($5.7 tril), Bush II added another 3 tril ($9 tril), and Obama has pledged to double it by 2014. Add to it consumer debt of $2 trillion in 2003.

For at least the last 30 years, a favorite game has been to remind people just how much these numbers mean. Let's have another round!

How big is the debt....

as a Pyramid scheme?
1
10
100
1000
10000
100000
1000000
10000000
100000000
1000000000
10000000000
100000000000
1000000000000
10,000,000,000,000 --- We got our 13th zero some time this year.

as a pile of $1 bills?
It would stretch from earth to the moon three times over.

in seconds?
320,000 years.

as a Road Trip?


per person?
$30,400 is your share as of Feb 2008. Put it at about $33,000 now.



(Hat tip Donald Marron, former CBO head)
From Oct2007-June2008 we had a $286 billion dollar deficit. It's grown to $1 trillion this year already as tax revenues fell 18% and the TARP, bailout, and stimulus funds kick in.

That's what we've already added to the debt this year so far. 11% growth in 3/4 of a year with a pledge to spend 500 billion more.






The debt increases by a trillion dollars as far as the eye can see.

And that's before Medicare, Social Security, National Health Care, and other entitlements ratchet up when the boomers retire.





J. Reuben Clark - "Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you."

Humor for Austrians

Find more at Marginal Revolution. If you need a quick and dirty definition, Austrian economists believe that human interactions are so psychologically complex that it is impossible to mathematically model, but somehow their intuition describes societies perfectly and that intuition leads to some very laissez faire answers. Their favorite activities include demonstrating that "mainstream" (whatever that means) economic models are false (particularly with regard to monetary policy), that government policies always have unintended consequences, and that people's actions describe what they want better than their stated preferences. That should give you enough info to understand most of them.

My favorite:
What do you call 100 Austrian Economists at the bottom of the ocean?
A reaction to monetary policy incompatible with individual time preference.
-- submitted by Beamish

Non-Austrian economist: 'Linda Evangelista doesn't get out of bed for less than USD 10k per day'
Austrian economist: 'That model doesn't work'.
-- submitted by nick

How many Austrian economists does it take to change a lightbulb?
A) Zero, they expect the market to do it. -- drtaxsacto
B) All of them. First Ludwig von Mises personally changes the lightbulb, then the remainder spend the next 80 years praising how well he did it. -- steve
C) It used to only take one, until the government started training more Austrian economists... -- sleepy_commentator
D) It is impossible to make quantitative predictions. -- Trent McBride

When an economic crisis comes, [mainstream] economist says "Market is a failure!" The Austrian economist says "Government is a failure!" Everybody else says "Economists are a failure!"
-- Michael F. Marton

Two middle-age women walk into a bar. The first one said, "I really want a husband." The second one, who was also an Austrian economist, said "I can prove that you are lying." -- mobile

Austrian economists never die; they are just dragged kicking and screaming into equilibrium. -- Cyrus

I once told a joke that I believe I learned from Roger Garrison. I told it to a mixed group of Austrian and non-Austrian graduate students. "There are three kinds of Austrian economists. Those who can count and those who cannot." The non-Austrians got it; the Austrians did not! -- Mario Rizzo

TARP in pictures

This is one person's (brilliant) idea of what the government bailout looks like.

The TARP, in Pictures

Publish at Scribd or explore others: Humor Creative Writing tarp

One interesting character commented that it's a shame no one understands sunk costs... Hit tip Russell Roberts.

Derrill of Arabia 3

(Note for readers: The first paragraph by each picture is a description of the pic. The second will be part of an ongoing description of the conference topics and some thoughts about possible future research topics. So if you don't care about the economics, just read the first paragraphs.)

Oh, yes, not only did I sleep and eat, I did attend an actual important conference. They occasionally put video of the participants on the large screen, and I happened to notice a familiar looking goateed person or two in the picture. One of them surreptitiously (I can't believe I spelled that right on the first attempt) snapped a picture of them. This is a zoom in on yours truly.

