An author at Forbes.com makes a curious argument for "too big to fail" without even addressing the issue of "moral hazard" ([Wikipedia], not only of bank managers but their clients) or the fact that "too big to fail" is a direct response to regulation.
After the last talk with Jeffrey Sachs, I have poked around more - and found another fascinating discussion on education in the developing countries:
Lant Pritchett of Harvard University and author of The Rebirth of Education talks with EconTalk host Russ Roberts about the ideas in the book. Pritchett argues that increases in years of schooling for students in poor countries do not translate into gains in education, learning, or achievement. This tragic situation is due to corruption and poor incentives in the top-down educational systems around the world. School reforms that imitate successful systems fail to take into account the organic nature of successful school systems that cause various external attributes to be effective. The conversation concludes with a discussion of school systems in rich countries and possible lessons for reform that might apply there.
Podcast from Russ Roberts interviewing Jeffrey Sachs, with the original interview of Nina Munk here (Econtalk).
Much of the hard work was even done by a Liberal government under the hands of Jean Chretien and Paul Martin (WashingtonTimes).
From the NYT: why entrepreneurs leaving France. Spin here (Rude Baguette). And yet more here (TechCrunch).
Great post from Fred Wilson on ageism with the accompanying graphic (AVC):
A better approach to problem solving - contests... but in Bill and Melinda Gates' Foundation's case - "challenges". I think they could have done better at unleashing innovation - but it's a start (Techcrunch):
Use of technology to solve real world problems in the developing world is nothing new. Several attempts have been made to tackle the challenges of education, computer literacy and speedy Internet access. Developing the next-generation toilets may not be as fancy as the One Laptop Per Child mission for instance, but it does address a very basic and long-ignored problem that’s now become too massive to be solved by just one government. As this AP story noted, India has more than 640 million people defecating in the open and producing a stunning 72,000 tons of human waste each day.
To be sure, identifying innovative ideas and technologies that help the world reinvent toilets is not the biggest challenge for Gates and his team — it’s going to be more about providing affordable and sustainable solutions that do not have to depend on annual grants and beg users to embrace them. For its part, the Gates Foundation is betting on solutions that cost less than 5 cents per user per day and are aspirational in terms of design and ease-of-use, not just for the developing world, but also the developed nations.
Troubling study (NBER via Chris Blattman). Obviously the response can't be to reduce property rights either for women or men, but I wonder if it has to do with the more rigid class structures, bankruptcy laws that exist in India?
Interesting discussion over at ASI:
For the basic problem here is that scientific research, or at least the results from it, is a public good. It's non-rivalrous and non-excludeable meaning that it's very difficult indeed to make a profit from it. Thus there will be too little private investment in this sphere. This is the argument in favour of government funding of science, that scientific results are a public good. But if we can gain private finance, despite the public good problem, then we've solved that public good problem, haven't we? And therefore private funding, to the extent that it happens, is indeed entirely and actually a substitute for government funding.NYT's article "Billionaires with big ideas are privatizing American science" that started the discussion. But more from the Cato Institute advocating the "End of government science funding" (1997), the Scientific American asking "Are we entering a Golden era of private science funding?" and an article at Berkeley - "Who pays for science?".
To the extent that science is getting private funding this is indeed the perfect argument in favour of cutting public funding. And given the increased efficiency coming from not having to worry about race and gender perhaps cutting by more than is donated.
Venture capitalist Fred Wilson posts on how governments can rebuild their local economies (AVC):
We’ve seen that things can be turned around. The economic and cultural juggernaut that is Brooklyn right now is a perfect example. The grandchildren of the people who fled Brooklyn in the fifties and sixties are now coming back in droves, attracted to its lifestyle, its coffee shops, bars, restaurants, art and culture, parks, and affordable real estate. And the tech companies are coming too. Attracted by all the talent that is there.But I don't think Wilson has the whole picture. At a more macro level, Stephen Green blogs about failing Abenomics. In doing so, Green may have struck one one of the biggest barriers to change that can result in economic growth (via Instapundit):
I’ve been asked by civic leaders from places like Newark, Cleveland, Buffalo, and a number of other upstate NY cities that have suffered a similar fate how they can do the same thing. They all talk about tax incentives, connecting with local research universities, and providing startup capital. And I tell them that they are focusing on the wrong thing.
