Tuesday, January 28, 2014

Capitalism's triumph in Vietnam?

On Vietnam's class war (AmericanInterest via Instapundit):

So the Communists won the war, but apparently we capitalists won the argument. Reforms known as doi moi opened up the Vietnamese economy, leading to membership in the World Trade Organization, the historic visit of President Clinton (one pho eatery renamed itself Pho 2000 to honor the year of his visit), and the transformation of the economy from a rigidly state-run system that barely met basic needs to a more free-wheeling state capitalism that encourages foreign investors, public-private companies and a host of joint ventures in nearly every sector of the economy. While small-bore entrepreneurship is rampant, Vietnam is still a “Communist” country with a one-party system and a controlled media. But in the past decade the portraits of Ho Chi Minh (who died before the country was reunified) seem to have gotten a little smaller, and remnants of what the Vietnamese call “the American War” are harder to find. Yes, day trips to the famous Vietcong underground complex of tunnels at Cu Chi are available, now with expanded passageways for wider-girthed Westerns. But there are also nearby “cultural villages”—a kind of self-conscious theme park to make Vietnamese life fit more easily for Western visitors—and a waterslide park for the kids. The war museums in Saigon still showcase Western atrocities and those by the losing South, but Saigon Tourist promotes these museums less than it does the local markets, musical performances or exotic boat trips on the Mekong.

Along with the opening of the economy, there were to be changes in the education system. The Communist Party promised increased literacy, educational access and a more open marketplace of ideas. As Meat Loaf once sang, “Two out of three ain’t bad.” Today Vietnam boasts a literacy rate above 90 percent and invests a higher percentage of its GDP in education than the United States or France. Quality K–12 schools exist in the major cities, as do private schools whose tuition eclipses average income. Many of these schools are quite rigorous, with standardized testing, international faculty and strong links to U.S., Canadian, British or other nations’ accreditation standards.

On the “open marketplace of ideas” front, however, results are mixed. In the larger universe of learning, a quick scan of the shelves of the major book chain in the country, FAHASA, reveals plenty of books on business, personal growth, technology, English as a second language and vampires. But books on current affairs, politics, history (except government-authorized ones), critical thinking, modern art or anything that might be even indirectly critical of the regime simply are unavailable.

William Easterly: Bill and Melinda Gates confuse correlation with causation when it comes to aid

ASI's Tim Worstall links to Bill Easterly's critique of Bill & Melinda Gates' letter lauding aid and the tangible progress the world has made (FT via ASI):

The obsession with international aid is a rich-world vanity that exaggerates the importance of western elites. It is comforting to imagine that benevolent leaders advised by wise experts could make the poor world rich. But this is a condescending fantasy. The progress that Mr Gates celebrates is the work of entrepreneurs, inventors, traders, investors, activists – not to mention ordinary people of commitment and ingenuity striving for a better life. Davos Man may not be ready to acknowledge that he does not hold the fate of humanity in his gilded hands. But that need not stop the rest of us.

China's attempts to artificially break the Kuznet's curve

Societies make explicit and implicit choices trading off short term and long term needs. That's what the environmental Kuznet's curve shows (Wikipedia) - we tend to trade off harm to the environment and long term health in exchange for shorter term economic gains but at some point our needs shift. The problem is China's crony capitalism - particularly when it comes to the control and ownership of its heavy industry masquerades as market based. China's attempt to centrally manage this tradeoff isn't going so well (AllRoadsLeadtoChina):

When the first “Airpocalypse” descended last year, I was asked by a member of the media what could be done to “solve” the crisis. A loaded question no doubt, but in thinking about the fact that China’s economy will double by 2025, and its energy package will need to be 400% of today’s, there was only one real solution to the problem.

They could turn off the economy

Which, as you can see from the 30 day snapshot above is in fact what they are doing on a rolling basis. Telling factories, foundries, construction sites and trucks to shut down or curb activity when emissions surpass 250-300, and then allowing them to resume once the figures get below 50.