The topic of the Global Development Network conference this year was natural resource management. Per and I took this to mean the interaction of agriculture and the environment. The vast majority of the conference, though, was focused on what to do with extractable natural resources like ... let's see, we're in Kuwait, so it must be ... OIL. Copper and minerals got some honorable mentions, but the real discussion was on how oil revenues affect development and political economy.



As you walk in the door to the Arab Organization building where we met, they had this beautiful mosaic waterfall and reflection pool on the left.


One effect of oil revenues is clearly the ability to build amazingly plush, opulent meeting rooms. I mentioned to Per that it might be interesting to study the effect of 5-star hotels on development. Is it positive because they create jobs and encourage development people to come hold seminars there so they study the problems of your country, or is it negative because the money could be used elsewhere to better effect? What difference does private vs. public ownership make? Per chucklingly surmised that I would enjoy the field research.....


Mosaics and carved wood ceilings everywhere. This was a side room where we discussed African development.






An Arabian version of the Tree of Life, also in the entryway.


One of the speakers proposed a political economy model with fascinating results, but which relied on the assumption that people are willing to trade off safety/security (military, economic, etc) for political freedom (voice and democracy in government). The discussant for that round correctly pointed out that the notion that these are substitute goods (I'm willing to give up safety for freedom or vice versa) is by no means certain. They could be complementary (the more economically secure I am, the more political freedom I demand) or completely unrelated.

It reminded me strongly of Ben Franklin's quote "Those who would give up Essential Liberty to purchase a little Temporary Safety deserve neither Liberty nor Safety." At other times, he added, "and will lose both."


On the floor with the lunch buffet. In addition to furniture and paintings, they had several small birdcages. The decorative holes in that wall look down into the conference room.





Another view from the lunch room, this one straight up. All the sides of the large atrium are filled with potted plants of many different varieties, not to mention fountains and works of art.


One of the more entertaining moments was when a woman came forward to remind all of us that she and the more poli-sci oriented folks had been discussing these questions since the 1980s and she was delighted that economists were finally getting on board. We had been following our own models at the time and she referred to a number of the advances that had been made since that time in the other literatures. I had a fairly long conversation with her later.



This picture deserves to be clicked on to see it up close. Delicately carved gold decorations.







Another side room. I should mention that they had attendants EVERYwhere. Not only the two guys who opened the front door for us and the security people everywhere, they had bathroom attendants who mopped the floor every time it emptied!





The main conference room before things begin.


Given the chapter I wrote on good governance, her comments got me thinking about an interesting idea. One of the complaints about aid and various natural resources is that they reduce government accountability to taxpayers. The question is: what about governance in the US? Alaska, Texas, Nevada and maybe a few other state governments receive most of their funds from the sale of natural resources or a mild tax on only one industry. How does this affect governance? Do they have worse governance (participation, accountability, transparency, lack of corruption, etc.) than California or NY with their perpetual budget battles or Illinois? She was vehemently in the affirmative. Question is, does anyone have governance measures within the states?


Another side meeting room upstairs. The wood carvings throughout the room were most impressive.







Tapestry in the main conference room.


The other research type question the conference made me ponder had to do with government expectations. The old Keynesian model believed people have "adaptive" expectations -- they look to the past and make a guess about today based on the past. This allows policy makers to trick them with unexpectedly high inflation, producing perpetually low unemployment. The 1970s critique introduce "rational" expectations and the notion that people look forward so that the government might be able to trick people once, but people would anticipate further tricks and so neutralize the government.

The research presented at the conference indicated, though, that some of the governments were behaving AS IF they had very perverse expectations, as if they confused long-term trends and short-term trends. That is, they spent money as if it will always be there and ignore long-term trends in lower prices as if they were here today and gone tomorrow. Both adaptive and rational expectations people would have done better at investing the money than government did.

I fooled around with a a handful of explanations and talked to the presenters. They all seemed to settle on a lobbying answer in one form or another: the oil/mineral/whatzit industry gains political influence when its price is high and turns this into long-term political favors. If this is a semi-permanent feature of the political landscape, it is poorly understood and it ought to be possible to devise a set of institutions (to be determined since I haven't done the research yet and it'll be several years before I could get to it) to anticipate this and work around it.