You have to lead with lifestyle. If you can’t make your city a place where the young mobile talent leaving college or grad school wants to go to start their career, meet someone, and build a life, all that other stuff doesn’t matter.
Deregulate. Simplify the tax code. Protect the value of your currency. Those three steps are all it takes to achieve prosperity, but as Glenn Reynolds like to say, politicians don’t like them because they provide too few opportunities for graft.Brooklyn's renaissance was driven by cheap real estate and a reduction in crime but also obviously, easy access to its neighbor borough - Manhattan. There's been another discussion on HN over one startup's decision to build their business outside the US (thenitai.com), in a country with substantially higher taxes after the hurdles to compliance and visa restrictions made it effectively prohibitive to do so.
Not exactly surprising. But the benefits for getting it right, are substantial (HBR via HN):
If great managers seem scarce, it’s because the talent required to be one is rare. Gallup finds that great managers have the following talents:
Gallup’s research reveals that about one in ten people possess all these necessary traits. While many people are endowed with some of them, few have the unique combination of talent needed to help a team achieve excellence in a way that significantly improves a company’s performance. These 10%, when put in manager roles, naturally engage team members and customers, retain top performers, and sustain a culture of high productivity. Combined, they contribute about 48% higher profit to their companies than average managers.
- They motivate every single employee to take action and engage them with a compelling mission and vision.
- They have the assertiveness to drive outcomes and the ability to overcome adversity and resistance.
- They create a culture of clear accountability.
- They build relationships that create trust, open dialogue, and full transparency.
- They make decisions that are based on productivity, not politics.
There are tradeoffs of course... but the internet has augmented regulatory arbitrage (thenitai.com) - balancing off taxes and the functional costs of regulation with the access to customers and people in those markets. Discussion at HN.
The US government owns massive amounts of land that's worth possibly trillions that it doesn't even know it owns spending billions a year maintaining it. I wonder how much better Canada is. Ilya Somin writes (WashingtonPost):
The whole situation is an unintended lesson in the advantages of private property rights. If a private owner has a piece of unused property, he or she has strong incentives to find some valuable use for it. If he can’t, he has a strong incentive to sell it to someone else who can do better. In both cases, he gets to keep the profit. For that reason, he also has incentives to keep track of the property he owns, and avoid imposing burdensome bureaucratic procedures that make it difficult to sell unused land.
By contrast, government officials get little or no reward for finding better uses for underutilized government land. Indeed, a conscientious bureaucrat who tries to do so may just end up annoying his colleagues and superiors, for whom it means extra hassle with little chance of any gain. For similar reasons, government agencies sometimes have little incentive to even keep track of the land they own, or to make it easy to sell unneeded property.
In theory, voters could incentivize efficient use of government-owned resources by using the power of the ballot box to punish politicians who let them go to waste. In reality, however, widespread voter ignorance makes this unlikely. Most voters have little if any idea of how efficiently the federal government uses the vast amount of land it owns. Like government bureaucrats, voters have little incentive to keep track of government-owned property and assess whether it is being used effectively. Each individual voter has only a tiny chance of affecting the results of an election, and this leads to rational political ignorance.
Chris Blattman addresses the skepticism towards cash transfers. I think he gets it right - cash should be a baseline, with the aim towards better results.
It's incredible that the basics for development that have worked for other Americans and that are often ideas shared with developing countries - are the same ideas being denied Native Americans - it's a wonder they aren't poorer. Read the whole thing (Forbes):
Imagine if the government were responsible for looking after your best interests. All of your assets must be managed by bureaucrats on your behalf. A special bureau is even set up to oversee your affairs. Every important decision you make requires approval, and every approval comes with a mountain of regulations.
How well would this work? Just ask Native Americans.
The federal government is responsible for managing Indian affairs for the benefit of all Indians. But by all accounts the government has failed to live up to this responsibility. As a result, Native American reservations are among the poorest communities in the United States.
Amazing stuff. Ungated version (via Chris Blattman)
This is a series of interesting speakers and discussion on how to create opportunities for entrepreneurs in developing countries (via Chris Blattman):
According to the former editor of the South China Morning Post, Jonathan Fenby, quoted in the WSJ:
Fixing some of the country’s more difficult problems, such as agricultural reform and revamping the hukou household-registration system, which would allow residents to move more freely, could cause trouble in a system as connected as China’s.Personally I worry that an implosion is far more likely when it comes to China's political future. It's a likelihood I suspect policymakers elsewhere also fear.