It is a tug of war that I personally view as being not only unsustainable, but far more expensive than any model I can think of for finding a real balance.

Sunday, January 26, 2014

How much inequality is the result of inheritance?

According to Greg Mankiw, as little as two percent (Greg Mankiw):

The recent paper by Chetty et al. finds that the regression of kids’ income rank on parents’ income rank has a coefficient of 0.3. (See Figure 1.) That implies an R2 for the regression of 0.09. In other words, 91 percent of the variance is unexplained by parents’ income.

I would be willing venture a guess, based on adoption studies, that a lot of that 9 percent is genetics rather than environment. That is, talented parents have talented kids partly because of good genes. Conservatively, let’s say half is genetics. That leaves only 4.5 percent of the variance attributed directly to parents’ income.

Now, if you let me play a bit fast and loose with the difference between income and income rank, these numbers suggest the following: If we had some perfect policy invention (such as universal super-duper pre-school) that completely neutralized the effect of parent’s income, we would reduce the variance of kids' income to .955 of what it now is. This implies that the standard deviation of income would fall to 0.977 of what it now is.

The bottom line: Even a highly successful policy intervention that neutralized the effects of differing parental incomes would reduce the gap between rich and poor by only about 2 percent.

This conclusion does not mean such a policy intervention is not worth doing. Evaluating the policy would require a cost-benefit analysis. But the calculations above do suggest that all the money the affluent spend on private schools, etc., explains only a tiny fraction of the income inequality that we observe.

"What really causes international conflicts? It’s not what you think."

Hoover via Instapundit:

A central tenet of realist theory is that states seek to maximize their power; Blainey makes no claims to state motivation; he considers it unimportant. Perceptions of relative strength, rather, are the motivation for warfare.

The benefits of copycatting

A blueprint for innovating (Techcrunch)?

Unexpectedly, the researchers found that imitation was beneficial. Or, in academic speak, “the substantial proportion of imitation present in improvements shows that imitated guesses were often the basis for further productive exploration.” In other words, imitation is never identical and the micro-experiments help increase the possibilities explored, ultimately leading to better performance.

Notably, if performance scores were hidden, “participants searched more broadly and randomly, and both quality and equity of exploration suffered.” That is, when we hide our successes, imitators have to experiment blindly.

As ScienceDaily explained, “the longer people played the game, the less they imitated others. The more players there were in a game, the higher the scores. The diversity of solutions decreased over the rounds, and scores increased.” Networks of innovation do learn, and unsuccessful strategies fall off like a vestigial limb.
I think the author overreaches when it comes prescriptive policies - but it's an interesting study nonetheless.

More on Social Impact Bonds

Reframing incentives in social programs (Freakonomics):

“What if you personalize it?” he asks. “What if individual officers, and administrators, personally benefitted by reducing recidivism rates? If you created the right kind of bonus, something that was really meaningful, it would just be fascinating to see how quickly things would change. Guards would be desperate to get educational facilities, they’d want classes, drug treatment, safe environments. Their interests would align with the prisoners’ — they’d care if people came out. They’d care about who shouldn’t come out. It would have an impact on how they think about their work, their life. And you — we, taxpayers, the system — wouldn’t be spending new money, you’d just reallocate.

Friday, January 24, 2014

Why corruption matters

I'm willing to accept, as Bill and Melinda Gates have tried to argue, that the actual/absolute cost of corruption is small, but the problem goes deeper. Like earmarks in the US (NationalReview), even small amounts of corruption can lead to spending/action that shouldn't have been done in the first place.

Chris Blattman goes one step further noting that large scale aid is often creates the incentives for corruption "giving absolute sovereignty to the head of state, channeling funds through central government, making a handful of ministries powerful gatekeepers, and sending good money after bad."

Thursday, January 23, 2014

ASI on Oxfam's rare acknowledgement

ASI points out a quote amidst all the hand wringing over inequality in Oxfam's latest report (PDF):

Some economic inequality is essential to drive growth and progress, rewarding those with talent, hard earned skills, and the ambition to innovate and take entrepreneurial risks.

Wherein government and technology collide

Apparently according to Ira Stoll at Reason.com, technology has been winning - and while that's undoubtedly great news, imagine a world where tech firms didn't first have to fight governments to give people whaat they wanted?

The fecundity of the startup culture is on display at a new Web site (where else?) called Product Hunt, which lists dozens of new mobile Apps and Web sites each week. One recurring theme in successful startups is the ability to get around the regulations created by politicians like Obama. Companies are using technology to create a free market.

The foremost example of this is Uber, with its UberX service that turns ordinary drivers in their own cars into taxi drivers. Sidecar and Lyft operate on a similar model. A Boston lawyer who represented existing taxi services challenging the new entrants, Sam Perkins, told the Boston Globe, “SideCar and UberX have targeted Boston to make the guy next door and his Prius into an unlicensed taxi driver with an uninspected taxis and no safety equipment…Their goal is to eliminate the existing taxi system and its consumer protections.”

The government-imposed licenses, medallions, inspections, minimum wages, regulated fares, and “consumer protections” turn out to be replaceable, more or less, by an Amazon-style star-rating system and the incentives of independent drivers and ride-provider networks that want repeat business.

And it’s not just taxis. Airbnb is doing the same thing to hotels. If you stay in an apartment or house you rent via the Airbnb marketplace, you may not have a clearly marked fire exit map, or a statement of the maximum room rate, on the inside of your room door. Consumers, it turns out, don’t mind. Many of us would rather pay less money, avoiding exorbitant hotel taxes and the wages of unionized bellhops and chambermaids.

Eat With and Feastly may yet provide similar disruption in the heavily regulated restaurant industry. These services, recently highlighted by NPR, offer guests the opportunity to enjoy home-cooked meals in private homes. The hosts avoid health department inspections, liquor license requirements, and the need for workmen’s compensation, payroll tax, or disability insurance for waiters, dishwashers, or line cooks.

More on (short term?) American decline?

According to the World Bank's Doing Business analytics group: U.S. ranks behind Rwanda, Belarus, Azerbaijan in ease of creating new business (Washington Times via Instapundit):

A new study by the World Bank and the International Finance Corp. found that the U.S. ranks well behind countries like Rwanda, Belarus and Azerbaijan in terms of how easy it is for an entrepreneur to start a new business. The U.S. did narrowly beat Uzbekistan, though.

The rankings were included in the organizations' joint study "Doing Business 2014: Understanding Regulations for Small- and Medium-Sized Businesses." The annual report, released in October, ranks the relative ease of creating a new business in 189 countries, looking at such measures as the number of procedures required, the time spent complying with them and the cost of doing so, among other factors.

The report found that New Zealand is the easiest place in the world to create a new business. Starting one there requires "one procedure, half a day, (and) less than 1 percent of income per capita and no paid-in minimum capital," the study noted. New Zealand was followed by Canada, Singapore, Australia and Hong Kong in the top five.

By contrast, the U.S. requires, on average, six procedures, takes five days and requires 1.5 percent of the company's income per capita.

Wednesday, January 22, 2014

The upside to robots

ASI criticizes the Economist for its "breathless" fears of job losses from automation (ASI):

The Economist has another of those breathless pieces worrying about what's going to happen when the robots come for all our jobs. There's one basic error in the piece and one slightly more technical.

The basic error is that they fail to note that when the robots have taken all our jobs then we'll all be incredibly rich. One of the comparisons they make is to the first industrial revolution and that's appropriate. So, let us think about what happened when the mechanisation of cotton production killed off the hand weaving (and linen although more slowly) industries. Yes, certainly, some people lost their jobs: but the entire population now became rich enough to be able to wear cotton underwear simply because the production costs of cotton fell so far. And only those who have suffered through the woollen kind will know how rich that makes us all.