“You pull one brick out of the wall and the rest comes crumbling down,” Mr. Fenby said. “Of course, that’s what [President] Xi [Jinping] will want to avoid.”
Another theme is what Mr. Fenby calls China’s “trust deficit,” which stretches from air pollution to food safety to the government.
“Having gone through the first generation of very strong growth, you obviously run into problems.” People now don’t want just material advancement, but less deception, he said.
Of course, every potential superpower has gone through growing pains. But the difference with China, Mr. Fenby said, is that there aren’t independent organizations to spur change. During America’s industrial revolution, for example, muckraking journalists exposed problems in the meatpacking industry and mental institutions, which helped to spur reform. In China, that is unlikely to happen.
“Everything is enclosed within the system,” Mr. Fenby said. “They don’t have the mechanisms to deal with it.”
Regulatory capture (Instapundit). From FoxNews: "As part of trade talks, the EU wants to ban the use of names like Parmesan, feta and Gorgonzola on cheese made in the United States. The argument is that the American-made cheeses are shadows of the original European varieties and cut into sales and identity of the European cheeses."
But as Reynolds points out, "the real problem is the opposite: Like American beer-making, American cheesemaking has advanced to the point where it’s often superior to the European product."
They would have nothing to fear if their product were distinct and superior.
Shockingly, probably not (NationalJournal via Instapundit):
Oxford's Frey and Osborne agree. "Our findings thus imply that as technology races ahead, low-skill workers will reallocate to tasks that are non-susceptible to computerization—i.e., tasks requiring creative and social intelligence. For workers to win the race, however, they will have to acquire creative and social skills," they conclude.
But the flip side of blaming the robots is what Dean Baker, codirector of the liberal Center for Economic and Policy Research, worries about: that the robots-will-take-our-jobs story provides a convenient excuse for policymakers to avoid casting the blame for widening inequality on themselves. If the people who make and own robots get rich, it's because patent laws allow people to charge a lot for them, Baker says. "If that's the basis of inequality, I don't see that much as an excuse, in the sense that that's policy-driven and not robot-driven."
Everyone agrees the world will look different as it fills up with these technological advances. Will it be one of mass unemployment? Not necessarily, and some economists are taking heart from the fact that robots don't seem to be cropping up in the latest worrisome data about the labor market. Now, will the robots one day rise up and revolt against us? That's a different question.
A great look at how power is now being successfully distributed to the poor in developing countries (Nature via HN):
The quest is on to find the best way to bring clean power to rural areas. Mixing local development work with Silicon-Valley-style entrepreneurship, engineers, scientists and economists are setting up independent 'microgrids' that can be deployed quickly and cheaply one community at a time. Those leading such electrification schemes aim to create small-scale renewable-energy systems, building an archipelago of light across the developing world and helping remote communities to kick their dependence on fossil fuels.
Such efforts have often failed in the past, as subsidies lapsed or infrastructure collapsed. But today's entrepreneurs are better placed to succeed. A new generation of cheaper photovoltaic panels and wind turbines can be managed with simple smart-grid devices. The price of fossil fuels has soared over the past decade, making renewable energy more competitive. And the United Nations has set a goal of achieving universal access to electricity by 2030, providing political impetus.
“The ambition is there, and the economics are making a lot more sense now than they were a few years ago,” says Richenda Van Leeuwen, executive director for energy access at the United Nations Foundation. But the challenge remains extreme. A 2012 analysis by the International Energy Agency projects that, on the basis of current plans, the percentage of people without access to electricity will fall from 19% in 2010 to 12% in 2030 — leaving nearly 1 billion people still in the dark. Achieving universal energy access would mean increasing investments from a projected $14 billion to $49 billion a year, the agency says. Centralized grids are expected to provide only about 30% of the solution in rural areas.
Property rights? (Hoover via Instapundit):
Private property is the central institution of classical liberal theory. The Constitution contains the explicit guarantee of the Fifth Amendment, which provides: “nor shall private property be taken for public use, without just compensation.” It is easy to discern the theory behind this provision. It compromises between an absolutist libertarian vision of private property that holds that the state can never take it from its owner, even with full compensation, and the totalitarian vision that routinely allows the government to take private property for public use without paying any compensation at all. The just compensation requirement splits the difference, letting the government force the transfer of property, but only upon payment of just compensation. The state thus avoids the holdout problem, without creating the alternative risk of expropriation.