It's a very, very, basic observation: if the machines are making everything then everything becomes extraordinarily cheap. This is the same statement as the one that the machines taking all our jobs makes us all very rich indeed.

Tuesday, January 21, 2014

Half price gasoline?

This could be huge... (TechnologyReview via Instapundit):

At a pilot plant in Menlo Park, California, a technician pours white pellets into a steel tube and then taps it with a wrench to make sure they settle together. He closes the tube, and oxygen and methane—the main ingredient of natural gas—flow in. Seconds later, water and ethylene, the world’s largest commodity chemical, flow out. Another simple step converts the ethylene into gasoline.

The white pellets are a catalyst developed by the Silicon Valley startup Siluria, which has raised $63.5 million in venture capital. If the catalysts work as well in a large, commercial scale plant as they do in tests, Siluria says, the company could produce gasoline from natural gas at about half the cost of making it from crude oil—at least at today’s cheap natural-gas prices.

A look at Bill & Melinda Gates' essay on foreign aid

Chris Blattman does a review of the essay - which I would agree with the same two points he does, but also agree with him on the curious claims that foreign aid works because a few projects have worked (ChrisBlattman):

The basis of the claim is that aid projects work and we know it. I completely agree. Plenty of aid projects have huge impact.

There’s a paradox, though: even though so many projects work, aid in total doesn’t have the association with growth or development we’d expect to see. Some of the finest minds in development (like Angus Deaton) think aid is fundamentally flawed, with good reasons.

The evidence that aid projects are associated with growth is amazingly absent. This is frustrating for those of us (including me) who believe in aid. My guess is that we throw a lot of good money after bad, and most aid is much more wasteful than it needs to be. But I think aid basically works and can do better. See me challenging Deaton’s pessimism here. Bt make no mistake: This is a leap of faith not evidence.

One answer could be that projects work alone, but that the assembly of so many projects (and so many dollars) perverts or undermines stable, good governance. Here is a good summary of the evidence, and it’s not optimistic.

So the basic problems with B&M’s claim: they gloss over the paradox, the potential political problems, and the strongest evidence against their leap of faith. I found the whole section troublingly misleading compared to the rest of the letter.

Wednesday, January 15, 2014

The US falls in the economic freedom rankings

This does not bode well for the next few years (WSJ):

World economic freedom has reached record levels, according to the 2014 Index of Economic Freedom, released Tuesday by the Heritage Foundation and The Wall Street Journal. But after seven straight years of decline, the U.S. has dropped out of the top 10 most economically free countries.

For 20 years, the index has measured a nation's commitment to free enterprise on a scale of 0 to 100 by evaluating 10 categories, including fiscal soundness, government size and property rights. These commitments have powerful effects: Countries achieving higher levels of economic freedom consistently and measurably outperform others in economic growth, long-term prosperity and social progress. Botswana, for example, has made gains through low tax rates and political stability.

More on those billion dollar tech startups

Steve Blank points out that the study on billion dollar startups was wrong - that in fact most of those startups did pivot:

A Pivot is not just changing the product. A pivot can change any of nine different things in your business model. A pivot may mean you changed your customer segment, your channel, revenue model/pricing, resources, activities, costs, partners, customer acquisition – lots of other things than just the product.

France's history of Luddites repeats

Opposition to firms like Uber have turned violent - but apparently this isn't a new approach for the French (core77):

In 1829, a French tailor named Barthelemy Thimonnier invented the first French sewing machine. It was primitive, looking more like a big wooden drill press than anything, but it worked, and together with an engineer buddy he cranked out several dozen of them. They then set up the world's first clothing mass-manufacturing facility and won a contract to produce military uniforms.

Business ended quickly—and badly. In 1831 a gang of unemployed French tailors (arguably not the most frightening demographic by modern standards) stormed Thimonnier's factory, destroyed all the machines and burned the place to the ground.

Tuesday, January 14, 2014

Who the minimum wage actually helps

Econlib's David Henderson notes how the benefits of minimum wage doesn't actually help very many of the poor (via Greg Mankiw):

If the federal minimum wage were increased to $9.50 per hour:
  • Only 11.3 percent of workers who would gain from the increase live in households officially defined as poor.
  • A whopping 63.2 percent of workers who would gain were second or even third earners living in households with incomes equal to twice the poverty line or more.
  • Some 42.3 percent of workers who would gain were second or even third earners who live in households that have incomes equal to three times the poverty line or more.

Monday, January 13, 2014

Why Chinese consumer product firms are failing to gain a foothold in the US (West)

An observation from China Law Blog:

I have seen this same sort of thing in other industries in the United States where my law firm has represented Chinese companies unwilling to do what it takes to sell their China branded products in the United States. These companies have been unwilling to spend the kind of money required to market or distribute their products in the United States and, perhaps most importantly, they have been unwilling to hire top-tier people in the United States who know how to market to US consumers. I have heard countless similar stories from other service companies that work with Chinese companies trying to mark into the US market.

Succeeding at selling consumer products (really most products) in the United States virtually always requires more than just having the lowest price. Unless and until Chinese companies truly understand this (rather than paying it mere lip service), the threat of Chinese companies taking over the US consumer market is minimal at best.
The expertise can be easily hired... the reality is that they don't want to pay for it but that creates opportunity. As firms pass on to the next generation of kids who are often educated in the West, I suspect this will change - but these little emperors will still face significant internal resistance.

Because some people don't learn from history

There's a piece in Mises on how the early capitalists saved Europe from starvation:

In eighteenth-century England, the land could support only six million people at a very low standard of living. Today more than fifty million people enjoy a much higher standard of living than even the rich enjoyed during the eighteenth-century. [...] And all the talk about the so-called unspeakable horror of early capitalism can be refuted by a single statistic: precisely in these years in which British capitalism developed, precisely in the age called the Industrial Revolution in England, in the years from 1760 to 1830, precisely in those years the population of England doubled, which means that hundreds or thousands of children-who would have died in preceding times-survived and grew to become men and women.

There is no doubt that the conditions of the preceding times were very unsatisfactory. It was capitalist business that improved them. It was precisely those early factories that provided for the needs of their workers, either directly or indirectly by exporting products and importing food and raw materials from other countries. Again and again, the early historians of capitalism have-one can hardly use a milder word-falsified history.
Yet, when it comes to trying to eliminate hunger, India is pursuing a somewhat different tact (Time):
In an unprecedented experiment, the central government is now legally bound to provide each of over 800 million people — just shy of the combined populations of the U.S. and the European Union — 5 kg of subsidized food grains every month. (The poorest receive more, and states also run their own food-subsidy programs.)

[...] But in 2005 the government estimated that nearly 60% of its grain did not reach beneficiaries because of theft, corruption and difficulties identifying the needy. More recent studies show that has improved somewhat, but over 17% of Indians are still undernourished, according to the 2013 Global Hunger Index.

Sunday, January 12, 2014

Being successful at business isn't about racing to the bottom

It's about giving people what they want and doing it profitably. And different people want different things. Attempting to be all things to all people leaves you exposed to those who specialize - unless you're the government in which case you're probably trying to be all things to all people and doing it poorly. I think that's the useful takeaway from this CrossFit video:

Saturday, January 11, 2014

Richard Epstein goes to India

Richard Epstein, a law professor at NYU takes a really brief trip to India describing both the squandered potential but hope for its economic future (Hoover) - read the whole thing:

The overall picture that emerges from countless episodes of this sort is not one of the idle poor. Quite the opposite: it is one of ceaseless labor undertaken at high skill levels by men and women who face what in the United States would be regarded as intolerable conditions. Indeed, many of these workers are not regarded as poor in India, but as members of the lowest strata of the middle class, where the median income is about $1,219 per year, which puts India at 142nd in the world. In terms of purchasing power parity, that works out to about US$3,608. The obvious question is what can be done to improve conditions in India.