This elegant compromise can, however, be eviscerated if read in ignorance of the legal theory on which it rests. Just such an evisceration was perpetrated by Justice Brennan, whose inexcusable ad hockery trampled over private property rights on more than one occasion. Any developed system of private property facilitates enormous gains from trade among individuals by allowing the division of property into its constituent parts. Thus, outright ownership can be divided between a landlord and tenant or a mortgagor and mortgagee. It can also be divided between the holder of air rights (with an easement of support) and ground rights. That division was at stake in the most important takings case of the last half-century, Penn Central Transportation Co. v. City of New York (1978). Justice Brennan’s landmark decision was virulently anti-theoretical and has severely undermined the constitutional protection of private property.
A fascinating look at how (among other things), property rights allowed for the development of shale in the US as it stagnates elsewhere (WalterRussellMead via Instapundit)
America remains the sole state to capitalize on its shale oil and gas resources, and difficulties in countries like the UK and China remind us that the shale revolution was more than just the result of applying the dual techniques of hydraulic fracturing and horizontal well drilling to underground hydrocarbon reservoirs. Rather, the US energy revolution was the product of a mature oil and gas drilling industry, replete with robust supply chains. The boom depended on a unique set of mineral rights that provided landowners with a financial incentive to invite drillers on to their land, on a deep pool of capital, and on a variety of small wildcatting firms willing to take on the risk of drilling exploratory wells. . . .
New Jersey blocks Tesla from selling directly to consumers (TechCrunch):
New Jersey is the third state to ban the practice of selling cars directly to consumers, joining Arizona and Texas in preventing their residents from easily buying a more environmentally friendly ride. The New Jersey Coalition of Automotive Retailers was in favor of the rule change, unsurprisingly.Update: Instapundit links to Popular Mechanics, accurately calling it crony capitalism.
Well, duh (Economist):
The authors focus on an experiment run by the British government in the early 2000s: an RCT that offered incentives to disadvantaged people to stay in work. A group of 3,500 single mothers, who were either out of work or working part-time, were split into two groups. The control group was given nothing; the treatment group was given coaching and financial incentives to work. Individuals working more than 30 hours per week, for example, could receive a tax-free payment of £400 ($666). All forms of treatment lasted, at best, just under 3 years.
Five years after the experiment started, the authors checked up on their subjects. The treatment group reported significantly lower levels of well-being, even though those individuals ended up with higher earnings than the control group. The treatment group were less happy with their lives and worried more about budgeting and debts. Helping people, in other words, seemed to hurt them.
Why? The results may be to do with the quality of the training on offer. Even if people end up earning more, the experience of being bossed around by a uncaring counsellor may make people unhappier.
Another plausible explanation is, in layman’s terms, related to unrealistic expectations. People in the treatment group enjoyed the advantage from taking the government subsidy. The extra money probably allowed them to buy better things and worry less about making ends meet. But the subsidy came to an end. When it did, the control group found living without the subsidy harder to bear. They had to live with the curse of raised aspirations.
A somewhat random excerpt in a Forbes article:
With gusto he describes how he and Nobel Peace Prize-winner Muhammad Yunus hatched a plan to build a humane clothing factory, where all profits would go back into the community for schools and hospitals. At best, the Otto Group would recoup its initial investment. Immediately they faced red tape. Electricity would take five years. Officials wanted bribes. Otto refused to base a social business on a corrupt footing and walked away. “It’s unbelievable,” says Otto, pounding on his wooden desk in his corner office in Hamburg, Germany. “You would think the government must be happy somebody is building such a company and leaving the money in the country.”Unfortunately stories like this are far from being confined to Bangladesh. These are stories echoed repeatedly through the developing world because governments have chosen to condemn their own people to poverty.
Brad Burnham from Union Square Ventures, makes the argument to policy makers of how and why Iceland could develop their info tech hub (via AVC).
Paul Bucheit, known best for creating Gmail wants to lend to entrepreneurs in Africa at a "more affordable" interest rates of 5%. Currently the top comment on HN nails it :
I think 5% is below market rate for what you are doing. By establishing 5% as the rate, you crowd out any local investment options which would need to charge above 5% (but not 60%). By making the subsidy non explicit, you make it even harder for local lenders to compete.Not only do you make it harder for local lenders to compete, but as the case when you attempt to sell something below market prices, you drive up demand.