Paper: Microcredit under the microscope

What have we learned in the past two decades, and what do we need to know? (MIT via Chris Blattman). A short read, but a must read if you're interested in development.

Thursday, January 09, 2014

The path to development isn't a series of technical solutions

Writing in Reason, William Easterly continues to bury Jeffrey Sachs and his ideas on development culminating in the Millenium Villages - read the whole thing:

Jeffrey Sachs' formula for ending poverty was appealingly simple. All the problems of poverty, the famous Columbia University economist argued, had discrete technological fixes. Bed nets could prevent malaria-spreading mosquito bites. Wells could provide clean water. Hospitals could treat curable diseases. Fertilizer could increase yields of food crops.

Ending poverty, therefore, was just a matter of raising enough money to pay for the right combination of known technical solutions to poor people's problems. Sachs would provide a slam-dunk demonstration project by deploying these comprehensive tech fixes in a dozen or so "Millennium Villages" in Africa. Success would build upon success, and advocacy money would flow, until poverty was eliminated from the poorest continent.
It didn't quite work out that way.

More college doesn't necessarily result in economic growth

Not surprising to anyone who has read William Easterly's The Elusive Quest for Growth - but it bears repeating that no, more education won't necessarily mean a better economy

Egypt, which “invested” heavily in higher education. That did not lead to rising economic output, however, because little of the students’ learning at their universities coordinated with the skills and knowledge needed for entrepreneurship and improving efficiency in the Egyptian economy. Instead, it created a mass of people with university degrees who expected high-paying jobs that did not and could not exist.

The key point is that formal education doesn’t necessarily lead to knowledge and skills the individual can use productively.

Tuesday, January 07, 2014

"The World’s Best Bounty Hunter Is 4-Foot-11"

Kind of an awesome profile on one of the best bounty hunters in the US (Wired):

At 4'11" and just over 100 pounds, Michelle Gomez doesn’t look like the sort of person you’d hire to retrieve earthmoving equipment stolen by a Peruvian crime family. But in the summer of 2013, that’s exactly what she was doing. Gomez, the proprietor of a one-woman operation in Lockhart, Texas, called Unlimited Recoveries, is one of the best skip tracers in the world. A combination bill collector, bounty hunter, and private investigator, a skip tracer finds people and things that have disappeared on purpose. Gomez specializes in “hard-to-locate recoveries”—she prefers cases others can’t solve. To track down the fleet of Caterpillar wheel loaders taken by the Peruvians, Gomez reached out to the estranged wife of the family’s patriarch, telling the woman that she was pregnant with her husband’s child. The ruse worked: Eventually the wife told Gomez that the heavy equipment was on its way to a construction site in South America.

Jetro, Restaurant Depot and Tradeoffs

There's something beautiful and elegant about a great strategy when it comes together. I came across this article on the founder of Restaurant Depot, Nathan Kirsch (BusinessWeek):

“When we arrived here, everybody just frowned on cash and carry as a meaningless form of distribution,” said Stanley Fleishman, Jetro Holdings CEO, who worked for Kirsh’s wholesale operation in South Africa and has been running the U.S. company since 1986. “The competition just blew us off as those guys selling second-tier product. That was the secret of our success.”

By the early 1990s, Jetro had grown to 10 outlets across the U.S. and was generating more than $400 million in revenue. Looking to modernize his management systems and fund expansion, Kirsh sold 80 percent of the business to Metro Holding AG, a Swiss supermarket business that was also a shareholder in Metro AG, one of Germany’s largest grocery conglomerates.

Jetro’s sales growth leveled off. Kirsh noticed that the restaurateurs shopping at his warehouses didn’t like jostling with bodega owners, who would shop less often and enter the checkout lines with ten-times the amount of goods.
It's an idea that can't have been easy - focusing on a small minority of undersserviced customers, he reeducated and fundamentally changed a highly fragmented low margin business. Too bad it's not a public company.